2015 (7) TMI 1214 - HC - VAT and Sales Tax

Works contract - whether the works contract entered into between the revisionist Company and a customer is a sale contract or a works contract? - Held that - From a perusal of Rule 9, it will be seen that under Clause (e) of Rule 9 (1) all amounts representing the value of goods in which property has been transferred in the execution of works contract as a result of sale in the course of inter-state trade or commerce and under Clause (f) sale in the course of import of goods into the territory of India shall be liable to be excluded In the facts of the present case it is noticed that the Company has an office in U.P. as well as outside U.P. for which works contract was executed by the revisionist at its Head Office in Mumbai. The activity of manufacturing of parts/components of lifts/elevators is carried out by the revisionist at its factory in Karnataka and in terms of works contract executed for the said periods, the goods and parts are then sent to the customer s site for installation of lifts/elevators. The goods are received by way of stock transfer in U.P. from the office of the assessee situate outside U.P. and are used in the execution of the works contract and this transaction has resulted in the movement of goods from one state to another. It is not necessary for this Court to enter into the merits of the matter or examine the nature of the contract as the appeal filed by the revisionist before the Additional Commissioner (Appeals) is still pending. Appellate Authority directed to decide the appeal of the revisionist expeditiously in accordance with law within a period of two months from the date of receipt of the certified copy of this order - appeal allowed by way of remand.

Issues Involved:
1. Nature of the contract: Sale contract vs. Works contract.
2. Application of the U.P. Value Added Tax Rules, 2008.
3. Validity of the assessment order and the demand imposed.
4. Consideration of stay application by the appellate authority.

Issue-Wise Detailed Analysis:

1. Nature of the Contract: Sale Contract vs. Works Contract:
The primary issue was whether the contract between the revisionist company and its customer was a sale contract or a works contract. The assessing authority categorized it as a sale contract based on the Supreme Court's decision in State of Andhra Pradesh Vs. Kone Elevators (2005), asserting that the materials were assembled and kept in the godown before being transported to the site. However, the revisionist argued, citing the Constitution Bench's decision in Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu (2014), that the contract involved a composite contract for the supply and installation of lifts, which inherently included labor and service elements, thus qualifying it as a works contract.

2. Application of the U.P. Value Added Tax Rules, 2008:
The revisionist referred to Section 9 of the U.P. Value Added Tax Rules, 2008, which outlines the determination of turnover of goods involved in the execution of a works contract. Specifically, Rule 9(1) allows for deductions of amounts representing the value of goods consumed in the execution of works contracts, exempt goods, rent for machinery, value of services and labor, and goods involved in inter-state trade or commerce. The revisionist emphasized that their operations, involving manufacturing in Karnataka and stock transfer to U.P., fell under these provisions, thus affecting the taxable turnover.

3. Validity of the Assessment Order and the Demand Imposed:
The assessing authority imposed a demand of Rs. 3,77,04,187/- based on the categorization of the contract as a sale contract. The revisionist challenged this assessment, arguing that the authority relied on an overruled Supreme Court decision. The Tribunal modified the stay order by the Additional Commissioner (Appeals), requiring 15% of the demand to be deposited. The revisionist contended that the assessment should be reconsidered in light of the latest Supreme Court ruling, which recognized the composite nature of the contract.

4. Consideration of Stay Application by the Appellate Authority:
The revisionist's application for a stay of the assessment order was initially rejected by the Additional Commissioner (Appeals), who required a 50% deposit of the demand. The Tribunal later reduced this to 15% with security for the remaining amount. The revisionist argued that the stay application was not considered judiciously, citing the Allahabad High Court's decision in ITC Ltd. Vs. Commissioner (Appeals) Custom and Central Excise Meerut-I (2005), which emphasized the need for a balanced approach in granting interim relief. The Supreme Court's principles in Pennar Industries Limited Versus State of Andhra Pradesh (2009) were also referenced, highlighting the necessity of judicial discretion in stay matters.

Conclusion:
The High Court acknowledged the revisionist's arguments, particularly the relevance of the Supreme Court's latest ruling in Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu (2014), which overruled the earlier judgment relied upon by the assessing authority. The Court directed the Appellate Authority to expedite the decision on the pending appeal within two months, granting complete stay of the remaining 15% demand until the appeal's resolution. This decision underscored the need for a thorough judicial examination of the contract's nature and the appropriate application of tax rules.

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