2017 (5) TMI 1549 - HC - VAT and Sales Tax

Liability of tax - mosaic tile - works contract - Held that - the issue is covered by the decision in the case of the decision in the case of Tamil Nadu Mosaic Manufacturers Association Vs. State of Tamil Nadu 1995 (2) TMI 402 - MADRAS HIGH COURT , where it was held that the amount so deductible would have to be determined in the light of the facts of a particular case on the basis of the materials produced by the contractor. Further, it was held that the value of the goods in execution of a works contract will therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and service. The Revenue has not made out a case to revise the order passed by the Tribunal and the order passed by the Tribunal is confirmed - tax case revision dismissed.

Summary

Issues:
1. Interpretation of works contract involving mosaic industries for laying mosaic tiles.
2. Assessment of tax liability on mosaic tile manufacturing and laying works contract.
3. Determination of taxable components in a works contract.
4. Application of deductions under relevant tax laws in works contracts.
5. Taxability of raw materials used in works contracts.

Analysis:
1. The case involved a revision petition against an order passed by the Sales Tax Appellate Tribunal regarding works contracts for laying mosaic tiles by various dealers, focusing on the tax liability of a dealer for manufacturing mosaic tiles within the works contract.

2. The Assessing Officer initially determined that 70% of the amount paid under the works contract was towards manufacturing costs of mosaic tiles, leading to tax liability. The Revenue argued that mosaic tiles were a distinct product and should be taxed separately, despite raw materials already being taxed.

3. The Appellate Assistant Commissioner, after examining the dealer's accounts and a relevant court decision, concluded that the Assessing Officer's assessment was speculative. The Commissioner emphasized the need to distinguish between a works contract and a divisible contract, highlighting the importance of contract terms over payment modes in determining tax liability.

4. Referring to the decision in S.Chandrasekaran's case, the Appellate Assistant Commissioner ruled in favor of the dealer, stating that the case fell under Section 3B of the TNGST Act, allowing for deductions applicable to works contracts. The Commissioner emphasized the need to consider labor and service charges in determining the value of goods in a works contract.

5. The Tribunal, noting that raw materials were taxed and the dealer maintained separate accounts for materials, ruled in favor of the dealer. The Tribunal also addressed the taxability of sand used in works contracts, citing a relevant government notification exempting sand from tax for certain periods and directing appropriate tax levies for sand used in specific assessment years.

6. The Tribunal upheld the Appellate Assistant Commissioner's decision, as the Revenue did not challenge the findings regarding the applicability of relevant court decisions and deductions under tax laws. Consequently, the Tribunal's order was confirmed, dismissing the Tax Case Revision without costs.