2013 (11) TMI 106 - HC - VAT and Sales Tax

Works Contract - Whether activity of construction / development by a Builder would constitute Work Contract in certain circumstances - Held that - Construction of flats on its own can not be tanable as work contract under U.P.T.T. where the right title and interest in the construction continue to remain with the developer mere payment term would not alter the nature of transaction - particular unit is not resold but retained by the Appellants, there would be no works contract to that extent. But so long as there is no termination the construction is for and on behalf of purchaser. Therefore, it remains a works contract within the meaning of the term as defined under the said Act. It must be clarified that if the agreement is entered into after the flat or unit is already constructed, then there would be no works contract. - matter remanded back for reconsideration in view of Larsen & Toubro Limited & Another Versus State of Karnataka & Another 2013 (9) TMI 853 - SUPREME COURT - Decided against the assessee.

Issues Involved:
1. Validity of the levy of commercial tax on the sale of goods under works contracts/agreements in construction.
2. Interpretation of the term "works contract" under Article 366(29-A)(b) of the Constitution.
3. Applicability of the judgment in K. Raheja Development Corporation vs. State of Karnataka.
4. Jurisdiction of the High Court in matters arising from assessment orders.

Issue-wise Detailed Analysis:

1. Validity of the Levy of Commercial Tax:
The petitioners, comprising promoters, builders, developers, real estate agents, and landowners, challenged the notices and assessment orders issued by the commercial tax authorities under the U.P. Value Added Tax Act, 2008. They contended that no sale of goods is involved in building contracts/agreements and that what is sold or transferred are the constructed flats/houses/apartments as chattels. The court referred to the larger bench decision of the Hon'ble Supreme Court, which upheld the imposition of sales tax on goods deemed to have been sold in execution of a works contract. The Supreme Court clarified that even if goods lose their identity upon incorporation into the structure, they still qualify as goods for tax purposes.

2. Interpretation of the Term "Works Contract":
The Supreme Court's larger bench elaborated on the interpretation of "works contract" under Article 366(29-A)(b). It was held that for sustaining the levy of tax on goods deemed sold in execution of a works contract, three conditions must be met: (i) there must be a works contract, (ii) goods should be involved in the execution of the works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. The term "works contract" encompasses all genres of works contracts, including building contracts, and is not limited to contracts for labor and services alone.

3. Applicability of the Judgment in K. Raheja Development Corporation:
The court noted that the larger bench of the Supreme Court upheld the opinion expressed in K. Raheja Development Corporation vs. State of Karnataka, which established that building contracts are species of works contracts. The judgment clarified that even if the dominant intention of the contract is not to transfer property in goods but to render service or transfer immovable property, states can still levy sales tax on the materials used if the contract has elements of a works contract. The decision in Raheja Development was deemed correct and applicable, affirming that construction activity undertaken by developers for prospective purchasers constitutes a works contract.

4. Jurisdiction of the High Court in Matters Arising from Assessment Orders:
The High Court referenced the Supreme Court's decision in State of U.P. vs. Assotech Realty Pvt. Ltd., which set aside the High Court's previous judgment that interfered with assessment orders. The Supreme Court emphasized that writ petitions against assessment orders are not maintainable and that thorough adjudication is required, which should be pursued through statutory appeals. Consequently, the High Court declined to examine the facts of each case and directed the petitioners to seek remedies under the U.P. Sales Tax Act or the U.P. Value Added Tax Act, 2008.

Conclusion:
In light of the Supreme Court's rulings and the principles established in K. Raheja Development Corporation, the High Court dismissed all writ petitions as withdrawn, allowing the petitioners to pursue appropriate remedies through the statutory appeal process. This decision reinforces the applicability of sales tax on goods involved in works contracts and clarifies the jurisdictional boundaries for challenging assessment orders.

← Previous Next →