2014 (7) TMI 154 - HC - VAT and Sales Tax

Valuation - works contract of construction - Deduction of land cost - Whether on the facts and in the circumstances of the case and in law the Tribunal is justified in giving a finding that deducting the value of land from the total receipt of the builder is impermissible, but only value of the transfer of property in goods has to be considered for the purpose of assessment by adding G.P., as the same is against provisions of law - Held that - State legislatures lack legislative power to levy tax on the transfer of immovable property under Entry 54 of List II of the Seventh Schedule. However, the States do have competence to levy sales tax on the sale of goods in an agreement of sale of flat which also has a component of a deemed sale of goods. Aspects theory though does not allow the State legislature to entrench upon the Union List and tax services by including the cost of such service in the value of goods but that does not detract the State to tax the sale of goods element involved in the execution of works contract in a composite contract like contract for construction of building and sale of a flat therein. Decision in the case of Larsen & Toubro Ltd. v. State of Karnataka 2013 (9) TMI 853 - SUPREME COURT followed - developer has paid VAT/Sales Tax on the entire material cost that was used for construction of the building and in the present case, the only question is deduction of land cost. - Revenue, petitioner, if they find it necessary to verify correctness of the statement and if they find it incorrect, they may take appropriate steps against the assessee in accordance with law. - Decided in favour of assessee.

Summary

Issues: Whether the land value should form part of taxable value for levy of VAT or Sales Tax?

Analysis:
The revision petitions were brought before the Karnataka High Court for admission and final disposal. The main issue raised was whether the land value should be included in the taxable value for the assessment of VAT or Sales Tax. The respondent's counsel referred to a recent judgment of the Supreme Court in Larsen & Toubro Ltd. v. State of Karnataka, highlighting that the question raised in the petitions was covered by that judgment. The petitioner's counsel did not contest this submission.

The primary question for consideration was framed as whether deducting the value of land from the total receipt of the builder is impermissible, and only the value of the transfer of property in goods should be considered for assessment by adding G.P. The court examined the relevant portion of the Supreme Court judgment, which clarified the legislative power of State legislatures to levy tax on the transfer of immovable property and sales tax on the sale of goods. The court emphasized that the value of goods at the time of incorporation in works contracts could be the measure for levy of tax, without taxing the transfer of immovable property.

Based on the Supreme Court's legal position outlined in the judgment, the High Court agreed with the respondent's counsel that the question raised in the revision petitions was addressed by the Larsen & Toubro Ltd. case. The court ruled in favor of the assessee and against the Revenue, affirming that the land cost deduction was permissible for VAT or Sales Tax assessment. The respondent's counsel confirmed that VAT/Sales Tax had been paid on the entire material cost used for construction, with the only issue being the deduction of land cost.

In conclusion, the High Court disposed of the sales tax revision petitions, accepting the respondent's statement regarding tax payments and leaving room for further verification if necessary. No costs were awarded in this matter.