2014 (7) TMI 321 - HC - VAT and Sales Tax

Tax liability - Valuation - Whether the dealer, who is executing the works contract, is entitled for the deduction of amounts pertaining to the depreciation on trippers, maintenance expenses of trippers and consumables, used in the execution of works contract under rule 6(2) of the Rules or not - Held that - Assessee is entitled for exemption not only on the charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract but also on the amounts spent by the contractor on such machinery as a consequence of using them for the execution of the works contract including the value of the proportionate wear and tear of the machinery which is otherwise identified as depreciation on the premise that it is equivalent to the hire charges spent otherwise. The dominant idea for exempting the said charges should be use of the machinery for execution of the works and the amounts spent by the contractor on such machinery. Otherwise, there is no necessity to use the word or otherwise under rule 6(2)(d). - the revised order passed by the Deputy Commissioner, dated July 31, 1993, as confirmed by the Sales Tax Appellate Tribunal by order, dated January 30, 2009, are hereby set aside and the order passed by the Commercial Tax Officer, granting exemption under the heads, viz., depreciation on vehicle, maintenance expenses on tipper and consumables, is restored. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deductions in turnover for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables under Rule 6(2) of the A.P. General Sales Tax Rules, 1957.
2. Interpretation of Rule 6(2)(d) regarding "charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract."
3. Applicability of ejusdem generis rule in interpreting Rule 6(2)(d).

Detailed Analysis:

1. Eligibility for Deductions in Turnover:
The primary issue is whether the dealer executing the works contract is entitled to deductions for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables under Rule 6(2) of the A.P. General Sales Tax Rules, 1957. The petitioner, a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957, was initially granted exemptions by the Commercial Tax Officer for the years 1998-99, 1999-2000, and 2000-01. However, the Deputy Commissioner revised this order, disallowing these exemptions on the grounds that the petitioner did not provide sufficient details for the cost of consumables and was not eligible for deductions for depreciation and maintenance expenses.

2. Interpretation of Rule 6(2)(d):
The court examined Rule 6(2)(d), which allows deductions for "charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract." The petitioner argued that the expenses incurred for maintaining their own vehicles should be treated as equivalent to hire charges, thus eligible for deductions. The court referred to the sales tax manual, which states that the assessing authority can deduct amounts similar to the categories mentioned in Rule 6(2)(a) to (i), even if they have different nomenclature, provided detailed reasons are given.

3. Applicability of Ejusdem Generis Rule:
The court considered whether the ejusdem generis rule, which limits general terms to the same kind as specific terms, applies to Rule 6(2)(d). The court concluded that the words "or otherwise" in Rule 6(2)(d) are intended to cover expenses beyond just hire charges, including amounts spent on machinery and tools in any form. The court cited precedents, including the Supreme Court's judgment in Gannon Dunkerley & Co. v. State of Rajasthan, which held that the value of goods involved in a works contract includes all costs except those for labor and services. The Karnataka High Court in Larsen & Toubro Limited v. State of Karnataka also supported this broader interpretation, allowing deductions for depreciation on machinery used in works contracts.

Conclusion:
The court concluded that the petitioner is entitled to deductions for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables used in the execution of works contracts. The revised order by the Deputy Commissioner, which disallowed these deductions, was set aside, and the original order by the Commercial Tax Officer granting these exemptions was restored. The court emphasized that the dominant idea for exempting these charges is the use of machinery for executing the works contract and the associated expenses. Thus, the tax revision cases were allowed, with no order as to costs.