2014 (7) TMI 700 - HC - VAT and Sales Tax

Valuation - works contract - deduction of expenditure - expenditure incurred for deployment of own machineries and equipments in execution of the works contract - expenditure in respect of the planning, designing and architect s fee / establishment expenditure - excess labour charges to be carried over - Held that - when an assessee instead of taking the machinery and tools on hire, he purchases the machinery and tool and employs them in the execution of the works contract, he is entitled to deduction, which represents the labour charges, in substitution of which the machinery and tools were employed. The same cannot be denied to him. - assessing authority has to consider the material produced by the assessee on record keeping in mind that for deploying the same machinery and tools, if it had been taken on lease what is the hirecharges, which he should have paid and also take into consideration other circumstances, which may be relevant to the case on hand and determine the amount deductable under the aforesaid head. - Decided in favor of assessee. Deduction of establishment expenditure - Held that - Whatever amount the assessee wants to claim under the aforesaid heads, he has to furnish the particulars and proof of the same and on considering the same, the assessng authority shall grant the benefit under the aforesaid provisions. Therefore, though the authorities cannot be found fault with for not granting the deduction under the aforesaid head on percentage basis, it would be just and proper to give an opportunity to the assessee to produce before the authorities the actual amount spent for the said on-going project with legal proof and then the assessing authority shall consider the same in accordance with law. - Decided in favor of assessee. Excess labour charges to be carried over - Held that - assessee s claim under the head labour and other charges in a sum of ₹ 9,14,49,077 at page 7, clause (6) and the assessee was only claiming ₹ 5,76,30,391 for the current year and wanted the balance amount to be carried over to the subsequent year. - the facts were not clearly understood by the authorities and they denied the benefit wrongly - matter remanded back for fresh consideration. - Decided in favor of assessee.

Summary

Issues Involved:
1. Deduction for expenditure on own machinery and equipment used in the execution of works contracts.
2. Deduction for establishment expenditure related to planning, designing, and architect fees.
3. Conditions for claiming deduction of excess labour charges to be carried over to subsequent years.

Issue-wise Analysis:

1. Deduction for Expenditure on Own Machinery and Equipment:
The court examined whether the assessee could claim deductions for using its own machinery and equipment in executing works contracts under Explanation-I clause (n), sub-rule (4) of rule 6 of the KST Act, 1957. The rule allows deductions for "labour charges and other like charges" including charges for obtaining machinery on hire or otherwise. The authorities and the Tribunal had interpreted "otherwise" narrowly, limiting deductions to actual hire charges incurred. The court found this interpretation incorrect, stating that "otherwise" should include charges equivalent to hire charges for owned machinery. The court remitted the matter back to the assessing authority to determine the deductible amount based on the material produced by the assessee, considering what the hire charges would have been if the machinery had been leased.

2. Deduction for Establishment Expenditure:
The assessee claimed deductions for planning, designing, and architect fees, as well as other establishment expenses incurred at its head office and regional office. The authorities rejected this claim because the assessee did not provide actual expenditure details, instead claiming a percentage of the total cost. The court upheld the authorities' decision, emphasizing that deductions must be based on actual amounts with proper proof. However, the court allowed the assessee to present actual expenditure details and proof to the assessing authority for reconsideration.

3. Conditions for Claiming Deduction of Excess Labour Charges:
The court addressed the issue of carrying forward excess labour charges to subsequent years. The authorities had denied this benefit, claiming the assessee did not make such a claim in the assessment order for 1997-98 and that there was no direction to carry forward the expenses. The court found this reasoning flawed, noting that the assessee had indeed made the claim, and it was the assessing authority's duty to specify the carry-forward in the order. The court set aside the authorities' findings and remitted the matter back to the assessing authority to re-examine the 1997-98 assessment order and grant the appropriate benefit.

Conclusion:
The court allowed the appeals, set aside the impugned orders, and remanded the matter back to the assessing authority for fresh disposal in accordance with the law, considering the observations made in the judgment. Each party was ordered to bear its own costs.