2014 (9) TMI 420 - HC - VAT and Sales Tax

Valuation - works contract - inclusion of value of free supplies - Exemption from tax - earth filling charges - State Government allegedly supplied gravel free of cost to the petitioner - Assessee contended that this portion of the turnover represents the charges for lifting and transporting of gravel to the worksite and that this amount is exempted from levy of sales tax under section 5F of the Andhra Pradesh General Sales Tax Act, 1957 - Held that - there is no mention of the cost of supply of gravel in the said letter as it does not say that the gravel is being supplied free of cost to the petitioner. No other material is produced before us by the petitioner to prove that the gravel is supplied to it free of cost. Therefore, it is not possible to accept the contention of the petitioner that the gravel was supplied to it free of cost. Assuming that gravel is obtained free of cost by the petitioner from the Department of Jails, it is to be taken that the petitioner acquired the gravel at zero cost but the said gravel has to be transported to the place of execution of the contract from the quarry from which it is taken out. In doing so, the petitioner incurred transportation charges as he had to transport the gravel by hiring lorries. These amounts were also collected by the petitioner from the contractee, i.e., the A.P. State Police Housing Corporation. This element of transportation charges becomes part of the value of gravel when it is incorporated in the works as held in Seven Hills Constructions case 2014 (9) TMI 110 - ANDHRA PRADESH HIGH COURT . The contention of the petitioner that the transportation expenses for transport of gravel come in the category of other similar expenses relatable to supply of labour and services in clause (g) of rule 6(2) of the Rules framed under the Act is also not valid because gravel supply charges or transportation charges are not similar to supply of labour or services , although they may be similar to supply of goods . Transportation charges are not deductible as they are not specifically mentioned in rule 6(2) of the Rules. - Decided against assessee.

Issues Involved:
1. Exemption from sales tax on gravel transportation charges.
2. Interpretation of G.O. Ms. No. 1091 Revenue dated June 10, 1957.
3. Applicability of Rule 6(2) and Rule 6(3)(i) of the Andhra Pradesh General Sales Tax Act, 1957.
4. Inclusion of transportation charges in the taxable turnover.

Detailed Analysis:

1. Exemption from sales tax on gravel transportation charges:
The petitioner, M/s. Duggirala Ramakotaiah, claimed exemption from sales tax for the transportation charges of gravel used in civil contract works, under section 5F of the Andhra Pradesh General Sales Tax Act, 1957, read with rule 6(2). The petitioner argued that the gravel was supplied free of cost by the Department of Jails and that transportation charges should not be included in the taxable turnover. However, the assessing officer initially accepted this claim but was later challenged by the Deputy Commissioner (CT), who proposed to revise the assessment orders, arguing that the transportation charges should be included in the taxable turnover.

2. Interpretation of G.O. Ms. No. 1091 Revenue dated June 10, 1957:
The petitioner relied on G.O. Ms. No. 1091 Revenue, which exempts "earth work and gravel quarrying contracts" from sales tax. The Deputy Commissioner (CT) and the revisional authority contended that this exemption applies only to dealers exclusively doing earth work and gravel quarrying, not to those engaged in civil contract works. The Tribunal upheld this view, stating that the petitioner's contracts were primarily civil works with only a portion involving earth filling, thus not qualifying for the exemption.

3. Applicability of Rule 6(2) and Rule 6(3)(i) of the Andhra Pradesh General Sales Tax Act, 1957:
The petitioner argued that transportation charges should be deductible under clause (g) of rule 6(2), which allows deductions for "other similar expenses relatable to supply of labour and services." The Tribunal and the revisional authority rejected this argument, stating that transportation charges are not similar to supply of labour or services and are not specifically mentioned in rule 6(2). Rule 6(3)(i) was also discussed, which includes the costs of acquisition, transportation, establishment, and other charges related to the goods until their incorporation in the works. The Full Bench of the court in Seven Hills Constructions case clarified that transportation charges should be included in the value of goods for taxable turnover purposes.

4. Inclusion of transportation charges in the taxable turnover:
The Tribunal and the revisional authority held that transportation charges for gravel should be included in the taxable turnover. They reasoned that any expense incurred for bringing the material to the worksite adds to the material value at the time of incorporation, which is the basis for computing taxable turnover under section 5F. The Supreme Court's decision in Gannon Dunkerley's case was cited, emphasizing that the value of goods for tax purposes includes the costs at the time of incorporation, not just acquisition costs.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the appeals and writ petitions filed by the petitioner. The court concluded that the petitioner is not entitled to deduct transportation charges from the taxable turnover and that the exemption under G.O. Ms. No. 1091 Revenue does not apply to the petitioner's civil contract works. The transportation charges are part of the value of the gravel at the time of incorporation and thus subject to sales tax.

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