2015 (1) TMI 766 - HC - VAT and Sales Tax

Rate of taxability of iron and steel used for execution of works contract - Section 29 of the KVAT Act, 2003 R/w Rule 29(1)(b) of the KVAT Rules 2005 properly considered or not - Whether the Karnataka Appellate Tribunal is justified in law in holding that the iron and steel used by the respondent for the execution of works contract being used in the form should be taxed at 4% and not 12.5% - Held that - The works contract is for laying pipes and construction of water tanks in different villages, whence materials such as iron and steel, cement, PVC pipes and RCC pipes, were transferred in the same form, regard being had to Running Account bills prepared by the authorities of the Jilla Panchayath, a Department of State Government - the quantities of material and their value transferred in the same form in the execution of the works contract are certified by the authorities of the Jilla Panchayath as recorded in the RA Bills, out of which iron and steel transferred in the same form during the year 2005-06 was ₹ 67,38,377/-, with impost at 4% per annum - there is no calculation of the value of other goods transferred in the same form, namely, cement, PVC pipes, RCC pipes carrying tax at different rates, as prescribed in the Third Schedule to the KVAT Act, 2003 - assessee did not furnish the tax invoice, the debit note or credit note in relation to sale of the materials transferred in the execution of the works contract, in accordance with Section 29 or 30 of the KVAT Act, 2003. The authorities based upon the RA Bills submitted by the respondent/assessee arrived at ₹ 67,38,377/- as the value of the iron and steel, in respect of which the rate of tax is 4% - the State is not entitled to the illegal duty on works contract for the AY 2005-06, calling forth the application of doctrine of unjust enrichment - the direction issued by the KAT relating to subjecting to tax at the rate of 12.5% on the remaining taxable turnover, relating to goods other than iron and steel cannot be upheld thus, the portion of the order is set aside which is subjecting to tax at 12.5% on the remaining taxable turnover relating to goods other than iron and steel and direct imposition of tax at the rates prescribed in the Third Schedule over goods, such as cement, PVC pipes and RCC Pipes said to have been transferred in the same form in the execution of the works contract during the year 2005-2006, after making a valuation of the said articles, as against the remaining taxable turnover excluding ₹ 67,38,377/-, towards the purchase of iron and steel, at 4% - Decided partly in favour of revisionist revenue.

Issues Involved:
1. Tax rate applicable to iron and steel used in the execution of works contracts.
2. Interpretation and application of Section 29 of the KVAT Act, 2003, read with Rule 29(1)(b) of the KVAT Rules, 2005.
3. Justification of the Karnataka Appellate Tribunal's reversal of the Revisional Authority's order.

Detailed Analysis:

Issue 1: Tax Rate on Iron and Steel in Works Contracts
The primary issue was whether iron and steel used by the respondent in the execution of works contracts should be taxed at 4% or 12.5%. The respondent, a registered dealer under the KVAT Act, 2003, filed returns indicating the use of iron and steel in works contracts, taxed at 4%. The Prescribed Authority (PA) reassessed the tax at 12.5%, which was revised by the Revisional Authority, increasing the taxable turnover and withdrawing deductions. The Karnataka Appellate Tribunal (KAT) directed that iron and steel transferred in the same form should be taxed at 4%, while other goods should be taxed at 12.5%.

The court analyzed Section 4(1)(a)(ii) of the KVAT Act, 2003, which specifies a 4% tax rate for declared goods, including iron and steel as per Section 14 of the CST Act, 1956. The court concluded that the tax rate for iron and steel used in the same form in works contracts for the assessment year 2005-06 should be 4%, as per entry No.30 in the Third Schedule.

Issue 2: Interpretation and Application of Section 29 of the KVAT Act, 2003
The court examined the applicability of Section 29(4) of the KVAT Act, 2003, which mandates registered dealers executing civil works contracts to issue a tax invoice or bill of sale. The court noted that this provision, inserted by Act No.6 of 2007 w.e.f. 01.04.2007, was inapplicable to the assessment year 2005-06. Similarly, the proviso to Rule 27 of the KVAT Rules, 2005, deeming RA bills as tax invoices, was also inapplicable for the same period.

The court emphasized that the respondent did not furnish tax invoices, debit notes, or credit notes as required, but the authorities relied on RA bills to determine the value of iron and steel. This reliance was deemed appropriate for calculating the tax at 4%.

Issue 3: Justification of KAT's Reversal of the Revisional Authority's Order
The court scrutinized the KAT's decision to reverse the Revisional Authority's order and its direction to tax other goods at 12.5%. The court noted that the Sixth Schedule, which imposed a 12.5% tax on works contracts, was effective from 01.04.2006 and not applicable to the assessment year 2005-06. Therefore, the imposition of a 12.5% tax on works contracts for the year 2005-06 was unjustified.

The court concluded that the KAT and other authorities misapplied the provisions of the statute effective from 01.04.2007 to the assessment year 2005-06. Consequently, the court set aside the KAT's direction to tax other goods at 12.5% and mandated the application of the Third Schedule rates for goods like cement, PVC pipes, and RCC pipes, transferred in the same form during the execution of the works contract.

Conclusion:
The court partially allowed the revision petition, setting aside the portion of the KAT's order subjecting other goods to a 12.5% tax rate. It directed the imposition of tax at rates prescribed in the Third Schedule for goods transferred in the same form, after valuation. The parties were directed to present themselves before the KAT for further proceedings.

← Previous Next →