2018 (2) TMI 1728 - HC - VAT and Sales Tax

Works Contract - Levy of tax - grit used for construction of the road - denial of benefit of Composition of Tax on Works contract - Section 14A of the VAT Act - Held that - what the legislature desired by framing the said provision is that a dealer who has been granted permission for composition of tax must have paid tax; as prescribed upon consumption of taxable goods. This does not however mean that the dealer has to pay tax - whether such liability under the Act has arisen or not. It is in this context we may understand the term tax payable under the Act. When the taxing event is sale of goods and such event has not arisen there would be no question of tax becoming payable under the Act. This itself would be sufficient to dislodge Department s objection. The term taxable goods cannot be seen in isolation by reading the definition contained in Section 229 of the VAT Act. A commodity would become taxable goods when taxable event arises. Merely because upon sale of such goods tax is prescribed which is not exempt under Section 5 of the VAT Act and therefore is taxable goods would not for the purpose of relevant portion of Rule 28 8 of the Rules become taxable goods . The term taxable goods and tax payable under the Act have to be harmoniously construed. Only reconciliation possible is that the dealer is expected to pay tax when taxing event arises and not otherwise. Since the petitioner had not purchased the goods from market but had selfmanufactured it from the mines taken on lease there was no occasion to pay the tax. The Department obviously cannot argue that in such a situation the petitioner cannot avail of composition facility at all - petition is entitled for the benefit of Composition Tax - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Validity of the notice dated 1st June 2013 issued by the Commercial Tax Officer.
2. Validity of the notice dated 8th March 2013 issued by the Commercial Tax Officer.
3. Interpretation and application of Section 14A of the Gujarat Value Added Tax Act, 2003.
4. Compliance with Rule 28 (6) of the Gujarat Value Added Tax Rules, 2006.
5. Whether the petitioner breached the conditions of tax composition by not paying tax on grit used in road construction.

Detailed Analysis:

1. Validity of the notice dated 1st June 2013:
The petitioner challenged the notice dated 1st June 2013, which elaborated the department's stance that the petitioner had not disclosed the method of procuring grit and had not paid tax on the taxable goods used in road construction. The court found that neither the VAT Act nor the Rules required the petitioner to disclose the procurement method of black-trap while applying for tax composition. Therefore, the notice was based on an erroneous assumption and was set aside.

2. Validity of the notice dated 8th March 2013:
The notice dated 8th March 2013 asserted that the petitioner breached Rule 28 (6) by not paying tax on grit prepared from black-trap mined by the petitioner. The court examined whether this constituted a breach of the tax composition conditions. It concluded that the petitioner was not liable to pay tax on self-manufactured inputs, as there was no taxable event of sale. Hence, this notice was also set aside.

3. Interpretation and application of Section 14A of the Gujarat Value Added Tax Act, 2003:
Section 14A allows contractors to opt for a lump sum tax composition on works contracts. The petitioner had applied for and was granted this composition. The court analyzed that the provision aims to simplify tax compliance for contractors and does not mandate disclosure of self-manufactured inputs or impose tax on such inputs unless a taxable event occurs.

4. Compliance with Rule 28 (6) of the Gujarat Value Added Tax Rules, 2006:
Rule 28 (6) requires that taxable goods used in works contracts must have borne tax payable under the Act. The court interpreted this rule to mean that tax is due only when a taxable event, such as the sale of goods, occurs. Since the petitioner used self-manufactured grit, no taxable event of sale took place, and thus no tax was payable. The court emphasized that the rule should not be rigidly construed to impose tax where no liability exists.

5. Whether the petitioner breached the conditions of tax composition by not paying tax on grit used in road construction:
The court concluded that the petitioner did not breach the tax composition conditions. The term "taxable goods" and "tax payable" under the Act should be harmoniously construed. The petitioner was not required to pay tax on self-manufactured grit as no taxable event occurred. The court rejected the department's interpretation that would disqualify contractors using self-manufactured inputs from the composition scheme.

Conclusion:
The court set aside both impugned notices and allowed the petition, concluding that the petitioner complied with the VAT Act and Rules and did not breach the conditions of tax composition. The interpretation advanced by the department was found to be incorrect and unreasonable. The petition was disposed of accordingly.