2016 (1) TMI 1419 - HC - VAT and Sales Tax

Adjustment of tax already deposited by principal contractor - whether the respondents are justified in not adjusting the tax already deducted by the Principal Contractor, and once again seeking to tax the petitioners in respect of the same amount which has been deducted by the principal contractor? - HELD THAT - The amounts paid to the sub contractor by the principal contractor had already suffered tax in the hands of the principal contractors and that therefore the turn over once again could not be subjected to tax in the hands of the subcontractor and if it is done, it would be a case of double taxation. The petitions are accordingly disposed of holding that the petitioners could not be subjected to tax on the amounts which were already deducted by the principal contractor and of which tax had been collected.

Summary

Issues:
1. Whether the respondents are justified in not adjusting the tax already deducted by the Principal Contractor and seeking to tax the petitioners again for the same amount?

Analysis:
The High Court of Karnataka, in the judgment, considered the issue of whether the respondents were justified in not adjusting the tax already deducted by the Principal Contractor and attempting to tax the petitioners again for the same amount. The court referred to a division bench judgment in Warsaw Engineers, Bangalore vs. The Additional Commissioner of Commercial Taxes, 2008(64) KLJ 1134, which had addressed a similar question. The division bench had ruled that if the amounts paid to the subcontractor by the principal contractor had already suffered tax in the hands of the principal contractor, then the turnover could not be subjected to tax again in the hands of the subcontractor to avoid double taxation. The court found that the principle established in the Warsaw Engineers case applied to the present petitions, and therefore, the petitioners could not be taxed on amounts already deducted by the principal contractor and on which tax had been collected.

The court acknowledged that the division bench judgment in Warsaw Engineers was under challenge before the Supreme Court. However, since the current bench was following the existing law as per the division bench judgment, the court had no difficulty in allowing the petitions. The respondents were directed to adjust the tax already collected from the principal contractors concerning the liability sought to be imposed on the petitioners. The learned Government Advocate was given permission to file his appearance memo within two weeks in the respective petitions.

In conclusion, the judgment clarified the legal position regarding the taxation of amounts already deducted by the principal contractor, emphasizing the principle of avoiding double taxation and directing the respondents to adjust the tax already collected in line with the division bench decision in Warsaw Engineers until any change in the law by the Supreme Court.