2008 (8) TMI 994 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Reimbursement of Orissa Sales Tax levied on works contract.
2. Validity of the circulars dated 7.11.2001 and 19.6.2002 issued by the Financial Adviser-cum-Additional Secretary to Government, Department of Water Resources.
3. Interpretation of Clause 45.2 of the National Competitive Bidding Contract.
4. Applicability of Section 5(2)(AA) of the Orissa Sales Tax Act, 1947.

Summary:

1. Reimbursement of Orissa Sales Tax levied on works contract:
The petitioner, M/s. B. Engineers & Builders Ltd., sought reimbursement of Orissa Sales Tax levied on works contract for the assessment years 1998-1999, 1999-2000, and 2000-2001. The petitioner argued that Clause 45.2 of the National Competitive Bidding Contract specifies that any Central or State Sales Tax and other taxes on completed items of work of this contract, excluding penalties, shall be reimbursed by the employer to the contractor on proof of payment.

2. Validity of the circulars dated 7.11.2001 and 19.6.2002:
The petitioner challenged the circulars issued by the Department of Water Resources, which stated that completed items of works for which the contractor has entered into an agreement are not exigible to sales tax, and therefore, reimbursement does not arise. The petitioner argued that these circulars are against the statutory provisions contained in Section 5(2)(AA) of the Orissa Sales Tax Act, 1947.

3. Interpretation of Clause 45.2 of the National Competitive Bidding Contract:
The court noted that Clause 45.2 of the General Conditions of Contract indicates that any central or state sales tax and other taxes on completed items of work of this contract, excluding penalties, shall be reimbursed by the employer to the contractor on proof of payment. The court observed that the O.Ps. had effected reimbursement under this clause during the assessment years from 1995-1996 till 1997-1998.

4. Applicability of Section 5(2)(AA) of the Orissa Sales Tax Act, 1947:
The court referred to Section 5(2)(AA) of the Orissa Sales Tax Act, which defines 'taxable turnover' in respect of 'works contract' as the gross value received or receivable by a dealer for carrying out such contract, less the amount of labour charges and service charges incurred for the execution of this contract. The court found that the orders of assessment indicated that after deducting the labour charges, service charges, and amount of tax paid, the balance was put to tax by the Sales Tax Authority.

Conclusion:
The court concluded that the sales tax had been levied in the orders of assessment in respect of the amount received pertaining to items of work completed during the financial year. The clarification in Annexure-1, which unilaterally takes away the claim of the petitioner for reimbursement, was found to be contrary to Clause-45.2 of the General Conditions of Contract and Section 5(2)(AA) of the Orissa Sales Tax Act, as well as the decision of the apex Court in Gannon Dunkerly. Accordingly, the clarification letter dated 7.11.2001 (Annexure-1) was quashed, and the O.Ps. were directed to grant appropriate reimbursement in terms of Clause-45.2 of the General Conditions of Contract, as claimed by the petitioner.

Separate Judgment:
R.N. Biswal, J. concurred with the judgment.