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2014 (7) TMI 1373 - HC - VAT and Sales TaxWorks Contract - Composite supply - Deductions of TDS from the payment of valuable consideration made to the petitioner for execution of various works contracts for the State after deducting the amount therefrom towards labour and service charges including earth work - Section 44 of the Jharkhand Value Added Tax 2005 read with Rule 23 of the Jharkhand Value Added Tax Rules 2006 - whether the Decuction of tax at source on the whole bill amount without deducting the value of earth work which involves labour and service is arbitrary? - HELD THAT - The Scheme of the JVAT Act being self contained, stands on a different footing. In terms of Section 29 of the Act, it is mandated upon every registered dealer to file periodical returns adjusting input credit and making deductions as prescribed under the Act. Section 44 stipulates deduction of tax at source to be made by the contractee for execution of the works contract in the State involving transfer of property in goods whether as goods or in some other form. The works contract referred to in Section 44 is a composite contract which involves transfer of property in goods whether as goods or in some other form and also labour and service. As per Section 44(5), any tax deducted at source paid to the State Government shall be adjustable by the payee on the authority of the certificate issued to him under subsection (4) with the tax payable to him under the Act. Having regard to the various provisions of the Act under the VAT regime, there is no question of the dealers waiting for years to get back the refund of any excess amount deducted from him. In this regard, Revenue has submitted the monthly returns filed by the petitioner which shows that in the monthly returns filed by the petitioner, tax deducted at source was adjusted from the tax payable by the petitioner. The tax deduction at source commonly referred to as TDS is also known as withholding tax . The TDS provisions are meant for tentative deduction of tax subject to regular assessment. The Act does not conceive a situation that there would be a pre-assessment prior to the assessment by the Assessing Authority - there are no merit in the contention of the petitioner that the contractee is under an obligation to exclude the component of labour and service charges involved in the execution of a composite works contract while making deduction of tax at source as prescribed under notification dated 31.03.2006 and TDS @ 4% on the entire bill amount is illegal and not supported by authority of law. Whether the Letter dated 11.03.2013 directing deduction of VAT @ 4% on the entire value of the Bill is contrary to law? - HELD THAT - The Revenue has contended that since the contract of the petitioner is a composite contract involving structural work along with earth work, deduction at 4% on the whole amount, in which earth work is also included, is necessary. In terms of Section 44(5), any tax is paid to the State in accordance with sub-section (3) shall be adjustable by the payee on the authority of the certificate issued to him under sub-section (4); tax payable by him under JVAT Act where any component of labour or service is involved in the earth work and if so, what is the extent of such labour and service involved will be examined at the time of filing returns with supporting documents. When tax is deducted at source by the contractee, it is not physically possible to segregate the elements of labour and service. There is no merit in the contention that various items of the earth work in the agreement of the petitioner involved only labour and services and therefore, the petitioner is not liable to pay tax for the earth work. Though the earth work might involve certain amount of labour and service, it has to be substantiated by the documents. As rightly contended by the Revenue, the works contract is a composite work involving transfer of property in goods as well as labour and services - Merely going by the description of the items of earth work contained in the agreement, it cannot be said that the items contained in Part A of the Contract, earth work is purely earth work involving only labour and services. Notification not making provision for deduction of labour and service charges - notification dated 31.3.2006 - HELD THAT - The Notification SO 208 dated 31.3.2006 was issued in exercise of powers conferred by sub-section (1) of Section 44 of the Act. Section 44(1) of the Act stipulates that the State Government may by notification in the official gazette specify TDS to be deducted by the contractee from any valuable consideration paid to the contractors for the execution of works contract in the State. Since the notification was issued in exercise of power under Section 44(1) of the Act, the notification is not be read in isolation but to be read along with the Scheme and other provisions of the Act - The Scheme of the Act provides for filing of monthly/periodical/annual returns, deductions to be made as prescribed under the Act and assessment by the competent authorities. In terms of Section 2(lvi), taxable turnover means turnover on which dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. As per Rule 22(1)(d), the value of goods involved shall be taxable after deducting from it the charges as indicated in Rule 22(1)(d)(i) to (vii) where the amount of charges towards labour and service, hire charges or any other like charges in any contract are not ascertainable, in terms of Rule 22(2), such charges shall be calculated at the prescribed percentage as indicated in Rule 22(2) - The various provisions of the JVAT Rules, in particular Rules 22 and 23, stipulate various provisions for deductions to be made including labour and service charges and the Notification SO 208 has to be read along with other provisions of the JVAT Act and Rules and not in isolation. The Notification SO 208 dated 31.3.2006 is not derogatory to the provisions of the JVAT Act and the Rules. From the bills submitted by the petitioner, it appears that deduction of certain taxes at source have been made. The petitioner had obtained interim order in this writ petition on 21st June, 2013 and thereafter no deduction of VAT at source was made from the bill amount paid to the petitioner. Since the writ petition is dismissed, it is for the Department to take appropriate steps to collect the amount payable by the petitioner either from the pending bills, if any, or otherwise by separate proceedings and in accordance with law - Petition dismissed.
Issues Involved:
1. Deduction of TDS from the entire bill amount including labour and service charges under Section 44 of the JVAT Act and Rule 23 of the JVAT Rules. 2. Validity of the Deputy Commissioner of Commercial Taxes' letter dated 11.3.2013 directing deduction of VAT at source at the rate of 4% from the entire bill value. Issue-wise Detailed Analysis: 1. Deduction of TDS from the Entire Bill Amount Including Labour and Service Charges: The petitioner, a civil contractor, contended that TDS should be deducted only after excluding labour and service charges as per Section 44 of the JVAT Act and Rule 23 of the JVAT Rules. The petitioner argued that the State of Jharkhand was incorrectly deducting TDS from the entire bill amount, including labour and service charges, contrary to the statutory provisions. The court noted that Section 44 of the JVAT Act mandates the deduction of tax at source for works contracts involving the transfer of property in goods. Rule 23 clarifies that labour and service charges should be excluded from the taxable amount. The petitioner cited several judgments, including Larsen & Toubro Ltd. v. State of Bihar and Steel Authority of India Ltd. v. State of Orissa, to support the argument that TDS should not be deducted on components not liable for tax. However, the court emphasized that the JVAT Act and Rules provide a self-contained scheme for tax deduction and adjustment. The court held that the contractee is not required to segregate labour and service components at the time of TDS deduction. Instead, these components should be accounted for during the assessment process by the assessing authority. The court found that the provisions of the JVAT Act and Rules, including Section 44(5), ensure that any excess tax deducted at source can be adjusted or refunded during the assessment. The court concluded that the deduction of TDS from the entire bill amount, including labour and service charges, is in line with the provisions of the JVAT Act and Rules, and the mechanism provided therein is adequate for ensuring fair tax recovery and adjustment. 2. Validity of the Deputy Commissioner of Commercial Taxes' Letter Dated 11.3.2013: The petitioner challenged the letter dated 11.3.2013 from the Deputy Commissioner of Commercial Taxes, which directed the deduction of VAT at source at the rate of 4% from the entire bill value, including earthwork. The petitioner argued that this directive was contrary to the law and arbitrary. The court examined the letter in the context of the JVAT Act and Rules. It noted that the letter clarified the position that for composite works contracts involving structural work along with earthwork, TDS at the rate of 4% should be deducted from the entire bill amount. The court found that this directive was consistent with the notification SO 208 dated 31.3.2006, which prescribed the rate of TDS for works contracts. The court also referred to various provisions of the JVAT Act and Rules, including Rule 22, which outlines the determination of taxable turnover for works contracts and the deductions to be made for labour and service charges. The court held that the notification and the Deputy Commissioner's letter should be read in conjunction with these provisions, and they are not in conflict with the statutory framework. The court concluded that the directive in the letter dated 11.3.2013 is lawful and in consonance with the provisions of the JVAT Act and Rules. The court dismissed the petitioner's challenge to the letter and upheld the validity of the directive for TDS deduction at the rate of 4% from the entire bill amount. Conclusion: The court dismissed the writ petition, holding that the deduction of TDS from the entire bill amount, including labour and service charges, is in accordance with the JVAT Act and Rules. The court also upheld the validity of the Deputy Commissioner of Commercial Taxes' letter dated 11.3.2013, directing TDS deduction at the rate of 4% from the entire bill value. The interim order granted in the writ petition was vacated, and the respondents were allowed to proceed with the recovery of VAT payable by the petitioner.
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