2016 (4) TMI 829 - HC - VAT and Sales Tax

Rate of tax on iron and steel - Execution of civil works contract - Appellant contended that the declared commodities are used in execution of works contract liable to be taxed at 5% under Section 4(1)(c) of the VAT Act but department taxed it @ 14.5% - Held that - by following the judgment of this court in the case of State of Karnataka vs. Reddy Structures Pvt. Ltd., Bangalore 2012 (10) TMI 1088 - KARNATAKA HIGH COURT , the State Legislature has no competence to levy tax at more than 5% on iron and steel used in the same form in the execution of works contract which falls under Section 14 of the CST Act. - Decided partly in favour of petitioner

Summary

Issues:
1. Dispute over the rate of tax on iron and steel used in works contract.
2. Application of legal aspects regarding tax rate on declared commodities.
3. Compliance with court judgments on tax rates.

Analysis:
1. The petitioner, a private limited company engaged in civil works contracts, filed monthly returns under the Karnataka Value Added Tax Act, 2003. The respondent authority issued a notice for production of books of account for reassessment proceedings. While some objections were accepted, the authority raised issues regarding the tax rate on iron and steel used in works contracts. The petitioner, to avoid penalties, paid tax at 14.5% on iron and steel, which was later found to be incorrect based on court judgments.

2. The court referred to a judgment stating that for declared goods involved in works contracts, the tax rate should be as per the Central Sales Tax Act at 4%. Another judgment confirmed that the state legislature cannot levy tax at more than 5% on iron and steel used in works contracts falling under the CST Act. The court directed the respondent authority to apply these legal aspects and reconsider the tax rate imposed on the petitioner.

3. Considering the legal precedents and the incorrect tax rate applied by the respondent, the court allowed the petition, set aside the impugned order, and remanded the matter to the authority for fresh consideration in line with the court's interpretation of the tax rates on iron and steel used in works contracts. The judgment emphasized the importance of applying the correct legal provisions and court decisions in tax assessments to ensure compliance and fairness in taxation matters.