2016 (8) TMI 715 - HC - VAT and Sales Tax

Nature of the contract - Works contract activity or mere sale activity - doors and windows - levy tax on the entire turnover of ₹ 70,59,413/- at the rate of 12% under Section 3(2) of the TNGST Act, 1959. - Held that - we are satisfied that a single composite contract of fabrication, supplying and fixing, at the site has been executed between the parties, we are of the considered view that the judgment of the Hon ble Apex Court in Kone Elevator India Private Limited vs. State of Tamil Nadu 2014 (5) TMI 265 - SUPREME COURT to the case on hand, squarely applies, and in such circumstances, the order impugned before us, is liable to be set aside. - writ appeal is allowed - Decided in favor of assesee.

Issues Involved:
1. Whether the contract in question is a 'sale' or a 'works contract'.
2. Applicability of Section 7-C of the Tamil Nadu General Sales Tax Act, 1959.
3. Validity of the revised assessment order dated 14.12.2010.
4. Impact of the Supreme Court decision in Kone Elevator India Private Limited vs. State of Tamil Nadu on the present case.

Issue-wise Detailed Analysis:

1. Whether the contract in question is a 'sale' or a 'works contract':
The appellant, a contractor for windows and doors, argued that their work involved fabricating and installing aluminum sections at the customer's site, which should be classified as a 'works contract' rather than a 'sale'. The original assessment accepted this classification, but the Assistant Commissioner (Commercial Taxes) later revised this, claiming it was an outright sale of doors and windows. The writ court initially upheld this revision, referencing a Division Bench decision. However, the Supreme Court's ruling in Kone Elevator India Private Limited vs. State of Tamil Nadu, which overruled the earlier decision, clarified that such activities fall under 'works contract'. The High Court agreed with this interpretation, finding that the appellant's activities were indeed a 'works contract'.

2. Applicability of Section 7-C of the Tamil Nadu General Sales Tax Act, 1959:
The appellant had opted to pay tax at a compounded rate of 4% under Section 7-C, which applies to works contracts. The Assistant Commissioner disputed this, reclassifying the activity as a sale and thus subject to a higher tax rate under Section 3(2). The High Court found that the appellant's activities met the criteria for a works contract under Section 7-C, and that the initial assessment was correct in applying the 4% compounded rate.

3. Validity of the revised assessment order dated 14.12.2010:
The revised assessment by the Assistant Commissioner imposed a 12% tax rate on the entire turnover, treating the activity as a sale. The appellant objected, arguing that the revision was based on a misinterpretation of their activities and the nature of their contract. The High Court found that the revised assessment did not properly consider the nature of the work and the contractual obligations, and thus, the order was invalid.

4. Impact of the Supreme Court decision in Kone Elevator India Private Limited vs. State of Tamil Nadu on the present case:
The Supreme Court's decision in Kone Elevator clarified the distinction between 'sale' and 'works contract', which was directly relevant to the appellant's case. The High Court noted that the principles laid down by the Supreme Court applied to the appellant's activities, confirming that the work performed was a works contract. Consequently, the High Court set aside the writ court's order and the revised assessment, allowing the appeal and granting the writ of certiorari as prayed for by the appellant.

Conclusion:
The High Court concluded that the appellant's activities constituted a works contract, making them eligible for the compounded tax rate under Section 7-C. The revised assessment order was set aside, and the appellant was granted the writ of certiorari. The court emphasized adherence to the Supreme Court's ruling, reinforcing the legal principles governing the classification of works contracts versus sales.

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