2016 (9) TMI 968 - HC - VAT and Sales Tax

Quantification of amount of tax deducted at source of VAT - taxable turnover - total value of the work contracts - deductions as per Section 5 - Section 106 of the Meghalaya Value Added Tax Act, 2003 - works contract - MES Builders Association of India and others vs. Union of India and others 2009 (9) TMI 880 - GAUHATI HIGH COURT - in relation to Section 106(2) of the Act, if the deduction had already been made per Schedule IV-A, further deduction per Section 5(2)(c) would not be made - for the purpose of Section 106 (2) of the Act of 2003, the deduction in relation to Section 5 (2) (c) of the Act of 2003 would be either on the actual value of labour, services and other like charges; or it would be at the percentage provided in Schedule-IV-A, in such cases where the charges towards labour, services etc. are not ascertainable from the terms and conditions of the contract. Final assessment by assessing officers - Held that - any deduction made by the principal while making payments towards the works contract would always remain subject to the final assessment under the Act of 2003 by the Assessing Officer; and deduction at source by the principal, by itself, is not decisive of the actual amount of VAT payable. Petition disposed off - decided against petitioner.

Summary

Issues Involved:
1. Deduction of Value Added Tax (VAT) at source on works contracts.
2. Application of Section 106 of the Meghalaya Value Added Tax Act, 2003.
3. Interpretation of the decision in MES Builders Association of India and others vs. Union of India and others.
4. Final assessment by the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Deduction of Value Added Tax (VAT) at source on works contracts:
The petitioners contended that VAT deductions should be made on the 'taxable turnover' after providing for deductions as per Section 5 of the Meghalaya Value Added Tax Act, 2003, rather than on the 'total value of the work contracts.' The court noted that the petitioners received running payments for their works but faced issues with VAT deductions at the time of final payments. The respondents were poised to deduct VAT on the total contract value without considering the deductions envisaged by Section 5.

2. Application of Section 106 of the Meghalaya Value Added Tax Act, 2003:
Section 106 provides for the deduction of tax at source for works contracts. The court observed that Section 106 did not conform to Section 5, which specifies tax liability on the 'taxable turnover.' The court highlighted that Section 106 failed to provide a mechanism for confining the quantum of advance tax to the taxable turnover alone, leading to potential overreach beyond the legislative competence of the State Legislature.

3. Interpretation of the decision in MES Builders Association of India and others vs. Union of India and others:
The court examined the decision in MES Builders Association, which clarified that the deduction of tax at source should be on the taxable turnover, not the total contract value. The court read down Section 106 to align it with Section 5, ensuring that deductions at source reflect only the taxable turnover. The decision emphasized that deductions should not be made on inter-State sales, outside sales, or sales in the course of import, as these are beyond the State's legislative competence.

4. Final assessment by the Assessing Officer:
The court acknowledged the State's submission that any deduction at source remains subject to final assessment by the Assessing Officer. The court clarified that deductions made by the principal while making payments towards works contracts are not decisive of the actual VAT payable, which will be determined during the final assessment.

Conclusion:
The court directed that final payments to the petitioners should be settled with reference to the provisions of the Act, the decision in MES Builders Association, and the court's observations. The court emphasized that deductions should be made either on the actual value of labor, services, and other charges or as per the percentage in Schedule IV-A when such charges are not ascertainable. The court disposed of the petitions, expecting the authorities to finalize bills and proceedings expeditiously.