2017 (3) TMI 1491 - HC - VAT and Sales Tax

Input tax Credit - duty paying documents - Works contract - whether the awarder of the contract, namely, Karnataka Water Supply Board is Government , and therefore, the Running Bills prepared by the Board can be construed as Tax Invoices within the meaning of Rule 27(2) Proviso of Karnataka Value Added Tax Rules, 2005? Held that - The purpose of the Proviso to Rule 27(2) of the KVAT Rules giving the status of Tax Invoices or Bill of Sale even to the Running Account Bills to the awarders of the work contract to be executed by contractors by the Government or its departments is obviously to allow such contractors to take input tax credit on the basis of such tax invoices. Since running bills are prepared during the currency of the execution of contract itself since the final bill is not made at that point of time. There is no reason to hold that the Karnataka Water Board, in question, is not a Department of the Government or so as to fall outside the ambit and scope of the said Proviso to Rule 27(2) of the KVAT Rules - revision dismissed - decided against Revenue

Summary

Issues:
Interpretation of Rule 27(2) Proviso of Karnataka Value Added Tax Rules, 2005 regarding the classification of Running Bills as "Tax Invoices" for contractors executing civil works contracts awarded by Government.

Analysis:
The Sales Tax Revision Petition was filed against the order of the Karnataka Appellate Tribunal, which held that the Karnataka Water Supply Board, as the awarder of the contract, is not considered 'Government,' and therefore, the Running Bills prepared by the Board cannot be deemed as "Tax Invoices" under Rule 27(2) Proviso of the Karnataka Value Added Tax Rules, 2005. The Tribunal's decision was based on a harmonious reading of relevant sections and rules, stating that the appellant should have informed the statutory body to deduct tax at source as per their calculation, as per Section 9-A(3) of the Act.

The High Court allowed the appeal in part, holding that the Running Account Bills prepared by the Board should be considered as tax invoices for calculating the tax collected amount. It further stated that the actual tax deducted at source in the Running Account Bills should be treated as the tax collected for deduction under Rule 3(2)(h). The matter was remanded to the assessing authority for further examination based on the court's decision.

Regarding the interpretation of Rule 27(2) and its Proviso, the Court found no merit in the argument that the Karnataka Water Board cannot be treated as 'Government' within the meaning of the Proviso. The purpose of the Proviso was to allow contractors to take input tax credit based on Running Account Bills, as final bills are not issued during the contract execution. The Court emphasized that the Proviso was enacted to enable contractors to avail input tax credit even on running bills prepared by Government Departments.

The Court concluded that the Karnataka Water Board should be considered a Department of the Government falling within the scope of the Proviso to Rule 27(2) of the KVAT Rules. Therefore, no question of law arose in the case, and the decision of the Tribunal was deemed just and proper. Consequently, the Sales Tax Revision Petition filed by the State was dismissed, with no costs imposed, and a copy of the order was directed to be sent to the respondent-assessee.