2017 (5) TMI 1174 - HC - VAT and Sales Tax

Composite works contract - valuation - According to the department, after excluding the earthwork, the remaining part of contract constitutes the works contract, and since labour charges have not been separately appropriated in the books of account, as such, benefit of labour charges to the extent of 30% has been allowed relying upon the provisions of Rule 9(3) of The Uttar Pradesh Value Added Tax Rules, 2008 - Held that - In absence of any material brought on record to show the basis for such further categorization of work into one constituting labour work, and the other constituting works contract, which also included labour component, the authorities cannot be said to have acted in an unjustified manner in discarding the assessee s claim in that regard - In absence of any material brought on record to the contrary, the finding of the Tribunal that remainder i.e. after excluding the earthwork, entire contract constitutes the works contract and that 30% thereof was liable to be appropriated towards labour charge is based upon correct interpretation of Rule 9(3) and the grievance of assessee in that regard cannot be accepted. Tribunal was justified in treating the quantum of works contract to be ₹ 41,04,40,584/- and appropriating 30% thereof towards labour charges - Appeal dismissed - decided in favor of Revenue.

Summary

Issues:
1. Interpretation of Rule-9 of The Uttar Pradesh Value Added Tax Rules, 2008 regarding deduction of labour charges in works contract.
2. Segregation of labour charges and works contract amount in a composite contract for construction of a Dam.

Issue 1: Interpretation of Rule-9 regarding deduction of labour charges:
The revision challenges the Tribunal's order disallowing deduction for labour charges in a works contract. The Court examined Rule-9(1)(d) and 9(3) of the VAT Rules, emphasizing that the deduction for labour and services can be granted if shown separately in the accounts. The Court held that unless the authorities examine the claim with reference to Rule-9 provisions, they cannot reject the figures representing labour and service values in the books of account. The Tribunal was deemed unjustified in denying the benefit under Rule-9(1)(d) without proper examination. The Court directed the Tribunal to reexamine the matter in light of Rule-9.

Issue 2: Segregation of labour charges in a composite contract:
The Tribunal considered a Dam construction contract as a composite works contract and rejected the segregation of labour charges by the assessee. The department accepted the claim for earthwork but disputed the appropriation of labour charges. The Court upheld the Tribunal's decision that after excluding earthwork, the entire contract constitutes works contract, and 30% should be appropriated towards labour charges. The Court found no basis for further categorization of work into separate labour and works contracts. The Court held that the Tribunal's decision in this regard was justified under Rule 9(3).

Furthermore, the Court addressed the addition of purchase amounts to the turnover, emphasizing that the Tribunal's increase in purchase amounts without basis could not be sustained. The Court modified the Tribunal's order in this regard. The revision was disposed of accordingly, with the Court providing detailed analysis and clarification on the interpretation of Rule-9 and the segregation of labour charges in a composite works contract for construction.