2017 (8) TMI 871 - HC - VAT and Sales Tax

Construction contract - Section 42(3) of the MVAT Act - classification of the contract executed by the Appellant - The Appellant s case is that the terms construction includes Repairs and Reconstruction - Whether a contract for repairs or reconstruction of building is a Construction contract as contemplated by Section 42(3) of the MVAT Act? - Held that - In the construction of Industrial building/real estate, the term construction itself means construction, alteration or repair of building structures or other real property. This includes, but not limited to improvements of all types such as bridges, dams, plants, highway street, railway, airport, canals, channels. Above meaning has been recognized in practice and explained under the related law, since long. There is no specific artificial definition brought in force by this Act/notification. Therefore, above meaning, in our view, still hold the field. Therefore, the law needs to be interpreted accordingly - The building and other related items so added in the definition, itself make the position clear that any construction of building if repairs or alters from 2006, it will liable to 5% tax and not 8%. Therefore, not granting benefit of 5% tax to the Appellant is contrary to law. This tax is applicable to repairing or re alteration to the old building, bridge and road also. In the present case, the terms Works Contract of repair and reconstruction and Contract of Construction of building, include repairs and reconstruction, have been in existence for more than 15 years. There is no contra material to dislodge the same. Therefore, the impugned order so passed, requires interference. The question so raised are answered positive accordingly. Whether the Tribunal is justified in upholding the decision of the Commissioner of rejecting the prayer for prospective effect? - Held that - the question is answered in the negative against the Respondent. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether a contract for repairs or reconstruction of a building is a "Construction contract" as contemplated by Section 42(3) of the MVAT Act?
2. Whether the Tribunal is justified in upholding the decision of the Commissioner of rejecting the prayer for prospective effect?

Issue-wise Detailed Analysis:

1. Classification of Repairs/Reconstruction as Construction Contract:
The primary issue was whether the contract for repairs or reconstruction of buildings falls under the definition of a "Construction contract" as per Section 42(3) of the MVAT Act. The Appellant, a building contractor, argued that the terms "construction" includes "repairs and reconstruction." The Commissioner of Sales Tax had previously determined that such contracts are not "Construction Contracts," thus attracting a higher tax rate of 8% instead of 5%.

The Court analyzed the relevant provisions of the MVAT Act, including Section 42(3) and the accompanying notification, which lists specific types of construction contracts. The Court noted that the term "Construction contract" as defined in the notification includes various types of construction works, but does not explicitly exclude repairs or reconstruction.

The Court referred to past circulars and notifications under the erstwhile Bombay Sales Tax Act, 1959, which clarified that "construction" includes "repairs and reconstruction." The consistent interpretation by the Department over the years supported the inclusion of repairs and reconstruction under "Construction contracts."

The Court concluded that the works contract in question, involving substantial repairs and reconstruction, should indeed be classified as a "Construction contract." The reasoning included the lack of any specific provisions distinguishing between new and old buildings and the historical interpretation that repairs and reconstruction are part of construction contracts.

2. Justification for Prospective Effect:
The second issue was whether the Tribunal was justified in upholding the Commissioner's decision to reject the Appellant's prayer for the determination to have only prospective effect. The Appellant had collected VAT at a rate of 5% based on the existing interpretation and practice.

The Court observed that the consistent interpretation of the term "Construction contract" by the Department had been in favor of including repairs and reconstruction. Given this long-standing practice and the lack of any new notifications or circulars to the contrary, the Court found that the Appellant should not be penalized for relying on the established interpretation.

The Court held that denying the benefit of the 5% tax rate to the Appellant was contrary to law, as the repairs and reconstruction of buildings should be treated as construction contracts, subject to the lower tax rate.

Conclusion:
The Court allowed the appeal, answering the first question in the positive, in favor of the Appellant, and the second question in the negative, against the Respondent. The Court emphasized that the consistent interpretation and practice over the years should be upheld, and the Appellant should be granted the benefit of the lower tax rate for construction contracts, including repairs and reconstruction. There was no order as to costs, and the parties were directed to act based on an authenticated copy of the order.

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