2018 (2) TMI 452 - HC - VAT and Sales Tax

Set off of the amount of TDS deducted in the hands of the main contractor - Form VAT 156 - Rule 44 (3) of the KVAT Rules, 2005 - Held that - the tax payable by the dealer for any period s hall be given set off to the extent of the tax already remitted under sub Section (5) - In the present case, the contractee-BHEL has deducted the tax at source and remitted the same relating to the main contractor/respondent No.5, not of the appellant-assessee herein. The set off is available only to the main contractor to whom VAT 156 certificate is issued. Sub Section (11) further clarifies that the burden of proving the tax on such works contract has been remitted and of establishing the exact quantum of tax so remitted s hall be on the dealer claiming the reduction of tax under sub Section (10). In the present set of facts, it is the main contractor who can be construed as the dealer to claim the reduction of tax under sub Section (10). This is further clarified by Rule 44 (3) (f) which specifies that any authority or person deducting tax, having obtained Form VAT 156 or Form VAT 158 shall not either directly or through any other person transfer the same to another person. The order of the first appellate authority is contrary to these provisions which is apparently erroneous and prejudicial to the interest of the Revenue. The appellant is not entitled to claim set off on the TDS deducted in respect of main contractor regarding which VAT 156 is issued - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Rejection of the claim for set-off of TDS deducted in the hands of the main contractor.
2. Non-issuance of notice to the main contractor before making observations and findings.
3. Enhancement of taxable turnover by ?3 crores without considering revised/rectified returns.

Issue-wise Detailed Analysis:

1. Rejection of the Claim for Set-off of TDS Deducted in the Hands of the Main Contractor:
The primary issue in this appeal is the rejection of the appellant-Company's claim to set off the amount of TDS deducted in the hands of the main contractor, who was issued with Form VAT 156 as per Rule 44 (3) of the Karnataka Value Added Tax Rules, 2005. The appellant argued that under Section 9-A of the Karnataka Value Added Tax Act, 2003, once a dealer shows that tax has been remitted under sub-section (5), the tax payable by him should be reduced by the amount already remitted. The appellant produced Form No.156 to prove the remittance of tax. However, the Addl. Commissioner of Commercial Taxes found that allowing TDS as per Form No.156 issued to the main contractor would be contrary to Rule 44 (3) (f) of the Rules, which prohibits the transfer of such TDS. The court held that the set-off is available only to the main contractor to whom VAT 156 is issued, and not to any subcontractor. The revisional authority was justified in initiating suo motu revision proceedings and setting aside the order of the first appellate authority, concluding that the appellant cannot claim set-off of the TDS amount reflected in Form VAT 156 issued to the main contractor.

2. Non-issuance of Notice to the Main Contractor Before Making Observations and Findings:
The learned Senior Counsel for respondent No.5 (main contractor) contended that no notice was issued to the main contractor before making observations and findings regarding the forfeiture of the tax amount collected at the rate of 4% from the appellant-Company. The court acknowledged that the order of forfeiture without providing an opportunity of hearing to the main contractor is contrary to the principles of natural justice. However, since the main contractor has already filed an appeal against the consequential assessment order, which is pending consideration, the court refrained from addressing this issue in the present appeal and left it open for the first appellate authority to decide in accordance with law.

3. Enhancement of Taxable Turnover by ?3 Crores Without Considering Revised/Rectified Returns:
The appellant-assessee argued that the revisional authority enhanced the taxable turnover by ?3 crores based on the original returns filed in Form VAT 100, without considering the revised/rectified returns filed subsequently. The court observed that if the revised/rectified returns were not considered, the appellant-assessee is at liberty to file an application for rectification of the order for necessary corrections or modifications.

Conclusion:
The court confirmed the finding of the revisional authority that the appellant is not entitled to claim set-off on the TDS deducted in respect of the main contractor for which VAT 156 is issued. The appeal was disposed of with the observation that the appellant-assessee could seek rectification of the order regarding the enhancement of taxable turnover. The issue of forfeiture and the main contractor's appeal were left to be decided by the first appellate authority in accordance with law.