2021 (11) TMI 430 - HC - VAT and Sales Tax

Interpretation of Statute - value of goods - section 15 (5) (a) of the Act - Levy of interest and penalty under Sections 36(1) and 72(2) of the KVAT Act - purchase value of goods bought from outside the State after adding a gross profit of 20% on the same - Section 4 of the KVAT Act - HELD THAT - A harmonious reading of the various provisions would indicate that under Section 15 (1) of the Act, composition scheme would be opted by any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, subject to conditions and in such circumstances as may be prescribed. In other words, any dealer who had purchased or obtained goods from outside the State or from outside the territory of India was not entitled to opt for the composition scheme. Interpretation of value of such goods. - HELD THAT - The language employed by the Legislature in Section 15 5 a is plain and unambiguous. The expression value of such goods relates to purchases made on which liability of tax would be payable under Section 4, notwithstanding the rate of tax under the composition scheme at 4% during the relevant period on the total consideration for the works contract executed. However, this value of the goods which is subjected to the levy of tax under Section 4 has to be deducted from the total consideration of the works contract executed. Whether tax is leviable under Section 4, or under Section 15 (5) (a) of the Act with respect to the gross profit earned by the dealer in transferring the goods purchased inter-state or from outside the territory of India in the composition scheme? - HELD THAT - A bare reading of Section 15 (5) (a) of the Act would indicate that the composition tax liability is on the total consideration for the works contracts executed at 4%, if applied to the inter-state purchases or the goods purchased from outside the territory of India and transferred in the execution of the works contract, the Revenue would suffer tax on the said sale which would have been collected if the said incidence of sale had taken place locally within the State - To remove this anomaly, a level play mechanism has been adopted to levy tax on the inter-state purchases or the goods purchased from outside the territory of India at the regular rate of tax and to deduct the same from the total consideration of the works contract executed by the dealer to make the dealer eligible to opt for composition scheme, despite purchasing goods from outside the State or outside the territory of India. By any stretch of imagination, it cannot be held that the levy of tax under Section 4 would be on the sale value of the goods transferred in the works contract executed by the dealer. The entire approach of the Revenue is fallacious and runs contrary to the intendment of the Legislature - Appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of Section 15 (5) (a) of the Karnataka Value Added Tax Act, 2003 regarding tax liability on inter-state purchases for works contracts.

Analysis:
The revision petition filed by the State challenges an order passed by the Karnataka Appellate Tribunal regarding tax periods from June 2007 to March 2010 for a partnership firm engaged in civil works. The Tribunal had reversed the orders of the authorities, holding that taxes were leviable only on the inter-state purchases and not on adding gross profit. The questions of law considered were related to the levy of interest, penalty, and tax under the KVAT Act. The Revenue argued that the assessee did not discharge tax liability on inter-state purchases used in works contracts. However, the assessee contended that the authorities misinterpreted Section 15 (5) (a) of the Act by adding gross profit to the purchase value for tax calculation.

The crux of the controversy revolves around the interpretation of Section 15 (5) (a) of the Act, which deals with the composition of tax for works contracts. The provision allows dealers executing works contracts and purchasing goods from outside the State to opt for composition under certain conditions. The eligibility for the composition scheme for such dealers is subject to the transfer of property in the goods purchased to works contracts executed. The value of such goods is then liable for tax at the rate specified in Section 4 of the Act and deducted from the total consideration of the works contract.

The dispute primarily concerns the interpretation of the "value of such goods" as mentioned in Section 15 (5) (a) of the Act. The language of the provision is clear that the value of goods subject to tax under Section 4 should be deducted from the total consideration of the works contract. The judgment refers to precedents emphasizing the need to interpret taxing statutes as they read without additions or subtractions based on legislative intent. In this case, the assessing authority construed the provision to include the sale value of goods transferred in works contracts for tax calculation, leading to the dispute over tax liability under Section 4 or Section 15 (5) (a) for gross profit earned on inter-state purchases.

The Court's analysis highlights that the composition tax liability is on the total consideration for works contracts executed, and applying it to inter-state purchases would result in double taxation. The judgment concludes that the Revenue's approach is fallacious and contrary to legislative intent. Therefore, the questions of law are answered in favor of the assessee, and the revision petition is dismissed.