2023 (10) TMI 346 - HC - VAT and Sales Tax

Rejection of Petitioner s claim of deduction/exemption on Prime Location charges - works contract or not - HELD THAT - Undisputed facts of the case are, assessee is engaged in the business of development and construction of residential apartments. Assessee has collected PLC and FRC from the buyers and discharged the service tax payable on PLC/FRC. The estimate and actual cost of construction depends upon the material used for construction. The cost of construction shall be the same without reference to the direction of the flat, the view from a particular flat vis- -vis the other flat situated on the same floor. The PLC/FRC are based on the choice of buyer and cannot be treated as cost of construction. For example, a flat situated on a higher floor over-looking a garden or seashore shall have better locational advantage than the flat in the same floor from where the garden or the seashore may not be visible. Nonetheless the cost of construction of both flats situated in a particular floor shall be the same. By definition, works contract does not include preferential location. Therefore the Revenue rejecting assessee s request to exempt PLC/FRC from payment of KVAT is not sustainable in law. These revision petitions are allowed.

Summary

Issues Involved:
The issues involved in this judgment revolve around the rejection of the petitioner's claim of deduction/exemption on Prime Location charges by the Karnataka Appellate Tribunal for Assessment Years 2013-14, 2014-15, and 2015-16.

Assessment Year 2013-14 (STA No.264/2019):
The petitioner, a Private Limited Company engaged in development and construction of residential apartments, collected 'Prime Location Charges (PLC)/ Floor Rise Charges (FRC)' for flats in prime locations. The dispute arose when the tax authorities rejected the exemption claim on PLC/FRC under the Karnataka Value Added Tax Act, 2003 (KVAT Act). The Karnataka Appellate Tribunal upheld the rejection, leading to the filing of this petition. The petitioner argued that PLC/FRC should not be subject to KVAT as service tax had already been paid on them, and they do not constitute consideration for property transfer. The court, after considering relevant legal provisions and precedents, ruled in favor of the petitioner, setting aside the KAT's order for this assessment year.

Assessment Year 2014-15 (STA No.265/2019):
Similar to the previous assessment year, the petitioner's claim for deduction on PLC/FRC was rejected by the tax authorities and the JCCT, leading to an appeal before the Karnataka Appellate Tribunal. The petitioner contended that PLC/FRC should not be taxed under KVAT as they are not part of the consideration for property transfer and service tax had already been paid on them. The court, after evaluating the arguments and legal provisions, allowed the petition, setting aside the KAT's order for this assessment year.

Assessment Year 2015-16 (STA No.266/2019):
In this assessment year, the petitioner's claim for deduction on PLC/FRC was again rejected by the tax authorities and the JCCT. The Karnataka Appellate Tribunal upheld the rejection, prompting the petitioner to file a petition challenging the decision. The petitioner argued that PLC/FRC should not be subject to KVAT as service tax had been paid on them and they do not form part of the consideration for property transfer. After considering the contentions of both parties and relevant legal provisions, the court allowed the petition, setting aside the KAT's order for this assessment year.

Common Order:
The court noted that the revision petitions for all three assessment years involved common questions of law and hence disposed of them by a common order. After hearing arguments from both sides, the court ruled in favor of the petitioner, allowing the revision petitions and answering the substantial questions of law in favor of the assessee against the revenue. The orders passed by the Karnataka Appellate Tribunal for all three assessment years were set aside, with no costs imposed.