2023 (10) TMI 669 - HC - VAT and Sales Tax

Payment of tax at compounded rates under Section 8 of the Kerala Value Added Tax Act - Deduction of certain amounts from the gross contract value received by him from the customers and applied the rate of tax prescribed under Section 8 to the said reduced contract value - benefit of sub-contractor deduction evidenced by consolidated Forms 20H issued for multiple years - HELD THAT - Athough the provision for payment of tax on compounded basis for works contractors provides that the contractor has an option of paying tax at 3% of the whole contract amount instead of paying tax in accordance with the provisions of Section 6 of the KVAT Act, the expression whole contract amount for the purposes of the Section is clarified as not including the amount paid to sub-contractors for execution of a portion of works contract if the sub-contractor is a registered dealer liable to pay tax under sub section (1) or sub section (1A) of Section 6, and the contractor claiming deduction in respect of such amount furnishes certificates in such form as may be prescribed. The provisions of a taxing statute have to be read in the backdrop of Article 265 of the Constitution of India, which clearly mandates that there shall be no levy and collection of tax except by the authority of law. Read in the backdrop of the constitutional provision, therefore, Section 8 of the KVAT Act cannot be taken as authorising the levy of tax on any amount that does not bear nexus with the construction activity involved in a works contract in the instant case. Statutory levies and amounts paid by the petitioner as pure agent of the customer, who is legally obliged to bear the burden of those levies and expenses, cannot be included in the contractual receipts of the petitioner for computing the whole contract amount for the purposes of Section 8 of the KVAT Act. It is no doubt true that if there was a separate agreement for the sale of the incomplete structure, the consideration shown under such agreement would have been for the purchase of an item of immovable property and no KVAT would have been levied on the said consideration amount. In the instant case, however, there is a situation where in the single agreement that was entered into between the petitioner and his customer, the consideration for the construction activities undertaken by the petitioner for the unfinished portion of the building, at the time of entering into the agreement with the customer, includes not only the amount towards construction of the unfinished portion but also an amount towards the completed portion of the building up to the date of the agreement - Since there was only a single indivisible agreement, for which consideration flowed from the customer to the petitioner, the petitioner cannot be heard to contend that the whole contract value in respect of the works contract undertaken for the customer would not include the consideration attributable to the portion of the building that was already constructed at the time of entering into the agreement. The imposition of tax on the whole contract value, the State cannot be seen as imposing tax on the sale of immovable property; on the contrary, it has to be seen as levying tax on the works contract undertaken by the petitioner, albeit on a value that stood enhanced by the cost incurred for the completed construction. These O.T. Revisions are disposed off.

Summary

Issues Involved:
1. Differential VAT demand without considering the Supreme Court ratio.
2. Deductibility of service tax from taxable turnover.
3. Deductibility of land value as per sale agreement versus registered sale deed.
4. Limitation of deduction claimed based on Form 20H.
5. Deductibility of online building tax, maintenance fund, and sinking fund.
6. Tax credit discrepancies.

Summary:

Issue 1: Differential VAT Demand
The Tribunal confirmed the differential VAT demand for the assessment years 2008-09 and 2010-11 without considering the Supreme Court's ratio in M/s. Larsen & Toubro Limited & Anr v. State of Karnataka & Anr regarding contractors paying tax at compounded rates. The court found against the assessee on this issue, stating that the "whole contract amount" includes the completed portion of the building at the time of entering into the agreement.

Issue 2: Deductibility of Service Tax
The Tribunal held that service tax included in the contract receipts is not deductible from the taxable turnover since the petitioner opted for payment of tax under Section 8(a) of the KVAT Act. The court remanded this issue to the Assessing Authority, stating that amounts collected by the petitioner as a "pure agent" of the customer and paid to statutory authorities cannot be included in the "whole contract amount."

Issue 3: Deductibility of Land Value
The Tribunal held that land value as per the sale agreement is not deductible, only the land value as per the registered sale deed is deductible. The petitioner chose not to press this issue, and hence, it was not answered by the court.

Issue 4: Limitation of Deduction Claimed Based on Form 20H
The Tribunal limited the deduction claimed by the petitioner for the AY 2008-09 to Rs. 11,00,88,027/- despite the petitioner producing Form 20H amounting to Rs. 11,45,21,298/-. The court remanded this issue to the Assessing Authority for verification, as the detailed statement produced indicated that the petitioner should have been granted the benefit of deduction for the full amount.

Issue 5: Deductibility of Online Building Tax, Maintenance Fund, and Sinking Fund
The Tribunal held that online building tax, maintenance fund, and sinking fund collected from customers should not be deducted from the taxable turnover since the petitioner opted for payment of tax under Section 8(a) of the KVAT Act. The court remanded these issues to the Assessing Authority for exclusion from the computation of "whole contract amount" if proven to be expenses incurred by the petitioner as a pure agent.

Issue 6: Tax Credit Discrepancies
The petitioner claimed to have paid a total tax of Rs. 36,08,465/- during the AY 2010-11, but credit was given only for Rs. 22,70,735/-. The court remanded this issue to the Assessing Authority for factual verification and to give due credit if proven through challans.

Conclusion:
The court disposed of the O.T. Revisions by:
1. Answering Question No. (1) against the assessee and in favor of the Revenue.
2. Remanding issues in Questions Nos. (2) and (4) in O.T. Revision No. 87/2018 and Questions Nos. (2), (4), (5), and (6) in O.T. Revision No. 93/2018 to the Assessing Authority for verification.
3. Not answering Question No. (3) in both O.T. Revisions as the petitioner did not press this issue.