Giving Shuttering on hire to builders for use in construction is deemed sales- Rent Received therefrom is liable to VAT under Punjab VAT

[AMIT BAJAJ ADVOCATE]

The word Sale has been defined under section 2(zf) of  Punjab VAT Act 2005 as including the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

Thus transfer of right to use any goods is also considered as deemed sales. Such transfer also includes giving shuttering goods on hire for use in the cource of  construction of a building or any other structure.

The verdict of SC on this point: The Hon’ble Supreme Court in Aggarwal Brothers V. State of Hr.[1999] STM-120 (SC) had held that “the Haryana General Sales Tax Act 1973 defines “sale” to mean the transfer of property in goods for cash or deferred payment or other valuable consideration and includes the “transfer of the right to use any goods for any purpose(whether or not for a specified period) for cash, deferred payment or other valuable consideration”. Such transfer of the right to use goods for consideration is deemed to be a sale. The provision expressly speaks of “transfer of the right to use goods” and not of transfer of goods. There is , therefore, no merit in the submission that to be a deemed sale within the meaning of the above mentioned provision of the said Act there must be a legal transfer of goods or that the transaction must be like a lease.”

Definition of sales as considered by SC in the above case under Haryana General Sales Tax Act 1973 is similar to the definition contained under section 2(zf) of Punjab VAT Act 2005 Hence the above decision should also apply on similar lines under PVAT Act 2005. Thus hire charges received on account of giving shuttering material on hire for use in construction of any building or any other structure will be liable to VAT under PVAT Act 2005.

Order of Commissioner u/s 85 of PVAT Act: Now the Commissioner under PVAT Act 2005 has issued an order determinig a similar question u/s 85 of PVAT Act 2005 stating that such giving of shuttereing material on hire in the construction is a deemed sales and hire charges therefrom is liable to VAT under PVAT Act. The other question remaining about the rate at which such hire charges will be taxable has also been decided in the said order and it is held that such hire charges will be taxable @12.5% as the Shuttering and scaffolding material are unclassified goods.

The said order is produced herebelow for ready reference of all concerneds:

Before Sh. A. Venu Prasad, IAS, Excise & Taxation Commissioner, Punjab

Name of the Applicant                                  M/s Aay Pee Industries,

                                                                     Old Ambala-Kalka Road,

                                                                     Zirakpu

Subject                                                       Application u/s 85 of Punjab VAT Act.

ORDER

The applicant M/s Aay Pee Industries, Zirakpur  is  registered under the PVAT Act, 2005 having  TIN No. 03242064275 and is doing business at Dera Bassi. The applicant is engaged in the business of supply of shuttering and scaffolding on hire basis to various works contractors who use the same against a pre-determined hire charges and the same goods are sent back to the applicant assessee after its use.  The applicant raised the following questions under section 85 of the PVAT Act, 2005

(i)  Whether the applicant-assessee is liable to pay any tax on the hire charges received from the persons to whom shuttering material is given on hire basis under the provision of the Punjab VAT Act,2005 ?

(ii)  If the answer to Question (i) is in ‘yes’ what would be the taxable turnover on which the tax is payable by the assessee?

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(iii) What is the rate of tax payable on the taxable turnover determined in accordance with answer to Question No,2 as the goods in question are iron and steel goods which are declared u/s 14 of the Central Sales Tax Act, 1956 ?

(iv)  If the shuttering material is sent on hire basis to places outside the State of Punjab, then what is the rate of tax payable on the taxable turnover determined under the provisions of Central Sales Tax Act if ‘C’- form is received from the person who uses this shuttering material ?          

The requisite fee of Rs. 2500/- has been deposited as per TR placed on the file. It has also been certified that the present querry is squarely covered u/s 85 of the PVAT Act, 2005 as no  assessment proceedings  have been initiated  or any case under the PGST 1948 is pending in any court of law on this point. Therefore, the case is taken up u/s 85 of the PVAT Act, 2005. In response to the notice Sh. Sandeep Goyal, Advocate  is present and submitted that  the assessee purchases  iron and steel items including MS Pipe, MS Flat, MS Sheets and channels etc. for the purpose of shuttering and in view of the  provisions contained in section 14 of the CST Act, 1956, these are declared goods and are therefore, taxable @ 4%. He further submitted that to remove any kind of doubt and difficulty in future, the applicant has filed the present application for determination of rate of tax. The counsel referred to the definition of sale contained in section 2(zf) of the PVAT Act, 2005 and section 2(g) of the CST Act, 1956, which are reproduced as below:-

S.2 (zf) “sale”  with all its grammatical or cognate expressions means any transfer of property in goods for cash, deferred payment or other valuable consideration and includes –

(i)  transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(ii)   transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii)  delivery of goods on hire-purchase or any system of payment by instalments;

(iv)  transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

S.2(g)  “sale” with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes-

(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii) a delivery of goods on hire-purchase or any system of payment by instalments;

(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

Further the counsel referred to the definition of taxable turnover contained in section 2(zo) of the PVAT Act, 2005 which reads as below:-

        S.2 (zo) “taxable turnover” means that part of gross turnover of sales or purchases, as may be determined after making such deductions from the gross turnover of sales or purchases, as are admissible under this Act  or as may be prescribed, on which a person shall be liable to pay tax;

 The basic idea behind referring to the definitions referred above is that it is only the goods which are part and parcel the turnover. The counsel stressed that since the item being used are  iron and steel goods therefore, the same are taxable @ 4%. The Departmental representatives submitted scaffolding and shutterings are not iron and steel, they are manufactured  from iron and steel. Both the items are not covered under Schedule-B or B-1 of the PVAT Act, 2005 or Section 14 of the CST Act, 1956; as only goods specified under section 14 of CST Act can be considered as declared goods. Shuttering and scaffolding are not mentioned under section 14 of the CST Act, 1956.  Therefore, these items must be considered as unclassified items & hence taxable @ 12.5%.

I have considered the arguments of both sides  and am of the view that the shuttering and scaffolding material are not covered under heading of the iron and steel under section 14 of the CST Act, 1956. They are manufactured from Iron and steel items such as MS Pipes, MS Flat, MS Sheets and channels etc. Therefore, the questions raised  are answered as below:-

(i)         The applicant assessee is liable to pay tax on hire charges  for scaffolding and shuttering received from the persons to whom shuttering material is given on hire basis under the provisions of the PVAT Act, 2005 as the same is covered under Definitions contained in section 2(zf) (iv) of the PVAT Act, and section 2(g)(iv) of the CST Act,1956.

(i)  The taxable turnover in this case will be the amount of hire charges received by the applicant-assessee in view of the definition of the sale contained in section 2 of the PVAT Act.

(ii)   The rate of tax  payable of hire charges of shuttering and scaffolding shall be 12.5% + surcharge; in view of the fact that the goods involved in this case are unclassified goods.

(iii)   The rate of tax of hire charges against ‘C’ form is 2%. 

 The question is determined accordingly.

 

                                                                                                A. Venu Prasad

                                                                        Excise and Taxation Commissioner, Pb