2014 (4) TMI 841 - HC - VAT and Sales Tax

Nature of agreement - Whether transaction was sale or a works contract Levy of penalty evasion of tax - Held that - contract is a not a simple sale, it is a composite works contract, u/s 3-B of the TNGST Act and not a simple sale - The contract provides for assembling of design, manufacture assembling, supply erection, commissioning and handing over within a period and the second crane to be erected, commissioned and handed over - In the light of the nature of agreement the taxable turnover, hence, has to be worked out only in accordance with the provisions under Section 3B of the Tamil Nadu General Sales Tax Act - Various terms of the agreement show that the assessee entered into an agreement with Japanese Corporation and signed a collaboration agreement with M/s.Hitachi Limited for importing components required for cranes and whereby, Hitachi had agreed to sell the drawings and other necessary documents to the assessee - and the second crane to be erected, commissioned and handed over - the nature of agreement and the taxable turnover has to be worked out only in accordance with the provisions under Section 3B assessment set aside - Matter remitted back to the AO for re-working out the deduction In absence of details available in the books of accounts as regards the turnover not involving transfer of property of goods, the agreement falls u/s 3B(e), the assessee entitled to deduction at 30% as by way of standard deduction - Decided partly against assessee.

Summary

Issues:
Assessment of turnover for the assessment year 1986-87 under the Tamil Nadu General Sales Tax Act; Determination of penalty for failure to disclose turnover; Classification of contract as a sale or works contract; Applicability of deductions under Section 3B of the Tamil Nadu General Sales Tax Act.

Assessment of Turnover:
The case involved a Government of India undertaking executing a contract with Madras Port Trust for cranes. The Assessing Officer determined the turnover for the assessment year 1986-87 at Rs.5,55,58,933, with a penalty of 150% of the tax due on the actual turnover. The Appellate Assistant Commissioner upheld this decision, emphasizing the transfer of property in the cranes only in Tamil Nadu, rejecting the inter-State works contract contention.

Classification of Contract:
The Sales Tax Appellate Tribunal considered the contract as a composite contract for the supply of cranes, totaling Rs.3,97,48,000. It noted restrictions on crane movement and held that the erection was a sale, not a works contract. The Tribunal found no evidence of willful tax evasion by the Government undertaking, deleting the penalty levied for 1986-87 and 1987-88.

Applicability of Deductions:
The Tribunal concluded that the contract was a composite works contract under Section 3-B of the Tamil Nadu General Sales Tax Act, involving design, manufacture, supply, erection, and commissioning of cranes. It directed the Assessing Officer to rework the turnover to consider deductions for labor costs, setting aside the previous assessment on this issue.

Conclusion:
The High Court confirmed the Tribunal's decision on the supply of an additional telescopic spreader. It remanded the matter to the Assessing Officer for reworking the turnover to determine deductions for labor costs. The Court emphasized the need for proper documentation to support labor expenditure claims and upheld the Tribunal's classification of the contract as a composite works contract, not a simple sale.