2014 (5) TMI 760 - HC - VAT and Sales Tax

Claim of Deduction - Whether the tax element charged is part of the consideration or not - Works contract Contract of Retreading of tyres Agreement to consolidate price inclusive of tax - Explanation (1-A) to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 Held that - When the parties to the contract have agreed on a consolidated price inclusive of tax, it is clear that irrespective of how they make up the bill or the accounts, the entire consideration will be the turnover, and in which event, the question of application of Explanation (1-A) to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959, does not arise - This Court, in the unreported decision in W.P.No.37025 of 2002, by order dated 1.4.2004, clearly held that how an assessee makes up its bill or accounts, would not be of any assistance to the assessee for the purpose of claiming any deduction by the application of Explanation (1-A) to Section 2(r) of the TNGST Act - This Court pointed out that the mere fact that the assessee had given the break-up figure on the back side of the bill for administrative convenience, by itself, would not be a ground for granting the relief. Works contract turnover, hence deemed sale, and the divisibility of the consideration is worked out statutorily as under Section 3-B of the TNGST Act, 1959 - Break-up of the consideration and the tax thereon is shown under various heads in the books of accounts of the assessee - That apart, there is hardly any material to find, on which portion of the consideration, the assessee really collected the tax payable under the Act It is not agreed that the mere fact of distribution under different heads in the amounts would qualify for deduction under the Act, or for that matter, no tax would be charged Therefore, no hesitation in confirming the order of the Tribunal - The Tax case Appeals stand dismissed Decided against assessee.

Summary

Issues:
1. Interpretation of Section 2(r) and Explanation (1-A) to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959.
2. Applicability of tax exclusion from turnover when charged separately.
3. Assessment of turnover in works contract cases.
4. Compliance with statutory provisions on tax collection and turnover calculation.

Analysis:
1. The case involved a company engaged in retreading tyres on a works contract basis for the assessment years 1989-1990 and 1990-1991. The dispute arose over the treatment of tax collected by the assessee in the consolidated amount quoted for the works undertaken. The Assessing Officer contended that since the tax was not separately shown in the bills and was only notionally stated in the accounts, the entire turnover at 70% was liable for tax assessment. The assessee argued that the tax portion was clearly indicated in the agreed amount, making it not part of the turnover.

2. The assessee claimed that the tax collected on 70% of the contract amount should be excluded from turnover as per the Kerala High Court decision. The Revenue, however, argued that the amendment to Explanation (1-A) mandates tax exclusion only if shown separately, which was not the case here. The Revenue highlighted that the tax element was part of the price charged, making it ineligible for deduction under the Act.

3. The Tribunal rejected the assessee's contentions, emphasizing that the consolidated amount charged, inclusive of tax, did not allow for bifurcation of labour and materials. The books of accounts did not provide a clear breakdown of the tax collected in relation to the material value. The Tribunal upheld the Assessing Officer's view that the adjustment entries in the accounts did not satisfy the Act's provisions, leading to the confirmation of the tax assessment.

4. The High Court concurred with the Tribunal's decision, stating that the entire consideration, including the tax element, constituted the turnover. The Court referred to a Supreme Court decision to emphasize that any amount included in the sale price or consideration contributes to the turnover for tax liability. The Court dismissed the Tax case Appeals, affirming that the mere distribution of amounts under different heads in the accounts did not qualify for tax deduction under the Act.

In conclusion, the High Court upheld the tax assessment on the consolidated amount charged by the assessee, ruling that the tax collected formed part of the turnover. The judgment emphasized the importance of separate tax display for exclusion and clarified that the manner in which parties structure the bill or accounts does not affect the tax liability determination under the Act.