2014 (8) TMI 224 - HC - VAT and Sales Tax

Deducation of VAT at source - Exclusion of tax situs - Whether when the assessee buys materials from a neighbouring State for completing works contract and discharges CST on the same, the payer for which contract was executed, is liable under the Kerala VAT Act to deduct local VAT at source - Whether the assessee is under obligation to take registration with the local VAT for such a transaction - Held that - when there is factual material available to show that the goods were purchased from Karnataka and brought to Kozhikode (Kerala) for the purpose of the works contract, it is a clear incident of CST Act becoming applicable and once the dealer has suffered the liability to pay tax under the CST Act, it is not known as to how a different view is possible. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of interstate works contract under the Central Sales Tax Act.
2. Applicability of Kerala Value Added Tax Act to a contract involving goods procured from another state.
3. Obligation to deduct tax at source under the Act.

Interpretation of interstate works contract under the Central Sales Tax Act:
The appellant, a registered dealer under the Karnataka Value Added Tax Act, received a work order from the Indian Institute of Management, Kozhikode, for setting up a Business History Museum. The appellant contended that the materials were procured from Bangalore for the contract, making it an interstate works contract under the Central Sales Tax Act. The respondent, however, held that the transaction did not qualify as an interstate works contract, stating that the agreement determined the place of material procurement. The judgment referred to various legal precedents and concluded that the appellant was not liable to pay tax under the Act.

Applicability of Kerala Value Added Tax Act to a contract involving goods procured from another state:
The appellant argued that the movement of goods from Bangalore to Kozhikode for the contract constituted interstate movement, thus exempting the transaction from the Kerala Value Added Tax Act. The Government Pleader supported the respondent's position that the transaction did not meet the criteria for an interstate works contract. The judgment analyzed the obligations of the seller or buyer in an interstate trade scenario, emphasizing the need for a clear obligation to transport goods outside the state. Based on the factual evidence of goods being purchased from Karnataka for the contract, the court found the Central Sales Tax Act applicable and ruled in favor of the appellant.

Obligation to deduct tax at source under the Act:
The issue of tax deduction at source under the Act arose when the Indian Institute of Management, Kozhikode, informed the appellant about deducting VAT before payment. The respondent's order mandated TDS deduction and registration under the Act for the appellant. However, the judgment, citing the Hyderabad Engineering case, deemed the Commissioner's opinion baseless and ruled in favor of the appellant. The court set aside the impugned order, clarifying that the appellant was not obligated to pay tax under the Act or register under it, and IIMK was not required to deduct tax at source. Refund options were provided if tax amounts were already remitted to the department.