2015 (4) TMI 125 - HC - VAT and Sales Tax

Levy of tax on activities considering the agreement as an integrated single composite contract - Composition tax under Section 15(1)(b) of the Karnataka Value Added Tax Act 2003 - Held that - It is clear that in a works contract involving transfer of goods and labour tax is payable under Section 15(1)(b) on the total consideration of the works contract. If the labour contract is an individual contract involving only labour no tax is payable. In the case on hand the assessee has segregated the activities as per the work orders executed against the offer for erection and installation of WTGs. It is not the case of receiving labour related charges for executing pure labour work without transferring any property in goods. The entire contract if perused as a whole is in the nature of composite single integrated contract though designed as it is four separate work orders. All the segregated activities are related to the very same project with the very same customer involving transfer of goods and labour. Apex Court while considering an identical provision in the case of Builders Association of India (1996 (11) TMI 355 - SUPREME COURT OF INDIA) under the provisions of Kerala General Sales Tax Act has categorically held that the alternate method of composition provided under composition tax is optional there is no compulsion upon any contractor to opt for the alternate method of taxation and by opting to this alternate method the contractor saves himself the botheration of book keeping assessment appeals and all that it means. The assessee having opted for the composition benefit voluntarily and with the full knowledge of the features of the alternate method of taxation is liable to make the payment of tax on the total consideration of the works contract involving both labour and transfer of goods. Segregation of composite contract is not permissible under Section 15(1)(b) of the Act. Even if any segregation is made for the purpose of billing and separate invoices are raised towards each portion it does not alter the nature of composite contract. - Tribunal on proper appreciation of the terms of the contract recorded a plausible finding that the contract executed by the assessee is a composite single integrated contract and all the four activities mentioned in the work orders as individual activities are intrinsically linked with each other and the main object is for the installation and commissioning of WTGs as per the offer letter. Thus no interference is called for with the well-reasoned order passed by the Tribunal. - Decided against assessee.

Summary

Issues:
Challenge to Karnataka Appellate Tribunal's judgment on tax levied for works contract under Karnataka Value Added Tax Act, 2003.

Analysis:
1. Contract Segregation Argument:
The petitioner argued that they entered into four distinct contracts and paid tax accordingly, citing a judgment to support their position. However, the revenue contended that the Tribunal's decision was correct, supported by a different judgment. The relevant provision, Section 15(1)(b) of the Act, allows dealers executing works contracts to opt for composition tax. The total consideration for works contracts includes both goods and labor charges.

2. Integrated Contract Interpretation:
The Court examined the offer letter and work orders to determine the nature of the contract. The offer clearly outlined services for the erection and installation of WTGs as a single integrated contract. The Tribunal also considered the work orders and invoices, noting the interdependence of civil foundation, electrical work, and WTG installation. The Court referred to a previous case to emphasize that tax is payable on the total consideration of works contracts involving goods and labor.

3. Composite Contract Nature:
The Court emphasized that the contract should be viewed holistically, focusing on the purpose of the agreement. Segregating activities for billing purposes does not change the composite nature of the contract. The Apex Court's ruling in a similar case highlighted that opting for composition tax entails payment based on the total consideration, including labor and goods transfer.

4. Service Tax Distinction:
The Court rejected the argument that paying service tax on labor receipts exempted the petitioner from composition tax under Section 15(1)(b). Different enactments govern service tax and composition tax, making the petitioner liable for both if applicable. The Tribunal's finding that the contract was a single integrated one, intrinsically linking all activities for WTG installation, was upheld.

5. Judgment Outcome:
Ultimately, the Court dismissed the revision petitions, ruling in favor of the revenue. The Tribunal's decision was deemed well-reasoned, maintaining that the contract was composite and integrated, warranting payment of composition tax on the total consideration. The Court's detailed analysis upheld the Tribunal's findings, emphasizing the holistic interpretation of the contract and the applicability of composition tax on integrated works contracts involving goods and labor.