2016 (11) TMI 898 - HC - VAT and Sales Tax

Works contract - benefit of deduction - Site Establishment Expenses - Consumables - Maintenance Charges in respect of Plant & Machinery - Material covered by section 3/ 4/5 of the Central Sales Tax Act - Held that - whether the articles had been transferred in the execution of the works contract could not be left to mere supposition and it was the obligation of the assessing authority as well as the first appellate authority to record and arrive at a concrete conclusion as to whether there had in fact been a transfer of property in those goods in the execution of the works contract or not? Held that - on mere presumptions, the assessing authority could not be permitted to bring to tax the articles which had been transferred in the execution of the works contract. Surprisingly however, after having held that the assessing authority had clearly erred in proceeding on a mere assumption that 60% of the value of the articles alone had been utilized in the execution of works contract it has proceeded to hold that 75% of the value of the articles in question were liable to be apportioned towards the temporary establishment whereas 25% of the value of the articles in question were liable to be attributed to the execution of the works contract. Insofar as the benefit of articles which are covered by Sections 3,4 and 5 of the Central Sales Tax Act are concerned, it has proceeded to hold that no material was placed which would indicate that these goods were brought from outside the State exclusively for the purposes of execution of the works contract. Both these findings in the opinion of this Court, are wholly conjectural and based entirely on surmises - this Court is of the opinion that the facts of the case would merit a remand of the matter to the Tribunal which shall now proceeded to consider the matter afresh - revision allowed - matter remanded.

Summary

Issues:
Assessment of deductions under various heads in works contract for construction projects.

Analysis:
The revisionist was involved in executing two work contracts for an IT park and a commercial complex. The assessing authority denied various deductions claimed by the revisionist, including payments to sub-contractors, UP tax paid purchases, site establishment expenses, consumables, maintenance charges, and materials covered by the Central Sales Tax Act. The Tribunal noted that the assessing authority and the appellate authority only granted relief to 60% of the claimed deductions. The Tribunal emphasized the importance of determining whether the articles were transferred in the execution of the works contract. It criticized the authorities for relying on assumptions and held that a concrete conclusion regarding the transfer of property in goods was necessary. The Tribunal found fault with the assessing authority for assuming that 60% of the value of the articles were utilized in the works contract. However, the Tribunal itself made arbitrary allocations, attributing 75% of the value to temporary establishment and 25% to the works contract, which the court deemed conjectural and unsustainable.

The Tribunal's decision on articles covered by Sections 3, 4, and 5 of the Central Sales Tax Act was also criticized for lacking a clear finding on whether these goods were actually used and transferred in the works contract execution. The court found the Tribunal's approach to be based on surmises and failed to address the crucial issue of whether the goods were genuinely utilized in the works contract. Consequently, the court concluded that a remand of the matter to the Tribunal was necessary for a fresh consideration in line with the observations made. The court allowed the revision, set aside the Tribunal's order, and directed the matter to be reconsidered by the Tribunal in light of the court's observations.