2018 (2) TMI 451 - HC - VAT and Sales Tax

Rate of tax - iron and steel in the works contract - whether taxable at 4% or 12.5%? - Held that - The issue involved herein is no longer res integra in view of the dictum enunciated by the Hon ble Apex Court in the case of Gannon Dunkerley & Co. Versus State of Rajasthan & Larsen & Toubro Ltd. & Union of India 1992 (11) TMI 254 - SUPREME COURT OF INDIA , where it was held that the declared goods in question can only be taxed at the rate of 4% - revision dismissed - decided against Revenue.

Summary

Issues:
1. Assessment of tax rate on iron and steel in civil works contract under the Karnataka Value Added Tax Act, 2003.
2. Interpretation of whether iron and steel used in civil works contract qualifies as declared goods.
3. Justification of the Karnataka Appellate Tribunal's decision regarding the tax rate on iron and steel in civil works contract.

Issue 1: Assessment of Tax Rate on Iron and Steel
The revision petitions were filed against the judgment of the Karnataka Appellate Tribunal regarding the assessment of tax on iron and steel in civil works contracts for the years 2005-06 to 2008-09. The assessing authority initially levied tax at 4%, but the revisional authority increased it to 12.5%. The assessees then appealed to the Tribunal, which ruled in favor of taxing iron and steel at 4% as declared goods. The Revenue challenged this decision through the revision petitions.

Issue 2: Interpretation of Declared Goods
The questions of law posed by the Revenue centered around whether iron and steel used in civil works contracts, which undergo changes in shape and size during the contract execution, should be considered transferred in the same form as purchased. The Tribunal's decision to tax iron and steel at 4% as declared goods was challenged by the Revenue, questioning the justification of this classification.

Issue 3: Tribunal's Justification and Legal Precedents
The Tribunal justified its decision based on the precedent set by the Hon'ble Apex Court in a previous case. The Court referred to a case involving the change in form of iron and steel products when used in cement concrete, leading to the conclusion that they were no longer declared goods. The Court highlighted that the iron and steel products were transformed during the works contract, impacting their classification for taxation purposes. The judgment in question was followed by a Co-ordinate Bench of the Court in another case, further solidifying the legal stance on the taxation of iron and steel in such contracts.

Conclusion
The High Court, after considering the arguments presented, dismissed the revision petitions filed by the State, citing that the issue was already settled by the Hon'ble Apex Court judgment in a previous case. The Court found no new question of law arising from the present petitions, as the legal position on the taxation of iron and steel in civil works contracts had been clarified by the higher judiciary. Therefore, the revision petitions were dismissed, and no costs were awarded.