2018 (3) TMI 1367 - HC - VAT and Sales Tax

Rate of tax - works contract - what is the rate of tax applicable to the contract/activity of the petitioner for flex, vinyl printing and installation? - Held that - The Commissioner of Commercial Taxes ought to have examined whether the installation work carried on by the assessee is a composite contract attracting Sl. No.23 of the Sixth Schedule to the Act - The Commissioner proceeded on the ground that the contract falls under Entry 23 of the Sixth Schedule without assigning any valid reasons. In the circumstances, this Court is of the considered opinion that the Respondent No.1-Commissioner of Commercial Taxes shall examine this aspect and a decision shall be taken in accordance with law. The Commissioner s clarification impugned at Annexure-E to Writ Petition No.51431/2017 is quashed - matter is remanded to Respondent No.1-Commissioner of Commercial Taxes to examine the issue in the light of the observations made as aforesaid and take a decision in accordance with law in an expedite manner - petition allowed by way of remand.

Summary

Issues:
Interpretation of works contract for flex, vinyl printing and installation under the Karnataka Value Added Tax Act, 2003.

Analysis:
The petitioner, engaged in flex, vinyl printing, and signboards business, sought clarification on the tax rate applicable on their activities under the Karnataka Value Added Tax Act, 2003. The Commissioner of Commercial Taxes clarified that the printing and supply of flex, vinyl, signboards, and installation constitute a works contract taxable at 14.5%. The petitioner contended that their activity falls under a different category, Sl. No.8, attracting a lower tax rate of 5.5%. The petitioner relied on a judgment from the Allahabad High Court to support their argument.

The respondent-revenue argued that the petitioner's activities fall under Sl. No.23 of the Sixth Schedule, attracting a higher tax rate of 14.5%. They emphasized that items like posters, hoardings, and banners used for publicity are considered works contracts under the Act.

The Court examined the nature of the petitioner's activities and the relevant tax rates under the Sixth Schedule. It noted that Sl.No.8 pertains to printing and block making, distinct activities with a lower tax rate, while Sl.No.23 covers all other works contracts at a higher tax rate. The Court referenced a full Bench decision of the Allahabad High Court to support the interpretation of clauses in the Act.

The Court differentiated previous judgments cited by both parties, clarifying that they were not directly applicable to the current case. It emphasized the need to determine whether the petitioner's contract involved a composite contract under the Sixth Schedule.

Consequently, the Court quashed the Commissioner's clarification, remanding the matter for reexamination. The Commissioner was directed to decide whether the petitioner's activities fell under Sl. No.8 or 23 within four weeks. The assessment orders based on the clarification were set aside for reassessment in line with the new decision.

Overall, the Court's decision focused on the correct categorization of the petitioner's works contract activities for tax purposes under the Karnataka Value Added Tax Act, emphasizing the need for a thorough examination by the tax authorities.