2018 (5) TMI 84 - HC - VAT and Sales Tax

Levy of tax on works contract - interstate transaction - Validity of reassessment order - supply of elevator and other spare parts - installation, testing and commissioning of elevators - the returns filed by the petitioner for the tax periods in question rejected - tax levied along with consequential penalty and interest treating the transaction as works contract exigible to tax under the Karnataka Value Added Tax Act, 2003. Whether the reassessment order passed under Section 39 1 of the KVAT Act is without jurisdiction? - Held that - it is now well settled that alternative remedy is no bar for entertaining the writ petition when the challenge is to the jurisdiction of the Authority passing the impugned order. Hence, relegating the petitioner to avail the alternative remedy available under the KVAT Act would not be justifiable. Whether the movement of goods occasioned from Thane, Maharashtra for executing the works contract in the State of Karnataka would be construed as local sale exigible to levy of tax under the KVAT Act? - Held that - the nature of contract is relevant to determine the transaction whether is a sale simpliciter or works contract - It may be true that the main contract of supplying, installation and commissioning of lifts/elevators might have been split into two, viz., purchase order and work order placed by the customer/purchaser to avoid taxes payable to the State of Karnataka and both these orders are intrinsically interlinked with each other but movement of goods from Thane, Maharashtra to Karnataka pursuant to contract executed between the parties cannot be disputed. The case of the revenue that the works contract receipts received by the petitioner in relation to turnkey project undertaken is being brought to tax which is in purview of Section 4(1)(c) of the KVAT Act, 2003, cannot be countenanced as the divisibility of the contract would not empower the Authorities to subject the inter state transaction to tax under the State Tax Act on the ground that the petitioner has employed dubious methods to avoid payment of tax to the State - levying tax under the provisions of KVAT Act, 2003 on the transaction of the contract executed by the petitioner set aside. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Jurisdiction of the reassessment order under Section 39(1) of the KVAT Act.
2. Classification of the movement of goods from Thane, Maharashtra to Karnataka as inter-state sale or local sale under the KVAT Act.

Detailed Analysis:

1. Jurisdiction of the Reassessment Order:
The petitioner challenged the reassessment order dated 28.02.2017, arguing it was beyond the jurisdiction of the Authority. The court noted that alternative remedies do not bar the writ petition when the challenge pertains to jurisdiction. The court referenced the Division Bench Judgment in "ECE INDUSTRIES LTD," which held that transactions similar to the petitioner's were inter-state sales and not subject to local sales tax, thus falling outside the jurisdiction of the Karnataka VAT authorities. The court concluded that the reassessment order was indeed beyond the jurisdiction of the Authority, as it wrongly classified inter-state sales as local sales, violating Article 286 of the Constitution of India and Section 3(a) of the CST Act.

2. Classification of Movement of Goods:
The petitioner contended that the movement of goods from Thane, Maharashtra to Karnataka was an inter-state sale, not subject to local VAT. The court examined the nature of the contract and referenced the Supreme Court's ruling in "KONE ELEVATOR INDIA PVT. LTD.," which clarified that a composite contract for supply and installation of lifts is a works contract and not a sale of goods. The court analyzed the petitioner's contracts, which were split into purchase orders for supply and work orders for installation. The court found that the movement of goods from Thane to Karnataka was pursuant to a contract, thus constituting an inter-state sale under Section 3(a) of the CST Act. The court held that such transactions cannot be subjected to local VAT, as they fall under inter-state commerce, protected by Articles 265 and 286 of the Constitution.

Conclusion:
The court quashed the reassessment order dated 28.02.2017, ruling that the transactions were inter-state sales and not subject to the Karnataka VAT Act. The court emphasized that the reassessment order was beyond the jurisdiction of the local tax authorities and violated constitutional provisions. The writ petitions were allowed, and no costs were awarded.