2018 (8) TMI 1 - HC - VAT and Sales Tax

Levy of VAT - Intra-state or inter-state levy? - works contract - turnkey project - registration of outside contractor - Whether the dealer who is engaged in installation and commissioning of water and sewage treatment plant is liable to pay tax within the State for the goods incorporated in the works contract when the said goods are transported inter-state pursuant to the contract entered into by the awardee situated within the State of Kerala? Held that - When there is an inter-state sale there would be no tax leviable in the recipient State. Like wise when there is an inter-state works contract the sale occurs only when there is an incorporation in the works. If the transfer of goods which are incorporated in the works are those brought from the other State it has all the characteristics of an inter-state sale - decided in favor of in favor of the out-of- state contractor. Whether the outside contractor who had carried out the inter-state works contract in his status as an importer has obtained registration or not? - Held that - The necessity to get a registration cannot be disputed. In such circumstances there is a reason for penalty but however there being no tax evasion the consequence would be the imposability to compute the tax evaded and in that context the maximum penalty of 10, 000/- would be imposed on the dealer in all the three years - There shall be a levy of penalty of 10, 000/- in each of the years on the dealer-petitioner in the revision under the KGST Act and the respondent in the revisions under the KVAT Act. Revision allowed in part.

Summary

Issues:
1. Whether a dealer engaged in installation and commissioning of water and sewage treatment plant is liable to pay tax within the State for goods incorporated in works contract transported interstate?
2. Whether the transfer of goods for incorporation in works contract constitutes an interstate sale?
3. Whether a penalty is applicable for failure to obtain registration as an importer for an outside contractor involved in interstate works contract?

Analysis:

Issue 1:
The case involved three revisions concerning assessment years 2004-05, 2005-06, and 2006-07. The key question was whether a dealer undertaking installation and commissioning of treatment plants, transporting goods from outside the State for works contracts within Kerala, is liable to pay tax. The Tribunal found that the dealer's actions constituted an interstate works contract and not a taxable event in Kerala.

Issue 2:
The Tribunal's decision was based on the premise that the transfer of goods occurred only upon their incorporation into the works contract within the State. The court cited relevant legal precedents, including the Builders Association of India v. Union of India case, to support the conclusion that an interstate sale would not be taxable in the recipient State. The court also referenced the Hyderabad Engineering Industries v. State of Andhra Pradesh case to emphasize that the sale occurs only upon incorporation of goods in the works.

Issue 3:
Regarding the penalty for failure to obtain registration as an importer, the court acknowledged the necessity of registration but noted the absence of tax evasion. Consequently, the court imposed a penalty of ?10,000 in each of the years under consideration. The court differentiated between the dealer's liability and the outside contractor's obligation as an importer, ultimately allowing one revision and rejecting the others while imposing the specified penalty.

In conclusion, the court's judgment clarified the tax liability in interstate works contracts, emphasizing the timing of the sale concerning goods incorporation. The penalty for failure to obtain registration was imposed due to legal requirements, despite the absence of tax evasion.