2019 (1) TMI 1420 - HC - VAT and Sales Tax

Payments made to sub-contractors - Sub-contract - exemption under Section 3- B(2)(d) of the TNGST Act - registered dealers or not - requirement of Form XXXVII B to prove that the sub contractors are registered dealers and have paid the taxes - principal-agent relationship - explanation 1 to Section 2(1)(aa) of the Additional Sales Tax Act - Held that - It was never the case of the revenue that Form XXXVII-B was required to be filed for exempting the turnover for the purpose of levy of AST. In other words, this issue was never raised by the revenue before the Tribunal. Furthermore, it is not the case of the revenue that sub-contractors are not registered dealers and neither it is their case that they have not paid taxes or AST. In fact, the finding rendered by the Tribunal on this aspect is clearly in favour of the petitioner and against the revenue. The finding rendered by the Tribunal that the petitioner should file Form XXXVII-B is wholly without jurisdiction and beyond the scope of the appeal filed by the revenue - tax case revisions are allowed - decided in favor of petitioner.

Summary

Issues:
Challenging orders passed by the Tamil Nadu Sales Tax Appellate Tribunal regarding the Tamil Nadu General Sales Tax Act for assessment years 2003-04 and 2004-05.

Analysis:
1. The substantial questions of law raised in the case included the necessity of Form XXXVII B to prove sub-contractors' registration and tax payments for exemption, the definition of principal-agent relationship under Section 3-B of the TNGST Act, and the applicability of the explanation to Section 2(1)(aa) of the Additional Sales Tax Act to main contractors and sub-contractors.

2. The petitioner claimed exemption for payments made to sub-contractors, which the Assessing Officer initially allowed but later added for computing total turnover for additional sales tax. The First Appellate Authority accepted the petitioner's stand, emphasizing the distinction between principal-agent relationships and subcontractor transactions.

3. The revenue appealed to the Tribunal, arguing that sub-contractors acted as agents for the main contractor, making their payments part of the taxable turnover. The petitioner contended that the payments were exempt under Section 3-B(2)(d) and not liable for additional sales tax under Section 7C of the TNGST Act.

4. The Tribunal sided with the petitioner, stating that if sub-contractors were properly assessed, their turnover would not form part of the main contractor's taxable turnover for additional sales tax. However, the Tribunal required Form XXXVII-B as proof of tax payment by sub-contractors, a requirement not raised by the revenue.

5. The High Court found the Tribunal's requirement for Form XXXVII-B as unnecessary and beyond the scope of the appeal, holding that the order was unsustainable. Consequently, the tax case revisions were allowed, and the substantial questions of law were answered in favor of the petitioner.