2020 (12) TMI 946 - HC - VAT and Sales Tax

Works contract service - Composite Contract or not - fabrication and erection of aluminum structures and other glazing works contract - assessing authority framed assessment under Section 39(1) of the Act and held that the nature of activity carried on by the petitioner falls under Entry 23 of Sixth Schedule to the Act as 'all other works contract not specified in any of the above categories including the composite work with one or more categories' - HELD THAT - The tribunal has recorded a finding that from the terms and conditions of the contract, it is evident that petitioner has undertaken composite work contracts. The major portion of the work executed by the petitioner pertains to structural glazing, curtain walling, suspended glazing, structural spider glazing, ACP cladding, fixed glazing, fabrication and supply of aluminum and MS windows, Ventilator and louvers, external doors, canopy etc and work of fabrication and erection of MS structure work is only meager and a small percentage both in quantum and volume. It has also been held that works contract of all these works consisting of window wall glazing to the external walls of the building, spider structural glazing, patch fitted partitions, double glazed sky light roofing, providing aluminum windows and louvers, canopy, clay tile cladding, installation of external fixture and glazing works, stripe glazing, suspended spider glazing, doors in terrace etc., put together which is termed as works contract of 'structural glazing', 'suspended glazing', 'curtain walling', 'ACP cladding', 'spider glazing', 'fixed glazing', are not specified in any of the categories of Entry No.1 to 21 and are works along with the categories covered by Entry Nos.3 and 4. Thus, it has been held that the nature of activities of the petitioner fall within Entry 23 of Sixth Schedule to the Act and are liable to tax at 12.5%. The aforesaid finding of fact is based on meticulous appreciation of evidence on record. The finding recorded by the tribunal cannot be termed as perverse - The tribunal has neither failed to decide nor has erroneously decided any question of law. Appeal dismissed.

Summary

Issues:
1. Classification of nature of work under Karnataka Value Added Tax Act, 2003.
2. Interpretation of Sixth Schedule entries - Entry 4 and Entry 23.
3. Applicability of tax rate based on nature of work carried out.
4. Review of tribunal's decision on classification of works contract.

Issue 1: Classification of nature of work under Karnataka Value Added Tax Act, 2003:
The petitioner, engaged in fabrication and erection of aluminum structures and glazing works contract, challenged an order by the assessing authority classifying their work under Entry 23 of the Sixth Schedule to the Act. The petitioner contended that the work should fall under Entry 4. The tribunal initially ruled in favor of the petitioner, but a subsequent revision by the State of Karnataka led to a fresh assessment. The High Court noted that the work undertaken by the petitioner included structural glazing, glass glazing, ACP cladding, and other aesthetic enhancements to buildings. The court emphasized that the nature of the work was composite, involving both structural and aesthetic elements. The tribunal's finding that the activities fell under Entry 23, attracting a higher tax rate, was upheld based on the evidence presented.

Issue 2: Interpretation of Sixth Schedule entries - Entry 4 and Entry 23:
The High Court examined the definitions of works contracts under Entry 4 and Entry 23 of the Sixth Schedule. Entry 4 pertains to fabrication and erection of load-bearing structures, while Entry 23 covers all other works contracts not specified in previous categories. The court highlighted that the petitioner's work involved a combination of structural elements like aluminum and glass panels with aesthetic enhancements, such as ACP cladding and glass glazing. The court reiterated that the nature of the work, as described in the contract terms, aligned more closely with the scope of Entry 23, warranting a higher tax rate.

Issue 3: Applicability of tax rate based on nature of work carried out:
The court analyzed the scope of work undertaken by the petitioner, which included structural glazing, curtain walling, suspended glazing, and various other elements contributing to the aesthetic appeal and structural integrity of buildings. It was observed that the predominant focus of the petitioner's contracts was on composite works involving both structural and aesthetic components. Consequently, the court affirmed the tribunal's decision to tax these activities under Entry 23 of the Sixth Schedule, attracting a higher tax rate of 12.5%.

Issue 4: Review of tribunal's decision on classification of works contract:
The petitioner sought a review of the tribunal's decision, arguing that the work should be classified under Entry 4 instead of Entry 23. However, the High Court upheld the tribunal's findings, emphasizing that the nature of the petitioner's contracts, as evidenced by the scope of work descriptions, justified the classification under Entry 23. The court concluded that the tribunal's decision was based on a thorough evaluation of the evidence and was not erroneous or legally flawed. As a result, the appeal was dismissed, affirming the classification under Entry 23 and the corresponding tax rate of 12.5%.

This detailed analysis of the judgment addresses the issues involved in the classification of works contracts under the Karnataka Value Added Tax Act, 2003, and the interpretation of relevant Sixth Schedule entries, ultimately upholding the tribunal's decision based on the nature of the petitioner's composite work contracts.