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2021 (5) TMI 668 - HC - VAT and Sales TaxInput tax credit - sale or not - user of spare parts and lubricants during the course of undertaking repair works to the two wheeler vehicles by the petitioner in his service centre - HELD THAT - Section 2(10) defines the term Dealer which means a person who carries on the business of buying, selling, supplying or distributing goods or delivering goods on hire purchase or on any system of payment by instalments, or carries on or executes any works contract involving supply or use of material directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration - In the instant case, since the petitioner is selling two wheeler vehicles, spare parts and lubricants and also undertakes the works contract of servicing and repair of the two wheeler vehicles, he comes within the definition of Dealer . The main thrust of the argument of the petitioner is that since the said transaction is an outright sale, 100% ITC has to be admitted. This argument of the petitioner cannot be appreciated for the reason that even if the user of spare parts and lubricants in the works contract amounts to sale, still the statute restricts the ITC to 75%. Petition dismissed.
Issues Involved:
1. Legality of restricting Input Tax Credit (ITC) to 75% on spare parts and lubricants. 2. Whether the sale of spare parts and lubricants used in repairs constitutes a 'works contract' or an outright sale. Issue-wise Detailed Analysis: 1. Legality of restricting Input Tax Credit (ITC) to 75% on spare parts and lubricants: The petitioner, a registered dealer under the A.P.VAT Act, 2005, challenged the appellate order confirming the assessment order that restricted ITC on spare parts and lubricants to 75%, demanding the petitioner pay the difference amount along with interest. The petitioner argued that the sales of spare parts and lubricants should be treated as outright sales, not as part of a works contract, and thus eligible for 100% ITC. The petitioner maintained that the invoices clearly separated the cost of spare parts and lubricants from service/labour charges, making them distinct transactions. The respondent countered that the petitioner conducted three types of transactions: sale of two-wheelers, counter sales of spare parts and lubricants, and use of these items in servicing and repairs. The controversy centered on ITC eligibility for the latter. The respondent argued that under Section 4(7)(a) r/w Rule 17(1) of the A.P. VAT Act, 2005, ITC is restricted to 75% for goods used in repairs and services, as these transactions fall under works contracts. The authorities relied on the judgment in M/s. Durga Auto Service, which treated the supply of spare parts and oils during servicing as a works contract. 2. Whether the sale of spare parts and lubricants used in repairs constitutes a 'works contract' or an outright sale: The petitioner contended that the sale of spare parts and lubricants, even if used during repairs, should be considered separate sales transactions. The petitioner cited judicial precedents, including Eastern Typewriter Service and The Deputy Commissioner (C.T.), Coimbatore Division Vs. Karthikeya Press, to argue that materials used in works contracts amount to independent sales. The petitioner emphasized that the transactions were composite contracts, with distinct agreements for the sale of goods and provision of services. The respondent maintained that the transactions fell under works contracts, thus limiting ITC to 75%. The court examined the relevant provisions of the A.P. VAT Act, 2005, including Section 2(28) defining 'sale' and Explanation VI, which deems the supply of goods in works contracts as transfers of property. The court concluded that while the transfer of spare parts and lubricants during repairs constitutes a sale, the statute restricts ITC to 75% for such transactions under Section 13(7). Conclusion: The court upheld the assessment and appellate orders, confirming that the petitioner is entitled to 75% ITC for spare parts and lubricants used in repairs, as these transactions are part of works contracts. The writ petition was dismissed, affirming the appellate order and the statutory restriction on ITC. The decisions cited by the petitioner did not alter this conclusion.
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