2023 (1) TMI 799 - HC - VAT and Sales Tax

Validity of assessment order - whether the works contract awarded to assessee for the year 1989-1990 could be divided into two parts i.e. supply of goods and works contract? - HELD THAT - It is not in dispute that a written agreement was executed between the assessee - revisionist and Auraiya Gas Power Project. Clause 2.4 categorically provided that the cost included the material and the labour for laying pipeline, the work was to be executed by the assessee. Clause 3 read with Clause 3.1 of the Contract mentioned the total value of the contract as Rs.10,67,517/-. The Tribunal had noted the relevant clauses of the agreement in its judgment but relying upon specification of work/tender had segregated the contract awarded to the assessee between the work done by the assessee and the material supplied/purchased for the execution of work contract. Further, the notification dated 27.4.1987 has provided for levying of tax where the works contract has been executed over Rs.1 lakh and the description has been mentioned in the schedule of the notification. In the instant case, the agreement, which was arrived between the parties, did not segregate between works contract and the material to be supplied. The agreement specifically provided for the payment of lump-sum money to the contractor for the material as well as the works contract. The interpretation given by the Assessing Authority and Tribunal cannot be sustained in view of the agreement arrived between the parties. The notification dated 27.4.1987 is not applicable in the case of assessee - revisionist. The finding recorded by the Tribunal as to the segregation of the work done by the assessee, pursuant to the agreement entered between the assessee and the Auraiya Gas Power Project, the order passed by the Tribunal is unsustainable in the eyes of law and the same is hereby set aside - revision allowed.

Summary

Issues:
1. Interpretation of works contract for tax liability under U.P. Value Added Tax Act, 2008.
2. Applicability of notification dated 27.4.1987 for tax assessment on works contract.

Issue 1: Interpretation of Works Contract for Tax Liability:
The revisionist challenged an assessment order holding them liable for tax on a works contract awarded to them. The first Appellate Authority allowed the appeal based on a notification issued under the U.P. Trade Tax Act, 1948. The Tribunal confirmed this decision. However, the revenue appealed to the High Court, leading to a remand and subsequent decision by the Tribunal in favor of the revisionist. The revisionist argued that they should not be taxed for the works contract as per the agreement terms with Auraiya Gas Power Project. The Court noted that the agreement did not clearly segregate between the works contract and material supply, despite the Tribunal's attempt to do so based on work specifications. The Court found the Tribunal's decision unsustainable due to the lack of segregation in the agreement and set it aside, allowing the revision.

Issue 2: Applicability of Notification for Tax Assessment:
The Tribunal had held that the contract was divisible, allowing tax on the works contract. The revenue argued that although the agreement mentioned a consolidated payment, the work specifications differentiated between the work executed and materials supplied. However, the Court found that the agreement did not distinguish between the two aspects and provided for a lump-sum payment covering both material and works contract. The Court concluded that the Tribunal's decision was not in line with the agreement terms and overturned it in favor of the revisionist. The Court ruled that the notification dated 27.4.1987 was not applicable to the revisionist based on the agreement's provisions.

In conclusion, the High Court set aside the Tribunal's decision, allowing the revision and ruling in favor of the revisionist on both issues raised.