9911796707
TMI Blog2012 (7) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... ch month commencing from April 2008 to March, 2009. This resulted in 12 assessment orders dated 02.02.2012 and 12 penalty orders dated 02.02.2012 challenged by way of 24 writ petitions. (b) The petitioners moved an application for rectification under Section 74B of the DVAT Act against both orders of assessment and penalty proceedings. The 3rd respondent, passed 12 orders of rectification dated 6.3.2012 against assessment orders demanding tax and interest and separate 12 orders for penal proceedings dated 6.3.2012. These are again challenged by way of 24 further writ petitions. (c) Besides the above, the petitioners have filed 4 more writ petitions, two consolidated writ petitions (one for tax and interest and the other for penalty proceedings) against the original assessment orders and penalty proceedings and two more consolidated writ petitions-one for tax and interest and the other for penalty proceedings, against the rectification orders. 2. It is thus clear that in all these petitions, common issues have been raised. Precisely for this reason all these petitions were heard together and can conveniently be dispose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Further there was incorrect claim of concessional rate of tax without furnishing form-C and department alleged so on the ground that Section 8(4) of the CST Act read with rules made there under stipulates that sale of goods by one registered dealer to another registered dealer may be allowed at the concessional rate of tax by three per cent if the dealer furnishes a declaration of sales, otherwise tax is leviable at the rate of applicable to local sale in the State. The petitioner was asked to furnish certain records maintained there. (b) One more notice was issued on 13.10.2011 giving another opportunity as records were not produced pursuant to earlier notice. (c) This was followed by two more show cause notices both dated 11.11.2011 wherein it was mentioned that the additional information sought for under Section 59 of the DVAT Act vide notice dated 20.7.2011 and 13.10.2011 were not supplied by the petitioner. Still, yet another opportunity was granted to the petitioner to furnish the required information documents on 21.11.2011 and 20.8.2011 respectively. It was specifically mentioned that if the petitioner fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 under Section 32 of the DVAT Act of default assessment of tax with interest. In these notices, it was inter alia stated that on scrutiny of returns/sale purchase summary, it was found that the petitioner got the contract and used the material in the execution of works contract in Delhi. The dealers had claimed sub-contractor's turn over deduction from the taxable turn over as the TDS @ 2% deducted by the petitioner. The notice mentioned that this practice of the dealer was not accepted as this deduction was not allowed under Rule 3 of DVAT Rules, 2005 and also keeping in view the determination under Section 84 of the Commissioner, VAT vide order dated 23.12.2009 in the matter of M/s Doshion Veolia Water Solutions Pvt. Ltd. wherein it was held that the turnover of the sub-contractor cannot be allowed as exemption from the turnover of the main contractor. The petitioner was accordingly directed to pay tax of the amount specified in these assessment orders. (f) On 22.2.2012 the petitioner filed rectification applications under Section 74B of the DVAT Act before the respondent no.3 in respect of all the aforesaid 12 assessment orders. These rectificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been issued, opportunity granted and then orders passed. Here we are concerned only with the aforesaid rectification order dated 6.3.2012 passed by the respondent no.3 disallowing the deduction of sub-contractor's turnover on the ground that there is no provision or mechanism under DVAT Rules or DVAT Act and further that the petitioner had failed to produce the books as records labour and service charges. The petitioner in fact accepts the position that there is no such provision under Section 5 of the DVAT Act or Rule 3 of DVAT Rules. It is because of this reason that the petitioner is challenging the vires of these proceedings. 9. Mr. N. Venkatramani, learned Sr. Counsel who appeared for the petitioner in all these cases condemned the omission in the aforesaid provisions submitting that it was against the spirit of the Constitutional provisions relating to work contract legislation. Highlighting the historical background of the work contract legislation, Mr. Venkatramani, argued that the Constitutional Bench, in the case of State of Madras v. Gannon Dunkerley & Co., [1958] 9 STC 353 (SC) held that the expression "sale" in Nomen Juris would only mean and include transfer of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contractor. While deciding further, the Court catalogued a list of exclusions which cannot form part of the measure of taxation, while taxing works contract. 10. Predicated on the aforesaid Constitutional amendment and two Constitution Bench judgments Mr. Venkatramani argued that it was the constitutional obligation of all the States, while framing the rules to ensure that all proper deduction are allowed so that they do not form part of measures of taxation and these deductions specifically include sub-contract turnover. He submitted that this was in fact done by all states which in their respective legislations provided a 'charging provision' for taxing work contracts and also framed rules permitting deduction of various services and other charges including deduction of sub contract turnover. According to him the State of Delhi could not be an exception. Rather under the erstwhile Delhi Works Contracts Act and Rules, 1999, deduction of amount paid to a sub-contractor was specifically allowed vide rule 5. However, this was omitted by introducing and DVAT Act and DVAT Rules which according to him was a sheer legislative lapse. 11. Learned Senior Counsel referred to Section 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther sub-contracting. These are to be excluded while computing the taxable turnover of the sub-contractor , while passing the assessment order in the hands of the sub-contractor under the local legislation, in view of the mandate by the Constitutional Bench in second Gannon Dunkerley case. (v) Therefore, it would be consistent, appropriate, effective and legal to do the turnover assessment of works contract, executed by the sub-contractor, only in the hands of the sub-contractor and correspondingly give an exclusion in the hands of the main contractor. This would achieve the purpose and spirit of Article 366(29A)(b) in computing the correct quantum of tax liability in the hands of the main contractor in executing a works contract. (vi) If this is not done, it would result in multiple tax levies of the same turnovers, both in the hands of the sub-contractor and also the main contractor. (vii) This would be in clear conflict and gross violation of the mandate envisaged under Entry 54, List-II of the Constitution. (viii) The issue is plain and simple. When dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He argued that VAT being State subject, each State had its own separate laws and the validity of the legal provisions of DVAT and DVAT Rules could not be tested while contrasting these provisions with the State of A.P. He also tried to distinguish the aforesaid case by submitting that it was not in dispute that under the contract, Larsen & Toubro, with the consent of the contractee, was permitted to assign part of contract work to the sub-contractors. The overall work was done under the supervision of the consultant nominated by the contractee. The sub-contractors were registered dealers. The materials were brought to site. They remained the property of the sub-contractors. The site was occupied by the sub contractors. The Apex Court noted at more than one place that it was not in dispute that the sub-contractors were registered dealers. In the present case the petitioner had not placed the copies of contracts with the sub-contractors before the assessing officers. Even as per the list of sub-contractors filed by the petitioner with the Writ Petition No. 1907/2012 shows that out of 96 sub-contractors, 38 are unregistered. 15. Defending the validity of the provisions of Section 5( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of the contractor. 16. It was also submitted that Section 5(2) of the Delhi Value Added Tax Act, 2004 read with Rule 3 of the Delhi Value Added Tax Rules, 2005 excludes charges towards labour, service and other like charges from the turnover arising from the execution of works contract subject to the dealer maintaining proper records. The proviso to sub-rule (2) provides that where the amount of charges towards labour, services and other like charges are not ascertainable from the books of account of the dealer, the amount of such charges is to be calculated at the percentages specified in the table appended thereto. In fact, in Gannon Dunkerlay & Co. (supra) and Builders' Association of India (supra), the Apex Court had approved the exclusion of fixed percentage on account of labour, services and other like charges depending upon the type of the contract where the same are not ascertainable from the books of accounts of the contractor. 17. It is also submitted that at no stage the petitioner had produced the books of accounts or other records to show the extent of actual labour, services and other like charges. Even in the writ petition the petitioner has sought to give just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and other like charges etc. A combined reading of Section 5(2) of Delhi Value Added Tax Act, 2004 and rule 3 of Delhi Value Added Tax Rules, 2005 shows that, the subject matter of charge is the value at the time of transfer of property in goods. 20. It is in this context validity of these provisions namely 5(2) of Delhi VAT Act and Rule 3 of Delhi VAT Rules is to be examined. 21. First thing which needs to be determined is as to whether the absence of mechanism in the Rule viz. not allowing the deduction of the sub-contract turnover in the hands of the main contractor leads to multiple taxation? We are afraid, we do not think so from the example given by the respondent. As noted above, the net tax liability remains the same. Furthermore, once such a tax is paid by the contractor, sub-contractor can always claim that tax stand paid at the hands of the contractor and, therefore, sub-contractor is not liable to make the payment all over again. To ensure this, the contractor like the petitioner while making payment to the sub-contractor can recover the tax from those payments and issue TDS Certificate on the basis of which sub-contractor can always claim credit. 22. Once w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks contracts shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act: Provided that where accounts are not maintained to determine the correct value of goods at the time of incorporation, such dealer shall pay tax at the rate of 12.5% on the total consideration received on receivable subject to such deductions as may be prescribed; (b) .........................." Rule 17 of Andhra Pradesh Value Added Tax Rules, 2005 in so far as relevant, was also to the same effect and read as under:- "17. Treatment of works contracts- (1) Treatment of VAT dealer executing works contract:- (a) In the case of contracts not covered by sub-rules (2), (3) and (4) of this rule, the VAT dealer shall pay tax on the value of the goods at the time the goods are incorporated in the work at the rate applicable to the goods; (b) ..................." 26. This was noted by the Apex Court which held that Section 4(7) was the charging section and a complete code in itself This is what the Apex Court observed:- "In this case we are concerned with the Andhra Pradesh Value Added Tax Act, 2005. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asure for the levy of the tax is the value of the goods at the time of the incorporation of the goods in the works. What is stated hereinabove also finds place in Rule 17(1)(a) of the APVAT Rules 2005, quoted hereinabove. It is important to note that each of the sub-contractors of L&T is registered dealer. None of them are unregistered. Under Section 4(7)(a) read with Rule 17(1)(c), quoted above, where VAT dealer awards any part of the contract to a sub-contractor, such sub-contractor shall issue a tax invoice to the contractor for the value of the goods at the time of incorporation in such sub-contract. The tax charged in the tax invoice issued by the sub-contractor shall be accounted by him in his returns. Therefore, the scheme indicates that there is a "deemed sale" by the dealer executing the work, i.e., the sub-contractor. It is only the sub-contractor who effects transfer of property in goods as no goods vests in the respondent company (contractor) so as to be the subject-matter of a retransfer. By virtue of Article 366(29A)(b) of the Constitution once the work is assigned by the contractor (L&T), the only transfer of property in goods is by the sub-contractor(s) who is a reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earliest of the following times: (a) when any sum is included in a Certificate of Payment in respect thereof; or (b) when any item is delivered to the Project Site pursuant to the Contract: or (c) when a high seas purchase contract is executed by the Employer pursuant to Clause 30.1.1 (Delivery to the Project site). As per this clause the property in the equipment [definition of which includes materials of the contract] passes when any item is delivered to the project site in pursuance to the contract. However, we are not giving our final view in the matter in as much as that is an aspect which is to be considered on merits in appropriate proceedings. 30. There is no provision like Section 4 (7) of the Andhra Pradesh VAT Act in Delhi VAT Act. The entire case of the petitioner is that there should have been a provision like this in Delhi VAT Act as well, otherwise it is leading to various difficulties. Even if we presume that the provision like Section 4 (7) in Andhra Pradesh VAT Act makes it a better legislation in comparison with Delhi VAT Act. In the absence of such a provision, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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