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TMI Blog2010 (7) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, challenging the order passed by the revisional authority under section 64(1) of the Karnataka Value Added Tax Act, 2003 (hereinafter, referred to as, the KVAT Act , for brevity) restoring the order under section 39(1) with penalty and interest levied by the original authority, after disallowing the labour charges to an extent of 30 per cent granted by the original authority. The assessee is involved in execution of civil works contract for the prospective buyers of flats in the residential apartments constructed by him and is a registered dealer under the Act. The assessee made payments amounting to Rs. 2,99,57,344 to sub-contractors for execution of works contract, out of which, only one sub-contractor is registered under the KVAT Act, 2003, viz., M/s. IVR Prime Urban Developers Limited, to whom the dealer/assessee has paid a sum of Rs. 2,20,00,000 for main civil work. The remaining amount of Rs. 79,57,344 is paid to unregistered subcontractors for carrying out works like construction of road, market, office, model flat, rock cutting, etc. Therefore, the audit authorities added the value of materials purchased by the said unregistered sub-contractors not supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unwarranted and uncalled for and therefore, he deleted the said tax liability with interest and penalty. The Additional Commissioner of Commercial Taxes initiated suo motu proceedings under section 64(1) of the KVAT Act. After hearing the assessee, he was of the view that the case falls under section 3(2) of the Act. Further, he held that the labour charges are spent by the unregistered contractors. The assessee cannot claim expenses in the course of execution of the works contract and hence, the assessee is not entitled to deduction of 30 per cent of the said value of the works contract. Therefore, he set aside the order passed by the first appellate authority, restored the order passed by the audit officer and to the extent of granting deduction to the extent of 30 per cent, this order was also set aside. Aggrieved by the said order, the assessee is before this court. Sri Kamath, learned counsel appearing for the assessee, submitted, firstly that the case is not covered under section 3(2) of the Act. Though the assessee got the works done through unregistered sub-contractors, when he sold the flats, he has paid tax, which is inclusive of the tax payable by him for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods to him, for use in the course of his business, by a person who is not registered under this Act. Sub-section (1) of section 3 expressly provides that, every sale of goods in the State by a registered dealer or a dealer liable to be registered attracts levy of tax. The person who sells such goods has to pay the tax after levying the same and collecting from the purchasers. Sub-section (2) of section 3 deals with a case where the person who sells the goods is not registered under the Act. When such a person sells the goods, the tax is leviable and payable if the purchaser of goods is a registered dealer. In other words, if taxable goods are sold by a person who is not registered dealer to a person, who is not a registered dealer, no tax is leviable or payable. But, once the registered dealer purchases the taxable goods in the course of his business, from an unregistered dealer then sales tax is to be paid by him. In common parlance it is called as purchase tax. The liability to pay purchase tax arises only if purchase is made for use in the course of his business. It does not mean that the said business which he is carrying on should be only sale and purchase of such goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sub-contractors did not collect the tax under the Act from the assessee. In other words, they did not levy any tax. Therefore, the assessee has not paid any tax, and section 3(2) is attracted. Section 3(2) of the Act deals with a case, which is not covered under section 3(1). Therefore, we do not see any substance in the contention of the appellant in this regard. Having regard to the nature of the transaction, rule 3 of the KVAT Rules provides for determination of turnover for the purpose of this Act. Rule 3(1) deals with the total turnover of a dealer for the purpose of the Act. Rule 3(1)(a) states the total turnover of a dealer for the purpose of the Act shall be aggregate of the total amount paid or payable by the dealer as the consideration for the purchase of any of the goods in respect of which, tax is leviable under section 3(2). However, rule 3(2) provides for deductions. It provides that the taxable turnover shall be determined by allowing the following deductions from the total turnover. Sub-clauses (l) and (m) provide for deduction of the actual labour charges expended and in the absence of such labour charges, not ascertainable from the books of accounts mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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