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TMI Blog2009 (9) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... ad come to be allowed in appeal in the sense that while the Tribunal had granted some relief to the appellant dealer in respect of the subject matter of appeal and in respect of the other part of the appeal which had not been allowed by the Tribunal as against the order of the Joint Commissioner, the present revision petition. 3. The revision petition has been admitted to examine the following question of law as arising out of the order of the Tribunal was right in: (i) not allowing, while computing taxable turnover, deduction in respect of depreciation on plant and machinery owned and used by the Petitioner for executing the works contracts? (ii) Not allowing deduction in respect of: (a) Interest charged by clients; (b) Postage, telephone and telex expenses; and (c) Vehicle tax (iii) holding that TOT would be leviable on materials supplied by clients for use in execution of the works contracts (iv) not taking note of restrictive legal scope of the chagrining provisions of the Section 5B of the Act r/w. Rule 6(1)(c) of the Rules to examine whether levy of tax is permissible without allowing deduction of various expenses including those referred above? 4. We have heard Sri. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said schedule." 9. The nature of works contract identified for the purpose of tax and the rate which goods involved in the execution of such works contract are to be subjected to tax is found in Schedule Vi of the Act. 10. in so far as the activity of the petitioner is concerned, having regard to the nature of works contract that is being executed by them, the said activity is without any dispute one falling within entry VI of the Schedule VI to the act i.e., Civil works like construction of buildings, bridge, roads etc and during the relevant period attracted tax at the rate of 80%. 11. The entire exercise being one of ascertaining the value of the goods passing from the contractor to his client on the execution of the works contract, the sum total of which constitute the taxable turnover of the dealer as the expression occurs not only in Section 5(b) but as defined under Section 2(u) (i) reading as under: 2. Definition:-(1) In this Act, unless the context otherwise requires,- (u-1) "Taxable turnover" means the turnover on which a dealer shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16, 18, 19, 20, 21, 22, 23, 24, 25, 28, 29], 30, 31, 32, 33, 34, [37, 38, 39 and 41] of the Sixth schedule; (i) to (iii) xxxxxxx (iv) Such amounts towards labour charge and other like charge not involving any transfer of property in goods actually incurred in connection with the execution of works contract, or Explanation-I:-For the purpose of clause (m) and (n) of sub-rule (4), labour and other like charge include, charges for obtaining on hire or otherwise machinery and tools used for execution of Works Contract, charges for planning, designing and architects fees, cost of consumables used in the execution of the Works Contract, cost of establishment to the extent relatable to supply of labour and services and other similar expenses relatable to supply of labour and services. 13. In respect pf the determination of the taxable turnover of the dealer for the two accounting periods referred to above, while the process of determination of the tax liability was on, the appellant dealer had claimed the following deduction as deduction to be allowed even in terms of the rule, from out of the value of the works contract to arrive at the value of the taxable goods involved in the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 057-00 B/F ₹ 9,44,96,219-00 ₹ 53,32,679-00 5) Works contract receipt of Structural works ₹ 8,49,883-00 7% ₹ 59,492-00 6) Sale of Steel Scrap & Items Rs.24,35,361-00 4% ₹ 97,4141-00 7) sale of Un-serviceable articles Rs.1,14,120-00 7% ₹ 7,988-00 ₹ 9,78,95,583-00 ₹ 53,97,573-00 TOT on the following Turnover: 1) Cost of II dealer ₹ 1,50,03,122-00 Goods other than declared Goods involved of works contract 2) Civil contract receipt other than the value of declared goods out of the admitted taxable value ₹ 3,90,06,304-00 3) Sale of un-serviceable articles ₹ 1,14,120-00 T.O.T. 0.2.5% works out to - ₹ 13,53,089-00 Total Taxes Rs. 67,50,662-00 Abstract of total payable: Taxes assessed in case of Bangalore works. Mysore works as per the Final Assessment Order - ₹ 2,59,70,160-00 Taxes now assessed in case of ECC-Works Contract Rs.67,50,662-00 Total: Rs. 3,27,20,822-00 Less: Form-37 submitted for sale of Electronics computer peripherals for which Form-37 now files at set off of 2% (assessed 0 6 % vide page No. 52, Sl. No. 2of this page of FAO on P.T.O of Rs, 10,10,695-00)- ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the asst. order in question has allowed exemption of tax on the following items: i) Sales tax, Turnover Tax and entry tax paid- ₹ 28,59,383.00 ii) depreciations on plant and machinery - ₹ 1,71,83,168.00 Total Rs. 2,00,42,551,00" 16. Not withstanding the dealer making a brave effort to avoid the Additional Tax liability in terms of the show-cause notice by filling objections etc., was not successful in doing so as the revisional authority was of the view that the defence raised by the assessee in terms of the reply to the show-cause notice was not very satisfactory for varying the show-cause notice and the additions to be made to the value of the taxable goods and therefore confirmed the propositions and raised demand for payment of commensurate tax by the dealer. In terms of the order dated 10-9-2001. 17. Against these two orders of the revisional authority the appellant dealer preferred two appeals to the Tribunal under Section 22 of the Act. 18. Before the Tribunal the appellant dealer again met with partial success as the Tribunal thought it fit to set aside the order of the revisional Commissioner, in so far as it disallowed the expenses in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is nevertheless to be included in the taxable turnover of the contractor as what is supplied is in the form of goods as it is a sale in the first instance by the clients to the contractor. 20. We have examined the facts of the present case and in the context the applicability of the ratio of the judgment of the Supreme Court in Karya Palak Engineer's case we are of the view that in the light of the legal position enunciated by the Supreme Court in this case there is no scope for entertaining further arguments on this aspect by this Court and therefore without going further into this question, the question is answered in the affirmative against the assessee dealer. 21. That leaves us with the remaining three questions which essentially revolve around the exercise of the determination of the value of the goods involved in the execution of the works contract by computing the total value of other components of the works contract and by deduction this value from out of the value of the works contract. This exercise is necessarily one warranting the ascertainment of such other deductions to be made from the value of the works contract in terms of the statutory provisions and as indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry reasons would submit that the Joint Commissioner is also in error in thinking that the judgment of the Supreme Court in 2nd Dunkerley's case did not enable allowing deduction of this nature. It is therefore submitted that both on the ratio of the judgment in 2nd Dunkerley's judgment and the express statutory provisions and even on a principal of interpretation such as what is taxable in an amount attributable to the execution of works out to be the value of the goods and not any other components and if it of a profit components of the goods alone to be included in terms of the discussion by the Supreme Court in 2nd Denkerley's case as figure at paragraphs 4,5 and 6 of the conclusions as they occur at page 237 of the judgment which are to the following effect: "4 The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366 (29-A)(b) is leviable on the goods involved in the execution of works contract would constitute the measure for imposition of the tax. 5. In order to determine the value of the goods which are involved in the execution of a works contract for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices." but also in terms of the judgment of the Supreme Court in 2nd Denkerley's case and as is indicated in clause (f) of the deductible charges permitted and as occurred at page 235 of the judgment and therefore the Revisional Commissioner was in error in not permitting the deduction. 24. It is further submitted by Sri. Suryanarayana by pointing out to the legislative history of Rule 6 of the Rules that explanations I as it stands as of now, and at the relevant time, was one in terms of amendment carried out by the notification No. FD 83 CSL 95 dated 5-8-1995 giving it retrospective effect from 1-4-1986 and the said amendment having been brought about only in the wake of the judgment of the Supreme Court in the case of 2nd Dubkerley case and if one should read the explanation as it prevailed at the relevant time applicable, it is virtually verbatim reproduction of the contents of the situation (a) to (h) discussed by the Supreme Court as at page 235 and therefore any meaning that can be attributed to explanation I can only be and should necessarily be in consonance with the understanding of the Supreme Court in terms of clause (a) to (h) of the permissible deduction as discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (vi) transportation charges for transport of goods to the place of works; (vii) overhead expenses of the head office and branch office including rents, salary, electricity, telephone charges, etc., and interest charges to banks and financial institutions; (viii) profits expected on such contract;" and none of the deductions enumerated as plausible deductions as above i.e., from Item at Sl. Nos. 1 to 8 in any way providing for a deduction in respect of a claim towards depreciation even on the basis of the judgment of the Supreme Court. Submits that the assessee is not entitled for claiming a deduction attributable to the depreciation, even in respect of proportionate depreciation of the plant and machinery employed by the assessee in the course of the execution of the works contract and even when only the proportionate quantum of depreciation is claimed by way of deduction. 26. learned AGA would also submit that even Rule 6(4)(n) r/w Explanation I, does not enable the assessee to put forth a claim of this nature for the simple reasons that the word 'depreciation' is not to be found anywhere in the sub-rule r/w Explanation I. Learned AGA would therefore, submit that neither on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Constitutional amendment to enable State Governments to levy tax in respect of the value of the goods involved even in respect of transactions of the following nature:- "[(366: 29A) : tax on the sale or purchase of goods includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payments or other valuable considerations; (b) a tax on the transfer of property in goods) whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payments or other valuable considerations; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods being food other or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration in respect of goods delivered on hire purchase or any system of payment by installments;] (f) the aggregate of the sale prices received and receivable by the dealer in respect of sales prices received and receivable by the dealer in respect of sales of any goods in the course of inter-State trade or commerce as determined in accordance with provisions of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), as also in respect of sales of any goods in the course of export out of the territory of India and also in respect of sales of goods in the course of import into the territory of India.] [(2) x x x x x x x (3) x x x x x x x x (4) [x x x x x] In determining the taxable turnover, the amount specified in clause [(a) to (p)] shall, subject, the amount specified in clauses [(a) to p)] shall, subject to the conditional specified therein, be deducted from the total taxable turnover of a dealer [as determined under clauses [(a) to € of sub-rule (1)]. Xxxxxxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx Xxxxxxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx )n) in the case of works contracts specified in serial numbers 6,13, 14, 15, 16, 2[18, 19, 20, 21, 22, 23, 3[24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S case in that series of cases, challenged the validity of the provisions introduced in the State Enactment's as a sequel to the 46th amendment to the Constitution providing for the definition as contained in Article 366(29A) it was made clear by the Supreme Court that even after the 46th amendment, the scope of Entry 54 in List II has not changed in any way, but it remains the same and the only improvement if at all, is to enable State Legislature to levy tax in respect of transaction wherein the value of the goods passing in the execution of an activity such as a works contract as in the present case was earlier not possible even in terms of the 1st DUNKERLEY'S case, but such possibility is now enabled by a combination of 46th amendment and the further amendment to the State Sales Tax legislations, but all that can be done only so long as the exercise for levy of sales tax is within the scope of levy of tax only on the value of the goods passing in the particular activity. 32. In the wake of such historical background and legislative development, the subsequent judgment of the Supreme Court declaring law on the subject in the provision particular, the charging Section found in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstructed in this background and answer the question. We say no, far the reasons that it is the goods of the assessee for the purpose of execution of the works contract, which the assessee otherwise, could have hired the machinery and tools and in the process of execution of the work, the machinery and tools are worn down and depreciates in value and as the end price i.e., the value of the contract is fixed or determined by the contract factoring this wear and tear to the machinery and tools as a consequence of using them for the execution of the works contract, the value of the proportionate wear and tear of the machinery which is otherwise identified as depreciation has to be necessarily permitted as a deduction on the premise that it is equivalent to the hire charges as is otherwise provided in clause (d) and for such purpose one has to understand the same even in terms of the language of Explanation I as quoted above and particularly, to be one within the scope of "other similar expenses relatable to supply of labour and services." 35. We find the submission of Sri. Suryanarayana, learned counsel for the appellant attractive enough for acceptance, for the reasons that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the ratio of the judgment and the law as declared in the 1st GANNON DUNKERLEY's case, springs into action and renders Section 5-B of the Act unconditional! On the accepted Rules of interpretation, Rule 6 which is expressly provided for effectuating the charge under Section 5-B has to be necessarily understood and interpreted within the scope of Section 5-B of the Act and only for the purpose of effectuating it as per the Section nut not to so interpret it to render it ultra vires the Section if we should understand the explanation to sub-rule (4) of Rule 6 as contended by the learned AGA, while no doubt such a contention is a very live possibility and in any other situation perhaps the submission could have been accepted, but the submission cannot be accepted for the purpose of Section 5-B of the Act, as an understanding of this nature would render Section 5-B of the Act itself unconstitutional. 38. It is for this reasons that we eschew such a limited meaning to the Explanation and accept the meaning to the explanation as canvassed by Sri. Suryanarayana, learned counsel for the petitioner. Therefore, we are of the definite view that both the Commissioner and the Tribunal were i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the same. In the appeal of the dealer, the Tribunal has not even discussed about it, but has simply allowed the finding of the Commissioner to pass. 42. Be that as it may, we will have to examine this question also with reference to the principal laid down in GANNON DUNKERLEY's case [supra] and it is precisely for this reasons Sri. Manjunath, learned Additional Government Advocate has submitted that while the assessee - contractor, in GANNON DUNKERLEY's case [supra] had claimed deductions of the nature such as overhead expenses as occurring at Sl. Nos. [vii] and [viii] in sub-paragraph occurring at page 233 of the said judgment and would therefore submit that the supreme court also having not allowed such deductions to pass or to be permitted, the claim towards deduction in respect of interest charge, postage etc., being like or identical charges, cannot be permitted and the Commissioner has rightly revised the assessment order to disallow the deduction in respect of such charges. 43. Submission that non-examination by the Tribunal is of no consequence a once the Commissioner has taken the correct view, it is only to be taken and affirmed by the Tribunal and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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