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TMI Blog2015 (12) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... payable in respect of any particular sale or purchase. That being so, commissioner cannot be said to be lacking jurisdiction in issuing the impugned clarification. The objection is, accordingly, overruled. Payment for execution of works in terms of agreements was released in favour of petitioner after deducting tax over the gross amount. It is contended on behalf of respondents that under provisions of the Act of 1962 and Rules framed thereunder, sales tax is leviable on the gross amount of the contract. The sales tax leviable on the services rendered by the contractor in the shape of works contract has to be deducted at source from the gross amount of the contract. Thus, sales tax is included in the gross amount of the contract. The levy of sales tax under the Act of 1962 is not subservient to the contract agreement inter se the parties. The Assessing Authorities are under a legal obligation to look into every aspect of taxable turnover of a dealer at the time of assessment. There is no ambiguity in it that the types of services enumerated in the provision are covered under the definition of goods. A transaction, whether involving transfer of property or not, shall be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for R-1,4 to 13. Mr. M.A.Bhat, Advocate for R-2 JUDGMENT 1. OWP No.419/2014 has been filed by petitioner No.1 M/s. Pardeep Electricals and Builders Private Limited through its Managing Director, Pardeep Jain petitioner No.2 for quashing clarification No.1 of 2014 dated 14th January, 2014 issued by Commissioner, Commercial Taxes Department of Excise and Taxation, Jammu- respondent No.2 herein on the ground that the same offends the statutory and legal rights of petitioners in so far it provides for charging of service tax on the gross value of the contract items. It is contended that in terms of the impugned clarification, petitioners are required to pay the service tax inclusive of the tax already included at the time of submitting of the tenders which is impermissible in view of the clear mandate of Rule 19 of Jammu and Kashmir General Sales Tax Rules. The following reliefs are claimed in the petition:- i) Issue writ in the nature of Certiorari quashing the impugned clarification No.1 of 2014 dated 14.01.2014, whereby clarification has been made by including the tax in whole price of services not covered under Rule 19 of J K General Sales Tax Rules 1962. ii) Is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax inclusive of the tax already included at the time of submitting of the tenders which is not permissible in view of clear mandate of Rule 19 of the Jammu and Kashmir General Sales Tax Rules, 1962 (hereinafter to be referred to as Rules of 1962 ). It is claimed that the petitioner No.1 responded to the Tender notices dated 04.04.2011 and 17.07.2010 respectively. Petitioner No.1 was found to be the lowest tenderer and accordingly the works were allotted in its favour. Petitioner No.1 executed the works allotted to it. However, at the time of releasing of payments, respondent No.8 deducted tax over the gross amount instead of deducting tax on taxable turnover. Thus, it is claimed, respondent No.8 has been deducting tax over tax, i.e. cascading. 5. According to petitioners, the definition of goods under provisions of Section 2 (h) of the Jammu and Kashmir General Sales Tax Act, 1962 includes a service tax. It is submitted that Rule 19 of Rules of 1962 is clear with respect to determination of taxable turnover for which the tax has not been charged on the sale of goods separately but included in the sale price and the tax included therein is determinable on the basis of provision e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 20th March, 2009. It is further pleaded that respondent No.2 felt the need to harmonize clarification No.6 of 2008 and clarification No.16 of 2010. He found that there was some confusion with regard to taxability on the individual contract of supply, installation, commissioning, repairing and fitting out improvement. Relook was given to aforesaid clarifications in the light of law laid down by the Hon ble Apex Court in case titled State of Andhra Pradesh Vs. Kone Elevators (India) Ltd. . Thus, impugned clarification No.1 of 2014 came to be issued clarifying that contract for supplying and installation shall amount to works contract irrespective of the fact whether predominant part is supply or installation in terms of the Act of 1962. According to respondents, the whole indivisible transaction/contract had to be subjected to service tax and surcharge if the contract envisaged inter-dependence of supply and installation for fulfillment of the contractual obligation. The impugned clarification is thus defended on the ground of being strictly in consonance with the provisions of law. It is pleaded that sales tax is required to be deducted on gross amount of the contract and the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act of 1962 is not subservient to the contract agreement inter se the parties. The Assessing Authorities are under a legal obligation to look into every aspect of taxable turnover of a dealer at the time of assessment. To appreciate this argument, it would be appropriate to refer to the definition of goods under Section 2(h) of the Act of 1962 which is reproduced herein below; (h) Goods means all kinds of moveable property (not being actionable claim, newspapers, stock, shares, and securities) and includes; i) xxxx i-a) services provided in the shape of works contract, whether divisible or indivisible, involving the transfer of property or not, services in the form of lodging facilities provided by the hotels, services provided by Telecom/Cellular phone agencies by way of transfer of right to use any goods or otherwise, services provided by private nursing homes, beauty saloons, photographers and advertisers rendered by way of or as part of any contract or in any other manner whatsoever involving skill and labour or any other services as may be notified by the Government from time to time. 10. It is manifestly clear that the definition of goods include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in taxable turnover of one year on accrual basis shall not be again included in the taxable turnover of the year in which it is actually received. (c) In respect of a sale other than the sale specified in sub-rule (b) full sale price shall be included in the turnover of the year in which the sale is made notwithstanding that the sale price is receivable or is received in installments and some installments are not received during the year. Explanation Taxable turnover means the aggregate of taxable turnover of all the places of business of a dealer having more than one such place. (d) If a dealer has not charged the tax on sale of goods separately but included it in the sale price the tax included therein shall be determined on the basis of the following formula]: Rate of tax x Aggregate of sale price /100+Rate of tax. (e) Subject to the foregoing sub-rules, the taxable turnover in respect of the goods used in a work contract shall be estimated at an amount equal to the cost of such goods as enhanced by a profit margin of 20% provided that the dealer does not maintain correct and complete accounts from which the cost of labour as deductible from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lump sum amount/contract sum amount quoted by the tenderer. 15.1 LABOUR WELFARE CESS TAX Labour welfare cess shall be levied at the rate of 1% (one percent) on gross payment to contractor. Labour welfare cess deemed to be included in the lump sum/contract sum quoted by the contractor. 14. The stipulation in the aforesaid condition is loud and clear that the service tax plus surcharge and labour welfare cess is deemed to be included in the contract sum quoted by the tenderer/contractor. It is, therefore, manifestly clear that the contract sum quoted by the tenderer includes the component of service/sales tax plus surcharge leviable on services in the shape of works contract and labour welfare cess. Given the nature of condition, there is no difficulty in arriving at the conclusion that the tax leviable on services rendered by the contractor through works contract are included in the sale price and have not been charged on sale of goods separately. The taxable turnover is, thus, to be determined in accordance with the formula engrafted in Clause (d) of Section 19 of the Act of 1962. 15. To determine whether the services provided by petitioners constituted a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting the main components into the end product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, overruled. 16. It is not in controversy in the cases in hand that the contracts allotted to the petitioner were composite contracts for supply and installation which satisfied the fundamental characteristic of a works contract. Applying the dictum of Hon ble Apex Court, the impugned clarification holding that inclusion of tax in whole price of service provided is not covered under Rule 19 of the Rules of 1962 cannot be supported. There is no dispute with the proposition that contract for supply of goods and materials as well as installation amounts to works contract and the constitutional Bench Judgment of the Hon ble Apex Court upholds such view. However, the impugned clarification, though reiterating the same principle, departs from the issue as to whether service tax has to be charged on the gross amount of the contract or after deducting the tax element in contracts where the agreement is inclusive of taxes. It is, fallacious to hold that Rule 19 of the Rules of 1962 does not cover inclusion of tax in sale price. Such an interpretation would render Clause (d) of Rule 19 of the aforesaid Rules redundant which provides the formula for computation of tax included ..... X X X X Extracts X X X X X X X X Extracts X X X X
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