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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 ..... 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) Issue writ in the nature of Mandamus commanding the respondent No.8 to reimburse the excess tax deducted from whole amount instead of taxable amount along with the interest @ 18% till final realization of the amount. iii) Issue writ in the nature of Prohibition restraining the respondent no.8 for further deducting the tax over the whole amount instead of tax able amount of which the payment/outstanding is due. 2. In OWP No.525/2014 filed by the same petitioners against the same respondents, petitioners seek quashment of the Notification No.1/2014 dated 14.01.2014 issued by respondent No.2 which is also the subject matter of challenge in OWP No.419/2014. Following reliefs are claimed in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 engrafted in the aforesaid Rule. It is further submitted that even otherwise condition No.15 of the contract agreement providing for levy of service/sales tax clearly spells out that the service tax shall be deductable on the gross payment to the contractor. It is further submitted that similar issues have been raised earlier. Reference is made to clarification No.8 of 2006 dated 14.08.2006, clarification No.1 of 2009 dated 09.04.2009, clarification No.27 of 2000 dated 08.02.2002, clarification No.11 of 2005 dated 20.05.2005 and clarification No.6 of 2008 dated 11.02.2008 in this regard. Deduction of tax by respondent No.8 over the gross amount instead of over the taxable turnover is said to have caused financial lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 impugned clarification harmonizes the tax structures as regards works contract and to remove the confusion created by earlier clarifications. It is pleaded that respondent No.8 was obliged under law to deduct the sales tax on gross amount of the contract. It is further pleaded that it is for the concerned assessing authority to see whether the contract is inclusive of tax or not. It is further pleaded that the levy of sales tax is not subservient to the contract agreement entered into between the parties or conditions stipulated therein. It is for the concerned Assessing Authority to look into the various aspects of the taxable turnover of a dealer at the time of assessment. Act of respondent No.8 in deducting the sales tax fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 includes services provided in the shape of works contract, whether divisible or indivisible, involving the transfer of property or not. 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 deemed to be a sale by the person making the same. Services provided in execution of works contract are goods and, thus, the services provided constitute sale of goods which is exigible to tax under the relevant tax schedule. It is, therefore, amply clear that it is the services provided in the shape of works contract together with the goods, skill, labour, and consumables etc. which constitute goods. The person who executes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mula]: 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 the amount payable to the dealer for currying out the contract under Explanation 1 of clause (n) of Section 2 of the Act can be deducted.]" 11. A bare look at the provision engrafted in Section 19 of the Rules of 1962 brings it to fore that certain deductions are to be allowed while determining taxable turnover. Clause (d) of the aforesaid provision lays down the formula for determination of taxable turnover where the dealer has not charged the tax on sale of goods separately but included it in the sale price. The tax included therein has to be determined in accordance with the following formula; Rate of tax x Aggregate of sale price .................................... 100+Rate of tax. For elucidation of the application of above formula, an example can be taken. Where the rate of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered 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 part of the contract included in sale of goods, be it seen that the definition of goods in Section 2(h)(I-a) includes, inter alia, services provided in the shape of works contract, whether divisible or indivisible involving the transfer of property or not. The million dollar question, in each case of the instant type, would be whether the contract is a contract for sale of goods or a works contract . This assumes significance in view of the fact that in case of the former, the entire sales consideration would be taxable under Sales Tax Act or VAT Act whereas in the later case, the part of consideration payable on account of labour and service element would be excluded from the total consideration received and sales tax or value added tax would be chargeable only on the balance amount. A Five Judge Bench of the Hon ble Apex Court, in M/s. Ko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 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 preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 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 in the sale price. The impugned clarification cannot be sustained in view of the authoritative pronouncement of the Constitutional Bench of the Hon ble Apex Court and has to be quashed. 17. In view of the findings arrived at hereinabove, these Writ Petitions are allowed and following reliefs are granted by issuing:- i) 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) writ in the nature of Mandamus commanding the respondent No.8 to reimburse the excess tax deducted from whole amount instead of taxable amount; iii) writ in the nature of Prohibition restraining the respondent no.8 for further deducting the tax over the whole amount instead ..... X X X X Extracts X X X X X X X X Extracts X X X X
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