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TMI Blog2017 (9) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... in Gurgaon, Haryana a) The Applicant was awarded the contract by PGCIL vide Notification of Award (hereinafter referred to as 'NOA'). As per the NOA, the applicant was required to carry out the entire process of setting up the power station. b) Subsequently the applicant entered into three separate contracts with PGCIL for the execution of the project in the state of Maharashtra at Wardha, as follows 1.1 Offshore Supply Contract (Vide contract No.CC-CS/137-WR-1/RT-929/3/G3/CA-111/4238 dated 23 March 2012) 1.2 Onshore Supply Contract (Vide contract No.CC-CS/137-WR-1/RT-929/3/G3/CA-IIf/4239 dated 23 March 2012) 1.3 Onshore Service Contract (Vide contract No.CC-CS/137-WR-1/RT-929/3/G3/CA-III/424038 dated 23 March 2012) c) The Offshore supply contract between the Applicant and PGCIL for the sites identified in Maharashtra was entered to provide for supply of goods and equipment from outside India which involve importation of goods from outside India upon payment of applicable Customs duties. Further, the onshore supply contract for the sites identified in Maharashtra between Applicant and PGCIL, is for supply of goods procured domestically within India. The Onshore Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sub-contractor appointed in this behalf. i) The Applicant submits that the sub-contractors are registered dealers under the provisions of MVAT Act, 2002 and are discharging the applicable VAT on the aforesaid work carried out under the sub-contract. Since the VAT is discharged on the works contract by the sub-contractor, the Applicant does not charge VAT in its invoices raised on the customer for the same sub-contract work. j) The Applicant has relied on the decision of Hon. Supreme Court in the case of Larsen & Toubro Vs. State of Andhra Pradesh (2008) 17 VST 1, and stated that the Hon. Apex court was concerned with similar question of whether the main contractor is liable to pay tax on works contract carried out by the sub-contractor. Hon. Apex Court held that where any portion of a contract is sub-contracted to a registered sub-contractor, no tax shall be payable by the main contractor on the consideration pertaining to the work which has been sub-contracted. It was held that in case of works contract there can be only one transfer from the sub-contractor to the ultimate customer. It is only the sub-contractor who effects transfer of property in goods as no goods vests in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit margin is not taxable in the hands of main contractor. Since this is the issue, we would not like to go into details as regard the nature or amount of contract. We would proceed directly to address the question. 3.1 We find that this issue has been discussed and settled by the decision of the Hon. Maharashtra Sales Tax Tribunal (Hon. MSTT) in the case of M/s. Zangas KPTL Consortium V. The State of Maharashtra (Vat-Second Appeal No. 254 & 255 of 2014, decided on 05.07.2016).The Para No. 14,15,16 are reproduced as under. The decision could be seen thus - "14 Appellant contends that pipe laying contract is awarded to the consortium which is a joint venture of one Russian and one Indian company. As per JV agreement 3% amount goes to JSC ZANGAS for their technical contribution. They are expert and experienced having qualified personnel for the critical technical part of the activities as detailed out in the consortium agreement. Payment made to ZANGAS is purely for technical services. JV as independent entity has purchased services from another entity JSC ZANGAS. In other words, this payment in no way concerned to sale of goods used in execution of contract. Charges for plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sale proceeds of the entire contract. Part of the sale proceeds remained in the hands of principal contractor pertaining to material used in execution of contract is liable to tax." 3.2 The Hon. MSTT in the case of M/s. IVRCL Assets & Holdings V. The State of Maharashtra (Vat-Second Appeal No. 295&296 of 2014, decided on 07.11.2016) has dealt with the issue carefully. The Hon. MSTT has also dealt with the reliance as in the present case on the decision of the Hon. Supreme Court in Larsen & Toubro 2008 17 VST 1 (SC). The Para No. 9,10,11,14 are reproduced as under. The Hon. MSTT decision could be seen thus - "9 We have heard both sides at length. As regard to facts and figures of the case, there is no dispute. Only issue before us is whether the amount retained by principal contractor is liable to tax or not. Principal contractor (appellant) has not effected any purchases of goods nor he has executed any part of the contract. We have consciously gone through the submissions made from both sides. Here, at this Juncture we need to see the legal provisions to assess the amount in the hands of principal contractor. Sec. 2(25) provides definition of sale price, "sale price means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or and the person who has actually executed the works contract or part of it as a sub-contractor shall be deemed to be that of the principal and agent and accordingly,- (a) where such principal assigns the whole or part of the execution of the works contract to different such agents resulting into the distribution of the turnover of the said sales amongst the principal and the agents or wholly amongst the agents whereby the principal escapes the liability to pay tax on the whole or part of the turnover of sales, then having regard to the total turnover of sales, including the total turnover of sales in respect of execution of such contract, of the principal in the year of assessment being such that the principal would have been liable to pay the tax under this Act if such works contract had been executed by himself alone the liability to pay tax on such total turnover of sales shall be that of the principal; (b) where such agent executes such works contract on behalf of the principal and each or either of them is liable to pay tax, then notwithstanding anything contained in any other law or any contract to the contrary, the principal and the agent shall be jointly and severally l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 45 of MVAT Act is a special feature in Maharashtra Act. These provisions provide principal contractor and subcontractor are not buyer and seller. By providing non obstantive clause, the relationship between principal contractor and sub-contractor is determined as principal and agent. The scheme is provided to avoid multiplicity of tax on the same transaction. The entire contract value is divided between principal contractor and sub-contractor. Both principal and agent are liable to tax to the extent of amount received. Transaction between employer and principal contractor is liable to tax needless to say that statutory deductions to both are available. In every contract, there are three aspects, one is a material, second is a labour and third is an expenditure. The entire contract receipts are pertaining to these three aspects. As mentioned above, principal contractor and the subcontractor together is seller. The part of consideration pertaining to goods is liable to tax. Some portion is found taxed in the hands of subcontractor and rest of the part is retained by principal contractor. Principal contractor is responsible for payment of tax on sale of goods involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and subcontractor for the purpose of works contract is of principal and agent and not of buyer and seller. * On reading of whole section 45 it becomes clear that there is a joint responsibility of principal and agent towards revenue. * The entire contract value is divided between principal contractor and sub contractor. Both principal and agent are liable to tax to the extent of amount received. * State Govt, is empowered to levy tax on 100% sale proceeds. Needless to say that appellant is entitled for deductions specified under the law. * Principal contractor and subcontractor both are entitled for deduction under rule 58. * Sale proceeds remained in the hands of principal contractor is a part of sale proceeds of the entire contract. Amount remained in hands of principal contractor is pertaining to value addition of material labour and expenses involved in the execution of contract. This amount is undoubtedly a part of consideration received by seller and is liable to tax subject to the deduction as provided in law. The part of the sale proceeds remained in the hands of principal contractor pertaining to material used in execution of contract is liable to tax. The Hon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preting the section 56 of MVAT ACT,2002 laid dawn the principles regarding the granting of prospective effect and observed in relevant Para that- "10. On plain reading of both the subsections (1) and (2) of Section 56, it is apparent that the Commissioner may direct that the determination shall not affect the liability under the MVAT Act of the applicant or if the circumstances so warrant, of any other person a similarly situated, as respects any sale or purchase effected prior to a determination. Therefore, this is not a mandate but a discretionary power vested in the Commissioner. This discretionary power has to be exercised and while exercising it, the Commissioner, has to be guided by certain inbuilt checks and safeguards. He cannot in the garb of giving relief of the nature contemplated by subsection (2) totally wipe out the liability of any and every dealer. 11. The Commissioner is expected to exercise this discretionary power so as not to defeat the law or render its provisions meaningless or redundant. The power must be exercised bearing in mind the facts and circumstances in each case. No general rule can be laid down. The exercise of this discretionary power must be bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, as discussed above on the merit, there is no ambiguity in the provision of Act. The total contract value is taxable in the works contract. The rule 58 is clearly laid dawn for the eligible deductions the principle contractor and subcontractor are held jointly and several responsible for tax liability. The rule 58 has taken due care to avoid double taxation as it provides the deduction of turnover related to subcontractor from total contract value. There is no scope, for any doubt arising out of the provisions. There is no ambiguity in language provided in the Sections and Rules. (d) The provisions under MVAT ACT, 2002 and Rules are very clear and unambiguous. It is settled legal principle that the ratio of judgment given on different provisions of one Act cannot be applied in another act, when especially the provisions of both ACT are not Pari-Materia. The Hon. MSTT already dealt with the provisions of Andhra ACT and MVAT ACT and concluded that they are not Pari-Materia. The Applicant has not established the evidence of misguidance. There was no case of statutory mis-guidance. (e)The applicant should have proved beyond doubt that he is eligible for benefit due to misguidance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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