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TMI Blog2019 (8) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... , in view of the TDS in the hands of the main contractors and which practice came to be prohibited by the said Circular. In the instant case, the facts involved are in the converse. The dealer seeking relief is the subcontractor and the 4th respondent is the main contractor. The facts pertaining to award of work, the sub-contract under agreement dated 14.09.2011 and the execution of the work by the sub-contractor are all admitted facts. It is also pertinent to note that the sub-contractor is one of the two constituents constituting the main contractor which is admittedly a joint venture, and entirely formed for the purpose of executing the works contract awarded under the contract dated 30.08.2011. It is an admitted fact that all throughout the execution of the project spread over several years, the RA bills were raised by the main contractor and the payments were released by the employer to the account of the main contractor and TDS was suffered in the hands of the main contractor only. In the instant case, the facts are peculiar. The execution of the contract is undoubtedly by the petitioner who again is admittedly is a sub-contractor. The RA bills or the running account bills ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K.m. 343.80 on NH - 234 i.e., Sira Madugiri Section, in Karnataka under the special project scheme. The joint venture bid i.e., of the KMC & JMC Constructions being the lowest, they were awarded the work vide Agreement dated 30.08.2011and Work Order of even date issued by the Executive Engineer, National Highways Special Division, Bengaluru. It was agreed between the constituents of the joint venture i.e., M/s. KMC Constructions Limited and M/s. JMC (the petitioner herein), that the entire work would be subcontracted to the petitioner. In lieu of the agreement, petitioner executed the entire work as a subcontractor for the joint venture entity of M/s. KMC Constructions and M/s. JMC Constructions and who being the main contractor would raise bills on the NHAI (Employer) from time to time. NHAI would then make payments to the main contractor i.e., the joint venture and while making such payments, NHAI would deduct tax at the rate of 4% as per the provisions of Section 9A of the KVAT Act, 2003 and issue TDS certificates to the joint venture entity. 5. It is further submitted that the petitioner did not pay tax on its works contract turnover since the tax payable on the turnover of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to the joint venture and later remitted to the State by NHAI in compliance of the provisions of S.9-A(5). 8. The 3rd respondent, however, rejected the petitioner's request in this regard and passed a reassessment order dated 28.03.2018 under Section 39(1) of the KVAT Act, 2003. The rejection order appears to be based on the circular issued by the Commissioner of Commercial Taxes on 23.12.2014 directing that there can be no transfer of TDS credit in favour of a third person. In the said reassessment order, the 3rd respondent observed that the TDS made in the name of M/s. KMC-JMC-(JV) the main contractor in this case amounting to ₹ 60,75,268/- cannot be given as credit to the tax payments to be made by M/s. JMC Constructions Private Limited, who is a subcontractor in this case. The 3rd respondent further levied interest and penalty under Sections 36(1) and 72(2) of the KVAT Act and issued a demand notice also dated 28.03.2018 calling upon the petitioner to pay the reassessed tax, interest and penalty within 30 days from service of the notice. 9. In support of his observation that adjustment of TDS in the hands of the main contractor against the tax liability of the subcont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expect subordinate authorities, including appellate authorities to take a contrary stand. The petitioner sought to invoke the extraordinary jurisdiction of this Hon'ble Court under Article 226 of the Constitution of India. However, the learned Single Judge vide the impugned order, dismissed the writ petition and declined to exercise the writ jurisdiction of this Hon'ble Court on the ground that there exists an efficacious and alternative remedy by way of an appeal under Section 62 of the KVAT Act, 2003. 13. It is submitted that the learned Single Judge has erred in passing the impugned order as it failed to appreciate that it would be an exercise in futility to approach any of the authorities designated under the Act, including the first appellate authority by way of an appeal under Section 62 of the KVAT Act, 2003, since the highest functionary in the Commercial Taxes Department i.e., the Commissioner of Commercial Taxes has already expressed his view on the issue at hand. Moreover, the KVAT Act, 2003 does not provide any avenues to challenge circulars issued under Section 59(1) and therefore, the learned Single Judge ought to have exercised the writ jurisdiction instead of hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factum of the petitioner having entered into a contract with the main contractor and the factum of execution of the contract work having been entrusted to the petitioner by the main contractor as a back to back contract i.e., entrustment of execution of the entire works contract only. 18. The fulcrum of the defence set up by the respondents is the circular issued by the Commissioner of Commercial Taxes dated 23.12.2014 vide Annexure - E to the writ petition, whereby the Commissioner of Commercial Taxes placing reliance on the provisions of the Section 9A of the KVAT Act, 2003, as ordered as under: "7. Further, it is also noticed that the sub contractors who are executing the woks contract on behalf of the main contractors are requesting the departmental officers to adjust the tax deducted at source by the TDS authorities payable to the main contractor towards their tax liability instead of refunding to the main contractor. There are also instances where the main contractors have requested to adjust the amount of tax deducted from their account towards the tax liability of their sub contractors. Hence, there is a necessity to clarify as to whether the said adjustment can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors for the TDS in the hands of the main contractor, even when the main contractor had not given up their rights to seek for refund or set off or adjustment on account of the TDS credited as against their account. It is further contended that as the petitioner has not laid any challenge to the validity of Rule 44(3)(f) of the KVAT Rules, the challenge to the circular is impermissible, as the circular is in consonance with the provisions of clause (f) of Rule 44(3) of the KVAT Rules, 2005. It is pertinent to note that an attempt is made to justify the circular in terms of Rule 44(3)(f) of the KVAT Rules. 20. On perusal of the circular, it is seen that no reliance is placed by the Commissioner of Commercial Taxes on the provisions of Rule 44(3)(f) and on a comprehensive reading of the same, the inference one can draw is that the circular has been found necessary by the Commissioner to deter the VAT officers from giving set off to the sub contractors on account of the TDS in the hands of the main contractor. It is further contended that the Coordinate Bench of this Court has ruled that Section 9A of the KVAT Act, 2003 does not entitle a sub contractor to seek transfer of set off o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or has omitted to declare this VAT TDS credit even in the column 5.3.2. That despite the nondeclaration of the amount in column 5.3.2, the total VAT TDS amount is still reflected as lying in credit of the main contractor. It is further deposed that the provisions of Section 10(5) of the KVAT Act does not prescribe any limitation for claiming refund and hence, it is contended that the tax assessment in respect of the petitioner will not amount to double taxation in respect of the same transaction. 24. It is further deposed that though the total receipts for the works contract is taxable at the rate of 4% under the compensation scheme, but insofar as it relates to interstate and URD purchases, the petitioner is liable to pay tax at the applicable rate. It is further deposed that on account of these factors i.e., interstate goods and the URD purchases, the total tax liability of the sub contractor may even exceed the total amount deducted as VAT - TDS and that the VAT TDS is only a safeguard mechanism adopted by the legislature and hence, no fault or irregularity can be found in the actions of the respondents. 25. The 3rd respondent has deposed further and places reliance on the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax liability has been incurred by the main contractor. It is further stated that the JV is not carrying on any other activity or business and hence has not incurred any other tax liability at all. It has also detailed the work executed between 2012-13 to 2016-17. It has also enclosed the various TDS certificate in Form 156 in all aggregating to ₹ 5,12,83,419/- lying in the account of the respondent revenue department. 29. It is further reiterated by the learned Sr. Counsel that the entire work had been entrusted to the sub contractor and hence, the TDS should enure to the benefit of the sub contractor, as the said tax has been deducted at source on account of the work executed by the sub contractor out of the bill raised by the main contractor against such executed work and that the work executed is the only taxable event. It is further stated that the main contractor has assumed that the revenue authorities would accordingly credit the entire TDS to the account of the sub contractors. It is also clarified that the returns filed every month by the main contractor reflects nil turn and nil tax liability. It is further asserted that it has not claimed any refund whatsoever ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 33. From the above discussion, what this Court is able to discern is that the 4th respondent was awarded a works contract i.e., for upgradation of the carriageway from K.m. 290.20 to K.m. 343.80 by the NHAI. That the 4th respondent is a joint venture of two independent entities separately registered as dealers under the Act. The JV is also independently registered under the Act as a dealer and has been allotted a separate tin number i.e., in effect, the constituents of the joint venture, though are independently registered as dealers have acquired the status of separate entity on account of their joint venture entity being registered as an independent dealer under the Act. The other admitted fact is that the JV has further agreed to sub contract the entire works contract to one of its constituents i.e., the petitioner. Hence, the petitioner is peculiarly placed. As a constituent of the joint venture, credits are lying in its account. But on account of it executing the contract as a sub contractor under the independent arrangement arrived at between the JV and the petitioner, it is required of this Court to determine as to in whose hands the taxable event has occurred. 34. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, it is not possible to even remotely think that the concerned authorities will go against the instructions given by the Commissioner in Circular, Annexure-D and give scope for any disciplinary proceedings against them. It is necessary to point out that going against the instructions would result in revenue loss to the State, and therefore, no Officer can afford, apart from the fact that he is obliged under Section 3A (1) of the Act, to carry out the instructions of the Commissioner, which may attract disciplinary proceedings resulting in his removal from service. Under these circumstances, in the light of the clear unequivocal instructions/directions given by the Commissioner as stated above, in my view, filing objections before the Assessing Authorities would be an empty formality. Such a remedy available to the assessees cannot be considered, in the eye of law, as an effective alternative remedy. Though the proviso given to Sub-section (1) of Section 3A of the Act prohibits the Commissioner from issue of any instructions which interferes with the discretion of the Appellate Authority, once such instructions are given, it is not reasonable to expect that even such appellate auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulting in revenue loss to the State and be made a ground to initiate disciplinary proceedings resulting even in his/her removal from service. That apart, the coordinate bench has also placed reliance on provisions of Section 3-A(i) of the Act to hold that the subordinate officers are bound to carry out the instructions of the Commissioner. 40. The fulcrum of the defence in the instant case is the Circular dated 23.12.2014 issued by the Commissioner of Commercial Taxes bearing No.I&C/DC(A3)/CR-104/2014-15 produced at Annexure-E to the writ petition. The Commissioner in paragraphs 7,8 and 9 of the Circular has issued instructions amounting to prohibiting the VAT Officers from giving set off or adjusting the tax deducted at source by the TDS Authorities towards the tax liability of the sub- contractor and has instructed that the payments made to sub-contractors which was hitherto allowed as deduction in the hands of the main contractor in lieu of the TDS credited to the account of main contractor has been disapproved. The disapproval, according to the Commissioner is on the basis that the main contractor and the sub-contractor are separate and distinct entities and both are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, we are of the considered opinion that the law laid down by the coordinate bench in the case of Ashok Agencies referred supra is squarely applicable in the facts of the instant case also and hence, we hold that the writ petition is maintainable as the remedy of appeal is not an efficacious remedy in the peculiar circumstances of the case. 43. This legal position is also fairly admitted by the respondents and hence the impugned order of the learned Single Judge requires to be set aside and is set aside and the point for consideration with regard to maintainability is answered in favour of the petitioner. 44. With regard to the other point formulated for consideration by the bench, we proceed to adjudicate the same in view of the singular fact that there is no dichotomy in the facts involved in the writ petition. There being no factual disputes and the parties being at ad idem and the only legal issue being required to be addressed by this Court being the liability of the petitioner to comply with the demand by the Revenue Authorities, we proceed further in the matter. 45. At the cost of repetition, it is once again reiterated that the parties are not at variance with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sub-contractors cannot be included for computing the total turnover of the assessee and the assessment in respect of the said year was answered against the Revenue contrary to the earlier view. 47. The Hon'ble Apex Court while determining the issues arising in the above appeals has placed reliance on its own ruling rendered in the case of STATE OF ANDHRA PRADESH VS. LARSEN AND TOUBRO LIMITED AND OTHERS reported in 2008 (9) SCC 191. The Apex Court has noted that the Revenue has made an attempt to contend that the provisions of the State Act are not on pari materia with the provisions of the Andhra Pradesh enactment. The Hon'ble Apex Court after adverting to certain provisions of the Karnataka Act namely Section 2 (i) (t) and 2 (i) (u-1), (u-2) and (v) and provisions of Section 5-B and 6-B formulated the following question as requiring determination by the Court: "The question for determination is: for calculating the turnover for the purpose of payment of turnover tax under Section 6-B of the Karnataka Act, whether payments made to sub-contractor are to be included while calculating the total turnover?" 48. After formulating the above question for determination, the Hon'ble A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guously declared by the Hon'ble Apex Court is applicable to the instant case in the light of the provisions of the KVAT Act, 2003? In this regard we are required to examine certain provisions of the 2003 Act, i.e., Section 2 (12) - "Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes. Section 2 (12) (g) - a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; Section 2 (29) - "Sale" with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes. (a) xxxx (b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; Section 2 (36) - "Turnover" means the aggregate amount for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is receipt of payment: Provided that where a dealer issues a tax invoice in respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued. Section 9-A - Deduction of tax at source (in case of works contract) (1) Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any state, or any such undertaking in joint sector or any other industrial, commercial or trading undertaking or any other person or body as may be notified by the Commissioner from time to time or a local authority or a statutory body, shall deduct out of the amounts payable by them to a dealer in respect of any works contract executed for them in the State, an amount equivalent to the tax payable by such dealer under the Act. Section 9-A (5) - The authority making deduction under sub- section (1), shall send every month to the prescribed authority a statement in the prescribed form containing particulars of tax deducted during the preceding month and pay full amount of tax so deducted by it within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his hands. Yet again the accent is on the transfer, either by way of transfer or accretion. 56. Further, clause (a) of sub-section 6 of section 4, of the Act is an enabling provision whereby a dealer who is not liable to tax is entitled to seek "adjustment" of any amount of tax collected on his purchase and which is in excess of the tax payable on his turnover relating to sale of goods. Thus emphasis is on the sale or transfer. 57. Another provision of interest and relevance is the provisions of clause (b) of subsection (1) of section 6 which deals with the place of sale of goods. The clause deals with the case of unascertained or future goods and the place of sale is said to occur at the time of appropriation. Section 7 deals with the time of sale of goods and sub-section (1) and the provision determines the same as being the time of transfer of title or possession or incorporation of the goods. The moot point here is, whether the incorporation ought to be understood as having occurred at the time of mere use of goods or on the delivery of the future goods or in other words the certification of the use of goods or the future goods. It is also relevant to note that the Act merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actor and the 4th respondent is the main contractor. The facts pertaining to award of work, the sub-contract under agreement dated 14.09.2011 and the execution of the work by the sub-contractor are all admitted facts. It is also pertinent to note that the sub-contractor is one of the two constituents constituting the main contractor which is admittedly a joint venture, and entirely formed for the purpose of executing the works contract awarded under the contract dated 30.08.2011. It is an admitted fact that all throughout the execution of the project spread over several years, the RA bills were raised by the main contractor and the payments were released by the employer to the account of the main contractor and TDS was suffered in the hands of the main contractor only. The fact also remains that the all along the work was admittedly executed by the subcontractor. In that view of the matter, we have no hesitation in concluding that the taxable event occurred in the hands of the main contractor, as the transfer of property or accretion of goods and transfer of property in favour of the employer was on the event of the main contractor submitting the RA bills claiming. Thus, the taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same was at the hands of the main contractor and TDS has been suffered in the hands of the main contractor and there being no taxable event in the hands of the sub-contractor, we are of the considered view that in the light of the law laid down by the Hon'ble Apex Court as stated supra, the writ petition requires to be allowed. 63. Accordingly the writ petition is allowed in so far as it relates to the works contract covered under the contract agreement dated 30.08.2011 and 14.09.2011. Consequently, the tax demands raised by the revenue requires to be reworked accordingly in the light of the observations made above. Consequently, Annexures-C, D and F stand quashed. 64. It is also made clear that the above order allowing the writ petition will enure to the benefit of the writ petitioner in so far as it relates to the scope of work covered under the contract agreement dated 14.09.2011 only. In the light of the above, liberty is granted to the revenue to reassess the liability of the petitioner in so far as it relates to the inter-state and URD purchases made by the petitioner. In the light of the above order passed, there shall be no order as costs. 65. This Court though has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute works contract as sub-contractors as in the instant case and sub-contractors form the excepted class. We are of the view that the assesses who fall within the scope of Section 9-A(10) and (11) are excepted from the applicability of Rule 44(3)(f). As no challenge is mounted to the validity of Rule 44(3)(f) and the impugned Circular being purportedly in exercise of the powers vested in the Commissioner of Commercial Taxes under Section 59 of the Act, we are unable to grant the relief sought for by the petitioner in respect of the impugned Circular. Accordingly, the writ petition in so far as it relates to the prayer (d) stands rejected. Though we have rejected the relief, but at the same time, we would like to add a word of caution to the Revenue with regard to the log-jam the circular could cause. If the circular is implemented in letter and spirit and Rule 44(3)(f) is interpreted in the manner as made out in the circular, we are of the opinion that it would lead to duplication of work, whereby the staffers would be assessing the same work, admittedly executed by one dealer, in the hands of two dealers, which would only mean duplication of assessment work, which is admittedly an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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