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TMI Blog2024 (6) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2008-09 and 2009-10 respectively under the KVAT Act. The aforesaid three O.T. Revisions have been preferred against a common order of the Kerala Value Added Tax Appellate Tribunal dated 10.07.2019. O.T. Rev. No. 3 of 2020 pertains the M/s. DLF Home Developers Limited for the assessment year 2007-08 and impugns the order dated 25.09.2019 of the KVAT Appellate Tribunal. 2. The brief facts necessary for disposal of the O.T. Revisions are as follows: The petitioners are Limited Companies engaged in the activity of developing residential projects and selling fully constructed flats. In the Apartment Buyer's Agreement that they entered into with various customers, they stipulated a price for the work undertaken by them which included a component representing the value of the undivided share in the land and building. For undertaking the construction activities for the customers, the petitioners engaged the services of independent contractors/sub-contractors. These contractors in turn procured goods/materials on their own and duly discharged the applicable VAT on the payments received by them from the petitioners for the work undertaken by them. The petitioners in turn deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easure of tax, in composite contracts involving sale of land, tax cannot be imposed ? (C) Whether the Hon'ble Tribunal was right in disregarding the decisions of the Punjab and Haryana High Court in case of CHD Developers vs State of Haryana, 2015 (81) VST 344 (P&H) and Dhingra Jardine Infrastructure Pvt. Ltd vs State of Haryana, 2017 (101) VST 34 (P&H) where it was held in the context of pari materia provisions that in the absence of machinery provisions to provide for manner of taxable turnover, though the levy as such cannot be disputed, it remains unenforceable ? (D) Whether the mode of valuation of 'works contract' under Rule 10 of the KVAT Rules, insofar as applicable to construction contracts, have to be read in the manner that meets the criteria laid down by the Hon'ble Supreme Court in case of Larsen and Toubro vs State of Karnataka, (2013) 65 VST 1(SC) ? (E) Whether in the facts and circumstances of the case, the Hon'ble Tribunal was right in upholding the deduction towards land cost at only 5% of the contract receipt, which is contrary to the material available on record and the deductions allowed by department for earlier years ? (F) Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal do not require any modification. It is, in particular, pointed out that it was solely on account of the fact that the petitioners/assessees had not produced documents to separately show the value of the undivided share in land in the properties which had been transferred to the purchaser of the apartments, that the Assessing Authority was constrained to determine the value of the land on best judgment basis and grant deduction of the said value while computing the taxable turnover of the works contract. He contends that inasmuch as the value of the undivided share in the land is not contemplated for inclusion in the definition of 'turnover' of the works contract, the Rules providing for deduction for the purposes of computation of taxable turnover do not need to specifically deal with the value of the undivided share in the land. He therefore prays for a dismissal of the O.T. Revisions. 9. On a consideration of the rival submissions, and on a perusal of the pleadings in these cases, we find that it is not in dispute that the petitioner companies were not maintaining trading accounts while undertaking the work of construction of residential apartments for their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase or sale in the course of inter-state trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of goods into the territory of India; Section 2 (l) (l) "taxable turnover" means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed; Section 2 (lv) (lv) "works contract" includes any agreement for carrying out for cash or for deferred payment or other valuable consideration the construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection, installation, modification or commissioning of any movable or immovable property; 6. Levy of tax on sale or purchase of goods.- (1) Every dealer whose total turnover for a year is not less than ten lakhs rupees and every importer or casual trader or agent of a non-resident dealer, or dealer in jewellery of gold, silver and platinum group metals or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or any local authority or any autonomous body [or any m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming deduction, produces a certificate in Form No.20H, and an authenticated copy of the invoice issued by such sub-contractor. PROVIDED that notwithstanding anything contained in clause (a) when the turnover arrived at after deducting the amounts mentioned in clause (a) falls below the cost of goods transferred in the execution of works contract, an amount equal to the cost of the goods transferred in the execution of works contract together with profit, if any, shall be the taxable turnover in respect of such works contract. Explanation.- For the purpose of the proviso, 'cost of goods' means the price of goods together with all expenses incurred by the contractor in bringing the goods to the work site. (b) Where the actual turnover in relation to a works contract, in which the transfer of goods takes place not in the form of goods but in some other form, is not ascertainable from the books of accounts of the dealer or where the dealer has not maintained any accounts, the total turnover in respect of such works contract shall be computed after deducting labour and other charges as given in the Table below from the total amount of contract. TABLE Sl.No. Type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of elements ['A', 'B', 'C' and 'D'] and reduce therefrom the individual value of the other elements namely 'B', 'C' and 'D'. In any event, the value of the container would not enter into the formula either for determining the composite value of the mixture or for reckoning the deductions therefrom. Thus, in a situation where, as under the KVAT Act and Rules, there is no contemplation of inclusion of the land value in the value of the works contract undertaken, the absence of a machinery to exclude such land value from the total turnover so as to arrive at the taxable turnover, cannot be seen as rendering the machinery provision under the KVAT Rules unworkable. We are of the view that it was for the petitioner companies to have provided the turnover relatable to the works contract undertaken by them, by reducing the portion attributable to the undivided share of land from the amounts received by them from the customers, and then arrive at the taxable turnover by applying the formula under Rule 10. 12. While on this issue, we might add that we are not impressed with the argument of the learned senior counsel, relying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Table below and determine accordingly the sale price of the goods at the time of the said transfer of property. TABLE Sl.No. Type of works contract Amount to be deducted from the contract price (expressed as a percentage of the contract price) (1) (2) (3) 1 Installation of plant and machinery Fifteen per cent. 5 Civil works like construction of buildings, bridges, roads, etc. Thirty per cent. 15 Any other works contract Twenty five per cent Note : The percentage is to be applied after first deducting from the total contract price, [the cost of land determined under sub-rule (1A) and then,] the quantum of price on which tax is paid by the sub-contractor, if any, and the quantum of tax separately charged by the contractor if the contract provides for separate charging of tax. (1A) In case of a construction contract, where along with the immovable property, the land or, as the case may be, interest in the land, underlying the immovable property is to be conveyed, and the property in the goods (whether as goods or in some other form) involved in the execution of the construction contract is also transferred to the purchaser such transfer is liable to tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater, electricity, fuel etc. used in the execution of the works contract in which the property in goods is not transferred in the course of execution of the works contract. (iv) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (v) other similar expenses relatable to supply of labour and services; (vi) profit earned by the contractor to the extent it is relatable to supply of labour and services subject to furnishing of a profit and loss account of the works sites: PROVIDED that where the amount of charges towards labour, services and other like charges are not ascertainable from the books of accounts of the dealer or the dealer fails to produce documentary evidence in support of such charges, the amount of such charges shall be calculated at the percentages of valuable consideration specified in the Table given below: TABLE PERCENTAGES FOR WORKS CONTRACTORS OR JOB WORKS Sl.No. Type of Contract Labour, service and other like charges as percentage of valuable consideration 1 Fabrication and installation of plant and machinery Twenty five percent 6 Civil works like construction of buildings, bridges, roads, dams ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circle rates have been notified, shall be taken into consideration for the purpose of determination of value under this sub-rule: PROVIDED FURTHER that the value of works contract under this sub-rule shall not be less than the circle rate of construction applicable on the date on which agreement between the land-owner and the contractor for the construction of property was executed. Explanation: The taxable turnover in relation to contractor's share of construction for activity carried on by him for the intended purchaser shall be calculated separately as per provisions of this rule. (5) For the purpose of clause (ii) of sub-rule (2), the cost of land in a works contract carried on by the developer for the intended purchaser shall be the highest of following:- (i) Where separate conveyance/sale deed of the land has been executed between the developer and the intended purchaser, the consideration amount of land stated in that deed; or (ii) Where separate conveyance/sale deed of the land has not been executed for transfer of land between the developer and the intended purchaser and transfer of land is mentioned in the conveyance deed of the constructed unit, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormula: Proportionate super area multiplied by Value of land as determined in this sub-rule divided by Total plot area multiplied by Floor Area Ratio Explanations: (a) Proportionate super area for the purpose of this clause means the covered area booked for transfer and the proportionate common area to be constructed, attributable to it. (b) Floor Area Ratio = Total constructed area divided by Total Plot Area. (6) In the case of works contract where only a part of total constructed area is being transferred, the deduction towards labour, services and other like charges mentioned in sub-rule (3) and input tax credit under section 8 of the Act shall be calculated on a pro-rata basis. (7) (i) Where an agreement is executed by the developer with the intended purchaser after commencement but before completion of construction, the taxable turnover of sale shall be the total value of agreement, as reduced by cost of land and pro-rata amount of labour, services and like charges determined in accordance with this rule. (ii) Tax shall be payable at the time of an amount receivable or actually received, whichever is earlier, in whatever form or manner, from the intended purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger statements reveals that the receipt shown in para 12 supra is from 130 prospective buyers (130 apartment owners) and in respect of 55 apartments constructed, no advance has been received by the assessee. Thus altogether it is noted that there are 185 apartments in the projects from which the consideration received upto 2013-14 is Rs. 1,54,11,45,974/-. As no value of undivided share is mentioned in agreements and no conveyance deeds have been executed between the assessee and the proposed buyers, the apportionment of land value has to be taken on the pro rata basis of consideration received and receivable. In this case the assessee has reported total consideration of Rs. 1541145974 from 130 apartments and average cost of 1 apartment is Rs. 1,18,54,969/-. Hence total consideration to be received from 185 apartments is Rs. 1,18,54,969 X 185 = 2,19,31,69,265 The original land value paid by the assessee is Rs. 40,83,95,700/-. The sale consideration has been received by the assessee spreading over for a period of 7 years from 2007-08 to 2013-14. Hence a reasonable appreciation has to be given to the assessee on land value. Considering the facts and circumstances of the case, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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