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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 ..... KVAT Act and Rules. The Scheme for determining the taxable turnover under the KVAT Rules is to begin with the total amount received or receivable by the dealer for the execution of the works contract and then deduct therefrom the amounts expressly mentioned in Rule 10 (2) (a) of the KVAT Rules. The formula in the Rules is thus for the purposes of determining the taxable turnover pertaining solely to the transfer of goods involved in the execution of the works contract. 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 - 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. Thus, in the absence of a statutory Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 deducted the applicable tax under the KVAT Act from the payments made to their contractors. 3. To maintain the quality of construction, the petitioners used to supply major components such as steel, cement etc. to the contractors on free of cost basis. The petitioners were therefore under the belief that they were merely engaged in the sale of finished apartments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that the assessing authority was justified in resorting to determining taxable turnover as per Rule 10 (2) (b) of the K-VAT Rules in absence of production of books of accounts ? (G) Whether in the facts and circumstances of the case, the Hon'ble Tribunal was right in upholding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 customers. It was under these circumstances that the Assessing Authority found it difficult to ascertain the actual expenses incurred by the petitioner companies for executing the works contracts. Furthermore, the petitioner companies had a specific case that the amounts received by them from their customers included a portion that represented the value of the undivided share of land, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 multi-level marketing entity, their distributor and / or agent engaged in multi-level marketing] whatever be his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be on the taxable turnover, - (a) xxxxxxx xxxxxxx (b) xxxxxxx xxxxxxx (c) xxxxxxx xxxxxxx (d) xxxxxxx xxxxxxx (e) in the case of transfer of goods involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of works contract Labour or other charges as a Percentage of the value of the works contract (1) (2) (3) 1 Electrical contracts 20 2 All structural contracts 30 14 All other contracts 25 Explanation .- No deduction as per the above Table shall be allowed out of the total contract amount for the supply and installation of any machinery, equipment or any other system, where the goods involved are transferred in the knocked down condition (unassembled form) and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provisions of the Maharashtra Value Added Tax Rules and the Haryana Value Added Tax Rules. It will be seen from a perusal of those Rules, which are extracted herein below, that they contained specific provisions to deal with situations where the contract value declared contained an inbuilt component of land value which therefore had to be excluded while computing taxable turnover, in the manner provided under those Rules. The aforementioned Rules may now be noticed: MAHARASHTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 this rule. The value of the said goods at the time of the transfer shall be calculated after deduction the cost of the land from the total agreement value. The cost of the land shall be determined in accordance with the guidelines appended to the Annual Statement of Rates prepared under the provisions of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, as applicable on the 1st January of the year in which the agreement to sell the property is registered: PROVIDED that, deduction towards cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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, barrages, canals and diversions. Fifteen per cent. 23 All other contracts not specified from serial numbers 1 to 22 above. Twenty per cent In case of the works contract mentioned at serial number 6 where land is also transferred alongwith other property in goods, the deduction of twenty-five percent shall be allowed after excluding the cost of transferred land as determined under this rule: PROVIDED FURTHER that where the dealer claims deduction on account of labour, services and other like charges exceeding the percentages of valuable consideration specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 value of land in the value of composite works contract shall be determined on the basis of notified circle rates of land prevailing at the time of execution of agreement between the developer and the intended purchaser: PROVIDED that where separate circle rates for land and construction have not been notified in respect of certain properties, then circle rate for land and construction prevailing in that locality for other properties in respect of which separate circle rates have been notified, shall be taken for the purpose of determination of value under this sub-rule: PROVIDED FURTHER that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchaser in relation to (i) above. (iii) The developer shall be eligible to deduct labour, services, other like charges in relation to (i) above in the tax period when output tax becomes payable. 13. Thus, in the absence of a statutory Scheme similar to what obtains in the State of Maharashtra or Haryana referred above, we are of the view that it was incumbent upon the petitioner/assessees to declare the total turnover [contract receipts] pertaining solely to be works undertaken by them, without including therein the component representing the value of the undivided share in the land. If the petitioner assessees chose not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deems just that 20% appreciation on land value will be equitable for the purpose. Hence for determining the land value element, by considering value appreciation it is fixed as 49,00,74,840/-(20% of 40,83,95,700/-) The percentage of land value element against total consideration is thus worked out as 22.34% of the contract receipt for each year (49,00,74,840/2193169296X100). 15. We feel that in the absence of any document produced by the petitioner to show the actual land value included in the contract receipts, the above methodology can be adopted by the Appellate Tribunal to determine the taxable turnover of the petitioner assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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