By K. B. Bhujle, Advocate
G. G. Goyal, Janak Vaghani, Chartered Accountants
fiogf49gjkf0d
VAT-Constitutional Validity-Works Contract- Provision to Levy Tax on Advance Received Even Not Incorporated in Works-Invalid, Rate of Tax-Declared Goods-Used In Works Contract- Provision to Levy Tax @12.5%-Invalid-S/s. 4(1) (C), 7; Entry 23 of Schedule. VI of The Karnataka Value Added Tax Act, 2003 and S/s. 14 and 15 of The Central Sales Tax act, 1956.
Facts The petitioners engaged in undertaking turnkey projects and other works contracts for third parties were assessed to tax under the Act. The orders of assessments were revised on the ground that the turnover offered for tax at a rate of 4 % on turnover of iron and steel, involved in the execution of works contracts, was not permissible for the reason that the “works contract of civil works” is a distinct entry in the Sixth Schedule and therefore, tax is attracted on the said turnover at the rate of 12.5 % as provided therein. The petitioners filed writ petitions before the Karnataka High Court challenging the constitutional validity of provisions of the act providing for levy of tax more than 4% on turnover of declared goods used in the execution of works contract in the same form.
Held Section 4(1)(c) read with serial No. 23 of the Sixth Schedule to the KVAT Act does not enable the respondents to levy tax at the rate of 12.5 % in respect of declared goods used in the same form, in the execution of works contracts, which fall u/s. 14 of the Central Sales Tax Act, 1956. Consequently, proceedings initiated or concluded in respect of the petitioners seeking to levy tax, as questioned above, were quashed by the High Court to that extent.
Further, the “Explanation” inserted by a notification dated 27th May, 2006 requires a registered dealer to include the advance amounts received as part of total turnover in the month in which the execution of works contract commences and pay tax thereon, even though there is no transfer of property in any goods involved. The Explanation certainly runs counter to the tenor of the charging section 4(1) (c) and runs counter to the definitions of “taxable turnover”, “total turnover” and “turnover” under the Act. It is also in direct conflict with article 366(29A)(b) of the Constitution of India.
Similarly, section 7 of the KVAT Act, which creates a legal fiction that a transaction of sale is completed for the purposes of the Act when payment is received as advance, is akin to bringing to tax an agreement to sell goods, even before the property in the goods passes to the buyer. This is plainly contrary to the very definition of “sale” under the Act itself. Therefore, to the said extent, these provisions were held by the High Court as unconstitutional.
