Works contract deductions extend beyond labour charges, and reassessment after remand was barred by limitation.

In a works contract, tax can apply only to the value of goods transferred in execution of the contract, so deductions are not confined to labour charges and extend to all charges and amounts outside the taxable value of goods; the assessee succeeded on this point. A reassessment made after remand was also held time-barred because it was completed beyond the statutory two-year period counted from communication of the remand order, and a later reminder did not extend limitation; the assessee succeeded on limitation as well.

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Issues: (i) Whether, in assessing the taxable turnover of a works contract, deduction was confined to labour charges or extended to all charges other than the value of goods transferred in execution of the contract; (ii) Whether the reassessment made after remand was barred by limitation.

Issue (i): Whether, in assessing the taxable turnover of a works contract, deduction was confined to labour charges or extended to all charges other than the value of goods transferred in execution of the contract.

Analysis: Under the constitutional scheme, tax on a works contract can reach only the value of the goods transferred in execution of the contract, and not the labour or service element. The statutory provisions governing deduction were to be read in that light. A provision allowing deduction only for labour charges was insufficient because it did not account for other deductible charges and amounts that do not form part of the taxable value of goods sold in the execution of the contract.

Conclusion: The deduction was not confined to labour charges alone; all charges and amounts other than the value of the goods transferred in execution of the works contract were deductible. The issue was decided in favour of the assessee.

Issue (ii): Whether the reassessment made after remand was barred by limitation.

Analysis: The appellate order remanding the matter was communicated to the assessing authority on 5 November 1998, and the reassessment had to be completed within two years from that date. The fresh reassessment was, however, made only on 27 November 2004, long after the expiry of the statutory period. A later reminder did not extend the period of limitation.

Conclusion: The reassessment order and the consequential demand notice were time-barred. The issue was decided in favour of the assessee.

Final Conclusion: The assessment could not be sustained either on the scope of deductible amounts in a works contract or on limitation, and the appeal failed.

Ratio Decidendi: In a works contract, only the value of goods transferred can be taxed, so deductions must extend beyond labour charges to all non-taxable service-related charges, and a reassessment made beyond the statutory remand period is void as time-barred.

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