Works contract composition under section 7C does not create taxable turnover for additional sales tax liability.

Section 7C of the Tamil Nadu General Sales Tax Act, 1959 provides only an optional compounded mode of payment based on the total contract value in a works contract, but that value includes labour and service components that are not taxable. The statute does not deem the full contract value opted under section 7C to be taxable turnover. Because additional sales tax under the Tamil Nadu Additional Sales Tax Act, 1970 is attracted only with reference to the dealer's taxable turnover, and no such taxable turnover arises from the section 7C composition option, additional sales tax cannot be levied on that amount.

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Issues: Whether, when a works contractor opts to pay tax under section 7C of the Tamil Nadu General Sales Tax Act, 1959 on the total contract value, the amount so paid can be treated as taxable turnover so as to attract additional sales tax under the Tamil Nadu Additional Sales Tax Act, 1970.

Analysis: Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 levies tax on the taxable turnover of transfer of property in goods involved in a works contract, while section 7C provides only an optional compounded mode of payment at a prescribed percentage of the total contract value. The contract value includes not only the value of goods transferred but also labour and service components which are not exigible to tax. The Act does not deem the total contract value, where section 7C is opted for, to be the dealer's turnover or taxable turnover. Since the additional tax under section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970 is levied only with reference to the dealer's taxable turnover, and no such taxable turnover is determinable on the basis of the section 7C composition option, the additional tax could not be sustained.

Conclusion: The contract value paid under section 7C could not be treated as taxable turnover for the purpose of additional sales tax, and the levy was unsustainable.

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