2010 (7) TMI 940 - HC - VAT and Sales Tax

Contractor not liable for double tax under Karnataka Sales Tax Act. Court clarifies resale tax provisions.

MFAR Constructions Limited Versus Commissioner of Commercial Taxes (Karnataka), Vanijya Therige Karkalaya, Bangalore

The court held that a works contractor is not liable to pay tax under both sections 5B and 6B of the Karnataka Sales Tax Act, 1957. Resale tax under ... Whether the tax payable under section 6B of the Act would be in addition to tax payable under section 5B of the Act and that sections 5B and 6B are independent charging sections of the Act and a works contractor is liable to tax under both the charging sections? Held that:- The tax paid by the registered dealer on the turnover which is the subject-matter of tax under section 5B of the Act and tax paid by the registered dealer which is the subject-matter of clause (x) of the proviso to section 6B are to be excluded from the purview of section 6B of the Act. The resale tax under section 6B of the Act is payable only on the turnover over and above those two turnovers. In that view of the matter, the order passed by the Commissioner runs counter to the express provisions contained in section 6B and cannot therefore be sustained. Appeal allowed. Issues:Interpretation of sections 5B and 6B of the Karnataka Sales Tax Act, 1957 in relation to the liability of a works contractor to pay tax under both sections.Analysis:The case involved a works contractor challenging an order by the Commissioner of Commercial Taxes stating that tax under section 6B of the Act is payable in addition to tax under section 5B, and that both sections are independent charging sections. The appellant approached the Authority seeking clarification on tax liability for goods purchased from local registered dealers. The Authority initially held the appellant liable for resale tax under section 6B, but upon appeal, it was set aside and remanded for reconsideration. The Commissioner later held the appellant liable for resale tax under section 6B, leading to the current appeal.The key issue for consideration was the turnover on which resale tax is payable under section 6B. Section 5B deals with the levy of tax on the transfer of property in goods involved in works contracts, while section 6B pertains to the levy of resale tax. The court analyzed the provisions of both sections, emphasizing that resale tax is only applicable to turnover not liable to tax under sections 5, 5A, 5B, 5C, or 6. The court highlighted the intention behind section 5B to tax turnover not previously taxed and clarified that resale tax is not leviable on turnover already taxed under section 5B.The court referred to the Finance Minister's speech, emphasizing the introduction of resale tax as a collectable levy on turnover not exempt from tax, respecting the principle of single-point taxation. The court disagreed with the Commissioner's reasoning that a works contractor is liable to pay tax under both sections 5B and 6B, stating that resale tax is only applicable to turnover not taxed under section 5B. The court held that the Commissioner's order was contrary to the provisions of section 6B and set it aside, restoring the Authority's initial order.In conclusion, the court allowed the appeal, setting aside the Commissioner's order and restoring the Authority's decision. The court clarified that resale tax under section 6B is payable only on turnover not liable to tax under section 5B, excluding turnovers already taxed under section 5B or covered by the proviso to section 6B.