Works contract composition levy includes embedded labour, but separate pure labour contract receipts must be segregated before tax.

Under the composition levy for works contracts, the taxable base includes the total consideration of the composite works contract, including the embedded labour component. However, consideration received under a separate pure labour contract, where no sale element is involved, is not taxable under the Act. Where a return contains mixed turnover from works contracts and pure labour contracts, the assessing authority must verify the contracts and accounts and segregate the two components before levy. The revisional order and original assessment could not stand without such segregation, and the matter required fresh assessment after giving the assessee an opportunity to produce the relevant records.

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Issues: Whether, under the composition scheme for works contracts, labour charges attributable to a separate pure labour contract could be excluded from the turnover brought to tax, and whether the matter required fresh assessment on proper segregation of the two types of contracts.

Analysis: The composition levy under section 17(6) of the Karnataka Sales Tax Act, 1957 applies to the total consideration of a works contract, and the labour component embedded in such a composite works contract is part of the taxable base. At the same time, consideration received under an independent pure labour contract, where no sale element is involved, does not attract tax under the Act. Where the return discloses a mixed turnover comprising both works-contract receipts and pure labour-contract receipts, the assessing authority must examine the underlying contracts and accounts to separate the two components before levying tax.

Conclusion: The revisional order and the original assessment could not stand without such segregation. The matter had to be sent back for fresh assessment after giving the assessee an opportunity to produce the relevant contracts and evidence.

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