2015 (10) TMI 2603 - HC - VAT and Sales Tax

Court upholds tax liability for government companies under Kerala VAT Act, clarifies exemption provisions.

The court dismissed the writ petition challenging the deduction of tax at 7% and upheld the liability certificates issued in relation to works undertaken ... Works contract - compounded rates of tax - Held that: - the contract in the instant case was undertaken by the petitioner for the Kerala State Construction Corporation Ltd., which is a wholly owned Government company. The said fact however, will not entitle the petitioner to claim the concessional rate of tax of 5%, that is envisaged in respect of compounded tax payable by a works contractor in respect of works contract awarded by the Government of Kerala, Kerala Water Authority, or local authority, inasmuch as the Kerala State Construction Corporation Ltd., cannot be equated with the Government of Kerala for the purposes of the concessional rate of tax - petitioner dismissed - decided against petitioner. Issues:Interpretation of the concessional rate of tax under the Kerala Value Added Tax Act for works contract undertaken by a dealer for a government company.Analysis:The judgment addresses the issue of determining the applicable rate of tax for a dealer registered under the Kerala Value Added Tax Act who undertook works for a government company, specifically the Kerala State Construction Corporation Ltd. The petitioner contended that the deduction of tax at 7% by the awarder of the contract was erroneous as Section 8 of the KVAT Act provides for a concessional rate of 5% for tax payment on a compounded basis for works contracts awarded by specific entities. The court considered the nature of the contract between the petitioner and the government company, emphasizing that the Kerala State Construction Corporation Ltd., despite being a government-owned entity, cannot be equated with the Government of Kerala for the purposes of availing the concessional rate of tax. The judgment highlighted the principle of strict construction of exemption provisions in fiscal statutes against the assessee, leading to the conclusion that the concession for the concessional rate of tax cannot be extended to government companies. Consequently, the court dismissed the writ petition challenging the deduction of tax at 7% and upheld the liability certificates issued in relation to the works undertaken by the petitioner.In conclusion, the judgment delves into the specific provisions of the Kerala Value Added Tax Act concerning the rate of tax applicable to works contracts undertaken for government entities. It underscores the distinction between government companies and the government itself in terms of availing concessional rates of tax, emphasizing the strict construction of exemption provisions against the assessee. The decision provides clarity on the interpretation of the concessional tax rates under the KVAT Act in the context of works contracts involving government companies, ultimately upholding the liability certificates issued to the petitioner and dismissing the challenge against the deduction of tax at 7%.