2014 (4) TMI 256 - HC - VAT and Sales Tax

High Court affirms 25% deduction for road marking contract due to lack of documents

The High Court upheld the Revisional Authority's decision to apply a 25% deduction under Rule 3(2)(m) of the KVAT Act for a Private Limited Company ... Valuation of Works Countract - Claim of Deductible expenses – Absence of records of expenses – Applicability of KVAT ACT, 2003 Rules – Held that:- The provisions of the Act clearly disclose that if the expenditure incurred for executing the work contract is ascertainable from the books of account maintained by the dealer, then he is eligible for deduction as per the expenditure he has incurred and if it is not ascertainable, then the provision of Rule 3(2)(m) has to be invoked - When the bills and vouchers have not been produced before the Assessing Authority, the question of verifying the said bills and vouchers does not arise. In the absence of necessary records, the expenditure incurred for the work contract has to be assessed invoking Rule 3(2)(m) of the KVAT Rules - Since the work contract carried on by the appellant do not fall under any type of the contracts between Entries 1 to 13, invoking clause Entry 14 of the table which is “any other work contract”, the Revisional Authority allowed the deduction to an extent of 25% as per clause 3 of the said table - No infirmity or irregularity in the said order - Hence, appeals are dismissed – Decided against appellant. Issues:Sales Tax Appeals against order setting aside reassessment for assessment years 2005-06 and 2006-07 under the Karnataka Value Added Tax Act, 2003.Analysis:The appellant, a Private Limited Company engaged in road marking works contract, filed monthly returns for 2005-06 and 2006-07 claiming 30% deduction towards labour charges. The Assessing Authority found discrepancies during an audit, issued a proposition notice, and eventually allowed 25% deduction under Rule 3(2)(m) of the KVAT Act, levying interest and penalty. The First Appellate Authority set aside the reassessment order, holding that actual labour charges were ascertainable, and the Assessing Authority erred in applying a standard deduction rate. The Revisional Authority, finding the First Appellate Authority's order erroneous and prejudicial, issued notice under Section 64(1) for objections.The appellant argued that the First Appellate Authority's order was correct, as labour charges were ascertainable, and Rule 3(2)(m) deduction was not applicable. They maintained that necessary documents were submitted, and expenses were well-documented, justifying the 30% deduction. The Respondent contended that the First Appellate Authority's decision was incorrect, as no bills or vouchers were produced to verify labour charges, leading to the Revisional Authority restoring the Assessing Authority's order.The High Court analyzed the case, emphasizing that if expenses were ascertainable from maintained records, the dealer could claim deductions accordingly. In this instance, as the appellant failed to provide necessary documents during auditing, the Revisional Authority correctly invoked Rule 3(2)(m) for a 25% deduction under Entry 14 of the table. The Court upheld the Revisional Authority's decision, dismissing the appeals and ruling against the appellant on substantial questions of law raised.In conclusion, the High Court affirmed the Revisional Authority's order, stating that the appellant's failure to produce bills and vouchers led to the correct application of Rule 3(2)(m) for the deduction. The Court found no irregularities in the decision, ultimately dismissing the appeals.