Works contract labour deduction depends on records; absent books and vouchers, residuary deduction may apply.

In a works contract, deduction for labour and like charges depends on the dealer producing books of account, bills, and vouchers sufficient to ascertain the expenditure. Where those records are not produced before the assessing authority, the residuary method under Rule 3(2)(m) of the Karnataka Value Added Tax Rules, 2005 may be applied, and only the prescribed deduction allowed. A contrary first appellate finding that the expenditure was ascertainable from the records was treated as unsustainable because the supporting material had not been produced at the relevant stage. The revisional authority was therefore justified in correcting the erroneous appellate order as prejudicial to the revenue under Section 64(1) of the Karnataka Value Added Tax Act, 2003.

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Issues: Whether the revisional authority was justified in setting aside the first appellate order and restoring the assessment in relation to deduction of labour and like charges in a works contract, and whether the expenditure was ascertainable from the books of account so as to permit a higher deduction rather than the standard rate under the residuary rule.

Analysis: The appellant carried on road-marking works contract and claimed deduction towards labour and like charges at 30%. The assessing authority found that the relevant books of account, bills, and vouchers relating to labour charges were not produced and therefore applied the residuary method under Rule 3(2)(m) of the Karnataka Value Added Tax Rules, 2005, allowing only the prescribed deduction. The first appellate authority interfered on the basis that the expenditure was ascertainable from the books of account, but that finding was held to be unsustainable because the necessary supporting records had not been produced before the assessing authority. The revisional authority was therefore justified in treating the appellate order as erroneous and prejudicial to the interest of the revenue and in invoking revisional power under Section 64(1) of the Karnataka Value Added Tax Act, 2003.

Conclusion: The revisional order was upheld, and the assessee was not entitled to the higher deduction claimed on the footing that the expenditure was ascertainable from the records.

Final Conclusion: The appeals failed, and the assessment restored by the revisional authority remained undisturbed.

Ratio Decidendi: Where the dealer fails to produce the books of account, bills, and vouchers necessary to ascertain labour and like charges in a works contract, the authority may apply the residuary deduction under the prescribed rule, and a contrary appellate finding may be revised if it is erroneous and prejudicial to the revenue.

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