2014 (7) TMI 321 - HC - VAT and Sales Tax

Court allows deductions for vehicle depreciation, maintenance, and consumables in works contracts

The court held that the petitioner is entitled to deductions for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables used ... Deductibility of amounts from turnover in works contracts - interpretation of 'charges for obtaining on hire or otherwise machinery and tools' in rule 6(2)(d) - treatment of depreciation as equivalent to hire charges - scope of rule 6(2) deductions - application of ejusdem generis in construing taxing provisions - levy of tax on transfer of property in goods involved in the execution of works contractInterpretation of 'charges for obtaining on hire or otherwise machinery and tools' in rule 6(2)(d) - treatment of depreciation as equivalent to hire charges - deductibility of amounts from turnover in works contracts - Whether amounts spent by the contractor on vehicles and machinery used in execution of works contracts - specifically depreciation on trippers, maintenance expenses of trippers and consumables - are deductible from turnover under rule 6(2) of the A.P. General Sales Tax Rules, 1957 - HELD THAT: - The Court construed rule 6(2)(d) with the words 'or otherwise' as expansive and intended to cover amounts spent on machinery and tools in any form, not confined to payments made by hiring. Reliance was placed on the principle that general words following specific words are prima facie to be given their full general sense unless limitation is required by context. The Court referred to precedents holding that the value of goods involved in a works contract may be arrived at by deducting amounts relatable to labour and services and other non-goods components from the contract value, and to Karnataka authority which treated depreciation/wear and tear of plant and machinery as equivalent to hire charges for the purposes of deduction. Applying these principles, the Court held that proportionate wear and tear (depreciation), maintenance expenses and consumables used in execution of the works contract fall within the ambit of clause (d) read with the Rule as a whole and para 11.2 of the sales tax manual permitting factual deductions similar in nature to listed categories, and thus are deductible from turnover when establishing the taxable value of goods involved in the works contract. Consequently, the revisional order disallowing the deductions was set aside and the assessing authority's allowance of exemption for depreciation, maintenance and consumables was restored.Deductions for depreciation on vehicles, maintenance of tippers and consumables used in execution of works contracts are allowable under rule 6(2) and the orders disallowing them are set aside; the assessing officer's grant of those exemptions is restored.Final Conclusion: The tax revision petitions are allowed; the Deputy Commissioner's revisional order (as confirmed by the Tribunal) is set aside and the Commercial Tax Officer's order granting deduction/exemption for depreciation on vehicles, tipper maintenance and consumables is restored. No order as to costs. Issues Involved:1. Eligibility for deductions in turnover for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables under Rule 6(2) of the A.P. General Sales Tax Rules, 1957.2. Interpretation of Rule 6(2)(d) regarding 'charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract.'3. Applicability of ejusdem generis rule in interpreting Rule 6(2)(d).Detailed Analysis:1. Eligibility for Deductions in Turnover:The primary issue is whether the dealer executing the works contract is entitled to deductions for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables under Rule 6(2) of the A.P. General Sales Tax Rules, 1957. The petitioner, a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957, was initially granted exemptions by the Commercial Tax Officer for the years 1998-99, 1999-2000, and 2000-01. However, the Deputy Commissioner revised this order, disallowing these exemptions on the grounds that the petitioner did not provide sufficient details for the cost of consumables and was not eligible for deductions for depreciation and maintenance expenses.2. Interpretation of Rule 6(2)(d):The court examined Rule 6(2)(d), which allows deductions for 'charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract.' The petitioner argued that the expenses incurred for maintaining their own vehicles should be treated as equivalent to hire charges, thus eligible for deductions. The court referred to the sales tax manual, which states that the assessing authority can deduct amounts similar to the categories mentioned in Rule 6(2)(a) to (i), even if they have different nomenclature, provided detailed reasons are given.3. Applicability of Ejusdem Generis Rule:The court considered whether the ejusdem generis rule, which limits general terms to the same kind as specific terms, applies to Rule 6(2)(d). The court concluded that the words 'or otherwise' in Rule 6(2)(d) are intended to cover expenses beyond just hire charges, including amounts spent on machinery and tools in any form. The court cited precedents, including the Supreme Court's judgment in Gannon Dunkerley & Co. v. State of Rajasthan, which held that the value of goods involved in a works contract includes all costs except those for labor and services. The Karnataka High Court in Larsen & Toubro Limited v. State of Karnataka also supported this broader interpretation, allowing deductions for depreciation on machinery used in works contracts.Conclusion:The court concluded that the petitioner is entitled to deductions for depreciation on vehicles, maintenance expenses on tippers, and cost of consumables used in the execution of works contracts. The revised order by the Deputy Commissioner, which disallowed these deductions, was set aside, and the original order by the Commercial Tax Officer granting these exemptions was restored. The court emphasized that the dominant idea for exempting these charges is the use of machinery for executing the works contract and the associated expenses. Thus, the tax revision cases were allowed, with no order as to costs.