Works contract concession under KVAT applies only to pre-existing contracts, not later agreements executed after commencement.

The Kerala High Court upheld the provisos inserted into section 8(a)(iii) of the Kerala Value Added Tax Act, 2003, rejecting challenges based on arbitrariness, discrimination and legislative competence. It held that the concessional compounded rate was only a statutory concession, not a constitutional entitlement, and that the assessees failed to show any specific infirmity in the legislative source of power or in the amended scheme. The Court further ruled that the concession applied only to works contracts already in existence before the KVAT regime commenced, not to separate agreements executed on or after 1 April 2005. Receipts under those later agreements were therefore taxable at the higher rate.

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Issues: (i) Whether the newly introduced provisos to section 8(a)(iii) of the Kerala Value Added Tax Act, 2003 were unconstitutional on grounds of arbitrariness, discrimination and lack of legislative competence; (ii) Whether the assessees were entitled to the concessional compounded rate under section 8(a)(iii) for agreements executed on or after 1 April 2005 and for receipts collected during the later period.

Issue (i): Whether the newly introduced provisos to section 8(a)(iii) of the Kerala Value Added Tax Act, 2003 were unconstitutional on grounds of arbitrariness, discrimination and lack of legislative competence.

Analysis: The challenge to legislative competence was found to be unsupported, since no specific infirmity in the source of power under the constitutional distribution of legislative fields was demonstrated. The plea of arbitrariness and discrimination also failed because the concessional rate under section 8(a)(iii) was itself only a statutory concession, and the petitioners did not establish any legally sustainable ground showing that the provisos were inequitable or constitutionally impermissible. The amendment was treated as clarificatory of the statutory scheme and directed to a different situation.

Conclusion: The constitutional challenge failed and the provisos were upheld against the assessees.

Issue (ii): Whether the assessees were entitled to the concessional compounded rate under section 8(a)(iii) for agreements executed on or after 1 April 2005 and for receipts collected during the later period.

Analysis: The concessional rate under section 8(a)(iii) was held to apply only to works contracts that were already in existence before the KVAT Act came into force and which remained unexecuted on that date. The Court distinguished a mere project from a works contract and held that each agreement executed on or after 1 April 2005 created a separate contract after the commencement of the new regime. Since the petitioners' receipts related to agreements entered into after 1 April 2005, they could not claim the benefit of the earlier concessional rate. The subsequent Finance Act, 2007 provisos did not alter that conclusion.

Conclusion: The assessees were not entitled to the concessional rate for the disputed agreements and receipts, and the higher tax demand was sustainable.

Final Conclusion: The writ petitions were devoid of merit, the impugned notices demanding tax at the higher rate were sustained, and the challenge to the amendment and assessment proceedings failed.

Ratio Decidendi: A concessional compounded rate for works contracts applies only to contracts already in existence before the commencement of the new tax regime and does not extend to separate agreements executed after that commencement; a statutory concession cannot be enlarged into a constitutional right absent a specific infirmity.

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