2014 (9) TMI 142 - HC - VAT and Sales Tax

High Court corrects Sales Tax Tribunal's error on composite works contract, orders tax question referral.

The Additional Commissioner of Sales Tax VAT-III, Mumbai Versus M/s. Tata Infomedia Ltd.

The High Court found that the Sales Tax Tribunal erred in not referring a legal question regarding the deduction of postage charges in a composite works ... Valuation - Whether Tribunal was justified in allowing deduction of postage charges from the total contract value, when dealer had opted for composition Scheme u/s 6A of the Maharashtra Sales Tax on transfer of property is goods involved in the execution of works contract (Re-enacted) Act, 1989 (in short 'Works Contract Act), for the levy of works contract tax on the contract of printing, binding and delivery of balance sheet to the share holders, which contract was in fact one whole indivisible contract of work - Held that:- Tribunal should have referred the above reproduced question of law for an opinion of this court. The tribunal's finding that job-work of franking and mailing the balance sheets, annual reports is an independent contract and could be termed as the contract of service and distinct from the works contract, although incorporated in the same document/contract, raises a question of law and which needs to be answered by this court - reference application should not have been dismissed by the tribunal. The order passed in that behalf by the tribunal, a copy of which is to be found on page 48 of the paperbook at Annexure 'E' dated 11th June, 2013 is quashed and set aside. Matter remanded back - Decided in favour of Revenue. Issues:1. Whether the Sales Tax Tribunal should forward a question of law for the High Court's opinion regarding the deduction of postage charges in a composite works contract.Analysis:The judgment pertains to an application seeking direction for the Sales Tax Tribunal to forward a question of law to the High Court. The issue revolves around the justification of allowing a deduction of postage charges in a composite works contract under the Maharashtra Sales Tax Act. The respondent, a printing press business, entered into a contract for printing balance sheets and annual reports. The tribunal's decision to treat the job-work of franking and mailing as an independent contract raised a question of law. The High Court, in its analysis, found that the bifurcation of the contract resulted in the evasion of tax on postal charges. The court reviewed the tribunal's orders and concluded that the question of law should have been referred for the High Court's opinion.The applicant argued that the contract was artificially bifurcated, leading to the exclusion of tax on postal charges amounting to Rs. 8 crores. The tribunal's finding that the job-work of franking and mailing could be considered a separate contract of service raised a legal issue. The High Court opined that the tribunal erred in not referring the question of law for its opinion. The court noted that the bifurcation of the contract, as per the tribunal's decision, necessitated a legal clarification regarding the tax implications on the postal charges.In the absence of the respondent or their advocate, the High Court carefully examined the tribunal's order and the reference application. The court concluded that the tribunal's dismissal of the reference application was incorrect. Consequently, the High Court allowed the present application, directing the tribunal to forward the question of law for the court's opinion within eight weeks. The court emphasized that all arguments related to the question of law were to be considered open for further discussion. The judgment highlights the importance of addressing legal questions arising from composite works contracts to ensure proper tax implications and compliance with relevant laws.