Composition levy on works contracts covers the whole contract value, but genuine pure labour contracts remain outside the tax net.

Under the Kerala VAT composition scheme for works contracts, tax is payable on the entire value of the taxable works contract and cannot be split to exclude amounts that would otherwise qualify for deductions or exemptions under regular assessment. A dealer opting for section 8(a)(i) cannot combine that composition levy with the benefits of section 6. At the same time, a genuine pure labour contract involving no transfer of goods falls outside the works contract levy, and the assessing authority must examine the contract and supporting documents to verify taxability. On the record, verification was warranted only in the Indian Oil Corporation contract revision; the other revisions lacked material to show a separate labour contract.

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Issues: (i) Whether, under section 8(a)(i) of the Kerala Value Added Tax Act, tax payable on the "whole contract amount" permits bifurcation of a contract so as to exclude amounts attributable to a pure labour contract. (ii) Whether a pure labour contract, not involving transfer of goods, is liable to tax or compounded tax under the Act, and whether the assessing authority must verify the nature of the contract before levying tax.

Issue (i): Whether, under section 8(a)(i) of the Kerala Value Added Tax Act, tax payable on the "whole contract amount" permits bifurcation of a contract so as to exclude amounts attributable to a pure labour contract.

Analysis: Section 6(1) provides for regular assessment on taxable turnover with permissible deductions and exemptions, whereas section 8(a)(i) is a separate composition scheme under which a works contractor may opt to pay tax at a concessional rate on the whole contract amount. The phrase "whole contract amount" was construed to mean the entire value of a particular works contract, without bifurcation for claiming exemptions that are available under the regular assessment scheme. The composition scheme was treated as a distinct method of assessment, and its benefit could not be combined with deductions and exemptions applicable under section 6.

Conclusion: A dealer opting under section 8(a)(i) cannot bifurcate the works contract to claim exemptions from the whole contract amount; the composition levy applies to the entire value of the works contract.

Issue (ii): Whether a pure labour contract, not involving transfer of goods, is liable to tax or compounded tax under the Act, and whether the assessing authority must verify the nature of the contract before levying tax.

Analysis: A pure labour contract, by itself, does not fall within the taxing provision applicable to works contracts involving transfer of goods. The liability to pay compounded tax arises only where there is a liability to pay tax on a works contract. Where the material on record indicates that a contract is only for labour or allied services without supply of materials, the assessing authority must examine the contract terms and documents to determine whether the activity is taxable. On the facts of one revision, the contract with Indian Oil Corporation required such verification; on the remaining revisions, no material was produced to show a separate pure labour contract.

Conclusion: A pure labour contract is not taxable under the works contract levy, and the assessing authority must verify the contract to determine taxability; in the absence of supporting material, the assessee cannot claim exclusion.

Final Conclusion: The composition levy under section 8(a)(i) applies to the entire works contract, but not to a genuine pure labour contract. The matter was remitted for verification only in the revision involving the Indian Oil Corporation contract, while the other revisions were left undisturbed.

Ratio Decidendi: Under a composition scheme for works contracts, tax is payable on the entire value of a taxable works contract without bifurcation for regular-assessment exemptions, but a contract that is purely for labour and involves no transfer of goods is outside the levy and must be excluded on proper verification.

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