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of <h1>Contract deemed divisible for tax purposes, Revenue's petitions dismissed, refund ordered, stay application rejected.</h1> The High Court upheld the Karnataka Appellate Tribunal's decision that the contract in question was divisible, contrary to the Revenue's contention that ... Underaluation - Determination of taxable turnover - prescribed authority classified the taxable turnovers and levied tax at four per cent. on certain items and subjected to levy of tax at 12.5 per cent on some goods - Whether the contract executed by the assessee for M/s. KPTCL is a divisible contract or indivisible contract notwithstanding the fact, it is treated as a composite contract - Held that:- For convenience of operation and for payment of sales tax on supply portion, it is treated as a contract for supply. Therefore, the intention of the parties is a manifest coupled with the said clause. The other terms and the conduct of the parties disclose in terms of the bid, the assessee supplied the materials as per specifications and paid tax thereon and transferred title in the goods to M/s. KPTCL. Thus, KPTCL became the owner of the said materials. They in turn, handed over the materials for safe custody to the assessee to enable him to perform the said contract, i.e., erection work. As the KPTCL had entered into four contracts, unless these four contracts are performed in unison, the object of given contract would have been frustrated. All the four contracts are given to the same assessee. Therefore, they wanted to ensure that the erection work which is purely a labour work was also to be treated as an integral part of this composite contract on the single source responsibility basis and the contractor was bound to perform the total contract in its entirety and non-performance of any portion of the contract was to be treated as a breach of the entire contract. In respect of the contract for sale of material taxes have been paid in accordance with law. No tax is payable in respect of contract for supply of labour. In civil works, it is a works contract and tax is levied under Schedule VI, entry 23. In those circumstances, we find that the finding recorded by the Tribunal that it is a divisible contract and the order passed by the revisional authority was erroneous is proper. The Tribunal was justified in setting aside the order of revisional authority and restoring the order passed by the prescribed authority. - Decided against Revenue. Issues:Whether the contract executed is a divisible contract or indivisible contract notwithstanding being treated as a composite contractRs.Analysis:The case involved the Revenue challenging an order by the Karnataka Appellate Tribunal regarding the classification of a contract executed by the assessee for a power transmission corporation. The Revenue contended that the contract was a turnkey project and should be treated as a works contract under entry 23 of the Sixth Schedule, while the Tribunal had classified it as a sale contract and levied tax at four per cent. The key issue was whether the contract was divisible or indivisible despite being treated as composite.The contract comprised four parts: technical specifications, supply of materials, civil works, and erection. The terms of the contract clearly indicated a distinction between supply and erection contracts. The supply contract was awarded separately for materials and equipment, with ownership retained by the power transmission corporation. The civil works were treated as a works contract, while the erection of towers was considered a labor contract. The revisional authority viewed the contract as a turnkey project and treated it as a composite works contract, leading to a tax levy under entry 23 of the Sixth Schedule.However, a clause in the contract specified that for the convenience of operation and sales tax payment, it was treated as a contract for supply. The intention of the parties was evident from the terms and conduct, with the power transmission corporation insisting on the contractor performing all parts of the contract to avoid frustration of the contract's object. Each part of the contract was separate, with taxes paid accordingly. The Tribunal found the contract to be divisible, leading to the restoration of the prescribed authority's order.Ultimately, the High Court upheld the Tribunal's decision, stating that the contract was divisible, and the revisional authority's order was erroneous. The Court dismissed the Revenue's petitions, directing the refund of taxes collected based on the revisional order. The Court rejected the stay application, emphasizing the divisible nature of the contract and the correctness of the Tribunal's decision.
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