Composition tax conditions cannot override the Act where no tax liability arose on self-manufactured input goods.

Composition permission under the Gujarat VAT regime could not be denied merely because the contractor used self-manufactured grit from black trap on which no tax was separately paid. The Court read Section 14A and Rule 28(8)(b)(vi-a)(2) harmoniously with the charging and exemption provisions, holding that the rule requires tax to have been payable under the Act, not paid where no taxable event had arisen. It also held that there was no disclosure obligation regarding self-manufacture of inputs, and that a subordinate rule could not create an ineligibility for composition beyond the parent Act. The cancellation notices were therefore unsustainable and were set aside.

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Issues: Whether the notices proposing cancellation of composition permission were sustainable on the ground that the contractor used self-manufactured grit from black trap on which no tax had been separately paid, and whether the relevant rule required tax to have been paid even when no taxable event had arisen.

Analysis: Section 14A of the Gujarat Value Added Tax Act, 2003 permits composition of tax on works contracts subject to prescribed conditions, and Rule 28(8)(b)(vi-a)(2) of the Gujarat Value Added Tax Rules, 2006 requires that taxable goods used in execution of the contract should have borne tax payable under the Act. The expression "taxable goods" was read with the charging and exemption framework under Sections 2(29), 5 and 7 of the Gujarat Value Added Tax Act, 2003. The Court held that the rule cannot be construed literally to require payment of tax where no liability had arisen, because the relevant condition is satisfied when tax is payable under the Act, not merely because the goods are of a class that may be taxable in some other context. The Court also held that no disclosure requirement existed regarding self-manufacture of inputs, and that the Rules could not be interpreted so as to create an ineligibility for composition not found in the parent Act. The subordinate rule had to be harmoniously construed and could not override the Act.

Conclusion: The notices were unsustainable and were set aside; the objection based on non-payment of tax on self-manufactured grit failed.

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