Declared goods in works contracts remain subject to statutory tax limits, and higher VAT levy is unsustainable.

Declared goods such as iron and steel used in the same form in a works contract are protected by the statutory limitation under Section 14 of the Central Sales Tax Act, and the State cannot impose a higher VAT incidence than permitted by the Karnataka Value Added Tax Act, 2003. The note explains that although composite works contracts may be taxed under the VAT regime, the levy on declared goods remains restricted by the governing scheme. On that basis, a 14.5% tax levy on iron and steel used in the execution of works contract was stated to be unsustainable and required reconsideration under the correct legal position.

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Issues: Whether iron and steel used in the execution of works contract, being declared goods, could be taxed at 14.5% under the Karnataka Value Added Tax Act, 2003, or whether the tax was restricted by the statutory scheme governing declared goods.

Analysis: The petitioner had filed returns which were deemed accepted, and reassessment was initiated on the basis of alleged omissions. The controversy survived only on the levy applied to iron and steel used in works contract. The governing legal position, as settled by the Court, is that while composite works contracts may attract tax under the VAT regime, declared goods used in the same form fall within the protective umbrella of Section 14 of the Central Sales Tax Act and the State cannot impose a higher incidence than that permitted under the statutory limitation recognised by Section 4(1)(c) of the Karnataka Value Added Tax Act, 2003. The impugned assessment had proceeded on a higher rate despite this settled position.

Conclusion: The levy of tax at 14.5% on iron and steel used in the execution of works contract was unsustainable and had to be reconsidered in light of the correct legal position.

Ratio Decidendi: Declared goods used in the same form in works contract cannot be subjected to a State tax rate exceeding the limit recognised under Section 14 of the Central Sales Tax Act and the corresponding exception in the VAT enactment.

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