Composition tax under works contract scheme cannot ignore retrospective rate increase, but VAT component cannot be taxed again.

A dealer opting for composition under Section 4(7)(b) was bound by the scheme for the assessment period and could not resile midstream; the retrospective amendment raising the rate from 4% to 5% applied, so the earlier rate could not be claimed. The Court also held that composition tax is levied on the total amount received or receivable for execution of the works contract and does not permit tax on the VAT component itself; however, the assessing authority had to verify whether such tax-on-tax had actually been levied, and the matter was remitted for that limited examination.

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Issues: (i) Whether a dealer who had opted for composition under Section 4(7)(b) could claim the earlier rate of 4% despite the amendment increasing the rate to 5% with retrospective effect; (ii) whether tax could be levied on the VAT component included in the amount received or receivable for execution of the works contract.

Issue (i): Whether a dealer who had opted for composition under Section 4(7)(b) could claim the earlier rate of 4% despite the amendment increasing the rate to 5% with retrospective effect.

Analysis: The composition scheme was held to bind the dealer for the assessment period, and there was no right to resile from it midstream. The amended provision increasing the rate from 4% to 5% had been given retrospective effect from 14.09.2011, and there was no challenge to the constitutional validity of the provision giving such retrospective operation. In that situation, the amended rate could not be ignored.

Conclusion: The dealer was not entitled to insist on the earlier 4% rate, and the levy at 5% was upheld.

Issue (ii): Whether tax could be levied on the VAT component included in the amount received or receivable for execution of the works contract.

Analysis: The composition levy under Section 4(7)(b) was on the total amount received or receivable towards execution of the works contract. That did not authorise levy on the tax component itself. However, the Court did not finally quantify whether and to what extent such tax-on-tax had in fact been levied by the assessing authority, and therefore directed reconsideration on that limited aspect.

Conclusion: Tax could not lawfully be levied on the VAT component, and the issue was remitted for limited verification by the assessing authority.

Final Conclusion: The challenge to the retrospective increase in composition tax rate failed, but the assessment was set aside to the limited extent of examining whether VAT had been levied on the VAT element of the consideration, and the matter was remitted for that purpose.

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