Works contract valuation under compounding excludes pure-agent reimbursements, but includes pre-agreement construction value in a single contract.

Under the compounded-rate scheme for works contracts, only receipts with a real nexus to the construction activity form part of the "whole contract amount," so amounts collected as pure-agent reimbursements for service tax, building tax, maintenance fund and sinking fund are excluded. However, where the parties execute a single indivisible construction agreement, the contract value cannot be split to exclude the portion of construction completed before the agreement date, because the taxable amount remains the works contract value under the scheme. The result is partial relief on reimbursement-type receipts, while taxability of the full contract value in the single-agreement context is affirmed.

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Issues: Whether amounts collected towards service tax, one time building tax, maintenance fund and sinking fund were includible in the whole contract amount under Section 8 of the Kerala Value Added Tax Act; whether, in a single construction agreement, the whole contract value could include the value attributable to construction already completed before the agreement was entered into.

Analysis: The expression "whole contract amount" under the compounded-rate scheme cannot be read so broadly as to bring within tax net amounts that bear no nexus with the construction activity. Amounts collected by the builder merely as a pure agent and remitted to statutory authorities or to the owners' association are not part of the contractual receipts for computing the whole contract amount. Taxing such reimbursements would be inconsistent with the constitutional requirement that tax must be levied only by authority of law. However, where the parties enter into a single indivisible agreement for construction, the consideration cannot be split so as to exclude the value attributable to the portion of the building already completed before the agreement. The tax is on the works contract and not on a sale of immovable property, and the enhanced contract value remains taxable under the compounded scheme.

Conclusion: The exclusion of pure-agent reimbursements such as service tax, building tax, maintenance fund and sinking fund is allowed in principle, but the contention that value of pre-agreement construction is outside the whole contract amount is rejected.

Final Conclusion: The revisions were disposed of by granting partial relief on the includibility of reimbursement-type receipts while affirming taxability of the full contract value in the single construction agreement context.

Ratio Decidendi: Under the compounded-rate scheme for works contracts, only receipts having a real nexus with the construction activity form part of the whole contract amount, while pure-agent reimbursements do not; but in a single indivisible construction agreement, the taxable contract value is not confined to construction done after the agreement date.

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