2025 (9) TMI 256 - HC - VAT / Sales Tax

KVAT TDS deduction under Rule 3(2)(h) allowable; TDS excluded from taxable turnover, appeal allowed restoring taxpayer relief

M/s. P.G. Shetty Construction Technology Pvt. Ltd. Versus The Additional Commissioner Of Commercial Taxes, Zone-1, Gandhingar, Bangalore.

M/s. P.G. Shetty Construction Technology Pvt. Ltd. Versus The Additional Commissioner Of Commercial Taxes, Zone-1, Gandhingar, Bangalore. - 2025:KHC:32571 ... ISSUES PRESENTED AND CONSIDERED 1. Whether amounts deducted as Tax Deducted at Source (TDS) are eligible for deduction from taxable turnover under the KVAT Act and Rules, having regard to Sections 9-A and 9 of the KVAT Act and the proviso to Rule 27(2) of the KVAT Rules, 2005. 2. Whether TDS by a Government department qualifies as an amount 'collected by way of tax under the Act' and therefore is deductible from total turnover under Rule 3(2)(h) of the KVAT Rules, 2005. 3. Whether the revisional order of the Additional Commissioner, which disallowed deduction of TDS despite an appellate authority allowing it, was justified. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 (treated together): Eligibility of TDS as a deduction from taxable turnover under Rule 3(2)(h) Legal framework: Rule 3(2) of the KVAT Rules prescribes deductions from total turnover to determine taxable turnover; Rule 3(2)(h) expressly provides for deduction of 'All amounts collected by way of tax under the Act.' Sections 9 and 9-A of the KVAT Act govern levy and computation of tax liabilities under the Act; the proviso to Rule 27(2) was also invoked in challenge. Precedent treatment: The Court followed a coordinate-bench decision (referred to and discussed at length) that interpreted Rule 3(2)(h) to include TDS where the deduction was effected under the provisions of the Act. That earlier decision was applied rather than distinguished or overruled. Interpretation and reasoning: The Court examined Rule 3(2)(h)'s plain language and concluded that any amount 'collected by way of tax under the Act' falls within the deduction permitted from total turnover. Where TDS has been deducted pursuant to provisions of the KVAT Act (i.e., collected under the Act), such amounts cannot be added to total turnover or treated as taxable turnover. The Court observed that the appellate authority had allowed deduction of TDS and that the Additional Commissioner erred in holding that TDS could not form part of exempted turnover in the absence of an express provision elsewhere; instead the specific wording of Rule 3(2)(h) supplies the requisite basis for deduction. Ratio vs. Obiter: The holding that TDS deducted under the Act is deductible from total turnover under Rule 3(2)(h) is the ratio decidendi. Discussion of the misapprehension by the lower authority and the corrective application of the Rule is binding as part of the Court's decision. Any ancillary observations about other provisions or procedural aspects are obiter to the extent they do not alter the core statutory construction. Conclusions: TDS amount collected under the KVAT Act is eligible for deduction from total turnover under Rule 3(2)(h). The Additional Commissioner's contrary conclusion is unsustainable where TDS has been collected under the Act. Issue 3: Validity of the Additional Commissioner's revision of the appellate order Legal framework: Revisions by the Additional Commissioner must conform to statutory provisions and correct misapplications of law by subordinate authorities. The appellate order had allowed deduction of TDS pursuant to Rule 3(2)(h). Precedent treatment: The Court applied the coordinate-bench precedent and the appellate authority's reasoning as consistent with the Rule's plain meaning and therefore considered the Additional Commissioner's revision to be erroneous. Interpretation and reasoning: Having concluded that Rule 3(2)(h) permits deduction of amounts collected as tax under the Act, the Court found that the Additional Commissioner improperly reversed the appellate finding by asserting absence of specific provision to permit such deduction. That reversal failed to appreciate the clear text of Rule 3(2)(h) and was thus unsupportable. Ratio vs. Obiter: The determination that the revision was incorrect and must be set aside is part of the operative ratio as it flows directly from the statutory interpretation of Rule 3(2)(h). Conclusions: The Additional Commissioner's revision disallowing TDS deduction is erroneous and must be set aside; the appellate order allowing deduction is to stand. Disposition and Cross-Reference The Court, following the coordinate-bench decision, answered the substantial questions of law in favour of the assessee on the issue of TDS deduction under Rule 3(2)(h), set aside the impugned revisional order, and restored the effect of the appellate allowance of TDS as a deduction from total turnover. (See analysis under Issues 1-3 above.)