TaxTMI 
TaxTMI 
2016 (1) TMI 873
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....rtment of Trade and Taxes. 3. The Assessee submitted its Sales Tax Return on 30th June, 2005 for the AY 2004-05 declaring a turnover of Rs. 3,49,99,618/-. Later the Assessee revised the said return declaring a gross turnover of Rs. 4,73,32,324/-. According to the Assessee the said sum represented two distinct amounts - Rs. 1,10,76,390/- was on account of civil works relating to laying of cables, taxable as 'works contract' under the Act and Rs. 3,62,55,934/- purely on account of supply of labour, trenching and excavation works which according to the Assessee was not amenable to tax under the Act. 4. The Assessee opted for the composition scheme under Section 6 of the Act and paid 4% tax on Rs. 1,10,76,390/- which worked out to Rs. 4,43,056/-. 5. By an order dated 22nd March, 2006 the Assessing Authority ('AA') held that once the dealer had availed the benefit of composition and offered to be taxed on the lump sum payment such dealer 'cannot now be permitted to wriggle out of obligation in respect of one any contract'. Accordingly, the tax was computed @ 4% on the entire gross turnover of Rs. 4,73,32,324/-. 6. After the dismissal of its appeal by the first Appellate Auth....
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....xceeds the taxable quantum shall be liable to pay tax on his "taxable turnover effected by him" on or after such commencement. Section 4 spells out the liability of the dealer and states that tax shall be levied on the "taxable turnover involving transfer of property in goods in the execution of works contract commenced or continued for execution on or after the commencement of this Act, whether such contract was entered into prior or subsequent to such commencement". 11. Under Section 5(1) tax @ 8% on the net turnover of sales is liable to be paid by every dealer on the "taxable turnover of sales or transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract. 12. The Act provides for composition of tax. Section 6(1) of the Act which is relevant for the above purposes reads as under:- "6 (1) Subject to such condition and in such circumstances as may be prescribed, the assessing authority of the area may, if a dealer, liable to pay tax under this section so elects, accept in lieu of the amount of tax payable by him under section 5 of this Act during the year by way of composition an amount at the rate of ....
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....of the Act, he is expected to pay tax at the lower rate of tax @ 4% on the "total amount of the contract or the total aggregate value of the contracts received or receivable towards the execution of the works contract". In other words, where the contract is a composite works contract and the dealer avails of the benefit of composition in terms of Section 6(1), he would be expected to pay tax @ 4% of the entire value of the composite works contract. 16. The stand of the AA that, once the dealer opts for composition, he is required to pay tax on the aggregate value of all the contracts, including pure labour contracts does not appear to be based on a correct understanding of the provisions of the Act. When the provisions are read as a whole, and in the context of the object and purpose of the Act, it is seen that the legislative intention was not to bring pure labour contracts within the purview of the Act, much less within the purview of Section 6 (1) of the Act. 17. Similar provisions in the taxing statutes relating to works contracts in certain other states have been interpreted by the respective High Courts. In H. S. Chandra Shekhar Hande v. State of Karnataka (2013) 57 VST....
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....he labour contract is pure and simple there is no liability to pay tax and consequently there is no liability to pay compounded tax as well." 19. In that view of the matter, Question no. (i) framed by the Court for consideration is answered by holding that pure labour contracts would not be subject to levy of tax under Section 5 or 6 of the Act. However, where a composite works contract includes a demand of labour charges, service charges and the like, then the dealer availing of the benefit under Section 6(1) of the Act would have to pay the reduced amount of 4% tax in terms thereof on the entire value of the composite works contract. 20. Turning to Question no. (ii) it is seen that in the present case the Assessee itself first offered for tax a higher turnover and later contended before the AA that some part of that turnover was not amenable to tax since it constituted the value of pure labour contracts executed by it. From the record it appears that before the Tribunal the Assessee did not produce copies of the composite works contract executed by it on which it paid the reduced amount of 4% tax in terms of Section 6(1) of the Act. The Tribunal in the impugned order dated ....