TaxTMI 
TaxTMI 
2021 (5) TMI 668
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The petitioner's case succinctly is thus: i) The petitioner, who is a registered dealer on the rolls of the 2nd respondent under the A.P.VAT Act, 2005, does business in two wheeler vehicles, besides conducting service centre/workshop for servicing/repairing of two wheeler vehicles. ii) The petitioner purchases spare parts and lubricants from local registered VAT dealers in the State of Andhra Pradesh. The petitioner obtains invoices from the dealer and while paying tax on the sale of spare parts and lubricants, the petitioner claims 100% ITC. iii) As per the provisions of the A.P.VAT Act 2005, in case of transfer of goods in the course of works contract, as the consideration includes the cost of labour/service, the ITC on the tax payable on the goods transferred in the course of execution of the works contract is restricted to 75%. While so, the 2nd respondent passed an assessment order against the petitioner for the tax period from February, 2015 to March, 2017 restricting the input tax credit on the sales of spare parts and lubricants made by the petitioner to his customers to 75% under Rule 17 (1) (b) of the A.P.VAT Rules, 2005 on the ground that the spare parts and lu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at appropriate rate on the goods sold in all three types of transactions effected by him. The dealer is eligible to 100% ITC on the purchase of goods used in the counter sales of automobile spare parts and lubricant oils. However, the controversy is with regard to the extent of input tax credit which the dealer is eligible on the local/VAT purchase of goods used in the repairs and service of two wheelers in the workshop. The ITC in such instances is restricted to 75% as per Section 4 (7) (a) r/w 17 (1) of the A.P. VAT Act, 2005 and the Rules thereunder. The petitioner contended before the 2nd respondent that he is eligible to ITC on spare parts and lubricant oils under warranty sales 100% and ITC on spare parts and lubricant oils on post warranty sales 75% for the assessment period. Thus, the dealer admitted and accepted to disallow the ITC on post warranty sales. However, as per the judgment of AP STAT in TA No.560/99 dated 17.05.2006 in M/s. Durga Auto Service, Kadapa Vs. State of A.P. (2006), supply of spare parts and oils during the course of servicing of the vehicles, tax should be levied treating them as works contract and therefore, the Assessing Authority as well as the App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing on requirement to replace certain parts/oils with new ones and informs their cost. Then, if customer agrees for replacement of those parts, then the mechanic replaces them by getting them from the counter of their shop. Therefore, learned counsel would emphasise, the customer consciously purchases the spare parts/oils and pays the cost of the same. Hence, there is an element of sale in such spare parts/oils. Learned counsel further argued that on the spare parts component, sales tax would be attracted whereas on the labour component, service tax is attracted, though both are couched in the same contract. He thus prayed to allow the writ petition and set aside the impugned order. 6. Per contra, learned Government Pleader for Commercial Taxes-II Sri Vivekananda while opposing the writ petition would contend that the instant transaction falls under works contract wherein the petitioner transferred certain goods for effecting repairs to the two wheeler vehicles and as such under law he is entitled to the ITC only at 75% but not 100% and since the authorities below have rightly held so, the writ petition may be dismissed. 7. The point for consideration is whether user of spare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her side. The relevant provisions of the A.P. VAT Act, 2005 need to be scrutinized to answer the point under consideration. Section 2(28) of the Act defines the term "sale". (28) 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (whether as such goods or in any other form in pursuance of a contract or otherwise) by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods. x x x x x x Explanation 6 says as under: Explanation VI :- Whenever any goods are supplied or used in the execution of a works contract, there shall be deemed to be a transfer of property in such goods, whether or not the value of the goods so supplied or used in the course of execution of such works contract is shown separately and whether or not the value of such goods or material can be separated from the contract for the servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ealer executing works contracts shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act: Provided that where accounts are not maintained to determine the correct value of goods at the time of incorporation, such dealer shall pay tax at the rate [specified in Schedule V] on the total consideration received or receivable subject to such deductions as may be prescribed; As already stated supra, the assessing authority in his order dated 31.12.2018 noted that the petitioner being the dealer, has paid the input tax at appropriate rate on sale of two wheelers, spare parts, lubricating oils effected at sales counter as well as the workshop. There is also no demur that he deserves 100% ITC on the purchase of goods used in counter sale of automobile spare parts and lubricating oils. So what is pertinent is, in respect of the spare parts and lubricants used in repairing the two wheelers in the work shop, which come under the definition of 'sale', whether the petitioner deserves 100% ITC. The main thrust of the argument of the petitioner is that since the said transaction is an ou....