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2014 (7) TMI 1373
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....cess amount of TDS deducted from the petitioner's bills. 2. The Petitioner is a Company registered under the provisions of the Companies Act and a Civil Contractor. It takes contracts for earth works, construction of minor and major bridges, construction of roads etc. The petitioner is also registered under the Jharkhand Value Added Tax Act 2005 (JVAT Act) as Works Contractor having TIN No.20891001002. The petitioner entered into various agreements with the State of Jharkhand for execution of contracts and the present dispute pertains to following two agreements entered into by the petitioner with the Executive Engineer, Baraj Division, Galudih :- (i) Agreement No.19F-2/07-08 dated 22.2.2008 Construction of Baharagor Distributory (OR-65)Ex-127.88 of Chandil left main canal (Earth work, Lining and all structures) Agreement Value Rs.39,66,40,438/- (ii) Agreement No.01/F-2/08-09 dated 14.05.2008 Construction of Earth work, Lining and all structures of Manusmuria Distributory (OL-66)Ex Km.127.88 of Chandil left main canal (8.85Km to 19.835 Km) Agreement Value Rs.22,37,75,271/- 3. Case of the petitioner is that as per the provision of Section 44 of JVAT Act and Rul....
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....e bills of the contractor". Learned Senior Counsel contended that gross bill submitted includes the value of goods used in execution of works contract and also the labour and service components and as per the provisions of the JVAT Act and the Rules, deduction of tax is to be made from the valuable consideration paid to the contractor for execution of works contract only after deduction of labour and service charges and establishment charges. It was further submitted that since authorities are mis-interpreting the statutory provisions under Section 44 of the JVAT Act 2005 read with rule 23 of the JVAT Rules read with Notification No. SO 208 dated 31.3.2006, a direction is to be issued to the respondents not to deduct tax from the entire gross bill of the petitioner but only on the value of transfer of property in goods used in execution of works contract. 5. To support his contention, learned Senior Counsel has relied upon the decisions rendered in the cases of Larsen & Toubro Ltd. v. State of Bihar & Ors. [117 STC 41 (PAT)], Bhawni Cotton Mills Ltd. v. State of Punjab [AIR 1967 SC 1616], Steel Authority of India Ltd. v. State of Orissa [(2000) 3 SCC 200], Nathpa Jhakri (Joint V....
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....) and Works Contract : 8. In the case of State of Madras v. Gannon Dunkerley & Co. [1958 (9) STC 353 (SC)], the Hon'ble Supreme Court held that the expression "sale" would only mean and include transfer of property in goods and would not cover within its ambit sale of goods in an indivisible works contract. The Constitutional Bench held that only a divisible contract of sale and service can be taxed on the "sale" portion whereas an indivisible works contract cannot be taxed as "sale". This necessitated the 46th Constitutional Amendment wherein a new Sub- Article (29A) was introduced to Article 366 of the Constitution. Through this provision, six types of transactions which, under the conventional definition of sale would not mean "sale", have now become "Deemed Sale". One such transaction is taxing the indivisible Works Contract: Article 366 (29A)(b) reads as:- "Tax on the sale or purchase of goods' includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract." After 46th amendment by virtue of Article 366(29A)(b), it had become possible for the States to levy sales tax on the value of ....
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....ontract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductable under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor." Re: Section 44 of JVAT Act and other relevant provisions 10. In order to appreciate the contention of the petitioner, the legal provisions of JVAT Act 2005 and the JVAT Rules 2006 are to be referred to. Section 44 of the JVAT Act speaks about the special provisions relating to deduction of tax at source from the valuable consideration payable to the contractors for the execution of works contract allotted to them. Section 44 reads as under:- "44. Special Provisions relating to Deduction of Tax at source in certain Cases- (1) The State Government may, having regard to the effective....
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....after due verification of the payment. (6) If any person fails to deduct the whole or any part of the tax as required by or under the provisions of sub-Section (1), or fails to pay the whole or any part of the tax as required by or under sub-Section (3), then, the authority referred to in sub-Section (3) may, at any time within five years of the close of the year when he failed to do so, by order in writing, direct him, after giving him a reasonable opportunity of being heard, to pay, by way of penalty, a sum equal to the amount of tax which he failed to deduct or pay as aforesaid". 11. At the time of filing returns, as per Section 44(5) of the Act, any tax paid to the State Government in accordance with sub-section (3) of Section 44 shall be adjustable by the payee on the authority of the certificate issued to him and the Assessing Authority shall allow the benefit of adjustments after due verification of the payments. 12. For smooth and proper implementation of the provisions of JVAT Act, in exercise of powers conferred by Section 94 of JVAT Act, JVAT Rules 2006 have been framed. Rule 23 deals with tax deducted at source by any contractee pertaining to works contra....
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.... made for deduction of TDS from the payments made towards execution of the works contract, where transfer of property in goods is involved, the said deduction is to be made on the valuable consideration only after deducting therefrom the amount paid towards labour and service charges. Grievance of the petitioner is that in the Notification SO 208 dated 31.3.2006, no provision has been made for deducting the amount of labour and service charges from the value of bill before making TDS. According to the petitioner, in Annexure - 11 (dated 11.3.2013), respondent no.5 ordered for deduction of TDS on the entire bill amount of the petitioner including the earthwork, which is wholly arbitrary. In sum and substance, the contention of the petitioner is that the contractee cannot deduct tax at source on the whole amount including earth work which involves labour and service charges and the deduction of TDS from the entire bill without deducting labour and service charges is not in accordance with the provisions of Article 366 (29A) and the principles laid down in Gannon Dunkerley & Co. v. State of Rajasthan [1993 (88) STC 204 (SC)] and other judgments of Hon'ble Supreme Court. Further co....
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....or sales in the course of import. ...... 15. It was then contended by learned counsel for the State that the Preamble of the Orissa Sales Tax Act took account of the fact that that statute was limited to the sale or purchase of goods in Orissa. Unfortunately, it would appear that the State Legislature overlooked its limitations, even as contained in the Preamble, when enacting Section 13-AA. It was also contended that the deduction that was required to be made under Section 13-AA(1) was of four per cent of the amount credited or paid by the owner to the contractor, whereas the sales tax liability of the contractor thereon was eight per cent. It was contended that this requirement proceeded on the assumption that half of the amount was not liable to tax being in respect of inter-State sales, outside sales and export sales. No such assumption based on the rate of tax at any given point of time can be made. Section 13-AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after the previous Section 13-AA h....
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....structions v. State of Chhattisgarh [(2006) 145 STC 185], State of Chhattisgarh & Ors. v. V.T.P Constructions [(2008) 2 SCC 578] and also State of A.P v. Larsen & Tourbo Ltd. [(2008) 9 SCC 191]. 17. Reliance was also placed on the case of Larsen and Toubro Ltd. v. State of Bihar & Ors. [(2000) 117 STC 41 (PAT)] to contend that the mechanism for TDS should be rational and have independent connection with the tax and there is no rationale in making deduction of tax at source on those components over which State Legislature has no competence to levy tax and thereafter making the assessee to file application for refund of excess amount. In the said case, the vires of Section 25A of the Bihar Finance Act regarding deduction of sales tax at source from the contractors' bills was in question. If the contractee or any other person making payment, makes deduction under Section 25-A of the Bihar Finance Act on the full or gross value of the works contract, the amount deducted can be adjusted against the amount of tax finally assessed by the department at the time of assessment, and if the same is found to be in excess it may also be refunded, vide sub-sections (2) and (7) of Section 2....
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.... Court held, "the construction that results in hardship, serious inconvenience or anomaly or gives unworkable and impracticable results, should be avoided." 22. The judgments relied upon by the petitioner [except State of A.P v. Larsen Toubro Ltd. (2008) 9 SCC 191] refer to tax deducted at source under the Sales Tax Act. Presently we are in VAT regime, whereby every registered dealer is to file monthly/periodical/annual returns claiming deduction as prescribed or making adjustments of input tax credit. VAT being the State subject, each State has its own separate laws governing the levy of tax, rate of tax, tax deducted at source, filing of returns etc. 23. As discussed earlier, the Scheme of the JVAT Act being self contained, stands on a different footing. In terms of Section 29 of the Act, it is mandated upon every registered dealer to file periodical returns adjusting input credit and making deductions as prescribed under the Act. Section 44 stipulates deduction of tax at source to be made by the contractee for execution of the works contract in the State involving transfer of property in goods whether as goods or in some other form. The works contract referred to in Sectio....
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....allenge. The tax deduction at source commonly referred to as "TDS" is also known as "withholding tax". The TDS provisions are meant for tentative deduction of tax subject to regular assessment. The Act does not conceive a situation that there would be a pre-assessment prior to the assessment by the Assessing Authority. 26. Further, the extent of the component of labour and service is essentially a question of fact to be determined on the terms and conditions of the contract, nature of the work and subject to production of documents at the time of assessment. In Gannon Dunkerley & Co. v. State of Rajasthan [1993 (88) STC 204 (SC)], the Hon'ble Supreme Court has categorically pointed out that the expenses deductible under various heads incurred for labour and services would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. At the time of assessment of the registered dealer, the Assessing Authority will examine the books of accounts and other documents pertaining to the extent of labour and service and similar other like charges at the time of making assessment. If the contractee is to decide the compon....
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....made. As per the said Notification, 2% TDS to be deducted on the works contract subject to the restrictions thereunder. The aforesaid notification was amended so far as the rates are concerned, vide SO 24 dated 3.10.2012, by which rate at which tax to be deducted at source was increased from 2% to 4% with effect from 1.4.2012. 30. In Annexure - 7, Joint Commissioner of Commercial Taxes clarified that the deduction at the rate of 4% of advance VAT at source has to be made from the bills of the works contract but the bills of the works contract in which transfer of property in goods is not involved, deduction of VAT at source is not to be made. The Deputy Commissioner of Commercial Taxes sent Annexure - 11 to the 7th respondent in response to the clarification sought for by the 5th respondent. In Annexure - 11, 5th respondent clarified that "where structural work is included along with earth work, in such payment deduction at 4% on the whole amount in which the earth work is also included will be necessary. Annexure - 1, which also clarifies the position, is well in consonance with the provisions of the JVAT Act and Rules". 31. The Revenue has contended that since the contract ....
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....t are the prescribed deduction to be made are the questions that are to be decided at the time of assessment by the Assessing Authorities. Merely going by the description of the items of earth work contained in the agreement, it cannot be said that the items contained in Part A of the Contract, earth work is purely earth work involving only labour and services. Re. Contention: Notification not making provision for deduction of labour and service charges 34. In exercise of powers conferred under sub-section (1) of Section 44 of JVAT Act, the State Government issued notification dated 31.3.2006 prescribing rate of tax as 2% at which deduction to be made from the consideration amount of the works contract. The said notification was amended vide SO 24 dated 3.10.2012 by which tax to be deducted at source was increased from 2% to 4% with effect from 1.4.2012. The notification SO 208 dated 31.3.2006 reads as under:- Sl. No. Description of works contract Rate at which deduction is to be made Conditions and Restrictions 1 2 3 4 1. Works Contract: in the execution of which no transfer of property in goods (whether as goods or in some other for....
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....s that the State Government may by notification in the official gazette specify TDS to be deducted by the contractee from any valuable consideration paid to the contractors for the execution of works contract in the State. Since the notification was issued in exercise of power under Section 44(1) of the Act, the notification is not be read in isolation but to be read along with the Scheme and other provisions of the Act. 38. The Scheme of the Act provides for filing of monthly/periodical/annual returns, deductions to be made as prescribed under the Act and assessment by the competent authorities. In terms of Section 2(lvi), "taxable turnover" means turnover on which dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. 39. Rule 22 deals with determination of taxable turnover for the purpose of works contract. Rule 22 reads as under:- "22. [Determination of Taxable Turnover FOR THE PURPOSE OF WORK CONTRACT] 1.(a) The works contractor VAT Dealer shall be liable to pay tax at the appropriate rates, on the total value of goods, transferred in property (either in the same Form....
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.... Thirty five percent Twenty percent Fifteen percent Fifteen percent Seventeen percent 2 Installation of plant and machinery Fifteen percent 3 Fixing of marble slabs, polished granite stones and tiles (other than mosaic tiles) Twenty five percent 4 Civil works like construction of buildings, bridges roads etc Thirty percent 5 Fixing of sanitary fittings for plumbing, drainage and the like Fifteen percent 6 Painting and polishing Twenty percent 7 Laying of pipes Twenty percent 8 Tyre re-treading Forty percent 9 Dyeing and printing of textiles Forty percent 10 Printing of reading material, cards, pamphlets, posters and office stationery Forty percent 11 All other contracts Thirty percent Provided, where such contractor VAT dealer has not maintained the accounts to determine the correct value of the goods at the time of incorporation he shall pay tax w.e.f 07.05.2011 at the rate of fourteen percent (14%) on the total consideration received or receivable subject to the deductions specified in the table aforesaid. In such cases the contractor VAT dealer shall not be eligible to claim....