TaxTMI 
TaxTMI 
2014 (7) TMI 1373
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....ioner'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 Rule 23 of JVAT Rules, TDS is required to be deducte....
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.... 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 Venture) v. State of Himachal Pradesh & Ors. [(2000)....
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....on 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 goods involved in the works contract in the same way in which the sales ta....
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....stablishment 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 recovery of tax, require in respect of contractors or any other class or classes of dealers that any person making payment of any valuable consideration to....
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....e 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 contract. Rule 23 reads as under:- "23. Tax Deduction at Source (1) (a) Where a works contract is awarded to a VAT dealer by any contractee and where the contractee is liable for deduction of ta....
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.... 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 contention of the petitioner is that if a person is not liable for payment of tax at all, the plea that on completion of the assessment, refund can be taken at a later stage, is no solace. Reliance was placed upon the decision in the case of Bhaw....
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....unately, 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 had been struck down by the Orissa High Court for the reason that it was couched in terms wider than were permissible to the State Legislature and that judgment was accepted." 15. While considering the provisions of Bihar Sales Tax Act and referring the case of Steel ....
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....har & 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 25-A. Pointing out that the Bihar Finance Act prescribes a period of four years as the period of limitation, the Assessing Authority may not complete the assessment till the limitation is about to expire and that the assessee cannot get back the amount which would continue to lie....
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....ducted 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 Section 44 is a composite contract which involves transfer of property in goods whether as goods or in some other form and also labour and service. As per Section 44(5), any tax deducted at source paid to the State Government shall be adjustable by the payee on the authority of the certific....
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....sment 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 component of labour and service charges involved in the works contract, the object of TDS which is intended for effective recovery of tax will be defeated. We find no merit in the contention of the petitioner that the contractee is under an obligation to exclude the component of labour and ser....
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....ct 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 of the petitioner is a composite contract involving structural work along with earth work, deduction at 4% on the whole amount, in which earth work is also included, is necessary. In terms of Section 44(5), any tax is paid to the State in accordance with sub-section (3) shall be adjustable by the payee on the au....
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....y 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 form) is involved. Nil Nil 2. Works Contract: in the execution of which no transfer of property in goods (whether as goods or in some other form) is involved. 2 Percentum (1) No deduction shall be made for the transactions falling within Sections 3,4 & 5 of the CST Act 1956. (2) No deduction shall be made, if the works co....
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....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 or in other Form) involved in execution of works contract. (b) When such VAT dealer awards any part of the contract to a subcontractor, such sub-contractor shall issue a tax invoice to the contractor for the value of the goods at the time of incorporation in such subcontract. The tax charged in the tax invoice issued by the sub-contractor shall be accounted by him in....
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.... 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 input tax credit and shall not be eligible to issue tax invoices. 3. Where a works contractor is permitted to pay lump-sum amount or Composition of Tax under Section 22 or 58 respectively of the Act, the provisions of this Rule shall not apply in such cases." 40. As per Rule 22(1)(d), the value of goods involved shall be taxable after deducting from it the charges as indicated in Rule 22(1)(d)(i) to (vii) where the amount of charges towards labour and service, hire charg....