TaxTMI 
TaxTMI 
2026 (10) TMI 105
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....ract' and is exigible to Value Added Tax (VAT); and ii. whether in the absence of machinery provisions, the levy of VAT on the activities of the builder is sustainable in law. 4. Learned counsel for the petitioner fairly submits that the Supreme Court in Larsen and Toubro Limited v. State of Karnataka, (2014) 1 SCC 708 held that the activities of the petitioner are covered within the definition of 'works contract' under Section 2(1)(zo) of the DVAT Act and are exigible to VAT. Reliance is upon the decision of the Supreme Court in Commissioner, Central Excise and Customs, Kerala v. Larsen & Toubro Ltd., (2016) 1 SCC 170 to contend that albeit, the activities of the petitioner are exigible to VAT, the levy of tax cannot be sustained in the absence of the requisite machinery provisions. 4.1 The argument is that Rule 3 of the Delhi Value Added Tax Rules, 2005 (for brevity 'DVAT Rules') was substituted vide Notification No. F.3(22)/Fin.(T&E)/2006-07/dsfte/344-353 and provided the mechanism for determining the taxable turnover in respect of indivisible works contract. The submission is that the substituted Rule 3 came into effect on 07.09.2006 and the demand raised against....
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....onstruction is for and on behalf of the purchaser and it remains a "works contract". The legal position summarised by us and the foregoing discussion would justify the view taken by the two-Judge Bench in Raheja Development [K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162]. 110. It may, however, be clarified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government. 111. The reasons stated in the referral order for reconsideration of Raheja Development [K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162] do not make out any good ground for taking a view different from what has been taken by this Court in Raheja Development [K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162]. We are in agreement with the submission of Mr K.N. Bhat that since Raheja Development [K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162] in May 20....
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....that tax is leviable even if no rules are framed for computation of the service component of a composite contract and that the contract can be bifurcated and taxed accordingly was not accepted. It was held that there was no machinery provision and in the absence of machinery for assessment, it would not be open to the assessing authority to arbitrarily assess the tax. 11. The mechanism for determination of taxable turnover in respect of works contracts under the DVAT Act was introduced with effect from 07.09.2006 by substituting Rule 3 of the DVAT Rules. 12. The Division Bench of the Punjab and Haryana High Court in Dhingra Jardine Infrastructure Pvt. Ltd. (supra) dealt with the following issue:- (7) Whether levy of tax on builders can be sustained in the absence of machinery provisions? The period being upto 16.05.2010 and thereafter, when the Rules were framed. 13. After considering various decisions including Commissioner, Central Excise & Customs, Kerala (supra) and Larsen and Toubro Limited (supra) it was held that prior to 16.05.2010 there were no rules providing for the manner of determination of taxable turnover and in such circumstances though the levy of....
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....d in the court. Subsequent thereto, Rule 25 of the Rules was amended vide notification dated 23.7.2015 with retrospective effect from 17.5.2010. Relevant paras of the aforesaid judgment are extracted below: "44. In case the provisions of law are seeking to charge sales tax on any amount other than the value of the goods transferred in course of execution of works contract, the provisions would be ultra vires to the Constitution of India. The tax is to be computed on a value not exceeding the value of transfer of property in goods on and after the date of entering into agreement for sale with the buyers. However, the 'deductive method' requires all the deductions to be made therefrom to be specifically provided for to ensure that tax is charged only on the value of transfer of property in goods on and after the date of entering into agreement for sale with the buyers. When 'deductive method' has been prescribed under the rules for ascertaining the taxable turnover, ordinarily it should include a residuary clause in consonance with the mandate of law so as to cover all situations which can be envisaged. 45. In view of the above, essentially, the valu....