Karnataka High Court
B.V. Subba Reddy vs Deputy Commissioner Of Commercial ... on 12 August, 2004
Equivalent citations: (2008)11VST715(KARN)
Author: H.L. Dattu
Bench: H.L. Dattu, A.C. Kabbin
ORDER H.L. Dattu, J.
1. A ontractor is before this court calling in question the order passed by the Karnataka Appellate Tribunal in Appeal No. S.T.A. 569 of 2001 dated August 30, 2002. By the said order, the Appellate Tribunal has rejected the appeal filed by the contractor and has confirmed the order passed by the revisional authority in KST. SMR. 29.2000-01-B-86 dated April 10, 2001.
2. The petitioner is a registered dealer, registered under the provisions of the Karnataka Sales Tax Act, 1957 ("the Act", for short). For the assessment year 1996-97, the petitioner was awarded a contract for construction of a bridge over the Ghataprabha river. For the relevant assessment year, the petitioner claimed a concessional rate of tax on the iron and steel used by the contractor for the purpose of construction of the bridge. The assessing authority has allowed the claim of the petitioner while computing the taxable turnover and the tax liability of the petitioner.
3. The revisional authority being of the view that the order passed by the assessing authority for the assessment year 1996-1997 is improper, illegal and prejudicial to the interest of the Revenue, had initiated revisional proceedings by exercising his powers under Section 21(2) of the Act. A notice in this regard was issued to the dealer to show cause why the order passed by the assessing authority in granting concessional rate of tax on iron and steel used for the purpose of construction of the bridge should not be revised.
4. After receipt of the said show cause notice, the petitioner had filed his objections, inter alia, contending that the assessing authority was justified in allowing the claim by the assessee since the iron and steel are commodities which fall under Section 15 of the Central Sales Tax Act, 1956.
5. The revisional authority has taken into consideration that the iron and steel used by the petitioner were for the purpose of construction of a bridge over Ghataprabha river. The contractor had not supplied iron and steel to the contractee in the same form, in which they were purchased. Therefore, keeping in view the observations made by the apex court in the case of Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204, reversed the findings of the assessing authority in so far as it pertained to the grant of concessional rate of tax on iron and steel for the assessment year 1996-97.
6. Aggrieved by the said order made by the revisional authority, the petitioner was before the Karnataka Appellate Tribunal in STA No. 569 of 2001. The Tribunal, in our opinion, by its well considered order dated August 30, 2002, has rejected the appeal and has confirmed the order made by the revisional authority dated April 10, 2001. Aggrieved by the said order, the petitioner is before this court.
7. Sri. Rabinathan, learned Counsel for the petitioner would contend that for the purpose of charging provisions, namely, Section 5B of the Act, the turnover in the declared commodities, namely, iron and steel require to be excluded and that therefore the revisional authority and the Appellate Tribunal were not justified in reversing the findings of the assessing authority for the assessment year 1996-97 in so far as it pertains to the turnover of iron and steel. The learned Counsel would submit that the order passed by the Tribunal and the revisional authority therefore are required to be set aside by this court and the order made by the assessing authority for the year 1996-97 requires to be restored.
8. Sri. Anand, learned Counsel appearing for the respondent-revenue would submit that since the petitioner has not used iron and steel in the same form as were purchased by him and had used them mainly for the purpose of construction of the bridge, and that therefore he is not entitled to the relief sought for in the revision petition. Further, the learned Counsel has brought to our notice the observations made by the apex court in Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204.
9. The questions that require to be considered and decided by us are:
1. Whether the Tribunal is justified in confirming the order passed by the revisional authority?
2. Whether the petitioner is entitled for the relief sought for in the revision petition?
10. Before we answer the aforesaid two questions, we intend to note the observations made by the apex court in Gannon Dunkerley's case [1993] 88 STC 204.
11. The court after a detailed discussion with regard to the amendment in so far as Article 366 (29-A) of the Constitution, has laid down certain principles for the purpose of computing the measure of tax and the rate of tax for the purpose of works contract. The apex court in the aforesaid decision has observed at page 233 as under:
Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works [item No. (i)], amounts paid to a subcontractor for labour and services [item No. (ii)], charges for planning, designing and architect's fees [item No. (iii)], charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contract [item No. (iv)], and the cost of consumables such as water, electricity, fuel, etc., which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in [item No. (vi)] cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in items Nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amounts so deductible 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. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover:
(a) labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services;
(c) charges for planning, designing and architect's fees;
(d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract 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 deductible 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.
12. Section 5B of the Act is the charging provision. It says that notwithstanding anything contained in Sub-section (1) or Sub-section (3) or Sub-section (3C) of Section 5, but subject to Sub-section (4), (5) or (6) of Section 5 of the Act, a dealer is liable to tax on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract for each year at the rates mentioned at column (3) of the Sixth Schedule.
13. Entry No. 6 of the Sixth Schedule provides for civil works like construction of buildings, bridges, roads, etc. The rate of tax for the relevant assessment year is 8 per cent.
14. It is not in dispute nor it can be disputed by both sides that a contract had been awarded to the petitioner for construction of a bridge. For that purpose the dealer/contractor has purchased iron and steel and has utilised the same for the purpose of construction of the bridge. Iron and steel purchased by him are used not in the same form as iron and steel but are used for the purpose of construction of a bridge. Therefore, liability of the dealer would squarely come under entry No. 6 of the Sixth Schedule to the Act. Keeping this aspect of the matter in view, the Tribunal has accepted the reasoning of the revisional authority while confirming the order passed by the revisional authority.
15. In view of the law declared by the apex court in Gannon Dunkerley's case [1993] 88 STC 204, in our opinion, the Tribunal has not committed any error whatsoever which calls for our interference in this revision petition.
16. Accordingly, the petition stands rejected. Ordered accordingly.