Karnataka High Court
The State Of Karnataka vs M/S Precision Technofab And ... on 16 July, 2012
Bench: N.Kumar, H.S.Kempanna
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IN THE HIGH COURT OF KARNATAKA
CIRCUIT BENCH AT DHARWAD
DATED THIS THE 16 T H DAY OF JULY, 2012
PRESENT
THE HON'BLE MR. JUSTICE N. KUMAR
AND
THE HON'BLE MR. JUSTICE H. S. KEMPANNA
S.T.R.P NO. 3/2008
BETWEEN:
The State of Karnataka,
Rep. by the Secretary to Government,
Finance Department, Vidhana Soudha,
Bangalore-560 001.
- Petitioner
(By Sri. Mahesh Wodayar, AGA)
AND:
M/s. Precision Technofab
& Engineering Pvt. Ltd.,
Almatti Dam, Tq: Muddebihal,
Dist: Bijapur, Rep. By the Manager.
- Respondent
(By Sri. Y.V Raviraj, Advocate for
Sri. G Rabinathan & Sri. M Thirumalesh, Advocates)
This STRP is filed under Section 23(1) of KST Act,
against the order dated 18.07.2006 passed in STA Nos. 294
and 295/2004 on the file of the KAT Bangalore, allowing the
appeal and setting aside the revision orders passed by JCCT
(Admn.) Belgaum in No. SMR/KST 1/2003-04/B and in
No.SMR/KST-2/2003-04/B both dated 31.7.2003 revising
the assessment orders passed under KST Act, 1957, for the
years 1999-2000 and 2000-01.
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This petition coming on for final hearing, this
day, N.Kumar J., made the following:
ORDER
1. The State has preferred this revision petition against the order passed by the Karnataka Appellate Tribunal (for short hereinafter referred to as 'KAT') which has set aside the Revisional Authority's order revising the assessment orders passed under the Karnataka Sales Tax Act for the year 1999-2000 and 2000-2001.
2. The assessee by agreement dated 03.02.1995 undertook to execute the works for design, fabrication, supply and erection of 12 numbers of radial crest gates of size 15 meters x 15.24 meters with hydraulic hoists from gate no. 15 to 26 and 3 sets of stop log gates and granty crane for the spillway of Alamatti Dam Package. The total contract price negotiated and agreed to was Rs.20,360 crores. Subsequently, a separate agreement dated 01.12.1999 was entered into requiring for compressing erection process of spillway crest gates from 12 months to 6 months on the ground that it was under
compulsion for completing the erection of the crest gates urgently so as to facilitate the impounding of water at the Alamatti Dam during -3- 1999 itself. Therefore additional financial composition for deploying additional equipments and man power required for compressing the erection process was calculated at Rs.1,60,00,000/- for the year 1999- 2000 and Rs.1,30,00,000/- for the year 2000-01 for hiring two numbers of high powered cranes and additional erection equipments.
3. The assessee had opted for composition scheme u/S 17(6) of the KST Act, 1957 for payment of tax on the considerations received for execution of the works contract at the Alamatti Dam. Accordingly the assessee has paid the composition tax at 4% on the additional financial compensation received for compression of the erection period. He claimed non-liability to tax on the ground that it was not part of the consideration relating to works contract. The Assessing Authority accepted the said claim. However, the Revisional Authority reviewed the assessment order and held that the assessment order involve error prejudicial to the interest of the Revenue on the ground that the payment received by the assessee for compression of the erection period were also payment received for execution of the works contract for erection of radial crest gates and therefore the said -4- payment could not have been left out of tax and accordingly ordered the left out consideration shall also be brought to tax.
4. Aggrieved by the said order the assessee preferred an appeal before the Tribunal. The Tribunal set aside the order of the Revisional Authority on the ground that out of the separate amount of Rs.1,60,00,000/- and Rs.1,30,00,000/- which was paid to take on hire two numbers of high power cranes and additional equipments, nothing was paid towards supply portion of the contract, namely, fabrication and supply of 12 numbers of radial crest gates. In order to attract Section 5B, the contract should be a contract, which involve transfer of property in goods. Therefore for works contract to come under the purview of Sec. 17(6) of the Act it should be a contract which involve transfer of property in goods. A contract for mere labour and service would not also be attracted by Section 5B and as corollary would not also be attracted by Sec. 17(6). If there is any payment exclusively for obtaining on hire machinery and tools, such payment could not be regarded as payments for execution of works contracts involving transfer of property in goods and therefore set aside the order of the -5- Revisional Authority. Aggrieved by the same, the Revenue is before this Court.
5. Learned Government Advocate assailing the impugned order contended though there are two contracts entered into between the parties, both the contracts is for execution of the aforesaid work. The second contract is not an independent contract. The consideration paid under the second contract, consideration for execution of the contract entered into between the parties and therefore once the assessee had paid for composition u/S 17(6) of the Act, the tax is payable on the total consideration of the contract, which includes the price of both the contracts. Therefore he submits the impugned order is erroneous and requires to be set aside.
6. Per contra, the learned counsel for the assessee submitted that the condition precedent for attracting Sec. 17(6) of the Act is, there should be a liability to pay tax u/S 5B. If there is no liability to pay tax u/S 5B then Sec. 17(6) is not attracted. Elaborating the contention he submitted that in the subsequent contract entered into between the parties the amount paid is for towards hire charges. There is no sale -6- of goods involved in the said contract. Once there is no sale of goods Sec. 5B, is not attracted. If Sec. 5B is not attracted, Sec. 17(6) is also not attracted. Therefore he submitted that the impugned order is just and proper and does not call for interference.
7. If the second contract is viewed as an independent contract, it is a contract for obtaining two numbers of high powered cranes and additional equipments, there is no sale of goods. It is purely a labour contract. But the contract between the parties is not to provide labour. The first contract where he has undertook to execute the work is to be considered. In other words, the second contract cannot be treated as an independent contract. This is part and parcel of the first contract. Both the contracts put together the assessee had undertook to complete the work which is entrusted to him. Though in the original consideration agreed upon, the parties had not thought of taking assistance of these cranes. When the project is to be completed within six months, they had to take the assistance of these cranes, for which hire charges is to be paid, for which the State agreed to pay. Therefore the total consideration paid for execution of the work is the consideration paid under both the contracts.
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7. When once the assessee opted for composition u/S 17(6), the tax is payable on the total turn over and the total turn over includes consideration under both the agreements and therefore the Revisional Authority was justified in levying tax on the escaped turn over on the consideration mentioned in the subsequent agreement. It is in accordance with law. In that view of the matter, the order passed by the KAT is erroneous and contrary to the statutory provisions and also the law laid down by this Court. Accordingly we pass the following order.
ORDER Appeal is allowed. The order passed by the KAT which is impugned in this revisional petition, is hereby set aside. The order of the Revisional Authority is restored.
Parties to bear their own costs.
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JUDGE Sd/-
JUDGE bvv