Karnataka High Court
M/S Concorde Hitech City P Ltd vs The State Of Karnataka on 16 July, 2010
Bench: N.Kumar, B.V.Nagarathna
1 STA 27/ 2009
IN THE HIGH COURT OF KARNATAKA, BANGALORE ._
DATED THIS THE 16'?" DAY OF' JULY 2010 j
PRESENT:
THE HON'BLE Mr.JUSTICE-N,.E1J.M§§_»"" : .'§4 '
AND V .% .% V V
THE HON'BLE Mrs.JUSTICE..:f§';.\Z.NAG.%€LRAfI;§%IW§L"
SALES TAX AP'P1:1TAL'VN0VVZV:..2'7'Zg{?Oé '
BE} WEEN:
M/s.C0ncorde Hitettlj V"
Jayanagara .... .. 1?'
Barlg-':11ore. ' 7'; '
Through S:-1.B_.s.smva%rama.,_T'~» _ ~ %
Chairman of.Appeil--arit . ..Appe11ant
(By Sri.KaInafli ar;:Ci Kézrfiathfkkdvocate)
1.V' T,_.':1é df~K_arnataka, "E'hr0ug11'i"jTh:-e' Secretary, Fi-nance Déizpartment, . Vidhaila Soudha, _Banga.1<5re.
=. "Fhr§Additiona1 Commissioner of % = - --Vanijya Terige Karyalaya, Commercial Taxes, Zone -- I, 2 STA 27/2009 Gandhinagar, V. Bangalore M 560 009. ...R€SpOIlClf;l"i»lfl'S"._V' [By Sri.Vedarnurthy. High Court. Government l?'le_a§de1'l;. This Sales Tax Appeal. is filed under Se=::tiori:€i6['l) of he the Karnataka Valued Added Tax Act. 2003. challenging . the suo-moto revision order No."?,AC'4i1/BED'-~ll/'Sl<.{{'R¢"r:;_' 13/O8~09 dated 10.09.2008 pa_ssed=.by.. the bA;:'_1dition=al'~.y ' Commissioner of Commercial Taxes, Zone --.--1,'._Baing.alo.re under the Karnataka Value Addedffax, Act~200--3, etc. This STA coming for day, N.KUl\/IAR, J., delivered the foil0w_ijrEig:--
This :.:t1i]l;'¢-«.._gsfse's>seelWchallenging the order passed under Section 64(1) ofll'-.the ' Added Tax, 2003 (hereinafter, lrefelrred. to as the 'KVAT Act', for brevity] lrestoriingitifieorderl n'i'i'd'er Section 39(1) with penalty and ilritei*.est' original authority, after disallowing it the labour to an extent of 30% granted by the it " " 1 if -- ._original an thority.
it civil works contract for the prospective buyers of flats The assessee is involved in execution x/it 3 STA 27/2009 in the residential apartments constructed by him and"-is a registered dealer under the Act. T he assessee__'rnVad'eu.~l'2, payments amounting to Rs.2,99,57,344/-- K contractors for execution of Works only one 'subcontractor is registeredA.1urider1.t'hev"
Act, 2003 viz., M / s.lVR Prime _Deye1o}:§cr7s to whom the dealer/ sum of Rs.2,20,00,000/-- for remaining amount of unregistered sub~ contractors__for_Vc-a.rtjyingj_y like construction of road, 2 flat, rock cutting, etc. Therefore, audit".llauthlorities added the value of Vrnaterktils purchased by the said unregistered sub~-- A"eVont:'actors«.ynotsupported by bills and used in the constr1.1ctiori."Wo;r}§ is to be treated as unregistered dealer ' pyurchdasesyyliable to tax under Section 3(2) of tl1e KVAT 2303: The tax liable to be paid was proposed to be ___""det'errnined on best judgement assessment basis under 4 STA 27/2899 Section 39(1) of the KVAT Act, 2003. The assessee filed his objections and submitted some of the works are labour works without materials and secondly,4VV.Vth':i€._V_ payments made to the sub--contractors are the receipts declared to tax while effecting 1,3 ., the apartments. According to the'-._assrelsjseerhi materials are not used in the course of assessee. Therefore, tax'; be levied on him. If the 'goodsl--. llpxjrclllased for the purpose of resale, tax; under" --Sectionfi-3(2) cannot also be invoked. he examining the aforesaid contentionsheld,lthatllrlrhéiyfiygétterials used by the sub"
I_.c«0ntractlors:who awarded certain works by the as_s'essce 1 ___effect purchases from URDS with him to the extent of 70% as value of by the assessee and balance 30% charges out of the payments made by the ..__assessee. As these goods are used in the execution of 5 STA 27/ZGG9 works contract in a mariner that these goods transferred as they are incorporated into liability under Section{2) exists. He and held the 70% of the payments'-ifiaae contractors as value of goods, the on the assessee to pay He concluded the assessmer1t.s..uI-idler! and also levied as intems-{ um, Mien I.:
order of the Audit Officer, the assessee hp-referred .lAani"~--.iVllappeal before the Joint _.v.Comrr:«i}.ssi0ner Commercial Taxes. The Joint V"Corrimissio'ner:"proceeded on the footing that when the ur11*elgi:stered'_"p:dealers have purchased the taxable goods p from ul11.reg;istered dealers and used the same in the work llelXecu't--ed tor and on behalf of the appellant for which the ll"=.___":appellant cannot be foisted with purchase tax under xi'//_ 6 STA 27/ 2009 Section 3(2) of the Act. The burden of payment of purchase tax under Section 3(2) of the KVAT Act, 2003 is on the purchases made by unregistered sub~contractoirs;;_V It cannot be shifted on the assessee and there'i"f:(5're-«,i..'_'l--p1_i:e;'V'i. held that the levy of purchase tax on the.*a'se--:ejs.se'e: is it unwarranted and uncalled for and the said tax liability with interestpva-rid pienalty.' it it A I it The Additional initiated suo moto proceediirgs. of the KVAT Act. After hea'1'iI1g of the View that the case 3(2) of the Act. Further. he held tha't.:_4th,e are spent by the gontractvorsi. The assessee cannot claim 'Athe.zc"curse of execution of the works contract '1-ienceli is not entitled to deduction of value of the works contract. Therefore, the order passed by the first Appellate A .._Autl"iI:)rity, restored the order passed by the Audit Officer x./i STA 27/2009 and to the extent of granting deduction to the extentgof 30%, this order was also set aside. Aggrieved by "
order, the assessee is before this Court.
3. Sri.Karnath, learned couriisei _ assessee submitted, firstly that the is n_oti.scov:ere'g:1."' under Section 3(2) of the Act. thleassvesslee got the Works clone through.._._u«nre-gistercti,s'u1)--contractors, when he sold theflats,_...h:e=,has §t%p:;1'ic1'i~x+;;~t~:; which is inclusive of the purchase of the said theauthorities were wrong in holding the Section 3(2) and not 3(1) of " Secondly, contended, admittedly, the I-Viassesseellh-as 'not usedmthe goods in the course of his bus.ine_ss.' .,Ifn_'o'th'er_iwords, he has not consumed the said S""V'materia1_s. the contrary, it is sold and therefore, '' 'Section 3(2}.-- not attracted, as the application of Section restricted to only cases of consumption of the purchased form an unregistered dealer not for n./ 8 STA 27/ 2009 resale but for use. Thirdly, he contended, even if it is to be held that the assessee has to pay tax under Section 3(2), as he has already paid output tax and is deduction, it is only a book adjustment. /7 make. The Audit officer may be necessary corrections. Lastly, it held, that the assessee is liable 3(2), he is entitled to labour charges as per Rule._3 of is rightly granted by th_Ve?_: is set aside erroneously --.by.l"lV1if1eA"i Additional Commissioner of Commercial submitted a portion of the work included is a" pureglabour contract for rock cutting, land;gradi.ng. 'and___1andscaping, in which event, he is * V» entitledlto deduction.
Per ..eo_r1tra, learned counsel appearing for the re*.;fenule""~«ysubIr1itted, when once a registered trader pvurclgaases material / goods from an unregistered trader as \\/l 9 STA 27/2009 the unregistered trader is not paying the tax for sale, the trader has to pay tax for purchase of such goodsy,..ai"idl: the event of he reselling the property, then if S' 'S output tax, he would be entitled to p_ liabiiity of tax. This is not a_:c_ase, l"w.h'ich falls Section 3(1) of the Act, but under'Vl'S:ect.ion as rightly held by the he submits that, thereis no interference by this Court.
4. contention, it is necessary the charging Section 3, which reads as underf . S V it Section ofTax:~
-::"T,he tax shall be ievied on every sale of it 9 goeds in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act.
10 STA 27/2009 (2) The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the his business, by a person H registered under thi.s._A_ct. V' it ' Sub--section (1) of Section 3 pro3_Iides'~ every sale of goods in the Statelrifa, registerewd a dealer liable to be registered The person who sells such tax after levying the SElIl'?ie'l'«.:g¥[f1Cl collecting:"from___,the purchasers.
Sub--sect.ion (2) of£';ec'tion_g3~---deals with a case where the person who'*--s_ells the is not registered under the __Act. such person sells the goods, the tax is A"levAia'a;:>.le arIid~.pay_ab1e if the purchaser of goods is a In other words, if taxable goods are sold a person who is not registered dealer to a person. 'who not a registered dealer, no tax is leviable or But, once the registered dealer purchases the Vet 11 STA 27/2009 taxabie goods in the course of his business, froniihian unregistered dealer then sales tax is to be In common pariance it is caiied as liabiiityl to pay purchase tax arises made for use in the course ofhis bu's_in'ess. _»it1d,oes not mean that the said business Carrying on {should be only sale and_..fppur-'chase"~--o'f,:isL1ch goods. The words employed are "ufifi business"
and not may be in the same said goods may be a raw absorbed in the final product in respect of which he on business. The user of the goods , pfiurchasedili depends on the nature of his business. AVTherefore,iftliatregistered dealer who purchase these goods, sellsithe goods in the same form or uses in the course of his buisinesshbiy absorbing the same as an input to the final then sells the firial product, he is liable to levy the sales tax for such input. The said words l,/ 1 2 STA 27/2009 that Section 3(2) applies only to a case where a registered dealer who purchase goods from the unregistered 2 the said goods in the same condition in the it businessis not tenable. t it ' Section 10 of the Act deals tax and net tax. A reading of s.eVctioitvrtialj{es it clear if the goods purchxa.sed"b)t'registered: dealer from an unregistered dealer is final product sold by such registered to levy and collect sales On rewsale he can coI1ectl.l.t'he 'duitirnate purchaser and is entitled 19'6fV1:e'1;t§;~r deduction to that extent of purchase _i¢Iowev_er;._he.,"l*ias to pay tax: after purchase .~axyit.hin"3't.he__f'tir;1e pAr'esCribed and then seek for deduction of "fro'I:1t°the output tax in accordance with law. However, sales Section 3(1) is not attracted. Th.oug,h the registered dealer is entitled to deduction which is characterized as input tax from the tax to be eligible for such deduction, the it/' 13 STA 27/2009 registered dealer must pay input tax immediately after such purchase or within the period prescribed. it on such payment, he would be entitled for the same from the output tax.
book adjustment of these two'.
precedent for claiming deductionfitrom the is the payment of input it From the aforesaid. that the assessee :;ol:d'7i'9';h7,344/-- to an unregistered' out works like construction office, model flats, rock cutting, laridscapi'ngl," the sub~contractors to '._.yWhom._%:thei.saidapayrnents made were unregistered, the did not collect the tax under the Act froinl-lg-h'e In other words, they did not levy any 'tax. 'l'her:.--:;fore, the assessee has not paid any tax, and lfiectilon 3(2) is attracted. Section 3(2) of the Act deals a case, which is not covered under Section 3(1). ' T 1/' 14 STA 27/2009 Therefore, we do not see any substance in the conter;:.t'i.on of the appellant in this regard. 2 V Having regard to the nature T 3 of KVAT Rules provides for .deterrn"inJation l for the purpose of this Act. total turn over of a dealer the Rule 3[}.A) states the total the purpose of the Act amount paid or paid by for the purchase of any 075 theof which, tax is leviable under Secti'or'1*3v[2]'.. Section 3(2) provides for _ It that the taxable turn over shall allowing the following deductions from thelttm xlL1',"1V!'I."',1f_l. Sub Clause (1) and (:11) provide for 'deduct'iQri"v.of"the actual labour charges expended and in alosence of such labour charges, not ascertainable E//..
1 5 STA 27/ 2009 from the books of accounts maintained by the dealer, amount deductable would be as per the table mention.e__cill.j' in the said sub--clause (111). In respect of civil,wor};s::.llii{.e 1 construction of buildings, bridges, ro:ads:,...eltfc.;' as e labour and like charges, wh_ich__2 islllpléi-mitted deducted. Though the assess<lv3y:el::"»«._ll.ha.s'» any amount towards the labour has given the sub--contra.ct and who has spent the 'sub-contractor is an unregistered"'~dea}f<er ivork entrusted is calculated in the accounts of the assessee, he .ei.ititled to the deduction of labour charges. are unable to show what is the actua;l"anic.u1ite:>Epended, he is entitled to benefit of 30% of discount as-prescribed under law. That. as submitted by the learned counsel for if he has paid for landscaping, stone l' _c'u.ttin;g, etc.. in which event, there is no sale of goods, if 'L/ 16 STA 27/2009 he is able to demonstrate what is the amount paid towards stone cutting and landscaping, where there is sale of goods, that mount has to be excluded total amount of Rs.79,57,.'344/--, whichmhe has it sub~contractor. It is an exercise to doiael' Officer on the evidence, produceldytpbyllltiiei therefore the Additional othldornrnvercial Taxes was in error in is not entitled to 30% deduction:"as:'he labour charges. That When the assessee after' ' ,tliefi"vgoods purchased from an unregistered' flat and he has sold it vfort corrsiideration he has paid output tax on the received by him, certainly he would be of input tax, provided, he has paid the? input first, then only he is entitled to deduction. it submitted that output tax was paid before V" of input tax and therefore, it is only a book L/..
17 STA 27/2009 adjustment. We find it difficult to accept tl:l.lS_ submission. The question of giving deduction,:.~~(-myth:'__o'fli output tax is only after input tax is paid. In it case, admittedly, input tax is not paid on payment of input tax, assesses entitlled to and if he has already paid outpiitili ~f1\ wauld be entitled to deduction"-«.._..é;fteiijL blunder Section 3(2) of the Act. t:h,el'V"matter, We pass the followin _ i tttt IV l A I) _ 'al-iowed.
11) 'order Commissioner of Commercial Taxes in revision to the extent of
-._disa.lVlow_ing 30% deduction is hereby set asiti-eV,'ci= V Iil) .. held that, the tax is payable under Section 3(2) of the Act.
k/he 18 STA 27/2009 IV} In so far as the contention that, no taxfisp payable for work such as stone Iandscaping, where there is no sa1elof_goAods,M 3 which is also included ir_1p'fth'ep amount of Rs.79,5'?/-- is._ooncerr1'ec1..:itA'isEa matter to be enquiredtvtrrto by titre and therefore dvireoted to give an .V_opportu!m1_ity Vpfé-t=.5'§p,:3':essee, after heffllfi , . Vt appropriate .01.? expenditure of under Section 3(2) of tlie N 44 V A' ..... .r at 4.
Judge Sdfm Judge