Karnataka High Court
Jmc Constructions Pvt Ltd vs The State Of Karnataka on 27 April, 2019
Author: G.Narendar
Bench: G.Narendar
-1-
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH R
DATED THIS THE 27TH DAY OF APRIL 2019
PRESENT
THE HON'BLE MR. JUSTICE G.NARENDAR
AND
THE HON'BLE MR. JUSTICE BELLUNKE A.S.
WRIT APPEAL NO.100235/2018 (T-RES)
BETWEEN
JMC CONSTRUCTIONS PVT LTD
CORPORATION OFFICE AT 27-972/1,
TELECOM COLONY,CHITTOOR,
ANDHRA PRADESH-517001,
REP. HEREIN BY ITS
AUTHORISED SIGNATORY &
DIRECTOR, MR. A.MADAN MOHAN.
... APPELLANT
(BY SRI. K.P.KUMAR, SENIOR COUNSEL FOR
SMT.MAMATHA ROY, ADVS.)
AND
1. THE STATE OF KARNATAKA
REPRESENTED BY ITS
FINANCE SECRETARY,
VIDHANA SOUDHA,
BANGALORE-560001.
2. THE COMMISSIONER OF
COMMERCIAL TAXES
VANIJYA THERIGE KARYALAYA,
1ST FLOOR, GANDHINANAGAR,
BANGALORE-560009.
3. THE COMMERCIAL TAX OFFICER
(ENFORCEMENT)-10, HUBLI-580025.
4. M/S.KMC-JMC (JV),
HAVING OFFICE AT NO.1,
SKS REFINERIES (P) LTD.,
PREMISES, GBN ROAD,
-2-
MADHUGIRI 572132,
REP. BY ITS JOINT DIRECTOR.
... RESPONDENTS
(BY SRI.RAVI V. HOSAMANI, AGA FOR R1 TO R3,
SRI. SHIVARAJ S. BALLOLI, ADV. FOR R4)
THIS WRIT APPEAL IS FILED U/S.4 OF KARNATAKA HIGH
COURT ACT, 1961, PRAYING THIS HON'BLE COURT TO, ALLOW
THIS WRIT APPEAL, SET ASIDE THE IMPUGNED ORDER DATED
27.06.2018 PASSED BY THE LEARNED SINGLE JUDGE IN W.P.
NO.103934/2018 AND ALLOW THE WRIT PETITION, IN THE
INTEREST OF JUSTICE AND EQUITY.
THIS WRIT APPEAL COMING ON FOR 'DICTATING ORDERS',
THIS DAY, G.NARENDAR J., DELIVERED THE FOLLOWING:
JUDGMENT
Heard the learned senior counsel Shri K.P.Kumar along with the learned counsel Smt. Mamatha Roy for the appellant and the learned AGA Shri Ravi V. Hosamani on behalf of respondent Nos.1 to 3 and Shri Shivaraj S. Balloli on behalf of the respondent No.4.
2. The parties are referred to by their nomenclature in the writ petition for the sake of convenience.
3. The petitioner is a company registered under the provisions of the Karnataka Value Added Tax Act, -3- 2003 (hereinafter referred to as 'KVAT Act, 2003') and is engaged in the execution of work contracts. During the relevant tax periods in question, namely April 2012 to March 2013, the petitioner had opted to pay tax under the composition scheme as per the provisions of Section 15 of the KVAT Act, 2003.
4. It is further submitted that the petitioner had entered into a joint venture agreement on 16.08.2011 with KMC Constructions Limited for the purpose of submitting a bid for widening and strengthening of existing intermediate lane carriageway to two lane carriageway from K.m. 290.20 to K.m. 343.80 on NH - 234 i.e., Sira Madugiri Section, in Karnataka under the special project scheme. The joint venture bid i.e., of the KMC & JMC Constructions being the lowest, they were awarded the work vide Agreement dated 30.08.2011and Work Order of even date issued by the Executive Engineer, National Highways Special Division, Bengaluru. It was agreed between the constituents of the joint venture i.e., M/s. KMC Constructions Limited and M/s. JMC (the petitioner -4- herein), that the entire work would be subcontracted to the petitioner. In lieu of the agreement, petitioner executed the entire work as a subcontractor for the joint venture entity of M/s. KMC Constructions and M/s. JMC Constructions and who being the main contractor would raise bills on the NHAI (Employer) from time to time. NHAI would then make payments to the main contractor i.e., the joint venture and while making such payments, NHAI would deduct tax at the rate of 4% as per the provisions of Section 9A of the KVAT Act, 2003 and issue TDS certificates to the joint venture entity.
5. It is further submitted that the petitioner did not pay tax on its works contract turnover since the tax payable on the turnover of works contracts executed in favour of NHAI was already deducted by the employer (NHAI) while releasing payments to the main contractor who, it is pertinent to note has not claimed refund in its returns filed under the KVAT, Act for the relevant tax periods and that the instant claim is also barred by time and hence the credit of the said TDS was required to be -5- given to the petitioner, as it has executed the works awarded to the main contractor. It is further submitted that if the petitioner were also to pay tax on its turnover, it would have resulted in tax having been paid twice over to the State (once indirectly, through the main contractor/4th respondent, by way of TDS and again directly by the petitioner) on execution of the very same works contract, which would amount to double taxation, which is impermissible in law. Hence, the petitioner did not pay tax under the KVAT Act in respect of the works contract turnover as the employer (NHAI) had already deducted and remitted the tax to the State.
6. While the position stood thus, on 05.12.2017, the 3rd respondent after inspecting the petitioner's premises and examining its books of accounts, issued a notice proposing to reassess the petitioner's tax liability for the tax periods April 2012 to March 2013. In the said notice, the 3rd respondent inter alia proposed to tax the turnover of work contracts executed by the petitioner as a subcontractor for the joint venture - 4th respondent. -6-
7. The petitioner thereafter filed a detailed response to the reassessment notice vide its reply dated 16.12.2017. In the said reply, the petitioner, inter alia informed the 3rd respondent that the joint venture had allotted the entire work to the petitioner on a back to back basis and that the government/tendering authority/Employer has already deducted tax at the rate of 4% on the work executed and transferred to the employer. The petitioner further stated that the joint venture has not claimed refund of the TDS from the State. The petitioner accordingly requested the 3rd respondent to adjust the TDS in the hands of the joint venture against the petitioner's liability since the tax relates to execution of the very same works. In order to substantiate its claim, the petitioner filed TDS certificates issued by the NHAI to the joint venture and requested for adjustment of Rs.60,75,268/- deducted by NHAI while making payments to the joint venture and later remitted to the State by NHAI in compliance of the provisions of S.9-A(5). -7-
8. The 3rd respondent, however, rejected the petitioner's request in this regard and passed a reassessment order dated 28.03.2018 under Section 39(1) of the KVAT Act, 2003. The rejection order appears to be based on the circular issued by the Commissioner of Commercial Taxes on 23.12.2014 directing that there can be no transfer of TDS credit in favour of a third person. In the said reassessment order, the 3rd respondent observed that the TDS made in the name of M/s. KMC-JMC-(JV) the main contractor in this case amounting to Rs.60,75,268/- cannot be given as credit to the tax payments to be made by M/s. JMC Constructions Private Limited, who is a subcontractor in this case. The 3rd respondent further levied interest and penalty under Sections 36(1) and 72(2) of the KVAT Act and issued a demand notice also dated 28.03.2018 calling upon the petitioner to pay the reassessed tax, interest and penalty within 30 days from service of the notice.
9. In support of his observation that adjustment of TDS in the hands of the main contractor against the tax -8- liability of the subcontractor is impermissible. The 3rd respondent relied upon Circular No.21/2014-15 dated 23.12.2014 issued by the 2nd respondent, Commissioner of Commercial taxes. In the said circular, the 2nd respondent has issued instructions to all the officers not to adjust TDS in the hands of the main contractor against the tax liability of a subcontractor, as the two are separate and distinct entities. In the said circular, the 2nd respondent further observed that it is the obligation of the subcontractor to file his returns and pay tax on the works executed by him, irrespective of the fact that tax has been deducted in the hands of the main contractor.
10. Thereafter, on 30.05.2018, the 3rd respondent issued a notice under Section 45 of the KVAT Act, 2003 to the Branch Manager of the petitioner's bank, namely Andhra Bank, Chittoor, Andhra Pradesh. In the said notice, it was stated that the bank holds/owes monies on behalf of/to the petitioner. The 3rd respondent, therefore, directed the bank to pay out such monies held by it to the -9- 3rd respondent towards the satisfaction of the tax, interest and penalty reassessed for the tax periods in question.
11. Aggrieved by the reassessment order and demand notice dated 28.03.2018 as well as the aforesaid circular issued by the 2nd respondent, the petitioner approached this Hon'ble Court in Writ Petition No.103934/2018. It was submitted that the denial of the petitioner's request for adjustment of TDS in the hands of the joint venture - main contractor was primarily based on the instructions contained in Circular No.21/2014-15 dated 23.12.2014 issued by the 2nd respondent in pursuance of the powers conferred under Section 59(1) of the KVAT Act, (which the petitioner impugned in the writ petition). It was submitted that as the KVAT Act, 2003 did not provide any recourse against the circular issued by the 2nd respondent under Section 59(1), the petitioner was constrained to approach this Hon'ble Court under Article 226 of the Constitution of India since all instructions issued by the 2nd respondent are binding on the
- 10 -
authorities involved in the implementation & execution of the Act.
12. That the Hon'ble Supreme Court and the Hon'ble High Courts in a number of judgments have held that once the highest functionary in the hierarchy of authorities has expressed its opinion on a particular issue, then it would be wholly impracticable to expect subordinate authorities, including appellate authorities to take a contrary stand. The petitioner sought to invoke the extraordinary jurisdiction of this Hon'ble Court under Article 226 of the Constitution of India. However, the learned Single Judge vide the impugned order, dismissed the writ petition and declined to exercise the writ jurisdiction of this Hon'ble Court on the ground that there exists an efficacious and alternative remedy by way of an appeal under Section 62 of the KVAT Act, 2003.
13. It is submitted that the learned Single Judge has erred in passing the impugned order as it failed to appreciate that it would be an exercise in futility to approach any of the authorities designated under the Act,
- 11 -
including the first appellate authority by way of an appeal under Section 62 of the KVAT Act, 2003, since the highest functionary in the Commercial Taxes Department i.e., the Commissioner of Commercial Taxes has already expressed his view on the issue at hand. Moreover, the KVAT Act, 2003 does not provide any avenues to challenge circulars issued under Section 59(1) and therefore, the learned Single Judge ought to have exercised the writ jurisdiction instead of holding that the petition is not maintainable and on that erroneous basis, relegating the appellant to avail the appellate remedy under the KVAT Act, 2003, a futile exercise.
14. The learned Senior counsel has also placed reliance on the ruling rendered by the Co-ordinate Bench in the case of Ashok Agencies, Bangalore vs. State of Karnataka and others reported in 2008 (65) Kar.L.J. 97 (HC) (DB), to contend that the writ petition is maintainable on account of the circular issued by the Commissioner of Commercial Taxes bearing No.21/2014- 15 dated 23.12.2014. He would invite the attention of this
- 12 -
Court to the observations of the Co-ordinate Bench at paragraphs 3 to 6, wherein the Co-ordinate Bench has been pleased to hold that the alternative remedy of appeal is not an efficacious remedy as all the authorities involved in adjudicating the disputes that arise under the Act are undoubtedly bound by the circular issued by the Commissioner of Commercial Taxes who is a superior authority in the hierarchy of the officers.
15. He would also place reliance on the order dated 13.07.2018 passed in STRP No.23/2017, whereby the Co- ordinate Bench has been pleased to admit the revision petition to consider the question as to whether TDS collected at source by the employer from the payments made to the principal contractor can be given credit in the hands of the sub contractor or not. The consideration of the said issue would require a ruling on the correctness of clause (f) of Rule 44(3) of the KVAT Rules which apparently prohibits the transfer of the credit of the TDS already deducted on account of one person/entity, either
- 13 -
directly or through any other person to the account of another person.
16. The respondent revenue has resisted the writ appeal by filing statement of objections dated 18.01.2019, as the writ petition has been apparently considered and dismissed at the preliminary hearing stage itself.
17. The revenue has fairly admitted the factual matrix of the case, that is the facts pertaining to the deduction of tax in the hands of the main contractor and remittance of the TDS amount by the employer with the respondent authorities, on account of the works contract awarded to the main contractor, i.e., the 4th respondent and the facts pertaining to execution of the said work by the petitioner/sub contractor. It is also pertinent to note that the revenue has not denied the factum of the petitioner having entered into a contract with the main contractor and the factum of execution of the contract work having been entrusted to the petitioner by the main contractor as a back to back contract i.e., entrustment of execution of the entire works contract only.
- 14 -
18. The fulcrum of the defence set up by the respondents is the circular issued by the Commissioner of Commercial Taxes dated 23.12.2014 vide Annexure - E to the writ petition, whereby the Commissioner of Commercial Taxes placing reliance on the provisions of the Section 9A of the KVAT Act, 2003, as ordered as under:
"7. Further, it is also noticed that the sub contractors who are executing the woks contract on behalf of the main contractors are requesting the departmental officers to adjust the tax deducted at source by the TDS authorities payable to the main contractor towards their tax liability instead of refunding to the main contractor. There are also instances where the main contractors have requested to adjust the amount of tax deducted from their account towards the tax liability of their sub contractors. Hence, there is a necessity to clarify as to whether the said adjustment can be made if there is no liability of tax for the main contractor. It is a general practice that the main contractor who has been awarded the contract from the Government departments or public sector undertaking to assign the whole or part of such contract to a sub contractor or a number of
- 15 -
sub contractors. The payment made to sub contractors are allowed as deduction in the hands of the main contractors the TDS made by the Government department and public sector undertaking is credited to the account of the main contractor. As per the return filed by the main contractor, the amount of TDS is given credit as if it is paid by him. The sub-contractor is a separate and distinct entity independent of the main contractor and is required to file the return and pay tax as per his return. The tax payable by the sub-contractor is dependent on the amount received by him from the main contractor which also includes the tax payable by the sub-contractor.
8. As per the provisions of the KVAT Act, 2003, the request of any dealer whether he is a sub-contractor or a main contractor to adjust the amount of the TDS made by the tax deducting authority towards the liability of the sub-contractors should not be entertained. The only way for the main contractor is to claim the refund of the excess credit of tax in his account due to TDS in his monthly returns which may be made after audit of his accounts. The TDS amount is not transferable from the account of a main contractor to that of a sub-contractor. A
- 16 -
sub contractor has to pay his tax liability in full irrespective of any TDS done by the contractee while making payments to the main contractor. Therefore, the officers of the department are instructed that they should not give credit of TDS amount from the amount of the main contractor to that of a sub contractor."
19. It is relevant to note that the statement of objections is more inclined towards the technical aspect of the issue. The challenge to the validity of the above circular is sought to be negated on the premise that the circular is a validly issued circular in terms of Section 59 of the Act which apparently authorizes the Commissioner of Commercial Taxes issue circulars to remove the difficulties and hurdles that arise in the course of implementation of the statute. It is admitted in paragraph 10 that as a practice, the VAT officers were giving set off to the sub contractors for the TDS in the hands of the main contractor, even when the main contractor had not given up their rights to seek for refund or set off or adjustment on account of the TDS credited as against their account. It is further contended that as the petitioner has not laid any
- 17 -
challenge to the validity of Rule 44(3)(f) of the KVAT Rules, the challenge to the circular is impermissible, as the circular is in consonance with the provisions of clause (f) of Rule 44(3) of the KVAT Rules, 2005. It is pertinent to note that an attempt is made to justify the circular in terms of Rule 44(3)(f) of the KVAT Rules.
20. On perusal of the circular, it is seen that no reliance is placed by the Commissioner of Commercial Taxes on the provisions of Rule 44(3)(f) and on a comprehensive reading of the same, the inference one can draw is that the circular has been found necessary by the Commissioner to deter the VAT officers from giving set off to the sub contractors on account of the TDS in the hands of the main contractor. It is further contended that the Co- ordinate Bench of this Court has ruled that Section 9A of the KVAT Act, 2003 does not entitle a sub contractor to seek transfer of set off of TDS in the hands of the principal contractor.
21. Continuing further, it is pleaded that "the set off of TDS in favour of the petitioner (appellant) can be
- 18 -
extended in a case, where the principal contractor in turn submits that he is not claiming any benefits of TDS and the entire deductions can be transferred in favour of the sub contractor, under such circumstances, the benefit of TDS can be extended in favour of appellant herein." In the absence of the same, the department cannot transfer TDS and the same is also barred under Rule 44(3)(f) of KVAT Rules 2005. The main contractor i.e., the 4th respondent was not a party to the writ petition and was brought on record by way of an application preferred under Order 1 Rule 10 of CPC which came to be allowed by this Court by order dated 10.04.2019.
22. It is also relevant to note that the 3rd respondent, the Commercial Tax Officer has filed an affidavit dated 24.04.2019 and it is categorically admitted that the petitioner is a sub contractor of the joint venture entity KMC/JMC Constructions. It is also admitted that the RA bills have been raised by the main contractor only and that the employer (M/s. NHAI) has made the payments against the bills after deducting tax at source
- 19 -
(TDS). That the main contractor has been issued Form VAT - 156 and that the main contractor is also a registered dealer under KVAT Act and has filed returns in VAT Form 120 under its registered Tin No.29060808668. It is further deposed that the main contractor in its monthly returns filed during the period April 2012 to March 2014 has declared the TDS suffered by it from time to time under the payments in lieu of the RA bills raised by it on the employer. That the main contractor has not claimed refund, but has opted to carry forward the credit by showing the VAT - TDS amount in the column for credit carry forwards (5.3.2 in form VAT 120). The copies of the returns have been produced along with affidavit and the Annexures R-1 to R-24. It is further deposed that the returns is a clear indicator of the main contractor, intention to assert it's right/claim over the amount lying in its credit for future adjustment. It is further deposed that the tax authorities are required to act as trustees in respect of the carried forward credit held in favour of the main contractor.
- 20 -
23. It is further fairly admitted that subsequently the main contractor has omitted to declare this VAT TDS credit even in the column 5.3.2. That despite the non- declaration of the amount in column 5.3.2, the total VAT TDS amount is still reflected as lying in credit of the main contractor. It is further deposed that the provisions of Section 10(5) of the KVAT Act does not prescribe any limitation for claiming refund and hence, it is contended that the tax assessment in respect of the petitioner will not amount to double taxation in respect of the same transaction.
24. It is further deposed that though the total receipts for the works contract is taxable at the rate of 4% under the compensation scheme, but insofar as it relates to interstate and URD purchases, the petitioner is liable to pay tax at the applicable rate. It is further deposed that on account of these factors i.e., interstate goods and the URD purchases, the total tax liability of the sub contractor may even exceed the total amount deducted as VAT - TDS and that the VAT TDS is only a safeguard mechanism adopted
- 21 -
by the legislature and hence, no fault or irregularity can be found in the actions of the respondents.
25. The 3rd respondent has deposed further and places reliance on the clause 2.6 of the sub contract agreement dated 14.09.2011, admittedly between the main contractor - 4th respondent and the petitioner/sub contractor which reads as under:
"2.6: JMC shall be solely responsible and liable for copying with all the applicable rules of the Government/Statutory Authorities/Local Bodies for income tax, sales tax, works contract tax, service tax any other direct or indirect taxes, levies, charges, present and future as also for all payments thereunder in respect of or in relation to the work and / or the contract except the TDS applicable to the payment made to KMC in terms of Article 3.1 herein after. All liabilities on account of aforesaid taxes, levies, charges, etc. shall be bourn solely and exclusively by JMC, similarly, JMC shall have sole and exclusive right on all refunds as may be received by JV from authorities in respect of such taxes, levies, charges etc."
- 22 -
26. The deponent in paragraph 8 of the affidavit seeks to withdraw the concession earlier made in paragraph 12 of the statement of objections dated 18.01.2019. It is further submitted that the entire stand of the revenue hinges on the provisions of Rule 44(3)(f) of the KVAT Rules and the circular dated 24.03.2012 said to be in consonance with Rule 44(3)(f) of the KVAT Rules. It is relevant to note that the facts relating to returns filed by the main contractor and the credit on account of the TDS deducted by the employer and remitted with the respondent and the same lying in the account of the main contractor are all fairly admitted by the respondents.
27. It is also relevant to note at this stage itself that the petitioner had filed a memo dated 10.08.2018 enclosing therewith the certificate issued by the concerned CTO certifying that the main contractor has not claimed any refunds from his office from 2012-13 onwards to till date. The said certificate is also admitted by the respondents.
- 23 -
28. The petitioner has also filed one more memo dated 29.03.2019 enclosing therewith a copy of the letter dated 25.03.2019 addressed by the 4th respondent/main contractor to the Commercial Tax Officer, Audit and Recovery, Madugiri. Under the said letter, the 4th respondent/main contractor has stated that it has sub contracted the entire work to the petitioner on a back to back basis and on account of the same, the works contract was executed by the sub contractor only and no other tax liability has been incurred by the main contractor. It is further stated that the JV is not carrying on any other activity or business and hence has not incurred any other tax liability at all. It has also detailed the work executed between 2012-13 to 2016-17. It has also enclosed the various TDS certificate in Form 156 in all aggregating to Rs.5,12,83,419/- lying in the account of the respondent revenue department.
29. It is further reiterated by the learned Sr. Counsel that the entire work had been entrusted to the sub contractor and hence, the TDS should enure to the
- 24 -
benefit of the sub contractor, as the said tax has been deducted at source on account of the work executed by the sub contractor out of the bill raised by the main contractor against such executed work and that the work executed is the only taxable event. It is further stated that the main contractor has assumed that the revenue authorities would accordingly credit the entire TDS to the account of the sub contractors. It is also clarified that the returns filed every month by the main contractor reflects nil turn and nil tax liability. It is further asserted that it has not claimed any refund whatsoever till date and that it is giving up its right to claim refund subject to the revenue giving credit of the entire TDS to the sub contractor's account.
30. The receipt of the letter and the TDS forms enclosed along with the memo are admitted by the respondents. But an objection was raised that the main contractor not being a party to the instant proceedings it may claim that any findings in the instant proceedings it are not binding on it.
- 25 -
31. To address this concern, the petitioner took steps to bring on record the main contractor/the 4th respondent, and an application came to be preferred under Order 1 Rule 10 of CPC and the same came to be allowed by order dated 10.04.2019.
32. The main contractor 4th respondent after coming on record has filed an affidavit and has virtually reiterated the contents of the letter dated 25.03.2019 addressed to the department and paragraphs 8, 9 and 10 read as under:
"8. I state that, as the JV had not carried on any business whatever during those years or even now, the entire TDS aggregating to Rs.5,12,83,419/- including Rs.60,75,268/- pertaining to the Assessment year 2012-13 is lying with the revenue. It is settled law that where work is entrusted to a sub contractor, the sub contractor is liable to VAT and not the main contractor. As the JV had entrusted the entire work to the sub contractor, the entire TDS should be related to the sub contractor appellant. The JV assumed that the revenue would accordingly credit the entire TDS to the
- 26 -
account of the sub contractor appellant. It can be noticed that the returns filed by us every month should nil turnover and nil tax liability.
9. I state that, the JV has been informed that the appellant has not been given credit for TDS and ignoring the fact that as much as by 5.12 crores of tax is lying with the revenue all along wholly relatable to the sub contractor appellant's work, huge demands are raised on the sub contractor appellant.
10. I state that, JV was of the view that, TDS will go to the account of the Appellant sub contractor. However, the same has not been done under the anticipation that the JV may claim in the future. Thus, I as joint director of the JV, hereby confirm that the JV has not claimed any refund whatever and the JV gives up its right to claim refund subject to the Revenue giving credit of the entire TDS to the sub contractor appellant's account."
33. From the above discussion, what this Court is able to discern is that the 4th respondent was awarded a works contract i.e., for upgradation of the carriageway from K.m. 290.20 to K.m. 343.80 by
- 27 -
the NHAI. That the 4th respondent is a joint venture of two independent entities separately registered as dealers under the Act. The JV is also independently registered under the Act as a dealer and has been allotted a separate tin number i.e., in effect, the constituents of the joint venture, though are independently registered as dealers have acquired the status of separate entity on account of their joint venture entity being registered as an independent dealer under the Act. The other admitted fact is that the JV has further agreed to sub contract the entire works contract to one of its constituents i.e., the petitioner. Hence, the petitioner is peculiarly placed. As a constituent of the joint venture, credits are lying in its account. But on account of it executing the contract as a sub contractor under the independent arrangement arrived at between the JV and the petitioner, it is required of this Court to determine as to in whose hands the taxable event has occurred.
- 28 -
34. It is fairly admitted by all the parties that the works contract has been awarded by the employer, namely NHAI in favour of the joint venture company only i.e., the 4th respondent. It is also fairly admitted that the petitioner is a constituent of the joint venture entity. It is also fairly admitted by all the parties that the execution of the work awarded in favour of the joint venture entity has been entrusted to the petitioner, what in commercial parlance is described as a back to back contract which entails the complete execution of the contract awarded in favour of the other party who is normally the main contractor.
35. In view of the above, for the sake of brevity and clarity, the parties to the proceedings namely the 4th respondent is referred to as the main contractor, the petitioner is referred to as the sub contractor and the respondents 1 to 3 are referred to as the revenue.
36. We have given our anxious consideration to the various contentions and having adverted to
- 29 -
the pleadings, we are of the opinion that the points that fall for consideration by the Bench for the disposal of the present writ appeal are as below:
i) Whether the writ petition is maintainable in the light of the alternative remedy of appeal being made available under Section 62 of the KVAT Act, 2003, as held by the learned Single Judge?
ii) Whether the taxable event has occurred in the hands of the 4th respondent
- main contractor or in the hands of the petitioner - sub contractor the petitioner herein?"
37. The learned Senior Counsel Sri K.P.Kumar has placed reliance on the ruling rendered by this Court in the case of Ashok Agencies, Bangalore vs. State of Karnataka and others reported in 2008 (65) Kar.L.J. 97) (rendered by a coordinate bench of this Court). The Co-ordinate Bench while answering the objection regarding maintainability of the writ petition in the light of the availability of alternative remedy of appeal, has placed reliance on
- 30 -
a decision rendered by another Co-ordinate Division Bench rendered in the case of Balaji Computers and others Vs. State of Karnataka and others reported in 2005 (59) KAR.L.J. 529 wherein it was held as under:
"Merely because, the proviso given to Sub- section (1) of Section 3-A of the Karnataka Sales Tax Act, 1957, prohibits the Commissioner to give any instructions which interferes with the power of the Appellate Authority, in our view, it is not possible to even remotely think that the concerned authorities will go against the instructions given by the Commissioner in Circular, Annexure-D and give scope for any disciplinary proceedings against them. It is necessary to point out that going against the instructions would result in revenue loss to the State, and therefore, no Officer can afford, apart from the fact that he is obliged under Section 3- A (1) of the Act, to carry out the instructions of the Commissioner, which may attract disciplinary proceedings resulting in his removal from service. Under these circumstances, in the light of the clear unequivocal instructions/directions given by the Commissioner as stated above, in my view,
- 31 -
filing objections before the Assessing Authorities would be an empty formality. Such a remedy available to the assessees cannot be considered, in the eye of law, as an effective alternative remedy. Though the proviso given to Sub-section (1) of Section 3A of the Act prohibits the Commissioner from issue of any instructions which interferes with the discretion of the Appellate Authority, once such instructions are given, it is not reasonable to expect that even such appellate authorities who are subordinate to the Commissioner, would go against the instructions given by the Commissioner and take a view different to the one expressed by the Commissioner in his instructions Circular Annexure-D. The mandate of the proviso is the Commissioner not to give any instructions which would interfere with the discretion to be exercised by the Appellate Authorities. It is also necessary to point out that to file an appeal against the order of assessment or reassessment made, the assessees will have to deposit 50 per cent of the tax assessed."
38. The coordinate bench in the case of Balaji Computers in turn has placed reliance on the ruling of the Hon'ble Apex Court rendered in the case of
- 32 -
Filterco and Another vs. Commissioner of Sales Tax, Madhya Pradesh and another (1950-2004)1 SCST 704 wherein it was held as below:
"Held: that the order passed by the Commissioner was clearly binding on the Assessing Authority under Section 42-B(2) of the Madhya Pradesh General Sales Tax Act, 1958 and though it was open to the appellants to urge their contentions before the Appellate Authority, the Appellate Assistant Commissioner, that would be a mere exercise in futility when a superior officer, the Commissioner had already passed a well- considered order in exercise of his statutory jurisdiction under Section 42-B(1). Further, a substantial portion of the tax had to be deposited before an appeal or revision could be filed. In such circumstances, the High Court ought to have decided the petition on the merits."
39. From the above rulings, it is apparent that the Courts have consistently held that a Circular issued by the Commissioner in exercise of the power vested in him under the Act is binding on the Appellate Authority and in such a factual matrix calling upon the assessee to avail of the remedy of appeal would be a mere exercise in futility, as the fact remains that an Officer superior in the
- 33 -
departmental hierarchy has already passed a considered order or has rendered a detailed opinion and the division bench has also opined that it is not possible, even to remotely think, that the concerned authorities will go against the instructions given by the Commissioner in the form of a Circular and thereby give scope for initiation of disciplinary proceedings against them. It has also observed that going against the instructions could be construed as an act resulting in revenue loss to the State and be made a ground to initiate disciplinary proceedings resulting even in his/her removal from service. That apart, the coordinate bench has also placed reliance on provisions of Section 3-A(i) of the Act to hold that the subordinate officers are bound to carry out the instructions of the Commissioner.
40. The fulcrum of the defence in the instant case is the Circular dated 23.12.2014 issued by the Commissioner of Commercial Taxes bearing No.I&C/DC(A3)/CR-104/2014-15 produced at
- 34 -
Annexure-E to the writ petition. The Commissioner in paragraphs 7,8 and 9 of the Circular has issued instructions amounting to prohibiting the VAT Officers from giving set off or adjusting the tax deducted at source by the TDS Authorities towards the tax liability of the sub- contractor and has instructed that the payments made to sub- contractors which was hitherto allowed as deduction in the hands of the main contractor in lieu of the TDS credited to the account of main contractor has been disapproved. The disapproval, according to the Commissioner is on the basis that the main contractor and the sub-contractor are separate and distinct entities and both are required to file the returns and pay tax as per the return and it is further instructed that the request of any dealer whether he is a sub-contractor or main contractor, to adjust the amount of the TDS by the TDS authority towards the liability of the sub-contractor should not be entertained.
- 35 -
41. Admittedly, in the instant case, the bone of contention is the amount deducted by the TDS authority i.e., the employer (NHAI) who has awarded the contract to the main contractor i.e., the 4th respondent and who has deducted the VAT- TDS in the hands of the main contractor and remitted the same on account of the works contract covered under the work order dated 30.08.2011 and the contract agreement of even date executed between the employer (NHAI) and the main contractor i.e., the M/s. KMC-JMC (JV), the 4th respondent herein. It is also fairly admitted by the Revenue that the amounts so deducted at the hands of the main contractor are lying in the account of the main contractor and to his credit and the same are evidenced by the tax returns filed in Form VAT-120 and produced by the Revenue/official respondents under memo dated 10.08.2017. The fact that the main contractor has not claimed any refund is admitted by the affidavit dated 04.04.2019 filed into Court by the 3rd respondent. The fact remains that it is this amount
- 36 -
that is lying in the credit of main contractor is requested to be adjusted towards the tax demand raised against the petitioner/sub-contractor and it is also an admitted fact that though it was a practice amongst the VAT officers to permit such adjustment in respect of the tax demands raised against the sub- contractors, in view of the TDS in the hands of the main contractors and which practice came to be prohibited by the said Circular. It is also an undeniable fact that the appellate authority under Section 62 of the KVAT Act, is none other than the authority prescribed under Section 2 (24) of the Act to mean an officer of the Commercial Taxes Department, authorized by the Government or the Commissioner to perform such functions as may be assigned to him.
42. On a plain reading of the above definition in conjunction with Rule 148 of the 2005 Rules, makes it apparent that the appellate authority is an officer subordinate in rank to the Commissioner and
- 37 -
such Officer acts as an appellate authority on the authorization by the Commissioner. In that view of the matter, we are of the considered opinion that the law laid down by the coordinate bench in the case of Ashok Agencies referred supra is squarely applicable in the facts of the instant case also and hence, we hold that the writ petition is maintainable as the remedy of appeal is not an efficacious remedy in the peculiar circumstances of the case.
43. This legal position is also fairly admitted by the respondents and hence the impugned order of the learned Single Judge requires to be set aside and is set aside and the point for consideration with regard to maintainability is answered in favour of the petitioner.
44. With regard to the other point formulated for consideration by the bench, we proceed to adjudicate the same in view of the singular fact that there is no dichotomy in the facts involved in the writ petition. There being no factual disputes and the
- 38 -
parties being at ad idem and the only legal issue being required to be addressed by this Court being the liability of the petitioner to comply with the demand by the Revenue Authorities, we proceed further in the matter.
45. At the cost of repetition, it is once again reiterated that the parties are not at variance with regard to the factual aspect relating to the tax liability arising out of the contract agreement and work order executed between the NHAI and the principal contractor (4th respondent) on 30.08.2011 and the contract agreement dated 14.09.2011 executed between the main contractor (4th respondent) and the sub-contractor (petitioner). In this regard, the learned Senior Counsel has placed reliance on the ruling of the Hon'ble Apex Court dated 05.09.2016 rendered in the case of Larsen & Toubro Limited Vs. Additional Deputy Commissioner of Commercial Taxes and another rendered in Civil
- 39 -
Appeal No.2318/2013 and Civil Appeal No.7241/2016.
46. As in the instant case, the appellant in the case stated supra was carrying on the business of engineers and contractors and was awarded the contract of constructing Sree Kanteerava Indoor Stadium at Bengaluru and the assessee in turn entrusted the work of laying foam concrete to one M/s.Llyod Insulation (India Limited) i.e., a portion of the work was sub contracted and who admittedly was also registered with the Deputy Commissioner of Commercial Taxes, Assessment-IX City Division, Bengaluru, and submitted returns and paid taxes for the execution of the works contract and was duly assessed under Sections 5-B and 6-B of the KST Act. The assesse M/s. Larsen & Toubro Limited (for short L and T) raised a claim that the sub- contractors were the parties who executed the works contract and since the transfer of property involved in such execution had already been taxed, the appellant
- 40 -
under Section 6-B cannot be taxed there being only one taxable event for the purpose of Article 366 (29A)(b) of the Constitution of India. In effect the contention of the assessee was that the value of the work entrusted to the sub- contractor could not be taken into account while computing total turnover of the assessee for the purpose of taxation under the Act. The contention came to be negatived. The Assessing Officer as well as the Appellate Tribunal and this Court also ruled against the assessee thereby affirming the view taken by the Revenue. The said judgment dated 03.02.2006 was carried in appeal in Civil Appeal No.2956/2007 and the subsequent appeal is on account of the similar treatment meted out to the assessee and the Civil Appeal No.7241/2016 was an appeal by the Revenue on account of this Court having held that the value of the work awarded to the sub-contractors cannot be included for computing the total turnover of the assessee and the assessment in respect of the said
- 41 -
year was answered against the Revenue contrary to the earlier view.
47. The Hon'ble Apex Court while determining the issues arising in the above appeals has placed reliance on its own ruling rendered in the case of STATE OF ANDHRA PRADESH VS. LARSEN AND TOUBRO LIMITED AND OTHERS reported in 2008 (9) SCC 191. The Apex Court has noted that the Revenue has made an attempt to contend that the provisions of the State Act are not on pari materia with the provisions of the Andhra Pradesh enactment. The Hon'ble Apex Court after adverting to certain provisions of the Karnataka Act namely Section 2 (i) (t) and 2 (i) (u-1), (u-2) and (v) and provisions of Section 5-B and 6-B formulated the following question as requiring determination by the Court:
"The question for determination is: for calculating the turnover for the purpose of payment of turnover tax under Section 6-B of the Karnataka Act, whether payments made to
- 42 -
sub-contractor are to be included while calculating the total turnover?"
48. After formulating the above question for determination, the Hon'ble Apex Court proceeded to place reliance on Rule 6 which deals with determination of total and taxable turnover, more particularly clause (c) which are extracted as under:
"6.Determination of total and taxable turnover-
(1) The total turnover of a dealer, for the purposes of the Act, shall be the aggregate of -
xx xx xx
(c) the total amount paid or payable to the dealer as
the consideration for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract, and includes any amount paid as advance to the dealer as a part of such consideration"
and proceeded to answer the question in the following manner and in the course of the same has observed in paragraphs 18 and 19 and thereafter concluded that the raison d'etre of its ruling rendered in the case of State of Andhra Pradesh Vs. Larsen and Toubro will apply in full force in the
- 43 -
context of the Karnataka Act also and further held in paragraph 20 as follows:
"We, therefore, hold that the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B of the Karnataka Act. As a consequent, the two appeals which are filed by the assessee are allowed and the appeal preferred by the Revenue is dismissed. In the facts and circumstances of the case, there shall be no order as to costs."
49. After a reading of paragraphs 18 & 19, we can safely conclude that answering the second point for determination in favour of the assessee should not detain us for long.
50. The Apex Court while dealing with the issue of transfer of property in goods, which is involved in the execution of the works contract, has held, that the same has to be treated as total turnover. It further observed that transfer of property in goods becomes a necessary event and unless there is a transfer of property, the amount paid is not to be included in the total turnover. It
- 44 -
has further held that a taxable event is the transfer of property in goods involved in the execution of a works contract and that the said transfer of property in goods takes place when the goods are incorporated in the works.
51. It is apparent that the above ruling has been rendered under the KST Act, 1957. In that view of the matter we are required to examine as to whether the proposition of law so unambiguously declared by the Hon'ble Apex Court is applicable to the instant case in the light of the provisions of the KVAT Act, 2003? In this regard we are required to examine certain provisions of the 2003 Act, i.e., Section 2 (12) - "Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes.
Section 2 (12) (g) - a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
Section 2 (29) - "Sale" with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or
- 45 -
business for cash or for deferred payment or other valuable consideration and includes.
(a) xxxx
(b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
Section 2 (36) - "Turnover" means the aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, and includes the aggregate amount for which goods are purchased from a person not registered under the Act and the value of goods transferred or despatched outside the State otherwise than by way of sale, and subject to such conditions and restrictions as may be prescribed the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof.
Section 2 (37) - "Works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.
Section 4 (1) Every dealer who is or is required to be registered as specified in Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,
(a) xxxx
(b) xxxx
(c) - in respect of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract specified in column (2) of the Sixth Schedule, subject to sections 14 and 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in the corresponding entries in column (3) of the said Schedule.
Section 4 (6)
- 46 -
(a) - a registered dealer whose sale of such goods is not liable to tax under sub-section (5), shall be eligible for refund or adjustment of any amount of tax collected on his purchase, which is in excess of the tax payable on his turnover relating to sale of such goods, and the burden of proving that the tax has been collected and paid in accordance with the said sub-section shall be on the dealer;
Section 7 (1) - Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, and subject to sub-section (2), the sale of goods shall be deemed to have taken place at the time of transfer of title or possession or incorporation of the goods in the course of execution of any works contract whether or not there is receipt of payment:
Provided that where a dealer issues a tax invoice in respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued.
Section 9-A - Deduction of tax at source (in case of works contract) (1) Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any state, or any such undertaking in joint sector or any other industrial, commercial or trading undertaking or any other person or body as may be notified by the Commissioner from time to time or a local authority or a statutory body, shall deduct out of the amounts payable by them to a dealer in respect of any works contract executed for them in the State, an amount equivalent to the tax payable by such dealer under the Act.
Section 9-A (5) - The authority making deduction under sub- section (1), shall send every month to the prescribed authority a statement in the prescribed form containing particulars of tax deducted during the preceding month and pay full amount of tax so deducted by it within twenty days after the close of the preceding month in which such deductions were made and the amount so payable shall for the purposes of Section 42 be deemed to be an amount due under this Act.
- 47 -
Section 9-A (10) - Where tax in respect of the works contract is remitted under sub -section (5), the tax payable by the dealer for any period, 3[xxxx] shall be reduced by the amount of tax already remitted under the said sub-section.
(the underlining and emphasis is by Court) Section 9-A (11) - The burden of proving that the tax on such works contract has already been remitted and of establishing the exact quantum of tax so remitted shall be on the dealer claiming the reduction of tax under sub-section (10).
52. We have carefully analyzed the various provisions of the Act. Section 4 is the charging section thereby enabling the collection of tax. Sub- section 1 (c) pertains to works contract. From a reading of the provision it is apparent that what is chargeable to tax is the taxable turnover of a dealer and in so far as it relates to a works contract, clause
(c) refers to a "transfer of property in goods involved in the execution of of works contract. In other words, in the wisdom of the legislature, the taxable event must involve a transfer of goods.
53. We now proceed to examine the various provisions extracted hereinabove in order to
- 48 -
determine the taxable event in the circumstances of the case.
54. Section 2(12) defines a dealer to mean a person who buys, sells, supplies or distributes goods, either directly or indirectly thereby implying that a person to answer the description of a dealer must indulge in the transfer of goods in either one of the modes detailed in the provision. Clause (g) deals with works contract and also refers to a transfer of property.
55. Section 2(29) defines Sale to mean, every transfer of property goods. Clause (b) pertains to works contract and the reference is to transfer of property. Similarly Section 2(36) defines "Turnover" to mean the aggregate of amount for which goods are sold, or distributed or delivered or otherwise disposed off. In essence it refers to a transfer of property or goods. Section 2(37) defines "works contract" as an agreement for carrying out certain
- 49 -
works for cash or deferred payment or other valuable consideration, i.e., towards the transfer of the property to the beneficiary or the accretion of goods in his hands. Yet again the accent is on the transfer, either by way of transfer or accretion.
56. Further, clause (a) of sub-section 6 of section 4, of the Act is an enabling provision whereby a dealer who is not liable to tax is entitled to seek "adjustment" of any amount of tax collected on his purchase and which is in excess of the tax payable on his turnover relating to sale of goods. Thus emphasis is on the sale or transfer.
57. Another provision of interest and relevance is the provisions of clause (b) of subsection (1) of section 6 which deals with the place of sale of goods. The clause deals with the case of unascertained or future goods and the place of sale is said to occur at the time of appropriation. Section 7 deals with the time of sale of goods and sun-
- 50 -
section (1) and the provision determines the same as being the time of transfer of title or possession or incorporation of the goods. The moot point here is, whether the incorporation ought to be understood as having occurred at the time of mere use of goods or on the delivery of the future goods or in other words the certification of the use of goods or the future goods. It is also relevant to note that the Act merely defines "Goods" and the Act does not define 'future goods'. In that view of the matter and in the context of a works contract it could be gainfully argued as the completed piece of work or completed contract.
58. On a cogent reading of the above provisions it can safely be deduced that the law makers in their wisdom have emphasized on the event of "transfer" as being the exigible event. If that be so, then for a dealer to be made liable for payment of tax there should be 'a transfer of property or transfer in goods'. In the absence of such transfer, it would be erroneous to conclude otherwise. If that be
- 51 -
the inference that can be drawn, then in a works contract, more particularly in respect of a sub- contractor, the trade practices as a normal rule do not evidence transfer of goods or property as between the Main Contractor and the sub-contractor. The transfer is effected between the main contractor and the employer (owner) only, unless the contract otherwise stipulates. As a normal practice the transfer or accretion of goods happens in the hands of the main contractor only and also the main contractor can neither become the owner or the holder of the goods or property. The transfer can occur only on the acceptance or transfer or expression of satisfaction the works contract by the employer/owner. If it were to be interpreted otherwise it could lead to a absurdity resulting in double taxation. No doubt double taxation is permissible if expressly provided by the Act. A reading of the Act does not make it apparent nor is the revenue made out such a case. If the interpretation as placed by the revenue is accepted
- 52 -
then the same work would suffer tax at the hands of the main contractor, when the sub-contractor completes the execution of that work contracted and the same work would also suffer tax at the hands of the employer when the goods or the work is handed over or transferred to the Owner/Employer.
59. The facts involved in the instant writ petition are marginally different, in that the set off or adjustment is claimed by the sub-contractor whereas in the case of L & T, the claim was by the main contractor itself. The main contractor i.e., the L & T was seeking absolution of tax liability on account of the tax compliance made by the sub- contractors.
60. In the instant case, the facts involved are in the converse. The dealer seeking relief is the sub- contractor and the 4th respondent is the main contractor. The facts pertaining to award of work, the sub-contract under agreement dated 14.09.2011 and the execution of the work by the sub-contractor are all admitted facts. It is also pertinent to note
- 53 -
that the sub-contractor is one of the two constituents constituting the main contractor which is admittedly a joint venture, and entirely formed for the purpose of executing the works contract awarded under the contract dated 30.08.2011. It is an admitted fact that all throughout the execution of the project spread over several years, the RA bills were raised by the main contractor and the payments were released by the employer to the account of the main contractor and TDS was suffered in the hands of the main contractor only. The fact also remains that the all along the work was admittedly executed by the sub- contractor. In that view of the matter, we have no hesitation in concluding that the taxable event occurred in the hands of the main contractor, as the transfer of property or accretion of goods and transfer of property in favour of the employer was on the event of the main contractor submitting the RA bills claiming. Thus, the taxable event being the accretion of goods as held by the Apex Court in the case of L & T having happened between the 4th
- 54 -
respondent and its employer, no taxable event occurred at the hands of the petitioner, rendering it liable to tax as contended by the Revenue.
61. In the instant case, the accretion of goods and/or transfer of property occurring to the employer on the submission of the running account (RA) bills by the main contractor, we conclude that the taxable event occurred on the presentation of the RA bills by the main contractor only and satisfaction of the Bills by the employer to the main contractor in lieu of the RA bills. It is a fact that no bill has been raised by the sub-contractor as against the employer nor is it the case of the Revenue that the employer has made any payments to the sub-contractor. It is not the case of the Revenue that accretion of goods or transfer of property to the employer has occurred in the hands of the sub-contractor/the petitioner herein. Had such a case being demonstrated that the accretion of goods and transfer of property in favour of the employer had been at the hands of the
- 55 -
sub-contractor, then in the light of the law laid down by the Hon'ble Apex Court in the case L & T, the taxable event would have been at the hands of the sub-contractor. It is also not the case of the Revenue that the Main Contractor can step into the shoes of the Owner. We conclude so in the light of the provisions of sections 6 & 7 of the Act. We make it clear that the conclusion in respect of the taxable event will not exempt the dealer from submitting his returns or circumscribe the rights of the Revenue to seek for accounts and details as enabled under the Act.
62. In the instant case, the facts are peculiar. The execution of the contract is undoubtedly by the petitioner who again is admittedly is a sub- contractor. The RA bills or the running account bills have admittedly been raised by the main contractor and payments in lieu of the running bills are made in favour of the main contractor only and TDS is at the hands of the main contractor only and consequently
- 56 -
the accretion of goods to the employer happened at the hands of the main contractor only. That being the case, the taxable event happened at the hands of the main contractor only. In that view of the matter, the accretion of goods and transfer of property being the taxable event, the same was at the hands of the main contractor and TDS has been suffered in the hands of the main contractor and there being no taxable event in the hands of the sub-contractor, we are of the considered view that in the light of the law laid down by the Hon'ble Apex Court as stated supra, the writ petition requires to be allowed.
63. Accordingly the writ petition is allowed in so far as it relates to the works contract covered under the contract agreement dated 30.08.2011 and 14.09.2011. Consequently, the tax demands raised by the revenue requires to be reworked accordingly in the light of the observations made above. Consequently, Annexures-C , D and F stand quashed.
- 57 -
64. It is also made clear that the above order allowing the writ petition will enure to the benefit of the writ petitioner in so far as it relates to the scope of work covered under the contract agreement dated 14.09.2011 only. In the light of the above, liberty is granted to the revenue to reassess the liability of the petitioner in so far as it relates to the inter-state and URD purchases made by the petitioner. In the light of the above order passed, there shall be no order as costs.
65. This Court though has not entered into and adjudicated the validity of Rule 44 (3) (f) of the Karnataka Value Added Tax Rules, 2005, yet this Court is constrained to observe that, if the interpretation placed by the Revenue as set out in the impugned Circular is accepted, it would virtually result in the main contractor also stepping into the shoes of a TDS authority as defined under Section 9-A (1) of the KVAT Act, 2003 and in such an event, the main contractor would also be required to make deductions at the time of making payment as provided under Section 9-A (1) and remit the same in
- 58 -
compliance of the provisions of Section 9-A (5) of the Act. Further, the Circular is also contrary to the provisions of Section 9-A (10) and (11) which reads as under:
"9-A (10) Where tax in respect of the works contract is remitted under sub-section (5), the tax payable by the dealer for any period, shall be reduced by the amount of tax already remitted under the said sub-section.
9-A(11) The burden of proving that the tax on such works contract has already been remitted and of establishing the exact quantum of tax so remitted shall be on the dealer claiming the reduction of tax under sub- section (10)."
66. Section 9-A(10) provides that where tax in works contract has been remitted under Section 5, the tax payable by the dealer for any period shall be reduced by the amount of tax already remitted and the word 'dealer' as defined under Section 2 (12) takes within its sweep even a sub-contractor, and we conclude so in view of the language employed in clause (g) of sub Section (12) of Section 2.
67. Admittedly, the petitioner is a sub- contractor and 9-A(11) enables such a dealer to
- 59 -
demonstrate that the tax on such works contract has already been remitted. Hence, prima facie the applicability of Rule 44 (3) (f) to works contract and cases of sub-contractor prima facie appears to be contrary to the provisions of Section 9-A (10) and (11). We also draw succour in favour of our conclusion in the light of the provisions of Rule 6 of the Karnataka Sales Tax Rules which pertains to determination of total and taxable turnover. If the distinction as set out in Rule 6 are read in conjunction with the provisions of Rule 9-A (10) and (11) of the KVAT Act, 2003, then the only inescapable conclusion that one could arrive, at is that the rigors of Rule 44(3)(f) are inapplicable in respect of assesses who execute works contract as sub-contractors as in the instant case and sub-contractors form the excepted class. We are of the view that the assesses who fall within the scope of Section 9-A(10) and (11) are excepted from the applicability of Rule 44(3)(f). As no challenge is mounted to the validity of Rule 44(3)(f) and the impugned Circular being purportedly
- 60 -
in exercise of the powers vested in the Commissioner of Commercial Taxes under Section 59 of the Act, we are unable to grant the relief sought for by the petitioner in respect of the impugned Circular. Accordingly, the writ petition in so far as it relates to the prayer (d) stands rejected. Though we have rejected the relief, but at the same time, we would like to add a word of caution to the Revenue with regard to the log-jam the circular could cause. If the circular is implemented in letter and spirit and Rule 44(3)(f) is interpreted in the manner as made out in the circular, we are of the opinion that it would lead to duplication of work, whereby the staffers would be assessing the same work, admittedly executed by one dealer, in the hands of two dealers, which would only mean duplication of assessment work, which is admittedly an onerous task, thereby leading to avoidable delays in revenue collections. It cannot be denied that if two dealers declare the same taxable event then one of them would be entitled to refund which again is a separate process and which process
- 61 -
can be achieved by reference to the returns by the other. The assessment of the two dealers could be by two different A.O.'s and could easily lead to conflicting opinions and thereby the assessee taking technical advantage of such conflicting opinion.
The writ appeal is ordered accordingly.
Sd/-
JUDGE Sd/-
JUDGE Rsh/jm/-