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The petitioner is aggrieved of the reassessment order passed by the first respondent under Section 39(1) of Karnataka Value Added Tax Act, hereinafter referred to as `KVAT Act' for short, and the consequent demand notice in Form VAT 180 even dated 30.6.2016 for the year 2011-12 vide Annexures-D & E. The petitioner has prayed for quashing the reassessment order and the demand made and also for quashing the endorsement dated 5.8.2016 issued by the first respondent under Section 69 of KVAT Act and such other reliefs.

2. The case of the petitioner is that petitioner is carrying on the business of execution of contracts both service contracts as well as works contracts. The petitioner has been filing returns of turnover regularly declaring the turnover as exempt since there is no transfer of property in goods by the petitioner. As the turnover is exempted, petitioner is not liable to tax under the KVAT Act and therefore question of petitioner claiming deductions under the provisions of Rule 3(2) of the Karnatakak Value Added Tax Rules, 2005, hereinafter referred to as `the Rules' for short does not arise.

5. From the nature of the work carried out by the petitioner, the materials required to be supplied by petitioner are consumables and are those which are incidental to the services rendered by the petitioner, such as machinery, nuts, bolts, gaskets, flanges, fittings, painting and coating materials, pipeline supports, etc., vis-à-vis the main SPM System and the submarine pipeline which were supplied by EIL for installation and commissioning by petitioner. Value of such goods supplied by the petitioner are of negligible value. It is settled law that no tax can be levied on the value of consumables which are used in the execution of works contract. There can be no tax levied on the machinery and tools deployed by petitioner in the execution of works contract since there is no transfer of property in goods. Further the terms at clauses 6, 7,8 & 9 in the agreement reflect the volume of services rendered by the petitioner and thus making the contract one relating to services. The petitioner has declared the entire receipt under the provisions of the Finance Act 1994 and has paid the applicable service tax to the credit of the Central Government. The first respondent has failed to appreciate the aforesaid fact and thereby there is no application of mind. The service contract falls outside the scope of levy of VAT under Section 3 of KVAT Act. Thus the petitioner declared the total turnover of Rs.115,33,16,933/- for the year 2011-12 as exempt turnover. The contract executed by the petitioner was a service contract not amenable to the provisions of the KVAT Act since the contract is indivisible and that the State Legislature has no jurisdiction to levy VAT on the value of service contracts. The entire value of the contract is amenable to service tax under the provisions of Finance Act, 1994 read with Entry 92C of List I. The petitioner has discharged service tax on the entire receipts in terms of Finance Act, 1994. It is stated by the petitioner that value of goods deemed to have been transferred in the course of execution of the service contract is negligible and most of the goods purchased by petitioner and used in the execution of service contract are consumables or goods for temporary usage and machinery/tools which cannot be brought to tax. The labour and like charges incurred by petitioner are duly accounted in the books of accounts which are audited and therefore the said expenditure should be allowed after due verification of the books of the accounts. The purchase turnover of the goods cannot be determined based on the mere declarations for e-sugam transactions. The value of goods incorporated in the works can be ascertained from the books in order to levy VAT on the said turnover and therefore there is no need to take into account the entire contract amount received during the year for the purpose of determination of VAT liability. However, the first respondent proceeded to conclude the reassessment by confirming the propositions made in the show cause notice without application of mind and by misunderstanding the proposition of law. The impugned reassessment order determines the total turnover at Rs.115,33,16,933/- and taxable turnover at Rs.80,73,21,853/- as against the finding of fact as regards the total purchase value of goods at Rs.26,64,91,615/-. Even if the petitioner is held liable to pay VAT the taxable value of goods is only Rs.2,41,20,485/- and nothing beyond that. The first respondent has levied VAT at 14% on the entire taxable turnover which is beyond the legislative power of State and thus violative of Articles14 read with Entry 54 of List I. The first respondent has also levied VAT on the service tax of RS.10,76,98,680/- paid by the petitioner.

10. It is contended that subsequent to award of contract by the main contractor, the petitioner - Assessee has executed total work of around Rs.115 crores. The petitioner filed monthly returns and declared turnover and does not declare taxable turnover. After noticing this discrepancy, the Assessing Authority took up the matter for reassessment. The Assessing Authority has categorically recorded the reason that the Company has transported various goods as per the corresponding delivery notes (E-sugam used for transporting the goods on line by the petitioner), these details are uploaded to the Department website by the petitioner company itself. The said value i.., Rs.37,78,21,431/- is not reflected in Form -VAT 100 nor in Form - VAT - 240 by the company. The clarification given by the petitioner to the proposition notice did not match in respect of purchases made by it. The petitioner has been given sufficient opportunity to reconcile the E-sugam use by them. Hence the contention of the petitioner that they could not reconcile is wrong and an afterthought. The petitioner could have reconciled such details while filing application under Section 69 of the KVAT Act. The books of Accounts also do not show such goods movement or procurement of such goods by purchase or by stock transfer receipts. The said issues are discussed in length in the re-assessment order. In spite of granting sufficient opportunity, the petitioner company failed to reconcile the transactions and failed to arrive at the actual transactions. Further the petitioner has explained the details of material transferred in response to the pre-assessment notice. The petitioner has not claimed the entire turnover as exempted in their reply to the notice of the Assessing Authority. They themselves accepted the fact of transfer of property in goods and conceded that the turnover to the extent there is transfer of property in goods, as explained above, may be subjected to levy of VAT under the KVAT Act.