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1997 (5) TMI 405 - HC - VAT and Sales Tax
Issues:
1. Quashing of a letter directing payment information for sales tax assessment. 2. Seeking refund of a specific amount with interest. 3. Interpretation of clause 60.7 of the agreement for advance payment. 4. Obligation to deduct sales tax under section 25-B of the Haryana General Sales Tax Act. 5. Timing of sales tax deduction in relation to advance payments. 6. Relief to be granted regarding the deducted amount and interest. Detailed Analysis: 1. The petitioner sought the quashing of a letter (annexure P-6) directing the disclosure of payment details for sales tax assessment and also requested a refund of a specific amount with interest. The main contention was the timing of sales tax deduction concerning advance payments made under the agreement. 2. The petitioner, an engineering and construction concern, entered into an agreement for the construction of a project. The agreement included clause 60.7, which outlined advance payments for mobilization and equipment costs. The clause specified the recovery of such advances from interim payments, indicating that the advances were akin to loans to facilitate project execution. 3. The Court analyzed section 25-B of the Haryana General Sales Tax Act, which mandates the deduction of sales tax at the time of payment for works contracts involving goods transfer. The Court noted that the deduction of sales tax at the time of advance payment, as per clause 60.7, was not justified since the liability arises when payments are made for work executed, not for advances. 4. The Assistant Advocate-General argued that the advance payments constituted valuable consideration for project execution, justifying the deduction of sales tax. However, the Court emphasized that sales tax liability arises when payments are made for work done, not for advances provided for project resources. 5. The Court ruled that the deduction of sales tax at the time of advance payment was incorrect as per the agreement's terms and the Act's provisions. It directed the adjustment of the deducted amount towards the actual tax liability payable for work executed, without granting interest on the deducted sum. 6. Consequently, the Court allowed the petition, directing the adjustment of the deducted amount towards the contractor's running account in accordance with the agreement's terms. It also clarified that the letter seeking payment information need not be quashed, as it was related to payments made for work executed.
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