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2015 (12) TMI 1247 - HC - VAT and Sales TaxValuation - Sales tax / Service Tax in J&K - inclusion of service tax in the gross turnover for the purpose of levy of Sales Tax / TDS - Request for quashing clarification No.1 of 2014 dated 14th January, 2014 issued by Commissioner, Commercial Taxes Department of Excise and Taxation, Jammu- respondent No.2 herein on the ground that the same offends the statutory and legal rights of petitioners in so far it provides for charging of service tax on the gross value of the contract items - quashment of the Notification No.1/2014 dated 14.01.2014 - Whether respondent No.2 was legally justified in holding that the service tax was leviable on the gross value of the contract irrespective of inclusiveness of the tax factor in the approved rate of a given item. Held that:- A bare look at the provisions engrafted in Section 25-C of the Act of 1962 lays it bare that the Commissioner is empowered to determine issues and issue clarifications in regard to various issues including issues relating to nature of any transaction and whether any tax is payable in respect of any particular sale or purchase. That being so, commissioner cannot be said to be lacking jurisdiction in issuing the impugned clarification. The objection is, accordingly, overruled. Payment for execution of works in terms of agreements was released in favour of petitioner after deducting tax over the gross amount. It is contended on behalf of respondents that under provisions of the Act of 1962 and Rules framed thereunder, sales tax is leviable on the gross amount of the contract. The sales tax leviable on the services rendered by the contractor in the shape of works contract has to be deducted at source from the gross amount of the contract. Thus, sales tax is included in the gross amount of the contract. The levy of sales tax under the Act of 1962 is not subservient to the contract agreement inter se the parties. The Assessing Authorities are under a legal obligation to look into every aspect of taxable turnover of a dealer at the time of assessment. There is no ambiguity in it that the types of services enumerated in the provision are covered under the definition of goods. A transaction, whether involving transfer of property or not, shall be deemed to be a sale by the person making the same. Services provided in execution of works contract are goods and, thus, the services provided constitute sale of goods which is exigible to tax under the relevant tax schedule. It is, therefore, amply clear that it is the services provided in the shape of works contract together with the goods, skill, labour, and consumables etc. which constitute goods. The person who executes the works contract is deemed to sell these goods attracting the tax provision. - In case of the former, the entire sales consideration would be taxable under Sales Tax Act or VAT Act whereas in the later case, the part of consideration payable on account of labour and service element would be excluded from the total consideration received and sales tax or value added tax would be chargeable only on the balance amount. A Five Judge Bench of the Hon ble Apex Court, in M/s. Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu and ors. [2014 (5) TMI 265 - SUPREME COURT] dealt with the controversy whether manufacture, supply and installation of LIFTS is to be treated as sale or works contract . The majority view was that the decision rendered in State of AP Vs. Kone Elevators (India) Ltd. reported in [2005 (2) TMI 519 - SUPREME COURT OF INDIA] did not correctly lay down the law. Contract for supply of goods and materials as well as installation amounts to works contract and the constitutional Bench Judgment of the Hon ble Apex Court upholds such view. However, the impugned clarification, though reiterating the same principle, departs from the issue as to whether service tax has to be charged on the gross amount of the contract or after deducting the tax element in contracts where the agreement is inclusive of taxes. It is, fallacious to hold that Rule 19 of the Rules of 1962 does not cover inclusion of tax in sale price. Such an interpretation would render Clause (d) of Rule 19 of the aforesaid Rules redundant which provides the formula for computation of tax included in the sale price. Relief granted to the petitioners - Decided in favor of assessee.
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