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2020 (6) TMI 181 - SC - VAT and Sales TaxReimbursement of the sales tax paid - Scope of terms of works contract - contract inclusive of taxes - as per the contract the stipulation that any Central or State sales tax and other taxes on completed items of works (excluding penalty), as may be levied and paid by the contractor shall be reimbursed by the employer on proof of payment (and) on production of assessment certificate. - Circulars dated 07.11.2001 and 19.06.2002 - main plank of the case of the appellant about the nature, extent and implication of the levy of sales tax in relation to a works contract, it could be usefully recapitulated that in view of the forty–sixth amendment to the Constitution of India, Clause (29-A) came to be inserted to Article 366; and, by virtue of sub-clause (b) thereof, it became permissible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials HELD THAT:- Heavy reliance on behalf of the appellant on the expression “completed item of work”, as occurring in the first part of Clause 45.2, is entirely misplaced. The only implication of this expression is that a claim for reimbursement of sales tax cannot be made in relation to a particular work or item whose execution is pending or is in progress and has not been completed. So far the levy of sales tax in relation to a works contract is concerned, the same is on “taxable turnover” and not on the entire turnover. It follows necessarily that the claim for reimbursement could only be made of the amount of sales tax that had been levied; and had been paid by the contractor. Hence, the suggestion as if the expression “completed item of work” refers to the end-product of a works contract is without any substance. The contentions urged in that regard are required to be, and are, rejected. It remains trite that the terms of contract bind the parties thereto and unless there be any case of ambiguity or violation of law, ordinarily, the terms of contract, revealing the intent of parties, are required to be given effect to - It is, therefore, crystal clear that even when the contract provided that the rates quoted by the contractor shall be deemed to be inclusive of sales and other taxes and royalties on the materials, it was agreed to between the parties that sales tax and other taxes under completed items of work, as paid by the contractor were to be reimbursed. On a plain reading of the aforesaid relevant terms of the contract, it is clear that while the contractor cannot claim any payment towards the taxes/duties/royalties etc. on the goods/materials purchased by it for performance of the contract but that does not disentitle the contractor from claiming reimbursement of the sales tax levied upon it by the employer, of course after proof of payment/assessment. It is also pertinent to mention that the respondent No.1 only claimed reimbursement of the sales tax paid by it on the turnover of the works contract and not of any tax or duty or royalty paid by it on the material procured for the purpose of execution of the works contract. On a comprehensive reading of the Circular dated 04.11.1986, it is evident that the State Government was fully conscious of its obligation towards reimbursement under the existing terms of contracts and hence, issued directions for due discharge of such obligation with necessary safeguards and, at the same time, provided that henceforth, neither such a clause be inserted in the contract documents nor any tender containing such a clause or condition be accepted. Evidently, the doubts at the later stage, as indicated in the Circular dated 27.01.2000, and converse decision against the obligation of reimbursement, as stated in the Circular dated 07.11.2001, had only been of unwarranted attempts to wriggle out of the contractual obligations with rather perverse construction of the plain terms of the existing contracts - appeal dismissed.
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