TMI Blog2014 (5) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided in the scheme to make applications for compounding of tax for a financial year - Once such an option is exercised, all the contracts entered into either before giving the option or subsequent thereto, for the relevant period covered by the agreement are covered by the compounding scheme - For the subsequent years in case any contract is not completed or the payments are receivable, the same analogy would apply namely that there can not be two assessments for the same period of time, one on compounded basis and another on regular basis. Relying upon Varkisons Engineers v. State of Kerala & Anr., [2009 (4) TMI 433 - SUPREME COURT OF INDIA] - Supreme Court held following CIT v. Scindia Steam Navigation Co. Ltd., 1961 (4) TMI 6 - SUPREME Court; CST v. Modi Sugar Mills Ltd. [1960 (10) TMI 65 - SUPREME COURT OF INDIA] - The imposition of a different tariff in the mill of the assessment order could be given effect to, if the scheme of the Act provides for proper machinery for computing the tax liability - The Supreme Court also drew distinction between Section 5 of the Kerala General Sales Tax Act, 1963, which deals with normal assessment referring to tax on the turn over, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax No.1496, which is the leading writ petition in this bunch of cases, is an association of builders (Builders Association of India (U.P. Centre)) represented by Shri Dharmesh Chandra Awasthi. The petitioner no. 2 in this writ petition, and all other petitioners in the connected writ petitions are construction companies engaged in execution of civil works contracts. The petitioners execute civil works under contracts with the Government, Semi Government and other Public Sector Companies and Organizations. The works contract executed by them include construction and fabrications of buildings, roads and other civil structures. 3.The Constitution (Forty Sixth Amendment) Act, 1983 inserted vide Section-4, the Clause (29-A) in Article 366 of the Constitution so as to enable the State Legislatures to impose tax on sale or purchase of goods which includes the transfer of property in goods (whether as goods or in the some other form) involved in the execution of a works contract. The State Legislature can tax (a) on the transfer, or otherwise than in pursuance of a contract, of property in any good, for cash deferred payment or other valuable consideration; (b) a tax on the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import or export; the tax is imposed on the transfer of property in goods involved in the execution of a works contract, and the value of the goods would constitute the measure for imposition of the tax. The value of the goods can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract; the labour and service charges in works contract would cover labour charges, amount paid to a sub-contractor, charges for obtaining on hire machinery and tools, charges for planning, designing and architect's fees, cost of consumables used in execution of works contract, cost of establishment of the contractor to the extent it is relatable to supply of labour and services, other similar expenses relatable to supply of labour and services and profit earned by the contractor to the extent it is relatable to the supply of labour and services. The Apex Court in Gannon Dunkerley and Co. State of Rajasthan (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducting expenses incurred by the contractor for providing labour and other service form the value of the works contract. (6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a sub-contractor for labour and services; (Hi) charges for obtaining on otherwise machinery and tools use for execution of the works contract; (iv) charges for planning, designing and architect's fees; and (v) cost of consumables used in execution of the works contract; (iv) cost of establishment of the contractor to the extent it is relatable to supply of labour and service; (vii) other similar expenses relatable to supply of labour and service; and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and service. (7) To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the legislature may prescribe a formula for deduction of cost of labour and services on the basis, of a percentage of the value of the works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force after the date of such agreement shall have the effect of making a proportionate change in the lump sum or the rate agreed upon in relation to that part of the period of assessment during which the changed rate remains in force. 7. The U.P. Value Added Tax Act, 2008 came into effect from 1.1.2008. Prior to its enforcement, Section 3 and Section 7-D of the U.P. Trade Tax Act provided for similar levy of tax and composition. 8. The State Government published a composition scheme for civil works contractors under Section 6 of the Act on 09.6.2009 effective from 1.1.2008 (2007-08), to subsequent years. The Scheme that where the goods imported from outside the State of UP and used in the execution of the works contract in a financial year do not exceed 5% of the contract value where the contractors use the imported goods for more than 5% of the value the compounding is provided at 6%. Para-5 of the Scheme provided that the scheme is being introduced for the 2007-08 (from 1.1.2008 to 31.3.2008) as also for the subsequent years. It would not be permissible for contractor to select only few of the contracts or part of a contract for composition scheme. 9. The scheme fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the agreements, which were executed and for which applications were filed for compounding the tax prior to 30.12.2010. On the directions of the Court, the Additional Chief Standing Counsel, High Court requested the State Government to provide clarification on the point. 14. The State Government, by its letter dated 29.4.2011 to Shri S.P. Kesarwani, Additional Chief Standing Counsel, High Court, Allahabad, provided a clarification that in view of clause-18 of the compounding scheme dated 9.6.2009 applicable to civil contractors and electrical contractors, the State Government is empowered to make the changes in the amendment in the rates on which the tax may be compounded. In the Government Order dated 30.12.2010, it has been clearly provided keeping in view the principles of natural justice that in respect of all the applications for compounding of tax made prior to 30.12.2010, all the conditions of compounding will remain the same as these are provided in the Government Order dated 9.6.2009, meaning thereby that no increase has been made in the amount of compounding in respect of the applications, which have been received prior to 9.6.2009. 15. In Writ Tax No. 581 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the lump sum of the rate agreed upon in relation to that part of the period of assessment during which the changed rate remains in force, is applicable. 18. It is further submitted that the compounding scheme dated 9.6.2009 is applicable with the condition, that it will not be open for any contractor to opt for compounding scheme only in respect of the some of the contracts; once he has applied for compounding in the year 2007-08, it will be compulsory for him to opt for compounding all contracts in the same year and the subsequent years (clause-5). It is provided in the scheme, that once an option has been given for compounding under Section 6, the contractor will not be allowed to take back his option (clause-7). The scheme provides that after exercising the option for compounding and making an application; it will not be necessary for the contractor to give option for the other contracts; it will be sufficient, if he gives information of such contracts within 30 days to the assessing officer. It is submitted that the combined reading of the conditions of compounding scheme would demonstrate that once an option is given, the compounding scheme will be applicable to all the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a dealer and (3) for such period as may be agreed upon. The assessing authority may agree to accept the composition amount either in lump sum or at an agreed rate for such period as may be agreed upon. The invitation of offer for compounding is separately for each financial year resulting in an agreement qua such financial year. There is no assurance given to the petitioners by the State Government that the compounding rate shall not be varied for subsequent financial years. The increased rate of compounding from 2% to 4% became applicable on all compounding applications filed on or after 30.12.2010. As per condition no. 5 of the compounding scheme it is compulsory for civil contractors to opt for compounding for subsequent years also in respect of all contracts. 22. In the counter affidavit of Shri Wahid Ali, Deputy Commissioner, Commercial Tax, Headquarter, U.P. Lucknow, the clarifications issued by the Commissioner, Commercial Tax, Uttar Pradesh dated 25.1.2012 to the Additional Commissioner, Grade-2, Commercial Tax (High Court works) Allahabad has been annexed. In this clarifications, it is specifically stated that the compounding applications are accepted for a financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative arrangement to negative every conceivable basis which might support it. The Court must make every effort to upheld the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or narrower or wider meaning, than what appears on the face of it. It is only when all efforts to do so fail should the court declare a statute to be unconstitutional. 25. In Bhadoria Gram Seva Sansthan v. Assistant Commissioner, Sales Tax 2006 UPTC 538 it was held by this Court as follows:- It is the choice of a dealer to opt for compounded payment of tax and if the said choice is in accordance with the scheme and is ultimately accepted by the authority concerned, it becomes an agreed amount of tax. The department as also the dealer are bound by the said agreement. A dealer who has opted to pay the tax in lump sum under Section 7-D of the Act after it has been accepted by the department, any demand for that period is not relatable to the actual turnover but the sum agreed upon. In other words, the department as well as the dealer both know the amount payable and receivable by each other. The determination of lump sum amount in lieu of tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme and will be bound by the increased rate irrespective of the number of contracts entered into by them, is attractive, but is devoid of any substance. The object of the compounding scheme dated 9.6.2009 made under Section 6 (1) of the Act is to provide for compounding at a uniform rate of the tax on the turn over, qua the financial year. The Act does not provide for two or more assessments of commercial tax for the same period, in any financial year; one on a facilitated compounded rate and another by way of regular assessment on the notified rates given in the schedule. The procedure of assessment provided under the Act, restricts the assessment for any period, to only one such assessment. Keeping in view the object of making assessments in a simplified manner without any hassles, an option is provided in the scheme to make applications for compounding of tax for a financial year. Once such an option is exercised, all the contracts entered into either before giving the option or subsequent thereto, for the relevant period covered by the agreement are covered by the compounding scheme. For the subsequent years in case any contract is not completed or the payments are receivable, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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