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TMI Blog2014 (7) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Act (for short the CST Act). The appellant filed annual returns in Form No.4 as per the provisions of KST Act for the assessment years 2003-04 and 2004-05, declaring its total and taxable turnover under both KST and CST Acts and also claimed certain deductions as well as exemptions. The Assessing Authority, while assessing the returns found certain discrepancies with regard to certain deductions claimed. Accordingly issued notice in Form 31-A proposing to disallow certain deductions and exemptions claimed by the appellant. The appellant filed reply to the proposition notice and objected for the proposal set out by the Assessing Authority. The Assessing Authority after considering the objections raised by the appellant concluded the assessment vide orders dated 6-3-2007 and 28-06-2007 for the assessment years 2003-04 and 2004-05 both under the KST and CST Acts. 3. The appellant being aggrieved by the assessment order passed by the Assessing Authority preferred an appeal before the First Appellate Authority contending that denial of deductions and exemptions of certain claims made by the appellant is contrary to law as per the provisions of KST and CST Acts. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; "1. Whether the Order in SMR.No.ZAC- . 1/BNG/SMR-96/ 09-10 & T.No. 1040/10-11 dated 27/11/2010 passed by the Respondent in so far as it disallows the Appellant's claim of deduction of gross profits attributable to labour and like charges under Rule 6(4)(n) of the Karnataka Sales Tax. Rules read with Explanation II appended there to, is correct in law? 2. Whether the Order in SMR.No.ZAC- 1/BNG/SMR-96/ 09-10 & T.No. 1040/10-11 dated 27/11/2010 passed by the Respondent, in so far as it disallows the exemption claimed by the Appellant under Section 5 (1) of the Central Sales Tax Act on the ground that photocopies of documentary evidence are not sufficient to claim such an exemption, is correct in law?" 7. Sri .K.P. Kumar, learned Senior Counsel appearing for the appellant contended that the order passed by the Revisional Authority is contrary to law and erroneous in law. Section 5(b) of the KST Act is a charging Section which provides for levy of tax on transfer of property in goods involved in the execution of the works contracts, every dealer shall pay for each year, a tax on his taxable turnover of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profit even in case of standard rate/percentage is admissible. He also relied upon the judgment in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC). Insofar as the second question of law is concerned, learned counsel for the appellant did not press the same. 8. On the other hand, Sri. T.K. Vedamurthy, learned Government Pleader argued in support of the order passed by the Revisional Authority and contended that the Assessing Authority allowed gross profit at 27.44% on labour charges apart from deduction at 30% under Rule 6(4)(n)(v) of the table of the KST Rules, which is impermissible. Explanation-II is not applicable to Rule 6(4)(n)(v) of the KST Rules as it allows deduction on labour charges at standard formula out of the total value of contract which includes gross profit. The Revisional Authority after considering the matter in detail, set aside the order passed by the Assessing Authority. The finding arrived at by the Revisional Authority is in accordance with law and sought for dismissal of the appeals. 9. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the order impugned and other relevant records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) to (b) xxxxxxxxxxx (c) the total amount paid or payable to the dealer as the consideration for transfer or property in goods (where as goods or in some other form) involved in the execution of works contract; and includes any amount paid as advance to the dealer as a part of such consideration; Rule 6 (4) [xxxxx] In determining the taxable turnover, the amount specified in clauses [(a) to (p)] shall, subject to the conditions specified therein, be deducted from the total taxable turnover of a dealer [as determined under clauses [(a) to (e) of sub-rule (1).] 6(4)(n) in the case of works contracts specified in-serial numbers 6, 13, 14, 15, 16, [18, 19, 20, 21, 22, 23, [24, 25, [28], [29,] 30, 31, 32, 33, 34, [x x x ] [37, 38, 39 and 41] of the Sixth Schedule; (i) all amounts received or receivable in respect of any goods other than the goods taxable under sub-section (1A) or (1B) of Section 5 which are purchased "--from registered dealers liable to pay tax under the Act. (ii) all amounts received or receivable in respect of goods specified in second, third and fourth schedules which are purchased from registered dealers liable to pay tax under the Act (ii) all amounts recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the KST Act. Section 5B expressly states that a dealer is liable to pay tax on his taxable turnover of goods involved in the execution of works contracts. It would be imperative to arrive at the taxable turnover of a dealer before calculating the tax that the dealer is liable to pay for execution of his works contracts. Section 2(u1) defines taxable turnover. The definition makes it clear that the taxable turnover of a dealer is that turnover which is, determined after making such deduction from the total turnover as may be prescribed. The amount which are permitted to be deducted from the total turnover for the purpose of arriving at the taxable turnover are provided under the KST Rules. Rule 6 provides the mechanism for determination of taxable turnover of a dealer. As could be seen from Rule 6(1)(c), the total amount paid or payable to the dealer as the consideration for transfer of property in goods in the execution of works contracts, form part of the total turnover of a dealer. As per Rule 6(1)(c) the total consideration received by the dealer for executing the works contracts constitutes total turnover. Rule 6(4) enumerates the amount that are deductable for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit on labour charges. 12. In the instant case, the appellant had executed various works contracts during the relevant assessment years. The assessee was not in a position to show the actual amount that he had incurred towards the labour and like charges and therefore, he has adopted standard rate of deduction provided under Rule 6(4)(n)(v) and claimed deduction of 30% on its contract receipt towards the labour and like charges. As per Explanation -II, the appellant had apportioned the gross profit earned by it between the value of goods transferred and labour and like charges. The Assessing Authority after considering the relevant provision of the law allowed the deductions. However, the Revisional Authority without critically examining the matter held that when the assessee availed the deduction of 30% towards labour charges under Rule 6(4)(n)(v) they are not entitled for deduction of 27.44% of gross profit on labour charges. 13. Explanation-II appended to Rule 6 opens with the words "for the purpose of clauses (m) and (n) of sub-Section (4)". Therefore, Explanation-II is undoubtedly applicable to Rule 6(4)(n). It is pertinent to note that Explanation-II does not refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to labour and like charges are separate permissible deductions. 15. The Revisional Authority has not critically examined Explanation-II appended to Rule 6 which was inserted w.e.f 1-4-1991. Except observing that Explanation-II does not apply to Rule 6(4)(n)(v) of the KST Rules, no reason has been assigned. The Assessing Authority after considering the matter in detail has allowed deduction of gross profit at 27.44% in the labour charges. In fact, no appeal has been filed before the First Appellate Authority challenging the allowance of gross profit on labour charges. The assessee had approached the First Appellate Authority on the ground of denial of some other deductions and exemptions. The Revisional Authority, while interfering with the order passed by the First Appellate Authority denied the deduction of 27.44% of gross profit on labour charges. Hence, the order passed by the Revisional Authority insofar as denial of the appellant's claim of deduction of gross profits attributable to labour and like charges under Rule 6(4)(n) of the KST Rules read with Explanation-II appended thereto is not sustainable in law. Accordingly, the first question is answered in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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