TMI Blog2014 (7) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 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 - Decided in favour of assessee. - STA Nos. 3 & 4 of 2011 - - - Dated:- 2-4-2014 - DILIP B. BHOSALE AND B. MANOHAR, JJ. K.P. Kumar and T. Suryanarayana for the Appellant T.K. Vedamurthy for the Respondent JUDGMENT The assessee has filed these Sales Tax Appeals challenging the order dated 27-11-2010 passed by the Additional Commissioner of Commercial Taxes, Zone-I Bangalore in exercise of his revisional power under Section 22-A(1) of the Karnataka Sales Tax Act (for short 'the Act') setting aside the order dated 5-7-2008 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e First Appellate Authority as well as the reassessment order passed by the Assessing Authority are erroneous in law and also they are prejudicial to the interest of the Revenue. The Joint Commissioner of Commercial Taxes proposed to initiate the suo motu proceedings and issued notice dated 20-03-2010 under Section 22-A (1) of the KST Act and also proposed to revise the order of the First Appellate Authority and also the reassessment order of the Assessing Authority. 4. In pursuance of the notice issued by the Revisional Authority, the appellant filed detailed written objections to the proposition notice and also contended that the order passed by the First Appellate Authority is in accordance with law. Further contended that change of view is not a ground to invoke revisional power and sought for dropping of the proposition notice. 5. The Revisional Authority after considering the objections filed by the appellant, by its order dated 27-11-2010 reviewed the order passed by the First Appellate Authority as well as the revised assessment order and remanded some of the issues to the Assessing Authority for fresh examination. The appellant being aggrieved by the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) of the KST Rules read with Explanation-II inserted from 1-4-1991 provides for gross profit earned by the dealer shall be apportionable to the value of the goods and labour and other like charges involved in the execution of the works contracts in proportion to the ratio of their constitution in the total turnover. In other words, Explanation-II stipulates that the gross profit earned by the dealer shall be equally apportioned between the value of the goods transferred and the labour and like charges incurred. The appellant had executed various works contracts during the relevant assessment year. Since the appellant is not in a position to show the actual amount that they had incurred towards the labour and like charges, they have adopted standard deduction provided under Rule 6(4)(n)(v) of the KST Rules. The appellant had, therefore, claimed deduction of 30% of their contract receipts towards the labour and like charges. Further the appellant had apportioned the gross profit earned by it, between the value of goods transferred and the labour and like charges. In other words, the appellant had added the gross profit earned by it to the value of goods transferred and had according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of KST Rules, they are not entitled for deduction of 27.44% of gross profit on labour charges. At the outset, we have gone through the relevant provisions of the KST Act and Rules with regard to the labour charges in works contracts. The relevant provisions are extracted hereunder: '5B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts. Notwithstanding anything contained in sub-section (1) or (sub-section (3) or sub-section (3C) of Section 5, but subject to sub-section (4), (5) or (6) of the said Section, every dealer shall pay for each year a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule. Section 2(u-1) Taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Table below, if they are actually incurred towards 'labour charges' and other like charges and are not ascertainable from the books of account maintained and produced by a dealer before the Assessing Authority. Provided that where the turnover of a dealer claiming deduction under clauses (m) and (n) in any year is not sufficient to cover the deduction, it shall be allowed to the extend of the turnover of the dealer in that year, and the balance shall be carried forward to the year following next and so on.] Explanation-I. For the purpose of clauses (m) and (n) of sub-rule (4), 'labour and other like charges' include, charges for obtaining on hire or otherwise machinery and tools used for execution of Works Contract, charges for planning, designing and architects' fees, cost of consumables used in the execution of the Works Contract, cost of establishment to the extent relatable to supply of labour and services and other similar expenses relatable to supply of labour and services. Explanation-II. For the purpose of clauses (m) and (n) of sub-rule (4), gross profit earned by a dealer shall be apportionable to the value of the goods and labour and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable towards the same as specified in the table provided in the Rules. In case of civil works contracts like construction of the building, the percentage fixed is 30% under the Rules. Therefore, if a works contractor who executes the civil works is not able to show the actual amounts expended towards labour and like charges, then 30% of the total turnover would be eligible to be deducted as per Rule 6(4)(n)(v) of the Rules. Further, Explanation -I appended to Rule 6 states that for the purpose of clauses (m) and (n) of sub-Rule (4), labour and other like charges includes charges for obtaining on hire or otherwise machinery and tools used for execution of works contracts, charges for planning, designing and architect fee, the cost of consumables used in execution of the works contracts, the cost of establishment to the extent relatable to supply of labour and their services and other similar expenses relatable to the supply of labour and services. Explanation-II appended to Rule 6(4)(n)(v) which came into force w.e.f. 1-4-1991 states that the gross profit earned by the dealer shall be apportionable to the value of goods and labour and other like charges involved in the executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. (supra) held that the gross profit attributable towards labour and like charges are eligible to avail as deduction in addition to the deduction claimed towards labour and like charges. The relevant observations of the Supreme Court reads as under: The Value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover. (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour-and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc, used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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