TMI Blog2014 (7) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... , the benefit of lesser tax under section 8(a)(iii) is not available. There was no works contract prior to coming into force of the said Act, in respect of any agreement executed on or after April 1, 2005. This being the position, it cannot be said that the petitioners had commenced the construction of the buildings prior to April 1, 2005, pursuant to any agreement executed on or after April 1, 2005, for claiming lesser compounded rate of tax as given in section 8(a)(iii), (dehors the newly added provisos as per the Finance Act, 2007). By virtue of the very nature of contract being undertaken by the petitioners, whereby "independent" residential flats are intended to be constructed on behalf of the different prospective purchasers (awarders) based on different agreements to be executed in between, accepting consideration from such different persons, it gives rise to several independent works contracts and is taken care of by section 8(a)(iii) itself. This being the position, the petitioners cannot be heard to say that they became aggrieved only by introduction of the newly added provisos as per the Finance Act, 2007. With reference to the substitution of the newly added p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dential complex and are assessees on the rolls of the second respondent, registered under the KGST Act, who got transposed as registered assessees on the advent of KVAT Act with effect from April 1, 2005 and their transactions, being works contract , is exigible to tax under both the enactments. With regard to the tax liability, the petitioners had been paying compounded rate of tax under section 7(7) of the KGST Act, filing returns under section 7(11) of the said enactment, on the basis of the receipts of the cost of construction from their clients. Even after the advent of the KVAT Act, 2003 with effect from April 1, 2005, the petitioner had been effecting the same compounded rate of tax in terms of section 8 (a) (iii) of the KVAT Act, which stipulates that any contractor who had opted for payment of tax in accordance with the provisions of sub-section (7) or sub-section (7A) of section 7 of the KGST Act, 1963 (15 of 1963) could continue to pay tax in respect of the transfer of goods involved in the unexecuted portion of such contracts at the rate specified in sub-section (7) or (7A) of section 7 of the KGST Act in respect of any works contract entered prior to the date of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment brought into force by virtue of the Finance Act, 2007 and are questioning the constitutional validity of the relevant provisions. The first respondent has filed a detailed counter-affidavit in W.P. (C) No. 35048 of 2007 seeking to sustain the impugned proceedings, rebutting the plea of discrimination and such other circumstances mentioned in the writ petition. It has been stated that, though the project of the petitioner was started prior to April 1, 2005, there were several agreements with new clients executed after April 1, 2005 for the construction of residential flats and that the petitioner has obtained various amounts during the said period from April 1, 2005 to March 31, 2007 which are liable to be taxed at the new rate, as the benefit of lesser rate of tax payable as per the then existing provisos under the KGST Act with regard to the compounded rate of tax under sub-section (7) or (7A) of section 7 are not applicable to the case of the petitioner. The learned Government Pleader submits that there is no dispute with regard to the factual points; more so in view of the admitted facts discernible from the materials on record and that the respondents would like to ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d prior to April 1, 2008 till the completion of work or up to March 31, 2009, whichever is earlier: Provided also that notwithstanding anything contained in this Act, contractors who have opted for payment of tax under sub-clause (ii) of clause (a) of section 8 during the previous years shall continue to pay tax on that portion of the works remaining unexecuted as on April 1, 2009, at the rates applicable as on April 1, 2009. By virtue of the substituted provisos as above, the contractors need to pay tax in respect of the works which commenced prior to April 1, 2008 and which remain partly unexecuted as on April 1, 2008, only at the rate as it existed prior to April 1, 2008, till completion of the work or up to March 31, 2009, whichever is earlier. The latter proviso contains a non obstante clause , which stipulates that the contractors who have opted for payment of tax under section 8(a)(ii) of the Act during the previous years shall continue to pay tax on that portion of the works remaining unexecuted as on April 1, 2009, at the rates applicable as on April 1, 2009. Referring to the scope of the above proviso, the learned counsel submits that the works undertaken by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2005 until the date of the Finance Act, 2007 have been collecting and remitting the compounded rate of tax at 2.3 per cent on the basis of section 8(a) of the KVAT Act. The abrupt manner in which that facility has been taken away that too with retrospective effect casting additional burden as has been done by the impugned amendment is clearly arbitrary and unjust. 3. In view of the prevailing statutory provisions during the period April 1, 2005 to April 1, 2007, the petitioner could collect only two per cent of tax by way of works contract tax from their clients and any collection over and above such rate would have attracted penal action against them. That being the position, there is no justification to cast an additional impost of tax with retrospective effect rather there is any justification to upset the compounded rate at which the petitioner has been paying the works contract tax. 4. The newly introduced two provisos are inconsistent with each other and create discrimination between the contractors who have undertaken works before March 31, 2005 and after March 31, 2005. There is no rationale in that classification. On this ground of discrimination also the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of tax in accordance with the provisions of sub-section (7) or (7A) of the KGST Act, is only in respect of the works contracts prior to the date of coming into force of the Act, part of which remains unexecuted on such date. To put it more clear, to have the benefit thereunder, the works contract had to be live and incomplete, as on the date of coming into force of the KVAT Act, 2003, i.e., April 1, 2005. In other words, if there was a works contract, as on March 31, 2005 and the assessee opted to pay compounded rate of tax under section 7(7) or 7(7A) of the KGST Act, such assessee is entitled to continue to pay at the same rate of tax in respect of the unexecuted portion of said works contract. It is corollary to note that, if the works contract is on or after April 1, 2005, it was not a works contract prior to the date of coming into force of the KVAT Act and in such case, the benefit of lesser tax under section 8(a)(iii) is not available. Coming to the case of the petitioners, it has been rather admitted by them vide exhibits P1/P1 series statements, that several bookings/agreements have been executed between them and their clients on or after April 1, 2005, for construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2003, with effect from April 1, 2005. In other words, there was no works contract prior to coming into force of the said Act, in respect of any agreement executed on or after April 1, 2005. This being the position, it cannot be said that the petitioners had commenced the construction of the buildings prior to April 1, 2005, pursuant to any agreement executed on or after April 1, 2005, for claiming lesser compounded rate of tax as given in section 8(a)(iii), (dehors the newly added provisos as per the Finance Act, 2007). This being the position, the stand taken by the respondents to have the assessments finalised, issuing notice under section 24(1) of the KVAT Act, 2003, in respect of the agreements executed between the petitioners (contractors) and the prospective purchasers (awarders) on or after April 1, 2005 and in respect of the payments effected between that date and March 31, 2007, is not assailable under any circumstance. Coming to the scope of the newly added provisos as per the Finance Act, 2007, it is to be noted that the words as a subsequent part or phase of the original work for which option had been filed under sub-section (7) or (7A) of section 7 of the Kera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above proviso or the benefit flowing therefrom. Secondly, both the above provisos were brought into force by the Kerala Finance Act, 2009 as per the Gazette Notification dated July 28, 2009, only with effect from April 1, 2009. Since it is a substantive provision and not a procedural one, it cannot have any retrospective application and the intention of the law makers cannot be widened by any reading into exercise, at the instance of this court to suit the convenience of the petitioners. This court finds that the reliance sought to be placed on the said provisions is quite out of context. In the above facts and circumstances, it is held that the challenge raised against the constitutional validity of the provisos impugned in the writ petitions is devoid of any merit. There is no irregularity or illegality on the part of the respondents for having issued the impugned notices demanding higher rate of tax in respect of the works contracts entered into between the petitioners (contractors) and the prospective purchasers (awarders) based on any agreement executed on or after April 1, 2005. Both the writ petitions fail and they are dismissed accordingly. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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