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TMI Blog2014 (11) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is what exactly would include under section 8(a) (i) of the Kerala Value Added Tax Act (for short, "the Act") so far as the expression "whole contract amount". 2. In so far as revision petitions filed by the State, turnover pertaining to assessment years 2006-07, 2007-08, 2008-09 and 2009-10 are involved. The respondent/assessee admittedly is a works contractor at Thrissur. He had opted for payment of tax at compounded rate as per section 8(a)(i) of the Act. After verification of annual return with audited statements in form Nos. 13 and 13A with reference to the above orders, assessee had claimed exemption towards receipt from labour contract for the abovesaid period. According to the assessing authority, assessee having opted for payment of tax under section 8(a) (i) was liable to pay tax on the whole contract amount, including receipts from labour contract. According to the assessing officer, a dealer adopting compounded method of assessment cannot claim exemption in respect of receipts from labour contract, therefore, he has to pay tax on the whole contract amount. Aggrieved by disallowance of exemption claimed on receipt from labour contract, appeals came to be filed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich involves pure labour contract, then alone, he is entitled for exemption he has sought. 6. In O. T. Rev. Nos. 130 of 2013, 22 of 2014, 23 of 2014 and 24 of 2014 following substantial questions of law are raised in these revisions for consideration by this court:- "(a) Ought not the Tribunal have found that regular assessment under section 6(l)(e) and compounding under section 8(a)(i) are two different schemes and the methods prescribed for computation of tax in one of the scheme cannot be made applied for the computation of tax as per the other scheme ? (b) Ought not the Tribunal have found that the assessee opted for compounding for the relevant year is bound to pay tax at the appropriate rate on the 'whole contract amount' for the year ? (c) Ought not the Tribunal have found that exemptions and deductions provided in the regular scheme of assessment are not applicable for the compounding scheme of assessment ? (d) Are not the findings of the Tribunal erroneous, arbitrary and perverse in nature so far as it says that receipt from labour portion/ contract shall not be reckoned for the purpose of levy of tax under section 8(a) (i) of the KVAT Act ?" 7. In O. T. Rev. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount paid towards labour charges while complying with the terms of agreement with Indian Oil Corporation to handle cylinders, loading, unloading, cleaning, house keeping, etc. According to the first appellate authority since no material involvement exists, such exemption must be extended. Aggrieved by the same, the Revenue approached the appellate authority. The Appellate Tribunal opined that there is no question of application of rule 9(4) as compounded rate of tax is to be paid on contract amount and there is no mentioning of any turnover in section 8(a), therefore, proceeded to allow the appeal. To arrive at this opinion, they referred to the cases decided by the honourable High Court of Madras. Ultimately, opinion of the assessing officer was upheld. 10. In O. T. Rev. Nos. 134 of 2013, 135 of 2013 and 136 of 2013, the petitioners are assessees who are aggrieved by the opinion of the Tribunal confirming levying of tax by assessing officer. They contend, State Legislature can levy tax on works contract only in cases which involves transfer of property and not otherwise. The contract referred to in section 8 of the Act is composite work. Contract which is taxable under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of paying tax in accordance with the provisions of the said section, pay tax at three per cent, of the whole contract amount." 12. In Builders Association case [1997] 104 STC 134 (SC), their Lordships were considering the Kerala General Sales Tax Act. In that case the petitioners were contractors who had not opted to composition system provided under sub-sections (7) or (7A) of section 7 of the KGST Act. Further, there was challenge to the validity of section 5(l)(iv) of the KGST Act. While referring to the provisions of sections 5(l)(iv), 7(7), (7A), (11) and (12) of KGST Act read with rule 22A of the KGST Rules, their Lordships were considering whether whole amount of contract in the case of civil works and at three quarters of the normal rate on the whole of the contract amount in the case of other works contract were within the competence of State Legislature. Their Lordships opined that alternate method of taxation provided being optional and subject to conditions provided under the subsections, there is no compulsion on any contractor to opt for the method of taxation provided under sub-section (7) or sub-section (7A). The rates provided under those provisions would apply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the High Court of Karnataka for consideration. Their Lordships after referring to different provisions and charging section under the Karnataka Sales Tax Act opined as under (page 237 in 57 VST):- "From the aforesaid facts it is clear that the assessee, a dealer, has filed return showing the total turnover as Rs. 37,62,208.51. He is engaged in structural works as a works contractor. He has opted for payment of composition scheme under section 17(6) of the Act. Otherwise under section 5B in respect of the total turnover of the works contract he was expected to maintain accounts showing labour charges and the value of the goods sold and he had to pay sales tax on the value of the goods sold. It is to overcome such difficulties he has opted for composition scheme under section 17(6). The tax payable under section 17(6) is on the total consideration of the works contract which necessarily includes labour charges. The assessee would not be entitled to any exemption in respect of that labour charges which is included in the works contract when once he opts for composition of tax under section 17(6). However, if he enters into purely labour contract where no aspect of sale is invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces. If a dealer claims exemptions on various categories of turnover including labour charges while filing returns under section 6 of the Act, one can opine that there is reasonableness in such claim as the dealer is subjecting himself for regular process of assessment where he has to pay higher rate of tax than provided under section 8(a)(i) of the Act. Once he has chosen to come under section 8(a) (i) seeking payment of tax at concessional rate whether Legislature intends to give double benefits to dealers, i.e., to claim exemption from turnover and also concessional rate of tax, definitely, the specific word "used" at section 6 and also section 8(a)(i) of the Act had to be taken into consideration. Under section 8(a) (i), there is no reference to the word "turnover" at all. It refers to tax payable on the whole contract amount. If one understands "whole contract amount" in proper sense, definitely, there will be clear understanding under what circumstances section 8 applies and the circumstances enumerated under section 6. They are totally different from each other. Irrespective of the provisos under section 6 including exemption of value of turnover on certain items, one has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) of the Act. Section 8(a) (i) only refers to tax payable on the whole contract amount without referring to turnover. Once he chooses to seek benefit under section 8 to pay concessional rate of tax, it has to be on the whole contract amount which would mean value of entire contract done by him in respect of a particular contract or with respect to the work done in a year, without any bifurcation claiming exemption. But, in an instance where during an assessment year the assessee does only labour contract for one person and composite work for another person, there is no obligation to pay compounded tax for the said labour work, but in respect of the composite work, the compounded tax has to be paid. 18. So far as the revisions filed by the Revenue, they contend that a works contractor, having opted for compounding under section 8(a) (i) of the Act, is not entitled to claim exemption towards labour charges during a particular assessment year. The assessee can choose method of computation of tax either under section 6(1) or section 8(a) (i) of the Act. There is no question of interchanging these provisions, as both the schemes are entirely different from each other and method of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any supply of materials at all and therefore there is nothing liable to be taxed under the Act. Hence the first appellate authority deducted the said contract amount of Rs. 54,47,422 from the taxable turnover. 21. In the appeal filed by the Revenue, the Tribunal found that there was no necessity to work out the taxable turnover as compounded tax is to be paid on the total value of the works contract or contracts as held in the judgment in Taker Ali Industries and Projects (P) Ltd. v. State of Tamil Nadu [2012] 47 VST 155 (Mad) ; [2012] 20 KTR 424 (Mad). 22. We have already dealt with the issue, as to the circumstances under which compounded tax is payable. The liability to pay compounded tax arises only if there is a liability to pay tax. If it is a composite contract involving a labour contract and supply of materials, the assessee will become liable to pay tax. If the labour contract is pure and simple there is no liability to pay tax and consequently there is no liability to pay compounded tax as well. Under these circumstances, we are of the view that the assessing officer has to verify the contract in question especially the contract with Indian Oil Corporation and verify wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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