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2015 (12) TMI 1247 - JAMMU & KASHMIR HIGH COURT

2015 (12) TMI 1247 - JAMMU & KASHMIR HIGH COURT - TMI - Valuation - Sales tax / Service Tax in J&K - inclusion of service tax in the gross turnover for the purpose of levy of Sales Tax / TDS - Request for quashing clarification No.1 of 2014 dated 14th January, 2014 issued by Commissioner, Commercial Taxes Department of Excise and Taxation, Jammu- respondent No.2 herein on the ground that the same offends the statutory and legal rights of petitioners in so far it provides for charging of service .....

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ications in regard to various issues including issues relating to nature of any transaction and whether any tax is payable in respect of any particular sale or purchase. That being so, commissioner cannot be said to be lacking jurisdiction in issuing the impugned clarification. The objection is, accordingly, overruled.

Payment for execution of works in terms of agreements was released in favour of petitioner after deducting tax over the gross amount. It is contended on behalf of respo .....

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es are under a legal obligation to look into every aspect of taxable turnover of a dealer at the time of assessment.

There is no ambiguity in it that the types of services enumerated in the provision are covered under the definition of goods. A transaction, whether involving transfer of property or not, shall be deemed to be a sale by the person making the same. Services provided in execution of works contract are goods and, thus, the services provided constitute sale of goods which .....

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n account of labour and service element would be excluded from the total consideration received and sales tax or value added tax would be chargeable only on the balance amount. A Five Judge Bench of the Hon ble Apex Court, in M/s. Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu and ors. [2014 (5) TMI 265 - SUPREME COURT] dealt with the controversy whether manufacture, supply and installation of LIFTS is to be treated as sale or works contract . The majority view was that the decision rende .....

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contract or after deducting the tax element in contracts where the agreement is inclusive of taxes. It is, fallacious to hold that Rule 19 of the Rules of 1962 does not cover inclusion of tax in sale price. Such an interpretation would render Clause (d) of Rule 19 of the aforesaid Rules redundant which provides the formula for computation of tax included in the sale price.

Relief granted to the petitioners - Decided in favor of assessee. - OWP No. 419 of 2014, OWP No. 525 of 2014 - D .....

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h January, 2014 issued by Commissioner, Commercial Taxes Department of Excise and Taxation, Jammu- respondent No.2 herein on the ground that the same offends the statutory and legal rights of petitioners in so far it provides for charging of service tax on the gross value of the contract items. It is contended that in terms of the impugned clarification, petitioners are required to pay the service tax inclusive of the tax already included at the time of submitting of the tenders which is impermi .....

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tax deducted from whole amount instead of taxable amount along with the interest @ 18% till final realization of the amount. iii) Issue writ in the nature of Prohibition restraining the respondent no.8 for further deducting the tax over the whole amount instead of tax able amount of which the payment/outstanding is due. 2. In OWP No.525/2014 filed by the same petitioners against the same respondents, petitioners seek quashment of the Notification No.1/2014 dated 14.01.2014 issued by respondent .....

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direct respondent No.8 to reimburse the excess tax deducted from whole amount instead of taxable amount along with the interest @ 18% till final realization of the amount. iii) Issue writ in the nature of Prohibition restraining the respondent no.8 for further deducting the tax over the whole amount instead of taxable amount of which the payment/outstanding is due. 3. The only difference between subject matters of the two petitions is that in OWP No.419/2014, the work executed related to Tender .....

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rough the web of both writ petitions concerns the legality and correctness of impugned clarification No.1 of 2014 dated 14th January, 2014 issued by respondent No.2. The case set up by petitioners in both the petitions is that the petitioners are required to pay the service tax inclusive of the tax already included at the time of submitting of the tenders which is not permissible in view of clear mandate of Rule 19 of the Jammu and Kashmir General Sales Tax Rules, 1962 (hereinafter to be referre .....

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tax over tax, i.e. cascading. 5. According to petitioners, the definition of goods under provisions of Section 2 (h) of the Jammu and Kashmir General Sales Tax Act, 1962 includes a service tax. It is submitted that Rule 19 of Rules of 1962 is clear with respect to determination of taxable turnover for which the tax has not been charged on the sale of goods separately but included in the sale price and the tax included therein is determinable on the basis of provision engrafted in the aforesaid R .....

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05 and clarification No.6 of 2008 dated 11.02.2008 in this regard. Deduction of tax by respondent No.8 over the gross amount instead of over the taxable turnover is said to have caused financial loss to petitioner to the tune of ₹ 27,03,305/- in OWP No.419/2014 and of ₹ 24,30,996/- in OWP No.525/2014. 6. Respondent Nos.2 and 3, in response to Notices issued, filed their objections, common to both the petitions, contesting the petitions on the ground that in terms of the impugned clar .....

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ion to clear the doubts in terms of provisions of Section 25-C of the Jammu and Kashmir General Sales Tax Act of 1962 (hereinafter to be referred to as Act of 1962 ), clarified that incidence of service tax shall be on the aggregate of the amount of services and goods consumed in the contract as per provisions of the Act of 1962. It was clarified that for purposes of service tax, value of every service had to be determined with reference to aggregate value of such service whether in the shape of .....

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cation No.16 of 2010. He found that there was some confusion with regard to taxability on the individual contract of supply, installation, commissioning, repairing and fitting out improvement. Relook was given to aforesaid clarifications in the light of law laid down by the Hon ble Apex Court in case titled State of Andhra Pradesh Vs. Kone Elevators (India) Ltd. . Thus, impugned clarification No.1 of 2014 came to be issued clarifying that contract for supplying and installation shall amount to w .....

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is required to be deducted on gross amount of the contract and the impugned clarification harmonizes the tax structures as regards works contract and to remove the confusion created by earlier clarifications. It is pleaded that respondent No.8 was obliged under law to deduct the sales tax on gross amount of the contract. It is further pleaded that it is for the concerned assessing authority to see whether the contract is inclusive of tax or not. It is further pleaded that the levy of sales tax .....

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ay be stated as follows: I) Whether the impugned clarification was beyond competence of respondent No.2; II) Whether respondent No.2 was legally justified in holding that the service tax was leviable on the gross value of the contract irrespective of inclusiveness of the tax factor in the approved rate of a given item. 8. As regards Issue No. 1, a bare look at the provisions engrafted in Section 25-C of the Act of 1962 lays it bare that the Commissioner is empowered to determine issues and issue .....

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ax over the gross amount. It is contended on behalf of respondents that under provisions of the Act of 1962 and Rules framed thereunder, sales tax is leviable on the gross amount of the contract. The sales tax leviable on the services rendered by the contractor in the shape of works contract has to be deducted at source from the gross amount of the contract. Thus, sales tax is included in the gross amount of the contract. The levy of sales tax under the Act of 1962 is not subservient to the cont .....

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d in the shape of works contract, whether divisible or indivisible, involving the transfer of property or not, services in the form of lodging facilities provided by the hotels, services provided by Telecom/Cellular phone agencies by way of transfer of right to use any goods or otherwise, services provided by private nursing homes, beauty saloons, photographers and advertisers rendered by way of or as part of any contract or in any other manner whatsoever involving skill and labour or any other .....

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ame. Services provided in execution of works contract are goods and, thus, the services provided constitute sale of goods which is exigible to tax under the relevant tax schedule. It is, therefore, amply clear that it is the services provided in the shape of works contract together with the goods, skill, labour, and consumables etc. which constitute goods. The person who executes the works contract is deemed to sell these goods attracting the tax provision. As regards determination of taxable tu .....

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by that discount. (ii) Sale price of the goods returned by the purchaser as verified from the account books of the dealer. (iii) Sale price of goods which are not liable to tax under Section 4 or are exempt under Section 5 of the Act. (iv) The amount of sale price of goods sold in the course of inter-State trade or commerce as defined by Section 3 of the Central Sales Tax Act, 1956. (v) The amount of sale price of goods sold in the course of export as defined by Section 5 of the Central Sales Ta .....

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r of one year on accrual basis shall not be again included in the taxable turnover of the year in which it is actually received. (c) In respect of a sale other than the sale specified in sub-rule (b) full sale price shall be included in the turnover of the year in which the sale is made notwithstanding that the sale price is receivable or is received in installments and some installments are not received during the year. Explanation Taxable turnover means the aggregate of taxable turnover of all .....

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a profit margin of 20% provided that the dealer does not maintain correct and complete accounts from which the cost of labour as deductible from the amount payable to the dealer for currying out the contract under Explanation 1 of clause (n) of Section 2 of the Act can be deducted.] 11. A bare look at the provision engrafted in Section 19 of the Rules of 1962 brings it to fore that certain deductions are to be allowed while determining taxable turnover. Clause (d) of the aforesaid provision lays .....

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inclusive of service tax (10.5 %) + labour welfare tax (1%) totaling 11.5% is applicable and the aggregate sale price is taken as ₹ 100/-, the deduction of tax under the formula laid down in Section 19(d) of the Rules of 1962 would be computed as under:- 11.5 x 100 /100+11.5 =Rs.10.31/- Therefore, taxable turnover would be ₹ 100 - ₹ 10.31 = ₹ 89.69/-. 12. In the case in hand, respondents, under the garb of impugned clarification, determined service tax over the gross amou .....

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ayment to the contractor. Condition 15 of the contract Agreement is extracted as under:- 15.0 LEVY OF SERVICE/SALES TAX Finance Deptt. Of J&K Govt. has levied tax on services in the shape of works contract rendered by the contractor at the rate of 10% plus surcharge of 5% w.e.f. 01.04.2010 vide SRO No.153 dt. 31st March, 2010. Therefore, this service tax at the rate of 10% on gross payment to contractor and 5% surcharge on the amount of service tax will be recovered by the department from th .....

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e cess is deemed to be included in the contract sum quoted by the tenderer/contractor. It is, therefore, manifestly clear that the contract sum quoted by the tenderer includes the component of service/sales tax plus surcharge leviable on services in the shape of works contract and labour welfare cess. Given the nature of condition, there is no difficulty in arriving at the conclusion that the tax leviable on services rendered by the contractor through works contract are included in the sale pric .....

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ansfer of property or not. The million dollar question, in each case of the instant type, would be whether the contract is a contract for sale of goods or a works contract . This assumes significance in view of the fact that in case of the former, the entire sales consideration would be taxable under Sales Tax Act or VAT Act whereas in the later case, the part of consideration payable on account of labour and service element would be excluded from the total consideration received and sales tax o .....

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lay down the law. It held:- 63. Considered on the touchstone of the aforesaid two Constitution Bench decisions, we are of the convinced opinion that the principles stated in Larsen and Toubro (supra) as reproduced by us hereinabove, do correctly enunciate the legal position. Therefore, the dominant nature test or overwhelming component test or the degree of labour and service test are really not applicable. If the contract is a composite one which falls under the definition of works contracts as .....

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l construction and the time schedule for delivery and thereafter proceeded to state about the major component facet and how the skill and labour employed for converting the main components into the end product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composi .....

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nstallation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contra .....

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ermanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contra .....

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efore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift whic .....

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ct. Applying the dictum of Hon ble Apex Court, the impugned clarification holding that inclusion of tax in whole price of service provided is not covered under Rule 19 of the Rules of 1962 cannot be supported. There is no dispute with the proposition that contract for supply of goods and materials as well as installation amounts to works contract and the constitutional Bench Judgment of the Hon ble Apex Court upholds such view. However, the impugned clarification, though reiterating the same pri .....

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