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2016 (1) TMI 873 - DELHI HIGH COURT

2016 (1) TMI 873 - DELHI HIGH COURT - TMI - Demand of composition tax on service contract involving supply of labour, trenching and excavation works - Delhi Value Added Tax (DVAT) - Held that:- The stand of the AA that, once the dealer opts for composition, he is required to pay tax on the aggregate value of all the contracts, including pure labour contracts does not appear to be based on a correct understanding of the provisions of the Act. When the provisions are read as a whole, and in the co .....

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executed by it on which it paid the reduced amount of 4% tax in terms of Section 6(1) of the Act. - The Court is of the view that an opportunity ought to be given to the Assessee to produce all the relevant contracts before the AA to enable the AA to pass a fresh order on the issue. This would not unduly prejudice the Respondent. - Matter remanded back on the second issue. - ST.APPL. 24/2015 - Dated:- 14-1-2016 - S.MURALIDHAR AND VIBHU BAKHRU, JJ For the Petitioner : Ms P. L. Bansal, Senior Adv .....

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s, under which the Assessee supplies skilled and unskilled labour for excavation work. The Assessee also executes contracts which involves transfer of property in goods and the same are exigible to tax under the provisions of The Delhi Sales Tax on Works Contract Act, 1999 ( Act ). The Assessee is a registered dealer with the Department of Trade and Taxes. 3. The Assessee submitted its Sales Tax Return on 30th June, 2005 for the AY 2004-05 declaring a turnover of ₹ 3,49,99,618/-. Later the .....

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nder Section 6 of the Act and paid 4% tax on ₹ 1,10,76,390/- which worked out to ₹ 4,43,056/-. 5. By an order dated 22nd March, 2006 the Assessing Authority ( AA ) held that once the dealer had availed the benefit of composition and offered to be taxed on the lump sum payment such dealer cannot now be permitted to wriggle out of obligation in respect of one any contract . Accordingly, the tax was computed @ 4% on the entire gross turnover of ₹ 4,73,32,324/-. 6. After the dismis .....

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(i) Whether the labour contracts in question could be subject to levy of sales tax under Sections 4, 5 and 6 of the Delhi Sales Tax on Works Contract Act, 1999? (ii) Whether the Tribunal erred in including receipts on account of supply of manpower/labour in the gross turnover of the Appellant? 8. The Court has heard the submissions of Ms. Prem Lata Bansal, learned Senior Counsel appearing for the Appellant and Mr Peeyoosh Kalra, learned counsel for the Respondent. 9. Before discussing the issues .....

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ion, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement repairing or commissioning of any movable or immovable property but shall not include such contracts as may be prescribed. The expression dealer has been defined under Section 2(1)(f) to mean any person, who whether for valuable consideration, commission, remuneration or otherwise, while executing a works contract transfer property in goods (whether as goods or in some other for .....

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or after such commencement. Section 4 spells out the liability of the dealer and states that tax shall be levied on the taxable turnover involving transfer of property in goods in the execution of works contract commenced or continued for execution on or after the commencement of this Act, whether such contract was entered into prior or subsequent to such commencement . 11. Under Section 5(1) tax @ 8% on the net turnover of sales is liable to be paid by every dealer on the taxable turnover of s .....

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of this Act during the year by way of composition an amount at the rate of four per cent of his total amount of the contract or the total aggregate value of the contracts received or receivable towards the execution of works contact. 13. The above provisions have to be read along with the Delhi Sales Tax on Works Contract Rules, 1999 ( Rules ). Rule 5 thereof talks of computation of taxable turnover of sales. Rule 5 envisages two kinds of works contract. One is a works contract which only deals .....

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ontractor [sub-clause (b)], and charges towards labour, service and other like charges [sub-clause (e)]. Rule 5(2) states that where the amounts referred to in the Rule 5 (1) (a) to (e) are not ascertainable, then the turnover of the sales of the dealer for the purposes of Section 5 will be determined after deducting certain amounts calculated at a fixed percentage, towards labour and service for the different types of contract, in terms of a table set out thereunder. 14. When it comes to availi .....

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ods or in some other form in the execution of a works contract. The value of labour and services and other like charges are kept out of the ambit of the taxable turnover. Where their value is not clearly ascertainable, as in the case of a composite works contract, Rule 5 (2) provides for a deduction from the total turnover a fixed percentage in terms of the table set out thereunder. However, when a dealer avails of the benefit of composition under Section 6(1) of the Act, he is expected to pay t .....

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to pay tax on the aggregate value of all the contracts, including pure labour contracts does not appear to be based on a correct understanding of the provisions of the Act. When the provisions are read as a whole, and in the context of the object and purpose of the Act, it is seen that the legislative intention was not to bring pure labour contracts within the purview of the Act, much less within the purview of Section 6 (1) of the Act. 17. Similar provisions in the taxing statutes relating to w .....

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gh Court that where it was a composite works contract which pertained to labour charges, the Assessee would have to pay the reduced rate of tax in terms of the said provision on the entire value of the contract. It was further elucidated that [h]owever, if he enters into purely labour contract where no aspect of sale is involved and consideration received in the labour contract is outside the claim of Sales Tax Act, no portion of that labour charges is liable to tax under the KST Act. It was rei .....

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..Section 8 (1) (a) only refers to tax payable on the whole contract amount without referring to turnover. Once he chooses to seek the benefit under Section 8 to pay concessional rate of tax, it has to be done on the whole amount which would mean value of entire contract done by him in respect of a particular contract or with respect of 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 f .....

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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. 19. In that view of the matter, Question no. (i) framed by the Court for consideration is answered by holding that pure labour contracts would not be subject to levy of tax under Section 5 or 6 of the Act. However, where a composite works contract includes a demand of labour charges, service charges and the like, then the dealer avail .....

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Tribunal the Assessee did not produce copies of the composite works contract executed by it on which it paid the reduced amount of 4% tax in terms of Section 6(1) of the Act. The Tribunal in the impugned order dated 23rd May, 2014 specifically notes in para 10 that the Appellants contract was for supply of labour as well as other works contract of which copies are not filed on record . Again in para 15 it notes: As already observed the appellant has not placed on record the works contract though .....

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