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2016 (9) TMI 968 - MEGHALAYA HIGH COURT

2016 (9) TMI 968 - MEGHALAYA HIGH COURT - TMI - Quantification of amount of tax deducted at source of VAT - taxable turnover - total value of the work contracts - deductions as per Section 5 - Section 106 of the Meghalaya Value Added Tax Act, 2003 - works contract - MES Builders Association of India and others vs. Union of India and others [2009 (9) TMI 880 - GAUHATI HIGH COURT] - in relation to Section 106(2) of the Act, if the deduction had already been made per Schedule IV-A, further deductio .....

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duction made by the principal while making payments towards the works contract would always remain subject to the final assessment under the Act of 2003 by the Assessing Officer; and deduction at source by the principal, by itself, is not decisive of the actual amount of VAT payable. - Petition disposed off - decided against petitioner. - WP (C) No.126 of 2013, WP (C) No.16 of 2013 - Dated:- 2-8-2016 - Dinesh Maheshwari, CJ And Ved Prakash Vaish, JJ. Mr. HL Shangreiso Ms. P Agarwal, for the .....

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te General Dr. BP Todi, assisted by Mr. KP Bhattacharjee, GA for the contesting respondents related with the State of Meghalaya in both the petitions and Mr. R Deb Nath, learned counsel for the respondents No. 1 & 2 in W.P. (C) No.126 of 2013. In W.P. (C) No.16 of 2013, nobody has appeared on behalf of respondents No. 4 to 7, to whom notices were sent in the year 2013. Although there is no clear report of their service, but learned counsel for the petitioner has candidly submitted that again .....

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after providing for deduction as per Section 5 thereof and not on the total value of the work contracts . Though learned counsel appearing for the parties are more or less ad idem that the issues raised in these petition could be concluded by the ratio of Division Bench decision of the then Shillong Bench of Gauhati High Court in MES Builders Association of India and others vs. Union of India and others: 2010 (2) GLT 310 and we are inclined to accept the submissions but then, it appears appropri .....

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tion of Married Accommodation For Service Personnel at L/Peak, Shillong i.e., 13 Blocks comprising 95 quarters with the lump sum contractual amount of ₹ 5,28,46.641.17. On the other hand, the petitioner of W.P. (C) No.16 of 2013 was awarded the works contract by Chief Engineer/Con-II N.F. Railway, Maligaon on 10.12.2012 for Balance earthwork in filling between Ch.17.50 Km to Ch.19.47 Km with blanketing, construction of 3 Nos. of minor bridges, goods circulating area and platform, passenger .....

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to the petitioners, authorities concerned were poised to deduct the tax at source on the total value of the work contracts without providing for deductions as per Section 5 thereof. Aggrieved by such alleged propositions of the respective respondents, of deducting VAT on the total value of the contract amount, the petitioners preferred these petitions in this Court. It is noticed that in W.P. (C) No.16 of 2013, the Court also provided for interim relief on 11.02.2013 that the respondents will no .....

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ions so as to make them workable; and settlement of the respective bills ought to be in accordance with the said decision in MES Builders Association s case. The learned Advocate General appearing for the State of Meghalaya does not dispute the position that the requirements of Section 106 of the Act of 2003 are to be met with reference to the decision in MES Builders Association (supra). However, learned Advocate General would submit that any deduction at source shall nevertheless remain subjec .....

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on 3 thereof, the charging provision is Section 5 that read as under:- 5. Levy of Value Added Tax on goods specified in the Schedules appended to this Act - (1) Subject to the provision of this Act, and Rules, there shall be levied a tax on the turnover of sales of goods specified in Schedule II, III and IV appended to this Act at every point of sale of such goods within the State at the rate specified therein. (2) Taxable turnover of sales in relation to a dealer liable to pay tax on sale of go .....

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on - Section 3, 4 and 5 of the Central Sales Tax Act, 1956 shall apply for determining whether or not a particular sale or purchase has taken place in the manner indicated in sub-clause (i), sub-clause (ii) or sub-clause (iii); (c) in case of turnover of sales in relation to works contract, the charges towards labour, services and other like charges and subject to such conditions as may be prescribed: Provided that in the cases where the amount of charges towards labour, services and other like .....

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- 106. Special Provisions relating to deduction of tax at source- Notwithstanding anything contained in any other provisions of this Act - (1) Every person (excluding an individual, Hindu undivided family, a firm or a company not under the control of the Government) responsible for making any payment of discharging any liability on account of any amount payable for the transfer of property in goods (whether as goods or in some other form) involved in a work contract for the transfer of the right .....

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of or payment to the payee of such amount in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom in the prescribed manner at the rate specified in the Schedule to the Act in respect of sale or supply of goods or transfer of the right to use any goods and in respect of work contract at the rate of 12.5% after allowing percentage of deduction from the work value as prescribed in Schedule IV-A appended to the Act: Provided that no deduction shall be made under thi .....

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tion (2) and paying it to the account of the State Government shall issue a certificate of tax deduction to the payee in such manner in such form and within such time as may be prescribed. (5) Any tax deducted under sub-section (2) and paid to the account of the State Government shall, on production of the certificate of tax deduction under sub-section (4) by the payee be deemed to be tax paid by the payee for the relevant period and shall be given credit in his assessment accordingly. (6) No in .....

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xable turnover , the mechanism for deduction at source, as contained in Section 106 of the Act did not provide for confining the quantum of advance tax to the taxable turnover alone. The Court, inter-alia, observed as follows:- 12. It is against the backdrop of the aforesaid propositions of law laid down by the Apex Court that we propose to examine the validity of Section 106 of the Act. As already noticed, this provision is not the charging section, but is the mechanism section, and is ancillar .....

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le for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract which will constitute a sale in the course of inter-State trade or commerce or sale outside the State of Meghalaya or a sale in the course of import into or export out of the territory of India. Section 8 of the Act exempts the sale of goods listed in Schedule I appended to the Act subject to conditions and exceptions set out therein, etc. from payment of sales tax. On the ot .....

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As indicated earlier, Section 106 is the mechanism section and is ancillary to the charging section, namely, Section 5. When the liability on tax under Section 5 is on taxable turnover, the deduction of tax at source should also be in terms of the taxable turnover. In other words, Section 106 does not provide any mechanism for confining the quantum of advance tax to the tax attributable to the taxable turnover: it should conform to the charging section. ….. The Court further observed that .....

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id,- 13. …..The tax liability with reference to a works contract can arise only on the taxable turnover which will be arrived at after excluding turnover pertaining to inter-State sales, import sales, outside the State sales, exempted goods, tax suffered goods, labour charges and payment to sub-contractors. ….. 14. To summarize the foregoing discussion, a combined reading of Section 106 (2) and the charging section, namely, Section 5 (2) of the Act leaves no room for doubt that the .....

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ible deduction prescribed in Schedule IV-A to the Act, as already explained earlier, is referable only to the proviso to Section 5(2)(c) of the Act, namely, where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract. Except for this, the deduction, therefore, is towards the sales tax that is payable to the State upon the total value of the works contract and it is of 12.5% of the total value of .....

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rt. In other words, there is no express provision in the impugned section obligating the contractee or the Commissioner to take into account the deductions mandated by the charging section, namely, Section 5(2)(a), (b) and (c) of the Act. All that the impugned section says is that the contractee is to deposit towards the contractor s liability to State sales tax at 12.5% of such amount as he credits or pays to the contractors, regardless of the fact that the value of the works contract may inclu .....

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half of the Government that ultimately, the adjustment was to be made at the time of final assessment by the Assessing Officer and claim for refund/adjustment can also be made, the Court observed that even when the adjustment was to be made at the time of assessment, it was impermissible for the State Legislature to impose advance tax on the turnover which was not exigible to tax. Having said so, the Court observed that prima facie, Section 106 of the Act of 2003 could be declared ultra vires th .....

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d as under:- 17. The underlying principle which can be culled out from the foregoing discussion is that where the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the Court can, of course, adopt a construction which will carry out the obvious intention of the legislature. But we must hasten to add that in the course of construction of the relevant provisions, there must be manifest contradiction or ambiguity or defect or omission. Judging the prov .....

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d the constitutional limitations imposed by Entry 92-A of the Union List read with Article 286 of the Constitution, which is impermissible. But our endeavour must always at first be to save the impugned provision from the vice of unconstitutionality and not to be trigger-happy shooting at sight every suspect law as that would amount to judicial legicide . If, on giving one interpretation, the statute becomes unconstitutional and, on another interpretation, it will be constitutional, then this Co .....

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tive interpretation has become imperative so as to save the impugned provision from becoming violative of Entry 92-A of the Union List read with Article 286 of the Constitution, which prohibits imposition of sales tax by the State Legislature upon declared goods of special importance, sales in the course of inter-State trade or commerce, sales outside State and sales in the course of import into, or export out of, the territory of India. While imposing sales tax on deemed sales, the State-respon .....

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ate of Meghalaya has accepted the same. The consequential position is that with the words read by the Court, for restricting the width and amplitude of the machinery provision, Section 106 (2) of the Act of 2003 would appear in the modified phraseology as under:- (2) Every person responsible for paying sale price or consideration or any amount purporting to be the full or part payment of sale price or consideration in respect of any sale or supply of goods liable to tax under this Act to the Gov .....

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e any goods and in respect of work contract at the rate of 12.5% of the taxable turnover referred to in Section 5 (2) of the work value after allowing percentage of deduction from the work value as prescribed in Schedule IV-A appended to the Act. (the phrase read by the Court in the provision shown in bold-underlining) The spirit of the order of the Court in MES Builders Association s case has been clear that there should not be a deduction of tax at source on the value of the contract but, such .....

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ods for turnover of sales in relation to works contract are provided: one in the principal provision whereby, the charges towards labour, services and other like charges (subject to such conditions as may be prescribed) are to be deducted; and second, in the proviso whereby, such percentages of the value of works contract as specified in Schedule IV-A is to be deducted in the cases where the amount of charges towards labour, services and other like charges are not ascertainable from the terms an .....

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her deduction per Section 5(2)(c) would neither be permissible nor that has been the intention of the Hon ble Court while deciding the matter in MES Builders Association (supra). In fact, learned counsel for the parties have also candidly submitted that it had never been the case of anybody nor it could be that the deductions for the purpose of Section 106 (2) could be claimed twice over. Thus, it appears necessary to harmonize the ratio in MES Builders Association (supra) with the statutory pro .....

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