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TMI Blog2018 (2) TMI 1728X X X X Extracts X X X X X X X X Extracts X X X X ..... mencement of contract was 1st March 2011 and the date of completion was 31st August 2013. The estimated contract amount was approximately Rs. 600 Crores. In the execution of such works contract, the petitioner utilizes cement, steel, sand, grit, etc. The petitioner has set-up a ready-mix concrete plant at Piplod, District Dahod. Cement is purchased by the petitioner from the open market. The petitioner had its own mines taken on lease from where, the petitioner procures black trap which is converted into grit, to be used in construction of road. Section 14A of the VAT Act permits composition of tax on works contract. It inter alia allows the contractor to apply for composition of tax and if such application is granted; subject to certain conditions, the contractor would pay a lump sum tax on total turnover. The petitioner had applied for such composition for the contracts in question. Such application was also granted by the authority under Order dated 17th March 2011. In the application that the petitioner filed for such purpose, it was not mentioned that the black-trap being mined by the petitioner itself which was eventually used for road construction for converting into grit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure that part of the input is manufactured by the petitioner. The authority has therefore wrongly proceeded on the basis that there was failure on the part of the petitioner to disclosed correct facts. [ii] Neither the VAT Act nor the Rules provide that the tax must be paid on the input, even though the taxable event had not occurred. Rule 28 [6] nowhere envisages fulfillment of such a condition. The reasonable construction of the rule would be that the contractor should pay the tax which is due and payable. When no tax is payable, there is no liability of the contractor to pay the same merely because the goods in question may otherwise be taxable goods. [iii] Rigid construction of the rule would render it ultra vires the VAT Act. Counsel for the petitioner relied on the following decisions in support of his contentions : [i] In case of New Delhi Municipal Committee v. Kalu Ram & Anr., reported in AIR 1976 SAC 1637 in which the word "payable" came up for interpretation by the Supreme Court. The issue arose in the background of recovery of rent where the claim had become barred by limitation. In this context, Supreme Court observed that the word "payable" used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no tax. One of the essential conditions of composition of tax is that the contractor must have paid all taxes on its consumption of taxable goods. This basic condition having been breached, the authority was justified in seeking to cancel the permission for composition. In order to resolve the controversy, we may refer to the provisions applicable. Section 14A of the VAT Act pertains to "Composition of tax on works contract". Relevant provisions of Section 14A reads as under : "14.A Composition of tax on works contracts : [1] Notwithstanding anything contained in this Act, the Commissioner may, in such circumstances and subject to such conditions as may be prescribed, permit every dealer referred to in sub-clause [f] of Claus [10] of Section 2 to pay at his option in lieu of the amount of tax leviable from him under this Act in respect of any period, a lump sum tax by way of composition at such rate as may be fixed by the State Government by notification in the Official Gazette having regard to the incidence of tax on the nature of goods involved in the execution of the total value of the works contract. [2] The provisions of sub-sections [3] and [4] of Section 14 shall ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods in the execution of works contracts covered under the permission to pay lump sum tax, if such goods are - (i) purchased in the course of inter- State trade or commerce or imported from outside the territory of India, or (ii) received from his branch situated outside the State or from his consigning agent outside the State : [2] If such dealer uses any taxable goods in the execution of works contract covered under the permission to pay the lump sum tax, such goods ought to have borne the tax payable under the Act." The Department's opposition flows from this statutory provision. Our attention was drawn to Clause (vi-a) [2] which provides that if the dealer uses taxable goods in the execution of works contract covered under the permission to pay the lump sum tax, such goods ought to have borne the tax payable under the Act. According to the Department, the dealer admittedly uses black-trap and grit prepared from such black-trap which are taxable goods and admittedly no tax has been paid on such goods. According to the Department, therefore, there is a breach of this condition. The said provision uses the expression "taxable goods" and "tax payable" under the Act. Term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean that the dealer has to pay tax - whether such liability under the Act has arisen or not. It is in this context, we may understand the term "tax payable under the Act." When the taxing event is sale of goods and such event has not arisen, there would be no question of tax becoming payable under the Act. This itself would be sufficient to dislodge Department's objection. We may, however, go a step further. The term "taxable goods" cannot be seen in isolation by reading the definition contained in Section 229 of the VAT Act. A commodity would become taxable goods when taxable event arises. Merely because upon sale of such goods, tax is prescribed which is not exempt under Section 5 of the VAT Act, and therefore, is "taxable goods" would not for the purpose of relevant portion of Rule 28 [8] of the Rules become "taxable goods". The term "taxable goods" and "tax payable" under the Act have to be harmoniously construed. Only reconciliation possible is that the dealer is expected to pay tax when taxing event arises and not otherwise. The issue can be looked from a different angle. While we do so, we may record that the Department has raised an erroneous objection that the petitioner h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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