TMI Blog2017 (9) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... se to discharge of liability by the sub-contractor to the extent of the amount forming part of the contract value in terms of section 45 of the MVAT Act, 2002 - As regards amount retained by the principal contractor, the same is also a part of the same transaction and is liable to tax subject to the deduction as provided in law. Prospective effect of order - Held that:- In the present case there is no ambiguity in the provision of Act. The total contract value is taxable in the works contract. The rule 58 is clearly laid dawn for the eligible deductions the principle contractor and subcontractor are held jointly and several responsible for tax liability. The rule 58 has taken due care to avoid double taxation as it provides the deduction of turnover related to subcontractor from total contract value. There is no scope, for any doubt arising out of the provisions. There is no ambiguity in language provided in the Sections and Rules - The applicant cannot prove existence of circumstances which warrant us to use the discretionary power. In fact use of such discretionary powers in the absence of compelling circumstances would be detrimental to legitimate government revenue and would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.CC-CS/137-WR-1/RT-929/3/G3/CA-III/424038 dated 23 March 2012) c) The Offshore supply contract between the Applicant and PGCIL for the sites identified in Maharashtra was entered to provide for supply of goods and equipment from outside India which involve importation of goods from outside India upon payment of applicable Customs duties. Further, the onshore supply contract for the sites identified in Maharashtra between Applicant and PGCIL, is for supply of goods procured domestically within India. The Onshore Service Contract was entered for providing all the onshore services inter-alia including local transportation, insurance and other incidental services (including port clearance etc.), unloading, handling, installation charges including civil works and training charges for training to be imparted in India. d) In order to execute the aforesaid onshore service contracts, the applicant has subcontracted the on-shore service contract to different sub-contractors i.e. civil work to the subcontractor M/s. Ganguly Construction; JM Baxi and Co. for Custom clearances, port handling charges, SAEE Trafoline P Ltd. for erection, testing and commissioning, etc. (hereinafter r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the main contractor is liable to pay tax on works contract carried out by the sub-contractor. Hon. Apex Court held that where any portion of a contract is sub-contracted to a registered sub-contractor, no tax shall be payable by the main contractor on the consideration pertaining to the work which has been sub-contracted. It was held that in case of works contract there can be only one transfer from the sub-contractor to the ultimate customer. It is only the sub-contractor who effects transfer of property in goods as no goods vests in the main contractor so as to be the subject-matter of a retransfer to the customer. 2.2 In view of above submission, the applicant has applied for advance Rulingon following Issue:- a) Whether the Applicant would be liable to pay VAT on the invoice raised to its customer i.e. PGCIL for the work undertaken by sub-contractors on its behalf. The clarification is being sought especially in light of the decision of the Hon. Andhra Pradesh High Court in the case of Larsen Toubro 148 STC 616 (A.P.) as upheld by the Hon. Supreme Court (2008) 17 VST 1. b) In view of the above submissions, it is humbly prayed that this Hon. Advance Ruling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng contract is awarded to the consortium which is a joint venture of one Russian and one Indian company. As per JV agreement 3% amount goes to JSC ZANGAS for their technical contribution. They are expert and experienced having qualified personnel for the critical technical part of the activities as detailed out in the consortium agreement. Payment made to ZANGAS is purely for technical services. JV as independent entity has purchased services from another entity JSC ZANGAS. In other words, this payment in no way concerned to sale of goods used in execution of contract. Charges for planning designing etc. are allowed to be deducted under rule 58 of MVAT rules. After deducting 3% paid to ZANGAS for their defined role of technical assistance, balance remains 97%, out of which 96% is given to subcontractor who has taken responsibility to pay tax on sale of goods involved in the execution of contract. Subcontractor provided declaration in Form 407 as per the provisions under section 45. Question remained here is regarding levy of tax on 1% sale proceeds remained in the hands of principal contractor who has executed the contract through subcontractor. There are no purchases of goods an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MSTT decision could be seen thus - 9 We have heard both sides at length. As regard to facts and figures of the case, there is no dispute. Only issue before us is whether the amount retained by principal contractor is liable to tax or not. Principal contractor (appellant) has not effected any purchases of goods nor he has executed any part of the contract. We have consciously gone through the submissions made from both sides. Here, at this Juncture we need to see the legal provisions to assess the amount in the hands of principal contractor. Sec. 2(25) provides definition of sale price, sale price means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged. Explanation I.- The amount of duties levied or leviable on goods under the Central Excise Act, 1044(1 of 1944) or the Customs Act, 1962 (52 of 1962) or the Bombay Prohibition Act, 1949 (Bom. XXV of 1949), shall be deemed to be part of the sale price of such goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of sales, including the total turnover of sales in respect of execution of such contract, of the principal in the year of assessment being such that the principal would have been liable to pay the tax under this Act if such works contract had been executed by himself alone the liability to pay tax on such total turnover of sales shall be that of the principal; (b) where such agent executes such works contract on behalf of the principal and each or either of them is liable to pay tax, then notwithstanding anything contained in any other law or any contract to the contrary, the principal and the agent shall be jointly and severally liable to pay tax in respect of the transfer of property in goods involved in the execution of such works contract; (c) if the principal shows to the satisfaction of the Commissioner that tax has actually been paid by the agent on the turnover of sales, the principal shall not be liable to pay tax again in respect of the same turnover of sales on which the agent has paid tax; (d) if the agent shows to the satisfaction of the Commissioner that the tax has been actually paid by his principal on the turnover of sales on which he is liable to pay ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction between employer and principal contractor is liable to tax needless to say that statutory deductions to both are available. In every contract, there are three aspects, one is a material, second is a labour and third is an expenditure. The entire contract receipts are pertaining to these three aspects. As mentioned above, principal contractor and the subcontractor together is seller. The part of consideration pertaining to goods is liable to tax. Some portion is found taxed in the hands of subcontractor and rest of the part is retained by principal contractor. Principal contractor is responsible for payment of tax on sale of goods involved in the execution of that contract. The scheme also provides statutory deductions of turnover not liable to tax as per undertaking givens under Form 407. When deduction is allowed then there is no multiplicity of tax. Amount retained by the principal contractor is also a part of the same transaction. 11. Mr. Tapare, Ld. Advocate relied on Hon. Supreme Court judgment in case of Larson Toubro Ltd. v/s Additional Commissioner of Commercial Taxes under Karnataka Sales Tax Act (Civil Appeal No. 2956 of 2007). He also relied on Hon. Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s specified under the law. Principal contractor and subcontractor both are entitled for deduction under rule 58. Sale proceeds remained in the hands of principal contractor is a part of sale proceeds of the entire contract. Amount remained in hands of principal contractor is pertaining to value addition of material labour and expenses involved in the execution of contract. This amount is undoubtedly a part of consideration received by seller and is liable to tax subject to the deduction as provided in law. The part of the sale proceeds remained in the hands of principal contractor pertaining to material used in execution of contract is liable to tax. The Hon. MSTT having decided so in the above judgments, the issue is settled. There remains nothing for us to decide now. 04.The Conclusion:- The real issue is determination of value of transfer of goods while execution of works contract. As discussed above, the MVAT ACT 2002, Rule 58 and Rule 45 under MVAT Rule 2005 provides the method and manner by which the tax liability under works contract is to be discharged. The question by the applicant as to whether the applicant would be liable to pay VAT on the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to a determination. Therefore, this is not a mandate but a discretionary power vested in the Commissioner. This discretionary power has to be exercised and while exercising it, the Commissioner, has to be guided by certain inbuilt checks and safeguards. He cannot in the garb of giving relief of the nature contemplated by subsection (2) totally wipe out the liability of any and every dealer. 11. The Commissioner is expected to exercise this discretionary power so as not to defeat the law or render its provisions meaningless or redundant . The power must be exercised bearing in mind the facts and circumstances in each case. No general rule can be laid down. The exercise of this discretionary power must be bonafide and reasonable so also sub-serving the larger public interest. The highest officer in the hierarchy is chosen by the legislature as there is a presumption that this executive functionary will exercise the discretion in genuine and bonafide cases. He must be satisfied that there is a real need and the circumstances warrant exercise of the same. The power being wide, the satisfaction must be backed by cogent and strong reasons which can be tested in a Court of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is no scope, for any doubt arising out of the provisions. There is no ambiguity in language provided in the Sections and Rules. (d) The provisions under MVAT ACT, 2002 and Rules are very clear and unambiguous. It is settled legal principle that the ratio of judgment given on different provisions of one Act cannot be applied in another act, when especially the provisions of both ACT are not Pari-Materia . The Hon. MSTT already dealt with the provisions of Andhra ACT and MVAT ACT and concluded that they are not Pari-Materia. The Applicant has not established the evidence of misguidance. There was no case of statutory mis-guidance. (e) The applicant should have proved beyond doubt that he is eligible for benefit due to misguidance. We do not find any compelling circumstances to use discretionary powers. The trade of impugned commodities is well established with high profile. The dealers involved in trade are well conversant with legal acumen and having wisdom. It is the responsibility of dealer to see the charging provision of sales tax and rules related for calculation of taxable value. The applicant fails to establish his case. (f) The applicant cannot p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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