TMI Blog2021 (4) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ly so, since in drafting Section 13, the rationale of aforesaid judgments and many others that have taken a similar view, stand incorporated. Section 13, has, in directing the deduction of tax at source, specifically excluded from its purview three categories of transactions, labour contracts, inter-state transactions, and exempt transactions that stand outside the pale of taxation. Section 13, thus passes the test of constitutionality and the inference that flows from this conclusion is that any amount deducted in line with the mandate of Section 13, have to be with the authority of law - the nomenclature of the terms employed cannot be emphasized, since the relevant statutory provisions, rules and forms use terms such as deposit, amount, tax and other similar terms, interchangeably. There is a distinction between the Income Tax Act and the Sales Tax Act insofar as the concept of carry forward of credit does not form part of the scheme of the IT Act. Under the IT Act, an amount paid as advance tax or amount deducted as tax will have limited use only qua the relevant assessment year - Form P determines the refund after adjusting the monthly payments made towards the final tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit in respect of Tax Deducted at Source (TDS) in terms of Section 13 of the Tamil Nadu Value Added Tax Act, 2006 (in short TNVAT Act ) in 10 cases, and orders confirming the aforesaid proposals, in 13 cases. 2. The common factual position is that all petitioners, in the era of TNVAT, have accumulated credit of TDS and have also been permitted to carry forward the same from year to year. The petitioners sought transition of the accumulated TDS into their respective accounts for set off against output tax - GST liabilities. This has been denied. 3. Before setting out the rival contentions, I extract the relevant statutory provisions for ease of reference. Tax has been deducted under Section 13 of the TNVAT Act, that reads as follows: Section 13 of the TNVAT Act: 13. deduction of tax at source in works contract .--. (1) Notwithstanding anything contained in this Act, every person responsible for paying any sum to any dealer for execution of works contract shall, at the time of payment of such sum, deduct an amount calculated, at the following rate, namely:- (i) civil works contract (ii) civil maintenance works contract (iii) All other works contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessing authority that he is not liable to pay tax under section 5, the assessing authority shall refund the amount deposited under sub-section (2), after adjusting the arrears of tax, if any, due from the dealer, in such manner as may be prescribed. (7) The tax or interest under this section shall become due without any notice of demand on the date of accrual for the payment by the person as provided under sub-sections (1) and (2). (8) If any person contravenes the provisions of sub-section (1) or sub-section (2), the whole amount of tax payable shall be recovered from such person and all provisions of this Act for the recovery of tax including those relating to levy of penalty and interest shall apply, as if the person is an assessee for the purpose of this Act. 4. Section 140 of the TNGST Act provides for the transition of input tax credit, and reads as follows: 140. Transitional arrangements for input tax credit. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. viii) There are exclusions to the operation of Section 13 relating to labour contracts where there is no transfer of property, inter-state purchases and transactions where there is no liability to tax. This is in consonance with the proper exercise of authority under Article 265, meaning to say that the payer can deduct tax only in those situations where there is a liability to tax and not in the absence of such liability. It follows thus that when such authority is exercised, what is deducted will only constitute a tax. ix) Several judgments are cited to bring home the proposition that statutory provisions for deduction of tax have survived judicial scrutiny only where they withstood the test of Article 265 and Entry 54 of List II. The provisions for deduction have been struck down in situations where they were unable to sustain the rigour of Article 265/Entry 54. This establishes that the power to deduct/collect/remit under Section 13 is of an amount which constitutes tax. x) The decisions relied on are as follows: (a) SAIL Vs. State of Orissa [(2000) 3 STC 2000]; (b) Nathpa Jhakri Joint Venture Vs. State of HP [(2000 3 STC 162]; (c) State of Kerala Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fotech Vs. CESTAT Chennai [(2018) 18 GSTL 410]; (b) United News of India Vs. UOI [(2004) 168 ELT 442]; (c) Joshi Technologies International Vs. UOI [(2016) 339 ELT 21 Guj]; (d) Swastik Sanitaryware Ltd. Vs. UOI [(2013) 296 ELT 321 Guj]; (e) Gujarat Insecticides Vs. UOI [(2005) 183 ELT 9 Guj.] (f) Ajni Interiors Vs. UOI [SCA No.10435 of 2018] xvi) Section 140 does not restrict itself to Input Tax Credit (ITC) and in fact states that there shall be a complete transition of value added tax and entry tax. The question to be decided is whether TDS would fall within the ambit of value added tax or not. By comparison, Section 140(1) of the Central Goods and Service Tax Act, 2017 contemplates transition of cenvat credit alone. The scope and ambit of Section 140 under the State Act is thus wider as it permits transition of accumulated value added tax and entry tax, in addition to ITC. xvii) The very fact that transition of entry tax is also permitted under State GST would lend credence to the proposition that a transition of all accumulated credit is envisaged under the State GST Act. The construction that is urged is thus that all credit that could be set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in Karnataka Pawn Brokers Assn. and Others Etc. Vs. State of Karnataka and Others Etc. (1998 7 SCC 707) and State of Maharashtra, Bombay and Others Vs. Britannia Biscuits Co. Ltd. and Others (1995 Supp. (2) SCC 72). (v) According to the revenue, Section 13 employs deferring terminology in respect of the amount deducted, such as amount , deposit sums and towards the tax liability . This is in recognition of the position by Legislature that, (i) at the time of deduction, the amount deducted is only a rough estimate of the tax liability and thus does not represent tax that has to be definite in quantification (ii) in any event, and alternatively, only that portion deducted at source assumes the nature of tax and (iii) the remainder after deduction is liable to be refunded and cannot, in such circumstances, bear the character of tax. (vi) The words employed in Section 13 are deduct , amount and deposit of the amount . Section 13 sub-Section 4 provides for an adjustment of an amount deducted towards tax liability indicating that what was collected does not bear the character of tax as the deduction is of an estimated amount. Again sub-Section 6 tal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer. TDS thus, does not constitute ITC even under TNVAT. (xi) A strict construction has to be given to the concept of ITC as laid down in Jayam and CO. (S) Vs. Assistant Commissioner and Anr. (15 SCC 125) and ALD Automotive Pvt. Ltd.V. Commercial Tax Officer ((2019) 13 SCC 255) wherein it has been held that ITC is granted as matter of concession and all applicable provisions must be strictly construed. (xii) In summation, TDS being a machinery provision, and a tentative one at that, is of a nature different and distinct from ITC and one cannot be equated with the other for the purposes of transition. (xiii) In response to the petitioners argument that refunds are normally, inordinately delayed, the judgments of the Supreme Court in Collector of Custom, Madras Vs. Sampathu Chetty (1962 SC 316) and Gannon Dunkerley and Co.Vs. The State of Rajasthan and Others (88 SCC 204) are relied upon. The proposition that merely because a provision would be rendered unworkable or unviable by reason of a particular interpretation, is not sufficient enough an argument, to render the particular provision invalid. 7. Heard learned counsels. When a contract is awarded up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions relating to works contract on bills or invoices raised by the work contractor an amount not exceeding 4 per cent or 2 per cent, as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contract on the valuable consideration payable for the transfer of property in goods involved in the execution of the work contract, the effect of the provision is that irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself such deductions have to be made in the bills or invoices of the contractors. To say that if a person is not liable for payment of tax inasmuch as on completion of the assessment refund can be obtained at a later stage is no solace, as noticed in Bhawani Cotton Mills Ltd. v. State of Punjab Anr., 1967 (3) SCR 577. Further, there is no provision for certification of the extent of the deduction that can be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, if any, refunded, taking judicial note of the position that refunds by the Commercial Taxes Department were normally, notoriously delayed. 13. There is thus no doubt in my mind, and it is also not the case of the revenue that TDS , whether collected under the nomenclature of amount , deposit or tax is with the full blessing and authority of the law. 14. The provisions of Section 13 are not under challenge and rightly so, since in drafting Section 13, the rationale of aforesaid judgments and many others that have taken a similar view, stand incorporated. Section 13, has, in directing the deduction of tax at source, specifically excluded from its purview three categories of transactions, labour contracts, inter-state transactions, and exempt transactions that stand outside the pale of taxation. Section 13, thus passes the test of constitutionality and the inference that flows from this conclusion is that any amount deducted in line with the mandate of Section 13, have to be with the authority of law. 15. To decide this question, I prefer not to go by the nomenclature of the terms employed, since the relevant statutory provisions, rules and forms use terms su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce works contract and 5% in respect of all other kinds of works contracts. 19. Section 5 of the TNVAT Act is a charging Section for Works contracts and reads as follows: 5. Levy of tax on transfer of goods involved in works contract .- (1) Notwithstanding anything contained in this Act, but subject to the provisions of this Act, every dealer, shall pay, for each year, a tax on his taxable turnover, relating to his business of transfer of property in goods involved in the execution of works contract, either in the same form or some other form, which may be arrived at in such manner as may be prescribed, at such rates as specified in the First Schedule. Explanation. - Where any works contract involves more than one item of work, the rate of tax should be determined separately for each such item of work. (2) The dealer, who pays tax under this section, shall be entitled to input tax credit on goods specified in the First Schedule purchased by him in this State. 20. Section 6 deals with compounding qua works contract and extends an option to a dealer to pay tax at the flat rate of 2% /5%. In the case of an assessee falling under Section 5, the methodology to be applied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder and, thereafter, the assessment order will contain a direction to refund the excess amount. The amount will be refunded with interest, if any, under Section 243 . 23. In Gujarat Fluro Chemicals the point that arose was what the character of TDS or advance tax would be under the Income Tax Act and whether interest would be payable by the revenue, if excess advance tax had been paid by an assessee or if excess tax had been deducted at source when compared with the assessed tax. Thus the Court was faced with the question of whether the assessee is not entitled to interest for any such excess paid or deducted. 24. There is a distinction between the Income Tax Act and the Sales Tax Act insofar as the concept of carry forward of credit does not form part of the scheme of the IT Act. Under the IT Act, an amount paid as advance tax or amount deducted as tax will have limited use only qua the relevant assessment year. Advance tax is paid in four instalments, spread over the previous year relevant to an assessment year. Tax is deducted at source in regard to those transactions that have transpired during the financial year relevant to an assessment year. Such advance tax and TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;any person liable to make deduction and payment of tax under Section 13 shall apply to the registering authority having jurisdiction over the person for a Tax Deductor Identification Number' , prior to effecting such deduction. Perhaps Legislature, by employing the language in the substituted Rule has clarified the position that the 'deposit' and 'amount' , referred to in Section 13 are only of the nature of tax. 30. The argument that a refund, by collective experience takes an enormous length of time to reach the assessee, and hence the amount deducted must be allowed to carried forward cannot be accepted. As held by the Supreme Court in Amrit Banaspati (supra) any amount of procedural wrangles, difficulties and inefficiencies in the manner of working and administration, cannot justify interpretation of a provision in one way and not another. A provision would have to be interpreted on the strength of the object and reasons for which it was inserted and bearing in mind the overall scheme of the Act. 31. Section 140 of the Act talks of carrying forward of the credit of 'VAT' and Entry Tax under the existing law, defined under Section 2(48) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the works contract:- (1) All amounts involved in respect of goods involved in the execution of works contract, i. In the course of export of the goods out of the territory of India or ii. In the course of import of the goods into the territory of India or, iii. In the course of inter-state trade or commerce RuIe 8 (5)(a) (2) Goods involved in the execution of works contract which are specifically exempted from tax Rule 8 (5)(b) (3) All amounts paid to the Sub-contractors: Condition: - The Sub-contractor must be a registered dealer under VAT Act, 2006. He must be liable to pay tax under this Act. The turnover of such amount is included in the return filed by him. Rule 8 (5)( c) Unless the genuineness of payments made to sub-contractor is ensured by supporting documents such as bank statements, etc, exemption could not be granted. Even if there is any difference in turnover, which shaII be brought under assessment at higher rate of tax. (4) All amounts towards labour charge and other charges not including any transfer of property in goods, actually incurred in connection with the execution of works contract; (5) If the charges ..... 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