Segregation of value of goods & services not permissible where Works contract is a composite contract

Segregation of value of goods and services is not permissible where the Works contract is a composite contract and the assessee is availing the composition scheme for payment of KVAT liability

Suzlon Infrastructure Limited (“the Petitioner”) is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (“the KVAT Act”), carrying out an activity of laying down civil foundations, installation of electrical components for wind turbine generator (“WTG”). The Petitioner opted Composition Scheme in terms of Section 15 of the KVAT Act.

A customer of the Petitioner after purchasing WTGs from a manufacturer placed work orders for following four varieties of activities to be undertaken for the installation, erection and commissioning of the WTGs at a particular place:

1. laying down of civil foundation,
2. supply and installation of electrical line,
3. supply of electrical items, and
4. erection and commissioning of WTGs supplied by customer.

In respect of Contract (a) to (c), the Petitioner had discharged his tax liabilities under Composition Scheme however in respect of Contract (d), the Petitioner claimed that having discharged the Service tax liability on same, was not liable to pay the Composition tax in terms of Section 15(1)(b) of the KVAT Act.

The Assessing Authority levied Composition tax after considering all the four contracts as an integrated single composite contract.

The Hon’ble Court of Karnataka held that:

• In terms of Composition Scheme, tax would be paid on total consideration of Works contract;
• The Petitioner has segregated the activities as per the work orders executed against the offer for erection and installation of WTGs.
• The entire contract should be perused as a whole. All the segregated activities are related to the very same project with the very same customer involving transfer of goods and labour.

Hence segregation of Composite contract is not permissible under Section 15(1)(b) of the KVAT Act.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Email: [email protected])

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