Turnover from works contract should be assessed as per rule 8(5) of TNVAT Rules, 2007

VBHC Chennai Value Homes Private Limited Vs Assistant Commissioner(ST) (Madras High Court)

Madras High Court held that the proper method for assessing the turnover from works contract is as per Rule 8(5). Accordingly, it was directed to redone de novo applying the methodology set out under rule 8(5) of the Tamil Nadu Value Added Tax (TNVAT) Rules, 2007.

Facts-

The impugned assessments relate to the periods 2011-12, 2012-13 & 2013-14 and have been framed in terms of the provisions of the Tamil Nadu Value Added Tax Act, 2006 all dated 14.03.2019. The assessments are assailed on the basis of the methodology adopted in computing the value of the works contract under Section 5 of the Act.

The petitioner is aggrieved by the methodology adopted in the computation of tax on turnover, and draws attention to Rule 8(5) of the Tamil Nadu Value Added Tax Rules, 2007.

Conclusion-

Learned Government Pleader agreed that the proper method for assessing the turnover from works contract is as per Rule 8(5) and that there is no statutory basis to justify the methodology adopted in the impugned assessments. In light of the same, the impugned assessments are set aside and remanded to the assessing authority to be redone de novo, applying the methodology set out under Rule 8(5) of the Rules.

For this purpose, and seeing as the assessments relate to the periods 2011-12 to 2013-14, the petitioner will appear before the assessing authority on 12.10.2022 at 10.30 a.m. without awaiting any further notice and make its submissions. The assessments shall be completed within a period of eight (8) weeks from the date of receipt of copy of this order.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

Heard Mrs.Hema Muralikrishnan, learned Senior Standing Counsel for the petitioner and Mr.C.Harsha Raj, learned Additional Government Pleader for the respondent.

2. The impugned assessments relate to the periods 2011-12, 2012-13 & 2013-14 and have been framed in terms of the provisions of the Tamil Nadu Value Added Tax Act, 2006 (‘Act’) all dated 14.03.2019. The assessments are assailed on the basis of the methodology adopted in computing the value of the works contract under Section 5 of the Act.

3. Section 5 provides for a levy of tax on transfer of goods involved in works contract and reads thus:

“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.”

4. The petitioner has come to this Court earlier challenging orders of assessment originally passed on 31.07.2015. Those writ petitions were disposed by order dated 12.09.20 16 and at paragraph No.15, the learned single Judge has noted both the factual and legal positions qua the transaction at issue as follows:

“15. The legal position with regard to works contract has been decided by the Hon ‘ble Supreme Court in two of the decisions referred to by the learned Senior counsel namely, in the cases of Gannon Dunkerley & Co., (supra), and Larsen & Tourbo Ltd & Ors. (supra). However, to apply these decisions, it is essential that a thorough factual exercise has to be done. The transactions appear to be complicated and there are several transactions, especially when the project consist of 148 flats, which is stated to have been completed and completion certificate was issued during March 2014. These complicated factual issues has to be adjudicated bearing in mind the legal principle enunciated in the aforementioned judgment. However to adjudicate the factual issues, the petitioner should first furnish adequate information. The mere statement that 50% of the flats remained unsold on the date of issuance of the completion certificate may not be sufficient for the Assessing Authority to examine the controversy by applying the legal principle enunciated in the cases of Gannon Dunkerley & Co., (supra), and Larsen & Tourbo Ltd & Ors. (supra). Recently the Hon ‘ble Supreme Court in the case of Smt.B.Narasamma vs. Deputy Commissioner Commercial Taxes Karnataka & Anr., reported in 2016 (7) Scale 685, considered the aforementioned decisions in a batch of appeals arising out of a judgment of the High Court of rnataka. The question which was considered by the Hon ‘ble Supreme Court was whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract.”

5. Learned Judge thereafter quotes extensively from the judgment of the Supreme Court in the case of Gannon Dunkerley & Co. Vs. State of Rajasthan [(1993) 88 STC 204] and in fine, set aside the assessments directing that the assessments be completed in accordance with law and after taking note of the materials submitted by the assessee.

6. In completing the impugned assessments, the assessing authority arrives at a deemed sale value of the transactions, bringing to tax the turnover from the entirety of the contract even at the first stage. In doing so, he takes a cue from the petitioner who admittedly has availed the entirety of the Input Tax Credit (ITC) available in respect of all purchases effected by it.

7. The petitioner is aggrieved by the methodology adopted in the computation of tax on turnover, and draws attention to Rule 8(5) of the Tamil Nadu Value Added Tax Rules, 2007 (‘Rules’) that reads as follows:

8. Procedure for assessment.—

(1) In pursuance of Explanation II to clause (41) of

section 2, the amounts specified in the following clauses shall not, subject to the conditions specified therein, be included in the turnover of a dealer –

(5) The taxable turnover of the dealer liable to pay tax under section 5 on transfer of property in goods involved in the execution of works contract shall be arrived at after deducting the following amounts from the total turnover of that dealer, namely:-

(a) All amounts involved in respect of goods involved in the execution of works contract in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce;

(b) All amounts relating to the sale of any goods involved in the execution of works contract which are specifically exempted from tax under the Act;

(c) All amounts paid to the sub-contractors as consideration for execution of works contract whether wholly or partly:

Provided that no such deduction shall be allowed unless the dealer claiming deduction, produces proof that the sub­contractor is a registered dealer liable to pay tax under this Act and that the turnover of such amount is included in the return filed by such sub-contractor;

(d) All amount towards labour charges and other charges not involving any transfer of property in goods, actually incurred in connection with the execution of works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority.

THE TABLE

8. Learned Government Pleader agrees that the proper method for assessing the turnover from works contract is as per Rule 8(5) and that there is no statutory basis to justify the methodology adopted in the impugned assessments. In light of the same, the impugned assessments are set aside and remanded to the assessing authority to be redone de novo, applying the methodology set out under Rule 8(5) of the Rules.

9. For this purpose, and seeing as the assessments relate to the periods 2011-12 to 2013-14, the petitioner will appear before the assessing authority on 12.10.2022 at 10.30 a.m. without awaiting any further notice and make its submissions. The assessments shall be completed within a period of eight (8) weeks from the date of receipt of copy of this order.

10. These writ petitions are disposed as above. No costs. Consequently, connected miscellaneous petitions are closed.