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2014 DIGILAW 722 (KAR)

STATE OF KARNATAKA v. C. R. GUJAR

2014-08-07

B.MANOHAR, RAM MOHAN REDDY

body2014
ORDER This revision petition by the Revenue is filed invoking Section 65 of the Karnataka Value Added Tax Act, 2003 (for short ‘KVAT Act, 2003’), read with Rule 153(1)(a) of the Karnataka Value Added Tax Rules, 2005 (for short ‘KVAT Rules, 2005’), calling in question the order dated 4th January 2013 of the Karnataka Appellant Tribunal, Bangalore (for short ‘KAT’), allowing S.T.A. No.134 of 2008 filed by the respondent/assessee in respect of the return for the assessment year 200506, under the KVAT Act, 2003. 2. Facts briefly stated are: (a) Respondent a registered partnership firm is a registered dealer under the provisions of the KVAT Act, 2003, engaged in the business of execution of civil works contract, construction of water tanks and laying of water pipes to provide water supply to villages and towns in Belgaum District under a works contract. (b) Respondent/assessee filed monthly returns for the period from April 2005 to March 2006 before the Assistant Commissioner of Commercial Taxes, LVO400, Nippani, indicating the use of iron and steel in the execution of the works contract, carrying tax at the rate of 4%. (c) On receipt of the said returns, the Prescribed Authority (for short ‘PA’) issued a notice to the assessee to furnish the books of accounts for the period from April 2005 to March 2006, for verification, invoking Section 52 of the KVAT Act, 2003 in Form VAT 275. (d) Respondent, having responded to the said notice, furnished the necessary records to the PA, who thereafter initiated proceedings under Section 39 of the KVAT Act, 2003 for reassessment of tax and concluded the proceeding by levying tax at the rate of 12.5% on Rs. 85,56,585/- the value of works contract, while allowing a deduction of Rs.10,69,568/- as VAT collected by order dated 20.08.2007. (e) The Revisional Authority invoking Section 63A of the KVAT Act, 2003, revised the order passed by the PA by order dated 13.11.2007, Annexure ‘B’, withdrawing the deduction of Rs.10,69,568/- and enhanced the taxable turnover to Rs.96,26,253/- from Rs.85,56,585/-. (f) Respondent filed a rectification application on 12.12.2007 before the Revisional Authority invoking Section 69(1) of the KVAT Act, 2003 to rectify the order dated 13.11.2007, Annexure ‘B’, which when considered was rejected by order dated 06.12.2007, Annexure ‘C’. (f) Respondent filed a rectification application on 12.12.2007 before the Revisional Authority invoking Section 69(1) of the KVAT Act, 2003 to rectify the order dated 13.11.2007, Annexure ‘B’, which when considered was rejected by order dated 06.12.2007, Annexure ‘C’. (g) Respondent, aggrieved by the aforesaid orders, Annexures ‘B’ and ‘C’, filed S.T.A. No.134 of 2008 before the KAT invoking Section 63 of the KVAT Act, 2003. The KAT, by order dated 04.01.2013, Annexure ‘D’, allowed the appeal, modified the order dated 06.12.2007 of the Revisional Authority and directed the PA to quantify the turnover of the transfer of property in iron and steel, transferred in the same form in the course of execution of the works contract, by levying tax at the rate of 4% and directed that the remaining taxable turnover relating to goods other than iron and steel to be subjected to tax at the rate of 12.5% and in addition, set aside the reassessment order dated 20.08.2007 of the PA while remanding the proceeding to the PA for the limited purpose noticed supra and thereafter, to issue revised demand notice for the tax periods under appeal. Hence, this revision petition. 3. In the memorandum of revision petition, the following questions of law are raised: (I) Whether the Karnataka Appellate Tribunal is justified in law in holding that the iron and steel used by the respondent for the execution of works contract being used in the form should be taxed at 4% and not 12.5%? (II) Whether Karnataka Appellate Tribunal is justified in law not in properly considering Section 29 of the KVAT Act, 2003 R/w Rule 29(1)(b) of the KVAT Rules 2005? (III) Whether the Karnataka Appellate Tribunal is justified in law in reversing the order dated 06.12.2007 passed by the Revisional Authority under Section 69(1) of the KVAT Act and the order passed by the Prescribed Authority? 4. Learned Government Advocate submits that Section 4(1) of the KVAT Act, 2003 is the charging Section, though under Clause (a)(ii) is in respect of declared goods as specified in Section 14 of the Central Sales Tax Act, 1956 [Central Act 74 of 1956] (for short ‘CST Act, 1956’), i.e., entry No.30 in the Third Schedule to the KVAT Act, 2003, the rate of tax is 4% nevertheless, under Schedule 6 to the KVAT Act, 2003, works contract attracts an impost of 12.5%. 5. 5. Learned Government Advocate points to subsection 4 of Section 10 and Subsection 4 of Section 29 of the KVAT Act, 2003, to submit that a registered dealer while executing civil works contracts is required to issue a tax invoice or bill of sale at such time and containing such particulars as may be prescribed and the respondent having not done so, ‘PA’ was justified in excluding the deduction and reassessing the taxable turnover. 6. Per contra, learned counsel for the respondent/assessee submits that under Section 4(1)(a)(ii) of the KVAT Act, 2003, the respondent is required to pay tax on the taxable turnover, at the rate of 4%, in respect of iron and steel, one of the goods specified in the Third Schedule. According to the learned counsel, the goods iron and steel transferred in the same form for the purpose of execution of the works contract, being declared goods under Section 14 of CST Act, 1956, attract duty at 4%. Learned counsel hastens to add that subsection (4) of Section 29 of the KVAT Act, 2003 is inapplicable to the respondent/assessee, since the assessment was for the year 200506 and while subsection (4) of Section 29 of the KVAT Act, 2003 was inserted by Act No.6 of 2007 w.e.f 01.04.2007. 7. In addition, learned counsel submits that the Sixth Schedule providing entry No.23, relating to tax at the rate of 12.5% on all other works contracts not specified in the categories mentioned therein, amongst other description of works contracts, was inserted by Act No.4 of 2006 w.e.f. 01.04.2006 and hence, the works contract was not liable to tax for the assessment year 200506. 8. Learned counsel for the respondent submits that though there was no impost on works contracts during the assessment year 200506, nevertheless, the PA passed an order of reassessment, Annexure ‘B’, for payment of tax at the rate of 12.5% on the total taxable turnover for the year 200506, while the KAT though did not notice the said fact, issued a direction to the PA to charge tax at 12.5% on all other goods used in the works contract, except iron and steel, carrying tax at 4%. In other words, learned counsel submits that works contract not liable to tax the goods transferred in the same form in the execution of works contract were not only iron and steel, but cement, PVC pipes and RCC pipes, carrying tax at different rates, the PA as well as the KAT were not justified in directing charging of tax uniformly at 12.5%. 9. Regard being had to the submissions of the learned counsel for the parties, it is useful to extract the relevant portions of the KVAT Act, 2003 and Rules, 2005. A. Section 4(1)(a)(ii) reads thus: “4. Liability to tax and rates thereof (1) Every dealer who is or is required to be registered as specified in Sections 22 and 24, shall be liable to pay tax, on his taxable turnover, (a) in respect of goods mentioned in.— (i) x x x (ii) Third Schedule, at the rate of four per cent 1[in respect of goods specified in serial number 30 and five per cent in respect of other goods], and (iii) x x x (b) X X X 3 [(c) in respect of transfer of property in goods (whether as goods or in some form) involved in the execution of works contract specified in column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in the corresponding entries in column (3) of the said schedule.]” 1inserted by Act No. 4 of 2010 w.e.f. 01.04.2010. 3clause (c) inserted by Act No.4 of 2006 w.e.f. 01.04.2006. (B) Section 10(4) runs thus: “10. Output tax, input tax and net tax (1) x x x (2) x x x (3) x x x (4) For the purpose of calculating the amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 4[x x x] and is with the registered dealer taking the deduction at the time any return in respect of the sale is furnished, except such tax paid under subsection (2) of Section 3.” 4.The words and figures “or Section 30” omitted by Act No.32 of 2013, w.e.f. 01.04.2013. (C) Section 29(4) reads thus: “29. (C) Section 29(4) reads thus: “29. Tax invoices and bills of sale (1) x x x (2) x x x (3) x x x 3[(4) Notwithstanding anything contained in sub-section (1) or (3) or sub-section (1) of Section 7, a registered dealer executing civil works contracts shall issue a tax invoice or bill of sale at such time and containing such particulars as may be prescribed.]” 3. Sub-section (4) inserted by Act No.6 of 2007, w.e.f. 01.04.2007 (D) Entry No.30 of the Third Schedule to the KVAT Act, 2003, reads thus: 2[THIRD SCHEUDLE [Section 4(1)(a)(ii)] 3[GOODS TAXABLE AT FOUR PER CENT] _____________________________________________________ Serial Number Description of Goods _____________________________________________________ 30. Declared goods as specified in Section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) 2. Third Schedule substituted by Act No.27 of 2005 and shall be deemed to have come into force w.e.f. 07.06.2005. 3. The heading “GOODS TAXABLE AT FOUR PER CENT” omitted by Act No.4 of 2010, w.e.f. 01.04.2010. (E) Section 14(iv)(iv) of the Central Sales Tax Act, 1956 reads thus: “14. Certain goods to be of special importance in inter-State trade or commerce.— It is hereby declared the following goods are of special importance in inter-State trade or commerce:— (i) x x x (ii) x x x (iii) x x x 2[(iv) iron and steel that is to say,— (i) x x x (ii) x x x (iii) x x x (iv) steel bars (rounds, rods, squares, flat, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths; x x x (xvi) x x x ]” 2Subs. By Act 61 of 1972, sec.11, for clause (iv) (w.e.f. 01.04.1973) (F) Item No.23 to the Sixth Schedule under Section 4(1)(c) of the KVAT Act, 2003 reads thus: 1 [SIXTH SCHEUDLE [Section 4(1)(c)] ______________________________________________________________ Sl. No. Description of Works Contract Rate of Tax ______________________________________________________________ 23. All other works contracts not specified in any of 2 [Thirteen and one the above categories including composite contracts half per cent] with one or more of the above categories 1 Sixth Schedule inserted by Act No.4 of 2006, w.e.f. 01.04.2006. 2 Substituted for the words “Twelve and one half percent” by Act No.4 of 2010, w.e.f. 01.04.2010. 10. All other works contracts not specified in any of 2 [Thirteen and one the above categories including composite contracts half per cent] with one or more of the above categories 1 Sixth Schedule inserted by Act No.4 of 2006, w.e.f. 01.04.2006. 2 Substituted for the words “Twelve and one half percent” by Act No.4 of 2010, w.e.f. 01.04.2010. 10. Respondent assessee having filed a return for the assessment year 200506, consisting of 12 monthly returns, declared a taxable turnover of Rs.85,56,585/- and claimed deduction of Rs.10,69,568/- towards VAT collected, whence ‘PA’ in the order of reassessment allowed the deduction. The Revising Authority in his order set aside the deduction, thus increasing the taxable turnover to Rs.96,26,253/- and levied tax at the rate of 12.5% as applicable to works contract under item No.23 of the Sixth Schedule. 11. The works contract, entered into by the respondent and Jilla Panchayath is for laying pipes and construction of water tanks in different villages, whence materials such as iron and steel, cement, PVC pipes and RCC pipes, were transferred in the same form which is not in dispute, regard being had to Running Account Bills (for short ‘RA bills’) prepared by the authorities of the Jilla Panchayath, a Department of State Government. 12. The quantities of material and their value transferred in the same form in the execution of the works contract are certified by the authorities of the Jilla Panchayath as recorded in the RA bills, out of which iron and steel transferred in the same form during the year 2005-06 was Rs.67,38,377/-, with impost at 4% per annum. Admittedly, there is no calculation of the value of other goods transferred in the same form, namely, cement, PVC pipes, RCC pipes carrying tax at different rates, as prescribed in the Third Schedule to the KVAT Act, 2003. 13. The liability to tax and rates thereof under the charging Section 4(1)(a)(ii) read with entry No.30 in the Third Schedule, relates to the declared goods as specified in Section 14 of the CST Act, 1956, in which, Clause (iv) of subsection (iv) deals with steel bars from out of iron and steel, is charged to tax at 4%. 13. The liability to tax and rates thereof under the charging Section 4(1)(a)(ii) read with entry No.30 in the Third Schedule, relates to the declared goods as specified in Section 14 of the CST Act, 1956, in which, Clause (iv) of subsection (iv) deals with steel bars from out of iron and steel, is charged to tax at 4%. For the purpose of calculating the amount of net tax payable on the value of the iron and steel, subsection (4) of Section 10 of the KVAT Act requires the assessee to furnish the tax invoice, debit note or credit note, in relation to sale, issued in accordance with Section 29 or 30, and is with the assessee seeking deduction at the time any return in respect of the sale is furnished. 14. Although Government Advocate makes reference to subsection (4) of Section 29 of the KVAT Act, 2003, since inserted by Act No.6 of 2007 w.e.f. 01.04.2007, the same is inapplicable for the assessment year 200506. 15. The further submission that the proviso to Rule 27 of the KVAT Rules, 2005, stating that a registered dealer executing a civil works contract awarded by Government, the running account bill prepared by such Department shall be deemed to be a tax invoice or bill of sale issued by the registered dealer for the purpose of the rule, is also inapplicable for the assessment year 200506, since the said Rule was substituted by Notification dated 26.07.2007 w.e.f. 01.04.2007. 16. Be that as it may. The fact remains that the respondent/assessee did not furnish the tax invoice, the debit note or credit note in relation to sale of the materials transferred in the execution of the works contract, in accordance with Section 29 or 30 of the KVAT Act, 2003. Nevertheless, the authorities based upon the RA Bills submitted by the respondent/assessee arrived at Rs.67,38,377/- as the value of the iron and steel, in respect of which the rate of tax is 4%. 17. It is therefore unnecessary to go into the question whether there was compliance with subsection (4) of Section 29 in relation to executing of civil works contract and issue of tax invoice or bill of sale, since that provision was inserted by Act 6 of 2007 w.e.f. 01.04.2007 and hence, inapplicable for the assessment year 200506. 18. 17. It is therefore unnecessary to go into the question whether there was compliance with subsection (4) of Section 29 in relation to executing of civil works contract and issue of tax invoice or bill of sale, since that provision was inserted by Act 6 of 2007 w.e.f. 01.04.2007 and hence, inapplicable for the assessment year 200506. 18. As regards the other items of goods transferred in the same form in the execution of works contract during the year 200506, more appropriately over cement, PVC pipes and RCC pipes, there is no material before Court over quantities and their values. It was for the Prescribed Authority ‘PA’, the Revisional Authority ‘RA’ and the KAT to have applied their minds to the said facts and clamp the liability on the assessee to pay the correct tax under the KVAT Act, 2003. We must notice that the said authorities misdirected themselves to the provisions of the statute inserted w.e.f. 01.04.2007 though those provisions were not applicable to the respondent’s return for the assessment year 200506, more appropriately the Sixth Schedule to the KVAT Act, 2003, brought into force w.e.f. 01.04.2006, whence, for the first time, tax was imposed on ‘works contract’. It was too farfetched for the State and its authorities to have fastened the respondent with the liability to pay tax on the ‘works contract’ for the assessment year 200506. 19. The charging Section 4(1)(c) in respect of transfer of property in goods, whether as goods or in some other form, involved in the execution of works contract specified in column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in the corresponding entries in column (3) of the said Schedule, was inserted by Act 4 of 2006 w.e.f. 01.04.2006. Thus, for the first time, ‘works contract’ was imposed with tax at 12.5% w.e.f. 01.04.2006 and not for the assessment year 200506. 20. In the view we have taken supra, none of the questions of law, framed by the Revenue in the memorandum of revision petition, arise for decision making. 21. In the circumstances, the Revenue, i.e., the State is not entitled to the illegal duty on ‘works contract’ for the assessment year 200506, calling forth the application of doctrine of unjust enrichment. In the view we have taken supra, none of the questions of law, framed by the Revenue in the memorandum of revision petition, arise for decision making. 21. In the circumstances, the Revenue, i.e., the State is not entitled to the illegal duty on ‘works contract’ for the assessment year 200506, calling forth the application of doctrine of unjust enrichment. It is needless to state that when tax is illegally collected, it has be refunded to the taxpayer. 22. It is in these circumstances, though the Revenue has not made out a case for consideration on the questions of law framed by it in the memorandum of revision petition, nevertheless, we find it difficult to accept that portion of the direction issued by the KAT in the order impugned relating to subjecting to tax at the rate of 12.5% on the remaining taxable turnover, relating to goods other than iron and steel. Therefore, we think it appropriate to allow the revision petition in part and set aside that portion of the order subjecting to tax at 12.5% on the remaining taxable turnover relating to goods other than iron and steel and direct imposition of tax at the rates prescribed in the Third Schedule over goods, such as cement, PVC pipes and RCC Pipes said to have been transferred in the same form in the execution of the works contract during the year 2005-2006, after making a valuation of the said articles, as against the remaining taxable turnover excluding Rs.67,38,377/-, towards the purchase of iron and steel, at 4%. 23. Parties, since represented by learned counsel, are directed to be present before the KAT on 03.09.2014.