Dismissed

The Commissioner of Commercial Taxes v. M/S K M S Coach Builders Pvt. Ltd.

Karnataka HC23 Sept 2021STRP/296/2018

Case brief

AI extract

What is this about?

The High Court of Karnataka dismissed the State's revision petition against the Appellate Tribunal's order. The Court held that the standard rate of deduction for labour charges under Rule 3(2)(m) is correctly applied on the gross turnover inclusive of tax collected, as the 'value of the contract' includes the tax element before deductions are made to determine taxable turnover.

What did the court decide?

Revision petition against the Karnataka Appellate Tribunal's order dismissed; Tribunal's decision allowing the dedultion claim confirmed.

The Commissioner of Commercial Taxes Vs M/S K M S… — GST and Indirect Tax | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 23^RD DAY OF SEPTEMBER, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

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S.T.R.P.No.296/2018

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BETWEEN :

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THE COMMISSIONER OF COMMERCIAL TAXES VANIJYA THERIGE KARYALAYA, GANDHINAGAR, BENGALURU-9

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...PETITIONER

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(BY SRI K.HEMA KUMAR, AGA.)

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AND :

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M/s K.M.S. COACH BUILDERS PVT. LTD., NO.125-IB, NEAR BMTC DEPOT 12 INDUSTRIAL AREA, KENGERI BENGALURU-560 060 …RESPONDENT

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(BY SMT.LAKSHMI MENON, ADV.)

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THIS STRP IS FILED UNDER SECTION 65(1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED 05.01.2018 PASSED IN STA NO.961/2016 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT BENGALURU, ALLOWING THE APPEAL FILED AGAINST THE ORDER DATED 19.10.2016 PASSED IN VAT.AP.NOs.38 TO 49/15-16 ON THE FILE OF THE JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS)-2, SHANTHINAGARA, BANGALORE, DISMISSING THE APPEAL BY UPHOLDING THE ORDER DATED 24.02.2015 BY THE COMMERCIAL TAX OFFICER (AUDIT)2.3, DVO-2, BENGALURU, FOR THE TAX PERIODS OF

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APRIL 2013 TO MARCH 2014, PASSED UNDER SECTION 62(1) OF THE KVAT ACT 2003.

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THIS PETITION COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J ., MADE THE FOLLOWING:

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O R D E R

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This revision petition is filed by the State under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (‘KVAT Act’ for short) assailing the judgment dated 05.01.2018 passed in STA No.961/2016 by the Karnataka Appellate Tribunal at Bengaluru (‘Tribunal’ for short), whereby the appeal filed by the assessee has been allowed deleting the tax, interest and penalty levied on the difference of labour charges stated to have been claimed as in excess of eligibility.

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The revision petition was admitted by this Court to consider the following question of law:-

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“Whether the tribunal has erred in holding that the standard rate of deduction in respect of labour and like charges, as prescribed under Rule 3(2)(m) of Karnataka Value Added Tax Rules, is to be applied on

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the gross turn over of the dealer inclusive of the tax collected from its customers?”

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The assessee is a dealer registered under the

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provisions of the KVAT Act and is engaged in the business of bus body building. During the tax periods April 2013 to March 2014, the assessee/respondent had filed returns in Form - VAT 100 claiming deduction of labour and like charges as per the standard rate prescribed under the Rule 3(2)(m) of the Karnataka Value Added Tax Rules, 2003 (‘KVAT Rules’ for short). The Assessing Authority rejected the deduction claimed and levied interest and penalty under the provisions of the KVAT Act. Aggrieved by the said order, the assessee preferred appeal before the First Appellate Authority. Being unsuccessful, the matter was carried to the Tribunal. The Tribunal has held that the standard rate of deduction on labour and like charges claimed by the assessee is in accordance with law allowing the appeal

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of the assessee. Being aggrieved, the State has preferred this revision petition.

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Learned AGA for the appellant – State would submit that the taxable turnover of a dealer has to be calculated after deducting the amounts specified under Rule 3(2) of the KVAT Rules. It was submitted that rule 3(2) of the KVAT Rules would be applicable in cases where the labour and like charges incurred by a works contractor are not ascertainable from the books of accounts. Since the total turnover of a dealer does not include taxes collected therein, the standard rate of deduction was to be applied only to the sale value of the goods i.e., exclusive of taxes collected by the assessee. The Tribunal erred in holding that the total consideration of contract i.e., inclusive of tax collected, as there is a deduction provided before the taxable value is determined.

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5. Learned counsel for the respondent -

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assessee justifying the impugned judgment submitted that the contract was executed inclusive of taxes as per the understanding between the parties. The assessee had raised invoices for executing the contract showing the element of deduction and the taxes separately. The Table under Rule 3(2)(m) in column (3) contemplates “value of the contract” which is the amount payable to the contractor as per the agreement and would include the tax element. The Tribunal having analyzed the material evidence has rightly allowed the appeal and the same deserves to be confirmed by this Court rejecting the revision petition filed by the appellant – State.

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We have carefully considered the rival

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submissions of the learned counsel appearing for the parties and perused the material on record.

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Rule 3(2)(l) and 3(2)(m) of the KVAT Rules

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reads thus:-

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“3(2). The taxable turnover shall be determined by allowing the following deductions from the total turnover.-

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(a) to (k) xxxxxx (l) All amounts actually expended towards labour charges and other like charges not involving any transfer of property in goods in connection with the execution of works contract including charges incurred for erection, installation, fixing, fitting out or commissioning of the goods used in the execution of a works contract.

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(m) Such amounts calculated at the rate specified in column (3) of the Table below towards labour charges and other like charges as incurred in the execution of a works contract when such charges are not ascertainable from the books of accounts maintained by a dealer.

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The relevant portion of the Table annexed to

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the said Rule is as under:-

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Sl.No.	Type of contract	Labour and like charges as a percentage of the value of the contract
(1)	(2)	(3)

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Rule 3(1) of the KVAT Rules deals with the

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determination of turnover.

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“Total turnover” as defined under Section 2(35) of the KVAT Act means “the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of inter-State trade or commerce or 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 and the value of goods transferred or despatched outside the State otherwise than by way of sale.”

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Section 2(34) of the KVAT Act defines “Taxable Turnover” as under:-

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“Taxable turnover” means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from

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his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or 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 and the value of goods transferred or despatched outside the State otherwise than by way of sale.”

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Taxable turnover has to be determined under sub-Rule (2) of Rule 3 of the KVAT Rules allowing the deductions specified therein. Clause (h) of Rule 3(2) of the KVAT Rules provides all amounts collected by way of tax under the KVAT Act has to be deducted for determining the taxable turnover from the total turnover.

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Thus, the total amount paid or payable to

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the dealer for consideration for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract including any

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amount paid as advance to the dealer as a part of such consideration, the entire contract of such value has to be considered as per clause (l) of Rule 3(2).

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Even the payment of tax under composition scheme under Section 15(1)(b) of the KVAT Act which employs the phrase “total consideration” of contract necessarily is inclusive of tax collected as there is a deduction provided before the taxable value is determined.

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On the conjoint reading of these provisions, the meaning assigned to the phrase “value of the contract” by the Tribunal that it includes all the amount received whether as taxes or labour cannot be faulted with. We do not see any perversity or illegality in the order impugned.

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10 -

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For the reasons aforesaid, we answer the

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question of law in favour of the assessee and against the revenue.

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In the result, the revision petition stands

dismissed.

SD/JUDGE

SD/JUDGE

PMR

The Commissioner of Commercial Taxes v. M/S K M S Coach Builders Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

The Commissioner of Commercial Taxes v. M/S K M S Coach Builders Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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