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IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH
DATED THIS THE 27TH DAY OF APRIL 2019
PRESENT
THE HON’BLE MR. JUSTICE G.NARENDAR
AND
THE HON’BLE MR. JUSTICE BELLUNKE A.S.
WRIT APPEAL NO.100235/2018 (T-RES)
BETWEEN
JMC CONSTRUCTIONS PVT LTD CORPORATION OFFICE AT 27-972/1, TELECOM COLONY,CHITTOOR, ANDHRA PRADESH-517001, REP. HEREIN BY ITS AUTHORISED SIGNATORY & DIRECTOR, MR. A.MADAN MOHAN.
... APPELLANT (BY SRI. K.P.KUMAR, SENIOR COUNSEL FOR SMT.MAMATHA ROY, ADVS.)
AND
1. THE STATE OF KARNATAKA REPRESENTED BY ITS
FINANCE SECRETARY, VIDHANA SOUDHA,
BANGALORE-560001.
2. THE COMMISSIONER OF COMMERCIAL TAXES VANIJYA THERIGE KARYALAYA, 1ST FLOOR, GANDHINANAGAR, BANGALORE-560009.
3. THE COMMERCIAL TAX OFFICER (ENFORCEMENT)-10, HUBLI-580025.
4. M/S.KMC-JMC (JV), HAVING OFFICE AT NO.1, SKS REFINERIES (P) LTD., PREMISES, GBN ROAD,
R
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MADHUGIRI 572132, REP. BY ITS JOINT DIRECTOR.
... RESPONDENTS
(BY SRI.RAVI V. HOSAMANI, AGA FOR R1 TO R3, SRI. SHIVARAJ S. BALLOLI, ADV. FOR R4)
THIS WRIT APPEAL IS FILED U/S.4 OF KARNATAKA HIGH COURT ACT, 1961, PRAYING THIS HON'BLE COURT TO, ALLOW THIS WRIT APPEAL, SET ASIDE THE IMPUGNED ORDER DATED 27.06.2018 PASSED BY THE LEARNED SINGLE JUDGE IN W.P. NO.103934/2018 AND ALLOW THE WRIT PETITION, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS WRIT APPEAL COMING ON FOR ‘DICTATING ORDERS’, THIS DAY, G.NARENDAR J., DELIVERED THE FOLLOWING:
JUDGMENT
Heard the learned senior counsel Shri K.P.Kumar
along with the learned counsel Smt. Mamatha Roy for the
appellant and the learned AGA Shri Ravi V. Hosamani on
behalf of respondent Nos.1 to 3 and Shri Shivaraj S.
Balloli on behalf of the respondent No.4.
2. The parties are referred to by their
nomenclature in the writ petition for the sake of
convenience.
3. The petitioner is a company registered under
the provisions of the Karnataka Value Added Tax Act,
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2003 (hereinafter referred to as ‘KVAT Act, 2003’) and is
engaged in the execution of work contracts. During the
relevant tax periods in question, namely April 2012 to
March 2013, the petitioner had opted to pay tax under the
composition scheme as per the provisions of Section 15 of
the KVAT Act, 2003.
4. It is further submitted that the petitioner had
entered into a joint venture agreement on 16.08.2011 with
KMC Constructions Limited for the purpose of submitting
a bid for widening and strengthening of existing
intermediate lane carriageway to two lane carriageway
from K.m. 290.20 to K.m. 343.80 on NH – 234 i.e., Sira
Madugiri Section, in Karnataka under the special project
scheme. The joint venture bid i.e., of the KMC & JMC
Constructions being the lowest, they were awarded the
work vide Agreement dated 30.08.2011and Work Order of
even date issued by the Executive Engineer, National
Highways Special Division, Bengaluru. It was agreed
between the constituents of the joint venture i.e., M/s.
KMC Constructions Limited and M/s. JMC (the petitioner
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herein), that the entire work would be subcontracted to
the petitioner. In lieu of the agreement, petitioner executed
the entire work as a subcontractor for the joint venture
entity of M/s. KMC Constructions and M/s. JMC
Constructions and who being the main contractor would
raise bills on the NHAI (Employer) from time to time. NHAI
would then make payments to the main contractor i.e.,
the joint venture and while making such payments, NHAI
would deduct tax at the rate of 4% as per the provisions of
Section 9A of the KVAT Act, 2003 and issue TDS
certificates to the joint venture entity.
5. It is further submitted that the petitioner did
not pay tax on its works contract turnover since the tax
payable on the turnover of works contracts executed in
favour of NHAI was already deducted by the employer
(NHAI) while releasing payments to the main contractor
who, it is pertinent to note has not claimed refund in its
returns filed under the KVAT, Act for the relevant tax
periods and that the instant claim is also barred by time
and hence the credit of the said TDS was required to be
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given to the petitioner, as it has executed the works
awarded to the main contractor. It is further submitted
that if the petitioner were also to pay tax on its turnover, it
would have resulted in tax having been paid twice over to
the State (once indirectly, through the main contractor/4th
respondent, by way of TDS and again directly by the
petitioner) on execution of the very same works contract,
which would amount to double taxation, which is
impermissible in law. Hence, the petitioner did not pay tax
under the KVAT Act in respect of the works contract
turnover as the employer (NHAI) had already deducted and
remitted the tax to the State.
6. While the position stood thus, on 05.12.2017,
the 3rd respondent after inspecting the petitioner’s
premises and examining its books of accounts, issued a
notice proposing to reassess the petitioner’s tax liability
for the tax periods April 2012 to March 2013. In the said
notice, the 3rd respondent inter alia proposed to tax the
turnover of work contracts executed by the petitioner as a
subcontractor for the joint venture – 4th respondent.
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7. The petitioner thereafter filed a detailed
response to the reassessment notice vide its reply dated
16.12.2017. In the said reply, the petitioner, inter alia
informed the 3rd respondent that the joint venture had
allotted the entire work to the petitioner on a back to back
basis and that the government/tendering
authority/Employer has already deducted tax at the rate
of 4% on the work executed and transferred to the
employer. The petitioner further stated that the joint
venture has not claimed refund of the TDS from the State.
The petitioner accordingly requested the 3rd respondent to
adjust the TDS in the hands of the joint venture against
the petitioner’s liability since the tax relates to execution
of the very same works. In order to substantiate its claim,
the petitioner filed TDS certificates issued by the NHAI to
the joint venture and requested for adjustment of
Rs.60,75,268/- deducted by NHAI while making payments
to the joint venture and later remitted to the State by
NHAI in compliance of the provisions of S.9-A(5).
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8. The 3rd respondent, however, rejected the
petitioner’s request in this regard and passed a
reassessment order dated 28.03.2018 under Section 39(1)
of the KVAT Act, 2003. The rejection order appears to be
based on the circular issued by the Commissioner of
Commercial Taxes on 23.12.2014 directing that there can
be no transfer of TDS credit in favour of a third person. In
the said reassessment order, the 3rd respondent observed
that the TDS made in the name of M/s. KMC-JMC-(JV)
the main contractor in this case amounting to
Rs.60,75,268/- cannot be given as credit to the tax
payments to be made by M/s. JMC Constructions Private
Limited, who is a subcontractor in this case. The 3rd
respondent further levied interest and penalty under
Sections 36(1) and 72(2) of the KVAT Act and issued a
demand notice also dated 28.03.2018 calling upon the
petitioner to pay the reassessed tax, interest and penalty
within 30 days from service of the notice.
9. In support of his observation that adjustment
of TDS in the hands of the main contractor against the tax
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liability of the subcontractor is impermissible. The 3rd
respondent relied upon Circular No.21/2014-15 dated
23.12.2014 issued by the 2nd respondent, Commissioner
of Commercial taxes. In the said circular, the 2nd
respondent has issued instructions to all the officers not
to adjust TDS in the hands of the main contractor against
the tax liability of a subcontractor, as the two are separate
and distinct entities. In the said circular, the 2nd
respondent further observed that it is the obligation of the
subcontractor to file his returns and pay tax on the works
executed by him, irrespective of the fact that tax has been
deducted in the hands of the main contractor.
10. Thereafter, on 30.05.2018, the 3rd respondent
issued a notice under Section 45 of the KVAT Act, 2003 to
the Branch Manager of the petitioner’s bank, namely
Andhra Bank, Chittoor, Andhra Pradesh. In the said
notice, it was stated that the bank holds/owes monies on
behalf of/to the petitioner. The 3rd respondent, therefore,
directed the bank to pay out such monies held by it to the
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3rd respondent towards the satisfaction of the tax, interest
and penalty reassessed for the tax periods in question.
11. Aggrieved by the reassessment order and
demand notice dated 28.03.2018 as well as the aforesaid
circular issued by the 2nd respondent, the petitioner
approached this Hon’ble Court in Writ Petition
No.103934/2018. It was submitted that the denial of the
petitioner’s request for adjustment of TDS in the hands of
the joint venture – main contractor was primarily based on
the instructions contained in Circular No.21/2014-15
dated 23.12.2014 issued by the 2nd respondent in
pursuance of the powers conferred under Section 59(1) of
the KVAT Act, (which the petitioner impugned in the writ
petition). It was submitted that as the KVAT Act, 2003 did
not provide any recourse against the circular issued by
the 2nd respondent under Section 59(1), the petitioner was
constrained to approach this Hon’ble Court under Article
226 of the Constitution of India since all instructions
issued by the 2nd respondent are binding on the
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authorities involved in the implementation & execution of
the Act.
12. That the Hon’ble Supreme Court and the
Hon’ble High Courts in a number of judgments have held
that once the highest functionary in the hierarchy of
authorities has expressed its opinion on a particular
issue, then it would be wholly impracticable to expect
subordinate authorities, including appellate authorities to
take a contrary stand. The petitioner sought to invoke the
extraordinary jurisdiction of this Hon’ble Court under
Article 226 of the Constitution of India. However, the
learned Single Judge vide the impugned order, dismissed
the writ petition and declined to exercise the writ
jurisdiction of this Hon’ble Court on the ground that there
exists an efficacious and alternative remedy by way of an
appeal under Section 62 of the KVAT Act, 2003.
13. It is submitted that the learned Single Judge
has erred in passing the impugned order as it failed to
appreciate that it would be an exercise in futility to
approach any of the authorities designated under the Act,
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including the first appellate authority by way of an appeal
under Section 62 of the KVAT Act, 2003, since the highest
functionary in the Commercial Taxes Department i.e., the
Commissioner of Commercial Taxes has already expressed
his view on the issue at hand. Moreover, the KVAT Act,
2003 does not provide any avenues to challenge circulars
issued under Section 59(1) and therefore, the learned
Single Judge ought to have exercised the writ jurisdiction
instead of holding that the petition is not maintainable
and on that erroneous basis, relegating the appellant to
avail the appellate remedy under the KVAT Act, 2003, a
futile exercise.
14. The learned Senior counsel has also placed
reliance on the ruling rendered by the Co-ordinate Bench
in the case of Ashok Agencies, Bangalore vs. State of
Karnataka and others reported in 2008 (65) Kar.L.J.
97 (HC) (DB), to contend that the writ petition is
maintainable on account of the circular issued by the
Commissioner of Commercial Taxes bearing No.21/2014-
15 dated 23.12.2014. He would invite the attention of this
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Court to the observations of the Co-ordinate Bench at
paragraphs 3 to 6, wherein the Co-ordinate Bench has
been pleased to hold that the alternative remedy of appeal
is not an efficacious remedy as all the authorities involved
in adjudicating the disputes that arise under the Act are
undoubtedly bound by the circular issued by the
Commissioner of Commercial Taxes who is a superior
authority in the hierarchy of the officers.
15. He would also place reliance on the order dated
13.07.2018 passed in STRP No.23/2017, whereby the Co-
ordinate Bench has been pleased to admit the revision
petition to consider the question as to whether TDS
collected at source by the employer from the payments
made to the principal contractor can be given credit in the
hands of the sub contractor or not. The consideration of
the said issue would require a ruling on the correctness of
clause (f) of Rule 44(3) of the KVAT Rules which
apparently prohibits the transfer of the credit of the TDS
already deducted on account of one person/entity, either
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directly or through any other person to the account of
another person.
16. The respondent revenue has resisted the writ
appeal by filing statement of objections dated 18.01.2019,
as the writ petition has been apparently considered and
dismissed at the preliminary hearing stage itself.
17. The revenue has fairly admitted the factual
matrix of the case, that is the facts pertaining to the
deduction of tax in the hands of the main contractor and
remittance of the TDS amount by the employer with the
respondent authorities, on account of the works contract
awarded to the main contractor, i.e., the 4th respondent
and the facts pertaining to execution of the said work by
the petitioner/sub contractor. It is also pertinent to note
that the revenue has not denied the factum of the
petitioner having entered into a contract with the main
contractor and the factum of execution of the contract
work having been entrusted to the petitioner by the main
contractor as a back to back contract i.e., entrustment of
execution of the entire works contract only.
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18. The fulcrum of the defence set up by the
respondents is the circular issued by the Commissioner of
Commercial Taxes dated 23.12.2014 vide Annexure – E
to the writ petition, whereby the Commissioner of
Commercial Taxes placing reliance on the provisions of the
Section 9A of the KVAT Act, 2003, as ordered as under:
“7. Further, it is also noticed that the
sub contractors who are executing the woks
contract on behalf of the main contractors are
requesting the departmental officers to adjust
the tax deducted at source by the TDS
authorities payable to the main contractor
towards their tax liability instead of refunding to
the main contractor. There are also instances
where the main contractors have requested to
adjust the amount of tax deducted from their
account towards the tax liability of their sub
contractors. Hence, there is a necessity to clarify
as to whether the said adjustment can be made
if there is no liability of tax for the main
contractor. It is a general practice that the main
contractor who has been awarded the contract
from the Government departments or public
sector undertaking to assign the whole or part of
such contract to a sub contractor or a number of
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sub contractors. The payment made to sub
contractors are allowed as deduction in the
hands of the main contractors the TDS made by
the Government department and public sector
undertaking is credited to the account of the
main contractor. As per the return filed by the
main contractor, the amount of TDS is given
credit as if it is paid by him. The sub-contractor
is a separate and distinct entity independent of
the main contractor and is required to file the
return and pay tax as per his return. The tax
payable by the sub-contractor is dependent on
the amount received by him from the main
contractor which also includes the tax payable
by the sub-contractor.
8. As per the provisions of the KVAT
Act, 2003, the request of any dealer whether he
is a sub-contractor or a main contractor to
adjust the amount of the TDS made by the tax
deducting authority towards the liability of the
sub-contractors should not be entertained. The
only way for the main contractor is to claim the
refund of the excess credit of tax in his account
due to TDS in his monthly returns which may be
made after audit of his accounts. The TDS
amount is not transferable from the account of a
main contractor to that of a sub-contractor. A
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sub contractor has to pay his tax liability in full
irrespective of any TDS done by the contractee
while making payments to the main contractor.
Therefore, the officers of the department are
instructed that they should not give credit of
TDS amount from the amount of the main
contractor to that of a sub contractor.”
19. It is relevant to note that the statement of
objections is more inclined towards the technical aspect of
the issue. The challenge to the validity of the above
circular is sought to be negated on the premise that the
circular is a validly issued circular in terms of Section 59
of the Act which apparently authorizes the Commissioner
of Commercial Taxes issue circulars to remove the
difficulties and hurdles that arise in the course of
implementation of the statute. It is admitted in paragraph
10 that as a practice, the VAT officers were giving set off to
the sub contractors for the TDS in the hands of the main
contractor, even when the main contractor had not given
up their rights to seek for refund or set off or adjustment
on account of the TDS credited as against their account. It
is further contended that as the petitioner has not laid any
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challenge to the validity of Rule 44(3)(f) of the KVAT Rules,
the challenge to the circular is impermissible, as the
circular is in consonance with the provisions of clause (f)
of Rule 44(3) of the KVAT Rules, 2005. It is pertinent to
note that an attempt is made to justify the circular in
terms of Rule 44(3)(f) of the KVAT Rules.
20. On perusal of the circular, it is seen that no
reliance is placed by the Commissioner of Commercial
Taxes on the provisions of Rule 44(3)(f) and on a
comprehensive reading of the same, the inference one can
draw is that the circular has been found necessary by the
Commissioner to deter the VAT officers from giving set off
to the sub contractors on account of the TDS in the hands
of the main contractor. It is further contended that the Co-
ordinate Bench of this Court has ruled that Section 9A of
the KVAT Act, 2003 does not entitle a sub contractor to
seek transfer of set off of TDS in the hands of the principal
contractor.
21. Continuing further, it is pleaded that “the set
off of TDS in favour of the petitioner (appellant) can be
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extended in a case, where the principal contractor in turn
submits that he is not claiming any benefits of TDS and
the entire deductions can be transferred in favour of the
sub contractor, under such circumstances, the benefit of
TDS can be extended in favour of appellant herein.” In the
absence of the same, the department cannot transfer TDS
and the same is also barred under Rule 44(3)(f) of KVAT
Rules 2005. The main contractor i.e., the 4th respondent
was not a party to the writ petition and was brought on
record by way of an application preferred under Order 1
Rule 10 of CPC which came to be allowed by this Court by
order dated 10.04.2019.
22. It is also relevant to note that the 3rd
respondent, the Commercial Tax Officer has filed an
affidavit dated 24.04.2019 and it is categorically admitted
that the petitioner is a sub contractor of the joint venture
entity KMC/JMC Constructions. It is also admitted that
the RA bills have been raised by the main contractor only
and that the employer (M/s. NHAI) has made the
payments against the bills after deducting tax at source
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(TDS). That the main contractor has been issued Form
VAT – 156 and that the main contractor is also a
registered dealer under KVAT Act and has filed returns in
VAT Form 120 under its registered Tin No.29060808668.
It is further deposed that the main contractor in its
monthly returns filed during the period April 2012 to
March 2014 has declared the TDS suffered by it from time
to time under the payments in lieu of the RA bills raised
by it on the employer. That the main contractor has not
claimed refund, but has opted to carry forward the credit
by showing the VAT – TDS amount in the column for
credit carry forwards (5.3.2 in form VAT 120). The copies
of the returns have been produced along with affidavit and
the Annexures R-1 to R-24. It is further deposed that the
returns is a clear indicator of the main contractor,
intention to assert it’s right/claim over the amount lying
in its credit for future adjustment. It is further deposed
that the tax authorities are required to act as trustees in
respect of the carried forward credit held in favour of the
main contractor.
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23. It is further fairly admitted that subsequently
the main contractor has omitted to declare this VAT TDS
credit even in the column 5.3.2. That despite the non-
declaration of the amount in column 5.3.2, the total VAT
TDS amount is still reflected as lying in credit of the main
contractor. It is further deposed that the provisions of
Section 10(5) of the KVAT Act does not prescribe any
limitation for claiming refund and hence, it is contended
that the tax assessment in respect of the petitioner will
not amount to double taxation in respect of the same
transaction.
24. It is further deposed that though the total
receipts for the works contract is taxable at the rate of 4%
under the compensation scheme, but insofar as it relates
to interstate and URD purchases, the petitioner is liable to
pay tax at the applicable rate. It is further deposed that on
account of these factors i.e., interstate goods and the URD
purchases, the total tax liability of the sub contractor may
even exceed the total amount deducted as VAT – TDS and
that the VAT TDS is only a safeguard mechanism adopted
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by the legislature and hence, no fault or irregularity can
be found in the actions of the respondents.
25. The 3rd respondent has deposed further and
places reliance on the clause 2.6 of the sub contract
agreement dated 14.09.2011, admittedly between the
main contractor - 4th respondent and the petitioner/sub
contractor which reads as under:
“2.6: JMC shall be solely responsible and
liable for copying with all the applicable rules of
the Government/Statutory Authorities/Local
Bodies for income tax, sales tax, works contract
tax, service tax any other direct or indirect
taxes, levies, charges, present and future as
also for all payments thereunder in respect of or
in relation to the work and / or the contract
except the TDS applicable to the payment made
to KMC in terms of Article 3.1 herein after. All
liabilities on account of aforesaid taxes, levies,
charges, etc. shall be bourn solely and
exclusively by JMC, similarly, JMC shall have
sole and exclusive right on all refunds as may
be received by JV from authorities in respect of
such taxes, levies, charges etc.”
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26. The deponent in paragraph 8 of the affidavit
seeks to withdraw the concession earlier made in
paragraph 12 of the statement of objections dated
18.01.2019. It is further submitted that the entire stand of
the revenue hinges on the provisions of Rule 44(3)(f) of the
KVAT Rules and the circular dated 24.03.2012 said to be
in consonance with Rule 44(3)(f) of the KVAT Rules. It is
relevant to note that the facts relating to returns filed by
the main contractor and the credit on account of the TDS
deducted by the employer and remitted with the
respondent and the same lying in the account of the main
contractor are all fairly admitted by the respondents.
27. It is also relevant to note at this stage itself
that the petitioner had filed a memo dated 10.08.2018
enclosing therewith the certificate issued by the concerned
CTO certifying that the main contractor has not claimed
any refunds from his office from 2012-13 onwards to till
date. The said certificate is also admitted by the
respondents.
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28. The petitioner has also filed one more memo
dated 29.03.2019 enclosing therewith a copy of the letter
dated 25.03.2019 addressed by the 4th respondent/main
contractor to the Commercial Tax Officer, Audit and
Recovery, Madugiri. Under the said letter, the 4th
respondent/main contractor has stated that it has sub
contracted the entire work to the petitioner on a back to
back basis and on account of the same, the works
contract was executed by the sub contractor only and no
other tax liability has been incurred by the main
contractor. It is further stated that the JV is not carrying
on any other activity or business and hence has not
incurred any other tax liability at all. It has also detailed
the work executed between 2012-13 to 2016-17. It has
also enclosed the various TDS certificate in Form 156 in
all aggregating to Rs.5,12,83,419/- lying in the account of
the respondent revenue department.
29. It is further reiterated by the learned Sr.
Counsel that the entire work had been entrusted to the
sub contractor and hence, the TDS should enure to the
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benefit of the sub contractor, as the said tax has been
deducted at source on account of the work executed by
the sub contractor out of the bill raised by the main
contractor against such executed work and that the work
executed is the only taxable event. It is further stated that
the main contractor has assumed that the revenue
authorities would accordingly credit the entire TDS to the
account of the sub contractors. It is also clarified that the
returns filed every month by the main contractor reflects
nil turn and nil tax liability. It is further asserted that it
has not claimed any refund whatsoever till date and that it
is giving up its right to claim refund subject to the revenue
giving credit of the entire TDS to the sub contractor’s
account.
30. The receipt of the letter and the TDS forms
enclosed along with the memo are admitted by the
respondents. But an objection was raised that the main
contractor not being a party to the instant proceedings it
may claim that any findings in the instant proceedings it
are not binding on it.
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31. To address this concern, the petitioner took
steps to bring on record the main contractor/the 4th
respondent, and an application came to be preferred
under Order 1 Rule 10 of CPC and the same came to be
allowed by order dated 10.04.2019.
32. The main contractor 4th respondent after
coming on record has filed an affidavit and has virtually
reiterated the contents of the letter dated 25.03.2019
addressed to the department and paragraphs 8, 9 and 10
read as under:
“8. I state that, as the JV had not
carried on any business whatever during those
years or even now, the entire TDS aggregating
to Rs.5,12,83,419/- including Rs.60,75,268/-
pertaining to the Assessment year 2012-13 is
lying with the revenue. It is settled law that
where work is entrusted to a sub contractor, the
sub contractor is liable to VAT and not the main
contractor. As the JV had entrusted the entire
work to the sub contractor, the entire TDS
should be related to the sub contractor
appellant. The JV assumed that the revenue
would accordingly credit the entire TDS to the
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account of the sub contractor appellant. It can
be noticed that the returns filed by us every
month should nil turnover and nil tax liability.
9. I state that, the JV has been
informed that the appellant has not been given
credit for TDS and ignoring the fact that as
much as by 5.12 crores of tax is lying with the
revenue all along wholly relatable to the sub
contractor appellant’s work, huge demands are
raised on the sub contractor appellant.
10. I state that, JV was of the view that,
TDS will go to the account of the Appellant sub
contractor. However, the same has not been
done under the anticipation that the JV may
claim in the future. Thus, I as joint director of
the JV, hereby confirm that the JV has not
claimed any refund whatever and the JV gives
up its right to claim refund subject to the
Revenue giving credit of the entire TDS to the
sub contractor appellant’s account.”
33. From the above discussion, what this
Court is able to discern is that the 4th respondent
was awarded a works contract i.e., for upgradation of
the carriageway from K.m. 290.20 to K.m. 343.80 by
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the NHAI. That the 4th respondent is a joint venture
of two independent entities separately registered as
dealers under the Act. The JV is also independently
registered under the Act as a dealer and has been
allotted a separate tin number i.e., in effect, the
constituents of the joint venture, though are
independently registered as dealers have acquired
the status of separate entity on account of their joint
venture entity being registered as an independent
dealer under the Act. The other admitted fact is that
the JV has further agreed to sub contract the entire
works contract to one of its constituents i.e., the
petitioner. Hence, the petitioner is peculiarly placed.
As a constituent of the joint venture, credits are lying
in its account. But on account of it executing the
contract as a sub contractor under the independent
arrangement arrived at between the JV and the
petitioner, it is required of this Court to determine as
to in whose hands the taxable event has occurred.
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34. It is fairly admitted by all the parties that
the works contract has been awarded by the
employer, namely NHAI in favour of the joint venture
company only i.e., the 4th respondent. It is also fairly
admitted that the petitioner is a constituent of the
joint venture entity. It is also fairly admitted by all
the parties that the execution of the work awarded in
favour of the joint venture entity has been entrusted
to the petitioner, what in commercial parlance is
described as a back to back contract which entails
the complete execution of the contract awarded in
favour of the other party who is normally the main
contractor.
35. In view of the above, for the sake of brevity
and clarity, the parties to the proceedings namely the
4th respondent is referred to as the main contractor,
the petitioner is referred to as the sub contractor and
the respondents 1 to 3 are referred to as the revenue.
36. We have given our anxious consideration
to the various contentions and having adverted to
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the pleadings, we are of the opinion that the points
that fall for consideration by the Bench for the
disposal of the present writ appeal are as below:
i) Whether the writ petition is
maintainable in the light of the alternative
remedy of appeal being made available
under Section 62 of the KVAT Act, 2003, as
held by the learned Single Judge?
ii) Whether the taxable event has
occurred in the hands of the 4th respondent
– main contractor or in the hands of the
petitioner – sub contractor the petitioner
herein?”
37. The learned Senior Counsel Sri K.P.Kumar
has placed reliance on the ruling rendered by this
Court in the case of Ashok Agencies, Bangalore vs.
State of Karnataka and others reported in 2008
(65) Kar.L.J. 97) (rendered by a coordinate bench
of this Court). The Co-ordinate Bench while
answering the objection regarding maintainability of
the writ petition in the light of the availability of
alternative remedy of appeal, has placed reliance on
- 30 -
a decision rendered by another Co-ordinate Division
Bench rendered in the case of Balaji Computers and
others Vs. State of Karnataka and others reported in
2005 (59) KAR.L.J. 529 wherein it was held as
under:
“Merely because, the proviso given to Sub-
section (1) of Section 3-A of the Karnataka
Sales Tax Act, 1957, prohibits the Commissioner
to give any instructions which interferes with
the power of the Appellate Authority, in our
view, it is not possible to even remotely think
that the concerned authorities will go against
the instructions given by the Commissioner in
Circular, Annexure-D and give scope for any
disciplinary proceedings against them. It is
necessary to point out that going against the
instructions would result in revenue loss to the
State, and therefore, no Officer can afford, apart
from the fact that he is obliged under Section 3-
A (1) of the Act, to carry out the instructions of
the Commissioner, which may attract
disciplinary proceedings resulting in his removal
from service. Under these circumstances, in the
light of the clear unequivocal
instructions/directions given by the
Commissioner as stated above, in my view,
- 31 -
filing objections before the Assessing Authorities
would be an empty formality. Such a remedy
available to the assessees cannot be
considered, in the eye of law, as an effective
alternative remedy. Though the proviso given to
Sub-section (1) of Section 3A of the Act prohibits
the Commissioner from issue of any instructions
which interferes with the discretion of the
Appellate Authority, once such instructions are
given, it is not reasonable to expect that even
such appellate authorities who are subordinate
to the Commissioner, would go against the
instructions given by the Commissioner and
take a view different to the one expressed by
the Commissioner in his instructions Circular
Annexure-D. The mandate of the proviso is the
Commissioner not to give any instructions which
would interfere with the discretion to be
exercised by the Appellate Authorities. It is also
necessary to point out that to file an appeal
against the order of assessment or
reassessment made, the assessees will have to
deposit 50 per cent of the tax assessed.”
38. The coordinate bench in the case of Balaji
Computers in turn has placed reliance on the ruling
of the Hon’ble Apex Court rendered in the case of
- 32 -
Filterco and Another vs. Commissioner of Sales
Tax, Madhya Pradesh and another (1950-2004)1
SCST 704 wherein it was held as below:
“Held: that the order passed by the
Commissioner was clearly binding on the Assessing
Authority under Section 42-B(2) of the Madhya
Pradesh General Sales Tax Act, 1958 and though it
was open to the appellants to urge their contentions
before the Appellate Authority, the Appellate
Assistant Commissioner, that would be a mere
exercise in futility when a superior officer, the
Commissioner had already passed a well-
considered order in exercise of his statutory
jurisdiction under Section 42-B(1). Further, a
substantial portion of the tax had to be deposited
before an appeal or revision could be filed. In such
circumstances, the High Court ought to have
decided the petition on the merits.”
39. From the above rulings, it is apparent that
the Courts have consistently held that a Circular
issued by the Commissioner in exercise of the power
vested in him under the Act is binding on the
Appellate Authority and in such a factual matrix
calling upon the assessee to avail of the remedy of
appeal would be a mere exercise in futility, as the
fact remains that an Officer superior in the
- 33 -
departmental hierarchy has already passed a
considered order or has rendered a detailed opinion
and the division bench has also opined that it is not
possible, even to remotely think, that the concerned
authorities will go against the instructions given by
the Commissioner in the form of a Circular and
thereby give scope for initiation of disciplinary
proceedings against them. It has also observed that
going against the instructions could be construed as
an act resulting in revenue loss to the State and be
made a ground to initiate disciplinary proceedings
resulting even in his/her removal from service. That
apart, the coordinate bench has also placed reliance
on provisions of Section 3-A(i) of the Act to hold that
the subordinate officers are bound to carry out the
instructions of the Commissioner.
40. The fulcrum of the defence in the instant
case is the Circular dated 23.12.2014 issued by the
Commissioner of Commercial Taxes bearing
No.I&C/DC(A3)/CR-104/2014-15 produced at
- 34 -
Annexure-E to the writ petition. The Commissioner
in paragraphs 7,8 and 9 of the Circular has issued
instructions amounting to prohibiting the VAT
Officers from giving set off or adjusting the tax
deducted at source by the TDS Authorities towards
the tax liability of the sub- contractor and has
instructed that the payments made to sub-
contractors which was hitherto allowed as deduction
in the hands of the main contractor in lieu of the
TDS credited to the account of main contractor has
been disapproved. The disapproval, according to the
Commissioner is on the basis that the main
contractor and the sub-contractor are separate and
distinct entities and both are required to file the
returns and pay tax as per the return and it is
further instructed that the request of any dealer
whether he is a sub-contractor or main contractor, to
adjust the amount of the TDS by the TDS authority
towards the liability of the sub-contractor should not
be entertained.
- 35 -
41. Admittedly, in the instant case, the bone of
contention is the amount deducted by the TDS
authority i.e., the employer (NHAI) who has awarded
the contract to the main contractor i.e., the 4th
respondent and who has deducted the VAT- TDS in
the hands of the main contractor and remitted the
same on account of the works contract covered
under the work order dated 30.08.2011 and the
contract agreement of even date executed between
the employer (NHAI) and the main contractor i.e., the
M/s. KMC-JMC (JV), the 4th respondent herein. It is
also fairly admitted by the Revenue that the amounts
so deducted at the hands of the main contractor are
lying in the account of the main contractor and to his
credit and the same are evidenced by the tax returns
filed in Form VAT-120 and produced by the
Revenue/official respondents under memo dated
10.08.2017. The fact that the main contractor has
not claimed any refund is admitted by the affidavit
dated 04.04.2019 filed into Court by the 3rd
respondent. The fact remains that it is this amount
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that is lying in the credit of main contractor is
requested to be adjusted towards the tax demand
raised against the petitioner/sub-contractor and it is
also an admitted fact that though it was a practice
amongst the VAT officers to permit such adjustment
in respect of the tax demands raised against the sub-
contractors, in view of the TDS in the hands of the
main contractors and which practice came to be
prohibited by the said Circular. It is also an
undeniable fact that the appellate authority under
Section 62 of the KVAT Act, is none other than the
authority prescribed under Section 2 (24) of the Act
to mean an officer of the Commercial Taxes
Department, authorized by the Government or the
Commissioner to perform such functions as may be
assigned to him.
42. On a plain reading of the above definition
in conjunction with Rule 148 of the 2005 Rules,
makes it apparent that the appellate authority is an
officer subordinate in rank to the Commissioner and
- 37 -
such Officer acts as an appellate authority on the
authorization by the Commissioner. In that view of
the matter, we are of the considered opinion that the
law laid down by the coordinate bench in the case of
Ashok Agencies referred supra is squarely applicable
in the facts of the instant case also and hence, we
hold that the writ petition is maintainable as the
remedy of appeal is not an efficacious remedy in the
peculiar circumstances of the case.
43. This legal position is also fairly admitted
by the respondents and hence the impugned order of
the learned Single Judge requires to be set aside and
is set aside and the point for consideration with
regard to maintainability is answered in favour of the
petitioner.
44. With regard to the other point formulated
for consideration by the bench, we proceed to
adjudicate the same in view of the singular fact that
there is no dichotomy in the facts involved in the writ
petition. There being no factual disputes and the
- 38 -
parties being at ad idem and the only legal issue
being required to be addressed by this Court being
the liability of the petitioner to comply with the
demand by the Revenue Authorities, we proceed
further in the matter.
45. At the cost of repetition, it is once again
reiterated that the parties are not at variance with
regard to the factual aspect relating to the tax
liability arising out of the contract agreement and
work order executed between the NHAI and the
principal contractor (4th respondent) on 30.08.2011
and the contract agreement dated 14.09.2011
executed between the main contractor (4th
respondent) and the sub-contractor (petitioner). In
this regard, the learned Senior Counsel has placed
reliance on the ruling of the Hon’ble Apex Court
dated 05.09.2016 rendered in the case of Larsen &
Toubro Limited Vs. Additional Deputy Commissioner
of Commercial Taxes and another rendered in Civil
- 39 -
Appeal No.2318/2013 and Civil Appeal
No.7241/2016.
46. As in the instant case, the appellant in the
case stated supra was carrying on the business of
engineers and contractors and was awarded the
contract of constructing Sree Kanteerava Indoor
Stadium at Bengaluru and the assessee in turn
entrusted the work of laying foam concrete to one
M/s.Llyod Insulation (India Limited) i.e., a portion of
the work was sub contracted and who admittedly
was also registered with the Deputy Commissioner of
Commercial Taxes, Assessment-IX City Division,
Bengaluru, and submitted returns and paid taxes for
the execution of the works contract and was duly
assessed under Sections 5-B and 6-B of the KST Act.
The assesse M/s. Larsen & Toubro Limited (for short
L and T) raised a claim that the sub- contractors
were the parties who executed the works contract
and since the transfer of property involved in such
execution had already been taxed, the appellant
- 40 -
under Section 6-B cannot be taxed there being only
one taxable event for the purpose of Article 366
(29A)(b) of the Constitution of India. In effect the
contention of the assessee was that the value of the
work entrusted to the sub- contractor could not be
taken into account while computing total turnover of
the assessee for the purpose of taxation under the
Act. The contention came to be negatived. The
Assessing Officer as well as the Appellate Tribunal
and this Court also ruled against the assessee
thereby affirming the view taken by the Revenue.
The said judgment dated 03.02.2006 was carried in
appeal in Civil Appeal No.2956/2007 and the
subsequent appeal is on account of the similar
treatment meted out to the assessee and the Civil
Appeal No.7241/2016 was an appeal by the Revenue
on account of this Court having held that the value
of the work awarded to the sub-contractors cannot
be included for computing the total turnover of the
assessee and the assessment in respect of the said
- 41 -
year was answered against the Revenue contrary to
the earlier view.
47. The Hon’ble Apex Court while determining
the issues arising in the above appeals has placed
reliance on its own ruling rendered in the case of
STATE OF ANDHRA PRADESH VS. LARSEN AND
TOUBRO LIMITED AND OTHERS reported in 2008
(9) SCC 191. The Apex Court has noted that the
Revenue has made an attempt to contend that the
provisions of the State Act are not on pari materia
with the provisions of the Andhra Pradesh
enactment. The Hon’ble Apex Court after adverting
to certain provisions of the Karnataka Act namely
Section 2 (i) (t) and 2 (i) (u-1), (u-2) and (v) and
provisions of Section 5-B and 6-B formulated the
following question as requiring determination by the
Court:
“The question for determination is: for
calculating the turnover for the purpose of
payment of turnover tax under Section 6-B of
the Karnataka Act, whether payments made to
- 42 -
sub-contractor are to be included while
calculating the total turnover?”
48. After formulating the above question for
determination, the Hon’ble Apex Court proceeded to
place reliance on Rule 6 which deals with
determination of total and taxable turnover, more
particularly clause (c) which are extracted as under:
“6.Determination of total and taxable turnover-
(1) The total turnover of a dealer, for the purposes of
the Act, shall be the aggregate of –
xx xx xx
(c) the total amount paid or payable to the dealer as
the consideration for transfer of property in goods
(whether as goods or in some other form) involved
in the execution of works contract, and includes
any amount paid as advance to the dealer as a
part of such consideration”
and proceeded to answer the question in the
following manner and in the course of the same has
observed in paragraphs 18 and 19 and thereafter
concluded that the raison d’etre of its ruling
rendered in the case of State of Andhra Pradesh Vs.
Larsen and Toubro will apply in full force in the
- 43 -
context of the Karnataka Act also and further held in
paragraph 20 as follows:
“We, therefore, hold that the value of the work
entrusted to the sub-contractors or payments made to
them shall not be taken into consideration while
computing total turnover for the purposes of Section 6-B
of the Karnataka Act. As a consequent, the two appeals
which are filed by the assessee are allowed and the
appeal preferred by the Revenue is dismissed. In the
facts and circumstances of the case, there shall be no
order as to costs.”
49. After a reading of paragraphs 18 & 19, we
can safely conclude that answering the second point
for determination in favour of the assessee should
not detain us for long.
50. The Apex Court while dealing with the
issue of transfer of property in goods, which is
involved in the execution of the works contract, has
held, that the same has to be treated as total
turnover. It further observed that transfer of
property in goods becomes a necessary event and
unless there is a transfer of property, the amount
paid is not to be included in the total turnover. It
- 44 -
has further held that a taxable event is the transfer
of property in goods involved in the execution of a
works contract and that the said transfer of property
in goods takes place when the goods are
incorporated in the works.
51. It is apparent that the above ruling has
been rendered under the KST Act, 1957. In that view
of the matter we are required to examine as to
whether the proposition of law so unambiguously
declared by the Hon'ble Apex Court is applicable to
the instant case in the light of the provisions of the
KVAT Act, 2003? In this regard we are required to
examine certain provisions of the 2003 Act, i.e.,
Section 2 (12) – “Dealer” means any person who carries
on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes.
Section 2 (12) (g) - a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
Section 2 (29) - “Sale” with all its grammatical variation
and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or
- 45 -
business for cash or for deferred payment or other valuable consideration and includes.
(a) xxxx (b) a transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works contract; Section 2 (36) – “Turnover” means the aggregate amount
for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, and includes the aggregate amount for which goods are purchased from a person not registered under the Act and the value of goods transferred or despatched outside the State otherwise than by way of sale, and subject to such conditions and restrictions as may be prescribed the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof.
Section 2 (37) – “Works contract” includes any
agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.
Section 4 (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) xxxx (b) xxxx (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.
Section 4 (6)
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(a) - a registered dealer whose sale of such goods is not liable to tax under sub-section (5), shall be eligible for refund or adjustment of any amount of tax collected on his purchase, which is in excess of the tax payable on his turnover relating to sale of such goods, and the burden of proving that the tax has been collected and paid in accordance with the said sub-section shall be on the dealer;
Section 7 (1) - Notwithstanding anything contained in the Sale of
Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, and subject to sub-section (2), the sale of goods shall be deemed to have taken place at the time of transfer of title or possession or incorporation of the goods in the course of execution of any works contract whether or not there is receipt of payment:
Provided that where a dealer issues a tax invoice in
respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued.
Section 9-A - Deduction of tax at source (in case of works
contract) (1) Notwithstanding anything contained in this Act, the
Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any state, or any such undertaking in joint sector or any other industrial, commercial or trading undertaking or any other person or body as may be notified by the Commissioner from time to time or a local authority or a statutory body, shall deduct out of the amounts payable by them to a dealer in respect of any works contract executed for them in the State, an amount equivalent to the tax payable by such dealer under the Act.
Section 9-A (5) - The authority making deduction under
sub- section (1), shall send every month to the prescribed authority a statement in the prescribed form containing particulars of tax deducted during the preceding month and pay full amount of tax so deducted by it within twenty days after the close of the preceding month in which such deductions were made and the amount so payable shall for the purposes of Section 42 be deemed to be an amount due under this Act.
- 47 -
Section 9-A (10) - Where tax in respect of the works
contract is remitted under sub -section (5), the tax payable by the dealer for any period, 3[xxxx] shall be reduced by the amount of tax already remitted under the said sub-section.
(the underlining and emphasis is by Court)
Section 9-A (11) - The burden of proving that the tax on such works contract has already been remitted and of establishing the exact quantum of tax so remitted shall be on the dealer claiming the reduction of tax under sub-section (10).
52. We have carefully analyzed the various
provisions of the Act. Section 4 is the charging
section thereby enabling the collection of tax. Sub-
section 1 (c) pertains to works contract. From a
reading of the provision it is apparent that what is
chargeable to tax is the taxable turnover of a dealer
and in so far as it relates to a works contract, clause
(c) refers to a “transfer of property in goods involved
in the execution of of works contract. In other
words, in the wisdom of the legislature, the taxable
event must involve a transfer of goods.
53. We now proceed to examine the various
provisions extracted hereinabove in order to
- 48 -
determine the taxable event in the circumstances of
the case.
54. Section 2(12) defines a dealer to mean a
person who buys, sells, supplies or distributes goods,
either directly or indirectly thereby implying that a
person to answer the description of a dealer must
indulge in the transfer of goods in either one of the
modes detailed in the provision. Clause (g) deals
with works contract and also refers to a transfer of
property.
55. Section 2(29) defines Sale to mean, every
transfer of property goods. Clause (b) pertains to
works contract and the reference is to transfer of
property. Similarly Section 2(36) defines “Turnover”
to mean the aggregate of amount for which goods are
sold, or distributed or delivered or otherwise
disposed off. In essence it refers to a transfer of
property or goods. Section 2(37) defines “works
contract” as an agreement for carrying out certain
- 49 -
works for cash or deferred payment or other valuable
consideration, i.e., towards the transfer of the
property to the beneficiary or the accretion of goods
in his hands. Yet again the accent is on the transfer,
either by way of transfer or accretion.
56. Further, clause (a) of sub-section 6 of
section 4, of the Act is an enabling provision whereby
a dealer who is not liable to tax is entitled to seek
“adjustment” of any amount of tax collected on his
purchase and which is in excess of the tax payable
on his turnover relating to sale of goods. Thus
emphasis is on the sale or transfer.
57. Another provision of interest and
relevance is the provisions of clause (b) of subsection
(1) of section 6 which deals with the place of sale of
goods. The clause deals with the case of
unascertained or future goods and the place of sale
is said to occur at the time of appropriation. Section
7 deals with the time of sale of goods and sun-
- 50 -
section (1) and the provision determines the same as
being the time of transfer of title or possession or
incorporation of the goods. The moot point here is,
whether the incorporation ought to be understood as
having occurred at the time of mere use of goods or
on the delivery of the future goods or in other words
the certification of the use of goods or the future
goods. It is also relevant to note that the Act merely
defines “Goods” and the Act does not define ‘future
goods’. In that view of the matter and in the context
of a works contract it could be gainfully argued as
the completed piece of work or completed contract.
58. On a cogent reading of the above
provisions it can safely be deduced that the law
makers in their wisdom have emphasized on the
event of “transfer” as being the exigible event. If that
be so, then for a dealer to be made liable for payment
of tax there should be ‘a transfer of property or
transfer in goods’. In the absence of such transfer, it
would be erroneous to conclude otherwise. If that be
- 51 -
the inference that can be drawn, then in a works
contract, more particularly in respect of a sub-
contractor, the trade practices as a normal rule do
not evidence transfer of goods or property as between
the Main Contractor and the sub-contractor. The
transfer is effected between the main contractor and
the employer (owner) only, unless the contract
otherwise stipulates. As a normal practice the
transfer or accretion of goods happens in the hands
of the main contractor only and also the main
contractor can neither become the owner or the
holder of the goods or property. The transfer can
occur only on the acceptance or transfer or
expression of satisfaction the works contract by the
employer/owner. If it were to be interpreted
otherwise it could lead to a absurdity resulting in
double taxation. No doubt double taxation is
permissible if expressly provided by the Act. A
reading of the Act does not make it apparent nor is
the revenue made out such a case. If the
interpretation as placed by the revenue is accepted
- 52 -
then the same work would suffer tax at the hands of
the main contractor, when the sub-contractor
completes the execution of that work contracted and
the same work would also suffer tax at the hands of
the employer when the goods or the work is handed
over or transferred to the Owner/Employer.
59. The facts involved in the instant writ
petition are marginally different, in that the set off or
adjustment is claimed by the sub-contractor whereas
in the case of L & T, the claim was by the main
contractor itself. The main contractor i.e., the L & T
was seeking absolution of tax liability on account of
the tax compliance made by the sub- contractors.
60. In the instant case, the facts involved are
in the converse. The dealer seeking relief is the sub-
contractor and the 4th respondent is the main
contractor. The facts pertaining to award of work,
the sub-contract under agreement dated 14.09.2011
and the execution of the work by the sub-contractor
are all admitted facts. It is also pertinent to note
- 53 -
that the sub-contractor is one of the two constituents
constituting the main contractor which is admittedly
a joint venture, and entirely formed for the purpose
of executing the works contract awarded under the
contract dated 30.08.2011. It is an admitted fact that
all throughout the execution of the project spread
over several years, the RA bills were raised by the
main contractor and the payments were released by
the employer to the account of the main contractor
and TDS was suffered in the hands of the main
contractor only. The fact also remains that the all
along the work was admittedly executed by the sub-
contractor. In that view of the matter, we have no
hesitation in concluding that the taxable event
occurred in the hands of the main contractor, as the
transfer of property or accretion of goods and
transfer of property in favour of the employer was on
the event of the main contractor submitting the RA
bills claiming. Thus, the taxable event being the
accretion of goods as held by the Apex Court in the
case of L & T having happened between the 4th
- 54 -
respondent and its employer, no taxable event
occurred at the hands of the petitioner, rendering it
liable to tax as contended by the Revenue.
61. In the instant case, the accretion of goods
and/or transfer of property occurring to the employer
on the submission of the running account (RA) bills
by the main contractor, we conclude that the taxable
event occurred on the presentation of the RA bills by
the main contractor only and satisfaction of the Bills
by the employer to the main contractor in lieu of the
RA bills. It is a fact that no bill has been raised by
the sub-contractor as against the employer nor is it
the case of the Revenue that the employer has made
any payments to the sub-contractor. It is not the
case of the Revenue that accretion of goods or
transfer of property to the employer has occurred in
the hands of the sub-contractor/the petitioner
herein. Had such a case being demonstrated that
the accretion of goods and transfer of property in
favour of the employer had been at the hands of the
- 55 -
sub-contractor, then in the light of the law laid down
by the Hon’ble Apex Court in the case L & T, the
taxable event would have been at the hands of the
sub-contractor. It is also not the case of the Revenue
that the Main Contractor can step into the shoes of
the Owner. We conclude so in the light of the
provisions of sections 6 & 7 of the Act. We make it
clear that the conclusion in respect of the taxable
event will not exempt the dealer from submitting his
returns or circumscribe the rights of the Revenue to
seek for accounts and details as enabled under the
Act.
62. In the instant case, the facts are peculiar.
The execution of the contract is undoubtedly by the
petitioner who again is admittedly is a sub-
contractor. The RA bills or the running account bills
have admittedly been raised by the main contractor
and payments in lieu of the running bills are made in
favour of the main contractor only and TDS is at the
hands of the main contractor only and consequently
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the accretion of goods to the employer happened at
the hands of the main contractor only. That being
the case, the taxable event happened at the hands of
the main contractor only. In that view of the matter,
the accretion of goods and transfer of property being
the taxable event, the same was at the hands of the
main contractor and TDS has been suffered in the
hands of the main contractor and there being no
taxable event in the hands of the sub-contractor, we
are of the considered view that in the light of the law
laid down by the Hon’ble Apex Court as stated supra,
the writ petition requires to be allowed.
63. Accordingly the writ petition is allowed in so
far as it relates to the works contract covered under the
contract agreement dated 30.08.2011 and 14.09.2011.
Consequently, the tax demands raised by the revenue
requires to be reworked accordingly in the light of the
observations made above. Consequently, Annexures-C , D
and F stand quashed.
- 57 -
64. It is also made clear that the above order
allowing the writ petition will enure to the benefit of the
writ petitioner in so far as it relates to the scope of work
covered under the contract agreement dated 14.09.2011
only. In the light of the above, liberty is granted to the
revenue to reassess the liability of the petitioner in so far
as it relates to the inter-state and URD purchases made
by the petitioner. In the light of the above order passed,
there shall be no order as costs.
65. This Court though has not entered into and
adjudicated the validity of Rule 44 (3) (f) of the Karnataka
Value Added Tax Rules, 2005, yet this Court is
constrained to observe that, if the interpretation placed by
the Revenue as set out in the impugned Circular is
accepted, it would virtually result in the main contractor
also stepping into the shoes of a TDS authority as defined
under Section 9-A (1) of the KVAT Act, 2003 and in such
an event, the main contractor would also be required to
make deductions at the time of making payment as
provided under Section 9-A (1) and remit the same in
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compliance of the provisions of Section 9-A (5) of the Act.
Further, the Circular is also contrary to the provisions of
Section 9-A (10) and (11) which reads as under:
“9-A (10) Where tax in respect of the works
contract is remitted under sub-section (5), the tax
payable by the dealer for any period, shall be reduced
by the amount of tax already remitted under the said
sub-section.
9-A(11) The burden of proving that the tax on such
works contract has already been remitted and of
establishing the exact quantum of tax so remitted shall
be on the dealer claiming the reduction of tax under sub-
section (10).”
66. Section 9-A(10) provides that where tax in
works contract has been remitted under Section 5,
the tax payable by the dealer for any period shall be
reduced by the amount of tax already remitted and
the word ‘dealer’ as defined under Section 2 (12)
takes within its sweep even a sub-contractor, and we
conclude so in view of the language employed in
clause (g) of sub Section (12) of Section 2.
67. Admittedly, the petitioner is a sub-
contractor and 9-A(11) enables such a dealer to
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demonstrate that the tax on such works contract has
already been remitted. Hence, prima facie the
applicability of Rule 44 (3) (f) to works contract and
cases of sub-contractor prima facie appears to be
contrary to the provisions of Section 9-A (10) and
(11). We also draw succour in favour of our
conclusion in the light of the provisions of Rule 6 of
the Karnataka Sales Tax Rules which pertains to
determination of total and taxable turnover. If the
distinction as set out in Rule 6 are read in
conjunction with the provisions of Rule 9-A (10) and
(11) of the KVAT Act, 2003, then the only inescapable
conclusion that one could arrive, at is that the rigors
of Rule 44(3)(f) are inapplicable in respect of assesses
who execute works contract as sub-contractors as in
the instant case and sub-contractors form the
excepted class. We are of the view that the assesses
who fall within the scope of Section 9-A(10) and (11)
are excepted from the applicability of Rule 44(3)(f).
As no challenge is mounted to the validity of Rule
44(3)(f) and the impugned Circular being purportedly
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in exercise of the powers vested in the Commissioner
of Commercial Taxes under Section 59 of the Act, we
are unable to grant the relief sought for by the
petitioner in respect of the impugned Circular.
Accordingly, the writ petition in so far as it relates to
the prayer (d) stands rejected. Though we have
rejected the relief, but at the same time, we would
like to add a word of caution to the Revenue with
regard to the log-jam the circular could cause. If the
circular is implemented in letter and spirit and Rule
44(3)(f) is interpreted in the manner as made out in
the circular, we are of the opinion that it would lead
to duplication of work, whereby the staffers would be
assessing the same work, admittedly executed by one
dealer, in the hands of two dealers, which would only
mean duplication of assessment work, which is
admittedly an onerous task, thereby leading to
avoidable delays in revenue collections. It cannot be
denied that if two dealers declare the same taxable
event then one of them would be entitled to refund
which again is a separate process and which process
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can be achieved by reference to the returns by the
other. The assessment of the two dealers could be by
two different A.O.’s and could easily lead to
conflicting opinions and thereby the assessee taking
technical advantage of such conflicting opinion.
The writ appeal is ordered accordingly.
Sd/- JUDGE
Sd/- JUDGE
Rsh/jm/-