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Judgment
Satish K. Agnihotri, J.—By this petition, the petitioner seeks quashing of the order dated 10-1-2005 (Annexure P/4) passed by Additional Commissioner, Commercial Tax, Raipur in Revision Proceedings u/s 62(1) of the Chhattisgarh Commercial Tax Act, 1994 (for short ''the Act'') whereby the assessment order dated 30-6-2003 for the year 2000-2001, by the Assistant Commissioner, Commercial Tax, Raipur (Annexure P/2) has been affirmed. The facts, in brief, as projected by the petitioner are that the petitioner is a partnership firm, engaged in work of execution of works contract. For the period 1-4-2000 to 31-3-2001, the petitioner was assessed for payment of tax by order dated 30-6-2003. The Assessing Officer (for short ''the A.O.'') determined sale of tax paid goods used during the execution of works contract and liable to Value Added Tax (for short ''the VAT'') at Rs. 1,13,71,311/- and on this amount, he estimated profit at 10% over it and added tax at Rs. 9.2% on Rs. 11,04,616/-. Being aggrieved, the petitioner preferred a revision before the Additional Commissioner u/s 62(1) of the Act, which was dismissed by order dated 10-1-2005 (Annexure P/4) affirming the order passed by the Assistant Commissioner on the ground that the order of A.O. imposing VAT was not erroneous as the use of goods in the execution of works contract comes under the category of sale and VAT is leviable on the profit element of such sale. Thus, this petition.
Shri Shashank Dubey, learned senior counsel appearing with Shri Anand Mohan Tiwari, learned Advocate would submit that the definition of sale as contained in section 2(t)(ii) of the Act, 1994, means a transfer of property in goods whether as goods or in some other form involved in the execution of works contract. Shri Dubey would further submit that as per section 9 of the Act, tax is payable by a dealer on his taxable turnover of goods specified in Schedule II. Further, as per section 2(w) of the Act, taxable turnover means turnover minus tax free sales, tax paid sales, goods sold on declaration and tax included in turnover. He would next contend that section 2(x) of the Act, defines ''tax paid goods'' as goods purchased from a registered dealer and specified in Part II to VI of Schedule II on which tax has been paid at first point. Section 9-B of the Act, which was inserted w.e.f. 1-5-1997, provides for levy of tax in respect of resale of any tax paid goods after deducting from such turnover the sale price of declared goods, the purchase price and tax element contained therein. As the State of Chhattisgarh has adopted the Madhya Pradesh Commercial Tax Act, 1994, the rate of tax during 2000-2001 was 8%. During the relevant period u/s 10-A of the Act, surcharge of 15% was leviable on tax. Thus, the effective rate was 9.2%. In the assessment order, tax was calculated u/s 9-B of the Act. The Assistant Commissioner has mentioned the sale value of tax paid goods in the hands of the dealer from whom they have been purchased as Rs. 1,13,71,311/-. As per his own order, the deemed sale value is 1,19,75,730/-. The difference of Rs. 6,04,419/- is the amount liable to be taxed u/s 9-B of the Act, at the rate of 9.2%. However, the A.O. has calculated profit at 10% on purchase of Rs. 1,13,71,311/- which is Rs. 11,37,131/- and imposed tax on it at the rate of 9.2% which comes to Rs. 1,04,6167-. This is not only incorrect but even unconstitutional as no sales tax can be levied on profits. It can be levied only on the value of addition of Rs. 6,04,419/-. Thus, tax of 9.2% on Rs. 6,04,419/- comes to Rs. 55,610/-.
Shri Dubey further submits that the Supreme Court, in Gannon Dunkerley and Co. and Others Vs. State of Rajasthan and Others, has laid down the principles for ascertaining value of goods involved in execution of works contracts. Thus, on application of the ratio laid down in the aforesaid case, the calculations made by the A.O. as well as the revisional authority, are erroneous, thus, the same may be quashed.
On the other hand, Shri Bhatia, learned Deputy Government Advocate for the State/respondents would submit that as per the contention of the petitioner firm itself, the petitioner has stated a gross profit of Rs. 45,54,025/- which was earned against the total works contract receipt of Rs. 2,64,30,147/- which comes to about 17.23%. Since the profit at the rate of 17.23% was admittedly earned by the petitioner, therefore over the total value of the local purchase which is equal to Rs. 19,59,276.88/- which is to be added over it as admitted by the petitioner itself which is in accordance with the law laid down in Gannon Dunkerley and Co. (supra). Thus, it is clear that the petitioner is liable to pay VAT tax on the value addition over the local purchase at the rate of profit earned by the petitioner over such purchase at the rate of 9.2% in accordance with the provisions of section 9-B of the Act. Further, as per para 45(h) of the aforesaid judgment, profit earned by the contractor is to the extent it is relatable to supply of labour and services. Shri Bhatia would next submit that the rate of profit i.e. relatable profit is to be added to the cost of material which is covered under services, therefore, since the petitioner has earned profit at the rate of 17.23% therefore, the value added against the material which is liable for VAT would be at the rate of 17.23%. Thus, the calculations made by the A.O. and further, the order passed by the revisional authority, is just and proper.
Heard learned counsel appearing for the parties, perused the pleadings and documents appended thereto.
Section 9-B of the Act provides for levy of tax in special circumstances, particularly in case of payment of tax on resale of any goods specified in Part II to VI of Schedule II. There is no dispute that the goods involved herein are specified goods.
Contention of the petitioner that the calculation made by the A.O. is not in accordance with the requirement of law as laid down by a Constitution Bench of the Supreme Court in Gannon Dunkerley and Co. (supra), the principles of ascertaining value for goods in execution of works contract has been laid down, which is as under:
The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover:
(a) labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services;
(c) charges for planning, designing and architect''s fees;
(d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc, used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and
(f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour and services;
(h) profit earned by the contractor to the extent it is relatable to supply of labour and services.
The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor.
The aforesaid decision still holds the field even toddy.
The petitioner has produced a chart showing as to how tax is to be assessed u/s 9-B of the Act, which reads as under:
The A.O., as submitted by learned counsel for the petitioner has calculated the value of goods on the basis of the percentage of profit i.e. according to learned counsel for the State, about 17.23%. This is not the correct method to ascertain value of goods involved in the execution of works contract. The A.O. has not shown any value of goods involved in works contract after deducting labour, services, higher charges of machinery, consumables, profit on labour and services, value of goods interstate, outside state or during export, and the sale of goods exempted from tax under the Sales Tax Act, 1956, as held in Gannon Dunkerley and Co. (supra) and the calculation cannot be made on the basis of profit.
Accordingly, the assessment order (Annexure P/2) for the period 1-4-2000 to 31-3-2001, passed by the A.O. i.e. the Assistant Commissioner, Commercial Tax, and thereafter affirmed by the Additional Commissioner, by order dated 10-1-2005 (Annexure P/4) are quashed.
Thus, in light of the above, the matter is remanded back to the A.O. to reconsider the issue a fresh in the light of the observations made hereinabove and pass a fresh order, after affording proper opportunity of hearing to the petitioner/assessee. The tax, if any, has been paid pursuant to the assessment order (Annexure P/2) as well as the re visional order dated 10-1-2005 (Annexure P/4) shall not be refunded back to the assessee till final assessment order is passed by the A.O., however, the same may be adjusted, thereafter. Resultantly, the writ petition is allowed to the extent indicated above. No order as to costs.