State of Karnataka vs Shyamaraju and Company (India) Pvt. Ltd.

N. Kumar, J.—This revision petition is preferred by the State challenging the order passed by the Karnataka Appellate Tribunal, which held that the assessee is not liable to pay purchase tax u/s 3(2) of the Karnataka Value Added Tax Act, 2003 (for short, hereinafter referred to as "the Act") as the purchases made by the assessee is purely for their own construction of flats which are exempt from tax. The assessee is a private limited company engaged in the business of civil works contract and are also developers of properties. The assessee is registered under the provisions of the Act. The assessee is also registered as dealer engaged in "works contract". The assessee has purchased goods for execution of civil contract of their own properties from unregistered dealers. The assessee did not pay purchase tax and accordingly did not claim input-tax credit, on the ground that input-tax credit is not available on goods used for own consumption. The assessee contended that the above purchases were made from unregistered dealer and is not liable to tax under the Act as per the provisions of section 3(2) of the Act since the assessee has not effected sale of taxable goods. The assessing authority levied tax on the above purchases which were made by the assessee.

Aggrieved by the order passed by the assessing authority, he preferred an appeal before the Appellate Commissioner, who rejected the appeal on the ground that the assessee has failed to make use of the above goods purchased from unregistered dealers for the purpose of business and the same have been used for own consumption. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal held that the assessee is engaged in the business of works contract and property development. Under works contract, the assessee is liable to pay tax under the Act on sale of goods which are transferred in the form of goods. With respect to property development, where there is no transfer of property in goods, the transfer of building and flats amounts to sale of immovable property, therefore, payment of tax does not arise. Even though the assessee is registered under the Act, he is acting in dual capacity. Since the assessee has consumed the purchase made from unregistered dealers purely for own construction of flats which are exempt from tax, they held that assessee is not liable to tax u/s 3(2) of the Act. Aggrieved by the said order, the Revenue is in appeal.

The learned Government Advocate, assailing the impugned order of the Tribunal, contended that the assessee is a private limited company engaged in the business of civil works contract and are also developers of properties. In other words, they undertake works contract and also develop properties on their own. They are registered under the Act in both the categories. Even if the assessee purchases building materials from unregistered dealers for the purpose of putting up their own construction, the construction to be put up by them is in the course of their business as developers and therefore, section 3(2) of the Act is attracted. The Tribunal has riot viewed this aspect from a proper angle and has come to a wrong conclusion in interfering with the well-considered order passed by the appellate authority. Hence, he submits that a case for interference is made out.

Per contra, learned Counsel for the assessee submitted that the assessee has paid purchase tax in respect of the works contract. In respect of the own construction put up in his own property, he is not liable to pay tax u/s 3(2) of the Act as it was for his own consumption. Therefore, he submitted that the finding recorded by the Tribunal is correct and no case for interference is made out.

Section 3 of the Act reads as under:

Levy of tax.--(1) The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act.

(2) The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business, by a person who is not registered under this Act.

Sub-section (2) of section 3 deals with the liability to pay tax on the registered dealer when he purchases taxable goods from a person who is not registered under the Act. As is clear from the aforesaid provision, the tax shall also be levied and paid by every registered dealer or a dealer liable to be registered on the sale of taxable goods to him for use in the course of his business, by a person who is not registered under this Act. In other words, if a registered dealer purchases taxable goods from a person who is not registered under the Act, and uses it for his own consumption personally, then there is no liability to pay tax under sub-section (2). But once he uses those taxable goods in the course of his business, he is liable to pay tax which is known as purchase tax. In fact, this court had an occasion to consider the aforesaid question in the case of Concorde Hitech City (P) Limited Vs. The State of Karnataka, Finance Department and Another, in S.T.A. No. 27 of 2009 disposed off on July 16, 2010, where it was held as under (pages 57 and 58 in 39 VST): Sub-section (1) of section 3 expressly provides that, every sale of goods in the State by a registered dealer or a dealer liable to be registered attracts levy of tax. The person who sells such goods has to pay the tax after levying the same and collecting from the purchasers. Sub-section (2) of section 3 deals with a case where the person who sells the goods is not registered under the Act. When such a person sells the goods, the tax is leviable and payable if the purchaser of goods is a registered dealer. In other words, if taxable goods are sold by a person who is not registered dealer to a person, who is not a registered dealer, no tax is leviable or payable. But, once the registered dealer purchases the taxable goods in the course of his business, from an unregistered dealer then sales tax is to be paid by him. In common parlance it is called as purchase tax. The liability to pay purchase tax arises only if purchase is made for use in the course of his business. It does not mean that the said business which he is carrying on should be only sale and purchase of such goods. The words employed are ''use in the course of his business'' and not mere ''use''. The use of the goods may be in the same condition if he is a re-seller or the said goods may be a raw product which will be absorbed in the final product in respect of which he is carrying on business. The user of the goods purchased depends on the nature of his business. Therefore, if that registered dealer who purchases these goods, sells the goods in the same form or uses in the course of his business by absorbing the same as an input to the final product and then sells the final product, he is liable to levy and pay the sales tax for such input. The said words that section 3(2) applies only to a case where a registered dealer who purchases goods from the unregistered dealer, uses the said goods in the same condition in the course of his business, is not tenable.

In this case, admittedly, the assessee is a private limited company carrying on business of civil works contract and also development of properties. It is not in dispute that the taxable goods were purchased from unregistered dealers for development of their own property. That development of their own property is done in the course of business and therefore, section 3(2) is attracted. Hence, the order passed by the Tribunal cannot be sustained. Accordingly, we pass the following order: The STRP is allowed. The impugned order passed by the Appellate Tribunal is hereby set aside. The orders passed by the assessing authority as well as the Appellate Commissioner are restored.