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Realty Sector Eligible for 100% FDI via automatic route

  • In a further relaxation in FDI policy, the Cabinet on Wednesday approved 100 per cent FDI under automatic route in the construction development segment, which includes townships, housing, built-up infrastructure and real estate broking services.
  • It also clarified that real estate broking services do not amount to real estate business and is, therefore, eligible for 100 per cent FDI under the automatic route. “The timing for this announcement is significant as the retail sector is poised to receive significant real estate supply in the near future.
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2018-VIL-23-GUJ

DEEP INDUSTRIES LTD Vs STATE OF GUJARAT

Gujarat VAT Act, 2003 – legislative competence of the State to tax workover service contracts - contracts for carrying out workover operations using workover rigs imported specifically for the purpose of the contract - whether the contract entered into between the petitioners and the ONGC for workover operations on oil wells of the ONGC is purely service contract or composite contract involving both, an element of service as well as transfer of right to use goods - Levy of VAT on the ground that such contracts involve transfer of right to use goods – Pure service contract or Composite contract

HELD - At no point of time during the execution of the contract, is the contractor required to deliver the goods viz., the workover rigs to the ONGC. The control over the rigs at all times is with the contractor and it is the contractor alone who is to use it - on a plain reading of the contract executed between the parties, the intention of the parties is clearly to enter into a contract for services and the workover rigs are merely equipment to be used by the contractor for the purpose of executing such contract. The contract is not a composite contract of service and transfer of right to use the goods.

However, assuming for the sake of argument that the contract is a composite contract, even then it is not severable and hence, it would not be permissible to the State to impose value added tax on the whole transaction because that would amount to the State entrenching upon the Union List and taxing services by including the cost of such service in the value of goods.

Thus, even if the contract were to be treated as a composite contract, it has to be treated as a contract for services and no value added tax can be imposed on the transactions in question - the mere use of the words charter hire in relation to workover rigs would not change the nature of the contract to one of transfer of right to use goods when there is none – the case does not involve even hire charges and is a case where the petitioners providing service to the ONGC, for which purpose they use their own equipment, including the workover rigs.

Under the circumstances, it is not possible to say that the transaction involves the transfer of right to use in favour of the ONGC attracting levy of value added tax - the contract entered into between the petitioner and the ONGC for workover operations of oil wells of ONGC is a pure contract of services – tribunal order is set aside and assessee appeal is allowed

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2018-VIL-16-CESTAT-DEL-ST

M/s TRUWORTH IMPEX PVT LTD Vs CCE, JAIPUR - I

Service Tax - restoration and renovation of immovable property – appellant availed abatement of 67% in the taxable value - The Revenue contends that the services are liable to be taxed under the category of construction service/maintenance of immovable property service for the respective period - recovery in terms of Rule 14 of CCR, 2004 - demand of 8% on exempted services due to non-maintenance of separate accounts on common input services

HELD – assessee were not providing these services in relation to new buildings or structures hence after introduction of the new services, i.e., ‘Maintenance or Repair Service’ / ‘Management, Maintenance or Repair Service’ such services provided in respect of buildings which were under running conditions were unambiguously covered under the ambit of this new service.

In case any repairing work has been done with such maintenance work the same was incidental or ancillary to such maintenance work hence the services provided by the assessee were covered under the purview of ‘Maintenance or Repair Service’ / ‘Management, Maintenance or Repair Service’ - all the grounds raised by the appellant regarding the nature of service and the correct classification have been duly addressed by the Original Authority - with reference to payment of 6% / 8% on the value of exempted services in terms of Rule 6 (3) (i) of the CCR, 2004, the appellants have deposited the whole of Cenvat credit alongwith interest for delayed payment.

As such, it should be considered that they have not availed such credit to attract the rigorous of Rule 6 (3) of Cenvat Credit Rules - the demand for the said amount for violation of Rule 6 (3) is not sustainable. The penalty relevant to the said dispute is also liable to be set aside - the appeal filed by the appellant is dismissed except for setting aside the demand under Rule 6 (3) of CCR, 2004

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CESTAT : Cannot reject VCES declaration on mis-classification plea, 'interpretation' difference not a substantial 'mis-declaration'

  • CESTAT allows assessee’s appeal, holds rejection of declaration filed under Service Tax Voluntary Compliance Encouragement Scheme (VCES) on ground of misclassification of services as unsustainable;
  • Notes that, while assessee categorised activity of construction of residential and commercial complexes under 'construction of complex service' and claimed abatement benefit under Notification No. 26/2012, Revenue sought to disregard the declaration and classify said activity as ‘works contract service’ on ground that same were so disclosed for VAT assessment purpose;
  • Remarks, “(VCES) was framed by the Government with the intention of encouraging voluntary compliance and payment of service tax” and “declarations made under such scheme were to be accepted, by and large”;
  • Observes, total amount of consideration received has not been found to be different from what was declared and Revenue has not produced any contract or document indicating that assessee did not make full declaration of service tax liability for the disputed period;
  • Further, taking note of assessee's contention that definition of works contract service under VAT law and Finance Act, 1994, is different, holds that, different interpretation on classification of services does not tantamount to substantial misdeclaration : Bangalore CESTAT
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  • CESTAT upholds refund of service tax mistakenly discharged on reverse charge basis in respect of leasing of tunnel boring machines for execution of contract entered with DMRC, under category of “supply of tangible goods for use” (STGU);
  • Notes that on merits, issue is settled in assessees' favour since STGU service came into effect from May 16, 2008 much after contract with DMRC was executed, hence there was no occasion for factoring service tax component in the contract price; Holds, Revenue's findings that refund claim was hit by doctrine of unjust enrichment u/s11B of Central Excise Act is contrary to factual observation that assessee has not transferred burden of service tax to any person, hence is simply absurd;
  • States, CA certificate stating that assessee did not receive service tax amount from lessor or DMRC or any other person should be considered as a corroborative evidence, moreover, observes that, DMRC rejected assessees’ claim for price variation for inclusion of disputed service tax amount and said amount was shown as ‘receivable’ in assessee’s balance sheet; States further that, Revenue’s findings that phrase “inclusive of tax” imply that assessee collected service tax is legally unsustainable, consequently allows assessee’s appeal : Delhi CESTAT
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2017-VIL-638-BOM

M/s BHARAT HEAVY ELECTRICALS LTD Vs THE STATE OF MAHARASHTRA

Bombay Sales Tax Act, 1959 - Transaction of sale or Work contract - Contract for designing, engineering, supplying, erection, installation and Commissioning of the Trombay-V Expansion Project – contract involving manufacture, inspection, shipping, clearance and dispatch - Assessee in appeal against Tribunal order holding that supplies of material were sales, liable to tax under the BST Act, 1959

HELD – it is seen that the foundation is to prepare by FPDIL and not the applicant. The applicant is to supply equipment and erect it on the site. Work of erection is not separately valued but is tied with transportation costs and insurance. In any event this is only a fraction of total cost. In the circumstances, it is difficult to accept the contention of the applicant that the contract is one of work.

In value terms, the amounts spent for erection is minuscule. This notwithstanding, the transaction seems to be for supply of the compressors at a site prepared by FPDIL in terms of foundation and merely fixing four compressors. The schedule also provides for materials and workmanship guarantees which are restricted to specification laid down in the contract and free from defects in design and material in relation to equipment and not in relation to the work of installation.

Repair and replacement of the equipment is also contemplated at site. There is nothing to indicate that the guarantees also include the entire erection work - considering the factual matrix and the law and after applying the tests in Kone Elevator case, it is evident that in the facts of the present case the contract was clearly one for supply and erection of equipment, supply of equipment being dominant purpose

FPDIL was required to carry out all preparation work, provide foundation, provide all civil works required, the equipment was merely supplied and installed - The transaction entered by the applicant with RCF is one for sale and not for works contract – answered in favour of the revenue and against the assessee

 

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2017-VIL-1037-CESTAT-MUM-ST

COMMISSIONER OF SERVICE TAX, MUMBAI Vs M/s IDEAL ROAD BUILDERS PVT LTD

Service Tax – Demand of service tax on services of collection of toll on behalf of MSRDC for which appellants were, as per the contract terms, allowed to retain part of the toll collected as consideration for such service provided to the corporation – demand under ‘Business Auxiliary Service’ - Section 65 (105) (zzb) of the Finance Act, 1994

HELD - The Respondents being the suitable bidder were given right to collect the toll and under the terms and conditions of such auction, the Respondents-assessee were liable to pay the bid amount to NHAI/ MSRDC. Such bid price which the Respondents were liable to pay to the NHAI/ MSRDC was in no way connected with the collection of toll or quantum of toll amount.

The Respondents had to pay NHAI / MSRDC the bid amount irrespective of the fact whether such activity would earn him profit or loss. The NHAI/ MSRDC were in no way concerned with the collection made by the assessee - the activity of toll collection by the assessee was not on behalf of NHAI/ MSRDC but on their own account once they had secured the right to collect the toll - the activity of NHAI/ MSRDC is of developing, maintaining and management of national state highways which is a statutory function. They have not been engaged in the said activity as the business.

In such case it cannot be said that the assessee has been providing auxiliary service to any business – further, the toll is not collected by the assessee as representative or agent of NHAI/ MSRDC nor any commission in terms of quantum of amount or percentage is charged by the assessee from NHAI/ MSRDC - the difference between the toll collection and the bid amount paid by the assessee to M/s NHAI/ MSRDC in no way can be termed as consideration for any service - activity of the assessee cannot be considered as Business Auxiliary Service and cannot be taxed to service tax - the revenue appeal is unsustainable on merits and accordingly dismissed

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  • CESTAT upholds service tax liability of sub-contractor engaged in rendering service of erection, commissioning and installation despite discharge of tax by main contractor;
  • Rejecting assessee’s contention that such levy would result in double taxation, CESTAT observes that main contractor has been granted abatement under Notification No. 1/2006-ST for the reason that it has foregone credit of duty paid on inputs and input services, while on the other hand, sub-contractors have already paid duty on value of their inputs and input services;
  • Accordingly, rules out applicability of revenue neutrality while stating that if assessee’s contention was accepted, every provision of service to another taxable service provider would not attract service tax, thus defeating the very purpose of Notification and leading to chaos;
  • States that earlier ruling in Akruti Projects is based on HC ruling in L&T Ltd in respect of VAT on works contract involving construction of land and therefore, is inapplicable to present case where assessee is not providing service to owner of land and there is no direct transfer of property from sub-contractor to main recipient of service; On the other hand, applies ratio of co-ordinate bench in Sunil Hi-Tech Engineers and remands matter for identification of documents required for quantification of the demand : Mumbai CESTAT
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Looking to the complexities faced, GST council on its 23rd meet has made the variety of changes to promote ease of business, reduce the rate on various items, rectifying drafting mistakes and so on. Notifications for change in rate of tax has been issued by various States.

We have compiled changes which are relevant to Construction sector and it includes:-

S.N

Particulars

1

Change in Rate of tax –

  1. Goods on which GST Rate recommended for reduction from 28% to 18%.
  2. Goods recommended to be retained at 28% GST Rate.
  3. Change recommended in GST Rate on certain goods.
  4. Changes in IGST Rate recommended on certain goods.
  5. Modification in definition/ clarification in respect of changes in GST/IGST rates on goods
  6. Clarifications on tax rate for IPR’s

2

Changes made in lower rate benefits Notification

3

Clarification on inter-state movement of goods on wheels

4

Changes recommended in Composition Scheme

5

Changes for supporting ease of doing business 

 

  1. Change in Tax rates

Major recommendations of the Council are summarised below.

A. Goods on which GST Rate recommended for reduction from 28% to 18%

Chapter / Heading / HSN references

Description

2515 12 20, 2515 12 90

Marble and travertine, other than blocks

2516 12 00

Granite, other than blocks

6802

All goods of marble and granite [other than Statues, statuettes, pedestals; high or low reliefs, crosses, figure of animal, bowls, vases, cups, cachou, boxes, writing sets, ashtrays, paper weights, artificial fruit and foliage etc., other ornamental goods essentially of stones;]

6809

Articles of plaster or of compositions based on plaster; such as Boards, sheets, panels, tiles and similar articles, not ornamented

6810

Articles of cement, of concrete or of artificial stone, whether or not reinforced; such as Tiles, flagstones, bricks and similar articles,  Building blocks and bricks, Cement bricks, Prefabricated structural components for Building or civil engineering, Prefabricated structural components for building or civil engineering

6901

Blocks, tiles and other ceramic goods of siliceous fossil meals (for example, kieselguhr, tripolite or diatomite) or of similar siliceous earths

6904

Ceramic flooring blocks, support or filler tiles and the like

6905

Chimney-pots, cowls, chimney liners, architectural ornaments and other ceramic constructional goods

6906

Ceramic pipes, conduits, guttering and pipe fittings

6907

Ceramic flags and paving, hearth or wall tiles; ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics

6914

Other ceramic articles

7016

Paving blocks, slabs, bricks, squares, tiles and other articles of pressed or moulded glass, whether or not wired, of a kind used for building or construction purposes; glass cubes and other glass smallwares, whether or not on a backing, for mosaics or similar decorative purposes; leaded lights and the like; multi-cellular or foam glass in blocks, panels, plates, shells or similar forms

7324

Sanitary ware and parts thereof of iron and steel

7615

All goods other than utensils i.e. sanitary ware and parts thereof

8302

Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat-racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal

8413

Concrete pumps [8413 40 00], other rotary positive displacement pumps [8413 60], [other than hand pumps falling under tariff item 8413 11 10]

8427

Fork-lift trucks; other works trucks fitted with lifting or handling equipment

8428

Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics)

8429

Self-propelled bulldozers, angledozers, graders, levellers, scrapers, mechanical shovels, excavators, shovel loaders, tamping machines and road rollers

8430

Other moving,  grading,  levelling,  scraping,  excavating,  tamping, compacting, extracting or boring machinery, for earth, minerals or ores; pile-drivers and pile-extractors; snow-ploughs and snow-blow

Goods recommended to be retained at 28% GST Rate:

Chapter/ Heading/ Sub- heading/ Tariff item

Description

2523

Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers

3208

Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 4 to this Chapter

3209

Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in an aqueous medium

3210

Other  paints  and  varnishes  (including  enamels,  lacquers  and distempers); prepared water pigments of a kind used for finishing Leather

3214

Glaziers’ putty, grafting putty, resin cements, caulking compounds and other mastics; painters’ fillings; non- refractory surfacing preparations for facades, indoor walls, floors, ceilings or the like

8704

Motor vehicles for the transport of goods [other than Refrigerated motor vehicles]

8705

Special purpose motor vehicles, other than those principally designed for the transport of persons or goods (for example, breakdown lorries, crane lorries, fire fighting vehicles, concrete-mixer lorries, road sweeper  lorries,  spraying  lorries,  mobile  workshops,  mobile radiological unit)

8706

Chassis fitted with engines, for the motor vehicles of headings 8701 to 8705

8707

Bodies (including cabs), for the motor vehicles of headings 8701 to 8705

8708

Parts and accessories of the motor vehicles of headings 8701 to 8705 [other than specified parts of tractors]

8709

Works trucks, self-propelled, not fitted with lifting or handling equipment, of the type used in factories, warehouses, dock areas or airports for short distance transport of goods; tractors of the type used on railway station platforms; parts of the foregoing vehicles

 Change recommended in GST Rate on certain goods:

Chapter/ Heading/ Tariff item

Description

Present GST Rate

GST Recommended Rate

2621

Fly ash

18%

5%

6815

(a) Fly ash bricks

12%

5%

 

(b) Fly ash aggregate with 90% or more fly ash content.

18%

5%

Changes in IGST Rate recommended on certain goods: 

Chapter/ Heading/ Sub- heading/ Tariff item

Description

Present IGST Rate

IGST Rate Recommended

Any chapter

All goods, vessels, ships, rigs [other than motor vehicles] etc. imported under lease, subject to condition that IGST is paid on such lease amount.

At present, exemption is available for

i. Imported aircrafts and aircraft engines under lease;

ii. Imported goods for temporary period under lease;

iii. Imported Oils rigs and associated goods under lease

Applicable IGST rate

 

Nil

[On import]

 Modification in definition/ clarification in respect of changes in GST/IGST rates on goods

Chapter/ Heading/ Sub- heading/ Tariff item

Description

Present IGST Rate

Modification/clarification Recommended

 

89

 

Rigs, tools and spares, and all goods on wheels [like cranes], removed from one State to other State

 

To include these goods in within the purview of the Circular 1/1/2017-IGST dated 07.07.17, by suitably modifying / reissuing the said Circular.

No supply

To include these goods in within the purview of the Circular 1/1/2017-IGST dated 07.07.17, by suitably modifying / reissuing the said Circular.

 

Clarifications on tax rate for IPR’s 

  • Permanent transfer of Intellectual Property other than Information Technology software attracts GST at the rate of 12%; and
  • Permanent transfer of Intellectual Property in respect of Information Technology software attracts GST at the rate of 18%.

 Changes made in lower rate benefits Notification

Government has clarified that lower rate benefit of 12% available for service provided to specified person as per Notification No. 24/2017-Central Tax (Rate) dated 21st September 2017, to be restricted to composite supply of works contract service.

(vi)Services Composite supply of Works contract as defined in clause 119 of Section 2 of CGST Act, 2017, provided  to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as

(i) an educational,

(ii) a clinical, or

(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

  1. Clarification on inter-state movement of goods on wheels

To clarify that inter-state movement of goods like rigs, tools, spares and goods on wheel like cranes, not being in the course of furtherance of supply of such goods, does not constitute a supply. This clarification gives major compliance relief to industry as there are frequent inter-state movement of such kind in the course of providing services to customers or for the purposes of getting such goods repaired or refurbished or for any self-use.  Service provided using such goods would in any case attract applicable tax.

This clarification is a welcome change as it exempts taxability of inter-state movement of goods (on wheels), to be used for providing services in other State.

 

This exemption may not apply if goods are transported by HO and used by branch for providing service. It means if Head Office (HO) supplies any goods to branch office and branch uses such goods to provide service on its own behalf then, this exemption will not apply and transaction of transport of goods between HO and branch may not be exempted. One may argue that this clarification also grants exemption to supply of goods between HO and branch.

To conclude with, it is still doubtful that whether this clarification will apply in case of two offices in different states belonging to same entity. Therefore, this clarification needs clarification.

Changes recommended in Composition Scheme 

  • Supply of services by Composition taxpayer upto Rs 5 lakh per annum will be allowed by exempting the same.
  • Eligibile turnover for composition will be increased to Rs. 1.5 Crore per annum.
  1. Changes for supporting ease of doing business
  • Form GSTR-3B along with payment of tax by 20th of succeeding month till March, 2018.

 

  • For filing of details in FORM GSTR-1 till March 2018, taxpayers would be divided into two categories. Details of these two categories are as follows:

(a) Taxpayers with annual aggregate turnover upto Rs. 1.5 crore need to file GSTR-1 on quarterly basis as per following frequency:

(b) Taxpayers with annual aggregate turnover more than Rs. 1.5 crore need to file GSTR-1 on monthly basis as per following frequency

               

  • From October 2017 onwards, the late fee payable whose tax for that month was ‘NIL’ will be Rs. 20/- per day instead of Rs. 200/- per day.

 

  • Manual of applicationfor advance ruling

 

  • Exemption to suppliers providing service through e-commerce platform from compulsory registration if aggregate turnover does not exceed twenty lakh rupees (Rs. 10 lakhs in special category States except J & K).

 

  • Due dates for furnishing the following forms shall be extended as under:

 

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  • Introduction

Recently, Maharashtra Sales Tax Tribunal in the case of M/s Agni Construction Vs   The State of Maharashtra as reported in 2017-VIL-20-TRB dated 06.09.2017, has delivered an interesting judgement in case of VAT on works contract.

Let us discuss the judgement to find out what exactly had happened and how it is relevant for GST.

  • Relevant provisions

In Maharashtra VAT, the deduction for labour and service charges in the Regular scheme was provided in rule 58(1) (i). Before 08.09.2006, the rule stood as:-

(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:--

(i) labour and service charges for the execution of the works where the labour and service done in relation to the goods is subsequent to the said transfer of property

On 08.09.2006 through Notification No. STR-1506/CR-38/Taxation-1, amendment was made in entry (i) and the updated entry was:-

(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:--

(i) labour and service charges for the execution of the works

Words “where the labour and service done in relation to the goods is subsequent to the said transfer of property” were deleted in the above-stated notification.

The text of above notification is:-

22. In rule 58 of the principal rules, in sub-rule (1),--

(1) in clause (a) the words "where the labour and service done in relation to the goods is subsequent to the said transfer of property" shall be deleted,

  • Facts of case

The appellant is undertaking works contract. The appellant was assessed under MVAT Act. He had claimed the deduction of labour charges in the Regular scheme. The assessing officer, however, came to the conclusion that the said clause, during the relevant period up to 8.9.2006 provided only for deduction of labour and services that are subsequent to the transfer of property in goods.

Since there was no bifurcation available in respect of labour and services prior to and after the transfer of property, the assessing officer rejected the claims as per books and allowed the standard deduction as provided in standard deduction table.

Aggrieved by this order, the appellant filed the first appeal before the Deputy Commissioner of Sales Tax (Appeals) where the appeals were dismissed for non-attendance and non-prosecution.

The appellant has filed these second appeals against the order of first appellate authority dismissing the appeals.

  • Arguments raised by Appellant

Appellant had raised several arguments which will interest us for interpretation of any statue. Let us read those arguments.

  1.   Labour payment is not divisible as the appellant has made labour payments on the dates fixed for payment.

It is almost impossible to classify receipt of service before and subsequent to transfer of property.

  1. The major portion of the labour is after the work started. That prior to the work, very few work of labour such as earthwork etc. are done.

Imagine a situation where the works are executed by the sub-contractor in a back to back arrangement. The law as stood before the amendment was extremely rigid for us to claim labour charges in a case of back to back sub-contracting.

  1. Amendment to sub-rule does not provide the date of effect and the plain reading of the notification indicates that labour payment made is allowable for the total work and the same has to be taken as the date of effect of rule 58 came into force. That the amendment has been made to the said clause in the sub-rule, after realizing the mistake and the said has been corrected accordingly.

States had prescribed deduction in their VAT Rules as per the law pronounced by the   Honorable Supreme Court in the case of Gannon Dunkerley and Co. Vs the State of Rajasthan And Ors. on 28-02-1994.  Deductions specified in the said judgement did not had the condition that only those service charges which incurred subsequent to transfer of property will be allowed as the deduction from total taxable turnover.  The state had committed a mistake in drafting rules. To rectify such mistake, the entry was amended. Hence, the appellant argued that where omissions are made to rectify mistakes, it is deemed that the omission will apply retrospectively.

  1. Appellant placed reliance on the case of ‘M/s. Good year (I) Ltd. V/s. State of Haryana(1881 ITR 402), wherein it was held that rule of reasonable construction must be applied while construing a statute. That literal construction should be avoided if it defeats the manifest object and purpose of the Act.  

The prospective effect was defeating the purpose of omission. Appellant had raised a valid point to interpret the statue reasonably.

  1. Appellant also placed reliance on ‘R.B. Jodha Malkuthiwala V/s. CIT 82 ITR 570’ stating that proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into section 10 gives the section a reasonable interpretation, is required to be treated as retrospective in operation.
  • Arguments raised by Respondent

The rule 58(1) (a) during the relevant time expressly provided for deduction in respect of labour and services only to the extent they are incurred after the transfer of property and the same has to be given effect to. In the absence of identification of labour and service charges prior to and after such transfer of property, the assessing officer rightly followed the method of deduction under the proviso to rule 58(1).

  • Order is given by Tribunal

Thus the principle that emerges from various judgments is that anything that goes beyond the value of transfer of goods in the works contract is not within the domain of taxing powers of the State. In this case, the labour and service element prior to the incorporation of goods in the works contract clearly amounts to including labour of services for incorporation of goods in the tax net which was explicitly rejected by Hon’ble Apex Court in Gannon Dunkerly. As per law laid down by Supreme Court regarding the power of State to tax Works Contract under Article 366(29A) (b), this would clearly be a transgression into the forbidden domain.

It is, perhaps, for this purpose that the said rule was amended, from 8.9.2006 to bring it in line with the law laid down by Supreme Court. The law laid down by Supreme Court on this matter, being clear, the said deduction regarding labour charges before incorporation cannot be taxed even prior to the amendment.

Tribunal upheld appellant’s argument that the amendment was made to rectify the mistake and shall be applied retrospectively.

As such the matter and subject of this judgement is not relevant to GST. However, in the start, we have mentioned that this judgement is interesting. Let us checkpoints that this judgement teaches us to keep in mind while interpreting any statue.

  1. Tribunal has liberally supported interpretation through the principal of reasonable construction. If the concept arising from the law is itself a blunder because of drafting issues then, there is no limit that restricts the law of reasonable construction.
  1. One point to note here is that the Tribunal has set a principle that sometimes, the retrospective or prospective effect of omission should be judged by the circumstances in which the omission was done. In Indian tax system, things are very complicated and to keep a track of every change along with their justification is an onerous task.
  1. When a change is brought in the law in response to the law declared by Honorable Court, the law should be interpreted keeping in mind the objectives sought by the Court. This principal is supported by the tribunal in this case.

These three points will help interpreting the law in GST especially in the case where the law is still on maturity state.

 (Contributed by CA Pooja Jajwani from Sandesh Mundra & Associates)

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