Bombay High Court upholds challenge on the orders by Deputy Commissioner of Sales Tax under Sec. 25 of MVAT Act, 2002
Title: Kalpataru Power Transmission Ltd. v. State of Maharashtra & Ors.
Decided on: 3rd AUGUST, 2023
WRIT PETITION NO.4505 OF 2022
CORAM: G. S. KULKARNI & JITENDRA JAIN, J.J
Facts of the Case
During the financial year 2006-07, the Petitioner executed two projects of electricity distribution line for Maharashtra State Electricity Distribution Company Limited (MSEDCL) and one works contract project for Gas Authority of India Limited (GAIL) for laying down the pipeline of gas between Dabhol to Panvel. The Petitioner with respect to two contracts with MSEDCL claimed deduction from the contract price @ 25% as per Table prescribed in Rule 58 of the MVAT Rules for arriving at value of transfer of property in goods. However, with respect to contract with GAIL, the Petitioner claimed deduction under Rule 58(1)(a)-(h) on actual basis aggregating to Rs.30,59,93,405/-.
The Deputy Commissioner of Sales Tax issued a notice for verification of the books of account, to which the petitioner duly replied and submitted all the documents. In an order by him in 2018, it was mentioned that tax deduction on account of profit on supply of labour & service was not allowable. Profit on sale of labour only permissible. The Petitioner further submitted that for turnkey projects, there cannot be two separate agreements, one for sale of the goods and another for supply of labour and services.
DCST in the said order held that since the Petitioner had failed to submit correct amount of deduction of profit, they were not eligible to get the deductions provided under Rule 58(1)(a) to (h) and, therefore, the Petitioner would be allowed to claim deduction only as per Table under Rule 58(1) of the MVAT Rules. DCST, therefore, allowed deduction not on the actual basis with respect to GAIL project, but by applying a rate of 20% as per Serial No.11 of Table to Rule 58(1)
Issues
Whether the impugned orders by the Deputy Commissioner of Sales Tax to initiate proceedings under Section 25 of the MVAT Act were valid?
Decision
Held that the impugned order is without jurisdiction. In the show cause notice, jurisdiction is sought to be assumed on the premise that for claiming deduction of profit on sale of labour, there has to be two contract agreements by the dealer for the work with principal. In the present case, it was an indivisible contract without bifurcation of the goods and the service component which goes in for execution of the work awarded to the contractor.
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Written by- Aparna Gupta, University Law College & Dept. of Studies in Law