IN THE HIGH COURT OF KERALA AT ERNAKULAM
OT.Appeal.No. 10 of 2007()
1. ORCHID DESIGNS PRIVATE LIMITED,
... Petitioner
Vs
1. COMMERCIAL TAX OFFICER(WCT),
... Respondent
2. THE COMMISSIONER OF COMMERCIAL TAXES,
3. THE COMMERCIAL TAX OFFICER(AUDIT ASSMT.)
For Petitioner :SRI.JOSEPH JERARD SAMSOM RODRIGUES
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :16/06/2009
O R D E R
C .N. RAMACHANDRAN NAIR &
C. K. ABDUL REHIM, JJ.
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O. T. A. No. 10 OF 2007
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Dated this the 16th day of June, 2009
C.R.
JUDGMENT
Ramachandran Nair,J.
Appeal is filed against the order of the Commissioner of
Commercial Taxes issued under Section 94 of the VAT Act holding
that appellant is not entitled to payment of tax at compounded rate in
respect of works contract executed in the form of supply and
installation of kitchen cabinet. We have heard counsel appearing for
the appellant and Government Pleader appearing for the respondents.
2. The charging section under the Kerala Value Added Tax Act,
hereinafter called the “Act” for works contract is Section 6(1)(e) and (f)
respectively. While clause (e) provides that if the transfer of goods
involved in the execution of works contract is in the form of goods as
such then the rate of tax applicable will be the rate applicable to such
goods as provided under clause (a) or (d). On the other hand, if the
transfer of goods involved in the execution of works contract is not in
the form of goods but in some other form the rate of tax applicable will
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be at 12.5 per cent. Referring to the above provisions, the
Commissioner in the impugned clarification issued under Section 94 of
the Act held that items supplied in the course of execution of supply
and installation of kitchen cabinet are in the form of goods which
attract tax at the rate provided under clause (a) or (d) of the charging
section. The further finding of the Commissioner is that by virtue of
second proviso contained in Section 8(a)(ii) no compounding is
permissible for the tax payable in respect of supply and installation of
kitchen cabinet. The Finance Bill, 2009 seeks to substitute Section 8(a)
(ii) with the following provision:
(ii) any works contractor not falling under clause (i) above
may, at his option, instead of paying tax in accordance with
the provisions of the said section, shall pay tax at three per
cent of the contract amount after deducting the purchase
value of goods excluding freight and gross profit element
consigned into the State on stock transfer or purchased
from outside the State and for the purchase value of goods
so deducted shall pay tax at the scheduled rate applicable to
such goods.
Counsel for the appellant submitted that Commissioner vide circular
3/2009 has instructed the departmental officers to follow the provision
in the bill for payment of tax. On going through the original provision
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and the proposed amendment, we notice that the purpose of the
amendment introduced by Finance Bill 2009 is to permit compounding
by those who are registered under the CST Act and who bring goods
from outside Kerala on condition that the purchase value of the goods
brought from outside will be subject to schedule rate of tax. In other
words, works contractors registered under the CST Act are also entitled
to the benefit of compounding except on the value of the goods brought
from outside the State on which they pay tax at the rate applicable to
such goods in the Schedule.
3. The question now to be considered is whether appellant’s
claim for payment of tax at the compounded rate on the entire contract
amount under Section 8(a)(i) or (ii) is permissible or not. We find that
even after the substitution of clause (ii) by a new provision by Finance
Bill 2009, the second proviso to Section 8(a)(ii) still bars a works
contractor from claiming compounding if goods in the course of
execution of works contract are transferred in the same form. In other
words, if the works contract involves supply of any goods in the form
of goods as such, then compounding is not permissible and the item
will attract tax at the rate provided under clause (a) or (d) of the Act.
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4. Counsel for the appellant has explained the nature of work
executed by the appellant. On hearing the nature of work, we feel the
impunged Commissioner’s order impugned is only partly correct
because fabrication, supply and installation of kitchen cabinet partly
involve works contract and it is partly supply of goods depending upon
the nature of contract. It is common knowledge that zinc made of
metal, electrical chimney manufactured by reputed companies, both
from India and abroad, cooking ranges (electrical), etc., are supplied in
the course of execution of works contract. In fact there are companies
engaged in the manufacture of kitchen cabinet of standard type which
can be fitted into any kitchen. Some of the contracts may even provide
for supply of zinc taps exhaust fan for the chimney, etc. It is common
knowledge that may of the items are factory made and cannot be
manufactured or supplied by contractors like the appellant. So much so
the standard manufactured items bought and supplied in the execution
of works contract attract tax at the scheduled rate. However, the
provision for supply of such goods in the execution of works contract
does not make the entire contract of fabrication, supply and installation
of kitchen cabinet as sale of goods. As already stated works order for
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installation of kitchen cabinet varies from customer to customer and it
is for the assessing officer to examine whether contract is one for
supply of standard items on which tax is payable at scheduled rate or
whether work is a divisible work, one for supply of specified items at
agreed rate and the balance is execution of work like site fabrication,
and installation of kitchen top, partitions, etc. Clause (ii) introduced in
the Finance Bill, 2009 contemplates divisible nature of contract where
certain items of goods are brought from outside either by way of inter-
State purchase or stock transfer and used in the work which will attract
tax at the scheduled rate on the purchase value, while the tax on the
balance portion pertaining to execution of works contract is assessable
at the compounded rate. We are of the view that clause (ii) applies in
respect of every divisible contract and even where specified goods are
locally procured such goods will attract tax at scheduled rate as
provided under Section 6(1)(e) of the Act and the balance portion of
work that is fabrication, supply and installation of kitchen cabinets with
top, fittings, partitions, etc. by the appellant will be assessed as works
contract. In view of the proposed amendment, and in view of the
discussion above, we are of the view that there cannot be any absolute
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bar against payment of tax at compounded rate on the works executed
involving fabrication, supply and installation of kitchen cabinets.
While the Commissioner’s finding that in respect of supply of specified
goods tax payable is at the rate provided in the schedule is correct, we
vacate that part of the order where he says that no compounding is
permissible in respect of remaining work relating to fabrication, supply
and installation of kitchen cabinets.
We therefore dispose of the appeal by partly upholding the
impugned order of the Commissioner issued under Section 94 of the
Act and by directing the assessing officer to consider eligibility for
compounding depending upon the nature of contract executed in each
case and to make assessment accordingly.
(C.N.RAMACHANDRAN NAIR)
Judge.
(C. K. ABDUL REHIM)
Judge.
kk
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