The Karnataka High Court has held that value of land under work contracts is not exigible to Value Added Tax (VAT).
The bench of Justice Krishna S Dixit and Justice Ramachandra D. Huddar has observed that when value of land is not exigible to VAT, the authority took the turnover excluding the value of land. This cannot be said to be prejudicial to the interest of Revenue merely because cash flow to the Exchequer to that extent is diminished. After all, no tax can be levied except by the authority of law.Â
The appellant/assessee is in the business of executing civil works, building residential & commercial complexes and performing other allied works. For FY 2015 -16, it had filed VAT returns and paid taxes.
The Reassessment Notice was issued under section 39(1) of the VAT Act raised the infirmities/discrepancy. It was alleged that total receipts of contract declared in VAT 120 and VAT 240 returns were raised. The claim of deduction towards sub-contractors is liable to be disallowed for the lack of producing certificates mandated under Rule 3(2)(i-1) of KVAT Rules, 2005. In the absence of particulars of tax collected, the deduction claimed towards tax collection is disallowed.
The details of inter- State purchases as per VAT 120 is to be accepted as against the ones declared in VAT 240. Failure of the Assessee to declare purchases made from the unregistered dealers (URD) and therefore, such purchases are estimated at 10% of the receipts. The notice proposed to levy interest under section 36 and penalty under section 72(2) of the VAT Act.
The issue raised was whether levying tax on receipt for land cost i.e., immovable property, which does not constitute consideration for works contract under Composition Scheme of KVAT is sustainable.
The appellant contended that in the absence of twin test being satisfied, there was no scope for SMR; in any event, the Act does not provide for including the land cost while working out value of works contract and therefore, the impugned orders structured on contra premise are flawsome. Learned AGA appearing for the Revenue makes submission in justification of the impugned orders and the reasons on which they have been structured by the SMR authority. The questions of law which the Assessee has raised in these appeals do not arise for consideration.
The court held that With respect to exemption claimed on sub-contractor payment of Rs.75,63,738/-, the reassessment order itself had disallowed the same. Added, there is no material to show that the turnover was different from the one declared by the Assessee and the same turnover has been used by both the authorities. In respect of URD purchases that were disallowed, the Assessee had filed its reply specifically stating that there was no URD purchase. The re-assessment order though does not in so many words give any finding but does not deny or disallow the claim of Assessee.
Case Details
Case Title: M/S Fortious Infradevelopers Llp Versus The Additional Commissioner Of Commercial Taxes
Case No.: Sales Tax Appeal No. 18 Of 2022
Date: 02/04/2025
Counsel For Petitioner: V Raghuraman., Senior Counsel For Sri. Raghavendra C R.
Counsel For Respondent: Aditya Vikram Bhat
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