AMIT BAJAJ ADVOCATE

For  the successfull administration of any tax law refund of tax to the assessee is as much importance as ensuring tax payment from the assessee. Refund in tax laws whether (indirect or direct) arises primarily due to the reason of excess tax paid than actual due, secondary reasons may be like refund arising out of a judgement of a court or an order of an authority.

Here in this article refund provisions under Punjab VAT Act 2005 are concentrated on.

When Refund may arise under Punjab VAT Act 2005: Refund under Punjab VAT Act 2005 may arise due to many reasons. VAT Refund ussualy arises to the exporters or the person doing penultimate export i.e sales against H forms, due to the fact that the export of goods outside India is considered as zero rated sales i.e not liable for any vat liability and the tax paid on purchase of goods which are to be exported is refunded to the exporters as per provisions of section 18(2) of PVAT act 2005.

Almost all States under their respective VAT laws have made provisions for deduction of VAT from payment to be made to the works contractors at the time of the payment (popularly known as works contract tax or VAT TDS on works contract). The Punjab VAT Act is no exception in this regard. Section 27 of PVAT Act deals with the provisions relating to tax deductions from payments to be made under a works contract. Here in this article the provisions of section 27 of PVAT Act 2005 are concentrated on in view of the latest decision of Hon’ble Punjab & Haryana High court in Larsen and Tourbo v State of Haryana case. 

What is Works Contract:   Before proceeding with the topic it is necessary to give a brief meaning of works contract. Works contract has been defined inclusively u/s2(zu) of Punjab VAT Act 2005 to mean as including any agreement for carrying out, for cash, deferred payment or other valuable consideration, building, construction, manufacturing, processing, fabrication, erection, installation, fitting out, improvement, modification, repairs or commissioning of any movable or immovable property.

In general terms works contract can be defined as a contract of some work for valuable consideration which includes both supply of goods as well as labour/services. Construction of buildings, roads, bridges, making of lifts, sign boards etc are some examples of works contracts.

Section 27(1) starts with the words “Nothwithstanding anything contained in any of the provisions of this act” which shows that the provision is a non abstante clause which means section 27(1) will be applicable irrespective of anything contrary to it contained in the other provisions of the Act.

On which amount the tax is to be deducted?: The first question that comes to mind while deducting tax under section 27 of PVAT Act 2005 is on which value of works contract Tax should be deducted i.e whether on the whole value of works contract including service component and interstate sales if any etc or only on that part of works contract on which the contractor is liable to pay tax under the relevant state VAT act.

Section 27(1) doesnot provide specific answer to it clearly. Although it is written in the said section that deduction is to be made for the amount payable for transfer of Property in Goods( whether in goods or in some other form) made in pursuance of works contract. Section 27(1) doesnot specify clearly whether the labour part included in the works contract or the value of the works contract involving interstate sales or sales in the cource of import are to be excluded or not while making tax deductions from the works contract payments by the contractee.

Hon’ble Supreme court in Steel Authority of India v. State of Orissa [2000] 118 STC 297(SC), Nathpa fhakri ft. Venture v. State of Himachal Pardesh[2000] 118 STC 306 (SC) and Rapti commission Agency v. State of U.P.{2006] 147 STC 566(SC), has taken a view that if a person is not liable for payment of tax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid.

Labour component involved in the value of a works contract is not liable for any tax under Punjab VAT Act as also the interstate sales or sales outside the state and sales in the cource of import. If there is no levy of tax on a turnover then there cannot be collection of tax on it by the authorities.

If we consider the above view of the Supreme court then tax u/s 27 should be deducted only on the taxable turnover part of works contract that is to say tax should be deducted only on that part of works contract on which the contractor would be liable to pay tax under the relevant VAT Act.

The Hon’ble Punjab & Haryana High court in a latest case Larsen & Toubro Limited

Vs.The State of Haryana and others  CWP No.14797 of 2010 Decided on  26.10.2010 wherein validity of statutory provisions in Sales Tax law in Punjab and Haryana for deduction of tax at source out of payment made to contractors for execution of works contracts involving transfer of property in goods at specified rate was challenged,  has held considering the view of Supreme court in the cases referred above that the impugned provisions i.e section 27 of PVAT Act 2005 and section 24 of Haryana VAT act 2003 as ultra vires as it did not provide any mechanism for the exclusion of labour component or interstate sales or sales outside the sate or sales in the cource of imports from the value of works contract while deduction of tax,  but instead of  striking down the impugned provisions the Hon’ble court has decided on the proposal of the petitioners in that case  that the provisions of section 27 of PVAT Act and u/s 24 of HVAT Act 2003 will be applicable only to the taxable turnover i.e. after deducting service component and turnover relating to sales outside State, in the course of inter-State sales or in the course of import. The petitioner (Contractor) will give declaration in respect of such payments to the persons making the payment(Contractee) with a copy to the concerned assessing authority.

The relevant portion of the said Judgment is produced herebelow:

Thus  tax u/s 27 of PVAT Act 2005 and u/s 24 of Haryana Vat  Act 2003 tax on works contract needs to be deducted only on the taxable turnover of the works contract after the said judgment as explained above.  

Central Sales Tax Act 1956 envisages single point of taxation i.e tax at the first point of sales. Subsequent sales during the movement of the goods from one state to another have been exempted under section 6(2) of CST Act.

Before proceeding to understand which sale is exempted under section 6(2) and the conditions for exemption, one should understand some relevant concepts relating to it.

What is sales by transfer of documents of title: Section 3(b) provides that a sale or purchase effected by transfer of documents of title to the goods during their movement from one state to another shall be deemed to take place in the cource of interstate trade or commerce.