High Court · 2012

Order

(Per the Hon’ble Sri Justice V.V.S.Rao) The respondent is a registered dealer on the rolls of the CTO, Khairatabad. They are engaged in the business of works contracts. For the assessment year 1999-2000, the CTO completed assessment by taking the purchase value of the goods used in the works contracts and adding 3% profit. The dealer went in appeal. By an order dated 16.07.2002, the Appellate Deputy Commissioner, Hyderabad (ADC), partly allowed and partly dismissed the appeal observing that in the case of contracts spreading over for more than one year, it is the cost of the goods which will have to be taken for assessment and profit thereof shall not be included. In concluding so, he relied on the decision of the Sales Tax Apellate Tribunal (STAT) State of Andhra Pradesh v M/s. Seven Hills Constructions [1] (hereafter Tribunal decision). The Additional Commissioner suo motu revised the order by proceedings in CCT’s Ref.No.L.III(2)/429/2005-IV

13.02.2006 holding that addition of 3% profit by the CTO on the value of the goods used in the works contracts is justified. The dealer yet again filed appeal before the STAT. The appeal was partly allowed and partly dismissed concluding that the value of the total turnover has to be assessed under Rule 6(3)(i) of the A.P. General Sales Tax Rules, 1957 (the Rules), based on the value of the goods purchased being supplied or used in the works contract. Aggrieved thereby, the State filed the instant revision under Section 22(1) of the A.P. General Sales Tax Act, 1957 (the Act). The Special Counsel for Commercial Taxes relies on the recent judgment of the Full Bench in State of Andhra Pradesh v M/s. Seven Hills Constructions, which arise out of Tribunal decision referred to supra. The issue raised in this revision was considered by Full Bench of this Court to which one of us (VVSR,J) is a member, in State of Andhra Pradesh v M/s. Seven Hills Constructions (TRC No.274 of 2001 and batch, dated 25.11.2011), addressed, among others, the question of applicability of Rule 6(2) or Rule 6(3)(i) of the Rules in respect of works contracts, and the method of computing the turnover and measure of tax. On consideration of various aspects, this Court summed up the conclusions. The relevant conclusions are as follows. (2) As the taxable event is the transfer of property in goods involved in the execution of a works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works, the value of goods which would constitute the measure of tax is the value of goods at the time of its incorporation in the works; (3) The turnover under Rule 6(3)(i), for the purposes of Rule 6(2), is the value of goods purchased and supplied or used in the execution of works contracts i.e., the value of the goods when it is incorporated in the works; (4) The word “purchased” in Rule 6(3)(i) qualifies the word “goods” and only means that the contractor, executing the works, has purchased goods which are supplied or used in the works, and nothing more. The word “purchased” cannot be read in a manner as to elevate Rule 6(3)(i), by implication, to that of a charging provision;

(8) A fortiori the value of goods under Rule 6(3)(i) would not only include the cost of acquisition of goods by the contractor- dealer but also the transportation charges incurred by him to deliver the goods to the situs of the works wherein they are incorporated; cost of establishment relatable to supply of material involved in the execution of the works contract; other charges borne by the contractor – dealer in relation to these goods till its incorporation in the works; and the profits relatable to the value of such goods. (9) Unlike other components, the profit element in the value of the goods may necessitate estimation in cases where the books of accounts are not maintained annually, but project- wise. Estimation of profit would then be a matter for determination by the assessing authority after taking into consideration all relevant factors including the profits which are, ordinarily, made in similar works executed by other contractors; profits earned by the contractor - dealer in works contracts executed by him in the previous years; the profit percentage norms accepted for works contracts of a similar kind; etc. Industry (10) While the assessing authority may adopt any other reasonable method, judicial pronouncements and authoritative texts, wherein the manner of estimation of profits for different works contracts have been dealt with, would serve as a useful guide in such estimation. A few of them have been referred to in para 41 supra. While the percentage of profits estimated at 15% has been accepted as being reasonable in some of those cases, we may not be understood to have held that in all cases 15% should invariably be accepted as the norm. We have merely indicated broadly the factors which the assessing authority should bear in mind while estimating the profit percentage in the facts and circumstances of the case before him. (11) However profits on the labour component of, and the actual cost of incorporation in, the works would stand excluded as the value of the goods is only its value till the stage of its incorporation in the works, and not thereafter. The deemed turnover under Rule 6(3)(i), (liable to tax under the Act), would be more or less the same as determined under Rule 6(2) of the Rules. Following the same, the order of the STAT is set aside and the matter shall stand remitted to the original assessing authority, namely, CTO, Khairatabad, with a direction to undertake fresh assessment after giving notice to the respondent keeping in view the decision of the Full Bench referred to supra. The exercise shall be completed within a period of eight weeks from the date of receipt of a copy of this order. The TREVC is allowed accordingly. There shall be no order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 4th January 2012 RRB [1] 34 APSTJ 201