POWER ASSOCIATES Vs. ADDITIONAL COMMISSIONER

JUDGEMENT

(1.) THE assessee being aggrieved by the order dated 26-4-2010 made in SMR/KST/MYS/CR-16/2006-07 passed by the Additional Commissioner of Commercial Tax, Zone-II, Bangalore in exercise of its revisional power setting aside the order dated 26.12.2005 passed by the First Appellate Authority and restoring the order passed by the Assessing Authority for the assessment year 2002-2003, has filed this appeal.

(2.) THE appellant is an electrical contractor registered under the Karnataka Sales Tax Act ('KST' Act for short) engaged in the execution of electrical works contract in electrical items doing business under the name and style known as "M/s. Power Associates". For the assessment year 2002-2003, the appellant filed the annual returns declaring a gross turnover and taxable turnover. The assessee is a 'A' class dealer, his case was taken up for scrutiny of the assessment. On scrutiny of books of accounts produced by the representative of the assessee, it was noticed that the activities of the assessee is engaged in the execution of works contract in electrical goods to various Government and Quasi Government Departments like KIADB, Bangalore KPTCL, MUDA, Mysore. In addition to the Government work, the assessee has also declared execution of works contract with the private parties. The total contract receipts declared in the annual returns by the assessee is at Rs.27,69,232/-. For execution of the electrical contract, the assessee has procured the electrical goods from the local registered dealers to an extent of 7,32,515/- and invoices have been produced in support of that. However, the appellant has purchased the materials like jelly, sand, etc. for fixing the electrical goods from the unregistered dealers. The Assessing Officer while assessing the returns denied the administrative expenditure to an extent of 50% and profit on purchase is reduced to Rs.1,66,521/- as against the claim of Rs.8,33,367/- by its order dated 4-6-2005. The Assessing Authority taking into consideration the taxable turnover as Rs.5,68,418/-, calling upon the appellant to pay the tax of Rs.79,198/- including the repurchase sale. The appellant being aggrieved by the assessment order passed by the Assessing Authority preferred an appeal before the Joint Commissioner of Commercial Tax (Appeals) Mysore. The Joint Commissioner after considering the matter in detail found that the order passed by the Assessing Authority denying the relief insofar as profit on purchase of the goods is contrary to law and held that the assessee has purchased the electrical goods from the registered dealers within the State. Hence, the assessee is not liable to pay tax on the said goods. Accordingly, partly allowed the appeal and set aside the order passed by the Assessing Authority.

(3.) SRI.T.N.Keshavamurthy, learned counsel appearing for the appellant contended that the order passed by the Revisional Authority is contrary to law. All the materials involved in the execution of works contract were those purchased from the registered dealers within the State and therefore, no taxable turnover is liable to be taxed under Section 5B of the KST Act. The levy of tax can be made only as resale tax under Section 6B of the KST Act. He further contended that the Assessing Officer after verifying the vouchers and invoices found that the appellant has purchased the electrical goods from the registered dealers within the State, except the purchase of jelly and sand which is at a negligible percentage. There is no taxable turnover of any goods involved in the execution of works contract, which is liable to be taxed under Section 5B of the KST Act. The reasoning of the Revisional Authority is that the element of gross profit at Rs.4,68,412/- and the purchase value of goods from the registered dealers at Rs.7,32,515/- was abnormally high as also gross profit relating to the labour and other charges. He considered that the normal percentage of profit was 8%. Further held that the appellant has not maintained proper accounts and accounts maintained by him are not worthy of credence is totally incorrect. He further contended that all expenditures claimed were relating to the execution of works contract only and there was no reason to disallow any of them or to curtail the margin of the profit attributable to labour and other like charges or the materials involved. There is a difference between the contract receipt and the value of the material and labour and other charges related to value of the second dealer goods that had been suffered to single point tax. All the goods are subjected to single point tax under the Act. The tax can be levied under Section 5B of the Act only on the value of goods involved in the execution of works contract that are deemed as sold, if such goods are not already subjected to tax under the Act. The Appellate Authority has levied tax on resale tax under Section 6B of the Act. Hence the levy of tax under Section 5B on taxable turnover is liable to be set aside.