LARSEN AND TOUBRO LIMITED Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) All these three revision petitions are taken up for consideration together as the assessee is the same and the questions of law, which arises for consideration in all the three revision petitions are the same and therefore, they are disposed of by this common order. The petitioner is a company incorporated under the Companies Act, 1956 which is engaged in the execution of civil works contracts. It is one of the divisions of Larsen and Toubro Group Companies, it is registered under the Karnataka Sales Tax Act, 1957, under the Central Sales Tax Act, 1956 and under the Karnataka Tax on Entry of Goods Act, 1979. There are several units of the petitioner deployed in various locations in the State Government engaged in execution of civil works contracts. From the years 1988-1989 upto 2000-2001, a separate unit of the assessee was deployed in Kaiga, North Kannada District for construction of project for M/s. Nuclear Power Corporation Limited, a Government of India undertaking. As per the then existing provisions of Section 12E of Karnataka Sales Tax Act, 1957, a separate registration was obtained for the unit deployed at Kaiga and tax compliance was being furnished to the Deputy Commissioner of Commercial Taxes (Assessments), Dharwad. The petitioner has filed returns in respect of the execution of the works contract. Apart from other deductions claimed, the petitioner claims (i) disallowance of deduction claimed on expenses relating to own machinery and equipments deployed in the execution of works contract for construction of the project for the Nuclear Power Corporation Limited at Kaiga, from the total turnover under Rule 6(4)(n)(iv) read with Explanation I of the Karnataka Sales Tax Rules, 1957; (ii) disallowance of claim to deduction of establishment expenditure of the Head Office at Chennai and the Regional Office at Mumbai relatable to supply of labour and services in connection with the execution of the aforesaid contract under Rule 6(4)(n)(iv) read with Explanation I of Karnataka Sales Tax Rules, 1957; (iii) for the assessment year 1998-1999 disallowance of deduction claimed on labour charges and other like charges which were not allowed in the previous year 1997-1998 for insufficiency of total turnover and which are authorised by proviso to Rule 6(4)(n) of Karnataka Sales Tax Rules, 1957 to be carried forward and availed in the next and subsequent years. The Assessing Authority, the First Appellate Authority and the Tribunal have rejected these claims. Therefore, the assessee is before this Court challenging the aforesaid orders.

(2.) The learned Counsel appearing for the assessee, assailing the impugned orders contend that they have employed own machinery and equipments in the execution of works contract. When under the aforesaid provisions labour and other like charges include charges for obtaining on hire, machinery and tools used for execution of contract when the assessee employs his own machinery and equipments, the assessee is also entitled to proportionate or corresponding charges like hire charges. The same fall within the word "otherwise" used in Explanation I and the interpretation placed by the authorities, is contrary to the statutory provisions and therefore, requires to be set aside, lie further contended that as per the explanation to the aforesaid provision, labour and other like charges include charges for obtaining on hire or otherwise planning, designing and architect's fees which the assessee had claimed under the heading of establishment, expenditure from the Head Office, Chennai and Regional Office, Mumbai, which also has been wrongly rejected. Though he claimed 3% of the total extent, atleast, he should be allowed deduction on the basis of the actuals and therefore, the order passed by the authority requires interference. Lastly, he contended that the second proviso to clause (n) expressly provides that where the turnover of a dealer claiming deduction under clauses (m) and (n) in any years is not sufficient to cover the deduction is to be allowed to the extent of the turnover of the dealer in that year and the balance shall be carried forward to the year following the next. The authorities have rejected the said claim on the ground that the assessee did not make any such claim at all and that there is no direction in the assessment order passed in the year 1997-1998 for carrying forward the said expenditure, which is ex facie incorrect and therefore, he submits that for the aforesaid reasons, the order requires to be interfered with.

(3.) Per contra, the learned Government Advocate supporting the impugned order contended that the word 'otherwise' after the word hire' has to be understood in the context of the rule of ejusdem generis as rightly held by the Tribunal and if so interpreted, the assessee is not entitled to any deduction in respect of the machinery and equipment employed by them as owners. Though under Explanation I, the assessee is entitled to charges for planning, designing and architect's fees, assessee has not put forth any claim. Assessee is claiming a percentage of the total extent incurred in the Head Office and Regional Office, which is not permissible in law. Rightly, the authorities have rejected the said deduction. Lastly, it was contended that though the excess labour charges can be carried over to the next year, the condition precedent for such course is, first there should be a claim by the assessee and the Assessing Authority should pass a specific order for carrying over the excess amount, which in this case is missing and therefore, she submits no case for interference is made out.