ORCHID DESIGNS PRIVATE LTD Vs. COMMERCIAL TAX OFFICER

JUDGEMENT

(1.) Appeal is filed against the order of the Commissioner of Commercial Taxes issued under S.94 of the V.A.T. Act holding that appellant is not entitled to payment of tax at compounded rate in respect of works contract executed in the form of. supply and installation of kitchen cabinet. We have heard counsel appearing for the appellant and Government Pleader appearing for the respondents.

(2.) The charging section under the Kerala Value Added Tax Act, hereinafter called the "Act" for works contract is S.6(1)(e) and (f) respectively. While cl.(e) provides that if the transfer of goods involved in the execution of works contract is in the form of goods as such then the rate of tax applicable will be the rate applicable to such goods as provided under cl.(a) or (d). On the other hand, if the transfer of goods involved in the execution of works contract is not in the form of goods but in some other form the rate of tax applicable will be at 12.5 per cent. Referring to the above provisions, the Commissioner in the impugned clarification issued under S. 94 of the Act held that items supplied in the course of execution of supply and installation of kitchen cabinet are in the form of goods which attract tax at the rate provided under cl.(a) or (d) of the charging section. The further finding of the Commissioner is that by virtue of second proviso contained in S.8(a)(ii) no compounding is permissible for the tax payable in respect of supply and installation of kitchen cabinet. The Finance Bill, 2009 seeks to substitute S.8(a)(ii) with the following provision: (ii) any works contractor not falling under cl.(i) above may, at his option, instead of paying tax in accordance with the provisions of the said section, shall pay tax at three per cent of the contract amount after deducting the purchase value of goods excluding freight and gross profit element consigned into the State on stock transfer or purchased from outside the State and for the purchase value of goods so deducted shall pay tax at the scheduled rate applicable to such goods. Counsel for the appellant submitted that Commissioner vide circular 3/2009 has instructed the departmental officers to follow the provision in the bill for payment of tax. On going through the original provision and the proposed amendment, we notice that the purpose of the amendment introduced by Finance Bill 2009 is to permit compounding by those who are registered under the C.S.T. Act and who bring goods from outside Kerala on condition that the purchase value of the goods brought from outside will be subject to schedule rate of tax. In other words, works contractors registered under the C.S.T. Act are also entitled to the benefit of compounding except on the value of the goods brought from outside the State on which they pay tax at the rate applicable to such goods in the Schedule.

(3.) The question now to be considered is whether appellant's claim for payment of tax at the compounded rate on the entire contract amount under S.8(a)(i) or (ii) is permissible or not. We find that even after the substitution of cl. (ii) by a new provision by Finance Bill 2009, the second proviso to S. 8(a)(ii) still bars a works contractor from claiming compounding if goods in the course of execution of works contract are transferred in the same form. In other words, if the works contract involves supply of any goods in the form of goods as such, then compounding is not permissible and the item will attract tax at the rate provided under cl.(a) or (d) of the Act.