IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE K.M.JOSEPH THURSDAY, THE 10TH JANUARY 2008 / 20TH POUSHA 1929 ST.Rev.No. 73 of 2003 ------------------------------------- TA.No.101/2003 OF SALES TAX APPELLATE TRIBUNAL ADDITIONALBENCH-II ERNAKULAM (ORDER DATED 15-3-2003) .................... REVISION PETITIONER/APPELLANT/ASSESSEE: -------------------------------------------------------------------- M/S. RAMANAND INDUSTRIES, ERNAKULAM. BY ADV. SMT.K.LATHA RESPONDENT/ RESPONDENT: ------------------------------------------- THE STATE OF KERALA. BY SPECIAL GOVERNMENT PLEADER SRI.VINOD CHANDRAN THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 10/01/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.DATTU, C.J. & K.M.JOSEPH, J. ------------------------------------------ S.T.Rev.No.73 of 2003 ------------------------------------------ Dated, this the 10th day of January, 2008 ORDER H.L.Dattu, C.J. Revision petitioner is a registered dealer registered under the provisions of the Kerala General Sales Tax Act, 1963 ('the Act' for short). It is not in dispute nor it can be disputed that the revision petitioner is a works contractor engaged in power coating of metal cabinets. (2) The assessment year in question is 1999-2000. (3) Apart from others, before the Tribunal the assessee had requested the Tribunal atleast to direct the assessing authority to grant 30% deduction towards the labour charges. The claim so made by the assessee through its representative was rejected by the Tribunal by observing that under Section 5C of the Act no deduction can be allowed unless the dealer claiming deduction produces proof of the expenses actually incurred. (4) The assessee has filed this revision petition being aggrieved by the above observation made by the Tribunal. Though in the revision petition filed, the assessee has framed three questions of law for our consideration and decision, Smt. Latha.K., learned counsel appearing for the assessee, at the time of hearing of the revision petition, confines this revision petition only to the first question of law framed in the petition. The said question is as under: “(i) Whether the findings of the Tribunal that as per Section 5(c) of the KGST Act, no deduction can be allowed unless the dealer claiming deduction produces proof for the expenses actually incurred is tenable when it is clear that there S.T.Rev.No.73 of 2003 2 was no such restriction U/S 5C to prove the labour charges, as it was provided that 30% is deductible as labour charges even if they are not ascertainable from the books of accounts maintained and produced by the dealer and when it is clear that there was no case that the assessee had conducted any business other than the works contract of power coating of metal cabinets?” (5) The learned counsel would submit that in view of the language employed in Section 5C of the Act, if for any reason the actual expenses incurred are not ascertainable from the books of accounts maintained and produced by the dealer, then the assessee would be entitled for deductioins at the rate shown in the table appended to Section 5C of the Act. (6) The learned counsel would further submit that in the instant case it is an admitted fact that the actual expenses towards the works contract were not ascertainable from the books of accounts and therefore, the assessing authority should have granted the deductions as shown in the table appended to Section 5C of the Act. In order to buttress the argument so canvassed, the learned counsel takes us through the provisions of Section 5C of the Act. The said provision is as under: “5C (1) Deduction of certain amounts in arriving at the taxable turnover of a dealer in respect of transfer of property in the execution of works contract:- The taxable turnover of a dealer in respect of the transfer of property involved in the execution of works contract shall, from the 1st day of April, 1984 be arrived at after deducting the following amount S.T.Rev.No.73 of 2003 3 from the total amount received or receivable by the dealer for the execution of the contract- (a) all amounts relating to the sale of any goods involved in the execution of a works contract which are specifically exempted from tax under any of the provisions of this Act; (b) all amounts paid to the sub-contractors as consideration for execution of works contract whether wholly or partly:- Provided that no such deduction shall be allowed unless the dealer claiming deduction, produces proof that the sub- contractor is a registered dealer liable to pay tax under this Act, and that the turnover of such amounts is included in the return filed by such sub-contractor; and (c) all amounts towards labour charges and other service charges such as- (i) charges for planning and designing and the architect's fee; (ii) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (iii) cost of consumables used; (iv) cost of establishment of the dealer to the extent it is relatable to the supply of labour and services; (v) profit earned by the dealer to the extent it is relatable to supply of labour and services: not involving any transfer of property in goods, and actually incurred in connection with the execution of the works contract; or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of S.T.Rev.No.73 of 2003 4 accounts maintained and produced by the dealer. THE TABLE Sl.No. Type of works contract Labour or other charges as a Percentage value of the works contract --------------------------------------------------------------------------------------- (1) (2) (3) ---------------------------------------------------------------------------------------- 1. Electrical Contracts 20 2. All structural contracts 30 3. Sanitary contracts 33.5 4. Retreading contracts 50 5. Dyeing and Textile Printing contracts 50 6. Photography and Printing contracts 30 7. Sculptural contract or contracts relating to Arts 70 8. Refrigeration, air conditioning or other machinery, rolling shutters, cranes installation contracts 15 9. All other contracts 30 (2) Notwithstanding anything contained in sub section (1), where the turnover arrived at after deducting the amounts mentioned in clause (b) and (c) of sub-section (1) falls below the cost of goods transferred in the execution of the works contract, an amount equal to the cost of the goods transferred in the execution of the works contract together with the profit, if any, shall be the turnover in respect of such works contract. Explanation.- For the purposes of this sub-section, cost of goods means the price of the goods together with all expenses incurred by the contractor in bringing the goods to the work site.” (7) Sri.Vinod Chandran, learned Government Pleader appearing for the S.T.Rev.No.73 of 2003 5 Revenue, sought to justify the findings of the Tribunal. (8) Section 5C of the Act provides for deductions of certain amounts in arriving at the taxable turnover of a dealer in respect of transfer of property in the execution of works contract. Sub clause (c) of Section 5C of the Act envisages that all amounts towards labour charges and other service charges such as charges for planning and designing and the architect's fee and charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract, etc. not involving any transfer of property in goods, and actually incurred in connection with the execution of the works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by the dealer. (9) In the instant case, the actual amount involved in respect of the transfer of property in the execution of works contract was not ascertainable from the books of accounts maintained and produced by the dealer. (10) In the instant case, as we have observed, the petitioner was a works contractor. He is eligible and entitled for deductions of the labour charges or other charges as mentioned in the Table appended to Section 5C of the Act. In view of the above, the observation made by the Tribunal while rejecting the claim of the assessee for directing the assessing authority to apply the Table appended to Section 5C of the Act, on the basis that the dealer S.T.Rev.No.73 of 2003 6 claiming deduction should produce proof of the expenses actually incurred, cannot be sustained by us. (11) In view of the above, the revision petition filed by the assessee requires to be allowed and accordingly it is allowed. The first question of law framed by the assessee is answered in the affirmative and against the Revenue. A further direction is issued to the assessing authority to give effect to the orders passed by this Court by properly modifying the order of assessment passed. (12) Consequently, I.A.No.606 of 2003 is dismissed. Ordered accordingly. (H.L.DATTU) CHIEF JUSTICE (K.M.JOSEPH) JUDGE vns