Works contracts prior to April 2006; taxable at rates applicable to goods & material used therein

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Supreme Court rules on rate of tax applicable to works contracts prior to April 1, 2006 when Section 4(1)(c) was introduced by an amendment to Karnataka VAT Act; Upholds Karnataka HC decision, which concurred with Advance Ruling Authority’s clarification, that tax has to be levied on price of goods and material used in works contract as if there was normal sale of such goods and material in terms of Section 3(1) of KVAT Act; Observes, it would be far-fetched to accept Revenue’s stand that in enacting Section 4(1)(b), the legislature intended to prescribe a uniform rate of tax of 12.5% prior to April 1, 2006 for goods incorporated in works contract;

Notes that scheme legislated upon in Section 4(1) envisages specific rates on goods falling in Second, Third and Fourth Schedules whereas Section 4(1)(b) provides a residual entry in respect of ‘other goods’ i.e. goods outside the specified Schedules; Stating that Section 4(1)(c) was not clarificatory inasmuch as it altered the position existing upto March 31, 2006, SC reiterates the principle enunciated in case of Gannon Dunkerly & Co. that it was open to State legislatures to provide uniform tax rate for all goods involved in execution of works contracts even though different rates were prescribed for sale of such goods, however, Karnataka legislature did so w.e.f. April 2006: SC

Citation: [TS-69-SC-2018-VAT]