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CASE NO.: Appeal (civil)  584 of 2008

PETITIONER: Indian Dairy Machinery Co. Ltd.

RESPONDENT: Assistant Commissioner of Commercial Taxes

DATE OF JUDGMENT: 22/01/2008

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM

JUDGMENT: J U D G M E N T (Arising out of S.L.P (C) No.12791 of 2006) (With Civil Appeal No. 585/08 @ SLP (C) No. 12792/2006  With Civil Appeal No. 586/08 @ SLP (C) No. 12793/2006 With Civil Appeal No.589/08 @ SLP (C) No. 12794/2006)

Dr. ARIJIT PASAYAT, J.

1.      Leave granted in SLP (C) Nos. 12791-12794 of 2006

2.      Challenge in these appeals is to the judgment of a  Division Bench of the Karnataka High Court dismissing the  Revision Petition filed under Section 23(1) of the Karnataka  Sales Tax Act,  1957 (in short the \021Act\022).

3.      The controversy relates to assessment year 2002-2003.  The appellant had filed the Revision Petitions questioning  correctness of the order passed by the Karnataka Appellate  Tribunal (in short the \021Tribunal\022) in STA Nos798-801 of 2003.  The appeals were filed before the Tribunal under Section 22(1)  of the Act against the order passed by the Joint Commissioner  of Commercial Taxes (Appeals), Bangalore Division, Bangalore  (hereinafter referred to as the \021Appellate Authority\022).  The said  authority confirmed the provisional assessment orders of the  Assistant Commissioner of Commercial Taxes, Bangalore  (hereinafter referred to as the \021Assessing Authority\022) for the  months of May, June, July and September, 2002.   

4.      Factual position is almost undisputed and is as follows:

       The appellant is a limited company and has its registered  office at Gujarat and branch office at Bangalore, Karnataka. It  is a sub-contractor for M/s Larsen and Toubro Ltd. for  execution of works contract.  It is registered as a dealer under  the Act as well as Central Sales Tax Act, 1956 (in short the  \021Central Act\022). It had opted for composition under Section 17(6)  of the Act. But the benefit of composition was denied in view of  the amendment to sub-section (7) of Section 17. The appellant  undisputedly had received goods from the head office situated  at Gujarat for execution of the work in Karnataka.  

5.      Stand of the appellant before the departmental  authorities and the Tribunal was that the receipt of goods from  the head office does not amount to receiving of goods. The  Tribunal referred to sub-section (7) of Section 17 as amended  by Act No.5 of 2002 w.e.f. 1.4.2002 and held that in fact the  provision clearly applied to the case of the appellant.

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6.      The following questions were raised before the High Court  in the Revision Petition:

\023I.  Whether the Karnataka Appellate  Tribunal was right in concluding that the  amendment to Section 17(7) of the KST Act  effective from 1.4.2002 would apply to  agreements entered into prior to 1.4.2002.

II.     Whether the Karnataka Appellate  Tribunal was right in holding that even  transfers to stock would be hit by the  amendment to Section 17(7) of the Karnataka  Sales Tax Act effective 1.4.2002?\024

7.      Section 17(7) of the Act which has been introduced by  the Karnataka Amendment Act 5 of 2002, with effect from  1.4.2002 reads as under:

"Nothing contained in sub-section (6)  shall apply to a dealer who purchases or  receives goods from outside the State for  the purpose of using such goods in the  execution of works contract"       8.      The legislature by introducing the above amendment to  sub-Section (7) of Section 17 of the Act has restricted the  benefit of composition amount for a dealer liable to tax under  Section 5-B of the Act. By this amended provision, the  Legislature mandates that a dealer who purchases or receives  goods from outside the State for the purpose of using such  goods in the execution of works contract is not eligible for  benefit of composition amount for the works contract executed  by him in that year in the State in respect of works specified in  the Sixth Schedule to the Act.  9.     Rule 8-B of the Karnataka Sales Tax Rules, 1957 (for  short the ‘Rules’) provides the procedure for composition of tax  in the case of dealers executing works contract. Sub-rule (1) of  Rule 8-B of the Rules envisages that the assessee/dealer shall  submit an application in Form 8-AA to the assessing authority  each year seeking composition benefit within One hundred  and twenty days from the date of commencement of the  assessment year or of the business, if he has commenced the  business during the course of the year.  10.    Sub-Rule (2) of Rule 8-B of the Rules mandates that the  Assessing Authority after receipt of such application from the  dealer/assessee, and after verifying the same, may permit the  dealer, subject to the conditions specified in Sub-rule (1), to  pay in lieu of the amount of tax payable by him during the  year an amount by way of composition as provided in sub- section (6) of Section 17 of the Act.  11.    Clause (ii) of sub-rule (2) of Rule 8-B of the Rules  envisages that the Assessing Authority shall give permission  for composition within thirty days from the date of receipt of  the application by the dealer/assesses under Sub-rule (1) of  Rule 8-B of the Rules.

12.     The High Court dismissed the Revision Petition holding  that sub-section (7) of Section 17 has clear application. The  stand taken before the Tribunal and the High Court was re- iterated in these appeals.  

13.     Learned counsel for the respondent-State on the other  hand supported the impugned judgment.

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14.     It is to be noted that if the dealer wanted the benefit of  sub-section (6) of Section 17, it was required to submit an  application within one hundred twenty days from the date of  commencement of the assessment year. The amended  provision of sub-section (7) of Section 17 came into effect from  1.4.2002.  The amended provision clearly excludes the dealer  from the benefit of sub-section (6) of Section 17 of the Act if he  purchases or receives goods from outside the State for the  purposes of using such goods in the execution of the works  contract.  If for any reason, the assessee had intended to opt  for composition of tax under Section 17 (6) of the Act,  necessarily he had to submit the application within one  hundred and twenty days from the date of commencement of  such year before the assessing authority to accept in lieu of  tax payable under Section 5-B of the Act on the total value of  the works contract being executed by him. The key words  under Section 17 (6) of the Act are the tax payable during the  year by way of composition an amount on the total  consideration for the works executed by the contractor in that  year in the year in the State. Option to be exercised for  composition benefit is not dependent on the dates of the  agreements entered into by the parties for execution of the  works contract Under Rule 8B(1) of the Rules, the  dealer/assessee is required to submit the application seeking  composition benefit for each assessment year within the time  prescribed from the date of commencement of such year or of  the business, if he has commenced  the business during the  course of the year. That again means, it is irrelevant, when the  parties had entered into an agreement for the execution of  works contract in the State. As already noticed, the relevant  assessment year in question is 2002-2003 (ending on  31.3.2003) and the assessee if it elected to compound the tax  for this year, it was required to submit the application as  provided under rule 8-B (1) of the rules.  The amended  provisions of sub-section (7) of Section 17 were given effect to  from 1.4.2002. In view of the restriction imposed under the  amended provision, the assessing authority could not have  permitted the appellant company to elect to pay the tax under  Section 17(6) of the Act, since admittedly the appellant  received the goods by way of stock transfers from outside the  State for the purpose of using such goods in the execution of  works contract. Therefore, the first question of law raised by  the appellant has been rightly answered against the assessee.  15.     The language used in sub-section (7) of Section 17 is very  clear. It is to the effect that if a dealer purchases or receives  goods from outside the State for execution of works contract  within the State it is not entitled to the benefit of composition  in terms of sub-section (6) of Section17 and undisputedly, the  appellant has received the goods by way of stock transfer. In  view of the language employed in the amended provision, the  appellant was clearly disentitled from composition for availing  the benefit under sub-section (6) of Section 17. The expression  \023receives\024 would encompass receipt in any manner.  Receipt by  branch transfer is covered by the said expression. The High  Court was, therefore, justified in dismissing the Revision  Petition. We find no scope for taking a different view in view of  the clear language of sub-section (7) of Section 17 as amended  w.e.f. 1.4.2002.

16.     The appeals fail and are dismissed with no order as to  costs.