No. C1-52593/94/TX Office of the Board of Revenue (Taxes),
Thiruvananthapuram, Dt. 12.6.1995
Circular No. 15/95
Sub: K.G.S.T.
(Amendment) Ordinance 1995
(Ordinance 11 of 1995) – Certain Instructions – Issued –
Ref: Board’s Circular No. 23/92 dated 15.7.1992.
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The Governor of Kerala has promulgated the Kerala General Sales Tax (Amendment) Ordinance, 1995 (Ordinance 11 of 1995) to make some amendments in the Kerala Genera Sales Tax Act 1963. The amendments have retrospective effect from 1.4.1984 ie. From the date from which the levy of tax on the transfer of goods involved in the execution works contract was introduced by the Kerala Finance Act, 1984.
In
Section 2 of the Act a new clause (c) is inserted after item (b) of Explanation
4 of Clause (xxi) and also added a proviso to clause (xxv). A new Section
5 C is also inserted after Section 5 B of the Act for allowing certain deduction
for arriving at the taxable turnover of a dealer engaged in the execution of
works contract.
The effects of the amendments are as under:-
According to item (c) of explanation (4) of Clause (xxi) newly introduced, if the goods are within the State at the time of the appropriation of the goods in the execution of works contract, sale of such goods shall be deemed to have taken place in the State irrespective of the place where the agreement of works contract is made and whether the assessment of the other party to the contract is prior or subsequent to such transfer.
2) As per the proviso added to Clause (xxv) of Section 2, the Taxable turnover of a dealer in respect of transfer of property involved in the execution of works contract during the period from 1.4.1984 to 31.3.1991 shall be arrived at after deducting the amounts mentioned in Section 5C, of the Act, newly added by the Ordinance.
3) The deduction to be made while computing the taxable turnover of a dealer in respect of transfer of property in the execution of workscontract are mentioned in Section 5 C. As per the new Section 5C, the taxable turnover of a dealer in respect of transfer of property involved in the execution of works contract for the period from 1.4.1984 to 31.3.1991 shall be arrived at after making the following deductions:
a) all amounts relating to the sale of any goods involved in the execution of works contract which are specifically exempted from tax under any of the provisions of the Act.
b) All amounts for which any goods are purchased from registered dealers liable to pay tax under the Act and used in the execution of works contract.
c) All amounts paid to sub .Contractors as consideration for execution of works contract whether wholly or partly, provided that the dealer claiming exemption shall produce evidence to prove that the Sub-Contractor is registered dealer liable to pay tax under the Act and that the turnover of such amounts is included in the return filed by the Sub – Contractor.
d) All amounts towards labour charges and other service charges such as charges for Planning and Designing and the Architect fee, charges for obtaining machinery and tools used for the execution of works contract on hire or otherwise the cost of consumables used, cost of establishment of the dealer, 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 works contract. In the case of works contract in which the labour or other charges are not ascertainable from the books of accounts maintained and produced by the dealer, the amounts calculated at the rate specified in column (3) of the Table Under Section 5C shall be given deduction. The following are the deductions allowed as per the table.
The Table
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Sl. Type of Works Contract Labour or other charges
No. as a percentage value
of the works contract
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1 2 3
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1. Electrical Contracts 20
2. All Structural Contracts 30
3. Sanitary Contracts 33.5
4. Retrading 50
5. Dyeing and Textile printing Contracts 50
6. Photography and Printing Contracts 30
7. Sculptural contract or contract relating to arts 70
8. Refrigeration, Air Conditioning or other machinery,
rolling shutters, cranes installation contracts 15
9. All other contracts 30
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As per Section 5 of the ordinance all proceedings already taken for the assessments, levy and collection of tax in respect of works contract relating to the period from 1.4.1984 to 31.3.1991 have been validated and made subject to the Act as amended by this ordinance. The effect of this validation provision is that:-
a) Assessing authorities who have already initiated steps to complete the assessments for the above period can continue the proceedings, but subject to the amended provisions.
b) In respect of assessment already completed the assessing authorities may check up whether the assessments are in accordance with the amended provisions and if not, rectify the defect by invoking Section 45 of the KGST Act where ever permissible.
c) In respect of assessments which have been challenged in appeal, the appellate authorities may decide upon the liability or otherwise of the dealer, in accordance with the amended provision ie. If the assessment, viewed at present, satisfied the amended provisions, the same can be upheld and if not, it can be modified subject to the amended provisions.
d) In respect of cases which have been challenged before the High Court, the assessing authorities shall immediately file statement of facts/revised statement of facts defending the assessments subject to the amended provisions.
e) In respect of cases which have been decided by any appellate or revisional authorities in the light of the decision of the Kerala High Court in M/s. Eacy Construction Vs. State of Kerala (OP No. 2498/86) the assessing authorities shall immediately file petition for rectification of mistake Under Section 43 of the K.G.S.T Act or review as the case may be and see that the cases are properly followed up.
But in the Judgment dated 9.3.1995 in Builders Association of India, Kochi Centre and others Versus State of Kerala, (W.A. 877/94 in O.P. 1267/92), the Honourable High Court of Kerala has held that sub clause (7), (7A), (7B), (11) and (12) of Section 7 of the Act read with Rules 22A and 30 of the Kerala General Sales Tax Rules are unconstitutional as they impose a levy on the “whole amount” of the contract. As such while completing assessments in accordance with the amendments effected by the Ordinance 11 of 1995, no compounding facility will be granted.
But in respect of deduction of tax by awarders, the relevant provision (sub-section (78) of Section (7) has been declared unconstitutional by the Court as there is no provision to give credit to this amount when the final assessment is made. But this lacuna has since been overcome by amending rule 22A as per notification G.O.(P)No. 128/95/TD dated 2.6.1995 (SRO No. 711/95) by which a new sub rule viz. Sub Rule (6) has been introduced under rule 22A according to which the amount deducted by the awarder from the payments due to the contractor and remitted to Government is to be adjusted against the amount finally assessed on the contractor. The rule as amended by S.R.O. 711/95 is not therefore against decision referred to above.
All Officers will specifically note that the assessments relating to the periods from 1.4.1984 to 31.3.1991 will get barred by limitation on by 29.7.1997. As such utmost priority will be given for the completion of these assessments.
The Deputy Commissioners shall acknowledge receipt to this Circular and obtain acknowledgement from their subordinate officers.
Sd/-
Secretary (Taxes – II)