STATE OF KARNATAKA AND ANR. versus M/S DURGA PROJECTS INC

Citation: [2018] 3 S.C.R. 115 · Decided: 06-03-2018 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Dismissed

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Judgment (excerpt)

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STATE OF KARNATAKA AND ANR.
v.
M/S DURGA PROJECTS INC
(Civil Appeal No.811 of 2018)
MARCH 06, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D. Y. CHANDRACHUD, JJ.]
Karnataka Value Added Tax Act, 2003 – s. 4(1)(c) and (b) –
Works contracts prior to 1.04.2006 – Rate of tax applicable – Held:
KVAT Act 2003 did not provide a uniform rate of tax prior to
01.04.2006 on goods involved in the execution of works contract –
It would be far-fetched to accept that in enacting s. 4(1)(b), the
legislature intended to prescribe a uniform rate of tax, prior to
1.4.2006, for goods incorporated in a works contract – Scheme
legislated upon in s. 4(1) envisaged specific rates of tax on goods
falling within the Second, Third and Fourth Schedules – Section
4(1)(b) provided a residual entry under which a rate of 12.5% was
provided ‘in respect of other goods’ – It was with effect from
1.04.2006 that the State legislature mandated a uniform rate of tax
on goods involved in the execution of works contracts as provided
in the Sixth Schedule – Position as it existed upto 31.03.2006 was
altered with effect from 1.04.2006 – It cannot be said that upto
31.03.2006, s. 4(1)(b) envisaged a uniform rate for the transfer of
goods involved in the execution of a works contract.
Respondent-assessee, engaged in executing civil works
contacts, is registered both under the Karnataka Value Added
Tax Act, 2003 and the Central Sales Tax Act. It purchased building
materials falling under the Third Schedule to the KVAT Act,
declared goods under Section 15 of the CST Act and other non-
scheduled goods from within and outside the State and from
unregistered dealers. On 31 January 2006, the respondent filed
an application before the Authority for Advance Clarification and
Ruling (AAR) for guidance on the rate of tax applicable for the
execution of civil works contracts under the KVAT Act. The AAR
held that since there was no specific entry providing for the rate
of tax on works contracts up to 31.03.2006, tax on goods used in
the execution of works contract should be levied in accordance
with the rate of tax applicable to the sale of goods under the KVAT
  [2018]  3 S.C.R. 115
115
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SUPREME COURT REPORTS
[2018] 3 S.C.R.
Act 2003. In revision, the orders of AAR were held to be
erroneous. The High Court held that for the period prior to
1.4.2006, tax has to be levied as per Section 3(1) of the Act and
for the period subsequent to 1.4.2006, tax has to be levied as per
Section 4(1)(c) of the Act. Hence, the present appeal.
Dismissing the appeals, the Court
HELD : 1.1 Section 4 of the Karnataka Value Added Tax
Act, 2003 imposes a liability to pay taxes upon every dealer on
his taxable turnover. Besides imposing a liability, Section 4
prescribes the rate of tax. The rate of tax on goods mentioned in
the Second, Third and Fourth Schedules was specified in sub-
clauses (i), (ii) and (iii) of Section 4(1)(a). The Second Schedule
at the material time attracted a rate of 1%, the Third Schedule
4% and the Fourth Schedule, 20%. On ‘other goods’ the rate of
tax was 12.5% under Section 4(1)(b). The expression ‘other
goods’ in Section 4(1)(b) evidently means those goods which are
not governed by Section 4(1)(a). Where goods are specifically
covered by any of the entries of the Second, Third and Fourth
Schedules, such goods would be covered by the specific entry
relating to those goods. Recourse to the residual provisions of
Section 4(1)(b) would be available only in respect of ‘other goods’,
that is, goods which did not fall within the purview of s. 4(1)(a).
[Para 15] [133-A-D]
1.2  It would be far-fetched to accept that in enacting Section
4(1)(b), the legislature intended to prescribe a uniform rate of
tax, prior to 1.4.2006, for goods incorporated in a works contract.
The scheme legislated upon in Section 4(1) envisaged specific
rates of tax on goods falling within the Second, Third and Fourth
Schedules. What Section 4(1)(b) provided was a residual entry
under which a rate of 12.5% was provided ‘in respect of other
goods’. The expression ‘in respect of other goods’ meant goods
other than those falling in the Second, Third and Fourth
Schedules. Declared goods specified in Section 14 of the Central
Sales Tax Act, 1956 were comprehended in Serial No.20 of the
Third Schedule to the KVAT Act 2003 and attracted a rate of 4%,
which applied to goods in that Schedule. As a result of the deeming
definition of the expression sale, a transfer of prop

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