HC : Land transfer in 'works contract' non-taxable; Reads down 'deductions' for "price" calculation

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  • P&H HC upholds constitutional validity, but reads down Rule 25(2) of Haryana VAT Rules, holds that VAT payable on value of goods at time of incorporation in works contract, not on transfer of immovable property and other things done prior to date of entering sale agreement; Refers to apex court’s LB ruling in L&T to hold that developer / builder / promoter covered under ‘works contract’ while entering into an agreement with purchaser to construct flat and ultimately to sell the same with fraction of land;
  • However, States only empowered to levy sales tax on sale of goods in an agreement to sell flats, which also has a component of deemed sale of goods in terms of Entry 54 of List II of Seventh Schedule to Constitution of India; Observes, “rule of interpretation requires that such meaning should be assigned to the provision which would make the provision of the Act effective and advance the purpose of the Act….without doing any violence to the language of the provision…
  • The rule of reading down is to construe a provision harmoniously and to straighten crudities or ironing out creases to make a statute workable”; Explanation (i) to Sec 2(1)(zg) of Haryana VAT Act provides for deduction on account of labour, material and services related charges from gross turnover to arrive at “sale price” in a works contract; Observes that section not a charging provision which creates liability for assessing VAT in a “works contract”, but a definition clause which does not embrace something otherwise prohibited by law, and therefore does not suffer from any vice or defect of unconstitutionality; Observes, “In case the provisions of law are seeking to charge sales tax on any amount other than the value of goods transferred in course of execution of works contract, the provisions would be ultra vires the Constitution of India”; Where ‘deductive method’ under Rule 25(2) has been prescribed for ascertaining taxable turnover, it should include a residuary clause in consonance with mandate of law, so as to cover all situations which can be envisaged; Assertion in State’s affidavit that dealers required to pay a lump sum in lieu of tax on consideration receivable for execution of works contract without providing any deduction for value of land, would not give it a statutory flavour, as said action would not meet test of requisite amendment in Rules, which needs to be done by competent authority in accordance with law; Sec 42(1) casting joint and several liability on contractor and sub-contractor, only a provision to safeguard interests of revenue that in event of failure on part of sub-contractor, contractor liable to tax, same neither arbitrary nor discriminatory;
  • Further, rejects assessee’s challenge to validity of Sec 9, Rule 49 and Circular dated February 10, 2014 which provides for payment of lump sum tax under composition tax scheme, stating that said scheme purely optional in nature and dealer not duty bound to subscribe to same; Refuting State’s objection to maintainability of writ in presence of alternate appeal remedy, HC holds that, in present case, remedy of writ jurisdiction cannot be shut down, particularly when vires of Explanation (i) to Sec 2(1)(zg), Rule 25(2) and Circulars issued by Excise and Taxation Commissioner challenged  : Punjab & Haryana HC