Taxability of goods involved in Horticulture contracts

IN THE OFFICE OF COMMISSIONER DEPARTMENT OF TRADE AND TAXES

GOVERNMENT OF N.C.T. OF DELHI

VYAPAR BHAWAN, NEW DELHI

M/s Shreejee Peekay International,

101, CSC, DDA Market, Pushpanjali,

Delhi-110092

ORDER

Dated:25-4-2013

Present for the Applicant                                          :        None

Present for the Department                                      :        Sh. T.C. Sharma, Departmental

Representative

During the course of training of staff,   the controversy arises in the decision of determination order (here-in-after called said order) passed earlier on 01.02.2008 in case of M/s Shreejee Peekay International. Thereafter, a notice for suo-moto review of the said order was issued to the dealer vide no. 180/CDVAT/2007/75 dated 20.11.2012.

(i) The Departmental Representative stated that in the case of M/s Shreejee Peekay International vide order no. 80/CDVAT/2007/183 dated 01.02.2008,  it  has  already  been  held  that Horticulture contracts  don  not  always  involve  tax  free  goods.  In  contracts wherein taxable goods are involved would necessarily attract VAT. The rate of tax in respect of goods involved in the execution of works contract as per section 4 (d) of DVAT Act, 2004 is 12.5% and in respect of declared goods @4%. The composition scheme as provided in section 16  of the DVAT Act, 2004 would be available to the applicant if the turnover of the dealer does not exceed Rs.50 Lacs during the financial year.

Whether  VAT  is  applicable  on  Horticulture  composite contracts wherein goods involved/used for execution of
such works contract are covered under schedule I of the DVAT Act, 2004 and are exempted from levy of VAT?

2. Sh.  Anand  Swaroop  Garg,  Counsel  for  the  applicant  appeared  on 06.12.2012 and filed written request for the adjournment of the date of hearing along with power of attorney. In further proceedings of the case on various dates, neither counsel appeared nor any written information received. Further, in the interest of justice one more opportunity was granted to appear on  15.01.2013.  Again, Counsel for  the applicant shows  the  reluctant  behavior  to  appear.  Then,  DR  was  allowed  to submit his views about the case on the assumption that Counsel is not interested to appear before this court and have the same intention, as that was earlier.

3. The   Departmental   Representative   submitted   that   the   many departments/organizations/companies  award  horticulture  contract, which may include development of lawns/parks/roadsides and their maintenance. For simplicity, he referred to the relevant provisions and definitions given under the Delhi Value Added Tax Act, 2004 and DVAT Rules, 2005 are as under:-

(i) Relevant Definitions:

Section 2 (1) (m) goods means every kind of moveable property (other  than  newspapers,  actionable  claims,  stocks,  shares  and securities) and includes –

(i) livestock, all materials, commodities, grass or things attached to or forming part of the earth which are agreed to be severed before
sale or under a contract of sale; and

(ii) property in goods (whether as goods or in some other form) involved in the execution of a works contract, lease or hire-purchase
or those to be used in the fitting out, improvement or repair of movable property;

Section 2 (1) (zc) sale with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central  government or of  any state government,  to another)  and includes-

(i)¦.

(ii)¦.
(iii)¦

(iv)¦

(v) transfer of property in goods (whether as goods or in some other    form) involved in the execution of a works contract;

Section 2 (1) (zo) works contract includes any agreement for carrying  out  for  cash  or  for  deferred  payment  or  for  valuable consideration, the  building construction,  manufacture,  processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property;

(ii) Relevant Provisions of the DVAT Act section  4  Rates of tax

(1) The rates of tax payable on the taxable turnover of a dealer shall be-

(a) in respect of goods specified in the Second Schedule, at the  rate of one  paisa in the rupee;

(b) in respect of goods specified in the Third Schedule, at the rate of four paise in the rupee;

(c) in respect of goods specified in the Fourth Schedule, at the rate of twenty paise in the rupee;

(d) in respect of the goods involved in the execution of the works contract, at the rate of twelve and a half paise in the rupee;   and

Provided that tax shall be paid at the rate of five paise in the rupee of the turnover of the dealer pertaining to declared goods, as defined from time to time in the Central Sales Tax Act, 1956 (74 of 1956), involved in the execution of works contract if such goods are transferred from the contractor to the contractee in the same form in which they were purchased by the contractor:

(e) in the case of any other goods, at the rate of twelve and half paise in the rupee.

Section 5   Taxable turnover

sub-sec tion(2) In the case of turnover arising from the execution of a works  contract,  the  amount  included  in  taxable  turnover  is  the  total consideration paid or payable to the dealer under the contract excluding the charges towards labour, services and other like charges, subject to such conditions as may be prescribed:

PROVIDED that where the amount of charges towards labour, services and other like charges is not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated at the prescribed percentages.

(iii) Relevant Provisions of the DVAT Rules

Rule 3. Works contract. -(1) In case of turnover arising from the execution of the works contract, the amount representing the taxable turnover shall be the value at the time of transfer of property in goods (whether as goods or in some other form) involved in the execution of work contract and shall exclude –

(i)  the charges towards labour, services and other like charges; and
(ii) the charges towards cost of land, if any, in civil works contracts;

4. Further,   Departmental   Representative   submitted   that   in the Horticulture Contracts involving  development of  lawns/parks/roadsides and their maintenance, there may be use of materials  like  bricks,  cement (taxable  goods),  plant  fertilizers,  etc. (exempted goods) whereas in the maintenance contracts, the material may be limited to seeds, saplings, plants, organic manure, fertilizers, bio-inputs   like   bio-fertilizers,   micronutrients   and   plant   growth promoters etc. which are tax free items. However, if the contract given is composite  in nature meaning thereby that the amount involved for supply of material required and the labour in services charges are not divisible, then the said transactions are covered under the definition of works contract as per the scheme of the Act, presently there are four  schedules containing items ranging from 0% to 20% besides residual items are taxable @12.5%  as per section  4 (1)  (e) of the said Act.

Further, section 4 (1) (d) of the said Act is exclusively related to rate of tax applicable in respect of the goods involved in the execution of the works contract which is 12.5%. Hence, the rate of tax on goods involved in the execution of works contract are not covered by the schedules but are governed by the section 4 (1) (d) of the said Act. In brief, all goods involved  in  execution  of  works  contract  except  the  declared  goods (taxable @5%) are taxable @12.5% irrespective of the fact whether such goods pertains to Schedules I or Schedule II of the said Act.