JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

 

Tamil Nadu Electricity Board Vs. Larsen and Toubro Ltd. [1978] 042 STC 0063

Defendant is the Tamil Nadu Electricity Board and the plaintiff, Messrs. Larsen and Toubro Ltd., in the City Civil Court, Madras, on the following facts: The plaintiff carrying on business as engineers entered into a contract with the defendant for the supply of materials and for erection of induced drought cooling tower of 18,00,000 G.P.H. capacity specification. The price quoted by the plaintiff was Rs. 13, 53,600 and this was accepted by the defendant. There was subsequently a modification of the price to Rs. 14, 10,400 and this was also agreed to. As regards sales tax, it was provided that it was to be paid for the materials including timber components but excluding all other construction materials for civil works, by reimbursement, if applicable, on production of duly certified documents by the company's auditors showing the actual payment to the Government. The defendant agreed also to furnish C forms provided under the Central Sales Tax Act for the materials and such C form declarations had also been given by the defendant. The plaintiff raised debit notes against the defendant in respect of the materials supplied under the contract and charged appropriate rate of sales tax and sent the debits to the defendant. The total sum so charged came to Rs. 29,058.53. The plaintiff further produced proof of payment of sales tax to the Government and asked for reimbursement. As the defendant did not pay the amount, the plaintiff came forward with the present suit for recovery of a sum of Rs. 29,712.33, which includes interest at 6 per cent per annum on the amount claimed. The defendant Electricity Board contested the suit on the ground that the contract that was performed was only a works contract and that there was no liability to sales tax. It was, therefore, contended that the plaintiff was not entitled for reimbursement of the said amount.

Madras High Court explained that hierarchy of authorities under the Sales Tax Act has been specifically provided for the purpose of determining disputes relating to the liability to sales tax and therefore such disputes cannot be agitated in collateral proceedings. The respondent-company entered into a contract with the appellant for the supply of materials and for erection of induced drought cooling tower of a particular specification for a price. The contract provided that sales tax, if applicable, was to be paid on the materials including timber components but excluding all other construction materials for civil works, on production of duly certified documents by the respondent's auditors showing the actual payment to the Government. The appellant also agreed to furnish the necessary C forms provided under the Central Sales Tax Act and had also given such forms. In spite of production of proof of payment of sales tax, the appellant did not pay the amount on the ground that the contract was a works contract and there was no liability to sales tax. The sales tax authorities actually assessed the amount to tax and the respondent also paid the tax. The suit filed by the respondent was decreed by the trial court.

Madras High Court held that under the contract appellant had undertaken to pay sales tax on the supply of materials and, therefore, the construction and supply of the materials could not be said to be an indivisible contract so as to be eligible for consideration as works contract in accordance with the provisions of the Sales Tax Act. The appellate having agreed under the contract to pay sales tax on the supply of the materials and the amount having been assessed to sales tax and the respondent's auditors having certified that such tax had been paid, the contention of the appellant that the words "if applicable" in the contract showed that the respondent would be entitled to reimbursement only if the appellant was satisfied that the tax could be assessed on the transaction, could not be accepted as valid.

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