M/S Monnaie Interior Designers (P) LTD. vs. The State Tax Officer (Wc)

Facts

The petitioner, M/s. Monnaie Interior Designers Pvt. Ltd., filed two writ petitions challenging notices and orders related to their tax liability under the Kerala Value Added Tax (KVAT) Act. In WP(C) No. 37572/2016, the petitioner challenged pre-assessment notices for assessment years 2011-12 to 2014-15. The revenue contended that the petitioner's work of supplying and installing kitchen cabinets/furniture and interior works should be treated as supply of independent articles, not works contracts, and that tax should be paid on individual items. For 2014-15, it was also argued that no permission for compounded tax payment under Section 8 was sought. In WP(C) No. 19082/2019, the petitioner challenged an assessment order for 2015-16, where the benefit of the reduced tax rate for works contracts under Section 8 was denied, with the revenue citing a negative list exclusion for kitchen cabinet installation. The petitioner also argued for the exclusion of turnover related to works contracts declared in previous years.

Held

The Court held that subsequent to the Supreme Court decision relied upon by the revenue, a Larger Bench of the Supreme Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu [2014] 71 VST 1 (SC) took a contrary view. This decision, also followed by the Kerala High Court in State of Kerala v. P.C. Kurian [2019] 65 GSTR 338 (Ker), necessitates a fresh factual consideration by the assessing authority. For WP(C) No. 37572/2016, the Court directed the assessing authority to reconsider the pre-assessment notices for assessment years up to 2014-15, taking into account the aforementioned Supreme Court decisions and the tests laid down therein. The assessing officer must examine whether each contract is for standard items or a divisible work, and ascertain if the petitioner opted for compounded tax payment. The assessment for WP(C) No. 19082/2019 (assessment year 2015-16) was quashed. The Court held that if turnover included in the 2015-16 return pertains to works undertaken in previous years for which declarations were filed under Section 8, such turnover must be excluded from assessment for 2015-16 and treated as eligible for the concessional rate, provided necessary applications were filed for the previous year. The assessing officer must apply the tests for determining works contracts for this turnover. In both cases, the assessing authority was directed to complete the reassessment within two months after hearing the petitioner, who was permitted to file additional objections.

Key Issues

1. Whether the works undertaken by the petitioner, involving supply and installation of kitchen cabinets/furniture and interior works, constitute 'works contracts' for the purpose of Section 8 of the KVAT Act, or are they to be treated as supply of independent articles? This issue turns on the interpretation of 'works contract' under the KVAT Act and the tests laid down by the Supreme Court. 2. For the assessment year 2015-16, whether the petitioner is entitled to the benefit of the reduced rate of tax applicable to works contracts under Section 8, despite the work being included in a negative list, and whether turnover pertaining to works contracts declared in previous years should be excluded from the assessment for 2015-16? This issue hinges on the applicability of the negative list and the treatment of turnover from prior periods. Petitioner's contentions: The petitioner argued that their works qualify as works contracts and that they had opted to pay tax on a compounded basis under Section 8. They relied on subsequent Supreme Court decisions that clarified the definition of works contracts. For 2015-16, they argued that turnover from previously declared works contracts should not be taxed again. Revenue's contentions: The respondents relied on the Supreme Court decision in State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC) to argue that the works were independent supplies. For 2015-16, they cited the negative list exclusion under Section 8(a) of the KVAT Act.