The Madras High Court has ruled that the responsibility for TDS deduction lies with Chennai Metro Rail Ltd. (CMRL) rather than the work contractors.

Justice C. Saravanan's bench has noted that if Chennai Metro Rail Ltd. (CMRL) neglected to deduct the amounts specified under Section 13(1) of the TNVAT Act, 2006, the provisions outlined in Section 13(8) of the same Act should solely target CMRL. Consequently, the notices in question lack jurisdiction to the extent that they seek to impose a 2% demand, as this should be directed exclusively at CMRL and not at the petitioner, who is the work contractor.

The petitioner, functioning as a work contractor, secured two contracts for the design and construction of underground stations and associated tunnels. On March 23, 2011, the petitioner submitted an application for Form S in accordance with Section 13(1) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act, 2006), alongside Rule 9(2) of the Tamil Nadu Value Added Tax Rules, 2007 (TNVAT Rules, 2007).

Subsequently, on June 25, 2012, the petitioner submitted another application for Form S. In this application, the petitioner declared the sale value of the contract as Rs. 350,83,62,161 and sought exemption from tax payment amounting to Rs. 23,39,10,054. As a result, the petitioner requested CMRL not to deduct the sum of Rs. 23,39,10,054 towards tax. It's important to note that this exemption applies to both contracts.

The department has issued notices to the petitioner for the failure to deduct TDS.

The petitioner contended that the notices were without jurisdiction. The provisions of Section 13(2) of the TNVAT Act, 2006, read with Rule 9(1) of the TNVAT Rules, 2007, mandate that the "person" responsible for deducting the TDS deposit the sum so deducted along with Form R on or before the 20th of the succeeding month.

The sub-section (7) of Section 13 of the TNVAT Act, 2006, lays down that the tax or interest under sub-sections (1) and (2) of Section 13 of the TNVAT Act, 2006, would become due without any notice of demand for the payment by the "person." The term "person" has been defined in Explanation to Section 13(1) of the TNVAT Act, 2006.

Similarly, Section 13(8) of the TNVAT Act, 2006, stipulates that if "such person" violates the provisions outlined in subsections (1) and (2) of Section 13 of the TNVAT Act, 2006, the entire tax amount, along with associated penalties and interest, shall be recovered from "such person" as if they were an assessee under the TNVAT Act, 2006. Consequently, issuing a show cause notice to the petitioner, who is the works contractor, alleging contravention of Section 13 provisions, is deemed an abuse of legal process and lacks jurisdiction.

The department argued that it possesses the jurisdiction to issue notices to the petitioner since no certificate was issued to the petitioner in Form S, allowing them to claim exemption under the proviso to Section 13(1)(c) of the TNVAT Act, 2006, in conjunction with Rule 9 of the TNVAT Rules, 2007.

The court observed that Section 13(1) of the TNVAT Act, 2006, entails the deduction of tax by the entity responsible, specifically the employer, who disburses payments to a dealer engaged in providing services for executing a works contract for civil construction work and/or civil maintenance works contract for the latter.

The court, in granting the petition, determined that CMRL had made payments to the petitioner without deducting tax at source (TDS) accordingly. Such a course of action could justify legal proceedings against CMRL under Section 13(8) of the TNVAT Act, 2006.

Counsel For Petitioner: Aparna Nandakumar

Counsel For Respondent: Amirtha Poonkodi Dinakaran

Case Title: Tvl.Transtonelstory Afcons Versus The Assistant Commissioner (CT)

Case No.: W.P.Nos.3547 & 3548 of 2020 and W.M.P.Nos.4153 & 4154 of 2020