Recently, the Patna High Court has directed the Indian Railways to refund an amount of Rs. 38,22,897 to PCM Cement Concrete Pvt. Ltd., following an illegal VAT deduction made from the bills of the contractor.
The division bench of Chief Justice K. Vinod Chandran and Justice Partha Sarthy held, “The transaction was purely of an inter-state sale of goods and is not a works contract nor a sale of goods eligible to tax within the State of Bihar. The sale of goods as per Annexure-2 and Annexure-5 agreements constitute an inter-state sale not eligible for tax within the State of Bihar.”
“The Railways had made a deduction on the ground that it is a works contract; which we have negatived. The Railways is bound to refund the illegal tax deduction made from the bills to the petitioner contractor. The Railways could definitely apply for refund from the Bihar Value Added Tax Department,” the bench added.
PCM Cement Concrete Pvt. Ltd. submitted a writ petition requesting that The Deputy Chief Engineer (Construction-I), East Central Railway, The F.A. and C.A.O., East Central Railway, and The Deputy Chief Engineer (Construction), East Central Railway be instructed to refund a sum of Rs. 38,22,897.
The petitioner argued that the mentioned sums were unlawfully withheld and collected from the petitioner's invoices as prepayment for Value Added Tax, supposedly in accordance with the stipulations outlined in Sections 40 and 41 of the Bihar Value Added Tax Act, 2005 (VAT).
The petitioner engaged in two distinct agreements with the East Central Railway, the initial of which is documented as Annexure-2 and the subsequent one as Annexure-5, both dated 26.12.2008 and 19.05.2010, respectively.
The court noted that there was an absence of a combined contract encompassing the supply of goods and labor in the current scenario.
The court further observed that the issue was simplified insofar as the sale being mere manufacture and supply of goods which was a sale simpliciter of the goods; which goods have also been transported in pursuance to a prior contract of sale which is the reason for the movement of the goods from one State to the other; herein from the State of West Bengal to the State of Bihar.
Furthermore, the court highlighted that the produced goods were loaded and arranged within a vehicle or railway wagon, and subsequently transported to the site within the boundaries of Bihar, where they were incorporated into the Railway's projects. Importantly, the responsibility for these works or enhancements did not fall under the petitioner's jurisdiction.
“The Railways shall refund the amounts with 6% interest within a period of 4 months from the date of receipt of the certified copy of this judgment. If the refund is not granted within that time then the interest shall run at the rate of 12% from the date of expiry of the 4 month period. The Railways can apply for refund or adjustment to future dues from the State of Bihar,” the court said while allowing the writ petition.
Case Title: PCM Cement Concrete Pvt. Ltd vs. The Union of India and Others
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