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The central theme of this article is the liabilities of an awarder under the Kerala Value added Tax Act 2003 (hereinafter described as “Act”)as it is now found in the statute book. Though this article deals with the provisions relating to awarder under Kerala VAT Act yet the same may be useful for persons in other states also since similar provisions may be contained in their respective state VAT laws also. The word “AWARD” simply means “to give” or “to bestow right upon” and the word “AWARDER” is to be construed accordingly. The word “Award” is, however, used by the legal community generally to indicate ‘a legal judgement or decision for an arbitrator to whom a dispute is referred by the parties in dispute’ but under the Act the word “Award” carries the meaning of “giving or granting a right to do something”. The word “Award” is not defined under the Act though the word “Awarder” is defined u/s 2(VII) of the Act to mean any person who awards any “WORKS CONTRACT” to a “CONTRACTOR” for execution. U/s 2(xiv) “Contractor” means any person who undertakes any “works contract” for execution and includes a sub-contractor. The expression “works contract” is defined under Section 2(Iv) by way of Explanation VII to include any agreement for carrying out for cash or for deferred payment or other valuable consideration the construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection, installation, modification or commissioning of any movable or immovable property”.
The provisions imposing liabilities on an awarder are contained in Section 10 of the Act. The Rule 32 of KVAT Rules, 2005 lays down the liability of the awarder to submit the returns in Form 10C on a quarterly basis. However, Rule 33 which deals with the signing and verification of returns is silent about as to the person who is authorised to sign and verify the returns. Rule 34 which provides the mode of submission of returns also presents certain difficulties when it is applied to awarders.
LIABILITIES OF THE AWARDER- AN OVERVIEW
The Act/ Rules cast upon an awarder the following obligations/liabilities:
To deduct the tax payable by the contractor at the time of making the payment to the contractor including advance either on the basis of the liability certificate u/s 10(1) or at the rates prescribed u/s 10(2A).
To remit the tax so deducted to the government in the prescribed manner as per Rule 42(2).
To file quarterly returns in Form 10C as per Rule 32.
To issue Form no 20F to the contractor as provided in Rule 42(4).
To continue to deduct tax where the Assessing Officer has cancelled Form No. 20E (From 20E exonerates the awarder from deduction of tax while making payments to the contractors).
To furnish details of the price of the goods supplied to the contractor and deducted by the awarder while making payment to the contractor.
LIABILITY OF THE AWARDER TO DEDUCT TAX
As already indicated above, the awarder is imposed with the liability to deduct tax under Section 10 of the Act. Section 10(1) provides that an awarder shall deduct from every payment including advance made to a contractor who is liable to pay tax under section 6 of the Act. A contractor is liable to pay tax under section 6, if his total turnover exceeds Rs.10 Lakhs per financial year. Readers are requested to read Section 6 carefully to understand the liability of the contractor to pay tax.
The payment which attracts liability under section 10(1) for deduction should be in relation to works contract awarded to the contractor in respect of which contractor is liable to pay tax. A contractor’s liability gets triggered when he transfers materials, goods or chattels during the course of the execution of the works contract. The transfer of goods may be in the pure form of goods or transfer of chattel as chattel (example a gate). The transfer can also be in the form of immovable property or in a form other than that of goods. For eg, a contractor is said to have transferred goods to awarder if the cement, bricks, sand, steel etc. used in the construction of the building is ultimately handed over to the awarder in the form of building. This strange impost has got the constitutional sanction also. It may be noted that pure service or labour contracts are outside the purview of the Act and it may attract the central levy of Service Tax.
LIABILITY OF THE AWARDER TO PAY THE TAX
The tax so deducted by the awarder is required to be remitted to the government ex-chequer on or before the 5th day of the month immediately succeeding the month in which the deduction is made. This requirement presents certain difficulties. Now, tax can be remitted electronically but to do it, registration with department is necessary. Therefore, an awarder may be compelled to take registration under the Act, as a dealer. Attention is invited to Section 15 of the Act which imposes the liability to take registration. There is no provision to take registration for awarders!! There is also no provision to grant registration by the department!! Hence, one wonders at the precarious situation of the awarders.
LIABILITY OF THE AWARDER TO FILE RETURNS
As per Rule 32, an awarder is duly bound to file quarterly returns in Form 10C. Now, returns can be filed through electronic mode only. Only registered dealers can get the privilege of access to the system maintained by the department. Neither there is a liability to apply for registration nor is the department obliged to grant registration. A username and password is to be obtained by the dealer for the purpose of filing the returns. The awarder is not a dealer and hence there is no provision for granting registration or granting access to the system. But curiously enough the department is granting username and password to the awarder but its legal validity is highly doubtful.
LIABILITY OF THE AWARDER TO ISSUE FORMS
All awarders are required to file returns as well as issue Form 20F. It is a well-known fact that awarder may be any person and he may be educated or illiterate. Even if he is educated, he may not be aware of his onerous liabilities under the Act. Please note that even a common man who is constructing a house for his residential purpose or a person doing some repair works in his house is saddled with the liability as an Awarder. The awarder may be a person whose car is required to be repaired on the highway necessitating payment to auto repair work shops who may be contractors attracting liability under the Act. The most disturbing aspect is that there is no monetary limit fixed for his liability ie even if you are paying Rs. 100 to a painter or mason who is a contractor liable under section 6, you are visited with the liability to deduct tax, take registration, file returns, issue Form 20F and so on. Nobody is bothered about these legislative idiosyncrasies!!
Is the Awarder a DEALER?
On a close analysis of the legal provisions contained under the Act/Rules, ‘it is clear that an awarder is not a dealer’ under the Act. At this juncture it will be advantageous to look into Section 7(10) of the KGST Act, 1963(the immediate predecessor of the KVAT Act,2003) which clearly lays down that an awarder shall be deemed to be an assessee for the purpose of KGST Act. But Alas… curiously enough, there are no such deeming provisions under KVAT Act and hence is a serious legislative omission. It is settled law that legislature is presumed to be aware of the existing law. In Young v Mayor etc. of Leamington (1883)8 AC 517 Lord Blackburn stated as follows “We ought in general in construing an act of parliament, to assume that the legislature knows the existing state of the law”. Hence, consciously omitting to provide under the KVAT Act to treat or deem an awarder as the dealer, it can be argued that the legislature never intended to impose the liability on awarders as a “dealer”. So the author is of the view that many of the actions performed by the awarders or compelled or required by the department to be performed, do not carry any sanction of law and may be declared as void or nullities!
JOINT AND SEVERAL LIABILITY
Attention is also invited to Section 10(3) of the Act which imposes the joint and several liabilities on the awarder, his authorised agents/persons like managers, directors, secretaries’ etc actually deducting tax. The said section further provides that the awarder shall be treated as liable to the extent of his failure to deduct and the said amount can be recovered from him as if it were a tax due from him. It would mean that if an awarder failed to deduct, say Rs.100 from the contractor, then he is liable to pay Rs. 100 with interest and penalties applicable. It can also be recovered from him under the Act through coercive recovery proceedings as arrears of land revenue.
LEGISLATURE MISSED THE BUS?
But if one makes a close study, it can be noticed that Section 10(3) gets triggered only when there is failure to deduct tax while making payments under section 10(1) and not on payments made under section 10(2A). The liability to deduct under section 10(1) arises only when the contractor provides ‘liability certificate’ in Form no. 20B. Hence, Section 10(3) has got a very restricted application. The section applies only when the awarder fails to deduct even if liability certificate in Form 20B is produced. In other words, if Form 20F is not produced, there is no liability for the awarder at all! In other words if tax is not deducted by the awarder u/s 10(2A) then that amount cannot be treated as tax due from him and hence cannot be recovered invoking section 10(3) of the Act.Therefore the author is of the view that law requires amendment for the purpose of imposing liabilities on the awarder as really envisaged under the Act.
To conclude, the author is of the view that the law makers should consider the difficulties attached to the provisions relating to awarders and takes steps to mitigate them. The earlier the better. The lawmakers may also look into the some of the anomalies pointed out by the author. The author is of the view that there can be other anomalies in the law which escaped his attention. It is to be noted that the author has not dealt with all the anomalies in this article and hence not exhaustive. The penal and prosecution provisions relating to awarder is also not the subject matter of this article.
BY SIVADAS CHETTOOR
B.COM FCA LL.M