Chennai Metro Rail Responsible For TDS Deduction And Not Work-Contractors: Madras High Court

The Madras High Court has held that Chennai Metro Rail Ltd. (CMRL) is responsible for TDS deduction and not work contractors.

The bench of Justice C. Saravanan has observed that if CMRL had failed to deduct the amounts under Section 13(1) of the TNVAT Act, 2006, machinery under Section 13(8) of the TNVAT Act, 2006, is to be directed only against CMRL. Therefore, to that extent, the impugned notices are without jurisdiction. The 2% demand proposed in the notices is to be directed only against CMRL and not on the petitioner, the work contractor.

The petitioner is a work contractor and was awarded two contracts for the design and construction of underground stations and associated tunnels.

The petitioner had applied for Form S on March 23, 2011, pursuant to Section 13(1) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act, 2006), read with Rule 9(2) of the Tamil Nadu Value Added Tax Rules, 2007 (TNVAT Rules, 2007).

Later, the petitioner applied for Form S on June 25, 2012, claimed the deed sale value of the contract as Rs. 350,83,62,161 and claimed exemption from payment of tax for a sum of Rs. 23,39,10,054. Therefore, the petitioner wanted CMRL to not deduct a sum of Rs. 23,39,10,054 towards tax. The exemption was in respect of both contracts.

The department has issued notices against the petitioner for the non-deduction of 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, lays down that if "such person" contravenes the provisions of subsections (1) and (2) of Section 13 of the TNVAT Act, 2006, the whole amount of tax, along with penalties and interest, would be recovered from "such person" as if the person were an assessee under the TNVAT Act, 2006. Thus, the issuance of the show cause notice to the petitioner, who is the works contractor, for the alleged contravention of the provisions of Section 13 is an abuse of process of law and wholly without jurisdiction.

The department contended that it has jurisdiction to issue notices to the petitioner as no certificate was issued to the petitioner in Form S to claim exemption under proviso to Section 13(1)(c) of the TNVAT Act, 2006, read with Rule 9 of the TNVAT Rules, 2007.

The court noted that Section 13(1) of the TNVAT Act, 2006, contemplates deduction of tax by the person responsible (namely the employer) for paying any amount to a dealer whose service is engaged for executing a works contract for civil contract work and/or civil maintenance works contract for the former.

The court, while allowing the petition, held that payments had been made by CMRL to the petitioner without corresponding tax deduction at source (TDS). Such action may warrant proceeding 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)

Citation: 2024 LiveLaw (Mad) 81

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

Click Here To Read The Order