TMI Blog2006 (9) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... have necessitated the reference of the abovementioned question of law for the opinion of this court, are as under: M/s. Voltas Limited is a company incorporated under the provisions of the Companies Act, 1956. It is registered as a dealer under the provisions of the Gujarat Sales Tax Act, 1969 ( the Act , for short). The company, amongst other activities, is engaged in the business of carrying out jobs involving design, supply and installation of air-conditioning plants, which are treated by the company as indivisible works contracts. Earlier, the different rates of tax on sale of goods involved in the execution of works contracts, as set out in Part A of Schedule II-A of the Act, were as under: Sl. No. Description of works contract Entry No. in Schedule IIA of the Act Regular rate of tax 1. Installation of air-conditioners and A. C. coolers and for repairs thereof. 67 18% 2. Furniture and fixtures partitions including contracts for interior decoration and repairs thereof 104 8% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding contracts for interior decoration. 5% 4. Fabrication and installation of lifts or elevators or escalators. 10% 5. Fabrication and installation of plant and machinery 5% 6. Construction of bodies on chassis of motor vehicles including three wheelers. 3% 7. Ship-building, including construction of barges, ferries, tugs, trawlers or dredgers. 2% 8. Works contracts other than those mentioned above. 12% M/s. Voltas Limited undertook air-conditioning and refrigeration job (water-chilling plant) at Vapi in Gujarat for M/s. Anupam Colours Chemicals Industries, for a lump sum amount of ₹ 3,99,000 as per the contract deed dated October 22, 1993. The company was of the view that fabrication and installation of water-chilling plant was a works contract covered under entry 5 of the Schedule to the notification attracting the rate of composition at five per cent and was not covered by en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable was 15 per cent. Feeling aggrieved by the order made by the Deputy Commissioner, Sales Tax, under section 62 of the Act, the company preferred Appeal No. 16 of 1996 before the Gujarat Sales Tax Tribunal at Ahmedabad. During the course of regular assessment for the assessment year 1993-94, the Sales Tax Officer 1(4) following the decision of the Deputy Commissioner of Sales Tax dated October 16, 1996, assessed the company at the rate of 15 per cent of the value of the works contract by his order dated October 23, 1997. The company, therefore, preferred an appeal against the said assessment order before the Assistant Commissioner of Sales Tax, Ahmedabad, who by his order dated May 6, 1999 also took the view that the works contract of the company was liable to be taxed at the rate of 15 per cent under entry 2 and not at the rate of five per cent under entry 5 of the Schedule to the notification. The company, therefore, preferred another appeal being Second Appeal No. 97 of 2001 before the Gujarat Sales Tax Tribunal at Ahmedabad. Appeal No. 16 of 1996 and Second Appeal No. 97 of 2001 were heard together by the Tribunal. The Tribunal noticed that in simple plant and mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has referred the abovequoted question of law for the opinion of this court. By an order dated February 16, 2004 passed in Special Civil Application No. 12508 of 2002, it was directed that the petition should be listed for hearing along with Sales Tax Reference No. 1 of 2004. This is how the reference has been tagged with the petition filed under article 226 of the Constitution. As common questions of facts and law arise for consideration of this court, this court proposes to dispose of Sales Tax Reference No. 1 of 2004 and Special Civil Application No. 12508 of 2002 by this common judgment. Mr. K. H. Kaji, learned counsel for the assessee, contended that the installation of air-conditioners and A. C. coolers, as mentioned in entry 2 of the Schedule to the notification, connotes installation of room air-conditioners or window air-conditioners because the words air-conditioners are followed by words A. C. coolers and, therefore, fabrication and installation of air-conditioning plant would not fall under entry 2, but would fall under entry 5 of the Schedule to the notification. It was argued that entry 2 of the Schedule to the notification cannot include, by very na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant in entry 2 of the Schedule to the notification and, therefore, the view taken by the Tribunal should not be upheld by this court. In support of these contentions, the learned counsel for the assessee-company, relied on the decisions in (1) Ramavatar Budhaiprasad v. Assistant Sales Tax Officer, Akola [1961] 12 STC 286 (SC), (2) State of West Bengal v. Washi Ahmed [1977] 39 STC 378 (SC), (3) Real Optical Co. v. Appellate Collector of Customs [2001] 122 STC 555 (SC) and (4) Parle Biscuits (P) Ltd. v. State of Bihar [2005] 139 STC 204 (SC). Mr. Kamal B. Trivedi, learned Advocate-General with Ms. Sangeeta Vishen, learned Assistant Government Pleader for the Revenue referred to the decision of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCC 645 and explained that the tax on the sale or purchase of goods includes among other things a tax on the transfer of the property in goods, whether as goods or in some other form, involved in the execution of a works contract and, therefore, before answering the question referred to this court for its opinion, the court should ascertain as to what is transferred in the execution of works con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooler and the air-conditioning plant on the basis of area covered by their operation. The learned counsel for the Revenue emphasised that notification issued under section 55A of the Act is in the nature of an exemption notification and, therefore, it must be construed strictly and in case of doubt, should be construed in favour of the Revenue and, therefore also, it should be held that the works contract of the assessee relating to installation of air-conditioning plant falls within entry 2 of the Schedule to the notification and not within entry 5 of the Schedule to the said notification. The learned counsel pointed out to the court that no evidence could be adduced by the assessee before the Tribunal to establish that in common parlance, an air-conditioner or A. C. cooler or air-conditioning plant have different meanings and, therefore, common parlance test as is sought to be suggested to be applied by the leaned counsel for the assessee should not be adopted while interpreting entries 2 and 5 of the Schedule to the notification. What was pointed out by the learned counsel for the Revenue was that an air-conditioning system is capable of adding and removing humidity and moistu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, taxable at the rate of 15 per cent or whether it falls under entry 5 and, therefore, taxable at the rate of five per cent of the Schedule to the notification issued under section 55A of the Act. A bare perusal of section 55A of the Act makes it evident that it enables the State Government to fix rates of composition by notification in the official gazette having regard to the incidence of tax on the nature of the goods involved in the execution of total value of works contract. In exercise of powers conferred by section 55A of the Act, the State Government issued the notification and fixed the rate of composition payable in lieu of the amount of tax mentioned in column (3) of the Schedule in respect of each works contract shown in column (2) of the said Schedule having regard to the incidence of the tax on nature of goods involved in the execution of total value of works contract. As the assessee undertook air-conditioning and refrigeration job for M/s. Anupam Colours Chemicals Industries by works contract ated October 22, 1993, it would be relevant to ascertain the nature of the goods involved in the execution of total value of the works contract. In Builders Association o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of the building. In the absence of any such agreement, transfer of property in goods passes not as moveables as such by accretion and in an unidentifiable and indivisible manner. In all such cases, it is not possible to disintegrate the contract into a contract for sale of goods and a contract for work and labour only. When a house or a factory or a bridge constructed by a building contractor is handed over to the person who had assigned the contract, what is handed over is conglomerate of all the goods used in the construction of the building, which was different from the specific goods used in the construction. It is not possible to break up the house, factory or bridge, etc., which is constructed by a building contractor into individual items of goods and to tax the transfer of property in each of them. Having ascertained as to what a works contract is, as explained by the Supreme Court, it would be necessary to ascertain the nature of the goods involved in the execution of works contract relating to installation of airconditioners and A. C. coolers and for repairs thereof, as described in entry 2 of the Schedule to the notification issued under section 55A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12% A comparison of the regular rate of tax on sale of goods involved in execution of works contract prior to issuance of the notification and rate of composition of tax, i.e., lump sum tax payable under section 55A of the Act, would indicate that there is a difference of about two per cent to three per cent in rates of tax on sale of goods involved in execution of relevant works contract. In the affidavit-in-reply filed Mr. N. C. Somesara, Sales Tax Officer, (1), City Division 2, Ahmedabad, to the petition, it is stated that the word air conditioner as is defined in Oxford's Illustrated Dictionary means a system for regulating humidity, ventilation and temperature in a building or a vehicle, and, therefore, the term air-conditioner in entry 2 includes an air-conditioning system. It is further mentioned in the reply that since entry 2 specifically embraces air-conditioning, entry 5 of the notification would not be applicable to the installation of air-conditioning plant. What is asserted in the reply is that since the ultimate purpose of installation of an air-conditioner or an air-conditioning plant is to regulate the humidity and temperature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appliance, system or mechanism designed to extract heat from an area using a refrigeration cycle. The construction of a complete system of heating, ventilation, and air-conditioning is referred to as HVAC. Some refer to air conditioner or air-conditioning as AC or A/C for short. An air-conditioning system equipment may be (1) window or through-wall units; (2) evaporation coolers; (3) absorptive chillers; (4) portable air-conditioners; and (5) central air-conditioning. The central air-conditioning commonly referred to as central air (US) or air-con (UK) is an air conditioning system which uses ducts to distribute cooled and/or dehumidified air to more than one room, or uses pipes to distribute chilled water to heat exchangers in more than one room, and which is not plugged into a standard electrical outlet. With a typical split system, the condenser and compressor are located in an outdoor unit; the evaporator is mounted in the air handling unit (which is often a forced air furnace). With a package system, all components are located in a single outdoor unit that may be located on the ground or roof. Central air-conditioning performs like a regular airconditioner but may have several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle-family residences to large, built-up or field-erected systems serving large buildings. When many buildings, each with its own air-conditioning system which is complete except for a refrigeration and a heating source, are tied to a central plant that distributes chilled water and hot water or steam, the interconnection is referred to as a district heating and cooling system. This system is especially useful for campuses, medical complexes, and office complexes under a single management. Conditioning of spaces.-Air temperature in a space can be controlled by radiant panels in floor, walls, or ceiling to emit or absorb energy, depending on panel temperature. Such is the radiant panel system. However, to control humidity and air purity and in most systems for controlling air temperature, a portion of the air in the space is withdrawn, processed, and returned to the space to mix with the remaining air. In the language of the engineer, a portion of the room air is returned (to an air-handling unit) and, after being conditioned, is supplied to the space. A portion of the return air is spilled (exhausted to the outdoors) while an equal quantity (of outdoor air) is brought into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, orientation of the building which effects heat into the air-conditioned premises cannot be ignored nor adjoining areas surrounding the air-conditioned premises. Therefore, it would not be correct to differentiate between the central air-conditioners and room air-conditioners, etc., on the basis that installation of air-conditioning plant requires preparation of plant whereas no such exercise is required to be undertaken in case of installation of window air-conditioner, etc. Moreover, the basic components, which go into manufacture of air-conditioning plant and room airconditioner or split air conditioner are almost similar with difference in size and are not drastically different. The main components in both the systems/devices/units are: (1) the main refrigeration equipment; (2) the air handling unit; (3) cooling tower/air cooled condenser; (4) condenser water pump-set including motor; (5) chilled water pump-set including motor; (6) air distribution system which includes ducting as per sizes and gauges, design to suit the premises, its hangers, supports, clamps, hanger fasteners, hardwares, grilles to suit the premises along with its fixing arrangements to the false ceiling; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words A. C. coolers follow the word air-conditioners and, therefore, it should be held that installation of air-conditioning plant would fall under entry 5 of the Schedule to the notification, but not under entry 2 of the Schedule to the said notification also cannot be accepted, because, the delegated legislation has taken installation of air-conditioning plant within the sweep of installation of air-conditioners and A. C. coolers by providing entry 2 of the Schedule to the notification. Even otherwise, the basic composition is similar with variation only in size and output. The argument that the Legislature had before it three specific entries, i.e., air-conditioner, A. C. cooler as well as air-conditioning plant, and the air-conditioning plant is omitted while framing composition scheme and, therefore, it should be held that installation of air-conditioning plant is covered by entry 5 of the Schedule to the notification, has also no substance. As observed earlier, before introduction of composition scheme, works contract involving the installation of air-conditioners, A. C. coolers and repairs thereof were being charged at the rate of 18 per cent on sale of goods involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a car air-conditioning kit comprised only parts and could not be treated as air-conditioning system within the meaning of item 3. On the other hand, the Revenue contended that inasmuch as the parts put together produced the effect of cooling, it could appropriately be called as air-conditioning system falling under item 3. The Supreme Court held that as the air-conditioning kit is meant for providing air-conditioning in car and as the description of the goods first mentioned against column (3) notes air-conditioners, car air-conditioning kit falls within the meaning of air-conditioner against item No. 3 before March 20, 1990. According to the Supreme Court, this position continued till item 5 was amended and item 8 was inserted in the said notification where specific entry with regard to parts and accessories of car air-conditioner and car air-conditioning kit was provided. Here in this case, there is no specific entry inserted in the notification with regard to installation of air-conditioning plant. If airconditioning kit meant for providing air-conditioning in a car is held to fall within the meaning of air-conditioner, there is no reason why the airconditioning plant should no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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