TMI Blog2014 (10) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings for the assessee but it cannot mean that every such show-cause notice or appealable order passed upon such show-cause notice has to be adjudged as right or wrong in writ jurisdiction. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end-product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end-products, and the skill and labour are, only incidentally used, the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail of the skil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh Mehta G.S. Bafna, Advocate-General and Senior Advocate along with Vinit Kumar Mathur for the respondents JUDGMENT The Indure Private Limited, New Delhi, has filed the present two writ petitions being aggrieved by the impugned notice dated May 12, 2011, for rectification under section 33 of the Rajasthan Value Added Tax Act, 2Q03 for the period April 1, 2008 to March 31, 2009 by which the respondent-assessing authority, namely, the Assistant Commissioner, Special Circle, Sriganganagar sought to rectify the exemption certificate to charge higher exemption fees of 2.25 per cent of the. total value of the contract awarded by the Rajasthan Rajya Vidhyut Utpadan Nigam Ltd. ( RRVUNL or Vidhyut Nigam , in short) while taking the two divisible and separate contracts for designing, engineering, procurement and supply of equipments including mandatory spares BOP package and also for erection, testing, commissioning and civil works of balance of plant (BOP) package for setting up of thermal power project at Suratgarh and Chhabra in the State of Rajasthan. Civil Writ Petition No. 8491 of 2011 is directed against the aforesaid show-cause notice for rectification under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Contract No. 3381 : Suratgarh:- Schedule of Material and Prices S. No. Details Amount in Indian Rs. 1 Total f. o. r. price of supply of entire scope of BOP including mechanical, electrical and control and instrumentation packages including maintenance tools, freight and insurance, all taxes and duties, as applicable on date. 183.5 crores 2 Total f. o. r. price of supply of mandatory spares required for entire BOP including mechanical, electrical, and control of instrumentation packages including freight and insurance, all taxes and duties as applicable on date. 2.50 crores 3 Total f. o. r. price for entire BOP package including supply of mandatory spares and maintenance tools, freight and insurance, all taxes, duties as applicable on date (1.0 + 2.0) 186 crores Total amount in words : Rupees one hundred eighty six crores only. Contract No. 3382 : Suratgarh:- Schedule of Material and Prices S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l bids (S. No. 1.0 + 2.0 + 3.0) 4,51,36,31,100 Total in words : Rupees four hundred fifty one crore thirty six lac thirty one thousand one hundred only. Contract No. 57 : Chhabra:- Schedule of Material and Prices S. No. Details Amount in Indian Rs. 1 Total f. o. r. price of supply items of civil and structural work of entire BOP 2,75,00,00,000 2 Total price of erection, testing and commissioning of entire scope of BOP including unloading, storage at site, handling from the storage area to erection site and performance testing for the equipment and test before taken over 30,46,12,000 3 Civil structural and architectural works for entire BOP package along with all necessary investigation 1,42,75,36,000 4 Taxes and duties. The various taxes and duties as applicable on date shall be payable extra limited to amount given below:- (a) Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Any other kind of works contract not covered by item Nos. 1, 2 and 3. 3.00% This Notification shall be deemed to have come into force with effect from April 1, 2006. The petitioner-company applied for exemption under the aforesaid notification dated August 11, 2006, only for the second contract, namely, 3382 for Suratgarh power project and contract No. 57 for the Chhabra power project for erection, testing and commissioning and civil works of BOP package on EPC basis and on payment of exemption fees at 1.50 per cent of the total value of the contract, the exemption certificates in prescribed form WT3 were issued to the petitioner-company by the respondent-assessing authority vide annexure 6 dated November 13, 2007 for Suratgarh power project and for Chhabra project vide annexure 7 dated February 20, 2009. By another notification, annexure 8, dated July 5, 2010, amending the earlier Notification dated August 11, 2006, a proviso was added to the effect that in case of a turnkey works contract awarded by the Government Department, if the assessing authority, on being satisfied that transaction of sale took pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were undertaken at the behest of higher authorities and even the Deputy Secretary of Finance Department vide communication, annexure 18, dated October 11, 2010 addressed to the Commissioner, Commercial Taxes Department, pointed out that on account of issuance of exemption certificate levying only 1.50 per cent exemption fees of the total value of the contract instead of 2.25 per cent of the gross value of both the contracts combined together, a revenue loss of ₹ 22.29 crores was caused in the matter and since the two contracts in question were executed merely as a device adopted by the assessee to evade the exemption fee, which is paid in lieu of total tax liability and the bifurcation of the integrated one contract of turnkey project was deliberately made into two separate contracts by the petitioner-company with RRVUNL and consequently, the exemption certificates were required to be rectified and hence impugned rectification proceedings were undertaken. The petitioner-assessee instead of replying to the said show-cause notice, straightaway filed the aforesaid writ petition before this court on September 12, 2011 challenging the said show-cause notice for rectification. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for changing the classification of works contract from item No. 2 of the notification to item No. 3 of the said notification to apply higher rate of exemption fee at 2.25 per cent, it involves debatable and mixed questions of facts and law and, therefore, the jurisdiction to rectify under section 33 of the VAT Act, 2003, which empowers the assessing authority to rectify only the mistakes apparent on the face of the record, could not have been invoked in the present case and, therefore, the impugned notice deserves to be quashed by this court in writ jurisdiction under article 226 of the Constitution of India. The learned counsel for the petitioner relied upon the following judgments in support of his submissions:- 1. Builders Association of India v. Union of India reported in [1989] 73 STC 370 (SC) ; [1989] 2 SCC 645. 2. Gannon Dunkerley and Co. v. State of Rajasthan reported in [1993] 88 STC 204 (SC) ; [1993] 1 SCC 364. 3. State of Andhra Pradesh v. Kone Elevators (India) Ltd. reported in [2005] 140 STC 22 (SC) ; [2005] 3 SCC 389. 4. Indure Ltd. v. Commercial Tax Officer reported in [2010] 34 VST 509 (SC) ; [2010] 9 SCC 461. 5. Ishikawajima-harima Heavy v. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings were absolutely sustainable and correct in law and could not be validly assailed by the assessee-petitioner. Mr. G. S. Bafna, Advocate-General, further submitted that dividing the integrated contract into two or more separate contracts was not material at all and it was between the two contracting parties to divide such contract but as far as Tax Department is concerned, they can correctly construe the same contracts as one single integrated contract and consequently levy exemption fee of 2.25 per cent, which in fact saves the assessee also from the hassles of levy of tax on each single transaction of sale under the VAT Act and entire assessment proceedings, therefore, the action of the assessing authority cannot be assailed in the present writ petitions. The learned counsel for the Revenue also drew the attention of the court towards the pleadings of the assessee himself in the writ petition, which would prima facie show that the assessee himself treats both the contracts as one integrated works contract. Following extract from paras 3 and 4 of the writ petition is significant and reproduced hereunder for ready reference:- 3. That Rajasthan Rajya Vidyut Utpadan Nig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pares BOP package on EPC basis for 2x250 MW Chhabra Thermal Power Project, Stage I, Phase II as per specifications issued in the said order. A copy of supply order No. 56 dated January 7, 2009 is submitted herewith and marked as annexure 3. Another work order was issued for erection, testing, commissioning and civil work on BOP package on EPC basis for 2x250 MW Chhabra Thermal Power Project being Work Order No. RVUN/SE (TD-II)/TDM-I/CTPP-II BOP/TNCH-3/D. 57 dated January 7, 2009 (hereafter referred to as work order No. 57 dated January 7, 2009). A copy of Work Order No. 57 dated January 7, 2009 is submitted herewith and marked as annexure 4. The learned counsel for the Revenue relied upon the following judgments in support of his contentions:- (i) Titaghur Paper Mills Co. Ltd. v. State of Orissa [1983] 53 STC 315 (SC) ; [1983] 142 ITR 663 (SC) ; AIR 1983 SC 603; (ii) Champalal Binani v. Commissioner of Income-tax, West Bengal [1970] 76 ITR 692 (SC) ; AIR 1970 SC 645. I have heard the learned counsels at length and given my thoughtful consideration to the rival submissions, documents on record and the case laws cited at the Bar. In the considered opinion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineering do not require any supply or sales. Likewise, the second contract of erection, testing and commissioning including civil works for balance of plant (BOP) by itself is also a works contract or not is another question to be decided on the basis of details of terms of contract, nature of supplies, nature of transactions undertaken by the assessee-petitioner, so also delivery conditions, payment conditions, etc., etc. Prima facie, it appears to this court that the stand taken by the Revenue that both the contracts are one integrated contract is a plausible and possible view and it cannot be said that the assessing authority, labouring under the confusion or distorted view of the matter, seeks to treat the two contracts as one integrated contract. The date of both the contracts is same, i.e., October 3, 2006 for Suratgarh project and January 7, 2009 for Chhabra project. Whether these two are merely two separate purchase orders under one integrated contract or not is an open question. The supply of materials, plant and machinery are integral part and connected with the services like designing, engineering, testing, commissioning, etc., of the civil works and installation of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction is a 'sale' or a 'works contract'. Essentially, the question is of interpretation of the contract. It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end-product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end-products, and the skill and labour are, only incidentally used, the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether the exemption Notification dated August 11, 2006 which provides for exemption of payment of tax on works contract subject to the assessee obtaining the exemption certificate upon payment of exemption fees of fixed percentage of the total value of the contract at 1.50 per cent in case works contract falls under entry No. 2, or at 2.25 per cent if the works contract falls under entry No. 3 of the list appended in the Notification dated August 11, 2006 reproduced above. While the exemption fees in lieu of tax on works contract is admittedly based on the total value of the contract, which total value may comprise of the taxable portion (supply of goods) of works contract as well as non-taxable (labour and service) of such works contract, still the exemption fee is levied on the gross total value of the contract, therefore, the question of imposition of tax on taxable portion of works contract does not arise in the present case of question of relating to exemption fees on gross value of the contract and, therefore, the judgments relied upon by the learned counsel for the petitioner seeking to contend that the assessing authority is not entitled to levy higher amount of exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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