TMI Blog2022 (1) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... is paying service tax as imposed on the work of denting and painting, being a service provided by a authorised service station which is covered by the provisions of Section 65(9) of the Finance Tax Act, 1994 (as amended). Therefore, it would not be permissible for the State Taxing Authority to impose VAT on paint separately. There is no dispute that an item taxable by the State under Article 366(29-A) is exempted from being levied with Service Tax and vice-versa. The petitioner, has referred to the provisions of Section 65(9) and Section 65(105)(zo) of the Finance Act, 1994, as amended, and it is submitted that service, repair, reconditioning or restoration of motor vehicle is treated as a taxable service under Finance Act, 1994 (as amended). The learned counsel for the petitioner has also referred to the Circular No. 699/15/2003-CX dated 05.03.2003 (Annexrure-9 of the writ petition), wherein it has been clarified that items such as paints used in painting body, etc., during the course of providing service form intrinsic part and parcel of service in so much as that these are not distinctly and separately identifiable from the services rendered and therefore value of such ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such repair work is carried out with the aid of expert labourers/painters. Accordingly, it is submitted that any painting and/or denting materials that are consumed in the process would fall within the realm of a contract of service. It is submitted that in ordinary sense as understood by a common man, no one would send a vehicle for denting and painting with a view to purchase paint and other denting and painting consumables and therefore, it is contended that such contract for service does not involve or result in a transfer of property in such goods. Thus, it is submitted that no tax can be levied under the Assam VAT Act. 4) By referring to the C.B.E.C. Circular No.699/15/2003-CX dated 05.03.2003 (Annexure-9), the learned counsel for the petitioner has submitted that on account of denting and painting services rendered by the petitioner, Service Tax is being paid since the year 2001 as per the Finance Act, 1994 on the gross receipt of the value for such work. Therefore, it is contended that if the petitioner is required to pay VAT on the same nature of work, it would amount to double incidence of tax by the State on the same component on which the Central Government is real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d affidavit in opposition filed by the respondent nos. 4 to 9 and by respondent no. 2. 8) The question to be decided in this case is whether the denting and painting job on a vehicle is a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule read with Article 366(29-A) of the Constitution of India. However, if it is a service then the Central Government alone can levy Service Tax under Entry 97 of List I (or Entry 92C of List I after 2003 and prior to its repeal in 2016). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them. 9) While the learned counsel for the petitioner projects that no person with ordinary prudence would go to a vehicle workshop with an intention to purchase paint and accordingly, it is submitted that painting is an incidental part of repair work. It was also submitted that the paint is nothing but a consumable but in the scope of the work of painting and denting, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of mortgage, hypothecation, charge or pledge) by one person to another for cash or for deferred payment or other valuable consideration and includes,- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire purchase or any system of payment by installments, (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash; deferred payment or other valuable consideration; (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not Intoxicating) where such supply or service is for cash or deferred payment or other valuable consideration; (vii) a transfer of property in goods by the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962 or the Assam Excise Act, 1910 or under any other enactment whether such duties or fees are paid or payable by or on behalf of the seller or the purchaser or any other person; (ii) in relation to the transfer of property in goods (Whether as goods or in some other form) involved in the execution of works contract, such amount received or receivable as consideration; (iii) in relation to the delivery of goods on hire purchase or any system of payment by installments, the amount of valuable consideration payable to a person for such delivery; (iv) in relation to transfer of the right to use any goods for any purpose (whether or not for a specified period) the valuable consideration received or receivable for such transfer, and (v) the amount received by the seller by way of deposit whether refundable or not, which has been received whether by way of a separate agreement or not, in connection with or incidental or ancillary to, the said sale of goods. Explanation II- For the propose of this clause, 'sale price' does not include,- (i) tax charged or chargeable under this Act; (ii) any amount allowed by seller of goods to the purchaser as cash di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacturer of motor vehicles and replaced parts during the warranty period and in course of such transaction, the reimbursement by the manufacturer was held to be sales by repelling the contention that the replacement of defective parts involved no sale. This is not the fact situation in the present case in hand. Hence, the said decision does not help the State. 15) In the case of Larsen Toubro Ltd. (supra) , cited by the learned Advocate General, in order to understand the said decision, it would be apposite mention that in the said case, a two-Judge Bench of the Supreme Court of India had referred the matter to a larger Bench by observing as follows:- 10 . We have prima facie some difficulty in accepting the proposition laid down in Para 20 quoted above. Firstly, in our view, prima facie, M/s Larsen Toubro - petitioner herein, being a developer had undertaken the contract to develop the property of Dinesh Ranka. Secondly, the show-cause notice proceeds only on the basis that Tripartite Agreement is the works contract. Thirdly, in the Show Cause Notice there is no allegation made by the Department that there is monetary consideration involved in the first contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to provide rates of stamp duty in respect of documents other than those specified in provisions of List I with regard to the rates of stamp duty. Entry 92-A of List I deals with taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-state trade or commerce. Entry 6 of List III deals with the subjects, transfer of property other than the agricultural land; registration of deeds and documents . 56 . It is important to ascertain the meaning of sub-clause (b) of clause 29-A of Article 366 of the Constitution. As the very title of Article 366 shows, it is the definition clause. It starts by saying that in the Constitution unless the context otherwise requires the expressions defined in that article shall have the meanings respectively assigned to them in the article. The definition of expression tax on sale or purchase of the goods is contained in clause (29-A). If the first part of clause 29-A is read with sub-clause (b) along with latter part of this clause, it reads like this: tax on the sale or purchaser of the goods includes a tax on the transfer of property in goods (whether as goods or in some othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given restricted meaning by adopting the definition of the word sale contained in the Sale of Goods Act has been undone by the Forty-sixth Constitutional Amendment so as to include works contract. The meaning of sub-clause (b) of clause 29-A of Article 366 of the Constitution also stands settled by the Constitution Bench of this Court in Builders Association (1989) 2 SCC 645. As a result of clause 29-A of Article 366, tax on the sale or purchase of goods may include a tax on the transfer in goods as goods or in a form other than goods involved in the execution of the works contract. It is open to the States to divide the works contract into two separate contracts by legal fiction: (i) contract for sale of goods involved in the works contract and (ii) for supply of labour and service. By the Forty-sixth Amendment, States have been empowered to bifurcate the contract and to levy sales tax on the value of the material in the execution of the works contract. 60 . Whether contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct would be covered by the term works contract . Nothing in Article 366(29-A)(b) limits the term works contract to contract for labour and service only. Learned Advocate General for Maharashtra was right in his submission that the term works contract cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some works . We are also in agreement with the submission of Mr. K.N. Bhat that the term works contract in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services above. The Parliament had all genre of works contract in view when clause 29-A was inserted in Article 366. *** *** *** 97 . In light of the above discussion, we may summarise the legal position, as follows: 97.1. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by Forty-sixth Amendment has been brought on par with a contract containing two separate agreements and States have now power to levy sales tax on the value of the material in the execution of works contract. 97.9. The expression tax on the sale or purchase of goods in Entry 54 in List II of Seventh Schedule when read with the definition clause 29-A of Article 366 includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. 97.10. Article 366(29-A)(b) serves to bring transactions where essential ingredients of sale defined in the Sale of Goods Act, 1930 are absent within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is, therefore, no doubt that to qualify as goods an item must have some utility and must be marketable. Applying this test, the Supreme Court held that electromagnetic waves are not goods . They cannot be delivered or possessed and they are not marketable. 12 . The question that now arises is whether exposed photographic film rolls and negatives are goods? The answer must be a firm No . Exposed photographic film rolls and negatives per se have absolutely no utility for anyone not even for the owner. Furthermore, no one goes to the market (or anywhere else for that matter) to buy an exposed photographic film roll or negatives. It is only when they are developed or processed, as the case may be, that they have some personal value for the owner of the photographs. Clearly, therefore, if exposed photographic film rolls and negatives are not goods they cannot be the subject matter of a works contract which concerns itself with the processing or otherwise treating or adapting any goods as defined in Section 2(38)(iv) of the Act. 13 . Alternatively, if the transactions entered into between the appellants and their customers are not works contracts, would the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The learned Additional Advocate General is partially right in submitting that Rainbow Colour Lab was overruled in BSNL. In paragraph 49 of the Report, the Supreme Court held: After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005 C.K. Jidheesh v. Union of India, (2005) 13 SCC 37 held that the aforesaid observations in Associated Cement, (2001) 4 SCC 593 were merely obiter and that Rainbow Colour Lab was still good law, it was not correct. It is necessary to note that Associated Cement did not say that in all cases of composite transactions the Forty-sixth Amendment would apply. The Supreme Court made it clear that there are two categories of composite contracts, one covered by Article 366 (29A) of the Constitution - to which the dominant nature test did not apply. To this extent Rainbow Colour Lab was overruled. The other category is those not covered by Article 366 (29A) of the Constitution. The applicability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1994 (as amended). Therefore, it would not be permissible for the State Taxing Authority to impose VAT on paint separately. There is no dispute that an item taxable by the State under Article 366(29-A) is exempted from being levied with Service Tax and vice-versa. 20) In this regard, the learned counsel for the petitioner, has referred to the provisions of Section 65(9) and Section 65(105)(zo) of the Finance Act, 1994, as amended, and it is submitted that service, repair, reconditioning or restoration of motor vehicle is treated as a taxable service under Finance Act, 1994 (as amended). The learned counsel for the petitioner has also referred to the Circular No. 699/15/2003-CX dated 05.03.2003 (Annexrure-9 of the writ petition), wherein it has been clarified that items such as paints used in painting body, etc., during the course of providing service form intrinsic part and parcel of service in so much as that these are not distinctly and separately identifiable from the services rendered and therefore value of such items, which form intrinsic part of service is included in the value of taxable service. 21) In light of the discussions above, the Court is of the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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