Home Case Index All Cases VAT and Sales Tax VAT and Sales Tax + HC VAT and Sales Tax - 2015 (2) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (2) TMI 796 - HC - VAT and Sales TaxComposite contracts - Amendment under VAT Act - No change done under CST Act - Deeming sale - whether in the absence of an amendment in the Central Sales Tax Act specifically applying its provisions to a transfer of property in goods involved in the execution of a works contract, the provisions of Sections 3, 4 and 5 contained in Chapter II can be held applicable to such a transfer - Held that:- prior to the Forty-Sixth Amendment, a distinction was being made between a ‘works contract’ which was entire and indivisible and a works contract composed of two distinct and separate contracts-one, for transfer of materials and other, for payment of remuneration for services and for work done. The non-availability of the legislative power of the States under Entry 54 of the State List, as construed by this Court in the Gannon Dunkerley case was confined, in its appliction, to works contracts falling in the first category, i.e., contracts which were entire and indivisible and it was permissible for the States to impose tax on sale or purchase of goods where the parties had entered into distinct and separate contracts one for the transfer of materials and other for payment of service and for work done. The provisions of Sections 3, 4 and 5 of the Central Sales Tax Act were applicable where there were two separate contracts. As a result of the Fortysixth Amendment, the contract which was single and indivisible has been altered by a legal fiction into a contract which is divisible into one for sale of goods and other for supply of labour and services and as a result such a contract which was single and indivisible has been brought on a par with a contract containing two separate agreements. Since the provisions of Sections 3, 4 and 5 were applicable to such contracts containing two separate agreements, thee is no reason why the said provisions should not apply to a contract which, though single and indivisible, by legal fiction introduced by the Fortysixth Amendment, has been altered into a contract which is divisible into one for sale of goods and other for labour and services. If the legal fiction introduced by Article 366 (29- A) (b) is carried to its logical end it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contact where the contract is divisible into one for sale of goods and the other for supply of labour and services. Even in the absence of any amendment having been made in the Central Sales Tax Act (after the Forty-sixth Amendment) expressly including transfers of property in goods involved in execution of a works contract, the provisions contained in Sections 3, 4 and 5 would be applicable to such transfers and the legislative power of the State to impose tax on such transfers under Entry 54 of the State List will have to exercised keeping in view the provisions contained in Sections 3, 4 and 5 of the Central Sales Tax Act. For the same reasons Sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property in goods involved in the execution of a works contract and the legislative power under Entry 54 in State List will have to be exercised subject to the restrictions and conditions prescribed in the said provisions in respect of goods that have been declared to be of special importance in inter-State trade or commerce Court noticed the decision rendered in case of M/s. Binani Bros (P) Ltd -Vs- Union of India & Ors reported in [1973 (12) TMI 77 - SUPREME COURT OF INDIA] and found the distinguishing feature that since the said MS Pipes imported by the company were used for erection and commissioning of the plant in the same conditions as they were imported and were not used in any manufacturing process, the Sales Tax cannot be attracted. It is, therefore, settled that the state cannot by legislature imposed Sales Tax of the inter-State sale or the sale by import in relation to a works contract provided the same is used in commissioning of the project on turnkey basis in the same form without changing its character through a manufacturing process. The power of the state to legislate on imposition of Sales Tax in relation to the works contract is not unfettered but a restrictive one. After the Forty-sixth amendment in the Constitution, the works contract is capable of being divorced into a supply and the labour and service. It is not a universal rule that if the works contract is on the turn key basis, it imbibed inseparation and indivisible but depends upon the construction of the contracts and the intention of the parties to be gathered therefrom. The Deputy Commissioner has simply proceeded on the basis that though the separate contracts are entered into between the parties but they are on a turn key basis, it partakes the character of indivisible and inseparable works contract exigible to the State Sales Tax. There is no finding recorded in the impugned order on the nature of the transaction reflected in the books maintained by the petitioner and the return filed in this regard. Since the same required a voluminous documents to be looked into which this Court has no occasion to look into it, it is not possible to ascertain whether the sale of transfer of property in goods in connection with the Inter State Sale or by import can be segregated and the said authorities is incompetent to levy tax under the State Legislation. - it would be proper that the Deputy Commissioner should re-look the judgment in the light of the law enunciated above and to record his findings and the reasons in relation thereto. The order impugned is thus set aside. - Matter remanded back - Following decision of M/s Gannon Dunkerley and Co. and Ors. -Vs- State of Rajasthan & Ors reported in [1992 (11) TMI 254 - SUPREME COURT OF INDIA] - Petition disposed of.
|