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2017 (8) TMI 1148

Head Note / Extract:
Works contract - levy of sales tax - case of appellant is that being a single indivisible contract, it was not permissible for the State to extract divisibility component therein and impose sales tax on the purported sale of goods - whether Works contract given to the assessee is divisible in nature, in the facts of the case, and hence the imposition of tax and penalty made under Section 7AA of the Rajasthan Sales Tax Act, 1954 is justifiable and sustainable in law? - Held that: - there is no dispute that the contract in question was a works contract. The issue is altogether different, namely, that of divisibility. It may be mentioned that before Article 366(29A) of the Constitution was amended with effect from March 01, 1983, the test applicable was ‘dominant nature test’ or ‘degree of intention’ or ‘overwhelming component test’ or ‘degree of labour and service test’ - It is also made clear that the works contract is an indivisible contract, but, by legal fiction, is divided into two parts, one for the sale of goods and the other for supply of labour and services - This Court in Larsen and Toubro Limited and Another v. State of Karnataka and Another [2013 (9) TMI 853 - SUPREME COURT] clarified that post amendment, i.e. with effect from March 01, 1983, these tests are no longer applicable.

By virtue of the Forty Sixth Amendment to the Constitution, a single and indivisible contract is now brought on par with a contract containing two separate agreements. It has also now become a settled position in law that the State Governments have power to levy sales tax on value of material in execution of the works contract. This position is brought about by creating friction whereby the transfer of moveable property in a works contract is deemed to be sale, even though it may not be well within the meaning of Sale of Goods Act.

In the present case, the assessing authority, after scrutinising the agreement in question between the assessee and the State Government, returned a finding of fact that manufacture and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. do not fall within the scopes of buildings, bridges, dams, roads and canals. It was also held that the agreement was clearly in two parts, namely, (i) sale and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services - the assessee has, in fact, admitted that it had no grievance against the finding that supply of pipes was nothing but the sale of pipes involved in the execution of the contracts and, therefore, it was excisable to sales tax - appeal dismissed - decided against appellant.


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