TMI Blog2006 (3) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... d) Act, 1989, (hereinafter, "Works Contract Act"), read with section 61 of the Bombay Sales Tax Act, 1959. The corrected question as argued upon by both the parties reads as follows: "In the facts and circumstances of the case and on a true and correct interpretation of section 2(1)(d) of the Maharashtra Sales Tax on the Transfer of property in goods involved in the execution of Works Contracts (Re-enacted) Act, 1989 (hereinafter, 'the Works Contracts Act') was the Tribunal justified in law in holding that the respondents are not to pay tax under the said Works Contract Act on their transaction of taking out the xerox copies on a xerox machine and that they are not a 'dealer' as defined under section 2(1)(d) of the said Act?" Hari Co., the present respondents are involved in the business of com-binding, electric or electronic typing, computerised art work and taking out duplicate copies by photocopying. On June 10, 1988 an application (1) Oral judgment was made by the respondents under section 52 of the Bombay Sales Tax Act, 1959 read with section 9 of the Works Contract Act to the Additional Commissioner of Sales Tax to decide three questions: (i) Whether they fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the scenario post Forty-sixth Constitution (Amendment) Act, 1982, wherein clause (29A) was inserted in article 366, even composite contracts can be bifurcated to levy sales tax on the value of material involved in the execution of works contract. This view, adopted in Hindustan Shipyard Ltd. v. State of Andhra Pradesh [2000] 119 STC 533 (SC); [2000] 6 SCC 579 has been confirmed in the ACC case [2001] 124 STC 59 (SC). Mr. Pandit, the learned counsel for the applicants further contended that the concept of dominant intention of contract has been by-passed by the ACC case [2001] 124 STC 59 (SC). The judgment in the ACC case [2001] 124 STC 59 (SC) has held that "even if the dominant intention of the contract is the rendering of a service, which will amount to a works contract, after the Forty-sixth Amendment the State would now be empowered to levy sales tax on the material used in such contract". The said Forty-sixth Amendment to the Constitution was held to be constitutional and applicable to goods transferred in a composite contract, in the aforesaid Builders case [1989] 73 STC 370 (SC). The learned counsel Mr. Pandit, then relied on the definition of "sale" as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the works contract. Even if the dominant intention of the contract is the rendering of a service, which will amount to a works contract, after the Forty-sixth Amendment the State would now be empowered to levy sales tax on the material used in such contract. The conclusion arrived at in Rainbow Colour Lab case [2000] 118 STC 9 (SC); [2000] 2 SCC 385, in our opinion runs counter to the express provision contained in article 366(29A) as also of the Constitution Bench decision of this court in Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCC 645." (Emphasis supplied) Relying on the aforesaid judgments, Mr. Pandit, the learned counsel for the appellants submitted that the process of photocopying indeed involves transfer of tangible good in the form of paper and ink, owned by the assessee, passed into the hands of a customer post duplication of documents. By creating legal fiction, the "transfer of property" part of contract can be easily carved out to include it within the ambit of definition of "sale" in the Works Contract Act and attract sales tax in light of the post Forty-sixth Constitution Amendment situation. Submissions of respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods are used may take one of the three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price, it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for work and use or supply of materials though not necessarily to the execution of the contract is voluntary or gratuitous . . . . . . . Whether, a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is a composite for work and sale of goods; where it is of the second category it is a contract for execution of work not involving sale of goods." Mr. Joshi, then contended that consequent to the Forty-sixth Constitutional Amendment only that part of the indivisible work contracts were brought under the net, which involve the transfer of property in goods that are involved in the execution of works contract. In other words, each and every transfer of property, incidental to the job in all types of contracts were not brought in the tax net. The service contracts of photography, photocopying, cyclostyling, typing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases wherein the property in the goods involved in the execution of the works contract passed on the principle of accretion and accession. According to the learned counsel there can be transfer of property in execution of works contract only when material belongs to the principal, on which work is done by the contractor involving use or supply of his own goods. However, in the case of photocopying since material belongs to the assessee and is disposable, if contract is not completed to satisfaction, the said material cannot be said to follow the principle of accretion or accession. It was further contended by Mr. Joshi that as inference can be drawn from the concluding phrase used in article 366(29A) of the Constitution of India, there has to be an identity of the goods even after the passing of the property during the execution of works contract, may be as a part of moveable property or of an immoveable one. The meaning of "goods" has to be understood as defined by article 366(12) of the Constitution of India. Therefore, a predominant ingredient required to be satisfied is the transfer of property in goods for an agreed monetary consideration. The service contracts undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the object of the Constitutional Amendment introduced in the year 1982 was in order to create a "legal fiction" of "transfer of goods within the works contract" that is in order to levy a tax on the goods involved in the execution of a works contract. Hence, irrespective of whether the transfer of property is incidental or accessory to a works contract, once a works contract involves transfer of property per se, the provisions of article 366(29A) of the Constitution of India are attracted. In order to understand the object of the Legislature in greater detail let us examine the background in which this amendment was introduced which has been traced in several judicial decisions, inter alia, the Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCC 645, the relevant portion of which is reproduced as under from pages 396/ 397: ". . . It is true that in the State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); [1959] SCR 379 this court held that a works contract was an indivisible contract and the turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales tax. It was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h any levy under entry 54 of the State List is made subject to under the Constitution." This makes it clear what the amendment in effect does is that it allows the bifurcation of a composite contract in order to tax an incidence of sale by way of transfer of property within its execution. In this respect coming to the decision of the honourable Supreme Court in the case of Associated Cement Companies [2001] 124 STC 59, Mr. Joshi has time and again vociferously contended that the said judgment dealt with the Customs Act, 1962 and would hence not apply to the present case. We do not agree with this contention. In our opinion the rationale behind the Forty-sixth Amendment of the Constitution of India was effectively exemplified in the ACC case [2001] 124 STC 59 and it would be binding inasmuch as the said observation to quote the same: ". . . The Forty-sixth Amendment was made precisely with a view to empower the State to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that the value may represent a small percentage of the amount paid for the execution of the works contract." Applying th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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