TMI Blog1993 (1) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 4. In the first set of C.W.P. Nos. 5691, 9565, 9564, 10277, 13602 and 13812 of 1989, 5393 and 9022 of 1990 and 1331, 1501 of 1992 and 16812 and 16813 of 1991, the facts in C.W.P. No. 10277 of 1989 are fairly representative and may be briefly stated as follows: The petitioner has its factory and works at Faridabad in the State of Haryana. It is a registered dealer both under the HGST Act as well as the Central Sales Tax Act, 1956. It is engaged in the manufacture and processing of various types of textiles. This includes processing of what is called grey cloth into finished cloth. The grey cloth is subjected to various treatments and processes involving use of bleaching agents and a number of chemicals. Thereafter the cloth is dyed, sized and printed as per the order of the contractee. The material used in processing any dyeing/printing, etc., is purchased by the petitioner from outside the State on furnishing declaration in "C" form. The petitioner had been submitting the returns and had been paying the amount of sales tax assessed to be due. The Deputy Excise and Taxation Commissioner (Inspection), Faridabad, issued notices, annexures P4 and P5 to the petitioner under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner claimed deduction of a certain amount on account of lottery tickets being exempt from sales tax. The same was allowed and assessment was framed vide annexure P2 dated January 30, 1990. The Revisional Authority-cum-Deputy Excise and Taxation Commissioner (Inspection), Faridabad (East), issued notice, annexure PI, dated April 24, 1992, to the petitioner under section 40(2) of the HGST Act/Central Sales Tax Act on the basis of the inspection record for the assessment year 1984-85. It was pointed out that in the said assessment order sale of printed material for use as lottery tickets valuing Rs. 6,15,41,989 had been assessed by the Assessing Authority as sales of tax-free goods by treating the same as lottery tickets. It was further stated in the notice that the sale of the printed material did not amount to sale of lottery ticket as what was sold was printed slips of paper and not lottery tickets as lottery tickets. Reference was made to the decision of the Supreme Court in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165, in which it was explained that lottery ticket conferred on the purchaser thereof two rights, namely, a right to participate in the draw, and secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being covered under the amended definition of "sales ", the petitioner was called upon to show cause why assessment be not revised, besides initiating action for imposition of penalty. 10.. It will be seen from the above brief statement of facts that the main controversy between the parties to these writ petitions centres round certain amendments made by the Haryana Amending Act of 1989 in section 2 of the principal Act. 11.. It may be stated at the outset that in some of the writ petitions, the vires of the Constitution (Forty-sixth Amendment) Act, 1982, has been challenged. The challenge must be repelled in view of the decision of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371. 12.. The contentions raised on behalf of the petitioners may be summarised as under: (i) In note 3 under the definition of the words "purchase" and "sale" inserted by the Haryana Amending Act of 1989, in clauses 2(j) and 2(1), respectively, a legal fiction has been introduced that "sale" falling under sub-clause (ii) of the respective clause shall be deemed to have taken place within the State if the goods involved in the execution of the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's activity amounted to execution of works contract and further assuming that transfer of property in goods takes place in the execution of such works contract within the meaning of sub-clause (ii) of clause (1) of section 2, the transaction was an inter-State sale and, therefore, was not exigible to State sales tax. 13.. The reply made by Mr. H.L. Sibal, learned Advocate-General, Haryana, to the various contentions may be summarised seriatim as under: (i) The word "sale" used in note 3 is confined to only intra-State sale. It cannot be construed to include an inter-State sale. Even from out of the intraState sales, the sale referred to in note 3 is restricted to only a sale falling under sub-clause (ii) of clause (1). It was pointed out that express provision had been made in section 12 declaring that nothing in the HGST Act, 1973, would empower the levying of tax on sale or purchase taking place in the course of inter-State trade or commerce. (ii) The taxing event is the transfer, delivery or supply of any goods within the meaning of sub-clauses (i) to (v) of clause (1) and not the wide definition of the expression "works contract". It was, therefore, of no conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of those goods passed to the contractee in terms of sub-clause (ii) and whether a particular transaction was an inter-State sale. Doing so was a sheer impossibility owing to the great variety of goods involved in various stages of the execution of works contract. Mr. Sibal, therefore, urged that in the first set of writ petitions including C.W.P. No. 10277 of 1989 it should be left to the taxing authorities under the Act to determine whether the transaction amounted to an interstate sale. 14.. In order to appreciate the contentions of the learned counsel, it is necessary to refer to the relevant provisions of the Constitution and the various Acts concerned. 15.. The Parliament passed the Constitution (Forty-sixth Amendment) Act, 1982, with effect from February 2, 1983. A Constitution Bench of the Supreme Court took pains to trace the history leading to the said Amendment Act in what may be called locus classicus in Builders Association of India's case [1989] 73 STC 370; AIR 1989 SC 1371. In brief, it may be stated that prior to the commencement of the Constitution, the power to levy sales tax had been conferred on the Provincial Legislatures by entry 48 of List II of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmerce or outside a State or in the course of import into or export from India ........." 16.. There arose a conflict of judicial opinion amongst the various High Courts in the country whether the cost of the goods supplied by a building contractor in the course of the construction of a building could be subjected to payment of sales tax. The said conflict was finally resolved by the Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560. Therein it was held that there was neither a contract to sell the materials used in the construction nor the property passed therein as movables. It was further held that in a building contract, which was one, entire and indivisible, there was no sale of goods and the materials used in such a contract was not exigible to sales tax treating the same as a sale. By virtue of the above decision, no sales tax could be levied on the amounts received under a works contract by a building contractor even though he had supplied goods for the construction of the buildings. Certain other kinds of transactions were also held not to amount to sale so as to be liable to pay sales tax. In certain other cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of those goods by the person to whom such transfer, delivery or supply is made." (ii) Clause (3) of article 286 was substituted with the following clause: "(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." 17.. Following the Constitution Forty-sixth Amendment, the HGST Act was amended by the Haryana General Sales Tax (Amendment and Validation) Act, 1984 (Haryana Act No. 11 of 1984), which was published in the Haryana Gazette (Extraordinary) dated April 18, 1984. The amended definition of the expression "tax on sale or purchase of goods" in clause (29-A) of article 366 of the Constitution was split up into two parts, namely, "purchase" and "sale". The word "purchase" was defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and for this purpose sub-clause (ii) and subclause (iv) shall be deemed to have come into force with effect from the 18th day of April, 1984." (iv) The following note 3 was also added: "Note 3-A purchase falling under sub-clause (ii) shall be deemed to have taken place within the State if the goods involved in the execution of a works contract are within the State at the time of their use in the execution of the works contract." (v) The expression "works contract" was defined in clause (pa) in these words: " 'works contract' means any agreement for executing for cash, deferred payment or other valuable consideration (i) the construction, fitting, improvement or repair of any building, road, wall, bridge, embankment, dam or other immovable property; or (ii) the assembling, fabrication, installation, repair, fitting out, altering, ornamenting, blending, finishing, improving, processing, treating or adapting any movable property, whether attached to any immovable property or not; and includes a sub-contract for executing the whole or any part of such work." 19.. A reading of the relevant provisions of the Constitution and the parliamentary legislation made in pursuanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1 ..................... Explanation 2 ....................." Section 4 of the Central Sales Tax Act, 1956, is expressly made subject to section 3 of the Act. 21.. Sections 14 and 15 of the Central Sales Tax Act, 1956, impose the restrictions and conditions specified therein, in regard to tax on sale or purchase of declared goods within a State in so far as sales tax law of the State is concerned. 22.. Even at the risk of repetition, the propositions which emerge may be stated thus: (I) The State Legislature is not competent to levy tax on sales taking place(a) in the course of inter-State trade or commerce, (b) sales taking place outside the State, (c) sales in the course of import into or export from the country. (II) The State legislation shall be subject to restrictions and conditions, if any, as the Parliament may by law impose in regard to sale or purchase falling under sub-clause (b), (c) or (d) of clause (29-A) of article 366 of the Constitution. (III) The Parliament has the exclusive power to formulate principles for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a whole; with each part throwing light on the meaning of the other (vide paragraph 5 at page 1613 of AIR; at page 243 of STC). In view of the conceded position that the word "sale" in note 3 is confined only to intra-State sale, we would read down note 3 to be confined only to intra-State sale. 26.. Coming to the second contention, in our view, Mr. Sibal is clearly right in pointing out that it is not the wide definition of the expression "works contract' which is of any significance for the present purposes but it is the taxable event. The main test for determining the taxable event is that on the occurrence of which liability to tax is attracted (see Goodyear India Ltd. v. State of Haryana [1990] 76 STC 71 (SC); AIR 1990 SC 781). It is not disputed that in the present case, the taxable event is the transfer, delivery or supply of goods within the meaning of the relevant sub-clause of clause (1) of section 2 of the HGST Act, 1973. In other words, the taxable event is the transfer of the property in goods (whether as goods or in some other form) involved in the execution of a works contract. The definition of "works contract" is not rendered ultra vires the Constitution or powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2 of the HGST Act, 1973, were first inserted by Haryana Act No. 11 of 1984. By Haryana Act No. 11 of 1987, subclause (ii) and certain specified items relating to sub-clause (iv) were to take effect from a later date, namely, April 1, 1987, i.e., the date immediately before the publication of the amending Act in the State Gazette. Later on, however, it came to the notice of the Government that some dealers had, in fact, charged sales tax on transactions covered by sub-clause (ii) and in so far as goods mentioned in sub-clause (iv). By Haryana Act No. 1 of 1989, therefore, sub-clause (ii) and goods specified in sub-clause (iv) referred to in note 2 was given effect from April 18, 1984, the date when following the Forty-sixth Amendment the Haryana General Sales Tax Act, 1973, was amended instead of April 1, 1987, by inserting a proviso to note 2 to clauses (j) and (1). The effect of the impugned amendment is as if the date fixed by the earlier Act, namely, April 1, 1987 had been rubbed off and April 18, 1984, had been written. The apex Court explained the doctrine in Shamrao V. Parulekar v. District Magistrate, Thana AIR 1952 SC 324 in these words: "The rule is that when a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td.'s case [1965] 16 STC 240 (SC); AIR 1965 SC 1396 in Anandam Viswanathan's case [1989] 73 STC 1 (SC); AIR 1989 SC 962. In Guntur Tobaccos Ltd.'s case [1965] 16 STC 240 (SC); AIR 1965 SC 1396 it was laid down that contract for work may take any of the three forms: (i) For work done for remuneration It was held to be a composite conand supply of materials used in tract for work and sale of goods. execution of works for a price. (ii) For work in which use of material It was held to be a contract for is accessory or incidental. execution of work not involving sale of goods. (iii) For work and use or supply of There was no sale because though materials not accessory to the property in goods passed, it did not execution of the contract but is pass for a price. voluntary or gratuitous. Anandam Viswanathan's case [1989] 73 STC 1 (SC); AIR 1989 SC 962 was held to fall in category (ii) above. The other authorities relied on by Mr. R.C. Dogra and Mr. Randhir Chawla are: (1) Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237 (SC), (2) Hindustan Aeronautics Limited v. State of Orissa [1984] 55 STC 327 (SC), (3) Commissioner of Sales Tax v. Ratna Fine Arts Printing Press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al undoubtedly support the stand taken by him. In our view, therefore, the provisions of section 2, as amended by the Haryana Amending Act No. 1 of 1989 must be upheld as constitutionally valid. 31.. The next question arising for consideration is whether the particular process of finishing and sizing, etc., of grey cloth by M/s. East India Cotton Manufacturing Company Limited, petitioner in C.W.P. No. 10227 of 1989, and some other connected petitions, is an inter-State sale. The said activity has been described by the petitioner in paragraph 6 of the Writ Petition No. 10227 of 1989 in these words: "6. That the petitioner manufactures and processes the textiles by using grey cloth. The petitioner for that purpose of processing of grey cloth into fabric brings into the factory of the petitioner grey cloth belonging to the third parties from outside the State of Haryana. The title to property in goods whether as grey cloth or processed fabric vests with its original owner and not with the petitioner. All that the petitioner does is to process the grey cloth by using colour and chemicals and receives labour charges from the owner of the cloth and re-export the fabric outside the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (1) of section 2 of the HGST Act, 1973. It has been laid down in Builders Association of India's case [1989] 73 STC 370 (SC); AIR 1989 SC 1371 that when the law creates a legal fiction, such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. For all practical purposes, therefore, the deemed sale is to be considered as a sale properly so called. There can be no doubt that it is that sale which occasions the movement of goods from one State to another, in that grey cloth is sent by the contractees from outside the State of Haryana; it is processed at Faridabad in the State of Haryana and thereafter it is sent back to the contractees. The movement of cloth, therefore, is occasioned by the contract of sale within the meaning of sub-clause (ii) of clause (1) of section 2 of the HGST Act, 1973. We are, therefore, of the view that the said transaction amounts to an inter-State sale within the meaning of section 3 of the Central Sales Tax Act, 1956. 33.. Mr. Randhir Chawla, appearing for M/s. Thompson Press (India) Pvt. Limited, submitted that the petitioner is assessed both under the HGST Act as well as under the Central S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in the execution of works contract. In the absence of amendment having been carried out to the Central Sales Tax Act, 1956, the order of the Tribunal could not be sustained. We are in respectful agreement with the reasoning and conclusion of the learned Judges. We sum up our conclusions as under: (1) Clauses (j) and (1) of section 2 of the HGST Act, 1973, including proviso to note 2, note 3 of the HGST Act, 1973, are intra vires the Constitution and the principles formulated in the Central Sales Tax Act, 1956, in pursuance of articles 269(3) and 286(2) of the Constitution. To that extent constitutional validity of Act No. 1 of 1989 is upheld. (2) The value of goods falling within the purview of various sub-clauses of clauses (j) and (1) of section 2 of the HGST Act, 1973, is exigible to tax. (3) Inter-State sale is outside the scope of the HGST Act, 1973, for purposes of levying of tax. (4) The particular activity of processing of grey cloth into finished cloth by East India Cotton Manufacturing Company Limited in the facts and circumstances amounts to inter-State sale. (5) It is open to the taxing authorities to split up a composite works contract and levy tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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