TMI Blog1998 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... yed for a declaration that rule 6(c) and rule 6(o) of the Karnataka Sales Tax Rules, 1957 as unconstitutional and ultra vires. 5.. In Writ Petition Nos. 18435 and 18436 of 1994, the petitioners have also prayed for quashing the clarification dated August 3, 1990, a copy of which has been produced as annexure D, issued by the Commissioner of Commercial Taxes, in so far as it relates to the clarification given with regard to entry 21 of the Sixth Schedule appended to the Act. In these petitions, the petitioners have also prayed for quashing the order of assessment dated June 21, 1993, a copy of which has been produced as annexure E, and the demand notice dated June 25, 1993, a copy of which has been produced as annexure F, in so far as it relates to the assessment year commencing from April 1, 1989 to March 31, 1990 in respect of the petitioner in Writ Petition No. 18435 of 1994 and the order of assessment dated December 16, 1991 for the assessment period commencing from January 1, 1990 to March 31, 1990 and also the demand notice dated December 16, 1991, a copy of which has been produced as annexure H, in so far as it relates to the petitioner in Writ Petition No. 18436 of 1994. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service contract entered into by it with its customers cannot be held to be goods for the purpose of levy of sales tax; and the services rendered by it to a particular organisation will be unique and will not be useful for any other organisation; and therefore, the petitioner is outside the purview of section 5-B of the Act with regard to the maintenance service contract entered into by it with its customers. It is the further case of the petitioners that a notice dated September 8, 1989, a copy of which has been produced as annexure B, was issued to the petitioner directing it to pay tax in respect of the activity of the maintenance service contract carried on by it for the assessment year 1988-89 and in response thereto, the petitioner sent its reply dated September 28, 1989, a copy of which has been produced as annexure C, contending, inter alia, that the amounts realised by the petitioner towards maintenance of computer systems were towards engineering services rendered by its qualified and trained personnel and there was no transfer of property in goods involved in the transaction and as such, the provisions of the Act are not applicable to it; and inspite of the reply sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and carrying out periodical inspection of the various components and the petitioner carries on this type of service only with a view to instill confidence in the minds of its customers about the durability of the lift itself, etc. It is the further case of this petitioner that the nature of the contract entered into by the petitioner with its customers for maintenance of lifts, is labour oriented contracts in view of the fact that normally the petitioner just lubricates lifts and carries out the routine check with instruments and the periodical inspection of the lifts and lubricating the lifts is just with a view to prevent accident due to un-noticed wear and tear of components and parts of lifts in general and in particular, the wire, rope, cable, etc. According to the petitioner, the chances of replacing of parts are so remote that some of the customers opt for contract restricting the activity of the petitioner only to oiling and greasing and the type of the contract in the parlance of the petitioner-company is known as "oiling and greasing contract". It is also the further case of the petitioner that certain customers enlarge the scope of the contract by including the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, wherein the Commissioner for Commercial Taxes has clarified that the maintenance of computers (involving transfer of goods in the course of the contract of maintenance) falls under entry 21 of the Sixth Schedule appended to the Act. It is the case of the petitioners that the first petitioner has a gross and the taxable turnover for the period from April 1, 1989 to December 31, 1990 at Rs. 29,48,903.38 and Rs. 41,315.89 respectively as per the revised return; and the third respondent did not accept the return of the petitioner and issued a proposition notice proposing to reject the return filed; and proposed to disallow certain deductions claimed by the petitioners; and since the said notice was served on the person unconnected with the department of the petitioners, the said person did not forward the said notice to the concerned department of the first petitioner and hence the first petitioner did not file any reply; and the third respondent concluded an ex parte assessment denying the petitioner any of the deductions claimed by it towards labour, service charges, etc., and determined the total turnover at Rs. 29,68,634 and taxable turnover at Rs. 6,37,540.64 and tax liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he turnover inclusive of annual maintenance contract receipts. The proposition notices and the assessment orders have been produced as annexures E and F respectively and the demand notice dated December 28, 1993 has been produced as annexure G in this petition. 8.. I have heard Sri Chander Kumar, learned Senior Counsel appearing along with Sri Rajesh Chander Kumar for the petitioner in Writ Petition Nos. 13582 to 13586 of 1993 and Sri Ajit Kumar L. Raheja, learned counsel for the petitioners in Writ Petition Nos. 18435, 18436 and 6916 of 1994 and Sri M.R. Narayan, learned counsel for the petitioner in Writ Petition No. 41191 of 1993. I have also heard Sri Shivayogiswamy, learned Government Pleader on behalf of the respondents in all these petitions. 9.. Learned Counsel appearing for the petitioners submitted that the nature of the transaction carried by each of the petitioners in these petitions, is, in sum and substance, a maintenance contract where there is no transfer of property in goods from the petitioners to their customers; and as such, they are not liable for payment of tax under section 5-B of the Act. It is their contention that under section 5-B of the Act, a dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruments, equipments, appliances or plant and machinery is not liable for payment of sales tax. They also submitted that sub-clause (b) of clause (29A) of article 366 of the Constitution of India read with section 5-B of the Act makes it clear that it is only in the case of transfer of property in the goods, the State Legislature is competent to levy the tax ; and in the guise of providing for levy of tax in the transfer of goods, it is not permissible for the State to provide for an entry to levy tax for the services rendered by the petitioners, in the profession or the business carried on by them. It is also alternatively submitted that entry relating to service and maintenance of instruments, equipments, appliances or plant and machinery will not fall within the definition of "works contract" within the meaning of section 2(v-i) of the Act. It was their further submission that service is not brought under levy of tax under section 5-B of the Act as it is not a sale of goods in any form; and therefore, the levy of tax on service or maintenance of instruments, equipments, appliances or plant and machinery is ultra vires section 5-B of the Act and sub-clause (b) of clause (29A) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the Commissioner clarifying the maintenance of instruments, equipments, appliances or plant and machinery, is also beyond the scope of section 5-B of the Act. 11.. In opposition of the submission made by the learned counsel for the petitioners, Sri Shivayogiswamy, learned Government Pleader, submitted that entry 21 of the Sixth Schedule appended to the Act is constitutionally valid and is fully within the power of the State Legislature. He pointed out that what has been provided under entry 21 of the Sixth Schedule appended to the Act is to provide for levy of tax in respect of the transfer of property in goods involved in servicing and maintaining instruments, equipments, appliances or plant and machinery. According to the learned Government Pleader, it is only in cases where there is transfer of property in goods involved in execution of works contract in respect of servicing and maintenance of instruments, equipments, appliances or plant and machinery, the dealer is liable to pay tax; and not in cases where the contract is pure and simple, which relates to servicing and maintenance of instruments, equipments, appliances or plant and machinery where there is no transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or under article 227 of the Constitution of India? 13.. It may be useful to refer to clause (12) and sub-clause (b) of clause (29A) of article 366 of the Constitution of India, sections 2(v-i), 2(m) and 5-B of the Act and entry 21 of the Sixth Schedule appended to the Act, which will have bearing to consider the questions that would arise for consideration in these petitions. The said provisions read as follows: (a) Clause (12) of article 366 of the Constitution reads as under: "(12) 'goods' includes all materials, commodities, and articles." (b) Sub-clause (b) of clause (29A) of article 366 of the Constitution reads as hereunder: "(29A) 'tax on the sale or purchase of goods' includes- (a) .................................... (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract." (c) Sections 2(v-i), 2(m) and 5-B of the Act, read as under: "2(v-i) 'works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of tax by every dealer on turnover of transfer of property in goods (whether as goods or in some other form) involved in execution of works contract mentioned in column 2 of the Sixth Schedule. The same is the position which flows from a reading of sub-clause (b) of clause (29A) of article 366 of the Constitution of India. Therefore, a combined reading of sub-clause (b) of clause (29A) of article 366 of the Constitution of India and section 5-B of the Act makes it clear that in the matter of execution of works contract, the tax is leviable under section 5-B of the Act on the taxable turnover of an assessee only in respect of transfer of property in goods (whether as goods or in some other form) involved in execution of works contract mentioned in column 2 of the Sixth Schedule. Therefore, the vires of entry 21 of the Sixth Schedule appended to the Act has to be considered in the back drop of the charging provision provided under section 5-B of the Act. In my view, the reading of section 5-B of the Act along with entry 21 of the Sixth Schedule appended to the Act makes it explicit that the tax is leviable on taxable turnover of an assessee in respect of transfer of property in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r payment of charges towards services rendered involving labour and also towards the cost of the replacement of parts? In my view, the answer should be in the negative. So long as there is transfer of property in goods involved in the execution of works contract relating to service and maintenance of instruments, equipments, appliances or plant and machinery in terms of section 5-B of the Act, a dealer is liable to pay tax under the Act on his taxable turnover of transfer of property in goods involved in the execution of works contract. There is no escape for a dealer from payment of tax, however, cleverly or intelligently the terms of a contract might have been couched by the dealer with his customers. The resulting position that would flow from the terms of the contract and the nature of the transaction in each case, is a matter which is required to be considered on appreciation of the material on record along with the attendant circumstances relating to the transaction in question. It is necessary to point out that in business transactions, the works contracts are frequently not recorded in writing setting out all the covenants and conditions thereof, and the terms of the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule authorises levy of sales tax on services and maintenance of instruments, equipments, appliances or plant and machinery where there is no transfer of property in goods involved and as such, the said entry is liable to be struck down. 16.. However, it is relevant to notice the submission of Sri Chander Kumar that in the repair of instruments, there is no transfer of property in goods. I am unable to accede to the said submission. It cannot be said as an absolute proposition that in all cases, the repair of an instrument, equipment, appliances or plant and machinery does not involve in any transfer of property in goods. If the repair of an instrument requires replacement of parts either wholly or partly of an instrument, in my view, there is a transfer of property in goods as the replacement of such parts would be "goods" within the meaning of clause (12) of article 366 of the Constitution and also section 2(m) of the Act. As noticed by me earlier, clause (12) of article 366 of the Constitution provides that "goods" includes all materials, commodities and articles. It is an inclusive definition. The definition of "goods" provided under section 2(m) of the Act is very wide in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in B.C. Kame s case [1977] 39 STC 237, it is not possible to strike down the Reported in [1998] 110 STC 269 (Kar) entry so long as the entry provides for levy of tax on transfer of property in goods. Entry 25 has to be read along with section 5-B of the Act. If so read, it is clear that the entry does not permit for levy of tax on the services rendered or exhibition of skill or labour involved in the execution of the work. It only provides for levy of tax on transfer of property in the goods in execution of the works contract. This is permissible under sub-clause (b) of clause (29A) of article 366 of the Constitution as well as under section 5-B read with entry 25 of the Schedule to the Act. Further, to what extent, the material is used to produce a finished goods depends upon the nature of the work executed by each of the petitioners or an assessee who carries on business in processing and supplying of photographs, photoprints and photo negatives. The principle laid down, in my view, in B.C. Kame s case [1977] 39 STC 237 (SC), has to be understood in the back drop of the amendment made to article 366 of the Constitution by inserting clause (29A) by means of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amending the Constitution in several respects in order to bring many of the transactions in which property in goods passed, but are not considered as sales, for the purpose of levy of sales tax within the scope of the power of the State to levy the sales tax. Thus, after the 46th amendment, the works contract, which was an indivisible one, is by a legal fiction altered into a contract, which is divisible into one for sale of goods and the other for supply of labour and service, enabling a State to levy sales tax on value of goods involved in a works contract. In the light of the said amendment, section 5-B came to be incorporated into the Act. In view of the decisions of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370, Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 and Builders' Association of India v. State of Karnataka [1993] 88 STC 248, it is now well-established that it is competent for the State Legislature to impose tax on transfer of property in goods involved in the execution of a works contract and the petitioners can escape liability only if they are able to establish that the photographic work done by them will not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f property in goods, the same is liable for payment of tax under the Act. The clarification given by the Commissioner is in conformity with the provisions of section 5-B read along with entry 21 of the Sixth Schedule to the Act. I do not find any merit in the submission made by the learned counsel appearing for some of the petitioners that the clarification issued by the Commissioner, which has been produced as annexure D in Writ Petition No. 6916 of 1994, is liable to be quashed. Therefore, question No. (2) is also held against the petitioners. Re. Question (3): 19.. Even on question No. (3), I am of the view that the petitioners are not entitled for the reliefs sought for by them. (a) In Writ Petition Nos. 13582 to 13586 of 1993, the petitioners have sought for the quashing of the orders of assessment dated April 27, 1993 for the assessment years 1988-89 to 1992-93, copies of which have been produced as annexures K, K1 to K4, made by the Deputy Commissioner of Commercial Taxes (Intelligence) issued under section 28(6) of the Act. Since I have upheld the constitutional validity of entry 21 of the Sixth Schedule, appended to the Act, the challenge made to the orders of assess ..... 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