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TMI Blog2005 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... oming under entry No. 55 of the Fifth Schedule and had levied tax as the works contract falling under entry No. 11 of the Sixth Schedule to the Karnataka Sales Tax Act, 1957 (hereinafter referred to as "Act, 1957"). 3.. The facts in S.T.A. No. 496 of 1998 (S.T.R.P. No. 64 of 1999 are noticed for the disposal of these revision petitions. They are as under: The respondent-company is a public limited company, incorporated under the provisions of the Companies Act, 1956. It is also registered as a dealer both under the provisions of the Karnataka Sales Tax Act, 1957 and the Central Sales Tax Act, 1956. It is borne on the files of the Deputy Commissioner of Commercial Taxes (Assessments), Shimoga (hereinafter referred to as "the Assessing Authority"). During the assessment year 1993-1994, the respondentcompany had undertaken the execution of works contract with the Karnataka Electricity Board for laying of 220 KV double circuit transmission line between Davanagere and Shimoga on turnkey basis. 4.. The assessee-company had filed its annual returns for the assessment year 1993-1994. The assessing authority, after rejecting the returns filed, has concluded the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority was not justified in law to levy tax on structural steel purchased in the course of inter-State trade for the purpose of execution of works contract and lastly, the assessing authority was also not justified in levying turnover tax on the turnover of inter-State purchases with respect of structural steel. 6.. The first appellate authority by his order dated January 31, 1998, has partly allowed the appeal, only to the extent of charging KST at 4 per cent on the deemed sales turnover of reinforced steel used in the execution of works contract undertaken by the assesseecompany to the Karnataka Electricity Board and also has exempted the turnover tax under section 6-B of the Act on the said turnover and accordingly, has directed the assessing authority to issue revised demand notice. 7.. The assessee-company, aggrieved by the order passed by the Joint Commissioner of Commercial Taxes (Appeals) had preferred second appeal before the Karnataka Appellate Tribunal in Appeal No. 496 of 1998. The Tribunal by its order dated December 23, 1998 has allowed the appeal and thereby has set aside the orders passed by the appellate authority as well as the assessing authority and further, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts received by the assessee-company are not liable to tax as the works undertaken by them would fall under entry No. 55 of the Fifth Schedule to the Act. To resolve the controversy between the parties, the entries in the Schedule to the Act referred above require to be noticed and therefore, they are extracted. Entry No. 11 of the Sixth Schedule to the Act is as under: "11. Supplying and fitting of electrical goods, supply and installation of electrical equipments including transformers." 11.. Entry No. 55 of the Fifth Schedule as it stood before its deletion by Act No. 15 of 1996 with effect from September 5, 1996 is as under: "55. Transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract other than those specified in the Sixth Schedule." 12.. The first part of the entry No. 11 of the Sixth Schedule speaks of supply and fitting of electrical goods. The second part of the entry speaks of supply and installation of electrical equipments. The assessing authority, while concluding the assessments for the assessment year 1993-1994, had levied tax under entry No. 11 of the Sixth Schedule to the Act, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 11 of the Sixth Schedule to the Act and secondly, by no stretch of imagination, the work carried out by the assessee-company can be considered as an item falling under entry No. 55 of the Fifth Schedule to the Act. 13.. The levy of tax on works contract was made applicable by an amendment to the Karnataka Sales Tax Act, by Act No. 24 of 1984 with effect from April 1, 1984 by inserting the charging section 5-B of the Act. Under the charging provision, every dealer, subject to sub-section (4), (5) or (6) of section 5 of the Act, shall pay for each year, the tax on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule. The definition of "sale" in the definition clause is correspondingly amended to include works contract. The definition "sale" after its amendment, apart from others, would include every transfer of the property in goods by one person to another in the course of trade or business for cash or deferred payment or other valuable consideration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond part of entry 11 of the Sixth Schedule to the Act. At the cost of repetition, it may be observed that the second part of the entry speaks of, firstly, supply and secondly, installation of electrical equipment. The word "supply" also has the same meaning as "sale" so long as consideration is for supply of goods. The enlarged definition of "tax on the sale or purchase of goods" inserted in clause (29A) in article 366 of the Constitution has been availed by the State Government and accordingly, the Legislature has amended the definition of the word "sale " and also has introduced charging section 5-B of the Act, to levy tax on sales involved in composite contracts for work like buildings, bridges, roads, etc., which were not previously taxable under the Act, will now be taxable, whether or not the sales of goods are separable from the contracts for construction, erection, installation and other works. In composite contract, the property over the goods does not pass to the buyer as movable property but only as an integral part of the immovable property and therefore, even the implied sales of goods comes within the definition of "sale&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of electrical equipment" the expression "including transformers", which use of the words is only intended to convey that all the apparatus or equipment including transformers which are used for distribution of electrical energy would come under entry No. 11 of the Sixth Schedule to the Act. Keeping these settled principles in view, we have looked into the correspondence made by the contractee, namely, Karnataka Electricity Board with the assesseecompany. In that, the "project description" is provided and the same is as under: "Project description: The project envisages construction of 400 KV double circuit transmission line between Sirsi to Davanagere to an approximate distance of 104 Kms." 19.. In the documents produced before us, it is further stated that a Nuclear Power Station (Kaiga Stage-I) of two units each of 235 MWS is under construction at Kaiga situated on the left bank of Kalinadi river near Karwar. The 400 KV double circuit line from Kaiga to Sirsi and then to Davanagere is now proposed for power evacuation from the Kaiga Atomic Power Plant. The other associated 400 KV and 220 KV line works are also under construction. 20.. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Karnataka Electricity Board not only from within the State but also from outside the State and even if the assessee-company has procured the goods from outside the State, they cannot be treated as inter-State sales, because the work undertaken is on total turnkey basis. The other reason assigned by the first appellate authority is that the goods that are bought or brought from outside the State are self and the deemed sales of the goods by the assessee-company to the Karnataka Electricity Board and sales took place only when the goods so brought were appropriated and then used in the works undertaken by the Karnataka Electricity Board. It is observed by the first appellate authority that it is only after the appropriation and use of the goods, does deemed sale of the goods take place to the Karnataka Electricity Board which is liable to tax under the Act. The first appellate authority has also observed in his order that mere bringing of goods from outside the State does not create the taxable event and therefore, there is nothing to hold that the goods so used in the execution of work by the assessee-company are as a result of inter-State sale and what the contractee/Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 STC 74. 25.. Sri Anand, learned Government Advocate, tries to justify the order passed by the authorities under the Act in line with their findings and conclusion. 26.. The Tribunal in its order, without any discussion on this aspect of the matter and without even referring to the terms of the contract, according to which the movement of the materials took place from outside the State into Karnataka, has made a passing observation that in respect of goods brought from outside the State for the purpose of execution of works contract under inter-State movement cannot be subjected to levy of tax under the State law. The Tribunal makes a casual reference to the law declared by the apex Court in Gannon Dunkerley's case [1993] 88 STC 204 and Builders Association of India's case [1989] 73 STC 370. 27.. The first appellate authority also in his order does not refer to any of the terms of contract between the parties in so far as purchase of structural steel from outside the State and used in the execution of works contract. 28. The parties to these proceedings even before this Court have not produced the relevant documents to decide whether the second issue decided by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not transferred in the course of execution of works contract; (f) cost of the establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of the particular case". Therefore, the principles laid down for determination of the value of the goods involved in the execution of works contract requires to be determined as envisaged by the apex Court in Gannon Dunkerley's case [1993] 88 STC 204. 29.. In Gannon Dunkerley's case [1993] 88 STC 204 at page 234 (SC), the aforesaid principle is reiterated. In that, the court has observed: "The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the relevant criteria for determining whether a sale is an inter-State sale or not". 31.. In 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182, the Supreme Court while interpreting the expression "transfer of the right to use goods" in the State laws of sales tax, has held that the levy of tax on this class of transactions included within the meaning of sale, was not on the use of goods but on the transfer of the right to use them, the place where the goods may be located was of no relevance, provided they were in existence. The taxable event would be the execution of the contract for the transfer of the right and the situs (or location) of the deemed sale would be the place where that contract was executed. 32.. This Court in Shetty Leasing (India) Ltd. v. Union of India [1996] 100 STC 533 and Binani Industries Limited v. Assistant Commissioner of Commercial Taxes [2003] 129 STC 199 has followed the principles laid down by the apex Court in 20th Century Finance Corpn.'s case [2000] 119 STC 182 (SC). 33.. In Projects and Services Centre v. State of Tripura [1991] 82 STC 89 (Gauhati), the contractor had his place of business in Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further keeping in view the legal principles enunciated by the Supreme Court, since the Tribunal is the last fact-finding authority. 37.. In so far as the levy of turnover tax on the declared goods under the KST Act is concerned, the issue does not require a lengthy discussion in view of the proviso appended to section 6-B of the Act. Therefore, this issue requires to be answered in favour of the assessee and against the Revenue. 38.. In the result, these revision petitions are partly allowed. The impugned orders passed by the Karnataka Appellate Tribunal in S.T.A. No. 496 of 1998 dated December 23, 1998 (S.T.R.P. No. 64 of 1999) and in S.T.A. No. 303 of 1999 dated December 10, 1999 (S.T.R.P. No. 57 of 2000) are modified to the extent indicated in the course of our order. The matter is remanded back to the Tribunal to consider the second issue after looking into the terms of the contract between the parties and in the light of the law declared by the apex Court in Gannon Dunkerley's case [1993] 88 STC 204 and Builders Association's case [1989] 73 STC 370, and after affording an opportunity of hearing to the parties. In the facts and circumstances of the case, parties are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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