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TMI Blog2015 (2) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... elates to supply contract inclusive of the above of Indian origin and the third contract is restricted to a service. All the aforesaid contracts were agreed under a Turn Key Package for commissioning and setting up of the Thermal Power Project and the ownership of the plant and equipments including the spare parts procured in the country or by import shall be transferred to the DVC. A search and seizure was conducted by the Bureau of Investigation and the petitioner was directed to appear before the Investigating Officer. A final report was drawn containing the finding on the seized documents and evidence recorded during the investigation. On the basis of the return, an assessment was undertaken in terms of Section 46 of the West Bengal Value Added Tax Act, 2003 (in short VAT Act) and a demand was raised against the petitioner. The said order of assessment is challenged in this writ petition primarily on the grounds that the said assessment order is violative of principles of natural justice and the imposition of VAT on inter-State Sale or import of the goods treating the three separate contracts to be composite one. At the initial stage of hearing, the writ petition was dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring the three separate contracts, he would contend that the contract have supplied of the goods by purchase from abroad. The separate rate is provided in foreign currency, which logically infers that the sale is effected by import and, therefore, the VAT Act is not applicable. By referring another contract, he further submits that though the rates are mentioned in Indian currency but it would be evident therefrom that the supplies are to be made by procuring the goods from the other state which constitutes inter-State Sale. So far as the third contract is concerned, it admittedly relates to the services, which cannot be brought within the purview of the West Bengal VAT Act. Lastly, he submits that the Deputy Commissioner though recorded that there are three separate contracts but have misinterpreted those contracts while arriving at the conclusion that those are composite works contract by creating a legal fiction that the transfer of property in goods involved in the execution of the works contracts is deemed to be a sale for the purpose of VAT. The learned advocate for the department submits that by Fortysixth Amendment having brought in the Constitution of India, the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding contract, it is held that the same is composite and indivisible. There cannot be a sale of goods as the contractor is to construct building according to the specification enshrined in the contract and the provincial legislature or the Parliament is not competent to impose a tax on supply of the materials used in execution of the building treating the same as sale. However, it was clarified therein that where the parties have entered into distinct and separate contracts that is one fourth of transfer of materials on consideration and other for rendering services and the work done on payment of money, it would not lead to distinct and separate contracts and the power of the state to impose tax is beyond any question. The judgment rendered in Gannon Dunkerley & Co. (Madras) Ltd (Supra), the Law Commission in its 61st report suggested certain recommendations, which prompted the Forty-sixth amendment to be brought in the Constitution. By the said amendment, clause 29-A was brought under Article 366 and simultaneously clause 3 of Article 286, which originally stood was substituted by a new clause. It would be profitable to quote the aforesaid provisions brought by way of Forty-sixt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the first objection. However, on the second point of objection, it is held that the Sales Tax Laws passed by the legislature of the state levy tax on the transfer of property in goods involved in the execution of the works contracts are subject to such restrictions and conditions mentioned in the different clauses of Article 286 of the Constitution. It is further held that prior to the said amendment, the Sales Tax cannot be levied when the contract is indivisible and composite works contracts which by the said amendment is divisible by a legal fiction into one for sale of goods and other for supply of labour and services. It is thus held that the state power to levy Sales Tax on the value of the goods involved in the works contracts is preserved and has not been taken away. The matter did not raise there as it led to another point which infact was raised before the Constitution Bench of the Supreme Court by Gannon Dunkerley & Co. (Madras) Ltd (Supra), that the state cannot levy tax on transfer of property in goods involved in execution of the works contract under Entry 54 of the State list in respect of a transactions which are in the nature of sales in course of inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by transgress these constitutional limitations. Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of Article 286 which enables Parliament to make a law placing restrictions and conditions on the exercise of the legislative power of the State under Entry 54 in State List in regard to the system of levy, rates and other incidents of tax. Such a law may be in relation to (a) goods declared by Parliament by law to be of special importance in inter-State trade or commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366. When such a law is enacted by Parliament the legislative power of the States under Entry 54 in State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by Article 286(3)(a) Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act, 1956. No law has, however, been made by Parliament in exercise of its power under Article 286(3)(b)." The ancillary point arose from the core issue in the said Constitution Bench decision was that withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods and other for supply of labour and services and as a result such a contract which was single and indivisible has been brought on a par with a contract containing two separate agreements. Since the provisions of Sections 3, 4 and 5 were applicable to such contracts containing two separate agreements, thee is no reason why the said provisions should not apply to a contract which, though single and indivisible, by legal fiction introduced by the Fortysixth Amendment, has been altered into a contract which is divisible into one for sale of goods and other for labour and services. Reference may be made in this context to the oft-quoted observations of Lord Asquith in East End Dwellings C. Ltd. v. Finsbury Borough Council : "If one are bidden to treat an imaginary state of affairs as real, one must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it......The statute says that one must imagine a certain state of affairs. It does not say that, having done so, one must cause or permit one's imagination to boggle when it comes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29-A) is leviable on the goods involve in the execution of a works contract and the value of the goods which are involved in execution of the works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in Article 366 (29-A) (b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods, which is a deemed sale, if such sale takes place outside the State or in a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefrom. The Deputy Commissioner has simply proceeded on the basis that though the separate contracts are entered into between the parties but they are on a turn key basis, it partakes the character of indivisible and inseparable works contract exigible to the State Sales Tax. There is no finding recorded in the impugned order on the nature of the transaction reflected in the books maintained by the petitioner and the return filed in this regard. Since the same required a voluminous documents to be looked into which this Court has no occasion to look into it, it is not possible to ascertain whether the sale of transfer of property in goods in connection with the Inter State Sale or by import can be segregated and the said authorities is incompetent to levy tax under the State Legislation. This Court, therefore, feels that it would be proper that the Deputy Commissioner should re-look the judgment in the light of the law enunciated above and to record his findings and the reasons in relation thereto. The order impugned is thus set aside. The matter is relegated back to the Deputy Commissioner for reconsideration in the light of the observations made hereinabove. It is expected th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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