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M/s Larsen And Toubro Limited, M/s. Kehems Engg Pvt. Ltd. And Others Versus CST, Delhi/ CCE&ST, Indore/ CCE/ Rajkot and Others

2015 (3) TMI 748 - CESTAT NEW DELHI (LB)

Works contract service - taxability of service component before 1.6.2007 - Larger Bench decision - whether components of a composite transaction amounting to supply of labour/rendition of service(s), under a works contract ought to be classified only under Section 65(105)(zzzza) of the Finance Act, 1994 (the Act) - inserted by the Finance Act, 2007, w.e.f 01-06-2007; or are also comprehended within the ambit of existing (as on 01-06-2007) taxable services such as Commercial or Industrial Constru .....

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use (zzzza) in Section 65(105) of the Finance Act, 1994. - S. Tax Stay No. 59278 of 2013 in S.T. Appeal No. 58658 of 2013, S. Tax Appeal No. 550 of 2007, Service Tax Appeal No. 622 of 2007 - Interim Order Nos. 72-74/2015 - Dated:- 19-3-2015 - G. Raghuram, Archana Wadhwa, Rakesh Kumar, P R Chandrasekharan And R. K. Singh,J. For the Appellants : Shri N Venkatraman, Learned Sr. Counsel and Shri P K Sahu, Shri B L Narasimhan, Shri Puneet Agrawal, Learned Adv. For the Respondents : Shri Amresh Jain a .....

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f existing (as on 01-06-2007) taxable services such as Commercial or Industrial Construction Service (CICS);Construction of Complex Service (COCS); or Erection, Commissioning or Installation Service (ECIS). 2. Integral to our charter is the interpretation of relevant provisions of the Act. CICS; COCS & ECIS are distinct, extant services defined and enumerated to be taxable services, prior to introduction of Works Contract Service (WCS). CICS was initially introduced w.e.f 10-09-2004, termed .....

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ECIS is however not relevant to the scope of our analyses. The legislative/statutory setting, the relevant definitions, the charging and valuation provisions in respect of these services as on 01-06-2007 (the date on which WCS was inserted), would suffice for answering the reference. We extract relevant provisions of the Act, later in the judgment. 3. We have heard learned Senior Advocate Shri N. Venkataraman, for Larsen & Toubro Ltd. (L&T), an assessee/appellant; learned Advocates Shri .....

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09-2013) was incompetent and as a consequence, the special Bench coram non judice. We orally and peremptorily rejected this contention, particularly as invitation for intervention to non-appellants was to assist in answering the reference and did not extend to contesting the correctness of the reference. Revenue had already challenged and unsuccessfully the order dated 09-09-2013 and its further litigative campaign before the Hon'ble Delhi High Court failed. Shri Mittal however did not turn .....

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ve fields which are generic and those authorizing taxation are distinctly enumerated; that taxation is not an ancillary power to be deduced from the general regulatory power; that taxing power may be exerted only qua an Entry in the appropriate legislative List which specifies such power; that generic legislative fields do not inhere or accommodate taxing powers; and that taxing powers are distinctly specified and only in Lists I and II (the Union and State Lists); and not in List III (the concu .....

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the Union and States qua the mutually exclusive Lists (I&II), it is clear that powers to make laws with respect to any of the matters in the List authorized to the particular legislative level, is exclusive. This is clear from the provisions of Article 246 and the position is also normatively settled. Abstinence by Parliament or a State Legislature, from legislating at all or to the limit of its exclusively allocated powers would not have the effect of transferring to the other legislative l .....

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ions inter alia such as in Articles 252 and 253). The position is equally well settled, that residuary legislative power stands allocated to the Union under Entry 97 of List I r/w Art. 248 and that the residuary allocation does not cover fields of legislation (whether general or pertaining to taxing powers) elsewhere enumerated in Lists I, II & III of the Seventh Schedule; that Article 248 r/w Entry 97 is the last refuge, only when all Entries in the three Lists are absolutely exhausted and .....

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248 read with Entry 97 of List I. The legislative field, Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92 A of List I is assigned to States, under Entry 54, List II. All power, authority or jurisdiction consecrated under or qua the constitutional grant is limited by limitations, conditions or boundaries expressed in the organic charter, inherent therein or implied therefrom 'vide Kesavananda Bharati vs. State of Kerala (1973) 4 SCC 225. Whil .....

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ority consecrated (except to the extent specified in the Constitution), either to the federal (Union) or the provincial (State) legislature(s), to overlap, smother, swamp or trench upon taxing powers allocated to the other level. - United Provinces vs. Atiqa Begum AIR 1941 FC 16; Ref under Article 143 AIR 1965 SC 765; and In re Cauvery Water Disputes Tribunal 1993 Suppl (1) SCC 96. Thus it is, that a fiscal exertion by one level of legislation must be precisely designed and so calibrated to avoi .....

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hallenging an adjudication order confirming a demand of service tax on the consideration received pursuant to a turn-key contract executed, by characterizing it as a taxable service falling within the ambit of CICS, defined in Section. 65 (105) (25b), of the Act. The appellant filed an application (in the appeal), contending that there is an extant conflict among decisions rendered by two sets of larger (three member) benches, on whether such transactions which amount to works contracts and were .....

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ior thereto, by classification under other and pre-existing taxable services. An earlier two member Bench decision inDaelim Industrial Co. Ltd. vs.CCE 2003 (155) ELT 457 , which assumed the same position was doubted and referred to a three member Bench, by the President, CESTAT. The reference was answered in CCE vs. BSBK Pvt. Ltd. 2010 (253) ELT 522 . This three member Bench ruled that turn-key contracts could be vivisected; and discernible service elements therein abstracted and classified for .....

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only to have, if in disagreement therewith, referred the conflict/issue to a Bench of five members. Be that as it may. Sensitized to the piquant situation, the order dated 09-09-2013, opined that the noticed conflict requires reference to a larger Bench, of five members and directed the relevant papers be placed before the President, for an appropriate order. Para 15 of the order reads: Pursuant to the aforesaid analysis, since there is a conflict of opinion between Larger Bench decisions of th .....

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s under other taxable services such as commercial or industrial construction service or erection, installation and commissioning service, construction of residential complex service etc. for the period prior to 01-06-2007, must be referred to a larger bench of five members. Accordingly, we direct the Registry to place the papers before the Hon'ble President, for an appropriate decision. The President, CESTAT referred the issues for consideration of the Larger Bench. We are assembled to answe .....

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efore the Hon'ble Delhi High Court: (1) To decide whether the Misc. Order dated 09-09-2013 and the Order dated 08-08-2014 passed by CESTAT are correct; and (2) To set aside the Misc. Order dated 08-08-2014. The High Court disposed of the appeal on 11-11-2014, as under (relevant portion extracted): '2. By order dated 9 th September, 2013 passed by the Customs, Excise and Service Tax Appellate Tribunal, a 5 Member Bench was constituted to examine the question of taxability of works contrac .....

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which has been dismissed by the impugned order dated 8 th August, 2014. 5. During the course of hearing of the appeal consensus has emerged. 6. Learned Additional Solicitor General submitted that the 5 Member Bench can examine as a preliminary issue whether the question raised is covered by the decision in G.D. Builders case (supra) and in case the question raised is covered, then the matter can be closed. 7. Learned Senior Counsel for the assesse submits that he has no objection and accepts the .....

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d as disposed of and no substantial question of law may be framed. Counsel shall bring the order passed today on the basis of concessions given by the two sided to the notice and knowledge of the Special Bench of the Tribunal. 9. The appeal is disposed of'. 6. Hearing of the reference by this Bench commenced on 10-11-2014. Revenue, at commencement of the proceedings pleaded that the hearing be adjourned, to await the outcome of the appeal preferred by Revenue to the Delhi High Court. We oral .....

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r consideration of this Bench. Senior counsel Shri N. Venkataraman (representing L&T) referred to decisions inCST vs. Turbotech Precision Engineering Pvt Ltd. 2010 (18) S.T.R 545 (Kar) ; and Strategic Engineering Pvt. Ltd. vs. CCE 2011 (24) S.T.R 387 (Mad) which concluded contrary to G.D. Builders and ruled that a works contract is not chargeable to service tax prior to 01-06-2007. Shri Venkataraman further urged that theG.D. Builders conclusion (regarding assessablility of a works contract .....

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nt of a distinct provision for bringing works contract within the service tax net w.e.f 01-06-2007; the expressed legislative intent in introducing this specific fiscal measure; and other relevant statutory provisions which should inexorably have led to the singular conclusion that works contract is not chargeable to service tax prior to 01-06-2007. Had the several facets of the constitutional limits; relevant legislative provisions, the enacting history of sub-clause (zzzza) and binding ratione .....

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d on a concession by a party to a lis or a declaration without adversarial engagement and argument does not operate as an estoppel or result in a judgment having precedential vitality, reliance is placed onSuperintendent and Legal Remembrancer, State of West Bengal vs. Corporation of Calcutta AIR. 1967. SC. 997; Laxmi Shankar Srivastava vs. State (Delhi Admin) (1979) 1 SCC 229; Sanjeev Coke Manufacturing Co vs. Bharat Coking Coal Ltd. and another (1983) 1 SCC 147; Uptron (India) Ltd. vs. Shammi .....

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s have taken a diametrically contrary position (to that of G. D. Builders) on the identical issue; primary analyses of the constitutional and legislative dynamics and of the relevant statutory provisions considered in the light of applicable interpretive principles and precedential authority, is inescapable. CESTAT, a National Tribunal operates within the jurisdiction of the several High Courts in the country. It is trite that decisions of the Karnataka and Madras High Courts cannot be disregard .....

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the decisions, of the Delhi or the Karnataka and Madras High Courts are devoid of precedential vitality (on per incuriam or sub silentio grounds). Primary analyses is thus unavoidable in the circumstances. A holistic, empirical and primary analyses of the field, guided by the distillate of a large catena of precedents, is thus a point of commencement. 9. G.D.Builders analyses and the conclusion therein that works contracts are taxable prior to 01-06-2007 as well, whether based on concession and .....

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ised; and absent an argument raised before the court on all relevant aspects of a contention, it is not possible to predicate what the court would have said if the relevant considerations had been placed before it; such decision cannot be taken as finally deciding the question that is subsequently raised' vide Corporation of Calcutta (1967 S.C); 2. It is open to any party to resile from a concession once made in the court on a legal proposition; the construction of a statutory provision cann .....

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lity of a precedent, particularly when the conclusion is based on no reasoning; and 4. the applicability of a statute or otherwise to a given situation or the question of statutory liability of a person/institution under any provision of law would invariably depend upon the scope and the meaning of the provisions concerned and has got to be adjudged not on any concession made. Any such concession would have no acceptability or relevance while determining rights and liabilities incurred or acquir .....

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n by petitioners therein, that such is the position in law. 10. The G.D. Builders landscape: G.D. Builders petitioners' inter-alia contended: a. 'composite or works contracts' are excluded from the ambit of levy of service tax under Section 65(105)(zzq)&(zzzh); b. Section 65(105)(zzq)&(zzzh) apply only to 'service contracts' and not to 'composite or works contract'; and c. There is a conflict between Section 65(105)(zzzza); (zzq) and (zzzh); and what is covere .....

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ere periodically defined/introduced during 2003, 2004, 2005 and 2007. Paras 7 to 11 extract relevant provisions of exemption notifications (issued under Section 93 of the Act) and advert to challenged portions of these notifications. The specific challenge is noticed in para 11. Para 12 adverts to the genesis and evolution of service tax legislation, its gradual expansion in terms of coverage of a variety of services over time; and the current phase, of the negative list. Paras 13 to 15 advert t .....

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alone (extracted to the extent relevant to this part of the analysis). Para 18 reiterates a brief analysis and the Court's conclusions on pre and post 01-06-2007 leviability of works contract to service tax. Paras 19 to 30 refer to several judgments of, a full bench of that Court and of the Supreme Court, to support the conclusions set out in para 31. Paras 32 to 35 set out analyses of arguments regarding the impeached exemption notifications and the Court's conclusions on that aspect. P .....

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in composite contracts can be taxed but not as works contract per se; learned counsel for the petitioner further states that the respondents are also competent to bifurcate and tax the service component also. The issues presented in G. D. Builders were clearly in respect of the period prior to 01-06-2007 and works contract is a species of composite contracts, as the latter expression is understood in the world of commerce, of law and in constitutional and legislative practice. We are thus unabl .....

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s for resting the conclusions recorded, specifically in para 18 and generically in paras 31 & 36. In para 31 G.D. Builders records: The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitioners have rightly submitted that only the service component can be brought to tax as per provisions of Section 67 which stipulates that value of taxable service is the &# .....

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on of buildings with labour and material. The service portion of the composite contracts can be made subject matter of service tax. Aspect doctrine is applied for bifurcating/vivisect the composite contract; 2. Service tax can be levied on the service component of any contract involving service with sale of goods, etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely bec .....

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f a composite contract should be computed in a fair and reasonable manner and accordingly taxed. Para 18 states: Service Tax in the facts in question has been imposed in three stages. In the first stage Service Tax was imposed on construction of industrial and commercial complexes. In the second stage Service Tax was imposed on residential complexes of 12 or more residential units and in the third stage Service Tax was imposed on works contracts of any nature except for exclusion in respect of r .....

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oes not mean that we have to read down the scope and ambit of the provisions enacted levy on (enacting levy for) tax on contracts relating to 'commercial and industrial construction' service or 'construction of (residential) complexes service as specified by finance Act, 2004 (1994) and Finance Act, 2007 respectively. The new levy imposed by Finance Act, 2007 does not indicate or show that works contract relating to 'construction of industrial and commercial complexes' or  .....

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supply of material i.e. composite contract. The levy is valid when the provisions of Section 65(105)(zzh) and 65(105)(zzq) of the Act are satisfied. The only condition and requirement is that the Service Tax should be levied and imposed on the 'service' element and not levied and charged on material or goods used, as the power to levy sales tax or value added tax on the sales of goods is with the State Governments. In YFC Projects (P.) Ltd. vs. Union of India (2014) 44 GST 334, the Delh .....

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r being the product of concessions by a party to that lis (on a question of law in issue), does not commend acceptance. We reject this argument. 12. Alternatively counsel contend, G. D. Builders is per-incuriam; several of its rationes are passed sub silentio and must therefore be distinguished/ignored. On elaboration, the contention is that the several intricate, inter-dependent and manifolding principles/nuances flowing from the evolutionary history of taxation on accretional sale and purchase .....

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services (CICS, COCS, ECIS & WCS); the charging and valuation provisions of the Act; the exemption and abatement notifications issued under the Act; the speech of the Hon'ble Finance Minister while introducing Finance Bill, 2007-2008 (explaining reasons for introducing WCS as a new levy); the contemporaneous circulars issued by CBEC/TRU; the rules issued for valuation and for composition of works contracts (on and since 01-06-2007); and the settled jurisprudence ordaining a non-derogable .....

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are exclusively allocated to States, compel but the singular conclusion that works contract is enacted to be a taxable service only w.e.f 01-06-2007; and not earlier thereto. Primary analyses of the issue whether and by what legislative/statutory measures, 'sale and purchase of goods' and 'service' components of composite/works contract could be vivisected and extracted by State and Union fiscal legislation, for levy of Sales Tax and Service Tax, respectively, is thus the primar .....

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ices into the fold and/or consolidating, carving out or relocating existing services. For instance, Telephone service introduced w.e.f 01-07-1994, Pager service introduced w.e.f 01-11-1997; Facsimile, Leased Circuit, Telegraph & Telex services introduced w.e.f 16-07-2007 and Internet Telephony service introduced w.e.f 01-05-2006, were merged with Telecommunication service introduced w.e.f 01-06-2007. The frequent amendments engendered regnant conflict and litigation. Mining of mineral, oil o .....

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(14) S.T.R 289 (Bom). Bombay High Court held that the entry respecting supply of tangible goods is a new taxable service; not a carve out from the entry relating to mining of mineral, oil or gas and that earlier to 2008 supply of tangible goods for use was not a taxable service. Enumerations and definitions of relevant taxable services : Taxable services : Section 65 (105) of the Act enumerates taxable services, which are spelt out in several sub-clauses thereunder. According to this provision: .....

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ECIS and reads: to any person, by a commissioning or installation agency in relation to erection, commissioning and installation; Relevant definitions (status pre '01-06-2007): CICS : Sec. 65(25b) ' 'commercial or industrial construction service' means' a. construction of a new building or a civil structure or a part thereof; or b. construction of pipeline or conduit; or c. completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall c .....

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aged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams; COCS : Section 65(30a) - 'construction of complex' means - a. construction of a new residential complex or part thereof; or b. completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering an .....

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services such as park, lift, parking space, community hall, common iv. water supply or effluent treatment system, located with a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person. Explanation - For the r .....

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ction, commissioning or installation of plant, machinery, equipment or structures whether prefabricated or otherwise; or installation of ' (a) electrical and electronic devices, including wirings or fittings therefor; or (b) plumbing, drain laying or other installations for transport of fluids; or (c) heating, ventilation, or air-conditioning including related pipe work, ductwork and sheet metal work; or (d) thermal insulation, sound insulation, fire proofing or water proofing; or (e) lift a .....

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ices, the relevant sub-clauses resulting therefrom, were incorporated in Section 66, to authorize the levy. The expression prescribed is defined in Section 65(86) to mean prescribed by rules made under this Chapter (Chapter V). Power to exempt : Section 93' (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be specified in the notification, taxa .....

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rules. Finance Act, 2006 substituted Section 67 (dealing with valuation of taxable services, noticed infra) and also inserted clause (aa) in sub-section 2 of Section 94. This clause reads: (aa) the determination of amount and value of taxable service under section 67. Thus, the power to frame rules for the purposes set out in sub-clause (aa), is specifically provided for. Valuation of taxable services for charging service tax : Section 67, was substituted by Finance Act, 2006 w.e.f 18-04-2006.(p .....

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'For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes' (a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage by the stock-broker to any sub-broker; (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or fo .....

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such manufacturer; and (g) the commission or any amount received by the rail travel agent from the Railways or the customer, but does not include' i. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; ii. the cost of enexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service; iii. the co .....

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epair service; vii. the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service (emphasis added); and viii. interest on loans. Explanation. 2. - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. Explanation. 3. - For the removal of doubts, it is here .....

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ation of the point at which the deemed sale presumptively occurs, in respect of either CICS, COCS or even ECIS. The point at which deemed sale occurs and other deductions mandated by the federal allocation of powers is spelt out in binding curial authority, referred to later hereunder. The Valuation provision, as amended by the Finance Act, 2006, w.e.f 18-04- 2006 : Section 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, where service tax .....

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n a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of the service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amou .....

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lers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) 'gross amount charged' includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the books of account of a person .....

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amed the Service Tax (Determination of value) Rules, 2006 (the 2006 Rules). These Rules came into force w.e.f 18-04-2006 (contemporaneous with Section 67 as substituted w.e.f 18-04-2006). To the extent relevant for our analyses, suffice it to note that upto 01-06-2007 (introduction of WCS as a taxable service), the 2006 rules contained no provision for valuation of complex issues of computation which have a critical bearing on federal context competence issues, inevitably presented in works cont .....

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al Consultants & Technocrats Pvt. Ltd 2013 (30) STR 347 (Del) (by the Delhi High Court) as being beyond the scope and ambit of the charging provision and thus ultra vires Section 67 of the Act. Rule 6 of these Rules enumerated cases in which the commission, costs, etc., will be included or excluded; and set out 9 categories of inclusions which are comprehended within the scope of the value of taxable services (set out as sub-clauses (i) to (ix) in sub-rule (1) thereof); and 4 elements which .....

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Section 67 read: but does not include - (vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; While the included and excluded components for valuation of a taxable service were part of the Act itself, under Section 67 (prior to 18-04-2006), these are now (excised from the Act but) enumerated in the 2006 Rules; but for the significant (by design or default) omission of sub-clause (vii), adverted to e .....

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the service tax leviable (under the Act) in respect of the taxable service(s) specified therein. At the least, an exemption notification evidences the Executive (Central Government's) assumption that the exempted quantum or percentage of tax is that which is leviable under the Act. Now to the Notifications: Notification No. 12/2003-ST, dated 20-06- 2003 : - exempts so much of the value of all taxable services, as is equal to the value of goods and materials sold by the service provider to th .....

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d Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent of the gross amount charged from any person by such commercial concern for providing the said taxable service: Provided that this exemption shall not apply in such cases where ' (i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the commercial concern has availed the benefit under the notification of the .....

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ication No. 01/2006-ST, dated 01-03- 2006 : ...... exempts the taxable service of the description specified in column (3) of the Table below and specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under Section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by .....

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to the commissioning and installation agency. Explanation - The gross amount charged from the customer shall include the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service. 33 7 zzq Commercial or industrial construction service. This exemption shall not apply in such cases where the taxable services provided are only completion and finishing servic .....

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plex, referred to in sub-clause (b) of clause (30a) of Section 65 of the Finance Act. Explanation - The gross amount charged shall include the value of goods and materials supplied or provided or used for providing the taxable service by the service provider. 33 Provided that this notification shall not apply in cases where,- (i) the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken unde .....

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tion/abatement notifications issued under Section 93; and the 2006 rules for determination of valuation, as were in force during the relevant period w.e.f which CICS, COCS & ECIS were promulgated to be taxable services and upto 01-06-2007, the date w.e.f which WCS is enacted to be a distinct taxable service. Exemption/abatement notification Nos. 12/2003-ST; 15/2004-ST; 04/2005-ST; and 01/2006-ST, however continue in force even after 01-06-2007. We now extract and advert to provisions of the .....

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this service is specified to be a taxable service and is defined in: Section 65(105) : 'taxable service' means any service provided or to be provided; (zzzza) 'to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation 'For the purposes of this sub-clause, 'works contract' means a contract wherein, - (i) transfer of prope .....

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work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or completion and finishing service, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or .....

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67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), eferred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the .....

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t's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; (ii) Where Va .....

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wers conferred by Section 93 (Power to exempt) and by Section 94 (Power to make rules) of the Act, the Works Contract (composition scheme for payment of service tax) Rules, 2007 was issued by Notification No. 32/2007-ST dated 22.05.2007, brought into force w.e.f. 01.06.2007. Relevant provisions of these rules are: 2. Definitions. - In these rules, unless the context otherwise requires,- (a) 'Act' means the Finance Act, 1994 (32 of 1994); (b) 'section' means the section of the Act .....

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ice tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to two per cent of the gross amount charged for the works contract. Explanation.- For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may .....

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ontract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract'. 14. The per incuriam and sub-silentio principles : It is contended, that the G. D. Builders conclusion(that works contract is subject to the levy of service tax prior to 01-06-2007 as well, under earlier provisions [like (zzq) & (zzzh)]; that these earlier provisions legitimately signal the authorization to charge works contrac .....

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tion of these elements in a composite transaction; and that computation of service component(s) is a mere matter of detail, a procedural and calculation aspect and not a matter touching upon the validity of the impost/tax or one relating to legislative competence), are conclusions which are fundamentally flawed, contrary to settled jurisprudence in the area; and rest on inadequate and clearly erroneous statutory and precedent analyses. Counsel contend that the manifest error in G. D. Builders co .....

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Controller, KSRTC vs. Mahadeva Shetty and Another (2003) 7 SCC 197 • Purvanchal Cables & Conductors Pvt. Ltd. vs. Assam Electricity Board and Anr. (2012) 7 SCC 462. The above decisions explicate the following principles: (a) in practice per incuriam means per ignorantium (founded on ignorance). (b) This rule developed to relax the rigour of the rule of stare decisis. The quotable in law is avoided and ignored if it is rendered in ignorantium of a statute or other binding authority ' .....

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nounces upon. It may be shown, however, that logically the court should not have decided in favour of the party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub-silentio. Precedents sub-silentio and without argument are of no moment (emphasis added); (d .....

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without argument are of no moment. Mere casual expressions carry no weight at all, nor exery passing expression of a Judge, however eminent, can be treated as an ex cathedra statement having the weight of authority; (f) A decision which predicates its conclusions in ignorance of relevant statutory provisions, binding precedents or other binding authority, is said to be per incuriam; and (g) Dias explains that one shade of meaning to be attached to the expression ratio decidendi is: The rule of .....

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d Madras High Court decisions by reference to the different taxable services involved and the facts considered therein, designedly glossing over and ignoring the fact that the decisions clearly and categorically record the conclusion that the transactions in issue therein were works contracts and WCS was not a taxable service prior to 01-06-2007. 16. We are conscious that judgments of High Courts are binding precedents on the CESTAT (a Tribunal) 'vide East India Commercial Co. Ltd. vs. Colle .....

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evant principles in this area are brought to our consideration. 17. Before we test judgments in G. D. Builders; Turbotech Precision Engineering Pvt. Ltd; and Strategy Engineering Pvt. Ltd on the anvil of per incuriam and sub-silentio principles, we must and do proceed to consider and analyse the several contentions by Ld. Counsel for assessees and Learned A.R's representing Revenue: • on the evolutionary history of service tax and of works contract; • the jurisprudence of taxation .....

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egorically and employ unambiguous and appropriate verbal formulae, to so signify its specific intention; • alternatively, whether ambiguous or overbroad significations would suffice; • whether the cornucopia of extant statutory instruments (provisions of the Act and the relevant Rules made thereunder, during the period upto 01-06-2007) compel non-discretionary and non-arbitrary exclusion(from the measure of service tax) of those components of composite transactions which are beyond the .....

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: Written and rejoinder submissions are filed on behalf of L&T and Revenue. Shri Puneet Agrawal has also filed written submissions. These reiterate and supplement in brief, the oral arguments. We therefore summarize the respective oral and written submissions. Shri Sahu has also filed written submissions, in elaboration of oral argument and propounds bases distinct from those of L&T and other counsel. We deal with Shri Sahu's contentions/submissions later. We also integrate contentio .....

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sed on this special Bench by the Delhi High Court decision dated 11-11-2014, are wholly misconceived and proceed on elementary misconception of the High Court's order. Neither was any concession made on behalf of L&T before this Bench that the G. D. Builders decision covers the issues referred nor did the High Court declare that G. D. Builders is the sole or a binding precedent. Revenue submissions in this area are false, frivolous, absolutely incorrect and denied in toto; - are grossly .....

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hat belong to the genus - contracts; 03. Prior to the 46 th Amendment to the Constitution, sale of goods was not defined in the Constitution. Several States however legislated to levy sales tax on the goods portion involved in works contracts. Challenges to such State legislations eventually gravitated to the Supreme Court. The first Gannon Dunkerley decision ruled that States had no legislative competence to tax the sale of goods component(s) in works contract, on the basis of the interpretatio .....

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y passing therein pursuant to an Agreement. The Court explained: In a building contract which is, as in the present case, one entire and indivisible and that is its norm, there is no sale of goods and it is not within the competence of the provincial legislature under Entry 48 to impose a tax on the supply of materials used in such contract treating it as a sale (emphasis added); 04. As a consequence of the first Gannon Dunkerly ruling and pursuant to the 61 st Law Commission recommendations, th .....

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ression by an inclusionary clause, embracing the six categories of transactions, set out in sub-clauses (a) to (f). Sub-clause (b) reads: 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; 05. The 46 th Amendment expanded the locus of the legislative field enumerated in Entry 54 of List II and thereby facilitated States the authority to levy tax, inter alia and vide sub-clause (b), on the transfer (by way of accretio .....

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being considered a fiscal legislative measure, as is the mandated requirement under Article 265; 07. Parliament, qua residuary legislative powers allocated to it has, since inception of the Constitution, the authority to charge and levy tax on services. States however derived legislative authority, to charge and levy tax on sale or purchase of goods (whether as goods or in some other form) involved in the execution of a works contract, pursuant to the 46 th Amendment expanding the scope of Entr .....

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f the appropriate legislature intends to introduce a measure to levy tax on service components or on the goods components involved in execution of a works contract, as the case may be; legislation clearly signifying that the appropriate legislature has evinced the intention to tax services or sale of goods, is a non-derogable constitutional requirement; 08. Building contracts (of the works contract variety) inhere components of both, labour/service(s) and deemed transfer of property in goods; th .....

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t be so designed as to ensure avoidance of trenching upon or encroachment into the domain of the other level of legislature; 10. If the legislation by one level accommodates levy of tax by including the value of components which, under our federal constitutional arrangement stand allocated to the other level of legislature, by conscious design or a structural or phraseological overreach qua provisions of the relevant Statute, such legislation would seriously be in jeopardy on constitutional inco .....

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bour/rendition of services; and corresponding provisions of State legislation, intending to tax transfer of property in goods, involved in the execution of a works contract, must clearly and expressly signify the intention to restrict the levy to those aspects of such composite transactions, as fall within their respective and authorized fields of legislation qua the appropriate Entry in List I or List II, as the case may be; 12. Since it is the settled interpretive principle, that a legislation .....

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efinitions of CICS, COCS and ECIS do not signify the categorical legislative intent to levy tax on work contracts. The charging and valuation provisions (Sections 66 and 67) nor even contemporaneous delegated legislation (prior to introduction of sub-clause (zzzza) in Section 65 (105), w.e.f 01-06-2007, issued under Section 94 of the Act), mandate or even signal exclusion (of components comprising transfer of property in goods involved in the execution of works contracts), from the gross conside .....

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arging and valuation provisions (Sections 66 & 67) do not authorise levy of service tax on works contract; the charging and valuation provisions (prior to 01-06-2007), on a true and fair construction thereof, clearly authorize levy of tax at the specified rate on the gross consideration received for rendition of the taxable service. 'Works Contract' is defined and the charge and levy thereon is enacted for the first time by the provisions of the Finance Act, 2007; 16. Notifications b .....

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he whole or any part of the service tax leviable thereon. On text and in context, Section 93 authorizes grant of exemption only in respect of the taxable value of a taxable service; 17. Section 93 does not confer rule making powers. Consequently, exemption notifications do not amount to delegated legislation. A provision requiring laying of exemption notifications also before Parliament, even where such requirement is identical to a similar requirement in respect of Rules made under the Act (i.e .....

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eclipse the legislated levy. Therefore, exemption notifications cannot logically elucidate or augment the scope of taxable services, the charging or the valuation/computation provisions of the Act; 18. in fact, exemption notifications issued under the Act [excluding the value of the transfer of property in goods involved in execution of composite contracts from the scope of the gross value charged (under Section 67) or providing for a composition schemata involving abatement packages] indicate .....

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identification of the reach and contours of the Act. Legislation must be construed solely on the text/language of the enactment; 20. Since the transactional value subject to levy of service tax cannot (including as a measure for the levy) extend to those elements of composite transactions which stand exclusively allocated to States under Constitution's mutually exclusive distribution of taxation powers, the Act itself must express the restrictive scope i.e., must explicitly ordain and in cl .....

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omit to provide for computation norms restricted to the value of taxable service elements integrated within complex and indivisible transactions, the charging provision itself is rendered brutum fulmenand fails; 22. Prior to 01-06-2007 no charging provision was enacted in the Act, explicitly authorising levy of service tax on works contracts, signifying the legislative intention to levy tax on works contract. Such intention is categorically verbalized only by the Finance Act, 2007. The speech of .....

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eunder; Summary of Revenue position : 01. It is settled (it is therefore a given) that G. D. Builders is a binding precedent, even though other decisions of other High Courts on this subject could be stated to the CESTAT to assist them to arrive at a decision (para 1. of Revenue's written submissions); 02 Counsel for L&T admitted during submissions (before this Bench) that the reference is covered by the G. D. Builders decision. Consequently, unless L&T places contrary decisions, of .....

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n 2005; and COCS introduced in 2005. From 01-06-2007 all species of 'works contract' were brought to taxation except in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams vide Section 65(105)(zzzza). Section 66 imposes a charge an all taxable services enumerated in different sub-clauses of Section 65(105); 04. Section 67 is a general provision for valuation of all taxable services. The measure of taxation is further refined to suit specific situations ei .....

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Since it is not the intention of Parliament to levy service tax on these elements, Government issued Notification No. 12/2003'ST, for all services including construction contracts wherein the value of goods and materials used in providing taxable services was exempted. Consequently, the scope of the levy of service tax is restricted to the service aspect; and goods and material portions is excluded from the ambit of the levy; 06. In recognition of the practical difficulties in providing pro .....

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eviable, both prior and subsequent to 01-06-2007; earlier under CICS, COCS and ECIS and since the Finance Act, 2007 under WCS, w.e.f 01-06-2007; 09. Rules issued under Section 94 and notifications issued under Section 93 are two distinct kinds of legislative instruments, employed for taxation of construction services. Sections 93 & 94 exertions are both subordinate legislation; Rules are issued to carry out the purposes of the Act and power is delegated to issue exemption notifications, whic .....

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ve scrutiny in view of the provisions in Chapter XXI of the Rules of Procedure and Conduct of Business in Lok Sabha. 11. The ruling in Govind Saran Ganga Saran is distinguishable. Unlike in that case, where the Chief Commissioner by a notification had specified the point of taxation and despite power conferred by the legislation on the State Government to issue a Notification, and therefore (the Chief Commissioner's notification was) invalidated, in the present case the integrated statutory .....

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been conceded is merely a reiteration of the legal principle that all construction contracts can be vivisected for levy of taxes; 13. The decision in G. D. Builders was considered and reiterated in YFC Projects (P) Ltd. by the Delhi High Court, which further observed: The grievance of the petitioner with regard to assessment and computation cannot be equated with the challenge to the constitutional validity of the impugned provision. It is open to the petitioner to raise issues of computation b .....

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its calculation are to be construed by ordinary rules of construction. Whereas a liability has been imposed on a dealer by the charging section, it is well-settled that the court would construe the statute in such a manner as to make the machinery workable; 15. G. D. Builders is not per incuriam since it considered various judgments and analysed these with reasons; 16. The G. D. Builders ruling has been followed by several decisions of CESTAT; and 17. The Turbotech Precision Engineering Pvt. Lt .....

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CS, COCS and ECIS. Works contract is a generically distinct species of contractual arrangements and a lawful inhabitant of the commercial world. It has come to be so recognized in law, in jurisprudence and in curial discourse and exposition. This distinct commercial phenomenon inheres in its architecture facially indivisible (but legally distinct for taxation purposes) elements of sale or purchase of goods (by incorporation or accretion); and of supply of labour/rendition of services. These cons .....

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and measure of tax conflicts were pursuant to State-centric claims/demands predicated on State legislative provisions. To unravel the complex and nuanced conflicts, an impressive body of curial pharmacopea emerged. A study of the several precedents in the area reveals the trial, error and stabilization progression in the understanding of the jural framework required for managing the delicate balance, between competing and insular federal context taxation regimes qua works contracts. Precedents .....

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to exclusive provincial (State) legislation, under Entry 48 of List II of the G.O.I Act, 1935 (corresponding to Entry 54, List II of the Constitution). Several States ushered in legislation to levy sales tax on works contract and incorporated legislative/statutory provisions creating appropriate charging provisions and provisions for confining the levy to the transfer of property in goods involved in the execution of a works contract. Challenge to such State exertions on grounds inter alia of le .....

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goods' requires an agreement between the parties for the sale of the very goods in which eventually property passes; that sale of goods is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement; that in a building contract (which is, as in the present case, one, entire and indivisible 'and that is its norm), there is no sale of goods; that such building contract is a distinct species of the family .....

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posite indivisible works contract. note: It requires to be noted that neither in the context of the facts involved nor from the magisterial and clinical analyses in the first Gannon Dunkerley judgment, is the principle discernable that even if there be constitutional authority to tax composite and indivisible works contracts, State legislatures were yet incompetent to vivisect/bifurcate such composite transactions and confine the levy of tax to the sale of goods elements involved therein. The es .....

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x categories of transactions (not conventionally considered as sale of goods) were deemed to constitute sale and purchase of goods, thereby pro tanto expanding the scope of Entry 54, List II. The Statement of Objects and Reasons appended to the 46 th Amendment, with reference to works contract sales, stated: while in the case of works contract, if the contract treats the sale of material separately from the cost of labour, the sale of materials would be taxable but in the case of indivisible wor .....

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on the sale or purchase of goods' includes - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (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) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any foods for any pu .....

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vice, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made; 03. Challenge to the 46 th Amendment and whether the power of State legislatures extends to levy of tax on the transfer of property in goods involved in the execution of a works contract, r .....

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Post the 46 th Amendment as well, the power of States to levy taxes on sales and purchases of goods including on 'deemed' sales and purchases of goods under clause (29-A) of Article 366 is only qua and under Entry 54 of List II and not outside it; After the 46 th Amendment works contract which was an indivisible one is by legal fiction altered into one which is divisible into one for sale of goods and the other for supply of labour and services. It has (since) become possible for States .....

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any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to sales tax. So construed the expression 'tax on the sale or purchase of goods' in Entry 54 of the State List, therefore, includes 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 also; The tax leviable by virtue of sub-clause (b) of clause (29-A) of Article 366 is thus subject t .....

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State of Rajasthan and others (1993) 088 STC 0204 (the second Gannon Dunkerley), validity of provisions relating to imposition of tax on the transfer of property in goods involved in the execution of a works contract, contained in sales tax laws of Rajasthan, Tamilnadu and Andhra Pradesh States was impeached on several grounds. The constitution Bench ruled: The expression 'tax on the sale or purchase of goods' in Entry 54 of List II includes a tax on the transfer of property in goods (w .....

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nder Entry 54 does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or in the course of import or export of goods. While enacting a law imposing a tax on sale or purchase of goods under Entry 54 of List II r/w Article 366 (29-A)(b), it is impermissible to the State legislature to make a law imposing a tax on such deemed sales which constitutes a sale in the course of inter-State trade or commerce under Section 3, an outside sale under Section 4, a sal .....

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transfer of property in goods involved in the execution of works contract is not however contingent upon nor is eclipsed till enactment of a law by Parliament under Article 286(3)(b); so however that in the event of such law having been made by Parliament, the exercise of State legislative power under Entry 54, to impose a tax of the nature referred to in sub-clauses (b), (c) and (d) of Article 366(29-A), would be subject to restrictions and conditions in regard to the system of levy, rates and .....

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act. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. Incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer of property in the goods and therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure .....

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Thus : (a) labour charges for execution of the works; (b) amount paid to a sub -contractor for labour and services; (c) charges for planning, design and architect's fees; (d) charges for obtaining on hire machinery and tools used in the execution of the works contract; (e) cost of consumables such as water, electricity, fuel etc., which are consumed in the execution of a works contract; and similar expenses for labour and services; (f) cost of establishment of the contractor to the extent i .....

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the domain to the goods involved in the execution of a works contract (excluding charges relating to the contract for supply of labour and services). The exclusion is the consequence of constitutional limits upon States' legislative reach, under Entry 54, List II. other deductions mandated qua provisions of the Central Sales Tax Act, 1956 : The value of goods which are not taxable in view of Sections 3, 4 and 5 of the Central Sales Tax Act; goods covered by Sections 14 and 15 of this Act; an .....

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ruled: The legislature (in the Rajasthan Sales Tax Act) has not made any express provision for exclusion of transactions constituting deemed sales which take place in the course of inter-State trade or commerce or outside the State or in the course of import or export in relation to which the State Legislature lacks the competence to impose tax under Entry 54 of the State List; Not has any provision been made with regard to sale of goods which are declared to be of special importance in inter-S .....

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of 'taxable turnover' in Section 5(3), has enlarged the field of taxability to permit levy of tax on sales in the course of inter-State trade and commerce, sales outside the State and sales in the course of import and export and to ignore the conditions and restrictions placed by Section 15 of the Central Sales Tax Act in relation to imposition of tax on goods which are declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act. T .....

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he constitutional validity of a statute has to be determined on the basis of its provisions and on the ambit of its operation as reasonably construed and if, so judged, it does not pass the test of constitutionality it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requirements. Rules made under the Rajasthan Sales Tax Act would not, therefore, be of any assistance in resolving the question regarding the validity of Secti .....

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vs Union of India 2006 (2) STR 161 (SC) . Relevant for our guidance in this lis is the conclusion: -, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the handset if any. That and any other accessory supplied by the service provider in our opinion remain to be taxed under the State Sales Tax Laws (para 78). The Court clarified that there may be circumstances i .....

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o be included in the sale of goods or the price of goods in the value of the service (para 85.E, emphasis added). 06. A two judge Bench in Larsen & Toubro Ltd. vs. State of Karnataka (2008) 17 VST 460 (SC) , doubted the correctness of an earlier decision in K. Raheja Development Corporation vs. State of Karnataka (2005) 5 SCC 162 and referred the matter for the consideration by a larger Bench. The reference was answered by the constitution Bench in Larsen & Toubro Ltd. vs. State of Karna .....

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ions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form. b) For the purpose of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three conditions are fully met. It is so because i .....

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res of works contracts, not restricted to one specie i.e., a contract to provide for labour and services alone. d) Building contracts are a specie of works contract. e) In a composite/works contract the distinction between a contract for sale of goods and for work/service is virtually diminished. f) Even if the dominant intention of the contract is not to transfer the property in goods and is for rendition of service or the ultimate transaction is transfer of immovable property, then too it is o .....

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thereof (emphasis added). h) Post the 46 th Amendment Entry 54, List II facilitates enacting a charge for levy of sales tax on the goods element even after incorporation, provided the tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of the goods which can constitute the measure for the levy of tax has to be the value of the goods at the time of incorporation of the goods in works even though the property passes, as between the develo .....

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or a 'works contract' was the core issue considered by the recent decision in Kone Elevator (India) Pvt. Ltd. vs. State of Tamil Nadu 2014 (304) ELT 161 (SC) . Correctness of a three judge Bench ruling in State of A.P vs. Kone Elevator (India) Ltd (2005) 3 SCC 389 was doubted and the reference ensued. The constitution Bench again and exhaustively surveyed the entire gamut of jural and constitutional aspects involved; the by now formidable body of relevant precedents; the post 46 th Amend .....

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treating an agreement as a works contract is inapplicable; (iii) the term works contract employed in Article 366(29-A)(b) includes all genre of works contract and is not to be restrictively construed to cover one species of contract i.e., to provide for supply of labour and services alone; and (iv) once the characteristics of works contract are fulfilled in an agreement between the parties, any additional obligation incorporated therein would not change the nature of the contract (emphasis adde .....

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service as a natural corollory, it would be a works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and accordingly, we unhesitatingly repel the same wards fabrication and installation o .....

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005 (three judge Bench) decision in Kone Elevator (India) Pvt. Ltd. does not correctly lay down the law and is accordingly overruled. 08. In Hotel Dwaraka, Hyderabad vs. Union of India. (1985) 058 STC 0241, the Andhra Pradesh High Court rejected the contention by the State that the 46 th Amendment and the consequent expansion of the scope of Entry 54 of the State List (vide sub-clause (f) of Article 366 (29-A) was sufficient authority for levy of sales tax on supply of eatables and beverages to .....

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quashed the impugned provisional assessments; 09. The Patna High Court in Larsen and Toubro Ltd. vs. State of Bihar. (2004) 134 STC 0354 (Pat), quashed the impugned assessment orders on the ground that Rules (framed under the relevant State sales tax Legislation) did not fully follow upon and incorporate the necessary computation/machinery provisions for all requisite deductions from the value of works contracts relatable to labour/services and allied charges, as pointed out in the second Ganno .....

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w is not the handmaid of the State Government, observed the Court; 10. In Larsen and Tourbro Ltd. vs. State of Tamil Nadu. (1993) 088 STC 0289 (Mad), the Madras High Court rejected the challenge to and read down provisions of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 (the provision was introduced by the TNGST (fourth Amendment) Act, 1986), which provided for levy of tax on the 'turnover' and not on the 'taxable turnover'. The Court explained that the levy and coll .....

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STC 248 (SC) (the second Builders Association of India). Orders passed and action initiated on the basis of these rules were declared invalid in law; liberty was given to the State to effectuate Section 3-B, by appropriate legislation, including subordinate legislation in accordance with the principles and dicta laid down in the second Gannon Dunkerley and the second Builders Association of India decisions; 11. In Sundaram Industries Ltd. vs. CTO and others. (2002) 128 STC 358 (Mad), the Madras .....

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s is specified in the sales tax legislation of the State would have no bearing on the chargeability of tax on such sales. The transactions in issue pertained to the assessment year 1987-88, prior to amendment to the Central Sales Tax Act, 1956 incorporating (only in 2002) provisions for levying Central Sales Tax on inter-State works contracts. The Tamil Nadu levy was thus declared as beyond the legislative competence of the State; 12. The Supreme Court, in Jharkhand vs. Voltas Ltd. (2007) 7 VST .....

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Larsen and Toubro Ltd. vs. State of Orissa (2008) 012 VST 0031 (Orissa) Challenge, to vires of certain provisions of the State legislation was eschewed in oral argument but the challenge to two circulars (dated 30-07-1999 & 09-02-2001), issued by the Commissioner of Commercial Taxes was pressed. The 1 st Circular referred to an earlier Circular dated 07-04-1986 which stipulated specified percentage deductions for specified categories of works contracts, towards labour charges and directed th .....

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ed that the assessee's liability to remit tax remains but in order to assess, the State has to frame Rules under its rule-making powers and thereafter the assessing authority can pass fresh orders of assessment, on the basis of such statutory Rules. In the absence of any statutory basis for calculation of the taxable turnover, the Act remains unworkable and the gap/hiatus in the statute cannot be filled up by purely ad hoc and administrative circulars, ruled the Court and observed: It is a w .....

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gh vs. State of U.P AIR 1962 SC 1563pointed out: - if a taxing statute makes no specific provision about machinery to recover tax and the procedure to make assessment of the tax and leaves it entirely to the executive to device such machinery as it thinks fit and to prescribe such procedure as appears to it to be fair, an occasion may arise for the courts to consider whether the failure to provide for a machinery and to prescribe a procedure does not tend to make the imposition of the tax an unr .....

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the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the legislature can be taxed by the legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxi .....

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ts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes (emphasis added); c) In C.I.T., Bangalore vs. B.C. Srinivasa Setty (1981) 2 SCC 460 , the issue was whether goodwill generated in a newly commenced business is .....

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titute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such conclusion. It must be borne in mind that the legislative intent is presumed to r .....

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the fundamental integrality of the statutory scheme provided to each head (emphasis added); d) The interplay of Sections 14 & 15 of the Central Sales Tax Act, 1956 imposes certain restrictions and prescribes certain conditions to be fulfilled in a State sales tax legislation. In respect of goods declared under the former provision to be of special importance in inter-State trade and commerce, the later provision prescribes the maximum rate at which the turnover of such goods may be subjecte .....

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The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and def .....

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deductions/exclusions in respect of charges for and in respect of labour and services and of components not taxable under provisions of the Central Sales Tax Act, 1956 (in the Rajasthan Sales Tax Act, 1954), led to a declaration of invalidity of certain provisions of the State Act and the 1957 rules made thereunder, in the second Gannon Dunkerley judgment of the constitution Bench (considered and analysed in detail supra); f) The Supreme Court in Mathuram Agrawal vs. State of Madhya Pradesh (199 .....

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ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law; and it is then for the legislature to the needful in the matter (emphasis added); g) In M/s. K. Damodarasamy Naidu & Bros. and others vs. The State of Tamil Nadu AIR 1999 SC 3909 the constitution Bench considered the entitlement of States to levy tax on the sale of food and drink. Levies and demand of sales tax on food and beverages supplied in restaurants etc., was challenged in respect of legisl .....

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the food and drink elements of the composite charge; but contended that no Rules need be framed and Sales tax officers would make assessments depending on the facts of each individual case (para 12). The constitution Bench, in the context, observed: It is in practical terms impossible for the sales tax authorities to make assessments upon the basis of the facts relevant to each individual customer in each individual hotel. Generalisations are, therefore inevitable and there is every likelihood .....

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pply of food and drink on hotel owners who provide lodging and boarding arrangements for a composite sum until it frames Rules that set out formulae for such assessment which take into account of the fact that residential hotels may provide lodging and full or part board. If the Rules are framed by 1 st June, 2000 the assessments that are not completed only by reason of this order may be proceeded with. If the Rules are not framed by the said date, these assessments shall lapse. No proceedings f .....

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Act, 1994 was not legally sustainable to the extent tax on the first point of sale of drugs, medicines or any formulation or for that matter any other commodity by a manufacturer/wholesaler/distributor to retailer where 'Minimum Retail Price' is published on package, measure to which rate of tax is to be applied cannot be with reference to such published MRP which is neither charged on sales or on purchase by the parties to sale under Section 4-A and the concerned Notification in this r .....

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identified. The Court further observed that the subject of the tax (in that case) being sale, the measure of tax for the purpose of quantification must retain the nexus with 'sale' which is the subject of the tax. The Court continued: primarily the rate of tax relates to the measure of tax to come into existence simultaneous with the occurrence of the taxing event. The machinery provisions relating to its quantification and collection can take place later. Providing measure to which the .....

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rinivasa Settyand Govind Saran Ganga Saran. Revenue places substantial reliance on the last phrase in para 27 of the Mahim Patram ruling. This ghost of the Revenue misconception, founded on a comminuted reading of this single phrase in a sentence in the judgment, must be exorcised. We therefore analyse Mahim Patram in some detail. The relevant phrase in the judgment, which is the lynchpin of Revenue's assumption (that failure to frame appropriate Rules under the Act, prior to 01-06-2007 does .....

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ecedents. Thus, while applying the decision in a later case, the later Court must ascertain the true principle laid down by the previous decision, in the context of the questions involved in that case from which the decision takes its colour. The later court would not be bound by those reasons or propositions which were not necessary for deciding the previous case; the later Court should not unnecessarily expand the scope and authority of a precedent; and the reasoning of one decision can not be .....

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g Works (P) Ltd. vs. Collector of Central Excise, Meerut (1997) 1 SCC 203; Singla O.P vs. Union of India(1984) 4 SCC 450. It is equally impermissible to read a sentence from a judgment of the Supreme Court, divorced from the complete context in which it was given and to build up a case treating as if that sentence is the complete law on the subject 'vide J.K. Industries Ltd. vs. Chief Inspector of Factories and Boilers (1996) 6 SCC 665; Sukhwant Singh vs. State of Punjab (1995) 3 SCC 367. Th .....

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nded Section 2(g) of the Central Sales Tax Act, 1956. The assessing authority however, relying on or on the basis of Section 9(2) of the Central Act applied the provisions of the U.P. Trade Tax Act, 1948 and the Rules framed thereunder for calculating the sale price of the transfer of property in goods involved in the execution of a works contract in the course of inter-State trade or commerce, for Assessment years 2002-03 and 2003-04 (para 7); the issue : Appellant contended that in the absence .....

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of the quantum of tax and provisions of Sections 9 & 13 of the Central Act set out the mode and manner whereby the quantum of tax is required to be determined (para 11); Mahim Patram analyses and conclusions : Mahim Patram found: (i) Section 2(g) was substituted (by Finance Act, 2002) to encompass works contract sales within the definition of sale, in the Central Sales Tax Act, 1956; (ii) in 2005, the Act was further amended incorporating clause (ja) defining works contract; (iii) in Sectio .....

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e, on behalf of the Central Government to assess, reassess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act, as if the tax, or interest or penalty payable by a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions r .....

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l) Act and the rules made under sub-section (1), to carry out the purposes of this Act (para 18); (vii) the State (U.P) introduced necessary amendments in the State's 1948 Act; and (viii) framed the Central Sales Tax (U.P) Rules, 1957 and amended the U.P Trade Tax Rules, 1948, Rule 44-B whereof set out provisions for determination of turnover of goods involved in the execution of works contracts; being an adequate matrix of provisions to enforce a levy on deemed sales involved in works contr .....

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ales tax legislation which formed the basis and foundation for the Court's observations, including in para 27 of this judgment. We analyseMahim Patram in greater detail later in this judgment. j) In C.I.T, Bangalore vs. Infosys Technologies Ltd. (2008) 2 SCC 272 , the Court quoted with approval the decision in Govind Saran Ganga Saran, observing at para 7:in Govind Saran Ganga Saran this court held that there are four components of tax. The first component is the character of the imposition, .....

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9; (emphasis is in the judgment); k) In PNB Finance Ltd. vs. Commissioner of Income Tax' I, New Delhi (2008) 1 SCC 94 the question, whether in the facts and circumstances of the case, transfer of Banking Undertaking gave rise to taxable capital gains under Section 45 of the Income Tax Act, 1961, fell for consideration. Suffice it to note, for our purposes that the Court found that there were, at the relevant time, no computation provisions in that Act as would be applicable to the transactio .....

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ended to fall within the charging section, which, in the present case, is Section 45 (emphasis added). This judgment followed its earlier ruling in B.C. Srinivasa Setty, and concluded that since it was not possible to compute capital gains, the specified amount was not taxable under Section 45 of the 1961 Act; l) In Heinz India Pvt. Ltd. vs. State of Uttar Pradesh & Others (2012) 5 SCC 443, the question whether the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 is ineffective to sustain the levy .....

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r an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge; and the fact, whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case. m) Levy of Entertainment Tax on DTH (direct to home broadcast provided by the a .....

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s no application to DTH and thus provisions of this Act cannot be extended to cover DTH operations. In an alternate defense, the State relied on a Gazette notification, dated 05-05-2008 issued under Section 3(1) of the 1936 Act (fixing the percentage of duty leviable in respect of every payment made for admission to an entertainment), to sustain the impugned levy. The Court rejected this contention observing: it is elementary that a notification issued in exercise of powers under the Act cannot .....

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operations under the 1936 Act prior to the issuance of the notification dated May 5, 2008 as fairly stated by Mr. Dave, we fail to see how the duty can be levied under the 1936 Act after the issuance of the notification. analyses of other precedents, proferred by Revenue to contend that computation/machinery provisions are neither essential nor a prerequisite : Apart from Mahim Patram (considered supra), Revenue relied on Asst Commissioner, Central Excise vs. National Tobacco Co. of India Ltd ( .....

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Rules made thereunder are not a sine qua non for inferring existence of a charge of tax on works contract; (b) that CICS, COCS & ECIS as defined, include supply of labour in relation to /rendition of these services, even where these are provided as part of a works/composite contract; and (c) that computation/valuation/machinery provisions in sales tax legislations by States validly constitute a supporting architecture for proper execution of provisions of the Act, i.e., for lawful levy of se .....

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a demand in special circumstances not forseen by the framers of the Act or the rules; and there is no express prohibition against an assessment at any other time in the circumstances of a case like the one before us where no 'assessment', as it is understood in law took place at all. comment : This judgment neither deals with a legislation allegedly or facially trenching upon constitutionally prohibited fields and what interpretation would be warranted in the circumstances; nor does it .....

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make the charging provision effective; and not so as to furnish a chance of escape and means of evasion (para 7). comment : The decision neither dealt with any dialectic ambiguities in the legislative text nor with total absence of relevant machinery/computation provisions. There was also no context of the ambit of the governing legislation being circumscribed by constitutional boundaries as regards the measure of tax thereby levied; (iii) The Supreme Court in Sharvan Kumar Swarup & Sons, co .....

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years' purchase value. Since rule 1-BB is in the nature of a rule of evidence, it could be construed as retrospective (emphasis added). comment : The essential question in this judgment (set out in para 1) was whether Rule 1-BB of the Wealth Tax Rules, 1957 is a provision which affects and varies/alters substantive rights or is merely procedural. The judgment concludes that the rule is procedural, not a substantive provision; and that: even in the absence of Rule 1-BB it would not have been .....

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Co. Ltd, the Delhi High Court negated the petitioner company's contention that mere failure to frame rules under Section 115(2) of the Customs Act, 1962 would render the search improper or unreasonable (para 20). comment : The judgment deals neither with constitutional limits on legislative reach, challenge to provisions relating to chargeability to tax nor regarding adequate or appropriate computation/valuation provisions; (v) In Tamil Nadu Kalyana Mandapam Association, a specific charge an .....

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er' service) were noticed, which provided that the gross amount charged would include charges for catering, if any (in para 11), the judgment proceeded on the premise the exemption notifications (granting percentage abatement to cover inter alia the cost of sale of food items), rendered the provision benign and intra vires. This decision is clearly not one involving (factual and legal) circumstances of a construction/building works contract, a transaction which invites (in greater intensity) .....

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ness of the Maharastra legislation due to absence of statutory rules prescribing formulae for proper computation of the measure of tax (discussed in paras 9 to 14 & 25 of K. Damodarasamy Naidu), was however neither adverted to, distinguished or dissented from. We are not advised at the Bar, that a binding precedent (i.e., the ruling of a larger Bench) stands overruled by non application of its ratio, by a Bench of lesser strength; and we are aware of no such principle. We are not in the tota .....

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of its conclusion that mandap keepers and outdoor caterers transactions, are not concerned with: the splitting up of any works contract here (see para 37 of Tamil Nadu Kalyana Mandapam Association). (v) We now come to the decision in Association of Leasing and Financial Service Cos.Revenue relies on this ruling for the proposition that overlapping levies i.e., imposition of sales tax and service tax on the composite consideration received for the same transaction (i.e., on the entire value of a .....

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ing with approval and following the earlier 2006 decision in B.S.N.L. (which categorically restated the established principle that dual and overlapping levies, of sales tax and service tax, on the same elements of a composite transaction are impermissible), the Court concluded that the transaction (in issue before it) was a pure and simple service and did not involve both sales and service; that the impugned tax is not on material or sale but is on the activity/service rendered by the service pr .....

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provision is intra vires (para 40). comment : Revenue's premise that this decision is rendered in the context of one variety of a works contract, is in the context of the facts and analyses in the judgment, without basis. 22. Shri P.K. Sahu's position : Counsel submits: i. Works contract has always been described by the Supreme Court in several rulings as a contract for work and labour and may include pure labour or a combination of labour and use of goods for delivering the agreed serv .....

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ies Co. Ltd. vs. Electricity Inspector & ETIO (2007) 5 SCC 447; Geo Miller & Co. vs. State of M.P (2004) 5 SCC 209; and The Federation of Hotels and Restaurant Association of India vs. UOI ILR 2007 (Del) 1059; iii. Service tax and sales tax on deemed sale are different aspects of the same transaction and there can be overlapping, as a whole or in part, as regards the measure of the tax. Thus, the whole of works contract became taxable (to service tax w.e.f 01-06-2007) under Section 65(10 .....

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eeming fiction. There cannot be a concept of deemed service for service tax as there is deemed sale for sales tax. No such fiction is enacted prior to 01-06-2007; v. The European Court of Justice (ECJ), in Card Protection Plan Ltd. vs. Customs and Excise Commissioners (1999) Simon's Tax Cases, 270 ECJ, clarified that where one element constituted the principal service and others were merely ancillary, there was a single supply, in that they did not constitute for customers aims in themselves .....

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nent elements and tax such elements under different taxable services such as on 'drawings and designs', 'consulting engineer' or 'ECIS', prior to 01-06-2007. This is so since works contract or an EPC or turnkey agreement, is an indivisible commercial understanding where the constituent elements are inseperable and breach of any one or more components would lead to breach of the entire contract; and In a works contract, no component activity would amount to any taxable ser .....

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mary analyses qua the precedential guidance -L & T and Revenue positions interfaced : i. Stand-alone contracts, for supply of goods (transfer of property in goods - chattel qua chattel) or for rendition of services/supply of labour simplicitor, on the one hand; and a works contract (including one where elements of transfer of property in goods by accretion/incorporation and supply/rendition of labour/services are integrated into an indivisible and composite transactional charter) on the othe .....

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(Supreme Court - 2007); Larsen and Toubro Ltd. (Supreme Court - 2013); Kone Elevators (Supreme Court -2014); Hotel Dwaraka (A.P. High Court - 1985); Larsen and Toubro Ltd. (Madras High Court - 1993); Sundaram Industries Ltd. (Madras High Court - 2002); Larsen and Toubro Ltd. (Patna High Court - 2004); Larsen and Toubro Ltd. (Orissa High Court - 2008). Reference can be made (as to the established practice in legislative drafting) to the Central Sales Tax Act, 1956 (amended in 2002, for bringing i .....

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by specifically including works contract in the definitions of 'sale' and of 'turnover' and inserting appropriate legislative and statutory provisions for proper computation/valuation of the deemed sale of goods elements involved therein); and to the Act, i.e. its amendment by the Finance Act, 2007 introducing 'works contract' as a categorically specified and expressly defined category of service together with complementary valuation rules (Rule 2-A), issued under Section .....

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e and statutory landscape of the Act (to the extent of WCS) confirms to constitutional limits and eliminates uncanalized executive discretion by confining both, the charge and the measure of the tax on works contract, to supply of labour/rendition of service and associate elements; while excluding deemed/accretion sale of goods and associate elements from the measure of tax, in strict conformity with the declaration of law and of legislative limits on States and the Union taxation in this area, .....

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endment, deemed inter-State sales as well) stands exclusively assigned to the Union vide Entry 92- A, List I. The Legislative field of taxation of services falls within the exclusive domain of Parliament qua Entry 97 of List I, r/w Article 248 (the residuary legislative field). iv. After the 46 th Amendment and as a consequence thereof, the residuary legislative field of the Union (under Entry 97 of List I, r/w Article 248) is confined [ to the extent of taxation of transactions falling within t .....

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expression 'tax on the sale or purchase of goods', by virtue of the 46 th Amendment. Thereafter, the locii of both legislative fields (enumerated in Entry 92-A, List I and in Entry 54, List II) got incremented to the extent specified in sub-clauses (a) to (f) of Article 366 (29-A). The 46 th Amendment expanded inter alia the scope of Entry 54, List II (to the extent specified in the Amendment). As a consequence and corollary thereof, a corresponding and consequent constriction, of the sc .....

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no effect whatsoever on the Union's legislative powers/fields), is on the above analyses and to this extent, fallacious and the result of inadequate analyses of the holistic dynamics of constitutional space and the inexorable alteration of the scope of the Union (Entry 97, List I - residuary) and State (Entry 54, List II), exclusive taxation field allocations, consequent on the 46 th amendatory exertion. It is axiomatic that the locii of allocations and distributions of legislative fields/po .....

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merated in the several Entries in Lists I & II. This is the essence of the geometry of federal power distribution; of the cartography of constitutional landscape; and its complex and dynamic spatial arrangement. vi. As a consequence of the exclusive, discrete and insular allocation of legislative powers pertaining to taxation, neither of the federal partners (the Union or States, who are competing magisteria), are authorized; and are on explicit text, compelling intent and express constituti .....

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es constitutionally prohibited trenching (by design or default in drafting) and/or in the fond hope that such an overreaching legislation would be administered in a benign fashion (by executive agencies presumably having sufficient scholarship of the jurisprudence of and the limits upon legislative powers, imposed by a federal constitutional arrangement), would not pass judicial muster, vide ' the first Builders Association of India (S.C '1989); the second Gannon Dunkerley (S.C '1993 .....

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provide an appropriate statutory architecture (either specified in the legislation or through appropriately calibrated rules, framed pursuant to enacted facilitating provisions), to ensure proper and within legislative limits valuation and computation, of those elements/aspects of a works contract, which fall within States' authorized legislative domain. An ambivalent or ambiguous text would not legitimately support a valid charge for the purpose and in the context, vide - precedents referr .....

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construction thereof, fall short of the requisite specificity and thereby result in an actual; or enable a potential breach of the impregnable boundaries demarcated by the Constitution, for State legislative exertions in the area, the relevant State legislative or statutory matrix would be declared invalid, inadequate, dormant or unworkable, as the case may be; and the intended levy and collection of sales tax on works contract would fail. 'vide precedents referred in sub-paragraphs (vii) a .....

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, involved in the execution of a works contract. xii. The above position is the consequence of the 46 th Amendment, whereby the power to legislate for levy and collection of tax on sale or purchase of goods as goods or in some other form involved in the execution of a works contract, stands abstracted from the residuary field in Entry 97, List I as a consequence of its committal to Entry 54, List II and to Entry 92-A, List I (by virtue of the 46 th Amendment). The forbidden legislative territory .....

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taxable service and the valuation provision. Such intention is explicated only by Section 65(105)(zzzza); but not in the cornucopia of (pre 01-06-2007) charging, definition and valuation provisions, insofar as these relate to CICS, COCS & ECIS. xiv. Components which fall within the contours of labour/services and associate costs/expenses are spelt out in the second Gannon Dunkerley ruling and have been reiterated (without a caveat, dissent, exception, or reservation), in all precedents ever .....

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of the deficit; (c) declared the levy inoperative; or (d) have declared that the charging provision was not intended to cover the arena to which extant computation/valuation provisions do not apply. See - B. C. Srinivasa Setty; Govind Saran Ganga Saran; Mathuram Agrawal; K. Damodarasamy Naidu; Rajasthan Chemists Association; Voltas Ltd.; Infosys Technologies Ltd.; PNB Finance Ltd.; and Tata Sky Ltd.(Supreme Court rulings); and Larsen & Toubro Ltd. judgments of the Patna, Madras and Orissa H .....

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thereof, that the taxing trajectory thereunder is restricted to service elements alone and does not extend to deemed sale of goods elements), by Rules made thereunder, 'vide the second Gannon Dunkerley; the secondBuilders Association of India; Mahim Patram; and Voltas Ltd judgments of the apex Court; reiterated in Larsen and Toubro Ltd. judgments of Patna, Madras and Orissa High Courts. xvii. ex hypothesi, assuming that definitions of CICS, COCS or ECIS r/w the charging provisions in Section .....

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td; Heinz India Pvt. Ltd; Larsen and Toubro Ltd (Pat); and Larsen and Toubro Ltd. (Orissa). xviii. It is an elementary principle of constitutional and administrative law that an ultra vires legislative/statutory regime cannot be sustained by benign or intra vires executive administration thereof. As Schwartz Administrative Law (1984) 153 observes: If an agency acts within the statutory limits (intra vires), the action is valid; if it acts outside (ultra vires), it is invalid. No statute is neede .....

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ons are fairly possible, the construction which sustains the legislation should be adopted instead of one which renders it invalid (known variously as Heydon's rule (1584) 3 Co. Rep. 7a; rule of purposive construction; absurdity, inconsistency or repugnancy avoidance rule; rule of harmonious construction; principle of reading down etc.,), vide - In re Hindu Women's Right to Property Act AIR 1941 FC 72; and see for contrast Vaijnath vs. Guramma (1999) 1 SCC 292; also Shamrao vs. District .....

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thereunder. The above three are defined (in clauses of Section 65) and enumerated (in Section 66) taxable services, subjected to the enacted levy; - prior to its substitution w.e.f 18-04-2006, Section 67 (the valuation provision) read: the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to - be provided by him. We shall shortly deal with the inclusive and exclusionary clauses set out in Explanation I, to the Section; - enumerat .....

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ervices in sub-clauses of Section 65(105) and the charging provision in Section 66, leads to the compelling inference that the gross amount charged by the service provider for providing CICS, COCS or ECIS, as the case may be, shall be the taxable value of such service; - Section 67 does not enjoin that the taxable value of an enumerated and defined serviceshall be the gross amount charged for the service component of the taxable service, nor do the definitions (set out in the several clauses of .....

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auses of Section 65; - The interpretation proferred by Revenue, that the taxable value qua Section 67 is the amount/consideration received only for the services portion (of a composite contract), does not follow from the language of the Section. The expression 'gross' means 'absolute, entire' (Whartons Law Lexicon); 'total, with no deductions' (Chambers 21 st Century Dictionary). Thus, on a true and fair construction, the entire amount/consideration received by a provider .....

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7. Clause (vii) of the exclusionary clause (being in the nature of an exception to the enacting provision) under the said Explanation (prior to the 2006 amendment) merely specified: the cost of parts or other material, if any, sold to the customer during providing erection, commissioning or installation service (ECIS), shall be the excluded component from the taxable value under the valuation provision. No such exclusion is specified in respect of CICS or COCS. Clauses (iii) and (vi) of the excl .....

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be comprehended within the scope of the taxable value and that the exclusionary clauses are in the nature of exceptions; - Even on and since its substitution w.e.f 18-04-2006, Section 67(1) provides that whereservice tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Section .....

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s enjoining the total consideration received under composite transactions by a service provider to be the taxable value and have rejected claims for exclusion of the value of accretion sale of goods. - This is the inexorable pathology which results on accommodating a minimalistic legislative/statutory framework administered by and under a maximized executive discretion albeit of the quasi judicial variety, frowned upon in Jagannath Baksh Singh; Rai Ramkrishna; the second Gannon Dunkerley; B.C. S .....

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ring the course of provision of a taxable service is included in the taxable value under Section 67. It would be incredulous to assume that pure sale transactions were sought to be excluded by these exemption notifications, since a transaction of sale of goods simplicitor (whether intra-State or inter-State) is always (even prior to the 46 th Amendment), beyond the legislative scope of the Union's residuary legislative powers, vide the first Gannon dunkerley (1958); - Even Notification No. 1 .....

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le value and these are thus necessarily excluded from the value attributable to labour/service and associate component(s). None of these incontestably excludable factors are integrated into any of the exemption notifications. There is not even a Board or TRU circular pointing to or even hinting at such exclusions. - This is perhaps the inevitable consequence of relegating constitutional limits on legislative powers problematics to discretionary executive curatives. Precedents considered by us ca .....

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tract inheres distinct components/elements, some of which (the deemed/accretion transfer of property in goods) stand exclusively committed to States' legislative field under Entry 54, List II, as the scope of this Entry stands expanded by the 46 th Amendment. - There is an established principle of statutory interpretation that the legislature is presumed (not conclusively though) to be aware of the contemporaneous state of the law. Applying this principle, we infer that with the insertion of .....

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ut as (e), under this paragraph. Works contract, in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams are however wholly excluded from the ambit of WCS as seen from the preambular portion of this sub-clause. - Even after 01-06-2007, CICS, COCS & ECIS continue to be taxable services, since there is neither a repeal/omission of these provisions nor are these excluded from the list of taxable services catalogued in the charging provision, Section 66. - If, as .....

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does not offer an explanation. Legislature does not engage in vacuous and avoidable exertions is also an interpretive presumption. - Rule 2-A was (issued under rule making powers conferred by Section 94) inserted in the 2006 (valuation) Rules on the same day (WCS was inserted in the Act), i.e., 01-06-2007. This Rule excludes deemed/accretional sale of goods and associate components (verbatim as spelt out in the second Gannon Dunkerley ruling, followed thereafter in several binding decisions, wi .....

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Rule 2-A applies to CICS, COCS & ECIS as well, at least post 01-06-2007. - Thus a wholly unnecessary amendment (inserting WCS in the Act); and a wholly unnecessary rule (Rule 2-A, inserted in the 2006 Rules) to cater to a situation admirably administered by existing legislative and statutory provisions, as contended by Revenue! - A composition regime titled, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 (the composition Rules), was also promulgated and w.e.f .....

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and proceeds on aggregate assumptions of what percentage of the gross consideration might constitute the legitimate measure of tax. The composition Rules also define WCS w.r.t Section 65(105)(zzzza) ' vide [Rule 2 (c)]. - Paragraph 154 in Chapter XIII, Part-B of the speech of the Hon'ble Minister of Finance (Budget 2007-2008), explains the basis for insertion of sub-clause (zzzza). The relevant portion reads: 154. State Governments levy a tax on the transfer of property in goods involve .....

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efined and it is thus evident and thereby that WCS is a new levy. - From the interface of paras 154 and 158, it is clear that WCS is not a relocation, expansion or re-definition exercise with respect to ingrediants of any extant taxable service. In our considered view the Budget speech adverted to supra signals the understanding of the Union political executive and is so presented to the House, that (a) the transfer of goods component involved in the execution of a works contract is being subjec .....

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7 stating inter-alia (para 4) that the Finance Bill proposes to: (a) Levy service tax on more services, (b) Expand or clarify the scope of existing services, and (c) Carve out separate services from the existing services and specify them as separate taxable services. Services which are proposed to be specifically included in the list of taxable services are referred to in para 6. Sub-clause (iv) of this para mentions service provided in relation to execution of works contract. Para 6.4 of the TR .....

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e to VAT /sales tax are covered, namely :- (i) works contract for carrying out erection, commissioning or installation (ii) works contract for commercial or industrial construction (iii) works contract for construction of complex (iv) works contract for turnkey projects including Engineering Procurement and Construction or Commissioning (EPC) projects. 6.4.1 Works contract in respect of specified infrastructure projects namely roads, airports, railways, transport terminals, bridges, tunnels and .....

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works contract as service tax. Assessee opting for the composition scheme is not entitled to avail Cenvat Credit of capital goods, inputs and input services required for use in the works contract. Valuation of works contract and details of the composition scheme will be notified separately. Para 7 states that Rule 2A is inserted in the 2006 rules which provides for valuation of services provided in relation to the execution of a works contract, covered by Section 65(105)(zzzza); and that as a t .....

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relation to the execution of a works contract is a specifically mentioned category of taxable service. Para 9 of this letter explains the scope of amendments made to the 2006 Rules and as to introduction of the composition scheme, both w.e.f. 01.06.2007. xxi. We have referred to the enacting history of sub-clause (zzzza) and to the administrative construction of the newly introduced taxable service, since these throw additional light on and provide supportive guidance regarding the appropriate .....

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the same subject may be looked to in order to see what is the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceeds upon an erroneous construction of previous legislation, cannot alter that previous legislation, but if there be any ambiguity in the earlier legislation then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier (emphasis added); see also Ram Kishana .....

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9. xxiii. Interpretive compulsions from the Act, Rules and exemption notifications issued till the introduction of WCS : xxiv. Section 67 of the Act, on a true and fair construction, neither expressly nor by a compelling implication of its text, authorizes or accommodates exclusions/deductions (of the value of accretion/deemed sale of goods and associate costs)from the gross amount (consideration) received for rendition of CICS, COCS or ECIS (except to the extent exclusions from the gross consid .....

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he service element(s) or to enjoin exclusion of deemed/accretion sale or purchase of goods element(s) therefrom. Further, these definitions do not clearly signal the intention to cover works contract embedded renditions of services. Till 01-06-2007, the 2006 Rules contained no provision for valuation of a works contract and Rule 2-A, inserted w.e.f 01-06-2007 is expressly confined in its application to WCS as defined in Section 65(105)(zzzza). xxvi. Neither provisions of the Act, any rule made t .....

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This notification however does not provide for computation of profits booked by a builder while incorporating goods involved in the execution of a works contract (a component assessable to sales tax) - the second Gannon Dunkerley ruling mandates that a builder's profit which is booked on a deemed sale of goods is leviable to sales tax. Other costs and expenses associated with accretion sales (pointed out in this constitution Bench judgment and followed thereafter), are also not included or .....

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ew levy is proposed, to impose service tax on works contract; xxix. All the above contemporaneous signals converge to compel the singular and inescapable conclusion, that works contract [as defined and enumerated in sub-clause (zzzza) of Section 65(105)] is a new taxable service operative only since 0-06-2007. A works contract was neither a taxable service earlier thereto nor was integral to extant taxable services such as CICS, COCS or ECIS. WCS is not a carve out or an extraction from pre-exis .....

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xclusive legislative field (of States under Entry 54, List II), enacts generic exclusions in the preambular portion and encompasses rendition of turnkey or EPC projects as well; (c) the Budget speech (by the Hon'ble Minster of Finance) in respect of sub-clause (zzzza) emphatically negates the proposition that works contract was a taxable service earlier as well; and (d) the simultaneous introduction of specially tailored valuation provisions (Rule 2-A of the 2006 Rules) and the 2007 Composit .....

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subordinate legislation, since the laying (before Parliament) requirement for such notifications is the same as it is for rules issued under Section 94, - vide Section 94(4) of the Act. This is a contention that is stated to be rejected. On text (Section 94(1) of the Act), on principle and settled authority, rules framed under a legislation must be in conformity with and are intended to give effect to the legislative purposes, not to transgress the legislative mandate. Rules may be made to regul .....

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led principle of administrative law followed and applied with unvarying regularity in India is this; essential legislative functions cannot be delegated; while the core legislative policy cannot be left to the discretion of a delegate, legislative power may be delegated subject to the legislature exercising the essential legislative function which consists of laying down a policy or rule of conduct to guide the exercise of delegated authority. The U.S. Supreme Court in J.W. Hampton, Jr, & Co .....

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e also 'Queen vs. Burah 5. I.A. 178; Russel vs. Queen (1882) 7 AC 829; Hodge vs. Queen (1883) AC 117; Powell vs. Apollo Candle Co (1885) 10 AC 282; Jatindra Nath Gupta vs. Province of Bihar AIR 1949 FC 175; In re Delhi Laws Act AIR 1951 SC 332;and Hari Shankar Bagla vs. State of M.P AIR 1954 SC 465. In a powerful dissent in Mistretta vs. United States 488 U.S. 361 (1989), Justice Scalia cautioned: It is difficult to imagine a principle more essential to democratic government that that upon w .....

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of a federal constitution and the scope of taxing powers thereunder; or to the adjudicating additional Commissioners or Commissioners (of Customs, Central Excise or Service Tax) to sensitively apply profound and complex federal constitutional principles, to evaluate taxable components of a works contract) and adjourn sine die. xxxii. The power conferred under Section 93 (to grant exemption) is thus in the nature of delegation of a contingent power, to be exercised on fulfilment of specified cond .....

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h defines the contours of Entry 97, List I. This constitutionally defined limit must be acknowledged in the tent of the Union Legislation, which intends to levy service tax on a works contract and such acknowledgment find utterance in the legislative text. This is a requirement emphatically dictated by Article 265 which mandates a tax legislation to enact the taxable event and the extent of inherence of tax thereby imposed; xxxiii. Notifications issued under Section 93 however (by the specific l .....

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rvices) is enslaved to executive discretion, to effectuate (or disregard) the mandate, on its conception/discretion of what is in the public interest; a constitutional blasphemy and a negation of essential attributes of parliamentary democracy. The contention is a conceptual and an egregious assault on the foundations of our Parliamentary democracy. xxxiv. Such construction would further expose Section 93to serious ultra vires jeopardy, on grounds that the provision amounts to clear abdication o .....

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pe of Section 93 (power to grant exemption from the levy of service tax on taxable services); and of Section 94 (power to make rules for carrying out the provisions of this Chapter - Chapter V of the Act), would bear no distinction, in text or substance and one of the modes of carrying out the functions of the Chapter, would lawfully be by issue of an exemption notification, eschewing levy and collection of the service tax leviable under the Act. xxxvi. If the power consecrated to the Executive .....

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/statutory (shall) duty, susceptible to a writ of mandamus. On this construction, Section 93 would be a sub-set of the valuation provisions in Section 67, pro tanto; xxxvii. The above proposition of Revenue is extravagant and invites peremptory rejection. We accept the invitation and reject this proposition. xxxvii. For reasons set out in sub-paras (xxiv) to (xxxviii) above, we reject Revenue's proposition that Section 93 itself or exemption notifications issued thereunder, are adjunct compu .....

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evy and collection of sales tax. Enacting an appropriate legislation is thus mandatory in view of Article 265. - such legislation must clearly enact the intention to tax works contract and incorporate therein a charging provision enjoining confinement of the levy within the limits of the enacting legislature, in terms of the limits of allocation specified in the Constitution; - provisions for computation/valuation of the taxable event/transaction within such authorized limits or a provision clea .....

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nd collection of tax on services, by Parliament qua a legislative exertion under Entry 97 of List I, is a corresponding limitation, identical to and pari passu, the constitutional obligation of States, in this regard. We discern these as the compelling inferences from rationes of the second Gannon Dunkerley constitution Bench. b. What facts has Mahim Patram considered and what the ruling signals : The analyses in the Mahim Patram ruling (paras 29 to 40) reveals that adequate machinery provisions .....

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plenitudinous grant of powers) the State (sales tax) machinery to administer the mandate of the Central Act as well; - that Section 13(3) of the Central Act authorizes State Government to make rules (not inconsistent with the Central Act or any rules made under Section 13(1) thereof), to carry out the purposes of the Central Act; and - that State rules are made applicable (for assessments of the Central levy) by the enabling/facilitation framework of provisions explicitly enacted in the Central .....

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of the Central levy. - to construe Mahim Patram as enunciating a generic or a meta norm authorizing/accommodating framing of rules by a State so as to embed the appropriate machinery/computation architecture required to sustain the vitality of Union taxation, de-hors consecration of such authority in the relevant Central legislation, is a plain and seminal misreading of the ruling and a product of inaccurate analyses and construction of the last phrase of the sentence in para 27 of Mahim Patram .....

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that if provisions of the Central Sales Tax Act, 1956 had not authorized application of provisions of State sales tax legislations and the rules framed thereunder, for levy and collection of CST or failed to incorporate and integrate/harness the machinery provisions of the State statutory architecture to enforcement of the Central levy, Mahim Patram would inevitably have quashed the assessments impugned therein. - no decision has been brought to our notice, which sustains a Central levy on the .....

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nal statutory interpretation! c. What the other precedents cited on behalf of Revenue indicate : - The rulings/observations in the judgments cited on behalf of Revenue (i.e., Mahim Patram; S.T. Venkataramanappa; Sharvan Kumar Swarup & Sons; Great Eastern Shipping Co. Ltd.; T.N. Kalyana Mandapam Association; and Association of Leasing and Financial Service Cos.), are in the peculiar and respective factual and statutory settings involved therein; do not expound principles which are contrary to .....

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e us) i.e., as regards contours of CICS, COCS & ECIS as defined; of the charging provision (Section 66), r/w the valuation provision (Section 67); and the established absence of statutorily embedded computation and machinery provisions (prior to 01-06-2007), limiting the charge and levy of service tax only to the value of labour/services and associated expenses; while wholly excluding the value of elements related to deemed sale of goods and associated expenses, involved in execution of a wo .....

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he service in issue. As regards adequacy of an exemption notification granting abatement, no argument was asserted, no issue framed; nor is any principle enunciated nor a conclusion recorded by the Court, that in the absence of legislated exclusions (in the Act, including in the valuation provision therein) of the value of accretion sale of goods in relation to composite/catering contracts and supporting statutory framework for proper valuation/computation, relevant provisions of the Act are ren .....

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judgments, rendered prior to this judgment. - Further, this decision, neither expressly nor by implication doubts, distinguishes nor dissents from the long line of consistent binding authority (Jagannath Baksh Singh to Tata Sky Ltd.), which with unvarying regularity expound the meta principle, that appropriate and complementing computation, valuation and machinery provisions are a sine qua non for sustaining and providing vitality to charging provisions in a tax statute. - Also, under our const .....

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substrates/elements of composite transactions for availability to the appropriate legislature to harvest revenue by taxation, without depletion of these substrates by cross taxation exertions by the other federal partner. - In the circumstances, a synergy between charging and valuation/computation provisions, to ensure confinement of the levy and collection of tax within the allocated/demarcated boundaries of each level of legislation, is a non-derogable constitutional command. Categorical signi .....

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plied overruling of established rationes. Further, these principles were invariably applied and the earlier precedents quoted with approval and followed in several decisions thereafter, including in Rajasthan Chemists Association; Infosys Technologies Ltd., andTata Sky Ltd, illustrating the undisturbed vitality of the meta norm. d. The recent (2014) Kone Elevator constitution Bench reiterates the following principles : - a composite transaction pursuant to an agreement where the parties thereto .....

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o application to and cannot be employed for extracting a works contract from its constitutional and legal orbit as such; - works contract is a distinct commercial entity, inhering components of sale of goods by incorporation/accretion; and of rendition of labour/service towards facilitation of such incorporation/accretion; - consequently, the Union and/or State legislative, statutory architecture(s) must provide for confinement of their respective charge/levy(of tax), to those elements/component .....

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rically enact the intention to charge and levy tax thereon; must enact proper computation and/or valuation provisions, which negate overreach into or trenching upon the domain of the exclusively allocated legislative field committed to the other level, in the administration of its provisions; and must ensure (by providing for) non-arbitrary assessment of the liability to the authorized levy thereunder; and - ambiguous legislative provisions, which do not specify the intent to levy a tax on works .....

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s not a taxable service prior to 01-06-2007; b. definitions of CICS, COCS and/or ECIS r/w the charging provision (Section 66) and the valuation provision (Section 67) do not comprehend works contract (comprising an amalgam of deemed/accretion sale of goods and supply of labour/service) within their ambit; c. there was no charge of service tax on works contract prior to insertion of sub-clause (zzzza) in Section 65(105); d. that prior to 01-06-2007, there were no valuation/computation provisions .....

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nt to levy service tax on this distinct commercial entity, which inheres components which are exclusively allocated to States; and introduced with an integrated package of computation/valuation rules (Rule 2-A of the 2006 Rules),specially tailored to cater to this special category of transaction which has exclusive and competing taxation elements/components and a composition rules matrix (the 2007 Rules), enacted/framed in fidelity to the second Gannon Dunkerley ruling of the constitution Bench. .....

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ve field falling under Entry 54, List II. The contention that the 46 th Amendment has no impact on the breadth and scope of Union's residual legislative field under Entry 97, List I r/w Article 248 is resultantly, fallacious. This contention assumes that the residuary field is static in the sense of its contents and reach being the residue of other specific allocations qua other Entries in the three Lists, say as on the date of adoption of our Constitution. The constitutional position, as we .....

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les tax. It is axiomatic that whatever is the legitimate measure for levy of sales tax is the impermissible measure for levy of service tax. This is so since Union's legislative field qua Entry 97, List I is the residue of subjects/fields committed for State exertions qua Entry 54, List II. Post the 46 th Amendment, deemed/accretion sale of goods involved in a works contract and associate elements (i.e., elements excerpted and catalogued in the second Gannon Dunkerley), are unauthorized comp .....

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lation, in Lists I & II, each legislating partner of our federal compact, is supreme and plenary; not subject to exertions of legislative power by the other partner. Heirarchical allocation of legislative fields/powers is only in respect of List III (concurrent List) enumerated fields, r/w Article 254. (d) The contention (that unlike States' legislative power, under Entry 54, List II), Union's legislative power (under Entry 97 List I) to impose (service) tax on the whole value of a w .....

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al legislative field is the residue inter alia of the field abstracted to States under Entry 54, List II, read in the light of the 46 th Amendment. (f) It requires to be noted that the decisions (referred to by Shri. Sahu) in Sentinel Rolling Shutters & Engineering Co.; M/s Man Industrial Corpn. Ltd.; the second Gannon Dunkerley; B.S.N.L; and Associated Hotels of India Ltd., were quoted, referred to and analysed in the 2014 constitution Bench decision in Kone Elevator India Pvt. Ltd. This, ( .....

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of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and services alone; and (iv) once the characteristics of works contract are met with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract(para 42). g. Reliance on paras 43,105 to 107 of the B.S.N.L ruling is equally misplaced. The co .....

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sale of goods. In our opinion, the distinction between a contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract for work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such a contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labo .....

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7.5 A contract may involve both a contract for work and labour and a contract for sale. In such composite contract, the distinction between contract for sale and for work (or service) is virtually diminished. 97.6 The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract .....

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assed by Shri. Sahu. Paras 145 to 147 of this ruling refer to the provisions of Article 366(29-A); Entries 53 & 54, List II; to the first Gannon Dunkerley and B.S.N.L judgments to conclude that the several sub-clauses of Article 366(29-A) have no application to Entry 53, List II and are applicable only to Entry 54 thereof. With respect, the conclusion is impeccable. Clause (29-A) of Article 366, on its text and purpose defines 'tax on the sale or purchase of goods' with the inclusive .....

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ate legislation relatable to imposition of entry tax which is referrable to Entry 52; and not Entry 54, of List II. j. The Delhi High Court in The Federation of Hotels & Restaurants Association of India & Others ILR (2007) 1. Delhi. 1059 , held that supply of mineral water and soft drinks in hotels and restaurants do not constitute sale; that provisions of the Standard of Weights and Measures Act, 1976 and of the SWM (Packaged Commodities) Rules, 1977 made thereunder are inapplicable, th .....

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; and Indure Ltd. vs. CTO (2010) 9 SCC 461 are cited for contending that where the agreement between the parties reflects an intention to render, perform or deliver an integrated or amalgamated service, product or outcome, the same cannot be dissected/vivisected, for the purpose of levy of different taxes on constituent components of such integrated agreement. This contention stands refuted by the authoritative decisions inter alia, ofBuilders Association of India (1989), the second Gannon Dunke .....

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39; and thus the scope inter alia of Entry 54, List II does not derogate from the position that the constituent exertion also diminutes the scope of Union's residuary legislative field under Entry 97, List I. The impact of this Amendment on the residuary field is, in our view, inescapable. A contrary construction would amount to transfer of Entry 97, List I and Entry 54, List II, to List III (the concurrent List); amendment of the Constitution, by interpretation !. m. No decision by any Cour .....

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retion sale of goods involved in execution of a works contract is beyond the scope of Section 67 of the Act), are compelling indicia to the singular interpretive destination, that the scope of Union's residuary legislative field is confined to areas not covered by States' legislative field under Entry 54, List II as incremented by the 46 th Amendment. This is clearly the result of accretion of the contours of Entry 54, List II, as a result of Article 366(29-A). n. We have already analyse .....

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ot an apposite authority for the proposition that the intention of the parties, gathered from the relevant agreement considered as a whole, is the guiding factor for determining whether a transaction is a works contract or otherwise. The traditional - dominant nature, degree of intention, overwhelming component, major component or degree of enforceability tests are declared inapplicable and to be no longer relevant for determining whether a transaction amounts to a works contract, in the constit .....

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l established, that the appropriate legislature is competent to enact fictions, subject only to constitutional limits upon its powers. q. The aspect doctrine enables levy of tax on each distinct aspect of the same transaction, by recourse to legislation on fields committed to the particular legislature. The B.S.N.L ruling quoted with approval the following observations in Federation of Hotel & Restaurant Association of India vs. Union of India (1989) 3 SCC 634: - subjects which in one aspect .....

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n that jurisdiction, the double aspect theory, to address complexities of overlapping (Federal and Provincial) legislations. The Canadian Constitution has Federal (Section 91) and Provincial (Section 92) assignments, 43 Entries in all, but none concurrent. The doctrinal origin of the double aspect theory is perhaps traceable to Hodge vs. The Queen (1883) 9 App. Cas. 117, in the statement of principle: subjects which in one aspect and for one purpose fall within sect. 92, may in another aspect an .....

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l be tolerated as long as there are no operational inconsistencies. It however requires to be noticed that in Attorney General for Canada vs. Attorney General of Alberta (1916) 1 A.C. 588, Viscount Haldane advised great caution in the application of this theory and the reason for exercise of such caution was explained by the Canadian Supreme Court in Bell Canada vs. Quebec (1988) 1 S.C.R. 749, thus: the reason for this caution is the extremely broad wording of the exclusive legislative powers li .....

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f legislative fields in List III whereunder paramountcy is accorded to Union exertions, subject to conferment of operational efficacy for State legislation referable to List III Entries, on fulfilment of conditions set out in Article 254(2). The application of the aspect theory has therefore been adopted and applied in India with modifications to suit the peculiar and distinct features of our model of distribution of legislative powers, of the Union, States and Concurrent allocations. t. Shri. S .....

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al Bench does not include the issue whether pre-existing taxable services qua their definitions, charging and valuation provisions authorize extraction of constituent elements of a composite transaction, for levy of service tax on each distinct element on classifying it as a separate taxable service; the classification guidelines delineated in Section 65 A of the Act may perhaps be relevant. We decline to pronounce a view on this proposition however. For reasons alike, we express no view on the .....

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WCS qua Section 65(105)(zzzza). That is the only issue we consider and answer. 25. For reasons recorded by us in earlier analyses; and in particular the preceding sub-paras, we find no merit in Shri. Sahu's contentions that: - the measure of service tax levy could extend to the whole value of a works contract including the value of the goods component involved therein; - that the 46 th Amendment does not have any bearing on the scope of Union's powers qua Entry 97, List I; - that it is n .....

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now deal with the question whether the Hon'ble Delhi High Court's ruling In G. D. Builders or the Karnataka and Madras High Court decisions in Turbotech Precision Engineering Pvt. Ltd. and Strategic Engineering Pvt. Ltd., are binding precedents and whether per incuriam or sub silentio principles denude any of these decisions of their binding force. We notice that Turbotech Precision Engineering Pvt. Ltd. (in paras 9 & 10) clearly ruled that as Section 65(105)(zzzza) of the Act came .....

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WCS was made a taxable service w.e.f 01-06-2007, the transaction in issue was prior to that date and thus the demand (treating the transaction as rendition of a works contract, vide the additional counter) was not supported by legislative authority (paras 16 to 18). We do notice that while G. D. Builders sets out analyses for its conclusion that works contract is taxable prior to 01-06-2007 as well, Turbotech Precision Engineering Pvt. Ltd. and Strategic Engineering Pvt. Ltd. record a finding w .....

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n whether works contract is taxable under CICS, COCS & ECIS. - In para 20, the decision in Tamil Nadu Kalyana Mandapam Association is adverted to and it is noted that in the case of mandap keepers service, tax was payable on a composite contract which included provision of food, furniture, electrical fittings, tents etc. This ruling is again considered in para 28 and passages from it excerpted, including the following observations in Tamil Nadu Kalyana Mandapam: It is well settled that the m .....

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er the particular legislation and that must be within the competence of the legislature, cannot be considered - as having been overturned or eschewed. The nexus and limits (legislative competence) tests are established by a long catena of binding authority including of constitution Benches, including the second Gannon Dunkerley and K. Damodarasamy Naidu. We have also analyzed other facets of the Tamil Nadu Kalyana Mandapam ruling earlier and reiterate that analyses. In any event, glossing over t .....

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ale of goods, then no issue of exclusions/deductions therefrom would be warranted! In our respectful view, the Tamil Nadu Kalyana Mandapam decision at any rate cannot be considered as having dissented from or overruled entrenched principles consistently expounded, reiterated and implicitly followed, in Jagannath Baksh Singh; Rai Ramkrishna; B. C. Srinivasa Setty; Govind Saran Ganga Saran; Mathuram Agarwal; K. Damodarasamy Naidu; Mahim Patram; P. N. B. Finance Ltd.; Infosys Technologies Ltd.; Hei .....

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that in K. Raheja Development Corpn., the legislation in issue - the Karnataka Sales Tax, Act, 1957 specifically defined 'works contract' in a comprehensive manner and this fact is noticed in this para of G. D. Builders, as well. Giving full effect to overbroad/ambiguous verbal formulae in legislative texts is also a deeply problematic interpretive issue. Textual ambiguities may be of the grammatical, syntactic or contextual varieties and purposive construction and dynamic interpretation .....

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y test' have application if ingredients of the transaction in issue reveal a works contract; and that post the 46 th Amendment the sale of goods element in a works contract could be subject to sales tax even after incorporation of the goods, provided the tax is directed to the value of goods and does not purport to tax the transfer of property and the measure of the levy is value of the goods at the time of incorporation (emphasis added). 'Para 23 refers to the second Gannon Dunkerley ju .....

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is leviable. 'We have (in our primary analyses of precedents, earlier herein), analyzedMahim Patram and have demonstrated that this decision is not an authority for a generic principle that a computation/valuation regime deficit in a Central legislation stands cured by availability of such provisions in a State legislation,without adaptive provisions in the Central legislation authorizing such adoption; and that the Mahim Patram text and internal analysis of relevant facts, is proof positive .....

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39;We are therefore persuaded to accept the contention of Learned Senior and other Counsel that the inadequate sensitization (by counsel in G. D. Builders), of the specific provisions of the Central Sales Tax Act, 1956 and the critical reasoning process which formed the basis of the observations in para 27 of Mahim Patram, presumably led G. D. Builders to the clear and palpably erroneous impression/premise that Mahim Patram lays down a broad principle that a Central legislation bereft of proper .....

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putation/valuation provisions are eschewable integers of a valid and operative charging and valuation integrated, scheme of taxation. 'The judgment in Association of Leasing & Financial Service Cos. is adverted to in para 30, which again provides no assistance to the issues referred for our resolution. 'Paras 31 to 35 deal with exemption/abatement notifications issued under Section 93 of the Act and advert to decisions in State of Kerala & Another vs. Builders Association of Indi .....

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p; (2) of this para. The Court states that: (i) Aspect doctrine is applied for bifurcating/vivisect (ing) the composite contract; and (ii) Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. comment : (1) The rulings in Federation of Hotel & Restaurants Association of India (1989); .....

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action may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects; the Centre cannot include the value of goods in the cost of the service; and the 'aspect theory' would not apply to enable the value of services to be included in the sale of goods or the price of goods in the value of the service; and (2) The rulings in Jagannath Baksh Singh to Tata Sky Ltd. consistently enjoin the inexo .....

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e competence, a taxing legislation may not transgress the distribution of powers limits prescribed by the Constitution and trench upon elements of a composite transaction which stand assigned to another legislative level and tax such prohibited elements on the pretext of the overreach constituting merely the measure of tax. That would amount to a colourable exercise of legislative powers. 27. In the light of the formidable catena of consistent and binding precedential authority, we respectfully .....

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offset by existence of such provisions in a State legislation, are contrary to settled and binding expositions of relevant principles qua binding precedents which have either not been brought to the notice of the Hon'ble High Court; or the critical analyses whereunder were not sensitized to the Court in the appropriate internal legal and factual matrices of the particular precedents (adverted to by us earlier herein). The G. D. Builders decision (to the extent of the conclusions set out as .....

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framework involved nor of the several precedents which support the conclusion recorded (in Turbotech and Strategic), as is found in the painstaking effort apparent in G.D. Builders, in our respectful view the conclusion that a works contract is defined, charged and is subject to the levy of service tax only w.e.f 01-06-2007 (on insertion of sub-clause (zzzza) in Section 65(105) of the Act), is consistent with the overwhelming catena of binding precedents considered and analysed by us hereinbefor .....

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tan Aeronautics Ltd. Vs. Commissioner of Service Tax, Bangalore 2013 (32) STR 783 (Tri.- LB); ii) MIL Industries Ltd. Vs. Commissioner of Service Tax, Chennai 2014 (35) STR 74 (Tri. Chennai); iii) Misc. order dated 13.02.2014 in Tata Hitachi Construction Machinery Co. Ltd., vs. CST, Bangalore 2014 (35) STR 149 (Tri. Bang.); iv) Final order dated 31.03.2014 in JMC Projects (India) Ltd., vs. Commissioner of Service Tax, Ahmedabad 2014 (35) STR 577 (Tri. Ahmd.) v) Final order dated 08.05.2014 in CC .....

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It is stated at the Bar that there are other decisions which have come to a contrary conclusion. Counsel have referred to the following decisions (tabulated), which ruled that a works contract is not taxable prior to 01-06-2007. S. No Case tile and citation 1 B.H.E.L vs. C. Ex & S.T, Dibrugarh - 2008 (10). STR. 218 (Kolkata Bench) 2 Diebold Systems (P) Ltd. vs. CST, Chennai - 2008 (9). STR. 546 (Chennai Bench) 3 Cemex Engineers vs. CST, Cochin - 2010(17).STR.534 (Bangalore Bench) 4 ABB Ltd. .....

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ce would be the operative precedent on the issue and the rulings contrary to our conclusions herein, stand overruled. 30. We record our appreciation to Learned Senior Counsel Shri. N. Venkatraman, Learned Counsel, Shri. P.K. Sahu, Shri.B.L. Narasimhan, Shri. Puneet Agrawal and to Learned A.R's Shri. Amresh Jain and Shri Govind Dixit, for the valuable assistance provided. 31. Conclusions: We answer the reference, recording the following conclusions: A. Neither CICS, COCS nor ECIS, as these se .....

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tion of services); B. Taxable services defined and enumerated as CICS, COCS & ECIS cover only such contracts/ transactions which involve pure supply of labour or rendition of service(s), falling within the ambit of the respective definitions; C. Only since the insertion of sub-clause (zzzza) in clause (105) of Section 65, w.e.f 01-06-2007, complemented by the amended 2006 Rules (inserting Rule 2-A therein) and the 2007 Composition Rules, that the requisite and appropriate statutory framework .....

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'works contract' referred to in sub-clause (zzzza)] inserted w.e.f 01-06-2007, mandates specified exclusions/deductions from the gross amount received on execution of a works contract (in terms of the principles/norms particularized and catalogued in the second Gannon Dunkerley ruling and reiterated in subsequent precedents); and E. The 2007 Composition Rules, also introduced w.e.f 01-06-2007 (and made explicitly applicable only to WCS),provide an optional composition protocol which enab .....

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) the enactment of a charge of Service Tax on a works contract; and (2)incorporation of the requisite computation, valuation and machinery provisions, which facilitate a coherent, fair, rational, stable and legitimate exaction of tax, confined to such components/elements of this composite, facially indivisible transaction as fall within the taxation domain of the Union, under Entry 97, List I of the Seventh Schedule of the Constitution of India. Only upon introduction of such integrated statutor .....

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service prior to 01-06-2007 as well is, with respect, declared to be in error; and is overruled. 32. We answer the reference as above. The appeals listed on the board of this special Bench are remitted to the appropriate division Bench, to be heard and disposed of on their respective merits and in the light of the conclusions recorded herein. (Pronounced on 19.03.2015) G Raghuram, President Archana Wadhwa, Member (J) Rakesh Kumar, Member (T) P R Chandrasekharan, Member (T) R K Singh, Member (T) .....

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the background of the case, the contentions for and against made by the Appellants and the Revenue on the issue under reference have already been discussed in detail in the order recorded by the hon'ble President, I shall not repeat them. However, I shall refer to them as and when required while undertaking the factual and legal analysis. I shall also try to be brief without indulging in any verbosity or legalese. 2. Before I proceed, I consider it necessary to record certain concerns/appreh .....

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er Larger Bench took a contrary view and held that a works contract service can be vivisected and discernible service elements can be subjected to service tax prior to 1-6- 2007, provided the services involved are taxable services. The decisions in the Jyoti Ltd. and Indian Oil Tanking case have been challenged by the Revenue before the Supreme Court and the appeals have been admitted in July, 2008 and August, 2010 and have been pending disposal since then. Nothing has been brought on record by .....

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elements could be subjected to service tax prior to 1-6-2007. This Tribunal being sub-ordinate to both the apex Court and the High Court would be bound by these decisions. Besides, the issue before the larger bench is not a recurring matter which needs some finality at the Tribunal level. After 1-6-2007, there is no dispute at all pending which needs a resolution. The dispute essentially relates to cases arising during 2004 - 2007 concerning the taxability or other-wise of CICS, COCS and ECIS se .....

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e issue was considered by a Division Bench comprising of the hon'ble President and hon'ble Member (Technical) (who are also members of the present Larger Bench). The question for consideration in the said case was whether the activity of civil or industrial construction or erection, installation and commissioning, although taxable as works contract service under section 65 (105) (zzzza) of the Finance Act, 1994 with effect from 1-6-2007, was taxable prior to 1-6-2007 under section 65 (10 .....

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7, their activity would not be taxable. But this plea of the respondent is not acceptable in view of judgment of Hon'ble Delhi High Court in the case of G.D. Builders v. Union of India (supra), wherein this very issue has been decided by the Hon'ble Delhi High Court against the respondent. Moreover, the Tribunal also in the cases of Alstom Projects India Ltd. v. CCE reported in 2011 (23) S.T.R. 489 (Tri.- Del.) and Instrumentation Ltd. v. CCE, Jaipur-I reported in 2011 (23) S.T.R. 221 (T .....

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In the case of Kalpik Interiors vs. CST, Delhi [2014 (36) STR 1283 (Tri.- Del)]another division bench comprising of the hon'ble President and another hon'ble Member (Technical) (who is also a member of the present Larger Bench), considered a question relating to leviability of service tax on 'completion and finishing services in relation to building or civil structure' prior to 1-6-2007 when works contract service was made taxable and held as follows:- "11. At this juncture .....

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year of the said judgments of Hon'ble Delhi High Court. '''''. " After quoting extensively from the Delhi High Court decision in GD Builders case including the several case laws relied upon and cited in the said decision, this Tribunal concluded that,- "Thus the Hon'ble Delhi High Court judgment in case of M/s. G.D. Builders (supra) is not per incuriam and therefore is good law on the issue." Thereafter, the Tribunal proceeded to further hold as follows .....

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case of G.D. Builders (supra) has categorically held that : "as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes and in case of composite contract, the service element should be bifurcated and ascertained and then taxed". The Hon'ble High Court in the same para goes further to add that : " the con .....

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by the hon'ble President in the case ofHindustan Aeronautics Ltd. vs. CST, Bangalore [2013 (32) STR 783 (Tri.- LB)]. The question referred to the Larger Bench in the said case whether benefit of notification No. 12/2003-ST is confined to sale of goods, excluding "deemed sale". The Larger Bench declined to answer the reference on the ground that the issue already stands settled by the decision of the Delhi High Court in the GD Builders case. 2.2 After consistently holding that the G .....

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s not my intention to embarrass any one, least of all my brother Members, all of whom I hold in high esteem. My only object is to place a note of caution that we should not be hasty in drawing conclusions/passing orders which has the effect of upsetting the settled positions in law, which are, in any case, under challenge and consideration before the highest court of the land. In my humble view, not only the legality but also the propriety of rendering a decision is equally important and should .....

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While disposing of the said petition vide order dated 11-11-2014, under a consensus reached between the ld. Addl. Solicitor General appearing for the Revenue and the ld. Senior Counsel for the assessee, Larsen & Toubro Ltd., the hon'ble High Court directed that the 5 member larger bench can examine as a preliminary issue whether the question raised is covered by the G.D. Builders case and in case the question raised is covered, then the matter can be closed. However, as urged by the ld. .....

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order dated 24-11-2013 as under :- "(i) Service tax levied from time to time by Finance Act, 1994 and subsequent amendments is in exercise of power under residual entry 97 of List I of the Seventh Schedule of the Constitution of India. It is levied on taxable service as defined in Section 65(105) read with definition clauses. (ii) Service tax is applicable only in respect of service element and the Central Government does not have any power under the residual entry to impose tax on entries .....

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(zzzh). (v) Section 65(105)(zzq) and (zzzh) apply only to "service contracts" and not to "composite or works contract", therefore, exemption under notification to the extent of 67% to set off value of the goods involved in execution of "composite contract" is contrary to the charging provision and a nullity, as it amounts to enlarging and widening of charging section and would have the effect of including or imposing service tax even on goods or material used in a & .....

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nactment, have been covered and brought under the service tax ambit by the explanations appended to the notifications. Thus, abatement granted in the notifications is invalid and contrary to main enactment. The said argument is equally applicable to column 4 of serial numbers 5, 7 and 10 of the 2006 notification. (vii) As per Section 93 of the Finance Act, 1994, the Central Government is empowered to grant exemption from levy of service tax either wholly or in part but as "composite contrac .....

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ed to 4% with effect from 1st March, 2008. The said levy is not applicable to "services" covered under Section 65(105)(zzq) and (zzzh). (ix) There is a conflict between Section 65(105)(zzzza), (zzq) and (zzzh) and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of provisions cannot co-exist. Subsequent legislation shows that the earlier legislation will not cover "composite or works contract." (x) Section 66 is the .....

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value of material or goods. The gross amount charged or the value of service cannot include value of goods and material supplied/used. (xi) Vagueness or uncertainty makes a levy invalid and illegal." 3.2 The hon'ble High Court examined at great length - (1) the legislative history of service tax; (2) the various statutory provisions governing service tax; and(3) the decisions rendered in the following cases, namely:- 1. All India Federation of Tax Practioners & Ors. Vs. Union of Ind .....

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Ltd. vs. Union of India 2005-TIOL-53-SC-ST 9. Home Solutions Retail (India) Ltd. vs. UOI & Anr. 2011-TIOL-610-HC-DEL-ST-LB 10. Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India 2012-TIOL-966-HC-DEL-ST 11. K. Raheja Development Corpn. Vs. State of Karnataka - 2005-TIOL-77-SC-CT 12. Larsen & Toubro Limited versus State of Karnataka, Civil Appeal No.8672 /2013 - 2013-TIOL-46-SC-CT-LB 13. Nagarjuna Construction Co. Ltd. vs. Union of India and Anr. - 2012-TIOL-107-SC .....

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inciples: (1) After 46th Amendment to the Constitution, composite contracts can be bifurcated to compute value of the goods sold/supplied in contracts for construction of buildings with labour and material. The service portion of the composite contracts can be made subject matter of service tax. Aspect doctrine is applied for bifurcating/vivisect the composite contract (2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of .....

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This is because the formula framed by way of delegated legislation is presumptuous and based on assumption. (4) However, if an assessee wants to take benefit of the notification, he must comply and adhere to the terms and conditions stipulated as per the notification. (5) An assessee to claim benefit or advantage as per a notification must meet the preconditions or stipulations stated therein. An assessee cannot take benefit or advantage of a part of a notification but claim that the other part .....

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vided it is optional. (7) Authorities cannot compel and force an assessee to accept the notifications in question and pay tax accordingly, as seeking coverage under the notification is voluntary. An assessee can state that the service component of a composite contract should be computed in a fair and reasonable manner and accordingly taxed. (8) The notifications meet the tests laid down under Section 93 and 94 of the Act because they relate to manner and mode of computation of service tax in a c .....

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mpelling reasons that show absurdity and, therefore, violation of Article 14 of the Constitution." 3.4 It would be relevant to note that an identical issue came up for consideration before another bench of the Delhi High Court in M/s YFC Projects (P) Ltd. vs. Union of India and after considering its earlier decision in the G D Builder's case, the High Court came to the conclusion that service elements of a composite contract can be subjected to service tax even prior to 1-6-2007. The re .....

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said provision as imposing service tax only on the service component of the composite contracts which fall under the impugned provisions. The Division Bench in G.D. Builders (supra) held that it is the service portion of the composite contract which alone could be made the subject matter of service tax and that the aspect doctrine would be applicable for bifurcating/vivisecting the composite contract into its service component and sale of goods component. While the sale of goods would be taxable .....

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take advantage or benefit of the said notifications, if the assessees so desired. However, it was also made clear that the assessee cannot be compelled to pay service tax on a proportion or value of a composite contract as per the notification. 15. On going through the impugned provisions, we do not find any encroachment by Parliament on the powers of the State Legislature to impose a tax on the sale of goods. The provisions clearly relate only to the service component of the composite contract .....

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rate the extent of the service element included in the composite contract and to pay service tax only on that component. 17. The Division Bench in G.D. Builders (supra) has already interpreted the impugned provisions and has taken the view that it is only the service element which is to be taxed under the impugned provisions. We agree with that view. As such, there is no encroachment by Parliament on the exclusive powers of the State Legislature in respect of Entry No.54, List II and, therefore, .....

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ears no brand of invalidity upon its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders." ********** [See: Administrative Law 6 th Ed. P.352] Prof. Wade sums up these principles: "The truth of the matter is that the Court will invalidate an order only if the right remedy is sought by the right person in the right .....

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t another." 3.6 In my considered view, the Tribunal being sub-ordinate to the High Court in the judicial hierarchy cannot sit in judgment on the correctness of a decision passed by the High Court notwithstanding the liberty granted. The liberty granted is conditional, that is, the larger bench has to consider first as to whether the decision in the GD Builder's case covers the issue before it and if so, the matter shall be closed. 4. Be that as it may, I now proceed to examine the rival .....

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of concession, I agree with the hon'ble President that no case has been made out by the appellant in this regard. I would like to only add that by picking up one or two sentences here and there, one cannot come to the conclusion that the decision has been rendered on a concession. The observations of the hon'ble apex court in the case of Dir. Of Settlements, A.P. & Ors vs M.R. Apparao & Anr., in Civil appeal No. 2517 of 1999 decided on 20-03-2002, clarifies the position:- "A .....

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not any finding of facts. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the Court has to be read in the context of questions which arose for consideration in the .....

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ll be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. ... The decision made on concession made by the parties even though the principle consisted was accepted by the Privy Council without discussion cannot be given the same value as one given upon a careful consideration of the pros and cons of the question raised. The aforesaid observation indicates the care and caution taken by the Court in the matter and therefo .....

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great length, analysed the provisions of law, considered the various binding precedents on the matter and thereafter, passed a detailed order. To contend that such a decision is based on concession would be an affront to common sense. It is also worth-remembering that the ratio of the G D Builders case was followed by another bench of the hon'ble High Court and by several benches of this Tribunal including a Larger Bench. Therefore, this proposition advanced by the ld. Counsel for the appel .....

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be said generally to be given per incuriam when the Supreme Court has acted in ignorance of its own previous decision or when a High Court has acted in ignorance of a decision of the Supreme Court. The problem of judgment per incuriam when actually arises, should present no difficulty as the Supreme Court can lay down the law afresh if two or more of its earlier judgments cannot stand together." In A.R. Antulay case [12 AIR 1980 SC 541], the hon'ble apex court observed thus :- "Per .....

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ich should have been placed before the High Court was not so placed and therefore, in view of the lack of assistance from the counsels in the said case, the hon'ble High Court committed an error. I find this argument to be quite strange. In spite of the lack of assistance from the Counsels, while giving the findings in the said case, the hon'ble High Court considered 14 decisions (11 of the Supreme Court and 3 of the Delhi High Court) and examined each one of them at great length and cam .....

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works contract" category. The contention that such a decision is per incuriam, to put it mildly, borders on perversity. The decision in the G D Builders case has neither been passed inadvertently nor in ignorance of the various judicial pronouncements of the apex court on the subject matter. It is also relevant to note here that in the Kalpik Interiors case (supra), a Division Bench of this Tribunal also found that the decision in the G D Builders case is not per incuriam and is a good law. .....

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refore, the decision of the Delhi High Court cannot said to be final and binding. I have perused these decisions. As regards the decisions of hon'ble High Court of Karnataka in the case of CST vs. Turbotech Precision Engg. Pvt. Ltd. (supra) and of Madras in the case of Strategic Engg. Pvt. Ltd. (supra), the facts obtaining in those cases are completely different and hence distinguishable. In the Turbotech case, the contention of the department was that the activity of development, design rev .....

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ng within the ambit of consulting engineer's service. It is relevant to note that consulting engineer's service never came within the ambit of "works contract service" either before or after 1-6-2007. Therefore, the question of the hon'ble High Court giving any finding about the vivisection of a works contract do not arise at all. A careful reading of the said decision makes it very clear that divisibility of a works contract was not at all an issue for consideration in the .....

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ench and aligning appropriately. The pipe lowering into the trench was executed by two men using ropes and anchored to stakes. Erection of pipes involved connecting the laid pipes and subjecting the pipes to carry fluids. This activity was done by the customers themselves as per their own needs and requirements. The petitioner was issued a show cause notice, dated 30.05.2005, demanding service tax under following categories :- (a) 'Erection, Commissioning and installation service' for re .....

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for the period after the issue of show cause notice and hence not covered by the show cause notice) The hon'ble High Court also took into account the additional ground urged by the appellant that the said activity came under the category of 'works contract services' taxable with effect from 1-6-2007 and concluded that,- "17. The facts stated herein above prove beyond doubt, that the demand raised against the petitioner is not sustainable law, as the period for which the demand h .....

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es from the decision of the hon'ble Apex Court in CCE, CALCUTTA V ALNOORI TOBACCO PRODUCTS 2004-TIOL-85-SC-CX in Civil Appeal Nos. 4502-4503 of 1998. "11. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid 's theorems nor as provisions of the statute and that too taken out of their context. These observatio .....

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1970 (2) All ER 294] Lord Reid said, "Lord Atkin's speech''' is not to be treated as if it was a statute definition. It will require qualification in new circumstances." Megarry, J in (1971) 1 WLR 1062 observed: "One must not, of course, construe even a reserved judgment of Russell L.J. as if it were an Act of Parliament." And, in Herrington v. British Railways Board [1972 (2) WLR 537] Lord Morris said : "There is always peril in treating the words of a s .....

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quot;Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.'' "Precedent should be follow .....

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ase stands uncontroverted as of now and therefore, the same is binding on all sub-ordinate courts including this Tribunal (irrespective of the strength of the bench which hears the matter). 5. Before I proceed to deal with the main issue of divisibility of a works contract for the purpose of levy of service tax prior to 1-6-2007, I would like to dispose of a contention raised in respect of valuation. The contention taken is that prior to 1-6-2007, there was no machinery provision prescribed for .....

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Once these four elements are present, the validity of a tax law would be beyond any legal challenge. As far as service tax levy in India is concerned, these four elements are contained in Sections 65 (105) which defines the taxable service (taxable event), Section 66 which imposes the levy and prescribes the rate of tax, Section 67 which provides the measure of tax and Section 68, which determines the person liable to pay tax. The sections referred to are sections of Chapter V of the Finance Ac .....

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tract so as to determine the value of services rendered and to arrive at the measure of tax. This issue was also considered by the hon'ble Delhi High Court in the G D Builders case in paras 18 & 19 of the order and the observations of the hon'ble court are reproduced below :- "18. Service tax in the facts in question has been imposed in three stages. In the first stage, service tax was imposed on construction of industrial and commercial complexes. In the second stage, service t .....

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construction of industrial and commercial complex or construction of residential complexes as specified. Introduction and imposition of service tax on works contract by Finance Act, 2007 does not mean that we have to read down, the scope and ambit of the provisions enacted levy tax on contracts relating to "commercial and industrial construction. service or "construction of (residential) complexes" services as specified by Finance Act 2004 and Finance Act 2005 respectively. The ne .....

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al complexes as specified. It would cover any and every contract, when the contractor was only supplying labour or undertaking construction services, whether with or without supply of material, i.e. composite contract. The levy is valid when the provisions of Section 65(105)(zzh) and 65 (105)(zzq) of the Act are satisfied. The only condition and requirement is that the service tax should be levied and imposed on the "service" element and not levied and charged on material or goods used .....

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ld, the following principles regarding service tax can be fruitfully culled out: (i) The measure of taxation does not affect the nature of taxation and, therefore, the manner of quantification of the levy of service tax has no bearing on the factum of legislative competence. (ii) Taxable services can include providing of premises on a temporary basis for organizing any official, social or business function but also other facilities supplied in relation thereto. (iii) Levy of service tax on a par .....

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rn, is a general tax applicable to all commercial activities involving provision of service. (viii) Value added tax is a general tax as well as destination based consumption tax leviable on services provided within the country. (ix) The principle of equivalence is in-built into the concept of service tax. (x) The activity undertaken in a transaction can have two components, namely, activity undertaken by a person pertaining to his performance and skill and, secondly the person who avails the ben .....

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ied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. (3) The notifications in question are in alternative and optional. An assessee may take advantage or benefit of the notifications, but cannot be com .....

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n assessee cannot take benefit or advantage of a part of a notification but claim that the other part of the notification should be ignored and thus not acted upon. Notification has to be applied in entirety. (6) Notification has to be read as a whole keeping in mind its objective and purpose. Notification may provide a convenient, hassle free and adopt a non-discretionary formula for computing value of the service element in a composite contract. This curtails litigation, ambiguity, ensures cla .....

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in two cases, namely, Srinivasa Setty and Govind Saran Ganga Saran while examining the applicability in Mahim Patram's case and thereafter, came to the conclusion that section 67 provides for the measure of the levy in respect of service tax as per which the gross amount charged for the services provided is the measure. In all the above three cases, the measure of levy was to be provided through rules to be made in this regard and since the rules were not framed, it was held that the charge .....

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io of Al Noori Tobacco Products case shall apply in this regard. 5.4 An identical question arose for consideration before the hon'ble Apex Court in Associated Cement Co. Ltd. vs. Commercial Tax Officer [1981 AIR 1887] and the hon'ble court held that,- "It is settled law that a distinction has to be made by court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the .....

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on where no assessment took place for the reason of non-ascertainment of duty due to deficiency in quasi-judicial procedure, it can be made good with the use of the implied power in conjunction with the established rule of construction that power to do something essential for the proper and effectual performance of the work which the statute has in contemplation may be implied. It was held that in that case that the basic principle is that the Courts must endeavour to ascertain the legislative i .....

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ng at its enactment. The said Rule 1BB was concerned with mode of valuation of a house property wholly or mainly used for residential purposes, for the purposes of ascertaining the net wealth under the Wealth Tax Act, 1957. The hon'ble apex Court in that context held as follows :- "10. The basis of distinction between statutes affecting rights and those affecting merely procedure is well-recognised. Dixon, C.J. in Maxwell v. Murphy drawing upon the following words of Lord Justice Mellis .....

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ovisions as to assessment and so on are quantified and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately." 12. In, Halsbury's Laws of England (Fourth Edn., Vol. 23, para 29), referring to the machinery provisions it is stated: "It is important to distinguish between charging provisions, which impose the charge to tax, and machinery provis .....

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ng and for persons, natural or otherwise, are substantive laws' in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are 'procedural laws'." 14. In Salmond's Jurisprudence (Twelfth Edn., p. 462), the distinction between substantive law and law of procedure is indicated in the following words: "What then, is the true nature of the distinction? The law of procedure may be defined as .....

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o be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated. ".. What facts constitute a wrong is determined by the substantive law; what facts constitute proof of a wrong is a question of procedure. ".. So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive .....

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charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated." 5.7 A machinery provision in a fiscal statute should be so interpreted as to make the charging provision of that statute effective is now well settled. In K. P. Varghese v. I.T.O. Ernakulam and Another - Bhagwati, J. (as His Lordship then was) referring to vario .....

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an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat the famous words of Judge Learned Hands when he said: "...... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing; be it a statute a c .....

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setting in which all appear, and which all collectively create." 5.8 From the above decisions, it is crystal clear that there cannot be any challenge whatsoever to the levy of service tax, merely because there are no machinery provisions to compute or quantify the amount of tax. In my considered view section 67 itself provides the measure of the levy. Further there are several exemption notifications such as 12/2003-ST, 15/2004-ST and 1/2006-ST which provide for an alternative, optional, h .....

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determination of value addition, both in respect of supply of goods as well as supply of services. The tax credit mechanism ensures that the tax on the output service is charged only on the value addition involved on account of rendering of service. Therefore, even in the absence of a specific machinery provision, the value of the service rendered is automatically captured through the Cenvat credit mechanism. 5.10 The three taxable services involved in the present dispute are ECIS, CICS and COCS .....

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n, there is absolutely no difficulty in determination of value of service rendered. Therefore, the argument of lack of machinery provision for determination of tax liability is only a figment of imagination and has no practical relevance. Therefore, the challenge to the levy on this ground is clearly unsustainable and I hold accordingly. 6. Now I come to the main issue which is, whether a works contract can be vivisected and subject to service tax prior to 1-6-2007. It is necessary at this junct .....

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service) and a contract for the sale of the goods is that in the former there is in the person performing the work rendering a service, no property in the thing produced as a whole, even if part or even whole of the materials used by him may have been his property. Eventually the property passes; in the generality of building contracts, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in considera .....

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immaterial.' 6.1 In the case of State of Madras vs. Gannon Dunkerley & Company and others, (Madras), the Apex Court had an occasion to consider whether in the building contract which was in the nature of a composite and indivisible works contract, there was a sale of goods. Apex Court held that there was no sale of goods. Likewise, the goods provided on lease for use was not liable to tax because it was not sale within the definition of Section 4 of the Sale of Goods Act. After the deci .....

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al Amendment, enlarging the definition of sale. As a result of the Constitutional Amendment, States also amended their Trade Tax laws, and enlarged the definition of sale and levied the tax on the value of the goods involved in the execution of the works contract and transfer of right to use the goods. The validity of the Constitutional Amendment has been upheld by the Constitution Bench of the Apex Court in the case of Builders Association of India vs. Union of India. In brief, Apex Court held .....

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. The law laid down by the Apex Court has been further elaborated by the Constitution Bench of the Apex Court in the second Gannon Dunkerley and Co. vs. State of Rajasthan. 6.2 It is worth noting that a contract of work is essentially and inherently a contract of service. Article 366 (29A), creates a legal fiction to hold certain types of work contract as a deemed sale of goods so that the States can levy sales tax on the value of the goods supplied as part of the works contract. The said fictio .....

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ature to create a legal fiction meaning thereby to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. Even if a legal fiction is created by the Legislature, the court has to ascertain for what purpose the fiction is created, and it must be limited to the purpose indicated by the context and cannot be given a larger effect. More so, what can be deemed to exist under a legal fiction are merely facts and no legal consequences which do not flow .....

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or a specific entry for "taxes on services" in the Union List under entry 92C. Prior to the said amendment, the residual entry 97 covered taxes on services. Thus the power of the Parliament to impose a tax on services was never in dispute. The following transactions were identified for levy of sales tax on a deemed sale basis in the 46 th amendment to the Constitution, namely:- '(29A) " tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise t .....

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e consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), wheresuch supply or service is for cash, deferred payment or other valuable consideration, and such transfer, del .....

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Apex Court answered the question as follows:- 43. As far as the above points is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down .....

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on made on Article 366(29A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article 'such transfer, delivery or supply of any goods shall be deemed to be a sale of tho .....

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settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter. .......... '. 58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities. Section 65 clause 41 sub clause (p) of the Finance .....

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ale or hire purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The legislature in its wisdom noticed the said supremacy and identified the same as a potential region to collect indirect taxes. Moreover, it has been a well established judicial principle that so long as the legislation .....

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ax on financial leasing services [transaction covered by Art 366 (29A)(c)]. The hon'ble apex court after examining the scope of Article 366 (29A) and several other precedent decisions held as follows :- "Scope of Article 366(29A): 30. If one examines Article 366(29A) carefully, one finds that clause (29A) provides for an inclusive definition and has two limbs. The first limb says that the tax on sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f) .....

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to say, in the Statement of Objects and Reasons to the Constitution (Forty- sixth Amendment) Act, "though practically the purchaser in a hire-purchase transaction gets the goods on the date of entering into the hire-purchase contract, it has been held by the Supreme Court in K.L. Johar's case that there is a sale only when the purchaser exercises the option to purchase which is at a later date and therefore only the depreciated value of the goods involved in such transaction at the tim .....

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icated in the Report of Law Commission prior to the judgment of this Court in Gannon Dunkerley's case, works contract was always taxed by the States as part of the word "sale" in Entry 48/54 of List II. The object behind enactment of Article 366(29A) is to tax the composite price so that the full value of the hire-purchase price is taxed and to avoid the judgment in K.L. Johar's case whose implication was to narrow the tax base resulting in seepage of sales tax revenue. It is i .....

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law but this has no bearing on the question of legislative competence" (page 26). Thus, reliance placed by the appellant(s) on the expression "splitting up" in K.L. Johar's case is misconceived because the "splitting up" referred to in K.L. Johar's case was, as stated above, in regard to valuation and not in regard to legislative competence. ********** 37. Applying the above decisions to the present case, on examination of the impugned legislation in its entirety .....

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m). The taxable event under the impugned law is the rendition of service. The impugned tax is not on material or sale. It is on activity/service rendered by the service provider to its customer. Equipment Leasing/Hire-Purchase finance are long term financing activities undertaken as their business by NBFCs. As far as the taxable value in case of financial leasing including equipment leasing and hire-purchase is concerned, the amount received as principal is not the consideration for services ren .....

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rnment has given exemption from payment of service tax to financial leasing services including equipment leasing and hire-purchase on that portion of taxable value comprising of 90% of the amount representing as interest, i.e., the difference between the instalment paid towards repayment of the lease amount and the principal amount in such instalments paid (See Notification No. 4/2006 - Service Tax dated 1-3-2006). In other words, service tax is leviable only on 10% of the interest portion. (See .....

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erest charges" are taken into account and merely because service tax is imposed on financial services with reference to "hiring/interest" charges, the impugned tax does not cease to be service tax and nor does it become tax on hire-purchase/leasing transactions under Article 366(29A) read with Entry 54, List II. Thus, while State Legislature is competent to impose tax on "sale" by legislation relatable to Entry 54 of List II of Seventh Schedule, tax on the aspect of the .....

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te transaction. In other words, the issue of divisibility of an indivisible contract for the purpose of levy of service tax was confirmed and sustained by the Apex court. 6.7 Supply of goods and services are integrally connected with each other and it is difficult to segregate them. For example, while effecting a sales transaction, many services are inherently included such as freight, insurance, storage, and so on. Similarly rendition of many services entails supply of goods. To cite a few exam .....

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vii) Catering services include supply of food and drinks; ix) Supply of tangible goods for use service itself entails supply of goods; x) Photography services include supply of photographic films, paper, chemicals and so on; xi) Cleaning services need cleaning materials; xii) Sound recording services entail supply of recording medium and so on; xiii) Medical services include supply of medicines and other materials; xiv) Commercial coaching and training services entail supply of books and other s .....

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nto play. The decision of the Supreme Court in Federation of Hotel and Restaurant Assn. of India v. Union of India has beautifully explained this proposition and I cannot resist the temptation of quoting a few passages from the said decision :- 2.2 Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the Courts, however difficult it may be, to ascertain to what degree and to .....

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entally 'affect' another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. 2.4 The consequences and effects of the legislation are not the same thing as the legislative subject matter. It is the true .....

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upreme Court considered the issue of levy of sales tax on processing and supplying of Photographs. The hon'ble apex court held that,- "after insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. While going into this exercise of divisib .....

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List, the State Legislature has the competency to legislate over the subject." 6.9 This latest decision of the Supreme Court clearly settles the issue about the divisibility of a works contract for the purpose of taxation. If by virtue of clause 29A of Article 366, the State Legislature is empowered to segregate the goods part of the works contract and impose sales tax thereon, the same logic would apply in respect of Central Legislation imposing service tax. In other words, the Parliament .....

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ially considering the fact that there is no restriction stipulated in the statute for levy of service tax on these services. Therefore full play and effect to the statutory provisions have to be given. Further a statutory provision cannot be interpreted so as to create discrimination among various classes of service providers, one set of people supplying services alone, liable to tax, and another set providing both supply of goods and services, not liable to tax. In my humble view, we cannot cre .....

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is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than whe .....

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1992 SC 96, the Supreme Court observed thus:- "It is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the Court." In other words, the statute has to be interpreted in such a way so as to make it worka .....

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held that reliance should not be placed on external aids such as notings in the government's file, Finance Minister's speech, etc., while interpreting statues. The Apex court has held that,- "57. It has to be reiterated that the object of interpretation of a statute is to discover the intention of the Parliament as expressed in the Act. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whol .....

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may be made to G.P. Singh, Principles of Statutory Interpretation, 3rd Edn. pages 238 and 239. As noted in Maxwell on The Interpretation of Statutes, 12th Edition at page 269 that the leading modern cases on contemporanea expositio is the case of Campbell College, Belfast v. Commissioner of Valuation for Northern Ireland (1964 1 W.L.R. 912) in which House of Lords has made it clear that the doctrine is to be applied only to the construction of ambiguous language in the very old statutes. It is t .....

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on'ble Supreme Court as to whether the additional duty leviable under section 3(1) of the Customs Act, 1975 is a countervailing duty or a duty in addition to the duty under section 12 of the Customs Act, 1962. It was contended before the court that as per the Statement of objects and reasons,- "Clause 3 provides for the levy of additional duty on an imported article to counterbalance the excise duty leviable on the like article made indigenously, or on the indigenous raw materials, comp .....

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rd that provision as a charging section merely because the Statement says that section 3 "provides for the levy". The Statement of Objects and Reasons errs in being common to sub-sections (1) and (3) of section 3. It is more apposite to sub-section (3) though, even there, it may not be correct to say that it is a charging provision. The court held that the levy specified in section 3 (1) of the Tariff Act is a supplementary levy in enhancement of the levy charged by section 12 of the C .....

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f objects and reasons itself was rejected by the hon'ble apex court when the language of the statute was clear and unambiguous. The Finance Minister's speech has a lower status than the Statement of Objects and Reasons in interpreting the statute and therefore, the contention that reliance can be placed on such a speech is devoid of merits and needs to be rejected outright. Similarly in a recent decision, the hon'ble Madras High Court in CCE, Salem vs. Subramania Siva Co-op. Sugar Mi .....

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. To conclude, I am of the considered view that the issue referred to the Larger Bench is fully and squarely covered by the G D Builders case decided by the hon'ble Delhi High Court and the matter should rest there. Consequently, it has to be held that a composite works contract can be vivisected and discernible service elements therein can be levied to service tax provided such elements are declared as taxable services in the law, even prior to 1-6-2007 when a specific entry was created for .....

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eration without a proper discussion. P R Chandrasekharan, Member (T) Per: R K Singh: I have read with admiration the well crafted orders of my judicial guru Hon'ble Justice G Raghuram, President and my learned brother Shri P.R. Chandrasekharan, Member (Technical) 2. At the very outset, I would like to state that the Hon'ble Delhi High Court vide its order dated 11.11.2014 ordered that "the Five Member Bench may examine as a preliminary issue whether the question raised is covered by .....

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d by my ld. brother Shri PR Chandrasekharan, Member (Technical), the said judgments of Karnataka and Madras High Courts do not impinge upon the ratio/ decision of the Delhi High Court in the case of GD Builders with regard to the subject matter covered by the latter. It is hard to discern from the Hon'ble Delhi High Court order dated 11.11.2014 that the Hon'ble High Court at all intended that the order in case of GD Builders itself could be further questioned/ analysed to decide whether .....

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Hon'ble President that the GD Builders decision is not a product of concessions by a party to the lis. 4. Ld. Member (Technical) in para 5.6 of his order states that "from the above decisions, it is crystal clear that there cannot be any challenge whatsoever to the levy of service tax, merely because there are no machinery provisions to compute or quantify the amount of tax." I would like to state that this observation is not critical to the issue and the ld. Member (Technical) has .....

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taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him". Thus, it is evident that tax was to be computed with reference to the value of the service provided and not the value of the goods sold. The said Section even contained elaborate explanations including the one to the effect that the "cost of parts or other material, if any sold to the customer during the course of providing ECIS" was not to be included in .....

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includibility of the value of goods in the value of ECIS may arise. With effect from 18.04.2006, the said Section (S.67) was amended. The amended Section contains a sub- section which states that subject to the provisions of sub-sections 1, 2 and 3, the value shall be determined in such manner as may be prescribed. Thus, the Valuation Rules framed are only to prescribe the manner of determining the value if the same cannot be determined in terms of sub-sections 1, 2 & 3 thereof. The word &qu .....

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ue of service, implying thereby that the value of goods "sold" in a composite contract was not to be a part of the value for the purpose of that Section. Thus, Section 67, even in its pre 18.04.2006 avatar in no way encroached upon the state Govt's domain relating to levy of sales tax. Indeed, Notification No.12/2003-ST needs, thus, to be viewed as a measure of abundant caution and care on the part of the Central Govt. to obviate even a remote possibility of service tax being charg .....

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alysis culminating in para 6.9 of ld. Member (Technical)'s order, I may also add that merely because CCS, CICS, ECIS, provided as part of Works Contracts and hence becoming classifiable under Works Contract Service [S.65 (105)(zzzza)] w.e.f. 01.06.2007 in no way means that these services (as part of works contracts) were not taxable earlier (i.e. prior to 01.06.2007) under Section 65 (105) (zzzh), 65 (105)(zzq), 65 (105) (zzd) respectively because classification of a service is to be determi .....

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ing service tax whether a taxable service is rendered under a pure service contract or as part of a works contract. Incidentally, it may be mentioned in passing that if it was to be held that works contracts were not taxable under Finance Act, 1994 prior to 01.06.2007, the consequence would be that a works contract (to construct a commercial building) which involved (for the sake of argument) transfer of property in goods in the form of a single ordinary brick (of say value ₹ 10) will not .....

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to persuade myself to agree with his view. Indeed I am in complete agreement with my ld. brother Shri. PR Chandrasekharan that the issue referred to the Five Member Bench is fully and squarely covered by the Hon'ble Delhi High Court's judgement in the case of G.D. Builders. R K Singh, Member (T) Per: Rakesh Kumar: I have gone through the order recorded by the Hon'ble President and the orders recorded by my learned Brothers Shri P.R. Chandrashekharan and Shri R.K. Singh, Members (Tech .....

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are the pure sales transactions not involving the supply of any service and at the other end of the spectrum are the transactions of pure services not involving the supply of any goods. In between these transactions of pure sales and pure services, there is a vast variety of transactions in which there is supply of goods as well as provision of service. 2.1 Among such hybrid contracts, there is a group of contracts where under single instrument the parties enter into distinct and separate contr .....

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of provision of services would attract service tax. 2.2 The dispute in the present case is in respect of the indivisible contracts involving use of the goods and provision of service. Among such contract, there may be contracts where the main objective is supply of goods for some valuable consideration and provision of service is ancillary or incidental (like a dealer selling air conditioners with installation charges and charges for repair during warranty period included in the sale price) and .....

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med in course of provision of service. Such contracts would be the service contracts and the same are not the subject matter of dispute in the present case. The dispute in the present case is in respect of those indivisible contracts involving supply of goods as well as supply of service, where the work is done by the service provider on the immovable property - land, building etc. or on a chattel belonging to the service receiver and which involves affixing of material belonging to the service .....

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maintenance etc. In general, a works contract can be said to be a contract for some work (service) to be done by the service provider on the land/immovable property or on some movable property including intangible property belonging to the employer, which involves affixing of goods including intangible goods belonging to the service provider. The Apex Court's judgment dated 01/4/58 in the case of State of Madras vs. Gannor Dunkerlay and Co. Ltd. (supra) is in respect of building contracts wh .....

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e to be treated as service contracts as in such contracts, there is absolutely no intention of transfer of property in and delivery of the possession of, a chattel as a chattel to the service receiver. A service contract will not cease to be a service contract just because the provision of service involves use of goods, the property in which gets transferred to the service recipient through accretion. Even the Law Commission's Reports (Chapter IA para 7) refers to the works contract as " .....

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e in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) the transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract; (c) delivery of goods on hire purchase or any system of payment by instalments; (d) the transfer of right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration; (e) supply of goods by any .....

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ll be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Thus, Clause (29A) of Article 366 of the Constitution introduced by 46 th amendment is a legal fiction by which - (a) the transfer of property in goods, (whether as such or in some other form), involved in execution of a works contract became deemed sale by the person executing the works contract and the indi .....

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ts - works contracts and catering contracts. The legal fiction created by Article 366 (29A) does not change the basic character of a works contract or a catering contract, both of which are service contract. 3. It is well settled law that a legal fiction has to be given effect to only for the limited purpose for which it had been created and, therefore, Article 366 (29A) can be employed only to enable to State Governments to charge sales tax on certain contracts including the service contracts m .....

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meaning of 'sale' in Article 366 (29A) (f) is not applicable to Standards of Weights and Measures Act and the Rules made thereunder and accordingly the supply of packaged mineral water and soft drinks in hotels and restaurants does not constitute sale for the purpose of SWM Act and the Packaged Commodities Rules. Applying the ratio of this judgment, Article 366 (29A) would have no application to levy of service tax by the Central Government on the service contracts. In any case, the Cen .....

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e definition of 'taxable service'. If the service portion consists of a bundle of services, it is to be seen as to which service gives them their essential character and if that service was taxable, the works contract would be taxable. For this purpose the service tax would be leviable on the entire value of the contract including the value of the goods involved, as the works contract is one single indivisible contract for service and the transfer of property in goods involved in executi .....

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involved in the execution of the works contract. Apex Court in para 42, 43, 44 and 45 of its judgment in case of Tamil Nadu Kalyana Mandap and Association vs. Union of India reported in 2004 (167) E.L.T. 3 (S.C.) while upholding the constitutional validity of the levy of service tax on the service provided by a Mandap Keeper in relation to use of Mandap, has held that the fact that tax on sale of goods involved in the said service can be levied does not mean that service tax cannot be levied on .....

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ax. 3.1 The Central Government in order to avoid charging of tax on the goods involved in the execution of works contract on which State Government also levies the sales tax/VAT, has decided to exempt such contracts from the service tax to the extent the service tax is leviable on the value of the goods involved in the execution of the works contract and this has been done by issuing exemption notifications under Section 93 of the Finance Act, 1994 providing for abatement in the taxable value of .....

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for providing the service. An indivisible works contract is one single service contract whose value would include the value of all the goods and services which have contributed to emergence of the service product. In general, the value of a service provided would include the value of all the elements - goods and/or service used in provision of the service and in this regard it would not be correct to interpret the words - "gross amount charged'. '.. for the service provided" in .....

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ts, as State Government had no power to tax a service contract and only by virtue of the legal fiction of Article 366 (29A) could levy tax on deemed sale involved in such service contracts for which a machinery provision for determining the value of the goods deemed to have been sold was necessary. However, no machinery provision is required for determining the value of a works contract by excluding the value of the goods, as - (a) For the purpose of levy of service tax by Central Government, a .....

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rty in which has been transferred to the service receiver through accretion; (b) the legal fiction of Article 366 (29A) has no application when it comes to levy of service tax by the Central Government on a service contract even if it involves transfer of property in goods to the service receiver through accretion, and (c) measure of tax is independent of the nature of the tax and therefore service tax can be levied on a service contract involving transfer of property in goods to the service rec .....

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avoiding the taxation of the same goods by the State Government as well as by the Central Government and no machinery provision for determination of precise value of the taxable service in such contracts by totally excluding to the value of the goods deemed to have been sold is necessary. Therefore, the view that during the period prior to 01/6/07, service tax could not be levied on the taxable service provided as works contract as there was no machinery provision to determine the value of servi .....

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rvice tax on the service by the Central Government. For example the price of the goods sold by a dealer on which sales tax is charged may include the cost of a number of service like freight and transit insurance in case of FOR sales, advertisement expenses, installation and warranty repair charges etc. Similarly the amount charged by a service provider for the service on which service tax is payable may involve the cost of the goods used for providing the service. The principle of non encroachm .....

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ing the well settled tests to determine whether it is a contract for sale or a contract for service; and (b) once on the basis of the nature of the transaction, the taxing authority - whether Central Government or State Government is known, the whole transaction is taxed by that authority on the basis of the measure prescribed. 6. Separate and specific constitutional provision together with the machinery for determining the measure is required only when State Government wants to tax goods portio .....

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