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Voltas Ltd. Versus State of Gujarat

2015 (4) TMI 427 - SUPREME COURT

Classification - Whether Tribunal was right in law in holding that the appellant's works contract for fabrication and installation of air-conditioning plants falls under Entry 2 and, therefore, taxable at the rate of 15% and not under Entry 5 under which it is taxable at the rate of 5% of the Schedule to the notification dated 18.10.93 issued under Section 55A of the Gujarat Sales Act, 1969 - Held that:- The competing entries requiring scrutiny to ascertain the correct composition rate of tax pa .....

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able, a lump sum by way of composition, at the rate or rates as may be fixed by the State Government having regard to the incidence of tax on the nature of the goods involved in the execution of total value of the works contract. Unmistakably, therefore, the State Government while fixing the composition rate of tax has to be mindful of the nature of the works contract executed and by no means can be oblivious thereof. Further, a composition rate of tax is in lieu of the amount of levy otherwise .....

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uest of the customer requiring the appellant to provide it with the lay out detail, foundation drawing and other necessary information essential for the erection of the water chilling plant. The exercise as a whole as contemplated by the work order thus was neither intended nor can be reduced to mere installation of the finally emerging apparatus. The work order noticeably did not refer to any readymade or instantly available devices, meeting the requirements of the customer so much so to be onl .....

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erpretation of statutes and subordinate legislations like the statutory Notification under Section 55A of the Act. To exclude the work of fabrication from the works contract as per the work order would render it (works contract) truncated to a form not intended by the customer. This would strike as well at the root of the mandate of correlation of a works contract and the corresponding composition rate of tax as envisaged by Section 55A of the Act and the Notification issued thereunder. - the in .....

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he views expressed herein are hereby set aside. - Decided in favour of assessee. - CIVIL APPEAL NO. 2957 of 2007 - Dated:- 8-4-2015 - Amitava Roy And Arun Mishra JJ. For the Appellant : Mr. Pratap Venugopal, Adv. Ms. Niharika, Adv. For M/s. K. J. John & Co. For the Respondent : Ms. Jesal, Adv. For Ms. Hemantika Wahi,Adv. JUDGMENT Amitava Roy,J. 1. The oft encountered debate on the extent of tax liability based on the classification of the determinants of a levy in law seeks judicial scrutiny .....

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ties. 3. The indispensable skeletal facts introduce the appellant, M/s. Voltas Ltd. as a company incorporated under the Companies Act, 1956 engaged amongst others in the business of execution of jobs design, supply and installation of air-conditioning plants construed to be indivisible works contracts. It is a registered dealer under the Act. By a communication dated 22.10.1993 of M/s. Anupam Colours and Chemicals Industries, Bombay, an order was placed with it for water chilling plant at its fa .....

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sisted on the requirement of chilled water to be used directly for its process of manufacturing pigments with the assertion that sufficient precautions be taken to ensure that chilled water at 5 to 6 degree centigrade is available for such process. The letter emphasized as well that the assessee would provide the customer with the lay-out details, foundation drawing and other necessary information required for the erection of the plant. The essential segments of the works contracts involved, as .....

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s contract Entry No. in of tax Schedule IIA of the Act Regular rate of Tax 1. Installation of air-conditioners and A.C.coolers and for repairs thereof 67 18% 2. Furniture and fixtures partitions including contracts for interior decoration and repairs thereof 104 8% 3. Fabrication and installation of lifts or elevators or escalators and for repairs thereof 120 8% 4. Fabrication and installation of plant and machinery and repairs thereof 39 8% 5. Construction of bodies on chassis of Motor Vehicles .....

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um by way of composition at the rate/rates, as may be fixed by the State Government by notification in the Official Gazette, having regard to the incidence of tax on the nature of the goods involved in the execution of total value of the works contract. Apt it would be to quote Section 55A as well for ready reference: "SECTION 55A. COMPOSITION OF TAX. (1) The Commissioner may, in such circumstances and subject to such conditions as may be prescribed, permit every dealer referred to in sub-c .....

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apply to a dealer who opts for composition of tax under sub-section (1).]" Pursuant to this provision, and as empowered thereby, the Government of Gujarat vide the notification dated 18.10.1993 (for short hereinafter referred to as the Notification) did fix the rate of composition payable by such dealer (s) in lieu of the amount of tax otherwise leviable under the Act and as contemplated in the said statutory provision. As the stand-off centers around the rate of composition so fixed, esse .....

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on of plant and machinery 5% 6. Construction of bodies on chassis of motor vehicles including three wheelers 3% 7. Ship building, including construction of barges, ferries tugs, trawlers or dredgers 2% 8. Works contracts other than those mentioned above 12% 6. The recorded facts demonstrate that the appellant being under the impression qua the works contract ordered vide letter dated 22.10.1983 of M/s. Anupam Colour and Chemicals that it would attract the rate of composition prescribed against E .....

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authority by its order dated 16.10.1996 however rejected the plea of the appellant and instead held that the works contract was covered by Entry No.2 as the assessee had to air-condition the plant to be erected by it. The margin of difference in the composition rates compared to the rates of tax for the identical works contract as catalogued in the Schedule to the Act did also weigh with the revenue authority in arriving at this conclusion. 7. The appellant-assessee being dissatisfied did appeal .....

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ppeal against this assessment order before the Assistant Commissioner of Sales Tax, Ahmedabad and having failed before this forum did take the issue before the Tribunal in Second Appeal No.97/2001. These two appeals were also dismissed by the Tribunal vide its judgment and order dated 2.12.2002 whereafter the appellant invoked the writ jurisdiction of Gujarat High Court registered as Special Civil Application No. 12508/2002 which to reiterate, have been, by the impugned decision, disposed of alo .....

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fication dated 18.10.93 issued under Section 55A of the Gujarat Sales Act, 1969?" 9. The High Court has answered the question referred in the affirmative thus sustaining the determination made by the revenue authorities/fora and the learned Tribunal declaring that the appellant's works contract for fabrication and for installation of air-conditioning plant did fall under Entry 2 of the Notification and was taxable at the composition rate of 15%. 10. As the decision of the High Court ass .....

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ied in the manufacture of a air-conditioning plant, room air-conditioner or split air-conditioner are almost similar with difference in size and are not drastically different. The appellant's plea that in central air-conditioning system, fabrication has to be undertaken requiring preparation of plant etc. and that thus the central air-conditioning system has to be treated differently from a room air-conditioner or window air-conditioner etc. was not accepted because, according to the High Co .....

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to be regarded as an exemption reprieve and thus needed to be construed strictly. Reliance was placed on the decision of this Court in Sanden Vikas (India) Ltd. V. Collector of Central Excise, New Delhi (2003) 4 SCC 699 which held with reference to a particular entry in an exemption notification under the Central Excise Tariff Act, 1985 that the air-conditioner kit of a car did fall within the meaning of air-conditioners. It rejected the proposition that in common parlance air-conditioner, room .....

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pellant was taxable at the composition rate of 5% against Entry No.5 of the Notification. Referring to the work order dated 22.10.1993 in particular, the learned senior counsel has maintained that the water chilling plant of the customer was to be configured in conformity with the design parameters referred to therein and not on readymade specifications on the election or discretion of the appellant-assessee. According to Mr. Datar the design parameters prescribed by the customer, to cater to it .....

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in any view of the matter, cannot be drawn within the contours of Entry 2 of the Notification, he urged. 12. As against this, Ms. Madhvi Diwan, the learned counsel for the Revenue has argued that as the supply of the water chilling plant as per the works contract involved for all practicable purposes does not envisage any process of fabrication, the appellant is liable to be taxed at the composition rate of 15%. According to her, the basic and functional components of the water chilling plant b .....

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e vis-vis the works contract involved are engrafted admittedly in the Notification issued by the Government of Gujarat in exercise of powers conferred by Section 55A of the Act. Logically thus, the interpretation necessitated by the rival orientations ought to be in furtherance of the underlying objective of the said provision. A plain perusal thereof would attest that thereby, in the circumstances to be prescribed, a dealer can be left at his option to pay in lieu of the amount of tax payable, .....

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e by the dealer under the Act. The scheme of composition as envisaged by Section 55A therefore in our comprehension does not admit of any synonymity with that of exemption as contemplated in law. This pre-supposition of the High Court as one of the contributing factors in concluding that the works contract in question did fall within the framework of Entry No.2 of the Notification is apparently erroneous. 14. As adverted to hereinabove, the work order in clear terms did enjoin that the design pa .....

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nd other necessary information essential for the erection of the water chilling plant. The exercise as a whole as contemplated by the work order thus was neither intended nor can be reduced to mere installation of the finally emerging apparatus. The work order noticeably did not refer to any readymade or instantly available devices, meeting the requirements of the customer so much so to be only installed at its factory. Instead, the work order had been apparently tailor-made to the requirements .....

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ed in the works contract for installation of air-conditioners and A.C. coolers contained in Entry No.2 of the Notification. The author of the said Notification, however, did consciously include the expression "fabrication" while describing the works contract enumerated in Entry 5 thereof. Having regard to the inseparable interdependence between the description of a works contract and the corresponding composition rate of tax, none of the inherent components of the works to be executed .....

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plant and machinery applied in Entry 5 are otherwise compendious enough to include air-conditioners and A.C. coolers, if the works contract involved require fabrication as well as installation thereof. 16. The word "fabrication" as defined in the Aiyan's Advanced Law Lexicon (Vol.II), 3rd Edition 2005 is "to manufacture". 17. The Oxford Dictionary defines the word "fabrication" to mean to construct or manufacture an industrial product. 18. The word "manufa .....

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thereof would be a subsequent step to finally position the plant to complete the works contract. As fabrication in terms of the work order in the instant case is a distinctly independent yet integral segment of the works contract contributing to the final physical form of the water chilling plant with the characteristics intended, it cannot be construed to be, synonymous to the installation thereof. 19. The High Court, as the impugned judgment would exhibit, had confined itself wholly to the com .....

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s contract. The High Court, thus, in our view, by overlooking the component of fabrication in the works contract opined that the same was within the purview of Entry No.2 and not Entry No.5. The description of the works contract, to reiterate, being of determinative bearing for ascertaining the composition rate of tax, we are of the unhesitant opinion, in the face of the design parameters insisted upon in the work order and consequential process of fabrication involved to cater thereto, that the .....

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classic statement of ROWLATT,J. in Cape Brandy Syndicate v. Inland Revenue Commnrs. (1921) 1 KB 64 at p.71 as extracted hereunder: "In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." It is trite as well that in a case of reasonable doubt, the construction most beneficial .....

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ore can be necessary than to expound those words in their natural and ordinary sense. The words themselves do alone in such cases best declare the intent of the law-giver." These views have with time resonated in various judicial pronouncements with unambiguous approval of this Court as well amongst others in Income Tax Officer, Tuticorin vs. T.S.Devinatha Nadar & Ors. (1968)68 ITR 252 and very recently in Commissioner of Income Tax-III vs. Calcutta Knitwears, Ludhiana (2014) 6 SCC 444 .....

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manner claimed by them and that mere assertion in that regard is of no avail as has been enunciated by this Court in U.O.I. & Ors. vs. Garware Nylones Ltd.etc. (1996) 10 SCC 413 and relied upon with approval in HPL Chemicals Ltd. vs. Commissioner of Central Excise, Chandigarh (2006) 5 SCC 208. 22. Equally, fundamental is the principle of statutory interpretation that no construction to a legislation ought to be provided so as to render a part of it otiose or redundant as held inter alia by t .....

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