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M/s. Otis Elevators Company (India) Ltd. Versus The Commissioner of Commercial Taxes, U.P., Lucknow

2015 (7) TMI 229 - ALLAHABAD HIGH COURT

Classification of contract - Whether the works contract entered into between the revisionist Company and a customer is a sale contract or a works contract - Held that:- If the appellant, having a strong prima-facie case, is directed to deposit an amount of assessment so made or penalty so levied it would cause undue hardship to him though there may be no financial strains on the appellant running in a good financial condition. Even otherwise where two views are possible dispensation of deposit s .....

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case of Pennar Industries Limited Versus State of Andhra Pradesh and Others [2009 (2) TMI 457 - SUPREME COURT OF INDIA ] and Benara Valves Ltd. Versus Commissioner of Central Excise and Another[2006 (11) TMI 6 - SUPREME COURT OF INDIA] followed - The impugned order dated 19.06.2015 passed by the Tribunal is modified and a direction is issued to the Appellate Authority to decide the appeal of the revisionist expeditiously in accordance with law within a period of two months from the date of rece .....

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he Act, 2008) and is engaged in the business of manufacturing of parts and components of lifts and elevators in offices, residential buildings, Government buildings etc. Assessment proceedings were initiated in respect of the Company for the year 2009-2010. For purposes of carrying out the orders for supplying of lifts, elevators, the Head Office of the Company situate in Mumbai executes works contract for supply of parts and components of lifts/elevators and to provide services for erection, co .....

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ashtra Warehouse and involves a series of complex engineering activities such as template, plumbing, rails, designing, fixing platform and assembling car enclosure and accessories, checking continuity of safety link circuit, removing all shorting and start up, cleaning and painting, adjustment for balancing safety etc., which is undertaken for the erection, commissioning and installation of a functional elevator which is fully integrated into the structure in question. The short point which, the .....

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all the material utilized in the material and parts of a lift are assembled and kept in the godown and are transported to the site after the parties enter into a contract and it is not that the lift or its parts are manufactured after the execution of the contract. The assessing authority has therefore imposed a total demand of ₹ 5,53,54,723/-. Aggrieved by the order of the assessing authority, the revisionist-Company filed an appeal before the Additional Commissioner (Appeals), who by hi .....

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heard Sri Vaibhav Pandey and Rahul Agarwal learned counsel for the revisionist and Sri Sanjeev Shankhdhar, learned counsel for the respondents. learned counsel for the revisionist has referred to the provision to Section 9 of the U.P. Value Added Tax Rules, 2008 which reads as follows: "9. Determination of turnover of sale of goods involved in the execution of a works contract,- (1) Subject to other provisions of these rules, the tax on turnover of sale of goods where such sale is affected .....

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hich property in goods is not transferred in the execution of the works contract; (b) all amounts representing the value of exempt goods and amount of profit thereon; (c) all amounts representing the rent paid or payable in respect of machinery and other equipments taken on hire for use in the execution of works contract; (d) all amounts representing the value of service and labour and profit thereon; (e) all amounts representing the value of goods in which property has been transferred in the e .....

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ted that under Rule 9(1) although tax on turnover of sale of goods where such sale is affected by way of transfer of property in goods involved in the execution of a work contract, same shall be computed on the taxable turnover on the same taxable goods. However, for purposes of determining the taxable turnover of sale of such goods, the amounts specified in Clauses (a) to (g) of Rule 9 (1) shall be deducted if included in the gross amount received or receivable in respect of works contract:- Fr .....

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works contract was executed by the revisionist at its Head Office in Mumbai. The activity of manufacturing of parts/components of lifts/elevators is carried out by the revisionist at its factory in Karnataka and in terms of works contract executed for the said periods, the goods and parts are then sent to the customer's site for installation of lifts/elevators. The goods are received by way of stock transfer in U.P. from the office of the assessee situate outside U.P. and are used in the exe .....

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a works contract and not a contract for sale. Reliance has been placed upon a recent decision of the Constitution Bench of the Supreme Court reported in 2014 71 VST 1 (SC) Kone Elevator India Pvt. Ltd. Vs. State of Tamilnadu, which has overruled the earlier decision in the case of State of Andhra Pradesh Vs. Kone Elevator (2005) 140 STC 22 (SC). Paragraph 66 of the said judgment reads as under: "66. Coming back to Kone Elevators (supra), it is perceivable that the three-Judge Bench has ref .....

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gic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled .....

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paratory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in t .....

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o add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has .....

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e legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators (supra) does not correctly lay down the law and it is, accordingly, overruled." Be that as it ma .....

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in dispute between the parties that the appeal is still pending decision before the Appellate Authority-Additional Commissioner Grade -II, Appeal-I, Commercial Tax, Lucknow but the submission is that in view of the decision of the Constitution Bench in the case of Kone Elevator (Supra), the claim of the revisionist with regard to order of the assessing authority must necessarily be allowed and therefore, the Appellate Authority ought to have considered the stay application in this light of the m .....

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he appellant, having a strong prima-facie case, is directed to deposit an amount of assessment so made or penalty so levied it would cause undue hardship to him though there may be no financial strains on the appellant running in a good financial condition. Even otherwise where two views are possible dispensation of deposit should be allowed to the assessee. Paragraph 35 of the judgment reads as under: "35. In view of the above, the aforesaid authorities make it clear that the Court should .....

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should apply its mind as to whether in view of the said judgment, the appellant is likely to succeed on merit. If an appellant having strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause undue hardship to him, though there may be no financial restrain on the appellant running in a good financial condition. The arguments that appellant is in a position to deposit or if he succeeds in appeal, he will be entitled to get the refund, are .....

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lso be allowed where two view are possible. While considering the application for interim relief, the Court must examine all pros and cons involved in the case and further examine that in case recovery is not stayed, the right of appeal conferred by the legislature and refusal to exercise the discretionary power by the authority to stay/waive the pre-deposit condition, would be reduced to nugatory/illusory. Undoubtedly, the interest of the Revenue cannot be jeopardized but that does not mean tha .....

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h and Others the Supreme Court has explained the principles relating to grant of stay and has reiterated its earlier view taken in (2006) 13 SCC 347, Benara Valves Ltd. Versus Commissioner of Central Excise and Another which is quoted in paragraph 4 of its judgment which reads as follows: "4. 6. Principles relating to grant of stay pending disposal of the matters before the forums concerned have been considered in several cases. It is to be noted that in such matters though discretion is av .....

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