TMI Blog2014 (3) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... orm. In other words the goods of sale might undergo a transformation, alteration or change. In the case of a works contract too, articles integral to the process of manufacture such as tools, plant, machinery, equipment, for example concrete mixers, pumps, hydraulic mobile cranes, vehicles, computers is used for preparing plans designs, etc., vehicles used for carrying construction materials, etc., and other similar articles would be eligible for concessional tax even though such goods may not actually be incorporated in execution of the contract. Therefore, the Joint Commissioner of Sales Tax, erred in law in refusing to amend the certificate of registration of the petitioner under the Central Sales Tax Act, 1956, by adding construction equipment, machinery and tools such as hydraulic mobile crane, vehicle, pump material, computer, accessories, office equipment, etc., used in the process of execution of a works contract in the certificate of registration under the Central Sales Tax Act and it should be included in the registration certificate. - Decided in favour of petitioner - G. A. No. 3277 of 2011, W. P. No. 1053 of 2009 - - - Dated:- 7-3-2014 - Ms. Indira Banerjee, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CST Act, the Central Government has framed the CST Rules. Rule 13 of the Central Rules provides as follows: 13. The goods referred to in clause (b) of sub-section (3) of section 8 which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel, or lubricants, in the manufacture or processing of goods for sale, or in mining, or in the generation or distribution of electricity or any other form of power. The petitioner-company is a registered dealer under the CST Act, its registration being in the category of works contractor . The petitioner company applied for inclusion of plant, tools, machinery and other equipment used for executing works contract such as hydraulic mobile crane, concrete mixer, pump, computer, vehicles and accessories thereof in its certificate of registration. The respondent-Joint Commissioner of Sales Tax, however, refused to include the aforesaid items in the registration certificate, on the purported ground that these items were not transferred to the contractee by incorporation in the completed construction, but w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing or processing of goods for sale. Mr. Avratosh Majumder, Advocate appearing on behalf of the State submitted that the plant and machinery brought into the State by the petitioner, are not transferred by the petitioner to the employer and/or contractee. To qualify for inclusion in the certificate of registration it is not essential 16 that those goods should be transferred to the contractee. In view of the language and tenor of section 8(3)(b) of the CST Act and rule 13 of the CST Rules, not only goods intended for resale, but also goods including machinery, equipment, accessories, tools, spares, lubricants used in the process of manufacture or processing of goods for sale would qualify for inclusion in the certificate of registration, for concessional sales tax. As argued by Mr. Majumder, the petitioner applied for inclusion of concrete mixer, polyester webbling sling, scientific laboratory goods, hydraulic mobile crane with tools, plant and machinery and parts and accessories thereof, pumps, electronic machines and shuttering machines, valves and safety valves, metals, cement, stone-chips, office equipment, computer accessories, vehicles and shuttering materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such restrictions and conditions with regard to the system of levy, rates and other incidents of the tax, as Parliament might by law specify, as argued by Mr. Majumder. Subclause (b) of clause (29A) of article 366 provides for tax on transfer of property in goods (whether as goods or in any other form) involved in the execution of a works contract. Mr. Majumder submitted that the Constitutional validity of the 46 th Amendment was challenged in Builders Association of India v. Union of India reported in [1989] 73 STC 370 (SC); [1989] 2 SCC 645. The Constitution Bench of the Supreme Court upheld the amendment and further held that transfer of property in goods in the execution of works contracts, which had been brought within the definition of sale by way of legal fiction, should be subjected to the restrictions and conditions envisaged under article 286 of the Constitution of India. In Gannon Dunkerley Co. v. State of Rajasthan reported in [1993] 88 STC 204 (SC); [1993] 1 SCC 364, referred to by Mr. Majumder, the Constitution Bench of the Supreme Court held that the value of the goods involved in the execution of a works contract would have to be determined by taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the VAT Act. Mr. Majumder further submitted that Contractual transfer price in relation to any period, has been defined in section 2(10) of the VAT Act to mean the aggregate of the amount received or receivable by a dealer in respect of transfer of property in goods (whether as goods or in some other form) in execution of any works contract, as defined in clause (57), whether executed fully or partly during such period. Mr. Majumder referred to section 18(1) of the VAT Act which provides for levy of tax on transfer of property in goods involved in the execution of works contract, at the rate of two per cent. of the taxable contractual transfer price in case of registered dealers and at the rate of four per cent. in the case of unregistered dealers. Section 18(2) of the VAT Act defines 'taxable contractual transfer price' to mean, in the case of a dealer who is liable to pay tax on transfer of property in goods involved in the execution of a works contract, that part of his contractual transfer price during any period which remains after deducting therefrom- (i) contractual transfer of goods, sales of which are declared tax-free under section 21; (ii) charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f works contract, is in my view, not sustainable in law. After the 46th Amendment of the Constitution and amendment of article 286 followed by enactment/amendment of statutes relating to sales tax, referred to above, the expression manufacture and processing of goods for sale would necessarily include the activities involved in the execution of a works contract Mr. Majumder argued that the exclusions for arriving at a taxable turnover in case of a works contract reveal that, charges for obtaining on hire or otherwise, machinery or tools used specifically for execution of the works contract, cannot be included in the value of works contract which would be liable to sales tax/VAT as the case may be. However for inclusion of any goods in the certificate of registration, what is relevant is whether the goods sought to be included are used in the processing or manufacture of goods for sale. As submitted by Mr. Majumder, works contract has been defined in the CST Act to mean a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the VAT Act also provides for exclusion of sale in the course of inter- State trade or commerce for arriving at the taxable turnover for the purpose of the VAT Act. Citing B. G. Shirke Construction Technologies (P) Limited v. Addl. Commissioner of Commercial Taxes reported in [2007] 5 VST 655 (SC); [2007] 4 SCC 148, Mr. Majumder submitted that the Supreme Court has held that there is no dispute that a crane is a hoisting machine, used for lifting and moving heavy load. Mr. Majumder argued that there are different kinds of cranes, such as tower cranes which are mostly used to construct high-rise buildings. The tower cranes, which are also called climbing cranes , are taken apart and dismantled after completion of the building. The Supreme Court affirmed the judgment of the Karnataka High Court holding that tower cranes could not be considered as industrial inputs for use either as a component part or as a raw material for any other goods. Mr. Majumder submitted that in view of the judgment of the Supreme Court in B. G. Shirke Construction Technologies (P) Limited [2007] 5 VST 655 (SC); [2007] 4 SCC 148 it is a settled position of law that construction equipment like cranes c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the finished product and which, along with others, goes to make up the finished product. (3) The expression 'raw material' means any material- (a) from which another product can be made, through the process of manufacture, either by itself or in combination with other raw materials; or (b) a processing or any other chemical solvent (including chemicals used for testing, analysis or research) used in the solvent extraction process or a catalyst required in the manufacturing process, but it does not include fuels, and consumable stores of similar type. In B. G. Shirke Construction Technologies (P) Limited [2007] 5 VST 655 (SC); [2007] 4 SCC 148 a crane and/or towering crane, was held not to be an industrial input, in view of the specific definition of industrial input in the Karnataka Sales Tax Act, extracted hereinabove. The judgment of the Supreme Court is clearly distinguishable. Mr. Majumder argued that the petitioner has sought to make out a new case, by filing a supplementary affidavit, wherein, for the first time it is stated that the petitioner-company carries on manufacturing activity and has Central excise registration. Mr. Majumder submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court held that locomotive and motor vehicles and accessories, and spare parts thereof, as also tyres and tubes for motor vehicles were eligible for inclusion in the certificate of registration, as also laboratory fittings used for analysis of ore and other raw materials used in mining operations and in the process of manufacture for sale. In J. K. Cotton Spinning Weaving Mills Co. Ltd. v. Sales Tax Officer reported in [1965] 16 STC 563 (SC) also cited by Mr. Khaitan, the Supreme Court held that the expression in the manufacture takes within its compass, all processes, which are directly related to the actual production. The company in the aforesaid case was engaged in manufacture of cotton textile, tiles and other commodities. The Supreme Court held that drawing and photographic materials used in the process of designing, which are directly related to actual production of goods and without which commercial production would be inexpedient, must be regarded as goods intended for use in the manufacture of goods . The Supreme Court further held that electric lighting, electrical humidifiers, exhaust fans and similar electrical equipment were equipment necessary to effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function of blending of ore from different stockpiles and the loading of the blended ore into the ship for delivery to the foreign buyer. The entire activity of the assessee was broadly divisible into seven different operations, one following the other, namely, (i) extraction of ore from the mine, (ii) conveying the ore to the dressing plant, (iii) washing screening and dressing the ore, (iv) conveying the ore from the mine site to the riverside, (v) transport of the ore from the riverside to the harbour by means of barges, (vi) stacking ore in the harbour in different stockpiles according to physical and chemical composition. The assessee had applied for inclusion of 36 items of goods in its certificate of registration, on the ground that the same was for use in mining ore and processing the same for sale in the export market. The Sales Tax Officer, however, granted registration in respect of a few items but rejected most of the others on the ground that blending of ore, which was done in the course of loading, through mechanical ore handling plant, did not amount to manufacturing or processing of ore. The question was whether goods purchased by the assessee for use in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular process that is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient goods required in that process would fall within the expression in the manufacture of goods . Mr. Majumder argued that in the case of works contract, the finished goods such as flyovers, roads, buildings, etc., could not be the subject matter of levy and it was for this reason that only the building materials which were involved in such execution of works contract, by way of a deemed fiction, may be exigible to VAT/sales tax. Mr. Majumder further argued that in J. K. Cotton Spinning Weaving Mills Co. Ltd. [1965] 16 STC 563 (SC) the Supreme Court evolved the concept of commercial expediency test so as to ascertain whether any particular process in the manufacture of goods was so necessary and so integrally connected that without such process the manufacturing or processing of goods would not be commercially feasible. The Supreme Court considered general manufacturing activity or processing activity. Mr. Majumder submitted that the judgment of the Supreme Court in Member, Board of Revenue, West B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax for plant and machinery used in the execution of works contract or in case of construction activities. Inter-State purchase of plant and machinery used in execution of civil works contract cannot, therefore get the benefit of concessional rate of tax under section 8(3)(b) of the CST Act read with rule 13 of the CST Rules. As observed above, the definition of sale in section 2(g) of the CST Act includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The scope and ambit of section 8(3)(b) of the CST Act and rule 13 of the CST Rules came up for consideration of the Supreme Court in Indian Copper Corporation Limited [1965] 16 STC 259 (SC), J. K. Cotton Spinning Weaving Mills Co. Ltd. [1965] 16 STC 563 (SC), Member [1972] 29 STC 101 (SC), Chowgule Co. Pvt. Ltd. [1981] 47 STC 124 (SC). The law which emerges from the aforesaid judgments is that the expression goods intended for use in the manufacture or processing of goods for sale might include plant, machinery, etc., used for the purpose of such manufacture or processing as also locomotives, vehicles, cranes, etc., which facilitate the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re or processing of goods for sale. The goods that may be incorporated in the certificate of registration are to be goods intended for use as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel, or lubricants in the manufacture or processing of goods for sale or in mining or in generation or distribution of electricity or any other form of power. May be, as argued by Mr. Majumder, section 8(3)(b) of the CST Act read with rule 13 of the CST Rules does not specify goods involved in the execution of a works contract. That is, in the view of this court not material. Rule 13 does not exclude goods involved in a works contract. What is material is whether a works contract involves a process of manufacture or processing of goods for sale. Manufacture has not been defined in the CST Act, or the CST Rules or the VAT Act or the VAT Rules. The word manufacture ordinarily means to make or produce something. The expression 'manufacture' has been judicially interpreted in the context of the Central Excise Act, in Ujagar Prints v. Union of India reported in [1989] 74 STC 401 (SC); [1989] 179 ITR 317 and 362 (SC); [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 124 (SC) is no distinction in the eye of law. Facts are bound to differ from case to case. What is relevant is the issue of law that has been laid down by the Supreme Court. The Supreme Court has held in no uncertain terms that articles used in the process of manufacture would be liable for concessional tax, even though such articles may not be incorporated in the manufactured end-product. In the case of a works contract too, articles integral to the process of manufacture such as tools, plant, machinery, equipment, for example concrete mixers, pumps, hydraulic mobile cranes, vehicles, computers is used for preparing plans designs, etc., vehicles used for carrying construction materials, etc., and other similar articles would be eligible for concessional tax even though such goods may not actually be incorporated in execution of the contract. In my view, the Joint Commissioner of Sales Tax, Salt Lake Branch, being respondent No. 2 erred in law in refusing to amend the certificate of registration of the petitioner under the Central Sales Tax Act, 1956, by adding construction equipment, machinery and tools such as hydraulic mobile crane, vehicle, pump material, computer, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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