TMI Blog2016 (8) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... our. On an overall conspectus of the facts it is clear that the contract in question was not merely one for supply of labour and service as is sought to be contended and portrayed but clearly fell in the species of a works contract as defined by Section 2(m) of the 1948 Act. Subsection (2) of Section 3F makes a provision for the identification of items which are liable to be included or excluded while computing the net turnover which is liable to be taxed in respect of a works contract. This Court however, finds that neither before the authorities below nor even before this Court has the revisionist furnished any details in respect of the taxable turnover liable to be computed in accordance with the provisions of Section 3F (2)(b). In absence of the said material and as a consequence of the failure of the revisionist to provide such details, the learned Standing Counsel has rightly contended that the respondents committed no illegality in levying penalty upon the revisionist. The provisions of Section 3F deal with the computation and determination of net turnover of the works contractor. The identification of the valuable consideration paid in respect of a transfer of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractor. The BSNL will supply underground cable, joining kits, DP boxes, cabinets and other store items required for the job. The contractor will be responsible for their safety and in case of loss to BSNL property, the contractor will have to pay for the losses or the same will be adjusted towards his bills or security money etc. 6. digging or trenching should be made at a standard depth of one meter or 1.65 meter (as the case may be.)........ 10. The cable is to be laid as soon as trenches are ready and should not be left till the whole length is dug up.......... 13. The contractor has to abide by the terms conditions of trenching/cable laying/joining and termination of laid cables fixed by GMTD, BR. 90% payment of the value of the work done will be made against bills in support of actual physical work completed and put to use certified by unit officer........... GMTD, BR however, shall reserve the right to pay the balance 10% amount of a particular work, after the completion of work, if he is satisfied with the performance of the contractor. By a notice which stands appended as Annexure2 to the revision, the assessee was called upon to show cause why pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Sri Agrawal further contends that no exercise of bifurcation was undertaken by the department nor was any enquiry instituted in order to ascertain the value of the goods, the property in which may be stated to have been transferred in the course of execution of the contract. Referring to the provisions of Section 3F (2)(b) he submits that the stone, bricks and other material utilized for completion of the civil work elements of the contract were not liable to be included while determining the net turnover relating to the works contract. For the aforesaid reasons, it was his submission that the levy of penalty was unjustified. Sri B.K. Pandey, the learned Standing Counsel while refuting the above submissions has drawn the attention of the Court to the fact that neither before the assessing authority nor before the first appellate authority were any details furnished by the revisionist to indicate the bifurcation of items utilized in the civil work undertaken by the contractors. He further submits that the issue of bifurcation of items itself would be an issue which was liable to be inquired into during the assessment of the contractor. He submits that in the absence of any det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied or is leviable under this Act at some earlier stage; (iv) the amount representing the value of the goods manufactured in a new unit exempted under Section 4A or Section 4AAA; (v) the amount representing the value of the goods supplied to the contractor by the contractee: Provided that the ownership of such goods remains with the contractee under the terms of the contract; (vi) the amount representing the labour charges for the execution of the works contract; (vii) all amounts paid to the subcontractor as the consideration for execution of the works contract, whether wholly or in part: Provided that no deduction under this sub-clause shall be allowed unless the dealer claiming deduction produces proof that the subcontractor is a registered dealer liable to tax under this Act and that such amount is included in the return of turnover filed by such subcontractor under the provisions of this Act; (viii) the amount representing the charges for planning, designing and architect's fees; (ix) the amount representing the charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract; (x) the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) or subsection (2), fails to make the deduction or, after deducting, fails to deposit the amount so deducted, as required by subsection (3), the Assessing Authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into the Government Treasury. Dealing with the submission that the contract in question would not fall within the meaning of a 'works contract' as defined under the 1948 Act, it would first be apposite to refer to the terms of the agreement. The essential obligation placed upon the contractor under the contract was of laying underground cables. Although the underground cables, joining kits and other apparatus were to be supplied by the revisionist, the contractor was also obliged to undertake the activity of road cutting, digging of trenches and preparing the ground for laying of cables. The contractor was further obliged to clear surplus earth and road spills and restore the metalled roads to their original condition. The trenches themselves were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performed by the contractor is further evident from what was submitted before the appellate authority as part of its grounds of appeal. In fact and as would be evident from a reading of the submission made it is evident that the transfer of property in goods in the course of execution of the works contract was admitted. The said ground in appeal was in the following words: - Because in view of the facts mentioned above it is clear that the transfer of property in goods is strictly confined to the cost of bricks and its placement. These important aspects have not been taken into consideration by the learned Assessing Authority and the assessment order has been passed in a cursory manner without application of mind. The above provisions of the agreement, the stand of the revisionist, have been referred to in some detail in order to highlight that the contract, its essential obligations and characteristics were not restricted to mere job work. The payment terms were in no manner connected to the cost that may have been incurred by the contractor for the purpose of engaging men and labour. The contract was a composite contract, which entailed the laying of cables after undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gories of contracts and explained the contours, namely, ( i ) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; ( ii ) it may be a contract for work in which the use of the materials is accessory or incidental to the execution of the work; and ( iii ) it may be a contract for supply of goods where some work is required to be done as incidental to the sale. Thereafter, it opined that the first contract is a composite contract consisting of two contracts, one of which is for the sale of goods and the other is for work and labour; the second is clearly a contract for work and labour not involving sale of goods; and the third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale. 43 . The essential characteristics have been elucidated by a three Judge Bench in Larsen and Toubro (supra) thus: 56. ............As the very title of Article 366 shows, it is the definition clause. It starts by saying that in the Constitution unless the context otherwise requires the expressions defined in that article shall have the meanings resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been observed in the said case that: (Larsen and Toubro Ltd. Case, SCC p. 750, para 72) 72. ... even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that: (Larsen and Toubro Ltd. Case, SCC p. 750, para 72) 72. ...once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term works contract because nothing in Article 366(29A)(b) limits the term works contract to contract for labour and service only. 45. In the said case, another significant aspect has been considered. That relates to the dominant nature test . We think it apt to reproduce what has been stated in Larsen and Toubro (supra): 60. Whether the contract involved a dominant intention to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of property in goods involved in the execution of a works contract. Subsection (6) then provides for the imposition of penalty if a person fails to make deductions before making payment to the contractor. Subsection (6) does not defer the imposition of penalty nor does it make the payment of penalty dependent upon the intent of the person responsible. The payment of penalty is also not contingent upon it being found that there was a design to evade payment of tax or any unlawful intent not to deduct tax. Subsection (6) therefore, stands attracted immediately upon a failure on the part of the person responsible to deduct tax from payments made to a contractor. In the present case, there has admittedly been a failure on the part of the revisionist to deduct tax. Consequently, the provisions of subsection (6) stood attracted and the levy of penalty, therefore, followed and was in fact a necessary corollary. Learned Senior Counsel referring to the provisions of Section 3F of the 1948 Act has then submitted that the penalty could not have been imposed on the entire amount of payment made under the contract. It was his submission that the penalty was liable to be restricted to ..... 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