TMI Blog2017 (2) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract and not a sale as held by the lower authorities, including the Tax Board - it does not materially make any difference if the assessee did not get the body or chassis insured as raised by the learned counsel for the Revenue, particularly when it is admitted that the chassis was duly insured. The nature of the contract certainly falls within the ambit and definition of “works contract”, as given in sec. 2(44) of the VAT Act, which includes in its ambit “assembling”, “fabrication”, “erection”, “installation”, “fitting out” and it takes in its sweep all genre of works contract and is not to be narrowly construed. 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, like seats or air conditioner system being provided by the awarder APSRTC. The claim of learned counsel for the Revenue that the body has been sold, is not found to be justified - Petition allowed - decided in favor of petitioner. - S.B. Sales Tax Revision / Reference No. 62/2013, 63 / 2013, 64 / 2013, 65 / 2013, 66 / 2013, 67 / 2013, 68 / 2013, 69 / 2013,. 70 / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether in the facts and circumstances of the case, the contract awarded to the petitioner by Andhra Pradesh State Road Transport Corporation, Hyderabad for manufacture and fabricate Super Luxury Type Bus Bodies on the chassis supplied by the Corporation is a works contract? (ii) Whether in the facts and circumstances of the case, the Rajasthan Tax Board ws justified in deciding that contract awarded to the petitioner by Andhra Pradesh State Road Transport Corporation, Hyderabad for manufacture and fabricate Super Luxury Type Bus Bodies on the chassis supplied by the Corporation is a sale? 3. It was contended on behalf of the assessee that in the course of execution of works, the petitioner is performing various activities in fabrication of 'Automobile Bus Bodies' as per drawing and specifications which, inter alia, consisted of (1) Pre treatment (2) Chassis preparation (3) Saloon under frame (4) Cabin structure (5) Side structure (6) Roof structure (7) Overall dimensions (8) Structure clearance (9) Panelling (10) Flooring (11) Doors (12) Painting (13) Windows (14) Seat fitments (15) Electricals (16) Fittings (17) Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures of the contract and also took into consideration the judgment of the Constitution Bench of the Apex court in the case of Patnayak Co. v. State of Orissa [1965] 16 STC 364, the judgment in the case of Mckenised Ltd. v. State of Maharashtra[1965] 16 STC 518, and other judgments, and reversed the order of DC(A) and held that the same cannot be said to be in the nature of works contract and is in the nature of sale and accordingly, allowed the appeals of the Revenue and rejected the cross objections-petitions. 7. Learned counsel for the assessee contended that taking into consideration the definition of Sale and Works Contract in the Rajasthan Value Added Tax Act, 2003, it would reveal that the contract awarded to the assessee by the Corporation is plain and simple works contract and by no stretch of imagination it could be held to be a sale. Learned counsel further contended that sec. 8 of the Act confers power on the State Government for exemption of tax and the State Government in exercise of powers conferred u/s 8(3) of the Act issued Notification no.F.12(63) FD/Tax/2005-80 dt 11.8.2006, provided for exemption of works contract on payment of exemption fee @ 3% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent contended that the AO as well as the Tax Board had rightly come to the conclusion that it is simply a sale transaction and is not at all in the nature of works contract. 10. Learned counsel further contended that the chassis was in the ownership of the Corporation and only body has been created, manufactured and simply placed on the chassis and merely by putting a body after assembling or constructing, it cannot be said to be in the nature of works contract. Learned counsel further contended that the price of the body was fixed and even reading of the various clauses of the contract would make it clear that it is a simplicitor sale. Learned counsel further contended that two major components, namely seat fitments and air conditioning system, which involve major expenditure, was provided by the Corporation for which labour charges were included and mere creating roof structure, side structure, cabin structure, chassis preparation or other specifications given by the Corporation, will not lead it to be a works contract. Even insurance was not undertaken by the assessee and which was a major factor. 11. Learned counsel also contended that the judgment in the case of Kone El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply shall be deemed to be a sale and the word purchase or buy shall be construed accordingly; Sec.2 (44) - works contract means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property. Work Contract as used in Art. 366(29A)(b) :- a tax on the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract; 14. It would also be appropriate to quote Notification No.F.12(63)FD/TAX/2005-80 dated 11.8.2006, pub. on 18.8.2006 :- S.O.173 - In exercise of the powers conferred by S.8(3) of the Raj. VAT Act, 2003, the State Govt., hereby exempts from payment of tax the registered dealers engaged in execution of works contracts leviable on the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract(s) subject to the following co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (i) above, the contractor shall be required to make payment of exemption fee in equal monthly installments in a period not exceeding the period of contract from the date of filing of application. In case the contractor has already received some payments for execution of works contract from the awarder, he shall enclose proof of payment of notified exemption fee on such payments, along with interest up to the date of filing of application, under this notfn; (iii) the amount already deducted by the awarder in lieu of tax from bills of payments to the dealer before the issuance of this notfn shall be adjusted against the exemption fee; (6) That the contractor shall not be entitled to claim input tax credit in respect of the goods used in execution of the works contract for which exemption certificate has been granted; (7) That the certificate of exemption shall be liable to be cancelled by the AA retrospectively if it is found that the same has been issued under contravention of the provisions of the Act, rules or notfn; and (8) That the tax collected or charged, if any, by such dealer before the issue of this notfn shall be deposited to the State Govt. and tax so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in some other form) involved in the execution of a works contract 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 a purchase of those goods by the person to whom such transfer, delivery or supply is made. The definition of goods in clause 12 is inclusive. It includes all materials, commodities and articles. The expression, goods has a broader meaning than merchandise. Chattels or movables are goods within the meaning of clause 12. Sub-clause (b) refers to transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The expression in some other form in the bracket is of utmost significance as by this expression the ordinary understanding of the term goods has been enlarged by bringing within its fold goods in a form other than goods. Goods in some other form would thus mean goods which have ceased to be chattels or movables or merchandise and become attached or embedded to earth. In other words, goods which have by incorporation become part of immovable property are deemed as goods. The definition of tax on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng both a contract of 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 contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in goods under clause 29(A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be now understood in light of the philosophy of Article 366(29-A). 17. The Apex court in the case of Kone Elevator of India Pvt. Ltd. v. State of Tamil Nadu (5 judges) (supra) affirmed the judgment in the case of Larsen Toubro Ltd. v State of Karnataka (supra), and held that the judgment in the case of State of A.P. v. Kone Elevators (India) Ltd (supra) does not lay down the correct law and, therefore, was overruled. Thus, the judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orollary, it would be 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. 69. Considered on the touchstone of the aforesaid two Constitution Bench decisions [Builders Assn. Of India v. Union of India (1989) 2 SCC 645 and Gannon Dunkerley Co. v. State of Rajasthan (1993) 1 SCC 364], we are of the convinced opinion that the principles stated in Larsen and Toubro (supra) as reproduced by us hereinabove, do correctly enunciate the legal position. Therefore, the dominant nature test or overwhelming component test or the degree of labour and service test are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignifican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to 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 to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based ..... X X X X Extracts X X X X X X X X Extracts X X X X
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