TMI Blog2017 (11) TMI 1786X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the agreement was clearly in two parts, namely, (i) sale and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services. The assessee has, in fact, admitted that it had no grievance against the finding that supply of pipes was nothing but the sale of pipes involved in the execution of the contracts and, therefore, it was excisable to sales tax. In view of the findings recorded by the authorities below, this element of sale of goods shall apply to jointing material specials, valves, anchor blocks, etc. as well. Appeal dismissed. - Civil Appeal No. 9879 of 2017 (Arising Out Of Slp (C) No. 11539 Of 2015) - - - Dated:- 28-11-2017 - A Bhushan and A Sikri, JJ. JUDGMENT A.K. Sikri,. All these appeals are filed by the same appellant, namely, M/s. India Hume Pipe Co. Ltd. (hereinafter referred to as the Signature Not Verified assessee ). The singular issue that arises is also identical in all Digitally signed by NIDHI AHUJA Date: 2017.08.29 these appeals. The only reason for filing number of appeals is that the said issue pertains to different Assessment Years. 2) The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority, Single Judge as well as the Division Bench of the High Court of Rajasthan, after dealing with merits of the case, affirmed the order passed by the Commercial Tax Officer holding that the assessee is not entitled to claim exemption under Section 7AA for supply of pipelines as that was termed as sale . 7) We may mention that the State Government also issued notification dated March 29, 2001 wherein laying of pipeline with material has been categorized as Works contract and because of this the assessee s work, after the said notification, is considered as Works contract and has been granted exemption from that date. We are, thus, concerned with the execution of this Works contract prior to the year 2001. 8) Mr. Arvind Datar, learned senior counsel appearing for the assessee, at the outset, drew the attention of this Court to the decision of the Constitution Bench in the case of Kone Elevator India Private Limited v. State of Tamil Nadu1. He laboured to demonstrate that instant appeals were squarely covered by the aforesaid judgment wherein it was held that a single, composite contract for the supply of goods, labour and service will be treated as a Works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly rejected the application for exemption on the ground that the sale of pre-stressed cement concrete pipe falls within the definition of sale of goods under the Act. 11) He also argued that the term works contract appearing in Article 366(29A)(b) of the Constitution of India takes within its fold all genres of works provide for labour and services. For sustaining levy of tax on goods, deemed to have been sold in execution of a works contract, the following three conditions must be fulfilled: (i) there must be a works contract; (ii) goods should have been involved in execution of a works contract; and (iii) property in those goods must be transferred to a third party either as goods or in some other form. Mr. Mehta argued that the works contract executed by the assessee is a contract which is divisible under work orders and, thus, the imposition of tax and penalties made under Section 7AA of the Rajasthan Sales Tax Act, 1954 is in accordance with law. 12) Mr. Mehta also referred to the terms and conditions of the agreement and submitted that in the contract substantial part of the value of the contract pertains to the cost of PSC p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The Court held that in order to determine such a question, the enquiry will have to be on the issue as to whether the contract in question is a composite one for supply of goods, labour and service or whether it is not one such single composite contract but two clearly separate contracts, one for supply of goods only and the other for supply of labour and services only. The Court further held that if it is a composite contract, even as per the constitutional philosophy contained in Article 366(29A), it is no longer permissible to weigh what proportion the component of supply of goods bears to the component of supply of labour and service in the composite contract (whether in terms of the consideration payable or otherwise), and then depending on whether the proportion of supply of gods component is high, label it as a contract for sale of goods and after the said proportion is low then label it as a works contract . The Court, thus, held that if it is a composite contract for supply of gods, labour and service, then it must be held to be a works contract as per Article 366(29A)(b) of the Constitution. 17) In the instant case, there is no dispute that the contract in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 38. Commenting on the said decision in Larsen and Toubro, a three-Judge Bench opined that after the Forty-sixth Amendment, the thrusts laid down therein are not of much help in determining whether the contract is a works contract or a contract for sale of goods. We shall elaborate the perception as has been stated in Larsen and Toubroat a later stage. xx xx xx 69. Considered on the touchstone of the aforesaid two Constitution Bench decisions in Builders' Assn. and Gannon Dunkerley (2, we are of the convinced opinion that the principles stated in Larsen and Toubro 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 (29-A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . State of T.N. Following observations in that case are apt for this purpose: (SCC p. 31, para 44) 44. On the basis of the aforesaid elucidation, it has been deduced that 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. One thing is significant to note that in Larsen and Toubro, it has been stated that after the constitutional amendment, the narrow meaning given to the term works contract in Gannon Dunkerley (1) no longer survives at present. It has been observed in the said case that: (Larsen and Toubro 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be sale, even though it may not be well within the meaning of Sale of Goods Act. In Larsen and Toubro case it was further held that the value of gods which can constitute a measure of levy of the tax has to be the value of goods at the time of incorporation of the gods in the works even though property in goods passes later. Taxing the sale of goods element in a works contract is permissible even after incorporation of gods, provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property (refer to paragraph 124). 21) In the present case, the assessing authority, after scrutinising the agreement in question between the assessee and the State Government, returned a finding of fact that manufacture and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. do not fall within the scopes of buildings, bridges, dams, roads and canals. It was also held that the agreement was clearly in two parts, namely, (i) sale and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services. These findings are upheld not on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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