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TMI Blog2020 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. Article 286 of the Constitution of India 286. Restrictions as to imposition of tax on the sale or purchase of goods-- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place -- (a) outside the State; or (b) in the course of the import of the goods into, or the export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, insofar as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter- State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Gazette, direct; (iv) in the case of other goods, at 12.5 per cent or such other rate not exceeding fifteen per cent, as the State Government may, by notification in the Official Gazette, direct; PROVIDED that where any goods are sold in containers or parked in any packing materials, the rate of tax applicable to such containers or packing materials shall, whether the price of the containers or packing materials is charged separately or not, be the same as those applicable to the goods contained or packed therein; and where such goods are exempt from tax, the sale of the containers or packing materials shall also be exempt from tax; (b) the purchase goods, shall be calculated at four per cent or such lower rate applicable on sale of such goods had it been a sale falling under clause (a); PROVIDED that the State Government may, by notification in the Official Gazette, direct that the tax shall be calculated at a lower rate." Facts in brief are that the appellant is engaged in construction of roads and bridges and is a work contractor. Assessment for the assessment year 2013-14 was finalised by the Assessing Authority vide order dated 23.7.2014. The assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract was an indivisible contract and the turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales-tax. It was in order to overcome the effect of the said decision Parliament amended Article 366 by introducing sub-clause (b) of clause (29-A)'. Sub-clause (b) of clause (29-A) states that 'tax on the sale or purchase of goods' includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract. It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract. It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29-A) of Article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale or purchase of goods takes place in any of the ways mentioned in clause (1) of Article 286 would also be attracted to a transfer of goods contemplated under Article 366(29A)(b). Similarly clause (3) of Article 286 is also applicable to a tax on a transfer of property referred to in subclause (b) of clause (29-A) of Article 366. Clause (3) of Article 286 consists of two parts. Sub-clause (a) of clause (3) of Article 286 deals with a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State or commerce, which is generally applicable to all sales including the transfer, supply or delivery of goods which are deemed to be sales under clause (29-A) of Article 366 of the Constitution. If any declared goods which are referred to in Section 14 of the Central Sales Tax Act, 1956 are involved in such transfer, supply or delivery, which is referred to in clause (29-A) of Article 366 the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the Central Sales Tax Act, 1956. Clause (b) is an additional provision which empowers Parliament to impose any additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution exists today the power of the States to levy taxes on sales and purchases of goods including the "deemed" sales and purchases of goods under clause (29A) of Article 366 is to be found only in entry 54 and not outside it. We may recapitulate here the observations of the Constitution Bench in the case of Bengal Immunity Company Ltd. (supra) in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List." [Emphasis supplied] In Gannon Dunkerley & Co. v. State of Rajasthan, (1993) 88 STC 204, the Supreme Court held as under: "34. If the legal fiction introduced by article 366 (29-A)(b) is carried to its logical end it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie of contract to provide for labour and services alone. Nothing in Article 366 (29-A)(b) limits the term "works contract". (iv) Building contracts are species of the works contract. (v) A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished. (vi) The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366 (29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative. (vii) A transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm rate of tax on the goods involved in the works contract inspite of the fact that different rates are prescribed under the Act for the constituents involved therein. Further that identity of the goods transferred is lost in the process does not prevent them from being goods. The contention of learned counsel for the State that the goods when being incorporated were transferred in some other form and hence ingredients lose their identity, cannot be accepted, as there is a deemed sale of the ingredients of 'hot mix material' and the loss of identity of goods does not prevent them from being goods for the purpose of deemed sale. The State of Haryana has not prescribed any uniform rate for material used in the works contract. Cement, bitumen, rori etc. which are to be deemed to be sold cannot be taxed at general rate by resorting to residuary clause, these are to be taxed as per the rates prescribed. The residuary clause will come into play only in case the goods are not covered under any of the Schedule to the Act. Even otherwise it would restrict the full play to be given to the deeming fiction of sale of goods involved in works contract. There is another angle to view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a residual entry under which a rate of 12.5% was provided 'in respect of other goods'. The expression 'in respect of other goods' meant goods other than those falling in the Second, Third and Fourth Schedules. Declared goods specified in Section 14 of the Central Sales Tax Act, 1956 were comprehended in Serial No.20 of the Third Schedule to the KVAT Act 2003 and attracted a rate of 4%, which applied to goods in that Schedule. As a result of the deeming definition of the expression sale, a transfer of property in goods involved in the execution of a works contract become exigible to tax. Exigibiliy to tax, it is settled law, is distinct from the rate of tax and the measure of the tax. In Gannon Dunkerly & Co, this court expressed the view that it is open to the states to provide a uniform rate of tax on goods transferred in the course of the execution of a works contract. The exigibility to tax is not (as it cannot be) dependent on the state prescribing a uniform rate of tax for goods involved in works contracts. That the KVAT Act 2003 did not provide a uniform rate of tax prior to 01.04.2006 on goods involved in the execution of works contract also becomes apparent when we read th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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