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TMI Blog2020 (6) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... the 46th Amendment of the Constitution of India 15 - 17 IV The 46th Amendment to the Constitution of India 18 & 19 V Vires Upheld 20 & 21 VI March of Law post 46th Amendment to the Constitution of India A) Supreme Court of India 22 & 23 A1) A slight slip up 24 A2) The Law reiterated 25-28 B) Bombay High Court B1) Full Bench 29 B2) A Slip again 30 B3) The Law again reiterated 31 & 32 C) Kerala High Court C1) Full Bench 33 & 34 VII Tamil Nadu State Amendment 35 VIII Interpretation by the Madras High Court 36-45 IX Necessity for Reference 46-56 X The Reference Answered 57 XI Conclusion 58 & 60 I) Introduction:- 2. The writ appellant Tvl.Unique Traders at Viruthunagar, had filed a writ petition in the nature of a Certiorari, calling for the records relating to the final assessment order passed by the respondent, Commercial Tax Officer-I, Viruthunagar in Tamil Nadu General Sales Tax in TNGST 5721309/03-04 dated 07.04.2010, for the Assessment Year 2003 -2004. 3. The writ petitioner Tvl.Unique Traders is a registered dealer under the Tamil Nade Sales Tax Act, 1959. They are also an assessee in the books of the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Tax Case (Revision)No.687 of 2006) decided on 05.11.2008 and State of Tamil Nadu Vs. Premier Litho Works and another, reported in (2009) 26 VST 205 (Madras), the issue was answered against the Revenue. 6. It was also noted by the Division Bench (Amreshwar Pratap Sahi, CJ. and Subramonium Prasad J.) that the judgment in the case of State of Tamil Nadu Vs. Premier Litho Works and another, [(2009) 26 VST 205 (Mad)], was also challenged by the State before the Hon'ble Supreme Court in Civil Appeal No.10162 of 2010 and the Special Leave Petition was dismissed on 03.08.2016. 7. The learned counsel for the appellant had also placed reliance on another judgment of a Division Bench of this Court in State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Mahalakshmi Process, Sivakasi decided on 29.03.2019 in Tax Case (Revision) No.495 of 2006, where, following a judgment of the Bombay High Court in Commissioner of Sales Tax Vs. Tvl.R.M.D.C.Press Private Limited, reported in (1999) 112 STC 307, the issue was answered against the revenue. 8. The learned Special Government Pleader however confronted the learned Division Bench, with a judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e views expressed during the discussions by my noble brothers G.R.Swaminathan and M.Dhandapani, J.J. 14. The reference has to be answered tracing the judicial approach prior tothe 46th Amendment of the Constitution of India, wherein, Clause-29A was inserted on Article 366, the vires and scope of the amendment and the march of law subsequent and consequent to the Amendment. III) Judicial Approach Prior to the 46th Amendment of the Constitution of India:- 15. In (1958) 9 STC 353, State of Madras Vs. Gannon Dunkerly & Co. (Madras) Ltd., (Gannon Dunkerley No.1), a Constitutional Bench of the Hon'ble Supreme Court of India examined a building contract to determine whether there could be imposition of tax on the supply of materials used in construction of buildings. It was held that the Madras General Sales Tax Act, 1939, was a law relating not to sale of goods, but to tax on sale of goods. It was held that in the case of a building contract, the property in materials used, does not pass to the other party to the contract as movable property. It would only pass so, if there is an agreement between the parties to that effect. If there is no such agreement, then the contract is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clients who bring their own negatives, and (3) in preparing positive prints of the same size from the negatives brought by the clients. For doing these various types of works the assessee respondent charges consolidated amount depending upon the work involved and the size and number of prints demanded by the client." (Emphasis supplied) and held in para 9 and 10 as follows:- "9. Keeping the above principles in view, we may now turn to the facts of the present case. When a photographer like the respondent undertakes to take photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter into a contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. The occupation of a photographer, except in so far as he sells the goods purchased by him, in our opinion, is essentially one of skill and labour. A good photograph reveals not only the aesthetic sense and artistic faculty of the photographer, it also reflects his skill and labour. A good photograph in most cases is indeed a thing of beauty. It not only seeks to mirror and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution unless the context otherwise requires, the expressions defined in that article have the meanings respectively assigned to them in that article. The expression 'goods' is defined in clause (12) of Article 366 of the Constitution as including all materials, commodities and articles. It is true that in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd, (supra) this Court held that a works contract was an indi-visible 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 subclause (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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above... VI) March of Law post 46 th Amendment to the Constitution of India :- A) Supreme Court of India:- 22. A Constitution Bench of the Hon'ble Supreme Court in (1993) 88 STC 204 (SC), Gannon Dunkerley Vs. State of Rajasthan, (Gannon Dunkerley II), and Larsen and Toubro Limited Vs. Union of India and others, examined the scope of the amendment. The Hon'ble Supreme Court held as follows:- "32. The question is whether in the absence of an amendment in the Central Sales Tax Act specifically applying its provisions to a transfer of property in goods involved in the execution of a works contract, the provisions of Sections 3, 4 and 5 contained in Chapter II can be held applicable to such a transfer. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is divisible into one for sale of goods and other for labour and services. Reference may be made in this context to the oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] A.C. 109 (HL): "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed; must inevitably have flowed from or accompanied it... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." 34. If the legal fiction introduced by Article 366(29-A) 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 where the contract is divisible into one for sale of goods and the other for supply of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in item nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amount so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (supra), is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained." (Emphasis supplied) A2) ...The Law reiterated:- 25. It must be pointed out that (1977) 39 STC 237, B.C.Kame (referred supra) was a judgment delivered prior to the 46th Amendment to the Constitution. 26. The Hon'ble Supreme Court came to again consider the very same issue in (2001) 124 STC 59 (SC), Associated Cement Companies Ltd., Vs. Commissioner of Customs. A Larger Bench of the Hon'ble Supreme Court referred to Rainbow Colour Lab (referred supra), and held as follows:- "25. Even though in our opinion the decisions relating to levy of sales tax would have, for reasons to which we shall presently mention, no application to the case of levy of customs duty, the decision in Rainbow Colour Lab case (supra) requires consideration. As a result of the Forty- sixth Amendment, sub-article 29A of Article 366 was inserted as a result whereof tax on the sale or purchase of goods was to include a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will amount to a works contract, after the Forty-sixth Amendment the State would now be empowered to levy sales tax on the material used in such contract. The conclusion arrived at in Rainbow Colour Lab case, in our opinion, runs counter to the express provision contained in Article 366 (29A) as also of the Constitution Bench decision of this Court in Builders Association of India and Others vs. Union of India and Others (1989) 2 SCC 645." (Emphasis supplied) 27. The matter again came up for further consideration in (2015) 78 VST 451 (SC), State of Karnataka Vs Pro Lab & Ors. Again the Hon'ble Supreme Court after relying on Gannon and Dunkerley-II, (1993) 88 STC 204, held as follows:- " 21) To sum up, it follows from the reading of the aforesaid judgment that after insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desired results inasmuch as a good photograph reveals not only the asthetic sense and artistic faculty of the photographer, it also reflects his skill and labour. Such an argument also has to be rejected for more than one reasons. In the first instance, it needs to be pointed out that the judgment in Kame's case was rendered before the 46th Constitutional Amendment. Keeping this in mind, the second aspect which needs to be noted is that the dispute therein was whether there is a contract of sale of goods or a contract for service. This matter was examined in the light of law prevaling at that time, as declared in Dunkerley's case as per which dominant intention of the contract was to be seen and further that such a contract was treated as not divisible. It is for this reason in BSNL and M/s Larsen and Toubro cases, this Court specifically pointed out that Kame's case would not provide an answer to the issue at hand. On the contrary, legal position stands settled by the Constitution Bench of this Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors., [Writ Petition (C) No.232 of 2005]. Following observations in that case are apt for this purpose: "On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, reported in (1999) 112 STC 307, wherein, it had been held as follows:- "It is difficult that in the execution of job work of printing, there is any transfer of property in the ink which is used for the purpose of printing. In fact, ink is a tool of the printer. It is consumed in the process of printing and looses its identify as "Goods". No property can be said to pass in ink in the execution of the contract of printing, either as ink or in any other form. No customer is concerned with the ink used in printing, its quantity or cost. It cannot be said that when a customer gets ink either as ink or in any other form, there is thus no transfer of ink involved in the execution of works contract of printing. It may be pertinent to observe that what is taxable under the Act is the value of the goods which gets transferred to the customer in the execution of works contract either as goods or in any other form and not the value of goods used or consumed in the execution of the works contract. If such user of consumption does not result in transfer of property in those goods in any form to the customer. That being so, in our opinion, the Tribunal was right in holding that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), came to be again examined in Tax Case (Revision) No.9 of 2003, by order dated 25.10.2012, Commissioner of Sales Tax, Maharashtra State, Bombay Vs. M/s. Ramdas Sobhraj. The facts in that case was that the assessee supplied grained zinc and aluminium plates, which were coated by dipping in water, wherein, gun bio chromate was dissolved. Again the issue was with respect to bringing to tax the consumables involved in a works contract. A Division Bench of Bombay High Court answered the reference in favour of the Revenue, relying on Matushree Textiles Ltd (referred supra). C) Kerala High Court:- C1) Full Bench:- 33. A Division Bench of the Kerala High Court in Enviro Chemicals Vs. State of Kerala, (referred supra), had referred to a Full Bench a similar issue. The order of reference was as follows:- "The question raised is whether the service rendered by the petitioner in the form of chemical treatment of effluent water for the awarder amounts to sale of goods in the execution of works contract. Petitioner has developed a chemical product by name "Envirofloc" which is used as a chemical for effluent treatment. During the years 1988-89 and 1989-90, for which the issue arises, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods. The petitioner utilises the chemical for treatment of the effluent and brings out an improvement of the effluent quality, conform it with the parameters prescribed by pollution control board for the awarder to retain their licence. Certainly it is processing of the effluent done by the petitioner with the materials used by him. The point of transfer of goods to the awarder is by way of appropriation to the contract, that is the application of the materials in the water which brings out the desired result, though in the process it gets consumed. Petitioners cited a Division Bench decision of this Court in AJANTA COLOUR LAB V. STATE OF KERALA, (1999) 2 KLT 445 and another judgment of this Court in SOUTHERN CABLE AND ENGINEERING WORKS V. STATE OF KERALA, (2002) 1 KLT SN. 67. We feel these judgments do not reflect the correct law by virtue of later decisions of the Supreme Court referred above. Moreover, petitioners' is a case where the product used in effluent treatment is not transferred to the awarder, but consumed in the course of treatment. Having regard to the importance of the issue and since Division Bench judgments above referred apparently are against later decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered the effluent compliant with the standards. It could probably be said that in the case of the toner and developers as the function is that of ink in printers, it shows up in the final product of the xerox machines. But, the decision of the Apex Court is not based on there being any requirement that the items which are used should exist in any form in the resultant product which is the principle laid down by this Court in Teaktex Processing Complex Limited v. State of Kerala ((2004) 136 STC 435) and also in Microtrol Sterilization Services Pvt. Ltd. v. State of Kerala ((2009) 26 VST 213 (Ker)). 15. We would think that the principle "quicquid plantatur solo, solo cedit"is a principle which is apposite in the context of a building and engineering contract. We get the following Account of the principle "quicquid plantatur solo, solo cedit": "The well-known principle is that the property in all materials and fittings, once incorporated in or affixed to a building, will pass to the free-holder quicquid plantatur solo, solo cedit. As soon as materials of any description are used in a building or other erection, they cease to be the contractor's property and become that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than one item of work, the rate of tax shall be determined separately for each such item of work. (2) The taxable turnover of the dealer of transfer of property involved in the execution of works contract shall, on and from the 26th day of June 1986, be arrived at after deducting the following amounts from the total turnover of that dealer:- (a) ... (b) ... (c) ... (d) ... (e) all amounts towards 'labour charges and other like charges' not involving any transfer of property in goods, actually incurred in connection with the execution of works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority. The Table Serial number (1) Type of works contract (2) Labour or other charges and percentage value of the works contract 1. Electrical contracts 15 2. All structural contracts 15 3. Sanitary contracts 25 4. Watch and / or clock repair contracts 50 5. Dyeing contracts 50 6. All other contracts 30 VIII) Interpretation by the Madras High Court:- 36. The State of Tamil Nadu after the 46t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the said submission cannot be accepted. The undisputed facts are that the assessee accepts the job of works contract for supply of printed materials like carton, labels and the customers supply only papers. The assessee engages coolies for the printing works. By the above act of the assessee, the job of works contract is not completed unless the actual printing is undertaken. For the purpose of printing, the printing ink must be used. It is also not in dispute that the customers are not supplying printing ink and the assessee is also not buying the printing ink making the same liable for tax. The assessee buys the raw materials like pigments, linseed oil and chemicals and manufactures the printing ink. These raw materials are purchased under 'C' forms. By using all these raw materials, a new product, namely, printing ink emerges and that new product had not suffered any tax. Only when this printing ink is used on the material papers supplied by the customers and the actual printing is undertaken, the works contract is completed. 16. The question is, therefore, whether the printing ink is a consumable one and whether such usage of printing ink on the material papers woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other States, those raw materials had not suffered any tax. That apart, after the printing ink is manufactured by the assessee, as it is used on printing materials it does not amount to sale and the goods are not subjected to tax. Equally the raw materials purchased by the assessee are not used as such in the execution of the works contract, but the raw materials undergo a different form, namely, printing ink which alone is used in the execution of the works. In that view, the levy of tax under Section 3-B cannot be found fault with. Accordingly, the tax revision case stands dismissed and the issue is answered in favour of the revenue, but against the assessee." (Emphasis supplied) 42. In Tax Case (Revision) Nos.69 of 2009, 80 and 81 of 2011, The State of Tamil Nadu, rep. by the Deputy Commissioner (Commercial Taxes), Salem Division, Salem, Vs. Tvl.S.S.M.Processing Mills, decided on 23.08.2013, which was also relied on by the learned Single Judge, a Division Bench of this Court had agreed with the decision of the Full Bench of the Kerala High Court and held as follows:- "The fact that the chemicals used for bleaching is washed away in the process, by itself, would not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Full Bench of the Bombay High Court, which directly dealt with the 46th amendment to the Constitution. There was also no reference to Section 3B of the Tamil Nadu General Sales Tax Act. The said judgment had been delivered on a different context itself. With due respects to the Division Bench, it must be stated that the said judgment is not directly germane or applicable to the facts of this particular case. It is seen that against the judgment of the Division Bench, the State had filed a Special Leave Petition which had been rejected by the Hon'ble Supreme Court and therefore, on the issue of whether a particular transaction is an inter-state sale or a works contract, the issue has become final. IX) Necessity for reference:- 46. In State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Mahalakshmi Process, Sivakasi, (2019) SCC Online Mad.997, a Division Bench of this Court had relied on Tvl.R.M.D.C.Press Private Limited, (referred supra), which had been declared as per inquriam, in Matushree Textiles Ltd, (referred supra). 47. Even though, the Division Bench in Tvl.Mahalakshmi Process, Sivakasi,(referred supra), was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l aspect was not brought to the notice of the Division Bench in Tvl.Mahalakshmi Process, Sivakasi, (referred supra). 50. In Tax Case (MD).No.202 of 2012, State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Vibgyor Process, Kovilpatti, and in (Tax Case (Revision) No.687 of 2006), State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Vibgyor Process , again attention of the Division Bench was not drawn to the judgment of the Hon'ble Supreme Court, with respect to the issue of assessment made on the supply of printing materials under Section 3B of the Tamil Nadu General Sales Tax Act, and the Division Bench had therefore, answered the issue against the Revenue. 51. In Tvl.Vibgyor Process, Kovilpatti, (referred above), the Division Bench had relied on Premier Litho Works and another, (referred above). 52. To reiterate, the issue in Premier Litho Works, was as follows:- "... whether a particular transaction is an inter-state sale or a works contract, is the issue raised by the Revenue in the present appeals." 53. The issue before this Court is not the above. The issue is whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reliance placed by the appellant on the said judgment is totally misconceived. The 46th Amendment to the Constitution of India and the insertion of Clause 29-A in Article 366 and Section 3-B(2)(e) of the Tamil Nadu General Sales Tax, 1959, were not brought to the attention of the Division Bench, since the issue involved was entirely different. 2. The attention of the Division Benches of this Court in Tax Case (MD).No. 202 of 2012, State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Vibgyor Process, Kovilpatti, (Tax Case (Revision) No.687 of 2006), State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Vibgyor Process, (2019) SCC Online Mad. 997, [WP.No.35213 of 2003], State of Tamil Nadu, rep. By the Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Mahalakshmi Process, Sivakasi, The State of Tamil Nadu, rep. by. The Deputy Commissioner (CT), Tirunelveli Division, Tirunelveli Vs. Tvl.Subramanian Offset Printers, and [WP.No.20324 of 1999], M/s. NPT Offset (P) Ltd. Vs. The Joint Commissioner II and another, were not drawn to the correct position of law as repeatedly an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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