1996 (2) TMI 474 - HC - VAT and Sales Tax

Court rules drilling of tube wells on labor basis not a 'works contract' under Entry Tax Act.

The Court ruled in favor of the applicants, determining that the drilling of tube wells on a labor basis did not qualify as a 'works contract' under the ... Works contract - construction of works - installation of machinery and fittings - entry tax liability under section 3(2)Works contract - construction of works - installation of machinery and fittings - Activity of drilling of tube wells on labour basis falls within the definition of 'works contracts' under section 2(m) of the Entry Tax Act - HELD THAT: - Section 2(m) defines 'works contracts' with reference to contracts relating to construction of works (such as buildings, dams and bridges) and erection or installation of machinery and fittings to movable or immovable property in the execution whereof goods are consumed or used but not sold. The Court analysed the language and purpose of the provision and observed that its essence is 'construction of works' and that the phrase is 'installation ... to' property and not 'installation of' property. The applicants were engaged in drilling tube wells on a labour basis and the dominant object of their contracts with the Public Health Engineering Department was to drill tube wells. The Court found no contention or basis to construe drilling as construction or as installation within the meaning of section 2(m). Applying the canons of construction to ascertain legislative intent, the Court concluded that if the Legislature had intended to tax drilling activity it would have expressly included it in the definition. Consequently the activity of drilling tube wells on labour basis does not fall within the definition of 'works contracts' under section 2(m). [Paras 7, 8, 11, 13, 14]Answer: in the negative; drilling of tube wells on labour basis is not a 'works contract' under section 2(m) of the Entry Tax Act.Entry tax liability under section 3(2) - Liability to entry tax on petrol, diesel and other stores used in vehicles and machineries in the course of drilling - HELD THAT: - The Court declined to decide the second question which concerned whether petrol, diesel and other machinery stores not used directly in drilling work but used in vehicles and machineries are exigible to entry tax under section 3(2) read with relevant notifications. The applicants (who prompted the reference) elected not to press that question and the Court left the matter open for consideration in an appropriate case. [Paras 15]Not answered; left open for future consideration.Final Conclusion: The reference is answered by holding that drilling of tube wells on a labour basis does not fall within the definition of 'works contracts' under section 2(m) of the Entry Tax Act; the question on entry tax liability of petrol, diesel and similar stores was not decided and is left open. Issues:1. Whether drilling of tube wells on labour basis falls under the definition of 'works contract' under the Entry Tax ActRs.2. Whether petrol, diesel, and machinery stores used indirectly in the drilling work are exigible to entry tax under the Entry Tax ActRs.Analysis:Issue 1:The applicants, unregistered dealers, undertook drilling of tube wells for the Public Health Engineering Department and were assessed entry tax. The Tribunal held that the drilling activity falls under the definition of 'works contract' under section 2(m) of the Entry Tax Act. The applicants contended otherwise. The Court analyzed the definition of 'works contracts' under section 2(m) and emphasized that it involves the construction of works like buildings, dams, and other immovable property. The Court noted that the drilling of tube wells on a labour basis does not specifically fit within the provision's scope of installation of machinery or fittings to movable or immovable property. The Court cited legal principles emphasizing the importance of legislative intent in statutory interpretation. Ultimately, the Court ruled in favor of the applicants, stating that the drilling activity did not fall within the definition of 'works contracts' under the Entry Tax Act.Issue 2:The second issue pertained to whether petrol, diesel, and machinery stores, not directly used in drilling work but in vehicles and machinery, are subject to entry tax under the Entry Tax Act. However, since the Court ruled in favor of the applicants on the first issue, they did not address the second issue. The Court highlighted that the applicants could choose not to pursue a specific question referred to the Court. Therefore, the Court did not provide an answer to the second question and left it open for future consideration if necessary.In conclusion, the Court decided in favor of the applicants, ruling that the drilling of tube wells on a labour basis did not constitute a 'works contract' under the Entry Tax Act. The Court did not address the second issue due to the outcome of the first issue. The reference applications were answered accordingly, with no costs imposed on either party, and the Court directed the transmission of the order to the Tribunal as per legal requirements.