TaxTMI 
TaxTMI 
2009 (10) TMI 556
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....n the petitioner and the State Government represented by the first respondent. The reason for approach-ing this court is that on the instructions of the second respondent-Department, the first respondent has demanded payment of income-tax on such supply since the second respondent has stated that tax ought to have been deducted at source itself. 5. The facts which are necessary for the disposal of the writ petitions are that the petitioners entered into an agreement for supply of eggs to noon meal centres in the Madurai and Theni Districts respectively. Originally tenders were invited in which all the petitioners herein were successful bidders. The supply of eggs have been made in terms of the specifications contained in the contract. The second respondent by communication dated December 31, 2008, stated that the transactions are liable for payment of income-tax and based on such communication the first respondent informed the petitioners that income-tax has to be deducted at source in respect of their contract. The petitioners would further con-tend that it is a mere supply of eggs and no processing has been done by the petitioners and, therefore, it cannot be construed ....
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.... their quality but this does not change the use of the product. Therefore, the product in question, namely, eggs cannot be termed as tailor-made since the natural form of the product remains the same even at the end use stage. 9. It is further stated that under the contract, the supplier is required to supply additional eggs because of breakage and this will not alter the nature of contract. 10. Further, learned counsel for the petitioners would submit that no extra cost is paid for transportation and it is covered in the bill value itself and, therefore, the communication is without jurisdiction. Finally, learned counsel would contend that the agreement has to be read as a whole and the nomenclature of the agreement is not the criteria for deciding the nature of the contract. 11. Learned counsel would place reliance on a decision of the hon'ble Supreme Court in State of Andhra Pradesh v. Kone Elevators reported in [2005] 3 SCC 389 and contend that the transaction in the instant case also is something akin to the transaction which was the subject-matter in the above referred case and the said case squarely applies to the facts of the present case. &nbs....
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....eir submission that when the matter relates to essentially a decision on facts, this court would refuse to entertain the writ petitions as the petitioners have an effective remedy under the provisions of the Income-tax Act and the rules framed thereunder. 16. Without prejudice to the said contentions, learned counsel for the respondents would submit that supply by weightage or 12 pieces of particular weight has to be made as per the demand three times in a week. As regards the colour coding elaborate instructions have been given and the supplier is also required to affix the seal of the Government of Tamil Nadu. Therefore, the unit supply value is fixed keeping in mind various items of expenses. 17. In the counter-affidavit, the first respondent has set out some of the essential items of work involved in the meeting of the contract agreement. By relying upon the said conditions, the learned counsel would contend that the contract in question is a works contract. 18. It is next contended that the present contract is an indivisible contract for supply of a tailor-made product involving not only cost of goods but also value of service, transportation, han....
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....d counsel for the petitioners, Mr.Pala Ramasamy, learned Special Government Pleader for the first respondent and Mr. R. Sathiyamoorthy, learned senior standing counsel for the second respondent and perused the entire materials available on record. 23. As stated, the question to be considered is whether the contract for supply of eggs to the first respondent as per the terms and conditions contained in G. O. Ms. No. 135, Social Welfare and Noon Meal Programme Department, dated August 7, 2009, and the consequential proceedings issued by the respective District Collectors, is a contract of sale or a works contract. If it is a case of contract of sale, the question of deduction of tax at source does not arise and if it is otherwise, the first respondent is statutorily bound to deduct at source. 24. Before going into the facts of the present case, it is necessary to look into the law laid down by the hon'ble Supreme Court on the subject. 25. In the case of Sentinel Rolling Shutters and Engineering Co. P. Ltd. v. CST reported in [1978] 42 STC 409 ; [1978] AIR 1978 SC 1747 the petitioner before the hon'ble Supreme Court was a company engaged in fabrication, s....
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....n the market to any other person, the transaction is only a works contract." 27.In Hindustan Aeronautics Ltd. v. State of Karnataka reported in [1984] 55 STC 314 ; AIR 1984 SC 744, the hon'ble Supreme Court was considering several questions one of which was about the taxability of the turnover in respect of the sales made in the canteen of the appellant-company. While deciding such question, the hon'ble Supreme Court, analysed the difference between the "works contract of service" and "contract for sale of goods" and held as follows (page 320 of 55 STC) : "13. It is well-settled that the difference between contract of service and contract for sale of goods, is, that in the former, there is in the person performing work or rendering service no property in the things produced as a whole notwithstanding that a part or even the whole of materials used by him had been his property. In the case of a contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passed only under the contract relating thereto to the other party for price. It is necessary, the....
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....ract with a contractor for carrying out its work which, would have fallen outside the `work', but for its specific inclusion in the sub-section . . . 7. The above decision cannot be of any help to the appellant for it does not lay down that the percentage amount deductible under sec-tion 194C(1) should be out of the income of the contractor from the sum or sums credited to the account of or paid to him. The words in the sub-section `on income comprised therein' appearing immediately after the words `deduct an amount equal to two per cent. of such sum as income-tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract. Moreover, the concluding part of the sub-section requiring deduction of an amount equal to two per cent. of such sum as income-tax, by use of the words `on income comprised therein' makes it obvious that the amount equal to two per cent. of the sum required to be deducted is a deduction at source. Indeed, it is neither possible nor permissible to the payer to determine what part of the amount paid by him to the contract....
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....refore, it has to be taken whether the subject contract could be construed as a works contract has to decide on facts and which require thorough analysis and the scope of the contract and such other documentary evidence which may be placed by the assessee. Therefore, I am inclined to agree with the objections raised by the respondents as regards the maintainability of the writ petitions at this stage. 32. Much reliance has been placed by the learned counsel for the petitioners on the decision in State of Andhra Pradesh v. Kone Elevators (India) Ltd. reported in [2005] 140 STC 22 ; [2005] 3 SCC 389. 33. First it is to be noted that in all the decisions rendered by the hon'ble Supreme Court, as referred to above, the parties have exhausted their remedies available under the Income-tax Act. 34. In the case of Kone Elevators (India) Ltd. [2005] 140 STC 22 ; [2005] 3 SCC 389, the assessee filed monthly returns in Form A-2 for the months of April and May 1995 and the assessee was provisionally assessed by the Commercial Tax Officer for certain other period and the assessee claimed a deduction by stating that the work undergone by them constituted under the w....
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....f terms and conditions of the contract between the parties . . . 9. In the case of Hindustan Shipyard Ltd. v. State of A.P. [2000] 119 STC 533 ; [2000] 6 SCC 579 this court held that if the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end product for a price, then it is a strong pointer to the con-clusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end products, the skill and labour are only incidentally used, the delivery of the end product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail of the skill and labo....