TaxTMI 
TaxTMI 
2011 (2) TMI 1296
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....effluent treatment entrusted to the petitioner, the petitioner applies the chemical Envirofloc and it either gets used up in the treatment of effluent water probably by neutralising colour, ordour, etc. Petitioner's case is that no transfer or sale has taken place in the execution of works contract. The department's case is that material is consumed in the process of effluent treatment and it gets transferred in the course of such treatment and there is sale of goods involved in the execution of works contract which under the definition includes processing, preparing, improvement etc. Counsel for the petitioner cited before us the decision of the Division Bench of this Court in THE DEPUTY COMMISSIONER OF SALES TAX (LAW), BOARD OF REVENUE (TAXES), ERNAKULAM V. M.K.VELU, 89 STC 40, wherein this Court following the decision of Patna High Court held that there is no sale of goods in the display of fireworks done by the contractor on behalf of the awarder. Even though this Court has followed the decision of the Patna High Court in the case of pest control, strangely the definition of works under KGST Act is not referred to by Division Bench in their judgment. Another decision of....
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....ting the matter before a Full Bench." 2. The petitioner in both these cases stands assessed to tax under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as the Act) on the alleged sale of materials involved in the execution of works contract. The works contract involved is one of effluent treatment at the Madura Coats Limited (hereinafter referred to as the Awarder). When the matter came up before us, the learned counsel for the petitioner produced before us an Account of the actual process involved, according to him. It reads as follows: "The wastewater generated from various sections of the factory is first passed through a screen chamber for removing large particles. After screening, the wastewater is collected in a collection tank to make the characterists of wastewater uniform. (Till this stage, the process is done by the Company itself. From the collection tank, the wastewater is pumped at a uniform rate to the flash mixer and subjected to chemical treatment. The Chemical is a combination of Ferrous Sulphate, Ferrous Chloride and Sulphuric Acid. These Chemicals obtained by the Petitioner from effluents discharge from Travancore Titanium Products. A....
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....f any tangible goods, is inapplicable to the facts of this case. He would submit that he has no quarrel with the proposition (and he can have none) that sales tax can be levied even on the transfer of intangibles. He took us through the Judgments of the Apex Court in Builders Association of India And Others v. Union of India And Others ((1989) 73 STC 370) and Bharat Sanchar Nigam Ltd. And Another v. Union of India And Others (2006) 145 STC 91) and contended that there was no transfer of property in the chemical, and that the law does not permit a mere works contract to be taxed. He would submit that the principle "quicquid plantatur solo, solo cedit" which means that the property in all materials and fittings once incorporated or affixed to a building will pass to the free holder cannot apply to the facts of this case. He illustriates the principle by pointing out that if in the course of a building contract, a lock is fixed to a door, the property in the lock would pass to the employer and the taxing event has occurred and the completion of the construction need not be awaited for rendering the transaction exigible to tax. In this case, he would point out that the petitioner uses ....
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....reunder. The matter finally engaged the attention of the Law Commission of India and acting upon its suggestions, the Parliament enacted the 46th Amendment whereunder Clause 29A was added to Article 366 of the Constitution. Clause 29A reads as follows: "(29A): "tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) 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; (c) a tax on the delivery of goods on hire- purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unicorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human con....
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.... property when it is put on a media becomes goods." The Apex court in this regard, followed the view taken in Associated Cement Company Limited v. Commissioner of Customs (2001 (4) SCC 593). In BSNL and Another v. Union of India And Others ((2006) 145 STC 91), the Apex Court was again dealing with the question as to the scope of the word "goods". The Court quoted the decision in Tata Consultancy Services v. State of Andhra Pradesh ((2004) 137 STC 620) with approval. In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen And Co. Ltd. ((1987) 66 STC 34), a Division Bench of this Court was considering a case under Section 5A(1)(b) of the Act providing for levy of purchase tax. Therein, the dealer, a manufacturer of tiles, purchased cashew shells for fuel for the kiln in the factory, and lime shells and certain stores described as consumed stores for use in maintenance of the kiln and factory. The Court took the view that goods used for ancillary purposes, like fuel or for maintenance were not comprehended within Section 5A(1)(a) of the Act. It was also held that it did not attract liability to tax under Section 5A(1)(d), as there was no transf....
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....re used by the petitioner therein in the business of cleaning boilers in thermal power stations and fertilizer plants and the chemicals used as cleaning agent were extinguished in the process, sales tax could be levied in the matter. The Court found that the chemicals used were consumed in the process of cleaning and removing the impurities in the plants, no goods were produced or come into existence and thereafter the Court proceeded to hold as follows: "2. A bare perusal of the above Explanation is sufficient to show that transfer of property in goods (whether as goods or in some other form) is the sine qua non for its application. The mere execution of a works contract does not by itself attract liability for tax under the Act unless it is accompanied by transfer of property in goods, involved in the execution of the contract. The emphasis is on the transfer of property in goods - Builders Association of India v. Union of India (1989) 73 STC 370 (SC) at page 396. When goods used in the process of executing a works contract are consumed in the process, as in the case of the chemicals used by the petitioner or fuel and power, there is no transfer of any goods from the contracto....
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....e negative brought by the customer and supply the prints in the desired size to the customer along with negative." The Court proceeded to hold that in the first category, there was no works contract, while the second and third categories would be works contract. Learned counsel for the petitioner also brings to our notice a recent decision of a Division Bench of this Court in Microtrol Sterilization Services Pvt. Ltd. v. State of Kerala ((2009) 26 VST 213 (Ker)). Therein, the facts were as follows: The petitioner was engaged in sterilization of goods, i.e. Goods were made free of germs. This was done with the use of ethylene oxide, a toxic, highly inflammable gas. The toods to be sterilized were exposed to the gas and then the gas was released after neutralising it with carbon-dioxide. The Court held as follows: "Consumables are items which are lost in the course of execution of works contract. In other words, they are used up in the process of executing the work. Admittedly, after sterilisation, the goods do not retain any trace of ethylene oxide which was completely released in the air. Therefore, there was no transfer of ethylene oxide from the petitioner to the customers in ....
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....le property." The Apex Court in M/s. Gannon Dunkerley And Co. and Others v. State of Rajasthan And Others ((1993) 1 SCC 364) held, inter alia, as follows; "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 and services which would cover - (a) Labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect;s fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. Th....
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....erty in goods, whether as goods or in some other form, involved in the execution of a works contract, is followed up by incorporation of Explanation 3A to Section 2(21) of the Act on similar lines and the concept of "sale" is so expanded, when it comes to Explanation 1A to Section 2(xxvii) defining the word "turnover" in respect of works contract to be the aggregate amount received or receivable for the transfer of goods, whether as goods or in some other form, involved in the execution of such contract. We notice that in Explanation 1A, there is no reference to transfer of property in goods and what is provided for is transfer of goods, of course, whether as goods or in some other form, involved in the execution of such contract. Even in the charging Section, namely Section 5, Clauses 4(a) and 4(b), the words used are "transfer of goods involved in the execution of a works contract." Section 5, Clauses 4(a) and 4(b) do not contain the words "transfer of property in goods". But, we notice that in the definition of "taxable turnover", it is stated as follows: "Provided that the taxable turnover of a dealer in respect of transfer of property involved in the execution of works contrac....
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.... and accessories, as part of its business. After the Xerox machine is sold to a customer, if the customer so desires, the appellants enter into one of the two types of agreements, namely, either a Full Service Maintenance Agreement (FSMA) or a Spares and Service Maintenance Agreement (SSMA). In FSMA the appellants take on the responsibility of fully maintaining the machine, servicing it and if necessary replacing parts. The appellants also supply material, like toners and developers. They charge at the rate of 0.27 paise per copy produced by the machine. Under the SSMA, the appellants agree to maintain the machine including replacement of parts if necessary, for a lumpsum of Rs.7,000 per annum. However, the costs of toners, developers, etc. are to be borne by the customer." Thereafter, the Court proceeded to hold as follows: "16. We have considered the rival submissions. As set out hereinabove, the word consumable in Explanation 1 to Section 6(4) refers to such items which get consumed before the property in the goods can pass. We are informed that toners and developers are liquids which are put in the Xerox machine. They perform, to put it simply, the same function as ink in pr....
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....s or in some other form, involved in the execution of a works contract (See Section 2(k), Clause (viii). "Sale" is defined as including a transfer of property in goods, whether as goods or in some other form involved in the execution of a works contract (See Section 2 (t)). "Turnover" is defined in Section 2(v) as meaning the aggregate amount for which goods are bought or sold or supplied or distributed or delivered or otherwise disposed of in any other ways referred to in Clause 2(t) by a dealer either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable considerations. There are other provisions which may not be relevant. Subject to such conditions and restrictions, if any, as may be prescribed in this behalf, Explanation (ii) includes any sum charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof. 13. After having considered the entire case law cited before us and on a conspectus of the provisions, we would think that the learned Special Government Pleader is right in his contention based on the decision of the Apex Court in Xerox Modicorp....
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....3 (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 the free holder. The employer under a building contract may not necessarily be the free-holder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub-contract. However, once the builder has affixed materials, the property in them passes from him, and at least as against him, they become the absolute property of his employer, whatever the latter's tenure of or title to the lands. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person ....
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....consumables, such as, water, electricity, fuel etc. used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract, is to be deducted. In Section 5C also, the words "not involving any transfer of property in goods" have been incorporated. Just like the toner and developer having been put into xerox machine becoming the property of the customer in the case before the Apex Court in Xerox Modicorp Ltd case and the sale taking place before the goods are consumed, in the same way, the property in the chemical passed to the awarder the moment they are put into the effluent by the assessee and its subsequent consumption is the consumption after sale and it does not detract from the factum of sale and consequently the exigibility to tax becomes unquestionable. 17. In both these Revision Petitions, no doubt, a question of law is raised concerning the correctness of the rate of tax applied. This is not mentioned in the Order of Reference as such. This was not argued before us by the learned counsel appearing for the parties. In such circumstances, we answer the Reference by holding that there was indeed a sale of chemic....
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....A) under Section 2(xxvii) which defines 'turn over' and contends that the chemicals used by the assessee being tangible goods, there occurs transfer of property when the chemicals react with the waste water for the purpose of cleansing it. It is contended by Sri.Vinod Chandran, learned Special Government Pleader (Taxes) that the chemicals used by the assessee are not by any stretch of imagination, "consumables" as envisaged in Section 5(C)(1)(c)(iii) of the Act. 5. It has already been noticed that 'Envirofloc' is a combination of a few chemicals like Ferrous Sulphate, Ferrous Chloride and Sulphuric Acid formulated by the petitioner in a certain ratio for the purpose of effluent treatment. According to the petitioner, a small quantity of lime is also added to the above chemical combination in the course of the treatment process. I do not propose to refer to the actual process of waste water treatment being carried out by the petitioner, yet again, since the procedure has been already extracted in the earlier part of the judgment. 6. It is on record that the polluted/impure water which comes out of the Plant in M/S Madurai Coats Limited is subjected to effluent ....
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....hat is let out to the river. 9. The short question is whether or not the combination of chemicals known as 'Envirofloc' used by the petitioner for effluent treatment is a "consumable" as envisaged under Section 5(C)(1)(c) (iii) of the Act. 10. In Dynamic Industrial and Cleaning Services (P) Ltd. v. State of Kerala & Anr. ((1995( 97 STC 564), the question that came up for consideration was whether there was any transfer of property in goods while cleaning of boilers in plants like Thermal Power Station, Fertiliser Complexes etc. by using chemicals like Citric Acid, Hydrochloric Acid etc. This Court after referring to various other decisions on the point held thus: ".... It (the petitioner) carries out the work of cleaning the boilers and accessories, using chemicals like citric acid, hydrochloric acid and the like after determining the precise type of cleaning agent to be used in the particular plant, by inspection or laboratory tests. The petitioner employs its own machinery, labour and material for carrying out the work. The chemicals used are consumed in the process......." 3. The chemicals are being used by the petitioner only in aid of the work undertaken by it....
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.... Sales Tax Act. It came on record that the goods to be sterilised were kept in a compact airtight room and thereafter they were exposed to ethylene oxide for around 6 hours. The gas would thereafter be allowed to escape through a chimney after neutralising it with carbon dioxide at a higher level. The Division Bench held that there was no transfer of ethylene oxide from the petitioner to the customers in the course of sterilisation of the goods since it is used as a consumable in the service rendered by the assessee. It was further held that ethylene oxide which was used as a consumable was therefore deductible from the total turnover of works contract under section 5C of the Act. The Division Bench also took note of the decision of this Court in Deputy Commissioner of Sales Tax v. Velu (M.K) ((1993) 89 STC 40 (Ker)), apart from the decision of the Patna High Court referred to above. 13. In Velu (supra) a Division Bench of this Court held that in display of fireworks no tangible property would remain once the display takes place. In the process of execution of the works contract, the goods themselves (explosives) cease to exist. The Division Bench relying on Pest Control (supra)....