TaxTMI 
TaxTMI 
2007 (11) TMI 581
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....nt of refund of the said amount. The brief facts of the case are as under: The petitioner is a registered company having business activities in every States as well as having manufacturing unit located outside the State of Bihar including Pondicherry and, are registered dealer under local and Central Sales Tax Acts in the respective States. The petitioner alleged to have filed return and discharged their tax liability for the assessment year 1994-95. The petitioner claimed exclusion of inter-State sales tax from their Pondicherry unit as well as refund of the sales tax. The assessing authority passed order rejecting the petitioner's plea and also partially considering credit of Rs. 22,72,227 raised additional tax demand without explaining reason for not allowing credit to the balance amount. According to the petitioner, the execution of railways electrification contract necessitated manufacturing of specifically described goods as per the order in their Pondicherry work as well as procurement from other source for execution of the works contract. Such manufacturing goods are as per the design and drawings provided by respondent No. 7-the railways authority. Such go....
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....uring unit and the petitioner which is undoubtedly an inter-State transaction for which Central sales tax at Pondicherry has rightly been paid. Since the second sale has taken place between the petitioner and the contractoree department, in the State of Bihar which is admittedly an intra-State sale which attracts the levy of Bihar Sales Tax under Bihar Finance Act, 1981 and as such the above amount has been determined as taxable in Bihar and the same has been added to the revised gross turnover of the petitioner. The respondents' further case is that Bihar sales tax on the above transaction has been legally levied for the reasons that there has taken place two independent sales, one subject to Central sales tax at Pondicherry and the other subject to Bihar Sales Tax in the State of Bihar. Further the movement of goods started from Pondicherry and terminated at petitioner's site. After taking the delivery of the goods and storing them by the petitioner, it was used in the works contract for electrification of Railways. After the works of electrification of railways was complete, the entire structure including the goods in question was transferred to the contractoree departme....
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....t and in consideration therefor release of payment as provided therein and in such an agreement, there was neither a contract to sell the materials used in the construction nor those properties based therein as movables. Mr. Mittal then submitted that after 46th amendment, constitutional validity of the said amendment as well as amendment made by the State Legislature on that basis was challenged in the Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370. In the said judgment, the Supreme Court has laid down the principles of the law and held that the tax laws passed by the State Legislature levying taxes on the transfer of property in goods involved in the execution of the works contract are subject to restriction and conditions mentioned in each clause or sub-clause of article 286 of the Constitution. On the second point, Mr. Mittal submitted that in view of sections 14 and 15 of the Central Sales Tax Act, 1956, no tax can be imposed since iron and steel are declared goods under section 14 and as such, after tax has been imposed at one stage, on the said items, tax cannot be imposed on those goods again. Learned counsel drew our atten....
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.... Association of India v. Union of India [1989] 73 STC 370 (SC); [1989] 2 SCC 645 is affirmed in Gannon Durnkerly and Co. [1993] 88 STC 204 (SC); [1993] 1 SCC 346. The impugned order does not disclose the tax assessed upon gross taxable turnover. The Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act") has been enacted, inter alia, for determining when a sale or purchase of goods takes place in course of the inter-State trade or commerce and to provide for levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce. Prior to coming into force of this CST Act and the Constitution of India, the Government of India Act, 1935 empowered the provinces to levy the tax on the sales of goods. There was no specific provision for the levy of tax on the inter-State sales of goods, but each province had laid down its definition of sales in their laws of sales tax. Section 2(c) defines the word "declared goods" which means goods declared under section 14 to be of special importance in the inter-State trade or commerce. Section 3 lays down the provision as to when a sale or purchase of goods is to take place in the c....
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....-section (3) of section 8 of the Act. Section 8 is a charging section which prescribes the rate of tax on sales of goods in the course of inter-State trade or commerce. According to this section, every dealer in the course of inter-State trade or commerce, sells the goods to the Government or to a registered dealer, shall be liable to pay tax which shall be four per cent of his turnover. Section 14 of the Act declares certain goods as having special importance in the inter-State trade or commerce. Section 15 provides certain restrictions and conditions in regard to tax on sale or purchase of declared goods within State. For better appreciation, section 15 is quoted herein below: "15. Restrictions and Conditions in regard to tax on sale or purchase of declared goods within a State.-Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely: (a) The tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shal....
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....four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State; (c) Where a tax has been levied under that law in respect of the sale or purchase inside State of any paddy referred to in sub-clause (i) of clause (l) of section 14 the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy; (ca) Where a tax on sale or purchaser of paddy referred to in sub-clause (i) of clause (l) of section 14 is leviable under the law and the rice procured out of such paddy is exported out of India, then for the purpose of sub-section (3) of section 5 the paddy ....
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....tion means. Article 366 is the definition clause of the Constitution. It says that in the Constitution 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. [1958] 9 STC 353; [1959] SCR 379 this Court held that a works 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 (29A). Sub-clause (b) of clause (29A) 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 executi....
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.... India. Here again we have to read the expression 'a tax on the sale or purchase of goods' found in article 286 as including the transfer of goods referred to in sub-clause (b) of clause (29A) of article 366 which is deemed to be a sale of goods and the tax leviable thereon would be subject to the terms of clause (1) of article 286. Similarly, the restrictions mentioned in clause (2) of article 286 of the Constitution which says that 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) 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 sub-clause (b) of clause (29A) 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 trade or commerce, which is generally applicable to all sales including the transfer, supply or delivery of goods which are deemed to....
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.... they had before in regard to their power to levy sales tax under entry 54 of the State List. The 46th amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. We do not accept the argument that sub-clause (b) of article 366(29A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of entry 54 thereof. As the Constitution 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 Limited [1955] 6 STC 446 (SC); [1955] 2 SCR 603 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 project....
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....nt and the relevant provisions of Central Sales Tax Act and the local laws and also the ratio decided in Builders' Association's case [1989] 73 STC 370 (SC); [1989] 2 SCC 645. In the case of Gannon Dunkerley & Co.'s case [1993] 88 STC 204 (SC); [1993] 1 SCC 364, it was strenuously and seriously contended on behalf of the State that a deemed sale resulting from transfer of property in goods involved in the execution of a works contract can never be a sale in the course of inter-State trade or commerce and it cannot be an outside sale or a sale in the course of import since the transfer of property in the goods takes place only at the stage when the goods are incorporated into the works and that can take place only in the State where the works is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituting a sale in the course of inter-State trade and commerce as well as an outside sale or a sale in the course of import and that is a matter which will have to be considered in accordance with the principles contained in sections 3, 4 and 5 of the Central Sales Tax Act keeping in view....
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....le for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in article 366(29A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract. (6) The charges for labour and services which are required to be deducted from t....
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....y to the effect that assessment proceedings were completed in respect of the assessment year 1994-95 wherein the petitioner declared a gross turnover under the Central Sales Tax Act including the supply effected by the petitioner. Since admittedly the goods in question are declared goods under section 14 of the Act and had already suffered tax in Pondicherry, then no further tax can be levied. A similar question came for consideration before a division bench of the Patna High Court in the case of the present petitioner namely Larsen Toubro v. State of Bihar [2004] 134 STC 354, wherein the Patna High Court following the aforementioned judgment of the Supreme Court came to the conclusion that the State Legislature cannot impose tax on sale in course of the inter-State trade or commerce in relation to works contract since they fall outside the field of legislative competence of the State Legislature. Their Lordships observed: "13. From this judgment of the Supreme Court it would be crystal clear that particular amounts are deductible and apart from that it would be necessary to exclude from the value of the works contract, the value of those goods which are not taxable in view o....