TaxTMI 
TaxTMI 
2010 (6) TMI 737
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....fered for tax at a rate of four per cent on turnover of iron and steel, involved in the execution of works contracts, was not permissible for the reason that the "works contract of civil works" is a distinct entry in the Sixth Schedule and therefore, tax is attracted on the said turnover at the rate of 12.5 per cent as provided therein. It is pointed out that prior to April 1, 2006, there was no separate provision under which tax could be levied on works contracts. There was however, a levy of tax on transfer of property involved in the execution of works contracts under section 3 of the KVAT Act in accordance with Schedule III. It is only from April 1, 2006, that the Legislature has introduced the impugned provisions enabling the Revenue to levy tax on works contracts. Heard Sri G. Sarangan, Senior Advocate, Sri Madhusudhan R. Naik, Senior Advocate, appearing for the counsel for the petitioners and Sri Ajit Kumar Raheja. It is contended that the power of the States to levy value added tax on sales and purchases of goods is to be found only under entry 54 of List II under Schedule VII to the Constitution of India. In the case of State of Madras v. Gannon Dunkerley & Co.....
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....; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." It is as a consequence of the above amendment that tax on sale or purchase of goods, took within its ambit a tax on works contracts. The constitutional validity of the 46th Amendment of the Constitution, whereby clause (29A) was inserted in article 366, was challenged in the case of Builders Association of India v. Union of India [1989] 73 STC 370 (SC), wherein it was held by the Supreme Court that the object of a new definition of the word "sale" is to enlarge the scope of "tax on sale or purchase of goods" wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) of clause (29A). So construed, the expression "tax on the sale or purchase of goods". In entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) inv....
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....nly on "sale" of goods. The rate of tax on every such sale in respect of such goods is prescribed under section 4 of the KVAT Act. It is contended that unlike under the Karnataka Sales Tax Act, 1957 (hereinafter referred to as, "the KST Act", for brevity), there is no "non obstante" clause which overrides the main charging section and therefore, the provisions of the present Act will have to be strictly construed. Prior to April 1, 2006, there was no separate provision under which tax on works contracts was levied. The levy of tax, on transfer of property, involved in the execution of works contracts, was being levied under section 3, read with the Third Schedule to the KVAT Act. It is only with effect from April 1, 2006, that the State Legislature has introduced the new provisions by inserting clause (c) to section 4(1) of the KVAT Act, thereby seeking to levy taxes on works contract while specifying the rate of tax under the Sixth Schedule. It is hence contended that in the absence of a charging section to levy tax for a class of dealers the purpose of the Sixth Schedule under the Act remains non-functional; in that, the class of dealers like the petitioners cannot be singled ....
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....es" as employed in clause (29A) of article 366 assumes importance, since it is directed not only in respect of such things as signified according to their natural import, but includes such transfer as shall be deemed to be a sale of goods, under a legal fiction. Section 2(15) of the KVAT Act and section 2(l)(m) of the KST Act, define "goods" as meaning all kinds of movable property other than, newspaper, actionable claims, stocks and shares and securities, but including goods (as goods or in some other form), involved in the execution of a works contract. This would lead to a position that change of form of the goods from the form, at the stage of purchase by a contractor into some other form, at the stage of transfer to the contractee, cannot be treated as being a different one from the original one for the purpose of levy of tax in respect of a deemed sale of goods involved in the execution of a works contract. In other words, steel for instance, which is used in the execution of works contract for purposes of construction results in the same being incorporated into immovable property, in respect of which the State cannot assume power to levy tax in respect of such immovable p....
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....lly acquires the characteristics of construction work such as footings, slabs, beams, etc., only when they are made part and parcel of the immovable property, namely, the building, and when once they become immovable property, they cease to be goods. The question of a deemed sale of the said goods or otherwise would not arise. Steel is used in such construction in the same form and is not converted into any other form whereby it loses its characteristic of being steel. It is thus contended that the respondents seeking to take a view that the petitioner's turnover assessed to tax was erroneous and that the turnover offered for tax at the rate of four per cent on the turnover of steel involved in the execution of works contract is not permissible for the reason that the entry under the Schedule, namely, works contract of civil works finds a separate and distinct entry at serial No. 23 under the head "all other works contracts not specified in any of the categories specified under the Sixth Schedule" and therefore, attracts tax on the said turnover at the rate of 12.5 per cent, has proceeded to issue proposition notices and has sought to revise assessments. Though several asses....
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.... that the steel used in the execution of the works contract has not been transferred in the form of declared goods, but has changed its form when it is transferred and therefore, are not any longer declared goods are findings of fact. Hence, there is no error in the reasoning adopted by the assessing officer. It is contended that the same is not violative of the settled legal position as laid down by the Supreme Court in several cases that are cited at the Bar. It is contended that section 3 of the KVAT Act provides for levy of tax on the sale of goods in question of different commodities. The language of entry 54 of the Constitution of India having been incorporated-the "tax on sale or purchase of goods" is to provide the State Legislature the competence to levy tax, whenever there is a purchase or sale. In view of the legal fiction created consequent to the amendment to article 366 of the Constitution, a sale would include the transfer of property in goods-whether in the same form or in some other form, involved in the execution of works contract. Consequently, it is contended, there is a charge on the sale of goods under section 3 of the KVAT Act and the rate has been fixed u....
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....o be brought to tax at the rate of 12.5 per cent on the amounts declared by the petitioner towards the value of the same. Apart from this, certain mobilisation advances received under the terms of the contracttract-towards preliminary work and procurement of the material was sought to be brought to tax at the rate of 12.5 per cent apart from penalty, on the footing that there was an understatement of the tax liability. It is contended that during the relevant period, when the petitioners received the advances, the only activity carried out was the purchase of the raw material aforesaid and preparation of sections of the plates and sheets at the site. The rate of tax on the raw material, which are declared goods, being four per cent and the same having been paid-and even though the raw material was not incorporated in the works contract and no transfer of the property had taken place-the advances were apparently being treated as the consideration received for the transfer of property in the said raw material, to levy tax and penalty as aforesaid. The petitioners submit that levy of tax at the rate of 12.5 per cent on the amounts representing advances received towards preliminary ....
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....h provides that any advances paid to a contractor as part of the consideration for goods involved in the execution of the works contract could be included in the total turnover in the month in which the execution of the works commences-even before the goods are incorporated in the works? In answering the above questions, the settled position of law insofar as the interpretation of the scope of article 366(29A) of the Constitution of India and its impact on the provisions of the CST Act, as laid down by the apex court in the cases of Builders Association of India v. Union of India [1989] 73 STC 370 (SC) and Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC), is to be kept in view. In the latter decision, it has been laid down thus (page 231 in 88 STC): ". . . While enacting a law imposing a tax on sale or purchase of goods under entry 54 of the State List read with sub-clause (b) of clause (29A) of article 366 of the Constitution of India, it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of interState trade or commerce under section 3 of the Central Sales Tax Act or an outsi....
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....corresponding entries in column (3) of the said Schedule." An analysis of the section more particularly, clause (c) would indicate that a dealer registered under the Act shall be liable to tax and that such tax is leviable on the taxable turnover relating to transfer of property in goods, whether as goods or in some other form, involved in the execution of works contracts that are specified in the Sixth Schedule to the Act and at the rates specified therein. The levy is subject to the provisions of sections 14 and 15 of the CST Act relating to declared goods. Though tax at 12.5 per cent is applicable under serial No. 23 of the Sixth Schedule to the Act in respect of composite works contracts involving transfer of property in goods, an exception is provided in section 4(1)(c) of the KVAT Act itself, that in respect of declared goods involved in the execution of works contracts, the rate of tax shall be as provided in section 14 of the CST Act at rate of four per cent. This is so because the provisions of section 4(1)(c) are necessarily to be read with the Sixth Schedule to the Act and the entries in that Schedule are subject to the provisions of sections 14 and 15 of the CST A....
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....venue, which has been followed in later decisions, also cannot be pressed into service-for the same was rendered in the backdrop of there being no dispute that iron and steel that had been purchased by the petitioner therein and had been used in the construction of a bridge and had not been used in the same form. Secondly, the said decision was with reference to the provisions of the KST Act, which did not contain any provision akin to section 7 of the KVAT Act. In so far as the dispute regarding the levy of tax at rate of 12.5 per cent in respect of advance amounts received by the petitioner in W.P. Nos. 29046 to 29048 of 2009 is concerned, it is seen that the petitioner therein was paid the said advances to enable it to carry out preliminary work and procurement of materials. It was not engaged in any activity of manufacture and sale of any goods. The contract it appears was a composite works contract for designing, procurement of materials, construction, erection and commissioning of moulded LPG storage systems, at the site of the contractee. The petitioner is said to have received the said advances during a period when the only activity carried out under the contract was pro....