TaxTMI 
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2014 (9) TMI 110
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....ra Pradesh v. Navayuga Engineering Company Limited, Visakhapatnam [2007] 45 STC 1. The Division Bench, after noticing the judgment of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC), and of this court in Media Communications v. Government of Andhra Pradesh [1997] 105 STC 227 (AP), was of the opinion that these cases involve an important question as to the interpretation of section 5F of the Act read with rule 6(2) and 6(3)(i) of the Rules; the question was a recurring one in view of the amendments made to the Parent Act, as well as to the Rules, after the decision in Gannon Dunkerley [1993] 88 STC 204 (SC); and, in order to give a quietus to the recurring issue, the same should be decided by a Larger Bench. Thereafter, on the orders of the honourable Chief Justice, these matters have been listed before us. It would suffice, to answer the reference, if the facts in TREVC No. 233 of 2010 are noted. The petitioner, a registered dealer under the Act on the rolls of the Commercial Tax Officer, Khairatabad Circle, Hyderabad, is engaged in the execution of works contracts. From the gross receipts of Rs. 12.93 crores, for the assessment year 2001-0....
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....educted the cost of labour and services therefrom; and this had resulted in expenses, which did not form part of the purchase value, being included. Consequently the matter was remanded to the Commercial Tax Officer who was directed to verify the books of accounts and ascertain the purchase value of the goods. The STAT held that, if the same was not ascertainable, rule 6(3)(ii) of the Rules should be applied. Aggrieved thereby the assesseedealer has preferred a revision to this court. Heard Sri S. Dwarakanath, Sri V. Bhaskar Reddy, Sri P. Girish Kumar, and Sri Shaik Jeelani Basha, learned counsel appearing on behalf of the assessees and Sri A. V. Krishna Kaundinya, learned Special Standing Counsel for Commercial Taxes, appearing on behalf of the Revenue. Written arguments were also submitted on behalf of the assessees. In support of their submissions, learned counsel for the assessees relied on Media Communications [1997] 105 STC 227 (AP), State of Andhra Pradesh v. Navayuga Engineering Company Limited [2007] 45 APSTJ 1, Navayuga Engineering Company Ltd. v. State of A. P. [2007] 45 APSTJ 2, Shanker Raju v. Union of India [2011] 2 SCC 132, Birla Cement Works v. Central Board of Dir....
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....tuted, by A.P. Act 18 of 1985, and clause (iii) (a) (i) was inserted thereto. Section 2(s)(iii)(a)(i) defines "turnover" to mean, if there is no bill of sale, the total amount charged as the consideration for the sale or purchase of goods by a dealer either directly or through another, on his own account or on account of others, whether such consideration be cash, deferred payment or any other thing of value and shall include the value of any goods as determined by the assessing authority to have been used or supplied by the dealer in the course of execution of the works contract. The words "value of goods" was substituted in section 2(s)(iii)(a)(i) of the Act, for the earlier words "the cost of any goods", with effect from August 1, 1986. Section 2(t), inserted by A.P. Act 18 of 1985, defines "works contract" to mean any agreement for cash or for deferred payment or for other valuable consideration, for carrying out the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property or the fitting out, improvement or repair of any movable property. Section 2(u) defines "year" to mean the twelve months ending on the 31st day of March. Sec....
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.... of this section and the other provisions of this Act, the turnover on which a dealer shall be liable to pay tax, shall be determined after making such deductions from his total turnover, and in such manner as may be prescribed. (4) The taxes under this section shall be assessed, levied and collected in such manner, as may be prescribed." Rule 6 of the APGST Rules was amended, and sub-rule (2) was inserted thereto, by G.O. Ms. No. 1445 (Revenue) dated November 5, 1986. Rule 6(2), as amended, read as under: "(i) For the purpose of sub-rule (1), the total turnover of a dealer shall, in relation to a works contract, be the amount realized or realizable by the dealer for carrying out such contract less the cost of labour incurred by the dealer in the execution of such contract. (ii) In case, the cost of labour is not ascertainable from the accounts of the dealers, the value of goods involved in the execution of a works contract shall be the value of such goods estimated with reference to the prevailing market prices. (iii) In case, the execution of works contract extends over a period of more than one year, the total turnover for the purpose of this rule for the year shall be deem....
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....urn filed by him before the assessing authority concerned; (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; (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; (i) all amounts for which goods exempted by the notification under section 9(i) are transferred in execution of works contract provided the goods are transferred in the same form as they were purchased; (j) all amounts for which the goods specified in the Third Schedule are transferred by a dealer when such sales are exempt from the tax liable, under any of the provisions of the Act, provided, that the goods are transferred by the dealer as the same goods as they were purchase....
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....sub-rule (1)(a) thereof, in the case of contracts not covered by sub-rules (2), (3) and (4) of rule 17, a VAT dealer shall pay tax on the value of the goods incorporated in the works at the rates applicable to the goods. It is convenient to examine the contentions urged by counsel on either side under distinct and separate heads. I. Is rule 6(3)(i) an exception to rule 6(2) requiring works spread beyond one year to be treated differently from works executed within one year? It is contended on behalf of the assessees that rule 6(3)(i) is a beneficial provision, and is an exception to rule 6(2); under rule 6(3)(i) the rulemaking authority decided to treat works contracts, spread beyond one year, differently from works contracts of less than one year in duration; while determining the turnover of works contracts, under rule 6(3)(i), it is only the purchase value and not the incorporated value which is required to be taken into consideration; the rule-making authority would not make a rule which is unnecessary; Section 5F does not determine or fix the quantum of turnover; computation or determination of the turnover can be prescribed by the State by way of Rules; the value of the go....
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....s the taxable event has occurred, it cannot be taxed. Perhaps, the intention of this sub-rule was only that, but it is not happily worded. If the words 'for being' are substituted by the word 'and', it would be clear that only the value of the goods purchased and supplied or used in the execution of such contracts in that year would be liable to be taxed. It must be remembered that in respect of the goods used in the execution of contracts, there is no sale price as such and, therefore, the turnover pertaining to the goods involved in the execution of the contract refers only to the purchase turnover. The purchases so made will not be liable to tax unless actually supplied or used in the execution of such contracts. Accordingly, the turnover must be limited only to such supply or use, and cannot extend to the stock in hand at the end of the assessment year as held by the Supreme Court. Instead of declaring the rule to be invalid, we are of the opinion that it would be appropriate to read the rule to mean only that and no more." While summing up, the Division Bench held that rule 6(3)(i) should be read as applicable only to the value of goods supplied or used in wor....
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....act, and the turnover must be limited only to such supply or use, and could not be extended to the stock in hand at the end of the assessment year. It is only the ratio laid down in a judgment which is binding, and not every stray observation or direction issued therein. A decision which is not founded on reasons, nor it proceeds on a consideration of an issue, cannot be deemed to be a law declared to have binding effect. That which escapes in the judgment, without any occasion, is not the ratio decidendi. A decision is binding not because of its conclusions, but in regard to its ratio and the principles laid down therein. Any declaration or conclusion arrived without application of mind, or preceded without any reason, cannot be deemed to be the declaration of law or authority of a general nature binding as a precedent. (State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289 (SC); [1991] 4 SCC 139, B. Shama Rao v. Union Territory of Pondicherry [1967] 20 STC 215 (SC); AIR 1967 SC 1480). It is not everything said by a Judge, while giving judgment, that constitutes a precedent. The only thing in a judge's decision binding a party is the principle upon which the case i....
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.... may make a world of difference between conclusions in two cases. (Bharat Petroleum Corporation Ltd v. N.R. Vairamani [2004] 8 SCC 579). Rule 6 (3) (i) is merely an extension of rule 6(2), and not an exception thereto. Rule 6(3) (i) requires the value of the goods supplied or used in the works to be included in the taxable turnover instead of adopting the circuitous route prescribed in rule 6(2) of taking the gross receipts relating to the works contract, and deducting therefrom the items enumerated in clauses (a) to (l) of the said rule. While section 2(s)(iii)(a)(i), as amended by Act 18 of 1985 with effect from July 1, 1985, defined "turnover" to include the "cost of any goods as determined by the assessing authority to have been used or supplied by the dealer in the course of execution of the works contract", the words "the cost of any goods" were substituted by the words "the value of any goods" with effect from August 1, 1986. Black's Law Dictionary, 9th Edition defines "cost" to be the amount paid or charged for something; price or expenditure; and "value" as the significance, desirability, or utility of something. The Concise Oxford Dictionary of Current English Eighth....
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...., who transferred the property in goods involved in the execution of a works contract, construing rule 6(3)(i) to mean what rule 6(2) stipulates would render rule 6(3)(i) inapposite surplusage. A literal construction of rule 6(3) (i), as it stood before it was read down by the Division Bench in Media Communications [1997] 105 STC 227 (AP), would require the total turnover of a dealer to be deemed to be the value of the goods purchased for being supplied or used in the execution of the works contract in that year. Purchase of goods, whether or not it was actually supplied or used in the execution of the works contract, was required to be included in the total turnover provided such purchase of goods was for being supplied or used in the works contract. A literal construction of rule 6(3)(i) would have required closing stock of goods, in the hands of a dealer at the end of the year, also to be included in the total turnover, and be subject to tax under section 5F of the Act even though it was not actually supplied or used in the works contract. Such a literal interpretation would have rendered rule 6(3)(i) ultra vires, as the charge to tax under section 5F of the Act is on the transf....
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....ion 2(n) and section 2(s)(iii)(a)(i) of the Act, and under section 5F, is on the transfer of property in goods involved in the execution of works contract, and not a tax on the purchase of goods by a dealer. The word "purchased" in rule 6(3)(i) merely qualifies the word "goods". It only means that the contractor, executing the works, had purchased the goods which were supplied or used in the works, and nothing more. The word "purchased" cannot be read in a manner as to elevate rule 6(3)(i) to a charging provision by implication. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. The authority of law has to be specific and explicit and expressly provided. (Collector of Central Excise v. Orient Fabrics Pvt. Ltd. [2004] 1 SCC 597). There must be a charging section specifically empowering the State to levy tax. The power to tax can neither be inferred by implication nor is there any such thing as taxation by implication. There is nothing like an implied power to tax. The provision cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference. (Cooley in Taxation ....
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...., 1954, where there was no rule similar to rule 6(3)(i); the Supreme Court has only laid down guidelines as to how the taxable turnover of works contracts is to be determined; rule 6(2) and rule 6(3)(ii) were framed on such a basis; however rule 6(3)(i) is an exception to these Rules; the view expressed by the Supreme Court, in Gannon Dunkerley [1993] 88 STC 204 (SC), is not applicable as (1) no rule similar to rule 6(3)(i) came up for consideration before the Supreme Court; and (2) the State has a wide power to frame its own Rules with regards the measure of levy, subject to the limitation that it cannot stretch the law to include something which does not represent the value of the goods involved in the execution of works contracts; rule 6(3) (i) is a conscious deviation from the ratio in Gannon Dunkerley [1993] 88 STC 204 (SC); the purchase value of the goods would be the landed cost of the goods to the contractor at the time of taking delivery of the goods from other vendors; and it would not include the value of such goods at the time of incorporation. The turnover liable to tax under section 5F, read with section 2(u), of the Act is the taxable turnover of the dealer for one ....
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....on the transfer of property in goods (whether as goods or in some other form) (page 396 of STC; 347 of SCR). This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost....
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....s every transfer of the property in goods (other than by way of mortgage, hypothecation, charge or pledge) by one person to another for cash or deferred payment or other valuable consideration and includes; (i) . . . (ii) A transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) to (vi) . . . and such transfer, delivery or supply shall be deemed to be a sale and the word 'purchase' or 'buy' shall be construed accordingly. 5F. Levy of tax on transfer of property in goods involved in the execution of works contract.-Notwithstanding anything contained in section 5 or section 6, every dealer shall pay a tax under this Act for each year, on his turnover of transfer of property in goods whether as goods or in some other form, involved in the execution of works contract, at the rate of eight paise on every rupee of his turnover." It is evident that both under section 5(3) (the charging provision) read with section 2(o) of the Rajasthan Sales Tax Act, and under section 5F of the Act, levy of tax is on the transfer of property in goods. As observed hereinabove, rule 6(3) (i) merely provides another method....
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....the industry for works contracts of a similar kind; etc. While the assessing authority may adopt any other reasonable method, judicial pronouncements and authoritative texts would serve as a useful guide in such estimation. Reference in this context can be made to A.T. Brij Paul Singh v. State of Gujarat [1984] 4 SCC 59, P.M. Paul v. Union of India AIR 1989 SC 1034, Mohd. Salamatullah v. Government of Andhra Pradesh AIR 1977 SC 1481, Dwaraka Das v. State of Madhya Pradesh [1999] 3 SCC 500, Government of Andhra Pradesh v. E.C. Techno Industries [1989] 2 ALT 320, Superintending Engineer v. P. Radhakrishna Murthy [1996] 3 ALT 1137, G.V. Malla Reddy & Co., Hyderabad v. A.P. State Trading Corporation Ltd., Hyderabad [2010] 4 ALD 331 and Hudson on "Building and Engineering Contracts" (Tenth Edition, by I. N. Duncan Wallace), wherein the manner of estimation of profits for different works contracts have been dealt with and, in some of the cases, the percentage of profits estimated at 15 per cent has been accepted as being reasonable. We may not be understood to have held that in all cases 15 per cent should invariably be accepted as the norm. We have merely indicated broadly the factors w....
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....tended by the court on analogy or by addition or deleting words not contemplated by the Legislature. (Mancheri Puthusseri Ahmed [1996] 6 SCC 185). Rule 6(2)(iii) as inserted by G.O. Ms. No. 1445 (Revenue) dated November 5, 1986 is in pari materia with rule 6(3)(i) as introduced by G.O. Ms. No. 244 (Revenue) dated May 17, 1995. The purpose of the legal fiction created both under the earlier rule 6(2)(iii) and in rule 6(3) (i), on a literal construction thereof, is to bring to tax goods purchased for being used in a works contract, even if such goods have not been incorporated in the works. This can be explained better by way of an illustration. Let us take the example of a works contract which is required to be executed over a period of two years. The dealer purchases goods worth Rs. 10 lakhs in the first year itself for being used in the works. He uses goods worth Rs. 5 lakhs in the works in the first year, and retains the remaining goods worth Rs. 5 lakhs as closing stock at the end of the first year. He intends to use these goods in the works during the second year. Though only goods worth Rs. 5 lakhs have actually been incorporated in the works in the first year, the legal fict....
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....mpany Limited, Visakhapatnam [2007] 45 APSTJ 1; the reference should not be answered since the judgment in Media Communications [1997] 105 STC 227 (AP) was rendered on December 6, 1996 nearly 15 years ago; the said judgment has been followed in several cases by the Sales Tax Appellate Tribunals; the State has reconciled itself to this rule; the Government has not chosen to amend the rule despite several orders being passed by the STAT against the orders revising the assessments up to the year 2004-05; any interpretation contrary to what has been laid down in the definition of "turnover" in section 2(s)(iii)(a)(i) would be impractical as the period of limitation for assessments under section 14, or revision under section 20(1) or 20(2), of the Act expired long ago. The Commissioner of Commercial Taxes, A.P. issued CCT Circular Ref. No. All(3)/533/2002 dated October 4, 2005. The said circular records that the Supreme Court, in Gannon Dunkerley [1993] 88 STC 204 (SC), had held that the measure for the levy of tax had to be the value of the goods at the time of incorporation, and not the cost of acquisition of the goods by the contractor; hence the turnover was neither the purchase va....
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....as that while completing the assessments, part of the turnover was taxed as amounts realized in respect of right to use goods under section 5E of the Act. The second issue related to the estimation of turnover involved in the execution of works contract by adding a certain percentage to the declared turnover towards gross profit and other incidental charges. This was done to arrive at the value of the goods at the time of incorporation in works contract. The Tribunal considered both the contentions and heard the arguments of both the sides and found that the orders of the assessing authorities were right and were in conformity with the various judgments, therefore, the Tribunal appeals were dismissed. We do not find any ground to interfere in the order passed by the Tribunal. The tax revision cases are accordingly dismissed." The Division Bench, in Navayuga Engineering Company Limited [2007] 45 APSTJ 1, merely stated that it did not find any ground to interfere with the order of the Tribunal. Neither did the Division Bench examine the scope of rule 6(3)(i) of the Rules nor did it consider whether rule 6(3) (i), as read down in Media Communications [1997] 105 STC 227 (AP), require....
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..... State of Tamil Nadu AIR 1973 SC 974, Mohd. Ayub Khan AIR 1965 SC 1623). For the application of the rule of stare decisis, it is not necessary that the earlier decision or decisions of long standing should have considered and either accepted or rejected the particular argument which is advanced in the case on hand. It is sufficient for invoking the rule of stare decisis that a certain decision was arrived at on a question which arose or was argued, no matter on what reason the decision rests or what is the basis of the decision. (Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax [1976] 37 STC 489 (SC); [1976] 4 SCC 124, Shanker Raju [2011] 2 SCC 132). A decision rendered long ago can be overruled only if the court comes to the conclusion that it is manifestly wrong or unfair and not merely on the ground that another interpretation is possible, and the court may arrive at a different conclusion. (Kattite Valappil Pathumma v. Taluk Land Board AIR 1997 SC 1115, Raj Narain Pandey v. Sant Prasad Tewari AIR 1973 SC 291, Brownsea Haven Properties v. Poole Corpn. [1958] Ch. 574 (CA)). In the matter of the interpretation of a local statute, the view taken by the H....
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....a)(i) of the Act; levy of tax on the cost of purchase of goods by a dealer from his vendor, and not on the value of goods used or supplied in the works, would also be ultra vires section 5(1) read with section 2(s)(iii)(a)(i) and Explanation VI to section 2(n), and section 5F, of the Act. A statutory rule must be read harmoniously with the provisions of the parent Act, and not as being contrary thereto. Since the construction sought to be placed on rule 6(3)(i) by the learned counsel for the assessees would render the said rule ultra vires, it cannot be said to be a possible interpretation of the rule. The question which arose for consideration before the Division Bench, in Media Communications [1997] 105 STC 227 (AP), was whether goods purchased by a dealer was liable to tax even if it was not supplied or used in the works, i.e., whether closing stock or stockin-hand of a dealer could be subjected to tax under rule 6(3) (i) of the Rules. The Division Bench was neither called upon nor did it examine whether the purchase cost of the goods, i.e., the cost of acquisition of goods by a dealer from his vendor is the measure of tax or whether it is the value of the goods, when there is ....
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....missioner (CT) Legal, Office of the Commissioner of Commercial Taxes [2009] 25 VST 55 (AP) (judgment in W.P. No. 8174 of 2009 dated April 2009) and Amulya Publishers v. Commissioner, Commercial Tax, Department of A.P. [2010] 31 VST 359 (AP) (judgment in W.P. No. 15069 of 2009 dated October 8, 2009). It is no doubt true that on their understanding of the judgment of the Division Bench of this court in Media Communications [1997] 105 STC 227 (AP), the STAT had, in several of its orders, held that rule 6(3)(i) required the purchase cost, i.e., the cost of acquisition of goods by the dealer from his vendors to be the measure of tax under section 5F of the Act. As noted hereinabove the STAT has taken a contrary view in several other orders passed by it. As we have now held that rule 6(3)(i) would require the value of goods, at the stage of its incorporation in the works, to be taken as the measure of tax levied under section 5F of the Act, no reliance can be placed on the orders of the STAT to the contrary. The learned counsel for the assessees would, however, contend that when revisional proceedings were initiated under section 20(2) of the Act, it was only the orders of the STAT whi....
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....Act, and under section 5F of the Act, is on the transfer of property in the goods involved in the execution of works contract. (2) As the taxable event is the transfer of property in goods involved in the execution of a works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works, the value of goods which would constitute the measure of tax is the value of goods at the time of its incorporation in the works; (3) The turnover under rule 6(3)(i), for the purposes of rule 6(2), is the value of goods purchased and supplied or used in the execution of works contracts, i.e., the value of the goods when it is incorporated in the works; (4) The word "purchased" in rule 6(3)(i) qualifies the word "goods" and only means that the contractor, executing the works, has purchased goods which are supplied or used in the works, and nothing more. The word "purchased" cannot be read in a manner as to elevate rule 6(3)(i), by implication, to that of a charging provision; (5) If the cost of acquisition of goods, or the purchase cost of goods, is held to be the measure of tax rule 6(3) (i) would not be in conformity either with section 5(1) read....
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....ks contracts have been dealt with, would serve as a useful guide in such estimation. A few of them have been referred to in para 41 supra. While the percentage of profits estimated at 15 per cent has been accepted as being reasonable in some of those cases, we may not be understood to have held that in all cases 15 per cent should invariably be accepted as the norm. We have merely indicated broadly the factors which the assessing authority should bear in mind while estimating the profit percentage in the facts and circumstances of the case before him; (11) However profits on the labour component of, and the actual cost of incorporation in, the works would stand excluded as the value of the goods is only its value till the stage of its incorporation in the works, and not thereafter. The deemed turnover under rule 6(3)(i), (liable to tax under the Act), would be more or less the same as determined under rule 6(2) of the Rules; (12) The legal fiction in rule 6(3)(i) cannot be extended beyond the purpose for which it is created or beyond the language of the rule. The purpose of the legal fiction in rule 6(3)(i) is only to prescribe another method of arriving at the value of the goods....