TaxTMI 
TaxTMI 
2014 (9) TMI 227
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....ge. 2.1. Petitioner No. 1 is a company registered under the Companies Act. Petitioner No. 2 is its shareholder. Petitioner No. 1 company is a consortium of three public limited companies constituted specifically for creating a special purpose company for the purpose of executing a contract with the western railways for gauge conversion of Viramgam-Mahesana track. The agreement for this purpose titled as "concession agreement" was entered into between the western railway and the petitioner-company on May 23, 2003. We shall taken note of relevant terms of such agreement at a later stage. Suffice it to note at this stage however, that under such agreement petitioner No. 1 company had to convert an existing meter gauge railway line into broad gauge through its own finance. Upon completion of such work of gauge conversion, petitioner No. 1 company had to permit access to the railways to such infrastructure so created for which purpose the railways had to pay agreed charges for a period of 12 years. Upon completion of such period or sooner if the contract was terminated, the railways would get what according to the petitioners was full ownership over such infrastructural facilities. I....
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....it the same with the State Government, the Assistant Commissioner of Sales Tax passed an order dated January 10, 2006 in which he provided as under: "The dealer is directed to pay Rs. 5,04,94,960 (rupees five crores four lacs ninety four thousand nine hundred sixty only) which includes tax under section 57B Rs. 1,63,62,000 Penalty of Rs. 2,87,33,500 and interest of Rs. 53,99,460. Demand notice in form 35 under GST Act for dues is issued separately." 4. Qua such liability of TDS and connected penalty, the petitioners approached the Settlement Commissioner under communication dated March 13, 2006 requesting for settlement of dues. It is not in dispute that the settlement commission accepted the request on certain conditions and the petitioners having fulfilled such conditions, the issue with respect to non-deduction of tax at source stands concluded. However, it is equally undisputed that the second issue raised by the Assistant Commissioner in the show-cause notice dated September 3, 2005 regarding the petitioners' liability to pay sales tax, remained open. Notices were issued calling upon the petitioner to participate before the authorities in this respect. Since however,....
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.... "'Access charges' means the regular fixed half yearly payment made by the railway to the Concessionaire after COD for use of the project assets and facilities." * Term "BOT" was defined as under: "'BOT' means build, own and transfer-a contractual arrangement whereby a concessionaire or a private entity undertakes the construction, including financing of the railway infrastructure facility on the leased land title of the railway and the concessionaire authorises access to the railway for operating the same for an identified term on payment of agreed access charges." * Term "COD" was defined as under: "'COD' means the actual date of commencement of Commercial Operations of the project railway (accordance with article 4.1.3(g)" * Term "maintenance period and liability" was defined as under: "'Maintenance period and liability' means the period of 12 months from the date of issue of performance certificate during which the Concessionaire's liability is to rectify the defects that may arise in the works due to defective material and poor workmanship (not normal wear and fear) executed by him for the project railway in accordance wit....
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....sionaire in the event of default." * Clause 12.4.2 pertained to payment in case of termination on account of default on part of the railways. * Clause 14 pertained to hand back of project and divestment of rights and interests. Relevant clauses thereof read as under: "14.1 Hand back & divestment condition 14.1.1 Hand back, divestment of rights and interest can take place under the following circumstances: (i) Upon achieving COD. (ii) Upon termination of this agreement before achieving COD. (iii) Upon reaching the end of concession or termination after achieving COD. 14.2 Hand back of project assets and project facilities on achieving COD. 14.2.1 The project assets and project facilities shall be handed over as under: (i) Upon achieving COD, the concessionaire shall give railways access to project assets and project facilities on exclusive basis for operation and maintenance. (ii) All project assets and project facilities including the formation works, tracks, structure and equipment shall have been renewed and cured of all defects and deficiencies as necessary so that the project railway is complete with the specifications and standards set forth in....
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.... created and owned by the concessionaire as a result of the concession under this agreement shall deemed to have been transferred to railways. (ii) The concessionaire executes such deeds of conveyance, documents and other writing as the railway may reasonably require to convey, divest and assign all the rights, title and interest of the Concessionaire in the project assets and project facilities free from all encumbrances absolutely and free of any charge or tax to the railway; and (iii) The concessionaire complies with all other requirements as may be prescribed under applicable laws to complete the divestment and assignment of all the rights, title and interest of the concessionaire in the project assets and facilities free from all encumbrances absolutely and free of any charge or tax to railway." 7. At this stage we may take note of relevant statutory provisions. Section 2(12) of the Gujarat Sales Tax Act, 1969 ("the Act", for short) defines the term "goods" as under: "(12) 'goods' means all kinds of movable property (not being news-papers or actionable claims or stocks, shares or securities) and all materials, articles and commodities, including standing ti....
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....that could be made before the High Court against the decision of the Tribunal. 8. Likewise the VAT Act also which is a successor Act of Gujarat Sales Tax Act contains similar machinery provisions for collection of taxes. * Chapter 5 of the VAT Act pertains to returns, assessment, etc. * Chapter 9 of the VAT Act pertains to appeal, revision, reference and rectification. * Section 73 which is contained in Chapter 9 provides for appeal to the higher Departmental authorities and to the Tribunal. * Section 75 prescribes powers of revision of Commissioner and Tribunal. * Section 78 provides for appeals which may lie to the High Court from an order passed by the Tribunal, if the court is satisfied that the case involves a substantial question of law. 9. On the basis of the above documents on record, learned senior counsel Shri Manish Bhatt for the petitioners vehemently contended that the sales tax authority have no right to collect any tax from the petitioners. He submitted that there was no sale of goods as envisaged under the Sales Tax Act. The counsel further submitted that this was also not a case of execution of works contract by the petitioners. Application of ....
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....the petitioners had not executed the project as a works contract. 10. On the other hand, the learned Advocate-General Shri Kamal Trivedi opposed the petition contending that the case of the petitioners would fall under section 2(28)(c) of the Act. They have neither registered themselves with the authority nor paid the tax for which purpose the show-cause notice came to be issued. 10.1. He took us through the various terms and conditions of the agreements to point out that the petitioners were to receive bi-yearly payments. The property was transferred to the railway authorities upon handing over the entire project upon completion. He submitted that the entire document should be read as a whole. A stray clause here or a statement there should not be seen in isolation. He further submitted that the intention of the parties was that the conversion of existing railway line from meter gauge to broad gauge would be undertaken by the petitioners at their cost through their investment. Upon completion of the conversion work, the same would be handed over to the railway authorities who would pay periodic charges for a span of 12 years. He pointed out that at the completion of the abov....
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....that such provision did not enlarge the scope of collection of sales tax and held that such amendment did not confer a larger freedom to the States than what they had before in regard to their power to levy sales tax under entry 54 of the State List. It was held that such amendment did 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. The apex court did not favour the contention that such amendment 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. (3) In the case of Sundaram Finance Ltd. v. State of Kerala reported in [1966] 17 STC 489 (SC), wherein the apex court considered the question as to when the sale of goods can be stated to have taken place in a hirepurchase agreement between the finance company and the last purchaser of the motor vehicle. (4) In the case of Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204 (SC); [1993] 1 SCC 364, wherein the apex court expressed the opini....
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....the present is not a case of works contract and that therefore, even under the deeming fiction of section 2(28)(c) of the Act, no tax can be collected. On the other hand, the State strongly contends that it is a clear case of works contract. Therefore, even if there is no sale or transfer of movable property, the case is covered under section 2(28)(c) of the Act and in particular under notification as per Appendix 1A of the Act issued by the State Government under Explanation II to the said sub-section. 12. Whether the present is a case of works contract or sales simplicitor must depend on varieties of facts. As held by the apex court in the case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC); [2005] 3 SCC 389, there is no standard formula by which one can distinguish a contract for sale from a works contract. The question is largely one of facts depending upon the terms and conditions of the contract. The apex court in the case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC); [2005] 3 SCC 389 held as under (pages 26 and 27 in 140 STC): "5. It can be treated as well-settled that there is no standard formula by....
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....ns of agreement. Under such terms and conditions, the parties had certain rights and obligations. Whether the present case falls under the description of sale of goods or works contract must be judged on the basis of reading of the entire contract and in particular the terms and conditions noted above. The contract itself is an elaborate recording of by-parte rights, liabilities and obligations. It is a complex document providing for several obligations and rights depending on various eventualities. Such agreement is required to be appreciated in the light of the facts and circumstances of the case. In the present case, when the sales tax authority has even at the first instance not undertaken this task, we would be well advised in not doing so directly at first instance before this court in exercise of writ jurisdiction. It is by now well-settled that when particularly in revenue matters, the statute provides for detailed mechanism for assessment, adjudication, appeals and revisions and thereafter collection of tax, a writ petition should normally be not entertained unless of course the case on hand falls under any of the well recognised exceptions to this rule of the alternative ....
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....the judgment of the Board observed that in the provenance of tax where the Act provided for a complete machinery which enabled an assessee to effectively to raise in the courts the question of the validity of an assessment denied an alternative jurisdiction to the High Court to interfere. It is true that the decision of the Privy Council in Raleigh Investment Company's case [1947] 74 IA 50 (PC), was in relation to a suit brought for a declaration that an assessment made by the Income-tax Officer was a nullity, and it was held by the Privy Council that an assessment made under the machinery provided by the Act, even if based on a provision subsequently held to be ultra vires, was not a nullity like an order of a court lacking jurisdiction and that section 67 of the Income-tax Act, 1922, operated as a bar to the maintainability of such a suit. In dealing with the question whether section 67 operated as a bar to a suit to set aside or modify an assessment made under a provision of the Act which is ultra vires, the Privy Council observed: 'In construing the section it is pertinent, in their Lordships' opinion, to ascertain whether the Act contains machinery which enables....
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....applicable to enforcement of rights, and has been followed by this court throughout. The High Court was therefore justified in dismissing the writ petitions in limine." (3) Once again in the context of Sales Tax Act and VAT Act, the apex court in the case of Zunaid Enterprises v. State of M.P. reported in [2012] 50 VST 7 (SC); [2012] 4 SCC 211, held that in view of availability of alternative remedy, the High Court should not entertain a writ petition. It was further observed that merely based on certain clauses in the agreement, the High Court ought not to have decided that the transactions in question would be purely and simply inter-State sales and not intra-State sales. It was observed as under (page 10 in 50 VST): "27. At the outset, we intend to remark that in these type of cases, the High Court ought not to have entertained the writ petition(s)/writ appeal(s) filed under articles 226/227 of the Constitution. We say so for the reason, that, particularly a transaction is under the Central Sales Act, inter-State sales or inter-State sales are mixed questions of fact and law. Those facts requires to be brought to the notice of the assessing authority by the appellants and ....
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....nder article 226 of the Constitution. Therefore, the learned single judge was justified in observing that since the assessee has a remedy in the form of a right of appeal under the statute, that remedy must be exhausted first, the order passed by the learned Single Judge, in our opinion, ought not to have been interfered with by the Division Bench of the High Court in the appeal filed by the respondent/assessee." 14. Present is a case where the petitioners have approached this court when the sales tax authorities have merely issued a notice why a certain tax should not be collected. The petitioners have full liberty to produce all materials at their command and raise all legal contentions to canvas that they are not exigible to sales tax in view of the nature of the contract and execution of work done by them under such contract. The sales tax authorities are bound to take into consideration and take a view and only thereafter, would be able to frame any assessment even if ultimately the authorities rule against the petitioners. In such a case against the assessment first appeal would be available before the Departmental appellate authority and thereafter before the Sales Tax Tr....
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....ent to note. The Constitution Bench speaking through S.C. Aggarwal, J. in para 2 of the report while relying upon the decision of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC); [1993] 1 SCC 364 (Civil Appeals arising out of SLP No. 3365-68 of 1992), reaffirmed the following requirements of law before works contract regarding transfer of property in goods can be brought within the sales tax net. Relevant legal requirements for enabling the State authorities to impose such sales tax on transfer of material involved in works contract were highlighted." 17. The learned counsel for the petitioners during the course of arguments conveyed to us that such agency, i.e., M/s. D.S. Construction of New Delhi has already been subjected to sales tax assessment and sales tax authorities are demanding sales tax from such agency. It was therefore, contended that the State cannot now independently tax the petitioners for the same amount again. We also notice that in the impugned order the Assistant Commissioner of Commercial Tax had recorded as under: 18. "Thus, the dealer was granted opportunity of hearing on many occasions but he has failed to make ....
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....of one year has passed long back. In the meantime, there was no stay against the assessing authority from proceeding further with the assessment. This court in the interim order dated November 29, 2006 only prevented the authority from passing the final order without the permission of the court but permitted to proceed further with the assessment. No such permission was sought. It appears that the assessment is not yet undertaken in full earnest. No further hearing took place after the court's interim order. The court had stayed the attachment subject to the petitioners' depositing a sum of Rs. 1,92,00,000 before this court. It is stated that such amount was deposited. In the last part of the interim order dated November 29, 2006, the court had provided that if the petitioners receive any further access charges, they shall deposit the tax at the rate of 12.5 per cent on that amount with the registry of this court till further orders. The petitioners have been depositing such periodic amounts also. 21. In view of the above developments, when we are of the opinion that attachment order cannot survive and it has in any case outlived its life well beyond the statutory period....