TaxTMI 
TaxTMI 
2014 (10) TMI 810
X X X X Extracts X X X X
X X X X Extracts X X X X
....g, engineering, procurement and supply of equipments including mandatory spares BOP package and also for erection, testing, commissioning and civil works of balance of plant (BOP) package for setting up of thermal power project at Suratgarh and Chhabra in the State of Rajasthan. Civil Writ Petition No. 8491 of 2011 is directed against the aforesaid show-cause notice for rectification under section 33 of the VAT Act, 2003 while connected Writ Petition No. 9185 of 2011, is mainly directed against the impugned assessment order passed by the respondent-assessing authority on September 29, 2011, for the same assessment year 2008-09 (April 1, 2008 to March 31, 2009) which was passed by the assessing authority soon after filing of the present writ petition in this court on September 26, 2011 in which only the show-cause notice issued by the assessing authority vide annexure 16 dated September 19, 2011 was challenged. The factual matrix in nutshell taken from Civil Writ Petition No. 8491 of 2011 is like this. Two contracts in question awarded by the RRVUNL to the petitioner-company for the Suratgarh power project are the contract No. 3381 dated October 3, 2006 and 3382 dated October 3, 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ords : Rupees one hundred eighty six crores only. Contract No. 3382 : Suratgarh:- Schedule of Material and Prices S. No. Details Amount in Indian Rs. 1 Total f. o. r. price of supply items of civil and structural work of entire BOP including all taxes and duties as applicable on date 80 crores 2 Total f. o. r, price of erection, testing and commissioning of entire scope of BOP including unloading, storage at site, handling from the storage area to erection site and performance testing for the equipment and test before taken over including all taxes and duties. 20 crores 3 Civil structural and architectural works for entire BOP package along with all necessary investigation including all taxes and duties as applicable on date. 85 crores 4 Total price for civil and etc., work for entire BOP package including all taxes and duties as applicable on date (1.0 + 2.0) 185 crores Total amount in words : Rupees one hundred and eighty five crores only. Contract No. 56 : Chhabra:- Schedule of Material and Prices S. No. Details Amount in Indian Rs. 1 Total f. o. r. price of supply of entire scope of BOP including mechanical, electrical and control and instrumentation pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed August 11, 2006 is reproduced hereunder for ready reference:- "No. F.12(63)FD/Tax/2005-80 Jaipur dated August 11, 2006 In exercise of the powers conferred by sub-section (3) of section 8 of the Rajasthan Value Added Tax Act, 2003 (Act No. 4 of 2003), the State Government being of the opinion that it is expedient in the public interest so to do, hereby exempts from payment of tax the registered dealers engaged in execution of works contracts leviable on the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract(s) subject to following conditions, namely:- (1) to (8)..... List Item No. Description of work contract Rate of exemption fee % of the total value of the contract 1 2 3 1 Works contracts relating to dyeing, printing, processing and similar activities 0.25% 2 Works contracts relating to building, roads, bridges, dams, canals, sewerage system 1.50% 3 Works contracts relating to installation of plants and machinery including PSPO, water treatment plant, laying of pipe line with material 2.25% 4. Any other kind of works contract not covered by item Nos. 1, 2 and 3. 3.00% This Notification shall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de in this behalf. The order so issued shall be provisional in nature and applicable only for deduction of amount in lieu of tax under sub-section (2) of section 20 of the Value Added Tax Act, 2003, and shall be subject to assessment under the said Act." The case of the petitioner is that in view of the said amendment vide Notification dated July 5, 2010, the assessing authority even directed the RRVUNL vide annexure 11 dated July 27, 2010, not to deduct the tax/exemption fee at source for contract No. 3381. However, the petitioner was served with the impugned show-cause notice for rectification of the aforesaid exemption fees certificate in prescribed form VAT-14 for the aforesaid period vide annexure 16 dated May 12, 2011, purportedly after the assessing authority consulting the head of the Department, namely, Commissioner, Commercial Taxes Department, Jaipur vide communication, annexure 13, dated February 21, 2011. The petitioner has also alleged in the writ petition that these rectification proceedings were undertaken at the behest of higher authorities and even the Deputy Secretary of Finance Department vide communication, annexure 18, dated October 11, 2010 addressed to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bra are contracts for supply/sale of equipments, whereas, both the secqnd contracts, namely, contract No, 3382 for Suratgarh and contract No. 57 for Chhabra are the works contracts which comprise of erection, testing, commissioning of balance of plants including civil works therefor, besides another company BHEL (Bharat Heavy Electrical Limited), supplying the main plant in the form of turbines and, therefore, the learned assessing authority could not have undertaken the rectification proceedings for amending the exemption certificates duly granted in favour of the, petitioner-company after realizing 1.50 per cent of the total value of the contracts as exemption fees under the notification dated August 11, .2006, which exemption certificates, in his submission, were issued, with open eyes and full application of mind as per clause (2) of the list appended in the notification dated August 11, 2006, quoted above. The learned counsel for the petitioner, Mr. Pallav Shishodia, further vehemently urged that for changing the classification of works contract from item No. 2 of the notification to item No. 3 of the said notification to apply higher rate of exemption fee at 2.25 per cent, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed contract of petitioner-company with the RRVUNL and such turnkey contract or integrated contract divided into two or more could not be permitted to be used as a device to evade the tax or to reduce the liability of payment of exemption fees in lieu of tax liability and such an integrated contract by no stretch of imagination could fall under clause (2) of the notification dated August 11, 2006, which pertains to exemption fee of 1.50 per cent of the total value of the works contract relating to building, roads, bridges, dams, canals and sewerage system. The integrated contract as per the learned counsel for the Revenue clearly and could fall only in entry No. 3, which pertains to works contract relating to installation of plant and machinery including PSPO water treatment plant, laying of pipeline with material, on which the exemption fee of 2.25 per cent is leviable. They further submitted that it was clearly a mistake apparent on the face of the record and rectification proceedings were absolutely sustainable and correct in law and could not be validly assailed by the assessee-petitioner. Mr. G. S. Bafna, Advocate-General, further submitted that dividing the integrated contrac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(hereafter referred to as Supply Order No. 3381 dated October 3, 2006) was for design, engineering, procurement and supply of equipments including mandatory spares of BOP package of EPC basis for Suratgarh Thermal Power Station. A copy of supply order No. 3381 dated October 3, 2006 is submitted herewith and marked as annexure 1. Work Order No. RVUN/SE CTD-II)/TDMI/ STPS-BOP(ETC)/TNS-1/D. 3382 dated October 3, 2006 (hereafter referred to as Work Order No. 3382 dated October 3, 2006) for erection, testing and commissioning including civil works of BOP package on EPC basis for Suratgarh Thermal Power Station. A copy of the Work Order No. 3382 dated October 3, 2006 is submitted herewith and marked as annexure 2. Similarly, Supplies Order No. RVUN/Dy. CE (TD-M)/TDM-I/ CTPP-II BOP/TNCH-3/D.56.dated January 7, 2009 (hereafter referred to as Supply Order No. 56 dated January 7, 2009) was for design, engineering, procurement and supply of equipments including mandatory spares BOP package on EPC basis for 2x250 MW Chhabra Thermal Power Project, Stage I, Phase II as per specifications issued in the said order. A copy of supply order No. 56 dated January 7, 2009 is submitted herewith and m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st by the assessing authority himself and subject to further appeal and revisional mechanism available to the assessee under the Act, it is only on the question of law arising out of the order of the Tax Board, that this court in revisional jurisdiction can pronounce upon such question of law raised before it. The questions involved in the present case are apparently complex and mixed questions of facts and law-more of facts and less of law. Whether the two contracts is a mere device or mechanism to divide one integrated works contract into two contracts, one for sale/supply of equipments and other for erection, testing and commissioning of plant and machinery including civil works or not is a question which cannot be answered on the face of it. Whether the first contract of design, engineering, procurement and supply of equipments itself is merely a contract of supply or sale or is a works contract is an open question. Apparently, designing and engineering do not require any supply or sales. Likewise, the second contract of erection, testing and commissioning including civil works for balance of plant (BOP) by itself is also a works contract or not is another question to be decid....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied is : when and how the property of the dealer in such a transaction passes to the customer : is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a 'sale'; if it is the latter, it is a 'works contract'. Therefore, in judging whether the contract is for a 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provide a guide in deciding whether the transaction is a 'sale' or a 'works contract'. Essentially, the question is of interpretation of the contract. It is settled law that the substance and not the form of the contract is material in determining the nature of trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fter the deeming fiction introduced by State Legislatures for bifurcation of indivisible contract into divisible contract for sale and supply and of service and labour, which was the position obtaining prior to 46th Amendment of the Constitution of India by which article 366(29A) of the Constitution of India was amended and State sales tax laws were further amended to fall in line with the said constitutional amendment, which was interpreted and held valid by the honourable Supreme Court in the aforesaid two judgments explaining the entire concept of levy of sales tax, in the case of works contract, the submission of learned counsel for the petitioner that the assessing authority could not integrate the works contract with contract of supply of plant and machinery and impose works contract tax of exemption fees in lieu of such tax, misses the basic point involved in the case. The basic issue involved in the present cases is as to whether the exemption Notification dated August 11, 2006 which provides for exemption of payment of tax on works contract subject to the assessee obtaining the exemption certificate upon payment of exemption fees of fixed percentage of the total value of ....