TaxTMI 
TaxTMI 
2015 (3) TMI 748
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....nserted by the Finance Act, 2007, w.e.f 01-06-2007; or are also comprehended within the ambit of existing (as on 01-06-2007) taxable services such as Commercial or Industrial Construction Service (CICS);Construction of Complex Service (COCS); or Erection, Commissioning or Installation Service (ECIS). 2. Integral to our charter is the interpretation of relevant provisions of the Act. CICS; COCS & ECIS are distinct, extant services defined and enumerated to be taxable services, prior to introduction of Works Contract Service (WCS). CICS was initially introduced w.e.f 10-09-2004, termed construction service; was amended in 2005, now called CICS amplifying the scope of the service as well and is defined in Section 65(25b) r/w Section 65(105)(zzq). COCS was also introduced in 2005, defined in Sections 65(30a) & 65(91a) r/w Section 65(105)(zzzh). ECIS was enacted to be a taxable service w.e.f 01-07-2003 qua Section 65(105)(zzd) and is defined in Section 65(39a). Definitions and scope of some of these services were amended over time. The evolutionary history of CICS, COCS & ECIS is however not relevant to the scope of our analyses. The legislative/statutory setting, the relevant defini....
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....) of the Seventh Schedule of the Constitution, vide - M.P.V. Sundararamier and Co. vs. State of A.P. AIR 1958 SC 468; A. Venkata Subba Rao vs. State of A.P AIR 1965 SC 1773 Hoechst Pharmaceuticals Ltd vs. State of Bihar AIR 1983 SC 1983 Synthetics & Chemicals Ltd vs. State of U.P (1990)1 SCC 109; and Godfrey Phillips India Ltd. vs. State of U.P (2005)2 SCC 515 . The Union and State Lists 'constitutional boundaries : From the scheme of distribution of legislative powers between the Union and States qua the mutually exclusive Lists (I&II), it is clear that powers to make laws with respect to any of the matters in the List authorized to the particular legislative level, is exclusive. This is clear from the provisions of Article 246 and the position is also normatively settled. Abstinence by Parliament or a State Legislature, from legislating at all or to the limit of its exclusively allocated powers would not have the effect of transferring to the other legislative level the field exclusively assigned to the abstaining legislature. The corollary of such exclusivity is that if Parliament or the legislature of a State fails to legislate, at all or to the full limits of its all....
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....e provincial (State) legislature(s), to overlap, smother, swamp or trench upon taxing powers allocated to the other level. - United Provinces vs. Atiqa Begum AIR 1941 FC 16; Ref under Article 143 AIR 1965 SC 765; and In re Cauvery Water Disputes Tribunal 1993 Suppl (1) SCC 96. Thus it is, that a fiscal exertion by one level of legislation must be precisely designed and so calibrated to avoid encroachment, poaching into or trenching upon the authorized and delineated field(s) allocated to another level. Harvesting revenue, by levy and collection of taxes qua legislation by Parliament must therefore clearly avoid encroachment into the field(s) authorized to States; and vice-versa. These are the foundational premises substrating consideration of the issues presented to us for resolution. 5. Events leading to the reference : Service Tax appeal No. 58658 of 2013 was filed by L&T, challenging an adjudication order confirming a demand of service tax on the consideration received pursuant to a turn-key contract executed, by characterizing it as a taxable service falling within the ambit of CICS, defined in Section. 65 (105) (25b), of the Act. The appellant filed an application ....
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....act, involving transfer of property in goods and services which is taxable only form 01-06-2007 onwards and not earlier thereto, in view of the provisions of Section. 65(105)(zzzza), could be vivisected and service components of such composite contract could be subjected to tax by classification of such service components under other taxable services such as commercial or industrial construction service or erection, installation and commissioning service, construction of residential complex service etc. for the period prior to 01-06-2007, must be referred to a larger bench of five members. Accordingly, we direct the Registry to place the papers before the Hon'ble President, for an appropriate decision. The President, CESTAT referred the issues for consideration of the Larger Bench. We are assembled to answer the reference. Revenue filed two miscellaneous applications, for rectification of mistake/recall of orders dated 09-09-2013 and 05-05-2014 (recommending reference to a larger bench; and reframing the issues for consideration by the five member bench). These and certain connected applications were disposed of on 08-08-2014. Revenue's miscellaneous applications were....
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....isposed of'. 6. Hearing of the reference by this Bench commenced on 10-11-2014. Revenue, at commencement of the proceedings pleaded that the hearing be adjourned, to await the outcome of the appeal preferred by Revenue to the Delhi High Court. We orally declined this request since the Bombay High Court had directed expeditious hearing of the reference, in another matter on the Board of that High Court and as constitution of a special bench involved considerable and avoidable logistic hassle. 7. We have carefully perused the order dated 11-11-2014 of the Delhi High Court. We note that we are required to consider whether the decision in G.D. Builders and contrary decisions of the Karnataka and Madras High Courts cover the issue(s) referred, for consideration of this Bench. Senior counsel Shri N. Venkataraman (representing L&T) referred to decisions inCST vs. Turbotech Precision Engineering Pvt Ltd. 2010 (18) S.T.R 545 (Kar) ; and Strategic Engineering Pvt. Ltd. vs. CCE 2011 (24) S.T.R 387 (Mad) which concluded contrary to G.D. Builders and ruled that a works contract is not chargeable to service tax prior to 01-06-2007. Shri Venkataraman further urged that theG.D. Bui....
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....Devi Lal University (2008) 9 SCC 284. 8. Should G.D.Builders be accorded precedential authority 'analyses : We notice that as the Karnataka and Madras High Courts have taken a diametrically contrary position (to that of G. D. Builders) on the identical issue; primary analyses of the constitutional and legislative dynamics and of the relevant statutory provisions considered in the light of applicable interpretive principles and precedential authority, is inescapable. CESTAT, a National Tribunal operates within the jurisdiction of the several High Courts in the country. It is trite that decisions of the Karnataka and Madras High Courts cannot be disregarded as per-incuriam the Delhi High Court's G.D. Builders ruling nor vice-versa. We are therefore required to clarify which is the correct position in law (insofar as we are able to); whether the views of the Delhi High Court and of the Karnataka and Madras High Courts constitute the ordained legal position in the respective territories; to identify and declare the legal position that is operative in territories not governed by extant rulings of these High Courts; and in the alternate, whether the decisions, of the Delhi ....
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....no acceptability or relevance while determining rights and liabilities incurred or acquired in view of the axiomatic principle, without exception that there can be no estoppel against a statute 'vide para 9 in Mohanlal Likumal Punjabi. Revenue contests appellants' contention that the G. D. Builders ruling is based on concession and is thus of no precedential value. We now consider G. D. Builders, at this stage of our analyses, to ascertain whether its conclusion (that works contract is a taxable service even prior to 01-06-2007) is predicated wholly on the basis of concession by petitioners therein, that such is the position in law. 10. The G.D. Builders landscape: G.D. Builders petitioners' inter-alia contended: a. 'composite or works contracts' are excluded from the ambit of levy of service tax under Section 65(105)(zzq)&(zzzh); b. Section 65(105)(zzq)&(zzzh) apply only to 'service contracts' and not to 'composite or works contract'; and c. There is a conflict between Section 65(105)(zzzza); (zzq) and (zzzh); and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of ....
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....vice component in composite contracts can be taxed but not as works contract per se; learned counsel for the petitioner further states that the respondents are also competent to bifurcate and tax the service component also. The issues presented in G. D. Builders were clearly in respect of the period prior to 01-06-2007 and works contract is a species of composite contracts, as the latter expression is understood in the world of commerce, of law and in constitutional and legislative practice. We are thus unable to flesh out the precise nature of what was conceded by G. D. Builders petitioners. We therefore premise that the Court proceeded on the basis that the challenge to non-leviability of service tax on works contract, was either not eschewed or the interpretation of legislative provisions - their trajectory and contours, cannot rest on mere concession but ought to be considered on merits, after analyses. In fact, in paras 19 to 30, the Court referred to several decisions and spelt out its analyses for resting the conclusions recorded, specifically in para 18 and generically in paras 31 & 36. In para 31 G.D. Builders records: The contention that there was/is no valid levy o....
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.... and dams. Each provision or levy has its own scope and ambit. While the first two provisions were primarily specific and targetted, the third inclusion i.e. works contract is a very broad and wide term and will include within its ambit and scope construction of industrial and commercial complexes or construction of residential complexes as specified. Introduction and imposition of Service Tax on works contract by Finance Act, 2007 does not mean that we have to read down the scope and ambit of the provisions enacted levy on (enacting levy for) tax on contracts relating to 'commercial and industrial construction' service or 'construction of (residential) complexes service as specified by finance Act, 2004 (1994) and Finance Act, 2007 respectively. The new levy imposed by Finance Act, 2007 does not indicate or show that works contract relating to 'construction of industrial and commercial complexes' or 'construction of (residential) complexes as specified would only be applicable when the contractor was providing labour or service and was paid for the same and not to composite contracts when the contractor was providing labour/services as well as goods used fo....
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....h of the Hon'ble Finance Minister while introducing Finance Bill, 2007-2008 (explaining reasons for introducing WCS as a new levy); the contemporaneous circulars issued by CBEC/TRU; the rules issued for valuation and for composition of works contracts (on and since 01-06-2007); and the settled jurisprudence ordaining a non-derogable obligation to entrench clear provisions in the statutory schemata for levy and collection of service tax, to ensure confinement of the levy to service and associate components of composite/works contract transactions(which comprise both 'service/labour' and 'transfer of goods' elements), by engrafting an explicit statutory regime for proper, non-discretionary and non-arbitrary computation/valuation and for negating overreach into legislative field(s) and components thereof which are exclusively allocated to States, compel but the singular conclusion that works contract is enacted to be a taxable service only w.e.f 01-06-2007; and not earlier thereto. Primary analyses of the issue whether and by what legislative/statutory measures, 'sale and purchase of goods' and 'service' components of composite/works contract cou....
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....-07-2010 is not relevant for this lis); Sub-clause (zzzh) enumerates COCS and reads: to any person, by any other person, in realtion to construction of complex (the Explanation inserted w.e.f 01-07-2010 is not relevant for this lis); Sub-clause (zzd) enumerates ECIS and reads: to any person, by a commissioning or installation agency in relation to erection, commissioning and installation; Relevant definitions (status pre '01-06-2007): CICS : Sec. 65(25b) ' 'commercial or industrial construction service' means' a. construction of a new building or a civil structure or a part thereof; or b. construction of pipeline or conduit; or c. completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or d. repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is' i. used, or to be used, pr....
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....ing, drain laying or other installations for transport of fluids; or (c) heating, ventilation, or air-conditioning including related pipe work, ductwork and sheet metal work; or (d) thermal insulation, sound insulation, fire proofing or water proofing; or (e) lift and escalator, fire escape staircases or travelators; or (f) such other similar services; The charging provision : Section 66' There shall be levied a tax (hereinafter referred to as the service tax) at the rate of specified per cent of the value of taxable services referred to in sub-clauses (enumerated) of clause (105) of section 65 and collected in such manner as may be prescribed (emphasis added). With the introduction of new taxable services or amendments to or relocation of taxable services, the relevant sub-clauses resulting therefrom, were incorporated in Section 66, to authorize the levy. The expression prescribed is defined in Section 65(86) to mean prescribed by rules made under this Chapter (Chapter V). Power to exempt : Section 93' (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Offic....
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....ntermediary or insurance agent from the insurer; (f) the reimbursement received by the authorized service station from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; and (g) the commission or any amount received by the rail travel agent from the Railways or the customer, but does not include' i. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; ii. the cost of enexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service; iii. the cost of parts or accessories, or consumables such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle, or two wheeled motor vehicles; iv. the airfare collected by air travel agent in respect of service provided by him; v. the rail fare collected by rail travel agent in respect of service provided by him; vi. the cost of parts or other material, if an....
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....le, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation : For the purposes of this section,- (a) ' consideration' includes any amount that is payable for the taxable services provided or to be provided; (b) ' money' includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) 'gross amount charged' includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the b....
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....e in the Explanation to Section 67 (as it stood prior to its substitution by Finance Act, 2006). To recapitulate, sub-clause (vii) of the unamended Section 67 read: but does not include ---- (vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; While the included and excluded components for valuation of a taxable service were part of the Act itself, under Section 67 (prior to 18-04-2006), these are now (excised from the Act but) enumerated in the 2006 Rules; but for the significant (by design or default) omission of sub-clause (vii), adverted to earlier. Exemption/abatement notifications : (relevant to CICS, COCS & ECIS) : As noticed earlier, exemption notifications may be issued by the Central Government under Section 93. This provision authorizes grant of exemption (generally or subject to conditions as specified in the notification), from the whole or any part of the service tax leviable on a taxable service of any specified description. A notification issued under Section 93 thus presupposes that exemption provided thereby is of the service tax leviable (under the Act) in res....
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....pecified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid: TABLE S.No Sub clause of Section 65 (105) Description of the taxable service Conditions Percentage 1 2 3 4 5 5 zzd Erection, commissioning or installation, under a contract for supplying a plant, machinery or equipment and erection, commissioning or installation of such plant, machinery or equipment This exemption is optional to the commissioning and installation agency. Explanation - The gross amount charged from the customer shall include the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service. 33 7 zzq Commercial or industrial construction service. This exemption shall not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civi....
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....able services - CICS, COCS & ECIS. WCS : (introduced by Finance Act, 2007, w.e.f 01-07-2007): this service is specified to be a taxable service and is defined in: Section 65(105) : 'taxable service' means any service provided or to be provided; (zzzza) 'to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation 'For the purposes of this sub-clause, 'works contract' means a contract wherein, - (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) Such contract is for the purposes of carrying out, - (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and ....
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....service provider relatable to supply of labour and services; (ii) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i). The Composition Rules, 2007 : In exercise of powers conferred by Section 93 (Power to exempt) and by Section 94 (Power to make rules) of the Act, the Works Contract (composition scheme for payment of service tax) Rules, 2007 was issued by Notification No. 32/2007-ST dated 22.05.2007, brought into force w.e.f. 01.06.2007. Relevant provisions of these rules are: 2. Definitions. - In these rules, unless the context otherwise requires,- (a) 'Act' means the Finance Act, 1994 (32 of 1994); (b) 'section' means the section of the Act; (c) 'works contract service' means services provided in relation to the execution of a works co....
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.... for computation of these elements in a composite transaction; and that computation of service component(s) is a mere matter of detail, a procedural and calculation aspect and not a matter touching upon the validity of the impost/tax or one relating to legislative competence), are conclusions which are fundamentally flawed, contrary to settled jurisprudence in the area; and rest on inadequate and clearly erroneous statutory and precedent analyses. Counsel contend that the manifest error in G. D. Builders conclusions is the consequence of inadequate pleadings, unstructured forensic assistance and incoherent presentation (at the Bar), of holistic principles, relevant and applicable to the central issue. To support the contention, reliance is placed on: * B. Shama Rao vs. Union Territory of Pondicherry. AIR 1967 SC 1480; * State of U.P vs. Synthetics & Chemicals Ltd and another. (1991) 4 SCC 139; * Municipal Corporation of Delhi vs. Gurnam Kaur. (1989) 1 SCC 101; * Divisional Controller, KSRTC vs. Mahadeva Shetty and Another (2003) 7 SCC 197 * Purvanchal Cables & Conductors Pvt. Ltd. vs. Assam Electricity Board and Anr. (2012) 7 SCC 462. ....
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....ion. 15. Suffice it to notice that Karnataka and Madras High Courts (in Turbotech Precision Engineering Pvt. Ltd. & Strategy Engineering Pvt. Ltd. Dias - Jurisprudence, 4th Ed; pg. 180), recorded a diametrically contrary conclusion; and held that prior to 01-06-2007 (introduction of sub-clause (zzzza) in Section 65(105) of the Act), works contract was not a taxable service. Revenue (in the written submissions) distinguishes the Karnataka and Madras High Court decisions by reference to the different taxable services involved and the facts considered therein, designedly glossing over and ignoring the fact that the decisions clearly and categorically record the conclusion that the transactions in issue therein were works contracts and WCS was not a taxable service prior to 01-06-2007. 16. We are conscious that judgments of High Courts are binding precedents on the CESTAT (a Tribunal) 'vide East India Commercial Co. Ltd. vs. Collector of Customs AIR 1962 SC 1893. The Delhi High Court is also the jurisdictional High Court, for the Principal Bench. We are also alive to the principle that within the compass of heirarchial discipline enjoined by stare decisis, binding precedents ....
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....itten submissions. These reiterate and supplement in brief, the oral arguments. We therefore summarize the respective oral and written submissions. Shri Sahu has also filed written submissions, in elaboration of oral argument and propounds bases distinct from those of L&T and other counsel. We deal with Shri Sahu's contentions/submissions later. We also integrate contentions of other Ld. Counsel, including written submissions by Shri Puneet Agrawal into contentions/submissions proffered on behalf of L&T and refer to them for brevity, as the L&T position. We omit reference to the several precedents cited during oral argument and adverted to in written submissions by both parties, at this stage of our analyses. We analyse precedents as part of our adjudication. The L&T position (summarized) : 01. Revenue submissions (written), regarding limitations imposed on this special Bench by the Delhi High Court decision dated 11-11-2014, are wholly misconceived and proceed on elementary misconception of the High Court's order. Neither was any concession made on behalf of L&T before this Bench that the G. D. Builders decision covers the issues referred nor did the High Court decla....
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....omprehended within the scope of sale of goods (under Entry 54 of List I)], within the ambit of 'sale or purchase of goods'. Article 366 (29-A) incorporated a definition to the expression: a tax on the sale and purchase of goods; expanding the traditional meaning of the expression by an inclusionary clause, embracing the six categories of transactions, set out in sub-clauses (a) to (f). Sub-clause (b) reads: a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; 05. The 46 th Amendment expanded the locus of the legislative field enumerated in Entry 54 of List II and thereby facilitated States the authority to levy tax, inter alia and vide sub-clause (b), on the transfer (by way of accretion) of property in goods, involved in the execution of works contracts. The 46 th Amendment does not per se legitimize levy of taxes on works contract transactions; 06. The 46 th Amendment is the product of a constituent exertion under Article 354 and does not amount to an ordinary legislation, made in exercise of ordinary legislative powers qua Articles 246 or 248 r/w Entries in the three Lists. The 46 th Amen....
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....ther level of legislature, by conscious design or a structural or phraseological overreach qua provisions of the relevant Statute, such legislation would seriously be in jeopardy on constitutional incompetence grounds; and the encroachment cannot be glossed over by, it is merely the measure of tax, defence. In the context of taxation of works contracts, the Union and States must so calibrate the respective legislations as to clearly avoid computation of unauthorised components into the measure of their respective tax regimes, on labour/services and on sale, respectively; 11. The charging; valuation and computation provisions in Union legislation, when enacting provisions to tax exertion of labour/rendition of services; and corresponding provisions of State legislation, intending to tax transfer of property in goods, involved in the execution of a works contract, must clearly and expressly signify the intention to restrict the levy to those aspects of such composite transactions, as fall within their respective and authorized fields of legislation qua the appropriate Entry in List I or List II, as the case may be; 12. Since it is the settled interpretive principle, that ....
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....hereon (emphasis added). Thus, exemption could be granted only in respect of a taxable service, legislated to be so; and only in respect of the whole or any part of the service tax leviable thereon. On text and in context, Section 93 authorizes grant of exemption only in respect of the taxable value of a taxable service; 17. Section 93 does not confer rule making powers. Consequently, exemption notifications do not amount to delegated legislation. A provision requiring laying of exemption notifications also before Parliament, even where such requirement is identical to a similar requirement in respect of Rules made under the Act (i.e., delegated/subordinate legislation), would not per se elevate exemption notifications to the status of delegated legislation. It is axiomatic that rules framed under an enactment may neither transgress provisions of the parent legislation, impede the legislative command nor dis-apply its mandate. This is too elementary and established a principle of administrative law. Exemption notifications in their very nature and intent impede (switch off, wholly or pro-tanto) the trajectory of the Act and eclipse the legislated levy. Therefore, exemption notif....
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....tion is categorically verbalized only by the Finance Act, 2007. The speech of the Hon'ble Finance Minister while moving the Finance Bill, 2007 clarifies this position (as to introduction of a new levy) beyond doubt; and 23. Even if it were presumed, on a strained construction, that a charging provision for works contracts could somehow be accommodated within the broad definitions of CICS, COCS and ECIS, that premise would abort for lack of appropriate computation provisions (to contain the prohibited overreach), either in the Act or in contemporaneous Rules made thereunder; Summary of Revenue position : 01. It is settled (it is therefore a given) that G. D. Builders is a binding precedent, even though other decisions of other High Courts on this subject could be stated to the CESTAT to assist them to arrive at a decision (para 1. of Revenue's written submissions); 02 Counsel for L&T admitted during submissions (before this Bench) that the reference is covered by the G. D. Builders decision. Consequently, unless L&T places contrary decisions, of other High Courts, G. D. Builders provides a complete answer on the reference. Arguments that G. D. Builder....
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....on. 08. Service tax was and is leviable, both prior and subsequent to 01-06-2007; earlier under CICS, COCS and ECIS and since the Finance Act, 2007 under WCS, w.e.f 01-06-2007; 09. Rules issued under Section 94 and notifications issued under Section 93 are two distinct kinds of legislative instruments, employed for taxation of construction services. Sections 93 & 94 exertions are both subordinate legislation; Rules are issued to carry out the purposes of the Act and power is delegated to issue exemption notifications, which though designed to reduce taxliability also enable adjustments in the measure of tax to suit requirements under the law or fiscal policy; Rules and exemption notifications operate in tandem, as an integrated code, to limit the levy to the service elements and exclude the goods/material components (emphasis added); 10. Neither of the powers, to frame Rules or to issue exemption, is unfettered and is subject to Parliamentary oversight qua the mandated laying procedure and the rigour of legislative scrutiny in view of the provisions in Chapter XXI of the Rules of Procedure and Conduct of Business in Lok Sabha. 11. The ruling in Govi....
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.... Engineering Pvt. Ltd. rulings of the Karnataka and Madras High Courts, are distinguishable on their facts and do not relate to works contracts; 19. Appropos the competing positions on issues falling for our consideration, we survey the precedential landscape, for guidance as to the appropriate interpretation to be put upon the prior and post 01-06-2007 provisions of the Act, to ascertain whether works contracts were taxable prior to the aforesaid date as well, inter alia under CICS, COCS and ECIS. Works contract is a generically distinct species of contractual arrangements and a lawful inhabitant of the commercial world. It has come to be so recognized in law, in jurisprudence and in curial discourse and exposition. This distinct commercial phenomenon inheres in its architecture facially indivisible (but legally distinct for taxation purposes) elements of sale or purchase of goods (by incorporation or accretion); and of supply of labour/rendition of services. These constitutive elements of works contract, particularly seen in construction contracts, are susceptible to State and Union taxation exertions, respectively. In our federal constitutional construct, allocation of leg....
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.... property passes; that sale of goods is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement; that in a building contract (which is, as in the present case, one, entire and indivisible 'and that is its norm), there is no sale of goods; that such building contract is a distinct species of the family of commercial agreements (distinct from an agreement for sale of goods simplicitor) and is a single indivisible agreement for transfer of property in goods by accretion together with rendition of labour/service; that in a works contract, the property in goods does not pass from the contractor to the contractee as goods nor is there in works contract an agreement to sell chattel (goods) qua chattel; and consequently, States have no legislative competence to tax the goods component involved in composite indivisible works contract. note: It requires to be noted that neither in the context of the facts involved nor from the magisterial and clinical analyses in the first Gannon Dunkerley judgment, is the principle discernable that even if there be constitutional authority to tax composite and in....
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....nincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, 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 purchase of those goods by the person to whom such transfer, delivery or supply is made; 03. Challenge to the 46 th Amendment and whether the power of State legislatures extends to levy of tax on the transfer of property in goods involved in the execution of a works contract, referred to in sub-clause (b) of Article 366 (29-A), fell for consideration by the constitution Bench in Builders Association of India vs. Union of India (1989) 2 SCC 645 (first Builders Association of India). The challenge to the vires was repelled. Suffice it to notice for our analyses, that the Court observed and ruled: ....
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....contract, contained in sales tax laws of Rajasthan, Tamilnadu and Andhra Pradesh States was impeached on several grounds. The constitution Bench ruled: The expression 'tax on the sale or purchase of goods' in Entry 54 of List II includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also and the tax leviable by virtue of sub-clause (b) of Article 366 (29-A) is subject to the discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution; The legislative power under Entry 54 is not available in respect of transactions of sale or purchase which take place in the course of inter-State trade or commerce. In view of Article 286 (1) the legislative power under Entry 54 does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or in the course of import or export of goods. While enacting a law imposing a tax on sale or purchase of goods under Entry 54 of List II r/w Article 366 (29-A)(b), it is impermissible to the State legislature to make a law imposing a tax on such deemed sales which constitutes a sale in th....
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....vices, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services (emphasis added). Thus : (a) labour charges for execution of the works; (b) amount paid to a sub -contractor for labour and services; (c) charges for planning, design and architect's fees; (d) charges for obtaining on hire machinery and tools used in the execution of the works contract; (e) cost of consumables such as water, electricity, fuel etc., which are consumed in the execution of a works contract; and similar expenses for labour and services; (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; and (f) profit earned by the contractor to the extent it is relatable to supply of labour and services, must be deducted from the entire value of a works contract (emphasis added). comment : The above are the mandated exclusions from the gross value of a works contract, since States' l....
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....n 15 of the Central Sales Tax Act in relation to imposition of tax on goods which are declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act. The proviso to Section 5(3) does not oblige the rule-making authority to frame a rule allowing deductions for the turnover of the amount of proceeds of sale of goods on which no tax is leviable under the Act so as to exclude the abovementioned sales from levy of tax. The rule making authority would not be contravening the mandate of the statute if it does not allow deduction of the amount of proceeds for sale of goods on which no tax is leviable under the Act from the turnover (emphasis added). The constitutional validity of a statute has to be determined on the basis of its provisions and on the ambit of its operation as reasonably construed and if, so judged, it does not pass the test of constitutionality it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requirements. Rules made under the Rajasthan Sales Tax Act would not, therefore, be of any assistance in resolving the question regarding the validit....
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....sent lis) : a) For sustaining the levy of tax on goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form. b) For the purpose of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three conditions are fully met. It is so because in the performance of a contract for construction of a building, the goods (chattels) like cement, steel, bricks, etc., are intended to be incorporated in the structure and even though they lose their identity as goods but this factor does not prevent them from being goods. c) Contracts comprising both a works contract and a transfer of immovable property does not lose its character of being a works contract; the term 'works contract' in Article 366(29-A)(b) takes within its sweep all genres of works contracts, not restricted to one specie ....
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....titutional aspects involved; the by now formidable body of relevant precedents; the post 46 th Amendment accretion to the scope of Entry 54 of List II of the Constitution; and culled out the following principles (extracted to the extent relevant for our purposes): Four concepts are now established; (i) works contract is an indivisible contract but by legal fiction is divided into two parts, one for sale of goods and the other for supply of labour and services; (ii) the concept of 'dominant nature test', 'degree of intention test' or the 'overwhelming component test' for treating an agreement as a works contract is inapplicable; (iii) the term works contract employed in Article 366(29-A)(b) includes all genre of works contract and is not to be restrictively construed to cover one species of contract i.e., to provide for supply of labour and services alone; and (iv) once the characteristics of works contract are fulfilled in an agreement between the parties, any additional obligation incorporated therein would not change the nature of the contract (emphasis added); The two contentions of the State of Haryana [(a) that a contract for supply and install....
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.... the Court and quashed the impugned provisional assessments; 09. The Patna High Court in Larsen and Toubro Ltd. vs. State of Bihar. (2004) 134 STC 0354 (Pat), quashed the impugned assessment orders on the ground that Rules (framed under the relevant State sales tax Legislation) did not fully follow upon and incorporate the necessary computation/machinery provisions for all requisite deductions from the value of works contracts relatable to labour/services and allied charges, as pointed out in the second Gannon Dunkerley decision. The Court negated the State's defence that the entitled benefit (in the matter of appropriate deductions) could be given to the petitioners even in the absence of rules prescribing the manner and the extent relating to deductions in relation to other charges; and ruled that the State cannot be heard to contend that it would not provide/prescribe the necessary framework in the rules but would nevertheless observe the law as declared in the second Gannon Dunkerley; The law is not the handmaid of the State Government, observed the Court; 10. In Larsen and Tourbro Ltd. vs. State of Tamil Nadu. (1993) 088 STC 0289 (Mad), the Madras High Court rejected....
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....sen and Tourbro Ltd. (53 supra); referred to and followed the second Gannon Dunkerley judgment and declared that not merely labour charges but all other associated charges/amounts, except the value of goods sold in execution of a works contract must be deductible, under matrices of a State sales tax legislation; 13. Sales tax assessments in respect of works contracts under the Orissa Sales Tax Act, 1947 were considered in Larsen and Toubro Ltd. vs. State of Orissa (2008) 012 VST 0031 (Orissa) Challenge, to vires of certain provisions of the State legislation was eschewed in oral argument but the challenge to two circulars (dated 30-07-1999 & 09-02-2001), issued by the Commissioner of Commercial Taxes was pressed. The 1 st Circular referred to an earlier Circular dated 07-04-1986 which stipulated specified percentage deductions for specified categories of works contracts, towards labour charges and directed the field formations to follow the specified deductions, scrupulously. The 2 nd Circular directed levy of tax (including TDS) from the main contractor, regardless of engagement of a sub-contractor. The High Court observed that though the State legislation contemplated frami....
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....t to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the legislature can be taxed by the legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the legislature, and In dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, courts would naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment or levy of tax,or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes ....
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....ive/statutory provisions in question conformed to this regulatory regimen was considered by the Supreme Court, in Govind Saran Ganga Saran vs. Commissioner of Sales Tax and Others (1985) 060 STC 0001 (SC). The following passage is of particular relevance for our guidance: The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainity or vagueness in the legislative scheme defining any of those components of levy will be fatal to its validity (emphasis added); e) Ambiguity in charging provisions and failure to embed appropriate legislative/statutory provisions for valuation/computation of (within and beyond the authorized levy of tax) elements of....
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....rities to make assessments upon the basis of the facts relevant to each individual customer in each individual hotel. Generalisations are, therefore inevitable and there is every likelihood that the basis of the generalisation made by one Sales Tax Officer would differ from the basis of the generalisation made by another, leading to unacceptable arbitrariness. Rules that indicate to Sales Tax Officers how to treat composite charges for lodging and boarding would eliminate substantial differences in their approach and, thus, arbitrariness (para 13) (emphasis added). Applying this ratio, the Court directed Maharastra, to henceforth refrain from making assessments of the tax on the supply of food and drink on hotel owners who provide lodging and boarding arrangements for a composite sum until it frames Rules that set out formulae for such assessment which take into account of the fact that residential hotels may provide lodging and full or part board. If the Rules are framed by 1 st June, 2000 the assessments that are not completed only by reason of this order may be proceeded with. If the Rules are not framed by the said date, these assessments shall lapse. No proceedings for assessm....
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....charging and computation/valuation provisions and quoted with approval earlier decisions of the Court in B.C. Srinivasa Settyand Govind Saran Ganga Saran. Revenue places substantial reliance on the last phrase in para 27 of the Mahim Patram ruling. This ghost of the Revenue misconception, founded on a comminuted reading of this single phrase in a sentence in the judgment, must be exorcised. We therefore analyse Mahim Patram in some detail. The relevant phrase in the judgment, which is the lynchpin of Revenue's assumption (that failure to frame appropriate Rules under the Act, prior to 01-06-2007 does not lead to non leviability of service tax on a works contract; and that machinery provisions in sales tax legislations by States are a legitimate port of call for proper valuation of service elements in a works contract), reads: but it is equally well settled that only because rules had not been framed under the Central Act, the same per se would not mean that no tax is leviable. comment : There are established principles for ascertaining rationes and elucidating those reasons that bind, in precedents. Thus, while applying the decision in a later case, the later Court mus....
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....ppellant contended that in the absence of any Rule for determination of the sale price in respect of works contract sale of goods as envisaged in Section 2(h) of the Central Act, the taxable turnover under Section 8-A of this Act cannot be computed for the levy of sales tax on the deemed sale of goods involved in execution of a works contract in the course of inter-State trade and commerce (para 9); The State contended that the 1956 Act provided for the charging provision, deductions could be granted for the purpose of determination of the quantum of tax and provisions of Sections 9 & 13 of the Central Act set out the mode and manner whereby the quantum of tax is required to be determined (para 11); Mahim Patram analyses and conclusions : Mahim Patram found: (i) Section 2(g) was substituted (by Finance Act, 2002) to encompass works contract sales within the definition of sale, in the Central Sales Tax Act, 1956; (ii) in 2005, the Act was further amended incorporating clause (ja) defining works contract; (iii) in Section 13 thereof this clause was inserted: (aa) the manner of determination of the sale price and the deductions from the total consideration for ....
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.... State sales tax legislation which formed the basis and foundation for the Court's observations, including in para 27 of this judgment. We analyseMahim Patram in greater detail later in this judgment. j) In C.I.T, Bangalore vs. Infosys Technologies Ltd. (2008) 2 SCC 272 , the Court quoted with approval the decision in Govind Saran Ganga Saran, observing at para 7:in Govind Saran Ganga Saran this court held that there are four components of tax. The first component is the character of the imposition, the second is the person on whom the levy is imposed, the third is the rate at which tax is imposed and the fourth is the value to which the rate is applied for computing tax liability. It was further held that if there is ambiguity in any of the four concepts then levy would fail. In this case, we are concerned with the fourth concept. There is one more principle which is required to be noted. A benefit/receipt under the 1961 Act must be made taxable before it can be regarded as 'income' (emphasis is in the judgment); k) In PNB Finance Ltd. vs. Commissioner of Income Tax' I, New Delhi (2008) 1 SCC 94 the question, whether in the facts and circumstances of the case....
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....ns of the M.P. Entertainment Duty and Advertisements Tax Act, 1936, was considered in Tata Sky Ltd. vs. State of M.P 2013 (30) STR 337 (SC). Following the earlier rulings in B.C. Srinivasa Setty; Commissioner of Income Tax Ernakulam, Kerala vs. Official Liquidator, Palai Central Bank Ltd (1985) 1 SCC 45; and PNB Finance Ltd, the Court concluded that the machinery for collection of duty provided by the 1936 Act has no application to DTH and thus provisions of this Act cannot be extended to cover DTH operations. In an alternate defense, the State relied on a Gazette notification, dated 05-05-2008 issued under Section 3(1) of the 1936 Act (fixing the percentage of duty leviable in respect of every payment made for admission to an entertainment), to sustain the impugned levy. The Court rejected this contention observing: it is elementary that a notification issued in exercise of powers under the Act cannot amend the Act. Moreover, the notification merely prescribes the rate of entertainment duty at 20 percent in respect of every payment for admission to an entertainment other than cinema, video cassette recorder and cable service. The notification cannot enlarge either the charging sec....
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....es of a case like the one before us where no 'assessment', as it is understood in law took place at all. comment : This judgment neither deals with a legislation allegedly or facially trenching upon constitutionally prohibited fields and what interpretation would be warranted in the circumstances; nor does it rule that where the charge; levy and collection; and assessment provisions are arbitrary (confer uncanalized and unguided discretion in executive agencies administering the legislative provisions) or potentially have an ultra vires trajectory, a benign construction of the processual provisions would cure the seminal pathology; (ii) In S.T. Venkataramanappa, the Karnataka High Court reiterated the established principle that a machinery provision in a fiscal statute should be so interpreted as to make the charging provision effective; and not so as to furnish a chance of escape and means of evasion (para 7). comment : The decision neither dealt with any dialectic ambiguities in the legislative text nor with total absence of relevant machinery/computation provisions. There was also no context of the ambit of the governing legislation being circumscrib....
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....(m); 'caterer' defined in Section 56(24)]; and 'mandap' and 'mandap keeper' in Section 65 (66) & (67)].It is significant to notice that though provisions of Section 67(i) of the Act(the valuation provision relevant to 'mandap keeper' service) were noticed, which provided that the gross amount charged would include charges for catering, if any (in para 11), the judgment proceeded on the premise the exemption notifications (granting percentage abatement to cover inter alia the cost of sale of food items), rendered the provision benign and intra vires. This decision is clearly not one involving (factual and legal) circumstances of a construction/building works contract, a transaction which invites (in greater intensity), altogether different and distinct problems of federal allocation of powers conflicts. We set out our comment on this decision infra. comment : The prior constitution Bench decision in K. Damodarasamy Naidu was adverted to in para 25; and in para 38 it is stated that paras 8 & 9 of this decision were relied upon (presumably by appellant's counsel), for the proposition 'Sale' in Article 366(29-A)(b). The ratio of K. Damo....
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....pure and simple service and did not involve both sales and service; that the impugned tax is not on material or sale but is on the activity/service rendered by the service provider to its customer; that a loan transaction inheres three components, i.e., the principal amount, the interest component and processing charges; that the principal amount is not liable to service tax while the other two components are so liable, subject to any exemptions granted - (para 37); that the measure of service tax levy is on the income by way of interest/finance charges which do not invite a dual levy, of both sales tax and service tax (para 39); and that on this interpretation, the provision is intra vires (para 40). comment : Revenue's premise that this decision is rendered in the context of one variety of a works contract, is in the context of the facts and analyses in the judgment, without basis. 22. Shri P.K. Sahu's position : Counsel submits: i. Works contract has always been described by the Supreme Court in several rulings as a contract for work and labour and may include pure labour or a combination of labour and use of goods for delivering the agreed service vide - ....
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....split up an 'EPC' or a 'turnkey' contract into some of its constituent/component elements and tax such elements under different taxable services such as on 'drawings and designs', 'consulting engineer' or 'ECIS', prior to 01-06-2007. This is so since works contract or an EPC or turnkey agreement, is an indivisible commercial understanding where the constituent elements are inseperable and breach of any one or more components would lead to breach of the entire contract; and In a works contract, no component activity would amount to any taxable service, specified in Section 65(105); vii. Rule 2-A of the 2006 Rules is not the machinery provision for computing tax for WCS. Section 67 is the basic machinery provision and this is the provision applicable for all taxable services; and viii. The G. D. Builders ruling is per incuriam since it invoked the 46 th Amendment to truncate works contract for levy of service tax and applied the aspect theory erroneously and not in the manner propounded by Supreme Court decisions. 23. Summation of our primary analyses qua the precedential guidance -L & T and Revenue positions interfaced : i. Stand-a....
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....of the Act (as an integrated and synchronized package), to ensure proper valuation and confinement of the levy strictly to service components of a works contract by expressly mandating specified exclusions/deductions of the value of deemed sale of goods and associated elements embedded therein (from the gross consideration received from execution of a works contract); and ushering in a statutory composition package as well, also w.e.f 01-06-2007. ii. Post 01-06-2007,the integrated legislative and statutory landscape of the Act (to the extent of WCS) confirms to constitutional limits and eliminates uncanalized executive discretion by confining both, the charge and the measure of the tax on works contract, to supply of labour/rendition of service and associate elements; while excluding deemed/accretion sale of goods and associate elements from the measure of tax, in strict conformity with the declaration of law and of legislative limits on States and the Union taxation in this area, spelt out in the second Gannon Dunkerley and all subsequent rulings, including the latest, in Kone Elevator India Ltd. (2014). iii. The legislative field authorizing taxation of sale and purchase of....
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.... and to this extent, fallacious and the result of inadequate analyses of the holistic dynamics of constitutional space and the inexorable alteration of the scope of the Union (Entry 97, List I - residuary) and State (Entry 54, List II), exclusive taxation field allocations, consequent on the 46 th amendatory exertion. It is axiomatic that the locii of allocations and distributions of legislative fields/powers, particularly those commitments which are exclusive and not concurrent, is dependent on the scope of allocations to each of the federal partners in our constitutional design, of distribution of powers. When therefore, there occurs an accretion of legislative field(s) assigned to States (as by the 46 th Amendment), there must and does consequently occur a corresponding and resonating constriction of the legislative space including of those assigned to the Union, in relation to the fields enumerated in the several Entries in Lists I & II. This is the essence of the geometry of federal power distribution; of the cartography of constitutional landscape; and its complex and dynamic spatial arrangement. vi. As a consequence of the exclusive, discrete and insular allocation of leg....
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.... - 1999); K. Damodarasamy Naidu (S.C - 1999); Rajasthan Chemists Association (S.C - 2006); Mahim Patram (S.C - 2007); Infosys Technologies Ltd. (S.C - 2008); PNB Finance Ltd. (S.C - 2008); and Tata Sky Ltd. (S.C - 2013). x. Where the charging and/or valuation/computation provision(s), on a true and fair construction thereof, fall short of the requisite specificity and thereby result in an actual; or enable a potential breach of the impregnable boundaries demarcated by the Constitution, for State legislative exertions in the area, the relevant State legislative or statutory matrix would be declared invalid, inadequate, dormant or unworkable, as the case may be; and the intended levy and collection of sales tax on works contract would fail. 'vide precedents referred in sub-paragraphs (vii) and (ix) supra. xi. Since the wall of separation and exclusivity drawn in the Constitution, for Union and State legislative exertions in the matter of taxation (including on a works contract), is a common boundary, it logically follows that what is forbidden to States is a fortiori forbidden and complementarily, to the Union as well. Thus, the Act (a Union legislation referrable to Entry ....
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....my Naidu; Rajasthan Chemists Association; Voltas Ltd.; Infosys Technologies Ltd.; PNB Finance Ltd.; and Tata Sky Ltd.(Supreme Court rulings); and Larsen & Toubro Ltd. judgments of the Patna, Madras and Orissa High Courts. xvi. In the light of the analyses above, the taxable value of a works contract, including the measure of it, reckoned for the levy (of service - tax) must (by or under the Act) clearly exclude/deduct (deemed or accretion) sale of goods and associate elements, in computation of the taxable value thereunder. Further, appropriate valuation/computation norms must be firmly embedded in the Act or (where the legislation so authorizes by clear textual exposition or a compelling implication thereof, that the taxing trajectory thereunder is restricted to service elements alone and does not extend to deemed sale of goods elements), by Rules made thereunder, 'vide the second Gannon Dunkerley; the secondBuilders Association of India; Mahim Patram; and Voltas Ltd judgments of the apex Court; reiterated in Larsen and Toubro Ltd. judgments of Patna, Madras and Orissa High Courts. xvii. ex hypothesi, assuming that definitions of CICS, COCS or ECIS r/w the charging provi....
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....Section 66 enjoins the levy of service tax (at the rate specified therein), of the value of taxable services enumerated thereunder. The above three are defined (in clauses of Section 65) and enumerated (in Section 66) taxable services, subjected to the enacted levy; - prior to its substitution w.e.f 18-04-2006, Section 67 (the valuation provision) read: the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to - be provided by him. We shall shortly deal with the inclusive and exclusionary clauses set out in Explanation I, to the Section; - enumeration of the taxable services in Section 65(105) must be read with the definition of the various services set out in the several clauses of Section 65. Such is the integrated structure of drafting adopted in the Act. Thus the levy qua the charging provision is on the taxable services defined and enumerated in the clauses and sub-clauses of Section 65 and Section 65(105), respectively; - a synthesized analyses of Section 67 r/w definitions in relevant clauses of Section 65, enumeration of taxable services in sub-clauses of Section 65(105) and the charging provision ....
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....COCS. Clauses (iii) and (vi) of the exclusionary clause excluded the cost of parts or accessories etc., sold in the course of providing service or repair of specified classes of motor vehicles and in maintenance or repair services, respectively. - There are several instances of departmental adjudication where it was held (both in cases of ECIS and maintenance or repair services), that sold means, sold chattel qua chattel. The exclusionary clauses thus suggest and emphatically, that but for the enacted exclusions, these elements would be comprehended within the scope of the taxable value and that the exclusionary clauses are in the nature of exceptions; - Even on and since its substitution w.e.f 18-04-2006, Section 67(1) provides that whereservice tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Section 67(1)(iii) provides that in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in....
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....ed from the value attributable to labour/service and associate component(s). None of these incontestably excludable factors are integrated into any of the exemption notifications. There is not even a Board or TRU circular pointing to or even hinting at such exclusions. - This is perhaps the inevitable consequence of relegating constitutional limits on legislative powers problematics to discretionary executive curatives. Precedents considered by us caution against such interpretive extravagances; - WCS is enacted as a specific taxable service w.e.f 01-06-2007, by insertion of sub-clause (zzzza) in Section 65(105). Explanation (i) to this provision annotates the requisite signification by Parliament, by indicating that this species is a contractual arrangement wherein: transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, thereby expressing (Parliament's recognition) that a works contract inheres distinct components/elements, some of which (the deemed/accretion transfer of property in goods) stand exclusively committed to States' legislative field under Entry 54, List II, as the scope of this Entry stands expanded ....
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....ce in relation to execution of a works contract (hereinafter referred to as WCS), shall be determined by the service provider with reference to the service enumerated in sub-clause (zzzza) of clause (105) of Section 65. - On its terms therefore, Rule 2-A has no application to CICS, COCS or ECIS, even after 01-06-2007. Revenue neither suggests nor contends, that Rule 2-A applies to CICS, COCS & ECIS as well, at least post 01-06-2007. - Thus a wholly unnecessary amendment (inserting WCS in the Act); and a wholly unnecessary rule (Rule 2-A, inserted in the 2006 Rules) to cater to a situation admirably administered by existing legislative and statutory provisions, as contended by Revenue! - A composition regime titled, the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 (the composition Rules), was also promulgated and w.e.f 01-07-2007, issued in exercise of powers under Sections 93 & 94 of the Act. It is legitimate to infer that though termed as a set of Rules, the composition scheme was issued invoking provisions of Section 93 (dealing with the power to exempt) as well, since in a scheme of composition there is a potential of eschewing some quantum....
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....services and specify them as separate taxable services. Services which are proposed to be specifically included in the list of taxable services are referred to in para 6. Sub-clause (iv) of this para mentions service provided in relation to execution of works contract. Para 6.4 of the TRU letter is relevant and reads: 6.4. Service involved in the execution of a works contract [section 65(105)(zzzza): VAT/sales tax is leviable on transfer of property in goods involved in the execution of a works contract. The proposed taxable service is to levy service tax on services involved in the execution of a works contract. It may be noted that under the service only the following works contracts wherein transfer of property in goods involved in execution of such works contract is leviable to VAT /sales tax are covered, namely :- (i) works contract for carrying out erection, commissioning or installation (ii) works contract for commercial or industrial construction (iii) works contract for construction of complex (iv) works contract for turnkey projects including Engineering Procurement and Construction or Commissioning (EPC) projects. 6.4.1 Works contract in respect of s....
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.... in certain circumstances serve as a Parliamentary exposition of the former. Lord Sterndale in Cape Brandy Syndicate vs. IRC (1921) 2 KB 403 (AC) observed: I think, it is clearly established - that subsequent legislation on the same subject may be looked to in order to see what is the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceeds upon an erroneous construction of previous legislation, cannot alter that previous legislation, but if there be any ambiguity in the earlier legislation then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier (emphasis added); see also Ram Kishana Ram Nath vs. Janpad Sabha AIR 1962 SC 1073; ITO, Kanpur vs. Maniram AIR 1969 SC 543; Jogendranath Naskar vs. C.I.T AIR 1969 SC 1089; Sone Valley Portland Cement Co. Ltd. v. General Mining Syndicate Pvt. Ltd. AIR 1976 SC 2520; Thiru Manickam & Co vs. State of Tamil Nadu AIR 1977 SC 518; UP Co-operative Cane Union Federation Ltd. v. Liladhar AIR 1981 SC 152; State of Bihar v. S.K. Roy AIR 1966 SC 1995; Ghanshyam Dass v. Dominion of India (1984) 3 SCC 46; and Gem Granites v....
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....ed with accretion sales (pointed out in this constitution Bench judgment and followed thereafter), are also not included or indicated in any exemption notification or in a Board or TRU circular/clarification. xxvii. Rule 2-A is inserted in the 2006 Rules only w.e.f 01-06-2007. This provision categorically states that works contract means the service defined in sub-clause (zzzza). The computation Rules, 2007 also introduced w.e.f 01-06-2007 are equally confined to the service enumerated in sub-clause (zzzza). xxviii. The Hon'ble Finance Minister, in the Budget speech (extracted supra) categorically stated that a new levy is proposed, to impose service tax on works contract; xxix. All the above contemporaneous signals converge to compel the singular and inescapable conclusion, that works contract [as defined and enumerated in sub-clause (zzzza) of Section 65(105)] is a new taxable service operative only since 0-06-2007. A works contract was neither a taxable service earlier thereto nor was integral to extant taxable services such as CICS, COCS or ECIS. WCS is not a carve out or an extraction from pre-existing taxable services; nor even a mere separate/distinctive enumera....
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....cal Works (1997) 5 SCC 516. xxxi. The settled principle of administrative law followed and applied with unvarying regularity in India is this; essential legislative functions cannot be delegated; while the core legislative policy cannot be left to the discretion of a delegate, legislative power may be delegated subject to the legislature exercising the essential legislative function which consists of laying down a policy or rule of conduct to guide the exercise of delegated authority. The U.S. Supreme Court in J.W. Hampton, Jr, & Co. vs. United States 276 US 394observed: So long as Congress shall lay down by legislative act an intelligible principle to which the person or body authorized to (exercise the delegated authority) is directed to conform, such legislative action is not a forbidden delegation of legislative power; ------ The legislature cannot delegate its power to make a law; but it can make a law to delegate a power to determine some fact or state of things upon which the law intends to make its own action depend; see also 'Queen vs. Burah 5. I.A. 178; Russel vs. Queen (1882) 7 AC 829; Hodge vs. Queen (1883) AC 117; Powell vs. Apollo Candle Co (1885) 10 AC 282; Ja....
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....utive Branch of our Government), grant immunity from the levy and collection of tax, of the whole or any part of service tax leviable on taxable service of any specified description. If a notification under Section 93 is treated as a species of subordinate legislation (and pari passu rules made under Section 94) then the consequence would be that execution of the Parliament's mandate (to levy and collect service tax on defined and enumerated services) is enslaved to executive discretion, to effectuate (or disregard) the mandate, on its conception/discretion of what is in the public interest; a constitutional blasphemy and a negation of essential attributes of parliamentary democracy. The contention is a conceptual and an egregious assault on the foundations of our Parliamentary democracy. xxxiv. Such construction would further expose Section 93to serious ultra vires jeopardy, on grounds that the provision amounts to clear abdication of essential legislative functions. Power to exempt and the power to frame rules are well established to be distinct species of legislative grant and are subject to distinct administrative law norms, disciplines and controls. Essentially, rules f....
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....islation must clearly enact the intention to tax works contract and incorporate therein a charging provision enjoining confinement of the levy within the limits of the enacting legislature, in terms of the limits of allocation specified in the Constitution; - provisions for computation/valuation of the taxable event/transaction within such authorized limits or a provision clearly indicating the limits while facilitating valuation/computation by rules framed under the enactment must be embedded in the statutory architecture; - if the legislation, on the basis of its provisions and on the ambit of its operations as reasonably construed, do not pass the test of constitutionality, mere possibility of benign or within constitutional limits administration, would not pass constitutional muster; and - a fortiori, the constitutionally delineated authorized measure, for levy and collection of tax on services, by Parliament qua a legislative exertion under Entry 97 of List I, is a corresponding limitation, identical to and pari passu, the constitutional obligation of States, in this regard. We discern these as the compelling inferences from rationes of the second Gannon Dunkerley con....
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....terates and emphatically, the established principle that computation/machinery provisions are non-derogable integers of the levy of tax and these must be either enacted in the legislation per se or provided in rules framed under or pursuant to authorizing provisions in, the governing legislation. The conclusion is compelling, that if provisions of the Central Sales Tax Act, 1956 had not authorized application of provisions of State sales tax legislations and the rules framed thereunder, for levy and collection of CST or failed to incorporate and integrate/harness the machinery provisions of the State statutory architecture to enforcement of the Central levy, Mahim Patram would inevitably have quashed the assessments impugned therein. - no decision has been brought to our notice, which sustains a Central levy on the singular basis that relevant and appropriate computation/valuation/machinery provisions exist in a State legislation or vice versa. What would result if, in a given situation, there were no appropriate computation/valuation provisions in a State sales tax legislation? Would the Act be unconstitutional in that State? Or would it be proper to derive assistance from anot....
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....n the valuation provision therein) of the value of accretion sale of goods in relation to composite/catering contracts and supporting statutory framework for proper valuation/computation, relevant provisions of the Act are rendered invalid for legislative incompetence and for encroachment into the exclusive legislative field allocated to States under Entry 54 of List II, as the scope of this Entry stood expanded vide Article 366 (29-A)(f). The judgment (by two learned judges) neither expressly nor by a compelling implication of its text, either distinguishes, doubts or overrules the binding, larger Bench including constitution Bench decisions, commencing from Jagannath Baksh Singh to B.C. Srinivasa Setty, these being judgments, rendered prior to this judgment. - Further, this decision, neither expressly nor by implication doubts, distinguishes nor dissents from the long line of consistent binding authority (Jagannath Baksh Singh to Tata Sky Ltd.), which with unvarying regularity expound the meta principle, that appropriate and complementing computation, valuation and machinery provisions are a sine qua non for sustaining and providing vitality to charging provisions in a tax sta....
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....dition of services. - the overwhelming, major component, dominant intention or degree of labour and service tests (the traditional tests) have no application to and cannot be employed for extracting a works contract from its constitutional and legal orbit as such; - works contract is a distinct commercial entity, inhering components of sale of goods by incorporation/accretion; and of rendition of labour/service towards facilitation of such incorporation/accretion; - consequently, the Union and/or State legislative, statutory architecture(s) must provide for confinement of their respective charge/levy(of tax), to those elements/components of a works contract as are constitutionally committed to their assigned fields of legislation. Thus, a Union legislation must specify exclusion of deemed sale elements and associated profits, costs and expenses; and a State legislation, exclusion of labour/service elements and associated profits, costs and expenses; - compliance with the above principle/discipline requires that the relevant legislation must clearly recognize this distinct commercial entity (a works contract) as such and categorically enact the intention to charge and le....
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.... in fidelity to the second Gannon Dunkerley ruling of the constitution Bench. Analyses of Shri Sahu's position: (a) From the preceding analyses we conclude, that the 46 th Amendment though directed towards and defining the expression 'sale' wherever it occurs in the Constitution and thereby expanding the scope inter alia of the legislative field enumerated in Entry 54, List II, has also altered the scope/contours of other legislative fields consequently affected. Thus, the residuary field qua Entry 97, List I now excludes from its ambit the accreted legislative field falling under Entry 54, List II. The contention that the 46 th Amendment has no impact on the breadth and scope of Union's residual legislative field under Entry 97, List I r/w Article 248 is resultantly, fallacious. This contention assumes that the residuary field is static in the sense of its contents and reach being the residue of other specific allocations qua other Entries in the three Lists, say as on the date of adoption of our Constitution. The constitutional position, as we perceive, is that the residual field or any field qua any other Entry in the three Lists of the Seventh Schedule, is....
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....ative field is the residue inter alia of the field abstracted to States under Entry 54, List II, read in the light of the 46 th Amendment. (f) It requires to be noted that the decisions (referred to by Shri. Sahu) in Sentinel Rolling Shutters & Engineering Co.; M/s Man Industrial Corpn. Ltd.; the second Gannon Dunkerley; B.S.N.L; and Associated Hotels of India Ltd., were quoted, referred to and analysed in the 2014 constitution Bench decision in Kone Elevator India Pvt. Ltd. This, (the Kone Elevator) ruling settles the position that: (i) works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (ii) the concept of 'dominant nature test' or, for that matter the 'degree of intention test' or 'overwhelming component test' for treating a contract as a works contract is not applicable; (iii) the term 'works contract' as used in clause (29-A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and services alone; and (....
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....mate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative (emphasis added). h. We have carefully perused the judgment in Southern Petrochemical Industries Co. Ltd. and find no support therein for the contention canvassed by Shri. Sahu. Paras 145 to 147 of this ruling refer to the provisions of Article 366(29-A); Entries 53 & 54, List II; to the first Gannon Dunkerley and B.S.N.L judgments to conclude that the several sub-clauses of Article 366(29-A) have no application to Entry 53, List II and are applicable only to Entry 54 thereof. With respect, the conclusion is impeccable. Clause (29-A) of Article 366, on its text and purpose defines 'tax on the sale or purchase of goods' with the inclusive content enumerated in sub-clauses (a) to (f) thereunder. The Amendment thus has clearly no application to Entry 53, List II which enumerates: taxes on the consumption or sale of electricity. i. The decision in Geo Miller & Co. (P) Ltd. similarly offers no assistance for the proposition ....
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....Entry 97, List I. The impact of this Amendment on the residuary field is, in our view, inescapable. A contrary construction would amount to transfer of Entry 97, List I and Entry 54, List II, to List III (the concurrent List); amendment of the Constitution, by interpretation !. m. No decision by any Court has been brought to our consideration which rules so. In fact, the Second Gannon Dunkerley decision(ruling by implication, that the taxable value of services is the value of those components which are outside the purview of sales tax); theB.S.N.L ruling which observes (at para 89): the Centre cannot include the value of SIM cards, if they are ultimately found to be goods, in the cost of the service; and the ruling in G. D. Buildersitself (to the extent it concludes that the value of deemed/accretion sale of goods involved in execution of a works contract is beyond the scope of Section 67 of the Act), are compelling indicia to the singular interpretive destination, that the scope of Union's residuary legislative field is confined to areas not covered by States' legislative field under Entry 54, List II as incremented by the 46 th Amendment. This is clearly the result of ....
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....s different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects. (emphasis added). r. In the Canadian Constitution's context, there evolved judicially, in that jurisdiction, the double aspect theory, to address complexities of overlapping (Federal and Provincial) legislations. The Canadian Constitution has Federal (Section 91) and Provincial (Section 92) assignments, 43 Entries in all, but none concurrent. The doctrinal origin of the double aspect theory is perhaps traceable to Hodge vs. The Queen (1883) 9 App. Cas. 117, in the statement of principle: subjects which in one aspect and for one purpose fall within sect. 92, may in another aspect and for another purpose fall within sect. 91. In Multiple Access Ltd. vs. McCutcheon (1982) 2 S.C.R. 161, the Supreme Court of Canada ruled that if the court considers the federal and provincial features of an impugned legislation to be of roughly equivalent importance so that neither should be ignored respecting the division of legislative powers, then the statutory rule could be enacted by either the federal Parliament or provincial legislature; overlapping federal and provincial le....
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.... be relevant. We decline to pronounce a view on this proposition however. For reasons alike, we express no view on the vitality of TRU budget letters, dated 28-02-2006 and 29-02-2008. u. Suffice it to note, if provisions of Section 65-A are applied and the transaction in issue (involving renditions of service prior to 01-06-2007) is resultantly classified as falling within CICS, COCS or ECIS, as the case may be, the issue for our consideration is, if the agreement between the parties amount to a works contract, whether it is susceptible to the charge, levy and collection of service tax, prior to introduction of WCS qua Section 65(105)(zzzza). That is the only issue we consider and answer. 25. For reasons recorded by us in earlier analyses; and in particular the preceding sub-paras, we find no merit in Shri. Sahu's contentions that: - the measure of service tax levy could extend to the whole value of a works contract including the value of the goods component involved therein; - that the 46 th Amendment does not have any bearing on the scope of Union's powers qua Entry 97, List I; - that it is not Rule 2-A of the 2006 Rules but Section 67 of the Act which prov....
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.... a judgment which has no bearing on the question whether works contract is taxable under CICS, COCS & ECIS. - In para 20, the decision in Tamil Nadu Kalyana Mandapam Association is adverted to and it is noted that in the case of mandap keepers service, tax was payable on a composite contract which included provision of food, furniture, electrical fittings, tents etc. This ruling is again considered in para 28 and passages from it excerpted, including the following observations in Tamil Nadu Kalyana Mandapam: It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or effect the legislative competence of Parliament in the matter. This passage cannot be interpreted as propounding a universal norm. While, with respect, these observations may be apposite in the facts and circumstances of that case, the established principle that the measure of a tax must have a nexus to the taxable event under the particular legislation and that must be within the competence of the legislature, cannot be considered - as having been overturned or eschewed. ....
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.... a text where the grammatical meaning leads to overreach and does not correspond to the legal meaning. Para 22 adverts to the 2013 constitution Bench ruling in Larsen & Toubro Ltd. and to observations in para 100 thereof. The Hon'ble High Court deduced from that decision certain propositions/principles which include the indicia for identifying a works contract - that neither the 'dominant nature test' nor the 'enforceability test' have application if ingredients of the transaction in issue reveal a works contract; and that post the 46 th Amendment the sale of goods element in a works contract could be subject to sales tax even after incorporation of the goods, provided the tax is directed to the value of goods and does not purport to tax the transfer of property and the measure of the levy is value of the goods at the time of incorporation (emphasis added). 'Para 23 refers to the second Gannon Dunkerley judgment and notes that this decision requires the measure of levy of sales tax to be the value of the goods incorporated during execution of a works contract and the value at the time of such incorporation. 'Paras 24 to 27 notice the Mahim Patra....
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....udgment in Association of Leasing & Financial Service Cos. is adverted to in para 30, which again provides no assistance to the issues referred for our resolution. 'Paras 31 to 35 deal with exemption/abatement notifications issued under Section 93 of the Act and advert to decisions in State of Kerala & Another vs. Builders Association of India & Others (1997) 2 SCC 183; Gujarat Ambuja Cements Ltd. vs. Union of India AIR 2005 SC 3020 ;Nagarjuna Construction Co. Ltd. vs. Union of India 2010 (19) STR 321 (A.P); and Nagarjuna Construction Co. Ltd. vs. Union of India (2013) 1 SCC 721 to conclude that notifications impugned therein are not ultra vires provisions of the Act. 'Para 36 sums up the principles the Hon'ble Court distills from its preceding analyses. Relevant for our purposes is the summation set out in items (1) & (2) of this para. The Court states that: (i) Aspect doctrine is applied for bifurcating/vivisect (ing) the composite contract; and (ii) Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computa....
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....t does not follow that no tax is leviable; iii. that the measure of the levy per se and in all contexts has no impact on the competence of the legislative exaction; and iv. that a deficit in a Central legislation with respect to computation/valuation provisions is offset by existence of such provisions in a State legislation, are contrary to settled and binding expositions of relevant principles qua binding precedents which have either not been brought to the notice of the Hon'ble High Court; or the critical analyses whereunder were not sensitized to the Court in the appropriate internal legal and factual matrices of the particular precedents (adverted to by us earlier herein). The G. D. Builders decision (to the extent of the conclusions set out as (i) to (iv) supra), is thus and with great respect to the formidable weight accorded to a jurisdictional High Court, in error on per incuriam and sub silentio grounds. 28. The decisions of the Karnataka and Madras High Courts, in Turbotech Precision Engineering Pvt. Ltd. and in Strategic Engineering Pvt. Ltd. have clearly concluded that a works contract is not leviable to service tax prior to 01-06-2007. Though, wi....
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....L vs. C. Ex & S.T, Dibrugarh - 2008 (10). STR. 218 (Kolkata Bench) 2 Diebold Systems (P) Ltd. vs. CST, Chennai - 2008 (9). STR. 546 (Chennai Bench) 3 Cemex Engineers vs. CST, Cochin - 2010(17).STR.534 (Bangalore Bench) 4 ABB Ltd. vs. CST, Bangalore - 2011(24).STR.199 (Bangalore Bench) 5 Khurana Engineering Ltd. vs. C. C. Ex, Ahmedabad - 2011(21).STR.115. (Ahmedabad Bench) Since there is no earlier decision of a five member Bench which has ruled on the chargeability to service tax of a works contract prior to 01.06.2007, none is brought to our notice, the decisions referred to hereinabove are of no precedential relevance nor are binding on this special Bench. It is axiomatic that the answer recorded by us in this reference would be the operative precedent on the issue and the rulings contrary to our conclusions herein, stand overruled. 30. We record our appreciation to Learned Senior Counsel Shri. N. Venkatraman, Learned Counsel, Shri. P.K. Sahu, Shri.B.L. Narasimhan, Shri. Puneet Agrawal and to Learned A.R's Shri. Amresh Jain and Shri Govind Dixit, for the valuable assistance provided. 31. Conclusions: We answer the reference, recor....
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....tment of a specific legislative provision - sub-clause (zzzza); and the simultaneously introduced supportive and reinforcing provisions of the 2006 and 2007 Rules (all w.e.f 01-06-2007) signal (1) the enactment of a charge of Service Tax on a works contract; and (2)incorporation of the requisite computation, valuation and machinery provisions, which facilitate a coherent, fair, rational, stable and legitimate exaction of tax, confined to such components/elements of this composite, facially indivisible transaction as fall within the taxation domain of the Union, under Entry 97, List I of the Seventh Schedule of the Constitution of India. Only upon introduction of such integrated statutory architecture, w.e.f 01-06-2007, has uncanalized executive/quasi-judicial discretion been, substantially eliminated; and assessment of service components and associate components/elements involved in the execution of a works contract, by lawful and intra vires valuation, levy and collection of Service Tax, ensured to be non-discriminatory and rational; and G. Consequently, the CESTAT larger Bench decision in C.C.E. vs. B.S.B.K. Pvt Ltd, to the extent it rules that a works contract is a taxable se....
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.... appeals have been admitted in July, 2008 and August, 2010 and have been pending disposal since then. Nothing has been brought on record by either side with respect to the decision in the BSBK case. Therefore, when the hon'ble apex court is seized of the matter, I am not sure what useful purpose would be served by the present larger bench considering the very same matter. Secondly, it is seen that the hon'ble Delhi High Court, on two occasions, has considered the very same matter in the GD Builders and M/s YFC Projects (P) Ltd. case and has taken a view that a works contract can be vivisected and discernible taxable service elements could be subjected to service tax prior to 1-6-2007. This Tribunal being sub-ordinate to both the apex Court and the High Court would be bound by these decisions. Besides, the issue before the larger bench is not a recurring matter which needs some finality at the Tribunal level. After 1-6-2007, there is no dispute at all pending which needs a resolution. The dispute essentially relates to cases arising during 2004 - 2007 concerning the taxability or other-wise of CICS, COCS and ECIS services involved in a composite contract. 2.1 The second c....
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....are also disposed of accordingly." (2) In the case of Kalpik Interiors vs. CST, Delhi [2014 (36) STR 1283 (Tri.- Del)]another division bench comprising of the hon'ble President and another hon'ble Member (Technical) (who is also a member of the present Larger Bench), considered a question relating to leviability of service tax on 'completion and finishing services in relation to building or civil structure' prior to 1-6-2007 when works contract service was made taxable and held as follows:- "11. At this juncture it is pertinent to refer to the appellants' contention and cited case laws that their contracts being composite contracts covered under the scope of works contracts were not liable to service tax prior to 1-6-2007 when works contract service was made taxable. In this regard, it is to state that this contention is rendered untenable by the decision of Hon'ble Delhi High Court in the case of M/s. G.D. Builders (supra) and the case laws cited by the appellants are of the years prior to the year of the said judgments of Hon'ble Delhi High Court. '''''. " After quoting extensively from the Delhi High Court decision in GD B....
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....nt reference, can the Tribunal take a different view now and perform a judicial somersault ? The frequent change of views by the Tribunal only adds to the uncertainty and might impact the institutional integrity. I find that there are no changes in circumstances either by way of any retrospective change in law or a decision of a higher authority warranting a change in view. I should make it clear that it is not my intention to embarrass any one, least of all my brother Members, all of whom I hold in high esteem. My only object is to place a note of caution that we should not be hasty in drawing conclusions/passing orders which has the effect of upsetting the settled positions in law, which are, in any case, under challenge and consideration before the highest court of the land. In my humble view, not only the legality but also the propriety of rendering a decision is equally important and should weigh. 3. With these reservations, I now proceed to express my views on the question posed before the Larger Bench. The decision to constitute the Larger Bench vide order dated 9-9-2013 was challenged by the Revenue before the High Court of Delhi in CEAC 94/2014 on the ground that the is....
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....f the goods involved in execution of "composite contract" is contrary to the charging provision and a nullity, as it amounts to enlarging and widening of charging section and would have the effect of including or imposing service tax even on goods or material used in a "composite/works contract". It is well settled that a notification cannot expand or enlarge the charging section or even amend the statutory provisions or the main enactment. (vi) The exemption notifications by which 67% of the contract value in a "composite contract" is abated has the effect of imposing service tax on "composite or works contract" which is not covered by the main statutory provision. Thus, what is not covered and cannot be covered by the principal enactment, have been covered and brought under the service tax ambit by the explanations appended to the notifications. Thus, abatement granted in the notifications is invalid and contrary to main enactment. The said argument is equally applicable to column 4 of serial numbers 5, 7 and 10 of the 2006 notification. (vii) As per Section 93 of the Finance Act, 1994, the Central Government is empowered to grant exemption from levy of service ....
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.... Gannon Dunkerley and Co. vs. State of Rajasthan 2002-TIOL-103-SC-CT 7. Govind Saran Ganga Saran v.CST 2002-TIOL-589-SC-CT 8. Gujarat Ambuja Cements Ltd. vs. Union of India 2005-TIOL-53-SC-ST 9. Home Solutions Retail (India) Ltd. vs. UOI & Anr. 2011-TIOL-610-HC-DEL-ST-LB 10. Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India 2012-TIOL-966-HC-DEL-ST 11. K. Raheja Development Corpn. Vs. State of Karnataka - 2005-TIOL-77-SC-CT 12. Larsen & Toubro Limited versus State of Karnataka, Civil Appeal No.8672 /2013 - 2013-TIOL-46-SC-CT-LB 13. Nagarjuna Construction Co. Ltd. vs. Union of India and Anr. - 2012-TIOL-107-SC-ST 14. Nagarjuna Construction Company Ltd. Vs. Union of India - 2010-TIOL-403-HC-AP-ST 15. State of Kerala & Another Vs. Builders Association of India and Others - 2002-TIOL-602-SC-CT-CB 16. Tamil Nadu Kalyana Mandapam Assn. vs. UOI and Ors. 2004-TIOL-36- SC-ST 3.3 On the strength of the factual and legal analysis undertaken, findings and conclusions were arrived at which was summarized in para 36 as under :- "36. The aforesaid judgments and discussion highlight the following facets/principles: ....
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....down under Section 93 and 94 of the Act because they relate to manner and mode of computation of service tax in a composite contract. The object and purpose is not to tax as non-service element or to include non-taxable part of the composite contracts. (9) It has not been shown and established that the formula or the value prescribed in the notifications is absurd or irrational. The said notifications are not per se an arbitrary exercise and contrary to data or formula for computing service element. In taxation matters, classification should not be struck down as discriminatory unless there are strong and compelling reasons that show absurdity and, therefore, violation of Article 14 of the Constitution." 3.4 It would be relevant to note that an identical issue came up for consideration before another bench of the Delhi High Court in M/s YFC Projects (P) Ltd. vs. Union of India and after considering its earlier decision in the G D Builder's case, the High Court came to the conclusion that service elements of a composite contract can be subjected to service tax even prior to 1-6-2007. The relevant portion is extracted below:- "14. Considering the arguments raised by coun....
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....pen to the petitioner to demonstrate the extent of the service element included in the composite contract and to pay service tax only on that component. 17. The Division Bench in G.D. Builders (supra) has already interpreted the impugned provisions and has taken the view that it is only the service element which is to be taxed under the impugned provisions. We agree with that view. As such, there is no encroachment by Parliament on the exclusive powers of the State Legislature in respect of Entry No.54, List II and, therefore, the said provisions are constitutional. The computation of service tax is, of course, left to the Adjudicating Authority/Appellate Authority." 3.5 In my opinion, the above decisions are binding on this Tribunal. To drive home this point, I quote from a decision of the hon'ble Apex Court in State of Punjab and Ors. Vs. Gurudev Singh, Ashok Kumar [1991 AIR 2219 ] wherein it was held that,- "An order, even if not made in good faith, is still an act capable of legal consequences. It bears no brand of invalidity upon its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get ....
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....y indicates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The aforesaid Article empowers the Supreme Court to declare the law. It is, therefore, an essential function of the Court to interpret a legislation. The statements of the Court on matters other than law like facts may have no binding force as the facts of two cases may not be similar. But what is binding is the ratio of the decision and not any finding of facts. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. An 'obiter dictum' as distinguished from a ratio decidendi is an observation by Court on a legal question suggested in a case before it but not arising in such manner as to require a decision.....
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....cted in ignorance of a decision of the Supreme Court. The problem of judgment per incuriam when actually arises, should present no difficulty as the Supreme Court can lay down the law afresh if two or more of its earlier judgments cannot stand together." In A.R. Antulay case [12 AIR 1980 SC 541], the hon'ble apex court observed thus :- "Per incuriam" are those decisions given in ignorance or forgetfulness of some inconsistent statutory provision or of some authority binding on the court concerned, so that in such cases some part of the decision or some step in the reasoning on which it is based, is found, on that account to be demonstrably wrong." 4.4 The argument advanced by the ld. Counsel for the appellants is that the decision in GD Builders case should be considered as per incuriam in as much as several decisions which should have been placed before the High Court was not so placed and therefore, in view of the lack of assistance from the counsels in the said case, the hon'ble High Court committed an error. I find this argument to be quite strange. In spite of the lack of assistance from the Counsels, while giving the findings in the said case, the hon'ble....
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....gineer did not include in its scope, such services rendered by "a body corporate or any other firm". Since the appellant was a body corporate, the engineering consultancy rendered by M/s Turbotech was held as not falling within the ambit of consulting engineer's service. It is relevant to note that consulting engineer's service never came within the ambit of "works contract service" either before or after 1-6-2007. Therefore, the question of the hon'ble High Court giving any finding about the vivisection of a works contract do not arise at all. A careful reading of the said decision makes it very clear that divisibility of a works contract was not at all an issue for consideration in the said case. 4.6 Similarly, in the case of Strategic Engineering, the appellant therein was engaged in the manufacture of FRP Pipes, falling under Chapter No.7014.00 of the Central Excise Tariff. The petitioner company also carried out the business of laying of GRP Pipes to its customers from whom it received labour charges. The GRP Pipes were laid inside the trench in the case of underground-buried construction. The buried pipe laying activity involved trenching, bedding and laying in....
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....Euclid 's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. 12. In Home Office v. Dorset Yacht Co. [1970 (2) All ER 294] Lord Reid said, "Lord Atkin's speech''' is not to be treated as if it was a statute definition. It will require qualification in new circumstances." Megarry, J in (1971) 1 WLR 1062 observed: "One must not, of course, construe even a reserved judgment of Russell L.J. as if it were an Act of Parliament." And, in Herrington v. British Railways Board [1972 (2) WLR 537] Lord Morris said : "There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that jud....
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....ese four elements are present, the validity of a tax law would be beyond any legal challenge. As far as service tax levy in India is concerned, these four elements are contained in Sections 65 (105) which defines the taxable service (taxable event), Section 66 which imposes the levy and prescribes the rate of tax, Section 67 which provides the measure of tax and Section 68, which determines the person liable to pay tax. The sections referred to are sections of Chapter V of the Finance Act, 1994. Therefore, there cannot be any sustainable legal challenge to the levy of service tax. 5.1 Section 67 of the Finance Act provides for the measure of service tax and stipulates that the measure of tax is the gross amount charged by the service provider for the services rendered. It, therefore, follows that in the case of a composite contract which involves supply of goods as well as supply of services, the value of the goods supplied has to be excluded from the value of the composite contract so as to determine the value of services rendered and to arrive at the measure of tax. This issue was also considered by the hon'ble Delhi High Court in the G D Builders case in paras 18 & 19 of ....
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....onger res-integra, as the principle and concept underlining service tax was highlighted and stands elucidated by Full Bench of this court in Home Solutions Retail (India) Ltd. vs. UOI & Anr. 182 (2011) DLT 548 (FB), wherein after referring to several judgments, following propositions were set out :- "52. From the aforesaid pronouncements in the field, the following principles regarding service tax can be fruitfully culled out: (i) The measure of taxation does not affect the nature of taxation and, therefore, the manner of quantification of the levy of service tax has no bearing on the factum of legislative competence. (ii) Taxable services can include providing of premises on a temporary basis for organizing any official, social or business function but also other facilities supplied in relation thereto. (iii) Levy of service tax on a particular kind of service cannot be struck down on the ground that it does not conform to a common understanding of the word "service" as long as it does not transgress any specific restriction embodied in the Constitution. (iv) Service tax is a levy on the event of service. (v) The concept of service tax is an economic concept. ....
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....d as a whole keeping in mind its objective and purpose. Notification may provide a convenient, hassle free and adopt a non-discretionary formula for computing value of the service element in a composite contract. This curtails litigation, ambiguity, ensures clarity and consistency. A notification cannot be declared as invalid or ultra vires for this reason, provided it is optional." 5.3 The hon'ble President in his order has referred to the decisions in the case of B.C. Srinivasa Setty, Govind Saran Ganga Saran and K. Damodarasamy Naidu & Bros. to come to the conclusion that valuation/computation provisions are sine qua non for operability of the charging section. The Delhi High Courtin the G D Builders case has referred to the decisions in two cases, namely, Srinivasa Setty and Govind Saran Ganga Saran while examining the applicability in Mahim Patram's case and thereafter, came to the conclusion that section 67 provides for the measure of the levy in respect of service tax as per which the gross amount charged for the services provided is the measure. In all the above three cases, the measure of levy was to be provided through rules to be made in this regard and since ....
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....Rule 1BB of the Wealth Tax Rules, 1957 is a provision which affects and alters the substantive rights or is merely procedural and whether the Rules is attracted to all the proceedings pending at its enactment. The said Rule 1BB was concerned with mode of valuation of a house property wholly or mainly used for residential purposes, for the purposes of ascertaining the net wealth under the Wealth Tax Act, 1957. The hon'ble apex Court in that context held as follows :- "10. The basis of distinction between statutes affecting rights and those affecting merely procedure is well-recognised. Dixon, C.J. in Maxwell v. Murphy drawing upon the following words of Lord Justice Mellish in Republic of Costa Rica v. Erlanger said: "No suitor has any vested interest in the course of procedure, nor any right to complain, if during the litigation the procedure is changes, provided, of course, that no injustice is done." 11. In WH. Cockerline & Co. v. IRC10, Lord Hanworth quoted with approvals following passage from the judgment of Sargent, L.J.: "The liability is imposed by the charging section, namely, Section 38 the words of which are clear. The subsequent provisions as to assessme....
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.... remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other. " The hon'ble apex Court further held that,- "a distinction has to be made by Court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated." 5.7 A machinery provision in a fiscal statute should be so interpreted as to make the charging provision of that statute effective is now well settled. In K. P. Varghese v. I.T.O. Ernakulam and Another - Bhagwati, J. (as His Lordship then was) referring to various passages of Lord Denning and Learned Hand, has elaborately explained the principle of progressive construction of statutes in these words :- ....
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....ds as well as supply of services. The tax credit mechanism ensures that the tax on the output service is charged only on the value addition involved on account of rendering of service. Therefore, even in the absence of a specific machinery provision, the value of the service rendered is automatically captured through the Cenvat credit mechanism. 5.10 The three taxable services involved in the present dispute are ECIS, CICS and COCS. Sales tax /VAT is leviable on the sale value of goods involved in the works contract involving these services either on actual basis or composition basis ias per the various State ST/VAT laws. Therefore, the value of goods supplied in a composite works contract is well known or determined. From the total value of the composite contract, if the value for the supply of goods is deducted, the remainder would be the value of the service component. Therefore, at the practical level of implementation, there is absolutely no difficulty in determination of value of service rendered. Therefore, the argument of lack of machinery provision for determination of tax liability is only a figment of imagination and has no practical relevance. Therefore, the challeng....
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.... by the Law Commission, in its 61st report. On the recommendations of the Law Commission to levy sales tax on the goods used in the execution of the works contract and on the leasing transactions, to boost the revenue of the States, clause (29-A) was added in Article 366 of the Constitution of India by the 46th Constitutional Amendment, enlarging the definition of sale. As a result of the Constitutional Amendment, States also amended their Trade Tax laws, and enlarged the definition of sale and levied the tax on the value of the goods involved in the execution of the works contract and transfer of right to use the goods. The validity of the Constitutional Amendment has been upheld by the Constitution Bench of the Apex Court in the case of Builders Association of India vs. Union of India. In brief, Apex Court held that by fiction, an indivisible contract has been made a divisible contract and the value of the goods involved in the execution of contract have been subjected to tax. Apex Court held that under the law, only the value of the goods used in the execution of the works contract is liable to tax and not the building as a whole. It has been further held that the levy would be ....
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....entified for levy of sales tax on a deemed sale basis in the 46 th amendment to the Constitution, namely:- '(29A) " tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human cons....
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....man consumption that is deemed to be a sale or purchase of goods. 45. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering'. 46. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter. .......... '. 58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities. Section 65 clause 41 sub clause (p) of the Finances Act, 1994, defines the taxable service (which is the subject matter of levy of service tax) as any service provided to a customer "by a mandap-keeper in relation to use of a mandap in any manner including the facilities provided to a customer in relation to such use also the services, if any, rendered as a caterer". The nature and characte....
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....eld by the Supreme Court in K.L. Johar's case that there is a sale only when the purchaser exercises the option to purchase which is at a later date and therefore only the depreciated value of the goods involved in such transaction at the time the option is exercised becomes assessable to sales tax which position has resulted in avoidance of tax in various ways." Thus, we find from the Statement of Objects and Reasons that the concept of "deemed sale" is brought in by the Constitution (Forty-sixth Amendment) Act only in the context of imposition of sales tax and that the words "transfer, delivery or supply" of goods is referred to in the second limb of Article 366(29A) to broaden the tax base and that as indicated in the Report of Law Commission prior to the judgment of this Court in Gannon Dunkerley's case, works contract was always taxed by the States as part of the word "sale" in Entry 48/54 of List II. The object behind enactment of Article 366(29A) is to tax the composite price so that the full value of the hire-purchase price is taxed and to avoid the judgment in K.L. Johar's case whose implication was to narrow the tax base resulting in seepage of sales tax reven....
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.... service tax is made payable. In fact, the Government has given exemption from payment of service tax to financial leasing services including equipment leasing and hire-purchase on that portion of taxable value comprising of 90% of the amount representing as interest, i.e., the difference between the instalment paid towards repayment of the lease amount and the principal amount in such instalments paid (See Notification No. 4/2006 - Service Tax dated 1-3-2006). In other words, service tax is leviable only on 10% of the interest portion. (See also Circular F.No. B.11/1/2001-TRU dated 9-7-2001 in which it has been clarified that service tax, in the case of financial leasing including equipment leasing and hire-purchase, will be leviable only on the lease management fees/processing fees/documentation charges recovered at the time of entering into the agreement and on the finance/interest charges recovered in equated monthly instalments and not on the principal amount). Merely because for valuation purposes inter alia "finance/interest charges" are taken into account and merely because service tax is imposed on financial services with reference to "hiring/interest" charges, the impugne....
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....ent and so on. One can cite such examples ad infinitum. It is very difficult to segregate supply of goods and services as they are inter-dependent and in my view such an exercise is a futile one. The vires of service tax levy on all such composite transactions have been upheld in quite a few decisions by the Supreme Court. This is where the doctrine of pith and substance and the doctrine of aspects come into play. The decision of the Supreme Court in Federation of Hotel and Restaurant Assn. of India v. Union of India has beautifully explained this proposition and I cannot resist the temptation of quoting a few passages from the said decision :- 2.2 Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the Courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters failing within these classes of subjects exists in each legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to ....
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....t for the purpose of taxation. If by virtue of clause 29A of Article 366, the State Legislature is empowered to segregate the goods part of the works contract and impose sales tax thereon, the same logic would apply in respect of Central Legislation imposing service tax. In other words, the Parliament is empowered to segregate the service component of the works contract and impose service tax thereon. This is precisely what the Finance Act, 1994 has done when it sought to levy service tax on CICS, COCS and ECIS under sections 65(25b) r/w 65 (105) (zzq), 65(30a) and 65 (91a) r/w 65 (105)(zzzh) and 65 (39a) r/w 65(105)(zzd). In other words, whenever or wherever such services are rendered either as a pure labour contract or as part of the works contract, service tax liability is attracted, especially considering the fact that there is no restriction stipulated in the statute for levy of service tax on these services. Therefore full play and effect to the statutory provisions have to be given. Further a statutory provision cannot be interpreted so as to create discrimination among various classes of service providers, one set of people supplying services alone, liable to tax, and anoth....
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....eted based on the language used/employed by the legislature and not on the basis of Finance Minister's speech. In Doypack Systems Pvt. Ltd. vs. UOI [1988 (36) E.LT. 201 (S.C.)], the hon'ble Apex Court held that reliance should not be placed on external aids such as notings in the government's file, Finance Minister's speech, etc., while interpreting statues. The Apex court has held that,- "57. It has to be reiterated that the object of interpretation of a statute is to discover the intention of the Parliament as expressed in the Act. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whole and in its context. That intention, and therefore the meaning of the statute, is primarily to be sought in the words used-in the statute itself, which must, if they are plain and unambiguous, be applied as they stand. ********* 59. Contemporanea expositio, is a well-settled principle or doctrine which applies only to the construction of ambiguous language in old statutes. Reliance may be placed in this connection on Maxwell 13th Ed. page 269. It is not applicable to modern statutes....
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....he Tariff Act is a supplementary levy in enhancement of the levy charged by section 12 of the Customs Act and with a different base constituting the measure of the impost. In other words, the scheme embodied in section 12 is amplified by what is provided in section 3 (1). The customs duty charged under section 12 is extended by an additional duty confined to imported articles in the measure set forth in section 3 (1). Thus, the additional duty which is mentioned in section 3 (1) of the Tariff Act is not in the nature of countervailing duty.' Thus the reliance placed on the statement of objects and reasons itself was rejected by the hon'ble apex court when the language of the statute was clear and unambiguous. The Finance Minister's speech has a lower status than the Statement of Objects and Reasons in interpreting the statute and therefore, the contention that reliance can be placed on such a speech is devoid of merits and needs to be rejected outright. Similarly in a recent decision, the hon'ble Madras High Court in CCE, Salem vs. Subramania Siva Co-op. Sugar Mills Ltd. [2014 (35) S.T.R. 500 (Mad.)] re-iterated this position by holding that,- "16. As fa....
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....sed by my ld. brother Shri PR Chandrasekharan, Member (Technical), the said judgments of Karnataka and Madras High Courts do not impinge upon the ratio/ decision of the Delhi High Court in the case of GD Builders with regard to the subject matter covered by the latter. It is hard to discern from the Hon'ble Delhi High Court order dated 11.11.2014 that the Hon'ble High Court at all intended that the order in case of GD Builders itself could be further questioned/ analysed to decide whether the same is per incurium. Viewed in this backdrop, it is too evident and obvious to need even a line of discussion that the subject matter referred to the Five Member Bench of the CESTAT is squarely and comprehensively covered by the said decision of the Delhi High Court. That said, as the ld. President has held otherwise, I proceed to record a few paragraphs in the context of some observations / findings of ld. President and ld. Member (Technical). 3. I cannot agree more with the conclusion of Hon'ble President that the GD Builders decision is not a product of concessions by a party to the lis. 4. Ld. Member (Technical) in para 5.6 of his order states that "from the above decisi....
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.... the value determined in terms of Section 67 would not fail; save when in certain situations for certain services absence of Rules would necessarily lead to an ambiguity of such a high degree as to make the measure of value arbitrary. In other words, absence of Rules would not necessarily eclipse or paralyse Section 67 which refers to the value of service, implying thereby that the value of goods "sold" in a composite contract was not to be a part of the value for the purpose of that Section. Thus, Section 67, even in its pre 18.04.2006 avatar in no way encroached upon the state Govt's domain relating to levy of sales tax. Indeed, Notification No.12/2003-ST needs, thus, to be viewed as a measure of abundant caution and care on the part of the Central Govt. to obviate even a remote possibility of service tax being charged on the value of goods "sold" as a part of a composite contract, and not as an attempt to imply that it has power to levy service tax on the same. It is pertinent to mention that any provisions regarding valuation, howsoever detailed, cannot entirely rule out the possibility of certain degree of interpretational uncertainty but that would not be fatal to the lev....
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....uilders. R K Singh, Member (T) Per: Rakesh Kumar: I have gone through the order recorded by the Hon'ble President and the orders recorded by my learned Brothers Shri P.R. Chandrashekharan and Shri R.K. Singh, Members (Technical). While, I fully agree with the order recorded by my learned Brother Shri P.R. Chandrashekharan, I am of the view that the question as to whether the service component of an indivisible works contract could be taxed during the period prior to 01/6/07, can be looked at from another angle also, for which it is necessary to go into the question as to what is a works contract. 2. The commercial transactions of sale of goods and sale of services constitute a spectrum. At one end of the spectrum are the pure sales transactions not involving the supply of any service and at the other end of the spectrum are the transactions of pure services not involving the supply of any goods. In between these transactions of pure sales and pure services, there is a vast variety of transactions in which there is supply of goods as well as provision of service. 2.1 Among such hybrid contracts, there is a group of contracts where under single instrument the parti....
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.... industrial construction, construction of residential complex, repair and maintenance contracts which involve use of the material for repair or maintenance etc. In general, a works contract can be said to be a contract for some work (service) to be done by the service provider on the land/immovable property or on some movable property including intangible property belonging to the employer, which involves affixing of goods including intangible goods belonging to the service provider. The Apex Court's judgment dated 01/4/58 in the case of State of Madras vs. Gannor Dunkerlay and Co. Ltd. (supra) is in respect of building contracts wherein the Apex court held that in such contracts there is no sale of goods involved and, therefore, the State Government could not levy sales tax on the transfer of property in goods involved in execution of such contracts. 2.3 When indivisible works contracts are those contracts involving provision of service, in which there is transfer of property in goods from the service provider to the service receiver through accretion, and this transfer of property in goods is not sale, such contracts have to be treated as service contracts as in such contr....
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....he works contract and the indivisible works contract, which is a service contract, became a divisible contract for provision of service and deemed sale of the goods involved in execution of the works contract; and (b) supply of food or drinks in the catering contracts, which were service contracts involving serving of food or beverages, become a deemed sale. Thus Clause (b) and (f) of Article 366 (29A) are a legal fiction created to enable the State Governments to levy sales tax the supply of goods in certain service contracts - works contracts and catering contracts. The legal fiction created by Article 366 (29A) does not change the basic character of a works contract or a catering contract, both of which are service contract. 3. It is well settled law that a legal fiction has to be given effect to only for the limited purpose for which it had been created and, therefore, Article 366 (29A) can be employed only to enable to State Governments to charge sales tax on certain contracts including the service contracts mentioned in Clause (a) and (f) of this Article which do not involve sale in the sense, in which this term is understood in Sale of Goods Act, 1930 and Article 366 (29A....
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.... 42, 43, 44 and 45 of its judgment in case of Tamil Nadu Kalyana Mandap and Association vs. Union of India reported in 2004 (167) E.L.T. 3 (S.C.) while upholding the constitutional validity of the levy of service tax on the service provided by a Mandap Keeper in relation to use of Mandap, has held that the fact that tax on sale of goods involved in the said service can be levied does not mean that service tax cannot be levied on the service aspect of catering and that it is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that service tax is levied as a percentage of gross amount charged for catering cannot alter or affect the legislative competence of the Parliament in the matter. Since the Central Government has powers to levy service tax on the entire value of a works contract, it also has power to exempt a part of the value of a works contract from the service tax. 3.1 The Central Government in order to avoid charging of tax on the goods involved in the execution of works contract on which State Government also levies the sales tax/VAT, has decided to exempt such contracts from the service tax to the extent the ser....
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....66 (29A) of the Constitution, it is deemed to be a divisible contract - one for service and the other for deemed sale of the goods involved in execution of the service contract (works contract) and accordingly the value of a taxable service provided as a works contract would be the gross amount charged including the value of the goods, the property in which has been transferred to the service receiver through accretion; (b) the legal fiction of Article 366 (29A) has no application when it comes to levy of service tax by the Central Government on a service contract even if it involves transfer of property in goods to the service receiver through accretion, and (c) measure of tax is independent of the nature of the tax and therefore service tax can be levied on a service contract involving transfer of property in goods to the service receiver through accretion, as a percentage of the gross amount charged. 4.1 In view of this legal position, exemption notifications issued by the Central Government under Section 93 of the Finance Act, providing for abatement of the taxable value of the specified services (including ECIS, CICS and CICS) which entail both supply of goods a....
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....t is known, the whole transaction is taxed by that authority on the basis of the measure prescribed. 6. Separate and specific constitutional provision together with the machinery for determining the measure is required only when State Government wants to tax goods portion in a service transaction or the Central Government wants to tax service portion in a sales transaction. But for charging of service tax by the Central Government on a service transaction including a works contract, no machinery for excluding the value of the goods involved in the provision of service is required and for the lack of such machinery provision, the levy cannot be held to be invalid. Rakesh Kumar, Member (T) Per: Justice G. Raghuram: Pursuant to the order dated 09.09.2013, we heard the reference during 10.11.2014 to 14.11.2014. The President and the learned Member (Judicial) Ms. Archana Wadhwa concluded that a composite contract, involving transfer of property in goods and rendition of services, cannot be vivisected and services components thereof subject to the levy of service tax, on classification of the services under taxable services such as "Commercial or Industrial Construction"; "Co....