TaxTMI 
TaxTMI 
2014 (3) TMI 1043
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.... the certificate of registration under the CST Act, to claim the concessional rate of tax on inter-State purchase of such equipment, under section 8(3)(b) of the CST Act, read with rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957 (hereinafter referred to as "the CST Rules"). The petitioner-company carries on business all over India as works contractor. The petitioner-company is engaged in the construction of bridges, flyovers, roads and multi-storied buildings. Section 8(1) of the CST Act provides for concessional rate of tax, in respect of goods of the description in clause 3, i.e., goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods, as being intended for resale by him, or subject to any Rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale, or in the telecommunication network, or in mining, or in the generation or distribution of electricity or any other form of power. Section 8(3) (b) of the CST Act provides as follows: "Section 8(3)(b): are goods of the class or classes specified in the certificate of re....
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....ontract. These materials cannot be incorporated in or made part of the works. The petitioner-company pays Central excise duty on fabricated structural for incorporation in the works contracts and is registered under the Central Excise Act, 1944 as a manufacturer of excisable goods. The petitioner-company raises Central excise invoices for such structural, etc., incorporated in the works contract, and pays Central excise duty, which is included in the invoice raised on the contractee. "Sale" has been defined in clause (g) of section 2 of the CST Act to mean, with its grammatical variations and cognate expressions, any transfer of property in goods, by one person to another, for cash or deferred payment, or for any other valuable consideration, and includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. "Works contract" has been defined in clause (ja) of section 2 of the CST Act, to mean a contract for carrying out any work, which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of ....
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....w materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in the telecommunications or in the mining or in the generation or distribution of electricity or any other form of power. As argued by Mr. Majumder, the liability of goods involved in composite works to sales tax, fell for determination before the Supreme Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. reported in [1958] 9 STC 353 (SC); [1959] SCR 379. In the aforesaid case the Supreme Court held that in a building contract, which was one, entire and indivisible, there should be no sale of goods and it was thus not within the competence of the State Legislature to impose sales tax under entry 48. Consequential to the pronouncement of the Supreme Court the issue was, as pointed out by Mr. Majumder, referred to the Law Commission of India and on its recommendations Parliament enacted the Constitution (Forty-sixth Amendment) Act, 1982 to amend articles 269, 286 and 366 of the Constitution, as well as the Seventh Schedule to the Constitution, after which, the States were conferred power....
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....services; (vii) other similar expenses relatable to supply of labour and services; (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services." Mr. Majumder submitted that the Constitution Bench held that to arrive at the value of goods, it would be necessary to exclude from the value of the works contract, the value of the goods which are not taxable in view of sections 3, 4 and 5 of the CST Act, and goods covered by sections 14 and 15 of the CST Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making these deductions from the value of the works contract. Mr. Majumder submitted and rightly that section 14 of the West Bengal Value Added Tax Act, 2003 (hereinafter referred to as "the VAT Act") imposes liability to pay tax on transfer of property in goods incorporated in the execution of works contract. Referring to sub-section (1) of section 14, Mr. Majumder submitted that any transfer of property in goods (whether as goods or in some other form) involved in the execution of a ....
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....nd tools used for the execution of works contract; (iv) cost of consumables such as water, electricity, fuel, etc., used in the execution of works contract, the property in which is not transferred in the course of execution of the works contract; (v) cost of establishment of the contractor to the extent it is related to supply of labour and services; (vi) other similar expenses related to supply of labour and services; and (vii) profit earned by the contractor to the extent it is related to supply of labour and services subject to furnishing of profit and loss account of the works site." Taxability under section 14 or 18 of the VAT Act on sale of goods incorporated in a works contract or the mode of valuation of such goods and/or the value of the contract for the purpose of taxation under the VAT Act is of no relevance to the question of whether any goods qualify for inclusion in the certificate of registration for concessional sales tax under section 8(3)(b) of the CST Act read with rule 13 of the CST Rules, even though inclusion may have an impact on the value of the goods/contract for computation of tax under the VAT Act. Mr. Majumder rightly argued that careful analysis ....
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....property in the goods involved in the works contract, may be computed in the same way in which sales tax would be leviable, in case of a contract for supply of goods. As submitted by Mr. Majumder, in the Builders Association case [1989] 73 STC 370 (SC); [1989] 2 SCC 645, the Constitution Bench of the Supreme Court held that after the 46th Amendment, it has become possible for the State to levy sales tax on the value of goods incorporated in a works contract, in the same way in which sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts. Mr. Majumder submitted that when the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under article 366(29A) of the Constitution should also be subject to the same restrictions and limitations incorporated in article 286 of the Constitution. Ordinarily, unless there....
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....buildings. As rightly observed by the High Court the tower cranes cannot be considered as industrial inputs for use either as a component part or as a raw material of any other goods." The aforesaid judgment was rendered in the context of section 5A of the Karnataka Sales Tax Act, 1957 which provided: "5A. Taxation of industrial inputs.-(1) Notwithstanding anything contained in section 5, the tax payable by a registered dealer in respect of the sale of any industrial input liable to tax under the Act to another registered dealer for use by the latter as a component part or raw material or packing material of any other goods which he intends to manufacture inside the State for sale, shall be at the rate of four per cent or the rate specified in section 5, whichever is lower, on the turnover relating to such sale: Provided . . ." In B. G. Shirke Construction Technologies (P) Limited [2007] 5 VST 655 (SC); [2007] 4 SCC 148 a crane was held not to be an industrial input in view of the specific definition of industrial input as contained in Explanation I to section 5A of the Karnataka Sales Tax Act, 1957 which is extracted hereinbelow for convenience. "E....
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....dges, etc., undergo a process of change and have been construed as manufacture. Accordingly, the petitioner has been granted Central excise registration and charged excise duty. In any case, it is not in dispute that the petitioner has Central excise registration. The petitioner brought the fact of registration on record by filing a supplementary affidavit. This does not tantamount to making out any new case. In any case, the fact that the Central excise registration may have been disclosed at a belated stage, has no bearing on the issue of whether the respondent-Joint Commissioner was justified in not including in the petitioner's Central sales tax registration, the construction machinery, etc., mentioned in its application. The Central excise registration of the petitioner is not in issue in this proceeding. The word "sale" in section 8(3)(b) of the CST Act and in rule 13 of the CST Rules has the meaning as defined in section 2(g) and thus includes "a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract". In Indian Copper Corporation Limited v. Commissioner of Commercial Taxes reported in [1965] 16 STC 2....
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....that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods' .. ." The Supreme Court further held (page 569 in 16 STC): ". . . Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for 'turning out or the creation of goods'." In Member, Board of Revenue, West Bengal v. Phelps and Co. (P.) Ltd. reported in [1972] 29 STC 101 (SC) cited by Mr. Khaitan, the Supreme Court held that hand-gloves used by workers engaged in hot jobs or in handling corrosive substances could be included in the certificate of registration as much as the same were used in the manufacture of goods for sale. In Chowgule & Co. Pvt. Ltd. v. Union of India reported in [1981] 47 STC 124 (SC), cited by Mr. Khaitan, the Supreme Court was dealing with the ....
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....utes 'processing'. We are clearly of the view that the blending of ore in the course of loading through the mechanical ore handling plant amounted to 'processing' of ore within the meaning of section 8(3)(b) and rule 13 and the mechanical ore handling plant fell within the description of 'machinery, plant, equipment' used in the processing of ore for sale. It must therefore follow as a necessary corollary that if any items of goods were purchased by the assessee as being intended for use as 'machinery, plant, equipment, tools, spare parts, stores, accessories, fuel or lubricants' for the mechanical ore handling plant, they would be eligible for inclusion in the certificate of registration of the assessee." The Supreme Court held that machinery, vehicles, barges and other items of goods used for transporting the mine ore from the mining site to the harbour, where the iron ore was blended, were goods used in processing of ore for sale and were eligible for inclusion in the certificate of registration, in terms of section 8(3)(b) and rule 13. Distinguishing the judgment in J. K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563 (SC) cited....
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....through the mechanical ore handling plant constitutes processing of ore. Mr. Majumder submitted that where dealer is engaged both in mining operation as also in processing the mined ore for sale, the two processes being inter-dependent, it would be essential for carrying on the operation of processing that the ore should be carried from the mining site mined ore for sale, the two processes being interdependent, it would be essential for carrying on the operation of processing any vehicles purchased and other items used for carrying ore from the mining site to the place of processing would be goods used in processing of ore for sale. Mr. Majumder submitted that the ratio was not applicable to the facts and circumstances of the instant case. Mr. Majumder submitted that in Indian Copper Corporation Limited [1965] 16 STC 259 (SC), the Supreme Court held that where dealer was engaged both in mining operations and in the manufacturing process, the two process being inter-dependent, it would be impossible to exclude vehicles which were used for removing goods from the place where mining operations were concluded to the factory where the manufacturing process started. The Supreme Cou....
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....orkers engaged in hit jobs or in handling corrosive substances. The question before this court is, whether having regard to the principles laid down by the honourable Supreme Court in the judgments referred to above, the petitioner-company was entitled to inclusion of plant, machinery and equipment, required by it for use in the manufacture or processing of goods involved in the execution of works contracts, in its registration certificate, as argued by Mr. Khaitan. Mr. Khaitan argued, and rightly, that it was not necessary that the property in the plant, machinery or equipment should be transferred to the contractees, which would be a case of resale simpliciter. Section 8(3)(b) of the CST Act was not confined only to purchase for the purpose of resale, but expressly covered plant, machinery, equipment, etc., if required for use in the manufacture or processing of goods for sale. Such goods for sale could be in the form of goods or in any other form. In other words the goods of sale might undergo a transformation, alteration or change. Section 14 of the VAT Act imposes liability to pay tax on transfer of property in goods involved in the execution of works contract. As sub....
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....nd different commercial product comes into existence thereby, as held by the Supreme Court in Empire Industries Limited v. Union of India reported in [1987] 64 STC 42 (SC); [1986] 162 ITR 846 (SC); [1985] 20 ELT 179 (SC). A works contract is one and indivisible and involves incorporation of different goods to bring into existence a new end-product. For example, a building contract, inter alia, involves the mixing and treatment of cement, sand, stone chips, etc., to produce concrete, the blending of cement, sand and water for plastering, the plastering of bricks, casting, fabrication of steel rods and girders, the erection of the structure and the installation fittings and fixtures, some of which may be embedded in the construction. The goods incorporated in the construction, in which property passes, lose their original character. What is produced is something totally different. There is no reason why activities involved in a works contract should not constitute manufacture. If after the amendment of the Constitution it has become possible for the State to levy sales tax on the value of goods incorporated in a works contract, which as illustrated above, lose their origi....