AI Drafter 
TaxTMI 
TaxTMI 
2018 (5) TMI 278
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as under: 2.1. According to the petitioner­ original petitioner­ Essar Construction Limited a Public Limited Company registered and incorporated under the provisions of Companies Act, 1956 was engaged, inter alia, in the business of Turn­key Engineering, Procurement and Construction Projects. The said business includes among other activities, the activity of laying pipelines, inter alia, for supply of water. That the original petitioner was holding a registration certificate under the Gujarat Sales Tax Act, 1969 as well as under the Central Sales Tax Act, 1956. 2.2. The dispute is with respect to the execution of three pipelines contracts undertaken and completed by the original petitioner­ Essar Construction Limited, in the State of Gujarat pursuant to; (i) the two Work Orders, both dated 23.4.2001, issued by the Gujarat Water Supply and Sewerage Board (hereinafter referred to as the "Board"), and (ii) one Work Order dated 18.08.2001 issued by the Engineering Projects (India) Limited (hereinafter referred to as the "EPIL"), all in the name of Essar Projects Limited, which Work Orders were subsequently transferred to the original petitioner by Essar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s" both dated 28.06.2002, one in respect of NC­6 and NC­7 and another in respect of NC­12 under Section 57B(4) of the Act and held that original petitioner would not be liable to pay any sales tax inspite of the aforesaid two Works involved in the execution of the aforesaid work contracts. 2.5. It was the case on behalf of the petitioner that for execution of the works involved in the aforesaid work orders, the petitioner required steel plates of stipulated and approved quality for converting them into steel pipes under the supervision and direction of the Board. According to the petitioner, the petitioner started executing the works and all the steel pipes required under the contracts were purchased by the petitioner from Essar Steel Limited which was one of the approved suppliers of the Board. That M/s. Essar Steel Limited was also registered dealer under the Act and was enjoying sales tax exemption incentives under Entries 118 and 255 of the Notifications issued under Section 49(2) of the Act. According to the petitioner, upon taking delivery of steel plates from Essar Steel Limited, the petitioner got them converted into steel pipes as per the specifications and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... petitioner has sold the steel pipes which is exigible to sales tax. That by order dated 06.02.2006, this Court allowed the aforesaid Special Civil Application, quashed and set aside the order dated 31.12.2005 and directed the Deputy Commissioner to decide the issue afresh after giving an opportunity of hearing to the petitioner with a corresponding direction to the petitioner to submit its reply within the time limit stipulated in the judgment. It appears that thereafter the petitioner gave detailed written submissions to the Deputy Commissioner and requested him to drop the revision proceedings. 2.8. The Deputy Commissioner, however, rejected the submission made before him and passed the orders dated 31.3.2006 confirming his earlier decisions and levying tax, penalty and interest holding that the petitioner had sold the pipes and not plates and since pipe is a commodity different from plate, the petitioner is not entitled to deduction of resale as was allowed in the assessment proceedings. That by the aforesaid orders dated 31.3.2006, the Deputy Commissioner raised the following demands: Particulars 19.7.2001 to 31.3.2002 1.4.2002 to 30.06.2002 Tax 4,82,90,053/&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....N. Soparkar, learned counsel for the petitioner that a term of contract clearly indicates that the contract was in the nature of an indivisible works contract i.e. Engineering, Procurement and Commissioning (EPC) contract, where, the petitioner was required to design, engineer, procure, construct, complete, commission and operate the whole system of pipeline works for 2 years for a lump sum amount of approximately Rs. 95 Crores. It is submitted that the contract further specifically contemplated the fixed price for the steel that was to be procured for the purpose of execution of the contract. It is submitted that extent of work in the bid document also indicates that the contract was in the nature of work contract. In support of his above submission that the contract was in the nature of works contract, Shri Soparkar, learned counsel for the petitioner has relied upon relevant clauses of the contract viz. clause, 2,3,4,5 (5.3. 5.6), 6, (6.1, 6.3, 6.5 and 6.6.5) 7, 7.2, 9, 10 and 11 of the contract. 4.2. It is further submitted by Shri Soparkar, learned counsel for the petitioner that pipes were to be constructed as per the specifications laid out in the contract (clause 8.5, 8.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. It is submitted that conversion of steel plates into pipes was just one component of the entire EPC contract and therefore, in compliance of the contract, to be undertaken by the petitioner. It is submitted that therefore, when the plates were converted, in compliance of the contractual requirement, to pipes; the property in the goods i.e. steel plates, got incorporated into the works contract, leading to the deemed incidence of sale at that very point. It is submitted that since the benefit of the entry 119 was available to goods which are "resold", the transfer of the plates into pipes; and resultant incorporation into the works contract; amounts to "resale" directly falling within the parameters of the entry 119/255(4); thereby not attracting tax. 4.6. It is further submitted by Shri Soparkar, learned counsel for the petitioner that even levy of the penalty by the Deputy Commissioner confirmed by the learned Tribunal is absolutely illegal. It is submitted that the Commissioner has no jurisdiction to levy penalty under Section 45(6) of the Act. It is submitted that on fair reading of Section 45(6) along with Section 45(5), penalty can only be levied in case of assessment un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 45(6). In support of his above submission, he has relied upon the order passed by this Court in Tax Appeal No. 255 of 2015 in the case of State of Gujarat vs. TJ Agro Fertilizers Pvt. Ltd, which upheld the view taken by the learned Tribunal taking a view that as the discretion is given to the authorities to levy penalty upto maximum limit of 150% and no minimum penalty is prescribed., if facts of the case so warrant, no penalty can be levied under Section 45(6) of the Act. 4.9. It is further submitted that in the present case (1) the petitioner was issued no TDS certificate under Section 57B(5); (2)Full disclosure was made by the petitioner at the time of original assessment and the STO had accepted the contentions of the petitioner after applying his mind; (3) Determination orders have been passed by the Commissioner under Section 62 of the Act which conveyed a view that the transaction of this nature would be a works contract, not manufacture; (4) It is not even the case of the Revenue that the petitioner had any mens rea and therefore, in the facts and circumstances of the case levy of any penalty under Section 45(6) of the Act is not warranted. 4.10. Shri Sopa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was transfer of property in pipes from the petitioner to the Board and therefore, it amounted to a sale and once it amounted to a sale, it was liable to be taxed in accordance with law. 5.3. It is further submitted by Ms. Manisha Lavkumar, learned Government Pleader that on appreciation of material on record and the statement made on behalf of the respective parties, the learned Tribunal has rightly not accepted the submission on behalf of the petitioner that the parties had intention to enter into a contract of sale and supply of still plates. It is submitted that the Board as well as EOIL were never interested in purchasing iron sheets. Otherwise, they would have been directly entered into a contract of purchase of steel plates directly with the dealers and suppliers of iron sheets. 5.4. It is further submitted by Ms. Manisha Lavkumar, learned Government Pleader that even impugned levy of tax on supply of steel pipes for execution of the works contract is rightly held to be sale and supply to levy of tax in view of Article 366(29A) of the Constitution of India r/w Section 2(28) of the Gujarat Sales Tax Act. 5.5. It is further submitted by Ms. Manisha Lavkumar, learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cision of the Hon'ble Supreme Court in the case of State of Tamil Nadu vs. M/s. Pyare Lal Malhotra and ors reported in (1976) 1 Scc 834 and Income Tax Officer, Udaipur vs. Arihant Tiles and Marbles Pvt. Ltd reported in (2010) 2 SCC 699. 5.9. Ms. Manisha Lavkumar, learned Government Pleader has also heavily relied upon the decision of the Hon'ble Supreme Court in the case of Larsen And Tourbo Limited & Anr. vs. State of Karnataka and Anr. reported in (2014) 1 SCC 708 as well as Article 366(29A) in support of her submission that in the facts and circumstances of the case and considering the material on record, the learned Tribunal has rightly held that supply of steel pipes for execution of works contract between the petitioner and the Board is subjected to levy of tax as same can be said to be sale within the definition of Section 2(28) of the Sales Tax Act and it cannot be said to be resale as contended on behalf of the petitioner. 5.10. Now, so far as levy of penalty is concerned, it is submitted by Ms. Manisha Lavkumar, learned Government Pleader that same is absolutely in consonance with the provisions of the Act and therefore, the same does not require any interfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Board. By the impugned order, the Revisional Authority and the learned Tribunal have held that the petitioner is liable to pay tax under the Act on manufacture and supply of steel plates. It is the case on behalf of the petitioner that the works contracts were indivisible work contracts and the steel plates were as such used in execution of the works contract and therefore, the said transaction cannot be "sale"within the meaning of Section 2(28) of the Act. It is also the case on behalf of the petitioner that in order to constitute a transaction as amounting to sale in the execution of works contract there should be a transfer of property in goods at the time involvement of th goods belonging to the contractor in the course of the execution of the works contract. Therefore, it is the case on behalf of the petitioner that at the time when the work contract was executed the property in the goods belonging to the petitioner passed to the customer. It is also the case on behalf of the petitioner that a defined in Section 2(28)(c) of the Act, there should be "transfer of property in goods involved in the execution of works contract". Therefore, it is the case on behalf of the petitioner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shy; contractor converted it into altogether a new item / steel pipes after getting it done through job work. Whether such transaction can be said to be manufacture of altogether new item and steel pipes or not is required to be considered while considering the fact that by a different process and getting work done through job work, the steel plates are converted into steel pipes. Whether such transaction can be said to be manufactured or not, few decisions of the Hon'ble Supreme Court are required to be considered. In the case of M/s. Pyare Lal Malhotra and Ors (supra), in para 14, the Hon'ble Supreme Court has observed and held as under: It is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new market able commodity, is the decisive test in determining whether an excise duty is leviable or not on certain goods. No doubt, in the law dealing with the sales tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, so that its sale is a new taxable event, in the Sales' Tax law, it may also become n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er as goods or in some other form) involved in the execution of a works contract, (d). delivery of goods, on hire purchase or any system of payment by installments, (e). supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration, (f). 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, but does not include a mortgage, hypothecation, charge or pledge and the words "sell", "buy" and "purchase" with all their grammatical variations and cognate expressions shall be construed accordingly. 7.4. It is the case on behalf of the petitioner that steel plates were used cannot be accepted as what is used in execution of the works contract is a steel pipes which is altogether a new product / item and not steel plates as contended on behalf of the petitioner. 7.5. The contention on behalf of the petitioner that in the works contract, it has been specific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le, Rs. 77,90,662/­ was for Mild Steel Pipeline of specific diameter and shell thickness etc. Considering the aforesaid facts and circumstances, it cannot be said that there was contract for supply of steel plates and steel plates were used for execution of the works contract as contended on behalf of the petitioner. As observed herein above, after purchase of the steel plates from M/s. Essar Steel Limited, the petitioner - contractor has converted / manufactured the same into steel pipes on getting work done through job work and steel pipes are used in execution of work. Therefore, the same would attract sale within the definition of Section 2(28) of the Act as contended on behalf of the State, for which, the petitioner is liable to pay tax under the Act. The contention on behalf of the petitioner that it can be said to be resale and therefore, the claim of resale deduction is admissible to the petitioner, cannot be accepted. 7.6. It also appears from the record that the petitioner entered into separate work contract for manufacturing of pipes on the steel plates. It had nothing to do with the that part of the sub contract. The contracts were for supply and laying of pipeli....