TaxTMI 
TaxTMI 
2020 (3) TMI 6
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.... "Entry 54 of the State List of Constitution of India 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. Article 286 of the Constitution of India 286. Restrictions as to imposition of tax on the sale or purchase of goods-- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place -- (a) outside the State; or (b) in the course of the import of the goods into, or the export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, insofar as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter- State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of ar....
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....direct; (iii) in the case of goods specified in Schedule C, shall be calculated at five per cent or such other rate not exceeding ten percent as the State Government may, by notification in the Official Gazette, direct; (iv) in the case of other goods, at 12.5 per cent or such other rate not exceeding fifteen per cent, as the State Government may, by notification in the Official Gazette, direct; PROVIDED that where any goods are sold in containers or parked in any packing materials, the rate of tax applicable to such containers or packing materials shall, whether the price of the containers or packing materials is charged separately or not, be the same as those applicable to the goods contained or packed therein; and where such goods are exempt from tax, the sale of the containers or packing materials shall also be exempt from tax; (b) the purchase goods, shall be calculated at four per cent or such lower rate applicable on sale of such goods had it been a sale falling under clause (a); PROVIDED that the State Government may, by notification in the Official Gazette, direct that the tax shall be calculated at a lower rate." Facts in br....
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....ods' is defined in clause (12) of Article 366 of the Constitution as including all materials, commodities and articles. It is true that in the State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., (supra) this Court held that a works contract was an indivisible contract and the turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales-tax. It was in order to overcome the effect of the said decision Parliament amended Article 366 by introducing sub-clause (b) of clause (29-A)'. Sub-clause (b) of clause (29-A) states that 'tax on the sale or purchase of goods' includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract. It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract. It refers to 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. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of claus....
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....iable thereon would be subject to the terms of clause (1) of Article 286. Similarly the restrictions mentioned in clause (2) of Article 286 of the Constitution which says that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1) of Article 286 would also be attracted to a transfer of goods contemplated under Article 366(29A)(b). Similarly clause (3) of Article 286 is also applicable to a tax on a transfer of property referred to in subclause (b) of clause (29-A) of Article 366. Clause (3) of Article 286 consists of two parts. Sub-clause (a) of clause (3) of Article 286 deals with a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State or commerce, which is generally applicable to all sales including the transfer, supply or delivery of goods which are deemed to be sales under clause (29-A) of Article 366 of the Constitution. If any declared goods which are referred to in Section 14 of the Central Sales Tax Act, 1956 are involved in such transfer, supply or delivery, which is referred to in clause (29-A) of Article 366 the sales tax law....
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....gument that sub-clause (b) of Article 366 (29A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the "deemed" sales and purchases of goods under clause (29A) of Article 366 is to be found only in entry 54 and not outside it. We may recapitulate here the observations of the Constitution Bench in the case of Bengal Immunity Company Ltd. (supra) in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List." [Emphasis supplied] In Gannon Dunkerley & Co. v. State of Rajasthan, (1993) 88 STC 204, the Supreme Court held as under: "34. If the legal fiction introduced by article 366 (29-A)(b) is carried to its logica....
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....ng goods. (iii) Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term "works contract" in Article 366 (29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366 (29-A)(b) limits the term "works contract". (iv) Building contracts are species of the works contract. (v) A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished. (vi) The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366 (29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it....
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....after incorporation of goods." [Emphasis supplied] From the above cited decisions, the position emerges that the goods involved in the works contract are taxed as deemed sales. The restrictions under Article 286 of the Constitution of India would apply on the State Legislature while taxing the works contract. The State Legislature has power to prescribe uniform rate of tax on the goods involved in the works contract inspite of the fact that different rates are prescribed under the Act for the constituents involved therein. Further that identity of the goods transferred is lost in the process does not prevent them from being goods. The contention of learned counsel for the State that the goods when being incorporated were transferred in some other form and hence ingredients lose their identity, cannot be accepted, as there is a deemed sale of the ingredients of 'hot mix material' and the loss of identity of goods does not prevent them from being goods for the purpose of deemed sale. The State of Haryana has not prescribed any uniform rate for material used in the works contract. Cement, bitumen, rori etc. which are to be deemed to be sold cannot be taxed at gener....
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....n. In our view, it would be far-fetched to accept that in enacting Section 4(1)(b), the legislature intended to prescribe a uniform rate of tax, prior to 1.4.2006, for goods incorporated in a works contract. The scheme legislated upon in Section 4(1) envisaged specific rates of tax on goods falling within the Second, Third and Fourth Schedules. What Section 4(1)(b) provided was a residual entry under which a rate of 12.5% was provided 'in respect of other goods'. The expression 'in respect of other goods' meant goods other than those falling in the Second, Third and Fourth Schedules. Declared goods specified in Section 14 of the Central Sales Tax Act, 1956 were comprehended in Serial No.20 of the Third Schedule to the KVAT Act 2003 and attracted a rate of 4%, which applied to goods in that Schedule. As a result of the deeming definition of the expression sale, a transfer of property in goods involved in the execution of a works contract become exigible to tax. Exigibiliy to tax, it is settled law, is distinct from the rate of tax and the measure of the tax. In Gannon Dunkerly & Co, this court expressed the view that it is open to the states to provide a uniform rate of tax on goods....