TaxTMI 
TaxTMI 
2022 (1) TMI 561
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....onstitution of India, the petitioner has assailed (i) the assessment order dated 10.08.2010 (Annexure-5) passed by the Deputy Commissioner of Taxes, Jorhat (respondent no.4), and (ii) the revisional order dated 18.02.2015 (Annexure-7) passed by the Additional Commissioner of Taxes, Assam (respondent no.3). The respondent authorities had considered paint consumed during restoration and reconditioning of vehicles at Authorised Service Station as transfer of property of paints and nature of works was considered as works contract in spite of the fact that on the same work, the Central Government was collecting service tax. Thus, the only issue which is required to be determined is whether Assam Value Added Tax (VAT for short) can be levied on paints by the Taxation Department of the State by treating the nature of works as works contract resulting in transfer of property in paints during the restoration and reconditioning work. 3) Referring to the statements made in the writ petition, the learned counsel for the petitioner has submitted that when damaged vehicles come into the workshop of the petitioner, the condition of the vehicle is inspected and if any denting and painting service....
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.... is covered by the definition of goods and therefore, it cannot be interpreted to be a "consumable". It is submitted that paint is a goods which becomes imbedded to the vehicle and therefore, by referring to the power to impose tax on sale of goods as per the Article 366 (29A) of the Constitution of India, it is submitted that the State is not taxing service, but as the goods like paint can be divisible from the works contract, the sale of goods can be lawfully subjected to tax incidence. Accordingly, it is submitted that the writ petition is devoid of any merit and the same be dismissed. In support of his submissions, the learned Advocate General has placed reliance on the following cases, viz., (i) Larsen & Toubro Limited & Anr. v. State of Karnataka & Anr., (2014) 1 SCC 708; (ii) Md. Ekram Khan & Sons v. Commissioner of Trade Tax, (2004) 6 SCC 183; (iii) Costal Chemicals Ltd. v. Commercial Tax Officer, A.P. & Ors., (1999) 8 SCC 465 . 6) The learned standing counsel for respondent nos. 6 to 9 has submitted that she was not contesting the stand of the petitioner as the petitioner was paying due service tax. 7) Considered the submissions advanced by the learned counsel for the pe....
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.... and articles and all other kinds of movable property, whether tangible or intangible, and includes,- (i) livestock. (ii) computer software, subscriber identification module (SIM) cards and the like, (iii) all materials (whether as goods or in some other form) involved in the execution of works contracts, transfer of right to use or hire purchase or payment by installments, or those to be used in the fitting out, improvement or repair of movable or immovable property; (iv) growing crops, grass, trees, plants and things attached to or forming part of the land which are agreed to be severed before the sale or under the contract of sale, but does not include newspapers, electricity, money, actionable claims, stocks, shares and securities; b. Section 2(38) "raw material" means goods used as an ingredient in the manufacture of any other goods or any article consumed in the process of manufacture which has a direct nexus with the finished product or to which the finished product can directly be attributed but it does not include stores, fuel and lubricants required in the process of manufacture; c. Section 2(43) "sale" with all its grammatical variations and cognate expressio....
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....nt to the purchaser, or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid, (i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate, or (ii) to have purchased the goods at one rate and passed them to his principal at another rate, or (iii) not to have accounted to his principal for the entire collection or deduction made by him, in the sales or purchases effected by him on behalf of his principal, or (v) to have acted for a fictitious or non-existent principal; d. Section 2(44) "sale price" means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery of the goods other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged. Explanation I- For the purpose of this clause 'sale price' includes,- (i) the amount of duties or fees levied or leviable on the goods under the Central Excise Act, 1944 or the Custo....
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....f 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 a purchase of those goods by the person to whom such transfer, delivery or supply is made; 13) In the case of Costal Chemicals (supra) , cited by the learned Advocate General, the appellant claimed concessional tax on natural gas which it was purchasing as fuel for the manufacture of paper and paper products and under the said context, it was held by the Supreme Court of India that natural gas was not consumable. Therefore, in the light of the facts and law involved in the said cited case of Costal Chemicals (supra) , the Court is unable to perceive paint as a fuel and as such paint can only be treated as a consumable. Thus, the cited case does not help the State. 14) In the case of Mohd. Ekram Khan (supra) , cited by the learned Advocate General, the appellant assessee was an agent of the manufacturer of motor vehicles and replace....
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.... contract but the Tripartite Agreement is works contract which, prima facie, appears to be fallacious. There is no allegation that the Tripartite Agreement is sham or bogus. 13. For the aforestated reasons, we direct the Office to place this matter before the Hon'ble Chief Justice for appropriate directions in this regard, as we are of the view that the judgment of Division Bench in the case of Raheja Development (supra) needs re-consideration by the larger Bench ." 16) The learned Advocate General has in extensio referred to the case of Larsen & Toubro Ltd. (supra) , giving much stress on paragraphs 55 to 60, 66, 72, 80 to 82, 87 to 92, 95, 96, 97, 107 to 113 and 116 thereof. Some of the paragraphs, which are relevant for the purpose of this order are extracted below:- "55. Clause 29-A was inserted in Article 366 by the Forty-sixth Amendment with effect from 02.02.1983. Entry 54 of List II (State List) enables the State to make laws relating to taxes on the sale or purchase of goods other than the newspapers, subject to the provisions of Entry 92-A of List I. Entry 63 of List II enables the States to provide rates of stamp duty in respect of documents other than those spe....
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....h have lost its form as goods and have acquired some other form involved in the execution of a works contract. 57. Viewed thus, a transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. 58. The States have now been conferred with the power to tax indivisible contracts of works. This has been done by enlarging the scope of "tax on sale or purchase of goods" wherever it occurs in the Constitution. Accordingly, the expression "tax on the sale or purchase of goods" in Entry 54 of List II of Seventh Schedule when read with the definition clause 29-A, includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. The taxable event is deemed sale. 59. State of Madras v. Gannon Dunkerley and Co., AIR 1958 SC 560 and few other decisions following Gannon Dunkerley (1) wherein the expression "sale" was given restricted meaning by adopting the definition of the word "sale" contained in the Sale of Goods Act....
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.... the term 'works contract' in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. The Parliament had such wide meaning of "works contract" in its view at the time of Forty-sixth Amendment. The object of insertion of clause 29-A in Article 366 was to enlarge the scope of the expression "tax of sale or purchase of goods" and overcome Gannon Dunkerley (1) (supra). Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term 'works contract'. Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour ....
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....raditional 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 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. 97.7. A transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. 97.8. Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A)(b), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible....
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....dapting any goods. 10. In Rainbow Colour Lab & Anr. v. State of M.P. & Ors, (2000) 2 SCC 385 the Supreme Court accepted the test of marketability of goods for the purposes of deciding whether a contract is a works contract or not as laid down in Bavens v. Union of India, 1995 (97) STC 161. Although Rainbow Colour Lab was overruled on another issue, the marketability of goods remained intact as a proposition of law. 11. That the test of marketability of goods has not been overrules is clear from BSNL v. Union of India, (2006) 3 SCC 1. In that case, the Supreme Court referred with approval to Tata Consultancy Services Ltd v. State of A.P., (2005) 1 SCC 308 where it was held that goods may be tangible property or intangible property. Such property would become goods if it has the attributes thereof having regard to (a) Its utility, (b) Its capability of being bought and sold and (c) Its capability of being transmitted, transferred, delivered, stored and possessed. There is, therefore, no doubt that to qualify as "goods" an item must have some utility and must be marketable. Applying this test, the Supreme Court held that electromagnetic waves are not "goods". They cannot b....
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....he conversion of exposed photographic film rolls into negatives and then into positive photographs or the conversion of negatives into positive photographs is nothing but a rendering of service specific to a customer and is a matter of skill and expertise of the developer it is not a works contract. *** *** *** 21. The issue in our case is whether the exposed photographic film rolls and negatives are "goods" or not. We have held that they have no utility and are not marketable. As such, they are not "goods". Consequently, a contract for processing exposed photographic film rolls and negatives is not a works contract as defined in Section 2(38) of the Act. Reference to Studio Sujata is not at all apposite. 22. Learned counsel for the appellants also relied upon Rainbow Colour Lab to contend that the dominant intention of the contract is required to be considered as also the marketability of the goods. The learned Additional Advocate General is partially right in submitting that Rainbow Colour Lab was overruled in BSNL. In paragraph 49 of the Report, the Supreme Court held: "After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-c....
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....ted herein before, the second test appears to be whether the denting and painting job is something which becomes embedded on earth and to the said query, the answer would be in the negative and in favour of the petitioner. 19) Now if we consider a new vehicle, a vehicle is made of thousands of components, each having its unique character. Nonetheless, though a vehicle is a composition of numerous unique components, it is impermissible for the taxing authority to tax individual item of the vehicle. Similarly, in the composite work of denting and painting contract, the combination would be a composite contract of labour and service and as in the present case, the petitioner is liable for and is paying service tax as imposed on the work of denting and painting, being a service provided by a "authorised service station" which is covered by the provisions of Section 65(9) of the Finance Tax Act, 1994 (as amended). Therefore, it would not be permissible for the State Taxing Authority to impose VAT on paint separately. There is no dispute that an item taxable by the State under Article 366(29-A) is exempted from being levied with Service Tax and vice-versa. 20) In this regard, the learn....