IN THE HIGH COURT OF KARNATAKA AT...

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 10TH DAY OF DECEMBER 2013

PRESENT

THE HON’BLE MR.JUSTICE N.KUMAR

AND

THE HON’BLE MRS.JUSTICE RATHNAKALA

S.T.R.P. NOS. 209/2013 & 622-644/2013

c/w

S.T.A. NO. 95/2009

S.T.R.P. NOS.319/2012 & 565-575/2012,

S.T.R.P. NOS. 318/2012 & 472-482/2012,

S.T.R.P. NOS. 316/2012 & 128/2013,

S.T.R.P. NOS. 296 & 414/2013,

S.T.R.P. NOS. 297/2013 & 662-672/2013,

S.T.R.P. NO. 93/2009,

S.T.R.P. NOS. 3/2011 & 12-28/2011,

S.T.R.P. NOS. 9/2011 & 74-84/2011

S.T.R.P. NOS. 237/2011 & 41-51/2012

S.T.R.P. NOS. 239/2011 & 79-89/2012

S.T.R.P. NOS. 240/2011 & 68-78/2012

2

S.T.R.P. NOS. 245/2011 & 177-194/2012

S.T.R.P. NOS. 269/2011 & 152-176/2012

S.T.R.P. NOS. 271/2011 & 234-243/2012

S.T.R.P. NOS. 284/2011 & 206-216/2012

S.T.R.P. NOS. 285/2011 & 195-205/2012

S.T.R.P. NO. 288/2011

S.T.R.P. NO. 289/2011

S.T.R.P. NOS. 291/2011 & 250-261/2012

S.T.R.P. NOS. 292/2011 & 228-233/2012

S.T.R.P. NOS. 293/2011 & 292-310/2012

S.T.R.P. NO. 6/2012

S.T.R.P. NOS. 18/2012 & 217-227/2012,

W.A. NO.3306/2011 & W.A. NOS.5405-5415/2011

W.A. NO.4828/2010 & W.A. NOS.5430-5494/2011 (T-KST)

W.A. NO.740/2011 & W.A. NOS.4273-4295/2011 (T-RES)

W.A. NO.3441/2011 & W.A. NOS.5394-5404/2011 (T-RES)

W.A. NOS.16364/2011 & 16910-16923/2011 (T-RES)

W.A. NO.3489/2011 & W.A. NOS.5389-5393/2011 (T-RES)

W.A. NOS.1214-1229/2012 (T-RES)

S.T.R.P. NOS. 90/2012 & 300-304/2013,

S.T.R.P. NOS. 108/2011 & 246-268/2011,

S.T.R.P. NOS. 314/2012 & 97-119/2013

3

IN S.T.R.P. NOS. 209/2013 & 622-644/2013

BETWEEN: The State of Karnataka, Represented by Secretary, Finance Department, Vidhana Soudha, Bangalore – 560 001. …COMMON PETITIONER

(By Smt. S. Sujatha, AGA.)

AND: M/s. Reddy Structures Pvt. Ltd., Represented by the Manager, No.1, III Floor, Mahaveer Tower, 24th Main, J.P. Nagar, 6th Phase, Bangalore – 560 078. ...COMMON RESPONDENT

These Petitions are filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 against the judgment dated: 30.10.2012 passed in STA Nos.975/12 to 998/12 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.A. NO. 95/2009

BETWEEN: M/s. Shravanthi Shelters No.1565/A, 28th Main, 30th Cross, BSK 2nd Stage, Bengalooru – 560 070. Represented by its Partner Sri.L. Balakrishnama Naidu

4

S/o. Late. Sri. Gurappa Naidu Aged about 48 years. …APPELLANT

(By Sri G. Sarangan, Sr. Counsel

for Smt. Vani H., Adv.)

AND: The Sate of Karnataka, Represented by its Secretary, Department of Finance, Vidhana Soudha, Bangalore – 560 001. ...RESPONDENT

(By Smt. S. Sujatha, AGA.) This Appeal is filed under Section 66(1) KVAT Act,

against the Revision order dated: 29.06.2009 passed in No.ZAC-1/BCD-1/SMR-24/09-10, T-642/09-10, on the file of the Addl. Commissioner of Commercial Taxes, Zone-I, Bangalore, restoring the orders of Audit Authority U/S 39 (2) and setting aside the common appeal order and the proceeding drawn in consequence of appeal order by the Audit Authority including the earlier proceedings and accordingly concluding the revision proceedings. IN S.T.R.P. NOS. 319/2012 & 565-575/2012



5

AND: M/s. Antony Thomas and Co., Represented by the Proprietor, No.48, Haines Road, Frazer Town, Bangalore – 560 005. ... COMMON RESPONDENT

(By Sri. G. Sarangan, Sr. Counsel for Smt. Vani H., Adv.)

These Petitions are filed under Section 65(1) of KVAT

Act, against the order dated: 22.02.2012 passed in STA Nos.2028 to 2039 of 2009 on the file of the Karnataka Appellate Tribunal, Bangalore, setting aside the Revision order and common Re-Assessment order passed by the RA in these cases for 12 tax periods from April 2006 to March 2007 which also includes levy of penalty and interest for the tax periods June 2006, September 2006, October 2006 and November 2006, remanding these cases to the PA for fresh disposal according law in the light of the observations contained in this order. IN S.T.R.P. NOS. 318/2012 & 472-482/2012

BETWEEN: The Sate of Karnataka, Represented by its Secretary, Finance Department, Vidhana Soudha, Bangalore – 560 001. …COMMON PETITIONER

(By Smt. Sujatha, AGA.)

6

AND: T.R. Rajan, No.498/1, 40th Cross, 8th Block, Jayanagar, Bangalore – 560 082. ... COMMON RESPONDENT

(Notice Served.) These Petitions are filed under Section 65(1) of the

Karnataka Value Added Tax Act, 2003, against the Judgment dated 28.09.2011 passed in STA Nos.1196/2008 to 1207/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals filed Under Sec.63 of Karnataka Value Added Tax Act 2003.

IN S.T.R.P. NOS. 316/2012 & 128/2013



AND: M/s. Prism Properties, Represented by its Partner, No.194, Akruti Chambers, 3rd Floor, Double Road, Indiranagar, Bangalore – 560 038. ... COMMON RESPONDENT

(By Sri. G.K.V. Murthy, Adv.)

7

These Petitions are filed under Section 65(1) of KVAT Act, against the judgment dated: 20.09.2011 passed in STA Nos.606 and 607/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 296 & 414/2013

BETWEEN: The State of Karnataka, Represented by its, Secretary to Government, Department of Finance, Bangalore – 560 001. …COMMON PETITIONER


AND: M/s. Afcons Infrastructure Limited, Represented by the Dealer, Thannirbavi, Penambur, Mangalore. ... COMMON RESPONDENT

These Petitions are filed under Section 65(1) of KVAT Act, 2003 against the order dated 28.1.2013 passed in STA Nos.1052 and 1053/2009 on the file of Karnataka Appellate Tribunal, Bangalore, partly allowing the appeals filed U/s 63(1) of Karnataka Value Added Tax Act, 2003 challenging the appeal orders bearing No.KVAT.AP.163/2006-07 and KVAT.AP.238/2007-08.

IN S.T.R.P. NOS. 297/2013 & 662-672/2013

BETWEEN: The State of Karnataka, Represented by Secretary, Finance Department,

8

Vidhana Soudha, Bangalore – 560 001. …COMMON PETITIONER


AND: M/s. Afcons Infrastructure Limited, Represented by the General Manager, Thannirbavi, Panambur, Mangalore. …COMMON RESPONDENT

These Petitions are filed under Section 65(1) of KVAT Act, 2003, against the order dated 28.1.2013 passed in STA Nos.910 to 921/2011 on the file of Karnataka Appellate Tribunal, Bangalore, partly allowing the appeals filed U/s 63(1) of Karnataka Value Added Tax Act, 2003 challenging the common appeal order bearing No.KVAT.AP.100/10-11 dt. 6.12.2010.

IN S.T.R.P. NO. 93/2009

BETWEEN: State of Karnataka, By the Commissioner of Commercial Taxes Vanijya Therige Karyalaya Gandhinagar Bangalore – 560 009. …PETITIONER


AND: M/s. B.E. Billimoria & co. Ltd Shivakrupa 1 Floor, Plot No.56 1 cross, IV Main, Domlur II Stage,

9

Indiranagar, Bangalore – 560 071. ...RESPONDENT

(By Sri. T.N. Keshava Murthy, Adv.)

These Petitions are filed under Section 65(1) of Karnataka Value Added Tax Act, against the judgment and order dated: 13.11.2008 passed in STA Nos.274 to 283/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals filed under Sec. 63 of Karnataka Value Added Tax Act, 2003.

IN S.T.R.P. NOS. 3/2011 & 12-28/2011

BETWEEN: State of Karnataka rep. by the Commissioner of Commercial Taxes, Vanijya Therige Karyalaya, Gandhinagar, Bangalore – 1. …COMMON PETITIONER


AND: M/s. Beary’s Construction Company, No.21, Wood Street, Bangalore – 560 023. ...COMMON RESPONDENT

(By Sri. P.B. Appaiah, Adv.)

These Petitions are filed under Section 65(1) of KVAT Act, against the judgment dated: 18.10.2010 passed in STA Nos.6 to 23/2010 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals filed under the provisions of the Karnataka Value Added Tax Act, 2003.

10

IN S.T.R.P. NOS. 9/2011 & 74-84/2011

BETWEEN: The State of Karnataka Represented by the Commissioner of Commercial Taxes, Vanijya Therige Karyalaya, Gandhinagar, Bangalore – 1. …COMMON PETITIONER

(By Smt. S. Sujatha, AGA.) AND: M/s. JMC Projects (India) Ltd., Gold Tower, No.50, 2nd Floor, Residency Road, Bangalore – 560 025. ...COMMON RESPONDENT

(By Sri. Madhusudan R. Naik, Sr. Counsel for M/s. Naik & Naik Law Firm, Adv.)


Act, against the judgment dated: 18.10.2010 passed in STA Nos.728 to 739/2010 on the file of the Karnataka Appellate Tribunal, Bangalore, partly allowing the appeals filed under the provisions of the Karnataka Value Added Tax Act, 2003. IN S.T.R.P. NOS. 237/2011 AND 41-51/2012

BETWEEN: The State of Karnataka By its Secretary Finance Department Vidhana Soudha Bangalore – 560 001. …COMMON PETITIONER

11


AND: M/s. B.K.N. Developers No.1565/B, 30th Cross, 28th Main, Banashankari 2nd Stage, Bangalore – 560 050. ...COMMON RESPONDENT


These Petitions are filed under Section 65(1) of

Karnataka Value Added Tax Act, 2003, against the judgment dated: 18.04.2011 passed in STA Nos.354 to 365/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 239/2011 & 79-89/2012

BETWEEN: The State of Karnataka Represented by the Secretary Finance Department Vidhana Soudha Bangalore – 560 001. …COMMON PETITIONER


AND: M/s. Shravanti Shelters No.1565/A, 30th Cross, 28th Main, Banashankari II Stage Bangalore – 560 070. ... COMMON RESPONDENT

12



Act, against the judgment dated: 18.04.2011 passed in STA Nos.342-353/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 240/2011 & 68-78/2012

BETWEEN: The State of Karnataka, Represented by the Secretary, Finance Department, Vidhana Soudha, Bangalore – 560 001. …COMMON PETITIONER


AND: M/s. Gopalan Enterprises (India) Private Limited, No.5, Richmond Road, Bangalore – 560 025. ... COMMON RESPONDENT

(By Sri. K.P. Kumar, Sr. Counsel for M/s. King & Partridge, Adv.)


Act, against the judgment dated: 24.06.2011 passed in STA Nos.1295 to 1306/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, partly allowing the appeals.

13

IN S.T.R.P. NOS. 245/2011 & 177-194/2012



AND: M/s. Shubham Developers, DSR Diya Arcade, #220, 1st Floor, 9th Main, Next to Maxwell Public School, HRBR Layout, I Block, Kalyannagar, Bangalore – 560 043. ... COMMON RESPONDENT

(Notice Served.)

These Petitions are filed under Section 65(1) of KVAT Act, against the judgment dated: 28.02.2011 passed in STA Nos.2268 to 2274/2009 and 2275 to 2286/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals filed u/Sec.63 of KST Act. IN S.T.R.P. NOS. 269/2011 & 152-176/2012


14


AND: M/s. ACE Building Constructions, No. 401, A Wing, 4th Floor, Carlton Towers, #1, Airport Road, Bangalore – 560 008. ... COMMON RESPONDENT

(By Sri. E.R. Indrakumar, Sr. Counsel for Sri. E.I. Sanmathi, Adv.)

These Petitions are filed under Section 65(1) of

Karnataka value Added Tax Act, 2003, against the judgment dated: 21.06.2011 passed in STA Nos.2555 to 2580/2010 on the file of the KAT and allowing the appeals.

IN S.T.R.P. NOS. 271/2011 & 234-243/2012



AND: M/s. Neeladri Smart Homes Pvt. Ltd. No.1299C, 1st Main, 1st Cross, New Thippasandra,

15

HAL Post, Bangalore – 560 075. ... COMMON RESPONDENT

(By Sri. E.R. Indrakumar, Sr. Counsel for Sri. E.I. Sanmathi, Adv.)


Act, against the judgment dated: 31.05.2011 passed in STA Nos.1591 to 1594/2008 & 212 to 218/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeal setting aside the order dated:01.09.2008, passed by the Joint commissioner of Commercial Taxes (Appeals)-3, Bangalore, upholding levy of 12.5% Tax on declared goods followed by penalty and interest and accordingly revised demand notices shall be issued.

IN S.T.R.P. NOS. 284/2011 & 206-216/2012

BETWEEN: The State of Karnataka, Represented by the Commissioner of Commercial Taxes, Vanijya Therige Karyalaya, Gandhinagar, Bangalore – 560 009. …COMMON PETITIONER


AND: M/s. Abraham & Thomas Engineering Pvt. Ltd., Represented by its Director, No.48, Haines Road,

16

Frazer Town, Bangalore – 560 005. ... COMMON RESPONDENT



Act, against the judgment dated: 31.01.2011 passed in STA Nos.705 to 716/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 285/2011 & 195-205/2012



AND: M/s. Vishnu Priya Builders, No.609, Laxmi Chambers, 1st Main, ‘C’ Block, AECS Layout, ITPL Main Road, Opp. Brook Fields, Kundalahalli, Bangalore – 560 037. ... COMMON RESPONDENT



Act, against the judgment dated: 18.04.2011 passed in STA

17

Nos.836-847/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NO. 288/2011

BETWEEN: State of Karnataka, Represented by the Secretary, Department of Finance, Vidhana Soudha, Bangalore – 560 001. …PETITIONER


AND: M/s. Lakshmi Venkateshwara Constructions, Represented by Sri S.N. Nagesh(Proprietor) No.277, Ashoka Pillar Road, Jayanagar, Bangalore – 560 011. ... RESPONDENT

(By Sri. T.N. Keshava Murthy, Adv.) This STRP is filed under Section 23(1) of KST Act,

against the judgment dated:20.01.2011 passed in STA No.469/2010 on the file of the Karnataka Appellate Tribunal, Bangalore, partly allowing the appeal.

IN S.T.R.P. NO. 289/2011

BETWEEN: State of Karnataka, Represented by the Secretary,

18

Department of Finance, Vidhana Soudha, Bangalore – 560 001. …PETITIONER


AND: M/s. Sri Lakshmi Venkateshwara Constructions, Represented by Sri S.N. Nagesh No.277, Ashoka Pillar Road, 2nd Block, Jayanagar, Bangalore – 560 011. ... RESPONDENT

(By Sri. T.N. Keshava Murthy, Adv.) This STRP is filed under Section 23(1) of KST Act,

against the judgment dated:20.01.2011 passed in STA. No.1050/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, partly allowing the appeal.

IN S.T.R.P. NOS. 291/2011 & 250-261/2012

BETWEEN: State of Karnataka by the Secretary to Govt., Finance Department, Vidhana Soudha, Bangalore. …COMMON PETITIONER


19

AND: M/s. DSR Constructions, No.170, 2nd Phase, Koramangala, Bangalore – 560 034. ...COMMON RESPONDENT

(Notice Served.) These Petitions are filed under Sec.65(1) of KVAT Act,

against the judgment dated: 29.03.2011 passed in STA. Nos.1538-1550/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 292/2011 & 228-233/2012

BETWEEN: The State of Karnataka Represented by the Secretary, Finance Department, Vidhana Soudha, Bangalore-560 001. …COMMON PETITIONER


AND: M/s. Sankalp Constructions Private Limited, Represented by M.C. Jayasimha – Authorised Representative No.650-C, 11th Cross, 7th Block, Jayanagar,Bangalore. ... COMMON RESPONDENT

(By Sri K.J. Kamath, Adv for M/s. Kamath & kamath.)

20

These Petitions are filed under Sec.65(1) of KVAT Act, against the orders dated:20.01.2011 passed in STA. Nos.534 to 540/2007 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 293/2011 & 292-310/2012

BETWEEN: State of Karnataka By the Secretary, Department of Finance, Vidhana Soudha, Bangalore - 560 001. …COMMON PETITIONER


AND: M/s. Nova Hamlet Limited, No.59, 4th Main, 18th Cross, Malleshwaram, Bangalore – 560 055. ...COMMON RESPONDENT

(By Sri B.R. Krishna, Adv. for Sri. Jayanth Pattanshetti Associates.)

These Petitions are filed under Sec.65(1) of KVAT Act,

against the judgment dated:28.07.2011 passed in STA. Nos.687-706/2011 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeal.

IN S.T.R.P. NO. 6/2012

BETWEEN: The State of Karnataka, Represented by the Commissioner

21

of Commercial Taxes, Vanijya Therige Karyalaya, Gandhinagar, Bangalore – 560 009. …PETITIONER


AND: M/s. U.P. Stage Bridge Corporation Ltd., BDA Park, HAL 2nd Stage, Indiranagar, Bangalore – 560 038. ... RESPONDENT

(By Sri. B. Somaskanda, Adv.) This STRP is filed under Section 23(1) of KST Act,

against the judgment dated: 10.01.2011 passed in STA. No.1787/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeal.

IN S.T.R.P. NOS. 18/2012 & 217-227/2012

BETWEEN: State of Karnataka By its Secretary, Finance Department, Vidhana Soudha, Bangalore - 560 001. …COMMON PETITIONER


AND: M/s. Gopalan Homes, No.5, Richmond Road, Bangalore – 560 025. ... COMMON RESPONDENT

(By Sri K.P. Kumar, Sr. Counsel for M/s. King & Partridge, Adv.)

22

These Petitions are filed U/s 65(1) of Karnataka Value

Added Tax Act, 2003 against the judgment dated: 04.08.2011 passed in STA.Nos.699 to 710/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeal.

IN W.A. NOS. 3306/2011 & 5405-5415/2011

BETWEEN: 1. State of Karnataka

By its Secretary, Department of Finance, Vidhana Soudha, Bangalore – 560 001.

2. The Assistant Commissioner of Commercial Taxes (Audit) – 51,

DVO-5, Abhaya Complex, Bangalore – 560 020. …COMMON APPELLANTS


AND: M/s. Simplex Infrastructure Ltd., No.73/1, The Arcade, 3rd Floor, Garudacharya Palya, Mahadevpura Post, Bangalore – 560 048. (Represented by its Deputy General Manager Mr. Sandip Bavan Das Aged 53 years. ... COMMON RESPONDENT

(By Sri Vikram A. Huilgol, Adv.)

23

These Appeals are filed U/S 4 of the Karnataka High Court Act Praying to set aside the order passed in the Writ Petition Nos.22745-22756/2010(T-RES) dated 02/08/2010.

IN W.A.NOS.4828/2010 & 5430 To 5494/2011(T-KST)

BETWEEN: IN W.A.NOS.4828/2010 & 5430/2011(T-KST)

1. State of Karnataka

By its Principal Secretary, Department of Finance, Vidhana Soudha, Bangalore.

2. Joint Commissioner of Commercial Taxes (Admn),

Vat Division I, 7th Floor, VTK Building, Gandhi Nagar, Bangalore – 560 009.

3. Deputy Commissioner of Commercial Taxes, (Audit)-13, Vat Division I, 7th Floor VTK Building, Gandhi Nagar, Bangalore – 560 009. …APPELLANTS


AND: 1. M/s. Nagarjuna Construction Company Limited.

# 301 Batavia Chambers, No.8, Kumara-Krupa Road, Kumara Park East, Bangalore – 560 001 Represented by its Senior Vice President,

24

Sri C. Premachander Reddy, S/o Sri C. Varadha Reddy, Aged about 48 year, R/O No.301, Batavia Chambers, 8, Kumara-Krupa Road, Kumara Park East, Bangalore – 560 001

2. Sri A G Ravi S/O Sri A P Gangadharaiah Aged About 41 years

R/O No.301, Batavia Chambers, 8, Kumara-Krupa Road, Kumara Park East, Bangalore – 560 001 ...RESPONDENTS

IN W.A. NO. 5431/2011(T-KST)



2. The Commissioner of Commercial Taxes

VTK Building, Gandhi Nagar, Bangalore – 560 009.

3. The Assistant Commissioner of Commercial Taxes, (Audit)-52, DVO-5 Bangalore – 560 009. …APPELLANTS


25

AND: 3. M/s. Jampana Constructions Private Limited.

Registered office No.389/1, 1st Floor, Judges Colony, R T Nagar, Bangalore – 560 032 Represented by its Director, J Venugopal Krishnam Raju, S/o Sri J. Sathyanarayana Raja, Aged 41 years, R/O No.1390, 8th Cross, 10th Main, Judicial Layout, G.K.V.K. Post, Bangalore – 560 065.

4. Sri J. Srinivasa Raju S/O Sri J. Satyanarayana Raju,

R/o No.981/D, 14th Main, Judicial Layout, G.K.V.K. Post, Bangalore – 560 065. ...RESPONDENTS

IN W.A. NOS.5432-5435/2011(T-KST) BETWEEN: 1. State of Karnataka

by its Principal Secretary, Department of Finance, Vidhana Soudha, Bangalore.

2. The Assistant Commissioner of

Commercial Taxes (Audit) 21, DVO-II, Jeevan Sampige, 2nd Floor, LIC Building, Near Sampige Theatre,

26

Malleswaram, Bangalore – 560 003.

3. The Deputy Commissioner of Commercial Taxes, (Audit) – 13, VAT Division-I, 7th Floor, VTK Building, Gandhinagar, Bangalore – 560 009. 4. The Commissioner of Commercial Taxes, Karnataka State Bangalore …COMMON APPELLANTS


AND: 5. M/s. Shri Aruna Constructions Private Limited,

#323, Sri Ranga Nilaya, 2nd Floor, 1st Cross, 3rd main, R.T. Nagar, Bangalore – 560 032 Represented by its Director, Sri. J. Rama Raju, S/O J. Sathyanarayana Raju, Aged About 48 Years, R/O No.981/D, 14th Main, Judicial Layout, G.K.V.K. Post, Bangalore – 560 065.

6. Sri J. Ram Babu

S/O J. Arjun Raju Aged About 38 Years, R/O No.1174, 10th “B” Cross Near New Town Public School, Yelahanka New Town, Bangalore – 560 064. ...COMMON RESPONDENTS

27

IN W.A. NOS.5436-5447/2011(T-RES)

BETWEEN: 1. The Commercial Tax Officer,

Audit-22, Dvo-2, II Floor, LIC Building, Sampige Road, Malleswaram, Bangalore – 560 003.

2. The State of Karnataka

Represented by the Principal Secretary to Government, Finance Department , Vidhana Soudha, Bangalore – 560 001. …COMMON APPELLANTS


AND: 7. M/s. Mfar Constructions Private Limited,

No.8 & 8A, A V S Compound, 80 Feet Road, Koramangala Bangalore – 560 034. Represented by its Chief Executive Officer, Sri B K Dhar, S/O Sri. J.L. Dhar, Aged About 58 Years. ...COMMON RESPONDENT

IN W.A. NOS.5448-5454/2011 (T-KST)


(Intelligence)-XV, South Zone VTK – II, 6th Floor, 80 Feet Road,

28

Viveknagar Post, Koramangala, Bangalore – 560 047.

2. State of Karnataka

Represented by the Principal Secretary to Government Finance Department , Vidhana Soudha, Bangalore – 560 001. …COMMON APPELLANTS


AND: 8. M/s. UE Development India Private Limited,

60, Wellington Road, Richmond Town, Bangalore – 560 025 (By Mr. Yam Keong Chee, 48 Years) ...COMMON RESPONDENT

IN W.A. NOS. 5455-5466/2011 (T-KST) BETWEEN: 1. The Commissioner of Commercial Taxes,

Vanijya Therige Karyalaya, 1st Main Road, Gandhinagar, Bangalore – 560 009.

2. The Deputy Commissioner of

Commercial Taxes (Audit-41), Dvo-4, Vanijya Therige Karyalaya, Koramangala, Bangalore. …COMMON APPELLANTS

29


AND: 9. M/s. Senthuran Construction Company,

No.606, 3rd Floor, 80 Feet Road, 6th Block, Koramangala, Bangalore – 560 095. Represented by its Proprietor, Mr. J. Chandrashekar. ...COMMON RESPONDENT

IN W.A. NOS. 5467-5478/2011 (T-KST)

BETWEEN: 1. The Commissioner of Commercial Taxes,






No.606, 3rd Floor, 80 Feet Road, 6th Block, Koramangala,

30

Bangalore – 560 095. Represented by its Proprietor, Mr. J. Chandrashekar. ...COMMON RESPONDENT

IN W.A. NOS. 5479-5490/2011 (T-KST)

BETWEEN: 1. The Commissioner of Commercial Taxes,






No.606, 3rd Floor, 80 Feet Road, 6th Block, Koramangala, Bangalore – 560 095. Represented by its Proprietor, Mr. J. Chandrashekar. ...COMMON RESPONDENT

IN W.A. NO. 5491/2011(T-KST)


Represented by the Principal Secretary

31

Department of Finance , Vidhana Soudha, Bangalore – 560 001.

2. The Commercial Tax Officer, (Enf)-10, South Zone, Bangalore.

3. The Additional Commissioner of

Commercial Taxes, (Enforcement)-South Zone, VTK-2, 80 Feet Road, Koramangala, Bangalore – 560 047.

2. The Commissioner of Commercial Taxes

Karnataka State, Bangalore. …APPELLANTS


AND: 12. M/s. JMC Projects (India) Limited

A-104, Shapath-4, Opp Karnavati Club: SG Road, Ahmedabad-380 051 And with its Local Office at Gold Towers: # 50, 2nd Floor, Residency Road, Bangalore – 560 002. Represented by its Authorised Signatory Assistant Vice President (Finance), Chinnubai Parikh, Aged About 53 Years, R/O Ahamedabad. .

13. Sri Nithin C Parikh, S/O Chinnubai Parikh,

32

Aged About 53 Years, R/O Ahamedabad ...RESPONDENTS

IN W.A. NOS. 5492-5494/2011 (T-KST)


(Enforcement - II), Maidan Road, Mangalore – 575 001.

2. The Commissioner of

Commercial Taxes, Gandhinagar, Bangalore – 560 009.

3. The State of Karnataka

Represented by its Principal Secretary to Government, Finance Dept., Vidhana Soudha, Bangalore – 560 001 …COMMON APPELLANTS


AND: 14. M/s. G.R. Engineering Private Limited,

M.R.P.L. Premises Katipalla, Mangalore – 575 030. (By S.G. Shinde, aged 58 years Deputy General Manger Project Accounts). ...COMMON RESPONDENT

(By Sri Y.S. Krishnamurthy, Adv., for R1 to 5;

Smt. Vani H, Adv., for R7; Sri T.N. Keshava Murthy, Adv. for R8 & 14; Sri G.Sarangan, Sr. Counsel, for Sri K.S.

33

Ramabhadran, Adv., for R9-11, Sri Madhusudan R. Naik, Sr. Counsel, for M/s. Naik & Naik Law Firm, Adv. for R12, ;

R6, R13 notice served.)

These Writ Appeal Nos.4828/2010 & 5430-5494/2011 are filed U/S 4 of the Karnataka High Court Act Praying to set aside the order passed in the Writ Petition Nos.29932-933/2009 C/W W.P.No.394/2010, 452/2010, 37800/2009, 37928-928/2009, 62/2008, 15683-694/2010, 15695-706/2010, 15707-718/2010, 11676/2010 and 29046-048/2009 dated 30/06/2010.

IN W.A. NOS. 740/2011 & 4273-95/2011 (T-RES)



2. The Assistant Commissioner of Commercial Taxes (Audit) – 16,

DVO-1, Sheshadripuram, Bangalore – 560 020.

3. Joint Commissioner of Commercial Taxes,

(Admn.), DVO-1, 7th Floor, VTK Building, Gandhi Nagar, Bangalore-560 009. …COMMON APPELLANTS


AND: M/s. Sarvashree Engineers & Contractors, # 10/1, 5th Cross,

34

Hotel Santhosh Complex, Gandhinagar, Bangalore – 560 009 by its Partner S.H. Siddappa ... COMMON RESPONDENT

(By Sri Atul K. Alur, Adv. for R1; R2 – Served.)

IN W.A. NOS.4285-95/2011 (T-RES)



2. The Deputy Commissioner of Commercial Taxes (T.P)–I,

Mysore. 3. The Joint Commissioner of Commercial

Taxes (Appeals), Mysore Division, Mysore. …COMMON APPELLANTS

(By Smt. S. Sujatha, AGA.) AND: M/s. P.G. Shetty Construction Technology Pvt. Ltd., Represented by its Managing Director, Sri. Somashekhar, Aged about 48 years, No.1056, Kavitha Vilas, M.G. Road, Chamarajpurm, Mysore. ... COMMON RESPONDENT

35

(By Sri Atul K. Alur, Adv. for R1; R2 – Served.) These Writ Appeal Nos. 740/2011 & 4273-95/2011

are filed U/S 4 of the Karnataka High Court Act Praying to set aside the order passed in the Writ Petition No.39590-39601/2010 C/W WP.40560 to 40571/2010(Tax) dated 10/01/2011.

IN W.A. NOS. 3441/2011& 5394-5404/2011 (T-RES)


By its Finance Secretary, Vidhana Soudha, Bangalore – 560 001.

2. The Deputy Commissioner of Commercial Taxes (Audit) – 52,

DVO-5, 2nd Floor, Abhaya Complex, Seshadripuram, Bangalore – 560 020. …COMMON APPELLANTS


AND: M/s. Navayuga Engineering Company Ltd. Crescent Heights, Flat No.2, Snehanagar, Amruthahalli Main Road, Bangalore – 560 092. (Represented by its Manager Mr. M.K.V. Prasad Rao, Aged 42 years) ... COMMON RESPONDENT

(By Sri A. Shankar & Sri M. Lava, Advs.)

36

These Writ Appeals are filed U/S 4 of the Karnataka

High Court Act Praying to set aside the order passed in the Writ Petition Nos.33313-33324/2010(T-RES) dated 26/10/2010.

IN W.A.NOS.16364/2011 & 16910-16923/2011(T-RES) BETWEEN: The Assistant Commissioner of Commercial Taxes, Audit 36, Gandhinagar, Bangalore – 560 009. …COMMON APPELLANTS


AND: M/s. Shuddha Developers No.45, 19th Main, B.T.M II Stage, Bangalore – 560 076. Represented by A. yoganarashimha Managing Patner. ... COMMON RESPONDENT

(By Sri C.S. Surya Kanth, Adv.) These Writ Appeals are filed U/S 4 of the Karnataka

High Court Act Praying to set aside the order passed in the Writ Petition Nos.9052-9065/2010 and WP No.9066/2011 (T-RES) dated 07/03/2011.

37

IN W.A. NOS. 3489/2011 & 5389-5393/2011 (T-RES)


By its Secretary Department of Finance Vidhana Soudha, Bangalore – 560 001.


Commercial Taxes (Audit) – 52, DVO-5, 2nd Floor, Abhaya Complex, Seshadripuram, Bangalore – 560 020. …COMMON APPELLANTS


AND: M/s. Shobha Developers Ltd. No.E-106, Sunrise Chambers No.22, Ulsoor Road, Bangalore – 560 042 Represented by its Senior Manager Finance Sri M. Radhakrishnan. ... COMMON RESPONDENT

(By Sri Atul K. Alur, Adv.) These Writ Appeals are filed U/S 4 of the Karnataka

High Court Act Praying to set aside the order passed in the Writ Petition Nos.37515-520/2010(T-RES) dated 03/12/2010.

38

IN W.A. NOS. 1214-1229/2012(T-RES)

BETWEEN: M/s. Indu Projects Limited No.1D, C-201, RMR Sunshine, East of NGEF, 2nd Main Road, Kasturi Nagar, Bangalore – 560 043. (Now Represented by its Sri Srinivas Australaya.) …COMMON APPELLANTS

(By Sri Atul K. Alur, Adv.)

AND: 1. State of Karnataka

Represented by its Finance Secretary, Vidhana Soudha, Bangalore – 560 001.


Commercial Taxes, (Audit) – 52, VAT Divisions I, 7th Floor, VTK Building, Gandhinagar, Bangalore – 560 009.

3. The Joint Commissioner of Commercial Taxes, (Admn) DVO I, Vanijya Terige Karyalaya, Gandhinagar, 1st Main,

Bangalore-560 009. ... COMMON RESPONDENTS

(By Smt. Sujatha, AGA.) These Writ Appeals are filed U/S 4 of the Karnataka

High Court Act Praying to set aside the order passed in the

39

Writ Petition Nos.2580-2595/2011(T-RES) dated 18/01/2011 & 15/02/2012. IN S.T.R.P. NOS. 90/2012 & 300-304/2013

BETWEEN: The State of Karnataka Represented by the Secretary, Finance Department, Vidhana Soudha, Bangalore - 560 001. …COMMON PETITIONER


AND: M/s. Anand Contractor, No.57, Shri ManjunathSwamy Krupa, 3rd Main, LIC Colony, Srirampuram, II Phase, MYSORE – 570 009.. ...COMMON RESPONDENT

These Petitions are filed under Sec.65(1) of KVAT Act 1957 against the order dated:10.11.2011 passed in STA. Nos.1252/2008 to 1259/2008 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

IN S.T.R.P. NOS. 108/2011 & 246-268/2011 BETWEEN: The State of Karnataka Represented by the Commissioner of Commercial Taxes, Vanijya Therige karyalaya,

40

Gandhinagar, Bangalore - 560 009. …COMMON PETITIONER


AND: M/s. JMC Projects Limited, No.50, Gold Tower, 3rd Floor, Residency Road, Bangalore – 560 025. ...COMMON RESPONDENT

(By Sri Madhusudhan R. Naik, Sr. Counsel for M/s. Naik & Naik Law Firm, Adv.)

These Petitions are filed under Sec.65(1) of KVAT Act,

against the judgment dated:25.01.2011 passed in STA. Nos.2288-2311/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeal. IN S.T.R.P. NOS. 314/2012 & 97-119/2013

BETWEEN: The State of Karnataka Represented by the Secretary, Finance Department Vidhana Soudha, Bangalore - 560 001. …COMMON PETITIONER


AND: M/s. Senthuran Construction Co., No.606, 80 Feet Road,

41

8th Block, Koramangala, Bangalore – 560 095. ...COMMON RESPONDENT

(By G. Sarangan, Sr. Counsel for Sri K.S. Ramabadran, Adv.)

These Petitions are filed under Sec.65(1) of Karnataka

Value Added Tax Act, 2003, against the order dated:30.09.2011 passed in STA. Nos.1536 to 1559/2009 on the file of the Karnataka Appellate Tribunal, Bangalore, allowing the appeals.

These Sales Tax Revision Petitions, Sales Tax Appeal

& Writ Appeals coming on for Admission this day, N.KUMAR J., delivered the following:

J U D G M E N T

As common question of law is involved in all these

batch of cases, they are clubbed together and decided by this

common order. However, for the purpose of clarity, the facts

in W.P.Nos. 29932-33/2009 and W.P. Nos.29046-48 of 2009

are set out hereunder.

FACTS IN W.P.Nos.29932-33/2009

2. The petitioner – M/s. Nagarjuna Construction

Company Limited is a Public Limited Company. It is

engaged in undertaking of turnkey projects and other works

42

contracts for governmental authorities or other private

bodies/parties. It is regularly assessed to tax, previously

under the Karnataka Sales Tax Act (hereinafter for short

referred to as ‘the KST Act’) and now under the provisions of

the Karnataka Value Added Tax Act, 2003 (hereinafter for

short referred to as ‘the KVAT Act’). Its registered number is

TIN: 29210136424. The petitioner has filed its returns in

Form VAT 100 and he has assessed to tax under the

provisions of Section 39(1) of the KVAT Act, 2003 for the

period April 2006 to December 2007 by the Deputy

Commissioner of Commercial Taxes. Accordingly, they have

paid taxes also.

3. A show cause notice under the provisions of

Section 63-A of KVAT Act, 2003 came to be issued on

30.08.2002 to revise the order of assessment. In the notice

it is stated that they have offered for taxes at the rate of 4%

on turnover of iron and steel, involved in the execution of the

works contract, it is not permissible. The reason being that

43

the schedule entry, the works contract of civil works finds a

separate entry in Sl.No.23 under the head ‘All other works

contracts not specified in any of the categories specified in

Sixth schedule and therefore, it attracts tax on the said

turnover at the rate of 12.5% as provided therein under the

said entry. In response to the notice issued, the petitioner

Company produced the monthly returns filed for the month

of March, 2006, details of computation of taxes for the

month of March, 2006, the details of computation of

materials utilized during the month and details of purchases

made. Books of accounts were also produced. After

considering the aforesaid material, the assessing authority

held that the incidence of tax in the execution of civil works

contract occurs at the time of incorporation/accretion of the

building materials during the course of execution of civil

works contract. In civil works contract there is end product

of taxable goods for taxation under the provision of the KVAT

Act. Therefore, the eligibility of taxes under the KVAT Act, is

to be made on the value of goods which are incorporated at

44

the time of use of the same in the execution and thereby, it

is known as deemed sale. Accordingly, the incidence of tax

occurs at that point. The petitioner has admitted the

turnover of sale value that is, transfer of property in goods

which are consumed for works contract during the particular

period and the same is in accordance with the provisions of

the KVAT Act. He did not feel it necessary to continue the

proceedings under Section 39(1) of the KVAT Act for

reassessment and therefore, the proceedings initiated for the

period March 2006 under Section 39(1) of the KVAT Act,

2003 was dropped.

4. The Joint Commissioner of Commercial Taxes by

virtue of the power conferred on him under Section 63(A) of

the KVAT Act, was of the view that the orders passed by the

assessing authority were prima facie erroneous and

prejudicial to the interest of the revenue of the State

warranting interference. Therefore, he issued a show cause

notice dated 13.08.2009 to the respondent. In the said show

45

cause notice it is stated that in the schedule entry, works

contract of civil works finds entry in serial No.23 under the

head “All other works contracts not specified in any of the

categories specified in VI schedule” and attracts taxes at

12.5%. However, the petitioner has offered the turnover of

civil works contract at the rate of 4% and 12.5%, which is

impermissible and not in accordance with the provisions of

VI schedule to the KVAT Act. Then he has referred to the

amounts involved in each subcontracts and was of the view

that the taxable turnover in the works contract after allowing

admissible deductions and exemptions is proposed to be

subjected to tax at 12.5% only. Therefore, he also proposed

to levy interest under Section 36 of the KVAT Act and also

penalty under Section 72(2) of the KVAT Act for the

difference of taxes proposed and paid.

5. The assessee in support of their defence for the

assessment period April 2006 to December 2007, produced

the certificates from sub-contractors along with the return

46

copies, VAT bills copies in support of their claim towards tax

collected and statement of input tax credit claimed along

with other details such as suppliers TIN, bill numbers and

tax amount etc. and objected to levy tax at the rate of 12.5%

on the turnover of declared goods i.e., iron and steel used in

works contracts in view of various High Court judgments

and requested the authority to consider the tax at the rate of

4% only on iron and steel consumption. On 15.09.2009 they

filed another objection statement setting out the

constitutional provisions, the reasons behind constitutional

amendment and the various provisions of the Act, Rules and

requested the revisional authority to drop the further

proceedings.

6. However, before further steps to be taken by the

revisional authority, they also preferred writ petition

challenging the show cause notice itself for declaration that

the provisions of Section 4 (1) (C) of the KVAT Act, 2003 that

authorizes levy of tax on works contract under item No.23 to

47

the VI schedule as illegal, void and unenforceable and for a

declaration that the respondent No.2 has no power,

competence or jurisdiction to levy and collect taxes under VI

schedule of the KVAT Act and direction to the respondent to

refrain from revising the reassessments that is already made

in terms of the valid law operative and sought for stay of all

further proceedings. After service of notice, the State entered

appearance. They contend that the civil works contract

undertaken by the petitioner company is qualified both

under serial No.23 of VI schedule to the Act. It is liable to

tax at the rate of 12.5%, whereas, the assessing authority

appropriated the contract receipts as taxable at 4% and

12.5% on the goods like cement etc. involved in the

execution of the contract works in the tax period. After

referring to the several judgments it was stated that iron and

steel or any goods which fetches tax at 4% or any other rate

under the Act, if involved in the execution of works contract

of civil nature or buildings, is liable to tax under serial No.23

of the VI schedule at 12.5% only. The assessing authority

48

has violated the provisions of the Act and therefore, such

orders are detrimental to the interest of the revenue and the

revisional authority was justified in initiating proceedings

under Section 63A of the Act. The petitioner has challenged

the show cause notice. A statutory remedy of preferring an

appeal is provided under the Act, without exhausting the

statutory remedy he has filed the writ petition. It is not

maintainable.

FACTS IN W.P.Nos.29046–48/2009

7. The assessee, M/s.G.R.Engineering Private

Limited, is a dealer registered under the provisions of KVAT

Act, 2003. During the month of October, 2008, they were

awarded by Mangalore Refinery and Petrochemicals Limited,

Mangalore (hereinafter referred to as ‘MRPL’ for brevity), with

the execution of composite works contract of residual

designing, detailed engineering, procurement of materials

and bought out components and fabrication, construction,

erection, inspection, testing, supply and commissioning of

49

four numbers of mounded LPG storage system for refinery

project at MRPL on turnkey project. The work included

like civil structural work such as earth excavation,

foundation work, construction, erection of RCC retaining

wall, concrete tunnels around mound vessels, piping work,

sand bed, soil strengthening, drains, electrical and

instrumentation works, installation of fire protection system,

cathodic protection system, testing and system performance

guarantee of LPG storage and transfer system to the entire

satisfaction of the contractee MRPL. As per the terms of the

contract, they have received amounts in advance towards the

preparatory work such as residual designing, engineering,

placement or orders and procurement of materials etc.,

required in the execution of works contract against the bank

guarantee executed in favour of the contractee MRPL. The

assessee procured M.S.Plates / Sheets which are declared

goods for use as raw material in the making of M.S.Sections

at the work site assigned to the petitioner by MRPL. The

work involves cutting of the M.S.sheets / plates to the

50

required shape and size, rolling and welding the same to

form M.S. rolled sections. The rolled M.S.sections are

thereafter required to be transported to the MRPL project site

at a later point of time and to be incorporated or embedded

in the immovable property namely the civil foundation

specially constructed at the project site, at which point of

time only there is transfer of property in M.S.rolled sections,

constituting a ‘deemed sale’ and liable to tax.

8. The assessee submits that commencing from the

month of November, 2008 the assessee received advance

amounts from MRPL towards preliminary work involved in

the execution of the contract such as design and

engineering, procurement of materials, etc. Even though

such advance amounts received did not represent any

consideration or turnover relating to transfer of property in

any goods, taking into consideration the provisions of Rule

3(1) read with Explanation thereto, the assessee filed returns

in form VAT 100 in respect of tax periods April, May and

51

June, 2009 and paid tax @ 4% in respect of declared goods

namely iron and steel and at the rate of 12.5% in respect of

other goods procured for use in the works contract. The said

returns filed in form VAT 100 are deemed as accepted by

virtue of the provisions of Section 38(1) of the Act.

Subsequently, the assessee also filed revised returns in

respect of these tax periods, which returns are also accepted

by the first respondent.

9. The place of the business of the assessee was

visited by the first respondent on 09.07.2009, and he verified

the work orders issued by the contractee MRPL as also the

Form A1 being the application made by the assessee before

the Assistant Commissioner of Central Excise, Mangalore

and the license granted to it. After looking into the entire

materials, the authorities came to the conclusion that the

assessee was engaged in the activities of manufacturing of

bullet tanks which are later to be installed in the MRPL

project site. Thus the nature of work fell under the VI

52

Schedule to the Act namely supply and installation of

manufactured bullet tanks at the MRPL project site.

Therefore, the authority came to the conclusion that even

M.S.plates / sheets used as raw material are declared goods,

the goods manufactured namely bullet LPG tanks were

altogether different commercial goods and liable to be taxed

at the rate of 12.5%. The notice under Section 39(1) of the

Act, dated 18.08.2009 proposing to levy tax at the rate of

12.5% on the amounts declared by the assessee was issued.

He also proposed to levy penalty under Section 72(2) of the

Act for having understated the tax liability as well as interest

under Section 36 of the Act. The assessee filed detailed

objections contesting the said proceedings by denying that

the assessee is not engaged in any activity of manufacture

and sale of any goods, much less mounded LPG storage tank

and that reliance on the description of activity in the license

issued by the Central Excise Department in concluding that

the assessee manufactured and sold mounded LPG storage

tanks was wholly wrong. He has not been awarded with

53

similar contract. The contract which was awarded to him

was a composite works contract. The only activity carried

out by it was the purchase of MS plates and preparation of

MS sections by cutting and rolling at the land allotted by

MRPL. At the time of transfer of property, MS sections

continued to be MS sheets and therefore, they are not liable

to pay at additional tax. Further they also contended that

levy of tax at 12.5% on amounts received in advance towards

preliminary work involved in the works contract is illegal and

contrary to the provisions of charging Section 4(1)(c) of the

Act. However, over ruling the said objections, the authorities

levied tax at the rate of 12.5% on the value of the steel

sheets used in the execution of the works contract and also

the said tax was levied on the mobilization advance received

as if the transfer of property to plates is altogether a different

goods and they also imposed interest and penalty. It is in

that background, the assessee approached this court by way

of writ petition.

54

POINTS FOR CONSIDERATION

10. The learned single Judge framed the following

two points for consideration in W.P.Nos.29932-33/2009:-

(a) Whether the State Government has the competence to

levy tax on the transfer of property in goods involved

in the execution of works contract (when the goods in

question are “declared goods” for the purpose of

Central Sales Tax Act, 1956) at more than one stage?

(b) Whether the explanation to Rule 3(1) of the KVAT

Rules which provides that any advance paid to a

contractor as part of the consideration of the goods

involved in the execution of the works contract could

be included in the “total turnover” in the month in

which the execution of the works commences even

before the goods are incorporated in the works?

55

FINDINGS OF THE LEARNED SINGLE JUDGE

11. The learned single Judge who heard the Writ

Petition held that a dealer registered under the Act shall be

liable to tax and that such tax is leviable on the taxable

turnover relating to transfer of property in goods whether as

goods or in some other form, involved in the execution of the

works contracts that are specified in the Sixth Schedule to

the Act and at the rates specified therein. The levy is subject

to the provisions of Sections 14 and 15 of the CST Act

relating to declared goods. Though tax at 12.5% is

applicable under Sl. No.23 of the Sixth Schedule to the Act

in respect of complete works contract involving transfer of

property in goods, an exception is provided in Section 4(1)

(C) of the KVAT Act itself, that in respect of declared goods

involved in the execution of the works contract, the rate of

tax shall be as provided in Section 14 of the CST Act at 4%.

Then relying on Section 7 of the Act it was held that, steel

and steel products used as raw material by the petitioners

are incorporated into their civil works or other works

56

contract in the same form except that the same may be

fashioned to suit the requirement, before the same merge

into the works which is thereafter identified as immovable

property. At the time of incorporation, steel and steel

products do not lose their nature or form and therefore

cannot be subjected to tax, as the said goods are already

subjected to tax as declared goods under the CST Act. He

further held that, the judgment of this Court in the case of

B.V. Subba Reddy has no application as it was rendered

under the KST Act and in the said Act there is no provision

akin to Section 7 of the KVAT Act.

12. In so far as the dispute regarding the levy of tax

at 12.5% in respect of advance amounts received is

concerned it was held that the explanation to Rule 3(1)

which was inserted on 27.5.2006 requires a registered dealer

to include the advance amounts received as part of total

turnover in the month in which the execution of works

contracts commence and pay tax thereon, even though there

57

is no transfer of property in any goods involved. The

explanation runs counter to the tenor of the charging Section

4(1)(C) and runs counter to the definition of “taxable

turnover”, “total turnover” and “turnover” under the Act. It

is also in direct conflict with Article 366 (29A) (b) of the

Constitution of India. Similarly, Section 7 of the KVAT Act

which creates a legal fiction that a transaction of sale is

completed for the purposes of the Act when payment is

received as advance is akin to bringing to tax an agreement

to sell goods, even before the property in the goods passes to

the buyer. Thus, he held it is plainly contrary to the very

definition of “sale” under the Act itself. Accordingly, he held,

to that extent the said provision is unconstitutional and

accordingly quashed the impugned notice.

13. Aggrieved by the said order of the learned single

Judge, the revenue is in appeal.

58

RIVAL CONTENTIONS

14. The learned Government Advocate Smt. Sujatha

assailing the impugned order contended that, after the

purchase of iron and steel, as is clear from the running

account bills raised by the petitioner the description

narrated is, “pre-fabricated steel reinforcement/structural

steel”. In the activity pertaining to preparation of plinth,

lintel, column, beam, roof, wall, etc., the iron and steel is not

used in the nascent form but the fabricated skeleton

structures are used as per the drawing and design provided

by the qualified persons. Sand, jelly, cement in the form of

readymade concrete (RMC) is poured into the said structure

and the iron is used for reinforcement of cement concrete

and therefore when this structure is incorporated into the

building, the time at which there is a transfer of property,

the iron and steel rods of various dimensions are not directly

transferred to the building as such, but as skeleton

structures in roof, columns, beams, structures. Such

skeleton structures is not a declared goods under Section 14

59

of the Act and therefore, the levy of tax under item No.23 of

the Sixth Schedule of the Act is valid and cannot be found

fault with at 12.5%. She also contended in a works contract

when advance amount is paid, it is towards the sale of

property which is involved in the execution of the works

contract and, therefore, the said amount has to be included

in the total turnover as provided in the explanation and

liable to pay tax and the learned single Judge was not

justified in holding otherwise and declaring the said

provision as unconstitutional to this effect.

15. Per contra, the learned senior counsel appearing

for the petitioner Sri Sarangan submitted that, in

interpreting this provision one has to keep in mind the object

with which Sections 14 and 15 are enacted. The legislature

wanted the goods mentioned in the aforesaid Section which

are in the nature of essential commodities to be available to

all the persons throughout the country. Though the

respective States have the power to tax under the respective

60

sales tax law or under the VAT Act, they cannot tax at a rate

more than what is prescribed under Section 15. In the

instant case, the iron rods after their purchase are cut into a

specified size. In order to cast a beam, pillar, these iron rods

are enclosed by a wire to bring it into a shape of a beam,

pillar, etc., and then RMC is poured into it. The object of

using the iron is to reinforce the cement concrete. Even after

transformation into a beam, iron and steel continues to be

rods. Even after the incorporation of beams and rods into a

building it becomes an immovable property, the character of

iron and steel continues to be the same. At the time of

incorporation the iron and steel do not lose its original

character and no new product comes into effect and

therefore Section 14 is attracted. Section 15 prohibits the

State from imposing tax thereon than what is prescribed in

Section 14. He further contended that, when under the Act,

when specific provisions are incorporated providing for a

legal fiction to the effect when exactly the property is

transferred by way of sale and when that happens only at

61

the time of incorporation of the goods into the building, the

amount paid as advance much earlier to that point of time

cannot be included in the total turnover for the purpose of

tax as incidence of tax is the day on which the property is

transferred and therefore the said provision runs counter to

the statutory provisions and constitutional provisions and

therefore, the learned single Judge was justified in declaring

it as unconstitutional to that extent and therefore no fault

could be found with the judgment of the learned single

Judge.

16. In the light of the aforesaid facts and the rival

contentions, the points that arise for our consideration in

these appeals are as under:-

POINTS FOR CONSIDERATION IN THESE APPEALS 1. Whether iron and steel, which are declared goods

under Section 14 of the CST Act, are used whether as

goods or in some other form involved in the execution

62

of the works contract specified in column No.2 of the

Sixth Schedule, whether the State is entitled to tax at

12.5% as against 4% prescribed under Section 14 of

the Act invoking item No.23 of the Sixth Schedule of

the Value Added Tax Act?

2. Whether the explanation to Rule 3(1) of the KVAT

Rules which provides that any advance paid to a

contractor as part of the consideration of the goods

involved in the execution of the works contract could

be included in the “total turnover” in the month in

which the execution of the works commences even

before the goods are incorporated in the works?

3. When the petitioner purchased M.S.plates / sheets

which are declared goods for use as a raw material

when it was transformed into M.S.section, at works

site and before it was incorporated in the construction

as bullet tanks, the levy of tax at the rate of 12.5%,

63

treating as not a declared goods is valid.? (W.P. Nos.

29046-48/2009?

STATUTORY PROVISIONS

17. In order to answer these questions we have to

look at the statutory provisions incorporated by the State

Legislature under the Act. Section 3 of the KVAT Act reads

as under:-

“3. Levy of tax

(1) The tax shall be levied on every sale

of goods in the State by a registered dealer or a

dealer liable to be registered, in accordance with

the provisions of this Act.

(2) The tax shall also be levied, and paid

by every registered dealer or a dealer liable to be

registered, on the sale of taxable goods to him, for

use in the course of his business, by a person

who is not registered under this Act.”

18. Section 4 of the Act prescribes the rates of tax.

It reads as under:-

64

“4. Liability to tax and rates thereof.

(1) Every dealer who is or is required to be

registered as specified in Sections 22 and 24,

shall be liable to pay tax, on his taxable turnover,

(a) in respect of goods mentioned in,-

(i) Second Schedule, at the rate of one

per cent,

(ii) Third Schedule, at the rate of four

percent in respect of goods specified

in serial number 30 and five per cent

in respect of other goods, and

(iii) Fourth Schedule, at the rate of

twenty per cent.

(b) in respect of.-

(i) cigarettes, cigars, gutkha and other

manufactured tobacco at the rate of fifteen

per cent;

(ii) other goods at the rate of thirteen and one

half per cent.

(c) in respect of transfer of property in goods

(whether as goods or in some other form)

65

involved in the execution of works contract

specified in column (2) of the Sixth

Schedule, subject to Sections 14 and 15 of

the Central Sales Tax Act, 1956 (Central

Act 74 of 1956), at the rates specified in the

corresponding entries in column (3) of the

said Schedule.

(2) Where goods sold or purchased are

contained in containers or are packed in any

packing material liable to tax under this Act, the

rate of tax applicable to taxable turnover of such

containers or packing materials shall, whether

the price of the containers or packing materials is

charged for separately or not, be the same as the

rate of tax applicable to such goods so contained

or packed, and where such goods sold or

purchased are exempt from tax under this Act,

the containers or packing materials shall also be

exempt.

(3) The State Government may, by

notification, reduce the tax payable under sub-

section (1) in respect of any goods subject to such

restrictions and conditions as may be specified in

the notification.

66

(3-A) Any notification issued under sub-

section (3), shall be valid until it is cancelled or

varied, notwithstanding that the tax payable in

respect of any such goods is modified by

amendment to this Act.

(4) Notwithstanding anything contained

in sub-section (1), subject to such conditions as

may be prescribed, a registered dealer, if he so

elects, may pay tax on the sale of goods specified

in serial number 60 of the Third Schedule or any

other goods, on the maximum retail price

indicated on the label of the container or pack

thereof or on such maximum retail price reduced

by an amount equal to the tax payable.


in sub-section (1), a registered dealer shall be

liable to pay tax on the sale of cigarettes, cigars,

gutkha and other manufactured tobacco, on the

maximum retail price indicated on the label of the

container or pack thereof, after reducing from

such maximum retail price an amount equal to the

tax payable, where the total amount payable to

the dealer as the consideration for sale of such

goods exceeds five hundred rupees or any other

67

higher amount as may be notified by the

Commissioner.

(6) Where tax in respect of his purchase

of goods is collected in accordance with

sub-section (5),-

(a) a registered dealer whose sale of such

goods is not liable to tax under sub-section

(5), shall be eligible for refund or

adjustment of any amount of tax collected

on his purchase, which is in excess of the

tax payable on his turnover relating to sale

of such goods, and the burden of proving

that the tax has been collected and paid in

accordance with the said sub-section shall

be on the dealer;

(b) a person who is not a dealer liable to get

registered under the Act, may claim refund

of any amount paid by the selling dealer in

excess of the tax payable on the

consideration paid by him to such dealer in

such manner and subject to such

conditions as may be prescribed.”

68

19. Clause (c) was inserted by Act No. 4/2006 with

effect from 1.4.2006.

Chapter IV of the CST Act deals with goods of special

importance in inter-state trade or commerce. Section 14

reads as under:-

“14. Certain goods to be of special

importance in inter-State trade or

commerce.- It is hereby declared that the

following goods are of special importance in inter-

State trade or commerce.-

xxx xxx xxx

(iv) iron and steel, that is to say,-

(i) pig iron, sponge iron and cast iron including

ingot moulds, bottom plates, iron scrap,

cost iron scrap, runner scrap and iron skull

scrap;

(ii) steel semis (ingots, slabs, blooms and

billets of all qualities, shapes and sizes);

(iii) skelp bars, tin bars, sheet bars, hoe- bar

and sleeper bars;

(iv) steel bars (rounds, rods, squares, flats,

octagons and hexagons, plain and ribbed

69

or twisted, in coil form as well as straight

lengths);

(v) steel structurals (angles, joists, channels,

tees, sheet piling sections, Z-sections or any

other rolled sections);

(vi) sheets, hoops, strips and skelp, both black

and galvanised, hot and cold rolled plain

and corrugated, in all qualities, in straight

lengths and in coil form, as rolled and in

rivetted condition;

(vii) plates both plain and chequered in all

qualities;

(viii) discs, rings, forgings and steel castings;

(ix) tool, alloy and special steels of any of the

above categories;

(x) steel melting scrap in all forms including

steel skull, turnings and borings;

(xi) steel tubes, both welded and seamless, of

all diameters and lengths, including tube

fittings;

(xii) tin- plates, both hot dipped and electrolytic

and tinfree plates;

(xiii) fish plate bars, bearing plate bars, crossing

sleeper bars, fish plates, bearing plates,

70

crossing sleepers and pressed steel

sleepers,-- heavy and light crane rails;

(xiv) wheels, tyres, axles and wheel sets;

(xv) wire rods and wires-- rolled, drawn,

galvanised, aluminised, tinned or coated

such as by copper;

(xvi) defectives, rejects, cuttings or end pieces of

any of the above categories;”

20. Section 15 imposes restrictions and conditions

in regard to tax on sale or purchase of declared goods within

a State. Clause (a) of Section 15 reads as under:-

15. Restrictions and conditions in

regard to tax on sale or purchase of

declared goods within a State.- Every sales-

tax law of a State shall, in so far as it imposes or

authorises the imposition of a tax on the sale or

purchase of declared goods, be subject to the

following restrictions and conditions, namely:--

(a) the tax payable under that law in

respect of any sale or purchase of such goods

inside the State shall not exceed four per cent of

the sale or purchase price thereof”,

71

21. These provisions in the CST Act, 1956, has been

enacted in pursuance of Article 286 of the Constitution and

in particular Clause (3) which was introduced by way of

substitution by 46th amendment which came into effect on

12.02.1983.

22. The Apex Court in the case of MODI SPINNING

AND WEAVING MILLS CO. LTD. VS. COMMISSIONER OF

SALES TAX, PUNJAB AND ANOTHER REPORTED IN

(1965) STC V.60 PAGE 310, interpreting Clause (3) of

Article 286 of the Constitution of India and Section 14 of the

Central Sales Tax Act, has held as under:-

“Section 14 of the Central Sales Tax Act

declares certain goods to be of special importance

in inter-State trade or commerce and mentions

cotton of all kinds in unmanufactured state,

whether ginned or unginned. Section 15 then

provides as follows :-

"15. Restrictions and conditions in regard to

tax on sale or purchase of declared goods within

72

a State - Every sales tax law of a State shall, in

so far as it imposes or authorises the imposition

of a tax on the sale or purchase of declared

goods, be subject to the following restrictions and

conditions, namely:-



inside the State shall not exceed two per cent of

the sale or purchase price thereof, and such tax

shall not be levied at more than one stage;

(b)..........................

It is contended that by reason of the

declaration and S. 15(a) quoted above the rate of

tax is discrepant with s. 15 of the Central Sales

Tax Act, and sub-section (1) of s. 5 of the Punjab

General Sales Tax Act must fail as a law properly

enacted. This argument cannot be accepted

because Art. 286(3) under which the declaration

is made provides as follows :-

" 286(1)................

(2)....................

(3) Any law of a State shall, in so far as it

imposes, or authorises the imposition of, a tax on

73

the sale or purchase of goods declared by

Parliament by law to be of special importance in

inter-State trade or commerce, be subject to such

restrictions and conditions in regard to the

system of levy, rates and other incidents of the

tax as Parliament may by law specify."

The meaning or the intention of cl. (3) of Art.

286 is not to destroy all charging sections in the

Sales Tax Acts of the States which are discrepant

with s. 15(a) of the Central Sales Tax Act, but to

modify them in accordance therewith. The law of

the State is declared to be subject to the

restrictions and conditions contained in the law

made by Parliament and the rate in the State Act

would protanto stand modified. The effect of Art.

286(3) is now brought out by the second proviso

to s. 5(l). But this proviso is enacted out of

abundant caution and even without it the result

was the same.”

23. Therefore though the power of State Legislature

to impose tax is recognized, in so far as imposition of tax in

respect of the goods declared by Parliament by law to be of

74

special importance, the State Legislation has to yield to the

Parliamentary Legislation. In view of Section 14 of the CST

Act, iron and steel is declared as goods of special

importance. In other words, it is a declared goods. Section

15(a) of the CST Act, imposes a restriction to tax declared

goods within the State. Though the State Legislature has

been vested with the power to impose tax on such declared

goods, the tax payable under that law in respect of any sale

or purchase of such goods inside the State shall not exceed

5% of the sale or purchase price thereof.

24. Section 4(1)(c) of the Value Added Tax Act,

specifically provides for levy of tax on declared goods. It

provides that in respect of transfer of property in goods

whether as goods or in some other form involved in the

execution of works contract specified in column (2) of Sixth

Schedule, the tax leviable is at the rate specified in the

corresponding entries in column 3 of Sixth Schedule.

However, this is subject to Sections 14 and 15 of the Central

75

Sales Tax Act, 1956. Therefore, though the State

Legislature is empowered to levy tax in respect of transfer of

property in goods whether as goods or in some other form, if

such goods are covered under Sections 14 and 15 of the CST

Act, their power to levy tax is curtailed and they cannot

impose tax more than what is prescribed under Sections 14

and 15.

POINT No.1 – POWER OF THE STATE TO LEVY TAX ON

DECLARED GOODS

25. The Apex Court in the case of STATE OF

MADRAS VS. GANNON DUNKERLEY & CO. REPORTED IN

(1958) STC V.9 PAGE 353, in the concluding para have

summed up the law insofar as selling goods is concerned in

the context of Entry 48 as well as entry 97 in List I, which

reads as under:

“This conclusion entails that none of the

legislatures constituted under the Government of

India Act, 1935, was competent in the exercise of

the power conferred by s. 100 to make laws with

76

respect to the matters enumerated in the Lists, to

impose a tax on construction contracts and that

before such a law could be enacted it would have

been necessary to have had recourse to the

residual powers of the GovernorGeneral under s.

104 of the Act. And it must be conceded that a

construction which leads to such a. result must, if

that is possible, be avoided. Vide

Manikkasundara v. R. S. Nayudu (1). It is also a

fact that acting on the view that Entry 48

authorises it, the States have enacted laws

imposing a tax on the supply of materials in

works contracts, and have been realising it, and

their validity has been affirmed by several High

Courts. All these laws were in the statute book

when the Constitution came into force, and it is to

be regretted that there is nothing in it which offers

a solution to the present question. We have, no

doubt, Art. 248 and Entry 97 in List I conferring

residual power of legislation on Parliament, but

clearly it could not have been intended that the

Centre should have the power to tax with respect

to works constructed in the States. In view of the

fact that the State Legislatures had given to the

expression " sale of goods " in Entry 48 a wider

77

meaning than what it has in the Indian Sale of

Goods Act, that States with sovereign powers

have in recent times been enacting laws imposing

tax on the use of materials in the construction of

buildings, and that such a power should more

properly be lodged with the States rather than the

Centre, the Constitution might have given an

inclusive definition of " sale " in Entry 54 so as to

cover the extended sense. But our duty is to

interpret the law as we find it, and having

anxiously considered the question, we are of

opinion that there is no sale as such of materials

used in a building contract, and that the

Provincial Legislatures had no competence to

impose a tax thereon under Entry 48.

……. It is possible that the parties might

enter into distinct and separate contracts, one for

the transfer of materials for money consideration,

and the other for payment of remuneration for

services and for work done. In such a case, there

are really two agreements, though there is a

single instrument embodying them, and the

power of the State to separate the agreement to

sell from the agreement to do work and render

78

service and to impose a tax thereon cannot be

questioned, and will stand untouched by the

present judgment”.

26. Therefore, if the contract is indivisible and from

the contract it is not possible to make out what is the value

of the material and what is the value of the service rendered

and then the State legislatures had no competence to levy

tax in respect of the materials involved in the execution of

the works contract.

27. After this judgment, the Parliament brought in

46th Amendment to the Constitution inserting clause 29A as

under:-

“366. (29A) “tax on the sale or purchase of

goods” includes-

(a) xxx xxx xxx

(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.”

79

28. The Apex Court in BUILDERS ASSOCIATION OF

INDIA AND OTHERS VS. UNION OF INDIA AND OTHERS

REPORTED IN (1989) STC VOL.73 PAGE 370, explaining

Clause (b) of Clause (29-A) of Article 366 of the Constitution

of India has held:

“Before proceeding further it is necessary to

understand what sub-clause (b) of clause (29-A)

of article 366 of the Constitution means. Article

366 is the definition clause of the Constitution. It

says that in the Constitution unless the context

otherwise requires, the expressions defined in

that article have the meanings respectively

assigned to them in that article. The expression

“goods” 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 & Co.

(Madras) Ltd., [1958] 9 STC 353; [1959] SCR 379,

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

80

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

clause (29-A) of article 366 of the Constitution

makes the position very clear. While referring to

the transfer, delivery or supply of any goods that

takes place as per sub-clauses (a) to (f) of clause

(29-A), the latter part of clause (29-A) says that

“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.

81

Hence, a transfer of property in goods' under sub-

clause. (b) of clause (29-A) is deemed to be a sale

of the goods involved in the execution of works

contract by the person making the transfer and a

purchase of those goods by the person to whom

such transfer is made. The object of the new

definition introduced in clause (29-A) of article

366 of the Constitution is, therefore, to enlarge

the scope of “tax on sale or purchase of goods”

wherever it occurs in the Constitution so that it

may include within its scope the transfer, delivery

or supply of goods that may take place under any

of the transactions referred to in sub-clause (a) to

(f) thereof wherever such transfer, delivery or

supply becomes subject to levy of sales tax. So

construed the expression “tax on the sale or

purchase of goods” in entry 54 of the State List,

therefore, 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. The tax leviable by virtue of sub-

clause (b) of clause (29-A) of article 366 of the

Constitution thus becomes subject to the same

discipline to which any levy under entry 54 of the

State List is made subject to under the.

82

Constitution. The position is the same when we

look at article 286 of the Constitution. Clause (1)

of article 286 says that 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

export of the goods out of, the territory of India.

Here again we have to read the expression “a tax

on the sale or purchase of goods” found in article

286 as including the transfer of goods referred to

in sub-clause (b) of clause (29-A) of article 366

which is deemed to be a sale of goods and the tax

leviable 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 sub-clause

(b) of clause (29-A) of Article 366. Clause (3) of

83

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

trade 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 of a State which

provides for levy of sales tax thereon will have to

comply with the restrictions mentioned in section

15 of the Central Sales Tax Act, 1956. Clause (b)

is an additional provision which empowers

Parliament to impose any additional restrictions

or conditions in regard to the levy of sales tax on

transactions which will be deemed to be sales

under sub-clause (b) or sub-clause (e) or sub-

clause (d) of clause (29-A) of article 366 of the

Constitution. We do not find much substance in

the contention urged on behalf of the States that

since sub-clause (b) of clause (3) of Article 286 of

84

the Constitution refers only to the transactions

referred to in sub-clauses (b), (c) and (d) of clause

(29-A) of Article 366, the transactions referred to

under those three sub-clauses would not be

subjected to any other restrictions set out in

clause (1) or clause (2) or sub-clause (a) of clause

(3) of Article 286 of the Constitution. It may be

that by virtue of sub-clause (b) of clause (3) of

Article 286 it is open to Parliament to impose

some other restrictions or conditions which are

not generally applicable to all kinds of sales. That

however cannot take the other parts of Article 286

inapplicable to the transactions which are

deemed to be sales under Article 366(29A) of the

Constitution. We are of the view that all transfers,

deliveries and supplies of goods referred to in

clause (a) to (f) of clause (29-A) of Article 366 of

the Constitution are subject to the restrictions and

conditions mentioned in clause (1), clause (2) and

sub-clause (a) of clause (3) of Article 286 of the

Constitution and the transfers and deliveries that

take place under sub-clauses (b), (c) and (d) of

clause (29-A) of Article 366 of the Constitution are

subject to an additional restriction mentioned in

sub-clause (b) of Article 286(3) of the Constitution.

85

xxx xxxx

We, therefore, declare that sales tax laws

passed by the Legislatures of States levying

taxes on the transfer of property in goods


in the execution of a works contract are subject to

the restrictions and conditions mentioned in each

clause or sub-clause of Article 286 of the

Constitution. We, however, make it clear that the

cases argued before and considered by us relate

to one specie of the genetic concept of 'works

contracts'. The case-book is full of the illustrations

of the infinite variety of the manifestation of

'works-contracts'. Whatever might be the

situational differences of individual cases, the

constitutional limitations on the taxing-power of

the States as are applicable to “works contracts”

represented by "Building-Contracts" in the context

of the expanded concept of "tax on the sale or

purchase of goods" as constitutionally defined

under Article 366(29-A), would equally apply to

other species of “works-contracts” with the

requisite situational modifications.

86

The constitutional amendment in Article

366(29-A) read with the relevant taxation-entries

has enabled the State to exert its taxing power in

an important area of social and economic life of

the community. In exerting this power particularly

in relation to transfer of property in goods

involved in the execution of 'works-contracts' in

building activity, in so far as it affects the

housing-projects of the underprivileged and

weaker sections of society, the State might

perhaps, be pushing its taxation-power to the

peripheries of the social limits of that power and,

perhaps, even of the constitutional limits of that

power in dealing with unequals. In such class of

cases 'Building-Activity' really relates to a basic

subsistential necessity. It would be wise and

appropriate for the State to consider whether the

requisite and appropriate classifications should

not be made of such building-activity attendant

with such social purposes for appropriate

separate treatment. These of course are matters

for legislative concern and wisdom.

87

29. The said provision also came up for

consideration before a Constitution Bench of the Apex Court

in the case of BUILDERS ASSOCIATION OF INDIA AND

OTHERS vs UNION OF INDIA AND OTHERS REPORTED IN

(1989) STC VOL.73 PAGE 370. It was held as under:-

“Before proceeding further it is necessary to

understand what sub-clause (b) of clause 29-A of

Article 366 of the Constitution means. Article 366

is the definition clause of the Constitution. It says

that in the Constitution unless the context

otherwise requires, the expressions defined in

that article have the meanings respectively

assigned to them in that article. The expression

'goods' 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 & 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

88

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


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


other form) involved in the execution of a works

contract. The emphasis is on the transfer of


other form). The latter part of clause (29-A) of

Article 366 of the Constitution makes the position

very clear. While referring to the transfer, delivery

or supply of any goods that takes place as per

sub clauses (a) to (f) of clause (29-A), the latter

part of clause (29-A) says that '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. Hence, a transfer of

89

property in goods under sub-clause (b) of clause

(29-A) is deemed to be a sale of the goods

involved in the execution of a works contract by

the person making the transfer and a purchase of

those goods by the person to whom such transfer

is made. The object of the new definition

introduced in clause (29-A) of Article 366 of the

Constitution is, therefore, to enlarge the scope of

'tax on sale or purchase of goods' wherever it

occurs in the Constitution so that it may include

within its scope the transfer, delivery or supply of

goods that may take place under any of the

transactions referred to in sub-clause (a) to (f)

thereof wherever such transfer, delivery or supply

becomes subject to levy of sales tax. So construed

the expression 'tax on the sale or purchase of

goods' in Entry 54 of the State List, therefore,

includes a tax on the transfer of property in goods


in the execution of a works contract also. The tax

leviable by virtue of sub- clause (b) of clause (29-

A) of Article 366 of the Constitution thus becomes

subject to the same discipline to which any levy

under Entry 54 of the State List is made subject

to under the Constitution. The position is the

90

same when we look at Article 286 of the

Constitution. Clause (1) of Article 286 says that

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 export of the goods out

of, the territory of India. Here again we have to

read the expression 'a tax on the sale or purchase

of goods’ found in Article 286 as including the

transfer of goods referred to in sub-clause (b) of

clause (29-A) of Article 366 which is deemed to be

a sale of goods and the tax leviable 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 sub-clause (b) of

clause (29-A) of Article 366. Clause (3) of Article

91

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 trade 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 of a State which provides for levy of

sales tax thereon will have to comply with the

restrictions mentioned in section 15 of the Central

Sales Tax Act, 1956. Clause (b) is an additional

provision which empowers Parliament to impose

any additional restrictions or conditions in regard

to the levy of sales tax on transactions which will

be deemed to be sales under sub-clause (b) or

sub-clause (e) or sub-clause (d) of clause (29-A) of

Article 366 of the Constitution. We do not find

much substance in the contention urged on behalf

of the States that since sub-clause (b) of clause (3)

of Article 286 of the Constitution refers only to the

92

transactions referred to in sub-clauses (b), (c) and

(d) of clause (29-A) of Article 366, the transactions

referred to under those three sub-clauses would

not be subject to any other restrictions set out in

clause (1) or clause (2) or sub-clause (a) of clause

(3) of Article 286 of the Constitution. It may be

that by virtue of sub-clause (b) of clause (3) of

Article 286 it is open to Parliament to impose

some other restrictions or conditions which are

not generally applicable to all kinds of sales. That

however cannot take the other parts of Article 286

inapplicable to the transactions which are

deemed to be sales under Article 366 (29A) of the

Constitution. We are of the view that all transfers,

deliveries and supplies of goods referred to in

clause (a) to (f) of clause (29-A) of Article 366 of

the Constitution are subject to the restrictions and

conditions mentioned in clause (1), clause (2) and

sub-clause (a) of clause (3) of Article 286 of the

Constitution and the transfers and deliveries that

take place under sub-clauses (b), (c) and (d) of

clause (29-A) of Article 366 of the Constitution are

subject to an additional restriction mentioned in

sub-clause (b) of Article 286(3) of the

Constitution”.

93

30. The Apex Court in the case of GANNON

DUNKERLEY & CO. AND OTHERS VS. STATE OF

RAJASTHAN AND OTHERS REPORTED IN (1993) STC

VOL.88 PAGE 204, has held as under:

MEASURE OF TAX

On behalf of the contractors, it has been

urged that under a law imposing a tax on the

transfer of property in goods involved in the

execution of a works contract under entry 54 of

the State List read with Article 366(29-A)(b), the

tax is imposed on the goods which are involved in

the execution of a works contract and the

measure for levying such a tax can only be the

value of the goods so involved and the value of

the works contract cannot be made the measure

for levying the tax. The submission is further that

the value of such goods would be the cost of

acquisition of the goods by the contractor and,

therefore, the measure for levy of tax can only be

the cost at which the goods involved in the

execution of a works contract were obtained by

the contractor. On behalf of the States, it has

been submitted that since the property in goods

94

which are involved in the execution of a works

contract passes only when the goods are

incorporated in the works, the measure for the

levy of the tax would be the value of the goods at

the time of their incorporation in the works as

well as the cost of incorporation of the goods in

the works. We are in agreement with the

submission that measure for the levy of the tax

contemplated by Article 366(29-A)(b) is the value

of the goods involved in the execution of a works

contract. In Builders Association case [1989] 73

STC 370 (SC) ; [1989] 2 SCR 320 it has been

pointed out that in Article 366(29-A)(b), the

emphasis is on the transfer of property in goods

(whether as goods or in some other form) (page

396 of STC; 347 of SCR). This indicates that

though the tax is imposed on the transfer of

property in goods involved in the execution of a

works contract, the measure for levy of such

imposition is the value of the goods involved in

the execution of a works contract. We are,

however, unable to agree with the contention

urged on behalf of the contractors that the value

of such goods for levying the tax can be assessed

only on the basis of the cost of acquisition of the

95

goods by the contractor. Since the taxable event is

the transfer of property in goods involved in the

execution of a works contract and the said

transfer of property in such goods takes place

when the goods are incorporated in the works,

the value of the goods which can constitute the

measure for the levy of the tax has to be the value

of the goods at the time of incorporation of the

goods in the works and not the cost of acquisition

of the goods by the contractor. We are also unable

to accept the contention urged on behalf of the

States that in addition to the value of the goods

involved in the execution of the works contract the

cost of incorporation of the goods in the works

can be included in the measure for levy of tax.

Incorporation of the goods in the works forms part

of the contract relating to work and labour which

is distinct from the contract for transfer of

property in goods and, therefore, the cost of

incorporation of the goods in the works cannot be

made a part of the measure for levy of tax

contemplated by Article 366(29-A)(b).

Xxxxxxxx The value of the goods involved

in the execution of a works contract will,

therefore, have to be determined by taking into

96

account the value of the entire works contract and

deducting therefrom the charges towards labour

and services which would cover:

a) Labour charges for execution of the

works;

b) amount paid to a sub-contractor for

labour and services;

c) charges for planning, designing and

architect's fees;

d) charges for obtaining on hire or

otherwise machinery and tools used for

the execution of the works contract;

e) cost of consumables such as water,

electricity, fuel etc. used in the execution

of the works contract the property in

which is not transferred in the course of

execution of a works contract; and

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;

97

h) profit earned by the contractor to the

extent it is relatable to supply of labour

and services;

The amounts deductible under these heads

will have to be determined in the light of the facts

of a particular case on the basis of the material

produced by the contractor.

We may, however, make it clear that apart

from the deductions referred to above, it will 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

Central Sales Tax Act and goods covered by

Sections 14 and 15 of the Central Sales Tax 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 and exclusions from the

value of the works contract.

RATE OF TAX:

A question has been raised whether it is

permissible for the State Legislature to levy tax on

98

deemed sales falling within the ambit of Article

366(29-A)(b) by prescribing a uniform rate of tax

for all goods involved in the execution of a works

contract even though different rates of tax are

prescribed for sale of such goods. The learned

Counsel for the contractors have urged that it

would not be permissible to impose two different

rates of tax in respect of sale of the same article,

one rate when the article is sold separately and a

different rate when there is deemed sale in

connection with the execution of a works contract.

On behalf of the States it has been submitted that

it is permissible for the State to impose a

particular rate of tax on all goods involved in the

execution of a works contract which may be

different from the rates of tax applicable to those

goods when sold separately. In the field of

taxation the decisions of this Court have

permitted the legislature to exercise an extremely

wide discretion in classifying items for tax

purposes, so long as it refrains from clear and

hostile discrimination against particular persons

or classes. (See: East India Tobacco Company Vs.

State of Andhra Pradesh [1062] 13 STC 529 (SC)

at page 534. Imposition of sales tax at different

99

rates depending on the value of the annual

turnover was upheld in Kodar v. State of Kerala

[1974] 34 STC 73 (SC). Similarly, imposition of

purchase tax at different rates for sugar mills and

khandsari units was upheld in Ganga Sugar Co.

Ltd. v. State of U.P. and Ors., [ 1980] 45 STC 36

(SC). In our opinion, therefore, it would be

permissible for the State Legislature to tax all the

goods involved in the execution of a works

contract at a uniform rate which may be different

from the rates applicable to individual goods

because the goods which arc involved in the

execution of the works contract when

incorporated in the works can be classified into a

separate category for the purpose of imposing the

tax and a uniform rate may be prescribed for sale

of such goods.

The aforesaid discussion leads to the

following conclusions:-

(1) In exercise of its legislative power to

impose tax on sale or purchase of goods under

Entry 54 of the State List read with article

366(29-A)(b), the State Legislature, while

imposing a tax on the transfer of property in

100

goods (whether as goods or in some other form)

involved in the execution of a works contract is

not competent to impose a tax on such a transfer

(deemed sale) which constitutes a sale in the

course of inter-State trade or commerce or a sale

outside the State or a sale in the course of import

or export.

(2) The provisions of Sections 3, 4 and 5

and sections 14 and 15 of the Central Sales Tax

Act, 1956 are applicable to a transfer of property

in goods involved in the execution of a works

contract covered by article 366(29-A)(b).

(3) While defining the expression ‘’sale’' in

the sales tax legislation it is open to the State

Legislature to fix the situs of a deemed sale

resulting from a transfer falling within the ambit

of article 366(29-A)(b) but it is not permissible for

the State Legislature to define the expression

"sale’’ in a way as to bring within the ambit of the

taxing power a sale in the course of interstate

trade or commerce, or a sale outside the State or

a sale in the course of import and export.

(4) The tax on transfer of property in goods


101

in the execution of a works contract falling within

the ambit of Article 366(29-A)(b) is leviable on the

goods involved in the execution of a works

contract and the value of the goods which are

involved in the execution of works contract and

would constitute the measure for imposition of the

tax.

(5) In order to determine the value of the

goods which are involved in the execution of a

works contract for the purpose of levying the tax

referred to in article 366(29-A)(b), it is permissible

to take the value of the works contract as the

basis and the value of the goods involved in the

execution of the works contract can be arrived at

by deducting expenses incurred by the contractor

for providing labour and other services from the

value of the works contract.

(6) The charges for labour and services

which are required to be deducted from the value

of the works contract would cover (i) labour

charges for execution of the works, (ii) amount

paid to a sub-contractor for labour and services;

(iii) charges for obtaining on hire or otherwise

machinery and tools used for execution of the

102

works contract; (iv) charges for planning,

designing and architect's fees; and (v) cost of

consumables used in the execution of the works

contract; (vi) cost of establishment of the

contractor to the extent it is relatable to supply of

labour and services, (vii) other similar expenses

relatable to supply of labour and services, and

(viii) profit earned by the contractor to the extent it

is relatable to supply of labour and services.

(7) To deal with cases where the contractor

does not maintain proper accounts or the account

books produced by him are not found worthy of

credence by the assessing authority the

Legislature may prescribe a formula for deduction

of cost of labour and services on the basis of a

percentage of the value of the works contract but

while doing so it has to be ensured that the

amount deductible under such formula does not

differ appreciably from the expenses for labour

and services that would be incurred in normal

circumstances in respect of that particular type of

works contract. It would be permissible for the

Legislature to prescribe varying scales for

deduction on account of cost of labour and

services for various types of works contract.

103

(8) While fixing the rate of tax it is

permissible to fix a uniform rate of tax for the

various goods involved in the execution of a

works contract which rate may be different from

the rates of tax fixed in respect of sales or

purchase of those goods as a separate article.

31. The Supreme Court in the case of M/S.LARSEN

& TOURBO LIMITED & ANR. VS. STATE OF KARNATAKA

ANR. (2013 65 VST 1), explaining Sub-Clause (b) of clause

29A of Article 366 of the Constitution has held as under:

60. It is important to ascertain the meaning

of sub-clause (b) of clause 29-A of Article 366 of

the Constitution. As the very title of Article 366

shows, it is the definition clause. It starts by

saying that in the Constitution unless the context

otherwise requires the expressions defined in that

article shall have the meanings respectively

assigned to them in the article. The definition of

expression “tax on sale or purchase of the goods”

is contained in clause (29-A). If the first part of

clause 29-A is read with sub-clause (b) along with

latter part of this clause, it reads like this: tax on

104

the sale or purchaser of the goods” includes a tax

on the transfer of property in goods (whether as


execution of a works contract 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. The definition of

“goods” in clause 12 is inclusive. It includes all

materials, commodities and articles. The

expression, ‘goods’ has a broader meaning than

merchandise. Chattels or movables are goods

within the meaning of clause 12. Sub-clause (b)

refers to transfer of property in goods (whether as


execution of a works contract. The expression “in

some other form” in the bracket is of utmost

significance as by this expression the ordinary

understanding of the term ‘goods’ has been

enlarged by bringing within its fold goods in a

form other than goods. Goods in some other form

would thus mean goods which have ceased to be

chattels or movables or merchandise and become

attached or embedded to earth. In other words,

105

goods which have by incorporation become part of

immovable property are deemed as goods. The

definition of ‘tax on the sale or purchase of goods

includes a tax on the transfer or property in the

goods as goods or which have lost its form as

goods and have acquired some other form

involved in the execution of a works contract.

61. 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.

62. 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

106

in the execution of works contract. The taxable

event is deemed sale.

32. From the aforesaid judgments it is clear that, by

virtue of the legal fiction introduced by Article 366 (29-A)(b)

of the Constitution there is a deemed sale of the goods which

are involved in the execution of a works contract. The

expression “in some other form” in the bracket is of utmost

significance as by this expression the ordinary

understanding of the term ‘goods’ has been enlarged by

bringing within its fold goods in a form other than goods.

Goods in some other form would thus mean goods which

have ceased to be chattels or movables or merchandise and

become attached or embedded to earth. In other words,

goods which have by incorporation become part of

immovable property are deemed as goods. The definition of

‘tax on the sale or purchase of goods’ includes a tax on the

transfer or property in the goods as goods or which have lost

its form as goods and have acquired some other form

involved in the execution of a works contract. Therefore a

107

legal fiction is created by this deeming provision providing

for sale of goods at the time of incorporation of the goods in

the course of execution of any works contract. The liability

to tax even in respect of declared goods is to be determined

at the time of acquisition or purchase of such goods which is

involved in the execution of contract but at the time of

incorporation of such goods in the course of execution of any

works contract. As held by the Apex Court, a contractor

cannot insist that the value of the goods for the purpose of

levy of tax cannot be taken as the value of acquisition of

goods. It has to be the value of the goods at the time of

incorporation of the goods into the works contract. If after

acquisition of goods till it is incorporated into in the works

contract, there is no change of form, then, the value of the

goods at the time of incorporation would be the same as the

value of the goods at the time of acquisition. If after

acquisition of the goods, before incorporation, the goods is

transformed into a different form, then, it is the value of

different form of goods which is to be taken into

108

consideration. If the declared goods after purchase, before

incorporation is transformed into a different commercial

goods and if it ceases to be a declared goods at the time of

incorporation, then Section 15 has no application to the

facts of this case. Then the State Legislature is at liberty to

impose uniform rate of tax and in the Schedule if it does not

fall within any one of the specified items, then the residuary

item Sl.No.23 is applicable. But if the declared goods after

purchase and at the time of incorporation continue to have

the same characteristic, then the restriction imposed on the

State Legislature to levy tax under Section 15 is attracted.

Therefore in each case, when dispute arises, depending upon

the facts of the case, first, finding is to be recorded about the

characteristic of the goods which is at the time of

incorporation and then decide the levy of tax.

33. Sixth Schedule to the Act, of which reference is

made under Section 4(1)(c) of the KVAT Act, reads as under:

109

23. All other works contracts not specified in any of the above categories including composite contracts with one or more of The above categories Fourteen and one half percent

Fourteen and one half percent

Sixth Schedule exclusively deals with works contract and the

rate of tax. Sl.No.1 to 22 is the description of different types

of works contract and rate of tax payable is the same. Only

in respect of Item 23, which is in the nature of residuary

works contract, the rate prescribed is fourteen and one half

percent.

34. Reliance is placed on two judgments of the

Australian Court by the revenue in support of their

contentions. In the case of BUILDERS ASSOCIATION OF

INDIA AND OTHERS REPORTED IN (1989) STC VOL.73

PAGE 370, the Apex Court had an occasion to consider both

the judgments i.e., in the case of Sydney Hydraulic and

Central Engineering Co. v. Blackwood & Son, 8 NSWSR

10, and M.R. Hornibrook (Pty.) Ltd. v. Federal

110

Commissioner of Taxation., [1939] 62 C.L.R. 272, which

reads as under:

“It is useful to refer at this stage to the

corresponding law in Australia. In Sydney

Hydraulic and Central Engineering Co. v.

Blackwood & Son, 8 NSWSR 10, the Supreme

Court of New South Wales held that the works

contract entered into between the parties which

came up for consideration in that case was one to

do certain work and to supply certain materials

and not an agreement for the sale or delivery of

the goods. Accordingly, no sales tax was payable

thereon. In 1932 the legislature intervened and

amended the statute of 1930 by introducing a

new provision, section 3(4) in the following terms:

“For the purpose of this Act, a person shall

be deemed to have sold goods, if, in the

performance of any contract (not being a contract

for the sale of goods) under which he has

received, or is entitled to receive, valuable

consideration, he supplies goods the property in

which (whether as goods or in some other form)

passes, under the terms of the contract, to some

other person.”

111

After the above amendment there arose a

case in Australia regarding the liability of a

contractor to pay sales tax on the transfer of

goods involved in a works contract, namely, M.R.

Hornibrook (Pty.) Ltd. v. Federal Commissioner of

Taxation., [1939] 62 C.L.R. 272. The relevant

facts involved in that case were these. M.R.

Mornibrook (Pty.) Ltd. was a builder and a

contractor and in addition to manufacturing

ironwork and goods for use in contracts

undertaken, manufactured items of plants for its

own use. In the years 1934 and 1935, M.R.

Hornibrook (Pty.) Ltd., constructed under contract

for Hornibrook Highway Ltd. at a price set out in

the contract, the Hornibrook Highway connecting

Sandgate and Redcliffe, Queensland. Part of the

highway consisted of a bridge of 1 ¾ miles in

length over an arm of Moreton Bay. The bridge

was built on reinforced concrete piles, which were

driven into the bed of the sea in series of three in

line, each set of three being connected by a

headstock of reinforced concrete. The piles varied

in length depending upon the depth to which they

had to be driven into the bed of the sea. They

were made of a mixture of cement, crushed metal,

112

sand and water, and reinforced with steel bars.

The piles were constructed on the bank of

Moreton Bay adjacent to the site of the bridge.

The headstock was built in the same manner as

the piles. So far as was known, concrete piles of

the class used in the construction of the bridge

were not manufactured for sale anywhere in

Australia, nor were they an article of commerce in

Australia or anywhere else in the world. Such

piles had not been standardized because the

construction of each pile depended upon the

particular load which it was to carry and the

nature of the ground into which it was to be

driven, and therefore, each pile in a job might be

different from every other pile in it in length.

When the sales tax authorities made an

assessment in respect of the value of the piles,

M.R. Hornibrook (Pty.) Ltd. contended that the

said piles had no sale value within the meaning

of the Sales Tax Assessment Acts, that the said

piles were not a “manufacture” or “goods

manufactured” within the meaning of the Sales

Tax Assessment Acts, and that the said piles

formed part of a bridge and were built on the job

and were not article of commerce and were not

113

procurable from any third person and were not of

a class of goods manufactured for sale by any

person and therefore the price of piles was not

liable to payment of sales tax. Latham, C.J. with

whom Justice Rich and Justice Starke agreed

(Justice McTiernan dissenting) held as under:

"Sec. 3(4) of the Act, referred to in part f

above quoted, was at the relevant time in the

following form: 'For the purposes of this Act, a

person shall be deemed to have sold goods, if, in

the performance of any contract under which he

has received or is entitled to receive valuable

consideration he supplies goods, the property in

which (whether as goods or in some other form)

passes under the terms of the contract to some

other person.”

In my opinion the commissioner is right in

his contention that this provision applies to the

present case. The appellant-company, in the

performance of a contract for building a bridge

under which contract it was entitled to receive

and doubtless has received valuable

consideration, has supplied goods, namely,

reinforced concrete piles. Such piles are plainly

114

manufactured articles. They are chattels. They

were intended to be incorporated in a structure

and were so incorporated. They lost their identity

as goods in that structure. But this fact does not

prevent the piles from being goods any more than

it prevents bricks or stones or nuts and bolts from

being goods. The fact that the goods were

specially manufactured and designed for a

particular purpose cannot be held to deprive them

of the character of goods."

Sub-clause (b) of clause (29-A) of Article

366 of the Constitution of India more or less has

adopted the language used in section 3(4) of the

Australian Act.

35. From the aforesaid facts, it is clear that the

question before the Australian Court was not whether the

iron and steel used in the construction of piles seems to be a

declared goods at the time of incorporation of the same in

the bridge. The question which arose for consideration was,

by using iron and steel, piles were constructed on different

sizes, different lengths depending upon the depth to be

115

driven under the bed of the sea. Thereafter, the headstock

was built in the same manner as that of the piles. Concrete

piles of the class used in the construction of the bridge were

not manufactured for sale anywhere in Australia, nor they

were an article of commerce in Australia or anywhere else in

the world. It is in that context, it was held that piles itself is

a goods in the structure which is used in construction of the

bridge and therefore, chargeable to tax. Therefore, the said

judgment has no application to the facts of the case.

36. Reliance was also placed on the judgment of this

Court in the case of B.V.SUBBA REDDY VS. DEPUTY

COMMISSIONER OF COMMERCIAL TAXES

(ASSESSMENTS), BIJAPUR AND ANOTHER REPORTED IN

(2008) VAT AND SERVICE TAX CASES VOL.11 PAGE 715,

where this Court has held as under:

12. Section 5B of the Act is the charging

provision. It says that notwithstanding anything

contained in Sub-section (1) or Sub-section (3) or

Sub-section (3C) of Section 5, but subject to Sub-

116

section (4), (5) or (6) of Section 5 of the Act, a

dealer is liable to tax on his taxable turnover of

transfer of property in goods (whether as goods or

in some other form) involved in the execution of

works contract for each year at the rates

mentioned at column (3) of the Sixth Schedule.

13. Entry No. 6 of the Sixth Schedule

provides for civil works like construction of

buildings, bridges, roads, etc. The rate of tax for

the relevant assessment year is 8 per cent.

14. It is not in dispute nor it can be

disputed by both sides that a contract had been

awarded to the petitioner for construction of a

bridge. For that purpose the dealer/contractor

has purchased iron and steel and has utilised the

same for the purpose of construction of the bridge.

Iron and steel purchased by him are used not in

the same form as iron and steel but are used for

the purpose of construction of a bridge. Therefore,

liability of the dealer would squarely come under

entry No. 6 of the Sixth Schedule to the Act.

Keeping this aspect of the matter in view, the

Tribunal has accepted the reasoning of the

117

revisional authority while confirming the order

passed by the revisional authority.

37. Therefore, what follows from the aforesaid

judgments is that, the iron and steel is purchased from the

contractor are not used in the same form as iron and steel at

the time of incorporation of the same in the construction of

the bridge, the liability of the tax at serial No.23 is attracted.

If the iron and steel purchased by him is used in the same

form, it continues to be a declared goods and serial No.23 is

not attracted. The State has no power to levy tax more than

what is prescribed under Section 15 of the Act. Therefore,

the said judgment has no application to the facts of this

case.

38. Then reliance is placed on the judgment in the

case of ALGURAM HARINARAYAN RAM VS. ASSISTANT

COMMISSIONER OF SALES TAX, CUTTACK RANGE

118

REPORTED IN 1971 V.27 STC PAGE 385, wherein at paras

3 and 4 it has been held as under:-

“3. xxxxxxxxxxxxxxx Even though the

longer iron rods are cut into pieces, they continue

to remain as iron rods. The assessing authorities

were wrong in taxing the petitioners at five per

cent. under entry 68 which speaks of other

articles.

4. So far as the B.P. sheets are concerned,

the entry says that iron plates sold in the same

form in which they are directly produced by the

rolling mill are to be taxed at two per cent. Once

the plates are cut into pieces they cannot be said

to retain the form in which they were directly

produced by the rolling mill. The word 'form'

according to the Oxford Dictionary carries the

meaning 'shape or configuration'. Once the bigger

plate is cut into pieces according to the wishes of

the customers the plate cannot be said to retain

the form, at any rate the form which it had when

it was produced directly by the rolling mill. Such

cut iron plates were rightly assessed at five per

cent.”

119

39. As could be seen from the aforesaid reasoning,

there is an inconsistency between para No.3 and para No.4.

If an iron rod after it is cut, the pieces continue to remain as

iron rod. We fail to understand as to how a B.P. sheet after

it is cut into small plates, the same B.P.sheet transforms

into altogether a new product.

40. The Allahabad High Court in the case of

TRIVENI STRUCTURALS LIMITED VS COMMISSIONER,

TRADE TAX, U.P., LUCKNOW reported in (2009) 20 VST

760 (All), dealing with a case where after purchase of iron

and steel, it was used in the manufacturing of structure,

which were subsequently used in the execution of the works

contract. The Assessing authority levied the tax on the value

of the steel structure used in the execution of the works at

the rate of 8 percent. Levy of tax has been upheld by the

authorities. In that context, it was held that when the

Tribunal has recorded a categorical finding of fact, that the

items which were used in the execution of the works contract

120

were not the same which were purchased, then the said

structure ceases to be a declared goods and is liable to be

taxed under the State legislation. There is no quarrel with

the aforesaid proposition. Therefore, the question in each

case is, whether after purchase of iron and steel, before it is

incorporated into a building, bridge or any other structure in

the course of execution of the works contract, has it been

transformed altogether into another goods. If it is so, it

ceases to be a declared goods and taxable at the rate

prescribed under the State legislation. However, if the iron

and steel continues to be in the same form from the time it

was purchased and after it was incorporated in the buildings

or any work undertaken, it continues to be a declared goods

at the time of incorporation, the power of the State to levy

tax over and above what is prescribed under the CST is not

permissible.

41. In the instant case, it is not in dispute that the

petitioner purchased iron and steel for the purpose of

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execution of works contract. The nature of work involved is

civil work. The iron and steel which is purchased by the

petitioner is used in casting beams, pillars, slabs and roofs.

For the purpose of casting the said roofs, beams, iron and

steel is cut to a particular size and then are arranged in the

shape of beams, pillars, roof with the help of binding wire.

Thereafter, concrete mixture is poured into it. Merely

because iron and steel are cut into a particular length

depending on the requirement and they are bound by wire

and converted into a particular shape, the iron rod and steel

do not lose their original characteristic. It continues to be

the same product. Even after these beams, pillars, roofs are

cast, the rod and steel continues to be in the same position

in the building or the bridge which is constructed. At no

point of time the iron and steel is transformed into a new

product/goods. There is no value addition to the said steel

rods and beams. In fact, steel rods are used only to reinforce

the cement concrete. It is used because it is iron and steel

rod and it continues to be iron and steel rod even after the

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completion of the building or the bridge which is

constructed, in which these iron and steel rods are used.

Therefore it continues to be the declared goods. By virtue of

Section 15 of the CST Act, the State has an authority to

impose tax. It cannot impose tax more than the tax

prescribed in Section 15 of the Act.

42. Therefore the Assessing Authority was justified

in levying tax on these iron and steel rods at 4% and the

Revisional Authority was not justified in proposing tax at the

rate of 12.5% relying on Sl.No.23 of Sixth Schedule.

POINT NO. 2 – ‘TAX’ LEVIABLE AT WHAT STAGE

43. Section 15(a) of the CST Act, 1956 prior to

Finance Act 2002, read as under:

“15. xxxxx



inside the State shall not exceed 5% of the sale or

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purchase price thereof and such tax shall not

be levied at more than one stage.”

44. With the introduction of VAT which provides for

taxation at more than one stage, the aforesaid words are

omitted by Finance Act 2002. However, the learned Single

Judge did not notice this change in law while framing the

question for consideration.

45. Karnataka Value Added Tax Rules 2005, for

short, hereinafter referred to as ‘Rules’ provides for

determination of turnover in Rule 3. Sub-Rule(1) of Rule 3

reads as under:-

“3. Determination of turnover.- (1) The total

turnover of a dealer, for the purposes of the Act,

shall be the aggregate of.-

(a) the total amount paid or payable by

the dealer as the consideration for

the purchase of any of the goods in

respect of which tax is leviable under

sub-section (2) of Section 3;

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(b) the total amount paid or payable to


the sale, supply or distribution of any

goods where such sale, supply or

distribution has taken place inside

the State, whether by the dealer

himself or through his agent;

(c) the total amount paid or payable to


transfer of property in goods

(whether as goods or in some other

form) involved in the execution of

works contract including any amount

paid as advance to the dealer as a

part of such consideration;

(d) the total amount paid or payable to


transfer of the right to use any goods

for any purpose (whether or not for

specified period);

(e) the total amount payable to the

dealer as the consideration in respect

of goods delivered on hire purchase

or any system of payment by

instalments;

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(f) the aggregate of the sale prices

received and receivable by the dealer

in respect of sale of any goods in the

course of inter-state trade or

commerce and export out of the

territory of India and sale in the

course of import into the territory of

India; and

(g) the value of all goods transferred or

despatched outside the State

otherwise than by way of sale.

46. By notification dated 27.05.2006, an explanation

was inserted with effect from 01.04.2006. The said

Explanation reads as under:

“Explanation.- Any amount paid as

advance to a dealer as a part of

consideration for transfer of property in

goods (whether as goods or in some other

form) involved in the execution of a works

contract shall be included in his total

turnover in the month in which execution of

such works contract commences.”

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This explanation is challenged on the ground it is

ultravires.

47. The word ‘total turnover’ has been defined in

Section 2(35) of the KVAT Act. It reads as under:

“35) ‘Total turnover’ means the aggregate

turnover in all goods of a dealer at all

places of business in the State, whether or

not the whole or any portion of such

turnover is liable to tax, including the

turnover of purchase or sale in the course

of interstate trade or commerce or in the

course of export of the goods out of the

territory of India or in the course of import

of the goods into the territory of India and

the value of goods transferred or

despatched outside the State otherwise

than by way of sale.”

48. The word ‘turnover’ has been defined in Section

2(36) of the KVAT Act. It reads as under:

“36) ‘Turnover’ means the aggregate amount

for which goods are sold or distributed or

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delivered or otherwise disposed of in any of

the ways referred to in clause (29) by a

dealer, either directly or through another, on

his own account or on account of others,

whether for cash or for deferred payment or

other valuable consideration, and includes

the aggregate amount for which goods are

purchased from a person not registered

under the Act and the value of goods

transferred or despatched outside the State

otherwise than by way of sale, and subject

to such conditions and restrictions as may be

prescribed the amount for which goods are

sold shall include any sums charged for

anything done by the dealer in respect of the

goods sold at the time of or before the

delivery thereof.”

The explanation reads as under:

“Explanation.-

The value of the goods transferred or despatched

outside the State otherwise than by way of sale,

shall be the amount for which the goods are

ordinarily sold by the dealer or the prevailing

market price of such goods where the dealer does

not ordinarily sell the goods.”

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49. From the aforesaid definition it is clear that

turnover means the aggregate amount for which goods are

sold or distributed or delivered or otherwise disposed of in

any of the ways referred to in clause (29) by a dealer.

Therefore unless there is a sale of the goods, the amount

realized by way of such sale cannot form part of turn over.

50. Sub-Clause (b) of clause 29A of Article 366 of

the Constitution, which defines the tax on the sale or

purchase of goods 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.

51. Section 7 of the KVAT Act, reads as

under:-

“7. Time of sale of goods


in the Sale of Goods Act, 1930 (Central Act 3 of

1930), for the purpose of this Act, and subject to

sub-section (2), the sale of goods shall be deemed

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to have taken place at the time of transfer of title

or possession of incorporation of the goods in the

course of execution of any works contract

whether or not there is receipt of payment:

Provided that where a dealer issues a tax

invoice in respect of such sale within fourteen

days from the date of the sale, the sale shall be

deemed to have taken place at the time the

invoice is issued.

(2) Where, before the time applicable in

sub-section (1), the dealer selling the goods issues

a tax invoice in respect of such sale or receives

payment in respect of such sale, the sale shall, to

the extent that it is covered by the invoice or

payment, be deemed to have taken at the time

the invoice is issued or the payment is received.

(3) The Commissioner may on an

application of any dealer exempt such dealer

subject to such conditions as he may specify,

from the time specified in sub-section (1).”

52. Section 7 of the Act makes it explicitly clear that

notwithstanding anything contained in the Sale of Goods

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Act, 1930, for the purpose of Value Added Tax Act, the sale

of goods shall be deemed to have taken place at the time of

transfer of title or possession or incorporation of the goods in

the course of execution of any works contract whether or not

there is receipt of payment.

53. Therefore the sale of goods takes place either by

transfer of title or by delivery of possession or at the time of

incorporation of the goods in the course of execution of any

works contract. It is a deeming provision. Therefore for any

amount to be included in the turnover, the condition

precedent is there should be a sale or delivery of possession

or incorporation of the goods in the course of execution of

any works contract. If none of these events have happened,

there is no turnover. In consideration of entering into the

works contract, if amounts are paid in advance as

mobilization advance, that amount is paid to the contractor

to take steps to execute the work. On the date the amount is

paid, the contractor neither transfers title in the property nor

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delivers possession nor incorporates any goods in the work.

Therefore the question of treating the advance amount paid

as part of consideration for transfer of property in goods

would not become turnover and therefore the explanation

added to Rule 3 with the object of levying sales tax on

advance receipt runs counter to the aforesaid statutory

provisions as well as the constitutional provisions. Therefore

the learned Single Judge was justified in holding that the

explanation is unconstitutional. Therefore no fault could be

found in the said order of the learned Single Judge.

POINT NO. 3

54. In order to answer the said question, it is

necessary to find out that after purchase of MS.plates and

sheets, before it was incorporated, what are the activity

carried out by the assessee at the time of incorporation and

in what form the MS sheets were embedded to the earth.

55. Learned senior Counsel today, has given us the

written note explaining the activity that the assessee has

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undertaken from the time MS sheets were purchased till the

time it was incorporated. It reads as under:

Nature of work:

Mounded LPG, storage system package for

phase III – refinery project of MRPL, Mangalore –

This includes residual process engineering,

design, detailed engineering preparation of all

drawings, schemes, procurement of material,

supply fabrication, construction, erection,

assembly, inspection, testing, cathodic protection,

civil works, structural work and RCC retaining

wall, concrete tunnels around mound vessels,

piping work sand bed, mound, hard stand, soil

strengthening, drains, electrical and

instrumentation works, fire protection system,

pumps and instrumentation, insulation, fire

proofing, site insulation of pumps, gauges

providing temporary works and equipments for

completion, pre-commissioning, commissioning,

required tools and tackles, complete all work in

respect of turnkey basis and system performance

guarantee of LPG storage and transfer system to

the entire satisfaction of inspection authority and

engineering in charge.

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Dimension of Mounded Vessels

1. Number of Vessels - 4 nos.

2. Diameter – 7000 mm each

3. Length – 97,058 mm each

4. Weight – 956 MT each

5. Thickness of Plate – 48 MM, 45 MM, 42

MM

As per the drawings are procured from Steel

Authority of India Ltd. For quantity of 3800 mt.

The plates so procured are used in the execution

of works contract i.e., for making sections. The

plates are rolled as per required diameter by

using rolling machine. The two ends are joined

by welding. The engineering inspection agency

will check the diameter and welding etc. as per

drawings and specifications are cleared for

further test like PWHT, radiography and hydro

testing. These rolled cells are called the sections

of the mounded vessel. There will be 44 sections.

These sections are painted and are transported to

the mound site to place on the foundation where

piece by piece it is erected, installed and welded

and fixed to the earth.

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56. The shape of the vessel looks like a bullet.

Hence, it is called bullet vessel. The major raw material

used in making sections and pipe spools are iron and steel

plates and pipes and consumables like electrodes, gases,

paint etc. The pipes are used for making pipe spools which

are subsequently transported to the mounded site for further

piping work around the system as per drawings and

specifications. For the above process of making sections and

pipe spools at fabrication yard, as per the excise rules, the

petitioner has taken the Central Excise Registration. Excise

duty is payable on the process/fabrication of sections and

pipe spools at the time of clearance. It is called a mounded

vessel because it has a shape of mound which includes the

civil activities like excavation, making RCC retaining wall,

drainage system and then cover up by sand filling. The

system is totally surrounded by sand covered with stones

and brick pitching keeping open only the inlets and outlets

of the vessel. The fittings such as valves, instruments, fire

fightings and security system are supplied directly to the

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party which will get fitted to the system/package. These are

directly sold to the party under Section 6(a) of the CST. The

above work involved is total package for LPG mounded

storage system. The total price is a lump sum price on

Turnkey basis and break up of lump sum price mentioned in

the contract is for interim payment purpose only and not

break up of the work. However, the total contract price

remains same for the execution of entire contract. After

completing the above activities the total system is pre-

commissioned and then commissioned and handed over for

the operation.

57. The tax invoice is also made available to them.

It is dated 6.9.2010. The invoice is raised in the name of the

petitioner. The total costs towards supply of Bullet section

inside the Refiners Bullet Section is Rs.20,47,80,859. The

basic excise duty paid is Rs.2,04,78,086/- From the

aforesaid description it is clear that the plates so procured

are used in the execution of works contract i.e. for making

sections. The plates are rolled as per required diameter by

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using rolling machine. The two ends are joined by welding.

These sections are painted and are transported to the mound

site to place on the foundation where piece by piece it is

erected, installed and welded and fixed to the earth. After all

sections are installed it becomes a vessel called bullet vessel.

Therefore, at the time of incorporation, the goods which is

transported is not in the form of plates but in the form of

sections. Therefore, the contention that at the time of

incorporation, the goods do not lose the character of a plate

cannot be accepted. In fact these plates are purchased for

the purpose of manufacturing of bullet tank. Having regard

to the size and weight of the bullet tank each mounded

vessel consists of 11 Sections and these sections are

fabricated and processed at the yard and then it is

embedded into the earth. When all these 11 sections are

embedded, it takes the shape of a bullet tank. It makes no

difference. Because the steel plates are purchased for the

purpose of manufacturing of the bullet tanks, the petitioner

has paid excise duty. If the petitioner were to use the steel

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plates as it is, there was no liability to pay Central Excise

duty at all.

58. Section 2(f) of The Central Excise Act, 1944

defines what the manufacture under the Act means as

follows:-

“(f)”manufacture” includes any process-

(i) incidental or ancillary to the completion of a

manufactured product;

(ii) which is specified in relation to any goods

in the section or Chapter notes of [The First

Schedule] to the Central Excise Tariff Act, 1985(5

of 1986) as amounting to [manufacture; or]

(iii) which in relation to the goods specified in

the Third Schedule, involves packing or repacking

of such goods in a unit container or labelling or re-

labelling of containers including the declaration or

alteration of retail sale price on it or adoption of

any other treatment on the goods to render the

product marketable to the consumer;]

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and the word “manufacture” shall be construed

accordingly and shall include not only a person

who employs hired labour in the production or

manufacture of excisable goods, but also any

person who engages in their production or

manufacture on his own account;]”

59. Similarly, Section 2(29BA) of the Income Tax

Act, 1961 defines what a manufacture as under:-

“(29BA) “manufacture”, with its

grammatical variations, means a change in a

non-living physical object or article or thing.-

(a) resulting in transformation of the

object or article or thing into a new and distinct

object or article or thing having a different name,

character and use; or

(b) bringing into existence of a new and

distinct object or article or thing with a different

chemical composition or integral structure;]

60. The work undertaken by the petitioner before

incorporation of the steel plates falls within the definition of

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“manufacture” under both the enactments. In other words,

the steel plates before it was incorporated has undergone the

process of manufacture and ceased to be the steel plates and

it has taken the form of either section or bullet tank.

Therefore, the value of the steel plates at the time of

acquisition is not the same at the time of incorporation. It

was the declared goods at the time of acquisition. It ceased

to be declared goods at the time of incorporation. Before

incorporation there is value addition to the Steel plates by

the process of manufacture. Therefore, the prohibition

contained under Section 15 of the CST is not attracted and

the State Legislature has the power to levy tax in terms of

Item No.23 of Sixth Schedule on these goods as it does not

fall within any of the categories mentioned from Item Nos.1

to 22 and also for the reason that it is not a declared goods

as stipulated under Section 14 of the CST Act.

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61. In that view of the matter, the authorities were

justified in levying tax at 12.5% in terms of Item No.23 of

Sixth Schedule on the bullet tanks.

62. All the connected revision petitions were allowed

by the Karnataka Appellate Tribunal relying on the judgment

of the learned Single Judge and accordingly, the appeals

were allowed. It is against that order, the State has

preferred these revision petitions before this Court. In view

of the fact that we have upheld the order of the learned

single Judge, insofar as levying of tax on iron and steel as

well as the provision relating to liability of tax on advance is

quashed, the said revision petitions are also liable to be

dismissed. Hence, we pass the following:-

O R D E R

Writ appeals are partly allowed.

(a) The finding of the learned single Judge that the

State Legislature has no competence to levy tax contrary to

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Section 4(1)(C) of the Act used in construction activity is

upheld;

(b) The finding of the learned single Jude that

explanation to Rule 3(1) of the Rules is ultra vires Section 7

of the Act as well as Article 366 (29A)(b) of the Constitution

is upheld;

(c) The order passed by the authorities imposing tax

at 12.5% on steel sections of bullet tank is upheld.

In W.A.No.740/2011, the counsel for the assessee

submits that they have not claimed any concessional rate of

tax in respect of grills, gates and windows which are

manufactured out of iron and steel rods and they have

confined their claim only to the raw material used for the

construction of the beams, columns and pillars. In the light

of what we have stated above, they are entitled to the said

benefit.

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Ordered accordingly. The parties to bear their own

costs.

Sd/- JUDGE

Sd/- JUDGE

Nvj/ckl/ksp/alb/-

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