2006 (2) TMI 608 - HC - VAT and Sales Tax

Issues Involved:
1. Liability to tax under the Assam General Sales Tax Act, 1993.
2. Classification of business transactions as "works contract."
3. Transfer of property in goods and its tax implications.
4. Applicability of precedents and constitutional provisions.

Detailed Analysis:

1. Liability to Tax under the Assam General Sales Tax Act, 1993:
The primary issue is the imposed liability to tax under the Assam General Sales Tax Act, 1993 ("the Act") on the petitioners for different assessment periods. The petitioners contended before the respondent-authorities that their business nature did not warrant such tax demands, claiming that the process involved in their business did not constitute a sale of goods or transfer of property in goods as per section 8(i)(e) of the Act. However, the respondent No. 3 made summary assessments for the years 1993-94 to 1998-99, raising demands for various amounts payable as tax under the Act. Appeals against these assessments were dismissed by the Deputy Commissioner of Taxes (Appeals), confirming the tax liability.

2. Classification of Business Transactions as "Works Contract":
The petitioners argued that their business transactions could not be considered as "works contract" within the meaning of the Act. They claimed that no transfer of property in goods was involved, and their activities were service-based, inseparable from the materials used in the process. The respondent-authorities, however, held that the petitioners were engaged in "works contract" as defined under section 2(38)(iv) of the Act, thus chargeable to tax under section 8(1)(e) of the Act, in view of article 366(29A) of the Constitution of India and entry No. 24 of Schedule VI of the Act.

3. Transfer of Property in Goods and Its Tax Implications:
The petitioners contended that their business transactions did not involve any transfer of property in goods, and therefore, no tax was leviable under section 8(1) of the Act. They argued that the materials used in the process, such as photo paper and chemicals, were inseparable from the service provided, and thus, no transfer of property in such materials was conceivable. The respondents, however, maintained that the transfer of property in goods involved in the execution of the works contract attracted tax liability under the Act, as photo papers, chemicals, etc., were involved at the delivery of the finished products to the customer.

4. Applicability of Precedents and Constitutional Provisions:
The petitioners relied on several decisions, including Rainbow Colour Lab v. State of Madhya Pradesh, to support their arguments. However, the learned Additional Advocate-General countered that the decision in Rainbow Colour Lab was no longer good law in light of the subsequent decision in Associated Cement Companies Ltd. v. Commissioner of Customs. The court noted that the decision in Rainbow Colour Lab ran counter to the express provision contained in article 366(29A) and the Constitution Bench decision in Builders' Association of India v. Union of India. The court held that even if the dominant intention of the contract is to render a service, after the 46th Amendment of the Constitution, the State was empowered to levy sales tax on the materials used in such contracts.

Conclusion:
The court concluded that the impugned assessment and demand did not suffer from any lack of jurisdiction or vitiating illegality. The petitions were dismissed, and it was observed that the decision in Associated Cement Companies Ltd. had by implication overruled the ratio in Rainbow Colour Lab. The matter was suggested to be placed before the honourable Chief Justice for appropriate orders to refer the issue to a larger Bench for a binding resolution.

Petitions dismissed.

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