2014 (4) TMI 731 - HC - VAT and Sales Tax

Rate of Tax Classification - Nature of Works Contract Entry 22 and 23 or under Entry 4 of the Sixth Schedule Clading - Interpretation of Statute - Held that - Insofar as the works contract, executed by the assessees, consisting of structural glazing, external cladding etc. are concerned, they are of two types - One, ACP cladding, glazed glass cladding etc., and two, glazed glass sheets of sufficient strength bonded to rigid rectangular aluminium frames fastened to the supporting RCC bases, pillars, roof edges etc., of a building - The word cladding , in the first type of works, itself is an indication that it is for covering or coating with metal (ACP) or glass and thus in any case it cannot be a substitute to external wall or it cannot serve as external wall - The works mentioned/described in the second type of works, however, could serve as external wall or a substitute to external wall - From the very nature of works classified by the Tribunal would show that it is not covered only by Entry-4 - It is found that the Tribunal has not taken into consideration the nature of work so as to hold that they are covered by Entry No.4 only - The order of the Tribunal is not only incomplete but it is perverse. Classification of Fabrication and external structural works - Entry 4 of the Sixth Schedule - Interpretation of Statute Held that - The expressions fabrication and external structural works are not defined in the Act - The structural glazing is not only fixing glasses so as to enhance the aesthetic quality and outlook of the building - Structural glazing, glass glazing etc. could be a substitute to external wall and if that be so, it would fall in the category of structural works as contemplated by Entry 4 - The Tribunal has not considered whether the nature of works executed by the assessees would fall under any other entry as was considered by the Assessing Authority and the appellate authority. Merely because, the assessees also undertakes to construct cabins in empty halls, it cannot be stated that it is a part of structural works and it amounts to structural works within the meaning of Entry 4 - This in opinion of this Court, would amount to interior work done for the client by the assessees - The Tribunal has not endeavoured to find out on the basis of the materials on record as to whether the works contracts executed by the assessees were composite in nature, as contemplated by Entry 23 This Court do not find any whisper in the order of the Tribunal of having considered whether any part of the contracts executed by the assessees would fall under Entry 3 or any other entry for that matter coupled with the works not covered by any other categories in Entries 1 to 21 - It has also not recorded any reason for either setting aside the findings recorded by the authorities below, holding the works contract as composite works contract or for disagreeing with such view - The impugned orders dated 20.10.2009 and 08.02.2010 passed by Tribunal are set-aside and the appeals, disposed of by the Tribunal are restored to file Matter Remanded back to Tribunal for Fresh consideration Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of Tribunal's decision on the nature of works contract being covered by Entry 4 in the Sixth Schedule.
2. Classification of works contracts as composite contracts under Entry 22 and 23.
3. Determination of whether the works executed by the assessees could be considered "structural works" under Entry 4.

Detailed Analysis:

Issue 1: Justification of Tribunal's Decision on Entry 4

The Tribunal's decision held that the nature of works contracts executed by the assessees fell under Entry 4 of the Sixth Schedule, attracting a 4% tax rate. The Tribunal classified the works executed by the assessees, such as ACP cladding and glazed glass cladding, as structural works. However, the High Court disagreed with this classification, emphasizing that the term 'cladding' implies covering or coating, which does not serve as an external wall but rather enhances the aesthetic look of the building. Therefore, the High Court found that the Tribunal's approach was casual and its order incomplete and perverse.

Issue 2: Classification of Works Contracts as Composite Contracts

The Assessing Authority and the First Appellate Authority (FAA) had classified the works contracts executed by the assessees as composite contracts falling under Entries 3, 4, and 23 of the Sixth Schedule, thus attracting a higher tax rate of 12.5%. The High Court supported this classification, noting that the works contracts involved various elements such as structural glazing, ACP cladding, and other related works, making them composite in nature. The High Court observed that the Tribunal failed to independently analyze the nature of the works contracts to determine whether they were composite contracts as contemplated by Entry 23.

Issue 3: Determination of "Structural Works"

The High Court examined whether the works executed by the assessees could be considered "structural works" under Entry 4. It concluded that structural glazing and glass glazing could be substitutes for external walls and thus fall under "structural works." However, ACP cladding and glass cladding, which only enhance the aesthetic look of the building, do not qualify as structural works. The High Court emphasized that the Tribunal did not adequately consider whether the nature of the works executed by the assessees fell under any other entry, as assessed by the Assessing Authority and the FAA.

Conclusion:

The High Court set aside the Tribunal's orders dated 20.10.2009 and 08.02.2010 and remanded the matter back to the Tribunal for fresh consideration. The Tribunal was instructed to dispose of the appeals on merits and in accordance with the law, considering the observations made by the High Court. The Tribunal was given a timeframe of eight months to complete this task, with all contentions of the parties kept open.