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2017 (4) TMI 731 - HC - VAT and Sales TaxWorks contract - the Central Air Conditioning Plant (CAP) and the Packaged Air Conditioning Plant (PAP) - whether indivisible works contract or outright sale? - Held that - reliance was placed in the case of State of Andhra Pradesh Versus Kone Elevators (India) Ltd. 2005 (2) TMI 519 - SUPREME COURT OF INDIA , in short Kone-I . Based on the ratio deducible from the Judgment of the Supreme Court, rendered in Kone-I, the Assistant Commissioner/Assessing Officer came to the conclusion that the transaction in issue involved outright sale and was thus, amenable to tax at the rate of 20% - It however transpires that the Judgment rendered by the three judge bench of the Supreme Court in Kone-I has been overruled by the Constitution Bench of the Supreme Court by the case of KONE ELEVATOR INDIA PVT.LTD. V. STATE OF TAMIL NADU AND OTHERS 2014 (5) TMI 265 - SUPREME COURT in short KONE-II - whether the transaction in issue related to a composite contract or not would have to be re-examined by the Assistant Commissioner/Assessing Officer keeping in mind the ratio of the Judgment of the Supreme Court in Kone-II - The test employed by the Assistant Commissioner/ Assessing Officer in the impugned Judgment is no longer valid. Whether machine tools sold by the petitioner against Form-XVII declarations were to be taxed at concessional rate, (i.e. at the rate of 3%) under Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959? - Held that - the Assistant Commissioner/Assessing Officer has wrongly placed the onus on the petitioner to establish as to whether or not the machine tools sold by it had been consumed or not. Clearly according to us, once a declaration is furnished by the buyer in Form- XVII, the Department would have to ascertain from the buyer as to whether or not the machine tools had in fact been consumed - the matter requires reconsideration. Appeal allowed by way of remand.
Issues Involved:
1. Whether the Central Air Conditioning Plant (CAP) and the Packaged Air Conditioning Plant (PAP) constituted indivisible works contracts or outright sales. 2. Whether machine tools sold against Form-XVII declarations were to be taxed at a concessional rate under Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959. Issue-wise Detailed Analysis: 1. Indivisible Works Contracts vs. Outright Sales: The primary contention was whether the CAP and PAP transactions were indivisible works contracts or outright sales. The Department proposed treating these transactions as outright sales and taxing them at 20%, amounting to ?22,36,45,608/-. The petitioner argued that these were indivisible works contracts. The Assistant Commissioner/Assessing Officer relied on the Supreme Court's judgment in STATE OF ANDHRA PRADESH VS. KONE ELEVATORS (INDIA) LIMITED (Kone-I), which distinguished between a "contract for sale" and a "works-contract". The judgment emphasized that the intention of the parties and the nature of the obligations under the contract are crucial in determining the nature of the transaction. The Assistant Commissioner concluded that the transactions were outright sales based on the predominant intention of the parties to supply packaged air conditioners, with erection work being nominal. However, this judgment (Kone-I) was later overruled by the Constitution Bench of the Supreme Court in KONE ELEVATOR INDIA PVT. LTD. V. STATE OF TAMIL NADU AND OTHERS (Kone-II). The Supreme Court in Kone-II clarified that if a contract is composite and falls under the definition of works contracts as per Article 366(29A)(b) of the Constitution, the incidental part regarding labor and service is insignificant for determining the contract's nature. The dominant nature test or the degree of labor and service test is not applicable. The Court emphasized that a composite contract for supply and installation should be treated as a works contract. Therefore, the Assistant Commissioner/Assessing Officer's reliance on Kone-I was misplaced, and the transaction's nature needs re-examination based on the Kone-II judgment. 2. Concessional Rate under Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959: The second issue was whether machine tools sold against Form-XVII declarations should be taxed at a concessional rate of 3%. The Assistant Commissioner/Assessing Officer ruled against the petitioner, placing the onus on the petitioner to prove whether the machine tools were consumed as per the declarations. The Court referred to the Division Bench judgment in SHREE MURUGAN ENGINEERING PRODUCTS VS. COMMERCIAL TAX OFFICER, COIMBATORE, which held that the selling dealer is not liable for wrong declarations by the purchasing dealer. The onus is on the Department to ascertain from the buyer whether the machine tools were consumed as declared. Therefore, the Assistant Commissioner/Assessing Officer's approach was incorrect, and this aspect requires reconsideration. Conclusion: Both issues require re-examination by the Assistant Commissioner/Assessing Officer. The impugned order is set aside, and the matter is remanded for reconsideration in line with the Supreme Court's judgment in Kone-II and the Division Bench judgment in SHREE MURUGAN ENGINEERING PRODUCTS. The writ petition is disposed of accordingly, with no costs.
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