2018 (5) TMI 278 - HC - VAT and Sales Tax

Works contract - Deduction of resale - it was alleged that the petitioner had sold the pipes and not plates and since pipe is a commodity different from plate, the petitioner is not entitled to deduction of resale as was allowed in the assessment proceedings - whether was there any contract for supply / sale of steel plates between the petitioner contractor and the Board and / or whether transaction of supply and sale of steel pipes used in execution of work contracts can be said to be sale within the definition of Section 2(28) of the Act or whether the same can be said to be resale as contended on behalf of the petitioner- contractor? Held that - it cannot be said that there was any contract between the petitioner contractor and the Board for supply of steel plates. From the material on record, it appears that the petitioner had purchased the steel plates from M/s. Essar Steel Limited and M/s. Essar Steel Limited did not required tax from the petitioner as M/s. Essar Steel Limited was enjoying exemption under Section 49(2) of the Act. The steel plates converted into steel pipes after undergoing process by the job worker / third parties certainly results in emergence of a new and distinct commodity viz. steel pipes. The original plates does not remain the original plates. It becomes a steel pipes. Thus, in the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and thereafter steel pipes are supplied, it amounts to sale within the definition of Section 2(28) of the Act. Merely because in the contract for laying down pipelines, a particular quality and / or thickness of the steel plates were agreed to be used and / or even the steel plates were required to be purchased from the particular manufacturer, it cannot be said that there was a contract for supply / sale of steel plates as contended on behalf of the petitioner. As such there is no contract at all for sale / supply of steel plates by the petitioner contractor and the Board. Tribunal has not committed any error in confirming the order passed by the Revisional Authority and holding that the petitioner company contractor is liable to pay tax under the Act on manufacture and supply of steel pipes. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Nature of the contract (whether it was a sale of steel plates or steel pipes).
2. Applicability of sales tax on the transaction.
3. Legality of the penalty imposed under Section 45(6) of the Gujarat Sales Tax Act.

Issue-wise Detailed Analysis:

1. Nature of the Contract:
The primary issue was whether the contract executed by the petitioner was for the sale of steel plates or steel pipes. The petitioner argued that the contracts were indivisible works contracts (Engineering, Procurement, and Commissioning - EPC) requiring the design, procurement, and construction of pipelines. The petitioner contended that they purchased steel plates, converted them into steel pipes, and used these pipes in the execution of the works contract, thus claiming it was a resale of steel plates. The Tribunal, however, concluded that the contract was for the sale and supply of steel pipes, not steel plates. The Tribunal noted that the petitioner purchased steel plates, manufactured steel pipes through job work, and then used these pipes in the works contract, thereby constituting a sale of steel pipes.

2. Applicability of Sales Tax:
The petitioner claimed exemption from sales tax on the resale of steel plates, arguing that the transformation of steel plates into steel pipes did not create a new commodity exigible to tax. The Tribunal rejected this argument, holding that the conversion of steel plates into steel pipes resulted in a new and distinct commodity, thus constituting a manufacture. Consequently, the sale of steel pipes was taxable under the Gujarat Sales Tax Act. The Tribunal relied on precedents such as M/s. Pyare Lal Malhotra and Arihant Tiles and Marbles Pvt. Ltd, which established that the transformation of goods resulting in a new commercial commodity is taxable.

3. Legality of the Penalty:
The petitioner challenged the penalty imposed under Section 45(6) of the Act, arguing that there was no mens rea (intention to evade tax) and that they were under a bona fide belief that no tax was due. The Tribunal dismissed this argument, noting that the petitioner failed to consult any expert opinion or apply for a determination order under Section 62 of the Act. The Tribunal emphasized that the petitioner continued not to pay tax despite the clear provisions of the law, justifying the imposition of the penalty. The Tribunal held that the petitioner was liable to pay the penalty as they failed to pay the tax as required under sub-section (5) of Section 45 of the Act.

Conclusion:
The High Court upheld the Tribunal's decision, confirming that the contract was for the sale of steel pipes and not steel plates, making the transaction taxable. The Court also affirmed the penalty imposed under Section 45(6) of the Gujarat Sales Tax Act, concluding that the petitioner failed to demonstrate a bona fide belief or consult expert opinion regarding their tax liability. The petition was dismissed, and the rule was discharged with no costs.