2024 (12) TMI 1130 - HC - VAT / Sales Tax

Taxability - supply of PSC sleepers would amount to execution of a works contract or not - HELD THAT - In K. Raheja Development Corporation vs. State of Karnataka 2005 (5) TMI 7 - SUPREME COURT , the Hon ble Supreme Court was considering the taxability of a development agreement between land owners who had offered the land for construction of a multi-storied apartments and Commercial Complexes and the developer who took up construction, under this agreement. The Hon ble Supreme Court after considering the definition of works contract , contained in the Karnataka Sales Tax Act, which is in pari materia with the definition contained in APGST Act, had held that an agreement for construction of apartments, for a valuable consideration or in installments would amount to a works contract. In the present case, the petitioner is in regular manufacture of these sleepers which are supplied not only to Indian Railways but also to other dealers. Though the fact that the PSC Sleepers are made according to the specifications of Indian Railways, may be a significant factor which has to be taken into account, the fact remains that these sleepers are manufactured in the regular course of manufacture by the petitioner. In such circumstances, it may not be appropriate to conclude that the contract in question was a works contract and not a contract of sale. In view of the non-exclusive nature of supply and in view of the facts mentioned above, this Writ Petition is allowed setting aside the Assessment Order dated 28.05.2009, passed by the Assessing Authority.

Summary

Issues:
Interpretation of works contract under APGST Act, 1957 for supply of PSC Sleepers.

Detailed Analysis:

The petitioner, a Registered Dealer under the AP VAT, manufactured Pre-stressed Concrete Sleepers (PSC Sleepers) supplied to Indian Railways and other dealers, paying tax @ 4%. The Assessing Officer disagreed, assessing turnover @ 4% for some goods and 12.5% for sleepers, considering it a works contract under Section 2(t) of the APGST Act, 1957.

The petitioner challenged the assessment, citing the Hon'ble Supreme Court's judgment in Hindustan Ship Yard Limited vs State of Andhra Pradesh and judgments of the Hon'ble High Court of Gujarat. The Assessing Officer, however, relied on the judgment in K. Raheja Development Corporation vs. State of Karnataka to support the works contract classification.

In K. Raheja Development Corporation vs. State of Karnataka, the Supreme Court held that an agreement for construction for valuable consideration constitutes a works contract. The Assessing Officer contended that PSC Sleepers, being specialized goods made to Indian Railways' specifications, do not qualify as goods known to the market, thus not eligible for treatment as sales.

The Court differentiated the case from K. Raheja Development Corporation, emphasizing that the judgment pertained to construction agreements, not mere supply of goods like PSC Sleepers. The petitioner argued that since the sleepers were regularly manufactured and supplied to multiple parties, it should be considered a sale contract, not a works contract.

The Court noted the thin line between sale and works contract, emphasizing the need to assess whether goods were manufactured based on an agreement or in the regular course of business. Given the regular manufacture and supply of sleepers to multiple parties, the Court ruled in favor of the petitioner, setting aside the assessment order.

The judgment allowed the Writ Petition, quashing the Assessment Order, with no costs imposed. Any pending miscellaneous petitions were directed to be closed as a result of the judgment.