2016 (4) TMI 483 - SC - VAT and Sales Tax

Levy of Sale tax - Contract entered for installation, erection and commissioning of Wind Energy Converter - Held that - a fundamental mistake which is committed by the authorities below is that foundation work or installation work, which is even considered as part of works contract by the Assessing Officer himself, cannot be treated as goods . Even if we proceed on the basis that such work does not fall within the expression Wind Mill , still it could not be treated as goods which could be exigible to sales tax under the Act. As the Assessing Officer himself classified such goods involved in execution of works contract. Once this was the opinion of the Assessing Officer and the part of work viz. foundation or erection work related to works contract, on this ground itself, no sales tax could have been charged thereon. Also even the First Appellate Authority proceeded on the basis that the work like foundation work, electrical work, commissioning etc. was series of activities and further that it was indivisible . On this finding as well, no further action to levy sales tax was required. - Apex Court decided the case in favour of appellant with consequential relief

Summary

Issues:
Validity and legality of the judgment and order dated 18.08.2004 passed by the High Court of Karnataka in Sales Tax Revision Petition No. 72 of 2002.

Analysis:

The appellant, engaged in the manufacture, sale, and commissioning of Wind Mills, sought exemption from sales tax under Entry 57 of the Fifth Schedule to the Karnataka Sales Tax Act. The Assessing Officer excluded the expenditure towards commissioning of Wind Mills, leading to a proposed taxable turnover. The appellant challenged this assessment, leading to a series of appeals and remands.

The High Court analyzed the meaning of "Wind Mills" under Section 8 and Entry 57 of the Act. It held that Wind Mills included essential components like rotor blades, hub assembly, nacelle, yaw system, tower, and grid synchronization assembly. However, it excluded foundation work from the exemption, deeming it not part of a Wind Mill. The High Court's decision was based on the interpretation of what constitutes goods falling within the ambit of Wind Mills.

Upon appeal to the Supreme Court, it was observed that foundation work or installation work, even if not falling under the definition of Wind Mills, could not be considered as goods subject to sales tax. The Court noted that the Assessing Officer himself classified such work as part of a works contract, which should not be subjected to sales tax. The Court further emphasized that the activities like foundation work, electrical work, and commissioning were indivisible and not liable for sales tax.

Consequently, the Supreme Court set aside the High Court's order, allowing the appeal with consequential relief. The judgment clarified that activities like foundation work, installation, and commissioning, although not qualifying as Wind Mills, should not be subject to sales tax under the Act.