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TMI Blog2002 (6) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider it proper to reproduce the same in the body of this order. It may be pointed out that the assessee has taken eight similar grounds in all the three appeals, out of which ground No.8 is additional ground. The application of the assessee for admitting the additional ground (ground No.8) was considered and decided by us vide our order dated 7-1-2002. The detailed order for rejecting the prayer of the assessee has also been noted on the order sheet dated 7-1-2002. Thus, only seven grounds are to be adjudicated in each of these appeals. 4. Shri S.K. Garg, FCA appeared on behalf of the assessee and made detailed submissions. On behalf of the Department, Shri D.K. Shrivastava, ld. Sr. DR (CIT-ITAT), appeared and made oral as well as written submissions. It may be pointed out that the assessee had filed a paper book containing 372 pages. The assessee had also filed a brief synopsis of the case running into seven pages. This synopsis was submitted on 3-9-200l. In reply to the written submission of the assessee, the Department has also filed written submission dated 14-1-2002. These written submissions have been taken on record and are being considered, while adjudicating the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pliance of the provisions contained under section 194C and under section 201 of the Act and is, therefore, liable for income tax deduction at source as well as interest leviable on the amount of income tax deduction. He, thus, held that the assessee was liable for payment of income tax deduction at source and interest totalling to Rs. 8,18,274 (sic.) in assessment year 1993-94 to a sum of Rs. 2,67,865 (sic.) in assessment year 1994-95 and to sum of Rs. 98,251 in assessment year 1995-96. (d) The assessee challenged the orders of Assessing Officer passed under section 201(1)/201(1A) of the Act for all the three years before the Commissioner (Appeals). The submission of the assessee was that the contracts entered into by the assessee with M/s. GEC India Limited, were not for services, but were contracts for supply of material and, therefore, were covered by the Sale of Goods Act and the assessee had also paid excise duty and sales tax on all the bills raised by the supplier. The ld. Counsel for the assessee also filed a letter dated 30-6-2000 before the Commissioner (Appeals) in which again it was stated that none of the contracts were for supply plant & machinery on turnkey basis. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve repeatedly used the expression "setting up of the project on turnkey basis". The turnkey basis, as stated above is supply of things which are ready to use. In other words, M/s GEC India has set up these three projects, carried out the cold run, performed all the functions as mentioned in para 16 above. Another feature is detailed drawings and engineering documents have also to be given to appellant. Therefore, it is clear that M/s GEC India Ltd. has performed one single service i.e. setting up of project on turnkey basis. This would certainly include some material also. The entire payment has been made by the appellant is for all the services alongwith machinery, drawing, designs, technical data which have not been split up. Even the layout plan has been designed by M/s GEC India personnel and bills have also been raised by M/s GEC India Ltd. and separate payment of Rs. 70 lakhs has been made by the appellant. 18. I have, therefore, no hesitation in concluding that M/s GEC India Ltd. have rendered the services and that service is supply of project on turnkey basis and parting with the technology and technical information like designs and drawings. The bill has been raised for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (D) That the contracts in question were basically for supply of goods covered under the Sale of Goods Act and the provisions of section 194C were not applicable to such contract. (E) That the mere fact that the supplier of the equipment was also required to render technical and technological assistance was responsible for conducting trial runs in commissioning of the plant cannot be a ground to attract provisions of section 194C. (F) That the ld. Commissioner (Appeals) has not considered the aspect that labour inputs as were required in setting up the sub-station by using the equipment and technology supplied by M/s GEC India, were provided by the assessee at its own cost. (G) That the consideration, that the arrangements made by the supplier was in the nature of turnkey project was wholly irrelevant. 6(II). In the synopsis submitted by the assessee, these arguments have been elaborated and in support of these arguments, reference has been made to the following salient features of the agreements :- "(a) The contracts were for designing, development, manufacture and sale of a particular machine on one hand; and guarantee for its performance after erection and commissioning; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational Ltd. v. Asstt. CIT [I.T. Appeal Nos. 642 . and 643 (Pune) of 1999 dated 13-11-2000] 7. The stand of the Department is that the contact was for carrying out the work on 'turnkey' basis and, therefore, the provisions of section 194C are dearly attracted. 7(I). In support of this stand, the Department has assigned following reasons: (A) That the agreements were basically for setting up of 220 KVA sub-station in the factory premises of the assessee. Thus, the contractor was asked to carry out the entire work on turnkey job basis. (B) That the assessee had himself stated before the Allahabad High Court in the affidavit of its Chairman that the job was to be done by the GEC India Limited on turnkey project basis. (C) That through second agreement dated 22-9-1992, the assessee engaged the contractor for installation of 220/33KV Electric substation, for design, fabrication, procurement, supply, supervision of erection, commissioning and approval of design and drawing from UPSEB and these factors show that the contractor was interested with the entire work covering, designing, manufacturing procurement and supply etc. of the equipments. (D) That the work was not for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, on the point as to whether provisions of section 194C cover the activities and services rendered by the consultants and professional. In this regard, the C.B.D.T. had also issued circulars, particularly, Circular No. 86 dated 29-5-1972, Circular Nos. 93 and 108 dated 26-9-1972, circular dated 8-3-1994 and other circular letters. The ambiguity arose on account of interpretation of the decision of Hon'ble Supreme Court of India in the case of Associated Cement Co. Ltd. The C.B.D.T. on the understanding of the said decision found that the provision of section 194C were applicable to all types of contracts for carrying out 'any work'. Such as transport contracts, service contract, the labour contracts, material contracts as well as works contract etc. The C.B.D.T., thus, issued circular dated 8-3-1994, on the basis of said judgment of Hon'ble Supreme Court of India and pointed out that 'any work' is not restricted to works contract and is wide enough to cover up 'any work', which is carried out through a contractor in a contract. This circular, which withdrew the earlier circular was declared to be invalid in large number of cases including the following cases:- (i) In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation of term 'any work'. The Hon'ble Court made the following observations :- . The term "any work" in section 194C is aimed at the type of work resulting in tangible material and by virtue of the special inclusion, supply of labour to carry out any work also is brought into the net of tax deduction at the source. This inclusive clause ropes in the consideration for the supply of labour. The word "supply" connotes the meaning of "procuring", "securing" or "bringing in", and not rendering of one's own professional or technical services. To the extent that the circulars govern payments to commission agents and brokers for the services rendered by them, they travel beyond the provisions of section 194C and have no legal force and the authorities functioning under the Act are not bound by them." (v) The issue was also considered by Hon'ble Gujarat High Court in the case of All Gujarat Federation of Tax Consultants and it was held that the rendering of services in .the course of ones own business of being required by others cannot be equated with carrying on any work for others under a contract, as contractor, merely because one had been paid fees/charges or consideration for any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given to a word means that there is an ambiguity in the word itself. Even assuming that the decision of the Supreme Court is not restricted to the facts of the case before it, it is clear that without the word "any work" being defined, the applicability of section 194C to a given situation cannot be determined. The Supreme Court had observed that "any work" means any work. This does not take the matter any further. The Supreme Court has not gone on to, clarify or explain or define the sense in which the word was being used by the Supreme Court. That the word "work" does not have the widest possible connotation is also clear from the fact that Parliament had sought to bring professional services and other such "works" in the wider sense within the net of tax deduction at source. If such "work" were already covered by section 194C it was wholly unnecessary to introduce separate statutory provisions in this regard. The only conclusion that follows from this is that the word "work" is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces such result. That being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chines. It is the physical force which has been comprehended in the word "work". Section 194C(1) refers to carrying out of any work. If the sub-section (1) is read as a whole then it could be interpreted that it is the work of labour which is done by the contractor or he may supply the labour to do the work as a sub-contractor. Subsection (2) of section 194C also refers to the contract for carrying out the work undertaken by the contractor or for supplying wholly or partly any labour which the contractor has undertaken to supply." (ix) In the case of Rajasthan Tax Consultants Association, the Hon'ble Rajasthan High Court, following the decision of Delhi High Court in the case of High Court Bar Association v. CBDT [1995] 81 Taxman 324, and the decision of Hon'ble Madras Bar Association held that the expression 'any work' which was considered by the Apex Court in the case of Associated Cement Co. Ltd. has to be understood in a particular context and the interpretation, which CBDT took was beyond the scope of section 194C. 10. The Hon'ble Supreme Court of India considered the scope of the term "any work" appearing under section 194C in the case of Birla Cement Works. The Hon'ble Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed circular, then the issue of earlier circulars and acceptance and acting thereupon by the revenue reflecting the contrary view would have been of no consequence. That, however, is not the position. Further, there are no compelling reasons to hold that Explanation III inserted in section 194C with effect from July 1, 1995, is clarificatory or retrospective in operation. We hold that section 194C before insertion of Explanation III is not applicable to transport contracts, i.e., contracts for carriage of goods: 11.2 It may be pointed out that so far as the professional services are concerned by amendment inserted under section 194J, which became effective from 1-7-1995 fee for professional and technical services is also covered within the ambit of section 194C for deduction of tax at source. However, as held by the Hon'ble Court while interpreting Explanation 3 to section 194C, provisions contained in section 194J, shall also operate prospectively and not retrospectively meaning thereby in relation to the contract for services liability for deduction of tax at source cannot arise before assessment year 1995-96. 12. In view of the analysis of legal position and case laws as discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and in their entirety and if viewed from this angle, it will be obvious that these contracts were neither for supply of goods nor for services such. Rather, they were for carrying out the "work" within the meaning of section 194C of the Income-tax Act, 1961. 17. After taking into account, the rival stands of the parties before us and their respective contentions to support such stands arid after considering the entire material on record including the agreements referred to above, we are of the view that agreements/contracts entered into between assessee company and M/s. GEC India Ltd. were, in substance, and in form, the agreements for supply of goods and not the agreements for carrying on work or work of contract. We assign the following reasons in support of this finding. 18. At the outset, it may be pointed out that to determine the nature of a contract i.e., to ascertain as to whether a particular contract is a contract of sale or a contract of work or both, the nature of the transaction, the intention of parties, the form of agreement and other related circumstances are to be taken into account to determine the substance of the contract, which is a deciding factor for asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals. (i) The first contract is dated 19-5-1992 available at pages 90 to 173 of the paper book. Some of the salient provisions and features, which support our finding recorded above are as under: "(i) In the contract, the assessee is referred to as purchaser and the GEC India Limited is referred and defined as supplier. The main clause of the contract is as under :- "A. Supplier has offered and the Purchaser has entrusted to the 'Supplier', the work covering the design, detailed engineering, manufacture, procurement, supply and demonstration or performance guarantees of the equipment as defined in the Contract." Not is hereby agreed and declared by and between the purchaser and the seller as follows :-" 22. In para 1.4, scope of supply has been defined to mean the equipments and spares to be provided by the suppliers under the contract as indicated in Annexure I. Annexure I, which is available at page 115 of the paper book contains the details of the equipment to be supplied by the suppliers. These details are as under :- Equipment Detail 1. Electric Arc Furnace UHP 50/60 Ton, EBT Arc Furnace with Booster Transformer of 42 MVA 2. Ladie Furnace Ladie Furnace wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plier's representative shall accompany the carriers bringing the equipments to the purchaser's site. 25. Regarding delivery schedule, provision has been made in Article 8. In article 9 with the contract, the warranty period has been laid down. It may be pointed out that the warranty clauses are similar to warranty clauses to sale of goods. For example, in clause 9.2, the following condition is laid down :- "9.2 Supplier Warrants that the Equipment supplied are free from defects for a period of 12 months after commissioning (final acceptance) or 18 months from the date of receipt and acceptance of last major consignment at site whichever is earlier." 26. Regarding defective supply, enough care has been taken by laying down following conditions in articles 9.5 to 9.7, which are as under:- "9.5 If the Supplier fails to repair or replace the plant within reasonable time, then in urgent cases, the Purchaser may after giving due notice to the Supplier repair or replace the same at the Supplier's sole risk and expense without prejudice to any other rights under the Contract. All direct expenses incurred by the Purchaser in such a case, shall be debited to the Supplier and recovered fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l specification/datalogues detailed description, unpriced purchase order copies etc. shall be furnished to enable the Purchaser to procure the same directly from the sub-suppliers, if the purchaser so desires." 30. Articles 21 and 22 relate to supply of instructions manual and progress report etc. 31. The details of equipments to be supplied have been specifically given in Annexure 'A', which carries following captions: "Scope of supply for electric arc furnace (Hydraulic Regulations)." 32. Likewise, details of other electrical equipments have also been given in the Annexure to the above mentioned agreement. A perusal of these details indicate that each item or equipment has been mentioned with minute details and specifications. 33. The contract price for the design and supply etc. and terms of payment has been given in Annexure 2. 34. The time of schedule has been given in Annexure III. 35. A perusal of Annexures II & III attached with contract goes to show that the contract price has been fixed in advance. 36. The second contract, which is for installation of 220/33 KV Electric supply sub-station inclusive of power transformer and Auxiliary transformer is dated 22-9-1992, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that the agreements entered into between the assessee and GEC India Ltd. were agreements for sale or supply of goods and were not merely work contracts. 43. The issue relating to the nature of contract regarding manufacture and supply of ships came for consideration before the Hon'ble Supreme Court of India in the case of Hindustan Shipyard Ltd. 44. In that case, the Hon'ble Supreme Court of India has laid down the following test :- "14. The principles deducible from the several decided cases may be summed up as under :- 1. It is difficult to lay down any rule or inflexible rule applicable alike to all transactions so as to distinguish between a contract for sale and a contract for work and labour. 2. Transfer of property of goods for a price is the linchpin of the definition of sale. Whether a particular contract is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of the contract, the circumstances of the transactions and the custom of the trade. It is the substance of the contract document/s, and not merely the form which has to be looked into. The Court may form an opinion that the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements, the vouchers and payment bills and also considering the nature of equipments supplied and ancillary work of supervision, designing etc. done by the supplier company, we are of the opinion that the composite character of the transactions involved in the three agreements was that of sale of goods. On perusal of the bills filed by the assessee which are available in the paper book at pages 242 to 368, it is found that these basically relate to supply of material by the said company and disclose the price of net sale relating to various parts, equipments and goods. The sale bills also include the amount of sales tax and excise duty etc. A reference, in this regard, may be made to the bill dated 30-3-1994, bill dated 31-10-1994 bill dated 10-11-1994 and other bills available from pages 335 to 368. In most of these bills, the amount of sales tax and excise duty has been shown separately and has been included which shows that the bills relate to sale of goods and for such sales, the sales tax and excise duty etc. was paid by the purchaser. If the total amount paid by the assessee is also examined and considered, then it is found that only a negligible or insignificant, part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) has not considered the relevant material submitted before him and therefore he has not correctly appreciated the nature of agreements. 56. At the time of hearing, the learned counsel for the assessee pointed out that in the installation of the equipments, the civil work and labour included were provided by the assessee itself at its own cost. In this regard, reference was made to the reply letter dated 30-6-2000, submitted before the Commissioner (Appeals), a copy of which is available at pages 1 to 3 of the paper book and also to the reply dated 13-4-1999 available at pages 4 to 7. 57. In this regard, the reference was also made to the reply letters written by the assessee to the Commissioner (Appeals) during the course of hearing of appeal by him. These letters are available at pages 1 to 13 of the paper book. The learned counsel for the assessee pointed out that the company was simply required to design, develop and manufacture and install the equipments and major civil work, electrical work was done by the assessee itself. In this regard, specific reference has been made to the following plea raised in reply to letter dated 30-6-2000 :- "Right from civil to all re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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