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TMI Blog2014 (9) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered under the Companies Act. Petitioner No. 2 is its shareholder. Petitioner No. 1 company is a consortium of three public limited companies constituted specifically for creating a special purpose company for the purpose of executing a contract with the western railways for gauge conversion of Viramgam-Mahesana track. The agreement for this purpose titled as "concession agreement" was entered into between the western railway and the petitioner-company on May 23, 2003. We shall taken note of relevant terms of such agreement at a later stage. Suffice it to note at this stage however, that under such agreement petitioner No. 1 company had to convert an existing meter gauge railway line into broad gauge through its own finance. Upon completion of such work of gauge conversion, petitioner No. 1 company had to permit access to the railways to such infrastructure so created for which purpose the railways had to pay agreed charges for a period of 12 years. Upon completion of such period or sooner if the contract was terminated, the railways would get what according to the petitioners was full ownership over such infrastructural facilities. In the meantime, since the land belonged to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Sales Tax passed an order dated January 10, 2006 in which he provided as under: "The dealer is directed to pay Rs. 5,04,94,960 (rupees five crores four lacs ninety four thousand nine hundred sixty only) which includes tax under section 57B Rs. 1,63,62,000 Penalty of Rs. 2,87,33,500 and interest of Rs. 53,99,460. Demand notice in form 35 under GST Act for dues is issued separately." 4. Qua such liability of TDS and connected penalty, the petitioners approached the Settlement Commissioner under communication dated March 13, 2006 requesting for settlement of dues. It is not in dispute that the settlement commission accepted the request on certain conditions and the petitioners having fulfilled such conditions, the issue with respect to non-deduction of tax at source stands concluded. However, it is equally undisputed that the second issue raised by the Assistant Commissioner in the show-cause notice dated September 3, 2005 regarding the petitioners' liability to pay sales tax, remained open. Notices were issued calling upon the petitioner to participate before the authorities in this respect. Since however, no headway was made respondent No. 4 passed impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the railway to the Concessionaire after COD for use of the project assets and facilities." * Term "BOT" was defined as under: "'BOT' means build, own and transfer-a contractual arrangement whereby a concessionaire or a private entity undertakes the construction, including financing of the railway infrastructure facility on the leased land title of the railway and the concessionaire authorises access to the railway for operating the same for an identified term on payment of agreed access charges." * Term "COD" was defined as under: "'COD' means the actual date of commencement of Commercial Operations of the project railway (accordance with article 4.1.3(g)" * Term "maintenance period and liability" was defined as under: "'Maintenance period and liability' means the period of 12 months from the date of issue of performance certificate during which the Concessionaire's liability is to rectify the defects that may arise in the works due to defective material and poor workmanship (not normal wear and fear) executed by him for the project railway in accordance with railway's requirements in Schedule A". * Term "project assets" was defined as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of default on part of the railways. * Clause 14 pertained to hand back of project and divestment of rights and interests. Relevant clauses thereof read as under: "14.1 Hand back & divestment condition 14.1.1 Hand back, divestment of rights and interest can take place under the following circumstances: (i) Upon achieving COD. (ii) Upon termination of this agreement before achieving COD. (iii) Upon reaching the end of concession or termination after achieving COD. 14.2 Hand back of project assets and project facilities on achieving COD. 14.2.1 The project assets and project facilities shall be handed over as under: (i) Upon achieving COD, the concessionaire shall give railways access to project assets and project facilities on exclusive basis for operation and maintenance. (ii) All project assets and project facilities including the formation works, tracks, structure and equipment shall have been renewed and cured of all defects and deficiencies as necessary so that the project railway is complete with the specifications and standards set forth in this agreement. (iii) The concessionaire delivers relevant records pertaining to the project railway and its design, enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire executes such deeds of conveyance, documents and other writing as the railway may reasonably require to convey, divest and assign all the rights, title and interest of the Concessionaire in the project assets and project facilities free from all encumbrances absolutely and free of any charge or tax to the railway; and (iii) The concessionaire complies with all other requirements as may be prescribed under applicable laws to complete the divestment and assignment of all the rights, title and interest of the concessionaire in the project assets and facilities free from all encumbrances absolutely and free of any charge or tax to railway." 7. At this stage we may take note of relevant statutory provisions. Section 2(12) of the Gujarat Sales Tax Act, 1969 ("the Act", for short) defines the term "goods" as under: "(12) 'goods' means all kinds of movable property (not being news-papers or actionable claims or stocks, shares or securities) and all materials, articles and commodities, including standing timber and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale." * Section 2(28) of the Act defines the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of taxes. * Chapter 5 of the VAT Act pertains to returns, assessment, etc. * Chapter 9 of the VAT Act pertains to appeal, revision, reference and rectification. * Section 73 which is contained in Chapter 9 provides for appeal to the higher Departmental authorities and to the Tribunal. * Section 75 prescribes powers of revision of Commissioner and Tribunal. * Section 78 provides for appeals which may lie to the High Court from an order passed by the Tribunal, if the court is satisfied that the case involves a substantial question of law. 9. On the basis of the above documents on record, learned senior counsel Shri Manish Bhatt for the petitioners vehemently contended that the sales tax authority have no right to collect any tax from the petitioners. He submitted that there was no sale of goods as envisaged under the Sales Tax Act. The counsel further submitted that this was also not a case of execution of works contract by the petitioners. Application of section 2(28)(c) of the Act was therefore, ruled out. The counsel further submitted that the sales tax authorities therefore, were not entitled to assess any tax in the hands of the petitioners. Notice issued for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. They have neither registered themselves with the authority nor paid the tax for which purpose the show-cause notice came to be issued. 10.1. He took us through the various terms and conditions of the agreements to point out that the petitioners were to receive bi-yearly payments. The property was transferred to the railway authorities upon handing over the entire project upon completion. He submitted that the entire document should be read as a whole. A stray clause here or a statement there should not be seen in isolation. He further submitted that the intention of the parties was that the conversion of existing railway line from meter gauge to broad gauge would be undertaken by the petitioners at their cost through their investment. Upon completion of the conversion work, the same would be handed over to the railway authorities who would pay periodic charges for a span of 12 years. He pointed out that at the completion of the above 12 years envisaged under the agreement, the petitioners were not to receive any further payments for infrastructure created by them at their cost. According to the learned Advocate-General therefore, this was a clear case of the works con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held that such amendment did no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. The apex court did not favour the contention that such amendment should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of entry 54 thereof. (3) In the case of Sundaram Finance Ltd. v. State of Kerala reported in [1966] 17 STC 489 (SC), wherein the apex court considered the question as to when the sale of goods can be stated to have taken place in a hirepurchase agreement between the finance company and the last purchaser of the motor vehicle. (4) In the case of Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204 (SC); [1993] 1 SCC 364, wherein the apex court expressed the opinion that in a works contract which is divisible into one for sale of goods and the other for supply of labour and services, the labour charges for execution of works would not be exigible to sales tax, but the former would. (5) In the case of State of An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no sale or transfer of movable property, the case is covered under section 2(28)(c) of the Act and in particular under notification as per Appendix 1A of the Act issued by the State Government under Explanation II to the said sub-section. 12. Whether the present is a case of works contract or sales simplicitor must depend on varieties of facts. As held by the apex court in the case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC); [2005] 3 SCC 389, there is no standard formula by which one can distinguish a contract for sale from a works contract. The question is largely one of facts depending upon the terms and conditions of the contract. The apex court in the case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22 (SC); [2005] 3 SCC 389 held as under (pages 26 and 27 in 140 STC): "5. It can be treated as well-settled that there is no standard formula by which one can distinguish a 'contract for sale' from a 'works contract'. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms and conditions noted above. The contract itself is an elaborate recording of by-parte rights, liabilities and obligations. It is a complex document providing for several obligations and rights depending on various eventualities. Such agreement is required to be appreciated in the light of the facts and circumstances of the case. In the present case, when the sales tax authority has even at the first instance not undertaken this task, we would be well advised in not doing so directly at first instance before this court in exercise of writ jurisdiction. It is by now well-settled that when particularly in revenue matters, the statute provides for detailed mechanism for assessment, adjudication, appeals and revisions and thereafter collection of tax, a writ petition should normally be not entertained unless of course the case on hand falls under any of the well recognised exceptions to this rule of the alternative remedy normally debarring the entertainment of a direct writ petition. Decisions on the point are numerous. We may however, notice some of them rendered by the apex court in different taxation statutes. (1) In the case of C.A. Abraham v. Income-tax Officer, Kottayam repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere. It is true that the decision of the Privy Council in Raleigh Investment Company's case [1947] 74 IA 50 (PC), was in relation to a suit brought for a declaration that an assessment made by the Income-tax Officer was a nullity, and it was held by the Privy Council that an assessment made under the machinery provided by the Act, even if based on a provision subsequently held to be ultra vires, was not a nullity like an order of a court lacking jurisdiction and that section 67 of the Income-tax Act, 1922, operated as a bar to the maintainability of such a suit. In dealing with the question whether section 67 operated as a bar to a suit to set aside or modify an assessment made under a provision of the Act which is ultra vires, the Privy Council observed: 'In construing the section it is pertinent, in their Lordships' opinion, to ascertain whether the Act contains machinery which enables an assessee effectively to raise in the courts the question whether a particular provision of the Income-tax Act bearing on the assessment made is or is not ultra vires. The presence of such machinery, though by no means conclusive, marches with a construction of the section whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M.P. reported in [2012] 50 VST 7 (SC); [2012] 4 SCC 211, held that in view of availability of alternative remedy, the High Court should not entertain a writ petition. It was further observed that merely based on certain clauses in the agreement, the High Court ought not to have decided that the transactions in question would be purely and simply inter-State sales and not intra-State sales. It was observed as under (page 10 in 50 VST): "27. At the outset, we intend to remark that in these type of cases, the High Court ought not to have entertained the writ petition(s)/writ appeal(s) filed under articles 226/227 of the Constitution. We say so for the reason, that, particularly a transaction is under the Central Sales Act, inter-State sales or inter-State sales are mixed questions of fact and law. Those facts requires to be brought to the notice of the assessing authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-State sales which is exigible to the taxes under the VAT Act or inter-State sales, as envisaged under section 3 of the Central Sales Tax Act read with section 6 of the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been interfered with by the Division Bench of the High Court in the appeal filed by the respondent/assessee." 14. Present is a case where the petitioners have approached this court when the sales tax authorities have merely issued a notice why a certain tax should not be collected. The petitioners have full liberty to produce all materials at their command and raise all legal contentions to canvas that they are not exigible to sales tax in view of the nature of the contract and execution of work done by them under such contract. The sales tax authorities are bound to take into consideration and take a view and only thereafter, would be able to frame any assessment even if ultimately the authorities rule against the petitioners. In such a case against the assessment first appeal would be available before the Departmental appellate authority and thereafter before the Sales Tax Tribunal. The Commissioner and the Tribunal also have revisional powers. Even the decision of the Tribunal is amenable to appellate jurisdiction of the High Court on a substantial question of law. When such elaborate machinery of appeals and revisions are provided under the Gujarat Sales Tax Act and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing requirements of law before works contract regarding transfer of property in goods can be brought within the sales tax net. Relevant legal requirements for enabling the State authorities to impose such sales tax on transfer of material involved in works contract were highlighted." 17. The learned counsel for the petitioners during the course of arguments conveyed to us that such agency, i.e., M/s. D.S. Construction of New Delhi has already been subjected to sales tax assessment and sales tax authorities are demanding sales tax from such agency. It was therefore, contended that the State cannot now independently tax the petitioners for the same amount again. We also notice that in the impugned order the Assistant Commissioner of Commercial Tax had recorded as under: 18. "Thus, the dealer was granted opportunity of hearing on many occasions but he has failed to make out his case before this office. The dealer has paid Rs. 1.63 crores under section 57B of the Gujarat Sales Tax Act, 1969, which is likely to be adjusted towards tax liability of M/s. D.S Constructions Limited, New Delhi amounting to Rs. 5,87,53,322 (rupees five crores eighty seven lacs fifty tree thousand three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther with the assessment. No such permission was sought. It appears that the assessment is not yet undertaken in full earnest. No further hearing took place after the court's interim order. The court had stayed the attachment subject to the petitioners' depositing a sum of Rs. 1,92,00,000 before this court. It is stated that such amount was deposited. In the last part of the interim order dated November 29, 2006, the court had provided that if the petitioners receive any further access charges, they shall deposit the tax at the rate of 12.5 per cent on that amount with the registry of this court till further orders. The petitioners have been depositing such periodic amounts also. 21. In view of the above developments, when we are of the opinion that attachment order cannot survive and it has in any case outlived its life well beyond the statutory period envisaged under section 45 of the VAT Act, such attachment order is therefore, quashed. 22. The question of the amount of Rs. 1,92,00,000 and further amounts deposited by the petitioners under the interim order dated November 29, 2006 remains. 23. The learned Advocate-General vehemently contended that such amounts shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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