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TMI Blog2015 (3) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... -06-2007; or are also comprehended within the ambit of existing (as on 01-06-2007) taxable services such as Commercial or Industrial Construction Service (CICS);Construction of Complex Service (COCS); or Erection, Commissioning or Installation Service (ECIS). 2. Integral to our charter is the interpretation of relevant provisions of the Act. CICS; COCS & ECIS are distinct, extant services defined and enumerated to be taxable services, prior to introduction of Works Contract Service (WCS). CICS was initially introduced w.e.f 10-09-2004, termed construction service; was amended in 2005, now called CICS amplifying the scope of the service as well and is defined in Section 65(25b) r/w Section 65(105)(zzq). COCS was also introduced in 2005, defined in Sections 65(30a) & 65(91a) r/w Section 65(105)(zzzh). ECIS was enacted to be a taxable service w.e.f 01-07-2003 qua Section 65(105)(zzd) and is defined in Section 65(39a). Definitions and scope of some of these services were amended over time. The evolutionary history of CICS, COCS & ECIS is however not relevant to the scope of our analyses. The legislative/statutory setting, the relevant definitions, the charging and valuation provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - M.P.V. Sundararamier and Co. vs. State of A.P. AIR 1958 SC 468; A. Venkata Subba Rao vs. State of A.P AIR 1965 SC 1773 Hoechst Pharmaceuticals Ltd vs. State of Bihar AIR 1983 SC 1983 Synthetics & Chemicals Ltd vs. State of U.P (1990)1 SCC 109; and Godfrey Phillips India Ltd. vs. State of U.P (2005)2 SCC 515 . The Union and State Lists 'constitutional boundaries : From the scheme of distribution of legislative powers between the Union and States qua the mutually exclusive Lists (I&II), it is clear that powers to make laws with respect to any of the matters in the List authorized to the particular legislative level, is exclusive. This is clear from the provisions of Article 246 and the position is also normatively settled. Abstinence by Parliament or a State Legislature, from legislating at all or to the limit of its exclusively allocated powers would not have the effect of transferring to the other legislative level the field exclusively assigned to the abstaining legislature. The corollary of such exclusivity is that if Parliament or the legislature of a State fails to legislate, at all or to the full limits of its allocated powers, such failure does not augment pro-tanto p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or trench upon taxing powers allocated to the other level. - United Provinces vs. Atiqa Begum AIR 1941 FC 16; Ref under Article 143 AIR 1965 SC 765; and In re Cauvery Water Disputes Tribunal 1993 Suppl (1) SCC 96. Thus it is, that a fiscal exertion by one level of legislation must be precisely designed and so calibrated to avoid encroachment, poaching into or trenching upon the authorized and delineated field(s) allocated to another level. Harvesting revenue, by levy and collection of taxes qua legislation by Parliament must therefore clearly avoid encroachment into the field(s) authorized to States; and vice-versa. These are the foundational premises substrating consideration of the issues presented to us for resolution. 5. Events leading to the reference : Service Tax appeal No. 58658 of 2013 was filed by L&T, challenging an adjudication order confirming a demand of service tax on the consideration received pursuant to a turn-key contract executed, by characterizing it as a taxable service falling within the ambit of CICS, defined in Section. 65 (105) (25b), of the Act. The appellant filed an application (in the appeal), contending that there is an extant conflict among dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly form 01-06-2007 onwards and not earlier thereto, in view of the provisions of Section. 65(105)(zzzza), could be vivisected and service components of such composite contract could be subjected to tax by classification of such service components under other taxable services such as commercial or industrial construction service or erection, installation and commissioning service, construction of residential complex service etc. for the period prior to 01-06-2007, must be referred to a larger bench of five members. Accordingly, we direct the Registry to place the papers before the Hon'ble President, for an appropriate decision. The President, CESTAT referred the issues for consideration of the Larger Bench. We are assembled to answer the reference. Revenue filed two miscellaneous applications, for rectification of mistake/recall of orders dated 09-09-2013 and 05-05-2014 (recommending reference to a larger bench; and reframing the issues for consideration by the five member bench). These and certain connected applications were disposed of on 08-08-2014. Revenue's miscellaneous applications were dismissed. The Principal Commissioner of Service Tax (presumably representing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of the proceedings pleaded that the hearing be adjourned, to await the outcome of the appeal preferred by Revenue to the Delhi High Court. We orally declined this request since the Bombay High Court had directed expeditious hearing of the reference, in another matter on the Board of that High Court and as constitution of a special bench involved considerable and avoidable logistic hassle. 7. We have carefully perused the order dated 11-11-2014 of the Delhi High Court. We note that we are required to consider whether the decision in G.D. Builders and contrary decisions of the Karnataka and Madras High Courts cover the issue(s) referred, for consideration of this Bench. Senior counsel Shri N. Venkataraman (representing L&T) referred to decisions inCST vs. Turbotech Precision Engineering Pvt Ltd. 2010 (18) S.T.R 545 (Kar) ; and Strategic Engineering Pvt. Ltd. vs. CCE 2011 (24) S.T.R 387 (Mad) which concluded contrary to G.D. Builders and ruled that a works contract is not chargeable to service tax prior to 01-06-2007. Shri Venkataraman further urged that theG.D. Builders conclusion (regarding assessablility of a works contract prior to 01-06-2007 as well), was recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yses : We notice that as the Karnataka and Madras High Courts have taken a diametrically contrary position (to that of G. D. Builders) on the identical issue; primary analyses of the constitutional and legislative dynamics and of the relevant statutory provisions considered in the light of applicable interpretive principles and precedential authority, is inescapable. CESTAT, a National Tribunal operates within the jurisdiction of the several High Courts in the country. It is trite that decisions of the Karnataka and Madras High Courts cannot be disregarded as per-incuriam the Delhi High Court's G.D. Builders ruling nor vice-versa. We are therefore required to clarify which is the correct position in law (insofar as we are able to); whether the views of the Delhi High Court and of the Karnataka and Madras High Courts constitute the ordained legal position in the respective territories; to identify and declare the legal position that is operative in territories not governed by extant rulings of these High Courts; and in the alternate, whether the decisions, of the Delhi or the Karnataka and Madras High Courts are devoid of precedential vitality (on per incuriam or sub silentio g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple, without exception that there can be no estoppel against a statute 'vide para 9 in Mohanlal Likumal Punjabi. Revenue contests appellants' contention that the G. D. Builders ruling is based on concession and is thus of no precedential value. We now consider G. D. Builders, at this stage of our analyses, to ascertain whether its conclusion (that works contract is a taxable service even prior to 01-06-2007) is predicated wholly on the basis of concession by petitioners therein, that such is the position in law. 10. The G.D. Builders landscape: G.D. Builders petitioners' inter-alia contended: a. 'composite or works contracts' are excluded from the ambit of levy of service tax under Section 65(105)(zzq)&(zzzh); b. Section 65(105)(zzq)&(zzzh) apply only to 'service contracts' and not to 'composite or works contract'; and c. There is a conflict between Section 65(105)(zzzza); (zzq) and (zzzh); and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of provisions cannot co-exist. Subsequent legislation shows that the earlier legislation will not cover 'composite or works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents are also competent to bifurcate and tax the service component also. The issues presented in G. D. Builders were clearly in respect of the period prior to 01-06-2007 and works contract is a species of composite contracts, as the latter expression is understood in the world of commerce, of law and in constitutional and legislative practice. We are thus unable to flesh out the precise nature of what was conceded by G. D. Builders petitioners. We therefore premise that the Court proceeded on the basis that the challenge to non-leviability of service tax on works contract, was either not eschewed or the interpretation of legislative provisions - their trajectory and contours, cannot rest on mere concession but ought to be considered on merits, after analyses. In fact, in paras 19 to 30, the Court referred to several decisions and spelt out its analyses for resting the conclusions recorded, specifically in para 18 and generically in paras 31 & 36. In para 31 G.D. Builders records: The contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clauses (zzq) and (zzzh) of Section 65(105) stands rejected. But the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contract is a very broad and wide term and will include within its ambit and scope construction of industrial and commercial complexes or construction of residential complexes as specified. Introduction and imposition of Service Tax on works contract by Finance Act, 2007 does not mean that we have to read down the scope and ambit of the provisions enacted levy on (enacting levy for) tax on contracts relating to 'commercial and industrial construction' service or 'construction of (residential) complexes service as specified by finance Act, 2004 (1994) and Finance Act, 2007 respectively. The new levy imposed by Finance Act, 2007 does not indicate or show that works contract relating to 'construction of industrial and commercial complexes' or 'construction of (residential) complexes as specified would only be applicable when the contractor was providing labour or service and was paid for the same and not to composite contracts when the contractor was providing labour/services as well as goods used for construction of industrial and commercial complexes or residential complexes as specified. It would cover any and every contract when the contractor was only su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by CBEC/TRU; the rules issued for valuation and for composition of works contracts (on and since 01-06-2007); and the settled jurisprudence ordaining a non-derogable obligation to entrench clear provisions in the statutory schemata for levy and collection of service tax, to ensure confinement of the levy to service and associate components of composite/works contract transactions(which comprise both 'service/labour' and 'transfer of goods' elements), by engrafting an explicit statutory regime for proper, non-discretionary and non-arbitrary computation/valuation and for negating overreach into legislative field(s) and components thereof which are exclusively allocated to States, compel but the singular conclusion that works contract is enacted to be a taxable service only w.e.f 01-06-2007; and not earlier thereto. Primary analyses of the issue whether and by what legislative/statutory measures, 'sale and purchase of goods' and 'service' components of composite/works contract could be vivisected and extracted by State and Union fiscal legislation, for levy of Sales Tax and Service Tax, respectively, is thus the primary step, antecedent to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f 01-07-2010 is not relevant for this lis); Sub-clause (zzd) enumerates ECIS and reads: to any person, by a commissioning or installation agency in relation to erection, commissioning and installation; Relevant definitions (status pre '01-06-2007): CICS : Sec. 65(25b) ' 'commercial or industrial construction service' means' a. construction of a new building or a civil structure or a part thereof; or b. construction of pipeline or conduit; or c. completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or d. repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is' i. used, or to be used, primarily for; or ii. occupied, or to be occupied, primarily with; or iii. engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (e) lift and escalator, fire escape staircases or travelators; or (f) such other similar services; The charging provision : Section 66' There shall be levied a tax (hereinafter referred to as the service tax) at the rate of specified per cent of the value of taxable services referred to in sub-clauses (enumerated) of clause (105) of section 65 and collected in such manner as may be prescribed (emphasis added). With the introduction of new taxable services or amendments to or relocation of taxable services, the relevant sub-clauses resulting therefrom, were incorporated in Section 66, to authorize the levy. The expression prescribed is defined in Section 65(86) to mean prescribed by rules made under this Chapter (Chapter V). Power to exempt : Section 93' (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon. (2) If the Central Government is satisfied that it is necessary in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the rail travel agent from the Railways or the customer, but does not include' i. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; ii. the cost of enexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service; iii. the cost of parts or accessories, or consumables such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle, or two wheeled motor vehicles; iv. the airfare collected by air travel agent in respect of service provided by him; v. the rail fare collected by rail travel agent in respect of service provided by him; vi. the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service; vii. the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service (emphasis added); and viii. interest on loans. Explanation. 2. - Where the gross amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation : For the purposes of this section,- (a) ' consideration' includes any amount that is payable for the taxable services provided or to be provided; (b) ' money' includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) 'gross amount charged' includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise] Determination of Value Rules, 2006 : As earlier noticed, Section 94 (power to make Rules) was amended by Finance Act, 2006 and clause (aa) inserted in sub-section (2), which reads: the determination of amount and value of taxable s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nents for valuation of a taxable service were part of the Act itself, under Section 67 (prior to 18-04-2006), these are now (excised from the Act but) enumerated in the 2006 Rules; but for the significant (by design or default) omission of sub-clause (vii), adverted to earlier. Exemption/abatement notifications : (relevant to CICS, COCS & ECIS) : As noticed earlier, exemption notifications may be issued by the Central Government under Section 93. This provision authorizes grant of exemption (generally or subject to conditions as specified in the notification), from the whole or any part of the service tax leviable on a taxable service of any specified description. A notification issued under Section 93 thus presupposes that exemption provided thereby is of the service tax leviable (under the Act) in respect of the taxable service(s) specified therein. At the least, an exemption notification evidences the Executive (Central Government's) assumption that the exempted quantum or percentage of tax is that which is leviable under the Act. Now to the Notifications: Notification No. 12/2003-ST, dated 20-06- 2003 : ----- exempts so much of the value of all taxable services, as is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, commissioning or installation, under a contract for supplying a plant, machinery or equipment and erection, commissioning or installation of such plant, machinery or equipment This exemption is optional to the commissioning and installation agency. Explanation - The gross amount charged from the customer shall include the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service. 33 7 zzq Commercial or industrial construction service. This exemption shall not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause (c) of clause (25b) of Section 65 of the Finance Act. Explanation - The gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service. 33 10 zzzh Construction of complex This exemption shall not apply in cases where the taxable service provided are only completion and finishing services in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;For the purposes of this sub-clause, 'works contract' means a contract wherein, - (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) Such contract is for the purposes of carrying out, - (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or completion and finishing service, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (d) turnkey projects including engineering, procurement and construction or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position Rules, 2007 : In exercise of powers conferred by Section 93 (Power to exempt) and by Section 94 (Power to make rules) of the Act, the Works Contract (composition scheme for payment of service tax) Rules, 2007 was issued by Notification No. 32/2007-ST dated 22.05.2007, brought into force w.e.f. 01.06.2007. Relevant provisions of these rules are: 2. Definitions. - In these rules, unless the context otherwise requires,- (a) 'Act' means the Finance Act, 1994 (32 of 1994); (b) 'section' means the section of the Act; (c) 'works contract service' means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act; (d) Words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act. 3. (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , unstructured forensic assistance and incoherent presentation (at the Bar), of holistic principles, relevant and applicable to the central issue. To support the contention, reliance is placed on: * B. Shama Rao vs. Union Territory of Pondicherry. AIR 1967 SC 1480; * State of U.P vs. Synthetics & Chemicals Ltd and another. (1991) 4 SCC 139; * Municipal Corporation of Delhi vs. Gurnam Kaur. (1989) 1 SCC 101; * Divisional Controller, KSRTC vs. Mahadeva Shetty and Another (2003) 7 SCC 197 * Purvanchal Cables & Conductors Pvt. Ltd. vs. Assam Electricity Board and Anr. (2012) 7 SCC 462. The above decisions explicate the following principles: (a) in practice per incuriam means per ignorantium (founded on ignorance). (b) This rule developed to relax the rigour of the rule of stare decisis. The quotable in law is avoided and ignored if it is rendered in ignorantium of a statute or other binding authority ' Young vs. Bristol Aeroplane Co, Ltd. (1944) 2 All.E.R. 293; (c) Sub-silentio is another principle which excludes the norm of precedential vitality. Salmond explains the principle thus: A decision passes sub-silentio, in the technical sense that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ignoring the fact that the decisions clearly and categorically record the conclusion that the transactions in issue therein were works contracts and WCS was not a taxable service prior to 01-06-2007. 16. We are conscious that judgments of High Courts are binding precedents on the CESTAT (a Tribunal) 'vide East India Commercial Co. Ltd. vs. Collector of Customs AIR 1962 SC 1893. The Delhi High Court is also the jurisdictional High Court, for the Principal Bench. We are also alive to the principle that within the compass of heirarchial discipline enjoined by stare decisis, binding precedents ought to be followed unreservedly. We are equally mindful and are advised, of the overarching principle that a precedent otherwise binding ceases to be so if it be per incuriam or a proposition therefrom passes sub-silentio. Curial enunciation of relevant principles in this area are brought to our consideration. 17. Before we test judgments in G. D. Builders; Turbotech Precision Engineering Pvt. Ltd; and Strategy Engineering Pvt. Ltd on the anvil of per incuriam and sub-silentio principles, we must and do proceed to consider and analyse the several contentions by Ld. Counsel for assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during oral argument and adverted to in written submissions by both parties, at this stage of our analyses. We analyse precedents as part of our adjudication. The L&T position (summarized) : 01. Revenue submissions (written), regarding limitations imposed on this special Bench by the Delhi High Court decision dated 11-11-2014, are wholly misconceived and proceed on elementary misconception of the High Court's order. Neither was any concession made on behalf of L&T before this Bench that the G. D. Builders decision covers the issues referred nor did the High Court declare that G. D. Builders is the sole or a binding precedent. Revenue submissions in this area are false, frivolous, absolutely incorrect and denied in toto; ---- are grossly mischievous and completely calculated to cause graveprejudice. The order dated 11-11- 2014, itself is a complete refutation of Revenue's elementary misconception on this aspect; 02. Works contract is a composite, indivisible, distinct and insular contractual arrangement, a specie distinct from a contract for mere sale of goods or one exclusively for rendition of services. The world of commerce recognizes and law and the Constitution acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated in Entry 54 of List II and thereby facilitated States the authority to levy tax, inter alia and vide sub-clause (b), on the transfer (by way of accretion) of property in goods, involved in the execution of works contracts. The 46 th Amendment does not per se legitimize levy of taxes on works contract transactions; 06. The 46 th Amendment is the product of a constituent exertion under Article 354 and does not amount to an ordinary legislation, made in exercise of ordinary legislative powers qua Articles 246 or 248 r/w Entries in the three Lists. The 46 th Amendment does not purport to and qua the text and context of the Constitution incapable of being considered a fiscal legislative measure, as is the mandated requirement under Article 265; 07. Parliament, qua residuary legislative powers allocated to it has, since inception of the Constitution, the authority to charge and levy tax on services. States however derived legislative authority, to charge and levy tax on sale or purchase of goods (whether as goods or in some other form) involved in the execution of a works contract, pursuant to the 46 th Amendment expanding the scope of Entry 54 of List I and in respect of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in Union legislation, when enacting provisions to tax exertion of labour/rendition of services; and corresponding provisions of State legislation, intending to tax transfer of property in goods, involved in the execution of a works contract, must clearly and expressly signify the intention to restrict the levy to those aspects of such composite transactions, as fall within their respective and authorized fields of legislation qua the appropriate Entry in List I or List II, as the case may be; 12. Since it is the settled interpretive principle, that a legislation or a statutory instrument, when susceptible to successful ultra vires challenge, must be narrowly construed or read down, to give the statute/provision in question an intra vires trajectory and to cabine it within authorized limits, legislation facially structured in broad language having an unconstitutional reach on a broader construction of its provisions, must be restrictively construed or read down to confine the reach to constitutionally authorized locii, of the enacting legislature; 13. Definitions of CICS, COCS and ECIS do not signify the categorical legislative intent to levy tax on work contracts. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egated/subordinate legislation), would not per se elevate exemption notifications to the status of delegated legislation. It is axiomatic that rules framed under an enactment may neither transgress provisions of the parent legislation, impede the legislative command nor dis-apply its mandate. This is too elementary and established a principle of administrative law. Exemption notifications in their very nature and intent impede (switch off, wholly or pro-tanto) the trajectory of the Act and eclipse the legislated levy. Therefore, exemption notifications cannot logically elucidate or augment the scope of taxable services, the charging or the valuation/computation provisions of the Act; 18. in fact, exemption notifications issued under the Act [excluding the value of the transfer of property in goods involved in execution of composite contracts from the scope of the gross value charged (under Section 67) or providing for a composition schemata involving abatement packages] indicate that in the view of the Union executive, the transfer of goods elements involved in transactions falling within taxable services under the Act are an integral and clearly taxable component of defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given) that G. D. Builders is a binding precedent, even though other decisions of other High Courts on this subject could be stated to the CESTAT to assist them to arrive at a decision (para 1. of Revenue's written submissions); 02 Counsel for L&T admitted during submissions (before this Bench) that the reference is covered by the G. D. Builders decision. Consequently, unless L&T places contrary decisions, of other High Courts, G. D. Builders provides a complete answer on the reference. Arguments that G. D. Builders is not binding for being ex-concessi or per incuriam, travel beyond the scope of deliberations fixed by the Delhi High Court vide the order dated 11-11-2014 (para 6 of written submissions); 03 Four different definitions were set out in the Act in relation to the construction sector, on different dates. ECIS w.e.f 01-07-2003; Construction service introduced w.e.f 10-09-2004, renamed CICS in 2005; and COCS introduced in 2005. From 01-06-2007 all species of 'works contract' were brought to taxation except in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams vide Section 65(105)(zzzza). Section 66 imposes a charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les and exemption notifications operate in tandem, as an integrated code, to limit the levy to the service elements and exclude the goods/material components (emphasis added); 10. Neither of the powers, to frame Rules or to issue exemption, is unfettered and is subject to Parliamentary oversight qua the mandated laying procedure and the rigour of legislative scrutiny in view of the provisions in Chapter XXI of the Rules of Procedure and Conduct of Business in Lok Sabha. 11. The ruling in Govind Saran Ganga Saran is distinguishable. Unlike in that case, where the Chief Commissioner by a notification had specified the point of taxation and despite power conferred by the legislation on the State Government to issue a Notification, and therefore (the Chief Commissioner's notification was) invalidated, in the present case the integrated statutory framework is legal and sufficient; 12. The decision in G. D. Builders is not based on a concession but is on a consideration of all factors. Besides, no value should be given to this argument of the appellants because they were not a party to the G. D. Builders lis and there is nothing in the judgment to support their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al discourse and exposition. This distinct commercial phenomenon inheres in its architecture facially indivisible (but legally distinct for taxation purposes) elements of sale or purchase of goods (by incorporation or accretion); and of supply of labour/rendition of services. These constitutive elements of works contract, particularly seen in construction contracts, are susceptible to State and Union taxation exertions, respectively. In our federal constitutional construct, allocation of legislative fields pertaining to taxation, to the federal partners' States and the Union and in particular the consequent authority to levy and collect tax; is distinct, exclusive, insular, impermeable, non-delegable and plenary. Hitherto and predominantly, charging, valuation/computation, and measure of tax conflicts were pursuant to State-centric claims/demands predicated on State legislative provisions. To unravel the complex and nuanced conflicts, an impressive body of curial pharmacopea emerged. A study of the several precedents in the area reveals the trial, error and stabilization progression in the understanding of the jural framework required for managing the delicate balance, between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods nor is there in works contract an agreement to sell chattel (goods) qua chattel; and consequently, States have no legislative competence to tax the goods component involved in composite indivisible works contract. note: It requires to be noted that neither in the context of the facts involved nor from the magisterial and clinical analyses in the first Gannon Dunkerley judgment, is the principle discernable that even if there be constitutional authority to tax composite and indivisible works contracts, State legislatures were yet incompetent to vivisect/bifurcate such composite transactions and confine the levy of tax to the sale of goods elements involved therein. The established principle that composite economic/social transactions could be regulated/charged to tax by applying the aspect theory, but within the scope of legislative field(s), allocated to the appropriate legislature, was not disturbed by the first Gannon Dunkerley. 02. After the first Gannon Dunkerley, as a consequence thereof and pursuant to recommendations by the 61 st Law Commission, the 46 th Amendment to the Constitution ensued. Article 366 was amended and clause (29-A) inserted therein. Six cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer of State legislatures extends to levy of tax on the transfer of property in goods involved in the execution of a works contract, referred to in sub-clause (b) of Article 366 (29-A), fell for consideration by the constitution Bench in Builders Association of India vs. Union of India (1989) 2 SCC 645 (first Builders Association of India). The challenge to the vires was repelled. Suffice it to notice for our analyses, that the Court observed and ruled: Sub-clause (b) of Article 366 (29-A) does not amount to a separate Entry in List II, per-se enabling States to levy tax on sales and purchases, independent of Entry 54 thereof. Post the 46 th Amendment as well, the power of States to levy taxes on sales and purchases of goods including on 'deemed' sales and purchases of goods under clause (29-A) of Article 366 is only qua and under Entry 54 of List II and not outside it; After the 46 th Amendment works contract which was an indivisible one is by legal fiction altered into one which is divisible into one for sale of goods and the other for supply of labour and services. It has (since) become possible for States to levy sales tax on the value of goods involved in a wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of Article 286 (1) the legislative power under Entry 54 does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or in the course of import or export of goods. While enacting a law imposing a tax on sale or purchase of goods under Entry 54 of List II r/w Article 366 (29-A)(b), it is impermissible to the State legislature to make a law imposing a tax on such deemed sales which constitutes a sale in the course of inter-State trade or commerce under Section 3, an outside sale under Section 4, a sale in the course of import or export under Section 5; or on goods declared to be of special importance in inter-State trade or commerce under Section 14 except in accordance with the restrictions and conditions contained in Section 15 of the Central Sales Tax Act; A State cannot frame a legislation under Entry 54 in a manner as to assume power to impose a tax on such transactions and thereby transgress these constitutional limits (emphasis added); The legislative power of States to impose tax on transfer of property in goods involved in the execution of works contract is not however contingent upon nor is eclipsed till enactment of a law by P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; and (f) profit earned by the contractor to the extent it is relatable to supply of labour and services, must be deducted from the entire value of a works contract (emphasis added). comment : The above are the mandated exclusions from the gross value of a works contract, since States' legislative field under Entry 54 of List II, as defined in Article 366(29-A)(b), restricts the domain to the goods involved in the execution of a works contract (excluding charges relating to the contract for supply of labour and services). The exclusion is the consequence of constitutional limits upon States' legislative reach, under Entry 54, List II. other deductions mandated qua provisions of the Central Sales Tax Act, 1956 : The value of goods which are not taxable in view of Sections 3, 4 and 5 of the Central Sales Tax Act; goods covered by Sections 14 and 15 of this Act; and goods exempt from tax under the sales tax legislation of the State must also be excluded. The value of goods involved in the execution of a works contract will have to be determined af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions and on the ambit of its operation as reasonably construed and if, so judged, it does not pass the test of constitutionality it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requirements. Rules made under the Rajasthan Sales Tax Act would not, therefore, be of any assistance in resolving the question regarding the validity of Section 5(3) (emphasis added). Section 5(3) of the Rajasthan Sales Tax Act, 1954 and Rule 29(2)(i) of the Rajasthan Sales Tax Rules, 1957 are therefore declared unconstitutional and void. 05. The nature of transactions by which mobile phone connections are enjoyed; whether it is one of sale or of service or both; and if both, whether both legislative authorities (States and the Union) could levy their separate taxes together or only one of them, were the issues considered in Bharat Sanchar Nigam Ltd. vs Union of India 2006 (2) STR 161 (SC) . Relevant for our guidance in this lis is the conclusion: -----, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and even though they lose their identity as goods but this factor does not prevent them from being goods. c) Contracts comprising both a works contract and a transfer of immovable property does not lose its character of being a works contract; the term 'works contract' in Article 366(29-A)(b) takes within its sweep all genres of works contracts, not restricted to one specie i.e., a contract to provide for labour and services alone. d) Building contracts are a specie of works contract. e) In a composite/works contract the distinction between a contract for sale of goods and for work/service is virtually diminished. f) Even if the dominant intention of the contract is not to transfer the property in goods and is for rendition of service or the ultimate transaction is transfer of immovable property, then too it is open to States to levy tax on the materials used in such contract if it otherwise has elements of works contract. The dominant nature test has no application and the enforceability test is also not determinative of the true nature of the transaction involved. g) Even a single indivisible works contract has now, by the 46 th Amendment been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract i.e., to provide for supply of labour and services alone; and (iv) once the characteristics of works contract are fulfilled in an agreement between the parties, any additional obligation incorporated therein would not change the nature of the contract (emphasis added); The two contentions of the State of Haryana [(a) that a contract for supply and installation of a lift should be treated as an agreement for sale simplicitor, on the basis of the overwhelming component test; and (b) that the rules issued under the State's VAT Act provided for a deduction for works contract and job works, under the heading 'Labour, service and other like charges', enabling thereby 15% deduction to for once it is treated as a composite contract invoking labour and service as a natural corollory, it would be a works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to contend that it would not provide/prescribe the necessary framework in the rules but would nevertheless observe the law as declared in the second Gannon Dunkerley; The law is not the handmaid of the State Government, observed the Court; 10. In Larsen and Tourbro Ltd. vs. State of Tamil Nadu. (1993) 088 STC 0289 (Mad), the Madras High Court rejected the challenge to and read down provisions of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 (the provision was introduced by the TNGST (fourth Amendment) Act, 1986), which provided for levy of tax on the 'turnover' and not on the 'taxable turnover'. The Court explained that the levy and collection of tax under Section 3-B could be understood as confined to the taxable turnover. Rules 6-A and 6-B of the TNGST Rules, 1959 (challenged on grounds inter alia of omission to provide for deductions and exclusion of turnover relating to inter-State sales and sales in the course of import/export), were however struck down, for being in contravention of the ratio and principles of the second Gannon Dunkerley ruling, reiterated in Builders Association of India vs. State of Karnataka (1993) 88 STC 248 (SC) (the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified categories of works contracts, towards labour charges and directed the field formations to follow the specified deductions, scrupulously. The 2 nd Circular directed levy of tax (including TDS) from the main contractor, regardless of engagement of a sub-contractor. The High Court observed that though the State legislation contemplated framing of rules for the purpose of ascertaining deductions in the case of taxable turnover of works contract, no rules were framed to effectuate the purposes of the Act. The impugned Circulars were declared invalid. The Court declared that the assessee's liability to remit tax remains but in order to assess, the State has to frame Rules under its rule-making powers and thereafter the assessing authority can pass fresh orders of assessment, on the basis of such statutory Rules. In the absence of any statutory basis for calculation of the taxable turnover, the Act remains unworkable and the gap/hiatus in the statute cannot be filled up by purely ad hoc and administrative circulars, ruled the Court and observed: It is a well-settled principle that in matters of taxation either the statute or the Rules framed under the statute must cover the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes (emphasis added); c) In C.I.T., Bangalore vs. B.C. Srinivasa Setty (1981) 2 SCC 460 , the issue was whether goodwill generated in a newly commenced business is an asset within the meaning of Section 45 of the Income Tax Act, 1961, its transfer is subject to tax under the head 'capital gains'; and whether the charging provision could be considered as reaching out to transactions for which no appropriate computation provisions exist in the statute. The Court pointed out: The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or vagueness in the legislative scheme defining any of those components of levy will be fatal to its validity (emphasis added); e) Ambiguity in charging provisions and failure to embed appropriate legislative/statutory provisions for valuation/computation of (within and beyond the authorized levy of tax) elements of composite/ works contract transactions, including failure to stipulate mandatory deductions/exclusions in respect of charges for and in respect of labour and services and of components not taxable under provisions of the Central Sales Tax Act, 1956 (in the Rajasthan Sales Tax Act, 1954), led to a declaration of invalidity of certain provisions of the State Act and the 1957 rules made thereunder, in the second Gannon Dunkerley judgment of the constitution Bench (considered and analysed in detail supra); f) The Supreme Court in Mathuram Agrawal vs. State of Madhya Pradesh (1999) 8 SCC 667considered the question whether an ambiguity in the relevant provision results in no tax liability, in the context of provisions of the M.P. Municipalities Act, 1961. The proviso to Section 127- A(2) was declared ultra vires the charging provision. The constitution Bench reiterated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that residential hotels may provide lodging and full or part board. If the Rules are framed by 1 st June, 2000 the assessments that are not completed only by reason of this order may be proceeded with. If the Rules are not framed by the said date, these assessments shall lapse. No proceedings for assessments shall be commenced hereafter until Rules have been framed. At the same time completed assessments as of today shall not be affected by this order, and the assessees would be entitled to adopt proceedings thereagainst, subject to law (para 26). h) The Govind Saran Ganga Saran ruling was applied again in State of Rajasthan vs. Rajasthan Chemists Association 2006 (202) E.L.T 217 (SC) for confirming the judgment of the High Court which ruled that Section 4-A of the Rajasthan Sales Tax Act, 1994 was not legally sustainable to the extent tax on the first point of sale of drugs, medicines or any formulation or for that matter any other commodity by a manufacturer/wholesaler/distributor to retailer where 'Minimum Retail Price' is published on package, measure to which rate of tax is to be applied cannot be with reference to such published MRP which is neither charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had not been framed under the Central Act, the same per se would not mean that no tax is leviable. comment : There are established principles for ascertaining rationes and elucidating those reasons that bind, in precedents. Thus, while applying the decision in a later case, the later Court must ascertain the true principle laid down by the previous decision, in the context of the questions involved in that case from which the decision takes its colour. The later court would not be bound by those reasons or propositions which were not necessary for deciding the previous case; the later Court should not unnecessarily expand the scope and authority of a precedent; and the reasoning of one decision can not be applied in another case in the absence of parity of situation or circumstances. A judgment is to be read in the context of the facts and of the questions which arose for consideration in the case in which the judgment was delivered and not as embracing all aspects of every question relating to the subject or as laying down principles of universal application 'vide Shah Prakash Amichand vs. State of Gujarat AIR 1986 SC 468; Krishena Kumar vs. Union of India (1990) 4 SCC 207 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1956; (ii) in 2005, the Act was further amended incorporating clause (ja) defining works contract; (iii) in Section 13 thereof this clause was inserted: (aa) the manner of determination of the sale price and the deductions from the total consideration for a works contract under the proviso to clause (h) of Section 2 (paras 7 &15 to 17); (iv) Sections 6 and 8-A set out the charging provision and for determination of turnover; (iv) Section 9(2) authorizes, subject to the provisions of the Central Act and the rules made thereunder, the authorities under general sales tax legislation of the appropriate State, on behalf of the Central Government to assess, reassess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act, as if the tax, or interest or penalty payable by a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to (a wide range of enumerated circumstances are specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct must be made taxable before it can be regarded as 'income' (emphasis is in the judgment); k) In PNB Finance Ltd. vs. Commissioner of Income Tax' I, New Delhi (2008) 1 SCC 94 the question, whether in the facts and circumstances of the case, transfer of Banking Undertaking gave rise to taxable capital gains under Section 45 of the Income Tax Act, 1961, fell for consideration. Suffice it to note, for our purposes that the Court found that there were, at the relevant time, no computation provisions in that Act as would be applicable to the transaction of the nature in issue. The Court observed: As regards applicability of Section 45 is concerned, three tests are required to be applied. In this case Section 45 applies. There is no dispute on that point. The first test is that the charging section and the computation provisions are inextricably linked. The charging section and the computation provisions together constituted an integrated Code. Therefore, where the computation provisions cannot apply, it is evident that such a case was not intended to fall within the charging section, which, in the present case, is Section 45 (emphasis added). This judgment followed its ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication merely prescribes the rate of entertainment duty at 20 percent in respect of every payment for admission to an entertainment other than cinema, video cassette recorder and cable service. The notification cannot enlarge either the charging section or amend the provision of collection under Section 4 of the Act read with the 1942 Rules. It is, therefore, clear that the notification in no way improves the case of the State. If no duty could be levied on DTH operations under the 1936 Act prior to the issuance of the notification dated May 5, 2008 as fairly stated by Mr. Dave, we fail to see how the duty can be levied under the 1936 Act after the issuance of the notification. analyses of other precedents, proferred by Revenue to contend that computation/machinery provisions are neither essential nor a prerequisite : Apart from Mahim Patram (considered supra), Revenue relied on Asst Commissioner, Central Excise vs. National Tobacco Co. of India Ltd (1978) 2 ELT J.416 (SC); Inspector of Central Excise vs. S.T Venkataramanappa (1986) 24 ELT 484 (Kar); Commissioner of Wealth Tax vs. Sharvan Kumar Swarup & Sons (1994) 6 SCC 623; Great Eastern Shipping Co. Ltd. vs. U.O.I (2002) 150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision neither dealt with any dialectic ambiguities in the legislative text nor with total absence of relevant machinery/computation provisions. There was also no context of the ambit of the governing legislation being circumscribed by constitutional boundaries as regards the measure of tax thereby levied; (iii) The Supreme Court in Sharvan Kumar Swarup & Sons, concluded that rule 1-BB of the Wealth Tax Rules, 1957 partakes the character of a Rule of evidence; it deems the market value to be the one arrived at on the application of a particular method of valuation, which is also one of the recognized and accepted methods; that even in the absence of rule 1-BB it would not have been objectionable, nor would there be any legal impediment, to adopt the mode of valuation embodied in the said rule, namely the method of capitalization of income on a number of years' purchase value. Since rule 1-BB is in the nature of a rule of evidence, it could be construed as retrospective (emphasis added). comment : The essential question in this judgment (set out in para 1) was whether Rule 1-BB of the Wealth Tax Rules, 1957 is a provision which affects and varies/alters substantive right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in para 25; and in para 38 it is stated that paras 8 & 9 of this decision were relied upon (presumably by appellant's counsel), for the proposition 'Sale' in Article 366(29-A)(b). The ratio of K. Damodarasamy Naidu constitution Bench, regarding the ineffectiveness of the Maharastra legislation due to absence of statutory rules prescribing formulae for proper computation of the measure of tax (discussed in paras 9 to 14 & 25 of K. Damodarasamy Naidu), was however neither adverted to, distinguished or dissented from. We are not advised at the Bar, that a binding precedent (i.e., the ruling of a larger Bench) stands overruled by non application of its ratio, by a Bench of lesser strength; and we are aware of no such principle. We are not in the totality of circumstances persuaded to conclude, that the learned division Bench in Tamil Nadu Kalyana Mandapam Association, could be understood as having overruled or distinguished the clear ratio of the larger and constitution Bench ruling in K. Damodarasamy Naidu, which reiterated the established position that a statutory framework for computation/valuation is a sine qua non for operative vitality of the charging provision. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed by the Supreme Court in several rulings as a contract for work and labour and may include pure labour or a combination of labour and use of goods for delivering the agreed service vide - Sentinel Rolling Shutters and Engineering Co. vs. Commr. of Sales tax (1978) 4 SCC 260 (see end of para 7); State of Rajasthan vs. M/s Man Industrial Corpn. Ltd. (1969) 1 SCC 567 (para 9) ; and The State of Punjab vs. Associated Hotels of India Ltd. (1972) 1 SCC 472 (para 12) ii. The 46 th Amendment has no application to any law other than sales tax. Union's power to levy service tax is unaffected thereby, vide - the second Gannon Dunkerley; B.S.N.L.;Southern Petrochemical Industries Co. Ltd. vs. Electricity Inspector & ETIO (2007) 5 SCC 447; Geo Miller & Co. vs. State of M.P (2004) 5 SCC 209; and The Federation of Hotels and Restaurant Association of India vs. UOI ILR 2007 (Del) 1059; iii. Service tax and sales tax on deemed sale are different aspects of the same transaction and there can be overlapping, as a whole or in part, as regards the measure of the tax. Thus, the whole of works contract became taxable (to service tax w.e.f 01-06-2007) under Section 65(105)(zzzza) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in the manner propounded by Supreme Court decisions. 23. Summation of our primary analyses qua the precedential guidance -L & T and Revenue positions interfaced : i. Stand-alone contracts, for supply of goods (transfer of property in goods - chattel qua chattel) or for rendition of services/supply of labour simplicitor, on the one hand; and a works contract (including one where elements of transfer of property in goods by accretion/incorporation and supply/rendition of labour/services are integrated into an indivisible and composite transactional charter) on the other, are distinct sub-sets of contractual arrangements, naturally and lawfully occurring in the commercial habitat, for long so recognized, in jurisprudence, in our constitutional context, in unvarying series of binding precedents and explicitly so in Central and State legislation as well ' vide the first and second Gannon Dunkerley judgments (Supreme Court - 1958 & 1993); the first Builders Association of India. (Supreme Court -1989); B.S.N.L. Ltd. (Supreme Court ' 2006); Voltas Ltd. (Supreme Court - 2007); Larsen and Toubro Ltd. (Supreme Court - 2013); Kone Elevators (Supreme Court -2014); Hotel Dwaraka (A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annon Dunkerley and all subsequent rulings, including the latest, in Kone Elevator India Ltd. (2014). iii. The legislative field authorizing taxation of sale and purchase of goods (whether as goods or in any other form involved in the execution of a works contract), stands exclusively assigned to States under Entry 54, List II (on expansion of the locii of this Entry, qua the 46 th Amendment). The legislative field for taxation of inter-State sales (and post the 46 th Amendment, deemed inter-State sales as well) stands exclusively assigned to the Union vide Entry 92- A, List I. The Legislative field of taxation of services falls within the exclusive domain of Parliament qua Entry 97 of List I, r/w Article 248 (the residuary legislative field). iv. After the 46 th Amendment and as a consequence thereof, the residuary legislative field of the Union (under Entry 97 of List I, r/w Article 248) is confined [ to the extent of taxation of transactions falling within the ambit of sub-clauses (a) to (f) of Article 366 (29-A) ], to such aspects of these transactions as fall within the Union's residuary legislative field; and a fortiori excluding those aspects which fall within the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cartography of constitutional landscape; and its complex and dynamic spatial arrangement. vi. As a consequence of the exclusive, discrete and insular allocation of legislative powers pertaining to taxation, neither of the federal partners (the Union or States, who are competing magisteria), are authorized; and are on explicit text, compelling intent and express constitutional command; fortified by binding curial exposition of the constitutional boundaries, forbidden from encroaching into or trenching upon the exclusive domain allocated to the other federal partner. vii. In view of the exclusivity and insularity so ordained, sales tax legislations are required to evince and express the intention to levy a tax on deemed sales involved in the execution of a works contract, by employing specific and non-ambivalent language. Imprecise legislation and which accommodates constitutionally prohibited trenching (by design or default in drafting) and/or in the fond hope that such an overreaching legislation would be administered in a benign fashion (by executive agencies presumably having sufficient scholarship of the jurisprudence of and the limits upon legislative powers, imposed by a fed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws that what is forbidden to States is a fortiori forbidden and complementarily, to the Union as well. Thus, the Act (a Union legislation referrable to Entry 97, List I) cannot legitimately levy service tax on the deemed sale of goods components and associate elements, involved in the execution of a works contract. xii. The above position is the consequence of the 46 th Amendment, whereby the power to legislate for levy and collection of tax on sale or purchase of goods as goods or in some other form involved in the execution of a works contract, stands abstracted from the residuary field in Entry 97, List I as a consequence of its committal to Entry 54, List II and to Entry 92-A, List I (by virtue of the 46 th Amendment). The forbidden legislative territory for Union taxation on services (under its residuary legislative field/powers) is therefore and clearly, the entirety of the legislative field allocated to States under Entry 54 of List II, including the accreted scope of this Entry, post the 46 th Amendment. xiii. Union's legislative intention, to levy tax only on labour/service elements must therefore be categorically expressed in the charging provision per se; or in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. judgments of Patna, Madras and Orissa High Courts. xvii. ex hypothesi, assuming that definitions of CICS, COCS or ECIS r/w the charging provisions in Section 66 of the Act could authorize levy of service tax on a works contract, even so the charge would fail for sterility in the supporting architecture. This is the consequence of the demonstrable deficit of appropriate valuation/computation provisions in the Act and in the statutory rules made thereunder, prior to 01-06-2007 'vide Jagannath Baksh Singh; Rai Ramkrishna & others; B.C. Srinivasa Setty; Govind Saran Ganga Saran; Mathuram Agarwal; Mahim Patram; Voltas Ltd.; Infosys Technologies Ltd; Heinz India Pvt. Ltd; Larsen and Toubro Ltd (Pat); and Larsen and Toubro Ltd. (Orissa). xviii. It is an elementary principle of constitutional and administrative law that an ultra vires legislative/statutory regime cannot be sustained by benign or intra vires executive administration thereof. As Schwartz Administrative Law (1984) 153 observes: If an agency acts within the statutory limits (intra vires), the action is valid; if it acts outside (ultra vires), it is invalid. No statute is needed to establish this; it is inherent in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relevant clauses of Section 65, enumeration of taxable services in sub-clauses of Section 65(105) and the charging provision in Section 66, leads to the compelling inference that the gross amount charged by the service provider for providing CICS, COCS or ECIS, as the case may be, shall be the taxable value of such service; - Section 67 does not enjoin that the taxable value of an enumerated and defined serviceshall be the gross amount charged for the service component of the taxable service, nor do the definitions (set out in the several clauses of Section 65) clarify that service component(s) of the defined transactions/activities would alone constitute the taxable service. As earlier noticed and extracted, Section 67 enacts that the taxable value shall be the gross amount charged by the service provider for such service (i.e., the taxable service), provided or to be provided by him. Taxable services are catalogued in the charging provision - Section 66; enumerated in relevant sub-clauses of Section 65(105); and defined in the relevant clauses of Section 65; - The interpretation proferred by Revenue, that the taxable value qua Section 67 is the amount/consideration received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. 'Prescribed' is defined [in Section 65(86)] to mean by rules made under this Chapter, i.e., Rules made under Section 94; not by exemption notifications issued under Section 93; - There are a very large number of appeals pending before CESTAT where departmental adjudicating authorities had interpreted Section 67 as enjoining the total consideration received under composite transactions by a service provider to be the taxable value and have rejected claims for exclusion of the value of accretion sale of goods. - This is the inexorable pathology which results on accommodating a minimalistic legislative/statutory framework administered by and under a maximized executive discretion albeit of the quasi judicial variety, frowned upon in Jagannath Baksh Singh; Rai Ramkrishna; the second Gannon Dunkerley; B.C. Srinivasa Setty; Mathuram Agrawal; K. Damodarasamy Naidu; Govind Saran Ganga Saran; Voltas Ltd.; Infosys Technologies Ltd.; PNB Finance Ltd.; Tata Sky Ltd.; and in the Larsen & Toubro Ltd. rulings of the Patna, Madras and Orissa High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted to States' legislative field under Entry 54, List II, as the scope of this Entry stands expanded by the 46 th Amendment. - There is an established principle of statutory interpretation that the legislature is presumed (not conclusively though) to be aware of the contemporaneous state of the law. Applying this principle, we infer that with the insertion of sub-clause (zzzza), Parliament, by adopting a drafting shorthand had incorporated the whole of post 46 th Amendment jurisprudence on works contract into the scheme of the Act. - Paragraph (ii) of the Explanation, in Section 65(105)(zzzza), enumerates categories of transactions which fall within the scope of this taxable service. Suffice it to note that substantially the integers of CICS, COCS & ECIS are incorporated as (a) to (d) apart from 'turnkey' and 'EPC' projects set out as (e), under this paragraph. Works contract, in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams are however wholly excluded from the ambit of WCS as seen from the preambular portion of this sub-clause. - Even after 01-06-2007, CICS, COCS & ECIS continue to be taxable services, since there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as well, since in a scheme of composition there is a potential of eschewing some quantum of the legislated levy, since the idea of a composition scheme is to avoid the tedious process of accounting and proof of value of excludable/deductible components and proceeds on aggregate assumptions of what percentage of the gross consideration might constitute the legitimate measure of tax. The composition Rules also define WCS w.r.t Section 65(105)(zzzza) ' vide [Rule 2 (c)]. - Paragraph 154 in Chapter XIII, Part-B of the speech of the Hon'ble Minister of Finance (Budget 2007-2008), explains the basis for insertion of sub-clause (zzzza). The relevant portion reads: 154. State Governments levy a tax on the transfer of property in goods involved in the execution of works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 percent of the total value of a works contract(emphasis added). - Para 158 of the Budget speech (supra) states that the scope of some s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning (EPC) projects. 6.4.1 Works contract in respect of specified infrastructure projects namely roads, airports, railways, transport terminals, bridges, tunnels and dams are specifically excluded from the scope of the levy. 6.4.2 Taxable value under this service is that part of the value of the works contract which is relatable to services provided in the execution of a works contract. Such value is to be determined on actual basis based on the records maintained by the assessee. However, it is proposed to give an option to an assessee to opt for a composition scheme. Under the composition scheme, the assessee is required to pay 2% of the total value of the works contract as service tax. Assessee opting for the composition scheme is not entitled to avail Cenvat Credit of capital goods, inputs and input services required for use in the works contract. Valuation of works contract and details of the composition scheme will be notified separately. Para 7 states that Rule 2A is inserted in the 2006 rules which provides for valuation of services provided in relation to the execution of a works contract, covered by Section 65(105)(zzzza); and that as a trade facilitation measure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion of India (1984) 3 SCC 46; and Gem Granites v. CIT (2005)1 SCC 289. xxiii. Interpretive compulsions from the Act, Rules and exemption notifications issued till the introduction of WCS : xxiv. Section 67 of the Act, on a true and fair construction, neither expressly nor by a compelling implication of its text, authorizes or accommodates exclusions/deductions (of the value of accretion/deemed sale of goods and associate costs)from the gross amount (consideration) received for rendition of CICS, COCS or ECIS (except to the extent exclusions from the gross consideration and in respect of specific taxable services, including ECIS but excluding CICS & COCS) were spelt out in the provision itself, prior to its amendment in 2006). Until 18-04-2006, exclusionary sub-clause (vii) under the Explanation to this Section excluded the value of goods and materials used only in providing ECIS, but neither CICS nor COCS. The substituted Section 67 (w.e.f 18-04-2006) omitted sub-clause (vii) altogether. xxv. CICS, COCS & ECIS are not defined as to cover only the service element(s) or to enjoin exclusion of deemed/accretion sale or purchase of goods element(s) therefrom. Further, these definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere separate/distinctive enumeration, say for statistical purposes (a premise not advanced by Revenue either); xxx. The carve out theory offered in defense is woolly for several reasons; (a) there is no evidence in the enacting history of sub-clause (zzzza) which supports this hypothesis; (b) sub-clause (zzzza) is not a mere enumeration exertion per- se. it integrates a distinct definition, indicates that this species inheres elements committed to another and exclusive legislative field (of States under Entry 54, List II), enacts generic exclusions in the preambular portion and encompasses rendition of turnkey or EPC projects as well; (c) the Budget speech (by the Hon'ble Minster of Finance) in respect of sub-clause (zzzza) emphatically negates the proposition that works contract was a taxable service earlier as well; and (d) the simultaneous introduction of specially tailored valuation provisions (Rule 2-A of the 2006 Rules) and the 2007 Composition Scheme, both w.e.f 01-06-2007 should have to be considered a vacuous exercise (in accepting the contrary view), since according to Revenue wholesome computation and valuation provisions were in place in the Act and qua exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndle Co (1885) 10 AC 282; Jatindra Nath Gupta vs. Province of Bihar AIR 1949 FC 175; In re Delhi Laws Act AIR 1951 SC 332;and Hari Shankar Bagla vs. State of M.P AIR 1954 SC 465. In a powerful dissent in Mistretta vs. United States 488 U.S. 361 (1989), Justice Scalia cautioned: It is difficult to imagine a principle more essential to democratic government that that upon which the doctrine of unconstitutional delegation is founded: Except in a few areas constitutionally committed to the Executive Branch, the basic policy decisions governing society are to be made by the Legislature. Our members of Congress could not, even if they wished, vote all power to the President (in the context of the Act, to the Union Executive, for issue of an exemption notification; to the Board/TRU for issue of circulars/clarifications, by way of periodical treatises on interpretation of a federal constitution and the scope of taxing powers thereunder; or to the adjudicating additional Commissioners or Commissioners (of Customs, Central Excise or Service Tax) to sensitively apply profound and complex federal constitutional principles, to evaluate taxable components of a works contract) and adjourn sine di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Essentially, rules framed under legislation are subject to ultra vires scrutiny while an exemption notification enjoys greater operative latitude within the contours of rational policy choices, explicated in the grant of such power. xxxv. Further, on this assumption, the scope of Section 93 (power to grant exemption from the levy of service tax on taxable services); and of Section 94 (power to make rules for carrying out the provisions of this Chapter - Chapter V of the Act), would bear no distinction, in text or substance and one of the modes of carrying out the functions of the Chapter, would lawfully be by issue of an exemption notification, eschewing levy and collection of the service tax leviable under the Act. xxxvi. If the power consecrated to the Executive Branch qua Section 93 (to grant exemption from the service tax leviable under Section 67, on taxable services defined in Section 65 and enumerated in the charging provision in Section 66) is interpreted as a power to effectuate the purposes of the Act and a provision in the nature of a supporting or reinforcing architecture for the valuation provision (Section 67), then issuance of an exemption notification would ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution Bench. b. What facts has Mahim Patram considered and what the ruling signals : The analyses in the Mahim Patram ruling (paras 29 to 40) reveals that adequate machinery provisions, in the relevant State sales tax legislation, were in place (adverted to in paras 19 to 22); - that in the Central Sales Tax Act, Section 2 (g) defines sale to include works contract sales, Section 8 provides for rates of tax on sales in the course of inter-State trade or commerce, Section 8-A for determination of turnover, Section 9 for levy and collection of tax and penalties; and this provision covers inter-State works contracts as well; - that Section 9(2) of the Central Act authorizes (by plenitudinous grant of powers) the State (sales tax) machinery to administer the mandate of the Central Act as well; - that Section 13(3) of the Central Act authorizes State Government to make rules (not inconsistent with the Central Act or any rules made under Section 13(1) thereof), to carry out the purposes of the Central Act; and - that State rules are made applicable (for assessments of the Central levy) by the enabling/facilitation framework of provisions explicitly enacted in the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative/statutory provisions, and if so of which State? Such speculative hypotheses are inconcievable in rational statutory interpretation! c. What the other precedents cited on behalf of Revenue indicate : - The rulings/observations in the judgments cited on behalf of Revenue (i.e., Mahim Patram; S.T. Venkataramanappa; Sharvan Kumar Swarup & Sons; Great Eastern Shipping Co. Ltd.; T.N. Kalyana Mandapam Association; and Association of Leasing and Financial Service Cos.), are in the peculiar and respective factual and statutory settings involved therein; do not expound principles which are contrary to nor overrule the overwhelming catena of binding precedents including of constitution Benches; and have no application to factual matrices which invite clear constitutional limits upon legislative fields allocated to the Union and to States (under Entries 97 and 54 of Lists I & II, respectively), as regards the authorized boundaries of taxation, including the measure of levy thereby. We have recorded brief comments while referring to these rulings, earlier. - On the essential question (before us) i.e., as regards contours of CICS, COCS & ECIS as defined; of the charging provision (Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutional scheme, as explained in every precedent on the aspect, a works contract (pertaining to building/construction transactions), is a distinct species which includes elements of sale of goods and of supply/rendition of service(s). Each set of these elements falls within the exclusive taxation domain of States and of the Union, respectively. The exclusivity mandated by the Constitution prohibits cross taxation and overlapping levies. We infer that the prohibition ensures preservation of the substrates/elements of composite transactions for availability to the appropriate legislature to harvest revenue by taxation, without depletion of these substrates by cross taxation exertions by the other federal partner. - In the circumstances, a synergy between charging and valuation/computation provisions, to ensure confinement of the levy and collection of tax within the allocated/demarcated boundaries of each level of legislation, is a non-derogable constitutional command. Categorical signification of the limits of the levy; and providing a symbiosis of charging and computation provisions, in State or a Union legislation, is thus an unavoidable fundament of an intra vires legislative a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/or valuation provisions, which negate overreach into or trenching upon the domain of the exclusively allocated legislative field committed to the other level, in the administration of its provisions; and must ensure (by providing for) non-arbitrary assessment of the liability to the authorized levy thereunder; and - ambiguous legislative provisions, which do not specify the intent to levy a tax on works contract and fail to enact or provide for framing of relevant rules for appropriate computation/valuation, compel the inference that either there is no charge on works contract or that the charge fails for sterility in the area of valuation/computation provisions (this conclusion of the Court is a compelling inference), from the operative portion of the majority judgment per Dipak Misra. J, vide para 65. 25. On the aforesaid analyses we are compelled to the conclusion that: a. works contract was not a taxable service prior to 01-06-2007; b. definitions of CICS, COCS and/or ECIS r/w the charging provision (Section 66) and the valuation provision (Section 67) do not comprehend works contract (comprising an amalgam of deemed/accretion sale of goods and supply of labour/service) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative powers under the Constitution. (b) The second Gannon Dunkerley ruling clearly records what components of a works contract fall outside the measure of sales tax leviable by States and what amounts from the gross consideration received on a works contract are compulsorily deductible for a valid assessment of sales tax. It is axiomatic that whatever is the legitimate measure for levy of sales tax is the impermissible measure for levy of service tax. This is so since Union's legislative field qua Entry 97, List I is the residue of subjects/fields committed for State exertions qua Entry 54, List II. Post the 46 th Amendment, deemed/accretion sale of goods involved in a works contract and associate elements (i.e., elements excerpted and catalogued in the second Gannon Dunkerley), are unauthorized components for levy of service tax. This to our mind is an elementary conclusion flowing from the inescapable position that under our constitutional scheme of distribution of legislative powers, the residuary field is the last port of interpretive call and whatever legislative fields are comprehended in enumerated Entries (in the three Lists) are clearly outside the scope of the resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to between the parties, any additional obligation incorporated in the contract would not change the nature of the contract(para 42). g. Reliance on paras 43,105 to 107 of the B.S.N.L ruling is equally misplaced. The context and interpretive position emerging from the B.S.N.L observations is explained in constitution Bench decisions in Larsen & Tourbro Ltd. (2013) and Kone Elevator (2014). Kone Elevator explains this aspect by referring to the (2013) Larsen & Toubro Ltd. constitution Bench reiteration of the principle (para 58 ofKone Elevator) thus: 87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract for sale of goods. In our opinion, the distinction between a contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract for work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such a contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Entry 97, List I. This decision concluded that provisions of Article 366(29-A) have no application to a State legislation relatable to imposition of entry tax which is referrable to Entry 52; and not Entry 54, of List II. j. The Delhi High Court in The Federation of Hotels & Restaurants Association of India & Others ILR (2007) 1. Delhi. 1059 , held that supply of mineral water and soft drinks in hotels and restaurants do not constitute sale; that provisions of the Standard of Weights and Measures Act, 1976 and of the SWM (Packaged Commodities) Rules, 1977 made thereunder are inapplicable, though by the deeming fiction qua Article 366(29-A)(f), the supply, by way of or as part of any service, is considered as sale. This ruling does not, expressly or by compelling implication, posit the position that the 46 th Amendment's expansion of the scope inter alia of Entry 54, List II has no impact on the scope of the residuary field qua Entry 97, List I, r/w Article 248. k. The rulings in Sultan Brothers Pvt. Ltd. vs. CIT AIR 1964 SC 1389; BSES Ltd. vs. Fenner India Ltd. (2006) 2 SCC 728; and Indure Ltd. vs. CTO (2010) 9 SCC 461 are cited for contending that where the agreement b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alysed the rulings in Tamil Nadu Kalyana Mandapam Association and Association of Leasing & Financial Service Cos. (the other decisions cited by Shri. Sahu). For the reasons recorded thereat, we find no support therein for the contention that the measure of service tax may legitimately include the whole of the consideration received, including the value of deemed/accretion sale of goods, involved in the execution of a works contract. o. Super Polyfabricks Ltd. vs. CCE 2008 (10) STR 545 (SC) , is not an apposite authority for the proposition that the intention of the parties, gathered from the relevant agreement considered as a whole, is the guiding factor for determining whether a transaction is a works contract or otherwise. The traditional - dominant nature, degree of intention, overwhelming component, major component or degree of enforceability tests are declared inapplicable and to be no longer relevant for determining whether a transaction amounts to a works contract, in the constitution Bench ruling in Kone Elevator (2014), following inter alia the decisions inB.S.N.L (2006) and Larsen & Toubro Ltd. (2013). p. The ECJ and the House of Lords opinions in Card Protection Plan L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in Attorney General for Canada vs. Attorney General of Alberta (1916) 1 A.C. 588, Viscount Haldane advised great caution in the application of this theory and the reason for exercise of such caution was explained by the Canadian Supreme Court in Bell Canada vs. Quebec (1988) 1 S.C.R. 749, thus: the reason for this caution is the extremely broad wording of the exclusive legislative powers listed in ss. 91 and 92 of the Constitution Act, 1867 and the risk that these two fields of exclusive powers will be combined into a single more or less concurrent field of powers governed solely by the rule of paramountcy of federal legislation. Nothing could be more directly contrary to the principle of federalism underlying the Canadian Constitution (emphasis added). s. Entries in our Constitution were drafted with greater precision and clarity and there is in addition a concurrent assignment of legislative fields in List III whereunder paramountcy is accorded to Union exertions, subject to conferment of operational efficacy for State legislation referable to List III Entries, on fulfilment of conditions set out in Article 254(2). The application of the aspect theory has therefore been ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially a service contract simplicitor; and - that post 01-06-2007, not merely the service portion of a works contract but the whole of it is leviable to service tax. As indicated supra, we decline to answer other contentions urged by Shri. Sahu as are outside the scope of the reference to this Bench. 26. We now deal with the question whether the Hon'ble Delhi High Court's ruling In G. D. Builders or the Karnataka and Madras High Court decisions in Turbotech Precision Engineering Pvt. Ltd. and Strategic Engineering Pvt. Ltd., are binding precedents and whether per incuriam or sub silentio principles denude any of these decisions of their binding force. We notice that Turbotech Precision Engineering Pvt. Ltd. (in paras 9 & 10) clearly ruled that as Section 65(105)(zzzza) of the Act came into force w.e.f 01-06-2007; the contract in issue falls under Explanation (a) and (e) thereunder; and that Revenue has no power to levy service tax, since the contract covered the prior period, i.e., 1997 and 2001. The Madras High Court in Strategic Engineering Pvt. Ltd., allowed the writ petition and quashed the show cause notice and the impugned order. Revenue's demand for service ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the second Gannon Dunkerley and K. Damodarasamy Naidu. We have also analyzed other facets of the Tamil Nadu Kalyana Mandapam ruling earlier and reiterate that analyses. In any event, glossing over the factor of non existence of a statutory computation/valuation mechanism is consistent with the finding: a tax on services rendered by mandap keepers and outdoor caterers, is in pith and substance, a tax on services and not a tax on sale of goods or on hire-purchase activities (the observation in para 28 of Tamil Nadu Kalyana Mandapam Association). It is axiomatic that if the entirety of mandap keepers and/or outdoor caterers activities amount to a service and inhere no elements/components of sale of goods, then no issue of exclusions/deductions therefrom would be warranted! In our respectful view, the Tamil Nadu Kalyana Mandapam decision at any rate cannot be considered as having dissented from or overruled entrenched principles consistently expounded, reiterated and implicitly followed, in Jagannath Baksh Singh; Rai Ramkrishna; B. C. Srinivasa Setty; Govind Saran Ganga Saran; Mathuram Agarwal; K. Damodarasamy Naidu; Mahim Patram; P. N. B. Finance Ltd.; Infosys Technologies Ltd.; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use rules had not been framed under the Central Act, the same per se would not mean that no tax is leviable. 'We have (in our primary analyses of precedents, earlier herein), analyzedMahim Patram and have demonstrated that this decision is not an authority for a generic principle that a computation/valuation regime deficit in a Central legislation stands cured by availability of such provisions in a State legislation,without adaptive provisions in the Central legislation authorizing such adoption; and that the Mahim Patram text and internal analysis of relevant facts, is proof positive of this very principle (ie., that the Central Sales Tax Act, 1956 embedded an elaborate legislative architecture for adoption of State legislative measures, assessment processes and for application of State rules for assessment of the Central levy (following an adaptive/referential drafting process). It is the specific context of such adaptive legislative stipulations in the Central Act, which led to upholding the composite and integrated (Union & State) statutory framework, as adequate. 'We are therefore persuaded to accept the contention of Learned Senior and other Counsel that the inadeq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Toubro Ltd (2013);and Kone Elevator India Pvt. Ltd (2014) emphatically and conclusively establish the position that the 'aspect doctrine' merely deals with legislative competence, the principle being; subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power; There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects; the Centre cannot include the value of goods in the cost of the service; and the 'aspect theory' would not apply to enable the value of services to be included in the sale of goods or the price of goods in the value of the service; and (2) The rulings in Jagannath Baksh Singh to Tata Sky Ltd. consistently enjoin the inexorable and seminal norm, that appropriate computation/valuation provisions and complementary machinery provisions are non-derogable integers of a valid charge and for legitimate levy and collection of tax; and in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trategic), as is found in the painstaking effort apparent in G.D. Builders, in our respectful view the conclusion that a works contract is defined, charged and is subject to the levy of service tax only w.e.f 01-06-2007 (on insertion of sub-clause (zzzza) in Section 65(105) of the Act), is consistent with the overwhelming catena of binding precedents considered and analysed by us hereinbefore. 29. Before recording our conclusions on issues referred for our resolution, we advert to certain submissions by Revenue, which in our view are not germane to either our jurisdiction to answer the reference or assist determination of the question referred. Revenue (in its written submissions) referred to the following orders/decisions of the Tribunal which followed the G.D. Builders ruling, subsequent to the reference order dated 09.09.2013. These are: i) Misc. order dated 20.11.2013 in Hindustan Aeronautics Ltd. Vs. Commissioner of Service Tax, Bangalore 2013 (32) STR 783 (Tri.- LB); ii) MIL Industries Ltd. Vs. Commissioner of Service Tax, Chennai 2014 (35) STR 74 (Tri. Chennai); iii) Misc. order dated 13.02.2014 in Tata Hitachi Construction Machinery Co. Ltd., vs. CST, Bangalore 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules (prior to insertion of Rule 2-A therein, w.e.f 01-06-2007)) and exemption notification Nos -12/2003-ST, 15/2004-ST, 04/2005-ST and 01/2006-ST, authorize a charge of Service Tax on a works contract (which is a distinct contractual arrangement inhering integrated elements of accretion sale of goods and of exertion of labour/rendition of services); B. Taxable services defined and enumerated as CICS, COCS & ECIS cover only such contracts/ transactions which involve pure supply of labour or rendition of service(s), falling within the ambit of the respective definitions; C. Only since the insertion of sub-clause (zzzza) in clause (105) of Section 65, w.e.f 01-06-2007, complemented by the amended 2006 Rules (inserting Rule 2-A therein) and the 2007 Composition Rules, that the requisite and appropriate statutory framework, for charging, levy, collection and assessment of Service Tax, supported by appropriate computation/valuation machinery on a works contract stands incorporated. This framework defines 'works contract' (in the Act) by clearly enacting the legislative recognition that this distinct species of contractual arrangements inheres components of sale of goods whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposed of on their respective merits and in the light of the conclusions recorded herein. (Pronounced on 19.03.2015) G Raghuram, President Archana Wadhwa, Member (J) Rakesh Kumar, Member (T) P R Chandrasekharan, Member (T) R K Singh, Member (T) Per: P R Chandrasekharan: I have had the pleasure and privilege of going through the elaborate order recorded by the hon'ble President. I have also benefited from a reading of the said order as it has dealt with and explained lucidly several legal concepts involved in the issue for consideration before the Larger Bench. However, with due respects, I am unable to agree with the views expressed and the conclusions drawn in the said order. Therefore, I proceed to record a separate order. Since the background of the case, the contentions for and against made by the Appellants and the Revenue on the issue under reference have already been discussed in detail in the order recorded by the hon'ble President, I shall not repeat them. However, I shall refer to them as and when required while undertaking the factual and legal analysis. I shall also try to be brief without indulging in any verbosity or legalese. 2. Before I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such decisions. (1) In CCE, Indore vs. Gopal Enterprises [2014 (36) STR 674 (Tri.- Del) decided on 8-5-2014 (much after the present reference was made), the very same issue was considered by a Division Bench comprising of the hon'ble President and hon'ble Member (Technical) (who are also members of the present Larger Bench). The question for consideration in the said case was whether the activity of civil or industrial construction or erection, installation and commissioning, although taxable as works contract service under section 65 (105) (zzzza) of the Finance Act, 1994 with effect from 1-6-2007, was taxable prior to 1-6-2007 under section 65 (105) (zzq) read with section 65(25b). This Tribunal in the said case held as follows :- "5. There is no dispute that both the respondents during the period of dispute had provided the services of commercial or industrial construction which were taxable at that time under Section 65(105)(zzq) read with Section 65(25b). The respondent's plea is that since w.e.f. 1-6-2007, their activity became taxable as works contract service under Section 65(105)(zzzza), during the period prior to 1-6-2007, their activity would not be taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal proceeded to further hold as follows :- "12. Needless to say, the classification of service is to be determined as per the definitions of various taxable services prevalent during the relevant period and merely because the classification changes with the introduction of a taxable service under which an existing service gets more specifically covered in no way means that the said service was not necessarily taxable during the period prior thereto. The contents of above reproduced Para 31 of the Delhi High Court judgment in the case of G.D. Builders (supra) has categorically held that : "as per the provisions of Section 65(105)(zzq) and (zzzh), service tax is payable and chargeable on the service element of the contract for construction of industrial and commercial complexes and contract for construction of complexes and in case of composite contract, the service element should be bifurcated and ascertained and then taxed". The Hon'ble High Court in the same para goes further to add that : " the contention that there was/is no valid levy or the charging section is not applicable to composite contracts under clause (zzq) and (zzzh) of Section 65(105) stands rejected." N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d between the ld. Addl. Solicitor General appearing for the Revenue and the ld. Senior Counsel for the assessee, Larsen & Toubro Ltd., the hon'ble High Court directed that the 5 member larger bench can examine as a preliminary issue whether the question raised is covered by the G.D. Builders case and in case the question raised is covered, then the matter can be closed. However, as urged by the ld. Senior Advocate for the assessee, there are conflicting views expressed by the Karnataka and Madras High Courts and the said contention can also be raised before the Tribunal and appropriate direction/order can be passed. 3.1 It is necessary at this juncture to see what were the issues for consideration before the Delhi High Court in the G D Builder's case and the rationale for the decision thereon. The issues raised by the appellants in the said case were crystallized in para 2 of the said order dated 24-11-2013 as under :- "(i) Service tax levied from time to time by Finance Act, 1994 and subsequent amendments is in exercise of power under residual entry 97 of List I of the Seventh Schedule of the Constitution of India. It is levied on taxable service as defined in Section 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 1st June, 2007 under Section 65(105)(zzzza). Rule 2A of Service Tax (Determination of Value) Rules, 2006 determines value of services involved in "works/composite contracts" and it is levied @ 2%, enhanced to 4% with effect from 1st March, 2008. The said levy is not applicable to "services" covered under Section 65(105)(zzq) and (zzzh). (ix) There is a conflict between Section 65(105)(zzzza), (zzq) and (zzzh) and what is covered by Section 65(105)(zzzza) cannot be covered by Section 65(105)(zzq) and (zzzh). The two sets of provisions cannot co-exist. Subsequent legislation shows that the earlier legislation will not cover "composite or works contract." (x) Section 66 is the charging section and provisions of Section 67 are the valuation provisions. Value of taxable services under Section 67 is the gross amount charged by the service provider for such "services provided or to be provided.. Service tax can be charged only for the specified "taxable services" as defined in sub-clauses of Section 65(105). Tax can be only on the value of services and not beyond. There is no provision for a notional value or to enable the authorities to reduce or subtract value of mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. (3) The notifications in question are in alternative and optional. An assessee may take advantage or benefit of the notifications, but cannot be compelled to pay service tax on the proportion or value of a composite contract as per the notification. This is because the formula framed by way of delegated legislation is presumptuous and based on assumption. (4) However, if an assessee wants to take benefit of the notification, he must comply and adhere to the terms and conditions stipulated as per the notification. (5) An assessee to claim benefit or advantage as per a notification must meet the preconditions or stipulations stated therein. An assessee cannot take benefit or advantage of a part of a notification but claim that the other part of the notification should be ignored and thus not acted upon. Notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gorically interpreted the said provision as imposing service tax only on the service component of the composite contracts which fall under the impugned provisions. The Division Bench in G.D. Builders (supra) held that it is the service portion of the composite contract which alone could be made the subject matter of service tax and that the aspect doctrine would be applicable for bifurcating/vivisecting the composite contract into its service component and sale of goods component. While the sale of goods would be taxable under the authority of the State Legislature, the service component would be taxable by virtue of Parliamentary legislation which includes the Finance Act, 1994. It was further observed in G.D. Builders (supra) that the computation of the service component was only a matter of detail and not a matter relating to the validity of imposition of service tax. It was also observed that the notifications which were impugned before it were in the alternative and optional and it was for the assessees to take advantage or benefit of the said notifications, if the assessees so desired. However, it was also made clear that the assessee cannot be compelled to pay se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ypothetically a nullity, but the Court may refuse to quash it because of the plaintiff's lack of standing, because he does not deserve a discretionary remedy, because he has waived his rights, or for some other legal reason. In any such case the 'void' order remains effective and is, in reality, valid. It follows that an order maybe void for one purpose and valid for another, and that it may be void against one person but valid against another." 3.6 In my considered view, the Tribunal being sub-ordinate to the High Court in the judicial hierarchy cannot sit in judgment on the correctness of a decision passed by the High Court notwithstanding the liberty granted. The liberty granted is conditional, that is, the larger bench has to consider first as to whether the decision in the GD Builder's case covers the issue before it and if so, the matter shall be closed. 4. Be that as it may, I now proceed to examine the rival contentions. The ld. Senior Counsel for the appellant submits that the decision of the Delhi High Court is not a binding precedent for the following reasons :- (a) it is based on a concession made by the Taxpayer appellant; (b) It is per incuriam; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concession made by the parties even though the principle consisted was accepted by the Privy Council without discussion cannot be given the same value as one given upon a careful consideration of the pros and cons of the question raised. The aforesaid observation indicates the care and caution taken by the Court in the matter and therefore, merely because the pros and cons of the question raised had not been discussed the judgment of this Court cannot be held to be not a law declared." 4.2 If we apply the above principle to the facts of the case before us, can it be said that the decision of the hon'ble High Court in G D Builder's case is a decision on concession? In my considered opinion, such a proposition would amount to mocking at the said decision. The hon'ble High Court has examined the issue before it at great length, analysed the provisions of law, considered the various binding precedents on the matter and thereafter, passed a detailed order. To contend that such a decision is based on concession would be an affront to common sense. It is also worth-remembering that the ratio of the G D Builders case was followed by another bench of the hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be vivisected and the discernible service elements could be subjected to service tax if such services are taxable services, even prior to 1-6-2007, when some of the composite services were grouped under "works contract" category. The contention that such a decision is per incuriam, to put it mildly, borders on perversity. The decision in the G D Builders case has neither been passed inadvertently nor in ignorance of the various judicial pronouncements of the apex court on the subject matter. It is also relevant to note here that in the Kalpik Interiors case (supra), a Division Bench of this Tribunal also found that the decision in the G D Builders case is not per incuriam and is a good law. In my view, only a court of higher status can set aside the said decision. Even a court of equal status, if it wants to disagree with the decision, should refer the matter to a larger bench. The ratio of the decision in State of Punjab and Ors. Vs. Gurudev Singh, Ashok Kumar (supra) applies. Therefore, this contention, fails miserably. 4.5 An argument has been advanced by the appellant that there are conflicting decisions of the Karnataka and Madras High Courts on the same/similar issue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries :- (a) 'Erection, Commissioning and installation service' for receipt of labour charges for erection and laying of pipes; and (b) 'Scientific or Technical Consultancy' service in respect of the services rendered to its non-resident clients. After considering the rival contentions, the hon'ble high court held that,- "13. Thus, the plumbing, drain laying or other installations for transport of fluids etc., was included in the definition of 'erection commissioning or installation', for the first time, on 16th June 2005." (that is, for the period after the issue of show cause notice and hence not covered by the show cause notice) The hon'ble High Court also took into account the additional ground urged by the appellant that the said activity came under the category of 'works contract services' taxable with effect from 1-6-2007 and concluded that,- "17. The facts stated herein above prove beyond doubt, that the demand raised against the petitioner is not sustainable law, as the period for which the demand has been raised does not cover the services of the petitioner for imposition of service tax." The question whether a works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.'' "Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches, else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it." In the light of the principle discussed above, it cannot be said that any contrary view (to GD Builders case) was expressed either by Karnataka High Court or by the Madras High Court.In other words, the ratio decidendi of the G D Builders case stands uncontroverted as of now and therefore, the same is binding on all sub-ordinate courts including this Tribunal (irrespective of the strength of the bench which hears the matter). 5. Before I proceed to deal with the main issue of divisibility of a works contract fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Each provision or levy has its own scope and ambit, while the first two provisions were primarily specific and targeted, the third inclusion i.e. works contract is very broad and wide term and will include within its ambit and scope construction of industrial and commercial complex or construction of residential complexes as specified. Introduction and imposition of service tax on works contract by Finance Act, 2007 does not mean that we have to read down, the scope and ambit of the provisions enacted levy tax on contracts relating to "commercial and industrial construction. service or "construction of (residential) complexes" services as specified by Finance Act 2004 and Finance Act 2005 respectively. The new levy imposed by Finance Act 2007 does not indicate or show that works contract relating to "construction of industrial and commercial complexes" or "construction of (residential) complexes" as specified, would be only applicable when the contractor was providing labour or service and was paid for the same and not to composite contracts when the contractor was providing labour/services as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction can have two components, namely, activity undertaken by a person pertaining to his performance and skill and, secondly the person who avails the benefit of the said performance and skill. In the said context, the two concepts, namely, activity and the service provider and service recipient gain significance." 5.2 The hon'ble High Court also examined the provisions of notification nos. 15/2004-ST, 18/2005-ST and 1/2006-ST providing abatement in the taxable value of specified services which entailed both supply of goods as well as services. Thereafter, in para 36, the high court concluded as follows:- "(2) Service tax can be levied on the service component of any contract involving service with sale of goods etc. Computation of service component is a matter of detail and not a matter relating to validity of imposition of service tax. It is procedural and a matter of calculation. Merely because no rules are framed for computation, it does not follow that no tax is leviable. (3) The notifications in question are in alternative and optional. An assessee may take advantage or benefit of the notifications, but cannot be compelled to pay service tax on the proportion or val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the facts of the case before us. The ratio of Al Noori Tobacco Products case shall apply in this regard. 5.4 An identical question arose for consideration before the hon'ble Apex Court in Associated Cement Co. Ltd. vs. Commercial Tax Officer [1981 AIR 1887] and the hon'ble court held that,- "It is settled law that a distinction has to be made by court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated." 5.5 Similarly in the case of Assistant Collector of Central Excise vs. National Tobacco Co. of India Ltd. [1972 AIR 2563], the hon'ble Supreme Court held that, in a situation where no assessment took place for the reason of non-ascertainment of duty due to deficiency in quasi-judicial procedure, it can be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the charge and the levying and collection of the tax in respect of the charge so imposed. Machinery provisions do not impose a charge or extend or restrict a charge elsewhere clearly imposed." 13. The distinction between substantive law and procedural provisions has been indicated in Black's Law Dictionary (Sixth Edn., p. 1203) as follows: "As a general rule, laws which fix duties, establish rights and responsibilities among and for persons, natural or otherwise, are substantive laws' in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are 'procedural laws'." 14. In Salmond's Jurisprudence (Twelfth Edn., p. 462), the distinction between substantive law and law of procedure is indicated in the following words: "What then, is the true nature of the distinction? The law of procedure may be defined as that branch of the law which governs the process of litigation. It is the law of actions - jus quod ad actions pertinent - using the term action in a wide sense to include all legal proceedings, civil or criminal. All the residue is substantive law, and relates, not to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect clarity". We can do no better than repeat the famous words of Judge Learned Hands when he said: "...... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing; be it a statute a contract or anything else. But, it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." "..... the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate re-course to the setting in which all appear, and which all collectively create." 5.8 From the above decisions, it is crystal clear that there cannot be any challenge whatsoever to the levy of service tax, merely because there are no machinery provisions to compute or quantify the amount of tax. In my considered view section 67 itself provides the measure of the levy. Further there are several exemption notifications such as 12/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts", paragraph 7, the Commission states as follows:- 'Difference between "works and sale" 1A.7. The primary difference between a contract for work (of service) and a contract for the sale of the goods is that in the former there is in the person performing the work rendering a service, no property in the thing produced as a whole, even if part or even whole of the materials used by him may have been his property. Eventually the property passes; in the generality of building contracts, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in consideration therefor, he should receive the payment as provided therein. There is, in such agreement, neither a contract to sell the materials used in the construction, nor does property pass therein as movables. The materials pass to the owner of the building as an accretion to the building. A contract for the sale of materials cannot be implied from such an agreement. 1A.8. Where the contract is indivisible, it cannot be split up, and even the fact the asssessee has split it up for his own purpose is immaterial.' 6.1 In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied as part of the works contract. The said fiction does not alter the basic nature of a works contract which is a contract of service. It is a settled position in law that a legal fiction has to be given effect to only for the limited purpose for which it has been created. InSant Lal Gupta vs. Modern Co-operative Group Housing Society Ltd. [2010 (262) ELT 6 (SC)], the hon'ble apex court has explained this position as follows :- "14. '''''''''''.. It is the exclusive prerogative of the Legislature to create a legal fiction meaning thereby to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. Even if a legal fiction is created by the Legislature, the court has to ascertain for what purpose the fiction is created, and it must be limited to the purpose indicated by the context and cannot be given a larger effect. More so, what can be deemed to exist under a legal fiction are merely facts and no legal consequences which do not flow from the law as it stands. It is a settled legal proposition that in absence of any statutory provision, the provision cannot be construed as to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on catering services [transaction covered by Art. 366 (29A) (f)] would amount to tax on sale and purchase of goods. The hon'ble Apex Court answered the question as follows:- 43. As far as the above points is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand. 1. M/s. J.K. Jute Mills Co. Ltd. vs. The State of U.P. and Anr. (1962) 2 SCR 1; 2. M/s. Gannon Dunkerley & Co. and others vs. State of Rajasthan and others (1993) 1 SCC 364; 3. The State of Madras vs. Ganon Dunkerley & Co. (Madras) Ltd. (1959) SCR 379 4. The Sales Tax Officer, Pilibhit vs. M/s. Budh Prakash Jai Prakash (1955) 1 SCR 243; 5. M/s. George Oakes (P) Ltd. vs. State of Madras (1962) 2 SCR 570). 44. In regard to the submission made on Article 366(29A)(f), we are of the view that it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so long as the legislation is in substance, on a matter assigned to a legislature enacting that statute, it must be held valid in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the legislature (Prafulla Kumar vs. Bank of Commerce)'. 6.5 In Association of leasing and financial services Companies Vs. UOI [2010 (20) S.T.R. 417 (S.C.), a dispute arose as to the leviability of service tax on financial leasing services [transaction covered by Art 366 (29A)(c)]. The hon'ble apex court after examining the scope of Article 366 (29A) and several other precedent decisions held as follows :- "Scope of Article 366(29A): 30. If one examines Article 366(29A) carefully, one finds that clause (29A) provides for an inclusive definition and has two limbs. The first limb says that the tax on sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f). The second limb provides that such transfer, delivery or supply of goods referred to in the first limb shall be deemed to be a sale of those goods by the person making the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "splitting up" in K.L. Johar's case is misconceived because the "splitting up" referred to in K.L. Johar's case was, as stated above, in regard to valuation and not in regard to legislative competence. ********** 37. Applying the above decisions to the present case, on examination of the impugned legislation in its entirety, we are of the view that the impugned levy relates to or is with respect to the particular topic of "banking and other financial services" which includes within it one of the several enumerated services, viz., financial leasing services. These include long time financing by banks and other financial institutions (including NBFCs). These are services rendered to their customers which comes within the meaning of the expression "taxable services" as defined in Section 65(105)(zm). The taxable event under the impugned law is the rendition of service. The impugned tax is not on material or sale. It is on activity/service rendered by the service provider to its customer. Equipment Leasing/Hire-Purchase finance are long term financing activities undertaken as their business by NBFCs. As far as the taxable value in case of financial leasing including equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and hire purchase, the Apex court has clearly held that service tax can be levied on these services on the value attributable to the service component of the composite transaction. In other words, the issue of divisibility of an indivisible contract for the purpose of levy of service tax was confirmed and sustained by the Apex court. 6.7 Supply of goods and services are integrally connected with each other and it is difficult to segregate them. For example, while effecting a sales transaction, many services are inherently included such as freight, insurance, storage, and so on. Similarly rendition of many services entails supply of goods. To cite a few examples - i) Telecommunication services entail supply of goods in the form of sim cards, modem for internet and so on; ii) Beauty parlour services involve supply/use of various cosmetics and toilet preparations; iii) Cable TV services include supply of cable, set-top box, dish antenna and so on; v) Banking services involve supply of goods such as cheque books, plastic cards to undertake ATM and similar transactions; vi) Repair and Maintenance services involve supply of spare parts and consumables; vii) Catering services inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion are not the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters." Therefore, the contention that a composite contract consisting of supply of goods and supply of services cannot be vivisected for the purpose of taxation does not take into account the reality of economic transactions which are subjected to tax. 6.8 In its latest decision in State of Karnataka v Pro Lab and Others - 2015 -TIOL-08-SC-CT-LB, decided on 30th January, 2015, another larger bench of the Supreme Court considered the issue of levy of sales tax on processing and supplying of Photographs. The hon'ble apex court held that,- "after insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. While going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immateria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. In Union of India & Anr. v. Deoki Nandan Aggarwal, AIR 1992 SC 96, the Supreme Court observed thus:- "It is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation to a modern Act. We, therefore, reject the attempt on the part of the petitioners to lead us to this forbidden track by referring to various extraneous matters which we have indicated before." 6.12 In Khandelwal Metal & Engineering Vs Union Of India And Others decided on 11 June, 1985 [1985 AIR 1211], a question arose before the hon'ble Supreme Court as to whether the additional duty leviable under section 3(1) of the Customs Act, 1975 is a countervailing duty or a duty in addition to the duty under section 12 of the Customs Act, 1962. It was contended before the court that as per the Statement of objects and reasons,- "Clause 3 provides for the levy of additional duty on an imported article to counterbalance the excise duty leviable on the like article made indigenously, or on the indigenous raw materials, components or ingredients which go into the making of the like indigenous article. This provision corresponds to section 2-A of the existing Act, and is necessary to safeguard the interests of the manufacturers in India." The court held that,- 'the statement lends prima facie support to the contention of the appellants but, in the absence of any ambiguity in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract can be vivisected and discernible service elements therein can be levied to service tax provided such elements are declared as taxable services in the law, even prior to 1-6-2007 when a specific entry was created for certain type of works contract services. The reference should be answered accordingly and returned to the referring benches for decision on other questions such as, determination of value of the service component and quantification of service tax amount payable thereon, time bar, imposition of penalty, and so on, if any raised. I am sorry that the complexity and multiplicity of issues involved has made this order somewhat lengthy but I could not have done justice to the issues placed for consideration without a proper discussion. P R Chandrasekharan, Member (T) Per: R K Singh: I have read with admiration the well crafted orders of my judicial guru Hon'ble Justice G Raghuram, President and my learned brother Shri P.R. Chandrasekharan, Member (Technical) 2. At the very outset, I would like to state that the Hon'ble Delhi High Court vide its order dated 11.11.2014 ordered that "the Five Member Bench may examine as a preliminary issue whether the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its amendment on 18.04.2006, Section 67 contained a clear provision that "the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him". Thus, it is evident that tax was to be computed with reference to the value of the service provided and not the value of the goods sold. The said Section even contained elaborate explanations including the one to the effect that the "cost of parts or other material, if any sold to the customer during the course of providing ECIS" was not to be included in the value of taxable service. It will be a mis-interpretation to interpret this 'explanation' to mean as if the cost of goods sold/supplied while providing other services like Construction of Complex Service (CCS) or Commercial or Industrial Construction Service (CICS) was to be included in the value of taxable service. Explanations are meant to clarify and the one regarding the ECIS may have been added possibly because the Legislature may have been of the view that confusion regarding includibility of the value of goods in the value of ECIS may arise. With effect from 18.04.2006, the said Section (S.67) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant period and merely because the classification changes with the introduction of a taxable service under which an existing service gets more specifically covered (by virtue of Section 65A), does not mean that the said service was not taxable during the period prior thereto. When works contracts are held to be divisible in the wake of the 46 th Constitutional Amendment, it becomes immaterial for the purpose of charging service tax whether a taxable service is rendered under a pure service contract or as part of a works contract. Incidentally, it may be mentioned in passing that if it was to be held that works contracts were not taxable under Finance Act, 1994 prior to 01.06.2007, the consequence would be that a works contract (to construct a commercial building) which involved (for the sake of argument) transfer of property in goods in the form of a single ordinary brick (of say value Rs. 10) will not be taxable under CICS before 01.06.2007 and taxable service (like pholography service) provided as a part of works contract of the type not covered under Works Contracts Service [65 (105) (zzzza)] would neither be taxable prior to 01.06.2007, nor with effect from 01.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of service. Among such contract, there may be contracts where the main objective is supply of goods for some valuable consideration and provision of service is ancillary or incidental (like a dealer selling air conditioners with installation charges and charges for repair during warranty period included in the sale price) and such indivisible contracts would be treated as sales contracts. Similarly the contracts where the main objective is the provision of service and the supply of goods is of purely incidental would be the contracts for service. Then there are indivisible contracts involving use of the goods as well as provision of service wherein both are prominent. Among such contracts, there are contracts where the objective of the contract is provision of service, which involves use of the goods which get consumed in course of provision of service. Such contracts would be the service contracts and the same are not the subject matter of dispute in the present case. The dispute in the present case is in respect of those indivisible contracts involving supply of goods as well as supply of service, where the work is done by the service provider on the immovable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (29A) to it, which expanded the scope of the entry 54 of list II of the 7 th Schedule of the Constitution - "tax on sale or purchase of goods" so as to bring within its purview the tax on - (a) the transfer, otherwise in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) the transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract; (c) delivery of goods on hire purchase or any system of payment by instalments; (d) the transfer of right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration; (e) supply of goods by any incorporated association or body of a persons to a Member thereof for cash, deferred payment or other valuable consideration; and (f) supply, by the way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, Clause (29A) also provided that such transfer, delivery or sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have no application to levy of service tax by the Central Government on the service contracts. In any case, the Central Government does not require any legal fiction to levy service tax on a service contract, whether it is a pure service contract or is a service contract involving use of goods for provision of service which either get consumed during provision of service or the property in which gets transferred to the service recipient through accretion. Since the works contract are the service contracts, the same would attract service tax even during period prior to 01/6/07, if the service is covered by the definition of 'taxable service'. If the service portion consists of a bundle of services, it is to be seen as to which service gives them their essential character and if that service was taxable, the works contract would be taxable. For this purpose the service tax would be leviable on the entire value of the contract including the value of the goods involved, as the works contract is one single indivisible contract for service and the transfer of property in goods involved in execution of works contract is deemed sale only for the limited purpose of levy of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the goods used for providing the service. An indivisible works contract is one single service contract whose value would include the value of all the goods and services which have contributed to emergence of the service product. In general, the value of a service provided would include the value of all the elements - goods and/or service used in provision of the service and in this regard it would not be correct to interpret the words - "gross amount charged'. '.. for the service provided" in Section 67 of the Finance Act, 1994 as the amount excluding the value of the goods or other services used for providing the output service. 4. When this is so, no machinery provision for determining the precise value of the taxable service is required so as to completely exclude the value of the goods involved. Such machinery provision is necessary to enable the State Governments to levy sales tax on the goods component of certain type of service contracts - works contracts and catering contracts, as State Government had no power to tax a service contract and only by virtue of the legal fiction of Article 366 (29A) could levy tax on deemed sale involved in such service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions of sale of goods and sale of service are so intermixed that insisting on absolute separation of goods and services for taxation by the State Government and the Central Government respectively would be only a futile exercise - some overlap in this regard is inevitable, which has to be ignored in the interests of smooth functioning of the laws governing the levy of tax on sale of goods by the State Government and levy of service tax on the service by the Central Government. For example the price of the goods sold by a dealer on which sales tax is charged may include the cost of a number of service like freight and transit insurance in case of FOR sales, advertisement expenses, installation and warranty repair charges etc. Similarly the amount charged by a service provider for the service on which service tax is payable may involve the cost of the goods used for providing the service. The principle of non encroachment by the centre into the taxation territory of States and vice versa does not mean that each service transaction should be examined with a microscope for removing the goods component or each sales transaction should be examined with a microscope to remove the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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