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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 ..... o (01.06.2007) insertion of sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994. - S. Tax Stay No. 59278 of 2013 in S.T. Appeal No. 58658 of 2013, S. Tax Appeal No. 550 of 2007, Service Tax Appeal No. 622 of 2007 - Interim Order Nos. 72-74/2015 - Dated:- 19-3-2015 - G. Raghuram, Archana Wadhwa, Rakesh Kumar, P R Chandrasekharan And R. K. Singh,J. For the Appellants : Shri N Venkatraman, Learned Sr. Counsel and Shri P K Sahu, Shri B L Narasimhan, Shri Puneet Agrawal, Learned Adv. For the Respondents : Shri Amresh Jain and Shri Govind Dixit, Learned AR's ORDER Per: Justice G. Raghuram: The issues referred for our consideration essentially involve an issue of classification of taxable services i.e., whether components of a composite transaction amounting to supply of labour/rendition of service(s), under a works contract ought to be classified only under Section 65(105)(zzzza) of the Finance Act, 1994 (the Act) - inserted by the Finance Act, 2007, w.e.f 01-06-2007; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now to the meat of the matter; 4. Prefatory observations : The legislative fields authorizing levy and collection of taxes on services; and on sale or purchase of goods are distinct, mutually exclusive; not concurrent or overlapping and are plenary assignments within allocated fields, to the appropriate legislature, under our federal constitutional architecture. It is the established principle under our Constitution that allocation of legislative fields which are generic and those authorizing taxation are distinctly enumerated; that taxation is not an ancillary power to be deduced from the general regulatory power; that taxing power may be exerted only qua an Entry in the appropriate legislative List which specifies such power; that generic legislative fields do not inhere or accommodate taxing powers; and that taxing powers are distinctly specified and only in Lists I and II (the Union and State Lists); and not in List III (the concurrent List) of the Seventh Schedule of the Constitution, vide - 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 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of entry 92 A of List I is assigned to States, under Entry 54, List II. All power, authority or jurisdiction consecrated under or qua the constitutional grant is limited by limitations, conditions or boundaries expressed in the organic charter, inherent therein or implied therefrom 'vide Kesavananda Bharati vs. State of Kerala (1973) 4 SCC 225. While plenary within the scope of their assigned powers, the Union and State legislatures are nevertheless limited by the distribution of powers assigned and the within the compass of fields/heads of legislation enumerated in the three Lists, as to the subject-matters upon which the Union or State legislatures (or concurrently, under List III) may legislate. Since under our federal arrangement, allocation of taxing powers (to the Union and to States) is exclusive and not concurrent, there is no authority consecrated (except to the extent specified in the Constitution), either to the federal (Union) or the provincial (State) legislature(s), to overlap, smother, swamp 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 Wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed nor disagreed with the operative ratio delineated in the earlier decisions by co-ordinate (three member) Benches. It is axiomatic that BSBK Pvt. Ltd. (a three member Bench) could have neither decided contrary to nor overruled rationes by co-ordinate Benches and ought only to have, if in disagreement therewith, referred the conflict/issue to a Bench of five members. Be that as it may. Sensitized to the piquant situation, the order dated 09-09-2013, opined that the noticed conflict requires reference to a larger Bench, of five members and directed the relevant papers be placed before the President, for an appropriate order. Para 15 of the order reads: Pursuant to the aforesaid analysis, since there is a conflict of opinion between Larger Bench decisions of this Tribunal in Jyoti Ltd., Indian Oil Tanking Ltd., and BSBK Ltd., we consider it appropriate that in the interests of precedential coherence, the issue whether a composite contract, involving transfer of property in goods and services which is taxable only 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in G.D. Builders case (supra) and in case the question raised is covered, then the matter can be closed. 7. Learned Senior Counsel for the assesse submits that he has no objection and accepts the suggestion. He, however, submits that there are conflicting decisions and contrary view has been expressed by the Karnataka High Court and Madras High Court. Learned Additional Solicitor General states that the said contention can be also raised at the time of preliminary argument before the Tribunal and appropriate direction/order can be passed. 8. Learned Additional Solicitor General and learned Senior Advocate for the assessee in view of the said consensus state that the appeal may be treated as disposed of and no substantial question of law may be framed. Counsel shall bring the order passed today on the basis of concessions given by the two sided to the notice and knowledge of the Special Bench of the Tribunal. 9. The appeal is disposed of'. 6. Hearing of the reference by this Bench commenced on 10-11-2014. Revenue, at commencement of the proceedings pleaded that the hearing be adjourned, to await the outcome of the appeal preferred by Revenue to the Delhi High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall deal with Shri Sahu's position later. In support of the contention, that a declaration of law founded on a concession by a party to a lis or a declaration without adversarial engagement and argument does not operate as an estoppel or result in a judgment having precedential vitality, reliance is placed onSuperintendent and Legal Remembrancer, State of West Bengal vs. Corporation of Calcutta AIR. 1967. SC. 997; Laxmi Shankar Srivastava vs. State (Delhi Admin) (1979) 1 SCC 229; Sanjeev Coke Manufacturing Co vs. Bharat Coking Coal Ltd. and another (1983) 1 SCC 147; Uptron (India) Ltd. vs. Shammi Bhan and another (1998) 6 SCC 538; P. Nallamal vs. State 1999 (Crl.LJ) 3967; Central Council for Research in Ayurveda and Siddha vs. Dr. K. Santhakumari (2001) 5 SCC 60; Union of India vs. Mohanlal Likumal Punjabi 2004 (166) ELT 296 (SC); M. P. Gopalakrishnan Nair vs. Kerala (2005) 11 SCC 45; and Dr. Rajbir Singh Dalal vs. Chaudhary Devi Lal University (2008) 9 SCC 284. 8. Should G.D.Builders be accorded precedential authority 'analyses : We notice that as the Karnataka and Madras High Courts have taken a diametrically contrary position (to that of G. D. Builders) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of a statutory provision cannot rest entirely on the stand adopted by any party in the lis; parties cannot be bound to a position on the legal interpretation which they adopted at a particular time since saner thoughts can throw further light on the same subject at a later stage; and thus a wrong concession of law cannot bind the parties, particularly on the interpretation of a statutory provision; 3. The decision based solely on a concession as to a particular interpretation of a statutory provision would not have the vitality of a precedent, particularly when the conclusion is based on no reasoning; and 4. the applicability of a statute or otherwise to a given situation or the question of statutory liability of a person/institution under any provision of law would invariably depend upon the scope and the meaning of the provisions concerned and has got to be adjudged not on any concession made. Any such concession would have no acceptability or relevance while determining rights and liabilities incurred or acquired in view of the axiomatic principle, without exception that there can be no estoppel against a statute 'vide para 9 in Mohanlal Likumal Punjabi. Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this part of the analysis). Para 18 reiterates a brief analysis and the Court's conclusions on pre and post 01-06-2007 leviability of works contract to service tax. Paras 19 to 30 refer to several judgments of, a full bench of that Court and of the Supreme Court, to support the conclusions set out in para 31. Paras 32 to 35 set out analyses of arguments regarding the impeached exemption notifications and the Court's conclusions on that aspect. Para 36 summarizes the facets/principles, which in the Court's view follow consequent to the judgments considered and the preceding discussion. Para 37 is again regarding validity of exemption notifications; and para 38 records the operative portion. Though from the facts recorded in para 16 (excerpted above) there appears some acceptance/concession by petitioners, we are unable to comprehend the precise nature of the concession. What is recorded is a statement to the effect:service component in composite contracts can be taxed but not as works contract per se; learned counsel for the petitioner further states that the respondents are also competent to bifurcate and tax the service component also. The issues presented in G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; and 4. An assessee can state that the service component of a composite contract should be computed in a fair and reasonable manner and accordingly taxed. Para 18 states: Service Tax in the facts in question has been imposed in three stages. In the first stage Service Tax was imposed on construction of industrial and commercial complexes. In the second stage Service Tax was imposed on residential complexes of 12 or more residential units and in the third stage Service Tax was imposed on works contracts of any nature except for exclusion in respect 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 targetted, the third inclusion i.e. works contract is a very broad and wide term and will include within its ambit and scope con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curiam; several of its rationes are passed sub silentio and must therefore be distinguished/ignored. On elaboration, the contention is that the several intricate, inter-dependent and manifolding principles/nuances flowing from the evolutionary history of taxation on accretional sale and purchase of goods and on services; the delicate balance (crafted by our federal Constitution) between and the exclusive assignment of fields of legislation authorizing taxation, to the Union and States, for plenary harvesting towards revenue augmentation or regulation; the clear constitutional prohibition, on one level of legislation trenching upon the field(s) committed exclusively to the other level - in Lists I II of the Seventh Schedule; the specific definition of the several relevant taxable services (CICS, COCS, ECIS WCS); the charging and valuation provisions of the Act; the exemption and abatement notifications issued under the Act; the speech of the Hon'ble Finance Minister while introducing Finance Bill, 2007-2008 (explaining reasons for introducing WCS as a new levy); the contemporaneous circulars issued by CBEC/TRU; the rules issued for valuation and for composition of works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t supply of tangible goods/equipment in relation to mining of mineral/oil/gas was taxable even prior to 16-05-2008 was rejected in Indian National Shipowner's Association vs. Union of India 2009 (14) S.T.R 289 (Bom). Bombay High Court held that the entry respecting supply of tangible goods is a new taxable service; not a carve out from the entry relating to mining of mineral, oil or gas and that earlier to 2008 supply of tangible goods for use was not a taxable service. Enumerations and definitions of relevant taxable services : Taxable services : Section 65 (105) of the Act enumerates taxable services, which are spelt out in several sub-clauses thereunder. According to this provision: 'taxable service' means any service provided or to be provided; Sub-clause (zzq) enumerates CICS and reads: to any person, by any other person, in relation to commercial or industrial construction (the Explanation inserted w.e.f 01-07-2010 is not relevant for this lis); Sub-clause (zzzh) enumerates COCS and reads: to any person, by any other person, in realtion to construction of complex (the Explanation inserted w.e.f 01-07-2010 is not relevant for this lis); Sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person. Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause, - a. 'personal use' includes permitting the complex for use as residence by another person on rent or without consideration; b. 'residential unit' means a single house or a single apartment intended for use as a place of residence; ECIS : Section 65(39a)' 'erection, commissioning or installation' means any service provided by a commissioning and installation agency, in relation to, - (i) erection, commissioning or installation of plant, machinery, equipment or structures whether prefabricated or otherwise; or installation of ' (a) electrical and electronic devices, including wirings or fittings therefor; or (b) plumbing, drain laying or other installations for transport of fluids; or (c) heating, ventilation, or air-conditioning including related pipe work, ductwork and sheet metal work; or (d) thermal insulation, sound insulation, fire proofing or water p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Chapter, 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. Explanation 1. 'For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes' (a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage by the stock-broker to any sub-broker; (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (c) the amount of premium charged by the insurer form the policy holder; (d) the commission received by the air travel agent from the airline; (e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; (f) the reimbursement received by the authorized service station from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04- 2006 : Section 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of the service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of the service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of charging service tax on the said service. Rule 5(1) was struck down in Intercontinental Consultants Technocrats Pvt. Ltd 2013 (30) STR 347 (Del) (by the Delhi High Court) as being beyond the scope and ambit of the charging provision and thus ultra vires Section 67 of the Act. Rule 6 of these Rules enumerated cases in which the commission, costs, etc., will be included or excluded; and set out 9 categories of inclusions which are comprehended within the scope of the value of taxable services (set out as sub-clauses (i) to (ix) in sub-rule (1) thereof); and 4 elements which are not includable as the value of taxable services (set out as sub-clauses (i) to (iv) in sub-rule (2) of this Rule). A typographic error in Rule 6(2)(iii) was corrected by a substitution vide Notification No. 24/2006-ST, dated 27-06-2006. Interestingly, exclusionary sub-clauses in Rule 6(2) did not include sub-clause (vii) of the exclusionary clause in the Explanation to Section 67 (as it stood prior to its substitution by Finance Act, 2006). To recapitulate, sub-clause (vii) of the unamended Section 67 read: but does not include ---- (vii) the cost of parts or other material, if any, sold to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003 ' ST, dated 20 th June 2003. Notification No. 04/2005-ST, dated 01-03- 2005 : (amendment to Notification No. 15/2004-ST, dated 10-09-2004; adding an explanation to it). Explanation : For the purposes of this notification, 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. Notification No. 01/2006-ST, dated 01-03- 2006 : ...... exempts the taxable service of the description specified in column (3) of the Table below and specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under Section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 12/2003-ST, dated 20-06-2003. Note : The above excerpts are of provisions of the Act (defining CICS, COCS ECIS); provisions enumerating these as taxable services; the charging and valuation provisions; provisions authorizing grant of exemption and framing of rules; the relevant exemption/abatement notifications issued under Section 93; and the 2006 rules for determination of valuation, as were in force during the relevant period w.e.f which CICS, COCS ECIS were promulgated to be taxable services and upto 01-06-2007, the date w.e.f which WCS is enacted to be a distinct taxable service. Exemption/abatement notification Nos. 12/2003-ST; 15/2004-ST; 04/2005-ST; and 01/2006-ST, however continue in force even after 01-06-2007. We now extract and advert to provisions of the Act; the amendment to the 2006 Rules (inserted w.e.f 01-06-2007), providing for valuation of works contract; Rules issued for composition of works contract; the contemporaneous aids facilitating proper interpretation of the scheme of the new taxable service (WCS) and its contemporary legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice), eferred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Explanation: For the purposes of this rule,- (a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include,- (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. 3. The proper of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract'. 14. The per incuriam and sub-silentio principles : It is contended, that the G. D. Builders conclusion(that works contract is subject to the levy of service tax prior to 01-06-2007 as well, under earlier provisions [like (zzq) (zzzh)]; that these earlier provisions legitimately signal the authorization to charge works contract to this levy; that bifurcation/vivisection follows directly as a consequence of the 46 th Constitution amendment, not dependant on authorization qua a specifically legislated charge in this behalf; that the authority for bifurcation/vivisection is a natural corollary of the aspect theory; and that service portions/components of composite works contract could be extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub-silentio. Precedents sub-silentio and without argument are of no moment (emphasis added); (d) A precedent which is not express, founded on reasons, or fails to proceed on consideration of relevant issues cannot be deemed to be law declared to have binding effect as is contemplated by the stare decisis rule; That which escapes in the judgment without any occasion is not ratio decidendi; a mere declaration or conclusion is not the ratio; and a decision is binding not because of its conclusions but in regard to its reasons and principles, laid down therein; (e) Precedents sub silentio and without argument are of no moment. Mere casual expressions carry no weight at all, nor exery passing expression of a Judge, however eminent, can be treated as an ex cathedra statement having the weight of authority; (f) A decision which predicates its conclusions in ignorance of relevant statutory provisions, binding precedents or other binding authority, is said to be per incuriam; and (g) Dias explains that one shade of meaning to be attached to the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intending to extract components of composite transactions and levy tax only on authorized components thereof must specify such intent categorically and employ unambiguous and appropriate verbal formulae, to so signify its specific intention; alternatively, whether ambiguous or overbroad significations would suffice; whether the cornucopia of extant statutory instruments (provisions of the Act and the relevant Rules made thereunder, during the period upto 01-06-2007) compel non-discretionary and non-arbitrary exclusion(from the measure of service tax) of those components of composite transactions which are beyond the legislative competence of the Union, i.e., what degree of enacting/drafting precision (of the Act and of rules framed thereunder) is required; whether provisions of the Act and the complementing and facilitative rule regime considered together, must necessarily and clearly spell out the prohibition from trenching into the domain of States' legislative field; and the compelling interpretive outcome mandated by the several binding precedents cited. 18. The competing contentions : Written and rejoinder submissions are filed on behalf of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the interpretation put upon Entry 48 of the GOI Act, 1935 (corresponding to Entry 54 of List I of the Constitution) and held that sale of goods in Entry 48 of the 1935 Act has the same meaning as in the Indian Sale of Goods Act, 1930 and that in a works contract there is no agreement to sell materials as such and that property in them does not pass as movables; the expression 'sale of goods' in Entry 48 is a Nomen Juris, its essential ingredient being an agreement to sell movables for a price and property passing therein pursuant to an Agreement. The Court explained: In a building contract which is, as in the present case, one entire and indivisible and that is its norm, there is no sale of goods and it is not within the competence of the provincial legislature under Entry 48 to impose a tax on the supply of materials used in such contract treating it as a sale (emphasis added); 04. As a consequence of the first Gannon Dunkerly ruling and pursuant to the 61 st Law Commission recommendations, the 46 th Amendment to the Constitution ensued. This Amendment introduced clause (29-A) into Article 366 bringing [six types of transactions, which in conventional sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure to levy tax on service components or on the goods components involved in execution of a works contract, as the case may be; legislation clearly signifying that the appropriate legislature has evinced the intention to tax services or sale of goods, is a non-derogable constitutional requirement; 08. Building contracts (of the works contract variety) inhere components of both, labour/service(s) and deemed transfer of property in goods; the earlier sub-set susceptible to the taxation domain of the Union (under Entry 97 of List I) and the later to that of States' (under Entry 54 of List II); 09. In view of the discrete, insular and exclusive allocation of taxing powers qua lists I II, to the two levels of legislatures supra, when intending to tax exertion of labour/rendition of service(s) on the one hand; or the transfer of property in goods, involved in the execution of a works contract on the other, the legislation must be so designed as to ensure avoidance of trenching upon or encroachment into the domain of the other level of legislature; 10. If the legislation by one level accommodates levy of tax by including the value of components which, under our federal con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act; 14. Elements which comprise services and stand allocated to the taxation domain of the Union; and elements that comprise transfer of property in goods involved in the execution of a works contract which stand allocated to States, are deducible from an unvarying catena of binding precedents; 15. Definitions of CICS, COCS and ECIS read with the charging and valuation provisions (Sections 66 67) do not authorise levy of service tax on works contract; the charging and valuation provisions (prior to 01-06-2007), on a true and fair construction thereof, clearly authorize levy of tax at the specified rate on the gross consideration received for rendition of the taxable service. 'Works Contract' is defined and the charge and levy thereon is enacted for the first time by the provisions of the Finance Act, 2007; 16. Notifications by Central Government, issued under Section 93 of the Act do not amount to delegated legislation. Qua its specific text and explicit intendment, Section 93 authorises the Union Executive to exempt generally or subject to such conditions as may be specified --- taxable service of any specified description from the whole or any part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measure for the levy) extend to those elements of composite transactions which stand exclusively allocated to States under Constitution's mutually exclusive distribution of taxation powers, the Act itself must express the restrictive scope i.e., must explicitly ordain and in clear terms, that the levy there under is confined only to service components and that elements amounting to sale/purchase of goods are excluded from the scope of the federal levy. The protocol/modality, for computation of the value of those elements of composite transactions as fall within the federal tax domain may however be delegated for regulation by rules framed in accordance with the grant of power in this behalf in the enactment; 21. Where the Act and or intra-vires rules made thereunder, omit to provide for computation norms restricted to the value of taxable service elements integrated within complex and indivisible transactions, the charging provision itself is rendered brutum fulmenand fails; 22. Prior to 01-06-2007 no charging provision was enacted in the Act, explicitly authorising levy of service tax on works contracts, signifying the legislative intention to levy tax on works contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions, including those that pertain to the construction sector. 05. The gross value charged by building contractors includes the cost of material like cement, steel, fittings, fixtures and tiles etc.,. Since it is not the intention of Parliament to levy service tax on these elements, Government issued Notification No. 12/2003'ST, for all services including construction contracts wherein the value of goods and materials used in providing taxable services was exempted. Consequently, the scope of the levy of service tax is restricted to the service aspect; and goods and material portions is excluded from the ambit of the levy; 06. In recognition of the practical difficulties in providing proof of the value of goods/materials used, Government also issued Notification Nos. 15/2004-ST; and 01/2006-ST, granting abatement of 67% in respect of composite contracts. As a result of the abatement, the levy would be restricted to the value of service components only; 07. Government also issued the 2006 Rules and by Rule 2-A thereof computation/valuation of the service and associated elements of works contract is enabled by vivisection of the composite transaction. 08. Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the challenge to the constitutional validity of the impugned provision. It is open to the petitioner to raise issues of computation before the appropriate Adjudicating authority/Appellate authority and demonstrate the extent to which service tax can be imposed on the services that are provided by them. To be clear it is open to the petitioner to demonstrate the extent of the service element included in the composite contract and to pay service tax only on that component; 14. The decision in Mahim Patram pointed out (in para 25), that it is well settled that the machinery provisions for calculating the tax or the procedure for its calculation are to be construed by ordinary rules of construction. Whereas a liability has been imposed on a dealer by the charging section, it is well-settled that the court would construe the statute in such a manner as to make the machinery workable; 15. G. D. Builders is not per incuriam since it considered various judgments and analysed these with reasons; 16. The G. D. Builders ruling has been followed by several decisions of CESTAT; and 17. The Turbotech Precision Engineering Pvt. Ltd and Strategic Engineering Pvt. Ltd. rulings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 01. Tax on sale or purchase of goods is a field allocated to exclusive provincial (State) legislation, under Entry 48 of List II of the G.O.I Act, 1935 (corresponding to Entry 54, List II of the Constitution). Several States ushered in legislation to levy sales tax on works contract and incorporated legislative/statutory provisions creating appropriate charging provisions and provisions for confining the levy to the transfer of property in goods involved in the execution of a works contract. Challenge to such State exertions on grounds inter alia of legislative competence and the proper interpretation of the scope of the relevant legislative field, was considered in The State of Madras vs. Gannon Dunkerley Co., (Madras) Ltd. (1958) 9 STC 353 (SC) (first Gannon Dunkerley). The constitution Bench ruled that the expression Tax on the sale or purchase of goods (in Entry 48 of List II of the G.O.I Act, 1935), has the same meaning as the expression sale bears under the Indian Sale of Goods Act, 1930; that on a true interpretation 'sale of goods' requires an agreement between the parties for the sale of the very goods in which eventually property passes; that sale of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy sales tax on the transfer of property in the goods involved in the execution of such contracts as it has been held that there is no sale of the materials as such and property in them does not pass as movables. Post the 46 th Amendment, Article 366 (29-A) reads: Article 366. Definitions.- In this Constitution, unless the context otherwise requires, the following expressions have the meaning hereby respectively assigned to them, that is to say (29-A) 'tax on the sale or purchase of goods' includes - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any foods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer, delivery or supply becomes subject to sales tax. So construed the expression 'tax on the sale or purchase of goods' in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also; The tax leviable by virtue of sub-clause (b) of clause (29-A) of Article 366 is thus subject to the same discipline which any levy under Entry 54 of List II is subject to under the Constitution; a fortiori sales tax levy by States is subject to restrictions and conditions mentioned in each clause or sub-clause of Article 286 as well; and resultantly, sales tax laws of a State must comply with the restrictions specified in the Central Sales Tax Act, 1956, insofar as the Central legislation's provisions apply to a particular transaction. 04. In Gannon Dunkerley Co. and others vs. State of Rajasthan and others (1993) 088 STC 0204 (the second Gannon Dunkerley), validity of provisions relating to imposition of tax on the transfer of property in goods involved in the execution of a works contract, contained in sales tax laws of Rajasthan, Tamilnadu and Andhra Prad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the normative and non-derogable deductions mandated by this ruling. (summarized): As pointed out in (the first) Builders Association of India, the measure for the levy of the tax contemplated by Article 366(29A)(b) is the value of the goods (whether as goods or in some other form) involved in the execution of a works contract. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. Incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer of property in the goods and therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by Article 366(29-A)(b).In view of the legal fiction introduced by the 46 th Amendment, whereby works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or outside the State or in the course of import or export in relation to which the State Legislature lacks the competence to impose tax under Entry 54 of the State List; Not has any provision been made with regard to sale of goods which are declared to be of special importance in inter-State trade or commerce and are governed by Section 14 15 of the Central Sales Tax Act. The matter has been left to the discretion of the rule-making authority to prescribe whether deductions in respect of such transactions should be allowed or not. The interactive trajectory of Section 5(3); 2(t); 5(1); and 2(s) indicates that in relation to works contracts the Legislature has made a departure in the matter of chargeability of the tax; and by using the expression 'turnover' instead of 'taxable turnover' in Section 5(3), has enlarged the field of taxability to permit levy of tax on sales in the course of inter-State trade and commerce, sales outside the State and sales in the course of import and export and to ignore the conditions and restrictions placed by Section 15 of the Central Sales Tax Act in relation to imposition of tax on goods which are declared to be of special impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on domain of the other is prohibited, including by valuation overreach stratagms, is reiterated (para 81). The Court inter alia ruled: The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service (para 85.E, emphasis added). 06. A two judge Bench in Larsen Toubro Ltd. vs. State of Karnataka (2008) 17 VST 460 (SC) , doubted the correctness of an earlier decision in K. Raheja Development Corporation vs. State of Karnataka (2005) 5 SCC 162 and referred the matter for the consideration by a larger Bench. The reference was answered by the constitution Bench in Larsen Toubro Ltd. vs. State of Karnataka (2014) 1 SCC 708 . After adverting to the litigative history regarding taxability of a works contract, commencing from the first Gannon Dunkerley, the Larsen Toubro Ltd. constitution Bench answered the reference and remitted the matters for disposition by the regular Bench. The Court summed up the legal position thus (extracted to the extent relevant to the present lis) : a) For sustaining the levy of tax on goods deemed to have been sold in execution of a works contract, three cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the goods at the time of incorporation of the goods in works even though the property passes, as between the developer and the flat purchaser after such incorporation (emphasis added). comment : The (Larsen Toubro Ltd.) constitution Bench also clarified the scope and circumstances for levy of sales tax on deemed transfer of goods involved in a transaction under a development agreement involving transfer of immovable property, an aspect not germane to the present lis. 07. Whether a composite agreement for manufacture, supply and installation of lifts should be treated as one for 'sale of goods' or a 'works contract' was the core issue considered by the recent decision in Kone Elevator (India) Pvt. Ltd. vs. State of Tamil Nadu 2014 (304) ELT 161 (SC) . Correctness of a three judge Bench ruling in State of A.P vs. Kone Elevator (India) Ltd (2005) 3 SCC 389 was doubted and the reference ensued. The constitution Bench again and exhaustively surveyed the entire gamut of jural and constitutional aspects involved; the by now formidable body of relevant precedents; the post 46 th Amendment accretion to the scope of Entry 54 of List II of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey; B.S.N.L and Larsen Toubro Ltd; and The 2005 (three judge Bench) decision in Kone Elevator (India) Pvt. Ltd. does not correctly lay down the law and is accordingly overruled. 08. In Hotel Dwaraka, Hyderabad vs. Union of India. (1985) 058 STC 0241, the Andhra Pradesh High Court rejected the contention by the State that the 46 th Amendment and the consequent expansion of the scope of Entry 54 of the State List (vide sub-clause (f) of Article 366 (29-A) was sufficient authority for levy of sales tax on supply of eatables and beverages to customers during the course of petitioner's business as hoteliers and keepers of bars and restaurants. The Court ruled that the Amendment was merely facilitative and authorized the necessary legislation but appropriately structured provisions (amending the definitions of 'sale' and 'turnover' in the State Act) were however a sine qua non. Without necessary amendments in the State legislation there is no law providing for levy and collection of the tax, concluded the Court and quashed the impugned provisional assessments; 09. The Patna High Court in Larsen and Toubro Ltd. vs. State of Bihar. (2004) 134 STC 0354 (Pat), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts in issue that the deemed sale of goods occurred in the course of inter-State trade and commerce and consequently the turnover arising out of the transactions could not be brought to tax because of restrictions imposed by Article 286; that in the circumstances the petitioner was entitled to deduction as provided by Section 3- B(2)(a) of the State Act and in view of the inter-State nature of the transactions, the location of the situs of the sale as is specified in the sales tax legislation of the State would have no bearing on the chargeability of tax on such sales. The transactions in issue pertained to the assessment year 1987-88, prior to amendment to the Central Sales Tax Act, 1956 incorporating (only in 2002) provisions for levying Central Sales Tax on inter-State works contracts. The Tamil Nadu levy was thus declared as beyond the legislative competence of the State; 12. The Supreme Court, in Jharkhand vs. Voltas Ltd. (2007) 7 VST 317 (SC) specifically approved the judgment of the Patna High Court in Larsen and Tourbro Ltd. (53 supra); referred to and followed the second Gannon Dunkerley judgment and declared that not merely labour charges but all other associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecover tax and the procedure to make assessment of the tax and leaves it entirely to the executive to device such machinery as it thinks fit and to prescribe such procedure as appears to it to be fair, an occasion may arise for the courts to consider whether the failure to provide for a machinery and to prescribe a procedure does not tend to make the imposition of the tax an unreasonable restriction within the meaning of Article 19(5). An imposition of tax which in the absence of a prescribed machinery and the prescribed procedure would partake of the character of a purely administrative affair can, in a proper sense, be challenged as contravening Article 19(1)(f) (emphasis added); b) In Rai Ramkrishna vs. State of Bihar AIR 1963 SC 1667 another constitution Bench restated the principle thus: --- the power of taxing people and their property is an essential attribute of the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the legislature can be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided to each head (emphasis added); d) The interplay of Sections 14 15 of the Central Sales Tax Act, 1956 imposes certain restrictions and prescribes certain conditions to be fulfilled in a State sales tax legislation. In respect of goods declared under the former provision to be of special importance in inter-State trade and commerce, the later provision prescribes the maximum rate at which the turnover of such goods may be subjected to tax under the sales tax law of a State and requires that such tax shall not be levied at more than one point. If either of the two conditions are not satisfied, the impost by the State will be invalid. Whether the legislative/statutory provisions in question conformed to this regulatory regimen was considered by the Supreme Court, in Govind Saran Ganga Saran vs. Commissioner of Sales Tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution Bench considered the entitlement of States to levy tax on the sale of food and drink. Levies and demand of sales tax on food and beverages supplied in restaurants etc., was challenged in respect of legislations inter alia of Tamil Nadu, West Bengal, Maharastra and Uttar Pradesh. Suffice it to note (for the present case) that on behalf of owners of residential hotels in Maharastra it was contended that sales tax could not be levied on the composite charge for boarding and lodging unless the State made rules which set down formulae for determining that component of the composite charge which was exigible to the tax on food and drink (para 11). The State admitted that its competence was confined to the food and drink elements of the composite charge; but contended that no Rules need be framed and Sales tax officers would make assessments depending on the facts of each individual case (para 12). The constitution Bench, in the context, observed: It is in practical terms impossible for the sales tax authorities to make assessments upon the basis of the facts relevant to each individual customer in each individual hotel. Generalisations are, therefore inevitable and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of tax can be applied be altogether unconnected with the subject of the tax, though contours of the same may not be identified. The Court further observed that the subject of the tax (in that case) being sale, the measure of tax for the purpose of quantification must retain the nexus with 'sale' which is the subject of the tax. The Court continued: primarily the rate of tax relates to the measure of tax to come into existence simultaneous with the occurrence of the taxing event. The machinery provisions relating to its quantification and collection can take place later. Providing measure to which the rate is to be applied is integrally connected with the charge itself (emphasis added); Does Mahim Patram signify a doctrinal departure from or overrule established principles? i) A division Bench of the Supreme Court in Mahim Patram (P) Ltd. vs. Union of India and Others (2007) 3 SCC 668, expressly reiterated the settled principle (para 27), of the integrality and mutual dependence of charging and computation/valuation provisions and quoted with approval earlier decisions of the Court in B.C. Srinivasa Settyand Govind Saran Ganga Saran. Revenue places substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh vs. State of Punjab (1995) 3 SCC 367. The well known Latin maxim exhorts: Cessante Ratione Legis Cessat Ipsa Lex (Reason is the soul of the law, and when the reason of any particular law ceases, so does the law itself). Reason predicated on a factual matrix is equally the soul of a judgment. Now to the Mahim Patram ruling: the facts : The activities of the appellant admittedly amount to a works contract in the course of inter-State trade or commerce (para 2); In deference to the second Gannon Dunkerley ruling, Parliament, in 2002, amended Section 2(g) of the Central Sales Tax Act, 1956. The assessing authority however, relying on or on the basis of Section 9(2) of the Central Act applied the provisions of the U.P. Trade Tax Act, 1948 and the Rules framed thereunder for calculating the sale price of the transfer of property in goods involved in the execution of a works contract in the course of inter-State trade or commerce, for Assessment years 2002-03 and 2003-04 (para 7); the issue : Appellant contended that in the absence of any Rule for determination of the sale price in respect of works contract sale of goods as envisaged in Section 2(h) of the Central Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rules made under sub-section (1), to carry out the purposes of this Act (para 18); (vii) the State (U.P) introduced necessary amendments in the State's 1948 Act; and (viii) framed the Central Sales Tax (U.P) Rules, 1957 and amended the U.P Trade Tax Rules, 1948, Rule 44-B whereof set out provisions for determination of turnover of goods involved in the execution of works contracts; being an adequate matrix of provisions to enforce a levy on deemed sales involved in works contract in the course of transactions covered by the Central Act (paras 19-22); comment : On detailed analyses of Mahim Patram it is abundantly clear that the Court did not evolve a generic norm or a principle, that a Union legislation could be sustained (even if inadequate) on the basis of adequacy of support therefor in a State legislation or rules made under the later. It is the specific authority conferred by the Central Sales Tax Act, 1956, authorizing framing of appropriate rules under State sales tax legislation which formed the basis and foundation for the Court's observations, including in para 27 of this judgment. We analyseMahim Patram in greater detail later in this judgment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment/recovery and for dispute adjudication, was considered. Quoting with approval and following the decisions in K. T. Moopil Nair vs. State of Kerala AIR 1961 SC 552;Jagannath Baksh Singh; Rai Ramkrishna; and State of A.P vs. Nalla Raja Reddy AIR 1967 SC 1458, the Court reiterated the settled principle that a total absence of machinery provisions for assessment/recovery of the tax levied under an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge; and the fact, whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case. m) Levy of Entertainment Tax on DTH (direct to home broadcast provided by the appellants to their respective customers on payment of consideration), under provisions of the M.P. Entertainment Duty and Advertisements Tax Act, 1936, was considered in Tata Sky Ltd. vs. State of M.P 2013 (30) STR 337 (SC). Following the earlier rulings in B.C. Srinivasa Setty; Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of these services, even where these are provided as part of a works/composite contract; and (c) that computation/valuation/machinery provisions in sales tax legislations by States validly constitute a supporting architecture for proper execution of provisions of the Act, i.e., for lawful levy of service tax on CICS, COCS or ECIS, when these are provided under a works contract. We now analyse these judgments. (i) Supreme Court in National Tobacco Co. of India Ltd. proceeded on the basis of the established rule of construction that a power to do something essential for the proper and effectual performance of the work which the statute has in contemplation may be implied; that Rule 10-A of the Central Excise Rules, r/w Section 4 of the Act indicates consecration of residuary powers of making a demand in special circumstances not forseen by the framers of the Act or the rules; and there is no express prohibition against an assessment at any other time in the circumstances of a case like the one before us where no 'assessment', as it is understood in law took place at all. comment : This judgment neither deals with a legislation allegedly or facially trenching upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks contract transaction comprising constituent elements which are distinctly and exclusively allocated to States and the Union, including as a measure of the charge and levy under such legislation; (iv) In Great Eastern Shipping Co. Ltd, the Delhi High Court negated the petitioner company's contention that mere failure to frame rules under Section 115(2) of the Customs Act, 1962 would render the search improper or unreasonable (para 20). comment : The judgment deals neither with constitutional limits on legislative reach, challenge to provisions relating to chargeability to tax nor regarding adequate or appropriate computation/valuation provisions; (v) In Tamil Nadu Kalyana Mandapam Association, a specific charge and categorical definition of 'mandap keeper including any services rendered as a caterer' was enacted in Sections 65(41p), r/w 65(10), (19) (20); ['mandap keeper' enumerated as a taxable service now in Section 65(105)(m); 'caterer' defined in Section 56(24)]; and 'mandap' and 'mandap keeper' in Section 65 (66) (67)].It is significant to notice that though provisions of Section 67(i) of the Act(the valuation pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., imposition of sales tax and service tax on the composite consideration received for the same transaction (i.e., on the entire value of a works contract), is not per se invalid. This contention is misconceived and is predicated on a total misreading of the judgment. The challenge in the above judgment was to the legislative competence of the Union to levy service tax, on the ground that the impost is unsustainable insofar as it relates to financial leasing services including equipment leasing and hire purchase transactions which fall within the exclusive State legislative field, in view of Article 366(29-A) - [see - para 2]. Quoting with approval and following the earlier 2006 decision in B.S.N.L. (which categorically restated the established principle that dual and overlapping levies, of sales tax and service tax, on the same elements of a composite transaction are impermissible), the Court concluded that the transaction (in issue before it) was a pure and simple service and did not involve both sales and service; that the impugned tax is not on material or sale but is on the activity/service rendered by the service provider to its customer; that a loan transaction inher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed between the parties cannot be covered without a deeming fiction. There cannot be a concept of deemed service for service tax as there is deemed sale for sales tax. No such fiction is enacted prior to 01-06-2007; v. The European Court of Justice (ECJ), in Card Protection Plan Ltd. vs. Customs and Excise Commissioners (1999) Simon's Tax Cases, 270 ECJ, clarified that where one element constituted the principal service and others were merely ancillary, there was a single supply, in that they did not constitute for customers aims in themselves but simply a means of better enjoying the principal service; what constitutes a single supply in economic sense should not be artificially split. This ECJ guidance was followed by the House of Lords inCustoms Excise Commissioners vs. British Telecommunications Plc. (1999) 1 WLR 1376;and in Card Protection Plan Ltd. vs. Customs Excise Commissioners (2001) 2 WLR 329; vi. It is impermissible to split up an 'EPC' or a 'turnkey' contract into some of its constituent/component elements and tax such elements under different taxable services such as on 'drawings and designs', 'consulting engineer' or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of the Union levy by expanding the definition of 'sale' vide Section 2(g); inserting a proviso in Section 2(h) which defines 'sale price'; defining 'works contract' in Section 2 (ja); and incorporating a specific power to make rules in this behalf, vide Section 13(1)(aa) of this Act); to sales tax legislations and complementary rules framed by the several States (amending respective enactments after the 46 th Amendment, by specifically including works contract in the definitions of 'sale' and of 'turnover' and inserting appropriate legislative and statutory provisions for proper computation/valuation of the deemed sale of goods elements involved therein); and to the Act, i.e. its amendment by the Finance Act, 2007 introducing 'works contract' as a categorically specified and expressly defined category of service together with complementary valuation rules (Rule 2-A), issued under Section 94 of the Act (as an integrated and synchronized package), to ensure proper valuation and confinement of the levy strictly to service components of a works contract by expressly mandating specified exclusions/deductions of the value of deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve fields (enumerated in Entry 92-A, List I and in Entry 54, List II) got incremented to the extent specified in sub-clauses (a) to (f) of Article 366 (29-A). The 46 th Amendment expanded inter alia the scope of Entry 54, List II (to the extent specified in the Amendment). As a consequence and corollary thereof, a corresponding and consequent constriction, of the scope of the residuary legislative field allocated to the Union qua Article 248 r/w Entry 97, List I, inevitably occurred, reference - decisions explaining the scope of the residuary field, vide - Subrahmanyam Chettiar; - Manikkasundara Bhattar; Second Gift Tax Officer; Atiqa Begum; Ref u/Art 143; and In re Cauvery Disputes Tribunal (cited supra). v. The contention that the 46 th Amendment has application to and impacts exclusively the legislative power of States under Entry 54 of List I (but has no effect whatsoever on the Union's legislative powers/fields), is on the above analyses and to this extent, fallacious and the result of inadequate analyses of the holistic dynamics of constitutional space and the inexorable alteration of the scope of the Union (Entry 97, List I - residuary) and State (Entry 54, List II), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le consequence, a vague/overbroad definition of a taxable service coupled with an ambiguous charging and an indeterminate valuation provision, would not suffice, vide ' precedents referred to in sub-para (vii) supra. ix. Such legislation is further required to provide an appropriate statutory architecture (either specified in the legislation or through appropriately calibrated rules, framed pursuant to enacted facilitating provisions), to ensure proper and within legislative limits valuation and computation, of those elements/aspects of a works contract, which fall within States' authorized legislative domain. An ambivalent or ambiguous text would not legitimately support a valid charge for the purpose and in the context, vide - precedents referred in sub-paragraph (vii) supra; and Jagannath Baksh Singh (S.C - 1962); Rai Ramkrishna (S.C - 1963); B.C. Srinivasa Setty (S.C - 1981); Govind Saran Ganga Saran (S.C - 1985);Mathuram Agrawal (S.C - 1999); K. Damodarasamy Naidu (S.C - 1999); Rajasthan Chemists Association (S.C - 2006); Mahim Patram (S.C - 2007); Infosys Technologies Ltd. (S.C - 2008); PNB Finance Ltd. (S.C - 2008); and Tata Sky Ltd. (S.C - 2013). x. Where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociate costs/expenses are spelt out in the second Gannon Dunkerley ruling and have been reiterated (without a caveat, dissent, exception, or reservation), in all precedents ever since, including recent constitution Bench rulings in Larsen Toubro Ltd. (2013) and Kone Elevator India Pvt Ltd. (2014). xv. Wherever the statutory architecture (the synthesis of legislation and rules made thereunder or authorized thereby) failed to express the event horizons of the levy and/or failed to specify or incorporate appropriate valuation or computation provisions, Courts have either (a) struck down the relevant provision; (b) declared the charging provision dormant to the extent of the deficit; (c) declared the levy inoperative; or (d) have declared that the charging provision was not intended to cover the arena to which extant computation/valuation provisions do not apply. See - B. C. Srinivasa Setty; Govind Saran Ganga Saran; Mathuram Agrawal; K. Damodarasamy Naidu; Rajasthan Chemists Association; Voltas Ltd.; Infosys Technologies Ltd.; PNB Finance Ltd.; and Tata Sky Ltd.(Supreme Court rulings); and Larsen Toubro Ltd. judgments of the Patna, Madras and Orissa High Courts. xvi. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix. It is an equally established interpretive principle that where two constructions are fairly possible, the construction which sustains the legislation should be adopted instead of one which renders it invalid (known variously as Heydon's rule (1584) 3 Co. Rep. 7a; rule of purposive construction; absurdity, inconsistency or repugnancy avoidance rule; rule of harmonious construction; principle of reading down etc.,), vide - In re Hindu Women's Right to Property Act AIR 1941 FC 72; and see for contrast Vaijnath vs. Guramma (1999) 1 SCC 292; also Shamrao vs. District Magistrate, Thana AIR 1952 SC 324; and Bengal Immunity Co. vs. State of Bihar AIR 1955 SC 661. xx. Scope of the charging and valuation provisions r/w definitions of CICS, COCS ECIS - analyses : - CICS, COCS ECIS are defined in the respective clauses of Section 65 and enumerated to be taxable services in respective sub-clauses of Section 65(105), excerpted earlier; - Section 66 enjoins the levy of service tax (at the rate specified therein), of the value of taxable services enumerated thereunder. The above three are defined (in clauses of Section 65) and enumerated (in Section 66) taxable services, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing CICS, COCS or ECIS (as ingredients of these services are defined), is the taxable value under Section 67; - The above inference is reinforced by the internal structure of the provision itself. None of the several exclusionary clauses under Explanation 1 to Section 67 provided (prior to amendment of this Section in 2006), that the value of goods sold or deemed to have been sold in execution of a works contract is excluded from the scope of the taxable value referred to in Section 67. Clause (vii) of the exclusionary clause (being in the nature of an exception to the enacting provision) under the said Explanation (prior to the 2006 amendment) merely specified: the cost of parts or other material, if any, sold to the customer during providing erection, commissioning or installation service (ECIS), shall be the excluded component from the taxable value under the valuation provision. No such exclusion is specified in respect of CICS or COCS. Clauses (iii) and (vi) of the exclusionary clause excluded the cost of parts or accessories etc., sold in the course of providing service or repair of specified classes of motor vehicles and in maintenance or repair services, respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 67. It would be incredulous to assume that pure sale transactions were sought to be excluded by these exemption notifications, since a transaction of sale of goods simplicitor (whether intra-State or inter-State) is always (even prior to the 46 th Amendment), beyond the legislative scope of the Union's residuary legislative powers, vide the first Gannon dunkerley (1958); - Even Notification No. 12/2003-ST does not indicate the methodology for valuation of the goods and materials sold during the course of execution of a works contract. The secondGannon Dunkerley categorically ordained that the value of goods sold during execution of a works contract is the value at the time of incorporation; that the profit margin on the purchase value of the goods (booked while incorporating into a works contract); and the cost of storage, transportation etc on the goods component would be taxable as sale value and these are thus necessarily excluded from the value attributable to labour/service and associate component(s). None of these incontestably excludable factors are integrated into any of the exemption notifications. There is not even a Board or TRU circular pointing to or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act including the charging and valuation provisions read with the exemption notifications do confine the levy (of service tax) to those components of a works contract as are clearly within the competence of the Union, what was the need for the insertion of sub-clause (zzzza), while continuing existing provisions? Revenue does not offer an explanation. Legislature does not engage in vacuous and avoidable exertions is also an interpretive presumption. - Rule 2-A was (issued under rule making powers conferred by Section 94) inserted in the 2006 (valuation) Rules on the same day (WCS was inserted in the Act), i.e., 01-06-2007. This Rule excludes deemed/accretional sale of goods and associate components (verbatim as spelt out in the second Gannon Dunkerley ruling, followed thereafter in several binding decisions, with unvarying regularity). It is important to note that Rule 2-A expressly [see Rule 2- A(1)], stipulates that: the value of taxable service in relation to execution of a works contract (hereinafter referred to as WCS), shall be determined by the service provider with reference to the service enumerated in sub-clause (zzzza) of clause (105) of Section 65. - On its terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view the Budget speech adverted to supra signals the understanding of the Union political executive and is so presented to the House, that (a) the transfer of goods component involved in the execution of a works contract is being subjected to (sales) tax by State Governments; (b) service components of a works contract were hitherto not charged to service tax; (c) that 'works contract' was not an extant taxable service; (d) that WCS is proposed as a new levy; and (e) that along therewith a composition scheme is also being introduced. - Explaining the purport of amendments to the Act proposed in the Budget, 2007-08 (vide the Finance Bill, 2007 introduced in the Lok Sabha on 28.02.2007) TRU issued a letter dated 28.02.2007 stating inter-alia (para 4) that the Finance Bill proposes to: (a) Levy service tax on more services, (b) Expand or clarify the scope of existing services, and (c) Carve out separate services from the existing services and specify them as separate taxable services. Services which are proposed to be specifically included in the list of taxable services are referred to in para 6. Sub-clause (iv) of this para mentions service provided in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate specified in Section 66. By way of a post Budget clarification, the Board (CBEC) issued a letter dated 22.05.2007 stating in para 5.(iv) therein, that service provided in relation to the execution of a works contract is a specifically mentioned category of taxable service. Para 9 of this letter explains the scope of amendments made to the 2006 Rules and as to introduction of the composition scheme, both w.e.f. 01.06.2007. xxi. We have referred to the enacting history of sub-clause (zzzza) and to the administrative construction of the newly introduced taxable service, since these throw additional light on and provide supportive guidance regarding the appropriate interpretation to be put upon the scope of provisions existing prior to its insertion. xxii. Established principles of interpretation posit that when the earlier Act or a provision thereof is truly ambiguous i.e., fairly and equally open to diverse meanings, the later Act may in certain circumstances serve as a Parliamentary exposition of the former. Lord Sterndale in Cape Brandy Syndicate vs. IRC (1921) 2 KB 403 (AC) observed: I think, it is clearly established - that subsequent legislation on the same subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in Section 65(105)(zzzza). xxvi. Neither provisions of the Act, any rule made thereunder nor even exemption notifications issued under Section 93 indicate how (and at what point in time during execution of a works contract), the value of goods and materials used in execution thereof are to be valued for applying deductions. This judgment is left to the uncanalised and unguided executive/ quasi-judicial discretion. Exemption Notification No. 12/2003-ST allows deductions towards value of goods/materials sold while providing taxable services, on furnishing proof of such sale. This notification however does not provide for computation of profits booked by a builder while incorporating goods involved in the execution of a works contract (a component assessable to sales tax) - the second Gannon Dunkerley ruling mandates that a builder's profit which is booked on a deemed sale of goods is leviable to sales tax. Other costs and expenses associated with accretion sales (pointed out in this constitution Bench judgment and followed thereafter), are also not included or indicated in any exemption notification or in a Board or TRU circular/clarification. xxvii. Rule 2-A is insert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/subordinate legislation, since the laying (before Parliament) requirement for such notifications is the same as it is for rules issued under Section 94, - vide Section 94(4) of the Act. This is a contention that is stated to be rejected. On text (Section 94(1) of the Act), on principle and settled authority, rules framed under a legislation must be in conformity with and are intended to give effect to the legislative purposes, not to transgress the legislative mandate. Rules may be made to regulate interstitial hiatus in a legislation but in conformity with the ratio legis; and not to override or smother the parent legislation 'see Wade and Forsyth Administrative Law (2009) 745-757;United States vs. Two Hundred Barrels of Whisky 95 US 571 (1877); Mohd. Yasin vs. Town Area Committee AIR 1952 SC 115; Chester vs. Bateson (1920) 1 KB 829; State of U.P vs. Renusagar Power Co., (1988) 4 SCC 59; and Agricultural Market Committee vs. Shalimar Chemical Works (1997) 5 SCC 516. xxxi. The settled principle of administrative law followed and applied with unvarying regularity in India is this; essential legislative functions cannot be delegated; while the core legislative policy cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on will therefore be subject to the test/scrutiny whether the condition/contingency stipulated in the provision is satisfied, if challenged. Exclusion of the value of goods/materials sold during execution of a works contract is not a public interest contingency. Such exclusion is the inexorable prerequisite of a constitutional limit on the power of the Union to levy service tax on this component; a limit which defines the contours of Entry 97, List I. This constitutionally defined limit must be acknowledged in the tent of the Union Legislation, which intends to levy service tax on a works contract and such acknowledgment find utterance in the legislative text. This is a requirement emphatically dictated by Article 265 which mandates a tax legislation to enact the taxable event and the extent of inherence of tax thereby imposed; xxxiii. Notifications issued under Section 93 however (by the specific legislative grant thereby consecrated to the Executive Branch of our Government), grant immunity from the levy and collection of tax, of the whole or any part of service tax leviable on taxable service of any specified description. If a notification under Section 93 is treated as a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above proposition of Revenue is extravagant and invites peremptory rejection. We accept the invitation and reject this proposition. xxxvii. For reasons set out in sub-paras (xxiv) to (xxxviii) above, we reject Revenue's proposition that Section 93 itself or exemption notifications issued thereunder, are adjunct computation or valuation provisions which could be referred to as indicative of and annotate the scope and reach of the computation/valuation provisions of the Act. This contention is also clearly contrary to the text and purposes of Section 93. 24. We now summarize the guidance we infer from precedents cited at the Bar: a. Norms resulting from the second Gannon Dunkerley ruling: - neither Article 366 (29-A) nor Entry 54, List II (post the 46 th Amendment) per se amount to a legislation authorising levy and collection of sales tax. Enacting an appropriate legislation is thus mandatory in view of Article 265. - such legislation must clearly enact the intention to tax works contract and incorporate therein a charging provision enjoining confinement of the levy within the limits of the enacting legislature, in terms of the limits of allocation specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Act), which persuaded Mahim Patram to conclude that the charging and levy provisions of the Central Act were effectuated by the (duly and legislatively authorized) reinforcing/supporting matrix of State machinery rules, for ensuring proper valuation/computation of the Central levy. - to construe Mahim Patram as enunciating a generic or a meta norm authorizing/accommodating framing of rules by a State so as to embed the appropriate machinery/computation architecture required to sustain the vitality of Union taxation, de-hors consecration of such authority in the relevant Central legislation, is a plain and seminal misreading of the ruling and a product of inaccurate analyses and construction of the last phrase of the sentence in para 27 of Mahim Patram, read in isolation and divorced from its contextual and factual habitat, which received extensive consideration in that judgment. - in our considered view, Mahim Patram reiterates and emphatically, the established principle that computation/machinery provisions are non-derogable integers of the levy of tax and these must be either enacted in the legislation per se or provided in rules framed under or pursuant to aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of labour/services and associated expenses; while wholly excluding the value of elements related to deemed sale of goods and associated expenses, involved in execution of a works contract, we find no precedent (brought to our consideration) which propounds a ratio /principle vouchsafing immunity from the mandated constitutional fidelity, to drafting discipline, precision and exactitude. These precedents offer no manner of assistance for a conclusion that CICS, COCS ECIS, include in their definitional, charging or valuation orbit, works contracts as well. - In Tamil Nadu Kalyana Mandapam Association there was no contention presented that there was no charge on the service in issue. As regards adequacy of an exemption notification granting abatement, no argument was asserted, no issue framed; nor is any principle enunciated nor a conclusion recorded by the Court, that in the absence of legislated exclusions (in the Act, including in the valuation provision therein) of the value of accretion sale of goods in relation to composite/catering contracts and supporting statutory framework for proper valuation/computation, relevant provisions of the Act are rendered invalid for leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cratic factual setting does not render long settled principles obsolescent nor amount to implied overruling of established rationes. Further, these principles were invariably applied and the earlier precedents quoted with approval and followed in several decisions thereafter, including in Rajasthan Chemists Association; Infosys Technologies Ltd., andTata Sky Ltd, illustrating the undisturbed vitality of the meta norm. d. The recent (2014) Kone Elevator constitution Bench reiterates the following principles : - a composite transaction pursuant to an agreement where the parties thereto are ad idem that the transaction is not one exclusively for either supply of labour/rendition of services or for sale of goods qua goods; but is one for an integrated delivery of goods by incorporation by expending services for such incorporation, i.e., a works contract, cannot lawfully be classified as a distinct contract for either sale of goods or rendition of services. - the overwhelming, major component, dominant intention or degree of labour and service tests (the traditional tests) have no application to and cannot be employed for extracting a works contract from its constitutional and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion/computation provisions in the Act or the rules authorized thereby and made thereunder which enable computation/valuation of works contract so as to confine levy of service tax to service and associate components in such a contract, thus comprising an integrated code of charging and computation provisions; e. that works contract is enacted as a taxable service (WCS) only by the Finance Act, 2007 and w.e.f 01-06-2007 vide sub-clause (zzzza) of Section 65(105), specifically defined with a legislated signification of intent to levy service tax on this distinct commercial entity, which inheres components which are exclusively allocated to States; and introduced with an integrated package of computation/valuation rules (Rule 2-A of the 2006 Rules),specially tailored to cater to this special category of transaction which has exclusive and competing taxation elements/components and a composition rules matrix (the 2007 Rules), enacted/framed in fidelity to the second Gannon Dunkerley ruling of the constitution Bench. Analyses of Shri Sahu's position: (a) From the preceding analyses we conclude, that the 46 th Amendment though directed towards and defining the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ederal compact, is supreme and plenary; not subject to exertions of legislative power by the other partner. Heirarchical allocation of legislative fields/powers is only in respect of List III (concurrent List) enumerated fields, r/w Article 254. (d) The contention (that unlike States' legislative power, under Entry 54, List II), Union's legislative power (under Entry 97 List I) to impose (service) tax on the whole value of a works contract, including the value of deemed sale of goods and associate elements is absolute and untrammelled, is one that has no basis in the constitutional text, no precedential support nor does the contention rest on the foundational principles of our federal constitutional construct and its peculiar arrangement and distribution of legislative powers, in particular, taxation powers. (e) We have considered this aspect in our analyses supra and reiterate our conclusion, that Union's residual legislative field is the residue inter alia of the field abstracted to States under Entry 54, List II, read in the light of the 46 th Amendment. (f) It requires to be noted that the decisions (referred to by Shri. Sahu) in Sentinel Rolling Shutters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be now understood in light of the philosophy of Article 366(29-A). ----- 97.5 A contract may involve both a contract for work and labour and a contract for sale. In such composite contract, the distinction between contract for sale and for work (or service) is virtually diminished. 97.6 The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissected/vivisected, for the purpose of levy of different taxes on constituent components of such integrated agreement. This contention stands refuted by the authoritative decisions inter alia, ofBuilders Association of India (1989), the second Gannon Dunkerley(1993), B.S.N.L (2006); Larsen Toubro Ltd. (2013) and Kone Elevator Pvt. Ltd. (2014). l. None of the decisions cited by Shri. Sahu (adverted to in sub-paras (f) to (k) supra have any bearing on nor support his contention that the 46 th Amendment does not impact the content/scope of Union's legislative field under Entry 97, List I. The fact that provisions of sub-clauses (a) to (f) of Article 366(29-A) enlarge the scope of the expression 'taxes on the sale or purchase of goods' and thus the scope inter alia of Entry 54, List II does not derogate from the position that the constituent exertion also diminutes the scope of Union's residuary legislative field under Entry 97, List I. The impact of this Amendment on the residuary field is, in our view, inescapable. A contrary construction would amount to transfer of Entry 97, List I and Entry 54, List II, to List III (the concurrent List); amendment of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian constitutional setting. Those opinions/rulings were in the particular and specific fact and legislative contexts considered therein. The principle is too well established, that the appropriate legislature is competent to enact fictions, subject only to constitutional limits upon its powers. q. The aspect doctrine enables levy of tax on each distinct aspect of the same transaction, by recourse to legislation on fields committed to the particular legislature. The B.S.N.L ruling quoted with approval the following observations in Federation of Hotel Restaurant Association of India vs. Union of India (1989) 3 SCC 634: --- 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. (emphasis added). r. In the Canadian Constitution's context, there evolved judicially, in that jurisdiction, the double as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e powers, of the Union, States and Concurrent allocations. t. Shri. Sahu's submissions also urge that assuming that even prior to 01-06-2007, the entire works contract excluding the goods part becomes amenable to service tax, the 46 th Amendment does not enable further vivisection of the 'service portion' into smaller segments such as under categories of 'consulting engineer service' or 'drawing and designing part of the contract' and the like. We refrain from expressing any opinion on this contention, since the reference to this special Bench does not include the issue whether pre-existing taxable services qua their definitions, charging and valuation provisions authorize extraction of constituent elements of a composite transaction, for levy of service tax on each distinct element on classifying it as a separate taxable service; the classification guidelines delineated in Section 65 A of the Act may perhaps be relevant. We decline to pronounce a view on this proposition however. For reasons alike, we express no view on the vitality of TRU budget letters, dated 28-02-2006 and 29-02-2008. u. Suffice it to note, if provisions of Section 65-A are app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CS was made a taxable service w.e.f 01-06-2007, the transaction in issue was prior to that date and thus the demand (treating the transaction as rendition of a works contract, vide the additional counter) was not supported by legislative authority (paras 16 to 18). We do notice that while G. D. Builders sets out analyses for its conclusion that works contract is taxable prior to 01-06-2007 as well, Turbotech Precision Engineering Pvt. Ltd. and Strategic Engineering Pvt. Ltd. record a finding without a comparable measure of analyses, while clearly recording the conclusion that a works contract is not taxable prior to 01-06-2007. Now to the G. D. Builders ruling and the precedents considered and analysed therein (paras referred to are of the this judgment). - In para 19, propositions flowing from Home Solutions Retail (India) Ltd. vs. Union of India Anr. 2011 (24) STR 129 (Del) (of the full Bench of the Delhi High Court) are set out; a judgment which has no bearing on the question whether works contract is taxable under CICS, COCS ECIS. - In para 20, the decision in Tamil Nadu Kalyana Mandapam Association is adverted to and it is noted that in the case of mandap keepers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fact Revenue neither adverted to nor attempted to reconcile the above decisions and the compelling rationes flowing therefrom. Para 21 refers to K. Raheja Development Corpn. vs. State of Karnataka (2005) 5 SCC 162, for concluding that definition clauses in the Act for applying Section 65(105) (zzq) (zzzh); [CICS COCS, respectively], have to be given full effect. It requires to be noticed that in K. Raheja Development Corpn., the legislation in issue - the Karnataka Sales Tax, Act, 1957 specifically defined 'works contract' in a comprehensive manner and this fact is noticed in this para of G. D. Builders, as well. Giving full effect to overbroad/ambiguous verbal formulae in legislative texts is also a deeply problematic interpretive issue. Textual ambiguities may be of the grammatical, syntactic or contextual varieties and purposive construction and dynamic interpretation tools are employed to arrive at the legal meaning of a text where the grammatical meaning leads to overreach and does not correspond to the legal meaning. Para 22 adverts to the 2013 constitution Bench ruling in Larsen Toubro Ltd. and to observations in para 100 thereof. The Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Sales Tax Act, 1956 and the critical reasoning process which formed the basis of the observations in para 27 of Mahim Patram, presumably led G. D. Builders to the clear and palpably erroneous impression/premise that Mahim Patram lays down a broad principle that a Central legislation bereft of proper computation or valuation provisions would nevertheless be valid on account of existence of supporting/reinforcing, computation/valuation provisions in a State legislation. That however is clearly not the Mahim Patram ratio. 'The Supreme Court ruling in All India Federation of Tax Practitioners Others vs. Union of India (2007) 7 SCC 527 is considered in para 29. The analyses of this judgment provides no guidance to the issue whether a works contract is taxable prior to 01-06-2007 or computation/valuation provisions are eschewable integers of a valid and operative charging and valuation integrated, scheme of taxation. 'The judgment in Association of Leasing Financial Service Cos. is adverted to in para 30, which again provides no assistance to the issues referred for our resolution. 'Paras 31 to 35 deal with exemption/abatement notifications issued under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a taxing legislation), the charging provision would fail. The distillate of binding precedents leads to the position that, while the measure of tax per se would not determine the limits of legislative competence, a taxing legislation may not transgress the distribution of powers limits prescribed by the Constitution and trench upon elements of a composite transaction which stand assigned to another legislative level and tax such prohibited elements on the pretext of the overreach constituting merely the measure of tax. That would amount to a colourable exercise of legislative powers. 27. In the light of the formidable catena of consistent and binding precedential authority, we respectfully conclude; and are compelled so to do, that the G. D. Builders conclusions: i. that works contract is a taxable service even prior to 01-06-2007(under CICS, COCS ECIS); ii. that merely because no rules are framed for computation, it does not follow that no tax is leviable; iii. that the measure of the levy per se and in all contexts has no impact on the competence of the legislative exaction; and iv. that a deficit in a Central legislation with respect to computation/valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Projects (India) Ltd., vs. Commissioner of Service Tax, Ahmedabad 2014 (35) STR 577 (Tri. Ahmd.) v) Final order dated 08.05.2014 in CCE, Indore vs. Gopal Enterprises 2014 (36) STR 674 (Tri. Del.); vi) Final order dated 26.08.2014 in Kalpik Interiors vs. CST, Delhi (no citation is provided); and vii) Final order dated 15.10.2014 in Vadhera Builders Pvt. Ltd. Vs. CST, New Delhi (no citation is provided); There are other decisions of this Tribunal rendered prior to the reference to this special Bench, some of which have been brought to our notice. These decisions concluded that a works contract is not taxable prior to 01.06.2007. It is stated at the Bar that there are other decisions which have come to a contrary conclusion. Counsel have referred to the following decisions (tabulated), which ruled that a works contract is not taxable prior to 01-06-2007. S. No Case tile and citation 1 B.H.E.L vs. C. Ex S.T, Dibrugarh - 2008 (10). STR. 218 (Kolkata Bench) 2 Diebold Systems (P) Ltd. vs. CST, Chennai - 2008 (9). STR. 546 (Chennai Bench) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contract' (in the Act) by clearly enacting the legislative recognition that this distinct species of contractual arrangements inheres components of sale of goods which fall within the (exclusive) taxation domain of States, for levy of sales tax; D. Rule 2-A of the 2006 Rules [applied exclusively to 'works contract' referred to in sub-clause (zzzza)] inserted w.e.f 01-06-2007, mandates specified exclusions/deductions from the gross amount received on execution of a works contract (in terms of the principles/norms particularized and catalogued in the second Gannon Dunkerley ruling and reiterated in subsequent precedents); and E. The 2007 Composition Rules, also introduced w.e.f 01-06-2007 (and made explicitly applicable only to WCS),provide an optional composition protocol which enables availment of calibrated deductions, particularly appropriate to situations where proof of the value of sale of goods by accretion/incorporation cannot be furnished or the nature of the transaction is such as to render the necessary accounting process cumbersome, impractical or inadequate; F. The enactment of a specific legislative provision - sub-clause (zzzza); and the simulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceed, I consider it necessary to record certain concerns/apprehensions I have about the fruitfulness (or futility?) of the present exercise. The present reference has arisen in view of the conflicting views expressed by three Larger Benches of this Tribunal. In the case of Jyoti Ltd. and Indian Oil Tanking Ltd., two larger benches of this Tribunal held the view that 'a works contract service' is not leviable to service tax prior to 1-6-2007, when a specific entry was introduced in the taxable service list in Budget 2007. However, in BSBK case, another Larger Bench took a contrary view and held that a works contract service can be vivisected and discernible service elements can be subjected to service tax prior to 1-6- 2007, provided the services involved are taxable services. The decisions in the Jyoti Ltd. and Indian Oil Tanking case have been challenged by the Revenue before the Supreme Court and the appeals have been admitted in July, 2008 and August, 2010 and have been pending disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lea 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 taxable. But this plea of the respondent is not acceptable in view of judgment of Hon'ble Delhi High Court in the case of G.D. Builders v. Union of India (supra), wherein this very issue has been decided by the Hon'ble Delhi High Court against the respondent. Moreover, the Tribunal also in the cases of Alstom Projects India Ltd. v. CCE reported in 2011 (23) S.T.R. 489 (Tri.- Del.) and Instrumentation Ltd. v. CCE, Jaipur-I reported in 2011 (23) S.T.R. 221 (Tri.-Del.) taken the same view. In view of this, the impugned orders holding that during the period prior to 1-6-2007 the services of civil or industrial construction or erection, installation or commissioning, provided as indivisible works contract were not taxable, are not sustainable. The same are set aside and the orders passed by the original Adjudicating Authority are restored. The appeals are allowed. The cross objections filed by the respondent are also disposed of accordingly. (2) In the case of Kalpik Interiors vs. CST, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Needless to say these are not obiter dicta; these are the distillates of proper analysis of the legal provisions and therefore constitute an integral part of the judgment (decision) in the said case. (3) One more decision where ratio of GD Builders was followed pertains to a decision by a Larger Bench presided over by the hon'ble President in the case ofHindustan Aeronautics Ltd. vs. CST, Bangalore [2013 (32) STR 783 (Tri.- LB)]. The question referred to the Larger Bench in the said case whether benefit of notification No. 12/2003-ST is confined to sale of goods, excluding deemed sale . The Larger Bench declined to answer the reference on the ground that the issue already stands settled by the decision of the Delhi High Court in the GD Builders case. 2.2 After consistently holding that the GD Builders decision is not per incuriam and is a good law, that too, after making the present reference, can the Tribunal take a different view now and perform a judicial somersaul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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(105) read with definition clauses. (ii) Service tax is applicable only in respect of service element and the Central Government does not have any power under the residual entry to impose tax on entries under List II of the Seventh Schedule of the Constitution. (iii) The Parliament cannot impose service tax on material or goods used in execution of works/composite contract. Central Sales Tax is payable and levied on material used in works contract with effect from 11th May, 2002 after amendment of the Central Sales Tax Act, 1956 vide Finance Act, 2002. (iv) The composite or works contracts are excluded from the ambit of levy of service tax under Section 65(105)(zzq) and (zzzh). (v) Section 65(105)(zzq) and (zzzh) apply only to service contracts and not to composite or works contract , therefore, exemption under notification to the extent of 67% to set off value of the goods involved in execution of composite contract is contrary to the charging pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 material or goods. The gross amount charged or the value of service cannot include value of goods and material supplied/used. (xi) Vagueness or uncertainty makes a levy invalid and illegal. 3.2 The hon'ble High Court examined at great length - (1) the legislative history of service tax; (2) the various statutory provisions governing service tax; and(3) the decisions rendered in the following cases, namely:- 1. All India Federation of Tax Practioners Ors. Vs. Union of India 2007-TIOL-149-SC-ST 2. Association of Leasing and Financial Service Companies vs. Union ofIndia 2010-TIOL-87-SC-ST- LB 3. CIT v. B.C. Srinivasa Setty 2002-TIOL-587-SC-IT- LB 4. Delhi Chit Fund Association Vs. Union of India 2013-TIOL-331-HC-DEL-ST 5. Federation of Hotel and Restaurant Assn. of India v. Union of India - 2002-TIOL-699-SC-MISC-LB 6. Gannon Dunkerley and Co. vs. State of Rajasthan 2002-TIOL-103-SC-CT 7. Govind Saran Ganga Saran v.CST 2002-TIOL-589-SC-CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet 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. Notification has to be applied in entirety. (6) Notification has to be read as a whole keeping in mind its objective and purpose. Notification may provide a convenient, hassle free and adopt a non-discretionary formula for computing value of the service element in a composite contract. This curtails litigation, ambiguity, ensures clarity and consistency. A notification cannot be declared as invalid or ultra vires for this reason, provided it is optional. (7) Authorities cannot compel and force an assessee to accept the notifications in question and pay tax accordingly, as seeking coverage under the notification is voluntary. An assessee can state that the service component of a composite contract should be computed in a fair and reasonable manner and accordingly taxed. (8) The notifications meet the tests laid down under Section 93 and 94 of the Act because they relate to manner and mode of computation of service tax in a composite contract. The object and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 service tax on a proportion or value of a composite contract as per the notification. 15. On going through the impugned provisions, we do not find any encroachment by Parliament on the powers of the State Legislature to impose a tax on the sale of goods. The provisions clearly relate only to the service component of the composite contracts referred to in the impugned provisions. 16. The grievance of the petitioner with regard to assessment and computation cannot be equated with the challenge to the constitutional validity of the impugned provisions. It is open to the petitioner to raise issues of computation before the appropriate Adjudicating Authority/Appellate Authority and demonstrate the extent to which service tax can be imposed on the services that are provided by them. To be clear, it is open to the petitioner to demonstrate the extent of the service element included in the composite contract and to pay service tax only on that component. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior 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; (c) Decisions of the Karnataka High Court and Madras High Court contradict the ratio laid down in G D Builder's case. 4.1 Now let us examine each of these contentions. As regards the argument that the decision in GD Builders case was given by way of concession, I agree with the hon'ble President that no case has been made out by the appellant in this regard. I would like to only add that by picking up one or two sentences here and there, one cannot come to the conclusion that the decision has been rendered on a concession. The observations of the hon'ble apex court in the case of Dir. Of Settlements, A.P. Ors vs M.R. Apparao Anr., in Civil appeal No. 2517 of 1999 decided on 20-03-2002, clarifies the position:- Article 141 of the Constitution unequivocally indicates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The aforesaid Article empowers the Supreme Court to declare th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 and by several benches of this Tribunal including a Larger Bench. Therefore, this proposition advanced by the ld. Counsel for the appellants has to be rejected outright. 4.3 The next question is whether the decision in the G D Builders case is per incuriam. The concept of per incuriam has been lucidly explained by the apex court in several judgments. For our present purposes, reference to two decisions would suffice. In Punjab Land Development vs Presiding Officer, Labour [1990 SCR (3) 111, 1990 SCC (3) 682], the hon'ble court explained the concept as follows :- Per Incuriam means through inadvertance. A decision can be said generally to be given per incuriam when the Supreme Court has acted in ignorance of its own previous decision or when a High Court has acted in ignorance of a decision of the Supreme Court. The problem of judgment per incuriam when actually arises, should present no difficulty as the Supreme Court can lay down the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 and therefore, the decision of the Delhi High Court cannot said to be final and binding. I have perused these decisions. As regards the decisions of hon'ble High Court of Karnataka in the case of CST vs. Turbotech Precision Engg. Pvt. Ltd. (supra) and of Madras in the case of Strategic Engg. Pvt. Ltd. (supra), the facts obtaining in those cases are completely different and hence distinguishable. In the Turbotech case, the contention of the department was that the activity of development, design review, installation and commissioning and technology transfer would be leviable to service tax under the category of consulting engineer's services . The High Court noted that during the relevant period, that is, prior to 2006, the definition of consulting engineer did not include in its scope, such services rendered by a body corporate or any other firm . Since the appellant was a body corporate, the engineering consultancy rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 can be vivisected and subjected to service tax was not an issue for consideration before the hon'ble high court. Therefore, the said decision has no relevance to the issues considered in the GD Builders case. If that be so, how can anyone say that the decision was contrary to the GD Builders decision? 4.7 To buttress my argument, I shall quote certain passages from the decision of the hon'ble Apex Court in CCE, CALCUTTA V ALNOORI TOBACCO PRODUCTS 2004-TIOL-85-SC-CX in Civil Appeal Nos. 4502-4503 of 1998. 11. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid 's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the purpose of levy of service tax prior to 1-6-2007, I would like to dispose of a contention raised in respect of valuation. The contention taken is that prior to 1-6-2007, there was no machinery provision prescribed for computation of tax on the service element comprised in a composite contract and in the absence of a machinery provision, the levy of service tax on a composite contract involving supply of goods and supply of labour is not legally tenable. I do not find any merit in this argument. There are four important and integral elements in a tax law. They are,- 1) taxable event (the activity which attracts the tax liability); 2) the rate of tax; 3) the measure of tax; and 4), the person liable to pay tax. Once these four elements are present, the validity of a tax law would be beyond any legal challenge. As far as service tax levy in India is concerned, these four elements are contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 supplying labour or undertaking construction services, whether with or without supply of material, i.e. composite contract. The levy is valid when the provisions of Section 65(105)(zzh) and 65 (105)(zzq) of the Act are satisfied. The only condition and requirement is that the service tax should be levied and imposed on the service element and not levied and charged on material or goods used, as the power to levy sales tax or value added tax on the sales of goods is with the State Governments. 19. The said legal principle is no longer res-integra, as the principle and concept underlining service tax was highlighted and stands elucidated by Full Bench of this court in Home Solutions Retail (India) Ltd. vs. UOI Anr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Notification has to be applied in entirety. (6) Notification has to be read as a whole keeping in mind its objective and purpose. Notification may provide a convenient, hassle free and adopt a non-discretionary formula for computing value of the service element i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 made good with the use of the implied power in conjunction with the established rule of construction that power to do something essential for the proper and effectual performance of the work which the statute has in contemplation may be implied. It was held that in that case that the basic principle is that the Courts must endeavour to ascertain the legislative intent and purpose, and then adopt a rule of construction which effectuates rather than one that may defeat these. 5.6 A similar issue came up for consideration before the hon'ble Apex Court in the case ofC.W.T. vs. Sharvan Kumar Swarup Sons 1994 SCC (6) 623. The question before the Court was whether Rule 1BB of the Wealth Tax Rules, 1957 is a provision which affects and alters the substantive rights or is merely procedural and whether the Rules is attracted to all the proceedings pending at its enactment. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction? 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 process of litigation, but to its purposes and subject matter. Substantive law is concerned with the ends which the administration of justice seeks. Procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated. .. What facts constitute a wrong is determined by the substantive law; what facts constitute proof of a wrong is a question of procedure. .. So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other. The hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 12/2003-ST, 15/2004-ST and 1/2006-ST which provide for an alternative, optional, hassle free method of quantification of the tax liability subject to satisfaction of conditions stipulated therein. 5.9 Since 2004, the provisions of Cenvat Credit Rules, 2004, have been made applicable to service tax also. As per these provisions, duties/taxes paid on inputs (goods used in rendering of services) and input services (services used for rendering of services) are available as credit for payment of service tax on the output service. The tax credit mechanism is a significant means of determination of value addition, both in respect of supply of goods as well as supply of services. The tax credit mechanism ensures that the tax on the output service is charged only on the value addition involved on account of rendering of service. Therefore, even in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 State of Madras vs. Gannon Dunkerley Company and others, (Madras), the Apex Court had an occasion to consider whether in the building contract which was in the nature of a composite and indivisible works contract, there was a sale of goods. Apex Court held that there was no sale of goods. Likewise, the goods provided on lease for use was not liable to tax because it was not sale within the definition of Section 4 of the Sale of Goods Act. After the decision in the case of State of Madras Vs. Gannon Dunkerley Company, the matter with regard to taxability of goods involved in the execution of works contract, was examined by the Law Commission, in its 61st report. On the recommendations of the Law Commission to levy sales tax on the goods used in the execution of the works contract and on the leasing transactions, to boost the revenue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provide for a fiction in such an eventuality. More so, creating a fiction by judicial interpretation may amount to legislation, a field exclusively within the domain of the legislature. (Vide: Ajaib Singh v. Sirhind Coop. Marketing-cum- processing Service Society Ltd. Ors., (1999) 6 SCC 82). 6.3 92nd amendment to the Constitution provided for a specific entry for taxes on services in the Union List under entry 92C. Prior to the said amendment, the residual entry 97 covered taxes on services. Thus the power of the Parliament to impose a tax on services was never in dispute. The following transactions were identified for levy of sales tax on a deemed sale basis in the 46 th amendment to the Constitution, namely:- '(29A) tax on the sale or purchase of goods includes- (a) a tax on the transfer, otherwise than in purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article 'such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods . In other words, the operative words of the said sub-article is supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods. 45. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering'. 46. It is well settled that the measure of taxation cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes 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 transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made. Now, in K.L. Johar's case, this Court held that the States can tax hire-purchase transactions resulting in sale but only to the extent to which tax is levied on the sale price. This led the Parliament to say, in the Statement of Objects and Reasons to the Constitution (Forty- sixth Amendment) Act, though practically the purchaser in a hire-purchase transaction gets the goods on the date of entering into the hire-purchase contract, it has been held by the Supreme Court in K.L. Johar's case that there is a sale only when the purchaser exercises the option to purchase which is at a later date and therefore only the depreciated value of the goods involved in such transaction at the time the option is exercised becomes assessable to sales tax which position has resulted in avoidance of tax in various ways. Thus, we find from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 equipment leasing and hire-purchase is concerned, the amount received as principal is not the consideration for services rendered. Such amount is credited to the capital account of the lessor/hire-purchase service provider. It is the interest/finance charge which is treated as income or revenue and which is credited to the revenue account. Such interest or finance charges together with the lease management fee/processing fee/documentation charges are treated as considerations for the services rendered and accordingly they constitute the value of taxable services on which service tax is made payable. In fact, the Government has given exemption from payment of service tax to financial leasing services including equipment leasing and hire-purchase on that portion of taxable value comprising of 90% of the amount representing as interest, i.e., the difference between the instalment paid towards repayment of the lease amount and the principal amount in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 include supply of food and drinks; ix) Supply of tangible goods for use service itself entails supply of goods; x) Photography services include supply of photographic films, paper, chemicals and so on; xi) Cleaning services need cleaning materials; xii) Sound recording services entail supply of recording medium and so on; xiii) Medical services include supply of medicines and other materials; xiv) Commercial coaching and training services entail supply of books and other study materials; xv) Leasing and Hire purchase of equipment services include supply of equipment and so on. One can cite such examples ad infinitum. It is very difficult to segregate supply of goods and services as they are inter-dependent and in my view such an exercise is a futile one. The vires of service tax levy on all such composite transactions have been upheld in quite a few decisions by the Supreme Court. This is where the doctrine of pith and substance and the doctrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by 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 immaterial. It follows, as a sequitur, that by virtue of clause 29-A of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject. 6.9 This latest decision of the Supreme Court clearly settles the issue about the divisibility of a works contract for the purpose of taxation. If by virtue of clause 29A of Article 366, the State Legislature is empowered to segregate the goods part of the works contract and impose sales tax thereon, the same logic would apply in respect of Central Legislation imposing service tax. In other words, the Parliament is empowered to segregate the service component of the works contract and impose service tax the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the Court. In other words, the statute has to be interpreted in such a way so as to make it workable and not in a manner which would negate or defeat its object. 6.11 Reliance has been placed on the Finance Minister's speech to argue that works contract is leviable to service tax only with effect from 1-6-2007 and not earlier. It is worth remembering that statutes have to be interpreted based on the language used/employed by the legislature and not on the basis of Finance Minister's speech. In Doypack Systems Pvt. Ltd. vs. UOI [1988 (36) E.LT. 201 (S.C.)], the hon'ble Apex Court held that reliance should not be placed on external aids such as notings in the government's file, Finance Minister's speech, etc., while interpreting statues. The Apex court has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponds 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 the wording of section 3 (1), we cannot treat the additional duty referred to therein as countervailing duty, nor, indeed, can we regard that provision as a charging section merely because the Statement says that section 3 provides for the levy . The Statement of Objects and Reasons errs in being common to sub-sections (1) and (3) of section 3. It is more apposite to sub-section (3) though, even there, it may not be correct to say that it is a charging provision. The court held that the levy specified in section 3 (1) of the Tariff Act is a supplementary levy in enhancement of the levy charged by section 12 of the Customs Act and with a different base constituting the measure of the impost. In other words, the scheme embodied in section 12 is amplified by what is provided in section 3 (1). The customs duty charged under section 12 is extended by an additional duty confined to imported articles in the measure set forth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 raised is covered by the decision in GD Builders case (supra) and in case the question raised is covered, the matter can be closed . The only qualification to this direction was contained in para-7 of that order which, in effect, stated that the 'contention that there are conflicting decisions and contrary view expressed by Karnataka High Court and Madras High Court can be raised at the time of preliminary arguments before the Tribunal and appropriate direction/order can be passed'. As has been analysed by my ld. brother Shri PR Chandrasekharan, Member (Technical), the said judgments of Karnataka and Madras High Courts do not impinge upon the ratio/ decision of the Delhi High Court in the case of GD Builders with regard to the subject matter covered by the latter. It is hard to discern from the Hon'ble Delhi High Court order dated 11.11.2014 that the Hon'ble High Court at all intended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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) was amended. The amended Section contains a sub- section which states that subject to the provisions of sub-sections 1, 2 and 3, the value shall be determined in such manner as may be prescribed. Thus, the Valuation Rules framed are only to prescribe the manner of determining the value if the same cannot be determined in terms of sub-sections 1, 2 3 thereof. The word may (and not shall ) used in that sub-section has a clear implication that even if the Rules were not framed, the levy with reference to the value determined in terms of Section 67 would not fail; save when in certain situations for certain services absence of Rules would necessarily lead to an ambiguity of such a high degree as to make the measure of value arbitrary. In other words, absence of Rules would not necessarily eclipse or paralyse Section 67 which refers to the value of service, implying thereby that the value of goods sold in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 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 01.06.2007 even if the transfer of property in goods in such works contract is a tiny fraction of the total value thereof. 6. In conclusion, much as I admire the phenomenal erudition of the Hon'ble President, I am not in a position to persuade myself to agree with his view. Indeed I am in complete agreement with my ld. brother Shri. PR Chandrasekharan that the issue referred to the Five Member Bench is fully and squarely covered by the Hon'ble Delhi High Court's judgement in the case of G.D. Builders. R K Singh, Member (T) Per: Rakesh Kumar: I have gone through the order recorded by the Hon'ble President and the orders recorded by my learned Brothers Shri P.R. Chandrashekharan and Shri R.K. Singh, Members (Technical). While, I fully agree with the order recorded by my learned Brother Shri P.R. Chandrashekharan, I am of the view that the question as to whether the service compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 - land, building etc. or on a chattel belonging to the service receiver and which involves affixing of material belonging to the service provider and the contract, alongwith the provision of service, involves transfer of property in the goods/material used to the service recipient through accretion. These contracts are called works contracts and the examples of such contracts are the indivisible contracts for erection, installation and commissioning of a manufacturing plant, commercial or industrial construction, construction of residential complex, repair and maintenance contracts which involve use of the material for repair or maintenance etc. In general, a works contract can be said to be a contract for some work (service) to be done by the service provider on the land/immovable property or on some movable property including intangible property belonging to the employer, which invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Thus, Clause (29A) of Article 366 of the Constitution introduced by 46 th amendment is a legal fiction by which - (a) the transfer of property in goods, (whether as such or in some other form), involved in execution of a works contract became deemed sale by the person executing the works contract and the indivisible works contract, which is a service contract, became a divisible contract for provision of service and deemed sale of the goods involved in execution of the works contract; and (b) supply of food or drinks in the catering contracts, which were service contracts involving serving of food or beverages, become a deemed sale. Thus Clause (b) and (f) of Article 366 (29A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sales tax by the State Government. Therefore, levy of sales tax by the State Government on the goods component of a works contract by employing the legal fiction of Article 366 (29A) does not restrict the power of the Central Government to levy service tax on the works contract in any manner and the Central Government has powers to levy service tax on the entire value of a works contract including the value of the goods involved in the execution of the works contract. Apex Court in para 42, 43, 44 and 45 of its judgment in case of Tamil Nadu Kalyana Mandap and Association vs. Union of India reported in 2004 (167) E.L.T. 3 (S.C.) while upholding the constitutional validity of the levy of service tax on the service provided by a Mandap Keeper in relation to use of Mandap, has held that the fact that tax on sale of goods involved in the said service can be levied does not mean that ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contracts for which a machinery provision for determining the value of the goods deemed to have been sold was necessary. However, no machinery provision is required for determining the value of a works contract by excluding the value of the goods, as - (a) For the purpose of levy of service tax by Central Government, a works contract still remains one single indivisible service contract, even though for the purpose of levy of sales tax, by the legal fiction of Article 366 (29A) of the Constitution, it is deemed to be a divisible contract - one for service and the other for deemed sale of the goods involved in execution of the service contract (works contract) and accordingly the value of a taxable service provided as a works contract would be the gross amount charged including the value of the goods, the property in which has been transferred to the service receiver through ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 service component - what is required for compliance with this principle is that - (a) a hybrid transaction involving supply/use of goods and provision of service should be examined on the basis of its terms and tone and tenor and by applying the well settled tests to determine whether it is a contract for sale or a contract for service; and (b) once on the basis of the nature of the transaction, the taxing authority - whether Central Government or State Government is known, the whole transaction is taxed by that authority on the basis of the measure prescribed. 6. Separate and specific constitutional provision together with the machinery for determining the measure is required only when State Government wants to tax goods portion in a service transaction or the Central Government wants to tax service portion in a sales transaction. But for charging of service tax by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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