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TMI Blog2016 (8) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... NO.4319 OF 2007 CIVIL APPEAL NO. 7400 OF 2016 (ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015) CIVIL APPEAL NOS. 7401-7872 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015) CIVIL APPEAL NOS. 7873-7916 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015) JUDGMENT R.F. Nariman, J. 1. Leave granted in SLP(C) Nos.15253/2015, 18646-19117/2015, 10081-10124/2015. 2. This group of appeals concerns the rate of taxability of declared goods - i.e. goods declared to be of special importance under Section 14 of the Central Sales Tax Act, 1956. The question that has to be answered in these appeals is whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract. All these appeals come from the State of Karnataka and can be divided into two groups - one group relatable to the provisions of the Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that are relatable to the Karnataka Value Added Tax Act, 2003. The facts in these appeals are more or less similar. Iron and Steel products are used in the execution of works contracts for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and special steels of any of the above categories; (x) Steel melting scrap in all forms including steel skull, turnings and borings; (xi) Steel tubes, both welded and seamless, of all diameters and lengths including tube fittings; (xii) Tin-plates, both hot dipped and electrolytic and tin free plates; (xiii) Fist plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers--heavy and light crane rails; (xiv) Wheels, tyres, axles and wheels sets; (xv) Wire rods and wires-rolled, drawn, galvanized, aluminized, tinned or coated such as by copper; (xvi) Defectives, rejects, cuttings, or end pieces of any of the above categories;] Section 15 Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State. Every sales tax law of a State shall, in so far as it imposes or authorizes the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely: The tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed [five per cent.] of the sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, squares, flats, octagon and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths); (v) steel structurals (angles, joists, channels, tees, sheet piling sections, Z sections or any other rolled sections); (vi) sheets, hoops, strips and skelp, both black and galvanized, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition; (vii) plates both plain and chequered in all qualities; (viii) discs, rings, forgings and steel castings; sales by the first or the earliest of the successive dealers in the state liable to tax under this Act. (ix) tool, alloy and special steels of any of the above categories; Act 30 of 1975 (15-7-75 to 31-10-82) (x) steel melting scrap in skull turnings and borings; -do 15.7.75 to 31.10.82 4% 8. Similarly, the Sixth Schedule, which is to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri K.V. Viswanathan, and some others followed. According to learned counsel, the present matter is concluded by two judgments of this Court, namely, Builders' Assn. of India v. Union of India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364. The detailed judgment dated 10.12.2003 correctly extracts all the relevant passages from the aforesaid judgments to reach the conclusion that under the Karnataka Value Added Tax Act, 2003, the iron and steel products that are reinforced for cement concrete used in buildings and structures, remains exactly the same goods at the point of taxability - that is, the point of accretion, and that mere cutting into different shapes and bending does not make these items lose their identity as declared goods. Therefore, according to learned counsel, only tax at the rate of 4% can be levied, and not the higher rate levied in respect of civil construction works generally. Other learned counsel more or less argued along the same lines as Shri N. Venkatraman, only adding that it cannot be said that the identity of the iron and steel goods had changed at the point of taxability, and they cited several judgments to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29-A) of Article 366 of the Constitution are subject to an additional restriction mentioned in sub-clause (b) of Article 286(3) of the Constitution. [para 32] In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated thus: "Chattel to be affixed to land or another chattel.- Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any contract of sale. Sometimes, however, there may instead be a sale of an article with an additional and subsidiary agreement to affix it. The property then passes before the article is affixed, by virtue of the contract of sale itself or an appropriation made under it." In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause (29-A) of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 286 of the Constitution. We, however, make it clear that the cases argued before and considered by us relate to one specie of the generic concept of "works contracts". The case-book is full of the illustrations of the infinite variety of the manifestation of "works contracts". Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing power of the State as are applicable to "works contracts" represented by "building contracts" in the context of the expanded concept of "tax on the sale or purchase of goods" as constitutionally defined under Article 366(29-A), would equally apply to other species of "works contracts" with the requisite situational modifications." (Paras 38-41) In M/s. Gannon Dunkerley (supra), this Court held: "Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of Article 286 which enables Parliament to make a law placing restrictions and conditions on the exercise of the legislative power of the State under Entry 54 in State List in regard to the system of levy, rates and other incidents of tax. Such a law may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the measure for levy of tax contemplated by Article 366(29-A)(b)." [paras 31, 37, 41 and 45] 15. At this juncture, it is important to note the fact situation in a typical case before us. The Karnataka Appellate Tribunal in an order dated 18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015 narrates the factual position thus: "Different types of steel bars/ rods of different diameters are used as reinforcement (like TMT bars, CTD bars etc). The reinforcement bars/ rods need to be bent at the ends in a particular fashion to withstand the bending moments and flexural shear. The main reinforcement bars/ rods have to be placed parallely along the direction of the longer span. The diameters of such main reinforcement rods/bars and the distance between any two main reinforcement bars/rods is calculated depending on the required loads to be carried by the reinforced cement concrete structure to be built based on various engineering parameters. At right angles to the main reinforcement bas/rods, distribution bars/rods of appropriate lesser diameters are placed and the intersections between the distribution bars/rods and main reinforcement bars/rods are tied toge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by hand or power to attain proper radii of bends." "PLACING OF REINFORCEMENTS: All reinforcement bars shall be accurately placed in exact position shown on the drawings and shall be securely held in position during placing of concrete by annealed binding wire not less than 1mm. in size and conforming to IS;280, and by using stays, blocks or metal chairs, spacers, metal hangers, supporting wires or other approved devices at sufficiently close intervals. Bars will not be allowed to end between supports not displaced during concreting or any other operation over the work .... As far as possible, bars of full length shall be used. In case this is not possible, overlapping bars shall not touch each other, but be kept apart by 25mm, or 1 (1/4) times the maximum size of the coarse aggregate whichever is greater, by concrete between them. Where not feasible, overlapping bars shall be bound with annealed steel wire, not less than, 1mm. thickness twisted tight. The overlaps shall be staggered for different bars and located at points along the span where neither shear nor bending moment is maximum." The above specification which are standard for all civil construction works also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering of each item. This means that each item so specified forms a separate species for each series of sales although they may all belong to the genus: "Iron and Steel". Hence, if iron and steel "plates" are melted and converted into "wire" and then sold in the market, such wire would only be taxable once so long as it retains its identity as a commercial goods belonging to the category "wire" made of either iron or steel. The mere fact that the substance or raw material out of which it is made has also been taxed in some other form, when it was sold as a separate commercial commodity, would make no difference for purposes of the law of sales tax. The object appears to us to be to tax sales of goods of each variety and not the sale of the substance out of which they are made. As we all know, sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax. Where commercial goods, without change of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the lead impugned judgment in Civil Appeals arising out of SLP(C) Nos.18646-19117 of 2015 dated 10.12.2013 is an exhaustive judgment which has considered not only the facts in great detail but also the law laid down by the Supreme Court. We affirm the said judgment and dismiss the appeals of the State of Karnataka. Civil Appeal No.4319 of 2007 M/s. Ananth Engineering Works v. State of Karnataka 20. This appeal is by the assessee from a judgment dated 26.10.2006 allowing a revision against the Appellate Tribunal's order dated 19.1.2006. In this appeal, we are concerned with Rule 6(4)(m) of the Karnataka Sales Tax Rules, 1957. "Rule 6(4): 6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER: (1)....... ....... (4) In determining the table turnover, the amount specified in clause (a) to (p) shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer as determined under clauses (a) to (e) of sub-Rule (1). (a)..... (b).... ..... (m) In the case of works contract specified in Serial Numbers 1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule; (i) all amounts received or receivable in respect of go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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