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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 ..... :- the High Court’s judgment is correct and does not need to be interfered with inasmuch as the iron and steel goods, after being purchased, are used in the manufacture of other goods, namely, doors, window frames, grills, etc. which in turn are used in the execution of works contracts and are therefore not exempt from tax. - Decided against the assessee. - Civil Appeal No. 4149 of 2007 - - - Dated:- 11-8-2016 - A. K. Sikri And R. F. Nariman, JJ. For the Appellant : M/s Mitter Mitter Co. M/s. Parekh Co. M/s Keswani Co. Mr. V. N. Raghupathy, Adv. For the Respondent : Mr. K. V. Vishwanathan, Sr. Adv. Mr. Abhishek Kaushik, Adv. Mr. Dhananjay, Adv. Mr. Ravi Raghunath, Adv. Mr. Sidhanth Buxy, Adv. Mr. A. Mukunda Rao, Adv. Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Ms. Niharika, Adv. Mr. Anuj Sarma, Adv. Mr. Aman Shukla, Adv. Mr. V. Lakshmikumaran, Adv. Mr. M. P. Devanath, Adv. Mr. Hemant Bajaj, Adv. Mr. Anandh K., Adv. Mr. Aditya Bhattacharya, Adv. Mr. L. Charanya, Adv. Mr. Raghavendra S. Srivatsa, Adv. Mr. K. V. Thirumalesh, Adv. Mr. Vikas Upadhyay, Adv. Ms. Kanupriya Bhargawa, Adv. Mr. Sandeep Singh, Adv. Mr. Shekhar G. Devasa, Adv. Mr. Manish Tiwari, Adv. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. 5. Section 14 of the Central Sales Tax Act, insofar as it is relevant to the present case reads as follows: Section-14 Certain goods to be of special importance in inter-State trade or commerce.- It is hereby declared that the following goods are of special importance in inter-State trade or commerce:- (iv) iron and steel, that is to say,- (i) [pig iron, sponge iron and] cast iron including [ingot moulds, bottom plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap; (ii) Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes); (iii) Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars; (iv) Steel bars, rounds, rods, squares, flat, octagons 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka Sales Tax Act, 1957. This Section reads as follows:- Section 5-B: Levy of tax on transfer of property in goods (whether as goods or in some other forms) involved in the execution of works contracts. Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6) of the said Section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule. 7. The Fourth Schedule of the said Act, which deals with declared goods in respect of which a single point tax is leviable under Section 5(4) reads as follows: Act 3 of 1983 (From 1-11-1982) Sl No Description of the Goods Point of levy Period for which applicable Rate of tax 1 2 3 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant, reads as under:- Sl. No. Description of works Contact period for applicable which Rate of Tax 1 2 3 4 6. Civil works like construction of building, bridges, roads, etc 1-4-86 to 31-3-95 Five per cent . 1-4-95 to 31-3-91 Eight per cent 9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003, taxed declared goods and works contracts generally as follows:- Section 4 - Liability to tax and rates thereof. (1) Every dealer who is or is required to be registered as specified in Sections 22 and 24, shall be liable to pay tax, on his taxable turnover, (a) in respect of goods mentioned in,- (i) Second Schedule, at the rate of one per cent, (ii) Third Schedule, at the rate of four per cent in respect of goods specified in serial number 30 and five per cent in respect of other goods, and (iii) Fourth Schedule, at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 show that mere cutting and shaping of these products would not amount to manufacture and hence the very goods that were declared goods alone were taxable at the rate of 4%, both under the Karnataka Sales Tax Act as well as the Karnataka Value Added Tax Act, 2003. 12. Shri K.N. Bhat, learned senior advocate appearing on behalf of the State, relied strongly on State of Tamil Nadu v. M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC 834, in order to buttress his submission that the iron and steel products did not continue as iron and steel products but somehow became different goods at the point of accretion and that, therefore, they could be taxed at the higher rate applicable to civil constructions generally. He did not dispute the law laid down in the two Supreme Court judgments cited by Shri N. Venkatraman, and very fairly submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale 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 owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property. The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. We are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under entry 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itations 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 be in relation to (a) goods declared by Parliament by law to be of special importance in inter-State trade or commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366. When such a law is enacted by Parliament the legislative power of the States under Entry 54 in State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by Article 286(3) (a) Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act, 1956. No law has, however, been made by Parliament in exercise of its power under Article 286(3)(b). For the same reasons Sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property in goods inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forcement 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 together with binding wire. The tying is not for the purposes of fabrication but is to see that the iron bars or rods are not displaced during the course of concreting from the assigned positions as per the drawings. Welding of longitudinal main bars and transverse distribution bars is not done. In fact, welding is contra-indicated because it imparts too much rigidity to the reinforcement which hampers the capacity of the roof structure to oscillate or bend to compensate varying loads on the structure besides welding reduces the cross section of the bars/ rods weakening their tensile strength. The reinforcements are placed and tied together in appropriate locations in accordance with the detailed principles and drawings found in standard bar bending schedules which lay down the exact parameters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 confirms the correctness of the findings recorded by us supra. Welding of bars/ rods reduces their cross section and to that extent decreases the tensile strength of the reinforcement bars/ rods defeating the very purpose of steel reinforcement in cement concrete. When bars/ rods are just joined together loosely by the use of binding wires, the elasticity of the steel bar/ rod is in no way hampered and each reinforcement bar/ rod acts independently. By the combined action of the main reinforcement bars/ rods and the distribution bars/ rods, the reinforced cement structures like roofs act as a rigid diaphragm whose elements displace equally in the direction of the applied in-plane loads. From the above discussion it is clear that largely in building construction works, no pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 identity as such goods, are merely subjected to some processing or finishing or are merely joined together, they may remain commercially the goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type. [paras 9 and 10] 17. Given the fact situation in these appeals, it is obvious that paragraph 10 of this judgment squarely covers the case against the State, where, commercial goods without change of their identity as such, are merely subject to some processing or finishing, or are merely joined together, and therefore remain commercially the same goods which cannot be taxed again, given the rigor of Section 15 of the Central Sales Tax Act. We fail to see how the aforesaid judgment can further carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 goods other than the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are purchased form registered dealers liable to pay tax under the Act and used in the execution of works contract in the same form in which such goods are purchased. (ii) .EXPLANATION-III For the purpose of sub-rule (4), the expression in the same form used in sub-clause (i) of clause (m) shall not include such goods which, after being purchased, are either consumed or used in the manufacture of other goods which in turn are used in the execution of works contract. 21. On facts in this case, it has been found that the appellant is engaged in works contracts of fabrication and creation of doors, window frames, grills, etc. in w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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