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TMI Blog2016 (8) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... me was to be executed stands enshrined in an agreement dated 24 January 2002. The relevant terms of the said contract are as under: "Whereas it has been decided to award the work of laying underground cable falling in the jurisdiction of Telecom District Bareilly to M/s A.A. Cables Layers Ltd., 25A, Model Town Bareilly. M/s A.A. Cable Layers Ltd., 25A, Model Town Bareilly..... 3. The contractor will coordinate between the BSNL and agencies like PWD/ Municipality/BDA/UPSEB etc. for road cutting. Until road cutting permission is obtained, contractor will not get cable issued for laying. 4. The cable and other stores will be supplied by the BSNL. The contractor will execute the work strictly according to the work order and diagram supplied by the BSNL as per BSNL specifications and standards under the supervision of BSNL officers. 5. The BSNL will not take any responsibility for providing any facility to the labours employed by the contractor. The BSNL will supply underground cable, joining kits, DP boxes, cabinets and other store items required for the job. The contractor will be responsible for their safety and in case of loss to BSNL property, the contractor will have to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment and order dated 4 May 2006, has proceeded to affirm the view taken by the assessing authority and the first appellate authority. It is in the above backdrop that the instant revisions have come to be preferred before this Court. Sri Bharatji Agrawal, learned Senior Counsel appearing in support of these revisions has contended that the contract awarded was for job work and would not fall within the meaning of a works contract as defined by the 1948 Act. He has further submitted that even if it were assumed that the property in goods utilized for execution of any civil work stood transferred in terms of the contract, the levy of penalty with reference to the entire payment made under the contract would be wholly unjustified. He submits that the levy of penalty was liable to be restricted only to the value of the goods, which in the opinion of the department, stood transferred in the execution of the works contract. Sri Agrawal further contends that no exercise of bifurcation was undertaken by the department nor was any enquiry instituted in order to ascertain the value of the goods, the property in which may be stated to have been transferred in the course of execution of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in the execution of a works contract in terms of section 3F. While determining the net turnover in terms of sub section (2), various deductions are allowed to be made from the total amount received or receivable under the works contract. Sub section (2) insofar as is relevant for our purposes reads as under: "(2) For the purposes of determining the net turnover referred to in subsection (1), the following amounts shall be deducted from the total amount received or receivable by a dealer in respect of a-- (a) xxxxxxxxxxxxx (b) transfer referred to in clause (b) of subsection (1), (i) the amount representing the sales value of the goods covered by Sections 3, 4 and 5 of the Central Sales Tax Act, 1956; (ii) the amount representing the value of the goods exempted under Section 4; (iii) the amount representing the value of the goods, on the sale or purchase whereof tax has been levied or is leviable under this Act at some earlier stage; (iv) the amount representing the value of the goods manufactured in a new unit exempted under Section 4A or Section 4AAA; (v) the amount representing the value of the goods supplied to the contractor by the contractee: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract: Provided that the Assessing Authority may, if satisfied, that it is expedient in the public interest so to do and for reasons to be recorded in writing order that in any case or class of cases no such deduction shall be made or, as the case may be, such deduction shall be made at lesser rate: Provided further that where any deduction has been made by a contractor from the payments made to his subcontractor in accordance with subsection (2), the amount of such payments shall be deducted from the amount on which deduction is to be made under this subsection: Provided also that where the goods referred in this subsection are covered by Sections 3, 4 or 5 of the Central Sales Tax Act, 1956, no amount shall be deducted under this subsection in respect of such goods. (6) If any such person, as is referred to in subsection (1) or subsection (2), fails to make the deduction or, after deducting, fails to deposit the amount so deducted, as required by subsection (3), the Assessing Authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of pillars in and upon which the underground cable was to rest. The payment terms as agreed to between the parties was linked to the work done. In fact clause 13 in specific terms provided that 90% of the payment would be released against bills in support of actual physical work completed. Regard may also be had to the approved rates for laying of cables which formed part of this agreement and classified the rates at which the contractor would obtain payment for the following activities: (a) digging and reinstating trenches; (b) supply of bricks; (c) horizontal boring of road crossing; (d) laying and fixing of GI pipes; (e) construction of cement concrete foundation; and (g) making of joint pits. The tacit admission of the revisionist in respect of the above activities being undertaken and performed by the contractor is further evident from what was submitted before the appellate authority as part of its grounds of appeal. In fact and as would be evident from a reading of the submission made it is evident that the transfer of property in goods in the course of execution of the works contract was admitted. The said ground in appeal was in the following words: - " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the aforesaid authorities, as advised at present, we shall refer to certain authorities as to how the term "works contract" has been understood in the contextual perspective post the constitutional amendment. In Hindustan Shipyard Ltd. (supra), the Court observed that the distinction between a contract of sale and a works contract is not free from difficulty and has been the subject-matter of several judicial decisions. It is further observed that neither any straitjacket formula can be made available nor can such quick-witted tests devised as would be infallible, for it is all a question of determining the intention of the parties by culling out the same on an overall reading of the several terms and conditions of a contract. Thereafter, the two Judge Bench set out three categories of contracts and explained the contours, namely, (i) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; (ii) it may be a contract for work in which the use of the materials is accessory or incidental to the execution of the work; and (iii) it may be a contract for supply of goods where some work is required to be done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of a works contract." 44. On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon DunkerleyI (supra) no longer survives at present. It has been observed in the said case that: (Larsen and Toubro Ltd. Case, SCC p. 750, para 72) "72. ... even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inant intention theory to a works contract which stands forbidden in light of the provisions of Article 366 (29A). Having thus found that the contract in question was a works contract, the Court then proceeds to consider the impact of the provisions of Section 8D. Section 8D (1) imposes an unequivocal obligation upon a person making payment to a contractor engaged in a works contract to deduct tax. The tax which is liable to be deducted is with reference to the liability discharged on account of valuable consideration paid for the transfer of property in goods in pursuance of a works contract. The civil work element undertaken by the contractor would necessarily entail a transfer of property in goods involved in the execution of a works contract. Subsection (6) then provides for the imposition of penalty if a person fails to make deductions before making payment to the contractor. Subsection (6) does not defer the imposition of penalty nor does it make the payment of penalty dependent upon the intent of the person responsible. The payment of penalty is also not contingent upon it being found that there was a design to evade payment of tax or any unlawful intent not to deduct tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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