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TMI Blog2017 (8) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... labour and services - This Court in Larsen and Toubro Limited and Another v. State of Karnataka and Another [2013 (9) TMI 853 - SUPREME COURT] clarified that post amendment, i.e. with effect from March 01, 1983, these tests are no longer applicable. By virtue of the Forty Sixth Amendment to the Constitution, a single and indivisible contract is now brought on par with a contract containing two separate agreements. It has also now become a settled position in law that the State Governments have power to levy sales tax on value of material in execution of the works contract. This position is brought about by creating friction whereby the transfer of moveable property in a works contract is deemed to be sale, even though it may not be well within the meaning of Sale of Goods Act. In the present case, the assessing authority, after scrutinising the agreement in question between the assessee and the State Government, returned a finding of fact that manufacture and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. do not fall within the scopes of buildings, bridges, dams, roads and canals. It was also held that the agreement was clearly in two parts, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of valve chamber, anchor blocks table crossing, including testing and commissioning of pipelines. On August 23, 1988, a work order was issued by PHED in favour of the assessee and the assessee, under the contracts/agreement dated January 11, 1989, agreed to provide PSC pipes manufactured by it and had entered into the contracts with PHED for providing and laying of pipelines. 5) On June 28, 1989, a notification inserting Rule 10B in the Rajasthan Sales Tax Rules, 1955 granting exemption to Works contract came to be issued with retrospective effect from May 28, 1987. Another work order was placed by the respondent in favour of the assessee on July 10, 1989. Pursuant to this, another notification dated March 04, 1992 came to be issued by the respondent wherein it exempted tax on Works contract relating to dams and canals. The respondent issued another work order dated August 10, 1992 in favour of the assessee for commission of pipeline in a dam. Meanwhile, the assessee filed an application dated September 17, 1992 before the Commercial Tax Officer seeking exemption from paying tax. However, the same was rejected by the Commercial Tax Officer vide his order dated Septem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c.; (iv) lay the pipes with welding, jointing, etc. and fill up the trenches; and (v) sectional testing and commissioning of complete pipeline and other ancillary works. In support, he also referred to certain clauses of the work order which, according to him, amply demonstrate that the assessee was supposed to undertake civil work extensively. In addition, relying upon Rule 10B of the 1955 Rules, Mr. Datar contended that the assessee was entitled to characterisation of its contract under the said Rule and once this exercise is undertaken, it would be apparent that the contract in question was works contract, which was indivisible in nature. 10) Mr. Tushar Mehta, learned Additional Solicitor General appearing for the respondents, countered the aforesaid submissions and maintained that the works contract involved in this case is rightly held to be divisible in nature. According to him, two types of work orders had been issued by the State Government. As per those orders, the work of supply of pipes and the works for contract of civil work are two different contracts in which the first part is concerned with sale of pipes on which tax has been imposed in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In other words, the submission was that being a single indivisible contract, it was not permissible for the State to extract divisibility component therein and impose sales tax on the purported sale of goods. 15) In the first instance, it may be mentioned that the High Court has examined the nature of contract in question and has come to the conclusion that as per the terms and conditions thereof, substantial part of the value of the contract pertained to the cost of PSC pipes, joining material specials, valves, etc. which were manufactured by the assessee in its factory at Kekri and were not supplied to the State Government. The High Court, thus, affirmed the findings of the authorities below on this aspect and concluded that the findings with regard to sale of pipes involved in the works contract are findings of facts which did not require any interference. 16) We are inclined to agree with the aforesaid approach of the High Court, namely, when it is found on facts that the works contract executed by the assessee is a divisible contract, the argument of the assessee that it is to be treated as one single and composite contract needs to be rejected on the facts of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner: 37. Having dealt 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., 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proposition, umbrage under the judgment in B.C. Kame case was sought to be taken wherein this Court held that the work involving taking a photograph, developing the negative or doing other photographic work could not be treated as contract for sale of goods. Our attention was drawn to that portion of the judgment where the Court held that such a contract is for use of skill and labour by the photographer to bring about desired results inasmuch as a good photograph reveals not only the aesthetic sense and artistic faculty of the photographer, it also reflects his skill and labour. 23. Such an argument also has to be rejected for more than one reasons. In the first instance, it needs to be pointed out that the judgment in Kame case was rendered before the Forty-sixth Constitutional Amendment. Keeping this in mind, the second aspect which needs to be noted is that the dispute therein was whether there is a contract of sale of goods or a contract for service. This matter was examined in the light of law prevailing at that time, as declared in Dunkerley case as per which dominant intention of the contract was to be seen and further that such a contract was treated as not divisible. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubro case that after insertion of clause (29-A) in Article 366, the works contract which was indivisible one by legal fiction, altered into a contract, which is permitted to be bifurcated into two: one for sale of goods and the other for services , thereby making goods component of the contract exigible to sales tax. Further, 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. It may be noted that Entry 54 of List II of Schedule VII to the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter of the State List, the State Legislature has the competency to legislate over the subject. 20) It clearly follows from the above that by virtue of the Forty Sixth Amendment to the Constitution, a single and indivisible contract is now brought on par with a contract containing two separate agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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