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TMI Blog2018 (3) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... specific would be to invert the intent of the legislature. The state wants us to do just that. In Gannon Dunkerly & Co [1992 (11) TMI 254 - SUPREME COURT OF INDIA], this Court held that it is permissible for the State legislatures to prescribe a uniform rate of tax for all goods involved in the execution of works contracts, even though different rates of tax are prescribed for the sale of such goods. The exigibility to tax is not (as it cannot be) dependent on the state prescribing a uniform rate of tax for goods involved in works contracts. That the KVAT Act 2003 did not provide a uniform rate of tax prior to 01.04.2006 on goods involved in the execution of works contract also becomes apparent when we read the amendment which introduced Section 4(1)(c) by Act 4 of 2006. As a result of the amendment, the legislature provided that the rate of tax in respect of the transfer of property in goods involved in the execution of a works contract would be as provided in the Sixth Schedule. The Sixth Schedule elucidates works contracts of various descriptions and elucidates the associated rates of tax for each distinct category. By way of abundant caution, that issues of a factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the KVAT Act. The AAR held by its order dated 2 August 2006 that since there was no specific entry providing for the rate of tax on works contracts up to 31 March 2006, tax on goods used in the execution of works contract should be levied in accordance with the rate of tax applicable to the sale of goods under the KVAT Act 2003. The relevant part of the order is extracted below: correctly understood that there is no specific entry providing rate of tax on works contract under KVAT Act, up to 31-3-2006 and therefore, tax should be levied as per the rate applicable on the value of each class of goods involved in the execution of works contract. Therefore, as regards the rate of tax on the deemed sales of goods involved in the execution of works contract, it is to be clarified that tax is payable at the rate applicable to the Sale of Goods Act upto 31.03.2006. And by KVAT (Amendment) Act, 2006, Clause (c ) has been got inserted to section 4(1) w.e.f. 1.4.2006, for levy of tax in respect of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, and appending VI Schedule to the Act, listing out the items/descriptions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its judgment dated 28 September 2012, the High Court allowed the appeal and while setting aside the order in revision held as follows: The sale under the works contract is a deemed sale of transfer of the goods alone and it is not different from the normal sale. Hence, the tax has to be levied on the price of the goods and material used in the works contract as if there was a sale of goods and materials. The property in the goods used in the works contract will be deemed to have been passed over to the buyer as soon as the goods or material used are incorporated to the moveable property by principle of accretion to the moveable property. Hence, we are of the view that the order passed by the Commissioner is contrary to law. For the period prior to 1-4-2006, tax has to be levied as per Section 3(1) of the Act and for the period subsequent to 1-4-2006, tax has to be levied as per Section 4(1)(c ) of the Act. Hence, the substantial questions of law are held in favour of the appellant. 6 The submission which has been urged on behalf of the State is that although Section 4(1)(c) was introduced with effect from 1 April 2006, all other provisions in relation to works contracts e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of taxation to a period anterior to the taxable event would render the entire scheme of taxation under the KVAT Act otiose; and (viii) It is well settled that there is a presumption against redundancy of a statutory provision [Balabhagas Hulaschand v State of Orissa, (1976) 2 SCC 44]. Furthermore, the suggestion that individual goods are to be taxed separately in a works contract amounts to re-writing the statute, which is against the settled cannon of interpretation that in a taxing statute nothing can be read in. [Bansal Wire Industries Ltd. V State of Uttar Pradesh, (2011) 6 SCC 545]. 7 On the other hand, Mr SK Bagaria, learned senior counsel appearing on behalf of the respondent supports the reasoning of the High Court on the following grounds: (i) In the judgment of the Court in Gannon Dunkerly Co v State of Rajasthan (1993) 1 SCC 364 , it was held that the State legislatures may tax the goods involved in execution of a works contract at a uniform rate, which is different from the rates applicable to individual goods; (ii) The KVAT Act was enacted in 2003 and its charging section (Section 3) came into force on 1 May 2005. Though in Gannon Dunkerly Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression other goods in Section 4(1)(b) is concerned, it only meant and covered the goods other than those covered by Section 4(1)(a). The goods mentioned in the Second, Third or Fourth Schedules (in this case particularly iron and steel covered by Serial No.20 of Third Schedule) were specifically covered by the said Schedules and there could be no scope to consign these specific goods covered by the said Schedules to the residual entry Other goods in Section 4(1)(b). This position of law is well settled by the judgments of this Court in Dunlop India Ltd. v Union of India (1976) 2 SCC 241 and Bharat Forge and Press Industries Pvt. Ltd. v CCE (1990)1 SCC 532 . (vi) In Gannon Dunkerley s case (supra) this Court held that it is permissible for the State Legislatures to tax all goods involved in execution of a works contract at a uniform rate. In spite of this, the KVAT Act which came into force on 01.05.2005 did not provide for a uniform rate. The provision for uniform rate in respect of goods supplied in execution of works contracts was inserted only w.e.f.01.04.2006 and consequently it is only for the period from 01.04.2006 that a uniform rate under the newl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charging provision and provides as follows: 3. Levy of tax. - (1) The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act. (2) The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business, by a person who is not registered under this Act. The charge of tax is on the sale of goods. The statutory meaning of the expression sale is contained in Section 3(29), in the following terms: (29) Sale with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes,- (a) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (b) a transfer of property in goods (whether as goods or in some other form) involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver is defined in Section 2(34) which reads thus : (34) Taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India and the value of goods transferred or despatched outside the State otherwise than by way of sale. Taxable turnover comprises of the turnover on which a dealer shall be liable to pay tax. Taxable turnover is arrived at by making deductions from the total turnover in such a manner as may be prescribed by the rules made under the Act. The definition of taxable turnover is linked to the definition of total turnover because it is from the total turnover that the prescribed deductions are made. Section 2(35) defines total turnover : (35) Total turnover means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued. Hence, in the case of a works contract, the sale of goods takes place at the time of the incorporation of the goods in the course of its execution. 11 The rules framed under the KVAT Act 2003 the KVAT Rules 2005 provide for the determination of total turnover. In the case of a normal sale, the total turnover is provided for in Rule 3(1)(b). The total turnover in the case of a works contact is defined in Rule 3(1)(c). Rule 3(1), insofar as is material, provided as follows: PART II TURNOVER REGISTRATION AND PAYMENT OF SECURITY Determination of total and taxable turnover (1) The total turnover of a dealer, for the purposes of the Act, shall be the aggregate of- (a) the total amount paid or payable by the dealer as the consideration for the purchase of any of the goods in respect of which tax is leviable under sub-section (2) of section 3; (b) the total amount paid or payable to the dealer as the consideration for the sale, supply or distribution of any goods where such sale, supply or distribution has taken place inside the State, whether by the dealer himself or through his agent; (c) the total amount paid or payable to the dealer as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to pay tax under Section 4 is on the taxable turnover. 13 The dispute in the present case relates to 2005-06. The case relates to the position of law in the State of Karnataka, as it stood until 31 March 2006. There can be no manner of doubt that even prior to 1 April 2006 works contracts were exigible to the levy of tax. The charging section, Section 3, mandates that the tax shall be levied on every sale of goods . The expression sale in Section 2(29) means every transfer of the property in goods including a transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract . Similarly, the definition of the expression goods in Section 2(15) contains a clear reference to all kinds of movable property and all materials, commodities and articles (including goods, as goods or in some other form) involved in the execution of works contracts. The chargeability of goods involved in the execution of works contracts both before and after 01.04.2006 is a matter which lies beyond any element of doubt. Such provisions in the state laws including the State of Karnataka followed upon the 46th Amendment to the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of a works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and a uniform rate may be prescribed for sale of such goods . The rationale underlying this principle is that goods involved in the execution of a works contract can be classified into a separate category, so as to provide for a uniform rate of tax. The real issue before this Court is as to whether prior to 1 April 2006, the State legislature of Karnataka had in fact done so. The answer to this is in the negative, on a plain and natural meaning of the words used. 16 The core of the submissions which have been ably projected before the Court by Mr Devadatt Kamat is that the State legislature had in fact prescribed a uniform rate for works contracts, prior to 1.4.2006 in Section 4(1)(b) under which a rate of 12.5% was provided. In his submission, declared goods would be assessed separately; while the bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while all other goods involved in the execution of a works contract are taxable at the rate prescribed in the Sixth Schedule upon the amendment. The amendment introducing Section 4(1)(c) took effect on 1 April 2006. The amendment is not clarificatory. It was with effect from 1 April 2006 that the State legislature mandated a uniform rate of tax on goods involved in the execution of works contracts as provided in the Sixth Schedule. The position as it existed upto 31 March 2006 was altered with effect from 1 April 2006. We are, therefore, unable to accept the submission of the State that upto 31 March 2006. Section 4(1)(b) envisaged a uniform rate for the transfer of goods involved in the execution of a works contract. Section 4 imposes the liability to pay tax on every dealer who is or is required to be registered, on his taxable turnover. The concept of taxable turnover in Section 2(34) is defined with reference to the turnover on which a dealer is liable to be taxed, determined after making deductions from the total turnover as prescribed. The concept of taxable turnover thus incorporates the expressions turnover and total turnover , both of which are defined in Sections 2(36) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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