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TMI Blog2018 (5) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... nverted into steel pipes after undergoing process by the job worker / third parties certainly results in emergence of a new and distinct commodity viz. steel pipes. The original plates does not remain the original plates. It becomes a steel pipes. Thus, in the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and thereafter steel pipes are supplied, it amounts to "sale" within the definition of Section 2(28) of the Act. Merely because in the contract for laying down pipelines, a particular quality and / or thickness of the steel plates were agreed to be used and / or even the steel plates were required to be purchased from the particular manufacturer, it cannot be said that there was a contract for supply / sale of steel plates as contended on behalf of the petitioner. As such there is no contract at all for sale / supply of steel plates by the petitioner contractor and the Board. Tribunal has not committed any error in confirming the order passed by the Revisional Authority and holding that the petitioner company contractor is liable to pay tax under the Act on manufacture an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a distance of 26 kms for a lump sum price of ₹ 76,76,50,000/ payable by the Board to the original petitioner. NC 7 was for laying pipelines between Morbi and Tankara in District Rajkot involving a distance of 34 kms for a lump sum price of ₹ 95,88,55,180/ . NC 12 was for laying pipelines from Tankara to Gauridad in District Rajkot involving a distance of 26 kms for a lump sum price of ₹ 48,11,73,000/ payable by EPIL to the original petitioner under a sub contract. 2.3. According to the original petitioner, the said work orders / contracts were Engineering, Procurement and Commissioning contracts on EPC / Turn key basis. According to the original petitioner, as per the terms of the contracts, the petitioners were required to design and build all works under the contracts as per the prescribed specifications and operate and maintain the projects on completion for a period of two years. According to the petitioner, the scope of the works included designing, engineering, procuring, constructing, completing, commissioning operating and maintaining the whole of the said works for two years from the date of commissioning. According to the petitioner, amongst o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.6. That according to the petitioner, the petitioner filed at regular intervals of time, sales tax returns with the jurisdictional Sales Tax Officer along with the details of R.A. Bills raised on the Board and EPIL for the contracts executed by it. The petitioner claimed exemption from payment of sales tax in respect of resale of steel plates used in the execution of the works as was admissible under Entries Nos. 119 and 255(4) of the Notifications issued under Section 49(2) of the Act. The petitioner was thereafter assessed by the jurisdictional Sales Tax Officers, Morbi wherein it was accepted that the petitioner had resold steel plates purchased by it from Essar Steel Limited and therefore, in the Assessment Orders, both dated 19.07.2005, no sales tax was imposed in respect of such resale of goods. 2.7. It appears that thereafter and after the assessment orders were so passed by the jurisdictional Sales Tax Officer, Morbi, it was noticed by the Corporate Cell working in the Commissioner's office that an irregularity was committed in the assessment orders by allowing resale deductions to the petitioner, the Commissioner of Sales Tax, therefore, transferred the revision pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47(4A) 2,60,76,629/ 27,58,140/ Total 10,33,40,714/ 1,24,71,136/ Paid dues as per Original A.O 8,94,127 3,87,297/ Outstanding 10,24,46,587/ 1,20,83,839/ 2.9. Feeling aggrieved and dissatisfied with the aforesaid order dated 31.03.2006 and demanding of tax, interest and penalty, the petitioner preferred revision applications under Section 67 of the Act before the learned Tribunal. By the impugned judgment and order dated 4.10.2006, the learned Tribunal dismissed the said revision application and confirmed the orders passed by the Deputy Commissioner dated 31.3.2006. 2.10. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal dated 4.10.2006 passed in Revision Application Nos. 35 36 of 2006 confirming the demand raised by the Deputy Commissioner in the orders dated 31.12.2005/31.3.2006, the original petitioner M/s. Essar Construction Limited had preferred the present Special Civil Application. That in view of the change i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions laid out in the contract (clause 8.5, 8.5.1.1, 8.5.2.1, 8.5.2.3, 8.5.3, 8.5.4, 8.7.1 and 8.10.2.4) and the payment for such pipes was made directly to the plate suppliers and job manufacturers by Board. 4.3. It is further submitted by Shri Soparkar, learned counsel for the petitioner that the assessment orders clearly indicate that the Assessing Officer had accepted that the purchase of steel plates is from a registered dealer and therefore, there is no question of there being any manufacture . It is submitted that as per Section 2(28) of the Sales Tax Act, the sale occurs when there is transfer of property of goods involved in execution of works contract. It is submitted that as per the settled law, in a works contract property in goods passes when property is incorporated in the contract. In support of his above submission, he has relied upon the decision of the Hon'ble Supreme Court in the case of Builders Association of India vs. Union of India reported in (1989) 2 SCC 645 as well as in the case of M/s. Gannon Dunkererley and co vs. State of Rajasthan reported in (1993) 1 SCC 364. 4.4. It is further submitted by Shri Soparkar, learned counsel for the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(5), penalty can only be levied in case of assessment under Section 41 of 50 or reassessment under Section 44, because the requirement is that the assessment or reassessment should indicate a higher amount of tax payable by assessee than what has been paid pursuant to self assessment under Section 47. It is submitted that revision under Section 67 of the Act provides for reopening the assessment order of the Assessing Authority after the authority has accepted the self assessment under Section 47. It is submitted that the attempt under Section 67 of the Act is to find, if any, error as been made by the assessing authority and not by the assessee. It is submitted that therefore, the same does not provide for penalty in case of revision under Section 67 of the Act. It is submitted that therefore, the Commissioner had no jurisdiction to levy penalty in revision proceedings under Section 67 of the Act. 4.7. In the alternatively and without prejudice to the above submission, it is submitted by Shri Soparkar, learned counsel for the petitioner that imposition of penalty necessarily involves question of mens rea. It is submitted that the penalty cannot be imposed on a party when there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under Section 45(6) of the Act is not warranted. 4.10. Shri Soparkar, learned counsel for the petitioner has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Sree Krishna Electricals vs. State of Tamil Nadu reported in (2009) 11 SCC 687; decision of the Division Bench of this Court in the case of Hemchandbhai Co. vs. The State of Gujarat reported in (1982) 50 STC 274 (Guj) as well as decision of the Division Bench of this Court in the case of Banu Hasim vs. State of Gujarat rendered in Tax Appeal No.1842 of 2010 as well as observations made by the Division Bench of this Court in the case of State of Gujarat vs. Esdee Paints Ltd rendered in Civil Application (OJ) No. 224 of 2015. In support of above submission that in the facts and circumstances of the case narrated herein above and in absence of any mens rea on the part of the original petitioner, the penalty is not warranted. Making above submissions and relying upon the above decisions, it is requested allow the present petition and quash and set aside the impugned orders passed by the Deputy Commissioner dated 31.3.2006 and the impugned judgment and order passed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat Sales Tax Act. 5.5. It is further submitted by Ms. Manisha Lavkumar, learned Government Pleader that in fact what was supplied was the steel pipes and were not steel plates as contended on behalf of the petitioner. It is submitted that supply of steel pipes cannot be said to be resale within the definition of Section 2(26) of the Act as contended on behalf of the petitioner. It is submitted that in the present case the petitioner in fact purchased the steel plates and they manufactured the steel pipes out of the aforesaid steel plates and thereafter, it is used in process of work contract. It is further submitted that even by raising invoices, the petitioner charged separate price for steel pipes. It is submitted that petitioner purchased the steel plates from the Essar Steel and thereafter the petitioner converted and manufactured the steel plates into steel pipes on job works and for which the petitioner made separate demand. It is further submitted that in fact what is provided in the contract was the specification of steel plates and it cannot be said to be a contract for supply of steel plates. It is further submitted that even the mode of payment to Essar Steel Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance with the provisions of the Act and therefore, the same does not require any interference of this Court. Making above submissions and relying upon the above decisions, it is requested to dismiss the present petition. 6.0. Heard the learned counsel for the respective parties at length. From the facts narrated herein above and the material on record, it appears that the petitioner herein was awarded three EPC contracts wherein the petitioner was required to design, engineer, procure, construct, complete, commission and operate the whole system of pipeline. The works contracts were obtained as such in the name of M/s. Essar Projects India Limited but they were subsequently transferred to petitioner by M/s. Essar Projects Limited. In the above contract, the petitioner contractor was required to lay pipelines between Morbi and Maliya in Rajkot District covering a distance of 26 kms. The second part of the contract was to cover an area between Morbi and Tankara in Rajkot District covering a distance of 36 kms. The third one was for laying pipeline from Tankara to Gauriadad in Rajkot District covering a distance of 26 kms. The payment in respect of the first two contracts were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e execution of works contract . Therefore, it is the case on behalf of the petitioner that it can be said to be case of resale and therefore, as the steel plates are used in execution of the work contracts and therefore, they are sold and hence, the claim of resale deduction is admissible to the petitioner. 6.1. However, it is the case on behalf of the State authority that as such there was no contract between the petitioner contractor and the Board for supply of steel plates. It is the case on behalf of the respondent State that after the petitioner contractor purchased steel plates they themselves have manufactured altogether a new item / goods steel pipes by the help of third parties and by getting the same done through job work for which the payment is made by them. Therefore, it is the case on behalf of the State authority that the said transaction can be said to be sale within the definition of Section 2(28) of the Act and therefore, the petitioner is liable to pay tax on the same. It is the case on behalf of the State authority that merely because steel pipes were required to be used of a particular brand/ company and / or specification mentioned in the works contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new taxable event, in the Sales Tax law, it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of sale tax is also concerned with goods of various descriptions. It, therefore, becomes necessary to determine when they cease to be goods of one taxable description and become those of a commercially different category and description. 7.2. In the case of Arihant Tiles and Marbles Private Limited (supra) in para 20, the Hon'ble Supreme Court has observed and held as under: Applying the above tests laid down by this Court in Budharaja s case (supra) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the works contract, it has been specifically provided that the steel pipes were required to be purchased from the particular manufacturer and that thickness of the steel plates to be used for the manufacturer of pipes was also agreed upon between the parties and even the pipes required to be installed were of a particular diameter and that even the payment was made to M/s. Essar Steel Limited directly by the Board is concerned, the aforesaid is neither here nor there. Merely because in the contract for laying down pipelines, a particular quality and / or thickness of the steel plates were agreed to be used and / or even the steel plates were required to be purchased from the particular manufacturer, it cannot be said that there was a contract for supply / sale of steel plates as contended on behalf of the petitioner. As such there is no contract at all for sale / supply of steel plates by the petitioner contractor and the Board. Even the submission on behalf of the petitioner that the payment of steel plates were directly made by the Board to the Essar Steel Limited and therefore, it can be said that there was a contract for sale of steel plates is concerned, the aforesaid has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for supply and laying of pipeline and not for supply steel plates, as rightly observed by the learned Tribunal. As the contracts were for huge amount and money was given from the public exchequer, in order to maintain quality certain conditions were required to be made including providing specification of steel plates to be used in supply / laying down of steel pipes. The steel plates were required to be used for preparing and producing pipes. Therefore, it was necessary to state in the contract as to the quality of steel plates to be used in the performance of the work contract and the companies from which steel plates were required to be purchased. Thus, the quality of goods were required for ensuring that there should be quality work for quality payment. Merely insisting for quality work with specification, it cannot be said that there was any contract for supply / sale of steel plates. Considering the aforesaid facts and circumstances of the case, we are of the opinion that as such learned Tribunal has not committed any error in confirming the order passed by the Revisional Authority and holding that the petitioner company contractor is liable to pay tax under the Act on man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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