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TMI Blog2020 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods when being incorporated were transferred in some other form and hence ingredients lose their identity, cannot be accepted, as there is a deemed sale of the ingredients of 'hot mix material' and the loss of identity of goods does not prevent them from being goods for the purpose of deemed sale. The State of Haryana has not prescribed any uniform rate for material used in the works contract. Cement, bitumen, rori etc. which are to be deemed to be sold cannot be taxed at general rate by resorting to residuary clause, these are to be taxed as per the rates prescribed. The residuary clause will come into play only in case the goods are not covered under any of the Schedule to the Act. Even otherwise it would restrict the full play to be given to the deeming fiction of sale of goods involved in works contract. There is another angle to view the contention of the State, if the argument is taken to the logical conclusion and it is held that transfer in works contract is not of the ingredients of hot mix material but of the new product, in that eventuality the restrictions of Article 286 of the Constitution of India and Sections 14 and 15 of the Central Sales Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) Any law of a State shall, insofar as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter- State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law specify. Sections 2 (ze) and 7(1) of the Act 2. Definitions xx xx xx (ze) sale means any transfer of property in goods for cash or deferred payment or other valuable consideration except a mortgage or hypothecation of or a charge or pledge on goods; and includes- (i) the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) the delivery of goods on hire-purchase or any system of payment by in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom tax; (b) the purchase goods, shall be calculated at four per cent or such lower rate applicable on sale of such goods had it been a sale falling under clause (a); PROVIDED that the State Government may, by notification in the Official Gazette, direct that the tax shall be calculated at a lower rate. Facts in brief are that the appellant is engaged in construction of roads and bridges and is a work contractor. Assessment for the assessment year 2013-14 was finalised by the Assessing Authority vide order dated 23.7.2014. The assessment order was taken up in suo motu revision and 'hot mix material' was taxed under the residuary clause at a general rate. The appeal filed before the Tribunal was dismissed on 26.5.2015. The review filed was rejected vide order dated 23.10.2017, hence the present appeal. After the 46th amendment of the Constitution of India and consequent change in definition of 'sale' definition under various taxation Acts, the position is that there is a deemed sale of the material transferred in the works contract. The definition of 'sale' was widened after insertion of Clause (29-A) to Article 366 of the Constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded a tax on the amount paid for the execution of a works contract. It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29-A) of Article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says that 'such' transfer, delivery or supply of any goods' shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Hence, a transfer of property in goods' under sub clause (b) of clause (29-A) is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made. The object of the new definition introduced in clause (29-A) of Article 366 of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer, supply or delivery of goods which are deemed to be sales under clause (29-A) of Article 366 of the Constitution. If any declared goods which are referred to in Section 14 of the Central Sales Tax Act, 1956 are involved in such transfer, supply or delivery, which is referred to in clause (29-A) of Article 366 the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the Central Sales Tax Act, 1956. Clause (b) is an additional provision which empowers Parliament to impose any additional restrictions or conditions in regard to the levy of sales tax on transactions which will be deemed to be sales under sub-clause (b) or subclause (e) or sub-clause (d) of clause (29-A) of Article 366 of the Constitution. We do not find much substance in the contention urged on behalf of the States that since sub-clause (b) of clause (3) of Article 286 of the Constitution refers only to the transactions referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366, the transactions referred to under those three sub-clauses would not be subjected to any other restrictions set out in clause (1) or cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List. [Emphasis supplied] In Gannon Dunkerley Co. v. State of Rajasthan, (1993) 88 STC 204, the Supreme Court held as under: 34. If the legal fiction introduced by article 366 (29-A)(b) is carried to its logical end it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for suply of labour and services. xx xx xx 48. A question has been raised whether it is permissible for the State Legislature to levy tax on deemed sales falling within the ambit of Article 366 (29-A)(b) by prescribing a uniform rate of tax for all goods involved in the execution of a works contract even though different rates of tax are prescribed for sale of such goods. xx xx xx In our opinion, therefore, it would be permissible for the State Legislature to tax all the goods involved in the execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir significance where transactions are of the nature contemplated in Article 366 (29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative. (vii) A transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the 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. (viii) Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A)(b) there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of identity of goods does not prevent them from being goods for the purpose of deemed sale. The State of Haryana has not prescribed any uniform rate for material used in the works contract. Cement, bitumen, rori etc. which are to be deemed to be sold cannot be taxed at general rate by resorting to residuary clause, these are to be taxed as per the rates prescribed. The residuary clause will come into play only in case the goods are not covered under any of the Schedule to the Act. Even otherwise it would restrict the full play to be given to the deeming fiction of sale of goods involved in works contract. There is another angle to view the contention of the State, if the argument is taken to the logical conclusion and it is held that transfer in works contract is not of the ingredients of hot mix material but of the new product, in that eventuality the restrictions of Article 286 of the Constitution of India and Sections 14 and 15 of the Central Sales Tax Act, 1956 would not apply for taxing the deemed sale. Such an eventuality would be against the law laid down by the Apex Court that restrictions of Article 286 of the Constitution of India will apply and that 46th amendment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of a works contract become exigible to tax. Exigibiliy to tax, it is settled law, is distinct from the rate of tax and the measure of the tax. In Gannon Dunkerly Co, this court expressed the view that it is open to the states to provide a uniform rate of tax on goods transferred in the course of the execution of a works contract. 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. For declared goods, Section 4(1)(c) is expressly subject to Sections 14 and 15 of the CST Act 1956. Hence declared goods involved ..... X X X X Extracts X X X X X X X X Extracts X X X X
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