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TMI Blog2019 (11) TMI 1594X X X X Extracts X X X X X X X X Extracts X X X X ..... is without authority of law and must be set aside - Appeal allowed - decided in favor of appellant. - Service Tax Appeal No: 88296 of 2014 - FINAL ORDER NO: A/87503/2019 - Dated:- 29-11-2019 - HON BLE MR C J MATHEW, MEMBER (TECHNICAL) AND HON BLE MR AJAY SHARMA, MEMBER (JUDICIAL) Shri Vipin Kumar Jain with Shri Ramnath Prabhu, Advocates for the appellant Shri KM Mondal, Special Counsel for the respondent ORDER PER: C J MATHEW It is not unusual that an order impugned before us may, owing to the elapse of time since filing of appeal, involve arguments from the appellant and Revenue that are on different planes; often enough, judicial enlightenment in the interregnum places the respondent in a situation of having to defend, in the changed circumstances, findings of the lower authorities in the absence of legal support relied upon therein. The present proceedings, in our view, is one such that requires us to delve, at length, into the impugned order. 2. The appellant herein, M/s APM Terminals India Pvt Ltd, carries on various business activities of which we are concerned with maintenance, management or repair services undertaken by their Equipment, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstance, even in the context of non-levy of tax on sale owing exclusion of export, does not detract from the constitutional constraint of taxing the consideration thereof. A further submission was that notification no. 12/2003-ST dated 20th June 2003, providing for abatement of materials supplied along with services subject to specified conditions, had been complied with to render the proceedings untenable. 5. From a perusal of the impugned order, we gather that the adjudicating authority has not clearly appreciated the substantive difference between the claim of having undertaken works contract and the finding that the impugned activity was not covered by the definition of works contract service taxable under section 65(105)(zzzza) of Finance Act, 1994. From that negation to the conforming of the activity, both by having discharged liability on a portion of the consideration and by testing against the definition in section 65 (64) of Finance Act, 1994, was but, in the view of the adjudicating authority, the next logical step. And on the invoking of section 67 of Finance Act, 1994 for adding the material cost to the gross amount charged by the service provider for the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation that 3. The Law Commission of India in its 61st Report elaborately examined the law laid down in Gannon Dunkerley s case and suggested that the relevant entry contained in the 7th Schedule to List II to the Constitution of India - Entry 54 - could either be amended; or a fresh entry in the State List could be added; or Article 366 which is a definition clause could be amended so as to widen the definition of sale , and include therein indivisible composite works contracts. Having regard to the said recommendation of the Law Commission, the Constitution (46th Amendment) Act was passed in 1983 by which Parliament accepted the 3rd alternative of the Law Commission, and amended Article 366 by adding sub-clause (29A). We are concerned with sub-clause (b) of Article 366(29A) which reads as follows :- 366 (29A) tax on the sale or purchase of goods includes - (b) 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; and 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by Article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders Association case [(1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 2 SCR 320] it has been pointed out that in Article 366(29-A)(b), [t]he emphasis is on the transfer of property in goods (whether as goods or in some other form) . (SCC p. 669, para 32: SCR p. 347). This indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular case on the basis of the material produced by the contractor. Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contract and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would, in our view, be permissible for the State legislation to prescribe a formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of property in goods in such contract. This being the case, we feel that the learned counsel for the assessees are on firm ground when they state that the service tax charging section itself must lay down with specificity that the levy of service tax can only be on works contracts, and the measure of tax can only be on that portion of works contracts which contain a service element which is to be derived from the gross amount charged for the works contract less the value of property in goods transferred in the execution of the works contract. This not having been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts. before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379]. Seen thus, 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. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term works contract . Nothing in Article 366(29-A)(b) limits the term works contract to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term works contract cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some works . We are also in agreement with the submission of Mr. K.N. Bhat that the term works contract in Article 366(29-A)(b) takes with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell s case. it emerges that works contracts extends beyond the limited scheme of taxation of such contracts by Finance Act, 1994 and, while service tax authorities are empowered to levy tax on the service component of the few that are enumerated in section 65 (105)(zzzza) of Finance Act, 1994, the exclusion of others of similar ilk, comprising transfer of goods along with the rendering of service, cannot be intruded into beyond the finding of the Hon ble Supreme Court that 16. At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State, the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. (at paras 88 and 89) 17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows: - To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 13. We also cannot fail to take note that, in similar circumstances, a coordinate bench of this Tribunal in Marine Corporation of India v. Commissioner of Customs, Central Excise Service Tax, Visakhapatnam-I [final order no. A/30171/2019 dated 30th January 2019] took the view that 7. We have considered arguments on both sides and perused the records. It is not in dispute that the services rendered by them were in the nature of maintenance and repair services and these services also included transfer of materials. Invoices produced by the learned counsel for the appellant also shows that they had paid VAT on the goods used and paid service tax on the service charges only. This also makes it evident that the nature of contracts is composite contract, which, as per the judgment of the Hon ble Apex Court in the case of L T Ltd (supra), became chargeable to service tax only from 01.06.2007. We also find force in the argument of the appellant that after 01.06.2007, the definition of works contract did not encompass all services and specifically it did not include maintenance and repair services. Therefore, no service tax was chargeable from the appellant at all. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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