STATE OF JHARKHAND AND ORS. versus VOLTAS LTD., EAST SINGHBHUM

Leave granted.

p. 277, margin G

This appeal by special leave has been filed against the impugned judgment & order 22.6.2006 of the Jharkhand High Court in Writ Petitions Nos. 482, 467, 493 and 466 of2005.

p. 277, margin G

Heard learned counsel for parties and perused the record.

p. 278

The respondent, a company registered under the Indian Companies Act, 1913 is engaged inter alia in the execution of works contracts of designing, supplying, installation, fabrication, testing and commissioning of airconditioning plants. The assessing authority acknowledged that the contracts in question were works contracts and the material supplied in the execution of the works contracts only are liable to be taxed. However, the Sales Tax Authorities had sought to levy a uniform rate of tax @ 16% holding that in the instant case the incidence of tax is commensurate with actual transfer of property that takes place in the execution of works contract.

p. 278

Although the respondent had deposited with the appellant the entire amount of the sales tax charged and demanded @ 16%, it passed on to its customers sales tax restricted to the rate of 8% because in terms of the Circular letter No. 3971dated18.5.1984 issued by the Government of Bihar, Finance (Commercial Tax) Department (Annexure P-4 of the affidavit on behalf of the respondent with additional documents), the appellant was entitled to charge sales tax only @ 8%.

p. 278, margin C

In State of Madras v. Gannon Dunkerley & Co. (Madras), [1959] SCR 379, this Court held that the State legislature cannot impose sales tax on a works contract because a works contract is an indivisible contract whereas sales tax can only be imposed on a sale. The Court held that a works contract is not a sale.

p. 278, margin D

Parliament, thereafter amended the Constitution of India by the Constitution (Forty Sixth) Amendment Act, 1982 introducing clause 29A (b) in Article 366 therein. The aforesaid clause 29-A states that the words F . on the sale or purchase of goods" include inter alia "(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".

p. 278, margin E

In Gannon Dunkerley and Co. & Ors. v. State of Rajasthan & Ors., G [ 1993] I sec 364, this Court specified the principles as to what could be taxed in a works contract. In paragraph 4 7 of the judgment it has been observed that the value of the goods involved in the execution of a works contract will have to be determined after taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover (a) Labour charges for execution of the works; (b) Amount paid to a sub-contractor for labour and services; (c) Charges for planning, designing and architect's fees; (d) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) Cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) Other similar expenses relatable to supply of labour and services; (h) Profit earned by the contractor to the extent it is relatable to supply of labour and services''. The value of these items, therefore, have to be deducted from the value of the entire works contract, because what can be taxed is only on the sale of goods and not anything else. The State legislature under Entry 54 of List JI of the Seventh Schedule can tax only on the sale or purchase of goods. If an item does not come within List JI or List III of the Seventh Schedule to the Constitution, then it can only be the Central legislature i.e. the Parliament which can levy tax either under List I or under the residual provision contained in Article 248 thereof.

pp. 278–279, margin E

Section 21 of the Bihar Sales Tax Act, as amended states: "Sec. 21. - Taxable Turnover (I) For the purpose of this part the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom - (a)(i) in case of the works contract the amount of labour and any other charges in the manner and to the extent prescribed''. Rule 13A of the Bihar Sales Tax Rules which was also amended by a notification dated 1st February, 2000 read as follows: "Rule 13A. Deduction in case of works contract on account of labour charges.-[if the dealer fails to produce any account or the accounts produced are unreliable] deduction under sub-clause (i) of clause (a) of sub-section (I) of section 21 on account of charges in the case of works contract from gross turnover shall equal to the following percentages."

pp. 279–280, margin E

The aforesaid provisions have been adopted by the State Jharkhand vide notification dated 15.12.2000 and thus are applicable State of Jharkhand.

p. 280, margin A

Interpretation of the amended Section 21(1) and the newly substituted Rule 13A fell for consideration of a Division Bench of the High Court in the case of Larsen & Toubro Ltd. v. State of Bihar, 134 3 54. The Patna High Court in the said decision observed as under: "Rule 13A unfortunately does not talk of "any other charges". Rule 13A unfortunately does not take into consideration that the Rules the deduction in relation to any other charges in the manner and to the extent were also to be prescribed. Rule 13A cannot to be an absolute follow-up legislation to sub-clause (i) of clause of section 21 (I). When the law provides that something is prescribed in the Rules then that thing must prescribed Rules to make the provisions workable and constitutionally vaHd. the matter of Gannon Dunkerley & Co. (1993) 88 STC 204 the Supreme Court observed that as sub-section (3) of section 5 and sub-rule of rule 29 of the Rajasthan Sales Tax Act and the Rules were providing for particular deductions, the same were invalid. present matter the constitutional provision of law ~~ys that particular deductions would be provided but unfortunately nothing is provided in relation to the other charges either in section 21 itself or in the framed in exercise of the powers conferred by section 58 of the Finance Act. In our considered opinion sub-clause (i) of clause (a) of 21(1) read with rule 13A of the Rules did not make sub-clause(!) workable because the manner and extent of deduction relating other charges has not been provided prescribed by the State."

p. 280, margin B

We fully agree with the view taken by the Patna High Court aforesaid decision. It is not merely the labour charges which are deductible from the value of the works contract, but all other charges/amounts except the value of the goods sold in execution of the works is because only the value of the goods sold can be taxed as be mentioned that the respondent had initially only chimed deduction of labour charges, but that was in view of the understanding time. The matter became clear only after the decision of this Dunkerley & Co. v. State of Rajasthan (supra).

pp. 280–281, margin G

It may further be mentioned that the observations Division Bench of the High Court about the rate of tax were they are therefore set aside.

p. 281, margin B

We also agree with the view taken in the impugned the proceedings in question were beyond limitation. It appears three assessment orders for the period 1990-91, 1991-92 respondent preferred three appeals i.e. JUSTA 56/97-98, 57/97-98 98 before the Joint Commissioner, Commercial Taxes (Appeal), Division, Jamshedpur. The appellate authority passed a common 31st August, 1998 and communicated the decision vide Memo 5th November, 1998 to the assessing authority and other officers. assessing authority was directed to make a re-assessment. As to Section 24 of the Bihar Finance Act, the assessing authority to complete and pass the re-assessment order pursuant to the November, 2000, two years from the date of communication the assessing authority. However, the assessment was not fresh assessment on remand was made on 27th November, 2004 than six years of communication of the said order. Hence, it barred.

p. 281, margin B

From the records, it appears that the appellate order August, 1998 was communicated to the assessing authority 2177 dated 5th November, 1998. The respondent obtained a certified copy of the same in January, 1999. Memo No. 204 dated 6th August, to by the counsel for the State is the second time communication, only a reminder. Thus, the appellate order having been communicated assessing authority vide Memo No. 2177 dated 5th November, purposes of limitation the period will start from 5th November, be complete on 5th November, 2000 i.e. two years from communication of such order to the assessing authority. We that the assessment order made after remand on 27th November, consequential demand of notice raised in pursuance of such A assessment, all dated 29th November, 2004 are time-barred under Section 24 of the Bihar Finance Act.

pp. 281–282, margin F

However, the contention of the respondent herein is that the assessment should be directed to be completed on the basis that the rate of tax would be 8%. As at present advised, this Court need not go into the said question.

p. 282

Thus we find no infirmity in the impugned judgment. The appeal is accordingly dismissed. No costs. B.B.B. Appeal dismissed.

p. 282, margin B