Madras High Court
Jessop & Co.Ltd vs The State Of Tamil Nadu on 7 November, 2013
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 07.11.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Revision) No.2332 of 2008 --- Jessop & Co.Ltd., No.63, Netaji Subash Road, Calcutta 700 001. ... Petitioner -vs- The State of Tamil Nadu, Rep., by the Commercial Tax Officer, Harbour I Assessment Circle, Madras. ... Respondent Tax Case Revision filed under Section 38 of the Tamil Nadu General Sales Tax Act, 1959, to revise the order of the Sales Tax Appellate Tribunal (Addl.Bench), Madras dated 13.05.1996 in T.A.No.131 of 1995 (common order in T.A.Nos.131 & 132 of 1995). For petitioner : Mr.N.Inbarajan For Respondent : Mr.Manokar Sundaram A.G.P (Taxes) ----- O R D E R
(The Order of the Court was made by CHITRA VENKATARAMAN, J.) The assessee is on revision as against the order of the Sales Tax Appellate Tribunal (Additional Bench), Madras, relating to the assessment year 1986-87.
2. The assessee herein is a Government of India undertaking, dealing in erection of cranes. It entered into a contract with Madras Port Trust for designing, manufacture, supply, erection, commissioning and handing over of 2 Nos., of tyre mounted transfer cranes with telescopic spreaders and supply of one number additional telescopic spreader. An agreement was entered into between the parties fixing lump sum amount of Rs.3,77,00,000/- for design, manufacture, supply, erection, commissioning and handing over of 2 Nos., tyre mounted transfer crane with 2 telescopic spreaders one for each cranes and for the supply of one number additional telescopic spreader at a cost of Rs.20,48,000/-, totalling to Rs.3,97,48,000/-. The agreement also gave the payment terms, the completion period by erection and commissioning and handing over. The assessee executed a contract with the Port Trust and supplied goods as ordered therein. On 23.09.1987, there was an inspection on the place of the business in Port Trust and found that the assessee had executed a contract and had also collected sales tax to an extent of Rs.9,08,683/-. Thus, on further investigation with the Port Trust, the Assessing Officer found that there were payments for the assessment years 1986-87 and 1987-88. The assessee submitted that as the works contract executed in the course of interstate trade, it was not liable to sales tax under the provisions of the Tamil Nadu General Sales Tax Act.
3. A reading of the order of assessment shows that in spite of an opportunity granted to the assessee to file its objections to the proposal to assess the transaction, the assessee did not produce the relevant documents nor filed its reply. Thus ultimately, the Assessing Officer determined the turnover for the assessment year 1986-87 at Rs.5,55,58,933/- and granted 5% deduction towards erection charges and arrived at taxable turnover for the assessment year 1986-87 at Rs.5,27,80,987/-. Having regard to the failure on the part of the assessee in not disclosing the turnover, penalty at 150% of the tax due on the actual turnover was also made. Aggrieved by the same, the assessee went on appeal before the Appellate Assistant Commissioner (Commercial Taxes).
4. On perusal of the materials, the first Appellate Authority pointed out that the goods were moved from Calcutta and from foreign countries. The assessee was provided with a site by the Port Trust apart from electricity and water at cost for assembling the cranes. Thus, the crane was to be assembled only in the Madras Port Trust and there was transfer of property in the cranes only in Tamil Nadu. The first Appellate Authority rejected the contention of the assessee on inter-State works contract and going by the terms of agreement, the First Appellate Authority held that the transaction was amenable to composite works contract.
5. On the question of levy of penalty under Section 12(3) of the TNGST Act, the First Appellate Authority pointed out that in spite of the issue of summons, the assessee, being a Government of India Undertaking, did not respond to the summons issued by the statutory authority and produced their books of accounts for scrutiny. In these circumstances, the First Appellate Authority further pointed out that the assessee had collected taxes even without registration. The Port Trust authorities had also provided for sales tax at 5% on 70% of the contract value in the price structure. Therefore, the first Appellate Authority confirmed the order of the Assessing Authority. Aggrieved by the same, the assessee went on further appeal before the Tamil Nadu Sales Tax Appellate Tribunal.
6. Before the Sales Tax Appellate Tribunal, on the question as to whether the contract was one for sale of goods or for executing works, it pointed out that the contract was a composite contract for a sum of Rs.3,77,00,000/-for the design, manufacture, supply erection, commissioning and handing over of 2 numbers tyre mounted transfer cranes with two telescopic spreaders, one for each crane and for the supply of one number additional telescopic spreader at a cost of Rs.20,48,000/- totalling to Rs.3,97,48,000/-. This included customs duty at 84.8%, excise duty at 12% and sales tax at 5% on 70% of contract value.
7. The Sales Tax Appellate Tribunal further pointed out to the assessee's letter dated 19.02.1996, wherein it was stated that the cranes could not be moved from one site to another and the movement of the cranes was restricted to a particular site or yard in the Port and that too for a fixed distance, thus, it could not be termed as mobile cranes. In the light of the facts found, the Sales Tax Appellate Tribunal applied the decision in the case of Mazgaon Docks Ltd reported in [100 STC 57], and held that the erection of two tyre mounted cranes in the Port Trust by the assessee was only a sale and not a works contract. Taking note of the fact that the assessee had not chosen to register themselves as a dealer and they had willfully attempted to evade tax and further noting that the assessee is a Government of India undertaking and there being no scope for personal gain, the Sales Tax Appellate Tribunal held that there was no sufficient materials to hold that the assessee wanted to willfully evade payment of tax. In the circumstances, the Sales Tax Appellate Tribunal deleted the penalty levied for the assessment years 1986-87 and 1987-88. Aggrieved by such order, the present Tax Case (Revision) has been filed by the assessee.
8. Learned counsel appearing for the assessee submitted that considering the nature of transaction as evidenced by the agreement, the view of the Sales Tax Appellate Tribunal that the works executed by the assessee is liable to tax as sale under the Tamil Nadu General Sales Tax Act is not correct. Learned counsel further pointed out that when the goods moved from outside the State for the purpose of erection, the transaction could only be treated as works contract. Hence, the Sales Tax Appellate Tribunal had no material to hold that the work done by the assessee was not a works contract, but was only a sale.
9. A reading of the order the Sales Tax Appellate Tribunal shows that what the assessee had undertook under the contract was to supply a chattel viz., crane and as per the contract, the assessee was directed to erect two cranes in the Madras Harbour. Going by the terms of agreement, the Sales Tax Appellate Tribunal held that mere act of assembling in the Madras Port Trust would not take the contract otherwise than as sale. In these circumstances, the Sales Tax Appellate Tribunal held that the transaction was pure sale and not a works contract.
10. A reading of the order of the Tribunal on the various terms of the agreement that the assessee had with Madras Port Trust shows that the assessee undertook the job to fabricate and erect two numbers of tyre mounted cranes in the Madras Port Trust. To that end, it entered into an agreement with Nissho Iwai Corporation, Tokyo and made use of the design and components given by Hitachi Limited, Japan. Certain equipments were fabricated specifically against the drawings in West Bengal. The assessee produced the minutes of the tender committee meeting held by the tender committee on 04.07.1985 between the Madras Port Trust officials and the assessee and also M/s.Nissho Iwai Corporation, Tokyo for the design, manufacture, supply erection and commissioning and handing over of the tyre mounted container Quay Cranes. The assessee signed a collaboration agreement with M/s.Hitachi Limited for importing components required for cranes and the agreement dated 27th May, 1985 between Hitachi, Japan having its principal office therein with the assessee, whereby, Hitachi had agreed to sell the drawings and other necessary documents to the assessee herein. The contract awarded to the assessee gives the scope of the work, as follows:
"Scope of Work:-
Design:- Manufacture, supply erection and commissioning of 2 Nos. of Tyre Mounted Transfer Cranes with Telescopic spreaders and supply of one number additional telescopic spreader.
Price:-
A lumpsum price of Rs.3,77,00,000/- for the design, manufacture, supply, erection, commissioning and handing over of 2 numbers tyre mounted transfer crane with 2 telescopic spreaders one for each cranes and for the supply of one number additional telescopic spreader at a cost of Rs.20,48,000/- totalling to Rs.3,97,48,000/-. This includes customs duty at 84.8%, excise duty at 12% and TNGST at 5% on 70% of the contract value and foreign exchange rate applicable."
11. In the background of these materials, the Tribunal pointed out that the agreement entered into with the Japanese company, by itself, would not make the fabrication and erection of the cranes as one in interstate trade or in the course of import. Even though the import and purchase might have been incidental to the work of the assessee, yet, that, by itself, would not lead to inference that the contract was one for work alone or that it was an interstate one or in the course of import. The nature of work itself shows that given the nature of the machinery to be sold, the assembling and erection required that they are moved in parts alone for the purpose of erection in the site, designed by the Port Trust. The contract stipulated supply of a chattel, namely, the crane to be erected in the Madras Harbour as per the directions of the Madras Port Trust and the sale got completed only on erection in the site.
12. In the background of this, rightly the Tribunal came to the conclusion that the turnover is assessable under the provisions of the Tamil Nadu General Sales Tax Act. The Tribunal treated this as an outright sale and not as a works contract as contended by the assessee. Given the nature of the agreement, we hold that the contract is a composite works contract, which attracts the provisions of Section 3-B of the Tamil Nadu General Sales Tax Act and not a simple sale, as had been viewed by the Tamil Nadu Sales Tax Appellate Tribunal. The contract provides for assembling of design, manufacture assembling, supply erection, commissioning and handing over within a period of 13 months from the date of the order and the second crane to be erected, commissioned and handed over within three months thereafter. In the light of the nature of agreement thus entered into, the taxable turnover, hence, has to be worked out only in accordance with the provisions under Section 3B of the Tamil Nadu General Sales Tax Act.
13. Learned counsel appearing for the assessee pointed out that the Assessing Officer had not considered the deduction, which the assessee is entitled to as regards the labour and service as per the provisions of Section 3B of the Tamil Nadu General Sales Tax Act.
14. It is seen from the order of the Assessing Officer that the assessee did not produce materials before the Officer to substantiate their claim on the expenditure relating to labour. Thus, even though the assessee produced day books, the books of accounts required for the purpose of working out the deduction was not produced by the assessee. Thus the Assessing Officer granted 35% deduction generally.
15. As per Section 3B(e) of the Tamil Nadu General Sales Tax Act, in the absence of any details available in the books of accounts as regards the turnover not involving transfer of property of goods, the assessee is entitled to deduction at 30% as by way of standard deduction. Having regard to this provision and the facts mentioned above, the proper course herein, hence, would be to set aside the assessment and remit the matter back to the Assessing Officer for the purpose of working out the deduction as regards the labour involved in the execution of the works contract. If the assessee has books of accounts to show the actual expenditure on labour, the same may be produced before the Assessing Officer and the Assessing Authority, on satisfaction, may consider the same for deduction. However, if there are no details produced to the satisfaction of the Assessing Officer, the proper course herein would be to adopt the standard deduction at 30%. Thus, setting aside the order of the Tribunal, this Court remands the matter back to the Assessing Officer for re-working the turnover on this issue.
16. As far as the assessment on the supply of one number Additional Telescopic spreader at a cost of Rs.20,48,000/- is concerned, we confirm the order of the Tamil Nadu Sales Tax Appellate Tribunal. In the result, the Tax Case Revision is disposed of on the above terms. No costs.
(C.V.,J) (T.S.S.,J) 07.11.2013 Index :Yes/No Internet:Yes/No pbn/sl CHITRA VENKATARAMAN, J. and T.S.SIVAGNANAM, J. pbn/sl To 1.The Commercial Tax Officer, Harbour I Assessment Circle. 2.The Appellate Assistant Commissioner (CT), Madras. 3.The Tamil Nadu Sales Tax Appellate Tribunal, Madras (Addl. Bench) Tax Case Revision No.2332 of 2008 07.11.2013