Madras High Court
Tvl.M.R.Tiles vs The State Of Tamil Nadu on 30 July, 2019
Author: V.K
Bench: Vineet Kothari, C.V.Karthikeyan
Order dt. 30.7.19 in T.C.(R)1/19
M.R.Tiles v. State of Tamil Nadu
1/16
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 30.7.2019
CORAM
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN
Tax Case (Revision) No.1 of 2019 and
C.M.P.No.82 of 2019
Tvl.M.R.Tiles
No.11, Selva Vinayagar Koil Street,
Chennai - 94. Petitioner
Vs.
The State of Tamil Nadu Respondent
Tax Case Revision petition filed under Section 38 of the TNGST Act,
1959, to revise the order of the Tamilnadu Sales Tax Appellate Tribunal
(Additional Bench), Madras, dated 24.02.2003, passed in T.A.No.28 of 2001.
For Petitioner : Mr.T.Rameshkutty for
Mr.K.Venkatasubramanian
For Respondent : Mr.M.Hariharan, A.G.P
ORDER
(Delivered by DR.VINEET KOTHARI,J) Learned counsel appearing for both sides submitted that the controversy in the present case is covered by a decision of a co-ordinate Bench of this court in the case of the same assessee (M/s.M.R.Tiles v. The State of Tamil Nadu in T.C.(Revision) No.171 of 2009 decided on 13.11.2013 has held as under:-
"This Tax Case Revision by the assessee is directed against the order passed by the Tamil Nadu Sales Tax Appellate http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 2/16 Tribunal (Additional Bench), Madras in T.A.No.870 of 2001, dated 24.02.2003, for the assessment year 1986-87.
2. This Tax Case (Revision) has been admitted on the following substantial question of law:-
"Whether in the facts and circumstances of the case, the Tribunal is right in law in treating the transaction of the petitioner in supplying and laying mosaic to the prescription of the purchaser, as an outright sale?"
3. The assessee was engaged in the business of manufacture of mosaic tiles under the name and style of M.R.Tiles and reported a total and taxable turnover of Rs.2,93,913.13/- and Rs.Nil respectively and claimed exemption of the entire turnover reported by him in the annual return filed on 28.01.1998 for the year 1986-87 under the provisions of the Tamil Nadu General Sales Tax Act, 1959, (TNGST Act). The claim for exemption of the above turnover was on the ground that the amount represented the value of Hydraulic Pressed Mosaic Tiles, the assessee had manufactured in his business place, carried them to sites of the http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 3/16 customers, to lay and polish them and the work carried on by the assessee was therefore, a works contract in mosaic tiles. The Assessing Officer after going through the invoices as well as the works contract bill, which were produced by the assessee, found that the invoice was for supplying, laying and polishing of hydraulic pressed mosaic tiles and in the trading account, the assessee had shown the payment of labour wages for Rs.49,497.50/-, and these wages related to both for manufacturing mosaic tiles in his business place and for laying and polishing of such tiles in the place of his customers. Therefore, in the absence of separate details for payment of such wages towards manufacturing of mosaic tiles and for laying and polishing in the site of the customers, the Assessing Officer proposed to adopt 50% for manufacturing process and another 50% for laying and polishing. Accordingly, the total and taxable turnover of the assessee for the year 1986-87, was proposed to be determined at Rs.2,80,676/-. Apart from that, penalty was also proposed under Section 12(3) of the TNGST http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 4/16 Act. The assessee was put on notice, however he did not raise any objection and the Assessing Officer confirmed the proposal and assessed the appellant to tax and levied penalty. Challenging the same, the assessee filed an appeal before the Appellate Assistant Commissioner (CT) III, Chennai, raising the same contention as raised before the Assessing Officer and contented that they are entitled for exemption under Section 3B(2)(b) of the TNGST Act. The first Appellate Authority, by order dated 04.07.2000, dismissed the appeal agreeing with the findings recorded by the Assessing Officer and observed that separate accounts maintained by the assessee is of no avail, since the raw materials had not been used in the laying and polishing of materials as such, but out of those raw materials, the assessee had manufactured mosaic tiles, which had not suffered tax earlier in the State and transferred to the customers. By relying upon the decision of a Division Bench of this court in W.A.Nos.982, 1043 to 1047 of 1994, dated 24.02.1995, filed by the Tamil Nadu Mosaic Tiles http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 5/16 Manufacturers Association, the first Appellate Authority rejected the appeal and held that the Assessing Officer was fully justified in levying tax on 70% of the receipts by granting exemption on 30% as per Section 3B(2)(e) of the TNGST Act. Aggrieved by such order, the assessee preferred an appeal to the Tamil Nadu Sales Tax Appellate Tribunal (Tribunal).
4. Before the Tribunal, the assessee reiterating the same contentions by stating that the contract is a works contract and therefore, they are eligible for exemption. Apart from that the assessee contended that the levy of penalty was also erroneous. The Tribunal heard the appeal filed by the assessee along with other connected matters. After taking note of the decision of this Court in the case of Technova Graphic Systems Private Limited vs. Commissioner of Sales Tax, Maharashtra State, reported in 99 STC 77, wherein it was held that though manufacture implies a change, every change is not manufacture and it is only when the change of a series of changes makes a commodity, to a point http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 6/16 where commercially it can no longer be regarded as the original commodity, but instead recognised as distinct article that manufacture can be said to take place, the Tribunal rejected the contentions raised by the assessee that it is a works contract. Another contention raised by the assessee was that the use of raw materials purchased locally from the registered dealers in the same form, they are eligible for exemption under Section 3B(2)(b) of the TNGST Act. This contention was also rejected by placing reliance on the decision of this Court in Tamil Nadu Mosaic Manufactures Association vs State of Tamil Nadu reported in 97 STC 503 and the Tribunal also confirmed the levy of penalty. Aggrieved by the same, the present Tax Case (Revision) has been filed.
5. The learned counsel appearing for the assessee reiterated the contentions raised before the Tribunal and submitted that in terms of Section 3B(2)(b) of the TNGST Act, all amounts for which any goods specified in the first Schedule or second schedule are purchased from registered dealers liable http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 7/16 to pay tax under the Act and used in the execution of works contract in the same form, in which such goods were purchased, are exempt from tax. In this regard, the learned counsel referred to the works contract bill issued to the customers and submitted that the goods purchased from the registered dealer, were used in the execution of works contract in the same form.
6. We have perused a copy of the works contract bill filed along with this revision and on a perusal of the same, it is seen that the nature of works assigned to the assessee is for supplying, laying and polishing of hydraulic pressed mosaic tiles at the site of the customers. Admittedly, the assessee has carried on manufacture of mosaic tiles in his business premises. That apart, from the works contract bill, it is seen that what has been sold is mosaic tiles, skirting tiles of different colours and specifications. Therefore, the Assessing Authority after scrutinizing these documents found that the assessee manufactured mosaic tiles and the said property was passed on by the assessee to his customers and the said property had not suffered tax. http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 8/16 In view of the factual position and on perusal of the documents placed before this Court, we are of the firm view that the assessee has not used in the execution of any works contract, the goods which were purchased by him in the same form. Therefore, the question of granting exemption under Section 3B(2)(b) of the TNGST Act, does not arise. The finding of fact recorded by all the three authorities, is perfectly justified and calls for no interference.
7. The learned counsel appearing for the assessee relied on the decision of the Hon'ble Supreme Court in the case of Larsen and Toubro Limited and Anr., vs. State of Karnataka and Anr., reported in 65 VST 1. The learned counsel brought to our attention the decision in paragraph 60, to explain the expression "in some other form". The decision of the Hon'ble Supreme Court does not in any manner advance the case of the assessee, since the Hon'ble Supreme Court itself pointed out that the expression 'in some other form' in the bracket of the Section clearly shows that the ordinary understanding of the term http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 9/16 "goods" had been enlarged by bringing within its fold goods in a form other than goods. Goods in some other form would thus mean "goods" which have ceased to be chattels or movables or merchandise and become attached or embedded to earth. Nevertheless, the Hon'ble Supreme Court pointed out having regard to Article 366 clause (29A)(b) of the Constitution deeming transfer of property in goods in a works contract as sale, the transaction namely, construction of flats was held to be a works contract. The Hon'ble Supreme Court pointed out that if at the time of construction and until the construction was completed, there was no contract for construction of the building with the flat purchaser, the goods used in the construction could not be deemed to have been sold by the builder, since at that time there was no purchaser. However, the developer has undertaken to build for the prospective purchaser for cash or deferred payment or a valuable consideration, the contract is a works contract and there is deemed sale of material goods used in the construction of the building and a mere fact that the http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 10/16 builder has a right of lien in the event due monies are not paid that does not alter the character of that contract being a works contract.
8. In this connection, the decision of this Court in Apparels and Handloom Exporters Association and Ors., vs. State of Tamil Nadu and Ors., reported in 129 STC 167 on the interpretation of the expression in the same form assumes significance in para 11 of the judgment, this Court observed as follows:-
11. Article 366(29-A) was not enacted to confer larger benefits on the persons engaged in carrying out works contract who transferred the properties and the goods used in such contract to the other party to the contract. If a person who is engaged for example in the manufacture of rolling shutters, buys iron and steel for the purpose of manufacture, after paying tax on such purchase, he cannot contend while selling the shutters that no tax should be levied on the shutters as they have been manufactured from iron and steel on which he has already paid tax. The iron and shutters are commercially distinct commodities and are charged to tax accordingly. That http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 11/16 position will not change merely because the person who buys the iron or steel, after making the rolling shutter, chooses to transfer the property in the form of shutter to a person who may want to use it in the home or as an attachment to the building. The goods and the property in which it is transferred in such a case remains the property in shutter and not in the iron which had been bought for the purpose of manufacture of shutter. The tax that may have been paid on the purchase of iron or steel to manufacture shutter cannot be regarded as tax that would be payable on the shutter as well.
12. The very illustration the counsel gave about making a painting itself demonstrates effectively in the intent of the Parliament in effecting the amendment. The object of the amendment was to bring into the tax net the items, which otherwise could not have been brought to tax, and it is not meant to be a sieve through which goods liable to be taxed are allowed to escape tax.
13. The change in the form referred to in Article 366(29-A) of the Constitution is not change in the form of the goods to other commercially distinct and taxable goods. The change of form referred to therein, is the http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 12/16 change of goods into another form which by itself would not have been taxable but for the use of that expression in Article 366(29-A).
9. In the light of the above decisions of this Court and the Hon'ble Supreme Court referred to above, we do not find any justifiable grounds to accept the plea of the assessee that they are entitled for exemption under Section 3B(2)(b) of the TNGST Act. As already pointed out that the contract is one for manufacture of mosaic tiles and laying of tiles in the business place of the dealer, which is an inevitable works contract, the Assessing Officer in his point of assessment, proposed adoption of 50% for manufacturing process and the other 50% for laying and polishing, there being no separate details for payment of such wages towards manufacturing of mosaic tiles and for laying and polishing in the sites of his customers, the Assessing Officer thus adopted the proportion as mentioned above.
10. It is seen from the provisions of Section 3B(2)(e) of the TNGST Act, wherever the accounts mentioned all amounts towards "Labour charges and http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 13/16 other like charges" not involving any transfer of any property in goods, actually incurred in connection with the execution of works contract, the same shall stand excluded from the taxable turnover. However, where they are not ascertainable from books of accounts maintained by the assessee during assessment, the payment of labour charges could be presumed for the purpose of deduction. As pointed out in the preceding paragraphs, even in the accounts such an exercise to arrive at the execution of labour charges, the first Appellate Authority rightly adopted the statutory deduction of 70% to be taxed towards transfer of property in goods and 30% of the turnover to be excluded by way of deduction.
11. Going by the above said statutory fixation on the labour charges, we direct the Assessing Officer to redo the deduction particularly with reference to Labour Charges alone adopting 30% as relatable to labour charges liable to be deducted in the books of accounts. Apart from this, the question of penalty levied on the assessee also needs to be reassessed. It http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 14/16 is seen from the order of the Tribunal that the Appellate Assistant Commissioner confirmed the levy of penalty under Section 12(5)(iii) of the TNGST Act, the Tribunal reduced the levy of penalty at 50% as against the 150%, confirmed by the Assessing Authority.
12. Considering the fact that the turnover in question is available in the books of accounts and the assessee was not form part of business of the provisions of the Act, for which the assessee raised a dispute applying the decision in the case of Apparels and Handloom Exporters Association and Ors., vs. State of Tamil Nadu and Ors.,(supra), we delete the penalty and confirmed by the Tribunal at 50%, to that extent alone, the Tax Case (Revision) stands allowed.
In the circumstances, confirming the order of the Tribunal on the quantum assessment, we partly allow the Tax Case (Revision). No costs."
2. Accordingly, we dispose of the present Tax Case (Revision) in the same terms. No costs. The connected Miscellaneous Petition is closed.
(V.K.,J.) (C.V.K.,J.) 30.7.2019 http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 15/16 Index : Yes/No Internet : Yes/No ssk.
To
1. The State of Tamil Nadu.
2. Tvl.M.R.Tiles No.11, Selva Vinayagar Koil Street, Chennai - 94.
http://www.judis.nic.in Order dt. 30.7.19 in T.C.(R)1/19 M.R.Tiles v. State of Tamil Nadu 16/16 DR.VINEET KOTHARI, J.
and C.V.KARTHIKEYAN, J.
ssk.
T.C.(R)No.1 of 2019 30.7.2019.
http://www.judis.nic.in