Kerala High Court
State Of Kerala vs Sri.P.C. Kurian on 21 February, 2019
Equivalent citations: AIRONLINE 2019 KER 1118
Bench: K.Vinod Chandran, Ashok Menon
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN
&
THE HONOURABLE MR.JUSTICE ASHOK MENON
THURSDAY, THE 21ST DAY OF FEBRUARY 2019 / 2ND PHALGUNA, 1940
O.T.Rev.No.176 of 2014
AGAINST THE ORDER IN TA (VAT) NO.532/2011 DATED 11.04.2014
OF KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM
[ASSESSMENT YEAR 2010-2011]
REVISION PETITIONER/RESPONDENT/REVENUE:
STATE OF KERALA.
BY ADV.GOVERNMENT PLEADER
RESPONDENT/APPELLANT/ASSESSEE:
SRI.P.C. KURIAN,
CHERUKUZHIYIL HOUSE, MULANTHURUTHY.P.O.,
ERNAKULAM, PIN-682314.
BY ADVS.
SRI.K.N.SREEKUMARAN
SRI.N.SANTHOSHKUMAR
SRI.P.J.ANILKUMAR (A-1768)
OTHER PRESENT:
SRI V.K SHAMSUDHEEN, SR. GP FOR REVISION PETITIONER.
THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON
21.02.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:
O.T.Rev.No.176 of 2014 - 2 -
"C.R."
ORDER
Vinod Chandran,J.
The issue arising in the above revision is basically on facts; but, however, various decisions have been placed on record by learned Senior Government Pleader Sri.V.K.Shamdudheen, which requires us to consider the question as to whether the specific contract entered into by the assessee herein was for transfer of goods in the form of goods or not in the form of goods; the fact admitted being that it is a works contract. Whether the fact adjudication made by the Tribunal is perverse is the question arising.
2. According to Sri.Shamsudheen, the agreement in pursuance of the contract awarded stated, simply, the work to be "providing PVC chairs on stainless steel framework". The contract essentially was awarded by the Greater Cochin Development Authority [for brevity "GCDA"] for the purpose of installing chairs for the spectators in a sports stadium constructed by it. The assessee contended that it is a works contract and that the transfer was not in the form of goods. They had purchased steel, carried out fabrication work on it and then fixed the plastic mould of chair on the O.T.Rev.No.176 of 2014 - 3 - fabricated frames to form a row of seats; which were installed in the stadium by screwing it on to the construction.
3. Sri.K.N.Sreekumar, learned Counsel appearing for the assessee, would contend that the works contract was installation of non-marketable products, which installation work awarded by the GCDA involved fabrication work, plastic moulding works, fixing them together and then screwing it to the construction, i.e., the stadium. Sri.Shamsudheen, again based on the agreement, would contend that the description of the work in the agreement alone would indicate that it is in the form of goods, whether it is marketable or not. What was provided were plastic chairs fixed in steel frames which are goods simpliciter, is the compelling argument.
4. Sri.Shamsudheen relies on the decision of this Court in Ernakulam District Rolling Shutter Fabricators Association & Ors. v. Commissioner, Department of Commercial Taxes & Anr. [(2009) 26 VST 499 (Ker.)] and of the Hon'ble Supreme Court in Indian Hume Pipe Co. Ltd. v. State of Rajasthan & Ors. [2017 (8) SCJ 636] and B.Narasamma v. Deputy Commissioner, Commercial Taxes, Karnataka [AIR 2016 SC 3778].
O.T.Rev.No.176 of 2014 - 4 -
5. In EDRSF Association, a Division Bench of this Court was considering the work of fitting of rolling shutters in a premises; which was held to be a works contract, but the transfer in the form of goods. Section 8 of the Kerala Value Added Tax Act, 2003 [for brevity "KVAT Act"] itself was considered therein, which, by sub-clause
(ii) of Section 8(a) restricts the applicability of the compounding provision to those works contracts in which there is transfer effected, not in the form of goods. Indian Hume Pipe Co. Ltd. was a case in which there was a pipeline contract, which, as held by the Hon'ble Supreme Court, is a works contract, but the transfer in the form of goods.
6. Sri.Sreekumar, learned Counsel for the assessee, however, relies on the decision of the Hon'ble Supreme Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu & Ors. [(2014) 22 KTR 371 (SC)].
7. Sri.Shamsudheen sought to distinguish Kone Elevator India Pvt. Ltd.[(2014) 22 KTR 371 (SC)] on the ground that the issue therein was installation of a lift requiring very skilled operations and involves fitting of various components, both mechanical and electrical as also fabrication work. The complex work involved would commend O.T.Rev.No.176 of 2014 - 5 - an interpretation of that being a works contract, where transfer is not in the form of goods. However, in the present case it is essentially a transfer in the form of goods, as can be seen from B.Narasamma.
8. As was argued, EDRSF Association specifically looked at a contract which provided for fabrication and installation of rolling shutters. It was found that this involves transfer of rolling shutter, which is a specified goods and, hence, the dealers engaged in such contracts are not entitled to the rate of tax provided under the compounding scheme. In fact, the aforesaid decision followed the decision of the Hon'ble supreme Court in State of Andhra Pradesh v. Kone Elevators (India) Ltd. [(2005) 3 SCC 389], which was later overruled by a Larger Bench in 2014, which decision is cited first, above. Sri.Shamsudheen though, would point out that the Division Bench despite having applied Kone Elevators (India) Ltd. [(2005) 3 SCC 389], also found that in the case of a rolling shutter the goods which are fixed is only a rolling shutter and the side panels and its head containing rolling rod.
9. According to us the further observations made in the judgment would not help the State, since essentially the decision was rendered finding Kone Elevators (India) O.T.Rev.No.176 of 2014 - 6 - Ltd. [(2005) 3 SCC 389] to be applicable squarely to the facts of the case in EDRSF Association. The reliance placed by the State, is on the further observation by the Division Bench that in the case of elevators there are a variety of goods while in the case of rolling shutter the goods are the rolling shutter, side panels and the rolling rod. Going by the later decision of the larger Bench of the Hon'ble Supreme Court, we have to find that the decision as to the transfer being in the form of goods or not does not depend upon the complexity of the work involved or the large variety of goods that are used in the works. B. Narassamma also held that what is pertinent is the examination whether the identity of the goods is maintained, though incorporated in the works or whether it is lost. We, hence, do not go by the Division Bench decision at all.
10. Kone Elevator India Pvt. Ltd.[(2014) 22 KTR 371 (SC)] specifically looked into this aspect and held so in paragraph 66:
"66. Coming back to Kone Elevators (2005) 140 STC 22 (SC); (2005) 4 RC 318, it is perceivable that the three-Judge Bench has referred to the statutory provisions of the 1957 Act and thereafter referred to the decision in Hindustan Shipyard Ltd. (2000) 119 STC 533 (SC); (2000) 6 SCC 579; (2000) 8 KTR 433 (SC), and has further taken note of the O.T.Rev.No.176 of 2014 - 7 - customers' obligation to do the civil construction and the time schedule for delivery and thereafter proceeded to state about the major component facet and how the skill and labour employed for converting the main components into the end product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both.
As has been held by the High Court of Bombay in Otis Elevator (1969) 24 STC 535 (Bom), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (2005) 4 RC 318, is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be O.T.Rev.No.176 of 2014 - 8 - attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (1969) 24 STC 525 (Bom) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, O.T.Rev.No.176 of 2014 - 9 - for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (2005) 140 STC 22 (SC); (2005) 4 RC 318, is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators (2005) 140 STC 22 (SC); (2005) 4 RC 318 does not correctly lay down the law and it is, accordingly, overruled". We are of the opinion that the above dictum squarely applies to the facts of the present case also.
11. Sri.Shamsudheen, however, has sought to rely on the decisions in Indian Hume Pipe Co. Ltd. and B.Narasamma. In Indian Hume Pipe Co. Ltd., the contract was of laying pipelines and the claim was of works contract in which the pipe lines were laid, with jointing materials, valves anchor blocks etc., making the transfer to be not in O.T.Rev.No.176 of 2014 - 10 - the form of goods. However, the Hon'ble Supreme Court found that there is a divisible contract as found by the fact finding authorities and the High Court. The contract was of two parts, one of supply of pipes, valves etc. and that of labour and services involved in laying them. The Assessing Authority had scrutinised the agreement and returned a finding of fact that manufacture and supply of PVC pipes, jointing materials specials, valves, anchor blocks, etc. do not fall within the scope of buildings, bridges, dams, roads and canals. There was also a split up of the agreement into two parts, namely (i) sale and supply of PVC pipes,jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services. The assessee also had, in the said case, admitted that the supply of pipes was nothing but sale of pipes involved in the execution of the contract. It is on the basis of the above undisputed facts that the aforesaid decision was rendered. We will a bit later, notice the distinction, insofar as the facts as found by the Tribunal in the present case. But before that, we have to understand B.Narasamma.
12. B.Narasamma, dealt with use of declared goods, which were so declared to be goods of special importance O.T.Rev.No.176 of 2014 - 11 - under Section 14 of the Central Sales Tax, Act. The goods were steel rods which were used in reinforcement of cement thus eventually forming a part of the pillars, beams and roofs of buildings. The State sought to tax the work as a works contract involving transfer not in the form of goods and thus levying sales tax on the accretion of steel rods in the works. The Hon'ble Supreme Court first observed that:
"First, that works contracts that are liable to be taxed after the 46th Constitution Amendment are subject to the drill of Article 286(3) read with Section 15 of the Central Sales Tax Act, namely, that they are chargeable at a single point and at a rate not exceeding 4% at the relevant time. Further, the point at which these iron and steel products are taxable is the point of accretion, that is, the point of incorporation into the building or structure".
On this observation, the Court examined the facts as detailed by the order of the Tribunal and held so:
"From the above discussion it is clear that largely in building construction works, no pre-fabrication of any steel structure is done before embedding them in cement concrete mixture to form reinforced cement concrete structures. The findings of the lower authorities to the contrary O.T.Rev.No.176 of 2014 - 12 - effect in the cases on hand are entirely opposed to facts.
The only process to which the steel
reinforcement rods/bars are subjected to before
being embedded with cement concrete mixture is
bending at its ends after cutting of steel rods/bars to the required size and tying them at the intersections with binding wire. None of these processes constitute a manufacturing process and no new commodity is produced before incorporation into the works".
It was found that bars and rods which were used for reinforcing the concrete had been joined together, loosely with binding wires, without hampering the elasticity of the steel bar/road. The steel reinforcement rods and bars are subjected to only a bending at its end after cutting off to the required size. The above facts, coupled with the question of the said issue having come under the CST Act, persuades us to find that the dictum laid down is quite distinguishable on the facts herein; especially since the rods and bars were used in the works without any work being carried out on it. The Hon'ble Supreme Court emphasised the fact of the steel bars being embedded in the works as it is, without loosing its identity and on accretion in the works, there occurring a transfer in the O.T.Rev.No.176 of 2014 - 13 - form of goods. The Court negatived the contention of the State that the transfer being of the building itself the same has to be deemed to be a transfer not in the form of goods. The Court noticed the decisions in Builders Association of India Vs. Union of India [(1989) 2 SCC 645] and Gannon Dunkerly & Co. Vs. State of Rajasthan [(1993) 1 SCC 364] to reiterate that in a works contract, in the mature of construction of a building, what is transferred is not a right in the immovable property and the 46 th amendment only makes the levy of sales tax possible on goods and materials used in a works contract as if there was a sale of such goods, on its accretion in the works. The transfer occurs on accretion and it is to be examined whether it is in the form of goods or not.
13. In the present case, what we have to look at is the contract which was specifically looked into by the Tribunal. We hereunder extract the description of work as seen from the agreement schedule, which has been extracted by the Tribunal also, in its order:
"Providing and fixing superior quality PVC out door stadium chairs or equivalent material as approved by departmental Engineers of size 500 x 450 x 400 mm. or nearest size, fixing the chairs on stainless steel frame work including all O.T.Rev.No.176 of 2014 - 14 - fabrication work with 40 mm (outer dia.) 16 gauge verticals 3 Nos., fixed on 75 x 8 mm. flat or nearest, screwed to pre-cast seating element with 75 x 8 mm. stainless steel screws, horizontal support of 25 mm. outer dia pipes 16 gauge 2 Nos., mounted on 50 x 8 mm. flat or nearest, 5 Nos. chairs fixed to frame with stainless steel screws including welding grinding, polishing and closing the outer ends of pipes with stainless steel flanges etc. complete as per direction of departmental engineers. (Steel materials grade 304 shall be used). The stainless steel bolt shall be properly anchored. Rates are inclusive of all materials, labour charges and conveyance, VAT etc. complete. The centre to centre distance of seat shall be kept as 50 cm.
All materials including colour and shape of chair shall be got approved by competent authority of GCDA".
On a query made by the Deputy Commissioner of the Department, a letter was also forwarded by the Superintending Engineer, GCDA explaining the work, which, in its essential elements, are as follows:
"The main item in the work is cutting fabricating and fixing the stainless steel pipes vertical stainless steel pipe is fixed on flat and screwed to pre-cast seating element with stainless steel screws. Horizontal stainless O.T.Rev.No.176 of 2014 - 15 - steel pipe is then mounted on vertical pipe with stainless steel screws. Necessary welding grinding polishing and closing the outer end of pipe with stainless steel flange is also included.
86% of PAC of work involves fabrication and 14% involves supply of poly propylene chair. Hence the said work may be treated as a work contract rather than supply order".
14. At the outset it has to be emphasised that it is a composite contract of supply of materials and labour. The work is of supply of materials which are to be fabricated in accordance with the specifications and measurements as stipulated by the awarder, attached to the plastic moulds of seats and fixed in the stadium. Going by the description of the work as also the classification of the different works involved, 86% involves fabrication and 14% involves supply of poly propylene chair which are also fixed in the fabricated steel frames. Definitely we have to come to the conclusion that the transfer is not in the form of goods. The goods in the form of stainless steel sheets are cut to size and fabricated into frames to which is fixed the seating element made of PVC, which as stand alone cannot be used as seats or sold as such in the market. O.T.Rev.No.176 of 2014 - 16 -
15. As was noticed initially, in this case the State does not contest that the assessee executed a works contract; but, however, the contention is that there is transfer in the form of goods since the agreement has described it as "providing PVC chairs on stainless steel framework". One has to look at the work description as such extracted herein above as available in the Annexure attached to the agreement. The description of the work as enumerated to the Department by the awarder also assumes significance. We find that the Tribunal has correctly answered the question based on the various facts as found in the agreement and answer the question, though on facts, in favour of the assessee and against the Revenue.
In the light of the findings above, the revision would stand rejected, leaving the parties to suffer their respective costs.
Sd/-
K.VINOD CHANDRAN JUDGE Sd/-
ASHOK MENON JUDGE O.T.Rev.No.176 of 2014 - 17 - APPENDIX PETITIONER'S ANNEXURES:
ANNEXURE-A TRUE COPY OF THE ORDER DATED 3/9/2010 OF THE ASSISTANT COMMISSIONER-2(WC), OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM.
ANNEXURE-B TRUE COPY OF THE ORDER IN KVAT ACT 3154/2010 DATED 31/12/2010 ON THE FILE OF THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ERNAKULAM.
ANNEXURE-C TRUE COPY OF THE ORDER IN TA (VAT) NO.532/2011 DATED 11.04.2014 ON THE FILE OF THE KVAT APPELLATE TRIBUNAL, ERNAKULAM.
Vku/-
[true copy]