Sikkim High Court
National Hydroelectric Power ... vs State Of Sikkim And Ors on 3 June, 2015
Author: Sunil Kumar Sinha
Bench: Chief Justice, Meenakshi Madan Rai
1
W.P.(C) No. 37/2013
NHPC Ltd. vs. State of Sikkim & Ors
HIGH COURT OF SIKKIM, GANGTOK
(Civil Extraordinary Jurisdiction)
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D.B.: HON'BLE SHRI SUNIL KUMAR SINHA, CHIEF JUSTICE
HON'BLE MRS. MEENAKSHI MADAN RAI, JUDGE
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Writ Petition (C) No. 37 OF 2013
PETITIONER National Hydroelectric Power Corpn. Ltd.
Presently known as NHPC Ltd.
Teesta Power Station, Stage V,
P.O. Singtam, Balutar,
District East Sikkim.
Versus
RESPONDENTS 1. The State of Sikkim,
Through the Principal Secretary,
Finance, Revenue & Expenditure Deptt.
Gangtok, Sikkim.
2. Deputy Commissioner,
Commercial Tax Division,
Finance, Revenue & Expenditure Deptt.
Gangtok, Sikkim.
3. Joint Commissioner,
Commercial Tax Division,
Finance, Revenue & Expenditure Deptt.
Gangtok, Sikkim.
4. Additional Commissioner,
Commercial Tax Division,
Finance, Revenue & Expenditure Deptt.
Gangtok, Sikkim.
4. Commissioner of Commercial Taxes,
Commercial Tax Division,
Finance, Revenue & Expenditure Deptt.
Gangtok, Sikkim.
2
W.P.(C) No. 37/2013
NHPC Ltd. vs. State of Sikkim & Ors
Writ Petition filed under Article 226 of the Constitution of India.
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Appearance :
Mr. A.K. Upadhyaya, Sr. Advocate with Ms. Binita Chhetri,
Advocate for the Petitioner.
Mr. J.B. Pradhan, Addl. Advocate General with Mr. S.K. Chettri,
Asstt. Govt. Advocate and Ms. Prarthana Ghataney, Advocate
(Legal Retainer, CTD) for State-Respondents.
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JUDGMENT
(03.06.2015) Following Judgment of the Court was delivered by SUNIL KUMAR SINHA, CJ.
1. The Petitioner is a Company incorporated under the Indian Companies Act, 1956. It is a Government of India enterprise under the Ministry of Power, having its Corporate Office at Faridabad, Haryana. The Petitioner had entered into an Agreement with the State Government of Sikkim for construction and operation of 510 MW capacity of Teesta Stage-V Hydroelectric Power Project. The construction of the project was started in November, 2000 and the project was fully commissioned on 10.04.2008. During the course of construction of the project, the Petitioner had awarded both civil and mechanical works of construction to various contractors. The contract works awarded in both the categories were composite contract including both value of materials as well as value of labour and other related services of like nature.
2. As per the agreements between the Petitioner and the contractors, cement, steel and explosives were to be supplied by the 3 W.P.(C) No. 37/2013 NHPC Ltd. vs. State of Sikkim & Ors Petitioner and the cost of these materials were to be deducted from the approved bill amount(s) of the contractors at the rate already fixed by the Petitioner.
3. On the above factual aspects, an assessment was made by the Deputy Commissioner of Commercial Tax Division, Government of Sikkim, for the period in between 1998-1999 to 2004-2005 and an Assessment Order was passed under Section 13 of the Sikkim Sales Tax Act, 1983 (hereinafter referred to as "the Act, 1983"). The Deputy Commissioner held that in fact the transfer of above goods by the Petitioner to the contractors vide their respective agreements was a 'sale' under Section 2(m) of the Act, 1983. The plea of the Petitioner that the provision of supply of materials to the contractors was made to ensure the quality and regular supply of materials and that the provision of ascertaining value of the material at fixed rates was made to control of escalation of project value, was not accepted by the Deputy Commissioner, who ultimately imposed a tax liability on the sale of those goods to the tune of Rs.14,18,62,067/-. An Appeal (No. 01 of 2009) filed against the said Assessment Order was also dismissed by the Joint Commissioner vide an Order dated 27.11.2010, on the ground that the relationship between the Petitioner and its contractors was that of seller and buyer respectively and there was a transfer of property in goods effected from one hand to another and was 'sale' under Section 2(m) of the Act, 1983. The Petitioner, having paid the aforesaid amount, has challenged the above actions in this writ petition.
4. Mr. Upadhyaya, learned Senior Counsel appearing on behalf of the Petitioner has mainly contended that the supply of above goods by the Petitioner to the contractors was not a 'sale' within the meaning of Section 4 W.P.(C) No. 37/2013 NHPC Ltd. vs. State of Sikkim & Ors 2 (m) of the Act, 1983. According to him it was a simple bailment, therefore, tax assessment was bad in law. He relied on the decision of State of A.P. and Another vs. Rashtriya Ispat Nigam Ltd. : (2002) 3 SCC 314.
5. On the other hand, Mr. J.B. Pradhan, learned Additional Advocate General appearing on behalf of State, has opposed these arguments and supported the two orders passed by the statutory authorities. He mainly contended that it was a case of transfer of goods on the fixed price under the particular agreements with the transfer of the right to use them and thus was 'sale' within the meaning of Section 2(m) (b) and
(d) of the Act, 1983. He relied on the decisions of Aggarwal Brothers vs. State of Haryana and Another : (1999) 9 SCC 182 and 20th Century Finance Corpn. Ltd. and Another vs. State of Maharashtra : (2000) 6 SCC 12.
6. We have heard counsel for the parties.
7. Section 2(m) of the Act, 1983 defines 'sale' with its grammatical variations and cognate expressions means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration and includes the transfer, delivery or supply of goods by one person to another person in any of the following ways, namely: -
(a) the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;5 W.P.(C) No. 37/2013
NHPC Ltd. vs. State of Sikkim & Ors
(b) the transfer for property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) the delivery of goods on hire-purchase or any system of payment by instalments;
(d) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) the supply of goods by any unincorporated association, or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, does not include a mortgage or hypothecation of or a pledge on goods.
8. The above definition of 'sale' is inclusive and it appears that various sub-clauses of clause (m) of Section 2 are designed on clause (29-A) of Article 366 of the Constitution, which empowered the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. Various sub-clauses of Section 2(m) of the Act, 1983 are reproduction of clause (29-A) of Article 366, which permits the imposition of 'tax' on the above events.
9. For the purpose of instant case, sub-clause (b) and (d) of clause (m) of Section 2 of the Act, 1983 are relevant. Sub-clause (b) talks about the transfer of goods involved in the execution of works contract and sub-clause (d) talks about the transfer of the right to use any goods for any 6 W.P.(C) No. 37/2013 NHPC Ltd. vs. State of Sikkim & Ors purpose for cash, deferred payment or other valuable consideration. This clearly means that in addition to the main definition of 'sale' all such events of transfer, delivery or supply of goods by one person to other person in any one of the above ways under sub-clauses (a) to (f) would be a 'sale'.
10. In 20th Century Finance Corpn. (supra), relied by the Additional Advocate General, it was held that Article 366 (29-A) (d) shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such deemed sale would be the execution of the contract for the transfer of right to use goods. The Supreme Court held in paragraph 35, vide clause
(e) that the transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of the legal fiction engrafted in clause (29-A) (d) of Article 366 of the Constitution.
11. In the instant case various clauses of agreement(s) between the Petitioner and the contractors would show that the Petitioner had to supply cement, steel and explosive detonators to the contractors as per relevant clauses of the agreement. For example, we may quote clause 93.4.v of one of the agreement(s), which deals with cement: - 7 W.P.(C) No. 37/2013
NHPC Ltd. vs. State of Sikkim & Ors "CEMENT
a) Cement will be issued to the Contractor in bags as received from the suppliers or by weight at the rates specified in Annex-1 and will be consumed in Work as per mix-design approved by the Engineer.
b) In case cement is issued by bags in numbers and consumed by weight, an allowance of 3% (three percent) of the quantity of cement issued will be allowed to account for the difference between the quantity issued and that consumed.
Alternatively, if cement is issued by the Corporation by weight and also consumed by weight, an allowance of 1% (one percent) of the quantity issued will be allowed to account for difference between the quantity issued and that consumed.
c) The allowance as mentioned in (b) above shall be considered as inclusive of all wastages on account of handling, rehandling, transportation, storage or any other account whatsoever as may be involved at any stage and such allowance shall be to the Contractor's account. The recovery in this regard shall be effected by the Engineer from the monthly running bills at the rate as specified in Annex-1. However, if the consumption of cement exceeds the aforesaid permissible limits, the recovery shall be effected for such excess quantity at double the issue rate(s) indicated in Annex- 1 by the Engineer from the amount due to the contractor."
12. Similar are the clauses in relation to other goods. Perusal of the above clauses of the agreement(s) would show that the said goods were supplied to the contractors on a fixed rate, as per Annex-1 to the agreement(s), and were to be consumed in the work as per approval and then the deductions of their sale price were to be made. Thus, it is clear that the above event of supply of specified goods were clearly covered under sub-clauses (b) and (d) of clause (m) of Section 2 of the Act, 1983 and were 'sale' within the meaning of such clauses.
13. In Aggarwal Brothers (supra), the question was as to whether the hiring in the said case was included within the meaning of deemed sale. The assessees hired shuttering to builders and contractors who used it in the course of construction of building. They were served with notices under the Haryana General Sales Tax Act, 1973 requiring them to pay sales tax on such hire charges and assessment orders were then so made. When the matter came up before Supreme Court it was held that 8 W.P.(C) No. 37/2013 NHPC Ltd. vs. State of Sikkim & Ors such transfer of a right to use goods for consideration was deemed to be a sale, which was defined under the said Act in similar terms. It was held that the provisions expressly speak of 'transfer of right to use goods' and not of 'transfer of goods'. There was, therefore, no merit in the submission that to be deemed sale within the meaning of the above provision of the said Act there must be a legal transfer of goods or that the transaction must be like a lease. It was held that where there is a transfer of a right to use goods for consideration, the requirement of the above provision of the said Act was satisfied and there was deemed to be a 'sale'.
14. Mr. Upadhyaya has placed reliance on Rashtriya Ispat Nigam Ltd. (supra), which deals with what is not a transfer of right to use any goods. This case is distinguishable on facts. There the appellant, owner of a Steel Project, had allotted different works to contractors and, for hire charges was supplying them sophisticated machinery for using in execution of the contract work. The contractors were not given liberty to use the machinery for any other work or to move the same during the period it was in their use. It was held by the Supreme Court that, in such circumstances, notwithstanding that the contractors were responsible for the custody of the machinery at the site, High Court had rightly held that the effective control of the machinery remained with the owner of the project and thus in such a case there was no transfer of right in favour of the contractors to use the machinery and that the hire charges received by the project owner were not exigible to sales tax.
15. In the instant case, as we have already held, there was transfer of goods involved in the execution of works contract with the transfer of right to use the goods. Thus the taxation authorities have 9 W.P.(C) No. 37/2013 NHPC Ltd. vs. State of Sikkim & Ors rightly held that the said instances were 'sale' within the meaning of Section 2(m) of the Sikkim Sales Tax Act, 1983 and the assessee was liable to pay the sales tax on such transactions.
16. For all these reasons, we do not find any substance in the writ petition. The writ petition, therefore, is liable to be dismissed and is accordingly dismissed.
17. There shall be no orders as to costs.
Sd/- Sd/-
(Meenakshi Madan Rai) (Sunil Kumar Sinha)
Judge Chief Justice
03.06.2015 03.06.2015
Approved for Reporting : Yes/No.
Internet : Yes/No.
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