Gauhati High Court
Saumya Mining Pvt. Ltd. vs Commissioner Of Taxes And Ors. on 2 April, 2004
Equivalent citations: [2006]146STC343(GAUHATI)
JUDGMENT P.G. Agarwal, J.
1. Both these writ petitions are disposed of by this common order. For the purpose of appreciation, the facts of W.P. (C) 2230 of 1999 are detailed.
2. The petitioners have challenged the deduction of tax at source by the respondents Under Section 27 of the Assam General Sales Tax Act, 1993 for short, "the Act", read with rule 35 of the Assam General Sales Tax Rules, 1993 for short, "the Rules".
3. The petitioner, Saumya Mining Pvt. Ltd., had submitted their tender pursuant to the NIT issued by the respondents for the work of removal of hard shale/carbonaceous shale by means of heavy earth moving machinery for an estimated total quality of 29,53 lac cubic metre for three years by Mine No. II of Tirap Colliery. The said work was allotted to the petitioner and the petitioner-company deployed Heavy Earth Moving Machinery, for short "HEMM", for execution of the said work. The petitioner was submitting the bills and getting payments but thereafter, on the basis of a clarification issued by the Commissioner of Taxes, the Superintendent of Taxes at Digboi informed the respondent, North Eastern Coal Fields that the petitioner-company is liable to pay sales tax and this was to be deducted at 5 per cent from the bills submitted by the firm. The petitioner has challenged the said clarification by the Commissioner of Taxes as well as the letter issued by the Senior Superintendent of Taxes, Digboi.
4. The case of the petitioner is that the power to levy sales tax in respect of transfer of right to use any goods was conferred on the State Legislature by the 46th Amendment to the Constitution. The power of the State Legislature to impose sales tax on the sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India. By the 46th Amendment of the Constitution of India, clause (29A) was inserted in article 366 of Constitution of India whereby the scope and ambit of "tax on sale and purchase of goods" was widened and a tax on the transfer of the right to use goods was included within the purview of the meaning of sale and purchase of goods.
5. The stand taken by the respondent-State is discernible from the letter dated March 25, 1999 issued by the Commissioner of Taxes, Assam, which reads as follows:
From the papers relating to contract entered into by M/s. National Mining Company with M/s. North Eastern Coal Fields it appears that the firm is executing works on operating lease with the lessee M/s. North Eastern Coal Fields and it has rented out machinery, cranes, etc. Such renting out of machinery is taxable under item 3 of Schedule VII of the Assam General Sales Tax Act, 1993.
The rent for machinery is indirectly charged and goes to prove the transfer of right of use of such machinery and the lessee having full control over such machinery during the period of use.
The lessee, M/s. North Eastern Coal Fields may, therefore, be advised to deduct tax at the rate of 5 per cent from the bills submitted by M/s. National Mining Company.
6. Dr. A.K. Saraf, learned Senior Advocate for the petitioner, has submitted that the Commissioner of Taxes being a revisional authority under the Act was not expected to give his opinion in a particular case as because against the order passed by the Superintendent of Taxes, appeal lies before him. We do not propose to enter into the above aspect of the matter and intend to examine whether the agreement entered into between the petitioner and the respondent, North Eastern Coal Fields, amounts to lease or not.
7. In order to appreciate the question involved, we may quote some of the relevant provisions of the NIT as below:
1.3 The tenderer or his collaborator/Associate should have sufficient experience in such kind of jobs, in operation and maintenance of HEMM, and have sound financial capability.
9.1. The tenderer has to make his own arrangement for transportation of overburden and coal after collecting the same at pit heads. The drilling will be done as per directive or directive of the company. Direction may be done by the company personnel. Charging of holes will be done by personnel of HEMM operators under the supervision of the company personnel.
2. Approximate annual production:-Approximate annual production should be 1 lakh tons of coal from Mine-II.
3. Quality of coal: The quality of coal produced must adhere to the following norms: Coal with ash content of 10 per cent or below not less than 75 per cent of the total volume of coal extracted and the balance coal extracted must be of ash content not more than 15 per cent.
4. Method of work: For extraction of coal overburden has to be removed in the form of a series of benches ensuring that height of the bench conforms to the boom height of the machine deployed as per Coal Mines Regulation, 1957.
1.3 The word 'HEMM' means Heavy Earth Moving Machineries and includes its spares, accessories, etc., to be deployed by the HEMM operator for the purpose of carrying out the excavation work undertaken by the HEMM operator.
2.0 Scope and performance:
2.1. The work to be carried out under the contract shall include all labour, machineries, plant, equipment, tools and transport which may be required in preparation of and in the full and entire execution and completion of the works in accordance with good practice and recognised principles.
11.0 Measurement of work:
11.1 All the payment will be made on measurement basis, the measurement being taken in different sections and plotted in the section sheets maintained by Coal India Ltd. The measurement shall be duly entered in the company's measurement book. The HEMM operator or their authorised agent having due power of attorney shall signify his acceptance in the company's measurement book.
8. Learned Counsel for the petitioner has submitted that the removal of overburden from mines is a general/usual phenomenon in coal mining and such works are undertaken from time to time all over the country where the mining of coal is involved. The facts of Rungta Projects Limited v. State of Bihar [1998] 108 STC 234 (Pat) are more or less identical with the facts of the present case and the NIT as well as the agreement entered into between the parties contained similar/identical provisions. The Ranchi Bench of the honourable Patna High Court held:
Held, allowing the petitions, that the respondents had not shown anything from the agreement nor produced any document to show that in fact the control/custody or possession of all the heavy earth moving machinery was given by the petitioners to the DVC on payment of hire charges for a limited period and the work in question was executed by the DVC by deploying its own manpower and personnel. The agreement showed that the petitioners had to carry out the work of cutting/drilling and excavating earth and stone from the place fixed by the colliery manager/agent and load the same into dumpers and then transport and unload the same to the site fixed by the colliery manager. The reason for calling the contract 'hiring of heavy machines for cutting and removal of earth overburden' was only for the purpose of prohibiting the contractor from engaging contract labour. Other factors which showed that the contract in question was a works contract were: (a) the tender notice clearly showed that the tender was invited from contractors having sufficient experience and financial capacity, and organisational capacity for doing the work of overburden removal from the mines of respondent-DVC; (b) the contractor was required to deploy his own machinery; (c) the DVC reserved its right to split the work; (d) the contractor had to expose at least 50 per cent of the overburden removed; (e) the contractor had to bear the costs of all materials, labour charges and expenses for carrying out the work; (f) the contractor would be paid on the basis of per cubic metre removed. The provisions of Section 2(t)(r) or any of the clauses of Section 2(t) were not attracted. The petitioners were not liable to pay sales tax for the works executed by them under the contract in question with DVC for removal of overburden.
9. Section 27(l)(a) of the Assam General Sales Tax Act, 1993 reads as follows:
Every person excluding an individual, a Hindu undivided family, a firm or a company not under the control of the Government responsible for making any payment or discharging any liability on account of any amount payable for the transfer of property in goods (whether as goods or in some other form) involved in a works contract specified in Schedule VI or for the transfer of the right to use any goods specified in Schedule VII for any purpose.
10. Accrual of the right to use goods within the meaning of Section 27(l)(a), as quoted above, read with article 366 of the Constitution necessarily involves delivery of possession of the transferor to the other side. In the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakhapatnam [1990] 77 STC 182, the honourable Andhra Pradesh High Court, speaking through His Lordship Syed Shah Mohammad Quadri, J., held:
An owner of property has a bundle of rights in it, namely, right to possess, right to use and enjoy, right to usufruct, right to consume, to destroy, to alienate or transfer, etc. In law it is not only possible but also permissible that the various rights and interest may be vested in various persons. While remaining the owner of a property, a person may create a charge on the property, mortgage it or lease it. In the transaction of sale, all the rights of the owner are transferred to the purchaser and it is said that the property in the goods passes to the purchaser. In a lease of immovable property, there is a transfer of a right to enjoy such property; a lease of land and a bailment of chattels are transactions of essentially the same nature .........
The transfer of a right is an event which has a double aspect. It is the acquisition of a right by the transferee, and loss of it by the transferor. The vestitive fact, if considered with reference to the transferee is a derivative title, while from the point of view of the transferor it is an alienative fact.' (Salmond on Jurisprudence-- Twelfth Edition at pages 332 and 333.)............
In our view, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction.
11. The decision in Rashtriya Ispat was challenged before the apex Court by the State of Andhra Pradesh in the case reported in [2002] 126 STC 114 (State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd.) and the honourable Supreme Court affirmed the judgment and order passed by the Andhra Pradesh High Court. The matter came up for consideration before the apex Court in the case of 20th Century Finance Corpn. Ltd. v. State of Maharashtra . The Constitution Bench held:
........ All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of Sub-clause (d) of clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed ............
Article 366(29A)(d) further 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 ..........
A sale of any goods is complete when the property in the goods passes to the purchaser pursuant to a contract of sale of those goods. So also, a deemed sale of goods under Sub-clause (d), as has been pointed out above, will be complete when the control of the goods in which the right to use is transferred, passes to the transferee under the contract of transfer. Such a transfer of right to use any goods may be effected either by the execution of a written contract between the parties indicating the mode by which giving the control or domain of the goods to the hirer is contemplated or by an oral contract coupled with delivery of the goods to the hirer. There can be no oral contract with regard to unascertained goods because there can be no delivery of such goods. Where a written contract exists whether in regard to ascertained goods or unascertained goods, the intention of the parties, as evidenced by the terms of the contract, to 'transfer of right to use the goods' is determinative of the fact as to when, how and where the right to use the goods is transferred. It is a well settled principle of interpretation of contracts that the contract must be construed as a whole. When and where such a deemed sale, under Sub-clause (d), takes place is a question of fact which has to be decided on the facts and circumstance of each case, including the terms and conditions of the contract evidencing the transaction.
12. Now, coming to the facts of the present case, we find on perusal of the various conditions of the NIT, as quoted above, the agreement in the present case, that the heavy earth moving machineries had to be engaged by the petitioner for the purpose of work, which involves cutting, drilling and excavating materials from the mines, loading and transporting the same to the site fixed by the respondent-company and the payment is to be made in respect of the quantity of materials so collected and moved. Although the NIT provided that the HEMM were to be deployed as per the instructions of the respondent-company keeping in mind the safety requirement, we find absolutely no material to show that the control, custody or possession of the HEMM were at any point of time handed over to the respondent-company or the work was carried out by the respondent-company with the help of the machineries. In a building contract, we find that the builders do use concrete mixtures, excavator, drilling machine, polish machine to complete the construction and likewise in the present case, the petitioner-company was to use HEMM for execution of the works contract undertaken by them. This is not a case of petitioner-company letting out their HEMM for hire charges. The machineries all along remain under the control and possession of the petitioner-company and hence, we have no hesitation to hold that the works contract or the use of the HEMM in the above contract is not exigible to tax and, as such, we allow the writ petition No. 2230 of 1999 and set aside the impugned notice issued by the Senior Superintendent of Taxes, Digboi, in respect of the mining contract.
13. In the other writ petition, W.P. (C) No. 1061 of 1999, the petitioner M/s. B. Fam Automobiles provided crane services to the respondent, Oil India Limited, and as per the terms of the contract, the contractor was required to perform the work described in the terms of reference as below:
4.1. Contractor shall in accordance with and subject to the terms and conditions of this contract perform the work described in the terms of reference.
4.2. Except as otherwise provided in the terms of reference and the special conditions of contract, provide all labour and other personnel as required to perform the work.
4.3. Contractor shall be responsible for--
(a) Supervision during operation of the crane.
(b) Supervision during shifting of the crane from one location to another.
(c) Maintenance of the crane and other equipment.
4.5. Contractor shall arrange for regular and periodical maintenance of the crane and other equipments including replacement of worn-out parts/supply of all spare parts at contractor's own cost and ensure a smooth and breakdown free operation.
4.7. The fuel and lubricants required for operation of the crane will be supplied by contractor at its own cost and responsibility.
4.14. Contractor shall arrange and provide extra labour as and when required with company's prior approval of quantity and rates and company agrees to reimburse costs of the same. This provision will normally be limited to exceptional cases.
4.15. The contractor will deploy expert professionally qualified and experienced personnel, satisfactory to company, and provide the service in professional manner following safe oil field practice in an environmentally friendly manner.
5.4. Company shall provide space at its yard, to keep the crane and other equipments, fuel, etc., for contractor, but company will not take any responsibility for the security of these materials.
14. In view of the law, as stated above, and considering the terms and conditions of the contract, we hold that the petitioner- company is not liable to pay sales tax on the said contract for providing crane services and accordingly, the writ petition is allowed and the impugned notice issued by the respondent, Sales Tax Department, stands quashed and the respondent, Oil India Ltd., is directed not to deduct the tax Under Section 27 of the Assam General Sales Tax Act. W.P. (C) No. 1061 of 1999 stands allowed.
15. Costs easy.