Madras High Court
Amintiti Fibre Glass Industries India ... vs State Of Tamil Nadu on 14 August, 2013
Bench: Chitra Venkataraman, K.B.K.Vasuki
In the High Court of Judicature at Madras Dated: 14.08.2013 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN and The Honourable Ms.JUSTICE K.B.K.VASUKI TC (Revision).No.393 of 2011 and MP.No. 1 of 2011 Amintiti Fibre Glass Industries India (P) Limited rep. by its Authorised Signatory Maya Dias, Coimbatore .. Petitioner (Cause title accepted vide order of Court dated 8.9.2011 made in MP.No.1 of 2011) Vs. State of Tamil Nadu rep. by the Joint Commissioner (CT) Coimbatore Division Coimbatore .. Respondent Tax Case Revision to revise the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench) Coimbatore dated 14.3.2011 passed in STA No. 1 of 2011. For Petitioner : Mr.N.Murali For Respondent : Mr.Manokar Sundaram Special Govt. Pleader (Taxes) ORDER
(Order of the Court was made by CHITRA VENKATARAMAN,J.) The above Tax Case Revision is filed at the instance of the assessee as against the order of the Tamil Nadu Sales Tax Appellate Tribunal for the assessment year 2004-05. The above Tax Case Revision was admitted on the following substantial questions of law:-
"1.Whether the appellate Tribunal is right in non rendering a finding on the question of jurisdiction of the assessing authority to reopen the assessment under Section 16 in respect of option exercised under Section 7-C of the Act in spite of the same being raised before it?
2. Whether the Appellate Tribunal is right in coming to the conclusion that the contract is a sale, when there are enough classes in the contract to suggest that the contract is a works contract?
3. Whether the Appellate Tribunal is correct in confirming the penalty when the assessment is only under Section 16(1)(b) and not under Section 16(1)(a) and for assessments under Section 16(1)(b) there cannot be any penalty?
4. Whether the Appellate Tribunal is right in assessing the transaction at the rate of 12.6% even assuming the contract is for sale. This question is raised without prejudice to the contention that the contract is only for works contract and not for sale?"
2. The assessee herein was given a sub contract work by M/s. Larsen & Toubro Limited under work order dated 1.9.2004 for manufacture, supply of GRP pipes with couplings and all necessary fittings and specials (excluding valves) for diameters 400 diameter & 500 diameter, factory testing as per International Standard Norms and approved QAP, packing, transportation upto site unloading of the pipes at the work sites, laying, jointing and hydrotesting and commissioning of the sewage pumping main for Tiruppur Water supply and sewage project. It is relevant to point out herein that the principal contractor had contract with State of Tamil Nadu in respect of which alone the assessee was given sub contract.
3. Originally the assessee offered its turnover for assessment under Section 7C of the Tamil Nadu General Sales Tax Act. While passing an order thereon, the Assessing Officer referred to the contract the assessee had with Larsen and Toubro Limited and thus the assessment was made. However, by proceedings dated 18.6.2008, the assessment was sought to be re-opened under Section 16AA of the Tamil Nadu General Sales Tax Act treating the entire turnover as sale under Section 3(2) of the Tamil Nadu General Sales Tax Act. The Assessing Officer viewed that the contract issued by Larsen & Toubro Limited was predominantly in the nature of manufacture and supply of GRP pipes with couplings and necessary fittings and laying and commissioning of the same was incidental. Thus, the contract was one for sale and not for works. The assessee apparently had not filed any reply to the proposal of revised assessment. Thus, the proposal was confirmed.
4. Aggrieved by the same, the assessee went on appeal before Appellate Deputy commissioner, who went into the agreement and scope of work and specification, which reads as follows:-
1. Scope of work and specification : The scope of work includes manufacture, supply of GRP pipes with couplings and all necessary fittings and special (executive valves) for diameter 8000 (SN 2500), factory testing as per the IS/Any accepted international standard and approved GAP, packing, transporting upto his site, unloading of the pipe at the work sites, laying joining and Hydro testing and commissioning of the sewage pumping main (including all labour tools, tackles and other incidental works etc) for Tiruppur water supply and sewage project as per following specification. However, the equipment required for unloading and execution will be provided by us as per the availability.
2. Prices total amount : Rs.41802000/-.
5. On an analysis of the scope of work and the conditions laid down in the agreement, the first Appellate Authority held that the transaction was a composite contract. Thus, applying the decision of the Apex Court reported in 46 STC 256 DELHI CLOTH & GENERAL MILLS CO., the first Appellate Authority held that predominant nature of the work order was manufacture, supply and erection of the pipes and consequently, the revision of assessment was bad in law. Thus, allowed the appeal filed by the assessee.
6. Aggrieved by this, the Revenue went on appeal before the Tamil Nadu Sales Tax Appellate Tribunal. The Tribunal, while agreeing with the view of the first Appellate Authority held that in a works contract the goods would become property of the contractee and incorporated in the execution of the works contract and that there was supply of goods to Larsen and Toubro Limited before the incorporation was made and in a works contract the delivery was completed only when the goods were incorporated into the execution of the works contract. Thus, the Tribunal allowed the appeal and held that the transaction was sale. Thus, the Tribunal held that the assessment was rightly made. Aggrieved by this, the assessee is on revision before this Court.
7. Even though learned counsel for the assessee questioned reopening of the assessment under Section 7C of the Act on the aspect of jurisdiction under Section 16AA of the Tamil Nadu General Sales Tax Act, he however, confined his argument to the merits of the assessment only. Hence, it is not necessary for us to deal with the question of jurisdiction of the Assessing Officer to reopen the assessment under Section 16AA of the Act in respect of assessment made under Section 7C of the Act.
8. As far as merits of the reassessment order is concerned, we agree with the submission made by learned counsel for the assessee. Admittedly, in the case on hand, the assessee is a sub contractor to M/s.Larsen and Toubro, who was granted contract for manufacture and supply of GRP pipes with required diameter with couplings and all necessary fittings and the transportation to the site and for laying, jointing and hydro testing and commissioning of the sewage pumping main including labour, tools and tackles and other allied incidental works etc., for Tirupur Water Supply and Sewerage Project. Even though copy of the agreement that the assessee had with Larsen and Toubro Limited, is not produced before this Court, yet, a reading of the order of the first Appellate Authority shows that the agreement was placed for consideration before the first Appellate Authority and in the preceding paragraph we have already extracted the core of the agreement entered into between the assessee and Larsen and Toubro Limited. As rightly pointed out by the first Appellate Authority, a reading of scope of work clearly pointed out that it is a composite works contract involving manufacture, supply and erection of pipes. Thus going by the nature of work executed by the assessee herein, rightly the first Appellate Authority applied the decision of the Apex Court reported in 46 STC 256 DELHI CLOTH & GENERAL MILLS CO., and the decision following thereon to hold that the transaction is works contract liable to be taxed on the deemed sale value of goods either under Section 3(2) or on the total value under Section 7C of the Act. In this case, by reason of option exercised by the assessee for compounding system, the transaction was assessed under Section 7C of the Act.
9. Except for mere comment in the notice for reassessment that the contract was one for supply of materials and hence, was only a contract for sale, we do not find any material based on which the Assessing Authority thought it fit to reopen the assessment. Thus, apart from lack of materials which support the order of reassessment, we further find from the order of the Tribunal, that practically it had agreed with the findings of the first Appellate Authority on the nature of the contract, however, it fell into error in its reasoning that the sale was completed when the goods were unloaded and delivered to Larsen and Toubro Limited. Such reasoning is contrary to the terms of the agreement which were extracted by the first Appellate Authority in its order, which in the preceding paragraphs, we have also extracted in our order. As already pointed out when the nature of work involved not only manufacture but also laying of pipes thereafterwards, we do not find any ground to accept with the reasoning of the Tribunal that the nature of the contract is one of sale and not of composite nature.
10. In the circumstances, we agree with the submission of learned counsel for the assessee and we have no hesitation in setting aside the order of the Tribunal and that the agreement in question cannot be treated as one of sale, but it has to be treated as composite contract involving supply of materials. Hence, the above Tax Case (Revision) is allowed. No costs. Consequently, connected MP is closed.
bg To
1. The Joint Commissioner (CT) Coimbatore Division, Coimbatore
2. The Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench) Coimbatore