Karnataka High Court
Enercon (India) Ltd. vs State Of Karnataka Rep. By The ... on 18 August, 2004
Equivalent citations: ILR2004KAR4020, 2004 AIR - KANT. H. C. R. 3148, (2004) 57 KANTLJ(TRIB) 409
Bench: H.L. Dattu, A.C. Kabbin
ORDER Dattu, J.
1. The petitioner is a limited company and is registered as non-resident dealer under the provisions of the Karnataka Sales Tax Act ('KST Act' for short) and Central Sales Tax Act ('CST Act' for short). The petitioner company is engaged in the activity of execution of works contract of supply, erection and commissioning of wind mills for power generation. During the assessment year 1997-1998, the petitioner company had supplied, erected and commissioned wind mills at Medakaripura Village, Chitradurga District, for M/s. Jindal Aluminium Limited, Bangalore, as per the agreement entered into between them on 12th day of June, 1997 and 11th day of July,1997.
2. The petitioner company had filed its annual returns for the assessment year 1997-1998 showing the gross receipts of Rs. 19,67,50,000.00 and claimed exemption for payment of tax under the Act on its entire turnover on the ground that the sales of wind mills and contract receipts relating to wind mills are exempt under entry 57 of the Fifth Schedule to the Act. The assessing authority has concluded the best judgment assessment by giving deductions to the turnovers relating to wind mills (blades and generators); wind mills (parts i.e. baskets and studs, towers bolts and nuts and other accessories); transformers, boob transformers; sub-contract of labour (Drawing, survey, soil investigation and drainage); labour involved in sub-contract and has disallowed the exemptions claimed on a turnover of Rs. 2,13, 78,032/- out of total contract receipt of Rs. 19,67,50,000- on the ground that the foundation work, electrical work of Rs. 58,22,476/-, Rs. 37,11,024/- and Rs. 35,89,014/- relating to sale of wind mills are turnovers of work contract and therefore, the said turnovers cannot be exempted under entry 57 of Fifth Schedule to the Act and consequently, has levied a tax of Rs. 28,86,034.00 on a turnover of Rs. 2,13,78,032.00.
3. The petitioner company aggrieved by the quantification of liability for payment of tax under the Act by the assessing authority had filed the first appeal before the appellate authority interalia contending that the entire turnover involving supply, erection and commissioning of wind mills was exempt from payment of tax under entry 57 of the Fifth Schedule to the Act, which included the turnover of electrical and foundation work, and that therefore, the assessing authority was not justified in levying tax, cess and turnover tax on the turnover relating to foundation work and electrical work. The first appellate authority vide its order dated 20.1.2001 has not only rejected the contention of the appellant for the total exemption claimed, but also has held that the exemption given by the assessing authority in respect of the items mentioned earlier was not correct and consequently, has set aside the order of assessment and has remanded the matter to the assessing authority to redo the assessment in accordance with law and in the light of the observations made by him in the course of his order.
4. The appeal filed before the Karnataka Appellate Tribunal in STA No. 25372001 by the petitioner company against the said order has been allowed by the Tribunal by its order dated 20,7,2002 and it has remanded the matter to the assessing authority to redo the matter in accordance with law and in the light of the observations made by it in the course of its order.
5. The petitioner company is before this Court in this petition filed under Section 23(1) of the Act interalia calling in question the correctness or otherwise of the orders passed by the Tribunal and in that has raised the following question of law for consideration and decision of this Court:
"Whether the Karnataka Appellate Tribunal erred in law in holding that the turnover relating to electrical works, transformer, foundation work is not part of the turnover of the wind mill and is not eligible for exemption under entry 57 of the Fifth Schedule to Karnataka Sales Tax Act, 1957?"
6. The petitioner company before the Tribunal had contended that the contract between the petitioner company had Jindal Aluminium Limited was for supply and erection of wind mills and the wind mills have been transferred as whole units by the petitioner company to the contractee. Secondly, the petitioner company had contended that the meaning assigned to wind mills included all the parts of wind mills including electrical works and foundation work required to erect wind mills and therefore, turnover relating to foundation, transformers and electrical work, are eligible for exemption as they form part and parcel of the wind mills. Thirdly, it is contended that the definition of 'sale' given in the Act includes works contract under Section 5B of the Act and that therefore, works contract of wind mills is also eligible for exemption.
7. The Tribunal, while rejecting the claim of the petitioner on the turnovers relating to electrical works, transformers and foundation work in its order has observed that the work of the transformers is only to store and supply the energy received by it and since the usage of the transformers and the wind mills is different, the transformers do not form part of the wind mills. The Tribunals has adopted more or less the same reasoning for rejecting the claim for exemption relating to electrical work. In so far as the foundation work is concerned, the Tribunal in its order has observed:
"Similarly, the foundation work for installation of the wind mill cannot be held to a part of the wind mill even though foundation is necessarily required for installing the wind mill. The commissioning or the installation of the wind mill is not exempted as per entry 57 of the Fifth Schedule and what is exempted therein is only sale of wind mills, other devices that run on wind power and also generators and pumps running on the wind energy. Therefore, the transformers, electric work and the foundation work undertaken for installation of wind mills cannot be construed as component part of the wind mill."
8. Sri Sarangan, learned Senior Counsel appearing for the petitioner company, submits that the transformers, electrical work and the foundation work are part and parcel of a wind mill and without electrical works, transformers and foundation work, the wind mills would be merely an 'apparatus' which cannot be used for power generation. Therefore, the authorities under the Act and the Tribunal were not justified in dividing the contract between the parties in bits and pieces and thereby denying exemption on turnovers relating to electrical works and concrete foundations, on the ground, that they are not necessary adjuncts for a wind mill and the entry 57 of the Fifth Schedule only speaks of 'wind mills' and not the electrical works or the foundation work.
Per contra, Sri Anand, learned Govt. Advocate supports the findings of the Tribunal and the first appellate authority and further contends that under entry 57 of the Fifth Schedule to the Act, sale of wind mills and any specially designed devices which run exclusively on wind power including electric generators, and pumps running on wind energy is exempt from payment of tax under the Act, and according to the learned Govt. Advocate, since electrical works, transformers and foundation work are not part of the wind mills, the Tribunal was justified in holding that the turnover relating to the aforesaid items were liable for tax under Section 5B of the Act read with Sixth Schedule to the Act.
9. The general principles of interpretation, which are meant for interpreting sections in the taxing statutes, are required to be adopted for interpreting the Schedules in the Acts also. The second well established principles of law is that, the terms and concepts appearing in a taxing statute require to be understood in which they have been defined in the statute; and in the absence of such definitions in the statutes, they should be understood in their popular meaning and as per the definition in the market or commercial parlance and if the goods are by themselves technical or if there is no definition available in the market parlance, it is the scientific definition which requires to be adopted.
10. Section 8 of the Act envisages that tax is not payable under the Act on the sale of goods specified in the Fifth Schedule subject to the conditions and exceptions, if any, set out therein.
Under Rule 6(4)(d) of the Rules, for the purpose of calculating the taxable turnover of a dealer, all amounts, for which the goods specified in the Fifth Schedule to the Act are sold, are to be deducted from the total turnover of the dealer.
11. The goods, which are exempt from payment of tax under Section 8 of the Act are mentioned in the Fifth Schedule of the Act. Alternatively, goods, which are mentioned under Fifth Schedule to the Act, are exempt from payment of tax under the Act. Entry 57 of the Fifth Schedule is relevant for the purpose of this case. The said entry reads as under:
"Entry 57: Wind Mills and any specially designed devices which run exclusively on wind power including electric generators and pumps running on wind energy."
12. What are exempted under Entry 57 of the Fifth Schedule to the Act, are firstly wind mills, and secondly specially designed devices which run exclusively on wind power and that includes electric generators and pumps running on wind energy.
13. The meaning of the word 'wind mill' is not defined under the Act. It is well settled that, expression that are not defined should be construed in the sense in which it is understood by people conversant with the subject matter. Wind mill is not a word of common use, since wind mill is not ordinarily used as goods by common people. Wind mill is a term of technical input and therefore, the technical meaning of the said term has to be reckoned for the purpose of the Act.
'Wind Mill' is a machine that is operated by wind power. Wind mills are chiefly used to provide power to pump water or to generate electricity. Most wind mills have a wheel of blades or sails that are set into motion by the wind. In most cases, the wheel is set on a horizontal shaft. The shaft is mounted on a tower, mast or other tall structure. The wheel of blades or sails turn by the force of wind therefore giving momentum to a wind mill and it transmits power through series of gears to a vertical shaft. The vertical shaft then carries power to an electronic generator. Modern wind mill's used to produce electricity are often called 'wind turbines' and they are used as a potential source for generating electricity.
14. The wind mill is a renewable energy device and the same constitutes the subject matter to be dealt with by the Government Department dealing with renewable energy development. The Karnataka Renewable Energy Development Limited, which is a Corporation created by Government of Karnataka to deal with energy development in Karnataka has the expertise to give opinion on wind mills. In the present case, the Corporation has given its opinion to the State Government by its communication dated 17.5.2000, with regard to the meaning and scope of the term 'wind mill'. The relevant opinion of the Corporation is as under:
"As per technical definition a wind mill can be described as a device that harnesses wind powering for water pump or for electricity generation. Wind mills are also called wind turbine generator (WTG) or wind energy converting systems (WECS) etc. The main parts of the wind mill are;
* Rotor consisting of blades, the hub assembly.
* Nacelle ( rotor and its assembly), brake, gear train, generator and control mechanism) * Yaw system ( yaw motors, spur and pinion gears and wind sensors) * Tower ( tubular, latticed or concrete structures to support the rotor and nacelle assemblies) and internal accessories.
* Foundation and its materials like steel reinforcements, cement, gravel, earthling materials, etc. * Grid synchronization assembly ( transformer unit for delivering the power to the grid net work).
The wind mill drawing duly certified is attached herewith as an annexure a clear understanding of the parts of a wind mill. This is to facilitate the beneficiary to avail the entry and sales tax exemption benefits from the Government of Karnataka. I request you to kindly allow the sales and entry tax exemption to all the above items which are a standard part of 'wind mills'."
15. In the opinion of the expert body, 'wind mill' includes among others, the electrical work, transformer and foundation and they form as part and parcel of the wind mill.
16. M/s. Jindal Aluminium Limited, a company registered under the provisions of the Companies Act, has entered into contract with the petitioner company on 12th July 1997 for supply and installation of wind energy converters and the work order in this order came to be issued on 11th day of July, 1997. The relevant clauses in the work which requires to be noticed is as under:
" Enercon (India) Limited, 44/1 Mehra Estate, LBS Marg.
Vikhroli, Mumbai - 400079.
Dear Sir, Sub: Work order for installation of Wind energy Converters.
We are pleased to confirm herewith our order for commissioning of 16 Nos. Enercon Make 230 KW, E-30 Wind energy Converters (WECs) to be commissioned at Medakaripura in Chitradurga Taluk and District, Karnataka State, on the following terms and conditions :
1. Out of the 16 Nos. WECs, 10 WECs should be installed and commissioned before Sept. 1997 positively and the balance WECs should be installed before 15th March, 1998.
2. You have agreed for a price of Rs. 5,75,000/- (Rs. Five Lakhs Seventy-five Thousand only) for installing and commissioning of each Wind energy Converter. The price includes the following.
a. All types of civil works at the site including foundation, civil works, etc. b. Installation and commissioning.
c. Micrositing of the individual WECs and contour survey at the site. d. Soil investigation. e. Laying internal overhead HT line upto and including metering point along with OCBs meter 4-pole and 2 pole structure etc. as per KEB requirement. f. Any other activities related to erection and commissioning of the WECs.
In short, we shall provide only road upto individual WECs with required erection space and overhead HT line from metering point to KEB sub-station including interfacing arrangement. Rest all other work of any type shall be in your scope of work.
3. The above price shall remain firm till the erection and commissioning of the WECs for entire 16 Nos. and no increase on any account shall be entertained.
4. The above price is inclusive of all taxes, levies, etc. on the project offered by you. If there is any change in the future the same will be mutually decided...."
17. A perusal of the contract awarded by the employer to the petitioner company would indicate that the contract is for commissioning of " Enercon wind energy converters" and what is to be supplied by the petitioner to the employer is wind mill or wind converter as a whole and not parts of wind mills. The contract was for supply, erection and commissioning of the wind mills in working condition. The consideration received by the petitioner company was for supply, erection and commissioning of the 'wind mill'.
18. Section 8 of the Karnataka Sales Tax Act deals with exemption of tax under the Act and provides that no tax shall be payable under the said Act on the sale of goods specified in the Fifth Schedule to the Act. In A.V. FERNANDEZ v. STATE OF KERALA, (1957) 8 STC 561 the Supreme Court has observed that 'there is a broad distinction between the provisions contained in the statute in regard to the non-liability to tax and exemptions from payment of tax. In the former case, but for the provisions as regards the exemption of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The very fact of their non-liability to tax is sufficient to exclude them from the calculation of gross turnover as well as the net turnover on which sales tax can be levied or imposed'.
The Legislature under Section 8 of the Act specifically provides for exemption from payment of tax on the sale of goods specified in the Fifth Schedule to the Act.
The expression 'sale' is defined under Section 2(1)(t) of the KST Act, to mean every transfer of the property in goods, other than by way of mortgage, hypothecation, charge or pledge by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration.
The expression 'goods' is defined under Section 2(1)(m) of the KST Act to mean all kinds of movable property (other than news paper, actionable claims, stocks and shares and securities) and includes live stock, all materials, commodities and articles, including goods as goods or in some other form involved in the execution of a works contract or those goods to be used in the fitting out, improvement or repair of movable property and all growing crops, grass or things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Therefore, the expression 'goods' for the purpose of Sales Tax Act refers only to movable property.
Under General Clauses Act 'movable property' means property of every description except immovable property.
The expression 'immovable property' is also defined under General Clauses Act. It is inclusive definition and it shall include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth.
The expression 'attached to the earth' is defined under the Transfer of Property Act to mean rooted in the earth in the cases of trees and shrubs; imbedded in the earth as in the case of walls or buildings; or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. Therefore, what is exempted by the Legislature from payment of tax under the Act is the sale of all kinds of 'movable property' specified in the Fifth Schedule to the Act.
Sri Sarangan, learned Senior Counsel would contend that the foundation work and its materials like steel reinforcements, cement gravel, earthling materials, etc., are part of the wind mill in view of the expert opinion furnished by Karnataka Renewable Energy Development Limited, which is a Corporation created by the Government of Karnataka to deal with renewable energy development in Karnataka. It is true that the tower of the wind mill requires to be fixed on a concrete foundation and that without such foundation, the wind mill cannot be used for the purpose of generating electrical energy by using the high velocity of wind but at the same time, once the wind mill is imbedded in the earth with concrete foundation, it becomes an immovable property, which may not be entitled to exemption under Section 8 of the Act. Therefore, in our opinion, the expression 'wind mill' in Fifth Schedule to the Act requires to be understood as those part of the wind mill which are movable property and therefore, it would include rotor consisting of blades, the hub assembly, nacelle, yaw system; tower; and grid synchronization assembly including transformer unit for delivering the power to the grid net work. To arrive at this finding, we have kept in our view, the settled principles of law, that simply because a certain article falls within the Schedule, it would not be entitled for exemption if the article is not 'goods' as defined under the Act. Therefore, in our opinion, the findings of the Tribunal, in so far as exigibility to sales tax, that part of the turnover relating to foundation work requires to be accepted, may be for different reason.
19. The electrical work and transformers are vital parts of a wind mill and the wind mill cannot be put to use and it would not be functional device without the electrical works and the transformers. Therefore, the findings of the Tribunal in this regard requires to be set aside.
20. We do agree that the Karnataka Renewable Energy Development Limited, a Government of Karnataka Enterprise is an expert body dealing with the wind mills and its opinion on the wind mills is expert's opinion on the subject matter of wind mills. Due weightage requires to be given to their opinion. In the present case, admittedly, it has clarified that among others, foundation work, transformers and electrical work form part of the wind mill. The said opinion cannot be taken as a guide for the purpose of understanding and interpreting an entry in the Schedule to the Act. At the most, its opinion may be taken as a piece of information to understand the function of a wind mill and what are the components that are the inputs requires to make the wind mill fully functional.
21. Merely because the petitioner company has received the entire consideration for the supply, erection and transfer of the wind mill, it does not mean that, its entire turnover requires to be exempted under entry 57 of the Fifth Schedule to the Act. What can be exempted under the Fifth Schedule is the turnover relating to the 'goods' specified in the Fifth Schedule.
22. The learned Senior Counsel appearing for the petitioner company relies on the observations made by a learned Single Judge of this Court in the case of BHARAT IRON, BELGAUM v. THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, BELGAUM, 2001 (51) KLJ 304 . In the said case, entry 51 of the Fifth Schedule to the Act came up for consideration before the Court. The said entry speaks of Gobar Gas Plants and parts and accessories thereof. The petitioner therein had declared a gross turnover of Rs. 18,99,230/- from the sale of such plants manufactured by it and it had claimed exemption on the ground that the goods manufactured and sold would fall under entry 51 of the Fifth Schedule to the Act. However, the assessing authority was of the opinion that the turnover represented execution of works contract by the petitioner company which were taxable after the 5th September, 1996 , when entry 55 of the Fifth Schedule was deleted and Entry 43 was inserted in the Sixth Schedule to the Act. This reasoning of the assessing authority was rejected by this Court and this Court expressed the view as follows:
" What is exempted from the levy of tax is not only a plant as a composite unit but also parts and accessories thereof. The plant may comprise steel items, HDPE pipes, burners, walls, chips, fringes, iron bars and other hardware items in addition to a tank, which may be a cement tank or even a tank made out of iron sheets. Entry 51 does not make any distinction between a Gobar Gas Plant, which makes the use of steel tank and sold as a composite unit to the customer on the one hand and a plant, which requires the constructing of an underground cement tank.
In either situations, what is sold by the dealer is a plant. If the sale involves or requires the construction of a cement tank at the site provided by the customer, the same would not change the character of the transaction between the seller and the purchaser. What is purchased even in such a case is nothing but a Gobar Gas Plant no matter the process of purchase involves the fabrication/construction of an underground cement tank also. The absence of any indication in Entry 51 or for that matter in any other entry in either the Fifth or the Sixth Schedule that any such distinction was ever intended to be made is sufficient to show that Gobar Gas Plants are, regardless of the nature of technology used for the same and regardless whether they are fabricated at the place of the manufacturer/seller or at the place, where the customer wants them to be installed, Gobar Gas Plants, the sale whereof would be exempt under Entry 51. The argument that the transaction between the seller and the purchaser is a works contract falling under Entry 43 must therefore be rejected on the principle that if a specific provision in regard to a subject is made, the general or residuary provisions cannot be invoked to levy a tax. Besides, in fiscal matters, an interpretation that is more favourable to the tax-payer must be adopted for taxes cannot be levied or collected on the strength of inferences."
23. In our opinion, the facts noticed in that case and the entry which the Court has interpreted in that decision are different from those of the present case and therefore, in our opinion, the observations made in that decision, would not assist the petitioner company in the present case.
24. In the light of the above discussions, the revision petition requires to be allowed in part. Accordingly, the following:
ORDER
1. The order of the Karnataka Appellate Tribunal in STA No. 253/2001 dated 20.7.2002 is set aside except that portion of the order, where the Tribunal has granted relief to the petitioner company and also the direction issued by it to the assessing authority to bring to tax under the provisions of the Karnataka Sales Tax Act the turnovers of electrical works and the transformers, which according to it is not part of the wind mill.
II. The matter is remanded back to the assessing authority to redo the assessment in the light of the observations made in the course of the Order.
III. In the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly.