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The evolution of the concept of works contract is noted as under as it is on the service component of such contract that service tax is leviable. The reference to judgments on works contract under Sales Tax law would be pertinent.

(A) Prior to the 46th Amendment of the Constitution, levy of sales tax on sale of goods involved in the execution of a works contract was held to be unconstitutional in Gannon Dunkerley (I) - State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [AIR 1958 SC 560]; [1959 SCR 379]. A Constitution Bench of this Court held that in a building contract where the agreement between the parties was that the contractor should construct the building according to the specifications contained in the agreement and in consideration, received payment as provided therein, there was neither a contract to sell the materials used in the construction nor the property passed therein as movables. It was held that in the building contract which was one (entire and indivisible), there was no sale of goods and it was not within the competence of the concerned provincial State Legislature (Madras Legislature) to impose tax on the supply of the materials used in such a contract treating it as a sale. Consequently, it was held that in a building contract which was one, entirely indivisible, there was no sale of goods and it was not within the competence of the Provincial State Legislature to impose tax on the supply of materials used in such a contract treating it as a sale. This was on the premise that the works contract was a composite contract which is inseparable and indivisible.

(F) In light of the said discussion, this Court concluded that the transfer of any goods in sub-clauses (a) to (f) of Clause (29A) of Article 366 of the Constitution is by way of a deeming provision i.e., a deemed sale. This Court however, cautioned that the levy of sales tax after the 46th Amendment to the Constitution of India has to still comply with the restrictions imposed under Articles 286 and 269 of the Constitution.

(G) Later a three-judge Bench of this Court in State of A.P. v. Kone Elevators [(2005) 3 SCC 389 = 2005 (181) E.L.T. 156 (S.C.)] had taken the view that a contract for ST Appeal No. 10005 of 2022-DB manufacture, supply and installation of lifts is a "sale" and the entire value of the consideration can therefore be taxed under the sales tax law. However, the matter was subsequently referred to a Larger Bench to review the issue afresh. This Court, on re- hearing the matter referred to it, in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu [(2014) 7 SCC 1 = 2014 (34) S.T.R. 641 (S.C.) = 2014 (304) E.L.T. 161 (S.C.)], observed that the installation obligation in a contract for manufacture, supply and installation of lift is not merely incidental, but was a profound part of the entire contract. That various components were assembled together and installed at site as a permanent fixture to the building. The goods, skill and labour elements are intimately connected with one another and the contract is not divisible. Therefore, this Court concluded that a contract for manufacture, supply and installation of lifts was a works contract. It was also observed that even after the 46th Amendment, if Article 366(29A)(b) is to be invoked, as a necessary concomitant, it must be shown that the terms of the contract would lead to a conclusion that it is a 'Works Contract'. In other words, unless a contract is proved to be a 'Works Contract' by virtue of the terms agreed to as between the parties, invocation of Article 366(29A)(b) of the Constitution, cannot be made. That in circumstances when no definite conclusion can be made to the effect that a given contract is a works contract, the same will have to be declared as a 'sale' attracting the provisions of the relevant sales tax enactments.

21. Having noted the above developments, it is necessary to discuss the judgment in Larsen and Toubro Ltd. (supra) in detail as Learned ASG, Ms. Divan has vehemently submitted that the said judgment requires re-consideration. It may be noted that this judgment concerned the position of law prior to the amendment made to the Finance Act, 1994, w.e.f. 1st June, 2007, incorporating the definition of works contract as under :

(a) In the aforesaid case, this Court traced the historical setting within which the controversy leading up to the 46th amendment in the context of levy of sales tax on works contract progressed. Taking up the question as to whether service tax could be levied on the service element of a works contract, it was observed that service tax was introduced by the Finance Act, 1994 and various services were set out in Section 65 thereof as being amenable to tax. The legislative competence of such tax is traceable to Article 248 read with Schedule VII List I Entry 97 to the Constitution of India. The controversy in the said case was with regard to the period prior to the 2007 Amendment made to the Finance Act, 1994 in the year 2007 which introduced the definition and concept of works contract as being a separate subject-matter of taxation. By the said amendment works contract, which were indivisible and composite were split so that only the labour and service element of such contracts would be taxed under the heading service tax. Thus, the tax was not on works contract as such. In the said case, the Revenue raised four arguments to assail the judgments of various Tribunals and High Courts which had decided against the Revenue on the point. By contrast, the assessees assailed the judgments of the Tribunal and the High Courts against them, in particular the judgment in G.D. Builders v. Union of India [2013 (32) S.T.R. 673], of the Delhi High Court. According to the assessees there was no service tax leviable on service element of works contract prior to amendment being made in the year 2007, insofar as the indivisible works contract were concerned and what was taxable under the Finance Act, 1994 was only cases of pure service in which there was no goods element involved. It was urged that the judgment of the Delhi High Court in G.D. Builders (supra) was wholly ST Appeal No. 10005 of 2022-DB incorrect and the minority judgment of the judicial members of a Larger Bench of the Delhi Tribunal in Larsen & Toubro Ltd. v. CST (in ST Appeal No. 58658 of 2013, decided on 19-3-2015), had comprehensively discussed all the authorities that were relevant to the issue and arrived at the correct conclusion. Thus, the assessees assailed the judgment of the Delhi High Court in G.D. Builders (supra) and considered along with Larsen & Toubro Ltd. v. CST (supra).