IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 22ND OCTOBER 2009 / 30TH ASWINA 1931 ST.Rev..No. 225 of 2009() ------------------------- RP.5/2008 of STAT ADDL.BENCH, KOTTAYAM .................... PETITIONER ------------------------------ R.P.G.TRANSMISSION LIMITED, KALPETTA NOW KNOWN AS KEC INTERNATIONAL LIMITED REPRESENTED BY ITS DY.GENERAL MANAGER (COMMERCIAL). BY ADV. SRI.K.P.DANDAPANI, SENIOR ADVOCATE SRI.MILLU DANDAPANI RESPONDENT(S): --------------- 1. THE COMMERCIAL TAX OFFICER (WC & LT), ALAPPUZHA. 2. THE DEPUTY COMMISSIONER OF TAXES (APPEALS), KOLLAM. 3. THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, THIRUVANANTHAPURAM. 4. STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, SECRETARIAT BUILDINGS, THIRUVANANTHAPURAM. BY GOVT. PLEADER SRI MOHAMMED RAFFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 22/10/2009, ALONG WITH STRV NO. 226 OF 2009 & STRV NO. 233 OF 2009 THE COURT ON THE SAME DAY PASSED THE FOLLOWING: (C.R) C.N. RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ---------------------------------------- STRV. Nos.225, 226 & 233 of 2009 ---------------------------------------- Dated, the 22nd day of October , 2009 ORDER Ramachandran Nair, J. The question raised in the connected revision cases filed by the petitioner is whether the Tribunal was justified in declining the concessional rate claimed by the petitioner at 4% for the work executed for K.S.E.Board under notification S.R.O No.1091/99. 2. We have heard the counsel appearing for the petitioner and the Government Pleader for the respondent and have also gone through the orders and the copy of the Contract produced in court. 3. The Kerala State Electricity Board (KSEB) awarded various items of work such as setting up of Substations, installation of Transmission and Distribution lines etc. in Wayanad District to the petitioner STRV 225,226 & 233/09 -:2:- for a total consideration of Rs.9,39,06,193/-. The scope of work as stated in the contract produced is briefly stated as below: “The scope covers the design, materials selection, manufacture, supply, engineering, inspection, testing at the manufacturer's work, packing, transportation to and delivery at the site, storage, erection, construction, supervision of construction/erection, installation, pre-commissioning tests and placing in successful operation and guarantees and training to the Kerala State Electricity Board's personnel, of 66/33 KV Bay extension at existing 220 KV Substation, Kaniampetta (2x20 MVA) ; construciton of 33/11 KV Substations at Kalpetta (2x5 MVA), Meenangady (2x5 MVA) and Pulpally (1x5 MVA), connected 33 KV and 11 KV lines and all allied works; with all associated equipments, control equipments etc., on turnkey basis complete in all respects in accordance with the specifications, drawings, conditions and appendices attached to the bidding documents to the full satisfaction of the KSE Board”. 4. The work was executed in the course of three years, 2002-03, 2003-04 and 2004-05. Since the work is admittedly works contract, the petitioner offered to remit tax at the compounded rate provided under section 7(7A) of the KGST Act which provides for payment of tax at 70 percent of the rate of tax provided for the work in the Fourth Schedule to the KGST Act on the total contract STRV 225,226 & 233/09 -:3:- amount. The assessing officer accepted the offer made by the petitioner and assessed the entire turn over work of contract at 8.4% which is 70% of the rate provided for the work in the Fourth Schedule, i.e., 12%. While making the assessment, the assessing officer turned down the claim of the petitioner for concessional rate of tax at 4% based on notification SRO No.1091/99. According to the petitioner, the notification applies to not only sale of goods to KSEB but also sale of goods in the course of execution of works contract, and so much so, tax payable under section 7(7A) read with the above notification is only 70% of 4%, i.e. 2.8%. The notification specifically states that concessional rate of tax at 4% is available on the sale of goods to KSEB, National Thermal Power corporation and other power generating undertakings in the joint sector with Capacity above 25 KW for use in the generation and distribution of power. The question to be considered is whether this notification is applicable for sale of goods involved in the execution of works contract. STRV 225,226 & 233/09 -:4:- Counsel for the petitioner relied on Annexure (g) Circular issued by Commissioner of Commercial Taxes clarifying the concessional rate of taxes on sale of goods to Government Departments applies also to goods sold in execution of works contract and contended that the clarification applies for the works executed for KSEB as well. However, Government Pleader submitted that the clarification issued for the work executed in the Government Department will not apply in this case because concessional rate in this case is only for limited items which are the ones used by electricity agency for generation and distribution of power. Admittedly, the work executed by the petitioner in this case is mainly setting up of Substation which includes even civil work. Section 22(1) of the KGST Act authorises collection of tax by registered dealers from the purchasers. In other words, concessional rate is an incentive given to purchasers and , in this case, it is worthwhile to note that in order to avail concessional rate for purchase by the STRV 225,226 & 233/09 -:5:- KSEB under the notification above referred, they are bound to issue declarations of purchases in terms of the notification. It is clear from the contract that the KSEB did not want any concessional rate of tax and the contract is loaded with full tax which is evident from para 3 of clause 12 on prices which is as follows: “KGST on works contract will be recovered from the bill of contracts at source, at the rate existing from time to time and remitted to sales tax department. The Board will not take any liability to pay sales tax on works contract or any other taxes which the contractor is required to pay under the statute. The contractor also has to pay the cess under Building and Other Construction Worker's Welfare Cess Act and Rules, 1996 at the rate of 1% on the cost of construction, including cost of materials”. It is obvious from the above that the KSEB has not treated the work awarded to the petitioner as supply of goods entitling itself for concessional rate of tax. There is nothing to indicate that the KSEB has undertaken to issue any declaration to the petitioner for them to avail concessional rate of sales tax. Even though at petitioner's request, they have issued declaration, it is seen that what they have stated is that goods purchased are for STRV 225,226 & 233/09 -:6:- works contract. In fact, the petitioner's claim is to be rejected for the simple reason that the mandatory requirement of declaration under the notification is not satisfied as the declaration produced is not in terms of notification. If concessional rate is to be granted, it is for the KSEB to state the item purchased and to declare that such items are for use in generation and distribution of power. Even though setting up of substation and power line are for distribution of power, it cannot be said that the work as a whole constitute goods, no matter, different goods constitute the work. What is clear from the provision contained in the contract is that the parties have agreed that the work executed is a works contract mentioned in KGST Act and the contract is loaded with tax component in full and it is for the contractor to pay the actual tax for the works contract. In other words, the purchaser for whose benefit concessional rate is provided under notification has not claimed the concessional rate. The beneficiary has not claimed STRV 225,226 & 233/09 -:7:- because the contract does not provide payment of tax at concessional rate which means that full rate of tax is loaded in contract amount. We therefore hold that petitioner's claim is neither bona fide nor tenable. Consequently, we uphold the order of the Tribunal confirming the assessment and dismiss the S.T.Revision cases. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- STRV 225,226 & 233/09 -:8:- V.K.MOHANAN, J. O.P.No. JUDGMENT Dated:..