STR/1/2004 1/45 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SALES TAX REFERENCE No.1 of 2004 With SPECIAL CIVIL APPLICATION No.12508 of 2002 For Approval and Signature: HONOURABLE MR.JUSTICE J.M.PANCHAL & THE HON'BLE SMT. JUSTICE ABHILASHA KUMARI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether Their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to the Civil Judge? ========================================================= VOLTAS LTD. - Applicant Versus STATE OF GUJARAT - Respondent ========================================================= Appearance : MR KH KAJI for Applicant. MR KAMAL TRIVEDI, Advocate General WITH MS SANGEETA VISHEN, Assistant Government Pleader for Respondent. ========================================================= CORAM : HONOURABLE MR.JUSTICE J.M.PANCHAL and THE HON'BLE SMT. JUSTICE ABHILASHA KUMARI Date :04/09/2006 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE J.M.PANCHAL) STR/1/2004 2/45 JUDGMENT The Gujarat Sales Tax Tribunal at Ahmedabad has referred the following question of law under Section 69 of the Gujarat Sales Tax Act, 1969, for the opinion of this Court. “Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the applicant’s works contract for fabrication and installation of air-conditioning plants falls under Entry 2 and, therefore, taxable at the rate of 15% and not under Entry 5 under which it is taxable at the rate of 5%, of the Schedule to the notification dated 18-10-93 issued under Section 55A of the Gujarat Sales Tax Act, 1969? 2. The facts emerging from the record of the case, which have necessitated the reference of the above mentioned question of law for the opinion of this Court, are as under: 2.1 M/s.Voltas Limited is a company incorporated under the provisions of the Companies Act, 1956. It is registered as a dealer under the provisions of the Gujarat Sales Tax Act, 1969 (“the Act” for short). STR/1/2004 3/45 JUDGMENT The company, amongst other activities, is engaged in the business of carrying out jobs involving design, supply and installation of air-conditioning plants, which are treated by the company as indivisible works contracts. Earlier, the different rates of tax on sale of goods involved in execution of works contracts, as set out in Part-A of Schedule II-A of the Act, were as under: Sr. No. Description of works contract Entry No. in Schedule- IIA of the Act Regular rate of tax 1. Installation of air-conditioners and A.C. Coolers and for repairs thereof. 67 18% 2. Furniture and fixtures partitions including contracts for interior decoration and repairs thereof 104 8% 3. Fabrication and installation of lifts or elevators or escalators and for repairs thereof 120 12% 4. Fabrication and installation of plant and machinery and repairs thereof 39 8% 5. Construction of bodies on chassis of Motor vehicles including three wheelers and for repairs thereof 128(5) 4% 6. Ship building including construction of barges, Ferries, Tugs Trawlers or Dredgers and for repairs thereof 186 4% 2.2 Section 55A of the Act empowers the Commissioner to permit a dealer to pay at his option in lieu of the amount of tax leviable from him under STR/1/2004 4/45 JUDGMENT Section 7 or Section 8, a lump sum tax by way of composition at the rate or the rates as may be fixed by the Government by notification in the official gazette having regard to the incidence of tax on the nature of the goods involved in the execution of total value of the works contract. In exercise of powers conferred by Section 55A of the Act, the Government of Gujarat issued Notification dated October 18, 1993 ("the notification" for short), which was as under: G.N.F.D.No.(GHN-28)GST-1093-S.(55)(A)TH dtd. 18/10/93. In exercise of powers conferred by Section 55A of the Gujarat Sales Tax Act, 1969 (Guj. 1 of 1970), the Government of Gujarat hereby fixes the rate of composition payable in lieu of the amount mentioned in Column (3) of the schedule here to in respect of each works contract shown in column (2) of the said schedule, having regard to the incidences of the tax on the nature of goods involved in the execution of total value of the works contract. STR/1/2004 5/45 JUDGMENT Sr. No. Description of works contract Rate of composition 1. Works contract for civil works like construction of buildings, bridges or roads, and for repairs thereof 2% 2. Installation of air-conditioners and A.C. Coolers 15% 3. Furniture and Fixtures, Partitions including contracts for interior decoration 5% 4. Fabrication and installation of lifts or elevators or escalators 10% 5. Fabrication and installation of plant and machinery 5% 6. Construction of bodies on chassis of motor vehicles including three wheelers 3% 7. Ship-building, including construction of barges, ferries, tugs, trawlers or dredgers 2% 8. Works contracts other than those mentioned above 12% 2.3 M/s.Voltas Limited undertook air- conditioning and refrigeration job (Water Chilling Plant) at Vapi in Gujarat for M/s. Anupam Colours & Chemicals Industries, for a lump sum amount of Rs.3,99,000/- as per the contract deed dated October 22, 1993. The company was of the view that fabrication and installation of Water Chilling Plant was a works contract covered under Entry 5 of the Schedule to the notification attracting the rate of composition at 5% and was not covered by Entry 8 of the Schedule, i.e. residuary entry attracting the rate of composition at 12%. Therefore, the company filed an application under Section 62 of the Act STR/1/2004 6/45 JUDGMENT before the Deputy Commissioner of Sales Tax (Legal), Gujarat State, Ashram Road, Ahmedabad, and requested him to determine whether the air-conditioning and refrigeration plants were covered under Entry 5 of the Schedule to the notification and the company was liable to pay composition rate of tax at 5% only. It was also mentioned in the said application that in case the answer was in negative, it should be determined as to under which Entry of the Schedule to the notification, the air-conditioning contract undertaken by the company would fall and which composition rate of tax would be payable. 2.4 On the basis of the materials placed before him, the Deputy Commissioner by his order dated October 16, 1996 held that Entry 5 relating to “Plant & Machinery” was for ordinary movable machinery or conglomerate thereof whereas the company had carried out works contract for air-conditioning plant, which was covered by Entry 2 because the company had to air-condition the plant erected by it. The Deputy Commissioner noticed that besides the company’s plant being machinery and plant, the STR/1/2004 7/45 JUDGMENT company had to air-condition the same, and, therefore, the works contract was covered by Entry 2 of the notification. The Deputy Commissioner was of the view that the rates for composition were not fixed by the Legislature, but were fixed by the Government and, therefore, it was necessary to ascertain the intention of the Government in providing different rates of composition. On critical examination of notification, the Deputy Commissioner noticed that composition rates were 2% or 3% less than the rates of taxes mentioned in the Schedule to the Act and, therefore, in determining/fixing the rates of composition, the intention of the Government was to give relief to the extent of 3% with reference to the works contract covered by Entry 2 of the Schedule to the notification. On the basis of the above mentioned conclusions, the Deputy Commissioner by his order dated October 16, 1996 held that the works contract entered into by the company with M/s. Anupam Colours & Chemical Industries was covered by Entry 2 of the Schedule to the notification and rate for payment of composition applicable was 15%. STR/1/2004 8/45 JUDGMENT 2.5 Feeling aggrieved by the order made by the Deputy Commissioner, Sales Tax, under Section 62 of the Act, the company preferred Appeal No.16 of 1996 before the Gujarat Sales Tax Tribunal at Ahmedabad. During the course of regular assessment for the assessment year 1993-94, the Sales Tax Officer 1(4) following the decision of the Deputy Commissioner of Sales Tax dated October 16, 1996, assessed the company at the rate of 15% of the value of the works contract by his order dated October 23, 1997. The company, therefore, preferred an appeal against the said assessment order before the Assistant Commissioner of Sales Tax, Ahmedabad, who by his order dated May 6, 1999 also took the view that the works contract of the company was liable to be taxed at the rate of 15% under Entry 2 and not at the rate of 5% under Entry 5 of the Schedule to the notification. The company, therefore, preferred another appeal being Second Appeal No.97 of 2001 before the Gujarat Sales Tax Tribunal at Ahmedabad. 2.6 Appeal No.16 of 1996 and Second Appeal No.97 of 2001 were heard together by the Tribunal. The STR/1/2004 9/45 JUDGMENT Tribunal noticed that in simple plant and machinery, the contractor would complete the erection of plant and machinery and go away, but nothing would be produced by the said contractor whereas in the case of fabrication and installation of air-conditioning plant, production of cooling of air is done or provided at the time of erection of the plant and machinery and, therefore, air-conditioning plant would be covered under Entry 2 of the Schedule to the notification. The Tribunal noticed three different entries, which were in existence under the Act at the time when notification was issued under Section 55A of the Act and held that if the Government had desired to give separate benefit to air-conditioning plant, there would have been a separate entry in the Schedule to the said notification, but no separate entry was provided by the Government at all, which suggested that Entry 2 of the Schedule to the notification covered the fabrication and installation of air-conditioning plant. The Tribunal noticed the principle that a specific entry prevails over general entry and held that Entry 5, which generally dealt with simple fabrication and installation of plant and STR/1/2004 10/45 JUDGMENT machinery would not be applicable to air-conditioning plant, which is covered by Entry 2 of the Schedule to the said notification. In view of these conclusions, the Tribunal dismissed both the appeals vide judgment dated December 2, 2002. 2.7 Against the decision of the Tribunal rendered in Appeal No.16 of 1996 and Second Appeal No.97 of 2001, the remedy of the company was to file reference application under Section 69 of the Act. However, the company was of the view that the remedy of filing of reference application under Section 69 of the Act was not an adequate remedy available to it and was illusory in view of the fact that it was seriously debatable whether the Tribunal had any jurisdiction to stay the recovery of dues having regard to the provisions of Section 69(6) of the Act. The company, therefore, invoked extraordinary jurisdiction of this Court under Article 226 of the Constitution and challenged the decision dated December 2, 2002 rendered by the Gujarat Sales Tax Tribunal in Appeal No.16 of 1996 and Second Appeal No.97 of 2001 by way of filing Special Civil STR/1/2004 11/45 JUDGMENT Application No.12508 of 2002. The order-sheet of Special Civil Application No.12508 of 2002 indicates that several directions were issued therein, pursuant to which the Tribunal has referred the above quoted question of law for the opinion of this Court. By an order dated February 16, 2004 passed in Special Civil Application No.12508 of 2002, it was directed that the petition should be listed for hearing along with Sales Tax Reference No.1 of 2004. This is how the Reference has been tagged with the petition filed under Article 226 of the Constitution. 3. As common questions of facts and law arise for consideration of this Court, this Court proposes to dispose of Sale Tax Reference No.1 of 2004 and Special Civil Application No.12508 of 2002 by this common judgment. 4. Mr.K.H.Kaji, learned counsel for the assessee, contended that the installation of air- conditioners and A.C. Coolers, as mentioned in Entry 2 of the Schedule to the notification, connotes installation of room air-conditioners or window air- STR/1/2004 12/45 JUDGMENT conditioners because the words 'air-conditioners' are followed by words A.C. Coolers and, therefore, fabrication and installation of air-conditioning plant would not fall under Entry 2, but would fall under Entry 5 of the Schedule to the notification. It was argued that Entry 2 of the Schedule to the notification cannot include, by very nature of its meaning, air-conditioning plant because fabrication and installation of the plant is quite different, which is contemplated by Entry 5 of the Schedule to the notification. After referring to the entries of other States mentioned by the Tribunal in its judgment dated December 2, 2002 rendered in Appeal No.16 of 1996 and Second Appeal No.97 of 2001, it was argued that air-conditioning plant is separately mentioned from air-conditioner and A.C. Cooler as a result of which, it is wrong to hold that air- conditioning plant would fall under Entry 2 of the Schedule to the notification. What was pointed out by the learned counsel for the assessee to the Court was that fabrication requires preparation plant, lay-out drawing of the area to be air-conditioned as well as environmental conditions etc. and, therefore, there STR/1/2004 13/45 JUDGMENT is no good reason to exclude fabrication and installation of air-conditioning plant from Entry 5 of the schedule to the notification. The learned counsel emphasized that fabrication and installation of all kinds of plants and machineries as well as repairs thereof is included in Entry 5 and, therefore, the view taken by the Tribunal that the installation of air-conditioning plant would fall within Entry 2 of the Schedule to the notification should not be upheld by this Court. The learned counsel asserted that installation of air- conditioning plant falls within the scope of Entry 5 of the schedule to the notification and not in Entry 2 of the Schedule to the said notification as a result of which, the Tribunal was not justified in applying general principle that if a specific provision is made, that provision is applicable even though the case may fall within the general provisions. The learned counsel emphasized that whenever the words are not defined, common parlance meaning should be adopted by the Court and if common parlance meaning is adopted, it becomes at once clear that air-conditioners and A.C. Coolers are not STR/1/2004 14/45 JUDGMENT included in air-conditioning plant. It was pleaded that the delegated authority had before it three specific entries, i.e.(1) air conditioners, (2) A.C. Coolers, and (3) air-conditioning plant, but the entry relating to air-conditioning plant is omitted while framing composition scheme under Section 55A of the Act which, in turn, indicates that even competent authority never intended to include air-conditioning plant in Entry 2 of the Schedule to the notification and, therefore, the view taken by the Tribunal should not be upheld by this Court. In support of these contentions, the learned counsel for the assessee- company, relied on the decisions in (1) Ramavatar Budhaiprasad vs. Assistant Sales Tax Officer, Akola, & Another, 1961 Vol. XII Sales Tax Cases 286; (2) State of West Bengal & Ors. vs. Washi Ahmed & Ors., 1977 Vol.39 Sales Tax Cases 378; (3) Real Optical Co. vs. Appellate Collector of Customs & Another, 2001 Vol.122 Sales Tax Cases 555; and, (4) Parle Biscuits (P) Limited vs. State of Bihar & Ors., 2005 Vol. 139 Sales Tax Cases 204. 5. Mr.Kamal B. Trivedi, learned Advocate STR/1/2004 15/45 JUDGMENT General with Ms.Sangeeta Vishen, learned Assistant Government Pleader, for the Revenue referred to the decision of the Supreme Court in Builders’ Association of India & Ors. vs. Union of India & Ors., (1989) 2 SCC 645 and explained that the tax on the sale or purchase of goods includes among other things a tax on the transfer of the property in goods, whether as goods or in some other form, involved in the execution of a works contract and, therefore, before answering the question referred to this Court for its opinion, the Court should ascertain as to what is transferred in the execution of works contract. It was argued that the tax leviable by virtue of Entry 2 of the Schedule to the notification would be attracted to the facts of the case as transfer of air-conditioners and/or A.C. Coolers takes place in execution of a works contract relating to the installation of an air-conditioning plant. The learned Advocate General extensively referred to the meanings of ‘air-condition’, ‘air- conditioner’ and ‘air-conditioning’ from Webster’s Encyclopedic Unabridged Dictionary of the English Language; The New Shorter Oxford English Dictionary STR/1/2004 16/45 JUDGMENT on Historical Principles, The Free Encyclopedia of Wikipedia, etc. and pointed out that ‘air-condition’ means to furnish with an air-conditioning system and/or to treat air with such a system whereas ‘air- conditioner’ means an air-conditioning device and ‘air-conditioning’ means a system or process for controlling the temperature, humidity, and sometimes the purity of the air in an interior, as of an office, theater, laboratory, house, or the like, as a result of which, the just finding recorded by the Tribunal that air-conditioning plant would fall within Entry 2 of the Schedule to the notification should be upheld by this Court. The learned Advocate General referred to the documents, which were produced by the assessee before the Tribunal and pleaded that even on the showing of the assessee itself, the air-conditioning plant is a system or a facility which controls the temperature, humidity as well as purity of the air and, therefore, the works contract relating to the installation of the air- conditioning plant by the assessee would fall within Entry 2 of the Schedule to notification. What was emphasized was that there is no difference whatsoever STR/1/2004 17/45 JUDGMENT in device and/or design of the air-conditioners or A.C. Coolers or air-conditioning plants inasmuch as in all the devices, the machine throws cool air in the place covered by the said device and sucks hot air as well as maintains temperature and, therefore, it is wrong to contend that air-conditioners and A.C. Coolers connote only the room air-conditioners or window air-conditioners and nothing more than that. It was argued that an air-conditioner or A.C. Cooler would cover a small area whereas air-conditioning plant covers a large area such as office, theater, laboratory, house or the like and, therefore, it would be wrong to differentiate air-conditioner, A.C. Cooler and the air-conditioning plant on the basis of area covered by their operation. The learned counsel for the Revenue emphasized that notification issued under Section 55A of the Act is in nature of an Exemption Notification and, therefore, it must be construed strictly and in case of doubt, should be construed in favour of the Revenue and, therefore also, it should be held that the works contract of the assessee relating to installation of air- conditioning plant falls within Entry 2 of the STR/1/2004 18/45 JUDGMENT schedule to the notification and not within Entry 5 of the schedule to the said notification. The learned counsel pointed out to the Court that no evidence could be adduced by the assessee before the Tribunal to establish that in common parlance, an air- conditioner or A.C. Cooler or air-conditioning plant have different meanings and, therefore, common parlance test as is sought to be suggested to be applied by the learned counsel for the assessee should not be adopted while interpreting Entries 2 and 5 of the Schedule to the notification. What was pointed out by the learned counsel for the Revenue was that an air-conditioning system is capable of adding and removing humidity and moisture and/or filtering dust and odourants from the space or spaces it serves and as the same function is performed by the air-conditioner or A.C. Cooler, the Court should opine that the works contract of the assessee for installation of air-conditioning plant is covered by Entry 2 of the schedule to the notification. The learned counsel emphasized that there is nothing in Entry 2, which would restrict the meaning of installation of air-conditioner or A.C. Cooler only STR/1/2004 19/45 JUDGMENT to boxes or cabinets in domestic use for cooling and, there being no qualifying clause in Entry 2, it should be held that installation of air-conditioning plant is covered by Entry 2 of the schedule to the notification. The learned counsel for the Revenue asserted that the view taken by the Tribunal that works contract of the assessee relating to the installation of air-conditioning system falls within Entry 2 of the schedule to the notification is eminently just and, therefore, the Reference should be accordingly answered by the Court. In support of these submissions, the learned Advocate General relied on the decisions in (1) Collector of C.Ex. vs. Subros Ltd., 1989 (43) E.L.T. 543 (Tribunal); (2) State of Madras vs. SF Products India Ltd., 1972 Vol.XXIX Sales Tax Cases 454; (3) The Star Trading Co. (Private) Ltd. vs. The State of Bombay 1962 Vol. XIII Sales Tax Cases 102; (4) Anil Ice Factory & Anr. vs. Union of India, 1984 (15) E.L.T. 333 (Guj.); (5) Sanden Vikas (India) Ltd. vs. Collector of Central Excise, (2003) 4 SCC 699; (6) Indian Metals & Ferro Alloys Ltd., Cuttack vs. Collector of Central Excise, Bhubaneshwar, 1991 Supp. (1) SCC 125; (7) STR/1/2004 20/45 JUDGMENT Superintendent of Central Excise, Surat & Ors. vs. Vac Met. Corporation (P) Ltd., A.I.R. 1986 SC 1167; (8) M/s.Bombay Chemical Private Limited vs. The Collector of Central Excise, Bombay-I, Bombay, A.I.R. 1995 SCC 1469; and, (9) Liberty Oil Mills (P) Ltd., Bombay vs. Collector of Central Excise, Bombay, (1995) 1 SCC 451. 6. This Court heard Mr.K.H.Kaji, the learned counsel for the assessee, and Mr.Kamal B. Trivedi, learned Advocate General for the Revenue, at length and in great detail on August 25, 2006. However, the judgment could not be delivered for paucity of time and was reserved. The Court, therefore, now pronounces the judgment reserved. 7. The question arising in the instant reference is whether the assessee’s works contract for fabrication and installation of air-conditioning plant falls under Entry 2 and, therefore, taxable at the rate of 15% or whether it falls under Entry 5 and, therefore, taxable at the rate of 5%, of the Schedule to the notification issued under Section 55A STR/1/2004 21/45 JUDGMENT of the Act. A bare perusal of Section 55A of the Act makes it evident that it enables the State Government to fix rates of composition by notification in the official gazette having regard to the incidence of tax on the nature of the goods involved in the execution of total value of works contract. In exercise of powers conferred by Section 55A of the Act, the State Government issued the notification and fixed the rate of composition payable in lieu of the amount of tax mentioned in column (3) of the Schedule in respect of each works contract shown in column (2) of the said Schedule having regard to the incidence of the tax on nature of goods involved in the execution of total value of works contract. As the assessee undertook air-conditioning and refrigeration job for M/s. Anupam Colours & Chemical Industries by works contract dated October 22, 1993, it would be relevant to ascertain the nature of the goods involved in the execution of total value of the works contract. In Builders’ Association of India & Ors. (supra), the Supreme Court has explained as to what is “works contract”. From the said decision, it is evident that in State of Madras vs. Gannon Dunkerley STR/1/2004 22/45 JUDGMENT & Company (Madras) Limited, A.I.R. 1958 SC 560 : 9 STC 353, the Supreme Court held that a works contract was an indivisible contract and turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales tax. It was in order to overcome the effect of the