Case: The Indian Hume Pipe Co. Ltd Vs. The State Of Rajasthan And Ors. Finance Department Secretary To Government Of Rajasthan

further that such a contract was treated as not divisible. It is for this reason in BSNL and Larsen and Toubro cases, this Court specifically pointed out that Kame case would not provide an answer to the issue at hand. On the contrary, the legal position stands settled by the Constitution Bench of this Court in Kone Elevator India (P) Ltd. v. State of T.N. Following observations in that case are apt for this purpose: (SCC p. 31, para 44) ?44. On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under clause (29-A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro, it has been stated that after the constitutional amendment, the narrow meaning given to the term ‘works contract? in Gannon Dunkerley (1) no longer survives at present. It has been observed in the said case that: (Larsen and Toubro case, SCC p. 750, para 72) ‘72. … even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, [for] the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract.? It has been further held that: (Larsen and Toubro case , SCC p. 750, para 72) ‘72. … Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term ?works contract? [because] nothing in Article 366(29-A)(b) limits the term ?works contract? to contract for labour and service only.?? 19) The history of legislative and constitutional amendment pertaining to works contract is well known, which has been stated and restated by this Court in number of cases. The entire position is summarised in Pro Lab case as well and, therefore, it is not necessary to burden this judgment by repeating the same. Purpose would be served by reproducing paragraph 20 of the said judgment wherein the legal position is summarised as follows: ?20. To sum up, it follows from the reading of the aforesaid judgment in Larsen and Toubro case that after insertion of clause (29-A) in Article 366, the works contract which was indivisible one by legal fiction, altered into a contract, which is permitted to be bifurcated into two: one for ?sale of goods? and the other for ?services?, thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause (29-A) of Article 366, the State Legislature is now empowered to segregate the goods part of the works contract and impose sales tax thereupon. It may be noted that Entry 54 of List II of Schedule VII to the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter of the State List, the State Legislature has the competency to legislate over the subject.? 20) It clearly follows from the above that by virtue of the Forty Sixth Amendment to the Constitution, a single and indivisible contract is now brought on par with a contract containing two separate agreements. It has also now become a settled position in law that the State Governments have power to levy sales tax on value of material in execution of the works contract. This position is brought about by creating friction whereby the transfer of moveable property in a works contract is deemed to be sale, even though it may not be well within the meaning of Sale of Goods Act. In Larsen and Toubro case it was further held that the value of gods which can constitute a measure of levy of the tax has to be the value of goods at the time of incorporation of the gods in the works even though property in goods passes later. Taxing the sale of goods element in a works contract is permissible even after incorporation of gods, provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property (refer to paragraph 124). 21) In the present case, the assessing authority, after scrutinising the agreement in question between the assessee and the State Government, returned a finding of fact that manufacture and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. do not fall within the scopes of buildings, bridges, dams, roads and canals. It was also held that the agreement was clearly in two parts, namely, (i) sale and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services. These findings are upheld not only by the appellate authority but also by the Single Judge of the High Court as well as the Division Bench of the High Court. It may also be mentioned at this stage that the assessee has, in fact, admitted that it had no grievance against the finding that supply of pipes was nothing but the sale of pipes involved in the execution of the contracts and, therefore, it was excisable to sales tax. In view of the findings recorded by the authorities below, this element of sale of goods shall apply to jointing material specials, valves, anchor blocks, etc. as well. Thus, we are unable to find any fault with the impugned judgment of the High Court.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7) We may mention that the State Government also issued notification dated March 29, 2001 wherein laying of pipeline with material has been categorized as Works contract and because of this the assessee?s work, after the said notification, is considered as Works contract and has been granted exemption from that date. We are, thus, concerned with the execution of this Works contract prior to the yearIn the first instance, it may be mentioned that the High Court has examined the nature of contract in question and has come to the conclusion that as per the terms and conditions thereof, substantial part of the value of the contract pertained to the cost of PSC pipes, joining material specials, valves, etc. which were manufactured by the assessee in its factory at Kekri and were not supplied to the State Government. The High Court, thus, affirmed the findings of the authorities below on this aspect and concluded that the findings with regard to sale of pipes involved in the works contract are findings of facts which did not require anyWe are inclined to agree with the aforesaid approach of the High Court, namely, when it is found on facts that the works contract executed by the assessee is a divisible contract, the argument of the assessee that it is to be treated as one single and composite contract needs to be rejected on the facts of this case. On these facts, we are also of the opinion that Kone Elevator India Private Limited is notIn the instant case, there is no dispute that the contract in question was a works contract. The issue is altogether different, namely, that of divisibility. It may be mentioned that before Article 366(29A) of the Constitution was amended with effect from March 01, 1983, the test applicable was ‘dominant nature test? or ‘degree of intention? or ‘overwhelming component test? or ‘degree of labour and serviceIt clearly follows from the above that by virtue of the Forty Sixth Amendment to the Constitution, a single and indivisible contract is now brought on par with a contract containing two separate agreements. It has also now become a settled position in law that the State Governments have power to levy sales tax on value of material in execution of the works contract. This position is brought about by creating friction whereby the transfer of moveable property in a works contract is deemed to be sale, even though it may not be well within the meaning of Sale of GoodsIn the present case, the assessing authority, after scrutinising the agreement in question between the assessee and the State Government, returned a finding of fact that manufacture and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. do not fall within the scopes of buildings, bridges, dams, roads and canals. It was also held that the agreement was clearly in two parts, namely, (i) sale and supply of PSC pipes, jointing material specials, valves, anchor blocks, etc. and (ii) the remaining part being supply of labour and services. These findings are upheld not only by the appellate authority but also by the Single Judge of the High Court as well as the Division Bench of the High Court. It may also be mentioned at this stage that the assessee has, in fact, admitted that it had no grievance against the finding that supply of pipes was nothing but the sale of pipes involved in the execution of the contracts and, therefore, it was excisable to sales tax. In view of the findings recorded by the authorities below, this element of sale of goods shall apply to jointing material specials, valves, anchor blocks, etc. as well. Thus, we are unable to find any fault with the impugned judgment of the High Court.