Case: STATE OF ORISSA Vs. M/S B.ENGINEERS &amp; BUILDERS LTD. &amp; ORS.

3. The factual and background aspects of the matter, being not of much dispute and confined to a narrow compass, may be noticed, in brief, as follows:3.1. The respondent No. 1 of this appeal, said to be a company of engineers and builders, who had been engaged in undertaking various works contracts, responded to the tenders floated by the respondent Nos. 6 to 18 (various offices of the Government of Orissa) and, on being determined as the lowest tenderer, was awarded the contracts from time to time3.2. It is not in dispute that the aforesaid contracts awarded to the respondent No. 1 carried the stipulations regarding taxes in Clause 45 of GCC. The claim of the respondent No. 1 for reimbursement of sales tax had been essentially based on Clause 45.2 of GCC, which carried the stipulation that any Central or State sales tax and other taxes on completed items of works (excluding penalty), as may be levied and paid by the contractor shall be reimbursed by the employer on proof of payment (and) on production of assessment certificate3.3. The sales tax regime in the State of Orissa is primarily governed by the Act of 1947. By way of the Orissa Sales Tax (Amendment) Act, 1984 and the Orissa Sales Tax (Amendment) Act, 1985, the amendments were brought about in the Act of 1947 with effect from 07.04.1984 whereby, inter alia, the definition of expression Works contract was inserted; the definition of the expression Sale was expanded so as to include therein the transfer of property in goods involved in the execution of a works contract; and specific meaning was also assigned to the expression taxable turnover in respect of a works contract for the purpose of the rate of tax payable by a dealer. The rate of tax payable by a dealer on the taxable turnover in respect of works contract was fixed at 4%3.4. On 04.11.1986, the Government of Orissa, in its Department of Irrigation and Power, issued a Circular to the effect that in case of works contract executed on or after 07.04.1984, containing the specific clause for reimbursement of sales tax, the Department of Irrigation and Power would be liable for reimbursement of the amount of sales tax actually paid by the concerned contractor on production of necessary documentary evidence. Pursuant to these observations and directions, reimbursement of the sales tax paid by the contractor company in respect of assessment years 1995-1996 to 1997-1998 was allowed3.5. Later on, the State Government issued a notification under Section 5 of the Act of 1947 whereby, the rate of tax payable by a dealer on the taxable turnover in respect of the works contract was increased to 8%. Thereafter, by way of the orders of assessment for the years 1998- 1999 to 2000-2001, the Assessing Authority levied sales tax @ 8% on the taxable turnover in respect of the works contracts executed by the contractor company. With reference to such assessments, the contractor company claimed reimbursement of the sales tax paid in respect of the works contracts executed by it3.6. However, in the meantime, the Government of Orissa, in its Department of Water Resources, issued another Circular dated 27.01.2000 to the Engineers-incharge of various offices and projects that the question as to whether sales tax deducted from the bills of the contractor and paid to the sales tax officer will be again reimbursed to the contractor whose quoted price was inclusive of all taxes as per Clause13.3 of the Instructions to Bidders, was under active consideration; and it was directed that no reimbursement of sales tax be made under Clause 45.2 of GCC until clarification was communicated in that regard3.7. Thereafter, on 07.11.2001, the State Government, in its Department of Water Resources, issued the impugned Circular, said to be a clarificatory one, stating that a completed item of works, for which the contractor had entered into an agreement with the department, was either an immovable property or a works contract and in either case, was not exigible to sales tax; and therefore, the question of payment of sales tax on such immovable property or works contract and consequential reimbursement by the department as per Clause 45.2 of the General Conditions of Contract, or similar provision in other contracts, did not arise. Accordingly, the State Government instructed its Engineers- incharge not to reimburse the sales tax levied on cement, steel etc.; and also directed for recovery of the amount from the contractor wherever any such amount of sales tax had been reimbursed. These directions of the Government were followed up by another Circular dated 19.06.2002 to the same effect3.8. In view of the aforementioned Circulars dated 07.11.2001 and 19.06.2002, its claim, for reimbursement of the sales tax paid, being in jeopardy and rather, the proposition for recovery of the amount already reimbursed looming large, the contractor company preferred the writ petition leading to this appeal, while seeking the following reliefs: –(i) Issue a Rule Nisi Calling upon the Opposite Parties to show cause as to why the alleged clarification dated 07.11.2001 under Annexure-1, and the subsequent direction for recovery of the amount earlier reimbursed, vide letter dated 19.6.2002 under Annexure-3 ought not to be declared illegal, invalid and non-est in the eyes of law;(ii) issue a further Rule Nisi Calling upon the Opp. Parties to show cause as to why the reimbursement claims made by the petitioner under Annexure-5 series may not be granted with a period stipulated by this Honble Court;(iii) in the event the Opp. Parties fail to show cause or show insufficient cause make the said Rule Nisi absolute and issue an appropriate writ of Mandamus or a writ of certiorari in line with the aforesaid Rule Nisi;(iv) further be pleased to direct either of the Opp. Parties i.e., the contracting parties (Opp. Parties 6-18) or the Sales-tax Authorities (Opp. Parties 3-5) to effect reimbursement or refund along with interest from the date of deposit of tax;(v) to pass any other writ/writs, order/orders as this Honble Court may deem just and proper.4. The High Court in its impugned order dated 05.08.2008, examined the contentions of the parties and granted the prayers of the writ petitioner while observing and holding, inter alia, as under:-8…… The petitioner now claims reimbursement of tax paid by it on actual turnover of the works contract and not on the tax paid by it on the materials procured by it, which have gone into for the purpose of execution of the works contract. The further admitted fact that O.Ps. 6 to 18 have, in fact, deducted the sales tax at source from the bills raised by the petitioner from time to time in due progress of the work and the same have in turn been deposited with the Sales Tax Department.*** **** ****10. Now Annexure-1, which is sought to be quashed, is a clarification but not in supersession of Annexure-10, as it is projected by the State Government. The said clarification cannot take away the effect of the statutory provision. The orders of assessment in Annexure-4 series indicate that after deducting the labour charges, services charges, amount of tax paid, materials used in the execution of works contract, from the gross turn over of the assessment year, the balance has been put to tax by the Sales Tax Authority. The tax, as we find, has been imposed in the light of the decision in Gannon Dunkerly (supra).From the discussion made above, the irresistible conclusion is that the sales tax has been levied in the orders of assessment in respect of the amount received pertaining to items of work completed during the financial year. The clarification in Annexure-1, which unilaterally takes away the claim of the petitioner for reimbursement, is contrary to Clause-45.2 of the General Conditions of the Contract and Section 5 (2) (AA) of the Orissa Sales Tax Act as well as the decision of the apex Court in Gannon Dunkerly (supra). Accordingly, the clarification letter dated 7.11.2001 (Annexure-1) issued by the Financial Adviser-cum-Additional Secretary to Government, Department of Water Resources is quashed and the O.Ps. are directed to grant appropriate reimbursement in terms of Clause-45.2 of the General Conditions of Contract, as claimed by the petitioner.

Reasoning:
1. Before entering into the subject matter, we may notice at the outset that this petition for special leave to appeal is barred by limitation by a period of 274 days.Though objections have been raised on behalf of the contesting respondent against the prayer for condonation of delay but, the record shows that notices on the application seeking condonation of delay as also on the petition for leave to appeal were issued way back on 18.11.2011 and for a long time, the matter remained pending while awaiting service on the respondents. Ultimately, after completion of service, we had heard learned counsel for the contesting parties on merits.9.2. So far as the basic factual aspects are concerned, it is not in dispute that the respondent No. 1 indeed undertook execution of various works contracts with the respective offices of the appellant State of Orissa. It remains indisputable that in relation to such contracts, Clause 13.3 of ITB stipulated that all duties, taxes and other levies including royalties payable by the contractor were to be included in the bid price and Clause 45.1 of GCC specifically provided that the rates quoted by the contractor shall be deemed to be inclusive of the sales and other taxes including royalties on all materials that the contractor was to purchase for performance of the contract. However, and at the same time, it is also indisputable that as per Clause 45.2 of GCC, any Central or State Sales Tax and other taxes on completed items of works of the contract as might be levied upon, and paid by, the contractor (excluding penalty levied for contractors fault) were to be reimbursed to the contractor on proof of payment and assessment. This Clause 45.2 further envisaged that during the course of contract period, deductions of sales tax on works contract turnover was to be made at the source, from each bill as per the rate and conditions prescribed under the provisions of Act of 1947. It is also not in dispute that in the course of execution of such contracts, various running bill payments were made to the respondent No. 1 and while making such payments, deductions were indeed made towards the amount of sales tax; and such deducted amount of sales tax was deposited with the Sales Tax Department of the Government of Orissa. Further, it is also borne out that reimbursement of the sales tax so levied upon, and paid by, the respondent No. 1 in respect of the assessments for the years 1995-1996 to 1997-1998 was allowed; but such claim for reimbursement by the respondent No. 1 in respect of the assessments for the years 1998-1999 to 2000-2001 was declined10. Having taken all the relevant aspects in comprehension and having examined the matter in its totality, we are clearly of the view that the High Court has rightly allowed the writ petition filed by the respondent No. 1 and no case for interference in this appeal is made out11. Before proceeding further, we may at once observe that so far as the aforesaid Circulars are concerned, neither of them could be decisive of the issues at hand. As noticed, in the Circular dated 04.11.1986, the State Government expressed the view that the reimbursement in question was required to be allowed in terms of Clause 45.2 of GCC but later on, in the Circular dated 07.11.2001, the State Government took a diametrically opposite view to say that such reimbursement was not to be allowed in relation to the works contract. Obviously, the said Circulars had been based on the given day understanding of the State Government on the operation of the relevant provisions of law and the terms of contract. Such vacillating understanding on the part of the State Government cannot be determinative of the contractual obligations of the parties, which are required to be decided with reference to the principles of law applicable and on true construction of the terms of contract. Therefore, we would ignore the said Circulars while dealing with the principal issues involved in this matter but shall refer to them at a later and appropriate stage12. Reverting to the core issues, it remains rather indisputable that as per Clause 45.2 of GCC, the amount of sales tax on completed items of works of the contract, as might have been levied upon, and paid by, the contractor, except the penalty levied for contractors own fault, was to be reimbursed to the contractor on proof of payment and assessment. It was also provided in Clause 45.2 itself that, during the course of contract period, deductions of sales tax on works contract turnover would be made from the running bills at the prescribed rates and conditions. As noticed, it is not in dispute that while making payment of various running bills in the course of execution of contracts by the respondent No. 1, deductions were indeed made towards the amount of sales tax and such deducted amount of sales tax was deposited with the Sales Tax Department of the Government of Orissa. Such deductions and deposits with Sales Tax Department had clearly been in accordance with the stipulation contained in the second part of Clause 45.2 ibid. However, and even after making deductions in terms of the second part of Clause 45.2, the appellant State seeks to deny the operation of first part of this Clause 45.2 (whereby the contractor is entitled to reimbursement of the amount of sales tax) on the grounds that: (a) the reimbursement is envisaged of the sales tax levied on the completed item of work but, in works contract, such completed item is not exigible to sales tax and hence, the question of reimbursement does not arise; and (b) that as per Clause 45.1 of GCC read with Clause 13.3 of ITB, the contractor is deemed to have provided for the leviable amount of sales tax on goods/materials in its rates and hence, the contractor cannot claim any reimbursement thereof.The question is as to whether such contentions of the appellant against the operation of first part of Clause 45.2 of GCC could be countenanced?In our view, the answer could only be in the negative13. Taking up the main plank of the case of the appellant about the nature, extent and implication of the levy of sales tax in relation to a works contract, it could be usefully recapitulated that in view of the forty–sixth amendment to the Constitution of India, Clause (29-A) came to be inserted to Article 366; and, by virtue of sub-clause (b) thereof, it became permissible for the States to levys tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. In other words, after the forty-sixth amendment to the Constitution, the works contract is divided into two parts by a legal fiction: one for sale of goods/materials and other for supply of labour/services; and it is possible for the States to levy sales tax on the value of goods/materials involved in such works contract. These features have been expounded and explained by this Court in the referred cases of Builders Association, Gannon Dunkerley and P.N.C. Construction Co. (supra) and need no further enlargement13.2. As noticed, it has been the consistent case of the respondent No. 1 that in the running bill payments, the amount of sales tax was deducted and the same was deposited with the Sales Tax Department. It has also been the consistent case of the respondent No. 1 that in the referred orders of assessment, sales tax was levied on the applicable rates on the taxable turnover in respect of the works contracts executed by it and the claim for reimbursement was made of the amount of sales tax so levied and paid. The High Court has also recorded a categorical finding that after deducting the labour charges, service charges and the tax paid from the gross turnover, the balance had been put to tax by the Assessing Authority. These assertions of the respondent No. 1 as also the findings of the High Court are not the subject matter of dispute. That being the position, it is but evident that in relation to the works contracts executed by the respondent No. 1, the appellant and its offices have indeed levied the sales tax on the taxable turnover that was arrived at after due deduction of labour/service charges, in conformity with Section 5(2)(AA) of the Act of 1947. There had neither been any levy of the sales tax on the entire turnover of the works contracts nor any such levy could have been effected because, as noticed, the taxing event of sale in a works contract is confined to the use of the goods/materials in execution of the contractSuch a contention of the appellant remains wholly untenable in view of the scheme of levy of sales tax in a works contract as also the scheme of reimbursement envisaged by Clause 45.2 of GCC14.1. Contextually read, it is but apparent that the expression completed item of work in Clause 45.2 ibid., signifies the intent that reimbursement would be permissible only after execution of a particular item of work has been completed and accomplished. In other words, this expression is clearly intended to contradistinguish the cases where any item of work remains incomplete and yet any claim for reimbursement of the sales tax levied is sought for. This expression cannot be read to mean as if signifying the levy of sales tax itself on the completed item of work because such reading of this expression would be totally disjunct from the context and would be entirely detached from the real intent14.2. Viewed from another angle, it would appear that if the contention on the part of the appellant as regards interpretation of the first part of Clause 45.2 is accepted, it would practically result in holding that the said Clause 45.2 is not at all applicable to a works contract. Such a result cannot be countenanced for two major reasons: First, that if such a clause was not to be applied to the works contract, there was no reason to have retained the same in relation to the works contracts awarded to the respondent No. 1. When such a stipulation forms the part of contract, it would be rather preposterous to say that the same would stand but would not operate. Secondly, and more significantly, in the second part of this very Clause 45.2, it has specifically been provided that deductions of sales tax on works contract turnover at source shall be made from each bill. It is not far to seek, and is rather evident on a bare reading of Clause 45.2 in its entirety, that it is to apply in relation to the sales tax on works contract too. As noticed, the second part of Clause 45.2 had indeed been applied and enforced by the appellant and its offices by regularly making deduction of the amount of sales tax in the running payments of the respondent no. 1 and by regularly depositing the same with the Sales Tax Department. It would again be preposterous, nay absurd, to say that the second part of Clause 45.2 entitling the appellant and its offices to make deduction of sales tax on works contract turnover at source could be enforced but when it comes to reimbursement, the first part of this very Clause 45.2 would not apply to a works contract14.3. Viewed from any angle, we are satisfied that heavy reliance on behalf of the appellant on the expression completed item of work, as occurring in the first part of Clause 45.2, is entirely misplaced. The only implication of this expression is that a claim for reimbursement of sales tax cannot be made in relation to a particular work or item whose execution is pending or is in progress and has not been completed. So far the levy of sales tax in relation to a works contract is concerned, the same is on taxable turnover and not on the entire turnover. It follows necessarily that the claim for reimbursement could only be made of the amount of sales tax that had been levied; and had been paid by the contractor. Hence, the suggestion as if the expression completed item of work refers to the end-product of a works contract is without any substance. The contentions urged in that regard are required to be, and are, rejected.15.1. It remains trite that the terms of contract bind the parties thereto and unless there be any case of ambiguity or violation of law, ordinarily, the terms of contract, revealing the intent of parties, are required to be given effect to. The submission on the part of the appellant, that first part of Clause 45.2 of GCC would not operate because of Clause 45.1 of GCC read with Clause 13.3 of ITB, remains entirely baseless and appears to be of a desperate attempt to wriggle out of the contractual obligations. Even when the contractors were given instructions in the said Clause 13.3 of ITB to include all duties taxes and other levies in the bid price and even when the said Clause 45.1 of GCC provided that the rates quoted by the contractor shall be deemed to be inclusive of the taxes and royalties on all the materials which were to be procured for performance of the contract, it was yet provided in the first part of Clause 45.2 of GCC that the sales tax and other taxes on completed items of work, as may be levied upon, and paid by, the contractor shall be reimbursed to the contractor on proof of payment/on production of assessment certificate. It is, therefore, crystal clear that even when the contract provided that the rates quoted by the contractor shall be deemed to be inclusive of sales and other taxes and royalties on the materials, it was agreed to between the parties that sales tax and other taxes under completed items of work, as paid by the contractor were to be reimbursed15.2. It would at once appear that if the contention on the part of the appellant on the operation of Clauses 13.3 of ITB and 45.1 of GCC is accepted in the manner that when the rates quoted by the contractor are inclusive of the taxes on the goods/materials to be used in performance of the contract, reimbursement of the sales tax levied upon, and paid by, the contractor is not to be allowed, it would practically result in rendering the first part of Clause 45.2 otiose and redundant. Neither that had been the intent of the parties nor could the terms of contract be construed in this manner15.3. In our view, the implication and effect of Clauses 13.3 of ITB and 45.1 of GCC had only been that while making the bid and quoting the rates, the contractor was supposed to include the taxes, duties, royalties etc. payable by it over the materials to be procured and utilised in performance of the contract and hence, while raising the bills, the contractor was not entitled to claim any amount towards any such tax/duty/royalty paid by it on the materials purchased for performance of the contract. These clauses, i.e., Clause 13.3 of ITB and 45.1 of GCC, which prohibit the contractor from demanding taxes, duties, royalties etc. on the materials procured by it for performance of the contract do not, and cannot, conversely operate over the sales tax which is levied upon the contractor and which is primarily recovered with deductions from the running bill payments. In other words, in our view, on a plain reading of the aforesaid relevant terms of the contract, it is clear that while the contractor cannot claim any payment towards the taxes/duties/royalties etc. on the goods/materials purchased by it for performance of the contract but that does not disentitle the contractor from claiming reimbursement of the sales tax levied upon it by the employer, of course after proof of payment/assessment. It is also pertinent to mention that the respondent No.1 only claimed reimbursement of the sales tax paid by it on the turnover of the works contract and not of any tax or duty or royalty paid by it on the material procured for the purpose of execution of the works contract. Therefore, the contentions urged on behalf of the appellant on the operation of Clauses 13.3 of ITB and 45.1 of GCC over the claim of the contractor also deserve to be, and are, rejected16. To summarise the discussion in the preceding paragraphs, we are clearly of the view that by virtue of Clause 45.2 of GCC, the contractor company is rightfully entitled to claim reimbursement of the amount of sales tax levied on the taxable turnover of the works contracts executed by it. A fortiori, the grounds on which the appellant seeks to resist the claim of the contractor company for such reimbursement, i.e., with reference to the expression completed item of work in the said Clause 45.2 and with reference to the stipulations contained in Clauses 13.3 of ITB and 45.1 of GCC, are wholly untenable and the appellant and its contracting offices are under obligation to honour the claim so made by the contractor company17. Before finally concluding on this matter, we are inclined to make a few comments as regards the Circulars issued by the State Government pertaining to the subject of reimbursement of sales tax in works contracts. While noticing that diametrically opposite views were expressed by the State Government in the two main Circulars dated 04.11.1986 and 07.11.2001, we had observed in the earlier part of this judgment that the said Circulars were based on the given day understanding of the State Government but such vacillating understanding of the State Government was not determinative of the matter; and hence, we had ignored the said Circulars while dealing with the principal issues involved in this matter, but had also indicated that we shall refer to the said Circulars at a later and appropriate stage17.1. The basic reason for which we feel impelled to refer to these Circulars now and at this concluding stage is borne out of the contents of the Circular dated 04.11.1986, which was issued by the State Government closely following the amendment of the Act of 1947 with insertion of the provisions aimed at facilitating the levy of sales tax on the goods involved in a works contract. Being aware of its obligation in terms of the said Clause 45.2 of GCC (or similar clause/s in other contracts), the instructions were issued by the State Government in the said Circular dated 04.11.1986 for: (a) making reimbursement of the amount of sales tax actually paid by the contractor on production of necessary documentary evidence of such payment; (b) not making reimbursement against the amount of penalty, if any, levied upon the contractor; and (c) obtaining undertaking from the contractor to refund the excess amount of reimbursement, in case of reduction of its liability towards sales tax in appeal or revision [vide sub-paragraphs (i) to (iii) of paragraph 2 of the Circular dated 04.11.1986]. However, the significant feature is that in the second set of instructions in this very Circular, as contained in sub- paragraph (iv) of paragraph 2 thereof, the Engineers-incharge were instructed that no such clause for reimbursement of sales tax or payment of such tax by the department to the contractor be inserted in the Notice Inviting Tenders or Tender document; and no tender containing any clause or condition to that effect be accepted. The said second set of instructions in sub-paragraph (iv) of paragraph 2 of this Circular was, obviously, meant for future contracts, but, its contrast with the first set of instructions in the preceding sub-paragraphs fortifies the conclusion that the State Government was fully conscious of its obligation to make reimbursement in relation to the existing contracts which carried such reimbursement clause/s17.2. As to what stipulations, terms and conditions are to form the part of contract remains a matter essentially in the domain of the contracting parties (of course, subject to the applicable requirements of law) and no comments as regards future contracts are requisite herein but, on a comprehensive reading of the Circular dated 04.11.1986, it is evident that the State Government was fully conscious of its obligation towards reimbursement under the existing terms of contracts and hence, issued directions for due discharge of such obligation with necessary safeguards and, at the same time, provided that henceforth, neither such a clause be inserted in the contract documents nor any tender containing such a clause or condition be accepted17.3. Evidently, the doubts at the later stage, as indicated in the Circular dated 27.01.2000, and converse decision against the obligation of reimbursement, as stated in the Circular dated 07.11.2001, had only been of unwarranted attempts to wriggle out of the contractual obligations with rather perverse construction of the plain terms of the existing contracts. Be that as it may, the propositions in the said ill-advised Circular dated 07.11.2001 stand disapproved with the conclusions reached by us hereinbefore. We say no more.