The Indian Hume Pipe Co. Ltd. vs The State Of Rajasthan And Ors. Finance ...

The Public Health and Engineering Department (for short, ‘PHED’) of the State Government invited tenders for providing and laying of pipes complete with suitable jointing material specials, valves and construction of valve chamber, anchor blocks table crossing, including testing and commissioning of pipelines. On August 23, 1988, a work order was issued by PHED in favour of the assessee and the assessee, under the contracts/agreement dated January 11, 1989, agreed to provide Civil Appeal No. 9879 of 2017 & Ors. Page 2 of 17 PSC pipes manufactured by it and had entered into the contracts with PHED for providing and laying of pipelines.

5) On June 28, 1989, a notification inserting Rule 10B in the Rajasthan Sales Tax Rules, 1955 granting exemption to Works contract came to be issued with retrospective effect from May 28, 1987. Another work order was placed by the respondent in favour of the assessee on July 10, 1989. Pursuant to this, another notification dated March 04, 1992 came to be issued by the respondent wherein it exempted tax on Works contract relating to dams and canals. The respondent issued another work order dated August 10, 1992 in favour of the assessee for commission of pipeline in a dam. Meanwhile, the assessee filed an application dated September 17, 1992 before the Commercial Tax Officer seeking exemption from paying tax. However, the same was rejected by the Commercial Tax Officer vide his order dated September 26, 1994 making it clear to the assessee that the pipes manufactured and supplied by it fall within the definition of ‘sale of goods’ and that the contract is divisible in nature. 75% value of the contract was treated as consideration for sale of goods.

15) In the first instance, it may be mentioned that the High Court has examined the nature of contract in question and has 2 (2015) 8 SCC 557 Civil Appeal No. 9879 of 2017 & Ors. Page 8 of 17 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 any interference.

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 Civil Appeal No. 9879 of 2017 & Ors. Page 16 of 17 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.

22) These appeals are, accordingly, dismissed with costs.

AUGUST 28, 2017.

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