SMT. B. NARASAMMA versus DEPUTY COMMISSIONER COMMERCIAL TAXES  KARNATAKA & ANR.
[2016] 7 S.C.R. 760, Supreme Court of India, 2016
Outcome: Disposed off
Segment: Ratio
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(2016] 7 S.C.R. 760 
SMT. B. NARASAMMA 
v. 
DEPUTY COMMISSIONER COMMERCIAL TAXES 
KARNATAKA & ANR. 
(Civil Appeal No. 4149 of2007) 
AUGUSTil,2016 
[A.K. SIKRI AND R.F. NARIMAN, JJ.) 
Taxation - Central Sales Tax Act, 1956 - ss.14 & 15 - Goods 
declared to be of special importance - Rate and point of taxabi/ity 
- Such deplored goods, taxable under Karnataka Sales Tax Act 
and Karnataka Value Added Tax Act, if remain the same or lose 
their identity as declared goods at the point of taxability when used 
in execution of works contracts - Held: Works contracts liable to 
be taxed after the 46''' Constitution amendme/11 are subject to drill 
of Art. 286(3) r/w s.15, Central Sales Tax Act - Declared goods in 
question (iron and steel products) that are used in execution of works 
contract, for reinforcement of cement concrete used in buildings, 
remain exactly the same goods at the point of taxabi/ity, i.e. the 
point of accretion (the point of incorporation into the building or 
structure) - Mere cutting into different shapes and bending does 
not make these items lose their identity - Hence, would only be 
taxed at the rate of 4% in accordance with the restrictions contained 
in s.15, Central Sales Tax Act - Karnataka Sales Tax Act, 1957 -
ss.5(4), 5-B - Sch. !Vth/Vlth - Karnataka Value Added Tax Act, 
2003 - s.4 - Sch. 111"1/Vfh - Constitution of India - Arts. 286(3) 
and 366(29A) . 
Disposing of the appeals, the Court 
HELD: 1.1 By the 46'h Amendment
of the Constitution, 
Article 366 (29A) was added, by which it became possible by a 
deeming fiction to tax sale of goods involved in a works contract. 
The Karnataka Sales Tax Act was amended by inserting Section 
5-B to tax goods involved in works contracts. The Fourth 
Schedule of the said Act deals with declared goods in respect of 
which a single point tax is leviable under Section 5(4). [Paras 6 
and 71 1765-B; 766-AJ 
760
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA 
2. Two important propositions emerge on a conjoint reading 
of Builders Association and M/s. Gannon Dunkerley. First, the 
works contracts that are liable to be taxed after the 46•h 
Constitution Amendment are subject to the drill of Article 286(3) 
read with Section 15 of the Central Sales Tax Act, namely, that 
they are chargeable at a single point and at a rate not exceeding 
4% at the relevant time. Further, the point at which these iron 
and steel products are taxable is the point of accretion, that is, 
the point of incorporation into the building or structure. In light 
of the law laid down in Builders Association and Mis. Gannon 
Dunkerley, the declared goods in question could only be taxed at 
the rate of 4%. [Paras 13 and 18] [769-G-H; 770-A; 778-E] 
State of Karnataka and etc. etc. v. Mis. Reddy Structures 
Pvt. Ltd. and etc. etc. Builders' Assn. of India v. Union 
of India (1989) 2 SCC 645 : 1989 (2) SCR 320; Gannon 
Dunkerley and Co. v. State of Rajasthan (1993) 1 SCC 
364 : 1992 (3) Suppl. SCR 103 - relied on. 
State of Tamil Nadu v. Mis. Pyare Lal Malhotra and 
Ors. (1976) 1 SCC 834 : 1976 (2) SCR 168 - referred 
to. 
1976 (2) SCR168 
1989(2) SCR320 
Case Law Reference 
referred to 
Para 12 
relied on 
Paras 13, 14 & 18 
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1992 (3) Suppl. SCR 103 
relied on 
Paras 13, 14 & 18 . 
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4149 
of2007. 
From the Judgment and Order
dated 12.08.2004 of the High Court 
of Karnataka in STRP No. 34 of 2003 
WITH 
C.A. Nos. 4318 and4319 of2007. 
C.A. Nos. 7400, 7401-7872 and 7873-7916 of2016. 
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SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
N. Venkat Raman, Basava Prabhu S. Patil, S. K. Bagaria, K. V. 
Vishwanathan, K. N. Bhat, Sr. Advs., Yashraj Singh Deora, Ms. 
Priyadarshinee Singh, Ms. Ashmita Singh, (For Mis. Mitter & Mitter 
Co.), Sumit Goel, Ms. Rukhmini S. Bobde, K. Ray, (For Mis. Parekh & 
Co.), Mis. Keswani & Co., V. N. Raghupathy, Anirudh S., Parikshit 
Angadi, Chinmay Deshpande, Amjid Maqbool, Sanjay Kunur, Ramesh 
Keswani, Anand San jay M. Nuli, Dharm Singh, Mis. Nuli & Nuli, Vikas 
Mehta, Raghavendra S. Srivatsa, Mahesh Agarwal, Ms. Parul Shukla, 
Vibhor Agrawal, Himanshu Satija, K. Ajit Singh, E. C. Agrawala, Roh it 
Bhat, Mohammad Saffiq, Purushottam, Surya Prakash, V. Shyamohan, 
Manish Kumar, Mohit Arora, Ms. Divya Roy, T. R. B. Sivakumar, V. 
Vijaya Kumar, V. Lakshmikumaran, M. P. Devanath, Aditya Bhattachaya, 
Anandh K., Ms. L. Charnaya, Hemant Bajaj, Abhishek Anand, Mohit 
Chaudhary, Ms. Puja Sharma, Ms. Damini Chawla, Kuna! Sachdeva, 
lmranAli, Vikas Upadhyay, KanupriyaBhargava, Sandeep Singh, Pratap 
Venugopal, Ms. Surekha Raman, Ms. Niharika,Ajay Sanna, Aman Shukla, 
Shekhar G. Devasa, Manish Tiwari, Anup Kumar, T. V. Ratnam, M. 
Sowri Dev, S. Kaushik, Advs. for appearing parties. 
The Judgment of the Court was delivered by 
R.F. NARIMAN, J. I. Leave granted 111 SLP(C) Nos. 
1525312015, 18646-1911712015, I 0081-1012412015. 
2. This group of appeals concerns the rate oftaxability of declared 
goods-i.e. goods declared to
be of special importance under Section 14 
of the Central Sales Tax Act, 1956. The question that has to be answered 
in these appeals is whether iron and steel reinforcements of cement 
concrete that are used in buildings lose their character as iron and steel 
at the point of taxability, that is, at the point of accretion in a works 
contract. All these appeals come from the State of Karnataka and can 
be divided into two groups-one group relatable to the provisions of the 
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that .are 
relatable to the Karnataka Value Added· Tax Act, 2003. The facts in 
these appeals are more or less similar. Iron and Steel products are used 
in the execution of works contracts for reinforcement of cement, the 
iron and steel products becoming part of pillars, beams, roofs, etc. which 
are all parts of the ultimate immovable structure that is the building or 
other structure to be constructed. 
·
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
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COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
3. Before coming to the submissions of learned counsel for the 
A 
parties, it is necessary to first set out the relevant provisions of the 
Constitution, the Central Sales Tax Act and the two Karnataka Acts in 
question. 
4. Article 286(3) of the Constitution reads as follows:-
"'Article 286. Restrictions as to imposition of tax on 
the sale or purchase of goods 
xx xx xx 
(3) Any law of a State shall, in so far as it imposes, or 
authorises the imposition of, 
(a) a tax on the sale or purchase of goods declared by 
Parliament by law to be of special importance in inter State 
trade or commerce; or 
(b) a tax on the sale or purchase of goods, being a tax of 
the nature referred to in sub clause (b ), sub clause ( c) or 
sub clause (d) of clause 29 A of Article 366, be subject to 
such restrictions and conditions in regard to the system of 
levy, rates and other incidents of the tax as Parliament may 
by law specify." 
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant 
to the present case reads as follows: 
"Section-14 
Certain goods to be of special importance in 
B 
c 
D 
E 
inter-State trade or commerce.- It is hereby declared 
F 
that the following goods are of special importance in inter-
State trade or commerce:-
(iv) iron and steel, that is to say,-
(i) [pig iron, sponge iron and] cast iron including [ingot moulds, 
bottom plates], iron scrap, r.ost iron
scrap, runner scrap and 
ir0n skull scrap; 
(ii) Steel semis (ingots, slabs, blooms and billets ofall qualities, 
shapes and sizes); 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
(iii) Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars; 
B 
(iv) Steel bars, rounds, rods, squares, flat, octagons and hexagons, 
plain and ribbed or twisted, in coil form as well as straight 
lengths; 
(v) steel structurals (angles, joists, channels, tees, sheet piling 
sections, Z-sections or any other rolled sections); 
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot 
and cold rolled plain and corrugated, in all qualities, in straight 
lengths and in coil form, as rolled and in riveted condition; 
C 
(vii) Plates both plain and chequered in all qualities; 
(viii) Discs, rings, forgings and steel castings; 
D 
E 
(ix) Tools, alloy and special steels ofany of the above categories; 
(x) Steel melting scrap in all forms including steel skull, turnings 
and borings; 
(xi) Steel tubes, both welded and seamless, of all diameters and 
lengths including tube fittings; 
(xii) Tin-plates, both hot dipped and electrolytic and tin free plates; 
(xiii) Fist plate bars, bearing plate bars, crossing sleeper bars, 
fish plates, bearing plates, crossing sleepers and pressed steel 
sleepers-heavy and light crane rails; 
(xiv) Wheels, tyres, axles and wheels sets; 
(xv}Wire rods and wires-rolled, drawn, galvanized, aluminized, 
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tinned or coated such as by copper; 
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(xvi) Defectives, rejects, cuttings, or end pieces ofany of the above 
categories;] 
Section 15 
Restrictions and conditions in regard to tax
on sale 
or purchase of declared goods within a State. 
Every sales tax law of a State shall, in so far as it imposes 
or authorizes the imposition of a tax on the sale or 
purchase of declared goods, be subject to the following
SMT. 8. NARASAMMA v. DEPUTY COMMISSIONER 
765 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
restrictions and conditions, namely: 
A 
The tax payable under that law in respect of any sale or 
purchase of such goods inside the State shall not exceed 
[five per cent.] of the sale or purchase price thereof[***];" 
6. Dy the 46'h Amendment of the Constitution, Article 366 (29A) 
8 
was added, by which it became possible by a deeming fiction to tax sale 
of goods involved in a works contract. Declared goods were taxable 
under Section 5(4) of the Act, which is set out hereunder: 
"Section 5( 4) 
Notwithstanding anything contained in sub-section (1) or 
Section 5-8 or Section 5-C a tax under this Act shall be 
levied in respect of the sale or purchase of any of the 
declared goods mentioned in column (2) of the Fourth 
Schedule at the rate and only at the point specified in the 
corresponding entries of columns (4) and (3) of the said 
Schedule on the dealer liable to tax under this Act on his 
taxable turnover of sales or purchase in each year relating 
to such goods:" 
The Karnataka Sales Tax Act was amended to tax goods involved 
c 
D 
in works contracts. Taking advantage of the constitutional amendment, 
E 
Section 5-8 was inserted in the Karnataka Sales Tax Act, 1957. This 
Section reads as follows:-
"Section 5-E; Levy of tax on transfer of property in 
goods (whether as goods or in some other forms) involved 
in the execution of works contracts. Notwithstanding 
F 
anything
contained in sub-section ( 1) or sub-section (3) or 
sub-section (3-C) of Section 5, but subject to sub-section 
(4), (5) or (6) of the said Section, every dealer shall pay for 
each year, a tax under this Act on his taxable turnover of 
transfer of property in goods (whether as goods or in some 
G 
other form) involved in the execution of works contract 
mentioned in column (2) of the Sixth Schedule at the rates 
specified in the corresponding entries in coklmn (3) of the 
sa,id Schedule." 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
7. The Fourth Schedule of the said Act, which deals with declared 
goods in respect of which a single point tax is leviable under Section 5( 4) 
reads asfollows: 
B 
c 
"Act 3 of 1983 (From 1-11-1982) 
SI No Description of the 
Point of levy 
Goods 
2 
2. "Iron and steel, that 
is to say,-" 
[(a)] (i) pig iron and cast iron 
including ingot moulds, bottom 
3 
Period 
Rate 
for which 
of tax 
a1212 Ii cab I e 
4 
5 
plates 
-do-
From 1-11-82 4% 
D 
(ii) steel semis (ingots, slabs, 
blooms and billets ofall qualities, 
shapes and sizes) 
-do-
From 15-7-75 4% 
(iii) skelp bars, tin bars, sheet 
bars, hoe-bars and sleeper bars; 
(iv) steel bars (rounds, rods, 
E 
squares, flats, octagon and 
hexagons, plain and ribbed or 
twisted, in coil form as well as 
straight lengths); 
(v) steel structurals (angles, joists, 
F 
channels, tees, sheet piling 
sections, Z sections or anY, other 
• 
rolled sections); 
(vi) sheets, hoops, strips and 
skelp, both black and galvanized, 
G 
hot and cold rolled, plain and 
corrugated, in all qualities, in 
straight lengths and in coil form, 
as rolled and in riveted condition; 
(vii) plates both plain and 
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SMT. 8. NARASAMMA v. DEPUTY COMMISSIONER 
767 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
chequered in all qualities; 
A 
(viii) discs, rings, forgings and 
steel castings; sales by the first 
or the earliest of the successive 
dealers in the state liable to tax 
under this Act. 
(ix) tool, alloy and special steels 
of any of the above categories; 
Act 30of1975 (15-7-75 to 31-10-82) 
(x) steel melting scrap in 
All forms including steel 
skull turnings and borings; 
-do-
15.7.75 to 
31.10.82 
4% 
8. Similarly, the Sixth Schedule, which is to be read with Section 
5-B, insofar as it is relevant, reads as under:-
SI. No. 
Description of works 
Contact 
period for which 
applicable 
Rate of 
Tax 
1 
2 
3 
4 
6. 
Civil works like construction 
1-4-86 to 31-3-95 Five per cent 
of building, bridges, roads, etc. 1-4-95 to 31-3-91 Eight per cent 
9. Post 1.4.2005, the Karnataka Value Added Tax.Act, 2003, taxed 
declared goods and works contracts generally as follows:-
B 
c 
D 
E 
Section 4 - Liability to tax and rates thereof. 
F 
(1 )Every dealer who is or is required to be registered as specified 
in Sections 22 and 24, shall be liable to pay tax, on his taxable 
turnover, 
(a) in respect of goods mentioned in,-
(i) Second Schedule, at the rate of one per cent, 
(ii) Third Schedule, at the rate of four per cent in respect of 
goods specified in serial number 30 and five per cent in 
respect of other goods, and 
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A 
(iii) Fourth Schedule, at the rate of twenty per cent. 
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco 
at the rate of fifteen per cent; 
B 
(ii) other goods at the rate of thirteen and one half per cent. 
(c) in respect of transfer of property in goods (whether as 
goods or in some other form) involved in the execution of 
works contract specified in column (2) of the Sixth Schedule, 
subject to Sections 14 and 15 of the Central Sales Tax Act, 
c 
1956 (Central Act 74of1956), at the rates specified in the 
corresponding entries in column (3) of the said Schedule. 
D 
E 
Third Schedule: 
30. Declared goods as specified in Section 14 of the Central 
Sales Tax Act, 1956 (Central Act 74 of 1956) 
Sixth Schedule: 
23. All other works contracts Fourteen and one half per 
not specified in any of the cent 
above categories including 
composite contracts with 
one or more of The above 
categories 
Fourteen 
and 
one half per cent 
10. We have in the main to deal with the impugned judgment 
dated 1.9.2006 in Civil Appeal No.4318 of 2007, and judgment dated 
F 
12.8.2004 in Civil Appeal No. 4149 of2007 in favour of Revenue, and a 
detailed impugned judgment which is challenged by the State of 
Karnataka dated 10.12.2013 in State ofKarnataka and etc. etc. v. 
Mis. Reddy Structures Pvt. Ltd. and etc. etc. in Civil Appeals arising 
outofSLP (Civil) Nos.18646-19117/2015. 
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11. Shri N. Venkatraman led
the arguments on behalf of the 
assessees, after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and 
some others followed. According to learned counsel, the present matter 
is concluded by two judgments of this Court, namely, Builders' Assn. 
oflndia v. Union oflndia, ( 1989) 2 SCC 645, and Gannon Dunkerley 
and Co. v. State of Rajasthan, (1993) I SCC 364. The detailed
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
judgment dated 10.12.2013 correctly extracts all the relevant passages 
from the aforesaid judgments to reach the conclusion that under the 
Kamataka Value Added Tax Act, 2003, the iron and steel products that 
are reinforced for cement concrete used in buildings and structures, 
remains exactly the same goods at the point oftaxability- that is, the 
point of accretion, and that mere cutting into different shapes and bending 
does not make these items lose their identity as declared goods. Therefore, 
according to learned counsel, only tax at the rate of 4% can be levied, 
and not the higher rate levied in respect of civil construction works 
generally. Other learned counsel more or less argued along the same 
lines as Shri N. Venkatraman, only adding that it cannot be said that the 
identity of the iron and steel goods had changed atthe point oftaxability, 
and they cited several judgments to show that mere cutting and shaping 
of these products would not amount to "manufacture" and hence the 
very goods that were declared goods alone were taxable at the rate of 
4%, both under the Karnataka Sales Tax Act as well as the Karnataka 
Value Added TaxAct, 2003. 
12. Shri K.N. Bhat, learned senior advocate appearing on behalf 
of the State, relied strongly on State ofTamil Nadu v. Mis. Pyare Lal 
Malhotra and Others, (1976) 1 SCC 834, in order to buttress his 
submission that the iron and
steel products did not continue as iron and 
steel products but somehow became different goods at the point of 
accretion and that, therefore, they could be taxed at the higher rate 
applicable to civil constructions generally. He did not dispute the law laid 
down in the two Supreme Court judgments cited by Shri N. Venkatraman, 
and very fairly submitted that ifthe iron and steel products continued as 
declared goods then even though they were in a works contract they 
were subject to the drill of Section 15 of the Central Sales Tax Act, and 
would therefore be chargeable at 4% if it were found that the said 
products continue to remai,n the same. 
"·13. Having heard learned counsel for the parties: we are of the 
opinion that Shri N. Venkatraman is right. The matter is no longer 
res integra. Two important propositions emerge on a conjoint reading 
of Builders Association and Mis. Gannon Dunkerley (supra). First, 
that works contracts that are liable to be taxed after the 461h Constitution 
Amendment are subject to the drill of Article 286(3) read with Section 
15 of the Central Sales Tax Act, nam~ly, that they are chargeable at a 
single point and at a rate not exceeding 4% at the relevant time. Further, 
769 
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the point at which these iron and steel products are taxable is the point 
of accretion, that is, the point of incorporation into the building or structure. 
14. The relevant paragraphs from these two decisions, therefore, 
need to be set out. In Builders Association (supra), this Court held: 
"We.are of the view that all transfers, deliveries and supplies 
of goods referred to in clauses (a) to (f) of clause (29-A) 
of Article 366 of the Constitution are subject to the 
restrictions and conditions mentioned in clause (I), clause 
(2) and sub-clause (a) of clause (3) of Article 286 of the 
Constitution and the transfers and deliveries that take place 
under sub-clauses (b), (c) and (d) of clause (29-A) of Article 
366 of the Constitution are subject to an additional restriction 
mentioned in sub-clause (b) of Article 286(3) of the 
Constitution. [para 32] 
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 
36 it is stated thus: 
"Chattel to be affixed to land or another chattel.-
Where work is to be done on the land of the employer or on 
a chattel belonging to him, which involves the use or affixing 
of materials belonging to the person employed, the contract 
will ordinarily be one for work and materials, the property · 
in the latter passing to the employer by accession and not 
under any contract of sale. Sometimes, however, there may 
instead be a sale of an article with an additional and
subsidiary agreemenfto affix it. The property then passes 
before the article is affixed, by virtue of the contract of 
sale itself or an appropriation made under it." 
In view of the foregoing statements with regard to the 
passing of the property in goods which are involved in works 
contract and the legal fiction created by clause (29-A) of 
Article 366 of the Constitution it is difficult to agree with 
the contention of the States that the properties that are 
transferred to the owner in the execution of a works contract 
are not the goods involved in the execution of the works 
contract, but a conglomerate, that is the entire building that 
is actually constructed. After the 46th Amendment it is not
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
possible to accede to the plea of the States that what is 
transferred in a works contract is the right in the immovable 
property. 
The 46th Amendment does no more than making it possible 
for the States to levy sales tax on the price of goods and 
materials used in works contracts as ifthere was a sale of 
such goods and materials. 
We are surprised at the attitude of the States which have 
put forward the plea that on the passing of the 46th 
Amendment the Constitution had conferred on the States a 
larger freedom than what they had before in regard to their 
power to levy sales tax under entry 54 of the State List. 
The 46th Amendment does no more than making it possible 
for the States to levy sales tax on the price of goods and. 
materials used in works contracts as ifthere was a sale of 
such goods and materials. We do not accept the argument 
that sub-clause (b) of Article 366(29-A) should be read as 
being equivalent to a separate entry in List II of the Seventh 
Schedule to the Constitution enabling the States to levy tax 
on sales and purchases independent of entry 54 thereof. 
As the Constitution exists today the power of the States to 
levy taxes on sales and purchases of goods including the 
"deemed" sales and purchases of goods under clause (29-
A) of Article 366 is to be found only in entry 54 and not 
outside it. We may recapitulate here the observations of 
the
Constitution Bench in the case of Bengal !111111unity 
Company Ltd [AIR 1955 SC 661 : (1955) 2 SCR 603 : 
(1955) 6 STC 446] in which this Court has held that the 
operative provisions of the several parts of Article 286 which 
imposes restrictions on the levy of sales tax J?y the States 
are intended to deal with different topics and one could not 
be projected or read into another and each one of them has 
to be obeyed while any sale or purchase is taxed under 
entry 54 of the State List. 
We, therefore, declare that sales tax laws passed by the 
legislatures of States levying taxes on the transfer of 
property in goods (whether as goods or in some other form) 
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SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
involved in the execution of a works contract are subject to 
the restrictions and conditions mentioned in each clause or 
sub-clause of Article 286 of the Constitution. We, however, 
make it clear that the cases argued before and considered 
by us relate to one specie of the generic concept of"works 
contracts". The case-book is full of the illustrations of the 
infinite variety of the manifestation of"works contracts". 
Whatever might be the situational differences of individual 
cases, the constitutional limitations on the taxing power of 
the State as are applicable to "works contracts" represented 
by "building contracts" in the context of the expanded 
concept of "tax on the sale or purchase of goods" as 
constitutionally defined under Article 366(29-A), would 
equally apply to other species of "works contracts" with 
the requisite situational modifications." 
(Paras 38-41) 
In Mis. Gannon Dunkerley (supra), this Court held: 
"Apart from the limitations referred to above which curtail 
the ambit of the legislative competence of the State 
Legislatures, there is clause (3) of Article 286 which enables 
Parliament to make a law placing restrictions and conditions 
on the exercise of the legislative power of the State under 
Entry 54 in State List in regard to the system oflevy, rates 
and other incidents of tax. Such a law may be in relation to 
(a) goods declared by Parliament by law to be of special
importance in inter-State trade or commerce, or(b)totaxes 
of the nature referred to in sub-clauses (b), (c) and (d) of 
Clause (29-A) of Article 366. When such a law is enacted 
by Parliament the legislative power of the States under Entry 
54 in State List has to be exercised subject to the restrictions 
and conditions specified in that taw. In exercise of the power 
conferred by Article 286(3)(a) Parliament has enacted 
Sections 14 and 15 of the Central Sales TaxAct,-1956. No 
law has, however, been made by Parliament in exercise of 
its power under Article 286(3)(b ). 
For the same reasons Sections 14 and 15 of the Central 
Sales Tax Act would also be applicable to the deemed sales 
resulting from transferofproperty in goods involved in the
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
execution of a works contract and the legislative power 
under Entry 54 in State List will have to be exercised subject 
to the restrictions and conditions prescribed in the said 
provisions in respect of goods that have been declared to 
be of special importance in inter-State trade or commerce. 
So also it is not permissible for the State Legislature to 
impose a tax on goods declared to be of special importance 
in inter-State trade or commerce under Section 14 of the 
Central Sales Tax Act except in accordance with the 
restrictions and conditions contained in Section 15 of the 
Central Sales Tax Act. 
Since the taxable event is the transfer of property in goods 
involved in the execution of a works contract and the said 
transfer of property in such goods takes place when the 
goods are incorporated in the works, the value of the goods 
which can constitute the measure for the levy of the tax 
has to be the value of the goods at the time of incorporation 
of the goods in the works and not the cost of acquisition of 
the goods by the contractor. We are also unable to accept 
the contention urged on behalf of the States that in addition 
to the value of the goods involved in the execution of the 
works contract the cost of incorporation of the goods in the 
works can be included in the measure for levy of tax. 
Incorporation of the goods in the works forms part of the 
contract
relating to work and labour which is distinct from 
the contract for transfer of property in goods and, therefore, 
the cost of incorporation of the goods in the works cannot 
be made a part of the measure for levy of tax contemplated 
by Article 366(29-A){b)." [paras 31, 37, 41and45] 
15. At this juncture, it is important to note the fact situation in a 
typical case before us. The Kamataka Appellate Tribunal in an order 
dated 18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-
19117of2015 narrates the factual position thus: 
"Different types of steel bars/ rods of different diameters 
are used as reinforcement (like TMT bars, CTD bars etc). 
The reinforcement bars/ rods need to be bent at the ends in 
a particular fashion to withstand the bending moments and 
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flexural shear. The main reinforcement bars/ rods have to 
be placed parallely along the direction of the longer span. 
The diameters of such main reinforcement rods/bars and 
the distance between any two main rei1:1forcement bars/rods 
is calculated depending on the required loads to be carried 
by the reinforced cement concrete structure to be built based 
on various engineering parameters. At right angles to the 
main reinforcement bas/rods, distribution bars/rods of 
appropriate lesser diameters are placed and the intersections 
between the distribution bars/rods and main reinforcement 
bars/rods are tied together with binding wire. The tying is 
not for the purposes of fabrication but is to see that the iron 
bars or rods are not displaced during the course of 
concreting from the assigned positions as per the drawings .. 
Welding oflongitudinal main bars and transverse distribution 
bars is not done. In fact, welding is contra-indicated because 
it imparts too much rigidity to the reinforcement which 
hampers the capacity of the roof structure to oscillate or 
bend to compensate varying loads on the structure besides 
welding reduces the cross section of the bars/ rods 
weakening their tensile strength. The reinforcements are 
placed and tied together in appropriate locations in 
accordance with the detailed principles and drawings found 
in standard bar bending schedules which lay down the exact
parameters of interspaces between bars/ rods, the required 
diameters of the steel reinforcement bars/ rods and contain 
the required engineering drawings for placement of bars in 
a particular manner. The placement of reinforcement 
bars/ rods for different structures is done under the 
supervision of qualified bar tenders and site engineers who 
are well versed with the engineering aspects related to steel 
reinforcement for creating reinforced cement concrete of 
desired load bearing capacities. 
The appellant company has submitted general 
photographs showing the progress of the work of placement 
and binding of reinforcement bars/ rods at its work sites. 
The said photographs also establish the correctness of the 
aforesaid findings relating to placement and binding together
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
of steel reinforcement bars/ rods before such bars/ rods 
are embedded in cement concrete mixtures. In another case 
in STANo.1328/2008 decided by this Tribunal on 10.2.2009 
(in the case of Sri J. Bhaskar Rao) which is relied on by the 
appellant, in the agreement between the Government of 
Karnataka, Minor Irrigation Department and the said 
appeliant (who was a civil contractor engaged in the civ.il 
construction activity), specification for placement and 
binding together of reinforcement bars/ rods were stipulated 
by the Government of Karnataka as follows: 
"Reinforcing steel shall conform accurately to the 
dimensions given in the bar bending schedules shown 
on the relevant drawings. Bars shall be bent cold to the 
specific shape and dimensions or as directed by the 
Engineer in-charge using a proper bar bender, operated 
by hand or power to attain proper radii of bends." 
"PLACING OF REINFORCEMENTS: 
All reinforcement bars shall be accurately placed 
in exact position shown on the drawings and shall be 
securely held in position during placing of concrete by 
annealed binding wire not less than Imm. in size and 
conforming to IS;280, and by using stays, blocks or metal 
chairs, spacers, metal hangers, supporting wires or other 
approved devices at sufficiently close intervals. Bars 
will not be allowed to end between supports not displaced 
during concreting or any other
operation over the work 
.... As far as possible, bars offull length shall be used. 
In case this is not possible, overlapping bars shall not 
touch each other, but be kept apart by 25mm, or I (1/4) 
times the maximum size of the coarse aggregate 
whichever is greater, by concrete between them. Where 
not feasible, overlapping bars shall be bound with 
annealed steel wire, not less than, I mm. thickness twisted 
tight. The overlaps shall be staggered for different bars 
and located at points along the span where neither shear 
nor bending moment is maximum." 
The above specification which are standard for all civil 
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construction works also confirms the correctness of the 
findings recorded by us supra. Welding of bars/ rods reduces 
their cross section and to that extent decreases the tensile 
strength of the reinforcement bars/ rods defeating the very 
purpose of steel reinforcement in cement concrete. When 
bars/ rods are just joined together loosely by the use of 
binding wires, . .the elasticity of the steel bar/ rod is in no 
way hampered and each reinforcement bar/ rod acts 
independently. By the combined action of the main 
reinforcement bars/ rods and the distribution bars/ rods, the 
reinforced cement structures like roofs act as a rigid 
diaphragm whose elements displace equally in the direction 
of the applied in-plane loads. 
From the above discussion it is clear that largely in 
building construction works, no pre-fabrication ofany steel 
structure is done before embedding them in cement 
concrete mixture to form reinforced cement concrete 
structures. The findings of the lower authorities to the 
contrary effect in the cases on hand are entirely opposed 
to facts. 
The only process to which the steel reinforcement 
rods/ bars are subjected to before being embedded with 
cement concrete mixture is bending at its ends after cutting 
of steel rods/ bars to the required size and tying them at the 
intersections with binding wire. None of these processes 
constitute a manufacturing process and no new commodity 
is
produced before incorporation into the works." 
16. Given this factual scenario, Shri K.N. Bhat referred to the 
judgment in State of Tamil Nadu v. Mis. Pyare Lal Malhotra and 
Others, (1976) I SCC 834, and relied on paragraphs 9 and 10 of this 
judgment which read as follows: 
G 
"If the object was to make iron and steel taxable as a 
substance, the entry could have been: "Goods oflron and 
Steel". Perhaps even this would not have been clear enough. 
The entry, to clearly have that meaning, would have to be: 
H 
"Iron and Steel irrespective of change of form or shape or 
character of goods made out of them". This is the very
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES. KARNATAKA [R.F. NARIMAN, J.] 
unusual meaning which the respondents would like us to 
adopt. If that was the meaning, sales tax law itself would 
undergo a change from being a law which normally taxes 
sales of "goods" to a law which taxes sales of substances, 
out of which goods are made. We, however, prefer the more 
natural and normal interpretation which follows plainly from 
the fact of separate specification and numbering of each 
item. This means that each item so specified forms a 
separate species for each series of sales although they may 
all belong to the genus: "Iron and Steel". Hence, if iron and 
steel "plates" are melted and converted into "wire" and 
then sold in the market, such wire would only be taxable 
once so long as it retains its identity as a commercial goods 
belonging to the category "wire" made of either iron or 
steel. The mere fact that the substance or raw material out 
of which it is made has also been taxed in some other form, 
when it was sold as a separate commercial commodity, 
would make no difference for purposes of the law of sales 
tax. The object appears to us to be to tax sales of goods of 
each variety and not the sale of the substance out of which 
they are made. 
As we all know, sales tax law is intended to tax sales of 
different commercial commodities and not to tax the 
production or manufacture of particular substances out of 
which these commodities may have been
made. As soon 
as separate commercial commodities emerge or come into 
existence, they become separately taxable goods or entities 
for purposes of sales tax. Where commercial goods, without 
change of their identity as such goods, are merely subjected 
to some processing or finishing or are merely joined together, 
they may remain commercially the goods which cannot be 
taxed again, in a series of sales, so long as they retain their 
identity as goods of a particular type." [paras 9 and 1 O] 
17. Given the fact situation in these appeals, it is obvious that 
paragraph 10 of this judgment squarely covers the case against the State, 
where, commercial goods without change of their identity as such, are 
merely subject to some processing or finishing, or are merely joined 
together, and therefore remain commercially the same goods which cannot 
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be taxed again, given the rigor of Section 15 of the Central Sales Tax 
Act. We fail to see how the aforesaid judgment can further carry the 
case of the revenue. 
18. We may note that in Civil Appeal No.4318 of2007, Larsen & 
Toubro Ltd. v. State ofKarnataka & Another, the Appellate Tribunal 
had passed an order dated 11.1.2002 in which it decided the case against 
the assessee on the ground that since the iron and steel products went 
into cement concrete, they changed form, and since they changed form, 
they were no longer declared goods and could be taxed without the 
constraints mentioned in Section 15 of the Central Sales Tax Act. A 
Sales Tax Revision Petition filed before the High Court yielded an order 
dated 14.6.2007 by which the assessee was sent back to the ApRellate 
Tribunal for rectification. This rectification petition was dismissed by an 
order dated 30.11.2005. A Sales Tax Revision Petition was thereafter 
filed against both orders, namely, 11.1.2002 and 30.11.2005. The High 
Court, in the impugned judgment dated 1.9.2006, unfortunately adverted 
only to the rectification order dated 30.11.2005 and not to the original 
order of I 1.1.2002 and thus dismissed the revision petition stating that no 
question oflaw arose. Ordinarily, we would have set aside the judgment 
and remanded the matter back to the High Court to determine the matter 
on merits, but at this point of time we find this
would not serve any 
purpose. Instead, it is enough to set aside both the judgments impugned 
by the assessees, dated 1.9.2006 and 12.8.2004, in light of the law laid 
down in Builders Association and Mis. Gannon Dunkerley (supra), 
and declare that the declared goods in question can only be taxed at the 
rate of 4%. 
19. In the State Appeals, we find that the lead impugned judgment 
in Civil Appeals arising out ofSLP(C) Nos.18646-19117 of2015 dated 
10.12.2013 is an exhaustive judgment which has considered not only the 
facts in great detail but also the law laid down by the Supreme Court. 
We affirm the said judgment and dismiss the appeals of the State of 
Karnataka. 
Civil Appeal No.4319 of 2007 
Mis. Ananth Engineering Works v. State of Karnataka 
20. This appeal is by the assessee from a judgmellt dated 
26.10.2006 allowing a revision against the Appellate Tribunal's order 
dated 19.1.2006. In this appeal, we are concerned with Rule 6(4)(m) of
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.] 
the Karnataka Sales Tax Rules, 1957. 
"Rule 6( 4): 
6. DETERMINATION OF TOTAL AND TAXABLE 
TURNOVER: 
(1) ....... 
( 4) In determining the table turnover, the amount specified 
in clause (a) to (p) shall, subject to the conditions specified 
therein, be deducted from the total turnover of a dealer as 
determined under dauses (a) to (e) of sub-Ruic (I). 
(a) ... .. 
(b) .. .. 
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(m) In the case of works contract specified in Serial Numbers 
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1,2,3,4,5,7,8,9, I 0,11, 12, 17,26,27,35,36,40 and 42 of the Sixth 
Schedule; 
(i) all amounts received or receivable in respect of goods 
other than the goods taxable under sub-section (1-A) or 
(1-B) or Section 5 which are purchased form registered 
E 
dealers liable to pay tax under the Act and used in the 
execution of works contract in the same fonn in which such 
goods are purchasei. 
(ii) ...... 
....... EXPLANATION-III For the purpose of sub-rule 
(4), the expression 'in the same form' used in sub-clause 
(i) of clause (m) shall not include such goods which, after 
being purchased, are either consumed or used in the 
manufacture of other goods which in turn arc used in the 
execution of works contract." 
21. On facts in this case, it has been found that the appellant is 
engaged in works contracts of fabrication and creation of doors, window 
frames, grills, etc. in which they claimed exemption for iron and steel 
goods that went
into the creation of these items, after which the said 
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doors, window frames, grills, etc. were fitted into buildings and other 
structures. On facts, therefore, we find that the High Court's judgment 
is correct and does not need to be interfered with inasmuch as the iron 
and steel goods, after being purchased, are used in the manufacture of 
other goods, namely, doors, window frames, grills, etc. which in turn are 
used in the execution of works contracts and are therefore not exempt 
from tax. 
22. The appeal of the assessee is therefore dismissed. 
Divya Pandey 
Appeals disposed of.