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

3) In order to have clarity in the matter and better grasp of the lis, it is necessary to glance through the relevant facts under which the aforesaid issue has arisen forIn the year 1954, the State Government of Rajasthan enacted the Rajasthan Sales Tax Act in order to tax the sales and purchase of any goods. The assessee is a company engaged in manufacturing and laying of pipelines for water supply schemes. 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 PSC pipes manufactured by it and had entered into the contracts with PHED for providing and laying ofOn 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 ofThe appellate authority, Single Judge as well as the Division Bench of the High Court of Rajasthan, after dealing with merits of the case, affirmed the order passed by the Commercial Tax Officer holding that the assessee is not entitled to claim exemption under Section 7AA for supply of pipelines as that was termed as ‘sale?.

Court's reasoning:
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.