Case: Voltas Ltd Vs. State Of Gujarat

3. The indispensable skeletal facts introduce the appellant, M/s. Voltas Ltd. as a company incorporated under the Companies Act, 1956 engaged amongst others in the business of execution of jobs design, supply and installation of air-conditioning plants construed to be indivisible works contracts. It is a registered dealer under the Act. By a communication dated 22.10.1993 of M/s. Anupam Colours and Chemicals Industries, Bombay, an order was placed with it for water chilling plant at its factory at Vapi. The basic design parameters were enumerated in the work order as hereunder:?1.Tonnage of Refrigeration .. 11 TR2. Final temperature or chilled .. 5 to 6°C water to be made available for our process3. Quantity of chilled water .. 12,000 liters( 5 to 6° C) required for our liters?process in about 10 hoursOther specifications pertaining to the water chilling plant were advised to be in conformity with the assessee?s offer, as referred to therein. The work order insisted on the requirement of chilled water to be used directly for its process of manufacturing pigments with the assertion that sufficient precautions be taken to ensure that chilled water at 5 to 6 degree centigrade is available for such process. The letter emphasized as well that the assessee would provide the customer with the lay-out details, foundation drawing and other necessary information required for the erection of the plant. The essential segments of the works contracts involved, as would be eventually relevant for the adjudicative exercise underway, were thus specified with distinct details in the work order4. The Act which is a legislation to consolidate and amend the law relating to the levy of tax on the sale or purchase of goods in the State of Gujarat has set out in Part-A of Schedule II-A thereof, the rates of the impost on the sale of goods involved in the execution of the works contracts, the relevant excerpt whereof is quoted as under:Sr.No.Description of works contractEntry No.In Schedule-IIA of theActRegular rate of tax1.Installation of air-conditioners and A.C.coolers and for repairs thereof.6718%2.Furniture and fixtures partitions including contracts for interior decoration and repairs thereof1048%3.Fabrication andinstallation of lifts orelevators or escalatorsand for repairs thereof1208%4.Fabrication and installation of plant and machinery and repairs thereof398%5.Construction of bodies on chassis of Motor Vehicles including three wheelers and for repairs thereof128(5)4%5. Section 55-A of the Act dwells on the scheme of composition of tax whereunder a dealer as referred to therein and in the circumstances and subject to such conditions as may be prescribed, is left with the option to pay in lieu of the amount of tax leviable from him under Section 7 or 8 in respect of any period, a lump sum by way of composition at the rate/rates, as may be fixed by the State Government by notification in the Official Gazette, having regard to the incidence of tax on the nature of the goods involved in the execution of total value of the works contract. Apt it would be to quote Section 55A as well for ready reference:?SECTION 55A. COMPOSITION OF TAX(1) The Commissioner may, in such circumstances and subject to such conditions as may be prescribed, permit every dealer referred to in sub-clause (f) of clause (10) of section 2 to pay at his option in lieu of the amount of tax (including additional tax) leviable from him under section 7,(or 8) in respect of any period, a lump sum by way of composition at the rate or rates as may be fixed by the State Government by Notification in the Official Gazette having regard to the incidence of tax on the nature of the goods involved in the execution of total value of the works contract(2) The provisions of sections [13,51 and 55] shall not apply to a dealer who opts for composition of tax under sub-section (1).]?Pursuant to this provision, and as empowered thereby, the Government of Gujarat vide the notification dated 18.10.1993 (for short hereinafter referred to as the Notification) did fix the rate of composition payable by such dealer (s) in lieu of the amount of tax otherwise leviable under the Act and as contemplated in the said statutory provision. As the stand-off centers around the rate of composition so fixed, essential it would be to set out the table of relevant entries to be immediately adverted to:Sr.No.Description of works contractRate of Composition1.Works contract for civil works like construction of buildings, bridges or roads, and for repairs thereof2%2.Installation of air-conditioners and A.C.Coolers15%3.Furniture and fixtures, Partitions including contracts for interior decoration5%4.Fabrication and installation of lifts or elevators or escalators10%5.Fabrication and installation of plant and machinery5%6.Construction of bodies on chassis of motor vehicles including three wheelers3%7.Ship building, including construction of barges, ferries tugs, trawlers or dredgers2%8.Works contracts other than those mentioned above12%6. The recorded facts demonstrate that the appellant being under the impression qua the works contract ordered vide letter dated 22.10.1983 of M/s. Anupam Colour and Chemicals that it would attract the rate of composition prescribed against Entry No.5 hereinabove i.e. fabrication and installation of plant and machinery and not 15% against Entry No.2 i.e. installation of air-conditioners and AC coolers or 12% against Entry No.8 i.e. works contracts other than those mentioned, filed an application before the Deputy Commissioner of Sales Tax (Legal), Gujarat under Section 62 of the Act and insisted that the works contract involved came within the purview of Entry No.5 attracting the composition rate of tax at 5% only. The said revenue authority by its order dated 16.10.1996 however rejected the plea of the appellant and instead held that the works contract was covered by Entry No.2 as the assessee had to air-condition the plant to be erected by it. The margin of difference in the composition rates compared to the rates of tax for the identical works contract as catalogued in the Schedule to the Act did also weigh with the revenue authority in arriving at this conclusion7. The appellant-assessee being dissatisfied did appeal against this finding before the Gujarat Sales Tax Tribunal, Ahmedabad (for short hereinafter referred to as the ?Tribunal?) which was registered as Appeal No.16/1996. In course of the regular assessment for the Assessment Year 1993-94, the concerned Sales Tax Officer, pursuant to the decision rendered by the Deputy Commissioner of Sales Tax on 16.10.1996, assessed the appellant by applying the composite rate of 15% for the works contract involved8. The appellant thus preferred an appeal against this assessment order before the Assistant Commissioner of Sales Tax, Ahmedabad and having failed before this forum did take the issue before the Tribunal in Second Appeal No.97/2001. These two appeals were also dismissed by the Tribunal vide its judgment and order dated 2.12.2002 whereafter the appellant invoked the writ jurisdiction of Gujarat High Court registered as Special Civil Application No. 12508/2002 which to reiterate, have been, by the impugned decision, disposed of along with Sales Tax Reference No.1/2004 laid by the Tribunal before it under Section 69 of the Act referring the following question of law:?Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant?s works contract for fabrication and installation of air-conditioning plants falls under Entry 2 and, therefore, taxable at the rate of 15% and not under Entry 5 under which it is taxable at the rate of 5% of the Schedule to the notification dated 18.10.93 issued under Section 55A of the Gujarat Sales Act, 1969??9. The High Court has answered the question referred in the affirmative thus sustaining the determination made by the revenue authorities/fora and the learned Tribunal declaring that the appellant?s works contract for fabrication and for installation of air-conditioning plant did fall under Entry 2 of the Notification and was taxable at the composition rate of 15%10. As the decision of the High Court assailed herein would disclose, in its view, the air-conditioning systems are classified according to their construction and operating characteristics and that it would be incorrect to differentiate between a central air-conditioning system and a room air-conditioner on the basis that the installation of air-conditioning plant requires preparation of plant whereas no such exercise is to be undertaken in case of installation of window air-conditioner etc. This is more so as the basic components applied in the manufacture of a air-conditioning plant, room air-conditioner or split air-conditioner are almost similar with difference in size and are not drastically different. The appellant?s plea that in central air-conditioning system, fabrication has to be undertaken requiring preparation of plant etc. and that thus the central air-conditioning system has to be treated differently from a room air-conditioner or window air-conditioner etc. was not accepted because, according to the High Court, even in a room air-conditioner or window air-conditioner or split air-conditioner or AC cooler, elevation and lay out of the area requiring conditioning, has to be taken into consideration. The appellant?s contention that Entry 5 dealt with all kinds of fabrication and installation of all kinds of plant and machinery and that there was no reason to exclude the installation of air-conditioning plant therefrom was negatived. The High Court was of the view that the composition scheme ought to be regarded as an exemption reprieve and thus needed to be construed strictly. Reliance was placed on the decision of this Court in Sanden Vikas (India) Ltd. V. Collector of Central Excise, New Delhi (2003) 4 SCC 699  which held with reference to a particular entry in an exemption notification under the Central Excise Tariff Act, 1985 that the air-conditioner kit of a car did fall within the meaning of air-conditioners. It rejected the proposition that in common parlance air-conditioner, room air-conditioner, window air-conditioner, A.C. cooler, air-conditioning plant etc. were differently known and thus installation of air-conditioning plant would fall within Entry

Court's reasoning:
19. The High Court, as the impugned judgment would exhibit, had confined itself wholly to the components of various air-conditioning devices available and the range of the use thereof and in our estimate had missed the significant aspect of ?fabrication? integrally involved in the works contract to supply the water chilling plant with the design parameters stipulated by the customer. The High Court did adopt a general approach vis-a-vis the air-conditioning devices commercially available in different forms dehors the singular factual aspects of the work order constituting the works contract. The High Court, thus, in our view, by overlooking the component of fabrication in the works contract opined that the same was within the purview of Entry No.2 and not Entry No.5. The description of the works contract, to reiterate, being of determinative bearing for ascertaining the composition rate of tax, we are of the unhesitant opinion, in the face of the design parameters insisted upon in the work order and consequential process of fabrication involved to cater thereto, that the works contract involved squarely falls within the ambit of Entry No.5 of the Notification. The margin of difference in rates of tax as prescribed by the Act compared to those mentioned in the Notification ipso facto does not detract from this conclusion. This consideration per se cannot override the decisive characteristics of the works contract otherwise unequivocally spelt out by the work order24. In the overall legal and factual perspectives as obtained herein, any endeavour to drag the works contract involved within the framework of Entry No.2 would be repugnant to the basic principles of interpretation of statutes and subordinate legislations like the statutory Notification under Section 55A of the Act. To exclude the work of fabrication from the works contract as per the work order would render it (works contract) truncated to a form not intended by the customer. This would strike as well at the root of the mandate of correlation of a works contract and the corresponding composition rate of tax as envisaged by Section 55A of the Act and the Notification issued thereunder25. The decision of this Court in Sanden Vikas (India) Ltd.(supra) is of no avail to the revenue vis-à-vis the issue falling for scrutiny herein.. The High Court, as the impugned judgment would exhibit, had confined itself wholly to the components of various air-conditioning devices available and the range of the use thereof and in our estimate had missed the significant aspect of ?fabrication? integrally involved in the works contract to supply the water chilling plant with the design parameters stipulated by the customer. The High Court did adopt a general approach vis-a-vis the air-conditioning devices commercially available in different forms dehors the singular factual aspects of the work order constituting the works contract. The High Court, thus, in our view, by overlooking the component of fabrication in the works contract opined that the same was within the purview of Entry No.2 and not Entry No.5. The description of the works contract, to reiterate, being of determinative bearing for ascertaining the composition rate of tax, we are of the unhesitant opinion, in the face of the design parameters insisted upon in the work order and consequential process of fabrication involved to cater thereto, that the works contract involved squarely falls within the ambit of Entry No.5 of the Notification. The margin of difference in rates of tax as prescribed by the Act compared to those mentioned in the Notification ipso facto does not detract from this conclusion. This consideration per se cannot override the decisive characteristics of the works contract otherwise unequivocally spelt out by the work order24. In the overall legal and factual perspectives as obtained herein, any endeavour to drag the works contract involved within the framework of Entry No.2 would be repugnant to the basic principles of interpretation of statutes and subordinate legislations like the statutory Notification under Section 55A of the Act. To exclude the work of fabrication from the works contract as per the work order would render it (works contract) truncated to a form not intended by the customer. This would strike as well at the root of the mandate of correlation of a works contract and the corresponding composition rate of tax as envisaged by Section 55A of the Act and the Notification issued thereunder25. The decision of this Court in Sanden Vikas (India) Ltd.(supra) is of no avail to the revenue vis-à-vis the issue falling for scrutiny herein.. The High Court, as the impugned judgment would exhibit, had confined itself wholly to the components of various air-conditioning devices available and the range of the use thereof and in our estimate had missed the significant aspect of ?fabrication? integrally involved in the works contract to supply the water chilling plant with the design parameters stipulated by the customer. The High Court did adopt a general approach vis-a-vis the air-conditioning devices commercially available in different forms dehors the singular factual aspects of the work order constituting the works contract. The High Court, thus, in our view, by overlooking the component of fabrication in the works contract opined that the same was within the purview of Entry No.2 and not Entry No.5. The description of the works contract, to reiterate, being of determinative bearing for ascertaining the composition rate of tax, we are of the unhesitant opinion, in the face of the design parameters insisted upon in the work order and consequential process of fabrication involved to cater thereto, that the works contract involved squarely falls within the ambit of Entry No.5 of the Notification. The margin of difference in rates of tax as prescribed by the Act compared to those mentioned in the Notification ipso facto does not detract from this conclusion. This consideration per se cannot override the decisive characteristics of the works contract otherwise unequivocally spelt out by the work