Full Judgment Text
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CASE NO.:
Appeal (civil) 8540-8544 of 2001
PETITIONER:
Karya Palak Engineer, CPWD, Bikaner
RESPONDENT:
Rajasthan Taxation Board, Ajmer & Ors.
DATE OF JUDGMENT: 12/08/2004
BENCH:
N. Santosh Hegde,S.B. Sinha & A.K. Mathur
JUDGMENT:
J U D G M E N T
With
C.A. Nos. 8545-8552/2001,
C.A. Nos. 1996-1997/2002,
C.A. Nos. 194-195/2004,
C.A. Nos. 5270-5271/2003,
C.A. Nos. 5272-5273/2003,
C.A. Nos. 6614-6615/2003,
C.A. Nos. 6977-6980/2003,
C.A. Nos. 6983-6987/2003,
C.A. Nos. 8940-8955/2003,
C.A. No. 9025/2003,
C.A. Nos. 9026-9028/2003,
C.A. Nos. 4651-4661/2004 and C.A. Nos. 4634-4640/2004.
SANTOSH HEGDE, J.
These appeals involving similar questions of law are preferred
against the judgment of the High Court of Judicature for Rajasthan at
Jodhpur made in different Sales Tax, Revision Petitions, Writ Petitions
and Review Petitions filed before it challenging the demand of Sales Tax
made under Rajasthan Sales Tax Act, 1994 ( the ’local Act’) .
In these petitions certain issues pertaining to interpretation of
provision of Article 285 of the Constitution of India, as also the
interpretations of the provisions in the local Sales Tax Act are raised.
The High Court having rejected the contentions of the appellants in this
regard, the appellants are in appeal before us.
These matters came to be referred to a larger bench by an order of
two Judge Bench on 25-9-2003. Since, according to the said Bench the
question involved in the appeals are of an important nature.
The constitutional question involved in these petitions pertains to
the authority of the State to levy Sales Tax on the Union on its
transaction of supply of materials to its contractors. The contentions is
based on the exemption granted under Article 285 of the Constitution.
The statutory question involved in these appeals pertains to the
question whether a supply of materials by the Union of India to its
contractors under agreements of works contract would amount to a sale so
as to attract the provision of the Sales Tax Act.
Since the appeals before us involve similar questions, we will refer
to the facts in C.A. Nos. 8540-8544 of 2001 for brevity. The Union
through its agency Central Public Works Department (CPWD) undertook
the work of erection of barbed wire fencing along Indo Pak boarder from
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1991 onwards in the State of Rajasthan. In order to get the construction
work done the appellant awarded contracts to various contractors and
under the terms and conditions of the said contract it had agreed to supply
the contractors materials such as cement, barbed wire, M.S. angles etc.
It is pleaded that the appellant purchased the materials from various
reputed concerns on payment of consideration and the said transactions
were subjected to Sales Tax leviable at that stage. It is further stated that
the very same goods were in turn supplied to the contractors and value of
the said goods were adjusted in the final bills of the contractors, it is
contended that since the appellant issued materials to the contractors at
fixed issue rates, the said supply did not amount to "Sale" because the
contractor never became owner of such materials but remained only as
a "Custodian" of such materials and used them on creation of immovable
properties for completing the contracted job. In such circumstances, it is
contended that there is no element of sale, therefore, the appellant Union
can not be treated as a ’dealer’ under the Act nor it can be subjected to
the levy of Sale Tax. The next contention in this regard is assuming for
argument sake there would be some sort of a sale, the property so
transferred being the property of the Union of India, under Article 285 of
the Constitution of India the State has no authority to impose a tax on the
property of the Union.
By the impugned judgment and orders the High Court of
Rajasthan has rejected both the contentions advanced on behalf of the
appellants and has held that the transfer in question amounted to sale as
defined under the Act and the State tax being not a direct tax on the
property of the Union as contemplated under Article 285 of the
Constitution the same is liable for levy of Sales Tax.
In these appeals number of Advocates appearing for the appellants
have commonly contended that in view of the exemption provided in
Article 285 of the Constitution, it is not open to the State to tax the
property of the Union, therefore, the transferred material being the
property of the Union of India, the same is not exigible to any State
taxation.
The argument that supply of materials to the contractors does not
amount a sale is based on the language of clause 10 of the agreement
which the appellant contends clearly indicates that these transactions do
not amount to sale even under the provisions of the local Act. Hence no
Sales Tax can be levied on these transactions.
In support of their contentions, the learned counsel for the
appellants relied on various judgments of this Court both pertaining to
the bar of tax on Union property under Article 285 of the Constitution of
India as also in regard to the nature of the transaction between the
appellants and the contractors concerned.
Shri T.S. Doabia, learned senior Advocate appearing for the Union
of India in C.A. Nos. 8540-8544 of 2001 strongly relied on the judgment
of this Court in the case of New Delhi Municipal Council Vs. State of
Punjab & Ors. 1997 (7) SCC 339, Shri Nikhil Nayyar, learned counsel
appearing for the appellant in C.A. Nos. 5270-5271 of 2003 relied on the
judgment of this Court in Hindustan Aeronautics Ltd. Vs. State of
Orissa 1984 (2) SCC 16 to contend that the transfer in question did not
amount to sale attracting the levy of Sales Tax under the local statute. He
also contended in the alternative that assuming the transactions are sales
even then under the local Act, the levy being single point tax and
appellant having suffered the levy when it purchased the same there
could not have been a second demand on a transfer made by it to its
contractor, the same being a second sale. Shri Krishnamani, learned
senior counsel appearing in C.A. Nos. 1996-1997/2003, C.A. Nos. 4634-
4640/2004 and C.A. Nos. 4651-4661/2004 contended apart from the fact
that the transfer involving a property of the Union of India can not be
taxed under Section 285 even under the local Act, the Union of India can
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not be a dealer under Section 2 (14) of the said Act. The other Advocates
appearing in other appeals mostly adopted the arguments of the above
referred counsel.
Having heard the learned counsel for the parties and having
perused the judgment of the High Court and the relevant clause in the
agreement between the appellant and their contractors concerned we
are satisfied that the question involved in these appeals are no more res-
integra. This Court as far back as in the year 1963 in a presidential
reference case under Sea Clustoms Act held;
"The bar of Article 289 of the Constitution of
India does not apply to indirect tax like Customs
duty, Central Excise duty, Sales Tax etc."
In the said case it was held that exemption of property from tax
contemplated in Article 289 was confined to direct tax on property and
not to the levy of indirect taxes. The ratio of the said judgment though
delivered in context of Article 289, applies to the exemption in favour of
the Union of India under Article 285 in all force.
Judgment in Sea Customs Case (supra) was followed by this Court
in the case of New Delhi Municipal Council Vs. State of Punjab &
Ors. 1997 (7) SCC 339, wherein this Court by majority judgment at
para 148 held :-
"It would be appropriate at this stage to notice the ratio
of two judgments of this Court dealing with Article 289. In
Sea Customs Act, Re, a Special Bench of nine learned
Judges, by a majority, laid down the following propositions
: (a) clause (1) of Article 289 provides for exemption of
property and income of the States only from taxes imposed
directly upon them; it has no application to indirect taxes
like duties of excise and customs (b) duties of excise and
customs are not taxes on property or income; they are
taxes on manufacture/production of goods and on
import/export of goods, as the case may be, and hence,
outside the purview of clause (1) of Article 289\005\005\005"
In the case of Collector of Customs and Anr. Vs. State of West
Bengal and Anr. 1999 (1) SCC 192 this Court dealt with the contention
involving Article 285 directly. The question involved in that case
pertained to the levy of Sales Tax on goods sold by the Collector of
Customs and a challenge made to the decision of West Bengal Taxation
Tribunal holding the appellant (Union of India) therein to be a dealer
under the provision of the West Bengal Finance (Sales Tax) Act, 1941
was negatived by this Court holding thus ;
"Only one contention is advanced before us by learned
counsel on behalf of the appellants, and it is, that Article 285
of the Constitution debars the imposition of tax upon
property belonging to the appellants.
Reliance in this behalf is placed on the judgment of two
learned Judges of this Court in State of Punjab V. Union of
India. The Punjab High Court in that matter had answered
the two questions before it in favour of the Union of India.
The second question was whether no sales tax could be
levied in view of the provisions of Article 285 of the
Constitution on goods purchased by the Railways and sold
by the Railways in their Catering Department. This Court
said that at the time of their sale, the goods belonged to the
Railways. The tax had been imposed on such sale. In view
of the provisions of Article 285, such sale was immune from
taxation under the State law.
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It would appear that no real arguments were advanced
before this Court by the appellant-State and the judgment of
this Court in Sea Customs Act (1878), S. 20(2), AIR 1963 SC
1760 (1964) 3 SCR 787 was not pointed out. In the Sea
Customs Act case a nine-Judge Bench of this Court opined
by a majority, that Article 285 envisaged immunity from
direct taxes and not from indirect taxes such as sales tax.
With specific reference to sales tax, this Court said:-
"We may in this conection contrast sales tax
which is also imposed with reference to goods sold,
where the taxable event is the act of sale.
Therefore, though both excise duty and sales tax
are levied with reference to goods, the two are very
different imposts; in one case the imposition is on
the act of manufacture or production while in the
other it is on the act of sale. In neither case
therefore can it be said that the excise duty or sales
tax is a tax directly on the goods for in that event
they will really become the same tax."
The decision in the Sea Customs Act case was considered
by another nine-Judge Bench in the case of New Delhi
Municipal Council V. State of Punjab and was affirmed."
From the above judgment of this Court, it is clear that Union is not
exempted from the levy of indirect tax under Article 285 of the
Constitution. The above discussion also shows reliance placed on the
judgment of this Court in the case of New Delhi Municipal Council
(supra) by one of the learned counsel for the appellants is wholly
misconceived and is opposed to his contention with reference to
Article 285 of the Constitution.
The next contention urged on behalf of the appellant in the
alternative is that on the facts of the cases in hand, there is no
transaction of sale involved. For this strong reliance was placed on the
relevant clauses of the agreement between the parties. In the case of
appellants in C.A. Nos. 8540-8544/2001 the same is found in clause 10
of the agreement. According to the learned counsel for the appellants, as
per the terms in the above said clause the materials supplied to the
contractors remained to be the absolute property of the Union and the
same could not be removed on any account from the site of the work
and was at all times open to inspection by the concerned authorities, it is
also submitted that any materials supplied, remaining unused in the
works contract, were to be returned to the authority concerned and the
contractors at all given point of time was only a ‘custodian’ of the
material so supplied to him. On the basis of the above, it was contended
that the title in the property supplied to the contractor never ever got
transferred nor any specific consideration has passed for the supply of
the goods.
This Court had an occasion to deal with a similar clause where the
Union of India entered into an agreement for the construction of certain
works, wherein it agreed to supply materials such as Cement, Steel etc.
(as is the case in hand) in the said case of M/s N.M. Goel & Co. Vs. Sales
Tax Officer, Rajnandgaon and Anr. 1989 (1) SCC 335 this Court
held :-
"In order to be sale taxable to duty, there should be an
independent contract -- separate and distinct \026 apart from
passing of the property, where a party purchases or
procures goods from the Government. Mere passing of
property would not suffice. There must be sale of goods. The
primary object of the bargain judged in its entirety must be
viewed. In the instant, case, Clause 10 is significant. Though
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in a transaction of this type there is no inherent sale but a sale
inheres from the transaction. Clause 10 read in the proper
light indicates that position. By use or consumption of
materials in the work of construction, there was passing of
the property in the goods to the assessee from the PWD. By
appropriation and by the agreement, there was a sale as
envisaged in terms of Clause 10 of the contract."
In the case of Rashtriya Ispat Nigam Ltd. Vs. State of A.P. 1998
(8) SCC 439 this Court relying on the said judgment of M/s N.M. Goel
& Co. (supra) held :-
"For the purpose of performance, the contractor was bound
to procure materials. But in order to ensure that quality
materials are procured, the PWD undertook to supply such
materials and stores as from time to time required by the
contractor to be used for the purpose of performing the
contract only. The value of such quantity of materials and
stores so supplied was specified at a rate and got set off or
deducted from any sum due or to become due thereafter to
the contractor\005\005..."
An attempt to distinguish the judgment in ’Goyal’s case on facts
came to be rejected by this Court in the above case of Rashtriya Ispat
Nigam Ltd.
In the instant case also by the use or consumption of material
supplied in the work of construction, there was passing of property and
by virtue of receipt of value of such transferred property by way of
adjustment in bills the consideration has also passed which in our
opinion satisfies the definition of ’sale’ in the local Sales Tax Act.
In Cooch Behar Contractors Association Vs. State of West Bengal
and Ors. this Court followed the decision in M/s N.M. Goel & Co.
(supra) and considering a similar clause as is found in the appeal before
us this Court held that the goods supplied to the contractor by the
contractee and price recovered from the contractor by way of adjustment
of value of such goods was held to be a contractual transferred price
which is liable to levy of Sales Tax. Therefore, we do not find any merit
in the argument that even on facts that there was no sale in the transfer of
materials supplied made by the appellant to its contractors.
Consequently, even the argument that in terms of the language of
the definition of the dealer under Section 2 (14) of the Rajasthan Act
appellants can not be a dealer will also have to be rejected.
In view of the reliance placed by us on the judgments referred to
hereinabove, it is unnecessary for us to refer to the other judgments relied
upon by the learned counsel for the parties.
This leaves us to consider the argument advanced by Shri Nikhil
Nayyar, learned counsel on behalf of one of the appellants in C.A. Nos.
5270-5271 of 2003 wherein the learned counsel contended that the levy
under the local Act being a single point tax and the appellant having
suffered the same when it purchased the material in question and same
material cannot be subjected to another levy on its transfer to the
contractor. This argument requires consideration of factual matrix of the
case concerned, whether the levy in question is a single point tax and
material purchased by the appellants had suffered the levy at the point of
purchase by appellants or not are matters to be decided by the authorities
concerned and if the same is not already decided and has not become
final, it will be open to the appellants to urge this question before the said
authorities.
For the reasons stated above these appeals fail and are dismissed.
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