(Prayer: These STRPs. Are filed under Section 65(1) of The Karnataka Value Added Tax Act., against the Judgment and Decree Dated 18.04.2015 passed in STA Nos.379 to 387/2011 on the file of the Karnataka Appellate Tribunal, Bengaluru, allowing the appeal filed under Section 63 of the Karnataka Value Added Tax Act.)
Jayant Patel, J.
1. All the petitions are directed against the common judgment and order passed by the Tribunal dated 18.04.2015 whereby, the Tribunal, after setting aside the order passed by the First Appellate Authority (FAA) and the Assessing Authority (AA), has remanded the matter to the Assessing Authority to consider the matter afresh as per the observations made by the Tribunal in paragraph No.15 of the impugned order, which reads as under:
15. The learned counsel, both in the grounds of appeal and during the course of the final arguments of the case has submitted that the appellant had actually outsourced the window grills and gates etc., and had not themselves fabricated/manufactured the said items before incorporating them into the building. But, however, the documentary evidences to that effect have not been submitted by the learned counsel before the Bench, for having outsourced the same. Therefore, only for this specific purpose, the appeals need to be remitted back to the AA, with directions to decide on the said issues on merits, after taking on record the documentary evidences and to pass reassessment orders, in line with the observations made in the paragraphs supra and in line with the law laid down by the Hon ble High Court of Karnataka, so mentioned and quoted in the above paragraphs. Under the circumstances, we answer to Point No. (1) in the Negative and set aside the orders of the AA and the FAA, and remit the case back to the AA.
2. We have heard Mr.T.K.Vedamurthy, learned AGA appearing for the petitioner.
3. We may record that the issue involved in the present petitions is that if iron and steel was used in the construction for execution of works contract, whether it would have the same character for the purpose of chargeability of the VAT or not. This Court in the case of S. Narayana Reddy vs. The State of Karnataka in STRP No.206/2015 and allied matters vide its order dated 28.09.2016 has observed thus:
As all the petitions arise from the common judgment and the order passed by the Tribunal dated 12.11.2014, they have been considered simultaneously.
2. The facts of the case appear to be that for the respective assessment year April 2005 to March 2006 the reassessment under Section 39(1) of the Karnataka Value Added Tax, 2003 (hereinafter referred to as Act ) was undertaken and ultimately the order was passed on 15.04.2010. The matter was carried in appeal before the First Appellate Authority and the authority vide order dated 12.01.2012 dismissed the appeal and confirmed the assessment by levying tax @ 4% on the turnover of iron and steel used in the works contract. The revenue further carried the matter before the Appellate Tribunal and Tribunal ultimately vide order dated 12.11.2014 for the reasons recorded in the order, dismissed the appeal. Under circumstances, the present petitions before this Court.
3. Petitioner- revenue has formulated the questions of law in the present petitions as under:
(a) In the facts and circumstances of the case, whether the Karnataka Appellate Tribunal is justified in holding that the contract turnover relating to iron and steel has to be construed as declared goods employed in the execution of works contract attracting levy of tax at 4%?
(b) In the facts and circumstances of the case, whether the Tribunal is justified in directing the assessing authority to bifurcate the turnovers of Iron and Steel transferred in the same form and transferred in other form?
(c) In the facts and circumstances of the case, whether the Karnataka Appellate Tribunal is right in holding that the turnover of iron and steel is transferred in the same form or in different forms?
4. We have heard Mr. T.K. Vedamurthy, learned counsel appearing for the petitioner-revenue.
5. The perusal of impugned judgment of the Tribunal shows that Tribunal while considering the matter as to whether duty is leviable on iron and steel having the same character even if it is used in the construction for execution of works contract or not, has recorded the reasons at paragraph 8 of the impugned judgment, which reads as under:
8. Of course the FAA has given the relief to the appellant so far as labour and like charges is concerned and partly allowed the appeal. However he accepted the finding of the AA so far as levy of tax on works contract is concerned which is appealed before us. Of course the lower authorities have given their own findings stating that the iron and steel used in works contracts was not in the same form therefore the benefit as claimed by the appellant cannot be given. But now the said point has been set at rest by the Hon ble High court of Karnataka in the decision referred by the appellant at the earlier point of time. In the above decision as referred by the appellant is has been made clear that iron and steel should be levied at 4%. In this regard we would like to take the observation made by the Hon ble High Court to Karnataka viz., reads as under:
The Division Bench of the Hon ble High Court of Karnataka, vide order dated 10.12.2013, in S.T.R.P Nos.209/2013 and 622-644/2013 clubbed with S.T.A. No.95/2009 and others has held:
Merely because Iron and Steel are cut into a particular length depending on the requirement and they are bound by wire and converted into a particular shape, the iron rod and steel do not product. Even after these beams, pillars, roofs are cast, the rod and steel continues to be in the same position in the building or the bridge which is constructed. At no point of time the iron and steel is transformed into a new product / goods. There is no value addition to the said steel rods and beams. In fact, steel rods are used only to reinforce the cement concrete. It is used because it is iron and steel rod and it continues to be iron and steel rod even after the completion of the building or the bridge which is constructed, in which these iron and steel rods are used. Therefore it continues to be the declared goods. By virtue of Sec. 15 of the CST Act, the State has an authority to impose tax. It cannot impose tax more than the tax prescribed in Sec.15 of the Act.
Hence, in absence of details to transfer of Iron and Steel, in the same form, the case need to be remanded to the AA to conclude assessment afresh on merits and as per law, and in the light of the law laid down by the Division Bench of the Hon ble High Court of Karnataka, mentioned Supra at Para-15, after providing an opportunity to the appellant of being heard. Hence, on the facts and circumstances and law, we answer to Point No.(1) partly in the affirmative.
6. The above referred record shows that the Tribunal for all purpose has relied upon and followed the decision of Division Bench of this Court in STRP No.209/2013 and allied matters decided vide order dated 10.12.2013.
7. When we further enquired the learned Government Advocate, as to whether such view taken by the Division Bench was carried before the Apex Court and if yes, the outcome thereof. He fairly brought to our notice that an appeal was preferred by the State against the aforesaid view taken by the Division Bench of this Court, which is considered by the Tribunal being SLP No.18646-19177/2015 and the said appeal of the State has been dismissed together with the group of Civil Appeal No.4149/2007 and allied matters decided by the Apex Court vide its decision dated 11.08.2016.
8. We may for ready reference reproduce the view taken by the Apex Court in the above referred group of appeals from paragraph 13 to 19, which reads as under:
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 M/s. Gannon Dunkerley (supra). First, that works contracts that are liable to be taxed after the 46th 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.
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 (1), 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-clause (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 agreement to 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 possible to accede to the plea of the States that what is transferred in a works contract is that 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 if there 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 if there 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 Immunity 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 by 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) 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 situations 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), world equally apply to other species of works contracts with the requisite situational modifications . (Paras 38-41)
In M/s. 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 of levy, 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) to taxes 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 law. In exercise of the power conferred by Article 286(3) (a) Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act, 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 transfer of property in goods involved in the 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, 41 and 45]
15. At this juncture, it is important to note the fact situation in a typical case before us. The Karnataka Appellate Tribunal in an order dated 18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015 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 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 reinforcement 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 bars/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 of longitudinal 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 of steel reinforcement bars/rods before such bars/rods are embedded in cement concrete mixtures. In another case in STA No.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 appellant (who was a civil contractor engaged in the civil 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 1mm. 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 of full length shall be used. In case this is not possible, overlapping bars shall not touch each other, but be kept apart by 25mm, or 1 (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, 1mm. 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 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 of any 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. M/s Pyare Lal Malhotra and Others, (1976) 1 SCC 834, and relied on paragraphs 9 and 10 of this judgment which read as follows:
If the object was to make iron and steel taxable as a substance, the entry could have been: Goods of Iron and Steel . Perhaps even this would not have been clear enough. The entry, to clearly have that meaning, would have to be: Iron and Steel irrespective of change of form or shape or character of goods made out of them . This is the very 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 10] 17.
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 of finishing, or are merely joined together, and therefore remain commercially the same goods which cannot 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 of 2007, Larsen and Toubro Ltd. v. State of Karnataka and Another, the Appellate Tribunal had passed an order dated 11.1.2002 in which it decided the case against the assesse 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 assesse was sent back to the Appellate 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 11.1.2002 and thus dismissed the revision petition stating that no question of law 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 assesses, dated 1.9.2006 and 12.8.2004, in light of the law laid down in Builders Association and M/s. 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 of SLP(C) Nos.18646-19117 of 2015 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.
9. Apart from the aspect that the Tribunal hasfollowed the decision of Division Bench of this Court and hence, it cannot be said that any question of law would arise for consideration, the fact would further remain that the very decision of Division Bench of this Court has not been interfered with and is affirmed by the Apex Court in the above referred decision. Under the circumstances, in any case, when two questions are already covered by the decision of the highest Court of the law, no question of law would arise for consideration in the present petitions. Hence, all the petitions are dismissed.
4. If the decision of the Tribunal is considered with above referred decision of this Court, the Tribunal has exercised its discretion and has directed fresh assessment on merits in the light of the observations made in the impugned order.
5. In view of the above, there is no question of law involved to be considered in the present petitions, more particularly when the issue is settled by the decision of the Apex Court referred to in the above referred decision of this Court.
Under circumstances, all the petitions are meritless and therefore dismissed.