PETITIONER: COOCH BEHAR CONTRACTORS' ASSOCIATION & OTHERS Vs. RESPONDENT: STATE OF WEST BENGAL AND OTHERS DATE OF JUDGMENT: 11/09/1996 BENCH: VENKATASWAMI K. (J) BENCH: VENKATASWAMI K. (J) BHARUCHA S.P. (J) ACT: HEADNOTE: JUDGMENT:
WITH
CIVIL APPEAL NO. 4606 OF 1990
M. Banerjee and Co. & Anr
V
State of West Bengal and others
WITH
CIVIL APPEAL Nos. 571-74 (NT) OF 1991
Nepal Chandra Bengal
V
State of West Bengal & Others
J U D G M E N T
Venkataswami,J.
Common questions of law arise out of a common judgment
of the West Bengal Taxation Tribunal dated 26.4.1990
rendered in RN-30(T), RN-31 (T), RN-34(T), RN-103(T), RN-
367(T), RN-338, RN-339 of 1989.
The appellants are contractors and they execute civil
construction works including construction of roads and
bridges under different departments of the Central and State
Governments well as respective corporations. Such works
include excavation of earth, drilling, construction of water
channel and river bank protection. Such works of contract
were not brought under the net of sales tax till the Bengal
finance (Sales Tax) Act, 1941 (hereinafter referred to as
“the Act”) was amended by the west Bengal Act 4 of 1984
inserting section 6D and amending section 2(c) of the Act.
These amendments Were pursuant to the 46th amendment of the
Constitution of India in the year 1982 inserting clause 29A
in Article 366.
The constitutional validity of the 46th Amendment
inserting clause 29A in Article 366 was challenged and this
Court in Builders association of India and Others vs. Union
of India and Others [1989 (2) SCC 645] upheld the
constitutionality of the said amendment.
As a result of the insertion of section 6D to the Act,
all transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works
contract was deemed to be a sale of those goods by the
person making the transfer and the purchase of those goods
by the person to whom such transfer was made. The revenue
sought to assess the appellants under Section 6D of the Act
and the appellants aggrieved by such assessments moved the
High Court challenging initially the constitutionality of
section 6D and finally confining their challenge to certain
limited aspects which we shall refer to hereinafter. The
cases were originally filed in the High Court and
subsequently were originally filed in the High Court and
subsequently were transferred to West Bengal Taxation
Tribunal (hereinafter referred to as “the Tribunal”) and the
Tribunal in its detailed judgment repelled every one of the
arguments raised on behalf of the appellants and
consequently dismissed the cases.
Before us Mr. Jayant Das, learned Senior Counsel for
the appellants broadly raised three points while attacking
the assessments under section 6D of the Act. The first
contention raised by the learned counsel was that section 6D
unjustly discriminates in the matter of grant of declaration
forms to the dealers under section 6D and thereby denies the
advantage gained by other dealers by using declaration forms
and thus it is Violative of Article 14 of the Constitution
of India.
The second contention put forward by the learned
counsel was that the value of the stores and materials
supplied by the contractee to the contractor for the
specific purpose of use in the execution of works contract
should not be included in the `contractual transfer price’
under Section 6D as according to the learned counsel in such
supplies there is no transfer of property and the property
always remains with the contractee. The third submission
advanced by the learned counsel for the appellants was that
the royalty paid by the contractors in the execution of
works contract while procuring boulders, earth etc. should
not be included in the `contractual transfer price’. Another
minor point raised by the learned counsel was that the cost
of freight and delivery for carrying goods to the works site
should not also be included in the `contractual transfer
price’.
Mr. B.Sen, learned Senior Counsel in reply submitted
that none of the questions raised by the learned counsel for
the appellants remain res integra as they are totally
covered either by the decision of this Court n Builders’
Association case (supra) or the recent decision of this
Court in M/s Gannon Dunkerley and Co. and Others vs. State
of Rajasthan and others (1993) 1 SCC 364. In addition to
that he also invited our attention to a decision of this
Court in the case of State of Madhya Pradesh vs. Orient
Paper Mills Ltd. (1977) 2 SCC 77 wherein this Court has held
that `royalty’ is a feudalistic euphemism for price. so far
as the cost of freight and delivery for carrying the goods
to the works site is concerned, the learned counsel invited
our attention to the judgment of the Tribunal wherein the
Tribunal has not finally decided the issue, but has left
open the same for decision with reference to the facts of
each case. In view of this overall submission with which we
agree we do not feel it necessary to deal elaborately the
contentions raised before us.
For appreciation of the rival contentions, it is
necessary to set out sections 2(c) and 6D of the Act as
amended in the year 1984. They read as follows:
“2 (c) `dealer’ means any person
who carries on the business of
selling goods in West Bengal or of
Purchasing goods in West Bengal in
specified Circumstances or any
person making a sale under section
6D….”
“6D. – Liability to payment of tax
on the transfer of property in
goods involved in the execution of
Works contract and rate thereof.
(1) Notwithstanding anything
contained elsewhere in this Act. –
(a) any transfer of property in
goods (Whether as goods or in some
other form) involved in the
execution of a works contract
(hereinafter referred to as
contractual transfer) shall be
deemed to be a sale of these goods
by the person making the transfer
and the purchase of those goods by
the person to whom such transfer s
made;
(b) (i) every dealer whose
contractual transfer price during
the last year ending on or before
the 31st day of March, 1984 excess
rupees two lakhs shall, in addition
to the tax payable by him under
section 5 and section 6B, if any,
be liable to pay from the 1st day
of April, 1984 a tax at the rate
specified in sub-section (3) of
such part of his contractual
transfer price as specified in sub-
section (2);
(ii) every dealer, other than a
dealer referred to in sub-clause
(i), Whose contractual transfer
price during any year ending on or
after the 1st day of April, 1984
exceeds rupees two lakhs shall, in
addition to the tax payable by him
under section 5 and section 6B, if
any, be liable to pay for the first
day of the year immediately
following such year a tax at the
rate specified in sub-section (3)
of such part of his contractual
transfer price as specified in sub-
section (2);
(iii) every dealer who has become
liable to pay tax under sub-clause
(i) or sub-clause (ii) shall
continue to be so liable until the
expiry of three consecutive years
during each of which the
contractual transfer price does not
exceed rupees two lakhs and on the
expiry of such three years his
liability to pay such tax shall
cease.
(iv) every dealer, whose liability
to pay tax has ceased under the
provisions of sub-clause (iii),
shall, if the contractual transfer
price during any year again exceeds
rupees two lakhs, be liable to pay
from the first day of the year
immediately following such year the
tax at the rate of this contractual
transfer price as specified in sub-
section (3) of such part of this
contractual transfer price as
specified in sub-section (2);
(2) The tax payable under sub-
section (1) shall be levied on that
part of contractual transfer price
of a dealer during any period
which remains after deducting
therefrom his contractual transfer
price during the period on-
(a) contractual transfer of goods
referred to in section 14 of 1956),
on a prior sale whereof in West
Bengal due tax under this Act or
under the West Bengal Sales Tax
Act, 1954 (West Bengal Act IV of
1954), if such goods are notified
for taxation under that Act, is
shown to the satisfaction of the
Commissioner to have been paid;
(b) contractual transfer of goods,
sales of which are declared tax-
free under section 6;
(c) contractual transfer of goods,
sales of which are generally exempt
from tax under subsection (2) of
section 5;
(d) contractual transfer of goods,
on the purchase of which tax is
payable by him under section 6c;
(e) such other contractual
transfers, as may be prescribed.
(3) The tax under this section
shall be levied at the rate of four
per centum of such part of the
contractual transfer price as
specified in sub-section(2).
Explanation 1. – In this section,
the expression “contractual
transfer price”, used in relation
to any period, shall mean the
aggregate of the amounts received
or receivable by a dealer during
such period as valuable
consideration for the transfer of
property in goods used in execution
of a Works contract, Whether or not
the amount receivable as valuable
consideration for such transfer is
separately shown in the works
contract, and shall include the
value of such goods purchased,
manufactured, processed or procured
otherwise by the dealer and the
cost of freight or delivery as may
be incurred by such dealer for
carrying such goods to the place
where these are used in execution
of such works contract, but shall
not include such portion of the
aforesaid amounts as may be
prescribed.
Explanation 2. – For the purpose of
this section, the expression
“goods” include commodities
specified for taxation under
section 25 of the West Bengal Sales
Tax Act, 1954 (West Bengal Act IV
of 1954), and notwithstanding any
contained in this Act or in the
West Bengal Act IV of 1954), tax
shall be levied on such commodities
under this section.”
A perusal of section 6D clearly indicates that it is a
self-contained code so far as dealers in Works contract are
concerned. Whatever concessions the Legislature Wanted to
extend to such dealers were enumerated in clauses (a) to (e)
of sub-section (2) of section 6D. Apart from that and having
regard to the non obstinate clause used in section 6D, it is
made clear no further concession was intended to be extended
to the dealers in Works contract. As they form a class by
themselves, they cannot compare themselves With other
dealers coming under sections 4 or 5 and allege
discrimination to invoke Article 14 of the Constitution of
India. The Tribunal has rightly taken a view by holding `we
are satisfied that the contractors, being dealers under
section 6D read with section 2 (c), have been appropriately
grouped together in one class, distinct and separate from
the other classes of dealers. The charge of arbitrariness
and unreasonableness must fail. The classification cannot be
faulted on account of denial of the facility of use of
declaration forms. because this class of dealers has been
treated and dealt with on a different footing altogether and
they are governed by almost a self-contained code envisaged
in section 6D.’
As rightly pointed out by learned senior counsel for
the respondents Mr. B. Sen, the recent decision of this
Court in Gannon Dunkerley and Co. Vs. State of Rajasthan
(1993) 1 SCC 364 also supports the view taken by the
Tribunal. This Court has observed as follows :
“A question has been raised whether
it is permissible for the State
Legislature to levy tax on deemed
sales falling Within the ambit of
Article 366 (29-A) (b) by
prescribing a uniform rate of tax
for all goods involved in the
execution of a Works contract even
though different rates of tax are
prescribed for sale of such goods.
The learned counsel for the
contractors have urged that t would
not be permissible to impose two
different rates of tax in respect
of sale of the same article, one
rate When the article is sold
separately and a different rate
when there is deemed sale in
connection with the execution of
Works contract. On behalf of the
States it has been submitted that
it is permissible for the State to
impose a particular rate of tax on
all goods involved in the execution
of a works contract which may be
different from the rates of tax
applicable to those goods when sold
separately. In the field of
taxation the decisions of this
Court have permitted the
legislature to exercise an
extremely wide discretion in
classifying items for tax purposes,
so long as it refrains from clear
and hostile discrimination against
particular persons or classes.
(See: East India Tobacco Co. v.
State of A.P., P.M.
Ashwathanarayana Shetty v. State of
Karnataka, Federation of Hotel &
Restaurant Association of India V.
Union of India and Kerala Hotel and
Restaurant Association vs. State of
Kerala.) Imposition of sales tax at
different rates depending on the
value of the annual turnover was
upheld in S. Kodar vs. State of
Kerala. Similarly, imposition of
Purchase tax at different rates for
sugar mills and Khandsari units Was
upheld in Ganga Sugar Co. vs. State
of U.P. In our opinion, therefore,
it Would be permissible for the
State Legislature to tax all the
goods involved in the execution of
a Works contract at a uniform rate
Which may be different from the
rates applicable to individual
goods because the goods Which are
involved in the execution of the
Works contract when incorporated in
the works can be classified into a
Separate category for the purpose
of imposing the tax and a uniform
rate may be prescribed for sale of
such goods.”
In view of the above we hold that there is no
discrimination violating Article 14 of the Constitutions
alleged by the learned counsel for the appellants.
So far as the second contention urged on behalf of the
learned counsel for the appellant is concerned, the Tribunal
on facts has found the contractor has to pay the price of
the goods supplied by the contractee by way of adjustment.
his Court in 1989 (2) SCC 645 (supra) has observed as
follows :
“Ordinarily unless there is a
contract to the contrary, in the
case of a Works contract the
property in the goods used in the
construction of a building is
constructed, when the goos or
materials used are incorporated in
the building. The contractor
becomes liable to pay the sales tax
ordinarily when the goods or
materials are so used in the
construction of the building and it
is not necessary to wait till the
final bill is prepared for the
entire work.”
It is, therefore, clear that goods used in the
execution of the works contract stand transferred from the
contractor to the contractee at the time the goods are
incorporated in the construction. It is also brought to our
notice by the learned counsel for the respondents that the
principle laid down by this Court in N.M. Goel & Co. vs.
Sales Tax officer & Anr., 72 STC 375 squarely applies to the
second point raised herein. While considering a similar
issue, namely, Whether there was sale of goods in view of
the contract between the parties whereunder the custody and
control of the goods remained with the P.W.D. and goods were
only used in the construction under the contract, this Court
held that `in the instant case, 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 P.W.D. By
appropriation and by the agreement, there was a sale as
envisaged in terms of clause (10) set out hereinbefore.
Therefore, in out opinion, there was a sale which was liable
to tax’. Though this case was sought to be distinguished
before the Tribunal by contending that ration must be
treated as one given per incuriam it was rightly rejected by
the Tribunal. We are, therefore, in agreement with the
conclusion reached by the Tribunal that `having considered
all aspects of the matter, we hold that a sale within the
meaning of section 2(g) of the 1941 Act, namely, a transfer
of property in goods supplied by the owner/contractee to the
contractor for use in the execution of a works contract
takes place in the cases under our consideration, when such
goods are actually used in the construction work, provided
prices of such goods are deducted from or adjusted against
bills or dues of the contractor.’
So far as the third question of payment of royalty is
concerned, We do not think there is any substance in that
argument. As rightly pointed out by the learned counsel for
the respondents that in view of the decision of this court
in Orient Paper Mills (supra) the payment of royalty amounts
to payment of price for the goods obtained from the
Government Departments and used in the works contract.
Regarding the additional minor point, the Tribunal has not
finally disposed of the issue and it has left open the issue
by observing as follows :
“Learned counsel for the applicants
did not submit that such inclusion
is in any way bad or
unconstitutional. Expenses incurred
on account of labour simplicity
surely cannot form a part of the
contractual transfer price simply
because it is not a value of or
valuable consideration for any
`goods’ unless such expense amounts
to cost of freight or delivery for
carrying the goods to the Worksite.
It Will depend on the circumstances
in Which or the purpose for which
labour was employed. On this
question we hold accordingly. Each
case shall have to be judged on its
own merits and on its peculiar
facts. … We, therefore, do not at
this stage express any expenses as
to whether or not they will form
part of the contractual transfer
price.”
In view of the above it is not necessary to go into
this issue further .
For the foregoing reasons, we do not think there is any
case for interference under Article 136 of the Constitution.
Accordingly, the appeals are dismissed. No costs.