1. Central Notification under the Cst Act, 1956
Govt. of India, Ministry of Finance, Dept. of Revenue, State Tax Division vide ‘Office Memorandum’ bearing F. No. 29012 / 14 / 2014-SO (ST-II) dt. “Nil” taking cognizance of the Allahabad HC judgment dt. 19-12-2014 in Writ Tax No. 478 of 2014 in the case of M/s. Sandeep Bulk Carrier v. State of U.P. and 3 Ors. clarified that with a view to check the arbitrary use of power by the officials of the ST Dept. under the provisions of the CST Act, 1956 as directed by the Allahabad HC would not be fruitful at this stage. The memorandum further says that as per provisions in Section 9(2) of the CST Act, 1956, the power to administer the CST Act, 1956 to regulate inter-State trade and commerce vests with the States. Hence, State Govts. can issue necessary instructions / guidelines to check arbitrary use of power by its officials in case of inter-State trade and commerce. Along with this official memorandum, a copy of the judgment and order of the Allahabad HC as referred to above was forwarded to all the States / UTs for necessary action to comply with the direction thereon in their respective States / UTs under intimation to the Union Govt. (Source: 2015-16(20) KCTJ at Page 51-52).
The judgment of the Allahabad
HC in M/s Sandip Bulk Carriers v. State of U.P. and 3 Ors. has been reported in 2015-16 (20) KCTJ at P No. 29 to 50.
Entry tax on coal/gypsum and bauxite (raw material for cement) reduced to 1% for the period 1-5-1997 to 30-9-1997 by NTF No. 49 dt. 4-5-1999. Subsequently, by Notification No. 63 dt. 5-7-1999 and Explanation inserted to Notification No. 49 to the effect that the tax shall not be refunded if the dealer had already paid the tax at higher rate. In the circumstances, the appellant-assessee challenged the said Explanation as discriminatory and violative of Article 14 of the Constitution. The HC dismissed the petition of the assessee. Hence, the appeal was filed to the Supreme Court.
2. The SC held that the Explanation inserted by NTF dt. 5-7-1999 resulted in discrimination towards those who had paid the tax at a higher rate, like the appellants, as compared to the persons who were defaulters and have now been allowed to pay tax and 1% for the relevant period. The consequence was that it carved out two categories of taxpayers who are made to pay the tax at different rates, even though they were identically situated. As such, there was no basis for creating these two passes and there was no rationale behind it which would have any connection with the objective sought to be achieved.
3. The Apex Court, with reference to Special Courts Bill, 1978, undertook a survey of plethora of decisions of its own touching upon the ‘Equality’ doctrine enshrined in Article 14 of the Constitution and culled out certain principles. Following was the emphatic message given by the Court:
“(4)….. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same.”
4. On the application of the aforesaid principles as incorporated in various judgments of this Court to the facts of the present case, the irresistible conclusion is that the explanation so attached to the Notification was highly discriminatory in nature. Accordingly, the appeal was allowed.
Vikram Cement and Anr. v. State of M.P. and Ors. (2015) 26 STJ 629 (SC)
3. Interpretation of Entries
As per Notification dt. 18-10-1993 issued u/s. 55-A of Gujarat Sales Tax Act, 1969, the rate of composition in case of works contract installation of air-conditioners and A.C. Coolers was 15%, while in case of fabrication and installation of plant and machinery, the composition rate was 5%. Therefore, the question arose whether the works contract for fabrication and installation of water chilling plant as per specifications of the customers can be treated as a contract for installation of air conditioners and A.C. Coolers or it was covered in the entry for fabrication and installation of plant and machinery. Applying various principles of interpretation of statutes, the SC held that the contract for Fabrication and installation of water chilling plant as per specifications of the customers first involved fabrication of water chilling plant and then its installation. Thus, it was quite different from a contract for mere installation of air conditioners and A.C. Coolers. It was therefore liable for composition at 5% applicable to fabrication and installation of plant and machinery and not 15% applicable to installation of air conditioners and A.C. Coolers.
2. In the matter of classification of goods to determine the liability of tax and rate of tax applicable, the burden of proof was on the taxing authority to demonstrate that a particular class of goods or item in question was taxable in the manner claimed by them, and mere assertion in that regard was of no avail, as has been enunciated by the SC in Garware Nylon Ltd. (1996) 10 SCC 413 and relied upon with approval in HPL Chemicals Ltd. (2006) 5 SCC 208. Accordingly, the appeal was allowed.
Voltas Ltd. v. State of Gujarat (2015) 26 STJ 637 (SC)
4. Works Contract
The P&H HC in its judgment dt. 22-4-2015 in the case of CHD Developers Ltd., Karnal v. State of Haryana and Ors., taking into consideration the Apex Court judgment in the case of
Larsen & Toubro Ltd. v. State of Karnataka (2013) 46 PHT 269 (SC), ruled on the following points:
(i) VAT held was leviable on transfer of property in goods involved in execution of works contract and not on works contract itself.
(ii) Developers and builders were held as contractors. Developers and builders whether were works contractors and the agreement between the developer / builder/promoter and the prospective purchaser for whom flat was constructed and thereafter it was sold with some portion of land, authorises the State to impose VAT thereon.
(iii) Works contract – Value of land in works contract – Not part of sale price – Value of land, on which developers construct building, flats for prospective purchaser whether includable in sale price – held in the affirmative.
(iv) Tax on the sale or purchase of goods – Meaning and scope : ‘Tax on the sale or purchase of goods’ in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of sub-clause (b) of clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under Entry 54 of the State list is made subject to under the Constitution.
(v) Works contract: Builder / Developer / Contractor / Promoter – When are liable to pay VAT – The value addition made to the goods transferred after the agreement is entered into with the flat purchase can only be made chargeable to tax by the State Govt. No tax can be charged from the Builder / Developer / Contractor / Promoter in respect of the value of goods incorporated in the works contract after the agreement with the purchaser on which the sub-contractor has already paid the tax.
(vi) Works contract – Building contract – Levy of tax on goods deemed to have been sold in execution of a works contract – Essential conditions to be fulfilled for sustaining levy of tax on the goods deemed to have been sold of a works contract are – (a) there must be a works contract, (b) goods must be involved in the execution of a works contract, and (c) the property in those goods must be transferred to a third party either as goods or in some other form. These conditions are fulfilled in a building contract or any contract to do construction.
(vii) Statutory provisions – Interpretation of – Rule of reading down statutory provisions to mean that a statutory provision is generally read down so as to save the provision from being pronounced to be unconstitutional or ultra vires. The rule of reading down is to construe a provision harmoniously and to straighten crudities or ironing out creases to make a statute workable.
(viii) Writ petitions were held to be maintainable, in the facts and circumstances of the cases and individual issues regarding non-taxability of their transactions on merits, it shall be open for them to raise all these issues before the Assessing Authority / Revisional Authority in accordance with law. It shall also be open to the petitioners to agitate their grievance regarding refund of stamp-duty, if any, before the appropriate authority as per law.
CHD Developers Ltd., Karnal v. State of Haryana & Others (2015) 51 PHT 1 (P&H)
D. H. Joshi