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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

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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

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    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

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    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

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    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

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    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."

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    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

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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.