KERALA STATE ELECTRICITY BOARD LTD. v. TJSV STEEL FABRICATION AND GALVANIZING (INDIA) LTD.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** # **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR.JUSTICE T.R.RAVI** **WEDNESDAY, THE 30TH DAY OF SEPTEMBER 2020 / 8TH ASWINA, 1942** ## **W.A.No.176 OF 2017** **AGAINST THE JUDGMENT IN WP(C).19861/2016 DATED 08-12-2016 OF HIGH COURT OF KERALA** ## **APPELLANT/ 1ST RESPONDENT:** **THE KERALA STATE ELECTRICITY BOARD LTD., VYDHYUTHI BHAVANAM, PATTOM, THIRUVANANTHAPURAM-695004, REPRESENTED BY ITS CHAIRMAN** **BY ADVS. SRI.RAJU JOSEPH (SR.) SRI.GEORGEKUTTY MATHEW, SC, KSEB** ## **RESPONDENTS/ PETITIONER & 2ND RESPONDENT:** |**1**|**TJSV STEEL FABRICATION AND GALVANIZING (INDIA) LTD.,**| |---|---| ||**GODIMANGALAM, KONDAMPATTI, TAMIL NADU STATE-642201.**| |**2**|**THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE,**| ||**EXCISE, CUSTOMS AND SERVICE TAX,**| ||**JOTHI NAGAR, 'D' COLONY, POLLACHI -642001,**| ||**TAMIL NADU STATE**| ||**R1 BY ADV. SRI.S.RAMESH BABU (SR.)**| ||**R1 BY ADV. SMT.MARIAM MATHAI**| ||**R1 BY ADV. SRI.SAJI VARGHESE**| ||**R2 BY SREELAL N. WARRIER, SC, CENTRAL BOARD OF**| ||**INDIRECT TAXES & CENTRAL EXCISE**| **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 30-09-2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **- 2 -** **W.A.No.176 of 2017** **K. Vinod Chandran & T.R.Ravi, JJ. ----------------------------------W.A.No.176 of 2017 ----------------------------------Dated, this the 30[th] day of September, 2020** ## **JUDGMENT** ## **Vinod Chandran, J.** **The appeal is against the judgment of the learned Single Judge setting aside the deduction of Rs.1,63,05,069/- made from the 1[st] respondent's bill and the consequential direction to repay the same with interest @9% per annum from 01.06.2016. The appellant, Kerala State Electricity Board impugns the judgment on the ground that the amount deducted from the bill is excise duty payable for the galvanization work carried out by the respondent in terms of an agreement.** **2. We have heard Sri.Raju Joseph, learned Senior Counsel appearing for the appellant, Sri.Sreelal Warrier, learned Standing Counsel appearing for the Department and Sri.S.Ramesh Babu, learned Senior Counsel appearing for the 1[st] respondent. It is the contention of the Board that the deduction was made in accordance with the agreement entered into with the respondent. The exemption by virtue of Exhibit P3 notification, obtained by the respondent, a job work contractor, was only by reason of the undertaking given by the Board that the galvanized goods are used in** **- 3 -** **W.A.No.176 of 2017** **relation to the manufacture of final products, which is excisable. It is argued by the learned Senior Counsel that the exemption is to the manufacturer and the goods which form part of the finished product would be levied with excise duty and hence there is no exemption granted to the specific goods. The finding of the learned Single Judge that when exemption is granted to the job works contractor, it would necessarily be available to the Board which brings out the finished product cannot be sustained. The statement filed on behalf of the 2[nd] respondent is also relied on. The tax liability of the 1[st] respondent was exempted only because a certificate as required under Exhibit P3 was issued by the Board. This does not absolve the liability of excise duty which is leviable on the goods. The Board had paid excise duty on the finished product and that includes the duty component of the galvanized materials is the argument; which has to be recouped by the respondent, as per the terms of the agreement.** **3. The learned Counsel for the 1[st] respondent Sri.Ramesh Babu would contend that the exemption is available to the goods and not to the manufacturer. There is no provision in the agreement or in the tax enactment enabling the exempted galvanized materials to be levied with excise duty by the manufacturer of the final products.** **- 4 -** **W.A.No.176 of 2017** **The learned Senior Counsel would also rely on the decision of the Hon'ble Supreme Court in** _**Ramana Dayaram Shetty v. International Airport Authority of India**_ **[** _**AIR 1979 SC 1628**_ **]; to urge that not only the State but also its instrumentalities have to act in a fair, reasonable and just manner.** **4. Learned Standing Counsel appearing for the Department would reiterate the averments made by the Department in the statement filed.** **5. As has been contended by Sri.Raju Joseph,** _**Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran**_ **[** _**(2012) 5 SCC 306**_ **] is an authority for the proposition that an assessee under an indirect tax enactment could very well provide that the burden of tax and duties arising out of the obligations of one party under a contract would be borne by the other party. The agreement between the appellant and the 1[st] respondent was for Hot-Dip Galvanizing of various materials for the purpose of drawing power lines. The agreement at Ext.P1 by Article 7 provides that the contract amount payable by the Board to the 1[st] respondent is inclusive of all taxes and duties. A similar provision is also available in the Additional Conditions of Contract produced as Ext.R1(a). The specific duty which is the subject matter of this appeal finds mention in the** **- 5 -** **W.A.No.176 of 2017** **agreement, as** _**“...the excise duty liability to be borne by the contractor shall be limited to the excise duty payable for the galvanization work alone at the applicable rate, which shall be recovered from the bills of the contractor as excise duty for the galvanization part.“(sic)**_ **. The specific clause is quite realizing that galvanizing by way of job work is also deemed to be manufacture for the purpose of levy of excise duty which duty is levied also on the finished product. The agreement is very clear and the 1[st] respondent is liable for any taxes or duties which arise by reason of the execution of contract. Hence the duty leviable is on the job work of galvanization of fabricated materials supplied by the Board. The job worker would have been in the normal course entitled to pass on such duty payable to the Board; but for the specific clause in the agreement. In other words, by virtue of the specific terms of the contract the Board is absolved from that liability. There is no dispute on this aspect but the controversy arises insofar as the exemption provided as per Ext.P3 notification.** **6. It is the contention of the Board that the exemption is for the manufacturer, the 1[st] respondent who carries out the galvanizing work. The notification specifically exempts goods specified in column (1) of the** **- 6 -** **W.A.No.176 of 2017** **table hereto annexed manufactured in a factory as a job work. Exemption is specifically to the goods and not to the manufacturer or the job works contractor. Ext.P3 read for our purposes would indicate that exemption is granted to the galvanized goods used in relation to the manufacture of final products specified in column (2) of the table, if the supplier of the raw materials of semi-finished goods gives an undertaking to the Assistant Commissioner of Central Excise, having jurisdiction over the factory of the job worker, that the goods shall be used in or in relation to the manufacture of the final product in his factory; that is to say the final product will be levied with excise duty which levy would be discharged by that subsequent manufacturer. In the present case, the Board proffered such an undertaking and in that circumstances, the 1[st] respondent was exempted. The Board took upon itself the liability to pay the excise duty for the finished products for manufacture of which the galvanized materials were used.** **7. Definitely the cost of the finished product would be fixed after reckoning the cost of the galvanized materials including the galvanization charges. What the Board intends by the deduction made from the bill is to appropriate the excise duty which would have been payable for the galvanized product from the 1[st] respondent who** **- 7 -** **W.A.No.176 of 2017** **carried out the galvanization, to the extent of the charges for such job works undertaken. Whether such an artificial appropriation of cost of the finished product would be possible is the question to be answered.** **8. As we noticed the job work of galvanization carried out by 1[st] respondent is excisable. The agreement provided for the duty paid for galvanization work to be borne by the contractor, the 1[st] respondent, from the award amounts. If the exemption notification was not there the Board on the finished product could have claimed input credit of the excise duty payable for the galvanized materials. The Board was under no obligation to give an undertaking as per the notification. The Board having voluntarily, without any further condition being expressed of the liability of excise duty on the finished products being apportioned as against that leviable on the galvanization work, cannot now claim that the duty to that extent on the finished product has to be borne by the 1[st] respondent.** **9. In other words, when the agreement provides specifically for the 1[st] respondent to bear the excise duty for the galvanization work, the Board voluntarily gave an undertaking to pay the liability on the finished product thus exempting the job worker from paying tax on the** **- 8 -** **W.A.No.176 of 2017** **galvanization work. The Board then turns around to demand a portion of its liability on the finished products to be borne by the 1[st] respondent job worker. There is no such provision in the agreement. There is also no such corresponding undertaking issued by the 1[st] respondent to the Board, when the latter issued the undertaking required under Ext. P3 notification. The Board, according to us, was ill advised to give an undertaking under the exemption notification. If no undertaking was given then there would not have been an exemption and the excise duty paid would have been granted input credit while levying duty on the finished products.** **We find no reason to interfere with the judgment of the learned Single Judge. Writ appeal would stand dismissed. Parties shall suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Sd/T.R.RAVI JUDGE** **jma** **- 9 -** **W.A.No.176 of 2017** ## **APPENDIX** ## **' - APPELLANT S ANNEXURES:** **ANNEXURE A1 A CONSOLIDATED STATEMENT SHOWING PAYMENT OF EXCISE DUTY FOR THE YEAR 2012-13 TO 2014-15 SHOWING EXCISE DUTY PAID FOR GALVANIZATION AND OTHER MATERIALS IN RESPECT OF ANGAMALY DIVISION.** **ANNEXURE A2 A TRUE COPY OF THE MATERIALS IN RESPECT OF PALLOM DIVISION SHOWING PAYMENT OF EXCISE DUTY IN RESPECT OF THE YEARS 2012-2013 TO 2014-2015.** **' - RESPONDENTS ANNEXURES: NIL.** **[ TRUE COPY ]**