M/S. HEKUR, Nellikkunnu, Thrissur v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** ## **&** **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN TUESDAY, THE 23[RD] DAY OF MAY 2023 / 2ND JYAISHTA, 1945 OT.REV NO. 48 OF 2017** **ORDER OF THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM IN R1-19103/2016/CT DATED 17.11.2016** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** M/S.HEKUR, NELLIKKUNNU, THRISSUR REP. BY ITSMANAGING PARTNER, ROYCE KIZHAKOODAN. BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** STATE OF KERALA, REP. BY ITS SECRETARY, TAXES DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM 695 001. ## **OTHER PRESENT:** SMT.RESHMITHA.R.CHANDRAN, GOVERNMENT PLEADER THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 23.05.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OT.REV NO. 48 OF 2017 ..2.. ## **JUDGMENT** SHOBA ANNAMMA EAPEN, J. The revision petitioner, an assessee under the Kerala Value Added Tax Act, 2003 (for short, “the KVAT Act”), is engaged in the execution of works contract relating to toughened glasses, ceiling boards etc. For the assessment year 2012-13, the revision petitioner opted for compounding as provided under Section 8 of the KVAT Act. The assessing authority, vide Annexure-B order, granted permission to pay tax under the compounding scheme as per Section 8(a)(i) of the KVAT Act and the tax was being paid accordingly. While so, the Intelligence Officer (IB), Thrissur initiated steps against the revision petitioner under Section 67 of the KVAT Act, alleging that the petitioner is not eligible for the benefits under Section 8(a)(i) of the KVAT Act and that the petitioner has to OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** satisfy tax at the scheduled rate of 13.5%. Though objections were filed by the revision petitioner, the Intelligence Officer, relying on Annexure-C clarification issued by the authority under Section 94 of the KVAT Act, finalized penalty proceedings as per Annexure-D order. Aggrieved by Annexure-D order, the revision petitioner filed a revision petition before the Deputy Commissioner, Thrissur. The said authority, as per Annexure-E order, upheld the imposition of penalty. Thereafter, the petitioner filed a second revision before the Commissioner of Commercial Taxes, Thiruvananthapuram and as per Annexure-F order, the Commissioner rejected the revision petition with respect to the challenge against rate of tax. Aggrieved by the said orders, the present revision petition is filed before this Court. 2. We have heard the learned counsel for the revision petitioner as well as the learned OT.REV NO. 48 OF 2017 ..4.. Government Pleader. 3. The questions of law purported to be raised in this revision petition are whether the revision petitioner is eligible for the benefits under Section 8(a)(i) of the KVAT Act and whether the works undertaken by the revision petitioner are in the form of goods or in some other form. In order to appreciate the contentions raised by the petitioner and the learned Government Pleader, it is necessary to advert to the relevant provisions contained in the KVAT Act. Section 8(a) reads thus: _“8. Payment of tax at compounded rates:- Notwithstanding anything contained in Section 6:-_ _(a)(i) any works contractor not being a dealer registered under the provisions of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) and who is not an importer may, at his option, instead of paying tax in accordance with the provisions of the said section, pay tax at three per cent of the whole contract amount;_ _(ii) any works contractor not falling under clause (i) above may, at his option, instead of paying tax in accordance with the provisions of the said section, pay tax at eight per cent of the whole contract amount;_ _Provided that notwithstanding anything contained in sub clause (ii) above, the compounded tax payable by any works contractor under this clause in respect of works contracts awarded by Government of Kerala, Kerala Water Authority or Local Authorities shall be four per cent of the whole contract amount;_ _Provided further that the provisions of this clause shall not apply to any works contract in_ OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** _which the transfer of material is in the form of goods.”_ 4. The learned counsel for the revision petitioner submits that the petitioner is involved in the execution of works contract and the goods involved are toughened glasses, ceiling boards etc., and the petitioner obtained work orders as per Annexure-A series, for execution of works contract not in the form of goods. Subsequently, the petitioner opted for payment of tax under the compounded rate under Section 8 of the KVAT Act, which was allowed by the assessing authority and the payment was made accordingly. It was submitted by the learned counsel for the revision petitioner that solely relying on the law laid down by the apex court in **State of Andhra Pradesh** v. **Kone Elevators (India) Ltd.** [(2005)140 STC 22(SC)], the Intelligence Officer (IB), Thrissur imposed penalty against the petitioner holding that the petitioner is not eligible for the benefit of compounded rate under OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** Section 8(a)(i) of the KVAT Act since the activity of the petitioner is works contract, in which transfer of material is in the form of goods making it ineligible as per the second proviso to Section 8(a)(ii) of the KVAT Act. The learned counsel for the revision petitioner submits that the goods involved in the execution of works contract are custom made and it cannot be used for any other purpose and all the authorities failed to appreciate the fact that **Kone Elevators(India) Ltd.** ( _supra_ ) was later overruled by a Larger Bench of the apex court in **Kone Elevator India Pvt. Ltd.** v. **State of Tamil** **Nadu & Others** [(2014) 71 VST 1 (SC)]. Therefore, according to the learned counsel, on the basis of the subsequent judgment of the apex court, the proceedings initiated against the petitioner has only to be dropped. The learned counsel further relied on the judgment of this Court in **State of Kerala** v. **P.C.Kurian** [(2019) 65 OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** GSTR 338 (Ker)], wherein the subsequent judgment of the apex court in **Kone Elevator India Pvt.** **Ltd.** ( _supra_ ) [(2014) 71 VST 1 (SC)] was considered and the contract for providing and fixing superior quality polyvinyl chloride outdoor stadium chairs of specified size was found to be a composite contract and not sale of goods, entitled for securing tax at compounded rate. 4. _Per Contra,_ the learned Government Pleader, placing reliance on the judgment of this Court in **IT Johny** v. **State of Kerala** [CDJ 2007 Ker HC 108] and on a Full Bench decision of this Court in OT Rev.No.84/2018 and connected cases, submitted that the compounded rate of tax is an alternate mode of tax. It was further submitted that the revision petitioner has to comply with the mandatory provisions and the learned Government Pleader further submitted that Annexure-B order was a conditional order and it clearly specifies that returns shall be submitted OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** as per Rule 24 of the Kerala Value Added Tax Rules, 2005 along with payment of tax and that the contract shall not involve transfer of material in the form of goods. According to the learned Government Pleader, since the works contract of the revision petitioner was transfer of material in the form of goods, the Intelligence Officer rightly interfered and imposed penalty, finding that the revision petitioner is not eligible for payment of tax under the compounding scheme. 5. We have gone through the entire records produced in this case. On a perusal of Annexure-D order, it is clear that the Intelligence Officer had imposed penalty relying on Annexure-C proceedings of the authority for clarification, which was issued on the basis of the law laid down by the apex court in **Kone Elevators (India) Ltd.** ( _supra_ ) [(2005) 140 STC 22(SC)]. The Intelligence Officer as well as the subsequent OT.REV NO. 48 OF 2017 **==> picture [31 x 8] intentionally omitted <==** authority has not considered the dictum laid down in **Kone Elevator India Pvt. Ltd.** ( _supra_ ) [(2014) 71 VST 1 (SC)] while deciding the issue, wherein it was held as follows; _“Coming back to_ _**Kone Elevators** (supra), it is perceivable that the three-Judge Bench has referred to the statutory provisions of the 1957 Act and thereafter referred to the decision in_ _**Hindustan Shipyard Ltd.** (supra), and has further taken note of the customers’ obligation to do the civil construction and the time schedule for delivery and thereafter proceeded to state about the major component facet and how the skill and labour employed for converting the main components into the end product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in_ _**Otis Elevator** (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in_ _**Kone Elevators** (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be_ OT.REV NO. 48 OF 2017 ..10.. _done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in_ _**Otis Elevator** (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in_ _**Kone Elevators** (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation_ OT.REV NO. 48 OF 2017 ..11.. _to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in_ _**Kone Elevators** (supra) does not correctly lay down the law and it is, accordingly, overruled.”_ 6. On a perusal of the orders under challenge, it is clear that the authorities concerned have failed to appreciate the quantum of labour involved and the quantity of civil works carried out for the installation of the products in the building after making necessary infrastructure. Hence, on an entire consideration of the facts of this case, we are of the view that the matter has to be relegated to the original authority for reconsideration in the light of the subsequent judgment of the apex court in **Kone Elevator India Pvt. Ltd.** ( _supra_ ) [(2014) 71 VST 1 (SC)]. In the result, this O.T.revision petition is disposed of. The impugned orders, Annexures D to F, are set aside. The Intelligence Officer (IB), OT.REV NO. 48 OF 2017 ..12.. Thrissur, is directed to reconsider the issue afresh in the light of the judgment of the apex court in **Kone Elevator India Pvt. Ltd.** ( _supra_ ) [(2014) 71 VST 1 (SC)] within a period of one month from the date of receipt of a certified copy of this judgment with notice to the petitioner and also after affording an opportunity of hearing to the petitioner. The petitioner is also given liberty to produce all materials before the said authority so as to justify the contentions within two weeks. ## **Sd/-** **SHAJI P. CHALY** **JUDGE** **Sd/-** **SHOBA ANNAMMA EAPEN** **JUDGE** bka/- OT.REV NO. 48 OF 2017 ..13.. ## **APPENDIX OF OT.REV 48/2017** PETITIONER ANNEXURES |ANNEXURE A1|COPY OF WORK ORDER FROM PRESTIGE| |---|---| ||ESTATES PROJECTS LIMITED, BANGALORE| ||DATED 15.6.2012.| |ANNEXURE A2|COPY OF WORK ORDER FROM PRESTIGE| ||ESTATES PROJECTS LIMITED, BANGALORE| ||DATED 14.9.2012.| |ANNEXURE A3|COPY OF WORK ORDER FROM PRESTIGE| ||ESTATES PROJECTS LIMITED, BANGALORE| ||DATED 17.9.2012.| |ANNEXURE B|COPY OF PERMISSION ISSUED BY THE| ||COMMERCIAL TAX OFFICER (WC), THRISSUR| ||DATED 4.9.2012.| |ANNEXURE C|COPY OF ORDER ISSUED BY THE AUTHORITY| ||FOR AUTHORITY FOR CLARIFICATION UNDER| ||SECTION 94E DATED 27.11.2013.| |ANNEXURE D|COPY OF ORDER ISSUED BY THE| ||INTELLIGENCE OFFICER (IB), THRISSUR| ||DATED 13.3.2015.| |ANNEXURE E|COPY OF ORDER ISSUED BY THE DEPUTY| ||COMMISSIONER POOTHOLE, THRISSUR DATED| ||25.5.2016.| |ANNEXURE F|COPY OF ORDER ISSUED BY THE| ||COMMISSIONER OF COMMERCIAL TAXES,| ||TRIVANDRUM DATED 17.11.2016.|