Swaraj Equipments (P) Ltd v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY, THE 13TH DAY OF JULY 2018 / 22ND ASHADHA, 1940 ## **ST.Rev..No. 49 of 2013** **---------------------** AGAINST THE ORDER/JUDGMENT IN T.A 23/2012 of S.T.A.TRIBUNAL,ADDL.BENCH,KZD. DATED 12-02-2013 ## **PETITIONER(S)/REVISION PETITIONER/APPELLANT** ------------------------------------------- M/S.SWARAJ EQUIPMENTS (P) LTD 53 ANNAJI RAO NAGAR,VELLMBULLAMMAN KOIL STREET WEST K.K.NAGAR,CHENNAI 600 078 NOW AT AMBIKA ROAD,PALLIKKUNNU,KANNUR BY ADV.SRI.RAJESH NAMBIAR ## **RESPONDENT(S)/RESPONDENT:** ## **---------------------------** THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT,DEPARTMENT OF COMMERCIAL TAXES,SECRETARIAT,THIRUVANANTHAPUAM 695 001 R BY SR GOVERNMENT PLEADER SRI MOHAMMED RAFIQ THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 13-07-2018,ALONG WITH OTRV NOS.62/2013 AND 73/2013 THE COURT ON THE SAME DAY PASSED THE FOLLOWING: STRV NO. 49/2013 ## APPENDIX REVISION PETITIONER'S ANNEXURES: - ANNEXURE A: TRUE COPY OF THE PENALTY DT 25.01.2010 U/S 45A OF THE KGST ACT FOR THE YEAR 2004-*05 - ANNEXURE B: TRUE COPY OF THE APPELLATE ORDER DT 10.02.2012 - ANNEXURE C: TRUE COPY OF THE ORDER OF THE TRIBUNAL DT 12.02.2013 - ANNEXURE D: TRUE COPY OF THE COMMON ORDER OF THE KERALA VAT TRIBUNAL ERNAKULAM IN TA NO. 1056/11 AND TA NO. 1057/11 DT 29.12.2012 RESPONDENTS ANNEXURES: NIL TRUE COPY P.A TO JUDGE jma ## K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ## S.T. Rev. No.49 of 2013, ## O.T. Rev. Nos.62 of 2013 &73 of 2013 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 13[th] day of July, 2018 ## O R D E R ## Vinod Chandran, J Three revisions are before us with respect to the assessment years 2004-05, 2005-06 and 2006-07. ST Rev. No.49/2013 is under the Kerala General Sales Tax regime and is one filed by the assessee. The other revisions are filed by the State against the order of the Tribunal under the Kerala Value Added Tax regime. The transactions for the respective years are identical and the question raised is also identical for reason of which the revisions are considered together. The substantial question of law arising from the order of the Tribunal, in all the three revisions, which if answered, would settle the revisions filed STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** by the State and the assessee; are as follows: 1. Whether the dealer who is engaged in installation and commissioning of water and sewage treatment plant, is liable to pay tax within the State, for the goods incorporated in the works contract when the said goods are transported inter-state pursuant to the contract entered into by the awardee situated within the State of Kerala? 2. The admitted facts are that the dealer is engaged in installation and commissioning of water and sewage treatment plant. The dealer enters into contract with various clients, interalia within the State of Kerala and the work order indicates the scope of the work; which consists of design, civil, electrical and mechanical works, erection, testing and commissioning of the STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** Effluent treatment plant and handing over the plant on a turn basis as the and technical key per equipment/materials specification. The contracts are entered into by various clients and in pursuance to the same, the dealer who has its office in Chennai, transports the materials from Chennai to the work site of the client and installs such treatment plants as also facilitate commissioning of the same. The dealer does not have any tax liability; the works awarded or contract entered into being in the nature of an inter-state works contract, which assertion was not accepted by the Department. 3. The Intelligence Officer in the respective years, took into account the various works contracts executed by the petitioner, within the State and initiated proceedings under the respective enactments for penalty. The allegation was of evasion of tax for reason of there being sale within the State of Kerala at STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** the time of incorporation of goods into the works contract and the failure of the dealer to take a registration. The Intelligence Officer concluded the proceedings with imposition of penalty at twice the tax attempted to have been evaded. The First Appellate Authority confirmed such orders. The dealer was before the Tribunal. 4. In the proceedings under the Kerala General Sales Tax Act,1963 (for brevity “KGST Act” only), the Tribunal confirmed the penalty orders. Under the Kerala Value Added Tax Act, 2003 (for brevity “the KVAT Act” only), yet another bench of the Tribunal set aside the order of penalty, we hence first look at the revision of the dealer. 5. The Tribunal's order in ST Rev. No. 49/2013 indicates an affirmation of the lower authorities orders insofar as finding a sale at the time of incorporation of goods in the works contract. STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** The Tribunal has committed the fallacy insofar as having found that the dealer has dispatched the materials from outside the State, which was received by their client within the State of Kerala. In fact the dealer has transported the goods inter-state and incorporated the same in the works and the transfer of goods is only by way of accretion into the works. The Tribunal in the revision filed by the State, has found that the appellant entered into agreements with the customers, within the State of Kerala, for execution of works contract and the agreed work included erection, trial run, testing and commissioning of effluent treatment plant. The agreement also indicates that the plant installed would be handed over on turn key basis. On such terms of the agreement, the Tribunal entered into a finding that on the basis of the work order, there is a construction work carried out within the State in pursuance to a works contract. In STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** such circumstances, when the goods are transported from outside the State for the purpose of incorporation of work into the State, then necessarily there is an inter-state works contract which is not taxable in the State in which the work is carried out. The dealer having agreed to install and handover the plant, there could could be no such supply of goods to the client within the State and the transfer of goods only occurs on incorporation of the goods in the work, as agreed to between the dealer and their client. 6. The learned Senior Government Pleader has relied on a Division Bench decision of this Court reported in (2010) 29 VST 158 (Ker) [Dosal Ltd., V. State of Kerala] , wherein the interstate contractor was involved in the laying of pipe lines within the State of Kerala. The outside contractor was also registered as a dealer within the State. The goods incorporated in the works STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** were stock transferred from the outside State and stocked within the go-down of the outside contractor. Later the goods were incorporated in the works which was found to be a sale, especially on facts found by the Tribunal that the movement of the goods having not originated in pursuance to the contract of sale. We do not think the said decision has any application to the facts of the present case, especially when the decision was rendered on the peculiar facts as available in the said case. Here the goods were brought into the State in pursuance to the contract and directly incorporated in the works. 7. Yet again, we notice that the order of the Tribunal challenged by the State has dealt with the issue elaborately looking at the decisions of the Hon'ble Supreme Court with reference to Article 366(29) A as also the specific question of transfer of goods inter-State for the purpose of incorporation in a STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** works contract. Suffice it to notice Builders Association of India v. Union of India [(1989) 73 STC 370] wherein it was stated “ the 46[th] amendment does no more than making it possible for the State to levy sales tax on the price of goods and materials used in works contract as if there was a sale of such goods and materials”. When there is an inter-state sale there would be no tax leviable in the recipient State. Like wise when there is an inter-state works contract the sale occurs only when there is an incorporation in the works. If the transfer of goods, which are incorporated in the works, are those brought from the other State, it has all the characteristics of an inter-state sale. We also would rely on the decision of the Hon'ble Supreme Court in Hyderabad Engineering Industries v. State of Andhra Pradesh [(2011) 4 SCC 705], which also quoted a number of decisions of the Hon'ble Supreme Court right from Tisco Ltd. V S.R. Sarkar, [AIR 1961 SC STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [21 x 9] intentionally omitted <==** 65]. We hence answer the question framed in favour of the outof-state contractor, who is the respondent in the two cases and the revision petitioner in one of the cases. 8. However, there is one question as to whether the outside contractor who had carried out the inter-state works contract, in his status as an importer has obtained registration or not. The necessity to get a registration cannot be disputed. In such circumstances, there is a reason for penalty but however, there being no tax evasion, the consequence would be the impossibility to compute the tax evaded, and in that context the maximum penalty of Rs.10,000/- would be imposed on the dealer, in all the three years. With the above modification, ST Rev. No. 49/2013 is allowed setting aside the order of the Tribunal and OT Rev. Nos. 62/2013 and 73/2013 are rejected. There shall be a levy of penalty of Rs.10,000/- (Rupees Ten thousand only) in each of the STRV No. 49/2013 , OTRV 62/2013 & OTRV 73/2013 **==> picture [27 x 9] intentionally omitted <==** years on the dealer-petitioner in the revision under the KGST Act and the respondent in the revisions under the KVAT Act. Ordered accordingly. No costs. Sd/K. Vinod Chandran, Judge Sd/Ashok Menon, Judge jma