Patna High Court
Ircon International Ltd.,versusThe State of Bihar
- Decided
- Disposal
- DISMISSED
Holding
The Court held that the fabricated steel structure is a new commodity transferred at incorporation, its fabrication and erection costs form part of the taxable value, and therefore the Assessing Officer was correct in levying tax at the 13.5% rate and rejecting the deduction.
Summary
Ircon International Ltd., a contractor for a rail‑road bridge, challenged a show‑cause notice and subsequent assessment under the Bihar Value Added Tax Act, 2005, claiming that the steel superstructure it supplied should be taxed at the 5% rate applicable to iron and steel under the Central Sales Tax Act and that labour and fabrication charges should be deductible. The State argued that the fabricated steel structure became a new commodity, subject to tax at the higher 13.5% rate for unspecified goods, and that the cost of fabrication, transport and erection formed part of the taxable value. The Court examined the constitutional limits under Article 286(3), the definition of “sale” in Section 2(zc) of the BVAT Act, and the Supreme Court’s tests of transformation and marketability. Relying on precedents such as B. Narasamma, Gannon Dunkerley and Quippo Energy, the Court held that the property in the goods transferred at the point of incorporation into the works, and the associated costs cannot be excluded. Consequently, the Assessing Officer’s order levying tax at 13.5% and rejecting the deduction was upheld and the writ petitions were dismissed.
Issues considered
- The applicability of Section 31 of the Bihar Value Added Tax Act, 2005 to the assessment of the 2014‑15 tax year.
- Whether the steel superstructure supplied by the petitioner constitutes a specified good under Section 14 of the Central Sales Tax Act and is taxable at 5% or an unspecified good taxable at 13.5%.
- Whether labour, fabrication, transportation and erection costs can be deducted from the taxable value of the goods in a works contract.
- Whether the transformation and marketability tests under Supreme Court jurisprudence apply to the fabricated steel structure.
Legislation cited
- Bihar Value Added Tax Act, 2005 — s. 14, 15, 2(zc), 3, 31, 4
- Central Sales Tax Act, 1956 — s. 14, 15
- Constitution of India — s. Article 286(3), Article 366(29-A)
Subjects
- VAT assessment
- works contract
- Section 31
- tax rate 13.5%
- transformation test
- marketability test
- labour deduction
- sub‑contractor
- constitutional limitation
- Article 286
- sale of goods
Judgment
IN THE HIGH COURT OF JUDICATURE AT PATNA
Civil Writ Jurisdiction Case No.3600 of 2020
======================================================
Ircon International Ltd., a Company incorporated Under the Companies Act
1956 having its Office at Sone Annexe Bhawan, Bir Chand Patel Path, Patna
through its Project Director Pramod Kumar Singh (Male) aged about 57
Years) Son of Late Dina Nath Singh, Resident of Flat No. 304, Suresh
Apartment, Ram Krishna Path P.O. and P.S. North S.K. Puri, Boring Road
District-Patna.
... ... Petitioner
Versus
1. The State of Bihar through Commissioner of State Tax, Bihar, Patna having
its Office at Vikas Bhawan, Patna.
2. Asst. Commissioner of State Tax, Patna West Circle, Patna.
... ... Respondents
======================================================
with
Civil Writ Jurisdiction Case No. 11625 of 2019
======================================================
Ircon International Ltd., A Company incorporated under the companies Act
1956 having its office at Sone Annexe Bhawan, Bir Chand Patel Path, Patna,
through its General Manager Sandeep Sinha Son of Late Satya Deo Narayan
Sinha, resident of Flat No. 504, Chandra Regency, Viveka Nand Marg P.O.
and P.S.- Shree Krishna Puri, District- Patna.
... ... Petitioner
Versus
1. The State of Bihar Through Commissioner of State Tax, Bihar, Patna having
its office at Vikas Bhawan, Patna.
2. Asst. Commissioner of State Tax Patna West Circle, Patna.
... ... Respondents
======================================================
with
Civil Writ Jurisdiction Case No. 1716 of 2023
======================================================
Ircon International Ltd., a company incorporated under the Companies Act
1956 having its office at Sone Annexe Bhawan, Bir Chand Patel Path, Patna
through its General Manager Santanu Mukherjee (Male 57 Years) son of Shri.
Shailendra Nath Mukherjee, Flat No.- 2NN, Block-1 Srijukta, S D Tower,
Prafulla Kannan, Krishna Pur, North 24 Parganas, West Bengal- 700101.
... ... Petitioner
Versus
1. The State of Bihar through Commissioner of State Tax, Bihar, Patna having
its office at Vikas Bhawan, Patna.
2. Asst. Commissioner of State Tax, Patna West Circle, Patna.
... ... Respondents
======================================================
Appearance :
(In Civil Writ Jurisdiction Case No. 3600 of 2020)
For the Petitioner : Mr. Tarun Gulati, Sr. Advocate
Mr. D.V.Pathy, Sr. Advocate
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Mr. Siddhartha Prasad, Advocate
Mr. Pramod Kandpal, Advocate
Mr. Sadashiv Tiwary, Advocate
Ms. Shivani Dewella, Advocate
Mr. Hiresh Karan, Advocate
For the State : Mr. Vikash Kumar, SC-11
(In Civil Writ Jurisdiction Case No. 11625 of 2019)
For the Petitioner : Mr. Tarun Gulati, Sr. Advocate
Mr. D.V.Pathy, Sr. Advocate
Mr. Siddhartha Prasad, Advocate
Mr. Pramod Kandpal, Advocate
Mr. Sadashiv Tiwary, Advocate
Ms. Shivani Dewella, Advocate
Mr. Hiresh Karan, Advocate
For the State : Mr. Vikash Kumar, SC-11
(In Civil Writ Jurisdiction Case No. 1716 of 2023)
For the Petitioner : Mr. Tarun Gulati, Sr. Advocate
Mr. D.V.Pathy, Sr. Advocate
Mr. Siddhartha Prasad, Advocate
Mr. Pramod Kandpal, Advocate
Mr. Sadashiv Tiwary, Advocate
Ms. Shivani Dewella, Advocate
Mr. Hiresh Karan, Advocate
For the State : Mr. Vikash Kumar, SC-11
======================================================
CORAM: HONOURABLE MR. JUSTICE RAJEEV RANJAN PRASAD
and
HONOURABLE MR. JUSTICE SOURENDRA PANDEY
CAV JUDGMENT
(Per: HONOURABLE MR. JUSTICE RAJEEV RANJAN PRASAD)
Date : 25-02-2026
There are seven writ applications listed together for
hearing. At the outset, learned counsel for the petitioners as well as
the State have jointly submitted that the three writ applications, i.e.
CWJC No. 3600 of 2020, CWJC No. 11625 of 2019, and CWJC
No. 1716 of 2023, are required to be heard together as they
involved identical questions for adjudication.
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2. Learned counsel(s) have pointed out the order dated
17.02.2023, wherein the joint submissions of the parties have been
recorded by the then learned coordinate Bench. So far as the other
four writ applications (CWJC No. 3800 of 2019, CWJC No. 13258
of 2019, CWJC No. 13286 of 2019 and CWJC No. 13854 of 2019)
are concerned, they do not involve the same legal issues but were
ordered to be listed next below the above three cases. It has been
submitted that the fate of those four writ applications should
depend upon the result of the three writ applications. Therefore,
this Court would consider the other four writ applications together.
3. Heard Mr. Tarun Gulati, learned Senior Counsel and
Mr. D.V. Pathy, learned Senior Counsel in all the writ applications
and Mr. Vikash Kumar, learned SC-11 for the State. Parties have
also filed their respective written notes of submissions which have
been taken on record.
4. On the request of the learned counsel for the parties,
CWJC No. 3600 of 2020 has been taken as the lead case. This
Court would, however, reproduce the prayers made in all the writ
applications hereunder for a ready reference:-
CWJC No. 3600 of 2020
5. The petitioner in this writ application is seeking the
following reliefs:-
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“i) the show cause notice dated 23.11.2018 issued by
the respondent no. 2 under section 31 of the Bihar
Value Added Tax Act, 2005 be quashed.
ii) the order dated 09.01.2020 (as contained in
Annexure-7 series) passed by the respondent no. 2 for
the period 2014-15 under section 31 of the Bihar Value
Added Tax Act, 2005 be quashed.
iii) the notice of demand dated 25.01.2020 (as
contained in Annexure-7 series) issued by the
respondent no. 2 in pursuance of the order of
assessment be quashed.
iv) for granting any other relief(s) to which the
petitioner is otherwise found entitled to.”
6. The petitioner in CWJC No. 11625 of 2019 is
seeking the following reliefs:-
“i) the order dated 03.03.2019 (as contained in
Annexure- 6 Series) passed by the respondent no.
2 for the period 2013-14 under section 31 of the
Bihar Value Added Tax Act, 2005 (hereinafter
called the Act) be quashed.
ii) the notice of demand dated 30.03.2019 (as
contained in Annexure- 6 Series) issued by the
respondent no. 2 in pursuance of the order of
assessment be quashed.
iii) for granting any other relief(s) to which the
petitioner is otherwise found entitled to.”
7. The petitioner in CWJC No. 1716 of 2023 is seeking
the following reliefs:-
“i) the order dated 28.09.2022 (as contained in
Annexure- 5 Series) passed by the respondent no. 2
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for the period 2016-17 under Section 31 of the
Bihar Value Added Tax Act, 2005 (hereinafter
called the Act) be quashed.
ii) the notice of demand dated 28.09.2022 (as
contained in Annexure- 5 Series) issued by the
respondent no. 2 in pursuance of the order of
assessment by quashed.
iii) for granting any other relief(s) to which the
petitioner is otherwise found entitled to.”
Brief Facts of the Case (CWJC No. 3600 of 2020)
8. The petitioner is a Public Limited Company engaged
in execution of works contract. It was awarded a contract for
construction of steel super structure and other ancillary works of
rail, road, bridge across river Ganga at Patna by the Central
Railways. A copy of the contract dated 10.02.2009 has been
brought on record as Annexure ‘2’ to the writ application. The
contract comprises of Schedule A-I, A-II, Schedule B, Schedule C-
II and Schedule C-III. Schedule A is in respect of fabrication;
Schedule B is for contingency items; Schedule C-I is for supply of
cement; Schedule C-II is for supply of reinforcement steel and
Schedule C-III is for supply of structural steel.
9. It is the case of the petitioner that in terms of the
contract and the letter of award, the petitioner submitted its bills to
the East Central Railway (the contractee) and the contractee paid
in terms of the bills so raised.
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10. The petitioner filed its return for the period 2014-15
together with the audit report in which it claims to have made true
and fair disclosure of its turnover and deductions and paid the
taxes accordingly. A copy of the return for the period 2014-15
along with tax audit report has been brought on the record.
11. The Assistant Commissioner of State Taxes, Patna,
West Circle, Patna (respondent no.2) issued a notice under Section
31 of the Bihar Value Added Tax Act, 2005 (hereinafter referred to
as the ‘Act of 2005’) to show cause as to why the petitioner be not
reassessed on the ground inter alia that evidence in support of
claim of deduction on account of labour amounting to
Rs.2,06,58,23,291/- and evidence in respect of input tax credit
amounting to Rs.45,81,045/- was not filed. The respondent no. 2
issued reminders and mentioned the gist of accusations in the
notice according to which the petitioner had imported goods from
outside the State of Bihar but had not furnished reconciliation in
respect thereof.
12. In compliance with the notice, the petitioner stated
inter alia that the deduction of Rs.2,03,06,73,605.52/- is relatable
mainly to fabrication, transportation, erection of steel structure,
cutting, straightening, testing of steel structure forming part of
labour, the liability to pay tax under the BVAT, 2005 is on transfer
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of property in goods in execution of works contract, iron and steel
fall within the description of goods of special importance as
declared in Section 14 of the Central Act and liable to tax at the
rate of 5%. In view of the embargo in Article 286(3) of the
Constitution of India the levy of tax under the BVAT, 2005 has to
be equal to the rate specified in Section 14 of the Central Act,
fabrication being exclusively a component of labour do not form
part of the cost of steel structure supplied in the execution of the
contract, there is no transfer of property in goods in the
component of fabrication and that the condition precedent for the
exercise of jurisdiction under Section 31 of the BVAT, 2005 are
conspicuous by its absence. The petitioner also produced evidence
in support of the expenses on account of labour and payment of
sub-contractors along with copy of agreements etc.
13. After submission of reply to the show cause,
Respondent No. 2 held that the steel structure is an unspecified
goods and is liable to tax at the rate of 13.5% instead of 5%, the
expenditure incurred in the conversion of structural steel into steel
structure forms part of the cost of production and that the same
form part of the cost of supply of structural steel. The order dated
09.01.2020 along with notice of demand dated 25.01.2020 are
Annexure ‘7 series’.
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14. It is the case of the petitioner that the contract has
been awarded to the petitioner for construction of the rail, road,
bridge and for that purpose, petitioner purchased structural steel
which are nothing but iron and steel of the description given in
Section 14(iv) of the Central Sales Tax and those have been
fabricated to make railway bridge. Further, petitioner's case is that
respondent no. 2 wrongly reached to the conclusion inter alia that
structural steel has been converted into a steel structure which is
transported to the worksite and placed on the pillars. The
petitioner's case is that the moment structural steel is affixed on the
pillars, the same becomes immovable property which by itself is
out of the purview of taxation.
Findings of the Respondent No.2
15. On perusal of the explanations furnished by the
petitioner and on going through the bills relating to the executed
works contract and the entries made in the books of account, the
respondent no. 2 found that the petitioner claims sale of iron and
steel, which is covered under Schedule 3A of the Act of 2005 but
in the opinion of the respondent no. 2, this seems to be a case
where the petitioner has purchased iron and steel structural which
have been fabricated into steel structure and the same has been
transported and erected. It is stated that under Section 3 of the Act
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of 2005, the petitioner shall be liable to pay tax under this Act on
sale or purchase made by him. The word “sale” has been defined
under clause (zc) of Section 2 of the Act of 2005. The charge
would be on the transfer of property in goods (whether as good or
in some other form) involved in the execution of works contract. It
is his view that steel structure is itself a good which fulfills the
parameters of “goods” under The Sale of Goods Act, 1930.
16. Respondent no. 2 has relied upon the judgment of
the Hon’ble Supreme Court in the case of B. Narasamma vs.
Deputy Commissioner Commercial Taxes, Karnataka and Anr.
reported in (2016) 15 SCC 167 and on the judgment of the
Hon’ble Supreme Court in the case of M/s. Gannon Dunkerley
and Co. and Ors. vs. State of Rajasthan and Ors. reported in
(1993) 1 SCC 364 to take a view that the taxable event is the
transfer of property in goods involved in the execution of the
works contract and the said transfer of property in such goods
takes place when the goods are incorporated in the works.
Respondent no. 2 has taken a view that in course of execution of
contract, the petitioner has transferred the steel structure to the
contractee, thus the sale in terms of clause (zc) of Section 2 is that
of the steel structure which is not mentioned in any of the
schedules of the Act of 2005, therefore, in accordance with Section
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14(1)(d) of the Act of 2005, the petitioner would be liable to pay
the prescribed rate, i.e. 13.5 percent on Rs. 20,31,28,116.45/-.
Respondent no. 2, however, excluded Rs. 2,13,77,223.48/- which
has been incurred on account of labour charges for concrete work.
An amount of Rs. 1,37,72,460/- shown as stock transfer within
State, has also been excluded. The representative of the petitioner
submitted before the respondent no. 2 that the rest of the amount
i.e. Rs. 2,03,06,73,605.52/- is on account of labour charges
towards fabrication, transporting, erection of steel structures,
cutting, strengthening and testing of steel structure. The copy of
the agreement with the sub-contractor and proof of payment under
different heads were also produced before respondent no.2.
17. The respondent no. 2 perused the works agreement
executed by the petitioner with the East Central Railways and
found that Schedule A-I and Schedule A-II contained descriptions
of the items such as fabrication, cutting, standing, etc. and it
involves labour as well as goods component. From RT-VII, the
respondent no. 2 found that the petitioner had got the assembly,
erection, launching and fabrication work through a sub-contractor.
RT-VI shows that a sum of Rs. 1,72,15,39,774.61/- has been paid
on account of fabrication and related work. The representative of
the petitioner admitted that these expenses were incurred in course
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of conversion of structural steel into steel structure by fabrication
work. The respondent no. 2, therefore, took a view that it is the
steel structure which has been transferred to the contractee
pursuant to the work order under the contract and all expenses
incurred for purpose of conversion of the structural steel into steel
structure is the part of the cost of fabrication. He has taken a view
that the sites of sale event in this case is the event where steel
structure has been launched on the main pillar. In his opinion, the
cost of transportation, launching and installation at the site are the
part of the cost of steel structure which have been transferred in
course of execution of the contract. Respondent no. 2, therefore,
rejected the claim of Rs. 1,72,15,39,774.61/- on the ground that
this amount is part of the cost of the steel structure and till the
transfer of the ownership of the steel structure to the contractee,
the ownership was with the petitioner only. In ultimate analysis,
respondent no. 2 has taken a view that in course of execution of
works contract, the sale as per clause (zc) of Section 2 of the Act
of 2005 is that of the steel structure.
18. The respondent no. 2, therefore, assessed the gross
turnover and taxable turnover whereunder the petitioner has been
made liable to pay Rs. 37,73,62,165.32/-. A direction was issued
under the impugned order that the amount paid on account of entry
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tax be adjusted and a demand note be issued for the rest of the
amount.
Submissions on behalf of the Petitioner
19. Mr. Tarun Gulati, learned Senior Counsel for the
petitioner submits that by the impugned order respondent no. 2
held that 'steel structures' are unspecified goods and are liable to
tax at the rate of 13.5% instead of 5% which is the maximum rate
specified in Section 15 of the Central Sales Tax Act but the State
has no power to exceed the rate specified in Section 15 of the CST
Act in terms of Article 286(3) of the Constitution of India. Further,
it is submitted that impugned order speaks that the labour,
fabrication charges, etc. in the conversion of structural steel into
steel structure by way of fabrication is to be included in contract
are not deductible and that the same are also levied to tax at the
rate of 13.5%.
20. It is submitted that Sections 14 and 15 apply to
works contracts and the State has no power to tax items specified
in Sections 14 and 15 of the CST Act and the impugned order has
been passed without jurisdiction. Reliance in this regard has been
placed upon the judgments of the Hon'ble Supreme Court in the
cases of Builders Association of India and Ors. vs. Union of
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India reported in (1989) 2 SCC 645, Gannon Dunkerley (supra)
and B. Narasamma (supra).
21. It is submitted that the goods transferred by the
petitioner are structural steel which is evident from the bills raised
by the petitioner on East Central Railways. Referring to the
judgment of the Hon'ble Supreme Court in the case of Larsen and
Tourbo Limited vs. State of Karnataka and Anr. reported in
(2014) 1 SCC 708, it is submitted that once the contract provided
that the structural steel will be sold, the respondents have no
jurisdiction to levy tax on the entire steel structure which is not a
commercially traded commodity but part of immovable property.
The respondents have lost sight of this principle that the structural
steel has been transferred and billed by the petitioner.
22. It is submitted that the respondents have erred in
considering the steel structures as commercial distinct goods. The
steel structure comes into existence only as immovable property
and not as 'goods'. These are not commercially traded goods. It is
further submitted that there is no material to show that such large
sections of the bridge which come in existence only as a part of
bridge when they are incorporated in the bridge, can be regarded
as commercially differentiated goods.
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23. It is submitted that the steel structure, in the present
case, weighs around 2261.321 MT and cannot be moved from
place once it is erected and cannot be considered as "goods". The
attempt to tax the whole steel structure is an attempt to tax
immovable property which is beyond the jurisdiction of the
Respondents and is in clear contravention of Entry 54 of List 2 of
the Seventh Schedule of the Constitution which permits the
respondents only to tax purchase and sale of "goods" and not
immovable property.
24. It is submitted that respondents themselves have
taxed the sale of structure in the petitioner's own case at the rate of
5% and have allowed the deduction made by the petitioner on
account of labour in Assessment Orders for AY 2015-16 and AY
2010-11. Accordingly, it is submitted that there is no change in the
factual position of the petitioner and the respondent ought to have
adhered to the principles of judicial consistency while passing the
impugned order.
25. It is further submitted that contract in question is a
divisible contract and the same can be divided into the components
of supply of goods and supply of labour and no part of the
component of labour by way of fabrication is transferred as
property in goods in the execution of the works contract, therefore,
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the same does not form part of "sale" as defined in Section 2(zc) of
the BVAT Act read with Article 366(29-A) of the constitution of
India. Accordingly, the respondents failed to consider the statutory
provision as also the Constitution mandate.
26. Referring to the impugned notice issued by the
Respondent No. 2, learned Senior Counsel submits that notice has
been issued by invoking the jurisdiction of Section 31 of the BVAT
Act, 2005 on the ground that the claims in respect of deductions
and input tax credit as claimed in the return have not been
furnished along with the annual returns but the said notice does not
record satisfaction that such deductions have wrongly been
claimed in the return and there is omission or failure to make a
disclosure on the part of the assessee and the same has escaped
assessment. Learned Senior Counsel submits that Section 31 of the
Act does not empower reassessment merely to call for details in
respect of deductions claimed in the return for verification as
according to learned Senior Counsel, such power is only vested in
a regular assessment under Section 25 of the Act that too within
the period of limitation as set out therein. It is further submitted
that Section 31 is not a substitute of a regular assessment and
respondent no. 2 cannot proceed for exercising such power as if
the same was the regular assessment. Accordingly, learned Senior
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Counsel submits that issuance of notice under Section 31 of the
Act directing production of evidence for verification is wholly
illegal and without jurisdiction.
27. It is further submitted that petitioner has filed its
return on 30.12.2015 and has made true and fair disclosure of its
turnover. The petitioner has also filed its tax audit report along
with the return and after having made such disclosure in the return,
it cannot be said that petitioner has concealed, omitted or failed to
disclose full and correct particulars of such sale or purchase or
input tax credit in terms of Section 31 of the BVAT, 2005. It is
submitted that the condition precedent to the exercise of
jurisdiction under Section 31 of the Act are not fulfilled as Section
31 of the Act requires the prescribed authority to record his
reasons and satisfaction before he proceeds to make a
reassessment. It is stated that no such reason of belief or
satisfaction has been recorded by the respondents in the notice and
also in the order.
28. It is submitted that the present proceeding is the
reassessment proceeding which are beyond jurisdiction and the
impugned order has been passed on mere change of opinion,
particularly, in view of the acceptance of returns of the petitioner
in preceding and subsequent years.
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29. It is submitted that the petitioner cannot be relegated
to alternative remedy if the writ petition has remained pending for
a long time. In this regard reliance has been placed on the judicial
pronouncements in the case of Durga Enterprises (P) Ltd. vs.
Principal Secretary, Govt. of UP reported in (2004) 13 SCC 665
and Dr. Bal Krishna Agarwal vs. State of UP and Ors. reported
in (1995) 1 SCC 614.
30. It is submitted that it is the specific case of the
petitioner that the entire fabrication work is done by sub-contractor
and not by the petitioner. Accordingly, the entire sub-contractor's
turnover was deducted to arrive at the taxable turnover. It is further
submitted that by treating the entire incomplete structure as
separate goods, the deduction of the sub-contractors' turnover has
been disallowed. It is submitted that apart from the fact that the
incomplete structure are not separate goods, no VAT can be levied
on the hands of the petitioner as such value addition is not made
by the petitioner. The petitioner only supplies structural steel, and
accordingly, turnover of the petitioner is limited to the supply of
the structural steel. The remaining work is carried out by the sub-
contractors and levy of tax on such is on sub-contractor and not on
the petitioner. Relying on the judgment of the Hon'ble Supreme
Court in the case of Authority for Clarification and Advance
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Ruling, Gandhinagar Karnataka and Anr. Vs. Skyline
Construction and Housing Pvt. Ltd. reported in 2025 SCC
OnLine SC 2239, learned Senior Counsel has submitted that it is
well settled principle that the payment made to sub-contractors is
required to be deducted for determining the taxable value for the
purpose of calculating tax on the main contractor. Further, the
Hon'ble Supreme Court has held that to the extent the contract was
executed through sub-contractor, it cannot be said that the works
contract was executed by the main contractor.
31. It is submitted that the incomplete structure before it
becomes parts of immovable property is not separate goods. It is
submitted that for separate goods to emerge which can be taxed as
separate goods, the process or manufacture of such goods is
essential. It is submitted that while there may have been some
change in iron and steel due to the welding, the change is
immaterial because it does not lead to any commodity known to
the market as separate goods which has distinct name, character
and use. Learned Senior Counsel has relied upon the judgment of
the Hon'ble Supreme Court in the case of UOI vs. Delhi Cloth
and General Mills Co. Ltd. reported in 19771 E.L.T. 199 (SC). It
is submitted that in the present case, there is no evidence that huge
semi-finished span of the bridge is capable of being sold in the
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market. It is also submitted that the structural steel has not changed
its character of iron and steel and the structural steel is developed
for a specific purpose i.e. to be a part of the immovable bridge and
cannot be put to any other use.
32. It is further submitted that prior to 08.04.2011,
Section 15(a) of the CST Act provided that tax payable under any
State law in respect of sale or purchase of declared goods inside
the State shall not exceed 4% of the sale or purchase price thereof.
Accordingly, prior to 01.04.2011, Section 14(1)(b) of the BVAT
Act provided that tax shall be payable on the sale price of the
goods specified in the Schedule III at the rate of 4%. Further,
Entry 55 of the Schedule III of the BVAT Act covered "goods as
specified in section 14 of the Central sales Tax, 1956 excluding
LPG for the domestic use.". However, by virtue of Finance Act,
2011, the rate of tax provided under Section 15(a) was substituted
from 4% to 5% w.e.f. 08.04.2011. Consequently, some changes
were made to the BVAT Act vide notification no. L.G. 1-17/2011-
73/Leg dated 01.04.2011. One of the changes, as per the aforesaid
notification Entry 1 to the Schedule IIIA was inserted which
provided for "goods as specified in section 14 of the Central Sales
Tax Act, 1956." Subsequently, Notification No. S.O. 181 dated
29.07.2011 was issued by which some amendments were notified
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in which (a) Entry 1 of the Schedule IIIA was omitted.
Accordingly, Schedule IIIA currently does not provide any entry
and (b) Entry 55 of the Schedule III was substituted to "goods as
specified in section 14 of the Central Sales Act, 1956 other than
those specified in any of the Schedules appended to the Act.".
33. Referring to the aforesaid legislative history, learned
senior counsel submits that it is apparent that the Department's
contention that the petitioner's goods fall under Schedule IIIA is
wholly untenable. Entry 1 of the Schedule IIIA was inserted vide
Notification 1 dated 01.04.2011 and was omitted vide Notification
2 dated 29.07.2011. Accordingly, after 29.07.2011, Schedule IIIA
contains no entry, and the goods as specified in Section 14 of the
Central Sales Act, 1956 are specifically covered under Schedule III
of the BVAT Act. As the dispute relates to the year 2014-15 only
Entry 55 of the Schedule III is relevant according to which the
petitioner had paid the tax. Therefore, the classification adopted by
the petitioner in its return (i.e. the petitioner's goods fall under
Schedule III) is correct, and in accordance with law.
34. Learned Senior Counsel for the petitioner submits
that the judgment in the case of Quippo Energy Ltd. vs.
Commissioner of Central Excise Ahmadabad-II (2025) 152
GSTR 264 relied upon by the respondent no. 2 is not applicable in
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this case as in the case case, there was a clear finding that the
goods are marketable and functional but in the present case, the
incomplete span of the bridge is not marketable at all and is of no
use. It becomes complete only when it is attached to the bridge and
at that stage it is not "marketable goods" but a part of immovable
property.
Submissions on behalf of the Respondents
35. Respondents have appeared in these matters and
filed their counter affidavits. It is their stand that the works
contract was awarded to the petitioner for construction of steel
superstructure of open web triangulated girder on the bridge over
river Ganga in Patna and other ancillary works and for this
purpose, it has purchased iron and steel and got the same
fabricated into the superstructure and after fabrication brought the
superstructure at the site of the bridge and erected it.
36. Mr. Vikash Kumar, learned SC-11 has contested the
submissions of learned counsel for the writ petitioners and
submitted that the two issues involved in this case are as follows:-
(i) Whether sale of "goods -steel superstructure/
triangulated steel girders" under Section 2(zc) of the BVAT Act by
the petitioner are goods specified as "iron and steel" under Section
14(iv) of CST Act?
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(ii) Whether disallowance of an amount of
Rs.1,72,15,39,774.18 by authorities out of the claimed amount of
Rs.2,06,58,23,291.50 is justified in the light of judgment dated
17.11.1992 passed by Hon'ble Supreme Court in the case of
Gannon Dunkerley and Co. & Ors. reported in (1993) 1 SCC
364 reiterated by Hon'ble Supreme Court vide judgment dated
07.10.2025 in the case of M/s Aristo Printers Pvt. Ltd. vs.
Commissioner of Trade Tax, Lucknow, U.P. (2025 INSC 1188).
37. Learned SC-11 has submitted that the property in the
fabricated superstructure was transferred to the contractee at the
time of erection of the superstructure, accordingly, the Assessing
Officer rightly held that the property transferred in execution of
works contract was pre-fabricated superstructure which was a
commodity different from iron and steel, therefore, it was a sale of
unspecified commodity attracting at the rate of 13.5%.
38. Learned SC-11 while defending the impugned order
has submitted that on a bare perusal of tender document it appears
that the tender was floated which says that the superstructure had
to be fabricated in the workshops set up for it before delivery and
the superstrucutre was not a monolithic structure which consists of
multiple fabricated spans and the same had to be taken to the
bridge site for erection.
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39. Learned counsel for the respondents has submitted
that many judicial pronouncements has upheld the
assessment/reassessment under Section 31 of the BVAT Act and
claim of the petitioner that the Assessing Authority has failed to
record its satisfaction has no leg to stand as the petitioner had
evaded payment of huge tax in previous years also and the
Assessing Authority was very much satisfied that the petitioner
had underpaid taxes which has been elaborately discussed in the
impugned order. It is submitted that petitioner has transferred
fabricated steel superstructure, not iron and steel, to the contractee
Indian Railways. It is his stand that since steel superstructure is an
unspecified commodity not covered by any schedule under the
BVAT Act, the same would come under the tax at the rate 13.5%.
40. It is submitted that property transferred by the
contractee was triangulated bridge girders, the same invites tax
rates applicable to unspecified goods on the value at the time of
transfer of property which is triangulated bridge girders. Learned
counsel has submitted that the claim of the petitioner that the
fabricated triangulated girder or bridge superstructure is nothing
but iron and steel as defined under Section 4 of the CST Act has no
leg to stand in view of the number of judicial pronouncements
wherein it has been held that products made/ manufactured out of
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iron and steel no longer remain iron and steel. If bridge structure is
made out of steel the steel loses its character and becomes a totally
different commodity both commercially and technically.
41. Referring to the judgment of the Hon'ble Supreme
Court in the case of Devi Dass Gopal Krishan and others vs.
The State of Punjab and Others reported in (1966) 17 STC 313,
315, it is submitted that the conversion of iron and steel items like
bars, rods, angles, sections, structural etc. into triangulated bridge
superstructure involves substantial process of manufacture which
results into a totally different commodity, district from iron and
steel as defined under Section 14 of CST Act.
42. Learned counsel submits that the taxable event was
erection/launching of the superstructure when property in goods
passed to the contractee. Any expenditure on account of labour or
otherwise on the raw material prior to the taxable event (transfer of
property in goods) got embedded in the value to the superstructure
(triangulated girder) in which the property was transferred and
therefore, it is the value of the superstructure which attracted the
tax and not the value of the raw material purchased by the
petitioner. It is submitted that the petitioner had not made true and
complete disclosure in its returns nor had it paid due tax on its
turnover inasmuch as it had paid tax at the rate of 5% instead of
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13.5% on bridge superstructure. Thus, the assessment order is very
much justified and within the precincts of law.
43. Learned counsel submits that the ratio of judgment
rendered in the case of Larsen and Tourbo Limited vs. State of
Karnataka and Anr. (supra) is not applicable in the present case
as the petitioner remained the owner of the goods until they were
transferred to the contractee by the petitioner itself.
44. Learned counsel referring to the list mentioned under
Section 14 of the CST Act submits that the same does not include
the item 'bridge superstructure' or 'open web triangulated girder or
even girder' or rail bridge structure'. It is worth mentioning here
that this list of iron and steel items under Section 14 is qualified by
the words "that is to say" which means that the list is exhaustive
and nothing can be added to or subtracted from it.
45. Learned counsel submits that in the present case, the
period 2014-15 is involved in the present case but the petitioner
has relied on the period 2010-11 and the Assessing Officer for
period 2010-11, on iron and steel determined tax at the rate of 4%
and on other items, even though details are not provided the
reinforcement steel has rightly been treated as iron and steel with
other unspecified consumable being cement.
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46. Learned counsel representing Respondent No. 2
submits that the steel structurals supplied by the petitioner has
undergone the process of fabrication by sub-contractor who has
altered its identity and new commercial commodity of steel
superstructure/ triangulated steel structure has come into existence
which was incorporated in execution of works contract and
satisfies the twin tests which are transformation test and
marketibility test. In this regard, learned counsel has relied upon
the judgment of Quippo Energy Ltd. vs. Commissioner of
Central Excise Ahmadabad-II (2025) 152 GSTR 264.
Consideration
An introduction of the agreement between the parties
47. The petitioner and the East Central Railways
(hereinafter referred to as the ‘Railways’) entered into a works
contract on 10.02.2009, under which the petitioner agreed to
execute the work for assembly, erection, launching of (18×123m)
+ (1×64m) span triangulated steel girder for new rail-cum-road
bridge across River Ganga at Patna from Digha Ghat end (South
end) including transportation of fabricated components of
(17×123m) + (1×64m) span from fabricated workshop at Digha
Ghat end and (1×123m) span from fabrication workshops at
Pahleja Ghat end of River Ganga to the launching site, including
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casting of RCC pedestals and final coat of painting at an
approximate cost of Rs. 11,91,30,96,686.30/-. Schedule A is in
respect of fabrication, Schedule B for contingency items and
Schedule C-I of the agreement is related with supply of cement.
Schedule C-II relates with supply of reinforcement steel and
Schedule C-III is related with the supply of structural steel.
48. It is a matter of record that on 27.03.2009, an
agreement was executed between the petitioner and M/s GPT-
Rahee (JV) for assembly, erection/launching of (18×123m) +
(1×64m) span triangulated steel girders for new rail-cum-road
bridge across River Ganga at Patna from Digha Ghat end (South
end), including transportation of fabricated components of
(17×123m) + (1×64m) span from fabrication workshop at Digha
Ghat end and (1×123m) span from fabrication workshop at Pahleja
Ghat end of River Ganga to the launching site, including casting of
RCC pedestals and final coat of painting. As per the revised bid
submitted by M/s GPT-Rahee (JV), total cost of work was Rs.
107,08,70,000/-. It is the case of the petitioner that pursuant to the
contract awarded by the Government of India for construction of
the rail-cum-road bridge, the petitioner purchased structural steel,
which are nothing but iron and steel of the description given in
Section 14(iv) of the Central Sales Tax (in short ‘CST’) Act,
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whereas the work includes casting of RCC pedestals and other
ancillary work. The petitioner filed it’s annual return along with
TAR for the period 2014-15 on 30.12.2015, in which the petitioner
claimed as under:
Sl. N. Particulars Amount
1 Gross Turnover Rs. 2,26,89,51,407/-
2 Amount of other Rs. 2,06,58,23,291/-
allowable deduction
3 Taxable Turnover Rs. 20,31,28,116.50/-
4 Tax @ 5 % Rs. 1,01,56,405.82/-
49. The petitioner was served with a notice under
Section 31 of the Bihar Value Added Tax (in short ‘BVAT’) Act,
2005 . The reason for the same was shown as (i) Non-furnishing of
evidence as regards claim deduction and (ii) Verification of
applicable rate of tax. The petitioner was, therefore, called upon to
furnish the evidences regarding the claimed deduction of Rs.
2,06,58,23,290.50/- and regarding the claim for Rs. 45,81,045.96/-
against Input Tax Credit (ITC). The representative of the petitioner
appeared and made his submissions. The respondent No. 2, being
the assessing authority, passed the impugned order dated
09.01.2020 whereunder the respondent no. 2 accepted the claim of
Rs. 45,81,045.96/- against ITC and allowed an amount of Rs.
63,72,988.50/- paid against entry tax to be adjusted against
liability for the VAT.
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Views of the Assessing Officer (R-2)
50. However, the respondent no. 2 did not agree with the
applicability of rate of tax by the petitioner at the rate of 5% in its
return on taxable turnover of Rs. 20,31,20,116.50/-. Relying upon
the judgments of the Hon’ble Supreme Court in the case of B.
Narasamma (supra); Devi Dass Gopal Krishan (supra), State of
Tamil Nadu vs. Pyare Lal Malhotra and Ors. reported in AIR
1976 SC 800 and Gannon Dunkerley (supra), the respondent no.
2 held that the rate of tax would be 13.5% and not at the rate of 5%
as claimed by the petitioner. Against the claim deduction of Rs.
2,06,58,23,290.80/- under Section 35 of the BVAT Act, the
respondent no.2 allowed an amount of Rs. 3,41,49,683.48/- against
deductions but rejected the contention of the petitioner with
respect to the rest of the amount, which the petitioner was
contending that those were related with payment of labour charges
on fabrication, transporting, erection of steel structure, cutting,
strengthening, testing of steel structure. Respondent no. 2
considered the details provided by the petitioner in Form RT-VII,
which showed the execution of work of assembly, erection,
launching and fabrication by sub-contractor and the cost for
fabrication and related work along with transportation of
fabricated material as per details furnished in RT-VI to be Rs.
1,72,15,39,774.61/-. The claim of deductions of Rs.
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2,06,58,23,290.80/- under Section 35 of the BVAT Act and the
claim rejected by respondent no. 2 are being shown hereunder in
tabular form for ready reference:-
1. Fabrication, transporting, erection of steel Rs. 1,12,04,37,779.93
structural
2 Cutting, straightening, testing of steel Rs. 30,08,09,545.64
structural
3 Escalation for fabrication, transporting Rs. 60,94,26,280.04
erection of steel structural and cutting,
straightening testing of steel structural
4 Labour charge for concrete work Rs. 2,13,77,223.48
5 Total Rs. 2,05,20,50,829.09
6 Stock transfer within state Rs. 1,37,72,460.00
7 Total Deduction Rs. 2,06,58,23,289.09
1. Fabrication, transporting, erection of steel Rs. 1,12,04,37,779.93
structural
2 Cutting, straightening, testing of steel Rs. 30,08,09,545.64
structural
3 Escalation for fabrication, transporting Rs. 60,94,26,280.04
erection of steel structural and cutting,
straightening testing of steel structural
4 Cost of erection (as per RT-VI submitted by Rs. 30,91,33,831/-
the Dealer)
5 Cost of fabrication and related work along Rs. 1,72,15,39,774.61
with transportation of fabricated material to
the site of installation
(1+2+3+4)
51. Respondent no. 2 considered the definition of sale
under Section 2(zc) of the BVAT Act and held that the rejected
claim amount is part of the cost of the steel structure as till the
transfer of the ownership of the steel structure to the contractee,
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the ownership was with the petitioner only. Respondent no. 2 has
taken a view that in course of execution of works contract, the sale
as per clause (zc) of Section 2 of the BVAT Act is that of the steel
structure. The petitioner has been made liable to pay Rs.
37,73,62,165.32. The respondent no. 2 has, vide the impugned
order, ascertained the tax at the rate of 13.5% on taxable value of
Rs. 1,92,46,67,892.77/- and determined the amount of tax payable
as Rs. 25,52,49,120.52/- and imposed interest under Section 39(4)
of the BVAT Act. However, no penalty under Section 31 of the
BVAT Act has been imposed. The respondent no. 2 has, however,
allowed an amount of Rs. 20,68,63,672.00/- against the purchase
from outside the State.
Res-Judicata Principle in Taxation
52. One of the contentions of the petitioner is that for the
period 2010-11, the Assessing Officer had allowed the deductions
of an amount of Rs. 36,74,85,343/- against the claimed amount of
Rs. 67,92,88,164.50/- and had determined the tax on iron and steel
at the rate of 4%.
53. It is the contention of the respondent-department that
the work of the petitioner includes casting of RCC pedestals,
which may be executed using reinforcement steel (Schedule C-II)
and cement (Schedule C-I). RCC pedestals as per definition is a
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short vertical compression member of reinforced cement concrete
that transfers load from a column to a footing.
54. In case of Smt. B. Narasamma (supra), the Hon’ble
Supreme Court has taken note of the factual position as existing in
the said case, wherein it appeared that “…. Different types of steel
bars/ rods of different diameters are used as reinforcement (like
TMT bars, CTD bars etc). The reinforcement bars/rods need to be
bent at the ends in a particular fashion to withstand the bending
moments and flexural shear. The main reinforcement bars/rods
have to be placed parallely along the direction of the longer span.
The diameters of such main reinforcement rods/bars and the
distance between any two main reinforcement bars/rods is
calculated depending on the required loads to be carried by the
reinforced cement concrete structure to be built based on various
engineering parameters. ....”
55. The Hon’ble Supreme Court quoted the factual
positions which were appearing from the order of the Karnataka
Appellate Tribunal as under:-
“From the above discussion it is clear that largely in
building construction works, no pre-fabrication of
any steel structure is done before embedding them in
cement concrete mixture to form reinforced cement
concrete structures. The findings of the lower
authorities to the contrary effect in the cases on hand
are entirely opposed to facts.
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The only process to which the steel reinforcement
rods/bars are subjected to before being embedded
with cement concrete mixture is bending at its ends
after cutting of steel rods/bars to the required size
and tying them at the intersections with binding
wire. None of these processes constitute a
manufacturing process and no new commodity is
produced before incorporation into the works.”
56. Further, in case of Smt. B. Narasamma (supra) in
paragraph ‘19’, the Hon’ble Supreme Court relied upon the
judgment in Pyare Lal Malhotra (supra) case and observed as
under “….where, commercial goods without change of their
identity as such, are merely subject to some processing or
finishing, or are merely joined together, and therefore, remain
commercially the same goods which cannot be taxed again, given
the rigor of Section 15 of the Central Sales Tax Act. ...”
57. We have perused the order dated 09.02.2015 passed
by the then assessing authority in respect of the period 2010-11.
According to this order (Annexure ‘12’ to the writ petition), the
contractor company had claimed deductions on account of
payments made to the sub-contractors on account of labour
charges and services, payments made to the plant designer and
architect etc., which were found admissible deductions. The details
of the amount allowed to be deducted includes the amount paid to
the sub-contractors towards fabrication work, drilling and fixing of
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anchor bar, technical consultancy charges and testing charges. It is
evident on going through the order of the Assessing Officer in
respect of the year 2010-11 that the Assessing Officer had allowed
only Rs. 36,74,85,343.50/- out of the claimed amount of Rs.
67,92,88,164.50/- and this was the amount accepted as the labour
charges. In the year 2010-11, the respondent no. 2 taxed Rs.
1,47,52,87,301.50/- at the rate of 4% and taxed Rs. 2,65,89,410/-
at the rate of 12.5%. The gross receipt as per the trading account of
the assessee for the year ending 31.03.2011 was shown at Rs.
1,86,27,72,645/-. The Assessing Officer also recorded that in
execution of the works contract, the taxable materials such as iron
and steel and other miscellaneous unspecified consumables were
valued at Rs. 1,47,52,87,301.50/- and other miscellaneous
unspecified consumables were Rs. 2,65,89,410/-.
58. What is culled out from the order of the assessing
authority in respect of the year 2010-11 is that the iron and steel
used in execution of the works contract were charged at the rate of
4%. Thus, a question would arise as to whether this would operate
as res judicata and the revenue cannot be allowed to take a plea
that the steel structure in this case would not be covered under the
specified goods (iron and steel) in terms of Section 14(iv) of the
Central Sales Tax Act. The revenue is now treating the steel
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superstructure/triangulated steel girder as different and distinct
from structural steel as according to it, the steel
superstructure/triangulated steel girders would be classified as “not
specified goods” in Schedule I, II, III, IIIA and IV therefore, liable
to be taxed on the sale price at the prevalent rate of 13.5%
(increased to 14.5% with effect from 12.8.2016).
59. In case of Radhasoami Satsang, Saomi Bagh, Agra
vs. Commissioner of Income Tax reported in (1992) 1 SCC 659,
the Hon’ble Supreme Court has observed in paragraph ‘16’ as
under:-
“16. We are aware of the fact that strictly speaking
res judicata does not apply to income tax
proceedings. Again, each assessment year being a
unit, what is decided in one year may not apply in
the following year but where a fundamental aspect
permeating through the different assessment years
has been found as a fact one way or the other and
parties have allowed that position to be sustained by
not challenging the order, it would not be at all
appropriate to allow the position to be changed in a
subsequent year.”
60. It is, therefore, well settled that principles of res
judicata would not apply to the tax proceedings. What is to be
seen is as to whether steel structure/triangulated girder would be
covered as a specified good under Section 14(iv) of the CST Act as
has been earlier decided in the year 2010-11. This is the
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fundamental aspect which may have been present in the earlier
assessment year but to this Court it appears that this aspect of the
matter had not been gone into specifically in the earlier years,
therefore, the submissions of learned Senior counsel for the
petitioner based on the earlier order passed by the Assessing
Officer in respect of the year 2010-11 is unable to persuade this
Court. Also because of this reason that this aspect has not been
earlier decided, the exercise undertaken by the respondent no. 2
cannot be said to be based on a change of opinion.
Ground of alternative remedy
61. A primary objection has been raised regarding the
maintainability of the writ application. On perusal of the records, it
appears that vide order dated 05.03.2020, the operation of the demand
notice dated 25.01.2020 (Annexure '7 series') was stayed and vide order
dated 18.12.2020, the parties were directed to complete their
instructions and since then the writ applications are pending for
argument and now, it would not be appropriate to dismiss these
applications on the ground of alternative remedy. It is well settled that
principle of alternative remedy is based on Rule of Prudence but it is
not a Rule of law.
Legislative history of Taxation in Works Contract
62. Before coming to the merit of the case, we would briefly
take note of the legislative history leading to the 46th Constitution
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Amendment. We are required to take note of the relevant provisions of
the Constitution, the Central Sales Tax Act and the BVAT Act. Article
286(3) of the Constitution reads as under:-
“(3) Any law of a State shall, in so far as it imposes,
or authorises the imposition of,— (a) a tax on the
sale or purchase of goods declared by Parliament by
law to be of special importance in inter-State trade
or commerce; or (b) a tax on the sale or purchase of
goods, being a tax of the nature referred to in sub-
clause (b), sub-clause (c) or sub-clause (d) of clause
(29A) of article 366, be subject to such restrictions
and conditions in regard to the system of levy, rates
and other incidents of the tax as Parliament may by
law specify.”
63. Section 14 and 15 of the Central Sales Tax Act
insofar as they relate to the present case are as under:-
“14. Certain goods to be of special importance in inter-
State trade or commerce.—It is hereby declared that
the following goods are of special importance in inter-
State trade or commerce:—
…..
(v) steel structurals (angles, joists, channels, tees,
sheet piling sections, Z-sections or any other rolled
sections);
...
3
[15. Restrictions and conditions in regard to tax on
sale or purchase of declared goods within a State.—
Every sales tax law of a State shall, in so far as it
imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the
following restrictions and conditions, namely:—
3. Substituted by Act 31 of 1958, S. 11, for S. 15 (w.e.f. 1-10-1958)
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(a) the tax payable under that law in respect of any sale
or purchase of such goods inside the State shall not
exceed 4[five percent.] of the sale or purchase price
thereof 5[***];
(b) where a tax has been levied under that law in
respect of the sale or purchase inside the State of any
declared goods and such goods are sold in the course
of inter-State trade or commerce, 6[and tax has been
paid under this Act in respect of the sale of such goods
in the course of inter-State trade or commerce, the tax
levied under such law] 7[shall be reimbursed to the
person making such sale in the course of inter-State
trade or commerce] in such manner and subject to such
conditions as may be provided in any law in force in
that State;]
8
[(c) where a tax has been levied under that law in
respect of the sale or purchase inside the State of any
paddy referred to in sub-clause (i) of clause (i) of
section 14, the tax leviable on rice procured out of
such paddy shall be reduced by the amount of tax
levied on such paddy;
9
[(ca) where a tax on sale or purchase of paddy
referred to in sub-clause (i) of clause (i) of section 14
is; leviable under the law and the rice procured out of
such paddy is exported out of India, then, for the
purposes of sub-section (3) of section 5, the paddy and
rice shall be treated as a single commodity;
(d) each of the pulses referred to in clause (via) of
section 14, whether whole or separated, and whether
with or without husk, shall be treated as a single
commodity for the purposes of levy of tax under that
law.]”
4. Substituted by the Finance Act, 2011, S. 74, for "four percent".
5. The words ",and such tax shall not be levied at more than one stage" omitted by Act 20 of 2002, S. 155
(w.e.f. 11-5-2002).
6. Substituted by Act 61 of 1972, S.12, for "the tax so levied" (w.e.f. 1-4-1973).
7. Substituted by Act 61 of 1972, S. 12, for "shall be refunded to such person" (w.e.f. 1-4-1973)
8. Inserted by Act 103 of 1976, S. 8 (w.e.f. 7-9-1976)
9. Inserted by Act 33 of 1996, S. 87 (w.e.f. 28-9-1996)
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64. The 46th Amendment of the Constitution added
Article 366(29-A) making it possible by deeming fiction to tax
sale of goods involved in a works contract. BVAT Act was enacted
to consolidate and amend the law relating to levy of tax on sales or
purchases of goods in the State of Bihar. It was published in the
Gazette of India (Extraordinary) dated 23.06.2005 and made
effective from the first day of April 2005. Section 2(j) defines the
word “declared goods” which means goods declared under Section
14 of the Central Sales Tax Act, 1956 to be of special importance
in inter-state trade or commerce. The word “sale” has been defined
under Section 2(zc) which reads as under:-
“(zc) “sale” with all its grammatical variations and
cognate expressions means any transfer of property
in goods for cash or deferred payment or for other
valuable consideration and includes -
(i) a transfer, otherwise than in pursuance of a
contract, of property in any goods for cash, deferred
payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods
or in some other form) involved in the execution of a
works contract;
(iii) a delivery of goods on hire purchase or any
system of payment by installments;
(iv) a transfer of the right to use any goods for any
purpose (whether or not for a specified period) for
cash, deferred payment or other valuable
consideration;
(v) a supply of goods by any unincorporated
association or body of persons to a member thereof
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for cash, deferred payment or other valuable
consideration;
(vi) a supply, by way of or as part of any service or in
any other manner whatsoever, of goods, being food
or any other article for human consumption or any
drink (whether or not intoxicating) where such
supply or service is for cash, deferred payment or
other valuable consideration,
and such transfer, delivery or supply of any goods
shall be deemed to be a sale of those goods by the
person making the transfer, delivery or supply and
purchase of those goods by the person to whom such
transfer, delivery or supply is made.”
65. Provisions relating to incidence of tax are provided
under Chapter II. Section 3 talks of charge of tax. For our purpose,
Section 31 of the BVAT Act would be important to take note of,
therefore, we reproduce the same hereunder:-
“31. Assessment or Re-assessment of Tax of
escaped turnover-(1) If the prescribed authority is
satisfied, either on the basis of audit conducted
under sub-section (3) of section 26 or otherwise,
that reasonable grounds exist to believe that, in
respect of any assessment under this Act or under
the Bihar Finance Act, 1981, as it stood before its
repeal by section 94, during any period, any sale or
purchases of goods liable to tax under this Act or
the said Act, for any reason, has been under-
assessed or has escaped assessment, or has been
assessed to tax at a lower rate, or any deduction
there from has been wrongly made, or an input tax
credit has incorrectly been claimed; the prescribed
authority shall, in such manner as may be prescribed
and after serving on the dealer a notice in the form
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and in the manner prescribed, proceed to assess or
re-assess, as the case may be, the tax payable by
such dealer within four years from the expiry of the
year during which the original order of assessment
or re-assessment was passed, in a case where the
dealer has concealed, omitted or failed to disclose
full and correct particulars of such sale or purchase
or input tax credit, and the provisions of this Act
shall, so far as may be, apply accordingly as if the
notice under this sub-section was a notice under
section 27:
Provided that the amount of tax shall be assessed or
re-assessed after allowing such deductions as were
allowable during the said period and at rates at
which it would have been assessed had the turnover
not escaped assessment.
(2) (a) The prescribed authority shall, in a case
where the dealer has concealed, omitted or failed to
disclose full and correct particulars of such sale or
purchase or input tax credit, direct that the dealer
shall, besides the amount of interest payable under
sub-section (10) of section 24, pay by way of
penalty a sum equal to three times the amount of tax
which is or may be assessed on the turnover of sale
or purchase which escaped assessment.
(b) The penalty imposed under clause (a) shall be in
addition to the amount of tax, which is or may be
assessed on the turnover of sale or purchase which
escaped assessment.
1
[(c) No order shall be passed under this sub-section
without giving the dealer a reasonable opportunity
of being heard.]
(3) Any assessment or re-assessment made and any
penalty imposed under this section shall be without
prejudice to any action, which is or may be taken
under section 81”
1. Inserted by the Bihar Value Added Tax (Amendment) Act, 2011 vide Notification No.
L.G.-1-06/2011/105 Leg. Dated 27.05.2011. w.e.f. 27.05.2011.
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Case -Laws discussed
66. There are catena of judgments of the Hon’ble
Supreme Court such as Builders Association of India (supra) and
Gannon Dunkerley (supra) wherein the Hon’ble Supreme Court
has discussed the issue of taxability on the iron and steel products
that are reinforced for cement concrete used in building and
structures. It has been held in the case of B. Narasamma (supra)
that a conjoint reading of Builders Association of India (supra)
and Gannon Dunkerley (supra) would emerge in a proposition
that works contract that are liable to be taxed after the 46 th
Constitution Amendment are subject to the drill of Article 286(3)
read with Section 15 of the Central Sales Tax Act, namely that they
are chargeable at a single point and at a rate not exceeding 4% at
the relevant time. Further, the point at which the iron and steel
products are taxable is the point of a creation, that is the point of
incorporation into the building or structure. We reproduce
paragraph ‘14, ‘15’, and ‘16’ of the judgment in case of B.
Narasamma (supra) to place on record a comprehensive
understanding of the legislative history and the case laws developed
on the subject:-
“14. Having heard the learned counsel for the
parties, we are of the opinion that Shri N.
Venkatraman is right. The matter is no longer
res integra. Two important propositions
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emerge on a conjoint reading of Builders'
Assn.4 and Gannon Dunkerley5. First, that
works contracts that are liable to be taxed
after the 46th Constitution Amendment are
subject to the drill of Article 286(3) read with
Section 15 of the Central Sales Tax Act,
namely, that they are chargeable at a single
point and at a rate not exceeding 4% at the
relevant time. Further, the point at which
these iron and steel products are taxable is
the point of accretion, that is, the point of
incorporation into the building or structure.
15. The relevant paragraphs from these two
decisions, therefore, need to be set out. In
Builders' Assn.4, this Court held: (SCC pp.
670 & 674-75, paras 32 & 38-41)
“32. … We are of the view that all transfers,
deliveries and supplies of goods referred to
in sub-clauses (a) to (f) of clause (29-A) of
Article 366 of the Constitution are subject to
the restrictions and conditions mentioned in
clause (1), clause (2) and sub-clause (a) of
clause (3) of Article 286 of the Constitution
and the transfers and deliveries that take
place under sub-clauses (b), (c) and (d) of
clause (29-A) of Article 366 of the
Constitution are subject to an additional
restriction mentioned in sub-clause (b) of
Article 286(3) of the Constitution.
***
38. In Benjamin's Sale of Goods (3rd Edn.)
in para 43 at p. 36 it is stated thus:
4. Builders' Assn. of India v. Union of India, (1989) 2 SCC 645 : 1989 SCC (Tax) 317
5. Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364
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‘Chattel to be affixed to land or another
chattel.—Where work is to be done on the
land of the employer or on a chattel
belonging to him, which involves the use or
affixing of materials belonging to the person
employed, the contract will ordinarily be one
for work and materials, the property in the
latter passing to the employer by accession
and not under any contract of sale.
Sometimes, however, there may instead be a
sale of an article with an additional and
subsidiary agreement to affix it. The property
then passes before the article is affixed, by
virtue of the contract of sale itself or an
appropriation made under it.’
39. In view of the foregoing statements with
regard to the passing of the property in goods
which are involved in works contract and the
legal fiction created by clause (29-A) of
Article 366 of the Constitution it is difficult
to agree with the contention of the States that
the properties that are transferred to the
owner in the execution of a works contract
are not the goods involved in the execution
of the works contract, but a conglomerate,
that is the entire building that is actually
constructed. After the 46th Amendment it is
not possible to accede to the plea of the States
that what is transferred in a works contract is
the right in the immovable property.
40. We are surprised at the attitude of the
States which have put forward the plea that
on the passing of the 46th Amendment the
Constitution had conferred on the States a
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larger freedom than what they had before in
regard to their power to levy sales tax under
Entry 54 of the State List. The 46th
Amendment does no more than making it
possible for the States to levy sales tax on the
price of goods and materials used in works
contracts as if there was a sale of such goods
and materials. We do not accept the argument
that sub-clause (b) of Article 366(29-A)
should be read as being equivalent to a
separate entry in List II of the Seventh
Schedule to the Constitution enabling the
States to levy tax on sales and purchases
independent of Entry 54 thereof. As the
Constitution exists today the power of the
States to levy taxes on sales and purchases of
goods including the “deemed” sales and
purchases of goods under clause (29-A) of
Article 366 is to be found only in Entry 54
and not outside it. We may recapitulate here
the observations of the Constitution Bench in
Bengal Immunity Co. Ltd.7 in which this
Court has held that the operative provisions
of the several parts of Article 286 which
imposes restrictions on the levy of sales tax
by the States are intended to deal with
different topics and one could not be
projected or read into another and each one
of them has to be obeyed while any sale or
purchase is taxed under Entry 54 of the State
List.
41. We, therefore, declare that sales tax laws
passed by the legislatures of States levying
7. Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661 : (1955) 2 SCR 603 : (1955) 6 STC 446
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taxes on the transfer of property in goods
(whether as goods or in some other form)
involved in the execution of a works contract
are subject to the restrictions and conditions
mentioned in each clause or sub-clause of
Article 286 of the Constitution. We, however,
make it clear that the cases argued before and
considered by us relate to one specie of the
generic concept of “works contracts”. The
case-book is full of the illustrations of the
infinite variety of the manifestation of
“works contracts”. Whatever might be the
situational differences of individual cases,
the constitutional limitations on the taxing
power of the State as are applicable to
“works contracts” represented by “building
contracts” in the context of the expanded
concept of “tax on the sale or purchase of
goods” as constitutionally defined under
Article 366(29-A), would equally apply to
other species of “works contracts” with the
requisite situational modifications.”
16. In Gannon Dunkerley5, this Court held:
(SCC pp. 386, 389, 392 & 394, paras 31, 37,
41 & 45)
“31. … Apart from the limitations referred to
above which curtail the ambit of the
legislative competence of the State
Legislatures, there is clause (3) of Article
286 which enables Parliament to make a law
placing restrictions and conditions on the
exercise of the legislative power of the State
5. Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364
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under Entry 54 in State List in regard to the
system of levy, rates and other incidents of
tax. Such a law may be in relation to (a)
goods declared by Parliament by law to be of
special importance in inter-State trade or
commerce, or (b) to taxes of the nature
referred to in sub-clauses (b), (c) and (d) of
clause (29-A) of Article 366. When such a
law is enacted by Parliament the legislative
power of the States under Entry 54 in State
List has to be exercised subject to the
restrictions and conditions specified in that
law. In exercise of the power conferred by
Article 286(3)(a) Parliament has enacted
Sections 14 and 15 of the Central Sales Tax
Act, 1956. No law has, however, been made
by Parliament in exercise of its power under
Article 286(3)(b).
***
37. … For the same reasons Sections 14 and
15 of the Central Sales Tax Act would also
be applicable to the deemed sales resulting
from transfer of property in goods involved
in the execution of a works contract and the
legislative power under Entry 54 in State List
will have to be exercised subject to the
restrictions and conditions prescribed in the
said provisions in respect of goods that have
been declared to be of special importance in
inter-State trade or commerce.
***
41. … So also it is not permissible for the
State Legislature to impose a tax on goods
declared to be of special importance in inter-
State trade or commerce under Section 14 of
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the Central Sales Tax Act except in
accordance with the restrictions and
conditions contained in Section 15 of the
Central Sales Tax Act.
***
45. … Since the taxable event is the transfer
of property in goods involved in the
execution of a works contract and the said
transfer of property in such goods takes place
when the goods are incorporated in the
works, the value of the goods which can
constitute the measure for the levy of the tax
has to be the value of the goods at the time of
incorporation of the goods in the works and
not the cost of acquisition of the goods by
the contractor. We are also unable to accept
the contention urged on behalf of the States
that in addition to the value of the goods
involved in the execution of the works
contract the cost of incorporation of the
goods in the works can be included in the
measure for levy of tax. Incorporation of the
goods in the works forms part of the contract
relating to work and labour which is distinct
from the contract for transfer of property in
goods and, therefore, the cost of
incorporation of the goods in the works
cannot be made a part of the measure for
levy of tax contemplated by Article 366(29-
A)(b).”
67. In B. Narasamma (supra), the Hon’ble Supreme
Court has also quoted paragraph ‘9’ and ‘10’ of the judgment in
case of Pyare Lal Malhotra (supra) which are as under:-
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“9. If the object was to make iron and steel taxable
as a substance, the entry could have been: “Goods
of Iron and Steel”. Perhaps even this would not
have been clear enough. The entry, to clearly have
that meaning, would have to be: “Iron and Steel
irrespective of change of form or shape or character
of goods made out of them”. This is the very
unusual meaning which the respondents would like
us to adopt. If that was the meaning, sales tax law
itself would undergo a change from being a law
which normally taxes sales of “goods” to a law
which taxes sales of substances, out of which goods
are made. We, however, prefer the more natural and
normal interpretation which follows plainly from
the fact of separate specification and numbering of
each item. This means that each item so specified
forms a separate species for each series of sales
although they may all belong to the genus: “Iron
and Steel”. Hence, if iron and steel “plates” are
melted and converted into “wire” and then sold in
the market, such wire would only be taxable once so
long as it retains its identity as a commercial goods
belonging to the category “wire” made of either iron
or steel. The mere fact that the substance or raw
material out of which it is made has also been taxed
in some other form, when it was sold as a separate
commercial commodity, would make no difference
for purposes of the law of sales tax. The object
appears to us to be to tax sales of goods of each
variety and not the sale of the substance out of
which they are made.
10. As we all know, sales tax law is intended to tax
sales of different commercial commodities and not
to tax the production or manufacture of particular
substances out of which these commodities may
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have been made. As soon as separate commercial
commodities emerge or come into existence, they
become separately taxable goods or entities for
purposes of sales tax. Where commercial goods,
without change of their identity as such goods, are
merely subjected to some processing or finishing or
are merely joined together, they may remain
commercially the goods which cannot be taxed
again, in a series of sales, so long as they retain their
identity as goods of a particular type.””
68. At this stage, we refer Section 14 of the BVAT Act
2005 which reads as under:-
“14. Rate of Tax
(1) Tax shall be payable on the sale price of —
(a) the goods specified in the Schedule II, at the rate
of one percent;
1
(b) the goods specified in the Schedule III, at the
rate of four percent
2
[(bb) the goods specified in the schedule IIIA, at
the rate of four percent]
(c) the goods specified in the Schedule IV, at the
rate not exceeding fifty percent but not less than
twenty percent, as the State Government may,
subject to such conditions and restrictions, by
notification, specify
3
[(d) any other goods, not specified in the Schedules
I, II, III and IV, at the rate of twelve and a half
percent.]
(2) The State Government may, by notification, alter
any Schedule to this Act."
1. Substituted by the Bihar Finance Act 2011 vide Notification No. L.G. 1-17/2011-73/ Leg dated
01.04.2011 for the following :- "(b) the goods specified in the Schedule III, at the rate of four per cent.;"
2. Inserted by the Bihar Finance Act 2011 vide Notification No. L.G. 1-17/2011-73/ Leg dated
01.04.2011
3. Substituted by the Bihar Finance Act 2011 vide Notification No. L.G. 1-17/2011-73/ Leg dated
01.04.2011.
"(d) any other goods, not specified in the Schedules I, II, III and IV, at the rate of twelve and a-half per
cent."
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69. It is evident from a reading of this provision that
clause (bb) were inserted by Finance Act 3 of 2011. It provides for
the goods specified in Schedule IIIA to be taxed at the rate of 4%.
It is evident from the aforementioned provisions and the judicial
pronouncements on the subject that the taxable event in the case of
execution of a works contract is the transfer of property in goods
involved in the execution of the contract and that transfer occurs
when goods are incorporated in the works. Consequently, it would
be the value of the goods at the time of incorporation which would
constitute the measure for the levy of the tax. It is in this
background, the revenue has contended before this Court that the
goods i.e. the steel superstructure/triangulated steel girder is
different and distinct from steel structurals (angles, joists,
channels, tees, seat pilings sections, Z-sections, or any other rolled
sections). It is stated that the steel structurals includes (angles,
joists, channels, tees, seat pilings sections, Z-sections or any other
rolled sections) supplied by the petitioner has undergone the
process of fabrication by sub-contractor who has altered its
identity and a new commercial commodity of steel
superstructure/triangulated steel structure has come into existence
which has been incorporated in execution of works contract and it
satisfies the twin tests of (i) transformation test and (ii)
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marketability test as set out by the Hon’ble Supreme Court in the
matter of Quippo Energy Ltd. vs. Commissioner of Central
Excise Ahmadabad-II (2025) 152 GSTR 264. It is worth
mentioning that in case of Quippo (supra) the Hon’ble Supreme
Court was considering a question as to whether the process of
placing the genset within a steel container and fitting the steel
container with components such as radiator, ventilation fan, air
filter unit, oil tank, pipes, pumps, valve and silencers would
amount to “manufacture” under Section 2(f) of the Central Excise
Act, 1944. In that context, the Hon’ble Supreme Court considered
the term “manufacture” as defined under Section 2 of the Act of
1944 and held that to become “goods” an article must be
something which can ordinarily come to market to be brought and
sold. The views expressed by the Hon’ble Supreme Court in
paragraph ‘26’ and ‘27’ of the judgment are as under:-
“26. In Union of India v. J.G. Glass Industries
Ltd.10, this court was dealing with the question
whether printing on glass bottles amounts to
“manufacture” within the meaning of section 2(f) of
the Act, 1944. The court accepted the contention of
the respondents that the activity of printing names
or logos on the bottles did not change the basic
character of the commodity and that the plain
bottles in themselves were commercial commodities
and could be sold and used as such. Thus, the court
held that printing on glass bottles did not amount to
“manufacture” under section 2(f) of the Act, 1944.
10. (1999) 114 STC 387 (SC); (1998) 2 SCC 32; 1997 SCC OnLine SC 22
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The relevant observations made by this court are
reproduced as follows (page 395 in 114 STC):
“16. On an analysis of the aforesaid rulings, a
twofold test emerges for deciding whether the
process is that of ‘manufacture’. First, whether by
the said process a different commercial
commodity comes into existence or whether the
identity of the original commodity ceases to exist;
secondly, whether, the commodity which was
already in existence will serve no purpose but for
the said process. In other words, whether the
commodity already in existence will be of no
commercial use but for the said process. In the
present case, the plain bottles are themselves
commercial commodities and can be sold and used
as such. By the process of printing names or logos
on the bottles, the basic character of the commodity
does not change. They continue to be bottles. It
cannot be said that but for the process of printing,
the bottles will serve no purpose or are of no
commercial use.”
(emphasis supplied)”
27. This court in Union of India v. J.G. Glass
Industries Ltd10 established a two-fold test to
ascertain if an activity constitutes “manufacture”:
(a) Fundamental change test : The first criterion is
to determine if the process results in a new
commercial item being created, or if the original
item's identity is fundamentally altered or ceases to
exist. This means assessing whether a
transformation occurs such that a distinct product
with a new name, identity, character, or use
emerges;
10. (1999) 114 STC 387 (SC); (1998) 2 SCC 32; 1997 SCC OnLine SC 22
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(b) But for the process test : The second criterion
evaluates whether the product that existed before
the process would be commercially useless or serve
no purpose without undergoing that specific
process. In other words, if the pre-existing
commodity would lack any commercial utility were
it not for the process, this condition is met.
70. In its ultimate analysis, the Hon’ble Supreme Court
held in paragraph ‘49’ to ‘52’ as under:-
“49. The contention of the appellant that the end-use
of both products is merely the “generation of
electricity” is an oversimplification that conflates
the core function of a product with its functional
utility. The Genset at the time of the import was in a
form that was suitable/intended for permanent
installation. The process undertaken by the
appellant imparts the core functional utility of
portability to the Genset, a utility that was non-
existent in the product at the time of its import. This
is not a minor, value-added feature, it is the defining
attribute from which the final product derives its
entire identity and character.
50. We have no doubt in our mind that the test of
transformation is satisfied in the facts of the present
case. The imported Genset and the power pack are
two different commodities with distinct constituent
elements, structure and functional utility.
51. We now turn to the final test of marketability.
No evidence has been adduced by the appellant to
suggest that the power packs are not marketable. On
the contrary, it is an admitted position, clear from
the record, that it is these very power packs that are
the subject of the lease agreements and are
delivered to the ultimate customer. Thus, no serious
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question regarding the marketability of the final
product remains, it is an established and undisputed
fact.
E. Conclusion
52. In the facts of the present case, both the
transformation test and the marketability test stand
fulfilled. The process of placing the Genset within
the steel container and fitting that container with
additional, integral components brings into
existence a new, distinct, and marketable
commodity. This process would thus amount to
“manufacture” under section 2(f)(i) of the Act,
1944. Consequently, the appellant is liable to pay
excise duty on the goods manufactured.”
71. From the aforementioned discussions, it is culled out
that after 46th Amendment of the Constitution came into effect, the
works contract was made subject to tax by virtue of Entry 54 of the
State List read with Article 366(29-A)(b) of the Constitution of
India. Article 366(29-A)(b) contemplated levy and the taxes on the
value of the goods involved in the execution of works contract. In
Builders' Association of India vs. Union of India reported in
(1989) 2 SCC 645, the Hon'ble Supreme Court has pointed out that
in Article 366(29-A)(b) emphasis is on the transfer of property in
goods whether as goods or in some other form. In Gannon
Dunkerley (supra), the Hon'ble Supreme court held that though the
tax is imposed on the transfer of property in goods involved in the
execution of a works contract, the measure for levy of such
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imposition is the value of the goods involved in the execution of a
works contract. The Apex Court rejected the contention urged on
behalf of the contractors that the value of such goods for levying tax
can be assessed only on the basis of cost of acquisition of the goods
by the contractor. It has been held that "...Since the taxable event is
the transfer of property in goods involved in the execution of a
works contract and the said transfer of property in such goods takes
place when the goods are incorporated in the works, the value of the
goods which can constitute the measure for the levy of the tax has
to be the value of the goods at the time of incorporation of the
goods in the works and not the cost of acquisition of the goods by
the contractor....".
The Hon'ble Supreme Court also rejected the contention urged
on behalf of the State that in addition to the value of the goods
involved in the execution of the works contract, the cost of
incorporation of the goods in the works can be included in the
measure for levy of tax. It has been held that "... Incorporation of the
goods in the works forms part of the contract relating to work and
labour which is distinct from the contract for transfer of property in
goods and, therefore, the cost of incorporation of the goods in the
works cannot be made a part of the measure for levy of tax
contemplated by Article 366(29-A)(b)." While discussing as to how
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to determine the value of the goods which are involved in the
execution of works contract, the State as well as contractors made
their respective submissions which have been considered by the
Hon'ble Supreme Court in the case of Gannon Dunkerley (supra)
in paragraphs '46' and '47' which are being reproduced hereunder:-
"46. With regard to the determination of the value of
the goods which are involved in the execution of a
works contract the submission of the learned counsel
appearing for the States is that a more convenient mode
for such determination is to take the value of the works
contract as a whole and deduct therefrom the cost of
labour and services rendered by the contractor during
the course of execution of the works contract. The
submission of the learned counsel is that this mode
would prevent evasion of tax. The learned counsel for
the contractors have submitted that in that event the
following deductions should be made from the value of
the entire contract in order to arrive at the value of the
goods involved in the execution of a works contract:
(i) labour charges for execution of the works;
(ii) amounts paid to a sub-contractor for labour and
services;
(iii) charges for planning, designing and architect's fees
(iv) charges for obtaining on hire the machinery and
tools used in the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel,
etc.
(vi) transportation charges for transport of goods to the
place of works;
(vii) overhead expenses of the head office and branch
office including rents, salary, electricity, telephone
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charges, etc. and interest charges to banks and financial
institutions;
(viii) profits expected on such contract.
47. Keeping in view the legal fiction introduced by the
Forty-sixth Amendment whereby the works contract
which was entire and indivisible has been altered into a
contract which is divisible into one for sale of goods
and other for supply of labour and services, the value of
the goods involved in the execution of a works contract
on which tax is leviable must exclude the charges
which appertain to the contract for supply of labour and
services. This would mean that labour charges for
execution of works, [item No. (i)], amounts paid to a
sub-contractor for labour and services [item No. (ii)],
charges for planning, designing and architect's fees
[item No. (iii)], charges for obtaining on hire or
otherwise machinery and tools used in the execution of
a works contract [item No. (iv)], and the cost of
consumables such as water, electricity, fuel, etc. which
are consumed in the process of execution of a works
contract [item No. (v)] and other similar expenses for
labour and services will have to be excluded as charges
for supply of labour and services. The charges
mentioned in item No. (vi) cannot, however, be
excluded. The position of a contractor in relation to a
transfer of property in goods in the execution of a
works contract is not different from that of a dealer in
goods who is liable to pay sales tax on the sale price
charged by him from the customer for the goods sold.
The said price includes the cost of bringing the goods to
the place of sale. Similarly, for the purpose of
ascertaining the value of goods which are involved in
the execution of a works contract for the purpose of
imposition of tax, the cost of transportation of the
goods to the place of works has to be taken as part of
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the value of the said goods. The charges mentioned in
item No. (vii) relate to the various expenses which form
part of the cost of establishment of the contractor.
Ordinarily the cost of establishment is included in the
sale price charged by a dealer from the customer for the
goods sold. Since a composite works contract involves
supply of materials as well as supply of labour and
services, the cost of establishment of the contractor
would have to be apportioned between the part of the
contract involving supply of materials and the part
involving supply of labour and services. The cost of
establishment of the contractor which is relatable to
supply of labour and services cannot be included in the
value of the goods involved in the execution of a
contract and the cost of establishment which is relatable
to supply of material involved in the execution of the
works contract only can be included in the value of the
goods. Similar apportionment will have to be made in
respect of item No. (viii) relating to profits. The profits
which are relatable to the supply of materials can be
included in the value of the goods and the profits which
are relatable to supply of labour and services will have
to be excluded. This means that in respect of charges
mentioned in item Nos. (vii) and (viii), the cost of
establishment of the contractor as well as the profit
earned by him to the extent the same are relatable to
supply of labour and services will have to be excluded.
The amount so deductible would have to be determined
in the light of the facts of a particular case on the basis
of the material produced by the contractor. The value of
the goods involved in the execution of a works contract
will, therefore, have to be determined by taking into
account the value of the entire works contract and
deducting therefrom the charges towards labour and
services which would cover—
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(a) Labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and
services;
(c) charges for planning, designing and architect's fees;
(d) charges for obtaining on hire or otherwise
machinery and tools used for the execution of the
works contract;
(e) cost of consumables such as water, electricity, fuel,
etc. used in the execution of the works contract the
property in which is not transferred in the course of
execution of a works contract; and
(f) cost of establishment of the contractor to the extent
it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour
and services;
(h) profit earned by the contractor to the extent it is
relatable to supply of labour and services.
The amounts deductible under these heads will have to
be determined in the light of the facts of a particular
case on the basis of the material produced by the
contractor."
72. In order to give clarity to its opinion with respect to
the deductions, the Hon'ble Supreme Court made it clear that it will
be necessary to exclude from the value of the goods which are not
taxable in view of Section 3, 4 and 5 of the CST Act and the goods
covered by Sections 14 and 15 of the CST Act as well as the goods
which are exempt from the tax under the Sales Tax Legislation of
the State. The value of the goods involved in the execution of a
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works contract will have to be determined after making these
deductions and exclusions from the value of the works contract.
73. One of the contentions raised by Mr. Gulati, learned
Senior Counsel for the petitioner is that the Assessing Officer
cannot add the turnover of sub-contractor to the turnover of the
petitioner-company. Reliance in this regard has been placed upon
the judgment of the Hon'ble Supreme Court in the case of State of
A.P. v. Larsen & Toubro Ltd. reported in (2008) 9 SCC 191.
74. On going through the said judgment, we find that L &
T Limited was engaged in executing the civil, mechanical and other
building works throughout India, entered into a contract with its
clients and with consent of the clients, they assigned certain parts of
the works to the sub-contractors. L&T placed orders with such sub-
contractors on agreed price inclusive of applicable taxes. The
overall work was done under the supervision of the consultants
nominated by the contractee (clients of the L&T). The sub-
contractors were registered dealers who purchased goods and
chattels like bricks, cement and steel and wherever necessary
supply and erect equipments such as lifts, hoists, etc. The materials
were brought to the site. They remained the property of the sub-
contractors. The site was occupied by the contractors. The materials
were erected by the sub-contractors. Under such circumstances,
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L&T was served with a notice in which it was alleged that the
company has failed to disclosed the sub-contractors' turnover of Rs.
1,11,53,05, 835/- in the returns filed up to 31.01.2006 for the period
01.04.2005 to 31.01.2006. In reply, L&T submitted that under
Section 4(7)(a) of the Andhra Pradesh Value Added Tax, 2005, there
was no provision for inclusion of sub-contractors' turnover in the
turnover filed by the company; and the scheme of the said Act at the
relevant time did not contemplate for the declaration of sub-
contractors' turnover and that the sub-contractor was a dealer under
the scheme of the Act of 2005.
75. The objections raised by the company in its reply to
the show cause notice was rejected by the Assessing Officer and the
company was consequently served with an assessment order dated
31.05.2006 raising an additional tax payment of Rs.9,75,89,261/-
76. In the aforementioned facts, the Hon'ble Supreme
Court found that the question which was required to be decided as
to whether the turnover of Rs.1,11,53,05, 835/- of the sub-
contractors is liable to be added with the turnover of L&T. Thus, the
dispute in the case of Larsen & Toubro Ltd. (supra) was the
addition of the sub-contractors' turnover to the turnover of the L&T.
The Hon'ble Supreme Court considered the first case of State of
Madras vs. Gannon Dunkerley & Co. (Madras) Ltd. reported in
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AIR 1958 SC 560 which necessitated an Amendment of Article 366
of the Constitution of India and the Constitution Bench Judgment of
the Apex Court in the case of Gannon Dunkerley and Co. and
others vs. State of Rajasthan (supra). Having noticed Section 4(7)
of the Andhra Pradesh Value Added Tax Act read with Rule 17 of
the Rules framed thereunder, their Lordships in the case of Larsen
& Toubro Ltd. (supra) held in paragraphs '17', '18' and '19' as
under:-
"17. The question which is raised before us is whether the
turnover of the sub-contractors (whose names are also
given in the original writ petition) is to be added to the
turnover of L&T. In other words, the question which we
are required to answer is whether the goods employed by
the sub-contractors occur in the form of a single deemed
sale or multiple deemed sales. In our view, the principle
of law in this regard is clarified by this Court in Builders'
Assn. of India2 as under: (SCC p. 673, para 36)
“36. … 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 passes to
the owner of the land on which the building is
constructed, when the goods or materials used are
incorporated in the building.”
18. As stated above, according to the Department, there
are two deemed sales, one from the main contractor to the
contractee and the other from sub-contractor(s) to the
main contractor, in the event of the contractee not having
any privity of contract with the sub-contractor(s).
19. If one keeps in mind the abovequoted observation of
this Court in Builders' Assn. of India2 the position
2. (1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 73 STC 370
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becomes clear, namely, that even if there is no privity of
contract between the contractee and the sub-contractor,
that would not do away with the principle of transfer of
property by the sub-contractor by employing the same on
the property belonging to the contractee. This reasoning is
based on the principle of accretion of property in goods. It
is subject to the contract to the contrary. Thus, in our
view, in such a case, the work executed by a sub-
contractor, results in a single transaction and not as
multiple transactions. This reasoning is also borne out by
Section 4(7) which refers to the value of goods at the time
of incorporation in the works executed. In our view, if the
argument of the Department is to be accepted, it would
result in plurality of deemed sales which would be
contrary to Article 366(29-A)(b) of the Constitution as
held by the impugned judgment of the High Court.
Moreover, it may result in double taxation which may
make the said 2005 Act vulnerable to challenge as
violative of Articles 14, 19(1)(g) and 265 of the
Constitution of India as held by the High Court in its
impugned judgment."
77. A further reading of the Larsen & Toubro Ltd.
(supra) would show that after the impugned judgment in the said
case, the Department has amended Rule 17 of the Andhra Pradesh
VAT Rules, 2005 vide Government Order dated 20.08.2007. The
position had been clarified vide Rule 17(1)(c) (as amended) saying
that where a VAT dealer awards any part of the contract to a
registered sub-contractor, no tax shall be payable on the
consideration paid for the sub-contract. Therefore, their Lordships
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were of the view that the principle to be adopted in all such cases is
that the property in the goods would pass to the owner/contractee
on its incorporation of the works executed. It is evident that the
Larsen & Toubro Ltd. (supra) was decided on the facts of the said
case. The present case which we are dealing are having a
completely different fact situation. In our considered opinion it is
not a case where the Assessing Officer has added the turnover of the
sub-contractors to the turnover of the petitioner-company. The
submission of learned Senior Counsel on this point is misplaced and
the same is liable to be rejected.
Relevant clauses of the contract
78. We have discussed the law on the subject,
particularly, the developments which have taken place by virtue of
46th Constitutional Amendment. We have briefly noticed the facts
of the case as appearing on the records, however, at this stage it
would be relevant to refer certain clauses of the agreement dated
10.02.2009 entered into between the Railways and the petitioner.
Annexure 'C-III' of the Agreement dated 10.02.2009 contains the
name of work : Construction of steel superstructure and other
ancillary works of rail cum road bridge across river Ganga at Patna.
The description of items have been mentioned in tabular form
which we reproduce hereunder:-
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Sl. Description of Item Unit Quantity Estimated Amount(Rs.)
No. Rate (Rs)
1. Supply of structural steel at the site of work to
the extent required for use in the work as per
drawings, specifications, contract conditions
and direction of Engineer. The quoted rate
shall include all costs, taxes, duties, etc.
transportation, storing and wastage and all
other incidental charges.
(a) Structural steel conforming to IS 2062: 2006 Per MT 52800.00 72589.00 3832699200.00
E 350 Cu (Fe 490) or equivalent, fully killed
and normalised/ controlled cooled and of
cooper bearing quality, as specified in item no.
5.1(A) of Chapter-IX of these documents.
(b) Structural steel conforming to IS 2062: 2006 Per MT 20460.00 59426.00 1215855960.00
E 250 B (Fe 410W) or equivalent fully killed
and normalised/ controlled cooled, as
specified in item no. 5.1(B) of Chapter-IX of
these documents.
Total of Schedule: "C-III" Rs. 504,85,55,160.00
79. The agreement entered into between the petitioner-
company and the sub-contractor shows that it was for assembly
erection launching of (18 x 123 m) +(1x64m) span triangulated
steel girders for new rail-cum-road bridge cross river Ganga at
Patna from Dighaghat end (South end) including transporation of
fabricated components of (17x123m + 1x64m) span from
fabrication workshop at Dighaghat end and (1x123m) span from
fabrication workshop at Pahlejaghat end of river Ganga to
launching site including casting of RCC pedestals and final coat of
painting. The Schedule of items shows the quantity of 36630 MT
and the rate quoted is Rs.29,000/- per MT, thus, the total amount of
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Sub-contract comes to Rs.106,22,70,000/- the rate for (i) 123m C/C
span girders and (ii) 64m C/C span girders and casting of RCC
Pedestals have been provided separately giving total cost of works
Rs.107,08,70,000/-.
80. The scope of work under clause 1.5 contains the
principal items of work covered by the contract. It is stated that the
list is only indicative and the work is to be done in accordance with
detailed tender/contract conditions, approved drawings and
direction of Engineer etc. as stipulated in these documents. It
includes (i) preparation of shop/fabrication drawings for fabrication
of steel work based on approved drawings and (ii) supply of
cement, reinforcement steel and structural steel to the extent
covered under Schedule C-I, C-II and C-III respectively. The
transportation of structural steel supplied by the Railways in terms
of the contract conditions. Fabrication of steel work including shop
coats of the paint. Additional shop coat of paint may have to be
provided at contractor’s cost if girders components remain for more
than 4 months in the fabrications shops. Transport of all steel work
and accessories from the fabrication shop to bridge site which
includes carriage by Railway/road, all handling in the fabrication
shops and at bridge site, insurance against loss or damages in
transit, if any, stacking at site custody till required for erection in
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case of transportation of longer members from shop to site of work
requiring special rolling stock with match/dummy truck, are some
of the terms of the scope of work.
81. As regards recovery of Sales Tax, clause 34 of the
agreement reads as under:-
“34. Recovery of Sales Tax:
For the work executed in the State of Bihar,
Jharkhand, MP and UP, Sales Tax on Works Contract
will be recovered at the source from the Gross
amount of each bill of the contractor as applicable.
The present rate is 4% of gross work value.”
82. The contract provided for supply of materials i.e.
cement, reinforcement steel and structural steel required for the work.
83. In terms of the contract, the cost of all materials,
fabrication, painting, temporary erection and testing at the contractor’s
site workshop, packing and delivery at the site of work as specified in
the schedule, is to be included in the price quoted on the tender.
Further any fittings, accessories or apparatus which may not have been
mentioned in the specification, but which are considered necessary for
the execution of this work are to be provided by the contractor without
any extra payment for completion of work in all respects.
84. The contract provides for fabrication and manufacturing
in clause 5.2 which are being reproduced hereunder:-
“5.2 FABRICATION AND MANUFACTURING
(i) The whole work shall be representative of the
highest class of Workmanship. The greatest accuracy
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shall be observed in the design, manufacture and
erection of every part of the work to ensure that all
parts will fit accurately together on erection and
similar parts shall be strictly interchangeable.
(ii) The contractor shall maintain steel tapes of
approved make for which he must have obtained a
certificate of accuracy from any National Test House
or Govt, recognized institution competent to do so.
(vi) Rolled materials before being laid off on worked,
must be made straight. If straightening or flattening is
necessary it shall be done by method that will not
damage the material. Material having sharp kinks and
bends will be rejected.
(vii) Tolerance- The tolerance in fabrication shall be in
accordance with as mentioned in Appendix -II of
RDSO's booklet B-1-2001
(viii) Fabrication records - The records of fabrication
shall be maintained in the register as per format given
in Appendix-I of RDSO's Booklet B-1-2001 or as
specified by the Engineer.
(ix) Flattening and straightening - All steel materials,
plates, bars and structures shall have straight edges,
flat surfaces and be free from twist. If necessary, they
shall be cold straightened or flattened by pressure
before being worked or assembled unless they are
required to be of curvilinear form. Pressure applied for
straightening or flattening shall be such as it would not
injure the material and adjacent surfaces or edges shall
be in close contact or at uniform distance throughout.
(x) Flattening or straightening under hot condition
shall not be carried out unless and until authorized and
approved by inspecting officer/agency and Railways.
(xi) The contractor may fabricate the steel work at his
workshop at the site of the work or at any of his other
workshops. The tenderer must inspect the approach
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roads right upto/from site of the workshop and should
ensure that it would be possible for him to transport the
materials by road. The site, layout and
details/composition of the workshop(s) for fabrication
works must be passed/approved by
Engineer/RDSO/Inspection agency as authorized by
CAO/Con or Chief Engineer/Con, before commencing
fabrication works.
(xii) The responsibility of the custody of the Railway
materials, in Contractor's site workshop will remain
with contractor till the completion of work and then
handed over to the Railway, after completion of the
work.”
85. The contract also provides for declaration of
designated fabrication/assembly yard as a part of site. Relevant
clause in the agreement (39) reads as under:-
“39. Declaration of designated
fabrication/assembly yard as a part of site:
Railway may necessary declaration on specific
request of the contractor subject to the condition that
the workshop area are earmarked exclusively for
fabrication of girder components for this bridge with
separate entry/exit arrangements. This is with further
stipulation that such an arrangement should he
acceptable to Excise department by way of a no-
objection certificate. Necessary follow up with
Excise Department will be solely the contractor's
responsibility. In the event of Excise Department not
agreeing to such an arrangement, the contractor shall
not have any claims whatsoever, and shall pay
excise tax and other extant taxes as per extant rules
within quoted rates and nothing extra would be
payable to them on this account.”
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86. From the aforementioned conditions which have been
briefly taken note of from the contract document, this Court finds
that in fact a workshop is to be established for fabrication of girder
components for the bridge with separate entry/exit arrangements
and in case, the Excise Department does not agree to such an
arrangement, the contractor shall not have any claims whatsoever
and shall pay excise tax and other extant taxes as per extant rules. It
is, thus, evident that the structural steel is only one of the items
which is used in the fabrication work. Fabrication of girders and its
accessories are to be carried out by the contractor in his factory
premises or in a well established fabrication workshop to be set up
by the contractor at the bridge site.
Opinion of the Court
87. On perusal of the documents available on the record,
we are of the considered opinion that the Assessing Officer-
Respondent No. 2 has rightly held that the petitioner had got the
assembly erection, launching, fabrication work through the sub-
contractor for which the petitioner paid sum of
Rs.172,15,39,774.61/-. It is recorded in the impugned order that the
representative of the petitioner admitted that these expenses were
incurred in course of conversion of structural steel into steel
structure by fabrication work. Keeping in view the judgment of the
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Hon'ble Supreme Court in the case of Gannon Dunkerley and Co.
(1993) 1 SCC 364 (supra), paragraph '47' quoted hereinabove, we
take a view that the cost of transportation launching and installation
at the site are the part of the cost of steel structure which have been
transferred in course of execution of works contract, therefore,
respondent no. 2 has not committed any error in taking a view that
the claim of the petitioner for deduction of Rs. 1,72,15,39,774.61/-
is liable to be rejected.
88. The contentions raised with regard to the twin tests of
transformation and marketability are also getting satisfied from the
materials on the record. To us, it appears that the fact that the
petitioner has undertaken to do the complete works in the contract
and i.e. in the case of the works contract for which the petitioner is
paid would make it clear that the ultimate transfer of the property in
goods occurred when the goods were incorporated in the works. In
the case of Quippo Energy Ltd. (supra), the Hon'ble Supreme
Court has considered the tests of transformation in the facts of the
said case whether the imported gensets and power packs were two
different commodities with distinct constituent elements, structure
and functional utility. In the present case, while we find that with
the fabrication of structural steel, the distinct constituent, elements
and structure are incorporated so as to make it a functional utility.
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Once the structural steel is transformed with the fabrication and
installation/erection in terms of the works contract, it passes the
final tests of marketability. The final test of marketability must be
conducted keeping in view the nature of the works contract and the
value attached with the same.
89. In ultimate analysis, we find no ground to interfere
with the impugned order dated 09.01.2020 of the Assessing Officer
(respondent no. 2) and the notice of demand dated 25.01.2020
(Annexure '7 series').
90. These writ applications have no merit. These are
dismissed accordingly, however, there will be no order as to cost.
(Rajeev Ranjan Prasad, J)
(Sourendra Pandey, J)
SUSHMA2/-
AFR/NAFR AFR
CAV DATE 27.11.2025
Uploading Date 25.02.2026
Transmission Date 25.02.2026
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