COOCH BEHAR CONTRACTORS' ASSOCIATION AND ORS. ETC.versusSTATE OF WEST BENGAL AND ORS.

               COOCH BEHAR CONTRACTORS' ASSOCIATION                                  A
                          AND ORS. ETC.
                                           v.
                      STATE OF WEST BENGAL AND ORS.

                               SEPTEMBER 11, 1996
                                                                                     B
               [S.P. BHARUCHA AND K. VENKATASWAMI, JJ.]

            Sales Tax Law:

            Bengal Finance (Sales Tax) Act, 1941: Sections 2(c) and 6-D.             C
            Sales TOJ..~Declaration forms-Denial of-To dealers under S.6-
      D-While advantage of using such forms was available to other
      dealers-Held: not violative of A1ticle 14 of Constitution-Constitution of
      India, 1950, A1ticles 14 and 366(29- A).
                                                                                     D
            Section 6-D-Scope of-Held : was a complete code so far as dealers in
      works contract were concemed--Hence, such dealers were not entitled to any
      concession other than those enumerated in S.6-D.

            "Contractual transfer p1ice''-Goods supplied to contractor by contrac-
      tee and p1ice recovered from colllractor by way of adjustment-Held : value     E
      of such goods covered under "contractual transfer p1ice".

            "Contractual transfer p1ice''-Royalty-Paid by contractor in the execu-
      tion of w01*s contract while procuring boulders, e01th etc.-Includibility
      of-Held : royalty amounted to payment of p1ice for goods obtained from the
      Govemment Depaltments and used in the works contract-Hence, includible
                                                                                     F
      in "contractual tramfer price".

            "Contractual transfer price''-Cost of'freight and delive1y for canying
      goods to work site-Includibility of-Question left open.
                                                                                     G
            Words and Phrases : "Contractual tram.fer price''-!vleaning of-In the
      context of Section 6-D of the Bengal Finance (Sales Tax) Act, 1941.

           The appellants were contractors who executed civil construction
    , works under different departments of the Central and State Governments
      as well as Corporations. The Revenue sought to assess the appellants           H
                                           57

•
     58                    SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A under Section 6-D of the Bengal Finance (Sales Tax) Act, 1941. The
     appellants filed a petition before the Taxation Tribunal challenging such
     assessment. The Tribunal dismissed the petition. Being aggrieved the
     appellants preferred the present appeal.

           On behalf of the appellants it was contended that denial to dealers
B under Section 6-D c)f the Act the use of declaration forms which had been
     made available to other dealers was violative of the Constitution; that the
     value of the stores.and materials supplied by the contractee to the contrac-
     tor should not be included in the "contractual transfer price" under Section
     6-D of the act; that the royalty paid by the contractor in the execution of
c    works contract while procuring boulders, earth etc. should not be included
     in the 'contractual transfer price'; and that cost of freight and delivery for
     carrying goods to the work site should not be included in the 'contractual
     transfer price'.

           Dismissing the appeal, this Court
D
            HELD : 1.1. Section 6-D of the Bengal Finance (Sales Tax) Act, 1941
     is a self-contained code so far as dealers in works contract are concerned.
     Whatever concessions the Legislature wanted to extend to such dealers were
     enumerated in clauses (a) to (e) of Section 6-D(2) of the Act. Moreover,
E    having regard to the non-obstante clause used in Section 6-D, it is clear that
     no further concession was intended to be extended to the dealers in works
     contract. As t~ey form a class by themselves, they cannot compare themsel-
     ves with other dealers coming under sections 4 or 5 and allege discrimina-
     tion to invoke Article 14 of the Constitution of India. [63-H; 64-A-B]

.F         Gannon Dunkerley and Co. v. State of Rajasthan, [1993) 1 SCC 364,
     relied on.

          Builders Association of India and Others v. Union of India and Others,
     [1989) 2 sec 645, referred to. .

G          1.2. The Tribunal bas found the contractor has to pay the price of
     the goods supplied by the contractee by way of adjustment. It is, therefore,
     clear that goods used in the execution of the works contract stand trans-
     ferred from the contractor to the contractee at the time the goods are
     incorporated in the construction and the value of such goods is covered,
 H   under the 'contractual transfer price'. [65-E; H]
 COOCHBEH.ARCONTRACTORS'.ASSN. v.ST.ATE[VENKATASWAMI,J.}59

     N.M. Goel & Co. v ..Sales Tax Officer & Anr., 72 STC 375, relied on.     A
       2.1. The payment of royalty in the execution of works contract while
procuring boulders, earth etc. amounts to payment of price for the goods
obtained from the Government Departments and used in the works con-
tract, and covered under 'contractual transfer price'. [66-D]
                                                                              B
      State of Madhya Pradesh v. Orient Paper Mills Ltd., (1977) 2 SCC 77,
relied on.

      2.2. The Tribunal has not finally disposed of the issue of inclusion
of cost of freight and delivery for carrying goods to the work site under
'contractual transfer price' and hence this question if left open. [67-B]     C
     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5577-79
(NT) of 1990 Etc.

      From the Judgment and Order dated 26.4.90 of the West Bengal
Taxation Tribunal, in R.N. 103 (T), 367 (T) and 34(T) of 1989.     D



      B. Sen and T. Ramachandran, Dilip Sinha, D. Krishan and J. R. Das       E
for the Respondents.

      The Judgment of the Court was delivered by

     VENKATASWAMI, J. Common questions of law arise out of a
common judgment of the West Bengal Taxation Tribunal dated 26.4.1990
rendered in RN-30(T), RN-31(T) RN-34(T), RN-103(T), RN-367(T), RN-
                                                                              F
138(T), RN-338, RN-339 of 1989.

       The appellants are contractors and they execute civil construction
works including construction of roads and bridges under different depart-
ments of the Central and State Governments as well as respective corpora-     G
tions. Such works include excavation of earth, drilling, construction of
water channel and river bank protection. Sue~ works of contract were not
brought under the net of sales tax till the Bengal Finance (Sales Tax) Act,
1941 (hereinafter referred to as "the Act") was amended by the West
Bengal Act 4 of 1984 inserting section 60 and amending section 2(c) of
the Act. These amendments were pursuant to the 46th Amendment of the          H
    60                    SUPREMECOURTREPORTS [1996]SUPP.6S.C.R.

A   Constitution of India in the year 1982 inserting clause 29A in Article 366.

          The constitutional validity of the 46th Amendment inserting clause
    29A in Article 366 was challenged and this Court in Builders Association
    of India and Others v. Union of India and Others, [1989] 2 SCC 645 upheld
    the constitutionality of the said amendment.
B
           As a result of the insertion of section 6D to the Act, all transfer of
    property in goods (whether as goods or in some other form) involved in
    the execution of a works contract was deemed to be a sale of those goods
    by the }Jerson making the transfer and the purchase of those goods by the
    person to whom such transfer was made. The revenue sought to assess the
c   appellants under section 6D of the Act and the appellants aggrieved by
    such assessm~nts moved the High Court challenging initially the · con-
    stitutionality of section 6D and finally confining their challenge to certain
    limited aspects which we shall refer to hereinafter. The cases were original-
    ly filed in the High Court and subsequently were transferred to West
D   Bengal Taxation Tribunal (hereinafter referred to as "the Tribunal") and
    the Ttibunal in its detailed judgment repelled every one of the arguments
    raised on behalf of the. appellants and consequently dismissed the cases.

          Before us Mr. Jayant Das, learned Senior Counsel for the appellants
    broadly raised three poi11ts while attacking the assessments under section
E   6D of the Act. The first contention raised by the learned counsel was that
    section 6D unjustly discriminates in the matter of grant of declaration
    forms to the dealers under section 6D and thereby denies the advantage
    gained by other dealers by using declaration forms and thus it is violative
    of Article 14 of the Constitution of India.
F
          The second contention put forward by the learned counsel was that
    the value of the stores and materials supplied by the contractee to the
    contractor for the specific purpose of use in the execution of works
    contract should not be included in the 'contractual transfer price' under
    section 6D as according to the learned counsel in such supplies there is no
G   transfer of property and the property always remains with the contractee.
    The third submission advanced by the learned counsel for the appellants
    was that the royalty paid by the contractors in the execution of works
    contract while procuring boulders, earth etc. should not be included in the
    'contractual transfer price'. Another minor point raised by the learned
H   counsel was that the cost of freight and delivery for carrying goods to the
 COOCH BEHAR CONTRACTORS'ASSN. v. STATE [VENKATASWAMI, J.] 61

works site should not also be included in the 'contractual transfer price'.     ·A

       Mr. B. Sen, learned Senior Counsel in reply submitted that none of
the questions raised by the learned counsel for the appellants remain res
integra as they are totally covered either by the decision of this Court in
Builders' Association case (supra) or the recent decision of this Court in
M/s. Gannon Dunkerley and Co. and Others v. State of Rajasthan and              B
Others, [1993] 1 SCC 364. In addition to that he also invited our attention
to a decision of this Court in the case of State of Madhya Pradesh v. Orient
Paper Mills Ltd., (1977] 2 SCC 77 wherein this Court has held that 'royalty'
is a feudalistic euphemism for price. So far as the cost of freight and
delivery for carrying the goods to the works site is concerned, the learned     C
counsel invited our attention to the judgment of the Tribunal wherein the
Tribunal has not finally decided the issue, but has left open the same for
decision with reference to the facts of each case. In view of this overall
submission with which we agree we do not feel it necessary to deal
elaborately the contentions raised before us.
                                                                                D
       For appreciation of the rival contentions, it is necessary to set out
sections 2(c) and 60 of the Act as amended in the year 1984. They read
as follows:

            "2(c) 'dealer' means any person who carries on the business of      E
        selling goods in West Bengal or of purchasing goods in West
        Bengal in specified circumstances or any person making a sale
        under section 60 ......"

        "60. - Liability to payment of tax on the transfer of property in
        goods involved in the execution of works contract and rate thereof.     F
        - (1) Notwithstanding anything contained elsewhere in this Act. -

            (a) any transfer of property in goods (whether as goods or in
        some other form) involved in the execution of a works contract
        (hereinafter referred to as contractual transfer) shall be deemed       G
        to be a sale of these goods by the person making the transfer and
        the purchase of those goods by the person to whom such transfer
        is made;

            (b) (i) every dealer whose contractual transfer price during. the
        last year ending on or before the 31st day of March, 1984 exceeds       H
    62                SUPREME COURT REPORTS [1996) SUPP. 6 S.C.R.

A        rupees two lakhs shall, in addition to the tax payable by him under
         section 5 and section 6B, if any, be liable to pay from the 1st day
         of April, 1984 a tax at the rate specified in sub-section (3) of such
         part of his contractual ·transfer price. as specified in sub-section
         (2);
B             (ii) every dealer, other than a dealer referred to in sub-clause
         (i), whose contractual transfer price during any year ending on or
         after the 1st day of April, 1984 exceed& rupees two lakhs shall, in
         addition to the tax payable by him under section 5 and section 6B,
         if any, be liable to pay from the first day of the year immediately
c        following such year a tax at the rate specified in sub-section (3) of
         such part of his contractual transfer price as specified in sub-sec-
         tion (2);

            (iii) every dealer who has become liable to pay tax under
         sub-clause (i) or sub-clause (ii) shall continue to be so liable until
D        the expiry of three consecutive. years during each ·of which the
         contractual transfer price does not exceed rupees two lakhs and
         on the expiry of such three years his liability to pay such tax shall
         cease.

             (iv) every dealer, whose liability to pay tax has ceased under
E
         the provisions of sub-clause (iii), shall, if the contractual transfer
         price during any year again exceeds rupees two lakhs, be liable to
         pay from the first day of the year immediately following such year
         the tax at the rate specified in sub~section (3) of such par~ of this
         contractual transfer price as specified in sub-section (2);
F
             (2) The tax payable under sub-section (1) shall be levied on
         that part of contractual transfer price of a dealer during any period
         which remains after deducting therefrom his contractual transfer
         price during the period on -

G            (a) contractual ti'.iansfer of goods referred to iii. section 14 of
         the Central Sales Tax Act, 1956 (74 ·of 1956), on a prior sale
         whereof in West Bengal due tax under this Act or under the West
         Bengal Sales Tax Act, 1954 (West. Bengal Act IV of 1954), if such .
         goods are notified for taxation under that Act, is shown to the
H        satisfaction of the Commissioner to have been paid;
---(
        COOCHBEHAR CONTRACTORS'ASSN. v. STATE [VENKATASWAMI, J.] 63

                   (b) contractual transfer of goods, sales of which are declared A
               tax-free under section 6;

                    (c) contractual transfer of goods, sales of which are generally
              · exempt from tax under sub-clause (vi) of clause (a) of sub-section
                (2) of Section 5;
                                                                                       B
                   (d) contractual transfer of .goods, on the purchase of which tax
               is payable by him under section 6C;

                   (e) such other contractual transfers, as may be prescribed.

                  (3) The tax under this section shall be levied at the rate of four   C
               per centum of such part of the contractual transfer price as
               specified in sub-section (2).

                   Explanation 1. - In this section, the expression "contractual
               transfer price", used in relation to any period, shall mean the
               aggregate of the amounts received or receivable by a dealer during D
               such period as valuable consideration for the transfer of property
               in goods used in execution of a works contract, whether or not
               the amount receivable as valuable consideration for such transfer
               is separately shown in the works contract, and shall include the
               value of such goods purchased, manufactured, processed or E
               procured otherwise by the dealer and the cost of freight or delivery
               as may be incurred by such dealer for carrying such gooc_ls to the
               place where these are used in execution of such ·works contact, but
               shall not include such portion of the aforesaid amounts as may be
               prescribed.
                                                                                       F
              · Explanation 2. - For the purpose. of this section, the expression
                "goods" include commodities specified for taxation under section
                25 of the West Bengal Sales Tax Act, 1954 (West Bengal Act IV
                of 1954) and, notwithstanding any contained in this Act or in the
                west Bengal Act IV of 1954), tax shall be levied on such com-          G
                modities under this section."

             A perusal of section 60 clearly indicates that it is· a self-contained
       code so far as dealers in works contract are concerned. Whatever conces-
       sions the Legislature wanted to extend to such dealers were enumerated
       in clauses (a) to (e) of sub-section (2) of section 60. Apart from that and     H
    64                    SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.

A having regard to the non obstante clause used in section 6D, it is made
  clear no further concession was intended to be extended to the dealers in
  works contract. As they form a class by themselves, they cannot compare
   themselves with other dealers coming under sections 4 or 5 and allege
  discrimination to invoke Article 14 of the Constitution of India. The
  Tribunal has rightly taken a view by holding 'we are satisfied that the
B contractors, being dealers under section 6D read with section 2(c), have
  _he<:n appropriately grouped together in one class, distinct and separate
  from the other classes of dealers. The charge of arbitrariness and un-
  reasonableness must fail. The classification cannot be faulted on account
   of denial of the facility of use of declaration forms, because this class of
c dealers has been treated and dealt with on a different footing altogether
   and they are governed by almost a self-contained code envisaged in section
  6D.'

          As rightly pointed out by learned senior counsel for the respondent
D Mr. B. Sen, the recent decision of this Court in Gannon Dunkerley and Co.
    v. State of Rajastlzan, [1993] 1 SCC 364 also supports the view taken by the
    Tribunal. This Court has observed as follows :


                 "A question has been raised whether it is permissible for the
E            State Legislature to levy tax on deerried sales falling within the
             ambit of Article 366 (29-A)(b) by prescribing a uniform rate of tax
             for all goods involved in the execution of a works contract even
             though different rates of tax are prescribed for sale of such goods.
             The learned counsel for the contractors have urged that it would
             not be permissible to impose two different rates of tax in respect
F            of sale of the same article, one rate when the article is sold
             separately and a different rate when there is deemed sale in
             connection with the execution of works contract. On behalf of the
             States it has been submitted that it is permissible for the State to
             impose a particular rate of tax on all goods involved in the execu-
G            tion of a works contract which may be different from the rates of
             tax applicable to those goods when sold separately. In the field of
             taxation the decisions of this Court have permitted the legislature
             to exercise an extremely wide discretion in classifying items for tax
             purposes, so long as it refrains from clear and hostile discrimina-
H            tion against particular persons or classes. (See : East India Tobacco
      COOCH BEHAR CONTRACTORS'ASSN. v. STATE [VENKATASWAMI, J.] 65

             Co. v. State of A.P., P.M. Ashwathanarayana Shetty v. State of          A
             Karnataka, Federation of Hotel & Restaurant Association of India
             v. Union of India and Kera/a Hotel and Restaurant Association v.
             State of Kera/a. Imposition of sales tax at different rates depending
             on the value of the annual turnover was upheld in S. Kodar v. State
             of Kera/a. Similarly, imposition of purchase tax at different rates     B
             for sugar mills and Khandsari units was upheld in Ganga Sugar Co.
             v. State of U.P. In our opinion, therefore, it would be permissible
             for the State Legislature to tax all the goods involved in t~e
             execution of a works contract at a uniform rate which may be
             different from the rates applicable to individual goods because the
             goods which are involved in the execution of the works contract
                                                                                     c
             when incorporated in the works can be classified into a separate
             category for the purpose of imposing the tax and a uniform rate
             may be prescribed for sale of such goods."

           In view of the above we hold that there is no discrimination violating D
     Article 14 of the Constitution as alleged by the learned counsel for the
     appellants.

           So far as the second contention urged on behalf of ·the learned
     counsel for the appellant is concerned, the Tribunal on facts has found the
     contractor has to pay the price of the goods supplied by the contractee by      E
     way of adjustment. This Court in 1989 (2) SCC 645 (supra) has observed
     as follows:

                 "Ordinarily unless there is a contract to the contrary, in the
             case. of a works contract the property in the goods used in the p
             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. The contractor becomes liable to pay
             the sales tax ordinarily when the goods or materials are so used in
             the construction of the building and it is not necessary to· wait till G
             the final bill is prepared.for the entire work."

           It is, therefore, clear that goods used in the execution of. the works
     contract stand transferred from the contractor to the contractee at the time
     the goods are incorporated in the construction. It is also brought to our
     notice by the learned counsel for the respondents that the principle laid H

"'
    66                    SUPREME COURT REPORTS [1996) SUPP. 6 S.C.R.

A   down by this Court in N.M. Goel & Co. v. Sales Tax Officer & Anr., 72 STC
    375 squarely applies to the second point raised herein. While considering
    a similar issue, namely, whether there was sale of goods in view of the
    contract between the parties whereunder the custody and control of the
    goods remained with the P.W.D. and goods were only used in the construc-
    tion under the contract, this Court held that 'in the instant case, by use or
B   consumption of materials in the work of construction, there was passing
    of the property in the goods to the assessee from the P.W.D. By appropria-
    tion and by the agreement, there was a sale as envisaged in terms of clause
    {10) set out hereinbefore. Therefore, in our opinion, there was a sale which
    was liable to tax'. Though this case was sought to be distinguished before
c   the Tribunal by contending that that ratio must be treated as one given per
    incuriam it was rightly rejected by the Tribunal. We are, therefore, in
    agreement with the conclusion reached by the Tribunal that 'having con-
    sidered all aspects of the matter, we hold that a sale within the meaning of
    section 2{g) of the 1941 Act, namely, a transfer of property in goods
D   supplied by the owner/contractee to the contractor for use in the execution
    of a works contract takes place in the cases under our consideration, when
    such goods are actually used in the construction work, provided prices of
    such goods are deducted from or adjusted against bills or dues of the
    contractor'.

E          So far as the third question of payment of royalty is concerned, we
    do not think there is any substance in that argument. As rightly pointed
    out by the learned counsel for the respondents that in view of the decision
    of this Court in Orient Paper Mills (supra) the payment of royalty amounts
    to payment of price for the goods obtained from the Government depart-
    ments and used in the works contract.
                                                                                     •.
F
          Regarding the additional minor point, the Tribunal has not finally
    disposed of the issue and it has left open the issue by observing as follows:

                "Learned counsel for the applicants did not submit that such
G           inclusion is in anyway bad or unconstitutional. Expenses incurred
            on account of labour simpliciter surely cannot form a part of the
            contractual transfer price simply because it is not a value of or
            valuable consideration for any 'goods' unless such expense amounts
            to cost of freight or delivery for carrying the goods to the worksite.
H           It will depend on the circumstances in which or the purpose for ,,

                                                                                     ·-
 COOCH BEHAR CONIRACTORS'ASSN. v. STATE [VENKATASWAMI, J.] 67

           which labour was employed. On this question we hold accordingly.         A
           Each case shall have to be judged on its own merits and on its
           peculiar facts. ...... We, therefore, do not at this stage express any
           opinion one way or the other on those charges and expenses as to
           whether or not they will form part of the contractual transfer price."
                                                                ~   ..
         In view of the above it is not necessary to go into this issue further.    B
      For the foregoing reasons, we do not think there is any case for
interference under Article ·136 of the Constitution. Accordingly, the ap-
peals are dismissed. No costs.

v.s.s.                                                      Appeals dism1.ssed.     C