Supreme Court of India
SMT. B. NARASAMMAversusDEPUTY COMMISSIONER COMMERCIAL TAXES KARNATAKA & ANR.
- Citation
- 2016 INSC 591
- Decided
- 11 August 2016
- Disposal
- Disposed off
- Bench
- A K SIKRI
Holding
Iron and steel reinforcement used in works contracts remains the same declared goods at the point of accretion and is taxable only at the rate not exceeding 4% as mandated by Section 15 of the Central Sales Tax Act.
Summary
The Supreme Court examined whether iron and steel reinforcement used in building works contracts retains its identity as "declared goods" under the Central Sales Tax Act, 1956, and consequently whether it is taxable at the restricted 4% rate prescribed in Section 15. The Court held that the 46th Constitution Amendment (Article 366 (29A)) permits states to tax the deemed sale of goods in works contracts, but such taxation must obey the restrictions of Article 286(3) and the Central Sales Tax Act. It was determined that the point of taxability is the point of accretion – when the reinforcement is incorporated into the structure – and that cutting or bending does not alter the goods’ identity. Accordingly, the iron and steel items remain the same declared goods and can be taxed only at a rate not exceeding 4%. The Court set aside the revenue judgments that imposed higher rates and dismissed the State’s appeals, affirming the lower courts’ rulings.
Issues considered
- Whether iron and steel reinforcement used in works contracts loses its identity as declared goods at the point of taxability.
- Whether the point of taxability for such goods is the point of accretion (incorporation into the building).
- Whether the tax rate applicable to declared goods under Section 15 of the Central Sales Tax Act (maximum 4%) applies to works contracts after the 46th Constitution Amendment.
- Whether Karnataka’s Sales Tax Act and VAT Act can levy a higher rate on such goods contrary to the Central Act’s restrictions.
Legislation cited
- Central Sales Tax Act, 1956s. 14, s. 15
- Constitution of Indias. Article 286(3), s. Article 366(29A)
- Karnataka Sales Tax Act, 1957s. 5(4), s. 5-B, s. 5-E
- Karnataka Sales Tax Rules, 1957s. Rule 6(4)(m)
- Karnataka Value Added Tax Act, 2003s. 4
Judgment
(2016] 7 S.C.R. 760
A SMT. B. NARASAMMA
v.
DEPUTY COMMISSIONER COMMERCIAL TAXES
KARNATAKA & ANR.
B (Civil Appeal No. 4149 of2007)
AUGUSTil,2016
[A.K. SIKRI AND R.F. NARIMAN, JJ.)
Taxation - Central Sales Tax Act, 1956 - ss.14 & 15 - Goods
declared to be of special importance - Rate and point of taxabi/ity
c - Such deplored goods, taxable under Karnataka Sales Tax Act
and Karnataka Value Added Tax Act, if remain the same or lose
their identity as declared goods at the point of taxability when used
in execution of works contracts - Held: Works contracts liable to
be taxed after the 46''' Constitution amendme/11 are subject to drill
D of Art. 286(3) r/w s.15, Central Sales Tax Act - Declared goods in
question (iron and steel products) that are used in execution of works
contract, for reinforcement of cement concrete used in buildings,
remain exactly the same goods at the point of taxabi/ity, i.e. the
point of accretion (the point of incorporation into the building or
structure) - Mere cutting into different shapes and bending does
E
not make these items lose their identity - Hence, would only be
taxed at the rate of 4% in accordance with the restrictions contained
in s.15, Central Sales Tax Act - Karnataka Sales Tax Act, 1957 -
ss.5(4), 5-B - Sch. !Vth/Vlth - Karnataka Value Added Tax Act,
2003 - s.4 - Sch. 111"1/Vfh - Constitution of India - Arts. 286(3)
F and 366(29A) .
Disposing of the appeals, the Court
HELD: 1.1 By the 46'h Amendment of the Constitution,
Article 366 (29A) was added, by which it became possible by a
deeming fiction to tax sale of goods involved in a works contract.
G The Karnataka Sales Tax Act was amended by inserting Section
5-B to tax goods involved in works contracts. The Fourth
Schedule of the said Act deals with declared goods in respect of
which a single point tax is leviable under Section 5(4). [Paras 6
and 71 1765-B; 766-AJ
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760
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 761
COMMERCIAL TAXES KARNATAKA
2. Two important propositions emerge on a conjoint reading A
of Builders Association and M/s. Gannon Dunkerley. First, the
works contracts that are liable to be taxed after the 46•h
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
B
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. In light
of the law laid down in Builders Association and Mis. Gannon
Dunkerley, the declared goods in question could only be taxed at
the rate of 4%. [Paras 13 and 18] [769-G-H; 770-A; 778-E] c
State of Karnataka and etc. etc. v. Mis. Reddy Structures
Pvt. Ltd. and etc. etc. Builders' Assn. of India v. Union
of India (1989) 2 SCC 645 : 1989 (2) SCR 320; Gannon
Dunkerley and Co. v. State of Rajasthan (1993) 1 SCC
364 : 1992 (3) Suppl. SCR 103 - relied on. D
State of Tamil Nadu v. Mis. Pyare Lal Malhotra and
Ors. (1976) 1 SCC 834 : 1976 (2) SCR 168 - referred
to.
Case Law Reference E
1976 (2) SCR168 referred to Para 12
1989(2) SCR320 relied on Paras 13, 14 & 18
1992 (3) Suppl. SCR 103 relied on Paras 13, 14 & 18 . F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4149
of2007.
From the Judgment and Order dated 12.08.2004 of the High Court
of Karnataka in STRP No. 34 of 2003
G
WITH
C.A. Nos. 4318 and4319 of2007.
C.A. Nos. 7400, 7401-7872 and 7873-7916 of2016.
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762 SUPREME COURT REPORTS [2016) 7 S.C.R.
A N. Venkat Raman, Basava Prabhu S. Patil, S. K. Bagaria, K. V.
Vishwanathan, K. N. Bhat, Sr. Advs., Yashraj Singh Deora, Ms.
Priyadarshinee Singh, Ms. Ashmita Singh, (For Mis. Mitter & Mitter
Co.), Sumit Goel, Ms. Rukhmini S. Bobde, K. Ray, (For Mis. Parekh &
Co.), Mis. Keswani & Co., V. N. Raghupathy, Anirudh S., Parikshit
Angadi, Chinmay Deshpande, Amjid Maqbool, Sanjay Kunur, Ramesh
B
Keswani, Anand Sanjay M. Nuli, Dharm Singh, Mis. Nuli & Nuli, Vikas
Mehta, Raghavendra S. Srivatsa, Mahesh Agarwal, Ms. Parul Shukla,
Vibhor Agrawal, Himanshu Satija, K. Ajit Singh, E. C. Agrawala, Roh it
Bhat, Mohammad Saffiq, Purushottam, Surya Prakash, V. Shyamohan,
Manish Kumar, Mohit Arora, Ms. Divya Roy, T. R. B. Sivakumar, V.
c Vijaya Kumar, V. Lakshmikumaran, M. P. Devanath, Aditya Bhattachaya,
Anandh K., Ms. L. Charnaya, Hemant Bajaj, Abhishek Anand, Mohit
Chaudhary, Ms. Puja Sharma, Ms. Damini Chawla, Kuna! Sachdeva,
lmranAli, Vikas Upadhyay, KanupriyaBhargava, Sandeep Singh, Pratap
Venugopal, Ms. Surekha Raman, Ms. Niharika,Ajay Sanna, Aman Shukla,
Shekhar G. Devasa, Manish Tiwari, Anup Kumar, T. V. Ratnam, M.
D
Sowri Dev, S. Kaushik, Advs. for appearing parties.
The Judgment of the Court was delivered by
R.F. NARIMAN, J. I. Leave granted 111 SLP(C) Nos.
1525312015, 18646-1911712015, I0081-1012412015.
E
2. This group of appeals concerns the rate oftaxability of declared
goods-i.e. goods declared to be of special importance under Section 14
of the Central Sales Tax Act, 1956. The question that has to be answered
in these appeals is whether iron and steel reinforcements of cement
concrete that are used in buildings lose their character as iron and steel
F at the point of taxability, that is, at the point of accretion in a works
contract. All these appeals come from the State of Karnataka and can
be divided into two groups-one group relatable to the provisions of the
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that .are
relatable to the Karnataka Value Added· Tax Act, 2003. The facts in
G these appeals are more or less similar. Iron and Steel products are used
in the execution of works contracts for reinforcement of cement, the
iron and steel products becoming part of pillars, beams, roofs, etc. which
are all parts of the ultimate immovable structure that is the building or
other structure to be constructed. ·
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SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 763
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
3. Before coming to the submissions of learned counsel for the A
parties, it is necessary to first set out the relevant provisions of the
Constitution, the Central Sales Tax Act and the two Karnataka Acts in
question.
4. Article 286(3) of the Constitution reads as follows:-
B
"'Article 286. Restrictions as to imposition of tax on
the sale or purchase of goods
xx xx xx
(3) Any law of a State shall, in so far as it imposes, or
authorises the imposition of,
c
(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 D
the nature referred to in sub clause (b ), sub clause ( c) or
sub clause (d) of clause 29 A 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."
E
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant
to the present case reads as follows:
"Section-14
Certain goods to be of special importance in
inter-State trade or commerce.- It is hereby declared F
that the following goods are of special importance in inter-
State trade or commerce:-
(iv) iron and steel, that is to say,-
(i) [pig iron, sponge iron and] cast iron including [ingot moulds,
G
bottom plates], iron scrap, r.ost iron scrap, runner scrap and
ir0n skull scrap;
(ii) Steel semis (ingots, slabs, blooms and billets ofall qualities,
shapes and sizes);
H
764 SUPREME COURT REPORTS [2016] 7 S.C.R.
A (iii) Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;
(iv) Steel bars, rounds, rods, squares, flat, octagons and hexagons,
plain and ribbed or twisted, in coil form as well as straight
lengths;
(v) steel structurals (angles, joists, channels, tees, sheet piling
B sections, Z-sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot
and cold rolled plain and corrugated, in all qualities, in straight
lengths and in coil form, as rolled and in riveted condition;
C (vii) Plates both plain and chequered in all qualities;
(viii) Discs, rings, forgings and steel castings;
(ix) Tools, alloy and special steels ofany of the above categories;
(x) Steel melting scrap in all forms including steel skull, turnings
and borings;
D
(xi) Steel tubes, both welded and seamless, of all diameters and
lengths including tube fittings;
(xii) Tin-plates, both hot dipped and electrolytic and tin free plates;
(xiii) Fist plate bars, bearing plate bars, crossing sleeper bars,
E fish plates, bearing plates, crossing sleepers and pressed steel
sleepers-heavy and light crane rails;
(xiv) Wheels, tyres, axles and wheels sets;
(xv}Wire rods and wires-rolled, drawn, galvanized, aluminized,
F tinned or coated such as by copper;
(xvi) Defectives, rejects, cuttings, or end pieces ofany of the above
categories;]
Section 15
Restrictions and conditions in regard to tax on sale
G
or purchase of declared goods within a State.
Every sales tax law of a State shall, in so far as it imposes
or authorizes the imposition of a tax on the sale or
purchase of declared goods, be subject to the following
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SMT. 8. NARASAMMA v. DEPUTY COMMISSIONER 765
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
restrictions and conditions, namely: A
The tax payable under that law in respect of any sale or
purchase of such goods inside the State shall not exceed
[five per cent.] of the sale or purchase price thereof[***];"
6. Dy the 46'h Amendment of the Constitution, Article 366 (29A) 8
was added, by which it became possible by a deeming fiction to tax sale
of goods involved in a works contract. Declared goods were taxable
under Section 5(4) of the Act, which is set out hereunder:
"Section 5( 4)
Notwithstanding anything contained in sub-section (1) or
c
Section 5-8 or Section 5-C a tax under this Act shall be
levied in respect of the sale or purchase of any of the
declared goods mentioned in column (2) of the Fourth
Schedule at the rate and only at the point specified in the
corresponding entries of columns (4) and (3) of the said D
Schedule on the dealer liable to tax under this Act on his
taxable turnover of sales or purchase in each year relating
to such goods:"
The Karnataka Sales Tax Act was amended to tax goods involved
in works contracts. Taking advantage of the constitutional amendment, E
Section 5-8 was inserted in the Karnataka Sales Tax Act, 1957. This
Section reads as follows:-
"Section 5-E; Levy of tax on transfer of property in
goods (whether as goods or in some other forms) involved
in the execution of works contracts. Notwithstanding F
anything contained in sub-section ( 1) or sub-section (3) or
sub-section (3-C) of Section 5, but subject to sub-section
(4), (5) or (6) of the said Section, every dealer shall pay for
each year, a tax under this Act on his taxable turnover of
transfer of property in goods (whether as goods or in some G
other form) involved in the execution of works contract
mentioned in column (2) of the Sixth Schedule at the rates
specified in the corresponding entries in coklmn (3) of the
sa,id Schedule."
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766 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 7. The Fourth Schedule of the said Act, which deals with declared
goods in respect of which a single point tax is leviable under Section 5(4)
reads asfollows:
"Act 3 of 1983 (From 1-11-1982)
'.
SI No Description of the Point of levy Period Rate
B Goods for which of tax
a1212 Ii cab Ie
2 3 4 5
2. "Iron and steel, that
is to say,-"
c [(a)] (i) pig iron and cast iron
including ingot moulds, bottom
plates -do- From 1-11-82 4%
(ii) steel semis (ingots, slabs,
blooms and billets ofall qualities,
shapes and sizes) -do- From 15-7-75 4%
D
(iii) skelp bars, tin bars, sheet
bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods,
E squares, flats, octagon and
hexagons, plain and ribbed or
twisted, in coil form as well as
straight lengths);
(v) steel structurals (angles, joists,
F channels, tees, sheet piling
sections, Z sections or anY, other
•
rolled sections);
(vi) sheets, hoops, strips and
skelp, both black and galvanized,
G hot and cold rolled, plain and
corrugated, in all qualities, in
straight lengths and in coil form,
as rolled and in riveted condition;
(vii) plates both plain and
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SMT. 8. NARASAMMA v. DEPUTY COMMISSIONER 767
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
chequered in all qualities; A
(viii) discs, rings, forgings and
steel castings; sales by the first
or the earliest of the successive
dealers in the state liable to tax
under this Act. B
(ix) tool, alloy and special steels
of any of the above categories;
Act 30of1975 (15-7-75 to 31-10-82)
(x) steel melting scrap in -do- 15.7.75 to 4%
All forms including steel 31.10.82
c
skull turnings and borings;
8. Similarly, the Sixth Schedule, which is to be read with Section
5-B, insofar as it is relevant, reads as under:-
D
SI. No. Description of works period for which Rate of
Contact applicable Tax
1 2 3 4
6. Civil works like construction 1-4-86 to 31-3-95 Five per cent E
of building, bridges, roads, etc. 1-4-95 to 31-3-91 Eight per cent
9. Post 1.4.2005, the Karnataka Value Added Tax.Act, 2003, taxed
declared goods and works contracts generally as follows:-
Section 4 - Liability to tax and rates thereof. F
(1 )Every dealer who is or is required to be registered as specified
in Sections 22 and 24, shall be liable to pay tax, on his taxable
turnover,
(a) in respect of goods mentioned in,-
G
(i) Second Schedule, at the rate of one per cent,
(ii) Third Schedule, at the rate of four per cent in respect of
goods specified in serial number 30 and five per cent in
respect of other goods, and
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768 SUPREME COURT REPORTS (2016] 7 S.C.R.
A (iii) Fourth Schedule, at the rate of twenty per cent.
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco
at the rate of fifteen per cent;
B (ii) other goods at the rate of thirteen and one half per cent.
(c) in respect of transfer of property in goods (whether as
goods or in some other form) involved in the execution of
works contract specified in column (2) of the Sixth Schedule,
subject to Sections 14 and 15 of the Central Sales Tax Act,
c 1956 (Central Act 74of1956), at the rates specified in the
corresponding entries in column (3) of the said Schedule.
Third Schedule:
30. Declared goods as specified in Section 14 of the Central
Sales Tax Act, 1956 (Central Act 74 of 1956)
D
Sixth Schedule:
23. All other works contracts Fourteen and one half per
not specified in any of the cent
above categories including
composite contracts with
E one or more of The above
categories Fourteen and
one half per cent
10. We have in the main to deal with the impugned judgment
dated 1.9.2006 in Civil Appeal No.4318 of 2007, and judgment dated
F 12.8.2004 in Civil Appeal No. 4149 of2007 in favour of Revenue, and a
detailed impugned judgment which is challenged by the State of
Karnataka dated 10.12.2013 in State ofKarnataka and etc. etc. v.
Mis. Reddy Structures Pvt. Ltd. and etc. etc. in Civil Appeals arising
outofSLP (Civil) Nos.18646-19117/2015.
G 11. Shri N. Venkatraman led the arguments on behalf of the
assessees, after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and
some others followed. According to learned counsel, the present matter
is concluded by two judgments of this Court, namely, Builders' Assn.
oflndia v. Union oflndia, ( 1989) 2 SCC 645, and Gannon Dunkerley
and Co. v. State of Rajasthan, (1993) I SCC 364. The detailed
H
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 769
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
judgment dated 10.12.2013 correctly extracts all the relevant passages A
from the aforesaid judgments to reach the conclusion that under the
Kamataka Value Added Tax Act, 2003, the iron and steel products that
are reinforced for cement concrete used in buildings and structures,
remains exactly the same goods at the point oftaxability- that is, the
point of accretion, and that mere cutting into different shapes and bending
B
does not make these items lose their identity as declared goods. Therefore,
according to learned counsel, only tax at the rate of 4% can be levied,
and not the higher rate levied in respect of civil construction works
generally. Other learned counsel more or less argued along the same
lines as Shri N. Venkatraman, only adding that it cannot be said that the
identity of the iron and steel goods had changed atthe point oftaxability, c
and they cited several judgments to show that mere cutting and shaping
of these products would not amount to "manufacture" and hence the
very goods that were declared goods alone were taxable at the rate of
4%, both under the Karnataka Sales Tax Act as well as the Karnataka
Value Added TaxAct, 2003.
D
12. Shri K.N. Bhat, learned senior advocate appearing on behalf
of the State, relied strongly on State ofTamil Nadu v. Mis. Pyare Lal
Malhotra and Others, (1976) 1 SCC 834, in order to buttress his
submission that the iron and steel products did not continue as iron and
steel products but somehow became different goods at the point of
accretion and that, therefore, they could be taxed at the higher rate E
applicable to civil constructions generally. He did not dispute the law laid
down in the two Supreme Court judgments cited by Shri N. Venkatraman,
and very fairly submitted that ifthe iron and steel products continued as
declared goods then even though they were in a works contract they
were subject to the drill of Section 15 of the Central Sales Tax Act, and F
would therefore be chargeable at 4% if it were found that the said
products continue to remai,n the same.
"·13. Having heard 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 emerge on a conjoint reading G
of Builders Association and Mis. Gannon Dunkerley (supra). First,
that works contracts that are liable to be taxed after the 461h Constitution
Amendment are subject to the drill of Article 286(3) read with Section
15 of the Central Sales Tax Act, nam~ly, that they are chargeable at a
single point and at a rate not exceeding 4% at the relevant time. Further,
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770 · SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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.
14. The relevant paragraphs from these two decisions, therefore,
need to be set out. In Builders Association (supra), this Court held:
"We.are of the view that all transfers, deliveries and supplies
B of goods referred to in clauses (a) to (f) of clause (29-A)
of Article 366 of the Constitution are subject to the
restrictions and conditions mentioned in clause (I), clause
(2) and sub-clause (a) of clause (3) of Article 286 of the
Constitution and the transfers and deliveries that take place
c under sub-clauses (b), (c) and (d) of clause (29-A) ofArticle
366 of the Constitution are subject to an additional restriction
mentioned in sub-clause (b) of Article 286(3) of the
Constitution. [para 32]
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p.
D 36 it is stated thus:
"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
E 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 agreemenfto affix it. The property then passes
before the article is affixed, by virtue of the contract of
F sale itself or an appropriation made under it."
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
G 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
H
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 771
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
possible to accede to the plea of the States that what is A
transferred in a works contract is the right in the immovable
property.
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 ifthere was a sale of B
such goods and materials.
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
larger freedom than what they had before in regard to their c
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 ifthere 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 D
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 E
"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 the case of Bengal !111111unity
Company Ltd [AIR 1955 SC 661 : (1955) 2 SCR 603 :
(1955) 6 STC 446] in which this Court has held that the F
operative provisions of the several parts ofArticle 286 which
imposes restrictions on the levy of sales tax J?y 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 G
entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the
legislatures of States levying taxes on the transfer of
property in goods (whether as goods or in some other form)
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772 SUPREME COURT REPORTS [2016) 7 S.C.R.
A involved in the execution of a works contract are subject to
the restrictions and conditions mentioned in each clause or
sub-clause ofArticle 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
B
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
c 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." (Paras 38-41)
In Mis. Gannon Dunkerley (supra), this Court held:
D "Apart from the limitations referred to above which curtail
the ambit of the legislative competence of the State
Legislatures, there is clause (3) ofArticle 286 which enables
Parliament to make a law placing restrictions and conditions
on the exercise of the legislative power of the State under
E Entry 54 in State List in regard to the system oflevy, 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)totaxes
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
F 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 taw. In exercise of the power
conferred by Article 286(3)(a) Parliament has enacted
Sections 14 and 15 of the Central Sales TaxAct,-1956. No
G law has, however, been made by Parliament in exercise of
its power under Article 286(3)(b ).
For the same reasons Sections 14 and 15 of the Central
Sales Tax Act would also be applicable to the deemed sales
resulting from transferofproperty in goods involved in the
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SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 773
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
execution of a works contract and the legislative power A
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.
So also it is not permissible for the State Legislature to B
impose a tax on goods declared to be of special importance
in inter-State trade or commerce under Section 14 of the
Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the
Central Sales Tax Act.
c
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 D
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 E
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 F
by Article 366(29-A){b)." [paras 31, 37, 41and45]
15. At this juncture, it is important to note the fact situation in a
typical case before us. The Kamataka Appellate Tribunal in an order
dated 18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-
19117of2015 narrates the factual position thus: G
"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
H
774 SUPREME COURT REPORTS (2016] 7 S.C.R.
A 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 rei1:1forcement bars/rods
is calculated depending on the required loads to be carried
by the reinforced cement concrete structure to be built based
B
on various engineering parameters. At right angles to the
main reinforcement bas/rods, distribution bars/rods of
appropriate lesser diameters are placed and the intersections
between the distribution bars/rods and main reinforcement
bars/rods are tied together with binding wire. The tying is
c not for the purposes of fabrication but is to see that the iron
bars or rods are not displaced during the course of
concreting from the assigned positions as per the drawings.
Welding oflongitudinal main bars and transverse distribution
bars is not done. In fact, welding is contra-indicated because
it imparts too much rigidity to the reinforcement which
D
hampers the capacity of the roof structure to oscillate or
bend to compensate varying loads on the structure besides
welding reduces the cross section of the bars/ rods
weakening their tensile strength. The reinforcements are
placed and tied together in appropriate locations in
E accordance with the detailed principles and drawings found
in standard bar bending schedules which lay down the exact
parameters of interspaces between bars/ rods, the required
diameters of the steel reinforcement bars/ rods and contain
the required engineering drawings for placement of bars in
a particular manner. The placement of reinforcement
F
bars/ rods for different structures is done under the
supervision of qualified bar tenders and site engineers who
are well versed with the engineering aspects related to steel
reinforcement for creating reinforced cement concrete of
desired load bearing capacities.
G The appellant company has submitted general
photographs showing the progress of the work of placement
and binding of reinforcement bars/ rods at its work sites.
The said photographs also establish the correctness of the
aforesaid findings relating to placement and binding together
H
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 775
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
of steel reinforcement bars/ rods before such bars/ rods A
are embedded in cement concrete mixtures. In another case
in STANo.1328/2008 decided by this Tribunal on 10.2.2009
(in the case of Sri J. Bhaskar Rao) which is relied on by the
appellant, in the agreement between the Government of
Karnataka, Minor Irrigation Department and the said
B
appeliant (who was a civil contractor engaged in the civ.il
construction activity), specification for placement and
binding together of reinforcement bars/ rods were stipulated
by the Government of Karnataka as follows:
"Reinforcing steel shall conform accurately to the
dimensions given in the bar bending schedules shown
c
on the relevant drawings. Bars shall be bent cold to the
specific shape and dimensions or as directed by the
Engineer in-charge using a proper bar bender, operated
by hand or power to attain proper radii of bends."
"PLACING OF REINFORCEMENTS: D
All reinforcement bars shall be accurately placed
in exact position shown on the drawings and shall be
securely held in position during placing of concrete by
annealed binding wire not less than Imm. in size and
conforming to IS;280, and by using stays, blocks or metal E
chairs, spacers, metal hangers, supporting wires or other
approved devices at sufficiently close intervals. Bars
will not be allowed to end between supports not displaced
during concreting or any other operation over the work
.... As far as possible, bars offull length shall be used. F
In case this is not possible, overlapping bars shall not
touch each other, but be kept apart by 25mm, or I (1/4)
times the maximum size of the coarse aggregate
whichever is greater, by concrete between them. Where
not feasible, overlapping bars shall be bound with
annealed steel wire, not less than, I mm. thickness twisted G
tight. The overlaps shall be staggered for different bars
and located at points along the span where neither shear
nor bending moment is maximum."
The above specification which are standard for all civil
H
776 SUPREME COURT REPORTS [2016] 7 S.C.R.
A construction works also confirms the correctness of the
findings recorded by us supra. Welding of bars/ rods reduces
their cross section and to that extent decreases the tensile
strength of the reinforcement bars/ rods defeating the very
purpose of steel reinforcement in cement concrete. When
bars/ rods are just joined together loosely by the use of
B
binding wires, ..the elasticity of the steel bar/ rod is in no
way hampered and each reinforcement bar/ rod acts
independently. By the combined action of the main
reinforcement bars/ rods and the distribution bars/ rods, the
reinforced cement structures like roofs act as a rigid
c diaphragm whose elements displace equally in the direction
of the applied in-plane loads.
From the above discussion it is clear that largely in
building construction works, no pre-fabrication ofany steel
structure is done before embedding them in cement
D 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.
The only process to which the steel reinforcement
E 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."
F
16. Given this factual scenario, Shri K.N. Bhat referred to the
judgment in State of Tamil Nadu v. Mis. Pyare Lal Malhotra and
Others, (1976) I SCC 834, and relied on paragraphs 9 and 10 of this
judgment which read as follows:
G "If the object was to make iron and steel taxable as a
substance, the entry could have been: "Goods oflron 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
H
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 777
COMMERCIAL TAXES. KARNATAKA [R.F. NARIMAN, J.]
unusual meaning which the respondents would like us to A
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
B
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 c
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,
D
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.
As we all know, sales tax law is intended to tax sales of
different commercial commodities and not to tax the E
production or manufacture of particular substances out of
which these commodities may 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 F
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." [paras 9 and 1O]
G
17. Given the fact situation in these appeals, it is obvious that
paragraph 10 of this judgment squarely covers the case against the State,
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
H
778 SUPREME COURT REPORTS [2016) 7 S.C.R.
A be taxed again, given the rigor of Section 15 of the Central Sales Tax
Act. We fail to see how the aforesaid judgment can further carry the
case of the revenue.
18. We may note that in Civil Appeal No.4318 of2007, Larsen &
Toubro Ltd. v. State ofKarnataka & Another, the Appellate Tribunal
B had passed an order dated 11.1.2002 in which it decided the case against
the assessee on the ground that since the iron and steel products went
into cement concrete, they changed form, and since they changed form,
they were no longer declared goods and could be taxed without the
constraints mentioned in Section 15 of the Central Sales Tax Act. A
Sales Tax Revision Petition filed before the High Court yielded an order
c dated 14.6.2007 by which the assessee was sent back to the ApRellate
Tribunal for rectification. This rectification petition was dismissed by an
order dated 30.11.2005. A Sales Tax Revision Petition was thereafter
filed against both orders, namely, 11.1.2002 and 30.11.2005. The High
Court, in the impugned judgment dated 1.9.2006, unfortunately adverted
D only to the rectification order dated 30.11.2005 and not to the original
order of I 1.1.2002 and thus dismissed the revision petition stating that no
question oflaw arose. Ordinarily, we would have set aside the judgment
and remanded the matter back to the High Court to determine the matter
on merits, but at this point of time we find this would not serve any
purpose. Instead, it is enough to set aside both the judgments impugned
E by the assessees, dated 1.9.2006 and 12.8.2004, in light of the law laid
down in Builders Association and Mis. Gannon Dunkerley (supra),
and declare that the declared goods in question can only be taxed at the
rate of 4%.
19. In the State Appeals, we find that the lead impugned judgment
F in Civil Appeals arising out ofSLP(C) Nos.18646-19117 of2015 dated
10.12.2013 is an exhaustive judgment which has considered not only the
facts in great detail but also the law laid down by the Supreme Court.
We affirm the said judgment and dismiss the appeals of the State of
Karnataka.
G Civil Appeal No.4319 of 2007
Mis. Ananth Engineering Works v. State of Karnataka
20. This appeal is by the assessee from a judgmellt dated
26.10.2006 allowing a revision against the Appellate Tribunal's order
dated 19.1.2006. In this appeal, we are concerned with Rule 6(4)(m) of
H
SMT. B. NARASAMMA v. DEPUTY COMMISSIONER 779
COMMERCIAL TAXES KARNATAKA [R.F. NARIMAN, J.]
the Karnataka Sales Tax Rules, 1957. A
"Rule 6(4):
6. DETERMINATION OF TOTAL AND TAXABLE
TURNOVER:
(1) ....... B
(4) In determining the table turnover, the amount specified
in clause (a) to (p) shall, subject to the conditions specified
therein, be deducted from the total turnover of a dealer as
determined under dauses (a) to (e) of sub-Ruic (I). c
(a) ... ..
(b) .. ..
(m) In the case of works contract specified in Serial Numbers D
1,2,3,4,5,7,8,9, I0,11, 12, 17,26,27,35,36,40 and 42 of the Sixth
Schedule;
(i) all amounts received or receivable in respect of goods
other than the goods taxable under sub-section (1-A) or
(1-B) or Section 5 which are purchased form registered E
dealers liable to pay tax under the Act and used in the
execution of works contract in the same fonn in which such
goods are purchasei.
(ii) ......
F
...... .EXPLANATION-III For the purpose of sub-rule
(4), the expression 'in the same form' used in sub-clause
(i) of clause (m) shall not include such goods which, after
being purchased, are either consumed or used in the
manufacture of other goods which in turn arc used in the
execution of works contract." G
21. On facts in this case, it has been found that the appellant is
engaged in works contracts of fabrication and creation of doors, window
frames, grills, etc. in which they claimed exemption for iron and steel
goods that went into the creation of these items, after which the said
H
780 SUPREME COURT REPORTS [2016] 7 S.C.R.
A doors, window frames, grills, etc. were fitted into buildings and other
structures. On facts, therefore, we find that the High Court's judgment
is correct and does not need to be interfered with inasmuch as the iron
and steel goods, after being purchased, are used in the manufacture of
other goods, namely, doors, window frames, grills, etc. which in turn are
used in the execution of works contracts and are therefore not exempt
B
from tax.
22. The appeal of the assessee is therefore dismissed.
Divya Pandey Appeals disposed of.
c
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