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Background
The liberalization of market
in India since 1991 has had a direct effect on the real estate development.
The constantly changing economic demands and the inflow of huge capital into
the economy, has boosted the demand for real estate space, both in commercial
and residential sectors. In the earlier days having an independent structure,
whether for commercial activity or residential usage, was considered as a
normal necessity. The pressure of demand for more space, especially in cities
with vibrant activities like the four metros and few of the tier 1 cities, has
brought in the concept of highrise building. Be it for commercial or
residential, multiple ownership or tenancies in a single structure has become
a basic necessity. This development has put pressure on the availability of
land within the city limits. Such lands have become dearer and also the funds
required to acquire such lands are becoming more costly. This scenario has
resulted in barter systems in terms of joint development agreements (JDA),
wherein the owner agrees to transfer part ownership in the land to the builder
or his nominees, against the builder remitting the consideration in terms of
built up area with or without additional money consideration.
With constant need for
reducing the cost of such developmental projects, saving in stamp duty also
became a primary importance (a decade and half earlier). This objective
brought in many changes in the manner of transferring the titles to the
property. So much so one has come to witness the form and the substance of
such transaction being in variance with each other. What is a simple purchase
and sale of an immovable property, has been subjected to various
interpretational issues, due to the form of such transactions, especially in
the arena of taxation, both direct and indirect.
When a builder proposes to
develop a complex on a land, the owner agrees to transfer a portion of the
undivided interest in the land (UDI), against the builder agreeing to
compensate the owner with a built-up area in the structure. This is the simple
case of purchase and sale of property under barter system. Situations to avoid
the stamp duty applicable on such agreements and also to protect the builder
from the owners’ defaulting on the terms and conditions, has given birth to
JDA. When one considers the JDA as a whole, it can be noticed that such
agreement is nothing but an agreement of sale with possession to the builder.
Does the JDA really mean to be a joint venture between the owner and the
developer? The answer is ‘No’.
A “joint venture” may be
termed as an association of two or more persons coming together to carryout a
business activity for profit. More specifically, it is an association of
persons with intent, by way of contract, express or implied, to change and
carryout a business activity for joint profit, for which purpose such persons
contribute their property, resources, skill, knowledge and likes, without
creating a partnership.
The above, sums up the basic
structure of a joint venture. The terms of JDAs in the, real estate sector,
has no bearing or resemblance to this very basic structure of a joint venture.
Thus, JDA’s are not joint venture in the real sense.
On the other side, the
developer constructs the space and sells the same to various persons. This is
again a case of building & selling an immovable property, commercial or
otherwise. In order to overcome the provisions of certain statutes, these
transactions are being completed under two agreements – a tripartite agreement
among the owner, developer & purchaser in respect of the proportionate UDI
interest in the land and a second agreement between the developer & the
purchaser for the construction of a specified space or area. This format is
called the double agreement concept.
Thus, one could see the
variance of the form with the substance of the transaction. The purchase and
sale of an immovable property would not attract either VAT or service tax
under any of the indirect taxes. VAT (earlier sales tax), taxes all such
transactions which are in the nature of ‘works contract’ as a deemed sale. Due
to the construction agreement, under the two agreement concept, both VAT &
service taxes are attracted. Recently, there have been constant attempts to
rectify this variation between the form and the substance of the transaction
by switching to the single agreement of sale of a space along with the
proportionate UDI interest in the land.
In view of the changing
methodologies and concepts, in respect of documentation, there are many issue
and concern in respect of the indirect taxation vis-ŕ-vis the sale of built
spaces to various consumers. To address this issue one should comprehensively
take into consideration the various formats and circumstances under which
these transactions take place and the effect of each of these formats with
reference to the statutes.
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Preamble
The subject of works contract
is one of the most confusing and litigated issues. The Constitution (Forty
Sixth Amendment) Act, 1982 granted powers to State Governments to enact laws
for providing the levy of tax on the transfer of property (whether as goods or
in some other form) involved in the execution of works contracts. The levy of
tax on works contract involving interstate purchases or imports is currently
one of the most litigated issues, causing uncertainty, confusion and
litigation. In order to understand the controversies and come to some
conclusions, I have made an attempt to analyse the:
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meaning and concept of
works contract;
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provisions relating to
works contract;
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interpretation of law by
the judiciary and co-relating it with the concept of works contract.
I have in this paper proposed
to deal with the concepts and provisions of law prior to the judicial
interpretations with a view that judicial interpretations can be understood
better only if one knows what the law states. This paper is presented with an
objective to understand the above concepts.
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Indian Constitution
The constitutional division
of powers in a federal country makes it often more difficult to construct a
simple rational system of indirect taxes as compared to a country with unitary
constitution. Article 269 of the Indian Constitution provides for levy of tax
on sale or purchase of goods other than newspaper, in the course of interstate
trade or commerce, to be levied and collected by the Government of India, but
assigned to the States in which the tax is leviable. Consequently, Article 286
of the Indian Constitution placed a fetter on the authority of the State to
impose or authorise the imposition of tax on sale or purchase of goods in the
course of inter-State trade or commerce and provides that the Parliament by
law to formulate principles for determining when a sale or purchase of goods
takes place in the course of inter-State trade or commerce. These principles
have been formulated in section 3, 4 and 5 of the CST Act, which have been
held to be applicable in respect of transfer in property in goods involved in
execution of works contract.
The Constitution (46th
Amendment) Act, 1982, was passed by the Parliament on the recommendations of
The Law Commissions’ sixty first report in which the Commission observed, that
decision of The Supreme Court in Gannon Dunkerleys’ case (9 STC 353) holding
the expression that “sale of goods” as used in the Seventh Schedule to The
Constitution of India has the same meaning as in The Sale of Goods Act. This
position has resulted in scope for avoidance of tax in various ways.
The Supreme Court in the
first Gannon Dunkerley’s case observed that “while in the case of a works
contract, if the contract specifies the value of material separately and the
cost of the labour, the value of material would be taxable as sale per-se. But
in the case of an indivisible works contract it is not possible to levy sales
tax on the transfer of property in the goods involved in the execution of such
contract as it has been held that “there is no sale of materials as such and
the property in them does not pass as movables”.
In view of the above
observation of the Supreme Court the Constitution was suitably amended to
include in Article 366 a new clause 29A vide which ‘definition of tax on sale
or purchase of goods includes the transfer of property in goods involved in
the execution of a works contract, and such transfer, delivery or supply of
any goods shall be deemed to be a sale of those goods by the person to whom
such transfer is made. On a close reading of this provision tax is not payable
on the “works contract” by itself as it is not classified as goods liable to
tax, as may be the case in case of a contract for supply of machinery. The tax
in this clause is payable in the event of transfer of `goods’ involved in
execution of works contract. The clause also implies that tax on such transfer
of property in goods are deemed to be sale of those goods i.e., goods used in
the execution of works contract. But for this amendment the property in the
goods used in the execution did not pass as a movable property.
Thus, in the terms of the
Constitutional Amendment the tax under the sales tax law, can be imposed on
“goods involved in the execution of works contract” and not “works contract”
by itself.
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Works Contract – Concept
4.1 Contract for sale of
goods vs. contract for work
The distinction between a
contract of sale of goods and contract of work is often a fine one. The
question, whether a contract is one for sale of goods or for executing works,
is largely one of facts, depending upon the terms of the contract, including
the nature of obligation to be discharged thereunder and the surrounding
circumstances. The Supreme Court in the case of HAL vs. State of Karnataka,
(1984) 55 STC 314 held:
A contract of sale is a
contract whose main object is the transfer of the property in, and the
delivery of the possession of, a chattel as a chattel to the buyer. Where,
however, the main object of work undertaken by the payee of the price was not
the transfer of chattel qua chattel, the contract is one of work and labour.
The test is, whether or not the work and labour bestowed and in anything that
can properly become the subject of sale; neither the ownership of the
materials, nor the value of the skill and labour as compared with the value of
the materials, is conclusive, although such matters may be taken into
consideration in determining, in the circumstances of a particular case,
whether the contract was in substance one for work and labour or one for the
sale of a chattel.
It further held ‘where
passing of property was merely ancillary to the contract for the purpose of
the works, such a contract does not thereby become a contract of sale. Mere
passing of property in an article or commodity during the course of
performance of the transaction in question does not render the transaction to
be a transaction of sale. Even in a contract purely of work or service, it is
possible that articles may have to be used by the person executing the work,
and property in such articles or materials may pass to the other party. That
would not necessarily make the contract into one of sale of those materials.
In every case, the court would have to find out what was the primary object of
the transaction and the intention of the parties while into it. It may in some
cases be that even while entering into the contract of work or even service,
parties might enter into separate agreements, one of work and service and the
other of sale and purchase of materials to be used in the course of executing
the work or performing the service. But then in such cases the transaction
would not be one and indivisible but would fall into two separate agreements,
one of work or service, and the other of sale’.
In another case of the same
Company vs. State of Orissa 55 STC 327, the Supreme Court held:
The primary difference
between a contract for work or service and a contract for sale of goods is
that in the former there is in the person performing or rendering service no
property in the thing produced as a whole notwithstanding that a part or even
the whole of material used by him may have been his property. In the case of a
contract for sale, the thing produced as a whole has individual existence as
the sole property of the party who produced it some time before delivery and
property therein passes only under the contract relating thereto to the other
party for price’.
The Karnataka High Court in
the case of Shankar Vittal Motor Co. Ltd. vs. State of Karnataka 15 STC 771
stated that
The expression “sale of
goods” is not to be construed in its popular sense but it must be interpreted
in its legal sense and should be given the same meaning, which it has in the
sale of goods Act, 1930. One of the tests to find whether a given case is a
“Sale of Goods” or “work contract” is to see whether, the work done by a
person is work done on his own chattel, or on the chattel of someone else. If
it is on his own chattel and that chattel is later sold, then it is “sale of
goods”, but if the work is done on customer’s chattel then it is “work
contract”.
4.2 Contracts where usage of
materials is incidental
Practically, irrespective of
the nature of contract, certain materials are used in the execution of the
work contracted. The treatment of such materials for the purposes of levy of
works contract tax has been the subject matter of litigations. In order to
understand this concept better the judgement rendered by the Patna High Court
in the case of Pest Control India Limited vs. Union of India and others (Patna)
(75 STC 188) which is relevant is reproduced below:
There can be no transfer of
property in goods unless the goods themselves exist. In the execution of a
contract for eradication of pests, rodents, termites, although chemicals are
used, the chemicals are sprayed through machines so that when the process
ends, the chemicals are consumed and nothing tangible remains in which
property is transferred. Such a transaction does not involve transfer of any
goods as understood in sub-clause (b) of clause (29-A) of article 366 of the
Constitution, or under the provisions of the Bihar Finance Act, 1981. Such a
contract is a pure service contract, and no sales tax is leviable in relation
thereto under the provisions of the Bihar Finance Act, 1981.
In the case of RMDC Press
(112 STC 307), the Honourable Mumbai High Court held that:
“In the execution of job work
of printing, there is no transfer of property in ink which is used in process
of printing. In fact, ink is a tool of the printer which is consumed in the
process of printing and loses its identity as goods. In such a situation there
is no transfer of property in ink in the execution of a works contract for
printing”.
In the case of Dr. Hemendra
Surana’s (90 STC 251), the Honourable Rajastan High Court held that:
“Taking of X-Ray photographs
by a radiologist is nothing but rendering a professional service and further
that radiologist is not a dealer. The Court held that the X-Ray photograph
does not have commercial value and is not a commodity which can be sold by the
radiologist to the patient”.
In the case of Everest
Copiers (103 STC 360), the Honourable Supreme Court held that:
“In respect of photocopying
job, the object of payment of price is to get the document duplicated and not
to receive the paper. The payer of the price has no interest in the bare paper
upon which his document is duplicated, whereas he is interested only if it
bears such duplication”.
The law laid down in the
above judgements have been distinguished / overruled in the cases of Rainbow
Colour Lab and the ACCs case cited elsewhere in this paper.
4.3 Nature of contracts
There is no standard formula
by which a contract for sale of goods and works contract may be distinguished
from one other. A contract where not only work is to be done but the execution
of such work requires goods to be used, may take one of the following three
forms:
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the contract may be for work to be done for remuneration and for supply of
materials used in the execution of work for a price;
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it
may be a contract for work in which the use of materials is accessory or
incidental to the execution of work; or
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it
may be a contract for supply of goods where some work is required to be done
as incidental to the sale.
The first type – is a
composite contract consisting essentially of the two contracts, one for the
sale of goods and the other for work and labour.
The second type – of work is
clearly a contract for work and labour not involving sale of goods. However,
this view has often had different interpretations by Courts.
While the third type is
contract for sale where the goods are sold as chattels and some work is
undoubtedly done, but it is done merely as incidental to the sale.
The following guidelines
though cannot be termed as infallible tests have emerged from various court
decisions in regard to works contract:
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the essence of the contract or the reality of transaction as a whole has to
be taken into consideration, in judging whether the contract is for a sale
or for work and labour.
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if
the thing to be delivered has any individual existence before the delivery
as the sole property of the party who is to deliver it, then it is a sale.
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if
the main object of the contract is the transfer from A to B, for a price, of
the property in a thing in which B had no previous property, then the
contract is a contract of sale.
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where the main object of work undertaken by the payee of the price is not
the transfer of a chattel qua chattel, the contract is one for work and
labour.
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if
the bulk of material used in the construction belongs to the manufacturer
who sells the end product for a price that will be a strong pointer to a
conclusion that the contract is in substance one for the sale of goods and
not one for work and labour.
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the nature of the contract has to be determined on the terms of the contract
and not from the entries in the invoice. The invoice does not represent any
transaction, nor is it evidence of a contract for work or for sale of goods.
Agreements wherein the land and building are conveyed to the prospective
buyer and stamp duty is paid on such conveyance, such transactions are
deemed to be transfer of immovable properties and not liable to tax under
the sales tax laws.
An interesting issue arises in cases where Developers execute what is called
as a General Power of Attorney (GPA) in favour of the Builders. Such an
agreement is entered into between the parties for a consideration, which may
take either of the following forms:
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For valuable consideration; or
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Partly by way of valuable consideration and partly by way of constructed
property.
This is a highly debated
issue where the department has not accepted the concept of ownership of land
by the developer through a GPA on the ground that ownership is transferred
only on payment of stamp duty and registration of property with the
appropriate authorities. This particular issue was a subject matter of
challenge before the Supreme Court in the case of K Raheja Development
Corporation.
The Honourable Supreme Court
while delivering the judgement in the case of K. Raheja Development
Corporation vs. State of Karnataka CASE NO Appeal (Civil) 2766 of 2000 on 5th
of May 2005 observed:
It is thus to be seen that
under the Karnataka Sales Tax Act the definition of the words “works contract”
is very wide. It is not restricted to a “works contract” as commonly
understood, i.e., a contract to do some work on behalf of somebody else.
It also includes “any
agreement for carrying out either for cash or for deferred payment or for any
other valuable consideration, the building and construction of any moveable
and immoveable property”.
The definition would
therefore take within its ambit any type of agreement wherein construction of
a building takes place either for cash or deferred payment, or valuable
consideration. To be also noted that the definition does not lay down that the
construction must be on behalf of an owner of the property or that the
construction cannot be by the owner of the property.
Thus even if an owner of
property enters into an agreement to construct for cash, deferred payment or
valuable consideration a building or flats on behalf of anybody else it would
be a works contract within the meaning of the term as used under the said Act
(emphasis supplied).
In the case of “Agreements
for Sale” where land is conveyed by the landowner and the constructed portion
is conveyed by the Developer to the customer / prospective buyer, the issue
relating to taxability of such transactions under the tax law arises. Land
being an immovable property is not liable for payment of sales tax / value
added tax / service tax. However, when the Developer agrees to construct on
behalf of the customer / prospective buyer the liability to pay tax can arise
as held by the Honourable Supreme Court in the K Rahejas’ case. It must be
noted that, when constructions are carried out through independent contractors
on behalf of the Developer, the contractors will also be liable for payment of
works contract tax.
A situation can also be
visualized wherein the Developer himself can act as a contractor. In this
situation, the department has been construing the Developer in dual capacity
(a) Contractor, and (b) Owner / Builder and subjecting such transactions to
tax. In this scenario, the department has been subjecting such Developers to
tax on the contract values, while the stamp duty is normally paid on the “land
and building” conveyed to the prospective buyer.
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Single Agreement Concept
Under a ‘single agreement
concept’, the agreement is for sale of the specified space or unit along with
the UDI in the land. This agreement is entered into between the developer and
the prospective buyer. The owner of the land may become part of the agreement
as a consenting witness, more to give an assurance to the prospective buyer,
that the sale of UDI interest by the developer has his consent. This is a pure
sale of an ‘immovable property’.
The “single agreement
concept” reflects the essence or the substance of the transaction between the
landowner / developer and the customer / prospective buyer. This being a sale
of an immovable property is not in the nature of works contract (attracting
the liability under VAT and Service Tax) for the following reasons:
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The contract is for the sale of a built area;
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The developer and the prospective buyer have a principal to principal
relationship and not that of a principal (prospective buyer) and a
contractor (developer) relationship;
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The risk and the ownership in the property are transferred to the buyer only
after completion of the agreed space or unit or apartment either by handing
over possession or by registering the sale deed. Unlike in the two agreement
concept, the schedule in the sale deed would mention the unit along with the
UDI in land.
Just because the specification of the unit is agreed to with the prospective
buyer, the ‘agreement of sale’ would not amount to a works contract. Refer
to the decisions of the Supreme Court in the case of Hindustan Ship Yard
Ltd., & Kone Elevators Ltd. and High Court in the case of Assotech Realty
Private Limited & Magus Construction Private Limited;
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No features of such terms and conditions normally seen in a construction
agreement as part of the ‘agreement of sale’ like the buyer cannot specify
major structural elements of the design prior to, or during the,
construction; the construction is not carried out on the land owned by the
prospective buyer; the construction cannot be done by any other developer;
in the event of failure on the part of the developer to deliver the space
the buyer has only a civil liability to claim back the monies paid along
with the damages (normally enforcement of specific performance would not
work in such circumstances) and likes;
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There is no construction agreement separately entered into, creating any
type of controversy as happens in two agreement concepts.
It can be argued that
transactions involving transfer of immovable property attracting payment of
Stamp duty, as sale, cannot be subjected to either VAT or Service Tax.
Being a sale of immovable
property, then –
The decision of the Supreme
Court in K.Raheja’s case has stirred a controversy. In all such cases where a
prospective buyer is identified before the start of, or during the,
construction of the project, the works contract is activated. With due respect
the decision of the K.Raheja’s case does not appreciate the true essence or
the substance of such transaction, especially in a single agreement scenario.
This stand has vindicated, very recently, by the decision of the Honourable
Supreme Court in the case of L & T by their observations in the process of
referring the matter to a larger bench. This controversy can be put to an end
only by the larger bench of the Supreme Court in the L & T’s case.
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Judgements
K. Raheja Development
Corporation vs. State of Karnataka (141 STC 298)(SC). In this judgement
The appellant, which carried
on the business of real estate development and allied contracts, entered into
development agreements with owners of lands. It got the plans sanctioned and
after approval constructed residential apartments and/or commercial complexes.
In most cases before construction it entered into agreements with the
intending purchasers. The agreement provided that on completion of the
construction the residential apartment or the commercial complex would be
handed over to the purchasers, who would get an undivided interest in the land
also. The appellant was entitled to terminate the agreement and dispose of the
unit if a breach was committed by the purchaser. The owners of the land would
transfer the ownership of the land directly to a society which was being
formed under the Karnataka Ownership Flats (Regulation of Promotion of
Construction, Sales, Management and Transfer) Act, 1974. The question was
whether the appellant was a dealer and liable to pay turnover tax under the
Karnataka Sales Tax Act, 1957, in relation to the construction contracts with
the purchasers as “works contracts”:
The Honourable Supreme Court
held that:
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under section 2(1)(v-i) of the Karnataka Sales Tax Act the definition of
“works contract” was very wide and was not restricted to a “works contract”
as commonly understood, viz., a contract to do some work on behalf of
someone else. It also included “any agreement for carrying out either for
cash or for deferred payment or for any other valuable consideration, the
building and construction of any moveable or immoveable property. The
definition took within its ambit any type of agreement wherein the
construction of a building took place either for cash or deferred payment or
valuable consideration;
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therefore, even if the appellant was owner to the extent that it had entered
into agreement to carry out construction activity on behalf of someone else
for cash, deferred payment or other valuable consideration, it would be
carrying out a works contract and would become liable to pay turnover tax on
the transfer of goods involved in such works contract. Further, there was no
distinction under the Karnataka Sales Tax Act between construction of
residential flats and construction of commercial units, and a works contract
within the meaning of the term in that Act could also be for construction of
commercial units. For the purpose of considering whether the agreement
amounted to works contract or not the provisions of the Karnataka Ownership
Flats (Regulation of Promotion of Construction, Sales, Management and
Transfer) Act, 1974, would have no relevance;
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the appellant was undertaking to build for the prospective purchaser on
payment of price in various instalments set out in the agreement. Though the
appellant was not the owner it claimed a lien on the property and it had the
right to terminate the agreement and to dispose of the unit if a breach was
committed by the purchaser. Merely because such a clause was included in the
agreement, the agreement did not cease to be a works contract within the
meaning of the term in the Act. So long as there was no termination the
construction was for and on behalf of the purchaser and, therefore, the
agreement remained a “works contract” within the meaning of the term as
defined in the Act. So long as the agreement was entered into before the
construction was complete, it would be a works contract; and
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however, if the agreement was entered into after the flat or unit was
already constructed, there would be no works contract.
The law laid down by the
Honourable Supreme Court in K Rahejas’ case (141 STC 298) was a subject matter
of challenge before the Honourable Supreme Court in the case of Larsen and
Toubro Limited & another vs. State of Karnataka & another (2008-VIL-29-SC).
The Honourable Supreme Court while delivering the judgement on 19.08.2008 in
the Larsen and Toubro’s case observed “Be that as it may, apart from the
disputes in hand, the point which we have to examine is whether the ratio of
the judgment of the Division Bench in the case of Raheja Development
Corporation (supra) as enunciated in Para 20, is correct. If the Develop
Agreement is not a works contract could the Department rely upon the second
contract, which is the Tripartite Agreement and interpret it to be a works
contract, as defined under the 1957 Act. The Department has relied upon only
the judgment of this Court in Raheja Development Corporation (supra) case
because para 20 does assist the Department. However, we are of the view that
if the ratio of Raheja Development case is to be accepted then there would be
no difference between works contract and a contract for sale of chattel as a
chattel. Lastly, could it be said that petitioner Company was the contractor
for prospective flat purchaser. Under the definition of the term “works
contract” as quoted above the contractor must have undertaken the work of
construction for and on behalf of the contractor for cash, deferred or any
other valuable consideration. According to the Department, Development
Agreement is not works contract but the Tripartite Agreement is works contract
which, prima facie, appears to be fallacious. There is no allegation that the
Tripartite Agreement is sham or bogus.”
Based on the above finding
the Honourable Supreme Court placed the matter before the Honourable Chief
Justice of India for re-consideration of the K Rahejas’ case by a larger
bench.
Comments in the background of
the judgement of the K Rahejas’ case cited above:
It can be noticed that the
Honourable Supreme Court has rendered its decision in the backdrop of an
“agreement to carry out the construction activity on behalf of another
person”. The Honourable Supreme Court did not examine the issue relating to an
“Agreement for sale” of an immovable property. It is also necessary to keep in
mind the peculiar clauses in the agreement of the K. Rahejas’ case. The point
to be analysed is whether a Developer is a principal contractor on behalf of
the customer / prospective buyer. If the Developer enters into a construction
agreement with the prospective buyer (customer) before the construction is
complete (before obtaining the occupation certificate from the appropriate
authorities) it would amount to a works contract liable to tax in the hands of
the Developer / Principal. However, if the Developer enters into an “Agreement
for Sale” or executes an “Absolute Sale Deed” after the construction is
complete - it can be contended that such “sale” is a “sale of immovable
property” not liable to tax under the sales tax / VAT laws.
Without prejudice to whatever
is stated above the facts / ratio of the K Raheja’s case cannot be blindly
applied in case of single agreement concept. This is because, the law laid
down in the K Raheja’s case completely revolved around the clause in that
Agreement whereas the clauses in the “Agreement for Sale” with the customers
may be completely different. Therefore, the judgement of the K Raheja’s case
cannot be applied in the case of an agreement entered into by the developer
with the customer / prospective buyer for sale of an immovable property under
a ‘single agreement’ or ‘agreement for sale’.
Now that the vexed issue
arising out of the K Rahejas’ is placed before the larger bench for
re-consideration, we believe that on merits a ‘Agreement for sale’ of an
immovable property could be held to be not taxable. However, the Honourable
larger Bench of the Supreme Court will have a final say on the issue.
ASSOTECH REALTY PVT LTD vs.
STATE OF UP AND ANOTHER vide Writ Petition No.1238 of 2006 (reported in
2007-TIOL-297-HC-ALL-CT)
In the Assotech’s case the
Honourable Allahabad High Court observed that in the K Rahejas’ case:
“The agreement provided that
K. Raheja Development Corporation, as developer on its own behalf and as
developer of such person, would construct the flats as a unit, ultimately to
belong to such person. K.Raheja Development Corporation were constructing the
unit for and on behalf of the person who had agreed to purchase the flats”.
In the Assotechs’ case the
Honourable Allahabad High Court held that:
“We find that the petitioner
is constructing the flats/apartments not for and on behalf of the prospective
allottees but otherwise. The payment schedule would not alter the transaction.
The right, title and interest in the construction continue to remain with the
petitioner. It cannot be said that the constructions were undertaken for and
on behalf of the prospective allottees and, therefore, the constructions in
question undertaken by the petitioner would not fall under clause (m) of
Section 2 read with Section 3F of the Act and are outside the purview of the
provisions of the Act. In other words, they cannot be subjected to tax under
the Act and the action in imposing tax on such constructions treating them to
be works contract, is wholly without jurisdiction. We are, therefore, of the
considered opinion that the impugned orders dated 24.3.2006 and 29.5.2006,
passed by the Assistant Commissioner, Trade Tax, Sector I, Noida, respondent
no.2, insofar as they relate to imposition of tax on construction of
apartments/houses/flats and other construction in question, are wholly without
jurisdiction and they cannot be sustained and are hereby set aside”.
Comments in the background of
the judgement of the Assotechs’ case cited above:
-
A
subtle factual distinction was brought out by the Honourable Allahabad High
Court while delivering the judgement in the Assotechs’ case, on the issue that
was before the Honourable Apex Court, in the K Rahejas’ case. The Honourable
Allahabad High Court in the Assotech’s case observed that in the K Rahejas’
case the appellants “were constructing the unit for and on behalf of the
person who had agreed to purchase the flats”. Whereas in the Assotechs’ case
the “petitioner is constructing the flats/apartments not for and on behalf of
the prospective allottees but otherwise. The payment schedule would not alter
the transaction. The right, title and interest in the construction continue to
remain with the petitioner. It cannot be said that the constructions were
undertaken for and on behalf of the prospective allottees and, therefore, the
constructions in question undertaken by the petitioner would not fall under
clause (m) of Section 2 read with Section 3F of the Act and are outside the
purview of the provisions of the Act”.
-
Agreements wherein the land and building are conveyed to the purchaser
(assuming stamp duty is paid on such conveyance) are deemed to be transfer of
immovable properties and not liable to tax under the VAT/Service Tax laws.
This view is a highly debated issue and the department in Karnataka has not
accepted such transactions as one for sale of an immovable property. However,
the Developer /Builder can place reliance on the Assotechs’ case cited above
and contend that such transactions are not liable for payment of VAT /Service
tax.
-
The State of UP filed a special leave petition before the Honourable Supreme
Court vide CC-11480-11481/2007 against the High Court judgment in the
Assotech’s case. The Honourable Supreme Court set aside the judgement of the
High Court with liberty to the appellant to move the appellate authorities on
the following grounds:
-
hat the appellant ought to have file a first appeal, since a writ petition
against a order of assessment was not maintainable.
-
That the nature of right conferred on the allottees of flats / consideration
for payments of installments / whether construction was on its account or on
behalf of the allottees were not matters to be decided in a writ.
(I am of the view that the
Honourable Supreme Court did not decide the legal issue arising out of the
High Court order. However, the matter was to be decided by the appellate
authorities on facts. Therefore, it appears that the issue in the Assotech’s
case will be a prolonged legal battle.)
-
The Honourable High Court of
Karnataka while delivering the judgement in the case of Larsen & Toubro
Limited vs. State of Karnataka (WP. NO. 16305/ 2006(T-KST) on 10th July 2007
has not followed the law laid down by the Allahabad High Court in the
Assotech’s case. We are given to understand that Larsen & Toubro have pursued
the matter before the Honourable Supreme Court of India. We believe that the
judgement of the Honourable Supreme Court in the Larsen & Toubro’s case as and
when delivered will settle this vexed issue.
The law laid down by the
Honourable Supreme Court in the case of Hindustan Shipyard Ltd vs. State of
Andhra Pradesh (119 STC 533) is very relevant. The honourable Supreme Court
had an occasion to interpret the difference between a works contract and a
transaction of sale as under:
The appellant (“the
builder”), engaged in the activity of building ships for different ship
owners, entered into contracts agreeing with the owners to build, launch,
fit, equip, test and complete in all respects a specified number of vessels
at its shipyard and to deliver them. The building of the vessels was to be
under the instructions and test of classification surveyors and in
accordance with plans and specifications. The builder had to furnish all
labour, machinery, materials, equipment, spare parts and outfit required for
the construction of the vessels to make them completely ready. The price of
each vessel was fixed but was to be paid in instalments at different stages.
Before the vessel was delivered trial runs had to be made after notice to
the owners. The contract provided that after successful trial test the owner
shall accept the vessel. Title and risk of the vessel was to pass to the
owner upon acceptance when delivery was effected and until such delivery the
vessel and equipment thereof were at the entire risk of the builder. Delay
in payments of the instalments of the price beyond a certain period entitled
the builder to rescind the contract and refund the instalments already paid.
Article 15 of the contract provided that the vessel as constructed, the
engines, boilers, and machinery at all times became the property of the
owner immediately after payment of the first installment, and the owner, to
the extent of the payments made by him, had a right to mortgage his interest
in the materials for obtaining loans. Article 16 provided that in the event
of the builder defaulting in the construction of the vessel, the owner could
at his option take possession of the vessel and enter into contract with
other builders to complete the vessel. Article 17 provided that the vessel
would be at the risk and expense of the builder until handed over and
accepted by the owner and the builder had to keep insured at its own cost
for all builder’s risks. Any insurance moneys recovered on damage being
sustained was to be applied for the reinstatement of the vessel. If any
insurance money was received on destruction of the vessel or total or
constructive total damage, the builder was to refund to the owners the
monies paid by them. The question was whether the transaction was a “sale”
or only a “works contract” for the purpose of sales tax under the Andhra
Pradesh General Sales Tax Act, 1957. The High Court held that the
transaction was a “sale”. On appeal to the Supreme Court (emphasis
supplied):
The Honourable Supreme
Court in the Hindustan Shipyard’s case held, affirming the decision of the
High Court, that the contracts in question involved “sale” of the respective
vessels within the meaning of section 2(n) of the Andhra Pradesh General
Sales Tax Act, 1957, and were not merely “works contracts” as defined in
section 2(t), and the transactions were exigible to sales tax as such. The
property in the goods passed from seller to the buyer only on the vessels
having been built fully were delivered to the buyer; the vessel at the time
of delivery has to be completely built up and seaworthy whereupon only the
owner would accept delivery. All the machinery, materials, equipment,
appurtenance, spare parts and outfit required for the construction of the
vessel were to be purchased by the builder out of its own funds. Neither any
of these nor the hull was provided by the owner. Though under article 15 the
items mentioned therein became the property of the owner simultaneously with
the payment of the first installment, other clauses generally, and articles
16 and 17 immediately, went to show that for all practical purposes the
property in the vessel continued to remain with the builder and passed to
the owner only (i) on satisfactory completion of the work, (ii) the vessel
coming into existence in a deliverable state, and (iii) satisfaction of the
owner as to the vessel being seaworthy and built in accordance with the
terms and conditions of the contract (emphasis supplied).
The honourable Supreme Court
in the Hindustan Shipyard’s case further held:
It is not the meaning of an
individual recital or the inference flowing from any term or condition of the
contract read in isolation but an overview of the contract wherefrom the
nature of the transaction covered thereby has to be determined (emphasis
supplied).
It is difficult to lay down any rule or inflexible rule applicable alike to
all transactions so as to distinguish between a contract for sale and a
contract for work and labour (emphasis supplied).
The essence of the “Agreement
for Sale” in truth and substance is one for sale of an immovable property. The
honourable Supreme Court in the Hindustan Shipyard’s case further observed:
Transfer or property in goods
for a price is the linchpin of the definition of “sale”. Whether a particular
contract is one for sale of goods or for work and labour depends upon the main
object of the parties found out from an overview of the terms of the contract,
the circumstances of the transaction and custom of the trade (emphasis
supplied).
If the bulk of material used
in construction belongs to the manufacturer who sells the end-product for a
price, then it is a strong pointer to the conclusion that the contract is in
substance one for the sale of goods and not one for labour. However, the test
is not decisive. It is not the bulk of the material alone but the relative
importance of the material qua the work, skill and labour of the payee which
have to be weighed. If the major component of the end-product is the material
consumed in producing the chattel to be delivered and skill and labour are
employed for converting the main components into the end-products, the skill
and labour are only incidentally used, the delivery of the end-product by the
seller to the buyer would constitute a sale (emphasis supplied).
The parties normally enter
into an “Agreement for Sale” of an immovable property and the essence of the
transaction is not one for “sale of goods”. If it were to be so, there is no
need for entering into an “Agreement of Sale”. A contractor / contractee
relationship can be said to be in existence when the contractor works on a
chattel belonging to a contractee. Normally the Developer is working on his
own chattel with his own material. Thus, the question of execution of a works
contract and therefore, the relationship of a contractor / contractee cannot
be said to be in existence.
In the case of State of
Andhra Pradesh vs. Kone Elevators (India) Ltd. (140 STC 22) the Honourable
Supreme Court observed that:
There is no standard formula
by which one can distinguish a “contract for sale” from a “works contract”. In
a “contract for sale” the main object is the transfer of property and delivery
of possession of the property, whereas the main object in a “contract for
work” is not the transfer of the property but it is one for work and labour.
In judging whether the contract is for a “sale” or for “work and labour”, the
essence of the contract or the reality of the transaction as a whole has to be
taken into consideration. The predominant object of the contract, the
circumstances of the case and custom of the trade provides a guide in deciding
whether the transaction is a “sale” or a “works contract”. Essentially, the
question is of interpretation of the “contract”. It is settled law that the
substance and not the form of the contract is material in determining the
nature of the transaction.
Comment: It may be noted
that in case of ‘Agreement of Sale’:
-
The predominant object is for sale of an
apartment and not for execution of a works contract.
-
The reality of the contract is one for sale of
an immovable property.
-
If one were to interpret the agreement of sale
entered into by the builder / developer with the prospective buyer the
substance of the contract would clearly indicate that the transaction is one
for sale of an immovable property.
The Honourable Supreme Court
further observed:
The respondent filed returns
of turnover for sales tax under the Andhra Pradesh General Sales Tax Act,
1957, of elevators and lifts installed by it for the period April to July
1995, claiming composition of tax under section 5G read with section 5F on the
basis that the nature of the work undertaken by it constituted “works
contract” involving manufacture, supply, installation and commissioning of
elevators and lifts. The department rejected the claim and assessed the
turnover at the rate specified in entry 82 of the First Schedule to the Act,
as lifts. On appeal, the Sales Tax Appellate Tribunal accepted the claim of
the respondent holding that the turnover related to the manufacture, supply,
fabrication and erection involved in a works contract and that the transaction
did not amount to a contract of sale; and, accordingly, directed the
department to allow composition of tax under section 5G read with section 5F.
The High Court rejected the revision application of the department. On appeal
to the Supreme Court:
The Honourable Supreme Court
held, reversing the decision of the Appellate Tribunal and the High Court, (i)
that, under the contract of the respondent with the customer, the entire onus
of preparing and making ready the site for installation of the lift was on the
customer, and the respondent would not undertake installation of the lift if
the site was not ready. The respondent reserved the right to charge the
customers for delay in providing the facilities. The respondent was only to
bring the lift to the site in knocked-down state and assemble and install it.
The major component into the end-product was the material consumed on
producing the lift to be delivered and the skill and labour employed for
converting the main components into the end-product was only incidentally used
and the delivery of the end-product by the respondent to the customer
constituted a “sale” and not a “works contract” and, therefore, the
transactions constituted “sales” and taxable at the rate specified in entry 82
of the First Schedule to the Act and section 5G was not applicable; and
(ii) that the brochure of the
respondent indicated that it was in the business of manufacturing various
types of lifts, namely, passenger lifts, freight elevators, transport
elevators and scenic lifts; and these were sold in various models and in
various colours, capacities and voltage. Therefore, the respondent satisfied
the requirement that it should carry on business.
Comment: The brochure
of the Developer / Builder will normally clearly indicate that they are
involved in the business of development of immovable properties for “sale”.
Thus, the Kone Elevators case is squarely applicable to all Builders /
Developers.
Kone Elevator India Pvt Ltd, Tamil Nadu vs State of Tamil Nadu (reported in 15
VST 457) moved the honourable Supreme Court on the grounds that:
The question raised for
consideration in these petitions is whether manufacture, supply and
installation of lifts are to be treated as ‘sale’ or ‘works contract’. As the
writ petitions filed by the petitioners have raised important questions of
law, the matters have been directed to be placed before a three-judge Bench.
The petitioner (Kone
Elevators India Private Limited, Tamil Nadu), raised the above question while
referring to a series of cases including the law laid by the Honourable
Supreme Court in State of Andhra Pradesh v Kone Elevators (India) Ltd. (140
STC 22)(SC). The Honourable Supreme Court (15 VST 457) observed:
In State of Andhra Pradesh v
Kone Elevators (India) Ltd. (140 STC 22)(SC), it was held that such a contract
constituted a ‘sale’ and does not amount to ‘works contract’ and the element
of service provided by the vendor of the elevator was negligible. The learned
Senior Counsel submitted that having regard to the nature of the contracts,
the said view was not correct. Our attention was drawn to series of decisions
rendered by this court in State of Rajasthan v. Man Industrial Ltd. [1969] 24
STC 349, State of Rajasthan v. Nenu Ram [1970] 26 STC 268 and Vanguard Rolling
Shutters & Steel Works v. Commissioner of Sales Tax, U.P [1977] 39 STC 372,
which take a contrary view. The said decisions have not been noticed in Kone
Elevators (India) Ltd. (140 STC 22)(SC) [Emphasis supplied].
The learned counsel appearing
for the States of Gujarat, Uttar Pradesh, Andhra Pradesh and Tamil Nadu
submitted that the decision in Kone Elevators (India) Ltd. (140 STC 22)(SC)
was correctly decided and placed reliance on Hindustan Shipyard Ltd. v. State
of Andhra Pradesh [2000] 119 STC 533 (SC). They also submitted that the
petitions under article 32 are not maintainable. The respondents would be at
liberty to raise these contentions also when the matters are finally heard
[Emphasis supplied].
Having regard to the issues
involved in these matters and apparent conflict in the views expressed by
three-judge Benches of this court, we refer these matters to a Constitution
Bench. Registry will take further steps to post before the Constitution Bench
[Emphasis supplied].
Thus, the matter is now
pending before the Supreme Court to be taken up by the Constitution Bench.
In the case of Magus
Construction Pvt. Ltd. and another v. Union of India and others [2008] 15 VST
17 the Honourable Gauhati High Court while delivering the judgement on May 15,
2008 followed the judgement in the case of Assotech Realty Private Limited vs.
State of Uttar Pradesh [2007] 8 VST 738 (All) and held as follows:
In the case of the petitioner
the petitioner was not shown to have undertaken any construction work for and
on behalf of proposed customer/allottees and the title, in the flat/apartments
so constructed, passed to the customer only on execution of sale deeds and
registration thereof. Until the time the sale deed was executed, the title and
interest, including the ownership and possession in the constructions made,
remained with the petitioner. Further the circular dated August 1, 2006 makes
it clear that when a builder, promoter, or developer undertakes construction
activity for its own self then in the absence of relationship of “service
provider” and “service recipient” the question of providing any service to any
person by any other person does not arise at all. The construction activities
which the petitioners had been undertaking were in respect of the petitioners’
own work and it was only the completed construction work, which was sold by
the petitioner-company to the buyers, who might have entered into agreements
for sale before the construction had actually started or during the progress
of the construction activity or at the end or completion of the construction
activity. Any advance, made by a prospective buyer, or deposit received by the
petitioner, was against consideration of sale of the flat/building to such
prospective buyer and not for the purpose of obtaining “service” from the
petitioner.
Applying the ratio of the
above decisions of the Honourable Gauhati High Court and in the Honourable
Supreme Court in the case of Hindustan Shipyard in respect of an “Agreement
for Sale” it becomes clear that:
-
The transaction in question is one of “sale”
of an immovable property and not one of works contract;
-
Even assuming that the property in the goods
passed to the customer / prospective buyer, the immovable property passes to
the customer / prospective buyer only on completion of construction of the
immovable property when the customer / prospective buyer accepts delivery /
possession; It is important to note that there is no transfer of property of
goods involved in execution of works contract;
-
The goods involved belong to the Developer /
Builder;
-
Both on facts and in law, the property in
goods remain with Developer / Builder and it passes to the customer /
prospective buyer only on completion of construction and the immovable
property becomes ready for delivery / possession.
We state that the vexed
issues arising out of the above judgments will find an answer as and when the
Larsen and Toubro’s case cited above is decided by the larger bench of the
Honourable Supreme Court.
-
Issues
-
Taxability in case of use
of materials supplied by the contractee
In respect of all inclusive
contracts, if the value of material supplied by the contractee which is
deducted from the total value of the contract, at the time of payment, it
has been held in the case of NM Goel (72 STC 368) (SC) that such deduction
would amount to a sale in the hands of the contractee. The Honourable
Supreme Court in the Goes case cited above observed / held as follows:
For the construction, the appellant was supplied iron, steel and cement by
the PWD and the appellant purchased other materials from the market. The
prices of iron, steel and cement supplied to the appellant for the work were
deducted from its final bill. The Sales Tax Officer assessed the appellant
to entry tax for iron, steel and cement under section 6(c) of the Madhya
Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, on the
ground that their entry had been effected by the PWD, which was not a
registered dealer, at the instance of the appellant, because the appellant
had ultimately used the materials for the construction work; and the Deputy
Commissioner affirmed the assessments on revision. A writ petition filed by
the appellant challenging the assessments to entry tax was dismissed by the
High Court.
On appeal to the Supreme
Court:
The Court held that, in
this case, for the performance of the contract, the appellant was bound to
procure the materials; but in order to ensure that quality materials were
procured, the PWD undertook to supply such materials and stores as from time
to time were required by the appellant to be used for the purpose of
performing the contract only. The value of such quantity of materials and
stores so supplied was specified at a rate and got set-off or deducted from
any sum due or to become due thereafter to the appellant. Clause (10) of the
contract read in proper light indicated that a sale inhered from the
transaction. By the use or consumption of materials in the work of
construction, there was passing of the property in the goods to the
appellant from the PWD. By appropriation and by the agreement, there was a
sale from the PWD to the appellant as envisaged in terms of clause (10).
However, the above decision
has been distinguished by the Honourable Karnataka High Court in the case of
M/s Bangalore Water Supply and Sewerage Board vs. State of Karnataka, (1999,
46 KLJ 1) (HC)(DB) the facts and the judgement are briefly stated hereunder:
In this case the facts are
clear that the Board purchased the goods from the local dealers, against ‘C’
forms from dealers outside the State and those goods were supplied to the
contractors in question for being used in the work carried on. It is not in
dispute that the goods supplied by the Board to the contractors could be
utilized in any other work, much less the goods could be taken out of the
site and sold to other parties and if really the goods passed to the
contractors, sale would have taken place and in such an event the property
would have passed to the contractors attracting the sales tax. But, in this
case it is clear that such a course was not permissible at all and in the
event any goods were left over with the contractor the same had to be
returned to the Board. In the event any sale had taken place in favour of
contractors, it is inconceivable that such an arrangement has been entered
into between the Board and the contractors. Therefore, the principles stated
in Goel’s case, cannot be made applicable to the facts of the present case,
because in that case the terms of contract were different from the present
case. At any rate, it is clear that the goods did not pass to the
contractors at all. When the goods did not pass to the contractors, the same
having been utilized by the contractors for the benefit of the Board and
never ceased to be the goods of the Board, merely by utilization of such
materials in the course of the work done by the contractors, it cannot be
said that the Board lost control or possession or ownership of the goods nor
on completion of the work the goods does not become the property of the
Board once again. In that view of the matter we think there is no
justification to uphold the orders made by the authorities or the Tribunal
in question. The same are set aside insofar as the levy of tax in respect of
these items supplied to the contractors by the Board. We allow these
petitions accordingly.
In the case of R N Shetty &
Co, Hubli vs. State of Karnataka (2004(56 KLJ 52)) there were four issues
dealt with by the Honorable Karnataka Appellate Tribunal. I propose to
highlight one important issue arising out of this judgement.
The facts in brief in the
issue are that “admittedly, the appellant contractor has used the clients’
material in the execution of works contract”. The learned First Appellate
Authority had held that “the clients’ supply of material (for a price) are
to be treated as sale by the contractee in the first stage. And thereafter,
when the said goods are incorporated into the construction (for the cost of
which the appellant bills), the contractor is deemed to have sold the
materials going into the construction i.e., a second stage sale.
The Counsel for the
appellant contended that the above interpretation is possible only in cases
where the contractee supplier loses his rights and transfers the property in
such goods to the contractor. It was further argued that in the instant
case, based on facts, the property in cement and steel was never transferred
to the appellant-contractor.
The Honorable Tribunal
observed that this situation has already been analysed in the case of
Karnataka Power Corporation Limited vs. The Deputy Commissioner of
Commercial Taxes (1999 (46 KLJ 533)(HC)) and in the case of BWSSB vs. State
of Karnataka (1999(46 KLJ 1)(HC) while following the decision and
distinguished the situation from that of the Goel’s case (72 STC 368). It
further held that the law laid down in these cases have been followed by the
Tribunal in the cases of S Narayana Reddy vs. State of Karnataka (2001(51
KLJ 248)) & in Gurubasayya vs. State of Karnataka (2001(50 KLJ 94)). There
is no reason to hold any other view than what has already been held as
correct.
On an analysis of the above
decisions, although it becomes clear that clients’ supplied material
deducted out of running bills by the contractor cannot be a subject matter
of taxation, the department continues to litigate on such issues. In order
to avoid litigation, it is advisable to issue such materials to the
contractors “free of cost” without any deductions in / from the running
bills.
-
Barter / Exchange – JD
Shares
In certain transactions,
say between the landowner and the developer, the developer in addition to
payment of an agreed amount as consideration for land also agrees to part
with certain portion of the constructed property. In such a situation, the
department is likely to contend that the cost of construction relating to
built up area transferred to the landowner will be subjected to tax in the
hands of the developer. Alternatively, the department may choose to disallow
proportionate amount of expenses claimed as deductions and add back to the
declared turnovers. In this scenario, it can be contended that such
turnovers cannot be subjected to sales tax in the hands of the developer on
the ground that “in order to constitute a Sale all the following conditions
should be cumulatively present:
-
A bargain or agreement of sale;
-
The payment or promise of payment of price
in cash;
-
The delivery of goods; and
-
The transfer of property from the seller to
the buyer.
It can be seen from the
above definition of “sale” that there is no sale by the developer to the
landowner since the condition relating to payment of price in cash is not
fulfilled. Thus the transaction is one of barter/ exchange and does not
amount to a sale proper. Thus under both the schemes, the deductions
relating to payment effected to sub contractors’ / labour and other like
charges or in respect of input taxes or such other deductions must be
restricted on a pro-rata basis.
It may be noted that if a
dealer collects the money on behalf of the JD partner, he would be construed
to be a principal contractor and therefore the receipts can be subject to
tax under the VAT laws. In this scenario, the transfer is deemed to take
place from the JD partner to the customer and there it is possible to
contend that the dealer would not be liable to tax. The department often
chooses to take the easier route and therefore, subjects the dealer to the
levy of tax.
-
Open car parking space sold to the customer
not involving any transfer of property in goods would not be subject to tax
under the VAT laws. However, covered car parks sold to customers have been
held to be part and parcel of works contract turnovers liable to tax.
-
Collection of statutory deposits at actuals
such as water, electricity, maintenance, legal fees, etc., amounting to
reimbursements cannot be construed to be relating to transfer of property in
goods amounting to works contracts and it would therefore not be liable to
tax under the VAT laws. However, if a dealer opts to pay tax under the
composition scheme the department in some States have taken a view that such
amounts collected form part and parcel of the total consideration and would
therefore become a subject matter of levy of tax.
Conclusion
The question whether a
particular contract is a contract for sale or for work and labour is always a
difficult question. The difficulty lies not in the formulation of the test for
determining when a contract can be said to be a contract for sale or a contract
for work and labour, but in the applications of tests to the facts of a
particular case in hand. The distinctions and tests enunciated by courts in
various cases are not exhaustive and do not lay down any rigid or inflexible
rule applicable alike to all transactions. They merely focus on one or the other
aspect of the transaction and afford some guidance in deciding the question, but
basically and primarily, the decision depends upon the main object of the
parties gathered from the terms of the contract, the circumstances of the
transaction and the custom of the trade.
[Source: Paper presented at Two
Day National Tax Conference held on 13th and 14th December, 2008 at Kolkata.] |