M/S Otis Elevators Comp.(India) ... vs The Commissioner Of Commercial ...
2014 Latest Caselaw 4977 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 


 
Reserved
 
AFR
 
Court No. - 21
 

 
Case :- TRADE TAX REVISION No. - 91 of 2014
 

 
Applicant :- M/S Otis Elevators Company (India) Ltd. Ashok Marg Lucknow
 
Opposite Party :- The Commissioner Of Commercial Taxes U.P.Lucknow
 
Counsel for Applicant :- Rahul Agarwal,Vaibhav Pandey
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble B. Amit Sthalekar,J.

This revision has been filed against the order of the Commercial Tax Tribunal dated 28.07.2014.

Briefly stated the facts are that M/s Otis Elevators Company Ltd. is a Public Ltd. Company registered under the U.P. Vat Act, 2008 (hereinafter referred to as the Act, 2008) and is engaged in the business of manufacturing of parts and components of lifts and elevators in offices, residential buildings, Government buildings etc. Assessment proceedings were initiated in respect of the Company for the year 2010-11. For purposes of carrying out the orders for supplying of lifts, elevators, the Head Office of the Company situate in Mumbai executes works contract for supply of parts and components of lifts/elevators and to provide services for erection, commissioning and installation of the same. The standard works followed by the revisionist Company is that it is only after entering into an agreement with the customer, that the activity of manufacturing of parts/components of lifts/elevators is carried out by the Company at its factory situate in Karnataka. The works contract provides for procurement and supply of all the component parts whether manufactured or bought from other manufacturers or imported and stored at the revisionist's Maharashtra Warehouse and involves a series of complex engineering activities such as template, plumbing, rails, designing, fixing platform and assembling car enclosure and accessories, checking continuity of safety link circuit, removing all shorting and start up, cleaning and painting, adjustment for balancing safety etc., which is undertaken for the erection, commissioning and installation of a functional elevator which is fully integrated into the structure in question.

The short point which, therefore, arises in the present revision for consideration of the Court is whether the works contract entered into between the revisionist Company and a customer is a sale contract or a works contract. The assessing authority, Deputy Commissioner of Commercial Tax for the assessment year 2010-11 (VAT) relying upon a decision of the Supreme Court in the case of State of Andhra Pradesh Vs. Kone Elevators 2005 (9140) HTC (22) (SC) has held the works contract to be a sale contract on the ground that all the material utilized in the material and parts of a lift are assembled and kept in the godown and are transported to the site after the parties enter into a contract and it is not that the lift or its parts are manufactured after the execution of the contract. The assessing authority has therefore imposed a total demand of Rs. 5,64,76,626/-.

Aggrieved by the order of the assessing authority, the revisionist-Company filed an appeal before the Additional Commissioner (Appeals), who by his order dated 05.06.2014 has stayed the demand under the assessment order to the extent of 50% but directed the revisionist to deposit the remaining 50% amount within 30 days. The revisionist being aggrieved next filed the appeal before the Commercial Tax Tribunal and the Tribunal modified the order of the Additional Commissioner (Appeals) and granted stay to the extent of 80% of the total demand on the furnishing of security and remaining 20% was required to be deposited within 30 days.

I have heard Sri Bharat Ji Agarwal, learned Senior Counsel assisted by Sri Rahul Agarwal as well as Sri Vaibhav Pandey for the revisionist and Sri Sanjeev Shankhdhar, learned counsel for the respondents.

Sri Bharat Ji Agarwal has referred to the provision to Section 9 of the U.P. Value Added Tax Rules, 2008 which reads as follows:

"9. Determination of turnover of sale of goods involved in the execution of a works contract,-

(1) Subject to other provisions of these rules, the tax on turnover of sale of goods where such sale is affected by way of transfer of property in goods (whether as goods are in some other form) involved in the execution of a work contract shall be computed on the taxable turnover of sale of taxable goods. For the purposes of determining the taxable turnover of sale of such goods, the amounts specified below shall be deducted if included in the gross amount received or receivable in respect of the works contract:-

(a) all amounts representing the value of goods consumed in execution of works contract; in which property in goods is not transferred in the execution of the works contract;

(b) all amounts representing the value of exempt goods and amount of profit thereon;

(c) all amounts representing the rent paid or payable in respect of machinery and other equipments taken on hire for use in the execution of works contract;

(d) all amounts representing the value of service and labour and profit thereon;

(e) all amounts representing the value of goods in which property has been transferred in the execution of works contract as a result of sale in the course of inter-state trade or commerce;

(f) all amounts representing the value of goods in which property has been transferred in the execution of works contract as result of sale in the course of goods out of the territory of India or sale in the course of import of goods in the territory of India;

(g) all amounts representing the value of goods in which property has been transferred as a result of sale outside the State;"

It is submitted that under Rule 9(1) although tax on turnover of sale of goods where such sale is affected by way of transfer of property in goods involved in the execution of a work contract, same shall be computed on the taxable turnover on the same taxable goods. However, for purposes of determining the taxable turnover of sale of such goods, the amounts specified in Clauses (a) to (g) of Rule 9 (1) shall be deducted if included in the gross amount received or receivable in respect of works contract:-

From a perusal of Rule 9, it will be seen that under Clause (e) of Rule 9 (1) all amounts representing the value of goods in which property has been transferred in the execution of works contract as a result of sale in the course of inter-state trade or commerce and under Clause (f) sale in the course of import of goods into the territory of India shall be liable to be excluded. In the facts of the present case it is noticed that the Company has an office in U.P. as well as outside U.P. for which works contract was executed by the revisionist at its Head Office in Mumbai. The activity of manufacturing of parts/components of lifts/elevators is carried out by the revisionist at its factory in Karnataka and in terms of works contract executed for the said periods, the goods and parts are then sent to the customer's site for installation of lifts/elevators. The goods are received by way of stock transfer in U.P. from the office of the assessee situate outside U.P. and are used in the execution of the works contract and this transaction has resulted in the movement of goods from one state to another.

Shri Bharat Ji Agarwal, learned Senior Counsel has contended that the contract in question is a composite contract for sale and installation of lifts and labour and service are involved and manufactured goods such as lift car, motor, ropes, rails etc. are all components of the lift which is eventually installed at the site for the lift to operate in the building, and therefore, the contract is a works contract and not a contract for sale. Reliance has been placed upon a recent decision of the Constitution Bench of the Supreme Court reported in 2014 71 VST 1 (SC) Kone Elevator India Pvt. Ltd. Vs. State of Tamilnadu, which has overruled the earlier decision in the case of State of Andhra Pradesh Vs. Kone Elevator (2005) 140 STC 22 (SC). Paragraph 66 of the said judgment reads as under:

"66. Coming back to Kone Elevators (supra), it is perceivable that the three-Judge Bench has referred to the statutory provisions of the 1957 Act and thereafter referred to the decision in Hindustan Shipyard Ltd. and has further taken note of the customers' obligation to do the civil construction and the time schedule for delivery and thereafter proceeded to state about the major component facet and how the skill and labour employed for converting the main components into the end product was only incidental and arrived at the conclusion that it was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators (supra) does not correctly lay down the law and it is, accordingly, overruled."

Be that as it may, it is not necessary for this Court to enter into the merits of the matter or examine the nature of the contract as the appeal filed by the revisionist before the Additional Commissioner (Appeals) is still pending.

Next it has been submitted by the learned Senior Counsel for the revisionist that an application for stay of the order of the Dy. Commissioner (Assessing Authority) was moved before the Additional Commissioner (Appeals) which has been rejected by the order dated 5.6.2014. It is not in dispute between the parties that the appeal is still pending decision before the Appellate Authority-Additional Commissioner Grade -II, Appeal-I, Commercial Tax, Lucknow but the submission is that in view of the decision of the Constitution Bench in the case of Kone Elevator (Supra), the claim of the revisionist with regard to order of the assessing authority must necessarily be allowed and therefore, the Appellate Authority ought to have considered the stay application in this light of the matter and not rejected the same in an arbitrary and mechanical manner. Reference has been made to the Division Bench judgment of the Allahabad High Court in the case of ITC Ltd. Vs. Commissioner (Appeals) Custom and Central Excise Meerut-I 2005 (184) ELT 347 (Alld) wherein the Division Bench of this Court in paragraph 35 has held that the authorities while considering the matter for stay should apply its mind as to whether in view of the judgment the appellant is likely to succeed on merit. If the appellant, having a strong prima-facie case, is directed to deposit an amount of assessment so made or penalty so levied it would cause undue hardship to him though there may be no financial strains on the appellant running in a good financial condition. Even otherwise where two views are possible dispensation of deposit should be allowed to the assessee. Paragraph 35 of the judgment reads as under:

"35. In view of the above, the aforesaid authorities make it clear that the Court should not grant interim relief/stay of the recovery merely by asking of a party. It has to maintain a balance between the rights of an individual and the State so far as the recovery of sovereign dues is concerned. While considering the application for stay/waiver of a pre-deposit, as required under the law, the Court must apply its mind as to whether the appellant has a strong prima facie case on merit. In case it is covered by the judgment of a Court/Tribunal binding upon the Appellate Authority, it should apply its mind as to whether in view of the said judgment, the appellant is likely to succeed on merit. If an appellant having strong prima facie case, is asked to deposit the amount of assessment so made or penalty so levied, it would cause undue hardship to him, though there may be no financial restrain on the appellant running in a good financial condition. The arguments that appellant is in a position to deposit or if he succeeds in appeal, he will be entitled to get the refund, are not the considerations for deciding the application. The order of the Appellate Authority itself must show that it had applied its mind to the issue raised by the appellant and it has been considered in accordance with the law. The expression "undue hardship" has a wider connotation as it takes within its ambit the case where the assessee is asked to deposit the amount even if he is likely to exonerate from the total liability on disposal of his appeal. Dispensation of deposit should also be allowed where two view are possible. While considering the application for interim relief, the Court must examine all pros and cons involved in the case and further examine that in case recovery is not stayed, the right of appeal conferred by the legislature and refusal to exercise the discretionary power by the authority to stay/waive the pre-deposit condition, would be reduced to nugatory/illusory. Undoubtedly, the interest of the Revenue cannot be jeopardized but that does not mean that in order to protect the interest of the Revenue, the Court or authority should exercise its duty under the law to take into consideration the rights and interest of an individual. It is also clear that before any goods could be subjected to duty, it has to be established that it has been manufactured and it is marketable and to prove that it is marketable, the burden is on the Revenue and not on the manufacturer.

In (2009) 3 SCC 177 Pennar Industries Limited Versus State of Andhra Pradesh and Others the Supreme Court has explained the principles relating to grant of stay and has reiterated its earlier view taken in (2006) 13 SCC 347, Benara Valves Ltd. Versus Commissioner of Central Excise and Another which is quoted in paragraph 4 of its judgment which reads as follows:

"4. 6. Principles relating to grant of stay pending disposal of the matters before the forums concerned have been considered in several cases. It is to be noted that in such matters though discretion is available, the same has to be exercised judicially.

7. The applicable principles have been set out succinctly in Silliguri Municipality v. Amalendu Das, Samarias Trading Co. Pvt. Ltd. v. S. Samuel and CCE v. Dunlop India Ltd.

8. It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens' faith in the impartiality of public administration, interim relief can be given.

9. It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality and Dunlop India cases without analysing factual scenario involved in a particular case."

In my opinion, since the assessing authority has made the assessment relying exclusively on the earlier judgment of the Supreme Court in State of Andhra Pradesh Vs. M/S Kone Elevator, (2005) 140 STC 22 (SC) which has now been overruled by the Constitution Bench of the Supreme Court in Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu 2014 (71) VST 1 (SC), the revisionist is entitled to complete stay of the demand amount.

In this view of the matter the revision is allowed. The impugned order dated 28.7.2014 passed by the Tribunal is modified and a direction is issued to the Appellate Authority to decide the appeal of the revisionist expeditiously in accordance with law within a period of two months from the date of receipt of the certified copy of this order. Till then no recovery shall be made from the revisionist of the remaining amount of 20% of the tax for the assessment year 2010-11 in pursuance of the order of the Tribunal dated 28.7.2014.

Order Dated: 26th August, 2014.

N. Tiwari/o.k..