Bombay High Court
Painterior (India) vs The State Of Maharashtra Through ... on 25 July, 2017
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
MAHARASHTRA VAT APPEAL NO. 22 OF 2017
IN
VAT SECOND APPEAL NO. 952 OF 2014
Painterior (India),
A-1, Star Mansion,
66, Warden House Road,
Colaba, Mumbai-400 005. ....Appellant.
Vs.
The State of Maharashtra,
through Commissioner of Sales Tax,
8th Floor, Vikrikar Bhavan,
Mazgaon, Mumbai-400 012. ....Respondent.
Mr. Vinayak Patkar a/w Mr. Ishaan Patkar i/by roshni Naik for the
Appellant.
Ms. Jyoti Chavan, AGP for the Respondent-State.
CORAM : ANOOP V. MOHTA AND
SMT. ANUJA PRABHUDESSAI, JJ.
RESERVED ON : 11 JULY 2017.
PRONONUCED ON : 25 JULY 2017.
JUDGMENT (PER ANOOP V. MOHTA, J.):-
Admit. Heard finally by consent of the parties.
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2 This Appeal is filed under Section 42(3) of the
Maharashtra Value Added Tax, Act 2002 (for short, "MVAT Act"). The
following are the basic backgrounds, leading to this Appeal.
Background of the Appeal:-
3 The Appellant is a registered partnership firm registered
under the MVAT Act. The Appellant is in the business of
repairs/reconstruction of buildings. Application dated 14 June 2010,
was filed by the Appellant before the Commissioner of Sales Tax,
Maharashtra State (for short, "The Commissioner") under Section 56 of
the MVAT Act, for determination of the rate of tax applicable to a
contract for repairs of a building, as the repairs/reconstruction
contracts are covered by the expression "construction contracts", which
is used in Section 42(3) of the MVAT Act read with Notification No.
VAT.1506/CR134/Taxation/1 dated 30 November 2006. The rate of
tax applicable thereto, would be 5% as notified under the Act. The
Appellant had forwarded along with the Application to the
Commissioner such type of contract with the Sangam Bhavan
Building.
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4 The Appellant also prayed for the direction that the
determination of the Commissioner should not affect the liability of
the Appellant under the Act in respect of any sale effected prior to the
determination. The Commissioner by order dated 25 July 2014,
rejected the contention of the Appellant and made a determination
that the contract is not a "Construction Contract", thus attracting the
rate of tax at 8%. Being aggrieved by the order passed by the
Commissioner, the Appellant approached the Maharashtra Sales Tax
Tribunal (for short, "the Tribunal") in Appeal. The Tribunal by
Judgment and order dated 15 December 2016, confirmed the order
passed by the Commissioner. Hence, the Appeal.
5 Following substantial questions of law are raised.
(a) Whether a contract for repairs or reconstruction
of building is a "Construction contract" as
contemplated by Section 42(3) of the MVAT
Act?
(b) Whether the Tribunal is justified in upholding
the decision of the Commissioner of rejecting
the prayer for prospective effect?
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6 The Appellant who is a Building Contractor entered into
an agreement of construction contract for substantial repairing of the
buildings "Sarang" and "Sangam Bhavan". The dispute arose as to the
classification of the contract executed by the Appellant as
"Construction Contract". The Appellant's case is that the terms
"construction" includes "Repairs and Reconstruction". The nature of
repairs of "Sangam Bhavan" Colaba, Mumbai" were external repairs
and painting, internal structural damage, replacement of water supply
and drainage pipeline, extra items of plumbing works, extra items of
civil works, Addendum items of civil works.
The Commissioner's determination:-
7 The following question for determination was agitated
before the Commissioner of Sales Tax, Maharashtra State under
Section 56 of MVAT Act on the basis of Appellant's Application dated
12 June 2010. The question for determination was "What is the rate
of tax payable under Section-42(3) Expl. (i) Read with Notification No.
VAT-1506/CR-134/Taxation-1 dated 30-11-2006 on the sales effected by
the applicant vide Invoice No.220 dated January 01, 2013 raised on
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Sangam Bhavan C.H.S. Ltd.?
8 The Appellant submitted a bill along with the Application
for determination. It is further submitted that the "Repairs Contract"
is a "Construction Contract" as covered under Section 42 (3) Expl. (i)
with notification dated 30 November 2006. The Explanation given by
the Commissioner of Sales Tax under the erstwhile Bombay Sales Tax
Act, 1959 (Circulars dated 6 January 2000 and 31 August 1999)
clarifying that "Construction" includes "Repairs and Reconstruction".
The Judgments were cited in this support. Alternatively, it is
submitted that the order be given prospective effect (under Section
56(2). A written submission of 20 June 2014, was tendered with the
bill for an unassessed period. It is submitted that the rate of tax,
payable in the contract be restricted to 5%. The commissioner of
Sales Tax by order dated 25 July 2014, under Section 56(1) (e) and
(2) of the MVAT Act, held that-
1. The contract effected with Sangam Bhavan C.H.S. Ltd.
is a repairs contract and not covered under the
notification issued under the Explanation to section
42(3) of the Maharashtra Value Added Tax Act, 2002.
The rate of tax on the sales effected by the applicant
through invoice no. 220 dated January 01, 2013
raised on Sangam Bhavan C.H.S. Ltd. is 8%.
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2. For reasons as discussed in the body of the order, the
request for prospective effect is rejected."
The relevant provisions of MVAT Act:-
9 The Commissioner read and referred Section 42 (3) of the
MVAT Act, which reads as under:-
"Section 42(3)-
Where a dealer is liable to pay tax on the sales effected
by way of transfer of property in goods (whether as
goods or in some other form) involved in the execution
of a works contract, he may subject to such restrictions
and conditions as may be prescribed, in lieu of the
amount of tax payable by him under this Act, whether
in respect of the entire turnover of sales effected by way
of works contract or in respect of any portion of the
turnover corresponding to individual works contract,
pay lump-sum by way of composition,-
(a) equal to five per cent. of the total contract
value of the works contract in the case of a
construction contract, and
(b) eight per cent. of the total contract value of
the works contract in any other case, after
deducting from the total contract value of
the works contract, the amount payable
towards sub-contract involving goods to a
registered sub-contractor.
Explanation.-For the purposes of this sub-section,-
(i) "construction contract" shall mean construction
contract as may be notified by the State
Government in the Official Gazette, from time to
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time, and
(ii) "the amount payable towards sub-contract involving
goods" means the aggregate value of the goods on
which tax is paid and the quantum of said tax
paid by the sub-contractor or the sub-contract
value on which tax by way of composition is paid
by the sub-contractor, as the case may be.
10 The reference is also made to Notification issued under
same Section (A) and (B) which are as under:-
Notification
No VAT.1506/CR-134/Taxation-1-In exercise of the
powers conferred by clause (I) of the Explanation to
sub-section (3) of Section 42 of the Maharashtra
Value Added Tax Act, 2002 [Mah. IX of 2005], the
Government of Maharashtra hereby notifies the
following works contracts to be the 'Construction
contracts' for the purposes of the said sub-section,
namely-
(A) Contracts for construction of,-
(1) Buildings,
(2) Roads,
(3) Runways,
(4) Bridges, Railway overbridges,
(5) Dams,
(6) Tunnels,
(7) Canals,
(8) Barriages,
(9) Diversions,
(10) Rail tracks,
(11) Causeways, Subways, Spillways,
(12) Water supply schemes,
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(13) Sewerage works,
(14) Drainage,
(15) Swimming pools,
(16) Water Purfication plants and
(17) Jettys
(B) Any works contract incidental or ancillary to
the contracts mentioned in paragraph (A) above, if
such work contracts are awarded and executed
before the completion of the said contracts.
11 The trade circular No. 24T of 1999 dated 31 August 1999
based upon Section 6B of Works Contract Act, 1989 (for short, "WC
Act") was noted. The clarification is reproduced as under:-
"Hence, clarifications were being issued. In point no.4,
the following query and clarification has been given.
"4) Repairs, reconstruction and maintenance to
building etc. are construction contacts
Queries have been received as to whether the
contract of repair, reconstruction and maintenance to
buildings, roads, drainage etc. will fall under the
'Construction Contracts'.
In this regard, it is clarified that the Works
Contract of repair, reconstruction and maintenance of
buildings, dams, bridges, canals and barrage etc. will
be covered under the expression of 'Construction
Contract."
12 Section 6A of WC Act its explanation dated 1 January
2000 made the position clear that "For the purpose of this sub-section,
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the expression "construction contract" shall mean such contract as may
be notified by the State Government from time to time." The
Commissioner, however, not accepted the case by referring to the
circulars.
13 It is necessary to note that under the WC Act, referring to
Section 6A(1) a similar notification dated 8 March 2000 was in
existence, referring to the contract for construction of "building".
Similar clause (B) of notification under MVAT Act dated 30 November
2006 was in existence under Section 42(3) Explanation. The Trade
circular was in existence about the repair, reconstruction and
maintenance to buildings, dams, bridges, canals and barrages would
be covered under the expression of "Construction Contract", though it
was for the purpose of amnesty scheme. This undisputed position on
record shows the consistent stand and interpretation even of the
Department that the "Construction Contract" includes the repair and
reconstruction and maintenance of building. There is no contra
circular and/or material available placed on record in this regard. The
circulars and the practice so adopted by the Department since long,
ought not to have been overruled while rejecting the case/claim of the
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Appellant.
14 Therefore, considering the scheme and purpose of Section
42(3)(i) and notification dated 30 February 2006 under the MVAT Act,
we are of the view that the 'Works Contract' in question, would be the
'Construction Contract'. the contract for construction of buildings
includes the repairing, reconstruction and maintenance of building
etc. This is also for the reason that there is no distinguishing features
and definitions and/or intention reflected in any provisions about the
nature of buildings, whether it is new building or old building. The
word "new" or "old" so observed in the impugned order as not
specifically defined or explained anywhere, cannot be added by giving
such restrictive interpretation to the provisions and the notification in
question. The term "Building" cannot be restricted only to the new
building specifically when, as per the practice and the explanation so
given in similarly placed provisions under the WC Act and the
notification explaining the term so referred above. Inspite of the
earlier provisions and the interpretation so given, there is no reason to
overlook the same specifically when, there is no further clarification
and/or provisions brought on record to supersede and/or take away
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the clarification so issued by the Commissioner at the relevant time.
The repairing and/or reconstruction, if part of Construction Contract,
which in normal parlance and/or understanding, cannot be read to
mean that the construction contract refers under these provisions only
for the new building. It is unacceptable and there is no rational
and/or justification for want of specific provisions of such
interpretation.
15 Clause B of the notification makes the position clear that
any works contract incidental or ancillary to the contracts mentioned
in paragraph (A) i.e. for the purposed of contracts for "Construction of
Building", if such Works Contracts are also awarded and executed
before the completion of the main contract, falls within the ambit of
Section 42(3) clause (i) of the MVAT Act for all the purposes.
16 The basic requirement that such incidental or ancillary
contract must be awarded and/or proceeded and/or completed along
with the construction of building. In the present case, as the repairs
and reconstruction falls within the ambit of 'Construction Contract', in
incidental or ancillary contract so awarded before the completion of
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the contract, it also falls within the ambit of these provisions for all
the purposes. Therefore, the repair and the reconstruction of the
buildings includes such incidental or ancillary work. Such related and
ancillary work needs to be given an equal treatment.
17 The identical notification under the erstwhile Bombay
Sales Tax Act, 1959, dated 8 March 2000 and further
notification/circular under the extension of minutes 1998, dated 6
January 2000 under the WC Act giving consistent explanation that
Works Contract of repairs and reconstruction and maintenance of the
building etc. shall be covered under the explanation of expression of
"contract" in our view, make the interpretation, which is in support of
the consistent intention of the statute. The interpretation so put in by
the Authorities, in our view, therefore, is wrong and contrary to the
law.
18 The two notifications and interpretations so given, was in
existence since long. Merely because there is no fresh notification
and/or explanation issued under the Act, that itself cannot be the
reason to overlook the same with observation that, as there is no
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afresh explanation given under the Act. Those earlier notifications
ought to have been read to interpret similar and same identical
notification and the term. We are not accepting the case of the
Tribunal in this regard. The Tribunal is bound by the notifications so
issued, specifically when those notifications are referring to the
identical situation and granting benefits to the Works Contract of
repair, reconstruction and maintenance of building. As legally and
even otherwise also, it is difficult to dissect and reflect the
"Construction Contract" only for stating "new building" and not
applicable to the "old building".
19 The concept "Works Contract" is defined and explained
under Articles 286 (1), (2) and (3) and 366(29-A) of the Constitution
of India and further elaborated in Builders Association of India and
Ors. Vs. Union of India & Ors. 1. Therefore, the contract in question of
repairing or reconstruction, falls within the ambit of "Construction
contract" of building. All ingredients of works contract of repair and
reconstruction are applicable. Therefore, there is no reason to not to
grant the benefits to the Appellant and/or such similarly placed
1 [1989] 73 STC 370 (SC)
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persons, of Section 42(3) (A), as the Works Contract is in case of
Construction Contract.
20 We are inclined to observe that, in absence of any specific
contra notifications, we are of the view that the Appellant has made
out a case to interpret the provisions in favour of assessee-Appellant.
The statute, its object and background of provisions, required to be
kept in mind and so also the notification/circulars/explanation given
by the Authorities are in existence since long. The Appellant
themselves also, in the background that based upon the then existing
interpretation and the long existing practice, has collected VAT only at
5%. Therefore, the demand so raised and/or denying the claim is
unsustainable.
21 The ratio of the Judgment so referred in M/s. Bansal Wire
Industries Ltd. & Anr. Vs. State of U. P. & Ors. dated 26 April 2011, (SLP
(C) No. 21999 of 2010) was not properly extended. On the contrary,
this supports the case of the Appellant that-
"It is as settled principle of law that the words
used in the section, rule or notification should
not be rendered redundant and should be given
effect to. It is also one of the cardinal principles
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of any statute that same meaning must be given
to the words used in the section or notification."
(2) In the case of Union of India v/s Hansoli Devi
reported in (2002) 7 SCC 273 wherein Hon'ble
Supreme Court held that-
"It is a cardinal principle of construction of a
statute that when the language of the statute is
plain and unambiguous, the court must give
effect to the words used in the statute. Besides, in
a taxing Act one has to look merely at what is
clearly said and there is no room for any
intendment. In a taxing statute nothing is to be
read in, nothing is to be implied, one can only
look fairly at the language used." (emphasis
supplied).
22 The Judgments, so cited by the learned Counsel appearing
for the Respondent in support of the Department, are also of no
assistance as the position of law, with regard to the interpretation of
fiscal statute and/or interpretation of law, needs no discussion, as it is
settled. The insistence on the word "family" is also of no assistance, in
view of the reasons so recorded above and in view of the erstwhile
provisions of law and the interpretation so given by the Department
for more than 15 years whereby, the "Construction Contract" of
building includes its repair, reconstruction and maintenance. The
Division Bench of this Court vide order dated 6 May 2016 in Sales Tax
Reference No. 55 of 2014 in the case of M/s. Permasteelisa (India) Pvt.
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Ltd. Vs. State of Maharashtra & Ors. is also of no assistance, though
reference to the same notification, as that was not contract for
construction of building, but it was construction of Glass Walls.
23 The concept and its utility of works contract is settled by
Supreme Court in the case of Kone Elevator India Private Limited vs.
State of Tamil Nadu reported in 2014 (7) SCC 1.
62. ......
"5. ....... Therefore, 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 the custom of the trade provide a
guide in deciding whether 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
transaction. No definite rule can be formulated to determine
the question as to whether a particular given contract is a
contract for sale of goods or is a works contract. Ultimately, the
terms of a given contract would be determinative of the nature
of the transaction, whether it is a "sale" or a "works contract".
Therefore, this question has to be ascertained on facts of each
case, on proper construction of terms and conditions of the
contract between the parties."
24 In the construction of Industrial building/real estate, the
term "construction" itself means construction, alteration or repair of
building structures or other real property. This includes, but not
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limited to improvements of all types such as bridges, dams, plants,
highway-street, railway, airport, canals, channels. Above meaning has
been recognized in practice and explained under the related law, since
long. There is no specific artificial definition brought in force by this
Act/notification. Therefore, above meaning, in our view, still hold the
field. Therefore, the law needs to be interpreted accordingly.
25 We are not concerned with the manufacture, production,
construction or assembling of vessels, aircrafts or such kind of
personal property. We are also not concerned with the sale of goods
or manufacture or production of goods or service, separately. We are
concerned with the construction of building, which falls within the
concept "Works Contract" of repair/alteration of building.
26 The building and other related items so added in the
definition, itself make the position clear that any construction of
building if repairs or alters from 2006, it will liable to 5% tax and not
8%. Therefore, not granting benefit of 5% tax to the Appellant is
contrary to law. This tax is applicable to repairing or re-alteration to
the old building, bridge and road also.
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27 In the present case, the terms "Works Contract" of repair
and reconstruction and "Contract of Construction" of building, include
repairs and reconstruction, have been in existence for more than 15
years. There is no contra material to dislodge the same. Therefore,
the impugned order so passed, requires interference. The question so
raised are answered positive accordingly.
28 Hence, the following order.
ORDER
a) The Appeal is allowed.
b) Question No.1 is answered in Positive in favour of the
Appellant.
c) Question No. 2 is answered in the negative against the
Respondent.
d) There shall be no order as to costs.
The parties to act on the basis of an authenticated copy of
this order.
(ANUJA PRABHUDESSAI, J.) (ANOOP V. MOHTA, J.)
