Narsiram Dularam Kularia vs Deputy Commissioner
2022 Latest Caselaw 2002 Cal

                                                       W.P.T.T. No. 5 of 2020


        IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
              CONSTITUTIONAL WRIT JURISDICTION

                          APPELLATE SIDE


                     RESERVED ON: 22.03.2022
                     DELIVERED ON: 18.04.2022



                             CORAM:

           THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM

                                AND

     THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA




                     W.P.T.T. NO. 05 OF 2020


                  NARSIRAM DULARAM KULARIA
                             VERSUS
  DEPUTY COMMISSIONER., CENTRAL AUDIT UNIT-II, SALT LAKE &
                               ORS.




Appearance:-
Mr. Vinay Shraff
Mr. Himangshu Kumar Ray
Ms. Priya Sarah Paul
                                               .......For the Petitioners



Mr. Anirban Ray, Learned Government Pleader.
Mr. T.M. Siddiqui
Mr. N. Chatterjee
                                      ......For the State Respondents


                             Page 1 of 19
                                                 W.P.T.T. No. 5 of 2020


                        JUDGMENT

(Judgment of the Court was delivered by T.S.SIVAGNANAM, J.)

TABLE OF CONTENTS

S. TOPIC PARAGRAPHS

NO.

                    Officer



                   Tribunal



                   Tribunal



                   petitioner





7.         Discussion and Decision                 7-9





                                                                   W.P.T.T. No. 5 of 2020

1. The petitioner is a registered dealer under the provisions of the West

Bengal Value Added Tax Act, 2003 (the 'Act'), engaged in the business as

reseller of furniture. The petitioner challenges the order passed by the

learned West Bengal Taxation Tribunal (the 'Tribunal') in R.N. No. 1155 of

2018 dated 20.02.2020 and R.N. No. 1034 of 2019 dated 20.12.2017. The

challenge to the order of the learned Tribunal is not in its entirety but only

with regard to the finding of the Tribunal that the contract which was

entered into by the petitioner with Tata Consultancy Services Ltd. (TCS) to

be a works contract and liable for tax under the provisions of the Act. The

petitioner also challenges the order of the learned Tribunal dated

20.02.2020 to the extent it is held that the works contract is zero rated

under Section 21 A of the Act. The learned Tribunal had interpreted the

nature of contract entered by the petitioner with TCS to be two separate

contracts and should be considered according to the nature and purpose for

which they have been entered into. This finding of the learned Tribunal has

not been challenged by the petitioner. The petitioner also challenges the

order passed by the learned Tribunal in a review application in R.W. 02 of

2020 to the extent that it holds if any agreement satisfies any condition of

Section 2(57) of the Act, it should be termed as "works contract" even if

there is payment towards labour charges as also the finding of the learned

Tribunal that no grounds are made out to review the order passed by it. The

facts which are necessary and relevant for disposal of the writ petition are as

hereunder:

W.P.T.T. No. 5 of 2020

2. The case of the petitioner was selected by the Commissioner of

Commercial Taxes under Section 46 read with Section 66 of the Act for the

period 01.04.2016 to 31.03.2017 as the authority thought it fit and proper

to assess the petitioner for the reason that Input Tax Credit (ITC) in excess

of Rs. 5,00,000/- has been carried forward to the next financial year. The

final assessment order was passed on 26.06.2019. The assessing officer

after considering the nature of the business of the petitioner, proceeded to

examine the contracts entered into by the petitioner with TCS. The

assessing officer pointed out that the petitioner had received a purchase

order dated 16.09.2013 from TCS to supply material for interior and related

allied works at their establishment in Rajarhat, Kolkata and had examined

all terms and conditions specified in the order and also the invoices. The

Assessing Officer held that the order is actually a work order instead of a

purchase order based on which the petitioner has raised three invoices,

however, the petitioner failed to produce the prescribed form under Rule 26

O to certify that the taxable goods purchased from the petitioner have been

used/ are intended to be used in the development of the Special Economic

Zone (SEZ). The petitioner contended that the transactions with TCS are

zero rated under Section 21 A read with Clause 4 in Schedule AA of the Act

which states that sale by a dealer to a dealer located in SEZs and in terms of

Section 21 A of the Act sale of goods between persons, whether dealer or not

or organizations as specified in Column (2) of Schedule AA shall be zero

rated as defined in Section 2(59) of the Act. The Assessing Officer held that if

the transactions between the petitioner and TCS are "sale", it will be zero

rated and exemption tax. However, if it is a works contract, the transaction

W.P.T.T. No. 5 of 2020

is taxable under Section 14 of the Act. The Assessing Officer held that the

petitioner has done works contract in the SEZs and the same cannot be

treated as "zero rated". Accordingly, the entire transaction was treated as

works contract and tax liability was computed.

3. The petitioner filed an application under Section 8 of the West Bengal

Taxation Tribunal Act before the West Bengal Taxation Tribunal (learned

"Tribunal") in R.N. 1155 of 2018 challenging the order dated 18.06.2018

which in fact, is the findings recorded by the officer prior to passing the final

assessment order dated 26.06.2019. The petitioner filed R.N. No. 1034 of

2018 before the learned Tribunal challenging the final assessment order

dated 26.06.2019 and also to declare the works contract to be zero rated

under Section 21 of the Act. The learned Tribunal framed the following

points for consideration which are as follows:

1) Whether the works contract, as defined in Section 2(57) and levied tax by section 14 of the West Bengal VAT Act comes under the sale simpliciter on the analogy that works contract is a deemed sale.

2) Whether the consideration money of works order or simply works contract is exempted from tax in view of section 21 A of West Bengal VAT Act and schedule AA.

3) Whether those respective purchase orders and works order be taken as a sale or as a work order or the both orders should be dealt separately subject-wise, as mentioned in the subject column of those respective orders.

4) Whether the findings of respondent No. 1 of both the applications and the orders under challenge are tenable and substantial in law or whether it requires intervention from this Tribunal.

W.P.T.T. No. 5 of 2020

4. The point Nos. 1 and 2 were answered against the petitioner and point

Nos. 3 and 4 were considered and directions were issued by partly allowing

the appeals filed by the petitioner, setting aside the orders dated 18.06.2018

and 26.06.2019 and remanding the matter to the Assessing Officer with

direction to assess the tax liability in light with the discussion in body of the

order passed by the learned Tribunal after affording sufficient opportunity to

produce documents and give a fresh hearing to the petitioner without being

influenced by any finding recorded by the learned Tribunal. The petitioner

filed review case No. R.W. 2 of 2020 before the learned Tribunal contending

that a pure labour contract is not liable for taxation under the Act and,

therefore, the decision of the Learned Tribunal has to be reviewed. By order

dated 14.10.2020, this review application was dismissed on the ground that

there was no mistake which is apparent on the face of the order apart from

rendering findings confirming the main order. Challenging these orders of

the learned Tribunal, the petitioner is before us by way of this writ petition,

praying for the reliefs as aforementioned.

5. Mr. Shraff, learned Advocate for the petitioner submitted that an

installation contract without transfer of property in goods is not exigible to

tax under the provisions of the Act as a works contract. It is submitted that

the installation contract entered into by the petitioner with TCS, is a

contract without transfer of property in goods and cannot fall within the

purview of works contract liable to tax even if it satisfies any of the

conditions in Section 2(57) of the Act. Referring to Article 366 (29A) of the

Constitution, it is submitted that in terms of Clause B in the said Article,

there must be transfer of property in goods involved in the execution of the

W.P.T.T. No. 5 of 2020

works contract to levy tax and this provision was inserted by the 46th

Amendment to the Constitution to overcome the decision of the Hon'ble

Supreme Court in State of Madras Versus Gannon Dunkerley & Co.

(Madras) Ltd.1, which had held that composite contracts are not exigible to

sales tax.

5.1 It is submitted that the Act provides for levy of tax on sale of goods in

West Bengal and tax cannot be levied under the Act on an installation

contract without transfer of property. Referring to Section 14(1) of the Act, it

is submitted that the said provision provides that any transfer of property in

goods involved in the execution of a works contract in the State of West

Bengal, shall be deemed to be a sale of those goods by the person making

the transfer and a purchase of those goods by the person to whom such

transfer is made. The provision makes it abundantly clear that there must

be transfer of property in goods in the execution of works contract to levy

tax even if it satisfies any of the conditions in Section 2(57) of the Act.

Reliance was placed on the decision of the Hon'ble Supreme Court in

Larsen and Toubro Ltd. And Another Versus State of Karnataka and

Another 2, wherein it was held that for sustaining the levy of tax on goods

deem to have been sold in execution of a works contract, three conditions

must be fulfilled, namely,

i) There must be a contract;

ii) The goods should have been involved in the execution of a works contract and

iii) The property in those goods must be transferred to a third party either as goods or in some other form.

AIR 1958 SC 560

(2014) 1 SCC 708

W.P.T.T. No. 5 of 2020

5.2 It is submitted that if the interpretation of the authority is to be

accepted and the contract is to be treated as works contract then the

petitioner is entitled to treat the transaction as zero rated transaction under

Section 21 A of the Act. The learned Advocate referred to Section 2(39) of the

Act which defines "sale", and moved on to place the definition of "works

contract" under Section 2(57) of the Act and submitted that the said

provision should be read along with Section 14 and Section 18 of the Act

and if all the provisions are conjointly read, it will show that a transaction of

works contract will fall within the purview of the definition of sale as it is not

included in the illustrative list of the inclusive part of the definition of "sale"

as the inclusive part cannot override the main part of the definition of "sale".

5.3 It is submitted that there is a separate charging section for works

contract merely for the purpose of determination of the value of labour in

the composite contract of supply of material and labour and any tax benefit

which is available to a transaction of sale of goods, should also be available

to a transaction of works contract.

5.4 It is further submitted that for the purposes of taxation a deemed sale

cannot be justified from an ordinary sale. In support of such contention,

reliance was placed on the decision of the High Court of Andhra Pradesh in

ITC Classic finance and Services Versus Commissioner of Commercial

Taxes 3, which decision was affirmed by the Hon'ble Supreme Court in the

decision reported in 119 STC 182.

(1995) 97 STC 330 (A.P.)

W.P.T.T. No. 5 of 2020

5.5 Further, it is submitted that the department is not justified in unduly

restricting the scope of a beneficial provision and this should be avoided. In

this regard, reliance was placed on the decision of the Hon'ble Supreme

Court in Union of India Versus Suksha International and Nutan Gems

& Anr. 4.

5.6 It is submitted that when two interpretations are possible, the

interpretation in favour of the tax payer should be adopted and in support of

such contention reliance was placed on the decision of the Hon'ble Supreme

Court in Sneh Enterprises Versus Commr. of Customs 5, and

Commissioner of Income Tax, West Bengal II, Calcutta Versus Naga

Hills Tea Co. Ltd.6 Therefore, it is submitted that works contract is also a

zero rated transaction under Order 21 A of the Act.

6. Mr. Anirban Ray, learned Government Pleader assisted by Mr. T.M.

Siddiqui appearing for the respondent State referred to Section 2(39) of the

Act which defines "sale" and points out that the ingredients of sale are (i)

transfer of property in goods, (ii) in lieu of valuable consideration and (iii) the

categories referred to in Clauses (a) to (e) in Section 2(39).

6.1 It is submitted that the definition section proceeds to state that such

transfer, delivery or supply of any goods shall be deemed to be sale of those

goods. By use of the word "deemed" of a legal fiction is created in Section

2(39) of the Act and is relatable to the five categories mentioned in Clauses

(a) to (e) in Section 2(39). It is submitted that if the definition of "sale" as

defined under Section 2(39) is compared with the definition of "works

1989 (39) ELT 503(SC)

(2006) 7 SCC 714

AIR 1973 SC 2524

W.P.T.T. No. 5 of 2020

contract" under Section 2(57), it is seen that there is no such deeming

provision.

6.2 It is submitted that Section 14 of the Act commences with a non-

obstante clause and states that transfer of property in goods involved in the

execution of works contract shall be deemed to be a sale. Therefore, the

deeming provision creates a legal fiction and in construing the scope of such

fiction, it is proper and necessary to assume all those facts on which alone

fiction can operate and for this purpose, the limits within which and the

purpose for which the legislature has created a legal fiction is to be

determined. Further it is submitted that by insertion of Clause 29 A in

Article 366 of the Constitution, a legal fiction has been created and even

while doing so, it was not declared the contract to be "sale" but only for the

purpose of levying tax, works contract was included.

6.3 It is further submitted that Section 2(39) of the Act merely defines sale

and five categories have been enumerated in Clauses (a) to (e) which are

deemed to be sale of goods and this inclusive definition and deeming

provision are used to denote that the transactions mentioned in Clauses (a)

to (e) fictionally come within the definition of a simple sale and accordingly

those transactions are to be treated on par with "simple sale" as defined in

the first part of Section 2(39).

6.4 It is reiterated that the deeming provision has intentionally not been

used in Section 2 (57) of the Act and in Section 14(1) transfer of property in

goods involved in the execution of works contract shall be deemed to be sale

of those goods. The deeming provision contained in Section 14(1) is only to

bring the transaction exigible to tax. In the instant case, there is no dispute

W.P.T.T. No. 5 of 2020

that the purchaser of the goods and the first party of the works contract are

identical and they fall within the definition in Section 2(39) of the Act.

6.5 It is submitted that Section 21A of the Act commences with a non-

obstante clause and states that notwithstanding anything contained in

Section 16 or 16A, sale of goods between persons, whether dealer or not or

organizations as specified in column 2 Schedule AA shall be zero rated as

defined in Section 2(59) of the Act. It is submitted that in all the three

places, there is no indication that the word "sale" used therein to include a

"deemed sale" which is enumerated in Section 14 or it covers Section 2(58)

of the Act.

6.6 Further it is submitted that the non-obstante clause in Section 21 A is

only with regard to Section 16 and 16 A of the Act which are charging

sections with regard to the levy of tax on sales and levy of tax on sales by

casual dealers respectively. On the other hand, with regard to the works

contract the charging section relatable to Section 2(57) and Section 14 is

Section 18 which deals with levy of tax on taxable contractual transfer price.

6.7 It is submitted that when the transaction is a works contract, the

question of extending the exemption as mentioned in Section 21 A does not

arise as to be entitled to the benefit it must be a simple "sale" or a "deemed

sale" as defined under Section 2(39) of the Act. Reliance was placed on the

decision of the Hon'ble Supreme Court in Commissioner of Customs

(Import), Mumbai Versus Dilip Kumar & Company & Ors.7, for the

proposition that any exemption or incentive or concession extended in a

taxation statute should be strictly construed and if there is any ambiguity,

(2018) 9 SCC

W.P.T.T. No. 5 of 2020

the interpretation should be in favour of the revenue. Reliance was placed

on the decision in Larsen and Toubro Limited to explain the scope of the

46th Amendment to the Constitution.

7. We have elaborately heard the Learned Advocate for the parties and

carefully perused the materials placed on record.

7.1 The entire case of the petitioner rests upon the interpretation of the

various provisions of the Act. To put the case of the petitioner in simple

terms is that the nature of transaction done by the petitioner was held to be

a works contract and deemed to be a sale. If the works contract is deemed to

be a sale, then it should fall within the definition of sale as defined under

Section 2(39) of the Act and if it is held to be a sale, the same having been

affected to SEZs, has to be treated as zero rated in terms of Section 21 A of

the Act as the nature of activity done by the petitioner under the said

contract falls within Serial No. 04 in Schedule AA to the Act.

7.2 The petitioner's further case is that the installation contract is a

contract which does not involve any supply of material and even if it is to be

treated as a works contract under Section 2(57) of the Act, the transaction is

not exigible to tax as it is purely a labour contract. Though elaborate

submissions were made by Mr. Shraff with regard to the effect of the 46th

Amendment to the Constitution of India and object of insertion of Clause

29A in Article 366 of the Constitution, in our considered view we need not

travel thus far as we are required to interpret a few provisions of the Act to

arrive at a decision.

W.P.T.T. No. 5 of 2020

7.3 The West Bengal Value Added Tax Act is an Act to levy tax on sale of

goods in West Bengal on the basis of value added to such goods at each

stage of sale of such goods and on purchases of certain goods in West

Bengal in specified circumstances and to provide for matters connected

therein or incidental thereto. Dealer has been defined under Section 2(11) to

mean a person who carries on business of selling or purchasing of goods in

West Bengal or any person making sales under Section 14 of the Act. It is

not in dispute that the petitioner is a registered dealer under the provisions

of the Act. Section 2(39) defines "sale" to mean any transfer of property in

goods for cash, deferred payment or other valuable consideration, and

includes 5 categories of transactions which are enumerated in Clauses (a) to

(e) in the said definition and such transfer, delivery or supply of any goods,

shall be deemed to be sale of those goods by the person making the transfer,

delivery, or supply and the purchase of those goods by the person to whom

such transfer, delivery or supply is made, but does not include a mortgage,

hypothecation, charge or pledge.

7.4 Section 2(57) defines "works contract" to mean any agreement for

carrying out for cash, deferred payment or other valuable consideration. The

contract entered into by the petitioner with TCS is brought under Clause (d)

of Section 2(57). Section 2(59) of the Act defines "zero rated sale" to mean a

sale of any goods on which no tax is chargeable but credit for Input Tax

related to that sale is admissible. Section 14 deals with liability to pay tax on

transfer of property in goods involved in the execution of works contract.

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Sub-Section (1) of Section 14 commences with a non-obstante clause and

states that notwithstanding anything contained elsewhere in the Act, any

transfer of property in goods, involved in the execution of works contract in

West Bengal shall be deemed to be a sale of those goods by the person

making the transfer and a purchase of those goods by the person to whom

such transfer is made. Section 15 deals with liability of a casual dealer to

pay tax. Section 16 deals with levy of tax on sales and Section 16 A deals

with levy of tax on sales by casual dealer and Section 17 deals with levy of

tax on turnover of purchases and Section 17 A deals with levy of tax on

purchases by casual dealers. Section 18 deals with levy of tax on taxable

contractual transfer price and these are all the charging sections in respect

of the sales referred therein.

7.5 Section 21A deals with zero rated transaction. Sub-Section (1) states

that notwithstanding anything contained in Section 16 or 16 A (charging

sections), sale of goods between person whether dealer or not or

organization as specified in Column 2 of Schedule AA shall be zero rated as

defined under Section 2(59). Schedule AA lists out 4 categories of sales of

goods, which shall be zero rated. The petitioner seeks to bring his

transaction under Serial No. 04 of Schedule AA. The petitioner's case largely

rests upon the definition of "sale" as defined under Section 2(39) of the Act.

For easy reference the relevant portion of the provision is quoted hereunder:

Section 2(39)

"Sale" means any transfer of property in goods for cash, deferred payment or other valuable consideration, and includes:-

W.P.T.T. No. 5 of 2020

(a) Any transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration,

(b) Any delivery of goods on hire-purchase or any system of payment by installments,

(c) Any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration,

(d) Any supply, by way of, or as part of, any service or in any other manner whatsoever, of goods, being food or nay other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration,

(e) Any supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration,

Any such transfer, delivery, or supply of any goods shall be deemed to be a sale of those good by the person or unincorporated association or body of person making the transfer, delivery or supply and a purchase of those good by the person to whom such transfer, delivery, or supply is made, but does not include a mortgage, hypothecation, charge or pledge.

7.6 On a plain reading of the above provisions shows, that "a sale" under

the provisions of the Act would mean any transfer of property of goods for

cash, deferred payment or other valuable consideration. We are not expected

to add, substitute or delete any words from the statutory provision. Thus,

W.P.T.T. No. 5 of 2020

reading the provision as such will clearly show "a sale" as defined under

Section 2(39) is a sale "simpliciter". The petitioner's case is that the

definition of "sale" is an inclusive definition and a works contract is deemed

to be sale and would also fall within the definition of sale and the definition

should not be restricted. This argument is by relying on the decision in the

case of Larsen and Toubro which explains object of insertion of Clause 39A

in Article 366 of the Constitution.

7.7 Thus, we have to consider as to whether by including Clauses (a) to (e)

in Section 2(39) the provision becomes inclusive and wide interpretation has

to be given and a "deemed sale" also should be treated as a "sale" under

Section 2(39) and by doing so if the deemed sale is effected in SEZs should it

be treated as "zero rated".

7.8 It may be true that Section 2(39) uses the expression "includes". But

what has been brought within the inclusive definition of sales or the types of

transactions enumerated in Clauses (a) to (e) above. This becomes clear on

reading the provision further i.e. after Clause (e) which uses the words "and

such". By use of the words "and such" would mean that such of the

transfers, delivery of goods, transfer of right to use goods, supply or service

or supply of goods, as mentioned in Clauses (a) to (e) alone can be treated to

be the inclusive part of the definition of "sale" as defined under Section 2(39)

of the Act. It is those 5 categories of transactions having been held to be

deemed to be a sale and therefore, the question of giving an expansive

W.P.T.T. No. 5 of 2020

meaning to the definition of "sale" merely because the word "deemed" is

used is an incorrect manner of interpretation of the provision.

7.9 We have pointed out about the definition of "works contract" as

defined under Section 2(57) and definition of "zero rated" sale as defined

under Section 2(59) of the Act. The liability to pay tax in respect of a works

contact is under Section 14 of the Act and Sub-Section (1) of Section 14

commences with a non-obstante clause stating that notwithstanding

anything contained elsewhere in the Act, any transfer of property in goods

whether as goods or in some other form involved in the execution of works

contract in West Bengal shall be deemed to be a sale of those goods by the

person making a transfer and the purchaser of those goods by the person to

whom such transfer is made. Sub-Section (2) of Section 14 makes the dealer

liable to pay tax under Section 15 of the Act which is a liability of a casual

dealer to pay tax whereas the charging section for a sale "simpliciter" as

defined under Section 2(39) are Section 16 and 16A of the Act. One more

important aspect is that in Section 2(59) defines zero rated sale and Section

21A deals with zero rated sales and in Schedule AA which categories of sales

of goods which are to be treated as "zero rated". There is a conspicuous

omission to include "deemed sale" which is found in Section 14 of the Act.

Therefore, the benefit of the transaction to be treated as zero rated is

mandatorily required to be a sale "simpliciter" to fall within the five

categories enumerated in the definition of "sale" as defined under Section

2(39) of the Act.

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7.10 If the interpretation of Mr. Shraff is to be accepted, we would be

adding words to Section 2 (39) which is impermissible. Therefore, the

contention that even if a transaction would fall within the definition of

Section 2(57) and held to be a works contract yet it should be construed to

be a sale is an interpretation which is impermissible. The purpose of

bringing transaction which are works contract exigible to tax the deeming

provision was inserted. A deemed sale cannot be interpreted to be a sale

"simpliciter" unless the definition of "sale" in that particular statute provides

for. Therefore, to contend that merely because a deemed sale is not included

in the illustrative list it cannot be taken out of the purview of the definition

of "sale" is an argument which is unacceptable.

7.11 We have assigned reasons as to how Clauses (a) to (e) in Section 2(39)

has to be read and merely because the word "includes" has been used in

Section 2(39) it does not become an inclusive definition to be given widest

meaning but the inclusive definition has to be given a restricted meaning by

restricting it to the categories of transactions in Clauses (a) to (e) as such.

Thus, the argument that the beneficial provision has not been extended to

the petitioner is unacceptable and the decision in the case of ITC Classic

Finance is clearly distinguishable on facts and there is no hyper-technical

interpretation adopted by the respondent and the respondent department

and the findings of the tribunal on Point Nos. 1 and 2 which are framed for

consideration is sustainable.

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8. For all the above reasons, the petitioner has not been made out any

grounds to interfere with the order of the tribunal.

9. In the result the writ petition fails and is dismissed. No costs.

(T.S. SIVAGNANAM, J.)

I agree

(HIRANMAY BHATTACHARYYA, J.)

(P.A.- PRAMITA/SACHIN)