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Judgment
Hon''ble Sri. Justice Ramesh Ranganathan
In TREVC No.233 of 2010 and batch, and W.P.No. 13287 of 2006 and batch, filed either by the asessees or the State, the scope and ambit of Rule 6(3)(i) of the Andhra Pradesh General Sales Tax Rules, 1957 (APGST Rules) arises for consideration. When these cases were listed before a Division Bench it was also contended that the revisional proceedings initiated by the Jurisdictional Deputy Commissioner, u/s 20(2) of the APGST Act, 1957 (for short the "Act"), was barred in view of Section 20(2A) of the Act as the issue had already been decided in State of Andhra Pradesh v. Navayuga Engineering Company Limited, Visakhapatnam (2007) 45 STC 1 . The Division Bench, after noticing the judgment of the Supreme Court in Gannon Dunkerley and Co. and Others Vs. State of Rajasthan and Others, and of this Court in Media Communications v. Government of Andhra Pradesh, was of the opinion that these cases involve an important question as to the interpretation of Section 5-F of the Act read with Rules 6(2) and 6(3)(i) of the Rules; the question was a recurring one in view of the amendments made to the Parent Act, as well as to the Rules, after the decision in Gannon Dunkerley; and, in order to give a quietus to the recurring issue, the same should be decided by a Larger Bench. Thereafter, on the orders of the Hon''ble the Chief Justice, these matters have been listed before us.
It would suffice, to answer the reference, if the. facts in TREVC No.233 of 2010 are noted. The petitioner, a registered dealer under the Act on the rolls of the Commercial Tax Officer, Khairatabad Circle, Hyderabad, is engaged in the execution of works contracts. From the gross receipts of Rs. 12.93 crores, for the assessment year 2001-02, the petitioner claimed exemption from tax on a turnover of Rs. 12.08 Crores and the remaining turnover of Rs.84,84,688/- was admitted as the taxable turnover liable to tax u/s 5-F of the Act. The Commercial Tax Officer passed assessment order dated 24.3.2004 exempting the turnover of Rs. 12.08 Crores as expenditure incurred in the execution of the works, and assessed the balance turnover of Rs.84,84,688/- to tax. On his understanding of Rule 6(3)(i) of the Rules, the Commercial Tax Officer levied tax only on the price, of the goods purchased for execution of the works. The purchase cost of cement, sand, asphalt excluding cost of steel etc were subjected to tax as forming part of the turnover of Rs.84.84 lakhs.
The Deputy Commissioner (CT), Punjagutta Division, in the exercise of his power u/s 20(2) of the Act, issued notice dated 18.3.2005 proposing to revise the order of the Commercial Tax Officer. The Dy. Commissioner (CT) was of the view that the petitioner was entitled for deduction under Rule 6(2) in a sum of Rs.6.71 Crores only, and the remaining turnover of Rs.6.21 Crores was liable to tax under the Act. The petitioner filed their objections thereto. The Deputy Commissioner passed order dated 19.12.2008 confirming the levy. Aggrieved thereby the petitioner filed an appeal before the Sales Tax Appellate Tribunal (STAT) contending that the works executed by them were spread over a period of more than one year; the taxable turnover could not, therefore, be computed u/s 6(2) as it was Rule 6(3) (i) which was applicable; and adoption of the theory of value of the material at the time of incorporation by the Deputy Commissioner was untenable. The STAT, in its order dated 29.1.2010, held that the petitioner''s assessment was completed under Rule 6(3) (i) based on the purchase value of the goods used in the execution of the works contract; there was a difference between "purchase value" and "purchase price"; since the expression used in Rule 6(3)(i) is "purchase value", the judgment of the Supreme Court in Gannon Dunkerley required the value of the goods at the time of incorporation to be assessed, and not the cost of purchase of goods; the method of calculating the purchase value was erroneous; the revisional authority had taken the total value of the contract, and had deducted the cost of labour and services therefrom; and this had resulted in expenses, which did not form part of the purchase value, being included. Consequently the matter was remanded to the Commercial Tax Officer who was directed to verify the books of accounts and ascertain the purchase value, of the goods. The STAT held that, if the same was not ascertainable, Rule 6(3)(ii) of the Rules should be applied. Aggrieved thereby the assessee-dealer has preferred a Revision to this Court.
Heard Sri S. Dwarakanath, Sri V. Bhaskar Reddy, Sri P. Girish Kumar, and Sri Shaik Jeelani Basha, Learned Counsel appearing on behalf of the assessees and Sri A.V. Krishna Kaundinya, Learned Special Standing Counsel for Commercial Taxes, appearing on behalf of the Revenue. Written arguments were also submitted on behalf of the assessees; In support of their submissions, Learned Counsel for the assessees relied on Media Communications; State of A. P. v. Navayuga Engineering Company Ltd.; Navayuga Engineering Company Ltd v. State of A.P. (2007) 45 APSTJ 2 ; Shanker Raju Vs. Union of India (UOI), ; M/s. Birla Cement Works Vs. The Central Board of Direct Taxes and Others, ; Mishrilal (dead) by Mishri Lal (Dead) By Lrs. Vs. Dhirendra Nath (Dead) By Lrs. and Others, ; Mahesh Kumar Saharia Vs. State of Nagaland and Others, ; Sneh Enterprises Vs. Commnr. of Customs, New Delhi, ; and Charu Chandra Kundu Vs. Gurupada Ghosh, .
Before examining the rival contentions on the scope and amplitude of Rule 6(3)(i) of the APGST Rules, 1957, it is necessary to note the relevant constitutional and statutory provisions. Article 246(3) of the Constitution of India confers exclusive power on the Legislature of a State, subject to clauses (1) and (2), to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of the VII Schedule. Entry 54 of List II relates to-"tax on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92A of List I". Clause 29A was inserted to Article 366 by Section 4 of the Constitution (Forty Sixth Amendment) Act, 1982 which came into force with effect from 02.04.1983. Article 366(29A)(b) defines the expression "tax on the sale or purchase of goods" to include a tax on the "transfer of right in goods, whether as goods or in some other form, involved in the execution of a works contract".
Explanation (vi) added to the definition of "sale" in Section 2(n) of the Act, by A.P. Act No. 18 of 1985 with effect from July 1, 1985, reads thus:-
Explanation VI - Whenever any goods are supplied or used in the execution of a works contract, there shall be deemed to be a transfer of property in such goods, whether or not the value of the goods so supplied or used in the course of execution of such works contract is shown separately and whether or not the value of such goods or material can be separated from the contract for the service and the work done
Section 2 (r) of the Act defines ''total turnover'' to mean the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchases or sales in the course of inter-state trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India. Section 2(s) of the Act was substituted, by A.P. Act 18 of 1985, and clause (iii)(a)(i) was inserted thereto. Section 2(s)(iii)(a)(i) defines ''turnover'' to mean, if there is no bill of sale, the total amount charged as the consideration for the sale or purchase of goods by a dealer either directly Or through another, on his own account or on account of others, whether such consideration be cash, deferred payment or any other thing of value and shall include the value of any goods as determined by the assessing authority to have been used or supplied by the dealer in the course of execution of the works contract. The words "value of goods" was substituted in Section 2(s)(iii)(a)(i) of the Act, for the earlier words "the cost of any goods", with effect from 1.8.1986. Section 2(t), inserted by A.P. Act 18 of 1985, defines "works contract" to mean any agreement for cash or for deferred payment or for other valuable consideration, for carrying out the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property or the fitting out, improvement or repair of any movable property. Section 2(u) defines ''Year'' to mean the twelve months ending on the 31st day of March.
Section 5 of the APGST Act, after its amendment by A.P. Act 18 of 1985, read as follows:
(1) Every dealer other than a casual trader and an agent of a non-resident dealer whose total turnover for a year is not less than Rs.2,00,000 and every agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year, at the rate of five paise on every rupee of his turnover. Every casual trader shall pay a tax at the rate of five paise on every rupee of his turnover.
Provided that a dealer in jaggery shall pay a tax at the rate of two paise on every rupee upto the 31st March, 1966 and at the rate of 3 paise on every rupee on and from the 1st April, 1966, of his turnover irrespective of the quantum of turnover.
(2) Notwithstanding anything contained in sub-section (1), the tax under this Act shall be levied:-
(a) in the case of the goods mentioned in the First Schedule at the rates and only at the point of the sale specified as applicable thereto effected in the State by the dealer selling them, on his turnover of sales in each year relating to such goods irrespective of the quantum of turnover.
(b) in the case of the goods ''mentioned in the Second Schedule, at the rates and only at the point of the purchase as specified as applicable thereto, effected in the State by the dealers purchasing them, on his turnover of purchase in each year relating to such goods irrespective of the quantum of turnover.
(c) in the case of the goods mentioned in the Fifth Schedule, at the rates and at the points specified as applicable thereto, on the turnover of the dealer in each year relating to such goods irrespective of the quantum of turnover.
(d) in the case of the goods mentioned in the Sixth Schedule at the rates and at the points specified as applicable thereto, on the turnover of the dealer in each year relating to such goods irrespective on the quantum of turnover.
Section 5 was again amended by Sec.3 of the APGST (Amendment Act) 1989 w.e.f. 30.3.1989 as under;
Levy of tax on sales or purchases of goods:-
(1) Save as otherwise provided in this Act, every dealer shall pay a tax under this Act for each year on every rupee of his turnover of sales or purchases of goods in each year irrespective of the quantum of his turnover at the rates of tax and at the points of levy specified in the Schedules.
(3) For the purpose of this section and the other provisions of this Act, the turnover on which a dealer shall be liable to pay tax, shall be determined after making such deductions from his total turnover, and in such manner as may be prescribed.
(4) The taxes under this section shall be assessed, levied and collected in such manner, as may be prescribed.
Rule 6 of the APGST Rules was amended, and sub-rule (2) was inserted thereto, by G.O.Ms.No. 1445 (Revenue) dated 5.11.1986. Rule 6(2), as amended, read as under;
(i) For the purpose of sub-rule (1) the total turnover of a dealer shall, in relation to a works contract, be the amount realized or realizable by the dealer for carrying out such contract less the cost of labour incurred by dealer in the execution of such contract.
(ii) in case, the cost of labour is not ascertainable from the accounts of the dealers the value of goods involved in the execution of a works contract shall be the value of such goods estimated with reference to the prevailing market prices.
(iii) In case, the execution of works contract extends over a period of more than one year, the total turnover for the purpose of this rule for the year shall be deemed to be the value of goods purchased for being supplied or used in the execution of such contract in the year.
(iv) In case, either the value of goods involved in the execution of a works contract or the cost of labour in such contract is not ascertainable from the accounts of a dealer, the total turnover of the dealer, shall be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of it as may be fixed by the Commissioner of Commercial Taxes from time to time for different types of contracts for different areas, representing the usual proportion in such areas of the cost of labour to the value of materials used in executing such contract, subject to the following maximum percentages:
Section 5F introduced, by A.P. Act 22 of 1995, with effect from 1.4.1995 reads thus:
Levy of tax on transfer of property in goods involved in the execution of works contract - Notwithstanding anything contained in Section 5 or Section 6, every dealer shall pay a tax under this Act for eaten year, on his turnover of transfer of property in goods whether as goods or in some other form, involved in the execution of works contract, at the rate of six paise on every rupee of his turnover.
The charge to tax, u/s 5-F of the Act, is on the turnover relating to the transfer of property in goods involved in the execution of works contract. Rule 6(2) of the APGST Rules, 1957 was substituted, and sub-rule (3) was added by G.O.Ms.NO.244 Revenue dated 17.05.1995 with effect from 01.04.1995. The newly inserted Rule 6(2), which details the manner in which the turnover liable to tax u/s 5F of the Act is to be determined, reads as under:-
Rule 6(2): Notwithstanding anything contained in sub-rule (1), the tax u/s 5F, shall be levied on the turnover of a dealer who transfers property in goods, whether as same goods or in some other form, involved in the execution of works contract. In determining the turnover of a dealer liable to tax, the amounts specified in clauses (a) to (1) shall, subject to the conditions specified therein, be deducted from the total turnover of the dealer.
(a) Labour charges for execution of the works;
(b) Amount paid to a sub-contractor provided such a sub-con tractor is a registered dealer and that turnover is included in the return filed by him before the assessing authority concerned;
(c) Charges for planning, designing and architect''s fees;
(d) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) Cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract;
(f) Cost of establishment of the contractor to the extent it is relatable to supply of labour and service;
(g) Other similar expenses relatable to supply of labour and services;
(h) Profit earned by the contractor to the extent it is relatable to supply of labour and services;
(i) All amounts for which goods exempted by the notification u/s 9(1) are transferred in execution of works contract provided the goods are transferred in the same form as they were purchased;
(j) All amounts for which the goods specified in the Third Schedule are transferred by a dealer when such sales are exempt from the tax liable, under any of the provisions of the Act, provided, that the goods are transferred by the dealer as the same goods as they were purchased;
(k) All amounts for which the goods specified in the Fourth Schedule are transferred by the dealer in execution of the works contract provided that the goods are transferred as the same goods as they were purchased;
(1) Turnover of goods involved in the execution of works contract which are transferred in the course of inter-State trade or commerce u/s 3 or transferred outside the State u/s 4 or transferred in the course of import or export u/s 5 of the Central kales Tax Act, 1956.
Rule 6(3)(i) and (ii) read as under:-
(i). In case where the execution of a works contract extend over a period of more than one year, the total turnover for the purpose of sub-rule (2) for that year shall be deemed to be the value of goods purchased for being supplied or used in the execution of such contract in that year.
(ii) In the cases where the value of goods involved in the execution of a works contract or the amounts referred at clauses (a) to (1) of sub-rule(2) in such contract are not ascertainable from the accounts of a dealer where u/s 5H contractee is required to deduct tax at source, the turnover of the dealer for the purpose of Section 5-F or 5-H, shall be determined after deducting the Amount calculated at the following percentages for different types of contracts from the amounts paid or payable to the dealer for carrying out such contract;
Even under the A.P. Value Added Tax Act, 2005, ("VAT Act" for short), the charge to tax is on the transfer of property in goods. Section 2(28) of the VAT Act defines "sale" to mean every transfer of property in goods, whether as such goods or in any other form, in pursuance of a contract or otherwise by one person to another in the course of trade or business for cash, deferred payment, or for any other valuable consideration. Under Explanation VI thereto, wherever any goods are supplied or used in the works contract, there shall be deemed to be a transfer of property in such goods.
Section 4 of the VAT Act is the charging provision and, under sub-section 7(a) thereof, every dealer executing a works contract shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the VAT Act. Rule 17 of the A. P. Value Added Tax Rules, 2005 relates to treatment of works contract and, under sub-rule (1)(a) thereof, in the case of contracts not covered by sub-rules (2), (3) and (4) of Rule 17, a VAT dealer shall pay tax on the value of the goods incorporated in the works at the rates applicable to the goods.
It is convenient to examine the contentions urged by counsel on either side under distinct and separate heads.
I. IS RULE 6(3)(i) zAN EXCEPTION TO RULE 6(2) REQUIRING WORKS SPREAD BEYOND ONE YEAR TO BE TREATED DIFFERENTLY FROM WORKS EXECUTED WITHIN ONE YEAR?
It is contended on behalf of the assessees that Rule 6(3)(i) is a beneficial provision, and is an exception to Rule 6(2); under Rule 6(3) (i) the rule making authority decided to treat works contracts, spread beyond one year; differently from works contracts of less than one year in duration; while determining the turnover of works contracts, under Rule 6(3)(i), it is only the purchase value and not the incorporated value which is required to be taken into consideration; the rule making authority would not make a rule which is unnecessary; Section 5-F does not determine or fix the quantum of turnover; computation or determination of the turnover can be prescribed by the State by way of Rules; the value of the goods purchased is to be construed as a measure for the levy; the Government has the power to make a rule to provide for the measure of tax; Rule 6(3) (i) is one such measure, and does not transgress Article 366(29-A)(b) of the Constitution or Section 5-F of the Act.
On the other hand Sri A.V. Krishna Kaundinya, Learned Special Standing Counsel for Commercial Taxes, would submit that the word "cost" has been substituted by the word "value" in Section 2(s)(iii)(a)(i) of the Act; Rule 6(3)(i) is not an exception, but is merely an extension of Rule 6(2); Rule 6(3)(i) does not prescribe the ''purchase price'' and only stipulates the "purchase value"; Section 5-F of the Act was introduced after the judgment of the Supreme Court in Gannon Dunkerley; and, since Rule 6(3)(i) is a deeming provision and makes a reference to Rule 6(2), the said Rule should be read harmoniously both with Section 5F of the Act and Rule 6(2) of the Rules.
In Media Communications, on which reliance is placed by the Learned Counsel for the assessees, the constitutional validity of Sections 5-P, 5-G and 5-H of the Act and the Rules made thereunder were under challenge, in a batch of Writ Petitions, before a Division bench of this Court. The validity, of Rule 6(3)(i) was put in issue contending that the first portion of the sub-rule imposed a tax on the value of the goods purchased for being supplied in the case of a contract which extended over a period of more than one year, even though it may not be ultimately used in the contract. It is in this context that the Division bench observed:-
... In W.P. No. 17415 of 1995, the validity of rule 6(3) and (4) is questioned. As sub-rule (4) has already been omitted by G.O. Ms. No. 788, Revenue (CT-II), September 21, 1996, the challenge has to be confined to rule 6(3). It was submitted that the first portion of this sub-rule imposes a tax on the value of the goods purchased for being supplied where the contract extends more than a year even though it may not be ultimately used in the contract. There appears to be some force in this contention. The Supreme Court has held in the case of State of Madras Vs. T. Narayanaswami Naidu and Another, that the stock in hand may or may not be sold or consumed and could even be destroyed, and therefore, unless the taxable event has occurred, it cannot be taxed. Perhaps, the intention of this sub-rule was only that, but it is not happily worded. If the words "for being" are substituted by the word "and", it would be clear that only the value of the goods purchased and supplied or used in the execution of such contracts in that year would be liable to be taxed. It must be remembered that in respect of the goods used in the execution of contracts, there is no sale price as such and, therefore, the turnover pertaining to the goods involved in the execution of the contract refers only to the purchase turnover. The purchases so made will not be liable to tax unless actually supplied or used in the execution of such contracts. Accordingly, the turnover must be limited only to such supply or use, and cannot extend to the stock in hand at the end of the assessment year as held by the Supreme Court. Instead of declaring the rule to be invalid, we are of the opinion that it would be appropriate to read the rule to mean only that and no more.........
(emphasis supplied)
While summing up, the Division bench held that Rule 6(3)(i) should be read as applicable only to the value of goods supplied or used in works contracts during the year.
As is evident, from the afore-extracted part of the judgment in Media Communications, the Division Bench substituted the words "for being" in Rule 6(3)(i) by the word "and", and read down the Rule to uphold its validity. Consequently Rule 6(3)(i) must be read as under:
In cases where the execution of the works contract extends over a period of more than one year, the total turnover for the purpose of sub-rule "2" for that year shall'' be deemed to be the value of the goods purchased and supplied or used in the execution of such contract in that year.
The word "total" as used in Rule 6(3)(i) is a misnomer as Rule 6(2) refers only to the "turnover" and not the "total turnover". The turnover under Rule 6(3)(i), for the purposes of Rule 6(2), would therefore be the value of the goods purchased and supplied pr used in the execution of the works contract. It would include the value of the goods when it is supplied or used in the works contract i.e., the value of the goods when it is incorporated in the works. When so read Rule 6(3)(i) would also not be ultravires Section 5-F of the Act whereunder the charge to tax is on the transfer of property in goods involved in the execution of a works contract.
In support of their contention that it is only the cost of acquisition of goods by a dealer from his vendor which is liable to tax under Rule 6(3) (i) Learned Counsel for the assessees would place reliance on certain observations of the Division bench, in Media Communications, which read thus:-
....It must be remembered that in respect of the goods used in the execution of contracts, there is no sale price as such and, therefore, the turnover pertaining to the goods involved in the execution of the contract refers only to the purchase turnover...
Relying on these observation the STAT, in several of its orders, held that it is only the cost of acquisition of goods by the dealer which is liable to tax under Rule 6(3) (i), and not the value of the goods at the stage of its incorporation in the works. What the STAT failed to note was that the Division bench, in Media, Communications, had also held that the purchases made would not be liable to tax unless actually supplied or used in execution of the contract, and the turnover must be limited only to such supply or use, and could not be extended to the stock in hand at the end of the assessment year.
It is only the ratio laid down in a judgment which is binding, and not every stray observation or direction issued therein. A decision which is not founded on reasons, nor it proceeds on a consideration of an issue, cannot be deemed to be a law declared to have binding effect. That which escapes in the judgment, without any occasion, is not the ratio decidendi. A decision is binding not because of its conclusions, but in regard to its ratio and the principles laid down therein. Any declaration or conclusion arrived without application of mind, or preceded without any reason, cannot be deemed to be the declaration of law or authority of a general nature binding as a precedent. State of U.P. and Another Vs. Synthetics and Chemicals Ltd. and Another, B. Shama Rao Vs. The Union Territory of Pondicherry, . It is not everything said by a Judge, while giving judgment, that constitutes a precedent. The only thing in a Judge''s decision binding a party is the principle upon which the case is decided. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio, and not every observation found therein nor what logically follows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case, or is put in issue, would constitute a precedent. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi. Union of India (UOI) and Others Vs. Dhanwanti Devi and Others, ; State of Orissa and Others Vs. Md. Illiyas, ; ICICI Bank Ltd. and Another Vs. Municipal Corporation of Greater Bombay and Others, What is binding is the ratio of the decision, and not any finding of fact. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court, that forms the ratio and not any particular word or sentence. Director of Settlements, Andhra Pradesh and Others Vs. M.R. Apparao and Another, . It is not a profitable task to extract a sentence here and there from a judgment and to build upon it. The State of Orissa Vs. Sudhansu Sekhar Misra and Others, There is always peril in treating the words of a judgment as though they were words in a legislative enactment. It is to be remembered that judicial utterances are made in the setting of the facts of a particular case. (Herrington v. British Railways Board (1972) 2 WLR 537 ). Observations, on matters not in issue in the case, are not meant to be and ought not to be regarded as laying down the law. K. Veeraswami Vs. Union of India (UOI) and Others, . Observations of courts are neither to be read as Euclid''s theorems nor as provisions of a statute, and that too taken out of their context. The observations must be read in the context in which they appear to have been stated. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions, but the discussion is meant to explain and not to define. Judges interpret the words of statutes. Their words are not to be interpreted as statutes. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Bharat Petroleum Corporation Ltd. and Another Vs. N.R. Vairamani and Another,
Rule 6(3)(i) is merely an extension of Rule 6(2), and not an exception thereto. Rule 6(3) (i) requires the value of the goods supplied or used in the works to be included in the taxable turnover instead of adopting the circuitous route prescribed in Rule 6(2) of taking the gross receipts relating to the works contract, and deducting therefrom the items enumerated in clauses (a) to (1) of the said rule. While Section 2(s)(iii)(a)(i), as amended by Act 18 of 1985 with effect from 01.07.1985, defined "turnover" to include the "cost of any goods as determined by the assessing authority to have been used or supplied by the dealer in the course of execution of the works contract, the words "the cost of any goods" were substituted by the words "the value of any goods" with effect from 01.08.1986. Black''s Law Dictionary 9th Edition defines "Cost" to be the amount paid or charged for something; price or expenditure; and "Value" as the significance, desirability, or utility of something. The Concise Oxford Dictionary of Current English Eighth Edition defines "value" to mean the worth, desirability, or utility of a thing, or the qualities on which these depend; worth as estimated; the amount of money or goods for which a thing can be exchanged in the open market; purchasing power; the equivalent of a thing; and what represents or is represented by or may be substituted for a thing; and "cost" to mean - to be obtainable for; have as a price; fix or estimate the cost or price of; what a thing costs; and the price paid or to be paid. While the words "cost of any goods" may possible be susceptible to the construction that it is the purchase cost or the cost of acquisition of goods by a dealer from his vendor which can alone be included in the "turnover", substitution of the provision by the words "the value of any goods" can only mean the value of the goods when the property in the said goods is transferred to the works i.e., value of goods at the stage of its incorporation in the works.
With regards the contention that it is the purchase value, and not the incorporated value, which is the measure of tax under Rule 6(3) (i) it is necessary to note that the tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, falling within the ambit of Article 366(29-A)(b), is leviable on the goods involved in the execution of a works contract, and the value of the goods which are involved in execution of the works, contract would constitute the measure for imposition of the tax. (Gannon Dunkerley). As the charge to tax u/s 5-F is on the transfer of property in goods, i.e., on the transfer of the right in goods, it is only the value of the goods involved in the execution of the works contract which would constitute the measure for imposition of tax, and not the purchase cost or the cost of acquisition of goods by the dealer. The taxable event is the transfer of property in goods involved in the execution of a works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works. The value of goods, which would constitute the measure of tax, is the value of the goods at the time of incorporation of the goods in the works.
We find no merit in the submission that, since Rule 6(2) covered situations where the tax u/s 5-F was to be levied on the turnover of a dealer, who transferred the property in goods involved in the execution of a works contract, construing Rule 6(3) (i) to mean what Rule 6(2) stipulates would render Rule 6(3)(i) inapposite surplussage. A literal construction of Rule 6(3)(i), as it stood before it was read down by the Division Bench in Media Communications3, would require the total turnover of a dealer to be deemed to be the value of the goods purchased for being supplied or used in the execution of the works contract in that year. Purchase of goods, whether or not it was actually supplied or used in the execution of the works contract, was required to be included in the total turnover provided such purchase of goods was for being supplied or used in the works contract. A literal construction of Rule 6(3)(i) would have required closing stock of goods, in the hands of a dealer at the end of the year, also to be included in the total turnover, and be subject to tax u/s 5-F of the Act even though it was not actually supplied or used in the works contract. Such a literal interpretation would have rendered Rule 6(3) (i) ultra vires, as the charge to tax u/s 5-F of the Act is on the transfer of property in goods i.e. actual supply or use of goods in a works contract, and not on the goods which were purchased but were neither supplied nor used in the works contract. It is with a view to uphold its validity that the Division bench, in Media Communications, read down Rule 6(3)(i) in the aforesaid manner.
Rule 6(3)(i), which is applicable where execution of a works contract extends beyond a period of one year, creates a legal fiction whereby the total turnover of the dealer is deemed to be the value of the goods purchased and supplied or used in the execution of such contracts in that year. Rule 6(3) (i) merely provides another method of arriving at the turnover of a dealer. While Rule 6(2) requires the deductions specified therein to be reduced from the turnover of the dealer including, among others, labour charges for the execution of works; Rule 6(3) (i) requires only the value of the goods purchased and supplied or used in the execution of the works contract to be treated as the turnover. Since it is only the value of the goods which, under Rule 6(3)(i), determines the turnover of a dealer, the cost of labour would not form part of the turnover unlike, under Rule 6(2), where labour charges forms part of the turnover of the dealer and is, therefore, required to be deducted for the purpose of arriving at the turnover liable to tax u/s 5-F of the Act. When so read Rule 6(3)(i) cannot be said to have been unnecessarily made by the Rule making authority.
II. DOES THE WORD "PURCHASE" IN RULE 6(3)(i) REQUIRE TAX TO BE LEVIED ON THE COST OF THE GOODS PURCHASED BY THE ASSESSEE FROM HIS VENDOR AND NOT ON THE VALUE OF GOODS INCORPORATED IN THE WORKS?
It is contended on behalf of the assessees that the word "purchased", as used in Rule 6(3)(i), signifies the intention of the Rule making authority to levy tax on the value of goods purchased, and not to include any further amounts in the value viz., profit on goods, incidental charges upto the stage of incorporation etc; the legislative intention is to treat the price of goods as the value of goods which is manifest even from Rule 6(2) (iii) which was the rule in existence prior to insertion of Rule 6(3)(i); and this is supported by Section 5 of Act prior to insertion of Section 5-F.
The point of levy of tax, both u/s 5(1) read with Explanation (vi) to Section 2(n) and Section 2(s)(iii)(a)(i) of the Act, and u/s 5-F, is on the transfer of property in goods involved in the execution of works contract, and not a tax on the purchase of goods by a dealer. The word "purchased" in Rule 6(3)(i) merely qualifies the word "goods". It only ''means that the contractor, executing the works, had purchased the goods which were supplied or used in the works, and nothing more. The word "purchased" cannot be read in a manner as to elevate Rule 6(3)(i) to a charging provision by implication. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. The authority of law has to be specific and explicit and expressly provided. Collector of Central Excise, Ahmedabad Vs. Orient Fabrics Pvt. Ltd., There must be a charging section specifically empowering the State to levy tax. The power to tax can neither be inferred by implication nor is there any such thing as taxation by implication. There is nothing like an implied power to tax. The provision cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference. (Gooley in Taxation (Vol. 1, 4th Edn.); The State of West Bengal Vs. Kesoram Industries Ltd. and Others,
Even otherwise, in case of conflict between the provisions of the Act and the Rules, the former will prevail. The Rules should be interpreted in a manner so as to be in conformity with the provisions of the Act. (Ispat Industries Ltd. v. Commr. of Customs (2006) 12 SCC 583 ), and not the other way round. A rule has to be read as supplemental to the provisions of the parent Act. It cannot be interpreted in a way as to come into conflict with the parent Act, in which case the Act will prevail. The S.T.O., Moradabad and Another Vs. H. Farid Ahmed and Sons, A piece of subordinate legislation should be read in the light of the statutory scheme of the Act. Bombay Dyeing and Mfg. Co. Ltd. Vs. Bombay Environmental Action Group and Others, . Rules made for carrying out the purposes of the Act cannot be so framed as not to carry out the purpose of the Act, and cannot be in conflict therewith. Laghu Udyog Bharati and Another Vs. Union of India and Others, . If a rule goes beyond, or is contrary to, what the Section contemplates, the rule must yield to the Statute. (Central Bank of India v. Workmen (1960) 1 SCR 200).
If the cost of acquisition of goods or the purchase cost of the goods is held to be the measure of tax under Rule 6(3)(i), the said Rule would not be in conformity either with Section 5(1) read with Explanation (vi) to Section 2(n) and Section 2(s)(iii)(a)(i) of the Act, or Section 5-F of the Act, whereunder the charge to tax is on the transfer of property in the goods i.e., the value of the goods when it is transferred to, or is incorporated in, the works. As the Rules have to be read harmoniously, and not to be in conflict, with the parent Act the construction placed on Rule 6(3) (i), or the erstwhile Rule 6(2) (iii), by the Learned Counsel appearing on behalf of the assessees does not merit acceptance.
III. IS RULE 6(3)(i) A CONSCIOUS DEVIATION FROM THE LAW LAID DOWN BY THE SUPREME COURT IN Gannon Dunkerly v. State of Rajastan (1993) 88 STC 204?
It is contended on behalf of the assessees that the judgment in Gannon Dunkerley was rendered on a construction of the provisions of the Rajasthan Sales ''Tax Act, 1955, where there was no Rule similar to Rule 6(3) (i); the Supreme Court has only laid down guidelines as to how the taxable turnover of works contracts is to be determined; Rule 6(2) & Rule 6(3)(ii) were framed on such a basis; however Rule 6(3)(i) is an exception to these rules; the view expressed by the Supreme Court, in Gannon Dunkerley, is not applicable as (1) no Rule similar to Rule 6(3)(i) came up for consideration before the Supreme Court; and (2) the State has a wide power to frame its own Rules with regards the measure of levy, subject to the limitation that it cannot stretch the law to include something which does not represent the value of the goods involved in the execution of works contracts; Rule 6(3)(i) is a conscious deviation from the ratio in Gannon Dunkerely; the purchase value of the goods would be the landed cost of the goods to the contractor at the time of taking delivery of the goods from other vendors; and it would not include the value of such goods at the time of incorporation.
The turnover liable to tax u/s 5-F, read with Section 2(u), of the Act is the taxable turnover of the dealer for one year. Rule 6(2) of the APGST Rules provides for the manner in which the turnover liable to tax u/s 5-F of the Act is to be arrived at. Where books of accounts are maintained by the assessee-dealer, the gross receipts less the deductions of the nature specified in Rule 6(2) determine the turnover to be taxed as works contracts. Where the deductions specified in Rule 6(2) are not ascertainable from the accounts of a dealer, the turnover has to be determined after reducing the standard deduction, prescribed for different types of contracts under Rule 6(3)(ii), from the amounts paid or payable to the dealer for executing such works contracts.
While examining the scope and amplitude of Article 366(29-A)(b) of the Constitution of India, and Section 5(3) read with Section 2(o) of the Rajasthan Sales Tax Act, the Supreme Court in Gannon Dunkerley observed:-
...On behalf of the contractors, it has been urged that under a law imposing a tax on the transfer of property in goods involved in the execution of a works contract under Entry 54 of the State List reads with Article 366(29-A)(b) the tax is imposed on the goods which are involved in the execution of works contract and the measure for levying such a tax can only be the value of the goods so involved and the value of the works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of the acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by Article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders Association case (supra) it has been pointed out that in Article 366(29-A)(b), the emphasis is on the transfer of property in goods (whether as goods or in some other form). This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in-such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy of tax. Incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer of property in goods and, therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by Article 366(29-A)(b)....
(emphasis supplied)
In order to determine the value of goods involved in the execution of a works contract, for the purpose of levying the tax referred to in Article 366(29-A)(b), it is permissible to take the value of the works contract as the basis, and the value of the goods involved in the execution of the works contract can be arrived at by deducting the expenses incurred by the contractor for providing labour and other services from the value of the works contract. The charges for labour and services which are required to be deducted from the value of the works contract would, cover (i) labour charges for execution of the works, (ii) amount paid to a sub-contractor for labour and services; (iii) charges for obtaining on hire, or otherwise, machinery and tools used for execution of the works contract; (iv) charges for planning, designing and architect''s fees; (v) cost of consumables used in execution of the works contract; (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services. (Gannon Dunkerley). In determining the turnover liable to tax u/s 5-F of the Act, Rule 6(2) requires the gross receipts of a dealer to be subjected to the deductions under clauses (a) to (1) thereunder. The deductions under clauses (a) to (1) of Rule 6(2) are similar to the deductions referred to in Gannon Dunkerly.
As the scope of Section 5-F of the Act and Rules 6(2) and 6(3) (i) arise for consideration in these batch of cases, it is useful to read Section 2(o) of the Rajasthan Sales Tax Act in juxta-position with Section 5-F of the APGST Act, 1957.
Section 2(o) of the Rajasthan Sales Tax Act
Section 5-F of the APGST Act
(o) ''Sale'' with all its grammatical variation and cognate expressions, means every transfer of the property In goods (other than by way of mortgage, hypothecation, charge or pledge) by one person to another for cash or deferred payment or other valuable consideration and includes;
(i)............
(ii) A transfer of property in goods (whether as goods or In some other form) involved In the execution of a works contract;
(iii)...............
(iv).............
(v).............
(vi).............
and such transfer, delivery or supply shall be deemed to be a sale and the word "purchase" or "buy" shall be construed accordingly.
5F: Levy of tax on'' transfer of property in goods Involved in the execution of works contract:
Notwithstanding anything contained in Section 5 or Section 6, every dealer shall pay a tax under this Act for each year, on his turnover of transfer of property in goods whether as goods or In some other form involved in the execution of works contract, at the rate of eight paise on every rupee of his turnover.
It is evident that both u/s 5(3) (the charging provision) read with Section 2(o). of the Rajasthan Sales Tax Act, and u/s 5-F of the Act, levy of tax is on the transfer of property in goods.
As observed hereinabove, Rule 6(3)(i) merely provides another method, a direct manner, of determining the turnover on the basis of the value of the goods purchased and supplied or used in the execution of works contracts in that year, instead of arriving at the turnover under Rule 6(2) by deducting certain items of expenditure from the gross receipts paid or payable to the contractor-dealer. As Rule 6(3)(i) must be read harmoniously with Section 5(1) or 5-F of the Act, and as the charge to tax under the Act is similar to the charging provision in the Rajasthan Sales Tax Act i.e., on the transfer of property in the goods involved in the execution of works contract, the law laid down by the Supreme Court in Gannon Dunkerley would equally apply to the provisions of the Act, and the Rules made thereunder. A fortiori the value of goods, for the purposes of Rule 6(3)(i), would not only include the cost of acquisition of goods by the contractor-dealer but also the transportation charges incurred by him to deliver the goods to the situs of the works wherein they are incorporated; cost of establishment relatable to the supply of material involved in the execution of the works contract; other charges borne by the contractor - dealer in relation to these goods till its incorporation in the works; the profits relatable to the value of such goods; etc. However profits on the labour component of, and the actual cost of incorporation in, the works would stand excluded as the value of the goods is only its value till the stage of its incorporation in the works, and not thereafter. The deemed turnover under Rule 6(3)(i), (liable to tax under the Act), would be more or less the same as determined under Rule 6(2) of the Rules.
Where books of accounts are separately maintained, for works contracts, each year ascertaining profits arising therefrom would present no difficulty. Unlike other components, the profit element in the value of the goods may necessitate estimation in cases where the books of accounts are not maintained annually, but project-wise. Estimation of profit would then be a matter for determination by the assessing authority after taking into consideration all relevant factors including the profits which are, ordinarily, made in similar works executed by other contractors; profits earned by the contractor - dealer in works contracts executed by him in the previous years; the profit percentage norms accepted in the Industry for works contracts of a similar kind; etc. While the assessing authority may adopt any other reasonable method, judicial pronouncements and authoritative texts would serve as a useful guide in such estimation. Reference in this context can be made to A.T. Brij Paul Singh and Others Vs. State of Gujarat, ; P.M. Paul Vs. Union of India (UOI), ; Mohd. Salamatullah and Others Vs. Government of Andhra Pradesh, ; Dwaraka Das Vs. State of Madhya Pradesh and Another, ; Government of Andhra Pradesh v. E.C. Techno Industries 1989 (2) ALT 320(D.B.); The Superintending Engineer, P.W.D. (R and B) and Another and The State of Andhra Pradesh, R and B Dept. and Others Vs. Patibandla Radhkrishna Murthy and Others, ; G.V. Malla Reddy & Co., Hyderabad v. A.P. State Trading Corporation Ltd, Hyderabad (2010) 4 ALD 331 (DB); and Hudson on ''Building and Engineering Contracts'' (tenth edn., by I.N. Duncan Wallace, 1970), wherein the manner of estimation of profits for different works contracts have been dealt with and, in some of the cases, the percentage of profits estimated at 15% has been accepted as being reasonable. We may not be understood to have held that in all cases 15% should invariably be accepted as the norm. We have merely indicated broadly the factors which the assessing authority should bear in mind while estimating the profit percentage in the facts and circumstances of the case before him.
IV. WOULD THE LEGAL FICTION IN RULE 6(3)(i) REQUIRE ONLY THE PURCHASE COST OR THE COST OF ACQUISITION OF GOODS TO BE TREATED AS THE MEASURE OF TAX?
It is contended on behalf of the assessees that a deeming provision is to be given its full effect; the deeming fiction under the erstwhile Rule 6(2)(iii), and the present Rule 6(3)(i), is only to ensure that the contractor makes payment of tax each year; the words "for being used or supplied" in Rule 6(3)(i) show that it is only the purchase value which is required to be taken into consideration; and it is evident from Rule 6(3)(i) that Rule 6(2) is to be ignored where contracts are spread over more than one year.
A legal fiction is created only for some definite purpose. The fiction is to be limited to the purpose for which it was created, and should not be extended beyond that legitimate field. A legal fiction presupposes the existence of the state of facts which may not exist, and then works out the consequences which flow from that state of facts. Such consequences have got to be worked out only to their logical extent having due regard to the purpose for which the legal fiction has been created. Stretching the consequences beyond what logically follows amounts to an illegitimate extension of the purpose of the legal fiction. The Bengal Immunity Company Limited Vs. The State of Bihar and Others, ; P. Prabhakaran Vs. P. Jayarajan, . A legal fiction should not be extended beyond the language by which it is created. A deeming provision cannot be pushed too far so as to result in an anomalous or absurd position. Maruti Udyog Ltd. Vs. Ram Lal and Others, . The fiction enacted by the legislature must be restricted by the plain terms of the statute. Commissioner of Income Tax, Bombay City II Vs. Shakuntala and two Ors. etc., ; Mancheri Puthusseri Ahmed and Others Vs. Kuthiravattam Estate Receiver, . The legal fiction is not to be extended beyond the purpose for which it is created, or beyond the language of the Section by Which it is created. State of Maharashtra Vs. Laljit Rajshi Shah and Others, ; Mancheri Puthusseri Ahmed; State of West Bengal Vs. Sadan K. Bormal and Another, . legal fiction cannot be extended by the court on analogy or by addition or deleting words not contemplated by the legislature. (Mancheri Puthusseri Ahmed).
Rule 6(2)(iii) as inserted by G.O.Ms. No. 1445 (Revenue) dated 05.11.1986 is in pari-materia with Rule 6(3)(i) as introduced by G.O.Ms. No.244 (Revenue) dated 17.05.1995. The purpose of the legal fiction created both under the earlier Rule 6(2)(iii) and in Rule 6(3)(i), on a literal construction thereof, is to bring to tax goods purchased for being used in a works contract, even if such goods have not been incorporated in the works. This can be explained better by way of an illustration. Let us take the example of a works contract which is required to be executed over a period of two years. The dealer purchases goods worth Rs.10 lakhs in the first year itself for being used in the works. He uses goods worth Rs.5 lakhs in the works in the first year, and retains the remaining goods worth Rs.5 lakhs as closing stock at the end of the first year. He intends to use these goods in the works during the second year. Though only goods worth Rs.5 lakhs have actually been incorporated in the works in the first year, the legal fiction under Rule 6(3)(i) would have required him to pay tax on the entire purchases of Rs. 10 lakhs in the first year itself, though only goods worth Rs.5 lakhs were incorporated in the works. This being the purpose of the legal fiction, it cannot be extended beyond the purpose for which it has been created or beyond the language of Rule 6(3)(i) by which it was created.
45, Consequent to the judgment of the Division bench, in Media Communications, the words "for being used or supplied" in Rule 6(3)(i) are now required to be read as "and supplied or used". As the foundation of the submissions of the Learned Counsel, appearing on behalf of the assessees, is the judgment of the Division bench in Media Communications3 they cannot be heard to contend that it is Rule 6(3) (i) or Rule 6(2)(iii), as it originally stood, which should be applied and not the said Rule as read down by the Division bench in Media Communications. The purpose of the legal fiction in Rule 6(3)(i), even on its being read down consequent to the judgment in Media Communications, is only to prescribe another method of arriving at the value of the goods supplied or used in the works contract, without following the circuitous route under Rule 6(2) of deducting certain items of expenditure from the gross receipts paid or payable to the dealer.
V. WOULD THE DOCTRINE OF "STARE DECISIS" NECESSITATE THE REFERENCE NOT BEING ANSWERED?
It is contended on behalf of the assessees that, following the judgment in Media Communications, the STAT, in Seven Hills Constructions v. State of Andhra Pradesh 34 APSTJ 201c, had held that the turnover liable to tax is only the turnover of goods purchased by the dealer (purchase turnover of the material); it is only the purchase turnover of the goods, intended to be supplied or used in the works contract, which can be taxed u/s 5-F; this view taken by the STAT has been followed by it in several of its subsequent decisions; all these decisions were rendered by following the view expressed by this Court in Media Communications interpreting Rule 6(3) (i); the view expressed by the STAT, in Navayuga Engineering Company Limited was approved by this Court in State of Andhra Pradesh v. Navayuga Engineering Company Limited, Visakhapatnam; the reference should not be answered since the judgment in Media Communications was rendered on 6.12.1996 nearly 15 years ago; the said judgment has been followed in several cases; by the Sales Tax Appellate Tribunals; the State has reconciled itself to this Rule; the Government has not chosen to amend the Rule despite several orders being passed by the STAT against the orders revising the assessments upto the year 2004-05; any interpretation contrary to what has been laid down in the definition of "turnover" in Section 2(s)(iii)(a)(i) would be impractical as the period of limitation for assessments u/s 14, or Revision u/s 20(1) or 20(2), of the Act expired long ago.
The Commissioner of Commercial Taxes, A.P. issued CCT Circular Ref.No.All (3)/533/2002 dated 4.10.2005. The said circular records that the Supreme Court, in Gannon Dunkerley, had held that the measure for the levy of tax had to be the value of the goods at the time of incorporation, and not the cost of acquisition of the goods by the contractor; hence the turnover was neither the purchase value nor the sale value but the value of the goods at the time of incorporation; the word "purchase turnover" had been used in Gannon Dunkerley only to draw a contrast between the sale turnover and the turnover involving the value of the goods at the time of incorporation; Rule 6(3)(i) merely stated as to what should be the total turnover for the purpose of Rule 6(2), and nothing more; the words "Value of the goods purchased for being supplied or used" in Rule 6(3)(i) should be interpreted in the light of the provisions of Section 5 of the Act as interpreted by the Supreme Court in Gannon Dunkerley; and, in view of the decision of the Supreme Court in Gannon Dunkerly, it was only the value of the goods at the time of incorporation that had to be considered for the purpose of levy of tax under Rule 6(3)(i).
This circular of the Commissioner of Commercial taxes is dated 04.10.2005, and it is evident therefrom that neither the Government nor its officers have reconciled themselves to the orders of the STAT holding the purchase cost of goods to be the measure of tax under Rule 6(3) (i) of the Rules. While the STAT has no doubt taken the view, in several appeals, that the purchase cost of goods is the measure of tax under Rule 6(3) (i) of the Rules, in several other appeals (for instance in T.A. No. 186 of 2009 against which TREVC No.233 of 2010 has been preferred to this Court by the Assessee-dealer) it has held that it was the purchase value of goods i.e., the value of goods at the stage of incorporation which was the measure of tax levied u/s 5-F of the Act. As the STAT has expressed conflicting opinions on the scope of Rule 6(3)(i) it cannot be said that there is a settled decision of the STAT on the question referred to us.
In State of Andhra Pradesh v. Navayuga Engineering Company Limited, Visakhapatnam, a Division bench of this Court observed:
These are the revisions against the order of the Tribunal, passed in various appeals decided by a common order on 22.09.2003. The appeals involved issue relating to levy of turnover tax u/s 5A of the Andhra Pradesh General Sales Tax Act, 1957 (for short "the Act"). The detailed facts have been given by the Tribunal in the order, Two issues were raised before the Tribunal. First issue was that while completing the assessments, part of the turnover was taxed as amounts realized in respect of right to use goods u/s 5E of the Act; The second issue related to the estimation of turnover involved in the execution of works contract by adding a certain percentage to the declared turnover towards gross profit and other incidental charges. This was done to arrive at the value of the goods at the time of incorporation in works contract. The Tribunal considered both the contentions and heard the arguments of both the sides and found that the orders of the assessing authorities'' were right and were in conformity with the various judgments, therefore, the Tribunal Appeals were dismissed.
We do not find any ground to interfere in the order passed by the Tribunal. The Tax Revision Cases are accordingly dismissed.
The Division bench, in Navayuga Engineering Co. Ltd.,
merely stated that it did not find any ground to interfere with the order of the Tribunal. Neither did the Division bench examine the scope of Rule 6(3) (i) of the Rules nor did it consider whether Rule 6(3)(i), as read down in Media Communications, required the purchase cost of goods to be taken as the measure of tax or whether the value of the goods at the stage of incorporation in the works should be so taken.
Let us now examine the scope of the doctrine of "Stare Decisis" and whether the said doctrine has any application to the issues which form part of the reference. "Stare decisis" is not a ritual of convenience but a rule with limited exceptions. Ganga Sugar Corporation Ltd. and Others Vs. State of Uttar Pradesh and Others, . While it is true that the doctrine of "stare decisis" has no statutory sanction, is based on a rule of convenience and expediency and on "public policy, the doctrine should and ought always to be strictly adhered to by Courts of law to subserve the ends of justice. (Mishri Lal7). The doctrine of "stare decisis" is expressed in the maxim stare decisis et non quieta movere, which means "to stand by decisions and not to disturb what is settled". The underlying logic of this doctrine is to maintain consistency and avoid uncertainty. The guiding philosophy is that a view which has held the field for a long time should not be disturbed only because another view is possible. Waman Rao and Ors Vs. Union of India (UOI) and Others, Where two interpretations are reasonably possible on the question, the interpretation of a taxing statute which favours the assessee, and which has been acted upon and accepted by the Revenue for a long period, should not be disturbed except for compelling reasons. (Birla Cement Works; Sneh Enterprises). Taking recourse to the doctrine of "stare decisis" would be an imperative necessity to avoid uncertainty and confusion. (Mishri Lal).
The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided. Smt. Somavanti and Others Vs. The State of Punjab and Others, ; Mohd. Ayub Khan Vs. Commissioner of Police, Madras and Another, Even if certain aspects of a question were not brought to the, notice of the court it would decline to enter upon a re-examination of the question since the decision had been followed in other cases. T. Govindaraja Mudaliar Vs. The State of Tamil Nadu and Others, ; Mohd. Ayub Khan). For the application of the rule of stare decisis, it is not necessary that the earlier decision or decisions of long standing should have considered and either accepted or rejected the particular argument which is advanced in the case on hand. It is sufficient for invoking the rule of stare decisis that a certain decision was arrived at on a question which arose or was argued, no matter on what reason the decision rests or what is the basis of the decision. Manganese Ore (India) Ltd. Vs. The Regional Assistant Commissioner of Sales Tax, Jabalpur, ; Shanker Raju) A decision rendered long ago can be overruled only if the Court comes to the conclusion that it is manifestly wrong or unfair and not merely on the ground that another interpretation is possible, and the court may arrive at a different conclusion. Kattite Valappil Pathumma and others Vs. Taluk Land Board and others, ; Raj Narain Pandey and Others Vs. Sant Prasad Tewari and Others, ; Brownsea Haven Properties v. Poole Corpn. 1958 Ch. 574 (CA). In the matter of the interpretation of a local statute, the view taken by the High Court over a number of years should normally be. adhered to and not disturbed. (Raj Narain Pandey).
For the application of the doctrine of "Stare decisis" the statutory provision, which is sought to be interpreted, must be capable of two equally possible interpretations, one of which was accepted in a Judicial decision which has not been disturbed for several years; and the decision was arrived at on a question which arose or was argued. Even prior to the introduction of Section 5-F, by A.P. Act 22 of 1995 with effect from 01.04.1995, Section 2(n) of the Act read with Explanation (vi) thereto defined "Sale" to mean transfer of property in goods supplied or used in the execution of a works contract. Likewise Section 2(s)(iii)(a)(i) of the Act defined "turnover" to include the value of goods determined by the assessing officer to have been used or supplied by the dealer in the course of execution of the works contract. The words "value of goods" were substituted, in Section 2(s)(iii)(a)(i) of the Act, for the words "cost of any goods" with effect from 01.08.1986. Since Section 5(1) of the Act, after amendment of Section 2(s)(iii)(a)(i) with effect from 01.08.1986 and again as amended by Section 3 of the APGST (Amendment Act), 1989, with effect from 30.03.1989, required every dealer to pay tax under the Act for each year on his turnover which, as noted hereinabove, included the value of the goods used or supplied in the execution of a works contract, it is only the value of the goods, when the property in the goods is transferred, i.e., at the stage of its incorporation in the works, which is the measure of tax, and not the cost of acquisition of goods by the contractor-dealer from his vendor.
Under Article 246(3), read with Entry 54 of List II of the VII Seventh Schedule and Article, 366 (29-A)(b), of the Constitution of India the State Legislature can only make a law for levy of tax on the transfer of the right in goods involved in the execution of a works contract, and not on the purchase/acquisition of goods for being supplied or used in the execution of a works contract. Just as levy of tax on goods which have not been used in the works, and remain as closing stock with a dealer, cannot be subjected to tax under Rule 6(3)(i) as it would be ultravires Section 5-F or Section 5(1) read with Section 2(n) Explanation (vi) and 2(s)(iii)(a)(i) of the Act; levy of tax on the cost of purchase of goods by a dealer from his vendor, and not on the value of goods used or supplied in the works, would also be ultra vires Section 5(1) read with Section 2(s)(iii)(a)(i) and Explanation (vi) to Section 2(n), and Section 5-F, of the Act.
A statutory rule must be read harmoniously with the provisions of the parent Act, and not as being contrary thereto. Since the construction sought to be placed on Rule 6(3) (i) by the Learned Counsel for the assessees would render the said Rule ultra vires, it cannot be said to be a possible interpretation of the Rule, The question which arose for consideration before the Division bench, in Media Communications, was whether goods purchased by a dealer was liable to tax even if it was not supplied or used in the works i.e., whether closing stock or stock-in-hand of a dealer could be subjected to tax under Rule 6(3)(i) of the Rules. The Division bench was neither called upon nor did it examine whether the purchase cost of the goods i.e., the cost of acquisition of goods by a dealer from his vendor is the measure of tax or whether it is the value of the goods, when there is a transfer of property/right therein i.e., at the stage of incorporation in a works contract, which is the measure of tax. The doctrine of "Stare Decisis" has, therefore, no application.
VI. WOULD THE ORDERS OF THE STAT, INTERPRETING; RULE 6(3)(i) BAR EXERCISE OF REVISIONAL JURISDICTION u/s 20(2) IN VIEW OF SECTION 20(2A) OF THE ACT?
It is contended on behalf of the assessees that the order of the Joint Commissioner is also liable to be set aside on the ground of lack of jurisdiction u/s 20(2A) of the APGST Act; the Joint Commissioner was bound by the view expressed earlier by the STAT in several of its orders, as held by the Full bench of this Court in Indo-National Limited v Commissioner of Commercial Taxes (2004) 136 STC 586 (AP); the Supreme Court, in C.A. No.302 of 2003 8b batch dated 09.08.2011, had affirmed the said decision of the Full Bench of this Court; the interpretation of Rule 6(3)(i) by the STAT, following the view expressed by this Court in Media Communications, operates as a jurisdictional bar on the exercise of revisional power u/s 20(2); the assessing officer completed assessment under Rule 6(2); while the Appellate Deputy Commissioner directed assessment under Rule 6(3) (i), surprisingly the Joint Commissioner, without disturbing the finding that the execution of the works had spread beyond one year, had restored the order of Commercial Tax Officer as if the assessment was under Rule 6(2) by taking the value of the goods purchased, and by adding all expenses incurred till the time of incorporation in the works.
The law laid down by the Full Bench in Indo National Ltd52 is that, if the- question or issue is of a fact, the same may be confined to that particular order but, if the issue or question related to a point of law, the intention of the Legislature appeared to be that the assessee should not be vexed on such a question again and again and the bar u/s 20(2-A) would apply. The Full Bench judgment in Indo National Ltd. was followed in the Division Bench judgments of this Court in Vorion Chemicals and Distillers Ltd., v. Commissioner of Commercial Taxes (2008) 47 APSTJ 87; M/s. S.L.S. Power Limited, Nellore v. Joint Commissioner, Commercial Taxes Judgment in W.P. No.8174 of 2009 dated 29.04.2009; and Amulya Publications, Vijayawada v. Commissioner Judgments W.P. No. 15069 of 2009 dated 08.10.2009.
It is no doubt true that on their understanding of the judgment of the Division Bench of this Court in Media Communications the STAT had, in several of its orders, held that Rule 6(3) (i) required the purchase cost i.e., the cost of acquisition of "goods'' by the dealer from his vendors to be the measure of tax u/s 5-F of the Act. As noted hereinabove the STAT has taken a contrary view in several other orders passed by it. As we have now held that Rule 6(3)(i) would require the value of goods, at the stage of its incorporation in the works, to be taken as the measure of tax levied u/s 5-F of the Act, no reliance can be placed on the orders of the STAT to the contrary.
Learned counsel for the assessees would, however, contend that when revisional proceedings were initiated u/s 20(2) of the Act, it was only the orders of the STAT which were in existence and, as such, the bar u/s 20(2-A) of the Act applied. This contention is based on the premise that the judgments of this Court have only prospective application. We disagree.
The law declared by the Court is presumed to be the law at all times. The decision of a Court, enunciating a principle of law, is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Court is, in fact, the law from the inception. M.A. Murthy Vs. State of Karnataka and Others, A judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a "new rule" but to maintain and expound the "old one". In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood. Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., .
The theory of case law is that a judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime. (Salmond on Jurisprudence; Saurashtra Kutch Stock Exchange Limited).
As the law now declared by us would operate from the inception, and since the exercise of revisional jurisdiction u/s 20(2) of the Act is in accordance with the construction placed by us on Rule 6(3)(i), the jurisdictional bar u/s 20(2-A) will not apply.
VII CONCLUSION:
To sum up :
(1) The charge to tax u/s 5(1) read with Explanation (vi) to Section 2(n) and Section 2(s)(iii)(a)(i) of the Act, and u/s 5-F of the Act, is oh the transfer of property in the goods involved in the execution of works contract.
(2) As the taxable event is the transfer of property in goods involved in the execution of a works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works, the value of goods which would constitute the measure of tax is the value of goods at the time of its incorporation in the works;
(3) The turnover under Rule 6(3)(i), for the purposes of Rule 6(2), is the value of goods purchased and supplied or used in the execution of works contracts i.e., the value of the goods when it is incorporated in the works;
(4) The word "purchased" in Rule 6(3)(i) qualifies the word "goods" and only means that the contractor, executing the works, has purchased goods which are supplied or used in the works, and nothing more. The word "purchased" cannot be read in a manner as to elevate Rule 6(3)(i), by implication, to that of a charging provision;
(5) If the cost of acquisition of goods, or the purchase cost of goods, is held to be the measure of tax Rule 6(3)(i) would not be in conformity either with Section 5(1) read with Explanation (vi) to Section 2(n) and Section 2(s)(iii)(a)(i) of the Act, or Section 5-F of the Act, whereunder the charge to tax is on the transfer of property or the transfer of right in the goods i.e., the value of goods when it is transferred to, or is incorporated in, the works;
(6) Rule 6(3)(i) merely provides another method of determining the turnover liable to tax i.e., on the basis of the value of the goods purchased and supplied or used in the execution of works contract in that year; instead of the method prescribed in Rule 6(2) of arriving at the turnover which is by deducting certain items of expenditure from the gross receipts paid or payable to the contractor-dealer;
(7) As the charge to tax under the provisions of the Act is similar to the provisions in the Rajasthan Sales Tax, Act i.e., on the transfer of property in goods involved in the execution of works contract, the law laid by the Supreme Court in Gannon Dunkerly would equally apply to the provisions of the Act, and the. Rules made thereunder.
(8) A fortiori the value of goods under Rule 6(3)(i) would not only include the cost of acquisition of goods by the contractor-dealer but also the transportation charges incurred by him to deliver the goods to the situs of the works wherein they are incorporated; cost of establishment relatable to supply of material involved in the execution of the works contract; other charges borne by the contractor - dealer in relation to these goods till its incorporation in the works; and the profits relatable to the value of such goods.
(9) Unlike other components, the profit element in the value of the goods may necessitate estimation in cases where the books of accounts are not maintained annually, but project-wise. Estimation of profit would then be a matter for determination by the assessing authority after taking into consideration all relevant factors including the profits which are, ordinarily, made in similar works executed by other contractors; profits earned by the contractor - dealer in works contracts executed by him in the previous years; the profit percentage norms accepted in the Industry for works contracts of a similar kind; etc.
(10) While the assessing authority may adopt any other reasonable, method, judicial pronouncements and authoritative texts, wherein, the manner of estimation of profits for different works contracts have been dealt with, would serve as a useful guide in such estimation. A few of them have been referred to in para 41 supra. While the percentage of profits estimated at 15% has been accepted as being reasonable in some of those cases, we may not be understood to have held that in all cases 15% should invariably be accepted as the norm. We have merely indicated broadly the factors which the assessing authority should bear in mind while estimating the profit percentage in the facts and circumstances of the case before him.
(11) However profits on the labour component of, and the-actual cost of incorporation in, the works would stand excluded as the value of the goods is only its value till the stage of its incorporation in the works, and not thereafter. The deemed turnover under Rule 6(3)(i), (liable to tax under the Act), would be more or less the same as determined under Rule 6(2) of the Rules.
(12) The legal fiction in Rule 6(3)(i) cannot be extended beyond the purpose for which it is created or beyond the language of the Rule. The purpose of the legal fiction in Rule 6(3)(i) is only to prescribe another method of arriving at the value of the goods purchased and supplied or used in the works contract, without following the circuitous route prescribed under Rule 6(2);
(13) The Division Bench, in Media Communications3, was neither called upon nor did it examine whether the purchase cost of goods, i.e., cost of acquisition of goods by the dealer from his vendor, is the measure of tax; or it is value of goods, when there is transfer of property therein i.e., at the stage of its incorporation in the works contract, which is the measure of tax;
(14) Consequently the doctrine of "Stare decisis" has no application;
(15) If the question in issue is of a fact the same would be confined to that particular order, but if the issue or question relates to a point of law, the bar u/s 20(2A) would apply;
(16) The law declared by the Court is presumed to be the law at all times. The decision of a Court, enunciating a principle of law, is applicable to all cases irrespective of its stage of pendency as it is assumed that what is enunciated by the Court is, in fact, the law from the inception; and
(17) As the law now declared by us would operate from the inception, and as exercise of revisional jurisdiction u/s 20(2) of the Act is in accordance with the construction placed by us on Rule 6(3)(i), the jurisdictional bar u/s 20(2A) will not apply.
We answer the reference accordingly.
Since the orders, under challenge in these TREVCs and Writ Petitions, are also questioned on other grounds which do not form part of the reference, all these cases shall now be listed before the Division Bench hearing tax matters.