M/s Karnataka Power Transmission Corporation Ltd.,, Bellary v. ITO, Bellary

ITA 266/BANG/2010 | 2009-2010
Pronouncement Date: 16-03-2011 | Result: Allowed

Appeal Details

RSA Number 26621114 RSA 2010
Assessee PAN ILLOF2009S
Bench Bangalore
Appeal Number ITA 266/BANG/2010
Duration Of Justice 1 year(s) 13 day(s)
Appellant M/s Karnataka Power Transmission Corporation Ltd.,, Bellary
Respondent ITO, Bellary
Appeal Type Income Tax Appeal
Pronouncement Date 16-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 16-03-2011
Date Of Final Hearing 07-01-2011
Next Hearing Date 07-01-2011
Assessment Year 2009-2010
Appeal Filed On 04-03-2010
Judgment Text
PAGE 1 OF 101 ITA NOS.263 TO 266/BANG/2010 1 THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K J.M. AND SHRI A MOHAN ALANKAMONY A.M. ITA NOS.263 TO 266/BANG/2010 (ASST. YEARS 2008-09 & 2009-2010) KARNATAKA POWER TRANSMISSION CORPORATION LTD. BELLARY MAJOR WORKS DIVISION MOKA ROAD GANDHI NAGAR BELLARY. - APPELLA NT VS THE INCOME-TAX OFFICER TDS WARD BELLARY. - RESPONDENT APPELLANT BY : SHRI CHYTHANYA K. RESPONDENT BY : SHRI G V GOPALA RAO CIT-I O R D E R PER BENCH : THESE FOUR APPEALS INSTITUTED BY KPTCL BELLARY DIVISION A STATE GOVERNMENT PUBLIC SECTOR COMPANY ARE DIRECTED AGAI NST THE CONSOLIDATED ORDER OF THE LD. CIT (A)-LTU BANGALORE IN ITA NOS : 29 & 30 /CIT(A) LTU/09-10 DATED: 30.11.2009 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 . I. ITA NOS: 263 & 265/10 AYS: 2008-09 AND 2009-10 U/S. 201 (1) OF THE ACT : 2. THE ASSESSEE HAD RAISED NINETEEN IDENTICAL GROUNDS IN A NARRATIVE MANNER FOR THE ASSESSMENT YEARS UNDER CHALLENGE. ON A CLOSE SCRUTINY OF THE SAME THE CRUXES OF THE ISSUES EMERGED ARE THAT PAGE 2 OF 101 ITA NOS.263 TO 266/BANG/2010 2 1. THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ACTION OF THE AO (TDS) IN TREATING THE ASSESSEE AS ASSESSEE IN D EFAULT AND DEMANDING THE TAX ON THE BASIS THAT THE ASSESSEE O UGHT TO HAVE DEDUCTED THE TDS IN RESPECT OF PAYMENTS MADE TO THE CONTRACTORS TOWARDS SUPPLY OF MATERIALS 2. THAT THE CIT(A) HAD FAILED TO APPRECIATE THAT T HE ASSESSEE CANNOT BE REGARDED AS AN ASSESSEE IN DEFAULT U/S 201(1) AS THERE WAS NO OBLIGATION ON THE ASSESSEE TO DEDUCT T DS UNDER ANY OF THE PROVISIONS OF THE ACT; & 3. WITHOUT PREJUDICE THE CIT(A)-LTU OUGHT TO HAVE APPRECIATED THAT THE RECIPIENTS HAVING PAID THE TAXES ON THE AM OUNTS RECEIVED FROM THE ASSESSEE THE ASSESSEE WAS UNDER NO OBLIGATION TO PAY THE TAX UNDER SECTION 201(1) OF THE ACT. II. ITA NOS: 264 & 266/10 AYS: 2008-09 AND 2009-10 U/S. 201 (1A)OF THE ACT: 3. LIKEWISE THE ASSESSEE HAD RAISED THREE IDENTICAL GROUNDS FOR THE SAME ASSESSMENT YEARS OUT OF WHICH GROUND NO.1 BEI NG GENERAL AND NO SPECIFIC ISSUE INVOLVED IT HAS BECOME NON-CONSEQUE NTIAL. IN THE REMAINING GROUNDS THE ISSUES RAISED ARE REFORMULATED AS UNDE R: 1. THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ACT ION OF THE AO (TDS) IN TREATING THE ASSESSEE AS AN ASSESSEE IN D EFAULT AND DEMANDING THE INTEREST ON TAX; & - THAT HE WAS NOT JUSTIFIED IN UPHOLDING THE STAND OF THE AO IN LEVYING INTEREST U/S 201 (1A) OF THE ACT WHEN THE ASSESSEES CASE DOESNT FALL WITHIN THE SPHERE OF S.201(1) OF THE A CT. 4. AS THE ISSUES RAISED BEING IDENTICAL IN THESE APPEALS PERTAINING TO THE SAME ASSESSEE THEY WERE HEARD CONSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND C LARITY. PAGE 3 OF 101 ITA NOS.263 TO 266/BANG/2010 3 5. BRIEFLY STATED THE ASSESSEE WAS A STA TE GOVERNMENT PUBLIC SECTOR COMPANY CARRYING ON THE BUSINESS OF TRANSMISSION OF E LECTRICITY FROM ELECTRICITY GENERATING POINTS TO VARIOUS ELECTRICAL SUB-STATIONS IN THE STATE THROUGH THE NETWORK OF TRANSMISSION LINES AND SUB-S TATIONS. THE ASSESSEES PREMISES WERE SUBJECTED TO AN OPERATION U/S 133A OF THE ACT ON 23.1.2009 TO VERIFY THE COMPLIANCE WITH TDS PROVISIONS. DURIN G THE COURSE OF SURVEY IT WAS NOTICED THAT THE ASSESSEE HAD ENTERED INTO A GREEMENTS WITH VARIOUS CONTRACTORS FOR SETTING UP OF ELECTRICAL SUB-STATIO NS. THE SUB-STATIONS WERE ESTABLISHED IN ORDER TO SEGREGATE THE LOAD OF ONE S TATION OR TO IMPROVE THE RELIABILITY OF POWER SUPPLY AND TO MEET THE INCREASIN G DEMAND FOR POWER SUPPLY. IT WAS NOTICED BY THE REVENUE DURING THE VER IFICATION OF THE AGREEMENTS THAT THE ASSESSEE HAD ENTERED INTO SEPAR ATE AGREEMENTS FOR SUPPLY OF MATERIALS ERECTION WORK AND FOR CIVIL WOR K PORTION ETC. IT WAS FURTHER NOTICED THAT WHEN THE ASSESSEE WAS DEDUCTI NG TAX AT SOURCE WHILE MAKING PAYMENTS ON CIVIL WORK AND ERECTION PORTION HOWEVER NO TDS WAS EFFECTED ON PAYMENTS TOWARDS SUPPLY OF MATERIAL PORTI ON. DURING THE COURSE OF PROCEEDINGS U/S 201(1) AND 201(1A) OF THE ACT A S THE AO WAS OF THE VIEW THAT ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE SUPPLY OF MATERIAL PORTION ALSO IT WAS REQUIRED TO EXPLAIN S UCH INACTION ON THE PART OF THE ASSESSEE. 5.1. BRUSHING ASIDE THE ASSESSEES DETAILED EXPLANATION THE AO WENT AHEAD IN CONCLUDING AFTER DETAILED REASONS RE CORDED IN THE IMPUGNED ORDERS UNDER CHALLENGE THAT THE ASSESSEE SHOULD HA VE DEDUCTED TAX AT SOURCE ON THE SUPPLY PORTION ALSO WHICH IT HAD FAILE D TO DO SO THE ASSESSEE WAS TREATED AS AN ASSESSEE IN DEFAULT AND ACCORD INGLY COMPUTED THE TAXES PAGE 4 OF 101 ITA NOS.263 TO 266/BANG/2010 4 AS WELL AS INTEREST THEREON U/S 201 AND U/S 201(1A) OF THE ACT FOR THE ASSESSMENT YEARS UNDER DISPUTE. 6. AGGRIEVED THE ASSESSEE TOOK UP TH E ISSUES WITH THE LD. CIT (A)- LTU FOR SOLACE. AFTER DUE CONSIDERATION OF THE CONT ENTIONS PUT-FORTH BY THE ASSESSEES A.R. PERUSING THE OBSERVATIONS MADE BY T HE AO IN HIS IMPUGNED ORDERS UNDER CHALLENGE ANALYZING THE PROVISIONS OF S.194C OF THE ACT EXTENSIVELY QUOTING THE RULINGS IN THE CASES OF (I) ASSOCIATED CEMENT CO. LTD. V. CIT (1993) 201 ITR 435 (SC) (II) BRIJ BHUSHAN LALS CASE (1976) 115 ITR 524 (SC) (III) STATE OF HIMALCHAL PRADESH V. ASSOCIATED HOTELS OF INDIA LTD. (1972) 29 STC 474 (SC) (IV) STATE OF GUJARAT (COMMISSIONER OF SALES- TAX AHMEDABAD) V. VARIETY BODY BUILDERS 38 STC 176 ( SC) AND DUE PERUSAL OF TENDER NOTIFICATION FLOATED BY THE ASSESSEE AND ALSO CONSIDERING THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG R ELIANCE THE LD. CIT (A) HAD OBSERVED THUS: 4.11. THE APPELLANT CONTENDS THAT UNDER THE CONT RACT THE EQUIPMENTS WERE TO BE DELIVERED BY THE CONTRACTO R TO THE APPELLANT EX WORK I.E. AT THE WORK SITE OF THE CONTRACTOR AND THE PROPERTY IN THE EQUIPMENTS PASS T O THE APPELLANT AS SOON AS THEY WERE DELIVERED AND H ENCE IT WAS A CONTRACT FOR SALE/SUPPLY. THERE IS NO MERI T IN THE APPELLANTS CONTENTION. IT IS CLEAR FROM THE A BOVE DISCUSSION THAT AN EQUIPMENT/MATERIALS AS A COMPLET E UNIT IS NOT FABRICATED BY THE MANUFACTURER IN THE FACTORY BUT H MANUFACTURES ONLY THE COMPONENT PARTS AND IT IS ON LY WHEN THE COMPONENT PARTS ARE FITTED INTO THE POSITI ON AND INSTALLED AT THE PREMISES THAT AN EQUIPMENT COM ES INTO BEING AS A COMMERCIAL ARTICLE AND THEREFORE WHEN THE CONTRACT PROVIDES THAT THE DELIVERY OF THE GOODS SHALL BE EX WORKS WHAT IS OBVIOUSLY MEANT IS THAT THE PAGE 5 OF 101 ITA NOS.263 TO 266/BANG/2010 5 COMPONENT PARTS SHALL BE DELIVERED TO THE APPELLANT AT THE WORK SITE OF THE CONTRACTOR AND ONCE THEY ARE DELIVERED THEY SHALL NOT BE LIABLE TO BE REJECTED BY THE APPELLANT. BUT THAT DOES NOT MEAN THAT AS SOON AS THE COMPONENT PARTS ARE DELIVERED TO THE APPELLANT THE CONTRACT IS FULLY EXECUTED. THE COMPONENT PARTS DO NOT CONSTITUTE A ROLLING SHUTTER (FOR EXAMPLE) AND IT I S THE OBLIGATION OF THE CONTRACTOR UNDER THE CONTRACT TO ERECT AND INSTALL EQUIPMENTS IN POSITION IN THE SUB-STATI ON. IT IS TRUE THAT THE TERMS AND CONDITIONS PROVIDE THAT 20 PER CENT OF THE AMOUNT UNDER THE CONTRACT SHALL BE PAID AS ADVANCES AND 70 PER CENT AFTER DELIVERY OF THE GOODS EX WORK AND THE BALANCE SHALL BE PAID AFTER FULLY COMMISSIONING AND HANDING OVER OF THE EQUIPMENT TO THE SATISFACTION OF THE APPELLANT. THIS PROVISION UNDO UBTEDLY STIPULATES THAT 90 PER CENT OF THE AMOUNT DUE UNDER THE CONTRACT WOULD BE PAID BEFORE ERECTION INSTALLATIO N AND COMMISSIONING OF THE SUB-STATION BUT THAT WOULD NO T MAKE IT A CONTRACT FOR SUPPLY/SALE OF THE EQUIPMENTS . THE TRUE NATURE OF THE CONTRACT CANNOT DEPEND ON TH E METHOD OF PAYMENT OF THE AMOUNT PROVIDES IN THE CONTRACT. THE PARTIES MAY PROVIDE BY MUTUAL AGREEMEN T THAT THE AMOUNT STIPULATED IN THE CONTRACT MAY BE PA ID AT DIFFERENT STAGES OF THE EXECUTION OF THE CONTRACT B UT THAT CANNOT MAKE CONTRACT ONE FOR SUPPLY OF GOODS IF IT IS OTHERWISE A CONTRACT FOR WORK AND LABOUR. 4.13.. IN THE WRITTEN SUBMISSIONS THE APPELLANT FURTHER STATED THAT IT IS NOT THE CASE OF THE AO THAT THE CONTRACTOR HAS FAILED TO FULFILL THE TAX OBLIGATION AND THAT THE GOVERNMENT WAS DEPRIVED OF THE TAX DUE RELYING ON THE DECISION OF THE HONBLE SUPREME COURTDESPITE TH E AFORESAID OVERALL RESPONSIBILITY CLAUSE IT IS IMPER MISSIBLE TO TREAT THE THREE SEPARATE CONTRACTS I.E. (I) SUP PLY OF MATERIALS CONTRACT (II) ERECTION CONTRACT AND (III ) CONTRACT FOR CIVIL WORK AS ONE SINGLE CONTRACT. WH EN PARTIES HAVE AGREED ON CERTAIN TERMS UNLESS IT IS PROVED PAGE 6 OF 101 ITA NOS.263 TO 266/BANG/2010 6 AS SHAM THE AGREED TERMS HAVE TO BE RESPECTED AS HE LD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. MOTORS & GENERAL STORES (P) LTD (1967) 66 ITR 692 ( SC). RELIANCE IS ALSO PLACED ON THE CASE OF POWER GRID CORPORATION OF INDIA LTD. V. ACIT (2007) 112 TTJ 65 4 (HYD-ITAT). THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS INVOLVED IN THREE PROJECTS FOR WHICH CONTRACTS WERE AWARDED TO DIFFERENT CONTRACTORS. T HE APPELLANT AWARDED CONTRACTS TO VARIOUS PARTIES TO CONSTRUCT/EXECUTE THE TRANSMISSION LINE SUB-STATION . THE CATEGORIES OF CONTRACTS ENTERED INTO BY THE APPELLA NT WITH VARIOUS CONTRACTORS FOR THE ABOVE PURPOSE ARE PURELY SUPPLY CONTRACT PURELY ERECTION AND SUPPLY-CUM- ERECTION CONTRACTS (BUT WITH SEPARATE AGREEMENT IN RESPECT OF SUPPLY PORTION). A SIMILAR ISSUE HAS ALR EADY BEEN DISCUSSED IN PARAS 4.5 4.6 4.7 4.10 AND 4.1 1. (SUPRA) AND THE FACTS OF THE APPELLANTS CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASES RELIED UPON. THEREFORE THERE IS NO ASSISTANCE FOR THE APPELLANT FROM THE CASES RELIED UPON. 4.14. HERE THE LAST POSITION OF THE SPECIAL TERM IN REGARD TO THE PAYMENT OF THE AMOUNT DUE UNDER THE CONTRACT ALSO MAKES CLEAR THAT IT IS ONLY WHEN THE COMPONENT PARTS ARE FITTED INTO POSITION AT THE SUB - STATION THAT AN EQUIPMENT WOULD BE TREATED AS COMPL ETE AND THIS EQUIPMENT HAS TO BE TO THE SATISFACTION OF THE APPELLANT AND IT IS THEN TO BE HANDED OVER BY THE CONTRACTOR TO THE APPELLANT AND THEN ALONE WOULD BE REMAINING 10 PER CENT WOULD BE PAYABLE BY THE APPELLA NT TO THE CONTRACTOR. IT IS THEREFORE CLEAR THAT TH E CONTRACT IS ONE SINGLE AND INDIVISIBLE CONTRACT AND THE ERECTION AND INSTALLATION OF THE EQUIPMENT IS AS MU CH FUNDAMENTAL PART OF THE CONTRACT AS THE FABRICATION AND SUPPLY. IN THE CIRCUMSTANCES AND IN VIEW OF THE DISCUSSION MADE ABOVE MY CONSIDERED OPINION IS THAT THE CONTRACT WAS A CONTRACT FOR WORK AND LABOUR AND NOT A CONTRACT FOR SUPPLY. I THEREFORE DO NOT FIND INFI RMITIES PAGE 7 OF 101 ITA NOS.263 TO 266/BANG/2010 7 IN THE AOS FINDINGS AND THEREFORE THE SAME IS CONFIRMED. 7. AGGRIEVED WITH THE FINDINGS OF THE LD. CIT (A)-LTU FOR THE AYS UNDER CHALLENGE THE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. 8. DURING THE COURSE OF HEARING THE SP IRITED BUT MARATHON SUBMISSIONS MADE BY THE LD. A R ARE SUMMARIZED AS UN DER: I. WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 194C : THE AFORESAID SECTION COULD BE SUMMARIZED AS FOLLOW S: ANY PERSON (BEING A SPECIFIED PERSON) RESPONSIBLE F OR PAYING ANY SUM TO ANY RESIDENT CONTRACTOR FOR CARRYING OUT ANY WOR K IS REQUIRED TO DEDUCT TAX OF SUCH SUM ON THE INCOME COMPRISED THER EIN; SPECIFIED PERSON IS DEFINED UNDER CLAUSES (A) TO (L ) OF EXPLANATION (I) TO SECTION 194C TAX SHALL BE DEDUCTED AT THE TIME OF CREDIT TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT WHICHEVER IS EARLIER 1. ACCORDINGLY ANY PERSON PAYING ANY SUM TO ANY RESID ENT CONTRACTOR FOR CARRYING OUT ANY WORK OR PART OF THE WORK IS RE QUIRED TO DEDUCT THE TAX AT SOURCE. IN OTHER WORDS TAX IS REQUIRED TO BE DEDUCTED UNDER SECTION 194C ONLY IF SOME WORK OR PART OF TH E WORK IS CARRIED OUT BY THE CONTRACTOR. 2. FOR THE PURPOSE OF THE SECTION 194C THE STATUTE DO ES NOT DEFINE THE TERM WORK BUT RECOGNIZES CERTAIN TRANSACTIONS AS WORK. 3. IN THIS REGARD WE MAY EXAMINE THE MEANING OF THE T ERM WORK. THE MEANING OF THE TERM WORK IN VARIOUS DICTIONAR IES ARE AS UNDER: IN WEBSTERS NEW DICTIONARY WORK HAS BEEN DEFIN ED AS WORK EXERTION DIRECTED TO PRODUCE OR ACCOMPLISH SOMETHIN G; LABOUR; TOIL; PRODUCTIVE OR OPERATIVE ACTIVITY; AS TO MAKE A MAC HINE DO WORK; ACTIVITY UNDERTAKEN IN RETURN FOR PAYMENT AS IN WA GES; THAT ON WHICH EXERTION OR LABOUR IS EXPENDED A PRODUCT OF ACTIVITY OF LABOUR; AS A LITERARY WORK; NEEDLEWORK OR EMBROIDE RY; AN PAGE 8 OF 101 ITA NOS.263 TO 266/BANG/2010 8 ENGINEERING STRUCTURE AS A BRIDGE OR DOCK; WORKMAN SHIP; AS TO DO GOOD WORK; A TASK OR UNDERTAKING; AS ONES LIFES WORK; A DEED OR ACT; IN ENCYCLOPEDIA BRITANNICA THE WORD WORK HAS BEE N DEFINED AS WORK IN PHYSICS MEASURE OF ENERGY TRANSFER THAT O CCURS WHEN AN OBJECT IS MOVED OVER A DISTANCE BY AN EXTERNAL FORC E AT LEAST PART OF WHICH APPLIED IN THE DIRECTION OF THE DISPLACEME NT. IF THE FORCE IS CONSTANT WORK MAY BE COMPUTED BY MULTIPLYING TH E LENGTH OF THE PATH BY THE COMPONENT OF THE FORCE ACTING LONG THE PATH. WORK DONE ON A BODY IS ACCOMPLISHED NOT ONLY BY A DISPLA CEMENT OF THE BODY AS A WHOLE FROM ONE PLACE TO ANOTHER BUT ALSO FOR EXAMPLE BY COMPRESSING A GAS BY ROTATING A SHAFT AND EVEN BY CAUSING INVISIBLE MOTIONS OF THE PARTICLES WITHIN A BODY BY AN EXTERNAL MAGNETIC FORCE. IN OXFORD ENGLISH DICTIONARY THE WORD WORK HAS B EEN DEFINED AS SOMETHING TO BE DONE OR SOMETHING TO DO; WHAT A PE RSON (OR THING) HAS OR HAD TO DO; OCCUPATION EMPLOYMENT BUSINESS TASK FUNCTION. STROUD'S JUDICIAL DICTIONARY 5TH EDITION THE DEFI NITION OF 'WORK' CULLED OUT FROM DIVERSE DECISIONS HAS BEEN STATED A S FOLLOWS: 'THE WORD 'WORK' MAY BE USED IN TWO SENSES; IT MAY MEAN EITHER THE LABOUR WHICH A MAN BESTOWS UPON A THING OR THE THING UPON WHICH THE LABOUR IS BESTOWED.' AS PER NEW SHORTER OXFORD ENGLISH DICTIONARY (1993) THE TERM WORK MEANS AS PERFORM CONDUCT TO COMPLETION AND PUT INTO PRACTICE. IN SECTION 194C THE EMPHASIS IS ON ANY SUM ... FO R CARRYING OUT WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK). THEREFORE APPLYING THE MEANING OF WORK AS NOTED AB OVE THE WORDS FOR CARRYING OUT ETC CANNOT MEAN TO INCLUDE SUPPL Y OF GOODS. PAGE 9 OF 101 ITA NOS.263 TO 266/BANG/2010 9 4. WITH REGARD TO WORK THE FOLLOWING CASE LAWS WERE RELIED: 1. BIRLA CEMENTS WORKS VS. CBDT & ORS. 248 ITR 216 (SC); 2. KHAITAN & CO. VS. CIT (2007) 12 SOT 120 (DEL-ITAT); 3. BOMBAY GOODS TRANSPORT ASSOCIATION VS. CBDT [1994] 7 6 TAXMAN 334 (BOM.); 4. V.M. SALGAOCAR & BROS. LTD. VS. ITO [1999] 104 TAX MAN 29 (KAR.); 5. CALCUTTA GOODS TRANSPORT ASSOCIATION VS. UNION OF I NDIA (1996) 219 ITR 486 (CAL); 6. THE EAST INDIA HOTEL LTD VS. CBDT [2010] 320 ITR 52 6 (BOM) II. AS REGARDS THE NATURE OF CONTRACT BETWEEN APPELLAN T AND THE CONTRACTOR I.E. IS IT CONTRACT FOR SUPPLY OR CONTRACT OF WOR K : - IT IS SUBMITTED THAT WHETHER THE TRANSACTION BET WEEN APPELLANT AND THE ITS CONTRACTOR A CONTRACT FOR WORK OR A CONTRACT FOR SUPPLY HAS TO BE DETERMINED IN THE LIGHT OF THE DECISION O F THE CONSTITUTION BENCH OF THE SUPREME COURT IN THE CASE OF STATE OF HIMACHAL PRADESH VS. ASSOCIATED HOTELS OF INDIA LTD. AIR 197 2 SC 1131: 29 STC 474 (SC) AT PAGE 479 OBSERVED AS UNDER: THE DIFFICULTY WHICH THE COURTS HAVE OFTEN TO MEET WITH IN CONSTRUING A CONTRACT OF WORK AND LABOUR O N THE ONE HAND AND A CONTRACT FOR SALE ON THE OTHER ARISES BECAUSE THE DISTINCTION BETWEEN THE TWO IS V ERY OFTEN A FINE ONE. THIS IS PARTICULARLY SO WHEN THE CONTRACT IS A COMPOSITE ONE INVOLVING BOTH A CONTRA CT OF WORK AND LABOUR AND A CONTRACT OF SALE. NEVERTHELESS THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCIPLE. A CONTRACT OF SALE IS ONE WHO SE MAIN OBJECT IS THE TRANSFER OF PROPERTY IN AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATT EL TO THE BUYER. WHERE THE PRINCIPAL OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL THE CONTRACT IS ONE PAGE 10 OF 101 ITA NOS.263 TO 266/BANG/201 0 10 OF WORK AND LABOUR. THE TEST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE; NEITHER THE OWNERSHIP OF MATERIALS NOR THE VALUE OF THE SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERIALS IS CONCLUSIVE ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DETERMINING IN THE CIRCUMSTANCES OF A PARTICULAR CASE WHETHER THE CONTRACT IS IN SUBSTAN CE ONE FOR WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL (HALSBURYS LAWS OF ENGLAND 3RD EDITION V OL. 34 6-7). THE HONBLE SUPREME COURT IN THE AFORESAID CASE AT PAGE 481 HELD AS UNDER: FROM THE DECISIONS EARLIER CITED IT CLEARLY EMERG ES THAT SUCH DETERMINATION DEPENDS IN EACH CASE UPON I TS FACTS AND CIRCUMSTANCES. MERE PASSING OF PROPERTY I N AN ARTICLE OR COMMODITY DURING THE COURSE OF THE PERFORMANCE OF THE TRANSACTION IN QUESTION DOES NOT RENDER IT A TRANSACTION OF SALE. FOR EVEN IN A CONTRACT PURELY OF WORK OR SERVICE IT IS POSSIBLE THAT ARTICLES MAY HAVE TO BE USED BY THE PERSON EXECUTIN G THE WORK AND PROPERTY IN SUCH ARTICLES OR MATERIALS MAY PASS TO THE OTHER PARTY. THAT WOULD NOT NECESSARILY CONVERT THE CONTRACT INTO ONE OF SALE O F THOSE MATERIALS. IN EVERY CASE THE COURT WOULD HAVE TO FIND OUT WHAT WAS THE PRIMARY OBJECT OF THE TRANSACTION AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT. IT MAY IN SOME CASES BE THAT EVEN WHILE ENTERING INTO A CONTRACT OF WORK OR EVEN SERV ICE PARTIES MIGHT ENTER INTO SEPARATE AGREEMENTS ONE O F WORK AND SERVICE AND THE OTHER OF SALE AND PURCHASE OF MATERIALS TO BE USED IN THE COURSE OF EXECUTING THE WORK OR PERFORMING THE SERVICE. BUT THEN IN SUCH CASES THE TRANSACTION WOULD NOT BE ONE AND INDIVISI BLE BUT WOULD FALL INTO TWO SEPARATE AGREEMENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE. PAGE 11 OF 101 ITA NOS.263 TO 266/BANG/201 0 11 IT IS SUBMITTED THAT THE AFORESAID DECISION ALTHO UGH RENDERED IN THE CONTEXT OF SALES TAX HAS BEEN USED EVEN BY THE CBDT FOR THE PURPOSE OF INTERPRETATION OF SECTION 194C IN IT S CIRCULAR NO. 681. FURTHER THE AFORESAID DECISION HAS BEEN USED BY THE HONBLE TRIBUNAL AND HONBLE OTHER COURTS FOR THE PURPOSE O F INTERPRETATION OF THE AFORESAID SECTION. THE AFORESAID DECISION MA KES IT UNEQUIVOCALLY CLEAR THAT WHEN PARTIES ENTER INTO TW O SEPARATE CONTRACTS ONE FOR MATERIAL AND ONE FOR LABOUR THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL IN TO TWO SEPARATE AGREEMENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE. IN SUCH CASE THE PROVISIONS OF SECTION 194C COULD APPLY ON LY TO THE LABOUR CONTRACT AND NOT TO THE MATERIALS CONTRACT. - THE HONBLE SUPREME COURT IN THE CASE OF STATE OF A.P. VS. KONE ELEVATORS (INDIA) LTD. (2005) 3 SCC 389 CONSID ERING THE CASE OF INSTALLATION OF LIFTS HELD THAT THE CONTRACT IS A 'CONTRACT FOR SALE'. - IN THE CASE OF ANDHRA PRADESH STATE ROAD TRANSPOR T CORPORATION VS. DCIT (2002) 74 TTJ 531 (HYD.-ITAT) THE HONBLE BENCH HAS HELD AS FOLLOWS: THERE MAY BE MANY COMMON CHARACTERISTICS IN BOTH THE CONTRACT SOME NEUTRAL IN A PARTICULAR CONTRACT AND YET CERTAIN CLINCHING TERMS IN A GIVEN CASE MAY FORTIFY THE CONCLUSION ONE WAY OR THE OTHER. ALL TH AT WILL DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EAC H CASE. THIS QUESTION TO BE ANSWERED IS NOT AN EASY A ND HAS PERPLEXED THE JURISTS ALL OVER. NEVERTHELESS T HE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCI PLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF THE PROPERTY IN AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATTEL TO THE BUYER. WHERE THE DOMINANT OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL THE CONTRACT IS ONE OF WORK AND LABOUR . THE TEST IS WHETHER OR NOT THE WORK AND LABOUR PAGE 12 OF 101 ITA NOS.263 TO 266/BANG/201 0 12 BESTOWED AND IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE NEITHER THE OWNERSHIP OF MATERIALS IS CONCLUSIVE ALTHOUGH SUCH FACTORS MAY B E RELEVANT AND BE TAKEN INTO CONSIDERATION IN ASCERTAINING AND DETERMINING WHETHER THE CONTRACT I N QUESTION IS IN PITH AND SUBSTANCE A CONTRACT FOR WO RK AND LABOUR OR ONE FOR THE SALE OF CHATTEL. THESE PRINCIPLES HAVE ENUNCIATED AND CULLED OUT FROM HALSBURY LAWS OF ENGLAND 3RD EDN. VOL. 34 6-7. - CERTAIN GUIDELINES HAVE BEEN LAID DOWN BY THE APE X COURT IN THE CASE OF P.S. COMPANY VS. STATE OF ANDHRA PRADESH 56 STC 283 TO DETERMINE THE TRUE CONSTRUCTION OF A CONTRACT SO AS TO DETERMINE IN TURN AS TO WHETHER TRANSACTION COVERED BY THAT CONTRACT IS ONE OF SALE OR OF WORK AND LABOUR. THOU GH THESE GUIDELINES CANNOT BE TERMED AS INFALLIBLE TESTS YET THEY PROVIDE VALUABLE HELP AND INSIGHTS TO ARRIVE AT CORRECT DEC ISION. THESE GUIDELINES ARE AS UNDER: (1) THE ESSENCE OF THE CONTRACT OR THE REALITY OF T HE TRANSACTION AS A WHOLE HAS TO BE TAKEN INTO CONSIDERATION IN JU DGING WHETHER THE CONTRACT IS FOR A SALE OR FOR WORK AND LABOUR. (2) IF THE THING TO BE DELIVERED HAS ANY INDIVIDUAL EXISTENCE BEFORE THE DELIVERY AS THE SOLE PROPERTY OF THE PA RTY WHO IS TO DELIVER IT THEN IT IS A SALE. (3) IF THE MAIN OBJECT OF THE CONTRACT IS THE TRANS FER FROM A TO B FOR A PRICE OF THE PROPERTY IN A THING IN WHICH B HAD NO PREVIOUS PROPERTY THEN THE CONTRACT IS A CONTRACT OF SALE. (4) WHERE THE MAIN OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHAT TEL THE CONTRACT IS ONE FOR WORK AND LABOUR. (5) IF THE BULK OF THE MATERIAL USED IN THE CONSTRU CTION BELONGS TO THE MANUFACTURER WHO SELLS THE END-PRODUCT FOR A PR ICE THAT WILL BE A STRONG POINTER TO A CONCLUSION THAT THE CONTRA CT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR WORK AND LABOUR. PAGE 13 OF 101 ITA NOS.263 TO 266/BANG/201 0 13 (6) A CONTRACT WHERE NOT ONLY WORK IS TO BE DONE BU T THE EXECUTION OF SUCH WORK REQUIRES GOODS TO BE USED M AY TAKE ONE OF THREE FORMS: (A) THE CONTRACT MAY BE FOR WORK TO BE DONE FOR REMUNERATION AND FOR SUPPLY OF MATERIALS USED IN TH E EXECUTION OF THE WORK FOR A PRICE; (B) IT MAY BE A CONTRACT FOR WORK IN WHICH THE USE OF MATERIALS IS ACCESSORY OR INCIDENTAL TO THE EXECUTI ON OF WORK; OR (C) IT MAY BE A CONTRACT FOR SUPPLY OF GOODS WHERE SOME WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO THE SA LE; WHERE A CONTRACT IS OF THE FIRST TYPE IT IS A COMP OSITE CONTRACT CONSISTING ESSENTIALLY OF TWO CONTRACTS ONE FOR TH E SALE OF GOODS AND THE OTHER FOR WORK AND LABOUR. THE SECOND TYPE OF WORK IS CLEARLY A CONTRACT FOR W ORK AND LABOUR NOT INVOLVING SALE OF GOODS. WHILE THE THIRD TYPE IS CONTRACT FOR SALE WHERE THE GOODS ARE SOLD AS CHATTELS AND SOME WORK IS UNDOUBTEDLY DONE BUT IT IS DONE MERELY AS INCIDENTAL TO THE SALE. THE ISSUE RELATING TO THE NATURE OF CONTRACT REGARD ING MANUFACTURE AND SUPPLY OF SHIPS CAME FOR CONSIDERAT ION BEFORE THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN SHI PYARD LTD. VS. STATE OF ANDHRA PRADESH (2000) 119 STC 533 (SC). IN THIS CASE THE HONBLE COURT HAD LAID DOWN THE FOLLOWING TES T: 14. THE PRINCIPLES DEDUCIBLE FROM THE SEVERAL DECI DED CASES MAY BE SUMMED UP AS UNDER: 1. IT IS DIFFICULT TO LAY DOWN ANY RULE OR INFLEXIB LE RULE APPLICABLE ALIKE TO ALL TRANSACTIONS SO AS TO DISTI NGUISH BETWEEN A CONTRACT FOR SALE AND A CONTRACT FOR WORK AND LABOUR. 2. TRANSFER OF PROPERTY OF GOODS FOR A PRICE IS THE LINCHPIN OF THE DEFINITION OF SALE. PAGE 14 OF 101 ITA NOS.263 TO 266/BANG/201 0 14 WHETHER A PARTICULAR CONTRACT IS ONE OF SALE OF GOO DS OR FOR WORK AND LABOUR DEPENDS UPON THE MAIN OBJECT OF THE PARTIES FOUND OUT FROM AN OVERVIEW OF THE TERMS OF THE CONT RACT THE CIRCUMSTANCES OF THE TRANSACTIONS AND THE CUSTOM OF THE TRADE. IT IS THE SUBSTANCE OF THE CONTRACT DOCUMENT /S AND NOT MERELY THE FORM WHICH HAS TO BE LOOKED INTO. TH E COURT MAY FORM AN OPINION THAT THE CONTRACT IS ONE WHOSE MAIN OBJECT IS TRANSFER OF PROPERTY IN A CHATTEL AS CHAT TEL TO THE BUYER THOUGH SOME WORK MAY BE REQUIRED TO BE DONE UNDER THE CONTRACT AS ANCILLARY OR INCIDENTAL TO THE SALE THEN IT IS A SALE. IF THE PRIMARY OBJECT OF THE CONTRACT IS THE CARRYING OUT OF WORK BY BESTOWAL OF LABOUR AND SERVICES AND MATERIALS ARE INCIDENTALLY USED IN EXECUTION OF SUCH WORK THE N THE CONTRACT IS ONE FOR WORK AND LABOUR. [SEE PARA 14(2 )]. 3. IF THE THING TO BE DELIVERED HAS ANY INDIVIDUAL EXISTENCE BEFORE THE DELIVERY AS THE SOLE PROPERTY OF THE PAR TY WHO IS TO DELIVER IT THEN IT IS A SALE. [SEE PARA 14(3)]. 4. IF THE BULK OF MATERIAL USED IN CONSTRUCTION BEL ONGS TO THE MANUFACTURER WHO SELLS THE END-PRODUCT FOR A PRICE THEN IT IS A STRONG POINTER TO THE CONCLUSION THAT THE CONTRACT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR LABOUR. H OWEVER THE TEST IS NOT DECISIVE. IT IS NOT BULK OF THE MATERIA L ALONE BUT THE RELATIVE IMPORTANCE OF THE MATERIAL QUA THE WORK S KILL AND LABOUR OF THE PAYEE WHICH HAVE TO BE WEIGHED. IF TH E MAJOR COMPONENT OF THE END PRODUCT IS THE MATERIAL CONSUM ED IN PRODUCING THE CHATTEL TO BE DELIVERED AND SKILL AND LABOUR ARE EMPLOYED FOR CONVERTING THE MAIN COMPONENTS INTO TH E END PRODUCTS THE SKILL AND LABOUR ARE ONLY INCIDENTALL Y USED THE DELIVERY OF THE END PRODUCT BY THE SELLER TO THE BU YER WOULD CONSTITUTE A SALE. ON THE OTHER HAND IF THE MAIN O BJECT OF THE CONTRACT IS TO AVAIL THE SKILL AND LABOUR OF THE SE LLER THOUGH SOME MATERIAL OR COMPONENTS MAY BE INCIDENTALLY USED DU RING THE PROCESS OF THE END PRODUCT BEING BROUGHT INTO EXIST ENCE BY THE INVESTMENT OF SKILL AND LABOUR OF THE SUPPLIER TH E TRANSACTION WOULD BE A CONTRACT FOR WORK AND LABOUR. PAGE 15 OF 101 ITA NOS.263 TO 266/BANG/201 0 15 IN THE AFORESAID DECISION THE APEX COURT IN PARA 1 5 OF THE JUDGMENT OBSERVED AS UNDER: THERE MAY BE THREE CATEGORIES OF CONTRACTS: (I) THE CONTRACT MAY BE FOR WORK TO BE DONE FOR REM UNERATION AND FOR SUPPLY OF MATERIALS USED IN THE EXECUTION O F THE WORK FOR A PRICE; (II) IT MAY BE A CONTRACT FOR WORK IN WHICH THE USE OF THE MATERIALS IS ANCILLARY OR INCIDENTAL TO THE EXECUTI ON OF THE WORK; & (III) IT MAY BE A CONTRACT FOR SUPPLY OF GOODS WH ERE SOME WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO THE SALE. THE FIRST CONTRACT IS A COMPOSITE CONTRACT CONSISTI NG OF TWO CONTRACTS ONE OF WHICH IS FOR THE SALE OF GOODS AND THE OTHER IS FOR WORK AND LABOUR. THE SECOND IS CLEARLY A CONTRACT F OR WORK AND LABOUR NOT INVOLVING SALE OF GOODS. THE THIRD IS A CONTRACT FOR SALE WHERE THE GOODS ARE SOLD AS CHATTELS AND THE WORK D ONE IS MERELY INCIDENTAL TO THE SALE. 1. IT IS SUBMITTED THAT IN THE INSTANT CASE 80% TO 8 5% OF THE TOTAL CONSIDERATION IS TOWARDS THE SUPPLY OF MATERIALS AN D ONLY 20% TO 15% IS TOWARDS ERECTION AND CIVIL WORKS. 2. FURTHER IT IS SUBMITTED THAT THE ERECTION WORK AN D CIVIL WORK ARE CARRIED ON IN FURTHERANCE TO THE SUPPLY OF MATERIAL . IN OTHER WORDS ERECTION WORK AND THE CIVIL WORKS ARE INCIDENTAL TO SUPPLY OF MATERIALS. THE SUBSTANCE OF THE AGREEMENT OR ARRANG EMENT BETWEEN THE PARTIES IS TO SUPPLY THE MATERIALS AND NOT CARR YING OUT THE WORK. INSTALLATION OR ERECTION WORK AND CIVIL CONST RUCTION WORK CAN ONLY BE REGARDED AS ANCILLARY TO THE CONTRACT OF SU PPLY. 3. THEREFORE IT IS SUBMITTED THAT THE ENTIRE ARRANGE MENT ENCOMPASSING SUPPLY ERECTION AND CIVIL PORTION IS TO BE REGARDED AS A CONTRACT FOR SUPPLY OF EQUIPMENT ON THE BASIS THA T ERECTION AND CIVIL PORTION OF ONLY ANCILLARY AND SUBSERVIENT TO THE SUPPLY PORTION. APPLYING THE DOMINANT TEST THEORY AS CANVASSED AND ACCEPTED IN THE PAGE 16 OF 101 ITA NOS.263 TO 266/BANG/201 0 16 AFORESAID DECISIONS IT IS SUBMITTED THAT WHERE THE RESPONDENT CONTENDS THAT THE ENTIRE ARRANGEMENT BETWEEN THE A PPELLANT AND ITS CONTRACTORS IS REGARDED AS ONE INDIVISIBLE CONT RACT THE SAME SHOULD BE REGARDED AS A SUPPLY CONTRACT. IN SUCH CA SE THE APPELLANTS CASE FALLS AS THE THIRD CATEGORY OF CON TRACTS DISCUSSED IN THE ABOVE DECISION. ACCORDINGLY IT IS SUBMITTED THAT APPELLANT IS NOT LIABLE TO DEDUCT TAX AT ALL IN RESPECT OF EVEN THE CIVIL PORTION AND ERECTION PORTION. 4. EVEN OTHERWISE IF ERECTION PORTION AND CIVIL PORTI ON ARE CONSIDERED AS OF EQUAL SIGNIFICANCE AS SUPPLY PORTION AS PER THE ABOVE DECISION THE APPELLANTS CASE FALLS IN THE FIRST CATEGORY OF CONTRACTS I.E. COMPOSITE CONTRACTS. AS DECIDED IN THE AFORESAID CA SE WHERE A CONTRACT IS OF THE FIRST TYPE IT IS A COMPOSITE CO NTRACT CONSISTING ESSENTIALLY OF TWO CONTRACTS ONE FOR THE SALE OF G OODS AND THE OTHER FOR WORK AND LABOUR. IN SUCH CASE IT IS NATU RAL THAT THE PROVISIONS OF SECTION 194C WOULD APPLY ONLY TO THE LATTER CONTRACT AND NOT TO BE FORMER ONE. - RELIES ON THE FOLLOWING CBDT CIRCULARS:. (I) CIRCULAR NO. 295 DATED 06.03.1981; (II) CIRCULAR NO. 681 DATED 08.03.1994 HAS ALSO L AID DOWN CERTAIN GUIDELINES THE RELEVANT EXCERPTS READ AS F OLLOWS: (VI) THE PROVISIONS OF THIS SECTION WILL NOT COVER CONTRACTS FOR SALE OF GOODS (A) SINCE CONTRACTS FOR THE CONSTRUCTION REPAIR R ENOVATION OR ALTERATION OF BUILDINGS OR DAMS OR LAYING OF ROA DS OR AIRFIELDS OR RAILWAY LINES OR ERECTION OR INSTALLAT ION OF PLANT AND MACHINERY ARE IN THE NATURE OF CONTRACTS FOR WO RK AND LABOUR INCOME-TAX WILL HAVE TO BE DEDUCTED FROM P AYMENTS MADE IN RESPECT OF SUCH CONTRACTS. SIMILARLY CONTR ACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNM ENT OR ANY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR S UCH PERSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS S ECTION. THE SAME POSITION WILL OBTAIN IN RESPECT OF CONTRACTS F OR FABRICATION OF ANY ARTICLE OR THING WHERE MATERIALS ARE PAGE 17 OF 101 ITA NOS.263 TO 266/BANG/201 0 17 SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED P ERSON AND THE FABRICATION WORK IS DONE BY A CONTRACTOR. (B)WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUP PLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIF ICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUCH ARTICLE OR THING PASSES TO THE GOV ERNMENT OR SUCH PERSON ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE AND AS SUC H OUTSIDE THE PURVIEW OF THIS SECTION. CIRCULAR NO. 715 DATED 08.08.1995 THE RELEVANT Q UESTION AND ANSWER READS AS FOLLOWS: Q 15: WHETHER SECTION 194C WOULD APPLY IN RESPECT O F SUPPLY OF PRINTED MATERIAL AS PER PRESCRIBED SPECIF ICATIONS? ANS: YES. THUS THERE WAS A CONFLICT BETWEEN CIRCULAR NO. 681 AND 715. THE SAME WAS BROUGHT TO THE NOTICE OF THE CBDT AND IN THIS REGARD THE CBDT ISSUED CIRCULAR NO. 13 OF 2006 DATED 13.12.2006 WHICH READS AS FOLLOWS: 1. REPRESENTATIONS HAVE BEEN RECEIVED IN THE BOARD SEEKING CLARIFICATION ON THE APPLICABILITY OF SECTION 194C ON SUCH TRANSACTIONS WHERE THE ASSESSEE HAS OUTSOURCED CER TAIN WORK RELATING TO FABRICATION OR MANUFACTURING OF ARTICLE OR THING IN ACCORDANCE WITH THE SPECIFICATIONS GIVEN BY THE ASS ESSEE. CIRCULAR NO. 681 DATED 8-3-1994 OF THE BOARD CLARIFIES IN PARA 7(VI) THAT THE PROVISIONS OF SECTION 194C WOULD NOT APPLY TO CONTRACTS FOR SALE OF GOODS AND FURTHER CLARIFIES THAT WHERE THE PROPERTY IN THE ARTICLE OR THING SO FABRICATED PASSES FROM THE FABRICATOR- CONTRACTOR TO THE ASSESSEE ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED TO THE ASSESSEE SUCH CONTRACT WOULD BE A CONTRACT FOR SALE AND SO OUTSIDE THE PURVIEW OF SECTION 194C. HO WEVER IN REPLY TO QUESTION NO. 15 IN CIRCULAR NO. 715 ON THE SUBJ ECT OF PAGE 18 OF 101 ITA NOS.263 TO 266/BANG/201 0 18 APPLICABILITY OF SECTION 194C IN RESPECT OF CONTR ACT OR SUPPLY PRINTED MATERIAL AS PER PRESCRIBED SPECIFICATIONS IT HAS BEEN SAID THAT SUCH CONTRACTS WOULD ALSO BE COVERED UNDER SE CTION 194C. IT HAS BEEN REPRESENTED THAT THE VIEWS EXPRESSED IN TH ESE TWO CIRCULARS TO THE EXTENT AS POINTED OUT ABOVE ARE IN CONTRADICTION TO EACH OTHER. THE MATTER HAS BEEN EXAMINED BY THE BOARD AND IT IS CONSIDERED THAT EXCLUSIVE RELIANCE ON QUESTION/ANSWER NO. 15 O F CIRCULAR NO. 715 WITHOUT TAKING INTO ACCOUNT THE PRINCIPLES LAI D DOWN IN CIRCULAR NO. 681 IS NOT JUSTIFIED. BEFORE TAKING A DECISION ON THE APPLICABILITY OF TDS UNDER SECTION 194C ON A CONTRA CT IT WOULD HAVE TO BE EXAMINED WHETHER THE CONTRACT IN QUESTIO N IS A CONTRACT FOR WORK OR A CONTRACT FOR SALE AND TD S SHALL BE APPLICABLE ONLY WHERE IT IS A CONTRACT FOR WORK. IT IS THEREFORE CLARIFIED THAT THE PROVISIONS OF SECTION 194C WOULD APPLY IN RESPECT OF A CONTRACT FOR SUPPLY OF ANY ARTICLE OR THING AS PER PRESCRIBED SPECIFICATIONS ONLY IF IT I S A CONTRACT FOR WORK AND NOT A CONTRACT FOR SALE AS PER THE PRINCIP LES IN THIS REGARD LAID DOWN IN PARA 7(VI) OF CIRCULAR NO. 681 DATED 8-3- 1994. WHILE LOOKING INTO THE ASPECTS AS ENVISAGED IN THE CBDTS CLARIFICATION IN CIRCULAR NO. 681. PARAGRAPH 7 (VI) (A) PROVIDES THAT SIMILARLY C ONTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNMENT OR A NY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR SUCH PERSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE SAME POSITION WILL OBT AIN IN RESPECT OF CONTRACTS FOR FABRICATION OF ANY ARTICLE OR THING W HERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFI ED PERSON AND THE FABRICATION WORK IS DONE BY A CONTRACTOR. AS PER THE ABOVE PARAGRAPH IN ORDER THAT SECTION 1 94C IS ATTRACTED IT IS NECESSARY THAT THE OWNERSHIP OF GO ODS REMAINS AT ALL TIMES WITH THE CONTRACTEE. PAGE 19 OF 101 ITA NOS.263 TO 266/BANG/201 0 19 PARAGRAPH 7 (VI) (B) PROVIDES THAT WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUPPLY ANY ARTICLE OR THIN G FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUCH ARTICLE O R THING PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH AR TICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR S ALE AND AS SUCH OUTSIDE THE PURVIEW OF THIS SECTION. AS PER THE AFORESAID PARAGRAPH WHEN THE CONTRACTOR UNDERTAKES TO SUPPLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY THE SPECIFIED PERSON AND TH E PROPERTY IN SUCH ARTICLE OR THING PASSES TO THE SPECIFIED PERSO N ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED THE CONTRACT WI LL BE A CONTRACT FOR SALE. THEREFORE THE CASE OF APPELLANT FALLS WI THIN PARAGRAPH 7 (VI) (B) AND NOT WITHIN PARAGRAPH 7 (VI) (A). THE LD. CIT (A) IS NOT JUSTIFIED IN STATING THAT THERE IS NO TRANSFER OF PROPERTY IN THE EQUIPMENTS BY THE MANUF ACTURER TO THE CUSTOMER AS A CHATTEL DESPITE THE FACT THAT TRANSFER OF THE TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUPPLIE D BY THE CONTRACTOR TO THE APPELLANT TAKES PLACE IN FAVOUR O F APPELLANT PURSUANT TO THE TERMS OF THE CONTRACT BY WAY OF NEG OTIATION OF DISPATCH DOCUMENTS. HE IS NOT JUSTIFIED IN IGNORING THE RELEVANT CLAUSES IN THE INSTRUCTION TO BIDDERS AND WRONGLY STATING THAT THE PROPERTY GETS TRANSFERRED TO THE APPELLANT ONLY AFT ER THE EQUIPMENTS MATERIALS COMPONENT PARTS ARE FITTED A ND INSTALLED AT THE WORKS SITE PREMISES. IN THIS REGARD THE RELEVANT EXTRACTS OF THE INSTR UCTION TO BIDDERS ISSUED BY THE KPTLC FOR INVITING BIDS WHI CH READ AS FOLLOWS: (REFER PAGE 15 OF THE ORDER) 37.3 FOR CONTRACTOR SUPPLIED EQUIPMENTS/MATERIALS 37.3.1 TRANSFER OF THE TITLE IN RESPECT OF EQUIPMEN T AND MATERIALS SUPPLIED BY THE CONTRACTOR TO THE KPTCL PURSUANT TO THE TERMS OF THE CONTRACT SHALL PASS ON TO THE KPTCL WITH NEGOTI ATION OF DISPATCH DOCUMENTS. PAGE 20 OF 101 ITA NOS.263 TO 266/BANG/201 0 20 37.3.4 IN ORDER TO ENABLE THE CONTRACTOR TO CARRY O UT ITS OBLIGATION UNDER THE CONTRACT SUCH AS RECEIPT AT SI TE STORAGE ERECTION TESTING ETC THE OWNER (KPTCL) SHALL HAN D OVER (WHEREVER APPLICABLE) THE GOODS TO THE CONTRACTOR A GAINST AN INDEMNITY BOND IN THE FORMAT ENCLOSED AS ANNEXURE V III & IX. THE CONTRACTOR SHALL BE FULLY RESPONSIBLE FOR THE SAFETY OF THE GOODS WHILE THE SAME ARE UNDER ITS CUSTODY AS ABOVE . 37.4 THE CONTRACTOR SHALL BE FULLY RESPONSIBLE FOR THE SAFETY OF ALL THE EQUIPMENTS/MATERIALS WHILE THE SAME ARE UND ER HIS CUSTODY AS ABOVE UNTIL TAKING OVER OF THE STATIONS AND TRA NSMISSION LINES BY THE OWNER IN ACCORDANCE WITH CLAUSE 9.0 O F SECTION-V SPECIAL CONDITIONS OF CONTRACT-SCC VOLUME-I. IT IS CLEAR FROM THE INSTRUCTION TO BIDDERS THAT THE TRANSFER OF THE TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUP PLIED BY THE CONTRACTOR TO THE APPELLANT TAKES PLACE IN FAVOUR O F APPELLANT PURSUANT TO THE TERMS OF THE CONTRACT BY WAY OF NEG OTIATION OF DISPATCH DOCUMENTS. AS THE TITLE TO EQUIPMENTS AND MATERIALS ALREADY PA SSED ON TO THE APPELLANT AND APPELLANT HAVING BECOME THE OWNER OF EQUIPMENTS AND MATERIALS ISSUES THE SAME TO THE CONTRACTORS F OR CARRYING OUT CIVIL WORKS OR ERECTION WORKS AT THE SITE LOCATION. FOR ISSUING SUCH GOODS TO THE CONTRACTOR HE HAS TO EXECUTE AN INDEM NITY BOND IN FAVOUR OF APPELLANT. THIS PROVES THAT THE TITLE TO EQUIPMENTS AND MATERIALS GETS TRANSFERRED IN FAVOUR OF APPELLANT M UCH EARLIER TO THE COMMENCEMENT OF THE ERECTION AND CIVIL WORKS. AS SOON AS THE WORK IS AWARDED BY APPELLANT TO THE CONTRACTOR THE CONTRACTOR SUPPLIES THE EQUIPMENT TO THE APPELL ANT AND THE PROPERTY IN GOODS GETS TRANSFERRED AT THAT POINT OF TIME ONLY. IT IS ONLY LATER APPELLANT HANDS OVER THE EQUIPMENT TO THE CONTRACTORS FOR USING THEM IN THE ERECTION AND CIVI L WORK PORTIONS. THEREFORE THE CONTRACT RELATING TO SUPPLY OF EQUIPM ENT IS A SEPARATE AND DISTINCT CONTRACT FOR SALE AND THE C ASE OF APPELLANT FALLS WITHIN THE PARAGRAPH 7 (VI) (B) OF THE ABOVE CIRCULAR. PAGE 21 OF 101 ITA NOS.263 TO 266/BANG/201 0 21 FOR THE PURPOSE OF SECTION 194C THE TERM WORK HA S BEEN DEFINED IN EXPLANATION (IV). THE SUB-CLAUSE (E) DEEMS CONTR ACT MANUFACTURING AS WORK. HOWEVER THE LATTER PART OF THE AFORESAID SUB-CLAUSE CLEARLY EXCLUDES MANUFACTURING OR SUPPLY ING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER. ON A CLOSE SCRUTINY THE AFORESAID EXCLUS ION APPLIES NOT ONLY TO MANUFACTURING BUT ALSO TO SUPPLYING WHEN SU CH SUPPLY IS ACCORDING TO BE REQUIREMENT OR SPECIFICATIONS OF TH E CUSTOMER AND FOR SUCH SUPPLY THE SUPPLIER HAS USED MATERIAL PUR CHASED FROM A PERSON OTHER THAN THE CUSTOMER. IT IS SUBMITTED THA T THE CASE OF APPELLANT SQUARELY COVERED BY THE AFORESAID EXCEPT ION FOR THE REASONS THAT THE CONTRACTOR HAS UNDERTAKEN TO SUPPL Y TO APPELLANT THE EQUIPMENT AS PER THE SPECIFICATIONS OF APPELLAN T AND FOR THE PURPOSE OF SUCH SUPPLY CONTRACTOR HAS NOT USED MAT ERIALS BOUGHT FROM APPELLANT. APPLYING THE AFORESAID EXCEPTION I T COULD BE SAID THAT THE ACTIVITY CARRIED OUT BY CONTRACTOR FOR APP ELLANT CANNOT BE REGARDED AS WORK AT ALL. EVEN THOUGH THE AFORESAID PROVISION WAS NEWLY INTR ODUCED BY THE FINANCE ACT 2009 EVEN PRIOR TO THE AFORESAID AMEND MENT CONTRACT MANUFACTURING WAS NEVER CONSIDERED AS WORK . BY VIRTUE OF THE AFORESAID AMENDMENT ALTHOUGH CONTRACT MANUFACT URING IS NOW DEEMED TO BE WORK WHEN THE SUPPLY IS ACCORDING TO SPECIFICATIONS OF THE CUSTOMER AND FOR THE PURPOSE OF SUPPLY THE SUPPLIER HAS NOT USED THE MATERIALS OF CUSTOMER SUCH SUPPLY IS NOT TO BE REGARDED AS WORK. IN THE CASE OF CIT VS. M/S. GLENMARK PHARMACEUTICAL S LTD (2010) 324 ITR 199 THE BOMBAY HIGH COURT HAS HELD THE WO RK AS DEFINED IN THE NEWLY RECAST SECTION 194C IS CLARIFI CATORY AND HENCE RETROSPECTIVE IN OPERATION. ACCORDING TO THE BOMBAY HIGH COURT EVEN BEFORE SECTION 194C WAS RECAST UNLESS THE CON TRACT INVOLVED USE OF GOODS SUPPLIED BY THE CONTRACTEE THERE CANN OT BE WORK AS UNDERSTOOD BY THE COURTS AND THE DEPARTMENT THRO UGH ITS VARIOUS CIRCULARS. THE HONOURABLE HIGH COURT HELD A S FOLLOWS: PAGE 22 OF 101 ITA NOS.263 TO 266/BANG/201 0 22 HENCE WHAT HAS WEIGHED IN THE INTRODUCTION OF CLAUSE (E) TO THE EXPLANATION WAS ONGOING LITIGATIO N ON THE QUESTION AS TO WHETHER TDS WAS DEDUCTIBLE ON OUTSOURCING CONTRACTS. CLAUSE (E) WAS INTRODUCED T O BRING CLARITY ON THIS ISSUE : OR IN OTHER WORDS TO REMOVE THE AMBIGUITY ON THE QUESTION. CLAUSE (E) AS INTRODUCED CONTAINS A POSITIVE AFFIRMATION THAT THE EXPRESSION WORK WILL COVER MANUFACTURING OR SUPPL YING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH A CUSTOMER. CLAUSE (E) HAS PLAC ED THE POSITION BEYOND DOUBT BY INCORPORATING LANGUAGE TO THE EFFECT THAT THE EXPRESSION WORK SHALL NOT INC LUDE MANUFACTURE OR SUPPLY OF A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL WHICH IS PURCHASED FROM A PERSON OTHER THA N SUCH CUSTOMER. IN OTHER WORDS THE CIRCUMSTANCE THA T REQUIREMENTS OR SPECIFICATIONS ARE PROVIDED BY THE PURCHASER IS NOT REGARDED BY THE STATUTE AS BEING DISPOSITIVE OF THE QUESTION AS TO WHETHER A CONTRAC T CONSTITUTES A CONTRACT OF WORK OR SALE. WHAT IS OF SIGNIFICANCE IS WHETHER MATERIAL HAS BEEN PURCHASED FROM THE CUSTOMER WHO ORDERS THE PRODUCT. WHEN THE MATERIAL IS PURCHASED FROM THE CUSTOMER WHO ORDERS THE PRODUCT IT CONSTITUTES A CONTRACT OF WO RK WHILE ON THE OTHER HAND WHERE THE MANUFACTURER HAS SOURCED THE MATERIAL FROM A PERSON OTHER THAN THE CUSTOMER IT WOULD CONSTITUTE A SALE. WHAT IS SIGNIFICANT IS THAT IN USING THE WORDS WHICH CLAUSE (E) USES IN THE EXPLANATION PARLIAMENT HAS TAKEN NOTE OF THE POSITION THAT WAS REFLECTED IN THE CIRCULARS IS SUED BY THE CENTRAL BOARD OF DIRECT TAXES SINCE MAY 29 1972. THE JUDGMENT OF THE SUPREME COURT IN ASSOCIATED CEMENT GAVE AN EXPANSIVE DEFINITION TO T HE EXPRESSION WORK AND REJECTED THE ATTEMPT OF THE ASSESSEE IN THAT CASE TO RESTRICT THE EXPRESSION WORK TO WORKS CONTRACT. BOTH BEFORE AND AFTER T HE JUDGMENT OF THE SUPREME COURT THE EXPANSIVE PAGE 23 OF 101 ITA NOS.263 TO 266/BANG/201 0 23 DEFINITION OF THE EXPRESSION WORK CO-EXISTED WITH THE REVENUES UNDERSTANDING THAT A CONTRACT FOR SAL E WOULD NOT BE WITHIN THE PURVIEW OF SECTION 194C. TH E REVENUE ALWAYS UNDERSTOOD SECTION 194C TO MEAN THAT THOUGH A PRODUCT OR THING IS MANUFACTURED TO THE SPECIFICATIONS OF A CUSTOMER THE AGREEMENT WOULD CONSTITUTE A CONTRACT FOR SALE IF (I) THE PROPERTY IN THE ARTICLE OR THING PASSES TO THE CUSTOMER UPON DELIVERY; AND (II) THE MATERIAL THAT WAS REQUIRED W AS NOT SOURCED FROM THE CUSTOMER/PURCHASER BUT WAS INDEPENDENTLY OBTAINED BY THE MANUFACTURER FROM A PERSON OTHER THAN THE CUSTOMER. THE RATIONALE FOR THIS WAS THAT WHERE A CUSTOMER PROVIDES THE MATERIA L WHAT THE MANUFACTURER DOES IS TO CONVERT THE MATERI AL INTO A PRODUCT DESIRED BY THE CUSTOMER AND OWNERSHI P OF THE MATERIAL BEING OF THE CUSTOMER THE CONTRACT ESSENTIALLY INVOLVES WORK OF LABOUR AND NOT A SALE. PARLIAMENT RECOGNIZED THE DISTINCTION WHICH HELD TH E FIELD BOTH ADMINISTRATIVELY IN THE FORM OF CIRCULAR S OF THE CENTRAL BOARD OF DIRECT TAXES AND JUDICIALLY IN THE JUDGMENTS OF SEVERAL HIGH COURTS TO WHICH A REFERENCE HAS BEEN MADE EARLIER. CONSEQUENTLY THE PRINCIPLES UNDERLYING THE APPLICABILITY OF SECTION 194C AS CONSTRUED ADMINISTRATIVELY AND JUDICIALLY IN DEC IDED CASES FIND STATUTORY RECOGNITION IN THE EXPLANATIO N. THE EXPLANATION THEREFORE AS THE MEMORANDUM EXPLAINING THE CLAUSES OF THE FINANCE BILL OF 2009 STATES WAS IN THE NATURE OF A CLARIFICATION. WHERE AN EXPLANATORY PROVISION IS BROUGHT TO REMOVE AN AMBIGUITY OR TO CLEAR A DOUBT IT IS REFLECTIVE OF THE LAW AS IT HAS ALWAYS STOOD IN THE PAST. WHERE AS I N THE PRESENT CASE AN EXPLANATION IS INTRODUCED STATUTORILY TO ADOPT AN UNDERSTANDING OF THE LAW BO TH IN THE FORM OF THE CIRCULARS OF THE CENTRAL BOARD O F DIRECT TAXES AND IN JUDICIAL DECISIONS PARLIAMENT MUST BE REGARDED AS HAVING INTENDED TO AFFIRM THAT INTEN T. IN THE PRESENT CASE THE INTENT HAS HELD THE FIELD FOR OVER THREE DECADES. PAGE 24 OF 101 ITA NOS.263 TO 266/BANG/201 0 24 THE NEWLY RECAST SECTION 194C (3) ALSO RECOGNIZES E XCLUSION OF VALUE OF MATERIAL IF THE SAME IS MENTIONED SEPARATE LY IN THE INVOICE. EVEN THOUGH THE AFORESAID SUBSECTION RELA TES TO THE WORK MENTIONED IN EXPLANATION (IV) (E) THERE IS NO REAS ON WHY SUCH EXCLUSION OF VALUE OF MATERIAL CANNOT BE MADE IN RE SPECT OF ANY OTHER TYPE OF WORK. THE AFORESAID SUBSECTION IN PRI NCIPLE ACCEPTS THE LOGIC OF EXCLUSION OF VALUE OF MATERIAL. THEREFORE THE SUPPLY PORTION OF THE CONTRACT BEING PURELY FOR SUPPLY OF EQUIPMENT DOES NOT REQUIRE DEDUCTION OF T AX AT SOURCE. III. AS REGARDS TREATING THE WORK ORDER AS A COMPOSITE CONTRACT : THE CIT(A) IS NOT JUSTIFIED IN TREATING SUPPLY CONT RACT ERECTION CONTRACT AND CIVIL ENGINEERING CONTRACT SEPARATELY ENTERED I NTO AS A COMPOSITE CONTRACT FOR WORK. IN THIS REGARD THE COMMENTS OF THE AO WHICH READ AS - (IN PAGE 7 OF THE ORDER) THE ASSESSEES CONTRACT IS A COMPOSITE CONTRACT FOR ESTABLISHING SUB-STATION 13. FOR CONSTRUING THIS CONTRACT ONE TENDER NOTIFI CATION DATED 21/4/2006 MAY BE PERUSED. THE NOTIFICATION IS ISSUE D FOR ESTABLISHING SUBSTATION AND CONSTRUCTION OF 60KV LINES. THE PER USAL OF NOTIFICATION CLEARLY SHOW THAT NO SEPARATE NOTIFICATIONS ARE ISS UED FOR SUPPLY CONSTRUCTION AND ERECTION PART OF THE CONTRACT. THE ASSESSEE HAS FLOATED A TENDER FOR ENTIRE WORK AS AN INDIVISIBLE CONTRACT. ACCORDINGLY THE AO CONCLUDED THE AGREEMENT BETWEEN THE APPELLANT AND ITS CONTRACTOR A COMPOSITE CONTRACT ON THE BASIS TH AT APPELLANT HAS NOT ISSUED SEPARATE NOTIFICATION FOR SUPPLY CONSTRU CTION AND ERECTION. (IN PAGE 10 OF THE ORDER) 14. COLUMN 8 OF THE ABOVE TENDER NOTIFICATION ON B ID DOCUMENTS SHOW THAT THE DOCUMENTS ACCOMPANY TENDER NOTIFICATION AR E DIVIDED INTO COMMERCIAL REQUIREMENTS TECHNICAL REQUIREMENTS AND BID PROPOSAL SHEETS. THERE ARE NO DIVISIONS OF THE CONTRACT INT O SUPPLY PAGE 25 OF 101 ITA NOS.263 TO 266/BANG/201 0 25 CONSTRUCTION AND ERECTION. THE ENTIRE BID PROCE SS IS A COMPOSITE BID PROCESS FOR THE COMMENCEMENT ISSUE RECEIPT AND OP ENING OF BIDS. 15. IN THE ABOVE CIRCUMSTANCES ASSESSEE COMPANYS CONTENTION OF CONTRACT BEING DIVISIBLE CONTRACT IS NOT BORNE OU T BY THE OTHER TERMS OF THE CONTRACT. AS PER THE AFORESAID PARAGRAPHS THE RESPONDENT CON CLUDES THAT THE CONTRACT ENTERED BETWEEN APPELLANT AND CONTRACTORS IS COMPOSITE CONTRACT ON THE BASIS THAT THE BIDDING PROCESS INV ITED BY APPELLANT IS A COMPOSITE BIDDING PROCESS. IN THIS REGARD A REFERENCE MAY BE MADE TO THE RELEV ANT EXTRACTS OF THE INSTRUCTION TO BIDDERS ISSUED BY THE APPELLANT W HICH READ AS FOLLOWS: (REFER PAGE 5 OF THE ORDER) 14.1 AS INDICATED IN CLAUSE 35.2 OF SECTION ITB OF THE BID DOCUMENTS IN CASE OF AWARD OF CONTRACT A DIVISIBLE CONTRACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/ TOTAL TURNKEY PACKAGE WILL BE ENTERED INTO WITH THE SUCCESSFUL BIDDER THERE SHALL BE THREE SEPARAT E CONTRACTS AS UNDER: I) FOR SUPPLY OF GOODS; II) FOR ERECTION WORKS; & ( III) FOR CIVIL ENGINEERING WORKS. (REFER PAGE 19 & 20 OF THE ORDER) F. AWARD OF CONTRACT 35.0 AWARD CRITERIA: 35.1 THE OWNER WILL AWARD THE CONTRACT TO THE SUCCE SSFUL BIDDER WHOSE BID HAS BEEN DETERMINED TO BE SUBSTANTIALLY RESPONS IVE AND HAS BEEN DETERMINED AS THE LOWEST EVALUATED BID PROVIDED FU RTHER THAT THE BIDDER IS DETERMINED TO BE QUALIFIED TO PERFORM THE CONTRACT SATISFACTORILY. THE OWNER SHALL BE THE SOLE JUDGE I N THIS REGARD. 35.2 IN CASE OF AWARD OF CONTRACT A DIVISIBLE CONT RACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/ TOTAL TURNKEY PACKAGE WILL BE ENTERED INTO WITH THE SUCCESSFUL BIDDER THERE SHALL BE THREE SE PARATE CONTRACTS AS UNDER: PAGE 26 OF 101 ITA NOS.263 TO 266/BANG/201 0 26 (I) FOR SUPPLY OF GOODS; (II) FOR ERECTION WORKS; & (III) FOR CIVIL ENGINEERING WORKS. (REFER PAGE 22 OF THE ORDER) 7.0 CONSTRUCTION OF THE CONTRACT: 7.1 NOTWITHSTANDING ANYTHING STATED ELSEWHERE IN TH E BID DOCUMENTS THE CONTRACT TO BE ENTERED INTO WILL BE TREATED AS A DIVISIBLE CONTRACT RESULTING INTO THREE SEPARATE CONTRACTS O NE FOR SUPPLY OF GOODS THE SECOND FOR ERECTION AND THE THIRD FOR CI VIL ENGINEERING WORKS COVERING THE ENTIRE SCOPE OF THE PARTIAL/TOTAL TURN KEY PACKAGE. THE CIT (A) WAS NOT JUSTIFIED IN TREATING THE SEPAR ATE CONTRACTS AS A COMPOSITE CONTRACT MERELY ON THE BASIS OF A CLAUSE IN THE CONTRACT AGREEMENT (SUPPLY PORTION) THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PERFORMANCE OF THE ERECTION PORTION AND CIVIL W ORKS PORTION. HE HAS FAILED TO APPRECIATE THAT MERELY MAKING THE CONTRA CTOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL WORKS POR TION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LESS A SUPPLY CONTRACT. HE IS NOT JUSTIFIED IN FAILING TO APPRECIATE THAT ASSUMPTION OF OVERALL RE SPONSIBILITY IS A CONTRACTUAL MATTER WHICH BY ITSELF WOULD NOT ALTER THE ESSENCE OF THE TRANSACTION OF SUPPLY. THE CIT (A) WAS NOT JUSTIFIED IN TREATING THE SEPAR ATE CONTRACTS EXPRESSLY ENTERED AS SUCH AS A COMPOSITE CONTRACT M ERELY ON THE BASIS THAT ALL THE CONTRACTS HAVE BEEN AWARDED THROUGH A SINGLE BIDDING PROCESS THAT MERELY BECAUSE THE BIDDING PROCESS I S A COMPOSITE ONE IT CANNOT BE CONCLUDED THE CONTRACT IS A COMPOSITE CON TRACT. IT IS ALSO SUBMITTED THAT THE AO HAS STATED THAT APPELLANT HAS NEITHER ISSUED SEPARATE TENDER NOTIFICATION NOR DIV IDED THE CONTRACT INTO SUPPLY CONSTRUCTION AND ERECTION WHICH IS FACTUAL LY INCORRECT. THE CIT(A) OR THE AO HAS FAILED TO APPRECIATE THAT THE APPELLANT HAD NEVER INTENDED TO TREAT THE CONTRACT AS COMPOSITE C ONTRACT. - AS PER THE TERMS OF THE INSTRUCTIONS TO BIDDERS AS RETREATED ABOVE THE APPELLANT HAS CLEARLY LAID OUT THAT ONCE THE CO NTRACTOR IS FOUND TO BE A SUCCESSFUL BIDDER THE ENTIRE SCOPE OF THE CON TRACT IS DIVIDED INTO PAGE 27 OF 101 ITA NOS.263 TO 266/BANG/201 0 27 3 SEPARATE CONTRACTS I.E. FOR SUPPLY OF MATERIALS ERECTION AND CIVIL ENGINEERING WORKS; - FURTHER THE TERMS OF THE INSTRUCTIONS TO BIDDER S ALSO STATE THAT THE CONTRACT ENTERED BY APPELLANT WITH CONTRACTORS HAS TO BE TREATED AS A DIVISIBLE CONTRACT RESULTING INTO THREE SEPARATE CONTRACTS; - WITHOUT PREJUDICE TO THE ABOVE A COMPOSITE PROJE CT COULD BE REGARDED AS DIVISIBLE CONTRACTS IN AS MUCH AS THAT IT IS PERMISSIBLE FOR APPELLANT TO SPLIT THE CONTRACT INTO SUPPLY CONTRAC T ERECTION CONTRACT AND CIVIL CONTRACT; - IT IS AN ACCEPTED PRACTICE FOR THE PARTIES TO THE CONTRACT TO ENTER INTO A CONSOLIDATED CONTRACT WITH THE SPLIT UP OF C ONSIDERATION FOR VARIOUS ELEMENTS VIZ. SUPPLY OF MATERIALS ERECTION SERVIC ES AND CIVIL CONSTRUCTION SERVICE. THIS MAY BE OBSERVED FROM A N UMBER OF JUDICIAL PRONOUNCEMENTS WITH ONE OF THE MOST FOLLOWED JUDGME NTS OF SUPREME COURT IN THE CASE OF STATE OF MADRAS VS. RICHARDSON CRUDDAS LTD. (1968) 21 STC 245. IT GOES TO SAY THAT IF THERE IS A SPLIT OF CONSIDERATION TOWARDS MATERIAL AND LABOUR IT CANNO T BE SAID THAT THE ENTIRE CONTRACT IS AN INDIVISIBLE WORKS CONTRACT; - THE ABOVE CITED JUDGMENT OF THE APEX COURT FOLLOW ED ITS OWN DECISION IN THE CASE OF PANDIT BANARASI DAS BHARAT VS. STATE OF MADHYA PRADESH (1958) 9 STC 388. THE FOLLOWING ARE THE EXCERPTS OF THE SAME: THE EXPRESSION SALE OF GOODS IN ENTRY 48 OF LIST II OF SCH. VII TO THE GOVERNMENT OF INDIA ACT 1935 HAS THE SAME MEANING WHICH IT HAS IN THE SALE OF GOODS ACT 1930. IN A BUILDING CONTRACT THERE IS NO SALE OF MATERIALS AS SUCH AND IT IS THEREFORE UL TRA VIRES THE POWERS OF THE PROVINCIAL LEGISLATURE TO IMPOSE TAX ON THE SUPPLY OF MATERIALS. WHEN A QUESTION ARISES AS TO WHETHER A PARTICULAR WORKS CONTRACT COULD BE CHARGED TO SALES TAX IT WILL BE FOR THE AUTHORITIES UNDER THE ACT TO DETERMINE WHETHER THE AGREEMENT IN QUESTION IS ON ITS TRUE CONSTRUCT ION A COMBINATION OF AN AGREEMENT TO SELL AND AN PAGE 28 OF 101 ITA NOS.263 TO 266/BANG/201 0 28 AGREEMENT TO WORK AND IF THEY COME TO THE CONCLUSI ON THAT SUCH IS ITS CHARACTER THEN IT WILL BE OPEN TO THEM TO PROCEED AGAINST THAT PART OF IT WHICH IS A CONTRACT FOR THE SALE OF GOODS AND IMPOSE TAX THEREON. THE PROHIBITION AGAINST IMPOSITION OF TAX IS ONLY IN RESPECT OF CONTRACTS WHICH ARE SINGLE AND INDIVISIBLE AND NOT OF CONTRACTS WHICH ARE A COMBINATION OF DISTINCT CONTRACTS FOR SALE OF MATER IALS AND FOR WORK AND NOTHING SHALL BAR THE SALES TAX AUTHORITIES FROM DECIDING WHETHER A PARTICULAR CONTRACT FALLS WITHIN ONE CATEGORY OR THE OTHER AND IMPOSING A TAX ON THE AGREEMENT OF SALE OF MATERIAL S WHERE THE CONTRACT BELONGS TO THE LATTER CATEGORY. EVEN THOUGH THE ABOVE DECISION WAS RENDERED MUCH B EFORE THE 46 TH AMENDMENT TO THE CONSTITUTION ENABLING THE STATE T O LEVY SALES TAX ON WORKS CONTRACT AND THEREFORE NOT RELEV ANT IN THE CONTEXT IN SO FAR AS IT GOES TO SAY THAT THERE IS N O TAX ON WORKS CONTRACT ITS OTHER OBSERVATIONS REGARDING A CONTRA CT BEING A COMBINATION OF DISTINCT CONTRACTS FOR SALE OF MATER IALS AND FOR WORK ARE VERY RELEVANT. ITS OBSERVATIONS THAT THE S ALES TAX AUTHORITIES SHALL NOT PROCEED TO TAKE A SINGLE CONT RACT NECESSARILY AS SUCH BUT IT WILL BE COMPETENT FOR THEM TO EXAMIN E THE NATURE OF THE CONTRACT AND IF THE CIRCUMSTANCES PERMIT TO SPLIT THE SAME AS THAT RELATING TO SALE OF GOODS AND THAT RELATING TO WORK ARE ALSO EQUALLY RELEVANT. - THE SUPREME COURT IN THE CASE OF BUILDERS ASSOCIA TION OF INDIA VS. UNION OF INDIA (1989) 73 STC 370 OBSERVED AT PAGE 4 00 AS FOLLOWS: AFTER THE 46 TH AMENDMENT THE WORKS CONTRACT WHICH WAS AN INDIVISIBLE ONE IS BY A LEGAL FICTION ALTERED INTO A CONTRACT WHICH IS DIVISIBLE INTO ONE FOR SALE OF GOODS AND THE OTHER FOR SUPPLY OF LABOUR AN D SERVICES. AFTER THE 46 TH AMENDMENT IT HAS BECOME POSSIBLE FOR THE STATES TO LEVY SALES TAX ON THE VA LUE OF GOODS INVOLVED IN A WORKS CONTRACT IN THE SAME W AY IN WHICH THE SALES TAX WAS LEVIABLE ON THE PRICE OF THE PAGE 29 OF 101 ITA NOS.263 TO 266/BANG/201 0 29 GOODS AND MATERIALS SUPPLIED IN A BUILDING CONTRACT WHICH HAD BEEN ENTERED INTO IN TWO DISTINCT AND SEPARATE PARTS AS STATED ABOVE...... A REFERENCE MAY BE MADE TO ONE OF THE DECISIONS IN THE CASE OF STATE OF TAMIL NADU VS. TITANIUM EQUIPMENT AND ANODE MANU FACTURING CORPORATION LTD. REPORTED IN (1998) 110 STC 43 (MA DRAS). THIS WAS THE CASE OF CONTRACT FOR DESIGN ENGINEER MANUFACT URE SUPPLY AND SUPERVISION OF INSTALLATION AND COMMISSIONING. THE TRIBUNAL HELD THAT THE CONTRACT IS INDIVISIBLE. THE MADRAS HIGH COURT REVE RSING THE DECISION OF THE TRIBUNAL HELD THAT THE CONTRACT WAS CLEARLY A D IVISIBLE CONTRACT ONE FOR THE SUPPLY OF THE TITANIUM ANODES AND ANOTHER F OR SUPERVISION AND INSTALLATION AND UNDERTAKING RECOATING MAINTENANCE. THE PRICE PAYABLE FOR THE SUPPLY OF MATERIAL WAS DISTINCT FROM THE CONSID ERATION PAYABLE FOR THE SUPERVISION OF INSTALLATION AND COMMISSIONING A ND FOR RECOATING MAINTENANCE. THE PARTIES THEMSELVES HAD NO DOUBT AS TO THE NATURE OF THE ARRANGEMENT THEY HAD ENTERED INTO AND HAD SPECI FICALLY PROVIDED FOR THE PAYMENT OF THE EXCISE DUTY SALES TAX AND ALL O THER STATUTORY LEVIES BY THE BUYER. THE HONBLE CONSTITUTIONAL BENCH OF SUPREME COURT I N THE CASE OF BHARAT SANCHAR NIGAM LTD. AND ANOTHER VS. UNION OF INDIA AND OTHERS [2006] 145 STC 91 [SC] HAS HELD AS FOLLOWS: ALL THE CLAUSES OF ARTICLE 366[29A] SERVE TO BRING TRANSACTIONS WHERE ONE OR MORE OF THE ESSENTIAL INGREDIENTS OF A SALE AS DEFINED IN THE SALE OF GOO DS ACT 1930 ARE ABSENT WITHIN THE AMBIT OF PURCHASES AND SALES FOR THE PURPOSES OF LEVY OF SALES TAX. TO THIS EXTENT ONLY IS THE PRINCIPLE ENUNCIATED IN GAN NON DUNKERLY [SEE [1958] 9 STC 353 [SC]] LTD. THE AMENDMENT ESPECIALLY ALLOWS SPECIFIC COMPOSITE CONTRACTS VIZ. WORKS CONTRACTS [CLAUSE [B]] HIRE - PURCHASE CONTRACTS [CLAUSE [C]] AND CATERING CONTR ACTS [CLAUSE [F] BY LEGAL FICTION TO BE DIVISIBLE CONTRA CTS WHERE THE SALE ELEMENT COULD BE ISOLATED AND BE SUBJECTED TO SALES TAX. PAGE 30 OF 101 ITA NOS.263 TO 266/BANG/201 0 30 IN THE CASE OF SIEMENS INDIA LIMITED V. STATE OF KE RALA (KER.) [2003] 132 STC 418 (KER.) THE KERALA HIGH COURT OBSERVED AS FOLLOWS: IN AN EARLIER WRIT PETITION FILED BY THE PETITIONE R CHALLENGING EXPLANATION 4(C) TO SECTION 2(XXI) OF T HE KERALA ACT THE COURT HAD HELD THAT BY A DEEMING PROVISION THE STATE GOVERNMENT COULD NOT CHANGE TH E CHARACTER OF THE SALE. AFTER DECLARING THAT EXPLANATION 4(C) TO SECTION 2(XXI) OF THE KERALA AC T HAD TO BE READ DOWN AND DOES NOT APPLY TO INTER STATE SALES THE COURT DIRECTED THE ASSESSING AUTHORITY TO RECONSIDER THE MATTER. SIMILARLY IN TH IS CASE THE CONTRACT WAS NOT INDIVISIBLE. IT CONTAINE D TWO PARTS: THE SUPPLY ORDER AND THE SERVICE ORDER. THE TRIBUNAL WAS NOT CORRECT IN HOLDING THAT THERE WAS ONLY ONE CONTRACT. THE PRICE WAS ALSO SHOWN SEPARATELY. THE RIGHT OF THE BUYER TO INSPECT THE GOODS BEFORE THEY WERE TRANSPORTED WAS ALSO PRESERVED. SO ALSO THE GOODS WERE INSURED. WHEN TH E GOODS WERE IN TRANSIT THE PETITIONER TRANSFERRED T HE TITLE TO THE PROPERTY TO CBZL. IN THE CASE OF LARSEN & TOUBRO LTD. VS. COMMR. OF C .T. (A.P.) [2003] 132 STC 272 (AP) THE HONBLE COURT CONSIDERED THE CASE OF A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING FABRICATI ON SUPPLY ERECTION AND COMMISSIONING OF VARIOUS PROJECTS. THE NATURE O F WORK CARRIED OUT BY THE APPELLANT IS A WORKS CONTRACT. DURING THE AS SESSMENT YEARS 1986-87 AND 1987-88 THE APPELLANT HAD ENTERED INTO A CONTRACT WITH VISAKHAPATNAM STEEL PLANT AND OTHER PUBLIC SECTOR U NDERTAKINGS. THE CONTRACT ENTERED INTO BY THE APPELLANT FOR DESIGNIN G MANUFACTURING FABRICATION INSTALLATION AND COMMISSIONING SPECIFI ED PROJECT IS COMPOSITE IN NATURE. THE APPELLANT IN ORDER TO DISCHARGE THE OBLIGATION ARISING OUT OF THE CONTRACT INTO WITH VARIOUS CONTRACTEES HAS MANUFACTURED SPECIFIED GOODS IN THEIR FACTORY AT BOMBAY WHICH I S WITHIN THE STATE OF MAHARASHTRA AND ALSO PURCHASED CERTAIN GOODS FROM OUTSIDE THE STATE AS WELL AS FROM THE LOCAL REGISTERED DEALERS. THE C ONTRACTS SPECIFIED SEPARATE PRICES FOR SUPPLY OF VARIOUS ITEMS REQUIRE D FOR EXECUTION OF THE PROJECT AS WELL AS THE COMMISSIONING AND INSTALLATI ON CHARGES. PAGE 31 OF 101 ITA NOS.263 TO 266/BANG/201 0 31 THE MANNER AND METHOD TO BE FOLLOWED BY THE APPELLA NT IN THE ABOVE CASE IN EXECUTION OF THE WORKS CONTRACT ARE AS UNDE R: (A) GOODS/EQUIPMENTS DESCRIBED IN THE CONTRACT OF S PECIFIC NATURE ARE MANUFACTURED IN THEIR POWAI (MUMBAI) FACTORY AND DI SPATCHED DIRECTLY IN FAVOUR OF CONTRACTEE AFTER INSPECTION AND APPROVAL BY THEM. THE TURNOVER IS LIABLE FOR DECLARATION IN THE STATE OF MAHARASHTRA AS PROVIDED UNDER SECTION 3(A) OF THE CENTRAL SALES TA X ACT 1956. (B) APPELLANT ALSO PURCHASES GOODS/EQUIPMENTS FROM OUTSIDE THE STATE VENDORS AND EFFECT TRANSFER OF DOCUMENTS OF TITLE I N FAVOUR OF CONTRACTEE. SUCH TURNOVERS ARE CLAIMED EXEMPTION BE ING TRANSIT SALES NOT LIABLE TO BE TAXED IN VIEW OF SECTION 6(2) READ WITH SECTION 3(B) OF CST ACT. (C) FOR THE ABOVE NATURE OF TRANSACTION PERTAINING TO CONTRACTS CONTRACTEES FURNISHED 'C' FORMS TO THE APPELLANTS A ND THE SAME WILL BE FILED DURING ASSESSMENT PROCEEDINGS. (D) APPELLANTS UNDERTAKE INSTALLATION/ERECTION OF S UCH GOODS/ EQUIPMENTS WHICH ARE HANDED OVER BY THE CONTRACTEES ALONG WITH OTHER GOODS REQUIRED FOR COMMISSIONING THE PROJECT. THE HIGH COURT OBSERVED AS FOLLOWS: IN VIEW OF THE LAW LAID DOWN IN VARIOUS DECISIO NS REFERRED TO ABOVE IN PARTICULAR GANNON DUNKERLEY' S CASE [1993] 88 STC 204 (SC) IT IS DIFFICULT FOR US TO APPRECIATE THE STAND TAKEN ON BEHALF OF THE DEPARTMENT AS TO HOW THIS CONTRACT COULD BE PRESUME D AS A DEEMED SALE WITHIN THE STATE OF ANDHRA PRADESH . THOUGH THE LEARNED SPECIAL GOVERNMENT PLEADER FOR TAXES SUBMITTED THAT IT IS AN INDIVISIBLE CONTRACT WE ARE AFRAID THIS SUBMISSION MAY NOT BE APPROPRIATE HAVING REGARD TO THE FACT THAT THERE ARE TWO FACETS OF THE CONTRACT ONE IS SUPPLY OF GOODS AND THE OTH ER IS INSTALLATION OF MACHINERY WITH THE LABOUR OF THE PAGE 32 OF 101 ITA NOS.263 TO 266/BANG/201 0 32 APPELLANT AND AS SUCH THIS CONTRACT IS A DIVISIBLE CONTRACT. WHEN THE ABOVE DECISION WAS CHALLENGED BEFORE THE S UPREME COURT THEIR LORDSHIPS S.N. VARIAVA AND H.K. SEMA JJ. DI SMISSED THE STATES SPECIAL LEAVE PETITION AGAINST THE JUDGMENT AND ORD ER DATED 10-7-2003 OF THE ANDHRA PRADESH HIGH COURT IN S.A.NOS.54-55 O F 1997 AND T.R.C.NO.14 OF 1999 REPORTED IN (2003) 132 STC 272 WHEREBY THE HIGH COURT ALLOWED THE APPELLANTS APPEAL AGAINST T HE ORDER OF COMMISSIONER OF COMMERCIAL TAXES AND HELD THAT THE CONTRACT FOR MANUFACTURING FABRICATION SUPPLY ERECTION AND CO MMISSIONING OF PROJECT WAS DIVISIBLE AND THAT THE SUPPLY OF GOODS AND EQUI PMENT FOR PROJECT MANUFACTURED OR PURCHASED OUTSIDE STATE WAS AN INTE R STATE TRANSACTION AND NOT AN INTRA-STATE TRANSACTION TAXABLE UNDER TH E ANDHRA PRADESH GENERAL SALES TAX ACT 1957 (IN THE CASE OF COMMISS IONER OF COMMERCIAL TAXES V. LARSEN & TOUBRO LTD: S.L.P (CIV IL) NO.22445- 22447 OF 2003). THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJI MA-HARIMA HEAVY INDUSTRIES LTD VS. DIT (2007) 288 ITR 408 (SC) HELD THAT THE FACT THAT THE CONTRACT HAS BEEN FASHIONED AS A TURNKEY C ONTRACT BY ITSELF MAY NOT BE OF MUCH SIGNIFICANCE. WHERE THE PROJECT IS A TURNKEY PROJECT THE CONTRACT MAY ALSO BE A TURNKEY CONTRAC T BUT THE SAME BY ITSELF WOULD NOT MEAN THAT EVEN FOR THE PURPOSE OF TAXABILITY THE ENTIRE CONTRACT MUST BE CONSIDERED TO BE AN INTEGRATED ONE SO AS TO MAKE THE APPELLANT TO PAY TAX IN INDIA. THE TAXABLE EVENTS I N EXECUTION OF A CONTRACT MAY ARISE AT SEVERAL STAGES IN SEVERAL YEA RS. THE LIABILITY OF THE PARTIES MAY ALSO ARISE AT SEVERAL STAGES. THE O BLIGATIONS UNDER THE CONTRACT ARE DISTINCT ONES. THE SUPPLY OBLIGATION I S DISTINCT AND SEPARATE FROM THE SERVICE OBLIGATION. THE PRICE FOR EACH OF THE COMPONENT OF THE CONTRACT IS SEPARATE. SIMILARLY OFFSHORE SUPPLY AND OFFSHORE SERVICES HAVE SEPARATELY BEEN DEALT WITH. THE PRICES IN EACH OF THE SEGMENT ARE ALSO DIFFERENT. THE VERY FACT THAT IN THE CONTRACT THE SUPPLY SEGMENT AND SERVICE SEGMENT HAVE BEEN SPECIFIED IN DIFFEREN T PARTS OF THE CONTRACT IS A POINTER TO SHOW THAT THE LIABILITY OF THE APPELLANT THERE UNDER WOULD ALSO BE DIFFERENT. FURTHER THE SUPREME COURT WENT ON TO HOLD THAT A TURNKEY CONTRACT MAY INVOLVE SUPPLY OF MATERIALS USED IN THE EXECUTION OF THE CONTRACT FOR PRICE AS ALSO FOR USE OF THE MATERIALS BY PAGE 33 OF 101 ITA NOS.263 TO 266/BANG/201 0 33 WORKS AND LABOUR BUT THE SAME MAY NOT HAVE ANY RELA TION WITH THE TAXABILITY PART OF IT. THE SUPREME COURT IN THE CASE OF ITO VS. SRIRAM BEA RINGS LTD (1987) 224 ITR 724 HELD THAT WHERE THE TWO PARTS OF A CON TRACT WHICH ARE INTERDEPENDENT COULD NOT BE TREATED AS ONE WHEN T HE CONSIDERATION AND THE SERVICES ARE DISTINCT. IN THE CASE OF CIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD. (2007) 291 ITR 482 (SC) THE HONBLE COURT HELD THAT THE INSTA LLATION PERMANENT ESTABLISHMENT CAME INTO EXISTENCE ONLY AFTER THE TR ANSACTION STOOD MATERIALIZED. THE INSTALLATION PERMANENT ESTABLISH MENT CAME INTO EXISTENCE ONLY ON CONCLUSION OF THE TRANSACTION GIV ING RISE TO THE SUPPLIES OF THE FABRICATED PLATFORMS. THE INSTALLATION PERMA NENT ESTABLISHMENT EMERGED ONLY AFTER THE CONTRACT WITH THE ONGC STOOD CONCLUDED. IT IS EMERGED ONLY AFTER THE FABRICATED PLATFORM WAS DELI VERED IN KOREA TO THE AGENTS OF THE ONGC. THEREFORE THE PROFITS ON S UCH SUPPLIES OF FABRICATED PLATFORMS CANNOT BE SAID TO BE ATTRIBUTA BLE TO THE PERMANENT ESTABLISHMENT. APPLYING THIS ANALOGY IT MAY BE STA TED THAT THE QUESTION OF CARRYING OUT ANY WORK COULD ARISE ONLY AFTER THE SALE OF EQUIPMENT IS COMPLETED. IN OTHER WORDS ANY WORK FOR THE PURPOSE OF SECTION 194C COULD BEGIN ONLY AFTER THE SUPPLY PORTION IS COMPLE TED AND THEREFORE THE QUESTION OF APPLYING THE AFORESAID SECTION ON THE S UPPLY PORTION DOES NOT ARISE. IN THE CASE OF CIT VS. BEST AND CO. P. LTD. (1966) 60 ITR 11 (SC) THE HONBLE COURT RULED THAT WHEN A COMPOSITE CONSI DERATION MAY HAVE TO BE SPLIT ALTHOUGH SUCH SPLITTING MAY POSE DIFFICULT IES. IN THE ABOVE CASE AS COMPENSATION FOR TRANSFER OF THE AGENCY THE ASS ESSEE WAS PAID CERTAIN AMOUNTS CALCULATED ON THE BASIS OF THE AGRE EMENT BETWEEN THE PARTIES. THE ASSESSEE CLAIMED THAT THE AMOUNTS REC EIVED WERE CAPITAL IN NATURE. THE SUPREME COURT HELD THAT THE COMPENSATI ON AGREED TO BE PAID WAS NOT ONLY IN LIEU OF LOSS OF AGENCY BUT ALS O FOR THE ASSESSEE ACCEPTING A RESTRICTIVE COVENANT FOR A SPECIFIED PE RIOD THE RESTRICTIVE COVENANT WAS AN INDEPENDENT OBLIGATION WHICH CAME I NTO OPERATION ONLY WHEN THE AGENCY WAS TERMINATED AND THAT PART OF TH E COMPENSATION ATTRIBUTABLE TO THE RESTRICTIVE COVENANT WAS A CAPI TAL RECEIPT AND HENCE NOT TAXABLE. REFERRING TO THE DECISION IN GILLANDER S ARBUTHNOT & CO. LTD. PAGE 34 OF 101 ITA NOS.263 TO 266/BANG/201 0 34 VS. CIT (1964) 53 ITR 283 THE SUPREME COURT HELD T HAT THAT PART OF THE COMPENSATION ATTRIBUTABLE TO THE RESTRICTIVE CO VENANT WAS A CAPITAL RECEIPT NOT ASSESSABLE TO TAX. THE SUPREME COURT L EFT TO THE DETERMINATION OF THE ASSESSING AUTHORITIES AS TO HO W THE COMPENSATION WAS TO BE APPORTIONED. IN THAT CASE THE SUPREME CO URT OBSERVED AS UNDER: IF THE COMPENSATION PAID WAS IN RESPECT OF TWO DISTINCT MATTERS ONE TAKING THE CHARACTER OF A CAP ITAL RECEIPT AND THE OTHER OF A REVENUE RECEIPT WE DO N OT SEE ANY PRINCIPLE WHICH PREVENTS THE APPORTIONMENT OF THE INCOME BETWEEN THE TWO MATTERS. THE DIFFICULTY IN APPORTIONMENT CANNOT BE A GROUND FOR REJECTING T HE CLAIM EITHER OF THE REVENUE OR OF THE ASSESSSEE. SUCH AN APPORTIONMENT WAS SANCTIONED BY COURTS IN WALES V. TILLEY (1943) 11 ITR (SUPPL.) 69 (HL); CARTER V.WADMAN (1846)28 TC 41 (CA) AND T.SADASIVAM V. CIT (1955) 28 ITR 435 (MAD.) IN THE PRESENT CASE APPORTIONMENT OF THE COMPENSATION HAS TO BE MADE ON A REASONABLE BASIS BETWEEN THE LOSS O F THE AGENCY IN THE USUAL COURSE OF BUSINESS AND THE RESTRICTIVE COVENANT. THE OTHER CASE LAWS RELIED TO SUPPORT THE AFORESAI D VIEW: A. SARVAIYA & CO. VS. STATE OF MAHARASTRA (1976) 38 S TC 86 (BOM) B. COMMISSIONER OF SALES TAX MAHARASTRA STATE BOMBAY VS. WALCHANDNAGAR INDUSTRIES (1985) 58 STC 89 (BOM). C. COMMISSIONER OF SALES TAX VS. STEEL PLANT PVT. LTD. (1995) 99 STC 532 (BOM) D. STATE OF MADRAS VS. GANNON DUNKERLY & CO. (MAD.) LT D. (1958) 9 STC 353 SC E. STATE OF GUJARAT VS. ELECON ENGINEERING CO. (1993) 90 STC 74 (GUJ.) FROM THE PERUSAL OF THE ABOVE DECISIONS IT IS PER MISSIBLE TO DIVIDE A COMPOSITE CONTRACT. PAGE 35 OF 101 ITA NOS.263 TO 266/BANG/201 0 35 IN ORDER TO DIVIDE THE COMPOSITE OR TURNKEY CONTRAC T THE ESSENTIAL ATTRIBUTES ARE AS FOLLOWS: THE LIABILITY OF THE PARTIES TO THE CONTRACT ARISES AT SEVERAL STAGES. THE OBLIGATIONS UNDER THE CONTRACT ARE DISTIN CT ONES. THE SUPPLY OBLIGATION IS DISTINCT AND SEPARATE FROM THE SERVICE OBLIGATION. THE PRICE FOR EACH OF THE COMPONENT OF THE CONTRACT IS SEPARATE. IN OTHER WORDS THE PRICE PAYABLE FOR THE SUPPLY OF MATERIAL IS DISTINCT FROM THE CONSIDERATION PAYABLE FOR THE ERECTION AND CIVIL CONSTRUCTION. IN THE INSTANT CASE THE APPELLANT HAS AWARDED THE WORK ORDER FOR THE CONTRACTOR UNDER THREE DIFFERENT SEGMENTS: (I) SUPPLY PORTION; (II) ERECTION PORTION; AND (III ) CIVIL WORKS PORTION; - THE TERMS IN RESPECT OF EACH OF THE AFORESAID POR TION ARE CLEAR AND THE CONSIDERATION FOR EACH OF THE PORTION IS SEPARA TE; - THE TERMS BETWEEN THE PARTIES ARE AMPLY CLEAR IN RESPECT OF THE OBLIGATIONS TO BE DISCHARGED BY THE CONTRACTORS AND IN RESPECT OF PAYMENT TOWARDS THE WORK ORDER; - IN RESPECT OF SUPPLY PORTION THE PARTIES TO THE CONTRACT ARE CLEAR ABOUT THE MATERIALS TO BE SUPPLIED THE QUANTITY OF MATERIALS TO BE SUPPLIED AND THE RATE AT WHICH THE MATERIALS WOULD BE SUPPLIED. IN THE CASE OF ERECTION PORTION AND CIVIL WORKS PORTION T HE PARTIES TO THE CONTRACT ARE CLEAR ABOUT THE WORKS TO BE PERFORMED BY THE EITHER OF THE PARTIES; ACCORDINGLY THE AFORESAID THREE PORTIONS OF THE WO RK ORDER WERE INDEPENDENT OF EACH OTHER. IN THIS REGARD A REFERENCE IS MADE TO THE COMMENTS OF THE AO WHICH READ AS FOLLOWS: (REFER PARAS 19 & 20 IN PAGE 26 & 29 OF THE ORDER) PAGE 36 OF 101 ITA NOS.263 TO 266/BANG/201 0 36 19. IN VIEW OF THE ABOVE THE MOST IMPORTANT TEST FOR DETERMINING AS TO WHETHER PAYMENTS MADE IN PURSUANCE TO CONTRACT ARE LIABLE TO DEDUCT TAX AT SOURCE OR NOT IS TO SCRUTINIZE THE CONTRACT BETWEEN THE KPTCL AND THE CONTRACTOR. PERUSAL OF PARA 3.5 O F THE CONTRACT MAKES IT ABSOLUTELY CLEAR THAT THE CONTRACT BETWEEN THE KPTCL AND CONTRACTOR IS A SING LE COMPOSITE CONTRACT AND HENCE U/S. 194C PAYMENTS MADE IN PURSUANCE TO THIS CONTRACT ARE LIABLE TO DEDUCT TAX AT SOURCE. 20. IT MAY NOT BE OUT OF PLACE TO MENTION THAT ABO VE MENTIONED PARA 3.5 IS ALSO PART OF THE EACH OF THE AGREEMENTS WHICH ARE SEPARATELY FOR SUPPLY PORTIO N CIVIL WORK AND ERECTION BETWEEN THE KPTCL AND CONTRACT OR. 1. A REFERENCE MAY BE MADE TO ONE OF THE CLAUSES IN TH E CONTRACT AGREEMENT (SUPPLY PORTION) WHICH READS AS FOLLOWS : IT IS EXPRESSLY AGREED TO BY THE CONTRACTOR THAT NO TWITHSTANDING THE FACT THAT THE CONTRACT IS TERMED AS SUPPLY CONT RACT FOR CONVENIENCE OF OPERATION OF THE OTHER CONTRACTS NAM ELY ERECTION CONTRACTS AND CIVIL CONTRACTS ARE ALSO THE INTEGRAL PARTS OF THE CONTRACT ON SINGLE SOURCE RESPONSIBILITY BASIS AND THE CONTRACTOR IS BOUND TO PERFORM THE TOTAL CONTRACT IN ITS ENTIRETY AND NON- PERFORMANCE OF ANY PART OR PORTION OF THE CONTRACT SHALL BE DEEMED TO BE A BREACH OF THE ENTIRE-CONTRACT. 2. THE SAID CLAUSE IN THE CONTRACT AGREEMENT (SUPPLY PORTION) CLARIFIES THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PERFORMANCE OF THE ERECTION PORTION AND CIVIL WORKS PORTION. IT DOES NOT MENTION THAT ALL PORTIONS OF THE WORK ORDE R ARE INTER- RELATED OR INTEGRATED WITH ONE ANOTHER. BY MERELY M AKING THE CONTRACTOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL WORKS PORTION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LESS A SUPPLY CONTRACT. ASSUMPTION OF OVERALL RESPONSIBILI TY IS A CONTRACTUAL MATTER WHICH BY ITSELF WOULD NOT ALTER THE ESSENCE OF THE TRANSACTION OF SUPPLY. IN THE FOLLOWING CASES ALTHOUGH THE APPLICANT WAS MADE OVERALL RESPONSIBLE FOR EVEN THE WORK AWARDED PAGE 37 OF 101 ITA NOS.263 TO 266/BANG/201 0 37 TO SUBCONTRACTORS IT HAS BEEN HELD THAT THE SITE O F THE SUBCONTRACTORS CANNOT BE REGARDED AS SITE OF THE AP PLICANT: IN THE CASE OF PINTSCH BAMAG (DT: 11-9-2009) 2009-T IOL-23-ARA- IT THE HONBLE AUTHORITY FOR ADVANCE RULING HAS RU LED AS UNDER: 7. THE CONTENTION OF THE REVENUE IS THAT THE SUB- CONTRACTOR IS UNDERTAKING VARIOUS ACTIVITIES WHICH CONSTITUTE THE CORE OF THE CONTRACT WORK ENTRUSTED TO THE APPLICANT. ALL THE ACTIVITIES UNDERTAKEN BY THE SUB-CONTRACTOR ARE ON BEHALF OF THE APPLICANT AND I N CONNECTION WITH THE EXECUTION OF THE CONTRACT BETWEEN THE APPLICANT AND TPT. IT IS POINTED OUT TH AT THE SUB-CONTRACTOR IS A NOMINEE OF THE APPLICANT AN D THE DELEGATION OF WORK TO THE SUB-CONTRACTOR FOR IT S OWN CONVENIENCE SHOULD NOT INFLUENCE THE DECISION O N THE QUESTION WHETHER THE APPLICANT HAS A PE IN INDI A. IN OTHER WORDS THE REVENUE WANTS TO TREAT THE WORKSHOP OR PLACE OF MANUFACTURE OF THE SUB- CONTRACTOR AS PART OF THE PERMANENT ESTABLISHMENT O F THE APPLICANT ITSELF. IF THE DURATION OF THE WORK D ONE BY THE SUB- CONTRACTOR AT THE WORKSHOP OR THE FACTORY IS TAKEN INTO ACCOUNT THE DURATION WILL BE MUCH BEYOND SIX MONTHS WHICH IS THE PERIOD STIPULAT ED IN CLAUSE (I) OF ARTICLE 5.2 OF THE TREATY. THAT IS WHY THE REVENUE HAS TAKEN THIS STAND. 9. THE MORE CRUCIAL QUESTION THAT NEEDS TO BE CONSIDERED NOW IS WHETHER THE WORK PLACE SET UP BY THE SUB-CONTRACTOR TO CARRY OUT THE WORKS ENTRUSTED TO HIM BY THE APPLICANT CAN BE TREATED AS THE WORK PLACE AND THE PERMANENT ESTABLISHMENT OF THE APPLICANT. DOES THE FACT THAT THE SUB-CONTRACTOR IS ONLY A NOMINEE OF THE APPLICANT IN CARRYING OUT THE WORK WHICH WOULD HAVE BEEN OTHERWISE PERFORMED BY THE APPLICANT TRANSFORM THE SUB- CONTRACTORS WORKSHOP INTO THE PE OF THE APPLICANT? IN MY VIEW THE ANSWER COULD ONLY BE IN THE NEGATIVE UNLESS THE PAGE 38 OF 101 ITA NOS.263 TO 266/BANG/201 0 38 SUB-CONTRACTOR IS TREATED AS A DEPENDENT AGENT OF THE APPLICANT AS DISTINCT FROM AN INDEPENDENT AGENT . IT IS NOT POSSIBLE TO HOLD THAT THE PLACE OF MANUFACTURE OF THE SUB-CONTRACTOR SITUATED FAR AWAY FROM THE INSTALLATION SITE SHOULD NOTIONALLY BE REGARDED AS PART OF THE APPLICANTS PERMANENT ESTABLISHMENT. THE LANGUAGE OF THE OPENING PARA OF ARTICLE 5 ITSELF FURNISHES A KEY TO THE CORRECT UNDERSTANDING OF THE CONCEPT OF PE. THE FIXED PLACE OF BUSINESS REFERRED TO IN PARA 1 OF ARTICLE 5 IS QUALIFIED BY THE WORDS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS ..CXARRIED ON. IN THE PRESENT CA SE THE ENTERPRISE IS THE APPLICANT. ON A PLAIN READI NG OF THE OPENING PARA OF ARTICLE 5 AND THE NATURE OF RELATIONSHIP BETWEEN THE APPLICANT AND SUB- CONTRACTOR IT CANNOT BE CONCLUDED THAT THE BUSINES S OF THE APPLICANT IS BEING CARRIED ON THROUGH THE SU B- CONTRACTORS WORKSHOP. THE CONCEPT OF PE CONVEYS TH E IDEA THAT THE ENTERPRISES PRESENCE HAS TO BE VISI BLE THROUGH AN ESTABLISHMENT IN THE OTHER COUNTRY. THE OBJECTIVE PRESENCE OF THE FOREIGN ENTERPRISE IN THE OTHER COUNTRY AS REFLECTED IN A FIXED PLACE OF BUSINESS IS THE REAL CRITERION FOR DETERMINING THE EXISTENCE OR OTHERWISE OF PE IN THAT COUNTRY. IN TH IS CONTEXT REFERENCE MAY BE MADE TO MR. ARVID A. SKAARS BOOK ON PERMANENT ESTABLISHMENT CHAPTER 9 (TITLED THE TAX- PAYERS PHYSICAL PRESENCE: THE PLACE OF BUSINESS TEST). 11.1. THE CONTEXT IN WHICH THE PASSAGE OCCURS IS IMPORTANT. THE SAID PASSAGE AS I UNDERSTAND IT COVERS A SITUATION WHERE A BUILDING SITE HAS BEEN S ET UP BY THE MAIN CONTRACTOR AND THE SERVICES OF THE SUB-CONTRACTOR ARE ALSO DEPLOYED IN AIDING THE EXECUTION OF THE BUILDING PROJECT. APPARENTLY IT APPLIES TO A SITUATION WHERE THERE IS CONJOINT EFFO RT OF BOTH THE CONTRACTOR AND THE SUB-CONTRACTOR AT TH E BUILDING SITE. IN SUCH A CASE THE BUILDING SITE OF THE PAGE 39 OF 101 ITA NOS.263 TO 266/BANG/201 0 39 CONTRACTOR AND SUB-CONTRACTOR IS INSEPARABLE. HERE THE FACT SITUATION IS ENTIRELY DIFFERENT. THE ENTIR ETY OF WORK OF FABRICATION AND ASSEMBLY IS CARRIED OUT BY THE SUB-CONTRACTOR AT THE WORKSHOP SET UP BY HIM AT A PLACE FOR AWAY FROM INSTALLATION SITE AND RUN BY HIM INDEPENDENT OF ANY CONTROL OF THE APPLICANT. SUCH A PLACE OF BUSINESS OF SUB-CONTRACTOR CANNOT BE REGARDED AS THE PE OF APPLICANT. IN ANY CASE THE LANGUAGE OF SECTION 5(1) BEING CLEAR AND AS THE CONCEPT OF PE DOES NOT TAKE IN THE ESTABLISHMENT OF AN INDEPENDENT CONTRACTOR OR AGENT THE CONTENTION OF THE REVENUE MUST FAIL. 11.2. THE FACT THAT THE APPLICANT IS NOT RELIEVED O F THE LIABILITIES AND OBLIGATIONS UNDER THE CONTRACT BY REASON OF SUB-CONTRACT AND THE FACT THAT THE APPLICANT HAS TO FURNISH PERFORMANCE SECURITY TO TP T DOES NOT HAVE MUCH OF BEARING ON THE ASPECT WHETHER THE SUB-CONTRACTORS ESTABLISHMENT SHALL BE DEEMED TO BE THE PE OF THE APPLICANT. IN THE CASE OF HYOSUNG CORPORATION IN RE [2009] 31 4 ITR 343 (AAR): (2009) 181 TAXMAN 270 (AAR-NEW DELHI) THE FACTS OF THE CASE ARE THAT IN THE YEAR 2005 POWER GRID CORPORATION OF I NDIA LTD. (HEREAFTER REFERRED TO AS POWERGRID) INVITED BIDS FOR THE EX ECUTION OF THE WORKS RELATED TO 800KV/400KV TEHRI POOLING STATION PACKAGE ASSOCIATED WITH KOTESHWAR TRANSMISSION SYSTEM. FOR THE SAKE OF BREVITY THE SAME HAS BEEN DESCRIBED BY THE APPLICANT AS 400KV GIS P ACKAGE. THE APPLICANT WHO SUBMITTED THE BID BECAME THE SUCCESS FUL BIDDER. AS PER THE TERMS AND CONDITIONS OF BID THE FOREIGN BIDDER WAS AUTHORIZED TO ASSIGN THE WHOLE OR PART OF THE CONTRACT TO AN INDE PENDENT CONTRACTOR SUBJECT TO THE APPROVAL OF POWER GRID. IN VIEW OF S UCH PROVISION THE APPLICANT PURSUANT TO THE UNDERSTANDING REACHED WI TH L&T REQUESTED POWER GRID TO AWARD THE OFF-SHORE CONTRACT TO IT AN D THE ON-SHORE SUPPLY AND SERVICES CONTRACT TO BE PERFORMED IN IND IA TO L&T. THIS PROPOSAL WAS PRECEDED BY A MEMORANDUM OF UNDERSTAND ING DATED 8-8- 2005 BETWEEN THE APPLICANT AND THE L&T. AS PER PARA 12(C) OF THE MOU THE APPLICANT WAS PERMITTED TO ASSIGN ANY PORT ION OF THE CONTRACT PAGE 40 OF 101 ITA NOS.263 TO 266/BANG/201 0 40 EITHER IN FULL OR IN PART TO L&T IN WHICH EVENT L& T WILL BE PERMITTED TO WORK AS AN INDEPENDENT CONTRACTOR AND THE CUSTOMER NAMELY POWER GRID WILL ENTER INTO A SEPARATE CONTRACT WITH L&T. THUS L&T WAS NOMINATED AS THE ASSIGNEE IN RESPECT OF CERTAIN WORKS IN CASE THE BID OF APPLICANT WAS ACCEPTED. L&T IN ITS LETTER DATED 8-8-2005 ADDR ESSED TO POWER GRID CONFIRMED THIS UNDERSTANDING AND CONSENTED TO WORK AS AN INDEPENDENT CONTRACTOR AS PER THE TERMS AND CONDITI ONS OFFERED BY POWER GRID. BY THE LETTER OF AWARD DATED 24-3-2006 (FOR SHORT LOA) POWER GRID ACCEPTED THE BID PROPOSAL SUBMITTED BY T HE APPLICANT AND AWARDED TO THE APPLICANT THE OFF-SHORE CONTRACT COV ERING ALL THE WORKS TO BE PERFORMED OUTSIDE INDIA INCLUDING SUPPLY OF A LL OFF-SHORE EQUIPMENT AND MATERIALS ON CIF INDIAN PORT OF DISEM BARKATION BASIS (VIDE PARA 2.1 OF LOA). IN THE LOA POWER GRID REFE RRED TO THE APPLICANTS BID PROPOSAL AND THE POST-BID DISCUSSIO NS AND STATED THAT THE ON-SHORE SUPPLY CONTRACT AND ON-SHORE SERVICES CONT RACT INCLUDING CIVIL WORKS TRAINING IN INDIA ETC. HAS BEEN AWARDED TO THE APPLICANTS ASSIGNEE NAMELY L&T INDIA AS PER ITS LETTER OF TH E SAME DATE. FURTHER IT WAS MADE CLEAR IN THE LOA: NOTWITHSTAN DING THAT THE AWARD OF WORK UNDER THREE SEPARATE CONTRACTS IN THE AFORE SAID MANNER YOU SHALL BE OVERALL RESPONSIBLE TO ENSURE THE EXECUTIO N OF ALL THE THREE CONTRACTS TO ACHIEVE SUCCESSFUL COMPLETION OF THE E NTIRE SCOPE OF WORK UNDER 800KV/400KV TEHRI POOLING STATION PACKAGE ASS OCIATED WITH KOTESHWAR TRANSMISSION SYSTEM AND ITS TAKING OVER B Y POWER GRID. THE TOTAL CONTRACT PRICE PAYABLE TO THE APPLICANT WAS S PECIFIED AS 6 935 389 US $. AFTER THE LOA WAS ISSUED A DEED OF ASSIGNMEN T WAS EXECUTED BY AND BETWEEN THE APPLICANT AND THE L&T ON 8-5-200 6. A FORMAL CONTRACT IN TERMS OF THE LOA WAS ENTERED INTO BETWE EN POWER GRID AND THE APPLICANT ON 27-10-2006. POWER GRID ALSO ENTERE D INTO THE CONTRACTS WITH L&T ON THE SAME DAY. ONE OF THE QUES TIONS BEFORE THE AUTHORITY FOR ADVANCE RULING WAS THAT WHETHER THE AMOUNTS RECEIVED/RECEIVABLE BY THE APPLICANT I.E. HYOSUNG CORPORATION FROM POWER GRID CORPORATION OF INDIA LIMITED (PGCIL) F OR OFF-SHORE SUPPLY OF EQUIPMENTS MATERIALS ETC. ARE LIABLE TO TAX I N INDIA UNDER THE PROVISIONS OF THE ACT AND INDIA-KOREA TAX TREATY? THE HONOURABLE AUTHORITY FOR ADVANCE RULING RULED AS FOLLOWS: NONE OF THE ABOVE TERMS AND STIPULATIONS IN OUR VIEW GIVES RISE TO FORMATION OF ASSOCIATION OF PER SONS PAGE 41 OF 101 ITA NOS.263 TO 266/BANG/201 0 41 IN THE MATTER OF EXECUTION OF THE CONTRACTS. MERE COLLABORATIVE EFFORT AND THE OVERALL RESPONSIBILITY ASSUMED BY THE APPLICANT FOR THE SUCCESSFUL PERFORMANCE OF THE PROJECT IS NOT IN OUR VIEW SUFFICIENT TO CONSTITUTE AN AOP IN THE EYE OF LAW. THE FIRST AND FOREMOST FEATURE THAT ASSUMES IMPORTANCE IS THAT POWER GRID AWARDED SEPARATE CONTRACTS TO BOTH THE CONTRACTORS - THE FIRST TO TH E APPLICANT AND THE OTHER TWO TO L&T. THE ASSIGNMENT WHICH WAS IN TERMS OF THE MOU PAVED THE WAY FOR SUCH SEPARATE CONTRACTS AND THE SAME WAS ACCEPTED AND ACTED UPON BY POWER GRID. EACH PARTY PERFORMS THE OBLIGATIONS UNDER THE RESPECTIVE CONTRACTS AWARDED TO THEM SEPARATELY AND RECEIVES THE MONIES PAYABLE UNDER THE CONTRACTS INDEPENDENT OF EACH OTHER. L&T WHICH WAS NOT A PARTY TO THE BID IS RECOGNIZED AS AN INDEPENDENT CONTRACTOR IN VARIOUS DOCUMENTS. L&T IS ENTITLED TO RAISE THE BILLS FOR T HE WORK CARRIED OUT BY IT SEPARATELY AND SUCH BILLS SH ALL BE PAYABLE BY POWER GRID DIRECTLY TO L&T WITHOUT RECOURSE TO THE APPLICANT (VIDE PARA 3 OF ASSIGNMEN T DEED). THUS THE INDIVIDUAL IDENTITY OF EACH PARTY IN DOING THE PART OF WORK ENTRUSTED TO IT IS PRESERVED NOTWITHSTANDING THE COORDINATION BETWEEN THE TWO AN D THE OVERALL RESPONSIBILITY OF THE APPLICANT. IT CAN NOT THEREFORE BE SAID THAT THE TWO CONTRACTORS HAVE PROMOTED A JOINT ENTERPRISE WITH A VIEW TO EARN INCOME. THE APPLICANT BEING THE SUPPLIER OF CRUCIAL EQUIPME NTS IMPORTED FROM ABROAD AND POSSESSED OF NECESSARY EXPERTISE IN THE FIELD WAS ENTRUSTED WITH THE SUPERVISORY RESPONSIBILITIES ESPECIALLY AT THE STAG E OF TESTING AND COMMISSIONING. ON THE ONE HAND IT IS MEANT TO ENSURE THAT THE EQUIPMENTS SUPPLIED BY THE APPLICANT WERE BLEMISH-LESS. SECONDLY POWER GRID VERY MUCH RELIED ON THE APPLICANT TO RENDER ALL THE NECESSARY TECHNICAL ASSISTANCE AND GUIDANCE TO L&T - PAGE 42 OF 101 ITA NOS.263 TO 266/BANG/201 0 42 A CONTRACTOR BROUGHT INTO THE PICTURE BY THE APPLIC ANT AND TO OVERSEE ITS PERFORMANCE AT ALL CRUCIAL STAGE S. BY INCORPORATING VARIOUS SAFEGUARDS IN THE CONTRACT POWER GRID TOOK THE NECESSARY PRECAUTIONS TO SEE TH AT NOTWITHSTANDING THE SPLIT UP OF CONTRACT INTO THREE THE APPLICANT AND L&T WOULD ACT IN HARMONY AND MAINTAIN REQUISITE COORDINATION FOR THE TIMELY AND SUCCESSFUL COMPLETION OF PROJECT. SUCH A ROLE ASSIG NED TO THE APPLICANT BY POWER GRID WAS IN THE OVERALL INTEREST OF THE PROJECT. IT IS AN ARRANGEMENT CONCEIVED OF AND AGREED TO BY THE PARTIES KEEPING I N VIEW THE OVERALL OBJECTIVE OF SUCCESSFUL COMMISSION ING OF THE PROJECT. THE CLAUSES IN THE AGREEMENT REFERRED TO BY THE REVENUE WILL HAVE TO BE VIEWED I N THAT BACKGROUND AND IN THAT LIGHT. THE LIMITED INVOLVEMENT OF THE APPLICANT IN THE CONTRACTS OF L& T INCLUDING THE COORDINATION AND SUPERVISORY ROLE ENTRUSTED TO IT FALLS SHORT OF THE ATTRIBUTES OF AN AOP. THE SPECIAL STIPULATIONS REFERRED TO SUPRA VIZ. APPLICANT BEING REQUIRED TO GIVE PERFORMANCE GUARAN TEE NOT ONLY IN RESPECT OF ITS OWN CONTRACT BUT ALSO IN RESPECT OF L&TS CONTRACT AND THE VICARIOUS LIABILI TY FOR BREACH ATTACHED TO THE APPLICANT IN RESPECT OF ALL THE THREE CONTRACTS WERE NOT IN FURTHERANCE OF A JO INT VENTURE AND A COMMON DESIGN TO PRODUCE INCOME. BUT THESE OBLIGATIONS AND RESPONSIBILITIES WERE SPECIAL LY INTRODUCED BY POWER GRID WHILE DEALING WITH THE CONTRACTING PARTIES ON PRINCIPAL-TO-PRINCIPAL BASIS IN THE OVERALL INTEREST OF THE PROJECT. IT IS WORTHY T O NOTE THAT L&T IN ITS TURN GAVE A COUNTER GUARANTEE TO THE APPLICANT FOR THE REASON THAT THE APPLICANT FURNISHED THE GUARANTEES IN RESPECT OF THE CONTRACT S RELATED TO L&T ALSO. THUS THE DISTINCT IDENTITY OF EACH PARTY WAS THROUGHOUT MAINTAINED. THE REQUISITE COHESION UNITY OF ACTION AND ABOVE ALL THE COMMON PAGE 43 OF 101 ITA NOS.263 TO 266/BANG/201 0 43 OBJECTIVE OF SHARING THE REVENUE OR PROFIT ARE VERY MUCH LACKING IN THE PRESENT CASE. THE HONBLE AAR IN JOINT STOCK COMPANY FOREIGN ECON OMIC ASSOCIATION TECHNOPROMEXPORT IN RE (2010) 322 ITR 409 (AAR) REFERRED TO THE PARA 10.1 OF THE DECISION OF THE HYOSUNG CORPORATIO N IN RE [2009] 314 ITR 343 (AAR) WHICH IS AS UNDER: 10.1 THE ABOVE EVENTS WOULD INDICATE THAT THE TITLE TO GOODS STOOD TRANSFERRED TO POWER GRID OUTSIDE THE TERRITORY OF INDIA. THE TITLE PASSED ON TO POWER GR ID WELL BEFORE THE GOODS REACHED THE INDIAN PORT OR TH E TERRITORIAL WATERS OF INDIA. THE BILL OF LADING CON TAINS THE NAME OF POWER GRID AS THE CONSIGNEE. THE DOCUMENTS WERE PRESENTED TO THE APPLICANTS BANKER FOR NEGOTIATION SOON AFTER THE GOODS WERE SHIPPED FOB AND BILL OF LADING WAS ISSUED. TWO DAYS LATER THE AMOUNT EQUIVALENT TO 70 PER CENT OF THE VALUE WAS TRANSFERRED TO THE APPLICANTS ACCOUNT ON THE SAME DAY. THIS MODUS OPERANDI IS IN ACCORDANCE WITH PARA 2.4.4 OF THE LOA. THE BILL OF ENTRY WHICH WAS PREPARED ABOUT 15 DAYS AFTER SHIPMENT ALSO SHOWS POWER GRID AS THE IMPORTER. EVEN IN THE INSURANCE POLICY TAKEN BY THE APPLICANT POWER GRID HAS BEEN NAMED AS THE BENEFICIARY. THE CUSTOMS DUTY WAS PAID BY OR ON BEHALF OF POWER GRID BEFORE THE GOODS WERE TAKEN DELIVERY. THESE FACTS UNERRINGLY LEAD TO THE CONCLUSION THAT IN ACCORDANCE WITH THE CONTRACTUAL STIPULATIONS THE TRANSFER OF TITLE TO THE EQUIPMEN T AND MATERIALS TOOK PLACE WHILE THE GOODS WERE OUTSI DE THE TERRITORY OF INDIA. THE EVENTS MATCH WITH THE NOMENCLATURE'OFFSHORE SUPPLY CONTRACT' AND THE EXPRESS STIPULATION THAT THE TRANSFER OF TITLE TO EQUIPMENT AND MATERIALS SHALL PASS ON TO POWER GRID AT FOB PORT OF SHIPMENT WITH THE NEGOTIATION OF SHIPPI NG DOCUMENTS. IT IS WORTHY OF NOTE THAT THE APPLICANT HAS NOT RESERVED THE RIGHT OF DISPOSAL DURING TRANS IT OR OTHERWISE. THE FACT THAT THE APPLICANT IS NOT PAGE 44 OF 101 ITA NOS.263 TO 266/BANG/201 0 44 RELIEVED OF THE RESPONSIBILITY FOR LOSS OR DAMAGE T O THE GOODS UNTIL THE FINAL TAKE OVER AND ACCEPTANCE OF THE GOODS AND THAT THE GOODS ARE LEFT IN THE CUSTOD Y OF THE APPLICANT TILL THE STAGE OF ERECTION AND INSTALLATION ARE NOT INCONSISTENT WITH THE POWER GR ID HAVING ALREADY BECOME THE OWNER OF EQUIPMENT WELL BEFORE THE GOODS REACHED THE INDIAN PORT. THESE ARE SPECIAL SAFEGUARDS WHICH POWER GRID WANTED TO HAVE KEEPING IN VIEW THE OPERATIONAL EXIGENCIES AND OVER ALL OBLIGATIONS OF THE APPLICANT UNDER THE CONTRACT. IT IS TRITE THAT RISK NEED NOT PASS SIMULTANEOUSLY WITH T HE TITLE TO GOODS. THERE COULD BE SPECIAL STIPULATION BETWEEN THE PARTIES IN THIS BEHALF. AS RIGHTLY POIN TED OUT BY THE LEARNED COUNSEL FOR THE APPLICANT THE APPLICANT BY TAKING CARE OF GOODS AT THE SITE IN I NDIA TILL INSTALLATION ASSUMED THE CAPACITY OF A BAILEE . AS REGARDS THE STIPULATION THAT THE SUPPLIER SHALL CON TINUE TO BE RESPONSIBLE FOR THE QUALITY AND PERFORMANCE O F THE GOODS UNTIL THE FINAL TAKE OVER ON TESTING OF T HE EQUIPMENT IT CANNOT BE CONSTRUED TO BE A CONDITION WHICH POSTPONES THE TRANSFER OF TITLE TO THE GOODS TILL THAT TIME. IT IS MORE IN THE NATURE OF WARRANTY PROVISION IN THE CONTRACT. THEREFORE IT IS SUBMITTED THAT DESPITE THE AFORESAID OVERALL RESPONSIBILITY CLAUSE IT IS IMPERMISSIBLE TO TREAT THE THREE SEPARATE CONTRACTS I.E. (I) SUPPLY OF MATERIALS (II) ERECTION CONTRAC T AND (III) CONTRACT FOR CIVIL WORK AS ONE SINGLE CONTRAC T. WHEN PARTIES HAVE AGREED ON CERTAIN TERMS UNLESS I T IS PROVED SHAM THE AGREED TERMS HAVE TO BE RESPECTED AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. MOTORS & GENERAL STORES (P) LTD. (1967) 66 ITR 692 (SC). RELIES ON THE FOLLOWING DECISIONS WITH REGARD TO TD S OBLIGATION IN RESPECT OF COMPOSITE CONTRACTS: PAGE 45 OF 101 ITA NOS.263 TO 266/BANG/201 0 45 IN THE CASE OF POWER GRID CORPORATION OF INDIA LTD. VS. ACIT [2007] 112 TTJ 654 (HYD.-ITAT) THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CENTRAL GOVERNMENT UNDERTAKING ENGAGE D IN THE ACTIVITY OF TRANSMISSION AND POWER DISTRIBUTION OF ELECTRICITY TO VARIOUS CONSTITUENTS ACROSS THE COUNTRY. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE WAS INVOLVED IN THREE PROJECTS FOR WHICH CONTRACTS WERE AWARDED TO DIFFERENT CONTRACTORS. THE ASSESSEE AWARDED CONTRAC TS TO VARIOUS PARTIES TO CONSTRUCT/EXECUTE THE TRANSMISSION LINE/ SUB-STATION. THE CATEGORIES OF CONTRACTS ENTERED INTO BY THE APPELLA NT WITH VARIOUS CONTRACTORS FOR THE ABOVE PURPOSE ARE PURE SUPPLY C ONTRACT PURE ERECTION CONTRACT AND SUPPLY-CUM-ERECTION CONTRACTS (BUT WITH SEPARATE AGREEMENTS IN RESPECT OF SUPPLY PORTION). THE HONB LE BENCH HAS HELD AS FOLLOWS: IN THIS CASE AS ALREADY STATED THE ASSESSEE ENTERED INTO CONTRACTS WITH VARIOUS CONTRACTORS FOR SUPPLY OF CONDUCTORS INSULATORS TRANSMISSION TOWE RS AND SUB-STATIONS. THE CONTRACTS WERE NOT ONLY TO SUPPLY EQUIPMENT BUT ALSO BY WAY OF SEPARATE CONTRACT TO ERECT THE TRANSMISSION TOWERS AND ALSO THE SUB-STATIONS. THE CONTRACT THOUGH CONTAINED IN THE SAME DOCUMENT IN SOME CASES ARE IN TWO PARTS. SIMPL Y BECAUSE THE SUPPLY AND ERECTION PARTS OF THE CONTRA CT WERE ENTERED INTO WITH THE SAME PARTY IN SOME CASES AND IN SOME OTHER CASES WERE IN TWO SEPARATE PARTS IN THE SAME AGREEMENT THE NATURE OF EACH PART OF TH E CONTRACT WILL NOT ALTER. . . IN THE PRESENT CASE WHERE THE CONTRACT OF SUPPL Y AND ERECTION IS GIVEN TO THE SAME PARTY THE VALUE OF THE ERECTION CONTRACT AS CAN BE SEEN FROM THE ANNEXURE IS LESSER THAN THE VALUE OF THE SUPPLY CONTRACT. IT CANNOT THEREFORE CONTROL THE INTERPRETATION OF THE CONTRACT SPECIFICALLY WHEN T HE PROPERTY IN THE GOODS HAVE PASSED EX-WORKS ON DELIVERY AND NOT ON THE THEORY OF ACCRETION. THE ASSESSEE TOOK POSSESSION OF THE GOODS AND THE TITLE PAGE 46 OF 101 ITA NOS.263 TO 266/BANG/201 0 46 PASSED ON TO IT AS A CHATTEL PRIOR TO COMMENCEMENT OF THE ERECTION PORTION OF THE CONTRACT. . IF THE FACTS OF THE PRESENT CASE ARE TESTED BY APPLYING THE PRINCIPLES LAID DOWN BY THE JURISDICTI ONAL HIGH COURT AND THE HONBLE SUPREME COURT THE OBVIOUS ANSWER THAT WOULD EMERGE IS THAT THIS IS A 'SUPPLY CONTRACT' AND NOT 'WORKS CONTRACT'. THE NATURE OF A CONTRACT AS TO WHETHER IT IS CONTRACT FOR SALE OR 'WORKS CONTRACT' WILL DEPEND ON THE TERMS OF THE CONTRACT AND ITS EXECUTION. IN THE PRESENT CASE THE CONTRACTORS HAVE TO FABRICATE TOWERS AS PER TESTED QUALITY OF CONFORMITY WITH INTERNATIONAL STANDARD-(IS) : 2062. FURTHER THE CONTRACTOR HAS BEEN GIVEN THE OPTION TO USE OTHER EQUIVALENT GRADE OF STRUCTURAL STEEL ANGLE SECTIONS AND PLATES CONFORMI NG TO LATEST INTERNATIONAL STANDARDS. THE CONTRACTOR FABRICATES AND MANUFACTURES THE TOWER WITH STEEL SECTIONS AS PER INTERNATIONAL STANDARDS. THE MATERI AL IS THAT OF 'THE SUPPLIER' AND NOT OF 'THE PURCHASER '. THE 'SUPPLIER' DOES NOT WORK ON THE MATERIAL SUPPLI ED BY THE 'PURCHASER'. THERE IS NO ACCRETION OF MATERI AL TO THE PURCHASER PART BY PART UNIT BY UNIT. THE R EST OF THE EQUIPMENT SUCH AS INSULATORS CONDUCTORS TRANSFORMERS CIRCUIT BREAKERS ETC. ARE STANDARD EQUIPMENTS. THE RELEVANT TECHNICAL SPECIFICATION IS SPECIFIED BY THE PURCHASER. THE TITLE IN THE GOOD S PASSES AS A CHATTEL ON DELIVERY THOUGH CERTAIN OBLIGATIONS ARE STILL NECESSARILY TO BE PERFORMED B Y THE 'SUPPLIER'. THOUGH THE ASSESSEE CLAIMS THAT THE DESIGN SPECIFICATION ARE NOT UNIQUE IN THE SENSE TH AT THE SAME SPECIFICATIONS ARE USED BY MANY OTHER CONCERNS TO OUR MIND THIS IS NOT A RELEVANT TEST. THE ISSUE IS AS TO THE TIME AND SITUS OF PASSING OF THE PROPERTY AND AS TO WHETHER THE PROPERTY PASSES 'BRI CK BY BRICK' ON THE THEORY OF ACCRETION OR AS A CHATTE L QUA CHATTEL. THE MERE FACT THAT THE SUPPLIER HAS TO PERFORM MANY OTHER OBLIGATIONS CAST ON IT BY VIRTUE OF PAGE 47 OF 101 ITA NOS.263 TO 266/BANG/201 0 47 THE CONTRACT AFTER DELIVERY OF GOODS DOES NOT CHANG E THE NATURE OF TRANSACTION. THE SUPPLY PORTION OF THE CONTRACT ARE THE PREDOMINANT OBJECT AND INTENTION O F THE PARTIES. ERECTION IS RELATIVELY MINOR PORTION A S COMPARED TO THE SUPPLY PORTION. IF THE ERECTION PORTION CANNOT BE TAKEN AS THE MAIN OBJECT OF THESE CONTRACTS TITLE IN GOODS WAS TRANSFERRED AS MOVABL ES PRIOR TO ERECTION. IF EQUIPMENT ARE MANUFACTURED AS PER THE DESIGN ENGINEERING ETC. SPECIFIED BY THE CUSTOMER IT WOULD NOT RESULT IN A WORKS CONTRACT ESPECIALLY WHEN ALL THE MATERIAL BELONG TO THE SUPP LIER EVEN THOUGH IT PRODUCED A TAILOR-MADE PRODUCT. THE ERECTION PORTION BEING SUBSEQUENT TO PASSING OF TIT LE BY EXECUTION OF THE SUPPLY PORTION IT CANNOT BE SA ID THAT THE ERECTION PORTION CONTROLS THE SUPPLY PORTI ON THOUGH THE FULFILLMENT OF THE CONDITIONS OF THE ERECTION CONTRACT HAS A BEARING ON THE FULFILLMENT OF THE CONDITION OF SUPPLY PORTION OF THE CONTRACT AN D THOUGH IN SOME CASES BOTH THE CONTRACTS ARE IN THE SAME DOCUMENT. THE SCOPE AND OBJECT OF EACH PART OF THE CONTRACT IS DIFFERENT. THOUGH THE SUPPLY PORTIO N AND ERECTION PORTION DOVETAIL INTO EACH OTHER THE ERECTION PORTION DOES NOT CONTROL THE SUPPLY PORTIO N AND THE SUPPLY CONTRACT DOES NOT BECOME A WORKS CONTRACT JUST BECAUSE THERE IS AN OBLIGATION CAST ON THE SUPPLIER TO ERECT THE EQUIPMENT WHICH BY THAT TIME HAS BECOME THE PROPERTY OF THE PURCHASER. THE TITLE IN THE GOODS IN RESPECT OF EQUIPMENT/MATERIAL TO BE SUPPLIED AS PER THE TERMS OF CONTRACT IS TO BE TRANSFERRED 'EX-WORK' ON DISPATCH AS MOVABLE PROPERTY. THE CRITICAL TEST TO BE APPLIED IS AS TO WHEN THE TITLE IN THE GOODS IS TRANSFERRED. THUS AS THE TITLE IN THE GOODS WERE PASSED ON TO THE ASSESSEE BEFORE THE COMMENCEMENT OF THE WORKS OR ERECTION CONTRACT AND AS ADMITTED BY THE ASSESSEE HAD TREATED THESE GOODS AS ITS PROPERTY AND ENTERED THE SAME AS SUCH IN ITS STOCK REGISTER BEFORE ISSUING THE SAME FOR ERECTION IT IS A CONTRACT OF SALE AND SECTION 194C HAS PAGE 48 OF 101 ITA NOS.263 TO 266/BANG/201 0 48 NO APPLICATION. ON ERECTION PORTION AS ADMITTED TDS IS MADE. A PLAIN READING OF THE SECTION 194C ALONG WITH CBDT CIRCULAR REFERRED ABOVE AND APPLYING THE SAME TO TH E FACTS OF THIS CASE WHERE WE FIND THAT THE SUPPLIER DOES NOT WORK OR PROCESS THE MATERIAL SUPPLIED BY T HE PURCHASER AND THAT THE SELLER SUPPLIED GOODS THE TI TLE IN WHICH PASSED ON TO THE PURCHASER/ASSESSEE AS A CHATTEL ON DELIVERY EX-WORK DISPATCH AND AS THE ASSESSEE HAS ALREADY DEDUCTED TAX AT SOURCE FROM TH E ERECTION PORTION OF THE CONTRACT TREATING IT AS A SEPARATE CONTRACT WE HAVE TO HOLD THAT SECTION 194 C IS NOT APPLICABLE TO THE SUPPLY CONTRACT IN QUESTIO N. IN THE CASE OF SENIOR ACCOUNTS OFFICER (O&M) HARYA NA POWER GENERATION CORPORATION LIMITED VS. ITO (2006) 103 T TJ 584 (DELHI- ITAT) THE FACTS OF THE CASE ARE THAT THE APPELLAN T HAD TWO THERMAL PLANTS - ONE AT FARIDABAD AND ANOTHER AT PANIPAT. T HE PANIPAT THERMAL PLANT ENTERED INTO AN AGREEMENT WITH M/S. BHEL FOR DESIGNING ENGINEERING MANUFACTURING SUPPLY ERECTION TESTI NG AND COMMISSIONING FOR RETROFIT OF ESPS. THE HONOURABLE INCOME TAX APP ELLATE TRIBUNAL DELHI BENCH HAS HELD AS FOLLOWS: A BARE PERUSAL OF THE COMPONENTS OF THE CONSIDERATION FOR THE CONTRACT WOULD CLEARLY SHOW T HAT THE PRIMARY OR THE DOMINANT INTENTION OF THE APPELL ANT WAS TO PURCHASE THE MATERIAL NAMELY TWO ESPS FOR I TS POWER PLANT AT PANIPAT. FREIGHT AND INSURANCE PAYAB LE IN RESPECT OF ITS SUPPLY AND THE COST OF MATERIAL CONSTITUTED A MAJOR PORTION OF THE CONTRACT VALUE. THE COST OF SPARES WILL ALSO FALL IN THIS CATEGORY AS R IGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE APPELLANT BEFORE INSTALLING THE PLANT IT WAS NECESSARY TO DISMANTLE THE EXISTING PLANT AND ALSO TO DO THE NECESSARY CIVIL WORK FOR ERECTING THE NEW PLANT. TH IS BY ITSELF WOULD NOT MEAN THAT THE CONTRACT IN QUEST ION WAS A COMPOSITE CONTRACT FOR THE ERECTION AND PAGE 49 OF 101 ITA NOS.263 TO 266/BANG/201 0 49 COMMISSIONING OF THE PLANT TOGETHER WITH THE MATERI ALS REQUIRED FOR SUCH COMMISSIONING OF THE PLANT. AS HE LD BY THE HONBLE SUPREME COURT IN THE CASE OF STATE O F HIMACHAL PRADESH V. ASSOCIATED HOTELS OF INDIA LTD. 29 STC 474 (SC) IN THE CASE OF A COMPOSITE CONTRACT ONE HAS TO FIND OUT THE PRIMARY OBJECT OF THE TRANSACTIONS AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT. ON THE FACTS OF THIS CASE WE FIND THAT THE PRIMARY OBJECT OF THE APPELLANT WAS TO PURCHASE THE PLANT IN QUESTION AND THE CIVIL WORK ERECTION AND COMMISSIONING WAS ONLY INCIDENTAL TO PURCHASE THE MATERIAL BY THE APPELLANT. IN OTHER WORDS THE CONTRACT FOR SUPPLY OF THE EQUIPMENTS AN D THE CONTRACT FOR ERECTION AND COMMISSIONING OF THE PLANT ARE TWO SEPARABLE CONTRACTS THOUGH THERE IS ONLY ONE COMMON PURCHASE ORDER. THEREFORE WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN CONSIDERING THE GROSS PAYMENTS MADE BY THE APPELLANT TO BHEL FOR THE PURPOSE OF DETERMININ G THE TAX DEDUCTIBLE AT SOURCE BY THE APPELLANT. WE HAVE ALSO PERUSED THE DECISION OF THE RAJKOT BENCH OF THE ITAT IN THE CASE OF ESSAR OIL LTD. (SUPRA). WE ARE OF THE VIEW THAT THE FACTS OF THE AFORESAID CAS E ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. IT WAS A CASE WHERE THE CONTRACT WAS FOR CONSTRUCTION OF A REFINER AND THE CONTRACTOR WA S TO SUPPLY THE MATERIAL TO BE USED FOR CONSTRUCTION. IN THE PRESENT CASE THE SUPPLY OF THE POWER GENERATOR WAS AN INDEPENDENT TRANSACTION AND ITS ERECTION WAS ONLY ANCILLARY OR INCIDENTAL TO THE PURCHASE OF THE POWER GENERATOR. WE ARE ALSO OF THE VIEW THAT IN EACH CASE THE TERMS OF THE CONTRACT NEED TO BE ANALYZED BEFORE COMING TO THE CONCLUSION WHETHER IT WAS A COMPOSITE CONTRACT OR NOT. AS ALREADY STATED IN THE PRESENT CASE THE CONTRACT INSOFAR AS IT RELATES TO SUPPLY OF THE MATERIAL FREIGHT INSURANC E AND SUPPLY OF SPARE PARTS IS CLEARLY SEPARABLE FRO M THE OTHER PART OF THE CONTRACT RELATING TO CARRYING OUT PAGE 50 OF 101 ITA NOS.263 TO 266/BANG/201 0 50 CIVIL WORK COMMISSIONING AND ERECTION OF THE POWER GENERATORS. IN VIEW OF THE DISCUSSION ABOVE WE DIRECT THE ASSESSING OFFICER TO WORK OUT THE SHORT DEDUCTION O F TAX AT SOURCE IF ANY BY EXCLUDING THE PAYMENTS TOWARDS SUPPLY OF MACHINERY SPARE PARTS AS WELL AS FREIGHT AND INSURANCE. IN THE CASE OF SOMANI IRON & STEEL (P.) LTD. VS. IT O (LUCK.) (2003) 86 ITD 750 (LUCK.-ITAT) THE HONBLE BENCH HAS HELD A S FOLLOWS: 32. LIKEWISE DETAILS OF OTHER ELECTRICAL EQUIPMEN TS HAVE ALSO BEEN GIVEN IN THE ANNEXURE TO THE ABOVE MENTIONED AGREEMENT. A PERUSAL OF THESE DETAILS INDICATES THAT EACH ITEM OR EQUIPMENT HAS BEEN MENTIONED WITH MINUTE DETAILS AND SPECIFICATIONS. 36. THE SECOND CONTRACT WHICH IS FOR INSTALLATION OF 220/33 KV ELECTRIC SUPPLY SUB-STATION INCLUSIVE OF POWER TRANSFORMER AND AUXILIARY TRANSFORMER IS DATE D 22-9-1992 WHICH IS AVAILABLE AT PAGES 174 TO 213 O F THE PAPER BOOK. THE MAIN FEATURES OF THIS CONTRACT ARE ALSO SIMILAR TO THE FIRST AGREEMENT. HENCE WE A RE NOT REQUIRED TO REPEAT THE SAME. 50. AFTER CONSIDERING THE ENTIRE RELEVANT MATERIAL INCLUDING THE AGREEMENTS THE VOUCHERS AND PAYMENT BILLS AND ALSO CONSIDERING THE NATURE OF EQUIPMENTS SUPPLIED AND ANCILLARY WORK OF SUPERVISION DESIGNI NG ETC. DONE BY THE SUPPLIER COMPANY WE ARE OF THE OPINION THAT THE COMPOSITE CHARACTER OF THE TRANSACTIONS INVOLVED IN THE THREE AGREEMENTS WAS T HAT OF SALE OF GOODS. ON PERUSAL OF THE BILLS FILED BY THE ASSESSEE WHICH ARE AVAILABLE IN THE PAPER BOOK AT PAGES 242 TO 368 IT IS FOUND THAT THESE BASICALLY RELATE TO SUPPLY OF MATERIAL BY THE SAID COMPANY AN D DISCLOSE THE PRICE OF NET SALE RELATING TO VARIOUS PAGE 51 OF 101 ITA NOS.263 TO 266/BANG/201 0 51 PARTS EQUIPMENTS AND GOODS. THE SALE BILLS ALSO INCLUDE THE AMOUNT OF SALES TAX AND EXCISE DUTY ETC . A REFERENCE IN THIS REGARD MAY BE MADE TO THE BIL L DATED 30-3 -1994 (PAGE 331) BILL DATED 31-10-1994 (PAGE 332) BILL DATED 10-11-1994 (PAGE 335) AND OTHER BILLS AVAILABLE FROM PAGES 335 TO 368. IN MOS T OF THESE BILLS THE AMOUNT OF SALES TAX AND EXCISE DUTY HAS BEEN SHOWN SEPARATELY AND HAS BEEN INCLUDE D WHICH SHOWS THAT THE BILLS RELATE TO SALE OF GOODS AND FOR SUCH SALES THE SALES TAX AND EXCISE DUTY ETC. WAS PAID BY THE PURCHASER. IF THE TOTAL AMOUNT PAID BY THE ASSESSEE IS ALSO EXAMINED AND CONSIDERED THEN IT IS FOUND THAT ONLY A NEGLIGIBLE OR INSIGNIFICANT P ART OF THE AMOUNT IS FOR THE SUPERVISION CHARGES OR OTHER ANCILLARY ACTIVITIES NOT ACTUALLY RELATING TO PRICE OF GOODS SOLD AND SUPPLIED TO THE ASSESSEE BY THE SUPPLIER COMPANY. IT MAY ALSO BE POINTED OUT THAT T HE CIVIL WORK AND SOME OF THE MECHANICAL AND ELECTRICA L WORK ALSO DONE BY THE ASSESSEE COMPANY THOUGH UNDER SUPERVISION OF THE SUPPLIER COMPANY AS PER THE TERM S OF AGREEMENT. THIS ALSO SHOWS THAT THE ENTIRE WORK WAS NOT DONE BY THE ASSESSEE. IN ANY CASE ON CONSIDERATION OF THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES AND THE COMPOSITE CHARACTER OF THE AGREEMENTS DOMINANT OR PREDOMINANT NATURE OF CONTRACTS IS FOUND TO BE THAT OF SALE AND NOT OF WO RK OF CONTRACT. 51. IF THE RATIO LAID DOWN IN THE CASE OF HINDUSTAN SHIPYARD LTD. (SUPRA) IS APPLIED TO THE FACTS OF TH E PRESENT CASE IT IS FOUND THAT THE SUPPLY OF THE MATERIAL WAS THE ESSENCE OF THE CONTRACT AND THE SERVICES AND OTHER MATERIALS PROVIDED BY THE SUPPLI ER COMPANY WERE ONLY INCIDENTAL TO THE CONTRACT OF SUP PLY OF GOODS. AS HELD IN THE CASE OF HINDUSTAN SHIPYARD LTD. (SUPRA) THE BILL OF MATERIAL USED IN THE INSTALLATION OF THE PLANTS ETC. WAS ON ACCOUNT OF S UPPLY OF THE EQUIPMENTS. THUS THE AGREEMENTS ENTERED INT O PAGE 52 OF 101 ITA NOS.263 TO 266/BANG/201 0 52 BY THE ASSESSEE WERE BASICALLY AGREEMENTS FOR SALE AND SUPPLY OF GOODS AND THE SUPERVISION WORK AND OTHER ACTIVITIES WERE MERELY INCIDENTAL TO SALE OF GOODS. THE TRANSACTIONS INCLUDED IN THE THREE AGREEMENTS THEREFORE WERE NOT CONTRACTS FOR WORK OR CONTRACTS OF WORK. THUS ON THE BASIS OF THE ABOVE MENTIONED FACTS AND ANALYSIS OF THE RELEVANT JUDICIAL DECISIONS IT IS FOUND THAT THE AGREEMENTS WERE AGREEMENTS FOR SALE AND NOT FOR CARRYING OUT WORK SO AS TO ATTRACT THE PROVISIONS OF SECTION 194C. 58. IN VIEW OF THE ABOVE REFERRED REPLY ALSO IT IS CLEAR THAT THE ENTIRE WORK OF INSTALLATION WAS NOT CARRIED OUT BY THE COMPANY RATHER THE COMPANY PROVIDED THE EQUIPMENTS SUPPLIED THE SAME AND ALSO UNDERTOOK TO INSTALL THE SAME AT THE PREMISES OF TH E ASSESSEE BUT THE CIVIL WORK ETC. WAS CARRIED OUT BY THE ASSESSEE. SO IT CANNOT BE SAID THAT THE WORK DONE BY G.E.C. INDIA LTD. WAS ON TURNKEY JOB BASIS . UNDER THESE CIRCUMSTANCES IN OUR OPINION THE ID. COMMISSIONER (APPEALS) WAS NOT JUSTIFIED IN TAKING THE CONTRACT/OR SETTING UP OF PROJECT ON TURNKEY BASIS. THE ID. COMMISSIONER (APPEALS) HAS LAID MUCH EMPHASIS ON THE AFFIDAVIT OF SHRI R.K. SOMANI MANAGING DIRECTOR OF THE ASSESSEE COMPANY FILED BEFORE THE HONBLE HIGH COURT IN A WRIT PETITION AN D HAS TRIED TO DRAW INFERENCE FROM THAT AFFIDAVIT THA T THE WORK WAS IN THE NATURE OF TURNKEY PROJECT. THE ID. SR. DR HAS ALSO MADE REFERENCE TO THAT AFFIDAVI T. IN OUR OPINION IT IS EXTRANEOUS MATERIAL FILED IN DIFFERENT CONTEXT AND CANNOT BE A VALID AND RELEVAN T CRITERION FOR DECIDING THE NATURE OF CONTRACT PARTICULARLY IN VIEW OF THE MAIN FEATURES OR SALIE NT FEATURES WHICH HAVE BEEN RECORDED BY US IN THE BODY OF THIS ORDER. PAGE 53 OF 101 ITA NOS.263 TO 266/BANG/201 0 53 59. THUS IN THE TOTALITY OF THE CIRCUMSTANCES INCLUDING THE SUBSTANCE AND THE FORM OF AGREEMENT AS WELL AS THE MODE OF PAYMENT IT IS HELD THAT THE WO RK DONE BY THE COMPANY (GEC INDIA LTD.) WAS NOT ON THE BASIS OF TURN KEY PROJECT RATHER THE WORK WAS FOR SUPPLY OF GOODS. HENCE WE ARE UNABLE TO CONCUR WIT H THE FINDINGS RECORDED BY THE ID. COMMISSIONER (APPEALS) WHICH ARE REVERSED BY US. CONSEQUENTLY ISSUE NO. 3 IS ALSO DECIDED AGAINST THE REVENUE BY HOLDING THAT THE AGREEMENTS ENTERED INTO BY THE ASSESSEE AND THE SUPPLIERS WERE NOT FOR DOING THE WORK ON TURNKEY PROJECT BASIS. IN THE CASE OF ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION VS. DCIT [2001] 119 TAXMAN 73 (HYD.) (MAG.): (2002) 74 TTJ 531 (HYD.- ITAT) THE FACTS OF THE CASE ARE THAT ASSESSEE-AND HRA PRADESH STATE ROAD TRANSPORT CORPORATION IS A CORPORATION ESTABL ISHED UNDER THE STATE ENACTMENT. THE ASSESSEE IS IN THE BUSINESS OF PROVI DING TRANSPORT SERVICES TO THE PUBLIC IN THE STATE AND FOR THAT PU RPOSE IT OWNS FLEET OF BUSES. IT PURCHASES CHASSIS AND AFTER THE PURCHASE OF CHASSIS HANDS OVER THE SAME TO THE FABRICATORS FOR CONSTRUCTING T HE BODY BUILDING UPON THE CHASSIS. THE HONBLE ITAT HYDERABAD BENCH HAS HELD AS FOLLOWS: THE INESCAPABLE CONCLUSION IS THAT THE CONTRACT ENTERED INTO BY THE APPELLANT-CORPORATION WITH ITS FABRICATORS WAS A CONTRACT FOR PURCHASE/SALE OF BUS BODIES AND CANNOT BE CONSTRUED AS A CONTRACT OF WOR K AND LABOUR SIMPLICITOR. THE DOMINANT OBJECT AND INTENTION BETWEEN THE PARTIES WAS TO CONSTRUCT AND SELL AS PURCHASE THE BUS BODIES IN TERMS OF THE REQUIREMENTS AND SPECIFICATIONS INDICATED BY THE APPELLANT-CORPORATION AND DELIVER THEM DULY FITTED ON THE CHASSIS SUPPLIED. WHOLE EXERCISE INVOLVED RESUL TED INTO PURCHASE AND SALE OF BUS BODIES IN FACT. MEREL Y BECAUSE SPECIFICATIONS ARE PROVIDED BY THE APPELLAN T- CORPORATION TO SUIT THE BUS BODIES ACCORDING TO APPELLANTS REQUIREMENTS DOES NOT ALTER THE BASIC CRUX AND CHARACTER OF THE CONTRACT WHICH IN THE INSTANT PAGE 54 OF 101 ITA NOS.263 TO 266/BANG/201 0 54 CASE IS NOTHING BUT THE CONTRACT OF SALE AND PURCHA SE. THE MATERIALS INVOLVED IN THE CONSTRUCTION OF THE B US BODIES WERE TO BE PROCURED BY THE FABRICATORS AND THEREAFTER BUS BODIES WERE TO BE CONSTRUCTED AND TO BE FITTED ON THE CHASSIS SUPPLIED BY THE APPELLANT- CORPORATION. AT NO POINT OF TIME APPELLANT HAD ANY PROPERTY OR OWNERSHIP IN THE MATERIAL USED IN BUS B ODY BUILDING OR IN THE BUS BODY ITSELF UNLESS THESE WER E DELIVERED TO THE APPELLANT AND APPROVED BY THE APPELLANT FOR FINAL USE. PROPERTY IN THE BUS BODIES WAS TO PASS ON ACCEPTANCE OF BUS BODIES BY THE APPELLAN T. PURCHASE OF ANY ITEM WHICH IS CONSTRUCTED AS PER AGREED SPECIFICATIONS WOULD INVOLVE LABOUR AND SKIL L BUT THESE TWO ELEMENTS BY THEMSELVES ALONE ARE NOT ENOUGH TO TURN THE TRANSACTION OF SALE INTO TRANSAC TION OF WORK. OBJECT AND END RESULT OF THE ENTIRE PROCESS THROUGH WHICH THAT TRANSACTION PASSES SHALL BE LOOKED INTO. IN THE CASE BEFORE US WE ARE OF THE CONSIDERED VIEW IN THE BACKDROP OF THE OBJECT AND END-RESULT OF THE CONTRACT THAT IT WAS A CONTRACT OF SALE ULTIMATELY AND FINALLY. THEREFORE IT WAS SUBMITTED THAT - (I) THREE SEPARATE CONTRACTS ENTERED INTO BETWEEN A PPELLANT AND CONTRACTORS CANNOT BE REGARDED AS ONE SINGLE INDIVI SIBLE CONTRACT; - THE CONTRACT FOR SUPPLY DOES NOT COME WITHIN THE SWEEP OF SECTION 194C; - EVEN IF ALL THE THREE CONTRACTS ARE TAKEN TOGETHE R THE SUPPLY PORTION CONSTITUTING MORE THAN 80% OF THE TOTAL VALUE THE ENTIRE ARRANGEMENT IS IN RESPECT OF SUPPLY OF EQUIPMENT AND ERECTION AND CIVIL WORKS ARE ONLY INCIDENTAL AND ANCILLARY TO THE SUPPLY CONTRACT APP LYING THE DOMINANT TEST THEORY. ACCORDINGLY SECTION 194C WOULD NOT APPLY T O ALL THE THREE CONTRACTS. PAGE 55 OF 101 ITA NOS.263 TO 266/BANG/201 0 55 (II) AS REGARDS ALLEGATION THAT THERE IS COLLUSION BETWEEN THE APPELLANT AND CONTRACTORS FOR THE TAX EVASION: - FIRSTLY THERE IS NO LIABILITY ON THE APPELLANT TO DEDUCT TAX AT SOURCE IN RESPECT OF THE SUMS PAID TO THE CONTRACTORS TOWA RDS PURCHASE OF EQUIPMENT AND SECONDLY APPELLANT CANNOT BE HELD AS AN ASSESSEE IN DEFAULT WHEN THE PAYEE HAS PAID TAX IN RESPECT OF THE SUMS RECEIVED BY THE APPELLANT. FURTHER IT IS ALSO SUBMITTED THAT B OTH THE AO AND THE LD CIT(A) HAVE NOT HELD THAT THE WORK ORDER OR THE TENDER AWARDED BY THE APPELLANT TO ITS CONTRACTOR IS A BOGUS OR A SHA M TRANSACTION; - SUCH BEING THE CASE THE LOWER AUTHORITIES ARE NO T JUSTIFIED IN NOT ACCEPTING THE AVERMENTS OF THE APPELLANT MADE BEFOR E THEM; - FURTHER BOTH THE AO AND THE LD. CIT(A) HAVE FAI LED TO APPRECIATE THAT THE APPELLANT IS A STATE GOVERNMENT PUBLIC SEC TOR UNDERTAKING THAT AS THE PUBLIC ENTITIES DO NOT HAVE ANY MOTIVE TO CONCEAL INCOME THE QUESTION OF COLLUSION FOR EVASION OF TAX DOES NOT A RISE. 1. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. WEST COAST PAPER MILLS LTD ITA NO. 389/2008 HAS HELD THAT TH E TRIBUNAL HAS CONSIDERED THAT ASPECT OF THE MATTER IN THE LIGHT O F THE MATERIAL ON RECORD AND HAS RECORDED THE FINDING THAT IT IS NOT A SHAM AND BOGUS TRANSACTION. ONE OF THE GROUNDS CONSIDERED FOR RECO RDING THAT FINDING IS THAT WHEN THE OTHER PARTY IS A STATUTORY BODY THE Q UESTION OF EVASION OF TAX DOES NOT ARISE AND THEREFORE ACCORDING TO THE TRIBUNAL INFERENCE OF COLLUSION CANNOT BE DRAWN. HENCE NO QUESTION OF LAW ARISES AND THAT THE SUPREME COURT DISMISSED THE DEPARTMENTS SLP AG AINST THE ABOVE JUDGMENT - (2010) 322 ITR (ST.) 9. 2. IN THE CASE OF COMPETENT AUTHORITY & ORS. VS. S MT. BANI ROY CHOWDHURY & ORS. (1981) 131 ITR 578 THE HONBLE C ALCUTTA HIGH COURT HAS OBSERVED THAT WHERE THE TRANSFEROR OR TH E TRANSFEREE IS THE GOVERNMENT OR A STATUTORY BODY THERE CANNOT BE ANY SCOPE FOR SUCH COLLUSION BETWEEN THE PARTIES. THE UNTRUE STATEMENT ABOUT THE AGREED CONSIDERATION IS MADE ONLY FOR THE PURPOSE OF EVASI ON OF TAX. WHEN GOVERNMENT OR ANY STATUTORY BODY IS A PARTY TO THE TRANSFER THE QUESTION OF EVASION OF TAX DOES NOT ARISE. PAGE 56 OF 101 ITA NOS.263 TO 266/BANG/201 0 56 3. IN THE CASE OF J ROY MCDERMOTT EASTERN HEMISPHER E LTD. V. JCIT [ITA NO. 8084/MUM./2004 DT. 22-3-2010] (MUM.-ITAT) [2010] 190 TAXMAN (BN IV) PART 2 IT WAS HELD THAT IT IS FOR THE REVENUE AUTHORITIES TO ESTABLISH BEYOND A REASONABLE DEGREE OF DOUBT THAT THERE IS AN ABUSE OF TREATY PROVISIONS BY SO ARTIFICIALLY CONTRIVING THE AFFAIRS AS TO WRONGFULLY ENTITLE THE ASSESSEE TO TREATY BEN EFITS. UNLESS THAT EXERCISE IS CONDUCTED IT CANNOT BE OPEN TO DISREGA RD THE CLAIM OF THE ASSESSEE BY SIMPLY MAKING VAGUE AND GENERALIZED CLA IMS ABOUT ARTIFICIAL SPLITTING OF CONTRACTS AND ABOUT THE SHAM ARRANGEME NTS TO DEFEAT THE TREATY PROVISIONS. AS REGARDS ONCE THE RECIPIENT HAS PAID TAX ON THE INCOME THERE IS NO OBLIGATION ON THE APPELLANT: - WITHOUT PREJUDICE TO THE ABOVE THE LEARNED COMMI SSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE RECIPIENT HAVING PAID THE TAX ON THE AMOUNT RECEIVED FROM THE APPELLANT THERE WAS NO OBL IGATION ON THE PART OF THE APPELLANT TO PAY THE TAX UNDER SECTION 201 ( 1). - THAT S. 191 READS AS FOLLOWS: IN THE CASE OF INCOME IN RESPECT OF WHICH PROVISION IS NOT MADE UNDER THIS CHAPTER FOR DEDUCTING INCOME-TAX AT THE TIME O F PAYMENT AND IN ANY CASE WHERE INCOME-TAX HAS NOT BEEN DEDUCTED IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER INCOME-TAX SHALL BE PAYABLE BY THE ASSESSEE DIRECT. EXPLN.FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECL ARED THAT IF ANY PERSON INCLUDING THE PRINCIPAL OFFICER OF A COMPAN Y (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB-SECTION (1A) OF SECTION 192 BEING AN EMPLOYER DOES NOT DEDUCT OR AFTER SO DEDUCTING FAILS TO PAY OR DOES NOT PAY THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY OR UNDER THIS ACT AND WHERE THE ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY THEN SUCH PERSON SHALL WITHOUT PREJUDICE TO ANY OTHER CONSEQ UENCES WHICH HE MAY PAGE 57 OF 101 ITA NOS.263 TO 266/BANG/201 0 57 INCUR BE DEEMED TO BE AN ASSESSEE IN DEFAULT WITHI N THE MEANING OF SUB-SECTION (1) OF SECTION 201 IN RESPECT OF SUCH TAX. - ACCORDINGLY IF NO TAX IS DEDUCTED IN ACCORDANCE WITH THE CHAPTER XVII AT THE TIME OF PAYMENT OF INCOME INCOME TAX S HALL BE PAID BY THE RECIPIENT DIRECTLY. - EXPLANATION TO SECTION 191 PROVIDES THAT ANY PER SON WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE ACT OR BY AN EMPLOYER UNDER SECTION 192 (1A) DOES NOT DEDUCT OR AFTER SO DEDU CTING FAILS TO PAY OR DOES NOT PAY THE WHOLE OR ANY PART OF THE TAX A ND WHERE THE ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY THEN SUCH PERSON SHALL BE DEEMED TO BE AN ASSESSEE IN DEFAULT FOR THE PURPOSE OF SECTION 201 (1). - IN OTHER WORDS ANY PERSON SHALL BE REGARDED DEEM ED TO BE AN ASSESSEE IN DEFAULT FOR THE PURPOSE OF SECTION 20 1 (1) ONLY IF HE HAS NOT DEDUCTED OR AFTER SO DEDUCTING FAILS TO PAY O R DOES NOT PAY THE WHOLE OR ANY PART OF THE TAX AND WHERE THE ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. - THAT BOTH THE CONDITIONS VIZ. FAILURE OF THE P ERSON RESPONSIBLE TO PERFORM HIS OBLIGATION AND NON-PAYMENT OF TAX BY TH E PAYEE DIRECTLY SHOULD BE CUMULATIVELY SATISFIED SO AS TO TREAT THE PERSON RESPONSIBLE AS THE ASSESSEE IN DEFAULT. - RELIES ON THE CASE LAWS: (A) CIRCULAR NO. F. NO. 275/201/95-IT(B) DATED 29- 1-1997; (B)HINDUSTAN COCA COLA BEVERAGES P LTD. VS. CIT 29 3 ITR 226 (SC) (C) CIT VS. ADIDAS INDIA MARKETING (P) LTD (2006) 1 57 TAXMAN 519 (DELHI) - A PERUSAL OF SECTION 191 SHOWS THAT WHERE INCOME- TAX HAS NOT BEEN DEDUCTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPT ER XVII INCOME-TAX IS TO BE PAID BY THE ASSESSEE DIRECTLY I.E. THE PA YEE. IT IS TO BE BORNE IN THE MIND THAT THE TAX BEING DEDUCTED AT SO URCE BY THE ASSESSEE IS THE TAX ON THE INCOME OF THE DEDUCTEE A ND NOT ON THE PAGE 58 OF 101 ITA NOS.263 TO 266/BANG/201 0 58 INCOME OF THE ASSESSEE-DEDUCTOR. THEREFORE WHAT SE CTION 191 PROVIDES FOR IS THAT IN CASE THE DEDUCTOR FAILS TO MAKE THE REQUISITE DEDUCTION OF TAX AT SOURCE THE DEDUCTEE WOULD BE LIABLE TO PAY INCOME-TAX ON THE AMOUNT RECEIVED BY HIM AS INCOME. SECTION191 DOES N OT CAST A DUAL AND SIMULTANEOUS OBLIGATION ON BOTH THE DEDUCTOR AND TH E DEDUCTEE TO PAY TAX ON THE SAID INCOME IN THE HANDS OF THE DEDUCTEE . TAX ON THE SAID INCOME IN THE HANDS OF THE DEDUCTEE IS TO BE PAID O NLY ONCE; PRIMARILY BY THE DEDUCTOR AND UPON HIS FAILURE BY THE DEDUCT EE. IF THE TAX IS DEDUCTED AT SOURCE AND PAID BY THE DEDUCTOR THE DE DUCTEE GETS CREDIT FOR IT AND THE AMOUNT DEDUCTED IS TREATED AS HIS IN COME AS PER SECTIONS 198 AND 199. - MAHINDRA & MAHINDRA LTD. VS. DCIT (2009) 122 TTJ (MUMBAI) (SB) 577 - IN THE CASE OF ITO BANGALORE VS. M/S. INTEL TECH I NDIA PVT. LTD (DATED: APRIL 09 2009) 2009-TIOL-355-ITAT-BANG T HE HONBLE ITAT BANGALORE BENCH HAS HELD AS FOLLOWS: HENCE IN THE INSTANT CASE THE DEDUCTOR WAS REQUIRED TO DEDUCT THE TAX AT SOURCE AND THEREFORE THE DEDUCTOR WAS AN ASSESSEE IN DEFAULT. SINCE A DEDUCTEE HAS FILED THE RETURN AND HAS DISCLOSED THE TRANSACTION IN THE RETURN OF INCOME AND THAT SHOWS NO TAX WAS PAYABLE ON SUCH TRANSACTION THE DEFAULT WI LL END ON THE DATE WHEN THE DEDUCTEE HAS FILED THE RETURN. HENCE THE DEDUCTOR WILL BE LIABLE TO INTER EST U/S 201(1A) UP TO 1ST NOVEMBER 2004. HOWEVER THERE WILL BE NO DEDUCTION U/S 201 SINCE THE DEDUCT EE HAS FILED THE RETURN AND HAS DISCLOSED THE TRANSACT ION AND NO TAX IS PAYABLE AS PER THE RETURN ON SUCH TRANSACTION BY THE DEDUCTEE. HENCE ORDER OF LEARNE D CIT (A) IN CANCELING THE DEMAND U/S 201 IS UPHELD. HOWEVER IT IS HELD THAT THE DEDUCTOR WILL BE LIABL E TO PAY INTEREST ON THE AMOUNT OF TAX TO BE DEDUCTED FROM THE DATE OF DEDUCTION TILL NOVEMBER 1 2004. PAGE 59 OF 101 ITA NOS.263 TO 266/BANG/201 0 59 - IN THE CASE OF ITO VS. ALFRED ALLAN ADVERTISING 8 SOT 312 (DELHI) THE HONBLE ITAT DELHI BENCH HAS HELD THAT EXPLAN ATION TO SECTION 191 INSERTED WITH EFFECT FROM 1-6-2003 WAS CLARIF ICATORY AND THEREFORE WOULD APPLY FOR THE FINANCIAL YEARS INVO LVED IN THE INSTANT APPEALS. - THAT WHEN THE CONTRACTORS HAVE PAID THE INCOME T AX DIRECTLY THE APPELLANT CANNOT BE TREATED AS AN ASSESSEE IN DEFA ULT AND NO RECOVERY OF TAX MAY BE MADE FROM THE APPELLANT. AS REGARDS LEVY OF INTEREST UNDER SECTION 201 (1A) : - THE LD CIT (A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN LEVYING INTEREST UNDER SECTION 201 (1A) WHEN THE C ASE OF THE APPELLANT DOES NOT FALL WITHIN THE SCOPE OF SECTION 201 (1) O F THE ACT . - WITHOUT PREJUDICE TO THE ABOVE THE LIABILITY TO INTEREST CANNOT RUN POST PAYMENT OF TAX BY THE PAYEE. RELIES ON THE CASE LAWS: (I) CIT V. ELI LILLY AND CO. (INDIA) P. LTD. [2009] 31 2 ITR 225 [SC]; (II) CIT VS. TRANS BHARAT AVIATION [P] LTD. [2010] 320 I TR 671 (DELHI-HC); (III) CIT V. KARNATAKA URBAN INFRA. DEV. FIN. CORP.: S.L. P. (CIVIL) NO. 11995 OF 2009 [2009] 317 ITR (ST.) 5 THEIR LOR DSHIPS S.H. KAPADIA AND AFTAB ALAM JJ DISMISSED THE DEPAR TMENTS SPECIAL LEAVE PETITION AGAINST THE JUDGMENT DATED A UGUST 4 2008 OF THE KARNATAKA HIGH COURT IN ITA NO. 467 OF 2004 WHEREBY THE HIGH COURT HELD THAT THE EXPLANATION OF THE ASSESSEE THAT THE TAX WAS NOT DEDUCTED UNDER BONA F IDE BELIEF THAT THE AMOUNT SPENT TOWARDS ACCOMMODATION AND CON VEYANCE OF NON-RESIDENT CONSULTANTS WAS NOT REQUIRED TO BE TREATED AS A PART OF THEIR INCOME AND THERE WAS NO INTENTION T O VIOLATE THE PROVISIONS OF SECTION 195 WAS ACCEPTABLE AND SET AS IDE THE ORDER LEVYING PENALTY UNDER SECTION 201 (1) BUT CON FIRMED THE ORDER LEVYING INTEREST UNDER SECTION 201 (1A) OF TH E INCOME- PAGE 60 OF 101 ITA NOS.263 TO 266/BANG/201 0 60 TAX ACT. THE SUPREME COURT OBSERVED THAT THE DISMIS SAL ORDER WOULD NOT PREVENT THE DEPARTMENT FROM TAKING STEPS UNDER SECTION 220 READ WITH SECTION 156 OF THE ACT. (IV) ITO BANGALORE VS. M/S. INTEL TECH INDIA PVT LTD (D ATED: 9- 4.2009) 2009-TIOL-355-ITAT-BANG; (V) TRO BANGALORE VS. M/S. BHARAT HOTELS LTD (DATED: 27.2. 2009) 2009-TIOL-243-ITAT-BANG; THEREFORE THE SUBMISSIONS WERE THAT - - THREE SEPARATE CONTRACTS ENTERED INTO BETWEEN APP ELLANT AND CONTRACTORS CANNOT BE REGARDED AS ONE COMPOSITE CON TRACT; - THE CONTRACT FOR SUPPLY DOES NOT COME WITHIN THE SWEEP OF SECTION 194C; - EVEN IF ALL THE THREE CONTRACTS ARE TAKEN TOGETHE R THE SUPPLY PORTION CONSTITUTING MORE THAN 80% OF THE TOTAL VALUE THE ENTIRE ARRANGEMENT IS IN RESPECT OF SUPPLY OF EQUIPMENT AND ERECTION AND CIVIL WORKS ARE ONLY INCIDENTAL AND ANCILLARY TO THE SUPPLY CONTRACT APP LYING THE DOMINANT TEST THEORY. ACCORDINGLY SECTION 194C WOULD NOT APPLY T O ALL THE THREE CONTRACTS; - REIMBURSEMENT TO CONTRACTOR TOWARDS THE COMPENSAT ION FOR CUTTING OF TREES OR LOSS OF CROPS TO THE FARMERS OR LANDLORDS DOES NOT FALLING WITHIN THE PREVIEW OF SECTION 194C; - THE PAYMENTS MADE TOWARDS SURVEY WORK CANNOT BE T REATED AS FEE FOR PROFESSIONAL OR TECHNICAL SERVICES SO AS TO MAKE TD S UNDER SECTION 194J; - THE SUMS PAID TOWARDS TESTING CHARGES DO NOT FALL EITHER UNDER SECTION 194C OR 194J; PAGE 61 OF 101 ITA NOS.263 TO 266/BANG/201 0 61 - WHEN THE CONTRACTORS HAVE PAID THE INCOME TAX DIR ECTLY THE APPELLANT CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT AND R ECOVER THE TAX ON THE SAME INCOME ALTOGETHER ONCE AGAIN FROM THE APPELLAN T; & - APPELLANT BEING A PUBLIC ENTITY THERE CANNOT BE COLLUSION BETWEEN THE STATUTORY BODIES WITH THE INTENTION TO EVADE TAX; 8.1. ON THE OTHER HAND THE LD. D R WAS VERY SPECI FIC IN HIS URGE THAT THE ASSESSEE HAD GROSSLY FAILED TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS FOR THE SUPPLY OF MATERIALS WHICH WAS UNEARTHED DURI NG THE COURSE OF SURVEY CONDUCTED IN ITS PREMISES. THE SEQUENCE OF EVENTS HAVE SINCE BEEN DELIBERATED UPON IN DETAIL IN THE ORDER OF THE AO W HICH HAS BEEN JUDICIOUSLY SUSTAINED BY THE LD. CIT (A) FOR WELL-KNITTED REASON S RECORDED IN HIS IMPUGNED ORDER WHICH IS UNDER CHALLENGE. IT WAS T HEREFORE PASSIONATELY PLEADED THAT THE ORDERS OF THE AUTHORITIES BELOW RE QUIRE TO BE UPHELD IN TOO. 9. WE HAVE METICULOUSLY CONSIDERED THE RIVAL SUBMIS SIONS CONSCIENTIOUSLY PERUSED THE RELEVANT RECORDS AND ALSO VOLUMINOUS PA PER BOOK FURNISHED BY THE LD. A R DURING THE COURSE OF HEARING TO STRENGT HEN HIS SUSTAINED ARGUMENTS ON THE ISSUES. 9.1. WE SHALL VENTURE TO ADDRESS THE ISSUES CHRO NOLOGICALLY IN THE FOLLOWING PARAGRAPHS: (I) ON VERIFICATION OF THE SEPARATE AGREEMENTS ENTERED INTO BY THE ASSESSEE FOR SUPPLY OF MATERIALS ERECTIO N AND FOR CIVIL WORK ETC. THE AO NOTICED THAT WHILE DEDUCTING TDS FOR MAKING PAYMENTS ON CIVIL WORKS AND ERECTION PORTION BUT THE ASSESSEE HAD F AILED TO DO SO WITH REGARD PAGE 62 OF 101 ITA NOS.263 TO 266/BANG/201 0 62 TO SUPPLY OF MATERIALS PORTIONS. BRUSHING ASIDE TH E ASSESSEES EXPLANATION THE ASSESSEE WAS (I) TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT; (II) COMPUTED TAX ON PAYMENTS MADE TOWARDS SUPPLY POR TION; & (III) CHARGED INTEREST U/S 201(1A) OF THE ACT ON TH E TAXES SO COMPUTED. (II) ON HIS PART THE LD. CIT (A) AFTER ELABORATELY DISCUSSING THE ISSUES AT LENGTH OPINED - IN A NUTSHELL - THAT 4.14IT IS THEREFORE CLEAR THAT THE CONTRACT IS ONE SINGLE AND INDIVISIB LE CONTRACT AND THE ERECTION AND INSTALLATION OF THE EQUIPMENT IS AS MUCH FUNDAM ENTAL PART OF THE CONTRACT AS THE FABRICATION AND SUPPLY AND THUS CONCURRED WITH THE STAND OF THE AO ON TWIN POINTS NAMELY COMPUTATION OF TAX ON THE PAYMENTS MADE TOWARDS SUPPLY PORTION (WITHOUT EFFECTING TDS) AND INTEREST THEREON U/S 201(1A) OF THE ACT. (III) STOUTLY REBUTTING THE REVENUES PHILOSOPHY THE ASSESSEE HAD ADVANCED ITS SUBMISSIONS (AS RECORDED SUPRA IN A SUMMARIZED MANNER) NAMELY: (I) APPLICABILITY OF THE PROVISIONS OF S.194C OF THE ACT (II) CONTRACT FOR SUPPLY OR CONTRACT OF WORK APPLICABLITY OF THE PROVISIONS OF S.194C OF THE ACT: SECTION 194C SPECIFIES THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY CONTRACTOR FOR CARRYING OUT ANY WORK WAS REQUIRED TO DEDUCT TAX AT SOURCE. IN SEC.194C THE VERY EMPHASIS IS ANY PERSON RESPONSIBLE FOR PAYING ANY SUM .FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING PAGE 63 OF 101 ITA NOS.263 TO 266/BANG/201 0 63 OUT ANY WORK). HOWEVER APPLYING THE MEANING OF THE WORD WORK DOESNT MEAN TO INCLUDE SUPPLY OF GOODS OR MATERIALS AS PORTRAYED BY THE REVENUE IN ITS IMPUGNED ORDER. LET US HAVE A QUICK LOO K AT THE JUDICIAL PRONOUNCEMENTS ON THE WORD WORK AS ENVISAGED IN S.194C OF THE ACT: (I) BIRLA CEMENTS WORKS V. CBDT & ORS. 248 ITR 216 (S C) : WHILE DEALING WITH THE ISSUE THE HONBLE SUPREME COURT H AD CONSIDERED THE SCOPE AND AMBIT OF S. 194C OF THE ACT VALIDITY OF CIRCULA R NO.681 AND ALSO TAKING CUE FROM ITS EARLIER DECISION IN THE CASE OF ASSOCI ATED CEMENTS CO. LTD. REPORTED IN (1993) 201 ITR 435 (SC) AND RULED THAT THE KEY WORDS IN SECTION 194C ARE CARRYING OUT ANY WORK. THE WORD WORK IS TO BE UNDERSTOOD IN THE LIMITED SENS E AS PRODUCT OR RESULT. THE CARRYING OUT OF WORK INDICATES DOING SO METHING TO CONDUCT THE WORK TO COMPLETION OR AN OPERATION WHIC H PRODUCES SUCH RESULT. (II) KHAITAN & CO. V. CIT (2007) 12 SOT 120 ITAT-DEL: IT HAS BEEN OBSERVED BY THE HONBLE DELHI BENCH OF THE TRIBUNAL THAT THUS CARRYING OUT ANY WORK IS THE SUBSTANCE FOR M AKING THE PAYMENT RELATING TO SUCH WORK LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT. FOR CARRYING OUT ANY WORK MANPOWER IS SINE QUO NON AND WITHOUT MANPOWER IT CANNOT BE SAID THAT WORK HAS B EEN CARRIED OUT. UNDER SECTION 194C EACH AND EVERY WORK/SERVICE IS NOT COVE RED HENCE THE NATURE OF WORK DONE OR SERVICE PERFORMED IS REQUIRED TO BE SEEN AND CONCLUDED THAT - PAGE 64 OF 101 ITA NOS.263 TO 266/BANG/201 0 64 9WE CAN REASONABLY CONCLUDE THAT WHILE PROVIDI NG PACKAGE OF FACILITIES TO THE ASSESSEE-FIRM M/S.KHA ITAN SERVICES LTD. DID NOT CARRY OUT ANY WORK NOR PROVIDED ANY LABOUR NOR ENGAGED ANY CONTRACTOR ETC. FOR CARRYING OUT ANY WORK THEREFORE NOT COVERED IN ANY WAY UNDER THE PROVISIONS OF SECTION 194C AND ALSO NOT COVERED WIT HIN THE MEANING OF WORD WORK AS EXPLAINED BY THE HONB LE SUPREME COURT IN THE CASE OF ASSOCIATED CEMENT CO. LTD. (SUPRA) THUS SECTION 194C DOES NOT HAVE ANY OBLIGATI ON IN RESPECT OF THE PAYMENT MADE BY THE ASSESSEE-FIRM TO M/S.KHAITAN SERVICES LTD.. (III) BOMBAY GOODS TRANSPORT ASSOCIATION V. CBDT (1994) 7 6 TAXMAN 334(BOM): IT WAS RULED BY THE HONBLE BOMBAY HIGH COURT THAT TO ATTRACT SECTION 194C IT IS THEREFORE NECESSARY THAT THE P AYMENT SHOULD BE MADE FOR CARRYING OUT ANY WORK. IF THIS CONDITION IS FU LFILLED THEN AND THEN ONLY THE NEXT CONDITION BECOMES RELEVANT I.E. SUCH WOR K SHOULD BE CARRIED OUT IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE PERSON CONCERNED. THE WORD CONTRACT IS A WORD AND WIDE IMPORT AND I NCLUDES AGREEMENTS ORAL OR WRITTEN. (IV). THE HONBLE JURISDICTIONAL HIGH COURT IN I TS WISDOM IN THE CASE OF V.M.SALGAOCAR & BROS. LTD. V. ITO (1999) 104 TAXMAN 29 (KAR) HAD AVERRED THAT THE WORD WORK REFERS AND COMPREHENDS THE ACTIVIT IES OF THE WORKMEN AND NOT THE OPERATION IN THE FACTORY OR ON MACHINES. IT IS THE PHYSICAL FORCE WHICH HAS COMPREHENDED IN THE WORD WORK. PAGE 65 OF 101 ITA NOS.263 TO 266/BANG/201 0 65 (V) IN THE CASE OF THE EAST INDIA HOTEL LTD VS. CBDT [2010] 320 ITR 526 (BOM.-HC) IT WAS HELD THAT THE ARGUMENT OF THE REVENUE THAT THE SERVICE CONT RACTS BETWEEN THE PETITIONER HOTEL AND ITS CUSTOMERS IS C OVERED UNDER SECTION 194C OF THE ACT CANNOT BE ACCEPTED BE CAUSE NEITHER SUCH A CONTRACT CONSTITUTES WORK WITHIN T HE MEANING OF SECTION 194C OF THE ACT NOR THOSE CONTRACTS ARE COVERED UNDER SERVICE CONTRACTS SPECIFICALLY INCLUDED BY WAY O F EXPLANATION III TO SECTION 194C OF THE ACT. IF THE CONTENTION OF THE REVENUE THAT THE WORD ANY WORK I N SECTION 194C IS VERY WIDE ENOUGH TO INCLUDE ALL TYPES OF WORK IS ACCEPTED THEN IT WOULD MEAN THAT EVEN THE HAIR CUT TING WORK DONE BY A BARBER WOULD BE A WORK COVERED UNDER SEC TION 194C AND THE PERSON MAKING PAYMENT TO THE BARBER WOU LD BE COVERED UNDER SECTION 194C. SUCH A WIDER INTERPRETA TION IS UNCALLED FOR ESPECIALLY WHEN THE REVENUE ITSELF HAD CONSIDERED SINCE INCEPTION THAT SECTION 194C IS RES TRICTED TO THE WORKS DONE BY CONTRACTORS / SUB- CONTRACTORS. WITH DUE RESPECT TO THE RULIN GS OF THE JUDICIARIES CITED SUPRA WE ARE OF THE CONSIDERED VIEW THAT ONLY WHEN THE AC TIVITY QUALIFIES TO BE REGARDED AS WORK THE PROVISIONS OF SECTION 194C H AVE COME INTO PLAY. FOR AN ACTIVITY TO BE REGARDED AS WORK THERE SHALL BE AN ACTIVITY CARRIED OUT BY THE HUMAN INTERVENTION FOR COMPLETING SUCH WORK. HOWEVE R IN THE PRESENT CASE IN SO FAR AS THE SUPPLY PORTION OF MATERIALS WAS CON CERNED WE FIND THAT THERE WAS NO HUMAN INTERVENTION SO AS TO CATEGORIZE IT AS WORK AS THE REVENUE HAS BEEN TRYING TO PROJECT IT. 9.2. WE SHALL NOW MOVE ON TO VISUALIZE AS TO WH ETHER THE NATURE OF CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTOR WAS IT CONTRACT FOR SUPPLY OF MATERIALS OR CONTRACT OF WORK? THE ONLY YARDSTICK TO DETERMINE AS PAGE 66 OF 101 ITA NOS.263 TO 266/BANG/201 0 66 TO WHETHER THE TRANSACTION BETWEEN THE ASSESSEE AND ITS CONTRACTOR A CONTRACT FOR WORK OR A CONTRACT FOR SUPPLY WAS UN-MISTAKENLY THE JUDICIAL VIEW ON THE MATTER. (I) THE CONSTITUTION BENCH OF THE HONBLE SUPREME C OURT IN THE CASE OF STATE OF HIMACHAL PRADESH VS. ASSOCIATED HOTELS OF INDIA LTD. AIR 1972 SC 1131: 29 STC 474 (SC) HAD OBSERVED THU S - THE DIFFICULTY WHICH THE COURTS HAVE OFTEN TO MEET WITH IN CONSTRUING A CONTRACT OF WORK AND LABOUR ON THE ON E HAND AND A CONTRACT FOR SALE ON THE OTHER ARISES BECAU SE THE DISTINCTION BETWEEN THE TWO IS VERY OFTEN A FINE ONE . THIS IS PARTICULARLY SO WHEN THE CONTRACT IS A COMPOSITE ONE INVOLVING BOTH A CONTRACT OF WORK AND LABOUR AND A CONTRACT O F SALE. NEVERTHELESS THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCIPLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF PROPERTY IN AND THE DELI VERY OF THE POSSESSION OF A CHATTEL AS A CHATTEL TO THE BU YER. WHERE THE PRINCIPAL OBJECT OF WORK UNDERTAKEN BY TH E PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL THE CONTRACT IS ONE OF WORK AND LABOUR. THE TEST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE ; NEITHER THE OWNERSHIP OF MATERIALS NOR THE VALUE O F THE SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERI ALS IS CONCLUSIVE ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DETERMINING IN THE CIRCUMSTANCES OF A PARTICULAR CASE WHETHER THE CONTRACT IS IN SUBSTAN CE ONE FOR WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL (H ALSBURYS LAWS OF ENGLAND 3RD EDITION VOL. 34 6-7). PAGE 67 OF 101 ITA NOS.263 TO 266/BANG/201 0 67 THE HONBLE COURT HAD FURTHER (ON PAGE 481) HELD THUS : FROM THE DECISIONS EARLIER CITED IT CLEARLY EMERGE S THAT SUCH DETERMINATION DEPENDS IN EACH CASE UPON ITS FA CTS AND CIRCUMSTANCES. MERE PASSING OF PROPERTY IN AN ARTICLE OR COMMODITY DURING THE COURSE OF THE PERFORMANCE OF T HE TRANSACTION IN QUESTION DOES NOT RENDER IT A TRANSA CTION OF SALE . FOR EVEN IN A CONTRACT PURELY OF WORK OR SERVICE IT IS POSSIBLE THAT ARTICLES MAY HAVE TO BE USED BY THE PERSON EXECUTING THE WORK AND PROPERTY IN SUCH ARTICLES OR MATERIALS MAY PASS TO THE OTHER PARTY. THAT WOULD NOT NECESSARILY CONVERT THE CONTRACT INTO ONE OF SALE OF THOSE MATERIALS. IN EVERY CASE THE COURT WOULD HAVE TO FI ND OUT WHAT WERE THE PRIMARY OBJECT OF THE TRANSACTION AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT. IT MAY IN SOME CASES BE THAT EVEN WHILE ENTERING INTO A CONTR ACT OF WORK OR EVEN SERVICE PARTIES MIGHT ENTER INTO SEPA RATE AGREEMENTS ONE OF WORK AND SERVICE AND THE OTHER O F SALE AND PURCHASE OF MATERIALS TO BE USED IN THE CO URSE OF EXECUTING THE WORK OR PERFORMING THE SERVICE. BU T THEN IN SUCH CASES THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL INTO TWO SEPARATE AGREE MENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE . WITH HIGHEST REGARDS WE WOULD LIKE POINT OUT THAT THE RULING OF THE HONBLE COURT MAKES IT APPARENT THAT WHEN PART IES ENTER INTO TWO SEPARATE CONTRACTS ONE FOR MATERIAL AND ONE FOR LA BOUR THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL IN TO TWO SEPARATE AGREEMENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE. IN SU CH CASE AS RIGHTLY HIGHLIGHTED BY THE ASSESSEE THE PROVISIONS OF S. 194C COULD APPLY ONLY TO THE LABOUR CONTRACT AND NOT TO THE MATERIALS CONTRACT. (II) IT MAY NOT BE INAPPROPRIATE TO RECALL AT THIS JUNCTURE THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF STATE OF A.P. VS. KONE PAGE 68 OF 101 ITA NOS.263 TO 266/BANG/201 0 68 ELEVATORS (INDIA) LTD. (2005) 3 SCC 389. WHILE DEALING WITH THE ISSUE OF INSTALLATION OF LIFTS THE HONBLE COURT HELD THAT THE CONTRACT IS A 'CONTRACT FOR SALE'. THE HONBLE COURT WHILE ENUMERATING THE TESTS TO BE CONSIDERED IN DECIDING THE NATURE OF CONTRACT EMPHASIZED THE FACT THAT THE INTENTION OF THE PARTIES IN THE CONTRACT WOULD TO A LARGE EXTENT DETERMINE THE ISSUE. THE HONBLE COURT LAID DOWN THE FOLLOWING AS THE PROBAB LE TESTS THAT SHOULD BE CONDUCTED BEFORE DETERMINING THE NATURE OF CONTRACT : 1) WHETHER IT WAS ONE FOR TRANSFER OF PROPERTY OR FOR WORK AND LABOUR; 2) HOW AND WHEN PROPERTY OF DEALER PASSED TO THE CUSTO MER I.E. WHETHER BY TRANSFER OR ACCESSION . (III) IN THE CASE OF ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION VS. DCIT [2001] 119 TAXMAN 73 (HYD.) (MAG.): (2002) 74 TTJ 531 (HYD.-ITAT) THE HONBLE HAS HELD THAT - THERE MAY BE MANY COMMON CHARACTERISTICS IN BOTH THE CONTRACT SOME NEUTRAL IN A PARTICULAR CONTRACT AND YET CERTAIN CLINCHING TERMS IN A GIVEN CASE MAY FORTIFY THE CONCLUSION ONE WAY OR THE OTHER. ALL THAT WILL DEPEND UPON THE FACTS AND CIRCUMSTANC ES OF EACH CASE. THIS QUESTION TO BE ANSWERED IS NOT A N EASY AND HAS PERPLEXED THE JURISTS ALL OVER. NEVERTHELESS THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCIPLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF THE PROPERTY IN AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATTEL TO THE BUYER. WHERE THE DOMINANT OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL THE CONTRACT IS ONE OF WORK AND LABOUR. THE TEST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED AND IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE NEITHER THE OWNERSHIP OF MATERIALS IS PAGE 69 OF 101 ITA NOS.263 TO 266/BANG/201 0 69 CONCLUSIVE ALTHOUGH SUCH FACTORS MAY BE RELEVANT AND BE TAKEN INTO CONSIDERATION IN ASCERTAINING AND DETERMINING WHETHER THE CONTRACT IN QUESTION IS IN PITH AND SUBSTANCE A CONTRACT FOR WORK AND LABOUR OR ONE FOR THE SALE OF CHATTEL. . (IV) THE HONBLE ANDHRA PRADESH H IGH COURT HAD LAID DOWN CERTAIN GUIDELINES IN THE CASE OF P.S. COMPANY VS. STATE OF ANDHRA PRADESH 56 STC 283 TO DETERMINE THE TRUE CONSTRUCTION OF A CONTRACT S O AS TO DETERMINE IN TURN AS TO WHETHER TRANSACTION COVERED BY THAT CONTRACT IS ONE OF SALE OR OF WORK AND LABOUR. THESE GUIDELINES ARE AS UNDER: (1) THE ESSENCE OF THE CONTRACT OR THE REALITY OF TH E TRANSACTION AS A WHOLE HAS TO BE TAKEN INTO CONSIDE RATION IN JUDGING WHETHER THE CONTRACT IS FOR A SALE OR FOR W ORK AND LABOUR. (2) IF THE THING TO BE DELIVERED HAS ANY INDIVIDUAL EXISTENCE BEFORE THE DELIVERY AS THE SOLE PROPERTY OF THE PA RTY WHO IS TO DELIVER IT THEN IT IS A SALE. (3) IF THE MAIN OBJECT OF THE CONTRACT IS THE TRANS FER FROM A TO B FOR A PRICE OF THE PROPERTY IN A THING IN WHICH B HAD NO PREVIOUS PROPERTY THEN THE CONTRACT IS A CO NTRACT OF SALE. (4) WHERE THE MAIN OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHAT TEL THE CONTRACT IS ONE FOR WORK AND LABOUR. (5) IF THE BULK OF THE MATERIAL USED IN THE CONSTRU CTION BELONGS TO THE MANUFACTURER WHO SELLS THE END-PRODU CT FOR A PRICE THAT WILL BE A STRONG POINTER TO A CONCLUSION THAT THE CONTRACT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR WORK AND LABOUR. (6) A CONTRACT WHERE NOT ONLY WORK IS TO BE DONE BUT THE EXECUTION OF SUCH WORK REQUIRES GOODS TO BE USED M AY TAKE ONE OF THREE FORMS: PAGE 70 OF 101 ITA NOS.263 TO 266/BANG/201 0 70 (A) THE CONTRACT MAY BE FOR WORK TO BE DONE FOR REMUNERATION AND FOR SUPPLY OF MATERIALS USED IN TH E EXECUTION OF THE WORK FOR A PRICE; (B) IT MAY BE A CONTRACT FOR WORK IN WHICH THE USE O F MATERIALS IS ACCESSORY OR INCIDENTAL TO THE EXECUTIO N OF WORK; OR (C) IT MAY BE A CONTRACT FOR SUPPLY OF GOODS WHERE SOME WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO T HE SALE; WHERE A CONTRACT IS OF THE FIRST TYPE IT IS A COMP OSITE CONTRACT CONSISTING ESSENTIALLY OF TWO CONTRACTS ONE FOR TH E SALE OF GOODS AND THE OTHER FOR WORK AND LABOUR. THE SECOND TYPE OF WORK IS CLEARLY A CONTRACT FOR WOR K AND LABOUR NOT INVOLVING SALE OF GOODS. WHILE THE THIRD TYPE IS CONTRACT FOR SALE WHERE THE GOODS ARE SOLD AS CHATTELS AND SOME WORK IS UNDOUBTEDLY DONE BUT IT IS DONE MERELY AS INCIDENTAL TO THE SALE. V) YET AN ANOTHER RULING WITH REGARD TO THE NATURE OF CONTRACT IN RESPECT OF MANUFACTURE AND SUPPLY OF SHIPS THE HO NBLE SUPREME COURT IN THE CASE OF HINDUSTAN SHIPYARD LTD. VS. STATE OF ANDHRA PRADESH (2000) 119 STC 533 (SC) HAD LAID DOWN THE FOLLOWING TEST: 14. THE PRINCIPLES DEDUCIBLE FROM THE SEVERAL DECI DED CASES MAY BE SUMMED UP AS UNDER: 1. IT IS DIFFICULT TO LAY DOWN ANY RULE OR INFLEXIBLE RULE APPLICABLE ALIKE TO ALL TRANSACTIONS SO AS TO DISTINGUISH BETW EEN A CONTRACT FOR SALE AND A CONTRACT FOR WORK AND LABOUR. 2. TRANSFER OF PROPERTY OF GOODS FOR A PRICE IS THE LINCHPIN OF THE DEFINITION OF SALE. PAGE 71 OF 101 ITA NOS.263 TO 266/BANG/201 0 71 WHETHER A PARTICULAR CONTRACT IS ONE OF SALE OF GOO DS OR FOR WORK AND LABOUR DEPENDS UPON THE MAIN OBJECT OF THE PARTIES FOUND OUT FROM AN OVERVIEW OF THE TERMS OF THE CONT RACT THE CIRCUMSTANCES OF THE TRANSACTIONS AND THE CUSTOM OF THE TRADE. IT IS THE SUBSTANCE OF THE CONTRACT DOCUMENT /S AND NOT MERELY THE FORM WHICH HAS TO BE LOOKED INTO. THE COU RT MAY FORM AN OPINION THAT THE CONTRACT IS ONE WHOSE MAIN OBJECT IS TRANSFER OF PROPERTY IN A CHATTEL AS CHATTEL TO THE BUYER THOUGH SOME WORK MAY BE REQUIRED TO BE DONE UNDER THE CONTR ACT AS ANCILLARY OR INCIDENTAL TO THE SALE THEN IT IS A SA LE. IF THE PRIMARY OBJECT OF THE CONTRACT IS THE CARRYING OUT O F WORK BY BESTOWAL OF LABOUR AND SERVICES AND MATERIALS ARE I NCIDENTALLY USED IN EXECUTION OF SUCH WORK THEN THE CONTRACT IS ONE FOR WORK AND LABOUR. 3. IF THE THING TO BE DELIVERED HAS ANY INDIVIDUAL E XISTENCE BEFORE THE DELIVERY AS THE SOLE PROPERTY OF THE PART Y WHO IS TO DELIVER IT THEN IT IS A SALE. 4. THE BULK OF MATERIAL USED IN CONSTRUCTION BELONG S TO THE MANUFACTURER WHO SELLS THE END-PRODUCT FOR A PRICE THEN IT IS A STRONG POINTER TO THE CONCLUSION THAT THE CONTRACT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR LABOUR. HOWEVER THE TEST IS NOT DECISIVE. IT IS NOT BULK O F THE MATERIAL ALONE BUT THE RELATIVE IMPORTANCE OF THE MATERIAL Q UA THE WORK SKILL AND LABOUR OF THE PAYEE WHICH HAVE TO BE WEIGH ED. IF THE MAJOR COMPONENT OF THE END PRODUCT IS THE MATERIAL CONSUMED IN PRODUCING THE CHATTEL TO BE DELIVERED AND SKILL AND LABOUR ARE EMPLOYED FOR CONVERTING THE MAIN COMPONENTS INTO THE END PRODUCTS THE SKILL AND LABOUR ARE ONLY INCIDENTALLY USED THE DELIVERY OF THE END PRODUCT BY THE SELLER TO THE BUYER WOULD CONSTITUTE A SALE. ON THE OTHER HAND IF THE MAIN O BJECT OF THE CONTRACT IS TO AVAIL THE SKILL AND LABOUR OF THE SE LLER THOUGH SOME MATERIAL OR COMPONENTS MAY BE INCIDENTALLY USED DURIN G THE PROCESS OF THE END PRODUCT BEING BROUGHT INTO EXIST ENCE BY THE INVESTMENT OF SKILL AND LABOUR OF THE SUPPLIER T HE TRANSACTION WOULD BE A CONTRACT FOR WORK AND LABOUR. PAGE 72 OF 101 ITA NOS.263 TO 266/BANG/201 0 72 IT WAS FURTHER OBSERVED BY THE HONBLE COURT IN PA RA 15 OF THE JUDGMENT AS UNDER: THERE MAY BE THREE CATEGORIES OF CONTRACTS: (I) THE CONTRACT MAY BE FOR WORK TO BE DONE FOR REMUNERATION AND FOR SUPPLY OF MATERIALS USED IN THE EXECUTION OF THE WORK FOR A PRICE; (II) IT MAY BE A CONTRACT FOR WORK IN WHICH THE USE OF THE M ATERIALS IS ANCILLARY OR INCIDENTAL TO THE EXECUTION OF THE WORK ; & (III)IT MAY BE A CONTRACT FOR SUPPLY OF GOODS WHERE SOM E WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO THE SALE. THE FIRST CONTRACT IS A COMPOSITE CONTRACT CONSISTING OF TWO CONTRACTS ONE OF WHICH IS FOR THE SALE OF GOODS AND THE OTHER IS FO R WORK AND LABOUR. THE SECOND IS CLEARLY A CONTRACT FOR WORK AN D LABOUR NOT INVOLVING SALE OF GOODS. THE THIRD IS A CONTRACT FO R SALE WHERE THE GOODS ARE SOLD AS CHATTELS AND THE WORK DONE IS MERELY INCIDENTAL TO THE SALE. 9.3. AS HAS BEEN AVERRED BY THE ASSESSEE IN THE CASE ON HAND 80% TO 85% OF THE CONSIDERATION WAS TOWARDS THE SUPPLY OF M ATERIALS AND BARELY 20% TO 15% TOTAL WAS TOWARDS ERECTION AND CIVIL WOR KS. 9.4. FURTHER THERE IS CONSIDERABLE FORCE IN T HE ASSERTION OF THE ASSESSEE THAT THE ERECTIONS WORK AND CIVIL WORKS WERE CARRIE D OUT IN FURTHERANCE TO THE SUPPLY OF MATERIAL. IN OTHER WORDS ERECTION WOR KS AND THE CIVIL WORKS WERE INCIDENTAL TO SUPPLY OF MATERIALS AS IS EVIDENT FROM THE PHOTOGRAPHS FURNISHED BY THE LD. AR DURING THE COURSE OF HEARING . THE SUBSTANCE OF THE AGREEMENT OR ARRANGEMENT BETWEEN THE PARTIES WAS TO SUPPLY THE MATERIALS AND NOT CARRYING OUT THE WORK. INSTALLATION OR ERECT ION WORK AND CIVIL CONSTRUCTION WORK CAN ONLY BE CATEGORIZED AS ANCILLA RY TO THE CONTRACT OF SUPPLY. PAGE 73 OF 101 ITA NOS.263 TO 266/BANG/201 0 73 9.5. TAKING INTO ACCOUNT THE SUBMISSI ON OF THE ASSESSEE AND ALSO THE TEST LAID DOWN BY THE HONBLE APEX COURT CITED SUPR A WE ARE OF THE FIRM VIEW THAT THE ENTIRE ARRANGEMENT BETWEEN THE ASSESS EE AND ITS CONTRACTORS WAS AT BEST BE CALLED AS DIVISIBLE CONTRACT AND TH US IT SHOULD BE CATEGORIZED AS A SUPPLY CONTRACT. 9.6. WE HAVE ALSO ATTENTIVELY PE RUSED THE BOARDS CIRCULAR NO. 681 DATED 08.03.1994 ON WHICH THE ASSESSEE HAD PLA CED RELIANCE. THE CIRCULAR HAS ALSO LAID DOWN CERTAIN GUIDELINES THE RELEVANT EXCERPTS ARE - (VI) THE PROVISIONS OF THIS SECTION WILL NOT COVER CONTRACTS FOR SALE OF GOODS (A) SINCE CONTRACTS FOR THE CONSTRUCTION REPAIR RENOVATION OR ALTERATION OF BUILDINGS OR DAMS OR LAYING OF ROADS O R AIRFIELDS OR RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT A ND MACHINERY ARE IN THE NATURE OF CONTRACTS FOR WORK AND LABOUR INCOME -TAX WILL HAVE TO BE DEDUCTED FROM PAYMENTS MADE IN RESPECT OF SUCH CO NTRACTS. SIMILARLY CONTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR SUCH PERSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT OF CONTRACTS FOR FABRICATION OF A NY ARTICLE OR THING WHERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR AN Y OTHER SPECIFIED PERSON AND THE FABRICATION WORK IS DONE B Y A CONTRACTOR. (B)WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUP PLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS GI VEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUC H ARTICLE OR THING PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER S UCH ARTICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE AND AS SUCH OUTSIDE THE PURVIEW OF THIS SECTION. PAGE 74 OF 101 ITA NOS.263 TO 266/BANG/201 0 74 (C) IN STATE OF HIMACHAL PRADESH V. ASSOCIATED HOST ELS OF INDIA LTD. [1972] 29 STC 474 THE SUPREME COURT OBSERVED THAT WHERE THE PRINCIPAL OBJECTIVE OF WORK UNDERTAKEN BY THE PAYEE O F THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUACHATTEL CONTRACT IS O F WORK AND LABOUR. THE TEST IS WHETHER OR NOT THE WORK AND LABOUR BEST OWED END IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE ; NEITHER THE OWNERSHIP OF THE MATERIALS NOR THE VALUE OF SKILL A ND LABOUR AS COMPARED WITH THE VALUE OF THE MATERIALS IS CONCLUS IVE ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DETERMINI NG IN THE CIRCUMSTANCES OF A PARTICULAR CASE WHETHER THE CON TRACT IS IN SUBSTANCE ONE OF WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL. A BUILDING CONTRACT OR A CONTRACT UNDER WHICH A MOVAB LE IS FIXED TO ANOTHER CHATTEL OR ON THE LAND WHERE THE INTENTION PLAINLY IS NOT TO SELL THE ARTICLE BUT TO IMPROVE THE LAND OR THE CHATTEL AND THE CONSIDERATION IS NOT FOR THE TRANSFER OF THE CHATTE L BUT FOR THE LABOUR AND WORK DONE AND THE MATERIAL FURNISHED THE CONTR ACT WILL BE ONE OF WORK AND LABOUR. IN CASE OF DOUBT WHETHER A PARTICU LAR CONTRACT IS A CONTRACT FOR WORK AND LABOUR OR FOR SALE THE MATT ER SHOULD BE DECIDED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE MENTIONED CASE. 9.7. DURING THE COURSE OF HEARING IT WAS ADV OCATED BY THE LD. A.R THAT THE PROVISIONS OF S.194C OF THE ACT WOULD APPLY IN R ESPECT OF A CONTRACT FOR SUPPLY OF ANY ARTICLE OR THING AS PER THE PRESCRIBED SPECIFICATION ONLY IF IT IS A CONTRACT FOR WORK AND NOT A CONTRACT FOR SALE AS PER THE PRINCIPLES IN THIS REGARD LAID DOWN PARA 7(VI) OF BOARDS CIRCULA R NO. 681 DATED 8.3.1994. 9.8. ON A GLIMPSE OF THE SAID CIRCULAR WE FIND THAT - PARAGRAPH 7 (VI) (A) PROVIDES THAT SIMILARLY CO NTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNME NT OR ANY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR SUCH PE RSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE S AME POSITION WILL OBTAIN IN RESPECT OF CONTRACTS FOR FABRICATION OF ANY ARTICLE OR THING WHERE MATERIALS ARE SUPPLIED BY THE GOVERNM ENT OR ANY PAGE 75 OF 101 ITA NOS.263 TO 266/BANG/201 0 75 OTHER SPECIFIED PERSON AND THE FABRICATION WORK IS DONE BY A CONTRACTOR. AS PER THE ABOVE PARAGRAPH IN ORDER THAT SECTION 1 94C IS ATTRACTED IT IS NECESSARY THAT THE OWNERSHIP OF GOODS REMAINS AT ALL TIMES WITH THE CONTRACTEE. PARAGRAPH 7 (VI) (B) PROVIDES THAT WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUPPLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECI FIED PERSON AND THE PROPERTY IN SUCH ARTICLE OR THING PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE AND AS SUCH OUTSIDE THE PURV IEW OF THIS SECTION. 9.9. AS NARRATED IN THE AFORESAID PARAGRAPH WHEN THE CONTRACTOR UNDERTAKES TO SUPPLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY THE SPECIFIED PERSON AND THE PROPERTY IN SUCH ARTICLE OR THING PASSES TO THE SPECIFIED PERSON ONLY AFTER S UCH ARTICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE . THEREFORE AS PLEADED BY THE ASSESSEE THE ASSESSEES CASE FALLS WITHIN PARA GRAPH 7 (VI) (B) AND NOT WITHIN PARAGRAPH 7 (VI) (A). 9.10. THE LD. CIT (A) IN HIS IMPUGNED ORDER HAD OBSERVED THAT THERE IS NO TRANSFER OF PROPERTY IN THE EQUIPMENTS BY THE M ANUFACTURER TO THE CUSTOMER AS A CHATTEL. HOWEVER HIS VIEW WAS CONTRARY TO THE FACT THAT TRANSFER OF THE TITLE IN RESPECT OF EQUIPMENT AND M ATERIALS SUPPLIED BY THE CONTRACTOR TO THE ASSESSEE TAKES PLACE IN FAVOUR OF THE ASSESSEE PURSUANT TO THE TERMS OF THE CONTRACT BY WAY OF NEGOTIATION OF DI SPATCH DOCUMENTS. ON A GLIMPSE OF THE INSTRUCTION TO BIDDERS WE FIND - PAGE 76 OF 101 ITA NOS.263 TO 266/BANG/201 0 76 37.3 FOR CONTRACTOR SUPPLIED EQUIPMENTS/MATERIALS 37.3.1 TRANSFER OF THE TITLE IN RESPECT OF EQUIPMEN T AND MATERIALS SUPPLIED BY THE CONTRACTOR TO THE KPTCL PU RSUANT TO THE TERMS OF THE CONTRACT SHALL PASS ON TO THE KPTC L WITH NEGOTIATION OF DISPATCH DOCUMENTS. 37.3.4 IN ORDER TO ENABLE THE CONTRACTOR TO CARRY OU T ITS OBLIGATION UNDER THE CONTRACT SUCH AS RECEIPT AT SI TE STORAGE ERECTION TESTING ETC THE OWNER (KPTCL) SHALL HAN D OVER (WHEREVER APPLICABLE) THE GOODS TO THE CONTRACTOR A GAINST AN INDEMNITY BOND IN THE FORMAT ENCLOSED AS ANNEXURE VI II & IX. THE CONTRACTOR SHALL BE FULLY RESPONSIBLE FOR THE S AFETY OF THE GOODS WHILE THE SAME ARE UNDER ITS CUSTODY AS ABOVE . 37.4 THE CONTRACTOR SHALL BE FULLY RESPONSIBLE FOR T HE SAFETY OF ALL THE EQUIPMENTS/MATERIALS WHILE THE SAME ARE UN DER HIS CUSTODY AS ABOVE UNTIL TAKING OVER OF THE STATIONS AND TRANSMISSION LINES BY THE OWNER IN ACCORDANCE WITH CLAUSE 9.0 OF SECTION-V SPECIAL CONDITIONS OF CONTRACT-SCC V OLUME-I. 9.11. IT IS CLEAR FROM THE INSTRUCTION TO BIDD ERS THAT THE TRANSFER OF THE TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUPPLIED BY THE CONTRACTOR TO THE ASSESSEE TAKES PLACE IN FAVOUR OF ASSESSEE P URSUANT TO THE TERMS OF THE CONTRACT BY WAY OF NEGOTIATION OF DISPATCH DOCUME NTS. AS THE TITLE TO EQUIPMENTS AND MATERIALS ALREADY PASSED ON TO THE AS SESSEE AND ASSESSEE HAVING BECOME THE OWNER OF EQUIPMENTS AND MATERIALS ISSUES THE SAME TO THE CONTRACTORS FOR CARRYING OUT CIVIL WORKS OR EREC TION WORKS AT THE SITE LOCATION. FOR ISSUING SUCH GOODS TO THE CONTRACTOR HE HAD TO EXECUTE AN INDEMNITY BOND IN FAVOUR OF THE ASSESSEE. THIS AS R IGHTLY ARGUED THE ASSESSEE PROVES THAT THE TITLE TO EQUIPMENTS AND MATERIALS GETS PAGE 77 OF 101 ITA NOS.263 TO 266/BANG/201 0 77 TRANSFERRED IN FAVOUR OF ASSESSEE MUCH EARLIER TO T HE COMMENCEMENT OF THE ERECTION AND CIVIL WORKS. 9.12. CONSIDERING THE ABOVE NARRATIO N WE ARE OF THE VIEW THAT AS SOON AS THE WORK WAS AWARDED BY ASSESSEE TO THE CONT RACTOR THE CONTRACTOR SUPPLIES THE EQUIPMENT TO THE ASSESSEE AND THE PROP ERTY IN GOODS GETS TRANSFERRED AT THAT POINT OF TIME ONLY. IT WAS ONLY L ATER ON THE ASSESSEE HANDS OVER THE EQUIPMENT TO THE CONTRACTORS FOR USI NG THEM IN THE ERECTION AND CIVIL WORK PORTIONS. THEREFORE IT WAS EVIDENT THAT THE CONTRACT RELATING TO SUPPLY OF EQUIPMENT WAS A SEPARATE AND DISTINCT CONTRACT FOR SALE AND AS ADVOCATED BY THE LD. A R THE ASSESSEES CASE FALLS WITHIN THE PARAGRAPH 7 (VI) (B) OF THE BOARDS CIRCULAR (SUPRA). 9.13. ON A CRITICAL ANALYZE OF S. 194C OF THE AC T WE FIND THAT THE TERM WORK HAS BEEN DEFINED IN EXPLANATION (IV). THE SU B-CLAUSE (E) DEEMS CONTRACT MANUFACTURING AS WORK. HOWEVER THE LATTER PART OF THE AFORESAID SUB-CLAUSE CLEARLY EXCLUDES MANUFACTURING OR SUPPLYIN G A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER B Y USING MATERIAL PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER. ON A CLOSE SCRUTINY THE AFORESAID EXCLUSION APPLIES NOT ONLY TO MANUFACTURI NG BUT ALSO TO SUPPLYING WHEN SUCH SUPPLY IS ACCORDING TO BE REQUIREMENT OR S PECIFICATIONS OF THE CUSTOMER AND FOR SUCH SUPPLY THE SUPPLIER HAD USED MATERIAL PURCHASED FROM A PERSON OTHER THAN THE CUSTOMER. THUS THE ASSESS EES CASE IS SQUARELY COVERED BY THE AFORESAID EXCEPTION FOR A SIMPLE REAS ON THAT THE CONTRACTOR HAD UNDERTAKEN TO SUPPLY TO THE ASSESSEE THE EQUIPME NT AS PER THE SPECIFICATIONS OF THE ASSESSEE AND FOR THE PURPOSE OF SUCH SUPPLY PAGE 78 OF 101 ITA NOS.263 TO 266/BANG/201 0 78 CONTRACTOR HAD NOT USED MATERIALS BOUGHT FROM THE A SSESSEE. APPLYING THE AFORE-MENTIONED EXCEPTION IT COULD BE SAID THAT TH E ACTIVITY CARRIED OUT BY CONTRACTOR FOR THE ASSESSEET CANNOT AT ANY STRETCH OF IMAGINATION BE CATEGORIZED AS WORK AS ALLEGED BY THE REVENUE. 9.14. IN THIS CONNECTION WE RECALL THAT THOUG H THE AFORESAID PROVISION WAS INTRODUCED BY THE FINANCE ACT 2009 EVEN PRIOR TO TH E SAID AMENDMENT CONTRACT MANUFACTURING WAS NEVER CONSIDERED AS WORK . BY VIRTUE OF THE AFORESAID AMENDMENT ALTHOUGH CONTRACT MANUFACTURIN G WAS NOW DEEMED TO BE WORK WHEN THE SUPPLY WAS ACCORDING TO SPECIFICA TIONS OF THE CUSTOMER AND FOR THE PURPOSE OF SUPPLY THE SUPPLIER HAD NOT USED THE MATERIALS OF CUSTOMER; SUCH SUPPLY WAS NOT TO BE REGARDED AS WORK. 9.15. IT MAY NOT BE INAPPROPRIATE TO RECALL THE RULING OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GLENMA RK PHARMACEUTICALS LTD REPORTED IN (2010) 324 ITR 199 [AS STOUTLY RELIE D ON BY THE ASSESSEE] WHEREIN THE HONBLE COURT HAD HELD THAT THE WORK AS DEFINED IN THE NEWLY RECAST SECTION 194C IS CLARIFICATORY AND THUS RETROSPECTIVE IN OPERATION. THE COURT HAD FURTHER ASSERTED THAT EVEN BEFORE SECTION 194C WAS RECAST UNLESS THE CONTRACT INVOLVED USE OF GOODS SUPPLIED BY THE CONTRACTEE THERE CANNOT BE WORK AS UNDERSTOOD BY THE COURTS AND THE REVENUE THROUGH ITS VARIOUS CIRCULARS. THE HONBLE COURT HELD THUS: (ON PAGE 217) HENCE WHAT HAS WEIGHED IN THE INTRO DUCTION OF CLAUSE (E) TO THE EXPLANATION WAS ONGOING LITIGA TION ON THE QUESTION AS TO WHETHER TDS WAS DEDUCTIBLE ON OUTSOU RCING PAGE 79 OF 101 ITA NOS.263 TO 266/BANG/201 0 79 CONTRACTS. CLAUSE (E) WAS INTRODUCED TO BRING CLAR ITY ON THIS ISSUE: OR IN OTHER WORDS TO REMOVE THE AMBIGUITY ON THE QUESTION. CLAUSE (E) AS INTRODUCED CONTAINS A POSIT IVE AFFIRMATION THAT THE EXPRESSION WORK WILL COVER MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO T HE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH A CUSTOMER. CLAUSE (E) HAS PLACED THE POSITION BEYOND DOUBT BY INCORPORATING LAN GUAGE TO THE EFFECT THAT THE EXPRESSION WORK SHALL NOT INCLUDE MANUFACTURE OR SUPPLY OF A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL WHICH IS PURCHASED FROM A PERSON OTHER THAN SUCH CU STOMER. IN OTHER WORDS THE CIRCUMSTANCE THAT REQUIREMENTS OR SPECIFICATIONS ARE PROVIDED BY THE PURCHASER IS NOT REGARDED BY THE STATUTE AS BEING DISPOSITIVE OF THE QUESTION AS TO WHETHER A CONTRACT CONSTITUTES A CONTRACT OF WORK O R SALE. WHAT IS OF SIGNIFICANCE IS WHETHER MATERIAL HAS BEE N PURCHASED FROM THE CUSTOMER WHO ORDERS THE PRODUCT . WHEN THE MATERIAL IS PURCHASED FROM THE CUSTOMER WH O ORDERS THE PRODUCT IT CONSTITUTES A CONTRACT OF WO RK WHILE ON THE OTHER HAND WHERE THE MANUFACTURER HAS SOURC ED THE MATERIAL FROM A PERSON OTHER THAN THE CUSTOMER IT WOULD CONSTITUTE A SALE. WHAT IS SIGNIFICANT IS THAT IN U SING THE WORDS WHICH CLAUSE (E) USES IN THE EXPLANATION PAR LIAMENT HAS TAKEN NOTE OF THE POSITION THAT WAS REFLECTED I N THE CIRCULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXE S SINCE MAY 29 1972. THE JUDGMENT OF THE SUPREME COURT IN ASSOCIATED CEMENT GAVE AN EXPANSIVE DEFINITION TO T HE EXPRESSION WORK AND REJECTED THE ATTEMPT OF THE A SSESSEE IN THAT CASE TO RESTRICT THE EXPRESSION WORK TO WORKS CONTRACT. BOTH BEFORE AND AFTER THE JUDGMENT OF TH E SUPREME COURT THE EXPANSIVE DEFINITION OF THE EXPRE SSION WORK CO-EXISTED WITH THE REVENUES UNDERSTANDING THAT A CONTRACT FOR SALE WOULD NOT BE WITHIN THE PURVIEW O F SECTION 194C. THE REVENUE ALWAYS UNDERSTOOD SECTION 194C TO MEAN THAT THOUGH A PRODUCT OR THING IS MANUFACTURED TO T HE SPECIFICATIONS OF A CUSTOMER THE AGREEMENT WOULD CONSTITUTE A CONTRACT FOR SALE IF (I) THE PROPERTY IN THE PAGE 80 OF 101 ITA NOS.263 TO 266/BANG/201 0 80 ARTICLE OR THING PASSES TO THE CUSTOMER UPON DELIVE RY; AND (II) THE MATERIAL THAT WAS REQUIRED WAS NOT SOURCED FROM THE CUSTOMER/PURCHASER BUT WAS INDEPENDENTLY OBTAINED B Y THE MANUFACTURER FROM A PERSON OTHER THAN THE CUSTOMER. THE RATIONALE FOR THIS WAS THAT WHERE A CUSTOMER PROVID ES THE MATERIAL WHAT THE MANUFACTURER DOES IS TO CONVERT THE MATERIAL INTO A PRODUCT DESIRED BY THE CUSTOMER AND OWNERSHIP OF THE MATERIAL BEING OF THE CUSTOMER TH E CONTRACT ESSENTIALLY INVOLVES WORK OF LABOUR AND NOT A SALE. PARLIAMENT RECOGNIZED THE DISTINCTION WHICH HELD TH E FIELD BOTH ADMINISTRATIVELY IN THE FORM OF CIRCULARS OF T HE CENTRAL BOARD OF DIRECT TAXES AND JUDICIALLY IN THE JUDGMENT S OF SEVERAL HIGH COURTS TO WHICH A REFERENCE HAS BEEN M ADE EARLIER. CONSEQUENTLY THE PRINCIPLES UNDERLYING THE APPLICABILITY OF SECTION 194C AS CONSTRUED ADMINISTR ATIVELY AND JUDICIALLY IN DECIDED CASES FIND STATUTORY RECO GNITION IN THE EXPLANATION. THE EXPLANATION THEREFORE AS THE MEMORANDUM EXPLAINING THE CLAUSES OF THE FINANCE BI LL OF 2009 STATES WAS IN THE NATURE OF A CLARIFICATION. WHERE AN EXPLANATORY PROVISION IS BROUGHT TO REMOVE AN AMBIGU ITY OR TO CLEAR A DOUBT IT IS REFLECTIVE OF THE LAW AS IT HAS ALWAYS STOOD IN THE PAST. WHERE AS IN THE PRESENT CASE A N EXPLANATION IS INTRODUCED STATUTORILY TO ADOPT AN UNDERSTANDING OF THE LAW BOTH IN THE FORM OF THE CI RCULARS OF THE CENTRAL BOARD OF DIRECT TAXES AND IN JUDICIA L DECISIONS PARLIAMENT MUST BE REGARDED AS HAVING IN TENDED TO AFFIRM THAT INTENT. IN THE PRESENT CASE THE INTENT HAS HELD THE FIELD FOR OVER THREE DECADES. 9.16. IN TAKING INTO ACCOUNT THE ABOVE DELIBERATI ONS AND ALSO DRAWING STRENGTH FROM VARIOUS JUDICIAL PRONOUNCEMENTS ON TH E ISSUE WE ARE OF THE CONSIDERED VIEW THAT THE SUPPLY PORTION OF THE CONTR ACT BEING FOR SUPPLY OF EQUIPMENT DOES NOT REQUIRE DEDUCTION OF TAX AT SOUR CE. PAGE 81 OF 101 ITA NOS.263 TO 266/BANG/201 0 81 10. WE SHALL NOW ANALYZE THE LD. CIT (A)S PRESC RIPTION IN TREATING SUPPLY CONTRACT ERECTION AND CIVIL ENGINEERING CONTRACTS AS A COMPOSITE CONTRACT FOR WORK. THE CONTENTION OF THE ASSESSEE WAS IN B RIEF THAT - - THE SEPARATE CONTRACTS CANNOT BE TREATED AS A CO MPOSITE CONTRACT MERELY ON THE BASIS OF A CLAUSE IN THE CON TRACT AGREEMENT (SUPPLY PORTION) THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PERFORMANCE OF THE ERECTION POR TION AND CIVIL WORKS PORTION THAT MERELY MAKING THE CONTRAC TOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL WORKS PORTION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LES S A SUPPLY CONTRACT THAT ONE SHOULD APPRECIATE THAT ASSUMPTIO N OF OVERALL RESPONSIBILITY IS A CONTRACTUAL MATTER WHICH BY ITSEL F WOULD NOT ALTER THE ESSENCE OF THE TRANSACTION OF SUPPLY; - THAT THE SEPARATE CONTRACTS EXPRESSLY ENTERED INT O CANNOT BE TERMED AS A COMPOSITE CONTRACT MERELY ON THE BASIS T HAT ALL THE CONTRACTS HAVE BEEN AWARDED THROUGH A SINGLE BIDDIN G PROCESS THAT MERELY BECAUSE THE BIDDING PROCESS WAS A COMPOS ITE ONE IT CANNOT BE CONCLUDED THE CONTRACT IS A COMPOSITE CON TRACT; - THAT THE AO HAD STATED THAT THE ASSESSEE HAD NEI THER ISSUED SEPARATE TENDER NOTIFICATION NOR DIVIDED THE CONTRA CT INTO SUPPLY CONSTRUCTION AND ERECTION WHICH WAS FACTUAL LY INCORRECT; - THAT THE AUTHORITIES BELOW HAVE FAILED TO APPREC IATE THAT THE ASSESSEE HAD NEVER INTENDED TO TREAT THE CONTRACT A S COMPOSITE CONTRACT THAT AS PER THE TERMS OF THE INSTRUCTION S TO BIDDERS THE ASSESSEE HAD CLEARLY LAID OUT THAT ONCE THE CONT RACTOR WAS FOUND TO BE A SUCCESSFUL BIDDER THE ENTIRE SCOPE O F THE CONTRACT WAS DIVIDED INTO THREE SEPARATE CONTRACTS I.E. FOR SUPPLY OF MATERIALS ERECTION AND CIVIL ENGINEERING WORKS. 10.1. ON A CRITICAL PERUSAL OF THE TERMS OF TH E INSTRUCTIONS TO BIDDERS IT STATES THAT THE CONTRACT ENTERED BY THE ASSESSEE WI TH THE CONTRACTORS PAGE 82 OF 101 ITA NOS.263 TO 266/BANG/201 0 82 HAD TO BE TREATED AS A DIVISIBLE CONTRACT RESULTING IN INTO THREE SEPARATE CONTRACTS. 10.2. THERE IS A CONSIDERABLE FORCE IN THE ARGUME NT ADVANCED BY THE ASSESSEE THAT IT IS AN ACCEPTED PRACTICE FOR THE PARTIES TO THE C ONTRACT TO ENTER INTO A CONSOLIDATED CONTRACT WITH THE SPLIT U P OF CONSIDERATION FOR VARIOUS ELEMENTS VIZ. SUPPLY OF MATERIALS ERECTION SERVICES AND CIVIL CONSTRUCTION SERVICE. THIS MAY BE OBSERVED FROM A NUMBER OF JUDICIAL PRONOUNCEMENTS WITH ONE OF THE MOST FOLLOWED JUDGME NTS OF SUPREME COURT IN THE CASE OF STATE OF MADRAS VS. RICHARDSON CRUDDAS LTD. (1968) 21 ST C 245. IT GOES TO SAY THAT IF THERE IS A SPLIT OF CONS IDERATION TOWARDS MATERIAL AND LABOUR IT CANNOT BE SAID THAT THE ENTIRE CONTR ACT IS AN INDIVISIBLE WORKS CONTRACT. 10.3. TO DRIVE HOME HIS POINT THE LD. AR HAD SO UGHT REFUGE TO THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE. ON A SCORE O F CASE LAWS RELIED ON BY THE ASSESSEE SOME OF THE CASES WHICH ARE DIRECTLY O N THE ISSUE ON HAND ARE DELIBERATED UPON HEREUNDER: (I ) THE HONBLE APEX COURT IN THE CASE OF PANDIT BAN ARASI DAS BHARAT VS. STATE OF MADHYA PRADESH (1958) 9 STC 388 HAD OBSERVED THUS : THE EXPRESSION SALE OF GOODS IN ENTRY 48 OF LIST II OF SCH. VII TO THE GOVERNMENT OF INDIA ACT 1935 HAS THE SA ME MEANING WHICH IT HAS IN THE SALE OF GOODS ACT 1930 . IN A BUILDING CONTRACT THERE IS NO SALE OF MATERIALS AS SUCH AND IT IS THEREFORE ULTRA VIRES THE POWERS OF THE PROVIN CIAL LEGISLATURE TO IMPOSE TAX ON THE SUPPLY OF MATERIALS . WHEN A QUESTION ARISES AS TO WHETHER A PARTICULAR WORKS CO NTRACT PAGE 83 OF 101 ITA NOS.263 TO 266/BANG/201 0 83 COULD BE CHARGED TO SALES TAX IT WILL BE FOR THE AUTHORITIES UNDER THE ACT TO DETERMINE WHETHER THE AGREEMENT IN QUESTION IS ON ITS TRUE CONSTRUCTION A COMBINATION OF AN AGREEMENT TO SELL AND AN AGREEMEN T TO WORK AND IF THEY COME TO THE CONCLUSION THAT SUCH IS ITS CHARACTER THEN IT WILL BE OPEN TO THEM TO PROCEED AGAINST THAT PART OF IT WHICH IS A CONTRACT FOR THE SALE OF GOODS AND IMPOSE TAX THEREON. THE PROHIBITION AGAINST IMPOSITION OF TAX IS ONLY IN RESPECT OF CONTRACTS WH ICH ARE SINGLE AND INDIVISIBLE AND NOT OF CONTRACTS WHICH ARE A COMBINATION OF DISTINCT CONTRACTS FOR SALE OF MATER IALS AND FOR WORK AND NOTHING SHALL BAR THE SALES TAX AUTHORITIES FROM DECIDING WHETHER A PARTICULAR CONTRACT FALLS W ITHIN ONE CATEGORY OR THE OTHER AND IMPOSING A TAX ON THE AGRE EMENT OF SALE OF MATERIALS WHERE THE CONTRACT BELONGS TO THE LATTER CATEGORY. (II) THE SUPREME COURT IN THE CASE OF BUILDERS ASSOCIATI ON OF INDIA VS. UNION OF INDIA (1989) 73 STC 370 OBSERVED THUS- AFTER THE 46 TH AMENDMENT THE WORKS CONTRACT WHICH WAS AN INDIVISIBLE ONE IS BY A LEGAL FICTION ALTERED INT O A CONTRACT WHICH IS DIVISIBLE INTO ONE FOR SALE OF GOODS AND THE OTHER FOR SUPPLY OF LABOUR AND SERVICES. AFTER THE 46 TH AMENDMENT IT HAS BECOME POSSIBLE FOR THE STATES TO LEVY SALES TAX ON THE VALUE OF GOODS INVOLVED IN A WORKS CONTRACT IN THE SAME WAY IN WHICH THE SALES TAX WAS LEVIABLE ON THE PRICE OF THE GOODS AND MATERIALS SUPPLIED IN A BUIL DING CONTRACT WHICH HAD BEEN ENTERED INTO IN TWO DISTINC T AND SEPARATE PARTS AS STATED ABOVE...... (III) IN THE CASE OF STATE OF TAMIL NADU VS. TITANIUM EQU IPMENT AND ANODE MANUFACTURING CORPORATION LTD. REPORTED IN (1998) 110 STC 43 (MADRAS) THE MADRAS HIGH COURT REVERSING THE DECIS ION OF THE TRIBUNAL HELD THAT THE CONTRACT WAS CLEARLY A DIVISIBLE CONTRACT ONE FOR THE SUPPLY OF THE TITANIUM ANODES AND ANOTHER FOR SUPERVISION AND INS TALLATION AND PAGE 84 OF 101 ITA NOS.263 TO 266/BANG/201 0 84 UNDERTAKING RECOATING MAINTENANCE. THE PRICE PAYABL E FOR THE SUPPLY OF MATERIAL WAS DISTINCT FROM THE CONSIDERATION PAYABL E FOR THE SUPERVISION OF INSTALLATION AND COMMISSIONING AND FOR RECOATING MAINTENANCE. THE PARTIES THEMSELVES HAD NO DOUBT AS TO THE NATURE OF THE ARRANGEMENT THEY HAD ENTERED INTO AND HAD SPECIFICALLY PROVIDED FOR T HE PAYMENT OF THE EXCISE DUTY SALES TAX AND ALL OTHER STATUTORY LEVIES BY THE BUYER. (IV) THE HONBLE CONSTITUTIONAL BENCH OF SUPREME COURT IN THE CASE OF BHARAT SANCHAR NIGAM LTD. AND ANOTHER VS. UNION OF INDIA AND OTHERS [2006] 145 STC 91 [SC] HAS HELD AS FOLLOWS: ALL THE CLAUSES OF ARTICLE 366[29A] SERVE TO BRING TRANSACTIONS WHERE ONE OR MORE OF THE ESSENTIAL ING REDIENTS OF A SALE AS DEFINED IN THE SALE OF GOODS ACT 1930 ARE ABSENT WITHIN THE AMBIT OF PURCHASES AND SALES FOR THE PURPOSES OF LEVY OF SALES TAX. TO THIS EXTENT ONLY IS THE PRINCIPLE ENUNCIATED IN GANNON DUNKERLY [SEE [1958] 9 STC 353 [SC]] LTD. THE AMENDMENT ESPECIALLY ALLOWS SPECIFIC COMPOSITE CONTRACTS VIZ. WORKS CONTRACTS [CLAUSE [B]] HIRE-PURCHASE CONTRACTS [CLAUSE [C]] CATERING CONT RACTS [CLAUSE [F]] BY LEGAL FICTION TO BE DIVISIBLE CONTR ACTS WHERE THE SALE ELEMENT COULD BE ISOLATED AND BE SUBJECTED TO SALES TAX. (V) IN LARSEN & TOUBR O LTD V. COMMR. OF C.T. (A.P.) [2003] 132 STC 272 (AP) THE HONBLE AP HIGH COURT CONSIDE RED THE CASE OF A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING FABRICATIO N SUPPLY ERECTION AND COMMISSIONING OF VARIOUS PROJECTS. THE NATURE OF WO RK CARRIED OUT BY THE APPELLANT IS A WORKS CONTRACT. DURING THE AYS 1986-8 7 AND 1987-88 THE APPELLANT HAD ENTERED INTO A CONTRACT WITH VISAKHAP ATNAM STEEL PLANT AND OTHER PUBLIC SECTOR UNDERTAKINGS. THE CONTRACT ENTE RED INTO BY THE APPELLANT PAGE 85 OF 101 ITA NOS.263 TO 266/BANG/201 0 85 FOR DESIGNING MANUFACTURING FABRICATION INSTALLA TION AND COMMISSIONING SPECIFIED PROJECT IS COMPOSITE IN NATURE. THE APPEL LANT IN ORDER TO DISCHARGE THE OBLIGATION ARISING OUT OF THE CONTRACT INTO WIT H VARIOUS CONTRACTEES HAS MANUFACTURED SPECIFIED GOODS IN THEIR FACTORY AT BOM BAY WHICH IS WITHIN THE STATE OF MAHARASHTRA AND ALSO PURCHASED CERTAI N GOODS FROM OUTSIDE THE STATE AS WELL AS FROM THE LOCAL REGISTERED DEAL ERS. THE CONTRACTS SPECIFIED SEPARATE PRICES FOR SUPPLY OF VARIOUS ITEM S REQUIRED FOR EXECUTION OF THE PROJECT AS WELL AS THE COMMISSIONING AND INS TALLATION CHARGES . THE MANNER AND METHOD TO BE FOLLOWED BY THE APPELLAN T IN THE ABOVE CASE IN EXECUTION OF THE WORKS CONTRACT ARE AS UNDER: (A) GOODS/EQUIPMENTS DESCRIBED IN THE CONTRACT OF S PECIFIC NATURE ARE MANUFACTURED IN THEIR POWAI (MUMBAI) FACTORY AND DIS PATCHED DIRECTLY IN FAVOUR OF CONTRACTEE AFTER INSPECTION AND APPROV AL BY THEM. THE TURNOVER IS LIABLE FOR DECLARATION IN THE STATE OF MAHARASHTRA AS PROVIDED UNDER SECTION 3(A) OF THE CENTRAL SALES TA X ACT 1956. (B) APPELLANT ALSO PURCHASES GOODS/EQUIPMENTS FROM OUTSIDE THE STATE VENDORS AND EFFECT TRANSFER OF DOCUMENTS OF TITLE I N FAVOUR OF CONTRACTEE. SUCH TURNOVERS ARE CLAIMED EXEMPTION BE ING TRANSIT SALES NOT LIABLE TO BE TAXED IN VIEW OF SECTION 6(2) READ WITH SECTION 3(B) OF CST ACT. (C) FOR THE ABOVE NATURE OF TRANSACTION PERTAINING TO CONTRACTS CONTRACTEES FURNISHED 'C' FORMS TO THE APPELLANTS A ND THE SAME WILL BE FILED DURING ASSESSMENT PROCEEDINGS. (D) APPELLANTS UNDERTAKE INSTALLATION/ERECTION OF S UCH GOODS/ EQUIPMENTS WHICH ARE HANDED OVER BY THE CONTRACTEES ALONG WITH OTHER GOODS REQUIRED FOR COMMISSIONING THE PROJECT. PAGE 86 OF 101 ITA NOS.263 TO 266/BANG/201 0 86 THE HIGH COURT OBSERVED AS FOLLOWS : IN VIEW OF THE LAW LAID DOWN IN VARIOUS DECISIO NS REFERRED TO ABOVE IN PARTICULAR GANNON DUNKERLEY'S CASE [1993] 88 STC 204 (SC) IT IS DIFFICULT FOR US TO A PPRECIATE THE STAND TAKEN ON BEHALF OF THE DEPARTMENT AS TO H OW THIS CONTRACT COULD BE PRESUMED AS A DEEMED SALE WITHIN THE STATE OF ANDHRA PRADESH. THOUGH THE LEARNED SPECIAL GOVERNMENT PLEADER FOR TAXES SUBMITTED THAT IT IS A N INDIVISIBLE CONTRACT WE ARE AFRAID THIS SUBMISSIO N MAY NOT BE APPROPRIATE HAVING REGARD TO THE FACT THAT THER E ARE TWO FACETS OF THE CONTRACT ONE IS SUPPLY OF GOODS AND THE OTHER IS INSTALLATION OF MACHINERY WITH THE LABOUR OF THE APPELLANT AND AS SUCH THIS CONTRACT IS A DIVISIBLE CONTRACT. (VI) IN THE CASE OF CIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD. (2007) 291 ITR 482 (SC) THE SUPREME COURT HELD THAT THE INSTALLATION PERMANENT ESTABLISHMENT CAME INTO EXISTENCE ONLY AFT ER THE TRANSACTION STOOD MATERIALIZED. THE INSTALLATION PERMANENT EST ABLISHMENT CAME INTO EXISTENCE ONLY ON CONCLUSION OF THE TRANSACTION GIVI NG RISE TO THE SUPPLIES OF THE FABRICATED PLATFORMS. THE INSTALLATION PERMANEN T ESTABLISHMENT EMERGED ONLY AFTER THE CONTRACT WITH THE ONGC STOOD CONCLUDE D. IT IS EMERGED ONLY AFTER THE FABRICATED PLATFORM WAS DELIVERED IN KORE A TO THE AGENTS OF THE ONGC. THEREFORE THE PROFITS ON SUCH SUPPLIES OF FA BRICATED PLATFORMS CANNOT BE SAID TO BE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. APPLYING THIS ANALOGY IT MAY BE STATED THAT THE QUESTION OF CARRYING OUT ANY WORK COULD ARISE ONLY AFTER THE SALE OF EQUIPMENT IS COMP LETED. IN OTHER WORDS ANY WORK FOR THE PURPOSE OF SECTION 194C COULD BEGIN ONLY AF TER THE SUPPLY PORTION IS COMPLETED AND THEREFORE THE QUESTION OF APPLYING THE AFORESAID SECTION ON THE SUPPLY PORTION DOES NOT ARISE. PAGE 87 OF 101 ITA NOS.263 TO 266/BANG/201 0 87 IN THE INSTANT CASE THE ASSESSEE HAD AWARDED THE WORK ORDER FOR THE CONTRACTOR UNDER THREE DIFFERENT SEGMENTS: (I) SUPPLY PORTION; (II) ERECTION PORTION; AND (III ) CIVIL WORKS PORTION; - THE TERMS IN RESPECT OF EACH OF THE AFORESAID PORTI ON ARE CLEAR AND THE CONSIDERATION FOR EACH OF THE PORTION IS SEPARA TE; - THE TERMS BETWEEN THE PARTIES WERE AMPLY CLEAR IN RE SPECT OF THE OBLIGATIONS TO BE DISCHARGED BY THE CONTRACTORS AND IN RESPECT OF PAYMENT TOWARDS THE WORK ORDER. - IN RESPECT OF SUPPLY PORTION THE PARTIES TO THE CON TRACT ARE CLEAR ABOUT THE MATERIALS TO BE SUPPLIED THE QUANTITY OF MATERIALS TO BE SUPPLIED AND THE RATE AT WHICH THE MATERIALS WOULD BE SUPPLIED. IN THE CASE OF ERECTION PORTION AND CIVIL WORKS PORTION T HE PARTIES TO THE CONTRACT ARE CLEAR ABOUT THE WORKS TO BE PERFORMED BY THE EITHER OF THE PARTIES; THUS THE AFORESAID THREE PORTIONS OF THE WORK ORDER WERE INDEPENDENT OF EACH OTHER. - THAT THE MOST IMPORTANT TEST FOR DETERMINING AS TO WHETHER PAYMENTS MADE IN PURSUANCE TO CONTRACT ARE LIABLE TO DEDUCT TAX AT SOURCE OR NOT WAS TO SCRUTINIZE THE CONTRACT BETWEEN THE KPTCL AN D THE CONTRACTOR; - THAT ONE OF THE CLAUSES IN THE CONTRACT AGREEMENT (SUPPLY PORTION) WHICH READS AS FOLLOWS: IT IS EXPRESSLY AGREED TO BY THE CONTRACTOR THAT NOTW ITHSTANDING THE FACT THAT THE CONTRACT IS TERMED AS SUPPLY CONTRACT FOR CONVENIENCE OF OPERATION OF THE OTHER CONTRACTS NAMELY ERECTION CONTRACTS AND CIVIL CONTRACTS ARE ALSO THE INTEGRAL PARTS OF THE CONTRACT ON SINGLE SOURCE RESPONSIBILITY BASIS AND THE CONTRACT OR IS BOUND TO PERFORM THE TOTAL CONTRACT IN ITS ENTIRETY AND NON-PERFORMANCE OF ANY PART OR PORTION OF THE CONTRACT SHALL BE DEEMED TO BE A BREACH OF THE ENTIRE-CONTRACT. PAGE 88 OF 101 ITA NOS.263 TO 266/BANG/201 0 88 THE SAID CLAUSE IN THE CONTRACT AGREEMENT (SUPPLY PORTION) CLARIFIES THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PE RFORMANCE OF THE ERECTION PORTION AND CIVIL WORKS PORTION. IT DOES N OT MENTION THAT ALL PORTIONS OF THE WORK ORDER ARE INTER-RELATED OR INT EGRATED WITH ONE ANOTHER. BY MERELY MAKING THE CONTRACTOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL WORKS POR TION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LESS A SUPPLY CONTRACT. ASSUMPTION OF OVERALL RESPONSIBILITY IS A CONTRACTUAL MATTER WHICH BY ITSELF WOULD NOT ALTER THE ESSENCE OF THE TRANSACTION OF SUPPLY. IN T HE FOLLOWING CASES ALTHOUGH THE APPLICANT WAS MADE OVERALL RESPONSIBLE FOR EVEN THE WORK AWARDED TO SUBCONTRACTORS IT HAS BEEN HELD THAT TH E SITE OF THE SUBCONTRACTORS CANNOT BE REGARDED AS SITE OF THE AP PLICANT. 10.4. CONSIDERING THE FACTS AND CIRCUMS TANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH THE FINDINGS OF VARIOUS JUDICIARY REF ERRED ABOVE WE ARE OF THE FIRM VIEW THAT THE THREE SEPARATE CONTRACTS I. E. (I) SUPPLY OF MATERIALS (II) ERECTION CONTRACT AND (III) CONTRACT FOR CIVIL WORK CANNOT BE TREATED AS ONE SINGLE CONTRACT. TO ARRIVE AT SUCH A VIEW WE ARE DRAWING STRENGTH FROM THE RULING OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. MOTORS & GENERAL STORES (P) LTD. (1967) 66 ITR 692 (SC) WHEREIN THE HONBLE COURT IN ITS WISDOM HAD RULED THAT WHEN PARTIES HAVE AGREED ON CERTAIN TERMS UNLESS IT IS PROVED SHAM THE AGREED TERMS HAVE TO BE RESPECT ED. 11. WE SHALL NOW TURN OUR ATTENTION TO ANALYZE AS TO WHETHER THE PROVISIONS OF S.194C OF THE ACT ARE APPLICABLE IN R ESPECT OF SUPPLY CONTRACT. (I) IN THIS CONNECTION WE RE CALL THE FINDING OF THE HONBLE TRIBUNAL HYDERABAD BENCH THE CASE OF POWER GRID CORPORATION OF INDIA LTD . VS. ACIT [2007] 112 TTJ 654 (HYD.-ITAT) WHICH IS I DENTICAL TO THE ISSUE ON HAND. THE ISSUE BEFORE THE HONBLE BENCH W AS THAT THE ASSESSEE WAS PAGE 89 OF 101 ITA NOS.263 TO 266/BANG/201 0 89 A CENTRAL GOVERNMENT UNDERTAKING ENGAGED IN THE ACT IVITY OF TRANSMISSION AND POWER DISTRIBUTION OF ELECTRICITY TO VARIOUS CON STITUENTS ACROSS THE COUNTRY. DURING THE YEAR UNDER CONSIDERATION THE ASS ESSEE WAS INVOLVED IN THREE PROJECTS FOR WHICH CONTRACTS WERE AWARDED TO DIFFERENT CONTRACTORS. THE ASSESSEE AWARDED CONTRACTS TO VARIOUS PARTIES T O CONSTRUCT EXECUTE THE TRANSMISSION LINE/SUB-STATION. THE CATEGORIES O F CONTRACTS ENTERED INTO BY THE ASSESSEE WITH VARIOUS CONTRACTORS FOR THE ABO VE PURPOSES WERE (I) PURE SUPPLY CONTRACTS (II) PURE ERECTION CONTRACTS AND (III) SUPPLY-CUM- ERECTION CONTRACTS(BUT WITH SEPARATE AGREEMENTS IN RESPECT OF SUPPLY PORTION). THE FINDING OF THE HONBLE BENCH WAS THAT - 5.2. (ON PAGE 17) IN THIS CASE AS ALREADY STATED THE ASSESSEE ENTERED INTO CONTRACTS WITH VARIOUS CONTRA CTORS FOR SUPPLY OF CONDUCTORS INSULATORS TRANSMISSION TOWERS AND SUB-STATIONS. THE CONTRACTS WERE NOT ONLY TO SU PPLY EQUIPMENT BUT ALSO BY WAY OF SEPARATE CONTRACT TO ERECT THE TRANSMISSION TOWERS AND ALSO THE SUB-STATIONS. THE CONTRACTS THOUGH CONTAINED IN THE SAME DOCUMENT IN SOME CASES ARE IN TWO PARTS. SIMPLY BECAUSE THE SUP PLY AND ERECTION PARTS OF THE CONTRACT WERE ENTERED INT O WITH THE SAME PARTY IN SOME CASES AND IN SOME OTHER CASES WERE IN TWO SEPARATE PARTS IN THE SAME AGREE MENT THE NATURE OF EACH PART OF THE CONTRACT WILL NOT AL TER. IN THIS CONNECTION WE MAY REFER TO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CST V. WALCHANDNAG AR INDUSTRIES (1985) 58 STC 89 IN WHICH THE HONBLE HI GH COURT REFERRED TO THE JUDGMENT OF THE HONBLE SUPRE ME COURT IN THE CASE OF STATE OF MADRAS V. GANNON DUNKERLEY & CO. (1958) 9 STC 353 (SC) WHEREIN IT WA S HELD THAT THE PARTIES MAY ENTER INTO TWO CONTRACTS ONE FOR THE SALE OF GOODS AND ONE FOR SERVICES. EVEN W HEN SUCH CONTRACTS ARE IN ONE DOCUMENT THEY CAN BE SEPARATE FOR MORE SO WHEN THEY ARE IN TWO SEPARATE PAGE 90 OF 101 ITA NOS.263 TO 266/BANG/201 0 90 DOCUMENTS. SIMILAR VIEW WAS TAKEN BY THE HONBLE APEX COURT IN THE CASE OF ASSOCIATED HOTELS OF INDIA LTD . (1972) 29 STC 474 (SC) 5.4IN THE PRESENT CASE WHERE THE CONTRACT OF SUPPLY AND ERECTION IS GIVEN TO THE SAM E PARTY THE VALUE OF THE ERECTION CONTRACT AS CAN BE SEEN FROM THE ANNEXURE IS LESSER THAN THE VALUE OF THE S UPPLY CONTRACT. IT CANNOT THEREFORE CONTROL THE INTERPRET ATION OF THE CONTRACT SPECIFICALLY WHEN THE PROPERTY IN THE GOODS HAS PASSED EX-WORKS ON DELIVERY AND NOT ON TH E THEORY OF ACCRETION. THE ASSESSEE TOOK POSSESSION O F THE GOODS AND THE TITLE PASSED ON TO IT AS A CHATTEL PR IOR TO COMMENCEMENT OF THE ERECTION PORTION OF THE CONTRAC T. 5.5.. IF THE FACTS OF THE PRESENT CASE ARE TESTED BY APPLYING THE PRINCIPLES LAID DOWN BY THE JURISDICTI ONAL HIGH COURT AND THE HONBLE SUPREME COURT THE OBVIOUS AN SWER THAT WOULD EMERGE IS THAT THIS IS A 'SUPPLY CONTRAC T' AND NOT 'WORKS CONTRACT'. THE NATURE OF A CONTRACT AS T O WHETHER IT IS CONTRACT FOR SALE OR 'WORKS CONTRAC T' WILL DEPEND ON THE TERMS OF THE CONTRACT AND ITS EXECUTI ON. IN THE PRESENT CASE THE CONTRACTORS HAVE TO FABRIC ATE TOWERS AS PER TESTED QUALITY OF CONFORMITY WITH INTERNATIONAL STANDARD-(IS) : 2062. FURTHER THE CONTRACTOR HAS BEEN GIVEN THE OPTION TO USE OTHER EQUIVALENT GRADE OF STRUCTURAL STEEL ANGLE SECTIONS AND PLATES CONFORMING TO LATEST INTERNATIONAL STANDARDS . THE CONTRACTOR FABRICATES AND MANUFACTURES THE TOWER WI TH STEEL SECTIONS AS PER INTERNATIONAL STANDARDS. THE MATERIAL IS THAT OF 'THE SUPPLIER' AND NOT OF 'THE PURCHASER'. THE 'SUPPLIER' DOES NOT WORK ON THE MAT ERIAL SUPPLIED BY THE 'PURCHASER'. THERE IS NO ACCRETION OF MATERIAL TO THE PURCHASER PART BY PART UNIT BY UN IT. THE REST OF THE EQUIPMENT SUCH AS INSULATORS CONDU CTORS TRANSFORMERS CIRCUIT BREAKERS ETC. IS STANDARD EQUIPMENTS. THE RELEVANT TECHNICAL SPECIFICATION IS SPECIFIED BY THE PURCHASER. THE TITLE IN THE GOOD S PAGE 91 OF 101 ITA NOS.263 TO 266/BANG/201 0 91 PASSES AS A CHATTEL ON DELIVERY THOUGH CERTAIN OBLI GATIONS ARE STILL NECESSARILY TO BE PERFORMED BY THE 'SUPPL IER'. THOUGH THE ASSESSEE CLAIMS THAT THE DESIGN SPECIFIC ATION ARE NOT UNIQUE IN THE SENSE THAT THE SAME SPECIFICA TIONS ARE USED BY MANY OTHER CONCERNS TO OUR MIND THIS IS NOT A RELEVANT TEST. THE ISSUE IS AS TO THE TIME AND SI TUS OF PASSING OF THE PROPERTY AND AS TO WHETHER THE PROPE RTY PASSES 'BRICK BY BRICK' ON THE THEORY OF ACCRETION OR AS A CHATTEL QUA CHATTEL. THE MERE FACT THAT THE SUPPL IER HAS TO PERFORM MANY OTHER OBLIGATIONS CAST ON IT BY VIRTUE OF THE CONTRACT AFTER DELIVERY OF GOODS DOES NOT CHANGE THE NATURE OF TRANSACTION. THE SUPPLY PORT ION OF THE CONTRACT IS THE PREDOMINANT OBJECT AND INTENTIO N OF THE PARTIES. ERECTION IS RELATIVELY MINOR PORTION A S COMPARED TO THE SUPPLY PORTION. IF THE ERECTION POR TION CANNOT BE TAKEN AS THE MAIN OBJECT OF THESE CONTRAC TS TITLE IN GOODS WAS TRANSFERRED AS MOVABLES PRIOR TO ERECTION. IF EQUIPMENT ARE MANUFACTURED AS PER THE DESIGN ENGINEERING ETC. SPECIFIED BY THE CUSTOME R IT WOULD NOT RESULT IN A WORKS CONTRACT ESPECIALLY WHE N ALL THE MATERIAL BELONG TO THE SUPPLIER EVEN THOUGH IT PRODUCED A TAILOR-MADE PRODUCT. THE ERECTION PORTIO N BEING SUBSEQUENT TO PASSING OF TITLE BY EXECUTION O F THE SUPPLY PORTION IT CANNOT BE SAID THAT THE ERECTION PORTION CONTROLS THE SUPPLY PORTION THOUGH THE FULFILLMENT OF THE CONDITIONS OF THE ERECTION CONTRACT HAS A BEARING O N THE FULFILLMENT OF THE CONDITION OF SUPPLY PORTION OF T HE CONTRACT AND THOUGH IN SOME CASES BOTH THE CONTRAC TS ARE IN THE SAME DOCUMENT. THE SCOPE AND OBJECT OF E ACH PART OF THE CONTRACT IS DIFFERENT. THOUGH THE SUPPL Y PORTION AND ERECTION PORTION DOVETAIL INTO EACH OTH ER THE ERECTION PORTION DOES NOT CONTROL THE SUPPLY PORTIO N AND THE SUPPLY CONTRACT DOES NOT BECOME A WORKS CONTRAC T JUST BECAUSE THERE IS AN OBLIGATION CAST ON THE SUP PLIER TO ERECT THE EQUIPMENT WHICH BY THAT TIME HAS BECOME T HE PROPERTY OF THE PURCHASER. THE TITLE IN THE GOODS I N RESPECT OF EQUIPMENT/MATERIAL TO BE SUPPLIED AS PER THE TERMS OF CONTRACT IS TO BE TRANSFERRED 'EX-WORK' ON PAGE 92 OF 101 ITA NOS.263 TO 266/BANG/201 0 92 DISPATCH AS MOVABLE PROPERTY. THE CRITICAL TEST TO BE APPLIED IS AS TO WHEN THE TITLE IN THE GOODS IS TRANSFERRED. THUS AS THE TITLE IN THE GOODS WERE PA SSED ON TO THE ASSESSEE BEFORE THE COMMENCEMENT OF THE WORKS OR ERECTION CONTRACT AND AS ADMITTED BY THE ASSESSEE HAD TREATED THESE GOODS AS ITS PROPERTY AN D ENTERED THE SAME AS SUCH IN ITS STOCK REGISTER BEFO RE ISSUING THE SAME FOR ERECTION IT IS A CONTRACT OF SALE AND SECTION 194C HAS NO APPLICATION. ON ERECTION PORTIO N AS ADMITTED TDS IS MADE. 5.5.. A PLAIN READING OF THE SECTION 194C ALONG WITH CBDT CIRCULAR REFERRED ABOVE AND APPLYING THE SAME TO TH E FACTS OF THIS CASE WHERE WE FIND THAT THE SUPPLIER DOES NOT WORK OR PROCESS THE MATERIAL SUPPLIED BY THE PURCHASER AND THAT THE SELLER SUPPLIED GOODS THE TI TLE IN WHICH PASSED ON TO THE PURCHASER/ASSESSEE AS A CHA TTEL ON DELIVERY EX-WORK DISPATCH AND AS THE ASSESSEE HA S ALREADY DEDUCTED TAX AT SOURCE FROM THE ERECTION PO RTION OF THE CONTRACT TREATING IT AS A SEPARATE CONTRACT WE HAVE TO HOLD THAT SECTION 194C IS NOT APPLICABLE TO THE SUPPLY CONTRACT IN QUESTION. WITH DUE RESPECT WE WOULD LIKE TO REITERATE THAT T HE FINDING OF THE HONBLE BENCH (SUPRA) IS DIRECTLY ON THE POINT WHICH IS UNDE R CONSIDERATION. (II) YET AN IDENTICAL ISSUE T HE HONBLE DELHI BENCH IN THE CASE OF SENIOR ACCOUNTS OFFICER (O&M) HARYANA POWER GEN ERATION CORPORATION LTD. V. ITO (2006) 103 TTJ 584 (DELHI ITAT) HAD TAK EN A SIMILAR VIEW. THE ISSUE IN BRIEF WAS THAT THE ASSESSEE HAD TWO THER MAL PLANTS ONE AT FARIDABAD AND ANOTHER AT PANIPAT. THE PANIPAT THER MAL PLANT ENTERED INTO AN AGREEMENT WITH BHEL FOR DESIGNING ENGINEERING MAN UFACTURING SUPPLY PAGE 93 OF 101 ITA NOS.263 TO 266/BANG/201 0 93 ERECTION TESTING AND COMMISSIONING FOR RETROFIT OF ESPS. CONSIDERING THE ISSUE IN DETAIL THE HONBLE BENCH WAS OF THE VIEW THAT 2.5 UNDER THE PROVISIONS OF S. 194C OF THE IT ACT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT SHA LL AT THE TIME OF CREDIT OF SUCH SUM OR AT THE TIME OF PAYMENT DEDUCT TAX AT SOURCE AT SUCH PERCENTAGE AS IS MENTIONED IN S. 194C. THE CHART OF PAYMENT OF TDS BY THE APPELLANT HAS ALRE ADY BEEN SET OUT ABOVE. THE AO WAS OF THE VIEW THAT THE CONTRACT BETWEEN THE APPELLANT AND M/S BHEL WAS A COMPOSITE CONTRACT AND THEREFORE THE APPELLANT OUGH T TO HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENTS F OR SUPPLY OF MATERIALS AS WELL AS THE PAYMENTS FOR EXECU TION OF CIVIL WORK ERECTION DESIGNING AND COMMISSIONING A ND ALSO THE FREIGHT AND INSURANCE. ACCORDING TO THE APPELLANT THE CONTRACT IN QUESTION WAS A DIVISIBLE CONTRACT COMP RISING OF ONE PART OF THE CONTRACT FOR SUPPLY OF EQUIPMENTS AN D THE OTHER TWO PARTS OF THE CONTRACT FOR DISMANTLING THE EXISTING MACHINERY AND FOR CLEARING THE SITE AND MAKING THE NECESSARY INFRASTRUCTURE FOR INSTALLATION OF THE MAC HINERY. ACCORDING TO THE ASSESSEE IT IS ONLY IN RESPECT OF THE CONSIDERATION ATTRIBUTABLE TO THE CIVIL AS WELL AS ERECTION DESIGNING AND COMMISSIONING THE APPELLANT WAS UNDE R AN OBLIGATION TO DEDUCT TAX AT SOURCE AND NOT IN RESPE CT OF THE SUPPLY OF MATERIALS. THE AO HOWEVER REFERRED TO TH E DECISION OF THE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF ESSAR OIL LTD. VS. ITO (2001) 71 ITJ (RAJKOT) 599 : (2001) 77 ITD 92 (RAJKOT) WHEREIN IT WAS HELD THAT IN THE CASE OF COMPOSITE CONTRACT THE DEDUCTION OF TAX AT SOURCE H AS TO BE ON THE ENTIRE SUM PAYABLE INCLUDING THE MATERIAL AND LABOUR. THE AO HELD THAT IT WAS A COMPOSITE CONTRACT WHERE THE SUPPLY OF MATERIAL WAS ONLY INCIDENTAL TO THE EXECUTI ON OF CONTRACT AND TDS OUGHT TO HAVE BEEN DEDUCTED ON THE GROSS PAYMENTS MADE TO THE CONTRACTOR IN PURSUANCE OF A COMPOSITE CONTRACT. THE AO ACCORDINGLY WORKED OUT THE PAGE 94 OF 101 ITA NOS.263 TO 266/BANG/201 0 94 TAX SHORT DEDUCTED AND ALSO LEVIED INTEREST ON SUCH SHORT DEDUCTION OF TAX AT SOURCE. 2.6 ON APPEAL BY THE APPELLANT THE CIT(A) CONFIRMED THE ORDER OF THE AO. HENCE THE PRESENT APPEAL BY THE AP PELLANT BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ELABORATED SUBMISSIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND THE LEARNED DEPARTMEN TAL REPRESENTATIVE. WE HAVE ALREADY SET OUT THE IMPORTAN T TERMS OF THE CONTRACT BETWEEN THE APPELLANT AND M/S BHEL. A BARE PERUSAL OF THE COMPONENTS OF THE CONSIDERATI ON FOR THE CONTRACT WOULD CLEARLY SHOW THAT THE PRIMARY OR THE DOMINANT INTENTION OF THE APPELLANT WAS TO PURCHASE THE MATERIAL NAMELY TWO ESPS FOR ITS POWER PLANT AT PAN IPAT. FREIGHT AND INSURANCE PAYABLE IN RESPECT OF ITS SUPP LY AND THE COST OF MATERIAL CONSTITUTED A MAJOR PORTION OF THE CONTRACT VALUE. THE COST OF SPARES WILL ALSO FALL I N THIS CATEGORY. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE APPELLANT BEFORE INSTALLING THE PLANT IT WAS NECESSARY TO DISMANTLE THE EXISTING PLANT AND ALSO TO DO THE NEC ESSARY CIVIL WORK FOR ERECTING THE NEW PLANT. THIS BY ITSEL F WOULD NOT MEAN THAT THE CONTRACT IN QUESTION WAS A COMPOSITE CONTRACT FOR THE ERECTION AND COMMISSIONING OF THE PLANT TOG ETHER WITH THE MATERIALS REQUIRED FOR SUCH COMMISSIONING OF THE PLANT. AS HELD BY THE HON'BLE SUPREME COURT IN THE C ASE OF STATE OF HIMACHAL PRADESH & ORS. VS. ASSOCIATED HOT ELS OF INDIA LTD. 29 STC 474 (SC) IN THE CASE OF A COMPOS ITE CONTRACT ONE HAS TO FIND OUT THE PRIMARY OBJECT OF THE TRANSACTIONS AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT. ON THE FACTS OF THIS CASE WE FIND THAT TH E PRIMARY OBJECT OF THE APPELLANT WAS TO PURCHASE THE PLANT I N QUESTION AND THE CIVIL WORK ERECTION AND COMMISSIONING WAS ONLY INCIDENTAL TO PURCHASE THE MATERIAL BY THE APPELLANT . IN OTHER WORDS THE CONTRACT FOR SUPPLY OF THE EQUIPMEN TS AND THE CONTRACT FOR ERECTION AND COMMISSIONING OF THE PLANT ARE TWO SEPARABLE CONTRACTS THOUGH THERE IS ONLY ONE CO MMON PURCHASE ORDER. WE ARE THEREFORE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN CONSIDERI NG THE PAGE 95 OF 101 ITA NOS.263 TO 266/BANG/201 0 95 GROSS PAYMENTS MADE BY THE APPELLANT TO BHEL FOR THE PURPOSE OF DETERMINING THE TDS BY THE APPELLANT. WE HAVE ALSO PERUSED THE DECISION OF THE RAJKOT BENCH OF TH E TRIBUNAL IN THE CASE OF ESSAR OIL LTD.(SUPRA) WE ARE OF THE VIEW THAT THE FACTS OF THE AFORESAID CASE ARE CLEAR LY DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. IT WAS A CASE WHERE THE CONTRACT WAS FOR CONSTRUCTION OF A REFINERY AND THE CONTRACTOR WAS TO SUPPLY THE MATERIA L TO BE USED FOR CONSTRUCTION. IN THE PRESENT CASE THE SUP PLY OF THE POWER GENERATOR WAS AN INDEPENDENT TRANSACTION AND ITS ERECTION WAS ONLY ANCILLARY OR INCIDENTAL TO THE PURC HASE OF THE POWER GENERATOR. WE ARE ALSO OF THE VIEW THAT I N EACH CASE THE TERMS OF THE CONTRACT NEED TO BE ANALYZED B EFORE COMING TO THE CONCLUSION WHETHER IT WAS A COMPOSITE CONTRACT OR NOT. AS ALREADY STATED IN THE PRESENT C ASE THE CONTRACT INSOFAR AS IT RELATES TO SUPPLY OF THE MAT ERIAL FREIGHT INSURANCE AND SUPPLY OF SPARE PARTS IS CLEA RLY SEPARABLE FROM THE OTHER PART OF THE CONTRACT RELAT ING TO CARRYING OUT CIVIL WORK COMMISSIONING AND ERECTION OF THE POWER GENERATORS. 3.1. IN VIEW OF THE DISCUSSION ABOVE WE DIRECT TH E AO TO WORK OUT THE SHORT DEDUCTION OF TAX AT SOURCE IF A NY BY EXCLUDING THE PAYMENTS TOWARDS SUPPLY OF MACHINERY SPARE PARTS AS WELL AS FREIGHT AND INSURANCE. 3.2 IN ONE OF THE GROUNDS OF APPEAL THE APPELLANT HAS STATED THAT THE CONTRACTOR NAMELY M/S BHEL HAS ALREADY PAI D TAX ON THE AMOUNTS PAID BY THE APPELLANT TO IT AND THER EFORE THE APPELLANT CANNOT BE TREATED AS AN APPELLANT-IN- DEFAULT IN TERMS OF S. 201 OF THE ACT. IN THIS CONNECTION OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HON'BLE GUJARAT HI GH COURT IN THE CASE OF CIT VS. RISHIKESH APARTMENTS CO-OPER ATIVE HOUSING SOCIETY LTD. (2001) 171 CTR (GUJ) 288 : (200 2)253 ITR 310 (GUJ). WE HAVE CONSIDERED THE SUBMISSIONS O F THE APPELLANT AND WE ARE OF THE VIEW THAT THE DOCUMENTS ON RECORD DO NOT ESTABLISH THE CASE PLEADED BY THE APPE LLANT. WE HOWEVER DEEM IT FIT AND PROPER TO DIRECT THE A O TO VERIFY THIS ASPECT AND IN CASE IT IS FOUND THAT THE CONTRACTOR PAGE 96 OF 101 ITA NOS.263 TO 266/BANG/201 0 96 HAS OFFERED THE SUMS RECEIVED FROM THE APPELLANT TO TAX THEN IN THAT EVENT THE APPELLANT SHOULD NOT BE PROC EEDED AGAINST AS AN APPELLANT IN DEFAULT UNDER S. 201 OF THE ACT AS LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF RISHIKESH APARTMENTS CO-OPERATIVE HOUSING SOCIETY LT D WITH DUE REGARDS WE ARE IN AGREE MENT WITH THE FINDING OF THE HONBLE BENCH (SUPRA) AND ALSO OF THE FIRM VIEW THE RATIO LAID DOWN BY THE HONBLE BENCH IS DIRECTLY ON POINT WHICH IS UNDER C ONSIDERATION. 11.1. WE HAVE ALSO DULY PERUSED THE FINDING OF THE HONBLE RAJKOT TRIBUNAL IN THE CASE OF ESSAR OIL LTD. V. ITO REPO RTED IN 77 ITD 92. THE HONBLE DELHI BENCH IN ITS FINDING CITED SUPRA HAD MADE A REFERENCE WITH REGARD TO THE FINDING OF THE RAJKOT BENCH ON A SIMI LAR ISSUE AND DISTINGUISHED THE SAME FOR THE REASONS RECORDED THE REIN. WE ARE IN FULL AGREEMENT WITH THE REASONS RECORDED BY THE DELHI BEN CH. WE ARE ALSO OF THE SIMILAR VIEW THAT THE FACTS OF THE CASE BEFORE THE RAJKOT BENCH WERE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE PRESEN T CASE SINCE IT WAS A CASE WHERE THE CONTRACT WAS FOR CONSTRUCTION OF A REFINE RY AND THE CONTRACTOR WAS TO SUPPLY THE MATERIAL TO BE USED FOR CONSTRUCTI ON. AS THE ISSUE BEFORE US IS RELATIVELY ON A DIFFERENT FOOTING WE ARE OF T HE CONSIDERED VIEW - WITH DUE REGARDS - THE RATIO LAID DOWN BY THE HONBLE RAJ KOT BENCH CANNOT BE EQUATED WITH THE PRESENT CASE. AS JUDICIOUSLY AFF IRMED BY THE HONBLE DELHI BENCH IN EACH CASE THE TERMS OF THE CONTRACT NEED TO BE A NALYZED BEFORE COMING TO A CONCLUSION WHETHER IT WAS A COMP OSITE CONTRACT OR NOT. 11.2. THE HONBLE LUCKNOW BENCH IN THE CA SE OF SOMANI IRON & STEEL (P) LTD. V. ITO (2003) 86 ITD 750 (LUCK-ITAT) HAD HELD THAT IN ANY CASE ON CONSIDERATION OF THE ENTIRETY OF THE FACTS AND CI RCUMSTANCES AND THE PAGE 97 OF 101 ITA NOS.263 TO 266/BANG/201 0 97 COMPOSITE CHARACTER OF AGREEMENTS DOMINANT OR PRED OMINANT NATURE OF CONTRACTS IS FOUND TO BE THAT OF SALE AND NOT OF WO RK OF CONTRACT. 11.3. WE HAVE ALSO COME ACROSS AN OCC ASION TO PERUSE THE FINDING OF THE HONBLE HYDERABAD TRIBUNAL REPORTED IN (2002) 74 TTJ 531 (HYD ITAT) WHEREIN THE ISSUE BEFORE THE HONBLE BENCH WA S IN BRIEF THAT THE ASSESSEE-ANDHRA PRADESH STATE ROAD TRANSPORT CORPOR ATION - WAS A CORPORATION ESTABLISHED UNDER THE STATE ENACTMENT. THE ASSESSEE WAS IN THE BUSINESS OF PROVIDING TRANSPORT SERVICES TO THE PUB LIC IN THE STATE AND FOR THAT PURPOSE IT OWNED FLEET OF BUSES. IT PURCHASED CHASSIS AND AFTER THE PURCHASE OF CHASSIS HANDED OVER THE SAME TO THE FAB RICATORS FOR CONSTRUCTING THE BODY-BUILDING UPON THE CHASSIS. AF TER ANALYZING THE ISSUE IN DETAIL THE HONBLE BENCH HAD OBSERVED THUS - THE INESCAPABLE CONCLUSION IS THAT THE CONTRACT ENTERED INTO BY THE APPELLANT-CORPORATION WITH ITS FABRICATO RS WAS A CONTRACT FOR PURCHASE/SALE OF BUS BODIES AND CANNOT BE CONSTRUED AS A CONTRACT OF WORK AND LABOUR SIMPLICI TOR. THE DOMINANT OBJECT AND INTENTION BETWEEN THE PARTIES W AS TO CONSTRUCT AND SELL AS PURCHASE THE BUS BODIES IN TE RMS OF THE REQUIREMENTS AND SPECIFICATIONS INDICATED BY THE APPELLANT-CORPORATION AND DELIVER THEM DULY FITTED O N THE CHASSIS SUPPLIED. WHOLE EXERCISE INVOLVED RESULTED INTO PURCHASE AND SALE OF BUS BODIES IN FACT. MERELY BECA USE SPECIFICATIONS ARE PROVIDED BY THE APPELLANT-CORPORA TION TO SUIT THE BUS BODIES ACCORDING TO APPELLANTS REQUIR EMENTS DOES NOT ALTER THE BASIC CRUX AND CHARACTER OF THE CONTRACT WHICH IN THE INSTANT CASE IS NOTHING BUT THE CONTRA CT OF SALE AND PURCHASE. THE MATERIALS INVOLVED IN THE CONSTRU CTION OF THE BUS BODIES WERE TO BE PROCURED BY THE FABRICATOR S AND THEREAFTER BUS BODIES WERE TO BE CONSTRUCTED AND TO BE FITTED ON THE CHASSIS SUPPLIED BY THE APPELLANT-CORP ORATION. AT NO POINT OF TIME APPELLANT HAD ANY PROPERTY OR OW NERSHIP PAGE 98 OF 101 ITA NOS.263 TO 266/BANG/201 0 98 IN THE MATERIAL USED IN BUS BODY BUILDING OR IN THE BUS BODY ITSELF UNLESS THESE WERE DELIVERED TO THE APPELLANT AND APPROVED BY THE APPELLANT FOR FINAL USE. PROPERTY IN THE BUS BODIES WAS TO PASS ON ACCEPTANCE OF BUS BODIES BY TH E APPELLANT. PURCHASE OF ANY ITEM WHICH IS CONSTRUCTED AS PER AGREED SPECIFICATIONS WOULD INVOLVE LABOUR AND SKIL L BUT THESE TWO ELEMENTS BY THEMSELVES ALONE ARE NOT ENOUGH TO T URN THE TRANSACTION OF SALE INTO TRANSACTION OF WORK. OBJ ECT AND END RESULT OF THE ENTIRE PROCESS THROUGH WHICH THAT TRANSACTION PASSES SHALL BE LOOKED INTO. IN THE CAS E BEFORE US WE ARE OF THE CONSIDERED VIEW IN THE BACKDROP O F THE OBJECT AND END-RESULT OF THE CONTRACT THAT IT WAS A CONTRACT OF SALE ULTIMATELY AND FINALLY. 11.4. WITH REGARD TO THE SWEEPING REMARK ON THE PART OF THE REVENUE TO THE EFFECT THAT THERE WAS ALLEGED COLLUSION BETWEE N THE ASSESSEE A STATE GOVERNMENT PUBLIC SECTOR COMPANY - AND THE CONTRACTO RS FOR TAX EVASION WE ARE OF THE CONSIDERED VIEW THAT IT TENDS TO LEAVE A BAD TASTE IN THE MOUTH AS NO DOCUMENTARY PROOF WAS BROUGHT ON RECORD EVEN TO R EMOTELY SUGGEST THAT THERE WAS A LIKELIHOOD OF SUCH AN ALLEGED COLLUSION BETWEEN THE PARTIES CONCERNED TO DEFRAUD THE GOVERNMENT BY INDULGING IN SORDID AFFAIR OF TAX EVASION ETC. 11.5. THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT V. WEST COAST PAPER MILLS LIMITED IN ITA NO:389/2008 HAD CANDIDLY OBSERVED THAT WHEN THE OTHER PARTY IS A STATUTORY BODY THE QUESTION OF E VASION OF TAX DOES NOT ARISE. 11.6. IN TAKING INTO ACCOUNT THE FACTS AND CIRC UMSTANCES OF THE ISSUES WHICH HAVE BEEN METICULOUSLY ANALYZED AND ALSO EXTENS IVELY QUOTING THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUES IN TH E FORE-GOING PARAGRAPHS PAGE 99 OF 101 ITA NOS.263 TO 266/BANG/201 0 99 WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TREATING THE ASSESSEE KPTCL AS AN ASSESSEE IN DEFAULT U/S 201(1) AND ALSO CHARGING INTEREST U/S 201(1A) OF THE ACT FOR THE FOLLOWING REASONS: - THE ASSESSEE CANNOT BE CATEGORIZED AS AN ASSESSEE IN DEFAULT WHEN THERE WAS NO OBLIGATION ON THE PART OF THE ASS ESSEE TO DEDUCT TAX U/S 194C OF THE ACT FOR SUPPLY PORTION; - AMENDMENT OF S. 194C THROUGH FINANCE ACT(NO.2) OF 2 009 CLARIFY DEDUCTION DOESNT EXTEND TO SUPPLY OF MATERIALS (PO RTION); - THE MATERIALS IN QUESTION WERE PURCHASED FROM THE S UPPLIERS BY THE ASSESSEE AND GIVEN TO THE CONTRACTOR(S) FOR CARRYIN G OUT THE WORK OF CIVIL ERECTION ETC. - THE CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTO R WAS A CONTRACT FOR SUPPLY AND NOT FOR CONTRACT OF WOR K AND THE REVENUE HAD CONSISTENTLY REFUSED TO SEE THE REASON AND TO RECOGNIZE THE DISTINCT MEANING - SUPPLY AND WORK; - IT WAS WRONGLY VISUALIZED THAT THE EQUIPMENTS MATE RIALS COMPONENT PARTS WERE FABRICATED AND INSTALLED AT WORK SITE PR EMISES; - IT WAS WRONGLY PRESUMED THAT THE CONTRACTS ENTERED INTO BETWEEN THE ASSESSEE AND THE CONTRACTOR WERE COMPOSITE CONT RACT AND AN INDIVISIBLE CONTRACT WHEREAS THERE WERE THREE SEPAR ATE CONTRACTS VIZ. (I) SUPPLY OF MATERIALS; (II) FOR ERECTION & (III) FOR CIVIL WORK PORTION; - INSTRUCTION TO BIDDERS (SECTION II ITB) UNDER CLA USE 14. TAXES AND DUTIES [SOURCE P 123 OF PB AR] IT HAS BEEN MA DE IMPLICITLY CLEAR THAT 14.1. AS INDICATED IN CLAUSE 35.2 OF SECTION ITB O F THE BID DOCUMENT IN CASE OF AWARD OF CONTRACT A DIVISIBLE CONTRACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/TOTAL TURN KEY PACKAGE WILL BE ENTERED INTO WITH THE SUCCESSFUL BIDDER THERE S HALL BE THREE SEPARATE CONTRACTS AS UNDER: (I) FOR SUPPLY OF GOODS (II) FOR ERECTION WORKS (III) FOR CIVIL ENGINEERING WORKS PAGE 100 OF 101 ITA NOS.263 TO 266/BANG/20 10 100 THUS TENDER CLEARLY GIVES BREAKS-UP OF SEPARATE AG REEMENTS REFLECTING SEPARATE CONSIDERATION; - THROUGH A SINGLE BIDDING PROCESS ALL THE CONTRACTS WERE AWARDED DISTINCTLY WHICH DO NOT MEAN THAT THEY WERE COMPOSI TE CONTRACT; - - THE HONBLE APEX COURT IN THE CASE OF HINDUSTAN COC A COLA BEVERAGES P. LTD. V. CIT REPORTED IN 293 ITR 226(SC ) HAD RULED THAT IT IS NOT DISPUTED THAT THE CIRCULAR NO. 275/ 201/95-IT(B) DATED JANUARY 29 1997 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES DECLARING THAT 'NO DEMAND VISUALIZED UNDER SE CTION 201(1) OF THE INCOME- TAX ACT SHOULD BE ENFORCED AFTER THE TA X DEDUCTOR HAS SATISFIED THE OFFICER-IN-CHARGE OF TDS THAT TA XES DUE HAVE BEEN PAID BY THE DEDUCTEE-ASSESSEE; - WHEN THERE WAS NO OBLIGATION ON THE PART OF THE ASS ESSEE TO DEDUCT TAX ON SUPPLY PORTION THERE WAS NO QUESTION OF CHARGING INTEREST U/S 201(1A) OF THE ACT; - WE HAVE ALSO DULY PERUSED THE CASE LAWS ON WHICH TH E LD. CIT (A) HAD PLACED STRONG RELIANCE. HOWEVER WE ARE OF THE CONSIDERED VIEW THAT THOSE DECISIONS WERE CLEARLY DISTINGUISHA BLE TO THE FACTS AND CIRCUMSTANCES OF THE ISSUES UNDER CONSIDERATION . 11.7. IN A NUT-SHELL (I) WHEN THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUC T TAX U/S 194C OF THE ACT TOWARDS THE PAYMENTS MADE ON SUPPLY PORTION THE ASSESSEES CASE DOESNT FALL WITHIN THE AMBIT O F THE PROVISIONS OF S.201(1) OF THE ACT AND THUS THE AS SESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT; AND (II) THAT WHEN THE ASSESSEE WAS NOT REQUIRED TO DEDUCT T AX TOWARDS THE PAYMENT ON SUPPLY PORTION THERE WAS NO QUESTIO N WHATSOEVER IN CHARGING INTEREST U/S 201(1A) OF THE ACT. IT IS ORDERED ACCORDINGLY. PAGE 101 OF 101 ITA NOS.263 TO 266/BANG/20 10 101 12. IN THE RESULT THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 2007.08 2008-09 AND 2009-2010 [U/S 201 (1) AND U/S 201(1A) OF THE ACT] ARE ALLOWED. THE ORDER PRONOUNCED ON 16 TH DAY OF MARCH 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMB ER COPY TO :- 1.THE ASSESSEE 2. THE REVENUE 3. THE CIT (A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GF BY ORDER MSP/14.3. ASSISTANT REGISTRAR ITAT BANGALORE.