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

ITA 395/BANG/2010 | 2008-2009
Pronouncement Date: 16-03-2011 | Result: Allowed

Appeal Details

RSA Number 39521114 RSA 2010
Assessee PAN ILLOF2009S
Bench Bangalore
Appeal Number ITA 395/BANG/2010
Duration Of Justice 11 month(s) 25 day(s)
Appellant M/s Karnataka Power Transmission Corporation Ltd.,, Bagalkot
Respondent ITO, Belgaum
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 2008-2009
Appeal Filed On 22-03-2010
Judgment Text
PAGE 1 OF 101 ITA NOS.392 TO 395/BANG/201 0 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.392 TO 395/BANG/2010 (ASST. YEARS 2007-08 AND 2008-2009) M/S KARNATAKA POWER TRANSMISSION CORPORATION LTD. MAJOR WORKS DIVISION ROOPLAND VIDYAGIRI BAGALKOT. - APPELLANT VS THE INCOME-TAX OFFICER TDS WARD KHIMJIBHAI COMPLEX OPP. CIVIL HOSPITAL BELGAUM. - RESPONDENT APPELLANT BY : SHRI S PARTHASARATHY & SHRI CHYTHANYA K. K ADVOCATE RESPONDENT BY : SHRI G V GOPALA RAO CIT-I O R D E R PER BENCH : THESE FOUR APPEALS INSTITUTED BY KPTCL BAGALKOT DIVISION A STATE GOVERNMENT PUBLIC SECTOR COMPANY ARE DIRECTE D AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT (A)-LTU BANGALOR E IN ITA NOS: 23 & 24/CIT(A) LTU/09-10 DATED: 9.12.2009 FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 . PAGE 2 OF 101 ITA NOS.392 TO 395/BANG/201 0 2 I. ITA NOS: 392 & 394/10 AYS: 2007-08 AND 2008-09 S.201 (1) OF THE ACT : 2. THE ASSESSEE HAD RAISED AS MANY AS NINETEEN IDENTICA L GROUNDS FOR THE AYS UNDER DISPUTE IN AN ILLUSTRATIV E AND NARRATIVE MANNER. ON A CLOSE SCRUTINY OF THE SAME THE CRUXES OF THE I SSUES EMERGED ARE THAT 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: 393 & 395/10 AYS: 2007-08 AND 2008-09 S.201 (1A) OF THE ACT: 3. LIKEWISE THE ASSESSEE HAD RAISED THREE IDENTICAL GROUNDS FOR THE AYS UNDER CHALLENGE OUT OF WHICH GROUND NO.1 BEIN G GENERAL AND NO SPECIFIC ISSUE INVOLVED IT HAS BECOME NON-CONSEQUENTIAL. I N THE REMAINING GROUNDS THE ISSUES RAISED ARE REFORMULATED AS UNDER: 1. THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ACT ION OF THE AO (TDS) IN TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT AND DEMANDING THE INTEREST ON TAX; & PAGE 3 OF 101 ITA NOS.392 TO 395/BANG/201 0 3 - 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 BE ING IDENTICAL IN THESE APPEALS PERTAINING TO THE SAME ASSESSEE THEY WERE HEARD CO NSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE AND CLARITY. 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 21.4.2009 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 THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOU RCE ON THE SUPPLY OF PAGE 4 OF 101 ITA NOS.392 TO 395/BANG/201 0 4 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 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 ASSESSE E TOOK UP THE ISSUES WITH THE LD. CIT (A)-LTU FOR SOLACE. AFTER DUE CONSIDERATION OF THE LENGTHY CONTENTIONS PUT-FORTH BY THE ASSESSEES A.R. PERUSING THE OBSER VATIONS MADE BY THE AO IN HIS IMPUGNED ORDERS UNDER CHALLENGE ANALYZING TH E PROVISIONS OF S.194C OF THE ACT EXTENSIVELY QUOTING THE RULINGS IN THE CAS ES 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 BO DY BUILDERS 38 STC 176 (SC) AND DUE PERUSAL OF TENDER NOTIFICATION FLO ATED BY THE ASSESSEE AND ALSO CONSIDERING THE CASE LAWS ON WHICH THE ASS ESSEE HAD PLACED STRONG RELIANCE 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 PAGE 5 OF 101 ITA NOS.392 TO 395/BANG/201 0 5 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 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. PAGE 6 OF 101 ITA NOS.392 TO 395/BANG/201 0 6 4.12.. IN THE WRITTEN SUBMISSIONS THE APPELLANT FURTHER STATED THAT DESPITE THE AFORESAID OVERALL RESPONSI BILITY CLAUSE IT IS IMPERMISSIBLE TO TREAT THE THREE SEPA RATE CONTRACTS I.E. (I) SUPPLY OF MATERIALS CONTRACT (I I) ERECTION CONTRACT AND (III) CONTRACT FOR CIVIL WORK AS ONE SINGLE CONTRACT. WHEN PARTIES HAVE AGREED ON CERTA IN TERMS UNLESS IT IS PROVED AS SHAM THE AGREED TERMS HAVE TO BE RESPECTED AS HELD 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. ACI T (2007) 112 TTJ 654 (HYD-ITAT). THE FACTS OF THE CAS E ARE THAT THE ASSESSEE WAS INVOLVED IN THREE PROJECT S FOR WHICH CONTRACTS WERE AWARDED TO DIFFERENT CONTRACTO RS. THE 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. 4.13. 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 PAGE 7 OF 101 ITA NOS.392 TO 395/BANG/201 0 7 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 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 EXTENSIVE 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 FOLL OWS: ANY PERSON (BEING A SPECIFIED PERSON) RESPONSIBLE F OR PAYING ANY SUM TO ANY RESIDENT CONTRACTOR FOR CARRYING OUT ANY WORK IS REQUIRED TO DEDUCT TAX OF SUCH SUM ON THE INCOME CO MPRISED THEREIN; 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: PAGE 8 OF 101 ITA NOS.392 TO 395/BANG/201 0 8 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 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.392 TO 395/BANG/201 0 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 DE CISION OF THE CONSTITUTION BENCH OF THE SUPREME COURT IN THE CASE OF STATE OF HIMACHAL PRADESH VS. ASSOCIATED HOTELS OF INDIA LTD . AIR 1972 SC 1131: 29 STC 474 (SC) AT PAGE 479 OBSERVED AS U NDER: 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 BECAUSE THE DISTINCTION BETWEEN THE TWO IS VERY OFTEN A FINE ONE. THIS IS P ARTICULARLY SO WHEN THE CONTRACT IS A COMPOSITE ONE INVOLVING BOTH A CONTRACT OF WORK AND LABOUR AND A CONTRACT OF SALE. NEVERTHELES S THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCI PLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF PROPERTY IN AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATTEL TO THE BUYER. WHERE THE PRINCIPAL OBJECT OF WORK UNDER TAKEN 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 END IN ANYTHING TH AT CAN PROPERLY BECOME THE SUBJECT OF SALE; NEITHER THE OW NERSHIP OF PAGE 10 OF 101 ITA NOS.392 TO 395/BANG/20 10 10 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 CON TRACT IS IN SUBSTANCE ONE FOR WORK AND LABOUR OR ONE FOR THE SA LE OF A CHATTEL (HALSBURYS LAWS OF ENGLAND 3RD EDITION VOL. 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 ITS FACTS A ND CIRCUMSTANCES. MERE PASSING OF PROPERTY IN AN ARTIC LE 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 EXE CUTING 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 C OURT WOULD HAVE TO FIND OUT WHAT WAS THE PRIMARY OBJECT OF THE TRAN SACTION AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT . IT MAY IN SOME CASES BE THAT EVEN WHILE ENTERING INTO A CONTRACT O F WORK OR EVEN SERVICE PARTIES MIGHT ENTER INTO SEPARATE AGREEMEN TS ONE OF WORK AND SERVICE AND THE OTHER OF SALE AND PURCHASE OF MATERIALS TO BE USED IN THE COURSE OF EXECUTING THE WORK OR P ERFORMING THE SERVICE. BUT THEN IN SUCH CASES THE TRANSACTION WO ULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL INTO TWO SEPARATE A GREEMENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE. 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 PAGE 11 OF 101 ITA NOS.392 TO 395/BANG/20 10 11 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 CON CLUSION ONE WAY OR THE OTHER. ALL THAT WILL DEPEND UPON THE FACTS A ND CIRCUMSTANCES OF EACH CASE. THIS QUESTION TO BE ANS WERED IS NOT AN EASY AND HAS PERPLEXED THE JURISTS ALL OVER. NEV ERTHELESS THE 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 BESTOWED AND IN ANYTHING TH AT CAN PROPERLY BECOME THE SUBJECT OF SALE NEITHER THE OW NERSHIP OF MATERIALS IS CONCLUSIVE ALTHOUGH SUCH FACTORS MAY B E RELEVANT AND BE TAKEN INTO CONSIDERATION IN ASCERTAINING AND DET ERMINING WHETHER THE CONTRACT IN QUESTION IS IN PITH AND SUB STANCE A CONTRACT FOR WORK AND LABOUR OR ONE FOR THE SALE OF CHATTEL. THESE PRINCIPLES HAVE ENUNCIATED AND CULLED OUT FRO M 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 PAGE 12 OF 101 ITA NOS.392 TO 395/BANG/20 10 12 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. (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; PAGE 13 OF 101 ITA NOS.392 TO 395/BANG/20 10 13 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. WHETHER A PARTICULAR CON TRACT IS ONE OF SALE OF GOODS OR FOR WORK AND LABOUR DEPENDS UPON THE MAIN OBJECT OF THE PARTIES FOUND OUT FROM AN OV ERVIEW OF THE TERMS OF THE CONTRACT THE CIRCUMSTANCES OF THE TRANSACTIONS AND THE CUSTOM OF THE TRADE. IT IS THE SUBSTANCE OF THE CONTRACT DOCUMENT/S AND NOT MEREL Y THE FORM WHICH HAS TO BE LOOKED INTO. THE COURT MAY FOR M 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 T HE CONTRACT AS ANCILLARY OR INCIDENTAL TO THE SALE TH EN 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 SU CH WORK PAGE 14 OF 101 ITA NOS.392 TO 395/BANG/20 10 14 THEN 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 SELLSTHE END-PRODUCT FOR A PRI CE THEN IT IS A STRONG POINTER TO THE CONCLUSION THAT THE C ONTRACT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR LABOUR. HOWEVER THE TEST IS NOT DECISIVE. IT IS NO T BULK OF THE MATERIAL ALONE BUT THE RELATIVE IMPORTANCE OF T HE MATERIAL QUA THE WORK SKILL AND LABOUR OF THE PAYE E WHICH HAVE TO BE WEIGHED. IF THE MAJOR COMPONENT OF THE END PRODUCT IS THE MA TERIAL CONSUMED IN PRODUCING THE CHATTEL TO BE DELIVERED A ND SKILL AND LABOUR ARE EMPLOYED FOR CONVERTING THE MAIN COMPONENTS INTO THE END PRODUCTS THE SKILL AND LAB OUR ARE ONLY INCIDENTALLY USED THE DELIVERY OF THE END PRO DUCT BY THE SELLER TO THE BUYER WOULD CONSTITUTE A SALE. ON THE OTHER HAND IF THE MAIN OBJECT OF THE CONTRACT IS T O AVAIL THE SKILL AND LABOUR OF THE SELLER THOUGH SOME MATE RIAL OR COMPONENTS MAY BE INCIDENTALLY USED DURING THE PRO CESS OF THE END PRODUCT BEING BROUGHT INTO EXISTENCE BY THE INVESTMENT OF SKILL AND LABOUR OF THE SUPPLIER THE TRANSACTION WOULD BE A CONTRACT FOR WORK AND LABOUR . 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 REMUNERATION AND FOR SUPPLY OF MATERIALS USED IN TH E EXECUTION OF 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; & PAGE 15 OF 101 ITA NOS.392 TO 395/BANG/20 10 15 (III) IT MAY BE A CONTRACT FOR SUPPLY OF GOODS WHER E SOME WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO THE SA LE. 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 CON TRACT FOR WORK AND LABOUR NOT INVOLVING SALE OF GOODS. THE TH IRD IS A CONTRACT FOR SALE WHERE THE GOODS ARE SOLD AS CHATT ELS AND THE WORK DONE 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 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 PAGE 16 OF 101 ITA NOS.392 TO 395/BANG/20 10 16 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 FOLLOWS: (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 ROADS OR AIRFIELDS OR RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT AND MACHINERY ARE IN THE NATURE OF CONTRACTS FOR WORK AND LABOUR INC OME-TAX WILL HAVE TO BE DEDUCTED FROM PAYMENTS MADE IN RESPECT OF SUCH CONTRACTS. SIMILARLY CONTRACTS GRANTED FOR PROCESS ING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTHER SPECIFIED PERSO N WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH T HE GOVERNMENT OR SUCH PERSON WILL ALSO FALL WITHIN THE PURVIEW O F THIS SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT OF CONTRAC TS FOR FABRICATION OF ANY ARTICLE OR THING WHERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND TH E 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 PR OPERTY IN SUCH ARTICLE OR THING PASSES TO THE GOVERNMENT OR SUCH P ERSON ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED THE CONTR ACT WILL BE A CONTRACT FOR SALE AND AS SUCH OUTSIDE THE PURVIEW OF THIS SECTION. PAGE 17 OF 101 ITA NOS.392 TO 395/BANG/20 10 17 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 SPECIFICATIONS? 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 T HIS REGARD THE CBDT ISSUED CIRCULAR NO. 13 OF 2006 DATED 13.12.20 06 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 C ONTRACTS FOR SALE OF GOODS AND FURTHER CLARIFIES THAT WHERE THE PROPE RTY IN THE ARTICLE OR THING SO FABRICATED PASSES FROM THE FABR ICATOR- 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 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 COVER ED UNDER SECTION 194C. IT HAS BEEN REPRESENTED THAT THE VIEWS EXPRES SED IN THESE 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 PAGE 18 OF 101 ITA NOS.392 TO 395/BANG/20 10 18 TO BE EXAMINED WHETHER THE CONTRACT IN QUESTION IS A CONTRACT FOR WORK OR A CONTRACT FOR SALE AND TDS SHALL BE APP LICABLE 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 AR TICLE OR THING AS PER PRESCRIBED SPECIFICATIONS ONLY IF IT IS A CONTR ACT FOR WORK AND NOT A CONTRACT FOR SALE AS PER THE PRINCIPLES IN TH IS 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. PARAGRAPH 7 (VI) (B) PROVIDES THAT WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUPPLY ANY ARTICLE OR THING FABRICATE D ACCORDING TO THE SPECIFICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUCH ARTICLE OR THING PA SSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH ARTICLE O R THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE 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 THE PROPERTY IN S UCH ARTICLE OR THING PASSES TO THE SPECIFIED PERSON ONLY AFTER SUC H ARTICLE OR THING PAGE 19 OF 101 ITA NOS.392 TO 395/BANG/20 10 19 IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR S ALE. THEREFORE THE CASE OF APPELLANT FALLS WITHIN 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 TRAN SFER OF THE TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUPPLIED BY T HE CONTRACTOR TO THE APPELLANT TAKES PLACE IN FAVOUR OF APPELLANT PU RSUANT TO THE TERMS OF THE CONTRACT BY WAY OF NEGOTIATION OF DISP ATCH DOCUMENTS. HE IS NOT JUSTIFIED IN IGNORING THE RELEVANT CLAUSE S IN THE INSTRUCTION TO BIDDERS AND WRONGLY STATING THAT T HE PROPERTY GETS TRANSFERRED TO THE APPELLANT ONLY AFTER THE EQUIPME NTS MATERIALS COMPONENT PARTS ARE FITTED AND INSTALLED AT THE WOR KS SITE PREMISES. IN THIS REGARD THE RELEVANT EXTRACTS OF THE INSTR UCTION TO BIDDERS ISSUED BY THE KPTLC FOR INVITING BIDS WHICH READ A S 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. 37.3.4 IN ORDER TO ENABLE THE CONTRACTOR TO CARRY O UT ITS OBLIGATION UNDER THE CONTRACT SUCH AS RECEIPT AT SITE STORAGE ERECTION TESTING ETC THE OWNER (KPTCL) SHALL HAND OVER (WH EREVER APPLICABLE) THE GOODS TO THE CONTRACTOR AGAINST AN INDEMNITY BOND IN THE FORMAT ENCLOSED AS ANNEXURE VIII & IX. THE CONT RACTOR SHALL BE FULLY RESPONSIBLE FOR THE SAFETY OF THE GOODS W HILE 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 UNDER H IS CUSTODY AS ABOVE UNTIL TAKING OVER OF THE STATIONS AND TRANSM ISSION LINES BY THE OWNER IN ACCORDANCE WITH CLAUSE 9.0 OF SECTION- V SPECIAL CONDITIONS OF CONTRACT-SCC VOLUME-I. PAGE 20 OF 101 ITA NOS.392 TO 395/BANG/20 10 20 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 FOR C ARRYING OUT CIVIL WORKS OR ERECTION WORKS AT THE SITE LOCATION. FOR I SSUING SUCH GOODS TO THE CONTRACTOR HE HAS TO EXECUTE AN INDEMNITY B OND IN FAVOUR OF APPELLANT. THIS PROVES THAT THE TITLE TO EQUIPMENT S AND MATERIALS GETS TRANSFERRED IN FAVOUR OF APPELLANT MUCH EARLIE R 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 APPELLANT AND THE PROPERTY IN GOODS GETS TRANSFERRED AT THAT POINT OF TIME ONL Y. IT IS ONLY LATER APPELLANT HANDS OVER THE EQUIPMENT TO THE CONTRACTO RS FOR USING THEM IN THE ERECTION AND CIVIL WORK PORTIONS. THERE FORE THE CONTRACT RELATING TO SUPPLY OF EQUIPMENT IS A SEPARATE AND D ISTINCT CONTRACT FOR SALE AND THE CASE OF APPELLANT FALLS WITHIN TH E PARAGRAPH 7 (VI) (B) OF THE ABOVE CIRCULAR. 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 SUPPLYING A PRODU CT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY U SING MATERIAL PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER. ON A CLOSE SCRUTINY THE AFORESAID EXCLUSION APPLIES NOT ONLY TO MANUFACTURING BUT ALSO TO SUPPLYING WHEN SUCH SUPPLY IS ACCORDING TO BE REQUIREMENT OR SPECIFICATIONS OF THE CUSTOMER AND F OR SUCH SUPPLY THE SUPPLIER HAS USED MATERIAL PURCHASED FROM A PER SON OTHER THAN THE CUSTOMER. IT IS SUBMITTED THAT THE CASE OF APP ELLANT SQUARELY COVERED BY THE AFORESAID EXCEPTION FOR THE REASONS THAT THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY TO APPELLANT TH E EQUIPMENT AS PER THE SPECIFICATIONS OF APPELLANT AND FOR THE PUR POSE OF SUCH PAGE 21 OF 101 ITA NOS.392 TO 395/BANG/20 10 21 SUPPLY CONTRACTOR HAS NOT USED MATERIALS BOUGHT FR OM APPELLANT. APPLYING THE AFORESAID EXCEPTION IT COULD BE SAID THAT THE ACTIVITY CARRIED OUT BY CONTRACTOR FOR APPELLANT CANNOT BE R EGARDED 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 VIRT UE OF THE AFORESAID AMENDMENT ALTHOUGH CONTRACT MANUFACTURIN G 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 THROUGH ITS VARIOUS CIRCULARS. THE HONOURABLE HIGH COURT HELD AS FOLLOW S: 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 PAGE 22 OF 101 ITA NOS.392 TO 395/BANG/20 10 22 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 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 PAGE 23 OF 101 ITA NOS.392 TO 395/BANG/20 10 23 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. 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. PAGE 24 OF 101 ITA NOS.392 TO 395/BANG/20 10 24 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 INTO 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 L INES. THE PERUSAL OF NOTIFICATION CLEARLY SHOW THAT NO SEPARATE NOTIF ICATIONS ARE ISSUED 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 BASI S THAT APPELLANT HAS NOT ISSUED SEPARATE NOTIFICATION FOR SUPPLY CONSTRUCTION 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 NOTIFICATI ON ARE DIVIDED INTO COMMERCIAL REQUIREMENTS TECHNICAL REQUIREM ENTS AND BID PROPOSAL SHEETS. THERE ARE NO DIVISIONS OF THE CON TRACT INTO SUPPLY CONSTRUCTION AND ERECTION. THE ENTIRE BID PROCE SS IS A COMPOSITE BID PROCESS FOR THE COMMENCEMENT ISSUE RECEIPT AN D OPENING 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 PAGE 25 OF 101 ITA NOS.392 TO 395/BANG/20 10 25 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 APPELLAN T WHICH 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 DIVISIBL E CONTRACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/ TOTAL TUR NKEY 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. (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 R ESPONSIVE AND HAS BEEN DETERMINED AS THE LOWEST EVALUATED BID PR OVIDED FURTHER THAT THE BIDDER IS DETERMINED TO BE QUALIFIED TO PE RFORM THE CONTRACT SATISFACTORILY. THE OWNER SHALL BE THE SOL E JUDGE IN 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 THR EE SEPARATE CONTRACTS AS UNDER: (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: PAGE 26 OF 101 ITA NOS.392 TO 395/BANG/20 10 26 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 CO NTRACTS ONE FOR SUPPLY OF GOODS THE SECOND FOR ERECTION AND TH E THIRD FOR CIVIL ENGINEERING WORKS COVERING THE ENTIRE SCOPE OF THE PARTIAL/TOTAL TURNKEY PACKAGE. THE CIT (A) WAS NOT JUSTIFIED IN TREATING THE SEPAR ATE CONTRACTS AS A COMPOSITE CONTRACT MERELY ON THE BASIS OF A CLAUS E IN THE CONTRACT AGREEMENT (SUPPLY PORTION) THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PERFORMANCE OF THE ERECTION PORTION AND CIV IL WORKS PORTION. HE HAS FAILED TO APPRECIATE THAT MERELY MAKING THE CONTRACTOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL WORKS PORTION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LESS A SUPPLY CONTRACT. HE IS NOT JUSTIFIED IN FAILING TO APPRECI ATE THAT ASSUMPTION OF OVERALL RESPONSIBILITY IS A CONTRACTUAL MATTER W HICH 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 THRO UGH A SINGLE BIDDING PROCESS THAT MERELY BECAUSE THE BIDDING P ROCESS IS A COMPOSITE ONE IT CANNOT BE CONCLUDED THE CONTRACT I S A COMPOSITE CONTRACT. 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 FA CTUALLY INCORRECT. THE CIT(A) OR THE AO HAS FAILED TO APPRECIATE THAT THE APPELLANT HAD NEVER INTENDED TO TREAT THE CONTRACT AS COMPOSI TE CONTRACT. - AS PER THE TERMS OF THE INSTRUCTIONS TO BIDDERS AS RETREATED ABOVE THE APPELLANT HAS CLEARLY LAID OUT THAT ONCE THE CONTRACTOR IS FOUND TO BE A SUCCESSFUL BIDDER THE ENTIRE SCOPE O F THE CONTRACT IS DIVIDED INTO 3 SEPARATE CONTRACTS I.E. FOR SUPPLY OF MATERIALS ERECTION AND CIVIL ENGINEERING WORKS; PAGE 27 OF 101 ITA NOS.392 TO 395/BANG/20 10 27 - FURTHER THE TERMS OF THE INSTRUCTIONS TO BIDDER S ALSO STATE THAT THE CONTRACT ENTERED BY APPELLANT WITH CONTRA CTORS HAS TO BE TREATED AS A DIVISIBLE CONTRACT RESULTING INTO THRE E 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 CON TRACT 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 ERECTIO N SERVICES 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 AGREEMENT TO WORK AND IF THEY COME TO THE CONCLUSI ON PAGE 28 OF 101 ITA NOS.392 TO 395/BANG/20 10 28 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 TO LEVY SALES TAX ON WORKS CONTRACT AND THEREFORE NOT RELEVANT IN THE CONTEXT IN SO FAR AS IT GOES TO SAY THAT THERE IS NO TAX ON WORKS CONTRACT ITS OTHER OBSERVATIONS REGARDING A CONTRACT BEING A COM BINATION OF DISTINCT CONTRACTS FOR SALE OF MATERIALS AND FOR WO RK ARE VERY RELEVANT. ITS OBSERVATIONS THAT THE SALES TAX AUTHO RITIES SHALL NOT PROCEED TO TAKE A SINGLE CONTRACT NECESSARILY AS SU CH BUT IT WILL BE COMPETENT FOR THEM TO EXAMINE THE NATURE OF THE CON TRACT 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 GOODS AND MATERIALS SUPPLIED IN A BUILDING CONTRACT PAGE 29 OF 101 ITA NOS.392 TO 395/BANG/20 10 29 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 ANOD E MANUFACTURING CORPORATION LTD. REPORTED IN (1998) 110 STC 43 (MADRAS). THIS WAS THE CASE OF CONTRACT FOR DESIGN ENGINEER MANUFACTURE SUPPLY AND SUPERVISION OF INSTALLATION AND COMMISSIONING. THE TRIBUNAL HELD THAT THE CONTRACT IS INDIVISIBLE. THE MADRAS HIGH COURT REVERSING THE DECISION OF THE TRIBUNAL HELD THAT THE CONTRACT WAS CLEARLY A DIVISIBLE CONTRACT ONE FOR THE SUPPLY OF THE TITANIUM ANODES AND ANOTHER FOR SUPER VISION AND INSTALLATION AND UNDERTAKING RECOATING MAINTENANCE. THE PRICE PAYABLE FOR THE SUPPLY OF MATERIAL WAS DISTINCT FRO M THE CONSIDERATION PAYABLE FOR THE SUPERVISION OF INSTAL LATION AND COMMISSIONING AND FOR RECOATING MAINTENANCE. THE PA RTIES THEMSELVES HAD NO DOUBT AS TO THE NATURE OF THE ARR ANGEMENT THEY HAD ENTERED INTO AND HAD SPECIFICALLY PROVIDED FOR THE PAYMENT OF THE EXCISE DUTY SALES TAX AND ALL OTHER 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.392 TO 395/BANG/20 10 30 IN THE CASE OF SIEMENS INDIA LIMITED V. STATE OF KE RALA (KER.) [2003] 132 STC 418 (KER.) THE KERALA HIGH COURT OB SERVED 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 CONSIDER ED THE CASE OF A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURIN G FABRICATION SUPPLY ERECTION AND COMMISSIONING OF VARIOUS PROJE CTS. THE NATURE OF WORK CARRIED OUT BY THE APPELLANT IS A WORKS CON TRACT. DURING THE ASSESSMENT YEARS 1986-87 AND 1987-88 THE APPELL ANT HAD ENTERED INTO A CONTRACT WITH VISAKHAPATNAM STEEL PL ANT AND OTHER PUBLIC SECTOR UNDERTAKINGS. THE CONTRACT ENTERED IN TO BY THE APPELLANT FOR DESIGNING MANUFACTURING FABRICATION INSTALLATION AND COMMISSIONING SPECIFIED PROJECT IS COMPOSITE IN NAT URE. THE APPELLANT IN ORDER TO DISCHARGE THE OBLIGATION ARI SING OUT OF THE CONTRACT INTO WITH VARIOUS CONTRACTEES HAS MANUFAC TURED SPECIFIED GOODS IN THEIR FACTORY AT BOMBAY WHICH IS WITHIN T HE STATE OF MAHARASHTRA AND ALSO PURCHASED CERTAIN GOODS FROM OUTSIDE THE STATE AS WELL AS FROM THE LOCAL REGISTERED DEALERS. THE CONTRACTS PAGE 31 OF 101 ITA NOS.392 TO 395/BANG/20 10 31 SPECIFIED SEPARATE PRICES FOR SUPPLY OF VARIOUS ITE MS REQUIRED FOR EXECUTION OF THE PROJECT AS WELL AS THE COMMISSIONI NG AND INSTALLATION CHARGES. THE MANNER AND METHOD TO BE FOLLOWED BY THE APPELLA NT IN THE ABOVE CASE IN EXECUTION OF THE WORKS CONTRACT ARE A S UNDER: (A) GOODS/EQUIPMENTS DESCRIBED IN THE CONTRACT OF S PECIFIC NATURE ARE MANUFACTURED IN THEIR POWAI (MUMBAI) FACTORY AN D DISPATCHED DIRECTLY IN FAVOUR OF CONTRACTEE AFTER INSPECTION A ND APPROVAL BY THEM. THE TURNOVER IS LIABLE FOR DECLARATION IN THE STATE OF MAHARASHTRA AS PROVIDED UNDER SECTION 3(A) OF THE C ENTRAL SALES TAX ACT 1956. (B) APPELLANT ALSO PURCHASES GOODS/EQUIPMENTS FROM OUTSIDE THE STATE VENDORS AND EFFECT TRANSFER OF DOCUMENTS OF T ITLE IN FAVOUR OF CONTRACTEE. SUCH TURNOVERS ARE CLAIMED EXEMPTION BEING 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 CONTRACTEE S 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 PAGE 32 OF 101 ITA NOS.392 TO 395/BANG/20 10 32 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 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. DISMISSED THE STATES SPECIAL LEAVE PETITION AGAINS T THE JUDGMENT AND ORDER DATED 10-7-2003 OF THE ANDHRA PRADESH HIG H COURT IN S.A.NOS.54-55 OF 1997 AND T.R.C.NO.14 OF 1999 REPOR TED IN (2003) 132 STC 272 WHEREBY THE HIGH COURT ALLOWED T HE APPELLANTS APPEAL AGAINST THE ORDER OF COMMISSIONE R OF COMMERCIAL TAXES AND HELD THAT THE CONTRACT FOR MANUFACTURING FABRICATION SUPPLY ERECTION AND COMMISSIONING OF PROJECT WAS D IVISIBLE AND THAT THE SUPPLY OF GOODS AND EQUIPMENT FOR PROJECT MANUFACTURED OR PURCHASED OUTSIDE STATE WAS AN INTER STATE TRANS ACTION AND NOT AN INTRA-STATE TRANSACTION TAXABLE UNDER THE 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 CONTRACT BY ITSELF MAY NOT BE OF MUCH SIGNIFICANCE. WHERE THE PROJECT IS A TURNKEY PROJECT THE CONTRACT MAY ALSO BE A TURNKEY CONTRACT BUT THE SAME BY ITSELF WOULD NOT MEAN THA T EVEN FOR THE PURPOSE OF TAXABILITY THE ENTIRE CONTRACT MUST BE C ONSIDERED TO BE AN INTEGRATED ONE SO AS TO MAKE THE APPELLANT TO PA Y TAX IN INDIA. THE TAXABLE EVENTS IN EXECUTION OF A CONTRACT MAY A RISE AT SEVERAL STAGES IN SEVERAL YEARS. THE LIABILITY OF THE PARTI ES MAY ALSO ARISE AT SEVERAL STAGES. THE OBLIGATIONS UNDER THE CONTRA CT ARE DISTINCT ONES. THE SUPPLY OBLIGATION IS DISTINCT AND SEPARAT E FROM THE SERVICE OBLIGATION. THE PRICE FOR EACH OF THE COMPO NENT OF THE CONTRACT IS SEPARATE. SIMILARLY OFFSHORE SUPPLY AND OFFSHORE SERVICES HAVE SEPARATELY BEEN DEALT WITH. THE PRICE S IN EACH OF PAGE 33 OF 101 ITA NOS.392 TO 395/BANG/20 10 33 THE SEGMENT ARE ALSO DIFFERENT. THE VERY FACT THAT IN THE CONTRACT THE SUPPLY SEGMENT AND SERVICE SEGMENT HA VE BEEN SPECIFIED IN DIFFERENT PARTS OF THE CONTRACT IS A P OINTER TO SHOW THAT THE LIABILITY OF THE APPELLANT THERE UNDER WOU LD ALSO BE DIFFERENT. FURTHER THE SUPREME COURT WENT ON TO HO LD THAT A TURNKEY CONTRACT MAY INVOLVE SUPPLY OF MATERIALS US ED IN THE EXECUTION OF THE CONTRACT FOR PRICE AS ALSO FOR USE OF THE MATERIALS BY WORKS AND LABOUR BUT THE SAME MAY NOT HAVE ANY RELATION 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 O F A CONTRACT WHICH ARE INTERDEPENDENT COULD NOT BE TR EATED AS ONE WHEN THE CONSIDERATION AND THE SERVICES ARE DISTINC T. IN THE CASE OF CIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD. (2007) 291 ITR 482 (SC) THE HONBLE COURT HELD THAT THE I NSTALLATION PERMANENT ESTABLISHMENT CAME INTO EXISTENCE ONLY AF TER THE TRANSACTION STOOD MATERIALIZED. THE INSTALLATION P ERMANENT ESTABLISHMENT CAME INTO EXISTENCE ONLY ON CONCLUSIO N OF THE TRANSACTION GIVING RISE TO THE SUPPLIES OF THE FABR ICATED PLATFORMS. THE INSTALLATION PERMANENT ESTABLISHMENT EMERGED ON LY AFTER THE CONTRACT WITH THE ONGC STOOD CONCLUDED. IT IS EMERG ED ONLY AFTER THE FABRICATED PLATFORM WAS DELIVERED IN KOREA TO T HE AGENTS OF THE ONGC. THEREFORE THE PROFITS ON SUCH SUPPLIES O F FABRICATED PLATFORMS CANNOT BE SAID TO BE ATTRIBUTABLE 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 COMPLETED AND THEREFORE THE QUESTION OF APPLYIN G THE AFORESAID SECTION ON THE SUPPLY 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 CONSIDERATION MAY HAVE TO BE SPLIT ALTHOUGH SUCH SPLITTING MAY PO SE DIFFICULTIES. IN THE ABOVE CASE AS COMPENSATION FOR TRANSFER OF THE AGENCY THE ASSESSEE WAS PAID CERTAIN AMOUNTS CALCULATED ON THE BASIS OF PAGE 34 OF 101 ITA NOS.392 TO 395/BANG/20 10 34 THE AGREEMENT BETWEEN THE PARTIES. THE ASSESSEE CL AIMED THAT THE AMOUNTS RECEIVED WERE CAPITAL IN NATURE. THE S UPREME COURT HELD THAT THE COMPENSATION AGREED TO BE PAID WAS NO T ONLY IN LIEU OF LOSS OF AGENCY BUT ALSO FOR THE ASSESSEE ACCEPTI NG A RESTRICTIVE COVENANT FOR A SPECIFIED PERIOD THE RESTRICTIVE CO VENANT WAS AN INDEPENDENT OBLIGATION WHICH CAME INTO OPERATION ON LY WHEN THE AGENCY WAS TERMINATED AND THAT PART OF THE COMPENS ATION ATTRIBUTABLE TO THE RESTRICTIVE COVENANT WAS A CAPI TAL RECEIPT AND HENCE NOT TAXABLE. REFERRING TO THE DECISION IN GIL LANDERS ARBUTHNOT & CO. LTD. VS. CIT (1964) 53 ITR 283 THE SUPREME COURT HELD THAT THAT PART OF THE COMPENSATION ATTR IBUTABLE TO THE RESTRICTIVE COVENANT WAS A CAPITAL RECEIPT NOT ASS ESSABLE TO TAX. THE SUPREME COURT LEFT TO THE DETERMINATION OF THE ASSESSING AUTHORITIES AS TO HOW THE COMPENSATION WAS TO BE AP PORTIONED. IN THAT CASE THE SUPREME COURT 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). PAGE 35 OF 101 ITA NOS.392 TO 395/BANG/20 10 35 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 PERM ISSIBLE TO DIVIDE A COMPOSITE CONTRACT. 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 DISTI NCT ONES. THE SUPPLY OBLIGATION IS DISTINCT AND SEPARATE FROM THE SERVICE OBLIGATION. THE PRICE FOR EACH OF THE COMPO NENT OF THE CONTRACT IS SEPARATE. IN OTHER WORDS THE PRICE PAYABLE FOR THE SUPPLY OF MATERIAL IS DISTINCT FROM THE CON SIDERATION PAYABLE FOR THE ERECTION AND CIVIL CONSTRUCT ION. 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 SE PARATE; - 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 QUANT ITY 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 PAGE 36 OF 101 ITA NOS.392 TO 395/BANG/20 10 36 THE PARTIES TO THE CONTRACT ARE CLEAR ABOUT THE WOR KS 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) 19. IN VIEW OF THE ABOVE THE MOST IMPORTANT TEST F OR DETERMINING AS TO WHETHER PAYMENTS MADE IN PURSUANCE TO CONTRAC T ARE LIABLE TO DEDUCT TAX AT SOURCE OR NOT IS TO SCRUTINIZE THE CONTRACT BETWEEN THE KPTCL AND THE CONTRACTOR. PERUSAL OF PA RA 3.5 OF THE CONTRACT MAKES IT ABSOLUTELY CLEAR THAT THE CONTRA CT BETWEEN THE KPTCL AND CONTRACTOR IS A SINGLE COMPOSITE CONTRACT AND HENCE U/S. 194C PAYMENTS MADE IN PURSUANCE TO THIS CONTR ACT 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 PORTION CIVIL WORK AND ERECTION BETWEEN THE KPTCL AND CONTRACTOR. 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 NOTWITHSTANDING THE FACT THAT THE CONTRACT IS TERME D AS SUPPLY CONTRACT FOR CONVENIENCE OF OPERATION OF THE OTHER CONTRACTS NAMELY ERECTION CONTRACTS AND CIVIL CONTRACTS ARE A LSO THE INTEGRAL PARTS OF THE CONTRACT ON SINGLE SOURCE RES PONSIBILITY BASIS AND THE CONTRACTOR IS BOUND TO PERFORM THE TO TAL CONTRACT IN ITS ENTIRETY AND NON-PERFORMANCE OF ANY PART OR PORTION OF THE CONTRACT SHALL BE DEEMED TO BE A BRE ACH OF THE ENTIRE-CONTRACT. 2. THE SAID CLAUSE IN THE CONTRACT AGREEMENT (SUPPLY PORTION) CLARIFIES THAT THE CONTRACTOR IS ALSO RESPONSIBLE FOR THE PAGE 37 OF 101 ITA NOS.392 TO 395/BANG/20 10 37 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 RESPO NSIBILITY IS A CONTRACTUAL MATTER WHICH BY ITSELF WOULD NOT ALTER THE ESSENCE OF THE TRANSACTION OF SUPPLY. IN THE FOLLOWING CASE S 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 TH E APPLICANT: IN THE CASE OF PINTSCH BAMAG (DT: 11-9-2009) 2009-T IOL-23- ARA-IT THE HONBLE AUTHORITY FOR ADVANCE RULING HA S RULED 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 APPL ICANT. ALL THE ACTIVITIES UNDERTAKEN BY THE SUB-CONTRACTOR ARE ON BEHALF OF THE APPLICANT AND IN CONNECTION WITH THE EXECUTION OF THE CONTRACT BETWEEN THE APPLICANT AND TPT. IT I S POINTED OUT THAT THE SUB-CONTRACTOR IS A NOMINEE OF THE APPLICANT AND THE DELEGATION OF WORK TO THE SUB-CON TRACTOR FOR ITS OWN CONVENIENCE SHOULD NOT INFLUENCE THE DE CISION ON THE QUESTION WHETHER THE APPLICANT HAS A PE IN INDI A. IN OTHER WORDS THE REVENUE WANTS TO TREAT THE WORKSHO P OR PLACE OF MANUFACTURE OF THE SUB-CONTRACTOR AS PART OF THE PERMANENT ESTABLISHMENT OF THE APPLICANT ITSELF. IF THE DURATION OF THE WORK DONE 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 STIPULATED IN CLAUSE (I) OF ARTICLE 5.2 OF THE TREA TY. THAT IS WHY THE REVENUE HAS TAKEN THIS STAND. 9. THE MORE CRUCIAL QUESTION THAT NEEDS TO BE CONSI DERED NOW IS WHETHER THE WORK PLACE SET UP BY THE SUB-CON TRACTOR TO CARRY OUT THE WORKS ENTRUSTED TO HIM BY THE APPL ICANT PAGE 38 OF 101 ITA NOS.392 TO 395/BANG/20 10 38 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 CA RRYING OUT THE WORK WHICH WOULD HAVE BEEN OTHERWISE PERFORMED BY THE APPLICANT TRANSFORM THE SUB- CONTRACTORS WORKS HOP INTO THE PE OF THE APPLICANT? IN MY VIEW THE ANSWER COU LD ONLY BE IN THE NEGATIVE UNLESS THE SUB-CONTRACTOR IS TRE ATED AS A DEPENDENT AGENT OF THE APPLICANT AS DISTINCT FROM A N INDEPENDENT AGENT. IT IS NOT POSSIBLE TO HOLD THAT THE PLACE OF MANUFACTURE OF THE SUB-CONTRACTOR SITUATED FAR A WAY FROM THE INSTALLATION SITE SHOULD NOTIONALLY BE REG ARDED AS PART OF THE APPLICANTS PERMANENT ESTABLISHMENT. TH E LANGUAGE OF THE OPENING PARA OF ARTICLE 5 ITSELF FU RNISHES A KEY TO THE CORRECT UNDERSTANDING OF THE CONCEPT OF PE. THE FIXED PLACE OF BUSINESS REFERRED TO IN PARA 1 OF AR TICLE 5 IS QUALIFIED BY THE WORDS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS ..CXARRIED ON. IN THE PRESENT CASE THE ENTERPRISE IS THE APPLICANT. ON A PLAIN READING O F THE OPENING PARA OF ARTICLE 5 AND THE NATURE OF RELATIO NSHIP BETWEEN THE APPLICANT AND SUB-CONTRACTOR IT CANNOT BE CONCLUDED THAT THE BUSINESS OF THE APPLICANT IS BEI NG CARRIED ON THROUGH THE SUB- CONTRACTORS WORKSHOP. THE CONC EPT OF PE CONVEYS THE IDEA THAT THE ENTERPRISES PRESENCE HAS TO BE VISIBLE 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 BUSI NESS IS THE REAL CRITERION FOR DETERMINING THE EXISTENCE OR OTHERWISE OF PE IN THAT COUNTRY. IN THIS CONTEXT R EFERENCE MAY BE MADE TO MR. ARVID A. SKAARS BOOK ON PERMANE NT ESTABLISHMENT CHAPTER 9 (TITLED THE TAX- PAYER S PHYSICAL PRESENCE: THE PLACE OF BUSINESS TEST). 11.1. THE CONTEXT IN WHICH THE PASSAGE OCCURS IS IM PORTANT. THE SAID PASSAGE AS I UNDERSTAND IT COVERS A SITU ATION WHERE A BUILDING SITE HAS BEEN SET UP BY THE MAIN CONTRACTOR AND THE SERVICES OF THE SUB-CONTRACTOR A RE ALSO DEPLOYED IN AIDING THE EXECUTION OF THE BUILDING PR OJECT. APPARENTLY IT APPLIES TO A SITUATION WHERE THERE I S CONJOINT PAGE 39 OF 101 ITA NOS.392 TO 395/BANG/20 10 39 EFFORT OF BOTH THE CONTRACTOR AND THE SUB-CONTRACTO R AT THE BUILDING SITE. IN SUCH A CASE THE BUILDING SIT E OF THE CONTRACTOR AND SUB-CONTRACTOR IS INSEPARABLE. HERE THE FACT SITUATION IS ENTIRELY DIFFERENT. THE ENTIRETY 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 INDEPEND ENT OF ANY CONTROL OF THE APPLICANT. SUCH A PLACE OF BUSIN ESS OF SUB-CONTRACTOR CANNOT BE REGARDED AS THE PE OF APPL ICANT. IN ANY CASE THE LANGUAGE OF SECTION 5(1) BEING CLE AR AND AS THE CONCEPT OF PE DOES NOT TAKE IN THE ESTABLISHMEN T 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 R EASON OF SUB-CONTRACT AND THE FACT THAT THE APPLICANT HAS TO FURNISH PERFORMANCE SECURITY TO TPT DOES NOT HAVE MUCH OF B EARING ON THE ASPECT WHETHER THE SUB-CONTRACTORS ESTABLIS HMENT 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) T HE FACTS OF THE CASE ARE THAT IN THE YEAR 2005 POWER GRID CORPORATION OF INDIA LTD. (HEREAFTER REFERRED TO AS POWERGRID) INVITED BIDS FOR THE EXECUTION OF THE WORKS RELATED TO 800KV/400KV TEHRI POOLING STATION PACKAG E ASSOCIATED WITH KOTESHWAR TRANSMISSION SYSTEM. FOR THE SAKE OF BREVITY THE SAME HAS BEEN DESCRIBED BY THE APPLICANT AS 400KV GIS PACKAGE. THE APPLICANT WHO SUBMITTED THE BID BECAME THE SUCCESSFUL BIDDER. AS PER THE TERMS AND CONDITIONS OF BID THE FOREIGN BIDDER WAS AUTHORIZED TO ASSIGN THE WHOLE OR PART OF THE CONTR ACT TO AN INDEPENDENT CONTRACTOR SUBJECT TO THE APPROVAL OF P OWER GRID. IN VIEW OF SUCH PROVISION THE APPLICANT PUR SUANT TO THE UNDERSTANDING REACHED WITH L&T REQUESTED POWER GRID TO AWARD THE OFF-SHORE CONTRACT TO IT AND THE ON-SH ORE SUPPLY AND SERVICES CONTRACT TO BE PERFORMED IN IND IA TO PAGE 40 OF 101 ITA NOS.392 TO 395/BANG/20 10 40 L&T. THIS PROPOSAL WAS PRECEDED BY A MEMORANDUM OF UNDERSTANDING DATED 8-8-2005 BETWEEN THE APPLICANT AND THE L&T. AS PER PARA 12(C) OF THE MOU THE APPLICAN T WAS PERMITTED TO ASSIGN ANY PORTION OF THE CONTRACT EIT HER IN FULL OR IN PART TO L&T IN WHICH EVENT L&T WILL BE PERMITTED TO WORK AS AN INDEPENDENT CONTRACTOR AND THE CUSTOM ER NAMELY POWER GRID WILL ENTER INTO A SEPARATE CONTR ACT WITH L&T. THUS L&T WAS NOMINATED AS THE ASSIGNEE IN RES PECT OF CERTAIN WORKS IN CASE THE BID OF APPLICANT WAS ACCE PTED. L&T IN ITS LETTER DATED 8-8-2005 ADDRESSED 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 B ID PROPOSAL SUBMITTED BY THE APPLICANT AND AWARDED TO THE APPLICANT THE OFF-SHORE CONTRACT COVERING ALL THE W ORKS TO BE PERFORMED OUTSIDE INDIA INCLUDING SUPPLY OF ALL OFF-SHORE EQUIPMENT AND MATERIALS ON CIF INDIAN PORT OF DISEMBARKATION BASIS (VIDE PARA 2.1 OF LOA). IN TH E LOA POWER GRID REFERRED TO THE APPLICANTS BID PROPOSAL AND THE POST-BID DISCUSSIONS AND STATED THAT THE ON-SHORE S UPPLY CONTRACT AND ON-SHORE SERVICES CONTRACT INCLUDING C IVIL WORKS TRAINING IN INDIA ETC. HAS BEEN AWARDED TO THE APPLICANTS ASSIGNEE NAMELY L&T INDIA AS PER ITS LETTER OF THE SAME DATE. FURTHER IT WAS MADE CLEAR IN THE LO A: NOTWITHSTANDING THAT THE AWARD OF WORK UNDER THREE SEPARATE CONTRACTS IN THE AFORESAID MANNER YOU SHA LL BE OVERALL RESPONSIBLE TO ENSURE THE EXECUTION OF ALL THE THREE CONTRACTS TO ACHIEVE SUCCESSFUL COMPLETION OF THE E NTIRE SCOPE OF WORK UNDER 800KV/400KV TEHRI POOLING STATI ON PACKAGE ASSOCIATED WITH KOTESHWAR TRANSMISSION SYST EM AND ITS TAKING OVER BY POWER GRID. THE TOTAL CONTRACT PRICE PAYABLE TO THE APPLICANT WAS SPECIFIED AS 6 935 389 US $. AFTER THE LOA WAS ISSUED A DEED OF ASSIGNMENT WAS EXECUTED BY AND BETWEEN THE APPLICANT AND THE L&T O N 8-5- 2006. A FORMAL CONTRACT IN TERMS OF THE LOA WAS ENT ERED INTO BETWEEN POWER GRID AND THE APPLICANT ON 27-10- 2006. POWER GRID ALSO ENTERED INTO THE CONTRACTS WITH L&T ON THE PAGE 41 OF 101 ITA NOS.392 TO 395/BANG/20 10 41 SAME DAY. ONE OF THE QUESTIONS 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 LI MITED (PGCIL) FOR OFF-SHORE SUPPLY OF EQUIPMENTS MATER IALS ETC. ARE LIABLE TO TAX IN INDIA UNDER THE PROVISIO NS 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 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 PAGE 42 OF 101 ITA NOS.392 TO 395/BANG/20 10 42 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 ESP ECIALLY AT THE STAGE OF TESTING AND COMMISSIONING. ON THE ONE HAND IT IS MEANT TO ENSURE THAT THE EQUIPMENTS SUPPLIED BY THE APPLI CANT WERE BLEMISH-LESS. SECONDLY POWER GRID VERY MUCH RELIED ON THE APPLICANT TO RENDER ALL THE NECESSARY TECHNICAL ASS ISTANCE AND GUIDANCE TO L&T - A CONTRACTOR BROUGHT INTO THE PIC TURE BY THE APPLICANT AND TO OVERSEE ITS PERFORMANCE AT ALL CRU CIAL STAGES. BY INCORPORATING VARIOUS SAFEGUARDS IN THE CONTRACT P OWER GRID TOOK THE NECESSARY PRECAUTIONS TO SEE THAT NOTWITHSTANDI NG 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 IN VIEW THE OVERALL OBJECTIVE OF SUCCESSFUL COMMISSIONING OF THE PROJECT. THE CLAUSES IN THE AGREEMENT REFERRED TO BY THE REVENUE WILL HAVE TO BE VIEWED IN THAT BACKGROUND A ND 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. A PPLICANT BEING REQUIRED TO GIVE PERFORMANCE GUARANTEE NOT ONLY IN RESPECT OF ITS OWN CONTRACT BUT ALSO IN RESPECT OF L&TS CONTRACT AND THE VICARIOUS LIABILITY FOR BREACH ATTACHED TO THE APPL ICANT IN RESPECT OF ALL THE THREE CONTRACTS WERE NOT IN FURTHERANCE OF A JOINT VENTURE AND A COMMON DESIGN TO PRODUCE INCOME. BUT THESE OBLIGATIONS AND RESPONSIBILITIES WERE SPECIALLY INT RODUCED BY POWER GRID WHILE DEALING WITH THE CONTRACTING PARTIES ON PRINCIPAL-TO- PRINCIPAL BASIS IN THE OVERALL INTEREST OF THE PROJ ECT. IT IS WORTHY TO NOTE THAT L&T IN ITS TURN GAVE A COUNTER GUARANT EE TO THE APPLICANT FOR THE REASON THAT THE APPLICANT FURNISH ED THE GUARANTEES IN RESPECT OF THE CONTRACTS RELATED TO L &T ALSO. THUS PAGE 43 OF 101 ITA NOS.392 TO 395/BANG/20 10 43 THE DISTINCT IDENTITY OF EACH PARTY WAS THROUGHOUT MAINTAINED. THE REQUISITE COHESION UNITY OF ACTION AND ABOVE ALL THE COMMON 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 I TR 409 (AAR) REFERRED TO THE PARA 10.1 OF THE DECISION OF THE HYOSUNG CORPORATION 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 TERRITO RY OF INDIA. THE TITLE PASSED ON TO POWER GRID WELL BEFORE THE G OODS REACHED THE INDIAN PORT OR THE TERRITORIAL WATERS OF INDIA. THE BILL OF LADING CONTAINS THE NAME OF POWER GRID AS THE CONSI GNEE. THE DOCUMENTS WERE PRESENTED TO THE APPLICANTS BANKER FOR NEGOTIATION SOON AFTER THE GOODS WERE SHIPPED FOB A ND BILL OF LADING WAS ISSUED. TWO DAYS LATER THE AMOUNT EQUIV ALENT TO 70 PER CENT OF THE VALUE WAS TRANSFERRED TO THE APPLICANT S 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 PREPA RED ABOUT 15 DAYS AFTER SHIPMENT ALSO SHOWS POWER GRID AS THE IM PORTER. EVEN IN THE INSURANCE POLICY TAKEN BY THE APPLICANT POWE R GRID HAS BEEN NAMED AS THE BENEFICIARY. THE CUSTOMS DUTY WAS PAID BY OR ON BEHALF OF POWER GRID BEFORE THE GOODS WERE TAKEN DE LIVERY. THESE FACTS UNERRINGLY LEAD TO THE CONCLUSION THAT IN ACC ORDANCE WITH THE CONTRACTUAL STIPULATIONS THE TRANSFER OF TITLE TO THE EQUIPMENT AND MATERIALS TOOK PLACE WHILE THE GOODS WERE OUTSIDE T HE TERRITORY OF INDIA. THE EVENTS MATCH WITH THE NOMENCLATURE'OFFS HORE SUPPLY CONTRACT' AND THE EXPRESS STIPULATION THAT THE TRAN SFER OF TITLE TO EQUIPMENT AND MATERIALS SHALL PASS ON TO POWER GRID AT FOB PORT OF SHIPMENT WITH THE NEGOTIATION OF SHIPPING DOCUME NTS. IT IS WORTHY OF NOTE THAT THE APPLICANT HAS NOT RESERVED THE RIGHT OF DISPOSAL DURING TRANSIT OR OTHERWISE. THE FACT THAT THE APPLICANT IS NOT RELIEVED OF THE RESPONSIBILITY FOR LOSS OR DAMA GE TO THE GOODS UNTIL THE FINAL TAKE OVER AND ACCEPTANCE OF THE GOO DS AND THAT THE GOODS ARE LEFT IN THE CUSTODY OF THE APPLICANT TILL THE STAGE OF ERECTION AND INSTALLATION ARE NOT INCONSISTENT WITH THE POWER GRID PAGE 44 OF 101 ITA NOS.392 TO 395/BANG/20 10 44 HAVING ALREADY BECOME THE OWNER OF EQUIPMENT WELL B EFORE THE GOODS REACHED THE INDIAN PORT. THESE ARE SPECIAL SA FEGUARDS WHICH POWER GRID WANTED TO HAVE KEEPING IN VIEW THE OPERATIONAL EXIGENCIES AND OVERALL OBLIGATIONS OF THE APPLICANT UNDER THE CONTRACT. IT IS TRITE THAT RISK NEED NOT PASS SIMUL TANEOUSLY WITH THE TITLE TO GOODS. THERE COULD BE SPECIAL STIPULAT ION BETWEEN THE PARTIES IN THIS BEHALF. AS RIGHTLY POINTED OUT BY T HE LEARNED COUNSEL FOR THE APPLICANT THE APPLICANT BY TAKING CARE OF GOODS AT THE SITE IN INDIA TILL INSTALLATION ASSUMED THE CAPACITY OF A BAILEE. AS REGARDS THE STIPULATION THAT THE SUPPLIE R SHALL CONTINUE TO BE RESPONSIBLE FOR THE QUALITY AND PERFORMANCE O F THE GOODS UNTIL THE FINAL TAKE OVER ON TESTING OF THE EQUIPME NT IT CANNOT BE CONSTRUED TO BE A CONDITION WHICH POSTPONES THE TRA NSFER OF TITLE TO THE GOODS TILL THAT TIME. IT IS MORE IN THE NATU RE OF WARRANTY PROVISION IN THE CONTRACT. THEREFORE IT IS SUBMITTED THAT DESPITE THE AFORE SAID OVERALL RESPONSIBILITY CLAUSE IT IS IMPERMISSIBLE TO TREAT THE THREE SEPARATE CONTRACTS I.E. (I) SUPPLY OF MATERIALS ( II) ERECTION CONTRACT AND (III) CONTRACT FOR CIVIL WORK AS ONE S INGLE CONTRACT. 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 & GENER AL STORES (P) LTD. (1967) 66 ITR 692 (SC). RELIES ON THE FOLLOWING DECISIONS WITH REGARD TO TD S OBLIGATION IN RESPECT OF COMPOSITE CONTRACTS: IN THE CASE OF POWER GRID CORPORATION OF INDIA LTD. VS. ACIT [2007] 112 TTJ 654 (HYD.-ITAT) THE FACTS OF THE CA SE ARE THAT THE ASSESSEE IS A CENTRAL GOVERNMENT UNDERTAK ING ENGAGED IN THE ACTIVITY OF TRANSMISSION AND POWER DISTRIBUTION OF ELECTRICITY TO VARIOUS CONSTITUENTS ACROSS THE COUNTRY. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS INVOLVED IN THREE P ROJECTS FOR WHICH CONTRACTS WERE AWARDED TO DIFFERENT CONTRACTO RS. THE ASSESSEE 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 PAGE 45 OF 101 ITA NOS.392 TO 395/BANG/20 10 45 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 HONBLE 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 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 PAGE 46 OF 101 ITA NOS.392 TO 395/BANG/20 10 46 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 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 PAGE 47 OF 101 ITA NOS.392 TO 395/BANG/20 10 47 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 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 PAGE 48 OF 101 ITA NOS.392 TO 395/BANG/20 10 48 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 A PPELLANT HAD TWO THERMAL PLANTS - ONE AT FARIDABAD AND ANOTHER A T PANIPAT. THE PANIPAT THERMAL PLANT ENTERED INTO AN AGREEMENT WITH M/S. BHEL FOR DESIGNING ENGINEERING MANUFACTURING SUP PLY ERECTION TESTING AND COMMISSIONING FOR RETROFIT OF ESPS. THE HONOURABLE INCOME TAX APPELLATE 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 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 PAGE 49 OF 101 ITA NOS.392 TO 395/BANG/20 10 49 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 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. PAGE 50 OF 101 ITA NOS.392 TO 395/BANG/20 10 50 IN THE CASE OF SOMANI IRON & STEEL (P.) LTD. VS. IT O (LUCK.) (2003) 86 ITD 750 (LUCK.-ITAT) THE HONBLE BENCH HAS HELD AS 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 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 PAGE 51 OF 101 ITA NOS.392 TO 395/BANG/20 10 51 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 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. PAGE 52 OF 101 ITA NOS.392 TO 395/BANG/20 10 52 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. 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 PAGE 53 OF 101 ITA NOS.392 TO 395/BANG/20 10 53 (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 AS SESSEE- ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION IS A CORPORATION ESTABLISHED UNDER THE STATE ENACTMENT. THE ASSESSEE IS IN THE BUSINESS OF PROVIDING TRANSPORT SERVICES TO THE PUBLIC IN THE STATE AND FOR THAT PURPOSE IT OWNS FLEET OF BU SES. IT PURCHASES CHASSIS AND AFTER THE PURCHASE OF CHASSIS HANDS OVER THE SAME TO THE FABRICATORS FOR CONSTRUCTING THE BO DY 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 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- PAGE 54 OF 101 ITA NOS.392 TO 395/BANG/20 10 54 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 VAL UE THE ENTIRE ARRANGEMENT IS IN RESPECT OF SUPPLY OF EQUIPMENT AN D ERECTION AND CIVIL WORKS ARE ONLY INCIDENTAL AND ANCILLARY TO TH E SUPPLY CONTRACT APPLYING THE DOMINANT TEST THEORY. ACCORDINGLY SEC TION 194C WOULD NOT APPLY TO ALL THE THREE CONTRACTS. (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 CONTRACTO RS TOWARDS PURCHASE OF EQUIPMENT AND SECONDLY APPELLANT CANNO T BE HELD AS AN ASSESSEE IN DEFAULT WHEN THE PAYEE HAS PAID TA X IN RESPECT OF PAGE 55 OF 101 ITA NOS.392 TO 395/BANG/20 10 55 THE SUMS RECEIVED BY THE APPELLANT. FURTHER IT IS ALSO SUBMITTED THAT BOTH THE AO AND THE LD CIT(A) HAVE NOT HELD TH AT THE WORK ORDER OR THE TENDER AWARDED BY THE APPELLANT TO ITS CONTRACTOR IS A BOGUS OR A SHAM TRANSACTION; - SUCH BEING THE CASE THE LOWER AUTHORITIES ARE NO T JUSTIFIED IN NOT ACCEPTING THE AVERMENTS OF THE APPELLANT MADE B EFORE THEM; - FURTHER BOTH THE AO AND THE LD. CIT(A) HAVE FAI LED TO APPRECIATE THAT THE APPELLANT IS A STATE GOVERNMENT PUBLIC SECTOR UNDERTAKING THAT AS THE PUBLIC ENTITIES DO NOT H AVE ANY MOTIVE TO CONCEAL INCOME THE QUESTION OF COLLUSION FOR EVA SION OF TAX DOES NOT ARISE. 1. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. WEST COAST PAPER MILLS LTD ITA NO. 389/2008 HAS HELD T HAT THE TRIBUNAL HAS CONSIDERED THAT ASPECT OF THE MATTER I N THE LIGHT OF THE MATERIAL ON RECORD AND HAS RECORDED THE FINDING THAT IT IS NOT A SHAM AND BOGUS TRANSACTION. ONE OF THE GROUNDS CO NSIDERED FOR RECORDING THAT FINDING IS THAT WHEN THE OTHER PARTY IS A STATUTORY BODY THE QUESTION OF EVASION OF TAX DOES NOT ARISE AND THEREFORE ACCORDING TO THE TRIBUNAL INFERENCE OF COLLUSION C ANNOT BE DRAWN. HENCE NO QUESTION OF LAW ARISES AND THAT THE SUPRE ME COURT DISMISSED THE DEPARTMENTS SLP AGAINST THE ABOVE JU DGMENT - (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 THE TRANSFEREE IS THE GOVERNMENT OR A STATUTORY BODY TH ERE CANNOT BE ANY SCOPE FOR SUCH COLLUSION BETWEEN THE PARTIES. T HE UNTRUE STATEMENT ABOUT THE AGREED CONSIDERATION IS MADE ON LY FOR THE PURPOSE OF EVASION OF TAX. WHEN GOVERNMENT OR ANY S TATUTORY BODY IS A PARTY TO THE TRANSFER THE QUESTION OF EV ASION OF TAX DOES NOT ARISE. 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) PAGE 56 OF 101 ITA NOS.392 TO 395/BANG/20 10 56 [2010] 190 TAXMAN (BN IV) PART 2 IT WAS HELD THA T IT IS FOR THE REVENUE AUTHORITIES TO ESTABLISH BEYOND A REASONABL E DEGREE OF DOUBT THAT THERE IS AN ABUSE OF TREATY PROVISIONS B Y SO ARTIFICIALLY CONTRIVING THE AFFAIRS AS TO WRONGFULLY ENTITLE THE ASSESSEE TO TREATY BENEFITS. UNLESS THAT EXERCISE IS CONDUCTED IT CANNOT BE OPEN TO DISREGARD THE CLAIM OF THE ASSESSEE BY SIMP LY MAKING VAGUE AND GENERALIZED CLAIMS ABOUT ARTIFICIAL SPLIT TING OF CONTRACTS AND ABOUT THE SHAM ARRANGEMENTS TO DEFEAT THE TREAT Y 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 RECIPI ENT HAVING PAID THE TAX ON THE AMOUNT RECEIVED FROM THE APPELLANT T HERE WAS NO OBLIGATION 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 OF 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 CO MPANY (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 FA ILS 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 FAI LED TO PAY SUCH TAX DIRECTLY THEN SUCH PERSON SHALL WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR BE DEEME D TO BE AN ASSESSEE IN DEFAULT WITHIN THE MEANING OF SUB-SECTI ON (1) OF SECTION 201 IN RESPECT OF SUCH TAX. PAGE 57 OF 101 ITA NOS.392 TO 395/BANG/20 10 57 - ACCORDINGLY IF NO TAX IS DEDUCTED IN ACCORDANCE WITH THE CHAPTER XVII AT THE TIME OF PAYMENT OF INCOME INCO ME TAX SHALL 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 A CT OR BY AN EMPLOYER UNDER SECTION 192 (1A) DOES NOT DEDUCT O R AFTER SO DEDUCTING FAILS TO PAY OR DOES NOT PAY THE WHOLE OR ANY PART OF THE TAX AND WHERE THE ASSESSEE HAS ALSO FAILED TO P AY SUCH TAX DIRECTLY THEN SUCH PERSON SHALL BE DEEMED TO BE A N 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 PA Y OR 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 THE 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 CHAPTER XVII INCOME-TAX IS TO BE PAID BY THE ASSESSEE DIRECTLY I.E. THE PAYEE. IT IS TO BE BORNE IN THE MIND THAT THE TAX BEING DE DUCTED AT SOURCE BY THE ASSESSEE IS THE TAX ON THE INCOME OF THE DEDUCTEE AND NOT ON THE INCOME OF THE ASSESSEE-DEDUCTOR. THE REFORE WHAT SECTION 191 PROVIDES FOR IS THAT IN CASE THE DEDUCT OR FAILS TO MAKE THE REQUISITE DEDUCTION OF TAX AT SOURCE THE DEDUC TEE WOULD BE PAGE 58 OF 101 ITA NOS.392 TO 395/BANG/20 10 58 LIABLE TO PAY INCOME-TAX ON THE AMOUNT RECEIVED BY HIM AS INCOME. SECTION191 DOES NOT CAST A DUAL AND SIMULTANEOUS OB LIGATION ON BOTH THE DEDUCTOR AND THE DEDUCTEE TO PAY TAX ON TH E SAID INCOME IN THE HANDS OF THE DEDUCTEE. TAX ON THE SAID INCOM E IN THE HANDS OF THE DEDUCTEE IS TO BE PAID ONLY ONCE; PRIMARILY BY THE DEDUCTOR AND UPON HIS FAILURE BY THE DEDUCTEE. IF THE TAX I S DEDUCTED AT SOURCE AND PAID BY THE DEDUCTOR THE DEDUCTEE GETS CREDIT FOR IT AND THE AMOUNT DEDUCTED IS TREATED AS HIS INCOME 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-BAN G THE 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. - IN THE CASE OF ITO VS. ALFRED ALLAN ADVERTISING 8 SOT 312 (DELHI) THE HONBLE ITAT DELHI BENCH HAS HELD THA T EXPLANATION TO SECTION 191 INSERTED WITH EFFECT FROM 1-6-2003 WAS PAGE 59 OF 101 ITA NOS.392 TO 395/BANG/20 10 59 CLARIFICATORY AND THEREFORE WOULD APPLY FOR THE F INANCIAL YEARS INVOLVED IN THE INSTANT APPEALS. - THAT WHEN THE CONTRACTORS HAVE PAID THE INCOME T AX DIRECTLY THE APPELLANT CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT 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 CASE OF THE APPELLANT DOES NOT FALL WITHIN THE SCOPE OF SEC TION 201 (1) OF 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- TAX ACT. THE SUPREME COURT OBSERVED THAT THE DISMIS SAL ORDER PAGE 60 OF 101 ITA NOS.392 TO 395/BANG/20 10 60 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; - 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; & PAGE 61 OF 101 ITA NOS.392 TO 395/BANG/20 10 61 - 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 ENTHUSIA STIC 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 KEENLY PLEADED THAT THE ORDERS OF THE AUTHORITIES BELOW REQUIRE TO BE UPHELD IN TOO. 9. WE HAVE METICULOUSLY CONSIDERED THE RIVAL SUB MISSIONS CAREFULLY 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 CH RONOLOGICALLY IN THE FOLLOWING PARAGRAPHS: (I) ON VERIFICATION OF THE SEPARATE AGREEMENTS ENTERED INTO BY THE ASSESSEE FOR SUPPLY OF MATERIALS ERECTION AND FOR C IVIL WORK ETC. THE AO NOTICED THAT WHILE DEDUCTING TDS FOR MAKING PAYMENT S ON CIVIL WORKS AND ERECTION PORTION BUT THE ASSESSEE HAD FAILED TO D O SO WITH REGARD TO SUPPLY OF MATERIALS PORTIONS. BRUSHING ASIDE THE ASSESSE ES EXPLANATION THE ASSESSEE WAS (I) TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT; (II) COMPUTED TAX ON PAYMENTS MADE TOWARDS SUPPLY POR TION; & PAGE 62 OF 101 ITA NOS.392 TO 395/BANG/20 10 62 (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 PH ILOSOPHY THE ASSESSEE HAD ADVANCED ITS SUBMISSIONS (AS RECORDED SUPRA IN A SU MMARIZED 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 PERSO N RESPONSIBLE FOR PAYING ANY SUM .FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING 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. PAGE 63 OF 101 ITA NOS.392 TO 395/BANG/20 10 63 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 W ORK. THE WORD WORK IS TO BE UNDERSTOOD IN THE LIMITED SENS E AS PRODUCT OR RESULT. THE CARRYING OUT OF WORK INDICATES DOIN G SOMETHING TO CONDUCT THE WORK TO COMPLETION OR AN OPERATION W HICH 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 - 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 PAGE 64 OF 101 ITA NOS.392 TO 395/BANG/20 10 64 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 IT S WISDOM IN THE CASE OF V.M.SALGAOCAR & BROS. LTD. V. ITO (1999) 104 TAX MAN 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 M ACHINES. IT IS THE PHYSICAL FORCE WHICH HAS COMPREHENDED IN THE WORD WO RK. (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 COVERED UNDER SECTION 194C OF THE ACT CANNOT BE ACCEPTED BECAUSE NEITHER SUCH A CONTRACT CONSTITUT ES PAGE 65 OF 101 ITA NOS.392 TO 395/BANG/20 10 65 WORK WITHIN THE MEANING OF SECTION 194C OF THE AC T NOR THOSE CONTRACTS ARE COVERED UNDER SERVICE CONTRACTS SPECIFICALLY INCLUDED BY WAY OF EXPLANATION III TO SEC TION 194C OF THE ACT. IF THE CONTENTION OF THE REVENUE T HAT THE WORD ANY WORK IN SECTION 194C IS VERY WIDE ENOU GH TO INCLUDE ALL TYPES OF WORK IS ACCEPTED THEN IT WOUL D MEAN THAT EVEN THE HAIR CUTTING WORK DONE BY A BARBER WOU LD BE A WORK COVERED UNDER SECTION 194C AND THE PERS ON MAKING PAYMENT TO THE BARBER WOULD BE COVERED UNDER SECTION 194C. SUCH A WIDER INTERPRETATION IS UNCALL ED FOR ESPECIALLY WHEN THE REVENUE ITSELF HAD CONSIDERED S INCE INCEPTION THAT SECTION 194C IS RESTRICTED TO THE WO RKS DONE BY CONTRACTORS / SUB- CONTRACTORS. WITH DUE RESPECTS TO THE RULINGS OF THE JUDICIARIES CITED SUPRA WE ARE OF THE CONSIDERED VIEW THAT ONLY WHEN THE ACTIV ITY 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 O NLY YARDSTICK TO DETERMINE AS 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. PAGE 66 OF 101 ITA NOS.392 TO 395/BANG/20 10 66 (I) THE CONSTITUTION BENCH OF THE HON BLE SUPREME COURT 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 ONE HAND AND A CONTRACT FOR SALE ON THE OTHER ARISES BECAUSE THE DISTINCTION BETWEEN THE TWO IS VERY OFT EN 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 OF SALE. NEVERTHELESS THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCI PLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF PROPERTY IN AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATTEL TO THE BUYER. 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 BEST OWED END IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE; NEITHER THE OWNERSHIP OF MATERIALS NOR THE V ALUE 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 CON TRACT IS IN SUBSTANCE ONE FOR WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL (HALSBURYS LAWS OF ENGLAND 3RD E DITION VOL. 34 6-7). 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 PAGE 67 OF 101 ITA NOS.392 TO 395/BANG/20 10 67 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 ARTIC LES MAY HAVE TO BE USED BY THE PERSON EXECUTING THE WORK AND PROPERTY IN SUCH ARTICLES OR MATERIALS MAY PASS TO TH E OTHER PARTY. THAT WOULD NOT NECESSARILY CONVERT THE CONTRACT INTO ONE OF SALE OF THOSE MATERIALS. IN EV ERY CASE THE COURT WOULD HAVE TO FIND 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 CONTRACT OF WORK OR EVEN SERVICE PARTIES MIGHT ENTER INTO SEPARATE AGREEMENTS ONE OF WORK AND SERVICE AND THE OTHER O F 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 WO ULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL INTO TWO SEPARATE AGREEMENTS 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 PARTIES ENTER INTO TWO SEPARATE CONTRACTS ONE FOR MATERIAL AND ONE FOR LABOUR THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE BUT WOULD FALL INTO TWO SEPARA TE AGREEMENTS ONE OF WORK OR SERVICE AND THE OTHER OF SALE. IN SUCH CASE AS RIGHTLY HIGHLIGHTED BY THE ASSESSEE THE PROVISIONS OF S. 194C COULD APPLY ONLY TO THE L ABOUR 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 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 PAGE 68 OF 101 ITA NOS.392 TO 395/BANG/20 10 68 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 5 31 (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 FORTI FY THE CONCLUSION ONE WAY OR THE OTHER. ALL THAT WILL D EPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THIS QUESTION TO BE ANSWERED IS NOT AN EASY AND HAS PERPL EXED 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 TH E 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 CHAT TEL 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 CONCLUS IVE ALTHOUGH SUCH FACTORS MAY BE RELEVANT AND BE TAKEN INTO CONSIDERATION IN ASCERTAINING AND DETERMINING WHETHER THE CONTRACT IN QUESTION IS IN PITH AND PAGE 69 OF 101 ITA NOS.392 TO 395/BANG/20 10 69 SUBSTANCE A CONTRACT FOR WORK AND LABOUR OR ONE FOR THE SALE OF CHATTEL. . (IV) THE HONBLE ANDHRA PRADESH HIGH 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 CONSIDERATION IN JUDGING 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 CHATTEL 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. (6) A CONTRACT WHERE NOT ONLY WORK IS TO BE DONE BUT THE EXECUTION OF SUCH WORK REQUIRES GOODS TO BE USED MAY 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 O F MATERIALS IS ACCESSORY OR INCIDENTAL TO THE EXECUTION OF WORK; OR PAGE 70 OF 101 ITA NOS.392 TO 395/BANG/20 10 70 (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 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. 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 TH E CONTRACT AS ANCILLARY OR INCIDENTAL TO THE SALE THE N IT IS A SALE. PAGE 71 OF 101 ITA NOS.392 TO 395/BANG/20 10 71 IF THE PRIMARY OBJECT OF THE CONTRACT IS THE CARRYING OUT OF WORK BY BESTOWAL OF LABOUR AND SERVICES AND MATERIAL S ARE INCIDENTALLY 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 PARTY 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 DURING THE PROCESS OF THE END PRODUCT BEING BROUGHT INTO E XISTENCE BY THE INVESTMENT OF SKILL AND LABOUR OF THE SUPPLIER THE TRANSACTION WOULD BE A CONTRACT FOR WORK AND LABOUR . 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 SOME WORK IS REQUIRED TO BE DONE AS INCIDENTAL TO THE SALE. THE FIRST CONTRACT PAGE 72 OF 101 ITA NOS.392 TO 395/BANG/20 10 72 IS A COMPOSITE CONTRACT CONSISTING 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 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 THE ASSERTION OF THE ASSESSEE THAT THE ERECTIONS WORK AND CIVIL WORKS WE RE CARRIED OUT IN FURTHERANCE TO THE SUPPLY OF MATERIAL. IN OTHER WOR DS ERECTION WORKS AND THE CIVIL WORKS WERE INCIDENTAL TO SUPPLY OF MATERIA LS AS IS EVIDENT FROM THE PHOTOGRAPHS FURNISHED BY THE LD. AR DURING THE COURS E OF HEARING. THE SUBSTANCE OF THE AGREEMENT OR ARRANGEMENT BETWEEN T HE PARTIES WAS TO SUPPLY THE MATERIALS AND NOT CARRYING OUT THE WORK. I NSTALLATION OR ERECTION WORK AND CIVIL CONSTRUCTION WORK CAN ONLY BE CATEGOR IZED AS ANCILLARY TO THE CONTRACT OF SUPPLY. 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. PAGE 73 OF 101 ITA NOS.392 TO 395/BANG/20 10 73 9.6. WE HAVE ALSO ATTENTIVELY PERUSED THE BOARD S CIRCULAR NO. 681 DATED 08.03.1994 ON WHICH THE ASSESSEE HAD PLACED RELIANC E. 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 R ENOVATION 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 OR WORK AND LABOUR INCOME- TAX WILL HAVE TO BE DEDUCTED FROM PAYMENTS MADE IN RESPECT OF SUCH CONTR ACTS. SIMILARLY CONTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF S UCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR SUCH PE RSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE SAME POSITI ON 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. (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 UDERTAKEN BY THE PAYEE OF THE PRICE IS NOT THE TRANSFER OF A CHATTEL QUA CHATTEL CONTRACT IS OF 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 S ALE OF A CHATTEL. A PAGE 74 OF 101 ITA NOS.392 TO 395/BANG/20 10 74 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 ADVOCATED 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 TH AT - PARAGRAPH 7 (VI) (A) PROVIDES THAT SIMILARLY CO NTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTH ER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS A T ALL TIMES WITH THE GOVERNMENT OR SUCH PERSON WILL ALSO FALL WITHI N THE PURVIEW OF THIS SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT O F CONTRACTS FOR FABRICATION OF ANY ARTICLE OR THING WHERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE FAB RICATION 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 PAGE 75 OF 101 ITA NOS.392 TO 395/BANG/20 10 75 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 MANUFAC TURER 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 - 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 PAGE 76 OF 101 ITA NOS.392 TO 395/BANG/20 10 76 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 T O BIDDERS THAT THE TRANSFER OF THE TITLE IN RESPECT OF EQUIPMENT AND MATERIALS SUP PLIED BY THE CONTRACTOR TO THE ASSESSEE TAKES PLACE IN FAVOUR OF ASSESSEE PURS UANT TO THE TERMS OF THE CONTRACT BY WAY OF NEGOTIATION OF DISPATCH DOCUMENTS. 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 TRANSFERRED IN FAVOUR OF ASSESSEE MUCH EARLIER TO T HE COMMENCEMENT OF THE ERECTION AND CIVIL WORKS. 9.12. CONSIDERING THE ABOVE NARRATION WE ARE OF THE VIEW THAT AS SOON AS THE WORK WAS AWARDED BY ASSESSEE TO THE CONTRACTOR 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 PAGE 77 OF 101 ITA NOS.392 TO 395/BANG/20 10 77 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 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 THOUGH 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 PAGE 78 OF 101 ITA NOS.392 TO 395/BANG/20 10 78 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 R ULING 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 INTRODUCTION OF CLAUSE (E) TO THE EXPLANATION WAS O NGOING LITIGATION ON THE QUESTION AS TO WHETHER TDS WAS DEDUCTIBLE ON OUTSOURCING CONTRACTS. CLAUSE (E) WAS INTRODUCED TO BRING CLARITY ON THIS ISSUE: OR IN OT HER WORDS TO REMOVE THE AMBIGUITY ON THE QUESTION. CLAU SE (E) AS INTRODUCED CONTAINS A POSITIVE AFFIRMATION T HAT THE EXPRESSION WORK WILL COVER MANUFACTURING OR SUPPL YING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICAT ION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH A CUSTOMER. CLAUSE (E) HAS PLACED THE POSITION BEYOND DOUBT BY INCORPORATING LANGUAGE 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 CUSTOMER. I N PAGE 79 OF 101 ITA NOS.392 TO 395/BANG/20 10 79 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 CON TRACT 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 WORK WHILE ON THE OTHER H AND WHERE THE MANUFACTURER HAS SOURCED THE MATERIAL FRO M A PERSON OTHER THAN THE CUSTOMER IT WOULD CONSTITUTE A SALE. WHAT IS SIGNIFICANT IS THAT IN USING THE WORD S WHICH CLAUSE (E) USES IN THE EXPLANATION PARLIAMENT HAS TAKEN NOTE OF THE POSITION THAT WAS REFLECTED IN THE CIRC ULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES SINCE M AY 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 W ORK TO WORKS CONTRACT. BOTH BEFORE AND AFTER THE JUDG MENT OF THE SUPREME COURT THE EXPANSIVE DEFINITION OF TH E EXPRESSION WORK CO-EXISTED WITH THE REVENUES UNDERSTANDING THAT A CONTRACT FOR SALE WOULD NOT BE WITHIN THE PURVIEW OF SECTION 194C. THE REVENUE ALW AYS UNDERSTOOD SECTION 194C TO MEAN THAT THOUGH A PRODU CT 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 PA SSES TO THE CUSTOMER UPON DELIVERY; AND (II) THE MATERIAL TH AT WAS REQUIRED WAS NOT SOURCED FROM THE CUSTOMER/PURCHASE R BUT WAS INDEPENDENTLY OBTAINED BY THE MANUFACTURER FROM A PERSON OTHER THAN THE CUSTOMER. THE RATIONAL E 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 OWNERSHIP 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 PAGE 80 OF 101 ITA NOS.392 TO 395/BANG/20 10 80 FIELD BOTH ADMINISTRATIVELY IN THE FORM OF CIRCULARS OF THE CENTRAL BOARD OF DIRECT TAXES AND JUDICIALLY IN THE JUDGMENTS OF SEVERAL HIGH COURTS TO WHICH A REFEREN CE HAS BEEN MADE EARLIER. CONSEQUENTLY THE PRINCIPLES UNDERLYING THE APPLICABILITY OF SECTION 194C AS CONST RUED ADMINISTRATIVELY AND JUDICIALLY IN DECIDED CASES FIN D STATUTORY RECOGNITION IN THE EXPLANATION. THE EXPLAN ATION 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 BRO UGHT 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 IN THE PRESENT CASE AN EXPLANATION IS INTRODUCED STATUTORILY TO ADOPT AN UNDERSTANDING OF THE LAW BOTH IN THE FORM OF THE CIRCULARS OF THE CENTRA L BOARD OF DIRECT TAXES AND IN JUDICIAL DECISIONS PARLIAMENT MUST BE REGARDED AS HAVING INTENDED TO A FFIRM THAT INTENT. IN THE PRESENT CASE THE INTENT HAS HE LD THE FIELD FOR OVER THREE DECADES. 9.16. IN TAKING INTO ACCOUNT THE ABOVE DELIBER ATIONS 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 DOESNT REQUIRE DEDUCTION OF TAX AT SOURC E. 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 BRIEF THAT - - THE SEPARATE CONTRACTS CANNOT BE TREATED AS A COMP OSITE CONTRACT MERELY ON THE BASIS OF A CLAUSE IN THE CONTRACT AGR EEMENT (SUPPLY PORTION) THAT THE CONTRACTOR IS ALSO RESPONSIBLE F OR THE PERFORMANCE OF THE ERECTION PORTION AND CIVIL WORKS PORTION TH AT MERELY MAKING THE CONTRACTOR RESPONSIBLE FOR PERFORMANCE OF ERECTION PORTION AND CIVIL PAGE 81 OF 101 ITA NOS.392 TO 395/BANG/20 10 81 WORKS PORTION WILL NOT BY ITSELF MAKE SUPPLY PORTION ANY LESS 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 INTO CANNOT BE TERMED AS A COMPOSITE CONTRACT MERELY ON THE BASIS THAT ALL THE CONTRACTS HAVE BEEN AWARDED THROUGH A SINGLE BIDDING PROCESS THAT MERELY BECAUSE THE BIDDING PROCESS WAS A COMPOSITE ONE IT CANNOT BE CONCLUDED THE CONTRACT IS A COMPOSITE CONTRACT; - THAT THE AO HAD STATED THAT THE ASSESSEE HAD NEITHE R ISSUED SEPARATE TENDER NOTIFICATION NOR DIVIDED THE CONTRACT INTO S UPPLY CONSTRUCTION AND ERECTION WHICH WAS FACTUALLY INCORRECT; - THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIAT E THAT THE ASSESSEE HAD NEVER INTENDED TO TREAT THE CONTRACT AS COMPOSI TE CONTRACT THAT AS PER THE TERMS OF THE INSTRUCTIONS TO BIDDERS T HE ASSESSEE HAD CLEARLY LAID OUT THAT ONCE THE CONTRACTOR WAS FOUND TO BE A SUCCESSFUL BIDDER THE ENTIRE SCOPE OF THE CONTRACT WAS DIVIDE D INTO THREE SEPARATE CONTRACTS I.E. FOR SUPPLY OF MATERIALS ER ECTION AND CIVIL ENGINEERING WORKS. 10.1. ON A CRITICAL PERUSAL OF THE TERMS OF THE I NSTRUCTIONS TO BIDDERS IT STATES THAT THE CONTRACT ENTERED BY THE ASSESSEE WI TH THE CONTRACTORS 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 PAGE 82 OF 101 ITA NOS.392 TO 395/BANG/20 10 82 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 T HE SAME MEANING WHICH IT HAS IN THE SALE OF GOODS ACT 1930. IN A BUILDING CONTRACT THERE IS NO SALE OF MA TERIALS AS SUCH AND IT IS THEREFORE ULTRA VIRES THE POWE RS OF THE PROVINCIAL LEGISLATURE TO IMPOSE TAX ON THE SUP PLY 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 T O DETERMINE WHETHER THE AGREEMENT IN QUESTION IS ON ITS TRUE CONSTRUCTION A COMBINATION OF AN AGREEMENT TO SELL AND AN AGREEMENT 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 IMPO SE 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 MATERIALS AND FOR WORK AND NOTHING SHALL BAR THE SALES TAX AUTHORITIES PAGE 83 OF 101 ITA NOS.392 TO 395/BANG/20 10 83 FROM DECIDING WHETHER A PARTICULAR CONTRACT FALLS W ITHIN ONE CATEGORY OR THE OTHER AND IMPOSING A TAX ON THE AGREEMENT 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 INTO 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 INVOL VED IN A WORKS CONTRACT IN THE SAME WAY IN WHICH THE SALES TAX WAS LEVIABLE ON THE PRICE OF THE GOODS AND MATERIAL S SUPPLIED IN A BUILDING CONTRACT WHICH HAD BEEN ENTE RED INTO IN TWO DISTINCT 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 TH E DECISION OF THE TRIBUNAL HELD THAT THE CONTRACT WAS CLEARLY A DI VISIBLE CONTRACT ONE FOR THE SUPPLY OF THE TITANIUM ANODES AND ANOTH ER FOR SUPERVISION AND INSTALLATION AND UNDERTAKING RECOAT ING MAINTENANCE. THE PRICE PAYABLE FOR THE SUPPLY OF MATERIAL WAS DI STINCT FROM THE CONSIDERATION PAYABLE FOR THE SUPERVISION OF INSTAL LATION AND COMMISSIONING AND FOR RECOATING MAINTENANCE. THE PARTIES THEMSELVES HAD NO DOUBT AS TO THE NATURE OF THE ARR ANGEMENT 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. PAGE 84 OF 101 ITA NOS.392 TO 395/BANG/20 10 84 (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 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 EXTEN T 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 [CL AUSE [C]] CATERING CONTRACTS [CLAUSE [F]] BY LEGAL FICT ION TO BE DIVISIBLE CONTRACTS WHERE THE SALE ELEMENT COULD BE ISOLATED AND BE SUBJECTED TO SALES TAX. (V) IN LARSEN & TOUBRO LTD V. C OMMR. OF C.T. (A.P.) [2003] 132 STC 272 (AP) THE HONBLE AP HIGH COURT CONSIDERED 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 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 PAGE 85 OF 101 ITA NOS.392 TO 395/BANG/20 10 85 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 UNDE R: (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. 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 DEPARTM ENT AS TO HOW THIS CONTRACT COULD BE PRESUMED AS A DEEM ED SALE WITHIN THE STATE OF ANDHRA PRADESH. THOUGH THE LEARNED SPECIAL GOVERNMENT PLEADER FOR TAXES SUBMIT TED 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 OTHER IS INSTALLATION OF MAC HINERY PAGE 86 OF 101 ITA NOS.392 TO 395/BANG/20 10 86 WITH THE LABOUR OF THE APPELLANT AND AS SUCH THIS C ONTRACT 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 PERMAN ENT ESTABLISHMENT CAME INTO EXISTENCE ONLY AFTER THE TRA NSACTION STOOD MATERIALIZED. THE INSTALLATION PERMANENT ESTABLISH MENT CAME INTO EXISTENCE ONLY ON CONCLUSION OF THE TRANSACTION GIVING RISE TO THE SUPPLIES OF THE FABRICATED PLATFORMS. THE INSTALLATION PERMANENT ES TABLISHMENT 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. 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. PAGE 87 OF 101 ITA NOS.392 TO 395/BANG/20 10 87 - 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 CONTRACTOR IS B OUND 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 BRE ACH OF THE ENTIRE- CONTRACT. THE SAID CLAUSE IN THE CONTRACT AGREEMENT (SUPPLY P ORTION) 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. PAGE 88 OF 101 ITA NOS.392 TO 395/BANG/20 10 88 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 RESP ECTED. 11. WE SHALL NOW TURN OUR ATTENTION TO ANALYZ E AS TO WHETHER THE PROVISIONS OF S.194C OF THE ACT ARE APPLICABLE IN R ESPECT OF SUPPLY CONTRACT. (I) IN THIS CONNECTION WE RECALL 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 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- PAGE 89 OF 101 ITA NOS.392 TO 395/BANG/20 10 89 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 CONTRACTORS FOR SUPPLY OF CONDUCTORS INSULATORS TRANSMISSION TOWERS 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 CONTRACTS THOUGH CONTAINED IN THE SAME DOCUMENT IN SOME CASES ARE IN TWO PARTS. SIMPLY BECAUSE THE SUPPLY AND ERECTION PARTS OF THE CONTRACT WERE ENTERED INTO WITH THE SA ME PARTY IN SOME CASES AND IN SOME OTHER CASES WERE I N TWO SEPARATE PARTS IN THE SAME AGREEMENT THE NATURE OF EACH PART OF THE CONTRACT WILL NOT ALTER. IN TH IS CONNECTION WE MAY REFER TO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CST V. WALCHANDNAGAR INDUSTRIES (1985) 58 STC 89 IN WHICH THE HONBLE HIGH COURT REFERRED TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF STATE OF MADRAS V. GANNON DUNKERLEY & CO. (1958) 9 STC 353 (SC) WHEREIN IT WAS HELD THAT THE PARTIES MAY ENTE R INTO TWO CONTRACTS ONE FOR THE SALE OF GOODS AND O NE FOR SERVICES. EVEN WHEN SUCH CONTRACTS ARE IN ONE DOCUMENT THEY CAN BE SEPARATE FOR MORE SO WHEN THEY ARE IN TWO SEPARATE 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 SAME PARTY THE VALUE OF THE ERECTION CONTRACT AS C AN BE SEEN FROM THE ANNEXURE IS LESSER THAN THE VALUE OF THE SUPPLY CONTRACT. IT CANNOT THEREFORE CONTROL TH E INTERPRETATION OF THE CONTRACT SPECIFICALLY WHEN T HE PAGE 90 OF 101 ITA NOS.392 TO 395/BANG/20 10 90 PROPERTY IN THE GOODS HAS PASSED EX-WORKS ON DELIVE RY AND NOT ON THE THEORY OF ACCRETION. THE ASSESSEE TO OK POSSESSION OF THE GOODS AND THE TITLE PASSED ON TO IT AS A CHATTEL PRIOR TO COMMENCEMENT OF THE ERECTION PORTION OF THE CONTRACT. 5.5.. IF THE FACTS OF THE PRESENT CASE ARE TESTED BY APPLYING THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL 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 CONTR ACT FOR SALE OR 'WORKS CONTRACT' WILL DEPEND ON THE TE RMS OF THE CONTRACT AND ITS EXECUTION. IN THE PRESENT CASE THE CONTRACTORS HAVE TO FABRICATE TOWERS AS P ER 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. IS 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 PAGE 91 OF 101 ITA NOS.392 TO 395/BANG/20 10 91 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 THE CONTRACT AFTER DELIVERY OF GOODS DOES NOT CHANG E THE NATURE OF TRANSACTION. THE SUPPLY PORTION OF THE CONTRACT IS THE PREDOMINANT OBJECT AND INTENTION OF 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 PAGE 92 OF 101 ITA NOS.392 TO 395/BANG/20 10 92 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 NO APPLICATION. ON ERECTION PORTION 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 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. 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 THE HONBLE DELHI BENCH IN THE CASE OF SENIOR ACCOUNTS OFFICER (O&M) HARYANA POWER GENERAT ION CORPORATION LTD. V. ITO (2006) 103 TTJ 584 (DELHI ITAT) HAD TAKEN 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 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 PAGE 93 OF 101 ITA NOS.392 TO 395/BANG/20 10 93 CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT SHA LL AT THE TIME OF CREDIT OF SUCH SUM OR AT THE TIME OF PA YMENT DEDUCT TAX AT SOURCE AT SUCH PERCENTAGE AS IS MENTI ONED IN S. 194C. THE CHART OF PAYMENT OF TDS BY THE APPELL ANT HAS ALREADY BEEN SET OUT ABOVE. THE AO WAS OF THE VI EW THAT THE CONTRACT BETWEEN THE APPELLANT AND M/S BHE L WAS A COMPOSITE CONTRACT AND THEREFORE THE APPELLAN T OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENTS FOR SUPPLY OF MATERIALS AS WELL AS THE PAYMEN TS FOR EXECUTION OF CIVIL WORK ERECTION DESIGNING AN D COMMISSIONING AND ALSO THE FREIGHT AND INSURANCE. ACCORDING TO THE APPELLANT THE CONTRACT IN QUESTIO N WAS A DIVISIBLE CONTRACT COMPRISING OF ONE PART OF THE C ONTRACT FOR SUPPLY OF EQUIPMENTS AND THE OTHER TWO PARTS OF THE CONTRACT FOR DISMANTLING THE EXISTING MACHINERY AND FOR CLEARING THE SITE AND MAKING THE NECESSARY INFRASTR UCTURE FOR INSTALLATION OF THE MACHINERY. ACCORDING TO THE ASSESSEE IT IS ONLY IN RESPECT OF THE CONSIDERATION ATTRIBUTABLE TO THE CIVIL AS WELL AS ERECTION DESI GNING AND COMMISSIONING THE APPELLANT WAS UNDER AN OBLIGATIO N TO DEDUCT TAX AT SOURCE AND NOT IN RESPECT OF THE SUPP LY OF MATERIALS. THE AO HOWEVER REFERRED TO THE DECISIO N OF THE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF ESS AR OIL LTD. VS. ITO (2001) 71 ITJ (RAJKOT) 599 : (2001) 77 ITD 92 (RAJKOT) WHEREIN IT WAS HELD THAT IN THE CASE O F 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 CONTRAC T WHERE THE SUPPLY OF MATERIAL WAS ONLY INCIDENTAL TO T HE EXECUTION OF CONTRACT AND TDS OUGHT TO HAVE BEEN DEDUCTED ON THE GROSS PAYMENTS MADE TO THE CONTRACTO R IN PURSUANCE OF A COMPOSITE CONTRACT. THE AO ACCORDINGLY WORKED OUT THE TAX SHORT DEDUCTED AND A LSO LEVIED INTEREST ON SUCH SHORT DEDUCTION OF TAX AT S OURCE. 2.6 ON APPEAL BY THE APPELLANT THE CIT(A) CONFIRME D THE ORDER OF THE AO. HENCE THE PRESENT APPEAL BY THE APPELLANT BEFORE THE TRIBUNAL. PAGE 94 OF 101 ITA NOS.392 TO 395/BANG/20 10 94 3. WE HAVE HEARD THE ELABORATED SUBMISSIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND THE LEARNED DEPARTMENTAL REPRESENTATIVE. WE HAVE ALREADY SET OUT THE IMPORTANT TERMS OF THE CONTRACT BETWEEN THE APPELLANT AND M/S BHEL. A BARE PERUSAL OF THE COMPONENTS OF THE CONSIDERATION FOR THE CONTRACT WO ULD CLEARLY SHOW THAT THE PRIMARY OR THE DOMINANT INTENTI ON OF THE APPELLANT WAS TO PURCHASE THE MATERIAL NAMEL Y TWO ESPS FOR ITS POWER PLANT AT PANIPAT. FREIGHT AND IN SURANCE PAYABLE IN RESPECT OF ITS SUPPLY AND THE COST OF MATE RIAL 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 DIS MANTLE THE EXISTING PLANT AND ALSO TO DO THE NECESSARY CIV IL WORK FOR ERECTING THE NEW PLANT. THIS BY ITSELF WOULD NOT MEAN THAT THE CONTRACT IN QUESTION WAS A COMPOSITE CONTR ACT 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 T HE CASE OF STATE OF HIMACHAL PRADESH & ORS. VS. ASSOCI ATED HOTELS OF INDIA LTD. 29 STC 474 (SC) IN THE CASE O F 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 THI S 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 TH E MATERIAL BY THE APPELLANT. IN OTHER WORDS THE CONTR ACT FOR SUPPLY OF THE EQUIPMENTS AND THE CONTRACT FOR ERECTION AND COMMISSIONING OF THE PLANT ARE TWO SEPARABLE CONTRACTS THOUGH THERE IS ONLY ONE COMMON PURCHASE ORDER. WE ARE THEREFORE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN CONSIDERI NG THE 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 THE TRIBUNAL IN THE CASE OF ESSAR OIL LTD.(SUPRA) WE ARE PAGE 95 OF 101 ITA NOS.392 TO 395/BANG/20 10 95 OF THE VIEW THAT THE FACTS OF THE AFORESAID CASE AR E CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE PRESE NT CASE. IT WAS A CASE WHERE THE CONTRACT WAS FOR CONSTRUCTION OF A REFINERY AND THE CONTRACTOR WAS 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 CAS E THE TERMS OF THE CONTRACT NEED TO BE ANALYZED BEFORE COM ING TO THE CONCLUSION WHETHER IT WAS A COMPOSITE CONTRA CT OR NOT. AS ALREADY STATED IN THE PRESENT CASE THE CON TRACT INSOFAR AS IT RELATES TO SUPPLY OF THE MATERIAL FRE IGHT INSURANCE AND SUPPLY OF SPARE PARTS IS CLEARLY SEPAR ABLE FROM THE OTHER PART OF THE CONTRACT RELATING TO CAR RYING OUT CIVIL WORK COMMISSIONING AND ERECTION OF THE P OWER 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 PAID TAX ON THE AMOUNTS PAID BY THE APPELLANT TO IT AND THEREFORE 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 HIGH COURT IN THE CASE OF CIT V S. RISHIKESH APARTMENTS CO-OPERATIVE HOUSING SOCIETY LT D. (2001) 171 CTR (GUJ) 288 : (2002)253 ITR 310 (GUJ). WE HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AN D WE ARE OF THE VIEW THAT THE DOCUMENTS ON RECORD DO NOT ESTABLISH THE CASE PLEADED BY THE APPELLANT. WE HOWEVER DEEM IT FIT AND PROPER TO DIRECT THE AO TO VERIFY THIS ASPECT AND IN CASE IT IS FOUND THAT THE CONTRACTOR HAS OFFERED THE SUMS RECEIVED FROM THE APPELLANT TO TAX THEN IN THAT EVENT THE APPELLANT S HOULD PAGE 96 OF 101 ITA NOS.392 TO 395/BANG/20 10 96 NOT BE PROCEEDED AGAINST AS AN APPELLANT IN DEFAULT UNDER S. 201 OF THE ACT AS LAID DOWN BY THE HON'BLE GUJAR AT HIGH COURT IN THE CASE OF RISHIKESH APARTMENTS CO- OPERATIVE HOUSING SOCIETY LTD WITH DUE REGARDS WE ARE IN AGREEM ENT 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 THE POINT WHICH IS UND ER CONSIDERATION. 11.1. WE HAVE ALSO DULY PERUSED THE FINDING O F 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 I N THE CASE 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 CIRCUMSTANCES AND PAGE 97 OF 101 ITA NOS.392 TO 395/BANG/20 10 97 THE COMPOSITE CHARACTER OF AGREEMENTS DOMINANT OR PREDOMINANT 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 OCCASION TO PERUSE THE FINDING OF THE HONBLE HYDERABAD TRIBUNAL REPORTED IN (2002) 74 TTJ 531 (HYD ITAT) WHEREIN THE ISSUE BEFORE THE HONBLE BENCH WAS 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 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 INTENTI ON BETWEEN THE PARTIES WAS TO CONSTRUCT AND SELL AS PURCHASE THE BUS BODIES IN TERMS OF THE REQUIREMENT S AND SPECIFICATIONS INDICATED BY THE APPELLANT-CORPOR ATION AND DELIVER THEM DULY FITTED ON THE CHASSIS SUPPLIED . WHOLE EXERCISE INVOLVED RESULTED INTO PURCHASE AND SALE OF BUS BODIES IN FACT. MERELY BECAUSE SPECIFICATIONS ARE PROVIDED BY THE APPELLANT-CORPORATION TO SUIT THE BU S BODIES ACCORDING TO APPELLANTS REQUIREMENTS DOES NOT ALTER THE BASIC CRUX AND CHARACTER OF THE CONTRACT WHICH IN THE INSTANT CASE IS NOTHING BUT THE CONTRACT OF SALE AND PURCHASE. THE MATERIALS INVOLVED IN THE CONSTRUCTIO N OF THE BUS BODIES WERE TO BE PROCURED BY THE FABRICATOR S AND THEREAFTER BUS BODIES WERE TO BE CONSTRUCTED AN D TO PAGE 98 OF 101 ITA NOS.392 TO 395/BANG/20 10 98 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 BO DY BUILDING OR IN THE BUS BODY ITSELF UNLESS THESE WERE DELIVERED TO THE APPELLANT AND APPROVED BY THE APPEL LANT FOR FINAL USE. PROPERTY IN THE BUS BODIES WAS TO PAS S ON ACCEPTANCE OF BUS BODIES BY THE APPELLANT. PURCHASE OF ANY ITEM WHICH IS CONSTRUCTED AS PER AGREED SPECIFICATIONS WOULD INVOLVE LABOUR AND SKILL BUT T HESE TWO ELEMENTS BY THEMSELVES ALONE ARE NOT ENOUGH TO TURN 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 BAC KDROP OF THE OBJECT AND END-RESULT OF THE CONTRACT THAT I T WAS A CONTRACT OF SALE ULTIMATELY AND FINALLY. 11.4. WITH REGARD TO THE SWEEPING REMARK ON TH E 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. PAGE 99 OF 101 ITA NOS.392 TO 395/BANG/20 10 99 11.6. IN TAKING INTO ACCOUNT THE FACTS AND CI RCUMSTANCES 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 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 PAGE 100 OF 101 ITA NOS.392 TO 395/BANG/2 010 100 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 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. PAGE 101 OF 101 ITA NOS.392 TO 395/BANG/2 010 101 IT IS ORDERED ACCORDINGLY. 12. IN THE RESULT THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 2007.08 AND 2008-09 [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.