VOLTAS LTD. Vs. STATE OF GUJARAT
Supreme Court of India (Full Bench (FB)- Three Judge)
Appeal (Civil), 2957 of 2007, Judgment Date: Apr 08, 2015
(REPORTABLE)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2957 of 2007
Voltas Ltd. ....Appellant
Vs.
State of Gujarat .....Respondent
J U D G M E N T
AMITAVA ROY,J.
The oft encountered debate on the extent of tax liability based on the
classification of the determinants of a levy in law seeks judicial scrutiny
in the attendant factual conspectus. The appellant being aggrieved by the
determination made by the High Court of Gujarat on the issue common to a
reference under Section 69 of the Sales Tax Act, 1969 (for short
hereinafter referred as to as the "Act") being Sales Tax Reference
No.1/2004 and its appeal, i.e. Special Civil Application No. 12508/2002,
against it, seeks redress against the judgment and order dated 4.09.2006 to
that effect.
We have heard the learned counsel for the parties.
The indispensable skeletal facts introduce the appellant, M/s. Voltas Ltd.
as a company incorporated under the Companies Act, 1956 engaged amongst
others in the business of execution of jobs design, supply and installation
of air-conditioning plants construed to be indivisible works contracts. It
is a registered dealer under the Act. By a communication dated 22.10.1993
of M/s. Anupam Colours and Chemicals Industries, Bombay, an order was
placed with it for water chilling plant at its factory at Vapi. The basic
design parameters were enumerated in the work order as hereunder:
"1.Tonnage of Refrigeration .. 11 TR
2. Final temperature or chilled .. 5 to 6C
water to be made available
for our process.
3.Quantity of chilled water .. 12,000
liters( 5 to 6 C) required for our liters"
process in about 10 hours.
Other specifications pertaining to the water chilling plant were advised to
be in conformity with the assessee's offer, as referred to therein. The
work order insisted on the requirement of chilled water to be used directly
for its process of manufacturing pigments with the assertion that
sufficient precautions be taken to ensure that chilled water at 5 to 6
degree centigrade is available for such process. The letter emphasized as
well that the assessee would provide the customer with the lay-out details,
foundation drawing and other necessary information required for the
erection of the plant. The essential segments of the works contracts
involved, as would be eventually relevant for the adjudicative exercise
underway, were thus specified with distinct details in the work order.
4. The Act which is a legislation to consolidate and amend the law
relating to the levy of tax on the sale or purchase of goods in the State
of Gujarat has set out in Part-A of Schedule II-A thereof, the rates of the
impost on the sale of goods involved in the execution of the works
contracts, the relevant excerpt whereof is quoted as under:
|Sr.No. |Description of works contract |Entry No. in |Regular rate of |
| | |Schedule-IIA |tax |
| | |of the Act | |
| 1. |Installation of | 67 | 18% |
| |air-conditioners and | | |
| |A.C.coolers and for repairs | | |
| |thereof. | | |
| 2. |Furniture and fixtures | 104 | 8% |
| |partitions including contracts| | |
| |for interior decoration and | | |
| |repairs thereof | | |
| 3. |Fabrication and installation | 120 | 8% |
| |of lifts or elevators or | | |
| |escalators and for repairs | | |
| |thereof | | |
| 4. |Fabrication and installation | 39 | 8% |
| |of plant and machinery and | | |
| |repairs thereof | | |
| 5. |Construction of bodies on | 128(5) | 4% |
| |chassis of Motor Vehicles | | |
| |including three wheelers and | | |
| |for repairs thereof | | |
| 6. |Ship building including | 186 | 4% |
| |construction of barges, | | |
| |Ferries Tugs Trawlers or | | |
| |Dredgers and for repairs | | |
| |thereof | | |
5. Section 55-A of the Act dwells on the scheme of composition of tax
whereunder a dealer as referred to therein and in the circumstances and
subject to such conditions as may be prescribed, is left with the option to
pay in lieu of the amount of tax leviable from him under Section 7 or 8 in
respect of any period, a lump sum by way of composition at the rate/rates,
as may be fixed by the State Government by notification in the Official
Gazette, having regard to the incidence of tax on the nature of the goods
involved in the execution of total value of the works contract. Apt it
would be to quote Section 55A as well for ready reference:
"SECTION 55A. COMPOSITION OF TAX.
The Commissioner may, in such circumstances and subject to such conditions
as may be prescribed, permit every dealer referred to in sub-clause (f) of
clause (10) of section 2 to pay at his option in lieu of the amount of tax
(including additional tax) leviable from him under section 7,(or 8) in
respect of any period, a lump sum by way of composition at the rate or
rates as may be fixed by the State Government by Notification in the
Official Gazette having regard to the incidence of tax on the nature of the
goods involved in the execution of total value of the works contract.
The provisions of sections [13,51 and 55] shall not apply to a dealer who
opts for composition of tax under sub-section (1).]"
Pursuant to this provision, and as empowered thereby, the Government of
Gujarat vide the notification dated 18.10.1993 (for short hereinafter
referred to as the Notification) did fix the rate of composition payable by
such dealer (s) in lieu of the amount of tax otherwise leviable under the
Act and as contemplated in the said statutory provision. As the stand-off
centers around the rate of composition so fixed, essential it would be to
set out the table of relevant entries to be immediately adverted to:
|Sr.No. |Description of works contract |Rate of |
| | |Composition |
|1. |Works contract for civil works like | 2% |
| |construction of buildings, bridges or roads, | |
| |and for repairs thereof | |
|2. |Installation of air-conditioners and | 15% |
| |A.C.Coolers | |
|3. |Furniture and fixtures, Partitions including | 5% |
| |contracts for interior decoration | |
|4. |Fabrication and installation of lifts or | 10% |
| |elevators or escalators | |
|5. |Fabrication and installation of plant and | 5% |
| |machinery | |
|6. |Construction of bodies on chassis of motor | 3% |
| |vehicles including three wheelers | |
|7. |Ship building, including construction of |2% |
| |barges, ferries tugs, trawlers or dredgers | |
|8. |Works contracts other than those mentioned | 12% |
| |above | |
6. The recorded facts demonstrate that the appellant being under the
impression qua the works contract ordered vide letter dated 22.10.1983 of
M/s. Anupam Colour and Chemicals that it would attract the rate of
composition prescribed against Entry No.5 hereinabove i.e. fabrication and
installation of plant and machinery and not 15% against Entry No.2 i.e.
installation of air-conditioners and AC coolers or 12% against Entry No.8
i.e. works contracts other than those mentioned, filed an application
before the Deputy Commissioner of Sales Tax (Legal), Gujarat under Section
62 of the Act and insisted that the works contract involved came within the
purview of Entry No.5 attracting the composition rate of tax at 5% only.
The said revenue authority by its order dated 16.10.1996 however rejected
the plea of the appellant and instead held that the works contract was
covered by Entry No.2 as the assessee had to air-condition the plant to be
erected by it. The margin of difference in the composition rates compared
to the rates of tax for the identical works contract as catalogued in the
Schedule to the Act did also weigh with the revenue authority in arriving
at this conclusion.
7. The appellant-assessee being dissatisfied did appeal against this
finding before the Gujarat Sales Tax Tribunal, Ahmedabad (for short
hereinafter referred to as the "Tribunal") which was registered as Appeal
No. 16/1996. In course of the regular assessment for the Assessment Year
1993-94, the concerned Sales Tax Officer, pursuant to the decision rendered
by the Deputy Commissioner of Sales Tax on 16.10.1996, assessed the
appellant by applying the composite rate of 15% for the works contract
involved.
8. The appellant thus preferred an appeal against this assessment order
before the Assistant Commissioner of Sales Tax, Ahmedabad and having failed
before this forum did take the issue before the Tribunal in Second Appeal
No.97/2001. These two appeals were also dismissed by the Tribunal vide its
judgment and order dated 2.12.2002 whereafter the appellant invoked the
writ jurisdiction of Gujarat High Court registered as Special Civil
Application No. 12508/2002 which to reiterate, have been, by the impugned
decision, disposed of along with Sales Tax Reference No.1/2004 laid by the
Tribunal before it under Section 69 of the Act referring the following
question of law:
"Whether on the facts and in the circumstances of the case, the Tribunal
was right in law in holding that the appellant's works contract for
fabrication and installation of air-conditioning plants falls under Entry 2
and, therefore, taxable at the rate of 15% and not under Entry 5 under
which it is taxable at the rate of 5% of the Schedule to the notification
dated 18.10.93 issued under Section 55A of the Gujarat Sales Act, 1969?"
9. The High Court has answered the question referred in the affirmative
thus sustaining the determination made by the revenue authorities/fora and
the learned Tribunal declaring that the appellant's works contract for
fabrication and for installation of air-conditioning plant did fall under
Entry 2 of the Notification and was taxable at the composition rate of 15%.
10. As the decision of the High Court assailed herein would disclose, in
its view, the air-conditioning systems are classified according to their
construction and operating characteristics and that it would be incorrect
to differentiate between a central air-conditioning system and a room air-
conditioner on the basis that the installation of air-conditioning plant
requires preparation of plant whereas no such exercise is to be undertaken
in case of installation of window air-conditioner etc. This is more so as
the basic components applied in the manufacture of a air-conditioning
plant, room air-conditioner or split air-conditioner are almost similar
with difference in size and are not drastically different. The appellant's
plea that in central air-conditioning system, fabrication has to be
undertaken requiring preparation of plant etc. and that thus the central
air-conditioning system has to be treated differently from a room air-
conditioner or window air-conditioner etc. was not accepted because,
according to the High Court, even in a room air-conditioner or window air-
conditioner or split air-conditioner or AC cooler, elevation and lay out of
the area requiring conditioning, has to be taken into consideration. The
appellant's contention that Entry 5 dealt with all kinds of fabrication and
installation of all kinds of plant and machinery and that there was no
reason to exclude the installation of air-conditioning plant therefrom was
negatived. The High Court was of the view that the composition scheme
ought to be regarded as an exemption reprieve and thus needed to be
construed strictly. Reliance was placed on the decision of this Court in
Sanden Vikas (India) Ltd. V. Collector of Central Excise, New Delhi (2003)
4 SCC 699 which held with reference to a particular entry in an exemption
notification under the Central Excise Tariff Act, 1985 that the air-
conditioner kit of a car did fall within the meaning of air-conditioners.
It rejected the proposition that in common parlance air-conditioner, room
air-conditioner, window air-conditioner, A.C. cooler, air-conditioning
plant etc. were differently known and thus installation of air-conditioning
plant would fall within Entry No.5.
11. Mr. Datar, the learned senior counsel for the appellant has
assertively urged that having regard to the inalienable and essential
constituents of the works contract as per the work order, fabrication as
well as the installation of the water chilling plant were distinctly
different items of works and thus the appellant was taxable at the
composition rate of 5% against Entry No.5 of the Notification. Referring
to the work order dated 22.10.1993 in particular, the learned senior
counsel has maintained that the water chilling plant of the customer was to
be configured in conformity with the design parameters referred to therein
and not on readymade specifications on the election or discretion of the
appellant-assessee. According to Mr. Datar the design parameters
prescribed by the customer, to cater to its requirement amongst others of
the temperature of the chilled water and the volume thereof to be used for
its process of manufacturing pigment did assuredly involve design and
fabrication of the essential composition of the system which by no means
could be equated with the installation thereof simplicitor as the end
device. That the customer was persistently particular on the adherence to
its prescribed design parameters as is apparent from the work order,
demonstrates that the works contract, in any view of the matter, cannot be
drawn within the contours of Entry 2 of the Notification, he urged.
12. As against this, Ms. Madhvi Diwan, the learned counsel for the
Revenue has argued that as the supply of the water chilling plant as per
the works contract involved for all practicable purposes does not envisage
any process of fabrication, the appellant is liable to be taxed at the
composition rate of 15%. According to her, the basic and functional
components of the water chilling plant being identical to that of an air-
conditioning plant, the appellant's plea of application of 5% composite
rate prescribed against Entry No.5 of the Notification is wholly misplaced
and thus no interference with the impugned judgment and order is called
for. Reliance was placed on the decision of this Court in Sanden Vikas
(India) supra.
13. The rival assertions have received our due consideration. The competing
entries requiring scrutiny to ascertain the correct composition rate of tax
payable vis--vis the works contract involved are engrafted admittedly in
the Notification issued by the Government of Gujarat in exercise of powers
conferred by Section 55A of the Act. Logically thus, the interpretation
necessitated by the rival orientations ought to be in furtherance of the
underlying objective of the said provision. A plain perusal thereof would
attest that thereby, in the circumstances to be prescribed, a dealer can be
left at his option to pay in lieu of the amount of tax payable, a lump sum
by way of composition, at the rate or rates as may be fixed by the State
Government having regard to the incidence of tax on the nature of the goods
involved in the execution of total value of the works contract.
Unmistakably, therefore, the State Government while fixing the composition
rate of tax has to be mindful of the nature of the works contract executed
and by no means can be oblivious thereof. Further, a composition rate of
tax is in lieu of the amount of levy otherwise payable by the dealer under
the Act. The scheme of composition as envisaged by Section 55A therefore
in our comprehension does not admit of any synonymity with that of
exemption as contemplated in law. This pre-supposition of the High Court
as one of the contributing factors in concluding that the works contract in
question did fall within the framework of Entry No.2 of the Notification is
apparently erroneous.
14. As adverted to hereinabove, the work order in clear terms did enjoin
that the design parameters pertaining to tonnage of refrigeration, final
temperature of the water to be made available for the process of
manufacturing pigments and the quantity of the chilled water essential
therefor were indispensable and were in addition to the other
specifications as offered by the appellant. The rigour of the insistence
for the adherence to the design parameters is patent also from the request
of the customer requiring the appellant to provide it with the lay out
detail, foundation drawing and other necessary information essential for
the erection of the water chilling plant. The exercise as a whole as
contemplated by the work order thus was neither intended nor can be reduced
to mere installation of the finally emerging apparatus. The work order
noticeably did not refer to any readymade or instantly available devices,
meeting the requirements of the customer so much so to be only installed at
its factory. Instead, the work order had been apparently tailor-made to
the requirements from which no departure was intended or comprehended. It
is in this perspective that the word "fabrication" appearing in Entry No.5
of the Notification assumes a decisive significance.
15. The legislative intendment entrenched in Section 55A of the Act to
maintain a direct correlation between the composition rates of tax as the
Notification would reveal and the description of the corresponding works
contract is patent. Understandably, the word "fabrication" had not been
applied in the works contract for installation of air-conditioners and A.C.
coolers contained in Entry No.2 of the Notification. The author of the said
Notification, however, did consciously include the expression "fabrication"
while describing the works contract enumerated in Entry 5 thereof. Having
regard to the inseparable interdependence between the description of a
works contract and the corresponding composition rate of tax, none of the
inherent components of the works to be executed can either be ignored or
disregarded for identifying the correct composition rate of the levy under
the Act. Any other approach could tantamount to doing violence not only to
the legislative purpose conveyed by Section 55A but also the language of
its yield i.e. the Notification seeking to promote the statutory end.
Viewed in that context, mere omission of the expressions "air-conditioners"
and "A.C. coolers" in Entry No.5 would not be of any definitive
consequence. The words plant and machinery applied in Entry 5 are
otherwise compendious enough to include air-conditioners and A.C. coolers,
if the works contract involved require fabrication as well as installation
thereof.
16. The word "fabrication" as defined in the Aiyan's Advanced Law Lexicon
(Vol.II), 3rd Edition 2005 is "to manufacture".
17. The Oxford Dictionary defines the word "fabrication" to mean to
construct or manufacture an industrial product.
18. The word "manufacture" as per the Aiyan's Advanced Law Lexicon
(Vol.II) in its plainest form and shorn of other details is the process of
transforming or fashioning of raw materials into a change of form for use.
The process of fabrication therefore conceptually would involve a lay out
for the ultimate device to be installed, preceded by a design of the
parameters prescribed, configuration of the resultant components, and
integration thereof to structure the ultimate mechanism or product.
Installation thereof would be a subsequent step to finally position the
plant to complete the works contract. As fabrication in terms of the work
order in the instant case is a distinctly independent yet integral segment
of the works contract contributing to the final physical form of the water
chilling plant with the characteristics intended, it cannot be construed to
be, synonymous to the installation thereof.
19. The High Court, as the impugned judgment would exhibit, had confined
itself wholly to the components of various air-conditioning devices
available and the range of the use thereof and in our estimate had missed
the significant aspect of "fabrication" integrally involved in the works
contract to supply the water chilling plant with the design parameters
stipulated by the customer. The High Court did adopt a general approach
vis-a-vis the air-conditioning devices commercially available in different
forms dehors the singular factual aspects of the work order constituting
the works contract. The High Court, thus, in our view, by overlooking the
component of fabrication in the works contract opined that the same was
within the purview of Entry No.2 and not Entry No.5. The description of
the works contract, to reiterate, being of determinative bearing for
ascertaining the composition rate of tax, we are of the unhesitant opinion,
in the face of the design parameters insisted upon in the work order and
consequential process of fabrication involved to cater thereto, that the
works contract involved squarely falls within the ambit of Entry No.5 of
the Notification. The margin of difference in rates of tax as prescribed
by the Act compared to those mentioned in the Notification ipso facto does
not detract from this conclusion. This consideration per se cannot override
the decisive characteristics of the works contract otherwise unequivocally
spelt out by the work order.
20. The primary canon of interpretation of a taxing statute hallowed by
time is underlined by the classic statement of ROWLATT,J. in Cape Brandy
Syndicate v. Inland Revenue Commnrs. (1921) 1 KB 64 at p.71 as extracted
hereunder:
"In a Taxing Act one has to look merely at what is clearly said. There is
no room for any intendment. There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be
implied. One can only look fairly at the language used."
It is trite as well that in a case of reasonable doubt, the construction
most beneficial to the subject is to be adopted. The underlying principle
is that the meaning and intention of a statute must be collected from the
plain and unambiguous expression used therein rather than from any notion
that may be entertained by a Court which may appear to be it just and
expedient. Even prior in point of time, TINDAL, CJ in Sussex Peerage case
(1844) 11 C1 & Fin 85 : 8 ER 1034(HL) had propounded thus:
"If the words of the statute are in themselves precise and
unambiguous, then no more can be necessary than to expound those words in
their natural and ordinary sense. The words themselves do alone in such
cases best declare the intent of the law-giver."
These views have with time resonated in various judicial pronouncements
with unambiguous approval of this Court as well amongst others in Income
Tax Officer, Tuticorin vs. T.S.Devinatha Nadar & Ors. (1968)68 ITR 252 and
very recently in Commissioner of Income Tax-III vs. Calcutta Knitwears,
Ludhiana (2014) 6 SCC 444 and Commissioner of Income Tax (Central)-I, New
Delhi vs. Vatika Township Pvt. Ltd. 2015 (1) SCC 1. A plethora of
decisions in this regard, available though, we do not wish to burden the
instant narration therewith.
21. Qua the issue of classification of goods to determine the
chargeability thereof and the rates of levy applicable, it is no longer res-
integra that the burden of proof is on the taxing authority to demonstrate
that a particular class of goods or item in question is taxable in the
manner claimed by them and that mere assertion in that regard is of no
avail as has been enunciated by this Court in U.O.I. & Ors. vs. Garware
Nylones Ltd.etc. (1996) 10 SCC 413 and relied upon with approval in HPL
Chemicals Ltd. vs. Commissioner of Central Excise, Chandigarh (2006) 5 SCC
208.
22. Equally, fundamental is the principle of statutory interpretation that
no construction to a legislation ought to be provided so as to render a
part of it otiose or redundant as held inter alia by this Court in
Maharashtra University of Health Sciences & Ors. vs. Satchikitsa Prasarak
Mandal & Ors. (2010)3 SCC 786.
23. That it is the cardinal principle of interpretation not to brush aside
a word used in a statute or in a Notification issued under a statute and
that full effect must be given to the every word of an instrument had been
underscored by this Court in The South Central Railway Employees Co-
operative Credit Society Employees Union, Secundrabad vs. The Registrar of
Co-operative Societies & Ors. reported in (1998) 2 SCC 580. The
Notification in the instant case being apparently statutory in nature is
akin to subordinate legislation to actualize and advance the legislative
intent engrafted in Section 55A. It not only owes its existence to the Act
but would also be amenable to the cardinal principles of interpretation
adverted to herein above.
24. In the overall legal and factual perspectives as obtained herein, any
endeavour to drag the works contract involved within the framework of Entry
No.2 would be repugnant to the basic principles of interpretation of
statutes and subordinate legislations like the statutory Notification under
Section 55A of the Act. To exclude the work of fabrication from the works
contract as per the work order would render it (works contract) truncated
to a form not intended by the customer. This would strike as well at the
root of the mandate of correlation of a works contract and the
corresponding composition rate of tax as envisaged by Section 55A of the
Act and the Notification issued thereunder.
25. The decision of this Court in Sanden Vikas (India) Ltd.(supra) is of
no avail to the revenue vis--vis the issue falling for scrutiny herein.
26. In the face of the determinations made herein above, the inescapable
conclusion is that the appellant's works contract for fabrication and
installation of water chilling plant at the factory of Anupam Colours and
Chemicals at Vapi would fall under Entry 5 of the Schedule to the
Notification dated 18.10.1993 issued under Section 55A of the Act and would
be taxable at the rate of 5% as prescribed thereby. The impugned decision
dated 4.9.2006 of the High Court of Gujarat at Ahmedabad in Sales Tax
Reference No.1/2004 and Special Civil Appeal No.12508/2002 and other
determinations as are contrary to the views expressed herein are hereby set
aside.
27. The Civil Appeal is allowed.
.........................CJ.
............................J.
(Arun Mishra)
............................J.
(Amitava Roy)
New Delhi,
Dated: April 8, 2015