LexSTATE OF U.P. AND ORS. versus M/S. P.N.C. CONSTRUCTION CO. LTD. & ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
STATE OF U.P. AND ORS.
A
v.
MIS. P.N.C. CONSTRUCTION CO. LTD. & ORS.
AUGUST 8, 2007
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]
B
Constitution of India, 1950:
Article 366(29A){b)-Tax on transfer of property on goods involved in
a 'works contract ·~He_ld, after the Forty-Sixth Amendment, State Government C
is empowered to levy sales tax on value of goods involved in a works
contract in the same way in which sales tax was leviable on the price of
goods supplied in a building contract-Thus, State Government has been
empowered to levy sales tax on contract value.
U.P. Trade Tax Act, 1948:
D
Ss.2(h), 2(m) and 4B(2)-'Sale'-'Works contract'-Contract for
widening of roads - Recognition certificate for purchase of raw material i.e.
cement, sand, bitumen, furnace oil, HSD, Lubricant etc. for manufacture of
Hot Mix issued to assessee earlier, sought to be revoked by issuing a show E
cause notice dated 9.5.2001-He/d: Withdrawal of recognition certificate
was erroneous as it was contrary to the definition of the word 'sale' in ~.2(h)
which had to be read with s.4B(2) of the Act-Show cause notice being
based on complete misreading of provisions of the Act was rightly set aside
by High Court.
Words and Phrases:
Expressions, 'deemed sale', "value addition", "works contract"-
Connotation of
F
The respondent-assessee company entered into a 'works contract' with G
National Highway Authority of India for widening the roads, maintenance and
repairs thereof. The assessee was issued a 'recognition certificate' u/s 4-B
of the U.P. Trade Tax Act, 1948 for purchase of raw materials, i.e. cement,
sand, bitumen, furnace oil, HSD, Lubricant etc. for manufacture of Hot Mix.
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SUPREME COURT REPORTS
[2007] 8 S.C.R.
A Pursuant to the recognition certificate the assessee purchased the said raw
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materials against Form No.38 at concessional rate of tax. However, on
17.1.2001, the Commissioner, Trade Tax, U.P. issued a Circular stating that
purchase of the raw materials used in construction of roads cannot be made
against Form No.38. This Circular was followed by another Circular dated
B
23.2.2001 to the effect that the recognition certificate u/s 48 of the Act with
regard to bitumen, chemical compound etc. against Form No.38 should be
reviewed. Consequently, a show cause notice was issued to the assessee as to
why the recognition certificate granted to it should not be revoked. The
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assessee filed a writ petition before the High Court challenging the show cause
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notice as also the two Circulars dated 17.1.2001 and 23.2.2001 contending
c that the raw materials used by it in execution of the works contr~ct constituted
'deemed sale' under Article 366(29A) of the Constitution of India and,
therefore, the assessee was entitled to the benefit of concessional rate of duty
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on the purchase of the raw materials. On behalf of Revenue it was contended
that final product was not the Hot Mix but the road to be constructed from the
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Hot Mix manufactured by the assessee and .as the end product, i.e., the road,
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was not saleable and as it was not the notified product, the assessee was not
entitled to claim the benefit of concessional rate of duty on purchase of raw
materials u/s 4-8 of the Act. The High Court accepting the plea of the
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assessee, held that the impugned show cause notice was liable to be set aside.
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Aggrieved, Revenue filed the instant appeals.
E
Dismissing the appeals, the Court
HELD: 1.1. Under Section 2(m) of the U.P. Trade Tax Act, 1948 the
expression "works contract" is defined to include any agreement for carrying
out building construction, manufacture, processing, fabrication, erection,
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F installation, repair or commissioning of moveable or immoveable property for
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cash, deferred payment or in other valuable consideration. "Value Addition"
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is an important concept which has arisen after the Forty-sixth Amendment to
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the Constitution. Prior to the said Amendment this Court had taken the view*
that "works contract" was an indivisible contract and the turnover of the goods
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used in the execution of the works contract could not, therefore, become
exigible to sales tax. To overcome the effect of the said decision, the concept
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of"deemed sale" was introduced by the Parliament by introducing sub-clause
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(b) of Clause (29A) in Article 366 of the Constitution which states that the
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tax on sale or purchase of goods would includExcerpt shown. Read the full judgment & AI analysis in Lexace.