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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4149 OF 2007

SMT. B. NARASAMMA          …APPELLANT            

VERSUS

DEPUTY COMMISSIONER COMMERCIAL   TAXES KARNATAKA & ANR.                ...RESPONDENTS

WITH

CIVIL APPEAL NO.4318 OF 2007

CIVIL APPEAL NO.4319 OF 2007

CIVIL APPEAL NO. 7400  OF 2016 (ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015)

CIVIL APPEAL NOS.  7401-7872 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015)

CIVIL APPEAL NOS. 7873-7916 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)

J U D G M E N T R.F. Nariman, J.

1. Leave  granted  in  SLP(C)  Nos.15253/2015,

18646-19117/2015, 10081-10124/2015.

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2.    This group of appeals concerns the rate of taxability of

declared  goods  –  i.e.  goods  declared  to  be  of  special

importance  under  Section  14  of  the  Central  Sales  Tax  Act,

1956.  The question that has to be answered in these appeals

is  whether  iron and steel  reinforcements  of  cement  concrete

that are used in buildings lose their character as iron and steel

at the point of taxability, that is, at the point of accretion in a

works  contract.   All  these  appeals  come  from  the  State  of

Karnataka  and can  be divided  into  two groups –  one group

relatable to the provisions of the Karnataka Sales Tax Act, 1957

and post 1.4.2005, appeals that are relatable to the Karnataka

Value Added Tax Act,  2003.  The facts in these appeals are

more or less similar. Iron and Steel products are used in the

execution of works contracts for reinforcement of cement, the

iron and steel products becoming part of pillars, beams, roofs,

etc. which are all parts of the ultimate immovable structure that

is the building or other structure to be constructed.

3. Before coming to the submissions of learned counsel for

the parties, it is necessary to first set out the relevant provisions

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of  the  Constitution,  the  Central  Sales  Tax  Act  and  the  two

Karnataka Acts in question.  

4. Article 286(3) of the Constitution reads as follows:-

“Article 286. Restrictions as to imposition of tax on the sale or purchase of goods xx xx xx (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub clause (b), sub clause (c) or sub clause (d) of clause 29 A of Article 366, be subject to such restrictions and conditions in  regard  to  the  system  of  levy,  rates  and  other incidents  of  the  tax  as  Parliament  may  by  law specify.”

5. Section 14 of the Central Sales Tax Act, insofar as it is

relevant to the present case reads as follows:

“Section-14

Certain  goods  to  be  of  special  importance  in inter-State  trade  or  commerce.- It  is  hereby declared  that  the  following  goods  are  of  special importance in inter-State trade or commerce:-

(iv)    iron and steel, that is to say,-

(i) [pig iron, sponge iron and] cast iron including [ingot moulds, bottom plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap;

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(ii) Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);

(iii) Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;

(iv) Steel  bars,  rounds,  rods,  squares,  flat, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths;

(v) steel  structurals  (angles,  joists,  channels, tees, sheet piling sections, Z-sections or any other rolled sections);

(vi) sheets,  hoops,  strips  and  skelp,  both  black and galvanized, hot and cold  rolled plain and corrugated, in all qualities, in straight lengths and  in  coil  form,  as  rolled  and  in  riveted condition;

(vii) Plates  both  plain  and  chequered  in  all qualities;

(viii) Discs, rings, forgings and steel castings; (ix) Tools,  alloy and special  steels of  any of  the

above categories; (x) Steel melting scrap in all forms including steel

skull, turnings and borings; (xi) Steel tubes, both welded and seamless, of all

diameters and lengths including tube fittings; (xii) Tin-plates,  both  hot  dipped  and  electrolytic

and tin free plates; (xiii) Fist  plate  bars,  bearing  plate  bars,  crossing

sleeper  bars,  fish  plates,  bearing  plates, crossing  sleepers  and  pressed  steel sleepers--heavy and light crane rails;

(xiv) Wheels, tyres, axles and wheels sets; (xv) Wire  rods  and  wires—rolled,  drawn,

galvanized, aluminized, tinned or coated such as by copper;

(xvi) Defectives, rejects, cuttings, or end pieces of any of the above categories;]

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Section 15

Restrictions  and  conditions  in  regard  to tax on sale or purchase of declared goods within a State. Every sales tax law of a State shall, in so far as it imposes or authorizes the imposition of a tax on the sale or purchase of declared goods, be  subject  to  the  following  restrictions  and conditions, namely:

The tax payable under that  law in respect of  any sale  or  purchase  of  such  goods  inside  the  State shall  not  exceed  [five  per  cent.]  of  the  sale  or purchase price thereof [***];”

6. By  the 46th Amendment  of  the Constitution,  Article  366

(29A) was added, by which it became possible by a deeming

fiction  to  tax  sale  of  goods  involved  in  a  works  contract.

Declared goods were taxable  under  Section 5(4)  of  the Act,

which is set out hereunder:

        “Section 5(4)

Notwithstanding anything contained in  sub-section (1) or Section 5-B or Section 5-C a tax under this Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Schedule at the rate and only at the point  specified in the corresponding entries of columns (4)  and (3)  of  the said  Schedule  on the dealer  liable  to  tax  under  this  Act  on  his  taxable turnover of sales or purchase in each year relating to such goods:”

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The  Karnataka  Sales  Tax  Act  was  amended  to  tax  goods

involved  in  works  contracts.  Taking  advantage  of  the

constitutional  amendment,  Section  5-B  was  inserted  in  the

Karnataka Sales Tax Act, 1957.  This Section reads as follows:-

“Section 5-B: Levy of tax on transfer of property in  goods  (whether  as  goods  or  in  some  other forms) involved in the execution of works contracts. Notwithstanding anything contained in  sub-section (1) or sub-section (3) or sub-section (3-C) of Section 5, but  subject to sub-section (4),  (5)  or (6)  of  the said Section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other  form)  involved  in  the  execution  of  works contract  mentioned  in  column  (2)  of  the  Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule.”

7. The Fourth Schedule of  the said Act,  which deals with

declared goods in respect of which a single point tax is leviable

under Section 5(4) reads as follows:

“Act 3 of 1983 (From 1-11-1982) Sl No    Description of the Point of levy      Period         Rate  

  Goods        for which     of tax        applicable

1           2 3    4 5

2. “Iron and steel, that is to say,-”     

[(a)] (i) pig iron and cast iron  including  ingot

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moulds, bottom plates

-do- From 1-11-82   4%

(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes  and sizes)                                   -do-          From 15-7-75     4%

(iii)  skelp  bars,  tin  bars, sheet bars, hoe-bars and sleeper bars;

(iv)  steel  bars  (rounds, rods,  squares,  flats, octagon  and  hexagons, plain  and  ribbed  or twisted,  in  coil  form  as well as straight lengths);

(v)  steel  structurals (angles, joists, channels, tees,  sheet  piling sections,  Z  sections  or any  other  rolled sections);

(vi)  sheets, hoops, strips and  skelp,  both  black and galvanized,  hot  and cold  rolled,  plain  and corrugated,  in  all qualities,  in  straight lengths and in coil form, as  rolled  and  in  riveted condition;

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(vii)   plates  both  plain and  chequered  in  all qualities;

(viii) discs, rings, forgings and steel castings; sales  by the  first  or  the earliest of the successive dealers in the state liable to tax under this Act.  

(ix) tool, alloy and special steels  of  any  of  the above categories;

        Act 30 of 1975 (15-7-75 to 31-10-82)

(x) steel melting scrap in -do- 15.7.75 to 4%      All forms including steel 31.10.82      skull turnings and borings;

8. Similarly, the  Sixth  Schedule,  which  is  to  be  read with

Section 5-B, insofar as it is relevant, reads as under:-

Sl. No.     Description of works                     period for which             Rate of   

                          Contact           applicable       Tax

 1                           2          3 4

6.           Civil works like construction            1-4-86 to 31-3-95         Five per cent

             of building, bridges, roads, etc.       1-4-95 to 31-3-91       Eight per cent

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9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003,

taxed  declared  goods  and  works  contracts  generally  as

follows:-

Section 4 - Liability to tax and rates thereof.

(1)      Every  dealer  who is  or  is  required  to  be registered as specified in  Sections  22  and  24, shall be liable to pay tax, on his taxable turnover,

(a) in respect of goods mentioned in,-

(i) Second Schedule,  at  the rate  of  one per cent,

(ii) Third Schedule, at the rate of four per cent in  respect  of  goods  specified  in  serial number 30 and five per cent in respect of other goods, and  

(iii) Fourth Schedule, at the rate of twenty per cent.

(b)  in respect of.-

(i) cigarettes,  cigars,  gutkha  and  other manufactured tobacco at the rate of fifteen per cent;

(ii) other goods at the rate of thirteen and one half per cent.  

(c)    in  respect  of  transfer  of  property  in  goods (whether as goods or in some other form) involved in  the  execution  of  works  contract  specified  in column  (2)  of  the  Sixth  Schedule,  subject  to Sections 14 and 15 of  the Central  Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in  the  corresponding  entries  in  column (3)  of  the said Schedule.

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Third Schedule:

30.  Declared goods as specified in Section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956)

Sixth Schedule:

23. All other works contracts not  specified  in  any  of the  above  categories including  composite contracts  with  one  or more  of  The  above categories Fourteen and one half per cent

Fourteen and  one half  per cent  

10. We have in the main to deal with the impugned judgment

dated 1.9.2006 in Civil Appeal No.4318 of 2007, and judgment

dated 12.8.2004 in Civil Appeal No. 4149 of 2007 in favour of

Revenue,  and  a  detailed  impugned  judgment  which  is

challenged by the State of Karnataka dated 10.12.2013 in State

of Karnataka and etc. etc. v. M/s. Reddy Structures Pvt. Ltd.

and  etc.  etc. in  Civil  Appeals  arising  out  of  SLP  (Civil)

Nos.18646-19117/2015.

 11. Shri N. Venkatraman led the arguments on behalf of the

assessees,  after  whom  Shri  S.K.  Bagaria,  Shri  K.V.

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Viswanathan, and some others followed.  According to learned

counsel, the present matter is concluded by two judgments of

this Court, namely, Builders' Assn. of India v. Union of India,

(1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State

of Rajasthan, (1993) 1 SCC 364.  The detailed judgment dated

10.12.2013 correctly extracts all the relevant passages from the

aforesaid  judgments  to  reach  the  conclusion  that  under  the

Karnataka  Value  Added  Tax  Act,  2003,  the  iron  and  steel

products  that  are  reinforced  for  cement  concrete  used  in

buildings and structures, remains exactly the same goods at the

point of taxability – that is, the point of accretion, and that mere

cutting into different shapes and bending does not make these

items  lose  their  identity  as  declared  goods.   Therefore,

according to learned counsel, only tax at the rate of 4% can be

levied,  and  not  the  higher  rate  levied  in  respect  of  civil

construction works generally. Other  learned counsel  more or

less argued along the same lines as Shri N. Venkatraman, only

adding that it cannot be said that the identity of the iron and

steel  goods had changed at  the point  of  taxability, and they

cited several judgments to show that mere cutting and shaping

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of  these  products  would  not  amount  to  “manufacture”  and

hence the very  goods that  were declared goods alone were

taxable at the rate of 4%, both under the Karnataka Sales Tax

Act as well as the Karnataka Value Added Tax Act, 2003.  

12. Shri  K.N.  Bhat,  learned  senior  advocate  appearing  on

behalf of the State, relied strongly on  State of Tamil Nadu v.

M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC 834, in

order to buttress his submission that the iron and steel products

did  not  continue  as  iron  and  steel  products  but  somehow

became  different  goods  at  the  point  of  accretion  and  that,

therefore, they could be taxed at the higher rate applicable to

civil  constructions  generally.  He  did  not  dispute  the  law laid

down in  the two Supreme Court  judgments  cited by Shri  N.

Venkatraman, and very fairly submitted that if the iron and steel

products continued as declared goods then even though they

were in a works contract they were subject to the drill of Section

15  of  the  Central  Sales  Tax  Act,  and  would  therefore  be

chargeable  at  4%  if  it  were  found  that  the  said  products

continue to remain the same.  

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13. Having heard learned counsel for the parties, we are of

the opinion that Shri N. Venkatraman is right.  The matter is no

longer  res integra.   Two important  propositions emerge on a

conjoint  reading  of  Builders  Association  and  M/s.  Gannon

Dunkerley (supra).  First, that works contracts that are liable to

be taxed after the 46th Constitution Amendment are subject to

the drill  of  Article 286(3) read with Section 15 of the Central

Sales  Tax  Act,  namely, that  they are  chargeable  at  a  single

point  and  at  a  rate  not  exceeding  4% at  the  relevant  time.

Further, the point  at  which these iron and steel  products are

taxable  is  the  point  of  accretion,  that  is,  the  point  of

incorporation into the building or structure.  

14. The  relevant  paragraphs  from  these  two  decisions,

therefore, need to be set out.  In Builders Association (supra),

this Court held:

“We are of the view that all transfers, deliveries and supplies of goods referred to in clauses (a) to (f) of clause (29-A) of Article 366 of the Constitution are subject to the restrictions and conditions mentioned in  clause  (1),  clause  (2)  and  sub-clause  (a)  of clause (3) of Article 286 of the Constitution and the transfers  and  deliveries  that  take  place  under sub-clauses  (b),  (c)  and  (d)  of  clause  (29-A)  of Article  366  of  the  Constitution  are  subject  to  an

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additional restriction mentioned in sub-clause (b) of Article 286(3) of the Constitution. [para 32]

In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated thus: “Chattel to be affixed to land or another chattel.— Where  work  is  to  be  done  on  the  land  of  the employer or  on a chattel  belonging to him,  which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any  contract  of  sale.  Sometimes,  however,  there may  instead  be  a  sale  of  an  article  with  an additional and subsidiary agreement to affix it. The property then passes before the article is affixed, by virtue  of  the  contract  of  sale  itself  or  an appropriation made under it.”

In view of the foregoing statements with regard to the  passing  of  the  property  in  goods  which  are involved  in  works  contract  and  the  legal  fiction created  by  clause  (29-A)  of  Article  366  of  the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works  contract,  but  a  conglomerate,  that  is  the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property.

The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials.  

We are surprised at  the attitude of  the States which have put forward the plea that on the passing

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of  the  46th  Amendment  the  Constitution  had conferred on the States a larger freedom than what they  had  before  in  regard  to  their  power  to  levy sales tax under entry 54 of the State List. The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials  used in  works contracts as if  there was a sale of such goods and materials. We do not accept the argument that sub-clause (b)  of  Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales  and  purchases  independent  of  entry  54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of  goods  including  the  “deemed”  sales  and purchases of goods under clause (29-A) of Article 366 is to be found only in entry 54 and not outside it. We may recapitulate here the observations of the Constitution Bench in the case of Bengal Immunity Company Ltd. [AIR 1955 SC 661 :  (1955) 2 SCR 603 :  (1955)  6 STC 446]  in which this  Court  has held  that  the  operative  provisions  of  the  several parts  of  Article  286 which imposes restrictions on the levy of sales tax by the States are intended to deal  with  different  topics  and  one  could  not  be projected or read into another and each one of them has  to  be  obeyed  while  any  sale  or  purchase  is taxed under entry 54 of the State List.

We, therefore, declare that sales tax laws passed by the legislatures of  States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract  are  subject  to  the restrictions and conditions mentioned in each clause or sub-clause of  Article  286  of  the  Constitution.  We,  however, make  it  clear  that  the  cases  argued  before  and considered by us relate to one specie of the generic concept of “works contracts”. The case-book is full

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of  the  illustrations  of  the  infinite  variety  of  the manifestation of “works contracts”. Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing power of the State  as  are  applicable  to  “works  contracts” represented by “building contracts” in the context of the  expanded  concept  of  “tax  on  the  sale  or purchase of goods” as constitutionally defined under Article  366(29-A),  would  equally  apply  to  other species  of  “works  contracts”  with  the  requisite situational modifications.”      (Paras 38-41)

In M/s. Gannon Dunkerley (supra), this Court held:

“Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of Article 286 which  enables  Parliament  to  make  a  law placing restrictions  and  conditions  on  the  exercise  of  the legislative  power  of  the  State  under  Entry  54  in State List in regard to the system of levy, rates and other incidents of tax. Such a law may be in relation to (a) goods declared by Parliament by law to be of special  importance  in  inter-State  trade  or commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article  366.  When  such  a  law  is  enacted  by Parliament the legislative power of the States under Entry 54 in State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by Article 286(3) (a) Parliament has enacted Sections 14 and 15 of the  Central  Sales  Tax  Act,  1956.  No  law  has, however, been made by Parliament in exercise of its power under Article 286(3)(b).  

For the same reasons Sections 14 and 15 of  the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property

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in  goods  involved  in  the  execution  of  a  works contract and the legislative power under Entry 54 in State List will  have to be exercised subject to the restrictions  and  conditions  prescribed  in  the  said provisions  in  respect  of  goods  that  have  been declared to be of special importance in inter-State trade or commerce.

So also it is not permissible for the State Legislature to impose a tax on goods declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act except in accordance  with  the  restrictions  and  conditions contained in  Section 15 of  the Central  Sales Tax Act.  

Since the taxable event is the transfer of property in goods involved in the execution of a works contract and  the  said  transfer  of  property  in  such  goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the  execution  of  the  works  contract  the  cost  of incorporation  of  the  goods  in  the  works  can  be included  in  the  measure  for  levy  of  tax. Incorporation of the goods in the works forms part of the  contract  relating  to  work  and  labour  which  is distinct from the contract for transfer of property in goods and,  therefore,  the cost  of  incorporation of the goods in the works cannot be made a part of the measure  for  levy  of  tax  contemplated  by  Article 366(29-A)(b).”    [paras 31, 37, 41 and 45]

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15. At this juncture, it is important to note the fact situation in

a typical case before us. The Karnataka Appellate Tribunal in an

order dated 18.10.2010 in Civil Appeals arising out of SLP(C)

Nos. 18646-19117 of 2015 narrates the factual position thus:

“Different  types  of  steel  bars/  rods  of  different diameters  are  used  as  reinforcement  (like  TMT bars, CTD bars etc). The reinforcement bars/ rods need to be bent at the ends in a particular fashion to withstand the bending moments and flexural shear. The  main  reinforcement  bars/  rods  have  to  be placed  parallely  along  the  direction  of  the  longer span.  The diameters of  such main reinforcement rods/bars and the distance between any two main reinforcement bars/rods is calculated depending on the required loads to be carried by the reinforced cement  concrete  structure  to  be  built  based  on various engineering parameters.  At right angles to the  main  reinforcement  bas/rods,  distribution bars/rods  of  appropriate  lesser  diameters  are placed  and  the  intersections  between  the distribution  bars/rods  and  main  reinforcement bars/rods are tied together with binding wire.  The tying is not for the purposes of fabrication but is to see  that  the  iron  bars  or  rods  are  not  displaced during the course of concreting from the assigned positions  as  per  the  drawings.   Welding  of longitudinal  main  bars  and  transverse  distribution bars is not done.  In fact, welding is contra-indicated because  it  imparts  too  much  rigidity  to  the reinforcement  which  hampers  the  capacity  of  the roof  structure  to  oscillate  or  bend to  compensate varying  loads  on  the  structure  besides  welding reduces  the  cross  section  of  the  bars/  rods weakening  their  tensile  strength.  The reinforcements  are  placed  and  tied  together  in appropriate  locations  in  accordance  with  the

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detailed principles and drawings found in standard bar  bending  schedules which lay  down the  exact parameters of interspaces between bars/ rods, the required diameters of the steel reinforcement bars/ rods and contain the required engineering drawings for placement of  bars in a particular  manner. The placement of reinforcement bars/ rods for different structures is done under the supervision of qualified bar tenders and site engineers who are well versed with  the  engineering  aspects  related  to  steel reinforcement  for  creating  reinforced  cement concrete of desired load bearing capacities.

The appellant company has submitted general photographs showing the progress of  the work of placement and binding of reinforcement bars/ rods at  its  work  sites.   The  said  photographs  also establish the correctness of the aforesaid findings relating to placement and binding together of steel reinforcement bars/ rods before such bars/ rods are embedded in cement concrete mixtures. In another case in STA No.1328/2008 decided by this Tribunal on 10.2.2009 (in the case of  Sri  J.  Bhaskar Rao) which is relied on by the appellant, in the agreement between  the  Government  of  Karnataka,  Minor Irrigation Department and the said appellant  (who was  a  civil  contractor  engaged  in  the  civil construction  activity),  specification  for  placement and  binding  together  of  reinforcement  bars/  rods were stipulated by the Government of Karnataka as follows:  

“Reinforcing  steel  shall  conform accurately  to  the  dimensions  given  in the bar bending schedules shown on the relevant  drawings.   Bars shall  be bent cold  to  the  specific  shape  and dimensions  or  as  directed  by  the Engineer  in-charge using a  proper  bar

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bender, operated by hand or  power to attain proper radii of bends.”

“PLACING OF REINFORCEMENTS:

All  reinforcement  bars  shall  be accurately  placed  in  exact  position shown  on  the  drawings  and  shall  be securely held in position during placing of concrete by annealed binding wire not less than 1mm. in size and conforming to IS;280, and by using stays, blocks or metal  chairs,  spacers,  metal  hangers, supporting  wires  or  other  approved devices  at  sufficiently  close  intervals. Bars will not be allowed to end between supports not displaced during concreting or any other operation over the work …. As  far  as  possible,  bars  of  full  length shall  be  used.   In  case  this  is  not possible,  overlapping  bars  shall  not touch each other, but be kept apart by 25mm,  or  1  (1/4)  times  the  maximum size of the coarse aggregate whichever is  greater,  by  concrete  between  them. Where  not  feasible,  overlapping  bars shall be bound with annealed steel wire, not  less  than,  1mm.  thickness  twisted tight.  The  overlaps  shall  be  staggered for different  bars and located at  points along the span where neither shear nor bending moment is maximum.”

The  above  specification  which  are  standard for  all  civil  construction  works  also  confirms  the correctness of  the findings recorded by us supra. Welding of  bars/  rods reduces their  cross section and to that extent decreases the tensile strength of the  reinforcement  bars/  rods  defeating  the  very purpose of steel reinforcement in cement concrete.

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When bars/ rods are just joined together loosely by the use of binding wires, the elasticity of the steel bar/  rod  is  in  no  way  hampered  and  each reinforcement bar/ rod acts independently.  By the combined  action  of  the  main  reinforcement  bars/ rods and the distribution bars/ rods, the reinforced cement  structures  like  roofs  act  as  a  rigid diaphragm whose elements displace equally in the direction of the applied in-plane loads.  

From  the  above  discussion  it  is  clear  that largely  in  building  construction  works,  no pre-fabrication of any steel structure is done before embedding them in cement concrete mixture to form reinforced cement concrete structures.  The findings of the lower authorities to the contrary effect in the cases on hand are entirely opposed to facts.  

The  only  process  to  which  the  steel reinforcement  rods/  bars  are  subjected  to  before being embedded with  cement  concrete  mixture  is bending at its ends after cutting of steel rods/ bars to  the  required  size  and  tying  them  at  the intersections  with  binding  wire.   None  of  these processes constitute a manufacturing process and no new commodity is produced before incorporation into the works.”  

16. Given this factual scenario, Shri K.N. Bhat referred to the

judgment in  State of Tamil Nadu v. M/s. Pyare Lal Malhotra

and Others,  (1976) 1 SCC 834, and relied on paragraphs 9

and 10 of this judgment which read as follows:

“If the object was to make iron and steel taxable as a substance, the entry could have been: “Goods of Iron and Steel”. Perhaps even this would not have

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been clear enough. The entry, to clearly have that meaning,  would  have  to  be:  “Iron  and  Steel irrespective of change of form or shape or character of  goods  made  out  of  them”.  This  is  the  very unusual meaning which the respondents would like us to adopt. If that was the meaning, sales tax law itself  would  undergo  a  change  from being  a  law which  normally  taxes  sales  of  “goods”  to  a  law which  taxes  sales  of  substances,  out  of  which goods  are  made.  We,  however,  prefer  the  more natural  and  normal  interpretation  which  follows plainly  from the fact  of  separate specification and numbering of each item. This means that each item so  specified  forms  a  separate  species  for  each series of sales although they may all belong to the genus:  “Iron  and  Steel”.  Hence,  if  iron  and  steel “plates”  are melted and converted into  “wire”  and then sold in the market,  such wire would only be taxable once so long as it  retains its identity as a commercial goods belonging to the category “wire” made of either iron or steel. The mere fact that the substance or raw material out of which it  is made has also been taxed in some other form, when it was  sold  as  a  separate  commercial  commodity, would make no difference for purposes of the law of sales  tax.  The  object  appears  to  us  to  be  to  tax sales of goods of each variety and not the sale of the substance out of which they are made.

As  we all  know, sales  tax  law is  intended to  tax sales of different commercial commodities and not to  tax  the production or  manufacture  of  particular substances  out  of  which  these  commodities  may have been made. As soon as separate commercial commodities emerge or come into existence, they become  separately  taxable  goods  or  entities  for purposes  of  sales  tax.  Where  commercial  goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are  merely  joined  together,  they  may  remain

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commercially  the  goods  which  cannot  be  taxed again, in a series of sales, so long as they retain their identity as goods of a particular type.” [paras 9 and 10]

17. Given the fact situation in these appeals, it is obvious that

paragraph 10 of this judgment squarely covers the case against

the  State,  where,  commercial  goods  without  change of  their

identity  as  such,  are  merely  subject  to  some  processing  or

finishing, or are merely joined together, and therefore remain

commercially  the same goods which cannot  be taxed again,

given the rigor of Section 15 of the Central Sales Tax Act.  We

fail  to  see how the aforesaid  judgment  can further  carry the

case of the revenue.  

18. We  may  note  that  in  Civil  Appeal  No.4318  of  2007,

Larsen & Toubro Ltd. v. State of Karnataka & Another, the

Appellate  Tribunal  had  passed  an  order  dated  11.1.2002  in

which it decided the case against the assessee on the ground

that  since  the  iron  and  steel  products  went  into  cement

concrete,  they  changed form,  and  since  they  changed form,

they were no longer declared goods and could be taxed without

the constraints mentioned in Section 15 of the Central Sales

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Tax Act.   A Sales Tax Revision Petition filed before the High

Court yielded an order dated 14.6.2007 by which the assessee

was sent back to the Appellate Tribunal for rectification.  This

rectification  petition  was  dismissed  by  an  order  dated

30.11.2005. A Sales Tax Revision Petition was thereafter filed

against  both  orders,  namely, 11.1.2002 and 30.11.2005.  The

High  Court,  in  the  impugned  judgment  dated  1.9.2006,

unfortunately  adverted  only  to  the  rectification  order  dated

30.11.2005 and not to the original order of 11.1.2002 and thus

dismissed the revision petition stating that no question of law

arose.  Ordinarily, we would have set aside the judgment and

remanded the matter back to the High Court to determine the

matter on merits, but at this point of time we find this would not

serve any purpose.  Instead, it is enough to set aside both the

judgments  impugned  by  the  assessees,  dated  1.9.2006  and

12.8.2004, in light of the law laid down in Builders Association

and  M/s.  Gannon  Dunkerley  (supra),  and  declare  that  the

declared goods in question can only be  taxed at the rate of 4%.

19. In  the  State  Appeals,  we  find  that  the  lead  impugned

judgment  in  Civil  Appeals  arising  out  of  SLP(C)

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Nos.18646-19117 of 2015 dated 10.12.2013 is an exhaustive

judgment which has considered not only the facts in great detail

but also the law laid down by the Supreme Court. We affirm the

said  judgment  and  dismiss  the  appeals  of  the  State  of

Karnataka.  

Civil Appeal No.4319 of 2007

M/s. Ananth Engineering Works v. State of Karnataka

20. This appeal is by the assessee from a judgment dated

26.10.2006 allowing a revision against the Appellate Tribunal’s

order dated 19.1.2006.  In this appeal, we are concerned with

Rule 6(4)(m) of the Karnataka Sales Tax Rules, 1957.

“Rule 6(4):

6.   DETERMINATION OF TOTAL AND TAXABLE TURNOVER:

(1)…….

…….

(4)    In determining the table turnover, the amount specified in  clause (a)  to  (p)  shall,  subject  to  the conditions specified therein, be deducted from the total  turnover  of  a  dealer  as  determined  under clauses (a) to (e) of sub-Rule (1).

(a)…..

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(b)….

…..

(m)    In  the  case  of  works  contract  specified  in Serial  Numbers 1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40  and  42 of the Sixth Schedule;

(i)    all amounts received or receivable in respect of goods  other  than  the  goods  taxable  under sub-section (1-A)  or  (1-B) or  Section 5 which are purchased form registered dealers liable to pay tax under the Act and used in the execution of works contract in the same form in which such goods are purchased.

(ii) ……

…….EXPLANATION-III For the purpose of sub-rule (4),  the  expression  ‘in  the  same  form’  used  in sub-clause (i) of clause (m) shall not include such goods  which,  after  being  purchased,  are  either consumed  or  used  in  the  manufacture  of  other goods which in  turn are used in  the execution of works contract.”  

21. On facts in this case, it has been found that the appellant

is  engaged in  works  contracts  of  fabrication  and  creation  of

doors,  window  frames,  grills,  etc.  in  which  they  claimed

exemption for iron and steel goods that went into the creation of

these items, after which the said doors, window frames, grills,

etc. were fitted into buildings and other structures.  On facts,

therefore, we find that the High Court’s judgment is correct and

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does not need to be interfered with inasmuch as the iron and

steel  goods,  after  being  purchased,  are  used  in  the

manufacture  of  other  goods,  namely, doors,  window frames,

grills,  etc.  which  in  turn  are  used in  the  execution  of  works

contracts and are therefore not exempt from tax.  

22. The appeal of the assessee is therefore dismissed.

…..………………J. (A.K. Sikri)

…..………………J. (R.F. Nariman)

New Delhi; August 11, 2016  

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