VOLTAS LTD. Vs STATE OF GUJARAT
Bench: H.L. DATTU,ARUN MISHRA,AMITAVA ROY
Case number: C.A. No.-002957-002957 / 2007
Diary number: 26973 / 2006
Advocates: K J JOHN AND CO Vs
HEMANTIKA WAHI
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
Page 11
Page 12
Page 13
Page 14
Page 15
Page 16
Page 17
Page 18
Page 19
Page 20
Page 21
Page 22
Page 23
Page 24
Page 25
Page 26
Page 27
Page 28
Page 29
Page 30
Page 1
1
(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. 1. 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
Page 2
2
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.
2. We have heard the learned counsel for the parties.
3. 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
Page 3
3
2. Final temperature or chilled .. 5 to 6°C 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
Page 4
4
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 Schedule- IIA of the Act
Regular rate of tax
1. Installation of air- conditioners and A.C.coolers and for repairs thereof.
67 18%
2. Furniture and fixtures partitions including contracts for interior decoration and repairs
104 8%
Page 5
5
thereof 3. Fabrication and
installation of lifts or elevators or escalators and for repairs thereof
120 8%
4. Fabrication and installation of plant and machinery and repairs thereof
39 8%
5. Construction of bodies on chassis of Motor Vehicles including three wheelers and for repairs thereof
128(5) 4%
6. Ship building including construction of barges, Ferries Tugs Trawlers or Dredgers and for repairs thereof
186 4%
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
Page 6
6
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. (1) 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.
(2) The provisions of sections [13,51 and 55] shall not apply to a dealer who opts for composition of tax under sub-section (1).]”
Page 7
7
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 construction of buildings, bridges or roads, and for repairs thereof
2%
2. Installation of air-conditioners and A.C.Coolers
15%
3. Furniture and fixtures, Partitions including contracts for interior decoration
5%
4. Fabrication and installation of lifts or elevators or escalators
10%
Page 8
8
5. Fabrication and installation of plant and machinery
5%
6. Construction of bodies on chassis of motor vehicles including three wheelers
3%
7. Ship building, including construction of barges, ferries tugs, trawlers or dredgers
2%
8. Works contracts other than those mentioned above
12%
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
Page 9
9
(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
Page 10
10
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
Page 11
11
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%.
Page 12
12
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-
Page 13
13
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
Page 14
14
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
Page 15
15
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.
Page 16
16
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
Page 17
17
vis-à-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
Page 18
18
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
Page 19
19
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.
Page 20
20
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
Page 21
21
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.
Page 22
22
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.
Page 23
23
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,
Page 24
24
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
Page 25
25
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.”
Page 26
26
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
Page 27
27
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
Page 28
28
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
Page 29
29
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-à-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
Page 30
30
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