Allowed

M/S Elgi Ultra Industries Ltd. v. the State of Tamilnadu

Madras HC9 Nov 2022WP/31368/2007

Case brief

AI extract

What is this about?

The High Court allowed two writ petitions. It held that PVC and HDPE pipes integrated into a Drip Irrigation System do not lose their identity. Consequently, the petitioner was entitled to a deduction under Section 3-B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959.

What did the court decide?

Writ petitions allowed with consequential relief to the petitioner; no costs.

M/S Elgi Ultra Industries Ltd. Vs the State of Tamilnadu — Cheque Dishonour | Madras HC (2022)

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W.P. Nos. 31368 & 31369 of 2007

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 09.11.2022

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CORAM

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THE HON'BLE MR. JUSTICE S. VAIDYANATHAN

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AND

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THE HON'BLE MR.JUSTICE C. SARAVANAN

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W.P. Nos. 31368 & 31369 of 2022

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M/s. Elgi Ultra Industries Ltd., represented by its Vice President (Finance & Accounts), Mr.C.N. Subramanian, India House, Trichy Road, Coimbatore.

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..Petitioner in both WPs.

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The State of Tamil Nadu, represented by its Secretary to Government, Commercial Taxes Department, Fort St. George, Chennai – 9.

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The Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Coimbatore.

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The Additional Appellate Assistant Commissioner (CT), Coimbatore.

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W.P. Nos. 31368 & 31369 of 2007

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The Commercial Tax Officer, Trichy Road Circle, Coimbatore – 18. ..Respondents in both WPs.

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Prayer: Petitions under Article 226 of the Constitution of India praying

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for issue of a Writ of Certiorari to call for the records in Coimbatore Tribunal Appeal Nos. 738 & 735 of 2011 dated 14.12.2006 for the assessment years 1995-96 & 1996-97 respectively on the file of the 2^nd respondent and quash the same.

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For Petitioner :: Ms.P.Jayalakshmi for in both WPs Mr.R. Karthikeyan For Respondents :: Mr.V. Prashanth Kiran, in both WPs Govt. Advocate for R1, R3 & R4

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O R D E R

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S. VAIDYANATHAN,J

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AND

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C. SARAVANAN,J.

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By this common order, both the writ petitions are herbey disposed of .

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W.P. Nos. 31368 & 31369 of 2007

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The petitioner is aggrieved by the impugned order dated

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14.12.2006 in Coimbatore Tribunal State Appeal Nos.738 & 735 of 2001 respectively, By the impugned order, the State appeals have been allowed in favour of the Revenue by the 2^nd respondent/Sales Tax Appellate Tribunal Relevant portion of the order reads as follows:

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"19. In the present case on hand, even though PVC pipes and HdPE Pipes and fittings go into the making of Drip Irrigation system, they are component parts of Drip Irrigation System and they lose their identity when the goods are sold to the purchaser. What was transferred or what was sold to the purchaser was Drip Irrigation System and not PVC pipes and HDPE Pipes. As a system alone, the goods are transferred and when the goods are transferred in the form of a system or equpment, the entry under which it is taxable has to be taken into consideration. The entry namely, Entry 69-A of Part B of First Schedule was specifically introduced in the Schedule from 5.3.97. Prior to the introduction of separate entry in the Schedule, whether it would come under Entry 26 and Entry 45 of Part D of First Schedule upto 16.7.96 and 17.7.96. Both the entires related to PVC Pipes, Tubes, Fittings and of varieties incluidng flexible and rigid pipes, hose and tubes whether transparent or plastic water supply items and sanitary wares. So, the Entry 26 and 45 as such would not embrace Sprink;er and Drip Irrigation Equipments at any cost.

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W.P. Nos. 31368 & 31369 of 2007

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Then, the Appellate Assistant Commissioner had also relied on Entry 24 of Part D and Entry 50 of Part C, which speaks about the water supply material and fittings other than those specified elsewhere in this Schedule or in Second Schedule including water tapes, showers, water tanks including water PVC tanks and other artiles used for the supply or distribution of water incluidng R.C.C. Pipes, parts and accessories thereof including valves. This Entry would not also take into its purview as Sprinkler and Drip Irrigation Equipments. When there is no specific Entry in the Schedule, then the goods has to be classified under residuary item namely under Entry 63 of Part D of First Schedule and under Entry 67 of Part D of First Schedule for the perid from which existed upto 16.7.96 and from 17.7.96 onwards respectively. The Entry in item 63 of Part D of First Schedule upto 16.7.96 and Entry 67 of Part D of First Schedule speaks as follows:

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"All other goods not specified elsewhere in any of the schedules."

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20. So, as long as, the Sprinkler and Drip Irrigation System does not have a specific entry in the Schedule, as per Entry 63 and Etry 67 of Part D of the First Schedule, says they have to be classified under that Entry. So, the assessment made by the Assessing Authority classifying the Sprinklers and Drip Irrigation Equipments that had been transferred or sold has to be necessarily classified under Entry 63 of Part D of First Schedule upto 16.7.96 at the rate of 8% and from 17.7.96 onwards at the

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rate of 11% as done by the Assessing Authority for the year 199596 and 1996-97 are correct. Moreover, even if it is construed as a transaction coming under Section 3-B of the TNGST Act, which speaks as follows:

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"Sec 3-B Levy of tax on the transfer of goods involved in

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works contract:

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Notwithstanding anything contained in sub-sections (2A), (2-B), (3), (4), (7) and (8) of Section 3, or Section 7-A, but subject to the other provisions of this Act including the provisions of sub-section (1) of Section 3, every dealer referred to in item (vi) of clause (g) of Section 2 shall pay, for each yera, a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates menitoned in sub-section (2) of Section 3 or, as the case may be, in Section 4.

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Explanation- Where any works contract involves more than one item of work, the rate of tax shall be determined separately for each such item of work.

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What was transferred in the execution of works contract is Sprinkler and Drip Irrigation Equipments and not PVC Pipes or HDPE Pipes.

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21. The recent judgment of the Hon'ble Supreme Court by the larger Bench in the case of Associated Cement Companies Limited V. Commissioner of Customs reported in 124 STC 59 at 74 had held as follows:

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"The Forty-Sixth Amendment was made precisely with a view to empower the State to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that the

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value may represent a small percentage of the amount paid for the execution of the works contract. Even if the dominant intention of the contract is the rendering of a service, which will amount to a works contract, after the Forty-sixth Amendment the State would not be empowered to levy sales tax on the material used in such contract. The conclusion arrived at in Rainbow Colour Lab case (2000) 118 STC 9 (SC); (2000) 2 SCC 385, in our opinion, runs counter to the express provision contained in article 366 (29-A) as also of the Constitution Bench decision of this Court in Builders' Association of India V.Union of India (1989) 73 STC 370; (1989) 2 SCC 645."

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As seen from any angle, the assessment made by the Assessing Authority is correct and the same is restored for the years 1995-96 and 1996-97 setting aside the order of the Appellate Assistant Commissioner.

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22. The next question that comes in for consideration is the levy of penalty for three years. The revision of assessment arose as a result of disallowance of claim of exemption which was rather allowed at the time of original assessment and no turnover de hors the accounts had been brought to assessment by a revision. Inasmuch as the turnover is found in the accounts and the exemption allowed was disalowed by revision of assessment, the question of penalty does not arise, as thereis no concealment of turnover and the turnovers were very well available with the Assessing Authority and it was allowed exemption accepting the contention of the dealer at the first instance, namely, the original assessment and the same turnover was taken for assessment by

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revision. So, the penalty levied by the Assessing Authority gains no importance in the light of the decision reported in 140 STC 254 in the case of Ascard Spinners (P) Limited. Therefore, the penalty deleted by the Appellate Assistant Commissioner holds good and no interference is called for, in respect of the same.

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In the result, the State appeals in CTSA 735/01 and 738/01 stand modified and the State appeal in CTSA 736/01 stands dismissed."

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The specific case of the petitioner in these two writ petitions, which pertain to the assessment years 1995-96 & 1996-97, is that the petitoner was issued with a work order for supply of Drip Irrigation materials and installation of the system for the buyers and that the said activity amounted to works contract within the meaning of Section 3-B of Tamil Nadu General Sales Tax Act, 1959 ( in short "TNGST" Act). It is submitted that in the course of execution of the works contract, the petitioner had purchased PVC and HDPE pipes for execution of the works contract and that the petitioner was entitled to deduction under Section 3-B(2)(b) of TNGST Act. It is submitted that the petitioner was entitled to deduction of all amounts for which the goods specified in First and Second schedule,

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were purchased from registered dealers liable to pay tax and used in the execution of works contract were to be excluded. It is submitted that in paragraph 19 of the impugned order, the Appellate Tribunal has categorically given a finding that eventhough the PVC and HDPE pipes and fittings go into the making of Drip Irrigation System, they are component parts of Drip Irrigation System. It is submitted that however, the conclusion that they lose their identity when they are sold to purchasers is incorrect.

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Learned Government Advocate for respondents 1, 3 and 4, on the other hand, would submit that the impugned order is well-reasoned and requires no interference. It is submitted that the order of the Appellate Assistant Commissioner, which has been reversed by the impugned order has to be sustained.

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We have considered the arguments advanced by the learned counsel for the petitioner and the learned Government Advocate for respondents 1, 3 and 4.

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During the period in dispute, ie., 1995-96 and 1996-97, there

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was no specific entry for Drip Irrigation System. Only with effect from

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16.07.1996, Entry 24 of Part D and later Entry 50 of Part C from

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17.07.1996 were incorporated and the same reads as follows:

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"Water supply materials and fittings (Other than those specified elsewhere in this Schedule or in Second Schedule) including water taps, showers, water tanks including water PVC tanks and other articles used for the supply or distribution of water including RCC pipes), parts and accessories thereof including valves."

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During the material period in dispute, when there was no specific Entry in the Schedule, the goods have to be classified in terms of residuary item namely under Entry 63 of Part D of First Schedule and under Entry 67 of Part D of First Schedule for the period from which existed upto 16.07.96 and from 17.7.96 onwards respectively and the petitioner would have been liable to tax.

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We are of the view that when Drip Irrigation System is installed, the pipes i.e, HDPE and PVC pipes used do not lose their

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characteristic. They are merely cut and fixed for pumping water through the irrigation system. They do not lose their characteristic. Therefore, the petitioner was indeed entitled for deduction in terms of sub-section 2(b) of Section 3-B of the Act, which reads as hereunder:

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'3-B. Levy of tax on the transfer of goods involved in works contract – (1) Notwithstanding anything contained in subsections (2-A), (2-B), (3), (4), (7) and (8) of Section 3, or Section 7-A, but subject to the other provisions of this Act including the provisions of sub-section (1) of Section 3, every dealer referred to in item (vi) of clause (g) of Section 2 shall pay, for each yera, a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates menitoned in sub-section (2) of Section 3 or, as the case may be, in Section 4.

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Explanation- Where any works contract involves more than one item of work, the rate of tax shall be determined separately for each such item of work.

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(2) The taxable turnover of the dealer of transfer of property involved in the execution of works contract shall, on and from the 26^th day of June 1986, be arrived at after deducting the following amounts from the total turnover of that dealer:-

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(a)

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(b) all amounts for which any goods specified in the First Schedule or Second Schedule, are purchased from registered dealers liable to pay tax unde this Act and used in the execution of works contract in the same form in which such goods were purchased;

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It is however subject to a rider in proviso which reads thus:

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"Provided that no such deduction shall be allowed unless the dealer claiming deduction, produced proof that the subcontractor is a registered dealer liable to pay tax under this Act and that the turnover of such amounts is included in the return filed by such sub-contractor; and

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9. In our view, the petitioner has discharged the burden of proof

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that is required. That apart, the issue appears to be also covered by the following decisions of this Court:

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(i) Joint Commissioner (CT) – III (SMR), Chepauk, Chennai and Another V. MKS Industries ( [2013] (11) TMI 1513)

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(ii) The State of Tamil Nadu V. Raj Mosaic Tile Works, Raj Floorings

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([2018] (4) TMI 887)

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(iii) State of Tamil Nadu V. Raj Mosaic Tile Works ([2017] (5) TMI

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1549)

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Sprinklers and Drip Irrigation Equipment was specifically introduced in Entry 69-A of Part B of First Schedule with effect from 05.03.1997 for the first time. We are of the view that the finding of fact rendered by the Tribunal, need not be interfered while exercising the extraordinary jurisdiction under Article 226 of the Constitution of India. We however, differ with conclusion arrived by the Tribunal. Pipe remains a pipe when it is integrated for use along with pumps and nozzle in a Drip Irrigation System. Therefore, the petitioner was entitled to the benefit of deduction under Section 3-B (2)(b) of the Tamil Nadu General Sales Tax Act, 1959 on the pipes used in the execution of work contract.

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