A’sale’ is not the simple transfer of the right to use something or the transfer of something to be used in a work

Fact and issue of the case

In terms of these references made by the Jammu and Kashmir Sales Tax (Appellate) Tribunal, Jammu [„the Tribunal‟] under Section 12-D of the Jammu and Kashmir General Sales Tax Act, 1962 [„the GST Act‟], following questions have been referred to this Court for determination

Whether, on the facts and circumstances of the case, the applicant has supplied the „goods‟ defined under Section 2(h) (iii) [should have been sub-clause (ii)] and 2(h) (iv) of the GST Act which shall be deemed to be a sale before 15.05.1997 under Section 2 (L) and is a dealer under the Act amenable to tax

Whether the Tribunal was bound by its earlier orders in the cases of applicant itself as they have attained finality and, on the principle of „consistency‟, the Tribunal should not hold otherwise than what has been settled by its earlier Benches

As would be seen from the reading of references, the aforesaid questions have arisen for determination of this Court in the background and context of following facts

M/S Power Grid Corporation of India Ltd. [„the assessee‟] is a Government of India undertaking engaged, inter alia, in establishing its own grid stations and laying wires for transmission of electricity. It is in the execution of its aforesaid works, the assessee purchased some goods, material and machinery etc. from outside the State. The assessee has taken registration under the Central Sales Tax, 1956 [„the CST Act‟]. The modus operandi adopted by the assessee for construction of its grid stations and laying wires etc. for transmission of electricity indicates that it first buys goods, material and requisite machinery from outside the State and thereafter hands over the same to the contractors for consumption, fixation and laying out in the works of the assessee. As is claimed, the ownership and possession of the property used in execution of the works of the assessee remains with it and the contractors are only engaged to execute the work on payment of labour charges. It is the specific case of the assessee that since no property in goods is transferred to the contractors, as such, no payment against such material handed over to the contractors, to be used in the execution of works of the assessee, is charged. It is, thus, claimed that since the assessee was not making any local sales under the GST Act, as such, was not initially registered under the Act. However, in compliance to the notice, the assessee appeared before the Assessing Authority and on the advice of the later, it filed the returns with nil turnover. The Assessing Authority, however, did not accept the contentions of the assessee and held that as the assessee had taken registration under the CST Act to import goods from outside the State against C-Forms, was therefore, a „dealer‟. It was the plea taken by the Assessing Authority that only a dealer, who is registered as such under CST Act can use C-Forms to purchase goods for personal use. It was, thus, concluded by the Assessing Authority that the transactions made by the assessee were liable to tax. Consequently, the Assessing Authority also imposed interest and penalty under the GST Act

Against the orders passed by the Assessing Authority for the accounting years 1996-97, 1997-98, 1998-1999, 1999-2000, 2000-01 & 2001-02 demanding tax, interest and penalty from the assessee, PGCI filed statutory appeals before the Appellate Authority. The appeals filed by the assessee in respect of all the accounting years except the accounting year 1998-99 were disposed of with the assessee getting partial relief of reduction of 20% of taxable turnover

Feeling aggrieved and dissatisfied with the orders passed by the Appellate Authority, the assessee filed six different appeals before the Tribunal. The impugned orders passed by the Assessing Authority were assailed primarily on the ground that the observations made by the Appellate Authority that the goods imported by the assessee from outside the State on the strength of C-Forms were supplied to the contractors for execution of work contracts and there was, thus, transfer of property in goods to the contractors was erroneous and legally unsustainable. It was contended by the assessee that the goods owned by it were only handed over to the contractors for use and fixation and, therefore, their possession and ownership always remained with the assessee. It was, thus, argued that there was no transfer of property in goods and that no project was completed by the contractors during the year when the material/goods were supplied. It was the contention of the assessee that since the goods and material were used in self works or the works of the Corporation, as such, there was no question of executing any works contract by the Contractors. It was urged that there could be no sale of any goods or material to itself

The Tribunal considered these appeals and the grounds of challenge urged on behalf of the assessee in extenso and, after analyzing the rival contentions, came to the opinion that, in view of the admitted facts that the assessee had purchased goods from outside the State against C-Forms and handed over the same to the contractors for using them in the works contract, it was a foregone conclusion that the goods had been utilized by the assessee through its contractors in works contract. The pivotal question which had arisen for consideration before the Tribunal was, whether the material purchased by the assessee and handed over to the contractors for using the same in the works contract for the projects of the assessee was taxable under GST Act

Referring to the definitions of “Dealer”, “Goods” and “Sale”, contained in Section 2 of the GST Act till 15.05.1997, it was concluded by the Tribunal that the Assessee was a dealer supplying goods defined under Section 2(h)(ii) and 2(h)(iv) of the GST Act up to 15.05.1997 and after 15.05.1997, the works contract, whether divisible or indivisible, involving transfer of property or not, would be deemed to be a sale by the assessee in terms of Section 2(g)(i-b). It was further opined by the Tribunal that before 15.05.1997, the term „sale‟ under Section 2(L) included goods involved in the execution of the contract. Post 15.05.1997, the position is much clear i.e “transfer of right to use goods etc. was also held to be a sale” as defined in Section 2(L) (v). The Tribunal, however, set aside the orders of the Assessing Authority to the extent and insofar as these pertain to imposition of penalty and levy of interest. The appeals were, thus, partly allowed

The assessee was still not satisfied and, therefore, moved an application before the Tribunal under Section 12-D of the GST Act and sought reference of as many as eight questions of law

Reference application was opposed by the respondents on the ground that no substantial question of law requiring reference to the High Court was involved in the matter. The Tribunal considered the reference application made in respect of all the six accounting years and by a common order dated 06.09.2022, framed and referred two questions of law which we have reproduced hereinabove

Observation of the court

We may agree with the assessing authority as also the Appellate Authority that these works after completion were to vest in the State or in some other utilities or organizations and, therefore, there was a transfer in property to such utilities/organizations or State for consideration and the transaction was exigible to sales tax, but, in the instant case, we find from the definition of sale as amended vide Act No. X of 1997 w.e.f 15.05.1997, the transfer of property in goods or in some other forms involved in the execution of works contract has been deleted

An argument was raised on behalf of the revenue that since the assessee is a registered dealer under the CST Act and has affected the inter-State purchases against C-forms, as such, cannot escape its liability to pay tax on the goods/material used by it in works contract. Indisputably, the assessee is a dealer engaged in inter-State sale and purchases and registered under Section 7 of the CST Act

Form a reading of Section 7 of the CST Act, it becomes abundantly clear that every dealer liable to pay tax would require mandatory registration under the Act. A person, who is registered under Section 7 of the CST Act, is necessarily a dealer liable to pay tax under the Act. A dealer, in terms of Section 2(b) of the CST Act, is a person who carries on business of buying, selling, supplying or distributing goods, directly or indirectly, for cash, or for deferred payment, or commission, remuneration or any other valuable consideration. In terms of Section 8 of the CST Act, every dealer, who in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in sub-section 3, which would include goods used in the generation or distribution of electricity or any other form of generation, shall be liable to pay tax under the CST Act which shall be 3%/4% of his turn over or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower. Section 8(4) clearly provides that such concessional rate of tax would be available to the dealer who furnishes to the prescribing authority in a prescribed manner a declaration duly filled and signed by him. The C-form is a prescribed form for furnishing such declaration

The argument that the assessee is not a dealer under the CST Act is, thus, not available in view of the fact that the assessee is not only a registered dealer in terms of Section 7 of the GST Act, but has also availed the benefit of concessional rate of tax in the inter-State purchases made by him of the goods and material used in construction and laying of power grids, substations and transmission lines etc

As already noted, had it been a case of the revenue that the assessee had utilized the goods imported from outside the State against C-forms in the works contract, entirely different consideration would have prevailed. What is sought to be taxed by the revenue is the transaction of transferring/conveying/handing over of the goods and material purchased by it to the contractors engaged for constructing and laying of utilities like power grids, sub-stations and transmission lines. We, however, find the mechanism adopted by the assessee to defeat the provisions of the GST Act and to cause loss to the public exchequer, a figment of ingenuity of the assessee. The contractor, who is entrusted the job of constructing and laying power grid stations and transmission lines is a supplier also. The assessee has cleverly split a single works contract into two i.e labour contract and supply contract, whereas the fact remains that the labour contractor and the supplier is one and the same entity. The assessee, by virtue of a supply agreement, purchases the goods and material from the contractor to be used by the same contractor in the construction and laying of power grids, sub-stations and transmission lines etc of the assessee. Ordinarily, the contractor was to raise power grids, sub-stations and transmission lines as a whole and hand them over to the assessee for consideration. The consideration was to include the price of material utilized in these works. Had the assessee followed this usual mechanism, it would have rendered the contractor liable to pay tax under the GST Act. To avoid this liability of the contractor, the assessee, in terms of a supply contract separately executed, purchased the goods and material from the contractor from outside the State and delivered the same to the self-same contractor to be used in different works of the assessee. Mr. Subash Dutt calls it a tax planning, but we see it as a shrewd move on the part of the assessee to defeat the provisions of the GST Act

We are aware that the aforesaid observations of ours may not directly impact the outcome of the references, but we are sure that if the Authorities under the GST Act lift the veil, they would certainly find that the two agreements styled as labour contract and supply contract are, in essence, a single composite contract to execute the works of the assessee by the contractor. If that exercise is done by the Authorities under the GST Act, the contractor, who has executed the works contract of the assessee, may fall in the GST net. In that eventuality, even the assessee, who is supposed to deduct the tax at source while making payments to the contractors could also be held liable. Be that as it may, with the aforesaid observations, we leave it to the Tax Authorities to act in the matter in appropriate manner

Mr. Subash Dutt, learned counsel appearing for the assessee has placed before us voluminous case law to substantiate his submissions that none of the transactions entered into by the assessee is exigible to sales tax under the GST. We, however, do not find it necessary to advert to and discuss all these judgments for the reason that we are clear from the reading of definition of ‘sale’ and ‘goods’ as it existed at the relevant point of time that the transaction of handing over the material/goods by the assessee to the contractors is not a transaction of sale in any manner calling for imposition of liability of sales tax interest or penalty. We also find force in the argument of Mr Subash Dutt that, for the sake of maintaining consistency and discipline, the Assessing Authorities as well as the statutory appellate authorities must follow the law laid down by the Tribunal which stood at the apex of hierarchy of the quasi judicial forums created under the GST Act. As is brought to our notice that on the earlier occasions also, the similar question had arisen before the Tribunal and the Tribunal after analyzing the entire legal position had held the transaction between the assessee and its contractors not a „sale‟ exigible to tax under the GST Act. This order of the Tribunal should have been followed faithfully by all the Forums subordinate to it. We, however, find that the Assessing Authorities had been passing the same orders time and again ignoring the mandate of law laid down by the Tribunal. We can understand that the Assessing Authority may pass a different order than the one passed by the Tribunal on a question of law, in a case where there is change of law or variation in fact situation. In that eventuality, it is expected of Assessing Authorities/Appellate Authorities to give reasons for deviating from settled position of law. If the Assessing Authority and the statutory appellate Authorities under the GST Act are permitted to ignore the legal position determined and laid down by the Tribunal, it would create not only judicial indiscipline, but would make the law totally uncertain. The assessees, who feel bound by the law declared by the Tribunal, unless it is modified or set aside by the Higher Forum, and regulate their conduct and transactions accordingly, would be in a state of quandary and many a times may be misled. This will put them to a lot of inconvenience and unsavoury adverse consequences

In view of the discussion made above, we answer the reference in the following manner

Answer to question No.1

That the transaction between the assessee and the contractors where under the assessee has supplied the goods and material purchased by it from outside the State against C-Forms for the purpose of erecting/establishing transmission lines, sub-stations and power grids for itself did not amount to „sale‟ as it was defined under Section 2(L) of the GST Act during the relevant period and, therefore, not exigible to sales tax under the GST Act. As a necessary corollary, the assessee may not be a dealer liable to pay tax under the GST Act in respect of aforesaid transaction

Answer to question No.2

That not only the Tribunal but all the Authorities subordinate to it are bound to follow and comply with the law laid down by the Tribunal. This is necessary to maintain judicial discipline and avoid uncertainty in law. The Tribunal may, in appropriate cases, take a view different from the one taken by it earlier if there is change in law or the fact situation in the context whereof the law was declared by it earlier. The Assessing Authorities or the Statutory Appellate Authorities under the GST Act cannot and should not take a view on question of law contrary to the view taken by the Tribunal. Such conduct of the Authorities shall be gross impropriety and indiscipline which may call for initiation of appropriate departmental action

We, however, make it clear that change in law and facts situation in context whereof a particular law is laid down by the Tribunal may be a good reason or justification for such Authorities to take a different view, but in that eventuality also, reasons justifying deviation must be spelt out. We, accordingly, answer the references in the aforesaid terms

Registry to send a copy of this judgment to the Tribunal who shall proceed in the matter in accordance with law