RUNGTA PROJECTS LIMITED Vs. STATE OF BIHAR

JUDGEMENT

(1.) IN this writ application the petitioners have prayed for issuance of appropriate writ declaring that the petitioners are not liable to pay sales tax for the works executed by them under contract dated October 14, 1993 and November 24, 1994 entered into by and between the petitioner No. 1 and Damodar Valley Corporation, respondent No. 4, for removing overburden, namely, earth/loose debris and stone at Bermo mines in the district of Bokaro with the help of heavy earth moving machinery. The stand taken by the petitioners is that the contract did not involve hiring of machineries or any sale within the meaning of section 2 (t) of the Bihar Finance Act, 1981 (hereinafter to be referred to as "the Act" for short ). A further prayer has been made for quashing the orders dated August 30, 1996 and September 2, 1996 whereby demand for payment of sales tax have been raised by the respondents, the sales tax authorities.

(2.) PETITIONER No. 1, M/s. Rungta Projects Limited, is a company incorporated under Indian Companies Act and carries on business of removal of overburden from different mines situated in various parts of the country as a contractor and for the purpose of the said business the petitioner-company uses its heavy earth moving machines (in short "hemm"), such as excavators, dozers, pay-loaders, dumpers, tippers drills etc. In 1993 the petitioner was awarded a contract by respondent No. 4, Damodar Valley Corporation (hereinafter to be referred to as "the DVC" for short) for removal of overburden, namely, earth/loose debris and stone from its Bermo mines in the district of Bokaro. The said contract was awarded pursuant to a public tender. An agreement to that effect was executed by and between the petitioners and the DVC on January 18, 1994 and work order was issued on October 14, 1993. It is stated that upon successful completion of the job awarded under the contract and the expiry of the period of the said contract, the respondent-DVC awarded another contract for a further period of 12 months for the same job subject to certain modification as regards the rate. According to the petitioners, the first contract was given in the year 1993 and the second contract was given in the year 1994 which were for all practical purposes renewal of the first agreement. The petitioners alleged that under special terms and conditions of the agreement the petitioners were allotted the work for removal of overburden from Bermo mines of respondent No. 4. The total quantity of overburden to be removed by the petitioners was to be measured in cubic metre and the rate at which the petitioners was to be paid was to be calculated on the basis of volume of work measured in cubic metre. It was further stipulated in the agreement that the petitioner was required to remove not less than 70,000 cubic metre per month and there was a penalty clause in the said agreement for shortfall in the removal of targeted quantity of overburden every month. Under the said agreement the petitioner was required to engage heavy earth moving machinery and whole operational cost of the machines and maintenance were to be borne by the petitioner-company. The petitioners' further case is that the company did not give on hire its machines to DVC and there was no question of giving on hire its machines as the work of removing the overburden from mines was to be done by the petitioner-company and not by the respondent-DVC. It is further stated that at no point of time during the execution of both the contracts, the petitioners transferred the machines either permanently or temporarily for use by the DVC. It is stated that notwithstanding this factual position and the fact that the petitioner-company was not liable to pay sales tax under any of the contracts, the respondent No. 4 was deducting sales tax at source from the running bills of the petitioner-company under 1994 contract. The petitioner objected to the said deduction by writing letters to the Coal Superintendent and agent of Bermo Collieries of respondent No. 4 stating, inter alia, that the machine was never hired or leased out to the respondent under the contract and, therefore, no sales tax was deductible. It is stated that respondent No. 3 being satisfied with the contention of petitioner No. 1 and after examining various clauses of the contract issued a certificate on June 29, 1994 certifying that no sales tax was payable by the petitioner-company and no tax was deductible at source. On the basis of the said certificate, the respondent-DVC stopped deducting taxes at source from the running bills of the petitioner-company. However, to the utter surprise the respondent No. 3 directed the respondent No. 4 to deduct Rs. 65,00,000 and odd from the bills of the petitioner-company and to deposit the same with the treasury. On enquiry, the petitioners learnt that respondent No. 3 had taken recourse to section 27 of the Act which provides special mode of recovery without initiating any assessment proceeding under section 17 of the Act or under any other provisions of the Act. Aggrieved by the said order the petitioners moved this Court in C. W. J. C. No. 391 of 1996 (R) challenging the demand notice for payment of sales tax and also penalty imposed on it. The petitioners filed another writ application being C. W. J. C. No. 926 of 1996 (R) after having learnt that a proceeding under section 17 (5) of the Act had been drawn up against the petitioners. Both the aforesaid writ applications were disposed of by this Court by judgment and order dated May 10, 1996. This Court, while quashing the order, gave liberty to the respondent No. 3 to proceed after serving notice on the petitioners. Thereafter respondent No. 3 served notice on the petitioners and in the said assessment proceeding a final assessment order has been passed on August 30, 1996 against the petitioner holding that it is liable for payment of sales tax to the extent of Rs. 65,77,613. 44 including penalty of Rs. 45,750. The petitioners challenged the aforementioned order of assessment on various grounds, particularly on the ground that the contract is a works contract and is not a contract for hiring machineries and no sale of any goods had taken place and, therefore, the same is not exigible to tax.

(3.) MR . S. B. Gadodia, learned Senior Counsel appearing for the petitioner-company, made a very exhaustive argument and tried to establish that the contract in question was not hiring contract; rather it was a works contract, where there was no involvement of "sale". Learned counsel brought to our notice the relevant provisions of the Constitution of India and the Bihar Finance Act and submitted that the petitioners' case does not fall within the definition of clause (29a) of article 366 of the Constitution of India and since it was purely a labour and service contract no tax is payable. Learned counsel further submitted that the use of the word "deploy" in the caption of the agreement and the description of the nature of the work goes to show that the machineries belonging to the petitioners were to be deployed by the petitioners for execution of work under the contract and this, by no stretch of imagination, can be said to be hiring and/or giving possession and/or control/custody of machineries by the petitioners to the respondent-DVC. According to the learned counsel, barring the name/nomenclature of the agreement, all other terms of the agreement clearly demonstrate that it was a pure and simple labour and service contract where transfer of goods was not involved. It is contended that the petitioner-company was executing the work of removing over-burden by deploying its own machineries, and at no point of time possession and/or custody/control of the machineries was handed over to the DVC by the petitioners, which is sine qua non for holding the transaction as "sale". Learned counsel further submitted that the petitioners had to carry out the work of drilling as and when required by the respondents with the help of dozer, drillers, etc. , belonging to the petitioner-company and as such the work carried with the help of machineries cannot be said to be hiring of the machineries by the petitioners to the respondents merely because for the use of these machineries petitioner-company has been paid on the basis of hourly charges, i. e. , number of hours for which the machinery was used by the petitioners for doing the work. Mr. Gadodia then drew our attention to various documents brought on record and submitted that there is nothing on the record to show that possession and control of heavy machineries were delivered to the respondent-DVC rather it is the petitioners who undertook the job of removal of overburden by using its own machineries which always remained in the control of the petitioners. Learned counsel then submitted that the petitioners never raised bill for hiring charges; rather on the basis of the volume of the debris removed from the site which was the terms of the agreement. Similarly payment received by the petitioner was made on the basis of the cubic metre on the volume of earth/stone removed by the petitioner from the site specified in the contract and not for hiring of machines. According to the learned counsel, had it been a hiring contract then there would have been in the agreement the specification or particulars of the machineries, the number of machineries to be engaged or deployed. In the contract document and other correspondences, the caption "hiring of heavy earth removal machine" was used, though no hiring of any machine was involved. In fact the word "hiring" used in the contract is for identification for deploying heavy earth removing machines. Learned counsel further submitted that all the necessary expenses, man power and labour were engaged by the company and were under the control of the company. The payments to all the man power engaged for the works contract were made by the petitioner-company. The consumable stores, diesel, lubricants, etc. , were purchased by the company either on payment of full sales tax or exclusive of sales tax. Learned counsel also submitted that even assuming that the contract was a hiring contract even then there is no transfer of right to use the goods involved and, therefore, ingredients of sale is absent in execution of the contract. Learned counsel lastly submitted that there was a penalty clause in the agreement to the effect that in the event the petitioners fail to remove the particular quantity of overburden from the site, then it shall be liable for payment of penalty. This penalty clause itself completely demolishes the case of the respondent-commercial taxes authorities that it is hiring contract and not the works contract where there was no involvement of "sale" within the meaning of the Act.