Antony Dominic, J.
The petitioner is an assessee under the Kerala Value Added Tax Act. These revision petitions are filed by them challenging the orders passed by the Kerala Value Added Tax Additional Appellate Tribunal, Palakkad in T.A.(VAT)Nos.80, 81 and 82 of 2014.
2. We shall briefly state the facts of these cases. In pursuance to the tenders invited by the Kannur Municipality for the development of Central Bus Terminal, Kannur, Annexure A Concession Agreement was entered into between the Municipality and the petitioner. As per Clause 3 of the agreement, subject to and in accordance with the terms and conditions set forth in the agreement, Kannur Municipality granted to the petitioner the exclusive right, license and authority during the subsistence of the agreement to implement the project, which expression is defined to mean, development, designing, engineering, procurement, construction, operation and maintenance of the Central Bus Terminal Complex including the project facilities and all works relating to and in respect of the said complex as described in Article 2 and Schedule A, on a Build, Operate and Transfer basis. The period of the Concession Agreement is 29 years and three months. The agreement provides that upon completion of the project and during the operation period, the petitioner shall manage and operate and maintain the terminal and regulate the use thereof by third parties. It also authorises the petitioner to collect and retain Licence fee, interest accrued on the refundable portion of the deposits and usage fees from the users of the commercial and parking space. Clause 3.1 to 3.3 in clause 3 of the agreement, providing for 'Grant of Concession' and Clause 7 dealing with the 'Concession Fee', being relevant, are extracted below for reference:
3. GRANT OF CONCESSION
3.1 Subject to an in accordance with the terms and conditions set forth in this Agreement, Kannur Municipality hereby grants to the Concessionaire and the Concessionaire hereby accepts the Concession including the exclusive right, license and authority during the subsistence of this Agreement to implement the Project.
3.2 The period of Concession shall commence from the Appointed Date and expire upon completion of 29 Years 3 months (Twenty Nine Years and Three Months) there from.
3.3 Subject to and in accordance with the terms and conditions set forth in this Agreement, the Concession hereby granted shall entitle the Concessionaire to enjoy, and oblige the Concessionaire to undertake the following in accordance with the provisions of this Agreement, the Applicable Laws and the Applicable Permits:
(i) to develop, design, engineer, procure, construct and maintain the Central Bus Terminal Complex and to operate the commercial and parking space;
(ii) upon completion of the Central Bus Terminal Complex and during the Operation Period to manage and operate and maintain the Central Bus Terminal Complex and regulate the use thereof by third parties;
iii) to collect and retain the License fee, interest accrued on the refundable portion of the deposits and usage fees from the users of the commercial and parking space pursuant to this Agreement and the Fee Notification.
iv) 35% of the deposits collected shall be treated as deposit premium, which shall be non-refundable. The concessionaire can retain the non-refundable portion as the part of project revenue stream.
v) The concessionaire shall be free to collect license fee and deposits at his own discretion but not less than the minimum amount, in aggregate, specified in the schedule K.
vi) bear and pay all O&M expenses, costs and charges for the commercial and parking space and maintenance expenses.
viii) to develop and/or sub-license the airspace over the Central Bus Terminal Complex for installation of hoardings in accordance with the rules and regulations imposed by the concerned local authority;
viii) perform and fulfill all of the Concessionaire’s obligations under this Agreement;
ix) not to create any lien or Encumbrance on the Concession hereby granted or on the whole or any part of the Central Bus Terminal Complex and Project Assets nor transfer, license or part possession therewith save and except as expressly permitted by this Agreement or the Substitution Agreement.
Clause 7: CONCESSION FEE
7.1 In consideration of the grant of Concession under this Agreement, the Concessionaire shall pay to Kannur Municipality in the form of Concession Fee/Project Development fee as per Clause 7.2.1
7.2 The mode and time of payment of Concession Fee would be as follows:
7.2.1 Rs.40 lakhs, as per the following schedule to Municipality and ICICI Kinfra as the project development expenses which includes the fee spent by the municipality to ICICI Kinfra Limited, success fee to ICICI Kinfra and advertisement charges of the proposed Central Bus Station. The development fee to be paid in the form of a demand draft/bankers cheque at the time of signing this agreement.
7.2.2 Annual payment of Rs.10 Lakhs (Rupees Ten lakhs only) to Kannur Municipality for every year of the Operations Period shall be payable on/before the end of every Accounting Year during the Operations period. In case the Accounting year is incomplete, payment shall be made pro-rata based on the actual number of days in that Accounting Year. The last payment shall be made on the date of expiry of this Agreement or Termination Date whichever is earlier. In case of default from part of the concessionaire on non-payment annuity amount due to the Municipality, the Concessionaire shall pay such amounts including the penalty at the rate fixed as per the Municipal Act or any other Act for tax defaults at such time.
3. Petitioner states that they commenced the project work in the assessment year 2005-2006 and completed the project during the assessment year 2007-2008. By Annexure B orders in these revision petitions, their entire turn over for the assessment years 2005-2006, 2006-2007 and 2007-2008, which according to the petitioner is their entire investment in the project, was treated as the escaped turn over of works contract and on that basis, assessment was completed on the entire turn over, under Section 25 of the Kerala Value Added Tax Act. The appeals filed before the statutory first appellate authority and the Tribunal were rejected by Annexures C and D orders. It is in these circumstances, the petitioner has filed these revision petitions before this Court.
4. We heard the counsel for the petitioner and the learned Government Pleader appearing for the respondents.
5. The contention raised by the counsel for the petitioner is that it is not a case of works contract as defined as in Section 2(Iv) of the Kerala Value Added Tax Act and that therefore the assessment is totally illegal. According to the counsel, to bring a transaction within the expression “works contract” there should be an agreement for carrying out for cash or for deferred payment or for other valuable consideration, the construction and other works which are enumerated in the Section. According to the counsel, in so far as this case is concerned, the entire capital investment is entirely that of the petitioner, and there is neither any payment of cash nor deferred payment nor other valuable consideration, to bring it within works contract.
6. On the other hand, the learned Government Pleader argued that this is a case where the petitioner has executed the work for valuable consideration and that therefore, is a case of works contract. Government Pleader placed reliance on the judgment of this Court in Gammon India Limited v. State of Kerala and Others 2009 (2) KHC 349 (DB) and the Apex Court in Builders' Association of India and Others v. Union of India and Others (1989) 2 SCC 645, K.Raheja Development Corporation v. State of Karnataka (2005) 5 SCC 162 and Larsen and Toubro Ltd and another v. State of Karnataka (2014) 22 KTR 1 SC.
7. We have considered the submissions made by both sides. The expression works contract has been defined in Section 2(Iv) of the Kerala Value Added Tax Act and it reads thus:
“works contract” includes any agreement for carrying out for cash or for deferred payment or other valuable consideration the construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection, installation, modification or commissioning of any movable or immovable property.
8. Reading of this provision shows that the definition of Works Contract is a wide and inclusive one and any agreement for carrying out, the construction or other enumerated works involving any movable or immovable property for cash or for deferred payment or other valuable consideration is a works contract. The manner in which the definition of “works contract” has to be understood, has been indicated by the Apex Court in K.Raheja Development Corporation v. State of Karnataka (2005) 5 SCC 162. In that judgment, considering the pari materia definition of this expression in the Karnataka Act, the Apex Court held thus:
“As has been rightly submitted by Mr.Hegde the definition of the term “works contract” in the said Act is an inclusive definition. It does not include merely a works contract as normally understood. It is a wide definition which includes “any agreement” for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition does not make a distinction based on who carries on the construction activity. Thus even an owner of the property may also be said to be carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. We, therefore, do not need to go into the question whether the appellants are owners as even if the appellants are owners to the extent that they have entered into agreements to carry out construction activity on behalf of somebody else for cash, deferred payment or other valuable consideration, they would be carrying out a works contract and would become liable to pay turnover tax on the transfer of property in the goods involved in such works contract. Further under the said Act there is no distinction between construction of residential flats or commercial units. Thus, a works contract, within the meaning of the term in the said Act, can also be for construction of commercial units. For the purposes of considering whether an agreement amounts to a works contract or not, the provisions of the Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972 will have no relevance.”
9. The correctness of the judgment in Raheja's case (supra) was doubted and the matter was referred to a larger bench of the Apex Court and accordingly in Larsen and Toubro Ltd and another v. State of Karnataka [(2014) 22 KTR 1 SC] was decided by the Apex Court. In that judgment, after discussing all relevant precedents, the Apex Court affirmed the principles laid down in Raheja's case and held thus:
“19. Criticizing the conclusions drawn in paragraph 20 of the judgment in Raheja K Development Corporation v. State of Karnataka (2005) 141 STC 298 (SC); (2005) 5 RC 105; (2005) 5 SCC 162, it is argued by Mr.Rohinton F. Nariman that these conclusion are incorrect for, (a) the well known tests to determine as to whether a particular contract is a “works contract” or “contract of sale” have not been adverted to; (b) the contract is not read as a whole. Its substance and the main object has not been looked at and one phrase is torn out of context without adverting to any other part of the contract and based on this reasoning the contract is said to be a works contract; (c) though it is noticed that construction/development is to be on payment of a price in various instalments but does not draw any conclusion from it; (d) it is noticed that developer has a lien on the property but incorrectly states that the lien is because they are not owners. The lien is obviously so that if monies are not recovered from the prospective flat purchasers, the lien can be exercised, showing thereby that the contract is a contract of an agreement to sell immovable property; (e) after noticing that developer can terminate the agreement if any one instalment is not paid and can forfeit 10 per cent of the amount that has been paid and can ultimately resell the flat, it is held that the presence of such a clause does not mean that the agreement ceases to be a “works contract” without appreciating that such a clause would have no place in a works contract and can only be consistent with the contract for the sale of immovable property inasmuch as termination can take place if the entire consideration for the immovable property is not paid; (f) it is stated that if there is termination but there is no re-sale, there would be no works contract only to that extent which is again wholly incorrect because post termination what happens to a particular flat is of no relevance inasmuch as the prospective flat purchase goes out of the picture; and (g) the distinction between a flat being constructed and a flat under construction is a distinction without a difference for the reason that the judgment notices that if the agreement is entered into after the flat is already constructed, there would be no “sale” and no “works contract”. This is obviously for the reason the the flat has already been developed by the developer using his material and his plan and is sold as such to a purchaser.
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94. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract.
95. Ordinarily in the case of a works contract the property in the goods used in the construction of the building passes to the owner of the land on which the building is constructed when the goods and materials used are incorporated in the building. But there may be contract to the contrary or a statute may provide otherwise. Therefore, it cannot be said to be an absolute proposition in law that the ownership of the goods must pass by way of accretion or exertion to the owner of the immovable property to which they are affixed or upon which the building is built. ”
10. The learned counsel for the petitioner relied on the judgment of this court in Rams v. STO (1993) 91 STC 216 (Ker) and contended that the principles laid down there applies to this case. We are unable to agree. Reading of the judgment shows that the tax liability in the case of a works contract did not arise in that case for consideration. On the other hand, this court was only concerned with the question whether when paper was brought into state by the assessee therein for printing telephone directories for free supply to the Government of India, there was any sale attracting tax liability.
11. Learned counsel then placed reliance on the Full Bench decision of this court in M.Jaihind v. State of Kerala (111 STC 374). In so far as that case is concerned, the facts of the case are that the assessee was supplying gold ornaments accepting old ornaments in return and considering the nature of the transaction and the provisions of the KGST Act, this court held that the transaction did not involve any valuable consideration. It was also held that the term “valuable consideration” occurring in Section 2(xxi) of the KGST Act can be interpreted by applying rule of ejusdem generis and on that principle the Full Bench held thus;
“The principle that can be deducted from the above decisions is that receipt of gold ornaments in exchange of gold with labour charges would not come within the definition of “sale” under Section 2(xxi) of the Kerala General Sale Tax Act. The words “other valuable consideration”, which occur in Section 2(xxi) of the Act can be interpreted by rules of ejusdem generis, as the payment of cheque, bills of exchange or other negotiable instruments. The words “deferred payment or other valuable consideration” used in Section 2(xxi) of the Kerala General Sales Tax Act merely enlarge the ambit of the consideration beyond cash, but do not carry it outside the scope of the term “money”. In the present case, gold is an item of stock-in trade which was exchanged for ornaments which also formed part of the stock-in- trade of the assessee's business. It is difficult to equate gold with cash, or cheque or negotiable instruments. ”
However, in so far as these cases are concerned, since the assessee gets payment only in money, the principles laid down in this judgment cannot be of any assistance to them.
12. If Section 2(Iv) of the Kerala Value Added Tax Act is perused, in the light of the principles laid down by the Apex Court in Raheja's case and Larsen and Toubro's case (supra), it is evident that where based on an agreement executed, one of the parties to the agreement execute a work involving goods in the execution of the work and the goods are ultimately transferred to the other party, even if the contract is on a Build, Operate and Transfer basis Section 2(Iv) of the Kerala Value Added Tax Act is attracted.
13. The surviving question is whether in a BOT agreement, as in the case of the petitioner, there is payment of valuable consideration as contemplated under Section 2(Iv) of the Kerala Value Added Tax Act. We have already referred to the relevant clauses of the agreement which shows that the petitioner is assigned the right to collect revenue during the concession period from the end users of the bus terminal, which, but for the agreement to that effect, is the right of the Municipality. From out of the revenue thus collected, a mutually agreed portion is shared with the Municipality and the balance amount is retained by the petitioner. The amount thus retained by the petitioner is the valuable consideration which the petitioner receives under the concession agreement in return for the investment that it has made on behalf of the Municipality in the BOT project and also towards its profit. In such a situation, it is idle for the petitioner to contend that when work is executed pursuant to a BOT agreement, it does not involve any valuable consideration, to make it a case of works contract.
14. The argument of the petitioner that the transfer of the project takes place only after the mutually agreed concession period and that therefore, at least presently, there is no transfer of goods also is untenable. In our view, this contention stands answered by the Apex Court in Builders' Association case where it was held thus:
“When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under Article 366 (29-A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work.”
15. In this context, we should also refer to the judgment of this Court in Gammon India Limited v. State of Kerala and Others [2009 (2) KHC 349 (DB)]. The facts of the case are discernible from paragraph 1 of the judgment, the relevant part of which reads thus:
“Both the Writ Appeal and Writ Petition filed by the same company pertain to sales tax liability for a bridge constructed under the Build, Operate and Transfer (BOT) scheme. The bridge is across the backwaters connecting Willingdon Island to the main land. The first contract was between Greater Cochin Development Authority and the appellant/petitioner herein. However, later a subsidiary company of the appellant/petitioner by name Cochin Bridge Infrastructure Co. Ltd., CBICL, was brought in and a tripartite agreement was executed among GCDA, petitioner and CBICL providing for construction of the bridge, operation of the bridge by CBICL and transfer the same after 19 years of use by them. CBICL thereafter awarded the construction contract to the petitioner for Rs.2,215 lakhs . . .
. ”
16. The liability for tax on works contract was upheld by this Court in paragraph 3 of the judgment which is extracted below for reference:
“Even though sales tax assessment in the normal course should be contested in appeal, as held by the learned Single Judge, we feel assessment in this case calls for interference because it is totally without jurisdiction. In the first place, turnover of construction of the bridge is estimated based on toll collections for 19 years which is impermissible under the statute and so much so assessment is without jurisdiction. Secondly, the case is quite unique in nature because construction contract, the turnover stated therein, with reference to which compounding application is stated to have been filed and accepted by the Officer, is between related parties the contents of which need not be accepted by the department as real. What attracts sales tax liability is on the transfer of property involved in the construction of the bridge, which is works contract assessable under Section 5(1)(iv) of the KGST Act. If the consideration of contract shown in the contract is not acceptable to the assessing officer, he can give reasons for the same and estimate the turnover. However, it would not be permissible for the assessing officer to estimate toll collections and treat it as turnover for construction of the bridge and so much so the orders impugned in WP(C)8360 of 2008 have to be cancelled. The contention of the petitioner that contract amount referred to in the construction agreement between itself and it's subsidiary company namely CBICL should be assessed is also not acceptable because the awarder of the contract is GCDA for which the bridge is constructed. The contract between petitioner and it's subsidiary company is only an internal arrangement between them and it is upto them to fix the price of the contract suitable to parties. However, there would be no difficulty for the assessing officer to estimate the value of materials involved in the execution of contract, because similar bridges were constructed near the very same bridge in the past as well as later. In fact details of other bridges constructed in the area could be collected from PWD, CPWD, or Port Trust, as the case may be and value of the bridge for assessment could be determined after giving opportunity to the petitioner and after calling for particulars available with them. ”
17. Thus, in Gammon India’s case (supra), the liability for works contract in respect of a work executed in similar circumstances was upheld by this Court. This judgment has been confirmed by the Apex Court in SLP No.9691/2009 by its order dated 1.2.2010. Thus the concept of works contract has been explained by the Apex Court in Raheja's case, and this judgment was affirmed in Larsen and Toubro's case (supra). Further in similar circumstances levy has been upheld by this Court in Gammon India's case (supra). The principles laid down in these judgments are applicable on all fours to the case of the petitioner. In such circumstances, we are unable to accept the case of the petitioner that the contract in question does not involve any valuable consideration and therefore the assessment for works contract is untenable.
18. However, as in the case of Gammon India, in this case is also, the assessment has been completed on the basis that the whole turnover of the petitioner during the assessment years 2005-2006, 2006-2007 and 2007-2008 was the escaped the turn over. We have already stated that according to the petitioner, the turn over during these assessment years represent their total investment in the project. In Gammon India’s case, this Court has already held that in a works contract tax liability is attracted on the transfer of property involved in the execution of the project, which alone is to be assessed. Here also the same principle has to be applied and therefore, the element of works contract alone should have been brought to tax rather than the whole turnover, which, according to the petitioner, is their whole investment.
19. In the light of the above discussion, the liability for assessment of the works contract has to be confirmed but however the same has to be confined to the transfer of the property involved in the construction of the terminal which represents the works contract. Since the assessment completed is not in accordance with law, the orders impugned are set aside and the matter is remitted to the assessing officer, who will expeditiously complete the assessment and with notice to the petitioner.
Revisions are disposed of accordingly.
ANTONY DOMINIC,
Judge
jes
ANIL K. NARENDRAN,
Judge