(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioners have filed this petition with a prayer for direction to quash the impugned action of the respondents of demanding taxes on the “access charges” received by the petitioners from railway authorities. The petitioners have also prayed for quashing a provisional attachment order dated 2.6.2006 issued by the Assistant Commissioner of Commercial Tax, Ahmedabad under section 45 of the Gujarat Value Added Tax Act 2003, (“VAT Act” for short).
2. We may notice facts at this stage :
2.1 The petitioner no.1 is a company registered under the Companies Act. The petitioner no.2 is its shareholder. The petitioner no.1 company is a consortium of three public limited companies constituted specifically for creating a special purpose company for the purpose of executing a contract with the western railways for gauge conversion of Viramgam- Mahesana track. The agreement for this purpose titled as “Concession Agreement” was entered into between the western railway and the petitioner company on 23.5.2003. We shall taken note of relevant terms of such agreement at a later stage. Suffice it to note at this stage however, that under such agreement the petitioner no.1 company had to convert an existing meter gauge railway line into broad gauge through its own finance. Upon completion of such work of gauge conversion, the petitioner no.1 company had to permit access to the railways to such infrastructure so created for which purpose the railways had to pay agreed charges for a period of 12 years. Upon completion of such period or sooner if the contract was terminated, the railways would get what according to the petitioners was full ownership over such
payment of nominal lease amount of Rs.1000/- per annum. This contract has become the centre of controversy for the purpose of sales tax under the Gujarat Sales Tax Act as was applicable in the State of Gujarat till the same was substituted by the VAT Act and thereafter, under such successor Act.
2.2 In brief stand of the petitioners is that in absence of any sale of goods, they are not exigible to sales tax or Value Added Tax (VAT). The State Government however, holds a belief that looking to the various terms and conditions of the contract, sales tax/VAT is payable.
2.3 On 3.9.2005, respondent no.4 issued a show cause notice to petitioner no.1 company. In such show cause notice, said respondents raised two separate issues. First one was with respect to payments made by the petitioners to one M/s.
D.S. Construction of New Delhi of a total contract price of Rs.81.81crores for the purpose of carrying out the gauge conversion work. In the opinion of the authorities, upon such payment, the petitioners were required to collect tax at source and deposit with the State Authorities in terms of section 56(2) of the Gujarat Sales Tax Act. The petitioners not having done so, they were called upon to show cause why such tax at the rate of 2% of total payments be not recovered with penalties.
2.4 Second issue raised in the show cause notice was with respect to the petitioners' liability to pay sales tax. In the show cause notice it was stated that the petitioners had secured the contract from the western railway on “Build Own and Transfer” basis (BOT basis). It was contended that the fact that the petitioners received access charges, it implies that the contract is primarily of sale and yearly payments of 16 crores in two installments received by the petitioners from western railways would invite sales tax liability at the rate of 12% under section 7 of the Gujarat Sales Tax Act. The petitioners were therefore, further called upon to show cause why they should not be held liable to pay tax as per section 3 of the Gujarat Sales Tax Act and why they should not be held liable to be registered under the relevant provisions of the said Act.
3. With respect to the petitioner's liability to deduct tax at source and deposit the same with the State Government, the Assistant Commissioner of Sales Tax passed an order dated 10.1.2006 in which he provided as under :
“The dealer is directed to pay Rs.504944960/- Rupees Five Crores Four Lacs Ninty four thousand nine hundred sixty only which includes Tax under Section 57B Rs.16362000/- Penalty of Rs.28733500/- and interest of Rs.5399460/-. Demand Notice in form-35 under GST Act for dues is issued separately.”
4. Qua such liability of TDS and connected penalty, the petitioners approached the Settlement Commissioner under communication dated 13.3.2006 requesting for settlement of dues. It is not in dispute that the Settlement Commission accepted the request on certain conditions and the petitioners having fulfilled such conditions, issue with respect to non-deduction of tax at source stands concluded. However, it is equally undisputed that second issue raised by the Assistant Commissioner in the show cause notice dated 3.9.2005 regarding the petitioners' liability to pay sales tax, remained open. Notices were issued calling upon the petitioner to participate before the authorities in this respect. Since however, no headway was made respondent no.4 passed impugned order of attachment under section 45 of the VAT Act. Being convinced that the petitioners have no property in the State of Gujarat, he attached the bank account of the petitioner in UTI Bank, Greenpark branch, covering the possible sales tax dues of Rs.4.80 crores. At that stage, the petitioners filed this petition and have prayed for prayers noted above.
5. While admitting the petition, by an order dated 29.11.2006, Division Bench of this Court passed the following interim order :
“Considering the facts brought to our notice, we direct the petitioners to deposit Rs.1,92,00,000/- against tax with the Registrar, High Court of Gujarat, within a week and payment of balance amount shall remain stayed.
The proceedings before the assessing authority for value added tax on `access charges' shall continue. However, no final order shall be passed without prior permission of this Court and those proceedings shall also be subject to the final orders on this writ petition.
If the amount of Rs.1,92,00,000/- are not deposited with the Registrar, High Court of Gujarat, the interim relief so granted shall stand vacated.
In case the amount of Rs.1,92,00,000/- is deposited, the attachment of banks accounts of the petitioners shall stand released.
However, it is further directed that if the petitioners receive any further `access charges', they shall deposit the tax at the rate of 12.5% on that amount with the Registrar, High Court of Gujarat, till further orders.”
6. Before we take note of rival contentions, few relevant clauses of Concession Agreement as also the statutory provisions contained in the Gujarat Sales Tax Act and the VAT Act need to be noted. The Concession Agreement was entered into for the purpose of grant of concession to develop, procure, finance, construct and maintain the western railway's section from Viramgam to Mahesana for gauge conversion as a non-Government private railway on BOT basis. Petitioner no.1 company which was referred to as the concessionaire in the said agreement was to receive from the railways the access charges in consideration of design, engineering, financing, procurement and construction of the project on Bot basis as per the terms and conditions of the agreement.
● Term “Access charges” was defined as under :
““Access Charges” means the regular fixed half yearly payment made by the Railway to the Concessionaire after COD for use o the Project Assets and facilities.”
● Term “BOT” was defined as under :
““BOT” means Build, Own and Transfer-a contractual arrangement whereby a Concessionaire or a private entity undertakes the construction, including financing of the Railway infrastructure facility on the leased land title of the railway and the Concessionaire authorises Access to the Railway for operating the same for an identified term on payment of agreed Access charges.”
● Term “COD” was defined as under :
““COD” means the actual date of commencement of Commercial Operations of the Project Railway (accordance with Article 4.1.3(g)”
● Term “Maintenance Period & Liability” was defined as under :
“Maintenance Period & Liability” means the period of 12 months from the date of issue of performance Certificate during which the Concessionaire's liability is to rectify the defects that may arise in the works due to defective material and poor workmanship (not normal wear and fear) executed by him for the project Railway in accordance with Railway's Requirements in Schedule “A””.
● Term “Project Assets” was defined as under :
““Project Assets” means all physical and other assets relating to and forming part of the Project Railway including but not limited to (i) rights over the Project Area in the form of licenses, right of way or otherwise, (ii) tangible assets such as civil works including the foundation, formation, track, interchange, bridges, approaches to bridges, lightning facilities, signals, sign boards, electric works, telephonic and other communication systems and equipment for the project stations, administration and maintenance, equipment, depots, relief centers, service facilities etc.”
● Agreement envisages grant of concession in following terms :
“1.5.3 Grant of concession : Subject to and in accordance with the terms and conditions set forth in this agreement, concession period shall be the period beginning from the Appointed date and ending on the COD + 12 (twelve years) and authority granted by the Railway, during the subsistence of this Agreement to implement the Project in respect of the Project Railway subject to and in accordance with the terms and conditions set forth in this Agreements, 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.
(i) Project development which envisages the concessionaire to undertake all activities to fulfill all conditions precedent to “Financial Close” within the development period in accordance with Article 1.12.
(ii) Project implements which shall not be limited to design, engineer, finance, procure and construct the project Railway during the concession Period including giving access to Railways to Project Assets and Project Facilities constructed and owned by the concessionaire company for exclusive for operation and maintenance and shall include rectifying of all defects during the defect liability period. The concessionaire, in accordance with this obligations under this Agreement, shall bear and pay all expense, costs and charges incurred.
(iii) Permit Use of assets to Railway The concessionaire shall allow access of the project Assets and the Project Facilities exclusively to Railway for operating and maintenance on payment of Access charges in accordance with Article 9.
(iv) Assignment The Concessionaire shall not assign or create any lien or Encumbrance on the concession hereby granted or on the whole or any part of the project Railway nor transfer, lease or part possession therewith save and except as expressly permitted by the Tripartite Agreement.
(v) Concession Period The concession period shall commence on the Appointed date and shall end on the Termination Date.
(vi) Validity of the agreement : The agreement shall be valid until all the assets are transferred to the Railway and the lien on site leased to the concessionaire is divested at the end of concession period in accordance with Article 14 of this Agreement.”
● Article 2 of the agreement pertained to railway's obligations and includes the railway's responsibility in providing access and entry to the project area, permit use of the project area by concessionaire on lease basis and to give possession of all parts of the site etc.
● Article 4 of the agreement pertained to concessionaire's general obligations which included the project development, design responsibilities and construction operation and maintenance and commencement of the project. In particular, it was provided as under :
“(a) The concessionaire shall with due care and diligence design, execute and complete the works and remedy and defects therein and shall take full responsibility for the adequacy, stability and safety of all aspects of the project during the construction, operation, maintenance and management phases upto COD in accordance with the provisions of the contract. The operation in this phase is limited for running of locomotives, track machines and any other rolling stock for track tamping, trial runs, or installation of track.”
● In clause 4.1.9 of the agreement, the concessionaire had to permit the railways to use the assets from the date of commencement of operations. It was agreed as under :
“4.1.9 Permission to use Assets : The Assets shall be permitted to be used by the railway with effect from COD and shall be used by the railway as it deems fit and the concessionaire shall have no right to interfere in the utilization of the assets. The maintenance of the Asset created will be undertaken by the Railway as per its laid down procedure an the concessionaire shall have no right whatsoever to require the Railway to alter/strengthen the maintenance procedures and practices in vogue.”
● Clause 12.3 of the agreement pertained to “termination payment for concessionaire event of default.”
● Clause 12.4.2 pertained to payment in case of termination on account of default on part of the railways.
● Clause 14 pertained to hand back of project and divestment of rights and interests. Relevant clauses thereof read as under :
“14.1 Hand back & Divestment Condition 14.1.1 Hand back, Divestment of rights and interest can take place under the following circumstances :
(i) Upon achieving COD
(ii) Upon Termination of this Agreement before achieving COD.
(iii) Upon reaching the end of Concession or termination after achieving COD.
14.2 Hand back of Project Assets and Project Facilities on achieving COD
14.2.1 The project assets and project facilities shall be handed over as under :
(i) Upon achieving COD,the Concessionaire shall give Railways access to Project Assets and project facilities on exclusive basis for operation and maintenance.
(ii) All Project Assets and Project Facilities including the formation works, tracks, structure and equipment shall have been renewed and cured of all defects and deficiencies as necessary so that the Project Railway is complete with the Specifications and Standards set forth in this Agreement.
(iii) The Concessionaire delivers relevant records pertaining to the Project Railway and its design, engineering and construction pertaining thereto and complete as build Drawings on the Project completion date prior to issue of completion certificate
14.3 Divestment to Termination after COD or at the end of Concession period :
(i) The land, project Assets and Project Facilities created and owned by the concessionaire as a result of the concession under this agreement shall deemed to have been transferred to Railways.
(ii) The Concessionaire executes such deeds of conveyance, documents and other writing as the Railway may reasonably require to convey, divest and assign all the rights, title and interest o the Concessionaire in the Project Assets and Project Facilities free from all Encumbrances absolutely and free of any charge or tax uto the Railway; and
(iii) The concessionaire complies with all other requirements as may be prescribed under Applicable Laws to complete the divestment and assignment of all the rights, title and interest of the Concessionaire in the Project Assets and Facilities free from all Encumbrances absolutely and free of any charge or tax to Railway.”
7. At this stage we may take note of relevant statutory provisions. Section 2(12) of the Gujarat Sales Tax Act, 1969 (“the Act” for short) defines term “goods” as under :
“(12) “goods” means all kinds of movable property (not being news-papers or actionable claims or stocks, shares or securities and all materials, articles and commodities, including standing timber and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale”
● Section 2(28) of the Act defines term sale. Relevant portion of which reads as under :
“(28) “Sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes-
(c) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract.
Explanation I- For the purposes of this clause except sub-clauses(c) and (d), “sale” within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section(2) of section 4 of the Central Sales Tax Act, 1956 (LXXIV of 1956) Explanation II – For the purpose of sub-clause(c) of this clause, the expression “works contract” means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify)”
● Section 27 of the Act specifies various sales tax authorities.
● Section 28 envisages establishment of a Tribunal by the State Government to discharge the functions conferred to such Tribunal by or under the Act.
● Chapter V of the Act pertains to declarations, returns, assessments, payments, penalty, recovery and refund of tax.
● Section 40 of the Act which is part of Chapter V pertains to declarations and returns.
● Section 41 of the Act pertains to assessment of taxes.
● Section 42 of the Act provides for time limit for completion of assessment.
● Section 45 and 46 pertains to imposition of penalties.
● Chapter VII of the Act pertains to proceedings under the Act.
● Section 65 of the Act contained in such chapter provides for appeals either as First Appeal or Second Appeal before the Sales Tax Authorities and/or the Sales Tax Tribunal.
● Section 64 provides for bar of jurisdiction of civil courts and provided that no Civil Court shall have jurisdiction to deal with or decide any question which the Tribunal, the Commissioner or any such officer under the Act was empowered to deal with and decide under the Act.
● Section 67 of the Act pertains to Commissioner's and Tribunal's power of revision.
● Section 69 of the Act pertains to reference that could be made before the High Court against the decision of the Tribunal.
8. Likewise the VAT Act also which is a successor Act of Gujarat Sales Tax Act contains similar machinery provisions for collection of taxes.
● Chapter 5 of the VAT Act pertains to returns, assessment, etc.
● Chapter 9 of the VAT Act pertains to appeal, revision, reference and rectification.
● Section 73 which is contained in Chapter 9 provides for appeal to the higher departmental authorities and to the Tribunal.
● Section 75 prescribes powers of revision of Commissioner and Tribunal.
● Section 78 provides for appeals which may lie to the High Court from an order passed by the Tribunal, if the Court is satisfied that the case involves a substantial question of law.
9. On the basis of above documents on record, learned senior counsel Shri Manish Bhatt for the petitioners vehemently contended that the Sales Tax Authority have no right to collect any tax from the petitioners. He submitted that there was no sale of goods as envisaged under the Sales Tax Act. Counsel further submitted that this was also not a case of execution of works contract by the petitioners. Application of section 2(28)(c) of the Act was therefore, ruled out. Counsel further submitted that the Sales Tax Authorities therefore, were not entitled to assess any tax in the hands of the petitioners. Notice issued for the purpose of assessment and collection of tax was therefore, without jurisdiction.
9.1) On the basis of such contentions, counsel also questioned the legality of the impugned order of provisional attachment issued by the respondent no.4 in purported exercise of powers under section 45 of the VAT Act. Counsel submitted that when the petitioners tax liability did not arise, there was no question of attachment of the petitioners' property for collection of such tax.
9.2) In support of his contentions in addition to drawing our attention to various clauses of the agreement, counsel relied on following decisions:
1) In case of Duncans Industries Ltd. v. State of U.P. and others reported in AIR 2000 Supreme Court 355, wherein the Apex Court held that the plant and machinery are immovable properties. It was observed that the question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the fats and circumstances of each case. In facts of the case before the Supreme Court, it was held that the nature of machineries involved clearly showed that they have been embedded in the earth to constitute a fertiliser plant and were definitely embedded permanently with a view to utilise the same as a fertiliser plant.
This decision was cited in support of the contention that in the present case there was no sale of movable properties. Therefore, question of charging sales tax would not arise.
2) In case of Commissioner of Income-tax v. Radhe Developers reported in (2012) 341 ITR 403(Guj.), wherein the Division Bench of this Court had occasion to examine whether a particular transaction was in the nature of works contract. The Court took note of the fact that the builder had invested his own funds. The loss or profit resulting from such venture were also of the builder. In that context, it was held that the case was not one of the works contract even though the land did not belong to the developer.
This decision was cited in support of the contention that in the present case the agreement between the parties and the terms and conditions contained therein would demonstrate that the petitioners had not executed the project as a works contract.
10. On the other hand, learned Advocate General Shri Kamal Trivedi opposed the petition contending that case of the petitioners would fall under section 2(28)(c) of the Act. They have neither registered themselves with the authority nor paid the tax for which purpose show cause notice came to be issued.
10.1) He took us through various terms and conditions of the agreement to point out that the petitioners were to receive bi-yearly payments. The property was transferred to the railway authorities upon handing over the entire project upon completion. He submitted that the entire document should be read as a whole. A stray clause here or a statement there should not be seen in isolation. He further submitted that the intention of the parties was that the conversion of existing railway line from meter gauge to broad gauge would be undertaken by the
authorities who would pay periodic charges for a span of 12 years. He pointed out that at the completion of above 12 years envisaged under the agreement, the petitioners were not to receive any further payments for infrastructure created by them at their cost. According to the learned Advocate General therefore, this was a clear case of the works contract. He drew our attention to explanation II of Section 2(28)(c) of the Act which provides that for the purpose of sub-
clause(c), the expression “works contract” means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify. He drew our attention to Appendix-1A to the Act which contains a list of contracts for execution of works specified as a “Works Contracts” for the purpose of section 2(28)(c). Clause(b) thereof includes the following:
“(b) the installation, fabrication, assembling, commissioning or repair of any plant or machinery, whether or not affixed to any building or other immovable property or”
10.2) Learned Advocate General further submitted that the petitioners case would fall under this clause. They therefore, cannot avoid the liability to pay sales tax according to law. He submitted that similar provisions have been made in the successor Act i.e. the VAT Act.
10.3) In support of his contentions, learned Advocate General relied on the following decisions :
1) In case of the State of Madras v. Richardson & Cruddas Ltd. reported in (1968) 21 STC 245, wherein the Apex Court examined the question whether a particular contract was a contract for sale of specific goods or was a works contract. It was held that the contract being one for supplying for an inclusive price a specially designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer, it was not a contract for sale of a unit or different parts of the unit as specific goods, but was a works contract.
2) In case of Builders' Association of India and others v. Union of India and others reported in (1989) 2 Supreme Court Cases 645, wherein the Constitution Bench of the Apex Court considered the validity of amended provisions of Article 366(29-A) which enabled the States to levy tax on works contract. In this context while upholding the Constitutional vires of such amendment, the Apex Court examined the parameters of works contract. While still upholding the validity, the Apex Court opined that such provision did not enlarge the scope of collection of sales tax and held that such amendment did not confer a larger freedom to the States than what they had before in regard to their power to levy sales-tax under Entry 54 of the State List. It was held that such amendment did no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. The Apex Court did not favour the contention that such amendment should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof.
3) In case of Sundaram Finance Ltd. V. The State of Kerala and another reported in (1966) 27 STC 489, wherein the Apex Court considered the question as to when the sale of goods can be stated to have taken place in a hire-purchase agreement between the finance company and the last purchaser of the motor vehicle.
4) In case of M/s. Gannon Dunkerley and Co. and others v. State of Rajasthan and others reported in (1993) 1 Supreme Court Cases 364, wherein the Apex Court expressed the opinion that in a works contract which is divisible into one for sale of goods and the other for supply of labour and services, the labour charges for execution of works would not be exigible to sales tax, but the former would.
5) In case of State of A.P. v. Kone Elevators(India) Ltd. reported in (2005) 3 Supreme Court Cases 389, wherein the Apex Court in para.5 of the decision observed that it is well settled that there is no standard formula by which one can distinguish a contract for sale from a works contract and it must depend largely on facts depending upon the terms.
6) In case of Hindustan Shipyard Ltd. v. State of Andhra Pradesh reported in (2000) 119 STC 533, wherein the Apex Court examined the question whether a contract for ship building was one of sale of goods or of works contract. In the context of the agreement between the parties which provided for supply of the vessel by the builder complete in all respect to the owner whereby the property and goods transferred to the owner upon payment of first installment and wherein the risk of the builder was to last only on delivery, the Apex Court ruled that it was a case of works contract.
7) In case of Mohd. Noor and others v. Mohd. Ibrahim and others reported in (1994) 5 Supreme Court Cases 562, wherein in the context of Tenancy and Land Laws, the Apex Court observed that transfer of ownership is distinct and different from transfer of interest in the property. It was observed that the ownership is a sum total of various subordinate rights.
8) In case of Jilubhai Nanbhai Khachar, etc. etc., v. State of Gujarat and another etc. etc. reported in AIR 1995 Supreme Court 142, it was observed that :
“42. Property in legal sense means an aggregate of rights which are guaranteed and protected by law. it extends to every species of valuable right and interest, more particularly, ownership and exclusive right to a thing, the right to dispose of the thing in every legal way, to possess it, to use it and to exclude every one else from interfering with it ”
11. Having thus heard learned counsel for the parties, we find that central controversy is whether the petitioners are liable to pay sales tax to the State Government upon execution of the project for gauge conversion. Case of the petitioners is that no movable property is transferred in the process and that therefore, sales tax is not exigible. It is also their case that present is not a case of works contract and that therefore, even under the deeming fiction of section 2(28)(c) of the Act, no tax can be collected. On the other hand, the State strongly contends that it is a clear case of works contract. Therefore, even if there is no sale or transfer of movable property, the case is covered under section 2(28)(c) of the Act and in particular under notification as per Appendix-1A of the Act issued by the State Government under explanation II to the said sub-section.
12. Whether present is a case of works contract or sales simplicitor must depend on varieties of facts. As held by the Apex Court in case of State of A.P. v. Kone Elevators(India) Ltd.(supra), there is no standard formula by which one can distinguish a contract for sale from a works contract. The question is largely one of facts depending upon the terms and conditions of the contract. The Apex Court in case of State of A.P. v. Kone Elevators(India) Ltd.(supra) held as under :
“5. It can be treated as well settled that there is no standard formula by which one can distinguish a "contract for sale" from a "works- contract". The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a "contract of sale", the main object is the transfer of property and delivery of possession of the property, whereas the main object in a "contract for work" is not the transfer of the property but it is one for work and labour. Another test often to be applied to is : when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a "sale"; if it is the latter, it is a "works-contract". Therefore, in judging whether the contract is for a "sale" or for "work and labour", the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The pre-dominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a "sale" or a "works-contract". Essentially, the question is of interpretation of the "contract". It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works-contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a "sale" or a "works- contract. Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties.”
13. We have in our earlier portion of the judgement recorded the relevant conditions of agreement. Under such terms and conditions, the parties had certain rights and obligations. Whether the present case falls under the description of sale of goods or works contract must be judged on the basis of reading of the entire contract and in particular terms and conditions noted above. The contract itself is an elaborate recording of by- parte rights, liabilities and obligations. It is a complex document providing for several obligations and rights depending on various eventualities. Such agreement is required to be appreciated in light of the facts and circumstances of the case. In the present case, when the Sales Tax Authority has even at the first instance not undertaken this task, we would be well advised in not doing so directly at first instance before this Court in exercise of writ jurisdiction. It is by now well settled that when particularly in revenue matters, the statute provides for detailed mechanism for assessment, adjudication, appeals and revisions and thereafter collection of tax, a writ petition should normally be not entertained unless of- course case on hand falls under any of the well recognised exceptions to this rule of the alternative remedy normally debarring the entertainment of a direct writ petition. Decisions on the point are numerous. We may however, notice some of them rendered by the Apex Court in different taxation statutes.
1) In case of C.A. Abraham v. Income-tax Officer, Kottayam and another reported in AIR 1961 Supreme Court 609, the Apex Court in the background of Income Tax Act, 1922, observed that the Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed by the Income Tax authorities. A person who is aggrieved by an order of the Appellate Assistant Commissioner imposing a penalty, cannot be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under Article 226 when he had adequate remedy open to him by way of appeal.
2) In case of Titaghur Paper Mills Co. Ltd. v. State of Orissa and others reported in (1983) 2 Supreme Court Cases 433, the Apex Court in the background of Orissa Sales Tax Act 1947 observed that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute alone must be availed of. Noticing the statutory provisions contained in the Orissa Sales Tax Act 1947, the Apex Court observed that such Act provides for adequate safeguard against an arbitrary or unjust assessment, such as right to prefer appeal and to apply for stay of recovery pending appeal. It was observed that the Act provides for a complete machinery to challenge an order of assessment and such order should be challenged only in the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It was observed as under :
“6. We are constrained to dismiss these petitions on the short ground that the petitioners have an equally efficacious alternative remedy by way of an appeal to the prescribed authority under sub-
s. (1) of s. 23 of the Act, then a second appeal to the Tribunal under sub s. (3) (a) thereof, and thereafter in the event the petitioners get no relief, to have the case stated to the High Court under s. 23 of the Act. In Raleigh Investment Company Limited v. Governor General in Council, (1) Lord Uthwatt, J. in delivering the judgment of the Board observed that in the provenance of tax where the Act provided for a complete machinery which enabled an assessee to effectively to raise in the courts the question of the validity of an assessment denied an alternative jurisdiction to the High Court to interfere. It is true that the decision of the Privy Council in Raleigh Investment Company's case, supra, was in relation to a suit brought for a declaration that an assessment made by the Income Tax Officer was a nullity, and it was held by the Privy Council that an assessment made under the machinery provided by the Act, even if based on a provision subsequently held to be ultra vires, was not a nullity like an order of a court lacking jurisdiction and that s. 67 of the Income Tax Act, 1922 operated as a bar to the maintainability of such a suit. In dealing with the question whether s. 67 operated as a bar to a suit to set aside or modify an assessment made under a provision of the Act which is ultra vires, the Privy Council observed:
"In construing the section it is pertinent, in their Lordships opinion to ascertain whether the Act contains machinery which enables an assessee effectively to raise in the courts the question whether a particular provision of the Income Tax Act bearing on the assessment made is or is not ultra vires. The presence of such machinery, though by no means conclusive, marches with a construction of the section which denies an alternative jurisdiction to inquire into the same subject-matter."
11. Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the prescribed authority under sub-s. (1) of s. 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under sub-s. (3) of s. 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under s. 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Art. 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Water Works Co. v. Hawkesford(1) in the following passage:
"There are three classes of cases in which a liability may be established founded upon statute...But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it...the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to."
The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspaper Ltd.(2) and has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant & Co.(3) and Secretary of State v. Mask & Co.(4) It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine.”
3) Once again in context of Sales Tax Act and VAT Act, the Apex Court in case of Zunaid Enterprises and others v. State of Madhya Pradesh and others reported in (2012) 4 Supreme Court Cases 211, held that in view of availability of alternative remedy, the High Court should not entertain a writ petition. It was further observed that merely based on certain clauses in the agreement, the High Court ought not to have decided that the transactions in question would be purely and simply inter-State sales and not intra-State sales. It was observed as under :
“27. At the outset, we intend to remark that in these type of cases, the High Court ought not to have entertained the writ petition(s)/writ appeal(s) filed under Article 226/227 of the Constitution. We say so for the reason, that, particularly a transaction is under the Central Sales Act, inter-state sales or inter-State sales are mixed questions of fact and law. Those facts requires to be brought to the notice of the assessing authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-state sales which is exigible to the taxes under the VAT Act or inter-state sales, as envisaged under Section 3 of the Central Sales Tax Act read with Section 6 of the charging provisions therein. It is after such adjudication, the matter can travel from one stage to the other as provided under the Act.
28. In the instant case, as we have already stated, the relevant factors were not before the Court nor the finding of the assessing authority to decide whether the transactions in question are intra-state sales or inter-state which are exigible to taxes under the VAT Act or taxes under the provisions of the Central Sales Tax Act.
29 Merely based on certain clauses in the agreement, in our opinion, the High Court ought not to have decided that the transactions in question would be purely and simply intra-state sales and not inter-state sales, as contended by the appellants, who are dealers in tendu leaves. In that view of the matter, we cannot sustain the orders passed by the High Court.”
4) In one more recent decision in case of Union of India v. Guwahati Carbon Ltd. reported in 2012(278)E.L.T.26(S.C.), the Apex Court in the context of the Central Excise Act, 1944, observed that the appellate remedy must be exhausted since the Excise Law is a complete code to seek redressal of grievances and in that view of the matter petition should not be entertained despite the High Court having vast powers under Article 226 of the Constitution. Noticing that an appeal against the decision of the Tribunal under the Central Excise Act, 1944 lay to the Supreme Court, despite which the writ petition was filed to the High Court under Article 226 of the Constitution, the Apex Court referring to and relying upon decision in case of Titaghur Paper Mills Co. Ltd.(supra) and in case of Whirlpool Corpn. v. Registrar of Trade Marks reported in (1998) 8 Supreme Court Cases 1, observed as under :
“18. In our opinion, the assessee ought not to have filed a writ petition before the High Court questioning the correctness or otherwise of the orders passed by the Tribunal. The Excise Law is a complete code in order to seek redress in excise matters and hence may not be appropriate for the writ court to entertain a petition under Article 226 of the Constitution. Therefore, the learned Single Judge was justified in observing that since the assessee has a remedy in the form of a right of appeal under the statute, that remedy must be exhausted first, the order passed by the learned Single Judge, in our opinion, ought not to have been interfered with by the Division Bench of the High Court in the appeal filed by the respondent/assessee.”
14. Present is a case where the petitioners have approached this Court when the Sales Tax Authorities have merely issued a notice why a certain tax should not be collected. The petitioners have full liberty to produce all materials at their command and raise all legal contentions to canvas that they are not exigible to sales tax in view of the nature of the contract and execution of work done by them under such contract. The Sales Tax Authorities are bound to take into consideration and take a view and only thereafter, would be able to frame any assessment even if ultimately the authorities rule against the petitioners. In such a case against the assessment first appeal would be available before the departmental appellate authority and thereafter before the Sales Tax Tribunal. The Commissioner and the Tribunal also have revisional powers. Even the decision of the Tribunal is amenable to appellate jurisdiction of the High Court on a substantial question of law. When such elaborate machinery of appeals and revisions are provided under the Gujarat Sales Tax Act and its successor VAT Act, we are not inclined to examine these questions of complex factual and legal aspects in the present petition and thereby give a complete go-bye to such machinery under the Act. We have also noticed statutory provisions contained in the Gujarat Sales Tax Act as well as the VAT Act which provide for such appeals and also for revision at the hands of Commissioner either suo motu or on an application made by the aggrieved party.
15. In view of the decisions noted above, we are not inclined to entertain this petition, rather leaving it to the Sales Tax authority to complete the assessment in accordance with law after giving opportunity to the petitioners.
16. Before closing however, we need to refer to two aspects. First is regarding the tax paid by the M/s. D.S. Construction of New Delhi on the premise that the said agency had executed the work for and on behalf of the present petitioners under a sub-contract. Though no specific ground is raised by the petitioners in this regard, we may notice that in the communication dated 14.6.2006 made by the petitioners to the Assistant Commissioner of Commercial Tax, it was contended as under :
“Apart from that there is no works contract executed between the Railways and Company. The works contract is between the Company and D.S. Constructions Limited for which there is separate agreement dated 14.06.2003. Your Honour yourself has earlier passed an assessment order under section 57 B in connection with aforesaid works contract between the Company and D.S. Constructions Limited.
Consequently, it becomes obvious that once you have considered such works contract between the Company and D.S. Constructions Limited subject to Sales Tax under Section 57B of the Sales Tax, you can not again treat the Concession Agreement between railways and the Company as the main contractor. So far as the Works Contract transactions covered by Article 366(29A)(b) are concerned, the decision of the Supreme Court in AIR 1993 SC 991 in the case of Builders Association of India vs. State of Karnataka, is pertinent to note. The Constitution Bench speaking through S.C. Aggarwal, J in para 2 of the report while relying upon the decision of Supreme Court in Gannon Dunkerley and Co. v. State of Rajasthan, (civil Appeals arising out of SLP No. 3365-68 of 1992), reaffirmed the following requirements of law before Works Contract regarding transfer property in goods an be brought within the sales tax net. Relevant legal requirements for enabling the State Authorities to impose such sales tax on transfer of material involved in works contract were highlighted.”
17. Learned counsel for the petitioners during the course of arguments conveyed to us that such agency i.e. M/s. D.S. Construction of New Delhi has already been subjected to sales tax assessment and sales tax authorities are demanding sales tax from such agency. It was therefore, contended that the State cannot now independently tax the petitioners for the same amount again. We also notice that in the impugned order the Assistant Commissioner of Commercial Tax had recorded as under :
“Thus, the dealer was granted opportunity of hearing on many occasions but he has failed to make out his case before this office. The dealer has paid Rs.1.63 Crores under section 57B of Gujarat Sales Tax Act, 1969, which is likely to be adjusted towards tax liability of M/s. D.S Constructions Limited, New Delhi amounting to Rs.5,87,53,322/- (Rupees Five Crores eighty seven lacs fifty tree thousand three hundred and twenty) as this is the payment made against the order under section 57B.”
M/s. D.S. Construction, New Delhi has been assessed by Assistant Commissioner, Surendranagar on 29/12/2004.
18. In this context we may also take note of the decision of the Apex Court in case of State of Andhra Pradesh and others v. Larsen & Toubro limited and others reported in (2008) 9 Supreme Court Cases 191. In the said decision it was held that under the Andhra Pradesh Value Added Tax Act, the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which constitutes the measure for the levy of the tax is the value of the goods at the time of the incorporation of the goods in the works. The Court further expressed the opinion that the department erred in holding that there were two deemed sales in case of execution of works contract through a sub contractor.
19. As noted, since the material on record is not complete and in any case, we are inclined to leave the entire issue to the Sales Tax authorities, we make no conclusive observations with respect to this aspect of the matter, leaving it open to the petitioners to raise even such a contention before the authority, if so advised. We are sure the Assessing authority shall bestow its full attention to such aspect of the matter and shall also take into consideration decisions of the Apex Court in case of State of Andhra Pradesh and others v. Larsen & Toubro limited and others (supra) and observations made therein if the petitioner lays the factual foundation for application of the ratio of the decision in the said case.
20. The second aspect of the matter which remains to be commented upon is the petitioner's challenge to the order of attachment dated 2.6.2006 passed under section 45 of the VAT Act. Under section 45 of the VAT Act, such order of attachment can have a maximum life of one year. Such period of one year has passed long back. In the meantime, there was no stay against the Assessing authority from proceeding further with the assessment. This Court in the interim order dated 29.11.2006 only prevented the authority from passing the final order without the permission of the Court but permitted to proceed further with the assessment. No such permission was sought. It appears that assessment is not yet undertaken in full earnest. No further hearing took place after the Court's interim order. The court had stayed the attachment subject to the petitioners' depositing sum of Rs.1,92,00,000/- before this Court. It is stated that such amount was deposited. In the last part of the interim order dated 29.11.2006, the Court had provided that if the petitioners receive any further access charges, they shall deposit the tax at the rate of 12.5% on that amount with the Registry of this Court till further orders. The petitioners have been depositing such periodic amounts also.
21. In view of above developments, when we are of the opinion that attachment order cannot survive and it has in any case outlived its life well beyond the statutory period envisaged under section 45 of the VAT Act. Such attachment order is therefore, quashed.
22. The question of amount of Rs.1,92,00,000/- and further amounts deposited by the petitioners under the interim order dated 29.11.2006 remains.
23. Learned Advocate General vehemently contended that such amounts should be held back to be adjusted only after assessment order is passed. We however, are of the opinion that such request cannot be accepted. Firstly, as already noted, section 45 of the VAT Act provides for attachment before assessment which order can be passed having a life of not more than one year. Secondly, under the interim order dated 29.11.2006 this Court had specifically provided that proceedings before the Assessing authority of Value Added Tax for access charges shall continue. However, no final order shall be passed without the permission of the Court. We had inquired with the learned Advocate General as to what progress was made by the Assessing authority after such order was passed on 29.11.2006. He having taken instructions candidly stated that no further hearing took place. Thus more than five and half years passed after this Court permitted the Assessing authority to continue with assessment proceedings. Without any progress having been made, to hold back the petitioners' amount under such circumstances subject to final assessment order, therefore, would not be permissible under the law.
24. Under the circumstances, while allowing the petition partially, upholding the petitioners' challenge to the order of attachment dated 2.6.2006 and quashing such order, the petitioners are relegated to the authorities under the VAT Act for assessment. Amount of Rs.1,92,00,000/- and further amounts that the petitioners have deposited before the Registry of this Court under the interim order dated 29.11.2006 shall be returned to the petitioners with accrued interest, if any.
25. Petition is disposed of accordingly. Rule made absolute to above limited extent.
26. In view of order passed in the main matter, Civil Application does not survive. Same is disposed of accordingly.
(Akil Kureshi,J.) (Harsha Devani,J.) (raghu)