M/s. Shyam Industries Ltd., Ahmedabad V. The Dy.CIT.,Circle-3, Ahmedabad

ITA 3323/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6275 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAWANSHI
• Keywords: Cost of acquisition; Reasonable cause
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 3323/AHD./2010 : ASSESSMENT YEAR 200 5-06 M/S. SHYAM INDUSTRIES LTD., AHMEDABAD VS- DCIT, CIRCLE-3, AHMEDABAD (PAN : AAFFS 5433E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TUSHAR P. HEMANI RESPONDENT BY : SHRI G.S.SOURYAWANSHI, SR.D.R. O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. CIT(A)-XVI, AHMEDABAD DATED 22.10.2010 FOR THE ASSESSMENT YEAR 2005-2006. 2. THE ONLY GROUND RAISED IN THIS APPEAL IS RELATIN G TO CONFIRMATION OF DISALLOWANCE OF RS.38,43,900/- UNDER SECTION 40(A)( IA) OF THE I.T.ACT, 1961. 3. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, SHRI TUSHAR P. HEMANI APPEARED AND POINTED OUT THAT THE ONLY CONTR OVERSY INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION D ATED 05/09/2008 OF THE ITAT, D BENCH, AHMEDABAD IN THE CASE OF M/S. KRISHAK BHARAT I COOPERATIVE LTD. VS- ITO (TDS) IN ITA NOS.1702,1703, 2473,2474, 4573 AND 457 4/AHD/2007. FURTHER ARGUING, THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THE AS SESSEE PAYS FIXED TRANSMISSION CHARGES ALONG WITH GAS CHARGES TO GAS AUTHORITY OF INDIA LTD. (GAIL). THE SUPPLIER HAS CHARGED LOCAL TAX ON THE ENTIRE AMOUNT, WHICH I NCLUDE THE FIXED TRANSMISSION CHARGES AND THE SALES-TAX HAS BEEN CHARGED, THE AMO UNT PAID IS FOR SALES AND NOT FOR ANY WORKS OR SERVICES. THEREFORE, PROVISIONS OF SEC TION 194C OF THE I.T. ACT, SHOULD 2 ITA NO.3323/AHD./2010 NOT BE MADE APPLICABLE AND RESULTANTLY, THE DISALLO WANCE MADE BY THE AO OF RS.38,43,900/- UNDER SECTION 40(A)(IA) IS REQUIRED TO BE DELETED. 4. ON THE OTHER HAND, SHRI G.S.SOURYAWANSHI, APPEAR ING ON BEHALF OF THE REVENUE, COULD NOT CONTROVERT THE AFORESAID SUBMISS IONS OF THE LD. COUNSEL FOR THE ASSESSEE. 5. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE, NAMELY, M/S. SHYAM INDUSTRIES LTD. HAS ENTERED INTO CONTRACT CALLED GAS SALES AGREEMENT WITH GAIL (IN DIA) LTD. FOR SUPPLY OF GAS WHICH IS USED AS CONSUMABLES FOR PROCESSING SESAME SEEDS. AS PER CONTRACTUAL AGREEMENT, M/S. SHYAM INDUSTRIES HAS TO PAY FIXED T RANSMISSION CHARGES PERIODICALLY FOR THE SUPPLY OF GAS THROUGH PIPELINE ALLOCATED TO IT. IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, IT HAS PAID RS.38 ,43,900/- AS GAS TRANSMISSION/ TRANSPORTATION CHARGES. SINCE NO TAX WAS DEDUCTED A T SOURCE UNDER SECTION 194C, THE AO DISALLOWED THE ENTIRE TRANSPORT CHARGES AMOUNTIN G TO RS.38,43,900/-. THE ISSUE BEFORE US IS WHETHER THE ASSESSEE IS REQUIRED TO DE DUCT TDS ON TRANSPORTATION CHARGES AMOUNTING TO RS.38,43,900/- PAID IN THE PREVIOUS YE AR, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS QUESTION HAS BEEN ANSWERED BY T HE ITAT, D BENCH, AHMEDABAD IN THE CASE OF M/S. KRISHAK BHARATI COOPERATIVE LTD . ( SUPRA ), WHEREIN IT WAS HELD THAT THIS TYPE OF CONTRACT IS A CONTRACT FOR SALE OF GOO DS AND NOT A WORK CONTRACT. HENCE, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS UNDER SECTIO N 194C OF THE I.T. ACT, 1961. THE RELEVANT PORTION OF THE JUDGMENT OF THE ITAT, D B ENCH, AHMEDABAD IN THE CASE OF M/S. KRISHAK BHARATI COOPERATIVE LTD. ( SUPRA ) READS AS UNDER: 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THIS CASE. WE HAVE ALSO PERUSED T HE CASE RECORDS INCLUDING THE TDS ASSESSMENT ORDERS AS WELL AS THE ORDER OF C IT(A). WE HAVE ALSO GONE THROUGH THE PAPER BOOK (PB) FILED BY THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE CASE LAWS REFERRED BY BOTH THE SIDES. IT IS OB SERVED FROM THE FACTS THAT THE ASSESSING OFFICER IN ORDER TO LEVY THE TDS AND INTE REST STATED IN THE ASSESSMENT ORDER, THAT IT IS CLEAR FROM THE SALE BILLS OF SUPP LIERS OF GAS, I.E., GAIL, GSPCL & GGCL THAT THE PURCHASER-ASSESSEE, I.E., KRIBHCO W AS REQUIRED TO PAY THE TRANSPORTATION CHARGES IN ADDITION TO THE COST OF P URCHASE OF GAS IN LIEU OF SUPPLY OF GAS FROM THE PREMISES OF THE SUPPLIERS TO THE PREMISES OF THE ASSESSEE. 3 ITA NO.3323/AHD./2010 THE ASSESSING OFFICER HAS NOTICED THIS FACT FROM TH E ARTICLE 4.02 OF THE AGREEMENT DEED ENTERED INTO BY THE ASSESSEE WITH GA IL. FIRST OF ALL, WE HAVE GONE THROUGH THE TERMS AND CONDITIONS OF SUPPLY OF GAS BY THE SUPPLIER, I.E, GAIL TO THE ASSESSEE. THE RELEVANT CLAUSE OF THE AG REEMENT READS AS UNDER:- 4.01 GAS SHALL BE DELIVERED BY THE SELLER TO THE BUYER AT THE OUTLET OF GAS METERING STATION LOCATED AT BUYERS PREMISES AT HAZIRA. GAS WILL BE TRANSPORTED FROM THE COWN STREAM FLANGE OF THE PIPELINE AT THE OUTLET OF THE GAS METERING SATION HEREINAFTER REFERRED TO AS POINT OF DELIVERY BY MEANS OF PIPELINE TO BE PROVIDED AND MAINTAINED BY THE BU YER. 4.02 GAS METERING STATION AND BUILDING NEEDED FOR THE SAME SHALL BE SET UP/CONSTRUCTED AND MAINTAINED BY THE SELLER. THE LA ND NEEDED FOR THE PURPOSE OF SUCH GAS METERING STATION / BUILDING SHA LL BE PROVIDED BY THE BUYER FREE OF COST. THE SELLER MAY USE THE SAID LO CATION IN CONSULTATION WITH THE BUYER FOR EFFECTING DELIVERIES TO AN OTHER PARTIES IN THE AREA WITHOUT AFFECTING THE SUPPLY OF GAS BY THE SELLER TO THE BU YER AS PER THE CONTRACT. 4.03 THE BUYER, IN ADDITION TO PRICE OF GAS MENTION ED IN ARTICLE 11, SHALL PAY TO THE SELLER MONTHLY TRANSPORTATION CHARGES OF RS.49,58,250/- (RUPEES FORTY NINE LAKHS FIFTY EIGHT THOUSAND TWO HUNDRED A ND FIFTY ONLY) PLUS TAXES WITH EFFECT FROM 01.04.1996 (FIST APRIL ONE THOUSAND NIN E HUNDRED & NINETY SIX) THEREON FOR THE FACILITIES PROVIDED BY THE SELLER F OR SUPPLY OF GAS TO THE POINT OF DELIVERY LOCATED AT THE BUYERS PREMISES. THE ABOVE MONTHLY TRANSPORTATION CHARGES SHALL BE INCREASED BY 3% (TH REE PER CENT) ON YEARLY REST BASIS WITH EFFECT FROM 01.04.1997 (FIRST APRIL ONE THOUSAND NINE HUNDRED AND NINETY SEVEN). THE BUYER SHALL PAY THE ABOVE MONTHLY TRANSPORTATION CHARGES TO THE SELLER IN ADDITION TO PAYMENT OF INVOICE FOR SUPPLY OF GAS TO BE RAISED AS PER ARTICLE 11 & 12 H EREINAFTER. PROVIDED FURTHER, IN CASE MONTHLY TRANSPORTATION CHARGES ARE NOT PAID BY THE BUYER WITHIN 3(THREE) WORKING DAYS OF PRESENTATION OF INV OICE, THE SELLER WILL PRESENT THE INVOICE FOR THE SAME TO A BANK AGAINST LETTER OF CREDIT AND DRAW THE AMOUNT. 4.04 THE BUYER SHALL MAKE ALL PROPER AND ADEQUATE A RRANGEMENT FOR RECEIVING GAS AT THE OUTLET OF GAS METERING STATION AT ITS OWN RISK AND COST. SHOULD ANY DEFECT IN THE BUYERS INTAKE ARRANGEMENT ARISE, THE SAME SHALL BE RECTIFIED BY THE BUYER THEMSELVES. 4.05 FOR EFFECTING DELIVERIES OF GAS AS AFORESAID T HE SELLER SHALL INSTALL AND MAINTAIN AT ITS OWN RISK AND COST, THE PIPING C ONTROL, REGULATION AND METERING EQUIPMENT IN THE AFORESAID GAS METERING ST ATION AND ALL OTHER ACCESSORIES. THE SAID EQUIPMENT SO INSTALLED BY THE SELLER SHALL REMAIN THE PROPERTY OF THE SELLER AND THE SELLER SHALL HAVE HE RIGHT TO REMOVE SUCH EQUIPMENT AT ANY TIME WITHIN TWELVE (12) MONTHS AFT ER THE EXPIRY OF THE CONTRACT. THE SELLER SHALL HAVE THE RIGHT TO USE TH E BUYERS UTILITIES 4 ITA NO.3323/AHD./2010 ESSENTIALLY REQUIRED FOR INSTALLATION, OPERATION AN D MAINTENANCE OF GAS METERING STATION AND ALLIED EQUIPMENTS REQUIRED FOR THE SUPPLY OF GAS ON PAYMENT OF SUCH CHARGES FOR UTILITIES ONLY AS MAY B E MUTUALLY AGREED. ALL STATUTORY APPROVALS SHALL BE OBTAINED BY THE SELLER . 4.6 THE TITLE OF GAS SHALL PASS FROM THE SELLER TO THE BUYER AT THE POINT OF DELIVERY OF GAS. THE DELIVERY POINT SHALL BE AT THE DOWN STREAM FLANGE OF THE PIPELINE AT THE OUTLET OF THE GAS METERING STATION. 7. FROM THE ABOVE TERMS AND CONDITIONS, IT IS NOTIC ED THAT THE ASSESSING OFFICER HAS GONE THROUGH THE ARTICLE 4.02 OF THE AG REEMENT DEED ENTERED INTO BY THE ASSESSEE WITH GAIL. IT IS OBSERVED BY THE L OWER AUTHORITIES THAT THE ASSESSEE WAS REQUIRED TO PAY TRANSPORTATION CHARGES OF THE GAS SUPPLIED. THE ASSESSING OFFICER TREATED THE TRANSPORTATION CHARGE S PAID AT CHARGES FOR WORK CONTRACT. THE LOWER AUTHORITIES IN THEIR RESPECTI VE ORDERS STATED THAT IN THE CASE OF THE ASSESSEE, IT IS COVERED BY PROVISION OF CLAUSE-C OF THE EXPLANATION- III OF SECTION 194C, WHICH SAYS THAT THE EXPRESSION WORK SHALL ALSO INCLUDE CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS. THE LOWER AUTHORITIES HAVE RELIED ON THE BOARDS CIRCULAR NO.681 DATED 08-03-1994, WHEREIN IT WAS CLAIMED TO BE STAT ED THAT THIS SECTION APPLY TO ALL TYPE OF CONTRACTS FOR CARRYING OUT ANY WORK INC LUDING TRANSPORT CONTRACTS. THE LOWER AUTHORITIES HEAVILY RELIED ON THE CASE LA W OF THE HONBLE APEX COURT IN THE CASE OF ASSOCIATES CEMENT CO. LTD. (SUPRA) A ND THE RELEVANT PROVISION OF EXPLANATION-III TO SUB-SECTION (2) OF SECTION 194 R EADS AS UNDER:- PAYMENTS TO CONTACTORS AND SUB-CONTRACTORS. 194C 1.. 2.. EXPLANATION III- FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION WORK SHALL ALSO INCLUDE (A) ADVERTISING ; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTION O F PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING ; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS ; (D) CATERING. 8. THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR A TTENTION TO THE INVOICE NO.2020000037, WHEREBY THE FIXED TRANSPORTATION CHA RGES PAID ARE AT RS.62,80,964/-, WHICH IS INCLUDED IN THE SUB-TOTAL PRICE OF SUPPLY OF GAS. FOR EXAMPLE, THE COPY OF INVOICE IS REPRODUCED AS UNDER :- 5 ITA NO.3323/AHD./2010 GAIL (INDIA) LTD. PO ONGCL, HAZIRA, SURAT PROVISIONAL INVOICE WITHOUT PREJUDICE CUSTOMER CODE 10577 INVOICE NO. 2020000037 TO: KRIBHCO- HP,SURAT HAZIRA ROAD, DIST. SURAT-394515, GUJARAT, INDIA DATE KIND ATTENTION LOCATION 16.03.2005 MR. P.W.SHAH GM (TECH) DIST SURAT MATERING STATION H002 D.C.O. 3,000,000,000 TELEPHONE [phone] M.G.O. 2,700,000.000 FAX 2038 WT.AVG. CAL VAL FOR FORTNIGHT 9,072,27 E-MAIL TELEX PRODUCT NATURAL GAS SUPPLY OF NATURAL GAS QUANTITY (1000 SCM) RATE/1000 SCM AMOUNT (IN RS.) FROM TO 01.03.2005 15.03.20005 29,586.123 3,064.30 90,660,766.71 CON. PRICE 2,850.00 LESS DISCOUNT ONGC TAXES PRM/REB PRICE 284.28 8,410,870.38 ROYALTY 214.30 PM/REB TPT 0.00 0.00 SALES TAX 0.00 METR/DIS./SERVICE CHARGES 0.00 6 ITA NO.3323/AHD./2010 TRANSMISSION 0.00 FXD.TRANS CHRGS 0. 00 6,280,964.00 LOCAL DIST 0.00 SUB TOTAL 88,530,850.33 TOTAL 3,064.30 LST 12,00 10,623,702.04 CST 0.00 0.00 TURNOVER TAX 0.00 0.00 SURCHARGE 0.00 0.00 TOTAL 99,154,552.00 (AMOUNT IN WORDS) RUPEES NINE CRORE NINETY-ONE LAC FIFTY-FOUR THOUSAND FIVE HUNDRED FIFTY-TWO ONLY IN CASE THE INVOICE IS NOT PAID WITHIN 3 DAYS OF RE CEIPT OF INVOICE, THE SUPPLY OF GAS SHALL BE DISCONNECTED WITHOUT ANY FURTHER NOTIC E AND WITHOUT PREJUDICE TO OTHER RIGHTS UNDER THE CONTRACT. THE SALE IS SUBJECT TO THE TERMS & CONDITIONS STIPU LATED IN THE AGREEMENT. FOR & ON BEHALF OF G AIL LST 2224000787 DT.01/07/2002 CST GUJ.17B-8199 DT.22/06/1987 AUTHORISED SIGNATORY IN VIEW OF THE ABOVE GAS SUPPLY CONTRACT BETWEEN TH E GAIL AND THE ASSESSEE, IT IS CLEAR THAT GAS WILL BE DELIVERED BY THE SELLER, I.E., GAIL ETC., TO THE ASSESSEE, I.E., BUYER AT THE OUTLET OF GAS METERING STATION L OCATED AT THE BUYERS PREMISES AT HAZIRA. THE GAS WILL BE TRANSPORTED FROM THE DOW NSTREAM FLANGE OF THE PIPELINE AT THE OUTLET OF THE GAS METERING STATION AT THE POINT OF DELIVERY BY MEANS OF PIPELINE TO BE PROVIDED AND MAINTAINED BY THE BUYER. THE GAS METERING STATION AND BUILDING NEEDED FOR THE SAME W ILL BE CONSTRUCTED AND MAINTAINED BY THE SELLER AND THE LAND NEEDED FOR TH E PURPOSE OF SUCH GAS METERING STATION WILL BE PROVIDED BY THE BUYER FREE -OF-COST WHETHER THE PROVISION OF SECTION 194C PARTICULARLY EXPLANATION III TO SUB-SECTION (2) OF THIS SECTION WILL APPLY TO THE PRESENT ASSESSEE OR NOT. FOR THIS, NOW WE HAVE TO GO THROUGH THE MEMO EXPLAINING THE PROVISION IN FINANC E BILL, 1995 AND THE RELEVANT MEMO EXPLAIN THE PROVISION AS REPORTED IN (1995) 212 ITR 345 (ST), IS BEING REPRODUCED BELOW:- 7 ITA NO.3323/AHD./2010 ENLARGING SCOPE OF PROVISION REGARDING DEDUCTION O F TAX AT SOURCE FROM PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS SUB-SECTION (1) OF SECTION 194C PROVIDES FOR DEDUCT ION OF INCOME-TAX AT SOURCE FROM ANY SUM PAYABLE FOR CARRYING OUT ANY WO RK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE GOVERNMENT, LOCAL AUTHORITIES, STATUTORY CORPORATIONS, COMPANIES, CO-OPERATIVE SOC IETIES, STATUTORY AUTHORITIES ENGAGED IN PROVISION OF HOUSING ACCOMMODATION, ETC. , REGISTERED SOCIETIES, TRUSTS AND UNIVERSITIES. THERE IS NO REQUIREMENT FO R DEDUCTION OF INCOME-TAX AT SOURCE WHERE THE CONTRACT IS BETWEEN THE CONTRACTOR AND A FIRM. THE PAYMENTS UNDER SUCH CONTRACTS ALSO NEED TO BE SUBJECTED TO T HE REQUIREMENT OF DEDUCTION OF INCOME-TAX AT SOURCE. THE BILL, THEREFORE SEEKS TO AMEND SECTION 19C, IN ORDER TO APPLY ITS PROVISIONS TO THE PAYMENTS MADE IN PURSUANCE OF A CONTRACT BETWEEN THE CONTACTOR AND ANY FIRM. IN ORDER TO SUBJECT PAYMENTS IN RESPECT OF ADVERTIS ING CONTRACTS, BROADCASTING CONTRACTS, TELECASTING CONTRACTS, TRAN SPORT CONTRACTS AND CATERING CONTRACTS TO THE REQUIREMENT OF DEDUCTION OF INCOME -TAX AT SOURCE, THE BILL SEEKS TO AMEND SECTION 194C BY PROVIDING THAT THE E XPRESSION WORK, USED THEREIN, SHALL ALSO INCLUDE (A) ADVERTISING (B) BRO ADCASTING AND TELECASTING INCLUDING PRODUCTION OF PROGRAMS FOR SUCH BROADCAST ING OR TELECASTING, (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS, AND (D) CATERING. UNDER THE EXISTING PROVISIONS OF SECTION 194C NO DE DUCTION OF INCOME- TAX AT SOURCE IS REQUIRED TO BE MADE IF THE CONSIDE RATION FOR THE CONTRACT OR THE SUB-CONTRACT DOES NOT EXCEED TEN THOUSAND RUPEES. A S A MEASURE OF RATIONALIZATION THE BILL SEEKS TO RAISE THE AFORESA ID LIMIT TO TWENTY THOUSAND RUPEES. THE AFORESAID AMENDMENTS WILL TAKE EFFECT FROM 1 ST JULY, 1995. 9. EVEN A SIMILAR LEGAL DISCUSSION WAS CARRIED OUT IN THE MINISTRY OF LAW & JUSTICE, DEPARTMENT OF LEGAL AFFAIRS, GOVT. OF IN DIA WHERE EXACTLY A SIMILAR AGREEMENT FOR SUPPLY OF GOODS HAS BEEN DISCUSSED AN D FINALLY FORMED AN OPINION, WHICH READS AS UNDER:- DISCUSSED THE MATTER UNDER REFERENCE WITH SHRI R.P .VERMA, MANAGER (P&A) AND SHRI S.R.CORA, CONSULTANT (TAXATION) OF THE NAT IONAL THERMAL POWER CORPORATION (NTPC) AND SHRI B.K.OYAL, DY. GENERAL M ANAGER (FINANCE) AND SHRI L..GUPTA, MANAGER (P&A) OF GAS AUTHORITY OF IN DIA LTD. (GAIL). FROM THE DISCUSSION HELD WITH THE AFORESAID OFFICI ALS AND ON PERUSAL OF THE DOCUMENTS PLACED OF THE FILE, THE FOLLOWING QUE STIONS INTER ALIA EMERGE : 8 ITA NO.3323/AHD./2010 (A) WHETHER GAS IS MOVABLE PROPERTY? AND WHETHER GA S IS GOODS COVERED UNDER THE DEFINITION GIVEN UNDER SECTION 7(2) OF TH E SALE OF GOODS ACT, 1930? (B) AS TO WHETHER SUPPLY OF GAS BY GAIL TO NTPC IS A CONTRACT FOR SALE OR CONTRACT FOR WORK? AT THE OUTSET, WE WOULD LIKE TO ADDRESS THE FIRST Q UESTION, I.E., (A) BOTH THE ISSUES RAISED IN QUESTION (A) HAVE BEEN DEALT W ITH UNDER THE GENERAL CLAUSES ACT, 1897. SECTION 3(36) DEFINES THE VARIO US KINDS OF MOVABLE PROPERTY WHICH COLD SQUARELY BE COVERED UNDER THIS SECTION S UCH S DEBT, ANIMALS, INANIMATE PROPERTY, COPYRIGHT, SHARE, WATER, ELECTR ICITY AND GAS ETC., (EMPHASIS ADDED). THE AFORESAID SECTION DEFINES MOVABLE PROPE RTY TO MAN PROPERTY OF EVERY DESCRIPTION ACCEPT IMMOVABLE PROPERTY. TO MAK E IT MORE UNDERSTANDABLE, ATTENTION IS INVITED TO A QUARRY WHETHER ELECTRICIT Y IS A MOVABLE PROPERTY? THIS ISSUE HAS BEEN EXAMINED BY THE VARIOUS COURTS IN CA TENA OF CASES. ACCORDING TO THE HOLDINGS THE PROPERTY WHICH POSSES THE CHARACTE RISTIC OF TRANSMISSION, TRANSFERENCE, DELIVERY STORAGE AND POSSESSION WILL AMOUNT TO BE MOVABLE PROPERTY. THUS, ELECTRIC ENERGY IS A MOVABLE PROPER TY. ON THE SAME ANOLOGY, WE MAY CONCLUDE THAT GAS IS ALSO MOVABLE PROPERTY. SO FAR AS SECOND PAT OF THE QUESTION IS CONCERNED, THE COURT IN KRIC COUNTY NATURAL GAS AND FUEL CO. V. SAMUL S. CARROL 1911 AC 10 AT P 117- 119 HELD THAT GAS IS GOODS. SINCE GAS IS MOVABLE PR OPERTY, THEREFORE, GAS IS IN A DELIVERABLE SAGE AS DEFINED UNDER SECTION 2(3) OF THE SALE OF GOODS ACT, 1930. AS REGARDS QUESTION (B), THIS QUESTION WAS EXAMINED BY THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN AERONAUTICS LTD. V. SATE OF KARNATAKA (1984) 1 SCC 706. WHILE LAYING DOWN THE TEST TO DE TERMINE AS TO WHAT AMOUNT TO CONTACT FOR SALE AND WHAT AMOUNT TO CONTRACT FOR WORK, THE HONBLE SUPREME COURT OBSERVED AS UNDER:- ..A CONTRACT OF SALE IS A CONTRACT WHOSE MAIN OBJ ECT IS THE TRANSFER OF PROPERTY IN, AND THE DELIVERY OF THE POSSESSION OF, NON CHATTERL CHATTEL TO THE BUYER. WHERE, HOWEVER, THE MAIN OBJECT OF WORK UNDE RTAKEN BY THE PAYEE OF THE. THE AFORESAID HOLDING WAS FURTHER CONFIRMED BY THE HONBLE SUPREME COURT IN ANOTHER CASE I.E., EVEREST COPIERS V. STAT E OF TAMIL NADU (1996) 5 SSC P 390. IT IS PERTINENT TO MENTION HERE THAT SALE O F GAS AND TRANSPORT OF GAS ARE TWO DIFFERENT THINGS. THE CONTRACT IN QUESTION IS A CONTACT FOR SUPPLY OF GAS ONLY WHICH INCLUDES FREIGHT / TRANSPORTATION CHARGES ALS O. THERE IS NO SEPARATE AGREEMENT / CONTRACT FOR TRANSPORTATION OF GAS FROM GAIL TO NTPC AT THE POINT O DELIVERY OF GAS WHICH IS LOCATED IN THE NTPCS PL ANT. 9 ITA NO.3323/AHD./2010 THUS, FROM THE FOREGOING LEGAL DISCUSSION IT CAN SQ UARELY BE CONCLUDED THAT GAS IS A MOVABLE PROPERTY AND IS ALSO GOODS AS DEFINED UNDER SECTION 7(2) OF THE SALE OF GOODS ACT, 1930. THEREFORE, THE QUE STION (B) THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE AFORESAID HINDUSTAN AERONAUTICS CASE CAN ALSO BE APPLIED IN THIS CASE. HENCE, THE C ONTACT IN QUESTION IS A CONTRACT FOR SALE AND NOT FOR WORK AND DOES NOT INT ER ALIA FALL UNDER SECTION 194(C) OF THE INCOME-TAX ACT, 1961. THE ACTION OF THE INCOME TAX DEPARTMENT IS NOT LEGALLY SUSTAINABLE. ADDL. L.A., SHRI KRISHNA KUMAR MA KINDLY SEE. AS PER THE ABOVE DISCUSSION AND OPINION OF LAW MINI STRY DATED 16-05- 1997, FORWARDED BY GAIL TO THE ASSESSEE WHEREIN REL YING ON HONBLE APEX COURT IN THE CASE OF HINDUSTAN AERONAUTICS LTD. (SU PRA), IT WAS OPINED BY THE LAW MINISTRY THAT THE CONTRACT IS FOR SALE OF GAS W HICH INCLUDED FREIGHT, TRANSPORTATION CHARGES AND WHICH WOULD CONSTITUTE C ONTRACT FOR SALE AND NOT FOR WORKS. THE CONTRACT IN QUESTION IS A CONTRAC T FOR SUPPLY OF GAS WHICH INCLUDE FREIGHT / TRANSPORTATION CHARGES ALSO. THE RE IS NO SEPARATE CONTRACT FOR TRANSPORTATION OF GAS FROM GAIL TO NTPC AT THE POIN T OF DELIVERY OF GAS WHICH IS LOCATED IN THE NTPCS PLANT. AS REGARDS, SECOND QUESTION, THE PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF HINDU STAN AERONAUTICS LTD. (SUPRA), THE CONTRACT IN QUESTION IS A CONTACT FOR SALE AND NOT FOR WORKS. 10. NOW WE WILL DISCUSS THE CASE LAWS REFERRED BY B OTH THE SIDES. THE LD. COUNSEL FOR THE ASSESSEE HAS FIRST OF ALL REFERRED TO THE CASE OF LAW OF HONBLE APEX COURT IN THE CASE OF HINDUSTAN AERONAUTICS LTD . (SUPRA), WHEREIN THE HONBLE APEX COURT HAS DEALT WITH THE ISSUE OF CONTR ACT FOR SALE OF GOODS AND DISTINGUISHED THE SAME FROM THE CONTRACT FOR WORK A ND LABOUR AS UNDER:- 16. AS HAS BEEN CLEARLY STATED IN THE HALSBURYS L AWS OF ENGLAND, THIRD EDITION, VOLUME 34, A CONTRACT OF SALE OF GOODS MUS T BE DISTINGUISHED FROM A CONTRACT FOR WORK AND LABOUR. THE DISTINCTION IS O FTEN AFFINE ONE. A CONTRACT OF SALE IS A CONTRACT WHOSE MAIN OBJECT IS THE TRANSFE R OF THE PROPERTY IN, AND THE DELIVERY OF THE POSSESSION OF A CHATTEL AS A CHATTE L TO THE BUYER. WHERE HOWEVER THE MAIN OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE WAS OF THE TRANSFER OF CHATTEL QUA CHATTEL, THE CONTRACT IS ON E OF WORK AND LABOUR. THE TEST IS, WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN PROPERLY BECOME THE SUBJECT OF SALE; NEITHER THE OW NERSHIP OF THE MATERIALS, NOR THE VALUE OF THE SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERIALS, IS CONCLUSIVE, ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DETERMINING, IN THE CIRCUMSTANCES OF A PARTICULAR C ASE, WHETHER THE CONTRACT WAS IN SUBSTANCE ONE FOR WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL. 17. IN THE CASE OF SENTINEL ROLLING SHUTTERS & ENG INEERING COMPANY PVT. LTD. V. CSTA, THIS COURT REITERATED THAT TESTS INDICATED IN SEVERAL DECISIONS OF THIS COURT TO DISTINGUISH BETWEEN A CONTRACT FOR SALES AND A CONTRACT FOR WORK AND LABOUR WERE NOT EXHAUSTIVE AND DID NOT LAY DOWN ANY RIGID OR 10 ITA NO.3323/AHD./2010 INFLEXIBLE RULE APPLICABLE ALIKE TO ALL TRANSACTION S. THESE DID NOT GIVE ANY MAGIC FORMULA BY THE APPLICATION OF WHICH ONE COULD SAY, IN EVERY CASE WHETHER A CONTRACT WAS A CONTRACT FOR SALE OR A CONTRACT FO R WORK AND LABOUR. THESE MERELY FOCUSED ON ONE OR THE OTHER ASPECT OF THE TR ANSACTION AND AFFORDED SOME GUIDANCE IN DETERMINING THE QUESTION, BUT BASICALLY AND PRIMARILY, WHETHER A PARTICULAR CONTRACT WAS ONE FOR SALE OF GOODS OR FO R WORK AND LABOUR DEPENDED UPON THE MAIN OBJECT OF THE PARTIES GATHERED FROM T HE TERMS OF THE CONTRACT, THE CIRCUMSTANCES OF THE TRANSACTIONS AND THE CUSTOM OF THE TRADE. IN THAT CASE, THE ASSESSEE WHO WAS CARRYING ON BUSINESS AS ENGINEERS, CONTRACTORS, MANUFACTURERS AND FABRICATORS HAD ENTERED INTO A CO NTRACT WITH A COMPANY FOR FABRICATION, SUPPLY, ERECTION AND INSTALLATION OF T WO ROLLING SHUTTERS IN TWO SHEDS BELONGING TO THAT COMPANY FOR A PRICE WHICH W AS INCLUSIVE OF CHARGES FOR ERECTION AT SITE. THE CONTRACT PROVIDED, AMONG O THERS, THAT THE DELIVERY OF THE GOODS WAS TO BE EX-WORKS AND ONCE THE DELIVERY WAS EFFECTED, REJECTION CLAIMS WOULD NOT BE ENTERTAINED. ALL MASONRY WORKS REQUIRED BEFORE OR AFTER ERECTION WERE TO BE CARRIED OUT BY THE COMPANY AT I TS OWN COST. PAYMENTS WERE TO BE MADE ON OVERALL MEASUREMENTS WHICH SHOULD BE CHECKED BY THE COMPANY BEFORE INSTALLATION. THE ACTUAL TRANSPORTATION CHA RGES WERE TO BE IN ADDITION TO THE PRICE STIPULATED IN THE CONTRACT AND THE TERMS OF PAYMENT PROVIDED 25 PER CENT ADVANCE, 65 PER CENT AGAINST DELIVERY AND REMA INING AFTER COMPLETION OF ERECTION AND HANDING OVER OF THE SHUTTERS TO THE SA TISFACTION OF THE COMPANY. THE ASSESSEE HAD SUBMITTED THE BILL TO THE COMPANY AFTER COMPLETION OF THE FABRICATION OF THE ROLLING SHUTTERS, BUT BEFORE THE Y WERE ERECTED AND INSTALLED AT THE PREMISES OF THE COMPANY. ON THE QUESTION WHETHE R THE CONTRACT WAS A CONTRACT FOR SALE OR A CONTRACT FOR WORK AND LABOUR , THE HIGH COURT HAD HELD, AGREEING WITH THE SALES TAX TRIBUNAL, THAT THE CONT RACT WAS A DIVISIBLE CONTRACT, WHICH ESSENTIALLY CONSISTED OF TWO CONTRA CTS, ONE FOR THE SUPPLY OF ROLLING SHUTTERS FOR MONEY AND THE OTHER FOR SERVIC E AND LABOUR AND THAT THE AMOUNT PAYABLE AT THE STAGE OF DELIVERY REPRESENTED THE SALE PRICE OF ROLLING SHUTTERS AND IT WAS LIABLE TO SALES TAX. ON APPEAL, BY SPECIAL LEAVE, THIS COURT HELD THAT THE CONTRACT WAS ONE SINGLE AND INDIVISIB LE CONTRACT AND THE ERECTION AND INSTALLATION OF THE ROLLING SHUTTERS WAS AS MUC H A FUNDAMENTAL PART OF THE CONTRACT AS THE FABRICATION AND SUPPLY. THE CONTRAC T WAS CLEARLY AND INDISPUTABLY A CONTRACT FOR WORK AND LABOUR AND NOT A CONTRACT FOR SALE. 18. IT CANNOT BE SAID AS A GENERAL PROPOSITION THAT IN EVERY CASE OF WORKS CONTRACT, THERE IS NECESSARILY IMPLIED THE SALE OF THE COMPONENT PARTS WHICH GO TO MAKE UP THE REPAIR. THAT QUESTION WOULD NATURALL Y DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. MERE PASSING OF PRO PERTY IN AN ARTICLE OR COMMODITY DURING THE COURSE OF PERFORMANCE OF THE T RANSACTION IN QUESTION DOES NOT RENDER THE TRANSACTION TO BE TRANSACTION O F SALE. EVEN IN A CONTACT PURELY OF WORKS OR SERVICE, IT IS POSSIBLE THAT ART ICLES MAY HAVE TO BE USED BY THE PERSON EXECUTING THE WORK, AND PROPERTY IN SUCH ARTICLES OR MATERIALS MAY PASS TO THE OTHER PARTY. THAT WOULD NOT NECESSARIL Y CONVERT THE CONTRACT INTO ONE OF SALE OF THOSE MATERIALS. IN EVERY CASE, THE COURT WOULD HAVE TO FIND OUT WHAT WAS THE PRIMARY OBJECT OF THE TRANSACTION AND THE INTENTION OF THE PARTIES 11 ITA NO.3323/AHD./2010 WHILE ENTERING INTO IT. IT MAY IN SOME CASES BE THA T EVEN WHILE ENTERING INTO THE CONTRACT OF WORK OR EVEN SERVICE, PARTIES MIGHT ENT ER INTO SEPARATE AGREEMENTS, ONE OF WORK AND SERVICE AND THE OTHER OF SALE AND P URCHASE OF MATERIALS TO BE USED IN THE COURSE OF EXECUTING THE WORK OR PERFORM ING THE SERVICE. BUT, THEN IN SUCH CASES THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE, BUT WOULD FALL INTO TWO SEPARATE AGREEMENTS, ONE OF WORK OR SERVIC E AND THE OTHER OF SALE. THESE PRINCIPLES CAN BE DEDUCTED FROM THE DECISION OF THIS COURT IN STATE OF H.P. V. ASSOCIATED HOTELS OF INDIA LTD. IN THE DECI SION IN THE CASE OF THE STATE O MADRAS V. GANNON DUNKERLEY & CO. (MADRAS) LTD., T HIS COURT HAD STATED THAT ACCORDING TO THE LAW, BOTH OF ENGLAND AND OF INDIA, IN ORDER TO CONSTITUTE A SALE, IT IS NECESSARY THAT THERE SHOULD BE AN AGREE MENT BETWEEN THE PARTIES FOR THE PURPOSE OF TRANSFERRING TITLE TO GOODS, WHICH O F COURSE PRE-SUPPOSED CAPACITY TO CONTRACT, THAT IT MUST BE SUPPORTED BY MONEY CONSIDERATION THAT AS A RESULT OF TRANSACTION, THE PROPERTY MUST ACTUALLY PASS IN THE GOODS. UNLESS ALL THESE ELEMENTS WERE PRESENT, THERE WOULD BE NO SALE . 19. IN THE INSTANT CASE IT IS INDISPUTABLE AS WE HA VE REFERRED TO THE 1951 CONTRACT AND THE SUBSTANCE OF THE INVOICES AND, IT IS NOT DISPUTED THAT THE OTHER WORKS ORDERS WERE ON THE BASIS OF THE PRINCIPLES AG REED BY THE 1951 AGREEMENT SET OUT HEREINBEFORE, THAT THE TRANSACTIONS WERE AS A RESULT OF COMPOSITE CONTRACTS INVOLVING THE EXECUTION OF WORKS VIZ. OVE RHAULING, REPAIRING, SERVICING AND IN ONE YEAR ASSEMBLING, AIR FORCE PLA NES, ENTRUSTED TO THE APPELLANT. THE QUESTION IS, WHETHER THIS COMPOSITE CONTRACT WAS DIVISIBLE INTO ONE EXCLUSIVELY FOR WORK AND LABOUR AND ANOTHER FOR SALE OF MATERIALS. THE FAT THAT THERE IS SUPPLY OF MATERIALS FOR THE PURPOSE O F EXECUTION OF THE WORK CONTRACTS UNDERTAKEN BY THE APPELLANT CANNOT BE DIS PUTED. BUT, THE QUESTION THEN ARISES WHETHER THAT CAN BE TAKEN AS PURSUANT T O A DISTINCT CONTRACT WITH A VIEW TO EXECUTE THE WORK UNDERTAKEN. IN THIS CONNE CTION, WE HAVE ALREADY MENTIONED THE PRINCIPLES ENUNCIATED BY THE STATEMEN T OF HALSHURVS LAWS OF ENGLAND, THIRD EDITION, VOLUME 34, PAGES 6 AND 7, P ARA-3. 20. IT WOULD BE APPROPRIATE, IN OUR OPINION, BECAUS E IT CLEARLY ENUNCIATES THE PRINCIPLES, TO REFER TO THE STATEMENT OF LAW IN BEN JAMINS TREATISE ON THE LAW OF SALE OF PERSONAL PROPERTY WITH REFERENCE TO THE FRE NCH CODE AND CIVIL LAW, EIGHTH EDITION(1950) AT PAGES 167-168 WHERE THE LEA RNED EDITOR HAS DEDUCED THE PRINCIPLES THAT WOULD BE APPLICABLE IN DECIDING THE CONTROVERSY BEFORE US. THESE PRINCIPLES ARE:- 1. A CONTRACT WHEREBY A CHATTEL IS TO BE MADE AND AFFIXED BY THE WORKMAN TO LAND OR TO ANOTHER CHATTEL BEFORE THE PROPERTY T HEREIN IS TO PASS, IS NOT A CONTRACT OF SALE, BUT A CONTRACT FOR WORK, LABOUR A ND MATERIALS, FOR THE CONTRACT DOES NOT CONTEMPLATE THE DELIVERY OF A CHATTEL AS S UCH. 2. WHEN A CHATTEL IS TO BE MADE AND ULTIMATELY DEL IVERED BY A WORKMAN TO HIS EMPLOYER, THE QUESTION WHETHER THE CONTRACT IS ONE OF SALE OR OF A BAILMENT FOR WORK TO BE DONE DEPENDS UPON WHETHER PREVIOUSLY TO THE COMPLETION OF THE 12 ITA NO.3323/AHD./2010 CHATTEL THE PROPERTY IN ITS MATERIALS WAS VESTED IN THE WORKMAN OR IN HIS EMPLOYER. IF THE INTENTION AND RESULT OF THE CONTRA CT IS TO TRANSFER FOR A PRICE PROPERTY IN WHICH THE TRANSFEREE HAD NO PREVIOUS PR OPERTY THEN THE CONTRACT IS A CONTRACT OF SALE. WHERE, HOWEVER, THE PASSING OF PROPERTY IS MERELY A NCILLARY TO THE CONTRACT FOR THE PERFORMANCE OF WORK SUCH A CONTRAC T DOES NOT THEREBY BECOME A CONTRACT OF SALE. 3. ACCORDINGLY (I) WHERE THE EMPLOYER DELIVERS TO A WORKMAN EITHER ALL OR THE PRINCIPAL MATERIALS OF A CHATTEL ON WHICH THE WORKMAN AGREES TO DO WORK, THERE IS A BAILMENT BY THE EMPLOYER, AND A CONTRACT FOR WORK L ABOUR, OR FOR WORK, LABOUR AND MATERIALS (AS THE CASE MAY BE, BY THE WORKMAN. MATERIALS ADDED BY THE WORKMAN, ON BEING AFFIXED TO OR BLENDED WITH THE EMPLOYERS MATERIALS, THEREUPON VEST IN THE EMP LOYER BY ACCESSION, AND NOT UNDER ANY CONTACT OF SALE. (II) WHERE THE WORKMAN SUPPLIERS EITHER ALL OR THE PRINCIPAL MATERIALS, THE CONTRACT IS A CONTRACT FOR SALE OF THE COMPLETE D CHATTEL, AND ANY MATERIALS SUPPLIED BY THE EMPLOYER WHEN ADDED TO THE WORKMAN S MATERIALS VEST IN THE WORKMAN BY ACCESSION. 11. SIMILARLY, THE LD. COUNSEL FOR THE ASSESSEE REL IED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DAB UR INDIA LTD. (2006) 283 ITR 197 (DEL), WHEREIN HONBLE HIGH COURT HAS HELD AS UNDER:- WE HAVE CAREFULLY GONE THROUGH THE DECISION RELIED UPON BY COUNSEL BUT FIND IT DIFFICULT TO ACCEPT THE SUBMISSION MADE BY HER. IN THE CASE OF ANNANDAM VISWANATHAN (1989) 73 STC 1 (SC)THE WORK ENTRUSTED TO THE ASSESSEE WAS PRINTING OF QUESTION PAPERS FOR UNIVERSITIES. THE Q UESTION WAS WHETHER SUCH PRINTING WORK COULD BE TREATED TO BE A SIMPLE CASE OF CONTRACT FOR SALE OF GOODS. ANSWERING THE QUESTION IN THE NEGATIVE, THE COURT H ELD THAT PRINTING OF QUESTION PAPERS AT THE BEHEST OF A UNIVERSITY OR EDUCATION I NSTITUTION IS A DELICATE AND CONFIDENTIAL TYPE OF WORK AND THE PRICE PAID FOR SU PPLYING SUCH PRINTED QUESTION PAPERS OR PRINTED MATTER ENTAILS PRIMARILY THE CONF IDENCE AND SECONDLY THE SKILL AND TO A VERY SMALL EXTENT THE MATERIAL. HENCE, SUC H WORK UNDERTAKEN BY THE CONCERNED AGENCY COULD NOT BE CATEGORIZED AS ENTAIL ING SALE OF GOODS. IT WAS INSTEAD A CONTRACT FOR WORKS DONE. THERE IS NO SIMI LARITY BETWEEN THE FACTS WITH WHICH THE SUPREME COURT WAS DEALING IN VISWANATHAN S CASE [1989] 73 STC 1 (SC) AND THOSE IN THE PRESENT CASE. IT IS NOBODYS CASE BEFORE US THAT THE PRINTING OF THE LABELS ON THE CORRUGATED BOXES REQU IRED ANY SPECIAL SKILL OR INVOLVE ANY CONFIDENCE OR SECRECY. IN THE CIRCUMSTA NCES, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE PREDOMINANT OBJECT UN DERLYING THE CONTRACT WAS ONE FOR SALE OF GOODS WHICH TOOK THE CONTRACT OUT O F THE PURVIEW OF SECTION 194C OF THE ACT. 13 ITA NO.3323/AHD./2010 12. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE HONBLE BOMBAY HIGH COURT AURANGABAD BENCH IN THE CASE OF BDA L TD. V. ITO (TDS) (2006) 281 ITR 99 (BOM), WHEREIN THE HONBLE BOMBAY HIGH C OURT RELYING ON HONBLE APEX COURT IN THE CASE OF STATE OF HIMACHAL PRADESH, AIR 1972 (SC) 1131 AND STATE OF TAMIL NADU V. ANANDAM VISWANATHAN (1989) 73 STC 1 (SC) AND ALSO IN THE CASE OF ASSOCIATED CEMENT CO.LTD.( SUPRA), HAS HELD AS UNDER:- THE CASE OF STATE OF HIMACHAL PRADESH, AIR 1972 SC 1131; [1972] 29 STC 474 (SC)CAME TO BE DECIDED BY A CONSTITUTION BE NCH. IN PARA.9 (PAGE 1134), THE COURT OBSERVED THUS (PAGE 479):- THE DIFFICULTY WHICH THE COURTS HAVE OFTEN TO MEE T WITH IN CONSTRUING A CONTACT OF WORK AND LABOUR, ON THE ONE HAND, AND A CONTRACT FOR SALE, ON THE OTHER, ARISES BECAUSE THE DISTINCTION BETWEEN THE T WO IS VERY OFTEN A FINE ONE. THIS IS PARTICULARLY SO WHEN THE CONTRACT IS A COMP OSITE ONE INVOLVING BOTH A CONTRACT OF WORK AND LABOUR AND A CONTRACT OF SALE. NEVERTHELESS, THE DISTINCTION BETWEEN THE TWO RESTS ON A CLEAR PRINCI PLE. A CONTRACT OF SALE IS ONE WHOSE MAIN OBJECT IS THE TRANSFER OF PROPERTY IN, A ND THE DELIVERY OF THE POSSESSION OF, A CHATTEL AS A CHATTEL TO THE BUYER. WHERE THE PRINCIPAL OBJECT OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT TH E TRANSFER OF A CHATTEL QUA CHATTEL, THE CONTRACT IS ONE OF WORK AND LABOUR. TH E TEST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN P ROPERLY BECOME THE SUBJECT OF SALE ; NEITHER THE OWNERSHIP OF MATERIAL S, NOR THE VALUE OF THE SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERI ALS, IS CONCLUSIVE, ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DET ERMINING, IN THE CIRCUMSTANCES OF A PARTICULAR CASE, WHETHER THE CON TRACT IS IN SUBSTANCE ONE FOR WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL (HALSBURYS LAWS OF ENGLAND, 3 RD EDITION, VOL. 34, 6-7) THE APEX COURT WAS CONSIDERING THE APPLICABILITY OF SALES TAX UNDER THE PUNJAB GENERAL SALES TAX ACT. IN FACT, DEDUCTION O F TDS UNDER SECTION 194C IS CONVERSE TO THE PAYMENT OF SALES TAX UNDER THE SALE S TAX ACT FRAMED BY THE STATES INASMUCH AS IF THE CONTRACT IS NOT COVERED F OR PAYMENT OF SALES TAX, IT IS COVERED FOR DEDUCTION OF TDS UNDER SECTION 194C OF THE ACT AND VICE VERSA. WHILE DISTINGUISHING THE TRANSACTION OF SALE CONTRA CT FROM THE WORKS CONTRACT, THE COURT OBSERVED (PAGE 481): FROM THE DECISIONS EARLIER CITED IT CLEARLY, EMERG ES THAT SUCH DETERMINATION DEPENDS IN EACH CASE UPON ITS FACTS A ND CIRCUMSTANCES. MERE PASSING OF PROPERTY IN AN ARTICLE OR COMMODITY DURI NG THE COURSE OF THE PERFORMANCE OF THE TRANSACTION IN QUESTION DOES NOT RENDER IT A TRANSACTION OF SALE. FOR, EVEN IN A CONTRACT PURELY OF WORK OR SE RVICE, IT IS POSSIBLE THAT ARTICLES MAY HAVE TO BE USED BY THE PERSON EXECUTIN G THE WORK AND PROPERTY IN SUCH ARTICLES OR MATERIALS MAY PASS TO THE OTHER PA RTY. THAT WOULD NOT NECESSARILY CONVERT THE CONTRACT INTO ONE OF SALE O F THOSE MATERIALS. IN EVERY CASE THE COURT WOULD HAVE TO FIND OUT WHAT WAS THE PRIMARY OBJECT OF THE TRANSACTION AND THE INTENTION OF THE PARTIES WHILE ENTERING INTO IT. IT MAY IN 14 ITA NO.3323/AHD./2010 SOME CASES BE THAT EVEN WHILE ENTERING INTO A CONTR ACT OF WORK OR EVEN SERVICE, PARTIES MIGHT ENTER INTO SEPARATE AGREEMENTS, ONE O F WORK AND SERVICE AND THE OTHER OF SALE AND PURCHASE OF MATERIALS TO BE USED IN THE COURSE OF EXECUTING THE WORK OR PERFORMING THE SERVICE. BUT, THEN IN SU CH CASES THE TRANSACTION WOULD NOT BE ONE AND INDIVISIBLE, BUT WOULD FALL IN TO TWO SEPARATE AGREEMENTS, ONE OF WORK OR SERVICE AND THE OTHER OF SALE. IN THE CASE OF STATE OF TAMIL NADU V. ANANDAM VISWA NATHAN [1989] 73 STC 1 (SC), THE ASSESSEE HAD SUPPLIED PRINTED QUEST ION PAPERS TO UNIVERSITY AND OTHER EDUCATIONAL INSTITUTIONS IN THE COUNTRY. THE QUESTION WAS WHETHER IT WAS A WORK CONTRACT, OR CONTRACT FOR SALE FOR T HE PURPOSES OF PAYMENT OF SALES TAX UNDER THE TAMIL NADU GENERAL SALES TAX AC T. IN PARA-27, THE COURT STATED (PAGE 14 OF [1989] 73 STC 1 AND PAGE 972 OF AIR 1989 (SC) : IN OUR OPINION, IN EACH CASE THE NATURE OF THE CO NTRACT AND THE TRANSACTION MUST BE FOUND OUT. AND THIS IS POSSIBL E ONLY WHEN THE INTENTION OF THE PARTIES IS FOUND OUT. THE FACT THAT IN THE EXEC UTION OF A CONTRACT FOR WORK SOME MATERIALS ARE USED AND THE PROPERTY IN THE GOO DS SO USED, PASSES TO THE OTHER PARTY, THE CONTRACTOR UNDERTAKING TO DO THE W ORK WILL NOT NECESSARILY BE DEEMED, ON THAT ACCOUNT, TO SELL THE MATERIALS. WH ETHER OR NOT AND WHICH PART OF THE JOB-WORK RELATES TO THAT DEPENDS, AS MENTION ED HEREINBEFORE, ON THE NATURE OF THE TRANSACTION. A CONTRACT FOR WORK IN T HE EXECUTION OF WHICH GOODS ARE USED MAY TAKE ANY ONE OF THE THREE FORMS AS MEN TIONED BY THIS COURT IN GOVERNMENT OF ANDHRA PRADESH V. GUNTUR TOBACCOS LTD ., AIR 1965 SC 1396. IN THE CASE OF ASSOCIATED CEMENT CO. LTD. [1993] 2 01 ITR 435 (SC),IT WAS HELD THAT, THE PAYMENT MADE TO THE LABOURERS EN GAGED BY THE CONTRACTOR FOR LOADING THE CEMENT BAGS FOR TRANSPORTATION FALL WIT HIN THE AMBIT OF THE TERMS ANY WORK, AND THEREFORE TDS WAS DEDUCTIBLE UNDER SECTION 194C. IN PARA. 5, THE COURT NOTED (PAGE 440) : WE SEE NO REASON TO CURTAIL OR TO CUT DOWN THE MEA NING OF THE PLAIN WORDS USED IN THE SECTION. ANY WORK MEANS ANY WORK AND NOT A WORKS CONTRACT, WHICH HAS A SPECIAL CONNOTATION IN THE TAX LAW. IND EED, IN THE SUB-SECTION, THE WORK IN THE SUB-SECTION IS NOT INTENDED TO BE CON FINED TO OR RESTRICTED TO WORKS CONTRACT. WORK ENVISAGED IN THE SUB-SECT ION, THEREFORE, HAS A WIDE IMPORT AND COVERS ANY WORK WHICH ONE OR THE OTHER OF THE ORGANIZATIONS SPECIFIED IN THE SUB-SECTION CAN GET CARRY OUT THRO UGH A CONTRACTOR UNDER A CONTRACT AND FURTHER IT INCLUDES OBTAINING BY ANY O F SUCH ORGANIZATIONS SUPPLY OF LABOUR UNDER A CONTRACT WITH A CONTRACTOR FOR CA RRYING OUT ITS WORK WHICH WOULD HAVE FALLEN OUTSIDE THE WORK BUT FOR ITS SP ECIFIC INCLUSION IN THE SUB- SECTION. IT IS NOT DISPUTED THAT, M/S. MUDRANIKA IS AN INDEP ENDENT ESTABLISHMENT ENGAGED IN THE BUSINESS OF SUPPLYING PRINTED PACKAG ING MATERIAL TO VARIOUS ESTABLISHMENTS, AND IT I NOT A CAPTIVE UNIT OF THE ASSESSEE. THE ASSESSEE HAD ISSUED A PURCHASE ORDER IN FAVOUR OF M/S. MUDRANIKA FOR SUPPLY OF PRINTED 15 ITA NO.3323/AHD./2010 LABELS AS PER THE SPECIFICATIONS PROVIDED BY IT, AN D THE RAW MATERIALS REQUIRED FOR THE SAME WERE NOT SUPPLIED BY THE ASSESSEE. M/ S. MUDRANIKA HAS BEEN SUPPLYING SUCH PRINTED LABELS TO OTHER ESTABLISHMEN TS AS PER THEIR RESPECTIVE SPECIFICATIONS. THE PRINTING WORK WAS NOT BEING CAR RIED OUT IN THE PREMISES OF THE ASSESSEE. THIS SUPPLY OF PRINTED LABELS CANNOT BE COMPARED AND EQUATED WITH THE SUPPLY OF PRINTED QUESTION PAPERS TO UNIVE RSITIES AND EDUCATIONAL INSTITUTIONS. M/S. MUDRNIKA WOULD INTO PRINT SUCH LABELS WITH THE SPECIFICATIONS OF THE ASSESSEE BEYOND THE QUANTITY SPECIFIED IN TH E PURCHASE ORDER, AND THEREFORE, IT WAS WRONG ON THE PART OF THE TRIBUNAL TO HOLD THAT, THE LABELS PRINTED BY M/S. MUDRANIKA TO SUPPLY TO THE ASSESSEE COULD NOT BE SOLD TO ANY OTHER ESTABLISHMENTS IN THE MARKET. THIS FINDING R EGARDING NO MARKETABILITY IS BASED ON A FALLACIOUS PREMISE THAT, M/S. MUDRANIKA WAS PRINTING AN UNLIMITED NUMBER OF LABELS. WHEN THE PRINTING WORK WAS BEING CARRIED IN THE PREMISES OF M/S. MUDRANIKA, THOUGH AS PER THE SPECIFICATIONS OF THE ASSESSEE, THE SUPPLY WAS LIMITED TO THE QUANTITY SPECIFIED IN THE PURCHA SE ORDER AND IT WOULD NOT DO SUCH PRINTING BEYOND THE NUMBERS SPECIFIED IN THE S AME. THERE IS NOTHING ON RECORD TO SHOW THAT, ALL OTHER ANCILLARY COSTS LIKE THE LABELS, INK, PAPERS, SCREEN-PRINTING, SCREENS, ETC., WERE BEING SUPPLIED BY THE ASSESSEE TO M/S. MUDRANIKA. IN THE FACTS OF THIS CASE, THE SUPPLY OF PRINTED LABELS BY M/S. MUDRANIKA TO THE ASSESSEE WAS A CONTRACT OF SALE AND IT COULD NOT BE TERMED AS A WORKS CONTRACT. THE TRIBUNAL HAS RIGHTLY HE LD IN THE CASE OF WADILAL DAIRY INTERNATIONAL LIMITED [2002] 81 ITD 238 (PUNE ) THAT, THE SUPPLY OF PRINTED PACKING LABELS AMOUNTED TO A SALE CONTRACT AND NOT A WORKS CONTRACT, AND THE SAME RATIO IS APPLICABLE IN THE INSTANT CASE, AS WELL. THE SINGLE BENCH OF THE TRIBUNAL THUS FELL IN GROSS ERR OR IN HOLDING THAT, THE SUBJECT TRANSACTION WAS A WORKS CONTRACT, AND THEREFORE T DS WAS REQUIRED TO BE DEDUCTED BY THE ASSESSEE UNDER SECTION 194C OF THE ACT. 13. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE HONBLE APEX COURT IN THE CASE OF BHARAT SANCHAR NIGAM LTD. AND ANAOT HER V. UNION OF INDIA AND OTHERS (2006) 282 ITR 273 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD AS UNDER:- COMING NOW TO THE MERITS OF THE CASE, THE PETITION ERS CONTENDED THAT THE SERVICE PROVIDERS ARE LICENCES UNDER SECTION 4 OF T HE TELEGRAPH ACT, 1885, AND PROVIDE TELECOMMUNICATION SERVICES AS PROVIDED UN DER SECTION 2(K) UNDER THE TELECOM REGULATORY AUTHORITY OF INDIA ACT, 1997 , SERVICE TAX IS IMPOSED ON THEM UNDER THE FINANCE ACT, 1994, ON THE BASIS OF T HE TARIFF REALIZED FROM THE SUBSCRIBERS. THEY FURTHER CONTENDED THAT IN PROVID ING SUCH SERVICE THEE IS IN FACT NO SALES EFFECTED BY THE SERVICE PROVIDERS A ND THAT THE STATES DO NOT HAVE THE LEGISLATIVE COMPETENCE TO IMPOSE SALES TAX ON T HE RENDITION OF TELECOMMUNICATION SERVICES. ARTICLE 366(29A) WHICH EXTENDED THE DEFINITION OF SALE IN THE CONSTITUTION DID NOT APPLY TO THE TRA NSACTION IN QUESTION. CLAUSE (D) OF ARTICLE 366 (29A) RELIED UPON BY THE RESPOND ENTS CONTEMPLATES A TRANSFER OF A LEGAL RIGHT TO USE GOODS. ACCORDING TO THE PE TITIONERS THERE IS NO TRANSFER OF ANY LEGAL RIGHT BY THE SERVICE PROVIDERS NOR ANY DELIVERY OF ANY GOODS WHICH 16 ITA NO.3323/AHD./2010 MAY BE COVERED UNDER THE TELEGRAPH ACT, 1885, AS TH E SAME IS BARRED AND PROHIBITED IN TERMS OF THE LICENCE GRANTED TO SERVI CE PROVIDERS UNDER SECTION 4 OF THAT ACT. IT IS SUBMITTED WITHOUT A DELIVERY OF GOODS, THERE COULD BE NO TRANSFER OF ANY RIGHT TO USE THOSE GOODS AS CONTEMP LATED UNDER ARTICLE 366(29A)(D). IT IS THE PETITIONERS CASE THAT THE DECISION IN STATE OF U.P. V. UNION OF INDIA [2003] 3SCC 239 ; [2003] 130 STC 1 ( SC) WAS ERRONEOUS NOT ONLY BECAUSE IT HELD THAT THE TELEPHONE CONNECTION AND ALL OTHER ACCESSORIES WHICH GIVES ACCESS TO THE TELEPHONE EXCHANGE WITH O R WITHOUT INSTRUMENTS ARE GOODS BUT ALSO BECAUSE THERE WAS IN FACT NO TRANSFE R OF ANY OF THESE EQUIPMENT TO A SUBSCRIBER. THE PREDOMINANT ELEMENT AND INTEN TION IN THE TRANSACTION WAS ONE OF SERVICE AND NOT OF SALE. IT IS SUBMITTED TH AT TAXING TELECOMMUNICATION SERVICES AS A DEEMED SALE UNDER ENTRY 54 OF LIST II WOULD BE VIOLATIVE OF ARTICLE 286 OF THE CONSTITUTION AS THE SAME INVOLVES CONNEC TING SUBSCRIBERS THROUGHOUT THE TERRITORIES OF INDIA WITHOUT ANY REGARD TO STAT E BOUNDARIES. ON THE INTERPRETATION OF ARTICLE 366 (29A) IT WAS SUBMITTED THAT THE FICTION IN ONE CLAUSE COULD NOT BE READ INTO THE OT HER. IT IS SAID THAT THE DISINTEGRATION OF COMPOSITE TRANSACTIONS HAS TO BE SPECIFICALLY ENABLED BY THE CONSTITUTION AND THAT IT WAS NOT WITHIN THE COMPETE NCE OF THE STATE LEGISLATION TO DIVIDE A COMPOSITE TRANSACTION OTHERWISE. IT IS ALSO SUBMITTED THAT THE LANGUAGE OF CLAUSE (D) WAS DISTINCT FROM THE LANGUA GE USED IN CLAUSE (B) OF CLAUSE (29A) OF ARTICLE 366. OUR ATTENTION WAS DRA WN TO THE ABSENCE OF THE USE OF THE WORD INVOLVED IN THE FORMER SUB-CLAUSE. I T IS EMPHASIZED THAT THERE MUST BE GOODS OF WHICH THE RIGHT TO TRANSFER IS COV ERED BY SUB-CLAUSE (D) OF CLAUSE (29A) OF ARTICLE 366. IT IS CONTENDED THAT THERE WAS NO TRANSFER OF ANY RIGHT TO USE ANY GOODS AND THE PARTIES NEVER INTEND ED FOR SUCH TRANSFER. IT IS SUBMITTED THAT THE COURT SHOULD APPLY THE STANDARD OF THE ORDINARY MAN FOR DECIDING WHETHER THE TRANSACTION IN QUESTION WAS A CONTRACT FOR SERVICE OR FOR TRANSFER OF A RIGHT TO USE DEEMED GOODS. THE OBLIG ATION OF THE SERVICE PROVIDER IS MERELY TO TRANSMIT VOICE AND THE SUBSCRIBER WAS NOT INTERESTED IN STIPULATING AS TO HOW THE VOICE / DATA IS TO BE CONVEYED TO THE OTHER END. IT IS FOR THE SERVICE PROVIDER TO CHOOSE THE MEDIUM AS IT THINKS FIT. THE SIM CARD WAS NOT GOODS IT MERELY ENABLES ACTIVATION. ACCORDING TO THE PETITIONERS PRIOR TO THE 46 TH AMENDMENT COMPOSITE CONTRACTS WERE NOT EXIGIBLE TO STATE SALES TAX UNDE R ENTRY 54, LIST II. THE LEGAL FICTION CREATED IN ARTICLE 366 (29A) PROVIDED FOR S PECIFIC COMPOSITE CONTRACTS TO BE SUBJECTED TO SALES TAX. THEREFORE, EVEN AFTER TH E 46 TH AMENDMENT OTHER TRANSACTIONS HAD BEEN HELD NOT TO BE SALES. RELIAN CE HAS BEEN PLACED ON THE EVEREST COPIERS V. STATE OF TAMIL NADU [1996] 5 SCC 390 ; [1996] 103 STC 360 (SC), RAINBOW COLOUR LAB V. STATE OF MADHYA PRA DESH [2000] 2 SCC 385 ; [2000] 118 STC 9 (SC) AND HINDUSTAN AERONAUTICS L TD. V. STATE OF KARNATAKA [1984] 1 SCC 706 ; [1984] 55 STC 314 (SC). IT WAS C ONTENDED IN ADDITION THAT THE RESTRICTIONS REGARDING THE STATES INABILITY TO TAX INTER-STATE SALES WOULD CONTINUE TO APPLY. FURTHERMORE, THE ACTIVITY OF PRO VIDING THE CONNECTION INVOLVED THE USE OF INSTRUMENTS EMBEDDED TO EARTH O R ATTACHED TO WHAT IS 17 ITA NO.3323/AHD./2010 EMBEDDED IN THE EARTH AND THEREFORE WAS IMMOVABLE P ROPERTY AND OUTSIDE THE SCOPE OF SALES TAX. THUS, THERE WERE NO GOODS NOR ANY TRANSFER OF ANY GOODS INVOLVED IN THE ACTIVITY. IT IS POINTED OUT THAT NONE OF THE STATES COULD CON TEND THAT TELECOMMUNICATION WAS NOT A SERVICE. IT WAS SUBMITT ED THAT THE SERVICE DID NOT ALLOW FOR TRANSFER OF RIGHT TO USE GOODS. THERE WAS NO TRANSFER OF CONTROL OR EQUIPMENTS AT ANY STAGE. IT IS SUBMITTED THAT WHAT THE SERVICE PROVIDERS PROVIDE WAS A MEANS OF COMMUNICATION AND WHAT WAS T RANSFERRED WAS THE SOUNDS OF THE MESSAGE OR SIGNALS WHICH WERE GENERAT ED BY THE SUBSCRIBERS THEMSELVES. IT IS FURTHER SUBMITTED THAT THE SIM C ARD WAS MERELY AN IDENTIFICATION DEVICE FOR GRANTING ACCESS AND WAS A MEANS TO ACCESS SERVICES. THE SERVICE PROVIDERS IN THE APPEAL FROM THE DECISI ON OF THE KERALA HIGH COURT SUBMITTED THAT THE HIGH COURT HAD NOT APPRECI ATED THE FACTS. THE SERVICE PROVIDERS HAD IMPORTED THE SIM CARDS AND SOLD THEM TO FRANCHISES WHO THEN SOLD THEM TO THE SUBSCRIBERS. IT IS SUBMITTED THAT THE AUTHORITIES HAD WRONGLY PROCEEDED ON THE BASIS THAT THERE WAS A SALE OF SIM CARDS BY THE SERVICE PROVIDERS TO THE SUBSCRIBERS. IT IS POINTED OUT TH AT THE SALE WAS FACTUALLY AND LEGALLY DISTINCT FROM THE ACTIVITY OF GIVING THE CO NNECTION OR ACTIVATION OF THE SIM CARDS. THE DECISION OF THE KERALA HIGH COURT HA S ALSO BEEN IMPUGNED ON THE GROUND THAT IT OVERLOOKED, INTER ALIA, QUESTION S OF COMPETENCE RAISED BY THE PETITIONERS, THE EXPLANATION TO THE DEFINITION OF T URNOVER AS WELL AS THE RATIO OF GANNON DUNKERLEY [1958] 9 STC 353 (SC) ; [1959] SCR 379 ; AIR 1958 SC 560 AND MISAPPLIED THE ASPECT THEORY. 13. ON THE OTHER HAND, THE LD. DR RELIED ON THE CAS E LAW OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PENTAGON ENGINEERI NG PVT. LTD. V. CIT (1995) 212 ITR 92 (BOM) WHEREIN, THE HONBLE HIGH C OURT HAS HELD THAT THE USE OF WORD SHALL IN SECTION 201(IA) MAKES THE LI ABILITY TO PAY INTEREST IN CIRCUMSTANCES MENTIONED MANDATORY AND THERE IS NO P RECONDITION OF CONSIDERATION OF REASONABLE CAUSE FOR NON-PAYMENT IN TIME OF TAX DEDUCTED UNDER SECTION 192. SEC. 201(1A) IS MANDATORY AND T HE TRIBUNAL WAS RIGHT IN LAW IN TAKING THE VIEW THAT THE ITO WAS NOT REQUIR ED TO TAKE INTO CONSIDERATION THE REASONABLE CAUSE FOR NON-PAYMENT OF TAXES DED UCTED UNDER SECTION 192 OF THE ACT. THE LD. DR ALSO RELIED ON THE CASE LA W OF HONBLE APEX COURT IN THE CASE OF CIT & ANR. V. CENTURY BUILDING INDUSTR IES (P) LTD. (2007) 293 ITR 194 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD T HAT THE MATERIAL EXPRESSION IN SECTION 194A(1) IS AT THE TIME OF CR EDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE. WHEN INTEREST IS DEBITED TO INTEREST ACCOUNT THE DEBIT IS FOR A SPECIFIC AMOUNT CALCULATED WITH REFERENCE TO THE LIABILITY OF THE DEDUCTOR TO A PARTICULAR CREDITOR IN ACCORDANCE WIT H THE TERMS AND CONDITIONS OF THE LOAN. THEREFORE, WHENEVER INTEREST IS CREDIT ED TO THE ACCOUNT OF THE PAYEE THE PAYER HAS TO DEDUCT THE TDS. THE CRUX OF THE M ATTER IS THAT THE DEBIT IS FOR A SPECIFIC AMOUNT CALCULATED WITH REFERENCE TO THE DEDUCTORS LIABILITY TO A 18 ITA NO.3323/AHD./2010 PARTICULAR CREDITOR IN ACCORDANCE WITH THE TERMS AN D CONDITIONS OF THE LOAN. IN THE PRESENT CASE, THE LENDER HAS ADVANCED THE LOAN TO THE ASSESSEE-COMPANY. DEBIT WAS MADE BY THE ASSESSEE-COMPANY TO THE INTE REST ACCOUNT FOR A SPECIFIC AMOUNT CALCULATED WITH REFERENCE TO THE DE DUCTORS LIABILITY TO A CREDITOR. THERE IS NO RESOLUTION OF THE ASSESSEE-C OMPANY PLACED BEFORE THE AO WHEREBY THE COMPANY HAS AGREED TO ACT AS A MEDIUM F OR ROUTING THE BORROWINGS AND REPAYMENTS. IN THE CIRCUMSTANCES IT CANNOT BE SAID THAT THE ASSESSEE-COMPANY WAS IN-CHARGE OF DISBURSING THE RE PAYMENTS MADE BY THE DIRECTORS IN THEIR INDIVIDUAL CAPACITIES. CONSEQUE NTLY, DEPARTMENT WAS RIGHT IN INVOKING THE PROVISIONS OF SECTION 201(1) AND 20 1(1A) OF THE ACT. 14. IN VIEW OF THE ABOVE CASE LAWS, AND DISCUSSION CARRIED OUT, THE PROVISIONS OF CLAUSE-C EXPLANATION III TO SUB-SECTI ON (2) TO SECTION 194C ARE PARALLEL TO SECTION 194C(1) AND WHILE DEALING WITH DEDUCTION OF TAX FROM SUM PAID FOR CARRYING OUT ANY WORK OR FOR SUPPLYING OF LABOUR FOR CARRYING OUT ANY WORK, THE NEW PROVISION WILL APPLY ONLY IN RELATION TO WORK CONTRACTS AND LABOUR CONTRACTS AND WILL NOT COVER CONTRACTS FO R SALE OF GOODS. SINCE CONTRACTORS FOR THE CONSTRUCTION OF BUILDINGS OR DA MS OR LAYING OF ROADS AND AIR-FIELDS OR RAILWAY LINES OR ERECTION OR INSTALLA TION OF PLANT AND MACHINERY ARE IN THE NATURE OF CONTRACTS FOR WORK AND LABOUR, INCOME-TAX WILL HAVE O BE DEDUCTED FROM PAYMENTS MADE IN RESPECT OF SUCH CONT RACTS. SIMILARLY, CONTRACTS GRANTED FOR PROCESSING OF GOODS SUPPLIED BY GOVERNM ENT OR ANY OTHER SPECIFIED PERSON, WHERE THE OWNERSHIP OF SUCH GOODS REMAINS A T ALL TIMES WITH THE GOVERNMENT OR SUCH PERSON, WILL ALSO FALL WITHIN TH E PURVIEW OF THE NEW SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT O F CONTRACT FOR FABRICATION OF SEA AND RIVER CRAFTS WHERE MATERIALS ARE SUPPLIED B Y THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE FABRICATION WORK IS DONE BY A CONTRACTOR. WHERE, HOWEVER, THE CONTRACTOR UNDERTAKES TO SUPPLY ANY SEA OR RIVER CRAFTS FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUCH SEA AND R IVER CRAFTS PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH CRAFTS AR E DELIVERED, THE CONTRACT WILL BE A CONTRACT FOR SALE AND, AS SUCH, OUTSIDE T HE PURVIEW OF THE NEW PROVISION. IN THE CASE OF ASSOCIATED HOTELS OF INDI A LTD.,(SUPRA), THEIR LORDSHIPS OF THE SUPREME COURT OBSERVED THAT WHERE THE PRINCIPAL OBJECTIVE OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NOT TH E TRANSFER OF A CHATTEL, QUA CHATTEL, THE CONTRACT IS OF WORK AND LABOUR. THE TE ST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN PROPER LY BECOME THE SUBJECT OF SALE; NEITHER THE OWNERSHIP OF THE MATERIALS NOR TH E VALUE OF SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERIALS IS CONCLUS IVE ALTHOUGH SUCH MATTERS MAY BE TAKEN INTO CONSIDERATION IN DETERMINING, IN THE CIRCUMSTANCES OF A PARTICULAR CASE, WHETHER THE CONTRACT IS, IN SUBSTA NCE, ONE OF WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL. A BUILDING CONTR ACT OR A CONTRACT UNDER WHICH A MOVABLE IS FIXED TO ANOTHER CHATTEL OR O THE LAND , WHERE THE INTENTION PLAINLY IS NOT T SELL THE ARTICLE BUT TO IMPROVE THE LAND O R THE OTHER CHATTEL, AND THE 19 ITA NO.3323/AHD./2010 CONSIDERATION IS NOT FOR THE TRANSFER OF THE CHATTE L, BUT FOR THE LABOUR AND WORK DONE AND THE MATERIALS FURNISHED, THE CONTRACT WILL BE ONE OF WORK AND LABOUR. 15. THE RELEVANT CLAUSES OF CBDT CIRCULAR NO. 681 D ATED 8 TH MARCH, 1994, THE CLAUSE VI IS BEING REPRODUCED AS UNDER:- (VI)THE PROVISIONS OF THIS SECTION WILL NOT COVER CONTRACTS FOR SALE OF GOODS. (A) SINCE CONTRACTS FOR THE CONSTRUCTION, REPAIR, R ENOVATION OR ALTERATION OF BUILDINGS OR DAMS OF LAYING OF ROADS OR AIRFIELDS O R RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT AND MACHINERY ARE IN THE NATU RE OF CONTRACTS FOR WORK AND LABOUR, INCOME-TAX WILL HAVE TO BE DEDUCTED FROM PA YMENTS MADE IN RESPECT OF SUCH CONTRACTS. SIMILARLY, CONTRACTS GRANTED FOR P ROCESSING OF GOODS SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON, WH ERE THE OWNERSHIP OF SUCH REMAINS AT ALL TIMES WITH THE GOVERNMENT OR SUCH PE RSON, WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT OF CONTRACTS FOR FABRICATION OF ANY ARTICLE OR THIN WH ERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND TH E FABRICATION WORK IS DONE BY A CONTRACTOR. (B) WHERE, HOWEVER, THE CONTRACTOR UNDERTAKES TO SU PPLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS GIVEN BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN SUCH ART ICLE OR THING PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH ARTICLE O R THING IS DELIVERED, THE CONTACT WILL BE A CONTRACT FOR SALE AND AS SUCH OUT SIDE THE PURVIEW OF THIS SECTION. C) IN STATE OF HIMACHAL PRADESH V. ASSOCIATED HOTEL S OF INDIA LTD., [(1972) 29 STC 474 (SC)], THE SUPREME COURT OBSERVED THAT WHER E THE PRINCIPAL OBJECTIVE OF WORK UNDERTAKEN BY THE PAYEE OF THE PRICE IS NO THE TRANSFER OF A CHATTEL QUA CHATTEL, CONTRACT IS OF WORK AND LABOUR. THE TEST IS WHETHER OR NOT THE WORK AND LABOUR BESTOWED END IN ANYTHING THAT CAN PROPERLY B ECOME THE SUBJECT OF SALE; NEITHER THE OWNERSHIP OF THE MATERIALS NOR THE VALU E OF SKILL AND LABOUR AS COMPARED WITH THE VALUE OF THE MATERIALS IS CONCLUS IVE ALTHOUGH SUCH MATTERS MA BE TAKEN INTO CONSIDERATION IN DETERMINING, IN T HE CIRCUMSTANCES OF A PARTICULAR CASE, WHETHER THE CONTRACT IS, IN SUBSTA NCE, ONE OF WORK AND LABOUR OR ONE FOR THE SALE OF A CHATTEL. A BUILDING CONTR ACT OR A CONTACT UNDER WHICH A MOVABLE IS FIXED TO ANOTHER CHATTEL OR ON THE LAND, WHERE THE INTENTION PLAINLY IS NOT TO SELL THE ARTICLE BUT TO IMPROVE THE LAND OR THE CHATTEL AND THE CONSIDERATION IS NOT FOR THE TRANSFER OF THE CHATTE L, BUT FOR THE LABOR AND WOK DONE AND THE MATERIAL FURNISHED, THE CONTRACT WILL BE ONE OF WORK AND LABOUR. IN CASE OF DOUBT, WHETHER A PARTICULAR CONTRACT IS A CONTRACT FOR WORK AND LABOUR OR FOR SALE, THE MATTER SHOULD BE DECIDED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVEMENTIONE D CASE. 20 ITA NO.3323/AHD./2010 IN VIEW OF THE ABOVE, THE POINT TO BE SEEN IS WHETH ER IN THE PRESENT CASE, WHETHER THE ASSESSEE HAS ENGAGED ANY CONTRACTOR FOR CARRYING OUT ANY WORK. THE EXPRESSION CONTRACTOR FOR CARRYING OUT ANY WOR K IMPLIES THAT THE CONTRACTOR SHOULD HAVE CARRIED OUT SUCH ACTIVITIES. THE TERM CARRIED OUT SUGGESTS AN EXECUTORY CONTRACT RATHER THAN A CASE O F A MERE SUPPLY OR SALE OF GOODS. IF A PERSON ENGAGES THE SERVICES OF ANOTHER AND GIVES HIM A JOB OF MANUFACTURING GOODS OR ARTICLES AND FOR THE PURPOSE SUPPLIES HIM RAW MATERIAL, IT WOULD BE A CLEAR CASE OF A CONTRACT OF WORK. IN SUCH CASES, THE PROVISIONS OF SECTION 194C WOULD UNDOUBTEDLY BE APP LICABLE. BUT, IF, ON THE OTHER HAND, A MANUFACTURER ON HIS OWN PURCHASES MAT ERIAL AND MANUFACTURERS PRODUCT WHICH HE SELLS TO THE ASSESSEE AND IT MAY B E THAT SUCH PRODUCT MIGHT BE CUSTOMER-SPECIFIC AS PER THE REQUIREMENT OF THE CUS TOMER, IT IS STILL A CASE OF A SALE AND NOT FOR CARRYING OUT ANY WORK. IN SUCH SA LE WHICH IS CUSTOMER- SPECIFIC, THE FACT THAT THE GOODS MANUFACTURED ARE ACCORDING TO THE REQUIREMENT OF THE CUSTOMER DOES NOT MEAN OR IMPLY THAT ANY WOR K HAS BEEN CARRIED OUT ON BEHALF OF THE CONTRACTEE. A DISTINCTION BETWEEN A SALE AND WORKS CONTRACT IS VERY SIGNIFICANT PARTICULARLY UNDER THE SALES-TAX L AWS. BEFORE THE INTRODUCTION OF TAX ON WORK CONTRACT, THE SALE-TAX WAS LEVIED ON SALES AND IT COULD NOT BE LEVIED ON WORKS CONTRACT. WHAT IS THE EXACT SCOPE OF EXPRESSION WORK CONTRACT HAS BEEN CONSIDERED BY THE HONBLE SUPREM E COURT IN A NUMBER OF CASES AND BY AND LARGE DISTINCTION BETWEEN THE TWO ALSO SEEMS TO HAVE BEEN ADOPTED FOR THE PURPOSE OF INCOME-TAX ACT. IN THE PRESENT CASE, IT IS A CONTRACT FOR PURCHASE OF GAS FROM VARIOUS GAS SUPPLIERS UP T O THE ASSESSEES GAS METERING STATION AT HAZIRA, SURAT. TRANSPORTATION CHARGES IN THE GAS SUPPLY CONTRACT ARE PART OF PURCHASE COST OF GAS. THIS CA N EASILY BE INFERRED FROM THE ABOVE REFERRED INVOICE. THE OBJECT OF THE CONTRACT BETWEEN SUPPLIERS OF GAS AND ASSESSEE IS ESSENTIALLY TRANSFER OF CHATTEL QUA CHA TTEL I.E., NATURAL GAS UP TO THE FACTORY PREMISES AT HAZIRA UNTIL THEN THE PROPERTY IN QUESTION I.E., THE GAS IS OF SUPPLIERS. THIS BEING THE FACTUAL POSITION, THE PA YMENT FOR THE PURCHASE OF NATURAL GAS AND AS PER THE CONTRACT OF THE ASSESSEE , IT IS ONLY ASKING FOR SUPPLY OF NATURAL GAS FROM THE PRODUCERS FOR THE PURPOSE O F USE OF THIS GAS FOR BURNING IN ASSESSEES FACTORY FOR MANUFACTURING OF UREA. C LEARLY THIS IS A CONTRACT FOR SALE GOODS AND NOT A WORK CONTRACT AS HELD BY THE L OWER AUTHORITIES. IN VIEW OF THE ABOVE, WE QUASH THE ORDERS OF THE LOWER AUTHORI TIES AND ALLOW THE APPEALS OF THE ASSESSEE. WE, THEREFORE, FOLLOWING THE DECISION OF THE ITAT D BENCH, AHMEDABAD IN THE CASE OF M/S. KRISHAK BHARATI COOPERATIVE LTD. ( SUPRA ), HOLD THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS UNDER SECTION 194C IN RESPEC T OF GAS TRANSMISSION CHARGES AMOUNTING TO RS.38,43,900/- PAID IN THE PREVIOUS YE AR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL TO GAS AUTHORITY OF INDIA LTD. (GAIL). CONSEQUENTLY, THE TRANSPORTATION CHARGES PAID TO GAIL AMOUNTING TO RS.38,43,900/- CA NNOT BE DISALLOWED UNDER SECTION 21 ITA NO.3323/AHD./2010 40(A)(IA) OF THE I.T. ACT, 1961. RESULTANTLY, THE A DDITION OF RS.38,43,900/- IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.06.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30/06/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.