NIIT Limited, a Public Limited Company, incorporated V. The Deputy Commissioner (CT) Abids Division,

WP/15207/2005

AI Insights

The case involves NIIT Limited, which entered into a contract with the Government of Andhra Pradesh to impart computer education in schools under a BOOT (Build Own Operate Transfer) basis. The contract included the provision of computers and software, which the government argued constituted a 'works contract' under the APGST Act, making the turnover from these contracts taxable. NIIT contested this interpretation, leading to multiple writ petitions challenging the tax assessments made by the Commercial Tax Officer. The court examined whether the contract could be classified as a 'works contract' and whether the associated turnover was taxable under the APGST Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 696373 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 27-03-2014
• Assessment Year: misc
• Other Referred Cases: Builders' Association of India v. Union of India, Gannon Dunkerley and Co. v. State of Rajasthan, BSNL & Ors. v. Union of India & Ors., K.Raheja Development Corporation v. State of Karnataka, Larsen & Toubro Limited v. State of Karnataka
• Laws Referred To: A.P. General Sales Tax Act, 1957, Finance Act, 1994, Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P VARMA; GOVERNMENT PLEADER FOR SCHOOL EDUCATION
• Assessee Lawyers: C R SRIDHARAN
• Keywords: BOOT basis; Computer education; Sales Tax; Service tax; Taxable turnover; Works contract
• Section: 20(2); 366(29-A)(b); 5F; 2(1)(f); 2(1)(t)

Judgement Text

"* THE HON’BLE Ms. JUSTICE G. ROHINI AND THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY +WRIT PETITION No.15207 OF 2005 WRIT PETITION No.15208 OF 2005 WRIT PETITION No.16694 OF 2005 AND WRIT PETITION No.8871 OF 2008 Date: 27.03.2014 % Date: 27.03.2014 # WRIT PETITION No.15207 and 15208 OF 2005 Between: NIIT Limited, a Public Limited Company, Hyderabad. …Petitioner And The Deputy Commissioner (CT), Abids Division, Hyderabad and 3 others …Respondents WRIT PETITION Nos.16694 of 2005 and 8871 of 2008 NIIT Limited, a Public Limited Company, Hyderabad. …Petitioner And The Commercial Tax Officer, Hyderabad and 2 others …Respondents ! Counsel for the Petitioner : Sri C.R.Sridharan ^ Counsel for respondents 1 to 3 : Sri P.Balaji Varma, Spl. Standing counsel for Commercial Taxes ^ Counsel for respondent No.4 : Government Pleader for School Education HEAD NOTE: ? Cases cited: [1] (1989) 2 SCC 645 2 (1993) 1 SCC 364 3 (2006) 3 SCC 1 4 (2005) 5 SCC 162 5 (2014) 1 SCC 708 6 2002 (8) SCC 481 7 AIR 1990 SC 699 8 (1976) 3 SCC 512 9 AIR 1969 SC 9 10 AIR 1966 SC 1178 11AIR 1990 SC 699 THE HON’BLE Ms. JUSTICE G. ROHINI AND THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY WRIT PETITION No.15207 OF 2005 WRIT PETITION No.15208 OF 2005 WRIT PETITION No.16694 OF 2005 AND WRIT PETITION No.8871 OF 2008 DATE: 27.03.2014 WRIT PETITION No.15207 and 15208 OF 2005 Between: NIIT Limited, a Public Limited Company, Hyderabad. …Petitioner And The Deputy Commissioner (CT), Abids Division, Hyderabad and 3 others …Respondents WRIT PETITION Nos.16694 of 2005 and 8871 of 2008 NIIT Limited, a Public Limited Company, Hyderabad. …Petitioner And The Commercial Tax Officer, Hyderabad and 2 others …Respondents THE HON’BLE Ms. JUSTICE G. ROHINI AND THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY WRIT PETITION No.15207 OF 2005 WRIT PETITION No.15208 OF 2005 WRIT PETITION No.16694 OF 2005 AND WRIT PETITION No.8871 OF 2008 COMMON ORDER: (Per Hon’ble Ms. Justice G. Rohini)) The petitioner company is engaged in the business of Computer Education and Training and providing Information Technology Solutions. The petitioner is also engaged in trading in software and it has registered itself under the provisions of the A.P. General Sales Tax Act, 1957 (for short, ‘APGST Act’) and is being assessed to sales tax under the said Act for its sales of computers and software. In pursuance of the Tender Notice, dated 16.06.2001, issued by the Government of Andhra Pradesh through the State Project Director, District Primary Education Programme (DPEP) inviting tenders for imparting computer education in High Schools in the State of Andhra Pradesh, including leasing of computer hardware, software and connected accessories on Build Own Operate Transfer (BOOT) basis, the petitioner company was selected and awarded the contract for execution of the said contract in 105 schools. Accordingly, the 4th respondent – State Project Director, District Primary Education Programme (DPEP), Government of A.P. executed an agreement dated 29.6.2002 in favour of the petitioner which shall be in force for a period of five years and the petitioner company commenced the work. While so, the Deputy Commissioner (Commercial Taxes) – respondent No.1 issued two show-cause notices dated 18.1.2005 purportedly under Section 20 (2) of the APGST Act, 1957 proposing to revise the assessment orders dated 9.1.2004 and 19.11.2004 made for the Assessment Years 2002-03 and 2003-04 respectively. It was claimed in the show-cause notices that the work executed by the petitioner under the contract dated 29.6.2002 is a “works contract” and therefore the turnover of property involved in the execution of the said works contract is liable to be taxed at 8% under Section 5F of the APGST Act, 1957. In response to the said show-cause notices, the petitioner submitted replies dated 10.02.2005 contending inter alia that the tax proposed under Section 5F is without any basis and illegal. However the petitioner’s objections were not accepted and accordingly the 1st respondent held that the turnover of the work executed by the petitioner for the Government under the contract dated 29.06.2002 is exigible to tax under the provisions of Section 5F of the APGST Act. Thus by two separate orders dated 8.6.2005 the assessment for the years 2002-03 and 2003-04 was revised adding the tax payable on the turnover of the execution of works contract during the said period. Aggrieved by the said orders, dated 8.6.2005, W.P.Nos.15207 & 15208 of 2005 are filed in respect of the assessment years 2002-03 and 2003-04 respectively. While admitting the said writ petitions, this Court by order dated 14.07.2005 granted interim stay of operation of the impugned orders on condition of the petitioner furnishing security by way of Bank guarantee for a sum of Rs.50 lakhs in each writ petition within four (4) weeks. In the meanwhile, the petitioner was also served with the show- cause notice dated 18.01.2005 calling upon to submit their objections to the proposed provisional assessment for the assessment year 2004- 05 which included the turnover of receipts on the contract executed by the petitioner under the agreement dated 29.06.2002. Though the petitioner submitted its objections dated 10.02.2005 contending that the execution of work in question under the contract dated 29.06.2002 cannot be treated as a works contract, the Commercial Tax Officer assessed the petitioner by order dated 16.06.2005 including the turnover of the work executed under the agreement dated 29.06.2002. The said order dated 16.6.2005 which was described as “Provisional Assessment Show-cause Notice for the year 2004-05” is assailed in W.P.No.16694 of 2005. While admitting W.P.No.16694 of 2005, this Court by order dated 3.8.2005 granted interim stay subject to the condition of the petitioner depositing half of the demanded amount within three (3) weeks. Aggrieved by the said order, the petitioner filed Special Leave Petition No.17703 of 2005 before the Supreme Court. By order dated 5.9.2005 the Supreme Court passed an interim order directing the petitioner to furnish Bank guarantee for 50% of the disputed amount. The said order was made absolute on 15.02.2007 and the main appeal is pending before the Supreme Court. While the matters stood thus, the Commercial Tax Officer issued a fresh show-cause notice dated 18.02.2008 calling upon the petitioner to show-cause as to why the final assessment order should not be made for the assessment year 2004-05. The petitioner submitted its explanation dated 10.03.2008 stating inter alia that the assessment for the year 2004-05 was already finalized by order dated 16.06.2005 and W.P.No.16694 of 2005 is pending against the said order. However, the Commercial Tax Officer proceeded further and passed the order dated 24.03.2008 reiterating the very same reasoning given in the assessment order dated 16.06.2005 followed by the demand notice in Form-B3. Aggrieved by the same, the petitioner filed W.P.No.8871 of 2008. Since common questions of fact and law arise for consideration, all the four writ petitions are heard and decided together by this common order. Sri C.R. Sridharan, the learned counsel appearing for the petitioner made elaborate submissions to substantiate the petitioner’s claim that the contract dated 29.06.2002 is not a contract in the nature of a “works contract” and it does not involve any ‘sale’ taxable under the APGST Act. According to the learned counsel, the said contract is a service contract and that the Government has to reimburse the service tax if it is levied. On the other hand, Sri P. Balaji Varma, the learned Senior Standing Counsel for Commercial Taxes appearing for the respondents supported the impugned orders and contended that the same do not warrant interference by this Court. In the light of the rival submissions made by the learned counsel, the common question that arises for consideration in all these writ petitions is: Whether the contract dated 29.6.2002 can be construed and interpreted as a ‘works contract’ within the meaning of Section 2 (1) (f) of APGST Act, 1957 and whether it is exigible to tax under Section 5-F of the said Act? It is contended by Sri C.R. Sridharan, the learned counsel for the petitioner that the contract dated 29.6.2002 is a simple contract for imparting computer education in the schools and it does not involve the element of ‘sale’ as defined in Section 2 (1) (n) of the APGST Act. It is submitted by the learned counsel that though the petitioner had provided computers and software for teaching purpose, it is purely incidental and involves no sale of goods and there is no sale consideration and therefore under no circumstances it can be treated as a works contract. It is also contended that even the Government which awarded the contract and which is a party to the agreement dated 29.6.2002 did not intend the contract in question to be a works contract as is evident from the fact that it had never affected the deduction of tax at source in spite of a specific clause under the agreement. Thus, according to the learned counsel for the petitioner, the work executed by the petitioner under the agreement in question falls squarely within the scope and ambit of Section 65 (27) of the Finance Act, 1994 and thus exigible to service tax but for the exemption granted specifically under Section 65 (105) of the Finance Act. While submitting that the ownership of the goods involved in the contract in question i.e., the computers, accessories and books would be transferred only at the end of the contract free of cost and there is no consideration for the said transfer, it is further contended by the learned counsel for the petitioner that no sale is involved even with regard to transfer of those assets. It is also contended that even assuming that the said transfer would amount to sale, the same would come into operation only at the end of the contract and for the purpose of the assessment for the years 2002-03 to 2004-05 the petitioner continues to be the owner of all those assets. On the other hand, the contention of the respondents is that since the contract is on BOOT basis and it includes providing computers, hardware and software and connected accessories apart from transferring the equipment to the department in good working condition, there is transfer of property from the petitioner to the Government. It is also pointed out that the petitioner who is being paid fees by the Government on instalment basis both for imparting computer education and for subsequent transfer of the equipment, is not doing any free service and therefore it is nothing but a works contract. For proper appreciation of the rival submissions made by the learned counsel for the parties, it is necessary to refer to Section 5-F of A.P. General Sales Tax Act which is the charging provision so far as works contract is concerned. 5-F. Levy of tax on transfer of property in goods involved in the execution of works contract:- Notwithstanding anything contained in Section 5 or Section 6 every dealer shall pay a tax under this Act for each year on his turnover of transfer of property in goods whether as goods or in some other form involved in the execution of works contract at the rate of 8 paise on every rupee of his turnover. Provided that … … … “Works Contract” is defined under Section 2(1)(t) of APGST Act and reads as under: 2(1)(t) ‘works contract’ includes any agreement for carrying out for cash or for deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. It may be mentioned that Section 5-F providing for imposition of sales tax in relation to works contract has been inserted by Act 22 of 1995 with effect from 01.04.1995 in terms of the 46th amendment to the Constitution of India in the year 1982 inserting Clause (29A) to Article 366 of the Constitution of India defining “Tax on the sale or purchase of goods”. For ready reference, Article 366 (29-A) of the Constitution of India to the extent it relates to the works contracts is extracted hereunder: 366. Definitions – In this Constitution unless the context otherwise requires the following expressions have the meanings hereby respectively assigned to them, that is to say – (1) Agricultural income means … … .. … … … … … (29A) “Tax on the sale or purchase of goods” includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration: (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract … … … … … and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. The question whether sub-clause (b) of Clause (29A) of Article 366 of the Constitution of India has conferred on the States a taxing power on works contract which is independent of the power conferred on the legislatures of State under Entry 54 of the State List was considered in BUILDERS’ ASSOCIATION OF INDIA v. UNION OF INDIA[1] and it was held: “The object of the new definition introduced in Clause (29-A) of Article 366 of the Constitution is, therefore, to enlarge the scope of ‘tax on sale or purchase of goods’ wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in Sub-Clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression ‘tax on the sale or purchase of goods’ in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of sub-clause (b) of clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution” The ratio laid down in Builders’ Association of India’s case has been affirmed by a Constitution Bench in GANNON DUNKERLEY AND CO. v. STATE OF RAJASTHAN[2] and with regard to the measure for levying the tax on goods involved in the execution of a works contract it is observed: “Since 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 can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor.” In BSNL & ORS. v. UNION OF INDIA & ORS.[3] while considering the question whether the nature of the transaction by which mobile phone connections are enjoyed is a sale or is it a service or is it both, the Supreme Court explained the legal position that was existing prior to 46th amendment to the Constitution of India and thereafter as under: “All the clauses of Article 366 (29A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in GANNON DUNKERLEY LIMITED. The amendment especially allows specific composite contracts viz., works contracts, hire purchase contracts and catering contracts by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.” It was further observed that the word “goods” has not been altered by the 46th amendment and that the ingredient of sale continues to have the same definition. It was also observed that the transactions would have to qualify as sales within the meaning of Sale of Goods Act, 1930 for the purpose of levy of sales tax. The question whether the persons who carry on the business of real estate development and allied contracts by entering into development agreements with owners of lands are dealers and are liable to pay turnover tax under the Karnataka Sales Tax Act, 1957 fell for consideration in K.RAHEJA DEVELOPMENT CORPORATION v. STATE OF KARNATAKA[4]. Section 5-B of the Karnataka Sales Tax Act, 1957 which provides for levy of tax on transfer of property in goods involved in the execution of works contract is in pari materia to Section 5-F of the APGST Act, 1957. The contention on behalf of the State was that any agreement wherein a party has agreed to construct or build for cash, deferred payment or other valuable consideration would be covered by the definition of the term “works contract” and therefore the appellants were liable to pay turnover tax on the transfer of property in goods involved in such works contract. After referring to the various clauses of the agreement that the appellants had entered into with the purchasers, it was held by the Supreme Court that “Thus the appellants are undertaking to build as developers for the prospective purchaser. Such construction/ development is to be on payment of a price in various instalments set out in the agreement. As the appellants are not the owners they claim a \"lien\" on the property. Of course, under clause 7 they have right to terminate the agreement and to dispose off the unit if a breach is committed by the purchaser. However, merely having such a clause does not mean that the agreement ceases to be a works contract within the meaning of the term in the said Act. All that this means is that if there is a termination and that particular unit is not resold but retained by the appellants, there would be no works contract to that extent. But so long as there is no termination the construction is for and on behalf of purchaser. Therefore, it remains a works contract within the meaning of the term as defined under the said Act. It must be clarified that if the agreement is entered into after the flat or unit is already constructed, then there would be no works contract. But so long as the agreement is entered into before the construction is complete it would be a works contract.” The correctness of the legal position laid down in K. RAHEJA DEVELOPMENT CORPORATIONS’ case (4 supra) was considered by a three-judge Bench of the Supreme Court in a recent decision in LARSEN & TOUBRO LIMITED v. STATE OF KARNATAKA[5] and after reviewing all the decided cases on the issue, it is explained: 87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract of sale of goods. In our opinion, the distinction between contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract of work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in goods under clause (29-A) (b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be now understood in light of the philosophy of Article 366(29-A). 88. The question is: whether taxing sale of goods in an agreement for sale of flat which is to be constructed by the developer/promoter is permissible under the Constitution? When the agreement between the promoter/developer and the flat purchaser is to construct a flat and eventually sell the flat with the fraction of land, it is obvious that such transaction involves the activity of construction inasmuch as it is only when the flat is constructed then it can be conveyed. We, therefore, think that there is no reason why such activity of construction is not covered by the term “works contract”. After all, the term “works contract” is nothing but a contract in which one of the parties is obliged to undertake or to execute works. Such activity of construction has all the characteristics or elements of works contract. The ultimate transaction between the parties may be sale of flat but it cannot be said that the characteristics of works contract are not involved in that transaction. When the transaction involves the activity of construction, the factors such as, the flat purchaser has no control over the type and standard of the material to be used in the construction of the building or he does not get any right to monitor or supervise the construction activity or he has no say in the designing or layout of the building, in our view, are not of much significance and in any case these factors do not detract the contract being works contract insofar as construction part is concerned. 89. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract. 118. The value of the goods which can constitute the measure of the levy of the tax has to be the value of the goods at the time of incorporation of goods in the works even though property in goods passes later. Taxing the sale of goods element in a works contract is permissible even after incorporation of goods provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property. The mode of valuation of goods provided in Rule 58(1-A) has to be read in the manner that meets this criteria and we read down Rule 58(1-A) accordingly. The Maharashtra Government has to bring clarity in Rule 58(1-A) as indicated above. Subject to this, validity of Rule 58(1-A) of the MVAT Rules is sustained. Ultimately while affirming the ratio laid down in K. RAHEJA DEVELOPMENT COPRORATION’S case (4 supra), the legal position has been enumerated in LARSEN & TOUBRO LIMITED v. STATE OF KARNATAKA (5 supra) as under: 97. In light of the above discussion, we may summarise the legal position, as follows: 97.1. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. 97.2. For the purposes of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three things are fully met. It is so because in the performance of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks, etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods. 97.3. Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term “works contract” in Article 366(29-A) (b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366(29-A) (b) limits the term “works contract”. 97.4. Building contracts are a species of the works contract. 97.5. A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished. 97.6. The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative. 97.7. A transfer of property in goods under clause (29-A)(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. 97.8. Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A) (b), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by the Forty-sixth Amendment has been brought on a par with a contract containing two separate agreements and the States now have power to levy sales tax on the value of the material in the execution of works contract. 97.9. The expression “tax on the sale or purchase of goods” in Schedule VII List II Entry 54 when read with the definition clause (29-A) of Article 366 includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. 97.10. Article 366(29-A)(b) serves to bring transactions where essential ingredients of “sale” defined in the Sale of Goods Act, 1930 are absent within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sale of Goods Act. 97.11. Taxing the sale of goods element in a works contract under Article 366(29-A)(b) read with Entry 54 List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works even though property passes as between the developer and the flat purchaser after incorporation of goods. (emphasis supplied) The ratio laid down in BSNL v. UNION OF INDIA (3 supra) was extensively referred to and followed while arriving at the above conclusions in LARSEN & TOUBRO LIMITED’S case (5 supra). From the law laid down in the above decisions it is clear that after the forty-sixth amendment to the Constitution of India it is open to the States to divide the works contract into two separate contracts by a legal fiction (i) contract for sale of goods involved in the said works contract and (ii) for supply of labour and service. As held in LARSEN & TOUBRO LIMITED’S case (5 supra) even if the dominant intention of the contract is not to transfer the property in goods, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. What is ‘works contract’ has also been elaborately discussed in LARSEN & TOUBRO LIMITED’S case (5 supra). In Para-72 of the said decision it is explained: 72. In our opinion, the term “works contract” in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of “works contract” in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression “tax on sale or purchase of goods” and overcome Gannon Dunkerley. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term “works contract”. Nothing in Article 366 (29-A)(b) limits the term “works contract” to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term “works contract” cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some “works”. We are also in agreement with the submission of Mr K.N. Bhat that the term “works contract” in Article 366 (29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366. A plain reading of Section 2 (1) (t) of the APGST Act which defines ‘works contract’ shows that primarily the works contract has to include the elements of (i) an agreement for carrying out a work as specified therein and (ii) execution of such work shall be for cash or deferred payment. If execution of such works contract involves transfer of property in goods, whether as goods or in some other form, turnover of such transfer of property is exigible to tax under Section 5-F of the APGST Act. That being the substance of a combined reading of Section 2 (1) (t) and Section 5-F of the APGST Act, the twin questions that require consideration are whether the contract dated 29.6.2002 satisfies the elements of works contract and if the characteristics or elements of works contract are satisfied, whether the execution of the work under the said agreement involved transfer of property in goods, whether as goods or in some other form. The preamble to the agreement, dated 29.6.2002, reads as under: “Government of Andhra Pradesh as part of its IT vision to harness the potential of IT in improving the quality services to citizens has decided to impart computer education in 1000 schools in the State. To achieve this objective, Government of Andhra Pradesh decided to select agencies for imparting computer education in the schools including leasing of computer hardware, software and connected accessories on Build Own Operate Transfer basis.” The clauses 3, 4, 5, 6, 7, 9 & 14 of the Agreement are also relevant to ascertain the nature of the contract and the same may be extracted hereunder: “3.0 Period of contract: 3.1 The Contract shall be in force for a period of five years from the date of signing of this contract. 3.2 Normally the Schools open in the month of June and academic year continues till the month of April of next year. Normal school hours are between 9.00 am to 5.30 pm subject to any variations as may be notified from time to time. However the computer classes can be conducted in between 11.00 am to 7.00 pm in case of residential schools. The working days will be from Monday to Friday on full day basis and Saturday on half-day basis. The contractor would be permitted to use the computer centre before and after the school hours and also during holidays on a commercial basis to teach their own courses to general public after obtaining permission from the Head of the Institution. A rent of Rs.1,000/- per month per school will have to be paid to the Department for such use. 4.0 Provision for Computer education including equipment for the same: 4.1 The contractor shall provide, install, commission the equipment and maintain the same against all risks during the contract period by way of lease on BOOT basis and provide computer education in schools to the students and teachers as detailed in the tender document after carrying out successfully all tests within the stipulated period prescribed by the Department at a rate per school for six months as given in Annexure-1 for the contract period in respect of 105 schools, the list of which is given in Annexure-2 of this contract. This rate is firm and is not subject to enhancement on any ground during the contract period. The quantity and specifications of equipment is enclosed in the Annexure-3. The contractor shall also make available documents such as operational manual in the computer centre at all times during the contract period. Relevant text books/training material shall also be provided by the contractor free of cost to all students, who are being imparted computer education by the contractor as per Annexure-6. 4.2 The Contractor shall provide the equipment conforming to the specifications given in the tender document and as in Annexure-3 of this contract for imparting computer education and shall use only licensed versions of the software for each of the computer systems. 4.3 Rate inclusive of all taxes except Service Tax: The rate for the contract period as given in the Annexure includes all taxes in force and that may come in future such as excise duty, Sales Tax, Surcharges, Freight, Octroi, and Insurance, installation and commissioning charges and such other levies that may be applicable from time to time and the cost of training to teachers and students except service tax. The Department shall reimburse service tax at actuals to the Contractor as and when the tax becomes payable to Government. 4.4. Web site for each Group: The Contractor shall create a web site for each group of schools providing comprehensive information about all the schools in that group. The running and maintenance of the web site will also be the responsibility of the Contractor. 4.5 Requirements of software: The Contractor shall provide the required software for teaching the syllabus to the students from 6th to 10th class as per the syllabus, which requires additional effort, software licenses and charges on the part of the Contractor will be worked out on mutually agreed terms and conditions. 5.0 Implementation 5.1 The Department will hand over one leak proof room with secure windows and doors and three phase electric power connection of adequate capacity in each school, to be converted into the computer centre, to the Contractor within 15 days of signing the contract. The Contractor shall complete the provision, installation and commissioning of all equipment as per Annexure-3 at each school within 45 days of handing over of the rooms as above. In case of any delay by releasing the rooms in any schools, the final installation date would get shifted by proportional duration without any penalty/damages to the Contractor. The Department and the Contractor will workout an implementation plan on a mutually agreed basis. 5.2 The equipments are to be provided at the place specified by the Department in such quantities and numbers indicated in the tender document. 6.0 Provision of all services without interruption: 6.1 The computer education shall be provided in all the contracted schools by the Contractor, without interruption as per the Department’s requirements specified elsewhere in this contract. 6.2 The equipment provided for computer education shall be guaranteed for proper operations for the contract period of 5 years after installation, commissioning and acceptance against any manufacturing defect and bad workmanship. The guarantee period will commence from the date of acceptance of the equipment after carrying out successfully the tests prescribed by the Department. 6.3 The guarantee will cover all the materials and goods provided by the Contractor under this contract irrespective of the fact whether these have been manufactured by the Contractor or not. 7.0 Payment terms: 7.1 The total fee per school will be paid by the Department to the contractor in 10 equal half-yearly instalments. The first instalment will be paid in two parts – Rs.1 crore along with the contract as mobilisation charges and balance after installation of all the equipment at each site and acceptance of the same by the department. The second and subsequent eight half-yearly instalments will be paid at the end of the second and succeeding half-yearly periods on satisfactory performance of the contract for that period upon being certified by the concerned Head of the Institution. The Department will deduct at source the dues recoverable from the contractor like Income-Tax, penalty amount, if any, and any other recovery. 9.0 Transfer of assets at the expiry of the contract 9.1 The Contractor shall provide the Department a list of equipments and software installed at each School. The Contractor shall handover all the computer hardware and software and other equipment installed and commissioned as per the provisions of this contract in good working condition to the concerned school at the end of contract period of five years. The Contractor shall also handover at the end of contract period, all the operational and maintenance manuals, compact discs/floppies etc. of all equipment to the concerned School. The acknowledgement of receipt will be taken from each school and provided to the Department. 14.0 Right of Dept. to use computer centre: 14.1 The Department in consultation with the Contractor will work out the scope of usage for using the computer centre for the purpose of department work during school hours, without affecting the computer education services/obligations to be provided by the Contractor as per this contract. The Department wilfully indemnify the Contractor for any damages caused by usage by the Department against the advise of the Contractor or his representative. The Department will bear the expenses towards consumables, Internet connectivity and telephone charges when the centre is used by it for non-computer education work. The payment of Electricity charges will be the responsibility of the contractor. No part of the equipment, software license/ CD, Floppy, courseware, manuals will be removed from the computer Centre without the consent of the Contractor. As could be seen from the clauses of the Agreement, the principal object is to impart computer education to students in various schools. For the said purpose, the petitioner installs computers (sets up a computer centre) in each school, engages trained faculty who teach the students about computers and how to use the same. The petitioner is also required to provide the operational manual, text books and training material free of cost. After the expiry of the contract period of five years the petitioner is bound to transfer to the department the equipment and software installed at each school without any consideration. So far as the terms of payment are concerned, the total fee per school will be paid to the petitioner in ten (10) equal half-yearly instalments as specified in clause 7.1 of the agreement. According to the learned counsel for the petitioner the dominant purpose of the contract in question is imparting computer education and the installation of computers and electrical connections therefor is purely incidental. While relying upon the decisions in GANNON DUNKERLEY AND COMPANY’S case (2 supra) and T.M.A. FOUNDATION & ORS. v. STATE OF KARNATAKA & ORS.[6] the learned counsel submitted that the activity of teaching can never be understood as a contract but it is only a service. Placing reliance upon BIHAR STATE ELECTRICITY BOARD, PATNA v. M/s. GREEN RUBBER INDUSTRIES[7], BOARD OF REVENUE v. A.M. ANSARI[8], MODI CO. v. UNION OF INDIA[9], SUNDARAM FINANCE LIMITED v. STATE OF KERALA[10] it is further submitted by the learned counsel for the petitioner that every contract is to be considered with reference to its object and whole of its terms and that the whole context must be considered to find out the intention of the parties. It is sought to be explained by the learned counsel that the fact that the computers and software installed remained the property of the petitioner till the expiry of the contract and even the teaching faculty, computers and software were provided by the petitioner himself makes it clear that there is no transfer of goods at any stage of the activity executed under the contract. The above contentions of the learned counsel for the petitioner, according to us, have no merit in the light of the settled legal position noticed above. In fact, in LARSEN & TOUBRO LIMITED’S case (5 supra) an identical contention that the substance and dominant intention of the contract has to be looked into was negatived observing as under: 60. Whether the contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two- Judge Bench of this Court in Rainbow Colour Lab v. State of M.P. [(2000) 2 SCC 385] that the division of the contract after Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of contract of service is no longer good law, Rainbow Colour Lab has been expressly overruled by a three-Judge Bench in Associated Cement Companies Ltd. V. Commr. Of Customs (2001) 4 SCC 593. 63. In view of the statement of law in Associated Cement Companies Ltd. and BSNL. v. Union of India, the argument advanced on behalf of the appellants that dominant nature test must be applied to find out the true nature of transaction as to whether there is a contract for sale of goods or the contract of service in a composite transaction covered by the clauses of Article 366 (29-A) has no merit and the same is rejected. On a careful analysis of the recitals and terms and conditions of the contract dated 29.06.2002, there cannot be any doubt that it involves certain goods in execution of the contract and that the same would be transferred to the schools in which the equipment is installed for imparting the computer education. It is no doubt true that the ownership of the said equipment remains with the petitioner till the end of the contract. However the mere fact that the ownership of the computers and the accessories passed on to the respondent at the end of the contract does not alter the nature of the contract. Passing of ownership at a later point of time is permissible as held in LARSEN & TOUBRO LIMITED’S case (5 supra): 90. Ordinarily in the case of a works contract the property in the goods used in the construction of the building passes to the owner of the land on which the building is constructed when the goods and materials used are incorporated in the building. But there may be contract to the contrary or a statute may provide otherwise. Therefore, it cannot be said to be an absolute proposition in law that the ownership of the goods must pass by way of accretion or exertion to the owner of the immovable property to which they are affixed or upon which the building is built. Though the preamble to the agreement states that the contract is for imparting computer education in the schools, we are of the opinion that the contract in a way is for installation of equipment since imparting computer education is not possible in the absence of installation of such equipment in the respective schools. All other services provided by the petitioner during the course of imparting computer education according to us are incidental. As held in BIHAR STATE ELECTRICITY BOARD & OTHERS v. M/s. GREEN RUBBER INDUSTRIES & OTHERS[11] every contract is to be considered with reference to its object and the core of its terms and accordingly the core context must be considered to find out the intention of the parties. On a combined reading of the terms and conditions of the contact dated 29.6.2002 with reference to the object sought to be achieved, it appears to us that the contract in question involves both a contract of service and a contract of sale of goods. It is a composite contract and by legal fiction provided under Article 366 (29-A) (b) of the Constitution it is permissible to separate the transfer of property in goods (as goods or in some other form) from the contract of service. It is also relevant to note that the agreement dated 29.6.2002 is on BOOT basis and the petitioner is paid the fees stipulated in the agreement. The mere fact that the equipment is transferred at the end of the contract in our considered opinion makes no difference. As held in GANNON DUNKERLY & COMPANY’S case (2 supra) while explaining the measure for levy of tax on goods involved in the execution of a works contract, the transfer of property in goods involved in execution of the works contract takes place when the goods are incorporated in the works. As held in LARSEN & TOUBRO LIMITED’S case (5 supra) the traditional decisions which hold that the substance of the contract must be seen, have lost their significance and what was viewed traditionally has to be now understood in the light of the philosophy of Article 366 (29-A) of the Constitution of India. It is also explained in LARSEN & TOUBRO LIMITED’S case (5 supra) that the term ‘works contract’ cannot be confined to a particular form and it encompasses a wide range of many varieties of contract. It is also laid down in the said decision that for sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract three conditions must be fulfilled namely (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. According to us, all the said three conditions are satisfied in the present case. For the aforesaid reasons, we hold that the agreement dated 29.06.2002 was rightly considered by the respondents as a works contract. Consequently levy of tax under Section 5-F of the APGST Act on transfer of property in goods/equipment installed in the schools for the purpose of imparting computer education in terms of the contract dated 29.06.2002 is permissible under law. Therefore, no interference is warranted with any of the orders impugned in the writ petitions. Accordingly, all the Writ Petitions are dismissed. No costs. Consequently the miscellaneous petitions if any pending in all the writ petitions shall stand closed. _________________ Justice G. Rohini __________________________ Justice T. Sunil Chowdary Date: 27.03.2014 Note: L.R.Copy to be marked. B/o GBS [1] (1989) 2 SCC 645 [2] (1993) 1 SCC 364 [3] (2006) 3 SCC 1 [4] (2005) 5 SCC 162 [5] (2014) 1 SCC 708 [6] 2002 (8) SCC 481 [7] AIR 1990 SC 699 [8] (1976) 3 SCC 512 [9] AIR 1969 SC 9 [10] AIR 1966 SC 1178 [11] AIR 1990 SC 699 "