G. Sivarajan, J.
1. The matter arises under the Kerala General Sales Tax Act, 1963 (for short, 'the Act'). The same assessee is the revision petitioner in all these cases. The State is the respondent. The assessment years concerned are 1990-91 to 1995-96 both inclusive.
2. The main question involved in all these cases is regarding the liability to tax on the turnover of ingots which have been used in the execution of works contract, namely, the manufacture of empty tins. Hence all these revisions are disposed of by this common judgment.
3. The assessee is a dealer in grocery items. It is also engaged in works contract. For all these years the assessee had entered into agreement with third parties for execution of job-works, viz., manufacture of empty tins. The third parties supplied tin sheets for the said purpose. The assessee obtained tin ingots which are required for the manufacture of tins by way of inter-State transactions by issuing 'C' forms. The said tin ingots are used for the manufacture of tins. In the assessment for the years in question the assessee contended that the tin ingots consumed in the process of manufacture of empty tins are not exigible to tax under the Act since there is no transfer of property in the sheets. The assessing authority rejected the claim and brought the purchase value of tin ingots by making an addition of 25 per cent towards gross profit to tax at the rate of 10 per cent under the Act. Aggrieved by the assessment order the assessee filed appeal before the Appellate Assistant Commissioner (Commercial Taxes), Kollam. The appeals for the assessment years 1990-91 to 1994-95 were disposed of by a common order dated September 2, 1998 (annexure B). The first appellate authority directed the assessing authority to examine the aspects regarding the return of the tin cuttings and regarding the estimation of turnover under Section 5A with certain directions. The assessee filed appeals against the said orders before the Tribunal. The Tribunal by a common order dated December 20, 2000 (annexure C) disposed of the appeals filed for the assessment years 1990-91 to 1994-95. It was contended before the Tribunal that the levy of tax on the sales turnover of ingots as well as the estimation of the sales turnover of ingots by adding gross profit at 25 per cent is illegal. The contention was that the ingots were not sold but only consumed for the manufacture of tins. The Tribunal noted that the assessing authority had levied tax on the turnover of ingots used for fabricating sheets supplied by third parties for conversion and returned empty tins. It was also noted that for the assessment year 1990-91 tin ingots consumed for the manufacture of tins is goods worth Rs. 64,451.47 and the fabrication charges received during the year was Rs. 1,52,778 from which it is evident that the fabrication charges received is inclusive of the value of tin ingots. The Tribunal further considered the legality of the levy of tax on the turnover of tin ingots under explanation (3A) to Section 2(xxi) of the Act and observed as follows :
'Here tin sheets are supplied by third parties. For the conversion of tin sheet into tins tin ingots are essential ingredients and thus there is transfer of tin ingots to complete the work entrusted and the fabrication receipt is inclusive of the value of tin ingots. We therefore are of the view that the levy of tax made to the turnover of tin ingots consumed for the conversion process for all the years, viz., 1990-91 to 1994-95 is quite in order.'
The Tribunal held that the sale value fixed by the assessing authority by adding gross profit of 25 per cent is also reasonable. The Tribunal accordingly sustained the levy of tax on the turnover of tin ingots as well as the estimation of turnover of tin ingots. The Tribunal, however, did not interfere with the order of the first appellate authority with respect to other additions.
4. Sri N. Venkitarama lyer, learned counsel for the assessee, submits that the assessee is engaged in the job-work of fabricating tins, that the sheets required for the manufacture of tins are supplied by the customers and the tin ingots required for the manufacture of tins by using the sheets supplied by the customers are purchased by way of inter-State transaction by issuing C form declarations and that the turnover of tin ingots used in the fabrication of tins is not liable to tax under the Act. The counsel also submitted that even assuming that the turnover of tin ingots used in the fabrication of tins is exigible to tax the rate of tax applicable is only the tax applicable to works contract and not the tax on finished goods, viz., tins. The counsel also submitted that the estimation of sales turnover of ingots by adding 25 per cent gross profit to the purchase value of tin ingots is arbitrary and excessive.
5. The learned Government Pleader appearing for respondents, on the other hand, submitted that the assessee had used the tin ingots purchased from outside the State in the manufacture of tins for its customers and therefore there is a deemed sale of the said tin ingots as contemplated under explanation (3A) to Section 2(xxi) of the Act. The Government Pleader further submitted that this is not an item exempted under Section 5C of the Act. The Government Pleader also relied on a decision of the division Bench of this Court in the judgment dated October 31, 2002 in T.R.C. No. 283 of 2002, Reported as Teaktex Processing Complex Limited v. State of Kerala [2004] 136 STC 435. The Government Pleader further submitted that the rate of tax on tin ingots used in the manufacture of tins is levied at 10 per cent which is the rate applicable to metals including tins under the First Schedule to the Act. The Government Pleader also submits that the gross profit addition at 25 per cent made to the purchase value of tin ingots is also reasonable and does not call for any interference by this Court.
6. We have considered the rival submissions. The admitted facts are as follows : The assessee had entered into agreement for job-work of manufacture of tins for its customers. The customers had supplied tin sheets for the manufacture of tins. The assessee had purchased tin ingots from outside the State by issuing C forms and used the same in the execution of the job-work of manufacture of tins. The assessee is entitled to purchase goods specified in the certificate of registration issued under the Act by issuing C form declarations for getting the concessisonal rate of tax at 4 per cent under Section 8(1)(b) read with Section 8(3)(b) and also in the C form prescribed under Section 8(4) read with Rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1957. The declaration is that the goods purchased by issuing C form are being intended for resale by him or subject to any rules made by the Central Government, in that behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity, or any other form of power.
7. A division Bench of this Court in Deputy Commissioner of Agricultural Income-tax & Sales Tax (Law) v. P.K. Biriyumma [1991] 83 STC 276 has taken the view that the use of the goods purchased by issuing C form in the execution of job-works/works contract did not satisfy the provisions of Section 8(3)(b) of the Act since the definition of 'sale' in the Central Sales Tax Act did not include works contract. However, the Supreme Court allowed the appeal filed by Smt. P.K. Biriyumma and remitted the matter to the assessing authority to pass appropriate orders in accordance with Circular No. 20/93/TX dated August 13, 1993 as clarified in Circular No. 2/97/ TX dated January 2, 1997. The effect of these circulars is that the works contractors are also entitled to use 'C' form declarations. Here, it must be noted that violation of the provisions of Section 8(3)(b) is an offence under Section 10(c) attracting Section 10A for imposition of penalty.
8. In the instant case, the case of the assessee is that the tin ingots purchased by the assessee were consumed for the manufacture of tins and therefore the turnover of tin ingots is not exigible to tax under the Act. In this context it is relevant to refer to the provisions of explanation (3A) to Section 2(xxi) of the Act as per which a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to be a sale.
9. In the present case the tin ingots used for the manufacture of tins do not disappear as in the case of electricity, oil, fuel, etc., from the end-product. The tin ingots are absolutely necessary for fabricating the tin sheets into tins. The tin ingots unlike in the case of fuel, chemical or oil continue to be part of the tins manufactured. The Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 ; (1993) 1 KTR 178 observed that keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. It was further held, that the value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works' contract and deducting therefrom the charges towards labour and services which would cover eight items including the cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract. It was also held in that case that it would be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and a uniform rate may be imposed on such goods.
10. As held by the Supreme Court the costs of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract are to be deducted. The tin ingots used by the assessee in the fabrication of tins cannot be equated to consumables such as water, electricity, fuel, etc. The water, electricity, fuel, etc., when used in the execution of the works contract there is no transfer of those goods to the awarder since the said items did not form part of the finished goods. So far as tin ingot is concerned it forms part of the tin which is a finished product and so it cannot be equated to consumables mentioned above.
11. We had occasion to consider as to whether dyes and chemicals purchased by the assessee by issuing C form and used in the execution of the works contract attract Section 5(1) read with Section 5C of the Act in the judgment dated October 31, 2002 in T.R.C. No. 283 of 2002, Reported as Teaktex Processing Complex Limited v. State of Kerala [2004] 136 STC 435 (Ker). Referring to Section 5C of the Act and the decision of the Supreme Court in Gannon Dunkerley & Co.'s case [1993] 88 STC 204 and in State of Tamil Nadu v. Arcot Cans [1993] 88 STC 285 (Mad.) it was held that dyes used in the execution of works contract are liable to be assessed under the Act while 'chemicals' are not. We have already noted that the Tribunal has clearly held that tin ingots are essential ingredients for the conversion of tin sheets into tins and that the transfer of tin ingots was necessary to complete the work entrusted. In the light of the principles laid down by the Supreme Court and by this Court in the abovementioned cases we are of the view that the authorities and the Tribunal were justified in levying tax on the turnover of tin ingots used by the assessee in the execution of the works contract. We are also of the view that the sale value of the ingots has been rightly estimated by making a gross profit addition of 25 per cent to the purchase value of tin ingots.
12. The only other question that remains to be considered is regarding the rate of tax on the tin ingots transferred. The assessing authority had levied tax at the rate of 10 per cent which is the rate applicable to tins and metals. We have already noted that the Supreme Court in Gannon Dunkerley & Co.'s case [1993] 88 STC 204 has held that it would be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and a uniform rate may be imposed on such goods. Under Section 5(1) of the Act in the case of goods specified in the First or Second Schedule the tax must be levied at the rates and only at the points specified against such goods in the said Schedules. So far as works contract is concerned Section 5(1)(iv) of the Act as it stood up to March 31, 1991 (since substituted by the Kerala Finance Act, 1991 published in the Kerala Gazette dated October 21, 1991 with effect from April 1, 1991) provided that in the case of transfer of goods involved in the execution of works contract whether the transfer is in the form of goods or in some other form specified in the Fourth Schedule at the rate specified against such contract in the said Schedule. However, Section 5(1)(iv) of the Act as amended by the Finance Act, 1991 published in the gazette which is applicable for all the years except the assessment year 1990-91 provides for separate rate of tax. The said clause without the proviso reads as follows :
'(iv)(a) In the case of transfer of goods involved in the execution of works contract where transfer is in the form of goods at the rates and at the points specified against such goods in the First, Second or Fifth Schedule ;
(b) In the case of transfer of goods involved in the execution of works contract (where the transfer is not in the form of goods but in some other form) specified in the Fourth Schedule, at the rate specified against such contract in the said Schedule.'
13. Sub-clause (a) of Clause (iv) says that in the case of transfer of goods involved in the execution of works contract where transfer is in the form of goods the rate of tax is as provided for such goods in the First, Second or Fifth Schedule. Under Sub-clause (b) of Clause (iv), in the case of transfer of goods involved in the execution of works contract, where the transfer is not in the form of goods but in some other form specified in the Fourth Schedule, at the rate specified against such contract in the said Schedule.
14. In the present case the goods which are transferred in the execution of the works contract, viz., the manufacture of tins is tin ingots only, the tin sheets being supplied by the awarder. According to us, the expression 'goods involved in the execution of works contract' and the expression 'in the form of goods' occurring in Clauses (a) and (b) of Section 5(1)(iv) relate to the same goods, viz., the goods transferred, in the instant case are 'tin ingots'. The expression 'in the form of goods' occurring in Sub-clause (a) cannot be considered as referring to the product of works contract. Sub-Clause (a) of Clause (iv) of Sub-section (1) of Section 5 refers to a situation where there is a composite contract for supply, erection, fabrication, etc. In such a case the supply part will attract sub-Clause (a), for, the supply of material is in the form of goods. But in a case the use of some material belonging to the contractor in the execution of a works contract as in the case of a job-work where the main raw material, viz., tin sheets are supplied by the awarder itself it cannot be considered that the rate of tax applicable to the product of the works contract, viz., tins can be applied to the tin ingots transferred by the assessee. According to us, such a situation falls within the ambit of Sub-clause (b) of Clause (iv), viz., transfer of goods not in the form of goods but in some other form. Here, it must be noted that the form of goods referred in Sub-clause (b) must receive the same meaning given to the expression 'goods' in Sub-clause (a). In that view of the matter the present cases fall within Sub-clause (b) of Clause (iv) of Section 5 of the Act. However, as already noted, for the assessment year 1990-91 there was no distinction as provided under Clauses (a) and (b) in respect of tax on transfer of goods in the execution of works contract. The rate of tax on works contract was provided in the Fourth Schedule. Thus for all the assessment years Fourth Schedule applies.
15. In the above circumstances, while upholding the levy of tax on the turnover of tin ingots in the execution of job-works we direct the assessing authority to levy tax on the said turnover at the rate applicable to contract for fabrication of metals by applying the residuary entry 22 of the Fourth Schedule to the Act.
These tax revision cases are disposed of as above.