G.D. Builders v. Union of India

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include road, airport, railway, transport terminal, bridge, tunnel, long distance pipeline and dam;‖

4. By Finance Act 2005 service tax was imposed under Section 65(105)(zzq) on any service provided or to be provided, to any person by a commercial concern in relation to ―commercial or industrial construction service‖. The expression ―commercial or industrial construction service‖ was separately defined in Section 65(25b) as under:- ―commercial or industrial construction service‖ means- (a) Construction of a new building or a civil structure or a part thereof; or (b) construction of pipeline or conduit; or

(c) completion and finishing service such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of 2013:DHC:5805-DB swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is-

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;‖

5. Finance Act 2005 also saw introduction or service tax on construction of complexes (residential complexes) under section 65(105)(zzzh) with effect from 16th June, 2005. The term ―construction of complexes‖ was defined in Section 65(30a) as under:- ―construction of complex‖ means- (a) construction of a new residential complex or a part thereof; or (b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal journey and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair, alternation, renovation or restoration of, or similar services in relation to, residential complex;‖ The expression ―residential complex‖ was defined in Section 65(91a) but we need not refer to the said definition as it is not relevant.

6. Section 65(105)(zzzza) introduced service tax in respect of works contract service with effect from 1st June, 2007 by Finance Act, 2007 and reads as under:- ―Taxable service‖ means any services provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation.—For the purposes of this sub-clause, "works contract" means a contract wherein,—

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.‖ Notifications

7. Notification No.15/04-ST dated 10th September, 2004, reads as under:- ―In exercise of the powers conferred by subsection (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by a commercial concern to any person, in relation to commercial or industrial construction service, from so much of the service tax leviable thereon under section 66 of the said Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent of the gross amount charged from any person by such commercial concern for providing the said taxable service: Provided that this exemption shall not apply in such cases where –

(i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or

(ii) the commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No.12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003]; or

(iii) the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause

(c) of clause (25b) of section 65 of the Finance

Act, 1994. Explanation.- For the purposes of this notification, the ―gross amount charged‖ shall include the value of goods and material supplied or provided or used by the provider of the 2013:DHC:5805-DB commercial or industrial construction service for providing such service.‖

8. For the purpose of clarity, we record that clauses (ii) and (iii) of the proviso were added by way of amendment notification No.19/2005-ST dated 7th June, 2005. What is subject matter of challenge before us are two pronged; the explanation and clause (iii) of the proviso. The effect of clause (iii) to the proviso was/is that benefit of the said notification would not be available in case the service provider was providing ―completion and finishing services‖ in relation to building or civil structure referred to in sub-clause (c) of clause (25b) of Section 65 of the Act. The second challenge before us is to the explanation.

9. Notification No.18/2005-ST dated 7th June, 2005 was issued in respect of Section 65(105)(zzzh) which reads as follows:- ―In exercise of the powers conferred by subsection (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to any person by any other person, in relation to construction of complex, referred to in sub-clause (zzzh) of clause (105) of section 65 of the Finance Act, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to thirty-three per cent. of the gross amount charged from any person by such service provider for providing the said taxable service: Provided that this exemption shall not apply in such cases where –

(i) the credit of duty paid on inputs or capital goods used for providing such taxable service has been taken under the provisions of the CENVAT Credit Rules, 2004; or

(ii) the service provider has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503 (E), dated the 20th June, 2003]; or

(iii) the taxable services provided are only completion and finishing services in relation to residential complex, referred to in subclause (b) of clause (30a) of section 65 of the Finance Act. Explanation.- For the purposes of this notification, the ―gross amount charged‖ shall include the value of goods and materials supplied or provided or used for providing the said taxable service by the said service provider.

2. This notification shall come into force on the 16th day of June, 2005.‖ The challenge is to the explanation to the said notification and clause

(iii) of the proviso.

10. Notification No.15/2004-ST as amended and Notification No.18/2005-ST were subsequently replaced by Notification No.1/2006-ST dated 1st March, 2006 and the relevant portions of the said notification read as under:- ―Notification No. 1/2006-ST[F.No.334/3/2006-TRU], dated 1-3-2006 G.S.R. (E). In exercise of the powers conferred by subsection (1) of section 93 of the Finance Act, 1994 (32 of

1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of the description specified in column (3) of the Table below and specified in the relevant subclauses of clause (105) of section 65 of the Finance Act, specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid: Table S.No. Sub-clause of clause (105) of Section 65 Description of taxable service Conditions Percen tage (1) (2) (3) (4) (5)

5. (zzd) Erection, commissioning or installation, under a contract for supplying a plant, machinery, equipment or structures and erection, commissioning or installation of such plant, machinery, equipment or structures. This exemption is optional to the commissioning and installation agency. Explanation.- The gross amount charged from the customer shall include the value of the plant, machinery, equipment, structures parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service.

7. (zzq) Commercial or This exemption shall 33 2013:DHC:5805-DB industrial construction service not apply in such cases where the taxable services provided are only completion and finishing services in relation to building or civil structure, referred to in sub-clause

(c) of clause (25b) of section 65 of the Finance Act.

Explanation.- The gross amount charged shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.

10. (zzzh) Construction of complex This exemption shall not apply in cases where the taxable services provided are only completion and finishing services in relation to residential complex, referred to in sub-clause (b) of clause (30a) of section 65 of the Finance Act. Explanation.- The gross amount charged shall include the value of goods and materials 2013:DHC:5805-DB supplied or provided or used for providing the taxable service by the service provider. Provided that this notification shall not apply in cases where, -

(i) the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004; or

(ii) the service provider has availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.12/2003-Service Tax, dated the 20th June, 2003[G.S.R. 503 (E), dated the 20th June, 2003]. Explanation.- For the purposes of this notification, the expression ―food‖ means a substantial and satisfying meal and the expression ―catering service‖ shall be construed accordingly.‖

11. The challenge, as noticed above, is to the stipulations in column

4. Service Tax and Computation

12. Service tax is a value added tax which was/is imposed and levied by the Parliament by way of Finance Act, 1994. It was imposed in phases and presently it is imposed on all taxable services as defined, except for the negative list.

13. Section 65A states that classification of taxable services shall be determined in accordance with the said-clauses of clause (105) of section 65 and where for any reason, a taxable service is prima facie, 2013:DHC:5805-DB classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:-

(i) Specific description shall be preferred to more general description;

(ii) Composite services consisting of a combination of different services which cannot be classified as per clause (i), shall be classified as if they consist of a service which gives them their essential character, in so far as this criteria is applicable;

(iii) Where a service cannot be classified as specified in clauses (i) and (ii) above, it shall be classified under the sub-clause which occurs first among the sub-clauses which merit equal consideration.

14. Section 67 stipulates that the value of any taxable service shall be the gross amount charged by service provider for such services provided or to be provided by him. Thus, it sets out the manner of valuation of taxable services for charging service tax. Section 67 is not the charging section as elucidated and relates to manner of computation or value which can be subjected to service tax. By Finance Act, 2001 with effect from 16th July, 2001, Section 67 was substituted by a new comprehensive section. The said section has undergone further amendments from time to time and prior to its reenactment with effect from 18th April, 2006 vide Finance Act 2006. As on 17th April, 2006, explanation 1 of Section 67 for the purpose of removal of doubt, was deemed to include the aggregate amounts as specified in clauses (a) to (g) but did not include the amounts/deposits specified in (i) to (viii). Explanation 3 for removal of doubt declared that the gross amount charged for taxable service shall include the amount received before, during or after provision of such services.

15. Section 67 as amended with effect from 18th April, 2006 reads as under:- ―SECTION 67. Valuation of taxable services for charging service tax. — (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, —

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation. — For the purposes of this section, — (a) “consideration” includes any amount that is payable for the taxable services provided or to be provided; (b) “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value (Omitted by Finance Act 2012 w.e.f. 1st July 2012) (c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.” With effect from 19th April, 2006, Service Tax (Determination of Value) Rules, 2006 have become applicable. Discussion

16. Before be delve further into the questions, we would like to reproduce the statements made by the counsel as recorded in the order dated 1st July, 2013:- ―Learned counsel appearing for the petitioner accepts and states that ―service component‖ in composite contracts can be taxed, but not as works contract per se. Learned counsel for the petitioner further states that the respondents are also competent to bifurcate and tax the service component alone. He submits that the notifications dated 07.06.2005 and 01.03.2006 are bad in law because they have been issued under Section 93(1) of the Finance Act, as if the respondents have granted exemption to the extent of 67% of a composite contract. This is contrary to Sections 65, 66 and 67 of the Finance Act, as the service component alone is taxable and not the entire consideration payable under the composite contract which includes payment towards goods or moveable properties. During the course of hearing, the learned Additional Solicitor General appearing for the respondents has submitted that the two notifications dated 07.06.2005 and 01.03.2006 are optional and it is open and an assessee need not take benefit of the said notifications, if he so desires. However, service tax is to be levied and is payable on the service component of the composite contract, which can be computed. It is submitted that an assessee cannot bifurcate two notifications dated 07.06.2005 and 01.03.2006 and take benefit of the notifications, yet claim that the explanation to the said notifications should not be applied. Explanation stipulates that the gross amount for the purpose of computation includes the entire value of the goods used in the construction. Learned Additional Solicitor General states that he would like to take written instructions before the said statement is taken on record and the court proceeds further.‖

17. It was accepted and stated on instructions by the respondents that the notifications in question (or rather partly in question) are optional and an assessee need not take benefit of the said notifications, if he so desires, but the service tax is to be levied and is payable on the service component of a composite contract, which can be computed. The notifications also specifically stipulate, when they apply and the preconditions which must be satisfied before they can be applied.

18. Service tax in the facts in question has been imposed in three stages. In the first stage, service tax was imposed on construction of industrial and commercial complexes. In the second stage, service tax was imposed on residential complexes of 12 or more residential units and in the third stage, service tax was imposed on works contracts of 2013:DHC:5805-DB any nature except for the exclusion in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Each provision or levy has its own scope and ambit, while the first two provisions were primarily specific and targeted, the third inclusion i.e. works contract is very broad and wide term and will include within its ambit and scope construction of industrial and commercial complex or construction of residential complexes as specified. Introduction and imposition of service tax on works contract by Finance Act, 2007 does not mean that we have to read down, the scope and ambit of the provisions enacted levy tax on contracts relating to ―commercial and industrial construction‖ service or ―construction of (residential) complexes‖ services as specified by Finance Act 2004 and Finance Act 2005 respectively. The new levy imposed by Finance Act 2007 does not indicate or show that works contract relating to ―construction of industrial and commercial complexes‖ or ―construction of (residential) complexes‖ as specified, would be only applicable when the contractor was providing labour or service and was paid for the same and not to composite contracts when the contractor was providing labour/services as well as goods used for construction of industrial and commercial complexes or residential complexes as specified. It would cover any and every contract, when the contractor was only supplying labour or undertaking construction services, whether with or without supply of material, i.e. composite contract. The levy is valid when the provisions of Section 65(105)(zzh) and 65 (105)(zzq) of the Act are satisfied. The only condition and requirement is that the service tax should be levied and imposed on the ―service‖ element and not levied and charged on 2013:DHC:5805-DB material or goods used, as the power to levy sales tax or value added tax on the sales of goods is with the State Governments.

19. The said legal principle is no longer res-integra, as the principle and concept underlining service tax was highlighted and stands elucidated by Full Bench of this court in Home Solutions Retail (India) Ltd. vs. UOI & Anr. 182 (2011) DLT 548 (FB), wherein after referring to several judgments, following propositions were set out:- ―52. From the aforesaid pronouncements in the field, the following principles regarding service tax can be fruitfully culled out:

(i) The measure of taxation does not affect the nature of taxation and, therefore, the manner of quantification of the levy of service tax has no bearing on the factum of legislative competence.

(ii) Taxable services can include providing of premises on a temporary basis for organizing any official, social or business function but also other facilities supplied in relation thereto.

(iii) Levy of service tax on a particular kind of service cannot be struck down on the ground that it does not conform to a common understanding of the word „service‟ as long as it does not transgress any specific restriction embodied in the Constitution.

(iv) Service tax is a levy on the event of service.

(v) The concept of service tax is an economic concept.

(vi) ―Consumption of service‖ as in case of ―consumption of goods‖ satisfies human needs.

(vii) Service tax is a value added tax which, in turn, is a general tax applicable to all commercial activities involving provision of service.

(viii) Value added tax is a general tax as well as destination based consumption tax leviable on services provided within the country.

(ix) The principle of equivalence is in-built into the concept of service tax.

(x) The activity undertaken in a transaction can have two components, namely, activity undertaken by a person pertaining to his performance and skill and, secondly the person who avails the benefit of the said performance and skill. In the said context, the two concepts, namely, activity and the service provider and service recipient gain significance.‖

20. In Tamil Nadu Kalyana Mandapam Asscn. vs. UOI and Ors. (2004) 267 ITR 9 (SC), challenge was made and rejected by the Supreme Court on imposition of service tax on Kalyan Mandapam or Mandap keepers who provided furniture, fixtures, floor coverage etc for organizing social or business functions. The tax on ―service‖ was defined as any service provided to a client by a mandap keeper in relation to use of mandap in any manner, including facilities provided to the client in relation to such use and also the service, if rendered, as a caterer. The Supreme Court made reference to the 46th amendment i.e. Article 366 (29A) of the Constitution and referred to the fact that as per the formula prescribed in the Finance Act 1994, service tax was levied on 40% of the gross amount charged by the mandap keepers from the client where mandap keepers were providing catering services. Thus, in the case of mandap keepers, service tax was payable on composite contract where the mandap keepers were to also provide food, furniture, electrical fittings, tents etc. The contention that the service tax imposed on mandap keepers was tax on land or tax on sale or purchase of goods was rejected. It was observed that Article 366(29A) (f) does not include supply of services, within supply of goods. The two were separate aspects. Concept of catering includes concept of rendering service, though sale of goods is involved. Parliament is competent to levy service tax on the service aspect. Reference was made to sub-clause (f) to Article 366(29A) but in the present case clause (b) to Article 366(29A) would be appropriate and applicable. Clause (b) uses the term ―works contract‖ as the said expression or term had gained acceptability in light of the earlier judgments of the Supreme Court, where contracts for construction of building along with labour and material were described as ―works contract‖ in contradiction or as antitheses to contracts for supply of material, without labour or construction services. The said term is also used in the Central Sales Tax Act, 1956. The said clause enabled the legislature to bifurcate the works contract into separate parts i.e. sale of goods or materials involved in the construction and supply of labour and service and attribute values to the two parts/aspects. There is no standard formula to distinguish a contract for sale of goods from the works contracts and it largely depends upon the facts and circumstances of each case. Sale of goods involves transfer of movable property and delivery of possession of movable property but in case of contract for works, there is work and labour alone. Works contract are composite and have elements of both service and sale/consideration for use of goods.

21. In K. Raheja Development Corpn. Vs. State of Karnataka (2005) 5 SCC 162, the Supreme Court examined the term ‗works contract‘ as defined in Karnataka Sales Tax Act, 1957 to include any 2013:DHC:5805-DB agreement for carrying out for valuable consideration etc. building construction, fabrication, erection, installation, fitting out, improvement, modification of any moveable or immovable property. It was observed that the definition was not restricted to works contract as commonly understood i.e. contract to do work on behalf of somebody else. It was further observed that the definition makes no distinction between contract for residential flat or commercial unit and would, therefore, include construction of commercial units. As long as the agreement was entered into before the construction was ―complete‖, it would be a works contract (we are not required to interpret and construe the expression ―complete‖ in the present case). Thus the definition clauses in the Act for applying section 65(105)(zzq) and (zzzh) have to be given full effect.

22. Affirming the judgment in the case of Raheja Development (supra), the Supreme Court in its recent decision Larsen & Toubro Limited versus State of Karnataka, Civil Appeal No.8672/2013 elucidated the effect of Article 366 (29A) as conferring power on the States to tax ―works contract‖ by taxing transfer of property in goods whether as goods, or in the form of goods involved in the execution of ―works contracts‖. The expression ―works contract‖ is very wide and encompasses several types of contract and should not be given a restrictive meaning. The earlier test, i.e., ―dominant purpose test‖ is no longer valid. Referring to the aspect theory, it has been observed as under:- ―100. We have no doubt that the State legislatures lack legislative power to levy tax on the transfer of immovable property under Entry 54 of List II of the Seventh Schedule. However, the States do have competence to levy sales tax on the sale of goods in an agreement of sale of flat which also has a component of a deemed sale of goods. Aspects theory though does not allow the State legislature to entrench upon the Union List and tax services by including the cost of such service in the value of goods but that does not detract the State to tax the sale of goods element involved in the execution of works contract in a composite contract like contract for construction of building and sale of a flat therein. In para 88 of Bharat Sanchar[5], the Court stated: ―the aspects theory does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax‖. Having said that, the Court also stated that the States were not competent to include the cost of service in the value of the goods sold (i.e. the sim card) nor the Parliament could include the value of the sim card in the cost of services. But the statement in para 92(C) of the Report is clear that it is upto the States to tax the sale of goods element in a composite contract of sale and service. Bharat Sanchar[5] thus supports the view that taxation of different aspects of the same transaction as separate taxable events is permissible.‖ The following propositions, which are relevant for the present case, have also been enunciated in Larsen & Toubro Ltd. (supra):- ―(i) 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: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form.

(ii) XXXXX

(iii) 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‖.

(iv) Building contracts are species of the works contract.

(v) 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.

(vi) 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.

(vii) XXXXX

(viii) 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 2013:DHC:5805-DB other for supply of labour and services. In other words, the single and indivisible contract, now by Forty-sixth Amendment has been brought on par with a contract containing two separate agreements and States have now power to levy sales tax on the value of the material in the execution of works contract.

(ix) XXXXX

(x) XXXXX

(xi) 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.‖

23. In Gannon Dunkerley and Co. vs. State of Rajasthan (1993) 1 SCC 364 it was observed that the legal fiction introduced by the Forty- Sixth Amendment has to be carried to its logical end and even single indivisible contracts can be bifurcated into contract for sale of goods and other for supply of labour and services at par with the contract containing two separate agreements. The State legislature are competent to impose tax on transfer of property in goods involved in ―works contract‖. The Parliament can enact laws which can specify restrictions and conditions regarding the system of levy, rates or incidence of tax, but this is not a pre-condition. It means that if the Parliament enacts a law, the exercise of legislative power of the State would be subject to a 2013:DHC:5805-DB system of levy, rates or incidence of tax. Most importantly it has been observed that measure of levy of tax contemplated by Article 366 (29- A)(b) is the value of the goods involved in execution of ―works contract‖. Since the taxable event is the transfer of property in goods, the said transfer takes place when the goods are incorporated in the works, the value of goods, which can constitute the measure for the levy has to be the value of goods at the time of incorporation of the goods in the works.

24. Similarly in Mahim Patram (P) Ltd. vs. Union of India and Ors. (2007) 3 SCC 668, the Supreme Court referred to the decision of Gannon Dunkerley and Co. vs. State of Rajasthan (Supra) and observed:- “5. It was, however, held while laying down that in the absence of law by Parliament so providing, it was not permissible for the State Legislatures to impose such a tax; it did not mean that the legislative power of the State could not be exercised till the enactment of a law under sub-clause (b) of clause (3) of Article 286 by Parliament, observing: (Gannon Dunkerley case [(1993) 1 SCC 364], SCC pp. 390-91, para 39) ―It only means that in the event of a law having been made by Parliament under Article 286(3)(b) the exercise of the legislative power of the State under Entry 54 in List II to impose a tax of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy rates and 2013:DHC:5805-DB other incidents of tax contained in the said law. The existence of a law enacted under Article 286(3)(b) cannot, therefore, be regarded as a condition precedent for the exercise of the taxing power of the State under Entry 54 in List II to impose a tax of the nature referred to in sub-clauses (b),

(c) and (d) of clause (29-A) of Article 366.

This does not, however, absolve Parliament from enacting a law as envisaged by Article 286(3)(b). Keeping in view the grievance of the contractors that there is wide disparity in the sales tax legislation of the various States in the matter of imposition, mode of assessment, rates, etc. of the tax on deemed sales resulting from transfer of property in goods involved in the execution of a works contract referred to in sub-clause (b) of clause (29-A) of Article 366, the need for the law envisaged by Article 286(3)(b) cannot be minimised.‖

25. Thereafter in Mahim Patram’s case (Supra), the Supreme Court held:-