Db Income Tax Appeal v. M/S Samtel Glass Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR *** (1)DB Income Tax Appeal No.258/2012The Commissioner of Income Tax (T.D.S.) JaipurVs. M/s Samtel Glass Ltd. (2)DB Income Tax Appeal No.259/2012The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s Samtel Glass Ltd. Date of Order :- 13/08/2014 HON'BLE MR. JUSTICE AJAY RASTOGI.HON'BLE MR. JUSTICE J.K. RANKA. Mr. Sanjiv Gupta, ITO, present in person. BY THE COURT (Per Hon'ble Ranka, J.): 1.Both these Income Tax Appeals are directed against thecommon order dt.27/07/2012 passed by the Income TaxAppellate Tribunal, Jodhpur Bench, Jodhpur (for short, “ITAT”)by which the ITAT, while affirming the common order passed bythe Commissioner of Income Tax (Appeal) (for short, “CIT(A)”),has dismissed the appeals filed by the appellant-revenue. Itrelates to the Assessment Years 2008-09 and 2009-10. Sincethe issues involved are similar and identical, both theseappeals are being decided by this common order. 2.In both these appeals, the revenue has raised questionand we are called upon to decide the applicability of provisions 2 of Sec. 194(C) and 194(J) of the Income Tax Act (for short,“Act”) in respect of the payments made by the respondent-assessee towards the transmission charges and whether it is inthe nature of sale or contract in between the respondent-assessee and Gas Authority of India Ltd ( for short “GAIL”). 3.Brief facts, as emerging on the face of record, are that therespondent-assessee is a private limited company and a surveywas carried out at the business premises of the respondent-assessee on 16/12/2008 which was basically with reference tothe provisions relating to tax deduction at source (for short,“TDS”). The authorized officer noticed that the respondent-assessee had made huge payments towards transmissiontransaction charges to GAIL for supply of gas pursuant to anagreement/contract entered into by both the parties. It wasfurther noticed that though the respondent-assessee wasdeducting TDS on other payments made but did not deductTDS on the payments made towards the transmission chargesto GAIL. The Assessing Officer (for short, “AO”) issued a showcause notice to the respondent-assessee requiring, inter-alia,the respondent-assessee to prove as to why huge paymentshave been made towards the transmission charges in additionto gas price for certain services provided to the respondent-assessee (purchaser) and the terms & conditions contained inthe agreement also revealed that the services provided by the 3 GAIL to the respondent-assessee to facilitate the uninterruptedsupply of gas is of technical services in nature. Accordingly, theAO was of the view that provisions of Sec. 194(C) and (J) of theAct are applicable. The respondent-assessee, inter-alia,submitted a detailed explanation and contended that it is a saleagreement of gas having been sold between GAIL as seller andwith the assessee company as buyer for sale of natural gas (re-gasified LNG) on 23/01/2004. A side letter dt. 23/01/2004 wasalso issued for revising article 9.2 of the said GSA. There wasanother side letter of the same date stating that the prices ofthe Gas are on CIF basis. It was further contended that theprice is comprised of following elements: 4.Both the parties further agreed that there would be fixedtransmission charges of Rs.12,44,363/- per month for the year2004-05 and it will be increased @3% on yearly rest basisw.e.f. 01/04/2005. They further agreed that the total priceincludes basic custom duty, service tax and is exclusive of alltaxes, duties and statutory levies, by whatever name called andlevied by either Central, State Governments or local bodies,sales tax, entry tax and other tax and duties and statutory 4.Both the parties further agreed that there would be fixedtransmission charges of Rs.12,44,363/- per month for the year2004-05 and it will be increased @3% on yearly rest basisw.e.f. 01/04/2005. They further agreed that the total priceincludes basic custom duty, service tax and is exclusive of alltaxes, duties and statutory levies, by whatever name called andlevied by either Central, State Governments or local bodies,sales tax, entry tax and other tax and duties and statutory levies shall be payable extra as applicable from time time. Itwas further agreed that the buyer shall be liable for any of theabove tax/duties/levies with respect to the sale, transfer,transport or importation of the GAS as also anytaxes/duties/statutory levies for which the buyer is liable underthis article but which may have been paid by the seller shall bereimbursed by the buyer together with applicable interest, ifany, within 15 days after written request by the seller. It wasfurther submitted that if all the clauses of the gas saleagreement (GSA) are taken into consideration, it wasabundantly clear that the price paid by the assessee-companyis towards purchase of the GAS only. The assessee alsoquoted article 2 which specifically stated about purchase andsale between the parties. It was further mentioned that afterrevising the clauses in the agreements that the facilities(pipelines, metering equipments and other gas accessories arefacilities of the seller only, seller is maintaining theseequipments for facilitating effective delivery of the GAS, seller isproviding technical or whatsoever services to themselves whilemaintaining their own facilities and not buyer's facilities as suchprovisions of Sec. 194C or 194J of the Income Tax Act are notapplicable. Alongwith reply, the assessee also enclosed a copyof purchase invoice issued by the GAIL to the assesseebearing No.RJ00030229 dated 30/11/2008 where it waspointed out that the seller charged VAT on all elements of the price of the GAS. It was reiterated that the price paid by thecompany to GAIL is price for Gas and not availing any type ofservices from the GAIL. It was also contended that even GAIL,the seller, has also treated the entire transaction as transactionof sale and by producing the Profit & Loss Account of the saidcompany (GAIL), it was contended that the GAIL has creditedthe entire sale proceeds in its Profit & Loss Account which wasapparent not only on the basis of the Profit & Loss Account butcopy of statement of account from GAIL of the assessee aswell. The assessee also relied upon circular issued by theCentral Board of Direct Taxes (CBDT) bearing No.13 dt.13/12/2006 and contended that in the light of the said circularas well, the assessee is not liable to deduct tax at source u/s194C or 194J of the Act. It was further submitted on behalf ofthe assessee relying upon judgment of the Hon'ble Apex Courtin the case of Hindustan Coca Cola Beverage P. Ltd. Vs.Commissioner of Income Tax:(2007) 293 ITR 226(SC) that theHon'ble Apex Court has held that where the payee has alreadypaid tax on the income on which there was a short deduction oftax at source, recovery of tax cannot be made once again fromthe tax deductor and this was proved by the assessee on thebasis of Profit & Loss Account and other material provided tothe AO. However, the AO did not agree with any of thecontentions raised by the assessee and after coming to his ownconclusion and relying upon Article 8, more particularly clause 6 6 8.10 of the agreement, he came to the conclusion that thepresent case is not a case of sale of Gas only but it alsoincludes certain terms and conditions for providing serviceswhich are technical in nature which attracts TDS provision andaccordingly found the assessee liable for TDS under theprovisions of Sec. 194J at Rs.16,92,800/- for the assessmentyear 2008-09 and Rs.12,69,600 for the assessment year 2009-10. It also charged interest u/s 201(1A) at Rs.2,71,481/- andRs.82,614/- respectively for the two assessment years. The AOalso tried to distinguish the judgments rendered by the Hon'bleApex Court in the case of Hindustan Coca Cola Beverage P.Ltd. (supra). 5.Aggrieved by the imposition of TDS and interest u/s 194J& 201(1A) respectively, two appeals came to be filed before theCIT(A). The assessee reiterated the facts led before the AOand the CIT(A), after analyzing the agreement vis-a-vis othermaterial placed on record as also the judgments cited before it,was of the view that the GAS Sale Agreement (GSA) with GAILwas essentially an agreement for purchase/sale of goods andthat the AO did not give good justification for isolatingtransmission charges as fees for technical services or paymentfor works contract and thus came to the conclusion that neitherSec.194J nor 194C was applicable to the payments made toGAIL under GSA. The CIT(A) alternatively also came to the 7 conclusion that since the GAIL had paid tax on all paymentsunder the GSA for both the assessment years and suchreceipts were included in its relevant return of income, evenotherwise, there was no scope for invoking Sec. 201 of theIncome Tax Act and accordingly deleted the entire levy of TDSas well as interest. 6.Aggrieved with the order of the CIT(A), the revenuepreferred two appeals before the ITAT and the ITAT alsoconcurred with the findings of the CIT(A) and after referring toclauses of the agreement as also other factors upheld the orderpassed by the CIT(A) and dismissed the appeals preferred bythe revenue. Thus, the aforesaid order of the ITAT is beingassailed before us by the revenue. 7.Mr. Sanjiv Gupta, ITO, appearing on behalf of therevenue, contended that the agreement between the twocompanies namely; the assessee as well as GAIL was notmerely a purchase/sale transaction and that it was a continuouson going process and after purchase/sale having beenconcluded, both the parties were involved in on going activitiesand thus it cannot be said that it was merely a purchase/saletransaction. He further contended that it is essentially a servicetransaction and the services provided by GAIL to the assesseeare technical in nature and therefore, either it falls under the 8provisions of Sec. 194C or 194J of the Act. He furthercontended that the first liability was of the assessee and merelybecause the Hon'ble Apex Court observed that if the recepient(Payee) has paid tax, then there is no liability, is secondary innature. He further contended that the liability was there and theAO rightly came to the conclusion of levying of TDS as alsointerest on account of non-payment of the TDS. He ultimatelycontended that the orders passed by both i.e. the CIT (A) aswell as ITAT, are bad in law, perverse and substantial questionof law arises out of the order of the ITAT. 8.We have considered the submissions of the Officer,appearing on behalf of the revenue and have also perused theimpugned order as well as the orders of the lower authoritiesand in our view, no substantial question of law arise out of theorder of the ITAT so as to call for interference by this Court forthe reasons henceforth: 9.The AO has reproduced some of the clauses of theagreement entered into between the assessee as well as GAILand the AO has highlighted Para 8.1.1 which speaks ofinstallation, operation and maintenance of facilities. It would beappropriate to quote Art. 5 and para 8.1.1 & 8.10 whichprovides as under:- “Article 5 of the Agreement deals with the 8.We have considered the submissions of the Officer,appearing on behalf of the revenue and have also perused theimpugned order as well as the orders of the lower authoritiesand in our view, no substantial question of law arise out of theorder of the ITAT so as to call for interference by this Court forthe reasons henceforth: 9.The AO has reproduced some of the clauses of theagreement entered into between the assessee as well as GAILand the AO has highlighted Para 8.1.1 which speaks ofinstallation, operation and maintenance of facilities. It would beappropriate to quote Art. 5 and para 8.1.1 & 8.10 whichprovides as under:- “Article 5 of the Agreement deals with the delivery and pressure. The relevant portion ofthis article is also reproduced here under forconvenience. 5.1.Delivery:-Subject to the provision of article8.1.1 gas sold to the buyer pursuant to thisagreement shall be delivered by the seller at thedelivery point. 5.2.Title and Risk:- The facilities as defined inarticle 8 up to the delivery point shall beconstructed, operated and maintained by theseller at its own risk and cost. 5.3.Delivery Pressure:-The seller shall maintainthe ability to supply Gas to the Buyer at theDelivery Point at the pressure of 12 kg./cm2 (g)+1 kg/cm2.” “8.1.1.The seller and the buyer shall provide theseller's facilities and the buyer's facilitiesrespectively, as may from time to time benecessary to enable party to perform itsobligations under this agreement and the sellerand the buyer shall aperate, repair and maintain,the seller's facilities and the buyer's facilitiesrespectively, and all replacements in goodworking order and condition throughout theduration of the agreement and operate the samein accordance with reasonable & prudentoperator. “ 8.10.For effecting deliveries of the seller shallinstall and maintain at its own risk and cost thepiping control and regulation and meteringequipment in the Gas metering station and all other accessories. The said equipment soinstalled by the seller shall remain the property ofthe seller and the seller shall have the right toremove such equipment at any time within twelve(12) months after the expiry of the contract. Theseller shall have the right to use the buyer's landand utilities essentially required for installation,operation and maintenance of the Gas meteringstation and allied equipments required for supplyof Gas. These facilities as required and used bythe seller at the terminal shall be free of cost.” 10.Though the AO has quoted other clauses as well but inour view, the said two clauses, referred to herein above, will besufficient and will clinch the issue for disposal of the presentappeals. A perusal of Clause 8.1.1., quoted herein above,clearly describes two parties as buyer and seller and infurtherance thereof, if the seller provides certain facilities onaccount of the business exigencies to maintain good relationsand for on going contract/agreement, then, in our view, such anagreement of purchase and sale cannot be said to be anagreement in between the parties which could change thenature of the contract as technical services falling within theambit of Sec. 194C or 194J of the Act. It is also a finding of factthat not only the seller charged other amounts but equallycharged VAT in the bills exchanged between the parties. Whenthe seller charged VAT, then essentially the seller as well asbuyer both were of the view that it is sale and purchase per-se 11 and nothing more. It has also come on record that theassessee, by providing copy of the sale bills, had categoricallyobserved about this aspect. It would also be appropriate toquote definition of sale/sale price as available in the RajasthanValue Added Tax Act, 2003 which provides as under:- 11 and nothing more. It has also come on record that theassessee, by providing copy of the sale bills, had categoricallyobserved about this aspect. It would also be appropriate toquote definition of sale/sale price as available in the RajasthanValue Added Tax Act, 2003 which provides as under:- (35)"sale" with all its grammatical variationsand cognate expressions means everytransfer of property in goods by one person toanother for cash, deferred payment or othervaluable consideration and includes- (i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash,deferred payment or other valuableconsideration; (ii) a transfer of property in goods (whether asgoods or in some other form) involved in theexecution of a works contract; (iii) any delivery of goods on hire-purchase orother system of payment by installments; (iv) a transfer of the right to use goods for anypurpose (whether or not for a specified period)for cash, deferred payment or other valuableconsideration; (v) a supply of goods by an unincorporatedassociation or body of persons to a memberthereof for cash, deferred payment or othervaluable consideration; and (vi) a supply, by way of or as part of anyservice or in any other manner whatsoever, ofgoods, being food or any other article forhuman consumption or any drink (whether ornot intoxicating), where such supply is for 12cash, deferred payment or other valuableconsideration, and such transfer, delivery or supply shall bedeemed to be a sale and the word "purchase"or "buy" shall be construed accordingly; Explanation.-Notwithstandinganythingcontained in this Act, where any goods aresold in packing, the packing material in suchcase shall be deemed to have been sold withthe goods; (36)"sale price" means the amount paid orpayable to a dealer as consideration for thesale of any goods less any sum allowed byway of any kind of discount or rebateaccording to the practice normally prevailing inthe trade, but inclusive of any statutory levy orany sum charged for anything done by thedealer in respect of the goods or servicesrendered at the time of or before the deliverythereof, except the tax imposed under thisAct; 11.In our view, on perusal of the said definition of sale & saleprice as provided under the RVAT Act and on perusal of theclauses, quoted herein above that the property in goods hasbeen transferred from one hand to another. Thus, it was atransaction of sale and purchase and nothing more. It is alreadyon record that even Gail, the seller of the GAS, had providedmaterial to the assessee in the shape of Profit & Loss Account 13as also other material wherein the GAIL has shown receipts inthe Profit & Loss Account and the GAIL has not only carried thesaid item into Profit & Loss Account but also paid tax on theincome ultimately earned by it on account of the transaction inbetween the assessee and GAIL and such receipts wereincluded in the relevant return of income submitted by GAIL inboth the assessment years under appeal. 12.This, as observed herein above, not merely the recipienthad shown the said transaction as sale in their relevantrecords but also have paid due tax. 13.In our view, the predominant purpose of the contract forsupply of GAS was for sale of goods and therefore, the contractwas outside the purview of Sec. 194C as well as 194J of theAct. Considering the invoice raised by the GAIL vis-a-visreading of the clauses, referred to supra, in our view, by nostretch of imagination, it can be said that the transaction wasfor technical services or a contract. The price paid by thecompany is sale price for GAS and not for availing any type ofservices from the GAIL. The transaction charges are one of theelement of price as per clause entered into by and between thetwo parties and not charges for any distinct services and it wasthe agreement in between the said two parties that the selleragrees to deliver and sale to the buyer the GAS at the delivery 13.In our view, the predominant purpose of the contract forsupply of GAS was for sale of goods and therefore, the contractwas outside the purview of Sec. 194C as well as 194J of theAct. Considering the invoice raised by the GAIL vis-a-visreading of the clauses, referred to supra, in our view, by nostretch of imagination, it can be said that the transaction wasfor technical services or a contract. The price paid by thecompany is sale price for GAS and not for availing any type ofservices from the GAIL. The transaction charges are one of theelement of price as per clause entered into by and between thetwo parties and not charges for any distinct services and it wasthe agreement in between the said two parties that the selleragrees to deliver and sale to the buyer the GAS at the delivery 14point and the buyer agrees to purchase and take delivery ofsuch GAS and pay in accordance with the terms and conditionsin this agreement. Thus, the very nature of the agreementclearly shows that it was not in the nature of works contract ortechnical services. Delivery at the place of buyer does notmean that it would convert transaction as in the nature ofcontract or technical services. 14.On perusal of above and on a plain reading, it providesthat u/s 194C there should be a contract in between two partiesand work includes (a) advertising (b) broadcasting © carriage ofgoods or passengers by any mode of transport other thanrailways (d) catering (e)manufacturing or supplying aproduct.... Thus, on reading the clauses as entered into by andbetween the parties, in our view, the agreement is not in thenature of a contract as the assessee and GAIL have notentered into any of the work, referred to herein above. Onperusal of a reading of Sec. 194J read with explanation 2 ofSec. 9(1)(vii) (supra), it provides that the predominant purposeto fall in “technical services” should be consideration for therendering of any managerial technical or consultancy serviceswhereas on reading of the clauses entered into by the parties,we can safely come to the conclusion that it is an agreement tosale/purchase of GAS in between the two companies andintention of both has been as that of sale and purchase and we 15cannot import any reasoning to hold that it can fall in thecategory of technical services, it would be too much to stretchthe plain and simple reading of technical services in the matterunder consideration. 15.In the case of CIT V. Dabur India Ltd. : (2006) 283 ITR197 (Delhi), the Delhi High Court had an occasion to consideras to whether supply of corrugated boxes was to be made withlabels printed on them and the question raised was as towhether the supply of boxes was a contract for supply of chatteland, as such, outside the purview of Sec. 194C of the IT Actand after considering the evidence on record, it held thatprinting of the labels on the corrugated boxes did not requireany special skill or involve any confidence or secrecy and heldthat the predominant object underlying the contract was one forsale of the goods which took the contract out of the purview ofSec. 194C of the Act. 16. In view of the above discussion, we are of the opinion thatthe Tribunal committed no error in coming to the conclusionthat the case was not covered under section 194C/ 194J of theAct. It may be that the transportation component of gas waspaid separately by the assessee to GAIL. Here also thetransportation charges did not depend on the consumption ofquantity of gas but was of fixed monthly charges to be borne by 16the assessee as part of the agreement between the parties.The ownership of the gas vested in GAIL till it was transportedand delivered to the assessee's premises at the outlet of thegas metering station. The pipeline was laid down by GAIL andwas permitted to be utilized for further onward transportation ofgas to other consumers. 16. In view of the above discussion, we are of the opinion thatthe Tribunal committed no error in coming to the conclusionthat the case was not covered under section 194C/ 194J of theAct. It may be that the transportation component of gas waspaid separately by the assessee to GAIL. Here also thetransportation charges did not depend on the consumption ofquantity of gas but was of fixed monthly charges to be borne by 16the assessee as part of the agreement between the parties.The ownership of the gas vested in GAIL till it was transportedand delivered to the assessee's premises at the outlet of thegas metering station. The pipeline was laid down by GAIL andwas permitted to be utilized for further onward transportation ofgas to other consumers. 17.It would also be appropriate to consider the above issuein the context of what is sale under the VAT Act. We havealready quoted herein above the definition of VAT, definition ofsale and sale price under the VAT Act. 18.The Hon'ble Apex Court, in the case of Hindustan SugarMills Ltd. Vs. State of Rajasthan and others : (1979) 43 STC13, while examining as to whether freight was part of the saleprice or excluded out of the purview of sale price, afterconsidering the issue at length, was of the view that “any sumcharged for anything contained by the dealer in respect of thegoods at the time of/or before the delivery thereof, is to beregarded as part of the “sale price”, even if it does not fall withinthe first part of the definition.” 19.We are also of the view that the judgment renderedby the Hon'ble Apex Court in the case of Hindustan CocaCola Beverage P. Ltd. (supra) is squarely applicable in the 17instant case as the recipient (GAIL) had duly disclosed theturnover as sale in their books of accounts and as per the profit& loss account already placed before the AO. It is alreadyadmitted by the AO that such profit & loss account and othernecessary information was placed by the assessee of GAIL inthe present case so as to prove that the recipient has not onlydisclosed the turnover but also paid due taxes, if any, andtherefore, the judgment of the Hon'ble Apex Court is applicable.We fail to understand on the face it as to how the AO coulddistinguish the said judgment which we feel was not proper onthe part of the AO. The judgment of the Hon'ble Apex Court,being law of the land, is required to be followed in letter andspirit by all. 20.The circular of the Central Board, which has beenreferred by the ITAT, bearing No.13/2006 dt.13/12/2006(supra), in our view, also clarifies the situation envisaged in thepresent case and considering the circular as well as the factsavailable on record, we have no hesitation in holding that theagreement of supply of GAS by GAIL to the assessee, in theinstant case, is a simplicitor transaction of sale and purchaseand cannot be termed to be an agreement for work/providingof technical services. The ITAT has rightly come to theconclusion and, in our view, it is based on appreciation ofevidence and facts and no question much less substantial 18 question of law can be said to emerge out of the said orderof the ITAT and we do not find any infirmity or perversity inthe order of the ITAT so as to call for any interference ofthis Court. In our view, no substantial question of law ariseout of the order passed by the ITAT. 21.Consequently, both the appeals, being devoid ofmerit, are hereby dismissed in limine. [J.K. RANKA],J. ,J. Raghu/p.18/ Certificate:All corrections made in the judgment/order havebeen incorporated in the judgment/order being e-mailed.Raghu, Sr. PA.