Facts:
The dealer undertook works contract for effluent treatment at the place of employer by using certain chemicals. The chemical mixture used by the dealer is named as ‘enviroflock’. The waste water is subjected to chemical treatment by using such chemical at the place of the employer. Due to this chemical treatment, coagulation of suspended particles and precipitation of dissolved organics take place. The solid particles settled at the bottom and the clear liquid overflows. The overflow water is subjected to activated sludge process and oxygen is supplied by means of surface aerators. The treated water is discharged to the river without containing any chemicals or pollutant. The sales tax authorities levied tax on supply of chemicals used in effluent treatment holding it as a sale whereas the dealer contested that there is no sale as chemicals are consumed in the process. The Division Bench referred matter to the Full Bench in view of later decisions of SC. The Full Bench of the High Court by majority, after considering judgment of various High Courts and SC, confirmed the levy of tax.
Held:
(1) It is undoubtedly true that even after the 46th amendment to the Constitution, sales tax cannot be levied merely because there is a works contract. There must be a transfer of property in goods whether in the same form or in any other form.
(2) It is also undoubtedly true that in view of the decision of SC in Gannon Dunkerley & Co. v. State of Rajasthan, (1993) 88 STC 204, the cost of consumables involved in works contract cannot be taxed.
(3) The issue is when property in goods passes? When the dealer has used it, will it remain the owner of the chemical any longer? Will not the property in the goods pass to the awarder? The effluent and the treated effluent both belonged to the awarder. It is therefore, into the property of the awarder, namely, the effluent, that the dealer supplies the chemical. Just like the toner and developer having been put into Xerox machine becoming the property of the customer in the case before the Apex Court in Xerox Modicorp Ltd. case and the sale taking place before the goods are consumed, in the same way, the property in the chemical passed to the awarder the moment they are put into the effluent by the dealer and its subsequent consumption is the consumption after sale and it does not detract from the factum of sale and consequently the exigibility to tax becomes unquestionable.
(4) There was indeed a sale of chemical involved in the execution of the works contract, in view of the Judgment of the Apex Court in Xerox Modicorp Ltd. v. State of Karnataka, (2005) 142 STC 209), as there is delivery of the same to the awarder by virtue of the chemical being poured into the effluent. Per Shri A. K. Basheer J. (Dissenting view):
(1) The short question is whether or not the combination of chemicals known as ‘Envirofloc’ used by the petitioner for effluent treatment is a consumable as envisaged u/s.5(C)(1)(c)(iii) of the Act.
(2) In case of Xerox ModiCorp Ltd., under the Standards and Service Maintenance Agreement (SSMA), the appellant-company was bound to maintain the xerox machines and supply the spare part including toners, developers, etc. as and when required. Obviously the cost of tonersand developers to be supplied by the appellant company were to be borne by the customers. The short question that arose for consideration was whether the appellant-assessee would be liable to be assessed to sales tax for the sale of toners, developers, spare parts, etc. Their Lordships held that transfer of property took place the moment the goods viz., toners, developers, spare parts, etc. were put into the machine. In other words, tangible goods in toners, developers, etc. were transferred as and when they were used by the customer.
(3) The dictum laid down in Xerox Modicorp has absolutely no relevance, particularly to the facts of this case. There is no transfer of any goods in property whether as goods or in some other form attracting levy of sales tax. Still further, by virtue of the provisions contained in section 5C(1)(c)(iii), the cost of the chemicals used by the petitioner for the purpose of effluent treatment is liable to be deducted, they being consumables.
The Full Bench of the High Court by majority held in favour of the Department holding sale of goods attracting sales tax.
