By C.B. Thakar
Advocate
G.G. Goyal
Chartered Accountant
Introduction
GST has been
introduced in our country from 1st July 2017. Although the overall
design of GST scheme is new, it is a mixture of both the taxes i.e. tax on
Goods as well as tax on Services. In the earlier regime, the taxation of goods
was separate and service tax was separate, hence litigation was accordingly
with the respective laws. However, certain judgements under earlier laws may
still have their relevance in GST regime. Looking into present notifications on
classification and rate/s of tax, it seems that classification of a transaction
and rate of tax thereon is going to be one major area of confusion and/or
conflict, wherein such judgements may provide us necessary guidance.
Case study
Normally, there
can be five categories of transactions, to be dealt with to decide rate of tax.
(i) Whether
transaction is supply of goods or supply of service?
(ii) Whether
transaction is works contract?
(iii) Whether
transaction relates to treatment / process of goods of others?
(iv) Whether
transaction is mixed supply transaction?
(v) Whether
transaction is composite transaction?
Once the nature
of transaction is decided to be one of above, the rate can be decided
accordingly.
If the
transaction is relating to supply of goods, the rate will be as applicable to
said goods. If it is service transaction, the rate will be as applicable to
service.
Works
Contracts, under GST, are related to immovable properties and such transactions
are categorised as ‘service transactions’. At the same time ‘Treatment and
Processing’ transactions are also categoried as ‘service transactions’.
Once a
transaction is categorised as service transaction, then it will not be
necessary to look into any goods involved in supply of services. The
transaction should be taxed as service, as one transaction.
Blasting
transaction
In case of
blasting transaction, different chemicals and explosive materials are used for
blasting of land or rocks etc. It is seen that explosive materials are
taxable at 28% under GST, where as chemicals are taxable at 18%.
The first issue
in the above case will be to see the nature of blasting transaction. The nature
of blasting transaction has already been a subject matter of interpretation by
the Hon. Rajasthan High Court in case of Shekhawat Explosives vs. State
of Rajasthan and another (137 STC 326)(Raj). The facts narrated by the
High Court in the above judgment are as under:
“5. In any case, both the sides requested
us that the matter may be examined on merits also. We therefore, heard learned
counsel on the merits of the case. Learned counsel Sh. Mehta has argued that
the job-work, which was undertaken by the present appellant was that of
blasting and in this job of blasting the explosives were used, which stood
exhausted in the process of blasting itself. Therefore, there is no effective
sale of any explosive by the appellant so as to make it leviable for charging
the sales tax under the provisions of the Act and therefore, the order as has
been passed by the assessing officer was bad from very inception.”
The Rajasthan
Sales Tax Department’s argument was that there is transfer of property in goods
in the above transaction and hence it is liable as works contract.
The Hon. High
Court examined the issue and came to conclusion as under:
“The charging
section is section 4 under chapter II, i.e., levy of tax and its rate and it
has been clearly provided under sub-section (1) of section 4 that the tax
payable by the dealer under this Act shall be at single point in the series of
sales by successive dealers, as may be prescribed and shall be levied at such
rates not exceeding fifty per cent on the taxable turnover, as may be notified
by the State Government in the Official Gazette. A conjoint reading of the
provisions of section 2(38) and section 4(1) makes it clear that in such
matters when a job of blasting is undertaken, the use of explosives in such job
can neither be termed as sale within the meaning of the Rajasthan Sales Tax Act
nor it could be subjected to the levy of tax.
Learned counsel
Sh. Bhandari has argued before us, rather he was at pains to argue on the basis
of section 2(38), clause (ii) that it remains a case of sale because it
involved a transfer of property in goods and he submits that the explosives had
been purchased by the appellant on the basis of the form “C” supplied
by the department and on that basis he did avail certain concession. Even if
that be so, it will not give the status of sale to such process of extension.
Even if it is a case of transfer of property, though the property does not
stand transferred in any physical form, it stands exhausted in the process of
the execution of the works contract. Unless any transaction is given the status
of sale within the meaning of section 2(38), there is no question of charging
sales tax thereon. In case the appellant has made any misuse of the form
“C” and has wrongly availed any concession or has taken any undue
benefit or unlawful gain, which otherwise could not be available to him, it is
always open for the concerned authorities to take appropriate action against him
in accordance with law, but that does not mean that he could be made liable to
pay sales tax on such transaction (which does not amount to sale) on the basis
of which job of blasting was undertaken and completed and in the process
thereof the explosives were made use of.
6. We therefore, find that this appeal
must succeed on its own merits, the order dated November 24, 2001 passed by the
learned single Judge is set aside. This appeal as well as the writ petition are
allowed and the impugned assessment order dated September 29, 2001 (annexure 7)
is quashed and set aside.”
Conclusion
It can be seen
that the transaction of blasting is considered as not sale of any kind of goods
and therefore it becomes transaction of rendering service. The nature of
transaction will remain the same even under GST regime. The outcome is that the
blasting transaction will be taxable under GST as service transaction. Even if
goods involving different rates are used for rendering the above service, still
there will not be any impact of the same for deciding the rate of tax. Service
is one transaction and the rate will be attracted as per rate applicable to
service. Since for blasting transaction, no separate classification is made for
rate of tax, it will fall in residuary category and liable to GST at 18%.
There are several such
other judgements, in the old regime, which will be useful for appropriate
guidance in the GST regime.
