whether service tax can be levied on indivisible works contracts prior to the introduction, on 1st June, 2007, of the Finance Act, 2007 which expressly makes such works contracts liable to service tax. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.

                                                                  REPORTABLE




                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                       CIVIL  APPEAL NO. 6770 OF 2004





      Commissioner, Central Excise & Customs,               …Appellant
      Kerala


                                     Vs.

      M/s Larsen & Toubro Ltd.
      …Respondent

                                    WITH

                        Civil Appeal No. 4468 of 2006

      Commissioner, Central Excise & Customs,               …Appellant
      Vadodara-II
                                     Vs.

      M/s Larsen & Toubro Ltd. & Anr.
      …Respondents

                                    WITH

                       Civil Appeal No.  6434 of 2015


      CCE-II, Vadodara
      …Appellant


                                     Vs.

      M/s Skanska Cementation
      …Respondent

                                    WITH






                        Civil Appeal No. 2798 of 2009

      CCE, Haldia
         …Appellant


                                     Vs.

      S. Swaminathan, Project Manager,                         …Respondent
      M/s P.I.Ltd.
                                    WITH

                        Civil Appeal No. 4234 of 2009

      CCE, Vadodara
      …Appellant



                                     Vs.

      M/s Ishikawajima Harima Heavy Ind.                       …Respondent
      Co. Ltd.
                                    WITH

                        Civil Appeal No. 4281 of 2009

      CCE, Vadodara
      …Appellant



                                     Vs.

      M/s Ballash Nedam International
      …Respondent

                                    WITH



                       Civil Appeal No. 6429  of 2015


      CST, Bangalore
      …Appellant


                                     Vs.

      M/s Turbotech Precision Eng. P. Ltd.                       …Respondent

                                    WITH

                        Civil Appeal No. 4893 of 2011

      M/s. Alstom Project India Ltd. Tr. M.D.                    …Appellant


                                     Vs.

      CST, New Delhi
      …Respondent

                                    WITH

                        Civil Appeal No. 6084 of 2011

      M/s. Instrumentation Ltd.
      …Appellant


                                     Vs.

      CCE, Jaipur
      …Respondent

                                    WITH

                        Civil Appeal No. 8477 of 2011

      CST, Bangalore
      …Appellant


                                     Vs.

      M/s Asea Brown Boveri Ltd.
      …Respondent

                                    WITH

                        Civil Appeal No. 732 of 2012

      M/s Engineers India Ltd.
      …Appellant


                                     Vs.

      CST
            …Respondent

                                    WITH







                        Civil Appeal No. 1627 of 2012

      Commissioner of Central Excise & Customs             ...Appellant


                                     Vs.

       ABB Ltd.
         …Respondent

                                    WITH

                       Civil Appeal No.  6430  of 2015




      Commissioner of Central Excise & S. Tax                 ...Appellant


                                     Vs.

      Simplex Engineering &                                      …Respondent
      Foundry Works Pvt. Ltd.
                                    WITH

                        Civil Appeal No. 5841 of 2011

      CCE, Bangalore
      ...Appellant


                                     Vs.

      M/s ABB Ltd.
         …Respondent

                               J U D G M E N T




      R.F. NARIMAN, J.




      1.    This group of appeals is by both assessees and the  revenue  and
      concerns itself with whether service tax can be levied on  indivisible
      works contracts prior to the introduction, on 1st June, 2007,  of  the
      Finance Act, 2007 which expressly makes such works contracts liable to
      service tax.

      2.    It all began with State of Madras  v.  Gannon  Dunkerley  &  Co.
      (Madras) Ltd., 1959 SCR 379. A Constitution Bench of this  Court  held
      that in a building contract which was one  and  entirely  indivisible,
      there was no sale of goods and it was not within the competence of the
      State Provincial  Legislature  to  impose  a  tax  on  the  supply  of
      materials used in such a contract, treating it as a  sale.  The  above
      statement was founded on the  premise  that  a  works  contract  is  a
      composite contract which is inseparable  and  indivisible,  and  which
      consists of several elements which include  not  only  a  transfer  of
      property in goods but labour and service elements as well.   Entry  48
      of List II to the 7th Schedule to the Government of  India  Act,  1935
      was  what  was  under  consideration  before  this  Court  in   Gannon
      Dunkerley’s case.  It was observed that the expression “sale of goods”
      in that entry has become “nomen juris” and that therefore it  has  the
      same meaning as the said expression had in  the  Sale  of  Goods  Act,
      1930.  In other words, the essential ingredients of a sale  of  goods,
      namely, that there has to be an  agreement  to  sell  movables  for  a
      price, and property must pass therein pursuant to such agreement,  are
      both preconditions to the taxation power of the States under the  said
      entry. This Court, after considering  a  large  number  of  judgments,
      ultimately came to the following conclusion:-

           “To sum up, the expression  “sale  of  goods”  in  Entry  48  is
           a nomen juris, its essential ingredients being an  agreement  to
           sell movables for a price and property passing therein  pursuant
           to that agreement. In a building contract which is,  as  in  the
           present case, one, entire and indivisible  —  and  that  is  its
           norm, there is no sale of  goods,  and  it  is  not  within  the
           competence of the  Provincial  Legislature  under  Entry  48  to
           impose a tax on the supply of  the  materials  used  in  such  a
           contract treating it as a sale.” (at page 425)[1]




      3.    The Law Commission of  India  in  its  61st  Report  elaborately
      examined the law laid down in Gannon Dunkerley’s  case  and  suggested
      that the relevant entry contained in the 7th Schedule to  List  II  to
      the Constitution of India - Entry 54 - could either be amended;  or  a
      fresh entry in the State List could be added; or Article 366 which  is
      a definition clause could be amended so as to widen the  definition of
      “sale”, and include therein  indivisible  composite  works  contracts.
      Having regard to the said recommendation of the  Law  Commission,  the
      Constitution  (46th  Amendment)  Act  was  passed  in  1983  by  which
      Parliament accepted the 3rd alternative of  the  Law  Commission,  and
      amended Article 366 by adding sub-clause (29A). We are concerned  with
      sub-clause (b) of Article 366 (29A) which reads as follows:-

           366 (29A) “tax on the sale or purchase of goods” includes-




           (b) a tax on the transfer of property in goods (whether as goods
           or in some other form) involved in  the  execution  of  a  works
           contract;




           and such transfer, delivery or supply  of  any  goods  shall  be
           deemed to be a sale of those goods  by  the  person  making  the
           transfer, delivery or supply and a purchase of  those  goods  by
           the person to whom such transfer, delivery or supply is made;




      4.    The Constitutional amendment so passed was the subject matter of
      a challenge in Builders' Assn. of India v. Union of  India,  (1989)  2
      SCC 645.  This  challenge  was  ultimately  repelled  and  this  Court
      stated:-

           “… After the 46th Amendment, it  has  become  possible  for  the
           States to levy sales tax on the value of  goods  involved  in  a
           works contract in the same  way  in  which  the  sales  tax  was
           leviable on the price of the goods and materials supplied  in  a
           building contract which had been entered into  in  two  distinct
           and separate parts as stated above.” (at para 36)




      5.     This  is  the  historical  setting  within  which  the  present
      controversy arises.

      6.     Service tax was introduced by the Finance Act, 1994 and various
      services were set out in Section 65 thereof as being amenable to  tax.
      The legislative competence of such tax is to be found in  Article  248
      read with Entry 97 of List I of the 7th Schedule to  the  Constitution
      of India. All the present cases are cases which arise before the  2007
      amendment was made, which introduced the concept of  “works  contract”
      as being a separate subject matter  of  taxation.  Various  amendments
      were made  in  the  sections  of  the  Finance  Act  by  which  “works
      contracts” which were indivisible and composite  were  split  so  that
      only the labour and service element of such contracts would  be  taxed
      under the heading “Service Tax”.

      7.    Learned counsel for the  revenue  has  essentially  raised  four
      arguments before us in which  he  assails  the  judgments  of  various
      Tribunals and High Courts which have decided against  the  revenue  on
      this point. According to him, the 46th Amendment  has  itself  divided
      works contracts by Article 366 (29A)(b). After taking out the  “goods”
      element from such contracts, what remains is the “labour and  service”
      element which, according to him, has been subjected to tax by  various
      entries in the Finance Act, 1994.  Further, relying upon Section 23 of
      the Contract Act and Mcdowell  and  Company  Ltd.  v.  Commercial  Tax
      Officer, 1985 (2) SCC 230, he went on to  argue  that  post  1994  all
      indivisible works contracts were made with a view to  evade  or  avoid
      tax and that therefore being contrary to public policy, the principles
      in Mcdowell’s judgment should apply to make such so-called indivisible
      contracts taxable under the Finance Act, 1994.  According to him,  the
      Finance Act, 1994 itself contains both the charge of tax  as  well  as
      the machinery by which only the labour and service  element  in  these
      indivisible contracts is taxable, it being  his  contention  that  the
      statute need not do what the constitutional amendment has already done
      – namely,  split  the  indivisible  works  contract  into  a  separate
      contract of transfer of property in goods involved in the execution of
      the works contract  on the one hand, which is taxable by  the  States,
      and the labour and services element on the other,  which  is  taxable,
      according to him, by the Central Government.  Further, he argued  that
      the fact that the 2007 Amendment  Act  has,  in  fact,  defined  works
      contract for the first time and sought to split it, and tax  only  the
      element of labour  and  service  would  make  no  difference  because,
      according to him, whatever elements of works  contracts  were  taxable
      under the Finance Act, 1994 would continue to be taxable and would  be
      untouched by the said amendment.

      8.    On the other hand, learned counsel for  the  assessees  assailed
      the judgments of the Tribunals and the High Courts  against  them,  in
      particular the judgment in G.D. Builders v. UOI and  Anr.,  2013  [32]
      S.T.R. 673 (Del.), of the Delhi High Court.  In  answer  to  revenue’s
      contention, learned counsel argued that a works contract is a separate
      species known to the world of commerce and law as such. That being so,
      an indivisible  works  contract  would  have  to  be  split  into  its
      constituent parts by necessary legislation which would  then  contain,
      post splitting, a charge to service tax together  with  the  necessary
      machinery to enforce such charge. According to  learned  counsel,  not
      only was there no such charge pre-2007 but  there  were  no  machinery
      provisions as well to bring  indivisible  works  contracts  under  the
      service tax net.  According to learned counsel, what was taxable under
      the Finance Act, 1994 was only cases of pure service  in  which  there
      was no goods element involved. Further, according to them, for various
      reasons, the sheet anchor of revenue’s  case,  the  Delhi  High  Court
      judgment in G.D. Builders  (supra),  was  wholly  incorrect,  and  the
      minority judgment of the judicial members of a Full Bench of the Delhi
      Tribunal in M/s Larsen & Toubro  Ltd.  v.   CST,Delhi,  2015-TIOL-527-
      CESTAT-DEL-LB, comprehensively discussed all the authorities that were
      relevant to this issue and arrived at the correct conclusion.

      9.    We have heard learned counsel for the parties. Before  examining
      the contentions made on the both sides, it will be  necessary  to  set
      out the Finance Act, 1994 insofar  as  it  pertains  to  the  levy  of
      service tax.

      10.    Section 64. Extent, commencement and application.

           (1)   This Chapter extends to the  whole  of  India  except  the
           State of Jammu and Kashmir.

           (2)   It shall come into force  on  such  date  as  the  Central
           Government  may,  by  notification  in  the  Official   Gazette,
           appoint.

           (3)   It shall apply to taxable services provided  on  or  after
           the commencement of this Chapter.

           Section 65.  Definitions.  In this Chapter, unless  the  context
           otherwise requires, ----

           (105) “taxable service” means any service provided-

           (g)   to a client, by  a  consulting  engineer  in  relation  to
           advice, consultancy or technical assistance in any manner in one
           or more disciplines of engineering [but not in the discipline of
           computer hardware engineering or computer software engineering;

           (zzd) to a customer, by a commissioning and installation  agency
           in relation to erection, commissioning or installation;

           (zzh) to any person, by a technical testing and analysis agency,
           in relation to technical testing and analysis;

           (zzq) to any person, by a commercial  concern,  in  relation  to
           construction service;

           (zzzh) to any person,  by  any  other  person,  in  relation  to
           construction of a complex;




           Explanation : For the purposes of this sub-clause,  construction
           of a complex which is intended for sale, wholly or partly, by  a
           builder or any person authorized by the builder  before,  during
           or after construction (except in  cases  for  which  no  sum  is
           received from or on behalf  of  the  prospective  buyer  by  the
           builder or a person authorized by the builder before  the  grant
           of completion certificate by the authority  competent  to  issue
           such certificate under any law for  the  time  being  in  force)
           shall be deemed to be service provided by  the  builder  to  the
           buyer;”

           Section 66.  Charge of service tax

                 There shall be levied a tax (hereinafter  referred  to  as
           the service tax) at the rate of ten per cent. Of  the  value  of
           the taxable services referred to in sub-clauses (a),  (b),  (c),
           (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p),
           (q), (r), (s), (t), (u), (v), (w), (x), (y),  (z),  (za),  (zb),
           (zc), (zd), (ze), (zf), (zg),  (zh),  (zi),  (zj),  (zk),  (zl),
           (zm), (zn), (zo), (zq), (zr),  (zs),  (zt),  (zu),  (zv),  (zw),
           (zx), (zy), (zz), (zza),  (zzb),  (zzc),  (zzd),  (zze),  (zzf),
           (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm),  (zzn),  (zzo),
           (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv),  (zzw),  (zzx),
           and (zzy) of clause (105) of section 65 and  collected  in  such
           manner as may be prescribed.

           Section 67.  Valuation of taxable services for charging  service
           tax.-  For the purposes  of  this  Chapter,  the  value  of  any
           taxable service shall be the gross amount charged by the service
           provider for such service rendered by him.

           Explanation.1- For the removal of doubts, it is hereby  declared
           that the value of  a  taxable  service,  as  the  case  may  be,
           includes,-

        a) the aggregate of commission or brokerage charged by a broker  on
           the sale or purchase of securities including the  commission  or
           brokerage paid by the stock-broker to any sub-broker;

        b) the  adjustments  made  by  the  telegraph  authority  from  any
           deposits made by the subscriber at the time of  application  for
           telephone connection or pager or facsimile or telegraph or telex
           or for leased circuit;

        c) the amount of premium charged by the  insurer  from  the  policy
           holder;

        d) the commission  received  by  the  air  travel  agent  from  the
           airline;

        e) the commission  received  by  an  actuary,  or  intermediary  or
           insurance intermediary or insurance agent from the insurer;

        f) the reimbursement received by  the  authorized  service  station
           from manufacturer for carrying out any service of any automobile
           manufactured by such manufacturer; and

        g) the commission or any amount received by the rail  travel  agent
           from the Railways or the customer,

           but does not include, -

           (i)   initial deposit made by the  subscriber  at  the  time  of
           application for telephone connection or pager or facsimile (FAX)
           or telegraph or telex or for leased circuit:

           (ii)   the  cost  of  unexposed  photography  film,   unrecorded
           magnetic tape or such other storage devices, if any, sold to the
           client during the course of providing the service;

           (iii) the cost of parts or accessories, or consumables  such  as
           lubricants and coolants, if any, sold to the customer during the
           course of service or repair of motor cars, light  motor  vehicle
           or two wheeled motor vehicles;

           (iv)  the airfare collected by air travel agent  in  respect  0f
           service provided by him;

           (v)   the rail fare collected by rail travel agent in respect of
           service provided by him;

           (vi)  the cost of parts or other material, if any, sold  to  the
           customer during the course of providing  maintenance  or  repair
           service;

           (vii) the cost of parts or other material, if any, sold  to  the
           customer during the course of providing erection,  commissioning
           or installation service; and

           (viii)      interest on loans.




           Explanation 2. - Where the gross amount  charged  by  a  service
           provider is inclusive of  service  tax  payable,  the  value  of
           taxable service shall be such amount as with the addition of tax
           payable, is equal to the gross amount charged.”




      11.   By the Finance Act, 2007, for the first time, Section 65  (105)(
      zzzza) set out to tax the following:-

           “(zzzza)    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  pre-fabricated  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;”




      12.   Section 67 of the Finance  Act  1994  was  amended  to  read  as
      follows:-

           “Valuation of taxable services for charging Service tax –

           (1) Subject to the provisions  of  this  Chapter,   service  tax
           chargeable on any taxable service with reference  to  its  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, 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.”




      13.   Pursuant to the aforesaid, the  Service  Tax  (Determination  of
      Value) Rules, 2006 were made, Rule 2A of which reads as under:-

           “2A. Subject to the provisions  of  section  67,  the  value  of
           service portion in the execution of a works  contract,  referred
           to in clause (h) of section 66E of the Act, shall be  determined
           in the following manner, namely:-

           ?

        i) Value of service portion in the execution of  a  works  contract
           shall be equivalent to the gross amount charged  for  the  works
           contract less the value of property in goods transferred in  the
           execution of the said works contract.




           Explanation.-For the purposes of this clause,-




           (a) gross amount  charged  for  the  works  contract  shall  not
           include value added tax or sales tax, as the case may  be,  paid
           or payable, if any, on transfer of property in goods involved in
           the execution of the said works contract;




           (b) value of works contract service shall include,-




           (i) labour charges for execution of the works;

           (ii) amount paid to a sub-contractor for labour and services;

           (iii) charges for planning, designing and architect's fees;

           (iv) charges for obtaining on hire or otherwise,  machinery  and
           tools used for the execution of the works contract;

           (v) cost of consumables such as water, electricity, fuel used in
           the execution of the works contract;

           (vi) cost of establishment of the contractor relatable to supply
           of labour and services;

           (vii) other similar expenses relatable to supply of  labour  and
           services; and

           (viii) profit earned by the service provider relatable to supply
           of labour and services;




           (c) where value added tax or sales tax has been paid or  payable
           on the actual value of property  in  goods  transferred  in  the
           execution of the works contract, then, such  value  adopted  for
           the purposes of payment of value added tax or sales  tax,  shall
           be taken as the value of property in goods  transferred  in  the
           execution of the said works contract for  determination  of  the
           value of service portion in the

           execution of works contract under this clause.




           (ii) Where the value has not been determined under  clause  (i),
           the person liable to pay tax on the service portion involved  in
           the execution of the works contract shall determine the  service
           tax payable in the following manner, namely:-




        A) in case  of  works  contracts  entered  into  for  execution  of
           original works, service tax shall be payable on forty  per  cent
           of the total amount charged for the works contract;

           (B) in case of works contract entered into  for  maintenance  or
           repair or reconditioning or  restoration  or  servicing  of  any
           goods, service tax shall be payable on seventy  per cent of  the
           total amount charged for the works contract;

           (C) in case of other works contracts,  not  covered  under  sub-
           clauses (A) and (B) including  maintenance,  repair,  completion
           and finishing services such as glazing,  plastering,  floor  and
           wall  tiling,  installation  of  electrical   fittings   of   an
           immovable' property, service tax shall be payable on  sixty  per
           cent of the total amount charged for the works contract.




           Explanation I.-For the purposes of this rule,-




           (a) "original works" means-




           (l) all new constructions;




           (ii) all types of additions  and  alterations  to  abandoned  or
           damaged structures on  land  that  are  required  to  make  them
           workable;




           (iii)  erection,  commissioning  or   installation   of   plant,
           machinery or equipment or structures, whether pre-fabricated  or
           otherwise;




           (d) "total amount" means the  sum  total  of  the  gross  amount
           charged for the works contract and the fair market value of  all
           goods and services supplied in or in relation to  the  execution
           of the works contract, whether or not supplied  under  the  same
           contract or any other contract, after deducting-




           (i) the amount charged for such goods or services, if any; and




           (ii) the value added tax or sales tax, if any, levied thereon:




           Provided that the fair market value of  goods  and  services  so
           supplied may be determined  in  accordance  with  the  generally
           accepted accounting principles.

           Explanation 2.-For the removal of doubts, it is  clarified  that
           the provider of taxable service shall not take CENVAT credit  of
           duties or cess paid on any inputs, used in or in relation to the
           said works contract,  under  the  provisions  of  CENVAT  Credit
           Rules, 2004.”[2]




      14.   Crucial to the understanding and determination of the  issue  at
      hand is the second Gannon Dunkerley  judgment  which  is  reported  in
      (1993) 1 SCC 364.  By the aforesaid judgment, the modalities of taxing
      composite indivisible works contracts was gone into. This Court said:-

           “On behalf of the contractors, it has been urged  that  under  a
           law imposing a tax on the transfer of property in goods involved
           in the execution of a works contract under Entry 54 of the State
           List read with Article 366(29-A)(b), the tax is imposed  on  the
           goods which are involved in the execution of  a  works  contract
           and the measure for levying such a tax can only be the value  of
           the goods so involved and the value of the works contract cannot
           be made the measure for  levying  the  tax.  The  submission  is
           further that the value of  such  goods  would  be  the  cost  of
           acquisition of the goods by the contractor and,  therefore,  the
           measure for levy of tax can only be the cost at which the  goods
           involved in the execution of a works contract were  obtained  by
           the contractor. On behalf of the States, it has  been  submitted
           that since the property in  goods  which  are  involved  in  the
           execution of a works contract passes only  when  the  goods  are
           incorporated in the works, the measure for the levy of  the  tax
           would  be  the  value  of  the  goods  at  the  time  of   their
           incorporation in the works as well as the cost of  incorporation
           of the goods  in  the  works.  We  are  in  agreement  with  the
           submission that measure for the levy of the tax contemplated  by
           Article 366(29-A)(b) is the value of the goods involved  in  the
           execution  of  a  works  contract.  In   Builders'   Association
           case [(1989) 2 SCC 645 : 1989 SCC (Tax) 317 : (1989) 2 SCR  320]
           it has been pointed out that  in  Article  366(29-A)(b),  “[t]he
           emphasis is on the transfer  of  property in  goods (whether  as
           goods or in some other form)”. (SCC p.  669,  para  32:  SCR  p.
           347). This indicates that though  the  tax  is  imposed  on  the
           transfer of property in goods involved in  the  execution  of  a
           works contract, the measure for levy of such imposition  is  the
           value of  the  goods  involved  in  the  execution  of  a  works
           contract. We are, however, unable to agree with  the  contention
           urged on behalf of the contractors that the value of such  goods
           for levying the tax can be assessed only on  the  basis  of  the
           cost of acquisition of the goods by the  contractor.  Since  the
           taxable event is the transfer of property in goods  involved  in
           the execution of a works  contract  and  the  said  transfer  of
           property  in  such  goods  takes  place  when  the   goods   are
           incorporated in the works, 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
           the works and not the cost of acquisition of the  goods  by  the
           contractor. We are also unable to accept the contention urged on
           behalf of the States that in addition to the value of the  goods
           involved in the execution of the  works  contract  the  cost  of
           incorporation of the goods in the works can be included  in  the
           measure for levy of tax. Incorporation of the goods in the works
           forms part of the contract relating to work and labour which  is
           distinct from the contract for transfer  of  property  in  goods
           and, therefore, the cost of incorporation of the  goods  in  the
           works cannot be made a part of  the  measure  for  levy  of  tax
           contemplated by Article 366(29-A)(b).


             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. This would mean that labour charges for  execution  of
           works, [item No. (i)], amounts  paid  to  a  sub-contractor  for
           labour and services  [item  No.  (ii)],  charges  for  planning,
           designing and architect's fees [item  No.  (iii)],  charges  for
           obtaining on hire or otherwise machinery and tools used  in  the
           execution of a works contract [item No. (iv)], and the  cost  of
           consumables such as water, electricity,  fuel,  etc.  which  are
           consumed in the process of execution of a works  contract  [item
           No. (v)] and other similar expenses for labour and services will
           have to  be  excluded  as  charges  for  supply  of  labour  and
           services.  The  charges  mentioned  in  item  No.  (vi)  cannot,
           however, be excluded. The position of a contractor  in  relation
           to a transfer of property in goods in the execution of  a  works
           contract is not different from that of a dealer in goods who  is
           liable to pay sales tax on the sale price charged  by  him  from
           the customer for the goods sold. The  said  price  includes  the
           cost of bringing the goods to the place of sale. Similarly,  for
           the purpose  of  ascertaining  the  value  of  goods  which  are
           involved in the execution of a works contract for the purpose of
           imposition of tax, the cost of transportation of  the  goods  to
           the place of works has to be taken as part of the value  of  the
           said goods. The charges mentioned in item No.  (vii)  relate  to
           the  various  expenses  which  form  part   of   the   cost   of
           establishment  of  the  contractor.  Ordinarily  the   cost   of
           establishment is included in the sale price charged by a  dealer
           from the customer for the goods sold. Since  a  composite  works
           contract involves supply of  materials  as  well  as  supply  of
           labour and services, the cost of establishment of the contractor
           would have to be apportioned between the part  of  the  contract
           involving supply of materials and the part involving  supply  of
           labour and services. The cost of establishment of the contractor
           which is relatable to supply of labour and  services  cannot  be
           included in the value of the goods involved in the execution  of
           a contract and the cost of establishment which is  relatable  to
           supply of material  involved  in  the  execution  of  the  works
           contract only can be included in the value of the goods. Similar
           apportionment will have to be made in respect of item No. (viii)
           relating to profits. The profits  which  are  relatable  to  the
           supply of materials can be included in the value  of  the  goods
           and the profits which are relatable  to  supply  of  labour  and
           services will have to be excluded. This means that in respect of
           charges mentioned in item Nos. (vii) and  (viii),  the  cost  of
           establishment of the contractor as well as the profit earned  by
           him to the extent the same are relatable to supply of labour and
           services will have to be  excluded.  The  amount  so  deductible
           would have to be determined in the  light  of  the  facts  of  a
           particular case on the basis of the  material  produced  by  the
           contractor. 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—
           (a) Labour charges for execution of the works;
           (b) amount paid to a sub-contractor for labour and services;
           (c) charges for planning, designing and architect's fees;
           (d) charges for obtaining on hire  or  otherwise  machinery  and
           tools used for the execution of the works contract;
           (e) 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; and
           (f) cost of establishment of the contractor to the extent it  is
           relatable to supply of labour and services;
           (g) other similar expenses relatable to  supply  of  labour  and
           services;
           (h) profit  earned  by  the  contractor  to  the  extent  it  is
           relatable to supply of labour and services.
           The amounts  deductible  under  these  heads  will  have  to  be
           determined in the light of the facts of a particular case on the
           basis of the material produced by the contractor.


               Normally, the contractor will be in a  position  to  furnish
           the necessary material  to  establish  the  expenses  that  were
           incurred under the aforesaid heads of deduction for  labour  and
           services. But there may be cases where the  contractor  has  not
           maintained proper accounts or the accounts maintained by him are
           not found to be worthy of credence by the  assessing  authority.
           In that event, a question would arise as to  how  the  deduction
           towards the aforesaid heads  may  be  made.  On  behalf  of  the
           States, it has been urged that it would be permissible  for  the
           State to prescribe a formula on the basis of a fixed  percentage
           of the value of the contract  as  expenses  towards  labour  and
           services and the same may be deducted  from  the  value  of  the
           works contract and that the said formula need not be uniform for
           all works contracts and may depend on the nature  of  the  works
           contract. We find merit in this submission. In cases  where  the
           contractor does not maintain proper  accounts  or  the  accounts
           maintained by him are not found worthy of credence it would,  in
           our view, be permissible for the State legislation to  prescribe
           a formula for determining the charges for labour and services by
           fixing a  particular  percentage  of  the  value  of  the  works
           contract and to allow deduction of the  amount  thus  determined
           from the  value  of  the  works  contract  for  the  purpose  of
           determining the value of the goods involved in the execution  of
           the works contract. It must, however, be ensured that the amount
           deductible under the formula that is  prescribed  for  deduction
           towards  charges  for  labour  and  services  does  not   differ
           appreciably from the expenses for labour and services that would
           be  incurred  in  normal  circumstances  in  respect   of   that
           particular type of works contract. Since the expenses for labour
           and services would depend on the nature of  the  works  contract
           and would not be the same for all types of works  contracts,  it
           would be permissible, indeed  necessary,  to  prescribe  varying
           scales for deduction on account of cost of labour  and  services
           for various types of works contracts.”(at paras 45, 47 and 49)




      15.   A reading of this judgment, on which counsel for  the  assessees
      heavily relied, would go to show that the separation of the  value  of
      goods contained in the execution of a works contract will have  to  be
      determined  by working from the value of the entire works contract and
      deducting  therefrom  charges  towards  labour  and   services.   Such
      deductions are stated by the Constitution Bench to be eight in number.
        What is important in particular is the deductions which  are  to  be
      made under sub-paras (f), (g) and (h). Under each of  these  paras,  a
      bifurcation has to be made by the charging Section itself so that  the
      cost of establishment of the contractor is  bifurcated  into  what  is
      relatable to supply of labour  and  services.  Similarly,   all  other
      expenses have also to be bifurcated insofar as they are  relatable  to
      supply of labour and services, and the same goes for the  profit  that
      is earned by the contractor.  These deductions are  ordinarily  to  be
      made from the contractor’s accounts. However,  if  it  is  found  that
      contractors have not maintained proper accounts, or their accounts are
      found to be not worthy of credence, it is left to the  legislature  to
      prescribe a formula on the basis of a fixed percentage of the value of
      the entire works contract as  relatable  to  the  labour  and  service
      element of it.  This judgment,  therefore,  clearly  and  unmistakably
      holds that unless the splitting of an indivisible  works  contract  is
      done taking into account the eight heads of deduction, the  charge  to
      tax that would be made  would  otherwise  contain,  apart  from  other
      things, the entire cost of establishment, other expenses,  and  profit
      earned by the contractor and would transgress into forbidden territory
      namely into such portion of such cost, expenses and profit as would be
      attributable in the works contract to  the  transfer  of  property  in
      goods in such contract. This being the case, we feel that the  learned
      counsel for the assessees are on firm ground when they state that  the
      service tax charging section itself must  lay  down  with  specificity
      that the levy of service tax can only be on works contracts,  and  the
      measure of tax can only be on that portion of  works  contracts  which
      contain a service element which is to be derived from the gross amount
      charged for the works contract less the value  of  property  in  goods
      transferred in the execution of the works contract.  This  not  having
      been done by the Finance Act, 1994, it is clear that any charge to tax
      under the five  heads in Section 65(105) noticed above would  only  be
      of service contracts simpliciter and not composite  indivisible  works
      contracts.

      16.   At this stage, it is important to note the  scheme  of  taxation
      under our Constitution. In the lists contained in the 7th Schedule  to
      the Constitution, taxation entries are to be found only in lists I and
      II.  This is  for  the  reason  that  in  our  Constitutional  scheme,
      taxation powers of the Centre and the States are  mutually  exclusive.
      There is no concurrent power of taxation.  This being  the  case,  the
      moment the levy contained in a  taxing  statute  transgresses  into  a
      prohibited exclusive field, it is liable to be struck  down.   In  the
      present case, the dichotomy is  between  sales  tax  leviable  by  the
      States and service tax leviable by  the  Centre.   When  it  comes  to
      composite indivisible works contracts, such contracts can be taxed  by
      Parliament as well as State legislatures.  Parliament can only tax the
      service element contained in these contracts, and the States can  only
      tax the transfer of property  in  goods  element  contained  in  these
      contracts.  Thus, it becomes  very  important  to  segregate  the  two
      elements completely for if some element of  transfer  of  property  in
      goods remains when a service tax is levied, the  said  levy  would  be
      found to be constitutionally infirm.  This position is well  reflected
      in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1,  as
      follows:-

           “No one denies the legislative competence of the States to  levy
           sales tax on sales provided that the necessary concomitants of a
           sale are present in the transaction and the sale  is  distinctly
           discernible in the transaction. This 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.   As   was   said   in Larsen   &
           Toubro v. Union of India[(1993) 1 SCC 364] : (SCC p.  395,  para
           47) :-

“The cost of establishment of the contractor which is relatable to supply
of labour and services cannot be included in the value of the goods
involved in the execution of a contract and the cost of establishment which
is relatable to supply of material involved in the execution of the works
contract only can be included in the value of the goods.”



             For the same reason the Centre cannot include the value of the
           SIM cards, if they are found ultimately to be goods, in the cost
           of the service. As was held by  us  in  Gujarat  Ambuja  Cements
           Ltd. v. Union of India [(2005) 4 SCC 214] , SCC at p. 228,  para
           23:-

“This mutual exclusivity which has been reflected in Article 246(1) means
that taxing entries must be construed so as to maintain exclusivity.
Although generally speaking, a liberal interpretation must be given to
taxing entries, this would not bring within its purview a tax on subject-
matter which a fair reading of the entry does not cover. If in substance,
the statute is not referable to a field given to the State, the court will
not by any principle of interpretation allow a statute not covered by it to
intrude upon this field.” (at paras 88 and 89)




      17.   We find that the assessees are correct in their submission  that
      a works contract is a  separate  species  of  contract  distinct  from
      contracts for services simpliciter recognized by the world of commerce
      and law as such, and has to be taxed separately  as  such.  In  Gannon
      Dunkerley, 1959 SCR 379, this Court  recognized works contracts  as  a
      separate species of contract as follows:–

           “To avoid misconception,  it  must  be  stated  that  the  above
           conclusion has reference to works contracts,  which  are  entire
           and indivisible, as the contracts of the respondents  have  been
           held by the learned Judges of the Court below to be. The several
           forms which such kinds of  contracts  can  assume  are  set  out
           in Hudson on Building Contracts, at p. 165. It is possible  that
           the parties might enter into distinct  and  separate  contracts,
           one for the transfer of materials for money  consideration,  and
           the other for payment of remuneration for services and for  work
           done. In such a case, there are really  two  agreements,  though
           there is a single instrument embodying them, and  the  power  of
           the State to separate the agreement to sell, from the  agreement
           to do work and render service and to impose a tax thereon cannot
           be  questioned,  and  will  stand  untouched  by   the   present
           judgment.” (at page 427)


      18.   Similarly, in Kone Elevator India (P) Ltd.  v.  State  of  T.N.,
      (2014) 7 SCC 1, this Court held:-
           “Coming to the stand and stance of the State of Haryana, as  put
           forth by Mr Mishra, the same suffers from two  basic  fallacies,
           first, the supply and installation of  lift  treating  it  as  a
           contract for sale on the basis  of  the  overwhelming  component
           test, because there is a stipulation in the  contract  that  the
           customer is obliged to undertake the work of civil  construction
           and the bulk of the material used in construction belongs to the
           manufacturer, is not correct, as the subsequent discussion would
           show; and second, the Notification dated 17-5-2010 issued by the
           Government of Haryana, Excise and Taxation  Department,  whereby
           certain rules of the Haryana Value Added Tax  Rules,  2003  have
           been  amended  and  a  table  has  been  annexed  providing  for
           “Percentages for Works Contract and Job Works” under the heading
           “Labour, service and other like charges as percentage  of  total
           value of  the  contract”  specifying  15%  for  fabrication  and
           installation of  elevators  (lifts)  and  escalators,  is  self-
           contradictory, for once it is treated as  a  composite  contract
           invoking labour and service, as a natural corollary, it would be
           works contract and not a contract for sale.  To  elaborate,  the
           submission that  the  element  of  labour  and  service  can  be
           deducted from the total  contract  value  without  treating  the
           composite contract as a works contract is absolutely fallacious.
           In fact, it is an innovative  subterfuge.  We  are  inclined  to
           think so as it would be frustrating the constitutional provision
           and, accordingly, we unhesitatingly repel the  same.”  (at  para
           60)




      19.    In Larsen & Toubro Ltd. v. State of  Karnataka,  (2014)  1  SCC
      708, this Court stated:-

           “In our opinion, the term “works contract”  in  Article  366(29-
           A)(b) is amply wide and  cannot  be  confined  to  a  particular
           understanding of the term or to  a  particular  form.  The  term
           encompasses  a  wide  range  and  many  varieties  of  contract.
           Parliament had such wide meaning of “works contract” in its view
           at  the  time  of  the  Forty-sixth  Amendment.  The  object  of
           insertion of clause (29-A) in Article 366  was  to  enlarge  the
           scope of the expression “tax on sale or purchase of  goods”  and
           overcome Gannon   Dunkerley   (1) [State   of   Madras v. Gannon
           Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379]
           . Seen thus, even if in a contract, besides the  obligations  of
           supply of goods and materials  and  performance  of  labour  and
           services, some additional obligations are imposed, such contract
           does not cease to be works contract. The additional  obligations
           in the contract would not alter the nature of contract  so  long
           as the contract provides for a contract for works and  satisfies
           the  primary   description   of   works   contract.   Once   the
           characteristics or elements of works contract are satisfied in a
           contract  then  irrespective  of  additional  obligations,  such
           contract would be covered by the term “works contract”.  Nothing
           in Article 366(29-A)(b) limits  the  term  “works  contract”  to
           contract for labour  and  service  only.  The  learned  Advocate
           General for Maharashtra was right in  his  submission  that  the
           term “works contract”  cannot  be  confined  to  a  contract  to
           provide labour and services but is a contract for undertaking or
           bringing into existence some “works”. We are also  in  agreement
           with the submission  of  Mr  K.N.  Bhat  that  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.  Parliament
           had all genre of works contract in view when clause  (29-A)  was
           inserted in Article 366.” (at para 72)




      20.   We also find that the  assessees’  argument  that  there  is  no
      charge to tax of works contracts in the Finance Act, 1994  is  correct
      in view of what has been stated above.

      21.   This Court in Mathuram Agrawal v. State of M.P.,  (1999)  8  SCC
      667, held:-

           “Another  question  that  arises  for  consideration   in   this
           connection is whether sub-section (1) of Section 127-A  and  the
           proviso to sub-section (2)(b) should be construed  together  and
           the annual letting values of all the buildings owned by a person
           to be taken together for determining the amount to  be  paid  as
           tax in respect of each building. In  our  considered  view  this
           position cannot be accepted. The intention of the legislature in
           a taxation statute is to be gathered from the  language  of  the
           provisions  particularly  where  the  language  is   plain   and
           unambiguous. In a taxing Act it is not possible  to  assume  any
           intention or governing purpose of the statute more than what  is
           stated in the plain language. It is  not  the  economic  results
           sought to be obtained by making the provision which is  relevant
           in interpreting a fiscal statute. Equally  impermissible  is  an
           interpretation which does not follow from the plain, unambiguous
           language of the statute. Words cannot be added to or substituted
           so as to give a meaning to the  statute  which  will  serve  the
           spirit and intention of  the  legislature.  The  statute  should
           clearly and unambiguously convey the three components of the tax
           law i.e. the subject of the tax, the person who is liable to pay
           the tax and the rate at which the tax is to be paid. If there is
           any ambiguity regarding any of these ingredients in  a  taxation
           statute then there is  no  tax  in  law.  Then  it  is  for  the
           legislature to do the needful in the matter.


              This  construction,  in  our  considered  view,  amounts   to
           supplementing the charging section by including something  which
           the provision does not state. The  construction  placed  on  the
           said provision does not flow from  the  plain  language  of  the
           provision. The proviso requires  the  exempted  property  to  be
           subjected to tax and for the purpose of  valuing  that  property
           alone the value of the other properties  is  to  be  taken  into
           consideration. But, if in doing so, the  said  property  becomes
           taxable, the Act does not provide  at  what  rate  it  would  be
           taxable. One cannot determine the rateable value  of  the  small
           property  by  aggregating  and  adding  the   value   of   other
           properties, and arrive at a figure which is more  than  possibly
           the value of the property itself. Moreover, what rate of tax  is
           to be applied to such a property is  also  not  indicated.”  (at
           paras 12 and 16)



      22.   Equally, this Court in Govind Saran Ganga  Saran  v.  CST,  1985
      Supp SCC 205, held:-
           “The components which enter into the concept of a tax  are  well
           known. The first is the character of the imposition known by its
           nature which prescribes the taxable event attracting  the  levy,
           the second is a clear indication of the person on whom the  levy
           is imposed and who is obliged to pay the tax, the third  is  the
           rate at which the tax is imposed, and the fourth is the  measure
           or value to which the rate will be applied for computing the tax
           liability. If those components are not  clearly  and  definitely
           ascertainable, it is difficult to say that the  levy  exists  in
           point of law. Any uncertainty or vagueness  in  the  legislative
           scheme defining any of those components  of  the  levy  will  be
           fatal to its validity.” (at para 6)




      23.   To similar effect is  this  Court’s  judgment  in  CIT  v.  B.C.
      Srinivasa Setty, (1981) 2 SCC 460, held:-

           “Section 45 charges  the  profits  or  gains  arising  from  the
           transfer of a capital asset to income tax. The asset must be one
           which falls within the contemplation of  the  section.  It  must
           bear  that  quality  which  brings  Section  45  into  play.  To
           determine whether the goodwill of a  new  business  is  such  an
           asset, it is permissible, as we shall presently show,  to  refer
           to certain other sections of the head, “Capital gains”.  Section
           45 is a charging  section.  For  the  purpose  of  imposing  the
           charge. Parliament has enacted detailed provisions in  order  to
           compute the profits  or  gains  under  that  head.  No  existing
           principle or provision at variance with them can be applied  for
           determining the chargeable profits and gains.  All  transactions
           encompassed by Section 45 must fall under the governance of  its
           computation provisions. A transaction to which those  provisions
           cannot be applied must be regarded as never intended by  Section
           45 to be the subject of the charge. This  inference  flows  from
           the general arrangement of the provisions in the Income Tax Act,
           where under each  head  of  income  the  charging  provision  is
           accompanied by a set of  provisions  for  computing  the  income
           subject  to  that  charge.  The  character  of  the  computation
           provisions in each case bears a relationship to  the  nature  of
           the charge.  Thus  the  charging  section  and  the  computation
           provisions together constitute an integrated code. When there is
           a case to which the computation provisions cannot apply at  all,
           it is evident that such a case was not intended to  fall  within
           the charging section. Otherwise one would be driven to  conclude
           that while a certain income seems to fall  within  the  charging
           section there is no scheme of computation  for  quantifying  it.
           The legislative pattern discernible in the Act is against such a
           conclusion. It must be borne in mind that the legislative intent
           is presumed to run uniformly through the  entire  conspectus  of
           provisions pertaining to each head of income. No doubt there  is
           a qualitative difference between the charging  provision  and  a
           computation provision.  And  ordinarily  the  operation  of  the
           charging provision cannot be affected by the construction  of  a
           particular computation  provision.  But  the  question  here  is
           whether it is possible to apply the computation provision at all
           if  a  certain  interpretation  is  pressed  on   the   charging
           provision. That pertains to the fundamental integrality  of  the
           statutory scheme provided for each head.” (at para 10)




      24.   A close look at the Finance Act, 1994 would show that  the  five
      taxable services referred to in the  charging  Section  65(105)  would
      refer only to service contracts simpliciter and not to composite works
      contracts. This is clear from the very  language  of  Section  65(105)
      which defines “taxable service” as “any service provided”.    All  the
      services referred to in the said  sub-clauses  are  service  contracts
      simpliciter without any other element in them, such as for example,  a
      service  contract  which  is  a  commissioning  and  installation,  or
      erection, commissioning  and  installation  contract.  Further,  under
      Section 67, as has been pointed out above,  the  value  of  a  taxable
      service is the gross amount charged by the service provider  for  such
      service rendered by him.  This would unmistakably show  that  what  is
      referred to in the charging  provision  is  the  taxation  of  service
      contracts simpliciter and not composite works contracts, such  as  are
      contained on the facts of the present cases.  It will also be  noticed
      that no attempt to remove the non-service elements from the  composite
      works contracts has been made by any  of  the  aforesaid  Sections  by
      deducting from the gross value of the  works  contract  the  value  of
      property in goods transferred in the execution of a works contract.

      25.   In fact, by way of contrast, Section 67 post amendment  (by  the
      Finance Act, 2006) for the first time prescribes, in  cases  like  the
      present, where the provision of service is for a  consideration  which
      is not ascertainable, to be the amount as may  be  determined  in  the
      prescribed  manner.

      26.   We have already seen that Rule  2(A)  framed  pursuant  to  this
      power has followed the second Gannon Dunkerley case in segregating the
      ‘service’ component of a works contract from  the  ‘goods’  component.
      It begins by working downwards from the gross amount charged  for  the
      entire works contract and minusing from it the value of  the  property
      in goods transferred in the execution of such works contract.  This is
      done by adopting the value that is adopted for the purpose of  payment
      of VAT.  The rule goes on to say that the  service  component  of  the
      works contract is to include the  eight  elements  laid  down  in  the
      second Gannon Dunkerley case including apportionment of  the  cost  of
      establishment,  other  expenses  and  profit  earned  by  the  service
      provider as is relatable only to supply of labour and  services.  And,
      where  value  is  not  determined  having  regard  to  the   aforesaid
      parameters, (namely, in those cases where the books of account of  the
      contractor are not looked into for  any  reason)   by  determining  in
      different works contracts how much shall  be  the  percentage  of  the
      total amount charged for  the  works  contract,  attributable  to  the
      service element in such contracts. It is this scheme and  this  scheme
      alone which complies  with  constitutional  requirements  in  that  it
      bifurcates a composite indivisible works contract and  takes  care  to
      see that no element attributable to the property in goods  transferred
      pursuant to such contract, enters into computation of service tax.

      27.   In fact, the speech made by  the  Hon’ble  Finance  Minister  in
      moving  the  Bill  to  tax  Composite  Indivisible   Works   Contracts
      specifically stated:-

           “State Governments levy a tax on the  transfer  of  property  in
           goods involved in the execution of a works contract.  The  value
           of services in a works  contract  should  attract  service  tax.
           Hence, I propose to levy service tax on services involved in the
           execution of a  works  contract.  However,  I  also  propose  an
           optional composition scheme under  which  service  tax  will  be
           levied at only 2 per cent  of  the  total  value  of  the  works
           contract.”




      28.   Pursuant to the aforesaid  speech,  not  only  was  the  statute
      amended and rules framed, but a Works Contract (Composition Scheme for
      Payment of Service Tax) Rules, 2007 was also notified in which service
      providers could opt to pay service tax at percentages ranging  from  2
      to 4 of the gross value of the works contract.

      29.   It is interesting to note that while introducing the concept  of
      service tax on indivisible works contracts various exclusions are also
      made such as works contracts in respect of  roads,  airports,  airways
      transport, bridges, tunnels, and dams.  These infrastructure  projects
      have been excluded and continue to be excluded presumably because they
      are conceived in the national interest.  If learned  counsel  for  the
      revenue were right, each of these excluded works  contracts  could  be
      taxed under the five sub-heads of Section 65(105)   contained  in  the
      Finance Act,  1994.  For  example,  a  works  contract  involving  the
      construction of a bridge or dam or tunnel would presumably fall within
      Section  65(105)(zzd)  as  a  contract  which  relates  to   erection,
      commissioning or installation.  It is clear that such  contracts  were
      never intended to be the  subject  matter  of  service  tax.  Yet,  if
      learned counsel for the revenue is right, such  contracts,  not  being
      exempt under the Finance Act, 1994, would fall within  its  tentacles,
      which was never the intention of Parliament.

      30.   It now remains to consider the judgment of the Delhi High  Court
      in G.D. Builders.

      31.   In the aforesaid judgment, it was held that the levy of  service
      tax in Section 65(105)(g), (zzd), (zzh),  (zzq)  and  (zzzh)  is  good
      enough  to  tax  indivisible  composite  works   contracts.    Various
      judgments were referred to which have no direct bearing on  the  point
      at issue.  In  paragraph  23  of  this  judgment,  the  second  Gannon
      Dunkerley judgment is referred to in passing without noticing  any  of
      the key paragraphs set out hereinabove in our judgment.  Also, we find
      that the judgment in G.D. Builders (supra) went on to quote  from  the
      judgment in Mahim Patram Private Ltd.  v. Union of India, 2007 (3) SCC
      668, to arrive at the proposition that even when rules are not  framed
      for computation of tax, tax would be leviable.

      32.   We are afraid that the Delhi High Court completely  misread  the
      judgment in Mahim Patram’s case.  This judgment concerned itself  with
      works contracts being taxed under the Central Sales Tax Act. What  was
      argued in that case was that in the absence  of  any  rule  under  the
      provisions of the Central Act, the determination of sale  price  would
      be left to the whims and fancies  of  the  assessing  authority.  This
      argument was repelled by this Court after setting  out  Sections  2(g)
      and 2(ja), which define “sale” and “works contract”.  The  Court  then
      went on to discuss Sections 9(2) and 13(3) of the  Central  Sales  Tax
      Act. Section 9(2) of the Central Sales Tax Act provides:-

           “Section 9. Levy and collection of tax and penalties.—

              (2) Subject to the other provisions of this Act and the rules
           made thereunder, the authorities for the time being empowered to
           assess, reassess, collect and enforce payment of any  tax  under
           the general sales tax law of the  appropriate  State  shall,  on
           behalf of the Government of India, assess, reassess, collect and
           enforce payment of  tax,  including  any  interest  or  penalty,
           payable by a dealer under this Act as if the tax or interest  or
           penalty payable by such a dealer under this  Act  is  a  tax  or
           interest or penalty payable under the general sales tax  law  of
           the State; and for this purpose they may exercise all or any  of
           the powers they have under the general  sales  tax  law  of  the
           State; and the provisions  of  such  law,  including  provisions
           relating to returns, provisional assessment, advance payment  of
           tax, registration of the transferee of any business,  imposition
           of the tax liability of a person carrying  on  business  on  the
           transferee of, or  successor  to,  such  business,  transfer  of
           liability of any firm or Hindu undivided family to  pay  tax  in
           the event of the dissolution of such firm or partition  of  such
           family, recovery of tax from third  parties,  appeals,  reviews,
           revisions, references, refunds, rebates, penalties, charging  or
           payment of interest, compounding of offences  and  treatment  of
           documents furnished by a dealer  as  confidential,  shall  apply
           accordingly:


              Provided that if in any State or part  thereof  there  is  no
           general sales tax law in force, the Central Government  may,  by
           rules made in this behalf make necessary provision  for  all  or
           any of the matters specified in this sub-section.”


      33.   Section 13(3) of the Central Sales Tax Act says:-

           “The State Government may make rules, not inconsistent with  the
           provisions of this Act and the rules made under sub-section (1),
           to carry out the purposes of this Act.”




      34.   In the aforesaid judgment it was found that Section 9(2) of  the
      Central Sales Tax Act conferred powers  on  officers  of  the  various
      States to utilize the machinery provisions of the  States’  sales  tax
      statutes for purposes of levy and  assessment  of  central  sales  tax
      under the Central Act.  It was also noticed that the State  Government
      itself had been given power to make rules to carry out the purposes of
      the Central Act so long as the said rules were not  inconsistent  with
      the provisions of the Central Act.  It was found that,  in  fact,  the
      State of Uttar Pradesh had framed such rules  in  exercise  of  powers
      under Section 13(3) of the Central  Act  as  a  result  of  which  the
      necessary machinery for the assessment of central sales tax was  found
      to be there. The Delhi High Court judgment unfortunately  misread  the
      aforesaid judgment of this Court to arrive at the conclusion  that  it
      was an authority for the proposition that a tax is leviable even if no
      rules are  framed  for  assessment  of  such  tax,   which  is  wholly
      incorrect.  The  extracted  passage  from  Mahim  Patram’s  case  only
      referred to rules not being framed under the Central Act  and  not  to
      rules not being framed at all. The conclusion therefore  in  paragraph
      36(2) of the Delhi High Court judgment is wholly incorrect. Para 36(2)
      reads as follows:-

           “(2) Service tax can be levied on the service component  of  any
           contract involving service with sale of goods  etc.  Computation
           of service component is a matter of  detail  and  not  a  matter
           relating to  validity  of  imposition  of  service  tax.  It  is
           procedural and a matter of calculation. Merely because no  rules
           are framed for computation, it does not follow that  no  tax  is
           leviable.” [at para 36]




      35.   The aforesaid finding is in fact contrary  to  a  long  line  of
      decisions which have  held  that  where  there  is  no  machinery  for
      assessment, the law being vague, it would be  open  to  the  assessing
      authority to arbitrarily assess to tax the subject. Various  judgments
      of this Court have been referred to in  the  following  passages  from
      Heinz India (P) Ltd. v. State of U.P., (2012) 5 SCC  443.  This  Court
      said:-

           “This Court has in a long line of decisions rendered  from  time
           to time, emphasised the importance of machinery  provisions  for
           assessment of taxes and fees recoverable under a taxing statute.
           In one of the earlier decisions on the  subject  a  Constitution
           Bench of this Court in K.T. Moopil Nair v. State of  Kerala [AIR
           1961  SC  552]  examined  the  constitutional  validity  of  the
           Travancore-Cochin Land Tax Act (15 of 1955).  While  recognising
           what is now well-settled principle of law that a taxing  statute
           is not wholly immune from attack on the ground that it infringes
           the equality clause in Article 14, this  Court  found  that  the
           enactment in  question  was  violative  of  Article  14  of  the
           Constitution for inequality  was  writ  large  on  the  Act  and
           inherent  in  the  very  provisions  under  the  taxing  section
           thereof. Having said so, this Court also noticed  that  the  Act
           was silent as to the machinery and the procedure to be  followed
           in making the assessment. It was left to the executive to evolve
           the requisite machinery and procedure thereby making  the  whole
           thing, from beginning to end, purely administrative in character
           completely ignoring the legal position that the assessment of  a
           tax on person or property is a quasi-judicial exercise.”


              Speaking for the majority  Sinha,  C.J.  said:  (K.T.  Moopil
           case [AIR 1961 SC 552] , AIR p. 559, para 9)
              “9. … Ordinarily,  a  taxing  statute  lays  down  a  regular
           machinery for making  assessment  of  the  tax  proposed  to  be
           imposed by the statute. It lays down detailed  procedure  as  to
           notice to the proposed assessee to make a return in  respect  of
           property proposed to be taxed, prescribes the authority and  the
           procedure for  hearing  any  objections  to  the  liability  for
           taxation or as to the extent of the tax proposed to  be  levied,
           and finally, as to the right  to  challenge  the  regularity  of
           assessment made, by recourse to proceedings in  a  higher  civil
           court. The Act merely declares the competence of the  Government
           to make a provisional assessment, and by virtue of Section 3  of
           the Madras Revenue Recovery Act, 1864, the  landholders  may  be
           liable to pay the tax. The Act being silent as to the  machinery
           and procedure to be followed in making the assessment leaves  it
           to  the  Executive  to  evolve  the  requisite   machinery   and
           procedure. The whole thing, from beginning to end, is treated as
           of a purely administrative character,  completely  ignoring  the
           legal position that  the  assessment  of  a  tax  on  person  or
           property  is  at   least   of   a   quasi-judicial   character.”
                                (emphasis supplied)




              In Rai Ramkrishna v. State of Bihar [AIR 1963 SC  1667]  this
           Court was examining the constitutional  validity  of  the  Bihar
           Taxation on Passengers and  Goods  (Carried  by  Public  Service
           Motor Vehicles) Act, 1961. Reiterating the  view  taken  in K.T.
           Moopil Nair [AIR 1961 SC 552] this Court held that a statute  is
           not beyond the pale of limitations prescribed by Articles 14 and
           19 of the Constitution  and  that  the  test  of  reasonableness
           prescribed by Article 304(b) is justiciable. However,  in  cases
           where the statute was completely discriminatory or  provides  no
           procedural machinery for assessment and levy of tax or where  it
           was confiscatory, the Court would be justified  in  striking  it
           down as unconstitutional. In such cases  the  character  of  the
           material provisions of the impugned statute may be such  as  may
           justify the Court taking the view that in substance  the  taxing
           statute is a cloak adopted by the legislature for achieving  its
           confiscatory purpose.

             In Jagannath Baksh Singh v. State of U.P. [AIR 1962  SC  1563]
           this Court was examining the constitutional validity of the U.P.
           Large Land Holdings Tax Act  (31  of  1957).  Dealing  with  the
           argument that the Act did not make a  specific  provision  about
           the machinery for assessment or  recovery  of  tax,  this  Court
           held: (AIR pp. 1570-71, para 17)

              “17. … if a taxing statute makes no specific provision  about
           the machinery to recover tax  and  the  procedure  to  make  the
           assessment of the tax and leaves it entirely to the executive to
           devise such machinery as it thinks fit  and  to  prescribe  such
           procedure as appears to it to be fair, an occasion may arise for
           the courts to consider whether the  failure  to  provide  for  a
           machinery and to prescribe a procedure does not tend to make the
           imposition of the tax an  unreasonable  restriction  within  the
           meaning of Article 19(5). An imposition  of  tax  which  in  the
           absence of a prescribed machinery and the  prescribed  procedure
           would partake of the character of a purely administrative affair
           can, in a proper sense, be challenged  as  contravening  Article
           19(1)(f).”                                             (emphasis
           supplied)



             In State of A.P. v. Nalla Raja Reddy [AIR 1967 SC  1458]  this
           Court was examining the constitutional validity  of  the  Andhra
           Pradesh Land Revenue (Additional Assessment) and  Cess  Revision
           Act, 1962 (22 of 1962) as amended by the Amendment  Act  (23  of
           1962). Noticing the  absence  of  machinery  provisions  in  the
           impugned enactments this Court observed: (AIR p. 1468, para 22)

           “22. … if Section  6  is  put  aside,  there  is  absolutely  no
           provision  in  the  Act  prescribing  the  mode  of  assessment.
           Sections 3 and 4 are charging sections and they  say  in  effect
           that a person will have to pay an additional assessment per acre
           in respect of both dry and wet lands. They do not lay  down  how
           the assessment should be levied. No notice has been  prescribed,
           no opportunity is given to the person to question the assessment
           on his land. There is  no  procedure  for  him  to  agitate  the
           correctness of the classification made by placing his land in  a
           particular class with  reference  to  ayacut,  acreage  or  even
           taram. The Act does not even nominate the appropriate officer to
           make the assessment to deal with questions arising in respect of
           assessments and does not prescribe the procedure for assessment.
           The whole thing is left in a nebulous form. Briefly stated under
           the Act  there  is  no  procedure  for  assessment  and  however
           grievous the blunder made there is  no  way  for  the  aggrieved
           party to get it corrected. This is a typical case where a taxing
           statute  does  not  provide  any   machinery   of   assessment.”
           (emphasis supplied)


           The appeals filed by the State against the judgment of the  High
           Court striking down  the  enactment  were  on  the  above  basis
           dismissed.



              Reference  may  also  be  made   to Vishnu   Dayal   Mahendra
           Pal v. State of U.P. [(1974) 2 SCC 306] and D.G.  Gose  and  Co.
           (Agents) (P) Ltd. v. State of Kerala [(1980) 2  SCC  410]  where
           this Court held that sufficient guidance was available from  the
           Preamble and other provisions of the Act.  The  members  of  the
           committee owe  a  duty  to  be  conversant  with  the  same  and
           discharge their functions in accordance with the  provisions  of
           the Act and the Rules and that in cases where the machinery  for
           determining annual value has been provided in the  Act  and  the
           rules of the local authority, there is no reason or necessity of
           providing the same or similar provisions in  the  other  Act  or
           Rules.

              There is no gainsaying that  a  total  absence  of  machinery
           provisions for assessment/recovery of the tax  levied  under  an
           enactment, which has the effect of making the entire process  of
           assessment and recovery of  tax  and  adjudication  of  disputes
           relating  thereto  administrative  in  character,  is  open   to
           challenge  before  a  writ  court  in  appropriate  proceedings.
           Whether or not the enactment levying the tax makes  a  machinery
           provision either by itself or in terms of the Rules that may  be
           framed under it is, however, a matter  that  would  have  to  be
           examined in each case.” (at paras 15-21)




      36.   In a recent judgment by one of us,  namely,  Shabina  Abraham  &
      Ors. v. Collector of Central Excise &  Customs,  judgment  dated  29th
      July, 2015, in Civil Appeal No.5802 of 2005, this Court held:-

           “It is clear on a reading  of  the  aforesaid   paragraph   that
           what  revenue is asking us to do is  to  stretch  the  machinery
           provisions  of the Central Excises and Salt  Act,  1944  on  the
           basis  of  surmises  and conjectures. This we are afraid is  not
           possible.  Before leaving   the  judgment  in  Murarilal’s  case
           (supra), we wish to add that  so  far  as partnership firms  are
           concerned,  the  Income Tax Act  contains a  specific  provision
           in Section 189(1) which introduces  a   fiction   qua  dissolved
           firms. It states  that  where   a   firm   is   dissolved,   the
           Assessing Officer shall make an assessment of the  total  income
           of  the firm as if no such dissolution had taken place  and  all
           the provisions of the Income Tax Act would apply  to  assessment
           of such  dissolved firm.  Interestingly enough,  this  provision
           is referred to only in the minority judgment in M/s. Murarilal’s
           case (supra).

              The impugned judgment in the present  case  has  referred  to
           Ellis C. Reid’s case  but  has  not  extracted  the  real  ratio
           contained therein. It then goes on to say that this is a case of
            short  levy  which  has been noticed during the lifetime of the
           deceased and then goes on to state that equally therefore  legal
           representatives of a manufacturer who had paid excess duty would
           not by the self-same reasoning be  able  to  claim  such  excess
           amount paid by the   deceased.  Neither  of  these  reasons  are
           reasons which refer to any provision of law.  Apart  from  this,
           the High Court went  into  morality  and  said  that  the  moral
           principle of unlawful enrichment would  also  apply  and   since
           the  law  will not permit this, the Act needs to be  interpreted
           accordingly.  We wholly disapprove of the approach of  the  High
           Court. It flies in the face of first principle  when  it   comes
           to  taxing  statutes. It is therefore necessary to reiterate the
           law as it stands.  In  Partington  v. A.G., (1869) LR 4  HL  100
           at 122, Lord Cairns stated:




               “If the person sought to be taxed comes within the letter of
           the law he must be taxed, however great the hardship may  appear
            to the judicial mind to be. On the other  hand,  if  the  Crown
           seeking to recover the tax, cannot bring the subject within  the
            letter of the law, the  subject  is  free,  however  apparently
           within  the spirit of law the case  might  otherwise  appear  to
           be.  In  other words, if there  be  admissible  in  any statute,
           what is called an equitable,  construction,  certainly,  such  a
           construction is not admissible in a taxing statute where you can
            simply  adhere  to the words of the statute". (at paras 26  and
           31)




      37.   We find that the Patna, Madras and Orissa High Courts  have,  in
      fact, either  struck  down  machinery  provisions  or  held  machinery
      provisions to bring indivisible works contracts into the  service  tax
      net, as inadequate.  The  Patna  High  Court  judgment  was  expressly
      approved by this Court in State of  Jharkhand  v.  Voltas  Ltd.,  East
      Singhbhum, (2007) 9 SCC 266.  This Court held:-

           “Section 21 of the Bihar Finance Act, 1981, as amended states:
              “21. Taxable turnover.—(1) For the purpose of this  part  the
           taxable turnover of the dealer shall be that part of  his  gross
           turnover which remains after deducting therefrom—
              (a)(i) in the case of the works contract the amount of labour
           and  any  other  charges  in  the  manner  and  to  the   extent
           prescribed;”


           Rule 13-A of the Bihar Sales Tax Rules which was also amended by
           a notification dated 1-2-2000 reads as follows:
              “13-A. Deduction in case of  works  contract  on  account  of
           labour charges.—If the dealer fails to produce  any  account  or
           the accounts produced are unreliable deduction under  sub-clause
           (i) of clause (a) of sub-section (1) of Section 21 on account of
           labour charges in case of works  contract  from  gross  turnover
           shall be equal to the following percentages...”


           The aforesaid provisions have  been  adopted  by  the  State  of
           Jharkhand  vide  notification  dated  15-12-2000  and  thus  are
           applicable in the State of Jharkhand.


           Interpretation of  the  amended  Section  21(1)  and  the  newly
           substituted Rule 13-A fell for consideration of a Division Bench
           of the Patna High Court  in Larsen  &  Toubro  Ltd. v. State  of
           Bihar [(2004) 134 STC 354] . The Patna High Court  in  the  said
           decision observed as under:


              “Rule  13-A  unfortunately  does  not  talk  of  ‘any   other
           charges’.  Rule  13-A   unfortunately   does   not   take   into
           consideration that under the Rules the deduction in relation  to
           any other charges in the manner and to the extent were  also  to
           be prescribed. Rule 13-A cannot be said to be an absolute follow-
           up legislation to sub-clause (i) of clause (a) of Section 21(1).
           When the law provides that something is to be prescribed in  the
           Rules then that thing must be prescribed in the  Rules  to  make
           the provisions workable  and  constitutionally  valid.  InGannon
           Dunkerley & Co. [(1993) 1 SCC 364  :  (1993)  88  STC  204]  the
           Supreme Court observed that as sub-section (3) of Section 5  and
           sub-rule (2) of Rule 29 of the Rajasthan Sales Tax Act  and  the
           Rules were not providing for  particular  deductions,  the  same
           were invalid. In the present matter the constitutional provision
           of law says that particular deductions  would  be  provided  but
           unfortunately nothing is  provided  in  relation  to  the  other
           charges either in Section 21 itself or in the  Rules  framed  in
           exercise of the powers conferred by  Section  58  of  the  Bihar
           Finance Act.
                                     ***
              In our considered opinion sub-clause (i)  of  clause  (a)  of
           Section 21(1) read with Rule 13-A of the Rules did not make sub-
           clause (1) fully workable  because  the  manner  and  extent  of
           deduction  relating  to  any  other   charges   has   not   been
           provided/prescribed by the State.” (at paras 9-12)




      38.   Similarly, the Madras High Court in Larsen and  Toubro  Ltd.  v.
      State of Tamil Nadu and Ors., [1993] 88 STC 289, struck down Rules  6A
      and 6B of the Tamil Nadu General Sales Tax Rules as follows:-

           “…The eight principles are the  criteria  and  the  norms  which
           every State legislation has to conform as per  the  decision  of
           the apex Court which has been already adverted to by  us  supra.
           In addition thereto, we have also referred  to  at  considerable
           length the particular reasons assigned by the apex  Court  while
           striking down section  of the Rajasthan Sales Tax Act  and  rule
           29(2) of the Rules made thereunder. The impugned rules 6-A and 6-
           B of the Rules, in our view, do not pass  the  above  vital  and
           essential test and the basic requirements laid down by the ratio
           of  the  decision  of  the  apex  Court  in  Gannon  Dunkerley's
           case  supra; . The impugned rules are squarely  opposed  to  the
           ratio of the said decision and particularly the ratio laid  down
           in conclusion Nos. 1, 2, 3, 6 and 7 of the  decision  in  Gannon
           Dunkerley's case [1993] 88 STC 204 supra; and also reiterated by
           the apex Court in the second Builders Association of India  case
           [1993] 88 STC 248 (SC); [1992] 2 MTCR 542. In the light  of  the
           above, we see no merit in the stand taken  for  the  respondents
           relying upon the decisions reported in [1957] 8 STC 561 (SC) (A.
           V. Fernandez v. State of Kerala) and [1969] 23  STC  447  (Mad.)
           (Kumarasamy Pathar v. State of  Madras)  that  the  omission  to
           exclude certain items relating to non-taxable turnovers is of no
           consequence and does not affect or undermine the validity of the
           impugned proceedings. Consequently, applying the  ratio  of  the
           above decisions, we hereby strike down  rules  6-A  and  6-B  as
           illegal  and  unconstitutional,  besides  being   violative   of
           sections 3 to 6, 14 and 15 of the  Central  Sales  Tax  Act  and
           consequently unenforceable.


           The provisions of  section 3-B merely  levied  the  tax  on  the
           transfer of property in goods involved in the execution  of  the
           works contract. The assessment, determination of  liability  and
           recovery had to be under the provisions of the Act read with the
           relevant rules. In exercise of rule-making power conferred under
           section 53(1) and (2)(bb), rules 6-A and 6-B came to be made and
           published. The rules miserably failed to provide  the  procedure
           and principles for effectively determining the taxable turnover,
           after excluding the items of turnover  relating  to  such  works
           contract which could not be subjected to  levy  of  tax  by  the
           State in exercise of its power of legislation under entry 64  of
           the State List. Rule 6 by its own operation had  no  application
           in the matter of determination  of  liability  under  section 3-
           B since  it  has  been  made  applicable  only  in  respect   of
           determining the taxable turnover of a dealer under section 3, 3-
           A, 4 or 5. Consequently, with our decision above  striking  down
           rules 6-A and 6-B of the Rules, there  is  no  proper  machinery
           provisions to determine the taxable  turnover  for  purposes  of
           section 3-B. The provisions of section 3-B,  therefore,  in  the
           absence of the  necessary  rules  for  enforcing  the  same  and
           determining the taxable turnover for the purposes of  section 3-
           B is rendered dormant, ineffective and unenforceable. Such would
           be the position till sufficient provisions are  made  either  in
           the Act itself or in the rules  by  virtue  of  the  rule-making
           power to ignite, activate and give life and force to  section 3-
           B of the Act.” (at paras 32, 33)



      39.   And the Orissa High Court in Larsen & Turbo v. State of  Orissa,
      (2008) 012 VST 0031, held that machinery provisions cannot be provided
      by circulars and held that therefore the statute  in  question,  being
      unworkable, assessments thereunder would be of no effect.

      40.   Finally, in para 31, the Delhi High Court holds:-

           “The  contention  of   the   petitioners   that   the   impugned
           notifications override the  statutory  provisions  contained  in
           Section 65(105),  which  defines  the  term  "taxable  service",
           Section 66, which it is  claimed  is  a  charging  section,  and
           Section 67, the valuation provisions of the Finance  Act,  1994,
           has to be rejected. We have, as already stated  above,  rejected
           the argument of the petitioners on bifurcation/vivisect and held
           that as per the provisions of  Section 65(105)(zzq) and  (zzzh),
           service tax is payable and chargeable on the service element  of
           the contract  for  construction  of  industrial  and  commercial
           complexes  and  contract  for  construction  of   complexes   as
           specified and in case  of  a  composite  contract,  the  service
           element should be bifurcated and ascertained and then taxed. The
           contention that the petitioners are paying sales tax or  VAT  on
           material  in  relation  to  execution  of  the  contract   under
           composite contracts for  construction  of  industrial/commercial
           complexes  and  construction  contracts   as   specified   under
           Section 65(105)(zzq) and (zzzh) therefore fails. The  contention
           that there was/is no valid levy or the charging section  is  not
           applicable to composite contracts under clauses (zzq) and (zzzh)
           of Section 65(105) stands rejected.  But  the  petitioners  have
           rightly submitted that only the service component can be brought
           to tax as per provisions  of  Section 67 which  stipulates  that
           value of taxable service is the "gross amount  charged"  by  the
           service provider for such services provided or to be provided by
           him and not the value of the  goods  provided  by  customers  of
           service provider and the service tax cannot be  charged  on  the
           value of the goods used in the contract.”




      41.   We are afraid that there are several errors in  this  paragraph.
      The High Court first correctly holds that in  the  case  of  composite
      works  contracts,  the  service   elements   should   be   bifurcated,
      ascertained and then taxed.  The finding that this has, in fact,  been
      done by the Finance Act, 1994 Act is wholly incorrect  as  it  ignores
      the second Gannon Dunkerley  decision  of  this  Court.  Further,  the
      finding that Section 67 of the Finance Act,  which  speaks  of  “gross
      amount charged”,  only speaks  of  the  “gross  amount  charged”   for
      service provided and not the gross amount of the works contract  as  a
      whole from which various deductions have to be made to arrive  at  the
      service element in the said contract.  We  find  therefore  that  this
      judgment is wholly incorrect in its conclusion that the  Finance  Act,
      1994 contains both the charge and machinery for levy and assessment of
      service tax on indivisible works contracts.

      42.   It remains to consider the argument of Shri  Radhakrishnan  that
      post 1994 all indivisible works contracts would be contrary to  public
      policy, being hit by Section  23 of the Indian Contract Act,  and  hit
      by Mcdowell’s case.

      43.   We need only state that in view of our  finding  that  the  said
      Finance Act lays down no  charge  or  machinery  to  levy  and  assess
      service tax on indivisible composite works  contracts,  such  argument
      must fail.  This is also for  the  simple  reason  that  there  is  no
      subterfuge in  entering  into  composite  works  contracts  containing
      elements both of transfer of property in goods as well as  labour  and
      services.

      44.   We have been informed by counsel for the  revenue  that  several
      exemption notifications have been granted qua service tax “levied”  by
      the 1994 Finance Act.  We may  only  state  that  whichever  judgments
      which are in appeal before us and have referred to and dealt with such
      notifications will have to be disregarded.  Since the levy  itself  of
      service tax has been found to be  non-existent,  no  question  of  any
      exemption would arise. With  these  observations,  these  appeals  are
      disposed of.

      45.   We, therefore, allow all the appeals of the assessees before  us
      and dismiss all the appeals of the revenue.




                                                                 ……………………J.

                                        (A.K. Sikri)





                                        ……………………J.

                                           (R.F. Nariman)

New Delhi;

August 20, 2015

-----------------------
[1] It is interesting to note that a 7 Judge Bench in M/s.  Vishnu  Agencies
(Pvt.) Ltd. vs. Commercial Tax Officer and Ors., 1978 (1) SCC  520,  doubted
Gannon Dunkerley’s case by stating that its correctness would have to  await
a more suitable occasion in that the entry, namely, 48 of  List  II  of  the
7th Schedule to the Government of India Act had been narrowly construed.  It
may be pointed out that H.M. Seervai’s Constitutional  Law  of  India,  Vol.
III, page 2326, had this to say: “This decision was  rendered  in  1959  and
was repeatedly followed, till a doubt was cast on its correctness in  Vishnu
Agencies  by   the   obiter   observations   of   Chandrachud   J.   In   my
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