WP/3396/2004 of The Director General, Head Quarters, Border Vs The Commissioner of Commercial Taxes, on 31 December 2007

ORAL ORDER:

(Per the Hon’ble Sri Justice Nooty Ramamohana Rao)

The petitioners are all officers belonging to andrepresenting the Border Roads Organization (for short‘the BRO’), which is an Armed Force of the Union ofIndia. Because of its renowned efficiency of buildingroads in difficult and inhospitable terrain, the StateGovernment of Andhra Pradesh-the 5[th] respondentherein, accorded sanction through their G.O.Ms.No.279,T.R.& B (R-III) Department, dated 31-10-1994, forconstruction of a road from Damaku to Nimmalapadufrom Kms. 0/0 to 22/0 at an estimated cost of Rs.12.62Crores by the BRO. The costs of this road constructionproject were to be met by the Government of AndhraPradesh and Birla Periclase Company on cost sharingbasis at the ratio of 50:50. The orders of the StateGovernment have specifically stated that this constructionwork has been entrusted to the BRO to get it completedquickly. The State Government has also, through thesame orders, directed the money for this project to berouted through the 4[th] respondent-A.P.I.I.C. Limited, which is a Government of Andhra Pradesh undertaking. In terms of the orders passed by the State Government, amemorandum of understanding has been signed by andbetween the BRO and the 4[th] respondent-A.P.I.I.C.Limited, working out the various modalities for executionof the project. Accordingly, the BRO commenced theroad construction project in February 1996 andcompleted the same in September 1998. Since theexecution of the project was undertaken not to make anyprofit in the process by the BRO, it had returned a sum ofRs.46,72,000/- to the 4[th] respondent representing theunspent amount in respect of the project.

The 3[rd] respondent-Commercial Tax Officer,Vizianagaram, has issued a show-cause notice to theBRO on 14-09-2000 calling upon them to pay sales taxon the turnover of Rs.8,83,40,000/- at the rate of 6% interms of the A.P. General Sales Tax Act, 1957(henceforth referred to as ‘the Act’), treating theconstruction of the aforesaid project as a works contract. The BRO filed its objections to the proposed assessmentcontending that the BRO is not a ‘dealer’ indulging inworks contracts and that the project in question has beenexecuted for the State Government of Andhra Pradeshand it is executed by the funds made available by thesaid State and routed through the 4[th] respondent, whichis another public sector undertaking of the StateGovernment and, hence, disputed their liability to pay the tax. However, the

tax. However, the

3[rd] respondent finalized the assessment proceedings on 19-11-2000 holding that the BRO is a deemed seller andhence, liable to pay tax at 7% of the turnover, whichworked out to Rs.61,83,800/-, though the show-causenotice issued by the 3[rd] respondent on 14-09-2000 has only proposed to assess the tax at 6%. Against the orders passed by the 3[rd] respondentassessing them to tax, an appeal is said to have beenpreferred on 09-03-2001, but not in the prescribedproforma by the BRO. But however, when respondents 2and 3 have been pressurizing the BRO to pay up theassessed tax, the BRO seems to have approached theChief Secretary to the Government of Andhra Pradesh on11-10-2001 and appraised him of the impropriety of theCommercial Tax Department demanding the BRO to paythe sales tax for a work executed by them for no profit andfor the benefit of the State Government of AndhraPradesh. However, before the Chief Secretary to theGovernment of Andhra Pradesh could take a decision inthe matter, the respondents 2 and 3 are understood tohave initiated steps for prosecuting the officers of theBRO for non-payment of the assessed tax. The matterhas once again been taken up with the Chief Secretary tothe Government of Andhra Pradesh on 14-03-2002. Asthere was no properly presented appeal preferred againstthe orders passed by the 3[rd] respondent-Assessing Authority, the respondents 2 and 3 started initiatingcoercive action against the officials of the BRO, whichhas prompted them to institute the present writ petition.

We have heard Sri A.Rajasekhar Reddy thelearned Assistant Solicitor General of India for thepetitioners and Sri Krishna Koundinya the learnedSpecial Government Pleader for Commercial Taxes forrespondent 1 to 3 and 6.Sri A.Rajasekhar Reddy has mainly raised thefollowing contentions:- The decision of the 3[rd] respondent to notionallytreat the BRO as a dealer in terms of Section 5-F of theAct is erroneous. The 2[nd] respondent had not examinedproperly and correctly as to whether the work executedby the BRO for and on behalf of the State Government ofAndhra Pradesh would amount to a contract at all or not,for, the same is not backed up by any consideration,muchless, profit. He would also contend that the BRO,being an Armed Force of the Union of India, it is part ofthe “State” and is bound to extend the necessary helpbecause of its expertise in construction of roads indifficult and inhospitable terrain, when one of the Statesof the Union proposes to utilize its services. Therefore,the works executed by “the State” shall not be looked atas acts of commercial enterprise, but should be viewedas prompted by the solitary motto of public service. Hewould also contend that the BRO, being an integral part of the Union of India itself, cannot suffer any local ormunicipal taxation, assuming that there is involvement oftransfer of property in the process of construction of theroad.

Per contra, the learned Government Pleader wouldcontend that the Act is a complete Code in itself. The 3[rd] respondent has been vested with the power to makean assessment and accordingly, subjected the particularworks contracts to tax under the Act. If the petitioners areaggrieved by the assessment of tax made by the 3[rd]respondent, the appropriate course for them should havebeen to carry the matter in appeal in terms of Section 19of the Act. He would also point out that there are twofurther avenues available; one in the form of a Revisionunder Section 20 of the Act; and the other being anAppeal to the Sales Tax Appellate Tribunal underSection 21 of the Act. Therefore, without exhausting anyof these statutory remedies, the writ petitioners are notentitled to invoke the extraordinary jurisdiction of thisCourt under Article 226 of the Constitution of India.

Conclusion

On merits, the learned Government Pleader wouldurge that any works contracts though executed with orwithout profit motto, still is liable to be treated as a workscontract only and is liable to be taxed in accordance withSection 5-F of the Act and, hence, the order passed bythe 3[rd] respondent-Assessing Authority was not liable tobe faulted at all.

It will be relevant to notice as to how variousexpressions have been defined under the Act.

The expressions “business”, “dealer” and “workscontract” have been defined under the Act in thefollowing manner in Sections 2(bbb), 2(e) and 2(t)respectively; “business includes: any trade,commerce or manufacture or anyadventure or concern in the nature oftrade, commerce or manufacturewhether or not such trade, commerce,manufacture, adventure or concern iscarried on or undertaken with a motiveto make gain or profit an whether ornot any gain or profit accruestherefrom.

‘dealer’ means any personwho carries son the business ofbuying selling supplying ordistributing goods; ‘works contract’ includes anyagreement for carrying out for cash orfor deferred payment or for any othervaluable consideration, the buildingconstruction, manufacture,processing, fabrication, erection,installation, fitting out, improvement,modification, repair or commissioningof any movable or immovableproperty.”

The above provisions make it clear that whenonce any trade, commerce or manufacture or anyadventure or concern in the nature of trade, commerce or manufacture, is carried out or undertaken with or withoutprofit motto, it becomes business. Whosoever carries onsuch a business becomes a dealer.

But, however, a works contract is one, which is anagreement for carrying out for cash or for a deferredpayment or for any other valuable consideration, thebuilding construction or commission of any movable orimmovable property. In other words, Section 2(t) of theAct has implicitly recognized the fundamental conceptthat stands out that there could never be a contract oragreement between the parties without consideration. Section 23 of the Indian Contracts Act has dealt with,what considerations or objectives are lawful and what arenot.

Was it not said long years ago by the SupremeCourt in R.J.KAPUR v. STATE OF PUNJAB[[1]], that amodern State is certainly expected to engage in all suchactivities necessary for promotion of social and economicwelfare of it’s people. Can any one dispute that certainbasic infrastructural facilities like sources of safe drinkingwater, basic public health care, schooling and minimumnecessary transportation facilities including constructionof roads and culverts are the essential requirements forsecuring the economic welfare of the citizens of thiscountry.

When we look at it from this angle, the contentionof the learned Assistant Solicitor General that the BRO is

not liable to be deemed to have executed the workscontract by constructing the road mentioned supra, for thebenefit of Government of Andhra Pradesh in juxtapositionto a contract awarded for that purpose to a privateagency, whose primary motto could not be the love of thecountry, deserves serious consideration. When weconsider the fact that the BRO is an Armed Force of theUnion of India and, consequently, it cannot be construedas normally carrying on any business enterprise, butliable to be construed as rendering public service. Hence, the contention canvassed by the learnedAssistant Solicitor General that public service undertakenby the State cannot be deemed as a business enterprisedeserves serious consideration. Let us suppose, if theState Government of Andhra Pradesh has executed andconstructed this very road, it can neither be characterizedas carrying on business of construction of roads nor can itbe held to have executed a works contract for the benefitof the public at large, who will be the end users andultimately beneficiaries of such a project. Such functionsare liable to be treated as forming part of the basicgovernmental duties. After all, it is for the State, toprovide for the basic infrastructure such as roads for thepurpose of ultimate service to the public at large.

Though we could have expressed a final opinionin this matter, nonetheless, we have noticed the viewsexpressed by the Supreme Court on three differentoccasions in somewhat similar circumstances when public sector undertakings or governments locked theirhorns in unproductive litigation.

It will be important to notice as to how theSupreme Court dealt with this issue in OIL ANDNATURAL GAS COMMISSION AND ANOTHER v.COLLECTOR OF CENTRAL EXCISE[[2]], OIL ANDNATURAL GAS COMMISSION AND ANOTHER v.COLLECTOR OF CENTRAL EXCISE[[3]]and CANARABANK AND OTHER v. NATIONAL THERMAL POWERCORPORATION AND ANOTHER.

While dealing with the case cited (1) supra, theSupreme Court observed as follows:

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3. This Court has on more thanone occasion pointed out that PublicSection Undertakings of CentralGovernment and the Union of Indiashould not fight their litigations inCourt by spending money on fees ofcounsel, court fees, proceduralexpenses and wasting public time. Courts are maintained for appropriatelitigations. Court’s time is not to beconsumed by litigations which arecarried on either side at publicexpenses from the source. Notwithstanding these observationsrepeated on a number of occasions,the present cases appear to be aninstance of total callousness. Theletter of October 3, 1988, indicatedthat the Cabinet Secretary waslooking into the matter. That has not obviously been followed up. As aninstance of wasting public time andenergy this matter involves a principleto be examined at the highest level.4. The Cabinet Secretary iscalled upon to handle this matterpersonally and report to this Courtwithin four weeks as to why thislitigation is being conducted when thetwo sides are a public sectorundertaking and the Union of India. The report of the Cabinet Secretaryshould be supported by an affidavit ofa responsible officer.

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While dealing with the case cited (3) supra, thecase cited (2) supra has been noted, as under, inparagraph no.9 of the said case, as follows:

“9. In ONGC’s case the CabinetSecretary was shown to have takenappropriate initiative as per directionof the Court dated 11.9.1991 andreported to the Court that the disputebetween the Government Departmentand the public sector undertaking ofthe Union of India had been settled. In that view of the matter no furtheraction was taken on the petition. TheCabinet Secretary in his Report hadstated:

“ I would also like to statethat the Governmentrespects the viewsexpressed by thisHonourable Court and hasaccepted them that publicundertakings of Central Government and the Unionof India should not fighttheir litigation in Court byspending money on feeson counsel, court fees,procedural expenses andwasting public time. It is inthis context that theCabinet Secretary hasissued instructions fromtime to time to allDepartments of theGovernment of India aswell as to publicundertakings of the CentralGovernment to the effectthat all disputes, regardlessof the type, should beresolved amicably bymutual consultation orthrough the good offices ofempowered agencies ofthe Government or througharbitration and recourse tolitigation should beeliminated.”

In the light of the Report of theCabinet Secretary this Court directedas under:

“We direct that theGovernment of India shallset up a Committeeconsisting ofrepresentatives from theMinistry of Industry, theBureau of PublicEnterprises and theMinistry of Law, to monitordisputes between Ministryand Ministry of Government of India, Ministry and publicsector undertakings of theGovernment of India andpublic sector undertakingsin between themselves, toensure that no litigationcomes to Court or to aTribunal without the matterhaving been first examinedby the Committee and itsclearance for litigation. Government may include arepresentative of theMinistry concerned in aspecific case and one fromthe Ministry of Finance inthe Committee. SeniorOfficers only should benominated so that theCommittee would functionwith status, control anddiscipline.

It shall be the obligation ofevery Court and everyTribunal where such adispute is raised hereafterto demand a clearancefrom the Committee in caseit has not been so pleadedand in the absence of theclearance, the proceedingswould not be proceededwith.

The Committee shallfunction under the ultimatecontrol of the CabinetSecretary but his delegatemay look after the matters. This Court would expect aquarterly report about the functioning of this system tothe furnished to theRegistry beginning from1.1.1992.”

These measures have been taken by the SupremeCourt with a view to see to it that one governmentalorganization is not pitted on the opposite side to anothergovernmental organization, particularly, relating to moneymatters.

When we consider the fact that the BRO, at theinstance of the State Government of Andhra Pradesh,executed the project in question, without seeking to gainanything there from, it becomes clear to us that there isan implicit recognition of inter governmental dependenceamongst both of them for the benefit of common good. Ifthe BRO is to be subjected to tax, the same is bound topercolate back to the 4[th] respondent, which is a StateGovernment of Andhra Pradesh undertaking and in turnthe 4[th] respondent who is sustaining because of the largepatronage of the State Government of Andhra Pradesh,will have to seek reimbursement from the StateGovernment itself. It literally means that the StateGovernment of Andhra Pradesh will have to pay sales taxfor itself.

To avoid any such incongruous situation anddrawing inspiration from the above quoted directives ofthe Supreme Court, we consider it appropriate that theChief Secretary to the Government of Andhra Pradesh should immediately constitute a Committee headed byhimself and comprising of such number of PrincipleSecretaries to the Government as is consideredappropriate by him, like that of, Revenue, Industries andPublic Enterprises, etc., and the Commissioner ofCommercial Tax and one or two representatives of theBRO or any other high ranking Officer belonging to theArmed Forces of the Union of India. Such a Committeeshould examine this issue and take a decision within aperiod of six months.

It is needless to mention that the Committee shallconsider the moot point raised in this writ petition anddecide the matter. We are confident that the respondentsof the Commercial Tax Department will not take anyprecipitative steps in the matter in the mean time.

With this the writ petition is disposed of, buthowever, without costs.

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Bilal Nazki, ACJ

31[st] December 2007mrk

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Nooty Ramamohana Rao, J

[1]AIR 1955 sc 549 @ 554[2]1992 Supp(2) SCC 432[3]1995 Supp (4) SCC 541