Iron, Steel used in concrete reinforcement cannot be taxed at higher rate, Supreme Court

The Supreme Court has held that iron and steel reinforcements of cement concrete does not lose their character as iron and steel at the point of accretion in a works contract. Hence they cannot be taxed at a higher rate levied in respect of civil construction..The judgment was delivered by a Bench of Justices AK Sikri and Rohinton Fali Nariman in a batch of appeals concerning the rate of taxability of “declared goods” under Section 14 of the Central Sales tax Act, 1956. All the appeals were from Karnataka and related to the provisions of Karnataka Sales Tax Act, 1957 and Value Added Tax, 2003..Senior Advocates N Venkataraman, KV Viswanathan and SK Bagaria appeared for the assessees while Senior Advocate KN Bhat appeared for the State of Karnataka.. The question that the court considered in the case was as follows:.“Whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract.”.If they are taxable as iron and steel, then they would be subject to a levy of 4%; else they would be taxable at a higher rate applied in respect of civil construction..The assessees contended that the case is squarely covered by two judgments of the Supreme Court – Builders’ Assn. of India v. Union of India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364..Relying on the two judgments, they contended that iron and steel products that are reinforced for cement concrete used in buildings and structures, remains exactly the same goods at the point of taxability – that is, the point of accretion, and that mere cutting into different shapes and bending does not make these items lose their identity as declared goods. Therefore, only tax at the rate of 4% can be levied, and not the higher rate levied in respect of civil construction works generally..The State government, however, argued that iron and steel products did not continue as iron and steel products but somehow became different goods at the point of accretion and that, therefore, they could be taxed at the higher rate applicable to civil constructions generally..The State, however, did not dispute the law laid down in the two Supreme Court judgments cited by the assesses and “very fairly” submitted that if the iron and steel products continued as declared goods, then even though they were in a works contract they were subject to the drill of Section 15 of the Central Sales Tax Act, and would therefore be chargeable at 4% only..The Court after hearing the parties held that the assessees are right and that the matter is no longer res integra but is settled in view of the two decisions..“Two important propositions emerge on a conjoint reading of Builders Association and M/s. Gannon Dunkerley (supra). First, that works contracts that are liable to be taxed after the 46th Constitution Amendment are subject to the drill of Article 286(3) read with Section 15 of the Central Sales Tax Act, namely, that they are chargeable at a single point and at a rate not exceeding 4% at the relevant time. .Further, the point at which these iron and steel products are taxable is the point of accretion, that is, the point of incorporation into the building or structure.”.The Court, therefore, ruled in favour of the assessees and declared that the goods in question can be taxed only at 4%..Read the judgment below.