Dominant nature not relevant?
In following decisions, it was held that dominant nature of contract is not relevant. However, under GST, it has been specifically defined as ‘supply of service’. Hence, validity of following decisions is doubtful under GST.
In Associated Cement Companies Ltd. v. CC 124 STC 59 = (2001) 4 SCC 593 = AIR 2001 SC 862 = 2001 AIR SCW 559 (SC 3 member bench), it was held that even if the dominant intention of the contract is rendering of service, it will amount to a works contract. After forty-sixth amendment to Constitution, the State would now be empowered to levy sales tax on material used in such contract.
The aforesaid view has been confirmed in Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 145 STC 91 = 282 ITR 273 = 3 VST 95 = AIR 2006 SC 1383 = 2 STR 161 (SC 3 member bench), where it has been clearly held that after forty-sixth amendment, sale element of
contracts covered under six sub-clauses of Article 366(29A) are separable and may be subjected to sales tax by the States. There is no question of the dominant nature test applying.
Dominant nature test is not relevant for ‘works contract’. Even of dominant intention of contract is not to transfer the property in goods and rather it is rendering of service, then also sales tax can be imposed on material used in such contract if such contract otherwise has elements of works contract [para 101(vi)] (i.e. even if minor material is transferred, it can be works contract – Larsen and Toubro v. State of Karnataka (2014) 1 SCC 708 = 41 STT 113 = 3898 = 303 ELT 3 (SC 3 member bench) – view confirmed in Kone Elevator India P Ltd. v. State of Tamil Nadu (2014) 7 SCC 1 = 45 GST 494 = 45 150 = 304 ELT 161 = 71 VST 1 (SC 5 member constitution bench) * State of Karnataka v.PRO Lab (2015) 8 SCC 557 = 49 GST 635 = 53 530 = 78 VST 451 = 321 ELT 366 (SC 3 member bench).