Page 70 - GSTL_16th July 2020_Vol. 38_Part 3

308 GST LAW TIMES [ Vol. 38
service simplicitor with no element of goods at all and, therefore, Entry 25 could
not be saved by taking shelter under clause (29A) of Article 366 of the Constitu-
tion. It was further observed that Entry 54 of List II of Schedule VII of the Consti-
tution of India empowers the State Legislature to enact a law taxing sale of
goods. Sales tax, being a subject matter into the State List, the State Legislature
has the competency to legislate over the subject. The relevant extract contained in
paras 18 to 23 of the said judgment reads as under :-
“18. It is amply clear from the above and hardly needs clarification that
the Court was of the firm view that two Judges Bench judgment in Rainbow
Colour Lab and Another v. State of Madhya Pradesh and Others (2000) 2 SCC
385 did not lay down the correct law as it referred to pre 46th Amendment
judgments in arriving at its conclusions which had lost their validity. The
Court also specifically commented that after 46th Amendment, State is em-
powered to levy sales tax on the material used even in those contracts
where “the dominant intention of the contract is the rendering of a service,
which will amount to a Works Contract”.
19. In view of the above, the argument of the respondent assessees that
Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC
593, (ACC Ltd. case) did not over-rule Rainbow Colour Lab’s case (supra) is,
therefore, clearly misconceived. In fact, we are not saying so for the first
time as a three-member Bench of this Court in M/s. Larsen and Toubro and
Another v. State of Karnataka and another (2014) 1 SCC 708 has already stated
that ACC Ltd. had expressly over-ruled Rainbow Colour Lab while holding
that dominant intention test was no longer good test after 46th Constitu-
tional Amendment. We may point out that Learned Counsel for the re-
spondent assessees took courage to advance such an argument emboldened
by certain observations made by two-member Bench in the case of C.K.
Jidheesh v. Union of India, wherein the Court has remarked that the observa-
tions in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did
not notice that this very argument had been rejected earlier in Bharat
Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1. Following discussion in
Bharat Sanchar is amply demonstrative of the same :
“46. This conclusion was doubted in Associated Cement Companies
Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 saying :
“The conclusion arrived at in Rainbow Colour Lab case (2000) 2 SCC
385, in our opinion, runs counter to the express provision contained
in Article 366(29A) as also of the Constitution Bench decision of this
Court in Builders Assn., of India v. Union of India - (1989) 2 SCC 645.
47. We agree. After the 46th Amendment, the sale element of those
contracts which are covered by the six sub-clauses of Clause (29A) of
Article 366 are separable and may be subjected to sales tax by the
States under Entry 54 of List II and there is no question of the domi-
nant nature test applying. Therefore, in 2005, C.K. Jidheesh v. Union of
India - (2005) 8 SCALE 784 held that the aforesaid observations in As-
sociated Cement (supra) were merely obiter and that Rainbow Colour
Lab (supra) was still good law, it was not correct. It is necessary to
note that Associated Cement did not say that in all cases of composite
transactions the 46th Amendment would apply”
20. In M/s. Larsen and Toubro, the Court, after extensive and elaborate dis-
cussion, once again specifically negated the argument predicated on domi-
nant intention test having regard to the statement of law delineated in ACC
Ltd. and Bharat Sanchar Nigam Ltd. cases. The reading of following passages
from the said judgment is indicative of providing complete answer to the
arguments of the respondent assessees herein :
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