2016 (4) TMI 534 - SC - VAT and Sales Tax

Validity of High Court order - reversed the order of the VAT Tribunal and of other lower authorities on the basis of its conclusion that the inter-State movement of goods was in pursuance of and incidental to the contract for the supply of goods used in the execution of the works contract between the respondent-assessee and the DMRC. The High Court further came to hold that claimed sales should be deemed to have taken place in course of imports of the goods or inter-state trade and that such import/movement of goods was integrally connected with the contract for their supply to DMRC. On the basis of such twin findings the High Court has held that the transactions constituting inter-State trade and those constituting sale or purchase in the course of import were covered by Section 3(a) and Section 5(2) respectively of the CST Act 1956 and therefore exempt from taxation under the DVAT Act 2004. Held that - there was no attempt to assail the aforesaid features and to even remotely suggest any factual error on the part of the High Court in noting those features. The salient features flowing out as conditions in the contract and the entire conspectus of law on the issues as notice earlier leave us with no option but to hold that the movement of goods by way of imports or by way of inter-state trade in this case was in pursuance of the conditions and/or as an incident of the contract between the assessee and DMRC. The goods were of specific quality and description for being used in the works contract awarded on turn key basis to the assessee and there was no possibility of such goods being diverted by the assessee for any other purpose. Hence the law laid down in M/s. K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes Madras 1966 (1) TMI 54 - SUPREME COURT OF INDIA has rightly been applied to this case by the High Court. Therefore no reasons found to take a different view. - Apex Court decided against the revenue

Summary

Issues Involved:
1. Whether the inter-State movement of goods was in pursuance of and incidental to the contract for the supply of goods used in the execution of the works contract.
2. Whether the claimed sales should be deemed to have taken place in the course of imports of the goods or inter-state trade.
3. Whether the transactions were covered by Section 3(a) and Section 5(2) of the Central Sales Tax Act, 1956 (CST Act) and therefore exempt from taxation under the Delhi Value Added Tax Act, 2004 (DVAT Act).

Issue-wise Detailed Analysis:

1. Inter-State Movement of Goods:
The High Court concluded that the inter-State movement of goods was in pursuance of and incidental to the contract for the supply of goods used in the execution of the works contract between the respondent-assessee and the Delhi Metro Railway Corporation Ltd. (DMRC). The contract required specific goods to be supplied, which necessitated their movement from outside Delhi to the DMRC site. The High Court found that the terms of the contract envisaged inter-state movement of goods, which was within the knowledge of DMRC due to the ban on heavy industries in Delhi and the approval of specific suppliers located outside Delhi.

2. Sales in the Course of Imports or Inter-State Trade:
The High Court held that the claimed sales should be deemed to have taken place in the course of imports of the goods or inter-state trade. The importation of equipment was strictly as per the requirements and specifications set out by DMRC in the contract, and the goods were imported to meet these requirements. The High Court accepted the respondent's contention that the transactions leading to the import of goods and their inter-state movement were occasioned by the contract awarded by DMRC.

3. Applicability of CST Act and DVAT Act:
The High Court held that the transactions constituting inter-State trade and those constituting sale or purchase in the course of import were covered by Section 3(a) and Section 5(2) of the CST Act, respectively, and therefore exempt from taxation under the DVAT Act. The High Court's decision was based on the principle of law settled in the case of K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes, which was not doubted in any subsequent cases. The High Court found that the movement of goods was in pursuance of the contract and therefore covered by the CST Act.

Additional Points:
- The Assessing Officer and the Appellate Authority had rejected the respondent's claim for exemption, stating there was no link between DMRC and the supplier of goods imported by the respondent. However, the High Court found that the contract terms demonstrated the importation and inter-state movement of goods were occasioned by the contract.
- The High Court noted several material terms in the contract that supported its conclusion, such as DMRC's approval of suppliers, pre-inspection of goods, and the custom-made nature of the goods for DMRC's project.
- The Supreme Court affirmed the High Court's judgment, agreeing that the movement of goods by way of imports or inter-state trade was in pursuance of the contract conditions. The Court found no merit in the appeals and dismissed them, leaving the parties to bear their own costs.

In conclusion, the Supreme Court upheld the High Court's decision that the transactions were exempt from DVAT under the CST Act, as the movement of goods was in pursuance of the contract with DMRC. The Court found that the High Court correctly applied the legal principles from the K.G. Khosla case, distinguishing it from the Binani Bros. case based on the specific facts and contract terms involved.