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2018 (12) TMI 1972 - HC - VAT and Sales TaxValidity of assessment order - disallowance of input tax credit on the purchase of certain inputs during the financial years 2011-12 and 2012-13, up to December 2012 - main thrust of the argument of Mr. S. Ravi, learned senior counsel appearing for the petitioner is that what was done by the petitioner was only a sale in the course of Inter State Trade and Commerce and that by ignoring the fact that the sale was made in-transit, the 3rd respondent levied VAT. HELD THAT:- A serious error of law was committed by the Assessing Authority in thinking that in respect of a works contract, the property in goods cannot pass by transfer of documents of title to the goods, but can pass only when goods are incorporated. There is no basis for such a presumption. The conclusion drawn by the Assessing Officer that the provisions of Section 3(b) and Section 6(2) of the Central Sales Tax Act, 1956 will not apply to inter-State works contract sales, is also contrary to the decision of the Supreme Court in 20TH CENTURY FINANCE CORPN. LTD. AND ANOTHER VERSUS STATE OF MAHARSHTRA [2000 (5) TMI 980 - SUPREME COURT]. Section 3 of the Central Sales Tax Act, 1956 indicates two situations in which sale or purchase of goods will be deemed to take place in the course of inter-State trade or commerce. The first situation is where the movement of goods takes place from one State to another. The second is where a sale or purchase is effected by a transfer of documents of title to the goods during the movement from one State to another - Similarly, sub-section (2) of Section 6 of the Central Sales Tax Act, 1956 makes it clear that where a sale of any goods in the course of inter-State trade or commerce is effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement, effected to a registered dealer, shall be exempt from tax, if the goods are of the description referred to in Section 8(3). This exemption is subject to the registered dealer effecting the sale, fulfilling certain conditions contained in the proviso thereto. Thus, the conclusion of the Assessing Authority that a works contract carried out on turnkey basis is not covered by Section 3(b) and Section 6(2) of the Central Sales Tax Act, 1956, is completely wrong. It is clear from the decision of the Supreme Court in 20th Century Finance Corporation that the works contracts are also subject to the provisions of Sections 3 and 6 of the Central Sales Tax Act, 1956. In fact, the definition of the expression “works contract” was inserted in Section 2(ja) of the Central Sales Tax Act, 1956, by way of Amendment Act No.18/2005. Once a sale is deemed to take place even in a works contract, in respect of the goods involved in the execution of the works contract, there is no escape from the conclusion that the same will also be subject to the provisions of the Central Sales Tax Act, 1956. Holding that the provisions of Section 6(2) will prevail over Section 6(1), this Court held that all subsequent sale of goods during their movement from one State to another are exempt from tax and that the object was to avoid cascading effect of multiple taxation. Unfortunately, this aspect was not appreciated by the Assessing Officer. In fact, the decision in Larsen and Toubro Ltd., was actually misread by the Assessing Authority. Merely because invoices were drawn on Gujarat State Petroleum Corporation, it could not have been presumed that there were two independent sales. What the Assessing Authority ought to have seen in the ultimate analysis was that there were only three parties viz., (i) Gujarat State Petroleum Corporation, who was the end user, (ii) the petitioner who was the contractor who procured the material and (iii) the suppliers of materials. The internal arrangement that the petitioner and Gujarat State Petroleum Corporation had as between themselves, could not be interpreted to mean that there were two different sales - therefore, it is clear that the Assessing Authority committed a serious error in law in thinking that there cannot be a sale in transit in respect of works contracts and that Sections 3 and 6 of the Central Sales Tax Act, 1956, may not apply to a works contract. Even in respect of a works contract, a sale in the course of inter-State trade or commerce can take place in transit, by transfer of documents of title. Since the Assessing Authority thought that it was not possible, it was clearly in error on a most important issue of law. Hence, the impugned order is liable to be set aside. Petition allowed.
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