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TMI Blog2004 (11) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... -company has branches all over the country. It has its manufacturing unit for lifts and elevators at Ghaziabad, U.P. The respondent-company at Bangalore undertakes designing, manufacture, erection and commissioning of lifts and elevators according to the requirements of individual customer. The registered office at Bangalore procures orders from customers in Karnataka towards supply, erection and commissioning of lifts and elevators, but the manufacturing of these lifts and elevators are undertaken at its factory in Ghaziabad, U.P. The designing and construction of lifts is as per the requirement of each specific customer. Lifts and elevators so manufactured are later stock transferred in parts and received by the regional office at the customers' premises. The final erection and commissioning of lifts and elevators takes place in the premises of the customers in the State of Karnataka. 3. The assessing authority for the assessment years namely, 1990-91 and 1991-92 had completed the assessments originally under section 17(6) of the Act by accepting the returns filed by the respondent-company by its order dated July 11, 1992. After receipt of the report from the Intelligence Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is before this Court in these revision petitions filed under section 23(1) of the Act. 6. The questions of law raised in these revision petitions for our consideration and decision are: "I. Whether the judgment of the Tribunal is in consonance with the facts and circumstances and the law applicable? II. Whether the Tribunal could hold that the movement of goods was occasioned as an incident of sale even though the contract was silent on this aspect? III. Whether the Tribunal was right in holding that the movement of goods were on account of inter-State sale when in fact the property/goods passes only after erection and commissioning of the lifts and elevators and the sale transaction is completed only after such erection and commissioning?" 7. Sri Anand, learned Government Advocate, contended that the contract was entered into by the customer with the branch office of the respondent-company for supply, erection and commissioning of the lifts and elevators. He argued that being the case, that it is the lift and elevators in working condition which are installed and transferred to the purchaser and not merely the inputs or goods involved in the erection and commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the service rendered and the work undertaken in execution of the contract is of a complicated and highly technical nature requiring considerable experience, and in execution of such contract any apparatus or article manufactured by the works contractor is used, we find it difficult to hold that the mere use of the material, or the ultimate passing of the property in the article or apparatus as a result of the execution of the contract, will make it possible to sever the agreement into two parts, one for the sale of goods, and the other for services rendered". The court was further pleased to observe "that the contract for supply, erection and fitting of a passenger lift in a building for an all inclusive charge is a contract for work and not one of sale". 9. In Re. Sentinel Rolling Shutters & Engineering Company Pvt. Ltd.'s case [1978] 42 STC 409, the Supreme Court was primarily concerned with the issue namely, when does the contract is said to be complete in a case of fabrication and fixing of rolling shutters to a premises. While answering the said issue, the court was pleased to observe that the contract for fabrication, supply, erection and installation of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel explains the nature of the contract between the contractee and the respondent-company and in that process submits, that the respondent-company procure orders in Karnataka for installation and commissioning of lifts and elevators from customers and sends it to its manufacturing unit at Ghaziabad, U.P., for manufacture and supply of lifts as per the design and drawings of the customers and after manufacture of the lifts and elevators, they are tested at Ghaziabad and thereafter, the same are dismantled and subsequently, they are transported to the work site for installation and commissioning to the specification of the customers. He submits that on the whole, the entire transaction is done at Ghaziabad and the goods are moved inter-State as a result of deemed sale in the course of execution of works contract. In sum and substance, the contention of the learned Senior Counsel is that the present contracts in the hands of the respondent-company are not liable to tax as they are inter-State works contracts, and the State has no power to levy tax on such inter-State works contract. The learned Senior Counsel in support of his submission, relies on the law laid down by the apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade or commerce and a sale in the course of import or export. So read it cannot be said that in fixing the situs in respect of deemed sales resulting from the transfer of property in goods involved in the execution of a works contract, the State Legislature has included a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export." 14. The Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, while considering the issue whether in exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of List II of Schedule VII to the Constitution of India read with article 366(29-A)(b), the State Legislature while imposing tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or in the course of import or export was pleased to conclude as under: "1. In exercise of its legislative power to impose tax on sale or purchase of goods under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued demand notice to the petitioner-firm on the ground that the actual transfer of property in the materials used in the contract took place in Tripura and the petitioner-firm was liable to pay tax under the Tripura Sales Tax Act. The order of assessment and the demand notice were questioned by the petitioner-firm before the Gauhati High Court. The court while allowing the petition and setting aside the order of assessment and the demand notice issued by the sales tax authorities was pleased to hold, "the fact that the use of the materials was made in a works contract or the property in the materials passed in the State of Tripura did not in any way affect the inter-State nature of the transaction". 16. The Parliament enacted the Central Sales Tax Act, 1956 in exercise of the authority conferred upon the Parliament by article 286 and clause (3) of article 269 of the Constitution of India. The preamble of the Act provides the object for which the Act is enacted. It is to formulate principles for determining when sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India, to provide f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods referred to in clauses (a) to (f) of clause (29-A) of article 366 of the Constitution are subject to restrictions and conditions mentioned in clause (1), clause (2) and sub-clause (a) of clause (3) of article 286 of the Constitution and deliveries that take place under sub-clauses (b), (c) and (d) of clause (29-A) of article 366 of the Constitution are subject to additional restrictions mentioned in clause (b) of article 286(3) of the Constitution. Fifthly, the sales tax laws passed by the Legislatures of the States levying tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract are subject to restrictions and conditions mentioned in each clause or sub-clause of article 286 of the Constitution. The Supreme Court in the case of Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 reiterated what was said earlier in Builders Association's case [1989] 73 STC 370. The court went on further to observe, that, the legislative power under entry 54 of the State List is not available to States in respect of transactions of sale or purchase which takes place in the course of inter State trade or commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in the contract of sale or an incident of the contract. It is enough if the movement was in pursuance of and incidental to the contract of sale." 19. In English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475, the apex Court has observed: "When the movement of goods from one State to another is an incident of the contract of sale, it is a sale in the course of inter-State trade falling under section 3(a) of the Central Sales Tax Act, 1956. It does not matter in which State the property in the goods passes. What is decisive is whether the sale is one, which occasions the movement of goods from one State to another. The inter-State movement must be the result of the covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It will be enough if the movement is in pursuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "40. A perusal of Explanation 3(d) to section 2(t) shows that the transfer of right to use any goods would be deemed to have taken place in the State of Karnataka if the goods are for use within the State irrespective of the place where the contract of transfer of right to use the goods is executed. The said Explanation 3(d) to section 2(t) widens the ambit of definition of 'sale' by including sales outside the State of Karnataka and the sales which occasioned import of goods into India, merely on the premise that goods put to use are located within the State of Karnataka irrespective of the place where the contract or transfer has taken place. This explanation is in excess of legislative power under entry 54 of List II of the Seventh Schedule. Another important aspect to notice is that the provision of section 5(3) which provides for single point taxation has been omitted in its application to section 5-C. Therefore, Explanation 3(d) to section 2(t) of the Act has to be held in excess of legislative power conferred to the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution following the reasoning given while discussing the Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Sales Tax Act, 1956, there must be a contract of sale preceding the movement of goods from one State to another and the movement of goods should have been caused and be a result of that contract of sale. If this be the true meaning of what is a sale in the course of inter-State trade or commerce so as to be exigible to tax under the Central Sales Tax Act, it would be, outside the legislative power of the State Legislature to tax, a sale being transfer of property in the goods involved in the execution of works contract. 26. In the present case, the respondent-company had been engaged in the execution of works contract at the premises of the contractee, who placed purchase orders with the branch office of the respondent-company at Bangalore. The branch office in turn communicates such purchase orders to the principal office of the respondent company, which has its factory at Ghaziabad at U.P. The lifts and elevators were manufactured to the design and specification of the customers. The manufactured items were tested and thereafter dismantled and dispatched to the customers' place in the State by way of stock transfers. The branch office of the respondent-company exe ..... 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