TMI Blog2012 (10) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... e. - ST. APPL. 51/2012 to 70/2012 - - - Dated:- 28-9-2012 - MR. S. RAVINDRA BHAT AND MR. R.V. EASWAR JJ. Through: Sh. S. Ganesh, Sr. Advocate with Sh. R. Jawahar Lal, Ms. Vrinda Aghi and Sh. Maank Kshirsagar, Advocates. For the Petitioner Through: Sh. Vineet Bhatia, Advocate. For the Respondent MR. JUSTICE S.RAVINDRA BHAT C.M. No. 13198/2012 (for exemption from filing fair typed copies of dim annexures) IN ST. APPL.60/2012 Allowed, subject to just exceptions. ST. APPL. 51/2012 to 70/2012 ST.APPL.51/2012, 52/2012, 53/2012, 54/2012, 55/2012, 56/2012, 57/2012, 58/2012, 59/2012, 60/2012, 61/2012, 62/2012, 63/2012, 64/2012, 65/2012, 66/2012, 67/2012, 68/2012, 69/2012 70/2012 1. The questions of law which arise for consideration in this case are: (i) whether the sale transactions in the present case were in the course of the inter-state trade, so as to attract the provisions of Central Sales Tax Act, 1956 and (ii) Whether an inter-state trade is deemed to have been taken place in the course of movement of goods into and inside the country; (iii) Whether the sale made to the Deli Metro Rail Corporation in the course of import and consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract, General Conditions of Contract etc. The NIT was to be treated as and read as part of the Contract, in terms of Clause I of the Contract Agreement. 4. The Appellant contended that the provisions of the Contract in relation to Sale amounted to sale in the course of imports covered under Section 5 (2) of the Central Sales Tax Act read with Section 7 (c) of the Delhi VAT Act and therefore exempted from payment of VAT under the Delhi VAT Act. Reliance was placed on various terms and conditions of the contract, such as Clause 19 (13.1) of the Special Conditions of Contract, by which DMRC unequivocally expressed that it was pursuing for VAT exemption on works contract, read with Entry 8 of the Sixth Schedule to the Delhi VAT Act (which entitles to seek and obtain refund of the entire Sales Tax, including in respect of goods sold, in the course of import from the authorities. The appellant was also required to mark the goods as being meant for DMRC. 5. It is stated that based on the bona fide understanding of applicable provisions of law, it (the appellant) submitted its return under the Delhi VAT for the tax period 01.04.05 - 31.04.05, whereby it claimed exemption from pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods from the foreign buyer, before shipment, Customs and Central Excise exemption notification for the goods (since they were to be imported for use by DMRC etc). 8. It was argued that some of the goods and equipment in question were also manufactured at the appellant's own factories outside Delhi as per the designs, drawings and specifications provided by DMRC under the contract. The Contract expressly stipulated the factory in which the appellant was required to manufacture and supply the goods/equipment, to DMRC. Such goods manufactured in appellant's factories located outside Delhi, were to be delivered to DMRC in Delhi, under the Contract. The inter-state movement was expressly contemplated by the parties to the contract and specified in it. 9. It was argued that the Tribunal in the impugned judgment fell into error, by holding that no specific orders for supply of goods were issued by DMRC. In this context, submitted counsel for the Appellant, the applicability of Sales Tax Act, was rejected on the ground that in terms of the requirement under Section 3(a) of the CST Act, there should be privity of contract between DMRC and the appellant and specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too were occasioned by the contract with the DMRC; it also produced goods, and equipments, from its factories located in different states. The contract did not have to specifically stipulate the supply of goods but if the it triggered inter-state movement of goods in its performance, the same would amount to inter-state sale; rendering Delhi VAT Act inapplicable. In support of this proposition, counsel relied on the judgment of the Supreme Court reported as Kelvinator India Ltd. v. State of Haryana AIR 1973 SC 2526; State of Orissa v. K.B. Saha and Sons Industries (P) Ltd. 2007 (9) SCC 97. 12. It was argued that the project awarded by the DMRC to the appellant was specialized and complex and not assembly made or mass manufactured goods, like household articles; they cannot be diverted to other customers, as contended by the Respondent and upheld by the learned Tribunal. In terms of its contractual obligations, the appellant had to fabricate/tailor make goods and equipments in terms of the design, drawing and specifications provided by DMRC under the contract, from its factories in Vadodara, Bangalore, Nashik etc. The movement of these was directly the consequence of the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contract. No such instructions existed in the present case as there was no privity of contract; the DMRC is not a party to the arrangement of supply of goods between the supplier and the contractor. There was no specific condition of contract that the goods are to be supplied by the particular supplier at the will and instructions of the DMRC. There was no such link between the DMRC and the supplier except granting of exemption by the Custom Authorities. 16. In the absence of specific instruction or agreement by the DMRC to the appellant, the inter-state movement of the goods or import of goods cannot be occasioned from the terms of the work contract. Thus, the appellant s contention that the purchase made and exemptions claimed by him are covered under Sections Section 3(a), 5(2) of the CST Act and Section 7(a) and 7(c) of the DVAT Act, are not acceptable. Provisions applicable 17. The relevant provisions of the Central Sales Tax Act, 1956 are as follows: 3 When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce A sale or purchase of goods shall be deemed to take place in the course of inter-State trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monitoring (SCADA, AMS, BMS) yourself is accepted. Other subcontractor (s)/vendor approval (s) shall be as per relevant tender conditions. The contract specifically required approval of DMRC for sub-contractors/vendors as evident from the following provisions of the SCC to the Contract: 1.1.2.6 Sub-Contractor means any person named in the Contract as a sub-contractor, manufacturer or supplier for a part of the works or any person to whom a part of the Works ha sbeen subcontracted with the approval of the Employer and the legal successors in title to such person, but not any assignee of such person. (excerpts from GCC). Clauses 4 and 4.5 read as follows: 4. Sub-Contractors For major sub-contracts (each costing over Rs. four hundred thousand) it will be obligatory on the part of the Contractor to obtain approval of the Employer to the identity of the sub-contractor. The Employer will give his approval after assessing and satisfying himself of the capability, experience and equipment resources of the sub-contractor. In case the Employer intends to withhold his approval, he shall inform the contractor in time to enable him to make alternative arrangements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time after notification of approval that the relevant drawings or documents do not comply with the Contract or do not agree with the drawings or documents in relation to which the Engineer has previously notified his approval, the Contractor shall, at his own expense, make such alterations or additions as, in the opinion of the Engineer, are necessary to remedy such non-compliance or non-agreement and shall submit all such varied or amended drawings or documents for the approval of the Engineer. ************** ****************** Workmanship, materials and plant Inspection 7.3 The employer and the engineer shall be entitled during manufacture, fabrication and preparation at any places where work is being carried out, to inspect, examine and test the materials and workmanship, and to check the progress of manufacture, of all Plant and Materials to be supplied under the Contract. The contractor shall given them full opportunity to inspect, examine, measure and test any work on Site or wherever carried out. The Contractor shall give due notice to the Engineer whenever such work is ready, before packaging, covering up or putting out of view. The Engineer shall the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 66/33/25 KV Cable Terminations and joints M/s. Tyco, Germany 17 Ms. Round M/s. IISCO, Kolkata 18 Cable Trays/Earthing materials/Electrodes. M/s. Techno Engg. Co, Chandigarh Reasoning of the Tribunal 19. The VAT Tribunal s order, rejecting the argument that the sale of goods was in the course of import, is founded on the following reasons: 25. Having heard in details the Ld. Counsels of the rival parties and after going through the record of the case file including the terms and conditions of the Contract and the impugned orders under challenged before this Tribunal, we are of the considered view that appellant failed to bring home the submissions that in the present case the sales by foreign suppliers to the Appellant and sales by the Appellant to DMRC were inextricably interlinked and integrated. Nothing has been pointed out on record of the case file any sort of condition or a clause in the agreement that diversion of the said goods to any other person or for any other use was si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that since the contract between the appellant and DMRC is indivisible works contract, the only permissible deductions are those mentioned in Rule 3 of the Delhi Rules as also the sales in question are not covered by Section 7 of the Delhi Act. Similarly, the Tribunal held that the goods were not sold in the course of inter-state sales: In the present case the appellant dealer has made the purchase by import of the goods whereas the terms and conditions of the contract with the DMRC cited nowhere the name of the supplier from whom the goods were imported. The contract with the DMRC only lay down the specifications. The inter-state purchase made by the appellant dealer were vide purchase bills issued in favour of DMRC to claim exemption of tax whereas no orders were issued by the contractee to the supplier neither any payment was made by the contractee to the supplier. The contractor in his bills raised to the contractee has claimed the payment. The contractee has not instructed the supplier to supply the goods. There is no doubt that the term sale or purchase either occasions (such import) in section 5 (2) and sale or purchase occasions the movement of goods (one s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order, held that no specific orders for supply of goods were issued by DMRC and that under Section 3(a) of the CST Act, there should be privity of contract between DMRC and the appellant. It further ruled that specific instructions for inter-state movement of goods should have been be issued by DMRC. 22. The impugned findings are contrary to Section 3(a). It was repeatedly held that the contract between the parties (DMRC and the appellant) ought to have envisaged inter-state movement of goods consequential to or as an incident of such contract. If the interstate movement of goods was within the contemplation of the parties and if a reasonable presumption can be drawn that to fulfill of the contract, such interstate movement of goods is necessary, it would fall under Section 3(a) of the Act. Here, inter-state movement of goods was within the knowledge of DMRC, as there is a total ban of setting up/operation of heavy industry in Delhi, hence the goods can only be manufactured outside Delhi and supplied in Delhi. Furthermore, importantly, it approved 13 places from within the country where the equipments and goods were to be supplied. These also included the appellant s p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative or branch office, who initiated the contract may not make the matter different. Such an interception by a known person on behalf of the seller is the delivery State and such person's activities prior to or after the implementation of the contract may not alter the position. 26. Yet again, in South India Viscose Ltd. vs. State of Tamil Nadu [1981] 48 STC 232 (SC), the Supreme Court held that if there is a conceivable link between a contract of sale and the movement of goods from one State to another in order to discharge the obligation under the contract of sale, it must be held to be an inter-State sale and that character will not be changed on account of an interposition of an agent of the seller who may temporarily intercept the movement. 27. In the present case, there can be no manner of doubt that there was a live and conceivable link between the sale and movement of goods; DMRC was aware that the goods were to be sourced from the appellant s factories, which were outside Delhi. The reference to specific locations, in the list issued by DMRC, in respect of particular equipments, which were integral to the contract, establishes that movement of those goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. 29. In K.G. Khosla co (supra) a Constitution Bench of the Supreme Court had to consider whether sales in that case were in the course of import. The assessee therein had entered into a contract with the Director General of Supplies, New Delhi for supply of axle bodies manufactured by its principals in Belgium. The goods were inspected on behalf of the buyers in Belgium but under the contract they were liable to rejection after further inspection in India. In pursuance of the contract the appellant supplied axle bodies to the southern Railway at Parambur and Mysore. The assessee contended that sales by them to the Director General of Supplies were in the course of import. The contention was rejected by the Assessing Authority, holding that these were intra-state sales because the seller was the consignee of the goods and the buyer had reserved the right to reject the goods even after their arrival in India. The assessee s appeal to first appellate authority was rejected. Its appeal to the Tribunal was partly allowed. The High Court rejected the assessee s revision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within s. 5(2) of the Act, and are, therefore, exempt from taxation. In Embee Corporation, (supra) it was held by the Supreme Court that:- 9. In this case (K.G. Khosla Co.(P) Ltd. Vs. Dy. Commissioner of Commercial Taxes), the Constitution Bench specifically held that sale need not precede the import and this decision is a complete answer to the argument advanced by the learned counsel for the appellant. 10. Learned counsel then tried to argue that the decision of the Constitution Bench in Khosla case is not applicable to the present case as in the said case, the materials were to be inspected at Belgium and London and thereafter the goods were to enter into India. This argument is not correct. In Khosla case the inspection of goods was to be carried out in Belgium as well as on arrival into India. In the present case, the inspection was to be done on arrival of goods into India and as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. See (Minerals Metals Trading Corporation of India Ltd. Vs. Sales Tax Officer 1998 (7) SCC 19) 44. In the facts and circumstances of the case we are of the opinion that the order passed by Division Bench of the High Court as also the orders passed by Tribunal and other Authorities cannot be sustained in law. Same are hereby set aside and quashed. Appellant is held entitled to claim benefit of Section 5(2) of the Act. 30. The common thread of reasoning which runs through all the decisions is that to determine whether the sale was in the course of import, the Court has to see whether the movement of goods through was integrally connected with the contract for their supply. Questions such passing of title, or whether the end user has a privity of contract with the supplier, or where the consideration flows from, are not determinative or decisive of the issue. Section 5 does not pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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