TMI Blog2002 (9) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... rst respondent, assessing authority brought to assessment 70 per cent of the total receipts amounting to Rs. 58,58,716.97 at 5 per cent after allowing an exemption of 30 per cent towards labour charges amounted to Rs. 17,57,615. The said amount was brought to tax under section 3-B of the Act as works contract by rejecting the exemption claimed by the petitioner on the ground that pursuant to a contract entered into outside the State, the worn-out tyres were entrusted to the petitioner by the customers outside the State of Tamil Nadu for the purpose of retreading and after completing retreading and recapping, the retreaded tyres were actually delivered to the customers in other States and therefore the transactions involved inter-State movement of goods and in such circumstances, the transactions have to be treated as inter-State works contract, not liable to tax under the Tamil Nadu General Sales Tax Act, 1959. This view was confirmed by the first appellate authority. The second appellate authority, the Appellate Tribunal also non-suited the petitioner for its claim of exemption by observing that, admittedly, the actual works of retreading took place within the State of Tamil Nadu. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore the entire transaction is nothing but interState works contract inasmuch as the contract in question involve movement of goods in the course of inter-State trade and commerce. No tax could be collected under section 3-B of the Act. Even after the expanded definition of the sale, consequent upon the 46th Amendment incorporating deemed sale in article 366(29A) of the Constitution, the State derived power to tax sale or purchase under entry 54 of List II of the Seventh Schedule to the Constitution and this entry is subject to entry 92A of List I and therefore the works contract involving retreading within Tamil Nadu is subject to the legislation of Parliament. In respect of inter-State works contract, only Parliament has got power to legislate and in the absence of any Central legislation in respect of inter-State works contract at the relevant point of time, the transactions have to be exempted both under the local Act and the Central Act. It is his further contention that section 3-B of the Act is subject to article 286 of the Constitution of India and sections 3, 4 and 5 of the Central Sales Tax Act and the learned counsel concluded that taking into consideration the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... Explanation (3).-(a) The sale or purchase of goods shall be deemed for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation." Section 3-B of the Act, which is more relevant to the case, reads as follows: "3-B. Levy of tax on the transfer of goods involved in works contract.-(1) Notwithstanding anything contained in sub-sections (2A), (2-B), (3), (4), (7) and (8) of section 3, or section 7-A, but subject to the other provisions of this Act including the provisions of sub-section (1) of section 3, every dealer referred to in item (vi) of clause (g) of section 2 shall pay, for each year, a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates mentioned in sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 289. Section 3-B(2)(a) exempts goods involved in the execution of works contract in the course of export of the goods out of the territory of India, or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce. Thus, the constitutional restriction on the State under article 286 of the Constitution of India and sections 3, 4 and 5 of the Central Act and also the restrictions contemplated in sections 14 and 15 of the Central Act have been duly taken note of while enacting section 3-B of the Act. 11.. The very same contention in abstract, that the deemed sale resulting from the transfer of property in goods involved in the execution of works contract could never be a sale in the course of inter-State trade or commerce and it cannot be an outside sale or a sale in the course of import since the transfer of property in goods takes place only at the stage when the goods are incorporated in the works and that could take place only in the State where the work is required to be executed, had been raised before the Supreme Court as raised in the present case. The Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job, either in the side wall or shoulder area, the job can be done at party's risk only and without guarantee. Repair charges extra(s). 2.. Whether it is found that extra work is involved in processing tyre for retreading due to its special size and dimensions, the company will take it up as a special job and charge extra for processing of such tyre. 3.. Prices are subject to change without notice. I/we have perused the conditions of the contract stated on the reverse of this order form and agree thereto. Agent's name address: CS Prathap Vandiperiyar Sd/............. Signature." From the above contract, it is clear that the petitioner was contracted to receive the worn out tyres from outside the State customers, retread it and send it back to the customers outside the State. The movement of the goods is linked inextricably with the work of retreading. In the contract, although there was no contract of sale for the materials, because of the fiction, a deemed sale has taken place for the purpose of imposition of sales tax. The effect of the fiction was as though the parties to the contract had in fact entered into a contract to sell and buy materials necessary fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on sales in the course of inter-State trade or commerce since they fall outside the field of legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation [vide Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 (SC)]. Hence, the lower authorities are in error in projecting the situs of sale for imposing the tax liability on the petitioner. The Special Tribunal referred to certain observations of the Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan reported in [1993] 88 STC 204 and came to the conclusion that the deemed sale contemplated in section 2(n) of the Act took place at Madurai at the time of incorporation of the goods in the works contract. We are not in agreement with the conclusion so arrived at for the reason that those observations were made by the Supreme Court in the context of measure of tax to be levied on the goods involved in the execution of works contract, in the sense, the value of the goods, which could constitute the measure for the levy of tax and had observed to be the value of the goods at the time of incorporation of the goods in the works contract an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the K.S.R.T.C. in respect of each completed bus for transportation from Madurai to Trivandrum. Payment was to be effected only after final inspection by the K.S.R.T.C. after delivery at Trivandrum. The assessing authority brought to tax an amount of about Rs. 34.4 lakhs representing sale proceeds of bus bodies supplied by the respondent to the K.S.R.T.C., and also an amount of about Rs. 2.9 lakhs paid as cess to the Rubber Board in relation to purchase of raw rubber by the respondent. The Tribunal upheld the order of the Deputy Commissioner (Appeals) who had held that sales tax was not exigible on either of the two amounts. The Kerala High Court held that: "..............The goods despatched from Madurai to the respondent at Trivandrum were not meant to be sold in the open market, but were despatched specifically against orders placed by the K.S.R.T.C. and with reference to the chassis supplied. Each chassis together with the body was identifiable by the engine number. This clearly showed that the goods moved from Madurai pursuant to and as a result of the contract between the parties and as an incident of that contract. In the circumstances, the sale of bus bodies to the K.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to the facts of the case on hand, in the sense, that the assessee in that case, Elgi Tyres undertook a contract for retreading of tyres from Andhra Pradesh State Road Transport Corporation. For the assessment year 1990-91, the assessing authority granted exemption of the works contract turnover considering it to be inter-State transaction. The Joint Commissioner of Commercial Taxes exercised the revisional power and modified the same. That was confirmed by the Tribunal by taking a view that retreading of tyres amounts to deemed sale within the State under section 5B of the Karnataka Sales Tax Act, 1957 read with entry 24 of the Sixth Schedule to the Act. Section 5B of the Karnataka Sales Tax Act is comparable to section 3-B of the Tamil Nadu General Sales Tax Act. On revision, the High Court held that: "It was not established that the property was transferred in the State of Karnataka. The retreading was done on the tyres of APSRTC in Karnataka, but that fact would not be sufficient to come to the conclusion that the property is transferred to APSRTC in Karnataka. The contract which has been entered into was for retreading the tyres and sending them to APSRTC, Andhra Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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