TMI Blog2014 (6) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case, the contract of sale did not require or provide that goods should be moved from other States to the State of Karnataka at Bijapur. But it is not true to say that for the purpose of Section 3(a) of the Central Act it is necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. A sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade, no matter in which State the property in goods passes. 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, and 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 would be sufficient if the movement was in pursuance of and incidental to the contract of sale. In the present case the movement of goods from one State to another may or may not be as a result of a covenant but definitely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isional Authority. The second Revisional Authority vide its order dated 10th September 2009 allowed the revision and revised the order dated 30th September 2006 passed by the first Revisional Authority. The objection raised by the assessee was, however, rejected by this order. 2.2. The assessee preferred an appeal before this Court against the order dated 10th September 2009 passed by the Revisional Authority in STA NO.134/2009. This Court vide order dated 19th November 2009 allowed the appeal and remanded the matter to the second Revisional Authority since the order dated 10th September 2009 was passed without giving an opportunity of being heard to the assessee. After remand, the order dated 2nd March 2010, which is impugned in the present appeal was passed by the second Revisional Authority in exercise of its powers under Section 22-A(1) of the Act and confirmed the proposals made vide notice dated 15th June 2009. The second Revisional Authority enhanced the quantum of tax payable under the Act, by brining to tax the turnover pertaining to interstate purchase of goods submitted by the assessee and used in the execution of works contract. 3. The assessee is a company incorp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a specific reference to the terms and conditions which were to be adhered to by the assessee in accordance with the Bid Document dated 14th May 2001. As per the terms and conditions, as stated earlier and stipulated in the Bid Document, the assessee was supposed to procure the equipments/materials only from vendors/ manufacturing units who satisfied the requirements as stated therein. The assessee, had accordingly indentified the vendors/manufacturers, many of whom were located outside Karnataka, at the places such as, Baroda, Chennai, Hyderabad, Mumbai etc. After seeking approval, as stipulated in the Bid Document and the contract agreement, in respect of vendors/manufacturers, they delivered the goods so purchased at the said Development Programme namely, Bijapur, O M Division and were not meant to be diverted elsewhere. In other words, the goods so procured were purely for employment in the said project at Bijapur. There does not appear to be any dispute that the works contract allotted to the assessee was completed by them as per the terms and conditions stipulated in the contract agreement which were to be adhered to by the contractor in accordance with the Bid Documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance upon the following judgments of the Supreme Court (i) Gannon Dunkerley and Co. vs. State of Rajasthan, 88 STC 204 (SC); (ii) Larsen and Toubro Ltd. (supra). He further submitted that merely because property in goods passes in one State it does not matter so long as the movement of goods is in the course of inter- State trade and hence the situs of sale is not relevant. He also made submissions based on the definition of sale taxable turnover and total turnover as occur in Section 2(1) (t); Section 2(1) (u-1) and Section 2(1) (u-2) respectively and so also Section 5-B of the Act. We will make further reference to his submissions at appropriate stage of the judgment. 7.3. Lastly, he submitted that the goods purchased by the assessee in the course of inter-State were not meant to be delivered elsewhere but purely for employment in the development programme of the KPTCL. He invited our attention to several documents to contend that the suppliers outside the State were approved by the KPTCL and after inspecting the goods at the manufacturers site they were transported and delivered at the project site. 8. Per contra, Mr.Veda Murthy, learned counsel for the revenue, at the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. State of Kerala (2010) 29 VST 158 (Ker.) 9. The short question that falls for our consideration is whether on the facts and in the circumstances of the case and in law the turnover pertaining to inter-State purchases of goods and its use in execution of the works contract (the said project) was liable to tax under Section 5-B of the Act. In other words, whether the assessee is entitled for grant of exemption in respect of the turnover pertaining to inter-State purchases of goods used in the execution of the said project (works contract). 10. Before we deal with the question raised for our consideration we would like to make reference to the judgments relied upon by the parties in support of their contentions. 11. The learned counsel for the assessee placed heavy reliance upon the judgment of the Supreme Court in K.G.Khosla Company (P) Ltd. Vs. Deputy Commissioner of Commercial Taxes (1966) 17 STC 473. In this case, the question that was considered by the Supreme Court was whether the sales by the assessee to the Government Departments were in the course of import and exempt from taxation under Section 5(2) of the Central Act. The assessee therein was entirely responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of MS Pipes. In that case, it is necessary to notice that import had been occasioned only on account of the covenant entered into between the assessee and NTPC and the imported pipes were used exclusively for erection and commissioning of the plant. The revenue, in that case, had failed to establish that those pipes were not used in the plant of NTPC. 13. In Union of India vs. Khosla and Company Ltd., (1979) 43 STC 457, the question that was considered by the Supreme Court was whether the sales made by the respondents were made at Faridabad in the course of inter-State trade or whether they were intra- State sales effected within the Union Territory of Delhi. In that case, contracts of sales were finalized at Delhi and specific goods were manufactured at Faridabad in pursuance thereof. After the goods were manufactured to agreed specifications they were dispatched to the Head Office at Delhi for being forwarded to the respective customers at their instance and pursuant to the contracts with whom goods were manufactured. The goods could as well had been despatched to the respective customers directly from the factory but they were sent in the first instance to Delhi, per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sale may be deemed to have occasioned such movement; and (3) 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 would be enough if the movement was is pursuance of and incidental to the contract of sale (page 801) (page 449 of 35 S.T.C.). The learned Judge added that it was held in a number of cases by the Supreme Court that if the movement of goods from one State to another is the result of a covenant or an incident of the contract of sale, then the sale is an inter-State sale. (emphasis supplied) 14. In Larsen Toubro Limited vs. Commissioner of Commercial Tax, [2003] 132 STC 272, the Andhra Pradesh High Court was considering the case having similar facts and circumstances as occur for our consideration. The assessee in that case was engaged in manufacturing, fabrication, supply, erection and commissioning of various projects. The assessee had entered into contracts with Vishakapatnam Steel Plants and other public sector undertakings for designing, manufacturing, fabrication, installation and commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State trade is deemed to have taken place in the course of movement of goods into and outside the country; and whether the sale made to the Delhi Metro Rail Corporation is in the course of import and consequentially exempt from the Delhi VAT Act, 2004, especially Section 7(c) of the sad Act read with Section 5(2) of the Central Act. The High Court after considering several judgments of the Supreme Court made the following observations which are relevant for our purpose: In the opinion of this court, the Tribunal fell into error in assuming that to attract section 3(a) of the Act, the agreement has to expressly stipulate for inter-State movement of goods, and the fact that in performance of the contract, the appellant would have to move the goods from other States to Delhi would not suffice. In this context, in Oil India Ltd. (1975) 35 STC 445 (SC) where it was very pertinently held that 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 would be enough if the movement was in pursuance of an incidental to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Sudhakar S Pangol (supra), the constitutional validity of Works Contract Act, 1989, was challenged contending that it is ultravires the provisions of Article 14 and 19(1) (g) as well as Article 246 (2) read with Entry 54, List-II in the 7th Schedule read with Article 366 of the constitution of India. While dealing with the challenge, the Bombay High Court, after considering the Builders Association of India case upheld the validity of the Act. The Bombay High Court, in that case, observed that Section 2(p) read with Section 2(m) of the Works Contract Act, 1989 only provides a mechanism of determining the value of goods which have been purchased outside the State and used in a works contract in the State. By doing so, the Legislature has not taxed the sale transaction which has taken place outside the State but only provide for a mechanism as to how the value of goods, property in which is transferred by the contractor/dealer in execution of works contract, is to be determined. It was further observed that this definition is introduced to obviate any dispute in ascertaining the price of the goods which form the total turnover of the contractor/dealer. In our opinion, this judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel appearing for the parties, in the light of the judgments of the Supreme Court and High Courts referred to in the foregoing paragraphs, it would be advantageous to make brief reference to the relevant provisions of the Act. Section 5-B was inserted by Act No.27/1985 w.e.f. 1-4-1986. This being a charging Section and relevant for our purpose, we would like to reproduce the same which, reads thus: 5-B Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts. Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6) of the said Section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule. Under this provision, every dealer is obliged to pay for every year, a tax under the Act on his taxable turnover of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considering the definition of sale as occur in Section 2(g) of the Central Act. The question that fell for the consideration of the Supreme Court was whether the expression sale or purchase occasions such import occurring in sub-section (2) of Section 5 of the Central Act requires that completed sale should precede import. It also considered the expression sale occasions or purchase occasions such import in Section 5(2) of the Central Act to hold that it has to be interpreted in the same manner in which the expression occasions the movement of goods occurring in Section 3(a) of the Central Act. The Supreme court, in that case, observed that the definition of sale in the Central Act shows that the word sale has been given a very vide meaning so as to include not only the sale of goods but also the transactions, namely, transfer of goods on higher purchase systems. Further, the use of words sale of goods in Section 3 of the Central Act and the words contract of sale occurring in Section 4(2) of the Central Act have been assigned the same meaning which is wider to the meaning of sale in General Law. In such situation, it was further observed, the word sale defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of the works contract also. The tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 of the Constitution thus becomes subject to the same discipline to which any levy under entry 54 of the State List is made subject to under the Constitution. (Pages 396 and 397 of STC; 347 and 348 of SCR) . The Supreme court has further observed as follows: we are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under entry 54 of the State List. The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. We do not accept the argument that sub-clause (b) or article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 goods into or export of the goods out of the territory of India. As a result of the said provision, the legislative power conferred under entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations imposed by the Constitution on the legislative power of the States under entry 54 of the State List, it is beyond the competence of the State Legislature to make a law imposing or authorizing the imposition of a tax on transfer of property in goods involved in the execution of a works contract, with the aid of sub-clause (b) of clause (29-A) of article 366, in respect of transactions which take place in the course of inter-State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently, it is not permissible for a State Legislature to frame the legislative enactment in exercise of the legislative power confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (b) of clause (29-A) of Article 366, in respect of transactions which takes place in the course of inter-State trade or commerce or transactions which constitutes sales or purchase outside the State or sales in the course of import or export. Thus, in the backdrop of these provisions of the Constitution, a conjoint reading of the charging Section 5-B and the definition of the expression taxable turnover would show that the State cannot impose tax on transfer of property in goods involved in execution of a works contract with the aid of Article 366(29A) (b), in respect of transactions which take place in the course of inter-State trade and commerce. 28. The assessee, in the present case, was engaged in the manufacture and sale of electrical and electronic goods as well as in execution of works contract. The works contract was executed between the assessee and KPTCL for the project in Bijapur on total turnkey basis consisting of supply of all equipments/materials, erecting, testing and commissioning. As per the contract/general conditions of the contract the assessee was obliged to procure from the manufacturers certain goods/materials such as transformers, ACSR conductors, In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices and delivery challans placed on record. They all show the assessee as consignee, but on account KPTCL and the consignment was delivered at the site of the project in Bijapur. It is not in dispute that KPTCL did not deduct 9.5% of the amount out of the value for such goods/equipments, as provided for in the contract, perhaps in view of the fact that no manufacturers were available in the State who could have supplied such goods/equipments, and who were complying with the requirements stipulated in the General Conditions of the Contract, apart from the fact that they granted such permission to the assessee in writing. 30. It is in this backdrop, the assessee claimed exemption from payment of tax under Section 5-B of the Act on the ground that the transactions were inter-State transactions. As observed earlier, the entire project was to be completed by the assessee which included installation of machinery/equipments and supervision upto certain point of time. Thus, the contract though was single and indivisible, had been altered into a contract, which was divisible into one for sale of goods/equipments and other for supply of labour and services and as a result, the contract w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly from within the State. The General Conditions of Contract, in particular, condition No.2.37.00 stipulated certain qualifying requirements for procuring goods from vendors or manufacturers such as, five years experience of supplying such equipments. It is the case of the assessee and it is not in dispute that since there were no suppliers, complying with the qualifying requirements, available in the State the assessee had to approach the KPTCL and seek their permission as mentioned earlier to procure the goods from outside the State. In view thereof it was contended on behalf of the revenue that the Contract (General Conditions) did not stipulate for movement of goods from outside the State. In other words, it was submitted that movement of goods from outside the State was not a result of the contract or incidental to the contract, since the General Conditions of Contract did not mention about inter-State vendors and, therefore, it cannot be stated that the goods were moved in pursuance of the contract. 31.1. It is now well settled that if a contract of sale contains a stipulation for such movement, the sale would, of-course, be a inter-State trade. But it can also be inter- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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