TMI Blog2011 (4) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... l reliefs, have been dismissed. Briefly stated, the facts of the case are that the appellants are dealers of tendu patta and registered under the Chhattisgarh Commercial Tax Act, 1994. They are also registered as exporters of tendu patta under the M.P./ C.G. Tendu Patta Niyamawali, 1966. In response to tender notice issued by the Chhattisgarh State Minor Forest Produce (Trading and Development) Co-operative Federation Ltd. (for short, the Federation ), the appellants submitted their tender forms for purchase of tendu leaves and they were allotted forest tendu leave lots and accordingly, purchase agreements were executed under condition No. 7 of the tender notice. The appellants were also required to pay taxes under the terms of the purchase agreement and the appellants' challenge to the imposition of taxes under the terms of the purchase agreement has been dismissed by the learned single judge by the impugned order. Submission on behalf of Shri Ravindra Shrivastava, senior advocate with Shri Anup Majumdar and Shri Ashish Shrivastava, advocates for the appellants in W.A. No. 367 of 2010: The only question for consideration in this group of writ appeals is whether purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Thus, whenever tendu leaves are sold to exporters in the State, the sale is for the purposes of exporting the same outside the State. Referring to sub-section (2) of section 5, it was argued that tendu leaves for sale outside the State may be transported by such person outside the unit in accordance with terms and conditions of the permit to be issued in the prescribed manner. Even the excess quantity of the tendu leaves left after export, cannot be sold without permission of the State Government or any authorized officer under section 12(A) of the Adhiniyam, 1964. Thus, from the above, it is manifestly clear that the registered exporters of tendu leaves in the State of Chhattisgarh are required to transport the goods outside the State under an obligation of the statute and contract. There is an inextricable connection between sale of tendu leaves to the registered exporters and movement thereof to outside the State; tendu leaves cannot be moved without transport permit; transport permit facilitates movement of goods from the State of Chhattisgarh to outside the State, and failure to observe the terms and conditions of the transport permit renders the whole transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956 having its registered office at Allahabad. It has manufacturing unit in Bihar, Jharkhand and West Bengal, however, it has no manufacturing unit in the State of Chhattisgarh. The appellant is a registered dealer in the State of Bihar, Jharkhand, West Bengal, Uttar Pradesh and Chhattisgarh as also under the Central Sales Tax Act. The appellant was granted registration by respondent No. 3 as manufacturer and exporter of tendu leaves in the format prescribed under rule 8(2) of the Niyamawali, 1966. At the time of submitting his tender, the appellant was also required to mention its registration number with date of registration, attaching photocopy of the registration certificate. Deputy Commissioner, Income-tax, Allahabad, with whom the appellant is assessed, issued certificate under section 206C of the IT Act in form 27C, directing the conservator of forest not to collect TDS under section 206C(1) of the IT Act, in respect of goods specified in para 2 as they are for manufacture of bidis. However, the learned single judge did not consider the above aspect and the fact that the conservator of forest did not deduct tax as per order dated August 30, 2002 (annexure P/ 11), which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing the case, the provisions of the Adhiniyam and the rules framed thereunder, do form part and parcel of the contract. Even otherwise from perusal of the general terms and conditions of the tender and instructions for tenderers, forming part of tender notice, i.e., annexures I, II and III, it is clear that they have unambiguously and specifically incorporated the provisions of the Adhiniyam and rules framed thereunder by way of reference. Clause (2) of the purchaser's agreement specifically provides that the agreement shall be deemed to be subject to the provisions of the Adhiniyam, the rules made thereunder and the orders and notifications issued from time to time under the said Adhiniyam and the rules and terms and conditions of the tender notice, including general/other terms and conditions of the tender and instructions for tenderers contained in annexure I of the tender notice, all of which shall form part of the agreement. A conjoint reading of clause 6(1)(a), clause 10 and clause 18 of the purchaser's agreement along with sections 5 and 12A of the Adhiniyam and rules 2(5), 4(3) and 8 read with section 15 of the Adhiniyam, irresistibly leads to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased at Cochin in auction along with the export rights and later exported, and the contract for sale did not provide for movement of goods for export. Whereas in the instant case, the provisions of the Adhiniyam, 1964 and Niyamawali, 1966, including all notifications and directions, have been made part of sale agreement and transport permits are issued for the purposes of movement of goods, and the appellants are permitted to sell the goods locally. Thus, it is clear that the movement of goods is an incidence of sale agreement and the same occasioned through contract of sale and is clearly an inter-State sale. The learned single judge has, in para 107 of the impugned order, has distinguished the present case from the case of Tata Engineering Locomotive Co. Ltd. [1971] 27 STC 127 (SC); [1970] 3 SCC 697 on fact with an observation that facts of the aforesaid case were that the dealers were required to remove the articles purchased by them from the State of Bihar to places outside Bihar as per terms of the contract entered into by them with the State, though in the instant case also, the movement of goods occasioned under the law that is incorporated in the agreement for sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted for transporting the processed leaves from the places of processing to the godowns. No godown for storage is provided by the State and the purchasers pay rent to the State for hiring such facility. At the time when the goods are taken away by the purchasers after payment of the price, transport permits are provided to facilitate the purchasers to route through the forest produce through the forest areas so as to avoid registration of any forest offence or otherwise against the purchaser. Taxes, as leviable on the said tendu leaves, are recovered by the society/Federation. As sales of the tendu leaves are made at the stage when the leaves are attached to the trees, therefore, it cannot be said that the processed tendu leaves or movement thereof is a consequence of sale. The entire transaction of sale of tendu leaves is to be examined in the light of clauses of the agreement, the provisions of the Adhiniyam, 1964 and the Niyamawali, 1966. From examination of the agreement, particularly clauses 4, 5, 6, 7 and 8 of the agreement, it would be evident that possession of the leaves is transferred to the purchasers immediately after the bid is finalized and thereafter, the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a consequence of sale. The ratio of law laid down in K.B. Saha's case [2007] 7 VST 214 (SC); [2007] 9 SCC 97 is distinguishable on facts as in that case, the purchase agreement for tendu leaves contained a provision (3.1.8) for export of the goods, where the State is under the obligation to deliver goods to a foreign State as a consequence of sale, which is not the case here. It was also brought to the notice of this court that the ratio of law laid down by the Supreme Court in K.B. Saha's [2007] 7 VST 214 (SC); [2007] 9 SCC 97 is under reconsideration of the Supreme Court in the case of Malay Giri Sandal Wood . Reliance has been placed on the decisions of the Supreme Court in the matters of Virajlal Manilal Co. v. State of M. P. [1969] 2 SCC 248 and State of Madhya Pradesh v. Chhotabhai Jethabhai Patel and Co. AIR 1972 SC 971. Heard learned counsel for the parties, perused the pleadings of the respective parties and documents appended therewith as also the impugned order. The short question for consideration in these appeals is whether purchase of tendu leaves by the appellants is an inter-State sale or intra-State sale within the meaning of section 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that permits for purchase of cement issued to the purchaser showed that the supplies were to be made by the cement factories outside the State of Mysore, but the marketing company in the State was named as the supplier and the purchasers had to place the order with the company and make a contract with it, it was held that a sale under such a contract would clearly be an inter-State sale. In the case of Ben Gorm Nilgiri [1964] 15 STC 753 (SC); AIR 1964 SC 1752, the transaction of sale sought to be taxed by the Revenue authorities are in tea, which was a controlled commodity in the State of Kerala. Trade in tea, internal as well as export, is carried on through certain defined channels in the State of Kerala. Tea could not be exported otherwise than under a licence. In this judgment it was held as under (pages 759 and 760 of 15 STC): (8) To constitute a sale in the course of export of goods out of the territory of India, common intention of the parties to the transaction to export the goods followed by actual export of the goods to a foreign destination is necessary. But intention to export and actual exportation are not sufficient to constitute a sale in the course of export, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his concern as to how the purchaser deals with the goods. Such a transaction without more cannot be regarded as one in the course of export because etymologically 'in the course of export' contemplates an integral relation or bond between the sale and the export. At the other end is a transaction under a contract of sale with a foreign buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. But in between lie a variety of transactions in which the question whether the sale is one for export or is one in the course of export, i.e., it is a transaction which has occasioned the export, may have to be determined on a correct appraisal of all the facts. No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But that is not to say that the distinction between transactions which may be called sales for export and sales in the course of export is not real. In general where the sale is effected by the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided cases, it was held that the sales will be considered as sales in the course of export or import or sales in the course of inter-State trade and commerce under the following circumstances (page 149 of 27 STC): (1) When goods which are in export or import stream are sold; (2) When the contract of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of goods takes place; and (3) Where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported out of the State in which the delivery of goods takes place. In Balabhagas Hulaschand [1976] 37 STC 207 (SC); [1976] 2 SCC 44, conditions have been enumerated which must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce. In para 15, it has been held thus (pages 215 and 216 in 37 STC): 2. (15) That the following conditions must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce: (i) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be an inter-State sale. Further, it is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods, or for that matter, takes place while the goods are in transit. What is important is that the movement of goods and the sale must be inseparably connected. The question whether a sale/ purchase is an inter-State sale/purchase depends on the facts of each case. The principles are well-settled; it is only a question of application of these principles to the facts found in each case. In Co-operative Sugars (Chittur) Ltd. [1993] 90 STC 1 (SC); AIR 1994 SC 1456, the appellant had its sugar factory in the State of Kerala. Due to shortage of sugarcane in that State, it obtained permission from the Government of Tamil Nadu to purchase sugarcane from a specified area in that State with a view to and exclusively for the purpose of transporting it to its factory at Kerala. Whatever was purchased was transported to the appellant's factory in Kerala. In these circumstances, it was held that this is a case where the movement of goods was occasioned by the sale by the farmers or by the purchase by the appellant and as such, an inter-State sale. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress or implied provision regarding inter-State movement of goods. Even if hypothetically it is accepted that such a requirement is necessary, in the facts of the present case, such implied stipulation does exist. This is referable to clause 3.7 of the agreement. Referring to clause 3.13 of the agreement, it was observed that the clause clearly recognizes the possibility of a tenderer making purchase for the purpose of export outside India. In A G Projects and Technologies Ltd. [2009] 19 VST 239 (SC); [2009] 2 SCC 326 also, it has been held that the question whether a particular sale is an inter-State sale or intra-State sale is a mixed question of fact and law. The name given to a transaction by the parties concerned does not decide the nature of transaction and to determine the nature of transaction, settled parameters in this regard by earlier judgments of the Supreme Court have been reiterated. In Virajlal Manilal [1969] 2 SCC 248, while considering the restrictions on transport contained in section 5 of the Adhiniyam, 1966 and rule 4(2)(g) of the Niyamawali, 1966, the Supreme Court observed in paras 10 and 13 thus: 10. The long title of the Act recites that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sattedars to the mazdoors whom he employs. A construction so limited in its sweep is commendable as it is consistent with the object of the Act and is also in harmony with clauses (5) and (6) of article 19(1) and clause (b) of article 304. Regarding the ban against movement of old leaves contained in the order, dated June 4, 1965, there can be no difficulty as it is conceded that old leaves in the context mean those which were in stock when these rules came into force and not the balance of leaves left unconsumed from year to year. So construed, the restrictions against free transport cannot be held to be unreasonable and the validity of section 5 and rule 9 as also the order of June 4, 1965, except to the extent of its requiring a permit for distribution to the mazdoors, cannot be successfully challenged. So far as the order, dated October 12, 1965, is concerned, it was a mere cancellation of a concession and such cancellation cannot be challenged as a restriction, much less as an unreasonable restriction. In Chhotabhai Jethabhai Patel and Co. AIR 1972 SC 971, the Supreme Court had an occasion to consider the restrictions contained in section 5(2) of the Adhiniyam, 1964 in imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the movement of the goods from one State to another is an incident of the contract it is a sale in the course of inter-State sale and it does not matter which is the State in which the property passes. What is decisive is whether the sale is one which occasions the movement of goods from the State to another. In Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC); [1979] 2 SCC 242, it was observed that a sale would be an inter-State sale even if the contract of sale does not itself provide for the movement of goods from one State to another provided, however, that such movement was the result of a covenant in the contract of sale or was an incident of the contract. Similar view was expressed in Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 (SC); [1984] 4 SCC 173. In Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax, Jabalpur [1976] 37 STC 489 (SC); [1976] 4 SCC 124, after referring to Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207 (SC); [1976] 2 SCC 44, it was observed that so far as section 3(a) of the CST Act is concerned there is no distinction between unascertained or future goods and goods whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, it is clear that for a sale to be interState sale, it must satisfy three essential ingredients: (i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of goods; (ii) the goods must actually move from one State to another, pursuant to such contract of sale, the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. The movement of goods which takes place independently of a contract of sale would not fall within the meaning of inter-State sale. Where the transaction of sale stands completed within the State and the movement of goods takes place thereafter independently of the contract of sale, the transaction would not be having an inter-State element. Where the movement of goods is the result of a covenant in the contract of sale or is an incident of the contract, the sale may be regarded as an inter-State sale and it is immaterial whether the property in goods passes in one State or another. What is important is that the movement of goods and the sale must be inseparably connected. It is not necessary that there should be an exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase agreement, it is found that the Adhiniyam and the Niyamawali framed thereunder have been enacted for creating State monopoly in the trade of tendu leaves. Under section 5(1), on issue of a notification under sub-section (3) of section 1 in any area, no other person except the State Government or an officer authorised by it or an agent in respect of the unit, in which the leaves have grown, can purchase or transport tendu leaves. Under sub-section (2) of section 5, tendu leaves purchased from the State Government or any officer or agent specified in the said sub-section by any person for manufacture of bidis within the State or by any person for sale outside the State may be transported by such person outside the unit only in accordance with the terms and conditions of a permit to be issued, as provided under the rules. Whereas sub-section (3) of section 5 provides that any person desiring to sell tendu leaves may sell them to the aforesaid Government officer or agent to any depot situated within the said unit. Section 7 empowers the State Government to fix the price, in consultation with the Committee constituted under section 6, at which tendu leaves shall be purchased by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued in form TP 4 (subsidiary). The application for issue of transport permit is to be made in form D to the Divisional Forest Officer. Rule 4(3) prescribes the conditions that each consignment of tendu leaves during movement by any mode of transport shall be accompanied by a transport permit of the concerned type, and leaves shall be transported only by the route specified in the permit and the transport permit is liable for cancellation where it is found that it has been misused or is likely to be misused. The Chhattisgarh State Minor Forest Produce (Trading and Development) Co-operative Federation Ltd., has been appointed as agent of the State Government under section 4 of the Adhiniyam, 1964 for collection, purchase and trade of tendu leaves. The Federation acting in the name of the Governor of Chhattisgarh invites sealed tenders for purchase of tendu leaves. Terms and conditions of tender and instructions for tenderers are published in the tender notice. Tenders are invited for the purchase of lots of tendu leaves to be collected or purchased by the societies, as shown in the Schedule appended to this notice for the relevant contract period as per condition No. 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n condition No. 6. Under this condition, a tenderer can submit only one tender for one/several lots showing his order of priority for purchase of lots. The rate is to be quoted as per standard bag exclusive of any tax/cess for purchase of tendu leaves for each lot mentioned in his tender. Condition No. 9 provides that the successful tenderer shall have to deposit security deposit amounting to 25 per cent of the total purchase price of the lots for due performance of the terms and conditions of the purchaser's agreement executed by him. Condition No. 10 provides that the purchaser can remove/transport the leaves from the godown only after full payment of the instalment due has been made. Condition No. 11 provides that if a purchaser commits any breach of provisions of the Adhiniyam, Niyamawali and/or any condition of the purchaser's agreement as a result of which he is punished under section 15 of the Adhiniyam, he shall be liable to be blacklisted for a period up to five years. Tender form for purchase of tendu leaves lots is to be submitted in annexure II made under condition No. 4 of the tender notice. Paragraph 4 of annexure II of the tender notice provides f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r notice. The permission to transport the leaves from phad to godowns will be granted after it only. For the purpose of inspection in the godowns, stacking of tendu leaves will be done minimum 2 feet away from the godown walls. If the Managing Director, District Union directs the purchaser appointment order whichever is later to take the godowns of Forest Department/Federation/primary society/ others on rent, then he will be bound to do so on the rent of ₹ 18 per actual bag but he will not be required to execute the tripartite agreement in annexure VII and can keep the leaves in the godown till April 15, 2011 but if the purchaser wants, he can store the leaves in his own godown under double lock of purchaser and Federation after paying the rent of ₹ 18 per actual bag. The purchaser will have to make the payment of godown rent on the basis of storage capacity of the godown fixed by the Managing Director, District Union by March 15, 2010 in one instalment. Under clause 6(2) if the purchaser makes full payment of the purchaser price of the lot along with due taxes up to the due date of first instalment, he is entitled for rebate of two per cent of the purchase price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........ 3. The permit is valid up to.................... Place ......... Dated ........ Divisional Forest Officer ............Division Form T.P. 4 (Subsidiary) (See rule 4) Book No................ Page No......... Transport Permit 4 (Subsidiary) 1. Name of purchaser ................................. 2. Unit No............Division........... 3. Reference to T. P. 4 (Main)............... (i) Book No............Page No............ (ii) Quantity permitted.........Standard bags/Actual bags (iii) Valid up to............ 4. Quantity covered under the above authority already transported previous to issue of this page. (i) Details of transport permit 4 (subsidiary). Book No....... Page No....... Date ....... (ii) Quantity.........Standard bags/actual bags. 5. Quantity now being transported in the consignment accompanying this permit (give serial number of bag and quantity in each. Standard bags/actual bags). 6. Quantity in balance for transport-standard bags/actual bags. 7. From...........to........... 8. Route of transport............. 9. Place of places for checking................. 10. The permit is valid up to........ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of leaves has not taken place. Thus, in the instant case, the movement of goods is inextricably connected with sale, which is governed by the statutory contract. Looking to the peculiar features of the case in hand and in the light of law laid down by the Supreme Court, it is established that transaction in question is an inter-State sale within the meaning of section 3(a) of the Adhiniyam, 1964. Tender has been invited by the Federation as an agent of the State Government appointed under section 4 of the Adhiniyam, 1964 for collection, purchase and trade of tendu leaves in the whole of the State. The tender notice clearly mentions that sealed tenders are invited from persons, registered firms/legal companies for the purchase of said tendu leaves. Rates are to be quoted by the tenderers per standard bag for tendu leaves in form of annexure II as per condition No. 4 of the tender notice, exclusive of value added tax, forest development cess and other taxes/cess. Pre-tender inspection of the area/lot is permitted to the tenderers and leaves are auctioned on as it is where it is basis. The green leaves are handed over to the purchaser at the collection centers only. The treatmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Chhattisgarh and other States to participate in the tender process and submit their offer for purchase of tendu leaves, and tendu leaves could be sold to any successful tenderer, who was eligible to participate in the tender process as per eligibility condition prescribed in the tender notice. Registration of the appellants as exporter merely enables them to carry tendu leaves purchased by them outside the State to the indicated destinations mentioned in the transport permit. The fact that tendu leaves have been sold to the appellants, who are registered exporters and they were issued transport permits for transporting the purchased tendu leaves to the destination outside the State, imputes knowledge to the seller that the goods are purchased with the intention of exporting by the appellants. However, there is nothing in the transaction from which it can be said that the sale and the intended export is part of the same transaction. The knowledge that the goods purchased are intended to be exported does not make the sale and export parts of the same transaction. We further observe that under the Adhiniyam, 1964 and the Niyamawali, 1966 made thereunder, the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State, they would have committed breach of their contracts and incurred penalties, it was held that the sale was in the course of inter-State trade and commerce. In K.G. Khosla [1979] 43 STC 457 (SC); [1979] 2 SCC 242, considering that the contract of sale could be performed by the respondents only by the movement of goods from Faridabad with an intention to deliver them to the purchasers, the sale was held to be an inter-State sale. In the matters of K.B. Saha's [2007] 7 VST 214 (SC); [2007] 9 SCC 97, there was also stipulation in the contract of sale that tendu leaves are to be exported. We are also conscious of the fact that under clause 8 of the agreement, there is specific mention that the purchasers were required to pay commercial tax/VAT under the provisions of law as amended from time to time, forest development cess and other taxes/cess. The appellants have participated in the tender process and quoted their purchase price keeping in view the aforesaid stipulation in the agreement. The learned single judge, after elaborately considering the arguments advanced by learned counsel for the appellants, has dismissed the writ petitions with the following obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable goods involved in the execution of the works contract attracts tax liability under the provisions of the Act and the machinery for determination of the tax liability is set in motion and quantified, and the dealer called upon to pay the corresponding tax. The petitionerdealer, who was assessed by the Commercial Tax Officer I, Kadapa, for the years 1998-99, 1999-2000 and 2000-01 was granted exemption in the turnover of ₹ 8,79,695 under the following heads: 1. Depreciation on vehicle : ₹ 1,41,855 2. Maintenance expenses on tipper : ₹ 3,37,423 3. Consumables : ₹ 4,00,417 : ₹ 8,79,695 The Deputy Commissioner, Commercial Tax, Chittoor Division revised the order of the assessing authority and issued a show-cause notice, dated April 21, 2003, proposing to restrict the deductions allowed by the Commercial Tax Officer on the ground that the petitioner is not eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Departments contended that the court cannot expand the scope of rule 6(2) of the Rules, since the same has to be interpreted strictly. The petitioner/assessee has not put any efforts to establish the depreciation on vehicles, the expenses incurred and the cost of consumables. Under rule 6(2)(f) of the Rules, exemption can be claimed to the cost of establishment of the contractor to the extent it is relatable to supply of labour and services. Under rule 6(2)(d) exemption can be claimed towards the charges paid for obtaining the machinery and tools used in the execution of the works contract on hire, but not otherwise. Therefore, the impugned order does not call for any interference. The question that falls for consideration in these tax revision cases is whether the dealer, who is executing the works contract, is entitled for the deduction of amounts pertaining to the depreciation on trippers, maintenance expenses of trippers and consumables, used in the execution of works contract under rule 6(2) of the Rules or not? Section 5F of the Act, which deals with levy of tax on transfer of property in goods involved in the execution of works contract, is as follows: 5F. Levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the goods involved in the execution of a works contract, but has not accepted the contention advanced by the assessee/contractors, that the value of the goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. It was further held that the assessing authority has to take the value of the works contract as a whole and deduct therefrom the cost of labour and services rendered by the contractor during the course of execution of the works contract. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods and ultimately concluded under conclusion Nos. 4 and 5 as under: (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed or determined by the contractor factoring this wear and tear to the machinery and tools as a consequence of using them for the execution of the works contract, the value of the proportionate wear and tear of the machinery which is otherwise identified as depreciation has to be necessarily permitted as a deduction on the premise that it is equivalent to the hire charges as it otherwise provided in clause (d) and for such purpose one has to understand the same even in terms of the language of Explanation I as quoted above and particularly, to be one within the scope of other similar expenses relatable to supply of labour and services. ; and further, rejected the contention advanced by the learned Additional Government Advocate that the rule not having expressly enabled the dealer to claim a deduction of this nature, the assessing officer was not right in permitting a deduction of this nature and the revisional authority was right in allowing the deduction; and, accordingly, answered question No. 1 in favour of the assessee. In the case on hand, we are concerned with the interpretation of rule 6(2)(d), i.e., the charges for obtaining on hire or otherwise machinery and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged. In view of the same, we have no hesitation in coming to the conclusions that the assessee is entitled for exemption not only on the charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract but also on the amounts spent by the contractor on such machinery as a consequence of using them for the execution of the works contract including the value of the proportionate wear and tear of the machinery which is otherwise identified as depreciation on the premise that it is equivalent to the hire charges spent otherwise. The dominant idea for exempting the said charges should be use of the machinery for execution of the works and the amounts spent by the contractor on such machinery. Otherwise, there is no necessity to use the word or otherwise under rule 6(2)(d). In view of the above discussion and conclusions reached by us, the revised order passed by the Deputy Commissioner, dated July 31, 1993, as confirmed by the Sales Tax Appellate Tribunal by order, dated January 30, 2009, are hereby set aside and the order passed by the Commercial Tax Officer, granting exemption under the heads, viz., depreciation on vehicle, maintenance exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring engineering goods and execution of works contracts in different parts of the country including the State of Gujarat. The petitioners have a manufacturing division at Hazira near Surat in the State of Gujarat. During the relevant assessment year, the petitioners had entered into four contracts with respondent No. 5, ONGC. Details of such contracts are as follows: Sl. No. Contract no Project/ scope of supply/work 1. MR/OW/MM/SHRC/14R/2003 dated 21.04.2005 Survey, design, engineering, procurement, fabrication, installation and commissioning of reconstruction of SH complex platforms comprising process platform, gas compression platform, wellhead platform, etc. . 2. MR/OW/MM/BCPB2/02/2005 dated 06.02.2006 Survey, design, engineering, procurement, fabrication, installation and commissioning of BCP-B2 compressor platform with process platform bridge connected to BLQ2 platform . 3. MR/OW/MM/MHB S4WPP-1/16/2005 dated 21.02.2006 Survey, design, engineering, procuremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated outside 12 nautical miles from the Indian shores, that in absence of any notification issued by the Union of India extending the CST Act to the said area, the transaction in question was not exigible to any Central sales tax. It was also the case of the petitioners that the goods were exported outside India and that therefore, no tax can be levied under the CST Act. Undeterred by the petitioners' above objections, the assessing officer formed a prima facie opinion that there was no export of goods as claimed by the petitioners and further that tax at appropriate rate under the CST Act was leviable. He, therefore, issued notice dated February 21, 2010 calling upon the petitioners to file reply within 15 days, why tax at the rate prescribed under the CST Act should not be levied. He also indicated his prima facie reasons for holding such a belief. He formed a prima facie opinion that there was no export of goods and that the CST Act would, therefore, apply and the petitioners cannot avoid the liability to pay tax at the appropriate rate. The assessing officer also issued a separate notice dated February 17, 2011, proposing to impose penalty on the petitioners and cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners that being a writ petition directly filed against the order of assessment, we would not be dealing with second, third and fourth grounds of challenge and we would confine our enquiry only with respect to the first ground and if the petitioners failed in such challenge they would be relegated to appropriate appellate authority, who can examine all other contentions which are necessarily mixed questions of law and facts. With this clear understanding learned counsel for the parties have made detailed submissions before us. It is the case of the petitioners that the petitioners had undertaken turnkey projects for and on behalf of ONGC. While in execution of such turnkey projects the petitioners supplied certain parts, equipments and machineries to ONGC from their depot at Hazira. Such machinery and other parts were transported by the petitioners to Bombay High. Upon completion of the turnkey project, the responsibility of the petitioners under the contracts came to an end. The title in the goods passed from the petitioners to ONGC only at Bombay High. It is, thus, the case of the petitioners that when the goods were transported from Hazira to Bombay High, there was no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax v. Ronald William Trikard reported in [1995] 215 ITR 638 (Mad), wherein also applicability of Incometax Act to incomes arising out of the work done in exclusive economic zone came up for consideration. It was held that such income was not exigible to tax. Counsel also placed reliance on the decision of the Division Bench of Uttranchhal High Court in the case of Commissioner of Income-tax v. S.A. Atwood Oceanics International reported in [2003] 264 ITR 761 (Uttara), wherein also similar view was taken. On the other hand, Shri P.K. Jani, learned Government Pleader, appearing for the State authorities opposed the petition contending that the petitioners' goods cannot be said to be exported out of India and, that therefore, the petitioners' contention that tax under the CST Act cannot be levied is not correct. Counsel further submitted that the transaction in question was covered under section 3 of the CST Act since the sale occasioned the movement of goods from one Indian State to another. He, therefore, contended that the CST Act was applicable and demand of tax, interest and penalty was, therefore, justified. Counsel relied on the decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. Having thus heard learned counsel for the parties and having perused the documents on record, before dealing with the rival contentions, it would be useful to take note of relevant statutory provisions. From the preamble to the CST Act, it can be seen that the Act was enacted to formulate principles for determining when a 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 imports into or exports from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. Section 3 of the CST Act provides when sale or purchase of goods can be said to take place in the course of inter-State trade or commerce and reads as under: Section 3 of the CST Act: 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 dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement or order for or in relation to such export. (4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority. (5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier purchases aviation turbine fuel for the purposes of its international flight, such purchase shall be deemed to take place in the course of the export of goods out of the territory of India. Section 6 of the CST Act is a charging section and provides when the liability to tax on inter-State sales arises. Sub-section (1) of section 6, in particular, provides that subject to other provisions contained in the Act every dealer shall, with effect from the date as the Central Government may notify, be liable to pay tax under this Act on all sales of goods other than the electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. Proviso to sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry. Item No. 4 therein pertains to the State of Gujarat and reads as under: 4. Gujarat Gujarat The territories referred to in sub-section (1) of section 3 of the Bombay Reorganisation Act, 1960. To provide for certain matters relating to the territorial waters, continental shelf, exclusive economic zone and other maritime zones of Indian Union, Legislature has enacted the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (hereinafter after referred to as, the Maritime Zones Act ). Sub-section (1) of section 3 of the Maritime Zones Act provides that the sovereignty of India extends and has always extended to the territorial waters of India and to the seabed and subsoil underlying and the air space over, such waters. Section 3 of the Maritime Zones Act reads as under: 3. (1) The sovereignty of India extends and has always extended to the territorial waters of India (hereinafter referred to as the territorial waters) and to the seabed and subsoil underlying, and the air space over such waters. (2) The limit of the territorial waters is the line every point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as the continental shelf) comprises the seabed and subsoil of the submarine areas that extend beyond the limit of its territorial waters throughout the natural prolongation of its land territory to the outer edge of the continental margin or to a distance of two hundred nautical miles from the baseline referred to in sub-section (2) of section 3 where the outer edge of the continental margin does not extend up to that distance. (2) India has, and always had, full and exclusive sovereign rights in respect of its continental shelf. (3) Without prejudice to the generality of the provisions of subsection (2), the Union has in the continental shelf, (a) Sovereign rights for the purposes of exploration, exploitation, conservation and management of all resources; (b) exclusive rights and jurisdiction for the construction, maintenance or operation of artificial islands, off-shore terminals, installations and other structures and devices necessary for the exploration and exploitation of the resources of the continental shelf or for the convenience of shipping or for any other purpose; (c) exclusive jurisdiction to authorize, regulate and control scientific research; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall apply in relation to fishing by a citizen of India. (6) The Central Government may, by notification in the Official Gazette, (a) declare any area of the exclusive economic zone to be a designated area; and (b) make such provisions as it may deem necessary with respect to, (i) the exploration, exploitation and protection of the resources of such designated area; or (ii) other activities for the economic exploitation and exploration of such designated area such as the production of energy from tides, winds and currents; or (iii) the safety and protection of artificial islands, off-shore terminals, installations and other structures and devices in such designated area; or (iv) the protection of marine environment of such designated area; or (v) customs and other fiscal matters in relation to such designated area. Explanation. A notification issued under this sub-section may provide for the regulation of entry into and passage through the designated area of foreign ships by the establishment of fairways, sealanes, traffic separation schemes or any other mode of ensuring freedom of navigation which is not prejudicial to the interest of India. (7) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 3 of the CST Act, the sale and purchase of goods is deemed to take place in the course of inter-State trade or commerce if the sale and purchase occasions movement of goods from one State to another. It is, therefore, necessary for us to ascertain whether the sale in question occasioned the movement of goods from one State to another. It is therefore, necessary for us to ascertain whether the movement of goods from Hazira to Bombay High can be stated to be a movement of goods from State of Gujarat to another State within the country. From the statutory provisions contained in the Maritime Zones Act, as noted in the earlier portions of this order, it can be seen that the Act envisages territorial waters of India and limits of territorial waters is the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline. Sub-section (1) of section 3 specifies that the sovereignty of India extends and has always extended to the territorial waters of India and to the seabed and subsoil underlying and the air space over, such waters. Maritime Zones Act also envisages contiguous zones of India as the area beyond and adjace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng energy from tides, winds and currents. Union also has, within such exclusive economic zone exclusive jurisdiction to authorize, regulate and control scientific research and exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution. Sub-section (5) of section 7 prohibits any person except under, and in accordance with, the terms of any agreement with the Central Government or of a licence or a letter of authority granted by the Central Government, explore or exploit any resources of the exclusive economic zone or carry out any search or excavation or conduct any research within the exclusive economic zone or drill therein or construct, maintain or operate any artificial island, etc. Sub-section (6) of section 7 empowers the Central Government by notification in Official Gazette to declare any area of exclusive economic zone to be a designated area and to make such provisions as it may deem necessary with respect to, besides other purposes, customs and other fiscal matters in relation to such designated area. Sub-section (7) of section 7 authorizes the Central Government by notification in Official Gazette to extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws notified and for that limited purpose exclusive economic zone shall be deemed to be a part of the territory of India. It is not the same thing as to suggest that exclusive economic zone becomes part of the territory of India. It is not even the case of the respondents that the exclusive economic zone is part of the territory of India as provided in article 1 of the Constitution of India. There is no claim of sovereignty over such an area, it is sovereign rights which are extended to such area by virtue of formation of exclusive economic zone for the limited purposes envisaged under the statute. By virtue of clause (b) of subsection (7) of section 7 of the Maritime Zones Act it becomes further clear that as and when Union of India issues notification extending any enactment over the exclusive economic zone or part thereof such enactment extended is applicable as if the exclusive economic zone or part thereof to which it has been extended is a part of the territory of India. In view of the above discussion, it clearly emerges that when the sale of goods took place at Bombay High, for which the goods moved from Hazira to Bombay High, such movement does not get covered within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve economic zone (which was issued with effect from April 1, 1983) no tax can be levied for income arising in such region. Such was also the view of the Division Bench of Uttaranchal High Court in the case of Commissioner of Income-tax v. S.A. Atwood Oceanics International reported in [2003] 264 ITR 761 (Uttara) wherein, it was held and observed as under (pages 763 and 764 in 264 ITR): In this appeal we are concerned regarding taxability of income earned by a foreign technician, employee, on the rigs located in the continental shelf and the economic zone but beyond territorial waters of India during the accounting year ending March 31, 1983. On March 31, 1983, the Government of India issued Notification No. G. S.R. 304(E) (see [1983] 142 ITR (St.) 11), under section 6(6) and section 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (hereinafter referred to for the sake of brevity as, 'the said Act, 1976'). By the said notification the provisions of the Income-tax Act were made applicable from April 1, 1983, to the continental shelf and exclusive economic zone. It is important to note that in this case we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wider provisions in section 2(25A). In absence of such provisions as it stands in the present form and in absence of a notification extending the Income-tax Act to exclusive economic zone and such other areas, as already noted, different High Courts have held that no tax can be collected on the incomes arising out of the works done in such exclusive economic zone. It may further be noticed that Union of India has issued different notifications under different fiscal statutes, e.g., by a notification dated September 19, 1996 the Central Government has extended the Customs Act and the Customs Tariff Act to the designated areas of the continental shelf and the exclusive economic zone with immediate effect. Likewise in a notification dated June 11, 1987, the Central Government has extended the Central Excise and Salt Act, 1944, the Mineral Products (Additional Duties of Excise and Customs) Act, 1958 and the Central Excise Tariff Act, 1985 to the designated areas in the continental shelf and exclusive economic zone. Similarly, by notification issued in March, 1983 the Central Government has extended the Income-tax Act, 1961 to the continental shelf of India and exclusive economic zon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound the apex court considered the above-noted legal question. The apex court examining the provisions contained in section 6 of the Maritime Zones Act observed in paragraph 74 of its decision that it is clear that in respect of continental shelf and exclusive economic zone, India has been given only certain limited sovereign rights and such limited sovereign rights conferred on India in respect of continental shelf and Exclusive Economic Zone cannot be equated to extending the sovereignty of India over the continental shelf and exclusive economic zone. Referring to words as if used in the said provisions, it was observed that subsection (6) of section 6 and sub-section (7) of section 7 create fiction by which continental shelf and exclusive economic zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification. In paragraph 77 of the decision, it was observed that the coastal State has no sovereignty in territorial sense of dominium over the contiguous zone, but it exercises sovereign rights for the purpose of exploring the continental shelf and exploiting its natural resources. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods imported into these areas as if these areas are a part of the territory of India. In these circumstances, the definition of 'India' as given in section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the continental shelf and the exclusive economic zone of India. . . The decision in the case of Aban Loyd Chiles Offshore Limited v. Union of India [2008] 11 SCC 439, thus clearly lays down principle of limited sovereign rights over continental shelf and exclusive economic zone regions and giving rise to a deeming fiction for the purpose of extension of the laws by notification issued by the Central Government under sections 6 and 7 of the Maritime Zones Act. In the said case on extending the Customs Act and Central Excise Act, by virtue of notifications, the apex court held that any movement of goods to such exclusive economic zone would not be an export and no export benefit can be availed on such supply. It was further held that mineral oil produced in the exclusive economic zone and continental shelf will be chargeable to Central excise duty as goods produced in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apex court did observe that there can be movement of goods by virtue of local sale, inter-State sale or sale in course of export outside the territory of India. It was observed that the sale effected by the assessees in the circumstances, which have been set out in the earlier portion of the judgment, must fall in one of the three categories. It was observed that we are unable to conceive of a fourth category of sale, which could be neither a local sale nor an inter-State sale nor an export sale . Much was sought to be made out from these observations of the apex court by the counsel for the State. It was contended that since the sale can fall in only one of the three categories, in the present case, the court must hold that it is either inter-State sale or a local sale since the contention that it was an export sale has not been pressed. We are, however, unable to accept the contention. The observations of the apex court cannot be seen in isolation and it is well-settled that it is not observation of the court but what the court holds in the fact-situation of a given case which is the ratio that can be applied in similar set of facts and circumstances. In the decision of Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt observed as under (page 115 in 245 ITR): However, in our opinion, the rule that the court would not entertain a writ petition under article 226, if there was an alternative remedy was a rule of judicial policy. 'It was a rule of policy, convenience and discretion rather than a rule of law.' If the alternative remedy was onerous and burdensome or the decision of an authority was without jurisdiction or in violation of the rules of natural justice or there was an error of law apparent on the face of the record, or where the statute under which an administrative order was passed was unconstitutional, the courts granted the remedy under article 226. In our opinion, though learned counsel appearing for the Revenue has relied upon several judgments of the Supreme Court regarding alternative remedy, the same are not applicable to the present case. In our view even if the petitioner files an appeal before the Commissioner of Income-tax, the Commissioner of Income-tax would be guided by what the circular of the Central Board of Direct Taxes says and, therefore, the remedy provided by way of appeal under the Act is futile and therefore also we are inclined to entertain this pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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