TMI Blog2014 (9) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... of or incidental to the contract of sale. Therefore only when sale or purchase of goods occasions movement of goods from one State to another, the liability to pay tax under the Act is attracted. If the goods are manufactured and transported to another State merely because before delivery of the goods in terms of the contract some additional fixture were embedded to that manufactured goods, it would not nullify the effect of the goods being transported after it is being manufactured from one State to another. The effect of an inter-State sale is not effaced by such additions to manufactured product. This court in its revisional jurisdiction cannot interfere with the finding of fact recorded by the appellate authority based on legal evidence. Therefore the contention that what is transported from Bangalore to Delhi was only a part of the rolling stock and it was not a finished product has no substance. In a contract of this nature, what is to be seen is, what is the dominant nature. If the contract is looked into from that angle, it is very clear that after importing material from Korea, after getting locomotive part from Kolkata, Chennai and Coimbatore, at BEML, these rail co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Sales Tax Act, 1956. 2. As the question involved in all these revisions is one and the same, they are taken up for consideration together and disposed of by this common order. 3. The assessee, M/s. Mitsubishi Corporation, formed a consortium along with Mitsubishi Electric Corporation and Rotem Company. Mitsubishi Corporation is a leader of MRM Consortium. They have been awarded a contract (RSI) for design, manufacture, supply and commissioning of passenger rolling stock or train sets for the Mass Rapid Transport SystemPhase I for the metro rail project of M/s. Delhi Metro Rail Corporation for their project at New Delhi, for short, hereinafter referred to a DMRC . Under the RSI Contract, MRM Consortium, for short, hereinafter referred to as contractor or consortium, was to supply 60 trains sets (240 cars, as each train set comprises of four cars). Out of 60 train sets 15 train sets were to be manufactured in Korea and supplied to DMRC on high sea sale basis. The remaining 45 trains sets were to be manufactured indigenously in India. For manufacturing these 45 train sets indigenously in India, the consortium imported as well as procured within India, material in SKD/CKD co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi, pulled by a locomotive provided by Indian Railways on hire basis and the freight charges of Indian Railways are borne by Rotem company. After their arrival at the Consortium project site at Delhi, the Consortium undertakes to do the remaining work on the cars to complete them into the passenger rolling stock (finished train sets) as required to be supplied to DMRC under the contract RSI. At the project site, installation of telecom equipments, signaling equipments, pantograph, PA/PIS equipments including route software, safety equipments and other components are installed and functional test carried out on the car body structures at New Delhi. Thereafter, integrated testing and commissioning of the trains are done which includes interface tests with telecom, signaling, station control equipment, track, overhead power traction, etc. It is thereafter the passenger rolling stock is transferred/supplied to DMRC under the RSI contract. It is at that stage consortium raises sales invoice for the train set handed over to DMRC. The consortium is registered under the Delhi Sales Tax Act. Admittedly they have not registered under the Central Sales Tax Act (for short, hereinafter referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Joint Commissioner of Commercial Taxes (Appeals). 7. The first appellate authority on careful scrutiny of the entire material on record, after considering the contentions of the assessee and also taking note of the law declared by the apex court in various judgments held that the movement of rolling stocks ex-works BEML, Bangalore to New Delhi amounted to inter-State sales of rolling stock by M/s. Rotem Company and therefore the consortium is liable to pay Central sales tax and accordingly the appeals were dismissed upholding the orders of the assessing officer. 8. Aggrieved by the said order the assessee preferred second appeals to the Karnataka Appellate Tribunal. The Appellate Tribunal by a detailed order has upheld the order passed by the first appellate authority and dismissed the appeals of the assessee. Aggrieved by the said order, the assessee is before this court by way of a revision petitions challenging the findings recorded by the lower authorities. 9. Sri Udaya Holla, the learned senior counsel appearing for the assessee, assailing the impugned orders contended that the goods which were moved from Bangalore to Delhi are not the finished product and are in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded in assessing the sales tax. For the aforesaid reasons he submitted that the impugned orders are illegal and require to be set aside. In support of his contention he relied on several judgments. 13. Per contra, Sri Indrakumar, the learned senior counsel appearing for the Revenue, supported the impugned order. He contended that under the contract between the parties what is agreed to be supplied is indigenously manufactured rail cars. The said rail cars are manufactured at BEML and after the cars were so manufactured, the finished product was moved from Bangalore to Delhi on rails and thereafter the Consortium has sold the said cars to DMRC at Delhi. As the contract of sale occasioned the movement of the goods from Bangalore to Delhi, section 6 of the CST Act is attracted read with section 9(1). The liability to pay Central sales tax arises and the Karnataka Government within whose jurisdiction the movement commenced is the authority which is competent to levy Central sales tax. He further contended that though the assessee contends that the rail cars which commenced movement from Bangalore were not the finished product and after the said rail cars reached Delhi the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted, whether tax payable on the components which are embedded to the rail cars at Delhi is to be excluded at the time of computation of tax? 15. Before we go into the factual aspects, it is necessary to look into the relevant provisions of law, the interpretation placed by the apex court and the inferences which are to be drawn therefrom. 16. By the Constitution Sixth Amendment, articles 269 and 286 were amended. Sub-section (3) was substituted in article 269 which underwent further amendment consequent to Sixth Amendment to the Constitution. It reads as under: (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce. 17. Similarly, sub-section (2) was substituted to article 286. It reads as under: (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). 18. Consequently, entry 92A was included in List I and consequent to the same entry 54 was amended by way of substitution in List II of Schedule VII. Entry 92A, List I, Schedule VII reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose on behalf of the Central Government tax on the sale or purchase of goods in the course of inter-State trade or commerce. The Central legislation should also delegate to the States the Central Government's power to levy and collect the tax and for this purpose prescribe the same system of registration, assessment, etc., as prevails in the States concerned under their own sales tax system. (ii) An important aspect of the Central legislation will be concerned with the definition of the locale of sales for the purpose of defining in detail the relative jurisdiction, firstly of the Union and the States, and secondly, of the States inter se. It is therefore, necessary that the law should define clearly, with specific reference to sales tax the circumstances in which a sale or purchase becomes taxable by a particular State and no other. It should also define for the purpose of the Constitutional restrictions on the State's power to impose a tax under item 54 of the State List, when a sale or purchase of goods may be said to take place: (a) in the course of export out of India; (b) in the course of import into India; and (c) in the course of inter-State trade or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified: Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of subsection (3) of section 5, is a sale in the course of export of those goods out of the territory of India. (1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of any goods in the course of interState trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods, (a) to the Government, or (b) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of such goods under this Act. 23. Section 9 provides for levy and collection of tax and penalty. During the relevant period it read as under: 9. Levy and collection of tax and penalties. (1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of sub-section (2), in the State from which the movement of the goods commenced: Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of section 6, the tax shall be levied and collected (a) where such subsequent sale has been effected by a registered dealer, in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of clause (a) of sub-section (4) of section 8 in connection with the purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection or enforcement of payment as if the tax under this Act were a tax under such sales tax law. (2B) If the tax payable by any dealer under this Act is not paid in time, the dealer shall be liable to pay interest for delayed payment of such tax and all the provisions for delayed payment of such tax and all the provisions relating to due date for payment of tax, rate of interest for delayed payment of tax and assessment and collection of interest for delayed payment of tax, of the general sales tax laws of each State, shall apply in relation to due date for payment of tax, rate of interest for delayed payment of tax, and assessment and collection of interest for delayed payment of tax under this Act in such States as if the tax and the interest payable under this Act were a tax and an interest under such sales tax law. (3) The proceeds in any financial year of any tax, including any interest or penalty, levied and collected under this Act in any State (other than a Union Territory) on behalf of the Government of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union Territories shall form part of the consolidated fund of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 26. Following the aforesaid judgment, the apex court in the case of Union of India v. K. G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC); [1979] 2 SCC 242, explaining the meaning of the words when the sale occasions the movement of goods from one State to another has held as under (pages 461, 462 and 464 in 43 STC): 14. It is clear from these averments that goods were manufactured by respondent 1 in its factory at Faridabad, Haryana, in pursuance of specific orders received by its head office at Delhi. The contracts of sales were made at Delhi and in pursuance of those contracts, goods were manufactured at Faridabad according to specifications mentioned in the contracts. This, therefore, is not that type of case in which goods are manufactured in the general course of business for being sold as and when offers are received by the manufacturer for their purchase. Contracts of sales were finalised in the instant case at Delhi and specific goods were manufactured at Faridabad in pursuance of those contracts. Those were 'fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. If the sale or purchase satisfies any one of the two requirements it is deemed to be a sale or purchase of goods in the course of inter-State trade or commerce and, by virtue of articles 269 and 286, the sale or purchase would be beyond the competence of a State Legislature to tax without regard to the fact whether such a prohibition is spelled out by the description of a legislative entry in Seventh Schedule or not. 28. The Supreme Court in the case of Bharat Heavy Electricals Limited v. Union of India [1996] 102 STC 373 (SC) after referring to sections 3, 4, 5, 9, 14 and 15 and also the different aspects of articles 286 and 269 held as under (pages 382 and 383 in 102 STC): The aforesaid survey of the relevant provisions of the Act clearly shows that sections 3, 4, 5, 9(1), 14 and 15 pertain to and deal with distinct topics and different aspects of articles 286 and 269. It follows that if a question arises whether a sale is an inter-State sale or not, it has to be answered with reference to and on the basis of section 3 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom one State to another is a result of a covenant or an incident of the contract of sale, then the sale is an interState sale, no matter in which State the property in the 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. 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 interState movement must be specified in the contract itself. It would be enough if the movement was in pursuance of or incidental to the contract of sale. Therefore only when sale or purchase of goods occasions movement of goods from one State to another, the liability to pay tax under the Act is attracted. 31. A transaction of sale is subject to tax under the Central Sales Tax Act on the completion of the sale, and a mere contract of sale is not a sale within the definition of sale in section 2(g). A sale being by the definition, transfer of property, becomes taxable under section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te trade or commerce. Significantly, similar provision is not found in respect of goods which are imported into the territory of India. Sub-section (2) of section 5 which deals with imports, provides for sale or purchase of goods which shall be deemed to have taken place in the course of import of goods into the territory of India, only if sale or purchase has occasioned such import or is effected by transfer of documents of title to the goods before the goods crossed the custom frontier of India. In other words, if an agreement of sale occasions the movement of goods into the territory of India from outside the territory, still the liability to tax under the Act is not attracted, because the liability to pay tax under the Act arises only if an agreement of sale occasions movement of goods from one State to another. For sales in the course of import, three essentials would obviously be required to be met before the sale can be said to be in the course of import. (i) there must be a sale; (ii) the goods must actually be imported; and (iii) the sale must be part and parcel of the import. In the course of import, if goods are imported from outside the country into the country, when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, such sale did not satisfy the requirement of section 3 and consequently there is no liability to pay tax under section 6. If after such import, the goods are sold or purported to be sold in a State in which it imported such goods do not attract sales tax either under the local law or under the Act. The imposition of tax by the State is prohibited by article 286 read with section 5(2) of the CST Act. No tax is payable under the Act because the requirement of section 6 is not complied with. But if after materials are imported into the State and the said materials are consumed and a new product is manufactured and that manufactured goods cross the borders of the State in pursuance of an agreement of sale then section 3 is attracted. In other words, if in pursuance of a contract of sale, after manufacturing the goods, it occasions movement of such manufactured goods from one State to another State, section 6 is attracted. It is immaterial where the sale actually takes place. 36. The Constitution Bench of the Supreme Court in the case of Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras reported in [1970] 25 STC 528 (SC); [1970] 3 SCR 147, held as under (page 541 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 38. In the case of K. Gopinathan Nair v. State of Kerala reported in [1997] 105 STC 580 (SC); AIR 1997 SC 1925, the apex court has adverted to the Constitution Bench judgment in the case of Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC); [1970] 3 SCR 147 and the principles laid down in the said case have been applied in respect of the parameters envisaged in section 5(2) of the Act. The apex court has held thus (pages 590 and 591 in 105 STC): . . . The third Constitution Bench judgment is found in the case of Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC); [1969] 3 SCC 349; AIR 1971 SC 870; [1970] 3 SCR 147. In that case the Coffee Board had sold coffee at the export auctions with a view that the coffee may get exported through these auction purchasers to outside countries. It was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r actual delivery to their actual users would be broken. The integrated course of import would then be found wanting. . . Thus, it can be noticed that three essential conditions for a sale to be in the course of import within the meaning of section 5(2) of the Act are required to be met before the sale can be said to be in the course of import. Thereafter, at paragraph 12, the Supreme Court has summed up the legal position as under (page 599 in 105 STC): 12. In the light of the aforesaid settled legal position emerging from the Constitution Bench decisions of this court the following propositions clearly get projected for deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by section 5(2) of the Central Sales Tax Act, 1956: (1) The sale or the purchase, as the case may be, must actually take place. (2) Such sale or purchase in India must itself occasion such import, and not vice versa, i.e., import should not occasion such sale. (3) The goods must have entered the import stream when they are subjected to sale or purchase. (4) The import of the concerned goods must be effected as a direct resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these 15 train sets are concerned section 5(2) is attracted and therefore no liability under the tax is attracted. In respect of the remaining 45 trains are concerned, the contract is for supply of the train sets after they are manufactured indigenously in India. For manufacturing them indigenously in India, the assessee, i.e., MRM consortium did not import any goods for manufacturing the same. It is the members of the consortium, namely, M/s. Mitsubishi Corporation procured propulsion system from Japan and yet another member Rotem India procured the parts from Korea. Then those imported parts were entrusted to BEML at Bangalore. BEML at Bangalore after fabrication and manufacturing despatched the same to Delhi. RSI contract is entered into between M. R. M. Consortium and DMRCL. There was no privity of contract between the DMRCL and the firm at Japan, as well as the firm at Korea to supply those materials. After these materials were procured by the members of the consortium and not the consortium they were delivered to BEML. These cars were assembled/fabricated/manufactured. That is what is agreed to under the agreement. That is manufactured indigenously in India. The said fabri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi Shahadara in 2002. 2.0 In order to commission these coaches in Delhi Metro Rail System, the coaches are required to be moved from M/s. BEML, Bangalore to Delhi-Shahadara via Raichur-Secunderabad-NagpurBhopal-Jhansi. It is certified considering the design features, that DMRC coaches are safe for movement on Indian Railway System in unbraked, empty condition, as a trailing load, at a maximum speed of 30 km/h in a special take formation from M/s. BEML, Bangalore to Delhi-Shahadara via Raichur-Secunderabad-Nagpur-Bhopal-Jhansi, subject to the following conditions. 41. As is clear from the aforesaid letter of the railways para 2.3 deals with rolling stock and 2.3.1 makes it explicitly clear that before initiating the movement of DMRC coaches CME of the railway will certify the track worthiness and safety of the rolling stock. The coaches should move preferably with air springs inflated. 42. The said letter clearly demonstrates that the coaches have been designed by M/s. Rotem Korea and manufactured by BEML, Bangalore. These 180 numbers empty DMRC coaches are to be moved on their own wheels with Panto in locked down condition on Indian Railway System, in order to commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though essential but can be regarded as incidental to the main contract, i.e., for supply of train sets. Therefore, the RSI contract though it appears to be a composite contract but it is contract for supply of goods as dominant objective of the contract is for supply of passenger rolling stock. In paragraph 31, it has observed as under: These inspection reports do not reveal that the substantial portion of the work is yet to be attended at Delhi in order to say that the copleted train sets as per the specification of RSI contract would come into existence only in Delhi. The minor works to be attended at Delhi on these train sets are in the nature of incidental work to be attendee to the satisfaction of the DMRC authorities before taking the delivery of the train sets. No material has been added to the train sets sent from Bangalore by the consortium at Delhi, on the other hand only services of qualified engineers, skilled workers and labourers are employed to cure the defects as pointed out in the inspection reports. Further, the appellant's counsel made an attempt to produce additional document like purchase invoices to demonstrate that the additional work is carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re fulfilled in this case. 45. Therefore, it is clear what is transported from BEML to DMRC is rolling stock. Clause (1) of the agreement between DMRC and MRM is manufacture, supply and commissioning of passenger rolling stock of contract RSI of the mass rapid transport system. It is in pursuance of the said contract, the passenger rolling stock, the goods agreed upon to be sold, moved from Bangalore to Delhi. In other words, the contract entered into between the parties occasioned the movement of goods from Bangalore to Delhi and therefore section 3 of the Act is attracted. It is this inter-State movement of the goods which attracts payment of tax under section 6 of the Act. Though the parts which are used in the manufacture of rolling stock is imported from Korea to Bangalore, the said parts or goods was not appropriated or sold in State of Karnataka. On the contrary it is used in the fabrication and manufacture of passenger rolling stock. It is after manufacturing the said goods they were transferred to Delhi for being sold to DMRC. Therefore, though the sale has taken place at Delhi, as the agreement of sale occasioned the movement of goods from Bangalore to Delhi, it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 17, 2006 is produced as annexure K. It discloses that goods vehicle bearing No. HR 386-8082 was called at Shiradon Check-post on June 5, 2004 at 11.35 a.m. the person in-charge of the goods vehicle had tendered L.R. issued by M/s. Mahalakshmi Logistics (P) Ltd., along with pro forma invoice issued by KNORR BREMSE INDIA (P) LTD., Haryana, in support of goods carried in the goods vehicle. On verification of the same, the COP found that the goods were consigned to M/s. Rotem Company, Bangalore, Site office at BEML, Bangalore. The CPO observed that the pro forma bill did not contain the registration number under the KST Act/CST Act of the consignee. Therefore, the CPO had issued a G.C. endorsement to confirm the existence of the consignee. Rejecting the reply furnished to the G. C. endorsement the CPO has issued a show-cause notice proposing a penalty of ₹ 10,85,565. The reply filed by M/s. Rotem to the show-cause notice was also rejected and the order imposing penalty as proposed was passed. Appeal filed against the said order came to be dismissed. In second appeal, the Tribunal held that M/s. Rotem is not a dealer under the provisions of the Karnataka Sales Tax Act, 1957 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is, whether the assessee is liable to pay tax under section 6 of the Act. The said questions were neither raised in the said appeal nor answered by the Tribunal. In that view of the matter, the said order does not operate as res judicata and therefore, we do not find any substance in the said contention. 49. It is submitted that if it is to be held that the agreement of sale occasioned movement of goods from Bangalore to Delhi the tax to be levied is on the value of the goods. After it reaches its destination at Delhi, if there are any value additions, that cannot be the subject-matter of levy of tax under the Act by the State of Karnataka under section 9 of the Act. It was further contended that as at the point of actual sale, the Government of India had not granted exemption from payment of customs duty and excise, all of them have added to the value of the goods. Therefore, the tax levied under section 9 is on the total value. Once Government of India granted exemption from payment of customs duty and excise duty, corresponding value of the goods is to be reduced and tax leviable under section 6 is to be confined only to that net value of the goods which were manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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