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M/s. Larsen and Toubro Ltd. Versus State of Andhra Pradesh rep. by its Principal Secretary (Revenue) , Hyderabad And Others

2015 (12) TMI 470 - ANDHRA PRADESH HIGH COURT

Exemption from tax under Section 6(2) of the CST Act - Import sales under Section 5(2) of the CST Act - Lack of jurisdiction - Does existence of a statutory remedy of appeal under the A.P. Vat act require this court to refrain from exercising jurisdiction under Article 226 of the Constitution of India - Held that:- The orders, under challenge in these Writ Petitions, are either assessment or revisional orders passed by the concerned authorities exercising jurisdiction under the AP VAT Act. This .....

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appeal can be disposed of where the issue is a matter of law or fact, whereas an application for certiorari is limited to cases where the issue is a matter of law appearing on the face of the order ie where the decision is liable to be upset as it is made without jurisdiction or in consequence of an error of law. - If the tribunal has erroneously refused to admit admissible and material evidence, or has erroneously admitted inadmissible evidence, or if a finding of fact is based on no evide .....

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nd upon the facts and circumstances of each case, and upon the nature and scope of the legal provisions which is alleged to have been misconstrued or contravened. - As larger issues regarding the scope of certain provisions of the CST Act arise for consideration, we have examined all the issues raised both on behalf of the petitioners and the respondents, even though they may not have been dealt with in the impugned orders, as a quietus must be given to the oft recurring questions regarding the .....

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as the contractor; the person, from whom the contractor purchased the goods, as the supplier; and the person, for whom the goods were purchased and incorporated in the works, as the owner. The submission, made on behalf of the petitioners, is that the subject contracts are two independent contracts - one for supply and the other for erection, and the "bailment"/"free issues" clauses in the contracts show that, after the goods are sold by the petitioner - contractor to the owner, the owner then .....

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each of the erection contract and vice-versa, would mean that, while the contracts are ostensibly two separate contracts - one for supply of material and the other for rendering works and services, they are, in fact, one single indivisible contract. The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in turnkey projects of a similar nature. The petitioners have .....

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total contract price combining the contract prices of the individual agreements. It is evident that, while the form of the contracts indicate that they are two separate contracts, in substance they are one single indivisible works contract for supply of material and for erection and installation of equipment. Existence of a bailment clause or a free issues clause does not alter the situation. - L and T has admitted in its Writ Petition that the contract between the petitioner and owner is an in .....

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s by the petitioner-contractors to the owners fall within the ambit of section 6(2) of the CST Act - Held that:- Section 6(1) envisages payment of tax on all sales effected in the course of inter-state trade or commerce and, in effect, provides for a multipoint or multi-stage taxation regime for the inter-state sale of goods. Section 6(1) is subject to the other provisions of the CST Act. Section 6(2), which contains a non-obstante clause, has been introduced to avoid the cascading effect of mul .....

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o tax and all subsequent sales, effected during the movement of such goods from one State to another, are exempt from tax under Section 6(2) of the CST Act. - Should the subsequent sale, to be exempt under section 6(2), have the characteristics of an inter-state sale under section 3(b) of the CST Act - Held that:- The conditions discernible from Section 6(2) are that, while the first sale can be either a Section 3(a) or a Section 3(b) sale, the second or subsequent sale has to be a Section 3 .....

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ove or in the State where the goods are delivered, both a Section 3(b) and a subsequent sale exempt under Section 6(2) can only take place when the goods are in movement from one State to another. A contract of sale entered into either before commencement of movement in the first State, or after completion of movement of the goods in the second State, can neither be a Section 3(b) sale nor a subsequent sale exempt under Section 6(2) of the CST Act. - Sale of unascertained goods can also take .....

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is only a contract of sale of specific goods which can be effected by transfer of documents of title during its movement, and not a sale of future goods. - As the subject contracts provide for sale of future goods, they could not have been, and were not, entered into when the goods were in movement from one State to another. A contract for the sale of future goods can neither be a Section 3(b) sale nor a subsequent sale exempt from tax under Section 6(2) of the CST Act. As the subject contracts .....

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r erection and commissioning of the plant, and not prior thereto. It is evident, therefore, that the title to the goods was not transferred during its movement from one State to another, but only after the goods were incorporated in the works in the State of Andhra Pradesh (now the States of Telangana and Andhra Pradesh). Consequently the revenue was justified in rejecting the petitioners' claim of the sale of goods, under the subject contracts, being subsequent sales exempt from tax under Secti .....

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supplier at a lower price and, during movement of the goods intended only to reach the owner, have sold the goods to the owner at a higher price. While tax, under the CST Act, is paid by the contractor on the purchase of goods from the supplier, no tax is paid by them on the sale of goods to the owner. As the value of the goods purchased by the contractor from the supplier is far less than the value of the goods sold by the contractor to the owner, the tax paid under the CST Act is far lower tha .....

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ms of their contract. All that the assessing and revisional authorities are required to examine is whether the subject transactions, on a reading of the contract as a whole, fall within the ambit of either Section 3(a) or Section 3(b) of the CST Act. It is not open to them to consider whether, instead of an inter-state sale, the goods could have been transferred by the petitioner contractor to themselves within the state, and then sold the goods to the owner only to enable the revenue to levy ta .....

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horities to impose. - There is no provision either under the A.P. VAT Act or under the Writ Proceedings Rules which enable the petitioners to simultaneously invoke the jurisdiction of the High Court and the statutory appellate authorities against the very same assessment/revisional orders, albeiton different grounds. That would, however, not justify this Court taking upon itself the task of examining all the issues, which arise for consideration from the impugned orders, merely because the W .....

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ers herein within four weeks from today, to entertain them despite expiry of the period of limitation for filing appeals under the Act. - Petition disposed of. - Writ Petition Nos. 22960 and 23034 of 2007; 8122 and 9016 of 2008; 4763, 8006, 12745, 15121, 16857, 16909, 16945 and 19516 of 2009; 8955 and 25776 of 2010; 10711, 23689 and 26994 of 2011; 6834 of 2012; 8664 and 39431 of 2013; 14192 and 14457 of 2014 - Dated:- 14-9-2015 - Ramesh Ranganathan And M. Satyanarayana Murthy, JJ. For the Petiti .....

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2009, W.P. No.8955 of 2010, W.P. Nos.10711 and 23689 of 2011, W.P. No.6834 of 2012, W.P. No.39431 of 2013 and W.P. No.14457 of 2014. Alstom Projects India Ltd filed W.P. Nos.4763 and 12745 of 2009, and W.P. No.26994 of 2011. M/s. Siemens Ltd, Hyderabad filed W.P. Nos.16857, 16909 and 16945 of 2009, W.P. No. 25776 of 2010, W.P. No.8664 of 2013 and W.P. No.14192 of 2014. BGR Energy Systems Ltd, Nellore filed W.P. No.19516 of 2009. All the petitioners have executed turnkey projects for different c .....

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to note the contents of the assessment order passed in W.P. No.8006 of 2009 as illustrative of the orders impugned in these Writ Petitions. The petitioner in W.P. No.8006 of 2009, M/s. Larsen and Toubro Ltd, is a company registered under the Companies Act with its registered office at Mumbai. It has various branches, among others, at Hyderabad also. It is engaged in the execution of Engineering, Procurement and Construction (EPC) Works Contracts on a turnkey basis, and is a registered dealer bot .....

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ri Power Generation Limited (hereinafter referred to Vemagiri). In the assessment order dated 12.03.2009, the assessing authority noted that the petitioner (Larson and Toubro) had, during the financial year 2005-06, entered into six supply contracts, two of which were with Konaseema and Vemagiri; placing reliance on certain clauses in the agreement, the petitioner had stated that they were required to deliver the goods as agreed upon mutually, and the contractees had also agreed to provide neces .....

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f Vemagiri; with regards transit-sales, they had contended that, while the goods were in the course of inter-state movement, the documents of title to the goods were transferred in favour of Konaseema which, in turn, took delivery of the goods; with regards import sales, they claimed to have placed orders on approved dealers outside the country; while the goods were consigned to them, the bills of lading ie, the documents of title to the goods were endorsed in favour of Vemagiri which, in turn, .....

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nd were exempt from levy of tax. In the impugned assessment order the assessing authority observed that, in the show-cause notice, he had opined that there were two independent transactions - one between the foreign seller in favour of the contractor, and the second set of transaction between the contractor and the contractee; the petitioner had refuted this contention contending that the goods had moved from outside the State specifically for the purpose of compliance of the supply contract and .....

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racting Sections 3(b) and 5(2) of the CST Act, the assessing authority held that these provisions refer to a 'sale'which is effected by transfer of documents of title while the goods are under movement from one State to another (Section 3(b)), and while the goods are imported into the territory of India (Section 5(2); the goods involved in these transactions were subject to inspection by the contractee, which could also be rejected at the contractor's cost; it is only after satisfact .....

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e subject to inspection by the contractee/purchaser; the impugned transactions were, therefore, required to be treated as intra-state sales; the contract between the petitioner and Konaseema was to build, own and operate a combined cycle electric power plant; the petitioner was required to design, engineer, manufacture, test and supply the material ex-works; however, by a separate agreement, the petitioner was required to engineer, design, procure, and construct the civil and structural works ba .....

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, intrinsically, it was a works contract awarded to the petitioner duly splitting it into a supply contract and a labour contract; the intention of both the contractor and contractee was to execute a works contract though it was split into two; these contracts were not entrusted to two separate contractors, but to the petitioner alone; in the case of Vemagiri the agreement, dealing with the contractors obligations, specifically provided that the contractor had the experience, skill and resources .....

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Section 3(b) and Section 6(2) of the CST Act; the other contract was designed as a labour contract or a works contract as it related only to erection/installation etc., by deploying its labour, and no material was involved therein; the petitioner had claimed exemption on a portion of this also; thus by splitting the works contract, one into a supply contract and the other into a labour contract, the petitioner had claimed exemption on the entire value of the contract running into crores of rupe .....

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s and labour put together make a works contract; and the value of the goods had to be arrived at for the purpose of levy of tax under the A.P VAT Act. The assessing authority also examined the question whether there can be a sale in transit, or a sale in the course of import, in a transaction of works contract. He held that, from the nature of the contracts awarded, it could be seen that the petitioner was required to supply the goods as per the supply contract; they were also required to execut .....

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ffairs, camouflaging such deemed sale as in the nature of sales falling under Sections 3(b), 6(2) and 5(2) of the CST Act, the petitioner does not cease to be the owner of the goods sought to be incorporated in the works; unless the contractor is the owner of the goods, by the time of incorporation in a composite contract, he cannot execute such a contract; the transactions under Sections 3(b), 6(2) and 5(2) of the CST Act do not fit within the concept of a works contract; a works contract is a .....

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o execute works at Konaseema and Vemagiri respectively; in order to avoid the brunt of taxation, the petitioner had created tailor made documents in order to claim exemption under Sections 3(b), 6(2) and 5(2) of the CST Act; the sale of goods, involved in a works contract, is concluded only after the said goods are incorporated/merged/fused with the property of the contractee; the petitioner had split the contract into supply of goods, and erection and installation, only to make it tailor made t .....

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theory of accretion, i.e. after the goods get merged/fused with the property of the contractee; as property in the goods is transferred only after its installation and erection, such a deemed sale is complete only after such installation and the like; the ratio of the decision in MMTC of India Ltd. 2 has no application to the facts of the present case; and the reasoning of the Gujarat High Court, in Chem-Dyes Corporation 3, is more appropriate than the reasoning given in the judgment of the A.P .....

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Special Standing Counsel for Commercial Taxes, put forth their submissions, a substantial part of the arguments was advanced, on behalf of the revenue, by Sri K. Vivek Reddy, Learned Special Counsel. Written arguments were submitted, on behalf of the petitioners, by Sri A.K. Jaiswal, Sri S. Dwarakanath, Sri T. Vinod Kumar, Sri Ch. Pushyam Kiran and Sri Priyadarshan Reddy. Written submissions were filed, on behalf of the revenue, by Sri K. Vivek Reddy. It is convenient to examine the elaborate su .....

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ertaken through the appellate process, and not in a Writ Petition; and the scope of the Writ Petition is limited more so when a Writ of Certiorari is sought. Reliance is placed in this regard onState of Goa v. Laukoplast (India) Ltd. AIR 1997 SC 1875 = (1997) 4 SCC 82;Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 142 ITR 663: (AIR 1983 SC 603;CIT v. Chhabil Dass Agarwal (2014) 1 SCC 603;Nivedita Sharma v. Cellular Operators Assn. of India (2011) 4 SCC 337;Thansingh Nathmal v. Supt. of .....

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72;Shivgonda Anna Patil v. State of Maharashtra (1999) 3 SCC 5;C.A. Abraham v. ITO[18]AIR 1961 SC 609;Titaghur Paper Mills Co. Ltd. ;Excise and Taxation Officer-cum- Assessing Authority v. Gopi Nath and Sons (1999) Supp (2) SCC 312;Whirlpool Corpn. v. Registrar of Trade Marks (1998) 8 SCC 1;Tin Plate Co. of India Ltd. v. State of Bihar-(1998) 8 SCC 272;Sheela Devi v. Jaspal Singh (1999) 1 SCC 209;Punjab National Bank v. O.C. Krishnan (2001) 6 SCC 569;Union of India v. Guwahati Carbon Ltd. (2012) .....

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Varma AIR 1957 SC 882;Mohd. Nooh26;K.S. Venkataraman and Co. (P) Ltd. v. State of Madras AIR 1966 SC 1089;N.T. Veluswami Thevar v. G. Raja Nainar AIR 1959 SC 422;Municipal Council, Khurai v. Kamal Kumar AIR 1965 SC 1321;Siliguri Municipality v. Amalendu Das (1984) 2 SCC 436;S.T. Muthusami v. K. Natarajan (1988) 1 SCC 572;Rajasthan SRTC v. Krishna Kant (1995) 5 SCC 75;Kerala SEB v. Kurien E. Kalathil (2000) 6 SCC 293;A. Venkatasubbiah Naidu v. S. Chellappan (2000) 7 SCC 695; L.L. Sudhakar Reddy .....

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not drawn any factual adverse inference after examining various documents, and the evidence to the transaction; there is no disputable questions of fact; the jurisdictional error, committed by the respondent authorities, is on account of mis-appreciation of the law and the statutory provisions; the levy is without jurisdiction, without authority of law and in flagrant violation of Article 286, and Sections 3, 4 and 5 of the CST Act; the taxing authorities have assumed jurisdiction to levy tax th .....

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reme Court and, in Kalpana Glass Fibre Pvt. Ltd. v. State of Orissa (2013) 57 VST 357 =2012-VIL-75-ORI, the Orissa High Court Division bench held that the question whether a particular sale is an inter-State sale or an intra-State sale, and whether the contract of sale is in respect of specific or ascertained goods, or whether it is in respect of unascertained or future goods, are essentially questions of fact, more appropriately a mixed question of fact and law, and the factual aspects should h .....

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authorities on the parameters applicable to certiorari proceedings. This Court is conscious, and need not be reminded, that the statutory system of appeals is more effective and more convenient than an application for certiorari as an appeal can be disposed of where the issue is a matter of law or fact, whereas an application for certiorari is limited to cases where the issue is a matter of law appearing on the face of the order ie where the decision is liable to be upset as it is made without .....

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r where, in exercise of jurisdiction conferred on it, the Court or Tribunal acts illegally or improperly. The jurisdiction to issue a writ of certiorari is supervisory and not appellate. An error of law which is apparent on the face of the record can be corrected by a writ, but not an error of fact, however grave it may appear to be. The adequacy or sufficiency of evidence, and the inference of fact to be drawn therefrom cannot be agitated in certiorari proceedings. (Syed Yakoob v. K.S. Radhakri .....

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wrong in law, the said conclusion can be corrected by a writ of certiorari. Whether or not an error is an error of law, and an error of law which is apparent on the face of the record, must always depend upon the facts and circumstances of each case, and upon the nature and scope of the legal provisions which is alleged to have been misconstrued or contravened. (Syed Yakoob51). It must also be borne in mind that the rule of exclusion of the writ jurisdiction, in view of the existence of an alte .....

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procedure etc. (Chhabil Dass Agarwal 6). The existence of an alternative remedy is merely a factor to be considered, and would not impinge upon the jurisdiction of the High Court to deal with the matter itself if it is in a position to do so on the basis of the affidavits filed. (S.J.S. Business Enterprises (P) Ltd. v. State of Bihar (2004) 7 SCC 166). If the High Court has entertained a petition, despite availability of an alternative remedy, and has heard the parties on merits it would, ordina .....

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provisions, but also on the scope of Sections 3(a), 3(b), 4, 5(2), 6(2) and 9 of the CST Act. Despite reminding us of the limited scope of judicial review, Sri K. Vivek Reddy, Learned Special Counsel, has himself addressed us on issues which travel far beyond the findings recorded in the impugned orders. It is necessary, in this context, to note the contention, urged on behalf of the petitioners, that the judgment in Larsen and Toubro Limited1 squarely applies to the facts of the present batch .....

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Chem-Dyes Corporation3, is more logical and should be followed, is an abuse of the judicial process, and the judgments of the jurisdictional High Court are binding on the lower authority as held by the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs =AIR 1962 SC 1893andUnion of India v. Kamalakshi Finance Corporation Ltd. 1992 Supp (1) SCC 443= AIR 1992 SC 711. It was also contended, on behalf of the petitioners, that the assessing and revisional authorities had ignored t .....

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revenue, which were not dealt with in the impugned orders; the scope of the Writ Petition has been sought to be enlarged which is impermissible as held in British India Steam Navigation Co. Ltd. v. Shanmughavilas Cashew Industries (1990) 3 SCC 481; the assessing/revisional authorities have picked some clauses in some of the contracts, and have applied it to all the contracts which were subjected to assessment, contrary to the law declared in Siemens Ltd. v. State of Kerala (2001) 122 STC 1; the .....

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d authorities to pass orders afresh on merits. While the petitioners have not availed the statutory remedy of appeal, the assessing/revisional authorities have also chosen to ignore or by-pass the judgments of the Division Bench of this Court (which is the jurisdictional High Court) and have, instead, placed reliance on judgments of other High Courts. As larger issues regarding the scope of certain provisions of the CST Act arise for consideration, we have examined all the issues raised both on .....

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er the provisions of the AP VAT Act. II. ARE THE SUBJECT CONTRACTS DIVISIBLE OR INDIVISIBLE CONTRACTS? It is submitted, on behalf of the petitioners, that the assessing authority has integrated two divisible separate contracts as a composite indivisible contract drawing an adverse legal inference that the contracting parties are one and the same; courts have recognized dual capacities between the same contracting parties; it is open to the petitioner to sell goods in transit or as high sea sales .....

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service contracts, be construed a camouflage; a contract cannot be re-characterized based on the strength of a possible tax treatment; the subject contracts are divisible in nature; though not all contracts contain a cross-fall breach clause, such a clause has been ascribed to all the contracts in a sweeping manner; a cross-fall breach clause only ensures redressal measures being taken by way of a claim for damages, and neither encumbers nor restores title; this clause is of discharge of servic .....

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f goods; some of the contracts are negotiated contracts, no bidding took place and no bidding documents exist; and the effort of the assessing authority, to call the contracts indivisible works contracts, though they are not, is of no consequence since an indivisible contract is also divisible by legal fiction. Sri K. Vivek Reddy, Learned Counsel for the respondent, would submit that the assessing/revisional authorities have held that, even though the petitioners had entered into supply and erec .....

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to execute the work with the material supplied by the contractor; (d) the rights of the dealer (supplier) over the property in the goods and the risk due to injury and loss to the goods, remains with the supplier till the commissioning of the turnkey project; (e) the assessee remains the owner of the goods till termination of its movement; and (f) the property in the goods is transferred to the employer only at the time of accretion; if the clauses in both the contracts are inter-linked, and are .....

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fication clause for the entire work, and not just the supply component; the stipulation, as to the use of goods in the supply contract, shows that the goods are to be used for erection; in the supply contract, the seller is entitled for payment only when the goods, that were supplied, are successfully put to use ie upon successful erection; the presence of a cross fall breach clause in the supply contracts show that the supply and erection contract is an indivisible works contract; all the subje .....

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to quote one price for the entire project including supply and erection; and the petitioners are not in the business of supplying articles, but in executing turnkey projects. For convenience sake the petitioners shall, hereinafter, be referred to as the contractor; the person, from whom the contractor purchased the goods, as the supplier; and the person, for whom the goods were purchased and incorporated in the works, as the owner. The submission, made on behalf of the petitioners, is that the .....

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divisible contract and, while they are styled as two contracts i.e., supply and erection contracts, they are, in fact, one composite indivisible contract. Prior to the 46th amendment to the Constitution, an indivisible contract would have disabled the revenue from subjecting the goods, which formed part of the turnkey project, to tax as a turnkey project is immovable property, and does not constitute goods (movable/chattel). It is because of the legal fiction, created by Article 366-29(A)(b), th .....

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hould again be divided into two contracts one for sale of goods, and the other for labour and services. Why should the suppy and erection contracts be integrated, only for it to be again divided by legal fiction? Would it make any difference if the subject contracts were treated as two separate contracts at the inception, instead of treating them as one, and then fictionally dividing them into two? While the purpose sought to be achieved thereby is not spelt out, we understand the submission of .....

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e works, and as the work is executed within the State, transfer of title to the goods would take place within the State; and such a sale would an intra-state sale liable to tax under the A.P. VAT Act. If these submissions of Sri K. Vivek Reddy, Learned Counsel for the revenue were to merit acceptance, then the measure of tax, even if it be an inter-state sale, would be the value of the goods at the stage of its incorporation in the works, which would include not only the value of the goods at th .....

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ther for services rendered for installation and erection of the turnkey project. Where parties enter into distinct and separate contracts, one for the transfer of material for monetary consideration, and the other for payment of remuneration for services and for work done, there are, ordinarily, two agreements, though there is a single instrument embodying them. (State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., 1959 SCR 379 = AIR 1958 SC 560 =1958-VIL-01-SC). In such cases the transact .....

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and service. (Kone Elevator India (P) Ltd. v. State of T.N. (2014) 7 SCC 1 =2014-VIL-12-SC-CB). A composite contract, for supply and installation, should be treated as a works contract as it is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. (Kone Elevator India (P) Ltd. A 'works contract' is an "entire and indivisible" works contract for the construction/execution of a turnkey project to specifications where the person executing t .....

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or "overwhelming component test" or "the degree of labour and service test" are no longer applicable. (Kone Elevator India (P) Ltd.67;Larsen and Toubro Ltd.70). It is open to the taxing authorities to tax that part of the contract which relates to the sale of goods. (Banarsi Das Bhanot v. State of M.P., AIR 1958 SC 909;Gannon Dunkerly (I)64). The contracts, which are the subject matter of all these Writ Petitions, are all works contracts as they involve both supply of materia .....

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39; Assn. v. State of Karnataka (1998) 7 SCC 707. In State of Karnataka v. Bangalore Soft Drinks P. Ltd. (2000) 117 STC 413 (SC) =1998-VIL-01-SC, the Supreme Court held that the terms of the contract indicated that the respondent had a dual role to play - one as seller of the goods and the other as that of a transporter or the carrier of the goods. The same person can, no doubt, play a dual role and, merely because both the contracts are entrusted to the same person, two separate and independent .....

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ntracts, in substance, do not absolve the petitioners-contractors of their obligations of erection and installation of equipment after the goods are sold by them to the owner. The petitioners-contractors' obligations, under both the supply and erection contracts, cease only after the turn-key project becomes operational, and after final payment is made both for supply of material and for erection and installation of equipment. While a dual role is not impermissible in execution of turnkey pr .....

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ntract stipulates that, if the services contract is terminated by the owner, the owner shall have the right to terminate the supply contract. Likewise Clause 15.4 of the erection contract between Alstom - GVK and Alstom - Goutami enables the employer to terminate the erection contract if the supply contract has been terminated. Para 1.1 (v) of Appendix - B thereof provides for 5% of the price of supplies to be made on the occurrence of the provisional performance acceptance of the facility in ac .....

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e test certificate i.e., after completion of erection. Appendix-H of the L and T - Vemagiri supply agreement stipulates that 5% of the price shall be paid on successful test for the identified packages as per the pricing and technical specifications; 5% of the price on provisional acceptance; and 5% of the price on final acceptance. Provisional acceptance is defined under the supply agreement to mean the achievement of provisional acceptance as defined in the civil works and erection agreement, .....

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the entire scope of the work covered under the bid documents. The total contract was agreed to be divided into two separate contracts, (i) supply contract, and (ii) erection contract, with a crossfall breach clause wherein breach of either of the contracts entitled the employer/owner/contractee (NTPC) to cancel the other contract also. NTPC awarded two contracts to Indure Ltd. for performing the work of erection of the plant on a turnkey basis. The Supreme Court, inIndure Ltd75, held that, even .....

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contracts are ostensibly two separate contracts - one for supply of material and the other for rendering works and services, they are, in fact, one single indivisible contract. The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in turnkey projects of a similar nature. The petitioners have been entrusted with the work mainly for their expertise in erection and .....

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ion and installation of equipment for the turn-key project. Clause 3.2 of the letter of award of the work issued by Power Grid Corporation of India Ltd ("Power Grid" for short) to Siemens Limited stipulates that the contract shall be construed as a single source responsibility contract, and any breach in any part of the contract shall be treated as a breach of the entire contract. Clause 2.3 of the Seimens - Power Grid agreement stipulates that the work, under the letter of Award, shal .....

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emens - Power Grid supply contract stipulates that the total ex-works prices for the items are on a lumpsum/lot/set basis. Clause 6.1(iii)(c) of the supply contract stipulates that 10% of the ex-works price component shall be paid on successful completion of erection, testing and commissioning of the substation and issuance of taking over certificate. The Siemens - Power Grid supply contract also prescribes an implementation schedule not only for supply but also for erection, testing and commiss .....

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tten consent of the employer. The correspondence between Siemens and RINL shows that the subject composite work was awarded to Siemens Limited for a lumpsum amount. Clause 23.2 of the bidding document stipulates that the prices to be quoted are intended to provide for all works duly and properly completed in accordance with the General Conditions of Contract and Special Conditions of Contract, if any, and are required to include the cost of delivery of the equipment. Clause 23.2.2 stipulates tha .....

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as the total contract price combining the contract prices of the individual agreements. It is evident that, while the form of the contracts indicate that they are two separate contracts, in substance they are one single indivisible works contract for supply of material and for erection and installation of equipment. Existence of a bailment clause or a free issues clause does not alter the situation. Reliance placed by the petitioners on Larsen and Toubro Ltd.1 is misplaced. Mere general observat .....

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vered without argument, without reference to the relevant provisions of the Act, and without any citation of authority need not be followed. (Gurnam Kaur78). A mere direction of the Court without considering the legal position is not binding. (Vishnu Dutt Sharma v. Manju Sharma (2009) 6 SCC 379). The view, if any, expressed without analysing the statutory provision cannot be treated as a precedent. (N. Bhargavan Pillai v. State of Kerala (2004) 13 SCC 217). Passing observations in a judgment wit .....

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udicial precedents, and is not a precedent binding on a co-ordinate bench. Placing reliance on Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 11 SCC 314andAkshaya Restaurant v. P. Anjanappa 1995 Supp (2) SCC 303,Sri N. Venkataraman, Learned Senior Counsel, would submit that, in para 29 of their writ affidavit, the petitioner (Land T) had inadvertently stated that the contracts are composite indivisible contracts whereas in the very same affidavit, in every other place, there is a consist .....

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eela Jetly (2008) 7 SCC 85;Heeralal v. Kalyan Mal (1998) 1 SCC 278;Modi Spinning and Weaving Mills Company Ltd. v. Ladha Ram and Co. (1976) 4 SCC 320;Steel Authority of India v. Union of India (2006) 12 SCC 233;Union of India v. Pramod Gupta (Dead)by Lrs. (2005) 12 SCC 1);Nichhalbhai Vallabhai v. Jawantlal Zinabha AIR 1966 SC 997;L. J. Leach and Co. Ltd. v. Jardine Skinner and Co. AIR 1957 SC 357; andVimal Chand Ghevarchand Jain v. Ramakant Eknath Jadoo (2009) 5 SCC 713, Sri K. Vivek Reddy, Lear .....

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evidentiary admissions. As we have held that the subject contracts are indivisible contracts, it is unnecessary for us to examine the effect of the admission, by L and T in their pleadings, that the contract is an indivisible contract. III. DOES THE SALE OF GOODS BY THE PETITIONER-CONTRACTORS TO THE OWNERS FALL WITHIN THE AMBIT OF SECTION 6(2) OF THE CST ACT? (i). SECTION 6(2) OF THE CST ACT: ITS SCOPE:- It is contended, on behalf of the petitioners, that the assessment order does not dispute t .....

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ier as free issues which are used in erection and installation to meet the performance and the liquidated damages test; failure does not defer or postpone transfer of title, and only obligates re-performance or recovery of damages from the contractor; in the present case, the goods were sold in transit by way of endorsement, and after securing necessary statutory forms, raising sales invoices and concluding the sale before termination of movement; the inter-state transactions are transit sales e .....

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ferred to in the contract; the material so purchased to be inspected by the owner prior to its transportation from the State where the goods are manufactured; and, thereafter, for the goods to be transported by the contractor to the work site of the owner in the other State where it is to be used in the erection and installation of the turnkey project. These goods are tailor made for being utilised exclusively for the turnkey project. These contracts are, basically, in two parts - the first rela .....

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the contractor should purchase the goods from the identified suppliers outside the state on which tax is paid by the contractor under Section 3(a) of the CST Act; after purchasing the goods from the supplier, the contractor is contractually bound to sell the goods to the owner, during transit, by endorsement of the lorry receipts. While the goods are purchased by the contractor from the supplier at a lower price, the very same goods are sold by the contractor to the owner at a higher price. No .....

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he State, and to sell the very same goods at a higher price to the owner by endorsement on the LRs when the goods are in transit, the tax paid is lower than what would have been paid if the price, at which the contractor sold the goods to the owner, is taken as the value of the goods sold in the course of inter-state trade and commerce. While it is not in dispute that, by this contractual arrangement between the contractor and the owner, there is a loss of revenue to the public exchequer, the co .....

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ompelled to pay an increased tax. (IRC v. Duke of Westminster 1936 AC 1;Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1). Tax planning is not illegitimate. Every transaction or arrangement which is permissible under the law, and which has the effect of reducing the tax burden of the assessee, need not be looked upon with disfavour (Azadi Bachao Andolan98;M.V. Valliappan v. ITO (1988) 170 ITR 278 (Madras HC) (DB)) or viewed with suspicion, or be treated as a device for avoidance of tax irr .....

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subterfuge. (Mc Dowell v. CTO (1985) 3 SCC 230;Banyan and Berry100;Azadi Bachao Andolan98;CIT v. A. Raman and Co. AIR 1968 SC 49). While parties cannot be compelled to enter into agreements in a manner which would generate higher tax revenue, levy of tax, on transactions embodied in a document, would depend upon the meaning and content of the language used in accordance with the ordinary rules of construction. (C.I.T. v. Motors and General Stores (P) Ltd AIR 1968 SC 200 = (1967) 66 ITR 692) (SC .....

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gement, the Court cannot brush aside deeds, disregard the legal rights and liabilities arising under a contract between parties, and decide the question of taxability or non-taxability upon the footing that the rights and liabilities of the parties are different from what in law they are. (Motors and General Stores (P) Ltd103;Duke of Westminster case (1935) 19 TC 490). The taxing authority is not restricted merely to the letter of the document. He must enquire into the true nature of the transac .....

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r II of the CST Act, 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 import or export. Section 3, in Chapter II, explains when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce. It creates a legal fiction, and requires a sale or purchase of goods to be deemed to take place in the course of inter-state trade or commerce only if it falls within clauses ( .....

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e versa. In respect of an inter-State sale, tax is leviable only once, and that indicates that the two clauses of Section 3 are mutually exclusive. The dividing line between sales under Section 3(a) and those falling under Section 3(b) is that, in the former, the movement is under the contract whereas, in the latter, the contract comes into existence only after commencement and before termination of the inter-State movement of the goods. An inter-State sale is governed under Section 3(b), if it .....

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the goods. Transfer of documents either by endorsement or delivery completes the transfer of title but, in the absence of an indication to that effect in the statute, the place where the documents are transferred is not necessarily the place of the sale. (S.R. Sarkar106). Transfer of documents of title may be effected by handing them over. An endorsement to that effect on the documents is one mode of proving the fact. (The Dy. Commissioner of Commercial Tax, Madurai Division, Madurai v. A.R.S. T .....

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ssed, either before the movement has commenced or after the movement from one State to another has ceased, the sale will not fall within clause (b). A sale effected by transfer of documents of title after commencement of movement and before its conclusion, as defined by the two terminii set out in Explanation (1) of Section 3, and no other sale, will be regarded as an inter-State sale under Section 3(b). (S.R. Sarkar106). The reference to two States in Section 3(b) makes it clear that terminatio .....

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as either occasioned movement of such goods from one state to another (ie a Section 3(a) sale) or (b) has been effected by a transfer of documents of title to such goods during their movement from one state to another (ie a Section 3(b) sale); (3) there is a subsequent sale during such movement (ie when the goods are in movement, pursuant to a Section 3(a) or a Section 3(b) sale, the very same goods are again sold); (4) the subsequent sale is effected by a transfer of documents of title to such .....

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er the CST Act; (8) such a subsequent sale (ie the subsequent sale referred to in Section 6(2)) shall not be exempt from tax under Section 6(2) unless the dealer, effecting the subsequent sale, furnishes to the prescribed authority (a) the E-I or E-II certificate from the registered dealer from whom the goods were purchased by him (in terms of Rule 12(4) of the CST (Registration and Turnover) Rules, 1957; and (b) a "C" or "D" form/certificate (in terms of Rule 12(1) of the 19 .....

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-stage taxation regime for the inter-state sale of goods. Section 6(1) is subject to the other provisions of the CST Act. Section 6(2), which contains a non-obstante clause, has been introduced to avoid the cascading effect of multiple taxation. (Aand G Projects and Technologies Ltd.107). In view of the non-obstante clause, the provisions of Section 6(2) prevail over Section 6(1) of the CST Act and all subsequent sale of goods (i.e., the second sale onwards), during their movement from one state .....

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UNDER SECTION 3(b) OF THE CST ACT?:- It is contended, on behalf of the petitioners, that a transit sale, exempt under Section 6(2), is not a Section 3(b) sale for the following reasons: (a) a transit sale is necessarily a second or a subsequent sale, whereas a Section 3(b) sale is a first sale; (b) more importantly, since a transit sale is only a second sale or a subsequent sale, it would necessarily be preceded by a first sale; therefore, a Section 6(2) sale cannot be construed as a Section 3( .....

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e which are not exempt under Section 6(2), are not given to the same States; the stark dissimilarities are a Section 3(b) sale is a first sale whereas a Section 6(2) sale is a second or a subsequent sale; and the power to tax the transactions by the respective States are also not the same. It is contended, on behalf of the revenue, that a sale ceases to be a sale exempt under Section 6(2) if the following occur: (a) if the title passes on delivery, the sale cannot be a transit-sale because title .....

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er, prior to movement it cannot be a transit sale; (f) if payment is upon successful erection, it is not a transit sale since title passes only after movement is complete; (g) if the property passes after a certificate is issued by the owner, it cannot be a transit sale because title passes after movement; and (h) a sale after inspection cannot be a transit sale as title passes only after delivery; the second inter-state sale has, necessarily, to be a Section 3(b) sale because the language used .....

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"subsequent"means that the sale, on which exemption is claimed under Section 6(2) of the CST Act, must be preceded by an earlier inter-state sale. The words 'such goods',used in the second limb of Section 6(2), refer to the goods in the first limb which are the goods sold during the course of inter-state trade or commerce either under Section 3(a) or under Section 3(b). The words'during such movement'in Section 6(2) suggest that the goods are in movement i.e the goods h .....

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n effected after the goods have commenced movement in one State but have not yet been delivered in the other State. Similar to a Section 3(b) sale, where sale of goods is effected by a transfer of documents of title to such goods during their movement from one State to another, the subsequent sale under Section 6(2) must also take place during such movement ie during their movement from one State to another. Like a Section 3(b) sale, the subsequent sale under Section 6(2) must also be effected b .....

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nt from one State to another. Where the legislature uses the same word or phrase in similar contexts, in different parts of the same Section or Statute, there is a presumption that the word is used in the same sense throughout, and to intend it in each place to bear the same meaning. (Courtauld v. Legh (1869) LR 4 Exch 26;Black-Clawson v. Papierwerke (1975) 1 ALL ER 847;Farrell v. Alexander (1976) 2 ALL ER 721). Ordinarily, a word or expression used at several places in one enactment should be a .....

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e to presume that the same meaning is implied by the use of the same expression in every part of an Act. (CIT v. Venkateswara Hatcheries (P) Ltd., AIR 1999 SC 1225 = (1999) 3 SCC 632;Shamrao Vishnu Parulekar v. Distt. Magistrate, Thana AIR 1957 SC 23;Maxwell's Interpretation of Statutes, Edn. 10, p. 522), unless the context suggests otherwise, (Suresh Chand v. Gulam Chisti AIR 1990 SC 897 = (1990) 1 SCC 593;Raghubans Narain Singh v. U.P. Government AIR 1967 SC 465 = (1967) 1 SCR 489or there .....

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ant to an earlier inter-state sale either under Section 3(a) or 3(b), which would fall within the ambit of Section 6(2) of the CST Act. The subsequent sale, exempt under Section 6(2), has a reference only to a sale made during "such movement". In other words, the second or subsequent sale has to be one which falls under Section 3(b) of the CST Act. (Mitsubishi Corporation India P. Ltd. v. VAT Officer (Delhi) (2010) 34 VST 417 (Delhi HC) (DB)) . It must have been effected before the jou .....

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ly have all the other characteristics of a Section 3(b) sale. Like a Section 3(b) sale, a sale under Section 6(2) also takes place during the movement of goods from one State to another. Again like a Section 3(b) sale the subsequent sale, which is exempt under Section 6(2), is also effected by transfer of document of title during the movement of goods from one State to another. While the situs of a Section 3(a) sale can either be in the State from where the goods move or in the State where the g .....

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ECHNOLOGIES LTD. V. STATE OF KARNATAKA"BINDING ON THIS COURT? In Aand G Projects and Technologies Ltd.107, the appellant contended that there were three sales, the second and the third sales were subsequent sales, and they were exempt from tax under Section 6(2) of the CST Act; this argument of the appellant stood rejected by the assessing authority who held that the appellant's turnover fell under Section 3(a) of the CST Act, all the three sales were Section 3(a) sales, and consequentl .....

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conditions mentioned in the proviso thereto, is exempt from tax as the first sale has been subjected to tax under subsection (1) of Section 6 of the CST Act, 1956. Thus, in order to attract Section 6(2), it is essential that the sale concerned must be a subsequent inter-State sale effected by transfer of documents of title to the goods during the movement of the goods from one State to another and it must be preceded by a prior inter-State sale. It is only then that Section 6(2) may be attracte .....

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asis supplied). It is contended, on behalf of the petitioners, that the Supreme Court in Aand G Project and Technologies107 was neither dealing with transactions under Section 3(b) nor under Section 6(2), but only under Section 3(a); while a general analysis of Section 6(2) of the CST Act was made therein, the Supreme Court neither stated that a Section 6(2) sale is a Section 3(b) sale nor has it concluded that a contract should emerge subsequent to movement for a sale to qualify as a transit sa .....

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the scope of Section 6(2) of the CST Act was considered therein. Once a Judgment is rendered by the Supreme Court, it should not be contended later that a particular point was not raised or considered by the learned Judges or that it is open to the High Court to reconsider the same. (Delhi Cloth General Mills v. Shambunadh (1978) ILLJ 1 SC;Government of A.P. v. N. Chowdary 1993(2) A.P.L.J. 479 = 1993(3) ALT 391). Even if the scope of Section 6(2) of the CST Act was not in issue inAandG Projects .....

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7 SCC 197 = 2003 SCC (Cri) 1722;Director of Settlements, A.P. v. M.R. Apparao (2002) 4 SCC 638). Obiter dicta of the Supreme Court is binding upon other courts in the country (Sanjay Dutt v. State through CBI, Bombay (1994) 5 SCC 402) in the absence of a direct pronouncement on that question elsewhere by the Supreme Court (Oriental Insurance Co. Ltd. v. Meena Variyal (2007) 5 SCC 428), and is entitled to considerable weight. (CIT v. Vazir Sultan and Sons (1959 Supp (2) SCR 375 = AIR 1959 S.C. 8 .....

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thereupon as the sale is deemed to take place within the State; the goods which form the subject matter of the Supply Contracts are future goods and not specific goods; the title to future goods passes only upon unconditional appropriation; the determination of passing of title in future goods has to be decided with reference to Section 23 of the Sale of Goods Act, 1930 ("1930 Act" for short); and reliance placed by the petitioner on Section 20 of the 1930 Act is misplaced. Section 4 o .....

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itution, is beyond the legislative competence of a State legislature to tax. (State of A.P. v. National Thermal Power Corpn. Ltd., (2002) 5 SCC 203;S.R. Sarkar106;20th Century Finance Corpn. Ltd v. State of Maharashtra (2000) 6 SCC 12). Section 4(2) (b) of the CST Act is similar to Section 23 of the Sale of Goods Act. While Section 4(2)(b) of the CST Act deems sale of unascertained or future goods to take place within a State, at the time of its appropriation to the contract of Sale by the sellS .....

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ot; into three categories (i) specific goods (ii) future goods, and (iii) unascertained goods. Specific goods and future goods are defined in Section 2(6) and 2(14) of the 1930 Act. Section 20 of the 1930 Act is applicable only to specific goods. The goods, which are the subject matter of these contracts, are future goods as they were required to be purchased by the petitioner-contractor only after the contract was entered into. Section 20 of the 1930 Act applies only if there is an unconditiona .....

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opriation. Thereunder title, with respect to future goods, passes on fulfilment of the following conditions (a) the goods must be in a deliverable state, (b) the goods must be unconditionally appropriated to the contract, and (c) there must be assent of the buyer if the appropriation is by the seller. The phrase" deliverable state" has been defined in Section 2(3) of the 1930 Act to mean" buyer under the contract is bound to take delivery". For sale of future goods to happen, .....

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of movement. Sale of unascertained goods can also take place after its delivery in the other State when the contract requires the buyer to ascertain and, thereafter, to buy the goods. When the movement of the goods starts, pursuant to a sale, they shed the character of either unascertained goods or future goods. Sale of goods, by transfer of documents of title during its movement from one State to another, can only be the sale of specific or ascertained goods (Balabhagas Hulaschand v. State of O .....

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goods, sent in conformity with the description, have been accepted by the purchaser on the basis that they confirm to the description, there is ascertainment and appropriation of the goods to the contract; where the goods are ascertainable, and goods of that description are despatched, then the goods so despatched can be taken as appropriated to the contract unconditionally; and the circumstance that the purchaser has a right of rejection does not postpone the transfer of property in the goods. .....

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ly identified, may be specific goods; goods to be manufactured by the seller are future goods; under Section 23 of the Sale of Goods Act, when there is a contract of sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained; where there is a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer only when the goods of that description, and in a deliverable state, are u .....

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petitioner-contractor, prior to an order being placed by the petitioner-contractor on suppliers outside the State for supply of the goods required for installation and erection of the project within the State of A.P. (now Telangana and A.P.); the supply contracts, between the contractor and the owner, were for the sale of future goods which were required to be manufactured by the suppliers, identified in the contract, on an order being placed on them by the petitioner-contractors in terms of the .....

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mmencement of movement of the goods i.e., during the movement of the goods from one State to another. It cannot, therefore, be a subsequent sale exempt from tax under Section 6(2) of the CST Act. It is, however, contended on behalf of the petitioners that the subject contracts are merely agreements to sell which, in turn, provides for the sale of goods when it is in transit from one State to another. Before a transaction can be considered as a sale, there must be a transfer of property in goods .....

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t; to include all materials, articles, commodities and all other kinds of actionable claims. Section 2(g) of the CST Act, after its substitution by Act No.20 of 2002 w.e.f. 11.05.2002, is an inclusive decision. The main part of Section 2(g), (other than the inclusive part), is similar to the preamended Section 2(g) and defines a "sale" to mean any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration. A transaction o .....

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ods, and not an agreement to sell; and both the conditions should be satisfied - sale as well as transfer of documents of title to the goods - during their movement from one State to another. Without expressing any opinion on the merits of the submission we shall proceed on the premise that the subject contracts, which provide for the sale of future goods, is an agreement to sell and the "sale" of goods took place subsequent thereto. It is necessary, therefore, to ascertain whether the .....

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taking out a part. (Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006) 2 SCC 628). It is the substance of the contract document/s, and not merely the form, which has to be looked into. (Hindustan Shipyard Ltd. v. State of A.P. (2000) 6 SCC 579). It is the case of the petitioners that, in terms of the transit-sale clause in the contract (for instance clause 5.3.2 of the Land T - Konaseema contract), the sale of goods took place during transit by effecting transfer of documents of title to .....

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lier, having taken place in the course of inter-state trade or commerce, the sale by the Supplier to the Owner shall similarly be deemed to have taken place in the course of inter-state trade or commerce; and necessary concessional sales tax forms shall be furnished by the Owner to the Supplier. The aforesaid clause, and similar clauses in other supply agreements, cannot be read in isolation or out of context. It is necessary to read the contract as a whole to ascertain whether the parties, in f .....

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he sale of goods, by the petitioners-contractors to the owners, is only when the goods were in movement from one State to another. It is necessary, therefore, to examine these contractual provisions. (v) TRANSIT INSURANCE:- It is contended, on behalf of the petitioners, that, unless the goods are sold and title in the goods vest with the owner, there is no obligation on the owner to take and cover the goods under insurance policies especially transit insurance, the cost of which is wholly borne .....

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pment and materials, being supplied by Seimens Ltd, shall be kept completely insured by them at their cost from the time of despatch from their works, upto the completion of erection, testing and commissioning at site, and taking over of the sub-stations by POWER GRID in accordance with the Contract. Ownership of the property is not relevant in so far as insurance of the goods is concerned. It is not necessary that the person, insuring the interest, must be the owner of the property. There may b .....

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est of the owner of the property. (Escorts JCB Ltd.148;Chitty on Contracts, 28th Edn., Vol. 2, Special Contracts, p. 978, Chapter 41, Note 007;Prudential Staff Union v . Hall 1947 KB 685;Hepburn v. A. Tomlinson (Hauliers) Ltd. (1966) AC 451). In Larsen and Toubro Ltd v. State of A.P (2006) 148 STC 616) (AP HC) (DB) and State of Tamil Nadu v. Mahindra and Mahindra Ltd (2013) 58 VST 483 (Madras) (DB), it was held that the fact that the insurance coverage was borne by the assessee/supplier, per se, .....

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nt of liquidated damages in case of delay in the supply of goods; the clauses relating to minimum performance guarantee and liquidated damages would only reinforce the fact that the title to the goods has allegedly passed to the owner; the owner can only insist on re-performance and, in case of failure, to recover damages; there is no obligation on the contractor-supplier to take back the goods if they are of defective quality; the supply contract enables the employer to claim liquidated damages .....

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uch conditions, which need to be fulfilled, subject to which the property in the goods would be transferred; the condition, if any, should be such that it encumbers or limits the transfer of title to the goods; none of the clauses, relied upon by the revenue, encumber transfer of title; the contracts provide separate parameters for damages to be claimed on the supply of goods and service; compensation is fixed for delay in delivery of goods as per the schedule dates for individual goods, and is .....

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title does not pass till the said inspection or certification is given; in all these cases the satisfaction of these conditions only happens after movement, and not during movement; the 1930 Act makes a clear distinction between conditions and warranties; breach of warranty only gives a right to a damages claim but, if there is a breach of a condition, the contract itself can be repudiated in addition to damages; there is an implied condition that the goods shall be reasonably fit for the purpos .....

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e Supplier shall pay to the Owner (Konaseema), subject to the Owner incurring a commercial loss due to the delay attributable to the Supplier, liquidated damages. Clause 10 of the Seimens - Power Grid Agreement provides for liquidated damages for delay in completion and, thereunder, if Seimens Ltd fails to complete the successful commissioning of the sub-stations covered under the contract, within the period stipulated, they shall pay POWERGRID liquidated damages for the delay. Article -11 of th .....

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liquidated damages; and, in case of non-achievement of performance guarantee parameters, imposition of liquidated damages, if any, shall not exceed 7.5% of the total contract value. Section 12 of the 1930 Act relates to conditions and warranties. Under sub-section (1) thereof, a stipulation in a contract of sale, with reference to goods which are the subject thereof, may be a condition or a warranty. Section 12(2) states that a condition is a stipulation essential to the main purpose of the cont .....

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be a condition, though called a warranty in the contract. Section 16 of the 1930 Act relates to implied conditions as to quality or fitness and, under sub-section (1) thereof, where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he is the m .....

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s on the skill/judgment of the petitioner-contractor in the procurement of such goods. The subject contracts expressly stipulate the purpose for which the goods are required by the owner ie for its use in connection with the erection and installation of the plant. Even if it is called a warranty (liquidated damages clause) in the contract, it would nonetheless, in view of Section 12(4) of the 1930 Act, be a "condition". Consequently supply of defective goods would confer a right on the .....

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tion (2) states that a contract of sale may be absolute or conditional. Under sub-section (3) where, under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. Section 4(4) stipulates that an agreement to sell becomes a sale when the time elapses .....

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the conditions, subject to which the property in the goods is to be transferred, is fulfilled. As the quality and fitness of the goods is, in terms of Section 16(1) of the 1930 Act, an implied condition, failure to fulfil the condition would not result in an agreement to sell becoming a sale, and the property in the goods would not pass from the petitioner-contractor to the owner. Transfer of title to the goods, as shall be elaborated hereinafter, passes only after post-delivery inspection of t .....

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ugned orders, cannot be said to be perverse necessitating interference under Article 226 of the Constitution of India. (vii) BAILMENT/FREE ISSUES CLAUSES:- It is contended, on behalf of the petitioners, that the petitioners effect inter-state sale and transit sale of goods to the owners in Telangana and Andhra Pradesh; in terms of the contract, these goods are handed over as free issue materials to the petitioners for installation and erection; the petitioner takes care and custody of these free .....

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inally entrusted, should alone be returned; it is always subject to the understanding between the parties; in the present case, the expression 'bailment' has not been expressly used in all the contracts; some of the contracts contemplate issue of the material, received by the owner in the course of inter-State trade, to the petitioner for execution under the service contract; in order to determine whether a sale is taxable or not, a minor difference between the statutory definition of &# .....

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reement on the control that the contracting parties had over the goods, and which required the goods to be issued to the petitioner only as a bailee for the execution of the project; the bailment/material issue certificate, which are understood as free issues, do not stipulate restoration of the goods in the very same condition; and unless the goods are sold to the owner, and title to the goods passes to the owner, the owner cannot issue equipment or material as free issues. It is submitted, on .....

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eturned to them was a completed turn-key project. Article 2.1.1 (B) of the LandT - Konaseema Erection Contract stipulates that the scope of the contract shall include, in relation to erection, commissioning and testing of equipment "free-issues" to the contractor by the owner; to receive such equipment, from the owners contractor for transportation on behalf of the owner, at the facility site; and to store at the facility site as designated by the owner under the terms and conditions o .....

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against loss, damage and any risks involved for the full value of the equipment/materials; and the indemnity bond shall be valid till the commissioning and handing over of the substation( s) to POWERGRID. Clause 9.3.3 of the Seimens - RINL agreement stipulates that, on receipt of delivery advise/lorry receipt/railway receipt, the Engineer or his authorised representative shall endorse the same to the Contractor for taking delivery of the goods on submission of bailment agreement by the Contract .....

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e person to whom they are delivered is called the bailee. Section 160 relates to the return of goods bailed on expiration of time or accomplishment of purpose and, thereunder, it is the duty of the bailee to return or deliver, according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. If the intention and result of the contract is to transfer for a price p .....

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. Wherever there is a delivery of property on a contract for an equivalent in money or some other valuable commodity, and not for the return of the subject matter in its original or an altered form, it is a transfer of property for value - it is a sale and not a bailment. (The South Australian Insurance Company v. William Beavis Randell and Samuel Randell (1869) Law Reports (III) Appeal Cases 101) . The test is whether the identical subject matter was to be restored either as it stood or in an a .....

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n of the goods, as the goods had to be acquired thereafter from the supplier. It is difficult, therefore, to hold that it is a bailment agreement. As is evident from Section 148 read with Section 160 of the Indian Contract Act, a bailment contract entails the return of goods in an identical form. After entrustment of the goods, and after the purpose of entrustment is accomplished, the goods must either be returned or otherwise disposed of according to the directions of the bailor. While some alt .....

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. If, for instance, the clutch plates of the car are replaced, the identity of the car is not lost, though the repair has resulted in an alteration. It is evident that, in the subject contracts, the identity of the original goods was lost in the process, the goods originally entrusted were not returned in the same or altered form, and notwithstanding the form in which the clause is couched there is, in substance, no bailment. The concept of "free issues" is based on the premise that th .....

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2013-VIL-113-AP). As shall be detailed hereinafter, the intention of the parties, as is evident from the certification and other clauses of the contract, is to effect transfer of title to the goods from the supplier-contractor to the owner only after inspection and issuance of the taking over certificate ie after completion of erection of the plant. Reliance placed on behalf of the petitioners on the bailment clauses/free issue certificates is, therefore, of no avail. (viii) TITLE CLAUSES IN THE .....

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e, that the question of passing of title should be ascertained by construing the contract as a whole and the surrounding circumstances, and not merely the title clause; even otherwise, the title clause in the LandT - Konaseema Supply contract shows that title passes at the time of incorporation and not during movement; the title passes, under the LandT Vemagiri, Alstom Supply Contracts and Siemens title clauses, only when the seller dispatches the goods i.e., prior to movement. Clause 17 of the .....

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ct provides for full payment only after a site test certification is issued by the owner after inspection and successful erection. Clause 17 thus makes it clear that title to the goods does not pass during movement. Under clause 11.1 of the L and T - Vemagiri agreement, title to all indigenous equipment shall pass to the owner upon the earlier of (a) payment of a part or whole of the indigenous equipment or (b) when delivered to the transportation contractor or (c) the time that title to the ind .....

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es that the title to supplies (ex-works) shall pass to the owner upon the earlier of payment in full therefor, or when delivered to the carrier ex-works Indian Factory; and 5% of the supply contract price shall be due at the occurrence of the provisional acceptance of the facility in accordance with Clause 4.2.2 of the agreement. It is evident that, under the title clause, title passes either upon full payment (which is after the successful erection i.e., after completion of movement), or delive .....

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esponsibility for all risks of loss or damage to the equipment and materials till its taking over by Power Grid, as specified in the bidding document. That the supplier is held responsible for risk, loss and damage of goods till they are taken over by the owner shows that the parties intended, in terms of Section 26 of the 1930 Act, that title would pass to the owner only after completion of movement. If parties really intended otherwise, the supplier would then have been absolved of all respons .....

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supply contract the responsibility for all risk, damages and losses relating to the goods continue with the supplier till the goods are taken over by Power Grid (after erection) despite title allegedly passing on ex-works despatch with negotiation of despatch documents. A transit sale, to be exempt under Section 6(2) of the CST Act, is a sale whereby transfer of title to the goods takes place when they are in movement from one State to another. The aforesaid title clauses show that the parties .....

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est and the performance guarantee test, envisaged in both the agreements, only mandate a re-performance by the contractor so as to ensure no defects or liabilities, and to achieve minimum performance guarantee; in case of failure, it entitles the owner to reject and recover cost; even in a normal sale of goods, an inspection clause would be found, but that does not postpone the sale; the mere fact that there is an inspection prior and post-dispatch would not destroy the inter-State character of .....

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26 of the 1930 Act, were neither brought to the notice of the Court nor argued; the final performance test would not delay transfer of title to the goods; inspection is pre-delivery and prior to sale; if the goods are rejected, no sale takes place; if goods are approved, the same are sold inter-state; and the only requirement is to verify the actual receipt of stock, post the sale. It is contended, on behalf of the revenue, that the inspection and certification clauses show that title has not p .....

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ion contracts) also contemplate a certification after erection; by virtue of the said clause, the owner certifies as to the successful operation of the facility; the said certification is given after the owner inspects the facility, and finds that all the units and components, which have been supplied, are working; the scope of certification extends not only to the civil work, but also to the goods supplied under the supply contract; in all the contracts, the supplier becomes entitled to full pa .....

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pplied, and does not relate to passing of property in the goods, is not tenable. Clause 7.2.1 of the Land T - Konaseema supply contract records the agreement of the supplier for the goods to be tested, and to be approved to perform the site test on the materials. The site test procedures, prescribed in Appendix-I of the said contract, includes the reliability test to demonstrate that the materials can continuously operate safely, and without failure, at design conditions and requires it to work .....

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f the L and T - Vemagiri supply contract provides for final acceptance and, thereunder, final acceptance of the plant is achieved after provisional acceptance of the plant has been achieved; and, in case the civil contractor has adopted the corrective action plan, after provisional acceptance and any corrective and remedial action has been taken in respect of the plant. Clause 2.2.28 of the Seimens - RINL agreement requires the Contractor to carry out the relevant performance tests; and on satis .....

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was made; and it was immaterial as to what was the time of delivery of the goods. Clause 5.5, of the bid document therein, provided for the issue a taking over certificate when the performance tests had been successfully carried out; and, while issuance of such a certificate would certify receipt of goods in a safe and sound condition, it would not discharge the supplier of their warranty obligations. Clause 6.1 of the bid document stipulated that delivery of the goods shall be made by the suppl .....

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rties intended it to pass; in this case the contract provided that property in the goods does not pass till after delivery, and after successful testing and issuance of the take-over certificate; and the High Court was right in concluding that the property in the goods had not passed at the time the goods entered the municipal limits. In Chem-Dyes Corporation3 the assessee purchased goods from Bombay, despatched them to Rajkot, and handed over the railway receipts to the purchasers of the goods .....

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t the time of endorsement of the railway receipts, in favour of the purchasers, the purchasers were neither required to pay nor had they paid any part of the purchase price of the goods to the assessee; the purchasers had paid the price of the goods to the assessee only after they had checked the goods, and found that they were in order; when the railway receipts were endorsed in favour of the intending purchaser by the assessee, the sale did not take place; the sale took place only after the go .....

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nding purchaser took delivery and, thereafter, inspected and approved the same. Section 23 of the 1930 Act stipulates that title, in a sale of future goods, passes only when the goods are in a deliverable state, they are unconditionally appropriated to the contract, and there is assent of the buyer. If the contract has a post-delivery inspection or a certification clause, the unconditional appropriation, ordinarily, takes place, and the assent of the buyer is also given, only upon inspection and .....

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tract would fall within the ambit of the phrase "other similar terms" in Section 24. The presence of an inspection and certification clause in the supply contract defers passing of title till the owner has expressed its assent. Such assent is given only after inspection and certification. The law declared by the Supreme Court, in Usha Beltron Ltd 158, is binding on this Court. It is not for the High Court to distinguish a binding precedent on the specious plea that certain aspects were .....

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Section 26 stipulates that risk, primafacie, passes with the property and, thereunder, unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not. Section 26 is not attracted where the contract provides otherwise. While the question, as to when title to the goods is transferred from the seller to the buy .....

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n request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. Section 42 relates to acceptance and, thereunder, the buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller. The post-delivery inspection clauses, in t .....

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aking over certificate, and for payment under the supply contract being conditional on performance acceptance under the service contract. The unconditional appropriation of the goods to the contract by the buyer, with the assent of the seller, under the subject contracts takes place only after the goods are tested after delivery at the site, and on performance acceptance and issuance of a "taking over" certificate. As acceptance of the goods by the buyer takes place only post delivery .....

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-authorities cannot be faulted. (x) PAYMENT ON MILESTONE BASIS:- It is contended, on behalf of the petitioners, that Section 2(g) of the CST Act recognises that a sale is also occasioned by deferred payment of the amount due; the terms of payment as agreed upon, and the passing of title, are independent of each other; transfer of title is not kept in abeyance merely because payment is deferred; the contention, that a sale is not complete till final payment is made, if accepted, would defeat the .....

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t Contracts link the balance 5% or 10% payment, through a cross fall breach clause, for performance of the goods supplied; in private contracts the same would be decided through mutual discussion or arbitration, and on determination of the parties responsible for the default; payment or non payment does not defer passage of title; failure to perform the service obligations may require a repeat of the performance to the satisfaction of the employer or, at best, result in withholding of payment; a .....

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g of title; if the Seller does not receive payment even after title in the goods has passed, the seller is entitled to maintain a suit for price under Section 55 of the 1930 Act; in the present case, the petitioners contend that title has passed during movement; consequently the petitioners should be entitled to complete payment after passing of title; but, under the Supply Contract, payment is made only upon successful erection; the petitioner seller cannot maintain the suit for price, even aft .....

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tracts is subject to the satisfaction of a condition, and is uncertain. As noted hereinabove it is the petitioners case that the subject contract is merely an agreement to sell for, if it is treated as a contract of sale, the contract, not having come into existence during the movement of goods from one State to another, would not fall within the ambit of Section 6(2) of the CST Act. A contract of sale of goods may be defined as a mutual agreement between the owner of the goods and another that .....

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ments are present, there would be no sale. (Gannon Dunkerley and Co. (I)64;Hindustan Aeronautics Ltd.65; andMember Board of Revenue v. Swaika Oil Mills (1977) 4 SCC 286). Section 4(1) of the 1930 Act stipulates that a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price. Section 2(10) of the said Act defines "price" to mean the money consideration for a sale of goods. Under Section 4(3) thereof, wh .....

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neer. From out of this 80%, 10% of the ex-works price component is to be paid only on successful completion of erection, testing and commissioning of the substation and issuance of the taking over certificate. Clause 4.2.2 of the Alstom - GVK and Alstom - Goutami supply contract provides that upon provisional performance acceptance of the facility, as set forth in the Services Contract, the remaining portion of the Contract Price shall be paid to the supplier. Payment under the supply contract i .....

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condition is not fulfilled, ie the plant is not successfully erected, the owner is not contractually obligated to pay that part of the price which is conditional on successful erection of the plant. Under Section 55(1) of the 1930 Act where, under a contract of sale, the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of goods. On the property in the goods .....

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in the goods would pass from the petitioners-contractors to the owners when the goods were in movement from one State to another. "Price" is as an essential element of a contract of sale of goods. It is only a transfer of property in goods"for cash or deferred payment or any other valuable consideration" which constitutes a"sale"under Section 2(g) of the CST Act.Blacks Law Dictionary defines "deferred payment" as a principal and interest payment which is .....

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n mind. While there is certainty of payment, and the date of payment is alone postponed, in the former, the payment is uncertain in the latter for, failure to fulfil the conditions, would mean that there is no sale of goods, and the owner is under no obligation to make payment. The contractor can only take back the goods, and cannot sue for "price". It is only a "sale" of goods which can be subjected to tax under the CST Act, and not an agreement to sell which does not eventu .....

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tended by the revenue, then the cost of insurance should have been borne by the contractor; equipment and material would not have been received on a free issue basis; and, if title has not passed, there would be no clause on liquidated damages as the contractor would be free to take back the goods; the title to the goods passes in transit, and during movement by way of an endorsement; for non-payment, the petitioner cannot take back the equipment already supplied; and, in the present case, the p .....

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s to be ascertained by holistically examining the contract and its various clauses; and, as held in Hindustan Shipyard Ltd.147, the Court should not only look into the form, but also at the circumstances of the transaction, the custom of the trade, and the substance of the contract document. As the scope of Sections 4(3) and (4), 16 and 24 of the 1930 Act have already been dealt with in the earlier paragraphs, it would suffice to observe that reliance placed by the petitioners thereupon is mispl .....

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d goods, whereas the goods in the present case are future goods as the petitioner-contractor was not in the possession of the goods when the supply contract was executed. Section 19(2) indicates that the time of passing of title has to be ascertained by looking at the terms of the contract, conduct of the parties, and the circumstances of the case. The Court is required, by Section 19(2), to go beyond the terms of the contract to ascertain the intention of the parties. In the present case, the t .....

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he intention of the parties (the contractor-supplier and the owner-buyer), regarding the time at which the property in the goods is to pass to the buyer, is only upon completion of erection of the plant and the issue of a takeover certificate thereafter by the owner, and not when the goods are in movement from one State to another. In Husenali Adamji and Co.143 it was contended that the property in the goods passed from the respondent to WIMCO (consignee) at the railway stations within the Centr .....

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negative this conclusion, ie that the logs must be carried to Ambernath and delivered there; the cumulative effect of the provisions of clause 2 that the property in the rejected logs would pass to WIMCO upon the failure of the respondent to remove the same after rejection, of clause 3 that the goods shall be delivered at Ambernath in the presence of WIMCO's Factory Manager, and of clause 6 that the prices will be "F.O.R. Ambernath" militated against the theory of passing of proper .....

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hey are agreed to be sold; and there was not an iota of evidence on that point. The law declared by Supreme Court, in Husenali Adamji and Co143, is that (i) in a contract for sale of goods, the time of passing of title has to be ascertained on a reading of the contract as a whole; (ii) if the contract contemplates inspection after delivery, the title passes only upon delivery, notwithstanding the fact that the contract also contemplates pre-delivery inspection; (iii) in a contract, for the sale .....

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clauses. Just as a document cannot be interpreted by picking out only a few clauses ignoring the other relevant ones, in the same way the nature and meaning of a document cannot be determined by its end-result or one of the results or the consequences which flow from it. The nomenclature and description given to a contract is not determinative of the real nature of the document or of the transactions thereunder. It must be determined from all the terms and clauses of the document and all the ri .....

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e, the post-delivery inspection clause, the taking over certificate clause etc.) make it clear that, notwithstanding the bailment/free issues, and liquidated damages clauses, the parties to the contract intended that the title to the goods would be transferred from the contractor to the owner only after erection and commissioning of the plant, and not prior thereto. It is evident, therefore, that the title to the goods was not transferred during its movement from one State to another, but only a .....

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(a) there was no sale in the course of inter-state movement, as title did not pass during movement; (b) on a proper construction, the supply and erection contracts demonstrate an indivisible single composite works contract where title passes during incorporation; there cannot be a transit sale in an indivisible works contract, since the essential ingredient of a transit sale is that title passes during movement; and the petitioners have not been able to show a single precedent of a transit sale .....

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s, the various clauses of the contracts show that, notwithstanding the transit-sale clause, the parties intended to sell the goods (ie for the title in the goods to pass) only after completion of erection of the plant, and on issuance by the owner of a certificate as proof of having taken over the turnkey project. (xiii) CAN ONE TRANSACTION OF SALE FALL BOTH UNDER SECTION 3(a) and SECTION 6(2) OF THE CST ACT? It is contended, on behalf of the revenue, that a single transaction of sale would not .....

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the sale of goods to the eventual purchaser, for whose benefit and at whose instance the goods commence movement from one State to another, fall within the ambit of Section 6(2) of the CST Act? As noted hereinabove, a Section 3(b) sale can arise only during movement of goods from one State to another for, otherwise, the inter-state sale would a Sale under Section 3(a) of the CST Act. Mere movement of goods from one state to another would not suffice. The movement must involve a sale. For instanc .....

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f. Such movement of goods is not liable to tax as it is not a sale. If, during such movement of goods from State 'X'to State 'Y', dealer "A" sells the same goods to dealer "B", by transfer of documents of title, then such a sale is an inter-state sale in terms of Section 3(b) of the CST Act. If the very same goods, during its movement from State "X" to State "Y", are again sold by dealer "B" (who purchased the goods from dealer &q .....

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Y", dealer "B" sells them to dealer "C", such a sale by dealer "B" (who purchased the goods from dealer "A") to dealer "C" is a subsequent sale exempt from tax under Section 6(2) of the CST Act. If, after delivery of goods in State "Y", the very same goods are again sold, and such a sale also occasions movement of goods from one state to another, then the second sale is also a Section 3(a) sale, and is not exempt from tax under Sec .....

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rmine whether a sale of goods takes place in the course of inter-State trade and commerce is stipulated only by Section 3 of the CST Act. Section 6(2) merely exempts from tax the subsequent sale which takes place in the course of inter-state trade and commerce. The nature of the subject contracts, in the present batch of writ petitions, can be better explained by way of illustrations. Dealer "A" enters into a contract with dealer "C" in State "Y" that dealer "A .....

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r Section 6(2) of the CST Act. If, pursuant to the contract of sale entered into between dealer "A" with dealer "C" in State "Y", dealer "A" purchases goods in State "X" from dealer "B" and, as a result, the goods move from State "X" to State "Y", the movement of the goods is occasioned by the contract of sale between dealer "A" and dealer "C" and is a Section 3(a) sale. If, during such movement, .....

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first inter-state sale liable to tax under Section 3(a) of the CST Act. The person, whose contract of sale with another has occasioned movement of goods from one State to another in terms of Section 3(a), cannot sell the very same goods to the very same person again. It is only where the purchaser of goods, under a Section 3(a) or a 3(b) sale, sells the goods to a third party, would such a sale be a subsequent sale falling within the ambit of Section 6(2) of the CST Act. A transaction of sale i .....

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le which takes place when the goods are in continuous movement pursuant to the first sale. As the first sale cannot, simultaneously, be a second sale also, a Section 3(a) or a 3(b) sale cannot, at the same time, be a subsequent sale exempt from tax under Section 6(2) of the CST Act. The intention of the legislature, in a taxation statute, is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. (Mathuram Agrawal v. State of M.P. (1999) 8 SCC .....

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he construction, in favour of the taxpayer and against the Revenue, should be accepted. (Mahim Patram Private Ltd.163;Sneh Enterprises v. Commissioner of Customs, New Delhi (2006) 7 SCC 714;M/s Ispat Industries Ltd. v. Commissioner of Customs, Mumbai (2006) 12 SCC 583 = 2006 (9) SCALE 652). If the statutory provision does not suffer from any ambiguity, grant of a relief, in the teeth of the express provisions of the statute to the contrary, is not permissible. On equitable considerations, the Co .....

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nt batch of Writ Petitions, show that the contractors, with a view to fulfil their obligations under the contract with the owner, have purchased goods from the supplier at a lower price and, during movement of the goods intended only to reach the owner, have sold the goods to the owner at a higher price. While tax, under the CST Act, is paid by the contractor on the purchase of goods from the supplier, no tax is paid by them on the sale of goods to the owner. As the value of the goods purchased .....

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es, to ensure free and unrestricted movement of goods from one State to another. As held in the preceding paragraphs, for a sale to be exempt under Section 6(2), the contract of sale should have come into existence, and the title to the goods should have been transferred, during movement alone. Any sale of goods prior to commencement of its movement from one State to another, or after its completion, would not be exempt under Section 6(2) of the CST Act. It is only for this limited purpose have .....

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G THAT THE SALE OF GOODS UNDER THE SUBJECT CONTRACTS FALL WITHIN THE AMBIT OF SECTION 3(a) OF THE CST ACT, MERELY BECAUSE THEIR CONTENTION, THAT THE SUBJECT SALES, FALL UNDER SECTION 6(2) OF THE CST ACT, WAS REJECTED? While the submission urged on behalf of the petitioners, that the sale of goods by the petitioners-contractors to the owner falls within the ambit of Section 6(2) of the CST Act, does not merit acceptance, are the petitioners thereby barred from contending that, alternatively, thes .....

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2); the moment the petitioners assert that the second sale is a Section 3(a) sale, it automatically ceases to be a Section 3(b) sale and a Section 6(2) sale; the petitioners can only assert that the sale is either a Section 3(a) or a Section 3(b) sale; if the petitioners assert both, it would be a case of mutually destructive pleading; and, in the face of such destructive pleadings, the petitioners' claim that the second sale is an interstate sale is not tenable. Reliance is placed by the Le .....

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aised without prejudice to each other. The contention, urged on behalf of the respondent, that the petitioner's plea that the subject transactions are exempt from tax under Section 6(2) is mutually destructive of their plea that it is a Section 3(a) sale, is only to be noted to be rejected. It is no doubt true that pleadings of the parties are required to be read as a whole; although alternative and inconsistent pleas can be raised, pleas which are mutually destructive of each other cannot b .....

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inter-state sales. In view of Article 265 of the Constitution, no tax can be recovered which is not permitted by law. The executive can neither levy tax, (National Mineral Development Corpn. Ltd. v. State of M.P., (2004) 6 SCC 281), nor can it take recourse to the process of interpretation of a statute, (Indian Banks' Association v. Devkala Consultancy Service (2004) 11 SCC 1), to levy tax contrary to law. The consent of parties does not, by itself, confer jurisdiction upon a statutory autho .....

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e or consent can affect the decision. (U.C. Bank v. Their Workmen AIR 1951 SC 230; and Hakam Singh v. Gammon (India) Ltd AIR 1971 SC 740;Estate Officer and Manager (Recoveries), APIIC Ltd. v. Recovery Officer, Debts Recovery Tribunal 2003 (5) ALT 216 (DB)). Be it a Section 3(a) or a 3(b) or a 5(2) sale or a sale exempt under Section 6(2) of the CST Act, the respondents lack jurisdiction to subject such sales to tax under the A.P. VAT Act treating them as intra-state sales. Even if the petitioner .....

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the CST Act at the same time, our conclusion, that the subject sales are not exempt under Section 6(2) of the CST Act, would not bar the petitioners from contending that the transaction falls within the ambit of Section 3(a) of the CST Act. (ii) SECTION 3(a) SALE: ITS SCOPE:- It is contended, on behalf of the petitioners, that the assessing authority did not dispute the fact that the goods were manufactured to the design and the specifications of the contracting parties; the transaction would, t .....

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; the goods, involved in the execution of these works contracts, are specific goods tailor made for the particular project, and are required to be procured only from approved vendors from outside the State; the petitioner placed orders on the concerned vendors for manufacture and supply of equipment; after manufacture, inspection and pre-despatch tests were carried out in the presence of the owner; after satisfactory inspection, and approval of the test report by the customer, the goods were cle .....

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that the alleged sales, under the supply agreements, do not satisfy the requirement of a Section 3(a) sale for the following reasons: (a) movement of goods was pursuant only to an agreement of sale, and not of sale; (b) even if there was a sale, the sale agreement did not occasion the inter-state movement; the inter-state movement of goods was pursuant to the contract between the supplier and the petitioner-contractor, and not between the petitioner contractor and the owner; the deeming fiction .....

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Parliament introduced Section 5(3) in the CST Act which is confined only to exports; the law declared by the Constitution Benches of the Supreme Court, in Ben Gorm144;Coffee Board v. Jt. CTO AIR 1971 SC 870 = (1969) 3 SCC 349;Binani Bros v. Union of India (1974) 1 SCC 459andSerajuddin174, continue to hold the field in respect of a Section 3(a) or a 5(2) sale; if Parliament intended to dispense with the rule of privity, and thereby include even two sales, it would have extended the scope of the .....

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nt to which there must be inter-state movement of goods; the judgments cited by the petitioners, in K.G. Khosla and Co. (P) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras AIR 1966 SC 1216 = (1966) 17 STC 473andEnglish Electric Company India v. DCT AIR 1977 SC 1977, are distinguishable; the judgment inIndure75, was rendered on the peculiar facts and circumstances of the case, the Supreme Court did not dispense with the requirement of privity or inextricable relationship .....

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nultimate contract i.e., under the contract between the supplier and the petitioner-contractor; (ii) the sale contract with the owner did not immediately cause the inter-state movement; (iii) there was no privity between the supplier, who was effecting the movement, and the owner who was the end consumer; and (iv) the supplier-contractor supply contract, and the contractor-owner contract, are separate and independent contracts. Let us refer, albeit briefly, to the judgments relied upon by the pe .....

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te of Bihar; where, under the terms of a contract of sale, the buyer is required to remove the goods from the State in which he purchased those goods to another State, and when the goods are so moved, the sale in question must be considered as a sale in the course of inter-State trade or commerce; and the ratio of the decision in Coffee Board (I)175, did not bear on the facts wherein, under the terms of the contract of sale, the purchasers were required to remove the goods from one State to anot .....

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Ltd.,136. In DCM Ltd. v. CST (2009) 4 SCC 231, the Supreme Court held that taking delivery of the goods in Delhi by the purchasing dealers, for their assigned territories outside Delhi, would not take away the transactions from the category of inter-State sales; the determinative test to be applied was whether the purchasing dealers were obliged contractually to remove the goods from Delhi, (in which they were bought), to the assigned territories; and whether, in fact, the goods stood actually r .....

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resent case, the movement of goods from one State to another may or may not be as a result of a covenant, but it was definitely an incident of the contract. A sale, in the course of inter-State trade, has 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 mo .....

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legal fiction or otherwise. The State, where the goods are delivered in the transaction of an inter-State sale, cannot levy a tax on the basis that one of the events in the chain has taken place within the State. (National Thermal Power Corpn. Ltd.,136;20th Century Finance Corpn.137;Builders Association of India v. Union of India (1989) 2 SCC 645 : AIR 1989 SC 1371 =(1989) 73 STC 370 (SC)). Whenever a question arises whether a sale is an inter-State sale or not, it has to be answered with refere .....

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must be shown to have occasioned the movement of the goods from one State to another. The movement must be the result of a covenant or incident of the contract of sale (State of Bihar v. TELCO180;Ben Gorm144;State Trading Corporation of India Ltd. v. State of Mysore 1963 (14) STC 188 = (AIR 1963 SC 548;K.G. Khosla and Co. (P) Ltd. (I)177;Singareni Collieries Co. v. Commissioner of Commercial Taxes, Hyderabad AIR 1966 SC 563;Sahney Steel and Press Works Ltd.182;State of Orissa v. K.B.Saha and So .....

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Superintendent of Taxes AIR 1975 SC 887). What is decisive is whether the sale is one which occasions the movement of goods from one State to another. (English Electric Co. of India Ltd.178;National Thermal Power Corpn. Ltd.,136). Such movement, may be express, implied or incidental but should be inseparably connected with the transaction.(M.M. Traders156). Even if the agreement does not expressly provide for movement of the goods, if the parties envisaged movement of goods, pursuant to the con .....

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ryana [1974] 1 SCR 463;English Electric Company of India Ltd.178;Oil India Ltd.193;State Trading Corporation187;Balabhagas Hulaschand138 andK. G. Khosla and Co. (P) Ltd. (II)181, or whether a completed sale precedes the movement of goods or follows it. What is important is that the movement of goods and the sale must be inseparably connected. If the goods move from one State to another pursuant to an agreement of sale, and the sale is completed in the other State, it is an inter-State sale. (K.B .....

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rstanding between the buyer and the seller arising from the nature of the transaction, the sale must be held to be in the course of inter-State trade or commerce. (Commissioner of Commercial Taxes v. Bhag Singh Milkha Singh (1974) 34 STC 535 (Pat);State of Travancore-Cochin v. Bombay Co. Ltd., Alleppey A.I.R. 1952 S.C. 366;Ben Gorm144; andState of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory A.I.R. 1953 S.C. 333) . If the inter-state movement of goods was within the contemplation of th .....

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e buyer's contract and if, in the course of inter-State movement, the goods move only to reach the buyer in satisfaction of his contract of purchase, and such a nexus is otherwise inexplicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter-State trade or commerce as such a sale or purchase occasioned the movement of the goods from one State to another. (English Electric Company of India Ltd.178). Where the transfe .....

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sociated, and there is no break between the purchase and the movement of the goods to another State. It is sufficient if the movement of goods is implicit in the sale, and the sale and movement of goods are not unconnected and dissociated transactions. (The Co-operative Sugar (Chittur) Ltd. v. State of T.N. AIR 1994 SC 1456). The question whether the movement of goods, from one State to another, is as a result of a covenant in the contract of sale or an incident thereof, will depend on the contr .....

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nder the contract itself or impliedly by a mutual understanding. It is not necessary that, in all cases, there must be direct evidence showing such obligation in a written contract or oral agreement. Such obligations are inferable from circumstantial evidence also. (Bhag Singh Milkha Singh196;Shankerjee Raut Gopalji Raut v. State A.I.R. 1968 Pat. 329 (FB)). Each case turns on its own facts and the question is whether, applying the settled principles to the facts of the present cases, the deemed .....

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list of major suppliers agreed to by the parties, and from which the contractor shall select for the provision of materials under the contract. The agreement between Seimens and Powergrid required Seimens to procure items from the suppliers appearing in the "Compendium of Suppliers" as agreed to by Power Grid. Article 3.1 of the Alstom-GVK supply contract refers to Appendix - K which contains a list of suppliers agreed to by the parties, and from whom Alstom was obligated to select the .....

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pections. The aforesaid clauses show that the owner was associated with the goods right from the inception. Not only did they identify suppliers from whom alone the petitioner-contractors were obligated to purchase the goods, they were also actively involved in other aspects of the supply (including ensuring quality of the goods supplied), reserving to themselves the right to inspect the goods at the manufacturer's site before commencement of its movement etc. The goods moved from one State .....

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ected to the contract, and the mere fact that the goods were delivered within the State, and appropriation took place thereat, is of no consequence. It does not matter in which State the property in the goods passes. What is decisive is whether the sale is one which occasions the movement of goods from one State to another. (English Electric Co.178). (iii) SECTION 3(a) OF THE CST ACT: THE WORD "SALE" USED THEREIN INCLUDES AN AGREEMENT TO SELL:- It is contended, on behalf of the petitio .....

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the manufacturer/supplier, intermediate seller and the ultimate buyer and, as a result of the agreement to sell, the contracted goods move from one State to another, both the first sale and the second sale can only be inter-state sales. It is contended, on behalf of the revenue, that, for Section 3(a) to apply, there must be a contract of sale which results in passing of title; consequently, an agreement of sale would not fall within the ambit of "sale" because it does not have the ef .....

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uant to the supply agreement, which is only an agreement to sell, is not a "sale occasioning movement". A purchase made inside a State, for sale outside the State, cannot by itself be held to be in the course of inter-State trade. (Endupuri Narasimham and Son v. State of Orissa AIR 1961 SC 1344;Bengal Immunity Company Limited12). To make a sale in the course of inter-State trade, it is necessary that the contract must envisage the completion of the sale as well as the movement of the g .....

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aschand 138). In order to constitute a sale there must be (1) an agreement to sell, by which alone the property does not pass; and (2) an actual sale by which the property passes. The definition of a contract of sale, in Benjamin on Sale, (8th Edn.), includes an agreement to sell as well as an actual sale. (The Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash (1954) 5 STC 193 (SC); Balabhagas Hulaschand138). An agreement to sell, by which the property does not actually pass, is also an el .....

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s wide enough to include not only a concluded contract of sale but also a contract or agreement of sale provided the agreement of sale stipulates a transfer of property or movement of goods. Judgment of smaller benches of the Supreme Court, interpreting the judgment of a larger bench of the Supreme Court, is binding on the High Court. (Sakinala Harinath v. State of A.P. 1993 (6) SLR 1 = 1993 (3) ALT 471 (FB)). As the Constitution bench judgment of the Supreme Court inS.R. Sarkar106 was considere .....

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wide enough to include not only a concluded contract of sale but also an agreement of sale provided that the latter stipulated that there was a transfer of property or movement of goods; and the ratio of that decision was inapplicable to Section 5(3) which dealt with the question as to when a penultimate sale shall also be deemed to be in the course of export. It is evident that, atleast for the purposes of Section 3(a) of the CST Act, the word "sale" would include within its ambit an .....

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ot makes no material difference. (Balabhagas Hulaschand138). The submission of Sri K.Vivek Reddy, Learned Special Counsel, that movement of the goods, pursuant to the supply contracts, is not a "sale occasioning movement" is, therefore, not tenable. The combined effect of Section 3 of the CST Act and Section 4 of the 1930 Act is that an agreement to sell is also an essential ingredient of sale provided it contains a stipulation for transfer of goods from the seller to the buyer. If the .....

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e the State, to the owner whose works are being executed within the State, would have resulted in a breach of the supply contracts. Notwithstanding that the supply contracts are agreements to sell, the said contracts have occasioned movement of the goods from one State to another, eventually to reach the owner. Such agreements of sale fall within the ambit of Section 3(a) of the CST Act. For a sale, to be held to be a Section 3(a) sale in the course of inter- State trade or commerce, the situs o .....

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t empower the respondents to levy tax on such inter-state sale of goods, treating them as intra-state sales under the A.P. VAT Act. (iv) SECTION 4(7)(g) OF THE AP VAT ACT:- It is contended, on behalf of the petitioners, that Section 4(7)(g) was inserted in the AP VAT Act after the decision in Larsen and Toubro Limited v. State of Andhra Pradesh (2006) 148 STC 83); the Commissioner of Commercial Taxes, in his circular dated 23.1.2006, has held that if there is a contractual obligation to import g .....

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ection 4(7)(g) of the AP VAT Act. Section 4(7)(g) of the AP VAT Act, (as inserted by Act 5 of 2007 dated 22.01.2007 with effect from 01.09.2006), stipulates that, notwithstanding anything contained in clauses (a) to (f) of Section 4(7), no tax shall be leviable on the turnover relating to the transfer of property in goods, whether as goods or in some other form involved in the execution of a works contract, if such transfer from the contractor to the contractee constituted a sale in the course o .....

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the State, are independent and separate and must be crossed before a State Legislature can impose tax on transactions of sale or purchase of goods. (National Thermal Power Corpn. Ltd.,136;Bengal Immunity Co. Ltd.12Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax (1955) 2 SCR 483). The power of the State Legislature, under Entry 54 in List II, remains subject to Article 286 and Entry 92-A of List I of the VII Schedule to the Constitution whereunder Parliament alone has the power to lev .....

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Boveri Ltd.184;East India Cotton Manufacturing Company56;Gannon Dunkerly and Co. (II)63). A sale, in the course of inter-state trade or commerce cannot be taxed by a State Legislature even if its situs is within the State, as the State Legislature lacks legislative competence to impose a tax on such a sale, which can only be imposed by Parliament. If, therefore, a question arises whether a sale is exigible to tax by the State Legislature, the answer thereto is to be found by ascertaining whether .....

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Section 3 of the CST Act. (Gannon Dunkerley and Co. (II)63;Larsen and Toubro152). If a sale of goods falls within the ambit of Section 3(a) of the CST Act, the State legislature cannot subject it to tax under the State Act. By introducing Section 4(7)(g) in the A.P.VAT Act, the State Legislature has recognised that there can be a deemed interstate sale under clauses (a) and (b) of Section 3, and a deemed sale in the course of import under Section 5(2) of the CST Act involved in the execution of .....

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the interstate movement, and delivery is effected to the owner at the site; the petitioner has procured the goods from outside the State as a necessary requirement under the contract, and the movement of such goods is incidental to the deemed contract of sale; and, even if it is assumed that the actual sale took place within the State, in view of the undisputed fact that the goods moved from another State into the State, as a result of the contract between the parties, it is an inter-state contr .....

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works contract, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. (Larsen and Toubro Ltd.70). Section 2(ja) of the CST Act, (as inserted by Act No.18 of 2005 with effect from 01.04.2005), defines "works contract" to mean a contract for carrying out any work which includes as .....

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ract. (Commissioner of Sales Tax v. Prabhudayal Prem Narain AIR 1988 SC 1775 : (1988) 71 STC 1) (SC);Thomson Press (I) Ltd.68;The Court Press Job Branch, Salem v. State of Tamil Nadu (1983) 54 S.T.C. 382 (Mad. HC DB) and Commissioner of Sales Tax, MP v. Ratna Fine Arts Printing Press (1984) 56 STC 77 (M.P. HC) (DB)). For being classified as a works contract the transaction, under consideration, must be a composite transaction involving both goods and services. If a transaction involves only serv .....

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54 as well. In Gannon Dunkerley and Co. (I)64, the Supreme Court held that, to constitute a transaction of sale there should be an agreement, express or implied, relating to the goods to be completed by passing of title in those goods; both the agreement and the sale should relate to the same subject-matter; where the goods delivered under the contract are not the goods contracted for, the purchaser has the right to reject them, or to accept them and claim damages for breach of warranty; there .....

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work by the contractor to the person who had assigned the contract, and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract. In order to overcome the effect of the decision of the Supreme Court, in Gannon Dunkerly (I)64,Parliament, by the 46th amendment to the Constitution, amended Article 366 .....

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prior to the 46th amendment, was defined under Article 366 (29-A). The transfer of goods, utilised by a contractor in the execution of a works contract, is deemed to be a sale of goods in favour of the owner under the legal fiction created under Article 366(29A) (b). (Larsen and Toubro152). After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which sales tax was leviable on the price of the goods a .....

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ot; includes a tax on the transfer of property in the goods as goods or goods, which because of its usage in the execution of a work contract, has lost its original form as goods, and has acquired some other form. (Larsen and Toubro Ltd.70;Pro Lab.69;Kone Elevator India (P) Ltd.67). Article 366(29-A)(b) serves to bring transactions, where the essential ingredients of "sale" defined in the Sale of Goods Act, 1930 are absent, within the ambit of sale or purchase for the purposes of levy .....

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d by the term 'works contract'. Nothing in Article 366(29-A)(b) limits the term "works contract" to a contract for labour and service only, and it is a contract for undertaking or bringing into existence some "works". The Parliament had all genre of works contract in view when clause 29-A was inserted in Article 366. (Pro Lab.69;Kone Elevator India Pvt. Ltd.67;Larsen and Toubro Ltd.70). The narrow meaning given to the term "works contract" in Gannon Dunkerle .....

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4;Larsen and Toubro Limited1;Dwaraka Prasad Radhey Ramalal55;ECE Industries Ltd140;Sundaram Industries Limited112 and Asea Brown Boveri Ltd.184 have all declared that the subject contracts involved an inter-state deemed sale of goods in the execution of works contracts; and such inter-state sale of goods, which fell within the ambit of Section 3(a) of the CST Act, could not be subject to tax under the State Act. The object of Article 366(29-A)(b) of the Constitution is to enlarge the scope of th .....

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on such a deemed sale which constitutes a sale under Sections 3, 4 and 5 of the CST Act. (Gannon Dunkerley (II)63;Triveni Engineering and Industries Ltd.208;Siemens Ltd.60). Consequently an inter-state sale of goods which would, otherwise, have fallen within the ambit of Section 3(a) of the CST Act, cannot be subject to tax by a law made by the State Legislature merely because the said goods have been incorporated in the "works" executed within the State. (vi) CAN THERE BE AN INTER-ST .....

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ax what is otherwise an inter-state sale or an export/import sale as a local sale; Parliament conceived of an inter-State sale in the execution of a works contract, notwithstanding the theory of accretion; the facts of the present case clinchingly show that there is an inter-state sale under Section 3(a), and a sale in the course of import under Section 5(2) of the CST Act; from 13.5.2002 onwards, inter-state works contracts are liable to be taxed under the CST Act; if the goods have moved from .....

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bmit that, even if the goods have moved from outside the State, since they culminate in a work, involving erection and installation, it would only be a works contract; there cannot be a inter-state sale, under Section 3(a), in a works contract be it divisible or indivisible; tax on works contracts is on accretion, which can take place only in a local territory; and, therefore, the State authorities are entitled to tax the contract, as a works contract, under the A.P. VAT Act. In a works contract .....

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f the goods, provided tax is directed to the value of the goods at the time of incorporation, and does not purport to tax the transfer of immovable property. (Larsen and Toubro Ltd.215). It is no doubt true that, in Gannon Dunkerley (II)63, the Supreme Court held that the question, whether a deemed sale results from transfer of property in goods involved under Section 3, 4 and 5 of the CST Act, has to be decided in the light of the particular terms of the works contract, and cannot be decided in .....

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e execution of a works contract, have been sold. However the limitation on the competence of the State Legislature, in respect of even a fictional sale which takes place in the course of inter-state trade and commerce, subsists. The State Legislature is not competent to provide for the levy of tax on such a fictional sale when it takes place in the course of inter-state trade and commerce. (Thomson Press (I) Ltd.68;Gannon Dunkerley (II)63;Builders'Association186;East India Cotton Manufacturi .....

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not without significance. The charging section and the computation provisions of a taxing statute together constitute an integrated code. (Mahim Patram Private Ltd.163;C.I.T., Bangalore etc. v. B.C. Srinivasa Setty (1981) 2 SCC 460). The measure or value, to which the rate of tax is applied for computing the tax liability, is one of the components of tax. (Mahim Patram Private Ltd.163;M/s. Govind Saran Ganga Saran v. Commissioner of Sales Tax (1985) Supp. SCC 205). While tax is imposed on the t .....

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e for the levy of the tax, has to be the value of the goods at the time of its incorporation in the works, and not the cost of acquisition of the goods by the contractor. (Larsen and Toubro Ltd.215;Gannon Dunkerley (II)63). The principles laid down in the context of an intra-state deemed sale of goods involved in the execution of a works contract would equally apply to an inter-state deemed sale of goods involved in the execution of a works contract. As the situs of the sale is irrelevant to a s .....

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ds by the contractor nor the price at which the goods were sold by the contractor to the owner under the supply contract. The value of the goods would also include the expenses incurred by the contractor, (after the goods have been delivered by the carrier within the State), for transporting the goods to the site, the profit component involved in the inter-state deemed sale of goods etc. (vii) SHOULD THE PETITIONERS HAVE EFFECTED BRANCH TRANSFERS, INSTEAD OF AN INTER-STATE SALE? It is contended, .....

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owner is indifferent as to whether the goods are procured locally or from outside the State; if the Contractor procures the goods locally from the approved vendors, it would not be a breach of the sale agreement; and delivery of the goods within the State locally, by way of a branch transfer, is permissible and would not constitute a breach of the contract. It is for the contracting parties to decide how, and from where, the goods should be purchased. It is not open to the State to contend that .....

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y project. They are not off-the shelf goods, which can be sold to any other person if the owner refuses to receive them. The contracts provide stringent conditions on specifications, manufacture and supply of goods. The contract entered into between the parties is the result of an informed and conscious commercial decision agreeing on the terms of the subject contract. It is not for the revenue to suggest how the parties should frame the terms of their contract. All that the assessing and revisi .....

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no obligation cast on the supplier, either under the CST Act or under the contract, to make a branch transfer, and then sell the goods to the contractor. Questions, as to how a contract should be structured, and whether the goods should be sold in the course of inter-state trade or commerce or brought within the state as branch transfers, are commercial decisions, for the contracting parties to take, and not for the assessing/revisional authorities to impose. (viii) AUTHORITY COMPETENT TO LEVY .....

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itioner-contractors are liable to pay tax under Section 3(a) of the CST Act on the deemed inter-state sale of goods involved in the execution of the works contracts. The value of the goods, on which tax is liable to be paid by the petitioners - contractors, is the value of such goods at the time of its incorporation in the works. Section 9 of the CST Act relates to levy and collection of tax and penalties and, under subsection (1) thereof, the tax payable by any dealer, under the CST Act, on the .....

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ion 9(1). No other provision is relevant on this question. (Bharat Heavy Electricals Ltd.44). As Section 9(1) of the CST Act confers power on the assessing authorities of the State, from where the goods commence movement, to levy tax under Section 3(a) of the CST Act, and the respondents are the authorities of the State where the goods have been delivered, they lack jurisdiction to levy tax on the petitioners even under Section 3(a) of the CST Act. V. SECTION 5(2) OF THE CST ACT (i) HIGH-SEA SAL .....

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the "Owner" imported the goods. Sri K.Vivek Reddy, Learned Special Counsel, would submit that the L and T offshore sales do not qualify as high sea sales; a high sea sale, under Section 5(2), is like a transit sale under Section 3(b); all the characteristics of a transit sale are also applicable to a high sea sale; the LandT sale cannot be considered as a high sea sale as title, for reasons stated with respect to a Section 6(2) r/w. Section 3(b) sale, does not pass during movement; in .....

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the movement was under the auspices of the contract; title has also not passed during movement; the submission made with respect to Section 3(b) are applicable to a high sea sale also; a person can be an importer even without being the owner of the goods; and Section 2(26) of the Customs Act makes it clear that even a person, holding himself out to be an importer, can also be an importer. Section 5, in Chapter II of the CST Act, stipulates when a sale or purchase of goods is said to take place i .....

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the limits of the area of a customs station in which imported goods are ordinarily kept before clearance by the customs authorities. Under the Explanation thereto, for the purpose of clause (ab) of Section 2, the words "customs station" and "customs authorities" shall have the same meaning as in the Customs Act, 1962. In Union of India v. Sampat Raj Dugar (1992) 2 SCC 66, the Supreme Court held that, if the definition of importer' in Section 2(26) of the Customs Act were .....

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rted goods cannot be attributed to the importer even in a case where he abandons them, i.e. in a situation where he does not pay for and receive the documents of title; holding otherwise would place the exporter in a very difficult position; he would loose the goods without receiving payment, and his only remedy would be to sue the importer for the price of goods, and for such damage as he may have suffered; and this would not be conducive to international trade. Unless the goods, brought into t .....

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as 1981 E.L.T. 153 (Madras HC)). The importer of the goods is, therefore, the person who brings into India the goods from a place outside. The course of import of goods starts at a point when the goods cross the customs barrier of the foreign country and ends at a point in the importing country after the goods cross its customs barriers. The sale which occasions the import is a sale in the course of import. A purchase by an importer of goods, when they are on the high seas by payment against shi .....

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ion of "importer" in Section 2(26) of the Customs Act while any person, who imports goods from a foreign country into India, would undoubtedly be an importer, the owner of the goods and a person holding himself out be an importer would also be an "importer", however only during the period between the importation of the goods and the time they are cleared for home consumption, and not prior thereto or thereafter. That limb of the definition of "importer", in Section .....

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ds from the carrier, who has filed the bill of entry, and who has undertaken the work of clearance, continues to be an importer. (M/s. Vellanki Frame Works, Visakhapatnam v. The Commercial Tax Officer, Chinawaltair Circle, Visakhapatnam 2015-VIL-14-AP= Judgment in W.P.Nos. 4552 and 6258 of 2013, dated 18.12.2014). If the name of the "Owner" is reflected in the bill of entry as the importer of the goods, it would be difficult to accept the submission of the revenue that, notwithstanding .....

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gent of the contractor in importing the goods only for the contractor to sell the goods to him later. While the submission, urged on behalf of the revenue, that an import sale, falling within the second limb of Section 5(2) of the CST Act, has the characteristics of a Section 3(b) sale has considerable force, Section 5(2) must be read in conjunction with, and its scope examined in the light of, the provisions of the Customs Act. This requirement of an import sale, falling within the ambit of the .....

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have been delivered, the delivery of the duly endorsed bill of lading operates as between the transferor or transferee, and all who claim through them, as a physical delivery of the goods would do. The bill of lading also carries with it the rights and liabilities under the contract, where the property in the goods also is transferred. The property in the cargo passes to the consignee or the endorsee of the bill of lading, but the contract, where under the consignment or endorsement is made, has .....

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the bill of entry has also been filed by the "Owner" that would also indicate that the goods have been imported by the "Owner". It would be inappropriate for us to examine, in certiorari proceedings, whether it is the contractor or the owner who secured release of the goods from the carrier, and whether the bill of entry for import of the goods was filed by the contractor or the owner. On remand the authorities, who passed the impugned orders, shall examine these aspects in .....

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rom contending that the subject imports fall within the first limb of Section 5(2) as, in either event of an import falling within the first or the second limb of Section 5(2) of the CST Act, the respondents lack jurisdiction to levy tax on such sales under the provisions of the A.P. VAT Act. (ii) SALES WHICH OCCASION IMPORT:- It is contended by Sri S.Ravi, Learned Senior Counsel, that some of the goods for the turnkey project were imported by Alstrom Projects from Indonesia under Chapter 98 of .....

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red on account of the owner; the goods were cleared from Customs by paying concessional rate of duty, as goods imported for a power project; the Commissioner of Customs had certified that the goods had been cleared from Customs by the petitioner through Bills of Entry dated 16.3.2005 and 1.6.2005 respectively under Project Import Regulations, and had been installed in the factory premises of the owner; the supply contract with the owner required the petitioner to provide such equipment which wer .....

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ipment to anyone else without committing a breach of the supply contract with the owner; this unconditional passing of title was also reflected in the bills of lading; the imported equipment were designed and engineered to meet the specifications, and the requirement of the power project; they were sold in the course of import; the title to the imported equipment passed outside the customs frontiers of India; the first limb of Section 5(2) of the CST Act was satisfied; the sale, by the petitione .....

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), would not set at naught the decisions of the Supreme Court, particularly in Indure Limited75. Sri K. Vivek Reddy, Learned Special Counsel, would submit that inconsistent and mutually destructive pleas have been taken; an import sale, under Section 5(2), can only happen in two ways; (i) the sale or purchase occasions import; (ii) the sale is effected by transfer of documents of title to the goods before the goods have crossed the customs frontier of India i.e. high sea sale; [c] like a Section .....

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e employer's name to be mentioned in the import documents so as to ensure that the goods are actually being used for the specified power project; neither the said Regulations, nor the documents, demonstrate that the owner becomes the importer; Alstom's claim that it is a sale occasioning import, under Section 5(2), is not tenable because the agreement is only an agreement to sell and not a sale, the goods are future goods and not specific goods, the movement of goods is not pursuant to t .....

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must have been occasioned by the sale or must be as an incident of such sale. The import of the goods and the sale must be inextricably connected, and the movement of goods from the foreign country into India must be otherwise inexplicable. The expression "occasions the movement of goods", occurring in Section 3(a) and Section 5(2) of the CST Act has the same meaning. (S. R. Sarkar106;K.G. Khosla (I)177). Likewise the expression "sale occasions import", in Section 5(2) of the .....

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e of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding, be snapped. (Deputy Commissioner of Agricultural Income Tax and Sales Tax v. Indian Explosives Ltd (1985) 4 SCC 119). Let us now examine the judgments cited by Learned Counsel on either side on the scope of Section 5 of the CST Act. In K.G. Khosla177 the Supreme Court held that it was clear from the contract that the movement of axle-box bodies from Belgiu .....

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re, therefore, exempt from taxation. In answer to the contention, that the decision of the Constitution Bench of the Supreme Court in K.G. Khosla (I)177 had not been correctly decided and should be referred to a larger Bench, the Supreme Court, inIndure75, opined that K.G. Khosla (I)177 had held the field for more than three decades; and its correctness has not been doubted so far. In Coffee Board (I)175, the Supreme Court held that three essentials are required to be met before the sale can be .....

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petitioner entered into with the foreign sellers; no movement of goods, in the course of import, took place pursuant to the contracts of sale made by the petitioner with the DG Sand D; the petitioner's sales to DG Sand D were distinct and separate from his purchases from foreign sellers; the sales, by the petitioner to the DG Sand D, did not occasion the import; it was the purchases, made by the petitioner from the foreign sellers, which occasioned the import of the goods; the purchase of th .....

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d on account of sales by the petitioner to DGS and D; and therefore, even if the contracts envisaged the import of goods and their supply to the DGS and D from out of the goods imported, it did not follow that the movement of the goods in the course of import was occasioned by the contracts of sale by the petitioner with DGS and D. In Mohd. Serajuddin174 the Supreme Court held that the expression "in the course" in Section 5 implied not only a period of time during which the movement w .....

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Supreme Court, in Coffee Board207 held that Section 5(3) of the CST Act has been enacted to extend the exemption, from tax liability under the Act, not to any kind of penultimate sale but only to such a penultimate sale as satisfies the two conditions specified therein, namely, (a) that such penultimate sale must take place (i.e. become complete) after the agreement or order under which the goods are to be exported and (b) it must be for the purpose of complying with such agreement or order; and .....

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se two factors which establish the integral connection or inextricable link between the transactions of sale and the actual import making the sales in the course of import; and, if the movement of the goods from the foreign country to India was in pursuance of the requirements flowing from the contract of sale between the - assessee and the local purchaser, the sale in question must be held to be in the course of import. In K. Gopinathan Nair179 the Supreme Court held that any purchase of goods .....

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sing agency; the decision in Coffee Board (II)2 0 7 is confined to the validity of the amended Section 5(3); for interpreting the identical phraseology "in the course of", found both in Section 5(1) and Section 5(2), the decision in Coffee Board (II)207 would naturally not be of any assistance, as obviously the three learned Judges'Bench could not have laid down anything contrary to what the Constitution Benches inMohd. Serajuddin1 7 4 and Binani Bros.176 had laid down on a true co .....

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athan Nair179, the Supreme Court, inIndure75, held that the decision in Binani Bros.176 was distinguishable as, in that case, no obligation was imposed on the appellant to supply the imported goods to DGS and D after they had been imported, and the same could be directed to other channels; similarly the decision in Mohd. Serajuddin174 was not applicable as, in that case, it was found that the appellant therein had sold the goods directly to the Corporation which entered into a contract with a fo .....

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had held that the principles evolved by it, in para 12 of the judgment, were not applicable to that case. This Court is bound by the law declared by the Supreme Court inIndure75, and the submission of Sri K. Vivek Reddy, Learned Special Counsel, that, notwithstanding the aforesaid observations inIndure75, the earlier judgments of the Supreme Court in Binani Bros.176;Mohd Serajuddin174 andK. Gopinathan Nair179 should be followed, necessitates rejection. Sri K. Vivek Reddy, Learned Special Counsel .....

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, and followed K.G. Khosla (I)177, this Court is bound by the law declared by the Supreme Court inIndure75 and K. G. Khosla (I)177. The contract, which was under examination inIndure75, is similar to the contracts under consideration in the present batch of writ petitions. It is useful, therefore, to note the contentions raised by the revenue, and the law laid down by the Supreme Court, therein. The respondents contended before the Supreme Court that the appellant's obligation was that the m .....

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of atleast 33 percent; sale to N.T.P.C, by the appellant, was not of the goods which were imported by them; the Special Import License granted to the appellant entitled them to divert the goods; the imports were neither pursuant to any stipulation in the contract nor as an incidence thereof; the imports did not occasion the sale; they were only acting on behalf of the ultimate purchaser for whom the work was being executed; the goods, which were imported by the appellant, was for their own purp .....

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ddition of at least 33 percent, such raw material could not remain the same after being processed into the final product; and, as the matter had been dealt with and considered from all angles, no case for interference by the Supreme Court had been made out. Rejecting the aforesaid contentions of the revenue the Supreme Court, inIndure75, held that, while interpreting the expression 'sale occasions import'occurring in Section 5(2) of the Act, it was not necessary that a completed sale sho .....

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t or mutual understanding, be snapped; the appellant had, admittedly, imported the goods into India for completion of the Project, on a turnkey basis, for the NTPC; it was not the respondents'case that the pipes so imported were not necessary components for the erection and commissioning of the plant; admittedly, the said pipes were used as components in the ash handling plant in the same condition as they were imported without altering its originality; such an import would fall within the c .....

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y the petitionerscontractors to the owner was the direct and proximate cause of the import; it is not even the case of the revenue that the imported goods were diverted by the petitioners, and were not utilised for the works contract executed for the owner; there is an inextricable link, which is other wise inexplicable, between the import of the goods/equipment by the petitioner-contractor, and the sale of the imported goods to the owner; and, in the light of the judgment of the Supreme Court i .....

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sitate rejection, their contention that the subject sales/deemed sales fall within the ambit of Section 3(a) and 5(2) of the CST Act must be upheld. As the provisions of each contract differ from the other and, even for one assessment period, the petitioners have entered into more than one contract, we have refrained from burdening this already lengthy judgment with a reference to the relevant clauses in each individual contract. We consider it appropriate, instead, to set aside the assessment/r .....

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were disabled from preferring appeals, against the impugned orders, in so far as the other issues which arise for consideration therein are concerned. There is no provision either under the A.P. VAT Act or under the Writ Proceedings Rules which enable the petitioners to simultaneously invoke the jurisdiction of the High Court and the statutory appellate authorities against the very same assessment/revisional orders, albeiton different grounds. That would, however, not justify this Court taking .....

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s were admitted only on this score, they should be permitted to contest all other issues by way of statutory appeals under the AP VAT Act. The Learned Advocate General for the State of Telangana, Sri K. Vivek Reddy, Learned Special Counsel and Sri S. Suribabu, Learned Special Standing Counsel for Commercial Taxes, would fairly state that, in case the petitioners were to avail the remedy of an appeal to the appellate authority/STAT within four weeks from today, the respondents would not object to .....

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