TMI Blog2024 (1) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... The contract was a composite and indivisible EPC works contract. In the simplest of terms, RVUNL was to receive the final thermal power project which was to be erected by the assessee for which the assessee was to receive a fixed consideration. It is not a case where there was sale of individual goods to the RVUNL. Though the goods were specially designed to be used in the power project, the point of transfer of such goods is what is relevant for determining whether the title to the goods transferred to RVUNL during movement of goods from one state to another. The assessee contends that the title to the goods transferred to the assessee outside the State of Rajasthan, upon issuance of MDCC or other like documents - In the case in hand, the pre-dispatch inspection and issuance of MDCC, in view of terms of contract, did not serve the purpose of transfer of goods. This unequivocally establishes that there was no transfer of title of goods after their inspection and/or issuance of MDCC or any like document. The intent of the parties is quite clear. The clauses of Final Handing Over , Project Schedule , Liquidated Damages , Warranty , Insurance , Completion of Contract , the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee: - (i) Whether the learned Tax Board has legally erred in setting aside order passed by the DS(Appeals) and thereby holding that the contracts between BGR, Chennai and RRVUNL as a composite and indivisible contract which tantamounts to a works contract? (ii) Whether the learned Tax Board has legally erred in holding that sale of Onshore Goods and Offshore Goods made by BGR-Chennai, BGR-Gurarat and BGR Maharashtra to RRVUNL as intra-state sale by BGR Rajasthan to RRVUNL and accordingly to be taxed under RVAT Act instead of CST? (iii) Whether in facts and circumstances of the case, the Respondent Department having assessed the transaction under Entry tax as goods brought by RRVUNL into the state, is estopped from contending that the sale of the said goods was made by BGR, Rajasthan to RRVUNL in the state of Rajasthan? (iv) Whether in the facts and circumstances of the case, the learned Tax Board has grossly erred in holding the State of Rajasthan can levy RVAT on a sale transaction when the assessment in relation to the said sale transaction has already been completed under CST Act in the state of Tamil Nadu, Maharashtra and Gujarat? In ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O, Ward-II, Anti Evasion, Kota. The Surveying Authority, in furtherance of the survey, prepared a detailed inspection report dated 27.06.2012 to opine that breaking a composite and indivisible work contract into three contract is nothing but a colourable device to avoid the tax due under the RVAT Act. It was further opined that the sale made under the first and second contract are intra-state sales, i.e. sale within the State of Rajasthan and not inter-state sales under Section 3 read with Section 6 of Central Sales Tax Act, 1956 (for short CST Act ). 2.4. On the basis of survey and inspection report, the assessment order(s) were passed on 14.06.2013 wherein tax, interest, and penalty were levied on the assessee under the RVAT Act on deemed sale of goods in execution of works contract. 2.5. The Appellate Authority, vide order dated 11.02.2014, quashed the assessment and demand orders and held that the sale made by the assessee is inter-state sale covered under Section 3 read with Section 6 of CST Act, and hence not exigible to state taxation. 2.6. The RTB, vide impugned order dated 19.03.2020, held that the contract between the parties was a composite and indivisible on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore goods claimed by the respondent from Gujarat and Maharashtra is an intra-state sale of Rajasthan. Question 3) Whether in the facts and circumstances of the case, the purchase of equipment and materials by the respondent from various vendors located in different States and resale of the same to RVUN is a sale as described under Clause (b) of Section 3 of CST Act? In case the sale between BGRESL, Chennai and RVUN is a sale under clause (b) of Section 3, is it also a sale by BGRESL, Chennai exempted under Section 6(2) of CST Act? In case the sale does not fulfill requirements of Section 3(b) or Section 6(2) or both, is it taxable under the provisions of RVAT Act? Answer to Question 3) Purchase of onshore goods and subsequent sale of the same to RVUN does not constitute a sale as described under clause (b) of Section 3 CST Act. The sale not qualifying under Section 3(b) automatically disqualified under Section 6(2) of CST Act. The subject sales are taxable under RVAT Act on being denuded the inter-State sale or export sale. 2.8. However, considering that the goods were goods of special importance as per Section 14 of CST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same are inter-state sales covered under Section 3 of CST Act. In support of this contention, learned senior counsel made the following submissions: (a) The bid/tended issued by RVUNL itself prescribed that three separate contracts would be awarded to the successful bidder, i.e., one for supply of off-shore goods; one for supply of on-shore goods; and one for civil works. The RRVUNL had prescribed the complete procedure to be followed by the petitioner while executing the contracts for supply of off-shore and on-shore goods. Even the vendors from whom the goods were to be procured in both these contracts were identified by the RRVUNL. (b) That the above mentioned two supply contracts (both On-shore and off-shore) occasioned movement of goods from one state to another and were duly assessed to tax under the provisions of CST in the hands of petitioner s branches at Maharashtra, Gujarat, and Chennai. Further, the supply contracts were issued by RVUNL inter alia providing for cost of CST. (c) That the title of the goods was transferred outside the state of Rajasthan, which is evident from Clause 31.3 of BID/NIT. (d) That even for the sake of argument, it is assumed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 366(29-A)(b) of the Constitution of India does not provide for tax on the whole of works contract. In works contract, assessee is liable to pay service tax on service element and sales tax on goods deemed to be transferred. However, what is ultimately being taxed by the State is the sale or purchase of goods simpliciter. Prior to insertion of Article 366(29-A)(b) into the Constitution of India by way of 46th Constitutional Amendment, state government did not have power to tax the sale of goods elements involved in a works contract. Article 366(29-A) (b) of the Constitution of India merely empowers the state government to separate the sale of goods element involved in a works contract and to levy tax on the same. Article 366(29-A)(b) of the Constitution of India does not provide for levy of tax on whole of works contract. (c) A works contract is no exception to inter-state sales. It has been held in Builders Association of India vs. Union of India: (1989) 2 SCC 645 that Article 366(29-A)(b) of the Constitution of India only empowers the state to tax sale of goods involved in works contract but all the Constitutional restrictions under Article 286 and Entry 92A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant period. On the other hand, the assessee merely followed the manner and procedure prescribed by RVUNL for execution of the three contracts and has paid far greater amount of tax against CST sales in respect of supply of off-shore and on-shore goods. (f) That RTB gravely erred in not considering that power to tax sale of goods during execution of works contract is available with the State of Rajasthan under Article 246 read with Entry 54 of List II just like any other transaction of sale or purchase taking place inside a state. In other words, the existence of a works contract does not change the fact that what is ultimately being taxed is sale and purchase of goods, which is subject to provisions of Article 286, Entry 92A of List-I of Constitution of India and the CST Act. (g) That this Court had struck down the provision in the erstwhile Rajasthan Sales Tax Act, 1994 which attempted to bring tax on inter-state sale of goods involved in the execution of works contract in the case of Triveni Engineering and Industries Ltd. v. State: (2001) 3 RLW 1752 . 4.3. The third contention of the assessee is that because the subject sales have been assessed to tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee submits that the sole ground of the assessing authority in rejecting the inter-state sales was that there were several discrepancies in the document transferring title of goods and that the invoices were raised late after the goods had already reached the Power Project site. However, the rebuttal and clarification of the assessee was found satisfactory by the Appellate Authority and the same has not been controverted by the RTB either. The Assessing Authority imposed penalty on the basis of only one transaction alleged to be an intra-state sale from Bhiwadi, Rajasthan. The allegation is erroneous because as per the contract issued by RVUNL the said supply was to be made from a vendor situated out of Rajasthan and was accordingly procured by the Petitioner from Himachal Pradesh, and the Assessing Authority has erroneously relied upon one inspection report which does not pertain to said supply, which is evident from the documents on record itself. Even otherwise, all the document, nature of business and explanation is on record, suggesting that there is no illegality or fabrication or anti-dating of documents. At the best, revenue may plead that the documents were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present works contract, the complete unit would be transferred to the RVUNL by assessee and there is no individual handing over/supply of goods by assessee to RVUNL. Further, as per the Sale of Goods Act, 1930 (for short SOG Act ), the goods are said to be transferred only when they are put to a deliverable state by the contractor as per terms and conditions of contract and at that point the incidence of sale took place for the purpose of works contract. Learned AG has also highlighted the finding of RTB at para 9.10 and para 9.11 to submit that issuance of MDCC by RVUNL only confirmed the specification of the goods to be used in the execution of the works contract. Mere issuance of MDCC, by no conceivable means, can be said to be transfer of title or ownership, as the assessee was still required to deliver the goods and put them in a deliverable state. 5.3. That the terms and conditions of contract are relevant for determination of the intention of the parties. In the case in hand, RVUNL issued the single NIT for erection of the thermal power plant. The sale in the present case is not of individual goods but is of the thermal power plant constructed and installed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has wrongly exhibited the subject sales as inter-state sales and clandestinely evaded the applicable taxes and by fabricating parallel and antedated invoices. Learned AG has also taken this Court through the assessment order wherein several discrepancies are pointed out, which have also been affirmed in para 8.11 of the RTB order. Learned AG has highlighted about 137 invoices totaling about Rs. 785 crores, in which serious discrepancies were found. Therefore, it is contended that the penalty was wrongly set aside by the RTB. Reliance is placed on State of Gujarat and Ors. vs. Saw Pipes Ltd. (Neutral Citation: 2023/INSC/376): AIR 2023 SC 2113 and R.S. Joshi and Ors. vs. Ajit Mills Limited and Ors.: (1977) 4 SCC 98. 5.6. That the directions issued by the RTB of remanding the matter back for afresh consideration was beyond the scope of the pleadings and was never argued and therefore the said direction is erroneous. Reliance in this regard is placed on Trojan and Co. Ltd. vs. N.N. Nagappa Chettiar: AIR 1953 SC 235 and Bharat Amratlal Kothari vs. Dosukhan Samadkhan Sindhi Ors.: AIR 2010 SC 475. 5.7. Reliance is also placed on Xerox Modicorp Limited vs. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,10,58,915 2011-12 Total: 92,14,49,539 (approx. 30% of demand in the matter) Lower Authority order Assessment order Appellate Order 219 2009-10 28.09.2012 11.02.2014 217 2010-11 28.10.2013 03.03.2014 218 2011-12 28.10.2013 12.03.2014 The decision of the lower authorities are summarized as under: Assessment Order 1. The assessee has broken a composite and indivisible works contract into three contracts to avoid payment of RVAT. 2. The sale of goods claimed by the assessee to be from Maharashtra, Gujarat, and Tamil Nadu (i.e. inter-state sale) are intra-state sale and exemption claimed from payment of VAT under Section 3(a) and 3(b) read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; Entry 92A of List I-Union List of Seventh Schedule of Constitution of India: 92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Entry 54 of List II-State List of Seventh Schedule of Constitution of India: 54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2 Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. Section 4 of CST Act: Section 4 - When is a sale or purchase of goods said to take place outside a State.- (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariety Body Builders: (1976) 3 SCC 500 this Court observed that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in a particular contract, and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all times vexed jurists all over. 27. The recitals of the contract may also be read in the light of the few provisions of Chapter III of the Sale of Goods Act. In a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Sections 20 to 24 contain rules for ascertaining the intention of the parties in this regard. When something remains to be done on the date of the contract to bring the specific goods in a deliverable state the property does not pass until such thing is done and brought to the notice of the buyer. 9.3. In the case of BSNL vs. UOI (supra), the Apex Court observed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . brings any other tax deduction at source into effect, during the validity of the Contract then the same shall be deducted at source as per the prevailing rules. SCOPE OF WORK clause no. 5 of contract no. 3832, clause 11 of contract no. 3833 and clause 11 of contract 3834 having following conditions which are exactly similar to each other and are as follows- CONTRACT PERFORMANCE GURANTEE The clause No. 12 of contract no. 3832, clause 11 of contract no. 3833 and clause 11 of contract 3834 have following conditions which are exactly similar to each other and are as follows- LIQUIDATED DAMAGES 1) FOR DELAY IN COMPLETION: That the liquidated damages are on the total contract price. If there is any shortfall due to any reason related to any of the contracts, liquidated damages will be as per total contract price of all three contracts. This clause again proves that contracts are not independent contracts to sale, but a single, composite and indivisible works contract. B. Terms and conditions relating to works contract where complete units will be transferred. 1. FINAL HANDING OVER shall mean the Owner's written acceptance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dear Sir,. This is to inform you that we are setting up a 2*600 MW Kalisindh Thermal Power Project at Jhalawar District, Rajasthan. We have placed the purchase order No. RVUNL/ACE(TD)/XEN(TDM-V)/TNKS-1/D.3832 Dt. 13.10.2008 (OFFSHORe) on M/s BGR Energy Systems Limited, 443, Anna Salai, Teynampet, Cheenai-600018 for implementation of 2*600 MW Kalisindh Thermal Power Project on Engineering, Procurement and Construction (EPC) basis. M/s BGR Energy Systems Limited have proposed to import equipments, materials, spare parts, special tools tackles and essentials mandatory spares etc. for the above project as per Annexure-A enclosed. The total CIF value of the consignments to be imported is USD 40,50,00,000. It is hereby certified that the goods as per enclosed Annexure-A (Appendix A0 to A9) are essentially required for the supply and erection of the equipment to this project and qualify for grant of duty concession under Project Import Chaper 98.01 of Customs Tariff read with SI.No. 399(IV) of Customs Notification No. 21/2002 dt. 01.03.2002 as amended from time to time. We confirm that the benefit of concession in customs duty are passed on to Rajasthan Rajya Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was a composite and indivisible works contract on a turnkey basis. 12. The relevant portion of the RTB order on this particular issue is reproduced as under: 7.11 As evident from the stipulations in Contract Documents a unified Bid was invited through a single NIT by RVUN for Engineering, Procurement and Construction of coal based Kalisindh Thermal Power Project (ITB-1). Scope of work included complete activities, services and supply of goods (ITB-5, GCC-13.2). Bidders had to quote in their proposals lumpsum price for the entire scope of work (ITB-18, GCC16.1). Provisions for TDS of Works Contract Tax were there. (ITB-18, GCC-16.2.7). All the supplies were acceptable exworks and FOR site only (ITB-18, GCC-13.2). Three contracts containing cross fall breach clause were to be executed with the successful bidder (ITB-22, GCC-31.1). The contract performance Guarantee, Equipment Performance Guarantee, Liquidated Damages etc. were to be calculated on the gross value of the three contracts. (ITB-24, 25; GCC-22.1). Plants and Equipment were to mean permanent plant, equipment, machinery and things of all kinds to be provided and incorporated under the contract (GCC-3.44). Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early exposit that they are contracts for supply and installation of the lift where labour and service element is involved..... But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel.... Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu (2014) 71 VST 1 (SC) 7.13 Out of the three subject contracts, contract no. 3834 is seemingly admitted to be a Works Contract by the parties. Construction of the foundations, bases etc. for the ensuing Power Plant with other related Civil construction was within the scope of this contract. The parties already agreed to deduct Works Contract Tax @2-25% of the payment made against execution of this contract. This contract in isolation of the other two contracts is a works contract in itself and the respondent has admitted and discharged the tax liability voluntarily on the goods involved in execution of this contract. It is surprising on the part of the respondent that the initial work (Construction of foundations civil wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue contends that the subject sales were deemed sale under the works contract and liable to be taxed under RVAT Act. To resolve this controversy, this Court must determine the nature of sale and when the sale was effected. For this, recourse may be taken to SOG Act, the relevant provisions of which are reproduced as under: Section 2 - Definitions (3) goods are said to be in a deliverable state when they are in such state that the buyer would under the contract be bound to take delivery of them; (6) future goods means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale; (14) specific goods means goods identified and agreed upon at the time a contract of sale is made; Section 4. Sale and agreement to sell (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods are at the buyer s risk whether delivery has been made or not: Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party. 15. As already discussed above, the contract was a composite and indivisible EPC works contract. In the simplest of terms, RVUNL was to receive the final thermal power project which was to be erected by the assessee for which the assessee was to receive a fixed consideration. It is not a case where there was sale of individual goods to the RVUNL. Though the goods were specially designed to be used in the power project, the point of transfer of such goods is what is relevant for determining whether the title to the goods transferred to RVUNL during movement of goods from one state to another. The assessee contends that the title to the goods transferred to the assessee outside the State of Rajasthan, upon issuance of MDCC or other like do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (in case of specific or ascertained goods) or at the time of their appropriation to the contract of sale (in case of future or unascertained goods). As has been already discussed in detail the goods involved in the case have been future goods. Their unconditional appropriation to the contract of sale took place only in Rajasthan. Thus, we hold the transaction of offshore and onshore goods claimed under Section 3(a) and Section 3(b) (of CST Act) respectively as sales within Rajasthan taxable under the RVAT Act, 2003. 17. The assessee has relied on several judgments, however none of those judgment deals with EPC works contract where there is a transfer of entire project. The judgment of CDVAT vs. ABB Ltd. (supra), being on different facts, has rightly been distinguished by the RTB with sufficient reasons and it is not deemed necessary to reproduce those reasons here again. Further, the judgment of Indure Ltd. vs. CTO (supra), on which heavy reliance was placed by the assessee, pertains to Section 5(2) of CST Act, whereas the assessee is claiming applicability of CST on the basis of Section 3 read with Section 6(2) of CST Act. Even otherwise, the nature of transactions is differe ..... 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