2008 (12) TMI 392 - SC - VAT and Sales Tax

Supreme Court Rules on CST Act Proviso Interpretation

A & G Projects And Technologies Ltd. Versus State of Karnataka

The Supreme Court overturned the High Court's decision, determining that the proviso to section 9(1) of the CST Act did not apply as all sales were ... If the sales stood covered under section 3(a) and if they were not entitled to exemption under section 6(2), whether the appellant could have been taxed by the Department by invoking the proviso to section 9(1) of the CST Act, 1956? Held that:- Appeal allowed. The proviso to section 9(1) of the CST Act, 1956 is not applicable to the facts of the present case as the Assessing Officer has categorically held that all the three sales fell under section 3(a) of the CST Act, 1956. Once the said sales fall under section 3(a) then under section 9(1) the tax has got to be collected by the State of Tamil Nadu from which the movement of the goods commenced. The case of the appellant regarding subsequent sales effected during the movement of the goods stood specifically rejected both by the Assessing Officer and the FAA and, therefore, the question of taxing such sales under the proviso to section 9(1) of the CST Act, 1956 did not arise. Issues Involved:1. Classification of sales under section 3(a) or section 3(b) of the CST Act, 1956.2. Eligibility for exemption under section 6(2) of the CST Act, 1956.3. Applicability of the proviso to section 9(1) of the CST Act, 1956.Issue-wise Detailed Analysis:1. Classification of Sales under Section 3(a) or Section 3(b) of the CST Act, 1956:The appellant, a company engaged in electrical works contracts, contended that the transactions involved three independent contracts and that the second and third sales were 'subsequent sales' under section 3(b) of the CST Act, 1956. The Assessing Officer rejected this argument, holding that all three sales fell under section 3(a), as they occasioned the movement of goods from one state to another. The Karnataka High Court upheld this view, stating that the sale of goods to KPTCL was completed when the goods were appropriated by KPTCL before the commencement of their movement from Tamil Nadu to Karnataka.2. Eligibility for Exemption under Section 6(2) of the CST Act, 1956:The appellant claimed exemption under section 6(2) for the second and third sales, arguing they were subsequent sales. However, the Assessing Officer concluded that these sales did not qualify as subsequent sales under section 3(b) and, therefore, were not eligible for exemption under section 6(2). The First Appellate Authority (FAA) and the Karnataka Appellate Tribunal also rejected the appellant's claim for exemption, with the Tribunal noting that the movement of goods was into Karnataka, not from Karnataka, thus negating the claim for inter-State sales exemption.3. Applicability of the Proviso to Section 9(1) of the CST Act, 1956:The Assessing Officer applied the proviso to section 9(1), asserting that the State of Karnataka was competent to levy the tax. The High Court agreed, stating that since the sale did not comply with section 6(2), the proviso to section 9(1) applied, making Karnataka the appropriate state to collect the tax. However, the Supreme Court clarified that the proviso to section 9(1) applies only to subsequent sales under section 3(b) and not to sales under section 3(a). Since all sales were classified under section 3(a), the tax should be collected by the State of Tamil Nadu, from which the movement of goods commenced.Conclusion:The Supreme Court set aside the High Court's judgment, ruling that the proviso to section 9(1) was not applicable as all sales fell under section 3(a). Consequently, the tax should be collected by the State of Tamil Nadu. The civil appeal filed by the appellant was allowed with no order as to costs.