2010 (9) TMI 883 - SC - VAT and Sales Tax

MS pipes import integral to contracts exempt from sales tax

Indure Ltd. and another Versus Commercial Tax Officer and others

Indure Ltd. and another Versus Commercial Tax Officer and others - [2010] 34 VST 509 (SC), 2010 (11) SCR 556, 2010 (9) SCC 461, 2010 (10) JT 109, 2010 ... Issues Involved:1. Whether the import of MS pipes by the appellants was pursuant to a term of contracts between appellant No. 1 and National Thermal Power Corporation Limited (N.T.P.C.).2. Whether the import of the said MS pipes and supply thereof by the appellant No. 1 to N.T.P.C. constitutes an integral and inseparable part of the contracts between them.Issue-wise Detailed Analysis:1. Import of MS Pipes Pursuant to Contract Terms:The appellants, a company engaged in works contracts, were awarded a contract by N.T.P.C. for the erection of an ash handling plant on a turnkey basis. This contract required the company to design, manufacture, and supply various components, including MS pipes, necessary for the plant. The company imported MS pipes from South Korea and argued that these imports were integral to the execution of the contract with N.T.P.C. The respondents contended that there was no contractual obligation for the company to import these pipes and that the company could have sourced them domestically. However, the court found that the import of MS pipes was indeed pursuant to the contract terms, as evidenced by the special import license and the specific marking on the pipes indicating their exclusive use for the N.T.P.C. project.2. Integral and Inseparable Part of the Contracts:The court examined whether the import and supply of MS pipes were an integral and inseparable part of the contracts between the appellants and N.T.P.C. The appellants argued that the import was necessary for the completion of the project and that the imported pipes were used exclusively for the plant's erection and commissioning. The respondents argued that the company had the option to source materials domestically and that the import was not mandated by the contract. The court referred to previous judgments, including K.G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes and State of Maharashtra v. Embee Corporation, Bombay, which established that a sale in the course of import is exempt from taxation if the import is occasioned by the contract. The court concluded that the import of MS pipes was indeed an integral part of the contract, as the pipes were imported specifically for the project and used without alteration.Conclusion:The court held that the import of MS pipes by the appellants was pursuant to the contract terms with N.T.P.C. and constituted an integral and inseparable part of the contracts. Consequently, the appellants were entitled to the benefit of section 5(2) of the Central Sales Tax Act, 1956, which exempts sales in the course of import from taxation. The orders of the lower authorities and the Division Bench of the High Court were set aside, and the respondent-State was directed to refund the sales tax paid by the appellants with interest. The appeal was allowed with costs.