2014 (5) TMI 911 - HC - VAT and Sales Tax

High Court rules on interstate sale tax case, upholds deletion of penalty under Section 3-B.

The State of Tamilnadu represented by the Deputy Commissioner (CT) Versus Mahindra & Mahindra Ltd.

The State of Tamilnadu represented by the Deputy Commissioner (CT) Versus Mahindra & Mahindra Ltd. - [2013] 58 VST 483 (Mad) Issues Involved:1. Whether the transaction in question is an indivisible works contract executed in Tamil Nadu.2. Whether the deletion of levy of penalty under Section 3-B of the Tamil Nadu General Sales Tax Act is correct.Issue-wise Detailed Analysis:1. Whether the transaction in question is an indivisible works contract executed in Tamil Nadu:The primary issue revolves around the nature of the contract between the assessee and Neyveli Lignite Corporation, which involved the design, manufacture, assembly, inspection, shop testing, and other activities for a Hydroslucing Ash handling system. The contract's total cost was Rs. 12,49,76,000/-. The Revenue contended that the sale took place in Tamil Nadu, thereby attracting the Tamil Nadu General Sales Tax Act. However, the assessee argued that the contract was divisible, with goods moving from Mumbai and Calcutta, and thus constituted an interstate sale.The Tribunal found that the contract was indeed divisible, with separate conditions for supply, erection, testing, and commissioning. The goods were manufactured to the purchaser's specifications and moved from Mumbai and Calcutta to Tamil Nadu. The Tribunal concluded that the transaction was an interstate sale, not assessable under the Tamil Nadu General Sales Tax Act.The High Court upheld the Tribunal's findings, noting that the contract was between the assessee's head office in Mumbai and Neyveli Lignite Corporation, with no involvement of the Madras office. The movement of goods from Mumbai and Calcutta to Tamil Nadu was pursuant to the contract, satisfying the requirements of Section 3 of the Central Sales Tax Act. The insurance coverage by the assessee did not alter the nature of the contract. The High Court rejected the Revenue's reliance on the accretion theory, emphasizing the interstate nature of the sale.2. Whether the deletion of levy of penalty under Section 3-B of the Tamil Nadu General Sales Tax Act is correct:The penalty under Section 3-B of the Tamil Nadu General Sales Tax Act was levied by the Assessing Authority, who argued that the responsibility for insurance and the staged payments indicated that the sale took place in Tamil Nadu. The Appellate Assistant Commissioner upheld this view, but the Tribunal disagreed, finding that the contract was an interstate sale.The High Court supported the Tribunal's decision, stating that the contract was clearly divisible and involved interstate movement of goods. The High Court referred to the Supreme Court's decision in Tvl.Gannon Dunkerly and Co. and Others Vs. State of Rajasthan and Others, which held that the State Legislature could not convert an outside sale into a sale inside the State. The High Court also noted that the charging provision under Section 3B was not available during the relevant assessment years (1988-89 to 1990-91), further invalidating the penalty.Conclusion:The High Court dismissed the Tax Case (Revisions) filed by the Revenue, affirming that the transaction was an interstate sale and not assessable under the Tamil Nadu General Sales Tax Act. The deletion of the penalty under Section 3-B was also upheld, as the contract did not fall within the jurisdiction of the Tamil Nadu tax authorities. The court emphasized the importance of the contract's terms and the interstate nature of the transaction, rejecting the Revenue's arguments based on the accretion theory and insurance coverage.