2017 (11) TMI 466 - HC - VAT and Sales Tax

Inter-State Sales Maintain Character; Tax Exemptions Apply

The State of Tamilnadu Versus IVRCL Infrastructure and Projects Ltd.

The High Court dismissed the Tax Case Revisions, affirming that the transactions were inter-State sales. The goods maintained their inter-State character ... Levy of tax - inter-State purchase of Iron sheets into pipes in the State of Tamil Nadu - job-work - exemption under sub-section (a) of section 38 of the TNGST Act 1959 - Held that: - Decision in the case of The State of Tamil Nadu v. M/s.Sun Paper Mill Ltd. [2009 (2) TMI 750 - MADRAS HIGH COURT], is squarely applicable to the case on hand, where it was held that Stoppage and conversion do not make the transaction a local sale. After taking into consideration the facts involved, we are of the view that the transaction involved is only an inter-State sale - revision dismissed - decided against Revenue. Issues Involved:1. Tax applicability on manufacturing new products from inter-State purchase of iron sheets.2. Eligibility for tax exemption under Section 38 of the TNGST Act 1959.3. Classification of transactions as inter-State trade or commerce.4. Competency of the State of Tamil Nadu to levy tax on subsequent sales after delivery.Detailed Analysis:Issue 1: Tax Applicability on Manufacturing New Products from Inter-State Purchase of Iron SheetsThe court examined whether the manufacturing of new products (pipes) from inter-State purchased iron sheets in Tamil Nadu would attract tax under Section 38 of the TNGST Act 1959. The respondent had purchased HR coils from another state and converted them into spiral pipes through job work. The petitioner argued that this conversion resulted in a new commodity, thus attracting tax. However, the Tribunal held that the goods moved pursuant to a contract and maintained their inter-State character, thereby not attracting tax in Tamil Nadu.Issue 2: Eligibility for Tax Exemption Under Section 38 of the TNGST Act 1959The petitioner contended that the inter-State purchase of iron sheets should not be exempt from tax after their conversion into pipes. The Tribunal, however, found that the movement of goods was in connection with a works contract and the goods did not lose their nature or form upon incorporation into the works contract. Therefore, the exemption under Section 3-B(2)(a) of the TNGST Act was applicable, and the goods were not liable to tax in Tamil Nadu.Issue 3: Classification of Transactions as Inter-State Trade or CommerceThe court considered whether the transactions remained inter-State trade or commerce after the respondent took delivery of the iron sheets and converted them into pipes. The Tribunal held that the goods were moved from another state to Tamil Nadu pursuant to a contract, maintaining their inter-State character. The conversion process did not alter this classification, and thus, the transactions were considered inter-State sales, which are not taxable by the State of Tamil Nadu.Issue 4: Competency of the State of Tamil Nadu to Levy Tax on Subsequent Sales After DeliveryThe petitioner argued that the inter-State purchase terminated upon delivery, making Tamil Nadu competent to levy tax on subsequent sales. The Tribunal, however, concluded that the goods' movement was linked to the works contract and maintained their inter-State nature. Consequently, Tamil Nadu could not levy tax on these transactions. The court upheld the Tribunal's decision, emphasizing that the transactions were inter-State sales and exempt from local tax.Conclusion:The High Court dismissed the Tax Case Revisions, affirming that the transactions in question were inter-State sales. The goods maintained their inter-State character throughout the process, and the exemptions under the TNGST Act were applicable. The court relied on precedents, including the decision in Sun Paper Mills Ltd., to support its judgment, emphasizing that the movement of goods pursuant to a contract and their subsequent conversion did not alter their inter-State nature. The substantial questions of law were answered against the revenue, and the Tribunal's order was upheld.