Inter-State sale versus works contract: supply of specially manufactured goods escaped Bihar VAT deduction, with refund relief limited by time.

A contract for manufacture and supply of specially specified bridge components, with loading and transportation under the arrangement, was treated as an inter-State sale because the movement of goods from West Bengal to Bihar arose from the prior sale contract and no composite labour-and-construction element existed. On that basis, the deduction of advance VAT within Bihar was unjustified. The presence of an arbitration clause did not bar writ relief where the dispute concerned the legal character of the transaction. Refund relief was nevertheless limited to deductions made within three years before the writ petition, with interest directed on the refundable amount and enhanced interest for delayed payment.

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Issues: (i) Whether the deduction made from the petitioner's bills towards advance VAT was justified on the footing that the contract was a works contract or an intra-State taxable transaction, or whether it was an inter-State sale of manufactured goods not exigible to tax within Bihar. (ii) Whether the writ petition was barred by the arbitration clause and, if relief was granted, whether refund was confined by limitation.

Issue (i): Whether the deduction made from the petitioner's bills towards advance VAT was justified on the footing that the contract was a works contract or an intra-State taxable transaction, or whether it was an inter-State sale of manufactured goods not exigible to tax within Bihar.

Analysis: The agreements were for manufacture and supply of specially specified bridge slabs and ballast retainers, with loading and transportation as part of the contractual arrangement. The petitioner did not execute any construction or accretion work at the site, and the contract did not involve a composite element of labour and goods that would characterize a works contract. The movement of goods from West Bengal to Bihar was pursuant to a prior contract of sale and was the proximate cause of the inter-State movement. On that footing, the transaction answered the description of an inter-State sale and not a local sale or works contract taxable within Bihar.

Conclusion: The deduction was unjustified and the transaction was not exigible to tax within Bihar. The issue is decided in favour of the assessee.

Issue (ii): Whether the writ petition was barred by the arbitration clause and, if relief was granted, whether refund was confined by limitation.

Analysis: The dispute turned on the legal character of the transaction and not on a matter fit for private adjudication under the contract. The presence of an arbitration clause did not oust writ jurisdiction in the circumstances. However, the relief was moulded by restricting refund to deductions made within three years preceding the writ petition, and interest was directed on the refunded amount, with enhanced interest if payment was delayed beyond the stipulated period.

Conclusion: The writ petition was maintainable, and refund was granted with a temporal limitation on the recoverable amount. The issue is decided in favour of the assessee.

Final Conclusion: The deductions were held to be illegal, the transaction was treated as an inter-State sale, and consequential refund relief was granted with interest and a limitation-based restriction on the quantum recoverable.

Ratio Decidendi: A contract for manufacture and supply of specially specified goods, where the movement of goods across State boundaries is occasioned by the prior sale contract itself and no composite obligation of labour and construction exists, is an inter-State sale and not a works contract taxable within the destination State.

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