Turnkey EPC works contract taxed as intra-State sale where goods were appropriated within Rajasthan and title passed only on site.

A turnkey EPC arrangement was treated as a composite and indivisible works contract because the contract documents showed a single tender, unified bid, lump-sum consideration, common obligations, and payment linked to the entire project; the split into three parts was only for payment convenience. For sales tax purposes, the goods were future goods appropriated to the contract only in Rajasthan, so title did not pass through pre-dispatch documentation and the transaction was taxable as an intra-State sale under the Rajasthan Value Added Tax Act, 2003, not as an inter-State sale under the Central Sales Tax Act, 1956. Penalty deletion was upheld, while the remand direction was set aside as beyond the pleadings and issues.

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Issues: (i) Whether the EPC arrangement between the parties was a composite and indivisible works contract or three independent contracts; (ii) Whether the goods supplied under the contract constituted inter-State sales under the Central Sales Tax Act, 1956 or intra-State sales taxable under the Rajasthan Value Added Tax Act, 2003; (iii) Whether the penalty deletion and the direction of remand could be sustained.

Issue (i): Whether the EPC arrangement between the parties was a composite and indivisible works contract or three independent contracts.

Analysis: The contract documentation showed a single NIT, a unified bid, lump-sum consideration, cross-fall breach clauses, common contractual obligations, common performance and warranty conditions, and payment structure linked to the entire project. The separation into three contracts was only for convenience of payment. The contractual terms and the overall intent of the parties demonstrated that the contractor was engaged to erect and deliver a complete power project on a turnkey basis.

Conclusion: The arrangement was a composite and indivisible EPC works contract and not three independent contracts.

Issue (ii): Whether the goods supplied under the contract constituted inter-State sales under the Central Sales Tax Act, 1956 or intra-State sales taxable under the Rajasthan Value Added Tax Act, 2003.

Analysis: For a works contract, the tax character of the goods depends on the time and manner in which property in the goods passes. The relevant statutory framework and the contract terms showed that the goods were future goods appropriated to the contract only in Rajasthan, and that MDCC or pre-dispatch documentation did not amount to transfer of title. The goods were used in erection of the thermal power project and were not sold as independent chattels. On that basis, the transaction fell within the State taxing power rather than within the inter-State sale provisions of the Central Sales Tax Act, 1956.

Conclusion: The disputed transactions were intra-State sales taxable under the Rajasthan Value Added Tax Act, 2003 and not inter-State sales under the Central Sales Tax Act, 1956.

Issue (iii): Whether the penalty deletion and the direction of remand could be sustained.

Analysis: The dispute on penalty arose from interpretation of the taxing provisions and the transaction involved a State instrumentality. In that setting, the penalty deletion was justified. However, the remand directions travelled beyond the pleadings, issues framed, and reliefs sought, and therefore lacked foundation in the adjudicatory record.

Conclusion: The deletion of penalty was upheld, but the direction of remand was set aside.

Final Conclusion: The taxability findings of the tax board were substantially affirmed, while the remand portion of its order was struck down and the remaining parts of the order were maintained.

Ratio Decidendi: In a turnkey EPC works contract, the character of the transaction for sales tax purposes depends on the contract as a whole and on when property in the goods is actually appropriated and transferred; where such appropriation occurs only within the State, the goods are taxable as intra-State sales and not as inter-State sales.

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