TaxTMI 
TaxTMI 
2010 (9) TMI 883
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....he contracts between them. 2. A brief history of the case is as under: Appellant No. 1 is a limited company duly incorporated under the provisions of the Companies Act, 1956, engaged in the business of works contract. Appellant No. 2 was working for gain as senior manager of appellant No. 1 (hereinafter referred to as, "the company"). 3. Tenders were invited by N.T.P.C on January 8, 1988 for submitting bids for ash handling plant package for its Farakka super thermal power project, Stage II, by way of international competitive bidding, popularly known as global tender. 4. The scope of work involved in such package included designing and engineering, manufacture, inspection and testing at supplier's works, packing, transportation to site, unloading, storage and handling at site, erection, testing and commissioning of complete ash handling plant for 2 x 500 MW steam generating units (for short, "the plant"). Such type of works contract is known as "on turnkey basis". Bids made by bidders were to cover the whole of the work as abovementioned. Bid made by any person not covering the entire scope of work was liable to be treated as incomplete and could be rejected ....
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....to the company at actuals against documentary evidence. 11. By way of letter of award dated August 16, 1988, N.T.P.C. awarded two contracts to the company for performing the work of erection of aforesaid plant on turnkey basis. Even though two contracts were entered into between the parties but in nutshell it was only one contract for the simple reason that N.T.P.C. kept a right with it with regard to cross-fall breach clause meaning thereby that default in one contract would tantamount to default in another and whole contract was liable to be cancelled. 12. In the said letter of award, clause 2 deals with intent and scope of award and is reproduced hereinbelow: "2.1 We confirm having accepted your proposal dated March 28, 1988 and mentioned in at para 1.1 (ii) above, read in accordance with communications/clarifications/agreements referred to at para 1.1 above and award on you the 'supply contract' for the work of design, engineering, manufacture, shop testing, inspection and testing of manufacture works, inspection and testing at manufacturer's works, packing and forwarding from your manufacturing works/place of despatch (both in India) and successful p....
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....pletion of the project. 15. MS pipes to be imported from M/s. Daewoo Corporation, South Korea, was one of the items shown in the list prepared by the company which was subsequently presented to N.T.P.C. 16. The company, thereafter, submitted an application before DGTD, Import Export Directorate, New Delhi on February 23, 1989 for special imprest import licence against turnkey contract for supply of complete ash handling system to N.T.P.C.'s Farakka super thermal power project (2 x 500 MW). 17. Along with the annexures submitted by the company full specifications of the MS pipes were also given. It also contained details of other items required to be imported by the company in accordance with the list presented to N.T.P.C., for completion of the project. 18. Necessary declaration required to be furnished by the company was complied with. The licensing authority clearly mentioning therein that all components sought to be imported were to be exclusively used by it for the aforesaid project of N.T.P.C. Accordingly, special import licence was granted to the company for importing MS pipes of various diameters up to 500 MB with different wall thickness together with other ....
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....e authorities below but the same was also rejected See Indure Limited v. commissioner of Commercial Taxes [2002] 125 STC 145 (WBTT). The appellants were then constrained to file a writ petition before the Division Bench of the High Court of Calcutta, challenging the said orders. However, the appellant's writ petition also came to be dismissed by the Division Bench of the said court on October 19, 2001, giving rise to this appeal. 24. The case of the respondents right from the very beginning had been that it was neither obligatory nor mandatorily required for the company to have imported the goods in question. There was no contractual or legal obligation on their part to do so. The only obligation required to be performed by the company under the terms of the letter of award and the contract was to design, supply, erect and commissioning the ash handling plant for N.T.P.C., irrespective of the components to be used therein. The appellant's further obligation was that the materials used in the execution of the said contract should conform to the specification stipulated by N.T. P.C. Such supplies would be effected by the company either from imports or procured from within ....
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....ion 5(2) of the Act. That is to say such sale or purchase occasioned the import. 29. They have, therefore, strenuously submitted that the appellants have lost before all the authorities below and the reasoning adopted by the West Bengal Taxation Tribunal has been affirmed by the Division Bench of the High Court, thus, no case for interference has been made out in this appeal, which deserves dismissal. 30. In the written submissions of the respondents, they have further taken the following plea: It is thus clearly established that the goods which were imported by the appellant, were to be imported by them for their own purposes though ultimately to be utilised for N.T.P.C's ash handling plant. The goods were to undergo processing at the premises of the appellant and only after their conversion into a final product were to be handed over to N.T.P.C. The appellants thus clearly admitted that there was to be a value addition to the equipments which were to be imported from the foreign sellers before they could be utilised for the ash handling plant. Not only the appellant utilised the special imprest licence on import of the goods with the declaration that t....
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.... is reproduced hereinbelow: "5. When is a sale or purchase of goods said to take place in the course of import or export. 5.1 xxx xxx xxx xxx 5.2 A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. 5.3 xxx xxx xxx xxx 5.4 xxx xxx xxx xxx 5.5 xxx xxx xxx xxx" 34. Before we proceed to decide the questions of law as projected hereinabove, one material fact pertinent to the issue involved in this appeal requires special mention. We have already mentioned hereinabove that along with MS pipes, the disputed goods in this appeal, the company had also imported 11 other components/items to be used in the plant for its erection and commissioning. The other 11 imported goods, utilised by the company in the erection of the plant have been held to be sales in the course of import made by the company to N.T.P.C. and accordingly the benefit under section 5(2) of the Act has been granted ....
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....ly on account of the covenant entered into between the company and N.T.P.C. and the imported pipes were used exclusively for erection and commissioning of the plant. The respondents have failed to establish that these pipes were not used in the plant of N.T.P.C. Similar question had again come up for consideration before two learned judges of this court reported in State of Maharashtra v. Embee Corporation, Bombay [1997] 107 STC 196 (SC)., [1997] 7 SCC 190 wherein it has been held as under at page 202 and 203 of 107 STC.: "9. In this case (K.G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes [1966] 17 STC 473 (SC). [1966] 3 SCR 352), the Constitution Bench specifically held that sale need not precede the import and this decision is complete answer to the argument advanced by the learned counsel for the appellant. 10.. The learned counsel then tried to argue that the decision of the Constitution Bench in Khosla's [1966] 17 STC 473 (SC). case [1966] 3 SCR 352 is not applicable to the present case as in the said case, the materials were to be inspected at Belgium and London and thereafter the goods were to enter into India. This argument is no....
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....ported into India. The importer being the CCI and not the local user, this court held that principles evolved by it in para 12 of the judgment were not applicable to that case. We do not, therefore, find that this decision is helpful to the appellant's case. 12.. The result of the aforesaid discussion is that while interpreting the expression 'sale occasions import' occurring in sub-section (2) of section 5 of the Act, it is not necessary that a completed sale should precede the import." 38. The test to determine if the sales were in the course of import has been elaborately considered in a judgment of a learned three-judge Bench of this court reported in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam v. Indian Explosives Ltd [1985] 60 STC 310 (SC). [1985] 4 SCC 119. 39. Para 4 thereof dealing with the issue is reproduced hereinbelow and finally in para 6 while distinguishing in the matter of Binani Bros. (P.) Ltd. v. Union of India(1) [1974] 1 SCC 459, it has been held as under at page 313 of 60 STC.: "4. The test of integral connection or inextricable link between the sale and the actual import or export in order that t....
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....the facts in K.G. Khosla & Co.'s [1966] 17 STC 473 (SC)., case [1966] 3 SCR 352 were on all fours with the facts obtaining in the instant appeals and that the ratio of that decision would appear to govern the question arising in these appeals, but he contended that a different view has been taken by this court in Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254 (SC); [1974] 1 SCC 459., and in view of this later decision the High Court ought not to have applied the ratio of K.G. Khosla Co.'s [1966] 17 STC 473 (SC); [1966] 3 SCR 352. decision to this case. It is not possible to accept this contention as in our view Binani Bros. case is clearly distinguishable on two material aspects. In that case the assessee itself held the import licence and the goods were imported on the strength of such import licence and not on the strength of any actual users' licence as is the case here. Secondly, unlike in the present case there was no term or condition prohibiting diversion of the goods after the import. In fact, it is these two factors obtaining in the instant case which establish the integral connection or inextricable link between the transactions of sale and the act....
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....ase, it is clearly spelt out that the facts of the case in hand are different. Thus, the ratio of the said case would not be applicable to it. 42. In fact, the ground, sought to be raised for the first time before this court that MS pipes were put to manufacturing process and thereby converted into a distinct end-product had not been raised before any of the authorities earlier. It was not the respondents' case that the pipes so imported were not necessary components for the erection and commissioning of the plant. Admittedly, the said pipes were used as components in the ash handling plant in the same condition as they were imported without altering their originality. Thus, the ground which was sought to be raised before us for the first time has not been considered by any of the authorities and in our opinion rightly so. Thus, we also do not deem it fit and proper to consider the same at this belated stage. 43. Apart from the aforesaid reasons, we are also of the considered opinion that such import would fall within the Constitutional umbrella. It is also to be noted that the company had admittedly imported the goods into India for completion of the project on turnkey b....