TaxTMI 
TaxTMI 
2014 (6) TMI 589
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....assessment dated 9th June, 2005 under Section 12 (3) of the Act granting exemption in respect of the turnover pertaining to inter-State purchases of goods used in the execution of works contract. The first Revisional Authority, in exercise of the powers under Section 22(2) of the Act, initiated suomoto proceedings to revise the order of assessment dated 9th June 2005 on the ground, inter-alia that the exemption in respect of the turnover representing inter-State purchase of goods utilized in the works contract was erroneously allowed in the absence of documentary evidence. The first Revisional Authority, however, dropped the proposal to levy tax under the Act, in respect of purchase of goods from outside the State and used in execution of the works contract. 2.1. The Second Revisional Authority, under Section 22-A(1) of the Act issued notice dated 15th June 2009, proposing to revise the order dated 30th September 2006 passed by the first Revisional Authority, on the ground that the turnover pertaining to inter-state purchases and used in the execution of the said project was liable to tax under Section 5-B of the Act. The respondent-M/s.ASEA Brown Boveri Ltd. (for short "the asses....
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....ral requirements under Chapter "General Information and Scope of Works" which provided that all the equipments/materials to be submitted for inspection by a duly authorised representative of the KPTCL. It further provided that inspection would be at any stage of manufacture, dispatch or at site, at the option of the Engineer, or when the equipments were dispatched/about to be dispatched and if found unsatisfactory as to workmanship or quality, the same were liable to be rejected. It further stated that a successful bidder/contractor would grant free access to the places of manufacture to the authorised representative of the Engineer at all times when the works related to the manufacture were in progress. 4. The assessee had participated in the bidding process and was declared successful bidder and accordingly, awarded the contract vide letter dated 19-4-2002 for execution of the project on total turnkey basis consisting supply of all equipments/materials, erection, testing and commissioning. As per the letter of award dated 19th April 2002, the assessee submitted its acceptance vide their letter dated 24th April 2002 and proceeded to execute the contract agreement with KPTCL on 26....
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....necessary that the contract of sale must itself provide for and cause the movement of goods; but such movement should be the result of a covenant in the contract or is an incident of that contract. In support he placed reliance upon the following judgments: K.G.Khosla and Co. (P) Ltd. vs. Deputy Commissioner of Commercial Taxes, 17 STC 473 (SC); Union of India vs. K.G.Khosla and Co. Ltd., 43 STC 457 (SC); State of Maharashtra vs. Embee Corporation 107 STC 196 (SC); Larsen and Toubro Ltd. vs. Commissioner of Commercial Taxes, 132 STC 272 (AP); Indure Ltd. Vs. Commercial Tax Officer, (2010) 9 SCC 461; ABB Ltd vs. Commissioner, Delhi (2012) 55 VST 1; Mitsubishi Corporation vs. State of Karnataka, (2012) 53 VST 489; State of Karnataka vs. ECE Industries Ltd., 144 STC 605 (KAR). 7.2. The expression "occasions the movement of goods" occurring in Sections 3(a) and 5(2) of the Central Act, he submitted, has the same meaning. He then submitted that the deemed sale resulting from transfer of property in goods involved in execution of works contract, the principles contained in Section 3, 4 and 5 of the Central Act will have to be considered, and therefore, sale in the course of inter-State ....
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....se were not moved from out of the State as a result of the contract and movement of goods was not incidental to the Contract, since in the Bid Enquiry Document, there was no mention of inter-State vendors. It, therefore, cannot be said that the goods were moved in pursuance of the Contract. He submitted that the inter-State turnover of Rs.14 crores and odd was, therefore, not entitled to be exempted from taxing provision, namely, Section 5B of the Act. He then submitted that under the terms and conditions of the contract the dealer was supposed to purchase goods from manufacturing units within the State of Karnataka and it further provided that if this condition is violated by procuring goods from outside the State, the KPTCL would deduct 9.5% of the amount out of the value for such goods and hence there was no stipulation in the order of award that the commodity may be secured from any corner of the country. In support of his contention he invited out attention to paragraph 13.0 and 2.47.10 in the General Conditions of the Contract. In support of his contentions, Mr.Veda Murthy placed reliance upon the judgment of the Bombay High Court in Sudhakar S Pangol Vs. State of Maharashtra....
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....pes by the respondents was pursuant to term of contracts between appellant No.1 and National Thermal Power Corporation Limited (for short "NTPC"), and whether import of said M.S.Pipes and supply thereof by appellant No.1 to NTPC constitutes integral and inseparable part of contracts between them. NTPC had awarded contract to the assessee for completion of ash handling plant package for its thermal power project. The scope of work involved in such package included designing and engineering, manufacture, inspection and testing at suppliers works, packing, transportation to site, unloading, storage and handling at site, erection, testing and commissioning of complete ash handling plant for steam generating units of the power specified. Along with MS Pipes, the disputed goods in that case, the assessee had also imported 11 other component/items to be used in the plant for its erection and commissioning. Other 11 imported goods, utilized by the assessee in the erection of the plant have been held to be sales in the course of import made by the assessee to NTPC and accordingly benefit under Section 5(2) of the Central Act had been granted by the concerned State Government. In this backdr....
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....roperty in the goods passes in either State" (page 391) (page 667 of 11 S.T.C.). Sarkar, J., speaking for himself and on behalf of Das Gupta, J., agreed with the majority, that clauses (a) and (b) of section 3 are mutually exclusive but differed from it and held that "a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved; in other words, a sale occasions a movement of goods when the contract of sale so provides" (page 407) (page 679 of 11 S.T.C). The view of the majority was approved by this Court in Cement Marketing Co. of India v. State of Mysore, State Trading Corporation of India v. State of Mysore and Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes, Hyderabad. In K. G. Khosla & Co. v. Deputy Commisssion of Commercial Taxes, counsel for the revenue invited the court to reconsider the question but the court declined to do so. In a recent decision of this Court in Oil India Ltd. v. Superintendent of Taxes, it was observed by Mathew, J., who spoke for the court, that: (i) a sale which occasions movement of goods from one State to another in a sale in the course of inter-State trade, no matter in w....
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....at the entire project had to be completed by the assessee which included installation of machinery and supervision upto certain point of time, that is to say, the contract was composite in nature. By merely supplying material to the contractee, the responsibility arising out of the agreement did not cease, the appellant had to install the machinery and watch the performance for a period of 15 months. The movement of goods, after being satisfied with the quality of goods, clearance was given, was occasioned pursuant to the contract. They had reached the destination. Central Sales Tax was paid to the State of Maharashtra. Having regard to the fact that there were two facets of the contract, supply of goods and installation of machinery with the labour of the assessee, the contract was a divisible contract. Transaction was an inter-State transaction and not an intra-State transaction and the turnover arising on that transaction could not be brought under the net of the Andhra Pradesh Act. 15. The Delhi High Court, in the case of very same assessee, in ABB Limited vs. Commissioner of Delhi, Value Added Tax, [2012] 55 VST 1 (Delhi), considered the questions whether the sale transaction....
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.... legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation. The same is true of sales which are outside the State and sales in the course of import and export. The State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import and export into a sale inside the State. The further observations of the Supreme Court are also relevant, which read thus: "It must, therefore, be held that while enacting a law imposing a tax on sale or purchase of goods under entry 54 of the State List read with sub clause (b) of clause (29-A) of article 366 of the Constitution, it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act or an outside sale under section 4 of the Central Sales Tax Act or sale in the course of import or export under section 5 of the Central Sales Tax Act. So also it is not permissible for the State Legislature to impose a tax on goods declared to ....
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....rnataka vs. ECE Industries Ltd., [2006] 144 STC 605 had an occasion to deal with the questions whether the Tribunal could hold that the movement of goods was occasioned as an incident of sale even though the contract was silent on this aspect and whether the Tribunal was right in holding that the movement of goods were on account of inter-State sale when in-fact the property/goods passes only after erection and commissioning of the lifts and elevators and the sale transaction is completed only after such erection and commissioning. In this case, Hon'ble Mr.Justice H.L.Dattu (as he then was) speaking for the bench observed that "where the description of the goods is clear and the goods of that description are dispatched then the goods so dispatched can be taken as appropriated to the contract unconditionally and despatches from one State to another to an identified customer result in inter-State sale. Merely, because the goods are installed and commissioned in the State, it cannot be said that it is a local sale exigible to levy under Section 5-B of the Act on the ground that the actual transfer of property used in the works contract took place in the State of Karnataka and, therefo....
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....deductions from his total turnover and in such manner as may be prescribed. Total turnover is also defined by sub-section (u-2) of Section 2 of the Act. The definition of total turnover reads thus: 2(u-2): "Total turnover" means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover or purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India." It means, the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover or purchase or sale in the course of inter-State trade or commerce. 21. The word "sale" has been defined by clause (t) of sub-section (1) of Section 2 of the Act. From bare perusal of definition of "sale" it is clear that it includes, among others, the transfer of property in goods (whether as goods or in some other form) involved in the ex....
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.... for imposition of sales tax in relation to works contract. Insofar as the State of Karnataka is concerned, such amendment was made by which Section 5-B and 5-C were inserted by Act No.25/1985 with effect from 1-4-1986. The question whether as a result of the Forty-sixth amendment an independent taxing power has been conferred on the States had arisen for consideration before the Supreme Court in Builders Association case. The Supreme Court while dealing with the question rejected the contention urged on behalf of the dealers/assessee that sub-clause (b) of clause (29-A) of Article 366 of the Constitution has conferred on the Legislatures of States, the power to levy tax on works contract which is independent of the power conferred on the Legislatures of the State under entry 54 of the State List. The observations made in the Builders Association's case to this effect shall be relevant for our purpose, which read thus: "The object of the new definition introduced in clause (29-A) of the Article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Cons....
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....ate List." (Pages 402 and 203 STC; 354 of SCR)". (emphasis supplied) 25. Entry 54 of List-II of Schedule VII to the constitution of India read with Article 366 (29-A) (b) fell for consideration of the Supreme Court in Gannon Dunkerley and Company vs. State of Rajasthan, [1993] 88 STC 204. The Supreme Court observed that "the State Legislature, while imposing tax on the transfer of properties in goods, whether as goods or in some other form, involved in the execution of works contract is not competent to impose tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or sale outside the State or a sale in the course of import or export. The legislative power of the State Legislatures under entry 54 of the State List is subject to two limitations-one flowing from the entry itself which makes the said power "subject to the provisions of entry 92-A of List I", and the other flowing from the prohibition contained in article 286. Under entry 92-A of List I Parliament has the power to make a law in respect of taxes on sale or purchase of goods other than newspapers where such sale or purchase takes place in the course ....
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....Article 366(29-A)(b), the State legislatures are competent to impose tax on transfer of property in goods involved in the execution of a works contract and under Article 286(3)(b) Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidence of such tax. 27. The Forty-Sixth Amendment of the Constitution do not confer on the States a larger freedom than what they had before in regard to their power to levy tax under Entry 54 of the State List. The legislative power of the State Legislature under Entry 54 of the State List is subjected to limitations which is evident from perusal of Entry 92-A of List-I and Article 286 of the Constitution. This entry and the provision show that the legislative power under Entry 54 of the State List is not available in respect of transaction of sale or purchase which take place in the course of inter-State trade or commerce. Levy and collection of such tax is governed by Article 269. Similarly, Article 286 (1) prohibits the State from making a law imposing or authorizing the imposition of a tax on the sale or purchase of goods whether such sale or purchase takes place outside th....
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....vices till testing and commissioning of the project to the satisfaction of KPTCL. There does not appear to be any dispute that the assessee completed the project and while doing so to complied with all conditions to the satisfaction of KPTCL. 29. The assessee approached KPTCL, since it did not find manufacturers of certain equipments/goods in the State of Karnataka, who were complying with the criterions/requirements stipulated in the general terms and conditions of the contract, seeking permission to purchase such equipments/goods from the manufacturers outside the State. Such permission was sought by the assessee in writing and KPTCL granted the permission in writing stating that some of the manufacturers from whom the assessee proposed to purchase goods/equipments from outside the State were their regular suppliers. The permissions were granted by KPTCL by letters dated 30.4.2000, 24.5.2000, 28.5.2002, 30.5.2002 and 27.6.2002. Accordingly, the assessee procured about 12 different items/goods/equipments from different manufacturers from 3-4 States. The equipments/goods purchased from such manufacturers were duly approved by KPTCL, as aforementioned. In other words, the movement ....
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....contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contract when the contract is divisible into, one for sale of goods and the other for supply of labour and services. State legislature has power to impose tax on transfer of property in goods involved in the execution of a works contract in view of Article 366(29A)(b) of the Constitution. But, it is subject to the powers under Article 286(1) of the Constitution, which prohibits the State from making a law imposing or authorizing the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. As a result of the said provision, the legislative power conferred under Entry 54 of the State list does not extend to imposing tax on a sale or purchase of goods which takes place outside the State. It is, therefore, beyond the competence of the State legislature to make a law imposing or authorizing the imposition of a tax on transfer of property which take place in the course of inter-State trade and commerce. The State Legislature, therefore, cannot impose any tax on such transaction, as is clear from bare perusal of Section 5-B of th....