TaxTMI 
TaxTMI 
2015 (12) TMI 470
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.... W.P. Nos.10711 and 23689 of 2011, W.P. No.6834 of 2012, W.P. No.39431 of 2013 and W.P. No.14457 of 2014. Alstom Projects India Ltd filed W.P. Nos.4763 and 12745 of 2009, and W.P. No.26994 of 2011. M/s. Siemens Ltd, Hyderabad filed W.P. Nos.16857, 16909 and 16945 of 2009, W.P. No. 25776 of 2010, W.P. No.8664 of 2013 and W.P. No.14192 of 2014. BGR Energy Systems Ltd, Nellore filed W.P. No.19516 of 2009. All the petitioners have executed turnkey projects for different customers. They claimed that the goods supplied by them, for being used in the turnkey projects, were subsequent sales exempt from tax under Section 6(2) of the CST Act, import sales under Section 5(2) of the CST Act, and the respondents lacked jurisdiction to subject these transactions to tax under the AP VAT Act treating them as intra-state sales. On their claim being negatived by the assessing/revisional authorities they have invoked the certiorari jurisdiction of this Court. It would suffice to note the contents of the assessment order passed in W.P. No.8006 of 2009 as illustrative of the orders impugned in these Writ Petitions. The petitioner in W.P. No.8006 of 2009, M/s. Larsen and Toubro Ltd, is a company r....
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.... the bills issued by the ex-state seller, foreign seller, copies of LR/bill of lading, copies of the bills raised by the petitioner, customs clearance documents etc; and they contended that these transactions were in the nature of inter-state sale transactions, and sales in the course of import, covered by Section 3(b) read with Section 6(2) and Section 5(2) of the CST Act and were exempt from levy of tax. In the impugned assessment order the assessing authority observed that, in the show-cause notice, he had opined that there were two independent transactions - one between the foreign seller in favour of the contractor, and the second set of transaction between the contractor and the contractee; the petitioner had refuted this contention contending that the goods had moved from outside the State specifically for the purpose of compliance of the supply contract and, therefore, the movement had an inextricable link with the ultimate sale; the petitioner had opposed the view that there cannot be a sale in transit in a works contract, placing reliance on Larsen and Toubro Limited v. Commissioner of Commercial Taxes (2003) 132 STC 272 (AP) (DB); and they had also placed reliance on ....
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....ough it was split into two; these contracts were not entrusted to two separate contractors, but to the petitioner alone; in the case of Vemagiri the agreement, dealing with the contractors obligations, specifically provided that the contractor had the experience, skill and resources to perform the works; thus the intention of both the contractor and the contractee was to execute a work, where the transfer of property takes place not as chattel qua chattel, but on the theory of accretion; in such a case, it is impermissible to split such contracts into a supply and labour contract; the nature of the contract was that of a works contract which the petitioner had conveniently split into two contracts - one of which was as a supply contract wherein they claimed exemption under Section 3(b) and Section 6(2) of the CST Act; the other contract was designed as a labour contract or a works contract as it related only to erection/installation etc., by deploying its labour, and no material was involved therein; the petitioner had claimed exemption on a portion of this also; thus by splitting the works contract, one into a supply contract and the other into a labour contract, the petitioner ha....
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....; the intention of the parties is important in deciding the nature of the transaction, but not how the documentation is made; the intention of both the petitioner and the contractee is to execute works at Konaseema and Vemagiri respectively; in order to avoid the brunt of taxation, the petitioner had created tailor made documents in order to claim exemption under Sections 3(b), 6(2) and 5(2) of the CST Act; the sale of goods, involved in a works contract, is concluded only after the said goods are incorporated/merged/fused with the property of the contractee; the petitioner had split the contract into supply of goods, and erection and installation, only to make it tailor made to suit Sections 3(b), 6(2) and 5(2) of the CST Act, and nothing else; the transactions must, therefore, be treated as intra-state deemed sale of goods involved in a works contract; MMTC of India Ltd. (1998) 111 STC 434 = AIR 1999 SC 121 = (1998) 7 SCC 19 (SC) was a case of normal sale, in the course of import, where the property was transferred chattel qua chattel; in the present case, the impugned transactions are transactions of works contract where such transfer of property takes place on the theory of acc....
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....vedita Sharma v. Cellular Operators Assn. of India (2011) 4 SCC 337;Thansingh Nathmal v. Supt. of Taxes AIR 1964 SC 1419;Carl Still G.M.B.H.v. State of Bihar AIR 1961 SC 1615;State of Bombay v. United Motors (India) Ltd 1953 SCR 1069;Himmatlal Harilal Mehta v. State of Madhya Pradesh 1954 SCR 1122;Bengal Immunity Co. Ltd. v. State of Bihar AIR 1955 SC 661;Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536;Chhabil Dass Agarwal;G. Veerappa Pillai v. Raman and Raman Ltd. AIR 1952 SC 192;CCE v. Dunlop India Ltd. (1985) 1 SCC 260;Ramendra Kishore Biswas v. State of Tripura (1999) 1 SCC 472;Shivgonda Anna Patil v. State of Maharashtra (1999) 3 SCC 5;C.A. Abraham v. ITO[18]AIR 1961 SC 609;Titaghur Paper Mills Co. Ltd. ;Excise and Taxation Officer-cum- Assessing Authority v. Gopi Nath and Sons (1999) Supp (2) SCC 312;Whirlpool Corpn. v. Registrar of Trade Marks (1998) 8 SCC 1;Tin Plate Co. of India Ltd. v. State of Bihar-(1998) 8 SCC 272;Sheela Devi v. Jaspal Singh (1999) 1 SCC 209;Punjab National Bank v. O.C. Krishnan (2001) 6 SCC 569;Union of India v. Guwahati Carbon Ltd. (2012) 11 SCC 651;Munshi Ram v. Municipal Committee, Chheharta (1979) 3 SCC 83; andChhabil Dass Agarwal). ....
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.... the Supreme Court and, in Kalpana Glass Fibre Pvt. Ltd. v. State of Orissa (2013) 57 VST 357 =2012-VIL-75-ORI, the Orissa High Court Division bench held that the question whether a particular sale is an inter-State sale or an intra-State sale, and whether the contract of sale is in respect of specific or ascertained goods, or whether it is in respect of unascertained or future goods, are essentially questions of fact, more appropriately a mixed question of fact and law, and the factual aspects should have been asked to be dealt with by the authorities. The orders, under challenge in these Writ Petitions, are either assessment or revisional orders passed by the concerned authorities exercising jurisdiction under the AP VAT Act. This Court has been called upon, by Learned Counsel on either side, to mainly examine whether the impugned orders are without jurisdiction. The enquiry, in these Writ Petitions, is confined to an examination of the material placed before the assessing and the revisional authorities on the parameters applicable to certiorari proceedings. This Court is conscious, and need not be reminded, that the statutory system of appeals is more effective and more conve....
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....ja Cement^28). When, on undisputed facts, the taxing authorities are shown to have assumed jurisdiction which they do not possess, a writ petition can be entertained. (Gujarat Ambuja Cement^28). Some exceptions to the rule of alternative remedy have been recognized i.e. where the statutory authority has not acted in accordance with the provisions of the enactment or in defiance of the fundamental principles of judicial procedure etc. (Chhabil Dass Agarwal ^6). The existence of an alternative remedy is merely a factor to be considered, and would not impinge upon the jurisdiction of the High Court to deal with the matter itself if it is in a position to do so on the basis of the affidavits filed. (S.J.S. Business Enterprises (P) Ltd. v. State of Bihar (2004) 7 SCC 166). If the High Court has entertained a petition, despite availability of an alternative remedy, and has heard the parties on merits it would, ordinarily, not be justified in dismissing the Writ Petition on the ground of non-exhaustion of the statutory remedies unless it finds that factual disputes are involved, and it would not be desirable to deal with them in a writ petition. (L. Hirday Narain v. Income Tax Officer,....
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....ish India Steam Navigation Co. Ltd. v. Shanmughavilas Cashew Industries (1990) 3 SCC 481; the assessing/revisional authorities have picked some clauses in some of the contracts, and have applied it to all the contracts which were subjected to assessment, contrary to the law declared in Siemens Ltd. v. State of Kerala (2001) 122 STC 1; the burden lies upon the Commercial Tax Officer to prove that a turnover is liable to tax (Hyderabad Deccan Cigarette Factory v. State of A.P. (1966) 17 STC 624 (SC); and, as held in TELCO Ltd. v. Assistant Commissioner of Commercial Taxes (1970) 26 STC 354 (SC)), the assessing authority is bound to examine each individual transaction. The aforesaid objections, put forth on behalf of the petitioners, may well justify the impugned orders being set aside, and the matters being remanded to the concerned authorities to pass orders afresh on merits. While the petitioners have not availed the statutory remedy of appeal, the assessing/revisional authorities have also chosen to ignore or by-pass the judgments of the Division Bench of this Court (which is the jurisdictional High Court) and have, instead, placed reliance on judgments of other High Courts. As....
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....rice for both supply and erection contracts; from the point of view of the buyer it is considered as one indivisible works contract; these conditions are prescribed in government contracts as per government policy, and are not relevant for taxation of goods; some of the contracts are negotiated contracts, no bidding took place and no bidding documents exist; and the effort of the assessing authority, to call the contracts indivisible works contracts, though they are not, is of no consequence since an indivisible contract is also divisible by legal fiction. Sri K. Vivek Reddy, Learned Counsel for the respondent, would submit that the assessing/revisional authorities have held that, even though the petitioners had entered into supply and erection contracts, it constituted a "composite contract' i.e. an indivisible works contract; in arriving at this finding, they had reviewed the contracts, evidence, documents and the nature of the work done by the petitioners, in particular, on (a) the presence of a cross fall breach clause in the contracts in various manifestations; (b) the contractual clauses, and the description of the documents, itself show that the petitioner was executing o....
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....and the person, for whom the goods were purchased and incorporated in the works, as the owner. The submission, made on behalf of the petitioners, is that the subject contracts are two independent contracts - one for supply and the other for erection, and the "bailment"/"free issues" clauses in the contracts show that, after the goods are sold by the petitioner - contractor to the owner, the owner then issues the very same material as "free issues" to the petitioner-contractor for being used in the erection and installation of the plant. The contention of the respondents, however, is that the contract is, in effect, an indivisible contract and, while they are styled as two contracts i.e., supply and erection contracts, they are, in fact, one composite indivisible contract. Prior to the 46th amendment to the Constitution, an indivisible contract would have disabled the revenue from subjecting the goods, which formed part of the turnkey project, to tax as a turnkey project is immovable property, and does not constitute goods (movable/chattel). It is because of the legal fiction, created by Article 366-29(A)(b), that an indivisible contract can be fictionally divided into two contra....
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....ontracts-one for suppy of goods and other for services rendered for installation and erection of the turnkey project. Where parties enter into distinct and separate contracts, one for the transfer of material for monetary consideration, and the other for payment of remuneration for services and for work done, there are, ordinarily, two agreements, though there is a single instrument embodying them. (State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., 1959 SCR 379 = AIR 1958 SC 560 =1958-VIL-01-SC). In such cases the transaction would not be one and indivisible, but would fall into two separate agreements. (Hindustan Aeronautics Ltd. v. State of Karnataka (1984) 55 STC 314 (SC);State of Himachal Pradesh v. Associated Hotels of India Ltd., (1972) 29 STC 474 = AIR 1972 SC 1131) (five judges). If there are two independent contracts, namely, purchase of the components from a dealer, it would be a contract for sale and similarly, if a separate contract is entered into for installation, that would be a contract for labour and service. (Kone Elevator India (P) Ltd. v. State of T.N. (2014) 7 SCC 1 =2014-VIL-12-SC-CB). A composite contract, for supply and installation, should be tr....
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....and on a different footing. In turn-key projects, more particularly of the kind involved in this batch of Writ Petitions, the same person has been entrusted with the responsibility of procuring material, and of erection and installation of equipment. While in-built safeguards are provided in all the contracts to ensure quality of the material, and effective performance of the erection contract, the supply contracts, in substance, do not absolve the petitioners-contractors of their obligations of erection and installation of equipment after the goods are sold by them to the owner. The petitioners-contractors' obligations, under both the supply and erection contracts, cease only after the turn-key project becomes operational, and after final payment is made both for supply of material and for erection and installation of equipment. While a dual role is not impermissible in execution of turnkey projects, its relevance, in determining whether or not the subject contracts are indivisible works contracts, is insignificant. While we see no reason to burden this judgment with a reference to all the relevant clauses in each of the agreements, it is useful to note some of them. Pay....
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....contract, with a crossfall breach clause wherein breach of either of the contracts entitled the employer/owner/contractee (NTPC) to cancel the other contract also. NTPC awarded two contracts to Indure Ltd. for performing the work of erection of the plant on a turnkey basis. The Supreme Court, inIndure Ltd^75, held that, even though two contracts were entered into between the parties, it was only one contract for the reason that NTPC kept a right with it with regard to the cross-fall breach clause, meaning thereby that default in one contract would tantamount to default in another, and the whole contract was liable to be cancelled. Existence of a cross-fall breach clause, or a clause which enables the owner to terminate the supply contract for breach of the erection contract and vice-versa, would mean that, while the contracts are ostensibly two separate contracts - one for supply of material and the other for rendering works and services, they are, in fact, one single indivisible contract. The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in ....
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....eering, manufacture and supply of plant and equipment, erection work, testing, start-up and commissioning etc. Clause 4.1 prohibits the contractor from transferring or assigning the contract or any part thereof without the written consent of the employer. The correspondence between Siemens and RINL shows that the subject composite work was awarded to Siemens Limited for a lumpsum amount. Clause 23.2 of the bidding document stipulates that the prices to be quoted are intended to provide for all works duly and properly completed in accordance with the General Conditions of Contract and Special Conditions of Contract, if any, and are required to include the cost of delivery of the equipment. Clause 23.2.2 stipulates that payment against supplies would be released only on receipt and acceptance of material as per payment terms referred to in the General Conditions. Article 8 of the Seimens - RINL agreement stipulates that, in consideration of the payment to be made by the customer (owner) to the contractor, the contractor covenants with the customer to design, manufacture and supply the plant and equipment as per the contract specification and other documents of the contract. A consoli....
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....ed that the contracts are composite indivisible contracts whereas in the very same affidavit, in every other place, there is a consistent plea that the contracts are divisible contracts of sale and erection; the petitioner has filed an affidavit on 24.12.2014 bringing to the notice of this Court this inadvertent error; and this affidavit may be taken on record, the error condoned, and the plea deleted. On the other hand, relying on Nagindas Ramdas v. Dalpatram Ichharam (1974) 1 SCC 342;Bishwanath Prasad v. Dwarka Prasad (1974) 1 SCC 78;Viswalakshmi Sasidharan v. Branch Manager, Syndicate Bank (1997) 10 SCC 73;Gautam Sarup v. Leela Jetly (2008) 7 SCC 85;Heeralal v. Kalyan Mal (1998) 1 SCC 278;Modi Spinning and Weaving Mills Company Ltd. v. Ladha Ram and Co. (1976) 4 SCC 320;Steel Authority of India v. Union of India (2006) 12 SCC 233;Union of India v. Pramod Gupta (Dead)by Lrs. (2005) 12 SCC 1);Nichhalbhai Vallabhai v. Jawantlal Zinabha AIR 1966 SC 997;L. J. Leach and Co. Ltd. v. Jardine Skinner and Co. AIR 1957 SC 357; andVimal Chand Ghevarchand Jain v. Ramakant Eknath Jadoo (2009) 5 SCC 713, Sri K. Vivek Reddy, Learned Special Counsel, would submit that the petitioners cannot r....
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....y the contractor from the identified suppliers referred to in the contract; the material so purchased to be inspected by the owner prior to its transportation from the State where the goods are manufactured; and, thereafter, for the goods to be transported by the contractor to the work site of the owner in the other State where it is to be used in the erection and installation of the turnkey project. These goods are tailor made for being utilised exclusively for the turnkey project. These contracts are, basically, in two parts - the first relating to supply of material and the second to erection and installation of equipment. The supply contract refers to the suppliers of material from whom the contractor is required to purchase the goods. After the goods are purchased from these pre-identified suppliers, most of whom are dealers outside the State, the goods are then transported by the contractor from outside the State to the State of Andhra Pradesh (now the States of Telangana and Andhra Pradesh). The supply contract stipulates that the contractor should purchase the goods from the identified suppliers outside the state on which tax is paid by the contractor under Section 3(a) ....
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....act. (Banyan and Berry v. CIT-(1996) 222 ITR 831 (Gujarat HC)(DB);Azadi Bachao Andolan98). While tax planning may be legitimate, provided it is within the framework of the law, colourable devices cannot be a part of tax planning, and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay taxes honestly without resorting to subterfuge. (Mc Dowell v. CTO (1985) 3 SCC 230;Banyan and Berry100;Azadi Bachao Andolan^98;CIT v. A. Raman and Co. AIR 1968 SC 49). While parties cannot be compelled to enter into agreements in a manner which would generate higher tax revenue, levy of tax, on transactions embodied in a document, would depend upon the meaning and content of the language used in accordance with the ordinary rules of construction. (C.I.T. v. Motors and General Stores (P) Ltd AIR 1968 SC 200 = (1967) 66 ITR 692) (SC)). The name given to a transaction by the contracting parties does not, necessarily, decide the nature of the transaction. The question always is what is the real character of the transaction, not what the parties call it. (Commissioners of Inlan....
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....lusive. The dividing line between sales under Section 3(a) and those falling under Section 3(b) is that, in the former, the movement is under the contract whereas, in the latter, the contract comes into existence only after commencement and before termination of the inter-State movement of the goods. An inter-State sale is governed under Section 3(b), if it is effected by transfer of documents of title after such movement has started, and before the goods are actually delivered. (TISCO v. S.R. Sarkar AIR 1961 SC 65 = (1960) 11 STC 655;A and G Projects and Technologies Ltd v. State of Karnataka (2009) 2 SCC 326)2008-VIL-40-SC. For a sale to fall under Section 3(b), the sale must be effected by the transfer of documents of title to the goods. The transfer of documents, contemplated by Section 3(b), is a transfer which, in law, amounts to delivery of the goods. Transfer of documents either by endorsement or delivery completes the transfer of title but, in the absence of an indication to that effect in the statute, the place where the documents are transferred is not necessarily the place of the sale. (S.R. Sarkar^106). Transfer of documents of title may be effected by handing them ....
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....it) by effecting transfer of documents of its title); (5) the sale of goods is to a registered dealer; (6) the goods are of the description referred to in Section 8(3) of the CST Act; (7) if these ingredients are satisfied then the subsequent sale is exempt from tax under the CST Act; (8) such a subsequent sale (ie the subsequent sale referred to in Section 6(2)) shall not be exempt from tax under Section 6(2) unless the dealer, effecting the subsequent sale, furnishes to the prescribed authority (a) the E-I or E-II certificate from the registered dealer from whom the goods were purchased by him (in terms of Rule 12(4) of the CST (Registration and Turnover) Rules, 1957; and (b) a "C" or "D" form/certificate (in terms of Rule 12(1) of the 1957 Rules) from the registered dealer to whom the subsequent sale was made by him (ie the purchaser of the goods under the first sale becomes the vendor (seller) of the goods in the second (subsequent) sale); and (9) the certificates, referred to at point 8(a) and 8(b) above, are furnished in the prescribed manner within the prescribed time. Section 6(1) envisages payment of tax on all sales effected in the course of inter-state trade or commer....
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.... a sale ceases to be a sale exempt under Section 6(2) if the following occur: (a) if the title passes on delivery, the sale cannot be a transit-sale because title is passing after movement; (b) if title passes ex-works, the sale cannot be a transit sale since title passes prior to movement (refer: definition of Ex-Works in Black's Law Dictionary, 8th Edn. at Page 626); (c) if title passes upon delivery to the carrier, it cannot be a transit sale since title passes prior to movement; (d) if title passes only upon full payment, it is not a transit sale as title does not pass during movement; (e) if there is a pre-determined sale, or a predetermined buyer, prior to movement it cannot be a transit sale; (f) if payment is upon successful erection, it is not a transit sale since title passes only after movement is complete; (g) if the property passes after a certificate is issued by the owner, it cannot be a transit sale because title passes after movement; and (h) a sale after inspection cannot be a transit sale as title passes only after delivery; the second inter-state sale has, necessarily, to be a Section 3(b) sale because the language used in Section 6(2), to describe the secon....
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....uments of title to such goods during their movement from one State to another. Where the legislature uses the same word or phrase in similar contexts, in different parts of the same Section or Statute, there is a presumption that the word is used in the same sense throughout, and to intend it in each place to bear the same meaning. (Courtauld v. Legh (1869) LR 4 Exch 26;Black-Clawson v. Papierwerke (1975) 1 ALL ER 847;Farrell v. Alexander (1976) 2 ALL ER 721). Ordinarily, a word or expression used at several places in one enactment should be assigned the same meaning so as to avoid "a head-on clash" between two meanings assigned to the same word or expression occurring at two places in the same enactment. It should not be lightly assumed that "Parliament had given with one hand what it took away with the other". (Central Bank of India v. Ravindra (2002) 1 SCC 367;Farrell115;Madras Electric Supply Corporation Ltd (In Liquidation) v. Boarland (Inspector of Taxes) (1955) 1 All ER 753). It is, at all events, reasonable to presume that the same meaning is implied by the use of the same expression in every part of an Act. (CIT v. Venkateswara Hatcheries (P) Ltd., AIR 1999 SC 1225 = (1....
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.... Section 6(2) can only take place when the goods are in movement from one State to another. A contract of sale entered into either before commencement of movement in the first State, or after completion of movement of the goods in the second State, can neither be a Section 3(b) sale nor a subsequent sale exempt under Section 6(2) of the CST Act. (iii) IS THE LAW DECLARED BY THE SUPREME COURT, IN"A and G PROJECTS and TECHNOLOGIES LTD. V. STATE OF KARNATAKA"BINDING ON THIS COURT? In Aand G Projects and Technologies Ltd.^107, the appellant contended that there were three sales, the second and the third sales were subsequent sales, and they were exempt from tax under Section 6(2) of the CST Act; this argument of the appellant stood rejected by the assessing authority who held that the appellant's turnover fell under Section 3(a) of the CST Act, all the three sales were Section 3(a) sales, and consequently the appellant was not entitled to exemption under Section 6(2) of the CST Act. Relying on the proviso to Section 9(1) of the CST Act, the assessing authority held that the State of Karnataka was competent to levy tax. It is in this context that the Supreme Court held:- ".....
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....t raised or considered by the learned Judges or that it is open to the High Court to reconsider the same. (Delhi Cloth General Mills v. Shambunadh (1978) ILLJ 1 SC;Government of A.P. v. N. Chowdary 1993(2) A.P.L.J. 479 = 1993(3) ALT 391). Even if the scope of Section 6(2) of the CST Act was not in issue inAandG Projects and Technologies Ltd^107, it is nonetheless binding as the High Court is bound even by the obiter-dicta of the Supreme Court. An 'obiter dictum', as distinguished from a ratio decidendi, is an observation by the Court on a legal question suggested in a case before it, but not arising in such manner as to require a decision. (State of Haryana v. Ranbir (2006) 5 SCC 167;ADM, Jabalpur v. Shivakant Shukla (1976) 2 SCC 521;Girnar Traders76;Divisional Controller, KSRTC v. Mahadeva Shetty (2003) 7 SCC 197 = 2003 SCC (Cri) 1722;Director of Settlements, A.P. v. M.R. Apparao (2002) 4 SCC 638). Obiter dicta of the Supreme Court is binding upon other courts in the country (Sanjay Dutt v. State through CBI, Bombay (1994) 5 SCC 402) in the absence of a direct pronouncement on that question elsewhere by the Supreme Court (Oriental Insurance Co. Ltd. v. Meena Variyal (20....
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....thstanding that, in terms of Section 4(2)(b), the unascertained goods were appropriated to the contract of sale within the territorial limits of the State where the goods were delivered. The 1930 Act classifies "goods" into three categories (i) specific goods (ii) future goods, and (iii) unascertained goods. Specific goods and future goods are defined in Section 2(6) and 2(14) of the 1930 Act. Section 20 of the 1930 Act is applicable only to specific goods. The goods, which are the subject matter of these contracts, are future goods as they were required to be purchased by the petitioner-contractor only after the contract was entered into. Section 20 of the 1930 Act applies only if there is an unconditional contract for sale. In these Writ Petitions the contracts of sale, which purport to "effect the present sale of future goods", are merely agreements to sell, and not a Sale (Section 6(3) of the 1930 Act). Section 20 stipulates that the time for payment of price can be postponed. The petitioners supply contracts do not postpone payment, but payment thereunder is itself conditional on successful erection. Section 23 of the 1930 Act relates to the sale of unascertained goods and ....
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....e purchaser has a right of rejection does not postpone the transfer of property in the goods. We must express our inability to agree with the declaration of law in the aforesaid judgments as the Supreme Court, in Salar Jung Sugar Mills Ltd. v. State of Mysore AIR 1972 SC 87, held that unascertained goods are distinct from specific or ascertained goods, in the sense that future goods include goods not yet in existence, or goods in existence but not yet acquired by the seller; future goods, for the purposes of passing of property, can never be specific; future goods, if and when sufficiently identified, may be specific goods; goods to be manufactured by the seller are future goods; under Section 23 of the Sale of Goods Act, when there is a contract of sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained; where there is a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer only when the goods of that description, and in a deliverable state, are unconditionally appropriated to the contract; and it is this unconditional appropriation which would pass t....
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....clude all materials, articles, commodities and all other kinds of actionable claims. Section 2(g) of the CST Act, after its substitution by Act No.20 of 2002 w.e.f. 11.05.2002, is an inclusive decision. The main part of Section 2(g), (other than the inclusive part), is similar to the preamended Section 2(g) and defines a "sale" to mean any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration. A transaction of sale is subject to tax under the CST Act on the completion of the sale. A mere contract of sale is not a sale within the definition of "sale" in Section 2 (g) thereof. (TELCO Ltd.^62;S. R. Sarkar^106;Ben Gorm Nilgiri Plantations Co., Conoor v. Sales Tax Officer, Special Circle, Ernakulam (1964) 7 SCR 706 = AIR 1964 SC 1752). In Chem-Dyes Corporation3, the Division bench of the Gujarat High Court held that one of the conditions for applicability of Section 3(b) is "sale" of goods, and not an agreement to sell; and both the conditions should be satisfied - sale as well as transfer of documents of title to the goods - during their movement from one State to another. Without expressing any opinion on the ....
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....en utilized or incorporated in the works of the owner, bearing in mind that, in the orders impugned in these Writ Petitions, the respondent-authorities have held that it does not. The petitioners rely on the transit insurance clauses, the liquidated damages clauses, and the bailment/free issues clauses in the subject contracts in support of their submission that the sale of goods, by the petitioners-contractors to the owners, is only when the goods were in movement from one State to another. It is necessary, therefore, to examine these contractual provisions. (v) TRANSIT INSURANCE:- It is contended, on behalf of the petitioners, that, unless the goods are sold and title in the goods vest with the owner, there is no obligation on the owner to take and cover the goods under insurance policies especially transit insurance, the cost of which is wholly borne by the owner. Article 13.1 of the LandT - Konaseema contract stipulates that from notice to proceed date, until the issuance of the site test certificate for the equipment, the Owner (Konaseema) shall take a combined insurance for transit, erection, and all risks; and the supplier and its sub-suppliers will be mentioned ....
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....edly passed to the owner; the owner can only insist on re-performance and, in case of failure, to recover damages; there is no obligation on the contractor-supplier to take back the goods if they are of defective quality; the supply contract enables the employer to claim liquidated damages for supply of defective goods; a reading of Sections 4(3) and 4(4) of the 1930 Act would show that (a) it is not as if every condition would convert a sale into an agreement to sell; Sections 4(3) and 4(4) of the 1930 Act make it clear that any encumbrance or condition, deferring passage of title, would make the sale conditional, and transfer would take place only upon fulfilment of the conditions; Section 4(4) amplifies and introduces the nexus test; it is not all or any conditions, but only such conditions, which need to be fulfilled, subject to which the property in the goods would be transferred; the condition, if any, should be such that it encumbers or limits the transfer of title to the goods; none of the clauses, relied upon by the revenue, encumber transfer of title; the contracts provide separate parameters for damages to be claimed on the supply of goods and service; compensation is fi....
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....e contract, the Contractor shall be liable to pay liquidated damages; if the contractor fails to complete the work within the "time of completion", the contractor shall be liable to pay liquidated damages; and, in case of non-achievement of performance guarantee parameters, imposition of liquidated damages, if any, shall not exceed 7.5% of the total contract value. Section 12 of the 1930 Act relates to conditions and warranties. Under sub-section (1) thereof, a stipulation in a contract of sale, with reference to goods which are the subject thereof, may be a condition or a warranty. Section 12(2) states that a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. Section 12(3) states that a warranty is a stipulation collateral to the main purpose of a contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. Section 12(4) stipulates that whether a stipulation in a contract of sale is a condition or a warranty depends, in each case, on the construction of the contract; and a stipulation may be a condi....
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....es that an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Section 2(6) of the 1930 Act defines "future goods" to mean goods to be manufactured or produced or acquired by the seller after making the contract of sale. An agreement to sell future goods is, in view of Section 4(3) of the 1930 Act, an agreement to sell and not a contract of sale. In case the contract is conditional, Section 4(4) stipulates that an agreement of sale becomes a sale when the conditions, subject to which the property in the goods is to be transferred, is fulfilled. As the quality and fitness of the goods is, in terms of Section 16(1) of the 1930 Act, an implied condition, failure to fulfil the condition would not result in an agreement to sell becoming a sale, and the property in the goods would not pass from the petitioner-contractor to the owner. Transfer of title to the goods, as shall be elaborated hereinafter, passes only after post-delivery inspection of the goods, on completion of its erection and installation in the turn-key project, and on a take over certificate being issued by the owner to ....
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....rties had over the goods, and which required the goods to be issued to the petitioner only as a bailee for the execution of the project; the bailment/material issue certificate, which are understood as free issues, do not stipulate restoration of the goods in the very same condition; and unless the goods are sold to the owner, and title to the goods passes to the owner, the owner cannot issue equipment or material as free issues. It is submitted, on behalf of the revenue, that there cannot be a pre-existing bailment agreement as such an agreement can be entered with the bailor (owner) only when the bailor is in possession of the goods; the essence of a bailment is a transfer of possession, and not ownership; and the contract of bailment would require the goods to be returned in the very same condition, and not in a completely different form; while the owner is said to have entrusted different goods to the petitioners-contractors, what was returned to them was a completed turn-key project. Article 2.1.1 (B) of the LandT - Konaseema Erection Contract stipulates that the scope of the contract shall include, in relation to erection, commissioning and testing of equipment "free-is....
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....ely ancillary to the contract for the performance of work such a contract does not thereby become a contract of sale. (Benjamin's Treatise on the Law of Sale of Personal Property, Eighth Edition (1950). Bailment is a delivery of goods in trust upon a contract, expressed or implied, that the trust shall be faithfully executed on the part of the bailee. Wherever there is a delivery of property on a contract for an equivalent in money or some other valuable commodity, and not for the return of the subject matter in its original or an altered form, it is a transfer of property for value - it is a sale and not a bailment. (The South Australian Insurance Company v. William Beavis Randell and Samuel Randell (1869) Law Reports (III) Appeal Cases 101) . The test is whether the identical subject matter was to be restored either as it stood or in an altered form; or whether a different thing was to be given for it as an equivalent for, in the latter case, it is a sale and not a bailment. (William Beavis Randell and Samuel Randell^154;Indian Metal and Metallurgical Corporation v. State of Madras (1963) 14 STC 788) (Madras HC) (DB); M.M. Traders v. State of M.P. 2010 (4) M.P.L.J. 515 = (201....
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....tion and issuance of the taking over certificate ie after completion of erection of the plant. Reliance placed on behalf of the petitioners on the bailment clauses/free issue certificates is, therefore, of no avail. (viii) TITLE CLAUSES IN THE SUPPLY CONTRACTS:- It is contended, on behalf of the petitioners, that Article 5.3.2 of the LandT - Konaseema supply contract would govern, as the other clauses in the agreement can be read harmoniously therewith; the odd reference, of full payment for transfer of title, under Article 17 of the contract, has to be subsumed only as an irrelevance, and an out of context reference, as this condition does not gel with any other clause in both the agreements. It is contended, on behalf of the revenue, that the question of passing of title should be ascertained by construing the contract as a whole and the surrounding circumstances, and not merely the title clause; even otherwise, the title clause in the LandT - Konaseema Supply contract shows that title passes at the time of incorporation and not during movement; the title passes, under the LandT Vemagiri, Alstom Supply Contracts and Siemens title clauses, only when the seller dispatches the....
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.... despatch and with negotiation of despatch documents. The said clause also stipulates that transfer of title shall not relieve Siemens from the responsibility for all risks of loss or damage to the equipment and materials till its taking over by Power Grid, as specified in the bidding document. That the supplier is held responsible for risk, loss and damage of goods till they are taken over by the owner shows that the parties intended, in terms of Section 26 of the 1930 Act, that title would pass to the owner only after completion of movement. If parties really intended otherwise, the supplier would then have been absolved of all responsibility after despatch of goods ex-works. Under the L and T - Konaseema supply contract, full payment is made only after a site test certificate is issued by the owner after inspection and successful erection. Likewise, under Alstom supply contracts, title to the goods passes either upon payment for supply in full (which is only after completion of erection) or when the goods were delivered to the carrier exworks Indian factory ie prior to commencement of movement. Under the Seimens - Power Grid supply contract the responsibility for all risk, da....
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....ction and certification clauses show that title has not passed during movement; most of the subject supply contracts stipulate not only a pre-despatch inspection, but also a post despatch inspection; in all these contracts the supplier becomes entitled to a portion of the payment only if the inspection is successful; the certification clauses in the Land T Konaseema Supply Contract, Land T Vemagiri Onshore Supply Contract, and Siemens Power Grid Contract, show that, in addition to post-despatch inspection, the supply contracts (as opposed to the erection contracts) also contemplate a certification after erection; by virtue of the said clause, the owner certifies as to the successful operation of the facility; the said certification is given after the owner inspects the facility, and finds that all the units and components, which have been supplied, are working; the scope of certification extends not only to the civil work, but also to the goods supplied under the supply contract; in all the contracts, the supplier becomes entitled to full payment only upon receipt of such certification; the payment is linked to successful inspection and certification; if the contract has an inspect....
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.... what was the time of delivery of the goods. Clause 5.5, of the bid document therein, provided for the issue a taking over certificate when the performance tests had been successfully carried out; and, while issuance of such a certificate would certify receipt of goods in a safe and sound condition, it would not discharge the supplier of their warranty obligations. Clause 6.1 of the bid document stipulated that delivery of the goods shall be made by the supplier in accordance with the terms of the contract; and the goods were to remain at the risk of the supplier until delivery was completed. The Supreme Court held that clause 5.5 and 6.1 of the bid document clearly indicated that the property in the goods remained at the risk of the appellant till delivery was completed; it showed that delivery would be completed only after the take-over certificate was issued; as per Section 19 of the Sale of Goods Act, the property in the goods passes when the parties intended it to pass; in this case the contract provided that property in the goods does not pass till after delivery, and after successful testing and issuance of the take-over certificate; and the High Court was right in concludin....
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....ion. The post-delivery inspection clauses in the subject contracts would fall within the ambit of the phrase "on approval" in Section 24 as delivery of the goods is taken only after inspection. The "taking over" certificate also shows that the buyer indicates his approval only after certification. The inspection and certification clauses in the contract would fall within the ambit of the phrase "other similar terms" in Section 24. The presence of an inspection and certification clause in the supply contract defers passing of title till the owner has expressed its assent. Such assent is given only after inspection and certification. The law declared by the Supreme Court, in Usha Beltron Ltd ^158, is binding on this Court. It is not for the High Court to distinguish a binding precedent on the specious plea that certain aspects were not noticed by the Supreme Court. Even otherwise, reliance placed on behalf of the petitioners, on Section 26 of the 1930 Act, is misplaced. Clause 2.3 (iii) of the Seimens - Power Grid contract makes it clear that, notwithstanding that title would pass to Power Grid ex-works despatch and with negotiation of despatch documents, the responsibility for al....
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....the subject contracts takes place only after the goods are tested after delivery at the site, and on performance acceptance and issuance of a "taking over" certificate. As acceptance of the goods by the buyer takes place only post delivery within the State, the transfer of title does not take place during movement of the goods from one State to another, notwithstanding the "transit sale" clause in some of the subject contracts. As transfer of title to the goods does not pass to the employer, during movement of the goods from one State to another, the sale of goods, under the subject contracts, is not a transit sale and rejection of the petitioners claim for exemption, under Section 6(2) of the CST Act, by the respondents-authorities cannot be faulted. (x) PAYMENT ON MILESTONE BASIS:- It is contended, on behalf of the petitioners, that Section 2(g) of the CST Act recognises that a sale is also occasioned by deferred payment of the amount due; the terms of payment as agreed upon, and the passing of title, are independent of each other; transfer of title is not kept in abeyance merely because payment is deferred; the contention, that a sale is not complete till final payment is ....
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....s a deferred payment because there is certainty of payment; and, unlike an instalment payment, the factum of payment in these contracts is subject to the satisfaction of a condition, and is uncertain. As noted hereinabove it is the petitioners case that the subject contract is merely an agreement to sell for, if it is treated as a contract of sale, the contract, not having come into existence during the movement of goods from one State to another, would not fall within the ambit of Section 6(2) of the CST Act. A contract of sale of goods may be defined as a mutual agreement between the owner of the goods and another that the property in the goods shall, for some price or consideration, be transferred to the other, at such a time and in such a manner, as is then agreed. (Indian Metal and Metallurgical Corporation155). In order to constitute a sale, it is necessary that there should be an agreement between the parties for the purpose of transferring title to the goods, it must be supported by money consideration and, as a result of the transaction, the property must actually pass in the goods. Unless all these elements are present, there would be no sale. (Gannon Dunkerley and Co.....
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....s. On the property in the goods passing to the buyer (owner), the seller (petitioner-contractor) can sue the buyer for the price if the buyer wrongfully neglects or refuses to pay the price. The right to sue the owner for the price accrues to the contractor only after the property in the goods passes to the owner which, in terms of the clauses aforementioned, is only after successful completion of erection, and not prior thereto. This clause also makes it clear that the parties to the contract did not intend that the property in the goods would pass from the petitioners-contractors to the owners when the goods were in movement from one State to another. "Price" is as an essential element of a contract of sale of goods. It is only a transfer of property in goods"for cash or deferred payment or any other valuable consideration" which constitutes a"sale"under Section 2(g) of the CST Act.Blacks Law Dictionary defines "deferred payment" as a principal and interest payment which is a postponed and instalment payment. The essential characteristics of a deferred payment is that, while there is certainty of payment, the payment is postponed. While the buyer is bound to make payment, a co....
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....t only look into the form, but also at the circumstances of the transaction, the custom of the trade, and the substance of the contract document. As the scope of Sections 4(3) and (4), 16 and 24 of the 1930 Act have already been dealt with in the earlier paragraphs, it would suffice to observe that reliance placed by the petitioners thereupon is misplaced. Section 19(1) of the 1930 Act stipulates that, where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Section 19(2) stipulates that, for the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Section 19(1) relates to specific or ascertained goods, whereas the goods in the present case are future goods as the petitioner-contractor was not in the possession of the goods when the supply contract was executed. Section 19(2) indicates that the time of passing of title has to be ascertained by looking at the terms of the contract, conduct of the parties, and the circumstances of the....
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....he Central Provinces; the goods, in respect of which the contract of sale was made, must, at the date of the contract, be in existence in the Central Provinces ie the goods must, at the date of the contract, be there in the form in which they are agreed to be sold; and there was not an iota of evidence on that point. The law declared by Supreme Court, in Husenali Adamji and Co143, is that (i) in a contract for sale of goods, the time of passing of title has to be ascertained on a reading of the contract as a whole; (ii) if the contract contemplates inspection after delivery, the title passes only upon delivery, notwithstanding the fact that the contract also contemplates pre-delivery inspection; (iii) in a contract, for the sale of future goods, title passes only when there has been a unconditional appropriation of the goods to the contract; consequently, if the contract contemplates post-delivery inspection, appropriation of the goods to the contract only happens after inspection; and a mere endorsement on the railway receipts does not transfer title. The rule of construction, applicable to all written instruments, is that the instrument must be construed as a whole in order....
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....al ingredient of a transit sale is that title passes during movement; and the petitioners have not been able to show a single precedent of a transit sale in an indivisible works contract. While the submission, urged on behalf of the revenue, that there cannot be a transit sale ( a subsequent sale exempt under Section 6(2) of the CST Act) in an indivisible works contract has considerable force, it is wholly unnecessary for us to examine this aspect in adjudicating the issues which arise for consideration in this batch of writ petitions. Suffice it to hold that, in the indivisible works contracts, which are the subject matter of these Writ Petitions, the various clauses of the contracts show that, notwithstanding the transit-sale clause, the parties intended to sell the goods (ie for the title in the goods to pass) only after completion of erection of the plant, and on issuance by the owner of a certificate as proof of having taken over the turnkey project. (xiii) CAN ONE TRANSACTION OF SALE FALL BOTH UNDER SECTION 3(a) and SECTION 6(2) OF THE CST ACT? It is contended, on behalf of the revenue, that a single transaction of sale would not fall both under Section 3(a) and 6(2)....
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....ealer "C" is a subsequent sale exempt from tax under Section 6(2) of the CST Act. If, after delivery of goods in State "Y", the very same goods are again sold, and such a sale also occasions movement of goods from one state to another, then the second sale is also a Section 3(a) sale, and is not exempt from tax under Section 6(2) of the CST Act. In the illustration given hereinabove if, after the goods are delivered in State "Y", dealer "C" enters into a contract, for the sale of the very same goods, with dealer "D" in State "Z", the movement of goods from State "Y" to State "Z" is occasioned by the contract of sale between dealer "C" and dealer "D", and is a second Section 3(a) sale liable to tax under the CST Act. The test to determine whether a sale of goods takes place in the course of inter-State trade and commerce is stipulated only by Section 3 of the CST Act. Section 6(2) merely exempts from tax the subsequent sale which takes place in the course of inter-state trade and commerce. The nature of the subject contracts, in the present batch of writ petitions, can be better explained by way of illustrations. Dealer "A" enters into a contract with dealer "C" in State "Y" that....
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....ion 3(a) or a 3(b) sale cannot, at the same time, be a subsequent sale exempt from tax under Section 6(2) of the CST Act. The intention of the legislature, in a taxation statute, is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. (Mathuram Agrawal v. State of M.P. (1999) 8 SCC 667;Azadi Bachao Andolan98;Bank of Chettinad Ltd. v. CIT Madras (1940) 8 ITR 522 (PC);Motors and General Stores (P) Ltd103). There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. (Mahim Patram Private Ltd. v. Union of India (2007) 6 VST 248 (SC);State of West Bengal v. Kesoram Industries Ltd. (2004) 10 SCC 201). It is no doubt true that, in case of doubt or ambiguity in the statute, the construction, in favour of the taxpayer and against the Revenue, should be accepted. (Mahim Patram Private Ltd.163;Sneh Enterprises v. Commissioner of Customs, New Delhi (2006) 7 SCC 714;M/s Ispat Industries Ltd. v. Commissioner of Customs, Mumbai (2006) 12 SCC 583 = 2006 (9) SCALE 652). If the statutory provision does not suffer from any ambiguity, gran....
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....even if the sale does not come within the purview of Section 6(2) or Section 3(b) of the CST Act, it could still fall within the ambit of Section 3(a) of the CST Act. IV. SECTION 3(a) OF THE CST ACT: (i) ARE THE PETITIONERS DISABLED FROM CONTENDING THAT THE SALE OF GOODS UNDER THE SUBJECT CONTRACTS FALL WITHIN THE AMBIT OF SECTION 3(a) OF THE CST ACT, MERELY BECAUSE THEIR CONTENTION, THAT THE SUBJECT SALES, FALL UNDER SECTION 6(2) OF THE CST ACT, WAS REJECTED? While the submission urged on behalf of the petitioners, that the sale of goods by the petitioners-contractors to the owner falls within the ambit of Section 6(2) of the CST Act, does not merit acceptance, are the petitioners thereby barred from contending that, alternatively, these transactions are sales falling within the ambit of Section 3(a) of the CST Act? Sri K. Vivek Reddy, Learned Counsel for the respondent, would submit that, since the petitioners have invoked Section 3(a) (without any foundation in the pleadings), and as an alternative argument, the respondents are making their submissions on the same; the petitioner's plea that the second sale may also be treated as a Section 3(a) sale is destructive o....
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....tion v. Devkala Consultancy Service (2004) 11 SCC 1), to levy tax contrary to law. The consent of parties does not, by itself, confer jurisdiction upon a statutory authority. It is not open to the parties to confer, by their agreement, jurisdiction on a Court/Tribunal which it does not possess. The distinction lies in the jurisdiction to decide matters, and the ambit of the matters to be heard by a Tribunal having jurisdiction to deal therewith. While, in the latter, the question of acquiescence or irregularity may be considered and overlooked, in cases where the question is of the jurisdiction of the Court/Tribunal to make the order, no question of acquiescence or consent can affect the decision. (U.C. Bank v. Their Workmen AIR 1951 SC 230; and Hakam Singh v. Gammon (India) Ltd AIR 1971 SC 740;Estate Officer and Manager (Recoveries), APIIC Ltd. v. Recovery Officer, Debts Recovery Tribunal 2003 (5) ALT 216 (DB)). Be it a Section 3(a) or a 3(b) or a 5(2) sale or a sale exempt under Section 6(2) of the CST Act, the respondents lack jurisdiction to subject such sales to tax under the A.P. VAT Act treating them as intra-state sales. Even if the petitioners had not contended, alterna....
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.... through his agent. Sri K. Vivek Reddy, Learned Special Counsel, would submit that the alleged sales, under the supply agreements, do not satisfy the requirement of a Section 3(a) sale for the following reasons: (a) movement of goods was pursuant only to an agreement of sale, and not of sale; (b) even if there was a sale, the sale agreement did not occasion the inter-state movement; the inter-state movement of goods was pursuant to the contract between the supplier and the petitioner-contractor, and not between the petitioner contractor and the owner; the deeming fiction in Section 3(a) lays down the following ingredients: (a) there must be a sale or purchase; and (b) the sale or purchase must occasion the inter-state movement; a sale occasioning inter-state movement (Section 3(a)), export (Section 5(1)) or import (Section 5(2)), would arise only if there is privity between the seller and the foreign buyer; if there is any intermediary to effect the sale, it is not exempt from tax; to overcome the ruling in Mohd. Serajuddin v. State of Orissa (1975) 2 SCC 47,the Parliament introduced Section 5(3) in the CST Act which is confined only to exports; the law declared by the Constitut....
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....te of Bihar v. Tata Engineering and Locomotive Co. Ltd.[180](1970) 3 SCC 697, the Supreme Court held that the dealers of the respondent company were required, under the contract, to remove the trucks, purchased by them, from the State of Bihar to places outside Bihar; they would have committed breach of their contracts, and incurred the penalty prescribed in their dealership agreements, if they had failed to abide by the terms requiring them to move the goods outside the State of Bihar; where, under the terms of a contract of sale, the buyer is required to remove the goods from the State in which he purchased those goods to another State, and when the goods are so moved, the sale in question must be considered as a sale in the course of inter-State trade or commerce; and the ratio of the decision in Coffee Board (I)175, did not bear on the facts wherein, under the terms of the contract of sale, the purchasers were required to remove the goods from one State to another State. In Union of India v. K.G. Khosla and Co. Ltd. (1979) 2 SCC 242, the Supreme Court observed that a sale would be an inter-State sale even if the contract of sale does not itself provide for the movement of go....
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....t levy a tax on the basis that one of the events in the chain has taken place within the State. (National Thermal Power Corpn. Ltd.,^136;20th Century Finance Corpn.^137;Builders Association of India v. Union of India (1989) 2 SCC 645 : AIR 1989 SC 1371 =(1989) 73 STC 370 (SC)). Whenever a question arises whether a sale is an inter-State sale or not, it has to be answered with reference to Section 3 alone. (Zunaid Enterprises^47;S.R. Sarkar^106). A sale being, by definition, a transfer of property becomes taxable under Section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another. It does not matter in which State the property passes. (S.R. Sarkar^106). The sale must be shown to have occasioned the movement of the goods from one State to another. The movement must be the result of a covenant or incident of the contract of sale (State of Bihar v. TELCO180;Ben Gorm^144;State Trading Corporation of India Ltd. v. State of Mysore 1963 (14) STC 188 = (AIR 1963 SC 548;K.G....
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.... and the actual transportation outside the State, that each link is inextricably connected with the one immediately preceding it. Where the transportation is the result of a sale, the transportation being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the mutual understanding between the buyer and the seller arising from the nature of the transaction, the sale must be held to be in the course of inter-State trade or commerce. (Commissioner of Commercial Taxes v. Bhag Singh Milkha Singh (1974) 34 STC 535 (Pat);State of Travancore-Cochin v. Bombay Co. Ltd., Alleppey A.I.R. 1952 S.C. 366;Ben Gorm^144; andState of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory A.I.R. 1953 S.C. 333) . If the inter-state movement of goods was within the contemplation of the parties, and if a reasonable presumption can be drawn that, to fulfill the terms of the contract, such inter-state movement of goods is necessary, it would fall under Section 3(a) of the CST Act. (ABB Limited v. Commissioner, Delhi Value Added Tax (2012) 55 VST 1 (Delhi HC) - (DB)). What is important is that the movement of goods and the sale must be inseparably connected. (K.B.....
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.... Singh Milkha Singh196;Shankerjee Raut Gopalji Raut v. State A.I.R. 1968 Pat. 329 (FB)). Each case turns on its own facts and the question is whether, applying the settled principles to the facts of the present cases, the deemed sale of goods can be said to be inter-state sales. An attempt to show that some of the factors present in the instant cases are present or absent in some other cases, in which the sale was held either to be a local sale or an inter-state sale, hardly serves any useful purpose. (Indian Oil Corporation Ltd.^194). In the present batch of Writ Petitions, the link is the requirement of the supply contracts. Article 3 of the LandT Konaseema supply contract relates to sub-suppliers. Appendix - E is the list of major suppliers agreed to by the parties, and from which the contractor shall select for the provision of materials under the contract. The agreement between Seimens and Powergrid required Seimens to procure items from the suppliers appearing in the "Compendium of Suppliers" as agreed to by Power Grid. Article 3.1 of the Alstom-GVK supply contract refers to Appendix - K which contains a list of suppliers agreed to by the parties, and from whom Alstom was ....
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....ST Act; once it is accepted that there is inter-state movement of goods within the contemplation of all the three parties i.e, the manufacturer/supplier, intermediate seller and the ultimate buyer and, as a result of the agreement to sell, the contracted goods move from one State to another, both the first sale and the second sale can only be inter-state sales. It is contended, on behalf of the revenue, that, for Section 3(a) to apply, there must be a contract of sale which results in passing of title; consequently, an agreement of sale would not fall within the ambit of "sale" because it does not have the effect of transferring title; the supply agreements, between the petitioners and the owners, do not relate to specific goods, but to "future goods"; since the supply agreement seeks to pass title in future goods, the said agreement does not result in passing of title in the goods, and it is only an agreement to sell; the title passes only when the goods have come into existence, and when the same have been unconditionally appropriated to the contract; and, consequently, any movement pursuant to the supply agreement, which is only an agreement to sell, is not a "sale occasionin....
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....o judge bench of the Supreme Court in Balabhagas Hulaschand138, the law declared in Balabhagas Hulaschand138, that the word "sale" used in Section 2(g) and 3 of the CST Act would include an agreement to sell, is binding on the High Court. In Consolidated Coffee Ltd. v. Coffee Board (1980) 3 SCC 358, the Supreme Court held that what was said in Balabhagas Hulaschand138 was that the word "sale", as used in Section 3 (a) and Section 4(2) (a) and (b) of the CST Act was wide enough to include not only a concluded contract of sale but also an agreement of sale provided that the latter stipulated that there was a transfer of property or movement of goods; and the ratio of that decision was inapplicable to Section 5(3) which dealt with the question as to when a penultimate sale shall also be deemed to be in the course of export. It is evident that, atleast for the purposes of Section 3(a) of the CST Act, the word "sale" would include within its ambit an agreement of sale also. In so far as Section 3(a) of the CST Act is concerned, there is no distinction between unascertained or future goods and goods which are already in existence if, at the time when the sale takes place, these goo....
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.... (iv) SECTION 4(7)(g) OF THE AP VAT ACT:- It is contended, on behalf of the petitioners, that Section 4(7)(g) was inserted in the AP VAT Act after the decision in Larsen and Toubro Limited v. State of Andhra Pradesh (2006) 148 STC 83); the Commissioner of Commercial Taxes, in his circular dated 23.1.2006, has held that if there is a contractual obligation to import goods from other States, and such movement has an inextricable link with the contract, such value should be excluded from the scope of levy of VAT; the impugned assessment orders, raising the demand, are contrary to the circular of the Commissioner; if the goods have moved from outside the State, and have been used in contract, the States have no power to levy tax; and such turnover is protected from State levy in view of the restrictions under Article 286 of the Constitution of India read with Section 4(7)(g) of the AP VAT Act. Section 4(7)(g) of the AP VAT Act, (as inserted by Act 5 of 2007 dated 22.01.2007 with effect from 01.09.2006), stipulates that, notwithstanding anything contained in clauses (a) to (f) of Section 4(7), no tax shall be leviable on the turnover relating to the transfer of property in goods....
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.... or export into a sale inside the State. Even works contracts, assessable under the A.P. VAT Act, are subject to Sections 3, 4 and 5 of the CST Act. As noted hereinabove Section 4 of the CST Act, which provides when a sale or purchase is said to take place inside the State, is subject to Section 3 of the CST Act. (Gannon Dunkerley and Co. (II)^63;Larsen and Toubro^152). If a sale of goods falls within the ambit of Section 3(a) of the CST Act, the State legislature cannot subject it to tax under the State Act. By introducing Section 4(7)(g) in the A.P.VAT Act, the State Legislature has recognised that there can be a deemed interstate sale under clauses (a) and (b) of Section 3, and a deemed sale in the course of import under Section 5(2) of the CST Act involved in the execution of a works contract. It also acknowledges that such a deemed sale, either under Section 3(a) and (b) or under Section 5(2) of the CST Act, cannot be subjected to tax under the A.P. VAT Act. (v) INTER-STATE WORKS CONTRACTS:- It is contended, on behalf of the petitioners, the impugned orders failed to notice that there is an inter-state movement of goods, and such movement is occasioned by the works contr....
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....HC) (DB)). For being classified as a works contract the transaction, under consideration, must be a composite transaction involving both goods and services. If a transaction involves only service, i.e. work and labour, then it cannot be treated as a works contract. (Pro Lab.^69). The expression "sale of goods" in Entry 48 of List II of the VII Schedule to the Government of India Act, 1935 had the same meaning which it had in the Sale of Goods Act, 1930. (Banarsi Das Bhanot^71). As a similar expression is used in Entry 54 of List II to the VII Schedule to the Constitution, the meaning of "goods" under Section 2(7) of the Sale of Goods Act was held applicable to Entry 54 as well. In Gannon Dunkerley and Co. (I)^64, the Supreme Court held that, to constitute a transaction of sale there should be an agreement, express or implied, relating to the goods to be completed by passing of title in those goods; both the agreement and the sale should relate to the same subject-matter; where the goods delivered under the contract are not the goods contracted for, the purchaser has the right to reject them, or to accept them and claim damages for breach of warranty; there cannot be an agreement....
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....e or purchase of goods" includes a tax on the transfer of property in the goods as goods or goods, which because of its usage in the execution of a work contract, has lost its original form as goods, and has acquired some other form. (Larsen and Toubro Ltd.^70;Pro Lab.^69;Kone Elevator India (P) Ltd.^67). Article 366(29-A)(b) serves to bring transactions, where the essential ingredients of "sale" defined in the Sale of Goods Act, 1930 are absent, within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be a sale even though it may not be a "Sale" within the meaning of the Sale of Goods Act. (Larson and Toubro^215). The term 'works contract', in Article 366(29-A)(b), encompasses a wide range and many varieties of contracts. Once the characteristics or elements of a works contract are satisfied in a contract then, irrespective of the additional obligations, such a contract would be covered by the term 'works contract'. Nothing in Article 366(29-A)(b) limits the term "works contract" to a contract for labour and service only, and it is a contract for undertaking or bring....
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....ct, which was earlier held not to be conventional or Nomen Juris (vide first Gannon Dunkerley64 is now deemed to be a sale; whether it is an ordinary inter-state sale or export or import sale or a deemed inter-state sale, the constitutional restrictions and conditions would mutatis mutandis apply to both sets of transactions; it is not open to the State tax authorities to tax what is otherwise an inter-state sale or an export/import sale as a local sale; Parliament conceived of an inter-State sale in the execution of a works contract, notwithstanding the theory of accretion; the facts of the present case clinchingly show that there is an inter-state sale under Section 3(a), and a sale in the course of import under Section 5(2) of the CST Act; from 13.5.2002 onwards, inter-state works contracts are liable to be taxed under the CST Act; if the goods have moved from other States, for the specific use in a works contract for a particular contractee, transfer of property in the goods takes place in the course of inter-state trade; if the argument of the assessing authority is accepted, there can be no inter-state sale at all in a works contract; and this would be contrary to the intenti....
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....ubsists. The State Legislature is not competent to provide for the levy of tax on such a fictional sale when it takes place in the course of inter-state trade and commerce. (Thomson Press (I) Ltd.^68;Gannon Dunkerley (II)^63;Builders'Association^186;East India Cotton Manufacturing Company v. The State o f Haryana (1993) 104 PLR 269). The mere fact that the goods, which moved from one State to another, were incorporated in the works within the States of Telangana and Andhra Pradesh does not make the deemed inter-state sale an intra-State sale within the States of Telangana and Andhra Pradesh. While it would still continue to be an inter-state deemed sale of goods, falling within the ambit of Section 3(a) of the CST Act, its incorporation in the works within the State is not without significance. The charging section and the computation provisions of a taxing statute together constitute an integrated code. (Mahim Patram Private Ltd.^163;C.I.T., Bangalore etc. v. B.C. Srinivasa Setty (1981) 2 SCC 460). The measure or value, to which the rate of tax is applied for computing the tax liability, is one of the components of tax. (Mahim Patram Private Ltd.163;M/s. Govind Saran Ganga ....
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.... case, the supply contract does not require inter-state movement because the supply do not either expressly, or by necessary implication, require the goods to be obtained from outside the State; the owner is indifferent as to whether the goods are procured locally or from outside the State; if the Contractor procures the goods locally from the approved vendors, it would not be a breach of the sale agreement; and delivery of the goods within the State locally, by way of a branch transfer, is permissible and would not constitute a breach of the contract. It is for the contracting parties to decide how, and from where, the goods should be purchased. It is not open to the State to contend that, even if the suppliers are identified in advance, they should have effected branch transfers, and then sold the goods to the contractee. When the goods move to a pre-determined buyer in the destination State, then the State from which the goods commence their journey would treat it as inter-State movement under Section 3, and levy tax without giving exemption towards branch transfer. As noted hereinabove the goods, in the present cases, are tailor made for its use in the execution of the turnk....
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.... of tax and penalties and, under subsection (1) thereof, the tax payable by any dealer, under the CST Act, on the sale of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of Section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of sub-section (2), in the State from which the movement of the goods commenced. Where a question arises, in which State is the tax under the CST Act leviable, one must look to and apply the test prescribed in Section 9(1). No other provision is relevant on this question. (Bharat Heavy Electricals Ltd.^44). As Section 9(1) of the CST Act confers power on the assessing authorities of the State, from where the goods commence movement, to levy tax under Section 3(a) of the CST Act, and the respondents are the authorities of the State where the goods have been delivered, they lack jurisdiction to levy tax on the petitioners even under Section 3(a) of the CST Act. V. SECTION 5(2) OF THE CST ACT (i) HIGH-SEA SALES:- It is contended, on behalf of the petitioners, that it is the owner who ....
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.... crossing the limits of the area of a customs station in which imported goods are ordinarily kept before clearance by the customs authorities. Under the Explanation thereto, for the purpose of clause (ab) of Section 2, the words "customs station" and "customs authorities" shall have the same meaning as in the Customs Act, 1962. In Union of India v. Sampat Raj Dugar (1992) 2 SCC 66, the Supreme Court held that, if the definition of importer' in Section 2(26) of the Customs Act were kept aside, a person who did not pay for, and receive the documents of title, did not become the owner of the goods; the definition of importer', in Section 2(26) of the Customs Act, was not relevant to the question of title; it only defined the expression importer'; the idea is to hold the licensee responsible for anything and everything that happens from the time of import till they are cleared through Customs, whether or not he is the owner of such goods in law; ownership of the imported goods cannot be attributed to the importer even in a case where he abandons them, i.e. in a situation where he does not pay for and receive the documents of title; holding otherwise would place the expor....
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....by the designated importer in India. The definition cannot be used to usurp the identity of an "importer" from the person who filed the bill of entry. As Section 2(26) is an inclusive definition, the person in whose name the bill of entry is filed does not cease to be the importer. In other words, the person who has secured the release of the goods from the carrier, who has filed the bill of entry, and who has undertaken the work of clearance, continues to be an importer. (M/s. Vellanki Frame Works, Visakhapatnam v. The Commercial Tax Officer, Chinawaltair Circle, Visakhapatnam 2015-VIL-14-AP= Judgment in W.P.Nos. 4552 and 6258 of 2013, dated 18.12.2014). If the name of the "Owner" is reflected in the bill of entry as the importer of the goods, it would be difficult to accept the submission of the revenue that, notwithstanding the "Owner" being the importer of the goods, the title to the goods continued to remain with the contractor. The person, whose name is reflected in the bill of entry, is assessed to customs duty under the Customs Act. While the importer of the goods can also be an agent of the owner of the goods such a presumption, in the present batch of Writ Petitions, woul....
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....carrier, and whether the bill of entry for import of the goods was filed by the contractor or the owner. On remand the authorities, who passed the impugned orders, shall examine these aspects in the light of the observations made hereinabove. It is unnecessary for us to delve on this aspect any further as the respondents cannot subject the petitioners to tax, under the A.P. VAT Act, even if the import of the goods, under the subject contracts, fall within the ambit of the first limb of Section 5(2) of the CST Act. That some of the petitioners have contended that these are high sea sales, falling within the ambit of the second limb of Section 5(2) of the CST Act, would not disable them from contending that the subject imports fall within the first limb of Section 5(2) as, in either event of an import falling within the first or the second limb of Section 5(2) of the CST Act, the respondents lack jurisdiction to levy tax on such sales under the provisions of the A.P. VAT Act. (ii) SALES WHICH OCCASION IMPORT:- It is contended by Sri S.Ravi, Learned Senior Counsel, that some of the goods for the turnkey project were imported by Alstrom Projects from Indonesia under Chapter 98 of....
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....lled in the Project of GPL; and, absence of a similar provision, for import of goods like Section 5(3), would not set at naught the decisions of the Supreme Court, particularly in Indure Limited75. Sri K. Vivek Reddy, Learned Special Counsel, would submit that inconsistent and mutually destructive pleas have been taken; an import sale, under Section 5(2), can only happen in two ways; (i) the sale or purchase occasions import; (ii) the sale is effected by transfer of documents of title to the goods before the goods have crossed the customs frontier of India i.e. high sea sale; [c] like a Section 3(a) and a Section 3(b) sale, there are two mutually exclusive categories under Section 5(2), and one cannot fall within the other; the import sale should either be a high sea sale or a sale occasioning import; in a high sea sale, the transfer of title to the goods must have happened "before the goods have crossed the customs frontier of India"; there is no high sea sale as the supply contracts clearly show that title has passed only in India; the Project Import Regulations require the employer's name to be mentioned in the import documents so as to ensure that the goods are actually ....
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.... the contract that the axle-box bodies would be manufactured in Belgium, inspected there and imported into India for the consignee; movement of the goods from Belgium to India was in pursuance of the contract between the assessee and the Director-General of Supplies; there was no possibility of these goods being diverted by the assessee for any other purpose; and, consequently, the sale took place in the course of import of goods within Section 5(2) of the Act and were, therefore, exempt from taxation. In answer to the contention, that the decision of the Constitution Bench of the Supreme Court in K.G. Khosla (I)^177 had not been correctly decided and should be referred to a larger Bench, the Supreme Court, inIndure^75, opined that K.G. Khosla (I)^177 had held the field for more than three decades; and its correctness has not been doubted so far. In Coffee Board (I)^175, the Supreme Court held that three essentials are required to be met before the sale can be said to be in the course of import, (i) there must be a sale; (ii) the goods must actually be imported; and (iii) the sale must be a part and parcel of the import; if there are two independent sales, the link between the i....
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....ility under the Act, not to any kind of penultimate sale but only to such a penultimate sale as satisfies the two conditions specified therein, namely, (a) that such penultimate sale must take place (i.e. become complete) after the agreement or order under which the goods are to be exported and (b) it must be for the purpose of complying with such agreement or order; and it is only then that such penultimate sale is deemed to be a sale in the course of export. In Indian Explosives Ltd.226, the Supreme Court held that Binani Bros.176 was 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; secondly, there was no term or condition prohibiting diversion of the goods after the import; it is these two factors which establish the integral connection or inextricable link between the transactions of sale and the actual import making the sales in the course of import; and, if the movement of the goods from the foreign country to India was in pursuance of the requirements flowing from the contract of sale between the ....
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....e could be derived from the said decision; in K. Gopinathan Nair^179, on facts, it was found that, on account of the sale to CCI by the foreign exporters, raw cashew nuts were imported into India - the importer being the CCI, and not the local user; and the Supreme Court had held that the principles evolved by it, in para 12 of the judgment, were not applicable to that case. This Court is bound by the law declared by the Supreme Court inIndure^75, and the submission of Sri K. Vivek Reddy, Learned Special Counsel, that, notwithstanding the aforesaid observations inIndure^75, the earlier judgments of the Supreme Court in Binani Bros.176;Mohd Serajuddin^174 andK. Gopinathan Nair^179 should be followed, necessitates rejection. Sri K. Vivek Reddy, Learned Special Counsel, would submit that, as Parliament introduced Section 5(3) to overcome the basis of the judgment of the Supreme Court in Mohd. Serajuddin^174 construing the scope of Section 5(1), the law declared by the Supreme Court, in Mohd. Serajuddin^174, would continue to govern the scope of Section 5(2). This submission is based on certain observations in the judgment of the Supreme Court in K. Gopinathan Nair^179. As the Supre....
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.... the Supreme Court, inIndure75, held that, while interpreting the expression 'sale occasions import'occurring in Section 5(2) of the Act, it was not necessary that a completed sale should precede the import; in order that the sale should be one in the course of import it must occasion the import; in order to occasion the import there must be an integral connection or an inextricable link between the first sale following the import, and the actual import provided by an obligation to import arising from the statute, contract or mutual understanding or the nature of the transaction which links the sale to import which cannot, without committing a breach of the statute or contract or mutual understanding, be snapped; the appellant had, admittedly, imported the goods into India for completion of the Project, on a turnkey basis, for the NTPC; 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 its originality; such an import would fall within the constitut....
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..... It is only on account of the pendency of these Writ Petitions before this Court that the petitioners were disabled from preferring appeals, against the impugned orders, in so far as the other issues which arise for consideration therein are concerned. There is no provision either under the A.P. VAT Act or under the Writ Proceedings Rules which enable the petitioners to simultaneously invoke the jurisdiction of the High Court and the statutory appellate authorities against the very same assessment/revisional orders, albeiton different grounds. That would, however, not justify this Court taking upon itself the task of examining all the issues, which arise for consideration from the impugned orders, merely because the Writ Petitions were entertained on the plea that a part of the assessment/revisional orders suffered from a jurisdictional error. All the Learned Senior Counsel, and the Learned Counsel, appearing on behalf of the petitioners would submit that, since the petitioners have confined their submissions only with reference to Sections 3 to 6 of the CST Act, and the Writ Petitions were admitted only on this score, they should be permitted to contest all other issues by way....