TaxTMI 
TaxTMI 
2016 (4) TMI 534
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....assessee and the Delhi Metro Railway Corporation Ltd. (hereinafter referred to as 'DMRC'). The High Court further came to hold that claimed sales should be deemed to have taken place in course of imports of the goods or inter-state trade and that such import/movement of goods was integrally connected with the contract for their supply to DMRC. On the basis of such twin findings the High Court has held that the transactions constituting inter-State trade and those constituting sale or purchase in the course of import were covered by Section 3(a) and Section 5(2) respectively of the Central Sales Tax Act, 1956 (hereinafter referred to as 'CST Act') and, therefore, exempt from taxation under the Delhi Value Added Tax Act, 2004 (hereinafter referred to as 'DVAT Act'). 2. According to appellant the impugned judgment and order of the High Court is based upon erroneous interpretation of judgments of this Court particularly that of the Constitution Bench in the case of M/s. K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes, Madras (1966) 3 SCR 352 = AIR 1966 SC 1216 . The appellant has placed strong reliance upon a subsequent Constitution Bench judgment in the case of M/s. Bina....
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....ndent finally culminated into a contract on 04.08.2004. The contract document comprised of Special Conditions of Contract, General Conditions of Contract etc. 5. In the year 2005-06 the respondent was called upon to pay DVAT on the deemed sales made by it to DMRC. It denied its liability and claimed exemption under Section 7(a) and (c) of DVAT Act on the ground that it was exempted from payment of VAT in respect of sale effected in the course of import and also in respect of inter-state sale of goods, on account of provisions in Section 3(a) and 5(2) of the CST Act. The Assessing Officer vide order dated 25.11.2005 rejected the claim of the respondent and confirmed the demand of Rs. 47,62,366/- towards VAT, Rs. 3,32,258/- towards interest and also imposed a penalty of Rs. 1,20,56,196/-. The objections of the respondent under Section 74 of Delhi VAT Act were also rejected and hence the respondent preferred an appeal which was rejected by the Additional Commissioner on 11.03.2008. Further appeals before the VAT Tribunal, 40 in total in respect of different assessment periods were also disallowed by the VAT Tribunal by the common judgment dated 07.06.2012. On the issue of penalty the....
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.... the High Court are as follows: "The Letter of Acceptance issue by DMRC, in terms of the Contract reads as: "Your proposal to execute OHE works by M/s Best & Crompton Engg. Ltd. the sub-contractor and control and monitoring (SCADA, AMS, BMS) yourself is accepted. Other sub-contractor (s)/vendor approval (s) shall be as per relevant tender conditions." The contract specifically required approval of DMRC for sub-contractors/vendors as evident from the following provisions of the SCC to the Contract: "1.1.2.6 "Sub-Contractor" means any person named in the Contract as a sub-contractor, manufacturer or supplier for a part of the works or any person to whom a part of the Works has been subcontracted with the approval of the Employer and the legal successors in tittle to such person, but not any assignee of such person." (excerpts from GCC). Clauses 4 and 4.5 read as follows: "4. Sub-Contractors For major sub-contracts (each costing over Rs. Four hundred thousand) it will be obligatory on the part of the Contractor to obtain approval of the Employer to the indentity of the sub-contractor. The Employer will give his approval after assessing and satisfying himself of the capabili....
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....ons under the Contract or any liability for or arising from such drawings or documents. Should it be found at any time after notification of approval that the relevant drawings or documents do not comply with the Contract or do not agree with the drawings or documents in relation to which the Engineer has previously notified his approval, the Contractor shall, at his own expense, make such alterations or additions as, in the opinion of the Engineer, are necessary to remedy such non-compliance or non-agreement and shall submit all such varied or amended drawings or documents for the approval of the Engineer. Workmanship, materials and plant Inspection: 7.3 The employer and the engineer shall be entitled during manufacture, fabrication and preparation at any places where work is being carried out, to inspect, examine and test the materials and workmanship, and to check the progress of manufacture, of all Plant and Materials to be supplied under the Contract. The contractor shall given them full opportunity to inspect, examine, measure and test any work on Site or wherever carried out. The Contractor shall give due notice to the Engineer whenever such work is ready, before p....
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.... the equipments and goods had to be supplied. These included the premises and factories of the respondent also. On facts, therefore, it was rightly held by the High Court that the inter-state movement of goods was within the contemplation of the parties and it can be reasonably presumed that such movement was to fulfill the terms of the contract and therefore the transaction was covered by Section 3(a) of the CST Act. The law on this issue was also considered by the High Court in correct perspective after noticing the case of Tata Iron and Steel Co. Ltd. v. S.R. Sarkar (1960) 11 STC 655 = AIR 1961 SC 65 that where the goods moved from one state to another as a result of a covenant in the contract of sale it would be clearly a sale in the course of inter-state trade. The conclusion of the High on this issue also finds ample support from the following case laws which were noticed by the High Court (1) Oil India Ltd. v. The Superintendent of Taxes (1975) 35 STC 445 (SC) = (1975) 1 SCC 733 (2) English Electric Company of India Ltd. v. The Deputy Commercial Tax Officer (1976) 38 STC 475 (SC) = (1976) 4 SCC 460 (3) South India Viscose Ltd. v. State of Tamil Nadu (1981) 48 STC 232 (SC) = ....
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....t the goods pass through the territory of any other State. 5. When is a sale or purchase of goods said to take place in the course of import or export. (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." 11.....
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....nt of such contract. It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle-box bodies would be manufactured in Belgium, inspected there and imported into India for the consignee. Movement of goods from Belgium to India was in pursuance of the conditions 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. Consequently we hold that the sales took place in the course of import of goods within Section 5(2) of the Act, and are, therefore, exempt from taxation." 12. For analysing the main contention advanced on behalf of the appellant that the present case is identical to that of the assessee in the case of Binani Bros. (supra), we have examined the facts of Binani Bros. (supra) with meticulous care. In para 13 of that judgment the most peculiar and conspicuous aspect of K.G. Khosla case (supra) was noticed and highlighted that "under the contract of sale the goods were liable to be rejected after a further inspection by the buyer in India." In the same paragraph it was further highlighted with the help of a quotatio....
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....rted by the judgment in the case of Deputy Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam vs. Indian Explosives Ltd. 1985 (4) SCC 119, as well as in Indure Ltd. and Anr. vs. CTO & Ors. 2010 (9) SCC 461. In these cases, sale in course of imports was accepted without requiring privity of contract between the foreign supplier and the ultimate consumer in India. 15. The aforesaid conclusion leading to our concurrence with the views of the High Court is also based upon the salient facts, particularly the various conditions in the contract and other related covenants between DMRC and the respondent which have been spelt out in paragraph 31 of the High Court judgment, enumerated and described as follows : "(1) Specifications were spelt out by DMRC; (2) Suppliers of the goods were approved by the DMRC; (3) Pre-inspection of goods was mandated; (4) The goods were custom made, for use by DMRC in its project; (5) Excise duty and Customs duty exemptions were given, specifically to the goods, because of a perceived public interest, and its need by DMRC; (6) The Project Authority Certificate issued by DMRC the name of the subcontractors as well as the equipment/good....