TaxTMI 
TaxTMI 
2017 (1) TMI 746
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.... Constitution of India, the petitioners are challenging an order of assessment dated 17th August, 2015 passed by the fifth respondent to this writ petition for the year 2012-13. 5. The petitioners state that the Indo-Soviet Treaty of August, 1971 and Inter-Government Agreement dated 12th February, 1998 has been entered into between the Government of Russian Federation and the Government of Republic of India based on which the petitioner company has been formed. That is a joint venture company established by Defence Research and Development Organisation (hereinafter referred to as "the DRDO") and NPO Mashinostroeniya - a State Unitary Enterprise incorporated and registered under the Russian Federation's Legislation (hereinafter referred to as "the NPOM"). The petitioner has been established for the purpose of design, development, production and sale of Brahmos Cruise Missile weapon system. The DRDO has contributed 50.50% of the equity capital and NPOM has contributed 49.50% of the equity capital in the above joint venture company. 6. As per agreement dated 9th July, 1999, development work sharing and development cost sharing was also finalised, by which, the DRDO, the Mini....
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....explosive, used in missiles manufactured by the petitioner, the same is covered by certificate issued by the Centre for Fire Explosive and Environmental Safety (CFEES) which was established in the year 1992, which emphasises the key role of services coming under the Armament cluster of Defense Research Laboratory. It functions as Defense Establishment for Fire, Explosive and Environment Safety. It is the repository of expertise in the field of fire services, explosive safety and environmental engineering monitoring. In order to strengthen and enrich the technological base for the above functions, it carries out R & D projects and activities in these areas with the help of State-of-the-Art Laboratory facilities for environmental analysis and modeling. 13. In respect of practice-missiles, there is no warhead and are used for training purposes. As warhead is an explosive item, the said item is prohibited to be brought into the factory of the petitioner company at Hyderabad under the Indian Explosives Act, 1884, as the manufacturing unit located in Hyderabad is in civilian area and if the said item explodes, it would damage the surrounding civilian establishments. In view of the abo....
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....ad-II has permitted the petitioner's Hyderabad unit to send the fully finished Combat Missiles without warhead to the job worker i.e. the petitioner's branch situated at Bothli, Butibori, Nagpur. The job worker after completion of the warhead integration, sends the duplicate copy of the challan to principal manufacturer (BrahMos Hyderabad Unit), mentioning the batch number, serial numbers of the packages kept ready for dispatch. 19. The petitioner has been awarded several contracts by the President of India on behalf of the Government of India for the supply of BRAHMOS Missiles and Associated Systems to the Indian Armed Forces. One of the contracts is contract No.100/DSR/C/05-06/Brahmos System dated 14-11-2005 for the supply and commissioning of BRAHMOS Cruise Missiles and Associated on Board Systems for SNF's Ranvir and Ranvijay, missile documentation, missile training and project management for a contractual consideration of Rs. 1054,64,16,900/- to the Indian Navy. The other contract is Contract No.301601/ GS/WE5/ D(Proc)/Brahmos dated 20-3-2010 for the supply and commissioning of BRAHMOS Missiles and Associated Systems for two regiments of Indian Army for the supp....
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....s unit at Hyderabad has passed Assessment of Value Added Tax in Form VAT 305, for the year 2012-13, by his proceedings dated 22-12-2014. 23. The petitioner questioning the above assessment order, filed Writ Petition No.2166 of 2015 before the Hon'ble High Court at Hyderabad, for the State of Telangana and for the State of Andhra Pradesh on 4-2-2015 and the same is pending adjudication in the Hon'ble High Cout. In the said Writ Petition the Petitioner contended that it is not a branch transfer, but because of the peculiarity and sensitivity of the product, it would be an interstate sale emanating from the erstwhile united State of Andhra Pradesh and not a branch transfer. 24. While matters stood thus, the Assistant Commissioner Sales Tax (Nag-VAT) Nagpur, issued notice dated 20-5-2015, for the assessment prior 2012-13 contending that the missile components are stored at Nagpur and the missile components are integrated into semi-finished state at Hyderabad and are sent to Nagpur unit for job work challan as per Rule 16 B of the Central Excise Rules for the final stage of warhead integration and the excise clearance is done from Nagpur and therefore that the fully finish....
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....pondent. 27. The petitioners further submits that the Assistant Commissioner of Sales Tax, Nagpur passed the impugned assessment order under the Central Sales Tax Act, 1956 (CST Act, 1956) holding that the final product was appropriated at Nagpur in the form of Combat Missile as intended in the contract entered with Indian Armed Forces is dispatched from Nagpur to the customer after the pre-delivery inspection. Accordingly, the said authority determined the gross turnover of sales amounting to Rs. 1237,48,48,492/- from which the inter-State branch transfer of Rs. 441,89,97,934/- and Rs. 100,75,09,459/- representing the tax paid under theCST Act, 1956 in the State of erstwhile united State of Andhra Pradesh respectively were deducted and the inter-State sales turnover of Rs. 694,83,41,099/- was arrived at and the same was subjected to tax @ 12.50% amounting to Rs. 86,85,42,637/-. Besides the above, the said authority had also levied interest amounting to Rs. 30,93,97,471/-, thus demanding a total amount of Rs. 117,78,81,602/-. The said authority arrived at the above tax liability after considering the VAT Input Tax Credit of Rs. 58,507/-. 28. The petitioners further submit tha....
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....led missile has its own destructive power due to the kinetic energy generated by the missile. In addition, the missile may carry warhead depending upon the use to which it will be put. 32. Mr. Sridharan explains to us as to why at Hyderabad this warheads cannot be fixed and fitted. The factory is in a civilian area. In terms of the Explosives Act, 1884 and its appurtenant rules, the warhead has to be, therefore, fitted at Nagpur. For that purpose, the canistered missile is transported to Nagpur facility of the petitioners for insertion of warhead. Mr. Sridharan has pointed out orally as also by a written note as to how after the missile is brought for fitment of warhead that insertion or fitment is done within a period of three to four days. After re-canistering, testing is undertaken on the missile, which lasts for three to four days. This re-canistered missile has a life span of approximately 10 years. Mr. Sridharan submits that out of the total missiles assembled at the Hyderabad facility, about 15% of the missiles are practice missiles, which do not carry the warhead. 5% of the missiles are technical missiles, which are not fully assembled and which are used for electronics ....
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....les the missile in Hyderabad. The Petitioner further submits that, due to the reason of the Hyderabad unit being situated in a civilian area, cainstered missile is transported to the Nagpur unit of the Petitioner for insertion of warhead. 36. Mr. Sridharan submits that, in the present facts of case, agreement for sale of missile has been entered into before manufacturing of missiles. Only pursuant to such agreement of sales, the Petitioner has assembled the goods and made further movements of the same. 37. Mr. Sridharan further submits that it is well settled principle that, the fact that property in goods transferred to a buyer in a destination state will not alter the nature of transaction till the time movement of goods has been undertaken pursuant to an agreement of sale. In the present case, movement of goods from the state of erstwhile united state of Andhra Pradesh has taken place pursuant to an agreement of sale. Accordingly, the transaction shall squarely fall within the ambit of inter-state sales. 38. Alternatively, Mr. Sridharan submits that the transaction between BrahMos and Ministry of Defense shall not fall within the purview of sales. The Petitioner submits....
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.... Agricultural Income Tax and Sales Tax, Ernakulam vs. Indian Explosives Ltd., (1985) 4 SCC 119. (xvi) Indian Oil Corporation Ltd. and Anr. vs. Union of India and Ors., 1980 (Supp) SCC 426. (xvii) K. G. Khosla and Co. vs. Deputy Commissioner of Commercial Taxes, AIR 1966 SC 1216. 42. On the other hand, Mr. Sonpal, learned Special Counsel appearing on behalf of the respondents, would support the impugned assessment order. He would submit that a writ petition under Article 226 of the Constitution of India, which challenges an assessment order, is not maintainable. He would submit that there are multiple remedies provided by the Maharashtra Value Added Tax Act, 2002/the Central Sales Tax Act, 1956 to challenge the impugned order and therefore, this court should dismiss the writ petition, on the ground of availability of alternate and equally efficacious remedy. Thirdly, he would submit that there are factual disputes and which cannot be decided in writ jurisdiction. This is not a case where any substantial question of law and which is incapable of being decided and answered by the forums set up under the above Acts is raised. In these circumstances, we should not d....
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....e upon the judgment of the Hon'ble Andhra Pradesh High Court in the case of Bharat Electronics Limited vs. Deputy Commissioner (CT), No. II Division, Vijaywada and Anr. (2011) 46 VST 179. 44. For properly appreciating the rival contentions, we would first make a reference to the Central Sales Tax Act, 1956. It is an Act to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of imports into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. 45. This Act extends to the whole of India. The definitions appear in Chapter I. Section 2(a) defines the term "appropriate State" to mean in relation to a dealer who has one or more places of business situated in the same State, that State and in relation to a dealer who has places of b....
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....he collection or the payment of the sale price of goods or as a guarantor for such collection or payment, and every local branch or office in a State of a firm registered outside that State or a company or other body corporate, the principal office or headquarters whereof is outside that State, shall be deemed to be a dealer for the purposes of this Act. Explanation 2. - A Government which, whether or not in the course of business, buys, sells, supplies or distributes, goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration, shall except in relation to any sale, supply or distribution of surplus, un-serviceable or old stores or materials or waste products or obsolete or discarded machinery or parts or accessories thereof, be deemed to be a dealer for the purposes of this Act." 47. The term "goods" is defined in section 2(d), whereas, term "place of business" is defined in section 2(dd). Both are important and read as under:- "2(d) "goods" includes all materials, articles, commodities and all other kinds of movable property, but does not include newspapers, actionable claims, stocks,....
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....ransfer of documents, title of goods delivered, their movement from one State to another. There is an explanation below subclause (b), which would explain as to when clause (b) of section 3 would be applicable, particularly where the goods are delivered to a carrier or bailee for transmission. Therefore, it is the sale or purchase which must occasion the movement of goods or the sale or purchase is effected by a transfer of document of title to the goods delivered, their movement from one State to another. By section 4, the legislature points out as to when a sale or purchase of goods is said to take place outside a State. That section reads as under:- "4. When is a sale or purchase of goods said to take place outside a State. - (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State - ....
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.... 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. (4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority. (5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its internal flight, such purchase shall be deemed to take place in the course of the export of goods out of the territory of India. Explanation. - For the purposes of this sub-section, "designated Indian carrier" means any carrier which the Central Government may, by notification in the Official Gazette, specify in this behalf." 53. A reading of this provision would indicate as to how a sale or purchase of good....
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....le by any dealer under this Act on sales 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 provision of subsection (2), in the State from which the movement of the goods commenced: Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of section 6, the tax shall be levied and collected - (a) Where such subsequent sale has been effected by a registered dealer, in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of sub-section (4) of section 8 in connection with the purchase of such goods; and (b) where such subsequent sale has been effected by an unregistered dealer in the State from which such subsequent sale has been effected. (2) Subject to the other provisions of this Act....
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....be liable to pay interest for delayed payment of such tax and all the provisions for delayed payment of such tax and all the provisions relating to due date for payment of tax, rate of interest for delayed payment of tax, of the general sales tax law of each State, shall apply in relation to due date for payment of tax, rate of interest for delayed payment of tax, and assessment and collection of interest for delayed payment of tax under this Act in such States as if the tax and the interest payable under this Act were a tax and an interest under such sales tax law. (3) The proceeds in any financial year of any tax, including any interest or penalty levied and collected under this Act in any State (other than a Union Territory) on behalf of the Government of India shall be assigned to the State and shall be retained by it; and the proceeds attributable to Union Territories shall form part of the Consolidated Fund of India." 57. Sub-section (1) of section 9, in clearest terms, states that the tax levied on sales of goods in the course of inter-State trade or commerce shall be collected by that Government in accordance with the provisions of sub-section (2), in the State ....
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....nt in the contract of sale or was an incident of the contract. Similar view was expressed in M/s. Sahney Steel and press Works Ltd. and Anr. vs. Commercial Tax Officer and Others (1985) 4 SCC 173. In Manganese Ore (India) Ltd. v. The Regional Assistant Commissioner of Sales Tax, Jabalpur, 1976(2) SCC 44, it was observed that so far as Section 3(a) of the C.S.T. 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 goods have come into actual existence." 59. Hence, there must be a contract of sale, incorporating a stipulation as found in Ingredient No. 1 by the Hon'ble Supreme Court of India regarding inter-State movement of goods. The goods must actually move from one State to another pursuant to such contract of sale and such movement must be from one State to another, where the sale concludes. 60. In an earlier judgment of the Hon'ble Supreme Court of India, in the case of Bharat Heavy Electrical Limited etc. vs. Union of India and Ors. AIR 1996 SC 1854, the Hon'ble Supreme Court of India, after analysing all the provisions of the Central Sales Tax A....
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...., as pointed out hereinabove otiose and superfluous. It would not be proper to says in the light of above constitutional and statutory provisions that the dispute as to in which State is a particular inter-State sale is to be taxed is a matter between the States and that so far as the assessee is concerned, it is enough if he pays the tax at one place whether it is really leviable in that State as per Section 9(1) or not. The law requires that it should be levied and collected in the State from which the movement of goods commences. If a dispute arises in which State is the tax lawfully leviable, the authorities under the Act have got to decide it. If, in a given case, an assessee says that the particular transaction which is sought to be taxed in State 'A' has already been tailed in State 'B', nothing prevents him from impleading the State '' in proceedings in State 'A' and have the matter decided in the presence of all parties. It must be remembered that while acting under Central Sales Tax Act, the State machinery acts as the machinery of the Central Government and not as the machinery of the State Government; in law, it is as if it belongs to Cen....
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....y to the head office at Delhi. Accordingly, the components are imported from Russia and stored at Nagpur. As per the delivery schedule, the components are transferred to Hyderabad works for the purpose of job work of assembly and fixing on the SKD articles. The semi finished job is then transferred to Nagpur works from Hyderabad for carrying out warhead integration and final assembly of the Brahmos Combat Missiles, its final sealing on excise job work challan. After carrying out leak test and electrical checks, the fully finished Combat Missile is cleared from Nagpur and despatched to various locations outside the State of Maharashtra without making payment of excise duty with prior permission of the Commissioner of Central Excise as per the provisions of Rule 16B of the Central Excise Rules. The excise duty on the said transaction is deposited at Hyderabad. That is as per the provisions of the Central Excise Act, 1944. Thus, the understanding of the assessing officer is that the petitioners have attempted to establish that the movement of goods from Hyderabad to Nagpur is in accordance with the contract for supply of Combat Missiles to the Armed Forces. That the semi finished good....
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....error, in the understanding of the assessing officer, of the provisions of the Central Sales Tax Act, 1956. We had to elaborately analyse the provisions only for clearing certain doubts of the authorities, particularly in the State of Maharashtra. They have failed to notice the salient features of the Central Sales Tax Act, 1956. In our view, the understanding of the assessing officer that it is the movement of finished goods, which would be the determining and conclusive factor is legally flawed. It is untenable, inasmuch as the presumption that all the decided cases speak about and dealt with movement of finished goods from one State to another and not semi finished goods. It is this erroneous presumption that has resulted in a conclusion completely vitiated in law. There is non application of mind to very crucial and relevant factors, which govern the applicability of the Central Sales Tax Act to the inter- State trade and commerce. 67. In support of our above observations and conclusions, we can safely rely upon a judgment of the Hon'ble Supreme Court of India in the case of Bharat Heavy Electrical (supra). The factual background, in which this decision was rendered may ....
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....of machinery/equipment separately. It also provides the manner in which the contracted price was payable by NALCO. Now, what happened is this: Tiruchi unit, it appears, is engaged mainly in the manufacture of boiler systems. It was designated as the executing agency for the job at Angul including the responsibility of manufacturing and supplying the boiler systems required for setting up the power plants at Angul. The boiler system comprises innumerable parts and components, some of which are manufactured at the Hyderabad unit. The Tiruchi unit accordingly called upon the Hyderabad unit to manufacture those components/parts. The Hyderabad unit manufactured them and sent some of those parts/ components to Tiruchi for being incorporated into the boiler system and sent the remaining directly to Angul Orissa to be incorporated into the boiler system at the work-site. According to the practice uniformly followed by BHELs and accepted by the Andhra Pradesh Government the parts components manufactured by the Hyderabad unit for incorporation in the boiler systems were treated as branch transfers not involving an element of sale, irrespective of the fact whether such parts/components were s....
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....also placed before us. The Andhra Pradesh Tribunal had taken the view that insofar as the parts and components manufactured in the Andhra Pradesh unit and despatched to work-site at Angul were concerned, they must be treated as inter-State sales taxable in Andhra Pradesh State inasmuch as the said goods moved from Andhra Pradesh pursuant to the supply contract which was indeed a contract of sale. So far as the parts and components which were sent to Tiruchi are concerned, the Tribunal held that they cannot be treated to have been sold in the course of inter-State trade or commerce but that they represent merely branch transfers. While the State of Andhra Pradesh did not prefer any tax revision against the judgment of the Tribunal, BHEL did, which meant that the decision of the Tribunal insofar as it held that the despatch of parts/components to Tiruchi constituted branch transfers became final. The only question in the said Tax Revision Cases before the Andhra Pradesh High Court, therefore, was whether the Tribunal was right in holding that the despatch of parts/components from the Andhra Pradesh Unit to Angul for incorporation into the boiler system at the work-site represented in....
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....red by other units are sent directly to the executing unit for being incorporated into the main machinery/system while some parts and components are despatched directly to the work-site. To revert to NALCO project aforementioned, referred to hereinbefore, this is exactly what had happened. Tiruchi unit was supposed to be the executing unit. But some parts and components required for the boiler system and other equipment which was the responsibility of the Tiruchi unit to manufacture were being manufactured at the Hyderabad unit. At the request of the Tiruchi unit - or on the instructions of the Head Office, as the case may be - the Hyderabad unit manufactured those parts and components and despatched some of them to Tiruchi and some of them directly to Angul in Orissa [work-site]. The consideration stipulated in the supply contract was payable in the manner provided therein. ...... ..... 24. ..... The parts/components, i.e., the goods in question, did move from the State of Andhra Pradesh to the State of Orissa - or West Bengal, as the case may be - and the said movement is occasioned by the supply contract entered into by BHEL which is in truth a contract of sale....
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....the petitioners that from 2001-08, the petitioners were importing fully integrated missiles from its joint venture partner NPOM, Russia. They were effecting the sales of these imported fully integrated missiles to the Indian Armed Forces. On the completion of the manufacturing facility in the year 2007-08, the petitioners have been importing missiles in SKD condition, assembling them with certain bought out items in the State of Telangana and have been effecting sales to the Indian Armed Forces. The assembly and production of the Brahmos Missiles takes place at the facility in Hyderabad. After importing all parts of missile in SKD condition, certain parts, such as warheads, boosters, fuel etc. are transferred to Nagpur facility for storage purpose. There may be a slight dispute here and there, inasmuch as the respondents would contend that all the parts of the missiles in SKD condition arrive at Nagpur, they go to Hyderabad for the above activity, namely assembly, production and thereafter the missile is received for warhead integration at Nagpur. However, as the petitioners would contend, there is no dispute that the warhead at all times remains at Nagpur facility only. It is in t....
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....are of the above mandate, would still argue that this is a case where the goods are sent for processing to Nagpur. At Nagpur, they are received in semi finished stage and the rest of the work is done at Nagpur. Therefore, he would submit that this is a case pertaining to a complete act in the state of Maharashtra. He would submit that the entire act is performed in the State of Maharashtra and therefore, it is that State which has authority in terms of section 9(1) of the Central Sales Tax Act, 1956. 73. Mr. Sonpal's reliance on the judgment of a Division Bench of Andhra Pradesh High Court is entirely misplaced. In the case before the Andhra Pradesh High Court, the petitioner, a public sector undertaking, engaged in the manufacture and sale of defence and scientific goods, had several units spread all over the country. The issue was that there was a unit of the said petitioner at Macihlipatnam. There, the manufacturing activity took place. The goods manufactured in that unit were transferred to the units of the petitioner in the State of Punjab, Maharashtra, Tamilnadu and Karnataka. It was the petitioner's case that the goods are not sold by the Machilipatnam unit, but a....
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....ion makes it a different or distinct article or goods, then, we do not think any assistance can be derived from the judgment of the Andhra Pradesh High Court. That is distinguishable on facts. 74. The attempt of the Revenue before us was demonstrated by filing an affidavit in reply stating that there is indeed a factual matter involved and we should not entertain the writ petition. Once we have held that there is a fundamental and basic legal error so also the assumptions on the part of the assessing officer being untenable in law, we do not think that the writ petition cannot be entertained. There may be remedies available to challenge the assessment order, but it is not that there is any absolute bar to entertain a writ petition under Article 226 of the Constitution of India against an assessment order. Once that assessment order is found to be vitiated in law and the assessing officer exceeding his powers, authority and jurisdiction, then, in the absence of a factual dispute, a writ petition would lie. In the present case, we have entertained it to correct the legal error. 75. Mr. Sonpal finally relied upon paras 9, 10 and 12 of the affidavit in reply. However, we do not s....