TaxTMI 
TaxTMI 
2017 (1) TMI 746
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....enging 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 Ministry of Finance, Government of Maharashtra and NPOM, ....
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....ame 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 above, the combat missiles fitted with warhead cannot be brought into ....
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....ished 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 supply of combat missiles, practice missiles, training missiles, missile documentat....
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.... 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 finished ready to sue Combat Missiles are despatched from Nagpur to the customers and therefore....
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....agpur 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 that while arriving at the inter-State sales turnover of Rs. 694,83,41,099/-, the assessing authorit....
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....on, 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 testing and other research purposes. The remaining 80% missiles are Combat Missiles containing warhead an....
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....g 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 that sale means transfer of general property in goods. In the present case, the property in goods has already been v....
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.... 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 depart from the normal rule. 43. Without prejudice to the above and on merits as well, Mr. Sonpal would submit that a fair conclusion arrived at by the assessing officer cannot be termed as perverse or vitiated by any error of ....
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....val 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 business situated in different States, every such State with respect to the place or places of business situated within its territory. The term business is defined in section 2(aa) in an inclusive manner. It reads as under:- 2(aa) "....
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....ll 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, shares and securities. 2(dd) "place of business" includes - (i) in any case where a dealer carries on business through an agent by (whatever name called), the place of business of such agent; (ii) a warehouse, godown or other place where a dealer stores his goods; and (iii) a place where a dealer keeps his b....
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.... 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 - (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation. - Where there is a single contract of sale or purchase of ....
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....bed 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 goods is said to take place in the course of import or export. 54. Then comes Chapter III, which deals with inter-State sales tax. 55. We, in this case, are not concerned with an issue as to whether the subject transaction can be said to be intra-State or inter-State. We have proceeded on the footing that this is an inter-State sale. The situs of the inter-State sale and therefore, the liability of the dealer to pay tax to a particular State, is the i....
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....ment 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 and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act as if the tax or interest or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under the ge....
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....er 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 from which the movement of the goods commenced. We are not concerned in this matter with the subsequent sale. 58. As far as the essential ingredients of inter-State trade are concerned, they are summarised by the Hon'ble Supreme Court of India in the five Judge Bench decision in the Case of State of Andhra Pradesh vs. National Thermal Power Corporation Limited and Ors. AIR 2002 SC 1895. Para 24 of this judgment reads as under:- "24. It is well settled by a catena of decisions of this Court that a sale i....
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....e 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 Act, 1956 and particularly section 9, held as under:- 17. The aforesaid survey of the relevant provisions of the Act clearly shows that Sections 3, 4, 5, 9(1), 14 and 15 pertain to and deal with distinct topics and different aspects of Articles 286 and 269. It follows that if a question arises whether a sale is an inter-State sale or not, it has to be answered with reference to and on the basis of Section 3 and Section 3 alone. Section 4, or for that matter Section 5, is not relevant on the said question - See the Consti....
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....f 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 Central Government. This view of ours gets re-inforced if one keeps the provisions in Section 8(2A) of the Central Sales Tax Act in view. 61. Hence, we would have to decide the present case on the touchstone of the above principles and the interpretation placed by the Hon'ble Supreme Court of India on the relevant provisions of the Central Sales Tax Act, 1956. 62. At the outset, we must clarify that the learned senior counsel appearing for the petitioners would submit that for the present petition, the petitioners proceed on the f....
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....ile 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 goods were transferred to Nagpur just for job work of warhead integration. That is why the dealer has placed reliance on various judgments to establish the legality of the movement and remittance of tax in the State of Andhra Pradesh. However, the assessing officer proceeds on the footing that in all the judgments relied upon, the movement was of finished goods from one State to another to effect their delivery to the customers. The conclusions drawn in those judgments were on the basis of these specific facts of finished goods being transferred....
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....t 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 now be referred. We have reproduced the governing principles and tests, which have been culled out in this decision from the earlier judgments of the Hon'ble Supreme Court of India on the point. In part II of this judgment, the Hon'ble Supreme Court of India refers to the facts in great details as under:- 20. Bharat Heavy Electricals Limited [BHEL] is a major public sector corporation wholly owned by the Government of India. It has its units in several places viz., Haridwars Jhansi, Bhopal, Bangalore, Ramachandrapuram [Andhra Pradesh - n....
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....ly 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 sent to Tiruchi or to fingul. Conversely, if the Tiruchi unit manufactured any parts/components to be incorporated in the machinery or system, the manufacture of which was entrusted to Hyderabad units the despatch of such parts/components from Tiruchi to Hyderabad unit or the work-site were treated as branch transfers and not as sales. The tax was levied by the State in which the main machinery system was manufactured. No tax was levied by the State wherein the parts components were manufactured and sent for incorporation into the main machinery or system....
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....ate 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 inter-State sales and whether they were taxable in the State of Andhra Pradesh. The High Court examined the said question at length and dismissed the Tax Revision Cases filed by BHEL agreeing with the view taken by the Tribunal, though on a different reasoning. Civil Appeals Nos. 5369-75 of 1996 are preferred against the judgment of the Andhra Pradesh High Court in the aforesaid Tax Revision Cases. 21. Civil Appeals Nos.5362-68 of 1996 arise from the judgment of the Andhra Pradesh High Court rendered in a batch of writ petitions filed by BHEL. The writ petiti....
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....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. The manner in which and the documentation under which these goods were sent to Angul - in particular, Clause 3.3.0 of the Supply Contract - do clearly establish that it was not a case of branch transfer but one of sale of the said goods to NALCO, pursuant to the supply contract. Further, because the movement of the said goods has commenced in the State of Andhra Pradesh, it is in the State of Andhra Pradesh that the Central Sales Tax is leviable according to Section 9(1) of the Act. We therefore, agree with the view taken by the Andhra Pradesh High Court that in the facts and circu....
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....ad. 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 these circumstances and by pointing out the further undisputed factual position that the location of the petitioners' facility at Hyderabad is in a civilian area, which makes it impossible for them to fit the warhead thereat that the assembled missile is brought to Nagpur for insertion of warhead. How that eventuality arises and for what purpose has also been explained in great detail. 69. The assumption of the assessing officer also overlooks the fact that the warhead is a complete unit when imported from Russia. The warhead is inserted in the front portion of the missile at the ....
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....rt 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 are only incorporated in the equipments manufactured by other units and eventually sold therefrom to the end customers. It was the case of the petitioner that the respective units, which incorporate the components manufactured and transferred by the Machilipatnam unit pay sales tax on the price of finished goods including the cost of components manufactured and supplied to them by the Machilipatnam unit. The assessment order held that the transaction is a inter-State sale from Andhra Pradesh to other States. The argument of the petitioner was that these are stock transfers and not inter-State sa....