AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 177
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....ly erred in setting aside order passed by the DS(Appeals) and thereby holding that the contracts between BGR, Chennai and RRVUNL as a composite and indivisible contract which tantamounts to a works contract? (ii) Whether the learned Tax Board has legally erred in holding that sale of Onshore Goods and Offshore Goods made by BGR-Chennai, BGR-Gurarat and BGR Maharashtra to RRVUNL as intra-state sale by BGR Rajasthan to RRVUNL and accordingly to be taxed under RVAT Act instead of CST? (iii) Whether in facts and circumstances of the case, the Respondent Department having assessed the transaction under Entry tax as goods brought by RRVUNL into the state, is estopped from contending that the sale of the said goods was made by BGR, Rajasthan to RRVUNL in the state of Rajasthan? (iv) Whether in the facts and circumstances of the case, the learned Tax Board has grossly erred in holding the State of Rajasthan can levy RVAT on a sale transaction when the assessment in relation to the said sale transaction has already been completed under CST Act in the state of Tamil Nadu, Maharashtra and Gujarat?" In STR Nos. 155-157/2020, preferred by the revenue: - "1. Whether....
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...., in furtherance of the survey, prepared a detailed inspection report dated 27.06.2012 to opine that breaking a composite and indivisible work contract into three contract is nothing but a colourable device to avoid the tax due under the RVAT Act. It was further opined that the sale made under the first and second contract are intra-state sales, i.e. sale within the State of Rajasthan and not inter-state sales under Section 3 read with Section 6 of Central Sales Tax Act, 1956 (for short "CST Act"). 2.4. On the basis of survey and inspection report, the assessment order(s) were passed on 14.06.2013 wherein tax, interest, and penalty were levied on the assessee under the RVAT Act on 'deemed sale of goods' in execution of works contract. 2.5. The Appellate Authority, vide order dated 11.02.2014, quashed the assessment and demand orders and held that the sale made by the assessee is inter-state sale covered under Section 3 read with Section 6 of CST Act, and hence not exigible to state taxation. 2.6. The RTB, vide impugned order dated 19.03.2020, held that the contract between the parties was a composite and indivisible one and the disputed sale involved were intra-state sale ....
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....ods claimed by the respondent from Gujarat and Maharashtra is an intra-state sale of Rajasthan. Question 3) * Whether in the facts and circumstances of the case, the purchase of equipment and materials by the respondent from various vendors located in different States and resale of the same to RVUN is a sale as described under Clause (b) of Section 3 of CST Act? * In case the sale between BGRESL, Chennai and RVUN is a sale under clause (b) of Section 3, is it also a sale by BGRESL, Chennai exempted under Section 6(2) of CST Act? * In case the sale does not fulfill requirements of Section 3(b) or Section 6(2) or both, is it taxable under the provisions of RVAT Act? Answer to Question 3) * Purchase of onshore goods and subsequent sale of the same to RVUN does not constitute a sale as described under clause (b) of Section 3 CST Act. * The sale not qualifying under Section 3(b) automatically disqualified under Section 6(2) of CST Act. The subject sales are taxable under RVAT Act on being denuded the inter-State sale or export sale." 2.8. However, considering that the goods were 'goods of special importance' as per Sectio....
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....les under the RVAT Act as the same are inter-state sales covered under Section 3 of CST Act. In support of this contention, learned senior counsel made the following submissions: (a) The bid/tended issued by RVUNL itself prescribed that three separate contracts would be awarded to the successful bidder, i.e., one for supply of off-shore goods; one for supply of on-shore goods; and one for civil works. The RRVUNL had prescribed the complete procedure to be followed by the petitioner while executing the contracts for supply of off-shore and on-shore goods. Even the vendors from whom the goods were to be procured in both these contracts were identified by the RRVUNL. (b) That the above mentioned two supply contracts (both On-shore and off-shore) occasioned movement of goods from one state to another and were duly assessed to tax under the provisions of CST in the hands of petitioner's branches at Maharashtra, Gujarat, and Chennai. Further, the supply contracts were issued by RVUNL inter alia providing for cost of CST. (c) That the title of the goods was transferred outside the state of Rajasthan, which is evident from Clause 31.3 of BID/NIT. (d) That even fo....
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....ssee made the following submissions: (a) That Article 366(29-A)(b) of the Constitution of India does not provide for tax on the whole of works contract. In works contract, assessee is liable to pay service tax on service element and sales tax on goods deemed to be transferred. However, what is ultimately being taxed by the State is the 'sale or purchase of goods' simpliciter. Prior to insertion of Article 366(29-A)(b) into the Constitution of India by way of 46th Constitutional Amendment, state government did not have power to tax the 'sale of goods' elements involved in a works contract. Article 366(29-A) (b) of the Constitution of India merely empowers the state government to separate the sale of goods element involved in a works contract and to levy tax on the same. Article 366(29-A)(b) of the Constitution of India does not provide for levy of tax on whole of works contract. (c) A works contract is no exception to inter-state sales. It has been held in Builders' Association of India vs. Union of India: (1989) 2 SCC 645 that Article 366(29-A)(b) of the Constitution of India only empowers the state to tax sale of goods involved in works contract but all ....
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.... a concessional rate under the works contract exemption scheme during the relevant period. On the other hand, the assessee merely followed the manner and procedure prescribed by RVUNL for execution of the three contracts and has paid far greater amount of tax against CST sales in respect of supply of off-shore and on-shore goods. (f) That RTB gravely erred in not considering that power to tax sale of goods during execution of works contract is available with the State of Rajasthan under Article 246 read with Entry 54 of List II just like any other transaction of sale or purchase taking place inside a state. In other words, the existence of a works contract does not change the fact that what is ultimately being taxed is sale and purchase of goods, which is subject to provisions of Article 286, Entry 92A of List-I of Constitution of India and the CST Act. (g) That this Court had struck down the provision in the erstwhile Rajasthan Sales Tax Act, 1994 which attempted to bring tax on inter-state sale of goods involved in the execution of works contract in the case of Triveni Engineering and Industries Ltd. v. State: (2001) 3 RLW 1752. 4.3. The third contention of t....
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....ficer based on which the impugned assessment order was passed. Learned Senior Counsel for the assessee submits that the sole ground of the assessing authority in rejecting the inter-state sales was that there were several discrepancies in the document transferring title of goods and that the invoices were raised late after the goods had already reached the Power Project site. However, the rebuttal and clarification of the assessee was found satisfactory by the Appellate Authority and the same has not been controverted by the RTB either. The Assessing Authority imposed penalty on the basis of only one transaction alleged to be an intra-state sale from Bhiwadi, Rajasthan. The allegation is erroneous because as per the contract issued by RVUNL the said supply was to be made from a vendor situated out of Rajasthan and was accordingly procured by the Petitioner from Himachal Pradesh, and the Assessing Authority has erroneously relied upon one inspection report which does not pertain to said supply, which is evident from the documents on record itself. Even otherwise, all the document, nature of business and explanation is on record, suggesting that there is no illegality or fabrication ....
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....ranty', 'Insurance' and 'Completion of Contract' clearly reveal that under present works contract, the complete unit would be transferred to the RVUNL by assessee and there is no individual handing over/supply of goods by assessee to RVUNL. Further, as per the Sale of Goods Act, 1930 (for short "SOG Act"), the goods are said to be transferred only when they are put to a deliverable state by the contractor as per terms and conditions of contract and at that point the incidence of sale took place for the purpose of works contract. Learned AG has also highlighted the finding of RTB at para 9.10 and para 9.11 to submit that issuance of MDCC by RVUNL only confirmed the specification of the goods to be used in the execution of the works contract. Mere issuance of MDCC, by no conceivable means, can be said to be transfer of title or ownership, as the assessee was still required to deliver the goods and put them in a deliverable state. 5.3. That the terms and conditions of contract are relevant for determination of the intention of the parties. In the case in hand, RVUNL issued the single NIT for erection of the thermal power plant. The sale in the present case is not of individual good....
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.... of setting aside of penalty by the RTB, learned AG submitted that the assessee has wrongly exhibited the subject sales as inter-state sales and clandestinely evaded the applicable taxes and by fabricating parallel and antedated invoices. Learned AG has also taken this Court through the assessment order wherein several discrepancies are pointed out, which have also been affirmed in para 8.11 of the RTB order. Learned AG has highlighted about 137 invoices totaling about Rs. 785 crores, in which serious discrepancies were found. Therefore, it is contended that the penalty was wrongly set aside by the RTB. Reliance is placed on State of Gujarat and Ors. vs. Saw Pipes Ltd. (Neutral Citation: 2023/INSC/376): AIR 2023 SC 2113 and R.S. Joshi and Ors. vs. Ajit Mills Limited and Ors.: (1977) 4 SCC 98. 5.6. That the directions issued by the RTB of remanding the matter back for afresh consideration was beyond the scope of the pleadings and was never argued and therefore the said direction is erroneous. Reliance in this regard is placed on Trojan and Co. Ltd. vs. N.N. Nagappa Chettiar: AIR 1953 SC 235 and Bharat Amratlal Kothari vs. Dosukhan Samadkhan Sindhi & Ors.: AIR 2010 SC 475. 5.7.....
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....il Nadu (i.e. inter-state sale) are intra-state sale and exemption claimed from payment of VAT under Section 3(a) and 3(b) read with Section 6(2) of CST Act on such sales is incorrect. 3. Penalty was imposed First Appellate Order 1. Sale of off-shore goods by assessee from Gujarat and Maharashtra is covered under Section 3(a) of CST Act. 2. Sale of on-shore goods by assessee from Chennai is Order covered under Section 3(b) of CST Act and exempted under Section 6(b) of CST Act and not taxable. 3. Penalty was set aside. RTB Order 1. Sale of off-shore and on-shore goods is intra-state sale as per Section 4(2) of CST Act on which RVAT is leviable. 2. No penalty was imposed. 3. Matter remanded back to assessing officer with direction pertaining to benefit of notification dated 28.04.2006 for FY 2009-10 and rate of tax on goods of special importance. 8. The relevant provisions of law, which are required to be considered for adjudication of this case, are reproduced as under: "Article 286 of Constitution of India - Restrictions as to imposition of tax on the sale or purchase of goods (1) No law of a State shall impose, or authorise the impos....
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.... including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods. Section 2(35)(i) of RVAT Act: (35) "sale" with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes- (i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration Section 2(44) of RVAT Act: (44) "works contract" means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property; Section 2(g)(i)(ii) of CST Act: (g) "sale", with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes, (i) a transfer, otherwise than in pursuance of a contract....
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....rty is prior or subsequent to such appropriation. Explanation - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places." 9. As per the provisions of law quoted above, the State has power to levy sales tax/VAT on 'deemed sale of goods' used in execution of works contract. In works contract, the assessee is liable to pay service tax on service element and sales tax on goods transferred. The bone of contention is whether the sale of goods involved in the present case were inter-state sales or intra-state sales. To ascertain that, we must first determine the nature of the transaction. As per settled position of law, the terms and conditions of the contract are relevant for determining the intention of parties. In this regard, we may note the relevant extracts of some judgments on the issue. 9.1. In the case of Gannon Dunkerley (supra), the Apex Court observed as under: "40. ...We do not propose to go into this controversy because the question whether a deemed sale resulting from transfer of pro....
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....f BSNL vs. UOI (supra), the Apex Court observed as under: "The court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject-matter of sale or purchase. In arriving at a conclusion the court would have to approach the matter from the point of view of a reasonable person of average intelligence." 10. Therefore, to ascertain the nature of the contract, this Court is required to scrutinize the terms and conditions mentioned therein. The contract is on record and the relevant terms of the contract are also reproduced in the RTB Order dated 19.03.2020 from paras 7.4 to 7.10. However, for the sake of convenience, and to avoid repetition, some of the relevant clauses of the contract are reproduced as under: "CROSS FALL BREACH (Contractor. Instructions To Bidder (ITB)- Clause 22 General Conditions of Contract (GCC)- Clause 31.1 1. All the three contracts will contain a cross fall breach clause specifying that breach of one contract will constitute breach of the other. 2. Article 3.7 of all three contracts It is expressly agreed t....
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.... will be transferred. 1. " FINAL HANDING OVER" shall mean the Owner's written acceptance of the works performed under the contract, after successful completion of Performance Tests. (GCC Clause - 3.32) 2. PROJECT SCHEDULE clause under the three contracts which provides that the project has to be commissioned within 39 months for Until 1 and 42 months for Unit 2. (Clause 11 in Contract No. 3832 and Clause 10 in Contract No. 3853.) 3. LIQUIDATED DAMAGES provides that if the contractor fails to successfully hand over the unit/s within stipulated period indicated in this document then he is liable for Liquidated Damages. (Clause 12 in Contract No. 3832 and Clause 11 in Contract No. 3832) WARRANTY- Clause 28 in Contract no. 3832 and Clause 24 in Contract no. 3832. As stipulated in clause no. 37, section-II of Vol.I of Specification, The Contractor shall warrant the equipment to be new and in accordance with the contract documents and free from defects in design, material and workmanship for a period of twelve (12) calendar months commencing immediately upon Final Taking Over of Unit#1 and Unit#2 respectively.... INSURANC....
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.... Customs Notification No. 21/2002 dt. 01.03.2002 as amended from time to time. We confirm that the benefit of concession in customs duty are passed on to Rajasthan Rajya Vidyut Utpadam Nigam Limited by M/s BGR Energy Systems Limited. The recommendation of the Secretary (Engergy), Government of Rajasthan, Jaipur is endorsed in the Import List. Encl. As above Yours faithfully (R.K. Luhadia) Chief Engineer(TD) The State Government recommends the grant of customs duty conessions under project import in terms of chapter 98.01 of Customs Tariff read with SI. No. 399 of (iv) of the General Exemption No. 122 vide customs notifications No. CN. 21/2002 dt.01.03.2002, as amended from time to time for importing equipment for the total CIF value of USD 40,50,00,000 as per Annexure-A, Annexure-A1 and corresponding Appendices duly certified by us. Secretary - Energy Government of Rajasthan" 11. From a careful analysis of the terms and conditions of the contract(s) in light of the aforementioned Apex Court judgments, the following points emerge: (a) A unified bid was invited through a single NIT byRVUNL on EPC basis for erection of the thermal pow....
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....f the three contracts. (ITB-24, 25; GCC-22.1). "Plants and Equipment" were to mean permanent plant, equipment, machinery and things of all kinds to be provided and incorporated under the contract (GCC-3.44). "Works" were to mean and include furnishing of equipment, labour and services, transport, handling, unloading and storage at site, Civil construction, erections, commissioning etc. (GCC-3.57). "Final take over" was to occur when all supplies and services were achieved. (GCC-3.64). The bidder contractors were expected to be qualified and experienced in the EPC of electric generating facilities (GCC-6-). Equipments not specifically mentioned but required for satisfactory completion of the Project on turnkey basis were also to be supplied (GCC-13.2, 13.3). The contractor was responsible for taking insurance for all risks to equipment and material upto final taking over (GCC-20). The contractor was obligated to undertake replacement of damaged equipment free of cost. (GCC-20, 21, 21.2). Proportionate price of the contact was to be paid to the contractor in case of termination of the contract prior to its completion (GCC-26.4). It was clearly understood by the parties that the total....
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....dent has admitted and discharged the tax liability voluntarily on the goods involved in execution of this contract. It is surprising on the part of the respondent that the initial work (Construction of foundations civil work etc.) and the final work (erection and installation of the materials supplied under contract no. 3832 & 3233) are in the perview of contract no. 3834 but the work in between i.e. (procurement of plants and equipments) is not. 7.14 That the contracts were awarded to the respondent on EPC contract basis / Single Source Responsibility basis / Turnkey basis (GCC-13.2 &opening of C-3832, 3833 & 3834). Looking to the intention of the parties and stipulations in the contracts the contracts for supply and service had to be awarded to the same party. Apart from the single NIT and unified BID, the ITB the GCC and the SCC etc. were uniformly applicable to all the Contracts. The respondent company was awarded the contract for it's expertise in erection and installation of Power Plants and not for its supplying, transporting, loading, unloading skills of the goods. Evidently the intention of the parties was only to execute work with material supplied by the res....
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....There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) 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 19- Property passes when intended to pass (1) 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 he transferred. (2) 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. (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascerta....
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.... is what is relevant for determining whether the title to the goods transferred to RVUNL during movement of goods from one state to another. The assessee contends that the title to the goods transferred to the assessee outside the State of Rajasthan, upon issuance of MDCC or other like documents. However, the issuance of MDCC is not determinative of transfer of title. MDCC merely identifies the specification of the goods to be used in the execution of works contract. The liability to transport these goods and the risk involved therein was with the assessee. Further, the assessee was required to transfer the power project in operational state. In the case in hand, the pre-dispatch inspection and issuance of MDCC, in view of terms of contract, did not serve the purpose of transfer of goods. This unequivocally establishes that there was no transfer of title of goods after their inspection and/or issuance of MDCC or any like document. 16. The intent of the parties is quite clear. The clauses of 'Final Handing Over', 'Project Schedule', 'Liquidated Damages', 'Warranty', 'Insurance', 'Completion of Contract', the project import certificate letter dated 06.07.2009, etc. clearly reveal ....
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....gment of Indure Ltd. vs. CTO (supra), on which heavy reliance was placed by the assessee, pertains to Section 5(2) of CST Act, whereas the assessee is claiming applicability of CST on the basis of Section 3 read with Section 6(2) of CST Act. Even otherwise, the nature of transactions is different and the revenue in that case was not allowed to belatedly raise the plea that imported goods were subjected to manufacturing process as part of execution of works contract, whereas in the present case this has been one of the primary arguments of the Revenue. 18. So far as the contention of the assessee that CST along with Entry Tax has already been paid on subject sales is concerned, it is trite that when a statute requires something to be done in certain way, it has to, necessarily, be done in that way. Reliance is placed on Selvi J.Jayalalithaa & Ors vs State Of Karnataka & Ors: (2014) 2 SCC 401. Since the nature of transaction attracts applicability of RVAT Act, the assessee cannot be absolved of his liability to pay the same merely because the parties had agreed to pay different tax. There is no estoppel against law. Merely because the assessee might have wrongly paid tax under a d....