1989 (9) TMI 375 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Bihar Finance Act, 1981, to sales tax on goods supplied outside India.
2. Indivisibility of the contract for supply and installation of gas turbine plants.
3. Jurisdiction and constitutional limitations on the levy of sales tax on works contracts.

Detailed Analysis:

1. Applicability of Bihar Finance Act, 1981, to sales tax on goods supplied outside India:

The petitioners contested the imposition of sales tax by the Deputy Commissioner of Commercial Taxes on the entire contract value, arguing that the goods supplied by General Electric Company to Damodar Valley Corporation (DVC) in the U.S.A. were outside the purview of the Bihar Finance Act, 1981. The petitioners highlighted that the contract involved supply, erection, and commissioning of gas turbine plants on a turnkey basis, with payments for U.S. equipment made in U.S. dollars in the U.S.A. The court noted that the Bihar Finance Act, as amended, applies only to goods supplied within India and is subject to Article 286 of the Constitution of India, which restricts the imposition of sales tax on goods supplied outside the country.

2. Indivisibility of the contract for supply and installation of gas turbine plants:

The court examined the nature of the contract, which was argued by the petitioners to be indivisible and on a turnkey basis, making it impossible to separate the supply of materials from the contract work. The respondent, however, contended that the contract could be divided into two parts: supply of equipment by General Electric Company and installation by General Electric Technical Service Company (GETSCO) in India. The court emphasized that tax should be levied only on the supply/transfer of goods and not on the entire project value, in line with the definition of "goods" under Article 366(12) and Section 2(h) of the Bihar Finance Act. The court reiterated that tax on the sale of goods in a works contract must be confined to the goods actually supplied in execution of the contract.

3. Jurisdiction and constitutional limitations on the levy of sales tax on works contracts:

The court referred to the Supreme Court's decision in Builders Association of India v. Union of India, which clarified that after the 46th Amendment, works contracts are divisible into sale of goods and supply of labor and services. The court held that the power to tax deemed sales under Article 366(29A) is subject to the same constitutional restrictions as ordinary sales, including Article 286. The court found that the impugned orders by the Deputy Commissioner of Commercial Taxes did not comply with these constitutional limitations and lacked sufficient reasoning.

Conclusion:

The court concluded that the impugned orders were not in accordance with law and set them aside. It directed the respondent to reconsider the matter in light of the Supreme Court's principles in Builders Association's case and the observations made in this judgment. The writ applications were allowed without any order as to costs.