1996 (2) TMI 490 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the products manufactured by the appellants fall within the scope of the Central Sales Tax Act.
2. Whether the supply of materials by any one unit of BHEL in compliance with the contract entered into by the head office at Delhi can be treated as a sale between it and the customer and therefore included in its turnover.
3. Whether the goods manufactured and transferred to other units to comply with the contract amount to movement in pursuance of a contract of sale and therefore liable to inter-State sales tax or they are only movement of goods between units of the same company and therefore not liable to any tax.
4. Whether the payment of Central sales tax at the place where the invoices are raised without any demand but voluntarily, protects the company from paying the tax in the State where it is to be paid according to the Central Sales Tax Act.
5. Whether the turnover, even if treated as inter-State sales, is not liable to more than 4 per cent tax even without production of 'C' or 'D' forms in view of G.O. issued by the Government.

Issue-wise Detailed Analysis:

Issue 1:
The correctness of the Tribunal's finding on whether the products manufactured by the appellants fall within the scope of the Central Sales Tax Act has not been questioned.

Issue 2:
The Tribunal summarized the undisputed pattern of transactions as follows:
1. Contract is entered into by the New Delhi office, which is not the manufacturing unit but is the head office.
2. After entering into the contract, it indicates to the respective branches the goods to be manufactured and the places to which they have to be transported.
3. Respective units manufacture the goods as per the specifications in the contract and transport them either to other units for assembly or directly to the customer.
4. No goods move to the head office.
5. The contract of sale or agreement of sale precedes the manufacture itself.

The Tribunal concluded that the supply of materials by any one unit of BHEL in compliance with the contract entered into by the head office at Delhi cannot be treated as a sale between it and the customer and therefore cannot be included in its turnover.

Issue 3:
The Tribunal decided that:
1. Goods transferred to other units of BHEL and incorporated into machinery or equipment manufactured by the other unit, whereby the article transferred loses its identity, are treated as inter-unit transfers not liable to any sales tax.
2. Goods transferred directly to the place where the plants have to be erected according to the contract, though administratively controlled and invoices raised by other units, shall be liable to tax under the Central Sales Tax Act within the State of A.P., provided the site of erection of the plant is outside the State of Andhra Pradesh.

The Tribunal made a distinction between intermediary goods despatched to executing units and equipment and materials directly sent to the customer of the other State. The former were held to be not inter-State sales and therefore not taxable by the sales tax authorities of Andhra Pradesh. The latter were affirmed as inter-State sales for which the tax under the Central Sales Tax Act is chargeable in the A.P. State.

Issue 4:
The Tribunal observed that the payment of Central sales tax at the place where the invoices are raised without any demand but voluntarily does not protect the company from paying the tax in the State where it is to be paid according to the Central Sales Tax Act. The Tribunal's conclusion was that the movement of goods from Hyderabad unit to the customers in other States is pursuant to and a necessary consequence of the contract of sale, and thus, the A.P. State is entitled to levy and collect the Central sales tax.

Issue 5:
The Tribunal granted relief as far as the question of the turnover being liable to more than 4 per cent tax even without the production of 'C' or 'D' forms in view of the Government Order issued by the Government.

Additional Observations:
The Tribunal noted that the inter-State movement of goods from Hyderabad to other States is pursuant to contracts entered into by the head office of BHEL. The fact that the contracts were entered into by the head office or another unit does not detract from the position that the inter-State movement of goods from Hyderabad is a necessary consequence of the contract of sale.

The Tribunal also addressed the issue of whether the payment of Central sales tax by the sister units in other States precludes the A.P. State from collecting the tax again. It was concluded that the A.P. State, being the State from which the movement of goods commenced, is entitled to levy and collect the Central sales tax to the exclusion of other States, notwithstanding the payment of Central sales tax by the executing unit in another State.

The Tribunal's decision was affirmed by the High Court, which dismissed the tax revision cases and confirmed the orders of the Sales Tax Appellate Tribunal. The High Court emphasized that the movement of goods from Hyderabad to other States is an inter-State sale pursuant to the contracts entered into by BHEL, and thus, the A.P. State is entitled to collect the Central sales tax.