2002 (9) TMI 802 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether there is any inter-State sale in respect of the materials utilized in retreading and recapping of tyres.
2. The applicability of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 to the transactions.
3. The interpretation of deemed sale and the movement of goods in the context of inter-State trade or commerce.

Issue-wise Detailed Analysis:

1. Whether there is any inter-State sale in respect of the materials utilized in retreading and recapping of tyres:
The petitioner, a registered dealer under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1959, entered into contracts with customers outside Tamil Nadu for retreading and recapping tyres. The work was completed in Tamil Nadu, and the retreaded tyres were sent back to the customers outside the state. The authorities assessed the transactions under the Tamil Nadu General Sales Tax Act, treating them as local sales. However, the petitioner contended that the transactions involved inter-State movement of goods, thus constituting inter-State works contracts not liable to tax under the Tamil Nadu Act. The High Court, referencing Article 366(29A)(b) of the Constitution and relevant case laws, concluded that the movement of goods was an integral part of the contract, making it an inter-State sale.

2. The applicability of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 to the transactions:
Section 3-B of the Act imposes tax on the transfer of property in goods involved in the execution of works contracts. The authorities taxed the petitioner under this section, but the petitioner argued that the transactions were inter-State works contracts, exempt under Section 3-B(2)(a). The High Court examined the contract terms and the movement of goods, concluding that the transactions were inter-State sales. Therefore, the turnover from these transactions could not be taxed under the Tamil Nadu Act due to the restrictions imposed by Article 286 of the Constitution.

3. The interpretation of deemed sale and the movement of goods in the context of inter-State trade or commerce:
The High Court referred to the Supreme Court's decision in Gannon Dunkerley & Co. v. State of Rajasthan, which emphasized that the nature of the contract determines whether a deemed sale is an inter-State sale. The Court found that the contract between the petitioner and the customers involved the movement of goods from Tamil Nadu to other states, making it an inter-State sale. The Court also referenced other relevant cases, such as Sahney Steel and Press Works Ltd. v. Commercial Tax Officer and Elgi Tyres & Tread Ltd. v. Deputy Commissioner of Commercial Taxes, which supported the view that movement of goods linked to the contract constitutes an inter-State sale.

Conclusion:
The High Court concluded that the transactions in question were inter-State works contracts exempt from tax under the Tamil Nadu General Sales Tax Act. The orders of the statutory authorities and the Special Tribunal were set aside, and the writ petition was allowed. The Court emphasized that the movement of goods in pursuance of the contract made the transactions inter-State sales, not subject to state tax.