2005 (2) TMI 810 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of goods imported from outside the State of U.P. for use in the execution of works contracts under the U.P. Trade Tax Act.
2. Applicability of Sections 3, 4, and 5 of the Central Sales Tax Act to the transactions in question.
3. Interpretation of the term "sale" and its implications on inter-State trade and commerce.

Issue-wise Detailed Analysis:

1. Taxability of Goods Imported for Works Contracts:
The opposite party, a Government of India enterprise, entered into a contract with Northern Railway for railway electrification works. The assessing authority taxed the value of goods imported from outside U.P. after adding 15% profit. The first appeal allowed the opposite party's claim, excluding these transactions from the gross turnover under Section 3-F(2)(b)(i) of the U.P. Trade Tax Act. The Tribunal upheld this decision, leading to the present revisions.

2. Applicability of Sections 3, 4, and 5 of the Central Sales Tax Act:
The learned Standing Counsel argued that the import and subsequent use of goods in the works contract were separate transactions, not covered by Sections 3, 4, and 5 of the Central Sales Tax Act. However, the court found no substance in this argument, referencing the apex court's decision in Gannon Dunkerley & Co. (1958) which held that there was no sale of goods in an indivisible works contract. The Forty-sixth Amendment to the Constitution and subsequent amendments to the U.P. Trade Tax Act were discussed, emphasizing that the State Legislature cannot impose tax on inter-State sales or sales in the course of import/export.

3. Interpretation of "Sale" and Inter-State Trade:
The court referred to the apex court's decisions in Builders Association of India v. Union of India (1989) and Gannon Dunkerley & Co. v. State of Rajasthan (1993), which clarified that the State Legislature cannot tax transactions constituting inter-State trade or commerce, outside sales, or sales in the course of import/export. The court highlighted that the movement of goods and the sale must be inseparably connected, irrespective of whether the sale precedes or follows the movement of goods.

Conclusion:
The court concluded that the transactions were covered by Section 3 of the Central Sales Tax Act. The goods were imported under specific contractual conditions, inspected by the railway's inspection body, and used in the works contract. The movement of goods was in pursuance of a prior contract of sale, making the transactions inter-State sales. The Tribunal's decision was upheld, and both revisions were dismissed.