2007 (11) TMI 581 - HC - VAT and Sales Tax

Inter-State sales originated from Pondicherry to the State of Bihar in execution of works contract - whether are exigible to sales tax to Pondicherry jurisdiction under Central Sales Tax Act, 1956? Held that - As noticed, the goods in question which was sent from Pondicherry to Bihar are admittedly iron and steel being declared goods under section 14 of the Central Sales Tax Act, 1956 and the same was taxed under the provisions of section 5 of the Act. Further, at the time of movement of goods from Pondicherry to Bihar, no proper mechanism was evolved under the local law for assessment in respect of the works contract. Therefore, the order of assessment passed by the assessing authority is illegal, arbitrary and cannot be sustained in law. For the reasons aforesaid, this application is allowed and the impugned order of assessment is set aside. It is held that no further sales tax is payable in respect of the goods in question used in the works contract.

Issues Involved:
1. Taxability of inter-State sales in the execution of works contracts.
2. Applicability of single-stage tax on declared goods under the Central Sales Tax Act, 1956.
3. Validity of assessment in the absence of a proper mechanism for works contracts.

Issue-wise Detailed Analysis:

1. Taxability of Inter-State Sales in Execution of Works Contracts:
The petitioner contended that inter-State sales from Pondicherry to Bihar for executing a works contract should be taxed under Pondicherry jurisdiction as per the Central Sales Tax Act, 1956. The petitioner relied on the Supreme Court judgment in *Gannon Dunkerley and Co. v. State of Rajasthan* [1993] 88 STC 204, which held that goods used in the execution of works contracts cannot be included in the gross taxable turnover of the state where they are sent. The respondents argued that two independent sales occurred: one between the Pondicherry unit and the petitioner, and the other between the petitioner and the Railway in Bihar, making the latter an intra-State sale taxable under the Bihar Finance Act, 1981. The Court concluded that the goods in question were declared goods and had already been taxed in Pondicherry. Therefore, no further tax could be levied in Bihar.

2. Applicability of Single-Stage Tax on Declared Goods:
Petitioner argued that iron and steel, being declared goods under Section 14 of the Central Sales Tax Act, 1956, can only be taxed once at a rate of 4% as per Section 15 of the Act. The petitioner provided a certificate from the Commercial Tax Department of Pondicherry confirming that the goods had already been taxed. The respondents did not dispute that the goods were declared goods and had been taxed in Pondicherry. The Court held that since the goods had already suffered tax in Pondicherry, no further tax could be imposed under the provisions of Section 15 of the Central Sales Tax Act, 1956.

3. Validity of Assessment in Absence of Proper Mechanism for Works Contracts:
The petitioner argued that no assessment could be made for the works contract in the absence of a proper mechanism, citing the Patna High Court judgment in *Larsen & Toubro v. State of Bihar* [2004] 134 STC 354, which was affirmed by the Supreme Court in *State of Jharkhand v. Voltas Ltd.* [2007] 7 VST 317. The respondents did not provide a proper mechanism for assessing works contracts during the relevant period. The Court agreed with the petitioner, stating that without a proper mechanism, the assessment orders were illegal and arbitrary.

Conclusion:
The Court allowed the writ petition, setting aside the impugned order of assessment. It was held that no further sales tax was payable on the goods in question used in the works contract. The decision was based on the fact that the goods were declared goods, had already been taxed in Pondicherry, and there was no proper mechanism for assessing works contracts during the relevant period.

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