2008 (9) TMI 896 - HC - VAT and Sales Tax

Sales of ATMs - whetehr from Pondicherry to banks who are purchasers in Karnataka are local sales liable to tax under the KST Act and the KVAT Act? Held that - In the case on hand it is not a case of transfer of right to use the goods.It is also not a case of oral or implied transfer of the rights to use goods.There is a written contract between the parties for manufacture and supply of goods. The branch office at Bangalore, forwarded an order for transfer of goods upon receipt by them from the buyer to their factory at Pondicherry. The goods were manufactured according to the specifications of the buyer.Thereafter the goods were handed over to a carrier who delivered the goods at the buyer s place. The technicians at the registered office at Bangalore took delivery of the consignment at the buyer s place, opened the containers, checked and after it is found to be all right in all respects handed over the goods to the buyer. The buyer in turn has made the payment directly to the factory at Pondicherry. Though the goods for which orders were placed were not in existence at the time of placing of the orders, it is not a case of transfer of a right to use the goods. It is a case of sale of the goods. The placing of the orders occasioned the movement of the goods from Pondicherry to Bangalore. The goods, after they were manufactured, thus came into existence at Pondicherry and were moved to Bangalore. Therefore, it is immaterial where the goods were delivered. In this case, there is a movement of goods from one State to another in terms of a contract of sale. It is an inter-State sale. The situs of the sale or purchase is immaterial in respect of inter-State trade or commerce. If the sale or purchase occasioned the movement of goods from one State to another then it constitutes an interState sale and the State Legislature has no competence to tax such sale as the sale is taxed under the CST Act. The KST Act or the KVAT Act is not applicable to such sale. The impugned orders passed are therefore contrary to the settled legal position and the statutory provisions and the same cannot be sustained. Accordingly Writ petitions are allowed.

Summary

Issues Involved:
1. Classification of sales as inter-State or local sales.
2. Liability to pay tax under the Karnataka Sales Tax Act (KST Act) and the Karnataka Value Added Tax Act (KVAT Act).
3. Application of the Supreme Court's judgment in 20th Century Finance Corpn. Ltd. v. State of Maharashtra.
4. Availability of an alternate remedy by way of a statutory appeal.

Issue-wise Detailed Analysis:

1. Classification of Sales as Inter-State or Local Sales:
The petitioner contended that the sales of ATMs from Pondicherry to banks in Karnataka were inter-State sales, liable to tax under the Central Sales Tax Act (CST Act), and not local sales under the KST Act or KVAT Act. The respondent argued that the delivery of goods took place in Bangalore, making it a local sale.

The court examined the facts, noting that:
- Agreements were entered into with banks at their headquarters.
- ATMs were manufactured in Pondicherry and dispatched to bank branches in Karnataka.
- The bank authorities only took notional delivery, and the actual delivery was completed by the petitioner's engineers after inspection and certification.

Referring to several Supreme Court judgments, including Oil India Ltd. v. Superintendent of Taxes, English Electric Company of India Ltd. v. Deputy Commercial Tax Officer, and Union of India v. K.G. Khosla and Co. Ltd., the court reiterated that the decisive factor is whether the sale occasioned the movement of goods from one State to another. Since the movement of goods was an incident of the contract of sale, it constituted an inter-State sale.

2. Liability to Pay Tax under the KST Act and KVAT Act:
The respondent's reassessment orders held that the sales were local and thus liable to tax under the KST Act and KVAT Act. The petitioner argued that they had already paid tax under the CST Act and entry tax when bringing ATMs into Karnataka.

The court found that the petitioner was liable to pay tax under the CST Act for inter-State sales, not under the KST Act or KVAT Act. The movement of goods from Pondicherry to Bangalore was a result of the contract of sale, making it an inter-State sale.

3. Application of the Supreme Court's Judgment in 20th Century Finance Corpn. Ltd. v. State of Maharashtra:
The respondent applied the ratio of the 20th Century Finance case, concluding that the delivery of goods in Bangalore made it a local sale. The petitioner contended that this judgment was misapplied.

The court clarified that the 20th Century Finance case dealt with the transfer of the right to use goods, not the sale of goods. The court emphasized that the correct application of the law, as established in previous Supreme Court judgments, indicated that the sale in question was an inter-State sale.

4. Availability of an Alternate Remedy by Way of a Statutory Appeal:
The respondent argued that the petitioner should have pursued an appeal instead of filing a writ petition. The court acknowledged the availability of an alternative remedy but chose to entertain the petitions due to the substantial tax liability and the settled nature of the law.

Conclusion:
The court concluded that the sales in question were inter-State sales, not local sales, and thus not liable to tax under the KST Act or KVAT Act. The impugned reassessment orders were quashed.

Order:
1. Writ petitions are allowed.
2. The impugned orders are quashed.
3. No costs.