2013 (7) TMI 492 - HC - VAT and Sales Tax

Works contract - interstate movement of goods - local sale or CST - agglomeration of the goods to the immovable property - Exemption u/s 3-B(2)(a) of the Tamil Nadu General Sales Tax Act - Tribunal held sales as local sales - Held that - customers placed order in the Branch Office in Tamil Nadu and only the Branch Office forwarded the order to the factory at Ghaziabad, wherein, lifts are manufactured according to the specifications of the customers and the factory at Ghaziabad after manufacturing the lifts, dismantled them and stock transferred them in parts to Branch Office in Tamil Nadu - What the Branch Office did was to send technician for the purpose of installation and erection, testing and commissioning of the lifts in the customer s site. The Tribunal failed to see that the consignee name is mentioned as ECE Industries Limited care of clients address in the delivery invoice only to indicate that the same is meant for customer s site and not despatched to the Branch Office. As the sale is already effected and as the manufacture of the lift at Ghaziabad is only in pursuance of job order evidencing interstate sales, the question of further sale by branch office does not at all arise herein. The Tribunal has erroneously arrived at the conclusion that the goods were sent to the Branch Office at Tamil Nadu, and it is only the Branch Office, who in turn effected sale to the ultimate customer, thereby, treated the disputed transaction as pure and simple local sales - there are sufficient materials to show that the nature of the transaction is interstate sales cum works contract - Following decision of STATE OF KARNATA AND OTHERS v. ECE INDUSTRIES LIMITED 2004 (11) TMI 518 - KARNATAKA HIGH COURT - Decided in favour of Assessee.

Issues Involved:

1. Classification of turnover as "sale" under section 3(2) of the Act.
2. Definition and treatment of "works contract" under section 2(u) of the Act.
3. Characterization of the transaction as inter-state movement of goods.
4. Determination of the nature of the transaction concerning Central Sales Tax.
5. Authority of the Appellate Tribunal to refix the taxable turnover.
6. Maintainability of the respondent's appeal in view of a statutory circular.

Issue-wise Detailed Analysis:

1. Classification of Turnover as "Sale" under Section 3(2) of the Act:
The Appellate Tribunal treated the entire turnover related to the designing, manufacturing, supply, erection, installation, testing, and commissioning of lifts/elevators as a "sale" under section 3(2) of the Act. This classification was contrary to the findings of the assessing officer and the First Appellate authority, which were based on the factual circumstances of the case. The Tribunal's decision was based on grounds that were neither raised nor argued by the respondent.

2. Definition and Treatment of "Works Contract" under Section 2(u) of the Act:
The Tribunal ignored the definition under section 2(u), which includes designing, manufacturing, supplying, erection, installing, testing, and commissioning of lifts/elevators as per customer specifications. The parts were brought to the customer site, and the contract was executed there, resulting in the agglomeration of goods to the customer's immovable property. This process did not constitute an outright "sale" under section 2(n) of the Act.

3. Characterization of the Transaction as Inter-State Movement of Goods:
The Tribunal overlooked the finding that the goods were manufactured in Ghaziabad, Uttar Pradesh, and were earmarked specifically for the customer, as indicated by the job number in the delivery challan and lorry receipt. This indicated an inter-state movement of goods, not taxable under the Local Act. The Tribunal's decision contradicted the established nexus between the work order and the movement of goods from outside Tamil Nadu.

4. Determination of the Nature of the Transaction Concerning Central Sales Tax:
The Tribunal erroneously rejected the submission that the payment of Central Sales Tax is not a test for determining whether the sale was an inter-state sale under the Central Sales Tax Act, 1956, or an intra-state sale under the Tamil Nadu General Sales Tax Act, 1959. This was in the absence of enabling provisions under the Central Sales Tax Act, 1956, until 2002, to tax "works contract," as held by the Apex Court.

5. Authority of the Appellate Tribunal to Refix the Taxable Turnover:
The Tribunal directed the assessing officer to reassess the turnover as an outright sale under section 3(2) of the Act, which amounted to a revision of the assessment on the turnover for the assessment year 2000-01. This action was barred by limitation under section 16 of the Act, as no petition was filed by the respondent pending the appeal.

6. Maintainability of the Respondent's Appeal in View of a Statutory Circular:
The Tribunal did not consider the statutory circular issued under section 28A of the Act, which affected the maintainability of the respondent's appeal.

Conclusion:
The High Court found that the Tribunal erroneously classified the transactions as local sales instead of inter-state works contracts. The goods were manufactured and dispatched from Ghaziabad based on specific customer orders, indicating an inter-state sale. The Tribunal's decision was set aside, and the assessee was entitled to the claimed deduction under Section 3-B(2)(a) of the Tamil Nadu General Sales Tax Act. The Tax Case (Revision) was allowed, and the Tribunal's order was reversed.

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