2017 (10) TMI 606 - HC - VAT and Sales Tax

Levy of tax - Subsequent sale - Form C - Whether Commercial Tax Tribunal was legally justified in deleting the amount of tax on otherwise subsequent sale as provided u/s 3b read with Section 6(2) of Central Sales Tax Act and according to the provisions of 9(1) proviso the State of U.P. where the dealer is registered and from where form-C has to be issued, State of U.P. has power to levy tax on such kind of central sale? Held that - once the contract was given over for execution to sub-contractors, there was no transfer of property in goods by the principal contractor nor would it be permissible to view the subcontracting as involving a re-transfer - the property in such contract passes by accretion. The Court is of the considered view that once the transaction had been taxed in the hands of the sub-contractors, no subsequent transfer of property in goods occurred so as to warrant the Department taking the position that there was a subsequent sale - revision dismissed.

Summary

Issues:
1. Interpretation of provisions of Central Sales Tax Act regarding subsequent sale and tax liability.
2. Application of Section 9 and its proviso to the facts of the case.
3. Determination of subsequent sale and transfer of property in goods in a contractual arrangement involving sub-contractors.

Issue 1: Interpretation of provisions of Central Sales Tax Act regarding subsequent sale and tax liability:
The revisionist challenged the Tribunal's order questioning the deletion of tax on a subsequent sale under Section 3b and Section 6(2) of the Central Sales Tax Act. The respondent-assessee, a contractor for solar panel supply, subcontracted to firms in other states. The Tribunal noted that sub-contractors paid central sales tax. The revisionist argued that the assessee, having received consideration and Form-C, should be taxed under the proviso to Section 9. However, the respondent contended that Section 9 did not apply as goods never entered the State of U.P. and were taxed in the hands of sub-contractors.

Issue 2: Application of Section 9 and its proviso to the facts of the case:
The Court analyzed whether Section 9 or its proviso applied to the case. It found that as goods did not enter U.P., Section 9(1) did not apply. The proviso, which triggers on a subsequent sale, was also examined. The Court noted that the proviso requires an actual subsequent transfer of property in goods. It cited a Supreme Court ruling on works contracts, emphasizing that property transfer occurs when goods are incorporated, and subcontractors effect this transfer, not the principal contractor. Therefore, no subsequent sale took place in this case.

Issue 3: Determination of subsequent sale and transfer of property in goods in a contractual arrangement involving sub-contractors:
The Court concluded that as the sub-contractors, as registered dealers, paid taxes on goods, no subsequent transfer of property occurred from the assessee to warrant a subsequent sale. Following the Supreme Court's precedent, the Court held that property passed by accretion to sub-contractors, and no re-transfer was involved. Therefore, the Department's challenge to the Tribunal's order failed, and the revision was dismissed.

In summary, the Court clarified the application of the Central Sales Tax Act provisions, particularly Section 9 and its proviso, in a case involving subcontracting of solar panel supply. By analyzing the lack of goods entry in U.P. and the absence of a subsequent transfer of property, the Court upheld the Tribunal's decision, emphasizing the principles laid down by the Supreme Court regarding property transfer in subcontracting arrangements.