2018 (4) TMI 751 - HC - VAT and Sales Tax

Stay against recovery of tax during pendency of appeal - works contract - local sale or export sale - Maharashtra Value Added Tax Act 2002 - whether the present transaction is covered by this exception carved out in section 8? - Held that - The tribunal holds that both parties in the present case are situate and registered in the State of Maharashtra. The goods have moved from the State of Maharashtra as per the contract executed between them. Therefore there is a sufficient nexus to hold that the impugned sales are liable to tax under the provisions of the MVAT Act. In any event only those goods have been considered for the purpose of levy of tax which have moved from the State of Maharashtra. This was a highly debatable issue. If the tribunal was required to refer to not only the legal principles but whether they are applicable will have to be eventually determined on the basis of the terms and conditions of the contract then in the given facts and circumstances of the case there was no reason to impose any condition of part payment - an unconditional stay of recovery pending disposal of the appeal is justified. Petition allowed.

Issues Involved:
1. Legality of the interim order of the tribunal directing the petitioner to make part payments as a pre-condition for stay of tax recovery.
2. Determination of whether the transactions in question are subject to Maharashtra Value Added Tax (MVAT) or are exempt as sales in the course of export.
3. Applicability of the nexus theory in determining the taxability of goods used in the execution of a works contract beyond territorial waters.

Issue-wise Detailed Analysis:

1. Legality of the Interim Order of the Tribunal:
The petitioner challenged the tribunal's interim order dated 11th August 2017, which directed the petitioner to pay ?8 crores for the period 2009-10 and ?4 crores for the period 2010-11 as a pre-condition for a stay against tax recovery pending the statutory appeal. The petitioner argued that the order suffers from a patent error of law, as it overlooks the fact that the works contract was performed beyond 12 nautical miles. The tribunal's decision was criticized for not considering the specific terms and conditions of the contract and for imposing a heavy financial burden on the petitioner.

2. Determination of Taxability under MVAT or Exemption as Export Sales:
The petitioner, engaged in offshore oil and gas exploration and other construction activities, was awarded a works contract by ONGC for a pipeline replacement project. The petitioner argued that the goods used in the execution of the contract were imported directly to the offshore platform and never crossed the customs frontiers of India, thus not liable to MVAT. The assessment orders for the periods 2009-10 and 2010-11 disallowed the petitioner's claim that the sales were in the course of export under Section 5(1) of the CST Act, treating the transactions as taxable local sales in Maharashtra. The petitioner contended that the first appellate authority and the tribunal failed to consider the nature of the transaction and the terms of the contract, which indicated that the transfer of property occurred beyond Maharashtra's territorial waters.

3. Applicability of the Nexus Theory:
The tribunal applied the nexus theory, concluding that the goods moved from Maharashtra and were liable to tax under the MVAT Act. The petitioner argued that the tribunal's reliance on the case of Raj Shipping vs. State of Maharashtra was misplaced, as the facts were distinct. The petitioner emphasized that the contract involved the transfer of property in goods beyond 12 nautical miles, and the materials were not sold within Maharashtra. The tribunal's decision was challenged for not considering the specific terms of the contract and the legal principles established in the case of Commissioner, Delhi Value Added Tax vs. ABB Limited, which dealt with similar issues of inter-state and export sales.

Conclusion:
The High Court found that the tribunal's decision to impose part payment as a pre-condition for stay was not justified given the complex legal issues involved. The court noted that the tribunal should have granted an unconditional stay of recovery pending the final decision on the appeal. The court emphasized that the determination of whether the transactions were taxable in Maharashtra required a deeper consideration of the contract terms and the legal principles related to works contracts and export sales. The writ petition was allowed, quashing the tribunal's interim order and directing the tribunal to decide the matter finally within four months. The court clarified that it had not expressed any final opinion on the merits of the case, leaving the tribunal to make an independent determination.

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