2020 (10) TMI 632 - HC - VAT and Sales Tax

Levy of tax within the state - Interstate sale or an interstate works contract? - transaction carried out by the respondent-assessee, pursuant to a contract entered into with M/s.KMC Construction Ltd. - HELD THAT - The works contract executed by the respondent-assessee is an interstate works contract and the State of Kerala, merely for the reason that the plant was erected within the State, cannot levy tax on the transfer of goods in the form of goods or in any other form by accretion of such goods in the works; when the goods were sourced from abroad and another state, the latter of which was taxed in the State from which the purchase was made. The question is answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Determination of whether a transaction is an interstate sale or an interstate works contract for tax purposes.

Analysis:
The main issue in this case before the Kerala High Court was to decide whether the transaction carried out by the respondent-assessee with M/s.KMC Construction Ltd. constituted an interstate sale or an interstate works contract, thereby impacting its tax liability within the State. The respondent-assessee had entered into a contract with M/s.KMC Construction Ltd. for the delivery and erection of a 3 stage-Nordwheeler Plant, where materials were sourced from Singapore and Calcutta and brought into the State in a knocked-down condition for erection at the site. The Intelligence Officer initially considered it a works contract, leading to a tax liability within Kerala. The First Appellate Authority upheld this view, but the Tribunal later ruled in favor of the assessee, deeming it an interstate works contract.

Upon examination of the contract and invoices, the High Court concurred with the Tribunal's decision. The goods were predominantly sourced from outside the State and had already incurred tax during their interstate movement. The respondent-assessee, operating as a branch with its Head Office in Delhi, was engaged in an interstate works contract for the delivery and erection of the plant. The Court referenced a previous Division Bench decision in Siemens Ltd. v. State of Kerala, which clarified the taxability of goods transfer in works contracts. It emphasized that the origin of goods just before their incorporation into the works did not affect tax liability, especially when goods were sourced externally.

In conclusion, the High Court determined that the works contract executed by the respondent-assessee qualified as an interstate works contract. The mere fact that the plant was erected within Kerala did not warrant tax imposition on the transfer of goods, considering they were sourced from abroad and another state, which had already been taxed appropriately. The Court rejected the revision, upheld the Tribunal's decision, and ruled in favor of the assessee against the Revenue, thereby settling the tax liability issue in this case.