2021 (9) TMI 470 - HC - VAT and Sales Tax

Works Contract - intra-State sales - three separate contracts for supply, design and erection of 100 TPD Rotary Kiln - turn over has been assessed under the CST Act - levy of penalty u/s12(5) of the Orissa Sales Tax Act, 1947 - whether the Tribunal erred in treating the transactions as an intra-State sale despite the Petitioner having paid CST on the same transaction? - HELD THAT - In BHARAT HEAVY ELECTRICALS LIMITED VERSUS UNION OF INDIA AND OTHERS 1996 (4) TMI 419 - SUPREME COURT , the Supreme Court was considering a similar question which arose in the background of Bharat Heavy Electrical Limited (BHEL) being awarded a Letter of Intent (LOI) by the National Aluminium Company Limited (NALCO), Bhubaneswar for setting up of five captive power plants (120 MW each) at its Aluminium smelter complex at Angul, Orissa. Pursuant to the LOI, BHEL instructed its several units in Haridwar, Jhansi, Bhopal, Bangalore, Ramachandrapuram (Andhra Pradesh- near Hyderabad), Ranipet and Tiruchi (Tamil Nadu) and so on to manufacture the requisite machinery and equipment. There was a separate supply and service contract executed between the parties. Merely because the component parts were brought from different places outside Orissa and assembled in Orissa, it cannot be said that it was an intra-State sale and that a colourable device was deployed to avoid paying sales tax under the OST Act. This is contrary to the facts. The documents placed on record clearly show that components either manufactured in the Petitioner s own facilities outside Orissa or brought from outside Orissa were transported to Orissa for erection, testing and commissioning of the 100 TPD Rotary Kiln - there was no occasion for the Tribunal to have gone into a lengthy discussion whether it amounted to a works contract when the focus ought to have been on whether it was an intra-State sale as contended by the State. The goods were indeed supplied in course of inter-State rate, and received by TRL in Orissa. The movement of the goods originated from outside the State. This was not an intra-Sate sale by any stretch of imagination. The Court is unable to agree with the conclusion reached by the authorities at all levels, i.e., STO, ACST - application disposed off.

Summary

Issues Involved:
1. Whether the transactions were intra-State sales or inter-State sales.
2. Whether the penalty imposed under Section 12(5) of the Orissa Sales Tax Act, 1947 should be deleted entirely.

Issue-wise Detailed Analysis:

1. Whether the transactions were intra-State sales or inter-State sales:

The primary contention was whether the three separate contracts for supply, design, and erection of a 100 TPD Rotary Kiln amounted to a works contract and an intra-State sale exigible to sales tax at 4%, despite the Petitioner having paid Central Sales Tax (CST) on the same transaction. The Sales Tax Officer (STO) and subsequent authorities concluded that the property in the complete equipment passed only after its successful commissioning in Orissa. The Full Bench of the Tribunal upheld this view, treating the transactions as intra-State sales, arguing that the goods were not sold as chattel qua chattel but were part of a composite works contract.

The High Court, however, disagreed with this conclusion. Citing the Supreme Court's decision in Bharat Heavy Electrical Limited v. Union of India (AIR 1996 SC 1854), the Court emphasized that the nature of the transaction should be determined based on whether the movement of goods originated from outside the state and whether the goods were indeed supplied in the course of inter-State trade. The Court observed that the components were manufactured or procured outside Orissa and transported to Orissa for assembly and commissioning, thus constituting an inter-State sale. The Court held that the Tribunal erred in treating the transactions as intra-State sales and concluded that the transactions were exigible under Section 6(2) of the CST Act.

2. Whether the penalty imposed under Section 12(5) of the Orissa Sales Tax Act, 1947 should be deleted entirely:

The second issue was whether the Tribunal was justified in not deleting the penalty imposed under Section 12(5) of the Orissa Sales Tax Act, 1947. The Tribunal had initially found that the conditions for imposing the penalty did not exist but did not delete the penalty entirely. The High Court, upon reviewing the Tribunal's findings, concluded that since the transactions were inter-State sales and not intra-State sales, the imposition of the penalty was unwarranted. Consequently, the Court held that the Tribunal was not justified in declining to delete the penalty in its entirety.

Conclusion:

The High Court set aside the orders of the STO, ACST, and the Tribunal, holding that the transactions were inter-State sales and not intra-State sales. The Court also held that the penalty imposed under Section 12(5) of the Orissa Sales Tax Act, 1947, should be deleted entirely. The revision petition was disposed of accordingly.