2024 (1) TMI 177 - HC - VAT and Sales Tax

Inter state sale or intra state sale - Validity of directions beyond the scope of the questions framed and referred - goods of special importance under Section 14 of the CST Act - deletion of penalty despite of the fact that the assessee has created documents to convert the local sale into interstate transaction with the intention to evade/avoid tax. Whether the sale of goods involved in the present case were inter-state sales or intra-state sales? HELD THAT - In the considered opinion of this Court, the RTB, after careful consideration of the entire record, had rightly concluded the contract to be a composite and indivisible EPC works contract on turnkey basis. The observation by the RTB, are in content and form, flawless and thus this Court has no hesitation in affirming the view taken by RTB in this regard. The contract was a composite and indivisible EPC works contract. In the simplest of terms, RVUNL was to receive the final thermal power project which was to be erected by the assessee for which the assessee was to receive a fixed consideration. It is not a case where there was sale of individual goods to the RVUNL. Though the goods were specially designed to be used in the power project, the point of transfer of such goods is what is relevant for determining whether the title to the goods transferred to RVUNL during movement of goods from one state to another. The assessee contends that the title to the goods transferred to the assessee outside the State of Rajasthan, upon issuance of MDCC or other like documents - In the case in hand, the pre-dispatch inspection and issuance of MDCC, in view of terms of contract, did not serve the purpose of transfer of goods. This unequivocally establishes that there was no transfer of title of goods after their inspection and/or issuance of MDCC or any like document. The intent of the parties is quite clear. The clauses of Final Handing Over , Project Schedule , Liquidated Damages , Warranty , Insurance , Completion of Contract , the project import certificate letter dated 06.07.2009, etc. clearly reveal that under the present works contract, the complete unit/power project would be transferred by assessee to RVUNL. Further, as per SOG Act, the goods are said to be transferred only when they are put into deliverable state by the contractor as per the terms and conditions of contract. The transfer in the case was of entire thermal power project. The title to the goods involved in the execution of works contract also, accordingly, only transferred to RVUNL upon completion of contract and upon final handing over of the project as the goods had been subjected to some process to be accommodated in the power project - In the present case, the goods claimed to be sold by the assessee to be part of inter-state sales were not sold to the RVUNL as goods, but utilized in erection of the thermal power project. Since the erection of thermal power project in the state of Rajasthan can only be termed as an intra-state transaction, the property in goods used in such erection, whether as goods or as some other form, would constitute an intra-state sale and accordingly be subject to RVAT. The assessee has relied on several judgments, however none of those judgment deals with EPC works contract where there is a transfer of entire project. The judgment of COMMISSIONER, DELHI VALUE ADDED TAX VERSUS M/S. ABB LTD. 2016 (4) TMI 534 - SUPREME COURT , being on different facts, has rightly been distinguished by the RTB with sufficient reasons and it is not deemed necessary to reproduce those reasons here again. The questions of law framed are answered in favour of the Revenue and against the assessee.

Issues Involved:
1. Whether the contracts between the assessee and RVUNL were composite and indivisible, tantamounting to a works contract.
2. Whether the sale of Onshore and Offshore Goods by the assessee to RVUNL was intra-state or inter-state.
3. Whether the Respondent Department is estopped from contending that the sale of goods was made by BGR Rajasthan to RVUNL in Rajasthan.
4. Whether the State of Rajasthan can levy RVAT on a sale transaction assessed under CST Act in other states.
5. Whether the larger bench of the Rajasthan Tax Board exceeded its jurisdiction in giving directions beyond the scope of questions framed.
6. Whether the directions regarding goods of special importance under Section 14 of the CST Act were justified.
7. Whether the deletion of penalty by the RTB was justified.

Summary:

Issue 1: Composite and Indivisible Contract
The court held that the contracts between the assessee and RVUNL were a composite and indivisible works contract. The separation into three contracts was for payment convenience and did not dilute the responsibility of the assessee to complete the project on a turnkey basis. The RTB's conclusion that the contract was a single, composite, and indivisible works contract was affirmed.

Issue 2: Nature of Sales (Intra-state vs. Inter-state)
The court determined that the sale of goods involved in the execution of the works contract was intra-state and taxable under the RVAT Act. The title to the goods transferred to RVUNL upon completion of the contract, not during their movement from other states. The RTB's finding that the sales were intra-state and taxable under RVAT was upheld.

Issue 3: Estoppel of the Respondent Department
The court did not find merit in the argument that the Respondent Department was estopped from contending the sales were made by BGR Rajasthan to RVUNL in Rajasthan. The nature of the transaction, as determined, attracted RVAT applicability regardless of previous assessments under CST.

Issue 4: Levy of RVAT on Transactions Assessed under CST in Other States
The court held that the nature of the transaction attracted RVAT, and the assessee could not be absolved of liability to pay RVAT merely because tax was paid under a different statute in other states. The issuance of forms under CST or RVAT Rules did not affect the nature of the transaction.

Issue 5: Jurisdiction of RTB in Giving Directions
The court found that the RTB exceeded its jurisdiction by giving directions beyond the scope of the questions framed. The directions of remand were set aside as they were beyond the scope of pleadings and not argued before the RTB or lower authorities.

Issue 6: Directions Regarding Goods of Special Importance
The court set aside the RTB's directions of remand for recalculating tax on goods of special importance, as these directions were beyond the scope of pleadings and not claimed by the assessee.

Issue 7: Deletion of Penalty
The court upheld the RTB's decision to set aside the penalty, considering the issue involved a pure question of interpretation of statutes and one of the parties was an extended arm of the State. The deletion of penalty was found justified.

Result:
The questions of law framed in STR Nos. 217-219/2020 (preferred by the assessee) were answered in favor of the Revenue. The questions of law nos. 1-3 in STR Nos. 155-157/2020 (preferred by revenue) were answered in favor of the Revenue, while question of law no. 4 regarding penalty was answered in favor of the assessee. The RTB's order was modified to set aside the remand directions, but the rest of the order was maintained.

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