2021 (11) TMI 165 - HC - VAT and Sales Tax

Works Contract - deemed sale or not - inter-state trade - subject sales/deemed sales fall within the ambit of Section 3(a) and Section 5(2) of the CST Act or not - HELD THAT - The issue involved in the present writ petition being covered by the decision rendered by this Court in M/S. LARSEN AND TOUBRO LTD. VERSUS STATE OF ANDHRA PRADESH REP. BY ITS PRINCIPAL SECRETARY (REVENUE) , HYDERABAD AND OTHERS 2015 (12) TMI 470 - ANDHRA PRADESH HIGH COURT , there is no need for this Court to delve into the details of the case. Further, by the counter-affidavit filed by the respondents, it has been specifically admitted by the respondents that the contractees with whom the petitioner had entered into contracts for execution of works also had given list of suppliers/manufacturers from whom the petitioner is required to obtain goods for being used in execution of the works contract; and that the said goods are non-standard goods - Thus, this court is of the view that the principle enunciated in M/s.LARSEN AND TOUBRO LIMITED s case would squarely apply to the case on hand, as the movement of goods from other States and outside the country had occasioned as a result of covenant of contract entered into by the petitioner with its contractees and such purchases by the petitioner in the course of inter-State trade are integrally connected with use of the same in execution of works contract. Also no such material has been placed on record by the 3rd respondent while revising the order of assessment denying the claim of the petitioner that the subject transactions are covered under Section 3(a) or 3(b) of the CST Act. The impugned order passed by the 3rd respondent, is hereby set aside, and the matter is remitted back to the revisional authority to pass orders afresh - petition allowed by way of remand.

Summary

Issues involved:
Challenge to Revision Order in CCTs Reference No.LV1/375/2010 under the Telangana Value Added Tax Act, 2005 based on classification of works contract, movement of goods from other States, and tax liability under the Central Sales Tax Act, 1956.

Analysis:
The petitioner challenged the Revision Order in CCTs Reference No.LV1/375/2010, which revised the Assessment Order under the Telangana Value Added Tax Act, 2005. The petitioner argued that works executed during the period in question were classifiable as works contracts, declared in monthly returns. Goods purchased from specified vendors in other States were tailor-made for the contracts, with movement into the State for exclusive use in contracts. The petitioner contended that such movement of goods was integral to works contract execution and should not be treated as separate 'purchase' and 'sale' transactions, contrary to the CST Act. The Revision Order subjected inter-State trade purchases to tax under the VAT Act, which the petitioner challenged as lacking legal authority.

The respondents claimed two sets of transactions: the first involving purchase and sale from outside State dealers, liable to CST Act tax, and the second involving deemed sale during works contract execution, liable under the VAT Act. The respondents argued that the Revision Order correctly revised the Assessment Order, which erroneously granted exemption to the petitioner. The respondents contended that the termination of goods movement by the petitioner in the State resulted in distinct transactions, justifying tax under the CST Act and VAT Act for different stages of the process.

During the proceedings, the petitioner filed I.A.No.1 of 2021, referencing a judgment in a similar case. The respondents acknowledged that the issue was not new, suggesting a remittance of the matter back to the revisional authority for fresh orders in line with the legal precedent. The Court noted the agreement between the parties on the applicability of the legal principle established in the referenced judgment. The Court further emphasized the connection between goods movement and works contract execution, rejecting the artificial division of transactions unless proven independent. The lack of material supporting the revision and deviation from previous Tribunal decisions were highlighted, leading the Court to align with the legal stance from the referenced judgment.

Ultimately, the Court allowed the Writ Petition, setting aside the impugned Revision Order and remitting the matter for fresh orders in line with the legal principles established in the referenced judgment. The Court emphasized the need for a coherent application of the law regarding sales and deemed sales under the CST Act and VAT Act, ensuring the petitioner's right to a personal hearing in the revised assessment process.