2023 (8) TMI 403 - HC - VAT and Sales Tax

Refund claim - illegal deduction and recovery from the bills of the petitioner as advance Value Added Tax - manufacture and supply of the goods by the petitioner to the Railways was an inter-state sale - not exigible to sales tax within the State of Bihar either as a sale of goods or as a works contract - Section 40 and 41 of the Bihar Value Added Tax Act, 2005 - HELD THAT - A Division Bench of the Hon ble Supreme Court also examined the very same position in HYDERABAD ENGINEERING INDUSTRIES VERSUS STATE OF ANDHRA PRADESH 2011 (3) TMI 1427 - SUPREME COURT . Therein the appellant, a registered dealer within the State of Andhra Pradesh was engaged in the manufacture and sale of electrical and other consumer items and they entered into an agreement with another company for marketing and sale of their products. The appellant, pursuant to orders of sale issued by the other company, the agent, transported the products to the various depots belonging to themselves from where the agent collected the goods and delivered it to the ultimate purchaser. The assesse-appellant claimed it as a branch transfer. The Hon ble Supreme Court found favour with the order of the Assessing Officer, which found it to be an inter-state sale exigible to tax under the CST Act. In the present case also the contract is one for manufacture and transportation of pre-stressed concrete slabs and RCC Ballast Retainers of precise and particular specification. There is no works contract involved and it is only a sale pure and simple of goods manufactured by the petitioner, who has been awarded the contract; which is only for manufacture and sale - The transaction is purely of an inter-state sale of goods and is not a works contract nor a sale of goods exigible to tax within the State of Bihar. The sale of goods as per Annexure-2 and Annexure-5 agreements constitute an inter-state sale not exigible to tax within the State of Bihar. The Railways had made a deduction on the ground that it is a works contract; which are negatived. The Railways is bound to refund the illegal tax deduction made from the bills to the petitioner contractor. The Railways could definitely apply for refund from the Bihar Value Added Tax Department. The refund granted, but, confined to the deductions made three years prior to the date of registration of the above writ petition which is on 14.05.2012; giving effect to the limitation as prescribed for recovery of money under the Limitation Act. The Railways shall refund the amounts with 6% interest within a period of 4 months from the date of receipt of the certified copy of this judgment. If the refund is not granted within that time then the interest shall run at the rate of 12% from the date of expiry of the 4 month period. Petition allowed.

Summary

Issues:
The issues involved in the judgment are the applicability of Value Added Tax (VAT) Act on inter-state sale transactions, determination of whether the transaction constitutes a works contract, and the legality of tax deductions made by the Railways.

Applicability of VAT Act:
The petitioner sought a refund of an amount deducted under the VAT Act, claiming that the Act does not apply to their inter-state sale transactions with the Railways. The agreements entered into by the petitioner with the Railways involved the manufacture and supply of specific goods, and the petitioner contended that these transactions were inter-state sales not subject to VAT within Bihar. The Court examined the agreements and concluded that they constituted pure and simple manufacture and sale of goods, not works contracts. Citing relevant legal precedents, the Court determined that the transactions were inter-state sales not exigible to tax within Bihar.

Works Contract Analysis:
The Railways argued that the deductions made were proper as the transaction was a works contract executed within Bihar. However, the Court found that the agreements between the petitioner and the Railways were solely for the manufacture and sale of goods, with no works contract involved. The Court emphasized that the movement of goods from one state to another, pursuant to a contract of sale, is a key element in determining inter-state sales. The Court held that the transactions in question were inter-state sales, not works contracts, and ordered the Railways to refund the deducted amounts to the petitioner.

Legal Precedents and Refund Direction:
The Court referenced legal cases to support its findings on inter-state sales and works contracts. It directed the Railways to refund the deducted amounts to the petitioner, emphasizing that the Railways could seek refund from the Bihar Value Added Tax Department. The Court also addressed the Railways' argument regarding arbitration, stating that the dispute was not arbitrable as it involved the nature of the transaction. The Court ordered the Railways to refund the deducted amounts with interest, setting a timeline for the refund process and specifying the consequences of non-compliance. The writ petition was allowed with the given directions.