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TMI Blog1996 (4) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... tified. The dispute is not only between BHEL and the States, it is also, in a sense, a dispute between the State inter se. Thus the matter remitted to the Tribunal. It is made clear that we have not expressed any opinion on the merits of these appeals. X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." Clause (1) places a restriction upon the power of the State Legislatures to levy taxes on sale or purchase of goods; a State cannot levy tax on a sale which takes place outside that State nor can it tax a sale or purchase taking place in the course of import into or export out of India. Clause (2) empowers the Parliament to formulate principles for determining when a sale takes place outside a State or in the course of import or export, as the case may be. Clause (3) places certain restrictions on the State Legislatures in the matter of system of levy and rate, etc., in respect of certain goods and transactions. Article 269 specifies the duties and taxes levied and collected by the Government of India but assigned to the States in the manner provided therein. Among the several duties and taxes specified in clause (1) is the tax mentioned under sub-clause (g)-"taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce". Clause (2) of article 269 provides that the net proceeds in any financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another." Section 4 specifies when does a sale or purchase take place outside a State. Sub-section (1) of section 4 says that where a sale or purchase of goods is determined in accordance with sub-section (2) (of section 4) to have taken place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. Sub-section (2) sets out when shall a sale or purchase of goods be deemed to have taken place inside a State. It is obvious that section 4 has been enacted to give effect to article 286(1)(a) read with clause (2) of the said article. Section 4 reads: "4. When is a sale or purchase of goods said to take place outside a State.-(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State- (a) in the case of sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, no tax is levied on inter-State purchases. Clause (2) of article 269, inter alia, provides that "the net proceeds in any financial year of any such duty or tax.....shall be assigned to the State within which that duty or tax is leviable in that year". It is, therefore, extremely important, from the States' point of view, in which State is the Central sales tax leviable-for it is to that State that the tax so collected ultimately goes back, notwithstanding the fact that the tax is levied and collected by the Central Government. The Central Sales Tax Act has not created a machinery of its own to assess and collect the tax levied by it. It has entrusted the job in each State to the machinery created by the State sales tax enactment [section 9(2)]. The Central sales tax leviable in that State will be collected by that machinery, no doubt for and on behalf of the Central Government, which will, of course, make it over to that State as contemplated by article 269. The provision in the Central Sales Tax Act giving effect to the said provision in article 269(2) of the Constitution is sub-section (1) of section 9, as it stands now. The sub-section reads: "9. Levy and collection of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate State by the Government of India in the manner provided in sub-section (2)." (Emphasis added). It is thus clear that as originally enacted it was clause (a) in section 2 and in particular, the Explanation appended thereto which specified the State in which the duty or tax was leviable within the meaning of article 269(2). By the Central Sales Tax (Second Amendment) Act, 1958, the Explanation to clause (a) in section 2 was omitted with effect from October 1, 1958, and simultaneously section 9 was substituted. Sub-section (1) of section 9, as substituted by the said Amendment Act, read: "9. Levy and collection of tax and penalties.-(1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter- State trade or commerce, whether such sales fall within clause (a) or clause (b) of section 3, shall be levied and collected by the Government of India in the manner provided in sub-section (3) in the State from which the movement of the goods commenced: Provided that in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods, the tax shall, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing approach: Central sales tax is levied and collected by the Central Government; it is immaterial in which State it is collected; it cannot be levied or collected twice over; the State Governments are merely agents of the Central Government in the matter of levy and collection of Central sales tax; if so, once levied and collected in one State, rightly or wrongly, it cannot be levied and collected in another State. In our opinion, this may be an over-simplification of the matter. May be, from the point of view of the assessee, this approach is sound enough but from the point of view of the States (keeping article 269 in mind) and the provisions of the Central Sales Tax Act, this may not be correct. Section 9(1) specifies the State wherein Central sales tax shall be levied and collected and the Central sales tax has to be levied and collected in that State and in no other State. The approach of the Bombay High Court makes section 9(1) [which is enacted pursuant to section 269(2), as pointed out hereinabove] otiose and superfluous. It would not be proper to say, in the light of above constitutional and statutory provisions, that the dispute as to in which State is a particular in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up of five captive power plants (120 MW each) for the aluminium smelter complex at Angul, Orissa, for the National Aluminium Co. Ltd., Bhuvaneshwar (NALCO), which too is a public sector undertaking. The facts relating to this contract are the following: On August 1, 1981, NALCO invited tenders for the said work. BHEL also submitted its tender. It was accepted. NALCO issued a letter of intent (LOI) on June 3, 1982, specifying the time- schedule for the work. The units were to be made ready for commercial operation between March, 1985 and November, 1986. Pursuant to the LOI, BHEL commenced the work. It instructed its several units to manufacture the requisite machinery and equipment. Formal contracts, viz., supply contract and service contract were entered into much later, i.e., on March 15, 1985. The contract price under the supply agreement is Rs. 295.37 crores. The supply contract specifies the price of each of the major items of machinery/equipment separately. It also provides the manner in which the contracted price was payable by NALCO. Now, what happened is this: Tiruchi unit, it appears, is engaged mainly in the manufacture of boiler systems. It was designated as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not agree. Similar stand was taken by other States as well and assessment proceedings were in progress in various States. It is at that stage that BHEL approached this Court by way of Writ Petition (Civil) No. 1608 of 1987 under article 32 of the Constitution complaining that more than one State is taxing the same sale under the provision of the Act, which is making its functioning difficult. It submitted that such simultaneous taxing is creating an uncalled for financial burden upon it. It requested the court to give appropriate directions to ensure that an inter-State sale is not taxed by more than one State. When the writ petition came up for hearing, it was brought to our notice that the Andhra Pradesh Sales Tax Appellate Tribunal has decided the said dispute (relating to certain assessment years) and that tax revision cases preferred by BHEL were pending in the Andhra Pradesh High Court. The judgment of the Andhra Pradesh Tribunal was also placed before us. The Andhra Pradesh Tribunal had taken the view that in so far as the parts and components manufactured in the Andhra Pradesh unit and despatched to work-site at Angul were concerned, they must be treated as inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was seized of the matter. It left the matter to this Court. Whether a particular sale is an inter-State sale or an intra-State sale is essentially a question of fact. Perhaps, it may be more appropriate to say that it is a mixed question of fact and law. It is, therefore, necessary to ascertain the factual position first. In Civil Appeals Nos. 5369 to 5375 of 1996 and 5362 to 5368 of 1996, it is this: whenever BHEL enters into a supply contract with a party, it designates one of its units as the executing unit. That is treated as the main unit executing the work. Sometimes, this is not done and each unit is entrusted a particular job. But it may happen that the executing unit does not manufacture all the parts and components which are required for completing the job entrusted to it. It, therefore, requests other units of BHEL to manufacture the parts and components required by it and to despatch the same. Some of the parts and components so manufactured by other units are sent directly to the executing unit for being incorporated into the main machinery/system while some parts and components are despatched directly to the work-site. To revert to NALCO project aforementioned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g list, R.Rs./L.Rs. have also been placed before us. The invoices raised on NALCO by the Trichy unit which is the executing unit relating to boiler components despatched by Hyderabad, Ranipet and other units with the price worked out on pro rata tonnage basis are on record. Central sales tax is also included in those invoices. The certificates and details regarding payment of C.S.T. from time to time by Trichy unit in regard to the despatches from Hyderabad are also filed." The High Court has also referred to another contract entered into by BHEL with NTPC for setting up a super-thermal power project at Farakka, West Bengal. In the case of this work, it appears that no one unit of BHEL is designated as the executing unit. The manufacture of machinery, etc., appears to have been distributed among various units. The factual position in this behalf is stated in the following words by the High Court: "............allocation of responsibility was in the nature of an internal arrangement made by the head office of the petitioner. But, the reasonable presumption that should be drawn in the light of correspondence and despatch documents, that NTPC must be well aware of the division of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to be the executing unit for the Angul project. We find it difficult to agree with the learned Additional Solicitor-General in the light of the factual position set out hereinabove. The parts/components, i.e., the goods in question, did move from the State of Andhra Pradesh to the State of Orissa-or West Bengal, as the case may be-and the said movement is occasioned by the supply contract entered into by BHEL which is in truth a contract of sale. The manner in which and the documentation under which these goods were sent to Angulin particular, clause 3.3.0 of the supply contract-do clearly establish that it was not a case of branch transfer but one of sale of the said goods to NALCO, pursuant to the supply contract. Further, because the movement of the said goods has commenced in the State of Andhra Pradesh, it is in the State of Andhra Pradesh that the Central sales tax is leviable according to section 9(1) of the Act. We, therefore, agree with the view taken by the Andhra Pradesh High Court that in the facts and circumstances concerning NALCO and NTPC (Farakka) contracts and the terms thereof, the direct despatch of goods by the Hyderabad unit to Angul or Farakka constitutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... batches of appeals, viz., civil appeals arising from Special Leave Petitions (Civil) Nos. 5071 to 5074 of 1991, 16840 to 16849 of 1995 and Civil Appeals Nos. 629 and 630 of 1994 are concerned with this controversy. Of these three batches of appeals, the third batch, Civil Appeals Nos. 629 and 630 of 1994 pertaining to assessment years 1983-84 and 1984-85 has become infructuous for the reason that the assessment orders questioned therein have been set aside by the Orissa High Court which has remanded the matters to the assessing officer. Accordingly, these appeals are dismissed as infructuous. Civil appeals arising from Special Leave Petitions (Civil) Nos. 5071 to 5074 of 1991 are preferred against the judgment of the Orissa Sales Tax Tribunal and they pertain to assessment years 1984-85 and 1985-86. Civil appeals arising from Special Leave Petitions (Civil) Nos. 16840 to 16849 of 1995 pertain to assessment years 1988-89 to 1993-94. These appeals are directed against the orders of assessment made by the Orissa authorities under the Orissa Sales Tax Act and against certain notices issued under the said Act. The controversy between the State of Orissa and BHEL arises in the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the terms of contract of sale. In the instant case, whether the goods despatched were the goods contracted has to be decided first before attracting the provisions of section 3(a) of the Central Act. To determine on this point, the intentions of the parties as embodied in the letter of intent and the subsequent contract are most valuable material and as such require minute verification of the terms of contract." The Tribunal then referred to the letter of intent issued on June 3, 1982, in respect of NALCO contract and the correspondence that passed between the parties and to the machinery and equipment mentioned in the annexures to the letter of intent and the formal contract-and then proceeded to observe: "So it is to be meticulously analysed whether the goods so despatched are embodied in the agreement of sale either in the letter of intent dated June 2, 1982 or in the contract dated March 15, 1985........From the facts of the present case, it is seen that items agreed to be purchased have been enumerated in annexures 1 and 2 as stated above whereas the goods to be sold are not the DUs as claimed by the assessee. So there cannot be a sale of inter-State, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or that reason, it cannot be said that the goods transported are not the goods agreed to be supplied. It is nobody's case that BHEL supplied some other goods than the goods agreed upon. Having thus erroneously excluded section 3 of the Central Sales Tax Act, the Tribunal went to section 4 and held that in the circumstances, the sales must be held to have taken place inside the State of Orissa. The discussion about endorsement of goods by NALCO to BHEL in Orissa and so on is rather ambiguous. Indeed, we need not pursue this discussion further for the reason that both Sri Mohanty and Sri V.A. Mohta, appearing for the State of Orissa, stated frankly that they cannot support the reasoning of the Tribunal. The learned counsel, however, submitted that in view of the several facts and reasons mentioned by them, the conclusion of the Tribunal is correct. The learned counsel submitted that NALCO contract was a turn-key contract; that having regard to the terms and conditions of the letter of intent, the formal contracts and the correspondence which passed between the parties, it must be held that the sale of the said machinery and equipment has taken place within the State of Orissa. Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons given above, Civil Appeals Nos. 7353 to 7356 of 1996 arising from S.L.P. (Civil) Nos. 5071 to 5074 of 1991 are allowed and the matter remitted to the Tribunal. It is made clear that we have not expressed any opinion on the merits of these appeals. All that we have done is to clarify the legal principles (Part I) and indicate the errors in the approach of the Orissa Tribunal. The Tribunal shall now hear the parties and dispose of the appeals according to law. The Tribunal shall dispose of the appeals as early as possible preferably within four months from today. So far as civil appeals arising from Special Leave Petitions (Civil) Nos. 16840 to 16849 of 1995 are concerned, it is enough to direct that the proceedings impugned in these appeals shall remain stayed for a period of six months within which period we expect the Orissa State Sales Tax Tribunal to render its decision pursuant to our orders. The authorities will be entitled to proceed with the matter after the expiry of six months in accordance with law. These appeals are disposed of with the above direction. We may mention that the learned Additional Solicitor-General had also challenged the validity of section 5(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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