9911796707
TMI Blog1996 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and as a result of such revision, the Deputy Commissioner enhanced the turnover. The provisional assessments for the three years aforementioned were done on the same lines as the revisional authority had done. The Tribunal, in effect, partly allowed the appeals. The revised assessment orders made by the Deputy Commissioner were set aside and the cases were remanded to the Deputy Commissioner to determine the turnovers in the light of the findings given in that judgment. A further direction was given to take into consideration the Government's notification exempting the production of "C" and "D" forms and also to consider certain "C" forms filed before the assessing authority and the Tribunal. As far as the appeals against the provisional assessment orders are concerned, the Tribunal set aside the provisional assessments and directed final assessments to be made in the light of the findings and directions contained in the judgment. A further direction was given to consider the question of subjecting the transactions held to be taxable as inter-State sales at a lower rate on production of "C" and "D" forms. The State has not preferred any T.R.Cs. assailing the Tribunal's order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work relating to switchgear. The primary task of producing or assembling the material/ equipment rests on the concerned executing unit. However, the executing unit often requests the other sister units of the company to supply components either in assembled or unassembled form for the purpose of accomplishing the contract, thereby off-loading the manufacture of some components of the package on other units/divisions. The sister units send certain component parts to the executing unit and some of the component parts-assembled or unassembled-are directly sent by the sister unit to the customer's place in the other State. For instance, the Trichy unit which is entrusted with the production programme and supply of boiler package procures the components and materials pertaining to bowl mill through Hyderabad unit. The parts sent by Hyderabad unit to Trichy are assembled or incorporated into distinct components of the package and then despatched by Trichy unit to the work sites of the customers to fulfil the contracts of its choice. The bowl mill equipment is also directly sent by Hyderabad unit to the inter-State customer. The customer takes delivery, perhaps notionally, and handsov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the material is despatched by the sister units at the instance of the Hyderabad unit directly to the customers or to Hyderabad for the purpose of onward transmission after assembling, the Central sales tax is paid in Andhra Pradesh State notwithstanding the fact that the movement of the goods commenced from the units located in other States. Thus, it is submitted that the petitioner-company has been following consistent practice and at no point of time, the A.P. sales tax authorities demurred to the payment of Central sales tax in this State on such transactions. According to the petitioner, it is only after the Commissioner of Commercial Taxes issued a circular dated December 21, 1984 to the subordinates in regard to exemptions claimed on branch transfers that the assessments were reopened. The Tribunal framed the following points for consideration: "(1) Whether the products manufactured by the appellants are not goods falling within the scope of Central Sales Tax Act? (2) Whether the supply of materials by any one unit of the BHEL in compliance with the contract entered into by the head office at Delhi cannot be treated as a sale between it and the customer and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the State by the appellant: (i) So far as the goods transferred to other units of the BHEL and incorporated into machinery or equipment manufactured by the other unit whereby the article transferred from the appellant unit loses its identity are concerned, they shall be treated as inter-unit transfers not liable to any sales tax; (ii) So far as the goods transferred by the appellant directly to the place where the plants have to be erected according to the contract, though administratively controlled and invoices raised by other units in regard thereto, shall be liable to tax under Central Sales Tax Act within the State of A.P. provided the site of erection of the plant is outside the State of Andhra Pradesh. The raising of bills or invoices shall not be the relevant consideration, but the consideration shall be the manufacture and movement of goods in compliance with the terms of the contract and the place of supply to the customer." Thus, the Tribunal made a distinction between the intermediary goods which were despatched to the executing units from Hyderabad and sent by the executing unit to the inter-State customer after assembling the same into some other comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbly, test, packing, transportation to site, comprehensive insurance". The petitioner-company started executing the work by carrying out manufacturing operations through its several units after the letter of intent was issued communicating the acceptance of the offer made by BHEL and incorporating the technical specifications and the terms and conditions. However, as already stated, the formal agreement was entered into much later, i.e., on March 15, 1985, by which date, perhaps, a substantial portion of the contract was completed. We will now refer to the terms of that formal agreement. The scope of contract is mentioned as "design, engineering, manufacture, shop testing and despatch of equipment f.o.r. works/f.o.r. sub-supplier's works/port of entry including supplying drawings, data, test certificates, etc." This is what is known as supply contract. The contract for the erection and commissioning of the power plant has been separately but contemporaneously entered into. However, we are not concerned with that contract. The contract price for the manufacture and supply of equipment is Rs. 295,37,55,444. The same is bifurcated into supply of equipment-Rs. 272,46,34,444 (f.o.r. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive payment for boiler and turbo generator package supplied from Trichy and Hyderabad units shall be made on pro rata tonnage basis derived from dividing the contract break-up prices by the total design weight of boiler and turbo generator materials respectively. The rate applicable for billing purposes is Rs. 30.30 paise per kg. for boiler material and Rs. 213.70 paise per kg. for turbo generator materials. (c) For supplies from Jhansi and Bhopal units, the 85 per cent progressive payment shall be made on unit basis or any other suitable basis to be indicated by the supplier prior to commencement of despatches. (iii) Balance 5 per cent on commissioning of each unit of TG set and boiler but not later than 12 months from the date of despatch of last substantial consignment. (iv) For structural steel, 10 per cent is payable as interest-free advance along with the order and the balance 90 per cent is payable against design, procurement and despatch through an irrevocable and divisible letter of credit to be established by the purchaser. Payment shall be made for steel material pro-rata at the notional rate of Rs. 7,890 per tonne based on the total estimated weight. Copies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts letter of intent dated May 15, 1981 and its award letter dated June 4, 1984. A formal agreement evidencing the terms and conditions of the contract was entered into on May 1, 1985. There is a specific recital in the agreement that the contract had taken effect from May 15, 1981. The scope of contract is two-fold. (1) Supply portion consisting of engineering, design, manufacture including shop testing and packing and despatch from contractor's manufacturing works/place of despatch of equipment and materials as per bid documents including supply of spares and special tools for steam generator package on f.o.r. Farakka site basis. (2) Erection portion covering transportation to site, transit insurance, unloading and handling at site, storage, erection, testing and commissioning of equipment to be supplied under the contract. Thus, it is a divisible works contract consisting of supply of equipment as well as erection and commissioning of the two packages stated above. The total contract price for turbo generator package is Rs. 429 millions and for steam generator package, it is Rs. 8,12,727,181 and the itemwise price break-up for supply and erection portions is given in the letter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Trichy unit and the invoice raised by Trichy unit on NTPC which covers the components/equipment sent by Hyderabad unit directly to Farakka. The name of the consignee as per the railway receipt is Chief Erection Manager, NTPC, Farakka and the freight is pre-paid. The certificate regarding payment of Central sales tax confirms the payment of Central sales tax on the invoice value by the Trichy unit in respect of the components despatched by Hyderabad unit. The Tribunal mentioned at paragraph 8 of its order that copies of eight agreements including the two agreements with NALCO and NTPC (which we have discussed above) were filed. It is commented by the Tribunal that the agreement with Maharashtra State Electricity Board for supply of 210 M.W. steam Generating unit and turbo generator for Nasik Thermal Power Station is an unsigned and undated agreement. The agreement in the same form has been filed before us and the learned counsel submits that they are not in a position to secure the original agreement. The debit notes and despatch documents relating to this contract have been filed before us. Five more agreement copies filed in the Tribunal are those relating to the contracts wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this case inasmuch as both the parties have not disputed the salient features of the contracts and the pattern of transactions which, according to the counsel for the petitioner as well as the respondent, are substantially similar to the two contracts which we have referred to in detail earlier. It is also true that there is no specification of a particular unit of BHEL responsible for execution of the contract in those agreements nor any documents are filed before us which throw light on this aspect. But, having regard to the admitted fact that the disputed transactions and turnover relate only to cases where the goods are supplied directly to the customers at the instance of some other executing unit and there is no dispute that such supplies were made by the petitioner-unit either on the instructions of head office or at the instance of executing unit, the said omission is of no consequence and it need not be taken serious note of. The points that have to be resolved in these tax revision cases are: Whether the inter-State movement of goods from Hyderabad unit of the petitioner-company to the customers/purchasers of other States at the instance of the head office or the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case [1960] 11 STC 655 (SC); AIR 1961 SC 65 was further elucidated and clarified by Mathew, J., by laying down the following propositions in Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445 (SC); AIR 1975 SC 887. "(1) a sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade, no matter in which State the property in the goods passes; (2) it is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement; and (3) it is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce that the covenant regarding interState movement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale." The learned Judge added that it was held in a number of cases that if the movement of goods from one State to another is the result of a covenant or an incident of the contract of sale, then the sale is an inter-State sale. What was said in Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC); AIR 1979 SC 1160 is qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to reach the buyer in satisfaction of his contract of purchase and such a nexus is otherwise inexplicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter-State trade or commerce as such a sale or purchase occasioned the movement of goods from one State to another." It was further observed that the presence of an intermediary such as the seller's own representative or branch office who initiated the contract does not make material difference. Their Lordships concluded that the sale was an interState sale but not a sale at Bombay and, therefore, upheld the Central sales tax assessed and collected by the sales tax authorities of Tamil Nadu. The same principles were reiterated in Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 (SC). In the light of the settled legal position, it cannot be and it has not been seriously disputed that the movement of goods from the Hyderabad unit of the petitioner-company direct to the customer's site in the other State are inter-State sales pursuant to the contracts entered into by BHEL with the customers/purchasers. The fact that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Additional Solicitor-General that in the case of inter-unit transfer as well as direct despatches to the inter-State customers, the finished products as such is not despatched but it is only parts or equipment forming part of the plant despatched and therefore, on principle, there is no basic difference between the two types of transactions. We cannot, however, endorse the line of approach adopted by the Tribunal though the Tribunal's conclusion with regard to the first category of transactions can be justified for different reasons. The Tribunal missed to note that the plant and equipment which is the subject-matter of contract such as boiler package or turbo generator package is incapable of being manufactured and despatched as a finished unit. Necessarily, the equipment/components or assembled units have to be despatched to the customer's site and installed there. The contract does not contemplate the despatch of a readymade finished product to the customer's place for instantaneous use in the power-plants, etc. On the other hand, it is clear from the terms of the contract, especially the price payment clause, that the components and parts forming part of the larger packag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no inter-State sale of goods sent to other units, by parity of reasoning, the movement from Hyderabad to customers' sites in other States should not have been treated as inter-State sales. We shall now deal with the more controversial question. The learned Additional Solicitor-General contends that the Central sales tax having been paid by the sister units, viz., Trichy, etc., in the other States on the very same goods despatched from Hyderabad to the customers directly, the sales tax authorities of Andhra Pradesh have no jurisdiction to demand and collect the tax once again on this transaction. It is pointed out that section 9(1) of the Central Sales Tax Act confers authority on the Central Government and the Central Government alone to levy the tax on the sales of goods effected in the course of inter-State trade and the State Governments are empowered to collect that tax as agents of the Central Government. If, therefore, the tax is paid by one of the units of BHEL to the State in which it is located under the bona fide impression that the interState sales were effected by it although the movement commenced elsewhere, the other State has no jurisdiction to collect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State;....." It is crystal clear that the tax is liable to be collected in the State from which the movement of the goods commenced. It is that State alone which as the authority to collect the tax on behalf of the Government of India. If the theory of "agency" propounded by the learned Judges of the Bombay High Court is to be invoked, the "movement State" is constituted the sole agent for the collection of tax. This provision was introduced with a view to avoid uncertainty that was prevailing prior to the amendment of the provision with retrospective effect in 1969 and the stretching of jurisdiction by more than one State to collect the tax on behalf of the Government of India. In the face of this clear provision, it would be futile to contend that not merely the movement State but also any other State where the assessee has a place of business is entitled to collect the Central sales tax. The words "in accordance with the provisions of sub-section (2)" occurring in section 9(1) which were adverted to by the Bombay High Court do not have any bearing on the competence or jurisdiction of the identified State, that State being the State from which the movement commenced. When on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crucial remarks: "It was contended on behalf of the Revenue that in the State of Uttar Pradesh, the concerned Sales Tax Officer was fully competent to make the assessment. The High Court was of the view that this argument proceeded on an omission to consider the opening words of section 2 which is the definition clause, and which makes the definitions given thereunder subject to the context. Sub-section (1) of section 9 confers jurisdiction to make the levy and collection of the tax on the State where the movement of the goods commences, and so the determinative test for discovering the jurisdiction of a particular State, in an interState sale, is the place where the movement of the goods commences. The words 'appropriate Government' given in sub-section (2) of that section must necessarily refer to the State which by section 9(1) has been conferred jurisdiction to levy and collect the tax. The provisions must be harmonised. " (Emphasis* supplied). Here italicised. The law laid down by the Supreme Court in the aforementioned decision is a complete answer to the doubts raised by the Bombay High Court and the consequential view which it has taken. Before we wind up the discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt runs counter to the scheme of section 9 of the Central Sales Tax Act and stultify the purpose for which a definite provision was introduced with retrospective effect in the year 1969. The rightful and authorised agent of Government of India is identified by section 9(1). If some other State assumes the role of an agent and proceeds to collect the tax, it will be out-stepping its jurisdiction. The fiction imported by the Division Bench of the Bombay High Court breaks down when once we appreciate that the acts of a State unauthorisedly donning the robe of an agent, need not be owned up by the Central Government and by a fiction, it cannot be treated that the Central Government has got the double benefit. True, an unjust or anamolous situation projects itself. But the only way to remove this anamolous situation would be to direct the State which has realised illegitimate revenue to disgorge that benefit. Whether we should give such a direction in this case is a matter which we will deal with in the connected writ petitions. We may also point out that if the view expressed by the Bombay High Court is to be countenanced, then, there will be virtually a scramble amongst the States ..... X X X X Extracts X X X X X X X X Extracts X X X X
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