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TMI Blog1999 (11) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority brought to assessment 70 per cent of the total receipts amounting to Rs. 58,58,716.97 at 5 per cent. Thus the taxable turnover was fixed at Rs. 41,01,102 and the exemption of 30 per cent allowed towards labour charges amounted to Rs. 17,57,615. This view was confirmed by the first appellate authority. In the second appeal before the Appellate Tribunal, the assessee claimed that the worn-out tyres were entrusted to the assessee by the customers residing outside the State of Tamil Nadu and after completing retreading, the retreaded tyres were actually delivered to the customers in other States and therefore the transactions involved inter-State movement of goods and in such circumstances, the transactions have to be treated as inter-State works contract not liable to tax under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act"). In this connection the Appellate Tribunal observed as follows: "But admittedly, the actual works of retreading take place within the State of Tamil Nadu. Simply because, the used or wornout tyres were received from other States and after treading, those retreaded tyres were again sent to the customer residing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the sale or purchase of goods where such sale or purchase takes place (a)outside the State or (b) in the course of the import of goods into or export of the goods out of the territory of India. As a result of the said provision, the legislative power conferred under entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations imposed by the Constitution on the legislative power of the States under entry 54 of the State List, it is beyond the competence of the State Legislature to make a law imposing or authorising the imposition of a tax on transfer of property in goods involved in the execution of a works contract, with the aid of sub-clause (b) of clause (29A) of article 366, in respect of transactions which take place in the course of inter-State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently, it is not permissible for a State to frame the legislative enactment in exercise of the legislative power conferred by entry 54 in State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace only in the State where the work is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituting a sale in the course of inter-State trade and commerce as well as an outside sale or a sale in the course of import and that is a matter which will have to be considered in accordance with the principles contained in sections 3, 4 and 5 of the Central Sales Tax Act keeping in view the terms and conditions of the particular contract. In this regard, the learned counsel have placed reliance on a number of decisions of this Court wherein the provisions of sections 3 and 4 of the Central Sales Tax Act, 1956, have been considered. We do not propose to go into this controversy because the question whether a deemed sale resulting from transfer of property in goods involved in the execution of a particular works contract amounts to a sale in the course of interState trade or commerce under section 3 of the Central Sales Tax Act or an outside sale under section 4 of the Central Sales Tax Act or a sale in the course of import under section 5 of the Central Sales Tax Act has to be decided in the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce into a local sale. In fact, this is the view expressed by the Full Bench in conclusions 3 and 4 in the East India Cotton Manufacturing Company's case [1993] 90 STC 221 (P H). This is also the position that emerges from the decision of the Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204. In [1992] 87 STC 196 (SC) in the case of Commissioner of Sales Tax, U.P. v. Bakhtawar Lal Kailash Chand Arhti it was held that purchase of goods on behalf of ex-U.P. principals and dispatch to them to places outside the State are to be held as inter-State purchases. Referring to the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory reported in [1953] 4 STC 205 the expression "in the course of" was explained as follows: "The word 'course' etymologically denotes movement from one point to another, and the expression 'in the course of' not only implies a period of time during which the movement is in progress but postulates also a connected relation." Similarly the following observations have also been cited from the decision reported in AIR 1972 SC 23 in the case of Commissioner of Gift Tax, Kerala v. P.G. Timbers. "The critical words a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Again to explain the term "inter-State trade and commerce" the following passages were quoted from "words and phrases", Permanent Edition, Volume 22: "The term 'inter-State commerce' is not a technical legal conception but a practical one." "The term 'inter-State commerce' means not only inter-State movement, but inter-State business." "An inter-State transaction contemplates consignor without, and consignee within, a State, or vice versa." " 'Inter-State commerce' comprehends intercourse for the purposes of trade in any and all of its forms, including transportation, purchase, sale and exchange of commodities between the citizens of different States; and if any commercial transaction reaches an entirety in two or more States, and if the parties dealing with reference to that transaction deal from different States, then the whole transaction is a part of the inter-State commerce of the United States and subject to regulation by Congress under the Constitution." " 'Inter-State commerce' is not business done within a State, but is business done between two or more States, or business commenced in one State and ended in an other." "A single shipment of a commodity, as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n article 366(29A)(b) of the Constitution of India, section 2(n) and section 3B of the Act. They are: "Article 366(29A)(b) of the Constitution of India: 366.. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say- .............. (29A) 'tax on the sale or purchase of goods' includes- .............. (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;" "Section 2(n): 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes- ............ (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; ............ and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority. THE TABLE -------------------------------------------------------------------- Serial Type of works Labour or other charges number contract as a percentage value of the works contract. (1) (2) (3) -------------------------------------------------------------------- 1. Electrical contracts 15 2. All structural contracts 15 3. Sanitary contracts 25 4. Watch and/or clock repair contracts 50 5. Dyeing contracts 50 6. All other contracts 30." -------------------------------------------------------------------- Thus, works contract transactions are exigible to tax with effect from June 26, 1986 in respect of the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Thus, the transfer of property in goods even in an indivisible contract could be brought to tax under section 3-B of the Act subject to deductions contemplated therein. The imposition of tax under section 3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has to be held that the deemed sale contemplated in section 2(n) of the Act takes place at the time of incorporation of the goods in the works contract. In the light of the above position, the present case should be analysed. A typical order form dated November 20, 1987 reads as follows: "ORDER FORM No. 0379 Date: 20-11-1987 Customer address: To The Manager M/s. Sundaram Industries Malanmallay Tea Estate, Limited, Kochadai, Vandiperiyar-685 533. Madurai-625 016. Dear Sirs, Please retread the following tyres and send per TVS to (station) Vandiperiyar and the railway/lorry receipt and the connected documents through direct in case we do not retire the bill and clear the goods within 30 days, you are at liberty to recall the goods and sell by auction or private sale on our account and realise the loss and expenses from us. ----------------------------------------------------------------------------------- Sl. No. Make size Tyre number Charges Remarks ----------------------------------------------------------------------------------- 1. 825 x 20 MD 7050041UM-Org. ----------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.00 605.00 Rs. 605/only E. O.E. ----------------------------------------------------------------------------- Sales Tax Registration No. TNGST No. 451042/86-87 Central RC No. 104310/73-74 ---------------------------------------------------------------------------- Terms: 1. Subject to the conditions in the order form and retreading charges. 2. Payment should be made by demand draft or cash immediately on receipt of this bill. 3. Interest at 18 per cent per annum will be charged if payment is not made within 30 days. 4. Sales tax or duties if levied by Government/Central or State/Local Authorities/Bodies will be charged extra. For SUNDARAM INDUSTRIES LIMITED Sd/-........... " In short, in respect of the retreaded tyres sent, the assessee has claimed a consolidated retreading charges and also freight charges for sending the goods. There is no difficulty in understanding the principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. The Supreme Court has 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 contract of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principals and dispatched them and such transaction was held as inter-State in character as the movement of the goods from one State to another was occasioned by and was the result or the incident of the purchases. The definitions from "words and phrases" Permanent Edition and other decisions quoted also speak of interState movement of goods in pursuance of covenant expressed or implied in the contract of sale or as an incident of contract. In [1993] 90 STC 221 (P H) in the case of East India Cotton Manufacturing Company Limited v. State of Haryana "the grey cloth sent by contractees from outside the State of Haryana was processed in the State of Haryana into finished cloth by being subjected to processes such as bleaching, dyeing, sizing and printing and thereafter sent back to the contractees outside the State. The movement of cloth was occasioned by the contract of sale within the meaning of sub-clause (ii) of clause (l) of section 2 of the Haryana General Sales Tax Act and the transaction amounts to an inter-State sale within the meaning of section 3 of the Central Sales Tax Act, 1956". In that case, the movement of processed grey cloth occasioned by the contract of sale was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uts or the goods involved in the execution of the works contract shall also be deemed to have moved to other States as held in the above decision for the following reasons: In the case considered in [1996] 100 STC 417 (P H) [FB] [Thomson Press (India) Ltd. v. State of Haryana] the contract was for printing and supplying of lottery tickets. The Supreme Court in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 has held that lottery tickets are "goods". We have held in T.C.R. No. 2363 of 1997 dated September 23, 1999 following the ratio of the decision of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370 at page 398 wherein the transfer of goods involved in a works contract to a single customer was considered in the case of M.R. Hornibrook (Pty) Ltd. v. Federal Commissioner of Taxation [1939] 63 CLR 272 that forms and registers supplied to Electricity Board which could not be utilised by anyone else also would be sale of goods. However, in the present case our disagreement is confined to the observation that even the raw materials used in the manufacture of the finished lottery tickets, the end-product intended for dealers in other States c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du. Thus the taxable event took place when the goods were incorporated in completing the job work in Tamil Nadu. Thereafter the retreaded tyres were sent to Kerala by raising bills for the retreading charges. In commercial parlance worn-out tyres and retreaded tyres are different goods. Therefore by no stretch of imagination it could be construed that the inputs in the retreading work occasioned the movement of goods. In this connection, it is relevant to refer to the decision of the Kerala High Court in the case of A. Anthony Swamy v. State of Kerala reported in [1994] 94 STC 477. In that case, the petitioner was running a tyre retreading business and was registered as a smallscale industrial unit. He claimed exemption on the turnover of sale of goods produced and sold by the unit. The claim in that case related to the transfer of property in goods involved in the execution of the tyre retreading work. The Tribunal in this case relying on the decision of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370 held that retreading activity is a specie of works contract and it is possible for the State to levy sales tax on the price of goods and mate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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