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TMI Blog2009 (4) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as inter-State sales whereas it is the stand of the appellant that they are local sales in Delhi for which the assessee correctly paid the tax along with the returns. The second respondent herein (who will be referred to hereafter as assessee or contractor ) undertook contract works for laying and repairing of roads in NCT of Delhi. Its registered office is at Gurgaon and it maintains an office in Delhi also. The assessee was registered under the Delhi Sales Tax on Works Contract Act, 1999 and after the said Act was repealed and Delhi Value Added Tax Act, 2004 was enacted, the registration certificate earlier issued was continued. The assessee filed its return for the year 2003-04 with the Delhi Sales Tax Department voluntarily showing the works contract turnover. The assessment was completed by S.T.O., Ward 62, Delhi on March 17, 2005 and the assessee was subjected to tax on a turnover of Rs. 8,16,71,682 at four per cent. Thereafter, the sales tax authority in Gurgaon initiated proceedings for making an assessment under the CST Act treating the transfer of goods brought from Gurgaon to Delhi in the course of execution of road contracts as inter-State sales. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales in question were inter-State sales. The appellant-assessee was advised to apply to Delhi Administration for the cancellation of assessment order for the year 2003-04 and to seek transfer of the amount collected to the sales tax authority at Gurgaon or alternatively to seek refund. The appeal against this order was preferred before the Haryana Tax Tribunal, Faridabad, by the appellant herein, namely, the Commissioner of VAT, Government of NCT of Delhi. In the appeal, the assessee (second respondent herein) resiled from its original stand and supported the action of the Haryana assessing authority in levying CST on the disputed turnover. It cannot be seriously disputed that the assessee is not estopped from raising appropriate legal contention even if it is quite contrary to its earlier stand. The fact that the return was filed voluntarily under the Delhi Sales Tax on Works Contract Act, 1999 and the Rules and the tax was paid (by adjustment of tax deducted at source) does not legally preclude the applicant from contending otherwise especially when it was confronted with another demand from Haryana State on the premise that the so-called local sales were really inter-State sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the hot-mixed substance emerges, the same is dispatched from the plant at Dhumsapur to various work sites in Delhi by trucks. In the goods delivery notes [some of which were filed by the first respondent (Haryana State)], inter alia, the location of the works site in Delhi and the department concerned is given. It appears that the hot-mixed bitumen cannot be stored for long once it is brought to the site and it is consumed on the same day. In order to show that the hot-mixed material was inspected at the site before the dispatch from Gurgaon, the assessee filed before the Tribunal and also before this authority the certificates purportedly issued by the officials of the institutions which awarded contracts. Those certificates were issued in June 2006, long after the present dispute started. It is not disclosed, on what basis the certification was given. Whether the certifying officer had personal knowledge is not mentioned there. Moreover, it seems improbable that an engineer travels from Delhi to Gurgaon for inspection before each truck is loaded and starts its journey. The counsel for the appellant has filed a communication dated May 24, 2007 addressed to the VATO, Ward 62 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding to consider the appellant's contentions, a brief reference to the legislative history and the relevant provisions of the CST Act may be relevant. Prior to the Constitution (46th Amendment) Act, 1982, it was not legally permissible to tax any proceeds from the individual works contracts. In the famous case of State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC), it was held while dealing with the levy of sales tax in respect of an indivisible works contract that the expression sale of goods occurring in entry 54 of List II of the Seventh Schedule to the Constitution is a nomen juris and shall be understood in the same manner as it is understood under the Sale of Goods Act, 1930. The State had no competence to levy sales tax on the value of materials that became accretions to the immovable property in a building contract. After this decision, controversies loomed large on the issue whether a transaction in a given case was predominantly one of work and labour or one of sale of goods. What was the predominant feature of the contract and which was incidental thereto was a subject-matter of debate in a catena of cases. Moreover, the courts hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, declare that sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of article 286 of the Constitution... In Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court explicitly laid down that (page 231) ...it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce under section 3 of the CST Act or an outside sale under section 4 of the CST Act or sale in the course of import or export under section 5 of the Central Sales Tax Act . As observed by A.K. Ganguly CJ (as he then was) in Srei International Finance Ltd. v. State of Orissa [2008] 16 VST 193 (Orissa) ...law is wellsettled that any State law with respect to 'deemed sales' covered by sub-clauses (a) to (f) of clause (29A) of article 366 must conform to the requirements of article 286 and the provisions of the CST Act. For the purposes of taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade or commerce . The Parliament, therefore, enacted the Central Sales Tax Act, inter alia, providing for levy and collection of tax on the inter-State sales or purchases of goods. Section 6 which is the charging provision ordains that subject to the other provisions of the Act, every dealer shall be liable to pay tax on all sales of goods (other than electrical energy) effected by him in the course of inter-State trade or commerce. Section 3 of the CST Act by a deeming provision lays down when a sale or purchase of goods takes place in the course of inter-State trade or commerce. It reads: A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase, (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of the title to the goods during their movement from one State to another. In the present case, we are not concerned with the second limb of section 3, i.e., clause (b). We shall advert to the decisions of the Supreme Court bearing on the interpretation of clause (a) of section 3 little later. Now, we may briefly refer to other relevant pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial provision, the same was explained thus in the leading case of Tata Iron and Steel Co. Limited v. S.R. Sarkar [1960] 11 STC 655 (SC): (page 667) ...clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State. In Commissioner of Sales Tax, U.P. v. Bakhtawar Lal Kailash Chand Arhti [1992] 87 STC 196, the Supreme Court explained the scope of section 3(a) in the following words: (at pages 200, 204) According to clause (a) of section 3, an inter-State sale or purchase is one which occasions the movement of goods from one State to another. In other words, the movement of goods from one State to another must be the necessary incident the necessary consequence of sale or purchase. A case of cause and effect the cause being the sale/purchase and the effect being the movement of the goods to another State... ...What is important is that the movement of goods and the sale must be inseparably connected... The following observations of the Supreme Court in the case of Kelvinator of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of goods should be found. Even in the absence of a specific stipulation in a written contract, the inter-State movement of goods can be inferred from the terms and features of the contract of sale. Now, let us see how the principles stated above have been applied by the Supreme Court to the particular fact situations. In the case of Co-operative Sugars (Chittur) Ltd. v. State of Tamil Nadu [1993] 90 STC 1; [1993] Suppl 4 SCC 42, the Tamil Nadu Government permitted the appellant which had a sugar factory at Kerala to procure sugarcane from specified areas in Tamil Nadu. Pursuant to this, the appellant opened office in that area and took delivery of sugarcane from the farmers in Tamil Nadu. Then, sugarcane was transported to the factory in Kerala. The State of Tamil Nadu levied purchase tax on the purchases made by the appellant under the Tamil Nadu General Sales Tax Act, 1959. The Supreme Court held that it was a case of inter-State sale. It was observed: (page 5 of STC) ...It must, therefore, be held that this is a case where the movement of goods was occasioned by sale by the farmers or by the purchase by the appellant, whichever way one looks at it. The movement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Central Sales Tax Act... In Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445 (SC); [1975] 1 SCC 733 also, the test applied was whether parties contemplated that there should be movement of goods from one State to another in pursuance of the contract of sale. The facts in that case were that crude oil was supplied by the appellant from the oil fields in Assam to the refinery of IOC in Barauni (Bihar State) through the pipeline constructed by the appellant. Clause (12) of the agreement provided that the appellant shall arrange for the construction of pipelines and other facilities for the transport of crude oil to be produced by it to the refinery at Barauni. The Supreme Court observed that the construction of pipelines by the appellant was a pointer to the conclusion that the parties contemplated movement of goods from the State of Assam to the State of Bihar. The following observations of the Supreme Court are relevant: (page 449 of STC) Even though clause 7 of the supplemental agreement does not expressly provide for movement of the goods, it is clear that the parties envisaged the movement of crude oil in pursuance to the contract from the State of Assam t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant (vide pages 139 and 169 of the paper book filed by the appellant and pages 18, 27, 34 and 36 of the paper book II filed by R2). In the circumstances, there could be no escape from the conclusion that the inter-State movement of goods (bituminous mixture) was a necessary consequence of and incidental to the relevant contracts and such movement cannot be dissociated from the contract. An argument was raised by the learned counsel for the appellant that nothing prevented the diversion of goods to another spot by the appellant and therefore the inextricable link between the contract and the movement of goods is not established. We find it difficult to accede to this contention which is built up on the premise of theoretical possibilities and rare situations. In the goods delivery note and other documents accompanying the truck, the destination is noted so that the material is earmarked to a particular contract. Moreover, the bitumen mix obtained from the hot-mix plant cannot be stored and sent to the other road works as and when the contractor desires. It has to be necessarily utilized within a day. It is also pointed out by the assessee's counsel that the specifications reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount under the contract without any break-up of the material value. In order to plug this deficiency, the deeming provision was inserted into section 2(h) in the year 2005. It has enacted a specific provision in respect of sale price to be taken into account in a case of transfer of property in goods utilized in the course of execution of a works contract. In the absence of amended definition, it is doubtful whether the charging provision can be given full effect. However, we are disabled from taking an independent view in the matter in view of the said decision of the Supreme Court which has overruled the contention of the assessee therein. We shall now refer to the decision in Mahim Patram case [2007] 6 VST 248 (SC). In the case of Mahim Patram [2007] 6 VST 248, the Supreme Court was concerned with the question whether the inter-State transfer of goods in the course of execution of works contract can be subjected to Central sales tax for the assessment years 2002-03 and 2003-04 by the U.P. State. By that time, the expanded definition of sale was inserted in the CST Act. However, the definition of sale price was not amended nor were any rules framed by the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment under the 1956 Act, as if it is an assessment under the State Act. The expression 'as if' is of some significance. The powers conferred and the procedures laid down under the State sales tax laws would, therefore, be applicable also for the purpose of carrying out assessment under the Central Act. Sub-section (2) of section 9 provides that the authorities under the State Act for the purpose of making assessment and reassessment under the 1956 Act shall have all the powers which they have under the general sales tax law of the State. Assessment would mean the entire process of computation and levy of tax... The expression 'assessment', therefore, comprehends the power to even compute the amount chargeable to tax in terms of the procedure prescribed under the State Act. Furthermore, section 13(1) provides that the Central Government 'may' by notification make rules for computation of turnover. It is an enabling provision. It is not obligatory for the Central Government to do so. When one looks at the language of section 13(3) of the 1956 Act, it becomes clear that the State Government has also been given a power to make rules, which are not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Referring to the amendments made to the CST Act in 2005, their Lordships observed: (at pages 263, 264 and 266 of 6 VST) ...the submission of Mr. Agrawal that the matter has to be considered from the point of view of amendments of section 2 and section 13 of the 1956 Act by the Finance Act, 2005 must be held to be not applicable in the instant case. Even if they are, they provide only for an enabling provision. A proviso inserted subsequently cannot be the determinative factor for restricting the operation of the Act... ... We have noticed hereinbefore that the 2005 amendments are not retrospective in operation. Furthermore, they provide merely for an enabling provision. If enough machinery provisions can be found in the existing Act, it is not necessary to construe the provisions having regard to the subsequent legislation. Just as in the U.P. Trade Tax Act, in Haryana Value Added Tax Act, 2003 too, there are provisions dealing with the manner of determination of sale price of goods involved in a works contract. The relevant provisions are the following: The definition of sale includes consideration for the transfer of property in goods (whether as goods or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual force to the present case. By taking recourse to section 9(2) of the CST Act in tune with the line of reasoning adopted by the Supreme Court in Mahim Patram case [2007] 6 VST 248, the provisions in the Haryana Act and the Rules relating to modalities of assessment of the receipts from works contract can be pressed into service while making an assessment under the CST Act also. True, under the CST (Haryana) Rules, 1957, there is no rule corresponding to rule 9 of the CST (UP) Rules, but, that does not make material difference for the reason that the U.P. Rules is a mere reiteration of the principle that flows from section 9(2) of the CST Act as interpreted by the Supreme Court. Rule 9 of the U.P. Rules referred to by the Supreme Court only makes explicit what is implicit in section 9(2). The conclusion of the Supreme Court does not merely rest on rule 9. The fact that separate rules have not been framed under the Central Act is of no legal consequence, as held by the Supreme Court. Provisions in the State Sales Tax Act/VAT Act can be referred to for the purpose of ascertaining the sale price/turnover relating to the transfer of property in goods involved in the execution of w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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