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TMI Blog2018 (5) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be construed as local sale exigible to levy of tax under the KVAT Act? - Held that: - the nature of contract is relevant to determine the transaction whether is a sale simpliciter or works contract - It may be true that the main contract of supplying, installation and commissioning of lifts/elevators might have been split into two, viz., purchase order and work order placed by the customer/purchaser to avoid taxes payable to the State of Karnataka and both these orders are intrinsically interlinked with each other but movement of goods from Thane, Maharashtra to Karnataka pursuant to contract executed between the parties cannot be disputed. The case of the revenue that the works contract receipts received by the petitioner in relation to turnkey project undertaken is being brought to tax which is in purview of Section 4(1)(c) of the KVAT Act, 2003, cannot be countenanced as the divisibility of the contract would not empower the Authorities to subject the inter state transaction to tax under the State Tax Act on the ground that the petitioner has employed dubious methods to avoid payment of tax to the State - levying tax under the provisions of KVAT Act, 2003 on the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The quote would contain separate sections one stating the technical specifications, second stating the price schedule for design and supply of elevator only and the third stating the price for installation, testing and commissioning. Separate orders would be placed by the customer one being purchase order and another work order. While the purchase order would be placed on the factory at Thane, the work order would be placed on the branch which is to carry out the installation, testing and commissioning. The purchase order clearly states that the sale price mentioned therein is for design and supply of elevator only and payment terms are to be strictly construed as per the material supplied and appropriate tax, namely, CST, shall be payable thereon. The purchase order also indicates that entry forms such as waybill, road permit etc., for transit through state check posts will be provided by the customer. Thereafter, the manufactured elevator after testing and dismantling would be dispatched directly by the factory to the customer s site. Tax invoice would be raised by the factory charging CST which is made over to the State of Maharashtra. The branch would thereafter send its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract amounted to a turnkey job i.e. indivisible works contract. Respondent No.1 concluded the reassessment rejecting the claim of the petitioner and levied tax on the inter- state sales which is beyond the jurisdiction of the Authorities and contrary to Article 286 of the Constitution of India read with Section 3(a) of the CST Act. It was further submitted that levy of tax under the local Sales Act is without authority of law and is hit by Article 265 of the Constitution of India. Such power to levy sales tax under list I of Seventh schedule to the constitution, exercised under the State sale tax Authority is duly contrast to the Central power to levy. 5. Learned AGA appearing for the respondents justifying the impugned order submitted that writ petition has to be rejected in limine as the petitioner has not exhausted the alternative, effective and efficacious remedy available under the statute. It was submitted that supply of elevators and other spare parts from. Thane, Maharashtra, on placing purchase orders are obtained at the local business premises of petitioner who is alone bestowed with the contract by the contractees in the State of Karnataka to carry out the design, sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve remedy available under the KVAT Act would not be justifiable. Accordingly, the matter is considered on the merits of the case. 9. Learned Senior Counsel referring to the Division Bench Judgment of this Court in ECE INDUSTRIES supra, emphasized, in as much as, the applicability of Section 3[a] of the Central Sales Tax Act, 1956, as well as the jurisdiction of the Authority to levy tax under Entry 54, List 2, VII Schedule to the Constitution of India vis- -vis Article 286 of the Constitution of India. It was submitted that in identical circumstances relating to the company-assessee, whose business has been acquired by the petitioner-assessee, the Division Bench of this Court has categorically held that the transaction is inter state sale and not amenable to the provisions of the local sales tax Act. The said Judgment had been carefully analyzed to advert to the arguments advanced by the learned Counsel for the parties. It is in the context of company engaged in the business of manufacture, supply and installation of lifts and elevators having branches all over the country, movement of the goods from Ghaziabad, U.P., to Bangalore, this Court examined the levy of tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functioned in the State of Karnataka, it cannot be said that it is a local sale exigible to levy of tax under the Karnataka Sales Tax Act, 1957. 10. Learned Additional Government Advocate made an endeavour to distinguish the said Judgment placing reliance on the Constitution Bench Judgment of the Hon ble Apex Court in the case of KONE ELEVATOR supra. Adverting to the said submission, it is apt to refer to the said Judgment of the Hon ble Apex Court. As per the majority opinion, it is held that [i] A contract for manufacture, supply and installation of lift is a works contract and not a contract for sale. [ii] It has to be understood in the conceptual context of the manufacture and installation of a lift in a building. The lift basically comprises components like lift car, motors, ropes, rails, etc. having their own identity even prior to installation. Without installation, the lift cannot be mechanically functional because it is a permanent fixture of the building having been so designed. Therefore, the installation of a lift in a building cannot be regarded as a transfer of a chattel or goods but a composite contract. [iii] It has been held that, there is a composite contract f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the contract would not change the nature of the contract. However, it is made clear that if there are two contracts, namely, purchase of the components of lifts from a dealer, it would be a contract for sale and similarly if a separate contract is entered into for installation, that would be contract for labour and service. Thus, the nature of contract is relevant to determine the transaction whether is a sale simpliciter or works contract. Keeping these legal principles in mind, the specimen of the contract executed between the petitioner and M/s. Mahendra Hotels placed on record is examined. In Section 1 of the said contract [offer letter], the relevant paragraphs read thus: Sub: Supply, installation, testing and commissioning of 1 No. Pazssenger Elevator for your project at Mysore. Validity: Our offer, unless withdrawn earlier, is valid for your acceptance for a period of 30 days from the date of this offer. When accepted, this contract will be valid for a period of 12 months from the date of acceptance of this offer. We trust you will find our offer in line with your requirement. In case any further information or clarification is required, we shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. Accordingly, tax invoice has been raised by the manufacturing unit at Thane in respect of the sale of elevator and components. The goods are moved from Thane, Maharashtra to the purchaser directly. Consignment documents placed on record substantiates the same. It is only towards the work order, payments are made to the petitioner-assessee. In this background, whether the movement of the goods from Thane, Maharashtra to Bangalore would be construed as inter- State sale as contended by the learned Senior counsel for the petitioners has to be examined in terms of Section 3(a) of the CST Act. Section 3(a) of the CST Act reads thus: 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce: A sale or purchase of goods shall be deemed to take place in the course of inter-State trade of 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 title to the goods during their movement from one State to another. 16. The Hon ble Apex Court in the case of Gannon Dunkerley s case (supra) while considering the issue whether in exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It will be enough if the movement is in pursuance of and incidental to the contract of sale. 18. In Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 , the Supreme Court has stated as under: (i) that if a contract of a sale contains a stipulation for the movement of the goods from one State to another, the sale would certainly be an inter-State sale. But for the purposes of Section 3(a) of the Act it is not necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. A sale can be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one State to another but such movement is the result of a covenant in the contract of sale or is an incident of that contract : The question as regards the nature of the sale, that is, whether it is an inter-State sale or an intra-State sale, does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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