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TMI Blog2018 (12) TMI 1972X X X X Extracts X X X X X X X X Extracts X X X X ..... f its on-shore Gas Terminal Project at Deen Dayal Field Development at Mallavaram, East Godavari District. According to the petitioner, they either imported or procured equipment and materials on an Inter-State basis, for the purpose of execution of the said contract. The claim of the petitioner was that since they entered into a works contract, they opted to discharge VAT on the actual amount of sale of goods utilized in the execution of the works contract in terms of Section 4 (7) (a) of the Act. 4. Initially, the petitioner was served with one Form VAT 304 dated 29-01-2013 informing the petitioner of a statutory audit visit, for the financial years 2011-12 and 2012-13. By a letter dated 2-2-2013, the petitioner requested for extension of time. The audit visit was conducted on 11-02-2013 and the petitioner produced the documents sought by the audit party, on three different occasions. 5. A second Form VAT 304 dated 16-03-2013 was served on the petitioner seeking further information and documents, regarding the composition scheme opted for, material supplied to the sub-contractors, details of sale and purchase summaries etc. The petitioner filed a reply on 1-4-2013. 6. After th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 3rd respondent to issue the impugned order. 12. The main thrust of the argument of Mr. S. Ravi, learned senior counsel appearing for the petitioner is that what was done by the petitioner was only a sale in the course of Inter State Trade and Commerce and that by ignoring the fact that the sale was made in-transit, the 3rd respondent levied VAT. It is the further contention of the learned senior counsel that works contract is also subject to the provisions of Sections 3 and 6 of the Central Sales Tax Act, 1956, as decided by the Apex Court in 20th Century Finance Corporation Ltd., v. State of Maharastra (2000) 6 SCC 12. The said decision of the Supreme Court was followed by this Court in Larsen & Toubro Ltd., v. State of A.P. 2016 (4) ALT 685, but the said decision was not, according to the learned senior counsel for the petitioner, appreciated in the proper perspective by the respondents. According to the learned senior counsel, even the CCT Circular dated 7-5-2010 made it clear that sales in-transit to a pre-determined or pre-identified buyer, will not, in any way, alter the Inter State nature of the transaction and hence, all the second and subsequent Inter State Sales fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier to Gujarat State Petroleum Corporation, although the payment of the suppliers' invoices should be made directly by the petitioner to the suppliers; that the obligation to issue 'C' Forms rested with Gujarat State Petroleum Corporation, under Clause 22.1.3; that contrary to these clauses, purchase orders were placed by the petitioner on the vendors located outside the State, enabling the vendors to manufacture the goods and raise invoices in the name of GSPC; that after the material got ready, invoices were raised by the vendors located outside the State of Andhra Pradesh in the name of Gujarat State Petroleum Corporation A/c EIL; that they bear the address of Gujarat State Petroleum Corporation and the Lorry Receipts were also raised by the vendors in the name of the petitioner against 'C' Forms issued by the petitioner; that the petitioner was in turn issued with 'E1' declaration forms; that the invoices issued by the vendors did not bear the stamp of transit sale; that the goods were earmarked to the end-users by the vendors located outside the State in view of the fact that the goods are tailor-made; that actually the movement of goods from outside the State vendors to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submissions made on behalf of the respondents, it is prayed that the assessment order could be set aside and the respondent permitted to make a de novo assessment. The reasons for such a stand in the written submissions, are too obvious to go unnoticed. The impugned order has to stand or fall on its own strengths and weaknesses. But the written submissions show that the impugned order requires a pair of crutches to stand. This is why the written submissions seek an order of remand. We shall consider the said request at the appropriate stage. 16. In view of the detailed written submissions made on behalf of the respondents praying only for a remand, it is not necessary for us to deal with the question of availability of alternative remedy. Even otherwise, the availability of alternative remedy is not a bar in cases where there is violation of the principles of natural justice or where there is inherent lack of jurisdiction or where the proceedings are without the authority on law. The petitioners pitch their claim on the ground of jurisdiction and lack of authority. Therefore, we have to deal only with this limited question. 17. As we have pointed out earlier, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace in the course of execution of a works contract or not. According to the Assessing Authority, the transfer of title occurs only when the goods used in the execution of the works contract are incorporated in the works. But the claim of the petitioner is that sales had actually taken place in the course of inter-State sales trade or commerce. 23. It is interesting to note that the Assessing Authority came to the conclusion that there was no sale in transit, on the ground that the contract was a turnkey project. This is despite the fact that the petitioner has been crying hoarse that the contract followed the OBE (Open Book Estimate) methodology. To come to the conclusion that the contract was a turnkey project, the Assessing Officer has relied upon the brochures uploaded in the web portal of the petitioner. But to come to the same conclusion, the learned Special Standing Counsel for the Department has relied extensively upon the terms and conditions of contract. Therefore, let us have a look at both. 24. In the screenshot taken by the Assessing Authority from the web portal of the petitioner, all that is stated is that the petitioner undertakes EPC (Engineering, Procurement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (2) of Section 6 of the Central Sales Tax Act, 1956 makes it clear that where a sale of any goods in the course of inter-State trade or commerce is effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement, effected to a registered dealer, shall be exempt from tax, if the goods are of the description referred to in Section 8(3). This exemption is subject to the registered dealer effecting the sale, fulfilling certain conditions contained in the proviso thereto. 28. Therefore, the conclusion of the Assessing Authority that a works contract carried out on turnkey basis is not covered by Section 3(b) and Section 6(2) of the Central Sales Tax Act, 1956, is completely wrong. 29. In 20th Century Finance Corporation Ltd. v. State of Maharashtra, three questions arose before a 3-member bench of the Supreme Court. One of the questions was whether a State can levy sales tax on transfer of right to use the goods merely on the basis that the goods put to use are located within its State irrespective of the fact that the sale had taken place in the course of an inter-State trade. Before answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an indivisible contract can be fictionally divided into two contracts -- one for sale of goods incorporated in the contract and the other for services. There can be no dispute about the fact that a works contract, in common parlance, is an entire and indivisible contract. What happens in turnkey projects is that the contractor himself is entrusted with the responsibility of procuring material and of rendering services of erection and installation. The third issue that was taken up for consideration by the Division Bench in Larsen and Toubro Ltd., was as to whether the sale of goods by the contractors to the owners fell within the ambit of Section 6(2) of the Central Sales Tax Act, 1956. While answering the said question, the Division Bench observed as follows: "The ingredients of Section 6(2) of the Central Sales Tax Act are - (i) there must be a sale of goods in the course of inter- State trade or commerce, (ii) the sale has either occasioned movement of such goods from one State to another or has been effected by transfer of documents of title during their movement from one State to another, (iii) there is a subsequent sale during such movement, (iv) the subsequent sale is ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposes to implement the "Scope of Work" detailed in Section 3 of this Contract Document on an "Open Book Estimate (OBE) method. This method of execution is as follows: (a) Under OBE mode of Project execution, EIL shall commence residual process design, detailed engineering and initiate procurement of all equipment/materials and construction activities through construction contractors. (b) Procurement activities shall be taken up by EIL for all equipment/materials and Tendering for works contracts as detailed in Article 3.4 below. (c) The cost of equipments, materials, site works/site services and their associated indirect costs such as taxes, duties etc required to build the Plant shall form part of reimbursable cost elements. The detailed list of reimbursable cost elements are attached in Appendix-3 to this Contract. (d) GSPC shall release the payment of reimbursable cost elements to EIL's Escrow account opened for this specific Project. EIL shall disburse payments to vendors, contractors and other agencies engaged by EIL from the Escrow account. EIL will furnish to GSPC a monthly forecast of cash flow towards payment to suppliers, contractors and other service providers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elements, which represent the actual amounts payable by the petitioner to suppliers, on supplies. 38. In fact, Clause 3.4 of the Contract lays down a detailed procedure for the petitioner to purchase materials and equipments. The petitioner is obliged under Clause 3.4 to adopt a competitive bidding process for the purchase of materials. It is the fundamental principle of the Law of Contracts that the flow of consideration for a contract can be from anyone, including persons other than the purchaser. This has been completely lost sight of by the Assessing Authority. 39. Clause 11.0 of the Contract made it clear that the materials/equipments/services to be provided by Gujarat State Petroleum Corporation for the project are given in Article 2.17 of Section 3. The list of items provided by Gujarat State Petroleum Corporation is given in Appendix 3, Part B. 40. Therefore, there was a clear difference made out in the Contract between the items and materials which are owned and supplied by Gujarat State Petroleum Corporation and materials which the petitioner had to procure from third party suppliers. 41. Clause 22.1.2 is sought to be taken advantage of by the Assessing Authority. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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