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Latest Judgments and related complexities affecting construction / Works contract
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M/s SUJATA PAINTERS Vs THE STATE OF MAHARASHTRA and M/s. B.L. Kashyap and Sons Ltd v. State of Maharashtra.
Back ground Assessees undertakes certain works contract. The issue before the
Tribunal was whether Service tax would form part of the sale price to charge VAT
Assessees contention
Sales price u/s 2(25) of the MVAT Act - “the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged”.
Explanation I to the definition says that the Excise and Customs shall be deemed to be a part of the sale price of such goods
Revenue contentions Turnover of sales is defined in section 2(33) of the MVAT Act as ‘aggregate of
the amount of sale price’. Thus the consolidated sum mentioned in the invoice, including service tax would be the ‘aggregate turnover of sale of goods’
Tribunal decision By plain reading and the principle laid down by the SC in the case of Imagic
Creative Pvt. Ltd., wherein the Supreme Court has observed that payments of service tax and VAT are mutually exclusive. Therefore the Tribunal held that, Service tax would not be a part of sale price and consequently liable to VAT under the MVAT Act.
In the case of Netafim Irrigation India P. Ltd v. State of AP, the Andhra VAT Tribunal held that Service tax, being related to tax on service cannot be subject matter of VAT. The Commissioner of Trade and Taxes determined that VAT cannot be charged on the Service tax amount.
Reference 1. Imagic Creative Pvt. Ltd. Vs Commissioner of commercial taxes (Soft copy)2. Netafim Irrigation India P. Ltd, Balanagar, Hyderabad v. State of Andhra Pradesh,
Sales price as defined under various State VAT
Maharashtra Haryana“sale price” means the amount of valuable consideration paid or payable to a dealer
for any sale made
including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof,
other than the cost of insurance for transit or of installation, when such cost is separately charged.
“sale price” means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed at the time of sale as cash or trade discount according to the practice, normally prevailing in the trade,
but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof and the expression “purchase price” shall be construed accordingly;
Explanation.- (i) In relation to the transfer of property in goods (whether as goods or in some other forms) involved in execution of a works contract, “sale price” shall mean such amount as is arrived at by deducting from the amount of valuable consideration paid or payable to a person for the execution of such works contract, the amount representing labour and other service charges incurred for such execution, and where such labour and other service charges are not quantifiable, the amount of such charges shall be calculated at such percentage as may be prescribed.
Sales price as defined under various State VAT
Gujarat Rajasthan
same as Maharashtra “Sale Price” means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade,
but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof,
except the tax imposed under this Act;
Explanation III: Where according to the terms of a contract, the cost of freight and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice;
Sales price as defined under various State VAT
Chhattisgarh Uttar Pradesh
"Sale price" means the amount or any other consideration payable to a dealer as valuable consideration for the sale of any goods less any sum allowed as cash discount according to ordinary trade practice
but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof other than the cost of freight or delivery or the cost of installation when such cost is separately charged.
“sale price” means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade,
but inclusive of any sum charged for anything done by the dealer in respect of goods at the time of or before the delivery of such goods, other than cost of outward freight or delivery or cost of installation in cases where such cost is separately charged;
Explanation - (iii) Sale price of goods in relation to transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, shall be determined after deducting the aggregate of actual amount incurred towards labour and services, amount of profit relating to supply of labour and services and such other amounts as may be prescribed from the total amount received or receivable in respect of such works contract
M/s Suzlon Infrastructure Ltd Vs The State of Karnataka
Background Petitioner undertakes four activities for the customer viz :- (a) laying down of civil foundation (b) supply and installation of electrical line (c) Supply of electrical items (d) erection and commissioning of WTGs supplied by Customer
Assessing Authority (AA) levied tax on these activities considering the agreement as an integrated single composite contract.
Petitioner contention – Assessee paid Composition tax for (a) to (c) and for (d) which is
purely labour contract, the assessee discharged the service tax liability
Reliance on the Judgment H S Chandrashekar Hande vs State of Karnataka (2012(72) KLJ 116) Is placed
Department’s Contention –
Offer was of services required for the erection and installation of WTG, which is a single integrated contract. If work orders are segregated to execute the unique wind farm project it does not lose its composite, single, integrated nature
A contract has to be read as a whole and the purpose for which the contract was entered into by the parties has to be ascertained from the terms of the contract.
Here the intention of the parties is to enter into an agreement for the installation, erection and commissioning of WTGs.
Perusal of the offer letter, with the terms and conditions of the work orders proves that the assessee has executed a single integrated contract which cannot be segregated.
The scope of work and the insurance clause specifically establishes that the assessee has entered into an agreement for the installation, erection and commissioning of the WTGs, which includes labour work also.
Judgment “the tax payable under Section 17(6) is on the total consideration including
labour charges.
No exemption in respect of that labour charges included in the works contract under composition.
However, if he enters into purely labour contract, no portion of that labour charges is liable to tax under the KST Act.
Assessee has segregated activities as per the work orders executed against the offer for erection and installation of WTGs.
It is not exactly a case of receiving labour related charges for executing pure labour work without transferring any property in goods.
The entire contract, is in the nature of composite single integrated contract, though designed as it is four separate work orders. All the segregated activities are related to the very same project with the very same customer involving transfer of goods and labour.
The Apex Court while considering an identical provision in the case of Builders Association of India under the provisions of Kerala General Sales Tax Act has categorically held that alternate method of composition is optional.
The assessee having opted for the composition benefit voluntarily and with the full knowledge of the features of the alternate method of taxation, is liable to make the payment of tax on the total consideration of the works contract involving both labour and transfer of goods. Segregation of composite contract is not permissible under Section 15(1)(b) of the Act.
Even if any segregation is made for the purpose of billing and separate invoices are raised towards each portion, it does not alter the nature of composite contract.
Appeal was dismissed
Reliance Infrastructure Ltd vs DC, sales tax
Background Assessee entered into three separate contract agreements with DVC
(i) Supply including design, engineering, manufacturing, inspection, testing and packing of a plant and equipments including mandatory spares of the main plant as Turn Key Package from abroad,
(ii)Second one also relates to supply contract inclusive of the above of Indian origin
(iii)Third contract is restricted to a service. All the aforesaid contracts were agreed under a Turn Key Package for
commissioning and setting up of the Thermal Power Project I
Appellant Contention - On assessment Imposition of VAT on inter-State Sale or import of the goods
treating the three separate contracts to be composite one Power to bring the sale of the goods effected in course of inter–State sale or
by import within the purview of the West Bengal VAT Act - Forty-sixth Amendment
Judgment State cannot by legislature imposed Sales Tax on inter-State sale or the sale by
import in relation to a works contract
Provided the same is used in commissioning of the project on turnkey basis in the same form without changing its character through a manufacturing process.
The power of the state to legislate on imposition of Sales Tax in relation to the works contract is not unfettered but a restrictive one.
After the Forty-sixth amendment in the Constitution, the works contract is capable of being divorced into a supply and the labour and service.
It is not a universal rule that if the works contract is on the turn key basis, it imbibed inseparation and indivisible but depends upon the construction of the contracts and the intention of the parties to be gathered therefrom.
Judgment
Appellant has simply proceeded on the basis that though the separate contracts are entered into between the parties but they are on a turn key basis, it partakes the character of indivisible and inseparable works contract exigible to the State Sales Tax.
There is no finding recorded in the impugned order on the nature of the transaction reflected in the books maintained by the petitioner and the return filed in this regard – Revenue Recognition.
It requires a voluminous documents to be looked into whether the transfer of property in goods in connection with the Inter State Sale or by import can be segregated and the said authorities is incompetent to levy tax under the State Legislation.
The matter is relegated back to the Deputy Commissioner for reconsideration.
THE INDIAN HUME PIPE CO. LTD. Vs STATE OF RAJASTHAN
Background Contracts for execution of civil construction works including laying of
pipelines for water supply Assessing Authority, on the findings that the contract work executed by
the appellant is a contract, which is divisible work orders imposed tax and penalties under Section 7AA of the Act
Denial of application for exemption by the assessee under Rule 10A on the ground that the contract is a divisible contract, supply of pipes and the works for contract of civil work
Appellant submission The work performed was not an undivided work contract Appellant submission is the contract is an indivisible contract for the
supply of pipes and for the supply of labour and services, the Company is not liable to pay tax at the rate of 12%,
It was only liable to pay tax @ 2% on the turnover of the works contract, which has already been deducted at source by the PHED
Single judge order in appeal
The legal proposition with regard to definition of 'works contract' in Article 366(29A)(b) of the Constitution of India, has been explained in the recent judgment in Larsen and Toubro Ltd Vs. State of Karnataka
For sustaining levy of tax on goods, deemed to have been sold in execution of a works contract, three conditions namely (i) there must be a works contract; (ii) goods should have been involved in execution of a works contract; (iii) property in those goods must be transferred to a third party, either as goods or in some other form, have been amply clarified.
Judgment
A contract may involve both, a contract of work and labour, and a contract for sale
A transfer of property in goods under clause 29A(b) of Article 366, is deemed to be sale of goods involved in execution of a works contract by a person making transfer and purchase of those goods to a person, to whom such transfer is made.
The findings with regard to sale of pipes involved in the works contract, are findings of fact, which do not required any interference by us in these matters
So far as the exemption is concerned, we do not find any error in the finding recorded by learned Single Judge, that the exemption Notification having been issued on 29.03.2001, will only apply prospectively from the year 2001-2002, and that the benefit of exemption can be availed by a firm only after issuance of the Notification dated 29.03.2001. The petitioner has challenged the Assessment Year 1999-2000, and therefore, the Notification was not applicable to the dispute involved in the matter
Writ petition are dismissed
Upholds WCT on sub-contractor; Absent privity of contract, promissory estoppel inapplicable – Andhra Pradesh HC
HC rejects assessee’s exemption claim as ‘sub-contractor’ for construction of
port pursuant to exemption granted to contractor on all inputs used under concessional agreement with State Govt;
Refuses to invoke doctrine of promissory estoppel or legitimate expectation as assessee not a party to said agreement, more so, when similar claim of employer negated by this Court;
Value of goods will be value at time of incorporation in works contract, Rule 17(1)(e) does not postpone its determination till receipt of total consideration on completion of entire work, observes that the term “finalisation of accounts” must be understood w.r.t. particular financial year, not project completion several years thereafter;
Credit of WCT will be available on production of relevant certificate
Benefit of composition scheme cannot be denied merely for non-disclosure of works contract turnover in returns.
International Hospitals Pvt. Ltd. Vs State of UP and Others andFortis Health Care Ltd And Another Vs. State Of Punjab And Others [2015-TIOL-466-HC-P&H-VAT]Background The issue whether the use of stents and valves as an intrinsic and integral
element in the performance of a heart procedure on in-patients at a hospital would fall within the ambit of the expression “sale” has to be determined with reference to the definition of that expression in section 2(ac) of the Uttar Pradesh Value Added Tax Act, 2008.
Petitioner Contention When ever a stent or a valve is required to be implanted in a patient,
neither the hospital nor its pharmacy sells the implants directly to the patient.
In other words, the implants are used during the course of a surgical procedure and there is no "sale" when such a procedure is performed on the patient. Deputy Commissioner has imposed tax on the value of stents and valves used for providing medical services.
• In the reply which was sub mitted by the petitioner, reliance was placed on a judgment of the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 and on a judgment of a Division Bench of the Jharkhand High Court in Tata Main Hospital v. State of Jharkhand [2008] 36 (Soft copy)
Appellant Contentions –
The contention of the Revenue is that the contract between the patient and the hospital is a divisible contract in which the sale element involving the "sale" of the stent or valve to the patient is distinct from the surgical procedure and hence, the firm is assessable to tax.
Judgment
Neither of the six clauses of article 366(29A) of the Constitution is attracted to the rendering of service in this case
According to the hospital, where a patient comes to get admitted for a surgical procedure like an angioplasty, the contract is indivisible, in the course of which medical service is rendered to the patient.
Section 2(ac) defines the expression sale. Sub-clauses (i) to (vi) of section 2(ac) of the Act correspond to
subclauses (a) to (f) of article 366(29A) of the Constitution. Those clauses are not attracted. Hence, the only issue is as to
whether any element of sale is involved by the transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration in the course of the execution of a contract for the implantation of a stent or valve in the performance of a surgical procedure.
In the judgment BSNL Vs Union of Others, Supreme Court has quoted that, “
44. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring within the fiction of a deemed sale.
Of these three, the first and third involve a kind of service and sale at the same time.
Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29A) of article 366, there is no other service which has been permitted to be so split.
Jharkhand HC in Tata Main Hospital [2008] 36 NTN 149 held that the transaction of supply of medicines, vaccines, surgical items, x-ray films and plates, etc., to the indoor patients in course of treatment in TMH does not come within the purview of the definition of 'sale' as envisaged under section 2(t) of the Bihar Finance Act for the following reasons:-
(i) Supply of those articles are part and parcel of the treatment and they are essentially required for the treatment of the patients.(ii) Supply of those articles are incidental to the medical service being rendered by the TMH to the patients.(iii) Those articles are not being sold to the patients but the cost price of the same being adjusted against the head pharmacy and are not being separately charged item wise.(iv) Charge under the head pharmacy is part of composite charge realized by the TMH towards the treatment of those indoor patients.“
Hence the appeal was allowed
Hindustan Zinc Ltd. v. Commercial Taxes Officer [TS-406-SC- 2014-VAT]
Supply of explosives to contractor for use in mining operations. Whether constitutes as ‘sale’ ?
The cost of explosive was separately charged from the contractor by deducting the value of the explosive from bills of contractor.
As per the statutory condition of licence obtained under Explosive Act, 1884, taxpayer could not re-sell the explosives purchased for its own use.
In view of this, the taxpayer purchased the explosives against declaration on payment of concessional tax at 4 per cent.
However, the revenue issued notices on the ground that supply of material such as cement, iron, steel, and explosives to various contractors was ‘sale’.
The taxpayer replied that the ownership of goods had never been transferred to the contractor and therefore, such transaction does not amount to ‘sale’ to be liable to sales tax.
The High Court held that the transaction in question is a sale on the grounds that all ingredients of sale are present in the transaction.
The High Court rejected taxpayer’s contention that the said explosives have been consumed in the works contract and the transaction cannot be a sale.
It observed that consumable items are only the items used ancillary in works contract and those can be water, electricity and fuel, etc., as these items are not goods transferred to the contractor in execution of works contract and providing above or like items, the contractor is given some facilities by the Principal engaged in works contract.
Accordingly, the revenue was justified in levying the tax. The High Court dismissed the petition filed by the taxpayer. Aggrieved by such order, appeals were filed before the Supreme Court, which dismissed the same and upheld the High Court order.
M/s Surya Constructions Vs. Commercial Tax Officer (WC & LT) – Kerala High Court
Background The petitioner is a works contractor who was awarded a contract by
BPCL. The entire work that was sub contracted and, therefore, no portion of the work was executed by the petitioner
The petitioner approached the CTO for the issuance of liability certificate in Form 20B of the Kerala Value Added Tax Rules
The amount represented the profit of the petitioner from the transaction and the certificate was required to show that the petitioner has discharged his tax liability, if any, to the Department in respect of the said sum.
The request of the petitioner was initially turned down by the CTO on the ground that the petitioner had to pay the tax amount on the profit retained by him.
On further appeal certificate was granted on payment of tax on profit amount
But the petitioner filed for refund claim which the authority has denied
Appellant contention It is pointed out that while seeking a Form 20B certificate, the petitioner had indicated
that the amount represented the cost of establishment charges and profit for supplying labour and services. This, according to the respondent, was not a permissible deduction under Rule 10(2)(a) of the Kerala Value Added Tax Act, 2005.
It is also submitted that on account of Circular No.5/2006 dated 11.1.2006 (soft copy), the petitioner would be liable to pay tax even on the profit made out of a contract
Judgment In a case where there is an agreement between an awarder and a contractor and the
entire work under the contract is sub contracted
The execution of the work then involves a transfer of material, in the course of execution of the works contract, directly from the sub contractor to the awarder of the contract.
The decision of the Honourable Supreme Court in State ofAndhra Pradesh and Others v. Larsen & Tourbo Ltd. and Others[(2008) 17 VST 1(SC)] is an authority for this proposition. At paragraph 19 of the said decision, it is stated as follows:
“19. If one keeps in mind the above quoted observation of this court in the case of Builders Association of India [1989] 73 STC 370 the position becomes clear, namely, that even if there is no privity of contract between the contractee and the sub-contractor, that would not do away the principle of transfer of property by the sub-contractor by employing the same on the property belonging to the contractee.
This reasons is based on the principle of accretion of property in goods. It is subject to the contract to the contrary.
Thus, in our view, in such a case the work executed by a sub-contractor, results in a single transaction and not multiple transactions. This reasoning is also borne out by section 4(7) which refers to value of goods at the time of incorporation in the works executed.
Thus, on the facts of the instant case, it would be clear that, when the petitioner had sub contracted the entire work and also obtained the Form 20H certificate from the sub contractor who undertook to discharge the tax liability in respect of the entire work that was sub contracted, the amounts retained by the petitioner, from out of payments made by the awarder of the contract, represented only the profit element that accrued to the petitioner in his capacity as the main contractor.
Hence, the demand of tax from the petitioner is thus illegal and liable to be set aside
The respondents are directed to refund the tax amount to the petitioner or, in the alternative, give credit to the said amount in the return submitted by the petitioner for future periods.
• 2015-VIL-95-CESTAT-HYD-ST
• Service Tax - Pre-deposit - Works Contract Service - Back to back agreement with sub-contractor –
• Demand of service tax from principal contractor whereas work was executed by the sub-contractor under the 'back to back basis' agreements
• 2015-VIL-95-CESTAT-HYD-ST
• HELD - In a construction works contract, the property used in the construction of a building/project passes from the builder to the owner of the land on which the building is constructed when the goods or materials used are incorporated in the building and
• that is so, even if there is no privity of contract between the contractee and the sub-contractor, since the deemed transfer of property in goods is based on the principle of accretion of property in goods
• On the basis of the law declared by Supreme Court in Larsen & Tourbo Ltd [2008-VIL-30-SC], it prima facie appears that no ‘works contract service' was provided by the appellant to the Government of Andhra Pradesh since it was the sub-contractors who transferred the property in goods to the State Government by the process accretion of such goods into the property of State Government, Pre-deposit waived and stay granted
VAT provisions applicable on construction of immovable property, not sale after construction
HC clarifies on taxability of development of residential complex activity under Uttarakhand VAT Act; VAT applicable when person agreeing to undertake construction sells the construction as 'goods' covered by the Act,
But if he sells immovable property after construction, no sale of goods takes place; Provisions of Act attract as soon as property in goods is transferred by way of sale, and tax
becomes leviable; Remits back matter to Commissioner to decide issue after determining object of assessee’s
business, viz., sale of immovable property as flats, apartments or construction of same on behalf of other : Uttarakhand HC
HC clarifies on taxability of development of residential complex activity under Uttarakhand VAT Act;
VAT applicable when person agreeing to undertake construction sells the construction as 'goods' covered by the Act,
But if he sells immovable property after construction, no sale of goods takes place;
Provisions of Act attract as soon as property in goods is transferred by way of sale, and tax becomes leviable;
Remits back matter to Commissioner to decide issue after determining object of assessee’s business, viz., sale of immovable property as flats, apartments or construction of same on behalf of other : Uttarakhand HC
State of Karnataka Vs. Reddy Structure (P.) Ltd. – SC
Background Transfer of property in goods in execution of contract for
development of property—land value cannot be included in taxable value.
Respondent Contention"(1) Whether, on the facts and in the circumstances of the case and in law, the Tribunal is justified in giving a finding that deducting the value of land from the total receipt of the builder is impermissible, but only value of the transfer of property in goods has to be considered for the purpose of assessment by adding G.P., as the same is against provisions of law?“ In short, the question that falls for our consideration is whether the land value should form part of taxable value for levy of VAT or sales tax?
Judgment
Judgment
Para referred from judgment of the Supreme Court in Larsen and Toubro Limited [2013] 65 VST 1 (SC) ; [2013] 77 KLJ 177.
"100. We have no doubt that the State Legislatures lack legislative power to levy tax on the transfer of immovable property under entry 54 of List II of the Seventh Schedule.
However, the States do have competence to levy sales tax on the sale of goods in an agreement of sale of flat which also has a component of a deemed sale of goods. Aspects theory though does not allow the State Legislature to entrench upon the Union List and tax services by including the cost of such service in the value of goods but that does not detract the State to tax the sale of goods element involved in the execution of works contract in a composite contract like contract for construction of building and sale of a flat therein. . ."
"(xi) Taxing the sale of goods element in a works contract under article 366(29A)(b) read with entry 54, List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works even though property passes as between the developer and the flat purchaser after incorporation of goods.“
From a bare perusal of the observations made by the Supreme Court in paragraph 100 and the conclusion drawn in sub-paragraph (xi) of para 101, it is clear answer to the question raised in the revision petitions.
• Hence, With these observations, this group of sales tax revision petitions is disposed of. No costs.
• 2015-VIL-147-CESTAT-DEL-ST-LB
• Service Tax – Larger (Special) Bench reference pertaining to works contract
• In view of the majority opinions recorded, the reference is answered as: Service elements in a composite (works) contract (involving transfer of property in goods and rendition of services), where such services are classifiable under “Commercial or Industrial Construction”; “Construction of Complex” or “Erection, Commissioning or Installation” (as defined), are subject to levy of service tax even prior to (01.07.2007) insertion of sub-clause (zzzza) in Section 65(105) of the Finance Act, 1994
Indure Ltd. & Anr vs Commercial Tax Officer & Ors
Background Indure Ltd. contracted with NTPC for supply, erection and commissioning of its
Turnkey Project. Company imported 12 items for supply in such project. Two separate contracts were made. One for Supply and another for Erection
and Commissioning VAT on subsequent sale is not paid as it was in the course of Import. Out of 12 items 11 items were imported at Ghaziabad, UP and 1 item i.e. MS
Pipes has been imported at West Bengal. State of Uttar Pradesh has allowed exemption u/s 5(2) but the State of West
Bengal has not given such exemption and he made appeal to CTO, Assistant Commissioner, Tribunal and High Court.
But his appeal was dismissed by every authority and finally he applied to Supreme Court.
Two issues were raised in front of Supreme Court -1. Whether Import of pipes were pursuant to contract between Indure and NTPC?2. Whether such import and there supply to NTPC were inseparable and integral part of contract?
Respondents contemplation It was neither mandatory nor obligatory required for the company to import
such goods. NTPC has not provided any name of supplier in contract and which proved
that company has imported goods in its own accord. Indure has obtained Import license and one of the clause in it has specified
that Indure will not be reselling these goods but these goods would be supplied in contract with a 33% value addition. Respondents contemplated that such requirement has not been fulfilled.
Judgment SC held that along with Pipes 11 other items were also imported, which were
given exemption from State levy then, why Pipes are not eligible for exemption?
Import has only taken place because of Indure's Contract with NTPC and respondents failed to establish the fact that such pipes are not imported for the said contract.
There must be an integral connection between the import and subsequent sale.
Earmarked goods from the logo of contractee was evidence of that Liability for import must arise from statue, contract or mutual
understanding of parties. The contract had mentioned that goods were suppose to be imported
It is established that goods imported cannot be diversified to any other contract and there is an inextricable link between the import and subsequent sale and therefore, such imports are made for subsequent sale and it is a sale in the course of Import
Appeal allowed
ABB Vs State of Karnataka and Others
Background The contractor was obliged to procure from the manufacturers, who comply with certain qualified
requirements It also provided that all the equipment's/materials to be submitted for inspection by a duly
authorised representative of the KPTCL Contract consists of supply of all equipment's/materials, erection, testing and commissioning Contractee had provided choice of vendors for procurement from others states The Deputy Commissioner of Commercial Tax passed an order of assessment granting exemption in
respect of the turnover pertaining to inter-State purchases of goods used in the execution of works contract. First Revisional Authority, initiated suomoto proceedings to revise the order of assessment on the ground, that the exemption in respect of the turnover representing inter-State purchase of goods utilized in the works contract was erroneously allowed.
Petioner’s contemplation Provisions contained in Section 5B read with the definition of "taxable turnover" as occur in Section
2(1) (u-1), the assessee is not liable to pay tax on the goods procured by him from outside the State. He submitted that the goods, which the assessee procured in the course of inter-State trade, the tax
was paid by the assessee, under the Central Act to the States from which the goods were purchased. In short, he submitted that under any circumstances, the assessee is not liable to pay any tax under
Section 5-B of the Act.
Appellant contention
The assessee being a contractor, purchased goods and then used in execution of works contract awarded by the KPTCL.
He submitted, that the assesse purchased the goods from different States and stored at his place and, therefore, the second revisional authority has rightly held that the purchase of goods from outside the State for the purpose of execution of works contract as per the specification given by KPTCL and storing at his godown is not amounting to inter-State sale falling under Section 3(a) of the Central Act.
He submitted that the works undertaken by the assessee amounts to works contract which was exigible to tax under Section 5B of the Act since the assessee only purchased the goods and thereafter incorporated the said goods in execution of the works contract at Bijapur for KPTCL.
Judgment
If a contract of sale contains a stipulation for such movement, the sale would, of-course, be a inter-State trade. But it can also be inter- State sale even if the contract of sale does not itself provide for movement of goods from one State to another but such movement would be result of a covenant in the contract of sale or is an incident of such contract.
It is true, in the instant case, the contract of sale did not require or provide that goods should be moved from other States to the State of Karnataka at Bijapur.
But it is not true to say that for the purpose of Section 3(a) of the Central Act it is 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 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 goods passes.
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 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 inter-State movement must be specified in the contract itself.
It would be sufficient if the movement was in pursuance of and incidental to the contract of sale.
In the present case the movement of goods from one State to another may or may not be as a result of a covenant but definitely it was an incident of the contract.
the appeal is allowed
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