The
Hon’ble Supreme Court delivering very important judgment with regard to
taxability of inter-state works contract. In the case of Commissioner,
Delhi VAT vs ABB Ltd., it has been held that in
case the goods are purchased from other States or are imported from outside the
country for the purpose of only using in the works contract, then the
transaction would be covered under the Central Sales Tax Act and not liable to
tax under local VAT act.
This judgment goes a long way in determining everyday
disputes with regard to taxability of goods where the movement has started from
other State for the purpose of using in a specified works contract.
The Apex
court relying upon the judgements in Oil India Ltd v. The Superintendent of Taxes (1975) 35 STC 445 (SC) = (1975) 1
SCC 733 (2) English Electric Company of India Ltd. v. The Deputy Commercial Tax
Officer (1976) 38 STC 475 (SC) = (1976) 4 SCC 460 (3), settled the issue with regard to taxability of deemed
sales in the cource of inter-state sales and held as under:
"In
Oil India Ltd. this Court held that the inter-state movement must be the result
of a covenant, express or implied in the contract of sale or an incident of the
contract. In other words, the covenant regarding inter- state movement need not
be specified in the contract, It would be enough if the movement was in
pursuance of or incidental to the contract of sale. In English Electric Co. of
India Ltd. the law was clarified thus: “if there is a conceivable link between
the movement of the goods and the buyer‟s contract, and if in the course of inter-State
movement the goods move only to reach the buyer in satisfaction of his contract
of purchase and such a nexus is otherwise
inexplicable, then the sale or purchase of the specific/ascertained goods ought
to be deemed to have taken place in the course of inter-State trade or commerce…………”. In South India Viscose Ltd. it was held that if
there is a “conceivable link” between contract of sale and the movement of
goods from one state to another to meet the obligation under a contract of sale
it would amount to an inter-state sale and such character will not be changed
on account of interposition of an agent of the seller who may temporarily
intercept the movement."
With regard to the sale
in the cource of import in a works contract the Apex Court relied upon its
judgement in M/s. K.G. Khosla & Co. v. Deputy Commissioner of
Commercial Taxes, Madras (1966) 3 SCR 352 = AIR 1966 SC 1216 and held that no
privity of contract is required between foreign sellers and the contractee to
establish the sales in the cource of import in a works contract, rather for
establishing the sales in the cource of import the only thing required
is the movement of goods from another country to India should be in
pursuance of the conditions of the contract.
The court held as under:
"A Constitution
Bench of this Court had the occasion to consider in the case of M/s. K.G. Khosla
& Co. (supra) whether sales in that case were in the course of imports. The
assessee in that case had a contract with the Director General of Supplies, New
Delhi for supply of axle bodies manufactured by its principals in Belgium.
Although goods were inspected in Belgium also but under the contract they could
be rejected on further inspection in India. After supplying the goods the
assessee claimed the sales to be in course of import. After losing up to High
Court, the assessee succeeded before the Supreme Court. The Constitution Bench
held that Section 5(2) of the CST Act does not prescribe any condition that
before the sale could be said to have occasioned import, it is necessary
that the sale should precede the import. The sale is only required to be
incidental to the contract. In other words the movement of goods from another
country to India should be in pursuance of the conditions of the contract. The
incident was held to be import of goods within Section 5(2) on the reasoning
that the entire transaction was an integrated one by which a foreign seller
through its Indian agent namely the assessee sold the goods to Indian purchaser
namely the Director General of Civil Supplies."
To sum up after this
judgement, in case the goods are purchased
from other States or are imported from outside the country for the purpose of
only using in the works contract, then the transaction would be covered under
the Central Sales Tax Act and not liable to tax under local VAT act.
The full judgement can be
downloaded herebelow:
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