M/S A&G Projects
& Technologies Ltd. Vs. State of Karnataka [2008] INSC 2131 (11 December
2008)
Judgment
CIVIL APPELLATE
JURISDICTION CIVIL APPEAL NO. 7233 OF 2008 (arising out of S.L.P. (C) No.
1065/08) M/s. A & G Projects & Technologies Ltd. ... Appellant(s)
versus State of Karnataka ... Respondent(s)
S.H. KAPADIA, J.
1.
Leave
granted.
2.
This
civil appeal filed by the appellant (assessee) is directed against the judgment
and order dated August 14, 2007 delivered by the Karnataka High Court in STRP No.85
of 2005.
3.
Appellant
is a company incorporated under the Companies Act, 1956 and engaged in
execution of electrical works contracts. Appellant is a registered dealer both
under the Karnataka Sales Tax Act, 1957 and the Central Sales Tax Act, 1956
("CST ACT
1956", for short). Appellant was awarded three independent contracts
towards - (i) supply of capacitor banks, (ii) execution of civil works and
(iii) erection and commissioning of capacitor banks at various sub-stations of
the Karnataka Power Transmissions Corporation Limited ("KPTCL", for
short) in the State of Karnataka. Pursuant to the contracts, appellant
appointed M/s. Bay West Power and Energy Pvt. Ltd. ("M/s. Bay West",
for short) as EPC contractor located outside the State of Karnataka for procuring
the capacitor banks ("equipment", for short) because the said EPC
contractor had a prior arrangement with the manufacturers of the said
equipment. In that transaction four parties were involved, namely, the
appellant, M/s. Bay West, manufacturers of the equipment and KPTCL being the
ultimate consumer. Although four parties had intervened, in substance, there
were three independent contracts involved in the transaction. The first
contract was between the appellant and KPTCL for supply of the equipment. The
second was between the appellant and M/s. Bay West. It was a procurement
contract. The third contract was between M/s. Bay West and the manufacturers.
4.
For
the assessment year 2000-01, the appellant filed its return of turnover under
the CST ACT 1956. Before the AO, appellant contended that the goods originated
from the manufacturers and ultimately reached KPTCL though the title to the
goods vested originally with M/s. Bay West as the EPC contractor who in turn
transferred the title to the goods to the appellant when they were in transit
and in turn the appellant transferred the title by endorsing the lorry receipt
in favour of KPTCL. According to the appellant, there were three sales.
According to the appellant, the second and the third sales were subsequent
sales, hence, the appellant claimed exemption from tax for such sales under
Section 6(2) of the CST ACT 1956. This argument of the appellant stood rejected
by the AO holding that the appellant's turnover fell under Section 3(a) of the
CST ACT 1956. According to the AO, the first sale by the manufacturers to M/s.
Bay West was a Section 3(a) sale; that, the second sale by M/s. Bay West to the
appellant was also a Section 3(a) sale and not a sale under Section 3(b) and
that even the subsequent sale by the appellant to KPTCL (ultimate purchaser)
was also a sale under Section 3(a) and not under Section 3(b) and consequently
it was held that the appellant was not entitled to exemption under Section 6(2)
of the CST ACT 1956. Consequently, the claim for exemption made by the
appellant stood dismissed. However, relying on the proviso to Section 9(1) of
the CST ACT 1956, the AO held that the State of Karnataka was competent to levy
the tax.
5.
Aggrieved
by the decision of the AO, the appellant herein preferred appeals before the
Joint Commissioner of Commercial Taxes (Appeals), Bangalore (hereinafter
referred to as "FAA"). That Authority took the view that the AO had
erred in holding that the goods stood appropriated by KPTCL at the premises of
the manufacturers. However, FAA proceeded to hold that the subsequent sale
stood concluded before the movement of the goods and, therefore, there was no
first inter State sale and thus Section 6(2) of the CST ACT 1956 was not
applicable.
Accordingly for
different reasons, the FAA upheld the levy of tax under the CST ACT 1956.
6.
The
matter was carried in appeal to the Karnataka Appellate Tribunal, Bangalore by
the appellant. It was held that mere failure of the appellant to prove its case
for exemption under Section 6(2) of the CST ACT 1956 did not make the tax
leviable by the State of Karnataka. The Tribunal observed that the dealer in
this case was located in the State of Karnataka and the purchaser was also in
the State of Karnataka. According to the Tribunal, the movement of goods under
the contract was not from the State of Karnataka but into the State of
Karnataka and, therefore, there was no inter-State sale in the State of
Karnataka and, therefore, the levy of tax on the value of the goods supplied
was totally unjustified.
7.
Aggrieved
by the said decision of the Tribunal, the Department preferred Sales Tax
Revision Petition No.85 of 2005 under Section 23(1) of the Karnataka Sales Tax
Act, 1957. By the impugned judgment the High Court held that the sale of goods
in favour of KPTCL was completed when the goods were appropriated by KPTCL
before commencement of movement of goods from the place of manufacturers in
Chennai (Tamil Nadu) to KPTCL in the State of Karnataka and, therefore, the
inter-State sale of goods fell under Section 3(a) of the CST ACT 1956 and,
therefore, was not entitled to exemption under Section 6(2) of the 1956 Act.
According to the High
Court since the sale in question did not comply with the conditions under
Section 6(2), the matter came under first proviso to Section 9(1) of the CST
ACT 1956. In this connection it was observed that the appellant had not
obtained C-Form from the State Department in respect of sale of goods sold on
the basis of contract entered into by the appellant with KPTCL and, therefore,
the proviso to Section 9(1) of the CST ACT 1956 stood attracted and
consequently the State of Karnataka was the "Appropriate State"
entitled to collect tax in respect of the goods sold by the appellant to KPTCL
under the CST ACT 1956. Hence this civil appeal is filed by the appellant
seeking to challenge the impugned judgment dated August 14, 2007.
8.
At
the outset, it maybe noted that in this case there is no dispute regarding the
nature of the transaction being inter-State sale. As stated above, before the
AO the appellant had contended that in all there were three independent
contracts in the entire transaction. The appellant claimed exemption under
Section 6(2) in respect of the second and third contracts. They contended that
the said contracts were "subsequent sales" falling under Section 3(b)
and consequently they were entitled to exemption under Section 6(2) of the CST
ACT 1956. This argument was rejected.
The AO came to the
conclusion that all the three contracts came under Section 3(a) and, therefore,
the appellant was not entitled to claim exemption under Section 6(2) of the CST
ACT 1956.
9.
We
have to proceed in this case on the above basis that all the three contracts
came under Section 3(a) of the CST ACT 1956, as held by the AO. What is urged
on behalf of the appellant is that if all the three contracts stood covered as
inter-State sales under Section 3(a) then in that event proviso to Section 9(1)
would not stand attracted. It is this argument which arises for determination
in this civil appeal and for that purpose we are required to quote the relevant
provisions of the CST ACT 1956 which have to be analysed in the context of the
controversy.
10.
Accordingly,
we quote hereinbelow the following provisions of the CST ACT 1956 which read as
under:
"SECTION 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 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 title to the goods during their
movement from one State to another.
Explanation 1---Where
goods are delivered to a carrier or other bailee for transmission, the movement
of the goods shall, for the purposes of clause (b), be deemed to commence at
the time of such delivery and terminate at the time when delivery is taken from
such carrier or bailee.
Explanation 2--Where
the movement of goods commences and terminates in the same State it shall not
be deemed to be a movement of goods from one State to another by reason merely
of the fact that in the course of such movement the goods pass through the
territory of any other State." "SECTION 6. Liability to tax on
inter-State sales.- (1) Subject to the other provisions contained in this Act,
every dealer shall, with effect from such date as the Central Government may,
by notification in the Official Gazette, appoint, not being earlier than thirty
days from the date of such notification, be liable to pay tax under this Act on
all sales of goods other than electrical energy effected by him in the course
of inter-State trade or commerce during any year on and from the date so
notified:
PROVIDED that a
dealer shall not be liable to pay tax under this Act on any sale of goods
which, in accordance with the provisions of sub- section (3) of section 5, is a
sale in the course of export of those goods out of the territory of India.
(2) Notwithstanding
anything contained in sub-section (1) or sub-section (1A), where a sale of any
goods in the course of inter-State trade or commerce has either occasioned the
movement of such goods from one State to another or has been 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 by a
transfer of documents of title to such goods,- (a) to the Government, or (b) to
a registered dealer other than the Government, if the goods are of the
description referred to in sub-section (3) of section 8, shall be exempt from
tax under this Act :
PROVIDED that no such
subsequent sale shall be exempt from tax under this sub-section unless the
dealer effecting the sale furnishes to the prescribed authority in the
prescribed manner and within the prescribed time or within such further time as
that authority may, for sufficient cause, permit, - (a) a certificate duly
filled and signed by the registered dealer from whom the goods were purchased
containing the prescribed particulars in a prescribed form obtained from the
prescribed authority; and (b) if the subsequent sale is made-- (i) to a
registered dealer, a declaration referred to in clause (a) of sub- section (4)
of section 8, or (ii) to the Government, not being a registered dealer, a
certificate referred to in clause (b) of sub-section (4) of Section 8:
PROVIDED FURTHER that
it shall not be necessary to furnish the declaration or the certificate
referred to in clause (b) of the preceding proviso in respect of a subsequent
sale of goods if, - (a) the sale or purchase of such goods is, under the sales
tax law of the appropriate State, exempt from tax generally or is subject to
tax generally at a rate which is lower than four per cent (whether called a tax
or fee or by any other name); and (b) the dealer effecting such subsequent sale
proves to the satisfaction of the authority referred to in the preceding
proviso that such sale is of the nature referred to in clause (a) or clause (b)
of this sub-section."
"SECTION 9. Levy
and collection of tax and penalties - (1) The tax payable by any dealer under
this Act on sales of goods effected by him in the course of inter-State trade
or commerce, whether such sales fall within clause (a) or clause (b) of section
3, shall be levied by the Government of India and the tax so levied shall be
collected by that Government in accordance with the provisions of sub-section
(2), in the State from which the movement of the goods commenced:
PROVIDED that, in the
case of a sale of goods during their movement from one State to another, being
a sale subsequent to the first sale in respect of the same goods and being also
a sale which does not fall within sub-section (2) of section 6, the tax shall
be levied and collected- (a) where such subsequent sale has been effected by a
registered dealer, in the State from which the registered dealer obtained or,
as the case may be, could have obtained, the form prescribed for the purposes
of clause (a) of sub-section (4) of section 8 in connection with the purchase
of such goods; and (b) where such subsequent sale has been effected by an unregistered
dealer, in the State from which such subsequent sale has been effected."
11.
Section
3 of the CST ACT 1956 formulates the principles for determining when a sale or
purchase takes place in the course of inter-State trade or commerce.
The question whether
a particular sale is an inter-State sale or an intra-State sale, though
essentially one of fact, is not the pure question of fact inasmuch as the facts
of a given case have to be examined in the light of Section 3 and, therefore,
it is a mixed question of fact and law. Section 3 defines when a sale or
purchase of goods takes place in the course of inter-State trade or commerce.
Two tests are applied, one of which is that a sale or purchase takes place in
the course of inter-State trade if it occasions movement of the goods from one
State to another, and the other test is that a sale or purchase takes place by
transfer of documents of title, during the movement of the goods from one State
to another. A sale (transfer of property) becomes inter-
State sale under
Section 3(a) of the CST ACT 1956 if the movement of goods from one State to
another is under the contract of sale, and the property in the goods passes to
the purchaser otherwise than by transfer of documents of title when the goods
are in movement from one State to another. In this case, it has been held that
all the three sales fell under Section 3(a) of the CST ACT 1956. In fact, the
appellant's case for exemption under Section 6(2) stood rejected by the AO specifically
on the ground that all the three sales stood covered under Section 3(a). Within
Section 3(b) are sales in which property in the goods passes during the
movement of the goods from one State to another by transfer of documents of
title thereto whereas Section 3(a) covers sales, other than those included in
clause (b), in which the movement of goods from one State to another is under
the contract of sale and property in the goods passes in either States [SEE:
Tata Iron & Steel Co. Ltd. v. S.R. Sarkar - (1960) 11 STC 655 (SC) at page
667]. The dividing line between sales or purchases under Section 3(a) and those
falling under Section 3(b) is that in the former case the movement is under the
contract whereas in the latter case the contract comes into existence only
after the commencement and before termination of the inter-State movement of
the goods. Therefore, it follows that an inter-State sale can either be
governed under Section 3(a) - if it occasions movement of goods from one State
to another - or under Section 3(b) - if it is effected by transfer of documents
of title after such movement has started and before the goods are actually
delivered. In other words, a sale which takes place under Section 3(a) shall
stand excluded from the purview of Section 3(b) and vice versa. By Section 3,
it was intended to define the class of sales which shall be deemed to be sales
in the course of inter-State trade or commerce. Under the CST ACT 1956, tax is
leviable on the sale of goods and not because of the movement of the goods. The
movement of the goods is only material for the purpose of deciding whether the
sale took place in the course of inter-State trade or commerce or whether such
sale was purely an intra-State transaction. The name given to a transaction by
the parties concerned, does not decide the nature of the transaction. In order
to make a transaction taxable under the CST ACT 1956, the transaction must be a
"sale" as defined in Section 2(g) taking place in the course of
inter-State trade or commerce in any of the manner provided for in clause (a)
or clause (b) of Section 3. Section 6(1) of the CST ACT 1956 imposes a
liability to pay tax on sale of goods other than electrical energy effected by
a dealer in the case of inter-State trade or commerce during a year.
Sub-section (1) of Section 6 appears to provide for multi-point tax but this is
subject to the other provisions of the Act. This qualification which is
reflected in the other provisions of the Act restricts the levy to a single
point subject to certain conditions, restrictions and circumstances. Sub-
Section (2) of Section 6 exempts from levy a subsequent inter-State sale to a
registered dealer of goods [described in Section 8(3)] and also to Government,
provided conditions of the proviso to sub-section (2) are fulfilled. However, a
subsequent sale not falling within Section 6(2) will, however, attract tax
because of Section 9(1), notwithstanding the fact that the first sale has been
subjected to tax under Section 6(1) of the CST ACT 1956. Thus Section 6 makes
every dealer liable to pay tax under the 1956 Act on all sales of goods other
than electrical energy effected by him in the course of inter-State trade.
Analysing Section 6(2), it is clear that sub-section (2) has been introduced in
Section 6 in order to avoid cascading effect of multiple taxation. A subsequent
sale falling under sub-section (2), which satisfies the conditions mentioned in
the proviso thereto, is exempt from tax as the first sale has been subjected to
tax under sub-section (1) of Section 6 of the CST ACT 1956. Thus, in order to
attract Section 6(2), it is essential that the concerned sale must be a
subsequent inter-State sale effected by transfer of documents of title to the
goods during the movement of the goods from one State to another and it must be
preceded by a prior inter-State sale. It is only then that Section 6(2) may be
attracted in order to make such subsequent sale exempt from levy of sales tax.
However, the proviso to sub-section (2) of Section 6 prescribes further
conditions and it is only on fulfillment of those conditions that the
subsequent sale stands exempted. If those conditions are not satisfied then,
notwithstanding the fact that the sale is a subsequent sale, the exemption
would not be admissible to such subsequent sales.
This is the scheme of
Section 6 of the CST ACT 1956.
12.
In
the present case, according to the AO, the second and the third sales were not
subsequent sales. According to the AO, all the three sales are inter-State
sales falling under Section 3(a) and consequently Section 6(2) (which deals
with the exemption) never stood attracted and, therefore, the appellant was not
entitled to exemption.
13.
The
question before us is : if the sales stood covered under Section 3(a) and if
they were not entitled to exemption under Section 6(2), whether the appellant
could have been taxed by the Department by invoking the proviso to Section 9(1)
of the CST ACT 1956? The object of Section 9(1) is two-fold. Firstly, it
provides that the tax on inter-State sales under Section 3(a) shall be levied
by G.O.I. and collected by the State Government from which the movement of
goods commenced. Secondly, it specifies the Appropriate State competent to levy
tax on second and subsequent sales made during the movement of goods from one
State to another as also the authority, where such second and subsequent sales
are exigible to tax. As state above, Section 6(2) of the CST ACT 1956 provides
for subsequent sales to be exempt from tax on the conditions prescribed
therein. However, if and where those conditions are not satisfied, even such
subsequent sales would attract tax and only in such circumstances the proviso
to Section 9(1) which specifies the State, which is competent to levy the tax,
would come in. [SEE: Jadhavjee Laljee v. State of Andhra Pradesh - (1989) 74 STC
201 (AP) at page 204]. The proviso to Section 9(1) contemplates two situations,
namely, (a) where such subsequent sale is made by a registered dealer and (b)
where such subsequent sale is made by unregistered dealer.
In respect of
situation (a), the proviso to Section 9(1) prescribes that the Appropriate
State competent to levy tax on such subsequent sale shall be the State from
which the registered dealer obtains a declaration in C-Form whereas in the case
falling in situation (b), it provides that the Appropriate State competent to
levy the tax shall be the State from which such subsequent sale has been
effected. However, the entire proviso to Section 9(1) applies only to
"subsequent sales" covered by Section 3(b) and not to sales under
Section 3(a) CST Act 1956.
14.
Applying
the above analyses to the facts of the case, we are of the view that the
proviso to Section 9(1) of the CST ACT 1956 is not applicable to the facts of
the present case as the AO has categorically held that all the three sales fell
under Section 3(a) of the CST ACT 1956. Once the said sales fall under Section
3(a) then under Section 9(1) the tax has got to be collected by the State of
Tamil Nadu from which the movement of the goods commenced. The case of the
appellant regarding subsequent sales effected during the movement of the goods
stood specifically rejected both by the AO and the FAA and, therefore, the
question of taxing such sales under the proviso to Section 9(1) of CST ACT 1956
did not arise.
15.
Our
above view is fortified by the judgment of this Court in the case of Bharat
Heavy Electrical Ltd. and Others v. Union of India and Others - (1996) 4 SCC
230. We quote hereinbelow paras 17 and 18 of the said judgment which read as
under:
"17. The
aforesaid survey of the relevant provisions of the Act clearly shows that
Sections 3, 4, 5, 9(1), 14 and 15 pertain to and deal with distinct topics and
different aspects of Articles 286 and 269. It follows that if a question arises
whether a sale is an inter-State sale or not, it has to be answered with
reference to and on the basis of Section 3 and Section 3 alone. Section 4, or
for that matter Section 5, is not relevant on the said question -- see the
Constitution Bench decision in TISCO v. S.R. Sarkar-(1960) 11 STC 655 and the
decisions in Manganese Ore (India) Ltd. v. Regional Asstt. Commr. of Sales Tax
- (1976) 4 SCC 124 and Union of India v. K.G. Khosla & Co. Ltd. - (1979) 2
SCC 242. Similarly, where the question arises, in which State is the tax
leviable, one must look to and apply the test in Section 9(1); no other
provision is relevant on this question."
"18. We may, at
this stage refer to the decision of the Bombay High Court in CST v. Barium
Chemicals Ltd. - (1981) 48 STC 121. A particular transaction of inter-State
sale was subjected to Central sales tax in Andhra Pradesh. The same sale was
again sought to be taxed under Central Sales Tax Act in Maharashtra, which was
questioned. The High Court adopted the following approach: Central sales tax is
levied and collected by the Central Government; it is immaterial in which State
it is collected; it cannot be levied or collected twice over; the State
Governments are merely agents of the Central Government in the matter of levy
and collection of Central sales tax;
if so, once levied
and collected in one State, rightly or wrongly, it cannot be levied and
collected in another State. In our opinion, this may be an oversimplification
of the matter. Maybe, from the point of view of the assessee, this approach is
sound enough but from the point of view of the States (keeping Article 269 in
mind) and the provisions of the Central Sales Tax Act, this may not be correct.
Section 9(1) specifies the State wherein Central sales tax shall be levied and
collected and the Central sales tax has to be levied and collected in that
State and in no other State. The approach of the Bombay High Court makes
Section 9(1) [which is enacted pursuant to Section 269(2), as pointed out
hereinabove] otiose and superfluous. It would not be proper to say, in the
light of the above constitutional and statutory provisions, that the dispute as
to in which State a particular inter-State sale is to be taxed is a matter
between the States and that so far as the assessee is concerned, it is enough
if he pays the tax at one place, whether it is really leviable in that State as
per Section 9(1) or not. The law requires that it should be levied and
collected in the State from which the movement of goods commences [Section 9(1)
read with Section 3(a)]."
16.
For
the aforestated reasons, we set aside the impugned judgment of the High Court
and accordingly allow the civil appeal filed by the appellant with no order as
to costs.
.................................J.
(S.H. Kapadia)
.................................J.
(Aftab Alam)
New
Delhi;
December
11, 2008.
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