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Central Sales Tax Act, 1956 – Works Contract - Whether the supply of the goods from Mumbai to Delhi to execute the works contract constitute inter-state sales - Tribunal view that the goods were appropriated to the contract, which was concluded in Mumbai, upon acceptance of the orders – Revenue view that sale of the right to use the elevators was concluded in Delhi, which was also the place of performance of the contract 

HELD - the appreciation of the law by the Tribunal in this case is sound and unexceptionable. The placement of an order by the agent for procurement of the lifts in this case was merely an offer. It is only upon its acceptance and further steps taken by the supplier that an offer crystallizes into a binding promise or contract. That took place in Mumbai. It is now too far well settled that the incidence of Central Sales Tax or even sale of goods, occurs where the goods are appropriated to the contract.

In this case, the specifications and the invoices issued in pursuance to the contract are sufficient to hold that the goods that moved from outside Delhi for execution of the works contract are inter-state sale and as such cannot be taxed under the Delhi Sales Tax – the Tribunal order is upheld and Revenue appeal is dismissed

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Central Sales Tax Act – Work Contract - inter-State trade or commerce – inter-State purchase of Iron sheets - conversion into pipes by way of job work to fulfill the obligation under contract in the State of Tamil Nadu – eligibility for exemption under sub-section (a) of section 38 of the TNGST Act 1959
When the assessee takes delivery of Iron sheets and handed over the same to job works for conversion of the same into spiral pipes, whether it would confer the transaction still under inter-State trade or commerce after taking delivery of the goods so purchased from inter-state
HELD – Mere stoppage and conversion would not alter the character of the transaction. The stoppage and conversion occurred only at the instance of the buyer
The goods were moved in pursuant to the contract and the goods despatched were not meant to be sold in the open market - There is no restriction that the goods should be moved intact. It is not for the revenue to suggest that the goods must reach as it is -
Stoppage and conversion do not make the transaction a local sale. Because of conversion, it cannot be held that there is no movement of goods. It is only for the purpose of Section 5(3) of the CST Act that any goods undergoing commercial change is relevant. It is not for the purpose of determining the inter-State sale under Section 3(a) of the CST Act – answered in favour of assessee and revenue appeal is dismissed
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  • HC upholds Tribunal order which allowed tax exemption u/s 6A of CST Act on sale of milk, ghee & butter through consignment agents to Union territory, on the basis of ‘Form F’ furnished to substantiate ‘inter-State’ movement;
  • Tribunal had rejected Revenue’s stand that such sales were local transactions liable to VAT in the State of Gujarat since goods were lifted by consignment agents from dairy of assessee against remission of sales proceeds in advance; Tribunal had also refused to accept statements of transporters produced at second appellate stage, holding that Revenue could not rely on inquiries held behind the back of assessee without affording any opportunity of cross examination;
  • Tribunal had further recorded a finding that 15 years after transactions having taken place, plea of production of defective F Forms u/s 12(5) of CST Act could not be entertained; Accordingly, HC finds no fault in Tribunal’s observation that all 3 ingredients of the inter-State transaction, viz. (i) implied stipulation in the contract regarding the inter-state movement of goods, (ii) actual movement of goods from one State to another, and (iii) conclusion of sale in another State, were satisfied: Gujarat HC
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Central Sales Tax Act – assessee dispatched “made to order fully finished missile” without warhead to Nagpur branch for job work - the combat missiles which are manufactured/assembled by the petitioner at its Hyderabad unit are sent to Nagpur unit for the purpose of integration of warhead and subsequently dispatched to the Indian armed forces from Nagpur

Demand of Sales Tax in the State of Maharashtra on the ground that since the warheads were stored and integrated into the missile at Nagpur, the petitioner was liable to pay Sales Tax in Maharashtra - The petitioner contention that it was already paying taxes in Andhra Pradesh / Telangana and that it was using the Nagpur unit merely as a stop-over in the inter-State movement

  • HELD - the understanding of the assessing officer that it is the movement of finished goods, which would be the determining and conclusive factor is legally flawed
  • There is non-application of mind to very crucial and relevant factors, which govern the applicability of the Central Sales Tax Act to the inter-State trade and commerce - the movement of goods has been made pursuant to an agreement of sale with the President of IndiaThe assumption of the assessing officer overlooks the fact that the assumption of the assessing officer overlooks the fact that a warhead is a complete unit when imported from Russia
  • The Hon'ble Supreme Court of India has clarified that this is not a tax which could be said to be levied in its true sense by the State Government, it is only the Central Sales Tax, which has to be collected and the authority in that regard was in issue. Hence, we do not see any justification in law for the distinction made by the assessing officer about the goods being brought in semi-finished or finished status. In the facts and circumstances, such a dispute does not arise – assessee petition allowed
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  • Bombay HC rules on situs of inter-State sale and appropriate State for purpose of levy & collection of CST, where semi-finished goods, viz. missiles, are transferred from one State to another for job-work (warhead integration) and thereafter, dispatched outside the State pursuant to agreement of sale with President of India;
  • Notes that assessee, a joint venture company between Defence Research & Development Organisation and State Enterprise incorporated under Russian Federation's legislation, received an order for missiles from Ministry of Defence, and for purpose of execution thereof, components imported from Russia were stored at Nagpur and thereafter stock transferred to Hyderabad for assembly and fixing on SKD article; Taking note of Section 9(1) of CST Act, HC states, it is clear that establishment in Andhra Pradesh, where components are assembled, makes missiles and is the State from where movement of goods in course of inter-state sale commences, and since it is impossible to fit the warhead at facility located in civilian area at Hyderabad, the missile is brought to Nagpur in Maharashtra for same purpose;
  • Rejects Assessing Officer’s (AO) contention that, movement of semi-finished goods from Hyderabad to Nagpur cannot be construed as a ‘mere stop-over’ in inter-State movement as claimed by assessee, and since final product (missile) is appropriated and dispatched from Nagpur in the form of a missile, movement is occasioned from State of Maharashtra: Observes, there is a fundamental error in understanding of AO that said transaction is an inter-state sale from Maharashtra and not Andhra Pradesh, holds that findings of AO that it is movement of finished goods, which would be determining and conclusive factor, is legally flawed;
  • Criticising AO’s approach, HC finds non-application of mind to the very crucial and relevant factors governing applicability of CST Act to inter-State sales, since in all cases relied upon by AO, movement was of ‘finished goods’ and not of ‘semi-finished goods’;
  • Relying on principles enunciated by SC in National Thermal Power Corporation Ltd. and Bharat Heavy Electrical Ltd., HC states that, when matter is settled by Apex Court, no further view is possible; Refuses to relegate assessee to alternative appellate remedy, since assessment order was found to be vitiated in law and AO exceeded his powers, authority and jurisdiction : Bombay HC
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