Quest

Vinayak Patkar
Advocate

Query

Kindly refer to your opinion dated 1st June, 2008 on the judgment of the High Court at Karnataka in the case of A&G Projects and Technologies Limited, Bangalore reported in 13 VST page 177. The Supreme Court has now set aside the judgment of the High Court. We must admit that the Supreme Court has held exactly what you had expressed in your opinion. But, the Supreme Court judgment, it seems has unsettled all the earlier decisions on this issue. Kindly explain the impact of the Supreme Court judgment which is reported 19 VST page 239.

Opinion

First of all we should see the question which was considered by the apex court. It is stated in paragraph no. 13 on page No. 249 of 19 VST in the following manner.

“The question before us is :if the sales stood covered u/s. 3(a) and if they were not entitled to exemption u/s. 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 apex court has also given reasons for formulating such question. These reasons are stated in paragraphs No. 8 & 9 on page 244.
“At the outset, it may be noted that in this case there is no dispute regarding the nature of the transaction being inter-State sale. As stated above, before the Assessing Officer the appellant had contended that in all, there were three independent contracts in the entire transaction. The appellant claimed exemption u/s. 6(2) in respect of the second and third contracts. They contended that the said contracts were “subsequent sales” falling u/s. 3(b) and consequently they were entitled to exemption u/s. 6(2) of the CST Act, 1956. This argument was rejected. The Assessing Officer came to conclusion that all the three contracts came u/s. 3(a) and, therefore the appellant was not entitled to claim exemption u/s. 6(2) of the CST Act, 1956.”

“We have to proceed in this case on the above basis that all the three contracts came u/s. 3(a) of the CST Act, 1956, as held by the Assessing Officer. What is urged on behalf of the appellant is that if all the three contracts stood covered as inter-State sales u/s.3(a) then in that event the proviso to Section 9(1) would not stand attracted.”

In my view, the apex court had to proceed on the basis of the conclusion made by the assessing officer due to the reason that the facts were not properly brought on record by the assessing authority. There were contradictions thereafter in further orders. The Joint Commissioner of Commercial Tax (Bangalore) in appeal had given a finding that the subsequent sale stood concluded before the movement of the goods and, therefore, there was no inter-State sale and thus section 6(2) of the CST Act, 1956 was not applicable. Kindly see Paragraph No.5 on page No.243. The High Court thereafter held that the sale of goods in favour of KPTCL was completed when the goods were appropriated by KPTCL before the commencement of the movement of goods from the place of manufacturers in Chennai to KPTCL in the State of Karnataka and therefore the inter-State sale of good fell u/s. 3(a) of the CST Act, 1956 and therefore was not entitled to exemption u/s. 6(2) of the 1956 Act. Kindly see paragraph No.7 on page No.243.

The judgment of the High Court of Karnataka is reported in 13 VST page 177. The High Court has reported the facts in paragraph No.13 (Page No.186) of that judgment. The goods which were ordered by M/s. A & G Projects & Technologies Ltd (Respondent) for the purpose of supplying the same to Karnataka Power Transmission Corporation Limited (KPTCL) were manufactured at Chennai as per the specifications of KPTCL. The goods were transported from the State of Tamil Nadu by lorry to Hyderabad and the same were delivered to KPTCL. The lorry receipt issued by the transporter i.e. Maruti Road Carrier, Hyderabad clearly mentioned the name of the consignor for supply of the goods in favour of KPTCL. On these facts following question was referred to the High Court.

“Whether there could be any subsequent sale effected by the respondent as per Explanation 1 appended to section 3(b) of the CST Act in furtherance to the ultimate buyer- KPTCL before thecommencement of the movement of the goods from other State to the State of Karnataka?”

If the facts narrated above are read with the question referred, then the natural inference is that the goods were delivered to the carrier (at Chennai) by A&G Projects & Technologies Ltd and thereafter the movement commenced. Thus, it was an admitted position that second sale was effected to KPTCL even before the movement of the goods had commenced. Kindly note that movement of the goods had commenced from Chennai i.e. from the State of Tamil Nadu to the State of Karnataka and it did not break till the goods were delivered to KPTCL in the State of Karnataka.

Thus, on what facts the assessing authority as well as the appellate authority came to the conclusion that the subsequent sale was effected before the commencement of the movement of the goods has remained unrecorded. The High Court also did not make any attempt to bring the clear facts on record. The appellant argued the matter before the apex court only on limited issue. The appellant was concerned with the levy of tax by the State of Karnataka. Therefore they only challenged the competency of the Karnataka State. It is true that the apex court should have examined all the aspects of the matter. But they did not deem it fit. But that does not mean that the apex court has held that sale effected u/s. 6(2) in a particular manner is not sale covered by that sub-section and is covered by Section 3(a) of the CST Act, 1956. In my view, therefore the apex court has not yet unsettled the law laid down till today by various courts, including that of the High Court at Kerala in the case of P.A. GEORGE & CO reported in 110 STC page 253.