IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN TUESDAY, THE 31ST MARCH 2009 / 10TH CHAITHRA 1931 ST.Rev..No. 242 of 2007() ------------------------- TA.95/2006 of S.T.A.TRIBUNAL,ADDL.BENCH,KZD. .................... REVISION PETITIONER/APPELLANT/ASSESSEE ---------------------------------------------------------- M/S.BHARATH HEAVY ELECTRICALS LTD., NALLALAM POWER PLANT,KOZHIKODE, REPRESENTED BY ITS DEPUTY GENERAL MANAGER (FINANCE), M.N.RAMKUMAR. BY ADV. SRI. V.RAMACHANDRAN, SENIOR COUNSEL, ADV. SMT.S.K.DEVI SRI.M.RAJ MOHAN RESPONDENT(S): RESPONDENT/REVENUE --------------------------------- 1. STATE OF KERALA, REPRESENTED BY ITS SECRETARY (FINANCE), THIRUVANANTHAPURAM. ADDL. 2. KERALA STATE ELECTRICITY BOARD, VYDHUTHI BHAVANAM, PATTOM, TRIVANDRUM, REP. BY ITS PROJECT MANAGER, KOZHIKODE DIESEL POWER PROJECT, NALLALAM, KOZHIKODE. (ADDL. R2 IS IMPLEADED AS PER ORDER IN IA.NO. 462/2009 DATED 31.3.2009.) R1 BY GOVERNMENT PLEADER SRI. VINOD CHANDRAN ADDL. R2 BY ADV. SRI.V.V.ASOKAN THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 31/03/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... S.T. Rev. No.242 of 2007 .................................................................... Dated this the 31st day of March, 2009. ORDER Ramachandran Nair, J. The revision case is filed by BHEL, a Government of India Undertaking, which constructed a power plant for KSEB. The project involved import of lion share of the equipments installed at the site. Even though supply of foreign equipments were arranged by the petitioner-company, under the terms of contract, the imported goods were cleared on KSEB remitting customs duty. In the sales tax assessment of the petitioner, the Assessing Officer declined exemption on the value of imported goods claimed under Section 5(2) of the CST Act. The assessment is sustained by the Tribunal and hence this revision case. We have heard Senior counsel Sri.V.Ramachandran appearing for the petitioner, Special Government Pleader Sri.Vinod Chandran appearing for the respondent-State and Sri.V.V.Asokan, appearing for the KSEB, which is impleaded as additional respondent herein. 2. During initial hearing held today, we feel this is a matter which 2 should be considered by the Government for the reason that ultimate liability appears to be on KSEB because clause 5.5 of the agreement between petitioner and the KSEB is as follows: "Taxes and Duties: Owner shall be responsible for any Indian customs duties assessed upon the Supplies from foreign sources. Owner shall make direct payment to the relevant Government Instrumentality of all customs duties for which Owner is responsible hereunder. Similarly variation in Excise Duty & CST and any other taxes & duties like Works Contract Tax, Entry tax, Octroi, etc. shall be reimbursed to the Supplier for the direct transaction between Owner and Supplier." From the above clause it appears that the liability towards duty and taxes on the petitioner is only existing rate of Excise Duty and Central Sales Tax. Variations of such duty and tax are agreed to be borne by KSEB which is the party styled as "Owner" in the agreement. Besides the variations in excise duty and central sales tax, KSEB appears to have undertaken to pay taxes and duties like Works Contract Tax, Entry tax, Octroi etc. If this court confirms the order of the Tribunal, then obviously BHEL will approach KSEB demanding the tax and interest thereon and if they refuse to pay, another round of litigation will start between a Central Government Undertaking and the KSEB 3 which is under the control of the State Government. We do not think we should encourage unnecessary litigation between the Government agencies on the one side and the Government on the other side and later between two entirely owned Government agencies. This is not just a question of levy of sales tax on a dealer, but the issue to be considered is whether the project cost of the KSEB should be enhanced by another around Rs.20 crores and if it goes to that, whether the Government is willing to give exemption of tax liability to the KSEB or whether KSEB should pay it. If the Board has to meet the liability about which we do not wish to express our view, then we do not think the same should happen after protracted litigation leading to substantial expenditure for the BHEL, for the KSEB and for the Government. In order to prevent unnecessary litigation among parties, we close with the following directions. (i) The Chief Secretary to Government will constitute a committee with himself as Chairman and Secretary, Department of Electricity and Secretary, (Taxes) as Members and decide whether under the contract KSEB is liable to reimburse the tax to BHEL for 4 payment to the State and if they find the Board liable, then the Committee should consider exemption on the tax payable for the imported components of the project, keeping in mind the financial position of KSEB and other tax incentives being granted by Govt. to KSEB. (ii) If the Committee finds liability for KSEB ad grants exemption, then the demand confirmed by the Tribunal will not be enforced against the petitioner. (iii) If the Committee is of the view that the KSEB is either not liable to reimburse tax to petitioner or even if it is liable, it should pay it then the matter should be informed to petitioner and to KSEB for petitioner to move this Court for reopening the case. 3. The Chief Secretary to Government is directed to constitute committee and take decision, if required, after co-ordinating with the KSEB and BHEL and communicate the same to the parties, within a period of three months from date of receipt of copy of this judgment. The stay granted by this court will continue until decision is communicated by the Chief Secretary to Government. If ultimately 5 Government fails to resolve the dispute, petitioner is given freedom to file petition before this Court to revive this S.T. Revision Case closed by us. C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms