Case: M/s. A &amp; G Projects &amp; Technologies Ltd Vs. State of Karnataka

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 appellants 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.

Court's reasoning:
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 exemptionThe 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 1956Applying 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 1956Once 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