- HC rules on inter-state supply of goods under lumpsum turnkey projects, rejects assessee’s claim that supply and erection contracts are divisible / independent and that supplies thereunder qualify as subsequent in-transit sale u/s 6(2) r/w Sec 3(b) of Central Sales Tax Act; Existence of ‘cross-fall breach’ clause or clause which enables owner to terminate supply contract for breach of erection contract and vice-versa, would mean that while in form there are two separate contracts, in substance, there is one single indivisible contract;
- For a sale to be exempt u/s 6(2), sale contract should come into existence and title to goods should be transferred during movement, contract entered prior to commencement of movement of goods from one State to other or after its completion is not covered; Parties intended that title to goods would be transferred from contractor to owner only post erection and commissioning, so title transferred only after goods incorporated in works in State of AP and therefore, Revenue justified in rejecting assessee’s claim of ‘subsequent sale’; Presence of an inspection and certification clause in supply contract defers passing of title till owner has expressed assent, states, “……distinction between a “deferred payment” and “fulfilment of conditions after which payment is to be made” must be borne in mind….”;
- SC ruling in A&G Projects and Technologies which considered scope of Sec 6(2) applicable, obiter dicta of SC binding upon other Courts absent any direct pronouncement on that question elsewhere by SC and is entitled to considerable weight; However, accepts assessee’s alternate plea that supplies in turnkey contracts were inter-state sales falling u/s 3(a), mere fact that goods delivered within State and appropriation took place is inconsequential, if parties envisaged movement of goods from one State to another and such movement is an incident of contract of sale;
- Relies on SC ruling in Balabhagas Hulaschand to observe that an agreement to sell also an essential ingredient of sale and movement of goods pursuant to such agreement, which later merges into a sale, would be deemed to have been occasioned by sale itself; Fact that goods moved inter-state for incorporation in works would not make deemed inter-state sale an ‘intra-State sale’ within Telangana and AP, states that principles involved in intra-state deemed sale equally apply to inter-state deemed sale of goods involved in works contract execution; Further, upholds assessee’s reliance on SC ruling in Indure Ltd. and contention that sale of imported goods designed to meet specifications of owner’s plant, being direct and proximate cause of import demonstrate an inextricable link and hence, qualifies as sale ‘in course of import’ u/s 5(2) of CST Act, not liable to VAT : Telangana & Andhra Pradesh HC
Supply of Goods under Lumpsum Turnkey Projects
Published On - September 21, 2015
