L.Palamalai, Administrative Member. -
(1.) PETITION on being called today, upon hearing both sides, the Tribunal ordered as follows :
This tax revision case is against the orders of the Sales Tax Appellate Tribunal (Additional Bench), Madurai, in M.T.A. No. 477/90 dated January 10, 1991. The dispute relates to levy of tax on materials utilised in retreading and recapping work amounting to Rs. 41,01,102 by disallowing the claim of exemption as inter -State sale works contract. The facts leading to the present tax case are as follows :
The assessing authority held that in respect of work relating to retreading and recapping of tyres received from customers outside the State, the works commenced and completed within the State of Tamil Nadu and therefore the claim of exemption on the ground that the movement of goods for such works contract emanated from outside the State and therefore it has to be treated as inter -State works contract is not allowable. Therefore, the assessing authority brought to assessment 70 per cent of the total receipts amounting to Rs. 58,58,716.97 at 5 per cent. Thus the taxable turnover was fixed at Rs. 41,01,102 and the exemption of 30 per cent allowed towards labour charges amounted to Rs. 17,57,615. This view was confirmed by the first appellate authority. In the second appeal before the Appellate Tribunal, the assessee claimed that the worn -out tyres were entrusted to the assessee by the customers residing outside the State of Tamil Nadu and after completing retreading, the retreaded tyres were actually delivered to the customers in other States and therefore the transactions involved inter -State movement of goods and in such circumstances, the transactions have to be treated as inter -State works contract not liable to tax under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act"). In this connection the Appellate Tribunal observed as follows :
"But admittedly, the actual works of retreading take place within the State of Tamil Nadu. Simply because, the used or worn -out tyres were received from other States and after treading, those retreaded tyres were again sent to the customer residing in other States, the works contract does not cease to be a transaction under the Tamil Nadu General Sales Tax Act. Therefore we hold that the turnover relating to works contract for retreading and recapping of tyres is liable to be treated as a taxable turnover under the State Act."
(2.) HOWEVER , the Tribunal remanded this part of the turnover to the assessing authority so as to fix the taxable turnover involving works contract under the Act by following the decision of the Supreme Court in  73 STC 370 (Builders Association of India v. Union of India) and the instructions of the Commissioner of Commercial Taxes. The assessee has preferred this revision aggrieved of the orders of the Appellate Tribunal in holding that the transactions relevant to retreading have to be taxed under the Act. Mr. N. Sriprakash, the learned counsel for the petitioner, contended that worn -out tyres were collected from Kerala and they were repaired, retreaded, transported and delivered to a specified place in Kerala and therefore the entire transaction is nothing but inter -State works contract inasmuch as the contract in question involved movement of goods in the course of inter -State trade and commerce, no tax could be levied under Section 3B of the Act. Even after the expanded definition of "sale", consequent on the statutory amendment to Article 466(29A) the State derives power to tax sale or purchase under entry 54 of List II of the Seventh Schedule to the Constitution and this entry is subject to entry 92A of List I within Union List and therefore the works contract involving retreading within Tamil Nadu is subject to the legislation of the Parliament. However, in respect of inter -State works contract, only the Parliament has got powers to legislate and in the absence of any amendment to the Central Sales Tax Act in respect of inter -State works contract, the transactions have to be exempted both under the local Act and under Central Sales Tax Act. He further argued that Section 3B of the Act is subject to Clause (i) of Article 286 of the Constitution of India and Sections 3, 4 and 5 of the C.S.T. Act and quoted the following passages from the decision of the Supreme Court in  88 STC 204 in the case of Gannon Dunkerley & Co. v. State of Rajasthan :
"Similarly Clause (1) of Article 286 prohibits the State from making a law imposing or authorising the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of the import of goods into or export of the goods out of the territory of India. As a result of the said provision, the legislative power conferred under entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations imposed by the Constitution on the legislative power of the States under entry 54 of the State List, it is beyond the competence of the State Legislature to make a law imposing or authorising the imposition of a tax on transfer of property in goods involved in the execution of a works contract, with the aid of Sub -clause (b) of Clause (29A) of Article 466, in respect of transactions which take place in the course of inter -State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently, it is not permissible for a State to frame the legislative enactment in exercise of the legislative power conferred by entry 54 in State List in a manner as to assume the power to impose tax on such transactions and thereby transgress these constitutional limitations..........
...........It has been urged that the Central Sales Tax Act, 1956, which formulates the principles under Articles 269(3) and 286(2) is not applicable because after the Forty -sixth Amendment the Central Sales Tax Act has not been amended so as to make it applicable to transfer of property in goods involved in the execution of a works contract. On behalf of the States, it is submitted that since the Central Sales Tax Act has not been made applicable and no law as envisaged under Articles 269(3) and 286(2) has been enacted, limitation on the legislative power conferred on the States under entry 54 in the State List on the basis of Articles 269 and 286 cannot be invoked. We are unable to accept either of these contentions ...........
............For the reasons aforesaid, we are of the view that even in the absence of any amendment having been made in the Central Sales Tax Act (after the Forty -sixth Amendment) expressly including transfers of property in goods involved in the execution of a works contract, the provisions contained in Sections 3, 4 and 5 would be applicable to such transfers and the legislative power of the State to impose tax on such transfers under entry 54 of the State List will have to be exercised keeping in view the provisions contained in Sections 3, 4 and 5 of the Central Sales Tax Act. For the same reasons Sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property in goods involved in the execution of a works contract and the legislative power under entry 54 in State List will have to be exercised subject to the restrictions and conditions prescribed in the said provisions in respect of goods that have been declared to be of special importance in inter -State trade or commerce.......
............On behalf of the States it has been seriously contended that a deemed sale resulting from transfer of property in goods involved in the execution of a works contract can never be a sale in the course of inter -State trade or commerce and it cannot be an outside sale or a sale in the course of import since the transfer of property in the goods takes place only at the stage when the goods are incorporated in the works and that can take place only in the State where the work is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituting a sale in the course of inter -State trade and commerce as well as an outside sale or a sale in the course of import and that is a matter which will have to be considered in accordance with the principles contained in Sections 3, 4 and 5 of the Central Sales Tax Act keeping in view the terms and conditions of the particular contract. In this regard, the learned counsel have placed reliance on a number of decisions of this Court wherein the provisions of Sections 3 and 4 of the Central Sales Tax Act, 1956, have been considered. We do not propose to go into this controversy because the question whether a deemed sale resulting from transfer of property in goods involved in the execution of a particular works contract amounts to a sale in the course of inter -State trade or commerce under Section 3 of the Central Sales Tax Act or an outside sale under Section 4 of the Central Sales Tax Act or a sale in the course of import under Section 5 of the Central Sales Tax Act has to be decided in the light of the particular terms of the works contract and it cannot be decided in the abstract ............"
(3.) REFERRING to the decision of the Gauhati High Court in Projects and Services Centre v. State of Tripura reported in  82 STC 89 it was contended that in that case the use of materials made in a works contract in the State of Tripura was held to be inter -State nature in character and thus it was held that though the work was carried out in the State of Tripura still the goods moved from other State and therefore the transaction cannot be taxed as intra -State sale on the ground that the property therein passed to the buyer in the State of Tripura. In  90 STC 1, in the case of Co -operative Sugars Ltd. (Chittur) v. State of Tamil Nadu the Supreme Court has held that it was immaterial whether the sale/purchase took place within Tamil Nadu or within Kerala. So long as the movement of goods was an incident of sale/purchase it amounted to an inter -State sale/purchase. It is also not necessary that the contract of sale must expressly provide for the movement of goods. It is sufficient if the movement of goods is implicit in the sale. In East India Cotton Manufacturing Company Limited v. State of Haryana  90 STC 221 (P&H)[FB], the High Court held that "where grey cloth is sent by contractees from outside the State of Haryana and is processed in the State of Haryana into finished cloth by being subjected to processes such as bleaching, dyeing, sizing and printing and is thereafter sent back to the contractees outside the State, the movement of cloth is occasioned by the contract of sale within the meaning of Sub -clause (ii) of Clause (1) of Section 2 of the Haryana General Sales Tax Act and the transaction amounts to an inter -State sale within the meaning of Section 3 of the Central Sales Tax Act, 1956". In the case of Thomson Press (India) Ltd. v. State of Haryana  100 STC 417, the Punjab and Haryana High Court has held that once the contract occasions the movement of the end -product from one State to another, the inputs or the goods involved in the execution of the works contract shall also be deemed to have moved and the levy of sales tax in such a case would be outside the field of legislative competence of the State Legislature. By introducing a fiction, the State Legislature cannot convert a sale in the course of inter -State trade and commerce into a local sale. In fact, this is the view expressed by the Full Bench in conclusions 3 and 4 in the East India Cotton Manufacturing Company's case  90 STC 221 (P&H). This is also the position that emerges from the decision of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan  88 STC 204. In  87 STC 196 (SC) in the case of Commissioner of Sales Tax, U.P. v. Bakhtawar Lal Kailash Chand Arhti it was held that purchase of goods on behalf of ex -U.P. principals and dispatch to them to places outside the State are to be held as inter -State purchases. Referring to the case of State of Travancore -Cochin v. Shanmugha Vilas Cashew -nut Factory reported in  4 STC 205 the expression "in the course of was explained as follows :
"The word 'course' etymologically denotes movement from one point to another, and the expression 'in the course of not only implies a period of time during which the movement is in progress but postulates also a connected relation.";