SABYASACHI MUKHARJI - (1.) THIS is an appeal by special leave from the order dated 31/12/1981 passed by the Sales Tax Tribunal, Orissa. The appellant who was the assessee under the Central Sales Tax Act, 1956 went up in appeal against the confirming orders of Assistant Commissioner in respect of the assessment years 1974-75, 1975-76 and 1976-77. The Sales Tax Officer, Koraput I Circle, Jeypore had made the orders under Rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957 making demands of Rs. 1,21,38,586.00 for the year 1974-75, Rs. 1,29,64,637.00 for the year 1975-76 and Rs. 1,37,72,652.00 for the year 1976-77. The appellant is a dealer registered under Section 7(1) of the Central Sales Tax Act, 1956 under Koraput I Circle in the State of Orissa.
(2.) M/s. Hindustan Aeronautics Limited (hereinafter referred to as 'H. A. L.') of which appellant is a division was established on 1/10/1964. The objective of formation of the H. A. L. was to carry on in India and elsewhere the business, inter alia, in aeroplanes including manufacture, assembling, buying and selling etc. of the same. In its division at Sunabeda, manufacture of MIG engines for MIG aircrafts required for defence and overhauling of aero engines of Indian Air Force were undertaken. Some of the MIG engines manufactured by it were sent to Nasik Division of H. A. L. and some to Indian Air Force as per instructions from the Ministry of Defence. The appellant received payments from Government of India or Indian Air Force for the manufacturing programme. In respect of payments so received, the Sales Tax Officer, Koraput I Circle levied Central Sales Tax on the ground that the transactions were inter-State sales. This was disputed by the appellant according to whom the letter was only an agent of the Government of India. In the alternative it was contended that the transactions were nothing but works contract and as such not exigible to Central Sales Tax. Being aggrieved by the decision of the Tax Authorities as mentioned hereinbefore, the appellant had gone up in appeal before the Tribunal. The Tax Authorities had negatived both the contentions of the appellant. As common question of law on similar facts was raised, the same was disposed of by one order by the Tribunal. Before the Tribunal, only one ground namely, that the transaction represented works contract was urged. It is necessary at this stage to understand the background in which the manufacture of MIG engines was undertaken by H. A. L. In this connection it is material to refer to the letter dated 22nd September, 1970 to the Chairman of the appellant company for and on behalf of the President of India by the Joint Secretary to the Government of India, Ministry of Defence, Department of Defence Production. As the said letter is important, it is necessary to set out the letter : "Secret Annexure "A" Extract of No. 11(228)/69/1/DP/Contracts Government of India Ministry of Defence, Department of Defence Production, New Delhi, the 22/09/1970. The Chairman, Hindustan Aeronautics Ltd., Indian Express Building, Vidhana Veedhi, Bangalore- 1. Sub :- Manufacture of MIG-21 M Aircraft and other equipment in India. Dear Sir, On behalf of the President of India, I have to state that an Agreement was signed on 30/10/1969 (copy already forwarded to you) between the Government of India and the Government of Union of Soviet Socialist Republics for the manufacture under licence. 2. The manufacture of the said Equipment as defined in the above said Agreement is hereby entrusted to Hindustan Aeronautics Limited, Bangalore in terms of the said Agreement. Under this entrustment the responsibility for the proper implementation of the Agreement shall be exclusively that of Hindustan Aeronautics Limited except that the Government may from time to time advise the Company about the programme of manufacture of the said Equipment. 3. All payments falling due under the said Agreement to the Government of the Union of Soviet Socialist Republics shall be made by Hindustan Aeronautics Limited, Bangalore on behalf of the Government. 4. This entrustment shall remain in force till it is revoked or altered by the President of India.
(3.) THE Government of the Union of Soviet Socialist Republics is being informed of this entrustment and they are being requested to co-operate and deal directly with Hindustan Aeronautics Limited. and do all things necessary for the effective operation of the said Agreement according to the terms thereof." 5. THEre was another letter regarding the determination of premium under Emergency Risks (Goods) Insurance Act, 1962. THE said letter on behalf of the Government of India stated, inter alia. as follows: "That the materials imported by H. A. L. for manufacture/assembly of Aircraft/Engines/Helicopter/other equipment and also goods, stocks and stores work-in-progress etc. for which 'on account' payments have been made and are being made by DCDA (AF) are the property of I. A. F. and that the items manufactured out of the categories of materials stated above are to be supplied only to the Indian Air Force or as authorised by Government of India. THE materials therefore belong to the Government of India." It may be mentioned as appearing from the order of the Sales Tax Tribunal that there was an agreement between Government of U. S. S. R. and the Government of India on 29/08/1962 whereby Government of U. S. S. R. had granted a licence to the Government of India for manufacture of special equipment and assembling of aircrafts. Thereafter both the Governments signed a protocal on 29/09/1964 in the matter of manufacturing of MIG aircrafts in India. Government of India in their turn by the secret letter dated 22/09/1970 mentioned hereinbefore entrusted the manufacture of the said aircrafts to H. A. L., Bangalore. In pursuance of the said entrustment, H. A. L. undertook the work of assembling and manufacturing of MIG engines. For the implementation of the entrustment H.A.L. has three divisions namely Koraput (in the State of Orissa), Nasik (in the State of Maharashtra) and Hyderabad (in the State of Andhra Pradesh). At Koraput and Hyderabad, engines which are electronic equipments were respectively manufactured and the MIG aircrafts were finally assembled at Nasik for delivery to the Government of India.;