MITSUBISHI CORPORATION Vs. STATE OF KARNATAKA AND OTHERS

JUDGEMENT

(1.) These revisions petitions are preferred by the assesses challenging the order passed by the Karnataka Appellate Tribunal upholding the levy of tax under section 3(a) read with section 6 of the Central Sales Tax Act, 1956. As the question involved in all these revisions is one and the same, they are taken up for consideration together and disposed of by this common order.

(2.) The assessee, M/s. Mitsubishi Corporation, formed a consortium along with Mitsubishi Electric Corporation and Rotem Company. Mitsubishi Corporation is a leader of MRM Consortium. They have been awarded a contract (RSI) for design, manufacture, supply and commissioning of passenger rolling stock or train sets for the Mass Rapid Transport System-Phase I for the metro rail project of M/s. Delhi Metro Rail Corporation for their project at New Delhi for short hereinafter referred to a "DMRC". Under the RSI Contract, MRM Consortium, for short, hereinafter referred to as contractor or consortium, was to supply 60 trains sets (240 cars, as each train set comprises of four cars). Out of 60 train sets 15 train sets were to be manufactured in Korea and supplied to DMRC on high sea sale basis. The remaining 45 trains sets were to be manufactured indigenously in India. For manufacturing these 45 train sets indigenously in India, the con sortium imported as well, as procured within India, material in SKD/CKD condition and assembled the cars in India. The consortium had option to carry out the assembly' job anywhere in India. Rotem Company, as a member of consortium was under an obligation to supply car body shells. It entered into sub-contract for job-work with Bharat Earth Movers Limited, Bangalore, to carry out the assembly/fabrication work of car body structures in India. Complete knock down (CKD)/semi knock' down (SKD) components of car body shells were sourced from Korea. Some materials were procured within the country. These SKD/CKD materials were delivered by Rotem to BEML as free issue materials for job-work. The property in the goods at all times remained with Rotem. Mitsubishi Electric Corporation, another member of consortium sourced CKD/SKD materials for the propulsion system from Japan. For assembly of the propulsion the consortium had entered into a sub-contract agreement with Alstom India. The consortium delivered CKD/SKD materials to Alstom India at their factories at Kolkata, Chennai and Coimbatore as free issue materials for manufacturing of the propulsion system. Thereafter the finished propulsion system was supplied by Alstom India to the consortium and was further sent to BEML, Bangalore as property of Consortium for assembly, BEML, the subcontractor, after receiving the propulsion system, fits them in the car body structure fabricated by them. After car body structures are ready, the same are sent for functional tests at BEML's testing shop for its sub-systems. Throughout the process of assembly and testing, the cars are inspected by an Inspector of DMRC at BEML, who then records the progress of the work in his inspection certificate. Once the inspection certificate is issued, BEML's scope and obligation in terms of the sub-contract is completed. BEML raises an invoice for labour charges in the name of Rotem, New Delhi, for payment and confirms that the car structure are ready for dispatch in terms of sub-contract. BEML cleared goods from its factory by issuing Central excise invoice. Central excise duty is not levied in view of an exemption granted to DMRC project by the Union Government. Thereafter Rotem Company, under its name, arranged for the despatch of the finished car body structures to Delhi for the remaining work to be done under the RSI contract. The cars were transported from Bangalore to project site of the Consortium in Delhi, pulled by a locomotive presided by Indian Railways on hire basis and the freight charges of Indian Railways are borne by Rotem company. After their arrival at the Consortium project site at Delhi, the Consortium undertakes to do the remaining work on the cars to complete them into the passenger rolling stock (finished train sets) as required to be supplied to DMRC under the contract RSI. At the project site, installation of telecom equipments, signaling equipments, pantograph, PA/PIS equipments including route software, safety equipments and other components are installed and functional test carried out on the car body structures at New Delhi. Thereafter, integrated testing and commissioning of the trains are done which includes interface tests with telecom, signaling, station control equipment, track, overhead power traction, etc. It is thereafter the passenger rolling stock is transferred/supplied to DMRC under the RSI contract. It is at that stage consortium raises sales invoice for the train set handed over to DMRC. The consortium is registered under the Delhi Sales Tax Act. Admittedly they have not registered under the Central Sales Tax Act (for short, hereinafter referred to as, "the CST Act"). For the assessment year 2003-04 consortium had paid Rs. 3,48,95,762 on the above sales transactions under RSI contract to the Delhi Government till the Delhi Government granted sales tax exemption. Pursuant to the exemption given to the DMRC for Central excise and customs purposes, the sale price of the train sets was revised by DMRC retrospectively.

(3.) A show-cause notice dated November 15, 2005 under section 12(3) of the Karnataka Sales Tax Act read with section 9(2) of the CST Act was served upon the consortium leader, i.e., Mitsubishi Corporation. They were asked to show cause as to why for the assessment year 2003-04 and 2004-05, the sales made by the consortium to DMRG under the RSI contract of the total turnover of Rs. 218.18 crores should not be treated as inter-State sales effected from the State of Karnataka to DMRG, New Delhi and why the consortium should not be held to be liable to pay inter-State sales tax under the provisions of the CST Act amounting to Rs. 31,10,08,481. Consortium duly sent a reply dated December 16, 2005 denying the liability.