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PETITIONER:

BHARAT HEAVY ELECTRICAL LIMITED ETC.

Vs.

RESPONDENT:

UNION OF INDIA AND OTHERS ETC.

DATE OF JUDGMENT: 18/04/1996

BENCH:

JEEVAN REDDY, B.P. (J)

BENCH:

JEEVAN REDDY, B.P. (J)

THOMAS K.T. (J)

CITATION:

1996 AIR 1854 1996 SCC (4) 230

JT 1996 (4) 427 1996 SCALE (3)746

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

B.P.JEEVAN REDDY,J.

Leave granted in the Special Leave Petitions.

The Constitution [Sixth Amendment] Acts 1956 re-cast

Article 286 of the Constitution almost in its entirety. It

inserted sub-clause (g) in clause (1) of Article 269 and

introduced clause in Article 269. The Constitution [Forty

Sixth Amendment] Act, 1982 substituted clause (3) of Article

286. As amended by Sixth and forty Sixth Amendment Acts,

Article 286 reads:

"286(1). No law of a State shall

impose, or authorise 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

the goods into, or export of

the goods out of, the

territory of India.

(2) Parliament may by law formulate

principles for determining when a

sale or purchase of goods takes

place in any of the ways mentioned

in clause (1).

(3) Any law of a State shall, in so far

as it imposes, or authorises the

imposition of,- (a) a tax on the

sale or purchase of goods declared

by Parliament by law to be of

special importance in inter State

trade or commerce; or

(a) a tax on the sale or

purchase of goods

declared by Parliament by

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law to be of special

importance in inter-State

trade or commerce; or

(b) a tax on the sale or

purchase of goods, being

a tax of the nature

referred to in sub clause

(b), sub-clause (c) or

sub-clause (d) of clause

(29A) of article 366,

be subject to such

restrictions and

conditions in regard to

the system of levy, rates

and other incidents of

the tax as Parliament may

by law specify."

Clause (1) places a restriction upon the power of the

State Legislatures to levy taxes on sale or purchase of

goods; a State cannot levy tax on a sale which takes place

outside that State nor can it tax a sale or purchase taking

place in the course of import into or export out of India.

Clause (2) empowers the Parliament to formulate principles

for determining when a sale takes place outside a State or

in the course of import or export, as the case may be.

Clause (3) places certain restrictions on the State

Legislatures in the matter of system of levy and rate etc.

in respect of certain goods and transactions.

Article 269 specifies the duties and taxes levied and

collected by the Government of India but assigned to the

States in the manner provided therein. Among the several

duties and taxes specified in clause (1) is the tax

mentioned under sub-clause (g) - "taxes on the sale or

purchase of goods other than newspapers where such sale or

purchase takes place in the course of interstate trade or

commerce". Clause (2) of Article 269 provides that the net

proceeds in any financial year of any such duty or tax

"Shall be assigned to the States within which that duty or

tax is leviable in that year and shall be distributed among

those States in accordance with such principles of

distribution, as may be formulated by Parliament by law".

Clause (3) empowers the Parliament to formulate principles

for determining when a sale or purchase of goods takes place

in the course of inter-State trade or commerce. By

Constitution [Forty Sixth Amendment] Act, the words "or

consignment of" were added in clause (3). Clause (3) now

reads:

"Parliament may by law formulate

principles for determining when a

sale or purchase of, or consignment

of goods, takes place in the course

of inter-State trade or commerce."

Soon after the Commencement of the Sixth Amendment Act,

the Parliament enacted the Central Sales Tax Act, 1956 [the

Act] to effectuate the provisions of Articles 286 and 269.

The Preamble to the Act reads:

"An Act to formulate principles for

determining when a sale or purchase

of goods takes place in the course

of inter-State trade or commerce or

outside a State or in the course of

import into or export from India,

to provide for the levy,

collection and distribution of

taxes on sales of goods in the

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course of inter-State trade or

commerce and to declare certain

goods to be of special importance

in the inter-State trade or

commerce and specify the

restrictions and conditions to

which State laws imposing taxes on

the sale or purchase of such goods

of special importance shall be

subject."

(Emphasis supplied)

Section 2 defines certain expressions occurring in the

Act. Section 3 defines inter-State sale or purchase. This

section is enacted pursuant to clause (3) of Article 269. An

inter-State sale or purchase shall be deemed to take place

if (a) the sale or purchase occasions the movement of goods

from one State another or (b) the sale or purchase is

effected by a transfer of documents of title to the goods

during their movement from one State to another. Two

Explanations are appended to this section which it is not

necessary to note for the purposes of these appeals. Section

3 reads:

"3. When is a sale or purchase of

goods to take place in the course

of inter-state trade or commerce.--

A sale or Purchase of goods shall

be deemed to take place in the

course of inter-State trade or

commerce if the sale or purchase-

(a) occasions the movement of goods

from one State to another; or

(b) is effected by a transfer of

document of title to the goods

during their movement from one

State to another."

Section 4 specifies when does a sale or purchase take

place outside a State. Sub-section (1) of Section 4 says

that where a sale or purchase of goods is determined in

accordance with subsection (2) [of Section 4] to have taken

place inside a State, such sale or purchase shall be deemed

to have taken place outside all other States. Sub-section

(2) sets out when shall a sale or purchase of goods be

deemed to have taken place inside a State. It is obvious

that Section 4 has been enacted to give effect to Article

286(1)(a) read with clause (2) of the said Article. Section

4 reads:

"4. When is sale or purchase of

goods to take Place outside a

State.--(1) Subject to the

provisions contained in Section 3,

when a sale or purchase of goods is

determined in accordance with sub-

section (2) to take place inside a

State, such sale or purchase shall

be deemed to have taken place

outside all other States.

(2) A sale or purchase of goods

shall be deemed to take place

inside a State, if the goods are

within the State-

(a) in the case of specific or

ascertained goods, at the time

the contract of sale is made;

and

(b) in the case of unascertained or

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future goods, at the time of

their appropriation to the

contract of sale by the seller

or by the buyer, whether

assent of the other party is

prior or subsequent to such

appropriation."

Section 5 specifies when shall a sale or purchase of

goods be deemed to take place in the course of export of the

goods out of the territory of India or in the course of

import of the goods into the territory of India, as the case

may be. Section 5 it is equally evidents has been enacted to

give effect to Article 286(1)(b) read with clause (2) of the

said Article. Though we are not concerned herein with sub-

section (3) of Section 5 we may yet set out Section 5 in

full:

"5. When is a sale or purchase of

goods to take place in the course

of import or export.-- (1) A sale

or purchase of goods shall be

deemed to take place in the course

of the export of the goods out of

the territory of India only if the

sale or purchase either occasions

such export or is effected by a

transfer of document of title to

the goods after the goods have

crossed the customs frontiers of

India.

(2) A sale or purchase of goods

shall be deemed to take place in

the course of the import of the

goods into the territory of India

only if the sale or purchase either

occasions such import or is

effected by a transfer of documents

of title to the goods before the

goods have crossed the customs

frontiers of India.

(3) Notwithstanding anything

contained in sub-section (1) the

last sale or purchase of any goods

preceding the sale or purchase

occasioning the export of those

goods out of the territory of India

shall also be deemed to be in the

course of such export if such last

sale or purchase took place after,

and was for the purpose of

complying with the agreement or

order for or in relation to such

export."

Section 14 of the Act declares the goods mentioned

therein to be goods of special importance in inter-State

trade or commerce. Section 15 sets out the restrictions and

conditions in regard to levy of tax on sale or purchase of

declared goods within a State. These two sections are

relatable to clause (3) of Article 286. It is not necessary

for the purpose of these appeals to refer to these

provisions.

Section 6 is the charging section. Tax is levied only

upon inter-State sales; as on today, no tax is levied on

inter-State purchases.

Clause (2) of Article 269 inter alia provides that "the

net proceeds in any financial year of any such duty or

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tax...shall be assigned to the State within which that tax

duty or tax is laviable in that year". It is, therefore,

extremely important, from the States point of view, in which

State is the Central Sales Tax leviable - for it is to that

State that the tax so collected ultimately goes back,

notwithstanding the fact that the tax is levied and

collected by the Central Government. The Central Sales Tax

Act has not created a machinery of its own to assess and

collect the tax levied by it. It has entrusted the job in

each State to the machinery created by the State Sales Tax

enactment [Section 9(2)]. The Central Sales Tax leviable in

that State will be collected by that machinery no doubt for

and on behalf of the Central Government, which will, of

Course, make it over to that State as contemplated by

Article 269. The provision in the Central Sales Tax Act

giving effect to the said provision in Article 269(2) of the

Constitution is sub-section (1) of Section 9, as it stands

now. The sub-section reads:

"9. Levy and collection of tax and

penalties,---(1) The tax payable by

any dealer under this Act on sales

of goods dealer under this Act on

sales of goods effected by him in

the course of inter-State trade or

Commerce, whether such sales fall

within clause (a) or clause (b) of

Section 3, shall be levied by the

Government of India, and the tax so

levied shall be collected by that

Government in accordance with the

provisions of Sub-section (2), in

the state from which the movement

of the goods Commended:

Provided that, in the Case of

a sale of goods during their

movement from one State to another,

being a sale subsequent to the

first sale in respect of the same

goods and being also a sale which

does not fall within sub-section

(2) of Section 6, the tax shall be

levied and collected-

(a) where such subsequent sale has

been effected by a registered

dealer , in the State from which

the registered dealer obtained or,

as the case may be, could have

obtained, the form prescribed for

the purposes of clause (a) of sub-

section (4) of Section 8 in

connection with the purchase of

such goods, and

(b) where such subsequent sale has

been effected by an unregistered

dealer, in the State from which

such subsequent sale has been

effected."

[Emphasis added]

We may pause here for a while and explain how the said

idea was expressed initially and how it has evolved into the

present provision Clause (a) in Section 2 defines the

expression "appropriate State". As it stands now, it reads:

"(a) 'Appropriate State' means--

(i) in relation to a dealer who has

one or more places of business

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situate in the same State, that

State;

(ii) in relation to a dealer which

has places of business situate in

different States, every such State

with respect to the Place or Places

of business situate situate within

its territory;"

As originally enacted, however, the definition

contained an Explanation defining the expression "place of

business". It read thus:

<sLs>

"'Place of business' means--- (i)

in the case of a sale of goods in

the course of inter-State trade or

commerce falling within clause (a)

of section 3, the place from which

the goods have been by reason of

such sale;

(ii) in the case of any such sale

falling within clause (b) of

section 3, the place where the sale

is effected."

Sub-section (i) of Section 9, as originally enacted,

read:

"9. Levy and collection of tax. -

(1) The tax payable by any dealer

under this Act shall levied and

collected in the appropriate State

by the Government of India in the

manner provided in subsection (2)."

[Emphasis added]

It is thus clear that as originally enacted it was

clause (a) in Section 2 and in particular, the Explanation

appended thereto which specified the State in which the duty

or tax was leviable within the meaning of Article 269(2). By

Central Sales Tax (Second Amendment) Act, 1958, the

Explanation to clause (a) in Section 2 was omitted with

effect from October 1, 1958 and simultaneously Section 9 was

substituted. Subsection (1) of Section 9, as substituted by

the said Amendment Act, read:

"9.Levy and collection of tax and

penalties-- (1) The tax payable by

any dealer under this Act on sale

of goods effected by him in the

course of inter-State trade or

commerce whether such sales fall

within clause (a) or clause (b) of

section 3 shall be levied and

collected by the Government of

India in the manner provided in

sub-section (3) in the State from

which the movement of the goods

commenced.

Provided that, in the case of

a sale of goods during their

movement from one State to another

being a sale subsequent to the

first sale in respect of the same

goods, the tax shall, where such

sale does not fall within sub-

section (2) of section 6, be levied

and collected in the State from

which the registered dealer

effecting the subsequent sale

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obtained the form prescribed for

the purposes of clause (a) of sub-

section (4) of section 8 in

connection with the purchase of

such goods."

[Emphasis added]

Then again by Central Sales Tax (Amendment) Act, 1969,

Section 9 was substituted with retrospective effect. It is

this substituted Section 9 which is in force now. Sub-

section (1) of Section 9 as it stands now has already been

set out by us hereinabove. Thus, notwithstanding the

legislative changes, the idea has remained the same, viz.,

that the State from which the goods have moved by reason of

the sale is the State in which the Central Sales Tax is

leviable, within the meaning of Article 269(2). We must make

it clear that what we have said with respect to Section 9 is

in the context of clause (a) of Section 3 of the Act which

alone falls for consideration in these appeals. For this

reason, we are not referring to the position under Section

3(b).

The aforesaid survey of the relevant provisions of the

Act clearly shows that Sections 3,4,5,9(1), 14 and is

pertain to and deal with distinct topics and different

aspects of Articles 286 and 269. It follows that if a

question arises whether a sale is an inter-State sale or

not, it has to be answered with reference to and on the

basis of Section 3 and Section 3 alone. Section 4, or for

that matter Section 5, is not relevant on the said question

- See the Constitution Bench decision in Tata Iron and Steel

Company Limited. Bombay v. S.R. Sarkar & Ors. [(1960) 11

S.T.C.655] and the decisions in Manganese Ore [India]

Limited v. The Regional Assistant Commissioner (1976 (3)

S.C.R.99) and Union of India v. K.S.Khosla & Company Limited

[(1979) 43 S.T.C.457]. Similarly, where the question arises,

in which State is the tax leviable, one must look to and

apply the test in Section 9(1); no other provision is

relevant on this question.

We may at this stage refer to the decision of the

Bombay High Court in Commissioner of sale Tax v. Barium

Chemicals Limited [(1981) 48 S.T.C. 121]. A particular

transaction of inter-State sale was subjected to Central

Sales Tax in Andhra Pradesh. The same sale was again sought

to be taxed under Central Sales Tax Act in Maharashtra,

which was questioned. The High Court adopted the following

approach: Central Sales Tax is levied and Collected by the

Central Government; it is immaterial in which State it is

collected; it cannot be levied or collected twice over; the

State Governments are merely agents of the Central

Government in the matter of levy and collection of Central

Sales Tax; if so, once levied and collected in one State,

rightly or wrongly it cannot be levied and collected in

another State. In our opinion, this may be an over-

simplification of the matter. May be an from the point of

view of the assesses, this approach is sound enough but from

the point of view of the States [keeping Article 269 in

mind] and the provisions of the Central Sales Tax acts this

may not be correct. Section 9(1) specifies the State wherein

Central Sales Tax shall be levied and collected'and the

Central Sales Tax has to be levied and collected in that

State and in no other State. The approach of the Bombay High

Court makes Section 9(1) [which is enacted pursuant to

Section 269(2), as pointed out hereinabove] otiose and

superfluous. It would not be proper to says in the light of

above constitutional and statutory provisions that the

dispute as to in which State is a particular inter-State

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sale is to be taxed is a matter between the States and that

so far as the assessee is concerned, it is enough if he pays

the tax at one places whether it is really leviable in that

State as per Section 9(1) or not. The law requires that it

should be levied and collected in the State from which the

movement of goods commences [Section 9(1) read with Section

3(a)]. If a dispute arises in which State is the tax

lawfully leviable, the authorities under the Act have got to

decide it. If, in a given case, an assessee says that the

particular transaction which is sought to be taxed in State

'A' has already been tailed in State 'B', nothing prevents

him from impleading the State 'E' in proceedings in State

'A' and have the matter decided in the presence of all

parties. It must be remembered that while acting under

Central Sales Tax Acts the State machinery acts as the

machinery of the State Government and not as the machinery

of the State Government; in law, it is as if it belongs to

Central Government. This view of ours gets re-inforced if

one keeps the provisions in Section 8(2A) of the Central

Sales Tax Act in view.

It is necessary to bear these principles in mind while

examining the facts of the appeals before us to which we now

turn.

P A R T = II

Bharat Heavy Electricals Limited [BHEL] is a major

public sector corporations wholly owned by the Government of

India. It has its units in several places viz., Haridwars

Jhansi, Bhopal, Bangalore, Ramachandrapuram [Andhra Pradesh

- near Hyderabad], Ranipet and Tiruchi [Tamil Nadu] and so

off. Each of these units appears to specialise in the

manufacture of particular type or class of machinery - in

the interest of avoiding duplication and enhancing

efficiency. Generally speaking, BHEL is engaged in the

manufacture of heavy electrical machinery including

equipment and material necessary for setting up power

plants. Its dead Office is at New Delhi. It appears that

whenever it undertakes to set up a power-generation plant,

it enters into two contracts, one for the supply of

machinery and equipment called "the Supply Contract" and he

other for installation or erection of the plant called

"Service Contract". Once the job is undertaken, the Head

Office sends instructions to relevant units to manufacture

the appropriate machinery. for illustrating its method of

working, we may take a concrete instance,viz., the setting

up of five captive power plants [120 MW each] for the

aluminium smelter complex at Angul, Orissa for the National

Aluminium Company Limited, Bhuvaneshwar [NALCO], which too

is a public sector undertaking. The facts relating to this

contract are the following: on August 1, 1981, NALCO invited

tenders the said work. BHEL also submitted its tender. It

was accepted. NALCO issued a Letter of Intent [LOI] on June

3, 1982 specifying the time-schedule for the work. The units

were to be made ready for commercial operation between March

1985 and November 1986. Pursuant to the LOI, BHEL commenced

the work. It instructed its several units to manufacture the

requisite machinery and equipment. Formal contracts, viz.,

supply contract and service contract were entered into much

later, i.e., on March 15, 1985. The contract price under the

supply agreement is Rs.295.37 crores. The supply contract

specifies the price of each of the major items of

machinery/equipment separately. It also provides the manner

in which the contracted price was payable by NALCO. Now,

what happened is this: Tiruchi unit, it appears, is engaged

mainly in the manufacture of boiler systems. It was

designated as the executing agency for the job at Angul

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including the responsibility of manufacturing and supplying

the boiler systems required for setting up the power plants

at Angul. The boiler system comprises innumerable parts and

components, some of which are manufactured at the Hyderabad

unit. The Tiruchi unit accordingly called upon the Hyderabad

unit to manufacture those components/parts. The Hyderabad

unit manufactured them and sent some of those parts/

components to Tiruchi for being incorporated into the boiler

system and sent the remaining directly to Angul Orissa] to

be incorporated into the boiler system in at the work-site.

according to the practice uniformly followed by BHELs and

accepted by the Andhra Pradesh Governments the parts

components manufactured by the Hyderabad unit for

incorporation in the boiler systems were treated as branch

transfers not involving an element of sale, irrespective of

the fact whether such parts/components were sent to Tiruchi

or to fingul. Conversely, if the Tiruchi unit manufactured

any parts/components to be incorporated in the machinery or

system, the manufacture of which was entrusted to Hyderabad

units the despatch of such parts/components from Tiruchi to

Hyderabad unit or the work-site were treated as branch

transfers arid not as sales. The tax was levied by the State

in which the main machinery system was manufactured. No tax

was levied by the State wherein the parts components were

manufactured and sent for incorporation into the main

machinery or system manufactured in other States. From the

year 1984, however, the State of Andhra Pradesh started

levying and demanding Central Sales Tax upon the value of

the parts and components which were manufactured at

Hyderabad unit and sent to Tiruchi or Anguls as the case may

be for incorporat on-into boiler system manufactured by

Tiruchi unit. BHEL protested against the said levy. It

submitted that it has been paying the Central Sales Tax upon

the value of the entire boiler system manufactured by the

Tiruchi unit in the Tamil Nadu State and that if Central

Sales Tax is levied upon the parts and components which were

manufactured at Hyderabad and sent to Tiruchi or Angul for

incorporation into the boiler system], it would amount to

double taxation insofar as the said parts and Components are

concerned. According to it, they were merely branch

transfers. The Andhra Pradesh State did not agree. Similar

stand was taken by other States as well and assessment

proceedings were in progress in various States. It is at

that stage that BHEL approached this Court by way of Writ

Petition (C) No.1608 of 1987 under Article 32 of the

Constitution complaining that more than one State is taxing

the same sale under the provision of the Act, which is

making its functioning difficult. It submitted that such

simultaneous taxing is Creating an uncalled for financial

burden upon it. It requested the Court to give appropriate

directions to ensure that an inter State sale is not taxed

by more than one State.

When the writ petition came up for hearing, it was

brought to our notice that the Andhra Pradesh Sales Tax

Appellate Tribunal has decided the said dispute [relating to

certain assessment years] and that Tax Revision Cases

preferred by BHEL were pending in the Andhra Pradesh High

Court. The judgment of the Andhra Pradesh Tribunal was also

placed before us. The Andhra Pradesh Tribunal had taken the

view that insofar as the parts and components manufactured

in the Andhra Pradesh unit and despatched to work-site at

Angul were concerned, they must be treated as inter-State

sales taxable in Andhra Pradesh State inasmuch as the said

goods moved from Andhra Pradesh pursuant to the supply

contract which was indeed a contract of sale. So far as the

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parts and components which were sent to Tiruchi are

concerned, the Tribunal held that they cannot be treated to

have been sold in the course of inter-State trade or

commerce but that they represent merely branch transfers.

While the State of Andhra Pradesh did not prefer any tax

revisions against the judgment of the Tribunal, BHEL did,

which meant that the decision of the Tribunal insofar as it

held that the despatch of parts/components to Tiruchi

constituted branch transfers became final. The only question

in the said Tax Revision Cases before the Andhra Pradesh

High Court,

therefore, was whether the Tribunal was right in holding

that the despatch of parts/components from the Andhra

Pradesh Unit to Angul for incorporation into the boiler

system at the work-site represented inter-State sales and

whether they were taxable in the State of Andhra Pradesh.

The High Court examined the said question at length and

dismissed the Tax Revision Cases filed by BHEL agreeing with

the view taken by the Tribunal, though on a different

reasoning. Civil Appeals Nos. 5369-75 of 1996 are preferred

against the judgment of the Andhra Pradesh High Court in the

aforesaid Tax Revision Cases.

Civil Appeals Nos.5362-68 of 1996 arise from the

judgment of the Andhra Pradesh High Court rendered in a

batch of writ petitions filed by BHEL. The writ petitions

raised the very same dispute as was involved in the Tax

Revision Cases aforesaid with this difference: BHEL

impleaded the States of Tamil Nadu, Uttar Pradesh, Karnataka

Madhya Pradesh, Delhi and Union of India in addition to the

State of Andhra Pradesh as respondents to the writ petitions

an also claimed for a direction to the respondents to adjust

the Central Sales Tax collected by them in such a manner

that the amount is kept, or remitted to the State, which is

lawfully entitled to levy it and the States no entitled to

levy it do not keep the tax amounts collected by them. The

batch of writ petitions have been disposed of by the High

Court following its decision in the Tax Revision Cases. The

High Court has, however, declined to give a direction for

adjustment of tax as between the States as asked by BHEL]

mainly on the ground that this Court was seized of the

matter. it left the matter to this Court.

Whether a particular sale is an inter-State sale or an

inter-State sale is essentially a question of fact. Perhaps,

it may be more appropriative to say that it is a mixed

question of face and law. it is, therefore, necessary to

ascertain the factual position first. In Civil Appeals

Nos.5369-75 of 1996 and 5362-68 of 1996, it is this:

whenever BHEL enters into a supply contract with a party, it

designates one of its units as the executing unit. That is

treated as the main unit executing the work. sometimes this

is not done and each unit is entrusted a particular job.]

But it may happen that the executing unit does not

manufacture all the parts and components which are required

for completing the job entrusted to it. it, therefore,

requests other units of BHEL to manufacture the parts and

components required by it and to despatch the same. Some of

the parts and components so manufactured by other units are

sent directly to the executing unit for being incorporated

into the main machinery/system while some parts and

components are despatched directly to the work-site. To

revert to NALCO project aforementioned, referred to

hereinbefore, this is exactly what had happened. Tiruchi

unit was supposed to be the executing unit. But some parts

and components required for the boiler system and other

equipment [which was the responsibility of the Tiruchi unit

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to manufacture] were being manufactured at the Hyderabad

unit. At the request of the Tiruchi unit - or on the

instructions of the Head Office, as the case may be - the

Hyderabad unit manufactured those parts and components and

despatched some of them to Tiruchi and some of them directly

to Angul in Orissa [work-site]. The consideration stipulated

in the supply contract was payable in the manner provided

therein. The following factual position found recorded in

the judgment of the High Court is of crucial relevance and

may, therefore, be set out in full:

"Copies of invoices and photo copy

of R.R./L.R. or Bill of Lading,

Pre-despatch Clearance

Certificate/Inspection report and

test certificate, if any, shall be

submitted to the Bank and various

Departments of NALCO, Angul for the

purpose of claiming payment through

letter of credit vide Clause 8.1.0.

As per Clause 8.2.0, the materials

shall be consigned to the Materials

Manager, NALCO Captive Power Plant,

Angul and the original R.R./L.R.

shall be sent by the supplier

directly to the site office for

arranging prompt delivery of

materials from the carriers. Clause

3.3.0 enjoins that the 'title of

all the plant and equipment and

materials shall pass on to the

purchaser in accordance with INCO

Terms' and transfer of ownership to

purchaser shall be simultaneous

provided that such passing of

title, risk and property to the

purchaser shall not otherwise

absolve or dilute the

responsibility of the supplier

under this contract. Other clauses

in the agreement provide for

guarantee bond, warranty,

liquidated damages etc., which need

not be adverted to.

Certain debit notes raised by

the petitioner [Hyderabad unit]

while despatching the

materials/equipment to Trichy or

direct to NALCO have been placed

before us. One of the debit notes

is raised soon after the despatch

of one Bowl Mill to the Materials

Manager, NALCO, Angul. The work

Order No. L.R./R.R. number, Packing

slip number, Despatch advice number

are all mentioned in the debit note

in addition to the value of the

Bowl Mill. The excise duty payable

is also shown in the debit note.

Some copies of loading advice,

packing list, R.Rs./L.Rs. have also

been placed before us. The invoices

raised on NALCO by the Trichy unit

which is the executing unit

relating to Boiler components

despatched by Hyderabad, Ranipet

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and other units with the price

worked out on pro-rata tonnage

basis are on record. Central Sales

Tax is also included in those

invoices. The certificates and

details regarding payment of C.S.T.

from time to time by Trichy unit in

regard to the despatches from

Hyderabad are also filed."

The High Court has also referred to another contract

entered into by BHEL with NTPC for setting up a super-

thermal power project at Farakka, West Bengal. In the case

of this work, it appears that no one unit of BHEL is

designated as the executing unit. The manufacture of

machinery etc. appears to have been distributed among

various units. The factual position in this behalf is stated

in the following words by the Court:

"...... allocation of

responsibility was in the nature of

an internal arrangement made by the

Head Office of the petitioner. But,

the reasonable presumption that

should be drawn in the light of

correspondence and despatch

documents, that NTPC must be well

aware of the division of

responsibility as regards S.G. and

T.G. packages between the various

units. The documents relating to

despatch of Boiler/Steam Generator

equipment such as Bowl Mills by

Hyderabad unit as per the request

of the Trichy Unit are filed. They

include loading adviced packing

list, debit note raised by the

Hyderabad unit on Trichy unit and

the invoice raised by Trichy unit

on NTPC which covers the

components/equipment sent by

Hyderabad unit directly to Farakka.

The name of the consignee as per

the Railway Receipt is Chief

Erection Manager, NTPC, Farakka

and the freight is pre-paid. The

certificate regarding payment of

CST confirms the payment of CST on

the invoice value by the Trichy

unit in respect of the components

despatched by Hyderabad unit."

Coming hack. to the findings recorded by the Andhra

Pradesh Tribunals it held, so far as the parts and

components sent to Tiruchi that they do not constitute

inter-State sales inasmuch as there was an interruption of

the movement of the said parts/components and more

particularly because the said parts/components lost their

identity by incorporation into the main system before they

were despatched by the executing unit to the work-site. This

part of the Tribunal's Order has become finals not having

been questioned by the State of Andhra Pradesh. So far as

the parts/components sent by the Hyderabad unit directly to

the work-site at Angul or for that matter, to Farakka in

West Bengal are concerned the Tribunal has taken the view

that they do not constitute inter-State sales and that

Central Rules Tax is leviable thereon in the State of Andhra

Pradesh. This conclusion of the Tribunal has been affirmed

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by the High Courts though on a some what different

reasoning. The contention urged by Sri V.R.Reddy, learned

Additional Solicitor General appearing for BHEL, is that

even the direct despatches [i.e. parts/components/material

sent by the Hyderabad unit directly to work-site at Angul]

do not constitute inter-State sales and that they are not

taxable in the State of Andhra Pradesh. His submission is

that in principle, there is no difference between the

material sent to Tiruchi for being incorporated and the

material sent directly to Angul because both of them get

ultimately incorporated into the main equipment/boiler

system which was being manufactured by the Tiruchi unit,

which happened to be the executing unit for the Angul

project. be find it difficult to agree with the learned

Additional Solicitor General in the light of the factual

position set out hereinabove. The parts/components, i.e.,

the goods in question, did move from the State of Andhra

Pradesh to the State of Orissa - or West Bengal, as the case

may be - and the said movement is occasioned by the supply

contract entered into by BHEL which is in truth a contract

of sale. The manner in which and the documentation under

which these goods were sent to Angul - in particular, Clause

3.3.0 of the Supply Contract do clearly establish that it

was not a case of branch transfer but one of sale of the

said goods to NALCO, pursuant to the supply contract.

Further, because the movement of the said goods has

commenced in the State of Andhra Pradesh, it is in the State

of Andhra Pradesh that the Central Sales Tax is leviable

according to Section 9(1) of the Act. We therefore, agree

with the view taken by the Andhra Pradesh High Court that in

the facts and circumstances concerning NALCO and NTPC

[Farakka] contracts and the terms thereof, the direct

despatch of goods by the Hyderabad unit to Angul or Farakka

constitutes an inter-State sale with in the leaning of

Section 3(a) and that tax thereon is leviable in the State

of Andhra Pradesh according to Section 9(1) of the Act.

The Andhra Pradesh Tribunal and High Court have stated

that there are as many as forty eight contracts during the

relevant assessment years and that though the contracts and

other documents relating to these contracts have not been

filed or have not been filed in full, the parties before

them did not dispute that "the salient features of the

contracts and the pattern of transactions ...are

substantially similar to the two contracts, i.e., NALCO and

NTPC contracts." The correctness of this statement has not

been challenged by either party before us.

So far as Civil Appeals Nos.5362-68 of 1996 are

concerned, the issues raised therein are identical to the

issues raised in Civil Appeals Nos.5369-75 of 1996 except

the direction asked for by BHEL far adjustment of tax

amounts between the concerned States in such a manner that

appropriate tax is collected in the State wherein it is

lawfully leviable and the State which is not entitled to

collect the tax but has yet collected it unlawfully, refunds

the same to BHEL or sends it to the State wherein it is

lawfully due and payable. We see no valid objection to

making such a direction. In fact, such a direction was made

by this Court in K.G. Khosla and Company Limited [supra].

Accordingly, there will be a direction to the above effect.

All refunds and adjustments consequent upon the judgment of

Andhra Pradesh High Court in Tax Revision Cases Nos.195-201

of 1989 shall be carried out and given effect to by the

parties within three months from today. In case of

disagreement or dispute, if any, in this regard, it is open

to the parties in approach the Andhra Pradesh High Court for

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appropriate orders. If so approached, the High Court shall

hear the affected parties and pass appropriate orders which

shall be final and binding between the parties, subject to

any orders to the contrary by this Court.

Accordingly, Civil Appeals Nos.5369 of 1996 are

dismissed and Civil Appeals Nos.5362-68 of 1996 are disposed

of with the aforesaid direction regarding adjustment/refund

of taxes between the concerned States [who are parties to

these appeals].

P A R T = I I I

In this part, we shall deal with the controversy

between BHEL and Orissa. Three batches of appeals, viz.,

civil appeals arising from Special Leave Petitions (C)

Nos.5071-74 of 1991, 16840-49 of 1995 and Civil Appeals

Nos.629-30 of 1994 are concerned with this controversy. Of

these three batches of appeals, the third batch, Civil

Appeals Nos.629-30 of 1994 pertaining to Assessment Years

1983-84 and 1984-85 has become infructuous for the reason

that the assessment orders questioned therein have been set

aside by the Orissa High Court which has remanded the

matters to the assessing officer. Accordingly, these appeals

are dismissed as infructuous. Civil appeals arising from

Special Leave Petitions 71-74 of 1991 are preferred against

the judgment of the Orissa Sales Tax Tribunal and they

pertain to Assessment Years 1984-85 and 1985-86. Civil

appeals arising from Special leave Petitions (C) Nos.16840-

49 of 1995 pertain to Assessment Years 1988-89 to 1993-94.

These appeals are directed against the orders of assessment

made by the Orissa authorities under the Orissa Sales Tax

Act and against certain notices issued under the said Act.

The controversy between the State of Orissa and BHEL arises

in the following circumstances: BHEL has undertaken a number

of works in the State of Orissa for setting up power

generation plants. In each case, there are two contracts,

viz., a supply contract and a service contract. The pattern

of all these contracts is practically the same as the NALCO

contracts referred to hereinabove. The stand of the State of

Orissa is that the sale of the machinery and equipment

stipulated under the supply contracts is a sale within the

State of Orissa and, therefore, exigible to tax under the

Orissa Sales Tax Act. The learned counsel for the State of

Orissa says that there is many a reason in support of the

said stand - which he indeed wanted us to consider.

According to the learned counsel, the terms and conditions

of the supply contracts and other attendant circumstances do

establish that the sale of the machinery and equipment

[specified in the supply contracts] has taken place within

the State of Orissa and not in the course of inter-State

trade or commerce. We do not, however, think it necessary to

refer to the said material in view of the Order we are

proposing in these matters. It is enough if we deal with the

reasoning of the Tribunal contained in the judgment [under

appeal on the first batch of these appeals] upholding the

stand taken by the Orissa State in these matters. The

reasoning of the Tribunal, in short, is this: initially a

Letter of Intent was issued by the Orissa State, or by the

customer in the State of Orissa [to take a instance, NALCO],

on the basis of which BHEL commenced the work. The formal

contracts [supply contract and service contract] were

entered into much later. Under the Letter of Intent and the

formal contracts:

"The assessee [BHEL] agreed to send

goods from outside the State both

in Railway and through lorries on

road to the Materials Manager,

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NALCO who used to make endorsement

of such goods in favour of the

assessee and there after the

assessee used to bring it from

common carrier and keeps the same

in their stock at the work site of

the assessee at Angul where from

such parts are assembled in

manufacturing process of the

Captive Power Plants and Smelter

Division of the Plant of NALCO...

The crux of the entire case hinges

mainly on the decision of the

ground Nos.1, 2 and 3. The settled

law is that contract cf sale

U/s.3(a) of the Central Act must

itself cause, the movement of goods

which must be occasioned in

accordance with the forms of

contract of sale. In the instant

case, whether the goods despatched

were the goods contracted has to be

decided first before attracting the

provisions of Section 3(a) of the

Central Act. To determine on this

point, the intentions of the

parties as embodied in the letter

of intent and the subsequent

contract are most valuable material

and as such require minute

verification of the terms of

contract."

The Tribunal then referred to the Letter of Intent

issued on June 3, 1982 in respect of NALCO contract and the

correspondence that passed between the parties and to the

machinery and equipment mentioned in the annexures to the

Letter of Intent and the formal contract - and then

proceeded to observe:

"So it is to be meticulously

analysed whether the goods so

despatched are embodied in the

agreement of sale either in the

letter of intent dated 2.6.82 or in

the contract dated 15..3.85.....

From the facts of the present case,

it is seen that items agreed to be

purchased have been enumerated in

annexures 1 and 2 as stated above

whereas the goods to be sold are

not the DUs as claimed by the

assessee. So their cannot be a sale

of inter-state, i.e., the goods

which actually moved in the instant

case, i.e., with regard to the DUs

(despatchable units). The

contention of the learned standing

counsel was verified with respect

to the invoice found at page 40 of

the paper book (Vol.3). It is seen

from the said invoice that it

relates to the supply generator

which does not find place in the

annexure A. So also at page 41 of

the paper book (Vol.3) there is

another invoice for supply of

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bearing pedestal (H&P) and at page

45 for supply of loose items and

bearing pedestal and at page 53

Turbine components. Those D.Us do

not find place in Annexure-I. So,

the contention of the learned

counsel for the assessee in this

regard cannot be accepted."

Having thus ruled out Section 3, the Tribunal held that

the matter has to he examined in the light of Section 4. It

observed that inasmuch as on the date of Letter of Intent or

the date of execution of formal contracts, much of the

equipment/machinery agreed to be supplied was not in

existences, It is a contract relating to unascertained or

future goods. Purporting to apply the principles of the Sale

of Goods Act, the Tribunal held, the property in the goods

passed at Angul in the State of Orissa and not anywhere

outside the State of Orissa. The Tribunal opined that the

property in the goods passed to NALCO "inside the State of

Orissa after they are prepared and got ready for sale", In

this connection, the Tribunal took note of the fact that the

Railway receipts and other documents in respect of goods

sent by Rail or by Lorry to Angul were made out in the name

of NALCO and that after receiving the said goods, NALCO

endorsed them to the work-site. On the basis of these facts,

the Tribunal held that the sale has taken place inside the

State of Orissa and that being intra-State sale is exigible

to Orissa Sales Tax.

We find it difficult to appreciate the reasoning and

approach of the Tribunal. The first and main ground upon

which it has been held that it is not an inter-State sale is

that the goods sent [by rail or road] do not answer the

description of the goods mentioned in the annexure to the

LOI/supply contract. Obviously, the annexure mentions only

the major items of machinery and equipment. These major

items cannot be transported as such; transport has to be

effected in sections and parts and assembled at the spot.

For that reason, it cannot be said that the goods

transported are not the goods agreed to be supplied. It is

nobody's case that BHEL supplied some other goods than the

goods agreed upon. Having thus erroneously excluded Section

3 of the Central Sales Tax Act, the Tribunal went to Section

4 and held that in the circumstances, the sales must be held

to have taken place inside the State of Orissa. The

discussion about endorsement of goods by NALCO to BHEL in

Orissa and so on is rather ambiguous. Indeed, we need not

pursue this discussion further for the reason that both Sri

Mohanty and Sri V.A.Mohta, appearing for the State of

Orissa, stated frankly that they cannot support the

reasoning of the Tribunal. The learned counsel,however,

submitted that in view of the several facts and reasons

mentioned by them, the conclusion of the Tribunal is

correct. The learned counsel submitted that NALCO contract

was a turn-key contract; that having regard to the terms and

conditions of the Letter of Intent, the formal contracts and

the correspondence which passed between the parties, it must

be held that the sale of the said machinery and equipment

has taken place within the State of Orissa. Learned counsel

also submitted that the factual basis upon which the Andhra

Pradesh High Court has rendered its decision is not admitted

by or acceptable to the State of Orissa. They pointed out

that State of Orissa was not made a respondent to the writ

petitions filed by BHEL in the Andhra Pradesh High Court

which are the subject-matter of Civil Appeals Nos.5362-68 of

1996 and that there are a number of facts and features upon

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which it has to be held that the conclusion arrived at by

the Orissa Tribunal is correct though not its reasoning.

Counsel further submitted that the question whether a

particular sale is an inter-State sale or an intra-State

sale is a question of fact and is not a matter to be

adjudicated by this Court in a writ petition under Article

32 of the Constitution. They submitted that on this ground

alone these appeals should be dismissed and BHEL should be

asked to pursue the remedies provided by the Orissa Act.

They pointed out that some of the appeals are preferred

directly against the assessment orders or against the

notices issued by the assessing authorities under the Orissa

Act and that there is no reason why this Court should

entertain those appeals. It is also submitted that as

against the judgment of the Tribunal, BHEL could have

approached the Orissa High Court and that there is no

particular reason why the judgment of the Tribunal is sought

to be challenged directly in this Court under Article 136 of

the Constitution.

There can be no dispute about the proposition that the

question whether a particular sale is an inter-State sale or

an intra-State sale is essentially a question of fact. It

must be said, at the same time, that it is not a pure

question of fact inasmuch as the fact of a given case have

to be examined in the light of the provisions contained in

Section 3 of the Central Sales Tax Act. The main reason for

entertaining the present appeals under Article 136 of the

Constitution is the grievance of BHEL that the same

transaction of sale is being subjected not only to Central

Sales Tax more than one State that the Orissa State is

treating the very same transaction of sale as an intras-

State sale and levying the Orissa State Sales Tax thereon.

The grievance cannot be said to be not justified. The

dispute is not only between BHEL and the States, it is also,

in a sense, a dispute between the States inter se.

For the reasons given above, Civil Appeals Nos 7353-

56/96 arising from S.L.P. (C) Nos 5071-74 of 1941 are

allowed and the matter remitted to the Tribunal. It is made

clear that we have not expressed any opinion on the merits

of these appeals. All that we have done is to clarify the

legal principles [Part-I] and indicate the errors in the

approach of the Orissa Tribunal. The Tribunal shall now hear

the parties and dispose of the appeals according to law. The

Tribunal shall dispose of the appeals as early as possible

preferably within four months from today.

So far as civil appeals arising from Special Leave

Petitions (C) Nos.16840-49 of 1995 are concerned, it is

enough to direct that the proceedings impugned in these

appeals shall remain stayed for a period of six months

within which period we expect the Orissa State Sales Tax

Tribunal to render its decision pursuant to our. Orders. The

authorities will be entitled to proceed with the matter

after the expiry the six months in accordance with law.

These appeals are disposed with the above direction. We may

mention that the learned Additional Solicitor General had

also challenged the validity of Section 5(2)(AA) of the

Orissa Sales Tax Act. The attack was based upon the ratio of

the Constitution, Bench decision in Ganon Dunkerley and

Company Limited v. State of Rajasthan (1993 (1) S.C.C.364).

In view of the directions made by us in these matters,

however, the said issue becomes academic. That may arise if

and when the Orissa authorities include the inter-State

sales in the turn-over of the assessee [BHEL] determined

under the Orissa Sales Tax Act.

It may also he mentioned that no further orders are

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called for in Writ Petition (C) No.1608 of 1987 in the light

of the directions and clarifications contained in this

judgment.

There shall be no order as to costs in any of these

matters.