SC dismisses Revenue’s SLP against HC order denying Sales Tax levy on supply of goods from Mumbai to Delhi for works contract

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The Hon’ble SC in the matter of Commissioner of Value Added Tax -Delhi v. M/S. Otis Elevator Company (India) Ltd. [Special Leave Petition (Civil) Diary No (s). 39203/2019 dated January 10, 2020] declined to interfere and accordingly dismissed Special Leave Petition filed by the Revenue against the Delhi HC order which held that supply of goods from Mumbai to Delhi for executing works contract is not taxable under Delhi Sales Tax Act, 1975.

Facts:

M/s Otis Elevator Company (India) Ltd. (“the Company” or “Respondent”) is engaged in the business of supply, erection, commissioning and installation of lifts/elevators in various classes of places including residential buildings, government offices and hospitals. It is also a registered dealer under the provisions of Delhi Sales Tax Act, 1975 (“Delhi Sales Tax Act”). It, however, has its manufacturing facilities at Mumbai, where its components are produced. The Mumbai unit also stores the products so manufactured. The Company has entered into works contract with various contractees in Delhi for supply and installation of elevators/ lifts.

The Delhi Sales Tax Authorities (“Petitioner”) sought to assess transactions for three distinct periods covering Assessments Years 2002-2003, 2003-2004 & 2004-2005. It was sought to hold that the burden of the local sales tax levy was laid upon the Respondent, upon an analysis of the contracts entered into.

Adjudicating Authority– The contracts were indivisible work contracts, title of each of the elevators passed onto the customer upon payment, and that for the purposes of dispute resolution, the Courts of Delhi had exclusive jurisdiction. The assessments were subjected to appeal.

Appellate Authority- Dismissed the Respondent’s contentions. Aggrieved, the Respondent approached the VAT Tribunal.

VAT Tribunal– By its common order set aside the orders of the Appellate Authority. In so holding, the VAT Tribunal found that the goods were appropriated to the contract, which was concluded in Mumbai, upon acceptance of the offer/placing orders. Aggrieved, the Petitioner approached HC, Delhi.

HC, Delhi– The appreciation of the law by the VAT Tribunal in this case is sound and unexceptionable. The placement of an order by the agent for procurement of the lifts in this case was merely an offer. It is only upon its acceptance and further steps taken by the supplier that an offer crystallizes into a binding promise or contract. That took place in Mumbai. It is now too far well settled that the incidence of Central Sales Tax or even sale of goods, occurs where the goods are appropriated to the contract. In this case, the place where the appropriation took place, is undoubtedly Mumbai. Aggrieved, the Petitioner approached SC.

Issue involved:

Whether the supply of the goods from Mumbai to Delhi to execute the works contract constitute inter-state sales within the meaning of the expression under the Central Sales Tax Act, 1956 (“Central Sales Tax Act”).

Held:

The Hon’ble SC in the Special Leave Petition (Civil) Diary No (s). 39203/2019 dated January 10, 2020 declined to interfere and accordingly dismissed Special Leave Petition.

Relevant provision:

Section 3 of Central Sales Tax Act

“3. When is a sale or purchase of goods said 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 documents of title to the goods during their movement from one State to another.

Explanation 1 : Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

Explanation 2 : Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.

Explanation 3.-Where the gas sold or purchased and transported through a common carrier pipeline or any other common transport or distribution system becomes co-mingled and fungible with other gas in the pipeline or system and such gas is introduced into the pipeline or system in one State and is taken out from the pipeline in another State, such sale or purchase of gas shall be deemed to be a movement of goods from one State to another.

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