Case Laws on Construction and Works contract

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M/s SUJATA PAINTERS Vs THE STATE OF MAHARASHTRA
and M/s. B.L. Kashyap and Sons Ltd v. State of Maharashtra.
Back ground
 Assessees undertakes certain works contract. The issue before the
Tribunal was whether Service tax would form part of the sale price to
charge VAT
Assessees contention
 Sales price u/s 2(25) of the MVAT Act - “the amount of valuable
consideration paid or payable to a dealer for any sale made including any
sum charged for anything done by the seller in respect of the goods at
the time of or before delivery thereof, other than the cost of insurance
for transit or of installation, when such cost is separately charged”.
 Explanation I to the definition says that the Excise and Customs shall be
deemed to be a part of the sale price of such goods

Revenue contentions
 Turnover of sales is defined in section 2(33) of the MVAT Act as ‘aggregate of
the amount of sale price’. Thus the consolidated sum mentioned in the invoice,
including service tax would be the ‘aggregate turnover of sale of goods’
Tribunal decision
 By plain reading and the principle laid down by the SC in the case of Imagic
Creative Pvt. Ltd., wherein the Supreme Court has observed that payments of
service tax and VAT are mutually exclusive. Therefore the Tribunal held that,
Service tax would not be a part of sale price and consequently liable to VAT
under the MVAT Act.
 In the case of Netafim Irrigation India P. Ltd v. State of AP, the Andhra VAT
Tribunal held that Service tax, being related to tax on service cannot be subject
matter of VAT. The Commissioner of Trade and Taxes determined that VAT
cannot be charged on the Service tax amount.
Reference
1. Imagic Creative Pvt. Ltd. Vs Commissioner of commercial taxes (Soft copy)
2. Netafim Irrigation India P. Ltd, Balanagar, Hyderabad v. State of Andhra
Pradesh,

Sales price as defined under various State VAT
Maharashtra Haryana
“sale price” means the amount of
valuable consideration paid or payable
to a dealer
for any sale made
including any sum charged for anything
done by the seller in respect of the
goods at the time of or before delivery
thereof,
other than the cost of insurance for
transit or of installation, when such cost
is separately charged.
“sale price” means the amount payable to a dealer as
consideration for the sale of any goods, less any sum allowed at
the time of sale as cash or trade discount according to the
practice, normally prevailing in the trade,
but inclusive of any sum charged for anything done by the
dealer in respect of the goods at the time of or before the
delivery thereof and the expression “purchase price” shall be
construed accordingly;
Explanation.- (i) In relation to the transfer of property in goods
(whether as goods or in some other forms) involved in
execution of a works contract, “sale price” shall mean such
amount as is arrived at by deducting from the amount of
valuable consideration paid or payable to a person for the
execution of such works contract, the amount representing
labour and other service charges incurred for such execution,
and where such labour and other service charges are not
quantifiable, the amount of such charges shall be calculated at
such percentage as may be prescribed.

Gujarat Rajasthan
same as Maharashtra “Sale Price” means the amount paid or payable to a
dealer as consideration for the sale of any goods less
any sum allowed by way of any kind of discount or
rebate according to the practice normally prevailing
in the trade,
but inclusive of any statutory levy or any sum
charged for anything done by the dealer in respect
of the goods or services rendered at the time of or
before the delivery thereof,
except the tax imposed under this Act;
Explanation III: Where according to the terms of a
contract, the cost of freight and other expenses in
respect of the transportation of goods are incurred
by the dealer for or on behalf of the buyer, such cost
of freight and other expenses shall not be included
in the sale price, if charged separately in the invoice;

Chhattisgarh Uttar Pradesh
"Sale price" means the amount or any other
consideration payable to a dealer as valuable
consideration for the sale of any goods less any sum
allowed as cash discount according to ordinary trade
practice
but inclusive of any sum charged for anything done by
the dealer in respect of the goods at the time of or
before delivery thereof other than the cost of freight or
delivery or the cost of installation when such cost is
separately charged.
“sale price” means the amount payable to a dealer as
consideration for the sale of any goods, less any sum
allowed as cash discount according to the practice
normally prevailing in the trade,
but inclusive of any sum charged for anything done by
the dealer in respect of goods at the time of or before
the delivery of such goods, other than cost of outward
freight or delivery or cost of installation in cases
where such cost is separately charged;
Explanation - (iii) Sale price of goods in relation to
transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works
contract, shall be determined after deducting the
aggregate of actual amount incurred towards labour
and services, amount of profit relating to supply of
labour and services and such other amounts as may
be prescribed from the total amount received or
receivable in respect of such works contract

M/s Suzlon Infrastructure Ltd Vs The State of Karnataka
Background
Petitioner undertakes four activities for the customer viz :-
(a) laying down of civil foundation
(b) supply and installation of electrical line
(c) Supply of electrical items
(d) erection and commissioning of WTGs supplied by Customer
 Assessing Authority (AA) levied tax on these activities
considering the agreement as an integrated single composite
contract.
Petitioner contention –
 Assessee paid Composition tax for (a) to (c) and for (d) which is
purely labour contract, the assessee discharged the service tax
liability
 Reliance on the Judgment H S Chandrashekar Hande vs State of
Karnataka (2012(72) KLJ 116) Is placed

Department’s Contention –
 Offer was of services required for the erection and installation of WTG,
which is a single integrated contract. If work orders are segregated to
execute the unique wind farm project it does not lose its composite,
single, integrated nature
 A contract has to be read as a whole and the purpose for which the contract
was entered into by the parties has to be ascertained from the terms of the
contract.
 Here the intention of the parties is to enter into an agreement for the installation,
erection and commissioning of WTGs.
 Perusal of the offer letter, with the terms and conditions of the work orders proves
that the assessee has executed a single integrated contract which cannot be
segregated.
 The scope of work and the insurance clause specifically establishes that the
assessee has entered into an agreement for the installation, erection and
commissioning of the WTGs, which includes labour work also.

Judgment
 “the tax payable under Section 17(6) is on the total consideration including
labour charges.
 No exemption in respect of that labour charges included in the works contract
under composition.
 However, if he enters into purely labour contract, no portion of that labour
charges is liable to tax under the KST Act.
 Assessee has segregated activities as per the work orders executed against the
offer for erection and installation of WTGs.
 It is not exactly a case of receiving labour related charges for executing pure
labour work without transferring any property in goods.
 The entire contract, is in the nature of composite single integrated
contract, though designed as it is four separate work orders. All the
segregated activities are related to the very same project with the very
same customer involving transfer of goods and labour.

 The Apex Court while considering an identical provision in the case of Builders
Association of India under the provisions of Kerala General Sales Tax Act has
categorically held that alternate method of composition is optional.
 The assessee having opted for the composition benefit voluntarily and with the
full knowledge of the features of the alternate method of taxation, is liable to
make the payment of tax on the total consideration of the works contract
involving both labour and transfer of goods. Segregation of composite contract
is not permissible under Section 15(1)(b) of the Act.
 Even if any segregation is made for the purpose of billing and separate
invoices are raised towards each portion, it does not alter the nature of
composite contract.
 Appeal was dismissed

Reliance Infrastructure Ltd vs DC, sales tax
Background
 Assessee entered into three separate contract agreements with DVC
(i) Supply including design, engineering, manufacturing, inspection, testing
and packing of a plant and equipments including mandatory spares of the
main plant as Turn Key Package from abroad,
(ii)Second one also relates to supply contract inclusive of the above of Indian
origin
(iii)Third contract is restricted to a service.
 All the aforesaid contracts were agreed under a Turn Key Package for
commissioning and setting up of the Thermal Power Project I
Appellant Contention -
 On assessment Imposition of VAT on inter-State Sale or import of the goods
treating the three separate contracts to be composite one
 Power to bring the sale of the goods effected in course of inter–State sale or
by import within the purview of the West Bengal VAT Act - Forty-sixth
Amendment

Judgment
 State cannot by legislature imposed Sales Tax on inter-State sale or the sale by
import in relation to a works contract
 Provided the same is used in commissioning of the project on turnkey
basis in the same form without changing its character through a
manufacturing process.
 The power of the state to legislate on imposition of Sales Tax in relation to the
works contract is not unfettered but a restrictive one.
 After the Forty-sixth amendment in the Constitution, the works contract is
capable of being divorced into a supply and the labour and service.
 It is not a universal rule that if the works contract is on the turn key
basis, it imbibed inseparation and indivisible but depends upon the
construction of the contracts and the intention of the parties to be
gathered therefrom.

Judgment
 Appellant has simply proceeded on the basis that though the separate
contracts are entered into between the parties but they are on a turn key
basis, it partakes the character of indivisible and inseparable works contract
exigible to the State Sales Tax.
 There is no finding recorded in the impugned order on the nature of the
transaction reflected in the books maintained by the petitioner and the
return filed in this regard – Revenue Recognition.
 It requires a voluminous documents to be looked into whether the transfer of
property in goods in connection with the Inter State Sale or by import can be
segregated and the said authorities is incompetent to levy tax under the State
Legislation.
 The matter is relegated back to the Deputy Commissioner for
reconsideration.

THE INDIAN HUME PIPE CO. LTD. Vs STATE OF
RAJASTHAN
Background
 Contracts for execution of civil construction works including laying of
pipelines
for water supply
 Assessing Authority, on the findings that the contract work executed by
the appellant is a contract, which is divisible work orders imposed tax
and penalties under Section 7AA of the Act
 Denial of application for exemption by the assessee under Rule 10A on
the ground that the contract is a divisible contract, supply of pipes and
the works for contract of civil work
Appellant submission
 The work performed was not an undivided work contract
 Appellant submission is the contract is an indivisible contract for the
supply of pipes and for the supply of labour and services, the Company
is not liable to pay tax at the rate of 12%,
 It was only liable to pay tax @ 2% on the turnover of the works
contract, which has already been deducted at source by the PHED

Single judge order in appeal
 The legal proposition with regard to definition of 'works
contract' in Article 366(29A)(b) of the Constitution of India, has
been explained in the recent judgment in Larsen and Toubro Ltd
Vs. State of Karnataka
 For sustaining levy of tax on goods, deemed to have been sold in
execution of a works contract, three conditions namely
(i) there must be a works contract;
(ii) goods should have been involved in execution of a works
contract;
(iii) property in those goods must be transferred to a third party,
either as goods or
in some other form,
have been amply clarified.

Judgment
 A contract may involve both, a contract of work and labour, and a contract for
sale
 A transfer of property in goods under clause 29A(b) of Article 366, is deemed to
be sale of goods involved in execution of a works contract by a person making
transfer and purchase of those goods to a person, to whom such transfer is
made.
 The findings with regard to sale of pipes involved in the works contract, are
findings of fact, which do not required any interference by us in these matters
 So far as the exemption is concerned, we do not find any error in the finding
recorded by learned Single Judge, that the exemption Notification having been
issued on 29.03.2001, will only apply prospectively from the year 2001-2002,
and that the benefit of exemption can be availed by a firm only after issuance of
the Notification dated 29.03.2001. The petitioner has challenged the Assessment
Year 1999-2000, and therefore, the Notification was not applicable to the
dispute involved in the matter
 Writ petition are dismissed

Upholds WCT on sub-contractor; Absent privity of contract, promissory
estoppel inapplicable – Andhra Pradesh HC
 HC rejects assessee’s exemption claim as ‘sub-contractor’ for construction of
port pursuant to exemption granted to contractor on all inputs used under
concessional agreement with State Govt;
 Refuses to invoke doctrine of promissory estoppel or legitimate expectation as
assessee not a party to said agreement, more so, when similar claim of
employer negated by this Court;
 Value of goods will be value at time of incorporation in works contract,
Rule 17(1)(e) does not postpone its determination till receipt of total
consideration on completion of entire work, observes that the term
“finalisation of accounts” must be understood w.r.t. particular financial year,
not project completion several years thereafter;
 Credit of WCT will be available on production of relevant certificate
 Benefit of composition scheme cannot be denied merely for non-disclosure of
works contract turnover in returns.

International Hospitals Pvt. Ltd. Vs State of UP and Others and
Fortis Health Care Ltd And Another Vs. State Of Punjab And Others
[2015-TIOL-466-HC-P&H-VAT]
Background
 The issue whether the use of stents and valves as an intrinsic and integral
element in the performance of a heart procedure on in-patients at a
hospital would fall within the ambit of the expression “sale” has to be
determined with reference to the definition of that expression in section
2(ac) of the Uttar Pradesh Value Added Tax Act, 2008.
Petitioner Contention
 When ever a stent or a valve is required to be implanted in a patient,
neither the hospital nor its pharmacy sells the implants directly to the
patient.
 In other words, the implants are used during the course of a surgical
procedure and there is no "sale" when such a procedure is performed
on the patient. Deputy Commissioner has imposed tax on the value of
stents and valves used for providing medical services.
• In the reply which was sub mitted by the petitioner, reliance was placed
on a judgment of the Supreme Court in Bharat Sanchar Nigam Ltd. v.
Union of India [2006] 3 VST 95 and on a judgment of a Division Bench
of the Jharkhand High Court in Tata Main Hospital v. State of Jharkhand
[2008] 36 (Soft copy)

Appellant Contentions –
 The contention of the Revenue is that the contract between the
patient and the hospital is a divisible contract in which the sale
element involving the "sale" of the stent or valve to the patient is
distinct from the surgical procedure and hence, the firm is
assessable to tax.

Judgment
 Neither of the six clauses of article 366(29A) of the Constitution
is attracted to the rendering of service in this case
 According to the hospital, where a patient comes to get admitted
for a surgical procedure like an angioplasty, the contract is
indivisible, in the course of which medical service is rendered to
the patient.
 Section 2(ac) defines the expression sale.
 Sub-clauses (i) to (vi) of section 2(ac) of the Act correspond to
subclauses (a) to (f) of article 366(29A) of the Constitution.
 Those clauses are not attracted. Hence, the only issue is as to
whether any element of sale is involved by the transfer of
property in goods by one person to another for cash, deferred
payment or other valuable consideration in the course of the
execution of a contract for the implantation of a stent or valve in
the performance of a surgical procedure.

 In the judgment BSNL Vs Union of Others, Supreme Court has quoted
that, “
44. Of all the different kinds of composite transactions the drafters of
the 46th Amendment chose three specific situations, a works contract,
a hire-purchase contract and a catering contract to bring within the
fiction of a deemed sale.
Of these three, the first and third involve a kind of service and sale at the
same time.
Apart from these two cases where splitting of the service and supply has
been constitutionally permitted in sub-clauses (b) and (f) of clause
(29A) of article 366, there is no other service which has been permitted
to be so split.

 Jharkhand HC in Tata Main Hospital [2008] 36 NTN 149 held that the
transaction of supply of medicines, vaccines, surgical items, x-ray films
and plates, etc., to the indoor patients in course of treatment in TMH
does not come within the purview of the definition of 'sale' as
envisaged under section 2(t) of the Bihar Finance Act for the following
reasons:-
(i) Supply of those articles are part and parcel of the treatment and
they are essentially required for the treatment of the patients.
(ii) Supply of those articles are incidental to the medical service being
rendered by the TMH to the patients.
(iii) Those articles are not being sold to the patients but the cost
price of the same being adjusted against the head pharmacy and
are not being separately charged item wise.
(iv) Charge under the head pharmacy is part of composite charge
realized by the TMH towards the treatment of those indoor patients.“
 Hence the appeal was allowed

Hindustan Zinc Ltd. v. Commercial Taxes Officer [TS-406-SC-
2014-VAT]
 Supply of explosives to contractor for use in mining operations.
Whether constitutes as ‘sale’ ?
 The cost of explosive was separately charged from the
contractor by deducting the value of the explosive from bills of
contractor.
 As per the statutory condition of licence obtained under
Explosive Act, 1884, taxpayer could not re-sell the explosives
purchased for its own use.
 In view of this, the taxpayer purchased the explosives against
declaration on payment of concessional tax at 4 per cent.
 However, the revenue issued notices on the ground that supply
of material such as cement, iron, steel, and explosives to various
contractors was ‘sale’.

 The taxpayer replied that the ownership of goods had never been
transferred to the contractor and therefore, such transaction does not
amount to ‘sale’ to be liable to sales tax.
 The High Court held that the transaction in question is a sale on the grounds
that all ingredients of sale are present in the transaction.
 The High Court rejected taxpayer’s contention that the said explosives have
been consumed in the works contract and the transaction cannot be a sale.
 It observed that consumable items are only the items used ancillary in
works contract and those can be water, electricity and fuel, etc., as these
items are not goods transferred to the contractor in execution of works contract
and providing above or like items, the contractor is given some facilities by the
Principal engaged in works contract.
 Accordingly, the revenue was justified in levying the tax. The High Court
dismissed the petition filed by the taxpayer. Aggrieved by such order, appeals
were filed before the Supreme Court, which dismissed the same and upheld the
High Court order.

M/s Surya Constructions Vs. Commercial Tax Officer (WC & LT) –
Kerala High Court
Background
 The petitioner is a works contractor who was awarded a contract by
BPCL. The entire work that was sub contracted and, therefore, no
portion of the work was executed by the petitioner
 The petitioner approached the CTO for the issuance of
liability certificate in Form 20B of the Kerala Value Added Tax Rules
 The amount represented the profit of the petitioner from the
transaction and the certificate was required to show that the petitioner
has discharged his tax liability, if any, to the Department in respect of
the said sum.
 The request of the petitioner was initially turned down by the CTO on
the ground that the petitioner had to pay the tax amount on the profit
retained by him.
 On further appeal certificate was granted on payment of tax on profit
amount
 But the petitioner filed for refund claim which the authority has denied

Appellant contention
 It is pointed out that while seeking a Form 20B certificate, the petitioner had indicated
that the amount represented the cost of establishment charges and profit for supplying
labour and services. This, according to the respondent, was not a permissible deduction
under Rule 10(2)(a) of the Kerala Value Added Tax Act, 2005.
 It is also submitted that on account of Circular No.5/2006 dated 11.1.2006 (soft copy),
the petitioner would be liable to pay tax even on the profit made out of a contract
Judgment
 In a case where there is an agreement between an awarder and a contractor and the
entire work under the contract is sub contracted
 The execution of the work then involves a transfer of material, in the course of execution
of the works contract, directly from the sub contractor to the awarder of the contract.
 The decision of the Honourable Supreme Court in State ofAndhra Pradesh and Others
v. Larsen & Tourbo Ltd. and Others[(2008) 17 VST 1(SC)] is an authority for this
proposition. At paragraph 19 of the said decision, it is stated as follows:

“19. If one keeps in mind the above quoted observation of this court in the case of Builders
Association of India [1989] 73 STC 370 the position becomes clear, namely, that even if
there is no privity of contract between the contractee and the sub-contractor, that
would not do away the principle of transfer of property by the sub-contractor by
employing the same on the property belonging to the contractee.
This reasons is based on the principle of accretion of property in goods. It is subject to the
contract to the contrary.
Thus, in our view, in such a case the work executed by a sub-contractor, results in a single
transaction and not multiple transactions. This reasoning is also borne out by section 4(7)
which refers to value of goods at the time of incorporation in the works executed.

 Thus, on the facts of the instant case, it would be clear that, when the
petitioner had sub contracted the entire work and also obtained the Form 20H
certificate from the sub contractor who undertook to discharge the tax liability
in respect of the entire work that was sub contracted, the amounts retained by
the petitioner, from out of payments made by the awarder of the contract,
represented only the profit element that accrued to the petitioner in his
capacity as the main contractor.
 Hence, the demand of tax from the petitioner is thus illegal and liable to be set
aside
 The respondents are directed to refund the tax amount to the petitioner or, in
the alternative, give credit to the said amount in the return submitted by the
petitioner for future periods.

• 2015-VIL-95-CESTAT-HYD-ST
• Service Tax - Pre-deposit - Works Contract Service - Back to back
agreement with sub-contractor –
• Demand of service tax from principal contractor whereas work was
executed by the sub-contractor under the 'back to back basis'
agreements

• 2015-VIL-95-CESTAT-HYD-ST
• HELD - In a construction works contract, the property used in the
construction of a building/project passes from the builder to the owner of
the land on which the building is constructed when the goods or materials
used are incorporated in the building and
• that is so, even if there is no privity of contract between the contractee and
the sub-contractor, since the deemed transfer of property in goods is based
on the principle of accretion of property in goods
• On the basis of the law declared by Supreme Court in Larsen & Tourbo Ltd
[2008-VIL-30-SC], it prima facie appears that no ‘works contract service'
was provided by the appellant to the Government of Andhra Pradesh since
it was the sub-contractors who transferred the property in goods to the
State Government by the process accretion of such goods into the property
of State Government, Pre-deposit waived and stay granted

VAT provisions applicable on construction of immovable property, not sale after
construction
 HC clarifies on taxability of development of residential complex activity under Uttarakhand
VAT Act; VAT applicable when person agreeing to undertake construction sells the
construction as 'goods' covered by the Act,
 But if he sells immovable property after construction, no sale of goods takes place;
 Provisions of Act attract as soon as property in goods is transferred by way of sale, and tax
becomes leviable;
 Remits back matter to Commissioner to decide issue after determining object ofassessee’s
business, viz., sale of immovable property as flats, apartments or construction of same on
behalf of other : Uttarakhand HC

 HC clarifies on taxability of development of residential complex
activity under Uttarakhand VAT Act;
 VAT applicable when person agreeing to undertake construction
sells the construction as 'goods' covered by the Act,
 But if he sells immovable property after construction, no sale of
goods takes place;
 Provisions of Act attract as soon as property in goods is
transferred by way of sale, and tax becomes leviable;
 Remits back matter to Commissioner to decide issue after
determining object of assessee’s business, viz., sale of
immovable property as flats, apartments or construction of
same on behalf of other : Uttarakhand HC

State of Karnataka Vs. Reddy Structure (P.) Ltd. – SC
Background
 Transfer of property in goods in execution of contract for
development of property—land value cannot be included in
taxable value.
Respondent Contention
"(1) Whether, on the facts and in the circumstances of the case
and in law, the Tribunal is justified in giving a finding that
deducting the value of land from the total receipt of the
builder is impermissible, but only value of the transfer of
property in goods has to be considered for the purpose of
assessment by adding G.P., as the same is against provisions of
law?“ In short, the question that falls for our consideration is
whether the land value should form part of taxable value for
levy of VAT or sales tax?

Judgment
 Para referred from judgment of the Supreme Court in Larsen and
Toubro Limited [2013] 65 VST 1 (SC) ; [2013] 77 KLJ 177.
 "100. We have no doubt that the State Legislatures lack
legislative power to levy tax on the transfer of immovable
property under entry 54 of List II of the Seventh Schedule.
 However, the States do have competence to levy sales tax on the
sale of goods in an agreement of sale of flat which also has a
component of a deemed sale of goods. Aspects theory though
does not allow the State Legislature to entrench upon the Union
List and tax services by including the cost of such service in the
value of goods but that does not detract the State to tax the sale
of goods element involved in the execution of works contract in
a composite contract like contract for construction of building
and sale of a flat therein. . ."

"(xi) Taxing the sale of goods element in a works contract
under article 366(29A)(b) read with entry 54, List II is
permissible even after incorporation of goods provided
tax is directed to the value of goods and does not purport
to tax the transfer of immovable property. The value of
the goods which can constitute the measure for the levy of
the tax has to be the value of the goods at the time of
incorporation of the goods in works even though property
passes as between the developer and the flat purchaser
after incorporation of goods.“
 From a bare perusal of the observations made by the
Supreme Court in paragraph 100 and the conclusion
drawn in sub-paragraph (xi) of para 101, it is clear answer
to the question raised in the revision petitions.
• Hence, With these observations, this group of sales tax
revision petitions is disposed of. No costs.

• 2015-VIL-147-CESTAT-DEL-ST-LB
• Service Tax – Larger (Special) Bench reference pertaining to works contract
• In view of the majority opinions recorded, the reference is answered as: Service elements in a
composite (works) contract (involving transfer of property in goods and rendition of services),
where such services are classifiable under “Commercial or Industrial Construction”;
“Construction of Complex” or “Erection, Commissioning or Installation” (as defined), are
subject to levy of service tax even prior to (01.07.2007) insertion of sub-clause (zzzza) in
Section 65(105) of the Finance Act, 1994

Indure Ltd. & Anr vs Commercial Tax Officer & Ors
Background
 Indure Ltd. contracted with NTPC for supply, erection and commissioning of its
Turnkey Project. Company imported 12 items for supply in such project.
 Two separate contracts were made. One for Supply and another for Erection
and Commissioning
 VAT on subsequent sale is not paid as it was in the course of Import.
 Out of 12 items 11 items were imported at Ghaziabad, UP and 1 item i.e. MS
Pipes has been imported at West Bengal.
 State of Uttar Pradesh has allowed exemption u/s 5(2) but the State of West
Bengal has not given such exemption and he made appeal to CTO, Assistant
Commissioner, Tribunal and High Court.
 But his appeal was dismissed by every authority and finally he applied to
Supreme Court.
 Two issues were raised in front of Supreme Court -
1. Whether Import of pipes were pursuant to contract between Indure and NTPC?
2. Whether such import and there supply to NTPC were inseparable and integral
part of contract?

Respondents contemplation
 It was neither mandatory nor obligatory required for the company to import
such goods.
 NTPC has not provided any name of supplier in contract and which proved
that company has imported goods in its own accord.
 Indure has obtained Import license and one of the clause in it has specified
that Indure will not be reselling these goods but these goods would be
supplied in contract with a 33% value addition. Respondents contemplated
that such requirement has not been fulfilled.
Judgment
 SC held that along with Pipes 11 other items were also imported, which were
given exemption from State levy then, why Pipes are not eligible for
exemption?
 Import has only taken place because of Indure's Contract with NTPC and
respondents failed to establish the fact that such pipes are not imported for the
said contract.

 There must be an integral connection between the import and
subsequent sale.
 Earmarked goods from the logo of contractee was evidence of that
 Liability for import must arise from statue, contract or mutual
understanding of parties. The contract had mentioned that goods were
suppose to be imported
 It is established that goods imported cannot be diversified to any other
contract and there is an inextricable link between the import and
subsequent sale and therefore, such imports are made for subsequent
sale and it is a sale in the course of Import
 Appeal allowed

ABB Vs State of Karnataka and Others
Background
 The contractor was obliged to procure from the manufacturers, who comply with certain qualified
requirements
 It also provided that all the equipment's/materials to be submitted for inspection by a duly
authorised representative of the KPTCL
 Contract consists of supply of all equipment's/materials, erection, testing and commissioning
 Contractee had provided choice of vendors for procurement from others states
 The Deputy Commissioner of Commercial Tax passed an order of assessment granting exemption in
respect of the turnover pertaining to inter-State purchases of goods used in the execution of works
contract. First Revisional Authority, initiated suomoto proceedings to revise the order of assessment
on the ground, that the exemption in respect of the turnover representing inter-State purchase of
goods utilized in the works contract was erroneously allowed.
Petioner’s contemplation
 Provisions contained in Section 5B read with the definition of "taxable turnover" as occur in Section
2(1) (u-1), the assessee is not liable to pay tax on the goods procured by him from outside the State.
 He submitted that the goods, which the assessee procured in the course of inter-State trade, the tax
was paid by the assessee, under the Central Act to the States from which the goods were purchased.
 In short, he submitted that under any circumstances, the assessee is not liable to pay any tax under
Section 5-B of the Act.

Appellant contention
 The assessee being a contractor, purchased goods and then used in execution
of works contract awarded by the KPTCL.
 He submitted, that the assesse purchased the goods from different States and
stored at his place and, therefore, the second revisional authority has rightly
held that the purchase of goods from outside the State for the purpose of
execution of works contract as per the specification given by KPTCL and
storing at his godown is not amounting to inter-State sale falling under Section
3(a) of the Central Act.
 He submitted that the works undertaken by the assessee amounts to works
contract which was exigible to tax under Section 5B of the Act since the
assessee only purchased the goods and thereafter incorporated the said goods
in execution of the works contract at Bijapur for KPTCL.

Judgment
 If a contract of sale contains a stipulation for such movement, the sale would, of-course,
be a inter-State trade. But it can also be inter- State sale even if the contract of sale does
not itself provide for movement of goods from one State to another but such movement
would be result of a covenant in the contract of sale or is an incident of such contract.
 It is true, in the instant case, the contract of sale did not require or provide that goods
should be moved from other States to the State of Karnataka at Bijapur.
 But it is not true to say that for the purpose of Section 3(a) of the Central Act it is
necessary that the contract of sale must itself provide for and cause the movement of
goods or that the movement of goods must be occasioned specifically in accordance with
the terms of the contract of sale.
 A sale which occasions movement of goods from one State to another is a sale in the
course of inter-State trade, no matter in which State the property in goods passes.
 It is not necessary that the sale must precede the inter-State movement in order that the
sale may be deemed to have occasioned such movement, and it is also not necessary for a
sale to be deemed to have taken place in the course of inter-State trade or commerce,
that the covenant regarding inter-State movement must be specified in the contract itself.
 It would be sufficient if the movement was in pursuance of and incidental to the contract
of sale.
 In the present case the movement of goods from one State to another may or may not be
as a result of a covenant but definitely it was an incident of the contract.
 the appeal is allowed

Case Laws on Construction and Works contract

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Case Laws on Construction and Works contract