Supreme Court of India
BHARAT HEAVY ELECTRICALS LTD. ETC.versusUNION OF INDIA AND ORS. ETC.
- Citation
- 1996 INSC 544
- Decided
- 18 April 1996
- Disposal
- Disposed off
- Bench
- B P JEEVAN REDDY
Holding
A sale is inter‑state if it occasions movement of goods from one State to another, and CST is levied in the State from which the movement commences; therefore the dispatch of parts from Andhra Pradesh to Angul or Farakka is an inter‑state sale taxable in Andhra Pradesh.
Summary
Bharat Heavy Electricals Ltd (BHEL), a public sector undertaking, manufactured boiler components in its Hyderabad unit and dispatched some to its Tiruchi unit and others directly to the work‑site at Angul, Orissa, for a NALCO power‑plant project. The Andhra Pradesh State began levying Central Sales Tax (CST) on these components, treating them as inter‑state sales, whereas BHEL claimed they were merely internal branch transfers and that the tax had already been paid on the assembled boiler system in Tamil Nadu, resulting in alleged double taxation. The Supreme Court examined the definition of an inter‑state sale under Section 3 of the Central Sales Tax Act and the rule that CST is levied in the State from which the movement of goods commences, per Section 9(i) and Article 269 of the Constitution. It held that the dispatch of parts from Andhra Pradesh to Angul or Farakka constitutes an inter‑state sale taxable in Andhra Pradesh, rejecting BHEL’s branch‑transfer argument. Consequently, the Court dismissed the civil appeals challenging the Andhra Pradesh tax, ordered tax adjustments and refunds between the States, and remitted the Orissa‑related appeals to the appropriate tribunal for fresh determination.
Issues considered
- The nature of the dispatch of components from Hyderabad to Angul/Farakka – whether it constitutes an inter‑state sale under the Central Sales Tax Act.
- In which State CST is leviable for such transactions under Section 9(i) and Article 269.
- Whether BHEL is liable to pay CST in more than one State, resulting in double taxation.
- Whether the question of inter‑state sale is a question of fact, law, or mixed, and the applicable statutory test.
- The correctness of the Orissa Tribunal's finding that the sale was intra‑state and subject to State sales tax.
- The jurisdiction of the Supreme Court to entertain the writ petition under Article 32.
Legislation cited
- Central Sales Tax Act, 1956s. 14, s. 15, s. 3, s. 4, s. 5, s. 9(i)
- Constitution of Indias. Article 269, s. Article 286
Subjects
Central Sales Taxinter‑state saledouble taxationbranch transferArticle 269Article 286tax jurisdictionpublic sector undertakingSupreme Courtcivil appealswrit petitiontax adjustment
Judgment
BHARAT HEAVY ELECTRICALS LTD. ETC. A
v.
UNION OF !NOIA AND ORS. ETC.
APRIL 18, 1996
[B.P. JEEVAN REDDY AND KT. THOMAS, JJ.] B
Sales-t<L< :
Central Sales Tax Act-Sections 3, 9-Levy and collection of
tax-W7ien is a sale or purchase of goods to take place in the coune of C
inter-state trade or commerc,,_Test laid down "in Sec. 9(i)-Tax should be
levied and collected in the State fron1 ivhich n1ove111ent of goods conunen-
ces-Constitution of India-A1t. 269.
Petitioner, BHEL a major public sector corporation, wholly owned
by the Government of India, having its units in several places, was engaged D
in the n1anufacture of heavy electrical machinery-including equipment and
material to set up a power~generation plant. Whenever it used to undertake
to set up a plant, it entered into two contracts, one for the supply of
machinery and equipment called the Supply Contract' and the other for
installation or erection of the plant called "Service Contract'. Once the job E
was undertaken, the Head Office at New Delhi used to send instructions
to relevant units to manufacture the appropriate machinery. The National
Aluminium Company Limited (NALCO), a public sector undertaking,
invited tenders· for the setting up of five captive power plants for the
aluminium smelter complex at Angul, Orissa. Petitioner .submitted its
tender which was accepted, BHEL commenced the work and instructed its F
several units to manufacture the requisite machinery and equipment.
Tiruchi unit engaged n1ainly in the 1nanufacture of boiler system \\'as
designated as the executing agency for the job at Angul including the
responsibility of manufacturing and supplying the boiler system required
for setting up the power plants at Angul. The boiler system was comprising G
of innumerable parts and cohtponents, some of which were manufactured
at the Hyderabad umt. 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 intc the boiler system at the work site. According to the H
533
534 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A practice uniformly followed by BHEL, and accepted by the Andhra Pradesh
Government, 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 Angul. The tax was levied by
B the State in which the main machinery/system was 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 manufactured at Hyderabad unit and sent to
Tiruchi or Angul for incorporation into boiler system manufactured by
c Tiruchi unit. BHEL protesting against the levy, submitted that it had 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 was levied upon the parts and components manufac-
tured at Hyderabad and sent b> Tiruchi or Angul, it would amount to
D double taxation as according to it, they were merely branch transfers. The
Andhra Pradesh State did not agree. When challenged, the Andhra
Pradesh Tribunal held that insofar as the parts and components manufac-
tured in the Andhra Pradesh units and dispatched to work site at Angul
were concerned, they must be treated as inter State sales taxable in Andhra
E Pradesh State inasmuch as the said goods moved from Andhra Pndesh
pursuant to the supply contract which was contract of sale and so far as
the parts and components which were sent to Tiruchi, they represented
merely branch transfers. BHEL challenged the findin;: regarding the
despatch of parts/components to Angul. The High Court dismissed the Tax
F Revision cases filed, by BHEL agreeing with the view taking by the
Tribunal. Hence these appeals. BHEL also tiled a writ petition under Art.
32 of the Constitution for appropriate directions to ensure that an inter
State sale is not taxed by more then one State.
The appellant; BHEL contended that parts/components/material
G sent by the Hyderdbad unit directly to work site at Angul did not constitute
inter State sales as there was no difference between the material sent to
Tiruchi for being incorporated and the material sent directly to Angul
because both of them got ultimately incorporated into the main equip-
ment/boiler system which was being manufactured by the Tiruchi unit,
ltt which happened to be the executing unit for the Angul project.
B.H.E.L. v. U.0.1. 535
Disposing of the matter, this Court A
HELD : l.l. 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.
The Central Sales Tax leviable in that State will he collected by that
B
machinery, no doubt for and on behalf of the Central Government, which
will make it over to that State as contemplated by Article 269 of the
Constitution. The State from which the goods have moved by reason of the
sale is <he State in which the Central Sales Tax is leviable, within the
meaning of Article 269(2). Whether a sale is an inter-State sale or not, it
has to be answered with reference to and on the basis of Sedion 3 of the C
Central Sales Tax Act alone and similarly, where the question arises, in
which State is the tax leviable, one must look to and apply the •est in Sec.
9(i) of the Act. Section 9(i) of the Act 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 dispute as
D
to in which State is a particular inter- State sale is to. be taxe is not a
matter between the States and that so far as the assessee is concerned, it
is not enough if he pays the tax at one place, .whether it is really leviable
in that State as per Section 9(i) or not. The law requires that it should be
levied and collected in the State from which the movement of goods
commences [Section 9(i) read with Section 3(a)]. If a dispute arises in E
which State is the tax lawfully leviable, the authorities under the Act have
got to decide it. While acting under Central Saies Tax Act, the State
machinery acts as the machinery of the Central Government and not as
the machinery of the State Government; in law, it is as if it belongs to
Central Government. [541-E-F; 544-H; 545-A-D]
F
1.2. Whether a particular sale is an inter-State sale or an intra-State
sale is essentially a question of fact. Perhaps, it is a mixed question of fact
and law. Whenever BHEL enters into a supply contraci 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 G
entrusted a particular job. But it may not 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 re<1uired by it and to
despatch the same. Some of the parts and components so manufactured H
:'\36 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A by other units are sent directly to the executing unit for being incorporated
into the main n1achinery/systen1 \l'hile so1ne parts and romponents are
dispatched directly to the work-site. Tiruchi unit was supposed to be the
executing unit. But some parts and componenh required for the boiler
system and other e11uipment (which was the responsibility of the Tiruchi
unit to manufacture) were being manufactured at the Hyderabad unit. At
B the request of the Tiruchi unit - or on the instructions of the Head Office,
as the case may be - the Hyderabad unit manm·"ctured those parts and
components and dispatched some of them to Tirm hi and some of them
directly to Angul in Orissa (work-site). [548-G-H; 549-A-C]
C 13. 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 was occasioned by the supply
contract entered into by BHEL which was a contract of sale. The manner
in which and the documentation under which these goods were sent to
Angul - in particular, Clause 33.0 of the Supply Contract - clearly estab-
D lished 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 had commenced in the State of Andhra
Pradesh, it was in the State of Andhra Pradesh that the Central Sales Tax
was leviable according to Section 9(i) of the Act. In the facts and cir-
E cumstances concerning NALCO and NTPC (Farakka) contracts and the
terms thereof; the direct despatch of goods by the Hyderabad unit to Angul
or Farakka constituted an inter-State sale within the meaning of Section
3(a) and that tax thereon was leviable in the State or Andhra Pradesh
according to Section 9(i) or the Act. [551-E-G]
F Tata Iron and Company Limited, Bombay v. S.R. Sarkar& Ors., (1960)
11 STC 655; Manganese Ore. (India) Limited v. The Regional Assista/11
Commissioner, [1976] 3 SCR 99 and Union of India v. KG. Khosla &
Company Limited, (1979) 43 S.T.O. 457, relied on.
Commissioner of Sales Tax v. Barium Chemicals Limited, (1981) 48
G
S.T.C. 121, overruled.
CIVIL APPELLATE JURISDICTION : Writ Petition (C) No. 1608
of 1987 Etc. Etc.
H (Under Article 32 of the Constitution of India).
B.H.E.L. v. U.0.1. [B.P. JEEVAN REDDY, J.) 537
V.R. Reddy, Additional Solicitor General, Jayant Das, K. Amrcsh- A
wari, Dr. R.R. Mishra and V.A. Mohta, Sunil K. Jain, Rajesh Kumar, T.
Ramam, Bibek Mohanti, J.K. Bhatia, K. Ram Kumar, C. Balasubramaiam,
Ms. Asha Nair, B.A. Mohanty, Ms. Kirti Mishra, S.K. Agnihotri, B.S.
Banthia, (A. Mariarputham, Ms. Aruna Mathur), Advs. for Arputham &
Co., P. Mahale, Shantha Kumar, V. Mahale, P.R. Ramasesh, B.S. Ahuja,
S.N. Terdol, P.K. Mishra and A.K. Gupta Advs. with them for the appear-
B
ing parties.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. Leave granted in the Special Leave Peti- C
lions. The Constitution (Sixth Amendment) Act, 1956 re-cast Article 286
of the Constitution almost in its entirety. It inserted sub-clause (g) ir clause
(i) of Article 269 and introduced clause (3) 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:
D
"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
E
(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 (i). F
(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 G
by law to be of special importance in inter-State trade or
commerce; or
(b) a tax on the sale or purchase or 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, H
538 SUPREME COURT REPORTS {1996] SUPP.1 S.C.R.
A be subject to such restrictions and conditions in regard to the
system of levy, rates and other incidents of the tax as Parlia-
ment may by law specify."
Clause (i) places a restriction upon the power of the State Legisla-
tures to levy taxes on sale or purchase of goods; a State cannot levy tax on
B a sale which takes place outside that slate 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 Stale Legislatures
c 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 (i) is the tax
D 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
inter-State trade or commerce". Clause (2) of Article 269 provides that the net
proceeds in any fmancial year of any such duty or tax "shall be assigned to
the States within which that duty or tax is leviab/e in that year and shall be
E 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 or" were added in clause (3). Clause (3) now reads:
F
"Parliament may by law formulate principle for determining when
a sale or purchase of, or consignment of goods, takes place in the
course of inter-State trade or commerce. 1'
G 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
H commerce or outside a State or in the course of import into or
B.H.E.L. v. U.0.1. [B.P. JEEV AN REDDY, J.] 539
export from India, A
to provide for the levy, collection and distribution of taxes on
sales of goods in the 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 condi-
tions to which State laws imposing taxes on the sale or purchase B
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 c
clause (J) 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 to 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 D
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 - E
(a) occasions the movement of goods from one State to ar.other;
or
(b) is effected by a transfer of document of title to the goods during
their movement from one State to another." F
Sei:tion 4 specified when does a sale or purchase take place outside
a State. Sub-section (i) of Section 4 says that where a sale or purchase of
goods is determined in accordance with sub- section (2) (of Section 4) to
have taken place inside a State, such sale or purchase shall be deemed to G
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(i)(a) read with clause (2) of the said Article. Section 4 reads :
"4. When is a sale or purchase of goods to take place outside a State.- H
(
540 SUPREME COURT REPORTS [1996] SUPP.1 S.C.R.
A (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
B 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 future goods, at the time of
c 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
D 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 evident, has been enacted to give
effect to Article 286(1)(b) read with clause (2) of the said Article. Though
E
we are not concerned herein with sub-section (3) of Section 5, we may yet
set out Section 5 in full : I
"5. When is a sale or purchase of goods to take place in the course
of imports 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
F 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
G
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
H shall also be deemed to be in the course of such export, if such
B.H.E.L. v. U.0.1. [B.P. JEEV AN REDDY, J.] 541
last sale or purchase took place after, and was for the purpose of A
complying with, the agreement or order for or in relation to such
11
export.
Section 14 of the Act declares the goods mentioned therein to be
goods of special importance in inter-State trade or commence. Section 15
sets out the restrictions and conditions in regard to levy of tax on sale or B
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.
c
Clause (2) of Article 269 inter alia provides that "the net proceeds
in any financial year of any such duty or tax .. .shall be assigned to the State
within which that duty or tax is leviable in that year". It is, therefore,
extremely important, from the States' point of view, in which State is the D
Central Sales Tax lcviablc - 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
E
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 (i) of Section 9, as it stands now. The sub-section reads : F
"9. Lery and collection of tax and penalties. - (i) The tax payable
by any 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 G
the Government of India, and the tax so levied shall be collected
by that Government in accordance with the provisions of sub-sec-
tion (2), in the State from which the movement of the goods com-
n1enced:
Provided that, in the case of the sale of goods during their H
542 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A 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
B 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 un-
c registered dealer, in the State from which such subsequent sale has
been effected."
(Emphasis added)
D 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
E one or more places of business situate in the same State, that State;
(ii) in relation to a dealer which has places of business situate in
different State, every such State with respect to the place or places
of business situate within its territory;"
F As originally enacted, however, the definition contained an Explana-
tion defining the expression "place of business". It read thus :
"'Place of business' means- (i) in the case or a sale of goods in the
course of inter-State trade or commerce falling within clause (a)
G of section 3, the place from which the goods have been moved 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.'
H Sub-section (i) of Section 9, as originally enacted, read :
B.H.E.L. v. U.0.1. [B.P.JEEVAN REDDY. J.] 543
"9. Levy and collection of tax. · (i) The tax payable by any dealer A
under this Act shall be levied and collected in the appropiiate State
by the Govemment of India in the manner provided in sub-section
(2)."
(Emphasis added)
B
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 Explana-
tion to clause (a) in Section 2 was omitted with effect from October 1, 1958
and simultaneously Section 9 was substituted. Sub-section (i) of Section 9,
c
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 D
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
E
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 obtained in the form prescribed for the pur- F
poses of clause (a) of sub-section (4) of section 8 in connection
\vith the purchase of such goods."
(Emphasis added)
Then again by Central Sales Tax (Amendment) Act, 1969, Section 9 G
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 beeil set out by us hereinabove. Thus, notwithstanding the legisla-
tive 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 H
544 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A 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 considera-
tion in these appeals. For this reason, we are n-0t referring to the position
under Section 3(b).
B The aforesaid <urvey of the relevant provisions of the Act clearly
shows that Section 3, 4, 5, 9(1), 14 and 15 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
C 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. 17ie Regional Assistant
Commissioner, [1976] 3 S.C.R. 99 and Union of India v. KG. Khosla &
D 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(i); no other provision is relevant on this question.
We, may at this stage refer to the decision of the Bombay High Court
m Commissioner of Sales Tax v. Barium Chemicals Limited, (1981) 48
E 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 ques-
tioned. The High Court adopted the following approach : Central Sales
Tax is levied and collected by the Central Government; it is immaterial in
F which State it is collected; it cannot be levied or collected twice over; the
State Governments are merely against 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, from the point of view of the asseGSee, this approach is
G sound enough but from the point of view of the States (keeping Article 269
in mind) and the provisions of the Central Sale Tax Act, this may not be
correct. Section 9(i) of Central Sales Tax Act 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
H approach of the Bombay High Court makes Section 9(i) (which is enacted
B.H.E.L. v. U.O.l. [B.P. JEEVAN REDDY, J.] 545
pursuant to Section 269(2), as pointed out herein above) otiose and super- A
fluous. It would not be proper to say, in the light of above constitutional and
statutory provisions, that the dispute as to in which State is a particular
inter-State 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 place,
whether it is really leviable in that State as per Section 9(i) or not. The law
requires that it should be levied and collected in the State from which the
B
movement of goods commences [Section 9(i) 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 t~at the
particular transaction which is sought to be taxed in State 'A' has already
been taxed in State 'B', nothing prevents him from irnpleading the State 'B' c
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
Act, the State machinery acts as the machinery of the Central 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 D
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.
PART- II E
Bharat Heavy Electricals Limited (BHEL) is a major public sector
corporation, wholly owned by the Government of India. It has its units in
several places, viz., Haridwar, Jhansi, Bhopal, Bangalore, Rarnachandrapuram
(Andhra Pradesh - near Hyderabad), Ranipet and Tiruchi (Tamil Nadu) and F
so on. 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 engab>ed in the
manufacture of heavy electrical machinery including equipment and material
necessary for setting up power plants. Its Head Office is at New Delhi. It
appears that whenever it undertakes to set up a power-generation plant, it G
enters into lwo contracts, one for the supply of machinery and equipment
called "the Supply Contract" and the 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 H
546 SUPREME COURT REPORTS [1996) SUPP. I S.C.R.
A 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 for the said work.
B BHEL also submitted its tender. It was accepted. NALCO issued a Letter
of Intent (LOI) on Ju,1e 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 senice contract
C 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,
D is engaged mainly in the manufacture of boiler systems. It was designated
as the executing agency for the job at Angul 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
E 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 at the work- site. According to the
F practice uniformly followed by BHEL, and accepted by the Andhra
Pradesh Government, the parts/components manufactured by the
Hyderabad unit for incorporation in the boiler systems were treated as
hranch transfers not involving an clement of sale, irrespective of the fact
whether such parts/components were sent to Tiruchi or to Angul. Conver-
sely, if the Tiruchi unit manufactured any parts/components to be incor-
G pmated in the machinery or system, the manufacture of which was
entrusted to Hyderabad unit, the despatch of such parts/components from
Tiruchi to Hyderabad unit or the work-site were treated as branch transfers
and 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
H wherein the parts/components were manufactured and sent for incorpora-
B.H.E.L. v. U.0.1. [B.P. JEEVAN REDDY, J.] 547
tion into the main machinery or system manufactured in other States. From A
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 Angul,
as the case may be, for incorporation into boiler system manufactured by
Tiruchi unit. BHEL protested against the said levy. It submitted that it has B
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
manufact!Jred 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
c
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 D
under the provision of the Act, which is making its functioning difficult. It
submitted that such simultaneous taxing is creating an uncalled for financial
bnrden 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.
E
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
F
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 con-
tract which was indeed a contract of sale. So far as the parts and com- G
ponents 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 H
548 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A 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/com-
ponents from the Andhra Pradesh Unit to Angul for in corporation into
the boiler system at the work-site represented inter-State sales and
B
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
c 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
D 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 and also claimed for a direction to the
respondents to adjust the Central Sales Tax collected by them in such a
E manner that the amount is kept, or remitted to the State, which lawfully
entitled to levy it and the State not entitled to levy it do not keep the tax
amounts collected be them. The batch of writ petitions have been dis-
posed 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 for by BHEL) mainly on
F 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 appropriate to say
G that it is a mixed question of fact and law. 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
H which are required for completing the job entrusted to it. It, therefore,
I B.H.E.L. v. U.0.1. [B.P. JEEVAN REDDY, J.] 549
requests other units of BHEL to manufacture the parts and components A
required by it and to despatch the same. Some of the parts and com-
ponents 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. Tiruchi
unit was supposed to be the executing unit. But some parts and com- B
ponents required for the boiler system and other equipment (which was
the responsibility of the Tiruchi unit to manufacture) were being manufac-
tured at the Hyderabad unit. At the request of the Tiruchi unit - or cin
the instructions of the Head Office, as the case may be - the Hyderabad
unit manufactured those parts and components and dispatched some of
·them to Tiruchi and some of them directly to Angul in Orissa (work-site). C
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 :
D
"Copies of invoices and photo copy of R.R./L.R. or Bill of Lading,
Pre-despatch Clearance Certificate/Inspection report and test cer-
tificate, if any, shall be submitted to the Bank and various Depart-
ments 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 E
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 !NCO Terms' and transfer of F
ownership to the 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 ad- G
verted to.
Certain debit notes raised by the petitioner (Hyderabad unit)
while di patching the materials/equipment to Trichy or direct to
0
NALCO have been placed before us. One of the debit notes is H
550 SUPREME COURT REPORTS [1996) SUPP. 1 S.C.R.
A raised soon after the despatch of one Bowl Mill to the Materials
Manager, NALCO, Angul. The work Order No. L.R./R.R. num-
ber, Packing slip number, Despatch advice number are all men-
tioned 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
B placed before us. The invoices raised on NALCO by the Trichy
unit which is executing unit relating to Boiler components dis-
patched by Hyderabad, Ranipet 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
c 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
D 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 High
Court:
E "..... 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.
F 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 advice, 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
G Hyderabad unit directly to Farakka. The name of the consignee as
per the Railway Receipt is Chief Erection Manager, NTPC, Farak-
ka 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
H unit."
B.H.E.L. v. U.0.I. [B.P. JEEVAN REDDY. J.] 551
Coming back to the findings recorded by the Andhra Pradesh A
Tribunal, 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 interrup-
tion 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 final, not having B
been questioned by the State of Andhra Pradesh. So far as the parts/com-
ponents 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 constitute inter-State.sales and that Central
Sales Tax is leviable thereon in the State of Andhra Pradesh. This con- c
clusion of the Tribunal has been affirmed by the High Court, though on a
somewhat different reasoning. The contention urged by Sri V."c. 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 D
is that in principle, there is no difference between the material sent to
Tiruchi for being incorporated and the material sent directly to Angnl
because both of them get ultimately incorporated into the main equip-
ment/boiler system which was being manufactured by the Tiruchi unit,
which happened to be the executing unit for the Angul project. We find it E
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 F
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 G
. 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 a!ld
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 within the meaning of Section 3(a) and that tax thereon is leviable in H
552 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A the State of Andhra Pradesh according to Section 9(1) of the Act.
The Andhra Pradesh Tribunal and High Court have stated that there
arc 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
B 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.
c issuedSoraises
far as Civil Appeals Nos. 5362-68 of 1996 are concerned, the
therein are identical to the issues raised in Civil Appeals Nos.
5369-75 of 1996 except the direction asked for by BHEL for adjustment of
tax amounts between the concerned States in such a manner that ap-
propriate 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
D 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 KG. Klwsla
and Company Limited (supra). Accordingly, there will be a direction to the
above affect. All refunds and adjustments consequent upon the judgment
of Andhra Pradesh High Court in Tax Revision Cases Nos. 195-201 of 1989
E 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 to approach the Andhra Pradesh High Court for
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
F Court.
Accordingly, Civil Appeals Nos. 5369-75 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
G States (who are parties to these appeals).
PART- III
In this part, we shall deal with the controversy betwl!en BHEL and
Orissa. Three batches of appeals, viz., civil appeals arising from Special
H Leave Petitions (C) Nos. 5071-74 of 1991, 16840-49 of 1995 and Civil
B.H.E.L. v. U.0.1. [B.P.JEEVAN REDDY,J.] 553
Appeals Nos. 629-30 of 1994 are concerned with this controversy. Of these A
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 infruc-
tuous 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 infruc-
tuous. Civil appeals arising from Special Leave Petitions (C) Nos. 5071- 74
B
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 c
Sales Tax Act and against certain notices issued under the said Act. The
controversy between the State of Orissa and BHEL arises in the f:1llowing
· 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 D
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 of reason in support of the said stand - which he indeed wanted E
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
F
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 con-
tained in the judgment (under appeal in 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 G
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 :
H
554 SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
A "The assessee (BHEL) agreed to sent goods from outside the State
both in Rail and through lorries on road to the Materials Manager,
NALCO who used to make 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 were from such parts are
B
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 of sale U/s. 3(a) of the
Central Act must itself cause, the movement of goods which must
c be occasioned in accordance with the terms 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
D
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
E 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
F 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.r., the
goods which actually moved in the instant case, i.e., with regard to
G 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)
H there is another invoice for supply of bearing pedestal (H & P)
B.H.E.L v. U.0.1. [B.P.JEEVAN REDDY,J.) 555
and at page 45 for supply of loose items and bearing pedestal and A
at page 53 Turbine components. Those D.Us do not find place in
Annexure-1. 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 be examined in the light of Section 4. It observed that inasmuch as B
on the date of Letter of Intent or the date of execution of formal contracts,
much of the equipment/machine1 y agreed to be supplied was not in exist-
ence, 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 C
anywhere outside the State of Orissa. The Tribunal opined that the proper-
ty 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 D
NALCO and that after receiving the said goods, NALCO endorsed them
in favour of BHEL which then transported then 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.
E
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 F
machinery a:i.d equipment. These major items cannot- be transported as
~
such; transport has to be effected in sections and parts and assembleu 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 G
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 H
-
556 SUPREME COURT REPORTS (1996] SUPP. 1 S.C.R.
A 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
B 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 or Orissa. They pointed out that State of Orissa was not made a
c 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 npon 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
D 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 or the Constitution. They submitted that on
this ground alone these appeals should be dismissed and BHEL should be
asked to pursne the remedies provided by the Orissa Act. They pointed
ont that some of the appeals are preferred directly against the assessment
E orders or against the notices issned by the assessing anthorities nnder the
Orissa Act and that there is no reason why this Conrt shonld entertain
those appeals. It is also submitted that as against the jndgment of the
Tribunal, BHEL conld have approached the Orissa High Court and that
there is no particnlar reason why the jndgment of the Tribnnal is sought
F to be challenged directly in this Court nnder Article 136 of the Constitu-
tion.
There can be no dispnte abont the proposition that the qnestion
whether a particular sale is an inter-State sale or an intera-State sale is
G essentially a qnestion of fact. It mnst be said, at the same time, that it is
not a pnre qnestion of fact inasmnch as the facts 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
appears nnder Article 136 of the Constitntion is the grievance of BHEL
that the same transaction of sale is being snbjected not only to Central
H Sales Tax in more than one State but that the Orissa State is treating the
-
B.H.E.L. v. U .0.l. [B.P. JEEV AN REDDY, J.] 557
very same transaction of sale as an intra-State sale and levying the Orissa A
State Sales Tax thereon. The grievance cannot be said to be not justified.
The dispute is not only between BHEL and the Stales, it is also, in a sense,
a dispute between the State inter se.
For the reasons given above, Civil Appeal Nus. 7353-56/96 arising
from S.L.P.(C) No. 5071-74 of 1991 are allowed and the matter remitted B
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 C
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 D
render its decision pursuant to our Orders. The authorities will be entitled
to proceed with the matter after the expiry of six months in accordance
v.1th law. These appeals are disposed of with the above direction.
We may mention that the learned Additional Solicitor General had E
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,
howeveri 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 F
assessee (BHEL) determined under the Orissa Sales Tax Act.
It may also be mentioned that no further orders are called for in Writ
Petition (C) No. 1608 of 1987 in the light of the directions and clarifications
contained in this judgment.
G
There shall be no order as to costs in any of these matters.
R.A. Matter disposed of.
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