Larsen And Toubro LTD. vs. State

Facts

The Petitioner, M/s. Larsen & Toubro Ltd., entered into three contracts with M/s. Tata Refractories Ltd. (TRL) for the supply, design, and erection of a 100 TPD Rotary Kiln. The Rotary Kiln was to be set up in Orissa, with equipment supplied from outside the State. Some equipment was manufactured by the Petitioner in Maharashtra and others were sourced from outside Orissa. The Sales Tax Officer (STO), Rourkela, assessed the transaction for the year ending 1993-94, holding it to be an intra-State sale under the Orissa Sales Tax Act (OST Act) and levying tax, surcharge, and penalty. The Assistant Commissioner of Sales Tax (ACST) upheld this decision. The Sales Tax Tribunal, Cuttack, initially dismissed the Petitioner's appeal but, after a remand from the High Court, partly allowed it, upholding the classification as a works contract and an intra-State sale, despite the Petitioner having paid Central Sales Tax (CST) on the transaction.

Held

The Court held that the Tribunal erred in treating the transactions as intra-State sales. The Court found that the movement of goods originated from outside the State and were received by TRL in Orissa, constituting an inter-State sale exigible under Section 6(2) of the CST Act. The Court reasoned that merely because component parts were brought from outside Orissa and assembled there did not make it an intra-State sale or indicate a colourable device to evade tax. The Court relied on the Supreme Court's decision in State of Orissa vs. B.H.E.L. (1985 SCR Supl. (3) 417), which held that goods transported in sections and parts to be assembled at the spot do not cease to be the goods agreed to be supplied in an inter-State sale. Therefore, Question No. 1 was answered in favour of the Petitioner. Consequently, the Court also held that the Tribunal was not justified in declining to delete the penalty imposed in its entirety, answering Question No. 2 in the negative and in favour of the Petitioner. All orders of the STO, ACST, and Tribunal classifying the transaction as an intra-State sale and levying tax and penalty were set aside.

Key Issues

1. Whether, in the given facts and circumstances, the Full Bench of the Orissa Sales Tax Tribunal acted in accordance with statutory provisions and settled law by disallowing the claim of sales under Section 6(2) of the CST Act and treating the transaction as an intra-State sale, when the same turnover was assessed under the CST Act for the same year by the STO, Rourkela-II Circle? The Petitioner argued that the transaction was an inter-State sale exigible to CST, and the STO had jurisdiction under Section 6(2) of the CST Act. The Petitioner contended that the design and engineering contract was purely a service contract, the supply of indigenous equipment was in the course of inter-State trade, and the erection and commissioning was a labour and service agreement. The Revenue contended that the contracts were composite, forming a works contract, and the goods were not the same as those moved inter-State, with property passing only after assembly in Orissa. 2. Whether the Tribunal, having been satisfied that conditions for imposing penalty under Section 12(5) of the Orissa Sales Tax Act, 1947, did not exist, was legally justified in not deleting the penalty entirely? The Petitioner argued that no work was executed in the relevant year and therefore proceedings under Section 12(5) were unwarranted, and the penalty should be deleted.