# BHARAT HEAVY ELECTRICALS LTD. ETC v. UNION OF !NOIA AND ORS. ETC

- **Citation:** [1996] Supp. 1 S.C.R. 533
- **Court:** Supreme Court of India
- **Decided:** 1996-04-18
- **Bench:** B.P. Jeevan Reddy, Kt. Thomas
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bharat-heavy-electricals-ltd-etc-v-union-of-noia-and-ors-etc-14108
- **Pages:** 25

## Headnote

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 conunences-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
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
F
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
c
Tiruchi or Angul for incorporation into boiler system manufactured by
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 manufactured 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 manufactured 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 pe

## Text

_Characters 0–39,961 of 61,246. This is a partial read: ask again with offset=39961 for what follows._

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 conunences-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
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
F
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
c
Tiruchi or Angul for incorporation into boiler system manufactured by
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 manufactured 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 manufactured 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 equipltt
ment/boiler system which was being manufactured by the Tiruchi unit,
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
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
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
A
B
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
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
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]
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
entrusted a particular job. But it may not happen that the executing unit
does not manufacture all the parts and components which are required
D
E
F
G
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
B
unit to manufacture) were being manufactured at the Hyderabad unit. At
the request of the Tiruchi unit - or on the instructions of the Head Office,
as the case may be - the Hyderabad unit 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 estabD 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 cirE
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
G
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
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. JEEV AN REDDY, J.)
537
V.R. Reddy, Additional Solicitor General, Jayant Das, K. AmrcshA
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 appearing parties.
The Judgment of the Court was delivered by
B
B.P. JEEVAN REDDY, J. Leave granted in the Special Leave PetiC
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:
"286(1). No law of a State shall impose, or authorise the imposition
of, a tax on the sale or purchase of goods where such sale or
purchase takes place -
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the
goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
mentioned in clause (i).
(3) Any law of a State shall, in so far as it imposes, or authorises
the imposition of, - .
D
E
F
(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 subclause ( d) of clause (29A) of article 366,
H
A
B
c
538
SUPREME COURT REPORTS {1996] SUPP.1 S.C.R.
be subject to such restrictions and conditions in regard to the
system of levy, rates and other incidents of the tax as Parliament may by law specify."
Clause (i) places a restriction upon the power of the State Legislatures to levy taxes on sale or purchase of goods; a State cannot levy tax on
a sale which takes place outside that 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
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
F
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:
"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,
to provide for the levy, collection and distribution of taxes on
sales of goods in the course of inter-State trade or commerce and
A
to declare certain goods to be of special importance in the interState trade or commerce and specify the restrictions and conditions 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
clause (J) of Article 269. An inter-State sale or purchase shall be deemed
c
·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
A
B
c
SUPREME COURT REPORTS [1996] SUPP.1 S.C.R.
(1) Subject to the provisions contained in Section 3, when a sale
or purchase of goods is determined in accordance with sub-section
(2) to take place inside a State, such sale or purchase shall be
deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place
inside a State, if the goods are within the State -
(a) in the case of specific or ascertained goods, at the time the
contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of
their appropriation to the contract of sale by the seller or by
the buyer, whether assent of the other party is prior or·
subsequent to such appropriation."
Section 5 specifies when shall a sale or purchase of goods be deemed
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
we are not concerned herein with sub-section (3) of Section 5, we may yet
set out Section 5 in full :
E
F
G
H
"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
goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in
the course of the import of the goods into the territory of India
only if the sale or purchase either occasions such import or is
effected by a transfer of documents of title to the goods before the
goods have crossed the customs frontiers of India.
(3) Notwithstanding anything contained in sub-section (1), the last
sale or purchase of any goods preceding the sale or purchase
occasioning the export of those goods out of the territory of India
shall also be deemed to be in the course of such export, if such
I
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
export.
11
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
purchase of declared goods within a State. These two sections are relatable
to clause (3) of Article 286. It is not necessary for the purpose of these
appeals to refer to these provisions.
Section 6 is the charging section. Tax is levied only upon inter-State
sales; as on today, no tax is levied on inter-State purchases.
Clause (2) of Article 269 inter alia provides that "the net proceeds
B
c
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
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 :
"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
E
F
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-section (2), in the State from which the movement of the goods comn1enced:
Provided that, in the case of the sale of goods during their H
A
B
c
D
E
F
G
542
SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.
movement from one State to another, being a sale subsequent to
the first sale in respect of the same goods and being also a sale
which does not fall within sub-section (2) of Section 6, the tax shall
be levied and collected -
(a) where such subsequent sale has been effected by a registered
dealer, in the State from which the registered dealer obtained or,
as the case may be, could have obtained, the form prescribed for
the purposes of clause (a) of sub-section (4) of Section 8 in
connection with the purchase of such goods, and
(b) where such subsequent sale has been· effected by an unregistered dealer, in the State from which such subsequent sale has
been effected."
(Emphasis added)
We may pause here for a while and explain how the said idea was
expressed initially and how it has evolved into the present provision. Clause
(a) in Section 2 defines the expression "appropriate State". As it stands
now, it reads :
"(a) 'Appropriate State' means- (i) in relation to a dealer who has
one or more places of business 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;"
As originally enacted, however, the definition contained an Explanation 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)
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.JEEV AN 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)
It is thus clear that as originally enacted it was clause (a) in Section
2 and in particular, the Explanation appended thereto which specified the
State in which the duty or tax was leviable within the meaning of Article
269(2). By Central Sales Tax (Second Amendment) Act, 1958, the Explanation to clause (a) in Section 2 was omitted with effect from October 1, 1958
and simultaneously Section 9 was substituted. Sub-section (i) of Section 9,
as substituted by the said Amendment Act, read :
"9. levy and Collection of tax and penalties.- (1) The tax payable by
B
c
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
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
E
the subsequent sale obtained in the form prescribed for the purF
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 legislative changes, the idea has remained the same, viz., that the State from
which the goods have moved by reason of the sale is the State in which the 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 consideration 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.
E
F
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
S.T.C. 121. A particular transaction of inter-State sale was subjected to
Central Sales Tax in Andhra Pradesh. The same sale was again sought to
be taxed under Central Sales Tax Act in Maharashtra, which was questioned. The High Court adopted the following approach : Central Sales
Tax is levied and collected by the Central Government; it is immaterial in
which State it is collected; it cannot be levied or collected twice over; the
State Governments are merely 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. JEEV AN REDDY, J.]
545
pursuant to Section 269(2), as pointed out herein above) otiose and superA
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
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'
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
B
c
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. Conversely, if the Tiruchi unit manufactured any parts/components to be incorG 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. JEEV AN 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
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
merely branch transfers. The Andhra Pradesh State did not agree. Similar
stand was taken by other States as well and assessment proceedings were
B
c
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.
When the writ petition came up for hearing, it was brought to our
notice that the Andhra Pradesh Sales Tax Appellate Tribunal has decided
the said dispute (relating to certain assessment years) and that Tax
Revision Cases preferred by BHEL were pending in the Andhra Pradesh
High Court. The judgment of the Andhra Pradesh Tribunal was also placed
before us. The Andhra Pradesh Tribunal had taken the view that insofar
as the parts and components manufactured in the Andhra Pradesh unit
and despatched to work-site at Angul were concerned, they must be
treated as inter-State sales taxable in Andhra Pradesh State inasmuch as
E
F
the said goods moved from Andhra Pradesh pursuant to the supply contract 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/components from the Andhra Pradesh Unit to Angul for in corporation into
B
c
the boiler system at the work-site represented inter-State sales and
whether they were taxable in the State of Andhra Pradesh. The High
Court examined the said question at length and dismissed the Tax
Revision Cases filed by BHEL agreeing with the view taken by the
Tribunal, though on a different reasoning. Civil Appeals Nos. 5369-75 of
1996 are preferred against the judgment of the Andhra Pradesh High
Court in the aforesaid Tax Revision Cases.
Civil Appeals Nos. 5362-68 of 1996 arise from the judgment of the
Andhra Pradesh High Court rendered in a batch of writ petitions filed by
BHEL. The writ petitions raised the very same dispute as was involved in
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 disposed of by the High Court following its decision in the Tax Revision
Cases. The High Court has, however, declined to give a direction for
adjustment of tax as between the States (as asked 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. JEEV AN 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 components so manufactured by other units are sent directly to the executing
unit for being incorporated into the main machinery/system while some
parts and components are despatched directly to the work-site. Tiruchi
unit was supposed to be the executing unit. But some parts and comB
ponents required for the boiler system and other equipment (which was
the responsibility of the Tiruchi unit to manufacture) were being manufactured 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 certificate, if any, shall be submitted to the Bank and various Departments of NALCO, Angul for the purpose of claiming payment
through letter of credit vide Clause 8.1.0. As per Clause 8.2.0, the 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.