Excelsior Correspondent
JAMMU, May 4: A Division Bench of Jammu & Kashmir and Ladakh High Court comprising Justice Sanjeev Kumar and Justice Rajesh Sekhri has held that no sales tax is exigible for the supply of goods for erecting transmission lines, substations and power grids.
“The transaction between the assessee and the contractors in which the assessee has supplied the goods and material purchased by it from outside the State against C-Forms for the purpose of erecting transmission lines, sub-stations, and power grids for itself did not amount to sale as it was defined under Section 2(L) of the GST Act before 15.05.1997”, the DB said.
The assessee/appellant is a Government of India undertaking engaged in establishing its own grid stations and laying wires for the transmission of electricity. It is in the execution of its works, the assessee purchased some goods, materials and machinery etc from outside the State. The assessee has taken registration under the Central Sales Tax, 1956.
The assessee first buys goods, material and requisite machinery from outside the State and hands over the same to the contractors for consumption, fixation and laying out in the works of the assessee. As is claimed, the ownership and possession of the property used in the execution of the works of the assessee remains with it and the contractors are only engaged to execute the work on payment of labor charges.
The assessee submitted that since no property in goods is transferred to the contractors, as such, no payment against such material handed over to the contractors, to be used in the execution of works of the assessee, is charged. Since the assessee was not making any local sales under the GST Act, as such, was not initially registered under the Act.
The Assessing Authority held that as the assessee had taken registration under the CST Act to import goods from outside the State against C-Forms, was, therefore, a “dealer”. It was the plea taken by the Assessing Authority that only a dealer, who is registered as such under CST Act can use C-Forms to purchase goods for personal use. It was concluded by the Assessing Authority that the transactions made by the assessee were liable to tax. Consequently, the Assessing Authority also imposed interest and penalties under the GST Act.
“We are sure that if the authorities under the GST Act lift the veil, they would certainly find that the two agreements styled as labour contract and supply contract are, in essence, a single composite contract to execute the works of the assessee by the contractor. If that exercise is done by the authorities under the GST Act, the contractor, who has executed the works contract of the assessee, may fall in the GST net”, the DB said.
“In that eventuality, even the assessee, who is supposed to deduct the tax at source while making payments to the contractors could also be held liable. We leave it to the Tax Authorities to act in the matter in an inappropriate manner”, DB said and held that had the assessee followed this usual mechanism, it would have rendered the contractor liable to pay tax under the GST Act.
To avoid the liability of the contractor, the assessee, in terms of a supply contract separately executed, purchased the goods and materials from the contractor from outside the State and delivered the same to the self-same contractor to be used in different works of the assessee. The court saw it as a shrewd move on the part of the assessee to defeat the provisions of the GST Act.
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