Bharat Heavy Electricals Ltd. vs State Of Andhra Pradesh on 23 February, 1996

Outcome**
The High Court dismissed the Tax Revision Cases (TRCs) filed by Bharat Heavy Electricals Ltd. (BHEL). The court affirmed the Sales Tax Appellate Tribunal's decision that direct despatches of equipment and materials from BHEL's Hyderabad unit to customers in other States are liable to Central Sales Tax (CST) in Andhra Pradesh. It also clarified the reasoning behind the Tribunal's finding that inter-unit transfers from Hyderabad to other BHEL units were not inter-State sales from Andhra Pradesh.

2. Core Issue
The core issues before the court were:
a. Whether the movement of goods from BHEL's Hyderabad unit directly to customers in other States, even if initiated by a head office or another executing unit of BHEL, constituted an inter-State sale under Section 3(a) of the Central Sales Tax Act, 1956.
b. If such transactions were inter-State sales, whether the Andhra Pradesh State, as the State from which the movement of goods physically commenced, had the exclusive jurisdiction to levy and collect the Central Sales Tax, notwithstanding that CST might have been paid by another BHEL executing unit in a different State on what it considered the same transactions.

3. Key Facts
* BHEL, a Central Government undertaking, operates multiple manufacturing divisions (including Hyderabad) and a head office in New Delhi, manufacturing and installing power plant equipment under divisible works contracts.
* Contracts are generally finalized by the Delhi office, and specific 'executing units' (e.g., Trichy for boiler package, Hyderabad for turbo-generator package) are made responsible for various packages.
* Sister units often supply components to executing units or directly despatch them to customer sites in other States, raising debit notes on the executing unit. Only the executing unit invoices the customer and receives payment.
* BHEL's practice was to treat inter-unit despatches as stock transfers (filing 'F' forms). The executing unit in its State paid CST on the total invoice value, including materials supplied by sister units.
* The dispute arose after the Commissioner of Commercial Taxes (AP) issued a circular, leading to reassessments demanding CST from the Hyderabad unit for goods despatched directly to customers.
* The Tribunal distinguished between:
1. Goods transferred from Hyderabad to other BHEL units, incorporated into machinery, and losing their identity (held not inter-State sales taxable by AP).
2. Goods transferred by Hyderabad directly to the customer's site in another State (held to be inter-State sales taxable by AP).

4. Arguments
Taxpayer (BHEL):
* No double taxation: Central Sales Tax had already been paid by the executing units (e.g., Trichy unit) in other States on the very same goods despatched from Hyderabad to customers directly. Therefore, AP authorities have no jurisdiction to demand tax again.
* Appropriate State: The appropriate State to collect tax could also be the State of the executing unit, not solely the movement State.
* Consistent practice: BHEL followed a consistent practice of paying CST in the executing unit's State, which was not previously questioned.
* Parity of reasoning for inter-unit transfers: If goods sent to other BHEL units for assembly were not considered inter-State sales from AP, then goods directly sent to customers, which are also components of a larger plant, should similarly not be treated as inter-State sales from AP.
* Notional movement: The physical movement of goods from AP should be deemed to originate from the executing unit's State (e.g., Trichy) as it is for and on behalf of that unit.

Revenue (State of Andhra Pradesh):
* Inter-State sales from AP: The movement of goods from BHEL's Hyderabad unit directly to customers in other States, being pursuant to and a necessary consequence of the contracts of sale, constitutes inter-State sales originating from Andhra Pradesh.
* Exclusive jurisdiction: Under Section 9(1) of the CST Act, the State from which the movement of goods commenced has the sole and exclusive authority to levy and collect CST on behalf of the Government of India.
* Irrelevance of prior payment elsewhere: Any CST paid by an executing unit in another State, if that State is not the 'movement State', was collected without jurisdiction and does not preclude the legitimate collecting State (AP) from demanding the tax.
* Single legal entity: BHEL is one entity, and the various units act as its components. The crucial factor is the physical origin of the goods' movement occasioning the sale.

5. Court’s Reasoning
1. Inter-State Sale: Relying on Supreme Court precedents (Tata Iron and Steel Co. Ltd. v. S. R. Sarkar, Oil India Ltd. v. Superintendent of Taxes, English Electric Company of India Ltd. v. Deputy Commercial Tax Officer), the court affirmed that movement of goods from Hyderabad directly to customers in other States, being a necessary consequence and incident of the contract of sale, constitutes an inter-State sale under Section 3(a) of the CST Act. The fact that the contract was not with the Hyderabad unit directly or that another unit raised invoices is irrelevant, as BHEL is a single legal entity.
2. Exclusive Jurisdiction of Movement State: The court held that Section 9(1) of the CST Act is clear: tax "shall be collected... in the State from which the movement of the goods commenced." This provision identifies the sole State authorized to collect CST on behalf of the Government of India. The phrase "in accordance with the provisions of sub-section (2)" in Section 9(1) refers only to the machinery and procedure for collection, not to expand jurisdiction.
3. Rejection of Double Taxation & Barium Chemicals: The court expressly dissented from the Bombay High Court's decision in Commissioner of Sales Tax v. Barium Chemicals Ltd., which suggested that prior payment to the Central Government through a "wrong agency" might prevent further collection. The present court held that an unauthorized State collecting tax acts outside its jurisdiction. The appropriate remedy for such an anomaly is for the State that collected illegitimate revenue to disgorge it, not to deny the rightful State its jurisdiction. This view was fortified by the Supreme Court's decision in State of Uttar Pradesh v. Kasturi Lal Har Lal, which clarified that "appropriate State" in Section 9(2) must harmoniously refer to the movement State identified in Section 9(1).
4. Inter-Unit Transfers (Hyderabad to Executing Unit): The court upheld the Tribunal's conclusion that these transactions were not inter-State sales from AP, but provided different reasoning. It found that in such cases, there was an interruption of movement and a snapping of the inextricable bond between the movement from Hyderabad and the final contract of sale. The goods might lose their identity after assembly or processing by the executing unit, and the Hyderabad unit had no certain knowledge of their ultimate disposition. Thus, the movement to the executing unit was a pure stock transfer and not "in the course of fulfilment" of the contract of sale with the customer.
5. Rejection of Notional Movement: The argument for a notional movement from the executing unit's State was rejected, as Section 9(1) refers to factual, physical movement.
6. Factual Errors in Tribunal's Statement: The court noted that the assessing authority is not strictly bound by any potentially erroneous figures in the Tribunal's summary statement and is free to determine the correct taxable turnover.

6. Statutory References
* Central Sales Tax Act, 1956:
* Section 2 (Definitions)
* Section 3 (When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce) - specifically 3(a) and 3(b)
* Section 6-A (Burden of proof, etc., in case of transfer of goods claimed to be by way of sale)
* Section 9 (Levy and collection of tax) - specifically 9(1) and 9(2)
* Andhra Pradesh General Sales Tax Act:
* Section 22 (Revision by High Court)

7. Precedents Cited
1. Tata Iron and Steel Co. Ltd. v. S. R. Sarkar, [1961] 12 STC 897 (SC)
2. Commissioner of Sales Tax v. Allwyn Cooper, [1970] 25 STC 26 (SC)
3. Oil India Ltd. v. Superintendent of Taxes, [1975] 35 STC 445 (SC)
4. Union of India v. K.G. Khosla and Co. Ltd., [1979] 43 STC 457 (SC)
5. State of Bihar v. Tata Engineering & Locomotive Co. Ltd., [1971] 27 STC 485 (SC)
6. English Electric Company of India Ltd. v. Deputy Commercial Tax Officer, [1976] 38 STC 475 (SC)
7. Sahney Steel and Press Works Ltd. v. Commercial Tax Officer, [1985] 60 STC 301 (SC)
8. Commissioner of Sales Tax v. Barium Chemicals Ltd., [1981] 48 STC 121 (Bom) (Distinguished and dissented from)
9. State of Uttar Pradesh v. Kasturi Lal Har Lal, [1987] 64 STC 1 (SC)
10. Kasturi Lal Har Lal v. State of U.P., [1972] 29 STC 495 (All) (Decision affirmed by Supreme Court)
11. Mohamed Ibrahim Hadhee v. State of Madras, [1968] 21 STC 378 (Mad) (Principle approved)