2017-TIOL-13-SC-IT
M/s RAJMANDIR ESTATES PVT LTD Vs PR CIT: SUPREME COURT OF INDIA (Dated: January 9, 2017)
Income Tax - Section 263.
Keywords - revisional jurisdiction - erroneous order - prejudice to interest of revenue - money laundering & non-application of mind.
The assessee company's assessment was reopened during the subject year. When the same was challenged, the HC held that assumption of power u/s 263 by the Commissioner was justified where it had reasons to entertain the belief that it was or could be a case of money laundering which went unnoticed because AO did not hold requisite investigation except for calling for the records and the persons behind the assessee company and the persons behind the subscribing companies were not interrogated.
On appeal, the SC held that,
Whether CIT has jurisdiction u/s 263 to re-investigate a matter, in case of suspicion regarding money laundering - YES: SC
++ this court confirmes the order of High Court and held that there is no reason to entertain these special leave petitions.
Assessee's SLP dismissed
2017-TIOL-74-HC-MUM-CT
M/s BRAHMOS AEROSPACE PVT LTD Vs STATE OF MAHARASHTRA: BOMBAY HIGH COURT (Dated: January 10, 2017)
Central Sales tax Act - Sections 6A & Rule 12(5).
Keywords - contract for supply - explosive missile - inter State branch transfer - movement of semi finished goods.
During the subject year, the Indo-Soviet Treaty of August, 1971 and Inter-Government Agreement dated 12th February, 1998 was entered into between India & Russian Government resulting in formation of assessee company. That was a joint venture company established by DRDO and NPO Mashinostroeniya, Russian Federation's Legislation, for the purpose of design, development, production and sale of Brahmos Cruise Missile weapon system. The DRDO has contributed 50.50% of the equity capital and NPOM has contributed 49.50% of the equity capital in the above joint venture company.After development and successful trials of Brahmos Cruise Missiles, the Indian Arm Forces awarded contracts to the assessee for manufacture and supply of Brahmos Cruise Missiles. Consequently, the assessee entered into contracts and supplements with NPOM, for different configuration of missiles and various other Indian industry partners. Pursuant to this agreement, a manufacturing unit of assessee was set up at Hyderabad. During the interregnum period of 2001-08, the assessee used to import fully integrated missiles from NPOM and sold the same to the Indian Armed Forces. Consequent to the completion of manufacturing facility in 2007-08, the assessee imported missiles in Semi-Knocked Condition, assembled them with bought out items and effected its sales to the Indian Armed Forces. The assessee manufactured three types of Missiles namely, Combat Missiles , Practice Missiles and Technology/Training Missiles. The combat missiles were equipped with warheads. Since the Warhead was an explosive, the same was covered by certificate issued by the Centre for Fire Explosive and Environmental Safety, and hence was prohibited to be brought into the factory of assessee at Hyderabad. Therefore, the imported warheads were directly transported to assessee's unit located in Nagpur District, for purpose of storage. Subsequently, the process of dispatch was initiated by Hyderabad branch by sending the "made to order fully finished missile" without warhead to Nagpur branch for job work of warhead integration, after obtaining permission from Commissioner of Customs & Excise. The assessee treated these transactions as inter-state sales of Missiles effected from its Hyderabad unit and accordingly charged and collected CST @ 14.5% and paid the same to AO, Hyderabad. Similarly, in respect of warhead integrated Combat Missiles supplied to the Indian Navy Unit located at Visakhapatnam, the assessee charged and collected APVAT @ 14.5%.
The assessment in Form VAT 305, for the year 2012-13, was however passed rejecting the contentions of assessee. Thereafter, the assessee approached the High Court, wherein the matter was pending adjudication. Therefore, the assessee requested to defer the assessment proceedings, till the pronouncement of High Court's judgment. The ACST however passed the impugned assessment order holding that the final product was appropriated at Nagpur in the form of Combat Missile as intended in the contract entered with Indian Armed Forces was dispatched from Nagpur to the customer after the pre-delivery inspection. Accordingly, the said authority determined the gross turnover of sales amounting to Rs.1237,48,48,492/- from which the inter-State branch transfer of Rs.441,89,97,934/- and Rs.100,75,09,459/- representing the tax paid under the CST Act, 1956 in the State of erstwhile united State of Andhra Pradesh respectively were deducted and the inter-State sales turnover of Rs.694,83,41,099/- was arrived at and the same was subjected to tax @ 12.50% amounting to Rs.86,85,42,637/-. Besides the above, the said authority also levied interest amounting to Rs.30,93,97,471/-, thus demanding a total amount of Rs.117,78,81,602/-. The said authority arrived at the above tax liability after considering the VAT Input Tax Credit of Rs.58,507/-. The assessee therefore contended that while arriving at the inter-State sales turnover of Rs.694,83,41,099/-, the ACST had erroneously included an amount of Rs.109,08,26,697/-, which was the sum total of price of a Practice Missile amounting to Rs.11,60,00,000/- and price of a Training Missile amounting to Rs.22,75,71,697/- and price of three Combat Missiles which were imported from the assessee's joint venture partner, namely NPOM amounting to Rs.74,72,55,000/-, which were sent to assessee's Nagpur branch merely for the purpose of despatching along with other warhead integrated Combat Missiles.
On appeal, the HC held that,
Whether State of Maharashtra has jurisdiction to collect Central sales tax on the inter-state supply of missiles to the Indian Armed Forces in Delhi, merely on the basis of branch transfer of missiles between Nagpur and Hyderabad for their warhead integration - NO: HC
++ it is to be noted that Central Sales Tax is an Act to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of imports into or 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 to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. The present case is however not concerned with an issue as to whether the subject transaction can be said to be intra-State or inter-State. Apparently, the situs of the inter-State sale and therefore, the liability of the dealer to pay tax to a particular State, is the issue involved before this court. In that regard, the provisions of section 6 deals with liability to pay tax on inter-State sale. By sub-section (3) of section 6 and which is the provision overriding anything contained in the Act, no Central Sales Tax is payable by any dealer in respect of sale of any goods made by such dealer and which sale takes place within the purview of section 6(3). Sub-section (1) of section 9, in clearest terms, states that the tax levied on sales of goods in the course of inter-State trade or commerce 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 commenced. However, this court is not concerned in this matter with the subsequent sale. As far as the essential ingredients of inter-State trade are concerned, they are summarised by the Supreme Court in the five Judge Bench decision in the Case of State of Andhra Pradesh vs. National Thermal Power Corporation Limited and Ors., wherein it was observed that three essential ingredients for inter State trade are that "there must be a contract of sale; the goods must actually move from one State to another pursuant to such contract of sale and such movement must be from one State to another, where the sale concludes";
++ at the outset, the order of assessment presupposes that there is an inter-State sale. The AO proceeds on the footing that the orders for the supply of Brahmos Missiles are from the Defence Ministry to the head office at Delhi. Accordingly, the components are imported from Russia and stored at Nagpur. As per the delivery schedule, the components are transferred to Hyderabad works for the purpose of job work of assembly and fixing on the SKD articles. The semi finished job is then transferred to Nagpur works from Hyderabad for carrying out warhead integration and final assembly of the Brahmos Combat Missiles, its final sealing on excise job work challan. After carrying out leak test and electrical checks, the fully finished Combat Missile is cleared from Nagpur and despatched to various locations outside the State of Maharashtra without making payment of excise duty with prior permission of the Commissioner of Central Excise. The excise duty on the said transaction is deposited at Hyderabad. Thus, the understanding of the AO is that the assessees have attempted to establish that the movement of goods from Hyderabad to Nagpur is in accordance with the contract for supply of Combat Missiles to the Armed Forces. That the semi finished goods were transferred to Nagpur just for job work of warhead integration. That is why the dealer has placed reliance on various judgments to establish the legality of the movement and remittance of tax in the State of Andhra Pradesh. However, the AO proceeds on the footing that in all the judgments relied upon, the movement was of finished goods from one State to another to effect their delivery to the customers. The AO holds that the movement of semi finished goods from Hyderabad to Nagpur cannot be construed as a mere stop over in the inter-State movement as projected by the dealer. This court is of the opinion that there is a fundamental error, in the understanding of AO, of the provisions of Central Sales Tax Act. The understanding of the AO that it is the movement of finished goods, which would be the determining and conclusive factor is legally flawed. It is untenable, inasmuch as the presumption that all the decided cases speak about and dealt with movement of finished goods from one State to another and not semi finished goods. There is non application of mind to very crucial and relevant factors, which govern the applicability of the Central Sales Tax Act to the inter-State trade and commerce;
Whether the characterstic of goods as to either semi-finished or finished, would affect the authority/jurisdiction of the Union Government for levying Central sales tax on the inter State sale of missiles for purposes of combat operations - NO: HC
++ when the AO does not dispute the factual position that there is a headquarter of assessee at New Delhi, it is that headquarter which receives orders for supply of Combat and other Missiles. It is in pursuance and furtherance of the execution of such an order that the requisite steps are taken. Therefore, it is clear that it is the establishment at Hyderabad, where the components are assembled, which makes the missiles. For the missile to be a Combat Missile, the warhead integration has to take place. Meaning thereby a warhead has to be fixed and fitted on this missile. That is dependent upon the deployment of the missile. After that warhead is fixed, the missile is then taken to the establishments of the Ministry of Defence/Armed Forces. They are either taken for the purposes of training or for Combat Operations. It is in these circumstances that the assessees rightly contend that from their manufacturing unit at Hyderabad, which was established in the year 2001 with a manufacturing facility operational from 2007-08, that the missile takes shape. It has been pointed out that from 2001-08, the assessees were importing fully integrated missiles from its joint venture partner NPOM, Russia. They were effecting the sales of these imported fully integrated missiles to the Indian Armed Forces. On the completion of the manufacturing facility in the year 2007-08, the assessees have been importing missiles in SKD condition, assembling them with certain bought out items in the State of Telangana and have been effecting sales to the Indian Armed Forces. The assembly and production of the Brahmos Missiles takes place at the facility in Hyderabad. After importing all parts of missile in SKD condition, certain parts, such as warheads, boosters, fuel etc. are transferred to Nagpur facility for storage purpose. There may be a slight dispute here and there, inasmuch as the respondents would contend that all the parts of the missiles in SKD condition arrive at Nagpur, they go to Hyderabad for the above activity, namely assembly, production and thereafter the missile is received for warhead integration at Nagpur. It is in these circumstances and by pointing out the further undisputed factual position that the location of the assessee's facility at Hyderabad is in a civilian area, which makes it impossible for them to fit the warhead, that the assembled missile is brought to Nagpur for insertion of warhead. The assumption of the AO also overlooks the fact that the warhead is a complete unit when imported from Russia. It is for inserting the warhead that the missile is de-canistered and re-pressurized. That is how the missile is ready for use in situation like a war. There is further no justification in law for the distinction made by AO about the goods being brought in semi finished or finished status.
Assessee's petition allowed
