M/S Siemens Limited v The State of Kerala

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ``` THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR ``` ## **`&`** ``` THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH FRIDAY, THE 23[RD] DAY OF FEBRUARY 2024/4TH PHALGUNA, 1945 ``` ``` S.T.REV.NO.1 OF 2019 AGAINST THE ORDER DATED 30.6.2018 IN T.A.NO.18/2015 OF KERALA AGRL.INCOME TAX & SALES APPELLATE TRIBUNAL, ADDITIONAL BENCH,ERNAKULAM ``` ## **`PETITIONER/APPELLANT:`** ``` M/S. SIEMENS LIMITED, SREEKANDATH ROAD, RAVIPURAM, ERNAKULAM, NOW AT 'JOMER SYMPHONY', CHALIKKAVATTOM, PONNURUNNY NORTH, VYTTILA, ERNAKULAM - 682 019, REPRESENTED BY G.VASANTHI, MANAGER-INDIRECT TAXATION. ``` ``` BY ADV.SRI.JOSE JOSEPH ``` ## **`RESPONDENT/RESPONDENT:`** ``` THE STATE OF KERALA, REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, REVENUE TOWER, ERNAKULAM. ``` ``` BY SRI.V.K.SHAMSUDHEEN, SR.GOVERNMENT PLEADER ``` ``` THIS SALES TAX REVISION HAVING COME UP FOR HEARING ON 23.02.2024 ALONG WITH ST.REV.NO.13/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` **S.T.REV.NO.1 OF 2019 & :: 2 ::** **S.T.REV.NO.13 OF 2018** ## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ``` THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR ``` ## **`&`** ``` THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH ``` ``` FRIDAY, THE 23[RD] DAY OF FEBRUARY 2024/4TH PHALGUNA, 1945 ``` ``` ST.REV.NO.13 OF 2018 AGAINST THE ORDER DATED 28.2.2018 IN T.A.NO.247/2010 OF KERALA AGRL.INCOME TAX & SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,ERNAKULAM ``` ## **`PETITIONER/APPELLANT:`** ## **`M/S.SEIMENS LIMITED,`** ``` PREETHI BUILDINGS, M.G.ROAD,ERNAKULAM, NOW AT 'JOMER SYMPHONY' CHALIKKAVATTOM, PONNURUNNY NORTH, VYTTILA, ERNAKULAM - 682 019, REPRESENTEDBY G.VASANTHI MANAGER - INDIRECT TAXATION ``` ``` BY ADV.SRI.JOSE JOSEPH ``` ## **`RESPONDENT/RESPONDENT:`** ``` THE STATE OF KERALA, REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, REVENUE TOWER, ERNAKULAM. ``` ``` BY SRI.V.K.SHAMSUDHEEN, SR.GOVERNMENT PLEADER ``` ``` THIS SALES TAX REVISION HAVING COME UP FOR HEARING ON 23.02.2024 ALONG WITH ST.REV.NO.1/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` **S.T.REV.NO.1 OF 2019 & :: 3 ::** **S.T.REV.NO.13 OF 2018** ## **O R D E R** ## **Dr. A.K. Jayasankaran Nambiar, J.** As the issue involved in both these S.T. Revisions is the same, they are taken up together for consideration and disposed by this common order. 2. The brief facts necessary for disposal of these Revision Petitions are as follows: The petitioner in both the Revision Petitions is a company registered under the Companies Act, 1956 with its registered Office at Mumbai and branches in various States including one at Ernakulam, Kerala. It is a manufacturer cum dealer of medical equipments, electronic and electric items etc. and also undertakes the execution of works contract for various clients. It is also a dealer registered as such under the Kerala General Sales Tax Act, 1963 [hereinafter referred to as the “KGST Act”] and Central Sales Tax Act, 1956 [hereinafter referred to as the “CST Act”]. During the assessment years 2000-01 and 2004-05, it had taken up works contracts for KINFRA and had accordingly entered into contract with the said company for the construction of a 110KV Sub Station. The tender documents **S.T.REV.NO.1 OF 2019 & :: 4 ::** **S.T.REV.NO.13 OF 2018** comprised of general conditions of contract, special conditions of contract and the formal contract agreement, and the terms and conditions therein specified the items that had to be supplied by the petitioner for the purposes of incorporation into the works contract that was undertaken by it for KINFRA. The terms of the contract made it clear that while the technical specifications and the make of the individual items/component parts as specified therein had to be adhered to by the petitioner while affecting the supply of the said parts, a choice was left to the petitioner to source the parts either from within the State or from outside the State. 3. It would appear that in respect of those parts that were sourced by the petitioner from within Kerala, the petitioner discharged his liability to sales tax under the KGST Act while incorporating the said parts in the works contract. For the items sourced from outside the State, either from subvendors of the petitioner or from the petitioner's own manufacturing units, and incorporated in the works contract in Kerala, the petitioner claimed exemption from tax under the KGST Act by contending that the said supplies would have to be treated as deemed inter-state sale of goods in the course of execution of works contract. 4. The claim for exemption was not accepted by the Assessing Authority, who, for the assessment year 2000-01, found that the petitioner **S.T.REV.NO.1 OF 2019 & :: 5 ::** **S.T.REV.NO.13 OF 2018** had not even discharged the tax liability under the CST Act in respect of purchases effected from sub-vendors from whom it had procured the parts after issuing C Forms. Although the petitioner pointed out that the CST Act had not been amended to make provision for taxation of deemed inter-state sales, the Assessing Authority was of the view that the incorporation of the goods sourced from outside the State, in the works contract in Kerala, would necessarily attract tax under the KGST Act. 5. The petitioner carried the matter in further appeals before the First Appellate Authority and also the Appellate Tribunal, but the said appeals were dismissed. This led the petitioner to approach this Court through the S.T. Revisions aforementioned, wherein the main question of law raised is with regard to the liability to pay tax under the KGST Act on the value of the goods supplied inter-state for execution of the works contract in Kerala. 6. We have heard Sri.Jose Joseph, the learned counsel for the petitioner in both the Revisions and Sri.V.K. Shamsudheen, the learned senior Government Pleader for the respondent Department. 7. On a consideration of the facts and circumstances of the case as also the submissions made across the bar, we are of the view that the **S.T.REV.NO.1 OF 2019 & :: 6 :: S.T.REV.NO.13 OF 2018** petitioner must necessarily succeed. 8. The Tribunal, in the orders impugned before us, has taken a rather myopic view of the contractual relationship between the petitioner on the one hand and the KINFRA on the other, while determining the tax liability of the petitioner in relation to the goods supplied to KINFRA in the course of execution of the works contract undertaken by it. A perusal of the order of the Tribunal makes it abundantly clear that the Tribunal was swayed by the non-production of the formal contract in original and was therefore of the view that inter-state movement of the goods had no relation to any obligation of the petitioner under the said contract. We find, however, that the Tribunal itself then proceeded to consider the tender documents that were available before it for the purposes of determining the nature of the transaction entered into between the petitioner and KINFRA. Given the fact that the Tribunal itself had virtually accepted the tender documents as pertaining to the contract between the petitioner and KINFRA, we are of the view that it ought to have considered the clauses in the tender documents in a commercial sense and taken note of the clauses in the agreement between the parties that dealt with the manner of supply of goods for the execution of the works contract. In particular, the provisions of clauses 4.1.5, 4.31, 5.1.1, 5.3.4, 5.3.5, 5.5, 9.0, Schedule of Requirements & Estimate for the 110 kV Substation, which are extracted hereunder, ought to have been noticed: **S.T.REV.NO.1 OF 2019 & :: 7 :: S.T.REV.NO.13 OF 2018** - **4.1.5.** 'Contract' shall mean and include the tender notice/invitation to tender, the tender and all pertaining documents, the letter of intent/the work order, the correspondence exchanged after receipt of tenders and before issue of the letter of intent, the drawings, technical specifications and standards relating to the successful Tenderer/Contractor with the Purchaser. ## **4.31. Subcontracts** The Contractor shall notify the purchaser in writing of all subcontracts awarded under the Contract if not already specified in his bid. Such notification, in his original bid or later, shall not relieve the Supplier from any liability or obligation under the Contract. The Contractor shall furnish to the Purchaser/Consultant credentials of the sub contractor for verification/acceptance. ## **5.0 SPECIAL TERMS AND CONDITIONS OR TURNKEY CONTRACT (SCC) (SUPPLY, ERECTION, TESTING & COMMISSIONING)** ## **5.1 General** - 5.1.1 The following special conditions shall be read in conjunction with General terms and conditions of Turnkey Contract (GCC) and amendments/corrections thereto. Where any portion of the GCC are repugnant to or at variance with any provisions of the GCC, then, unless a different intention appears, the provision of the SCC shall be deemed to override the provisions of the GCC only to the extent that such repugnancy, or variations cannot be reconciled with the SCC and shall be to the extent of such repugnancy, or variations, prevail; it being understood that the provisions of GCC shall otherwise prevail. Wherever it is stated anywhere in this contract that such and such work is to be carried out, it shall be understood that same shall be effected/carried out by the Contractor at this own cost, unless a different intention is specifically and expressly stated herein or otherwise explicit from the context. The work in general shall be carried out as per the nomenclature of the individual items and in the particular specifications. For item of works, not covered above, the same shall be carried out as per instructions and specifications given by the Consultant. ## **5.3.4. Quality of materials** All the materials and equipment supplied by the contractor for this work shall be new and should confirm to relevant BIS Specifications. They shall be of such design, size and material as to function satisfactorily under the rated conditions of operation and to withstand **S.T.REV.NO.1 OF 2019 & :: 8 :: S.T.REV.NO.13 OF 2018** the environmental conditions at site. The copies of purchase vouchers & gate passes should be produced along with the materials. The type test certificates, routine test certificates and acceptance test certificates are also to be submitted. ## **5.3.5. Inspection of material and Equipment** The materials should be be inspected/tested prior to the despatch from the manufacture by Purchaser/Consultant. The inspection call should be given at least fifteen days in advance so as to deputy the officials of Purchaser/Consultant for the inspection. Such inspection will be of the following categories: 1. Inspection of materials/equipment to be witnessed at the manufacturers premises in accordance with relevant BIS/Agreement Inspection Procedure. 2. To receive materials at site with manufacturers Test Certificate(s). 3. To receive materials after physical inspection at site. Similarly, for fabricated equipment, the contractor will first submit dimensional drawings for approval before fabrication is taken up in the factory. Suitable state inspection at factory also will be made to ensure proper use of materials, workmanship and quality control. All the materials and equipment supplied by the contractor for this work shall be new and should confirm to relevant BIS Specifications. They shall be of such design, size and material as to function satisfactorily under the rated conditions of operation and to withstand the environmental conditions at site. The copies of purchase vouchers & gate passes should be produced along with the materials. The type test certificates, routine test certificates and acceptance test certificates are also to be submitted. ## **5.5. Samples** - 5.5.1 The Contractor shall be required to produce samples of all the materials sufficiently in advance to obtain approval of the Engineer-incharge. - 5.5.2 Approved samples shall be retained by the Engineer-in-charge until the completion of the work and all materials and workmanship incorporated in the work are to conform to the approved samples in all respects. Rejected materials shall be removed from the site immediately under the supervision of Engineer-in-charge. - 5.5.3 If on handing over the site or at any time thereafter during the execution of work, the contractor considers that any drawing or information necessary for the execution of the work has not been provided, he shall inform the Engineer-in-charge in writing giving full details required. All materials or workmanship, which in the opinion **S.T.REV.NO.1 OF 2019 & :: 9 :: S.T.REV.NO.13 OF 2018** of the Engineer-in-charge is defective or is unsuitable shall be removed immediately from the site within a reasonable time to be fixed by the Engineer-in-charge depending on the requirement in each case, failing which, the same shall be removed at the risk and cost of the Contractor. No claim whatever shall be entertained on this account. - 5.5.4 Whenever B.I.S. codes are referred to in other particular specifications attached, the latest B.I.S. codes prevalent at the time of tendering shall be followed. ## **9.0. MAKE OF MATERIALS 9.1 Scope** The scope of this section covers the recommended makes of equipment, material components. The final choice of makes shall be indicated at the time of finalisation of order. The makes of material offered by the contractor shall be indicated at the space provided for proper evaluation of the offer and shall be one of the recommend makes. In the absence of such indication, the decision rests with the Purchaser/consultant. ## **9.2. Makes recommended** The makes of material recommended are exhibited in respective section. The offers shall be strictly on the basis of the makes recommended. However, the bidders can offer alternative makes under deviation. Such deviations shall follow with technical literature of the material/equipment offered. Such deviation shall be considered only if the offer is furnished for the specified make as per the tender. Where specified make and model nos. are indicated in the schedule of requirements, the bidder should quote for the same items. ## **9.3. LIST OF APPROVED MAKES OF EQUIPMENT AND MATERIALS** |**Sl.**<br>**No.**|**Item**|**Make of Materials/Equipment**| |---|---|---| |**A**.<br>1<br>2<br>3<br>4|**110kV Equipment**<br>Power Transformer<br>Capacitive Voltage<br>Transformer<br>Potential Transformer<br>Current Transformer<br>…..............................|TELK, ABB, Crompton Greaves, BHEL<br>TELK, ABB, Crompton Greaves.<br>TELK, ABB, Crompton Greaves.<br>TELK, ABB, Crompton Greaves.<br>…..............................................| **S.T.REV.NO.1 OF 2019 & :: 10 ::** **S.T.REV.NO.13 OF 2018** ## **SCHEDULE OF REQUIREMENTS & ESTIMATE FOR THE 110 kV SUBSTATION** _**Based on KPWD 96 & market rates 1999**_ _**PART A : ELECTRIFICATION WORK**_ |**____________________________________________________________________________________________________________**|**____________________________________________________________________________________________________________**|**____________________________________________________________________________________________________________**|**____________________________________________________________________________________________________________**|**____________________________________________________________________________________________________________**| |---|---|---|---|---| |**Item No.**|**Description**<br>**Unit**|**Qty**|**Rate**<br>|**Amout (Rs.)**| |**____________________________________________________________________________________________________________**||||| |**Part I -**|**110 kV Equipment**|||| |1.0|Supply, Installation, Testing|||| ||and Commissioning of Outdoor|||| ||type 10 MVA, 3 Ph., 50 c/s|||| ||ONAF Power Transformer with|||| ||OLTC<br>having<br>separate|||| ||compartments<br>with|||| ||manual/motorised controls of|||| ||taps + 5% to – 25% in steps of|||| ||2.5% conforming to IS:|||| ||2026/77, RTCC panel, oil|||| ||conservator, oil impregnated|||| ||condenser type bushings, frst|||| ||fll of oil, and all accessories|||| ||and<br>having<br>following|||| ||specifcations:|||| ||Voltage Ratio : 110/11 kV|||| ||Type of Winding: Paper|||| ||insulated rectangular copper|||| ||conductor.|||| ||Fittings: Standard fttings as|||| ||per|||| ||IS:2026/77|||| ||(Refer section 6.3)|||| ||Supply<br>No.<br>2||4,600,000.00|9,200,000.00| ||Erection<br>No.<br>2||25,000.00|50,000.00| 9. A perusal of the tender documents would therefore clearly reveal that the scope of the petitioner's obligation under the contract was to source the goods, forming part of the electric Sub Station, from specified vendors or from its own manufacturing units outside the State and make them available for incorporation in the works contract carried out in the State. It **S.T.REV.NO.1 OF 2019 & :: 11 ::** **S.T.REV.NO.13 OF 2018** will also be apparent that the goods in question were 'non-standard goods' which had to be in accordance with the designs and specifications supplied by KINFRA. The goods to be supplied were not standard goods which the petitioner company could have fabricated based on its own designs and specifications. It follows therefore that when such goods, as were covered by the contract entered into between the petitioner and KINFRA, were sourced from outside the State, the mere fact that there was an initial transaction whereby the petitioner obtained possession/title of the goods in Kerala from a movement of the goods that originated from outside of Kerala, could not have made a difference while determining the nature of the sale transaction namely 'inter-state' or 'intra-state'. Whether it was goods sourced from a sub-vendor outside the State or goods sourced from their own manufacturing units outside the State, the movement of the goods from outside the State into the State and thereafter till their incorporation in the works contract carried out by the petitioner had to be seen as incidental to the contract entered into between the petitioner and the KINFRA. There was no break in the movement of the goods and the petitioner's Office in Kerala had to be seen merely as a conduit through which the goods passed on their way to KINFRA. It would have been a different matter if the goods that were despatched from the manufacturing unit of the petitioner outside Kerala were of a general nature [standard goods] that were brought into the State for sale in the open market without reference to any contract entered **S.T.REV.NO.1 OF 2019 & :: 12 ::** **S.T.REV.NO.13 OF 2018** into with KINFRA. In that event, the transaction would have definitely been viewed as an 'intra-state sale' when sold to the buyer within the State since the inter-state movement would not be seen as incidental to any contract of sale entered into between the petitioner and its buyer. 10. In the instant case, as already noticed, the movement of the goods, in respect of which the petitioner had claimed exemption from tax under the KGST Act, was clearly incidental to their obligations under the contract entered into with KINFRA. The goods themselves were not standard goods but goods that answered to the specifications and make that was prescribed in the contract entered into between the petitioner and KINFRA. Under such circumstances, we are of the view that merely because there was an intervening event that broke the chain of movement of the goods from outside the State to within the State, prior to their incorporation in the works contract, the transaction could not have been viewed as an 'intra-state sale'. We are fortified in the view that we have taken by the judgment of the Supreme Court in **Sahney Steel and Press Works Ltd. and Another v. Commercial Tax Officer and Others - [60 STC 301 (SC)] and Commissioner, Delhi Value Added Tax v. ABB Ltd. - [91 VST 188) (SC)].** In the result, we allow these S.T. Revisions by setting aside the **S.T.REV.NO.1 OF 2019 & :: 13 ::** **S.T.REV.NO.13 OF 2018** impugned orders of the Appellate Tribunal and answering the questions of law raised in these Revision Petitions in favour of the petitioner assessee and against the Revenue. **Sd/DR. A.K.JAYASANKARAN NAMBIAR JUDGE** **Sd/DR. KAUSER EDAPPAGATH JUDGE** **prp/24/2/24** **S.T.REV.NO.1 OF 2019 & :: 14 ::** **S.T.REV.NO.13 OF 2018** ## **`APPENDIX OF S.T.REV.NO.1/2019`** ## **`PETITIONER'S ANNEXURES:`** ``` ANNEXURE ITRUE COPY OF ASSESSMENT ORDER UNDER THE KGST ACT FOR THE YEAR 2004-05. ``` ``` ANNEXURE IITRUE COPY ORDER OF THE DEPUTY COMMISSIONER (APPEALS) IN STA NO.337/2011. ANNEXURE IIITRUE COPY OF ORDER OF THE KERALA AIT & ST APPELLATE TRIBUNAL IN TA NO.18/2015. ``` ## **`RESPONDENT'S ANNEXURES: NIL.`** ## **`//TRUE COPY//`** ``` P.S. TO JUDGE ``` **S.T.REV.NO.1 OF 2019 & :: 15 ::** **S.T.REV.NO.13 OF 2018** ## **`APPENDIX OF ST.REV.NO.13/2018`** ## **`PETITIONER'S ANNEXURES:`** ``` ANNEXURE ITRUE COPY OF ASSESSMENT ORDER UNDER THE KGST ACT FOR THE YEAR 2000-01. ``` ``` ANNEXURE-IITRUE COPY ORDER OF THE DEPUTY COMMISSIONER(APPEALS)INSTA NO.426/2004 ANNEXURE-IIITRUE COPY OF ORDER OF THE KERALA AIT & STAPPELLATETRIBUNALIN T.A.NO.247/2010 ANNEXURE-IVTRUE COPY OF JUDGMENT IN S.T.REV.NO.19 OF 2014 ANNEXURE-VTRUE COPY OF ORDER OF THE KERALA AIT & STAPPELLATETRIBUNALIN T.A.NO.247/2010. ``` ``` RESPONDENTS ANNEXURES: NIL. ``` ``` //TRUE COPY// ``` ``` P.S. TO JUDGE ```