Agreement Was Sales & Not Works Contract: Patna HC Directs Railways To Refund Illegally Deducted VAT From Contractor's Bill

The Patna High Court has directed the Railways to refund the illegal VAT deduction to the Contractor/Petitioner. The Court observed that the agreement between the Petitioner and the Railways pertained to the production and transportation of particular pre-stressed concrete slabs and RCC Ballast Retainers.

The agreement was a sales contract, not a works contract, the Court noted. The transaction was an ‘interstate sale’, which exempted it from taxation in the State of Bihar under the Bihar Value Added Tax Act 2005 (Act), the Court observed. 

“The transaction is purely of an inter-state sale of goods and is not a works contract nor a sale of goods exigible to tax within the State of Bihar. The sale of goods as per Annexure-2 and Annexure-5 agreements constitute an inter-state sale not exigible to tax within the State of Bihar”, the Bench, headed by Chief Justice K. Vinod Chandran and comprising Justice Partha Sarthy observed.

Advocate Satyabir Bharti appeared for the Petitioners and Standing Counsel Anshay Bahadur appeared for the Respondents.

The Petitioner filed a Writ Petition seeking a refund of Rs. 38,22,897 and contended that the amount deducted as advance Value Added Tax (VAT) under Sections 40 and 41 of the Act was unlawful since the goods were sold interstate and not subject to sales tax in Bihar.

The Court noted that the key factor to consider was whether the sale of goods from one state to another qualifies as an ‘interstate sale’ for taxation purposes. The Bench noted that the transfer of goods was associated with a previous sales agreement, which satisfied the requirements of inter-state sales. The Court relied upon the Supreme Court Judgement in cases of State of A.P. v. National Thermal Power Corpn. Ltd. [(2002) 5 SCC 203] and Hyderabad Engg. Industries v. State of A.P. [(2011) 4 SCC 705].

The Bench asserted, “Definitely, these are not goods available in the market, but the petitioner has to manufacture it as per the specification of the Railways, at its manufacturing unit situated in West Bengal and the obligation of the petitioner is insofar as loading and stacking it in a Railway wagon or vehicle at the nearest railway station/siding/road under the Chief Engineer/Con/NE. The petitioner does not put/ lay the goods on the proposed construction of the Railways. The agreement is one of pure and simple manufacture and sale of goods; which does not constitute a works contract”.

“In the above circumstances we direct the refund, but, confined to the deductions made three years prior to the date of registration of the above writ petition which is on 14.05.2012; giving effect to the limitation as prescribed for recovery of money under the Limitation Act. The Railways shall refund the amounts with 6% interest within a period of 4 months from the date of receipt of the certified copy of this judgment. If the refund is not granted within that time then the interest shall run at the rate of 12% from the date of expiry of the 4 month period. The Railways can apply for refund or adjustment to future dues from the State of Bihar”, the Court held.

Accordingly, the Court allowed the appeal and directed the Railways to refund the illegal deduction of tax.

Cause Title: PCM Cement Concrete Pvt. Ltd. v Union of India

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