Transfer Of Goods By Power Grid Corporation To Its Contractor Does Not Involve Transfer Of Ownership, Hence No Sale: Jammu & Kashmir High Court

The Jammu & Kashmir High Court has held that sales tax is not leviable on materials purchased by Power Grid Corporation from outside the state and transferred to contractors.

The bench of Justice Sanjeev Kumar and Justice Rajesh Sekhri has observed that the transaction between the assessee, Power Grid Corporation, and the contractors in which the assessee supplied the goods and material purchased by it from outside the state for the purpose of erecting or establishing transmission lines, substations, and power grids for itself did not amount to "sale" under Section 2(L) of the GST Act. therefore not eligible for sales tax under the GST Act. As a necessary corollary, the assessee may not be a dealer liable to pay tax under the GST Act in respect of the transaction.

The applicant/assessee, Power Grid Corporation of India Ltd., is a Government of India undertaking engaged in establishing its own grid stations and laying wires for the transmission of electricity.

The assessee purchased some goods, materials, machinery, etc. from outside the state. The assessee has registered under the Central Sales Tax Act, 1956. The modus operandi adopted by the assessee for the construction of its grid stations and the laying of wires, etc., for the transmission of electricity indicates that it first buys goods, materials, and requisite machinery from outside the state and thereafter hands them over to the contractors for consumption, fixation, and laying out in the works of the assessee.

The ownership and possession of the property used in the execution of the works of the assessee remain with it, and the contractors are only engaged to execute the work on payment of labor charges.

The assessee contended that since no property in goods is transferred to the contractors, as such, no payment against material handed over to the contractors to be used in the execution of the assessee's works is charged. It is, thus, claimed that since the assessee was not making any local sales under the GST Act, he was not initially registered under the Act.

However, in compliance with the notice, the assessee appeared before the Assessing Authority, and it filed the returns with nil turnover. The Assessing Authority, however, did not accept the contentions of the assessee and held that as the assessee had taken registration under the CST Act to import goods from outside the state against C-Forms, he was, therefore, a "dealer". It was the plea taken by the Assessing Authority that only a dealer who is registered as such under the CST Act can use C-Forms to purchase goods for personal use.

The Assessing Authority concluded that the transactions made by the assessee were liable for tax. Consequently, the Assessing Authority also imposed interest and penalties under the GST Act.

The issue raised was whether the assessee has supplied the "goods" defined under Section 2(h) (iii) and (iv) of the GST Act, which shall be deemed to be a sale before May 15, 1997, under Section 2 (L), and is a dealer under the Act amenable to tax.

The court held that the handing over of the goods and materials to the contractors for the construction and laying of power grids, substations, and transmission lines by the assessee did not involve the transfer of the right to use the goods. Not only did the ownership and dominion over the goods handed over to the contractors remain vested in the assessee, but the transfer or handing over of the goods and materials to the contractors was done without any consideration. It can, thus, be safely concluded that the transaction between the assessee and its contractor involving the transfer of goods was not supported by any valuable consideration and, therefore, cannot be construed as a transfer of the right to use goods so as to bring it within the purview of the term "sale" as defined under Section 2(L) of the GST Act.

Case Title: M/S Power Grid Corporation of India Ltd. Versus Assessing Authority Sales Tax Circle D Jammu

Citation: 2023 LiveLaw (JKL) 122

Case No.: STR No. 03/2022

Date: 28. 04.2023

Counsel For Applicant: Subash C Dutta

Counsel For Respondent: K.D.S.Kotwal

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