The Bombay High Court Tuesday ruled that BrahMos Aerospace
Private Limited, which provides a cruise missile weapon system to the Indian
Armed Forces, is not liable to pay sales tax to the Maharashtra government
because the sales and appropriation of the goods took place from the state. The
state government had held that the combat missile is manufactured by the
petitioner at its Hyderabad unit and sent to Nagpur for integration of warhead
and subsequently dispatched to the Indian Armed Forces from Nagpur as directed
by the Hyderabad office.
The assessing officer of the sales tax
department had said that since sales and appropriation of the goods takes place
in Maharashtra, it is the appropriate state for the purpose of levy and
collection of the Central Sales Tax on the transactions.
“We are of the opinion that there is a
fundamental error, in the understanding of the assessing officer, of the
provisions of the Central Sales Tax Act, 1956. In our view, the understanding
of the assessing officer that it is the movement of finished goods, which would
be the determining and conclusive factor, is legally flawed. It is this
erroneous presumption that has resulted in a conclusion completely vitiated in
law. 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,” said Justice S C Dharmadhikari.
An Indo-Soviet Treaty of August, 1971 and
Inter-Government Agreement of 1998 which was entered into between the
Government of Russian Federation and the Government of Republic of India led to
the company being formed. It is a joint venture company established by Defence
Research and Development Organisation and NPO Mashinostroeniya — a State
Unitary Enterprise incorporated and registered under the Russian Federation’s
Legislation.
After development and successful trials of
Brahmos Cruise Missiles, the Indian Armed Forces had awarded contracts to the
company for manufacture and supply of Brahmos Cruise Missiles.
A manufacturing unit was then set up in Hyderabad
and the facility came in for operation from 2007-08.
As warhead is an explosive item, the said
item was prohibited to be brought into the factory of the company at Hyderabad
under the Indian Explosives Act, 1884, as the manufacturing unit located in
Hyderabad is in civilian area. Therefore the combat missiles fitted with
warhead could not be brought into the factory for the purpose of storage and
sale to the Indian Army.
The missile was then sent to Nagpur unit
for the purpose of integration of warhead and subsequently dispatched to the
Indian Armed Forces from Nagpur as directed by the Hyderabad office.
“The assumption of the assessing officer
also overlooks the fact that the warhead is a complete unit when imported from
Russia,” said the court.
The High Court said the issue was already
covered by Supreme Court orders. “The Supreme Court of India has clarified that
this is not a tax which could be said to be levied in its true sense by the
State Government, it is only the Central Sales Tax, which has to be collected.
Hence, we do not see any justification in law for the distinction made by the
assessing officer about the goods being brought in semi finished or finished
status. In the facts and circumstances, such a dispute does not arise,” held the
Bench.
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