BHARAT HEAVY ELECTRICALS LTD. ETC. versus UNION OF INDIA AND ORS. ETC.

Citation: [1996] SUPP. 1 S.C.R. 533 · Decided: 18-04-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Disposed off

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Judgment (excerpt)

BHARAT HEAVY ELECTRICALS LTD. ETC. 
A 
v. 
UNION OF !NOIA AND ORS. ETC. 
APRIL 18, 1996 
[B.P. JEEVAN REDDY AND KT. THOMAS, JJ.] 
B 
Sales-t<L< : 
Central Sales Tax Act-Sections 3, 9-Levy and collection of 
tax-W7ien is a sale or purchase of goods to take place in the coune of C 
inter-state trade or commerc,,_Test laid down "in Sec. 9(i)-Tax should be 
levied and collected in the State fron1 ivhich n1ove111ent of goods conunen-
ces-Constitution of India-A1t. 269. 
Petitioner, BHEL a major public sector corporation, wholly owned 
by the Government of India, having its units in several places, was engaged D 
in the n1anufacture of heavy electrical machinery-including equipment and 
material to set up a power~generation plant. Whenever it used to undertake 
to set up a plant, it entered into two contracts, one for the supply of 
machinery and equipment called the Supply Contract' and the other for 
installation or erection of the plant called "Service Contract'. Once the job E 
was undertaken, the Head Office at New Delhi used to send instructions 
to relevant units to manufacture the appropriate machinery. The National 
Aluminium Company Limited (NALCO), a public sector undertaking, 
invited tenders· for the setting up of five captive power plants for the 
aluminium smelter complex at Angul, Orissa. Petitioner .submitted its 
tender which was accepted, BHEL commenced the work and instructed its 
several units to manufacture the requisite machinery and equipment. 
Tiruchi unit engaged n1ainly in the 1nanufacture of boiler system \\'as 
designated as the executing agency for the job at Angul including the 
responsibility of manufacturing and supplying the boiler system required 
F 
for setting up the power plants at Angul. The boiler system was comprising G 
of innumerable parts and cohtponents, some of which were manufactured 
at the Hyderabad umt. The Hyderabad unit manufactured them and sent 
some of those parts/components to Tiruchi for being incorporated into the 
boiler system and sent the remaining directly to Angul (Orissa),to be 
incorporated intc the boiler system at the work site. According to the H 
533 
534 
SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R. 
A 
practice uniformly followed by BHEL, and accepted by the Andhra Pradesh 
Government, the parts/components manufactured by the Hyderabad unit 
for incorporation in the boiler systems were treated as branch transfers, 
not involving an element of sale, irrespective of the fact whether such 
parts/components were sent to Tiruchi or to Angul. The tax was levied by 
B the State in which the main machinery/system was manufactured and sent 
for incorporation into the main machinery or system manufactured in 
other States. From the year 1984, however, the State of Andhra Pradesh 
started levying and demanding Central Sales Tax upon the value of the 
parts and components manufactured at Hyderabad unit and sent to 
c 
Tiruchi or Angul for incorporation into boiler system manufactured by 
Tiruchi unit. BHEL protesting against the levy, submitted that it had been 
paying the Central Sales Tax upon the value of the entire boiler system 
manufactured by the Tiruchi unit in the Tamil Nadu State and that if 
Central Sales Tax was levied upon the parts and components manufac-
tured at Hyderabad and sent b> Tiruchi or Angul, it would amount to 
D double taxation as according to it, they were merely branch transfers. The 
Andhra Pradesh State did not agree. When challenged, the Andhra 
Pradesh Tribunal held that insofar as the parts and components manufac-
tured in the Andhra Pradesh units and dispatched to work site at Angul 
were concerned, they must be treated as inter State sales taxable in Andhra 
E Pradesh State inasmuch as the said goods moved from Andhra Pndesh 
pursuant to the supply contract which was contract of sale and so far as 
the parts and components which were sent to Tiruchi, they represented 
merely branch transfers. BHEL challenged the findin;: regarding the 
despatch of parts/components to Angul. The High Court dismissed the Tax 
F 
Revision cases filed, by BHEL agreeing with the view taking by the 
Tribunal. Hence these appeals. BHEL also tiled a writ petition under Art. 
32 of the Constitution for appropriate directions to ensure that an inter 
State sale is not taxed by more then one State. 
The appellant; BHEL contended that parts/components/material 
G sent by the Hyderdbad unit directly to work site at Angul did not constitute 
inter State sales a

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