Facts of the Case

A batch of six writ petitions was instituted by M/s. Hindustan Aeronautics Limited (“HAL”) concerning distinct but connected disputes under the Central Sales Tax Act, 1956 and the applicable VAT/commercial tax regime. The petitions covered assessment years and proceedings involving penal interest, taxability of defence-related transactions, branch or stock transfers, mandatory filing of Form F, and dispatch of defence production components.

In W.P. No. 12347 of 2010, HAL challenged a demand dated 30 September 2009 issued in Forms CST 205 and VAT 205. According to the petition as reproduced in the order, interest of approximately Rs. 4,07,750 and Rs. 13,212 was levied in relation to filing a revised return for March 2009 for assessment year 2008-09. HAL questioned the demand, inter alia, on the basis that it had been raised without an assessment order and without notice, referring to Rule 14(14) of the CST (AP) Rules, 1956, framed under Section 13 of the CST Act, 1956.

In W.P. Nos. 7888 and 7889 of 2011, HAL challenged revisional proceedings dated 17 January 2011 relating to CST assessments for the years 2003-04 and 2004-05. The disputes concerned levy of Central Sales Tax on transactions involving the designing and development of prototype Light Combat Aircraft with funds provisioned by the Aeronautical Development Agency, described in the pleadings as an instrument of the Ministry of Defence. HAL asserted that the assignment involved instrumentalities of the Ministry of Defence in a principal-agent arrangement and that the defence equipment ultimately belonged to the Union of India.

In W.P. No. 19425 of 2011, HAL challenged an assessment dated 19 May 2011 for assessment year 2008-09 under the CST Act. The dispute again concerned levy of CST on transactions relating to designing and developing prototype Light Combat Aircraft with funds provided by the Aeronautical Development Agency.

In W.P. No. 30306 of 2014, HAL challenged Section 6A of the Central Sales Tax Act, 1956, as amended by Act 20 of 2002 with effect from 13 May 2002, insofar as it related to mandatory filing of Form F for claiming exemption in respect of stocks transferred to branches or other places of business in other States. HAL sought either invalidation of the provision on the constitutional ground pleaded by it or, alternatively, a reading down of the Form F requirement as directory. It also challenged the consequential orders relating to assessment year 2010-11.

In W.P. No. 20150 of 2017, HAL challenged proceedings dated 2 January 2017 for assessment year 2013-14, whereby tax under Section 6A(1) of the CST Act, 1956 was levied on dispatches of defence-production items, namely avionic electronic component parts, to HAL’s Nasik Division for fitment or assembly into SU-30 MKI aircraft, stated to be property of the Ministry of Defence and intended for handover to the Indian Air Force pursuant to the entrusted job work. These matters and their respective prayers are set out across the petition summaries in the common order.

Issues Involved

The connected writ petitions raised the following principal issues:

  1. Whether penal interest could lawfully be demanded through Forms CST 205 and VAT 205 in relation to a revised return, particularly where HAL alleged absence of an assessment order and prior notice.
  2. Whether transactions relating to designing and developing prototype Light Combat Aircraft, undertaken pursuant to arrangements involving the Aeronautical Development Agency and the Ministry of Defence, could be subjected to Central Sales Tax.
  3. Whether HAL’s pleaded principal-agent and Union-property characterisation of defence-related transactions affected the legality of CST levy, particularly in light of Articles 265 and 285 of the Constitution of India.
  4. Whether Section 6A of the CST Act, insofar as it imposed the requirement of furnishing Form F for stock or branch transfers, was constitutionally valid in the manner challenged by HAL.
  5. Alternatively, whether the requirement of furnishing Form F under Section 6A could be read down as directory rather than mandatory.
  6. Whether dispatches of avionic electronic component parts to another HAL division for fitment or assembly into defence aircraft constituted taxable transactions or non-sale/job-work related movements in the factual circumstances pleaded.
  7. Whether the impugned proceedings conflicted with earlier Supreme Court rulings concerning HAL reported at 55 STC 314 and 55 STC 327, as expressly invoked in the writ petitions.
  8. Ultimately, whether any of these substantive issues required adjudication after HAL informed the High Court that the disputes had been resolved with the State and sought withdrawal of all writ petitions.

Petitioner’s Arguments

HAL’s arguments, as reflected in the prayers and pleadings reproduced in the common order, may be summarised as follows:

HAL contended that the penal-interest demand relating to the revised return was illegal, arbitrary, without authority of law and without jurisdiction, particularly because, according to HAL, it had been imposed without an assessment order and without putting the petitioner on notice. Reliance was placed upon Rule 14(14) of the CST (AP) Rules, 1956, framed under Section 13 of the CST Act.

Regarding the defence aircraft transactions, HAL contended that the designing and development of prototype Light Combat Aircraft was undertaken with funds provisioned by the Aeronautical Development Agency, an instrument connected with the Ministry of Defence, pursuant to an assignment entrusted to HAL, itself described as another instrumentality. HAL’s case was that the arrangement was in the nature of principal and agent and that the defence equipment ultimately constituted property of the Union of India.

HAL invoked Articles 265 and 285 of the Constitution of India and also referred to Article 141, asserting that the impugned tax proceedings were contrary to binding Supreme Court law involving the same petitioner, reported at 55 STC 314 and 55 STC 327.

In the Section 6A challenge, HAL argued that the statutory requirement of mandatory Form F filing for branch or stock transfers was ultra vires the constitutional entry relied upon in its petition. In the alternative, HAL requested that Section 6A be read down so that the requirement relating to Form F would operate as directory.

For assessment year 2013-14, HAL contended that dispatches of avionic electronic components to its Nasik Division for fitment or assembly into defence aircraft were movements connected with entrusted job work and involved property of the Ministry of Defence intended for the Indian Air Force. On that basis, it challenged the levy under Section 6A(1) of the CST Act as illegal, arbitrary, without authority of law and without jurisdiction.

Finally, at the hearing of the connected matters, learned counsel for HAL submitted that, subsequent to filing the writ petitions, the matters had been resolved between the petitioner and the respondent-State. Permission was therefore sought to withdraw the writ petitions. Counsel further referred to a letter dated 8 November 2021 addressed to the Registrar (Judicial) of the Telangana High Court recording that position.

Respondent’s Arguments

The final common order does not record any detailed merits-based counter-arguments or substantive legal submissions of the respondents on the CST/VAT controversies. Therefore, it would be inaccurate to attribute specific merits arguments to the State beyond what appears in the judgment.

The order records representation for the respondents through the concerned law officers, including the Special Government Pleader/Government Pleader for Commercial Tax, the Advocate General, Government Pleader for Revenue and, where applicable, the Assistant Solicitor General of India.

Most importantly, the final order records the petitioner’s submission that the matters had been resolved between HAL and the respondent-State. In consequence, the Court did not proceed to record or adjudicate competing merits submissions on Section 6A, Form F, defence transactions, CST liability or penal interest.

Court Order / Findings

The Telangana High Court passed a common order dated 29 October 2022.

The Court recorded that learned counsel for HAL submitted that, after institution of the writ petitions, the matters had been resolved between the petitioner and the respondent-State. HAL accordingly sought permission to withdraw the writ petitions. The Court also noted the submission concerning the letter dated 8 November 2021 addressed to the Registrar (Judicial).

In view of this submission, the High Court:

  • granted permission to withdraw the writ petitions;
  • dismissed all the writ petitions as withdrawn;
  • made no order as to costs; and
  • directed that all pending miscellaneous petitions, if any, stand closed in light of the final common order.

The operative result shown on the final page is that the writ petitions were dismissed as withdrawn without costs.

Important Clarification

This order is especially important to describe accurately for legal publishing and case-law reporting:

The Telangana High Court did not decide the substantive tax issues on merits.

Accordingly, the common order should not be presented as a judicial ruling that:

  • Section 6A of the CST Act is unconstitutional;
  • the Form F requirement is merely directory;
  • defence aircraft or avionics transactions are exempt from CST;
  • HAL’s principal-agent contention was judicially accepted;
  • Articles 265 or 285 barred the impugned levy;
  • the penal-interest demand was quashed on merits; or
  • the earlier Supreme Court cases reported at 55 STC 314 and 327 were substantively applied to determine the disputes.

Those were issues and contentions raised in the petitions, but the High Court did not adjudicate them because HAL stated that the matters had been resolved with the State and sought withdrawal. The legal effect of the reported common order is therefore confined to permission for withdrawal, dismissal of the writ petitions as withdrawn, closure of pending miscellaneous petitions, and absence of any costs order.

Sections and Constitutional Provisions Involved

The principal provisions referred to in the batch of proceedings include:

Central Sales Tax Act, 1956

  • Section 6A
  • Section 6A(1)
  • Section 13

CST (AP) Rules, 1956

  • Rule 14(14)

Code of Civil Procedure, 1908

  • Section 151, in relation to interlocutory applications

Constitution of India

  • Article 14
  • Article 19(1)(g)
  • Article 141
  • Article 226
  • Article 265
  • Article 285
  • Entry 92A, List I, Seventh Schedule, as invoked in the Section 6A constitutional challenge reproduced in the petition

Link to download the order -https://mytaxexpert.co.in/uploads/1783321721_1305compressed.pdf

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