InCivil Writ Jurisdiction Case No. 10444 of 2012 -PAT HC- Patna High Court declares goods supplied by PCM Cement Concrete to Railways as ‘Interstate Sales’,orders refund of illegal tax deduction 
Chief Justice K. Vinod Chandran & Justice ParthaSarthy [28-07-2023]

Read Order: PCM Cement Concrete Pvt v. The Union of India through and Ors

Chahat Varma

New Delhi, August8, 2023: The Patna High Court has provided a major relief to PCM Cement Concrete (petitioner), declaring that the goods supplied by the petitioner to the Railways fell under the category of interstate sales, making them exempt from Bihar's sales tax. Consequently, the Court determined that the Railways was obligated to refund the tax amounts that were unlawfully deducted from the petitioner's bills.

Briefly stated, the petitioner had filed the present writ petition, seeking a refund of Rs. 38,22,897 from the Deputy Chief Engineer (Construction-I), East Central Railway, Darbhanga, the F.A. and C.A.O., East Central Railwat, Patna, and the Deputy Chief Engineer (Construction), East Central Railway, Saharsa. The petitioner claimed that the deducted and recovered amounts were illegally taken from their bills as advance Value Added Tax (VAT) under Bihar Value Added Tax Act, 2005 (VAT Act). The petitioner argued that the VAT Act did not apply since the goods supplied by them to the Railways were part of an interstate sale, exempt from Bihar's sales tax.

The division bench of Chief Justice K. Vinod Chandran and Justice ParthaSarthy observed that the nature of the contract was solely focused on the production and transportation of pre-stressed concrete slabs and RCC Ballast Retainers of precise specifications. There was no involvement of a works contract; instead, it constituted a sale of goods, manufactured by the petitioner as per the awarded contract. The goods were loaded and transported to the Railway site within Bihar, solely for their incorporation into the Railways' projects, a responsibility not borne by the petitioner. The bench categorically defined the transaction as an interstate sale of goods, explicitly excluding any elements of a works contract or a sale subject to Bihar's taxation.

Consequently, the bench held that the Railways had erroneously made a deduction based on the premise of it being a works contract. Furthermore, the bench suggested that the Railways were well within their rights to seek a refund from the Bihar Value Added Tax Department in this regard.

With the above observations, the bench ordered refund. However, the refund was confined to deductions made within the three years preceding the registration date of the writ petition. The Railways were instructed to affect the refund, inclusive of a 6% interest rate, within a span of 4 months. However, in the event that the refund was not processed within the stipulated time frame, the interest rate would escalate to 12%, commencing from the expiration of the initial 4-month period.