In the case, M/s. BrahMos Aerospace Private Limited v. State of Maharashtra & Anr, the Bombay High Court held that the petitioner, BrahMos Aerospace Private Limited, is not liable to pay sales tax to the Maharashtra Government for the sale of cruise missile weapon system to the Indian Armed Forces for the reason that the sales and appropriation of the goods took place from the state. Earlier, the respondent, revenue observed that sales tax is payable on the said activity since 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.
Allowing the petition, the bench comprising of Justice S.C Dharmadhikari and Justice B.P Colabawalla said, “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.”
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.
The bench noted that 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, following the Apex Court decisions in the similar issues, held that “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.”
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