TOI
 
Bangalore / New Delhi, Jul 29: The Supreme Court has sought a reply from Karnataka and Delhi governments on a plea by a consortium headed by Japan's Mitsubishi seeking to restrain them from taking any coercive action for non-payment of sales tax on coaches supplied to Delhi Metro Rail Corporation.

A bench headed by Justice S H Kapadia issued notice to the governments and extended its interim order of June 27 restraining Karnataka from taking any coercive step against the consortium for not paying Rs 24 crore in sales tax. The Court also impleaded DMRC as a party in the case.

While stating that Delhi Metro was not liable to pay any sales tax for any purchase, Mitsubishi's counsel Ashok Desai submitted that the consortium had already deposited 50 per cent of the total tax with Karnataka High Court.

The consortium comprising Mitsubishi Corporation, Rotem Company and Mitsubishi Electric Corporation has challenged the Karnataka High Court order holding it liable to pay sales tax to the state even though the company was importing components and was only assembling the train cars in Bangalore in collaboration with public sector Bharat Earth Movers (BEML).

Stating that the Karnataka government was not entitled to collect sales tax, Mitsubishi had contended that the movement of goods from Bangalore to Delhi was incidental and not an incident of sale that had taken place at Delhi between the consortium and DMRC.

Sales tax was to be paid on the finished indigenously manufactured trains anywhere in India and was to be reimbursed by DMRC on the basis of actuals, it added.

The contract between Korea's Rotem Company with BEML at Bangalore was independent of the contract between DMRC and the consortium, the petition stated.

According to the Japanese company, it was only assembling rolling stocks at Bangalore which were imported from Japan and Korea and the trains were being pulled for testing and commissioning at DMRC depot in Delhi.

"The obligation of the seller is not merely to deliver the finished product but also ensure completion of integrated testing and commissioning," it added.

Moreover, the consortium had been paying sales tax and VAT to Delhi government ever since it was supplying coaches to start the metro service in the capital.

Stating that there must be a sale to attract the provisions of the Central and State Act, it said the movement of goods from Karnataka to Delhi did not constitute a sale since there was no transfer of property in this case.

The consortium, which had entered into a contract with DMRC for supplying the train bodies, had tied up with BEML in June 2002 for fabrication of the car body out of knocked-down and semi-knocked down components sourced from Rotem.

The High Court had held that the train sets supplied by the consortium to DMRC was an inter-state sale and liable to be taxed under the Karnataka Sales Tax Act, 1957.