JUDGMENT

SABYASACHI MUKHARJI, J.:—This is an appeal by special leave from the order dated 31st December, 1981 passed by the Sales Tax Tribunal, Orissa. The appellant who was the assessee under the Central Sales Tax Act, 1956 went up in appeal against the confirming orders of Assistant Commissioner in respect of the assessment years 1974-75, 1975-76 and 1976-77. The Sales Tax Officer, Koraput I Circle, Jeypore had made the orders under Rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957 making demands of Rs. 1,21,38,586.00 for the year 1974-75, Rs. 1,29,64,637.00 for the year 1975-76 and Rs. 1,37,72,652.00 for the year 1976-77. The appellant is a dealer registered under Section 7(1) of the Central Sales Tax Act, 1956 under Koraput I Circle in the State of Orissa.

2. M/s. Hindustan Aeronautics Limited (hereinafter referred to as H. A. L.) of which appellant is a division was established on 1st October, 1964. The objective of formation of the H. A. L. was to carry on in India and elsewhere the business, inter alia, in aeroplanes including manufacture, assembling, buying and selling etc. of the same. In its division at Sunabeda, manufacture of MIG engines for MIG aircrafts required for defence and overhauling of aero engines of Indian Air Force were undertaken. Some of the MIG engines manufactured by it were sent to Nasik Division of H. A. L. and some to Indian Air Force as per instructions from the Ministry of Defence. The appellant received payments from Government of India or Indian Air Force for the manufacturing programme. In respect of payments so received, the Sales Tax Officer, Koraput I Circle levied Central Sales Tax on the ground that the transactions were inter-State sales. This was disputed by the appellant according to whom the letter was only an agent of the Government of India. In the alternative it was contended that the transactions were nothing but works contract and as such not exigible to Central Sales Tax.

3. Being aggrieved by the decision of the Tax Authorities as mentioned hereinbefore, the appellant had gone up in appeal before the Tribunal. The Tax Authorities had negatived both the contentions of the appellant. As common question of law on similar facts was raised, the same was disposed of by one order by the Tribunal. Before the Tribunal, only one ground namely, that the transaction represented works contract was urged.

4. It is necessary at this stage to understand the background in which the manufacture of MIG engines was undertaken by H. A. L. In this connection it is material to refer to the letter dated 22nd September, 1970 to the Chairman of the appellant company for and on behalf of the President of India by the Joint Secretary to the Government of India, Ministry of Defence, Department of Defence Production. As the said letter is important, it is necessary to set out the letter :

"Secret

Annexure "A"

Extract of

No. 11(228)/69/1/DP/Contracts

Government of India

Ministry of Defence,

Department of Defence

Production,

New Delhi,

the 22nd September, 1970.

The Chairman,

Hindustan Aeronautics Ltd.,

Indian Express Building,

Vidhana Veedhi, Bangalore- 1.

Sub :- Manufacture of MIG-21 M Aircraft and other equipment in India.

Dear Sir,

On behalf of the President of India, I have to state that an Agreement was signed on 30th October, 1969 (copy already forwarded to you) between the Government of India and the Government of Union of Soviet Socialist Republics for the manufacture under licence.

2. The manufacture of the said Equipment as defined in the above said Agreement is hereby entrusted to Hindustan Aeronautics Limited, Bangalore in terms of the said Agreement. Under this entrustment the responsibility for the proper implementation of the Agreement shall be exclusively that of Hindustan Aeronautics Limited except that the Government may from time to time advise the Company about the programme of manufacture of the said Equipment.

3. All payments falling due under the said Agreement to the Government of the Union of Sov