In a reprieve to BrahMos Aerospace Private Limited, the Bombay High Court today held that the company was not liable to pay sales tax to Maharashtra government for using a unit in Nagpur to store missile parts. BrahMos Aerospace Pvt Ltd is a joint venture between India and Russia that provides BrahMos cruise missiles to the defence ministry. A division bench headed by Justice S C Dharmadhikari had accepted a petition filed by the company in 2015 challenging the sales tax imposed by the Maharashtra government for storing imported explosive ‘warheads’ at a unit in Nagpur.
BrahMos Aerospace has a manufacturing unit in Hyderabad that has been operational since 2007. As per the plea, BrahMos Aerospace imports missiles from Russia in a ‘Semi-Knocked Condition,’ and assembles them with certain “other elements manufactured or bought in Andhra Pradesh,” and subsequently, sells the missiles to the Indian armed forces. “The combat missiles, which are used in the battle field, are equipped with warheads that are explosive or toxic materials,” reads the plea.
These warheads are imported by BrahMos from Russia, and considering that they are explosive in nature, they are stored at a unit in a village in Nagpur, it added. Accordingly, the combat missiles which are manufactured/assembled by the petitioner at its Hyderabad unit are sent to Nagpur unit for the purpose of integration of warhead and subsequently dispatched to the Indian armed forces from Nagpur.
For all such “sales” to the Defence Ministry, Brahmos Aerospace is charged a Central Sales Tax by the government of Telangana (formerly by the Andhra Pradesh government), at the rate of 14.5 per cent. However, in May 2015, the Assistant Commissioner of Sales Tax, Nagpur, sent a notice to the petitioner contending that since the warheads were stored and integrated into the missile at Nagpur, the petitioner was liable to pay Sales Tax to the Maharashtra government.
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It sent the petitioner an assessment report asking it to pay tax to the tune of Rs 117,78,81,602. The petitioner, however, challenged the assessment report arguing that it was already paying taxes in Andhra Pradesh/Telangana and that it was using the Nagpur unit “merely as a stop-over” for the integration of the warheads. The Maharashtra government, on the other hand argued that “a major component of the missile was stored at Nagpur after its import from Russia” and that the “warhead integration and final dispatch of the Brahmos missiles was being occasioned from Maharashtra. Therefore, Maharashtra was the appropriate state for the purpose of levy and collection of the Central Sales Tax of the transaction.”
The High Court today, however, refused to accept Maharashtra government’s contention.