2005 (2) TMI 786 - HC - VAT and Sales Tax

Auction Sales of Sandalwood Ruled as Intra-State, Subject to Tamil Nadu Sales Tax Act, Distinct from Inter-State Transactions.

Karnataka Soaps and Detergents Ltd. Versus District Forest Officer, Sathyamangalam and others

The HC dismissed the writ appeals and petition, ruling that the auction sales of sandalwood were intra-State sales, subject to the Tamil Nadu General ... Auction sales of sandalwood in Tamil Nadu - chargeable to tax u/s 8 of the Central Sales Tax Act, 1956 and not under the Tamil Nadu Act - Whether the transactions under question are inter-State sales or intra-State sales - HELD THAT:- In the present case, it cannot be said that the petitioner was under any obligation of any nature to transport the sandalwood after purchase in Tamil Nadu to the State of Karnataka. No doubt, as held by the Supreme Court in the above decision, the obligation may be imposed either expressly by the contract or impliedly by a mutual understanding. However, in this case, even by implication it cannot be said that the petitioner was under any obligation to transport the goods from Tamil Nadu to Karnataka. The goods were purchased by the petitioner itself in Tamil Nadu (through its officers) and surely it cannot be said that the petitioner was under obligation to itself to transport the goods from Tamil Nadu to Karnataka. 'A' can be under obligation to 'B', but surely 'A' cannot be under an obligation to 'A' himself. After having purchased the sandalwood in Tamil Nadu, the petitioner could do whatever he linked with it, and he was under no obligation to transport it to Karnataka, and that he did so was of his own choice and volition and not under any obligation. No doubt, the petitioner obtained necessary permits under the Karnataka and Tamil Nadu Acts and obtained the necessary incometax certificate, but that was all voluntary and of its own choice. If the petitioner had not chosen to transport the goods to Karnataka it may have suffered from the business point of view as it would not get the necessary raw materials for its factory in Bangalore, but that does not amount to saying that it was under any legal obligation, either express or implied, to transport the goods to Karnataka. Hence, the auction sales cannot be called inter-State sales. Writ appeals and petitions dismissed. Issues Involved:1. Whether the transactions under question are inter-State sales or intra-State sales.Summary:Issue 1: Whether the transactions under question are inter-State sales or intra-State sales.The petitioner/appellant, a company registered under the Indian Companies Act, 1956, engaged in the manufacture of soap in Karnataka, contended that the auction sales of sandalwood by the District Forest Officer, Sathyamangalam and the Principal Chief Conservator of Forests, Chennai, should be taxed u/s 8 of the Central Sales Tax Act, 1956, as they are inter-State sales, rather than under the Tamil Nadu General Sales Tax Act, 1959. The petitioner argued that these sales are in the course of inter-State trade and commerce.The respondents insisted on charging general sales tax under the Tamil Nadu General Sales Tax Act, 1959, which the petitioner alleged to be illegal and contrary to Supreme Court decisions in Commissioner of Sales Tax, U.P. v. Bakhtawar Lal Kailash Chand Arhti [1992] 87 STC 196 and Co-operative Sugars (Chittur) Ltd. v. State of Tamil Nadu [1993] 90 STC 1. The petitioner sought quashing of the Circular in Lr. No. Acts Cell-IV/48623/2002 dated July 24, 2003, and a direction to charge only Central sales tax.The Court examined the facts and circumstances, including the issuance of transit passes and permits for transporting sandalwood to Karnataka, and the statutory control under the Tamil Nadu Forest Act and Karnataka Forest Act. The petitioner argued that the purchase and transportation of sandalwood to Karnataka were integral and inseparable parts of the same transaction, making it an inter-State sale.The Court distinguished the present case from the Supreme Court's decisions in Commissioner of Sales Tax, U.P. v. Bakhtawar Lal Kailash Chand Arhti [1992] 87 STC 196 and Co-operative Sugars (Chittur) Ltd. v. State of Tamil Nadu [1993] 90 STC 1, noting that the petitioner was under no legal obligation to transport the goods to Karnataka, and the movement of goods was purely voluntary.Referring to the Constitution Bench decision in State of A.P. v. National Thermal Power Corporation Ltd. [2002] 127 STC 280 (SC), the Court emphasized that for a sale to be considered an inter-State sale, the contract must incorporate a stipulation, express or implied, regarding inter-State movement of goods. In this case, there was no such stipulation, and the movement of goods was independent of the auction sale.The Court also distinguished other relevant Supreme Court decisions, concluding that there was no conceivable legal link between the auction sale and the movement of goods to Karnataka. The movement was voluntary and not under any legal obligation, making the sales intra-State rather than inter-State.Consequently, the writ appeals and writ petition were dismissed, affirming that the auction sales were intra-State sales subject to the Tamil Nadu General Sales Tax Act, 1959.Writ appeals and petitions dismissed.