Tetra Pack Milk sale to Army in J&K is inter-state trade, not subject to J&K VAT Act

The court held that the sale/supply of Tetra Pack Milk to the Army in Jammu and Kashmir constitutes inter-state trade, falling under the Central Sales Tax Act, not the J&K VAT Act. The petitioners are not liable to pay VAT or register as dealers in J&K. A writ of prohibition was issued to prevent VAT enforcement, and the respondents were directed to release bank guarantees. The writ petition was accepted, and actions enforcing VAT were restrained, with bank guarantees to be released.

---

---

Issues Involved:
1. Whether the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade.
2. Whether the petitioners are liable to pay VAT and should register as dealers under the J&K VAT Act, 2005 for the said sale/supply.

Detailed Analysis:

Issue 1: Inter-State Trade Classification
The primary question raised was whether the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade. The court noted that the sale/supply of goods from the manufacturing units in Gujarat and Rajasthan to Army locations in Jammu and Kashmir is indeed a sale in the course of inter-state trade. This conclusion was based on the fact that the goods were sold at the manufacturing units for consumption by the troops in Jammu and Kashmir, and their transportation from the manufacturing units to the places of consumption was inherent in the transaction of sale/purchase and covenanted in the supply orders. Thus, the sale is subject to levy and collection of tax under the Central Sales Tax Act, 1956 (CST Act) and not the J&K VAT Act, 2005.

Issue 2: VAT Liability and Registration Requirement
The connected question was whether the petitioners are liable to pay VAT and should register as dealers under the J&K VAT Act, 2005 for the said sale/supply. The court held that the petitioners are not carrying out any business activity or making any sale in Jammu and Kashmir, and therefore, they are neither liable to pay VAT under the J&K VAT Act, 2005 nor required to seek registration under the Act. The supplies of Tetra Pack Milk to the Army Command were for direct consumption by the defense forces and were part of an inter-state trade, thus falling under the purview of the CST Act. The court emphasized that the movement of goods from one state to another pursuant to a sale is an essential ingredient of an inter-state sale, which is not subject to VAT in the state of Jammu and Kashmir.

Conclusion:
The court concluded that the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade and thus not liable to VAT under the J&K VAT Act, 2005. The petitioners are not required to get registered as dealers under the Act for the aforementioned sales. The court issued a writ of prohibition restraining the respondents from detaining trucks/vehicles carrying Tetra Pack Milk being transported by the petitioners and directed the respondents to release the bank guarantees furnished by the petitioners.

Disposition:
The writ petition was accepted, and the respondents were restrained from enforcing payment of VAT under the J&K VAT Act, 2005 on the consignments of Tetra Pack Milk supplied by the petitioners to the Northern Command of the Army in Jammu and Kashmir. The respondents were also directed to undo all steps taken in this regard and to release the bank guarantees furnished by the petitioners.

---