TaxTMI 
TaxTMI 
2011 (3) TMI 1427
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....e facts and circumstances of the case, the sale or purchase of goods can be said to have taken place in the course of inter-State trade or commerce and thereby exigible to tax under the Central Sales Tax Act, 1956 (hereinafter referred to as, "the Central Act"). 3. M/s. Jay Engineering Works Ltd., is a public limited company, registered under the Companies Act, 1956. It has its head office-cum-registered office at 23, Kasturba Gandhi Marg, New Delhi. In the State of Andhra Pradesh, the company has registered itself in the name and style of M/s. Hyderabad Engineering Industries (Prop.-The Jay Engineering Works Ltd.). It is registered as a dealer under the Andhra Pradesh General Sales Tax Act, 1957 as well as the Central Sales Tax Act, 1956. 4. The company is engaged in the manufacture and sale of electrical fans, sewing machines, fuel injection parts and accessories, etc. The company has its manufacturing units in different parts of the country including Hyderabad, Andhra Pradesh. In addition to the factory and office in Hyderabad, the company has its branch office at Vijayawada in the State of Andhra Pradesh. Outside the State of Andhra Pradesh, the company has its godowns in....
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....ferent types of fans and fuel injection parts. In pursuance of he said sales agreement, M/s. Usha Sales Limited, Delhi (now Usha International Limited, Delhi) placed monthly indent on HEI Hyderabad for the supply of the goods to its offices in various States. This indent is sent either by telex or telephone or through written communication. This indent shows the model wise quantity required in each of the regions and the destinations to which the goods are to be sent are clearly mentioned at Madras, Patna, Agra. At times even based on such indents received from M/s. Usha Sales Ltd., Delhi, the assessee-company is effecting the movement of goods from its factory in Hyderabad to its own depots in the destination given by the Usha Sales Ltd. Along with the goods the assessee is sending gate pass (GPO)-cum-challan pro forma invoice, way-bill and lorry receipt, which are in the name of its own depot or godown. Simultaneously HEI also sends a direct communication to the 'constituent' and further requesting the 'constituent' of UIL to take delivery. At times, the unit of USL also informs the HEI that it has taken delivery of goods. In pursuance of the monthly allo....
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....r observed: "Thus intimate nexus and conceivable link between the assessee and the purchaser are manifest. The receipt of indent from USL HO, the follow up and pressure for supply from the USL divisions, the periodical fixation of price to hold goods for the specified future months, the confirmation of receipt of goods by the USL division preceded by direct dispatch intimations to the purchasers, supply of goods at 'current prices' and complaints direct from USL divisions for non-delivery or short-delivery all in pursuance of sale agreement make me conclude that the sales from HEI to USL occasioned the movement of goods. The delivery and raising of invoice by the State godown are immaterial." 10. The assessing officer has concluded that "from a factual description of the mode of transactions, it is evident that the inter-State sales effected by the assessee to UIL have been camouflaged as branch transfers with a view to evade tax legitimation (sic) due to the State on these transactions". It is not necessary to refer to the tax and the penalties levied by the assessing officer under the Central Act, for the issue involved in the case is legal. 11. The sole qu....
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....to their godowns. It is contended that the assessing authority is bound to examine each individual transaction and decide whether it constitutes an inter-State sale. Reliance is placed on the observations made by this court in Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes [1970] 26 STC 354 at page 381 (SC). In conclusion, it is submitted that the assessing authority and the High Court were not justified in relying on the decision of this court in the case of Sahney Steel and Press Works Ltd. [1985] 60 STC 301 SC., and English Electric Company of India Ltd. [1976] 38 STC 475 (SC). 13. We did not have the advantage of hearing the learned counsel for the Revenue. However, with the permission of the court, they have filed their written submissions which, to say the least, does not touch upon any of the submissions made by learned senior counsel for the assessee. Their written submissions are just a repetition and reiteration of the findings and conclusions reached by the assessing authority. 14. To resolve the controversy raised in this appeal, section 3(a) of the Central Act requires to be noticed. The section reads as under: "A ....
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....ntral Act. Section 9 of the Central Act provides that the tax payable by any dealer under the Central Act on the sale of goods effected by him in the course of inter-State trade or commerce, whether such sale falls within clause (a) or clause (b) of section 3, shall be levied by the Government of India and shall be collected by that Government in accordance with the provisions of sub-section (2) of that section, in the State from which the movement of the goods commenced. The proviso enumerates an exception, but we do not consider it necessary to refer to it for the purpose of this case. Section 3 of the Act deals with inter-State sales and details the circumstances as to when a sale or purchase of goods can be said to take place in the course of inter-State trade or commerce. A perusal of section 3 of the Central Act shows that it raises a presumption of law and that is, a sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, if the sale or purchase (a) occasions the movement of goods from one State to another, or (b) is effected by transfer of documents of title to the goods during their movement from one State to another. For pur....
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....ourse of inter-State trade or commerce, then the assessee can rebut the presumption by filing declaration in form F under section 6A of the Central Act to prove that the movement of goods was occasioned not by reason of sale but otherwise than by way of sale. When the Department does not take advantage of the presumption under section 3(a) of the Central Act, but shows a positive case of inter-State sale in the course of inter-State trade or commerce to make it liable to tax under section 6, the declaration in form F under section 6A would be of no avail. 19. It is an accepted position in law that a mere transfer of goods from a head office to a branch office or an inter-branch transfer of goods, which are broadly brought under the phrase "branch transfers" cannot be regarded as sales in the course of inter-State trade, for the simple reason that a head office or branch cannot be treated as having traded with itself or sold articles to itself by means of these stock transfers. 20. In the instant case, the case of the Revenue is not only based on the agreement of sale but also on the presumption under section 3(a) of the Central Act. 21. In the instant case, the assessing a....
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.... shall be allowed on unsold stocks held by Usha Sales/their dealers/agents. Sales to third parties In case it is considered expedient by JE to supply/bill the goods directly to any of the Usha Sales dealer's agents against orders procured by Usha Sales make JE shall pay to Usha Sales the difference between JE's subsisting selling prices and the invoiced value exclusive of sales tax and other local taxes. Payment (a) Payment for all purchases shall be made to JE within 75 days of the date of the bill failing which Usha Sales shall pay interest at JE's maximum borrowing rates from their bankers at that time. (b) Usha Sales shall be liable to make payment in respect of supplies invoiced by JE on its nominees in case of default by the latter. Sales deliveries Sales/deliveries shall be made to Usha Sales/their nominees at any of JE's factories region godowns at the company's option." 22. Clause (1) of the agreement speaks of the products that the assessee is required to supply to the purchaser. Clause (2) speaks of the territory in which the purchaser is permitted to sell the products supplied by the assessee. ....
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....nditions to be fulfilled subsequently, the contract is called "an agreement to sell". When the time in the agreement to sell lapses or the conditions therein subject to which the property in goods is to be transferred are fulfilled, the "agreement to sell" becomes a "sale". 24. Before we deal with the issues raised in the appeal, we will first notice some of the decisions of this court on interpretation of section 3(a) of the Act. 25. In Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [1960] 11 STC 655 (SC), the majority view of this court was that where the goods are moved from one State to another as a result of a covenant in the contract of sale, that would be clearly a sale in the course of inter-State trade. The court further proceeded to hold that even a movement of goods from one State to another, which is merely incidental to, and which is not part of, the contract of sale, is also brought within the fold of section 3(a) of the Central Act. 26. In Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445 (SC), this court held "No matter in which State the property in the goods passes, a sale which occasions 'movement of goods from one State to another is a sale i....
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....d. [1979] 43 STC 457, this court reiterated and approved the decision in Oil India Ltd. [1975] 35 STC 445 (SC) and held that if a contract of sale contains stipulation for the movement of the goods from one State to another, the sale would certainly be an inter-State sale. But for the purposes of section 3(a) of the Act, it is not necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. 30. In State of Bihar v. Tata Engineering & Locomotive Co. Ltd. [1971] 27 STC 127 (SC), it is observed "if a contract of sale contains a stipulation for such movement, the sale would, of course, be an inter-State sale. But it can also be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one State to another but such movement is the result of a covenant in the contract of sale or is an incident of that contract." 31. In Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 (SC), it is observed that "in the light of the settled legal position, it cannot be and it has no....
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.... of goods from one State to another, an inter-State sale would ensue and would result in exigibility of tax under section 3(a) of the Central Act on the turnover of such transaction. It is only when the turnover relates to sale or purchase of goods during the course of inter-State trade or commerce that it would be taxable under the Central Act. 33. The learned counsel Shri Bagaria mainly contends that there is nothing in the sales agreement, express or implied, which may be regarded as specific covenant under which the assessee's manufacturing unit was obliged to move the specific goods from its manufacturing unit at Hyderabad to its branch offices for delivery of the goods to UIL. The learned counsel submitted that a sale can be regarded as having occurred in the course of inter-State trade, if the concerned contract of sale itself includes a covenant ither express or implied, to the effect that the goods must move from one State to another for the purpose of implementing the "sales agreement". We cannot agree with the submission of learned counsel Shri Bagaria. We say so for the reason that the inter-State movement must be the result of a sale or an incident of the contra....
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.... has also its divisional office in different names at every place wherever the assessee's godown is located. 38. In pursuance of the sales agreement, UIL placed monthly indents on the assessee with instructions to dispatch the goods of given size and quantity to the named destination. Pursuant to such indents, the assessee dispatched the goods to its godowns to the given destination and sent goods dispatch intimation directly to the concerned UIL divisional office at the destination furnishing size and quantity dispatched with L.R. No. and name of the transport company. The statutory authorities, from the correspondence between UIL and the assessee, noticed in their order that UIL divisional offices correspond directly with the assessee for the supply of stocks and also informs them about the receipt or non-receipt of the stocks. The assessee, on receipt of the request for supply of goods dispatches the same to its State godowns and the person in charge of the godowns to the UIL division office by raising sales invoice. 39. We have already noticed the relevant clauses in the "sales agreement". A close reading of the clauses would clearly indicate that the parties have agr....
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....annot be construed as "firm orders". Therefore, the transactions cannot be brought within the purview of inter-State trade or commerce to attract charging provisions under the Central Act. In our view, though the ultimate purchaser UIL placed orders for a particular quantity of goods to be supplied, the assessee did not supply the actual quantity indented for. We do not, however, think that this makes any difference to the application of section 3(a) of the Central Act. In our view, it does not matter how much goods were delivered to the branch office which just acted as a conduit pipe before it ultimately reached the purchaser's hands. All that matters is that movement of the goods is in pursuance of the contract of sale or as of necessary incident to the sale itself. Further, the sales agreement is for a period of five years. If there is short-supply of the goods than what was indented for, then the same could be adjusted in the subsequent dispatch. Therefore, to contend that there was no firm order placed by UIL with the assessee and accordingly, it would not come within the purport of section 3(a) of the Central Act and they are mere branch transfers, cannot be accepted. We....
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....ers placed by the UIL with the assessee for supply of particular type of goods and particular quantity pursuant to their understanding reflected in the "sales agreement", which is continuing one for the continuous supply of goods during the period of agreement which stretches over a period of five years, it is difficult to accept the submission of the learned senior counsel that the "sales agreement" is only for the purpose of purchasing of their goods and selling in different parts of the country by UIL which has its offices wherever the assessee has its godowns of branch offices and also difficult to accept that there was no movement of goods pursuant to their "letter of allocations", which the assessee would contend that it is not a firm commitment or firm order for the supply of goods. To be fair to the learned senior counsel, we also perused a number of "letters of allocations" sent by UIL to the assessee from time to time and the response thereof of the assessee. On a perusal of the same, it is clear that an order was placed by UIL in a composite form for supply of goods through their branch offices and the movement of the goods thereto from the assessee's factory to the ....