TaxTMI 
TaxTMI 
TaxTMI 
1999 (11) TMI 840
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....ll the cases, the modus operandi is the same and only one argument was advanced on behalf of all the assessees by Mr. C. Natarajan, the doyen of the tax Bar. 2.. We will first set out the minimum facts of all the cases to justify a common judgment at our hands. T.C. (A) Nos. 2803 to 2805 of 1997 (T.C. Nos. 81, 82 and 83 of 1994 on the files of the High Court, Madras): These appeals are directed against a common order of the Joint Commissioner in his proceedings dated June 30, 1992 in relation to the assessment years 1983-84, 1985-86 and 1987-88, the assessee being Jambai K.N.M. Textiles (P.) Limited. The assessee filed appeals against 3 years of assessment, namely, for the years 1983-84, 1985-86 and 1987-88, there being two appeals for the year 1985-86, one relating to tax and other relating to additional sales tax. The common issue in the appeals related to the exigibility to tax on certain purchases of cotton from Maharashtra State Co-operative Marketing Federation, Maharashtra (hereinafter referred to as "the Federation"). We are not concerned with the other question involved in the appeals. The first appellate authority agreed with the assessee and held that the purchases ar....
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....ay on a turnover of Rs. 84,81,707. T.P. No. 102 of 1999 (W.P. No. 14445 of 1985 on the files of the High Court, Madras): This writ petition directly challenges an order of assessment made against Anna Co-operative Spinning Mills on March 31, 1975 for the assessment year 1993-94. The issue involved is the exigibility to tax on purchases of cotton from Bombay to the tune of Rs. 3,90,99,457. There are several other items involved in the assessment. T.P. Nos. 95 and 96 of 1999 (W.P. Nos. 1003 and 1004 of 1994 on the files of the High Court, Madras): These two petitions directly challenge orders of assessment made against Viswa Bharathi Textiles Limited, for the years 1991-92 and 1992-93 in respect of purchases of cotton from the Federation at Bombay. In the year 1991-92, the cotton purchased amounts to Rs. 4,72,63,657. In the year 1992-93, the cotton purchased amounts to Rs. 3,56,56,816. T.P. Nos. 89, 90, 91, 92, 93 and 94 of 1999 (W.P. Nos. 9474 to 9479 of 1992 on the files of the High Court, Madras): These writ petitions also challenge the correctness of the assessment order made against Anna Co-operative Spinning Mills for the year 1988-89 to 1993-94 in respect of their cotton ....
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....ased on an inspection on February 4, 1991 for the year 1985-86 wherein he states that the Federation shows the samples to the mills in Tamil Nadu or their brokers. On being satisfied, the mills express their intention to purchase specific cotton samples and this is conveyed to the sales office of the Federation who in turn inform the head office at Bombay. On getting such confirmation from the sales office at Coimbatore a contract is entered into between Federation and other mills in Tamil Nadu. 5.. The assessee have filed a typed set of papers in T.C. (A) No. 81 of 1994 purporting to be the modus operandi of any such transaction. This is more or less verifiable from the Government records. 6.. On February 11, 1983 there is an offer letter from Pulicar Mills Limited (one of the assessees in this batch of cases), addressed to the sales office of the Federation at Coimbatore. It shows an interest of different mills in Tamil Nadu to purchase certain varieties of cotton to the extent of 11,500 bales as per certain conditions. It is worthwhile to extract the conditions: "1. Selection and weighment at spot. 2.. Delivery against payment at Coimbatore by draft. 3.. All the bales will....
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....ales office at Coimbatore. The details of delivery schedule are as follows: HEADING Bulk deal of 36,000 bales through M/s. Pujara Venkatadri and others. SI. No. Name of the mills Zone Variety Bales Contrat Feb. March April May June Total 1. M/s. Laxmi Mills, Coimbatore A'Bad Jalgaon Y-1 Sup 3,000 JAL/35 600 600 600 600 600 3,000 2. (a) M/s. Coimbatore Pioneer Gruou of Mills A' Bad Jalgaon VL Sup/FAQ 10,000 AMD/19 (b) M/s. Gananambica Mils Coimbatore Dhulia, Khamgaon (Buyer's option) (c) M/s. Gopal Krishan Mills (d) M/s. Prashant Textiles (e) Shankti Textiles Ltd. 10,000 3. (a) M/s. Pullicar Group of Mills Jalganon, A'bad Dhulia Y-1 KH4 AK-235 H-4 5,500 3,500 2,000 500 JAL/36 KHM/16 (b) Bhavani Mills Coimbatore Phaltan A'nagar Auranabad Dhulia, Khamgaon Varalaxmi 300 1,200 PH/96 ABD/20 (c) Sundaram Mills Marathwada AK-235 2,000 PAR/36 Total 15,000 4. (a) M/s. K.P.V. Textile Group of Mills Marathwada AK-236 H-4 1,500 500 PAR/37 (b) M/s. Kandegiri Spg. Mills Ltd., Salem Marathwada AK-235 4,000 PAR/38 Total 6,000 5. (a) The Meenakshi Mills Parbhani or Akola AK-235 Sup/FAQ 2,000 AKL/32 Total 2,000 33,000 6,60....
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....company for a tentative period within which the mills intend to clear the entire stock from the godown and the premium will be completely borne by the mills. Mills also undertake to take exhaustive insurance cover of the existing stock of bales lying in mills godown at the prevailing market rates of Federation from time to time. The cotton value calculated at rate of 49 candies per lot as per contract rate plus 12.5 per cent cotton value. Condition No. 5: The transit insurance of the bales will be covered by the Federation on mills account from the godown at spot to the mills godown. Condition No. 11: The mills will get released the bales lotwise as per delivery schedule after effecting full payment including CST, transit insurance charges, godown administrative charges, if any, by demand draft to the Federation at its sales office, Coimbatore and obtain written permission or release order from the Federation and Federation will depute its representative to release the bales. Condition No. 16: The Federation has every right to remove the bales stored in the godown or to resell the same at the cost of the mills by reason of mill making any default in the performance or discharge o....
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....for any delay. The godown insurance will be in the name of the M.S.C.M.F. Ltd., as beneficiary. In no case the mills will add their name as co-beneficiary as the goods belong to the M.S.C.M.F. Ltd., till it is fully paid. The premium of godown insurance will be paid by the mill. 6.. The lorry freight will be paid by the mills, octroi if any will also be paid by the mills. 7.. The mills will provide all the necessary watch and ward to protect the stock of F.B. bales stored in the godown at their own cost. 8.. The lorry receipt R.R. will be prepared mentioning the M.S.C.M.F. Ltd., as the consignor and the M.S.C. Mg. Federation Ltd., Account ... Mills as the consignee. As soon as the bales arrive in the mills premises, the damages at the time of unloading in the compound of the mill premises and immediately the mills will arrange to store the bales in the godown allotted to the M.S.C.M.F. Ltd. The bales must be stacked in proper manner so that counting can be done easily. 9.. As soon as the bales arrive in the mill's premises, it will inform immediately to the sales officer, Coimbatore, giving full details of the lot arrival. 10.. The representative of the Federation will be havi....
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....the mills, the lot number and variety of cotton. Thereafter comes the regular agreement dated December 26, 1985 which we have fully extracted containing 18 clauses. Then comes the despatch instructions from Coimbatore sales office of Federation to the zones in Maharashtra. There are delivery notes dated August 4, 1986 for 50 and 20 bales giving the names of seller and buying mill. There is corresponding sale invoice dated August 5, 1986. There is a "weight note of full pressed bales" relating to 100 bales dated August 9, 1986. This cannot be tallied with any particular invoice. A similar weight note in the files shows a foot note "separate set of books to be used for press weight and delivery weight". Therefore weighment is made both at collection centre in Bombay and at the time of delivery at the buyer mills. 16.. On the above method of purchase of cotton by the mills in Tamil Nadu from Maharashtra, we will now examine the views of the lower authorities for holding that sales are not inter-State sales, but local sales in Tamil Nadu. According to the report dated June 26, 1986 for the year 1983-84, the property of the Federation, namely, cotton bales moved from Maharashtra to the....
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....les for the year was on the same basis and it was taxed as local last purchase at 3 per cent. No special reasons are given. The first appellate authority affirmed the assessment. On second appeal the Sales Tax Appellate Tribunal (STAT for short), Additional Bench, Coimbatore, held as follows: "Therefore the cotton in the godown of the appellants' mill is only the property of the Maharashtra Federation and the sale between the mill and Federation is only a concluded local sale. It has been well-settled principle as to when a sale is said to take place inside a State 'a sale or purchase of goods is deemed to take place inside a State if the goods are within the State (a) in the case of specific or ascertained goods, at the time the contract of sale is made and (b) in the case of unascertained or future goods, at the time of their appropriation for the contract of sale by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation'. On the basis of determination of the place of sale, the State within which the sale is deemed to take place, is liable to tax the transaction in accordance with the procedure set out in the State law....
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....rice in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case." 21.. He concludes by referring to various decisions that it is not necessary that the property in the goods should pass in one State or another and what is important is, did the goods move from one State to another at least on account of an incident or covenant in a contract of sale. 22.. Mr. K. Soundararajan, the learned Government Advocate, lays emphasis on the clauses in the provisional contract, the godown agreement and the final appropriation to show that the movement was not on account of sale, but the sale takes place after the movement of goods. 23.. Let us now look into the provisions of law and only the important decisions. Section 3 of the CST Act is as follows: "3. When is a sale or purchase of goods said to take place in the course of inter-State trade or ....
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....s are despatched and the stages involved in the course of journey of the goods are extraneous circumstances in the determination of the inter-State sale or purchase. It is also interesting to note the reply by the Bombay dealer, in the following terms, was held to have occasioned movement of the goods: "We confirm having sold you this day the above 51 (fifty-one) bales only, of Tarantaran 320F (lot No. 1) and 100 (one hundred) bales only of 320F Patiala, crop 1956/57, as per our samples submitted to you, at Rs. 815 (rupees eight hundred and fifteen only) per candy of 784 lbs. f.o.r. Koilpatti". 26.. [1963] 14 STC 188 (SC); AIR 1963 SC 548 [State Trading Corporation of India Ltd. (in both petitions) v. State of Mysore (in both petitions)] is a case where permits for purchase of cements issued to the purchasers showed that supplies were to be made by the cement factories outside the State of Mysore, but the marketing company in the State of Mysore was named as the supplier and the purchasers had to place the order with the said company. It was held by the Supreme Court that the contract had to be read as subject to the terms of the permit. Therefore, the supply from factories outsi....
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....h parties that the crude oil should be taken delivery of by the Indian Oil Corporation. The authorities sought to assess the petitioner under the CST Act on the ground that the sale of crude oil to the Barauni Refineries, were sales in the course of inter-State trade. This was challenged by the petitioner, Oil India Limited and it was held that the movement of crude oil from State of Assam to the State of Bihar was an incident of the contract of sale and therefore the sales were in the course of inter-State trade. It was held that the Bihar Government has no jurisdiction to tax the sales under the Bihar Act. It was also held as follows: "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 in the course of inter-State trade'. The inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State tr....
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....aring agents. According to the appellant/assessee there was no inter-State sale and the sale was only at Bombay. It was contended that the railway receipt was in the name of the Bombay branch and there was no privity of contract between Madras branch and the Bombay buyer. In those circumstances the Supreme Court held that the Bombay branch was merely acting as an intermediary between the Madras factory and the Bombay buyer. It was the Madras factory which caused the movement of goods from Madras to Bombay, pursuant to a covenant in the contract. It was held as an inter-State sale on the basis of the correspondence between the Bombay branch and the Madras branch. 31.. [1979] 43 STC 457 (SC) (Union of India v. K.G. Khosla and Co. Ltd.) relates to the assessee having his head office in Delhi. They carried on business of manufacturing air compressors, etc., at its factory at Faridabad in Haryana State. Orders for supply were placed on the head office at Delhi. Thereafter advice was given to the factory to manufacture the goods and such goods were brought to the head office in Delhi and despatched to the various customers. The question was whether the sales were made at Faridabad in Ha....
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....r) reiterates the point that where the factory at Hyderabad manufactures goods according to the designs and specifications supplied by customers and despatches them to the respective branches by way of stock transfer and where such goods were booked to sale and sent by lorries and thereafter the customers inspected the goods and accepted them the movement of goods from Hyderabad was occasioned by order placed by the customers on different branches and was an incident of the contract and therefore it was an inter-State sale, within the meaning of section 3(a) of the CST Act. 36.. [1987] 67 STC 1 (Mad.) (National Mineral Development Corporation Ltd. v. State of Tamil Nadu) is again an interesting case relating to auction sales of diamonds at Madras. Some of the bidders were from Bombay. The successful Bombay bidders after paying the 25 per cent of the bid amount requested the Madras Corporation for delivery of the diamonds at Bombay. The buyers at Bombay took delivery of the goods from the branch office of the Madras Corporation on payment of the balance. The Madras Corporation claimed the sales as inter-State sales. It was held by the Madras High Court that the mere fact that the p....
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....ly of cement at Calcutta. The State Trading Corporation moved stocks from Madras to Calcutta. The area of need and the availability of stocks of cement were known to the State Trading Corporation. The transactions could not be subjected to Central sales tax." 40.. [1995] 98 STC 82 (State of Andhra Pradesh v. Coromandel Paints Chemicals Ltd.), is the judgment by the Andhra Pradesh High Court. In that case, the assessee responded to a tender from a Shipping Corporation of India relating to supply of paints to shipping vessels. Neither the quantity nor the goods had been specified and the supply was to be made at a stated period in respect of a required quantity and it was held that there was no sale or even an agreement to sell. It was only a standing offer. There was no obligation on Shipping Corporation to accept the goods which the dealer moved to its branches. It was held that there was no inter-State sale under the CST Act. 41.. [1994] 92 STC 325 (Rallis India Limited v. State of Tamil Nadu) is a decision of the Madras High Court to which one of us was a party. The value of ossein transferred from the Uthagamandalam factory to its Cochin office, was brought to tax as represent....
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....ommissioner Second Report relating to inter-State barriers. We have already noticed the said principles, namely, where there is movement of goods from one State to another and it is the result of a covenant or incident of contract of sale or purchase, then it will fall under the category of inter-State sale. The whole idea is to encourage sale from one State to another and not to cripple such inter-State trade and commerce by the levy of discriminatory taxes by one State or another. Therefore, we have to look at the whole case in a broad sense and find out whether there was a contract of sale occasioning the movement of goods from one State to another. Technicalities relating to the passing of property in the goods and the conclusion of the sale on payment of price, etc., cannot detract from the nature of interState sale. One question which looms large on facts of the present case is whether the goods were ascertained or unascertained at the time when movement of the goods commenced from Bombay to Tamil Nadu. On this issue there is a word of caution from the Supreme Court of India in [1976] 37 STC 489 [Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax, Jaba....
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.... by the petitioner in Madhya Pradesh at the time of loading it in the wagons at the mines sidings and the ore sold moved to Bombay or Vizag in another State as a necessary incident of the contract of sale. Property in the goods may have passed at the destination, but passing of property is not the test Taken from the High Court judgment which has been affirmed on main point by the Supreme Court.-Ed. under section 3(1). As the movement of the goods was under a covenant or an incident of the contract of sale, all these sales fell within section 3(1) and were sales in the course of inter-State trade or commerce." 46.. With regard to section 4 of the CST Act, the Supreme Court in [1976] 37 STC 489 [Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax] observed: "It is immaterial that the buyers could reject the goods at the place of destination or at the port if the petitioner-company did not despatch the component ores in such proportion as to make up the mixture of contracted grade, for section 4(1) does not refer to unconditional appropriation or passing of property. The position, therefore, is that the sales fell within section 4(2)(b) and were inside sales ....
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....fice, Coimbatore, gives despatch instructions. We have already noticed the delivery notes, sale invoice and weighment note. The above documents clearly indicate a movement of goods from Maharashtra to Tamil Nadu, on the basis of an offer and acceptance, which itself is sufficient to form a contract. But in this case there are written contracts which appear to be provisional. It is vehemently urged by the Government Advocate that the dominion and ownership over the goods remained with the seller (Federation) till payment was made in Tamil Nadu, that the Federation was the beneficiary in the insurance policies, that even in the godown of the Tamil Nadu mills, the goods were retained as the goods of the Federation and that the Federation had an option of resale of the goods in the event of default committed by the buyer. According to the Revenue, these terms and conditions would clearly indicate that the sale took place only in Tamil Nadu and the goods did not move from Maharashtra to Tamil Nadu on account of any contract of sale. These conditions are no doubt available in the various agreements between the parties, executed at various stages. But in our opinion these clauses will not....