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Judgment
Madan B. Lokur, J.—The following references have been made to this Court by the Sales Tax Appellate Tribunal u/s 45(1) of the Delhi
Sales Tax Act, 1975 read with Section 9(2) of the Central Sales Tax Act, 1956:
STR No. 4/1983 - assessment year 1971-72
STR No. 8/1980 - assessment year 1972-73
STR No. 9/1980 - assessment year 1973-74
STR No. 13/1987 - assessment year 1974-75
STR No. 14/1987 - assessment year 1975-76
Learned Counsel for the parties informed us that the questions of law raised in all these references are substantively the same and so we took up
STR No. 4/83 for hearing. Our opinion in this reference will govern the other references as well.
The following three questions of law have been referred for our opinion:
(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sales made to M/s. New Bharat Chemical
Industries and M/s Vaish Brothers by delivery of the goods ex-works at Najafgarh Road, Delhi, were in the course of inter-state trade or
commerce liable to sales tax under the provisions of the Central Sales Tax Act, 1956
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that if the petitioner-dealer wishes to contend that
certain goods did not move outside Delhi, the matter being particularly in his knowledge, the onus would be on him to prove it?
(iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in disallowing the oral prayer of the petitioner that alternatively
he be allowed an opportunity to furnish declarations in Form-C before the Assessing Authority
In so far as the first question is concerned, we answer it in the affirmative, in favor of the Revenue and against the assessed. The second question
was not pressed by learned Counsel for the assessed and so we decline to answer it. In any event, since we answer the first question affirmative, it
must follow that the second would also have to be answered in the affirmative. The third question is now infructuous since by an order dated 10th
May, 1982 on a review/rectification application filed by the assessed, the s Tax Appellate Tribunal granted the assessed an opportunity to furnish
declarations in Form C before the Assessing Authority.
The broad facts of the case, as they appear from the paper book, are that the assessed sold, in Delhi, Chemicals such as caustic soda and
sulphuric acid to its sole distributors/selling agents, namely, Vaish Brothers (for sale in the State of Uttar Pradesh) and New Bharat Chemical
Industries (for sale in Ludhiana in the State of Haryana). Although the Chemicals were sold by the assessed to these dealers in Delhi, they could
sell them only to their customers in the territories allotted to them, that is, in the State of U.P. and in Ludhiana. The Tribunal (in its order dated 19th
March, 1982) concluded that, under these circumstances, the sales were made in the course of inter-state trade and would attract central sales tax.
It appears that during the hearing of the case before the Tribunal, an oral prayer was made by the assessed to the effect that the matter may be
remitted back to the Assessing Authority since part of the goods had been locally sold by the dealers. The Tribunal rejected the oral prayer and so
the assessed filed a review/ rectification application on which the Tribunal ordered (on 10th May, 1982) that the matter would be remitted back to
the Assessing Authority before whom the assessed ""shall adduce evidence "". to show that the goods of a particular value which had been sold to
these two dealers were locally sold and had not been transferred to branches outside Delhi or sold in places outside Delhi. In all other respects the
appeal stands dismissed."" It is in view of this direction that the third question has effectively become infructuous.
In response to the first question of law, learned Counsel for the assessed contended that the goods are sold in Delhi to its dealers and
possession of the goods is also handed over to them in Delhi and as such the sale transaction is complete in Delhi. The assessed has no knowledge
what the dealer does with the goods and does not know where the goods are eventually sold by the dealer. On this basis, it was submitted that the
sale of Chemicals by the assessed to its dealers is not an inter-state sale but a local sale.
In the statement of case, it has been mentioned that the contention of the assessed was (and this was reiterated before us) that its dealers
dispose of the goods by:
(i) making outright sales to the customers in Delhi, or
(ii) selling the goods in the course of inter-state trade and commerce from their establishment in Delhi to their customers outside Delhi, or
(iii) transferring the goods to their branch/head office/ establishment out of Delhi.
The submission of the assessed was that the dealers are not under any obligation to remove or take away the goods to their territories outside
Delhi and the sales are complete, as against the assessed, as soon as the delivery is given ex-works at Delhi.
Learned Counsel for the assessed cited several judgments before us including Endupuri Narasimhan and Son v. State of Orissa [1961] 12 STC
282, Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras 1970 25 STC 528 and Tata Engineering and Locomotive Co. Ltd. v.
Assistant Commissioner of Commercial Tax 1970 26 STC 354 but we find that these have been considered by a Constitution Bench of the
Supreme Court in State of Bihar and Anr. v. Tata Engineering and Locomotive Co. Ltd. 1971 27 STC 127. The Supreme Court, after considering
these and various other decided cases, held that sales will be considered as being in the course of export or import or sales in the course of inter-
state trade and commerce under the following circumstances:
(i) when the goods which are in export or import stream are sold;
(ii) when the contracts of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a
foreign country, as the case may be, or are required to be transported to a State other than the State in which the delivery of goods takes place;
and
(iii) where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported out of the State in
which the delivery of goods takes place.
The Supreme Court noted the well-established position in law, stated unambiguously, that where under the terms of a contract of sale, the buyer is
required to remove the goods from the State in which he purchased those goods to another State and when the goods are so moved, the sale in
question must be considered as a sale in the course of inter-state trade or commerce.
In view of this explicit statement of law by the Supreme Court, what we are first required to see in the present case is whether there was any
obligation on the dealers to take the goods out of Delhi.
The Tribunal has noted the terms and conditions of the contract (which was before it) between the assessed and the dealers wherein in terms
of Clause (2), the territory in which the dealers could sell the goods was stated, and in so far as delivery of the goods is concerned, Clause (7) of
the agreement provided that all supplies would be made on ex-works basis and the dealer shall take local delivery of the goods at the factory gate
and arrange to store them in their godowns in Delhi. In the event the dealer is desirous of transporting the goods to the territory outside Delhi, the
assessed would charge freight charges and also be liable for central sales tax. The contract between the parties clearly made out that the goods
were to be moved outside Delhi and that was one of the conditions of the sale. A breach of the agreement resulted in a penalty on the dealer, that
is, forfeiture of the security deposit of Rs. 1,000/- given by the dealer to the assessed. This being the position, there is no doubt in our minds that as
a necessary incidence of the contract of sale, the goods were required to be transported out of the State (that is Delhi) in which the delivery of
goods took place, and so the sale was an inter-state sale and the decision rendered by the Tribunal in this regard is correct in law.
Section 3 of the Central Sales Tax Act, 1956, reads as follows:
When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - 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 a transfer of documents of title to the goods during their movement from one State to another.
Explanation 1. - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purpose of
Clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2. - Where the movement of goods commences and terminates in the same State it shall be deemed to be a movement of goods from
one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.
Clause (a) of Section 3 above was the subject of interpretation by the Supreme Court in Balabhagas Hulaschand and Anr. v. State of Orissa 1976
37 STC 207 in which the Supreme Court held that Section 3(a) of the Act would be applicable if the following facts were established:
(i) that there is a sale or purchase of goods, and
(ii) that the sale occasions the movement of goods from one State to another.
If these two conditions are satisfied, the sale becomes an inter-state sale on which tax could be levied under the Central Sales Tax Act, 1956.
The expression ""occasions the movement of goods"" was considered by the Supreme Court in K.G. Khosla and Co. (P) Ltd. v. Deputy
Commissioner of Commercial Taxes, Madras Division, Madras 1966 17 STC 473 wherein reliance was placed upon Tata Iron and Steel Co.
Ltd. v. S.R. Sarkar [1960] 11 STC 655 in which it was held that a sale ""occasions"" the movement of goods from one State to another within
Section 3(a) of the Central Sales Tax Act, 1956 when the movement is the result of a covenant or incident of the contract of sale. The expression
occasions the movement of goods"" is, Therefore, obviously referable to the agreement between the parties which necessitates the movement of
goods from one State to another. As we have mentioned above, on the facts of this case, the contract between the parties relating to the sale of
goods is that ""occasion"" which results in the movement of goods from Delhi to the territories in which the dealers may sell them in terms of the
contract.
The expression ""movement of goods"" was adverted to by the Supreme Court in Oil India Ltd. v. The Superintendent of Taxes and Ors. 1975
35 STC 445 and it was observed that it has been held in a number of cases that if the movement of goods from one State to another is the result of
a covenant or an incident of the contract of sale, then the sale is an inter-state sale. Reference was made to Tata Iron and Steel Co. Ltd. and State
of Jammu and Kashmir v. Caltex (India) Ltd. 1966 17 SCT 612.
In view of the clear position in law, we answer the first question in the affirmative, in favor of the Revenue and against the assessed.
In so far as the third question is concerned, it is possible, as contended by learned Counsel for the assessed, that the dealers may have
breached the terms of the contract and sold the Chemicals in Delhi and not in the territories allotted to them. If that is the position, then the
assessed would of course not be obliged to pay central sales tax on the sale of those goods and as held by the Tribunal in the review/ rectification
order dated 10th May, 1982, the assessed may adduce evidence before the Assessing Authority to show that the goods were locally sold by the
dealers and had neither been transferred to branches outside Delhi or sold in territories outside Delhi. No further orders are required to be passed
in this regard except that the assessed will now appear before the Assessing Authority on 23rd July, 2007 for directions and the Assessing
Authority would then fix a schedule for dealing with this contention of the assessed.
All the references stand disposed of as above.