1971 (8) TMI 211 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of whether the sales made by the petitioner are in the course of inter-State trade or intra-State sales.
2. Jurisdiction of sales tax authorities in Haryana to levy and collect Central sales tax on inter-State sales made by the petitioner.

Detailed Analysis:

1. Determination of whether the sales made by the petitioner are in the course of inter-State trade or intra-State sales:

The petitioner, a private limited company, has its registered and head office in Delhi but its manufacturing unit in Faridabad, Haryana. The primary business operations, including receiving orders, production planning, dispatching, billing, and receiving payments, are conducted from the head office in Delhi. The goods are manufactured in Faridabad based on specifications provided by buyers and then transported to Delhi for further dispatch to customers.

The central question is whether the sales are inter-State or intra-State. The movement of goods from Faridabad to Delhi is crucial in this determination. According to the petitioner, these goods are "future goods" as defined under the Sale of Goods Act, meaning they are manufactured after receiving specific orders. The petitioner contends that the sales are intra-State, effected within Delhi, and has paid sales tax accordingly under the Bengal Finance (Sales Tax) Act, 1941.

However, the sales tax authorities in Haryana argue that the movement of goods from Faridabad to Delhi and beyond is a necessary incident of the contracts of sale. Therefore, these sales should be deemed inter-State sales under Section 3(a) of the Central Sales Tax Act, 1956. The court examined whether the movement of goods was occasioned by the contracts of sale. It was established that the goods were manufactured as per the buyers' specifications, and the contracts of sale existed before the goods were manufactured. This movement of goods from Faridabad to Delhi was thus a necessary incident of the contracts of sale, fulfilling the criteria under Section 3(a) of the Act.

The court referenced several cases, including Tata Iron and Steel Co. Ltd. v. S.R. Sarkar and Others and Burmah Shell Oil Storage and Distributing Co. Ltd. v. State of Madras, to elucidate the interpretation of Section 3(a). The court concluded that the movement of goods from Faridabad to Delhi was occasioned by the contracts of sale, making the sales inter-State in nature.

2. Jurisdiction of sales tax authorities in Haryana to levy and collect Central sales tax on inter-State sales made by the petitioner:

The court examined whether the sales tax authorities in Haryana had the right to levy and collect Central sales tax on the inter-State sales made by the petitioner. Under Section 8(2)(a) of the Central Sales Tax Act, every dealer must pay inter-State sales tax on his turnover related to inter-State trade. The "appropriate State" for such a dealer is defined under Section 2(a) of the Act, and "place of business" includes any place where a dealer stores his goods.

The court noted that the term "appropriation" in Section 4(2)(b) of the Act refers to the setting apart of goods as specific goods to be delivered under the contract of sale, not necessarily linked with the passing of property. The appropriation of goods took place when the unascertained or future goods were manufactured according to the contract specifications. Therefore, the right to levy inter-State sales tax on these sales was with the sales tax authorities in Faridabad, Haryana.

The court declared that the inter-State sales causing the movement of goods from Faridabad to Delhi are liable to be assessed to inter-State sales tax by the sales tax authorities at Faridabad. The amounts of tax wrongly paid to the sales tax authorities in Delhi during the specified period should be transferred to the authorities in Faridabad.

Conclusion:

The writ petition was allowed with the declaration that the inter-State sales of the petitioner, causing the movement of goods from Faridabad to Delhi, are liable to be assessed to inter-State sales tax by the sales tax authorities at Faridabad. The costs were to be borne by the parties as incurred.