TMI Blog1971 (8) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods at the factory, all other activities including that of booking of orders, sales, despatching and billing and receiving of sale price are being carried out from the head office in Delhi. 27.. The goods manufactured in the factory are the future goods within the meaning of the Sale of Goods Act and the dispute does not relate to any ready goods." For the purposes of sales tax, the petitioner is registered as a dealer both in the Union Territory of Delhi and in the State of Haryana. The petitioner filed returns of sales tax with the sales tax authorities at Delhi inasmuch as the sale of goods manufactured in the factory was being effected from Delhi by the head office of the petitioner at Delhi. The sales tax was also paid by the petitioner under the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, as if the sales effected by the petitioner were intra-State sales effected within the Union Territory of Delhi. On 24th November, 1965, however, the sales tax assessing authority at Gurgaon in the then State of Punjab, subsequently becoming the State of Haryana from 1st November, 1966, under the Punjab Reorganisation Act, 1966, sent a notice to the petitioner under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated by the petitioner, the movement of the goods from Faridabad to Delhi and onwards is caused as a necessary incident of the contracts of, sale made by the petitioner. The sales are, therefore, deemed to take place in the course of inter-State trade within the meaning of section 3(a) of the Central Sales Tax Act, 1956 (hereinafter called the Act). Further, the goods are manufactured by the petitioner at Faridabad in pursuance of contracts of sale with outside purchasers and these goods are appropriated to the various contracts of sale in the State of Haryana within the meaning of section 4(2)(b) of the Act. On the contrary, it is maintained by the Union of India, the Chief Commissioner, Delhi, and the assessing authorities at Delhi that the goods are brought from Faridabad to Delhi by the petitioner and thereafter they are sold by the petitioner to the various purchasers outside Delhi by way of intra-State sales under the Bengal Finance (Sales Tax) Act as extended to Delhi. The question for decision is whether the sales made by the petitioner are in the course of inter-State trade or whether they are intraState sales. To answer the question, we must determine the legal nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect, this decision seems to be based on the view that the contract of sale itself must cause the movement of goods from a particular place before such a sale could be said to be in the course of inter-State trade within the meaning of section 3(a) of the Act. But there is a vital distinction between the movement of goods caused by a covenant in the contract itself and the movement of goods caused as a necessary incident of the contract of sale. It is not necessary, therefore, that in the present case the contracts of sale themselves should have provided that the goods should be supplied from Faridabad. It may be immaterial for the purchasers from which place the petitioner supplies the goods to them. But the contracts of sale refer to goods of particular specifications. These goods are manufactured by the petitioner at Faridabad and this is the only reason why the place Faridabad becomes important. The only explanation for the movement of goods from Faridabad by the petitioner is that the contracts of sale entered into by the petitioner with outside purchasers are for the sale of the goods of these specifications. These contracts of sale can, therefore, be performed by the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been entered into and the goods moved from Faridabad only in performance of those contracts. Lastly, according to the system working in this Supreme Court decision, the goods were delivered to the purchasers from the stock-yards in the different States and not from Jamshedpur. This was why the movement of the goods from Jamshedpur to the stock-yards in the other States could not be regarded as a necessary incident of the contract of sale. This decision may usefully be contrasted with the later decision in the State of Bihar v. Tata Engineering Locomotive Co. Ltd.[1971] 27 S.T.C. 127 (S.C.); A.I.R. 1971 S.C. 477., in which the delivery by the purchasers had to be taken in the State of Bihar. The movement of the goods from the State of Bihar had, therefore, to be regarded as a result of a covenant in the contract or as an incident of the contract of sale. On behalf of the sales tax authorities at Delhi, the following reasons were adduced against regarding the movement from Faridabad to Delhi as being as an incident of the contract of sale. On scrutiny, none of these reasons are found to be tenable. Firstly, goods coming from Faridabad to Delhi are regarded as being imported into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66] 17 S.T.C. 473 (S.C.); [1966] 3 S.C.R. 352. , also referred to above, the Supreme Court held that before a sale could be said to have occasioned the import, the movement of goods must have been incidental to the contract or in pursuance of the conditions of the contract and there should be no possibility of the goods being diverted by the assessee for any other purpose, meaning thereby that there should be no possibility of diversion according to law or contract and not in breach of them. This observation applies to the present case. The petitioner could have diverted the goods which are specifically manufactured in respect of each contract of sale after the goods were brought to Delhi except in breach of these contracts. It is not, therefore, the physical possibility of diversion but the legal right of diversion which is to be taken into account in determining the question, whether the sale was in the course of inter-State trade. In this context, movement of goods from Faridabad to Delhi could be of two kinds. Firstly, the movement could be of goods manufactured in accordance with pre-existing contracts of sale and moved from Faridabad to Delhi to perform these contracts. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the Coffee Board's[1970] 25 S.T.C. 528 (S.C.). decision is sufficiently explained by the Supreme Court in paragraphs 15 to 17 of their decision in State of Bihar v. Tata Engineering Locomotives Co.[1971] 27 S.T.C. 127 (S.C.); A.I.R. 1971 S.C. 477., referred to above, showing that it does not affect the principle established above that the sales by the petitioner in the case were inter-State sales. The next question to be considered is whether the sales tax authorities in the State of Haryana have the right to levy and collect the Central sales tax on the inter-State sales falling under section 3(a) of the Act effected by the petitioner. The answer is in the affirmative in view of the following provisions of the Act. Under section 8(2)(a) of the Act every dealer (including the petitioner) shall pay inter-State sales tax on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade other than those falling within sub-section (1) at the applicable rate on such goods inside the appropriate State and for the purpose of making such calculation, any such dealer shall be deemed to be a dealer liable to pay tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, that the right to levy the inter-State sales tax on the sales effected by the petitioner by the movement of the goods from Faridabad to Delhi taking place as an incident of the contract of sale as contemplated by section 3(a) of the Act was in the sales tax authorities at Faridabad. This writ petition by its own terms relates only to the goods manufactured by the petitioner in response to pre-existing contracts of sale. The petitioner has not stated in this writ petition if it also manufactured goods before receiving any orders for sale and only in the expectation of selling those goods after they are manufactured and after they are moved from Faridabad to Delhi. Our decision will, therefore, have no bearing on any such local sales at Delhi. It is to be noted that the sales falling under section 4(2)(b) are subject to section 3 and are, therefore, inter-State sales as distinguished from local sales at Delhi which are intra-State sales. The writ petition is, therefore, allowed with the declaration that the inter-State sales of the petitioner falling under section 3(a) of the Act causing the movement of goods from Faridabad to Delhi are liable to be assessed to inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X
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