TMI Blog2002 (6) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commercial Tax Officer sought to assess the sales to UIL as inter-State sales? 3.. Whether, having regard to the documents and materials on record, the Tribunal was right in holding that goods of specific sizes and specific varieties were manufactured by HEI in the quantities specified and were sent to UIL? 4.. Whether, the Tribunal is right in holding that the sales made to UIL should be treated as inter-State sales and liable to be taxed as such in the hands of HEI? 5.. Whether, having regard to the documents and materials on record, the Tribunal was right in law and had jurisdiction in directing the assessing authority to decide whether sales made to parties other than UIL were branch transfers or inter-State sales, which were not taxed by the C.T.O. and which were not subject-matter of appeal? Although the petitioner has raised the above questions in this revision according to us, the primary question which would answer all the above questions is whether the disputed turnover relates to branch transfers or inter-State sales? 2.. The material facts of the case in brief are as follows: The petitioner is a public limited company registered under the Indian Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and, therefore, the said turnover could not be treated as branch transfers, but they have to be treated as inter-State sales. The assessing authority did not accept the above contentions of the petitioner and by his order dated February 28, 1986 held that the goods sold to UIL out of the goods dispatched by the petitioner from its factory at Hyderabad to its various godowns were inter-State sales. Being aggrieved by the said order of the assessing authority dated February 28, 1986, the petitioner preferred an appeal to the Appellate Deputy Commissioner (Commercial Taxes), Hyderabad-1 Division, Hyderabad, being Appeal No. 19 of 1986-87. The Appellate Deputy Commissioner (Commercial Taxes) by his order dated January 7, 1987 dismissed the said appeal. The petitioner being aggrieved by the said order dated January 7, 1987 preferred an appeal to the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short "the Tribunal") being Appeal No. 712 of 1987. The Tribunal also concurring with the view of the assessing authority and that of the appellate authority, dismissed the appeal by order dated March 30, 1990. Hence, this tax revision case by the petitioner-dealer. 3.. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner and the UIL are inter-State sales not intra-State sales. By way of reply, Sri P. Srinivas Reddy, contended that the question whether transactions are inter-State sales or intra-State sales is a mixed question of fact and law. Therefore, it is permissible for this Court to decide whether the findings recorded by the authorities below on such a mixed question of fact and law is justified and legal. 6.. The petitioner placing reliance on the two agreements entered into between it and the UIL contended that the transactions between the two are not inter-State sales. Therefore, it becomes necessary for us to refer to the relevant recitals of the agreements entered into between the parties. There are two agreements between the petitioner and the UIL. The petitioner, as said above, manufactures varieties of fans. They are as follows: Type of fans Sweep Model Ceiling fans 36" ... Prima Mark II ... Diplomat ... Kohinoor ... Taj Deluxe 42" ... Prima ... Diplomat 48" ... Prima ... Kohinoor 56" ... Prima/Prima Deluxe ... Kohinoor ... Diplomat/Taj Deluxe Table fan 16" ... Kohinoor ... Prima Deluxe ... Excella Cabin fan 16" ... Diplomat ... Prima Exhaust fan 12" ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be allowed on unsold stocks by Usha sales/their dealers/ agents. 6.. Orders procured by Usha sales: In case it is considered expedient by JE to entertain orders procured by Usha sales, and to undertake to supply/bill the goods against such orders directly to any third party. Usha Sales, will be allowed a procurement margin which would be equal to the difference between JE's subsisting selling prices to Usha sales and the invoice value of such supplies exclusive of sales tax and other local taxes. However, if any sales or supplies are made by JE in respect of which orders are procured by parties other than Usha sales or by themselves, Usha Sales will not be entitled to receive any payment in respect thereof. 8.. Sales/Deliveries: Sales/deliveries shall be made to Usha sales/their nominees at any factories/regional godowns at the company's option. 9.. Sales promotion: JE shall bear the cost of such sales promotion measures including publicity off season discount and/or turnover bonus, etc., as may be considered necessary and authorised by it from time to time." 8.. On the same day, there is another agreement between the parties in respect of bulk orders that might b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to time and the replies thereto by the petitioner, it is abundantly clear that the UIL placed orders for supply of particular brand, particular quality, particular size and particular quantity of fans in each month in respect of each of their depots and that the movement of the goods was in pursuance of such placement of orders and, therefore, they are clear cases of inter-State sales. It was also contended by the department that the petitioner who is at Hyderabad was raising hundies against the UIL on Canara Bank and collecting the amount through Canara Bank and this clearly shows that the transactions were handled by the petitioner with UIL and the only limited part played by the branches was to receive the consignment and deliver the consignments to the UIL and raise invoices and forward the copies to the petitioner. It was also contended on behalf of the department that the correspondence between the parties clearly shows that dispatches were being intimated to the UIL with clear intention that they should take delivery of the goods directly from the branches. However, according to the petitioner, there were no orders placed by the UIL on them and the communications to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of communications/ correspondence between the petitioner and the UIL have extracted and considered 22 documents/correspondence between the petitioner and the UIL in its order as examples and considered the same in support of its conclusion that the UIL used to place orders with the petitioner for supply of the subject goods and the petitioner used to send reports complying with those orders and to hold that there was no provision in the agreements between the parties for any market survey and forecasting of requirements in different areas of the country. 14.. The learned Special Government Pleader for Taxes drew our attention specifically to the document Nos. 1, 2, 13, 14, 15, 16, 21 and 22 referred to and considered by the Tribunal in its order and contended that the above documents as well as other documents to which reference is made by the Tribunal clearly go to show that the transactions between the petitioner and the UIL are clear cases of inter-State sales and not branch transfers. 15.. The documents/correspondence to which references are made by the Tribunal in the order clearly show that the orders were placed by the UIL and they were complied with by the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations are taken into consideration together, it could be said that there was a firm commitment to purchase specific number of specified varieties of fans from the petitioner during the concerned period. The evidence on record satisfactorily establishes that the requests for dispatches to particular places outside the State for delivery were made and such requests were acknowledged and acted upon by the petitioner and, therefore, it is satisfactorily proved that the transactions between the parties are sales and not branch transfers. If that is so, there is nothing wrong on the part of the Tribunal in holding that the transactions are inter-State sales, and not branch transfers. 16.. However learned counsel for the petitioner placing reliance on certain judgments sought to contend that the transactions in question are only branch transfers and cannot be treated as interState sales for the purpose of levy of tax. In Tata Engineering and Locomotive Co. Ltd. [1970] 26 STC 354 (SC), the appellant-company, which manufactured trucks and buses in Jamshedpur in the State of Bihar, transferred the vehicles to stock-yards operated by its own personnel in other States and supplied them to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place at the works at Jamshedpur, appropriation of the vehicles was done at the stock-yards and it was open to the appellant till then to allot any vehicle to any purchaser and to transfer a vehicle from one stock-yard to another. It could not therefore be said that the movement of the vehicles from the works to the stock-yards was occasioned by any covenant or incident of the contract of sale. Even assuming that any firm orders had been received by the appellant they could not be regarded as anything but mere offers; (ii) that instead of looking into each transaction in order to find out whether a completed contract of sale had taken place, which could be brought to tax only if the movement of vehicles from Jamshedpur had been occasioned under a covenant or incident of that contract, the Assistant Commissioner wrongly based his order on mere generalities. The Assistant Commissioner, on whom the duty lay of assessing the tax in accordance with law, was bound to examine each individual transaction and then decide whether it constituted an inter-State sale exigible to tax under the provisions of the Act. In view of the above finding, the Supreme Court set aside the order of the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The prices of the refrigerators were fixed as mutually agreed upon from time to time. They were not settled for individual machines but periodically. The prices quoted were ex-assessee's works at Faridabad and the distributors had to pay the assessee all charges on the transport of the goods from the assessee's works at Faridabad to the assessee's registered office in Delhi. The purchase orders were placed by the distributors after the goods reached the head office in Delhi and the property in the goods passed at Delhi after delivery. Clause 6 of the distribution agreement with Spencer Co., Ltd., in respect of refrigerators and other products contained the following provision: "All goods leaving the company's factory will pass through rigorous inspection procedures laid down by the company. No responsibility for shortage or damage occurring in transit will be accepted by the company". Clause 8 of the distribution agreement with Blue Star Engineering Company (Bombay) Pvt. Ltd., and General Equipment Merchants Ltd., in respect of Leonard Refrigerators and Gem Refrigerators respectively was as follows: "All the goods leaving the company's factory will pass through rigorous insp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that in deciding the question whether the transactions between the parties is in the course of inter-State trade or commerce, the court should look not merely at the distribution agreements but regard should be had of the entire course of dealings between the parties. The court also held that a sale of goods can be said to have taken place in the course of inter-State trade under clause (a) of section 3 of the Central Sales Tax Act, 1956, if it can be shown that the sale has occasioned the movement of goods from one State to another. The court held that a sale in the course of inter-State trade has three essentials: (i) there must be a sale, (ii) the goods must actually be moved from one State to another, and (iii) the sale and movement of the goods must be part of the same transaction. It was further held by the Supreme Court that the movement should be incident of and be necessitated by the contract of sale and thus be inter-linked with the sale of goods. A movement of goods which takes place independently of a contract of sale would not fall within the ambit of clause (a) of section 3. If there is no contract of sale preceding the movement of goods, the movement cannot be asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movement of goods was occasioned by the sale itself and it was, therefore, taxable under section 3(a) of the Central Act. In the above case, the apex Court dealing with the questions whether the word "sale" as appearing in section 2(g) as also in section 3(a) of the Central Sales Tax Act includes an agreement to sell also and what are the necessary conditions for holding a transaction as an inter-State sale held: "(1) That the word 'sale' appearing in section 2(g) as also in section 3(a) of the Central Sales Tax Act includes an agreement to sell also provided the said agreement contains a stipulation regarding passing of the property. Even in the Bengal Immunity Company Ltd.'s case [1955] 6 STC 446 (SC), this court observed thus: '.........the expression "contract of sale" in this context has the same meaning as the words "contract of buying and selling" in the definition of inter-State commerce given by Rottschaefer in the passage already quoted, and they both refer to the bargain resulting in the sale irrespective of whether it is in the stage of an agreement to sell, or whether it is a sale in which title to the goods has passed to the purchaser. That is also the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22.. In Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 (SC) the petitioner-company, engaged in the manufacture and sale of stampings and laminations made out of steel sheets which were utilised as raw material for making electric motors, transformers, etc., had its registered office and its factory in Hyderabad. Its branches at Bombay, Calcutta and Coimbatore were mainly engaged in effecting sales and looking after sales promotion and liaison work. Those branches received orders from customers within and outside their respective States for the supply of goods conforming to definite specifications and drawings and advised the registered office at Hyderabad. The company manufactured the goods according to the designs and specifications supplied by customers at its factory at Hyderabad and despatched them to the respective branches by way of transfer of stock. Such goods were booked to "self" and sent by lorries. The goods received by the branches were entered in the stock accounts of the branches and kept in stock for ultimate delivery to the customers. On the goods reaching the branches, they were inspected by the customers and accepted by them wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the very beginning from Hyderabad all the way until delivery to the customer it was an inter-State movement. The sale transactions were interState sales under section 3(a) of the Act. In this case also, the petitioner manufactures various sizes and various varieties of fans and the sole selling agent UIL during the relevant period by its letters of allocation required the petitioner to supply specific sizes and specific varieties of fans for different stations and such quantities and such varieties were manufactured by the petitioner and sent to them. Therefore, it is quite clear that the movement of goods was in pursuance of the contract of sale between the parties. It is also relevant to note that though the petitioner is a manufacturer of varieties of goods, the demands placed by the UIL were for specific goods required by it and not merely for any unspecified goods which were readily available. In other words, the petitioner had to manufacture goods in accordance with the specifications of UIL and supply the same to them through branches. Therefore, the law laid down by the apex Court in Sahney Steel and Press Works Ltd.'s case [1985] 60 STC 301 fully supports the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and separate entities. They are different agencies. The contract of sale was between the appellant and the Bombay buyer. When a branch of a company forwards a buyer's order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch. The steps taken from the beginning to the end by the Bombay branch in co-ordination with the Madras factory showed that the Bombay branch was merely acting as the intermediary between the Madras factory and the buyer and that it was the Madras factory which pursuant to the covenant in the contract of sale caused the movement of goods from Madras to Bombay. The inter-State movement of the goods from Madras to Bombay was the result of the contract of sale and the fact that the contract emanated from correspondence which passed between the Bombay branch and the company could not make any difference. The sale was therefore liable to be taxed under section 3(a) of the Central Act. 24.. The above pronouncement of the Supreme Court also fully supports the claim of the department. In the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Steel Co. Limited v. S.R. Sarkar [1960] 11 STC 655 (SC), Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax [1976] 37 STC 489 (SC), Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC). Similarly, where the question arises as to in which State is the tax leviable, one must look to, and apply the test in section 9(1) of the CST Act, as no other provision is relevant on that question. In Manganese Ore (India) Ltd.'s case [1976] 37 STC 489 (SC), having regard to the facts of that case, the Supreme Court held that so far as section 3(a) of the Central Sales Tax Act is concerned, there is no distinction between unascertained and future goods and goods which are already in existence, if at the time when the sale takes place these goods have come into actual physical existence. So opining, the apex Court held that all the incidents of an inter-State sale were present in that case and therefore the sales were covered by section 3(a) of the CST Act. In Pandiya Vishwanath Sons v. Commissioner of Sales Tax [1989] 72 STC 224, the Allahabad High Court held that the hypothetical situation that since the goods were not despatched by rail or otherwise in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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