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2015 (3) TMI 786 - SUPREME COURT

2015 (3) TMI 786 - SUPREME COURT - [2015] 82 VST 242 (SC) - Denial of exemption claim - Inter state sale or intra state sale - assessee had purchased `Beedi' leaves, by participating in the auction conducted by the Forest Department, Government of Andhra Pradesh - After the purchase, the assessee had dispatched the said `Beedi' leaves to the head office in the State of Maharashtra - Whether the transactions in question are exigible to tax in the State of Andhra Pradesh under the provisions of th .....

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of completion of the sale transaction, it is relevant to notice Rule 3(13) of Andhra Pradesh Minor Forest Produce (Regulation of Trade in Abnus Leaves) Rules, 1970 which are applicable to the tender issued by the seller. - The tender schedule, as issued by the seller, also stipulates that the purchaser should remove the stocks from the godowns within 30 days of issue of delivery orders failing which the purchaser will have to pay the godown rent and other expenses on watch and ward, insurance et .....

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h to another State are not inextricably connected and independent of each other. There is no incident of direct sale between the seller and the head office of the respondent-Company in the State of Maharashtra. It is the branch office that purchases the goods and receives them subsequent to payment made by it to the seller and thereafter, transfers it to the head office of the respondent-Company in the State of Maharashtra. The incidence of sale is complete once the purchaser, that is, the branc .....

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x under the Act. - impugned judgment and order passed by the High Court cannot be sustained and requires to be set aside - Decided in favour of Revenue. - CIVIL APPEAL NO. 5005 OF 2007 - Dated:- 12-3-2015 - Jyoti Mukhopadhaya And Arun Mishra JJ. For the Appellant : Mr.P.Venkat Reddy, Adv.Mr.Sumanth Nookala, Adv. for M/s. Venkat Palwai Law Associates,Advs. For the Respondent : Mr. A. V. Rangam,Adv. Ms.A.Subhashini, Adv. Mr.D.V.Raghuvamsy, Adv. ORDER 1. These appeals are directed against the judgm .....

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e Respondent-assessee is a registered dealer under the Act and under the Central Sales Tax Act, 1956 (for short, "the CST Act") with effect from 21.02.1989. The assessee is engaged in the manufacture of Beedi' and has its factory and head office at Sholapur in the State of Maharashtra. It operates in the State of Andhra Pradesh through its registered branch office at Sirsilla Road, Kamareddy town, Nizamabad District, Andhra Pradesh. 3. The assessee is the branch office of the respo .....

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n exemption on its gross and net turnover of ₹ 1,07,51,740/- and ₹ 1,01,35,636/- for the said assessment years on the ground that the aforesaid transaction is in the nature of inter-State sale and therefore, is not exigible to tax under Entry 18, Second Schedule of the Act. 4. The Commercial Taxes Officer, Kamareddy (for short, "the CTO"), by its orders dated 11.03.1992 and 31.07.1993 in G.I. No.646/1989-90 and G.I. No.646/1992-93 respectively, has rejected the claim for ex .....

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lding that the transactions were inter-State sales and not liable to be taxed under the Act. The First Appellate Authority by its order dated 19.10.1993, after setting aside the assessment order, remanded the matter(s) back to the Assessment Officer for reassessment. 7. During the pendency of the matter(s) before the CTO, the Commissioner of Commercial Taxes issued a show cause notice to the assessee and proposed to revise the aforesaid order passed by the First Appellate Authority, dated 14.11. .....

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es to their head office at Sholapur was the primary intention of purchase and the assessee-branch office merely acted as a conduit pipe of the head office of the respondent-Company for proper movement of goods, the sale ought to be deemed complete after its delivery to the head office and therefore, the transaction must be considered as an inter-State sale. The assessee, in conclusion submitted that the purchases are in the nature of inter-State trade and consequently, the sale of Beedi' lea .....

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ly thereafter that the goods were transferred at the instance and application of the assessee specifying the mode of transport, route of transport and the destination to which the goods have to be transported, it could be deduced that the transaction took place in the State of Andhra Pradesh between the seller and the assessee. Therefore, the Revisional Authority has come to the conclusion that the transaction is liable to tax under the Act and set aside the order of the First Appellate Authorit .....

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he State of Maharashtra, and thus, the sale qualifies as an inter-State sale of goods. Therefore, the High Court has concluded that the Revisional Authority was not justified in revising the order of remand/assessment passed by the First Appellate Authority and while allowing the appeal, has held that the respondent herein was not excisable to tax for the assessment year 1989-1990 under the Act. 9. Aggrieved by the aforesaid judgment and order passed by the High Court, the Revenue is before us i .....

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concluded at the payment for goods by the purchaser, the subsequent transportation to the destination does not have any association with the sale transaction and therefore, the said sale could not be qualified as the inter-State sale and ought to be exigible to tax under the Act. 12. Per contra, learned counsel for the assessee would support the judgment and order passed by the High Court and contend that the movement of the goods from the State of Andhra Pradesh to the State of Maharashtra is .....

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tate trade. 13. We have given our anxious consideration to the submissions made by the parties to the lis and carefully and perused judgment(s) and order(s) passed by the High Court and other authorities. 14. The short point that arises in this case for our consideration and decision is whether the transactions in question are exigible to tax in the State of Andhra Pradesh under the provisions of the Act. 15. At the outset, we would discuss the decision of this Court in K.B. Saha's case reli .....

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urchaser was neither situated in the State of Orissa nor registered as a dealer under the West Bengal Sales Tax, 1994. Since the place of business of all entities of the assessee were located outside the State of Orissa, the Court considering the same held that the sale was inextricably connected to the transportation of the goods outside the borders of the State of Orissa so as to render the sale transaction complete and therefore, was an inter-State sale. In the instant case, the assessee-bran .....

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has no link to the already concluded sale transaction. 16. To resolve the controversy raised in this appeal, Section 3(a) of the CST Act requires to be noticed. Section 3 enunciates the principle that when a Sale or purchase of goods can be said to have taken place in the course of inter-state trade or commerce. The Section reads as under: "Section 3. 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 .....

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ld to have taken place in the course of inter-State trade under Clause (a) of Section 3 of the Act if it can be shown that the sale has occasioned the movement of goods from one State to another. 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 (in) the sale and movement of the goods must be part of the same transaction. The word "occasions" is used as a verb and means 'to .....

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7, this Court observed that it is only if there is a conceivable link between a contract of sale and the movement of goods from one State to another in order to discharge the obligation under the contract of sale, it must be held to be an inter-State sale. 19. On consideration of the principles enunciated in the aforesaid decisions of this Court, it becomes abundantly clear that in order to constitute an inter-State sale, the movement of goods should be occasioned by the sale and the movement of .....

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e to another under the said contract of sale or purchase. The Constitution Bench, vide a detailed judgment, in support of the aforesaid principle of law, observed as follows: "11. In Endupuri Narasimbam v. State of Orissa, it was held in the case of sales covered by Article 286(1)(b) that only sale or purchase of goods which occasions the export or import of the goods out of or into the territory of India were exempt from the imposition of tax on the sale or purchase of goods and in regard .....

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r: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade." Thus the tests which have been laid down to bring a sale within inter-State sales are that the transaction must involve movement of goods across the border (Mohanlal Hargovind case transactions are inter-State in which as a direct result of such sales the goods are actually deliv .....

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21. The principle that a sale would be an inter-State sale only if the movement of the goods was the result of a covenant in the contract of sale or an incident of that contract has also been noticed in Union of India v. K.G. Khosla and Co. Ltd., (1979) 2 SCC 242. 22. Further, in the case of Sahney Steel and Press Works Ltd. v. CTO, (1985) 4 SCC 173, this Court was required to consider whether the transaction therein constituted an inter-State sale. It was a case wherein the buyer placed an orde .....

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tended that when the registered office has dispatched the manufactured goods to its branch office, it ought to be considered merely as a transfer of stock from the registered office to the branch office. This Court relied upon its earlier decision in the case of English Electric Company of India Ltd. v. Deputy Commercial Tax Officer, (1976) 4 SCC 460, to observe that when the movement of the goods from one State to another is an incident of a given contract it is an inter-State sale, and what wo .....

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e to the buyer. There was no break in the movement of the goods. The branch office merely acted as a conduit through which the goods passed on their way to the buyer. It would have been a different matter if the particular goods had been despatched by the registered office at Hyderabad to the branch office outside the State for sale in the open market and without reference to any order placed by the buyer. In such a case if the goods are purchased from the branch office, it is not a sale under w .....

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v. State of Orissa, (2007) 14 SCC 386. 25. It may be pertinent to note that the factual scenario in the aforementioned cases, namely Sahney Steel and Press Works Ltd. case (supra), Ashok Leyland Ltd. case (supra) and IDL Chemicals Ltd. case (supra), are different from the instant case, however the principle of law enunciated would remain applicable. The said aforementioned cases deal with the scenario wherein the head or registered office, situated in one State, would forward goods to the branch .....

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respondent-company herein. 26. The decision of this Court in the case of Hyderabad Engg. Industries v. State of A.P., (2011) 4 SCC 705 bears significance in understanding the proposition at hand. The issue that arose for the consideration of this Court was whether the sale or purchase of goods therein could be said to have taken place in the course of inter-State trade or commerce and therefore whether the said transaction was exigible to tax under the CST Act. The said case pertained to a Comp .....

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s from a head office to a branch office or an inter-branch transfer of goods, which are broadly brought under the phrase "branch transfers" cannot be regarded as sales in the course of inter-State trade, for the simple reason that a head office or branch cannot be treated as having traded with itself or sold articles to itself by means of these stock transfers." 27. In view of the aforesaid settled principles of law, inter-branch transfers or transfers between the head office and .....

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tenders and the tender quotes stating the rate per kg at which the prospective purchasers desire to purchase the Beedi' leaf to be collected, cured, bagged in trade bags and delivered at the godown of a unit. The assessee had participated in the auction pursuant to the aforesaid invitation and succeeded in its offer. With regard to the conditions of completion of the sale transaction, it is relevant to notice Rule 3(13) of Andhra Pradesh Minor Forest Produce (Regulation of Trade in Abnus Le .....

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at no such delivery shall be made unless the agent has ensured that necessary payment had been made for the Abnus leaves to be delivered." The said Rule stipulates that the delivery of goods takes place immediately subsequent to the consideration amount being paid by the purchaser. 30. The tender schedule, as issued by the seller, also stipulates that the purchaser should remove the stocks from the godowns within 30 days of issue of delivery orders failing which the purchaser will have to p .....

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seller and the purchaser, that is between the State Department and the assessee-branch office in the State of Andhra Pradesh. 32. Taking into consideration the abovementioned factors it becomes clear that the delivery of the goods takes place at the godown of the seller in the State of Andhra Pradesh. The movement of goods from the godown takes place at the instance of the purchaser. The final destination of the consignment and the route or destination of the goods by the seller is inconsequenti .....

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