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2015 (4) TMI 1012 - JAMMU & KASHMIR HIGH COURT

2015 (4) TMI 1012 - JAMMU & KASHMIR HIGH COURT - TMI - Whether the sale/supply of the Tetra Pack Milk by the petitioner Nos. 2 and 3 to the Northern Command of the Army in the State of Jammu and Kashmir is a sale in the course of inter-state trade - whether the members of petitioner-Federation like petitioner Nos. 2 and 3 are liable to pay VAT and should register themselves as dealers under the Act for the said sale/supply - Held that:- No VAT shall be levied on the turnover from sale of goods w .....

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n of those goods from one State to another pursuant to the sale or purchase. It should be evident from the sale transaction that the buyer has purchased the goods in one State with the intention of using/consuming them in another State. The movement of goods from one State to another should be incidental to the sale/purchase of those goods. - sale/supply of goods viz. the Tetra Pack Milk by petitioner Nos. 2 and 3 from their manufacturing units in the States of Gujarat and Rajasthan to Army loca .....

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04.10.2013 issued by the Offg. MG Northern Command for an on behalf of the President of India were addressed to the petitioners in the States of Gujarat and Rajasthan respectively. Petitioner No. 2 is required to make supply worth ₹ 2,26,82,294/ of Tetra Pack Milk at Field Supply Depot, ASC Narian in the State of Jammu and Kashmir and likewise, petitioner No. 3 is required to make supply worth ₹ 2,80,40,700/ at supply Point of ASC, Bandipora in the State of Jammu and Kashmir. It has .....

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the transaction of the sale/purchase and covenanted in the supply orders. It is, therefore, a distinguishing example of sale in inter-state trade, which is subject to levy and collection of tax under the CST Act and not to VAT under the Act.

Not to levy and collect tax on sale or purchase when such sale or purchase has taken place in the course of inter-state trade or commerce and not to take steps in this regard and not to create hurdles on that score is a constitutional obligation o .....

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cts of the sale between the Army and petitioner Nos. 2 and 3 and the contracts shall not be said to have been executed until supply of goods at specified delivery points in the State of Jammu and Kashmir is made by the petitioners. Stand taken by the respondents, we may say, is without any basis and repugnant to constitutional scheme.

Sale/supply of the goods viz. Tetra Pack Milk by petitioner Nos. 2 and 3 to the Northern Command of the Indian Army in the State of Jammu and Kashmir p .....

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Janak Raj Kotwal, JJ. For the Petitioner : Mr. Pranav Kohli, Adv For the Respondent : Mr. M. A. Bhat, Adv JUDGMENT Per Kotwal, J 1. Petitioner No. 1 is the National Cooperative Dairy Federation of India Ltd. (hereinafter to be referred as the petitioner-Federation). It has been registered under the Multi-State Cooperative Societies Act, 2002 with the object inter alia to promote the dairy industry and the oil seeds, vegetable/edible oils and Vanaspati Industry in the Country and to coordinate, h .....

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3 claim to be engaged in manufacture of pasteurized milk and milk products including UHT/Tetra Pack Milk in their Units located in their respective States. 2. Petitioner-Federation claims, which is not disputed, that it is the Apex Dairy Federation associated with Ministry of Defence (MoD)/respondent No. 4 for supply of milk. The MoD procures milk and milk products only from the petitioner-Federation/Member Cooperatives against negotiated contracts and in this behalf the petitioner-Federation ac .....

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oducers Societies Union Ltd are engaged in making the supply of Tetra Pack Milk to about 70 Defence Units in Eastern, Western, Northern and Southern Commands of the Indian Army. 3. It is averred by the petitioners, which is not disputed, that as per the Policy Decision (supra) tenders for supply of milk products are floated by the concerned Army Command and manufacturing societies participate in the tendering process. The tenders submitted by petitioner Nos. 2 and 3 were approved by the Northern .....

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and in order to do so their stocks have to pass through Lakhanpur Check Post, which is the entry point of the State of Jammu and Kashmir. 5. Petitioners grievance is that supplies made by the member societies of the petitioner-Federation are intercepted at Lakhanpur Check Post and petitioners are asked to procure registration with Commercial Taxes Department of the State of Jammu and Kashmir and route the stocks through local offices for further supplies to different depots of the Defence Force .....

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shmir State for further supply to different depots of Defence Forces. It is stated that petitioner No. 3 even has been forced to furnish a bank guarantee for the tax liability even though no tax under J&K Value Added Tax Act, 2005 is leviable. Contextually, it is averred by the petitioners that in view of the communications of respondent No. 3, petitioner Nos. 2 and 3 in order to avoid threat of detaining their vehicles containing perishable goods had no option but to seek registration as de .....

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commanding respondent Nos. 1 and 3 not to compel the petitioners to transfers the stock of UHT/Tetra Pack Milk and impose/levy any tax on such goods under the J&K VAT Act, 2005. iii) Prohibition prohibiting respondent No. 3 from charging any VAT from the petitioners on the aforementioned consignments of Tetra Pack Milk and, iv) Prohibition restraining respondent Nos. 1 to 3 from en-cashing the Bank Guarantee dated 17.01.2014 drawn on Oriental Bank of Commerce, JLN Marg Branch, Jaipur (Rajast .....

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in the petition that supplies of the stocks to the Army Command (Northern Command) is for direct consumption for defence and the movement of goods, that is, Tetra Pack Milk from the manufacturing units of petitioner Nos. 2 and 3 to various destinations of Northern Command in the State of Jammu and Kashmir is in the course of and incidental to an inter-state trade which is not subject to payment of VAT in the state of Jammu and Kashmir under the Act and falls under the purview of the Central Sale .....

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foisted on petitioner Nos. 2 and 3 by respondent Nos. 1 and 3 would not make them liable to pay the VAT in the State of Jammu and Kashmir as the transaction basically is an inter-state trade transaction. 9. Respondent Nos. 1, 2 and 3 have opposed the writ petition. They have admitted that consignments imported by respondent No. 3 were intercepted at Lakhanpur as they were found liable to furnish security in terms of section 67(10) of the Act. While denying that movement of the goods was in the .....

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nts in their reply, while contending more than once that petitioners are required to get themselves registered in the State of Jammu and Kashmir under the Act and are liable to furnish security till they obtain registration, have not clearly stated as to whether the transaction in question is liable to levy and payment of VAT or not. 10. Primary question raised for consideration in this writ petition is; whether the sale/supply of the Tetra Pack Milk by the petitioner Nos. 2 and 3 to the Norther .....

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mmu and Kashmir is in the course of inter-state trade as the goods are meant for consumption by the troops in the State. Mr. Kohli painstakingly sought to explain that movement of goods is incidental to sale that takes place in the State where the manufacturing units of the petitioners are located and their transportation to and delivery to the Army locations in the State of Jammu and Kashmir is incidental to the said sale as the goods are to be consumed in the State of Jammu and Kashmir. Mr. Ko .....

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are making supplies in the State of Jammu and Kashmir on FOR basis, property of the goods is transferred and sale is completed in the State of Jammu and Kashmir so the sale cannot be taken as inter-state sale and is leviable to VAT under the Act. 13. The Act provides for levy and collection of VAT on the sale and purchase of goods in the State of Jammu and Kashmir. The CST Act provides inter alia for levy, collection and determination of taxes on sale of goods in the course of inter-state trade .....

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n. Section 47, however, exempts certain sales from levy of VAT. It reads: 47. Sales not liable to tax (1) Notwithstanding anything contained in the Act, a value added tax shall not be imposed under the Act- (i) where such sale or purchase takes place outside the State; (ii) where such sale or purchase takes place in the course of inter-state trade and commerce; or (iii) where such sale or purchase takes place in the course of import of goods into the territory of India or export of foods out of .....

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the Act provides for deduction from gross turnover of sale of goods of a dealer for commuting his taxable turnover of sales. Sub section (2) of section 13 reads: 13. Tax on Sales (1)- (2) The taxable turnover of sales in relation to a dealer liable to pay tax on sale of goods under sub section (1) of section 12 shall be the gross turnover of sales during any period, which remains after deducting there from:- (a) turnover of sales of goods declared as exempt from tax in Schedule A ; and (b) turn .....

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r commerce. It reads: 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 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)- Explanation (2)- (underlining by us) 14. Rea .....

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can be said to have taken place in the course of inter-state trade if two conditions are fulfilled viz (i) a transaction of sale or purchase of goods and (ii) movement/transportation of those goods from one State to another pursuant to the sale or purchase. It should be evident from the sale transaction that the buyer has purchased the goods in one State with the intention of using/consuming them in another State. The movement of goods from one State to another should be incidental to the sale/p .....

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nalized at head office of the seller at Delhi and in pursuance of that contract specified goods were manufactured in the factory of the seller at Faridabad, Haryana. The goods were dispatched from the factory to head office of the seller at Delhi for being forwarded to the respective customers. In this case Their Lordships of a three-Judge Bench of the Supreme Court have interpreted section 3(a) of the CST Act and, while referring to the Constitution Bench judgement in S. R. Sarkar (supra) and o .....

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Kailash Chand Areti and others, AIR 1992 SC 1952, Their Lordships of the Supreme Court have held that to be called an inter-state sale or purchase it is immaterial whether a completed sale precedes movement of goods or follows the movements of goods, or for that matter, takes place while the goods are in transact. What is important is that the movement of goods and sale must be inseparable. 18. In State of Andhra Pradesh v National Thermal Power Corporation Limited, (2002) 5 SCC 203 Their Lordsh .....

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ncludes. It follows as a necessary corollary of these principles that a movement of goods which may take place independently of a contract of sale would not fall within the meaning of inter-state sale. 19. The Division Bench Judgement of Punjab and Haryana High Court in Osaw Agro Industries Private Limited (supra) relied upon by learned petitioners counsel is also useful on the question under consideration as fact situation in that case can be said to be similar to the fact situation of the case .....

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ds were loaded in a truck for delivery from Amballa to Ludhiana. The truck was detained by the Excise and Taxation Officer/Detaining Officer and it was alleged that petitioner since is not registered under Punjab Value Added Tax Act, 2005 and therefore, violated section 21(1) thereof. Petitioner took the plea that it was inter-state sale and the CST Act has been charged as per law. Learned Division Bench of the Punjab and Haryana High Court relied upon K.G. Khosla (supra) and National Thermal Po .....

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ations of the Northern Command in the State of Jammu and Kashmir is a sale in the course of inter-state trade and, therefore, not subject to levy and collection of VAT under the Act in the State of Jammu and Kashmir for the reasons to follow: 21. As per the petitioners, which is not disputed, rates quoted by the petitioner Nos. 2 and 3 in response to the tenders floated by the Northern Command of the Army were accepted and pursuant thereto supply orders were issued in their favour. The identical .....

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and Kashmir. It has been made clear in the supply orders that the tendered rates shall include transportation charges and all taxes. It admits of no doubt that the goods viz. Tetra Pack Milk have been sold at the manufacturing units of petitioners 1 and 2 in the States of Gujarat and Rajasthan for their consumption by the troops in the State of Jammu and Kashmir and their transportation/movement from respective manufacturing units to the places of their consumption in the State of Jammu and Kas .....

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briefly, the Constitutional background of the tax regime in relation to inter-state sale or purchase in this country. 23. India is a union of States. Structure of the Government is federal in nature. Article 265 of our Constitution prohibits levying or collection of any tax except by authority of law. Tax can be levied and collected only in accordance with law enacted by the Parliament or a State Legislature. Article 246 of the Constitution indicates bifurcation of powers to make laws, between .....

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chase takes place in the course of inter-state trade or commerce is in the domain of the Central Government. This aspect is mentioned at Entry No. 92 A of List-I. Besides, Article 269 empowers the Government of India (Union Government) inter alia to levy tax on sale or purchase of goods when such sale or purchase takes place in the course of inter-state trade or commerce. It further empowers the Parliament to enact a law formulating principles for determining when a sale or purchase of goods tak .....

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hen a sale or purchase can be said to have taken place in the course of inter-state trade or commerce. In keeping with the Constitutional scheme the J and K VAT Act unmistakably excludes the sales having taken place in the course of inter-state trade or commerce from levy and collection of VAT. 24. We lay emphasis to point out that not to levy and collect tax on sale or purchase when such sale or purchase has taken place in the course of inter-state trade or commerce and not to take steps in thi .....

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