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2016 (12) TMI 513 - MADRAS HIGH COURT

2016 (12) TMI 513 - MADRAS HIGH COURT - TMI - Inter state sale or intra state sale - eCommerce transactions - movement of goods - registration of dealer - Whether the retail sale of mobile phones, computer spare parts, personal healthcare products, car accessories, cameras etc., done by the petitioner via the online portal www.flipkart.com would qualify as an inter-state sale or a local sale within the union territory of Puducherry? - Held that: - the purchase order is placed outside the State o .....

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enue is with regard to use of incorrect TIN number in the E-Sugam form generated by the petitioner at Karnataka. Admittedly, the form is electronically generated and unless and until all columns are filled, the computer system will not generate the form. The petitioner's explanation is that the furnishing of TIN number is not required. However, the said column cannot be left blank and the movement of goods are to Puducherry, the first three digits of Puducherry code are mentioned and this is no .....

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hat by itself will not be a ground to state that the petitioner has committed an offence. - The transactions done by the petitioner are inter-state sales and the order impugned in the Writ Petition is not sustainable and liable to be set aside - petition allowed - decided in favor of petitioner-assessee. - W. P. Nos. 3442 of 2016 - Dated:- 2-12-2016 - T. S. Sivagnanam, J. For the Petitioner : Mr.N.Venkataraman Sr., Counsel for Mr.K.Magesh For the Respondents : Mr.R.L.Ramani Sr., Counsel for .....

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and Noida and on an order being placed by the customer located anywhere in the country or in particular from Puducherry, as the present controversy has arisen from Puducherry, via the online portal, the goods corresponding to the purchase order will be transported from one of the warehouses to Puducherry by way of an inter-state sale between the petitioner and the customer on which the Central Sales Tax (CST) is paid by the petitioner in the State where the goods originate in terms of the provis .....

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ted in the Union Territory of Puducherry. 3. An inspection was conducted by the Intelligence Wing of the Commercial Taxes Department of Puducherry in the business premises of the petitioner on 21.10.2014, based on which a notice dated 03.11.2014, was issued to the petitioner calling upon them for register themselves under the provisions of the Puducherry Value Added Tax Act (PVAT) and furnish the details regarding the total value of the sales done from the financial year 2009-10 and pay taxes as .....

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Puducherry, the petitioner is not a registered dealer and it was found from the copies of the E-Sugam forms utilized by the petitioner that they have used a duplicate and non-existing TIN number for transporting their goods from the warehouses at Bangalore to delivery hubs at Puducherry and this shows that they have committed an offence. It was further alleged that the petitioner had consigned the goods from its various warehouses to the delivery hub in Puducherry and therefore, the movement of .....

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hub is only a stock transfer. The petitioner by letter dated 28.11.2014, submitted their objections that they are engaged in the business of online sales to end customer and provides logistics services under the brand name E-Kart Logistic to the online sellers effected via flipkart.com. The petitioner currently sells goods in the course of inter-state trade and commerce to the customers in Puducherry from any one of the six warehouses in the country upon charging CST at full rate from those war .....

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of the transaction i.e., sales to the end customers. Further, it was stated that the transaction is an inter-state sale, where the tax invoice is raised by the seller from where the goods were despatched, discharge the full applicable CST to the concerned State Government and declare the same in their periodical returns. Therefore, it is submitted that the transaction is an interstate sale. With regard to the presence of the delivery hub at Puducherry, it was submitted that in view of the busin .....

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other notice dated 05.02.2015, containing virtually the same allegation and stated that the transactions, more particularly, those were payment is made on delivery of the product as interstate sale and directed the petitioner to submit their objections. The petitioner submitted their objections dated 23.02.2015, explaining the type of transaction done by them as a flowchart and sought to substantiate their case as one of interstate sale. A summon dated 31.07.2015, was issued calling upon the pet .....

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he goods are taken delivery and the petitioner was called upon to file their objections to the proposals made in the said notice. The petitioner filed their objections on 30.11.2015, appending sample copies of the retail invoices etc., this was followed by a further objection dated 18.12.2015 enclosing a Chartered Accountant's certificate. After which the third respondent CTO, has passed the order dated 19.01.2016, rejecting the contentions raised by the petitioner and treating the transacti .....

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der. It is submitted that what is paramount consideration in an interstate sale is movement of goods and if that is established, the test required is satisfied. The appropriation of goods has also been established and for an interstate sale, the situs of the sale is irrelevant. It is further submitted that the movement followed by sale is also an interstate sale and all that is required, is movement and sale should have an integral connection. It is submitted that three contentions have been put .....

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er having transported the goods on self basis and kept the same in their distribution hub for being sorted and distributed, the sale has been effected only from the distribution hub at Puducherry. The learned counsel reiterated the factual averments set out in the various notices and sought to impress upon the Court that the sale of goods is outside the State of Puducherry and for logistic purpose, it is being brought to Puducherry to the distribution hub, where the product is distributed to the .....

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itted that insofar as transactions where payments have been already made through credit card or other mode, the respondents have not taxed those transactions and what is being taxed is only the transactions on cash on delivery basis. By referring to the flowchart, it is submitted that the respondent accepts that the customer chooses the particular product, it is accepted that the prospective bill is made and the identified package along with other consignments is despatched to the petitioner' .....

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. The learned counsel referred to the following decisions to demonstrate as to what are the ingredients to be satisfied to term a transaction as an interstate sale namely, Rukmini Mills Ltd vs. The Government of Tamil Nadu reported in 1975 (36) STC 425 Mad; Onkarlal Nandlal vs. The State of Rajasthan & Ors., reported in 1985 (60) STC 314 (SC); Kerala State Small Industries Development and Employment Corporation Ltd., vs. State of Tamil Nadu reported in 1999 (113) STC 169; As regard the relev .....

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VAT Act and engaged in the sale of consumer goods and durables through the online portal www.flipkart.com. The buyer, who wishes to purchase a particular product logs into the website of the internet provider, www.flipkart.com and chooses a particular product of specific description. The online portal communicates such purchase intention to the petitioner firm which has godowns in six States in the country, despatches the goods to the buyer, who has made the purchase intention order. If the purc .....

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satisfaction is as per the terms provided by the online portal and not by the petitioner who actually sells the goods. Thus, there is no actual direct communication between the actual buyer and actual seller and there is a complete absence of any contractual relationship between the actual buyer and the actual seller within the meaning of Indian Contract Act, 1872 and the Sales of the Goods Act, 1930. Therefore, in the absence of any direct communication between the actual buyer and the actual s .....

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other is not the result of any contract of sale between the actual buyer and the actual seller. Therefore, it is submitted that the order passed by the Assessing Officer is just and proper. The learned Senior Counsel for the revenue raised preliminary contention as regards the maintainability of the writ petition as the petitioner has an alternative remedy under the provisions of the PVAT Act. Thus, it is the submissions of the learned Senior counsel that there is no express or implied contract .....

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g State to the consumer in Puducherry cannot be regarded as an inter-state sale. On the other hand, the transaction has all the elements of stock transfer. The factual situation is that the goods are transported from godowns in one State to godowns in other State including Puducherry, goods are transported in bulk from godown in one State to godown in another State and the transport documents mentions the consignor and the consignee, as the same person, that is the petitioner. The movement of go .....

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on by the petitioner in the case of the Flipkart Internet & Ors., vs. State of Kerala in W.P.(C).No.5348 of 2015, dated 20.10.2015, the Court has observed that due to uncertainty with regard to the real nature of transaction in question for instance whether transaction is an intrastate sale or in interstate sale, Intelligence Officer ought ideally, to refer the matter to the Assessing Officer's concern to arrive at a finding. In the said case, Flipkart, was the petitioner and it was the .....

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ffect that when there is an confusion in determining the character of the sale, the Assessing Officer alone is entitled to pass orders, which has been followed in the present case. It is further submitted that it has been clearly established that the goods are within the Union Territory of Puduchery at the time of contract of sale, as a contract comes into an existence only at that place and time, where the ultimate customer decides to take the final delivery of the product and pay for the sale .....

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jurisdiction and sought to impose VAT on inter-state transaction, which has already been subjected to CST in a manner, which is clearly ultra vires the PVAT Act and also violative of the taxing powers under Article 246 read with VII Schedule to the Constitution of India and therefore, the petitioner has approached this Court by way of this Writ Petition. Further, the action of the second respondent seeking payment of VAT on such transactions runs counter to the said position in law as upheld by .....

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ar in case of inherent lack of jurisdiction. It is further submitted that the transaction done by the petitioner is not a stock transfer, but an inter-state sale and taxes have been paid by the petitioner in the State from where the goods had occasioned movement. The respondent seeks to split the transaction/movement of goods into two parts, movement of goods from warehouse in the originating State to the delivery hub to Puducherry is being alleged to be a stock transfer and the subsequent movem .....

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hey are delivered to the customer within Puducherry. The petitioner never stocks the goods for sales in Puducherry and the goods are brought to the delivery hubs only for onward delivery to the customer. The goods are already appropriated to the customer and despatched from the originating State based on the order placed by the customer and in order to fulfil such an order, the goods are moved to Puducherry. Thus, there can be no doubt that the movement of goods is pursuant to and occasioned by .....

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tant case all the three conditions are satisfied. Further, it is submitted that the presence of the intermediary such as the sellers own representation or warehouses would not alter the nature of the transaction, which remains that of an interstate sale liable to CST. Thus, in the instant case, since the goods entering are specifically earmarked for the customers, who are already placed their order on the petitioner through the online portal, the transaction clearly constitutes an inter-state sa .....

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ansaction of sale, as, but for the order placed by the buyer, the petitioner would not have moved the goods from outside of Puducherry into Puducherry. On the above submissions, the learned counsel sought for setting aside the impugned proceedings. 13. The preliminary objection raised by the Revenue is regards the maintainability of the Writ Petition on the ground that the petitioner has an effective alternative remedy under the PVAT Act. However, since the petitioner has raised the question of .....

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tablish on the available facts admitted by either side that the third respondent lacks jurisdiction to exercise powers under the PVAT Act in relation to the transaction done by the petitioner, then the existence of an alternative remedy under the PVAT is not a bar for this Court to exercise jurisdiction under Article 226 of the Constitution of India. 14. Before venturing into the factual matrix, it would be necessary to take note of the legal position as to which of the transaction would qualify .....

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case, it was observed the contract of sale did not require or provide that goods should be moved from Faridabad to Delhi and that it is not true to state that for the purposes of Section 3(a) of the Act, it is necessary that the contract of sale must be itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. 16. In the case of Tata Iron And Steel Co., vs S.R.Sarkar And Others, AIR 1961 .....

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so provides. After referring to the other decisions on the point, it was held as follows:- 15.........(1) a sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade, no matter in which State the property in the goods passes; (2) it is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement; and (3) it is also not necessary for a sale to be deemed to have taken pla .....

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he goods passes it may pass in either State and yet the sale can be and inter-state sale. 18. In Sahney Steel and Press Works Ltd., & Anr., vs. CTO & Ors., 1985 (4) SCC 173., one of the questions which was considered is whether a branch office located outside the State would make a difference in the transaction and this question was answered by observing that the branch office merely acted as a conduit through which the goods passed on their way to buyer and it would have been a differen .....

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red office at Hyderabad to branch office outside the State cannot be regarded as an incident of the sale made to the buyer. In the said case, it was held that the sale transaction was an inter-state sale inasmuch as they satisfy the terms of clause (a) of Section 3 of the CST Act. 19. In Rukmini Mills Ltd vs. The Government of Tamil Nadu, 1975 (36) STC 425 Mad, a converse case arose where the appellant relied on a weigh bill being drawn in the name of self and contended that the goods could be d .....

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..It is true that the fact that the goods could be diverted by the consignor before it reaches the out-of-State purchaser is a relevant factor in considering the question whether the transaction is inter-State sale or not, but that fact itself could not be said to be conclusive. In very many cases, in order to safeguard the payment of the price and also in order to avoid any future dispute, the goods might be sent to the consignee as "self" so that the goods could be delivered to the p .....

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despatch of the goods there were firm orders by the purchasers and it is only in pursuance of these contracts the goods were despatched intending to be delivered to the purchasers. All the other steps which were taken in this case were intended to safeguard the prompt payment of the price before delivery of the goods to the out-of-State purchaser which do not in any way affect the nature of the transaction as such. We therefore do not agree with the learned counsel that by reason of the consign .....

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State trade or commerce: (i) that there is an agreement to sell which contains a stipulation express or implied regrading the movement of the goods from one State to another; (ii) that in pursuance of the said contract the goods in fact move form one State to another; and (iii) that ultimately a concluded sale takes place in the State where the goods are sent which must be different from the State from which the goods move . If these conditions are satisfied then by virtue of Section 9 of the Ce .....

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-settled although in the application of law to individual cases difficulties continued to arise and each case will have to be decided with reference to its own special facts. That movement of the goods across the borders of State is an essential pre-condition, beyond any controversy only a transaction of sale connected with that movement can be regarded as an inter-State sales. The movement and the sale must have a reasonable direct link. Such movement can be stipulated in the contract of sale s .....

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and mere movement cannot be the subject-matter of the taxation, nor can a mere agreement to sell be taxed. 19. The relationship between the movement and the sale should be, very broadly put, be that of effect and cause. The sale should have occasioned the movement or the movement should have been incidental to the sale. 22. In Indian Oil Corporation Ltd., and Anr., vs. UOI & Ors., 1980 Supplementary SCC 426 para 6 & 9 , it was held as follows:- 8......It is obvious that the sales under .....

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tory at Kanpur through the pipeline constructed at the buyer's cost. It is relevant in this connection to note that under clause 7(ii) the cost of transferring naphtha from Barauni to the buyer's fence is to be borne by the buyer. 9. Each case turns on its own facts and the question is whether applying the settled principle which we have mentioned above to the facts of the present case the sales can be said to be inter-state sales. An attempt to show that some of the factors present in t .....

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can be assessed and collected only by the authorities in the State of Bihar on behalf of the Government of India in view of section 9 of the Central Sales Tax Act. 23. From the above decisions, the legal principle that can be culled out for a transaction to qualify as an inter-state sale are (i) a sale which occasions movement of goods from one state to another state; (ii) it is no matter in which state the property in the goods passes; (iii) it is not necessary that the sale must precede the i .....

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State, the sales tax payable on the sales can be assessed and collected only by the authorities in the state where the movement commenced on behalf of the Government of India in view of Section 9 of the CST Act; (vi) when there is no break in the movement of goods and the branch office merely acted as a conduit through which goods passed on their way to the buyer, it is still an inter-state sale; however if particular goods had been despatched by the registered office in a State to the branch of .....

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he payment appraise and avoid dispute, the goods might be sent to the consignee as self so that goods could be delivered to the purchaser after payment appraise or could be given open delivery to rule out any dispute regarding quality or quantity of the goods; (viii) If there is evidence to show that the goods moved in pursuance of a contract and was intended to be delivered to the purchaser, the transaction becomes an interstate sale or purchase attracting sales tax under Section 3(a) of the CS .....

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or the other, if the effect of such a sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility of tax under Section 3(a) of the Central Act; (xi) It would be enough if the movement was in pursuance of or incidental to the contract of sale; (xii) There must be an agreement to sell, which contains a stipulation express of implied regarding the movement of the goods from one State to another pursuant to a contract, the goods i .....

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, if such movement is incidental to the contract, then such case also transaction would be an inter-state sale; (xvi) The relationship between the movement and the sale should be, very broadly put, be that of effect and cause and (xvii) the sale should have occasioned the movement or the movement should have been incidental to the same. 24. Bearing the above legal principles in mind, to decide the present controversy, it would be necessary to go into certain facts, which are not in dispute. In o .....

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ed on delivery. It is not disputed by the Revenue that the products listed for sale or available in the website www.flipkart.com. The customer goes to the online platform and chooses a particular product and confirms the purchase. A bill is generated and the identified package, that is the package containing the product purchased by the buyer is despatched to Puducherry to the outlet of the petitioner on self basis . The Revenue seeks to tax the transaction as a local sale by primarily contendin .....

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he sale comes into existence. Thus, the focus is on the situs and it is stated that the consideration payable for the goods is paid at Puducherry, when the delivery boy takes the goods from the depot at Puducherry and delivers it to the customer and accepts the cash. Therefore, it is contended that a sale within the State of Puducherry and the destination State has full right to tax the goods under the appropriate State legislation. 26. Thus, it is admitted by the Revenue that the customer appro .....

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aser for the product identified by him. It is this product along with other products of other similar purchases are consigned from the petitioner's warehouse at Karnataka to the petitioner's depot at Puducherry. 28. In the preceding paragraphs, the legal principle to be satisfied for determining as to whether a transaction is an inter-state sale has been culled out. Thus, the primordial test would be that the sale should have occasioned the movement of the goods or the movement should ha .....

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t order. 29. Another limb of the argument was that the movement of goods has got nothing to do with the purchaser and there is no contract to the said effect. The law states that the movement and sale must have a reasonable direct link, it can be stipulated in the contract specifically or contemplated by the parties as implied term of contract and even if, it is not specified in the contract and even if, it cannot be regarded as a implied term, if such movement is incidental to the contract, the .....

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outside Puducherry, which is incidental to the purchase contract and when it is not in dispute that the pursuant to such purchase order, the goods have moved from one State to another, it is undoubtedly an inter-state sale . 30. The Revenue would contend that the consignment moved from Karnataka to Puducherry on self basis that is the consigner was the petitioner and consignee was also the petitioner, the consignment was stored in a depot in Puducherry sorted out delivered to the purchaser and .....

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to safeguard the payment of price and also to avoid future disputes, goods may be sent to the consignee on a self basis, so that the goods can be delivered to the purchaser after payment of the purchase price or given open delivery to the purchaser, so that there would not be any dispute thereafter, as to the quality or quantity of the goods contracted for. Therefore, merely because a weigh bill has been drawn in the name of 'self' would not by itself be a reason to disbelieve the nature .....

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le is effected as soon as the delivery boys deliveries the goods to the purchaser and receives cash. In other words, the presence of a depot is sought to be put against the petitioner and to disbelieve the nature of transaction. The petitioner's explanation is that several orders are placed online and for logistic purpose, they have established a depot, where all the consignments are stored and from there, it is distributed to the purchasers. Further it is stated that there is no transaction .....

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cture the same at their factory and despatch to the branches outside the State of Andra Pradesh by way of transfer of stock. The goods were booked to self and sent by lorries by the registered office. The branches received the goods and deliver them to the customer raise bills and receive the sale price. The commercial tax officer held that the transaction amounted to inter-state sales of goods. While deciding the question, the Hon'ble Supreme Court pointed out that the manufacture of the go .....

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he depot at Puducherry can hardly make any difference to the nature of transaction done by the petitioner. In other words, factually the respondents would admit that the purchase effected is for a particular product on exercise of option to purchase, a bill is raised in the name of the purchaser and the identified product (as ordered by the purchaser) is sent to Puducherry. Thus, in my view, the appropriation takes place in the State of Karnataka. 33. Much emphasis was made by the learned Senior .....

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the name of the purchaser and this purchase occasions in the movement of the goods, therefore, the situs can be in any either one of the States. The Hon'ble Supreme Court in M/s.Onkarlal Nandla, (supra), held that there is no antithesis between a sale in the course of interstate sale or commerce and the sale inside the State, even in the interstate sale must have a situs and the situs may be in one State or another. 34. The learned Senior counsel for the Revenue referred to the paragraph 12 .....

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eceives the goods on behalf of A. Thereafter the goods are delivered to B in State Y and if B accepts them a sale takes place. It will be seen that in this case the movement of goods is neither in pursuance of the agreement to sell nor is the movement occasioned by the Sale. The seller himself takes the goods to State Y and sells and goods there. This is, therefore, purely an internal sale which takes place in State Y and falls beyond the purview of Section 3(a) of the Central Sales Tax Act not .....

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e illustration given, there is no admission to the fact that the movement of goods was pursuant to an agreement to sell nor is the movement occasioned by the sale. In the instant case, there can hardly be any doubt, as the revenue has accepted that the purchase order, which is placed outside the State has occasioned the movement of goods. Thus, the said decision is distinguishable on facts. 36. One more aspect pointed out by the Revenue is with regard to use of incorrect TIN number in the E-Suga .....

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itioner is reasonable considering the facts and the nature of transaction done by the petitioner. The consigner and the consignee is the petitioner and the goods moved from State of Karnataka to Puducherry and it is on self basis . The consignment is shown as electronic items, garments etc., stored in several bags. Therefore, mere mention of TIN number by giving only the code of Puducherry as assigned by the Commercial Taxes Department that by itself will not be a ground to state that the petiti .....

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tioner handling logistic part of the business and the purchaser is aware about the approximate date of delivery. The cost of shipping the product is separately recovered and mentioned in the platform. Thus, the purchase order contains all the details, which clearly prove that the purchase order has occasioned the movement of goods from the State of Karnataka to Puducherry. The sample copy of the retail invoices/bills raised from Karnataka in the name of the purchaser at Puducherry had been produ .....

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ner, wherein the High Court of Kerala quashed the demand notices for the following reasons:- As regards W.P.(C).No.6916 of 2015, I find that the notices and orders issued to the petitioner in this Writ Petition are more or less identical to those in W.P.(C).No.5348 of 2015, discussed above. The only difference in the instant case is that the petitioner herein is a person who actually engages in the business of sale and purchase through an online portal-myntra.com. The petitioner, however, was a .....

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