TMI Blog2016 (12) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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. One more aspect pointed out by the Revenue 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 way amounts to suppression. The explanation given by the petitioner 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 its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT) and furnish the details regarding the total value of the sales done from the financial year 2009-10 and pay taxes as per the PVAT Act. Further they were directed to furnish the complete details of the sales of various commodities in the Union Territory of Puducherry, furnish the purchase ledger, sales ledger, cash book, income tax etc., for the immediate preceding three years and were granted time till 20.11.2014 to furnish all the documents failing which stated that the respondent will provisionally estimate and collect tax under the provision of the PVAT. The allegation in the show cause notice was that in 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 goods are inter-state sales and gets completed the moment they have been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The respondent issued another 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 petitioner to produce certain documents. In response to which, a representation was made on 24.08.2015, enclosing a flowchart to explain the modus operandi of their business activities. The respondent issued a third notice, dated 13.11.2015, listing out various transactions done by the petitioner, in which a flowchart of the transactions done by the petitioner was shown under two columns one relating to transactions when the goods are not taken delivery and the other relating to transactions when the 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 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the purchase invoice is generated in the name of the purchaser in the State from which the goods moved for which full rate of CST is paid in the said relevant State. Therefore, the distribution of the goods done from the distribution hub would not amount to sale. 7.In order to demonstrate the factual matrix the learned Senior counsel referred to the flowchart which was given in the impugned order in pages 14 and 15, it is submitted 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's outlet. This shows that the respondent has accepted that the appropriation has taken place at Karnataka. The respondents harp upon the segregation and delivery done by the delivery boys in the Puducherry distribution hub. This is explained by stating that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual 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 seller and in the absence of proper offer by the actual seller to the potential buyer and the acceptance of the actual buyer to such offer and communication of the same to the seller, the movement of goods from the originating State to the destination State should not be treated as a sale within the meaning of Section 3(a) of the CST Act. 9. Insofar as the transactions where the product is delivered at the doorstep of the buyer on cash on delivery basis, the movement of goods from one State to another 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought to be imposed. Further in the decision of the Kerala High Court, no opinion has been rendered regarding the determination of the sale, as an interstate sale as contended by the petitioner and the observation is to the effect 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 and this event happens in Puducherry and therefore, the transaction ought to be taxed under Section 14 read with Section 22 of the PVAT Act. The learned counsel referred to the copy of the consignment note to show that both the consigner and the consignee is the petitioner, copy of the E-Sugam forms to demonstrate that the non-existing TIN number has been given by the petitioner, which is an offence. 12. In reply, the learned Senior counsel submitted that the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the goods are moved to Puducherry. Thus, there can be no doubt that the movement of goods is pursuant to and occasioned by the order for purchase placed by the customer and the transaction qualifies as an inter-state sale, which is taxable only under the CST Act and not PVAT Act. It is submitted that three tests have to be satisfied for an inter-state sale namely, (1) there must be a sale of goods; (2) goods covered by the sale must actually moved from one State to another; and (3) the sale and the movement must be part of the same transaction, both arising from the same contract or as incidental thereto. In the instant 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 sale liable to CST. It is reiterated that the movement of the goods from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the facts of the said 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 SC 65, it was held that clauses (a) and (b) of Section 3 are mutually exclusive and that Section 3(a) covers sales in which movement of goods from one State to another is the result of a covenant or incidental of contract of sale and the property in goods passes in either State. It was further held that a sale can occasion the movement of goods sold only when terms of the sale provide that the goods would be moved; in other words, a sale occasioned the movement of goods when the contract of sale 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the sale could not be held to be an interstate sale. While deciding the question, the Hon'ble Division Bench referred to the decisions of the Hon'ble Supreme in the cases of Tata Engineering Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes reported in [1970] 26 S.T.C. 354 (S.C.) and Kelvinator of India Ltd. v. State of Haryana reported in [1973] 32 S.T.C. 629 (S.C.) and held as follows:- 6.......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 purchaser after payment of the price or could be given on 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. But once we have the evidence to show that the goods moved in pursuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 specifically or it may be contemplated by the parties as an implied term of contract. Even if the movement of the goods is not specified in the contract, and even if it cannot be regarded as an implied term, if such movement is incidental to the contract, then in such case also such transaction would be an inter-State sale. The tax that is levied is on the transaction of sale. The concept of sale itself being an intangible one, where there is no transfer of property in the goods there is no sale, 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 India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) hen there is one interstate movement pursuant to the contract of sale an arrangement regarding storage facility provided in the contract is only an operational convenience, a mechanism devised to facilitate the transfer, when movement of goods commences in a particular 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 office outside the State for sale in the open market without reference to any order placed by the buyer it will not qualify as inter-state sale; (vii) Weigh bill drawn in the name of self, which would enable the consignor to divert the goods at his will, before it reaches the out of state purchaser is a relevant factor in considering the question whether the transaction is the interstate sale or not, but that fact itself cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other words, these facts are culled out from the show cause notice and the impugned order passed by the third respondent. The transaction which is sought to be taxed under the PVAT Act are transactions, where goods are delivered to the purchaser and payment is made on delivery:- Flowchart of Transaction when goods are taken delivery 25. The above flowchart is as contained in the impugned order, illustrates the type of transaction done by the petitioner in respect of sales, where payment is effected 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 contending that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned. This observations is made in the light of the facts as mentioned in the impugned assessment 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, then in such case also, the transaction has been held to be an inter-state sale. In the instant case, the Revenue does not dispute the fact that the movement has occasioned from outside the State. Though it might not have been specifically or impliedly made in the purchase contract or purchase invoice, the movement from the State of Karnataka to Puducherry is incidental to the contract. Thus, the purchase contract or the sale invoice being an agreement to sell, results in the movement of goods from outside Puducherry, which is incidental to the purchase contract and when it is not in dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action done or no sale effected from the state of Puducherry. 32. In Sahney Steel (supra), the petitioner company had its registered office and factory at Hyderabad and branch offices in various State, they were all registered as dealers under the CST Act and the respective State Sales Tax Act. The branch offices received orders from customers within and from outside the respective states for supply of goods confirming to definite specifications and advised the registered office at Hyderabad to manufacture 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 goods at Hyderabad factory and the movement thereafter from Hyderabad to the branch office outside the State was a result of a covenant in the contract of sale or an incident of that contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate 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 being an inter-State sale. 35. The above illustration cannot be applied to the petitioner's transaction for more than one reason. Undisputedly, the purchase order is placed outside the State of Tamil Nadu and the movement of goods has occasioned on account of the purchase. This fact is not disputed by the Revenue as in the flowchart, they have clearly admitted that after the customer chooses a particular product, the bill is raised and the identified package is consigned to Puducherry. In the 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the transaction is an inter-state sale . 38. The High Court of Kerala in the case of Flipkart Internet and Ors., vs. State of Kerala reported in 2015 TOIL HC Karnataka 2510 was deciding an identical issue in a batch of cases and W.P.No.6916 of 2015 pertaining to the petitioner, whose case is identical to that of the Writ Petitioner, 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 registered dealer under the Karnataka Value Added Tax Act during the relevant period, and was paying tax in respect of the local sales and inter-state sales effected from its business premises in the State of Karnataka. There is no material relied upon by the respondents to suggest that the petitioner had effected local sales in Kerala for which he was to re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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