Introduction
1. Under entry 92A of List I of the VII Schedule to the Constitution of India, the Parliament of India has the exclusive right to impose tax on sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade and commerce. Article 269 of the Constitution of India authorises the Parliament to formulate principles for determining when a sale or purchase or consignment of goods takes place in the course of inter-State trade and commerce.Exercising the power so conferred by the Constitution of India, the Parliament has enacted the Central Sales Tax Act, 1956 (herein after referred to as “the Central Act”), wherein section 3 specifies the principles as to when a sale or purchase of goods take place in the course of inter-State trade and commerce.
2. While section 3(a) of the Central Act defines inter-State sales as those sales which occasion the movement of goods from one State to another, section 3(b) of the Central Act provides for treating sales effected by transfer of documents of title to the goods during the course of inter-State movement of goods as also amounting to inter-State sales.
3. In the case of M/s A & G Projects & Technologies Ltd. vs. State of Karnataka 19 VST 239 (S.C.) Hon’ble Supreme Court proceeded by accepting the conclusion of the lower authorities that all the transactions in the chain of subsequent sales were independent sales falling under section 3(a) of the Central Act and hence it concluded that in respect of such transactions the State from which the movement of goods was occasioned would be the State which will have the right to impose tax under the Central Act. Since Hon’ble Supreme Court proceeded by accepting the conclusion drawn by the lower authorities that the subsequent inter-State sales were also inter-State sales falling under section 3(a) of the Central Act, a doubt is being raised about the true scope of section 3(b) of the Central Act. In this paper I intend to clarify the scope of section 3(b) of the Central Act with reference to the decision of Hon’ble Supreme Court in the case of A and G Projects and Technologies Ltd. (supra).
Provisions of section 3
4. Section 3 of the Central Act defining inter-State sales read as under:
“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: Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2: Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.
Sales u/s 3(b)
5. The scope of section 3(b) fell for interpretation before Hon’ble Supreme Court in the case of Tata Iron and Steel Co. Ltd. vs. S. R. Sarkar 11 S.T.C. 655 (S.C.) and the court has observed as under on page 666:
“The sale contemplated by clause (b) is one which is effected by transfer of documents of title to the goods during their movement from one State to another. Where the property in the goods has passed before the movement has commenced, the sale will evidently not fall within clause (b); nor will the sale in which the property in the goods passes after the movement from one State to another has ceased be covered by that clause. Accordingly a sale effected by transfer of documents of title after the commencement of movement and before its conclusion as defined by the two termini set out in Explanation (I) and no other sale will be regarded as an inter-State sale under section 3(b).”
Again on page 673 it is clarified as under:
“But under the Sale of Goods Act, if a document of title to goods is used in the ordinary course of business as proof of possession or control of goods, endorsement or delivery thereof according to mercantile practice will amount to delivery of the goods thereby represented. The transfer of documents contemplated by section 3(b) is therefore such transfer as in law amounts to delivery of the goods. Transfer of documents either by endorsement or delivery does contemplate transfer of title.”
6. The expression “documents of title to the goods” is defined in section 2(4) of the Sale of Goods Act, 1930 as including “a bill of lading, dock-warrant, warehouse keepers certificate, wharfingers’ certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of possession or control of goods or authorising or purporting to authorise, either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented.”
Essential requirement for Inter-State sale u/s. 3(b)
7. It is thus clear that following are the essential requirements for considering a sale as a sale in the course of inter-State trade and commerce within the meaning of section 3(b) of the Central Act:
(a) There should first be a first inter-State sale resulting in to movement of goods from one State to another
(b) In view of Explanation 1 to section 3(b) of the Central Act, the movement of goods from one State to another shall commence at the time of delivery of goods to the transporter or bailee and terminate when delivery is taken back from the transporter or bailee. In other words the movement of goods shall be deemed to continue till the goods are in possession of the transporter or bailee to whom the goods are delivered for their movement from one State to another.
(c) The ownership of goods should be transferred during the inter-State movement of goods by transfer of documents of title to the goods to the customer. The transfer can be made by endorsement or delivery of documents of title to the goods but advisably by endorsement on the transport receipt.
(d) Such transfer by endorsement should take place while the goods are in movement from one State to another.
8. In the case of G. A. Galiakotwala & Co. (P.) Ltd. vs. The State of Madras 37 S.T.C. 536 (S.C.) the assessee had purchased goods from outside the State of Madras and directed its vendor to dispatch the goods to its customer in the State of Madras. The vendor dispatched the goods directly to the customer of the assessee and sent transport receipt to the assessee which was endorsed by the later in favour of its customer on the basis of which the customer took delivery of goods. Hon’ble Supreme Court held the sale by the assessee to its customer as inter-State sale falling under section 3(b) of the Central Act.
Inter-State sale even though no actual endorsement
9. A useful reference can also be made to the decision of Hon’ble Gujarat High Court in the case of State of Gujarat vs. Haridas Muiji Thakker 84 S.T.C. 317 (Guj.). In this case, a dealer of Gujarat had received orders from its customers at Surat and Ahmedabad. The dealer placed purchase orders upon a vendor of Maharashtra which in turn used to send goods directly to the customers of the dealer situated at Surat and Ahmedabad. The transport receipts were taken by the supplier in the name of the customers of the dealer and the customers took delivery of goods directly from the carrier. Hon’ble Gujarat High Court held the transactions of sales by the Gujarat dealer to its customers at Surat and Ahmedabad as inter-State sales within the meaning of section 3(b) of the Central Act. Hon’ble Gujarat High Court held that when the Bombay supplier transported the goods to Surat and Ahmedabad and took out transport receipts in the name of the customers of the dealer, there were constructive deliveries in favour of both the Gujarat dealer as well as its purchasers. However, the delivery to the customers was not as principal to principal. According to the court while effecting delivery to the customers it was to be inferred, that the Bombay supplier acted as an agent of the Gujarat dealer. The court held the transactions as inter-State sales within the meaning of section 3(b) of the Central Act even though the actual documents were not taken out in the name of the dealer and there was no actual endorsement made thereon by the dealer in favour of its customers.
Decision in P. U. Usha’s case
10. In the case of P. U. Usha vs. State of Kerala 5 VST 484 (Ker.) it has been held that if after the goods have reached the destination, they are sold by endorsing the documents of title to the goods, such sales would not qualify as inter-State sales within the meaning of section 3(b) of the Central Act even if the customer had taken delivery of goods directly from the transporter.
P. U. Usha not a correct decision
11. In my opinion, with respect, this is not a correct interpretation of law. Delivery within the meaning of Explanation I to section 3 of the Central Act can only be physical delivery and not the constructive delivery. Thus the inter-State movement of goods can be deemed to terminate only when physical delivery is taken from the carrier or bailee. In my opinion even if the goods have landed in the State, so long as delivery of goods is not taken from the carrier, the inter-State movement of goods shall be deemed to continue in view of the artificial deeming fiction created by Explanation 1 to section 3 of the Central Act. Therefore any sale made by endorsing documents of title to the goods while the goods are in possession of the carrier or bailee should qualify as inter-State sale as provided in section 3(b) of the Central Act.
12. The Kerala High Court in P. U. Usha’s case (supra) has relied upon decision of Hon’ble Delhi High Court in the case of Arjan Das Gupta and Bros. vs. Commissioner of Sales Tax 45 S.T.C. 52 (Delhi). It is therefore necessary to analyse the decision of Hon’ble Delhi High Court in the case of Arjan Dass (supra). The facts of this case are as under:
Facts of Arjan Das’s case
The Delhi dealer used to purchase coal from the collieries located in other State on the basis of freight to be paid at destination. On arrival of goods at Delhi, the dealer used to present railway receipts before the civil supplies authorities for endorsement on the railway receipts for getting permission for import of coal within the Union Territory of Delhi as required under the notification issued by Delhi Administration. The railway receipts so endorsed by the civil supplies authorities were endorsed by the dealer in favour of its customers of Delhi. The actual delivery from railways was taken by the customers on payment of freight charges. The dealer contended that its sales to customers of Delhi was inter-State sales falling under section 3(b) of the Central Act and therefore such transactions cannot be taxed under the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi. The authorities did not accept the claim of sales in the course of inter-State trade and commerce within the meaning of section 3(b) of the Central Act. The view of the authorities was confirmed by Hon’ble Delhi High Court by observing as under on page 57:
“The reference to the two States in clause 3(b), in our opinion, makes it clear that the termination of the journey of the goods as contemplated by the said sub-section takes place when the goods are landed in the importing State. Normally, when the goods are carried by a carrier from one State to another the delivery is taken by the importer immediately after the goods land in the importing State. Thus, normally the landing of goods in the importing State and the delivery of goods are almost simultaneous acts, although technically there will be some hiatus between the two. Considering these commercial facts, it is difficult to accede to the retailer’s contention that the movement of goods continues even if the goods have landed in Delhi only because the importer has transferred the documents of title to the purchasing retailers and such retailers take delivery from the railways at a subsequent time. If taking delivery is the test of termination of movement and not the landing of the goods in an importing State, Explanation 1 of section 3(b) of the Central Sales Tax Act would lead to anomalous results. If, after the landing of the goods in Delhi, the railway receipts are endorsed one after another to ten persons and the delivery is taken by the tenth person, say after three months, the movement of goods would on the dealer’s interpretation artificially continue for three months after the landing of the goods in Delhi.”
Reasons that weighed with the court
13. The court appears to have been swayed away by the fact that unless the interpretation as made by it is done, it would result in to anomalous result inasmuch as there could be many inter-State sales before the physical delivery is taken from the carrier. In my opinion there is no such anomalous result as apprehended by the court because even the Central Act has provided in section 6(2) for sales of goods from first party to the second, from such second party to a third party and from such third party to another and so on. Even such sales can be claimed as exempt from tax by exchange of certificates in Form El in the first transaction and Form Eli thereafter for as may times as required without any limit.
14. In my opinion, the interpretation made by the Hon’ble High Court will in fact give rise to practical difficulties to ascertain as to when the movement of goods had come to an end and whether the endorsement on documents of title to the goods was made before or after the landing of the goods at destination. Thus the interpretation of the court on the contrary would have anomalous result.
15. As a matter of fact even in case of sales in the course of import by transfer of documents of title to the goods as provided in section 5(2) of the Central Act earlier it was interpreted in the case of The State of Madras vs. Davar and Co. 24 S.T.C. 481 (S.C.) that to qualify as sales in the course of import by transfer of documents of title to the goods, the endorsement should be done before the vessel had crossed the distance of 12 nautical miles measured from the appropriate base line. This was creating hardship in establishing as to exactly where the ship was located when the endorsement on documents of title to the goods was made so as to treat the transactions as sales in the course of import. Therefore a special definition of “crossing the custom frontiers of India” was inserted by introducing clause (ab) in section 2 of the Central Act defining the said term as crossing the limits of the customs station in which imported goods or export goods are ordinarily kept before clearance by the customs authorities. Thus even if the goods have reached harbour, till they are lying at any place where they are kept before clearance by customs authorities, the international journey of goods is to be artificially deemed to continue and any sale made by transfer of documents of title to the goods till then shall qualify as sales in the course of imports within the meaning of the second limb of section 5(2) of the Central Act.
16. Thus when movement of goods in the course of import can continue even after the goods have landed in India, because of artificial definition enacted in section 2(ab) of the Central Act, similarly in my opinion, the inter-State movement of goods can also continue even if the goods have landed in the State if as per the deeming fiction created by Explanation I to section 3 of the Central Act, it is to be deemed to continue till the goods are in possession of the carrier or bailee.
Effect of deeming fiction
17. It is a fact that by a deeming provision enacted under Explanation I to section 3 of the Central Act it is provided that inter-State movement will commence and terminate during the intervening period between the time of delivery being given and taken away from the carrier or bailee.
18. The explanation provides for inter-State movement by creating deeming fiction. For the purpose of knowing effect of a deeming fiction a reference may be made to the decision of Hon’ble Supreme Court in the case of Commissioner of Commercial Tax, Ranchi and Another vs. Swam Rekha Cokes and Coals Pvt. Ltd. and Others 136 S.T.C. 57 (S.C.) wherein it is laid down as under on page 76:
“It is well-settled that in interpreting a provision creating a legal fiction, the court must ascertain the purpose for which the fiction is created and having done so, to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. When the law requires that an imaginary state of affairs should be treated as real, then unless prohibited from doing so, one must also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.”
19. Thus merely because according to the court a plain interpretation of the Explanation will lead to many inter-State sales even after the goods have landed in the destination State, it is no reason to give the provision a meaning different than what is flowing from the its plain reading. As a matter of fact as pointed out herein before multiple inter-State sales are recognized and accepted under the provisions of the Central Act.
Effect of plain and clear words to be given
20. It is also a settled law that when words of the statute are plain and clear the court is bound to give effect to that meaning irrespective of the consequences. In this connection reference is invited to the following observations of Hon’ble Supreme Court in the case of Orient Paper and Industries Ltd. vs. State of M. P. and Others 148 S.T.C. 649 (S.C.) as found on page 658:
“When the words of a statute are clear, plain or unambiguous, i.e. they are reasonably susceptible to only one meaning, courts are bound to give effect to that meaning irrespective of consequences. (See: State of Jharkhand vs. Govind Singh AIR 2005 SC 294, Nathi Devi vs. Radha Devi Gupta [2005] 2 SCC 271).
In Sussex Peerage case [1844] 11 CI&E 85, at page 143 Tindal C.]. observed as follows:
“If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves do alone in such cases best declare the intent of the lawgiver.”
When a language is plain and unambiguous and admits of only one meaning, no question of construction of a statute arises, for the Act speaks for itself.
As observed in Nathi Devi’s case [2005] 2 SCC 271 if the words used are capable of one construction, only then, it would not be open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. The spirit of the law may well be an elusive and unsafe guide and the supposed spirit can certainly be not given effect to in opposition to the plain language of the sections of the Act.”
21. On a strict interpretation of section 3 and its Explanation I in my opinion Hon’ble Delhi High Court, with respect, was not correct in interpreting the provision of section 3(b) along with its explanation as providing inter-State sale by transfer of documents of title to the goods only when the goods are actually moving from one State to another. The court, in my opinion, was thus wrong when on page 57 it has stated that “Section 3(b) says that if the sale is made by transfer of documents, when the goods have left one State and are yet to reach the other State, such sales are inter-State sales.” In my opinion such an interpretation is inconsistent with the plain and clear language of the Explanation and therefore it is not correct.
22. Similarly in my opinion the court has erred in observing that “Explanation I to section 3(b) does not permit the dealer to expand the movement of goods beyond the time of physical landing of goods.” In my opinion, it is not the question of extending or expanding the movement of goods by the dealer, but it is so artificially extended by a deeming fiction created under the Explanation and therefore it must be given its meaning and effect and the dealer can very well rely upon it to construe the period of inter-State movement of goods.
Scope of Explanation
23. What is important to notice is that the course of inter-State movement of goods has been specified by giving an Explanation and therefore in my opinion it is necessary to know the exact scope of the provision enacted with the help of Explanation in any statutory Act. In the case of Keshavji Ravji and Co. vs. Commissioner of Income Tax AIR 1991 SC 1806 Hon’ble Supreme Court has laid down as under:
An ‘Explanation’, generally speaking, is intended to explain the meaning of certain phrases and expressions contained in a statutory provision. There is no general theory as to the effect and intendment of an Explanation except that the purposes and intendment of the ‘Explanation’ are determined by its own words. An Explanation, depending on its language, might supply or take away something from the contents of a provision. It is also true that an Explanation may – this is what Sri Ramachandran suggests in this case – be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the legislature considers to be the true meaning beyond controversy or doubt.
24. In Hiralal Rattanlal vs. Sales Tax Officer AIR 1973 SC 1034 Hon’ble Supreme Court has observed thus:
“On the basis, of the language of the Explanation this Court held that it did not widen the scope of clause (c). But from what has been said in the case, it is clear that if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect be given to legislative intent notwithstanding the fact that the legislature named that provision as an Explanation.”
25. The Supreme Court has identified the objects of Explanation in the case of Sundaram Pillai vs. Pattabiraman AIR 1985 SC 582. The court has observed as under:
45 ….. It is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision.
In this case after referring to various judgments and commentary of renowned authors on principles of interpretation, the court has summarised the scope of explanation in the following words:
Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is –
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.
26. So viewing the Explanation, in my opinion it clearly provides that movement would start when goods are delivered to the carrier and would come to an end when delivery is taken from the carrier. In my opinion since Explanation 1 to section 3 do not provide for taking delivery from the carrier within any time limit from the commencement of inter-State movement of goods, no such restrictions can be read in to the provision.
Delivery means actual delivery only
27. In my opinion the reference to “delivery” in the Explanation must mean actual delivery of goods and not the constructive delivery of goods as interpreted by the court. When the inter-State movement can start only after physical delivery is given to the carrier or the bailee, the transmission of movement from one State to another can also be by taking physical delivery only. In my opinion taking delivery from carrier or bailee for termination of the movement can only be by way of physical delivery only. Thus the decision of Delhi High Court in the case of Arjan Das (supra) and consequently the decision of Hon’ble Kerala High Court in the case of P. U. Usha (supra) which has followed the decision of Delhi High Court in my opinion with respect does not lay down the correct law.
Decision in A. & G Projects supports the opinion
28. In the case of A & G Projects & Technologies Ltd. (supra) while explaining the scope of section 3(b) of the Central Act, Hon’ble Supreme Court has observed as under on pages 247-248:
“The dividing line between sales or purchases under section 3(a) and those falling under Section 3(b) is that in the former case the movement is under the contract whereas in the latter case the contract comes into existence only after the commencement and before termination of the inter-State movement of the goods. Therefore, it follows that an inter-State sale can either be governed under section 3(a) – if it occasions movement of goods from one State to another – or under Section 3(b) – if it is effected by transfer of documents of title after such movement has started and before the goods are actually delivered. In other words, a sale which takes place under section 3(a) shall stand excluded from the purview of section 3(b) and vice versa. By section 3, it was intended to define the class of sales which shall be deemed to be sales in the course of inter-State trade or commerce. Under the CST Act 1956, tax is leviable on the sale of goods and not because of the movement of the goods. The movement of the goods is only material for the purpose of deciding whether the sale took place in the course of inter-State trade or commerce or whether such sale was purely an intra-State transaction.” [Emphasis supplied by me].
Only actual delivery terminates inter-State movement of goods
29. Thus actual delivery of goods will only terminate the inter-State movement of goods and it cannot be said that on landing of the goods in the recipient State the inter-State movement ends even though the goods continue to be in the possession and control of the bailee or the transporter.
Holding of goods by vendor to be treated as bailee and thus inter-State movement deemed to have commenced
30. It is true that while analyzing the provisions of section 3(b) of the Central Act it has been stated in the above observations of the Supreme Court that section 3(b) would cover transactions which are effected after commencement of movement and before termination by actual delivery. In my opinion once the goods have been agreed to be purchased by an outstation customer and the vendor acts on instruction of the customer to dispatch the goods to the buyer of the customer, the action of the vendor of such dispatch has to be treated as by a bailee and in this sense it should be interpreted that the subsequent sale was during the course of inter-State movement of goods as described in Explanation 1 to section 3 of the Central Act. The termination of inter-State movement on taking delivery from carrier or other bailee would be only when such delivery is taken by the buyer. Thus possession of goods by vendor as bailee and the handing over of goods to the transporter for onward movement till actual delivery to the buyer will all have to be construed as during the course of inter-State movement of goods as provided in the Explanation I to section 3 of the Central Act. For such an interpretation reliance can be had on the decision of Hon’ble Gujarat High Court in the case of State of Gujarat vs. Haridas MuIji Thakker (supra).
Two simultaneous inter-State sales possible
31. It is also required to be noted that the court has further clarified in the above referred observations that tax under the Central Act is levied on sale of goods and not because of movement of goods. Therefore if transactions involve movement of goods from one State to another, wherein the first and the subsequent sales coincide with each other then they have to be treated as two sales synchronizing with each other wherein the first sale would be the one falling under section 3(a) of the Central Act and the subsequent sale under section 3(b) of the Central Act.
Ratio of A & G Project’s case limited to jurisdiction for levy of tax
32. In my opinion it cannot be interpreted based on the above referred observations of Hon’ble Supreme Court that only after handing over the control or possession of goods to the bailee or carrier other than the vendor that the subsequent sales can be made. In one sense, as explained hereinbefore the vendor can also be treated as a bailee. However as a matter of fact, as has been discussed hereinafter, the ratio of A&G Projects and Technologies Ltd (supra) case is very limited for deciding as to which State has the jurisdiction to impose tax in respect of inter-State sales and it extends no further.
Facts of A & G Projects & Technologies case
33. In the case of A & G Projects and Technologies Ltd. (supra) the appellant which was a contractor in the State of Karnataka was awarded three independent contracts by Karnataka Power Transmission Corporation Ltd. (hereinafter referred to as “the customer”). One of the contracts was relating to supply of capacitor banks. The appellant in turn purchased the goods from Bay West Power Energy Pvt. Ltd. (hereinafter referred to as “the seller”) which was situated outside the State of Karnataka. The seller in turn had purchased capacitor banks from a manufacturer, who was also situated outside the State of Karnataka.
34. The seller purchased the goods from the manufacturer and sold the same to the appellant by transfer of documents of title to the goods when the good were in transit, In turn the appellant sold the said goods to the customer by transfer of title to the goods and thus ultimately from the manufacturer the goods reached directly to the customer.
In assessment all sales treated as inter-State sales u/s 3(a)
35. The appellant claimed that the sales by the seller to it as well as by it to the customer were inter-State sales by transfer of documents of title to the goods during their movement from one State to another as provided in section 3(b) of the Central Act and hence such sales were not liable to tax in view of section 6(2) of the Central Act. The learned assessing authority held that all the three sales viz. (i) sales by the manufacturer to the seller; (ii) sales by the seller to the appellant; and (iii) sales by the appellant to the customer were inter-State sales falling under section 3(a) of the Central Act and hence the appellant was not entitled to exemption from tax on the basis of section 6(2) of the Central Act. By relying upon the proviso to section 9(1) of the Central Act it was held that the State of Karnataka was competent to impose tax on such sales.
In First Appeal subsequent sale treated as before inter-State movement
36. The learned first Appellate Authority held that the appellant was not entitled to the benefit of exemption from tax under section 6(2) of the Central Act on a different ground that the subsequent sale was effected before the inter-State movement of goods and therefore since there was no first inter-State sale as provided in section 3(a) of the Central Act. The appellant was not entitled to the benefit of exemption under section 6(2) of the Central Act.
Tribunal holding movement from outside the State and hence no tax
37. The first appellate order was challenged before Tribunal which held that the appellant was not liable to tax on the ground that the appellant and the customer both were situated in the State of Karnataka and therefore there was no inter-State movement of goods from within the State of Karnataka but the movement of goods was from outside the State to the State of Karnataka and hence such transactions cannot be taxed in the State of Karnataka.
High Court agreeing with lower authorities
38. Aggrieved by the decision of the Tribunal the State filed reference before Karnataka High Court. Hon’ble High Court agreed with the reasoning of the assessing authority and it held that the subsequent sales were made before the movement of goods from outside the State and therefore the sales by the appellant to the customer was an inter-State sale falling under section 3(a) of the Central Act for which the State of Karnataka had the right to impose tax in view of the proviso to section 9(1) of the Central Act.
Dispute for determination before Hon’ble Supreme Court
39. The decision of Hon’ble Karnataka High Court was challenged before Hon’ble Supreme Court by filing civil appeal. The dispute for determination before Hon’ble Supreme Court has been stated in para 9 on page 244 to the following effect:
“9. We have to proceed in this case on the above basis that all the three contracts came under section 3(a) of the CST Act 1956, as held by the AO. What is urged on behalf of the appellant is that if all the three contracts stood covered as inter-State sales under section 3(a) then in that event proviso to section 9(1) would not stand attracted. It is this argument which arises for determination in this civil appeal and for that purpose we are required to quote the relevant provisions of the CST Act 1956 which have to be analysed in the context of the controversy.”
Each transaction treated as inter-State sale u/s 3(a) by authorities
40. It is important to notice that the lower authorities had concluded that each of the transactions were inter-State sales falling under section 3(a) of the Central Act. This is again clear from the observations noted in para 12 on page 249 to the following effect:
“In the present case, according to the Assessing Officer, the second and the third sales were not subsequent sales. According to the Assessing Officer, all the three sales are inter-State sales falling under section 3(a) and consequently section 6(2) (which deals with the exemption) never stood attracted and therefore, the appellant was not entitled to exemption.”
Supreme Court proceeded with the conclusion of the lower authorities
41. Thus the authorities have concluded that all the inter-State sales were falling under section 3(a) of the Central Act. Hon’ble Supreme Court proceeded with the acceptance of such conclusion with respect to the nature of disputed transaction. In these facts of the case the question decided by the court is as stated in para 13 on page 249 to the following effect:
“The question before us is: if the sale stood covered under section 3(a) and if they were not entitled to exemption under section 6(2), whether the appellant could have been taxed by the Department by invoking proviso to section 9(1) of the CST Act, 1956?”
Conclusion of Supreme Court
42. For replying the above question the court analysed the provisions of the Central Act and concluded as under as can be seen from the observations in para 14 on page 249:
“Applying the above analysis to the facts of the case, we are of the view that the proviso to section 9(1) of the CST Act, 1956 is not applicable to the facts of the present case as the Assessing Officer has categorically held that all the three sales fell under section 3(a) of the CST Act, 1956. Once the said sales fall under section 3(a) then under section 9(1) the tax has got to be collected by the State of Tamil Nadu from which the movement of the goods commenced. The case of appellant regarding subsequent sales effected during the movement of the goods stood specifically rejected both by the Assessing Officer and the FAA and, therefore the question of taxing such sales under the proviso to section 9(1) of the CST Act, 1956 did not arise.”
43. It can thus be noticed that in this case the Supreme Court has not decided as to whether the subsequent sales were inter-State sales falling under section 3(a) or 3(b) of the Central Act. It was accepted, based on the conclusion of the ‘lower authorities that all the disputed transactions were inter-State sales falling under section 3(a) of the Central Act. The court therefore concluded that in respect of such transactions, the State from where the movement of goods commenced its journey to the other State would be the State which had the right to impose tax under the Central Act. Since in this case the movement of goods had started from outside the State of Karnataka, the court ultimately concluded that the State of Karnataka had no jurisdiction to impose tax on such transactions.
Whether there was inter-State sale or not cannot be decided based on decision in A & G Projects case
44. Thus since in the case of A & G Projects & Technologies Ltd. (supra) Hon’ble Supreme Court has not decided the nature of transactions as falling either under section 3(a) or 3(b) of the Central Act, on its basis there cannot be a determination as to whether a particular transaction falls under section 3(a) or 3(b) of the Central Act. In this connection it is profitable to refer to the of quoted following observations of Hon’ble Supreme Court as were made in the case of Ambica Quarry Works vs. State of Gujarat AIR 1987 SC 1073:
“The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it. (See Lord Halsbury in Quinn vs. Leathern, 1901 AC 495).”
A & G Projects & Technologies only decides that the State from which the inter-State movement had commenced can impose Central Sales Tax
45. I am clearly of the opinion that the ratio of the decision of Hon’ble Supreme Court in the case of A & G Projects & Technologies Ltd. (supra) is limited to the effect that it is only the State from where the inter-State movement of goods commenced which has the right to impose tax under the Central Act. If the transactions are held as inter-State sales falling under section 3(a) of the Central Act then it is only the State from which the inter-State movement of goods had commenced which has the right to impose tax under the Central Act.
Conclusion
Thus in my opinion if the goods are contracted to be purchased from out of State vendor and on instructions of the customer the goods are moved from one State to the other and if during the course of such inter-State movement of goods documents of title to the goods are transferred by the customer in favour of the buyer so as to ultimately deliver the goods directly to the buyer, such subsequent sale shall qualify as inter-State sales within the meaning of section 3(b) of the Central Act notwithstanding the decision of Hon’ble Supreme Court in the case of A & G Projects and Technologies Ltd. (supra).
[Source : Paper presented in two days National Tax Conference held at Nagpur on 2-3 October, 2009]
Sir
I want to know that if at the time of making invice name of my customer as well as name of the ulimate consignee is mentioned in the invoice ( as the consginee will be taking credit of cenvat as the mterial is excisable ) does it will affect my right to get E1 from department, in the light of judgement of Apex Court.
M.Pandey