Orissa High Court
Associates Cement Companies Ltd. vs State Of Orissa on 9 January, 2008
Equivalent citations: 105(2008)CLT778, (2008)13VST90(ORISSA)
Author: Chief Justice
Bench: Chief Justice
JUDGMENT B.N. Mahapatra, J.
1. In this tax revision case the court has formulated the following question of law for adjudication:
Whether, in facts and in the circumstances of the case, the stock of cement said to have been moved from the petitioner's factory to West Bengal can be held to be inter-State sales?
2. The facts in nutshell, relevant to the context are as follows:
The petitioner in the present case is Associated Cement Companies Ltd., previously known as M/s. IDCOL Cement Ltd. (hereinafter referred to as, "the company"). It is engaged in the business of manufacturing and sale of cement. The company has its factory in the district of Bargarh in the State of Orissa. The petitioner has a branch office at Kolkata in the State of West Bengal. Besides, the branch office, the petitioner also maintains nine godowns/dumps in West Bengal. The petitioner is registered under the Orissa Sales Tax Act, 1947 (hereinafter referred to as, "the OST Act") and Central Sales Tax Act, 1956 (hereinafter referred to as, "the CST Act") in the State of Orissa. In West Bengal, the company is also registered both under the local Sales Tax Act and CST Act. For the purpose of its business, the company appoints stockists in the State of West Bengal. For appointment of stockists, the company has circulated printed form and the persons intending to be appointed as stockists are required to fill up and submit the said printed form to the branch office of the petitioner in West Bengal. In the said format/application form the persons intending to become stockists are required to give various information including their financial position, i.e., how much they can invest and how much cement they require in a month.
3. The company after manufacturing cement effects sale of cement inside the State of Orissa. In regular course of business and in a continuous process the company also transfers cement in railway racks to its branch at Kolkata under self-railway receipts. The branch office of the petitioner at Kolkata endorses the railway receipts in favour of the clearing and forwarding agents appointed by the company. The clearing and forwarding agents after taking delivery of the cement carry those to different dumps/ godowns taken on rent by the branch office of the company for storing.
4. The stockists appointed by the company in the State of West Bengal as well as other dealers/persons purchase cement from the dumps of branch office of the company at Kolkata as per their need and requirement.
5. During the impugned year, i.e., 1993-94 the company transferred 74,829.2 MT of cement valued at Rs. 14,21,40,127 to its branch office at Kolkata. In the annual return filed under the provision contained in the Central Sales Tax Act as well as the Central Sales Tax (Orissa) Rules, 1957, [hereinafter referred to as, "the CST (Orissa) Rules"] the company disclosed the transfer of said cement from its factory at Bargarh to its branch office at Kolkata branch transfer as envisaged under Section 6A of the CST Act. In support of its claim of branch transfer, the company submitted declaration in Form "F" as prescribed under Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957 [hereinafter referred to as "the CST (R & T) Rules"]. While passing the impugned order under Rule 12(4) of the CST (Orissa) Rules for the impugned year, the assessing officer had disallowed the claim of branch transfer as envisaged under Section 6A of the CST Act and came to a conclusion that the cement dispatched from the factory at Bargarh to the branch office at Kolkata amounted to inter-State sale and not branch transfer as claimed by the company. To come to this conclusion, the learned assessing officer relied on the report of the Assistant Commissioner of Commercial Taxes (Intelligence), Sambalpur (hereinafter referred to as, "the ACCT"). According to the assessing officer there was a privity of contract for sale of cement by the company to the stockists in West Bengal in view of information furnished in Clauses 21 and 22 of the application form and that the entire stock of cement was sold by the branch office at Kolkata only to its stockists. The assessing officer further held that 1,939 MT of cement dispatched by the head office on March 17, 1994 and March 18, 1994 and received in West Bengal on March 31, 1994 were sold on the same day to one distributor.
6. Being aggrieved by the assessment order passed by the assessing officer, the petitioner filed appeal before the Assistant Commissioner of Sales Tax, Sambalpur, who relying upon Clauses 21 and 22 of the application form circulated by company for appointment of stockists, came to a conclusion that privity of contract for sale of cement existed between the company and the stockists and accordingly dismissed the first appeal.
7. Against the first appellate order, the petitioner preferred second appeal before the Orissa Sales Tax Tribunal, Cuttack (hereinafter referred to as, "the Tribunal") in Section A. No. 124 (Q/95-96. The appeal was heard by a Full Bench of the Orissa Sales Tax Tribunal and by order dated February 20, 1997 the learned Tribunal disposed of the said appeal with the following observation:
Considering these factors along with others, it is not disputed that the stockists were appointed. The learned Advocate for the dealer contended before us that stock of cement never moved to West Bengal/Calcutta as a result of information furnished by the stockists. But, we are unable to agree with such contention of the learned Advocate when admittedly it is on the basis of appointment of stockists, the goods so dispatched from Orissa to West Bengal were ultimately delivered to them (ultimate purchasers), the purchasers were pre-identified much prior to dispatch of goods from Orissa and goods ultimately delivered to the stockists were moved from Orissa in pursuance to pre-existing contract of sale entered with such stockists. Therefore, I am of the firm view that the forums below were justified in holding such transactions to be in course of inter-State trade and commerce subject to levy of tax under the CST Act. It is however seen that all the dispatches of goods had not been sold to only stockists but also to some other unidentified purchasers with whom there was no privity of contract of sale, to which the learned Additional Section R. has also no denial. Therefore, we feel it proper to remit back the case to the learned assessing officer to work out the total dispatches of goods which were ultimately sold to the stockists and re-determining the turnover recompute the tax payable by the dealer accordingly.
8. The present tax revision case arises out of this order of the learned Tribunal.
9. The learned Counsel appearing on behalf of the petitioner referring to Sections 3(a) and 6A of the CST Act and relying on the judgment of the honourable Supreme Court in the case of Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes, Jamshedpur reported in [1970] 26 STC 354, Kelvinator of India Ltd. v. State ofHaryana and Commissioner of Sales Tax, U.P., Lucknow v. Suresh Chand Jain reported in [1988] 70 STC 45 (SC), strenuously argued that no material has been brought on record by the Revenue to establish the link between lifting of cement from Orissa to Kolkata and sale of those goods to the stockists in West Bengal. Simply relying on the information furnished in Clauses Nos. 21 and 22 by the stockists at the time of their appointment by company, the forums below held that pursuant to said information cements were moved from Orissa and sold to stockists without establishing any inseparable link between dispatch of cement from Orissa and sale of cement to the stockists in West Bengal. The learned Counsel appearing on behalf of the Revenue has relied on a decision of the Supreme Court in the case of Sahney Steel and Press Works Ltd. v. Commercial Tax Officer reported in [1985] 60 STC 301, in support of his contention that the transfer/dispatch of cement of the company from its factory at Bargarh to its branch office at Kolkata is an inter-State sale. The learned Counsel for the Revenue also cited a judgment of the honourable Supreme Court in the case of Balabhagas Hulaschand v. State of Orissa reported in [1976] 37 STC 207. Assailing the above contention of the Revenue, learned Counsel for the petitioner argued that the facts of the case in Sahney Steel and Press Works Ltd. [1985] 60 STC 301 are completely different from the case of the petitioner and that the principle decided by the honourable Supreme Court in the case of Balabhagas Hulaschand [1976] 37 STC 207 supports the case of the petitioner. Concluding his argument, learned Counsel appearing for the petitioner submitted that the question formulated by the High Court may be answered in favour of the petitioner and against the Revenue by holding that cement transferred from Bargarh to Kolkata was on branch transfer basis and not an inter-State sale.
10. The only question to be determined in this case is whether the dispatch of stock of cement by the petitioner from its factory situated at Bargarh in the State of Orissa to its branch in the State of West Bengal is a sale in course of inter-State trade as contemplated in Section 3(a) of the CST Act or the said dispatch of cement was made otherwise than by way of sale as provided under Section 6A of the CST Act. In the former case tax is leviable under the CST Act as provided under Section 6(1) of the CST Act and in the latter case no tax is leviable under the CST Act. For proper appreciation of the issue involved in this case, it is necessary to know what Sections 3(a) and 6A of the Central Sales Tax Act contemplate.
11. Section 3 of the Central Sales Tax Act reads as follows:
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 purpose 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.
12. Section 3 defines when sale or purchase of goods takes place in course of inter-State trade by applying two tests. One of which is that, a sale or purchase takes place in course of inter-State trade, commerce or intercourse if it occasions movement of goods from one State to another State and the other test is that a sale or purchase takes place by transfer of document or title during the movement of goods from one State to another [See Hakim Syed Abid Hussain and Sons v. Government of Madras ]. Thus this section lays down the principle for determining as to when sale or purchase shall be deemed to take place in course of inter-State trade or commerce. Under Section 3(a) the following two conditions must be fulfilled:
(a) There must be a sale of goods. The word 'sale' has been defined under Section 2(g) of the CST Act.
The essentials of sale are:
(i) parties must be competent to contract
(ii) mutual assent,
(iii) transfer of property in the goods from the seller to the buyer, and
(iv) a price money paid or promised.
If these conditions are fulfilled, then a completed sale takes place.
(b) Such completed sale should occasion the movement of goods from one State to another.
Section 6A of the Central Sales Tax Act which is also relevant reads as follows:
6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.--(1) Where any dealer claims that he is not liable to pay tax under the Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of dispatch of such goods.
(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under Sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall be deemed for the purposes of this Act to have been occasioned otherwise than as a result of sale.
Explanation.--In this section, 'assessing authority', in relation to a dealer, means the authority for the time being competent to assess the tax payable by the dealer under this Act.
14. This section provides that where any dealer claims that he is not liable to pay tax under the CST Act in respect of any goods on the ground that movement of such goods from one State to another was occasioned by reason of transfer of such goods to another place of its business or agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer. For this purpose, the dealer may furnish form "F" as prescribed under Rule 12 of the CST (R & T) Rules. Section 6A(2) provides that if the assessing officer is satisfied after making such enquiry as he may deem necessary that the particulars contained in form "F" are true, he may make an order to that effect.
15. Petitioner's case is that he has dispatched 74,829.2 MT of cement valued at Rs. 14,21,40,127 during the impugned year from its factory at Bargarh to its branch office in the State of West Bengal otherwise than by way of sale. The movement of goods from the State of Orissa to the State of West Bengal was not occasioned under any contract of sale. There was no inseparable link between the dispatch of goods from Orissa to branch office in West Bengal and again from branch office to stockists and any contract of sale. According to the learned Counsel for the petitioner, there was no separate agreement between the stockists and the company under which 74,829.2 MT of cement valued at Rs. 14,21,40,127 were dispatched from its factory to the stockist. He further submitted that in regular course and in the continuous process, the petitioner transfers/dispatches cement in railway racks to its branch at Kolkata under self-railway receipts. The branch offices of the petitioner at Kolkata endorse the railway receipts in favour of clearing and forwarding agents appointed by the petitioner. The clearing and forwarding agents after taking delivery of the cement carry the same to different dumps taken under rent by the branch office of the petitioner where the cements were stored. Thereafter only the stockists appointed by the petitioner for the State of West Bengal as well as other dealers/persons purchased cement from the godown/dump of the branch office of the petitioner at Kolkata as per their need/requirement.
16. The learned Counsel for the Revenue vehemently opposed the said submission of the learned Counsel for the petitioner that there was no nexus between the dispatch of cement in question from the factory in the State of Orissa and purchase of cement by the stockists in the State of West Bengal. Referring to Clauses 21 and 22 of the application format circulated by the company for appointment of stockists he argued that pursuant to these two clauses, cement in question moved from the factory at Bargarh to the stockists appointed in the State of West Bengal, which amounts to inter-State sale and not branch transfer as claimed by the petitioner. It is further submitted that there is privity of contract regarding supply of cement to specific customer in view of the said Clauses 21 and 22 of the application format.
17. In view of the above, it now becomes necessary to examine Clauses 21 and 22 of the application format circulated by the company for appointment of stockists. Pages 50 to 55 of the paper book contain the sample copy of application format for cement stockistship submitted by one of the stockists, namely, Chowdhury Trading Company. Clauses 21 and 22 appearing at page 52-55 of the paper book runs as follows:
21 If appointed as a stockist please state what is the maximum As required amount you can invest towards this stockistship every month?
22. If appointed as a stockist, what is the maximum guaran- 500 MT."
teed off-take you can ensure every month (if so desired, you can indicate the requirement monthwise.)
18. A plain reading of the above two clauses shows that the information furnished against these two clauses by the applicants for stockistship is general in nature. The sample copy of the format of stockistship as given at pages 50 to 55 of the paper book relates to one applicant, namely, Chowdhury Trading Company, 27A-Banmal Sarkar who against Clause Nos. 21 and 22 has mentioned "as required" and "500 MT", respectively. But it is not the case of the Revenue that the petitioner has dispatched 500 MT cement each month to Chowdhury Trading Company on the basis of information furnished in Clause 22 of applications for stockistship. No inseparable link has been established by the Revenue between the dispatch of cement by the petitioner from its factory at Bargarh to its branch office at Kolkata and again sale of cement from the branch office to the stockist, Chowdhury Trading Company. The Revenue also failed to establish that 74,829.2 MT of cement valued at Rs. 14,21,40,127 were dispatched/transferred from the factory at Bargarh in the State of Orissa to the petitioner's branch office at Kolkata pursuant to any purchase order placed by the stockist with the head office or branch office of the petitioner and in compliance with such purchase order, above quantity of cement moved from Orissa. The contention of the petitioner before the Tribunal that stock of cement never moved to West Bengal as a result of information furnished by the stockist was not accepted by the Tribunal on the ground that the goods were dispatched from the State of Orissa to West Bengal and ultimately delivered to the pre-identified stockist. With the above observation, the Tribunal came to the conclusion that the forums below were justified in holding such transaction to be in course of inter-State trade and commerce subject to levy of tax under the CST Act. 9 We are unable to accept this finding of the learned Tribunal since the Revenue has miserably failed to establish inseparable link between the dispatch of cement in question from its factory at Bargarh in the State of Orissa to its branch in West Bengal and thereafter sale of cement by the branch office to the stockist. 0 The further case of the petitioner is that the claim of branch transfer of 74,829.2 MT of cement valued at Rs. 14,21,40,127 from its factory at Bargarh in the State of Orissa to its branch office in West Bengal was duly covered by form "F" declaration as prescribed under Rule 12(5) of the CST (R & T) Rules and the assessing officer without examining each and every transaction has rejected the petitioner's claim of branch transfer which is grossly arbitrary and erroneous. In support of his claim learned Counsel relied on the judgment of the honourable Supreme Court in Tata Engineering and Locomotive Co. Ltd. [1970] 26 STC 354. In said case, the Tata Engineering and Locomotive Co. Ltd. used to dispatch its motor vehicles to different stockyards of the States in a routine manner and there was no such specific dispatch being made in pursuant to any order. The Sales Tax Officer, Jamshedpur, treated this transport to be an inter-State sale and levied tax. The honourable Supreme Court held that the taxing authorities having not examined each transaction, the conclusion arrived at is wholly erroneous because of non-examination of each of the transactions. Relevant portion from the aforesaid judgment which finds place at page 381 of 26 STC is extracted hereunder:
... It has been suggested that all the transactions were of similar nature and the appellant's representative had himself submitted that a specimen transaction alone need be examined. In our judgment this was a wholly wrong procedure to follow and the Assistant Commissioner, on whom the duty lay of assessing the tax in accordance with law, was bound to examine each individual transaction and then decide whether it constituted an inter-State sale exigible to tax under the provisions of the Act.
21. In the case at hand, before rejection of the petitioner's claim of branch transfer of cement from its factory at Bargarh in Orissa to its branch in West Bengal during the impugned year, the forums below have not examined each and every transaction of dispatch of goods from Orissa to West Bengal before holding that the said transaction of dispatch was in the nature of inter-State trade.
22. Reference has been made to the judgment of the honourable Supreme Court in Kelvinator of India Ltd. v. State of Haryana [1973] 32 STC 629. Relevant portion of the said judgment is extracted hereunder (at page 638):
... the movement of goods from one State to another must be under the contract of sale. A movement of goods which takes place independently of a contract of sale would not fall within the ambit of the above clause. Perusal of Section 3(a) further makes it manifest that there must be a contract of sale preceding the movement of the goods from one State to another, and the movement of goods should have been caused by and be the result of that contract of sale....
23. In the aforesaid case, Kelvinator of India Ltd. entered into three separate distributorship agreements with three companies for sale of refrigerators manufactured by it. The refrigerators manufactured by the M/s. Kelvinator of India Ltd., moved from Faridabad to Delhi which were received at Delhi by the registered office of M/s. Kelvinator of India Ltd., and thereafter those were sold to the companies who had entered into the distributorship agreement with M/s. Kelvinator of India Ltd. The honourable Supreme Court held that three agreements between the assessee and the distributors were merely agreements for distribution of refrigerators and were not agreement for sale between the parties and it could not be said that there was any movement of refrigerators from Faridabad to Delhi under contract of sale. The transaction between M/s. Kelvinator of India Ltd., and the distributors does not constitute any sale in course of inter-State trade or commerce and, therefore, there was no liability to pay tax under the CST Act.
24. Reference has also been made to a judgment rendered by the honourable Supreme Court in Commissioner of Sales Tax v. Suresh Chand Jain [1988] 70 STC 45. Relying on the said judgment, learned Counsel for the petitioner further submitted that onus lies on the Revenue to disprove the contention of the dealer which the Revenue has failed to do. In this judgment, it is held that the onus lies on the Revenue to dispute the contention of the dealer that the sale is a local sale and to show that it is an inter-State sale.
25. The learned Counsel for the Revenue cited a judgment rendered by the honourable Supreme Court in Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207. Referring to page 212 he submitted that an agreement to sell by which the property did not actually pass was also an element of sale.
26. However, immediately thereafter the honourable Supreme Court at page 213 observes as follows:
... Of course in that case the court had to decide a different point, namely, whether it was within the competence of a State Legislature to tax not a sale but even an agreement to sell, where an actual sale had not taken place. This Court held that the State Legislature was not competent to make such a levy under any statute passed by it.
27. Further, in the said case, the honourable Supreme Court at page 215 has laid down the law that before a sale could be said to take place, in course of inter-State trade or commerce the following conditions must be satisfied:
(i) There must be an agreement to sell containing stipulation, expressed or implied, regarding movement of goods from one State to another;
(ii) In pursuance of that agreement the goods should have in fact moved from one State to another ; and
(iii) Ultimately, a concluded sale takes place in the State where the goods were sent ;
(iv) That State is different from the State from which goods moved.
28. The principle enumerated by the Supreme Court in the aforesaid decisions supports the case of the petitioner.
29. The learned Counsel for the Revenue also relied on a decision of the Supreme Court in Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301, justifying its stand that the transfer/dispatch of cement by the petitioner from its factory at Bargarh to its branch office at Kolkata is an inter-State sale.
30. The aforesaid judgment is distinguishable on the facts and not applicable to the case of the petitioner. In Sahney Steel and Press Works Ltd. , the company was engaged in manufacturing of both standard and non-standard goods, and the honourable Supreme Court on considering the fact that the purchaser placed orders with specifications has observed at page 307 in the following manner:
It is not clear from this illustration whether the goods were particular and specific goods earmarked for delivery to the buyer when they commenced their movement from State X. Apparently not, because it is pointed out that the movement of the goods was neither in pursuance of the agreement to sell nor was the movement occasioned by the sale. The case is distinguishable from the present one where particular goods were manufactured in Hyderabad in satisfaction of an order placed by the buyer who desired delivery outside the Sate. The goods moved from the registered office at Hyderabad as the result of a covenant in the contract of sale or an incident of that contract that the goods manufactured at Hyderabad according to the specification stipulated by the buyer should be the very goods delivered to him outside the State.
31. In the case at hand, the goods in question are cement which are standard goods. Cement has not been manufactured by the dealer according to any specification stipulated by the buyer in West Bengal and the same were delivered to them as a result of covenant in any contract of sale. This case is of no help to the Revenue.
32. In view of the above, we answer the question in negative, i.e., in favour of the dealer and against the Revenue.
The tax revision is accordingly disposed of. No costs.
A.K. Ganguly, C.J.
I agree.