Orissa High Court
State Of Orissa vs Vijayalaxmi Timber Depot on 18 August, 2000
Equivalent citations: 2000(II)OLR499, [2002]126STC169(ORISSA)
Author: P.K. Misra
Bench: P.K. Misra
JUDGMENT R.K. Patra, J.
1. This is an application under Section 24(2)(b) of the Orissa Sales Tax Act, 1947 at the instance of the State of Orissa praying for a direction to the Orissa Sales Tax Tribunal, Cuttack (in brief "the Tribunal") to state the case and make reference on the following questions of law :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified not to treat the transactions of sales of timber to outside parties in pursuance of implicit and tacit contract of sale as inter-State sale as provided under Section 3(a) of the Central Sales Tax Act on the grounds that the goods have been appropriated in the State of Orissa ?
(2) Whether the Tribunal is justified in holding that there were no contracts of sale of timber with outside parties for the relevant year pursuant to which the goods in question have moved from Orissa to Andhra Pradesh ?
2. The opposite party carries on business in timber and logs at Aska Road, Berhampur, in the District of Ganjam. The Sales Tax Officer, Ganjam-I Circle, Berhampur, by order dated December 17, 1987 made an order of assessment under Rule 9 of the Central Sales Tax (Orissa) Rules, 1957 for the year 1986-87 raising a demand of Rs. 15,574. The Sales Tax Officer while making the assessment treated the transaction of sales in respect of round logs worth Rs. 1,55,740.34 to persons having addresses outside the State of Orissa during the relevant period as inter-State sales although the opposite party claimed these sales as intra-State sales on the basis that the sales were effected in its Berhampur godown and tax under the Orissa Sales Tax Act, 1947 (hereinafter referred to as "the Act") was paid on the same. The ground on which such assessment was made is that the addresses of the purchasers being outside the State, there was an implied contract by which the opposite party as seller had moved the goods from the State of Orissa to outside the State. It knew that such purchasers from outside the State in pursuance of the sales would obtain necessary permits from the Forest Department for movement of the logs. As such, he had clear knowledge about the destination of the goods which was outside the State of Orissa. On such reasoning the assessing officer concluded that the aforesaid sales took place in course of inter-State trade. For this conclusion, the assessing officer has taken note of the following two aspects :
(i) There was sale between the opposite party in Orissa and the purchasers of outside the State who have taken the goods from Orissa.
(ii) The opposite party being confronted took the plea that goods were delivered in Orissa and after the sale was completed, he was not at all responsible for the movement.
3. Being aggrieved by the aforesaid order, the opposite party filed an appeal before the Assistant Commissioner of Sales Tax, Ganjam Range, Berhampur, who in his order has found as follows :
(i) The opposite party had sold round logs to parties outside the State of Orissa and issued bills in their names. But those sales were effected at Berhampur itself, i.e., within the State of Orissa.
(ii) There was nothing on record indicating existence of agreement, either express or implied, basing on which the goods moved from Orissa to outside the State. When persons from outside the State came to the State of Orissa, purchased the goods and sent the same on their own responsibility by arranging transport carriers, they were done in course of inter-State trade or commerce.
(iii) The opposite party furnished the xerox copy of the sale bill by way of illustration issued by its firm at Berhampur showing collection of Orissa sales tax, copy of forest permit issued by the Forest Department in favour of Andhra dealer, copy of assessment order showing inclusion of the concerned sale in its turnover and payment of Orissa sales tax and copies of Orissa and Andhra way bills showing the Andhra dealer as both consignee and consignor.
On the basis of the above findings, the Assistant Commissioner held that there was no movement of the goods as a result of sale by the opposite party to outside the State. As such, these transactions could not be held to be sales to have taken place in course of inter-State trade attracting the provisions of the Central Sales Tax Act, 1956. Accordingly, he allowed the appeal filed by the opposite party and annulled the assessment of tax.
4. Against the order of the Assistant Commissioner, the State of Orissa filed second appeal before the Tribunal which held that in absence of any material available on record and in absence of any agreement, either express or implied, basing on which the goods moved from one State to another, though the purchasers were undoubtedly outsiders, the transactions were not inter-State sales but intra-State sales. Accordingly, it dismissed the second appeal and confirmed the order of the Assistant Commissioner. Thereafter, the State of Orissa filed an application under Section 24(1) of the Act before the Tribunal praying to refer the questions (which we have already quoted at the beginning of our order) to this Court for determination, which was rejected. Hence the present application.
5. Prom the orders of the Assistant Commissioner and the Tribunal, the following facts are evident :
(1) There were completed sales by the opposite party to purchasers having addresses outside the State of Orissa.
(2) On such sales, necessary tax under the Orissa Sales Tax Act, 1947 had been paid.
(3) After the sales were effected, the seller had no role to play in the matter of movement of the goods and the purchasers transported the same by arranging transport carriers.
(4) Forest permits were obtained by the purchasers in their own names for movement of the goods from the place of purchase in Orissa.
(5) There was no agreement, either express or implied, between the seller and the purchasers for movement of the goods to outside the State of Orissa.
(6) The purchaser was free to sell the goods locally without any restriction or might move the goods to any place of his own choice.
6. Section 3 of the Central Sales Tax Act, 1956 speaks of sale or purchase of goods said to take place in course of inter-State trade or commerce. We may quote the said provision :
"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."
7. The present is a case where there is no transfer of documents of title, as provided by Section 3(b). Therefore, it is to be examined whether the sales effected by the opposite party shall be deemed to take place in course of inter-State trade and commerce merely because such sales were effected to purchasers outside the State.
8. What is an inter-State sale ?
While considering the Explanation (which now stands deleted) to Article 286 of the Constitution of India, Venkatarama Ayyar, J. of the Supreme Court in his separate opinion in Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 at page 583 stated as follows :
"A sale could be said to be in the course of inter-State trade only if two conditions concur : (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade. Thus, if X, a merchant in State A goes to State B, purchases goods there and transports them into A, there is undoubtedly a movement of goods in inter-State commerce. But that is not under any contract of sale. X might be entitled under Article 401 to certain rights in the matter of transportation. But Article 286(2) has no application, as there is no sale in the course of inter-State trade or commerce. In the same illustration, if X after transporting the goods into State A sells them, then also there is no sale in the course of inter-State trade. It is true that there is a sale, and there is also a movement of goods from one State to another. But that movement has not been under the sale, there having been no sale at the time of transportation."
The aforesaid principle has been followed by the Supreme Court in Commissioner of Sales Tax, U.P., Lucknow v. Suresh Chand Jain [1988] 70 STC 45. A question similar to the case at hand came up for consideration before the Calcutta High Court in Jeewanlal (1929) Ltd. v. Commercial Tax Officer, Lyons Range Charge [1967] 20 STC 345. In that case the assessee, a limited company with its registered office at Calcutta and manufacturing aluminium utensils, entered into a contract of sale with the Government of India under which goods were delivered in West Bengal, the price was paid in West Bengal and the property in the goods also passed on to the Government of India in West Bengal. The goods were, however, transported from West Bengal to a place outside that State by or on behalf of the Government of India with which the assessee had nothing to do. In these circumstances the Calcutta High Court held that the transactions were not in the course of inter-State trade or commerce because a sale or purchase "occasions the movement of goods" within the meaning of Section 3(a) of the Central Sales Tax Act, 1956, either when the contract for such sale or purchase itself contemplates or necessarily involves the movement. In other words, the movement must occur under the contract. When the movement is not under the contract but due to reasons extraneous to the obligations under the contract, it cannot be said to be a movement in the course of inter-State trade or commerce.
In Bhoorey Khan Glass Bangle Factory v. Commissioner, Sales Tax, U.P., Lucknow [1974] 34 STC 332, delivery of goods took place within the State of U.P. and the purchaser subsequently transported those goods outside the State. In the premises, the Allahabad High Court observed :
".....the real test for determining when a sale occasions the movement of goods contemplated by Clause (a) of Section 3 of the Central Sales Tax Act, 1956, is that the movement of goods should be as a result of an integral part of the contract of sale that the goods should cross the border from one State to another ; it is not enough that the buyer takes delivery of the goods from the seller for the purposes of despatching them to another State, nor is it enough that the seller pursuant to the instructions of the buyer despatches the goods across the border to another State. The contract of sale must itself provide as an integral part of it that the goods shall be transported from one State to another."
The scope of inter-State sale again came up for consideration before the Supreme Court in Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207. The Supreme Court after referring to the opinion of Venkatarama Ayyar, J., in Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 held as follows :
"That the following conditions must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce :
(i) that there is an agreement to sell which contains a stipulation express or implied regarding the movement of the goods from one State to another ;
(ii) that in pursuance of the said contract the goods in fact moved from 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 Central Sales Tax Act it is the State from which the goods move which will be competent to levy the tax under the provisions of the Central Sales Tax Act......"
Similar question came up for consideration before the Rajasthan High Court in Commercial Taxes Officer, Special Circle-II, Jaipur v. Poddar Spinning Mills [1987] 67 STC 359. J.S. Verma, C.J. (as he then was) held as follows :
"The true test is to see whether the inter-State movement of the goods was the result of a covenant, express or implied, in the contract or even an incident of the contract. Unless the inter-State movement is shown to be connected with the contract in such a manner, the mere fact that the buyer was from outside the State and he moved the goods to a place outside the State after completion of the sale transaction without any involvement of the seller, cannot make it an inter-State sale."
Relying on the ratio in Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 (SC), the Karnataka High Court in Ranjeet Trading Co. v. Commercial Tax Officer, Challakere Circle, Chitradurga District [1994] 94 STC 134 held that for a sale to be an inter-State sale, there must be evidence that the transportation was occasioned by the contract and as a result the goods moved because of the bargain between the parties, from one State to another and the onus lies on the Revenue to disprove the contention of the dealer that it was not an inter-State sale.
9. Let us now turn to the facts of the present case. The opposite party after selling the goods had in fact nothing to do with their movement from Berhampur to outside the State. The purchasers transported the goods on their own from Berhampur to the respective destinations. Therefore, merely because the purchasers happened to be from outside the State of Orissa, it cannot be said that the transactions were inter-State sales when admittedly the other conditions indicated in Section 3 of the Central Sales Tax Act, 1956 are not satisfied.
10. For the foregoing reasons, we have no hesitation to hold that the conclusions arrived at by the Assistant Commissioner in the first appeal and the Tribunal in the second appeal are in accordance with law. The points of law posed in this application for directing the Tribunal to make a reference have been set at rest by different High Courts as well as by the Supreme Court, referred to above. As such, the questions have become academic.
11. In the result, the reference application is rejected.
Ch. P.K. Misra, J.
12. I agree.