Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Nivea Time on 14 August, 1997
Author: D.G. Deshpande
Bench: D.G. Deshpande
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 61(1) of the Bombay Sales Tax Act, 1959, at the instance of the revenue, the Maharashtra Sales Tax Tribunal has referred the following questions of law to this Court for opinion :
"(1) Whether, on the facts and in the circumstances of the case and on a true and correct interpretation of section 3(a) of the Central Sales Tax Act, 1956, the Tribunal was justified in law in holding that the transactions covered by cash memo Nos. 9393 dated November 20, 1985, 9396 dated November 28, 1985, 11420 dated January 22, 1986 and 11425 dated January 31, 1986 were the purchases under section 3(a) of the Central Sales Tax Act, 1956 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that movement of goods under dispute, from Bombay to Daman, was as a result of contract of sale, when the goods were sold by Customs Department in auction on "as is where is" basis ?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the penalty under Explanation (1) to clause (c) to sub-section (2) of section 36 of the Bombay Sales Tax Act, 1959 ?"
2. The facts giving rise to this reference, briefly stated, are as follows :
The assessee, M/s. Nivea Time, is a manufacturer and seller of wrist watches and spare parts thereof. It has a factory at Daman where watches are manufactured. Its head office is also situated at Daman. The assessee has a branch at Kalbadevi, Bombay which is registered both under the Bombay Sales Tax Act, 1956 (Bombay Act) and the Central Sales Tax Act, 1956 (Central Act). For the period April 1, 1985 to March 31, 1986, the assessee was assessed under section 33(6) of the Bombay Act by the Sales Tax Officer, Bombay, by his order of assessment dated September 21, 1987. In course of the assessment proceedings, the Sales Tax Officer took note of a communication from the Enforcement Branch of the Sales Tax Department regarding purchases of watch movements by the assessee from the Customs Department in Bombay under four separate bills. The total value of such purchases was Rs. 6,83,000. These purchases were made by the assessee in an auction held by the Customs Collectorate, Bombay, which was not a registered dealer under the Bombay Act. The Sales Tax Officer treated the above purchases as purchases made within the Sate from unregistered dealer and subjected the same to purchase tax under section 13 of the Bombay Act. While doing so, the Sales Tax Officer rejected the claim of the assessee that the purchases of watch movements by the assessee from the Customs Collectorate were not intra-State purchases but inter-State purchases. The case of the assessee before the Sales Tax Officer was that since the watch movements were purchased by it expressly for the purpose of use in its factory at Daman, which was a small-scale industry, moved from Bombay to Daman soon after the auction purchase, and used in the manufacture of watches there, the purchases were inter-State purchases within the meaning of section 3(a) of the Central Act. The Sales Tax Officer did not accept this contention of the assessee and held that the purchases were intra-State purchases and not inter-State. He, therefore, levied purchase tax on the value of the purchases under section 13 of the Act at the rate of 4 per cent and raised a demand of Rs. 26,120 on account of tax. A penalty of Rs. 5,118 was also levied under section 36(2)(c) of the Bombay Act read with Explanation (1) appended thereto.
3. Aggrieved by the above order of the Sales Tax Officer, the assessee appealed to the Assistant Commissioner of Sales Tax (Appeal). Before the Assistant Commissioner, the assessee produced the auction notice issued by the customs authorities wherein it was stated that only actual users of watch movements were entitled to bid. It was contended by the assessee that it was entitled to bid in the auction only because the watch movements were required for actual use in the manufacture of watches in its factory at Daman. The assessee also produced vouchers issued by the customs authorities, debit entries, books of account showing the journey of its employee at the head office at Daman to Bombay and back, certificate of the Superintendent of Central Excise, copies of purchase register, ledger entries of Daman head office and confirmation letter from the managing partner at the head office in support of the contention that the goods purchased in the auction occasioned the movement thereof from Bombay to Daman which is a Union Territory. On the basis of there materials, it was contended that the purchases made by the assessee from the customs authorities in the auction held at Bombay were inter-State purchases and hence section 13 of the Bombay Act was not attracted. The Assistant Commissioner did not accept the above contention of the assessee as he was of the opinion that the delivery of the watch movements having been taken by the assessee from the Customs Collectorate at Bombay, the purchases in question could not be held to be inter-State purchases. The Assistant Commissioner therefore dismissed the appeal of the assessee and confirmed the order of the Sales Tax Officer.
4. Aggrieved by the order of the Assistant Commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal (Tribunal). Before the Tribunal, the assessee contended that the purchases made by it having occasioned the movement of goods from one State to another, i.e. from Maharashtra to Daman, the purchases in question were inter-State purchases within the meaning of section 3 of the Central Act. The assessee also pointed out that as per the auction notice, the auction was open only for actual users. It was contended that the assessee was allowed to bid in the auction only as an actual user of the watch movements in its factory at Daman. It was pointed out that factually also the watch movements purchased by the assessee in the auction were moved by it to its factory at Daman soon after the purchase and used there in the manufacture of watches. The case of the assessee was that the authorities below committed manifest error of law in holding the purchases to be intra-State purchases on the basis that the purchases were complete in Bombay. It was contended that the purchases in question having occasioned the movement of the goods from one State to another, they should be deemed to have taken place in the course of inter-State trade or commerce within the meaning of section 3 of the Central Act. The Tribunal, on perusal of the material before it; was satisfied that the auction was open only for actual users and the assessee was allowed to participate in it and purchase the watch movements only for actual use in the manufacture of watches in its factory at Daman. The TRibunal took note of the fact that the assessee had only one factory at Daman for the manufacture of watches and the purchases were made by it for actual use in manufacture there. The Tribunal was also satisfied that the goods purchased by the assessee were actually taken by it to Daman and consumed in its factory there in the manufacture of watches. In view of the above, the Tribunal held that there was a clear link between the purchases of the watch movements by the assessee and the movement thereof from Bombay to Daman. The Tribunal therefore held that the purchases of watch movements by the assessee from the Customs Collectorate in Bombay were purchases in course of inter-State trade within the meaning of section 3(a) of the Central Act and hence section 13 of the Bombay Act was not attracted. The Tribunal, accordingly, set aside the order of the authorities below in so far it pertained to the levy of purchase tax under section 13 of the Bombay Act on the value of purchases of watch movements by the assessee. The Tribunal also set aside the penalty imposed under section 36(2)(c) of the Bombay Act read with explanation (1) thereto. Aggrieved by the above order, revenue applied to the Tribunal for reference of the questions of law arising out of its order to this Court for opinion. Hence this reference.
5. We have heard the learned counsel for the parties. The real controversy in this case is whether the purchases of watch movements by the assessee from the Customs Collectorate in the auction held at Bombay were intra-State purchases or inter-State purchases because if they are held to be inter-State purchases, section 13 of the Bombay Act would not be attracted. Mr. R. V. Desai, learned counsel for the Revenue, submitted before us that the purchases of watch movements by the assessee from the Customs Collectorate at Bombay were intra-State purchases because the sale and purchase took place in Bombay and the property in the goods also passed to the assessee in Bombay. According to him, subsequent movement of the goods from Bombay to Daman would not alter this position. Mr. J. K. Sheth, learned counsel for the assessee, on the other hand, contended that the approach of the revenue was wholly erroneous. According to him, it was clear from the facts of the case that the purchases of watch movement by the assessee in the auction in Bombay occasioned the movements of goods from one State to other, and, that being so, obviously the purchases in question were inter-State purchases. It was submitted that the place where the property in the goods passes is not material in deciding whether the sale or purchase is an intra-State purchase or inter-State purchase.
6. We have carefully considered the rival submissions. Section 13 of the Bombay Sales Tax Act provides for the levy of purchase tax on certain purchases of goods from unregistered dealers. It reads :
"13. Purchase tax payable on certain purchases of goods from unregistered dealers. - Where a dealer, who is liable to pay tax under section 3, purchases any goods specified in Schedule B or C from a person or a Government, who or which is not a registered dealer, then unless the goods so purchased are resold by the dealer, there shall be levied, subject to the provisions of sub-section (2) of section 7, a purchase tax on the turnover of such purchases at the rate set out against each of such goods in the Schedules aforesaid."
7. The purchases referred to in section 13, which attract tax, are purchases made in the State of Maharashtra, i.e. intra-State purchases. This section does not apply to inter-State purchases which are outside the scope and ambit of the taxing powers of the State. The real controversy in the instant case, therefore, is whether the purchases made by the assessee from the Customs Collectorate in the auction held at Bombay are intra-State or inter-State.
8. Section 3 of the Central Sales Tax Act, 1956 lays down when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce. It says :
"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."
In this case, we are concerned with sale or purchase falling under clause (a).
9. It is well-settled by now by a catena of decisions of the Supreme Court that a sale can be said to have taken place in course of inter-State trade under clause (a) of section 3, if it can be shown that the sale has occasioned the movement of goods from one State to another. A sale in the course of inter-State trade has three essential : (i) there must be a sale; (ii) the goods must actually be moved from one State to another; and (iii) the sale and movement of the goods must be part of the same transaction. The word "occasions" is used as verb and means to cause or to be the immediate cause of. There must exist a direct nexus between the sale and the movement of goods from one State to another. In other words, the movement should be an incident of and necessitated by the contract of sale and be inter-linked with the sale of goods. [See Kelvinator of India Ltd. v. State of Haryana ]. It is not necessary for a sale to be an inter-State sale that the covenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement was "in pursuance of' or "incidental to" the contract of sale. Similarly, if the movement of goods is the result of contract and is an incident to the agreement between the parties, the transaction will remain an inter-State one no matter in which State the delivery of goods is taken by the purchaser. In other words, the question whether it is an inter-State or intra-State sale, does not depend upon the circumstances as to in which State the property in the goods passes. It may pass in either State and yet the sale can be an inter-State sale. What is decisive is whether the sale is one which occasions the movement of goods from one State to another.
10. Reference may be made in this connection to the decision of the Supreme Court in Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445. In that case, there was no specific provision in the agreement for movement of crude oil from Assam to Bihar. Despite that, considering the facts and circumstances of the case, the Supreme Court held the sales to be sale in course of inter-State trade. It was observed :
"Even though clause 7 of the supplemental agreement does not expressly provide for movement of the goods, it is clear that the parties envisaged the movement of crude oil in pursuance to the contract from the State of Assam to the State of Bihar. In other words, the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale. No matter in which State the property in the goods passed, a sale which occasions 'movement of goods from one State to another is a sale in the course of inter-State trade'. The inter-State movement must be the result of a convenient express or implied in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale."
11. In Oil and Natural Gas Commission v. State of Bihar [1976] 38 STC 435 also, the controversy before the supreme Court was whether crude oil supplied by the Oil and Natural Gas Commission from Assam to Indian Oil Corporation to its Barauni refinery was an inter-State sale or an intra-State sale in Bihar. The State of Bihar contended that it was a sale in, Bihar because delivery of crude oil took place in Bihar. Repelling the above contention, the Supreme Court observed :
"........The delivery may be in Assam or in Bihar at Barauni but the movement of goods is the result of contract and as an incident to the agreement between the Commission and the Corporation. The State of Assam has lawfully levied the Central sales tax on the petitioner."
12. To the same effect is the decision of the Supreme Court in English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475. In this case also, it was observed :
"When the movement of goods from one State to another is an incident of the contract it is a sale in the course of inter-State sale. It does not matter in which State the property in the goods passes. What is decisive is whether the sale is one which occasions the movement of goods from one State to another. The inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It will be enough if the movement is in pursuance of and incidental to the contract of sale."
It was further observed :
".......If there is a conceivable link between the movement of the goods and the buyer's contract, and if in the course of inter-State movement the goods move only to reach the buyer in satisfaction of his contract of purchase and such a nexus is otherwise inexplicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter-inter-State trade or commerce as such a sale or purchase occasioned the movement of the goods from one State another....."
13. This legal position as summed up by the Supreme Court in Union of India v. K. G. Khosla Co. and Ltd. [1979] 43 STC 457 in the following words :
"........in order that a sale may be regarded as an inter-State sale, it is immaterial whether the property in the goods passes in one State or another. The question as regards the nature of the sale, that is, whether it is an inter-State sale or an intra-State sale, does not depend upon the circumstances as to in which State the property in the goods passes. It may pass in either State and yet the sale can be an inter-State sale."
14. We now turn to the facts of the present case to determine whether the purchases in question were inter-State purchases or intra-State purchases. The uncontroverted facts of the case are :
"(1) The assessee is a manufacturer of watches having its factory at Daman.
(2) The auction of watch movements by the Customs (Preventive) Collectorate, Bombay was open to actual users only. In the conditions of auction sale, it was specifically mentioned that the purchaser had to be actual user and also a small-scale unit. Only actual users could bid in the auction.
(3) In the cash memos issued by the customs authorities to the assessee, it was specifically stated that the goods were 'only for actual users'. The registration number of the assessee's factory at Daman as a small-scale unit was also mention in the cash memos.
(4) The watch movements purchased by the assessee were in fact moved by the assessee to its factory at Daman and used there in the manufacture of watches.
(5) It was also certified by the Superintendent of Excise that the goods purchased by the assessee reached the assessee's factory at Daman and were used there in manufacture of watches. The two circumstances which operated in the mind of the Sales Tax Officer in holding the purchases to be intra-State purchases were that (i) the bills were issued by the Customs Department in the name of the Bombay office of the assessee and (ii) the property in the goods passed to the assessee in Bombay.
15. It is clear from the various decisions of the Supreme Court discussed above that the approach of the Sales Tax Officer was erroneous and the conclusion arrived at on that basis is not tenable. As stated above, it is not material for deciding whether a sale or purchase is inter-State or not as to in which State the property in the goods passes. What is decisive is whether the sale or purchase is one which occasions the movement of goods from one State to another. Applying this test, it is clear that the purchases in question are inter-State purchases and no purchase tax is exigible thereon under section 13 of the Bombay Act. That being so, the Tribunal was justified in this case in holding that the purchases in question were inter-State purchases falling under section 3(a) of the Central Sales Tax Act, 1956 and no purchase tax was leviable under section 13 of the Bombay Sales Tax Act.
16. Accordingly, we answer question Nos. (1) and (2) in the affirmative and in favour of the assessee. In view of the above, we answer question No. (3) also in the affirmative and in favour of the assessee.
17. This reference is disposed of accordingly with no order as to costs.
18. Reference answered in the affirmative.