State Taxation Tribunal - Tamil Nadu
Jambai K.N.M. Textiles (P) Limited And ... vs State Of Tamil Nadu And Ors. on 1 November, 1999
Equivalent citations: [2000]118STC77(TRIBUNAL)
JUDGMENT
J. Kanakaraj, J. (Chairman)
1. This hatch of cases comprising of tax appeals, tax revisions cases, transfer petitions (writ petitions transferred from Madras High Court), original petitions filed directly before this Special Tribunal, raise an interesting question relating to the distinction between an inter-State sale and a local sale. There are decided cases right from 1949, but we are still searching for a proper test to decide the issue. Rightly so, because the facts of each case have to be looked into and there is some difference somewhere on facts, warranting a re-appraisal of all the cases once over again to find out whether the cardinal principles adumbrated in Section 3(a) of the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act") are present in these cases. In all the cases, the modus operandi is the same and only one argument was advanced on behalf of all the assessees by Mr. C. Natarajan, the doyen of the tax Bar.
2. We will First set out the minimum facts of all the cases to justify a common judgment at our hands.
T.C. (A) Nos. 2803 to 2805 of 1997 (T.C. Nos. 81, 82 and 83 of 1994 on the files of the High Court, Madras) :
These appeals are directed against a common order of the Joint Commissioner in his proceedings dated June 30, 1992 in relation to the assessment years 1983-84, 1985-86 and 1987-88, the assessee being Jambai K.N.M. Textiles (P.) Limited. The assessee filed appeals against 3 years of assessment, namely, for the years 1983-84, 1985-86 and 1987-88, there being two appeals for the year 1985-86, one relating to tax and other relating to additional sales tax. The common issue in the appeals related to the exigibility to tax on certain purchases of cotton from Maharashtra State Co-operative Marketing Federation, Maharashtra (hereinafter referred to as "the Federation"). We are not concerned with the other question involved in the appeals. The first appellate authority agreed with the assessee and held that the purchases are not exigible to tax as local sales under the Tamil Nadu General Sales Tax Act. The Joint Commissioner on suo motu proceedings set aside the order of the Appellate Assistant Commissioner restoring the order of the assessing authority and holding that the transactions were only local sales. The tax case appeals are against the said judgment of the Joint Commissioner.
Tax revision cases Nos. 112 and 114 of 1998 :
An order of assessment was made on February 14, 1992 for the year 1990-91 in respect of Muruganathan Mills. Among other things, the cotton purchases from the Federation related to a turnover of Rs. 48,86,842.62. These purchases were held to be exigible to tax under the Tamil Nadu General Sales Tax Act. Similarly, for the year 1989-90 a turnover of Rs. 4,04,060 was held to be exigible to tax in a revision proceedings under the Tamil Nadu General Sales Tax Act. The said assessment was confirmed on first appeal by the Appellate Assistant Commissioner. On second appeal, the Sales Tax Appellate Tribunal also came to a conclusion that the transactions were not inter-State purchases. Sales Tax Appellate Tribunal says that the goods did not move, on the basis of the earlier agreement of sale from Bombay to Dharmapuri. The agreement was completed only when the goods were lying in the godown of the mill premises (assessee).
T.Ps. Nos. 98 to 100 of 1999 (Writ Petitions Nos, 1670, 1671 and 1688 of 1994 on the files of the High Court, Madras) :
These writ petitions directly challenge the correctness of the assessment orders passed against North Arcot District Co-operative Spinning Mills for the years 1988-89, 1989-90, 1990-91 and 1991-92. In these writ petitions also, the petitioners are challenging the purchases of cotton to the tune of Rs. 3,60,81,163 for the year 1988-89 from the State of Bombay. In respect of the year 1989-90, similar purchases to the tune of Rs. 2,52,89,614 is claimed to be local purchases. For the year 1990-91, the turnover of Rs. 3,12,24,294 is claimed to be local sales and not exigible to tax.
T.P. No. 101 of 1999 (W.P. No. 4939 of 1995 on the files of the High Court, Madras) :
This writ petition directly challenges the correctness of the order of assessment made in TNGST 323215 dated March 15, 1995 for the assessment year 1993-94 against D.B.V. Cotton Mills. Here again the challenge is to the purchases made from the Federation at Bombay on a turnover of Rs. 84,81,707.
T.P. No. 102 of 1999 (W.P. No. 14445 of 1985 on the files of the High Court, Madras) :
This writ petition directly challenges an order of assessment made against Anna Co-operative Spinning Mills on March 31, 1975 for the assessment year 1993-94. The issue involved is the exigibility to tax on purchases of cotton from Bombay to the tune of Rs. 3,90,99,457. There are several other items involved in the assessment.
T.P. Nos. 95 and 96 of 1999 (W.P. Nos. 1003 and 1004 of 1994 on the files of the High Court, Madras) :
These two petitions directly challenge orders of assessment made against Viswa Bharathi Textiles Limited, for the years 1991-92 and 1992-93 in respect of purchases of cotton from the Federation at Bombay. In the year 1991-92, the cotton purchased amounts to Rs. 4,72,63,657. In the year 1992-93, the cotton purchased amounts to Rs, 3,56,56,816.
T.P. Nos. 89, 90, 91, 92, 93 and 94 of 1999 (W.P. Nos. 9474 to 9479 of 1992 on the files of the High Court, Madras) :
These writ petitions also challenge the correctness of the assessment order made against Anna Co-operative Spinning Mills for the year 1988-89 to 1993-94 in respect of their cotton purchases from Maharashtra State Co-operative Cotton Growers Marketing Federation Limited.
T.P. No. 66 of 1999 (W.P. No. 17397 of 1995 on the files of the High Court, Madras) :
This writ petition challenges the correctness of an order of assessment made against Tiruvalluvar Textiles (P) Ltd., on November 27, 1995 for the assessment year 1993-94. The challenge is in respect of the cotton purchases amounting to Rs. 45,53,860.
O.P. Nos. 435 to 437 of 1996 :
These petitions challenge the correctness of assessment orders made against Jambai K.N.M. Textiles (P) Ltd., for the assessment years 1985-86 to 1987-88 in respect of their cotton purchases from Maharashtra.
3. We will now take up the facts of the assessee, Jambai K.N.M. Textiles, Kumarapalayam, in Tax Appeal No. 81 of 1994 which relates to a revision of assessment order dated March 15, 1985 by invoking Section 16(1) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the TNGST Act") in proceedings dated March 27, 1987. If necessary we will refer to the facts of the same assessee for the year 1984-85 and some other assessees to understand the modus operandi of the transactions.
4. Based on the inspection made on August 8, 1984, a report in form D-3 was sent by the Deputy Commercial Tax Officer (Enforcement), Coimbatore. From the report the following materials can be gathered. The Maharashtra State Co-operative Marketing Federation Ltd. (for short, "the Federation") is a co-operative body in the Maharashtra State engaged in growing and procuring cotton in Maharashtra. They have a sales office at No. 3, D.B. Road, R.S. Puram, Coimbatore. The enforcement wing officer perused documents relating to sales of 1,00,000 bales of cotton procured by the Federation and sold to various textile mills in Coimbatore during 1982-83, season corresponding to assessment year 1983-84. The sales were negotiated through the following brokers at Coimbatore : (1) J.G. Pujara & Sons, (2) S. Venkatadri, (3) Y. Lodaya and (4) Lalka and Sons. These brokers select the cotton available in various centres in Maharashtra and request the Federation in Bombay to despatch the selected lots to particular textile mills in Tamil Nadu under what is called "the mill godown facility scheme". In respect of the same assessee another Deputy Commercial Tax Officer (Enforcement), Sankari sent a report on March 20, 1991 based on an inspection on February 4, 1991 for the year 1985-86 wherein he states that the Federation shows the samples to the mills in Tamil Nadu or their brokers. On being satisfied, the mills express their intention to purchase specific cotton samples and this is conveyed to the sales office of the Federation who in turn inform the head office at Bombay. On getting such confirmation from the sales office at Coimbatore a contract is entered into between Federation and other mills in Tamil Nadu.
5. The assessee have filed a typed set of papers in T.C. (A) No. 81 of 1994 purporting to be the modus operandi of any such transaction. This is more or less verifiable from the Government records.
6. On February 11, 1983 there is an offer letter from Pulicar Mills Limited (one of the assessees in this batch of cases), addressed to the sales office of the Federation at Coimbatore. It shows an interest of different mills in Tamil Nadu to purchase certain varieties of cotton to the extent of 11,500 bales as per certain conditions. It is worthwhile to extract the conditions :
"1. Selection and weighment at spot.
2. Delivery against payment at Coimbatore by draft.
3. All the bales will be stored at respective mills godown under lock and key of Maharashtra State Co-operative Marketing Federation Limited.
4. Despatches will be arranged by the buyer.
5. Transit insurance to be covered by Federation and debited to mills' account.
6. Storage insurance will be covered by mills in the name of Maharashtra State Co-operative Marketing Federation Limited.
7. All other incidental charges from spot to mills' premises are on buyer's account.
8. We agree to pay Rs. 5 per bale as administrative charges.
9. Delivery period 5 months from the date of contract.
10. Broker name : Mr. S. Venkatadri, Coimbatore.
11. If any quality is not available in one zone, buyers to have option to go to any other zone."
7. The quantity of bales and variety of goods, the zone, and rate are as follows :
S1. No. Quantityin bales Variety and grade Zone Rate Crop
1.
5500 8/s Yl SUP/FAQ Jalgaon 3750/3700 1982-83 Dulia 3700/3650 1982-83 Aurangabad 3700/3650 1982-83
2. 3500 8/s AKH4 SUP/FAQ Berar 3600/3550 1982-83
3. 2000 8/s AK235/277 SUP/FAQ Marathwada 3450/3400 1982-83
4. 500 8/s H4 SUP/FAQ Barrani or 4450/4400 1982-83 Yestoral 11,500 8/s This copy is sent to all the buyer/mills and the broker.
8. On February 19, 1983, the head office of the Federation wrote to all the zones about a concluded deal with the mills in relation to 36,000 bales. This may not directly relate to the offer dated February 11, 1983. It can be presumed, that it relates to a similar offer. This confirmation letter dated February 19, 1983 says that the Federation is entering into provisional contracts to enable the mills to make the selections after visiting the various zones. The zones are required to send the selection of goods made by mills to the head office at Bombay. The letter ultimately says :
"The deliveries may be offered as per the delivery schedule given in the attached statement against payment. The rate of carrying charges for first defaulting month is Rs. 1.5 per cent p.m. and at Rs. 2.50 per cent for subsequent months. If the bales are on spot after the bales are stored in mills godown carrying charges will be at 1.75 per cent p.m. from second month of default. The above sales are finalised on the basis of mill godown storage facility as per our standard terms."
9. Copies of this letter are sent to all the brokers of the mills and the sales office at Coimbatore. The details of delivery schedule are as follows :
HEADING Bulk deal of 36,000 bales through Pujara Venkatadri and others.
Sl. No Name of the mills Zone Variety Bales Contract Feb.
March April May June Total
1.
M/s. Laxmi Milts, Coimbatore A'Bad Jalgaon Y-l Sup 3,000 JAL/35 600 600 600 600 600 3,000
2.
(a) M/s. Coimbatore Pioneer Group of Mills A'Bad Jalgaon VL Sup/FAQ 10,000 ABD/19
(b) M/s. Gananambka Mills Coimbatore Dhulia, Khamgaon (Buyer's option)
(c) M/s. Gopal Krishna Mills
(d)M/s. Prashant Textiles
(e) Shakti Textiles Ltd.
10,000
3.
(a) M/s. Pullicar Group of Mills Jalgaon, A'bad Y-l 5,500 JAL/36 Dhulia AKH4 3,500 KHM/16 AK-235 2,000 H-4 500
(b) Bhavani Mills Coimbatore Phaltan A'nagar Varalaxmi 300 PH/96 Auranabad Dhulia, 1,200 ABD/20
(c) Sundaram Mills Khamgaon Marathwada AK-235 2,000 PAE/36 Total 15,000
4.
(a) M/s. K.P.V. Textile Group Marathwada AK-236 1,500 PAB/37 of Mills H-4 500
(b) M/s. Kandegiri Spg. Mills Marathwada AK-235 4,000 PAS/38 Ltd., Salem Total 6,000
5.
(a) The Meenakshi Mills Parbhani or Akola AK-235 2,000 AKL/32 Sup/FAQ Total 2,000 33,000 6,600 6,600 6,600 6,600 6,600 :
33,000 Gr. Total 36,000 7,200 7,200 7,200 7,200 7,200 :
36,000 /True copy/
10. From the D3 report dated June 26, 1986 for the year 1983-84 there is cross-verification from the Government records. There is reference to a letter dated February 16, 1983 of the Joint Director of the Federation to its zonal officers in respect of a bulk deal of 62,500 bales similar to the letter dated February 19, 1983 already referred to for 36,000 bales. From the D3 report dated March 20, 1991 for the year 1985-86 it is seen that after confirmation from the zonal office, a standard contract form is entered into by the buyers/ mills and sent to the Federation at Bombay for signature. Condition No. 7 of the contract is as follows :
"Condition No. 7: In the event of such a cancellation, the seller shall be entitled to resell the entire or balance quantity thereof at any time and any manner it deems fit and at the same time reserving its right to recover any damage/loss sustained by way of resale."
Condition No. 10 is as follows :
"Condition No. 10: If payment is not made and delivery taken within such extended period also, the Federation may forfeit the advance, payment inclusive of carrying charges and resell the cotton at any time and in a way it deems fit and recover the loss if any sustained by way of such resale including carrying charges and other allied expenses incurred for conducting resale of cotton from the buyer."
11. The next aspect of the case is the agreement regarding storage of cotton in the State of Tamil Nadu. There are two schemes :
(1) Mill godown storage scheme.
(2) In the godown of Central Warehousing Corporation.
12. In most cases the mill godown storage scheme is adopted. That scheme contains the following clauses :
Condition No. 2 : The mills will provide rent free godown to the entire satisfaction of the Federation duly inspected by the officials of the Federation and the godown so provided will be completely under the custody and lock and key of the Federation.
Condition No. 3 : The mills insure the godown so provided to the Federation for the storage of the said bales so as to cover the risks like fire, riots, strike, malicious damages, burglary and theft for the full value of cotton favouring the Federation so as to enable the federation to get the entire loss, if any, reimbursed from the insurance company for a tentative period within which the mills intend to clear the entire stock from the godown and the premium will be completely borne by the mills. Mills also undertake to take exhaustive insurance cover of the existing stock of bales lying in mills godown at the prevailing market rates of Federation from time to time. The cotton value calculated at rate of 49 candies per lot as per contract rate plus 12.5 per cent cotton value.
Condition No. 5 : The transit insurance of the bales will be covered by the Federation on mills account from the godown at spot to the mills godown.
Condition No. 11 : The mills will get released the bales lotwise as per delivery schedule after effecting full payment including CST, transit insurance charges, godown administrative charges, if any, by demand draft to the Federation at its sales office, Coimbatore and obtain written permission or release order from the Federation and Federation will depute its representative to release the bales.
Condition No. 16 : The Federation has every right to remove the bales stored in the godown or to resell the same at the cost of the mills by reason of mill making any default in the performance or discharge of any of the terms and conditions stipulated. The mill do hereby guarantee to pay to the Federation without demur any claim made by the Federation towards any other charges, expenses, cost, loss or damage suffered by the Federation by reasons of mill making any default in the performance or discharge of any of the terms and conditions stipulated.
Condition No. 19 : The mill will not and should not in any manner consume the cotton bales, kept in the mill godown in possession of Federation, without payment of value of bales to the Federation at its Coimbatore office in any circumstances. The directors of the mills will be personally liable if the cotton bales stored in the godown are unauthorisedly consumed by the mills.
Condition No, 21 : The mill also agree that the Maharashtra State Cooperative Cotton Growers' Marketing Federation Ltd. (place) only is the exclusive owner and custodian of the bales stored in the mills godown."
13. The regular agreement for the purchase of cotton bales referring to earlier provisional contracts is then entered into between the particular mills in Tamil Nadu and the Federation in Bombay. The terms and conditions of such an agreement is not disputed and it is as follows :
"1. The selection and weighment of the bales will be done at the spot by our authorised representative.
2. The transit insurance of the bales will be covered by the M.S.C.M.F. Ltd., from the warehouse at spot to mill's godown and the premium of the transit insurance will be on mill's account. The Federation will issue a debit note for insurance premium to the mills.
3. After selection is over despatch of the bales will be arranged by the mills or our authorised representative.
4. The mills will provide a rent free godown to the M.S.C.M.F. Ltd., for storage of the bales in the mill premises. The godown will be inspected by the sales officer of the M.S.C.M.F. Ltd., Coimbatore, and if it is found suitable for the above storage of F.P. bales, the despatch instructions will be issued to concerned zones.
5. Before obtaining the despatch instructions from the sales office, Coimbatore, the mills will submit a cover note or insurance policy covering the full amount of invoice value plus 10 per cent extra amount. If there will be delay in despatch of bales due to non-submission of godown insurance policy or cover note, Federation will not be held responsible for any delay. The godown insurance will be in the name of the M.S.C.M.F. Ltd., as beneficiary. In no case the mills will add their name as co-beneficiary as the goods belong to the M.S.C.M.F. Ltd., till it is fully paid. The premium of godown insurance will be paid by the mill.
6. The lorry freight will be paid by the mills, octroi if any will also be paid by the mills.
7. The mills will provide all the necessary watch and ward to protect the stock of F.B. bales stored in the godown at their own cost.
8. The lorry receipt R.R. will be prepared mentioning the M.S.C.M.F. Ltd., as the consignor and the M.S.C. Mg. Federation Ltd., Account... Mills as the consignee. As soon as the bales arrive in the mills premises, the damages at the time of unloading in the compound of the mill premises and immediately the mills will arrange to store the bales in the godown allotted to the M.S.C.M.F. Ltd. The bales must be stacked in proper manner so that counting can be done easily.
9. As soon as the bales arrive in the mill's premises, it will inform immediately to the sales officer, Coimbatore, giving full details of the lot arrival.
10. The representative of the Federation will be having all the rights to inspect any time the stocks of F.P. bales stored in the godown provided by us in the mill's premises.
11. After stocking bales in the godown, the M.S.C.M.F. Ltd., will lock it and retain the keys with itself.
12. The mills will take delivery of the bales as per delivery schedule after effecting payment to sales officer, Coimbatore, by demand draft. If the mills fail to take delivery of the bales which have reached mill godown within the time-limit, carrying charges at Rs. 1.75 per cent per month will be charged to the mills before giving delivery of the lots, for other bales (which are lying on spot and have not been lifted within the stipulated time) carrying charges will be levied at 2.5 per cent per month.
13. The mills will take delivery of the entire lot which may be of 50 or 100 bales after making full payment. If the lot is of 100 bales it will not be split up.
14. The mills will take delivery of the bales only after making payment and with the written permission (delivery order) from the sales office at Coimbatore.
15. Any other expenses incurred from spot to the mills godown will be borne by the mills.
16. Any dispute will be subject to Bombay jurisdiction.
17. Since the despatches of the bales will be effected after completion of weighment at spot no claims regarding the damages will be entertained by the Federation.
18. The buyer mill shall be required to pay administrative charges at Rs. 5 per bale for availing this facility."
14. There are some similar printed contracts available in files for the year 1985-86. For instance contract No. PH-55/1985-86 dated June 5, 1986 relates to sale of 200 bales addressed to Pulicar Mills. This contract contains overleaf the standard terms and conditions. The assessees have filed similar contracts for 1982-83 dated March 1, 1983 relating to supply of 6,000 and 5,500 bales containing same conditions and terms. There is a sale invoice dated December 27, 1985 by Federation to Jambai K.N.M. Textiles for 100 bales giving details of lot number and variety grade. This is superscribed "provisional".
15. There is a letter from Pulicar Mills dated March 14, 1983 addressed to sales office of Federation at Coimbatore referring to the Joint Director's letter dated February 19, 1983 selecting 11,500 bales by various mills and asking for despatch advice. The letter contains details of the mills, the lot number and variety of cotton. Thereafter comes the regular agreement dated December 26, 1985 which we have fully extracted containing 18 clauses. Then comes the despatch instructions from Coimbatore sales office of Federation to the zones in Maharashtra. There are delivery notes dated August 4, 1986 for 50 and 20 bales giving the names of seller and buying mill. There is corresponding sale invoice dated August 5, 1986. There is a "weight note of full pressed bales" relating to 100 bales dated August 9, 1986. This cannot be tallied with any particular invoice. A similar weight note in the files shows a foot note "separate set of books to be used for press weight and delivery weight". Therefore weighment is made both at collection centre in Bombay and at the time of delivery at the buyer mills.
16. On the above method of purchase of cotton by the mills in Tamil Nadu from Maharashtra, we will now examine the views of the lower authorities for holding that sales are not inter-State sales, but local sales in Tamil Nadu. According to the report dated June 26, 1986 for the year 1983-84, the property of the Federation, namely, cotton bales moved from Maharashtra to the godowns of Tamil Nadu mills not as a result of sale but in the capacity of a bailee or godown keeper. In the report dated March 20, 1991 for the year 1985-86 emphasis is laid on the first contract being only an offer and there being a right of the Federation to divert the goods or re-sell the property, The buyer did not go to Maharashtra but examined the samples at the sales office of the Federation at Coimbatore. The other aspects are like movement from Federation at Bombay to Federation account mills in Tamil Nadu, transit insurance being in favour of seller, storage being in godown of mills with ownership and dominion remaining with Federation and delivery being made only on payment in Tamil Nadu. The assessing officer has more or less adopted the above reasons. The first appellate authority in the case of Jambai K.N.M. Textiles, for the years 1983-84, 1985-86 and 1987-88, by a common order dated July 2, 1990 agreed with the assessee and observed :
"On the other hand, the movement is the criterion which has been proved in this case with the records of transport and ATL licence. As the goods were moved, having been earmarked and with no possibility of being diverted to any other buyers, the assessing officers' version that the movement from Bombay was only by way of transfer of stock is also found to be benefit of supporting materials."
17. On suo motu revision, a common order was passed by the Joint Commissioner on June 30, 1992 for the three years mainly on the following grounds :
"(ii) The general agreement was found to contain only flexible terms and not a firm contract which would only testify the true nature of the contract, the rights and duties that flow from it.
(iii) The agreements concluded were found to be vague in nature and not specific. They also lack the essential requisites of an agreement like nature of goods, place from which the goods were to be moved, the price payable the situs of sale and also the fact about transfer of title. In short, the learned Appellate Assistant Commissioner failed to go into the theory of appropriation, accretion of property and situs of sale involved in the impugned transactions."
18. To have one more view point let us take the case of Muruganandham Mills. An order of revised assessment was passed on March 31, 1992 for the year 1989-90. The cotton purchases from the Federation to the extent of 1,312 bales for the year was on the same basis and it was taxed as local last purchase at 3 per cent. No special reasons are given. The first appellate authority affirmed the assessment. On second appeal the Sales Tax Appellate Tribunal (STAT for short), Additional Bench, Coimbatore, held as follows :
"Therefore the cotton in the godown of the appellants' mill is only the property of the Maharashtra Federation and the sale between the mill and Federation is only a concluded local sale. It has been well-settled principle as to when a sale is said to take place inside a State 'a sale or purchase of goods is deemed to take place inside a State if the goods are within the State (a) in the case of specific or ascertained goods, at the time the contract of sale is made and (b) in the case of unascertained or future goods, at the time of their appropriation for the contract of sale by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation'. On the basis of determination of the place of sale, the State within which the sale is deemed to take place, is liable to tax the transaction in accordance with the procedure set out in the State law."
19. Mr. C. Natarajan, learned counsel for the assessees has taken us through the documents to illustrate the modus adopted by the parties and the orders of the lower authorities. He refers to Explanation (3) of Section 2(n) of the TNGST Act and Section 4 of the CST Act. Section 2(n) of the TNGST Act defines sale and explanation (3) is as follows :
"Explanation (3).--(a) The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State--
(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made ; and
(ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.
(b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places."
Section 4 of the Central Sales Tax Act, 1956, is as follows, but it is subject to Section 3 of the CST Act :
"4. When is a sale or purchase of goods said to take place outside a State.--(1) Subject to the provisions contained in Section 3, when a sale or purchase of goods is determined in accordance with Sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State--
(a) in the case of specific or ascertained goods, at the time the contract of sale is made ; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation.--Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places."
20. He then refers to Section 9 of the Sale of Goods Act, 1930. It is as follows :
"9. Ascertainment of price.--(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case."
21. He concludes by referring to various decisions that it is not necessary that the property in the goods should pass in one State or another and what is important is, did the goods move from one State to another at least on account of an incident or covenant in a contract of sale.
22. Mr. K. Soundararajan, the learned Government Advocate, lays emphasis on the clauses in the provisional contract, the godown agreement and the final appropriation to show that the movement was not on account of sale, but the sale takes place after the movement of goods.
23. Let us now look into the provisions of law and only the important decisions.
Section 3 of the CST Act is 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 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."
We have already seen Section 4 of the Central Sales Tax Act.
24. The first step in determining the character of the sale is to enquire : Is there a movement of goods from one State to another? If the answer is in the affirmative, then a further enquiry arises : Whether such a movement was as a result of covenant or incident of the contract of sale or purchase?
25. We will now look into the decisions cited at the Bar both on behalf of the assessee and the Revenue. Taking up chronologically the decisions cited on behalf of the assessee, we start from [1963] 14 STC 899 (Mad.) (Lakshmi Mitts Company Ltd. v. State of Madras), The assessees in that case are also dealers in yarn. They purchased cotton during the year 1957-58 from Bombay and claimed exemption as inter-State sales. The goods moved from outside the State and were delivered inside the State of Tamil Nadu, either by rail or by lorry. In respect of goods which were shipped by the Bombay dealers to the Tuticorin Port and cleared by the seller's agents and loaded in lorries, to be delivered at the assessee's place of business at Kovilpatti, the lower authorities held that the inter-State movement ceased when the goods were landed at Tuticorin Port. Dealing with such situation, the Madras High Court held that the characteristic of an inter-State sale or purchase, is the movement of goods from one State to another under a contract between the seller and the buyer. The method of delivery adopted, the route through which the goods are despatched and the stages involved in the course of journey of the goods are extraneous circumstances in the determination of the inter-State sale or purchase. It is also interesting to note the reply by the Bombay dealer, in the following terms, was held to have occasioned movement of the goods :
"We confirm having sold you this day the above 51 (fifty-one) bales only, of Tarantaran 320F (lot No. 1) and 100 (one hundred) bales only of 320F Patiala, crop 1956/57, as per our samples submitted to you, at Rs. 815 (rupees eight hundred and fifteen only) per candy of 784 Ibs. f.o.r. Koilpatti".
26. [1963] 14 STC 188 (SC) ; AIR 1963 SC 548 [State Trading Corporation of India Ltd. (in both petitions) v. State of Mysore (in both petitions)] is a case where permits for purchase of cements issued to the purchasers showed that supplies were to be made by the cement factories outside the State of Mysore, but the marketing company in the State of Mysore was named as the supplier and the purchasers had to place the order with the said company. It was held by the Supreme Court that the contract had to be read as subject to the terms of the permit. Therefore, the supply from factories outside the State of Mysore was held to be inter-State sales.
27. [1969] 23 STC 86 (Mad.) [Cement Distributors (P.) Ltd., Dalmiapuram v. Deputy Commercial Tax Officer, Lalgudi], is an interesting case where the difference between ascertained goods and unascertained goods was pointed out with great care and clarity. In that case the Revenue claimed certain sales as falling under the Central Sales Tax Act, whereas the assessee alleged that the turnover related to inter-State sales of cement in Calcutta, and the same had been assessed under the West Bengal Sales Tax Act. With particular reference to Section 4 of the CST Act, 1956 the Madras High Court observed :
"To a great extent, the sale of unascertained goods, in the case of inter-State sales involving inter-State movement, has been placed in pari materia for certain purposes with a sale of such unspecified goods under the appropriate provision of the Sale of Goods Act. Whereas Section 3 of the Central Sales Tax Act makes a sale of ascertained goods exigible to tax by the despatching State by reason of the movement of the goods having been occasioned under the contract, in the case of unascertained goods the despatching State has no jurisdiction to treat it and tax it as an inter-State sale merely because a movement is involved. In the latter case the situs of sale is determined on the basis of the appropriation of the goods by an overt act on the part of the seller, with or without the assent of the buyer. Thus if the goods are unascertained, then until it is appropriated to the contract by a known process, sale is not complete. Central sales tax is not leviable by the despatching State in such cases, notwithstanding inter-State movement of the goods, as they are considered in Section 4 as 'out-of-State' sales."
28. [1975] 35 STC 445 (SC) (Oil India Ltd. v. Superintendent of Taxes) is the next decision for consideration. In that case the petitioner, Oil India Limited, had its head office in the State of Assam and was engaged in the business of prospecting petroleum and also was producing and transporting crude oil from the State of Assam. The petitioner supplied crude oil to the Barauni Refinery of the Indian Oil Corporation situated in Bihar through pipelines constructed and owned by the petitioner. At Barauni Refinery the crude oil was poured into tank and measured. After measurement, it was agreed by both parties that the crude oil should be taken delivery of by the Indian Oil Corporation. The authorities sought to assess the petitioner under the CST Act on the ground that the sale of crude oil to the Barauni Refineries, were sales in the course of inter-State trade. This was challenged by the petitioner, Oil India Limited and it was held that the movement of crude oil from State of Assam to the State of Bihar was an incident of the contract of sale and therefore the sales were in the course of inter-State trade. It was held that the Bihar Government has no jurisdiction to tax the sales under the Bihar Act. It was also held as follows :
"No matter in which State the property in the goods passes, 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 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 would be enough if the movement was in pursuance of and incidental to the contract of sale : see State Trading Corporation v. State of Mysore [1963] 14 STC 188 (SC)."
29. [1976] 37 STC 489 [Manganese Ore (India) Ltd. V. Regional Assistant Commissioner of Sales Tax, Jabalpur] is a decision by the Supreme Court of India relating to the sale of manganese ore from the State of Madhya Pradesh and Maharashtra. In that case it was contended that the buyers of ore in other States were only exporting the manganese ore to foreign countries. Therefore, they claimed exemption under Section 5(1) of the Central Sales Tax Act. What is important for us is that the Supreme Court held that in so far as Section 3(a) of the CST Act, there is no distinction between unascertained and future goods and goods which are already in existence, if at the time when the sale takes place these goods have come into actual physical existence. It was further noticed manganese ore was loaded into the wagons after being extracted from the mines and the sales of these manganese ores despatched from Madhya Pradesh to various States actually took place and the goods were ultimately accepted by the buyers in other States. It was therefore held that all the incidents of an inter-State sales were present and therefore they were indeed sales in the course of inter-State trade and commerce.
30. [1976] 38 STC 475 (English Electric Company of India Ltd. v. Deputy Commercial Tax Officer) is again a judgment of the Supreme Court. In that case the appellant/assessee had its registered office at Calcutta and branches at Bombay, Delhi, Madras and Lucknow. Its main factory was at Madras. A buyer in Bombay wrote to the Bombay branch of the appellant/assessee asking for lowest quotation of the goods. There was correspondence between the Bombay branch and the Madras branch regarding the rates and conditions of sale. The Bombay buyer then placed an order on the Bombay branch accepting the said terms and conditions. The goods were then made ready at the Madras factory and the buyer at Bombay was addressed by the Bombay branch seeking despatch instruction. Thereafter the Madras branch despatched the goods to Bombay. The goods were cleared by the Bombay branch and delivered to the Bombay buyer through clearing agents. According to the appellant/assessee there was no inter-State sale and the sale was only at Bombay. It was contended that the railway receipt was in the name of the Bombay branch and there was no privity of contract between Madras branch and the Bombay buyer. In those circumstances the Supreme Court held that the Bombay branch was merely acting as an intermediary between the Madras factory and the Bombay buyer. It was the Madras factory which caused the movement of goods from Madras to Bombay, pursuant to a covenant in the contract. It was held as an inter-State sale on the basis of the correspondence between the Bombay branch and the Madras branch.
31. [1979] 43 STC 457 (SC) (Union of India v. K.G. Khosla and Co. Ltd.) relates to the assessee having his head office in Delhi. They carried on business of manufacturing air compressors, etc., at its factory at Faridabad in Haryana State. Orders for supply were placed on the head office at Delhi. Thereafter advice was given to the factory to manufacture the goods and such goods were brought to the head office in Delhi and despatched to the various customers. The question was whether the sales were made at Faridabad in Haryana in the course of inter-State trade or whether the sales were intra-State sales effected within the Union Territory of Delhi. The Supreme Court held that the sale can be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one State to another, but such movement is the result of a covenant in the contract of sale or is an incident of that contract. It was pointed out that although the contract did not require the goods to be moved from Faridabad to Delhi, the movement was occasioned as a result of the incident of the contract of sale.
32. The decision of the Madhya Pradesh High Court in [1979] 44 STC 347 (State of Madhya Pradesh v. Bengal Paper Mills Company Ltd.) reiterates the very same proposition.
33. [1981] 47 STC 1 (SC) (Indian Oil Corporation Ltd. v. Union of India) is again relating to supply of oil from the refinery at Barauni in the State of Bihar. The Indian Oil Corporation, the petitioner in the case, has a refinery at Barauni in the State of Bihar. It has a depot at Panki in Uttar Pradesh State. The petitioner constructed pipe lines from its refinery at Barauni to the fertiliser factory at Kanpur in Uttar Pradesh. Naphtha was to be supplied through the pipe lines at the fence of the fertilizer factory. The petitioner was to provide at his cost storage facility at its Kanpur installation. Supplies of naphtha to be made against the respondent factory's indents in writing to the petitioners at the Kanpur installation. On the question whether the sales were exigible to tax under the Uttar Pradesh Sales Tax Act or under the CST Act it was held that the sales were clearly inter-State and therefore the U.P. State had no jurisdiction to levy tax under the local Act. The source of supply was the seller's refinery at Barauni in Bihar and the destination was the buyer's factory, Kanpur.
34. [1981] 48 STC 232 (SO (South India Viscose Ltd. v. State of Tamil Nadu) says that if there is a conceivable link between a contract of sale and the movement of goods from one State to another in order to discharge the obligation under the contract of sale, the interposition of an agent of the seller who may temporarily intercept the movement will not alter the inter-State character of the sale.
35. The decision reported in [1985] 60 STC 301 (SC) (Sahney Steel and Press Works Ltd. v. Commercial Tax Officer) reiterates the point that where the factory at Hyderabad manufactures goods according to the designs and specifications supplied by customers and despatches them to the respective branches by way of stock transfer and where such goods were booked to sale and sent by lorries and thereafter the customers inspected the goods and accepted them the movement of goods from Hyderabad was occasioned by order placed by the customers on different branches and was an incident of the contract and therefore it was an inter-State sale, within the meaning of Section 3(a) of the CST Act.
36. [1987] 67 STC 1 (Mad.) (National Mineral Development Corporation Ltd. v. State of Tamil Nadu) is again an interesting case relating to auction sales of diamonds at Madras. Some of the bidders were from Bombay. The successful Bombay bidders after paying the 25 per cent of the bid amount requested the Madras Corporation for delivery of the diamonds at Bombay. The buyers at Bombay took delivery of the goods from the branch office of the Madras Corporation on payment of the balance. The Madras Corporation claimed the sales as inter-State sales. It was held by the Madras High Court that the mere fact that the property in the goods passed in favour of the purchaser at the auction in Madras will not change the character of the sale from being an inter-State sale. It was further observed that where the parties contemplated movement of the goods from Madras to Bombay it must be held as an inter-State sale within the meaning of Section 3(a) of the CST Act.
37. The last decision in favour of the assessee is the one reported in [1996] 102 STC 642 (Ker) [Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Madras Rubber Factory Limited]. In this case the dealer had a head office in Madras and a local unit in Kerala. The dealer purchased rubber from agriculturists and suppliers in Kerala. It was held to be an inter-State transactions between the Madras head office and the suppliers of rubber in Kerala.
38. We will now turn to the decisions which support the case of the Revenue.
In [1973] 32 STC 629 (SC) (Kelvinator of India Ltd. v. State of Haryana) it was held that the movement of goods should be an incident of and be necessitated by the contract of sale and thus be interlinked with the sale of goods. A movement of goods which takes place independently of contract of sale would not fall within the ambit of clause (a) of Section 3 of the CST Act,
39. In [1975] 36 STC 389 (SC) [State of Tamil Nadu v. Cement Distributors (P.) Ltd.], the dealers being a cement distributor, were the agents of the State Trading Corporation. The dealer was authorised to sell a quantity of cement mentioned in the authorisation to certain persons in Calcutta, as per the directions of the State Trading Corporation, Calcutta. The factory was at Dalmia and the authorisation stated that 9,000 metric tons were allotted for distribution in Calcutta. The Supreme Court observed as follows :
"The movement of goods from Madras to Calcutta did not take place as a result of any contract of sale, but in pursuance of instruction contained in authorisation for transfer of stocks from Madras to Calcutta. The transactions were not inter-State sales liable to tax under the Central Sales Tax Act. The movement of goods from one State to another without any of the elements of 'sale' within the meaning of the Central Act cannot be subject to tax. The shipment was movement of stocks of cement belonging to the State Trading Corporation from one place to another. There was shortage of supply of cement at Calcutta. The State Trading Corporation moved stocks from Madras to Calcutta. The area of need and the availability of stocks of cement were known to the State Trading Corporation. The transactions could not be subjected to Central sales tax."
40. [1995] 98 STC 82 (State of Andhra Pradesh v. Coromandel Paints & Chemicals Ltd.), is the judgment by the Andhra Pradesh High Court. In that case, the assessee responded to a tender from a Shipping Corporation of India relating to supply of paints to shipping vessels. Neither the quantity nor the goods had been specified and the supply was to be made at a stated period in respect of a required quantity and it was held that there was no sale or even an agreement to sell. It was only a standing offer. There was no obligation on Shipping Corporation to accept the goods which the dealer moved to its branches. It was held that there was no inter-State sale under the CST Act.
41. [1994] 92 STC 325 (Rallis India Limited v. State of Tamil Nadu) is a decision of the Madras High Court to which one of us was a party. The value of ossein transferred from the Uthagamandalam factory to its Cochin office, was brought to tax as representing inter-State sale, treating the movement of goods as having been occasioned by purchase order received from Rallis India Limited, Bombay. On facts it was found that irrespective of orders from Rallis India Ltd., Bombay, goods were being despatched from Uthagamandalam to Cochin regularly for the purpose of storing in the godowns at Cochin. It was therefore held that the movement of goods was only to facilitate availability of goods at Cochin, in the hope of getting orders from Bombay, It was held that the movement of goods was only by way of stock transfer and not liable to tax under the CST Act.
42. One other decision of the Supreme Court of India reported in [1980] 46 STC 164 (Consolidated Coffee Ltd. v. Coffee Board, Bangalore) may be noticed for the sake of completion. This is only for the purpose of finding out whether in an auction sale, when the hammer falls does a contract of sale come into existence ? The Supreme Court clarified as follows :
"If the auction sale of chattels is unconditional and is in respect of specific ascertained goods and nothing remains to be done to the goods for putting them in a condition ready for delivery, the property in the goods would pass to the purchaser upon the acceptance of the bid but that would not be because of Section 64(2) of the Sale of Goods Act, 1930, but because of Section 20 and such would not be the case if the goods sold thereat are non-specific or unascertained goods or the auction sale is conditional. Section 64(2) has nothing to do with the aspect of the passing of the property at an auction sale and it is by virtue of goods being specific and in a deliverable state that under Section 20 the property in such goods passes to the buyer at the completion of the contract at the fall of hammer at such sale."
43. It was further held that in a coffee auction sale the property in the goods does not pass at the fall of the hammer. The property in the coffee sold passes to the buyer immediately upon payment of full price, weighment and setting apart of coffee for delivery to the buyer under the clauses in the auction sale conditions.
44. One is bewildered by the enormous number of cases each being different in someway or other on facts. So is the case before us on facts. It is not necessary to analyse all the decisions because the cardinal principles have been clearly set out in paragraph 15 of the Law Commissioner Second Report relating to inter-State barriers. We have already noticed the said principles, namely, where there is movement of goods from one State to another and it is the result of a covenant or incident of contract of sale or purchase, then it will fall under the category of inter-State sale. The whole idea is to encourage sale from one State to another and not to cripple such inter-State trade and commerce by the levy of discriminatory taxes by one State or another. Therefore, we have to look at the whole case in a broad sense and find out whether there was a contract of sale occasioning the movement of goods from one State to another. Technicalities relating to the passing of property in the goods and the conclusion of the sale on payment of price, etc., cannot detract from the nature of inter-State sale. One question which looms large on facts of the present case is whether the goods were ascertained or unascertained at the time when movement of the goods commenced from Bombay to Tamil Nadu. On this issue there is a word of caution from the Supreme Court of India in [1976] 37 STC 489 [Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax, Jabalpur). We will closely look into the facts of that case, once again. According to the Madhya Pradesh dealer, they did not sell ore mined from one place. They were mixing ores from different places. The mixture does not require any physical or mechanical process. Ores from different mines are despatched in specified quantities. The mixture is produced at the time of unloading at the destination. It was therefore contended :
"The argument of the learned counsel for the petitioner is that a contract for the sale of oriental mixture or any other mixture is a contract for sale of future goods, that the goods sold come into existence at the place of destination after the wagons coming from different mines are unloaded at one place, and that the goods sold are neither appropriated to the contract in Madhya Pradesh nor do they move from Madhya Pradesh to another State for the reason that the goods sold are never in existence in Madhya Pradesh and they come into existence for the first time at the place of destination."
45. The agreements specified the quality and goods required by buyers. The Supreme Court culled out the essence of the agreement as follows* :
"It will be seen from the terms and conditions of the agreements of sale that samples taken from deliveries from each mine were to form the basis of settlement, the price was f.o.r. mine sidings with scale pro rata depending on manganese content of the ore, deliveries were taken by the buyers who were consignees at the mines sidings and the risk passed to the buyers after the loading of the goods into the wagons at the mines sidings. May be that the buyers, as argued by the learned counsel for the petitioner, could still reject the goods at the destination if the ores arriving from different mines were not in such a proportion as to result into a mixture of the contracted grade. But the component ores were appropriated to the contract at the mines sidings by the sellers with the consent of the buyers when they were loaded in the wagons. The ore from the mines of Madhya Pradesh moved to the place of destination in another State as a result of a term or covenant in the contract of sale ; and the ore was within Madhya Pradesh at the time of its appropriation to the contract of sale."
The conclusion of the Supreme Court is as follows:
Taken from the High Court judgment which has been affirmed on main point by the Supreme Court.--Ed.:
"But the ore from the mines of Madhya Pradesh was appropriated to the contract by the petitioner in Madhya Pradesh at the time of loading it in the wagons at the mines sidings and the ore sold moved to Bombay or Vizag in another State as a necessary incident of the contract of sale. Property in the goods may have passed at the destination, but passing of property is not the test under Section 3(1), As the movement of the goods was under a covenant or an incident of the contract of sale, all these sales fell within Section 3(1) and were sales in the course of inter-State trade or commerce."
46. With regard to Section 4 of the CST Act, the Supreme Court in [1976] 37 STC 489 [Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax] observed :
"It is immaterial that the buyers could reject the goods at the place of destination or at the port if the petitioner-company did not despatch the component ores in such proportion as to make up the mixture of contracted grade, for Section 4(1) does not refer to unconditional appropriation or passing of property. The position, therefore, is that the sales fell within Section 4(2)(b) and were inside sales as regards the State of Madhya Pradesh,
27. Section 4 of the Central Sales Tax Act is subject to Section 3 of the Act. As the sales were inter-State sales under Section 3, they were not taxable under the State Act in spite of the fact that they were inside sales under Section 4(2). The sales were taxable only as inter-State sales in Madhya Pradesh under Section 9 of the Central Sales Tax Act."
47. It may be a little difficult to reconcile [1969] 23 STC 86 (Mad.) [Cement Distributors (P.) Ltd. v. Deputy Commercial Tax Officer] with the above judgment of the Supreme Court. Be that as it may, once we steer clear of the problem of appropriation of goods to the contract, we are on safe grounds in this case. If we now look at the facts through the above legal principles, things are more clear and understandable.
48. We must start with a criticism of the typed set of papers, because they do not relate to one set of goods or contract and how the movement took place, where the weighment was made, when the goods were delivered and appropriated and price paid. All these documents are available, but with reference to different goods and contracts. However, since most of the documents are verifiable from Government records, we proceed on the basis of the available documents.
49. In every case there is first an offer by the Tamil Nadu mills addressed to the sales office of the Federation at Coimbatore. One such offer is the letter dated February 11, 1983 wherein all the essentials of the deal are disclosed. By a letter dated February 19, 1983, the Federation confirms the deal and writes to its various zonal Managers, enclosing provisional contracts. This letter relates to 36,000 bales and contains despatch instructions, which we have already quoted. Then follows a contract with delivery and payment terms, addressed to the respective mills in Tamil Nadu. The standard terms are printed overleaf. There is reference to contract being on spot basis, meaning that expenses up to stage of loading shall be borne by the Federation. By a letter dated March 14, 1983, the mills requested the sales officer to send despatch advice, for a bulk of 11,500 bales. A pro forma copy of regular agreement dated December 26, 1985 is available. It says that selection and weighment will be done at the spot, meaning the place in Maharashtra where bales are loaded. On April 8, 1983 the sales office, Coimbatore, gives despatch instructions. We have already noticed the delivery notes, sale invoice and weighment note. The above documents clearly indicate a movement of goods from Maharashtra to Tamil Nadu, on the basis of an offer and acceptance, which itself is sufficient to form a contract. But in this case there are written contracts which appear to be provisional. It is vehemently urged by the Government Advocate that the dominion and ownership over the goods remained with the seller (Federation) till payment was made in Tamil Nadu, that the Federation was the beneficiary in the insurance policies, that even in the godown of the Tamil Nadu mills, the goods were retained as the goods of the Federation and that the Federation had an option of resale of the goods in the event of default committed by the buyer. According to the Revenue, these terms and conditions would clearly indicate that the sale took place only in Tamil Nadu and the goods did not move from Maharashtra to Tamil Nadu on account of any contract of sale. These conditions are no doubt available in the various agreements between the parties, executed at various stages'. But in our opinion these clauses will not detract from the conclusion that the goods moved from Maharashtra to Tamil Nadu on the basis of an agreement of sale in respect of specified variety and grade of cotton as required by the respective mills in Tamil Nadu. We have already seen that as against the offer by a Tamil Nadu mill there was a confirmation by the Federation indicating the variety and grade and the zone from which the cotton bales should be despatched. This itself, in our opinion is more than sufficient to arrive at a conclusion that the goods moved on account of a firm contract. Further, the despatch instructions sent by the Tamil Nadu mills addressed to the sales office of the Federation shows the goods required by each of the mills, indicating the zone, the stations, the lot number, the guarantee and the variety and grade required by each of the mills. It is too much to ignore these documents and hold that it was only a provisional arrangements which may or may not be concluded as a contract. This is not a case which can be brought under [1994] 92 STC 325 (Mad.) (Rallis India Limited v. State of Tamil Nadu), as relating to stock transfers irrespective of purchase orders or under [1995] 98 STC 82 (AP) (State of Andhra Pradesh v. Coromandel Paints & Chemicals Ltd.) as relating to a standing offer to keep paints of varieties ready at the sub-office or branches and supply the same on requisition by the Shipping Corporation of India or [1975] 36 STC 389 (SC) [State of Tamil Nadu v. Cement Distributors (P.) Ltd.] as relating to moving of stocks from Madras to Calcutta and keeping the stocks of cements ready for distribution in the non-available areas or [1973] 32 STC 629 (SC) (Kelvinator of India Ltd. v. State of Haryana) as relating to agreements for the distribution of refrigerators and not relating to agreement of sale between the parties. Nor are we impressed by the argument of the learned Government Advocate that the mere fact of a right to reject the goods giving rise to the conclusion that the goods did not move to Tamil Nadu on the basis of a firm contract of sale [see for instance the judgment in [1976] 37 STC 489 (SC) at page 506 Manganese Ore (India) Ltd. v. Regional Assistant Commissioner of Sales Tax, Jabalpur]. We are also not impressed by any of the reasons given by the lower authorities which deal only with the technical aspects and the fringe areas of an inter-State sale within the meaning of Section 3(a) of the CST Act. One has to go into the root of the matter and see whether in fact there was a movement of goods from one State to another on the basis of a contract of sale. We are fully satisfied with this aspect of the case on the facts and circumstances of the case. Consequently, we hold that the transactions involved in all the cases are not taxable under the TNGST Act as local sales. We, therefore allow all the cases. The Tax Appeals and Tax Revisions cases are allowed to the above extent. The T.Ps. and O.Ps. are also allowed and the respective assessing authorities are permitted to make a reassessment because other issues are involved in those cases.
50. And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
51. Issued under my hand and the seal of this Tribunal on the First day of November, 1999.