Patna High Court
Commissioner Of Commercial Taxes vs The State Trading Corporation Of India ... on 8 February, 1972
Equivalent citations: [1973]30STC451(PAT)
JUDGMENT Shiveshwar Prasad Sinha, J.
1. This is a reference under Section 33(3) of the Bihar Sales Tax Act, 1959, on the following questions:
(1) Whether in the facts and circumstances of the case and on a true construction of the contract document between the S.T.C. and the H.S.L. read with the contract between the S.T.C. and their seller (the mine owners), the Tribunal is right in holding that the State of Bihar is not legally entitled to levy Central sales tax on the sales effected by the S.T.C. to the H.S.L. to the extent that certificates in forms E-l/E-2 are produced on proper and sufficient opportunity being afforded for the purpose ?
(2) Whether the order of remand passed by the Tribunal for allowing the opposite party sufficient opportunity to furnish to the assessing officer in the prescribed manner certificates in forms E-l/E-2 duly filled and signed by the registered dealer, from whom the goods were purchased, the containing the prescribed particulars and for modifying the assessment after taking into consideration the said certificates, is valid in law ?
(The abbreviations "S.T.C." stands for State Trading Corporation of India Ltd. and "H.S.L." stands for Hindustan Steel Ltd.). Both these shall hereinafter be referred to in the same abbreviated form.
2. The S.T.C. is a registered dealer under the Central Sales Tax Act, 1956 (hereinafter referred to as the Act), bearing registration No. SG-575-(c) under the Chaibasa sub-circle of the commercial taxes department and deals in iron and manganese ore. The assessment year for which the assessment is in question is the year 1959-60, the period of assessment being 1st April, 1959t to 31st March, 1960. The dealer S.T.C. obtained a gross turnover of Rs. 38,24,724.44 during the relevant year from supply of iron ore to the H.S.L., which also has been held to be a registered dealer. The claim of the S.T.C. before the assessing officer was that it had purchased iron ore from certain mine owners in Bihar on f.o.r. (free on rail) loading-station-basis for selling it to the H.S.L. for their units in Durgapur in West Bengal, Bhilai in Madhya Pradesh and Rourkela in Orissa. The sales by the mine owners to the S.T.C. were inter-State sales within the meaning of Section 3 of the Central Sales Tax Act and the sales by the S.T.C. to the H.S.L. were the subsequent inter-State sales with respect to the same goods during the same movement and as such the subsequent sales were exempt from taxation by virtue of the provisions of Sub-section (2) of Section 6 of the Act.
3. The assessing officer, accepted the gross turnover returned by the S.T.C. but did not accept the claim for exemption and held that the sales by the mine owners to the S.T.C. and the sales by the S.T.C. to the H.S.L. were distinct and separate transactions. The first was an intra-State sale and the next was an inter-State trade sale. The sales made by the S.T.C. to the H.S.L. were, therefore, taxable. Since, however, the declaration in form 'C had been produced from the H.S.L. in respect of a part of the turnover, that part was taxed at 1 per cent, of the turnover and the rest was taxed at 7 per cent, of the turnover. The S.T.C. having failed in its appeal before the Deputy Commissioner of Commercial Taxes, Ranchi, filed a revision application before the Board of Revenue which transferred the matter to the Sales Tax Tribunal, the latter having been formed by that time to deal with revisions against appellate orders.
4. The Sales Tax Tribunal (hereinafter referred to as the Tribunal) in order to decide the point of controversy bifurcated the issues in two parts : (1) whether the sales effected by the mine owners to the S.T.C. are inter-State sales, and (2) whether the sales by the S.T.C. to the H.S.L. being the subsequent inter-State sale was covered by Section 6(2) of the Central Sales Tax Act and as such exempt from imposition of sales tax.
The Tribunal, on a consideration of the contract documents between the mine owners and the S.T.C. and the S.T.C. and the H.S.L., answered both the questions in the affirmative. In order, however, to get exemption in terms of Section 6(2) of the Act, declaration in forms E-l and E-2 of the Central Sales Tax (Registration and Turnover) Rules, 1957, was essential, which declarations had not been filed by the S.T.C. The Tribunal, on a consideration of the fact that non-filing of the said declaration was for no fault of the S.T.C. directed the assessing officer to allow enough opportunity to the S.T.C. to file the certificates in forms E-l and E-2 of the said Rules.
5. The Commissioner of Commercial Taxes, Bihar, sought a reference to this court on the two questions stated above, but the same having been refused, he moved this court which called upon the Tribunal to submit a statement of the case on the aforementioned questions.
6. Mr. Sushil Kumar Jha, appearing for the Commissioner of Commercial Taxes, submitted that the crux of the matter lay in the question as to whether the sales by the mine owners to the S.T.C. were inter-State sales. If that was not an inter-State sale, the subsequent sale by the S.T.C. to the H.S.L. would be a distinct and separate transaction of inter-State, which would be taxable as such. According to Mr. Singh, since the Tribunal had found it as a fact that the sales by the mine owners to the S.T.C. had been completed within the State of Bihar, whatever further action was taken by the S.T.C. in respect of the goods so purchased would not constitute a connected transaction in the course of inter-State trade. In support of his contention, he made reference to two decisions, namely, a decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Commercial Tax Officer, Lyons Range Charge and Ors. [1967] 20 S.T.C. 345 and a decision of the Madhya Pradesh High Court in the case of Commissioner of Sales Tax v. Nathani Brothers [1968] 21 S.T.C. 465. According to the former decision, the expression "occasions the movement of goods" within the meaning of Section 3(a) of the Act connoted that the movement must occur under the contract itself. When the movement was not under the contract but due to reasons extraneous to obligations under the contract, it was not a movement in the course of inter-State trade or commerce. The latter High Court has also taken the same view and has added that if the movement of the goods was not by reason of the sale but a movement after the sale was completed and delivery was taken in the State by the buyer, the sale was not a sale in the course of inter-State trade or commerce. On the basis of these authorities, Mr. Singh submitted that the provisions of Section 6(2) of the Act could not be applied to the transaction of the sales between the S.T.C. and the H.S.L. and that the Tribunal had erred in exempting the sales from tax.
7. Mr. Chatterji, appearing on behalf of the S.T.C. replied that in order to determine whether the transactions were in the course of inter-State trade or commerce the fact that the sale by the mine owners to the S.T.C. had taken place inside the State of Bihar was wholly immaterial. The question as to whether the sale was in the course of inter-State trade or commerce normally postulated that the sale had taken place inside State of Bihar and only thereafter it had to be decided whether even by reason of the movement of the goods from one State to another, the sale continued to be an intra-State sale or by virtue of the movement constituted an inter-State transaction. It was, therefore, submitted that notwithstanding the finding by the Tribunal that the sale between the mine owners and the S.T.C. had been completed within the State of Bihar, the question as to whether that sale together with the sale made to the H.S.L. constituted a transaction in the course of inter-State trade or commerce would still have to be decided on the basis of a true construction of the contract documents. According to Mr, Chatterji, if the document was capable of interpretations more than one, but one of the interpretations went in favour of the subject, it is that interpretation which should be upheld while deciding the reference and not the one which went against the interest of the subject. Even otherwise, according to Mr. Chatterji, the contract documents had been correctly understood by the Tribunal and, therefore, the reference must be answered in favour of the dealer.
8. As has been rightly argued by Mr. Jha, the learned counsel for the Commissioner of Commercial Taxes, the crux of the matter lies in the answer to the question as to whether the sales by the mine owners to the S.T.C. was a sale in the course of inter-State trade. If that was so, the subsequent sale by the S.T.C. to the H.S.L. would automatically attract the provisions of Section 6(2) of the Act in which case the transactions would be exempt from tax. If the transactions would be so exempt, the direction given by the Tribunal for allowing the S.T.C. to file the certificates in forms E-l and E-2 would be more or less a direction following as a matter of course in pursuance of the answer to the primary question.
9. Section 3 of the Act defines as to when a sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce. According to this provision, the sale or purchase shall be deemed to have taken place in the course of inter-State trade or commerce if the sale or purchase-(a) occasioned the movement of goods from one State to another, or (b) is effected by transfer of documents of the goods during the movement from one State to another. Sub-section (1) of Section 6 is the charging section which makes sales effected in the course of inter-State trade or commerce taxable. Sub-sections (1) and (2) of Section 8 of the Act lay down the percentage of tax to be levied on such inter-State sales. Sub-section (2) of Section 6, however, makes an exception which reads as under :
(2) Notwithstandnig anything contained in Sub-section (1) or Sub-section (1-A) where a sale in the course of inter-State trade or commerce of goods of the description referred to in Sub-section (3) of Section 8-
(a) has occasioned the movement of such goods from one State to another; or
(b) has been effected by a transfer of documents of title to such goods during their movement from one State to another ; any subsequent sale to a registered dealer during such movement effected by a transfer of documents of title to such goods shall not be subject to tax under this Act:
Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner a certificate duly filled and signed by the registered dealer from whom the goods were purchased, containing the prescribed particulars.
The requirements of this provision are : (1) The sale must be a subsequent sale ; (2) to a registered dealer ; (3) effected by transfer of documents of title to the goods during the movement of the goods ; and (4) the goods should be of the description referred to in Sub-section (3) of Section 8 of the Act which for the purposes of this case would mean goods of the class or classes specified in the certificate of registration of the dealer who makes the subsequent sale.
By the proviso a further obligation is cast on the dealer making subsequent sales, namely, to furnish the certificates in forms E-l and E-2, form E-l being a certificate by the selling dealer who first moved the goods and E-2 being a certificate by the subsequent transferor of the same goods. The question, therefore, is whether the first sale by the mine owners to the S.T.C. constituted an inter-State sale.
A specimen copy of the contract between the mine owners as the sellers and the S.T.C. as the buyers has been filed before this court. The relevant materials in the said contract are that the mine owners were told under article No. 3 of the said contract about the movement sector and loading stations where they had to load the iron ore and further under article No. 4 the destination of the said iron ore was also mentioned which destinations were at places outside the State of Bihar. Then there was an appendix to the said contract laying down certain terms agreed to between the parties. The prices were fixed on the basis of f.o.r. loading station situated in the State of Bihar. For the final settlement of accounts the railway receipt weight was to be the final document, but the mine owners were made responsible that the analysis of the iron ore must conform to the specification. 80 per cent, of the price was to be paid to the mine owners within 30 days of the submission of the bills and the balance of 20 per cent, was to be paid within 60 days of the booking of the consignment. In terms of clause 5 of the said appendix, iron ore was to be loaded in the wagons supplied by the Indian Railways and it was incumbent upon the mine owners to load the wagons to its capacity, neither more nor less. The responsibility for demurrage, if any, for the detention of the wagon at the loading station and also loss for overloading of wagons or underloading of wagons was to be borne by the mine owners. If the mine owners failed to move the ore according to the movement schedule either due to insufficient placement of indent by them or for non-placement of wagons by the railways the contracted quantity was to be reduced to that extent without prejudice to the S.T.C.'s right under the contract. The railway receipt after loading iron ore was to be promptly surrendered by the mine owners to the S.T.C. and any demurrage incurred on account of late receipt of the railway receipt was to be borne by the mine owners. Under clause 8, it was further stipulated that in the event of default by the mine owners in adhering to the delivery schedule or for non-performance of the contract, the S.T.C. had the right to purchase, at the risk and expense of the mine owners, such quantity of iron ore as was involved in the contract, the excess prices and all incidental expenditure connected therewith to be borne by the mine owners.
The S.T.C. in its turn contracted with the H.S.L. to supply those very goods for which it had contracted with the mine owners on terms and conditions which were of identical nature.
10. Now, according to the learned counsel for the petitioner, the purchase by the S.T.C. from the mine owners, although, no doubt, for the purpose of selling it to the H.S.L., had no connection inter se. The purchase from the mine owners was a completed transaction by itself and the supply to the H.S.L. was an independent transaction, so that the former could not be called an integral part of the other. It is, no doubt, true that there is a clear distinction between sales "in the course of inter-State trade or commerce" and sales "for the purposes of inter-State trade and commerce". If it was not incumbent upon the mine owners to send the goods purchased by the S.T.C. to the destinations under the contract, so that the same may be delivered to the H.S.L., it would have been a case of a purchase for the purposes of inter-State trade and commerce. Where, however, the mine owners by reason of the contract between them and the S.T.C. are under an obligation to send the goods to places outside the State of Bihar, so as to reach the H.S.L., I think, it would be a case of sale in the course of inter-State trade or commerce. The question as to whether the sale was in the course of inter-State trade or commerce, has always to be decided on the particular facts and circumstances of each case. But all the same after the decision of the Supreme Court in the case of The State of Bihar and Anr. v. Tata Engineering & Locomotive Co, Ltd. [1971] 27 S.T.C. 127 at p. 145 (S.C.), the guidelines have been distinctly laid out. This was a case which arose from a judgment of this court, the decision of the Patna High Court being reported in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar and Anr. A.I.R. 1967 Pat. 53. This court had taken the view that in order to constitute a sale in the course of inter-State trade or commerce, three essential ingredients should be present :
(1) There must be an intention on the part of the seller and the buyer about the inter-State movement of the goods sold ; (2) there must be an obligation on the buyer to make such a movement, and (3) there must be actual movement of goods out of the State in which it was sold.
The Supreme Court confirmed the view expressed by this court. The relevant facts of the case were that the assessee carried on the business of manufacturing and sale, inter alia, of trucks, bus chassis and other spare parts to the appointed dealers, State Transport Organisations and individual buyers, throughout India. Under the agreements each dealer was assigned a territory in which alone he could sell the trucks, bus chassis and other spare parts purchased by him. He was forbidden from selling all those articles to any purchaser outside his territory. As per the agreements, the dealers were required to place their indents, pay the prices of the goods to be purchased and after obtaining delivery orders from the assessee's registered office at Bombay, take delivery of the goods from Jamshedpur where those goods were manufactured. Having taken delivery of the goods the dealers were obliged under the contract of sale to remove the goods to places outside Bihar in order to sell it in the territory assigned to them The question arose as to whether the purchase by the dealers, which in all respects was completed in the territory of Bihar itself, was a sale by the assessee in the course of inter-State trade or commerce. Dealing with the matter their Lordships demarcated a clear distinction between sales "for the purposes of inter-State trade or commerce" and sales "in the course of inter-State trade or commerce". Explaining their decision in the case of State of Travancore-Cochin v. Bombay Co., Ltd. [1952] 3 S.T.C. 434 (S.C.), Hegde, J., speaking for the court observed :
...In that case this court further observed that a sale by export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale and the resultant export form parts of a single transaction. Of these two integrated activities which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Even in cases where the property in the goods passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey from the State, the sales must be regarded as having taken place in the course of the export and, therefore, exempt under Article 286(1)(b). The same exposition of the law is true of Clause (2) of Article 286 as it stood prior to its amendment on September 11, 1956.
Their Lordships struck a note of caution by reference to the case of Endupuri Narasimham and Son v. State of Orissa [1961] 12 S.T.C. 282 (S.C.), that a purchase made inside the State, for sale outside the State, cannot itself be held to be in the course of inter-State trade, but where, quoting from the decision in the case of Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, Special Circle, Ernakulatn [1964] 15 S.T.C. 753 (S.C.), "a sale in the course of export predicates a connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction..." or as observed by the Supreme Court in the case of Tata Engineering and Locomotive Co., Ltd. v. Assistant Commissioner of Commercial Taxes [1970] 26 S.T.C. 351 (S.C.), "...to occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it..." Such a sale would be in the course of an export. The principle that where the first sale cannot be dissociated from the subsequent sale, both of them constituting together an integrated activity for carrying the goods to outside the State, would equally apply to cases of inter-State sales. Therefore, if the facts denote that the first sale by the mine owners to the S.T.C. was so inextricably linked with the sale by the S.T.C. to the H.S.L., the fact that the sale by the mine owners to the S.T.C. was completed in the State of Bihar would absolutely be immaterial for determining the nature of the transaction between the S.T.C. and the H.S.L.
11. Now, applying the principle laid above to the facts of the instant case, I find on the basis of the facts found by the Tribunal, which have not been disputed and which could not be disputed in this reference application before this court, that although the sale or the supplies by the owners to the S.T.C. would be deemed to have been completed at the loading station itself, the owners were still under an obligation to load in the railway wagons and to see that it reached the destination station outside the State of Bihar. Till such time as the goods reached the destination station, the liability of the mine owners with regard to demurrage, overloading or underloading or the goods not conforming to the specification remained with them. Quite apart from it, the loading of the goods in the wagons by the mine owners was directly and inextricably connected with the contract which the S.T.C. had with the H.S.L. to move the goods from the State of Bihar to places outside it. In my opinion, therefore, the argument made on behalf of the petitioner that the sale by the mine owners to the S.T.C. was for the purpose of inter-State trade and not in the course of inter-State trade, is erroneous (sic) from the mine owners and the supply to the H.S.L. were so inextricably connected that if one was interrupted the other would fail. In my opinion, therefore, the sale by the mine owners to the S.T.C. although having been completed in the State of Bihar, was a sale in the course of inter-State trade or commerce and the subsequent sale by the S.T.C. to the H.S.L. was exempt from tax under Sub-section (2) of Section 6 of the said Act. The Tribunal, therefore, rightly held that the sales were not exigible to tax under the Act. The question as to whether the Tribunal was justified in remanding the case allowing the opposite party opportunity to furnish the certificates in forms E-l and E-2 is in the nature of a direction which, under the circumstances, the Tribunal was justified in giving.
12. As stated earlier, the learned counsel for the petitioner had made reference to two decisions, one of the Madhya Pradesh High Court in the case of Commissioner of Sales Tax v. Nathani Brothers [1968] 21 S.T.C. 465, and the other of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Commercial Tax Officer [1967] 20 S.T.C. 345, for the proposition that unless the movement of the goods outside the State was occasioned by reason of a contract for such sale, such a movement could not be called a movement in the course of inter-State trade or commerce.
Having gone through both these decisions, even if the ratio decidendi of these decisions be understood in the manner as understood by the learned counsel for the petitioner, they do not go against the claim of the opposite party, because on the facts the movement of the goods from Bihar by the mine owners was occasioned by reason of a contract to do so. But, in my opinion, on a correct reading of these two decisions they do not say anything more than that the sale or purchase occasioning the movement of goods within the meaning of Section 3(a) of the Act should be necessarily involved in the purchase or sale itself ; and that notwithstanding the absence of a covenant to move the goods, the sale or purchase necessarily involved the movement.
The Madhya Pradesh High Court in the said case observed by reference to a decision of the Supreme Court in the case of Commissioner of Sales Tax v. Husenali Adamji and Co. [1959] 10 S.T.C. 297 at p. 308 (S.C.), that "...it is only when a contract contemplates delivery of goods in another State that the sale could be said to be inter-State...." The passage following thereafter, however, clarified the context in which that observation was made. Referring to one of the decisions of the Madhya Pradesh High Court in the case of Commissioner of Sales Tax, M.P. v. Shri Allwyn Cooper, Katangjhiri (unreported decision) [1968] 21 S.T.C. 417 it was observed:-"This observation clearly indicates that the movement of the goods was by reason of the sale and for the purpose of giving delivery of the goods to the purchasers at the places outside the State..." Thus, although in the foregoing passage the existence of contract for delivery of goods in another State was stressed at, in the latter paragraph it was only the movement of the goods by reason of the sale which was considered an essential ingredient to determine the nature of the sale. Similarly, the decision of the Calcutta High Court can only be understood as saying that the movement of the goods must be occasioned by reason of the sale or purchase in order to be called an inter-State sale within the meaning of Section 3(a) of the Act. Where, however, such movement was not "in the course of" inter-State trade but "for the purpose of" inter-State trade it would not be a sale in the course of inter-State trade. In my opinion, therefore, these decisions do not lay down the principles which the learned counsel for the petitioner has tried to read in them.
As to whether the existence of a covenant under the contract to move the goods outside the State was necessary in order to constitute an inter-State sale, the same was discussed by the Supreme Court in the case of Cement Marketing Co. v. State of Mysore [1963] 14 S.T.C. 175 (S.C.). In that case, the taxing officer had found that the contract of sale did not provide that the supply be made from a factory situated outside Mysore, but it was a matter of convenience for the supplier to make supplies from places outside Mysore State. The Supreme Court held that though such a covenant was absent from the contract itself the other circumstances connected with the sale including the permit issued by the Government involved such an inter-State sale. As observed by me earlier, each case has to be decided on its own facts and notwithstanding the absence of specific contract to send the goods outside the State, if the facts and circumstances denote that perforce the goods purchased have to be sent by the seller outside State, such a sale would be in the course of inter-State trade.
13. I accordingly answer both the questions in the affirmative, i.e., in favour of the assessee and against the Commissioner of Commercial Taxes. The opposite party shall be entitled to costs. Hearing fee Rs. 250.
Shambhu Prasad Singh, J.
14. I agree that both the questions be answered in the affirmative, as in the case before us the goods were to be sent outside the State by the sellers, i.e., the mine owners themselves; my learned brother has emphasised that fact in the penultimate paragraph of his judgment. It has been held in Shankerjee Raut Gopalji Raut v. State of Bihar A.I.R. 1968 Pat. 329, that what is of importance to make the sale as one in the course of export (inter-State trade and commerce in the instant case) is that there must be an obligation to export (transport outside the State in this case)-obligation may be of the seller or of the buyer-and it may arise by reason of statute, contract between the parties or from mutual understanding or agreement between them or even from the nature of the transaction which links the sale to export. Such obligation to transport outside the State undoubtedly did arise in the transaction between the mine owners and the State Trading Corporation. The Tribunal, therefore, rightly held that the sales by the mine owners to the State Trading Corporation were in the course of iner-State trade and commerce and not intra-State sales.