Madras High Court
State Of Tamil Nadu vs K.V. Baby & Co. on 17 September, 1991
Author: A.S. Anand
Bench: A.S. Anand
JUDGMENT Dr. A.S. Anand, C.J.
1. These four tax revision cases have been filed by the Revenue against a common order of the Tamil Nadu Sales Tax Appellate Tribunal, dated July 6, 1981. The assessee/respondent in all the four cases is common and the issues involves are also common. We propose to deal with the four revisions therefore, in common.
2. The assessments relate to the assessments years 1974-75 to 1977-78 under the Central Sales Tax Act, 1956 (hereinafter called "the Act"). The assessee is a manufacturer of lemon-grass oil. It had taken forest contracts with the Forest Department in Tamil Nadu during the years 1974-75 to 1977-78 and had extracted lemon-grass which was later on converted into lemon-grass oil. On an inspection of the business premises of the assessee on February 9, 1978, certain incriminating documents were recovered. The documents were verified with the records and it was found that the assessee had manufactured lemon-grass oil and transported the stocks to Kothamangalam in Kerala State through rail. The assessing authority was, thus, of the opinion that the sale of lemon grass oil had been made as a result of contract for supply of the same to dealers in Kerala State in the course of inter-State trade or commerce and accordingly, the sales were held exigible under the Act for all the four assessment years. Whereas the assessee had reported "nil" turnover, according to the inspection made, the assessing authority found that inter-State sales taxable under the Act had been suppressed and, therefore, penalty was levied of various amount for all the four years in the assessment proceedings. It is not necessary to refer to the turnover amounts or the penalties, for the issue involved in the case is legal.
3. The issue that we are called upon to decide in the case is, whether, in the facts and circumstances of the case, the sale or purchase of goods can be said to have taken place in the course of inter-State trade or commerce and thereby exigible to tax under the Act.
4. The undisputed facts are that the assessee/respondent carried on business in lemon-grass oil from the year 1974-75. Lemon-grass oil manufactured by the assessee/respondent in the State of Tamil Nadu was despatched to the State of Kerala. Most of the deliveries of the product were effected in favour of two parties, viz., K. E. Mathai & Sons and K. B. Kurian of Kothamangalam in Kerala State; there were, of course, some other sales also in favour of some other traders in Kerala State. The sales tax authorities in the State of Tamil Nadu were of the opinion that the goods had been transported to Kerala State for sale to specified parties as a result of contract for supply of the same and, therefore, the transactions in question were inter-State sales since they were made in the course of inter-State trade or commerce. The sales were thus held to be exigible to tax under the Act.
5. The appeal filed by the assessee/respondent before the Tamil Nadu Sales Tax Appellate Tribunal for all the four years succeeded and it was held that there was no material on the record to justify the conclusion that the transactions in the case were inter-State sales and that the finding that the movement of the goods had taken place as a result of a covenant or incidence of contract of sale was based on surmises and conjectures. The Tribunal, therefore, allowed the appeals and set aside the order of the assessing authority as well as the Appellate Assistant Commissioner. The Tribunal held that since the assessments were not valid and not legally correct, the question of levy of penalty on the assessee for any of the four assessment years was uncalled for. The penalty was accordingly cancelled. The Revenue, being aggrieved, has come up in revision.
6. Learned Additional Government Pleader (Taxes) appearing for the Revenue, submitted that since the sales had been effected by the assessee/respondent to only two specified buyers in Kerala State, the Appellate Assistant Commissioner as well as the assessing authority were justified in holding that the goods have moved from Tamil Nadu to Kerala in pursuance of an existing contract between the buyer and the seller and that the sales on that account were inter-State sales. Learned counsel for the assessee/respondent has, on the other had, submitted that the case of the assessee/respondent throughout has been that the assessee itself had transported lemon-grass oil, at its own risk and cost, to Kerala and that after having taken delivery of the goods in Kerala and effected sales to various buyers and that the transactions did not involve any inter-State sale.
6A. Section 3 of the Act deals with inter-State sales and details the circumstances as to when a sale or purchase of goods can be said to take place in the course of inter-State trade or commerce. In this connection, two tests are applied, (i) whether the sale or purchase occasioned the movement of the goods from one State to another; and (ii) whether the sale or purchase took place by transfer of documents of title during the movement of the goods from one State to another. In either of the two cases, if the answer is in the affirmative, the transaction would be deemed to be a sale in the course of inter-State trade or commerce. A sale would be deemed to have occasioned the movement of the goods from one State to another within the meaning of clause (a) of section 3 of the Act when the movement of those goods is the result of a covenant or incidence of the contract of sale, even though the property in the goods passes in either State. The movement of goods in such cases must be the result of a covenant or incidence of a contract of sale and there must be an obligation to export it, irrespective of the fact whether the obligation is on the seller or the buyer. With a view to find out whether a particular transaction is an inter-State sale or not, it is essential to see whether there was movement of the goods from one State to another as a result of a prior contract of sale or purchase. The case of the assessee/respondent from the inception has been that it was extracting oil from lemon-grass and the oil so extracted was filled in plastic containers which were packed in empty gunny bags and taken by parcel train from Pollachi to Alwaye in the name of the partners or the employees. The assessee maintained that it was transporting the lemon-grass oil at its own risk and cost and had itself received deliveries at Alwaye. Both the consignor and the consignee in respect of the various despatches made were the same. The sales were made to the buyers in Kerala, including K. E. Mathai & Sons and K. P. Kurian against cash bills. It had also produced the certificate from the Station Master, Pollachi, evidencing the despatches made on various occasions and it is seen from the same that the name of the consignee and the name of the consignor in respect of the despatches made in each one of the four assessment years were the same. Besides, it was maintained by the assessee, and there is no contra evidence or material produced by the Revenue, that the purchasers of lemon-grass oil in the State of Kerala had accounted for the purchases and paid the tax on the purchases as the commodity was exigible to tax in the State of Kerala, at the point of last purchase. The assessee had also filed not only its own affidavit before the Tribunal detailing all these facts but also the affidavits of the purchasers of the oil in the State of Kerala. A perusal of all these affidavits goes to show that the goods in question were brought to Kothamangalam in Kerala by the assessee and after ascertaining the local market conditions, were sold to different persons in retail against cash payments. None of the sales was effected by endorsing the railway receipt in the name of the purchaser and a contrary observation to that effect by the Appellate Assistant Commissioner is, undoubtedly, not correct. The railway receipts, which are available on the file, show that there was no endorsement made in the name of the purchaser in the other State and that the same were transported to Kerala by the consignors, deliverable to the consignee, none other than the consignor itself. The assessing authority and the appellate authority drew upon their imagination and surmises when they held that the movement of the goods from Tamil Nadu to Kerala had been effected as a result of a prior contract or an understanding. There is no basis for this observation. The Sales Tax Appellate Tribunal, therefore, was quite justified and right in coming to the conclusion that the lemon-grass oil extracted by the assessee had only been taken to Kerala as the property of the assessee itself without there being any prior contract of sale for supply of the goods to any buyer occasioning the movement of the goods in the course of inter-State trade or commerce. This finding of fact has been arrived at by the Tribunal not only on the basis of the affidavit filed by the assessee/respondent but also on the basis of the other records available before the Tribunal. The Revenue did not produce any material whatsoever to evidence that the despatches of lemon-grass oil had been made only as a result of a covenant or incidence of contract of sale. We are in agreement with the opinion of the Tribunal that in the case of the assessee, none of the elements of inter-State sale is present. It appears to us that the assessing authority as well as the Appellate Assistant Commissioner were influenced by the fact that the sales in Kerala had been mostly made in favour of K. E. Mathai & Sons and K. P. Kurian and, therefore, they presumed that the movement of the goods had taken place as a result of a prior contract. There is no material on the records to support this view of the Appellate Assistant Commissioner or the assessing authority.
7. In view of what we have noticed above, we are of the opinion that the findings of fact recorded by the Tribunal to the effect that the sale in question were not inter-State sales and that the movement of the goods had not taken place as a result of any covenant or incidence of a prior contract of sale between the assessee and the buyers in Kerala State and also that the goods had been transported by the assessee itself to Kerala and sold in Kerala are sound and based on the material on record. The order of the Tribunal does not suffer from any error whatsoever. The revisions have no merit and the same are hereby dismissed. We, however, leave the parties to bear their own costs.
8. Petitions dismissed.