M/S. Hyderabad Engineering Industries vs State Of A.P

M/s Hyderabad Engineering Industries ................... Appellant

Versus

State of Andhra Pradesh .................Respondent

J U D G M E N T

H.L. Dattu, J.

1. This appeal is directed against the judgment and order dated

21.06.2002, passed by the Division Bench of the High Court of

Judicature of Andhra Pradesh at Hyderabad in Tax Revision Case

No. 54 of 1991. By the impugned judgment and order, the High

Court has dismissed the Revision Petition filed by the assessee,

inter-alia, holding that the disputed transactions constitute inter-

State sales, as contemplated under Section 3(a) of the Central Sales

Tax Act, 1956.

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2. 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

Central Sales Tax Act, 1956 (hereinafter referred to as, "the

Central Act").

3. M/s Jay Engineering Works Ltd. is a Public Limited Company,

registered under the Companies Act, 1956. It has its Head Office-

cum-Registered Office at 23, Kasturba Gandhi Marg, New Delhi.

In the State of Andhra Pradesh, the Company has registered itself

in the name and style of M/s Hyderabad Engineering Industries

(Prop. - The Jay Engineering Works Ltd.). It is registered as a

dealer under the Andhra Pradesh General Sales Tax Act, 1957 as

well as Central Sales Tax Act, 1956.

4. The Company is engaged in the manufacture and sale of

electrical fans, sewing machines, fuel injection parts and

accessories etc. The Company has its manufacturing units in

different parts of the country including Hyderabad, Andhra

Pradesh. In addition to the factory and office in Hyderabad, the

company has its branch office at Vijayawada in the State of

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Andhra Pradesh. Outside the State of Andhra Pradesh, the

company has its godowns in different States including Delhi. In

Kolkata, the company has its own office in the name of Eastern

India Usha Corporation.

5. M/s. Usha Sales Ltd. (subsequently known as Usha

International Ltd.) (hereinafter referred to as "UIL") is a company

registered under the Indian Companies Act, with its registered

office at 19, Kasturba Gandhi Marg, New Delhi. It has 16

divisional offices at various places in the country with different

names at every place wherever the assessee's godowns are located.

The assessee and UIL had entered into a sales agreement dated

01.05.1979. It was for a period of five years. Under the said

agreement, the main function of UIL was to organize the sale and

distribution of the products of the assessee and to arrange for sale

promotion measures of the products and to provide after sales

service and such other services as might be required in the interest

of sale of the said products. The agreement also envisaged that

UIL would purchase the said products as an independent principal

and maintain adequate stocks and sell the same as such. We will

refer to these clauses in the agreement while discussing the issues

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raised by the learned counsel for the parties at the time of hearing

of the appeal.

6. The Company has been an assessee on the rolls of the

Commercial Tax Officer, Company Circle-II, Nampalli,

Hyderabad. For the assessment year 1981-82, the assessee

company filed its annual returns under the Central Act in the

prescribed form.

7. The assessee company claimed exemption on a turnover of

`8,87,75,643.00 towards goods transported to out-of-state depots

otherwise than as a result of direct sale which would attract tax

under Section 6 of the Central Act.

8. The assessee's case before the assessing authority, Sales Tax

Appellate Tribunal and the High Court was that the transactions on

which exemptions claimed cannot be regarded as sales in the

course of inter-State trade, chargeable to tax under the Central Act.

This contention of the assessee is negatived by the assessing

authority, which view is confirmed by the Tribunal and the High

Court.

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9. The findings of the assessing authority with respect to the

nature of the transactions with its various branches, except in the

case of Calcutta Depot, may be set out in his own words :-

"The assessee company in Hyderabad is engaged in

the manufacture of different types of fans and fuel

injection parts. In pursuance of the said sales

agreement, M/s Usha Sales Limited, Delhi (now Usha

International Limited, Delhi) placed monthly indent

on HEI Hyderabad for the supply of the goods to its

offices in various stages. This indent is sent either by

telex or Telephone or through written communication.

This indent shows the model wise quantity required in

each of the regions and the destinations to which the

goods are to be sent are clearly mentioned at Madras,

Patna, Agra. At times even based on such indents

received from M/s. Usha Sales Ltd. Delhi the assessee

company is effecting the movement of goods from its

factory in Hyderabad to its own depots in the

destination given by the Usha Sales Ltd. Alongwith

the goods the assessee is sending gate pass (GPO)

Cum Challan proforma invoice, way bill and lorry

receipt, which are in the name of its own depot or

godown. Simultaneously HEI also sends a direct

communication to the "constituent" and further

requesting the "constitutent" of the UIL to take

delivery. At times, the unit of USL also informs the

HEI that it has taken delivery of goods.

In pursuance of the monthly allocation made by

the UIL head office New Delhi, the various

constituents or units of USL directly correspond with

HEI for the dispatch of the goods, such constituents

issue telegrams and telex message to HEI for urgent

dispatch of the goods.

On receipt of the goods in the out of state

depot, the depot incharge prepares invoice in favour

of the constituent of M/s Usha Sales Limited such as

Nalanda Sales Corporation, Western Sales

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Corporation, United Sales Corporation etc.,

generally the names of these purchasing units owned

by M/s Usha Sales Ltd. are printed on the invoices

issued by the assesses depots, which shown that there

cannot be any other purchases.

Depot wise stock register is maintained in

Hyderabad Factory showing modelwise quantitative

particulars of the goods sent to the depot goods sold

by the depot and the goods available with the depot

as stock at the end of prescribed period.

The Hyderabad factory did not receive only

orders or indents from any of its depots. The indent is

always placed by M/s Usha Sales Ltd. But for the

said indent, neither the Hyderabad factory nor any

depot known the model or quantity of goods to be sent

or to be received. Neither there is any

communication sent by the Marketing Deptt. of the

assessee company as they were never received.

On receipt of goods in the out-state depot, an

invoice is prepared in favour of the respective unit of

M/s. Usha Sales Ltd. (such as Nalanda Sales

Corporation etc.) and all the invoices are sent without

fail to the Hyderabad factory. In the books of account

of the factory, the account of USL is debited for the

invoice value and the sales tax collection is credited

to the account of the respective State.

The invoice is discounted by the HEI with

Canara Bank, Secunderabad and the full amount is

received by drawing Hundi on M/s Usha Sales Ltd.

Delhi for 10 days on the due date. USL makes

payment to Canara Bank, Delhi and on receipt of

such intimation the account of USL is credited in the

factory of Hyderabad.

There were no transfers from one depot to

another depot. The depot has no option to chose its

purchase. No open sales were conducted from the

depots. All the sales were affected to different units of

USL whose names are printed in the respective

invoices as buyers."

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The assessing officer has further observed :-

"Thus intimate nexus and conceivable link between

the assessee and the purchaser are manifest. The

receipt of incident from USL HO the follow up and

pressure for supply from the USL divisions, the

periodical fixation of price to hold goods for the

specified future months, the confirmation of receipt of

goods by the UFL division proceeded by direct

dispatch intimations to the purchasers supply of

goods at "current prices" and complaints direct from

USL divisions for non delivery or short delivery all in

pursuance of sale agreement make me conclude that

the sales from HEI to USL occasioned the movement

of goods. The delivery and raising of invoice by the

State godown are immaterial."

10. The assessing officer has concluded that "from a factual

description of the mode of transactions, it is evident that the inter-

State sales effected by the assessee to UIL have been camouflaged

as branch transfers with a view to evade tax legitimation (sic) due

to the State on these transactions". It is not necessary to refer to

the tax and the penalties levied by the assessing officer under the

Central Act, for the issue involved in the case is legal.

11. The sole question that arises for our consideration is whether

the turn-over under dispute for the assessment year 1981-82, is an

inter-State sale or a branch transfer.

12. Shri S.K. Bagaria, learned senior counsel for the assessee,

submitted that while the goods certainly moved from the factory at

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Hyderabad to the branch office of the assessee, such movement

cannot be regarded as having any connection with any particular

order or orders placed by M/s Usha Sales Ltd. Therefore, it is

submitted that the goods moved from Hyderabad to Delhi on what

were described as `stock transfers' and such stock transfers cannot

be brought within the charging provisions of the Central Act, since

they cannot be regarded as sales in the course of inter-State trade

and commerce. It is further submitted by referring to clauses in the

sales agreement and relying on the decision of this Court that the

transaction in question is merely `branch transfers' and not `inter-

State sales'. It is submitted that the findings of the assessing

authority that the movement of goods from the assessee's factory

to their godowns was in pursuance of the agreement of sale

between the assessee and UIL is not based on any material and,

therefore, on mere presumption and assumptions the assessing

authority could not have treated the branch transfers as inter-State

sales. It is further submitted that there was no firm commitment

between the assessee and UIL at the time of movement of goods

from assessee's manufacturing unit to their godowns situated at

different places in the country. It is further submitted that the

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assessing authority was not justified in relying on the letters of

allocation issued by UIL as a contract of firm commitment for

purchase of goods manufactured by the assessee. According to

Shri Bagaria, the letters of allocation issued by UIL cannot be

construed to be a contract of firm commitment to purchase the

goods manufactured by the assessee and those letters of allocation

were mere forecast of UIL's estimate of their requirements. It is

further contended that there was no firm commitment on the part

of UIL to purchase specific number of specified varieties of fans

and for that matter the assessee had not allotted any specific

number of specified varieties of fans in favour of UIL at the time

the goods manufactured by the assessee were being transferred

from their factory to their godowns. It is contended that the

assessing authority is bound to examine each individual transaction

and decide whether it constitutes an inter-State sale. Reliance is

placed on the observations made by this Court in Tata Engineering

and Locomotive Co. Ltd. v. Assistant Commissioner of

Commercial Taxes [1970] 26 STC 354 at page 381 (SC). In

conclusion, it is submitted that the assessing authority and the High

Court were not justified in relying on the decision of this Court in

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the case of Sahney Steel and Press Works Ltd. and English

Electric Company of India Ltd.

13. We did not have the advantage of hearing the learned counsel

for the Revenue. However, with the permission of the Court, they

have filed their written submissions which, to say the least, does

not touch upon any of the submissions made by learned senior

counsel for the assessee. Their written submissions are just the

repetition and reiteration of the findings and conclusions reached

by the assessing authority.

14. To resolve the controversy raised in this appeal, Section 3(a) of

the Central Act requires to be noticed.The Section reads as under :-

"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.

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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."

15. The purport of Section 3(a) is explained by this Court in Tata

Iron and Steel Co. Ltd. Vs. S.R. Sarkar (1960) 11 STC 655 (SC),

wherein it is stated "in our view, therefore, within Clause (b) of

Section 3 are included sales in which property in the goods passes

during the movement of the goods from one State to another by

transfer of documents of title thereto: clause (a) of Section 3

covers sales, other than those included in clause (b), in which the

movement of goods from one State to another is the result of a

covenant or incident of the contract of sale, and property in the

goods passes in either State".

16. To make a sale as one in the course of inter-State trade or

commerce, there must be an obligation, whether of the seller or the

buyer to transport the goods outside the State 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 linked the sale to such transportation such

an obligation may be imposed expressly under the contract itself or

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impliedly by a mutual understanding. It is not necessary that in

cases, there must be pieces of direct evidence showing such

obligation in a written contract or oral agreement. Such

obligations are inferable from circumstantial evidence.

17. Section 6 of the Central Act which is the charging Section,

levies tax under the Central Act on all inter-State sales, determined

as such under Section 3 of the Central Act. Section 9 of the

Central Act provides that the tax payable by any dealer under the

Central Act on the sale of goods effected by him in the course of

inter-State trade or commerce, whether such sale falls within

Clause (a) or Clause (b) of Section 3, shall be levied by the Govt.

of India and shall be collected by that Govt. in accordance with the

provisions of sub-Section (2) of that Section, in the State from

which the movement of the goods commenced. The proviso

enumerates an exception, but we do not consider it necessary to

refer to it for the purpose of this case. 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. A perusal of Section 3 of the

Central Act shows that it raises a presumption of law and that is, a

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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 transfer of documents of title to the goods during

their movement from one State to another. For purposes of clause

(b) of Section 3, Explanation I says that where the goods are

delivered to a carrier or other bailee for transmission, the

movement of the goods shall 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 II clarifies that when the

movement of goods commences and terminates in the same State,

the movement of goods will not be deemed to be from one State to

another merely because of the fact that in the course of such

movement, the goods pass through the territory of any other State.

For a sale to be in the course of inter-State trade or commerce

under Section 3(a), the two conditions must be fulfilled. There

must be sale of goods. Such sale should occasion the movement of

the goods from one State to another. 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

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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. 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 prior contract of sale or purchase. Section 6A

of the Central Act provides that if any dealer claims that he is not

liable to pay tax under the Central Act in respect of any goods, on

the ground that the movement of such goods from one State to

another was occasioned by reason of transfer of such goods by him

to any other place of his business or to his agent or principal and

not by reason of sale, then the burden of proving that the

movement of goods was so occasioned shall be on the dealer. It

also provides the mode of discharge of that burden of proof.

18. What follows from a conjoint reading of these provisions is that

every dealer is liable to pay tax under the Central Act on the sale of

goods effected by him in the course of inter-State trade or

commerce during the year of assessment. Where the department

takes advantage of the presumption under Section 3(a) and/or to

show that there has been a sale or purchase of goods in the course

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of inter-State trade or commerce and if the assessee disputes that

there has been a sale or purchase of goods in the course of inter-

State trade or commerce, then the assessee can rebut the

presumption by filing declaration in form `F' under Section 6A of

the Central Act to prove that the movement of goods was

occasioned not by reason of sale but otherwise than by way of sale.

When the department does not take advantage of the presumption

under Section 3(a) of the Central Act, but shows a positive case of

inter-State sale in the course of inter-State trade or commerce to

make it liable to tax under Section 6, the declaration in Form `F'

under section 6A would be of no avail.

19. It is an accepted position in law that a mere transfer of goods

from a head office to a branch office or an inter-branch transfer of

goods, which are broadly brought under the phrase `Branch

transfers' cannot be regarded as sales in the course of inter-State

trade, for the simple reason that a head office or branch cannot be

treated as having traded with itself or sold articles to itself by

means of these stock transfers.

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20. In the instant case, the case of the Revenue is not only based on

the agreement of sale but also on the presumption under Section

3(a) of the Central Act.

21. In the instant case, the assessing authority and the Tribunal

have recorded a finding of fact that there were prior contracts

between Usha Sales Ltd. and the assessee and in pursuance of

those contracts, the goods moved from the assessee's factory at

Hyderabad to its Branch offices to be delivered to Usha Sales Ltd.

or their nominees. In order to appreciate the contention canvassed,

it is necessary to set out certain clauses from the sales agreement.

The sales agreement dated 01.05.1979 contained, inter alia, the

following :-

"Clause 1 The agreement products shall

comprise sewing machines fan, their

component parts/ accessories, and

such other products as may be

mutually agreed upon from time to

time.

Clause 2 The territory covered by the

agreement shall comprise of all states

of India excluding West

Bengal/Andaman & Nicobar.

Claues 3 USL shall undertake to organize sale

and distribution of agreement

products in the market. Maintain

adequate stocks at all times in its

godowns in different regions.

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Arrange for sales promotion

measures as may be necessary from

time to time on mutually agreed basis.

Provide after sales service.

Provide such other services as may be

required in the interest of sales, a

mutually agreed basis from time to

time.

Clause 4 USL shall make all purchases of

agreement products as an

independent principal and sell the

same as such.

Price (5)(a) JE's selling prices to Usha sales shall

be intimated by JE from time to time.

The prices at which Usha Sales shall

sell the agreement products to their

agents/dealers shall be determined by

them so however that Usha sales

make up on their purchases price

shall not exceed:-

Sewing Machines/Accessories 10.00

Rs. 5/- (per top)

Fans 7.35%

Component parts 13.35%

The price so computed shall be maximum

price and Usha sales shall be free to sell at

prices lower than the said maximum.

(b) Consumer prices (except for hire purchase)

sales shall not exceed the maximum

authorized by JE from time to time.

However, Usha sales/their dealers/agents

shall be free to charge prices lower than the

said maximum.

(c) Any sales tax/other tax payable may be

charged additionally by Usha Sales.

Freight/handling charges shall be reimbursed on

an agreed basis.

(d) In the event of any reduction prices by JE

corresponding rebate shall be allowed on

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unsold stocks held by Usha sales/their

dealers/agents.

Sales to Third Parties

In case it is considered expedient by JE to

supply/bill the goods directly to any of the USHA

sales dealers agents against orders procured by

Usha Sales make JE shall pay to Usha sales the

difference between JE's subsisting selling prices

and the invoiced value exclusive of sale tax and

other local taxes.

Payment

a) Payment for all purchases shall be made to JE

within 75 days of the date of the bill failing

which Usha sales shall pay interest at JE's

Maximum borrowing rates from their bankers at

that time.

b) Usha sales shall be liable to make payment in

respect of supplies invoiced by JE on its

nominees in case of default by the letter.

Sales Deliveries

Sales/deliveries shall be made to Usha Sales

their nominees at any of JE's factories region

godowns at the company's option."

22. Clause (1) of the agreement speaks of the products that the

assessee is required to supply to the purchaser. Clause (2) speaks

of the territory in which the purchaser is permitted to sell the

products supplied by the assessee. Clause (3) speaks of the

obligations of the purchaser in organizing the sale and distribution

of the products supplied by the assessee. It also provides that the

purchaser shall keep the adequate stocks in its godowns in different

regions and also arrange sales promotions as may be required from

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time to time. Purchaser is also required to provide after sales

service to the products supplied. Clause (4) specifically provides

that the purchaser/UIL shall make all purchases of the agreed

products as an independent principal and sell the same as such.

Clause (5) which is a clause where price is fixed by the assessee

and that price is the maximum price and UIL - purchaser is

permitted to sell at prices lower than the maximum price fixed by

the assessee. Clause (6) speaks of sales that may be made by the

assessee to the third parties. Clause (7) speaks of the time limit

within which payments for the supply of goods to be made by UIL

to the assessee. Clause (8) is an important clause in the sales

agreement. It specifically says that the sales/deliveries shall be

made to UIL/their nominees at any of the assessee's factories,

region, godowns at the option of the company. It is clear from the

aforesaid clauses set out herein above, that the assessee firstly

undertakes to sell and supply its manufactured products to UIL and

the UIL will have the entire country, except West Bengal and

Andaman and Nicobar Islands, as its distribution/selling zone. The

agreement also provides that UIL will purchase the products

agreed under Clause (1) and sell the same as an independent

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principal. Clause (8) is very relevant for the purpose of this case.

It obligates the assessee to make delivery of the products

manufactured either to the UIL's nominees or in any one of the

godowns of the assessee at the option of UIL.

23. From the above Clauses in the agreement, what can be inferred

is that the assessee has undertaken to supply their manufactured

products to UIL or to its nominees at the agreed price at any of the

assessee's godowns at the option of UIL. A contract of sale of

goods would be effective when a seller agrees to transfer the

property in goods to the buyer for a price and that such a contract

may be either absolute or conditional. If the transfer is in presenti,

it is called a `sale'; but if the transfer is to take place at a future

time and subject to some conditions to be fulfilled subsequently,

the contract is called "an agreement to sell". When the time in the

agreement to sell lapses or the conditions therein subject to which

the property in goods is to be transferred are fulfilled, the

"agreement to sell" becomes a `sale'.

24. Before we deal with the issues raised in the appeal, we will

first notice some of the decisions of this Court on interpretation of

Section 3(a) of the Act.

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25. In Tata Iron and Steel Co. Ltd. v. S.R. Sarkar & Others

(supra), the majority view of this Court was that where the goods are

moved from one State to another as a result of a covenant in the

contract of sale, that would be clearly a sale in the course of inter-

State trade. The Court further proceeded to hold that even a

movement of goods from one State to another, which is merely

incidental to, and which is not part of, the contract of sale, is also

brought within the fold of Section 3(a) of the Central Act.

26. In Oil India Ltd. v. The Superintendent of Taxes and

Others [1975] 35 STC 445 (SC), this Court held "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

21

specified in the contract itself. It would be enough if the movement

was in pursuance of and incidental to the contract of sale."

27. In English Electric Company of India Ltd. v. The Deputy

Commercial Tax officer and Others [1976] 38 STC 475 (SC), this

Court observed, that "when a branch of a company forwards a

buyer's order to the principal factory of the company and instructs

them to dispatch the goods direct to the buyer and the goods are sent

to the buyer under those instructions it would not be sale between the

factory and its branch. If there is a conceivable link between the

movement of the goods and the buyer's contract, and if in the course

of inter-State movement the goods move only to reach the buyer in

satisfaction of his contract of purchase and such a nexus is otherwise

inexplicable, then the sale or purchase of the specific or ascertained

goods ought to be deemed to have taken place in the course of inter

State trade or commerce as such a sale or purchase occasioned the

movement of goods from one State to another. The presence of an

intermediary, such as the seller's own representative or branch office,

who initiated the contract may not make the matter different. Such an

interception by a known person on behalf of the seller is the delivery

22

State and such person's activities prior to or after the implementation

of the contract may not alter the position."

28. In South India Viscose Ltd. vs. State of Tamil Nadu

[1981] 48 STC 232 (SC), this Court observed 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, it must be held to be an inter-State sale and

that character will not be changed on account of an interposition of an

agent of the seller who may temporarily intercept the movement.

29. In Union of India & Anr. v. K.G. Khosla and Co. Ltd.

[1979] 43 STC 457, this Court reiterated and approved the decision in

Oil India Ltd.'s case (supra) and held that if a contract of sale contains

stipulation for the movement of the goods from one State to another,

the sale would certainly be an inter-State sale. But for the purposes of

Section 3(a) of the Act, it is not necessary that the contract of sale

must itself provide for and cause the movement of goods or that the

movement of goods must be occasioned specifically in accordance

with the terms of the contract of sale.

30. In State of Bihar v Tata Engineering and Locomotives

Ltd. [1971] 27 STC 127(SC), it is observed "if a contract of sale

23

contains a stipulation for such movement, the sale would, of course,

be an inter state sale. But it can also 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."

31. In Bharat Heavy Electricals Ltd. v. State of Andhra

Pradesh [1996] 102 STC 345 (A.P.), it is observed that "In the light

of the settled legal position, it cannot be and it has not been seriously

disputed that the movement of goods from the Hyderabad Unit of the

petitioner-company direct to the customer's site in the other State are

inter-State sales pursuant to the contracts entered into by BHEL with

the customers/purchasers. The fact that the contracts were entered

into with the head office or the unit having overall responsibility for

execution is a different one or that the executing unit itself raises the

invoices and realizes the price from the customers does not in any

way detract from the position that the inter-State movement of goods

from Hyderabad is pursuant to and a necessary consequence of the

contract of sale. In the instant case, the goods are tailor-made,

manufactured according to certain specification and designs and the

components/equipment which go into the plant are directly dispatched

24

by the Hyderabad unit to the customer in the other State and the

goods are received from the common carrier by the customer's

representative. The movement of such goods from Andhra Pradesh to

other States cannot but be ascribed to contracts of sale entered into

by the head office of the petitioner-company of which the petitioner is

part and parcel. The fact that the contract was not entered into with

Hyderabad unit or that the inter-State movement had taken place at

the instance of another unit of the same company does not make

material difference. It is to be noted that for the value of the goods

dispatched, the debit note is sent by Hyderabad unit to the executing

unit. It may be that the customer does not pay the amount direct to

the Hyderabad unit which manufactures and dispatches the goods.

But in the light of the settled propositions that the branches and head

office constitute one single legal entity, it does not matter by whom

the billing is done or to whom the payment is made by the customer."

32. From the above decisions, the principle which emerges is -

when the sale or agreement for sale causes or has the effect of

occasioning the movement of goods from one State to another,

irrespective of whether the movement of goods is provided for in

the contract of sale or not, or when the order is placed with any

25

branch office or the head office which resulted in the movement of

goods, irrespective of whether the property in the goods passed in

one State or the other, if the effect of such a sale is to have the

movement of goods from one State to another, an inter-State sale

would ensue and would result in exigibility of tax under Section

3(a) of the Central Act on the turn over of such transaction. It is

only when the turnover relates to sale or purchase of goods during

the course of inter-State trade or commerce that it would be taxable

under the Central Act.

33. The learned counsel Shri Bagaria mainly contends that there

is nothing in the sales agreement, express or implied, which may

be regarded as specific covenant under which the assessee's

manufacturing unit was obliged to move the specific goods from

its manufacturing unit at Hyderabad to its branch offices for

delivery of the goods to UIL. The learned counsel submitted that

a sale can be regarded as having occurred in the course of inter-

State trade, if the concerned contract of sale itself includes a

covenant either express or implied, to the effect that the goods

must move from one State to another for the purpose of

implementing the `sales agreement'. We cannot agree with the

26

submission of learned counsel Shri Bagaria. We say so for the

reason that the inter-State movement must be the result of a 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 at 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 Oil India Ltd. (supra)].

34. We now turn to the facts of the present case to determine

whether the transaction in question is inter-State trade or commerce or

mere stock transfers to branch offices.

35. Shri Bagaria, learned senior counsel, submits that the

movement of the goods from the assessee's factory to its godowns

situated outside the State was not in pursuance of the agreement

between the assessee and UIL; that there was no firm commitment

between the assessee and UIL at the time of movement of the goods

from the factory to the godowns; that the only communication

between the assessee and UIL were in the nature of forecasts; and the

27

completion of the sale to the UIL did not take place at the factory

place and the appropriation of the goods were done at the godowns

and it was open to the assessee till then to allot the goods to any

purchasers. Therefore, the learned senior counsel contends that the

findings and conclusions reached by the statutory authorities under

the Central Act are perverse. In our considered view, though the

submission of the learned senior counsel is attractive, but on a deeper

consideration, it lacks merit.

36. The assessee, for the assessment year 1981-82 under

Central Act, claimed exemption on a turnover of `7,88,13,639/-

towards stock transfer of USHA brand electric fans. The same was

disallowed by the assessing officer and assessed to tax @10% in the

absence of `C' declaration forms by classifying the transactions

falling under Section 3(a) of the Central Act.

37. It is not in dispute that there is "sales agreement"

between the parties which was entered into sometime in the year 1979

and the same was to expire sometime in the year 1984. Under this

agreement, UIL had agreed to purchase the products manufactured by

the assessee and sell it as an independent principal. The assessee has

its godown in every State including Delhi. The UIL has also its

28

divisional office in different names at every place wherever the

assessee's godown is located.

38. In pursuance to the sales agreement, UIL placed monthly

indents on the assessee with instructions to dispatch the goods of

given size and quantity to the named destination. Pursuance to such

indents, the assessee dispatched the goods to its godowns to the given

destination and sent goods dispatch intimation directly to the

concerned UIL divisional office at the destination furnishing size and

quantity dispatched with L.R.No. and name of the transport company.

The statutory authorities, from the correspondence between UIL and

the assessee noticed in their order that UIL divisional offices

correspondent directly with the assessee for the supply of stocks and

also informs them about the receipt or non-receipt of the stocks. The

assessee, on receipt of the request for supply of goods dispatches the

same to its state godowns and the person-in-charge of the godowns to

the UIL division office by raising sales invoice.

39. We have already noticed the relevant clauses in the `sales

agreement'. A close reading of the clauses would clearly indicate that

the parties have agreed to discharge certain obligations cast on them

under the agreement. The agreement provides for the products to be

29

supplied, sales zone, to organize sales and service for UIL to make

purchases an sell products as an independent principal, selling prices

to be informed from time to time, payments against purchases to be

made within a particular time and the goods to be delivered to UIL

either at the assessee's factory or at its regional godowns. Clause 8 of

the agreement, if it is read with other clauses, makes it clear that there

is stipulation for the movement of the goods from the factory to the

godowns situated in different places to be delivered to UIL. It is

because of these covenants, the assessee is obliged to move the goods

from its factory to the godown situated in other States to fulfill its part

of the contract.

40. Section 2(g) of the Central Act defines the meaning of

the expression `sale'. This expression was explained by this Court in

Balabahagas Hulsachand Vs. State of Orissa (1976) 37 STC 207 at

page 213. This Court stated that the words `Sale of goods' used in

this Section includes `an agreement of sale' as such an agreement is

an element of sale and is also an essential ingredient thereof, in terms

of Section 4(1) of the Sales of Goods Act, that is, it is sufficient if the

agreement of sale contemplates an inter-State movement of the goods

though the sale itself may take place, at the destination or in the

30

course of the movement of the goods. This view was reiterated and

further explained by this Court in Union of India Vs. K.G. Khosla and

Co. (1979) 43 STC 457. The consistent view of this Court appears to

be that even if there is no specific stipulation or direction in the

agreement for an inter-State movement of goods, if such movement is

an incident of that agreement, or if the facts and circumstances of the

case denote it, the conditions of Section 3(a) would be satisfied.

41. Shri Bagaria contends that the assessee has received only

`allocations' in the nature of market or distribution forecasts and such

allocations are neither in the nature of indents nor orders and the

assessee never accepted such allocations letter sent by UIL. It is

further submitted that except in few instances, the actual dispatches of

the goods to its godowns never tallied with the allocations letter sent

by UIL. Therefore, such allocations letter cannot be construed as

"firm orders". Therefore, the transactions cannot be brought within

the purview of inter-State trade or commerce to attract charging

provisions under the Central Act. In our view, though the ultimate

purchaser UIL placed orders for a particular quantity of goods to be

supplied, the assessee did not supply the actual quantity indented for.

We do not, however, think that this makes any difference to the

31

application of Section 3(a) of the Central Act. In our view, it does not

matter how much goods were delivered to the branch office which

just acted as a conduit pipe before it ultimately reached the

purchaser's hands. All that matters is that movement of the goods is

in pursuance of the contract of sale or as necessary incident to the sale

itself. Further, the sales agreement is for a period of five years. If

there is short supply of the goods than what was indented for, then the

same could be adjusted in the subsequent dispatch. Therefore, to

contend that there was no firm order placed by UIL with the assessee

and accordingly, it would not come within the purport of Section 3(a)

of the Central Act and they are mere branch transfers, cannot be

accepted. We may also note that the assessing officer, while

considering this stand of the assessee, has made reference to several

correspondence for the period from April, 1981 to March, 1982 and

has come to the conclusion though both the assessee and UIL terms

those correspondence as mere letter of allocations, they are infact in

the nature of indents placed by UIL with the assessee for the supply

of a particular model of fans, particular quantity and the destinations

of delivery. This finding of fact is confirmed by the final fact finding

authority namely, the State Tax Tribunal. To us, this finding of fact

32

does not appear to be perverse, which would call for our interference.

42. Shri Bagaria, learned senior counsel for the assessee, laid

much stress on the issue that in the instant case, there is no firm order

placed by UIL on the assessee for the supply of particular type or

quantity of goods and the only communication that they had placed

only a `forecasts' which only depicts the requirement in a particular

State and therefore, those forecasts cannot be even remotely

considered as either purchase orders or indents for supply of goods. It

is also contended that the "sales agreement" is only an understanding

between the parties for the supply of manufactured goods by the

assessee to UIL and the agreement is not binding on the parties, since

it does not provide for any claim for damages, if there is any breach

of any of the conditions stipulated therein by any one of the parties. It

is stressed by the learned senior counsel that the assessee company,

since it has branches in various parts of the country, its manufactured

products are stocked in those branches and the branches in turn, have

effected sales of those goods to consumers which would include UIL

also. This argument is also noticed by the final fact finding authority,

namely the Sales Tax Appellate Tribunal and has negatived the same

by assigning cogent reasons. The Tribunal, after reappreciating the

33

entire documents available on the record and also the modus operandi

adopted by the assessee in its well considered order, has concluded

that the so called `forecasts' are nothing but request made by UIL for

supply of goods to meet the requirements of the consumers in various

parts of the country. Though, the said communication is termed as

`forecasts', according to the Tribunal, they are nothing but firm orders

placed by the UIL with the assessee for supply of particular type of

goods and particular quantity pursuant to their understanding reflected

in the `sales agrement', which is continuing one for the continuous

supply of goods during the period of agreement which stretches over

a period of 5 years, it is difficult to accept the submission of the

learned senior counsel that the `sales agreement' is only for the

purpose of purchasing of their goods and selling in different parts of

the country by UIL which has its offices wherever the assessee has its

godowns of branch offices and also difficult to accept that there was

no movement of goods pursuant to their `letter of allocations', which

the assessee would contend that it is not a firm commitment or firm

order for the supply of goods. To be fair to the learned senior

counsel, we also perused number of `letters of allocations' sent by

UIL to the assessee from time to time and the response thereof of the

34

assessee. On a perusal of the same, it is clear that an order was placed

by UIL is a composite form to supply of goods through their branch

offices and the movement of the goods thereto from the assessee's

factory to the assessee's godown was to fulfill the demand made

pursuant to the `letters of allocation' which the assessee claims that

the same is in the nature of forecast. In our view, the movement of

the goods from the assessee's factory to its various godowns situated

in different parts of the country was pursuant to `sales agreement'

coupled with `forecasts' which are nothing but `indents' or firm

orders. Therefore, in our opinion, the transaction between the

assessee with its branch offices is a clear case of inter-State sales and

not branch transfers, as claimed by the assessee.

43. Shri Bagaria, learned senior counsel, submitted that the

branch offices of the assessee would also effect sales of products

supplied by the assessee to other customers including State and

Central Govt. Therefore, it is contended that the branch offices of the

assessee had full discretion to sell the goods to any person of their

choice. In our view, merely because the branch office could also

effect supplies directly to some of the bulk consumers, it cannot be

said that all supplies that are made to branch offices are not pursuant

35

to the Sales Agreement and letter of allocation of UIL. Since the

assessee could not furnish the exact figure insofar as such sales the

assessing authority has granted exemption on a turnover of

`87,57,071/-, being 10% of the total value of the claim towards stock

transfer.

44. The learned senior counsel Shri Bagaria contended that

the case law on which reliance placed by the High Court and other

Statutory authorities are distinguishable and none of those decisions

support the case of the Revenue. This contention of the learned

senior counsel need not detain us for long, since the assessing

authority, in the instant case, after carefully considering the relevant

clauses in the sales agreement and the voluminous correspondence

between the assessee and the UIL, has given its finding that the

transaction in question is pure and simple inter-State sales and falls

within the purview of Section 3(a) of the Central Act. This finding of

fact has received the approval of the First Appellate Authority and the

Sales Tax Appellate Tribunal which is the last fact finding authority

in the appeals filed by the assessee.

45. The learned senior counsel also contended that the

assessing officer is expected to look into each transaction in order to

36

find out whether a completed sale had taken place which could be

brought to tax under Section 3(a) of the Central Act. Reliance is

placed on the Constitution Bench decision of this Court in the case of

Tata Engineering and Locomotive Co. Ltd. (supra). We are bound by

the view expressed by the Constitution Bench decision of this Court.

However, in the present case, the assessing officer has not just picked

up a stray transaction to hold that the entire transaction for the entire

period of assessment is inter-State sales, which would attract the

charging provision. In our considered view, the assessing officer, in

his detailed and well considered order, has looked into nearly 378

documents and voluminous correspondence between the assessee and

UIL and has discussed and co-related the documents to prove on facts

that the disputed transaction is inter-State sales though the assessee

claims that it is a mere stock transfer. Therefore, we cannot accept

the submission of the learned senior counsel in this regard. Bearing

in mind the provisions of Section 3(a) of the Central Sales Tax Act,

1956 and on the facts of the case, the transactions in question were

inter-State sales taxable under the Central Act. 37

46. As a result of our above discussion, we do not find any

merit in this appeal and the same is accordingly dismissed. No order

as to costs.

..............................J.

[ D.K. JAIN ]

..............................J.

[ H.L. DATTU ]

New Delhi,

March 04, 2011.

38