1. This is a reference made by the Appellate Tribunal, Sales Tax, Delhi, by its order dated 31st May, 1971, on the following question of law :
'Whether, on the facts and in the circumstances of the case, was this Tribunal justified in holding that the sales in question to Jammu and Kashmir Government and to the Special Police Establishment, Indo-Tibetan Border, Simla, were not sales in the course of inter-State trade or commerce ?'
2. M/s. Delhi Cloth and General Mills (the assessed), manufacturers of vanaspati, sold certain quantities of vanaspati ghee to the State of Jammu and Kashmir and to the office of Special Police Establishment, Indo-Tibetan Border, Simla. The case of Delhi Cloth Mills was that these were sales in the course inter-State trade or commerce and would not be liable to be taxed under the local Act. The authorities, however, rejected this plea. On appeal to the Tribunal, it agreed that the authorities below had correctly held that the sales were not inter-State sales. On a reference being sought by Delhi Cloth Mills, the above said question of law has been referred to this Court. These are two references for the assessment years 1966-67 and 1967-68 and will be disposed of by a common order, because it is conceded that the answer given will govern both the references.
3. Section 4(1) of the Bengal Finance (Sales Tax) Act (local Act), as extended to Delhi and as applicable to this case, provides for the incidence of tax by a dealer whose gross turnover exceeds the taxable quantum. Section 27 of the Act, however, exempts the imposition of tax on all sales or purchases in the course of inter-State trade or commerce. Section 3(a) of the Central Sales Tax Act lays down that the sales or purchases of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase occasions the movement of goods from one State to another. We are not concerned with the rest of definition because it is on the basis of section 3(a) of the Central Act, that the arguments have been made before us.
4. It is undisputed that a large quantity of vanaspati ghee was sold to the State of Jammu and Kashmir. There is admittedly no contract reproduced in one single document for the supply of vanaspati ghee, which was purchased by the State of Jammu and Kashmir. The contract, however, is sought to be spelt out from the letters written by the State as well as by the applicant, Delhi Cloth Mills, which, it is claimed, show inter-State sales.
5. Mr. Chawla sought to find fault with the Tribunal's order as according to him it had held the sales not to be in the course of inter-State trade or commerce, on the erroneous assumption that the sales could not be in the course of inter-State trade and commerce merely because the property had passed in Delhi. Mr. Chawla is no doubt right in his contention. In order that a sale may be regarded as inter-State sale, it is immaterial whether the property in the goods passes in one State or another : see Union of India v. K. G. Khosla & Co. Ltd. : 2SCR453 So the mere fact that property may have passed in Delhi will not determine the question. But it is not correct to say that the Tribunal has gone only into that aspect. The Tribunal has applied the tests laid down in Balabhagas Hulaschand v. State of Orissa : 2SCR939 and then arrived at its conclusion. The tests laid down by the said authority are that before a sale can be said to take place in the course of inter-State trade or commerce the following conditions must be satisfied : (1) there is an agreement to sell which contains a stipulation, express or implied, regarding the movement of the goods from one State to another; (2) in pursuance of that agreement the goods in fact moved from one State to another; (3) ultimately a concluded sale took place in the State where the goods were sent and that State is different from the State from which the goods moved. Let us see whether from the correspondence even an implied stipulation regarding the movement of goods from one State to another can be spelt out. The very first letter from the applicant dated 7th May, 1966, addressed to the Trade Commissioner, Jammu and Kashmir Government, New Delhi, after mentioning that there was an overall shortage of vanaspati in the country, offers as a special case, to meet the urgent requirements of the State of Jammu and Kashmir. The applicant, thereforee, said that they were arranging to supply 720 tins of Panghat vanaspati and 500 tins of Rath vanaspati. It mentioned specifically that as the trucks had been arranged by the Trade Commissioner, Delhi, who would also like to take the delivery in Delhi to expedite dispatches, the applicant would supply the material at Delhi on their usual terms against cash payment. Some further quantity was supplied again as per payment and asking for immediate supply as trucks for transhipment were being detained, vide letter of 20th June, 1966. It is also not disputed that the sale note was made in the name of the Trade Commissioner, Jammu and Kashmir, Delhi, though destination was mentioned as Jammu. Now, nowhere from this correspondence can we find any stipulation regarding the movement of goods, an essential condition to be in the course of inter-State trade or commerce. The suggestion of Mr. Chawla is that here undoubtedly the buyer was the State of Jammu and Kashmir which was outside Delhi. The form D which is equivalent to form C so far as the Government is concerned and which is meant to be given for inter-State sales was given by the Jammu and Kashmir Government. The parties understood it to be an inter-State sale because the letter dated 7th May, 1966, by the applicant mentions that 2 per cent sales tax would be charged in case form C is given. Undoubtedly, the goods which were purchased from the applicant were in fact taken to Jammu and Kashmir by the Trade Representative. The argument of Mr. Chawla, however, comes to equate the sale to Jammu and Kashmir by a Delhi party like the applicant as being necessarily a sale in the course of inter-State trade or commerce. But the argument is fallacious. The question to be asked is not whether the goods have gone out of Delhi; that by itself is irrelevant for the purpose of section 3(a). What has to be asked is as emphasised in State of Bihar v. Tata Engineering & Locomotive Co. Ltd. : 2SCR849 when does a sale occasion the movement of goods sold It seems clear to us that a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved; in other words, a sale occasions a movement of goods when the contract of sale so provides.
6. As reiterated in English Electric Company of India Ltd. v. Deputy Commercial Tax Officer : 1SCR631 , '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'. The emphasis thus always is whether the movement is in pursuance of and incident to the contract of sale. In the present case this essential condition is totally lacking. Now, in the instant case no doubt the goods sold by the applicant may have gone to Jammu and Kashmir but what is material to emphasise is that this movement of goods from Delhi to Jammu and Kashmir was not as a result of any stipulation in the contract of sale between the applicant and the State of Jammu and Kashmir. The mere fact that the Jammu and Kashmir Government purchased the goods and then transported them to Jammu and Kashmir does not mean that there was an agreement between the parties that they would be so taken out of Delhi. If, for whatever reason, after having paid the price and taken the delivery of goods from the applicant, the Jammu and Kashmir Government had not carried the goods to Jammu they would then have been committing no breach of contract with the applicant because they were under no obligation to the applicant to transport the goods outside Delhi. No doubt the goods were taken out but there was no such connection between the contract and the movement of goods from Delhi to Jammu. Mr. Chawla countered that if instead of the State of Jammu and Kashmir taking delivery at Delhi and carrying the goods in their own trucks had contracted with the applicant to supply the goods at Jammu, then such a sale no doubt would have been in the course of inter-State trade or commerce and the mere fact that the trucks were supplied by the State of Jammu and Kashmir cannot mean that the sales are not in the course of inter-State trade and commerce. The fallacy in the argument is to ignore the difference that if as a result of contract supply of goods was made by the applicant to the State of Jammu and Kashmir in Jammu, it would be a clear case of movement of goods from one State to another as a direct result of the contract of sale, and naturally would be in the course of inter-State trade or commerce. But in fact there is no such contract. The only agreement was to supply at Delhi. What the State of Jammu and Kashmir does after taking delivery was no concern of the applicant - the State was not beholden to the applicant as to how it was to deal with the goods. The applicant could not under any contract control the movement of goods, as was the position in the Telco's case : 2SCR849 . In the present case, the only liability which the applicant was undertaking by means of its letter of 7th May, 1966, was to supply the particular quantity and to give the delivery in Delhi. As a matter of fact, if any contract is to be spelt out, the maximum that the applicant could be made liable was to supply the said quantity to the Trade Commissioner at Delhi. The Jammu and Kashmir Government could not have compelled the applicant to supply the goods in Jammu and Kashmir. It is evident, thereforee, that the movement of goods from Delhi to Jammu and Kashmir was not occasioned by any contract or as an incident to the contract. The Tribunal's finding cannot, thereforee, be faulted.
7. Regarding the supply to the Special Police Establishment, Simla, the applicant is in a worse position. Apart from sale note which mentions the sale of goods to Simla, there is no material at all to show that there was any such contract to supply goods at Simla. Mr. Chawla was fair enough to concede that if a party had purchased goods in Delhi and then taken them outside Delhi, it would not make all these sales in the course of inter-State trade or commerce. We do not see what difference or distinction can be drawn between those sales and the present sales. We have no idea how the purchases were made, who took the goods to Simla. The applicant's contract not having been put on record it is not possible to say that the movement of the goods, if they went to Simla, was occasioned by any contract. The responsibility to deal with the goods was totally that of the purchasers and the applicant did not come into the picture at all. The applicant could not, for example, insist that as a part of the conditions in the contract, the goods must be taken out of Delhi. Once he could not do so, we do not see how sales could be said to be in the course of inter-State trade or commerce.
8. We are, thereforee, satisfied that the Tribunal was right in the view it took. We would, thereforee, answer the question in reference in the affirmative.
9. We have not awarded any costs because of the reason that we find that the applicants could legitimately say that they treated the sales as inter-State because even a certificate was given by the State of Jammu and Kashmir and the police authorities that they were in the course of inter-State trade or commerce. Of course the certificate by the governmental agencies cannot make the sales inter-State if in law they are not as we have found. We may in this connection mention that the applicants apparently acting on the certificate by the governmental agencies have presumably not collected the sales tax on these sales treating them as being exempt from the gross turnover. If, however, the applicants are made liable to pay any sales tax on these sales on account of their being not treated as inter-State sales we have no doubt that the governmental agencies which would in the first course have paid the tax would consider the desirability to reimburse this amount which in any case was their liability.
10. Reference answered in the affirmative.
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