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Larsen and Toubro Limited Vs. the Joint Commercial Tax Officer, Mount Road Ii Division - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 776 of 1970
Judge
Reported in[1973]30STC77(Mad)
AppellantLarsen and Toubro Limited
RespondentThe Joint Commercial Tax Officer, Mount Road Ii Division
Appellant Advocate V.K. Thiruvenkatachari, Adv. for ;Subbaraya Iyer, ;Sethuraman and ;Padmanabhan, Advs.
Respondent Advocate K. Venkataswami, the First Assistant Government Pleader
DispositionPetition allowed
Cases ReferredTata Oil Mills Ltd. v. State of Andhra Pradesh
Excerpt:
- .....learned counsel for the petitioner, further contends that the disputed transactions are inter-state sales under section 3(a) of the central sales tax act, as the contracts of sale had occasioned the movement of the goods from maharashtra to the four southern states, that they are not sales effected by transfer of documents of title to the goods falling under section 3(b) and that, even if they are treated as sales coming under section 3(b), it is only the state of origin, that is, the state from which the movement of the goods commenced, which would be entitled to tax under section 9(1). according to the learned counsel, the sale occasioning the movement of the goods from state a to state b would be taxable only by state a as the first sale, and it is only in cases where there is a.....
Judgment:

Ramanujam, J.

1. The petitioner is a dealer in machinery, electrical goods, dairy products and tractor parts. In respect of the assessment year 1964-65 the petitioner filed returns under the Central Sales Tax Act, 1956, admitting a total turnover of Rs. 1,02,82,757.73 and a taxable turnover of Rs. 97,74,633.85. After the usual check of the accounts, the assessment was completed by the assessing authority on a total turnover of Rs. 1,07,19,126.63 and a taxable turnover of Rs. 99,19,615.09. In the return under the Tamil Nadu General Sales Tax Act, the petitioner returned a total turnover of Rs. 2,19,17,636.68, and a taxable turnover of Rs. 41,47,262.72, claiming an exemption, inter alia, on a turnover of Rs. 65,47,342.29, being the sale value of the goods which had moved from its factory at Bombay to either Tamil Nadu or other neighbouring States of Mysore, Kerala and Andhra Pradesh. This turnover of Rs. 65,47,342.29 is said to have been shown in the returns because the money transactions relating to this turnover had passed through the books of the Madras office which had administrative control over the southern region. This claim for exemption was allowed by the assessing authority and final assessment was made on 31st January, 1966.

2. Subsequently, by a notice dated 28th November, 1969, the assessing authority had proposed to redetermine the total and taxable turnovers of the petitioner for 1964-65 under the Central Sales Tax Act at Rs. 1,72,66,468.92 and Rs. 1,64,66,957.38 respectively, by including the turnover of Rs. 65,47,342.29 representing the sale value of goods which had moved from Bombay to the State of Tamil Nadu or to other neighbouring States of Andhra Pradesh, Mysore and Kerala. The proposal was objected to by the petitioner, but the assessing authority overruled those objections and by his order dated 31st December, 1969, refixed the total and taxable turnovers under the Central Sales Tax Act as proposed. The petitioner has filed the above writ petition challenging the revised assessment order passed by the respondent.

3. The petitioner's factory is located in the State of Maharashtra at Powar near Bombay. Its head office is at Bombay. It has branches, inter alia, in Madras, Hyderabad, Ernakulam and Bangalore, etc. It has no workshop or factory in the above places. The Madras branch is the administrative office for the southern region consisting of the States of Tamil Nadu, Andhra Pradesh, Mysore and Kerala. For administrative convenience, in respect of all despatches from Bombay to customers in any of the aforesaid four States for which the Madras branch is the administrative office, the railway receipts are either sent to the Madras office or directly to a bank in the buyer's place under advice to the Madras office and thereafter all correspondence is handled by the Madras branch.

4. According to the petitioner, the disputed turnover of Rs. 65,47.342.29 represented transactions which took place in the following manner: The customer in the southern region either places an order with the Madras office or with the head office at Bombay for the supply of certain specified type of sophisticated machinery, giving specifications and designs and also the necessary technical details therefor. On receipt of the firm indent from the customer the factory at Power specifically manufactures those items according to the specifications, designs and colour combinations as per the technical requirement of the customer and charges ex works price. After manufacture, the goods are despatched from Bombay to the railway stations nearest to the place of the customer directly and the railway receipts are taken in most of the cases showing the petitioner as the consignor and consignee. In some cases, the railway receipts are despatched to the Madras office and it hands over the same to the customer and collects the price. In other cases, the railway receipts are sent through the bank and the customer retires them by paying the price to the bank. For the sake of convenience, the Madras branch, being the administrative office for the southern region, billed the customers in the said four States.

5. The disputed turnover of Rs. 65,47,342.29 consists of the following four terms:

(1) Despatches from Maharashtra to customers in Madras, Rs. 24,36,279.39,

(2) despatches from Maharashtra to Andhra Pradesh, Rs. 18,63,905.94,

(3) despatches from Maharashtra to Mysore State, Rs. 6,92,052.32, and

(4) despatches from Maharashtra to Kerala State, Rs. 15,55,104.64.

6. The petitioner contends that the transactions covered by the disputed turnover directly fall under Section 3(a) of the Central Sales Tax Act, the goods having been appropriated and moved from its factory in Bombay to the buyer's place in pursuance of contracts of sale. The petitioner also contends that in respect of the despatches from Maharashtra State to the customers in all the four States comprised in the southern region, the tax under the Central Sales Tax Act will be exigible only in the State of despatch, and that the State of Tamil Nadu had no jurisdiction whatsoever to tax these transactions, even if the transactions are taken to fall under Section 3(b) of the Central Sales Tax Act as a result of the transfer of documents of title by the Madras office as contended by the respondent. Mr. V. K. Thiruvenkatachari, learned counsel for the petitioner, further contends that the disputed transactions are inter-State sales under Section 3(a) of the Central Sales Tax Act, as the contracts of sale had occasioned the movement of the goods from Maharashtra to the four southern States, that they are not sales effected by transfer of documents of title to the goods falling under Section 3(b) and that, even if they are treated as sales coming under Section 3(b), it is only the State of origin, that is, the State from which the movement of the goods commenced, which would be entitled to tax under Section 9(1). According to the learned counsel, the sale occasioning the movement of the goods from State A to State B would be taxable only by State A as the first sale, and it is only in cases where there is a second sale by the buyer by transfer of documents of title after the movement of the goods had commenced that will attract tax in the State B. He urges that in respect of the same transaction the petitioner's head office at Bombay and the branch office at Madras cannot be treated as sellers of the goods in question, that both of them cannot be taxed under the Central Sales Tax Act, one under Section 3(a) and the other under Section 3(b), and that unless the respondent finds that there has been in fact a sale under Section 3(a) by the head office at Bombay to the Madras branch office and thereafter a further sale by the Madras branch office to the customers in the four southern States, he cannot treat the sale which has occasioned the movement of the goods also as a sale by transfer of documents of title.

7. It is also contended for the petitioner that Sections 3 and 8 of the Central Sales Tax Act, Rule 12 of the Central Sales Tax (Turnover and Assessment) Rules, and C and D forms which have been statutorily prescribed under Section 8(4) 'throw considerable light as to what is an inter-State sale, that Section 4(2) adopts the test of appropriation for fixing the situs of any particular inter-State sale, and that the place of appropriation has to be determined with reference to Sections 23, 39 and 51 of the Sale of Goods Act. According to the learned counsel, as Section 3(a) applies to sales which occasioned the movement of the goods from one State to another, and Section 3(b) applies to sales by transfer of documents of title to the goods during the transit of the goods from one State to another, in respect of the same goods the same seller cannot be brought in both under Section 3(a) as well as under Section 3(b) and the first sale by the seller which occasions the movement of the goods from one State to another will be an inter-State sale under Section 3(a) while the buyer's sale, if any, by transfer of documents of title in relation to the same goods will come under Section 3(b). Section 6(2) of the Central Sales Tax. Act which states that where a sale in the course of an inter-State trade or commerce of goods of the description referred to in Sub-section (3) of Section 8 has occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title of 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 riot be subject to tax under this Act, is relied on by the petitioner in support of its contention that the sales by the Bombay office to the various customers in the four southern States which have occasioned the movement of the goods from Bombay to the concerned States would come under Section 3(a) and that once they have been taxed Under that section by the State of Maharashtra, the subsequent transfer of documents of title by the Madras office, even if it is treated as a transaction of sale, cannot be brought to tax by this State.

8. As against these contentions, the stand taken by the respondent is that the transactions fall under Section 3(b) of the Central Sales Tax Act as the transfer of documents of title had taken place in the State of Tamil Nadu after the commencement of the movement of the goods from' Bombay to the various places of the customers in the States of Tamil Nadu, Andhra Pradesh, Mysore and Kerala, that the sale by the Madras office by transfer of documents of title during the transit of the goods is the first inter-State sale by the petitioner to the various customers, and that, even if it is treated as the second inter-State sale coming under Section 3(b), the State of Tamil Nadu has got the power to tax such a second sale in view of the proviso to Section 9(1) of the Act.

9. The learned counsel for the petitioner refers to the decisions in Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 S.T.C. 150 and Cement Distributors (P.) Ltd. v. D. C. T. O., Lalgudi [1969] 23 S.T.C. 86, where the scope of Sections 3 and 4 of the Central Sales Tax Act came to be considered. In Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 S.T.C. 150, Veeraswami, J., (as he then was) speaking for the Bench has put the matter very succinctly, if we may say so with respect:.no concept of inter-State trade can be comprehensive without knowing what is an outside sale and, therefore, an inside sale. An inside sale or an outside sale is related to its situs and if the situs of an inside sale is fixed on certain tests, what is not an inside sale will be an outside sale provided there is a completed contract of sale of goods. Section 4(2) defines an inside sale in terms of certain tests for its situs. A sale or purchase of goods is deemed to take place inside a State in the case of specific or ascertained goods at the time the contract of sale is made ; and in the case of unascertained or future goods at the time of their appropriation to the contract of sale by the seller or the buyer whether assent of the other party is prior or subsequent to such appropriation. An explanation to Sub-section (2) says where there is a single contract of sale or purchase of goods situate at more places than one, the provisions of the sub-section shall apply as if there were separate contracts in respect of the goods at each of such places. The place where the goods are at the time when the contract of sale is made in the case of ascertained goods or when appropriation is made in the case of unascertained goods determines both the situs of such a sale as well as its character as an inside sale. Once a sale is fixed as having taken place inside a State, with reference to such tests, it should be deemed to have taken place outside all other States. While providing for this, Sub-section (1) of Section 4 makes it subject to the provisions contained in Section 3. The opening words of Sub-section (1) of Section 4 in effect mean that Section 3 controls the scope of sale or purchase inside a State which is necessarily a sale or purchase outside all other States. In our opinion, having regard to the definitions of 'appropriate State' and 'place of business' and the language employed by Sections 3 and 4, a sale or purchase inside a State as defined by Section 4(2) is the starting point and out of such sale or purchase is carved out and separated a sale or purchase, which occasions the movement of goods from one State to another or is effected by transfer of documents of title to the goods during their movement from one State to another and by this process such an inter-State sale or purchase is distinguished and excluded from an outside sale or purchase. At the same time, an inter-State sale or purchase, while separated from an inside sale is also integrated with it for purposes of its situs and fiscal and territorial jurisdiction to tax it.

10. In Cement Distributors (P.) Ltd. v. D. C. T. 0., Lalgudi [1969] 23 S.T.C. 86, Ramaprasada Rao, J., speaking for the Bench adopted the above reasoning and expressed the view that

though Section 3 has an independent and self-operating effect, yet in the case of sale of goods which are unascertained, and which move from one State to another, it has to be adjudged not only from the point of view of physical inter-State movement of the same but also from the judicial perspective as to which is the situs for jurisdiction to tax it. The indicia in Section 3 of the Act are decisive of the character of the transaction and no more ; but Section 4 is a guide to fix the situs for jurisdiction to make such sales exigible to tax.

11. In Tata E. & L. Co. Ltd. v. Assistant Commissioner of Commercial Taxes [1970] 26 S.T.C. 354, the Supreme Court construed the scope of Sections 3 and 4 of the Central Sales Tax Act. It was held therein that the sales to be exigible to tax under the Central Sales Tax Act must be shown to have occasioned the movement of the goods from one State to another and the movement must be the result of a covenant in or incident to a contract of sale. In that case, in pursuance of a dealership agreement the assessee-company which manufactured trucks arid buses and spare parts at Jamshedpur in Bihar State, transferred the vehicles to its stock-yards in other States and supplied them to the dealers. The question arose as to whether these supplies effected to the dealers of vehicles from the stock-yards are liable to charge under the Central Sales Tax Act. It was found that the completion of the sales to the dealers did not take place at the works at Jamshedpur, appropriation of the vehicles having been done at the stockyards. In those circumstances, the court held that the movement of the vehicles from the works to the stock-yards was not in pursuance of a covenant in or incident to the contract of sale, and that even assuming that any firm orders had been received by the assessee at their works, they should not be regarded as anything but mere offers.

12. From the above decisions it is clearly seen that if the Bombay office has appropriated the machinery towards the orders placed by the various customers at Bombay when the goods were put on rail, there will be clearly a sale under Section 3(a) as the contract of sale has occasioned the movement of the goods after the appropriation had taken place at Bombay. If there is an inter-State sale under Section 3(a) by the head office at Bombay to the customer, the same transaction cannot be simultaneously treated as an inter-State sale falling under Section 3(b) taking advantage of the fact that the railway receipts have been endorsed by the Madras office in favour of the buyers on receipt of the price of the goods.

13. We are clearly of the view that it is not possible to invoke -simultaneously both the Sections 3(a) and 3(b) in respect of the same transaction. Unless it is presumed that a sale has taken place by the head office at Bombay to its branch office at Madras, it is not possible to say that the branch office has effected an independent sale under Section 3(b) to the same customer.

14. A similar point was raised in Tata Oil Mills Ltd. v. State of Andhra Pradesh [1971] 28 S.T.C. 619. In that case, the goods had been despatched by the assessee's principal, one T. C. Ltd., Mithapur in the State of Gujarat, to the customers in the State of Andhra Pradesh, but the railway receipts were sent to the assessees at Hyderabad, which in turn issued the sale bills and sent the railway receipts, to the customers along with the sale bills. The assessees were sought to be assessed under the Central Sales Tax Act on the ground that the movement of the goods started only when the assessees despatched the railway receipts and the invoices to the customers in the State. That assessment was challenged and it ultimately reached the High Court of Andhra Pradesh. The court held that the sale to the customers was by the manufacturers, T. C. Ltd., through the agency of the assessees, that, therefore, the assessees were not liable to be assessed to tax under Section 3(a) of the Central Sales Tax Act, that even assuming that the sale was effected by the assessees themselves to the customers in the State of Andhra Pradesh, as the documents relating thereto are endorsed by the assessees in favour of the customers in that State, it amounted to sale in the course of inter-State trade coming under Section 3(b) and it is the State of Gujarat from where the movement of the goods commenced that has jurisdiction to assess the turnover and collect the tax under Section 9(1) of the Act. We are in entire agreement with the view expressed in that case. We are, therefore, of the view that the transactions in question will have to be treated as inter-State sales coming under Section 3(a) and not under Section 3(b), and that, even if the sales are assumed to be inter-State sales coming under Section 3(b), the State of Tamil Nadu has no jurisdiction to tax the same under the Central Sales Tax Act in view of Section 9(1) of the Act.

15. The writ petition is, therefore, allowed and the revision of the assessment made by the respondent is quashed. The petitioner will have its costs. Counsel's fee Rs. 250.


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