INTER STATE SALE VIS-À-VIS INTRA STATE SALE

Introduction

Whether transaction is Inter State
or Intra State sale is always a very delicate issue. The nature of transaction
depends upon facts of case. By now, there are number of precedents laying down
tests for deciding nature of inter-state sale. However, it still cannot be said
that it is a settled law.

Section 3(a) of the Central Sales
Tax Act (CST Act) lays down the principles to define inter-state sale.

Although, section 3(b) also
describes certain transaction to be inter-state sale but the same is not
discussed here.

Section 3(a) reads as under:

“S.3. When is a sale or purchase of
goods said to take place in the course of inter-State trade of commerce.- 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 ……………..…”

Thus, normal understanding is that
the sale which is linked with inter-state movement of goods is inter-state
sale. And it is also expected that same goods are moved, which are subject
matter of sale. 

If the goods sold and goods
actually moving are different then it is difficult to say that there is
inter-state sale in the hands of seller. However, we find contrary judgments on
the issue as discussed here under.

Inter State sale under section 3(a) –
Scenario I

State of Tamil Nadu vs. Sun Paper
Mill Ltd. & Ors. (23 VST 191)(Mad)

The facts in this case, in words of
Hon. High Court are as under:

“The assessee – first respondent is
a public limited company, which is engaged in the business of manufacture and
sale of papers. They are dealers in newsprint and assessed on the file of the
Deputy Commercial Tax Officer, Ambasamudram, in TNGST 802529/93-94. The
relevant assessment year is 1993-1994. The assessee has effected sales of
newsprint to the tune of Rs. 25,07,671 during the assessment year to Tvl. Kerala
Sabdam and Tvl. Kollam Muthari, Kollam and claimed those sales as inter-state
sales. But the assessing officer rejected their claim on the ground that the
newsprints sold to them were not moved to another State. They were moved only
to Sivakasi and later the said newsprints were converted into news magazine in
Pioneer Press (P) Limited, Sivakasi and then the same were moved to Kerala.
Therefore, the assessing officer assessed the said turnover under the Tamil
Nadu General Sales Tax Act, 1959. Aggrieved by that order, the assessee filed
an appeal before the Appellate Assistant Commissioner (CT), Tirunelveli in CST
AP No. 345 of 1995. The Commissioner allowed the appeal on the ground that the
movement of goods from the State of Tamil Nadu to Kerala would certainly form
an inter-State transaction. Later, the Joint Commissioner (CT)(SMR) suo motu
revised the order of the Appellate Assistant Commissioner and treated the
transaction as local sales.

Assessee pursued the matter further
and ultimately came before Hon. Madras High Court by way of a Writ Petition.
After hearing parties, Hon. High Court ruled as under:

“After taking note of the
principles enunciated in the above Supreme Court judgments, we have to find out
whether there is movement of goods. The present case falls u/s. 3(a) of the
Act. There are two ingredients in the section, i.e., (i) it must be a sale of
goods; (ii) the sale occasions the movement of goods from one State to another.
In respect of sale, there is no dispute. We have to see here whether there is
sale occasioning the movement of goods. In the case on hand, the seller and the
buyer contemplated movement of goods from Tamil Nadu to Kerala. At the
instruction of the buyer, the goods were dispatched to Sivakasi, wherein
conversion took place and after conversion, the goods were moved to Kerala.
Because of conversion, it cannot be held that there is no movement of goods. It
is only for the purpose of section 5(3) of the Act that any goods undergoing
commercial change is relevant. It is not for the purpose of determining the
inter-state sale u/s. 3(a) of the Act.

Mere stoppage at Sivakasi and
conversion would not alter the character of the transaction. The stoppage and
conversion occurred only at the instance of the buyer at Kerala. There is no
dispute in respect of the contract. The goods were moved pursuant to the
contract. The goods dispatched to Sivakasi were not meant to be sold in the
open market. There is no restriction that the goods should be moved intact. It
is not for the Revenue to suggest that the goods must reach as it is. The
authorities, who are acting as guardian of the Revenue, must examine and
consider the transaction from the standpoint of a businessman. The yardstick is
that of a prudent businessman. Otherwise, first, the goods have to go to Kerala
and then betransported back to Sivakasi for conversion and once again after
conversion, it must go to Kerala. To avoid multiplicity of transaction, the
seller sent the goods to Sivakasi at the instance of the buyer and after conversion,
the same were sent to Kerala. There is no material available to show that the
goods are meant to be in Sivakasi. It is not the contention of the petitioner
that the goods were not moved from Tamil Nadu to Kerala. Stoppage and
conversion do not make the transaction a local sale. After applying the
principles enunciated in the judgments cited supra and also taking into
consideration the facts involved, we are of the view that the transaction
involved is only an inter-State sale.”

Inter State sale under section 3(a) –
Scenario II

Tamil Nadu Petro Products Ltd. vs.
Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai and
another’s (95 VST 118)(Mad)

The facts in this case, as narrated
by the High Court are as follows:

“2. The controversy which led to
the petitioner seeking for the clarification arose under the following
circumstances. HLL are engaged in the manufacture of detergents and they are
registered dealers on the file of the Assistant Commissioner (CT), Fast Track
Assessment Circle-II, Greams Road, Chennai, under the provisions of the TNGST
Act and the Central Sales Tax Act, 1956, (CST Act). HLL placed purchase order
dated 15.06.2000, for sale of LAB and for delivery of the same at M/s. Ultra
Marine and Pigments Limited, Ranipet, (Job Worker). The said purchase order was
raised by HLL from their Mangalore office. The job worker is required to
manufacture Acid Slurry from LAB and such product is stock transferred to the
factory of HLL at Mangalore. Therefore, the question arose as to whether the
petitioner can avail the concessional rate of tax on production of form-XVII
declaration.”

The following argument on behalf of
Revenue further clarifies the controversy:  

“5. Mr. Manokaran Sundaram, learned
Additional Government Pleader appearing for the respondents submitted that the
petitioner entered into a contract with HLL, Mangalore for supply of LAB; a raw
material for manufacture of detergent and as per the agreement, it had to be
supplied and delivered to their job worker at Ranipet and later after
conversion of raw material as Acid Slurry, the same would be transported to
HLL, Mangalore for further processing and manufacturing as detergents.
Referring to the purchase order dated 15.06.2000, it is submitted that it
clearly shows the dealer at Mangalore had placed the purchase order and in
pursuance to the same, the petitioner had effected sale to the dealer at
Mangalore and the transaction is clearly an interstate sale and the only
difference being delivery has been made to the job worker at Ranipet and after
completion, for onward transmission to the purchaser at Mangalore.”

After examining controversy, the
Hon. High Court held as under:

“12. Undoubtedly, the products sold
by the petitioner was not the product which was moved out of the Ranipet
factory on stock transfer to HLL Mangalore. Thus, the factory at Ranipet had
manufactured a commercially distinct product than what was sold by the
petitioner to HLL. In other words, the products sold by the petitioner was LAB,
the product which was manufactured from LAB was Acid Slurry. In my view, it
would be unnecessary to test the present transaction based on whether the
product manufacture within the State was an intermediary product for
manufacture of another product outside the state.

14. If the case on hand is tested
on the anvil of the decision of the Hon’ble Supreme Court, it is not in dispute
that the contract of sale with the petitioner stood completed within the State
of Tamil Nadu upon delivery of the goods at Ranipet. The movement of the goods
after undergoing a process of manufacture and after being converted into a
commercially different product is an independent transaction and the
transaction could not be treated as an interstate element.”

Thus, the transaction of sale by
seller to buyer (HLL) is held to be intra state sale.

Conclusion

It can be seen that on similar
facts, the same High Court has given different rulings. Thus, the situation
becomes very uncertain. The dealer community remains in great confusion about
the correct tax to be collected from buyer. It is felt that the latert judgment
specifies correct scope of section 3(a) of CST Act for inter-state sale. The
goods sold and moved to other State should be same goods, else it will create
an unexpected situation.

It is expected that the controversy
will get settled by the later judgment. _