InterState Sale — Judicial Interpretation vis-à-vis delivery of goods

    InterState sale transactions are covered by the Central Sales Tax Act, 1956 (CST Act). The nature of interState sale has been defined in Section 3 of the CST Act. In fact there are two sub-sections namely 3(a) and 3(b). Section 3(a) covers direct interState sale involving movement of goods from one State to another State. Section 3(b) covers interState sale transaction effected by transfer of documents of title to goods during the movement of goods from one State to another State. The discussion here is in respect of nature of sale covered by Section 3(a).

    Section 3(a) is reproduced below for ready reference.

    “S.3. When is a sale or purchase of goods said to take place in the course of interState 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 occasions the movement of goods from one State to another; or …”

    Thus a sale occasioning movement of goods from one State to another State is covered by above sub-Section. However whether there is movement of goods from one State to another State, so as to be covered by Section 3(a), is required to be ascertained from facts of the case. Where the vendor dispatches the goods to the buyer in other State there is not much difficulty. However when there is no direct dispatch proof the difficulty arises. For example, a buyer from another State has taken delivery from the vendor at his premises. Whether such transactions will be interState or intra State raises an issue. Such issue has to be decided based on relevant other documents/circumstances. There are certain decisions by various forums to ascertain the correct position. Reference can be made to following few judgments for looking further into the subject.

Nivea Time (108 STC 6) (Bom.) :

    The observations of the Bombay High Court on nature of interState sale are as under :

    “8. Section 3 of the Central Sales Tax Act, 1956 lays down when a sale or purchase of goods is said to take place in the course of interState trade or commerce. It says :

    “A sale or purchase of goods shall be deemed to take place in the course of interState 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.”

    In this case, we are concerned with sale or purchase falling under clause (a).

    9. It is well-settled by now by a catena of decisions of the Supreme Court that a sale can be said to have taken place in the course of interState trade under clause (a) of Section 3, if it can be shown that the sale has occasioned the movement of goods from one State to another. A sale in the course of interState trade has three essentials : (i) there must be a sale; (ii) the goods must actually be moved from one State to another; and (iii) the sale and movement of the goods must be part of the same transaction. The word ‘occasions’ is used as a verb and means to cause to be the immediate cause thereof. There has to be a direct nexus between the sale and the movement of the goods from one State to another. In other words, the movement should be an incident of and necessitated by the contract of sale and be interlinked with the sale of goods.”

    In this case there was no direct dispatch proof. However the buyer was from other State and goods purchased were meant for factory in other State. The Hon’ble High Court held transaction as interState sale.

English Electric Company of India Ltd. vs. Deputy Commercial Tax Officer [1976] (38 STC 475) (SC)

    In this case, the Supreme Court observed as under :

    ‘…. – If there is a conceivable link between the movement of the goods and the buyer’s contract, and if in the course of interState 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 interState trade or commerce as such a sale or purchase occasioned the movement of the goods from one State to another ….”

    From the above judgments it becomes clear that unless a link between dispatch and pre-existing sale is established, no interState sale can take place. The movement is to be cause and effect of such sale. In light of the above judgments for practical purposes following aspects of a transaction are looked into;

    (a) There must be pre existing sale from a buyer from other State.

    (b) The goods should be ascertained qua such pre existing sale to fulfil the requirement of such sale.

    (c) The said goods should be moved to other State. It is necessary that same goods in the same quality and the same quantity are moved to other State.

    (d) The same goods should be delivered to buyer so as to complete the interState sale.

    (e) Once the above criteria are fulfilled, then even if delivery is local, the transaction will be interState sale.

    Who moves the goods ? It is not very much important. Link between sale and movement is relevant. Therefore, even if local delivery is given but if goods are to be taken to other State by buyer it will be interState sale. However to comply with the conditions of Section 3(a), following proof should be preserved :

    a) Purchase order from the buyer stating that the goods are meant for his place in other State and he will move the goods to such place.

    b) Confirmation from the buyer that the goods are taken to such place.

If the above evidence is available it will be interState sale. However, if such evidence is lacking, then the transaction will be a local sale transaction.

Saraswathi Agencies    (21 VST 200) Mad.

In this case the link between the sale and movement was missing, though buyer was from other State. The transaction was held to be local sale. The gist of the said judgment is as under.

“In order to come under the category of interState sale, the sale should be to a purchaser outside the State and there should be movement of goods from one State to another. In case the movement of goods from one State to another was occasioned on account of the agreement entered into between the seller and the purchaser, the sale is a sale in the course of interState trade attracting the provisions of the Central Sales Tax Act, 1956. But when the actual movement of goods was at the instance of the purchaser and the part played by the dealer was: only delivery of the articles at the place of business of the dealer, it cannot be said that there was an interState sale warranting payment of Central sales tax. The dealer should have undertaken the task of supplying the articles in the business place of the purchaser in different States for the purpose of the, Central Sales Tax Act. Therefore the paramount consideration in the matter of interState sale is the contract as well as the movement of goods.

The petitioner, a dealer in electrical goods, wet grinders, pumpsets, etc., for the assessment year 1994 – 95 reported nil total and taxable turnover under the CST Act. The Assessing Officer fourtd that the sale in favour of purchasers from Kerala; Karnataka and Andhra Pradesh were not shown in the accounts. Accordingly, the assessing authority considered those sales as interState sales. The petitioner appealed before the Appellate Assistant Commissioner who confirmed the assessment. THe Appellate Tribunal was also of the opinion that the bills having been raised in the name of tli.”e consumers from other States, the transactions were interState sales liable for payment of tax under the Central Sales Tax Act. On writ petition, the Madras High Court held;

If purchasers from neighbouring States came to Chennai and made purchases from the dealer in Chennai and took articles to their home State on their own, it could not be said that there was an element of interState sale in the transaction. There was no evidence to show that the petitioner itself had dispatched the goods through lorry service to the Sta tes of Karna taka, Kerala and And hra Pradesh. No evidence was found in the assessment order to show such dispatch by the dealer. It was the consistent case of the dealer that the goods were delivered at Chennai only, though the purchasers were from the neighbouring States. There was no obligation on the part of the petitioner to transport those articles to the actual place of the purchasers. Unless and until it was proved that the products were actually delivered by the dealer in the respective States as shown in the bills, it could not be said that the transaction was an interState trade.

In the absence of any such positive material evidencing interState sale, the sales as found in the assessment order could not be termed to be sales in the course of interState trade warranting payment of tax under the Central Sales Tax Act.

Burden  of Proof:

Commissioner of Sales Tax, V.P., Lucknow  vs. Suresh  Chand Jain (70 STC 45)(SC) :

In this case the Hon’ble Supreme Court dealing with the facts given below, also dealt with issue of burden of proof. The Honble Supreme Court observed as under:

“The respondent, a dealer carrying on business in tendu leaves in U.P., had claimed from the very beginning that he had effected only local sales of the tendu leaves, that he had not effected any sales of tendu leaves in the course of inter-State trade, that he had never applied to the Forest Department for issue of form T.P. IV and no such forms were issued to him, and that the tendu leaves were never booked by him through railway or trucks for places outside U.P. The Appellate Tribunal found nothing to discredit the version of the dealer. The Tribunal had also taken notice of T.P. form IV which did not relate to sale but was a permit or certificate regarding the validity of nikasi of tendu leaves from the forest. The Tribunal accepted the claim of the dealer and held that the sales in question were not inter-State sales. On revision, the High Court found no material to interfere. On a petition for special leave filed by the Department:

The Supreme Court  dismissing the petition held that the Tribunal applied the correct principle of law, viz., that the condition precedent for imposing sales tax under the Central Sales Tax Act, 1956,was that the goods must move out of the State in pursuance of some contract entered into between the seller and the purchaser.

A sale can be said to be in the course of inter-State trade only if two conditions concur, uiz., (i) a sale of goods and (ii) a transport of those goods from one State to another. Unless both these conditions were satisfied, there could be no sale in the course of inter-State trade. There must be evidence that the transportation was occasioned by the contract and as a result goods moved out of the bargain between the parties, from one State to another.

The onus lies on the Revenue to disprove the contention of the dealer that a sale is a local sale and to show that it is an inter-State sale.”

Thus burden to prove a particular fact lies on the party who alleges otherwise. In fact there are number of rulings in relation to this issue. The above are indicative to look a little more into the subject.