Dr. D.Y. Chandrachud
1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request, the Petition is taken up for hearing and final disposal. The Petitioner is the proprietor of a concern which engages in the business of electrical items, including the purchase and sale of meter accessories, old meters, meter parts and other electrical goods. The Petitioner has a registration certificate issued under the Rajasthan VAT Act, 2003, dated 26 September 1988 issued with reference to the provisions of Sub-sections (1) and (3) of Section 8 of the Central Sales Tax Act, 1956 inter alia in regard to metal scrap, meter parts, electrical meters and other parts. The Second Respondent issued a notice on its web portal of an e-auction for scrap items lying at the store of the First Respondent at Pune. The e-auction was to take place on 19 January 2012. The Petitioner furnished a demand draft on 16 January 2012 in favour of the First Respondent being a bidder from the State of Rajasthan. Clause 7.8 of the terms and conditions governing the auction sale contain the following stipulation:
7.8 Normally all sale will be treated as Local Sale and the Buyer shall have to pay VAT/Sales tax as per the local Sales Tax Act/Rules/Tariff of the State. Sale against ''C'' form/CST will not be allowed.
2. The contention of the Petitioner is that restraining the benefit of a concessional rate of duty against the "C" Form to a purchaser situated outside the State of Maharashtra constitutes a violation of the freedom of inter-state trade and commerce and is, therefore, in breach of Article 301 of the Constitution. Moreover, it is urged that the effect of clause 7.8 is to breach the provisions of Section 8 of the Central Sales Tax Act, 1956 and effectively to restrict a bidder participating from outside the State of Maharashtra by stipulating that sales against "C" Form/CST will not be allowed. According to the Petitioner, the First Respondent is an instrumentality of the State and falls within the purview of Article 12 of the Constitution. The impugned condition in the tender is stated to be violative of the provisions of Article 14 of the Constitution.
3. An affidavit in reply has been filed on behalf of the First Respondent. According to the First Respondent, Clause 10.7 of the tender conditions indicates that a bidder is required to make his own arrangement for lifting, loading and transporting the material from the premises of the First Respondent. On the basis of this, it is submitted that the sale would not occasion a transfer of goods from one State to another. The goods, according to the First Respondent, are sold on as is where is basis and the First Respondent does not make any stipulation on the conclusion of the sale in regard to the movement of the goods sold from one State to another State. Since the sale is being treated as a local sale, the tender condition, according to the First Respondent, stipulates that the buyer would have to pay VAT/sales tax in accordance with legislation in Maharashtra. Moreover, it has been submitted in the affidavit that the principal reason for not allowing the facility of "C" Form is that once the material is sold to the highest bidder, the First Respondent does not have control on the movement of the goods and it is the responsibility of the First Respondent to recover all applicable taxes, failing which it would have to pay any penalty that may be imposed by the State Sales Tax authority. Consequently, a decision was taken by the First Respondent to treat all such sales as local sales.
4. Under Article 246(1) read with Entry 92A of the Union List to the Seventh Schedule of the Constitution, Parliament has exclusive legislative competence to impose taxes on the sale or purchase of goods, other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. In so far as the States are concerned, under Article 246(3) read with Entry 54 of the State List, State legislation can impose taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I. Section 3 of the Central Sales Tax Act, 1956 stipulates that 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 the documents of title to the goods during their movement from one State to another. u/s 4(1) it has been provided that subject to the provisions of Section 3, when a sale or purchase of goods is determined in accordance with sub-Section (2) to take place inside a State, such sale or purchase is deemed to have taken place outside all other States. Under Sub-section (2) of Section 4, a sale or purchase of goods shall be deemed to have taken place inside a State, if the goods are within the State-(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. u/s 6(1), every dealer is liable to pay tax under the Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. Section 8 provides a reduced rate of Central Sales Tax on two types of inter-State sales, namely: (i) sales made to the Government of any goods; and (ii) sales to a registered dealer other than the Government of goods of a description specified in sub-section (3). Sales which do not fall within the description contained in Section 8(1) are subject to a higher rate as stipulated in sub-section (2). The specified goods to which Section 8(1) applies are specified in Section 8(3). Under Sub-section (4) of Section 8, a dealer who seeks to avail of the rate of tax provided by sub-section (1) must fulfill two conditions: (i) The selling dealer must furnish to the Assessing Officer a declaration filled in and signed by the registered dealer purchasing goods containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and (ii) If the goods are sold to Government, a prescribed certificate has to be furnished by the selling dealer to his assessing authority. The "C" Form is prescribed for a registered dealer under the Rules framed under the Central Sales Tax Act, 1956. These forms are supplied by the appropriate authority under the Act to the registered purchasing dealer. If the "C" Form containing the relevant particulars is issued by the purchasing dealer to the selling dealer, the selling dealer would collect the tax from the purchasing dealer at the rate prescribed in Section 8(1) or else at the higher rate as prescribed by Section 8(2). The particulars which are referred to in the "C" Form are: the name of the issuing State, the office and date of issue, name of the purchasing dealer together with his registration certificate number, the validity of the registration and the particulars of goods purchased together with the bill for purchase. The selling dealer is required to produce the "C" Form in his assessment proceedings, if he wishes to pay tax at a lower rate as prescribed in Section 8(1). These principles are well established in view of the decision of the Supreme Court in State of Rajasthan v. Sarvottam Vegetables Products. 1 (1996) 8 SCC 639
5. For the purposes of Section 3(1) (a) a sale is due 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. Now, it is a well settled principle of law that in order to fall within the purview of Section 3(1)(a) two conditions must exist: (i) There must be an agreement of sale which contains stipulations express or implied regarding movement of goods from one State to another; and (ii) In pursuance of that agreement goods must move from one State to another. 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. When the movement of goods from one State to another is an incident of the contract, it is a sale in the course of inter-State sale. The inter-State movement must be the result of a covenant either express or implied. (Oil India Ltd. v. The Superintendent of Taxes, 2 (1975) 35 STC 445 and English Electric Company of India Ltd. v. Deputy Commercial Tax Officer 3 (1976) 38 STC 457.
6. Now while dealing with the submissions which have been urged in these proceedings, it would be necessary for the Court to reiterate two fundamental propositions. Firstly, in the exercise of the writ jurisdiction under Article 226, this Court would not adjudicate upon whether a sale which originates in a State is an inter-State sale or not, since that is essentially a question of fact which is required to be determined by the authorities under the Act. This principle has been reiterated in a recent judgment of the Supreme Court in Zunaid Enterprises v. State of Madhya Pradesh. 2012 TIOL 27 SC-CT where the Supreme Court held thus:
whether a sale originating in a State is an inter-state sale or not is essentially a question of fact to be determined by the authorities under the Act, since it involves the application of the provisions of Sections 3, 5, 6 and 9(1) of the Act to the facts established and hence, it will be a mixed question of law and fact. The facts require to be brought to the notice of the Assessing Authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-state sale which is exigible to the taxes under the VAT Act or inter-state sale, as envisaged u/s 3 of the Act read with Section 6 of the charging provisions therein. It is after such adjudication, the matter can travel from one state to the other as provided under the Act. ... Merely based on certain clauses in the agreement, in our opinion, the High Court ought not to have decided and declared that the transactions in question would be purely and simply intra-state sales and not inter-state sales.
Consequently, this Court would not be acting within its parameters under Article 226 of the Constitution by enquiring into whether the tender condition which has been embodied in the auction notice of the First Respondent involves essentially an intra-state sale or a sale in the course of inter-state trade and commerce. That is a matter for the assessing authorities to determine in the course of proceedings under the Act. The second principle which must be borne in mind is that ordinarily, a tender condition which is imposed by the authority which invites bids is not subject to judicial review. The Court would, however, exercise its writ jurisdiction under Article 226 of the Constitution in a restricted and limited area where the tender condition is found to be contrary to statute or contrary to a constitutional guarantee such as Article 14 of the Constitution.
7. Bearing in mind, the aforesaid principles, it is evident that what clause 7.8 of the tender conditions stipulates is that normally all sales will be treated as local sales and the buyer will have to pay VAT/Sales tax under the legislation of the State. The use of the expression "normally" is itself suggestive of the fact that the issue as to whether the sale is an intra-state sale or a sale which occasions a movement from one State to another is not conclusively determined by the contract. What clause 7.8 does, however, is to impose an absolute prohibition to the effect that sales against "C" Form/CST will not be allowed. In our view, the imposition of such a condition would be arbitrary and violative of Article 14 of the Constitution. Moreover, Article 301 of the Constitution provides that subject to the other provisions of the Part, trade, commerce and intercourse throughout the territory of India shall be free. Parliament is empowered to impose by law, restrictions on that freedom in the public interest. The power of the State Legislature to legislate is in the area specifically provided by the provisions of Articles 303 and 304 of the Constitution. The Central Sales Tax Act for that matter empowers the State Governments to issue a notification under Sub-section (5) of Section 8, if they are satisfied that it is necessary to do so in the public interest for the purpose mentioned in that provision. Allowing an entity which is subject to the provisions of Part III of the Constitution to impose an absolute prohibition to the effect that it shall not give the benefit of the facility of a "C" Form or of the applicable provisions of the Central Sales Tax Act, 1956 would be contrary to the provisions of the law enacted by Parliament besides being arbitrary. Such a prohibition cannot be contemplated.
8. In the circumstances, we are of the view that the stipulation contained in clause 7.8 to the effect that "sale against "C" Form/CST will not be allowed" is ultra vires. We, however, clarify that bearing in mind the judgment of the Supreme Court in Zunaid Enterprises, we have not rendered any finding one way or the other as to whether the sale which is occasioned by the e-auction notice issued by the First Respondent occasions a sale in the course of inter-State trade and commerce u/s 8(1) and (3) of the Central Sales Tax Act which is a matter to be determined by the assessing authority if and when such an issue arises during the course of assessment. Rule is made absolute in the aforesaid terms. There shall be no order as to costs.
