State of Andhra Pradesh Vs ITC Bhadrachalam Paper Boards Limited

@JUDGMENTTAG-ORDER

M. Satyanarayana Murthy, J.

1. Aggrieved by the common order of the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short, ''the tribunal''), in T.A. Nos. 207, 206, 208 and 205 of 1997, the State preferred this revision challenging the finding of the tribunal with regard to sale of paperboards against C forms, treating the same as inter-State sales, and levying tax at concessional rate. The respondent is an assessee, on the rolls of Commercial Tax Officer, Kothagudem, for the assessment years 1991-92 and 1992-93, both under the Central Sales Tax Act, 1956 (for brevity, ''the Act of 1956'') and the Andhra Pradesh General Sales Tax Act, 1957 (for brevity, ''the Act of 1957'') and turnover of the respondent was assessed both under the Act of 1956 and the Act of 1957.

2. Aggrieved by the order of assessing authority, the assessee preferred appeals before the Appellate Deputy Commissioner (CT), Warangal Division. The Appellate Deputy Commissioner, while allowing the matter in part, remanded the same to the assessing authority for decision on certain issues.

3. Aggrieved by the order of the Appellate Deputy Commissioner, the respondent-assessee preferred appeals before the tribunal. The tribunal, while deciding point No. 3 among others, held that sale of paperboards to M/s. VST Industries Limited, Hyderabad, against C declaration forms is interstate sale and the assessee is entitled to concessional rate of tax relying on State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., . Aggrieved by order of the tribunal, the present revision is filed on various grounds.

4. Learned special standing counsel for Commercial Taxes would contend that the sale took place only within the State of Andhra Pradesh, the seller and the buyer are within the limits of Andhra Pradesh and the situs of the transaction is within the limits of Andhra Pradesh. Delivery of goods took place within the State of Andhra Pradesh passing on risk in the goods to the buyer by the seller i.e. assessee. Therefore, the sale is completed within the State of Andhra Pradesh. Merely because the goods were sent to Siva Kasi for converting them into cartons and cigarette packets etc. by the buyer would not amount to inter-State sale. Therefore, the order of the tribunal is erroneous and prayed to set aside the order under challenge.

5. Sri M.V.J.K. Kumar, learned counsel for the assessee, would contend that when the movement of goods is occasioned from one State to another in pursuance of contract of sale, it is an inter-State sale and the assessee is entitled to claim concessional rate of tax. It is further contended that though the sale took place within the State of Andhra Pradesh, the goods were directly sent to Siva Kasi in Tamil Nadu from the factory gate. Therefore, it is an inter-State sale. That apart, C declaration forms were issued to the assessee and paid concessional rate of tax to the concerned authority under the Act of 1956. Therefore, the assessee cannot be taxed twice both under the Act of 1956 and the Act of 1957 and finally prayed to dismiss the revision upholding the order of the tribunal.

6. Considering rival contentions and perusing material available on record, the core issue involved in this matter is:-

"Whether sale of paperboards to M/s. VST Industries Limited, Hyderabad, by the assessee is an inter-State sale or intra-State sale attracting the provisions of the Act of 1956 or the Act of 1957 and whether the assessee is entitled to concessional rate of tax?"

7. In Re. Point:

In the present case, the real dispute is nature of transaction. If it is an inter-State sale, the assessee is entitled to concessional rate of tax under the Act of 1956. If it is an intra-State or local sale, the transaction is governed by the provisions of the Act of 1957. Section 3 of the Act of 1956 is the relevant provision which deals with sale or purchase of goods that took place in the course of inter-State trade or 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 (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. In view of Section 3 of the Act of 1956, it is clear that if the movement of goods is occasioned on account of contract of sale from one State to another State, it is an inter-State sale. It is not the case of the assessee that the sale transaction under challenge is a transit sale which falls within clause (b) of Section 3 of the Act of 1956 but it is a sale covered by clause (a) of Section 3 of the Act of 1956 as movement of goods took place from the State of Andhra Pradesh to the State of Tamil Nadu.

8. Whereas, learned special standing counsel for Commercial Taxes would contend that the sale is completed within the State of Andhra Pradesh on account of delivery of goods to the carrier of buyer i.e. M/s. VST Industries Limited, Hyderabad, within the State. Mere shifting of goods by the buyer directly from the ex factory to Siva Kasi would not constitute an inter-State sale since shifting of goods directly from ex factory to Siva Kasi is only for job work i.e. converting paperboards into cigarette packets and cartons etc., by M/s. ORVEE Packings at Siva Kasi. Such movement of goods cannot be said to have occasioned on account of sale from one State to another State since the sale transaction is totally completed within the State of Andhra Pradesh and shifting of goods directly to the State of Tamil Nadu is only for job work undertaken by M/s. ORVEE Packings at Siva Kasi.

9. According to settled law, nature of transaction whether inter-State or intra-State is both question of fact and law. The Apex Court in Zunaid Enterprises and Others Vs. State of M.P. and Others, : , relying on earlier judgment in Tata Iron and Steel Co., Limited, Bombay Vs. S.R. Sarkar and Others, , held in para No. 9 as follows:

"In the instant case, as we have already stated, the relevant facts were not before the Court nor the finding of the assessing authority to decide whether the transactions in question are intra-State sales or inter-State which are exigible to taxes under the VAT Act or taxes under the provisions of the Central Sales Tax 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 intrastate sales and not inter-State sales. In our view, whenever a question arises as to whether a sale is inter-State sale or not, it has to be answered with reference to Section 3 and Section alone. Similarly, when the question arises, in which State is the tax leviable, one must look to and apply the test in Section 9 (i); no other provision is relevant on this question. In that view of the matter, we cannot sustain the orders passed by the High Court."

In A and G Projects and Technologies Ltd. Vs. State of Karnataka, , the Apex Court, while dealing with a transit sale, held that:-

"To determine whether a sale is inter-State or not, it has to be answered with reference to law and on the basis of Section 3 and Section 3 alone. Section 4 or 5 is not relevant on the said question."

In both the judgments, the Apex Court based its conclusions only on Tata Iron and Steel Co., Limited, Bombay Vs. S.R. Sarkar and Others, . In view of the law declared by Apex Court, the only provision, which deals with nature of transaction whether sale is inter-State or not, is Section 3 alone.

10. As stated above, if movement of goods from one State to another is occasioned on account of sale, certainly it is an inter-State sale. Therefore, it depends upon completed transaction of sale. At this stage, it is appropriate to advert to the relevant provisions of the Sale of Goods Act, 1930 (for brevity, ''the Act of 1930''), to determine when sale is said to have been completed. Section 23 of the Act of 1930 deals with sale of unascertained goods and appropriation. Clause (2) thereof deals with delivery to carrier. According to it, where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. Thus, it is clear from Section 23(2) of the Act of 1930 that when the goods are delivered to buyer or to carrier or bailee etc., without reserving right of disposal by the seller, the sale is deemed to have been completed. Here, the assessee did not reserve any right of disposal before the goods reached the buyer. Moreover, the goods were loaded in carrier and the buyer himself paid freight for transportation from ex factory and risk in the goods passed on to the buyer when the goods were loaded in the carrier. In view of the provisions of Sections 23 and 39 of the Act of 1930, it was found that goods are deemed to be treated as delivered to buyer and property and possession of the goods passed on the buyer when the goods were handed over to transporter as held by Apex Court in Escorts JCB Limited Vs. Commissioner of Central Excise, Delhi-II, . It was further held that:

"The property in the goods passes on to the buyer when the goods are handed over to the carrier at the factory premises, and transit Insurance by the assessee is not relevant. Hence, the factory premises, not the buyer''s place, is the place of removal of goods for the purpose of assessment, and transit insurance charges are not includible in the assessable value."

By applying the principle laid down in the above judgment to the present facts of the case and the rules of delivery under Sections 23 and 39 of the Act of 1930, the sale is completed at ex factory of the assessee when the goods are delivered to carrier who is an agent of M/s. VST Industries Limited, Hyderabad, and the risk in the goods passed on to the buyer. Hence, the sale is completed only at ex factory on delivery of goods or ownership in the goods. Therefore, the sale took place within the State of Andhra Pradesh.

11. Section 39 of the Act of 1930 is also another relevant provision which deals with delivery to carrier or wharfinger. According to Section 39 of the Act of 1930, goods are to be treated as delivered to the buyer and property and possession of the goods passed on to the buyer when the goods were handed over to transporter. In the present case also, the goods were delivered to carrier whether named or not by the buyer at ex factory for transportation to the place where the buyer intends to get them converted into cigarette packets and cartons etc. If movement of goods is occasioned from one State to another for sale in other State, it can be said to be an inter-State sale. In the instant case, the sale transaction is completed within Sarapaka Village, Khammam District of Andhra Pradesh where the goods are delivered at ex factory to carrier passing on ownership of goods to the buyer along with risk but, instead of shifting those goods to M/s. VST Industries Limited, Hyderabad, the buyer sent those goods directly to Siva Kasi, Tamil Nadu, for job work converting paperboards into cigarette packets and cartons etc. Therefore, the sale cannot be said to be an inter-State sale though the goods are moved from the State of Andhra Pradesh to Tamil Nadu State.

12. Learned counsel for the respondent-assessee, relying on the judgment of Apex Court in State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., (supra) , would contend that when the goods are transferred from one State to another State in the course of inter-State trade or commerce, the sale is deemed to be an inter-State sale and entitled to concessional rate of tax. In the facts of the above judgment, Dharangadhara Chemical Works Limited, manufacturer of Caustic Soda and certain other chemicals, entered into an agreement to sell all its products to Dharangadhara Trading Company Private Limited. According to clause (1) of the agreement, the Chemical Company agreed to confine the sale of all the products manufactured by it at all its works to the Trading Company for a period of 5 years. Clause (2) of the agreement provides that the Chemical Company would make the sales directly to the Trading Company on a principal to principal basis against offers or indents. Clause (3) provides that the selling price would be determined by the Board of Directors of the Chemical Company on the basis of ex-factory or F.O.R. at booking or F.O.R. destination stations as decided upon by the Directors. The delivery of the goods would, however, be given F.O.R. at booking stations. The Trading Company would make payments to the Chemical Company within one month from the date of supply or sale of goods by the Chemical Company. The Trading Company obtained orders from out of State buyers and entered into agreement of purchase with the Chemical Company for the specified quantities. Thus, the goods were directly sent to outside State buyers of the Trading Company and the Chemical Company directly sent goods to outside buyers. Therefore, in those circumstances, the Apex Court concluded that the sales are inter-State sales but the facts of the present case are totally different. The major difference is that movement of goods occasioned only on account of contract of sale between outside State buyers in State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., but, in the present case, the sale was completed at Sarapaka when the goods were delivered to carrier of the buyer for transportation. Moreover, the movement of goods from the State of Andhra Pradesh to the State of Tamil Nadu was not occasioned on account of sale but the paperboards were moved only for converting them into cigarette packets and cartons on job work basis by M/s. ORVEE Packings at Siva Kasi in Tamil Nadu State. When movement of goods did not take place on account of sale, it cannot be said to be an inter-State sale. In State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., , movement of goods was occasioned only due to contract between outside State buyers and Dharangadhara Trading Company and the Chemical Company directly supplied goods to outside State buyers. In view of this factual distinction, it is difficult to apply the principle laid down in State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., to the present facts of the case. A similar question came up for consideration before a Constitution Bench of Apex Court in Burmah Shell Oil Storage and Distributing Co. of India, Ltd. and Another Vs. The Commercial Tax Officer and Others, . In the above judgment, the Apex Court, while dealing with Article 286(1)(a)(b) of Constitution of India and relevant provisions of the Act of 1956, laid down certain tests, to determine whether a sale transaction is an intrastate sale, while dealing with an export sale under Section 5(1) of the Act of 1956 which is similar to Section 3(a) of the Act of 1956, in para No. 13 as follows:

"The test is that the goods must have a foreign destination where they can be said to be imported. It matters not that there is no valuable consideration from the receiver at the destination end. If the goods are exported and there is safe or purchase in the course of that export and the sale or purchaser occasions the export to a foreign destination, the exemption is earned. Purchases made by philanthropists of goods in the course of export to foreign countries to alleviate distress there, may still be exempted, even though the sending of the goods was not a commercial venture but a charitable one. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports. The two notions of export and import, thus, go in pairs.

Applying these several tests to the cases on hand, it is quite plain that aviation spirit loaded on board an aircraft for consumption, though taken out of the country, is not exported since it has no destination where it can be said to be imported, and so long as it does not satisfy this test, it cannot be said that the sale was in the course of export. Further, as has already been pointed out, the sales can hardly be said to ''occasion'' the export. The seller sells aviation spirit for the use of the aircraft, and the sale is not integrally connected with the taking out of aviation spirit. The sale is not even for the purpose of export, as explained above. It does not come within the course of export, which requires an even deeper relation. The sales, thus, do not come within Article 286(1)(b)."

In the facts of the above case, the assessee sold aviation spirit to foreign going aircraft and the question before the Court was whether interstate sale or sale in the course of export but the Apex Court is of the view that sale inside the State is not a sale in the course of export and sales tax is payable on such sales as the sale is considered as inside the State and State''s sales tax is to be paid. The principle laid down by Constitution Bench of Apex Court is directly applicable to the present facts of the case for the reason that the sale is completed within the State though sale of aviation spirit is to foreign aircraft and local sales tax alone is to be collected on such sale. In the present case also, the assessee sold paperboards at ex factory by delivering to the carrier passing risk in the goods to the buyer; thereby, ceased to be owner of the goods on account of transfer of title to the goods to the buyer by delivery at ex factory and the transportation of goods directly from ex factory to M/s. ORVEE Packings at Siva Kasi of Tamil Nadu State for job work of conversion of paperboards into cartons, cigarette packets etc., for the use of the buyer cannot be said to be movement of goods occasioned on account of sale or purchase. Therefore, by applying the principle laid down by Apex Court in Burmah Shell Oil Storage and Distributing Co. of India, Ltd. and Another Vs. The Commercial Tax Officer and Others, , we hold that the sale in question by the assessee to M/s. VST Industries Limited, Hyderabad, is only an intra-State or local sale and not an inter-State sale. Thereby, the assessee is not entitled to claim concessional rate of tax on the turnover covered by sale of goods to M/s. VST Industries Limited, Hyderabad.

13. The tribunal erroneously applied the law laid down by Apex Court in State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., ignoring the law laid down by Constitution Bench of Apex Court in Burmah Shell Oil Storage and Distributing Co. of India, Ltd. and Another Vs. The Commercial Tax Officer and Others, and committed an error in concluding that the turnover covered by sale transaction of paperboards by the assessee to M/s. VST Industries Limited, Hyderabad, as inter-State sale as the movement occasioned on account of sale or incident of sale. In the instant case on hand, sale invoice was issued in favour of M/s. VST Industries Limited, Hyderabad, at ex factory, delivered goods at ex factory but the contract of sale was not for movement of goods from one State to another for consumption. Therefore, occasion of movement cannot be said to be an inter-State sale though the goods crossed borders of the State for specific purpose and returned to the buyer at Hyderabad for its use after completion of conversion of paperboards into cartons and cigarette packets. The tribunal is unable to distinguish the facts of Burmah Shell Oil Storage and Distributing Co. of India, Ltd. and Another Vs. The Commercial Tax Officer and Others, and State of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd., , misapplied the law to the present facts of the case and erroneously concluded that the sale of paperboards to M/s. VST Industries Limited, Hyderabad, is an inter-State sale. Hence, we hold that the turnover covered by C forms is only an intra-State or local sale and exigible to tax under local Sales Tax Act as it is governed by the Act of 1957 during the relevant period.

14. One of the contentions of Sri M.V.J.K. Kumar, learned counsel for the respondent-assessee, is that the assessee already paid tax under the Act of 1956 as against C declaration forms and the assessee cannot be taxed twice. No doubt, the assessee cannot be taxed twice both under the Act of 1956 and the Act of 1957 but mere payment of Tax under the Act of 1956 as against C declaration forms would not relieve the assessee to pay tax under the Act of 1957 if the sale of goods to M/s. VST Industries Limited, Hyderabad, is an intra-State or local sale. When we find that the sale transaction is intra-State or local sale, at best, the remedy available to the assessee is to claim refund of tax paid under the Act of 1956 but he cannot deny his liability to pay tax under the Act of 1957. Therefore, payment of tax as against C declaration forms under the Act of 1956 is not a ground to treat the sale of paperboards by the assessee to M/s. VST Industries Limited, Hyderabad, as inter-State sale.

15. In view of our foregoing discussion we hold that the sale transaction is only an intra-State or local sale but not an inter-State sale. Accordingly, the point is answered. In the result, T.R.C. Nos. 269 and 273 of 2001, 121 of 2002 and 120 of 2003 are allowed, setting aside the common order passed by the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad, in T.A. Nos. 207, 206, 208 and 205 of 1997 to the extent it relates to sale of paperboards to M/s. VST Industries Limited, Hyderabad, against C declaration forms, holding that the sale is an intra-State or local sale exigible to tax under the Act of 1957. Pending miscellaneous petitions in these tax revision cases, if any, shall stand closed in consequence. No order as to costs.