1975 (3) TMI 104 - SC - VAT and Sales Tax

Whether there was any contract of sale pursuant to which goods were moved from the State of Tamil Nadu to the State of West Bengal? Held that - Appeal dismissed. The movement of goods from Madras to Calcutta did not take place as a result of any contract of sale, but in pursuance of instruction contained in authorisation for transfer of stocks from Madras to Calcutta. The transactions were not inter-State sales liable to tax under the Central Sales Tax Act. The movement of goods from one State to another without any of the elements of sale within the meaning of the Central Act cannot be subject to tax. The shipment was movement of stocks of cement belonging to the State Trading Corporation from one place to another. There was shortage of supply of cement at Calcutta. The State Trading Corporation moved stocks from Madras to Calcutta. The area of need and the availability of stocks of cement were known to the State Trading Corporation. The transactions could not be subjected to Central sales tax.

Summary

Issues:
- Whether there was any contract of sale pursuant to which goods were moved from Tamil Nadu to West Bengal.

Analysis:
The Supreme Court considered an appeal regarding the existence of a contract of sale leading to the movement of goods from Tamil Nadu to West Bengal. The case involved Cement Distributors Private Limited, acting as agents of the State Trading Corporation, authorized to sell cement to specific buyers. The authorization notes indicated the quantity of cement allotted for distribution to Calcutta area as directed by the Regional Cement Officer. The appellant argued that cement was shipped by the respondent to their godown in Calcutta for direct sale to the purchaser mentioned in the authorization note. However, the respondent contended that they did not enter into any contract for the sale of cement with the buyers before or at the time of shipment. They claimed that a contract was formed only after the authorization in favor of the buyer was issued, which occurred after the shipment. The core question was whether the contract of sale itself led to the movement of goods, as per the provisions of the Central Sales Tax Act.

The Court referred to Section 3 of the Central Sales Tax Act, which deems a sale to occur in the course of inter-State trade if it occasions the movement of goods from one state to another. The Court relied on precedents to establish that if the movement of goods is a result of a covenant or incident of the contract of sale, it qualifies as an inter-State sale. In this case, the goods were dispatched by the respondent to themselves in Calcutta based on the directions of the State Trading Corporation for consumption in the Calcutta area. The authorizations issued by the Regional Cement Officer post-shipment indicated that there was no movement of goods by the respondent as a result of a contract of sale with the buyer. The Court concluded that the transactions were not inter-State sales subject to tax under the Central Sales Tax Act since the movement of goods did not occur due to a sale contract but was in compliance with instructions for transferring stocks. The Court highlighted that the shipment involved moving stocks of cement belonging to the State Trading Corporation to address a shortage in Calcutta, and as such, the transactions could not be taxed under the Central Sales Tax Act.

Ultimately, the Court dismissed the appeal, ruling in favor of the respondent. The parties were directed to bear their own costs, and the appeal was officially dismissed.