1976 (9) TMI 134 - SC - VAT and Sales Tax

Whether the contract for sale of goods was an inter-State sale or an intra-State sale? Held that - Appeal dismissed. The steps taken from the beginning to the end by the Bombay branch in co-ordination with the Madras factory show that the Bombay branch was merely acting as the intermediary between the Madras factory and the buyer and that it was the Madras factory which pursuant to the covenant in the contract of sale caused the movement of the goods from Madras to Bombay. The inter-State movement of the goods was a result of the contract of sale and the fact that the contract emanated from correspondence which passed between the Bombay branch and the company could not make any difference.

Summary

Issues:
Determining whether the contract for the sale of goods was an inter-State sale or an intra-State sale.

Analysis:
The case involved the question of whether a sale of goods was an inter-State sale or a sale at a specific location. The appellant, a company with branches in different cities, argued that the sale occurred at a particular branch and not between the factory and the buyer directly. The key issue was whether the movement of goods from one state to another was incidental to the sale itself, making it taxable under the Central Sales Tax Act.

The Court examined the transaction pattern in one of the civil appeals, where the buyer in Bombay requested a quotation from the appellant's Bombay branch, which then communicated with the Madras branch regarding prices and delivery terms. The Court emphasized that the movement of goods from Madras to Bombay was integrated with the contract of sale, as evidenced by the correspondence between branches and the buyer, specifying that goods were to be manufactured in Madras and delivered to Bombay.

It was argued that there was no privity between the Madras branch and the buyer, but the Court held that all branches of the appellant constituted a single entity, and the contract of sale was between the appellant and the buyer. The Court found that the movement of goods from Madras to Bombay was a result of the contract of sale, regardless of where the property in the goods passed, as long as the sale occasioned the inter-State movement.

The Court further clarified that when a company's branch forwards a buyer's order to the factory for direct delivery to the buyer, it does not constitute a sale between the factory and the branch. The decisive factor was the nexus between the movement of goods and the buyer's contract, leading to the goods reaching the buyer in fulfillment of the purchase contract. The Court concluded that the inter-State movement was caused by the contract of sale with the factory, dismissing the appeals and writ petitions.

In summary, the judgment focused on the integration of the sale contract with the movement of goods between branches and the buyer, emphasizing the overarching entity of the company and the nexus between the contract and inter-State movement. The Court's decision highlighted the importance of the contractual relationship in determining the tax implications of the sale transaction.