1980 (9) TMI 239 - SC - VAT and Sales Tax

Whether the sales can be said to be inter-State sales? Held that - Appeal allowed. The alternative prayer made in the writ petition succeeds, the assessment orders for the assessment years 1970-71, 1973-74 and 1974-75 passed by the Sales Tax Officer, U.P., and the revision proceedings initiated by the Commissioner of Sales Tax, U.P., for the assessment years 1971-72 and 1972-73 are quashed and respondent No. 4, the State of Uttar Pradesh, is directed to refund to IOC the sales tax collected from them on the sales of naphtha to the 5th respondent under the agreement dated February 9, 1970, and, further, not to levy sales tax on the sales under the said agreement under the U.P. Sales Tax Act.

Issues Involved:
1. Classification of sales as inter-State or local under the Central Sales Tax Act and the U.P. Sales Tax Act.
2. Jurisdiction of U.P. and Bihar authorities to levy sales tax.
3. Violation of fundamental rights under Articles 19 and 31 of the Constitution of India.
4. Maintainability of the writ petition under Article 32 post the repeal of Article 31.
5. Inclusion of freight as part of the sale price.

Detailed Analysis:

1. Classification of Sales as Inter-State or Local:
The core issue was whether the sales of naphtha by IOC to the 5th respondent were inter-State sales or local sales within Uttar Pradesh. The agreement dated February 9, 1970, between IOC and the 5th respondent stipulated that the naphtha would be supplied from IOC's refinery at Barauni, Bihar, to the 5th respondent's factory in Kanpur, U.P. The Supreme Court held that the terms of the agreement clearly indicated that the sales were inter-State sales. Clause 4 specified that the supply was to be made from Barauni, and Clause 7(i) stated that the naphtha would be supplied through a pipeline to the buyer's factory. The Court concluded that the movement of naphtha from Bihar to U.P. was a direct result of the contract of sale, thus classifying it as an inter-State sale under Section 3(a) of the Central Sales Tax Act, 1956.

2. Jurisdiction of U.P. and Bihar Authorities:
The Supreme Court determined that since the movement of naphtha commenced from Barauni in Bihar, the sales tax could only be assessed and collected by Bihar authorities under the Central Sales Tax Act. The U.P. authorities had no jurisdiction to levy sales tax on these transactions. This was reinforced by the fact that the Allahabad High Court had previously quashed the U.P. assessments, deeming the sales inter-State.

3. Violation of Fundamental Rights:
The petitioners argued that the assessment orders by Bihar authorities under the Central Sales Tax Act violated their fundamental rights under Articles 19 and 31 of the Constitution. The Supreme Court found that the assessments by U.P. authorities were indeed in violation of the petitioners' rights, as the sales were inter-State and not subject to U.P. sales tax. Consequently, the Court directed the State of U.P. to refund the sales tax collected from IOC and to refrain from levying such tax in the future.

4. Maintainability of the Writ Petition:
The State of Bihar contended that the writ petition under Article 32 was not maintainable due to the repeal of Article 31 by the Forty-fourth Amendment. However, the Supreme Court held that the petition was still maintainable as it also alleged violations of Article 19. Thus, the repeal of Article 31 did not affect the maintainability of the petition.

5. Inclusion of Freight as Part of the Sale Price:
The 5th respondent raised a question regarding the inclusion of freight in the sale price. However, the Supreme Court did not address this issue, stating that it did not arise in the present writ petition filed by IOC.

Conclusion:
The Supreme Court allowed the writ petition, quashing the assessment orders for the years 1970-71, 1973-74, and 1974-75 by the U.P. Sales Tax Officer and the revision proceedings initiated by the Commissioner of Sales Tax, U.P., for the years 1971-72 and 1972-73. The Court directed the State of U.P. to refund the sales tax collected from IOC and to cease levying sales tax on the sales of naphtha under the agreement dated February 9, 1970. The petition was allowed without any order as to costs.

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