2009 (2) TMI 444 - SC - VAT and Sales Tax

Whether the taking of the delivery of chemicals in Delhi by the purchasing dealers, in the context of they being the distributors/stockists of the assessee for the assigned territories outside Delhi would take away the transaction in question from the category of inter-State sale(s)? Held that - Appeal dismissed. Once it is found that the purchasing dealers were obliged under the contract(s) to take the chemicals to their respective territories outside Delhi, once it is found that the purchasing dealers were obliged to sell the chemicals in their respective assigned territories, once it is found that the said purchasing dealers were obliged to enter into separate contract(s) with the assessee, once it is found that each of the purchasing dealers were required to sell the chemicals in their assigned territories at the price fixed by the assessee and once it is found that each of the purchasing dealers was obliged to submit monthly reports to the assessee then in that event the mode in which each of the purchasing dealers could sell their goods either by way of stock transfer or inter-State sale or local sale becomes irrelevant. The obligation of the purchasing dealer(s) under the contract indicates the control of the assessee over the movement of the goods.

Issues Involved:
1. Classification of transactions as inter-State sales or local sales.
2. Obligation of purchasing dealers to move goods to assigned territories.
3. The impact of contract clauses on the nature of sales.

Detailed Analysis:

1. Classification of Transactions as Inter-State Sales or Local Sales:
The core issue was whether the delivery of chemicals in Delhi by purchasing dealers, who were distributors/stockists of the appellant, for territories outside Delhi, classified the transactions as inter-State sales. The appellant argued that the sales were local since the deliveries were taken in Delhi, and the goods were stored in godowns within Delhi. However, the assessing authority, appellate authority, and the Appellate Tribunal concluded that the transactions were inter-State sales because the chemicals were meant to be sold in assigned territories outside Delhi.

2. Obligation of Purchasing Dealers to Move Goods to Assigned Territories:
The contracts between the appellant and the purchasing dealers included clauses that assigned specific territories outside Delhi to the dealers. These contracts required the purchasing dealers to take delivery of the chemicals in Delhi and subsequently move them to their respective territories. The contracts also specified that the dealers were to sell the chemicals in these assigned territories. The Supreme Court emphasized that the determinative test was whether the purchasing dealers were contractually obliged to remove the goods from Delhi to the assigned territories and whether such movement actually occurred.

3. Impact of Contract Clauses on the Nature of Sales:
The relevant clauses in the contracts included:
- Clause 1: Assigned specific territories to purchasing dealers.
- Clause 3: Required dealers to take local delivery at the factory gate but allowed for transportation to territories outside Delhi at the dealer's expense, including liability for Central sales tax.
- Clause 5: Fixed selling rates by the appellant.
- Clause 7: Required a security deposit to ensure fulfillment of the agreement.

The Supreme Court found that these clauses collectively indicated that the movement of goods was an essential condition of the contracts. The purchasing dealers were obliged to move the goods to their assigned territories outside Delhi, making the transactions inter-State sales.

Findings:
The Supreme Court concluded that the sales in question were inter-State sales based on the following findings:
- The purchasing dealers were contractually obliged to move the goods to assigned territories outside Delhi.
- The contracts included specific clauses that mandated the movement of goods and the sale of chemicals in the assigned territories.
- The appellant retained control over the movement and sale of goods through contractual obligations, including fixing selling rates and requiring monthly reports from the dealers.

The Court dismissed the appellant's contention that the sales were local because the deliveries were taken in Delhi and the goods were stored in Delhi. The Court emphasized that the contractual obligation to move the goods to assigned territories outside Delhi was the key factor in determining the nature of the sales.

Conclusion:
The Supreme Court upheld the findings of the lower authorities and the High Court, concluding that the transactions were inter-State sales. The civil appeals filed by the appellant were dismissed with no order as to costs.

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