1971 (6) TMI 45 - HC - VAT and Sales Tax

Summary

Issues:
- Whether the sales of coir-yarn from one state to another qualify as inter-State trade under article 286(1)(b) of the Constitution.
- Whether the movement of goods was occasioned by a covenant or incident of the contract of sale.
- Whether the sales were exempt from tax under article 286(1)(b) of the Constitution.

Analysis:
1. The tax revision cases involved dealers in coir-yarn residing in one state who sold goods to firms in another state. The dealers contended that the sales were in the course of inter-State trade and thus exempt from tax under article 286(1)(b) of the Constitution.

2. The Sales Tax Officer argued that there was no prior contract of sale leading to the movement of goods between states. The Supreme Court precedent established that for sales to be taxable under the Act, the movement of goods must be occasioned by the contract of sale.

3. The key issue was whether the movement of goods from one state to another was occasioned by a covenant or incident of the contract of sale. The Supreme Court's interpretation emphasized that the sale must occasion the movement of goods for it to qualify as inter-State trade.

4. The court referred to precedents such as Tata Iron and Steel Co. Ltd. v. S.R. Sarkar and Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer to determine that the movement of goods should be a result of the contract of sale to be considered inter-State trade.

5. The court held that the movement of goods from one state to another was indeed occasioned by the contracts of sale between the dealers and the firms. The written agreements between the parties indicated a clear intention to sell and deliver goods, making the movement of goods incidental to the sale.

6. The argument that the dealers could have sold the goods to others did not hold weight as the movement of goods was a direct result of the contract of sale. Any diversion of goods would constitute a breach of contract, reinforcing that the movement was indeed incidental to the sale.

7. Ultimately, the court allowed the revisions, ruling that the sales qualified as inter-State trade under article 286(1)(b) of the Constitution. The movement of goods was deemed to be occasioned by the contracts of sale, exempting the transactions from tax liability.

In conclusion, the judgment clarified the criteria for sales to qualify as inter-State trade under the Constitution and emphasized the significance of the contract of sale in determining the tax liability of such transactions.