1990 (1) TMI 278 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of section 3(a) of the Central Sales Tax Act, 1956 regarding inter-State sales.

Analysis:
The judgment of the Bombay High Court dealt with the issue of whether certain sales of tarpaulins by the respondent to Gujarat State Road Transport Corporation constituted inter-State sales under section 3(a) of the Central Sales Tax Act, 1956. The respondents contended that these were local sales taxable under the State of Gujarat, but the Sales Tax Officer and Assistant Commissioner rejected this argument. However, the Tribunal held that there was no obligation for the movement of goods from Bombay to Gujarat under the contract, thus not constituting inter-State sales. The Tribunal's decision was challenged, leading to the reference to the High Court.

The High Court referred to the Supreme Court's interpretation of section 3(a) in the English Electric Company of India Ltd. case, emphasizing that the movement of goods from one state to another must be an incident of the contract of sale to qualify as inter-State trade. The court also cited the South India Viscose Ltd. case, which highlighted that a conceivable link between the contract of sale and the movement of goods establishes inter-State sales. Additionally, the court mentioned other Supreme Court cases like Balabhagas Hulaschand and Sahney Steel and Press Works Ltd., reinforcing the principle that the movement of goods must be under or incidental to the contract of sale.

In the present case, the High Court analyzed the facts and found a direct nexus between the contract and the movement of goods from Maharashtra to Gujarat. The respondents directly entered into the contract with the buyers in Gujarat, and the goods were marked for the purchasers in Gujarat. Although the goods were sent to an agent in Surat for delivery, the court viewed the agent as a conduit pipe and not part of a branch transfer. This direct supply to the agent for delivery to the buyers indicated a clear connection between the contract and the movement of goods, establishing inter-State sales.

The court addressed the argument regarding the possibility of goods being diverted to another buyer, citing relevant Supreme Court judgments. However, based on the specific circumstances of the case where the goods were manufactured as per the contract, marked for the purchaser, and sent to the agent for delivery without the possibility of diversion, the court concluded that the sales were indeed in the course of inter-State trade and commerce. The reference was answered in the affirmative in favor of the department, with no order as to costs.

The court expressed gratitude to the amicus curiae for representing the respondents and providing valuable assistance in the case.