1991 (3) TMI 338 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the movement of cement from Mangalore to Kerala constituted inter-State sales under section 3(a) of the Central Sales Tax Act, 1956.
2. Jurisdiction of the Commercial Tax Officer, Mangalore, to issue proposition notices.
3. Appropriateness of the valuation method adopted by the respondent for the entire consignment.

Detailed Analysis:

Issue 1: Inter-State Sales
The primary issue revolves around whether the movement of cement from Mangalore to Kerala constituted inter-State sales under section 3(a) of the Central Sales Tax Act, 1956. The petitioner argued that the cement was offloaded at Mangalore due to unforeseen circumstances, and the movement of goods from Mangalore to Kerala was not occasioned by any sale or purchase within Karnataka. The petitioner emphasized that the entire movement was incidental to the original contract with buyers in Kerala, and hence, the sales did not qualify as inter-State sales.

The department, however, contended that the movement of cement from Mangalore to Kerala was pursuant to the orders placed by customers in Kerala, and thus, these transactions constituted inter-State sales. The department relied on the Supreme Court's decision in the English Electric Company of India Ltd. case, which held that when the movement of goods from one state to another is an incident of the contract, it constitutes an inter-State sale.

The court analyzed the facts and legal precedents, including Tata Iron and Steel Co. Limited v. S.R. Sarkar and Sahney Steel and Press Works Ltd. v. Commercial Tax Officer. It concluded that for a sale to be considered inter-State, there must be a covenant in the contract or an incident of the contract necessitating the movement of goods from one state to another. The court found that the state failed to establish a prima facie case that the movement of goods from Mangalore to Kerala was occasioned by a sale in Mangalore. The movement was due to the ship being diverted to Mangalore, and there was no contract stipulating that the cement must be supplied from Mangalore.

Issue 2: Jurisdiction
The petitioner challenged the jurisdiction of the Commercial Tax Officer, Mangalore, to issue proposition notices. The court referred to the Supreme Court's decision in Commissioner of Sales Tax v. Suresh Chand Jain, which emphasized that the onus lies on the Revenue to disprove the contention of the dealer that a sale is a local sale and to show that it is an inter-State sale.

The court found that the respondent failed to establish that the action to levy Central sales tax was justified. The court held that the jurisdiction to issue proposition notices was not properly established, as the necessary conditions for imposing sales tax under the Central Sales Tax Act were not satisfied.

Issue 3: Valuation Method
The petitioner also contended that the respondent was not justified in adopting the value of the entire consignment of cement despatched from Mangalore to various places in Kerala, including despatches to its godowns, under the heading "inter-State sales of cement." The court noted the Government Advocate's concession that only despatches made directly to customers in Kerala would be subject to assessment under the Central Sales Tax Act, and not those made to the petitioner's godowns.

The court agreed with the petitioner that the valuation method adopted by the respondent was inappropriate. The court found that the respondent failed to produce invoices to support the contention that the sale took place in Mangalore and that the movement of goods from Mangalore to Kerala was pursuant to such sales.

Conclusion
The court allowed the writ petitions and quashed the proposition notices dated February 17, 1988. The court held that the movement of cement from Mangalore to Kerala did not constitute inter-State sales under section 3(a) of the Central Sales Tax Act, 1956. The court also found that the jurisdiction to issue the proposition notices was not properly established and that the valuation method adopted by the respondent was inappropriate.

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