1991 (7) TMI 315 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the turnover of Rs. 27,80,122.34 was of sales inside Delhi and did not constitute inter-State trade and commerce under the Central Sales Tax Act, 1956.
2. Whether the sales of Rs. 27,80,122.34 were exempt from tax under rule 29(iii) of the Delhi Sales Tax Rules, 1951.

Issue-wise Detailed Analysis:

Issue 1: Nature of Sales - Intra-State vs. Inter-State
The primary issue was whether the sales amounting to Rs. 27,80,122.34 were intra-State sales within Delhi or inter-State sales under the Central Sales Tax Act, 1956. The Sales Tax Tribunal had found that the sales were completed in Delhi and did not occasion the movement of goods to another state as part of the contract. The Tribunal relied on certificates issued by the Officer Commanding, Composite Food Laboratory, ASC, stating that the goods were free on rail at Delhi and New Delhi, and the consignor was the army unit, not the dealer.

The High Court upheld the Tribunal's decision, emphasizing that for a sale to be considered inter-State, three conditions must be met:
1. An agreement to sell containing a stipulation regarding the movement of goods from one State to another.
2. The goods must move from one State to another in pursuance of that agreement.
3. A concluded sale must take place in the State where the goods are sent, different from the State from which the goods moved.

The Court referenced the Supreme Court's decision in Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207 (SC), which provided a similar illustration where the sale was considered an intra-State sale. The Court concluded that since the goods were delivered in Delhi and the movement of goods outside Delhi was not an integral part of the contract, the sales were intra-State.

Issue 2: Exemption under Rule 29(iii) of the Delhi Sales Tax Rules, 1951
The second issue was whether the sales were exempt from tax under rule 29(iii) of the Delhi Sales Tax Rules, 1951, which allows deduction of sales to the Ministry of Defence for official use from the taxable turnover. The Sales Tax authorities contended that the sales were made to the Ministry of Food and Agriculture, not the Ministry of Defence, and thus did not qualify for the exemption.

The High Court examined the contract and found that the acceptance of the tender by the Ministry of Food and Agriculture was for the supply of goods to the Defence Services. The Court noted five principal factors indicating that the Ministry of Defence was the actual purchaser:
1. Goods had to conform to ASC specifications of the Ministry of Defence.
2. The consignee was the Director of Supplies and Transport, QMG, Army Headquarters.
3. The inspecting authority was the Officer Commanding of the Army Service Corps.
4. Delivery was accepted by the military.
5. The price was debited to the account of the Controller of Defence Accounts (Western Command).

The Court applied the principle of an agent acting on behalf of a disclosed principal, concluding that the Ministry of Food and Agriculture was merely an agent for the Ministry of Defence. Therefore, the sales were indeed to the Ministry of Defence, qualifying for the exemption under rule 29(iii).

Conclusion
The High Court answered both questions in the affirmative and in favor of the dealer. The sales were intra-State and exempt from tax under rule 29(iii) of the Delhi Sales Tax Rules, 1951. The reference was answered in the affirmative with no order as to costs.

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