1997 (8) TMI 476 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Interpretation of section 3(a) of the Central Sales Tax Act, 1956.
2. Movement of goods from Bombay to Daman as a result of a contract of sale.
3. Setting aside the penalty under Explanation (1) to clause (c) to sub-section (2) of section 36 of the Bombay Sales Tax Act, 1959.

Detailed Analysis

Issue 1: Interpretation of Section 3(a) of the Central Sales Tax Act, 1956
The Tribunal was tasked with determining whether the purchases of watch movements by the assessee from the Customs Collectorate in Bombay were inter-State purchases under section 3(a) of the Central Sales Tax Act, 1956. The Tribunal held that the purchases were inter-State transactions because they occasioned the movement of goods from Bombay to Daman. The Tribunal noted that the auction was open only to actual users, and the assessee, being an actual user with a factory in Daman, moved the goods to its factory soon after the purchase. The Tribunal found a clear link between the purchase and the movement of goods, satisfying the criteria for an inter-State transaction under section 3(a).

Issue 2: Movement of Goods from Bombay to Daman as a Result of a Contract of Sale
The Tribunal had to decide whether the movement of goods from Bombay to Daman was a result of the contract of sale when the goods were sold by the Customs Department in an auction on an "as is where is" basis. The Tribunal concluded that the movement of goods was indeed a result of the contract of sale. The assessee was allowed to bid in the auction as an actual user, and the goods were moved to Daman for use in the manufacture of watches. The Tribunal emphasized that the movement of goods was an incident of the contract of sale, thus qualifying the transaction as an inter-State sale.

Issue 3: Setting Aside the Penalty Under Explanation (1) to Clause (c) to Sub-section (2) of Section 36 of the Bombay Sales Tax Act, 1959
The Tribunal also addressed whether the penalty imposed under section 36(2)(c) of the Bombay Sales Tax Act, 1959, should be set aside. Since the Tribunal held that the purchases were inter-State transactions, section 13 of the Bombay Sales Tax Act, which pertains to intra-State purchases, was not applicable. Consequently, the penalty imposed under section 36(2)(c) was also set aside. The Tribunal found that the authorities below had committed a manifest error of law in treating the purchases as intra-State transactions and imposing the penalty.

Conclusion
The High Court affirmed the Tribunal's decision, answering all three questions in the affirmative and in favor of the assessee. The purchases were deemed inter-State transactions under section 3(a) of the Central Sales Tax Act, 1956, and no purchase tax or penalty was leviable under the Bombay Sales Tax Act. The reference was disposed of with no order as to costs.