2000 (9) TMI 1003 - AT - VAT and Sales Tax

Issues Involved
1. Whether the transaction of purchase of cotton by the petitioner-assessee is an inter-State sale or a local sale.
2. Whether the agreement between the holding company (National Textile Corporation, New Delhi) and Cotton Corporation of India, Bombay, is binding on the subsidiary company (National Textile Corporation (Tamil Nadu and Pondicherry) Ltd.).
3. Whether the movement of goods from Bombay to Tamil Nadu was occasioned due to the agreement between the petitioner and Cotton Corporation of India, Bombay.
4. Whether the transaction qualifies as an inter-State sale under Section 3 of the Central Sales Tax Act, 1956.
5. Whether the turnover of Rs. 4,31,15,439 is exigible to tax under the Tamil Nadu General Sales Tax Act, 1959.

Detailed Analysis

Issue 1: Inter-State Sale vs. Local Sale
The primary issue was whether the purchase of cotton by the petitioner-assessee from Cotton Corporation of India, Bombay, was an inter-State sale or a local sale. The petitioner contended that the transaction was an inter-State sale, not liable to tax under the Tamil Nadu General Sales Tax Act, 1959, as the goods moved from Bombay to Tamil Nadu in pursuance of an agreement between the holding company (National Textile Corporation, New Delhi) and Cotton Corporation of India, Bombay. The assessing authority and appellate authorities, however, determined that the transaction was a local sale, as the agreement was between separate legal entities and the goods were appropriated and priced in Tamil Nadu.

Issue 2: Binding Nature of Agreement
The petitioner argued that the agreement between the holding company and Cotton Corporation of India was binding on the subsidiary company (petitioner) because the holding company had the power of general superintendence and management of the affairs of the subsidiary under the Sick Textile Undertakings (Nationalisation) Act, 1974. The authorities below, however, treated the holding company as a third party, whose agreement with the seller was not binding on the subsidiary company.

Issue 3: Movement of Goods
The appellate authorities held that the goods were transported by Cotton Corporation of India under "self" as consignee and stored in the mills of the petitioner, with the insurance risk borne by the seller. They concluded that the sale was completed in Tamil Nadu, making it a local sale. However, the petitioner contended that the movement of goods was occasioned by the agreement between the holding company and Cotton Corporation of India, making it an inter-State sale.

Issue 4: Section 3 of the Central Sales Tax Act
Section 3 of the Central Sales Tax Act, 1956, defines an inter-State sale as one that occasions the movement of goods from one State to another. The petitioner argued that the movement of goods from Bombay to Tamil Nadu was a necessary consequence of the sale agreement between the holding company and Cotton Corporation of India. The authorities below, however, did not accept this argument, considering the agreement between the holding company and the seller as not binding on the subsidiary company.

Issue 5: Taxability of Turnover
The authorities below taxed the turnover of Rs. 4,31,15,439 as a local sale under the Tamil Nadu General Sales Tax Act. The petitioner contended that the turnover should not be taxed as it was an inter-State sale. The Tribunal, upon review, found that the movement of goods from Bombay to Tamil Nadu was indeed occasioned by the agreement between the holding company and Cotton Corporation of India, making it an inter-State sale, and thus not taxable under the Tamil Nadu General Sales Tax Act.

Conclusion
The Tribunal concluded that the transaction was an inter-State sale, not liable to tax under the Tamil Nadu General Sales Tax Act, 1959. The agreement between the holding company and Cotton Corporation of India was binding on the subsidiary company, and the movement of goods from Bombay to Tamil Nadu was in pursuance of this agreement. Therefore, the turnover of Rs. 4,31,15,439 was not taxable under the Tamil Nadu General Sales Tax Act. The order of the Appellate Tribunal was set aside, and the revision was allowed.

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