2006 (11) TMI 568 - HC - VAT and Sales Tax

Summary

Issues involved:
Interpretation of inter-State sale under the Central Sales Tax Act, 1956; Assessment of turnover as inter-State sale; Movement of goods in inter-State transactions; Exemption under section 5(1) of the Act for export sales.

Interpretation of inter-State sale under the Central Sales Tax Act, 1956:
The petitioner, a limited company, challenged an assessment order treating its turnover as inter-State sales under the Central Sales Tax Act, 1956. The second respondent concluded that since the petitioner, with its head office in New Delhi, made purchases in Andhra Pradesh, there was an inter-State sale. The respondent argued that the property in goods purchased in Andhra Pradesh was transferred to New Delhi, constituting an inter-State sale. However, the court noted that for a sale to be inter-State, there must be movement of goods from one state to another, which was not the case here. The court emphasized that mere acquisition of goods by a company in a different state does not constitute an inter-State sale unless the goods physically move across state borders.

Assessment of turnover as inter-State sale:
The second respondent based the assessment on the movement of goods from Andhra Pradesh to Africa via Kakinada Port, facilitated by a company located in New Delhi. The respondent argued that the goods entering the customs boundaries marked an inter-State movement. However, the court found this reasoning flawed as the movement did not involve goods reaching New Delhi but were directly exported from Kakinada. The court highlighted that the Customs Port being under central control did not alter the fact that it was part of Andhra Pradesh's territory. Consequently, the court deemed the assessment order as legally unsustainable and set it aside.

Movement of goods in inter-State transactions:
The court emphasized the necessity of actual movement of goods across state borders to qualify as inter-State sales under the Act. It clarified that the goods' physical transfer from one state to another is a fundamental requirement for categorizing a sale as inter-State. In this case, the court found no evidence of goods moving from Andhra Pradesh to New Delhi, as the goods were directly exported from Kakinada without entering New Delhi. The court's analysis focused on the absence of physical movement of goods to determine the nature of the transactions.

Exemption under section 5(1) of the Act for export sales:
The petitioner sought exemption under section 5(1) of the Act for the turnover representing goods exported out of India. The court noted that the proviso to section 6(1) exempts sales in the course of export from taxation under the Act. However, since the transactions did not qualify as inter-State sales, the court concluded that the petitioner was entitled to exemption under section 5(1) for export sales. The court allowed the writ petition, setting aside the assessment order and ruling in favor of the petitioner's claim for exemption.

In conclusion, the court's judgment clarified the legal requirements for inter-State sales under the Central Sales Tax Act, emphasizing the significance of physical movement of goods across state borders. The court's detailed analysis highlighted the flaws in the assessment order and upheld the petitioner's claim for exemption based on the absence of inter-State transactions as per the statutory provisions.