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2015 (4) TMI 1012 - HC - VAT and Sales TaxWhether the sale/supply of the Tetra Pack Milk by the petitioner Nos. 2 and 3 to the Northern Command of the Army in the State of Jammu and Kashmir is a sale in the course of inter-state trade - whether the members of petitioner-Federation like petitioner Nos. 2 and 3 are liable to pay VAT and should register themselves as dealers under the Act for the said sale/supply - Held that - No VAT shall be levied on the turnover from sale of goods which takes place in the course of inter-state trade or commerce. We may say that the VAT under the Act shall not be imposed when a sale takes place in the course of inter-state trade or commerce and tax on such sale shall be governed by the CST Act. On plain reading of section 3 (a) of the CST Act a sale or purchase can be said to have taken place in the course of inter-state trade if two conditions are fulfilled viz (i) a transaction of sale or purchase of goods and (ii) movement/transportation of those goods from one State to another pursuant to the sale or purchase. It should be evident from the sale transaction that the buyer has purchased the goods in one State with the intention of using/consuming them in another State. The movement of goods from one State to another should be incidental to the sale/purchase of those goods. - sale/supply of goods viz. the Tetra Pack Milk by petitioner Nos. 2 and 3 from their manufacturing units in the States of Gujarat and Rajasthan to Army locations of the Northern Command in the State of Jammu and Kashmir is a sale in the course of inter-state trade and therefore not subject to levy and collection of VAT under the Act in the State of Jammu and Kashmir. As per the petitioners which is not disputed rates quoted by the petitioner Nos. 2 and 3 in response to the tenders floated by the Northern Command of the Army were accepted and pursuant thereto supply orders were issued in their favour. The identical supply orders dated 04.10.2013 issued by the Offg. MG Northern Command for an on behalf of the President of India were addressed to the petitioners in the States of Gujarat and Rajasthan respectively. Petitioner No. 2 is required to make supply worth Rs. 2, 26, 82, 294/ of Tetra Pack Milk at Field Supply Depot ASC Narian in the State of Jammu and Kashmir and likewise petitioner No. 3 is required to make supply worth Rs. 2, 80, 40, 700/ at supply Point of ASC Bandipora in the State of Jammu and Kashmir. It has been made clear in the supply orders that the tendered rates shall include transportation charges and all taxes. It admits of no doubt that the goods viz. Tetra Pack Milk have been sold at the manufacturing units of petitioners 1 and 2 in the States of Gujarat and Rajasthan for their consumption by the troops in the State of Jammu and Kashmir and their transportation/movement from respective manufacturing units to the places of their consumption in the State of Jammu and Kashmir is inherent in the transaction of the sale/purchase and covenanted in the supply orders. It is therefore a distinguishing example of sale in inter-state trade which is subject to levy and collection of tax under the CST Act and not to VAT under the Act. Not to levy and collect tax on sale or purchase when such sale or purchase has taken place in the course of inter-state trade or commerce and not to take steps in this regard and not to create hurdles on that score is a constitutional obligation of a State Government and not a discretion or mere concession. The Authorities of a State Government have to show due caution and sensitivity while dealing with the matter and not to act arbitrarily. Stand taken by the respondents that the petitioners are making the supplies on FOR basis has no substance in relation to their liability to pay VAT. Supply on FOR (Free on Rail/Road) basis rather would show that the transportation/movement of the sold goods is a covenant of and pursuant to the contracts of the sale between the Army and petitioner Nos. 2 and 3 and the contracts shall not be said to have been executed until supply of goods at specified delivery points in the State of Jammu and Kashmir is made by the petitioners. Stand taken by the respondents we may say is without any basis and repugnant to constitutional scheme. Sale/supply of the goods viz. Tetra Pack Milk by petitioner Nos. 2 and 3 to the Northern Command of the Indian Army in the State of Jammu and Kashmir pursuant to aforementioned supply orders fulfills all the ingredients of a sale is in the course of inter-state trade and therefore is not liable to levy and collection of VAT under the Act on entry of the goods in the State of Jammu and Kashmir. We also hold that petitioners are not required to get registered as dealers under the Act for aforementioned sales. - Decided in favour of assessee.
Issues Involved:
1. Whether the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade. 2. Whether the petitioners are liable to pay VAT and should register as dealers under the J&K VAT Act, 2005 for the said sale/supply. Detailed Analysis: Issue 1: Inter-State Trade Classification The primary question raised was whether the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade. The court noted that the sale/supply of goods from the manufacturing units in Gujarat and Rajasthan to Army locations in Jammu and Kashmir is indeed a sale in the course of inter-state trade. This conclusion was based on the fact that the goods were sold at the manufacturing units for consumption by the troops in Jammu and Kashmir, and their transportation from the manufacturing units to the places of consumption was inherent in the transaction of sale/purchase and covenanted in the supply orders. Thus, the sale is subject to levy and collection of tax under the Central Sales Tax Act, 1956 (CST Act) and not the J&K VAT Act, 2005. Issue 2: VAT Liability and Registration Requirement The connected question was whether the petitioners are liable to pay VAT and should register as dealers under the J&K VAT Act, 2005 for the said sale/supply. The court held that the petitioners are not carrying out any business activity or making any sale in Jammu and Kashmir, and therefore, they are neither liable to pay VAT under the J&K VAT Act, 2005 nor required to seek registration under the Act. The supplies of Tetra Pack Milk to the Army Command were for direct consumption by the defense forces and were part of an inter-state trade, thus falling under the purview of the CST Act. The court emphasized that the movement of goods from one state to another pursuant to a sale is an essential ingredient of an inter-state sale, which is not subject to VAT in the state of Jammu and Kashmir. Conclusion: The court concluded that the sale/supply of Tetra Pack Milk by the petitioners to the Northern Command of the Army in Jammu and Kashmir is a sale in the course of inter-state trade and thus not liable to VAT under the J&K VAT Act, 2005. The petitioners are not required to get registered as dealers under the Act for the aforementioned sales. The court issued a writ of prohibition restraining the respondents from detaining trucks/vehicles carrying Tetra Pack Milk being transported by the petitioners and directed the respondents to release the bank guarantees furnished by the petitioners. Disposition: The writ petition was accepted, and the respondents were restrained from enforcing payment of VAT under the J&K VAT Act, 2005 on the consignments of Tetra Pack Milk supplied by the petitioners to the Northern Command of the Army in Jammu and Kashmir. The respondents were also directed to undo all steps taken in this regard and to release the bank guarantees furnished by the petitioners.
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