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TMI Blog2008 (9) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... ondicherry. Though the goods for which orders were placed were not in existence at the time of placing of the orders, it is not a case of transfer of a right to use the goods. It is a case of sale of the goods. The placing of the orders occasioned the movement of the goods from Pondicherry to Bangalore. The goods, after they were manufactured, thus came into existence at Pondicherry and were moved to Bangalore. Therefore, it is immaterial where the goods were delivered. In this case, there is a movement of goods from one State to another in terms of a contract of sale. It is an inter-State sale. The situs of the sale or purchase is immaterial in respect of inter-State trade or commerce. If the sale or purchase occasioned the movement of goods from one State to another then it constitutes an interState sale and the State Legislature has no competence to tax such sale as the sale is taxed under the CST Act. The KST Act or the KVAT Act is not applicable to such sale. The impugned orders passed are therefore contrary to the settled legal position and the statutory provisions and the same cannot be sustained. Accordingly Writ petitions are allowed. - Writ Petition Nos. 6913 ,6914 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the KST Act and the KVAT Act. The respondent has also issued a demand notice claiming huge amount for the aforesaid periods. Aggrieved by the same, the petitioner has preferred these petitions. Sri K.P. Kumar, the learned Senior Counsel assailing the impugned order contends that admittedly the goods have moved from Pondicherry to Bangalore in pursuance of a purchase order placed by the various banks with the petitioner at Pondicherry. They are delivered at the site of the banks. Therefore, the petitioner was liable to pay tax under the CST Act which it has paid. While bringing those ATMs into Karnataka, the petitioner has also paid entry tax after 2004. There is no liability to pay tax either under the KST Act or under the KVAT Act. The respondent by wrongly applying the ratio laid down by the apex court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 has held, as the delivery of goods took place at Bangalore it is a local sale and the petitioner has to pay tax under the KST Act and the KVAT Act. The said judgment has no application to the facts of the case and he has ignored the series of judgments of the Supreme Court which clearly held, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er discloses that the respondent has categorically stated the following facts which emerge from the material on record at para 8 of the impugned order: (a) Initially, the agreements are entered into with the respective banks at the bank's head quarters. For example, in the case of State Bank of India, agreement is entered into at Bombay head office and in the case of Canara Bank the agreement is made at Bangalore. (b) The agreements are entered with the banks for supply and installation of ATM machines at their branches in Karnataka so indicted by the head office of the bank. (c) The agreements entered into with respective banks are transmitted either by the company's Bangalore office or the head office at Bombay, to the Pondicherry unit for manufacture of ATMs and/or for procuring such machines as ordered by the client banks. (d) The manufactured/imported machines are stocked at Pondicherry and thereafter dispatched to the respective branches of the bank in Karnataka. The transport documents and invoices are made in the name of respective branches of the banks in Karnataka. (e) The ATM machines from Pondicherry are then dispatched to the banks against the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held, where the goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods: in such cases the taxable event would be on the delivery of goods. According to him the ratio of the decision applies to the facts of the case and as the delivery took place at Bangalore it amounted to a local sale and, therefore, sales tax was payable. The respondent has not properly applied his mind to the aforesaid judgment of the Supreme Court. He has taken one paragraph of the final conclusion out of context and has passed the impugned order. The law on the point is well-settled. In the case of Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445 (SC) it has been held as under: (page 446) ...that the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale and therefore the sales to the refinery of Barauni were sales in the course of inter-State trade. The Bihar Government had no jurisdiction to tax the sales under the sales tax law of that State and the petitioner was entitled to the refund of tax collected from it by the Bih ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anch. The steps taken from the beginning to the end by the Bombay branch in co-ordination with the Madras factory show that the Bombay branch was merely acting as the intermediary between the Madras factory and the buyer and that it was the Madras factory which, pursuant to the covenant in the contract of sale, caused the movement of the goods from Madras to Bombay. The inter-State movement of the goods from Madras to Bombay was the result of the contract of sale and the fact that the contract emanated from correspondence which passed between the Bombay branch and the company could not make any difference. The sale was therefore liable to be taxed under section 3(a) of the Central Act. The apex court in the case of Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 has held as under: (page 458) (i) that if a contract of a sale contains a stipulation for the movement of the goods from one State to another, the sale would certainly be an inter-State sale. But for the purposes of section 3(a) of the Act it is not necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-State movement. The sale transactions were inter-State sales under section 3(a) of the Act. A Constitution Bench of the Supreme Court in the case of State of A.P. v. National Thermal Power Corporation Ltd. [2002] 127 STC 280 has held as under: (page 282) The situs of the sale or purchase is wholly immaterial as regards the inter-State trade or commerce. In view of section 3 of the Central Sales Tax Act, 1956, all that has to be seen is whether the sale or purchase (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. If the sale or purchase satisfies any one of the two requirements it is deemed to be a sale or purchase of goods in the course of inter-State trade or commerce and, by virtue of articles 269 and 286, the sale or purchase would be beyond the competence of a State Legislature to tax without regard to the fact whether such a prohibition is spelled out by the description of a legislative entry in Seventh Schedule or not. Therefore, in the light of the aforesaid law declared by the Supreme Court, the question for consideration in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on business at different branches. Those different branches may be at different places. Branches have no independent and separate entity. Branches are different agencies. When a branch of a company forwards a buyer's order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch. If there is a conceivable link between the movement of the goods and the buyer's contract, and if in the course of interState movement the goods move only to reach the buyer in satisfaction of his contract of purchase and such a nexus is otherwise inexplicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter-State trade or commerce as such a sale or purchase occasioned the movement of the goods from one State to another. The presence of an intermediary such as the seller's own representative or branch office, who initiated the contract may not make the matter different. Such an interception by a known person on behalf of the seller in the delivery State and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide two questions: (1) What are the limitations on the power of States to levy tax on the transactions of transfer of right to use any goods? and (2) Where is the situs of taxable event on the transfer of right to use goods under article 366(29A)(d) of the Constitution? The apex court answered the said questions in the following manner: 35. As a result of the aforesaid discussion our conclusions are these: (a) The States in exercise of power under entry 54 of List II read with article 366(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) categorically states, the States in exercise of power under entry 54 of List II read with article 366(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. Therefore, when admittedly the sale in question is in the course of an inter-State trade the State had no power to levy any sales tax at all. The very judgment on which reliance is placed by the assessing authority makes it clear that in the instant case the KST Act has no application and no tax could have been levied. Further the said judgment was concerned about the liability to pay tax in respect of a transfer of the right to use any goods and not a transfer of property in goods under a written contract. Unfortunately though several judgments of the apex court are cited before him, though he has referred to the same, there is no proper application of mind and erroneously he rejects all those judgments on the ground that they are not applicable to the facts of the case. The assessing authority has misconstrued th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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