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TMI Blog2015 (4) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the State of Gujarat and likewise petitioner No. 3 is also a Cooperative Society registered in the State of Rajasthan. Petitioner Nos. 2 and 3 claim to be engaged in manufacture of pasteurized milk and milk products including UHT/Tetra Pack Milk in their Units located in their respective States. 2. Petitioner-Federation claims, which is not disputed, that it is the Apex Dairy Federation associated with Ministry of Defence (MoD)/respondent No. 4 for supply of milk. The MoD procures milk and milk products only from the petitioner-Federation/Member Cooperatives against negotiated contracts and in this behalf the petitioner-Federation acts as a single window approach for the MoD in regard to the procurement of milk and milk products for the Armed Forces all over India. The arrangement inter se the petitioners and MoD is governed by virtue of a policy decision. It is averred that petitioner Nos. 2 and 3 and three more member societies of petitioner-Federation, namely, Punjab State Cooperative Milk Producers Federation Ltd, Shree Warana Sahkari Doodh Utpadak Prakriya Sangh Ltd and Kolar Chikkaballapur District Cooperative Milk Producers Societies Union Ltd are engaged in making th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds had no option but to seek registration as dealers under the Jammu and Kashmir Value Added Tax Act, 2005. 6. Petitioners have thus filed this petition under Article 226 of the Constitution of India read with section 103 of the Constitution of Jammu and Kashmir for issuance of writ in the nature of: i) Prohibition detaining respondent Nos. 1 to 3 from restraining the trucks/vehicles carrying UHT/Tetra Pack Milk being supplied by petitioner Nos. 2 and 3 to the Army Units under Northern Command in the State of Jammu and Kashmir. ii) Mandamus commanding respondent Nos. 1 and 3 not to compel the petitioners to transfers the stock of UHT/Tetra Pack Milk and impose/levy any tax on such goods under the J&K VAT Act, 2005. iii) Prohibition prohibiting respondent No. 3 from charging any VAT from the petitioners on the aforementioned consignments of Tetra Pack Milk and, iv) Prohibition restraining respondent Nos. 1 to 3 from en-cashing the Bank Guarantee dated 17.01.2014 drawn on Oriental Bank of Commerce, JLN Marg Branch, Jaipur (Rajasthan) for recovery of tax on UHT/Tetra Pack Milk being supplied by the petitioners. 7. Heard. We have perused the record. 8. Petitioners case p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n once that petitioners are required to get themselves registered in the State of Jammu and Kashmir under the Act and are liable to furnish security till they obtain registration, have not clearly stated as to whether the transaction in question is liable to levy and payment of VAT or not. 10. Primary question raised for consideration in this writ petition is; whether 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. Connected question would be; 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. 11. On the strength of averments in the petition, Mr. Pranav Kohli, learned counsel for the petitioners argued vehemently that movement of goods, that is, Tetra Pack Milk into the State of Jammu and Kashmir is in the course of inter-state trade as the goods are meant for consumption by the troops in the State. Mr. Kohli painstakingly sought to explain that movement of goods is incidental to sale that takes place in the State where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate; (ii) in the course of inter-state trade and commerce; or (iii) in the course of import of goods into the territory of India or export of goods out of the territory of India, shall be determined in accordance with the provisions of section 3, section 4 and section 5 of the Central Sales Tax Act, 1956 . (underlining by us) 13(b). Contextually, sub section (2) of section 13 of the Act provides for deduction from gross turnover of sale of goods of a dealer for commuting his taxable turnover of sales. Sub section (2) of section 13 reads: "13. Tax on Sales (1)---- (2) The taxable turnover of sales in relation to a dealer liable to pay tax on sale of goods under sub section (1) of section 12 shall be the gross turnover of sales during any period, which remains after deducting there from:- (a) turnover of sales of goods declared as exempt from tax in Schedule A ; and (b) turnover of sales of goods which are shown to the satisfaction of the Assessing Authority to have taken place- (i) in the course of inter-state, trade or commerce; (ii) outside the State of Jammu and Kashmir; or (iii) in the course of the import of the goods into, or export of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Faridabad, Haryana. The goods were dispatched from the factory to head office of the seller at Delhi for being forwarded to the respective customers. In this case Their Lordships of a three-Judge Bench of the Supreme Court have interpreted section 3(a) of the CST Act and, while referring to the Constitution Bench judgement in S. R. Sarkar (supra) and other judgments, held in para 14 of the reporting that if a contract of sale contains a stipulation of movement of goods from one state to another, the sale, would be, of course an inter-state sale. But it can also be an inter-state sale, even if, the contract of sale does not itself provide for the movement of the goods from one State to another but such movement is the result of a covenant in the contract of sale or is an incident of that contract. 17. In CST UP and others v M/s Bhakhtawar Lal Kailash Chand Areti and others, AIR 1992 SC 1952, Their Lordships of the Supreme Court have held that to be called an inter-state sale or purchase it is immaterial whether a completed sale precedes movement of goods or follows the movements of goods, or for that matter, takes place while the goods are in transact. What is important is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in this case in light of the aforementioned principles and having done so, we are of the considered view that the 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 for the reasons to follow: 21. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of inter-state trade or commerce. It further empowers the Parliament to enact a law formulating principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce. Parliament has thus enacted the CST Act to formulate principles for determining inter alia when a sale or purchase of goods takes place in the course of inter-state trade or commerce. Section 6(1) of CST Act is charging section, which provides that every dealer shall be liable to pay tax under that Act for sale of goods (other than electrical energy) effected by him in the course of inter-state trade or commerce. Section 3 provides as to when a sale or purchase can be said to have taken place in the course of inter-state trade or commerce. In keeping with the Constitutional scheme the J and K VAT Act unmistakably excludes the sales having taken place in the course of inter-state trade or commerce from levy and collection of VAT. 24. We lay emphasis to point out that 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 ..... 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