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TMI Blog2019 (4) TMI 1632X X X X Extracts X X X X X X X X Extracts X X X X ..... ion be available to the petitioner. The field of taxation on the sale or purchase of goods, taking place in the course of inter-state trade or commerce, was excluded from the competence of the State Legislature. The situs of the sale or purchase was wholly immaterial as regards inter-state trade or commerce. In view of Section 3(a) of the CST Act, all that had to be ascertained was whether the sale or purchase occasioned the movement of goods from one State to another. If the transaction of sale satisfied this requirement, it was 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 of the Constitution, was beyond the legislative competence of a State legislature to tax. There is no integral link between the contract of sale and the movement of goods (Khair wood) from the State of Uttarakhand to the State of Uttar Pradesh. Sale of goods (i.e. Khair wood), in the present case, cannot therefore be said to be an inter-State sale falling within the ambit of Section 3(a) of the CST Act. The order under appeal, to the extent the learned Single Judge held it to be an inter- State sale falling within the ambit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-B of the 1948 Act and the assessing authority, vide order dated 07.06.1994, granted them a recognition certificate, as a result of which the petitioner was entitled to purchase raw material at a concessional rate of tax. This recognition certificate was, by order dated 09.09.1997, made applicable for the lifetime of the company. Prior to the bifurcation of the State of Uttar Pradesh, and the State of Uttarakhand coming into being on 09.11.2000, the petitioner s manufacturing unit, and the source of its procurement from the U.P. Forest Corporation, were both located within the State of Uttar Pradesh. After the creation of the State of Uttarakhand, while the petitioner s unit continued to remain in the State of Uttar Pradesh, it was required to procure khair wood from the Corporation located in the State of Uttarakhand. 3. It is the petitioner s case that an amicable settlement was arrived at between the State of Uttarakhand and the State of Uttar Pradesh to resolve this problem, and both the States issued notifications giving the benefit of concessional rate of tax for purchase of raw material, to persons who had a recognition certificate under Section 4-B of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rakhand; and a mandamus directing the respondents to refund ₹ 1,61,26,132/-, with interest, which was illegally realized from them. 6. In the counter affidavit filed on behalf of the second respondent, by the Deputy Commissioner, Commercial Tax, Haridwar, it is stated that a dealer is entitled to pay tax, at a concessional rate, on furnishing Form-C only in the case of an inter- State sale; if the sale is completed within one State, then Form-C cannot be issued, as such a sale cannot be considered an inter-State sale; the sale of khair wood had concluded within the State of Uttarakhand, and as the petitioner had purchased it in an open auction, he was free to move the goods purchased by him from one place to another either within the State of Uttarakhand or outside the State; the Corporation was created after the State of Uttarakhand came into being; consequently, the question of submitting Form-3B to the Corporation did not arise; after creation of the State of Uttarakhand, the relevance of Form-3B came to an end; purchase of khair wood, in an open auction held by the Corporation, is not pursuant to an inter- State sale, but is an outright sale and purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Uttarakhand to Najibabad, District Bijnor in the State of Uttar Pradesh; it is pursuant to the purchase made by the petitioner that the goods moved to the State of Uttar Pradesh; it was, therefore, an inter-State sale and not an intra- State sale; before the notification dated 26.12.2000 was issued, the petitioner had submitted Form-3B to the Forest Department; and as the sale bills/invoices were issued in their name at their address in the State of Uttar Pradesh, and the goods moved from the State of Uttarakhand to the State of Uttar Pradesh, it is an inter-State sale and not an intra-State sale within the State of Uttarakhand. 9. Sri S.K. Posti, learned counsel for the petitioner, would submit that the benefit of the notification is available to the petitioner as the sale, in the present case, is an inter-State sale; the terms and conditions of the sale show that the sale did not take place at the drop of a hammer; the sale was required to be intimated by the competent authority by registered post; approval of the competent authority is also required thereunder; it is evident, therefore, that the sale took place long after the auction; the very fact that invoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale is an intra- State sale, and not an inter-State sale. Learned Brief Holder would rely on Section 64 of the Sales of Goods Act, 1930; on Balabhagas Hulaschand vs. State of Orissa (1976) 2 SCC 44 ; M.M. Traders vs. State of M.P. and others (2010) 4 M.P.L.J. 515; Karnataka Soaps and Detergents Ltd. vs. District Forest Officer, Sathyamangalam Division and others (2005) 140 STC 112 (Mad) ; and Similipahar Forest Development Corporation Limited vs. State of Orissa (1995) 96 STC 627 . I. RELEVANT STATUTORY PROVISIONS: 11. Before examining the rival contentions, it is useful to refer to the relevant provisions of the CST Act, other relevant enactments, and the scope of Section 3(a) of the CST Act which requires a sale to be deemed as an inter-State sale if the sale or purchase of goods occasioned its movement from one State to another. Section 8 of the CST Act related to the rates of tax on sales in the course of inter-State trade or commerce. Under sub-section (1) thereof, every dealer, who in the course of inter-State trade or commerce, had sold to a registered dealer, goods of the description referred to in Section 8(3), was liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) and (b) of Section 8(5) of the CST Act, is to exempt a dealer from paying tax, or for calculation of tax at a rate lower than those specified in Section 8(1), on a notification being issued in this regard. II. NOTIFICATION DATED 26.12.2000: ITS CONTENTS: 13. The Notification dated 26.12.2000, on which reliance is placed by Mr. S.K. Posti, learned counsel for the petitioner, reads thus: 51/Vitta Vyapar Kar/2000 Dated: Dehradun: December 26, 2000 (Gazette dt. 26.12.2000) Whereas, the State Government is satisfied that it is necessary so to do in public interest; Now, Therefore, in exercise of the powers conferred by sub-section (5) of section 8 of the Central Sales Tax Act, 1956 (Act no.74 of 1956), the Governor is pleased to direct that with effect from the date of publication of this notification in the official Gazette, the tax payable under sub-section (1) of the said section by any dealer having his place of business in the State of Uttaranchal in respect of the sales by him, in the course of inter-state trade or commerce, from any such place of business, of any raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to one who is not entitled therefor. A person claiming the benefit of an exemption notification must show that he satisfies the eligibility criteria. [Collector of Customs (Preventive), Amritsar vs. Malwa Industries Limited (2009) 12 SCC 735 ]. 15. It is settled rule of construction of a notification, which grants tax incentives, that, at the outset, a strict approach ought to be adopted in administering whether a dealer/ manufacturer is covered by it at all. [ La Opala R.G. Limited (2014) 15 SCC 136 ; ]. The exemption notification should be construed on the basis of the language used. [La Opala R.G. Limited (2014) 15 SCC 136 ; ; CCE, Chandigarh v. Bhalla Enterprises AIR 2005 SC 2891 ; Tata Iron Steel Co. Ltd. v. State of Jharkhand others (2005) 4 SCC 272 ; Kartar Rolling Mills v. Commissioner of Central Excise, New Delhi (2006) 4 SCC 772 ; Eagle Flask Industries Ltd. v. The Commissioner of Central Excise Pune (2004) 7 SCC 377 ; Govt. of India others v. Indian Tobacco Association (2005) 7 SCC 396 ; Malwa Industries Ltd. (2009) 12 SCC 735 ; and Commissioner of Central Excise, Trichy v. Rukmani Pakkwell Traders (2004) 11 SCC 801 ]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictly. The burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or the exemption notification. When there is ambiguity in the exemption notification, which is subject to a strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee, and it must be interpreted in favour of the revenue. [Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and others (2018) 9 SCC 1 18. Bearing these principles in mind, let us now take note of the conditions stipulated in the said Notification and, thereafter, examine whether the petitioner has fulfilled those conditions, for it is only if he has, would he then be entitled to claim the benefit of the notification. The conditions to be fulfilled, in terms of the Notification dated 26.12.2000, are (i) the dealer must have his place of business in the State of Uttarakhand in respect of the sales made by him; (ii) such sales must be in the course of inter-state trade or commerce, from such place of business; (iii) the sale must be of (a) any raw material, (b) processing material, (c) consumabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und the question whether the sale, of khair wood to the petitioner, is in the course of inter-State trade or commerce from the place of business of the Corporation i.e. in the State of Uttarakhand, for it is only in the case of an inter-State sale would Section 8(4) of the CST Act require the petitioner to submit a declaration in Form-C to the Corporation, and for the Corporation in turn to submit the said declaration to the Trade Tax Department. As noted hereinabove, among the conditions stipulated in the notification dated 26.12.2000, is that the sale must be in the course of inter-State trade or commerce. As the Notification dated 26.12.2000 provides for a concessional rate of tax, on fulfillment of the conditions prescribed therein, and such a notification must be strictly construed, it is only if the sale of goods is in the course of inter-State trade or commerce would the benefit of the said notification be available to the petitioner. 22. The respondents claim that, since the Corporation was formed after the State of Uttarakhand came into being, the question of furnishing the certificate in Form III-B would not arise. It is unnecessary for us to examine this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a sale or purchase of goods to be deemed to take place in the course of inter-state trade or commerce only if it fell within clauses (a) (b) thereof. Section 3(a) stipulated that a sale or purchase of goods shall be deemed to take place in the course of inter- State trade or commerce if the sale or purchase occasioned the movement of goods from one State to another. Within Section 3(b) were sales in which the property in the goods passed during movement of the goods from one State to another by transfer of documents of title thereto. Section 3(a) covered sales, other than those included in clause (b), in which the movement of goods from one State to another was under the contract of sale, and property in the goods passed in either of the States. A sale which took place under Section 3(a) stood excluded from the purview of Section 3(b) and vice versa. In respect of an inter-State sale, tax was leviable only once, and that indicated that the two clauses of Section 3 were mutually exclusive. The dividing line between sales under Section 3(a) and those falling under Section 3(b) was that, in the former, the movement was under the contract whereas, in the latter, the contract came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certained goods were within the territorial limits of the State where the goods were at the time the contract of sale was made. 28. Under the CST Act, tax was leviable on the sale of goods, and not because of the movement of the goods. The movement of the goods was only material for the purpose of deciding whether the sale took place in the course of inter-State trade or commerce or whether such a sale was purely an intra-State transaction. The name given to a transaction, by the parties concerned, does not decide the nature of the transaction. In order to make a transaction taxable under the CST Act, the transaction must be a sale as defined in Section 2(g) taking place in the course of inter-State trade or commerce in any of the manner provided for in clause (a) or clause (b) of Section 3 of the CST Act. [A G Projects and Technologies Limited (2009) 2 SCC 326] 29. Section 3(a) of the CST Act covered sales in which the movement of goods from one State to another was the result of a covenant or incident of the contract of sale, and property in the goods passed in either State. [K.B. Saha and Sons Industries Pvt. Ltd. (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der to occasion the transportation of goods there must have existed such a bond, between the contract of sale and the actual transportation outside the State, that each link was inextricably connected with the one immediately preceding it. Where the transportation was the result of a sale, the transportation being inextricably linked with the sale so that the bond could not be dissociated without a breach of the mutual understanding between the buyer and seller arising from the nature of the transaction, the sale must be held to be in the course of inter-State trade or commerce. Such a sale meant not only sales taking place during the activities directed to the end of transportation of the goods outside the territory of the State, but also as a part of or connected with such activities. [Bhag Singh Milkha Singh (1974) 34 STC 535 (Pat). ; State of Travancore-Cochin others vs. The Bombay Co. Ltd. AIR1952SC366 ; Ben Gorm Nilgiri Plantations Co. Coonoor (Nilgiris) others vs. Sales Tax Officer, Special Circle, Ernakulam others AIR 1964 SC 1752 ; and State of Travancore-Cochin others vs. Shanmugha Vilas Cashew Nut Factory others AIR 1953 SC 333 ; Shankerje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e movement of goods are not unconnected and dissociated transactions. [Co-operative Sugars (Chittur) Limited Vs. State of Tamil Nadu (1993) 90 STC 1 (SC) ] . If, in the course of inter-State 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 ought to be deemed to have been taken place in the course of inter-State trade or commerce, as such a sale occasioned the movement of the goods from one State to another. [English Electric Co. of India Ltd. and another vs. The Deputy Commercial Tax Officer and others (1976) 4 SCC 460 ]. 35. It did not matter in which State the property in the goods passed. What was decisive was whether the sale was one which occasioned the movement of goods from one State to another. It was not necessary that the sale must have preceded the inter-State movement in order that the sale may be deemed to have occasioned such movement. [English Electric Co. of India Ltd. (1976) 4 SCC 460 ; National Thermal Power Corporation Ltd. (2002) 5 SCC 203 ; Karnataka Soaps and Detergents Ltd. (2005) 140 STC 112 (Mad)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of a covenant of the contract of sale, whether express or implied, or as an incidence of contract itself, but a link must have been established between the movement of goods and the contract of sale. [Similipahar Forest Development Corporation Limited (1995) 96 STC 627 ]. 39. A sale in the course of inter-State trade had three essential ingredients: (i) there must be a contract of sale, incorporating a stipulation, express or implied, regarding inter-State movement of goods; (ii) the goods must have actually moved from one State to another, pursuant to such contract of sale, the sale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concluded. It followed, as a necessary corollary, that a movement of goods, which took place independent of a contract of sale, would not fall within the meaning of an inter-State sale. In other words, if there was no contract of sale preceding the movement of goods, obviously the movement could not be attributed to the contract of sale. Similarly, if the transaction of sale stood completed within the State, and the movement of goods took place thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wali Road, Nazibabad, which is in the State of Uttar Pradesh. The petitioner was informed, vide letter dated 23.01.2001, that they had purchased khair wood in the auction held on 30.12.2000 for certain lots; the approval date was 23.01.2001; they should deposit the bank draft; the last date of cash discount was 01.02.2001; without late fee, sale price deposit last date was 15.02.2001; the last date with late fee sale price deposit was 22.02.2001; without plot rent, lift of the timber last date was 08.03.2001; with plot rent, lift of timber last date was 23.03.2001; they should deposit the bank draft in the concerned depot in favour of Van Nigam, and obtain money receipt; the sale bill would be issued after deposit of income tax and the sale price; and the draft of the sale price should be in favour of the Managing Director, Uttarakhand Forest Development Corporation, payable at Dehradun. Thereafter, invoices were issued to the petitioner wherein their address was reflected as Kotwali Road, Nazibabad, Bijnor. Transit passes were also issued to the petitioner s vehicle, and the place, where the forest produce was to be transported, was shown therein as Nazibabad (which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Forest Corporation. Failure to deposit security money will result in cancelling the accepted bids for lots and forfeiting of Gate Money . 5. Once the competent Authority sanctions the bid, the successful purchaser will be intimated by Approval Letter to be sent through registered post. The successful purchaser shall be required to deposit the payable amount mentioned in the approval letter within 24 days following the receipt of intimation letter (excluding the date of dispatch of letter but before lifting the goods) . In case the intimation letter is given to the purchaser by hand, then he shall have to deposit the payable amount mentioned in the intimation letter within 21 days following the receipt of intimation letter (excluding the date of dispatch of letter but before lifting the goods). This money will be deposited at the Depot Office in the form of demand draft in favour of Managing Director, U.P. Forest Corporation payable in any nationalized bank. Even if the demand draft is received in the office after 3 days from the date mentioned in the demand draft, it will be deemed to be received on the date mentioned therein. Balance amount of the sale valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chaser shall lift the purchased woods within 45 days from the date of dispatch of bill (42 days in case the bill has been given by hand) positively. However, in case the purchaser fails to lift the entire quantity due to any reason, permission of lifting the remaining goods shall be given against plot rent (rate of plot rent will be 0.25 percent of the remaining quantity kept in the Depot on per day basis) and the goods may be allowed to be kept in the Depot up to 15 days. In case the purchaser fails to lift this wood within the period specified above, clearance (Nikasi) permission can be given by the concerned Regional Manager for the next 7 days and by the concerned General Manager for the next 15 days. Rate of plot rent for the aforesaid extended period will be 0.50% of the value of remaining quantity of the lot. A. The total money deposited by the purchaser for that Lot shall stand forfeited in favour of the Forest Corporation. B. The entire quantity of forest produce shall thereupon become the property of the Van Nigam and the Van Nigam shall be at liberty to dispose of the property by way of either auction or other methods without giving any inti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The obligation to transport the goods outside the State must have arisen by reason of a statute, a contract between the parties, or from mutual understanding or agreement between them or even from the nature of the transaction which links the sale to such transportation. If there is an interruption in the movement, and a snapping of the inextricable bond that should exist between the inter- State movement and the contract of sale, it would then not be an inter- State sale under Section 3(a) of the CST Act. Unless a link is established, between the movement of the goods and the contract of sale, it would not be an inter-State sale falling within the ambit of Section 3(a) of the CST Act. 45. The terms and conditions of auction, as noted hereinabove, stipulated that auction of lots would, generally, be finalized on the basis of the highest bid. However the Corporation was not bound to accept the highest or any bid as it had reserved to itself the right to accept or reject the bids without assigning any reason. The highest purchaser, whose bid was accepted by the Corporation, was required to deposit 10% of the auctioned value in the form of security money, and his fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods for putting them in a condition ready for delivery, the property in the goods would pass to the purchaser upon the acceptance of the bid, but that would not be because of Section 64(2) but because of Section 20. [Consolidated Coffee Ltd. (1980) 3 SCC 358] . 47. Section 20 of the Sale of Goods Act, 1930 relates to specific goods in a deliverable state. Thereunder, when there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made; and it is immaterial if the time of payment of the price, or the time of delivery of the goods, is postponed. 48. Normally in an auction sale at the fall of the hammer a completion of the contract of sale takes place, and until such time the bidder may retract his bid but, if the auction sale happens to be an unconditional sale in respect of specific and ascertained goods, the title to the property passes simultaneously at the fall of the hammer by reason of the operation of Section 20 of the Sale of Goods Act. [Consolidated Coffee Ltd. (1980) 3 SCC 358] 49. Section 19(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent authority, the title to the goods passed on to the petitioner even though the time for payment was, on the stipulated terms and conditions being fulfilled, postponed till the date on which the subject goods were lifted. In view of Section 4(2)(a) of the CST Act, sale of Khair wood by the Corporation should be deemed to have taken place within the State of Uttarakhand as the said goods, which were specific and ascertained goods, were within the State of Uttarakhand at the time the contract of sale was made. The subject contract between the Corporation and the petitioner is for sale of Khair wood, and the terms and conditions of sale disclose that the sale took place, and the property in the goods passed to the petitioner, within the State of Uttarakhand, on the bid being sanctioned by the competent authority located within the said State. 52. The terms and conditions of auction did not obligate Khair wood, purchased by the petitioner, to be transported outside the State. It was open to those, to whom Khair wood was sold, to sell them either within the State of Uttarakhand or outside, or to use it for manufacture of other goods either within the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore be said to be an inter-State sale falling within the ambit of Section 3(a) of the CST Act. The order under appeal, to the extent the learned Single Judge held it to be an inter- State sale falling within the ambit of Section 3(a) of the CST Act, must be and is, accordingly, set aside. Special Appeal No. 249 of 2013, preferred by the State of Uttarakhand, is allowed; and the order under appeal, holding the subject sale to be an inter-State sale falling within the ambit of Section 3(a) of the CST Act, is set aside. VII. Doctrine of Unjust Enrichment: Its application to the petitioner s claim for refund of arrears of tax: 56. Sri S.K. Posti, learned counsel for the petitioner, would submit that the learned Single Judge had erred in not granting the petitioner the benefit of refund, erroneously applying the doctrine of unjust enrichment; the said doctrine has no application to the facts of the present case; it is only if the goods were sold as they are to any other dealer, and tax was passed on to them, would the said doctrine apply; in the present case, the khair wood purchased from the State of Uttarakhand was used for the manufacture of kattha, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants had reimbursed a tax liability which was on the Forest Department; the appellants had consumed the goods for manufacturing paper boards, etc; therefore, the question of the appellants passing on the tax liability to the consumer did not arise; and, consequently, the appellants were entitled for refund of the tax collected from them, not for the entire period but for the period commencing three years prior to the date of filling of the Writ Petition. 60. Following Bhadrachalam Paperboards Ltd. (1998) 111 STC 657 , the Supreme Court, in M/s Vam Organic Chemicals Ltd. (1999) U.P.T.C. 13 , held that the whole controversy was whether what was sold is not the original goods, but some other goods which was manufactured from the original goods, then whether the principle of unjust enrichment is applicable; in other words, whether the principle of unjust enrichment can be extended to a case where what is sold is not the original goods but some other goods manufactured from the original goods; in Bhadrachalam Paperboards Ltd. (1998) 111 STC 657 , the original goods were bamboo and hardwood, which were consumed by the appellant for manufacturing paper boa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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