D. R. Garg And Company v. State Of Bihar — 1985 DIGILAW 241 (PAT)

Judgment Satyabrata Sanyal, J. 1. In view of the fact that the questions involved in all these four writ petitions are common, they were heard together and are being disposed of by a common judgment. 2. The simple question involved in all these writ petitions whether the purchase of khair billets and/or forest products from the forest department in the State of Bihar constitute sale within the State of Bihar or in course of inter-State sale, liable to payment of the Central sales tax at the rate of 4 per cent on filing of a declaration in form C. 3. The petitioners are either companies or firms registered under the Central Sales Tax Act and carrying on manufacturing business outside the State of Bihar. The petitioners in C.W.J.C. Nos. 1411 and 1463 of 1983 (R) are the manufacturers of khair in their factory at Izatnagar, Bareilly in the State of Uttar Pradesh, and are registered as well under the Uttar Pradesh Sales Tax Act. They have no place of business in the State of Bihar nor do they manufacture any katha within the State of Bihar out of khair billets and/or khair woods purchased by them. It is stated that the said goods are purchased for consumption in their factory at Izatnagar (U.P.). They are outside the State dealers. 4. The petitioners in C.W.J.C. Nos. 1143 and 1194 of 1983 (R) similarly carry on their business of timber goods at their place of business at Rourkela in the State of Orissa. It is said that they are registered under the Orissa Sales Tax Act, as well as registered under the Central Sales Tax Act. They also claim to have no other place of business in the State of Bihar nor do they carry on any business in the said goods within the State of Bihar and similarly outside the State dealers. 5. In all the four writ petitions system and course of business and purchase transaction are same or similar, viz., either by calling tender or by auction. It may be stated here that so far as C.W.J.C. No. 1411 of 1983 (R) is concerned, the sale is by inviting tenders. In C.W.J.C. No. 1463 of 1983 (R), it is partly by tender and partly by auction, whereas, in C.W.J.C. Nos. 1194 and 1143 of 1983 (R), the purchases have been made by auction sale. In C.W.J.C. Nos. It may be stated here that so far as C.W.J.C. No. 1411 of 1983 (R) is concerned, the sale is by inviting tenders. In C.W.J.C. No. 1463 of 1983 (R), it is partly by tender and partly by auction, whereas, in C.W.J.C. Nos. 1194 and 1143 of 1983 (R), the purchases have been made by auction sale. In C.W.J.C. Nos. 1411 and 1463 of 1983 (R), the contracts of sale have been annexed which inter alia provides that the buyers shall pay sales tax or any other tax and cess as applicable, on the khair billets in Bihar. It further provides that the security deposit shall be liable to be adjusted against any outstanding dues to the Corporation and shall also be liable to be forfeited by the Corporation for breach of any of the terms and conditions of the agreement. It also provides that there should be authorised representative of the successful tenderer to take delivery of the produce which will be marked after the sale is concluded and the property mark of the buyer will have to be registered in advance with the Corporation. Clauses 13 and 14 being relevant for the purpose of these writ petitions are quoted hereunder: Clause 13: The delivered produce will be transported duly covered by permit issued by the Corporation and routed through check posts prescribed by the Corporation. Clause 14: Trucks or carts engaged by the buyer for transport of delivered forest produce will be registered with the Corporation. The payment could be made whether in one lump sum or in instalments and buyer will lift proportionate quantity of produce on such payments. The instalments due can also be realised out of the security deposit. Clause 20 of the agreement provides that: The delivery order, railway receipt or any other document of title relating to the contract shall not be transferable. There is another agreement annexed to the writ petition which has been marked annexure 2. One of the clauses of this agreement of sale provides that the buyer has to pay sales tax at the rate of 4 per cent + 1 per cent agriculture market fee. It may be stated here that under the Forest Act, certain Rules have been framed known as Bihar Kasth Tatha Anya Van Utpadan Abhivahan Ka Viniyaman Niyamawali, 1973 (for short "the Rules"). It may be stated here that under the Forest Act, certain Rules have been framed known as Bihar Kasth Tatha Anya Van Utpadan Abhivahan Ka Viniyaman Niyamawali, 1973 (for short "the Rules"). According to Rule 3 of the said Rules, the forest produce including katha cannot be exported or removed without a written permit issued by the competent forest officers. Clause G of Rule 3 of the aforesaid Rules provide that each permit shall mention the route and destination through which the forest produce is required to be carried: It will, therefore, be evident that the permit referred to in Clause 13 of the agreement relates to the grant of this permit showing the route and destination of the goods as required under Clause G of Rule 3. This permit, therefore, forms part of the agreement for sale. 6. In C.W.J.C. Nos. 1411 and 1463 of 1983 (R), it has been stated that the petitioner-company is purchasing katha logs or billets for the last 45 years in the same and similar manner and moving the goods to the destination shown in the permit for manufacture of katha in their factory at Bareilly where the goods are appropriated by them. The forest department and/or the Corporation always realised Central sales tax because the sale occasioned the movement of goods from the State of Bihar to Uttar Pradesh as per contract or incident of contract for sale. Under the agreement, the petitioner cannot transfer either the delivery order or the railway receipts or the permits to any person and the terminus points of the movement of the goods will invariably be the destination, indicated in the permit itself. Illustrative railway receipts and permits have also been enclosed to show the course and close of transaction. 7. In C.W.J.C. Nos. 1194 and 1143 of 1983 (R) on striking of the hammer in the auction to the highest bidder and on payment of price and sales tax, the forest department issued release order in consonance with the permit as required to be issued under the Rules indicating the route and destination where the goods are to be moved consequent upon the sale. In every case release orders and the transit permits have been issued for a place in the State of Orissa where the goods have always moved pursuant to the sale and/or implied agreement of sale in the trucks and/or vehicles mentioned in the transport permits. Disputes having been raised from time to time as to whether such transactions are liable to the Bihar sales tax or the Central sales tax, the matter was clarified by the Chief Conservator of Forest by referring it to the Joint Commissioner, Commercial Taxes, Ranchi, who by his letter dated 22nd March, 1982 (annexure 4), clarified that the dealers from outside the State are liable to pay 4 per cent Central sales tax if they are registered under the same in those States and he submitted a declaration in form C. In case such dealers are not registered in the State of destination under the Central Sales Tax Act, if any, they would be required to pay 11 per cent State tax as was applicable at that time. It is said that after the said clarification, the controversy was set at rest. The controversy having again arisen at the instance of the revenue authority, the matter was referred to the Chief Conservator of Forest who by letter No. 803 dated 16th June, 1983 (annexure 6), intimated the concerned officer that Central sales tax at the rate of 4 per cent shall be payable by the registered dealers if the goods have been taken outside the State of Bihar on furnishing form C according to the decision of the revenue as per their letter No. 318 dated 22nd March, 1982, and letter No. 253 dated 25th March, 1982. It was further made clear if the goods have not moved outside the State of Bihar and/or not despatched outside the State of Bihar, the State sales tax should be levied on such sales. In these writ petitions, the petitioners have also annexed all the permits issued covering the purchase transactions which show that the destination point of goods is Rourkela, a place in the State of Orissa. The permit for movement of goods also mentions the truck number and the name of the driver of the truck, etc. In these writ petitions, the petitioners have also annexed all the permits issued covering the purchase transactions which show that the destination point of goods is Rourkela, a place in the State of Orissa. The permit for movement of goods also mentions the truck number and the name of the driver of the truck, etc. I may also state here that in C.W.J.C. No. 1411 of 1983 (R), the petitioner has annexed a letter (annexure 6) written by the Chief Conservator of Forest to the Conservator of Forest to realise only Central sales tax from the petitioner. It mentions that this is according to the written advice rendered by the Joint Commissioner, Commercial Taxes, Ranchi. 8. The immediate cause of action in C.W.J.C. No. 1411 of 1983 (R) is refusal of respondent No. 2 to release the security deposit on the assumption that even though the petitioner is liable to pay Bihar sales tax, what have been realised from it is the Central sales tax. Therefore, the difference is liable to be adjusted out of security money in deposit with the seller. In writ petition, C.W.J.C. No. 1463 of 1983(R), the cause of action being realisation of Bihar sales tax paid on protest and further threat and demand to realise State tax on every transaction of khair wood or billets treating the sale to have concluded within the State of Bihar irrespective of the goods immediate movement outside the State. In C.W.J.C. No. 1411 of 1983 (R), the petitioner seeks direction to release the security amount as well as issuance of a writ of mandamus directing the respondents to forbear from demanding the Bihar sales tax with respect to khair billets/wood purchased and moved outside the State and to treat the transaction to have taken place in course of inter-State trade and commerce. In C.W.J.C. No. 1463 of 1983 (R), the petitioner seeks an additional relief that is to refund the Bihar sales tax charged from the petitioner on such inter-State transaction. In C.W.J.C. No. 1194 of 1983 (R), the petitioner seeks quashing of annexure 9, a demand by the Divisional Forest Officer for payment of Bihar sales tax and in C.W.J.C. No. 1143 of 1983 (R), the petitioner seeks quashing of annexure 5. In C.W.J.C. No. 1194 of 1983 (R), the petitioner seeks quashing of annexure 9, a demand by the Divisional Forest Officer for payment of Bihar sales tax and in C.W.J.C. No. 1143 of 1983 (R), the petitioner seeks quashing of annexure 5. In both the writ petitions, the further prayer of the petitioners is to restrain the respondents from demanding Bihar sales tax with respect to the sales pursuant to which the goods were moved from the State of Bihar to outside the State. 9. Mr. Gadodia, appearing on behalf of C.W.J.C. Nos. 1411 and 1463 of 1983 (R), contended that there is no denial of the factual part stated in paragraph 15 of the writ petition that the goods have moved from the State of Bihar to Uttar Pradesh for being consumed in the petitioners factory and the petitioner did not dispose of the khair billets in the State of Bihar. In paragraph 11 of the counter-affidavit which is in reply to paragraph 15, what has been stated is that: the liability of the petitioner to pay Bihar sales tax at 11 per cent did not cease in view of Clause 5 of the agreement which states that the buyer will have to pay sales tax, etc., as applicable in Bihar on sales of khair billets. 10. Learned Counsel for the petitioner states that goods having moved consequent upon agreement of sale as per permit indicating the destination at a place in State of U.P., it would be deemed to be a sale occasioning the movement of goods to another State, thus within the four corners of Sec.3 of the Central Sales Tax Act. This is a sale in course of inter-State trade or commerce. He further submitted that it is wholly irrelevant as to where the title to the property of the goods passed in one State or another, inasmuch as it may pass in either of the State and the sale can yet be inter-State sale. Learned Counsel for all the writ petitioners further submitted that invariably, all the goods purchased have moved outside the State either for manufacturing or for trading purposes in other State where the petitioners are registered dealers of that State. Under the agreement, none of the purchasers are entitled to transfer delivery order, railway receipts or any other document of title relating to the goods for sale. Under the agreement, none of the purchasers are entitled to transfer delivery order, railway receipts or any other document of title relating to the goods for sale. The goods can only be appropriated to purchasers use at the destination point shown in the permit which is either in the State of Uttar Pradesh or the State of Orissa. Learned Counsel submitted that this fact is borne out by the forest transport permit issued by the seller and no one is permitted to move the goods in violation of the requirement of the permit and if anybody does so, he is liable to criminal prosecution under Clause 8 of the Rules. It has also been stated that the forest department is the authority who grants permits and, therefore, it is within their knowledge, that the goods are meant to move from the State of Bihar either to U.P. or to Orissa. The seller is further aware that the petitioners are outside the State dealers registered under the Central Sales Tax Act as well as under their State Sales Tax Act where they have their principal seat of business. In support of their submission, learned Counsel for the parties relied upon large number of cases but mainly to the case of Union of India V/s. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC); AIR 1979 SC 1160 as well as the case of English Electric Company V/s. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC); AIR 1977 SC 19 . 11. Mr. Ram Balak Mahto, learned Advocate-General, submitted that everything said and done, the sale has been concluded within the State of Bihar, therefore, the transactions are liable to the payment of Bihar sales tax. The real test according to the learned Advocate-General, whether a particular sale is in course of inter-State trade or sale within the State, is where the sale has concluded. The real test according to the learned Advocate-General, whether a particular sale is in course of inter-State trade or sale within the State, is where the sale has concluded. In the instant case after the concluded sale took place within the State, the goods have moved to the other State, therefore, the sale could not be deemed to be in course of the inter-State trade and commerce In support of his argument, he strongly relies upon the decisions reported in Balabhagas Hulaschand V/s. State of Orissa [1976] 37 STC 207 (SC); AIR 1976 SC 1016 and Manganese Ore (India) Ltd. V/s. Regional Assistant Commissioner of Sales Tax [1976] 37 STC 489 (SC); AIR 1976 SC 410 . 12. I am required to consider in the light of Sec.3 and Section 9(1) of the Central Sales Tax Act (74 of 1956) (hereinafter to be referred to as "the Act") whether the sale effected by the respondents occasioned the movement of the goods from one State to the other, viz., from the State of Bihar either to the State of U.P. or to the State of Orissa. If the sale or purchase occasions the movement of goods from one State to another, only then sale can be deemed to have taken place in course of inter-State trade or commerce within the meaning of the Act. In this case, I am not concerned as to the applicability of Section 3(b) of the Act and/or the explanation to the section as they have no bearing in these cases. If the contract of sale provides for and caused movement of the goods or the movement of goods is occasioned specifically in accordance with the terms of the contract of sale, in that event, it would be a clear case of sale or purchase in course of inter-State trade or commerce. There may, however, be cases as well in which the movement of goods from one State to another is the result of "covenant or incident of the contract of sale": Tata Iron and Steel Co. Ltd. V/s. S.R. Sarkar [1960] 11 STC 655 (SC); AIR 1961 SC 65 . There may, however, be cases as well in which the movement of goods from one State to another is the result of "covenant or incident of the contract of sale": Tata Iron and Steel Co. Ltd. V/s. S.R. Sarkar [1960] 11 STC 655 (SC); AIR 1961 SC 65 . Mathew, J., observed in the case of Oil India Ltd. V/s. Superintendent of Taxes [1975] 35 STC 445 (SC); AIR 1975 SC 887 that there is no necessity that the covenant regarding inter-State movement shall be specified in the contract itself regarding the inter-State movement of goods, for being sale or purchase in course inter-State trade or commerce. In the case of Union of India V/s. K.G. Khosla and Co. [1979] 43 STC 457(SC); AIR 1979 SC 1160 , Chandrachud, C.J., speaking for the court stated the law as hereunder: It is not true to say that for the purposes of Sec.3(a) of the Act it is 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 accordance with the terms of the contract of sale.... It is only if a sale occasions the movement of goods from one State to another that it can be deemed to have taken place in the course of inter-State trade or commerce within the meaning of Sec.3(a) of the Act.... In order that a sale may be regarded as an inter-State sale, it is immaterial whether the property in the goods passes in one State or another. The question as regards the nature of the sale, that is, whether it is an inter-State sale or an intra-State sale, does not depend upon the circumstances as to in which State the property in the goods passes. It may pass in either State and yet the sale can be an inter-State sale. 13. In the case of English Electric Company V/s. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC); AIR 1977 SC 19 , Ray, C.J., stated the law with respect to the sale in course of the inter-State sale as follows: It does not matter in which State the property in the goods passes. What is decisive is whether the sale is one which occasions the movement of goods from one State to another. What is decisive is whether the sale is one which occasions the movement of goods from one State to another. The inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement is in pursuance of and incidental to the contract of sale. These are the passages which have been strongly relied upon both by Mr. Kameshwar Prasad as well as Mr. Gadodia, learned Counsel appearing for the petitioners. They contend that the permit is a part of the contract of sale. It provides the movement of the goods from one State to another specifically in accordance with the terms of the permit, therefore, their cases are straightway covered by Sec.3(a) of the Act. Alternatively, they contend that there could be no doubt in view of the facts and circumstances of the case and the admitted movement of the goods to the knowledge of the seller from one State to another, movement of the goods is the result of the incidence of the sale or contract of sale. The buyer is entitled to appropriate the goods and acquire disposable right over the goods purchased, only in the State where the goods have finally moved to the knowledge of the seller. The buyer is entitled to appropriate the goods and acquire disposable right over the goods purchased, only in the State where the goods have finally moved to the knowledge of the seller. According to the learned Counsel, it is immaterial whether title to the goods passes in one State or another, whereas, the learned Advocate-General submits that even though the transaction fulfils two conditions as laid down in the cases of Manganese Ore (India) Ltd. V/s. Regional Assistant Commissioner of Saks Tax, Jabalpur [1976] 37 STC 489 (SC); AIR 1976 SC 410 and Balabhagas Hulaschand V/s. State of Orissa [1976] 37 STC 207 (SC); AIR 1976 SC 1016 , before a sale can be said to have taken place in the course of inter-State trade or commerce, but it do not fulfil the 3rd condition laid down in the aforesaid two cases, which required the "concluded sale" to take place in the State where the goods have moved, which must be different from the State from where the goods had moved. Learned Advocate-General submits that the sale in the State of Bihar was a concluded one, inasmuch as the goods were purchased and price thereof paid and delivery order was handed over to the purchaser in the State of Bihar. The purchaser moving the goods thereafter at his discretion to another State is irrelevant consideration in this regard. According to the Advocate-General, it is not a case, therefore, the sale occasions the movement of the goods from one State to another. At the first impulse, I was of the opinion that there is an apparent conflict in the decisions cited by the learned Counsel for the parties, as to the test laid down to determine sale in course of inter-State trade and commerce, inasmuch as the statement of law to the effect "it does not matter in which State the property in the goods passes" vis-a-vis observation of the Supreme Court that "the concluded sale takes place in the State where the goods had ultimately moved". On deeper scrutiny, I am of the opinion that it is not so. On deeper scrutiny, I am of the opinion that it is not so. What their Lordships of the Supreme Court really meant is, in which State the transaction of sale and purchase ultimately closes and the purchaser is entitled to appropriate the goods to itself with either right of disposal and/or to put it to their use and that State must be the State where the goods have moved to constitute sale in course of inter-State trade or commerce. The use of the words "where a concluded sale takes place" in my opinion, means where the purchaser factually obtains complete control and possession of the goods and the transaction in all its aspect comes to an end. Close of transaction would mean that the seller retains no authority, whatsoever to interfere with the purchased commodity, qua the goods purchased. It may be, the property in goods passes in purchasing State, but if the seller retains complete control of the movement of goods purchased with no right of the purchaser to transfer the goods or put it to its use as the purchaser likes and that being the incident of contract, it cannot be deemed to be a concluded sale in the State, where the goods have been purchased. 14 Let us now have a close look to the facts and circumstances of the cases in hand. In view of the agreement oral or written, and/or as incident of the aforesaid contract, the purchasers were not at all entitled to have any personal volition with respect to the goods and/or right to use it in the State of Bihar. Further, the purchasers did not obtain complete right to the property purchased immediately on purchase of goods in the State of Bihar as they were not entitled to transfer title to the goods purchased to any person in the State where the goods were purchased, but obtained the said right at the destination State, mentioned in transport permit where the goods have moved to the knowledge of the seller, viz., the other State. Therefore, the title and possession of the goods with right of disposal or usurpation arose only in the State where the goods had moved pursuant to the contract of sale and/or as an incident of the said contract. The transaction of sale and purchase came to a close at the destination State, indicated in the permit. Therefore, the title and possession of the goods with right of disposal or usurpation arose only in the State where the goods had moved pursuant to the contract of sale and/or as an incident of the said contract. The transaction of sale and purchase came to a close at the destination State, indicated in the permit. This position obtained, both in the written agreement of sale and/or could be culled out from the permit issued by the seller. It mandates the purchaser to move the goods in vehicles registered with the seller, to be taken to the State of Orissa or to the State of Uttar Pradesh through a particular route. The seller keeps control and supervision over the goods purchased and its movement, even though the title to the goods passes in the State of Bihar till the goods moves out from the State and reaches the destination State. The factual delivery of the goods with right of disposal, therefore, occurs in the State of Uttar Pradesh and/or Orissa pursuant to the purchase made in the State of Bihar. In my opinion, the sale is concluded and/or the transaction of sale and purchase comes to an end in the State where the goods had moved. This has been the course of trade and business between the respondent-seller and the purchasers, obtaining more than a decade. The Joint Commissioner, Commercial Taxes, Ranchi, had opined as far back as in the year 1982 that the transactions are covered under Sec.3(a) of the Act. In spite of that the revenue as alleged from time to time makes up and vexes the petitioners, in my opinion, by misconstruction of the third requirement stated in the Manganese Ore (India) Ltd. [1976] 37 STC 489 (SC); AIR 1976 SC 410 and Balabhagas [1976] 37 STC 207 (SC); AIR 1976 SC 1016 . As I have stated earlier, the words "concluded sale" only means where the seller ceases to have any control over the goods sold, and the buyer is at liberty to appropriate the goods to its own use, that is where the transaction of sale and purchase comes to a close. 15. For the reasons stated above, I am of the opinion that the instant sale and purchase is in course of inter-State trade and commerce and is completely covered under Sec.3(a) of the Act. 16. 15. For the reasons stated above, I am of the opinion that the instant sale and purchase is in course of inter-State trade and commerce and is completely covered under Sec.3(a) of the Act. 16. In the result, the writ petitions are allowed and the respondents are directed not to demand and/or realise Bihar sales tax in these kinds of trade and commerce from the writ petitioners. The respondents should refund or adjust it in accordance with law, if some such sale or purchase is found to have been subjected to State tax and the same have been realised from any one of the petitioners. The State Trading Corporation should refund the security amount of the petitioners if held by them on this account and not otherwise required. It is needless to say that the State Trading Corporation had correctly realised earlier Central sales tax from some of the transactions in question. As the cases posed intricate question of law, I refrain from passing any order of costs. Parties to bear their own costs.