Civil Appeal No 2077 of 1972
From the Judgment and Order dated 2 8 1971 of the Delhi High Court in Civil Writ No 162 D of 1966
E C Agarwala and R N Sachthey for the Appellants
Lal Narain Sinha K K Jain section K Gupta Pramod Dayal and Bishamber Lal for the Respondent No 1 455 Rameshwar Dial Adarsh Fial and A D Mathur for Respondents 2 3
The Judgment of the Court was delivered by CHANDRACHUD C J
This appeal by certificate raises an interesting controversy between the Sales Tax Authorities in the Union Territory of Delhi and those in Haryana the question being as to which of the two authorities can assess respondent 1 to sales tax
One of the reliefs sought by respondent 1 is that until the Sales Tax authorities of the two territories settle their differences no sales tax should be levied or recovered from it since it does not know to whom to pay the tax
This controversy arises on the following facts
Respondent 1 is a private limited company called K G Khosla  Co P Ltd having its head office in the Union Territory of Delhi at 1 Deshbandhu Gupta Road New Delhi
The company carries on business in Air Compressors and garage equipment which it manufactures in its factory at Faridabad which was formerly in the State of Punjab and is now a part of the State of Haryana
For the purposes of sales tax respondent 1 is registered as a dealer both in the Union Territory of Delhi and in the State of Haryana
It filed returns of sales tax with the sales Tax authorities in Delhi since according to it the sale of goods manufactured in the factory at Faridabad was being effected from Delhi by its head office
The sales tax was being paid by the company under the Bengal Finance Sales Tax Act 1941 as extended to Delhi on the basis that the sales effected by the company were intra State sales within the territory of Delhi
On November 24 1965 however the Sales Tax Assessing Authority at Gurgaon which was then in the State of Punjab but which subsequently became a part of the State of Haryana sent a notice to the company under sections 11 and 14 of the East Punjab Central Sales Tax Act 1948 and rule 33 made thereunder that in respect of the period commencing on April 1 1961 and ending with the year 1964 65 the sales made by the company were liable to assessment in Haryana
On March 13 1968 an assessment was made by the Assessing Authority at Faridabad on the basis that the sales effected by the company were inter State sales liable to be assessed to sales tax under the Central Sales Tax Act 74 of 1956
An appeal against the order of assessment is said to be pending
In the meanwhile on February 14 1966 the company filed a writ petition before the Punjab High Court Circuit Bench at Delhi which after the recorganisation of States was dealt with by the Delhi High 456 Court
The Chief Commissioner of the Union Territory of Delhi and the Assessing Authority of the territory were impleaded as respondents 1 and 2 to the writ petition
Respondent 3 was the State of Punjab and respondent 4 the Assessing Authority at Gurgaon
Respondent 3 was later substituted by the State of Haryana
The company contended by its writ petition that except the manufacturing of goods at the Faridabad factory all of its activities including those of booking of orders sales despatching of goods billing and receiving of sale price were being done by and through the head office in Delhi and that no sales were effected by or from the factory
Since however both the Sales Tax authorities namely at Delhi and Haryana were demanding payment of sales tax on the same sale transactions the company prayed by its writ petition that the High Court do resolve the controversy between the Sales Tax authorities of the two States and decide the question of their respective jurisdiction to assess its turnover
The State of Haryana contended by its counter affidavit to the writ petition that the goods were manufactured by the company at Faridabad in pursuance of contracts of sale with outside purchasers that those goods were appropriated to the various contracts of sale in the State of Haryana and that the movement of the goods from Faridabad to Delhi and onwards was caused as a necessary incident of the contracts of sale made by the company
The sales according to the State of Haryana had taken place at Faridabad during the course of inter State trade
The Union of India on the other hand contended that the goods were brought from Faridabad to Delhi and were thereafter sold by the company to the various purchasers outside Delhi
These sales according to the Union of India were governed by the Bengal Finance Sales Tax Act 1941 as extended to Delhi their situs being the Union Territory of Delhi
The Delhi High Court by its judgment dated August 2 1971 allowed the writ petition and granted a declaration that the sales effected by respondent 1 which fell under section 3 a of the were liable to be assessed to inter State sales tax by the Sales Tax authorities at Faridabad since those sales caused the movement of goods from Faridabad to Delhi
The High Court added that the writ petition was confined to the goods manufactured at Faridabad in pursuance of pre existing contracts of sales and therefore its judgment would have no application to the local sales 457 effected by respondent 1 at Delhi
In the result the High Court passed an order directing that the amount of tax which respondent 1 had wrongly paid to the sales tax authorities at Delhi on the inter State sales between 141961 to 30 9 1965 be transferred by the Sales Tax authorities at Delhi to the Sales Tax authorities at Faridabad
The High Court has granted a certificate of fitness to the Union of India to file an appeal to this Court under Article 133 1 b of the Constitution
The question which arises for decision is whether the sales made by respondent 1 were made at Faridabad in the course of inter State trade as contended by the State of Haryana or whether they are intra State sales effected within the Union Territory of Delhi as contended by the appellant the Union of India
The answer to this question would depend upon the course and nature of transactions in relation to which the movement of goods was caused from Faridabad to Delhi and the terms of the contracts of sales which caused that movement
But before adverting to those aspects of the matter it would be necessary to notice the relevant provisions of the 74 of 1956 The Act
Section 3 of the Act provides as follows 3
When is a sale or purchase of goods said to take place in the course of inter State trade or commerce 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 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
 There are two Explanations to the section but they have no bearing on the appeal
Section 91 of the Act provides as follows 9
Levy and collection of tax and penalties 1 the tax payable by any dealer under this Act on sales of goods effected by him in the course of inter State trade or commerce whether such sales fall within clause a or clause b of section 3 shall be levied by the Government of India and the tax so levied shall be collected by that Government 458 in accordance with the provisions of sub section 2 in the State from which the movement of the goods commenced
 There is a proviso to section 91 to which it is unnecessary to refer since it has no application
In the light of these provisions what has to be considered is whether the sales effected by respondent 1 occasioned the movement of goods from one State to another State which on the facts of the instant case would mean from the State of Haryana to the Union Territory of Delhi
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 section 3 a of the Act
Clause b of section 3 is not relevant for our purpose
The course and manner of its business have been set out by respondent 1 in paragraphs 3 and 27 of the writ petition in the following terms 3
Orders for the supply of goods from various parties are received by the petitioner s company at its head office in Delhi
The head office draws out a production programme and advises the factory to manufacture the goods in accordance therewith
After the goods are so manufactured in the factory the goods are collected by the head office and brought to its head office in Delhi
From its head office the goods are despatched to various customers whether outside Delhi or in Delhi
The price of goods is also received at the head office
In short the position is that excepting the manufacture of goods at the factory all other activities including that of booking of orders sales despatching and billing and receiving of sale price are being carried out from the head office in Delhi 27
The goods manufactured in the factory are future goods within the meaning of the and the dispute does not relate to any ready goods
 It is clear from these averments that goods were manufactured by respondent 1 in its factory at Faridabad Haryana in pursuance of specific orders received by its head office at Delhi
The contracts of sales were made at Delhi and in pursuance of those contracts goods were manufactured at Faridabad according to specifications mentioned in the contracts
This therefore is not that type of case in which goods are manufactured in the general course of business for being 459 sold as and when offers are received by the manufacturer for their purchase
Contracts of sales were finalised in the instant case at Delhi and specific goods were manufactured at Faridabad in pursuance of those contracts
Those were future goods within the meaning of section 26 of the 
After the goods were manufactured to agreed specifications they were despatched to the head office at Delhi for being forwarded to the respective customers at whose instance and pursuant to the contracts with whom the goods were manufactured
The goods could as well have been despatched to the respective customers directly from the factory but they were sent in the first instance to Delhi as a matter of convenience since there are better godown and rail facilities at Delhi as compared with Faridabad
The despatch of the goods of Delhi was but a convenient mode of securing the performance of contracts made at Delhi
Goods conforming to agreed specifications having been manufactured at Faridabad the contracts of sale could be performed by respondent 1 only by the movement of the goods from Faridabad with the intention of delivering them to the purchasers
Thus the movement of goods was occasioned from Faridabad to Delhi as a result or incident of the contracts of sale made in Delhi
It is true that in the instant case the contracts of sales did not require or provide that goods should be moved from Faridabad to Delhi
But it is not true to say that for the purposes of section 3a 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
The true position in law is as stated in Tata Iron and Steel Co Ltd Bombay vs section R Sarkar and others1 wherein Shah J speaking for the majority observed that clauses a and b of section 3 of the Act are mutually exclusive and that section 3a covers sales in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale and property in the goods passes in either State page 391
Sarkar J speaking for himself and on behalf of Das Gupta J agreed with the majority that clauses a and b of section 3 are mutually exclusive but differed from it and held that a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved in other words a sale occasions a movement of goods when the contract of sale so provides page 407
The view of the majority was approved by this Court in the Central 460 Marketing Co of India vs State of Mysore1 State Trading Corporation of India vs State of Mysore2 and Singareni Collieries Co vs Commissioner of Commercial Taxes Hyderabad3 In K G Khosla  Co vs Deputy Commissioner of Commercial Taxes4 counsel for the Revenue invited the Court to reconsider the question but the Court declined to do so
In a recent decision of this Court in Oil India Ltd vs The Superintendent of Taxes  others5 it was observed by Mathew J who spoke for the Court that 1 a sale which occasions movement of goods from one State to another is a sale in the course of inter State trade no matter in which State the property in the goods passes 2 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 and 3 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 was in pursuance of and incidental to the contract of sale page 801
The learned Judge added that it was held in a number of cases by the Supreme Court that if the movement of goods from one State to another is the result of a covenant or an incident of the contract of sale then the sale is an inter State sale
The decision in Tata Engineering  Locomotive Co Limited vs The Assistant Commissioner of Commercial Taxes and Another6 on which the Union of India relies proceeds on a different consideration and is distinguishable
The appellant therein carried on the business of manufacturing trucks in Jamshedpur in the State of Bihar
The sales office of the appellant in Bombay used to instruct the Jamshedpur factory to transfer stocks of vehicles to the stockyards in various States after taking into account the production schedule and requirements of customers in different States
The stocks available in the stockyards were distributed from time to time to dealers
The transfer of the vehicles from the factory to the various stockyards was a continuous process and was not related to the requirement of any particular customer
It was the stockyard incharge who appropriated the required number of vehicles to the contract of sale out of the stocks available with him
Until such appropriation of vehicles was made it was open 461 to the company to allot any vehicle to any purchaser or to transfer the vehicles from the stockyard in one State to a stockyard in another State
At page 870 of the report a statement occurs in the judgment of Grover J that it was not possible to comprehend how in the above situation it could be held that the movement of the vehicles from the works to the stockyards was occasioned by any covenant or incident of the contract of sale
 This statement is relied upon by the Union of India in support of its contention that the contract of sale must itself provide for the movement of goods from one State to another
We are unable to read any such implication in the observation cited above
At page 866 of the report after referring to certain decisions the Court observed that the principle admits of no doubt according to the decisions of this Court that the movement of goods must be the result of a covenant or incident of the contract of sale
 This decision may be usefully contrasted with another decision between the same parties which is reported in State of Bihar  Anr
vs Tata Engineering  Locomotive Co Ltd1
In that case the turnover in dispute related to the sales made by the company to its dealers of trucks for being sold in the territories assigned to them under the dealership agreements
Each dealer was assigned an exclusive territory and under the agreement between the dealers and the company they had to place their indents pay the price of the goods to be purchased and obtain delivery orders from the Bombay office of the company
In pursuance of such delivery orders trucks used to be delivered in the State of Bihar to be taken over to the territories assigned to the dealers
Since under the terms of the contracts of sale the purchasers were required to remove the goods from the State of Bihar to other States no question arose in the case whether it was or was not necessary for a sale to be regarded as an inter State sale that the contract must itself provide for the movement of goods from one State to another
If a contract of sale contains a stipulation for such movement the sale would of course be an inter State sale
But it an also be an inter State sale even if the contract of sale does not itself provide for the movement of 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
The decisions to which we have referred above show that 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 462 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
The High Court was therefore right in holding that the sales in question are inter State sales and that the turnover of sales is assessable to sales tax under the at the instance of the Sales Tax authorities at Faridabad
The amount of tax which respondent has wrongly paid to the Sales Tax authorities at Delhi on such inter State sales from 1 4 1961 to 30 9 1965 shall have to be transferred by the Sales Tax authorities at Delhi to the Sales Tax authorities at Faridabad as directed by the High Court
The appeal is accordingly dismissed but there will be no order as to costs
NKA Appeal dismissed


Summary:
The respondent company who was a manufacturer of air compressors and garage equipment had its factory at Faridabad in the State of Haryana and its head office in Delhi Union Territory of Delhi
The head office drew the production programme and advised the factory to manufacture the goods in accordance therewith
After the goods were so manufactured in the factory they were collected by the head office and brought to Delhi and despatched to various customers whether outside Delhi or in Delhi
The price of goods was received at the head office
In other words excepting the manufacture of goods at the factory all other activities were carried out from the head office in Delhi
In respect of sale of goods manufactured at Faridabad the respondent company filed sales tax returns with the sales tax authorities at Delhi on the ground that the sales were effected from Delhi by the head office and that they were intra state sales within the territory of Delhi and accordingly paid sales tax at Delhi
In November 1965 however the sales tax authorities of Haryana demanded payment of sales tax under the East Punjab General Sales Tax Act 1948 for the period commencing from April 1 1961 and ending with the year 1964 65 pointing out that the sales effected were inter state sales liable to be assessed by them under the 
In its writ petition the respondent company alleged that since all its activities were being carried on by or through the head office in Delhi and no sales were effected by or from the factory at Faridabad sales tax was paid by it in Delhi and since the sales tax authorities in Haryana were demanding payment of Central Sales Tax in respect of the same transaction the High Court might resolve the controversy
The High Court held that the sales fell under section 3a of the and were liable to be assessed to inter state sales tax by the Sales Tax Authorities at Faridabad and accordingly ordered that the sales tax paid by the respondent in Delhi be transferred to the Sales Tax Authorities at Faridabad
On appeal the Union of India contended that since the situs of sale was Delhi Sales Tax was payable in Delhi
Dismissing the appeal 454  HELD 1 a The High Court was right in holding that the sales were inter state sales and that the turnover on sales was assessable to sales tax under the and that the amounts of sales tax wrongly paid in Delhi be transferred to the Sales Tax Authorities at Faridabad
462 A B b 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 circumstance as to in which State the property in the goods passes
It may pass in either and yet the sale can be an inter State sale
461 G H 462 A In the instant case the contracts of sales were made at Delhi and in pursuance of those contracts goods were manufactured at Faridabad according to specifications mentioned in the contracts
This therefore is not that type of case in which goods are manufactured in the general course of business for being sold as and when offers are received by the manufacturer for their purchase
Contracts of sales were finalised in the instant case at Delhi and specific goods were manufactured at Faridabad in pursuance of those contracts
These were future goods within the meaning of section 26 of the 
After the goods were manufactured to agreed specifications they were despatched to the head office at Delhi for being forwarded to the respective customers at whose instance and pursuant to the contracts with whom the goods were manufactured
The despatch of goods of Delhi was but a convenient made of securing the performance of contracts made at Delhi
Thus the movement of goods was occasioned from Faridabad to Delhi as a result or incident of the contracts of sale made in Delhi
458 H 459 A D c For the purpose of section 3a 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 accordance with the terms of contract of sale
459 E Tata Iron and Steel Co Ltd Bombay vs section section Sarkar  Ors   Central Marketing Co of India vs State of Mysore  State Trading Corporation of India vs State of Mysore  Singareni Collieries Co vs Commissioner of Commercial Taxes Hyderabad   K G Khosla  Co vs Dy
Commr
of Commercial Taxes   Oil India Ltd vs The Superintendent of Taxes  Ors   followed
Tata Eng  Locomotive Co Ltd vs The Asstt
Commr
of Commercial Taxes  Anr
   distinguished
State of Bihar  Anr
vs Tata Eng  Locomotive Co Ltd   referred to