IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH G.S.T.R. No. 2 of 1991 DATE OF DECISION: February 13, 2009 Punjab State …Petitioner Versus M/s Dada Motor Garage, Jalandhar …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE H.S. BHALLA Present: Ms. Sudeepti Sharma, DAG, Punjab, for the petitioner. 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes M.M. KUMAR, J. The instant reference under Section 22(1) of the Punjab General Sales Tax Act, 1948 (for brevity, ‘the Act’) has arisen out of order dated 10.9.1986 passed by the Sales Tax Tribunal, Punjab, Chandigarh (for brevity, ‘the Tribunal’) in Appeal No. 385 of 1985- 86. The Tribunal while accepting the application filed by the Excise and Taxation Commissioner, Punjab, has referred the following three questions of law for adjudication of this Court: “i) Whether on facts and circumstances the nature of transaction is inter-State sales terminating at the hands of Shri Muni Lal or it terminates at the G.S.T.R. No. 2 of 1991 hands of M/s Dada motor Garage “physically in reality” who appropriates the goods and pass the same to the customers after getting the amount, giving the receipts. The statement of Collection, keeping watch (responsibility of Shortage, damage or any such loss) sheltering and service at Jalandhar at the hands and premises of Dada Motor Garage. ii) Whether evidence on the file does not reveal that the contract of appropriation was between M/s Dada Motor Garage and Lohia Machines Limited Kanpur and subsequently, M/s Dada Motor Garage sold/delivered such goods at its premises at Jalandhar? iii) Whether M/s Dada Motor Garage is engaged in Inter-state transaction, thereby covering the present case under PGST Act, 1948. The latest verdict of Supreme Court in 63 STC page 169 July 16, 1986 has given a vital importance to the place of delivery of goods. Even where the goods after importing were very much under the supervision and control of custom authorities, and exported from Custom Frontiers, the levy of sales tax by the State is upheld, the Custom, Frontiers being not the Border of another State, but the State Territory (the Jurisdiction of the State)?” 2 G.S.T.R. No. 2 of 1991 2. Facts in brief are that M/s Lohia Machines Ltd., Kanpur (for brevity, ‘the Company’) is a company registered and incorporated under the Companies Act, 1956, which has its registered office at Kanpur. An agreement was entered between the Company and M/s Dada Motor Garage, Jalandhar-assessee on 4.2.1984, which was duly signed by them. It required the assessee to maintain a showroom in accordance with the layout specifications and standards laid down by the Company, which was to be utilised by the Company for displaying its scooters and parts thereof. In pursuance of Rule 16(A) of the Punjab General Sales Tax Rules, 1949 (for brevity, ‘the Rules’), the taxable quantum of a dealer who resides outside the State of Punjab but delivers goods for the purpose of consumption and sale in the State of Punjab is Rs. 5,000/-, which was not complied with. Accordingly, a notice under Section 10(7) of the Act, for filing incorrect returns with the intention to evade tax, was served upon the authorised representative for appearance on 30.11.1984. 3. In the reply filed by the Company the stand taken was that the scooter is booked in pursuance to a direct contract entered into between the Company and the customer on an advance payment of Rs. 500/- and accordingly, the Company dispatches the scooter directly to the customer with specification of engine number, chassis number and even the colour of the scooter opted by the customer. The explanation tendered by the authorised representative was not accepted particularly in view of the amendment of Central Sales Tax Act, 1956 (for brevity, ‘CST Act’) which included in the expression ‘dealer’ who carries on the business of buying, selling, supplying or distributing goods belonging to any principal whether disclosed or 3 G.S.T.R. No. 2 of 1991 not. It was held that the assessee is a dealer with regard to the supply of the Scooters Vespa XE through its showroom maintained in accordance with clause 7 of the agreement executed on 4.2.1984. 4. The issue determined by the Assessing Authority was whether the taxable event passes through the hands of the authorised representative under the amended provisions of the CST Act or the local Act of Punjab. Accordingly, a notice was issued to the dealer- assessee for furnishing complete documents in respect of at least one integrated transaction. The following documents in respect of one Shri Muni Lal, resident of 149, Bhagat Singh Colony, Byepass, Jalandhar, were submitted:- “1) The blank application form No. A 130145 for purchase of a Vespa XE Scooter. 2) The allotment letter issued by M/s Lohia Machines Limited, Kanpur dated 17.5.1984. 3) Proforma invoice No. SCT/84/84-85/140 dated 17.5.84 worth Rs. 10,102.50. 4) Central Excise Gate Pass, GP.I. dated 18.5.1984. 5) Final invoice No. SCT/C-84-85/008 dated 18.5.84 worth Rs. 10,102.50. 6) G.R. No. 27384 of M/s Kataria Carriers, Kanpur dated 18.5.1984. 7) Photo copy of Transit Insurance Policy No. 22220/20184/00025 dated 16.6.84 of M/s Oriental Fire & General Insurance Co. Ltd.” 5. The illustration of Shri Muni Lal was taken to understood the mechanism adopted for transfer of scooters from the 4 G.S.T.R. No. 2 of 1991 Company at Kanpur to the consumer in Punjab. Shri Muni Lal had applied for purchase of a Vespa Scooter through the Company at Kanpur through a prescribed form for purchase, which was named as ‘application form’. The form contained acknowledgement slip in token of having received the application form. Acknowledgement slip was sent by the Company at Kanpur to Shri Muni Lal at Jalandhar. The allotment was later on issued to him by the Company at Kanpur along with a proforma invoice with an intimation of dispatch of scooter from Kanpur to Jalandhar. The scooter was assigned to him in the allotment letter itself by specifically mentioning the engine number and chassis number. He was also informed that freight and octroi would be paid by him. A gate pass covering Central Excise payment was made at Kanpur at the factory in which the consignee was shown to be Shri Muni Lal. The assessee, who is authorised representative of the Company, delivered the scooter to Shri Muni Lal, who made the payment through a bank draft in favour of the Company at Kanpur. 6. The Assessing Authority concluded that there was no element of inter-State transaction under Section 3(a) of the CST Act. There is a regular showroom in the premises of the assessee, which is being utilised by the Company for the purpose of displaying scooters and parts thereof. On scrutiny of documents, it was also found that scooter had moved from Kanpur to Jalandhar without any contract of sale and proceeded to trace the sequence of facts from the booking of the scooter up to final delivery to Shri Muni Lal, who is the purchaser. The assessee-Dada Motors was held to be an ‘agent’ of the Company within the meaning of Section 182 of the Contract Act, 5 G.S.T.R. No. 2 of 1991 1872 (for brevity, ‘the Contract Act’). In the process of reasoning, it was found that octroi and freight at the time of taking delivery was paid by the assessee-Dada Motors and Shri Muni Lal, purchaser- allottee, was nowhere near to make the payment at the spot. It led to the inference that the delivery of the scooter was taken by the assessee and freight/octroi was also paid by it. The scooter was also not straightway delivered to Shri Muni Lal but it was unloaded at the showroom of the assessee. On the basis of the aforementioned provision, the Assessing Authority reached the conclusion that the scooter, from the Company to the customer, did not move as a result of any contract of sale and the transaction was not covered by Section 3(a) of the CST Act. In other words, there was no inter-State transaction and the assessee was held to be ‘dealer’ by virtue of Rule 16(A) of the Rules read with Section 4(5)(c) of the Act, being authorised representative of the Company. They were further liable for payment of tax for supply of the scooter to the purchaser-allottee. 7. On further appeal, the Deputy Excise and Taxation Commissioner upheld the view taken by the Assessing Authority and answered all the questions against the assessee. The assessee-Dada Motors has further filed an appeal and the Tribunal reversed the view taken by the Appellate Authority as well as the Assessing Authority. The Tribunal recorded categorical findings on two issues (a) ‘the correspondence as regards purchase and sale of the scooter was between Shri Muni Lal of Jalandhar and Lohia Machines Ltd., Kanpur; and (b) the price charged from Shri Muni Lal is ex-factory price at Kanpur and not ex-showroom price at Jalandhar. Also there is no payment to Dada Motors Garage, Jalandhar by Shri Muni Lal 6 G.S.T.R. No. 2 of 1991 for handling charges. In other words, the transaction is of a composite nature between Shri Muni Lal of Jalandhar and Lohia Machines Ltd., Kanpur, in terms of the total price to be charged as at factory gate at the time the scooter, specifically was assigned to Shri Muni Lal with engine number and chassis number and is also cleared by the Central Excise’. On the basis of the aforesaid findings of fact, the Tribunal held that this is a sale at factory and not at the showroom of the assessee Dada Motors where the physical delivery of the scooter was given to Shri Muni Lal. The Tribunal also placed reliance on a judgment of Calcutta High Court rendered in the case of Lohia Machines Limited, Kanpur v. Inspector, Commercial Taxes, Duburdih Check Post, District Burdwan, West Bengal (Civil Rule No. 14599(W) of 1984, decided on 4.7.1985). 8. It would be necessary to consider the basic ingredients of inter-State sales and then to find out whether in the present case those features, as provided by Section 3 of the CST Act, have been fulfilled or not, which reads thus:- “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. 7 G.S.T.R. No. 2 of 1991 Explanation 1-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2-Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.” 9. The aforesaid provision has been subject matter of consideration of Hon’ble the Supreme Court in various judgments. In the case of Bharat Heavy Electrical Limited v. Union of India, (1996) 4 SCC 230 it has been held that if a question arises whether a sale is an inter-State sale or not, it has to be answered with reference to and on the basis of Section 3 and Section 3 alone. Hon’ble the Supreme Court further clarified in para 17 of the judgment that Sections 4 and 5 of the CST Act are not relevant for deciding the said question. Accordingly, it would be profitable to examine the basic ingredients of inter-State sales, which were considered in some detail by Hon’ble the Supreme Court in the case of State of A.P. v. National Thermal Power Corporation Ltd., (2002) 5 SCC 203. In para 24 of the judgment, the following three ingredients were laid down:- 8 G.S.T.R. No. 2 of 1991 “24. It is well settled by a catena of decisions of this Court that a sale in the course of inter-State trade has 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 actually move 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 much be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes places independent of a contract of sale would not fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element. ……” In the earlier decisions rendered in the cases of State of Karnataka v. B.M. Ashraf and Co., (1997) 8 SCC 468; State of Tamil Nadu v. M. K. Kandaswami, (1974) 4 SCC 745; 20th Century Finance Corporation Ltd. v. State of Maharashtra, 9 G.S.T.R. No. 2 of 1991 (2000) 6 SCC 12, Hon’ble the Supreme Court has taken the same view. 10. The first question which needs determination in the instant case is whether all the necessary ingredients of inter-State sale stand fulfilled. The first essential ingredient is that there must be a contract of sale. According to the findings recorded by the Tribunal there was correspondence with regard to purchase and sale of scooter between Shri Muni Lal of Jalandhar and the Company at Kanpur. The correspondence can easily lead to an inference of implied contract of sale, especially when the price has been charged from Shri Muni Lal is ex-factory price at Kanpur and not ex-showroom price at Jalandhar. There is no role of Dada Motors-assessee because even the application has been made by Shri Muni Lal to the Company at Kanpur and acknowledgement was sent by the Company at Kanpur to Shri Muni Lal at Jalandhar. The second necessary essential ingredient is that the goods must actually move from one State to another in pursuance of such contract of sale, the sale being the proximate cause of movement. We find that even this characteristic stand fulfilled because the engine number and chassis number of the scooter was allocated to Shri Muni Lal and an intimation was sent to him stating that he was to pay freight and octroi. Therefore, it is evident that movement of goods is from Kanpur in the State of Uttar Pradesh to Jalandhar in the State of Punjab, which is in pursuance of the sale. Even the third essential ingredient of inter-State sale stand answered by the facts of the present case because the sale has concluded by the delivery of goods at Jalandhar in the State of Punjab. Hon’ble the Supreme Court also contemplated that if there 10 G.S.T.R. No. 2 of 1991 was no contract of sale preceding the movement of goods then the movement of goods cannot be attributed to the contract of sale. Likewise, if the transaction of sale stand completed within the State and the movement of goods takes place thereafter, it would obviously be independently of contract of sale and necessarily by or on behalf of the purchaser alone, which would not have any inter-State element. Therefore, there is no doubt left that the sale in the present case is inter-State sale within the meaning of Section 3 of the CST Act. 11. Once the aforesaid factual and legal position is clear then there is hardly any doubt that the question of law raised in the instant reference has to be answered against the revenue and in favour of the assessee. Thus, the first question of law is answered against the revenue and in favour of the assessee. The answer to the second question would also be against the revenue and in favour of the assessee because there is no evidence on record to prove a contract of appropriation between the Company at Kanpur and the assessee-Dada Motors, who might have sold the goods at their premises at Jalandhar. 12. The last question may now be considered which highlighted that the judgment of Hon’ble the Supreme Court in the case of Madras Marine and Co. v. State of Madras, [1986] 63 STC 168 has given vital importance to the place of delivery of goods for the purpose of levy of sales tax by the State. In that case the assessee were dealers in stores and were doing business in the State of Tamil Nadu as ship chandlers. In the relevant assessment years they had imported goods from foreign countries in order to supply them as stores to foreign-going vessels and other diplomatic personnel. The goods were kept after receipt in a bonded warehouse which was also 11 G.S.T.R. No. 2 of 1991 under dual control of the Customs Department and the assessee. The order used to be placed by the Captain of the ship requiring ship stores and the goods to be supplied on board after observing statutory formalities. The assessee had argued that goods were to be on board the ship and were exported outside the country and could not be consumed before they reached the high sea. They asserted that the goods were sold in the territorial waters of India and not within the State of Tamil Nadu and as such the sale turnover in question was not exigible to sales under the Tamil Nadu General Sales Tax Act, 1959. The Madras High Court held against the assessee and Supreme Court has upheld the decision of the Madras High Court by observing as under:- “36. The short question, therefore, that arises in all these matters is whether sale of the goods in question took place within the territory of Tamil Nadu. In these cases sale took place by appropriation of goods. Such appropriation took place in the bonded warehouse. Such bonded warehouses were within the territory of State of Tamil Nadu. Therefore, under sub-section (2), sub- clauses (a) and (b) of section 4 of the Central Sales Tax Act, 1956, the sale of goods in question shall be deemed to have taken place inside the State because the contract of sale of ascertained goods was made within the territory of Tamil Nadu and furthermore in case of unascertained goods appropriation had taken place in that State in terms of clause (b) of sub-section (2) of section 4 of the Central Sales Tax Act, 1956. There is no 12 G.S.T.R. No. 2 of 1991 question of sale taking place in course of export or import under section 5 in this case. From that point of view the amendment introduced by Act 103 of 1976 by incorporating in clause (ab) of Section 2 of the Central Sales Tax Act, 1956 does not affect the position. In this connection reference may be made from the observations of this Court in Burmah Shell Oil Storage Ltd. [1960] 11 STC 764 (SC) where it has been held that customs barrier does not set a terminal limit to the territory of the State for sales tax purposes. Sale, therefore, beyond the customs barrier is still a sale within the State. The amendment introduced in section 2 by the Act 103 of 1976 does not affect the position because the custom station is within the State of Tamil Nadu. That question might have been relevant if we were considering the case of sale by the transfer of documents of title to the goods as contemplated by section 5 of the Central Sales Tax Act. In the premises we are unable to accept the contentions urged on behalf of the appellants in the Civil Appeals and also the contentions urged in the Writ Petition.” The question then is whether these principles apply to the facts of the present case or not. The Tribunal has recorded categorical finding that the correspondence as regard purchase and sale of the scooter was between Shri Muni Lal of Jalandhar and Lohia Machines Limited at Kanpur and that the price charged from Shri Muni Lal is ex-factory price at Kanpur and not ex-showroom price at 13 G.S.T.R. No. 2 of 1991 Jalandhar. It has further been found that no payment was made by Shri Muni Lal to Dada Motors Garage, Jalandhar as handling charges. When we search for corresponding findings in the judgment of Hon’ble the Supreme Court in the case of Madras Marine and Co. (supra) then no such findings are available showing that the factum of sale had taken place outside the jurisdiction of State of Tamil Nadu and that the price was paid by the purchaser outside the State of Tamil Nadu. On the contrary, the findings in Madras Marine and Co.’s case (supra) is that appropriation of goods had taken place in the State of Tamil Nadu when the goods were segregated in the bonded warehouse to be delivered to the foreign-going vessels. It was further found that it was not a case of export as there was no destination for the goods to a foreign country and the sale was for the purposes of consumption on board the ship. The sale did not take place on the delivery on board the vessel. Hon’ble the Supreme Court did not accord any significance to the fact that shipping bill was prepared for sending it for custom formalities with the object of effectively control smuggling activities. It also refused to accord any significance that delivery was to the captain on board the ship within the territorial waters. Another aspect necessary to be noticed is that Hon’ble the Supreme Court reached the conclusion that there was no question of law taking place in the course of export or import under Section 5 of the CST Act nor Customs barrier set a terminal limit of the territorial sale for the purpose of sales tax and the sale beyond the customs barrier was still a sale within the State. It is in the aforementioned circumstances that the same significance was attached to the place of delivery of goods and none of those 14 G.S.T.R. No. 2 of 1991 circumstances are present in the instant case nor there are any such findings available on record for us to conclude that the delivery of goods was given to the Dada Motors in pursuance to contract of appropriation. Question No. 2 on that issue has already been considered and answered against the revenue. Therefore, the third question is also answered against the revenue and in favour of the assessee. (M.M. KUMAR) JUDGE (H.S. BHALLA) February 13, 2009 JUDGE Pkapoor 15