Case: M/S. Hyderabad Engineering Industries Vs. State Of A.P

3. M/s Jay Engineering Works Ltd. is a Public Limited Company, registered under the Companies Act, 1956. It has its Head Office- cum-Registered Office at 23, Kasturba Gandhi Marg, New Delhi. In the State of Andhra Pradesh, the Company has registered itself in the name and style of M/s Hyderabad Engineering Industries (Prop. - The Jay Engineering Works Ltd.). It is registered as a dealer under the Andhra Pradesh General Sales Tax Act, 1957 as well as Central Sales Tax Act, 1956.4. The Company is engaged in the manufacture and sale of electrical fans, sewing machines, fuel injection parts and accessories etc. The Company has its manufacturing units in different parts of the country including Hyderabad, Andhra Pradesh. In addition to the factory and office in Hyderabad, the company has its branch office at Vijayawada in the State of Andhra Pradesh. Outside the State of Andhra Pradesh, the company has its godowns in different States including Delhi. In Kolkata, the company has its own office in the name of Eastern India Usha Corporation.5. M/s. Usha Sales Ltd. (subsequently known as Usha International Ltd.) (hereinafter referred to as "UIL") is a company registered under the Indian Companies Act, with its registered office at 19, Kasturba Gandhi Marg, New Delhi. It has 16 divisional offices at various places in the country with different names at every place wherever the assessees godowns are located. The assessee and UIL had entered into a sales agreement dated 01.05.1979. It was for a period of five years. Under the said agreement, the main function of UIL was to organize the sale and distribution of the products of the assessee and to arrange for sale promotion measures of the products and to provide after sales service and such other services as might be required in the interest of sale of the said products. The agreement also envisaged that UIL would purchase the said products as an independent principal and maintain adequate stocks and sell the same as such. We will refer to these clauses in the agreement while discussing the issues raised by the learned counsel for the parties at the time of hearing of the appeal.6. The Company has been an assessee on the rolls of the Commercial Tax Officer, Company Circle-II, Nampalli, Hyderabad. For the assessment year 1981-82, the assessee company filed its annual returns under the Central Act in the prescribed form.7. The assessee company claimed exemption on a turnover of `8,87,75,643.00 towards goods transported to out-of-state depots otherwise than as a result of direct sale which would attract tax under Section 6 of the Central Act.8. The assessees case before the assessing authority, Sales Tax Appellate Tribunal and the High Court was that the transactions on which exemptions claimed cannot be regarded as sales in the course of inter-State trade, chargeable to tax under the Central Act. This contention of the assessee is negatived by the assessing authority, which view is confirmed by the Tribunal and the High Court.

Reasoning: 21. In the instant case, the assessing authority and the Tribunal have recorded a finding of fact that there were prior contracts between Usha Sales Ltd. and the assessee and in pursuance of those contracts, the goods moved from the assessees factory at Hyderabad to its Branch offices to be delivered to Usha Sales Ltd. or their nominees. In order to appreciate the contention canvassed, it is necessary to set out certain clauses from the salesour view, though the ultimate purchaser UIL placed orders for a particular quantity of goods to be supplied, the assessee did not supply the actual quantity indented for. We do not, however, think that this makes any difference to the application of Section 3(a) of the Central Act. In our view, it does not matter how much goods were delivered to the branch office which just acted as a conduit pipe before it ultimately reached the purchasers hands. All that matters is that movement of the goods is in pursuance of the contract of sale or as necessary incident to the sale itself. Further, the sales agreement is for a period of five years. If there is short supply of the goods than what was indented for, then the same could be adjusted in the subsequent dispatch. Therefore, to contend that there was no firm order placed by UIL with the assessee and accordingly, it would not come within the purport of Section 3(a) of the Central Act and they are mere branch transfers, cannot be accepted. We may also note that the assessing officer, while considering this stand of the assessee, has made reference to several correspondence for the period from April, 1981 to March, 1982 and has come to the conclusion though both the assessee and UIL terms those correspondence as mere letter of allocations, they are infact in the nature of indents placed by UIL with the assessee for the supply of a particular model of fans, particular quantity and the destinations of delivery. This finding of fact is confirmed by the final fact finding authority namely, the State Tax Tribunal. To us, this finding of fact does not appear to be perverse, which would call for ourthe said communication is termed as `forecasts, according to the Tribunal, they are nothing but firm orders placed by the UIL with the assessee for supply of particular type of goods and particular quantity pursuant to their understanding reflected in the `sales agrement, which is continuing one for the continuous supply of goods during the period of agreement which stretches over a period of 5 years, it is difficult to accept the submission of the learned senior counsel that the `sales agreement is only for the purpose of purchasing of their goods and selling in different parts of the country by UIL which has its offices wherever the assessee has its godowns of branch offices and also difficult to accept that there was no movement of goods pursuant to their `letter of allocations, which the assessee would contend that it is not a firm commitment or firm order for the supply of goods. To be fair to the learned senior counsel, we also perused number of `letters of allocations sent by UIL to the assessee from time to time and the response thereof of the assessee. On a perusal of the same, it is clear that an order was placed by UIL is a composite form to supply of goods through their branch offices and the movement of the goods thereto from the assessees factory to the assessees godown was to fulfill the demand made pursuant to the `letters of allocation which the assessee claims that the same is in the nature of forecast. In our view, the movement of the goods from the assessees factory to its various godowns situated in different parts of the country was pursuant to `sales agreement coupled with `forecasts which are nothing but `indents or firm orders. Therefore, in our opinion, the transaction between the assessee with its branch offices is a clear case of inter-State sales and not branch transfers, as claimed by theour view, merely because the branch office could also effect supplies directly to some of the bulk consumers, it cannot be said that all supplies that are made to branch offices are not pursuant to the Sales Agreement and letter of allocation of UIL. Since the assessee could not furnish the exact figure insofar as such sales the assessing authority has granted exemption on a turnover of `87,57,071/-, being 10% of the total value of the claim towards stockour considered view, the assessing officer, in his detailed and well considered order, has looked into nearly 378 documents and voluminous correspondence between the assessee and UIL and has discussed and co-related the documents to prove on facts that the disputed transaction is inter-State sales though the assessee claims that it is a mere stock transfer. Therefore, we cannot accept the submission of the learned senior counsel in this regard. Bearing in mind the provisions of Section 3(a) of the Central Sales Tax Act, 1956 and on the facts of the case, the transactions in question were inter-State sales taxable under the Central Act.