Case: Commissioner of Sales Tax, Uttar Pradesh and others, etc. etc Vs. M/s. Bakhtawar Lal Kailash Chand Areti and others, etc. etc

The respondent-assessee, Hanuman Trading Company, is a registered dealer in Uttar Pradesh, dealing in foodgrains and oils among others. During the year in question, he purchased the said commodities both on his own account as well as for and on behalf of his ex-U.P. principals i.e., dealers located outside the State of U.P. We are not concerned with the purchases made by the respondent-dealer on his own account, but only with the purchases made by him as the commission agent of the ex-U.P. principals. These purchases were made by the respondent-dealer from three sources, namely : (1) from Registered Dealers (2) from Cartmen, and (3) from Agriculturists. So far as purchases made from registered dealers are concerned, we are not concerned with them. The learned counsel for the State of U.P. Stated before us that tax thereon is payable by the selling dealer. The controversy thus narrows down to purchases made by the respondent-dealer from cartmen and agriculturists. The finding of the High Court with respect to the nature of the transactions may be set out in their own words"In the present cases, the purchase orders placed by the ex-U.P. principals to the assessee are not on the record but, from the conduct of the parties and on the facts found, it is clear that the ex-U.P. principals contracted with the assessee that he should purchase goods on their behalf in U.P. and despatch them to ex-U.P. destinations on the payment of commission ... the goods were sent to the ex-U.P. principals in fulfillment of the contract." *4. Sales of agricultural produce by agriculturists are exempt from tax under the U.P. sales Tax Act by virtue of the proviso to the definition of the expression dealer in clause (e) of Section 2. The proviso says that "a person who sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as an owner, usufructuary mortgagee, tenant or otherwise, or who sells poultry or dairy products from fowls or animals kept by him shall not, in respect of such goods be treated as a dealer". In such a case, it is stated, purchase tax is leviable on the purchaser. If, however, the purchase is an inter-state purchase as defined by Section 3 of the Central Sales Tax Act, 1956 then the State Legislature become disabled from taxing it by virtue of Article 286(1) of the Constitution of India. It is this aspect which lies at the root of the grievance of the State, and it is precisely for this reason that it seeks to treat the purchases in question as inter-State Purchases, exigible to purchase tax under Section 3-D of the State ActCivil Appeal No. 1534 of 1990The respondent-dealer, who is situated similarly to the respondent-dealer in Civil Appeal No. 1809 of 1982, issued Form III-C-I and paid tax on the purchases made by him under the U.P. Sales Tax Act. However after the decision of the Allahabad High Court in Hanuman Trading Company ( 1979 (43) STC 408 (All), he claimed refund of the tax paid by him and probably got it, contending that the purchases effected by him were not assessable to tax under the U.P. Sales Tax Act. He was then proceeded against under section 3-B of the U.P. Sales Tax Act which provides that if a person issues a false or wrong certificate or declaration prescribed under the provisions of the said Act and and the rules thereunder to another person by reason of which "a tax leviable under this Act" on the transaction is not collected (or collected at a lesser rate), then the person issuing such wrong or false certificate/declaration becomes himself liable to pay such tax.

Court's reasoning:
11. It we examine the facts of this case in the light of the above principles, it would be clear that the purchases effected by the respondent-dealer were inter-State purchases. The purchases were made by the respondent as a commission agent on behalf of the ex-U.P. principals and the goods purchased under each of the purchases were duly despatched to such principals. It is found that such despatch took place not later than three days from the date of purchase, as soon as the railway wagon was available. The purchase of goods and their despatch to ex-State principal were parts of the same transaction. The movement of goods from Uttar Pradesh to another State was occasioned by and was the result - or the incident of - the purchase. It was the consequence of the purchase. Such movement of goods, though not proved to have been expressly stated in the contract of sale, was yet held to have been agreed upon between the parties. We must emphasise that the question whether a sale/purchase is an inter-State sale/purchase depends on the facts of each case. The principles are well settled; it is only a question of application of these principles to the facts found in each casehe said observations, no doubt rather widely worded, must be understood in the context of the question that arose for consideration in the case viz., whetheran agreement of sale is included within the definition of sale as defined in the Central Sales TaxAct.Be that as it may, the true position has since been explained in the later decision in Khosla and Co. It is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods, or for that matter, takes place while the goods are in transit. What is important is that the movement of goods and the sale must be inseparably connected. The ratio of Balabhagas ( 1976 (2) SCC 44 : 1976 SCC(Tax) 164 : 1976 (2) SCR 939 ) is this : if the goods move from one State to another in pursuance of an agreement of sale and the sale is completed in other State, it is an inter-State sale. The observations relied upon by Shri Sehgal do not constitute the ratio of the decision and cannot come to rescue of the appellant State. Indeed, if one looks to the language employed in clause (a) of Section 3 it seems to suggest that the movement of goods follows upon and is the necessary consequence of the sale or purchase, as the case may be, and not the other way roundWe cannot accede to this understanding of the learned counsel.Thesaid observations, no doubt rather widely worded, must be understood in the context of the question that arose for consideration in the case viz., whetheran agreement of sale is included within the definition of sale as defined in the Central Sales TaxAct.Be that as it may, the true position has since been explained in the later decision in Khosla and Co. It is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods, or for that matter, takes place while the goods are in transit. What is important is that the movement of goods and the sale must be inseparably connected.Theratio of Balabhagas ( 1976 (2) SCC 44 : 1976 SCC(Tax) 164 : 1976 (2) SCR 939 ) is this : if the goods move from one State to another in pursuance of an agreement of sale and the sale is completed in other State, it is an inter-State sale.Theobservations relied upon by Shri Sehgal do not constitute the ratio of the decision and cannot come to rescue of the appellant State. Indeed, if one looks to the language employed in clause (a) of Section 3 it seems to suggest that the movement of goods follows upon and is the necessary consequence of the sale or purchase, as the case may be, and not the other way round16. Shri Sehgal is equally not right in saying that the movement of goods from the State of U.P. to other State (s) is immaterial and that the U.P. Legislature is competent to tax each and every purchase that takes place within the State. Ordinarily, it is so, but where a sale or purchase, though effected within the State of U.P. occasions the movement of goods sold/purchased thereunder from the State of U.P. to other State, it becomes an inter-State sale. Such a sale cannot be taxed by the legislature of Uttar Pradesh. It is taxable only under the Central Sales Tax Act, 195617. Situation could have been different if the respondent-dealer had purchased the goods on behalf of the ex-U.P. principals in the first instance and thereafter in pursuance of subsequent instructions despatched the goods. In such an event the instructions to despatch the goods are independent of the instructions to purchase.e is break between the purchase and despatch of goods. It would not be an inter-State purchase. An out-State principal may first instruct his commission agent within the State of U.P. to purchase the goods on his behalf and to await his further instructions. Depending upon the market conditions and other circumstances, the ex-State principal may instruct his agent in the State either to sell the goods within the State or to despatch the goods beyond the State. If such were the case, Shri Sehgal would have been right in saying that the State of U.P. was competent to tax the purchase by respondent-dealer. But that is not case here on the facts found by theappropriate authoritiesCivil Appeal No. 1534 of 1990For the purpose of the U.P. Sales Tax Act, it is enough that a sale or purchase takes place within the State; the subsequent movement of the goods is irrelevant, says the counsel. We find it not possible to agree.