Case: Union Of India &amp; Anr Vs. K. G. Khosla &amp; Co. (P) Ltd. &amp; Others

This controversy arises on the following facts.      2. 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.      3. 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 Sale 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 com-mencing on April 1, 1961 and ending with the year 1964-65, the sales made by the company were liable to assessment in Haryaaa. 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.      4. 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 reorganisation of States, was dealt with by the Delhi High Court. The Chief Commissioner of the Union Territory of Delhi and the Assessing Autho-rity of the territory were impleaded asrespondents 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.      5. The company contended by its writ petition that except the manu-facturing of goods at the Faridabad factory, all of its activities including those of booking of orders) sales, dispatching 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 authori-ties of the two States and decide the question of their respective jurisdiction to assess its turnover.      6. The State of Haryana contended by its counter-affidavit to the writ petition that the goods were manufactured by the company at Faridabad in purfuance 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.      7. 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.      8. 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 Central Sales Tax Act, 1956 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 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 1.4.1961 and 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.

Court's reasoning:
There is a proviso to Section 9 (1) to which it is unnecessary to refer since it has no applicationIt 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 purpose12. 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 there-fore, 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 manu-facturer 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 2 (6) of the Sale of Goods Act, 193013. 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 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 move-ment of goods must be occasioned specifically in accordance with the terms of the contract of sale16. 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 pro-perty in the goods passes in one State or another. The question as regards the na-ture of the sale, that is, whether it is an inter-State sale or an inter-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 sale17. 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 Central Sales Tax Act, 1956 at the instance of the Sales Tax auth-orities 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.