Holding

A sale is inter‑state only if both a sale and transport of the goods out of the state in pursuance of the contract are proved; a transport permit alone does not establish inter‑state sale and the burden rests on the Revenue to disprove the assessee's claim of a local sale.

Summary

The respondent, S.C. Jain, dealt in Tendu leaves and claimed that all his sales were confined to Uttar Pradesh, denying any inter‑state transactions. The assessing authority, relying on a transport permit (T.P. Form IV) issued by the Forest Department, levied Central Sales Tax on alleged inter‑state sales. The Sales Tax Appellate Tribunal held that the mere issuance of the transport permit did not prove inter‑state sales and quashed the assessment. The Revenue appealed, and the Allahabad High Court affirmed the Tribunal’s view, stating that for a sale to be inter‑state, the goods must be transported out of the state pursuant to a contract of sale, and the burden of disproving a local sale lies on the Revenue. The Supreme Court upheld this principle, rejecting the petition and dismissing the appeal.

Issues considered

Whether the sale of Tendu leaves by the assessee constituted an inter‑state sale under the Central Sales Tax Act, 1956.
Whether the issuance of T.P. Form IV, a transport permit, is sufficient evidence of inter‑state sale.
Who bears the burden of proof to establish that a sale is inter‑state when the assessee claims it is local.

Legislation cited

Central Sales Tax Act, 1956s. 3(a)
U.P. Sales Tax Act, 1948s. 21

Subjects

inter‑state salescentral sales taxburden of prooftransport permitTendu leavessales tax assessmentcondition precedent

Judgment

~~
COMMISSIONER OF SALES TAX U.P. LUCKNOW, ETC.
A
ETC.
v.
SIS SURESH CHAND JAIN, TENDU LEAVES DEALER,
LALITPUR, ETC. ETC.

B APRIL 7, 1988
...__ ~
ISABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.)

U.P. Sales Tax Act, 1948: Section 21-Assessee--Carrying on
business in Tendu leaves-Case of assessee no inter State Sales-
-
*-
Existence of T.P. Form IV-Whether evidences existence of inter state
c sales.

Central Sales Tax Act, 1956: Section 3(a)-Inter states sales-,,
Conditions to be satisfied-What are-Onus on Department to. disprove
dealers claim,
D
The respondent-assessee carried on business in Tendu leaves. He
contended before the Assessing Authority that there was no inter state
sale of Tendu leaves, that the entire sales of Tendu leaves were effected
in· Uttar Pradesh, and that he did not know if the purchasers had taken
these Tendu leaves to places outside Uttar Pradesh, and even if they ').#
E have so taken the assessee could not be assessed to tax under the Central
Sales Tax Act, as the contract between him and the purchaser was to
purchase goods in U.P. This contention was not accepted and the Asses-
sing Authority assessed the respondent. ...
The Assistant Commissioner (Judicial) having dismissed the
F appeal against the order of the Assessing Authority, the respondent
went in Second Appeal to the Sales Tax Appellate Tribunal. The Tri-
)..•
bunal took notice of T .P. Form IV which was a transport permit issued
hy the Forest department, regarding the validity of Nikasi of Tendu
" leaves from the forest, and came to the conclusion that merely·because J

T .P. Form had been issued, it does not follow that there were inter state
G sales. The Tribunal allowed the appeal and quashed the order passed by
-!<
the assessing authority as well as First Appellate Authority.

The Revenue went up in appeal to the High Court, which held that
the goods were moved out of U.P. in pursuance of an agreement of sale
r
entered into between the assessee and their customers and that the
H condition precedent for imposing sales-tax under the Central Sales Tax
446
COMMR. OF SALES TAX v. S.C. JAIN [MUKHARJl, J.J 447

Act was not present and dismi~sed the appeal.
A
Dismissing the Special Leave Petitions of the Department, this
< Court,
al\
HELD: I. Sale could be said to be in the course of inter-state
trade. only if two conditions concur, viz. (I) a sale of goods, and (?) B
transport of those goods from one State to another. Unless both these
conditions are satisfied, there could be no sale in the course of inter-
state trade. There must be evidence that the transportation was
occasioned by the. contract, and as ·a result goods moved out of the
bargain between the parties from one State to another. [448H; 449A]

~'t- Bengal Immunity Co. v. State of Bihar, 6 STC 446 referred to
(,

2. The condition precedent for imposing sales-tax under the
Central Sales Tax Act, is that the goods must move out of the State in
pursuance of some contract entered into between the seller and the
purchaser. [449F-G] D

3. T .P. t'orm IV is a transport permit issued by the Forest
'
--'; Department. The Forest Department has given in writing that this
permit did not relate to sale but was a certificate regarding the vali-
dity of Nikasi of Tendu Leaves from the forest. Merely because T .P.
Form has been issued, it does not follow that there were inter-state E
sales. [448F-G]

4. The onus lies on the Revenue to disprove the contention of the
assessee, that a sale is a local sale and to show that it is an inter-state
sale. [449C I
F
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) Nos. 15054-57 of 1985.

From the Judgment and Order dated 30.1.1985 of the Allahabad
High Court in Sales Tax Revision No. 334, 418, 285 and 332 of 1984.
•
G
S.C. Manchanda, R.S. Rana and Ashok K. Srivastava for the
Petitioner.

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. This is an application for leave to H
448 SUPREME COURT REPORTS I1988] 3 S.C.R.

A appeal under Article 136 of the Constitution against the Judgment and
Order of the High Court of Allahabad, dated 30th January, 1985. The
respondent carried on the business at the relevant· time in Tendu
leaves.

The respondent's case was that there was no inter-state sales of
B Tendu leaves in question. On the contrary, its case was that the entire
1
sales of Tendu leaves were effected in Uttar Pradesh. This contention
was not accepted by the assessing authority. Having failed in the first
appeal, the assessee went up in second appeal and the Tribunal
allowed the appeal and quashed the orders passed by the assessing
authority as well as the Assistant Commissioner (Judicial). The Tri-
C bunal exhaustively discussed the facts. They found that the assessee
carried on business in Tendu leaves and for the year 1976-77 the asses-
see had been assessed under Section 21 of the.U.P. Sales Tax Act on
inter-state sales of Rs.21,050 to a tax of Rs.2,105 whereas the case of
the assessee was that the inter-state sales were nil. It was contended on
behalf of the assessee that the assessee had effected the sales in U.P.
D According to the assessee, out of the above sales of Rs.21,050, Tendu
leaves worth Rs.10,000 were sold on 24th April, 1976 to Sri Gulam
Mohammad of Kanpur and those worth Rs.11,050 were sold in cash at
Lalitpur on 5th May, 1976.

It was further contended that the assessee did not know if the
E purchasers had taken these Tendu leaves to places outside U .P. and
even if they had So taken, the assessee could not be assessed to tax
under the Central Sales Tax Act as the contract between him and the
purchaser was to purchase goods in U .P. The Tribunal took notice of
T.P. Form IV which is a transport permit issued by the Forest Depart-
ment. The Forest Department had given in writing that this transport
F permit did not relate to sale but it was a certificate regarding the
validity of Nikasi of Tendu leaves from the forest. It is well-settled that
even if it is established that the assessee had obtained T.P. Form IV
that by itself will not show that the assessee had entered into inter-state
sales. Merely because T.P. Form had been issued, it does not follow
that there were inter-state sales.
G
The principles of inter-state sales were well-settled. In Bengal
Immunity Co. v. State of Bihar, (6 STC 446) Justice Venkatarama '
;...,-~

Ayyar had held that sale could be said to be in the course of inter-state
trade only if two conditions concur, namely, (1) a sale of goods and (2)
'
a transport of those goods from one State to another. Unless both
H these conditions were satisfied, there could be no sale in the course of
COMMR. OF SALES TAX v. S.C. JAIN [MUKHARJI, J.[ 449

inter-state trade. There must be an evidence that the transportation
A
was occasioned by the contract and as a result goods moved out of the
bargain between the parties from one State to another.

It is apparent from the fac1s found by the Tribunal that the asses.see had
since the very beginning been contending that he had effected only
local sales. He had also filed an affidavit stating that he had not B
effected any sales of Tendu leaves during the course of inter-state
trade and commerce and that the had never applied to the Forest

-
Department for issue of Form T .P. IV and that no such Form was ever
issued to him and the Tendu leaves in dispute were not booked by him
through railways or trucks for places outside U .P. The Tribunal found
nothing to discredit this version of the assessee. The onus lies on the
~·- Revenue to disprove the contention of the assessee. The Tribunal c
found no material to do so. On these facts the Tribunal rejected the
contention of the assessee.
On these contentions the Revenue went up in appeal before the
High Court. The question posed before the High Court was as follows:
D
"Whether on the facts and under the circumstances of the
case the Tribunal Sales Tax, Kanpur, was legally justified
in knocking off the tax imposed by the assessing autho-
rity?"

The High Court addressed itself to the question whether the E
sales effected by the respondent, were inter-state sales or not. On an
analysis of the findings of the Tribunal, the High Court found that the
goods were not moved out of U.P. in pursuance of an agreement for
..•. sale entered into between the assessees and their customers. The exist-
ence of T.P. Form IV was taken note of but that did not conclude the
matter. The condition precedent for imposing sales-tax under the F
Central Sales Tax Act, is that the goods must move out of the State in
pursuance of some contract entered into between the seller and the
purchaser. If that is a correct principle in law, the Tribunal applied this
correct principle of law to the facts of this case taking into cognizance
the existence ofT.P. Form.
G
In view of the facts of this case, the High Court fou.1d no mate-
rial to interfere and dismissed assessee's contention. We are of the
opinion that the High Court was right. In the premises this application
for leave must fail and is accordingly dismissed.

N.V.K. Petition dismissed. H