Supreme Court of India
M/S HYDERABAD ENGINEERING INDUSTRIESversusSTATE OF ANDHRA PRADESH
- Citation
- 2011 INSC 184
- Decided
- 4 March 2011
- Disposal
- Dismissed
- Bench
- D K JAIN
Holding
The Supreme Court held that the transactions were inter‑State sales taxable under Section 3(a) of the Central Sales Tax Act, 1956, and not mere branch transfers.
Summary
The appellant, M/s Hyderabad Engineering Industries, claimed exemption from Central Sales Tax on goods moved from its Hyderabad factory to its out‑of‑state godowns, arguing that the transfers were merely stock movements between branches and not inter‑State sales. The State of Andhra Pradesh contended that the movement was occasioned by a five‑year sales agreement with Usha International Ltd., which required the assessee to supply goods to UIL’s nominees across India, thereby constituting an inter‑State sale under Section 3(a) of the Central Sales Tax Act, 1956. The Court examined the nature of the agreement, the concept of a covenant or incident of sale, and the relevance of "forecasts" or "letters of allocation" as firm orders. It held that the agreement created an obligation to move goods inter‑State, that such movement, even if incidental, satisfies Section 3(a), and that branch transfers cannot be treated as sales. Consequently, the transactions were taxable inter‑State sales and the appellant's exemption claim was rejected.
Issues considered
- Whether the movement of goods from the assessee's factory to its out‑of‑state godowns, pursuant to a sales agreement, amounts to a sale in the course of inter‑State trade under Section 3(a) of the Central Sales Tax Act, 1956.
- Whether a covenant or incident of the contract of sale, even if not expressly stated, is sufficient to deem the movement as inter‑State sale.
- Whether "forecasts" or "letters of allocation" constitute firm orders that trigger tax liability.
- Whether transfers between a head office and its branches can be treated as inter‑State sales or are merely branch transfers.
- Who bears the burden of proof under Section 6A when the assessee claims exemption.
Legislation cited
- Central Sales Tax Act, 1956s. 2(g), s. 3(a), s. 6, s. 6A, s. 9
- Sales of Goods Act, 1930s. 4(1)
Subjects
Central Sales Taxinter‑State salebranch transferSection 3(a)covenant of contractsales agreementtax exemptionburden of proof
Judgment
[2011] 3 S.C.R. 546
A M/S HYDERABAD ENGINEERING INDUSTRIES
v.
STATE OF ANDHRA PRADESH
(Civil Appeal No. 3781 of 2003)
MARCH 04, 2011
B
[D.K. JAIN AND H.L. DATTU, JJ.]
Central Sales Tax Act, 1956:
c s.3(a) - Inter-State trade - Sales agreement between
assessee and the purchaser - Movement of goods from one
State to another State - Whether the sale can be regarded
as sales in the course of inter-State trade, and, chargeable
to tax under the Act - Held: For a sale to be in the course of
0 inter-State trade or commerce uls.3(a), there must be sale of
goods and such sale should occasion the movement of the
goods from one State to another - A sale would be deemed
to have occasioned the movement of the goods from one
State to another within the meaning of clause (a) of s.3 when
the movement of those goods is the result of a covenant or
E incidence of the contract of sale, even though the property in
the goods passes in either State - Mere transfer of goods
from a head office to a branch office or an inter-branch transfer
of goods cannot be regarded as sales in the course of inter-
state trade - In the instant case, there were prior contracts
F between the purchaser and the assessee and in pursuance
of those contracts, the goods moved from the assessee's
factory at Hyderabad to its Branch offices to be delivered to
the purchaser/their nominees - In pursuance to sales
agreement, the purchaser placed monthly indents on the
G assessee with instructions to dispatch the goods of given size
and quantity to the named destination - Pursuant to such
indents, the assessee dispatched the goods to its State
godowns and the person-in-charge of the godowns to the
pu_rchaser division office by raising sales invoice - Therefore,
H 546
HYDERABAD ENGINEERING INDUSTRIES v. STATE 547
.OF ANDHRA PRADESH
the transaction between the assessee with its branch offices A
was a clear case of inter-State sales within the meaning of
s.3(a) and not branch transfers as claimed by assessee.
s.2(g) - Sale of goods - Held: Includes agreement of
sale of goods. · B
Contract: Sale and agreement. of sale - Distinction
between.
The assessee, manufacturer of electrical fans ahd
accessories, has its manufacturing units in different parts C
of the country Including in Hyderabad, Andhra Pradesh.
Outside the State of Andhra Pradesh, the assessee has
its godown in different States. UIL-company has 16
divisional offices at various places in the country
wherever the assessee's godowns are located. The D
assessee and UIL entered into sales agreement 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 E
sales service. 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. ·
For tho assessment year 1981-82, the assessee filed F
its annual returns under ttie Central Sales Tax Act. The
assessee claimed exemt>tion on a turnover of Rs.
8,87,75,643.00 towards goods transported to out-of-sjate
depots on the ground that these transactions were not
sales in the course of inter-State trade, and, therefore, not G
. chargeable to tax under the Central Act. This contention
of the assessee was n_egatived by the assessing
authority, which view was confirmed by the Tribunaland
the High Court. ·
H
548 SUPREME COURT REPORTS [2011] 3 S.C.R.
A The question which arose for consideration in th&
instant appeal was whether in the facts and
circumstances of the case, the sale or purchase of goods
could be said to have taken place in the course of inter-
state trade or commerce and thereby exigible to tax
B under the Central Sales Tax Act, 1956. It was contended .
for the assessee that the movement of the goods from
the assessee's factory to its godowns situated outside
the State was not in pursuance of the agreement between
the assessee and UIL; that there was no firm commitment
C between the assessee and UIL at the time of movement
of the goods from the factory to the godowns; that the
only communication between the assessee and UIL were ·
in the nature of forecasts; and the completion of the sale
to the UIL did not take place at the factory place and the
D appropriation of the goods were done at the godowns
and it was open to the assessee till then to allot the goods
to any purchasers and, therefore, the findings and
conclusions reached by the statutory authorities under
the Central Act were perverse.
E
Dismissing the appeal, the Court
HELD: 1.1 To make a sale as one in the course of
inter-State trade or commerce, there must be an
F obligation, whether of the seller or the buyer to transport
the goods outside the State and it may arise by reason
of statute, contract between the parties or from mutual
understanding or agreement between them or even from
the nature of the transaction which linked the sale to such
G transportation such an obligation may be imposed
expressly under the contract itself or impliedly by a mutual
understanding. It is not necessary that in cases, there
. must be pieces of direct evidence showing such
obligation in a written contract or oral agreement Such
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 549
OF ANDHRA PRADESH
obligations may be inferable from circumstantial evidence. A
(Para 16] (563-H; 564-A-B]
Tata Engineering and Locomotive Co. Ltd. v. Assistant
Commissioner of Commercial Taxes (1970] 26 STC 354;
Tata Iron and Steel Co. Ltd. Vs. S.R. Sarkar(1960) 11 STC a
655 (SC) - relied on.
· 1.2. For a sale to be in the course of inter-State trade
or commerce under Section 3(a) of the Central Sales Tax
Act, 1956, two conditions must be fulfilled. There must be C
sale of goods. Such sale should occasion the movement
of the goods from one State to another. A sale would be
deemed to have occasioned the movement of the goods
from one State to another within the meaning of clause
(a) of Section 3 of the Act when the movement of those
goods is the result of a covenant or incidence of the D
contract of sale, even though tbe property in the goods
passes in either State. With a view to find out whether a.
particular transaction is an inter-State sale or not, It is
essential to see whether there was movement of the
goods from one State to another as a result of prie>r E
contract of sale or purchase. Section SA of the Central
· Act provides that if any dealer claims that he is not liable
to pay tax under the Central Act in respect of any goods,
on the ground that the movement of such goods from
one State to another was occasioned by reason of' F
transfer of such goods by him to any other place of his
business or to his agent or principal and n.ot by reason
of sale, then the burden of proving that the movement of
goods was so occasioned shall be on the dealer. Where G-
the department takes advantage of the presumption
under Section 3(a) and/or to show that there has been a
sale or purchase of goods in the course of inter-State
trade or commerce and if the assessee disputes the
same, then the assessee can rebut the presumption by H
550 SUPREME COURT REPORTS [2011) 3 S.C.R.
A filing declaration in form 'f' under Section 6A of the
Central Act to prove that the movement of goods was
occasioned not by reason of sale but otherwise than by
way of sale. When the department does not take
advantage of the presumption under Section 3(a) of the
.B Central Act, but shows a positive case of inter-State sale
in the course of inter-State trade or commerce to make it
liable to tax under Section 6, the declaration in Form 'F'
under section 6A would be of no avail. It is an accepted
position In law that a mere transfer of goods from a head
C office to a branch office or an inter-branch transfer of
goods, which are broadly brought under the phrase
'Branch transfers' cannot be regarded as sales in the
course of inter-State trade, for the simple reason that a
head office or branch cannot be treated as having traded
D with itself or sold articles to itself by means of these stock
transfers. [Paras 17, 18 and 19] (565-A-H; 566-A-B]
1.3 In the instant case, the assessing authority and
the Tribunal recorded a finding of fact that there were
E prior contracts between UIL and the assessee and in
pursuance of those contracts, the goods moved from the
assessee's factory at Hyderabad to its Branch offices to
be delivered to UIL or their nominees. Clause (1) of the
sale agreement between the assessee and purchaser/UIL
F mentioned the products that the assessee was required
to supply to the purchaser. Clause (2) spoke of the ..
territory in which UIL was permitted to sell the products
supplied by the assessee. Clause (3) spoke of the
obligations of UIL in organizing the sale and distribution
G of the products supplied by the assessee. It also
provided that UIL would keep the adequate stocks in its
godowns in different regions and also arrange sales
promotions as may be required from time to time. Clause
(4) specifically provided that the UIL would make all
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 551
OF ANDHRA PRADESH
purchases of the agreed products as an independent A
principal and sell the same as such. Clause (5) which is
a clause where price was fixed by the assessee and that
price was the maximum price and UIL was permitted to
sell at prices lower than the maximum price fixed by the
assessee. Clause (6) spoke of sales that may be made by B
the asses~~e to the third parties. Clause (7) spoke of the
time limit within which payments for the supply of goods
to be made by UIL to the assessee. Clause (8) specifically
stated that the sales/deliveries should be made to UIU
their nominees at any of the assessee's factories, region, C
godowns atthe option of the company. The said clauses.
would make it clear that the assessee firstly undertook
to sell and supply its manufactured products to UIL and
the UIL would have the entire country, except West
·Bengal and Andaman and Nicobar Islands, as its D
distribution/selling zone. From these clauses in the
agreement, it can be inferred that the assessee had
undertaken to supply their manufactured products to UIL
or to its nominees at the agreed price at any of the
assessee's godowns at the option of UIL. A contract of E
sale of goods would be effective when a seller agrees to
transfer the property in goods to the buyer for a price and .
that such a contract may be either absolute or
_ conditional. If the transfer is in presenti, it is called a
'sale'; but if the transfer is to take place at a future time F
and subject to some conditions to· be fulfilled
subsequently, the contract is called "an agreement to
sell". When the time in the agreement to sell lapses or the
conditions therein subject to which the property in goods
is to be transferred are fulfilled, the "agreement to sell" G
becomes a 'sale'. [Paras 21, 22, 23] [566-E~F; 569-B-H;
570-A-C]
Oil India Ltd. v. The Superintendent of Taxes and Others
[1975] 35 STC 445 (SC); English Electric Company of India H
552 SUPREME COURT REPORTS [2011) 3 S.C.R.
A Ltd. v. The Deputy Commercial Tax officer and Othef'S [1976]
38 STC 475 (SC); South India Viscose Ltd. vs. State of Tamil
Nadu [1981] 48 STC 232 (SC); Union of India & Anr. v. K.G.
Khosla and Co. Ltd. [1979] 43 STC 457; State of Bihar v Tata
Engineering and Locomotives Ltd. [1971] 27 STC 127(SC);
B Sahney Steel and Press Works Ltd. v. Commercial Tax
Officer [1985] 60 STC 301 (SC) - relied on.
1.4 When the sale or agreement for sale causes or
has the effect of occasioning the movement of goods
c from one State to another, irrespective of whether the
movement of goods is provided for in the contract of sale
or not, or when the order is placed with any bran.ch office
or the head office which resulted in the movement of
goods, irrespective of whether the property in the goods
0 passed in one State or the other, if the effect of such a
sale is to have the movement of goods from one State to
another, an inter-State sale would ensue and would result
· in exlgibllity of tax under Section 3(a) of the Central Act
on the turn over of such transaction. [Para 32) [573-D-F]
E · 1.5. The inter-State movement must be the result of
a sale or an incident of the contract It is not necessary
that the sale must precede the inter-State movement In
order that the sale may be deemed to have occasioned
at such movement. It Is also not necessary for a sale to
F be deemed to have taken place in the course of inter-
state trade or commerce, that the covenant regarding
inter-State movement must be specified in the contract
itself. It would be enough if the movement was In
pursuance of and incidental to the contract of sale. The
G words 'Sale of goods' used In Section 2(g) of Central Act
includes 'an agreement of sale' as such an agreement Is
an element of sale and is also an essential lngr,dient
thereof, in terms of Section 4(1) of the Sales of Goods Act,
that is, it is sufficient if the agreement of sale
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 553
OF ANDHRA PRADESH
contemplates an inter-State movement of the goods A
though the sale itself may take place, at the destination
or In the course of the movement of the goods. Even If
there Is no specific stipulation or direction in the
agreement for an inter-State movement of goods, if such
movement is an incident of that agreement, or if the facts B
and circumstances of the case denote it, the conditions
of Section 3(a) would be satisfied. In the instant case, in
pursuance to the sales agreement, UIL placed monthly
indents on the assessee with Instructions to dispatch the
goods of given size and quantity to the named c
destination. Pursuant to such indents, the assessee
dispatched the goods to Its godowns to the given
·destination and sent goods dispatch intimation directly to
the concerned UIL divisional office at the destination
furnishing size and quantity dispatched. The assessee, D
on receipt of the request for suppl~ of goods dispatched
the same to its State godowns anCI the person-In-charge
· of the godowns to the UIL divi~lolft office by raising sales
invoice. The contention that there was no firm order
placed by UIL with the assessee and accordingly, It would e
not come within the purport of Section 3(a) of the Central
Act and they are mere branch transfers, cannot be
accepted. 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 purchaser's F
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 G
be adjusted in the subsequent dispatch. The assessing
officer, while considering this stand of the assessee, had
made reference to several correspondence for the period
from April, 1981 to March, 1982 and had come to the
conclusion though both the assessee and UIL term those H
554 SUPREME COURT REPORTS (2011] 3 S.C.R.
A 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 was confirmed by the final fact finding
B authority namely, the State Tax Tribunal. This finding of
fact does not appear to be perverse, which would call for
Interference. The Tribunal, after reappreciatlng the entire
documents available on the record and also the modus
operandi adopted by the assessee in its well considered
c order, has concluded that the so called 'forecasts' were
nothing but request made by UIL for supply of goods to
meet the requirements of the consumers in various parts
of the country. Though, the said communication was
termed as 'forecasts', according to the Tribunal, they
o were 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
E agreement which stretches over a period of 5 years, it
cannot be said that the 'sales agreement' was 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
F offices and 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. A perusal of the
letters of allocations, showed that an order was placed
G by UIL is a composite form to supply of goods through
their branch offices and the movement of the goods
thereto from the assessee's factory to the assessee's
godown was to fulfill the demand made pursuant to the
'letters of allocation' which the assessee claims that the
H same is in the nature of forecast. The movement of the
HYDERABAD ENGINEERING INDUSTRIES v. STATE 555
OF ANDHRA PRADESH
goods from the asse.ssee's factory to its various A
godowns situated in different parts of the cpuntry was
pursuant. to 'sales agreement' coupled with 'forecasts'
which are nothing but 'indents' or firm orders. Therefore,
the transaction between the as'sessee W,ith its branch
offices was a clear case of inter-State sales and not B
branch transfers, as claimed by the assessee. [Paras 33,
38, 40, 41, 42] [574-B-D; 576-C-F; 575-D-G; 577-D-G; 578-
D-H; 579-A-C]
Balabahagas Hulsachand v. State of Orissa (1976) 37 c
STC 207; Union of India v. K.G. Khosla and Co. (1979) 43
STC 457 - relied on.
1.6. Merely because the branch office could also
effect supplies directly to some of the bulk consumers, D
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. The assessing authority, in the
instant case, after carefully considering the relevant
clauses in the sales agreement and the voluminous E
correspondence between the assessee and the UIL, gave
its finding that the transaction in question was pure and
simple inter-State sales and fell within the purview of
Section 3(a) of the Central Act [Paras 43 and 44] [579-E-
F; G-H; 580-A-B]
F
Case Law Reference: ~
[1970] 26 STC 354 Relied on Para 12
(1960) 11 STC 655 (SC) Relied on Para 15
G
[1975) 35 STC 445(SC) Relied on Para 26
[1976] 38 STC 475 (SC) Relied on Para 27.
[1981) 48 STC 232 (SC) Relied on Para 28
[1979) 43 STC 457 Relied on Para 29 H
. ',,·
556 SUPREME COURT REPORTS [2011) 3 S.C.R.''
A (1971] 27 STC 127(SC) Relied on Para 30
(1985] 60 STC 301 (SC) Relied on Para 31
(1976) 37 STC 207 Relied on Para 40
B (1979) 43 STC 457 Relied on Para 40
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3781 of 2003.
From the Judgment & Order dated 21.06.2002 of the High
c Court of Judicature of Andhra Pradesh at Hyderabad in Tax
Revision Case No. 54 of 1991.
S.K. Bagaria, Ramesh Singh, Adarsh Priyadarshi (for O.P.
Khaitan & Co.) for the Appellant.
D C.K. Sucharita, Nirada Das for the Respondent.
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. This appeal is directed against the
E judgment and order dated 21.06.2002, passed b,y the Division
Bench of the High Court of Judicature of Andhra Pradesh at
Hyderabad in Tax Revision Case No. 54 of 1991. By the
impugned judgment and order, the High Court has dismissed
the Revision Petition filed by the assessee, inter-alia, holding
that the disputed transactions constitute inter-State sales, as
F contemplated under Section 3(a) of the Central Sales Tax Act,
1956.
2. The issue that we are called upon to decide in the case
is, whether inthe facts and circumstances of the case, the sale
G or purchase of goods can be said to have taken place in the
course of inter-State trade or commerce and thereby exigible
to tax under the Central Sales Tax Act, 1956 (hereinafter
referred to as, "the Central Act").
3. Mis Jay Engineering Works Ltd. is a Public Limited
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 557
OF ANDHRA PRADESH [H.L. DATIU, J.J
Company, registered under the Companies Act, 1956. It has A
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 Mis Hyderabad
Engineering Industries (Prop. - The Jay Engineering Works
Ltd.). It is· registered as a dealer under the Andhra Pradesh 8
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 C
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
cqmpany has its godowns in different States including Delhi. D
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 E
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 assessee's 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. F
Under the said agreement, the main function of UIL was to
organize the sale and distribution of the pro.ducts of the
··· assessee and to arrange for sale promotion measures of the
· p1 .. jucts and to provide after sales service and such other
servic1.'c; as might be required in the interest of sale of the said G
products. -:-he 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
H
558 SUPREME COURT REPORTS [2011] 3 S.C.R.
.. A 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
8 company filed its annual returns under the Central Act in the
prescribed form.
7. The assessee company claimed exemption on a
turnover of Rs.8,87,75,643.00 towards goods transported to
C 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 assessee's case before the assessing autho1;,,,
Sales Tax Appellate Tribunal and the High Court was that the
D 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.
E 9. The findings of the assessing authority with respect to
the nature of the transactions with its various branches, except
in the case of Calcutta Depot, may be set out in his own words
F "The assessee company in Hyderabad is engaged in the
manufacture of different types of fans and fuel injection
parts. In pursuance of the said sales agreement, M/s Usha
Sales Limited, Delhi (now Usha International Limited,
Delhi) placed monthly indent on HEI Hyderabad for the
supply of the goods to its offices in various stages. This
G
indent is sent either by telex or Telephone or through written
communication. This indent shows the model wise quantity
required in each of the regions and the destinations to
which the goods are to be sent are clearly mentioned at
Madras, Patna, Agra. At times even based on such indents
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 559 ·
OF ANDHRA PRADESH [H.L. DATTU, J.]
received from Mis. Usha Sales Ltd. Delhi the assessee A
company is effecting the movement of goods from its
factory in Hyderabad to its own depots in the destination
g'iven by the Usha Sales Ltd. Alongwith the goods the
assessee is sending gate pass (GPO) Cum Challan
proforma invoice, way bill and lorry receipt, which are in B
the name of its own depot or godown. Simultaneously HEI
also sends a direct communication to the "constituent" and
further requesting the "constitutent" of the UIL to take
delivery. At times, the unit of USL also informs the MEI that
it has taken delivery of, goods. · c
In pursuance of the monthly allocation made by the
UIL head office New Delhi, the various constituents or units
of USL directly correspond with HEI for the dispatch of the
goods, such constituents issue telegrams and telex
message to HEI for urgent dispatch of the goods. D
On receipt of the goods in the out of state depot, the
depot incharge prepares invoice in favour of the constituent
of M/s Usha Sales Limited such as Nalanda Sales
Corporation, Western Sales Corporation, United Sales E
Corporation etc., generally the names of these purchasing
units owned by M/s Usha Sales Ltd. are printed on the
invoices issued by the assesses depots, which shown that
there cannot be any other purchases.
F
Depot wise stock register is maintained in
Hyderabad Factory showing modelwise quantitative
particulars of the goods sent to the depot goods sold by
the depot and the goods available with the depot as stock
at the end of prescribed period.
G
;he Hyderabad factory did not receive only orders
or indents from any of its depots. The indent is always
placed by M/s Usha Sales Ltd. But for the said indent,
neither the Hyderabad factory nor any depot known the
model or quantity of goods to be sent or to be received. H
560 SUPREME COURT REPORTS [2011) 3 S.C.R.
A Neither there is any communication sent by the Marketing
Deptt. of the assessee company as they were never
received.
On receipt of goods in the out-state depot, an invoice
B is prepared in favour of the respective unit of M/s. Usha
Sales ltd. (such as Nalanda Sales Corporation etc.) and
all the invoices are sent without fail to the Hyderabad
factory. In the books of account of the factory, the account
of USL is debited for the invoice value and the sales tax
collection is credited to the account of the respective State.
c
The invoice is discounted by the HEI with Canara
Bank, Secunderabad and the full amount is received by
drawing Hundi on M/s Usha Sales Ltd. Delhi for 10 days
on the due date. USL makes payment to Canara Bank,
D Delhi and on receipt of such intimation the account of USL
is credited in the factory of Hyderabad.
There were no transfers from one depot to another
depot. The depot has no option to chose its purchase. No
E open sales were conducted from the depots. All the sales
were affected to different units of USL whose names are
printed in the respective invoices as buyers.•
The assessing officer has further observed :-
F "Thus intimate nexus and conceivable link between the
assessee and the purchaser are manifest. The receipt of
incident from USL HO the follow up and pressure for supply
from the USL divisions, the periodical fixation of price to
hold goods for the specified future months, the confirmation
G of receipt of goods by the UFL division proceeded by
direct dispatch intimations to the purchasers supply of
goods at "current prices" and complaints direct from USL
divisions for non delivery or short delivery all in pursuance
of sale agreement make me conclude that the sales from
H HEI to USL occasioned the movement of goods. The
HYDERABAD ENGINEERING INDUSTRIES v. STATE 561
OF ANDHRA PRADESH [H.L.. DATIU, J.]
. . .
delivery and raising of invoice by the State godown are A
immaterial.•
10. The assessing officer has concluded that "from a
factual description of the mode of transactions, it is evident
that the inter-State sales effected by the assessee to UIL have B
been camouflaged as branch transfers with· a view to evade
tax legitimation (sic) due to the State on these transactionsn.
It is not necessary to refer to the tax and the penalties levied
by the assessing officer under the Central Act, for the issue
involved in the case is legal.
c
11. The sole question that arises for our consideration is
whether the turn-over under dispute for the assessment year
1981-82, is an i.nter-State sale or a branch transfer.
12. Shri S.K. Bagaria, learned 1 senior counsel for the D
assessee, submitted that while the goods certainly moved from
the factory at Hyderabad· to the branch office of the assessee,
such movement cannot be regarded as having any connection
with any particular order or orders placed by Mis Usha Sales
Ltd. Therefore, it is submitted that the goods moved from ·. E
· , Hyderabad to Delhi on what were described as 'stock transfers'
and such stock transfers cannot be brought within the charging
provisions of the Central Act, since they cannot be regarded
as sales in the course of inter-State trade and commerce. It is
further submitted by referring to clauses in the sales agreement
_,, and relying on the decision of this Court that the transaction in F
question is merely 'branch transfers' and not 'inter-State sales'.
It is submitted that the findings of the assessing authority that
the movement of goods from the assessee's factory to their
godowns was in pursuance of the agreement of sale between
the assessee and UIL is not based· on any material and, G
· therefore, on mere presumption and assumptions the assessing
authority could not have treated the branch transfers as inter-
state sales. It is further submitted that there was no firm
commitment between the assessee and UIL at the time of
movement of goods from assessee's manufacturing unit to their H
562 SUPREME COURT REPORTS [2011) 3 S.C.R.
A godowns situated at different places in the country. It is further
submitted that the assessing authority was not justified in relying
on the letters of allocation issued by UIL as a contract of firm
commitment for purchase of goods manufactured by the
assessee. According to Shri Bagaria, the letters of allocation
B issued by UIL cannot be construed to be a contract of firm
commitment to purchase the goods manufactured by the
assessee and those letter~ of allocation were mere forecast
of UIL's estimate of their requirements. It is further contended
that there was no firm commitment on the part of UIL to
c purchase specific number of specified varieties of fans and for
that matter the assessee had not allotted any specific number
of specified varieties of fans in favour of UIL at the time the
goods manufactured by the assessee were being transferred
from their factory to their godowns. It is contended that the
assessing authority is bound to examine each individual
D transaction and decide whether it constitutes an inter-State
sale. Reliance is placed on the observations made by this
Court in Tata Engineering and Locomotive Co. Ltd. v.
Assistant Commissioner of Commercial Taxes [1970) 26
STC 354 at page 381 (SC). In conclusion, it is submitted that
E the assessing authority and the High Court were not justified ·
in relying on the decision of this Court in the case of Sahney
Steel and Press Works Ltd. and English Electric Company
of India Ltd.
F 13. We did not have the advantage of hearing the learned
counsel for the Revenue. However, with the permission of the
Court, they have filed their written submissions which, to say
the least, does not touch upon any of the submissions made
by learned senior counsel for the assessee. Their written
G submissions are just the repetition and reiteration of the findings
and conclusions reached by the assessing authority.
14. To resolve the controversy raised in this appeal,
Section 3(a) of the Central Act requires to be noticed.The
Section reads as under :-
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 563
OF ANDHRA PRADESH [H.L DATTU, J.]
"A sale or purchase of goods shall be deemed to take A
place [n the course of inter-State ~rade or commerce if the
sale Qr purchase-- ·
(a) occasions the movement of goods from one State to
another; or B
(b) is effected by a transfer of documents of title to the
goods during their movement from one State to another.
Explanation 1--Where goods are delivered to a carrier or
other bailee for transmission, the movement of the goods c
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 D
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."
E
15. The purport of Section 3(a) is explained by this Court
in Tata Iron and Steel Co. Ltd. Vs. S.R. Sarkar (1960) 11 STC
655 (SC), wherein it is stated "in our view, therefore, within.
Clause (b) of Section 3 are included sales in which property
in the goods passes during the movement of the goods from F
one State to another by transfer of documents of title thereto: .
clause (a) of Section 3 covers sales, other than those included
in clause (b), in which the movement of goods from one State .
to another is the result of a covenant or incident of the contract
of sale, and property in the goods passes in either Staten. G
16. To make a sale as one in the course of inter-State trade
or commerce, there must be an obligation, whether of the seller
or the buyer to transport the goods outside the State and it may
arise by reason of statute, contract between the parties or from
H
f
I.
564 SUPREME COURT REPORTS [2011) 3 S.C.R.
A mutual understanding or agreement between them or even from
the nature of the transaction which linked the sale to such
transportation such an obligation may be imposed expressly
under the contract itself or impliedly by a mutual understanding.
It is not necessary that in cases, there must be pieces of direct
B evidence showing such obligation in a written contract or oral
agreement. Such obligations are inferable from circumstantial
evidence.
17. Section 6 of the Central Act which is the charging
C Section, levies tax under the Central Act on all inter-State sales,
determined as such under Section 3 of the Central Act. Section
9 of the Central Act provides that the tax payable by any dealer
under the Central Act on the sale of goods effected by him in
the course of inter-State trade or commerce, whether such sale
falls within Clause (a) or Clause (b) of Section 3, shall be levied
D by the Govt. of India and shall be collected by that Govt. in
accordance with the provisions of sub-Section (2) of that
Section, in the State·from which the movement of the goods
commenced. The proviso enumerates an exception, but we do
not consider it necessary to refer to it for the purpose of this
E case. Section 3 of the Act deals with inter-State sales and
details the circumstances as to when a sale or purchase of
goods can be said to take place in the course of inter-State
trade or commerce. A ~erusal of Section 3 of the Central Act
shows that it raises a presumption of law and that is, a sale or
F 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 transfer of documents of title to the goods
during their movement from one State to another. For purposes
G of clause (b) of Section 3, Explanation I says that where the
goods are delivered to a carrier or other bailee for
transmission, the movement of the goods shall 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
H II clarifies that when the movement of goods commences and
HYDERABAD ENGINEERING. iNDUSTRIES v. STATE 565
OF ANDHRA PRADESH [H.L. DATIU, J.]
terminates in the same State, the movement of goods will not A
be deemed to be from one State to another merely because
of the fact that in the course of such movement, the goods pass
through the territory of any other State. For a sale to be in the
course of inter-State trade or commerce under Section 3(a),
the two conditions must be fulfilled. There must be sale of 8
goods. Such sale should occasion the movement of the goods
from one State to another. A sale would be deemed to have .
occasioned .the movement of the goods from one State to
another within the meaning of clause (a) of Section-3 of the Act
when the movement of those goods is the result of a covenant C
or incidence of the contract of sale, even though the property
in the goods passes in either State. With a view to find out
whether a particular transaction is an inter-State sale or not, it
is essential to see whether there was. movement of the goods
from one State to another as a result of prior contract of sale
or purchase. Section 6A of the Central Act provides that if any 0
dealer claims that he is not liable to pay tax under the Central
Act in respect of any goods, on the ground that the movement ·
of such goods from one State to another was occasioned by
reason of transfer of such goods by him to any other place of
his business or to his agent or principal and not by reason of E
sale, then the burden of proving that the movement of goods
was so occasioned shall be on the dealer. It also provides the
mode of discharge of that burden of proof.
18. What follows from a conjoint reading of these provisions F
is that every dealer is liable to pay tax under the Central Act
on the sale of goods effected by him in the course ofinter-State
trade or commerce during the year of assessment. Where the
department takes advantage of the presumption under Section
3(a} and/or to show that there has been a sale or.purchase of G
goods in the course of inter-State trade or commerce and if
the assessee disputes that there has been a sale or purchase
of goods in the course of inter-State trade or commerce, then
the assessee can rebut the presumption by filing declaration
in form 'F' under Section 6A of the Central Act to prove that H
566 SUPREME COURT REPORTS [2011) 3 S.C.R.
A the movement of goods was occasioned not by reason of sale
.but otherwise than by way of sale. When the department does
not take advantage of the presumption under Section 3(a) of
the Central Act, but shows a positive case of inter-State sale
in the course of inter-State trade or commerce to make it liable
B to tax under Section 6, the declaration in Form 'F' under
section 6A would be of no avail.
19. It is an accepted position in law that a mere transfer
of goods from a head office to a branch office or an inter-
C branch transfer of goods, which are broadly brought under the
phrase 'Branch transfers' cannot be regarded as sales in the
course of inter-State trade, for the simple reason that a head
office or branch cannot be treated as having traded with itself
or sold articles to itself by means of these stock transfers.
D 20. In the instant case, the case of the Revenue is not only
based on the agreement of sale but also on the presumption
under Section 3(a) of the Central Act.
21. In the instant case, the assessing authority and the
E 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
assessee's 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
F certain clauses from the sales agreement. The sales
agreement dated 01.05.1979 contained, inter alia, the
following:-
"Clause 1 The agreement products shall comprise
G sewing machines fan, their component parts/
accessories, and such other products as may be
mutually agreed upon from time to time.
Clause 2 The territory covered by the agreement shall
comprise of all states of India excluding West
H I
'
HYDERABAD ENGINEERING INDUSTRIES v. STATE 567
OF ANDHRA PRADESH [H.L. DATIU, J.]
Bengal/Andaman & Nicob~r. A
Claues 3 USL shall undertake to organize sale and
distribution of agreement products in the market.
Maintain adequate stocks at all times in its
godowns in different regions. B
Arrange for sales promotion measures as may be
necessary from time to time on mutually agreed
basis.
Provide after sales service. c
Provide such other services as may be required in
the interest of sales, a mutually agreed basis from
time to time.
Clause 4 USL shall make all purchases of agreement D
products as an independent principal and sell the
same as such.
Price (5)(a)JE's selling prices to Usha sales shall be
intimated by JE from time to time. The prices at E
which Usha Sales shall sell the agreement products
to their agents/dealers shall be determined by them
so however that Usha sales make up on their
purchases price shall not exceed:-
Sewing Machines/Accessories 10.00 F
Rs 5/- (per top)
Fans 7.35%
Component part~ 13.35% G
The price so computed shall be maximum price and
Usha sales shall be free to sell at prices lower than
the said maximum.
H
568 SUPREME COURT REPORTS [2011] 3 S.C.R
A (b) Consumer prices (except for hire purchase) sales shall
not exceed the maximum authorized by JE from time to
time. However, Usha sales/their dealers/agents shall be
free to charge prices lower than the said maximum.
B (c) Any sales tax/other tax payable may be charged
additionally by Usha Sales.
FreighUhandling charges shall be reimbursed on an
agreed basis.
c (d) In the event of any reduction prices by JE corresponding
rebate shall be allowed on unsold stocks held by Usha
sales/their dealers/agents.
Sales to Third Parties
D In case it is considered expedient by JE to
supply/bill the goods directly to any of the USHA
sales dealers agents against orders procured by
Usha Sales make JE shall pay to Usha sales the
difference between JE's subsisting selling prices
E and the invoiced value exclusive of sale tax and
other local taxes.
Payment
(a) Payment for all purchases shall be made to JE
F within 75 days of-the date of the bill failing which
Usha sales shall pay interest at JE's Maximum
borrowing rates from their bankers at that time.
(b) Usha sales shall be liable to make payment in
G respect of supplies invoiced by JE on its nominees
in case of default by the letter.
Sales Deliveries
Sales/deliveries shall be made to Usha Sales their
H
: HYDERABAD ENGINEERING INDUSTRIES v. STATE 569
OF ANDHRA PRADESH [H.L. DATIU, J.]
nominees at any of JE's factories region godowns A
at the company's option."
22. Clause (1) of the agreement speaks of the products that
the assessee is required to supply to the purchaser. Clause (2)
speaks of the territory in which the purchaser is permitted to sell 8
the products supplied by the assessee. Clause (3) speaks of
the obligations of the purchaser in organizing the sale and
distribution of the products supplied by' the assessee. It also
provides that the purchaser shall keep the adequate stocks in
its godowns in different regions and also arrange sales
promotions as may be required from time to time. Purchaser is C
also required to provide after sales service to the products
supplied. Clause (4) specifically provides that the purchaser/UIL
shall make all purchases of the agreed products as an
independent principal and sell the same as such. Clause (5)
which is a clause where price is fixed by the assessee and that D
price is the maximum price and UIL - purchaser is permitted to
sell at prices lower than the maximum price fixed by the
assessee. Clause (6) speaks of sales that may be made by the
assessee to the third parties. Clause (7) speaks of the time limit
within which payments for the supply of goods to be made by E .
· UIL to the asses~ee. Clause (8) is an important clause in the
sales agreement. It specifically says that the sales/deliveries
shall be made to UIL/their nominees at any of the assessee's
factories, region, godowns at the option of the company. It is clear
from the aforesaid clauses set out herein above, that the F
assessee firstly undertakes to sell and supply its manufactured
products to UIL and the UIL wilt have the entire country, except
West Bengal and Andaman and Nicobar Islands, as its
distribution/selling zone. The agreement also provides that UIL
will purchase the products agreed under Clause (1) and sell the G
same as an independent principal .. Clause (8) is very relevant
for the purpose of this case. It obligates the assessee to make
delivery of the products manufactured either to the UIL's
nominees or in any one of the godowns of the assessee at the
option of UIL. H
570 SUPREME COURT REPORTS [2011) 3 S.C.R.
A 23. From the above Clauses in the agreement, what can be
inferred is that the assessee has undertaken to supply their
manufactured products to UIL or to its nominees at the agreed
price at any of the assessee's godowns at the option of UIL. A
contract of sale of goods would be effective when a seller agrees
B to transfer the property in goods to the buyer for a price and that
such a contract may be either absolute or conditional. If the
transfer is in presenti, it is called a 'sale'; but if the transfer is to
take place at a future time and subject to some conditions to be
fulfilled subsequently, the contract is called "an agreement to sell".
c When the time in the agreement to sell lapses or the conditions
therein subject to which the property in goods is to be transferred
are fulfilled, the "agreement to sell" becomes a 'sale'.
24. Before we deal with the issues raised in the appeal, we
will first notice some of the decisions of this Court on
D interpretation of Section 3(a) of the Act.
25. In Tata Iron and Steel Co. Ltd. v. S.R. Sarkar & Others
(supra), the majority view of this Court was that where the goods
are moved from one State to another as a result of a covenant
E in the contract of sale, that would be clearly a sale in the course
of inter-State trade. The Court further proceeded to hold that
even a movement of goods from one State to another, which is
merely incidental to, and which is not part of, the contract of sale,
is also brought within the fold of Section 3(a) of the Central Act.
F 26. In Oil India Ltd. v. The Superintendent of Taxes and
Others [1975] 35 STC 445 (SC), this Court held "No matter in
which State the property in the goods passes, a sale which
occasions "movement of goods from one State to another is a
sale 'in the course of inter-State trade». The inter state
G movement must be the result of a covenant, express ,,r implied,
in the contract of sale or an incident of the contract. It is not
necessary that the sale must precede the inter State movement
in order that the sale may be deemed to have occasioned such
movement. It is also not necessary for a sale to be deemed to
H have taken place in the course of inter state trade or commerce,
- HYDERABAD ENGINEERING INDUSTRIES v. STATE 571
,-
OF ANDHRA PRADESH [H.L. DATIU, J.]
that the covenant regarding inter-State movement must be A
specified in the contract itself. It would be enough if the
movement was in pursuance of and incidental to the contract
of sale."
27. In English Electric Company of India Ltd. v. The Deputy 8
Commercial Tax officer and Others [1976) 38 STC 475 (SC), ·
this Court observed, that "when a branch of a companyforwards
. a buyer's order to the principal factory of the company and
instructs them to dispatch the goods direct to the buyer and the
goods are sent to the buyer under those instructions it would C
not be sale between the factory and its branch. If there is a
conceivable link between the movement of the goods and the
buyer's contract, and if in the course of inter-State movement
the goods move only to reach the buyer in satisfaction of his
contract of purchase and such a nexus is otherwise
inexplicable, then the sale or purchase of the specific or D
ascertained goods ought to be deemed to have·taken place in
the course of inter State trade or commerce as such a sale or
purchase occasioned the movement of goods from one State
to another. The presence of an intermediary, such as the
seller's own representative or branch office, who initiated the E
contract may not :nake the matter different. Such an interception
by a known person on behalf of the seller is the delivery State
and such person's activities prior to or after the implementation
of the contract may not alter the position. n
F
28. In South India Viscose Ltd. vs. State of Tamil Nadu ·
(1981] 48 STC 232 (SC), this Court observed that if there is a
conceivable link between a contract of sale and the movement
of goods from one State to another in order to discharge the
obligation under the contract of sale, it must be held to be an inter-
state sale and that character will not be changed on account of
an interposition of an agent of the seller who may temporarily
intercept the movement.
29. In Union of India & Anr. v. K. G. Khosla and Co. Ltd.
[1979] 43 STC 457, this Court reiterated and approved the
572 SUPREME COURT REPORTS [2011] 3 S.C.R
A decision in Oil India Ltd. 's case (supra) and held that if a contract
of sale contains stipulation for the movement of the goods from
one State to another, the sale would certainly be an inter-State
sale. But for the purposes of Section 3(a) of the Act, it is not
necessary that the contract of sale must itself provide for and
B cause the movement of goods or that the movement of goods
must be occasioned specifically in accordance with the terms
of the contract of sale.
30. In State of Bihar v Tata Engineering and Locomotives
C Ltd. [1971] 27 STC 127(SC). it is observed "if a contract of sale
contains a stipulation for such movement, the sale would, of
course, be an inter state sale. But it can also be an inter state
sale, even if the contract of sale does not itself provide for the
movement of goods from one State to another but such
movement is the result of a covenant in the contract of sale or is
D an incident of that contract.•
31. In Bharat Electricals Ltd. v. State of Andhra Pradesh
[1996] 102 STC 345 (AP.), it is observed that "In the light of
the settled legal position, it cannot be and it has not been
E seriously disputed that the movement of goods from the
Hyderabad Unit of the petitioner-company direct to the
customer's site in the other State are inter-State sales pursuant
to the contracts entered into by BHEL with the customers/
purchasers. The fact that the contracts were entered into with
F the head office or the unit having overall responsibility for
execution is a different one or that the executing unit itself
raises the invoices and realizes the price from the customers
does not in any way detract from the position that the inter-
state movement of goods from Hyderabad is pursuant to and
G a necessary consequence of the contract of sale. In the instant
case, the goods are tailor-made, manufactured according to
certain specification and designs and the components/
equipment which go into the plant are directly dispatched by
the Hyderabad unit to the customer in the other State and the
H goods are received from the common carrier by the
-
~
HYDERABAD ENGINEERING INDUSTRIES v. STATE 573
OF ANDHRA PRADESH [H.L DATIU, J.]
customer's representative. The movement of such goods from A
Andhra Pradesh to other States cannot but be ascribed to
contracts of sale entered into by the head office of the
petitioner-company of which the petitioner is part and parcel.
The fact that the contract was not entered into with Hyderabad
unit or that the inter-State movement.had taken place at the B ·
instance of another unit of the same company does not make
material difference. It is to be noted that for' the value of the
goods dispatched, the debit note is sent by Hyderabad unit
to the executing unit. It may· be that the customer does not
pay the amount ~ the Hyderabad unit which · c
manufactures and dispatches1he goods. But in the light of
the settled propositions that the branches and head office
· constitute one single legal entity, it does not matter by whom
the billing is done or to whom the payment is made by the
. customer. n
D
32. From the above decisions, the principle which emerges
is-when the sale or agreement for sale causes or has the effect
of occasioning the movement of goods from one State to
another, irrespective of whether the movement of goods is
provided for in the contract of sale or not, or when the orderjs E
placed with any branch office or the head office which resulted
in the movement of goods, irrespective of whether the property
in the goods passed in one State or the other, if the effect of such
a sale is to have the movement of goods from one State to
-- another, an. inter-State sale would ensue and would result in F
exigibility of tax under Section 3{a) of the Central Act on the turn
over of such transaction. It is only when the turnover relates to
sale or purchase of goods during the course of inter-State trade
or commerce that it would be taxable under the Central Act.
G
33. The learned counsel Shri Bagaria mainly contends that
there is nothir~ in the sales agreement, express or implied, which
may be regarded as specific covenant under which the
assessee's manufacturing unit was obliged to move the specific
goods from its manufacturing unit at Hyderabad to its branch
H
574 SUPREME COURT REPORTS (201.1) 3 S.C.R.
-
, ._
A offices for delivery of the goods to UIL. The learned counsel
submitted that a sale can be regarded as having occurred in the
course of inter-State trade, ifthe concerned contract of sale itself
includes a covenant either express or implied, to the effect that
the goods must move from one State to another for the purpose
B of implementing the 'sales agreement'. We cannot agree with
the submission of learned counsel Shri Bagaria. We say so for
the reason that the inter-State movement must be the result of a
sale or an incident of the contract. It is not necessary that the sale
must precede the inter-State movement in order that the sale
c may be deemed to have occasioned at such movement. It is also
not necessary for a sale to be deemed to have taken place in
the course of inter-State trade or commerce, that the coven~nt
regarding inter-State movement must be specified in the contract
itself. It would be enough if the movement was in pursuance of
and incidental to the contract of sale (See Oil India Ltd. (supra)].
0
34. We now turn to the facts of the present case to determine
whether the transaction in question is inter-State trade or
commerce or mere stock transfers to branch offices.
E 35. Shri Bagaria, learned senior counsel, submits that the
movement of the goods from the assessee's factory to its
godowns situated outside the State was not in pursuance of the
agreement between the assessee and UIL; that there was no
firm commitment between the assessee and UIL at the time of
F movement of the goods from the factory to the god owns; that the
only communication between the assessee and UIL were in the
nature offorecasts; and the completion of the sale to the UIL did
not take place at the factory place and the appropriation of the
goods were done at the godowns and it was open to the
G assessee till then to allot the goods to any purchasers. Therefore,
the learned senior counsel contends that the findings and
conclusions reached by the statutory authorities under the Central
Act are perverse. In our considered view, though the submission
of the learned senior counsel is attractive, but on a deeper
consideration, it lacks merit.
H
-
_ _.
HYDERABAD ENGINEERING INDUSTRIES v. STATE 575
OF ANDHRA PRADESH [H.L. DATIU, J.]
36. The assessee, for the assessment year 1.981-82 under A
Central Act, claimed exemption on a turnover of Rs. 7,88,13,639/
- towards stock transfer of USHA brand electric fans. The same
was disallowed by the assessing officer and assessed to tax
@10% in the absence of 'C' declaration forms by classifying the
transactions falling under Section 3(a) of the Central Act. B
37. It is not in dispute that there is "sales agreement"
between the parties which was entered into sometime in the year
1979 and the same was to expire sometime in the year 1984.
Under this agreement, UIL had agreed to purchase the products C
manufactured by the assessee and sell it as an independent
principal. The assessee has its godown in every State including
Delhi. The UIL has also its divisional office in different names at
every place wherever the assessee's godown is located.
38. In pursuance to the sales agreement, UIL placed monthly D
indents on the assessee with instructions to dispatch the goods
of given size and quantity to the named destination. Pursuance
to such indents, the assessee dispatched the goods to its
godowns to the given destination and sent goods dispatch
intimation directly to the concerned UIL divisionai office at the E
destination furnishing size and quantity dispatched with LR.No.
and name of the transport company. The statutory authorities,
from the correspondence between UIL and the assessee noticed
in their order that UIL divisional offices correspondent directly
. with the assessee for the supply of stocks and also informs them F
· - about the receipt or non-receipt of the stocks. The assessee, on .
receipt of the request for supply of goods dispatches the same
to its state godowns and the person-in-charge of the godowns
to the UIL division office by raising sales invoice.
39. We have already noticed the relevant clauses in the G
'sales agreement'. A close reading of the clauses would clearly
indicate that the parties have agreed to discharge certain
obligations cast on them under the agreement. The agreement
provides for the products to be supplied, sales zone, to organize
H
576 SUPREME COURT REPORTS [2011] 3 S.C.R.
A sales and service for UIL to make purchases an sell products
as an independent principal, selling prices to be informed from
time to time, payments against purchases to be made within a
particular time and the goods to be delivered to UIL either at the
assessee's factory or at its regional godowns. Clause 8 of the
B agreement, if it is read with other clauses, makes it clear that
there is stipulation for the movement of the goods from the factory
to the godowns situated in different places to be delivered to UIL.
It is because of these covenants, the assessee is obliged to
move the goods from its factory to the god own situated in other
c States to fulfill its part of the contract.
40. Section 2(g) of the Central Act defines the meaning of
the expression 'sale'. This expression was explained by this
Court in Balabahagas Hulsachand Vs. State of Orissa (1976)
37 STC 207 at page 213. This Court stated that the words 'Sale
D of goods' used in this Section includes 'an agreement of sale'
as such an agreement is an element of sale and is also an
essential ingredient thereof, in terms of Section 4(1) of the Sales
of Goods Act, that is, it is sufficient if the agreement of sale
contemplates an inter-State movement of the goods though the
E sale itself may take place, at the destination or in the course of
the movement of the goods. This view was reiterated and further
explained by this Court in Union of India Vs. K. G. Khosla and
Co. (1979) 43 STC 457. The consistent view of this Court
appears to be that even if there is no specific stipulation or
F direction in the agreement for an inter-State movement of goods,
if such movement is an incident of that agreement, or if the facts
and circumstances of the case denote it, the conditions of
Section 3(a) would be satisfied.
41. Shri Bagaria contends that the assessee has received
G only 'allocations' in the nature of market or distribution forecasts
and such allocations are neither in the nature of indents nor
orders and the assessee never accepted such allocations letter
sent by UIL. It is further submitted that except in few instances,
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 577
OF ANDHRA PRADESH [H.L. DATIU, J.]
the actual dispatches of the goods to its godowns never tallied A
with the allocations letter sent by UIL. Therefore, such allocations
letter cannot be construed as "firm orders". Therefore, the
transactions cannot be brought within the purview of inter-State ·
trade or commerce to attract charging provisions under the
Central Act. In our view, though the ultimate purchaser UIL placed a
orders for a particular quantity of goods to be supplied, the
asses.,oe did not supply the actual quantity indented for. We do
nvi, 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 c
which just acted as a conduit pipe before it ultimately reached
ihe purchaser's 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
0
was indented for, then the same could be adjusted in the
subsequent dispatch. Therefore, to contend that there was nc ·
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 E
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 F
ass.essee fo< 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 our interference. G
42. Shri Bagaria, learned senior counsel for the assessee,
laid much stress on the issue that in the instant case, there is no
firm order placed by UIL on the assessee for the supply of
particular type or quantity of goods and the only communication H
578 SUPREME COURT REPORTS (2011] 3 S.C.R.
A that they had placed only a 'forecasts' which only depicts the
requirement in a particular State and therefore, those forecasts
cannot be even remotely considered as either purchase orders
or indents for supply of goods. It is also contended that the "sales
agree1, 1ent" is only an understanding between the parties for the
B supply of manufactured goods by the assessee to UIL and the
agreement is not binding on the parties, since it does not provide
for any claim for damages, if there is any breach of any of the
conditions stipulated therein by any one of the parties. It is
stressed by the learned senior counsel that the assessee
c company, since it has branches in various parts of the country,
its manufactured products are stocked in those branches and
the branches in turn, have effected sales of those goods to
consumers which would include UIL also. This argument is also
noticed by the final fact finding authority, namely the Sales Tax
D Appellate Tribunal and has negatived the same by assigning
cogent reasons. The Tribunal, after reappreciating the entire
documents available on the record and also the modus operandi
adopted by the assessee in its well considered order, has
concluded that the so called 'forecasts' are nothing but request
E made by UIL for supply of goods to meet the requirements of the
consumers in various parts of the country. Though, the 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
F 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
G 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
H
--
HYDERABAD ENGINEERING INDUSTRIES v. STATE 579
OF ANDHRA PRADESH [H.L. DATIU, J.]
to the learned senior counsel, we also perused number of 'letters A
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 assessee's factory to the B
assessee's 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 assessee's factory to its various godowns situated in
different parts of the country was pursuant to 'sales agreement' c
coupled with 'forecasts' which are nothing but 'indents' or firm
orders. Therefore, in our opinion, the transaction bet'.veen the
assessee with its branch offices is a clear case of inter-State
sales and not branch transfers, as claimed by the asse1see.
43. Shri Bagaria, learned senior counsel, submitted that the D
branch offices of the assessee would also effect sales of
products supplied by the assessee to other customers including
State and Central Govt. Therefore, it is contended that the branch
offices of the assessee had full discretion to sell the goods to
any person of their choice. In our view, merely because the branch E
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 F
granted exemption on a turnover of Rs. 87,57,071/-, being 10% .
of the total value of the claim towards stock transfer.
44. The learned senior counsel Shri Bagaria contended that
ti.' case law on which reliance placed by the High Court and other G
Stah.4ory authorities are distinguishable and none of those
decision:.:: -· 1pport the case of the Revenue. This contention of
the learned senior counsel need not detain us for tong, since the
assessing al\tt;\ority, in the instant case, after carefully
considering the relevant clauses in the sales agreement and the H
--
580 SUPREME COURT REPORTS [2011] 3 S.C.R.
A voluminous correspondence between the assessee and the UIL,
has given its finding that the transaction in question is pure and
simple inter-State sales and falls within the purview of Section
3(a) of the Central Act. This finding of fact has received the
approval of the First Appellate Authority and the Sales Tax
B Apoellate Tribunal which is the last fact finding authority in the
appeals filed by the assessee.
45. The learned senior counsel also conter.ded that the
assessing officer is expected to look into each transaction in
C order to find out whether a completed sale had taken place which
could be brought to tax under Section 3(a) of the Central Act.
Reli~mce is placed on the Constitution Bench decision of this
Court in the case of Tata Engineering and Locomotive Co. Ltd.
(supra). We are bound by the view expressed by the Constit• 1t1on
Bench decision of this Cl'Urt. However, in the present c.....e, the
D assessin~ officer has not just picked up a stray transaction to
hold that the entire transaction for the entire period of
assessment is inter-State sales, which wculd attract the charging
provision. In our considered view, the assessing officer, in his
detailed and well considered order, has looked into nearly 378
E 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
F 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 :acts of the case, the transactions in question were inter-
state sales taxable under the Central Act.
46. As a result of our above discussion, we do not find any
G merit in this appeal and the same ~s accordingly dismissed. No
order as to costs.
D.G. Appeal dismissed.
H
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