Madras High Court
J.Thomas & Company (P) Limited vs The State Of Tamil Nadu on 20 September, 2024
Author: C.Saravanan
Bench: R.Suresh Kumar, C.Saravanan
T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 20.09.2024
CORAM:
THE HONOURABLE MR.JUSTICE R.SURESH KUMAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.(Revision) Nos.77 to 80 of 2015
and W.P.No.2322 of 2012
and
C.M.P.Nos.14217 to 14219 of 2016
J.Thomas & Company (P) Limited,
Coonoor. ... Petitioner
in T.C.No.77 of 2015
Forbes & Company (Tea Brokers),
Coonoor. .. Petitioner
in T.C.Nos.78 & 80 of 2015
Paramount Tea Marketing (P) Limited,
Coonoor. .. Petitioner
in T.C.No.79 of 2015
vs.
The State of Tamil Nadu
Represented by the
Joint Commissioner (CT),
Coonoor. . . Respondents in all T.Cs.
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Prayer in all TCs.: These petitions have been filed under Section 38 of
the Tamil nadu General Sales Tax Act, 1959 to revise the order of the
Sales Tax Appellate Tribunal (Additional ) Bench, Coimbatore-18 dated
03.02.2015 passed in C.T.S.A.Nos.32, 38, 39 & 63 of 2008.
For Petitioners : Mr.N.Sriprakash
(in all TCs.)
For Respondent : Mr.Haja Nazirudeen
( in all TCs.) Addl.Advocate General-1
Assisted by
Mr.G.Nanmaran
Spl.Govt.Pleader
Mr.P.Haribabu
Govt.Advocate
W.P.No.2322 of 2012
J.Thomas & Co., Private Limited
represented by its Managing Director
Vijay Shankar ... petitioner
vs.
1. The Assistant Commissioner (CT)
Coonoor,
The Nilgiris.
2.The State of Tamil Nadu,
Rep.by the Secretary,
Commercial Taxes & Registration
(B2) Department,
Fort St.George, Chennai 600 009. .. Respondents
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Prayer : Writ petition is filed under Article 226 of the Constitution of
India, for issuance of a writ of Certiorari, calling for the records on the
file of the first respondent in CST.No.336211/1999-00 dated 30.09.2011
and quash the same.
For Petitioner : Mr.N.Sriprakash
For Respondents : Mr.Haja Nazirudeen
COMMON ORDER
(Judgment of the Court was delivered by C.SARAVANAN,J.)
By this common order, these Tax Cases are being disposed of.
2. These Tax Cases have been filed under Section 38 of the Tamil
Nadu General Sales Tax Act, 1959 to reverse the order dated 03.02.2015
of the Sales Tax Appellate Tribunal (Additional Bench), Coimbatore-18
in C.T.S.A.Nos.32, 38, 39 & 63 of 2008.
3. Operative portion of the impugned Order dated 03.02.2015 of
the tribunal reads as under :-
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015“26. During the course of lengthy arguments
by the Id. Counsel for the respondents, it is
reiterated that the bids were made in accordance
with the rules framed under Coonoor/Coimbatore
Tea Traders Association. It is pertinent to note that
rules were amended in the year 1992 only after the
pronouncement of judgment reported in 113 STC
53 (Moti & Co., v. State of Tamil Nadu) holding
the auction sales as local sales. It is to be noted that
rules which defeat the provisions of law is non est
and the rules framed must be in consonance with
the existing provisions of law. The question of
inter- state sale is to be determined in the light of
the statutory provisions enumerated in section 3 of
the CST Act and amended rule 21(a) of Tea Trade
Association stipulates auction by out of State
buyers as inter-state sale, which was not in
consonance with the express provision of the
statutory law. Nothing prevents the buyer from out
of State to bid in auction, to take delivery of goods
by himself and transport the goods as its own
goods from the State or sell it to others within the
State or use it within the State. The fact that the
broker agreed to issue delivery order with Form
XX by itself would not establish an inseverable
link between the movement and the sale. Further
the goods sold to the buyer agent on auction who
in turn dispatch the same to his principals in
another State would not characterize as inter-state
sale. The self serving rules framed by the
Coonoor/Coimbatore Tea Traders Association
would at the most be helpful to confirm the sale by
the broker and it cannot dictate the terms and
supersede the express provision of law to
determine the character of the sale.
27. Viewing the fact of the case in the light
of the discussions made supra, deciding the same
with the ratio of the judicial decision, it is
concluded that there was no inter connection
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015between the auction sale and movement of goods.
Further the Coonoor/Coimbatore Tea Trade
Association rules relied upon by the Id. Appellate
Assistant Commissioner which has an overriding
effect loses its legal effect to determine the issue of
sale. The property in the goods can pass either
before or after the movement of goods. In other
words, the property in goods can pass from the
seller to the purchaser in either of the two States.
What is material is that the sale itself must
occasion the movement of goods. When these facts
are ignored and the Id. Appellate Assistant
Commissioner has considered the case from
different angle, the only conclusion that is possible
is that the decision of the Id. Appellate Assistant
Commissioner is perverse which requires
interference by way of appeal. The order of the
revisional authority suffers no infirmity and
therefore sustained. Consequently. the order of the
Id. Appellate Assistant Commissioner is set aside.”
4. As far as tax cases are concerned, they arise out of the common
order passed by the Sales Tax Appellate Tribunal, (Additional Bench)
Coimbatore dated 03.02.2015 in CTSA.Nos.32, 38, 39 and 63 of 2008.
These tax cases are confined to the following assesses:-
T.C/W.P. Name of the Assessee Impugned Order
T.C.No.77/2015 J.Thomas & Company (P) CTSA.No.32 of 2008
Limited, Coonoor. dated 03.02.2015
T.C.Nos.78 & 80/2015 Forbes & Company (Tea CTSA.No.38 & 63 of
Brokers), Coonoor. 2008 dt. 03.02.2015
T.C.No.79/2015 Paramount Tea Marketing CTSA.No.39 of 2008
(P) Limited, Coonoor. dt.03.02.2015https://www.mhc.tn.gov.in/judis
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
5. These tax cases were admitted on 26.10.2015 for answering the
following substantial questions of law:-
“i) Whether the auction sales effected by the
appellant in accordance with the Tea Trade
Association of Coimbatore, C.S.T Sales Manual
for Tea Auctions and the Coonoor Tea Trade
Association, C.S.T. Sales Manual for Tea
Auctions were inter-State sales taxable under the
Central Sales Tax Act, 1956 or local sales taxable
under the Tamil Nadu General Sales Tax Act,
1959?
(ii)Whether the Tribunal has committed an error
of law in completely disregarding the evidence
before it which established that the auction sales
effected by the appellant were only inter-State
sales taxable under the Central Sales Tax Act,
1956?
(iii)Whether the finality attained by the original
order of assessment dated 15.11.2001 passed
under the CST Act, 1956 constituted a bar of
jurisdiction for assessing the auction sales already
assessed by that order dated 15.11.2002 under the
TNGST Act, 1959?”
6. The dispute in these cases arise on account of the tax liability of
the petitioners under the provisions of the Tamil Nadu General Sales Tax
Act, 1959. In W.P.No.2322 of 2012, the petitioner in TCA.Nos.78 & 80
of 2015 namely Forbes & Company (Tea Brokers), Coonoor has
challenged the impugned Assessment Order dated 30.09.2011 passed by
the first respondent in W.P.No.2322 of 2012 whereby taxable turnover of
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
the said Petitioner has been revised.
7. By the impugned order, it has been held that the sale of tea by
auction at auction centres in Ooty and Coimbatore were local sales and
therefore liable to be assessed under Tamil Nadu General Sales Tax Act,
1959 only and therefore deducting the Central Sales Tax already paid
under Central Sales Tax Act, 1956, the balance was held payable since
the proposal for waiver of the balance of tax due was rejected b the
government.
8. It is the case of the respective petitioners that without revising
the assessments completed under the provisions of Central Sales Tax Act,
1956, the machinery prescribed under Section 32 and/or Section 34 of
Tamil Nadu General Sales Tax Act, 1959, as made applicable to
assessments under the provisions of the Central Sales Tax Act, 1956 by
virtue of Section 9(2) of Central Sales Tax Act 1956 cannot be revised,. It
is submitted that the assessments that were completed by the Commercial
Tax Officer (CTO) under the provisions of the Central Sales Tax Act,
1956 cannot be whittled down .
9. On this count, the specific case of the petitioners in these tax
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
cases is that the proceedings initiated to revise the assessment were
without jurisdiction. In this connection, a reference was made to few
decisions of the Courts. It was submitted that not only assessment under
Central Sales Tax Act, 1956 had created a vested righting favour of the
respective petitioners but issue estoppal also operated against the
defendant.
10. It is submitted that since the assessment were completed under
the provisions of the Central Sales Tax Act, 1956 they cannot be
disturbed. Therefore, the impugned order of STAT and Assessing Officer
sustaining the liability on the respective petitioners under the provisions
of the Tamil Nadu General Sales Tax Act, 1959 are liable to be dropped
as without jurisdiction.
11. On merits, the learned counsel for the petitioner further
submits that the transactions between the respective petitioners and the
agents of the buyers were under the agies of the Tea Trade Association of
Coimbatore and Coonoor Tea Trade Association.
12. It is submitted that the transaction were indeed Inter-State Sale
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
within the meaning of Section 3 of the Central Sales Tax Act, 1959 and
therefore the Commercial Tax Officer, as an Assessing Officer under the
provisions of the Tamil Nadu General Sales Tax Act, 1959 could not treat
the same as Intra-State transactions taxable under the provisions of the
Tamil Nadu General Sales Tax Act, 1959 . A specific reference was made
to the amendments in the above rules of the respective Tea Association.
13. It is submitted that the similar amendments were made to the
Rules for the Tea Trade Association of Coimbatore with effect from
24.11.1996. In support of the plea that the transactions were indeed
Inter-State Sale and were liable to tax under the provisions of Inter-State
sale, the learned counsel for the petitioner drew attention to the following
cases :-
“i) Commissioner of Sales Tax vs.
Bakhtawar Lal Kailash Chand Arhti, (1992) 87
STC 196(SC);
ii) Co-operative Sugars (Chittur) Ltd vs.
State of Tamil Nadu, (1993) 90 STC 1 (SC);
iii) The State of Bihar and another vs.
Tat Engineering and Locomotive Co., Ltd,
(1971) 27 STC 127(SC): (1970) 3 SCC 697.,
iv) Moti & Co. vs. State of Tamil Nadu,
(1999) 113 STC 53;
v) Carritt Morn & Co., (P) Ltd., vs.
Deputy Commissioner (CT), Coimbatore,
(2003) 131 STC 29 (TNTST);
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
vi) W.A.Shah Enterprises (P) Ltd., vs.
District Forest Officer and Others, (2003) 129
STC 299(Mad.);
vii) Karnataka Soaps and Detergents Ltd
vs. District Forest Officer, Sathyamangalam
and Others, (2005) 140 STC 112(Mad.);
viii)Consolidated Coffee Ltd., vs. Coffee
Board, Bangalore( and Other cases), (1980) 46
STC 164(SC);
ix) Zackria Sons Private Limited vs.
State of Madras ( 1964) 16 STC 136 (Mad.);
x) Agricultural Market Committee vs.
Shalimar Chemical Works Ltd., (1997) 5 SCC
516;
xi) Controller of Estate Duty, Gujarat I,
Ahmedabad vs. M.A.Merchand, 1989 Supp (1)
SCC 499 and
xii) Commissioner of Income Tax
(Central)-I, New Delhi vs. Vatika Township
Private Limited (2015) 1 SCC 1.”
14. Learned Additional Advocate General appearing for
Respondents submitted that the impugned order is well reasoned and so
does not warrant interference.
15. Defending the impugned order, the learned Additional
Advocate General for the respondent-Commercial Tax Department
submitted that the transaction between the petitioner and their principal,
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
with the agents was that of the local sale. The sale was completed upon
the fall of the hammer and thus it was local sale under the provisions of
the Central Sales Tax Act, 1956. In this connection, drawn attention to
Section 4 of the Central sales Tax Act, 1956.
16. It was argued by the Petitioner that the sales transactions in
question qualify as inter-State sales based on several key factors. First,
the goods were purchased by buyers who were inter-State dealers, and
there was either an explicit or implied contractual obligation for the
goods to be moved out of Tamil Nadu. The petitioner contends that the
movement of goods was integral to the sale, inseparable from the
transaction itself. Although the auctions were conducted in Tamil Nadu,
the buyers intended to transport the goods to their respective States as
part of the contractual arrangement. The petitioner emphasizes that the
transportation of goods was intrinsic to the sale, thereby rendering the
transactions inter-State in nature.
17. Furthermore, the petitioner asserts that amendments to auction
rules cannot override statutory provisions or established legal principles
concerning inter-State sales. The critical question, according to the
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
petitioner, revolves around whether the movement of goods was an
obligation under the contract of sale (indicating an inter-State sale) or
whether it was an independent action by the buyer after taking possession
(indicating a local sale). Ultimately, the petitioner argues that the
movement of goods formed part of a single, indivisible transaction,
making the sale inter-State, with the transportation being a necessary
element to fulfill the contractual obligation.
18. On the other hand, the Revenue contends that the sales were
completed within Tamil Nadu, as the delivery of goods occurred at the
auction site, which they argue renders the transactions local sales. They
assert that the movement of goods out of Tamil Nadu was an independent
action initiated by the buyers, unrelated to the sale itself. The Revenue
highlights the terms of the auction, including the “ex-godown”
conditions, as evidence that the sales were local in nature. They further
argue that the facilitation of transportation by the petitioner was merely
an independent trade accommodation and did not transform local sales
into inter-State sales. According to the respondents, the buyers arranged
for transportation of the goods after taking delivery within the state, and
the seller’s responsibility ended with delivery within Tamil Nadu. As
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015such, the subsequent movement of goods was incidental and not integral
to the sale. The respondents also contend that the petitioner failed to
demonstrate that the movement of goods was an essential part of the
transactions, reinforcing their position that the sales were local in nature.
19. It is submitted that no vested rights or equitable rights can be
inferred in favour of the petitioner because merely because the
assessment was completed earlier under Central Sales tax, 1956 for the
assessment years covered by the respective tax cases. It is further
submitted that such vested rights do not extend issuance of documents.
20. It is also further submitted that the tax that has been demanded
for the respective assessment years are only exempting the tax already
paid under the Central Sales Tax Act and therefore cannot be said there
was any right that was vested with the petitioner.
21. That apart, the learned Additional Advocate General submits
that the impugned order of the Tribunal is well reasoned and does not
warrant any interference and therefore the Tax cases are liable to be
dismissed on the same count, and the writ petition is also liable to be
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
dismissed.
22. We have considered the arguments advanced by the learned
counsel for the petitioner and the learned Additional Advocate General
representing the respondent in the Commercial Tax Department in these
tax cases as well as in the writ petition.
23. The auction sale is governed by Section 64 of the Sale of
Goods Act, 1930. Section 64 of the Sale Goods Act, 1930 reads as
under:-
“Section 64: Auction sale. —In the case of
a sale by auction-
(1)Where goods are put up for sale in lots, each
lot is prima facie deemed to be the subject of a
separate contract of sale;
(2)the sale is complete when the auctioneer
announces its completion by the fall of the
hammer or in other customary manner; and,
until such announcement is made, any bidder
may retract his bid;
(3)a right to bid may be reserved expressely by
or on behalf of the seller and, where such right is
expressly so reserved, but not otherwise,
the seller or any one person on his behalf may,
subject to the provisions hereinafter contained,
bid at the auction;
(4)where the sale is not notified to be subject to a
right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015any person to bid at such sale, or for the
auctioneer knowingly to take any bid from the
seller or any such person; and any sale
contravening this rule may be treated as
fraudulent by the buyer;
(5)the sale may be notified to be subject to a
reserved or upset, price;
(6)if the seller makes use of pretended bidding to
raise the price, the sale is voidable at the option
of the buyer”.
24. The auction sale was held by the respective petitioners under
the aegis of the Coonoor and Coimbatore Tea Trade Association in
Tamilnadu. The inter-state buyers purchased tea at the auction held by the
respective petitioners in Tamilnadu.
25. The inter-state buyers were represented by their respective
Agents/Brokers during the auction by the respective petitioners in
Tamilnadu. The Agents/Brokers offered auction bid in Tamilnadu during
auction on behalf of their respective inter-state buyers.
26. Amendments were made to Rule 9 and 29 of the Coonoor Tea
Trade Association on 04.06.1992, The rules before and after amendment
read as under :-
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015Rule 9 Part IV-Method of Rule 9 Part IV-Method of
concluding a sale: (Existing) concluding a sale: (As amended
on 4-6-1992)
“Subject to the reserve or upset “Subject to the reserve or upset
price the highest bidder shall be price the highest bigger shall be
the buyer. A sale shall be the buyer. An offer of the bidder
completed when the auctioneer shall stand accepted when the
announces its completion by the auctioneer announces its
fall of the hammer.” acceptance by the fall of the
hammer and after call over, an
appropriate sale contract is
confirmed and issued by the
broker in prescribed form for
sale on local, Inter-State or
export basis as the case may be.
Property in auctioned goods
will pass to the buyer on
delivery of the goods to the
common carrier.”
2. ADDITIONS TO RULE 21 PART IV:
(Adopted at the EGM on 4-6-1992)
b. To insert the following Rule immediately at the end
of Rule 21
i. Rule 21 (a): Inter-State Sale:
(a) The buyers registered with the Coonoor Tea Trade
Association shall also be entitled to bid for purchases
of auction teas on Inter-State sale basis for and on
behalf of their out of State Principal Buyers at the time
of auction. For this purpose, a registered buyer shall
be required to announce the place of destination for
the movement to the Principal Buyer at the time ofhttps://www.mhc.tn.gov.in/judis
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015acceptance of the bid. This shall also be confirmed by
him at the time of call over by submitting an
Undertaking-cum-Declaration to such effect in the
form specified in Appendix “G” the terms of which
will form Part of the Sale Contract to be issued by the
broker. Such a sale shall stand fumed on satisfaction
of the following terms by the parties concerned.
(i)That a bidding registered buyer intending to represent
and act on behalf of a principal buyer situated outside
Tamil Nadu, shall arrange to furnish the follow ing
document to the broker members and the Coonoor Tra
Trade Assiciation and get written approcal from the
CTTA before he starts buying for Inter- State
Principals. The CTTA shall collect a special
subscription of Rs. 400/- per annum from the bidder
buyer for each of his principal buyers.
(i)That a bidding registered buyer intending to represent
and act on behalf of a principal buyer situated outside
Tamil Nadu, shall arrange to furnish the follow ing
document to the broker members and the Coonoor Tra
Trade Assiciation and get written approcal from the
CTTA before he starts buying for Inter- State
Principals. The CTTA shall collect a special
subscription of Rs. 400/- per annum from the bidder
buyer for each of his principal buyers.
(i)(1) An authorisation signed and executed by the
Principal Buyer appointing the bidding registered
buyer to act as his/her/their agent for purchase of
auction tea on Inter-State sale basis.
(2) Duly notarised copy of Salex Tax Registration
Certificates of the principal buyer issued to him by thehttps://www.mhc.tn.gov.in/judis
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015local Sales Tax Act and the Central Sales Tax Act.
(ii)That the bidding registered buyer, after having
confirmed (in Appendix ‘G’) the place of Inter-State,
shall be obliged to despatch the goods and produce
documentary proof of such movement of auction tea to
the declared destination outside Tamil Nadu. On
receipt of buyer’s written undertaking-cum-
Declaration about outside state destination (in
Appendix ‘G’), the Broker shall arrange to issue a sale
contract in the name of the principal buyer, through
the bidding registered buyer, naming the destina- tion
of movement, charging CST at the rate applicable
against ‘C’ Form.
(iii)The bidding registered buyer shall be liable to pay to
the broker the sale contract price, applicable CST and
‘C’ Form along with payment on or before the prompt
date, but in case of difficulty. ‘C’ Form can be given
not later than 20 days from the date of payment.
(iv)On payment of sale contract price by the bidding
registered buyer to the broker, the broker will issue a
Delivery Order along with Form ‘XX’ and the
auctioned tea shall be delivered to the common carrier
arranged / nominated by the buyer for movement to
the declared destination of the principal buyer. The
bidding registered buyer shall move the auction teas
from warehouse to the declared destination of the
principal buyer.
(v)That the bidding registered buyer acting for the
principal buyer shall undertake due compliance of all
the terms and conditions of Inter-State sale by the
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Principal buyer in respect of payment of sale price,
issue of valid ‘C’ Form, etc. and in the event of
noncompliance, the bidding registered buyer shall be
responsible and liable to indemnity the broker for all
costs, liabilities and consequences thereof.
vi)The sellers and buyers concerned shall furnish
sufficient security either in the form of Bank
Guarantee favouring the broker concerned or cash
deposit with the CTTA to adequately safeguard the
interest of the broker members of CTTA.
27. As the Agent/ Brokers acted on behalf of their principal for
purchase of the goods within the State, it is deemed to be a local sale and
would attract levy of tax under the provisions of the Local Sales Tax Act,
in the present case the Tamil Nadu General Sales Tax Act, 1959.
28. For instance, if the goods are purchased by a person or his
Broker/Agent in an auction sale that was completed in the State of Tamil
Nadu, it is deemed to be taxable under the provisions of Tamil Nadu
General Sales Tax Act, 1959.
29. There is no dispute that the sale was completed in Tamil Nadu
and the delivery was also made by the petitioner to the agents of the
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Inter-State dealers who placed their bid through their Agents/Dealers in
the auction conducted by the petitioner in the state of Tamil Nadu. In
these sale transactions, the petitioner is no doubt the dealer therefore is
liable to tax.
30. The question that falls for our consideration is whether the
transaction between the Petitioner and the Agent/Brokers, acting on
behalf of the respective Principals under the aegis of the Coonoor and
Coimbatore Tea Association, falls within the purview of the expression
“Inter-State Sale” as defined under Section 3 of the Central Sales Tax
Act, 1956.
31. As per Section 3 of the Central Sales Tax Act, 1956, a sale or
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 a transfer of documents of
title to the goods during their movement
from one State to another.”
32. There must be a sale that occasions the movement of goods. A
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
sale or purchase of goods that causes the movement of goods from one
State to another, or is effected by a transfer of documents of title to the
goods during their movement from one State to another, constitutes an
inter-state sale. Clause (b) of Section 3 addresses situations where the
sale or purchase is effected by a transfer of documents of title to the
goods during their transit from one State to another. Section 3(b) applies
when the sale takes place while the goods are in transit between States.
33. As far as the situation that is contemplated Section 3(a) of
Central Sales Tax Act, 1956 is concerned, the sale or purchase has to be
integrally connected with the event of movement of goods from one State
to another state if one were to go by Coonoor and Coimbatore Manual,
the Manual was amended in the year 1992 to treat the auction in favour
of the interstate buyers as Inter-State sale as the transaction contract
comes under with purview of Section 3 of the Central Sales Tax Act,
1956.
34. In the instant case, the respective petitioners are registered
dealers under the provisions of both the Tamil Nadu General Sales Tax
Act, 1959, and the Central Sales Tax Act, 1956. These petitioners acted
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
as auctioneers for various principals and sold tea in auctions conducted
by them on behalf of their principals, where buyers located outside the
State participated in the auctions through their Brokers/Agents. The
purchasers from outside the State had appointed local Brokers/Agents to
participate in the tea auctions and place bids on their behalf.
35. As per the Agency Agreements between such Broker/Agents
and their Principals located outside the State, the Broker/Agents were
required to purchase tea at the Tea Auctions conducted in Coonoor and
Coimbatore by the respective Petitioners and arrange for their
transportation on confirmation of sale in favour of their principals
outside the State of Tamil Nadu.
36. The Agency Agreement between the Broker/Agents and their
Principals stipulated that the Broker/Agent had to ensure that the
purchase of Tea at the auctions held by the petitioners were on Central
Sales Tax basis.
37. In fact, the Broker/Agent also had executed an undertaking-
cum-Declaration (Appendix-G to the Manual) undertaking that the Tea
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
purchased by them on behalf of their principals would be despatched
immediately to their Principals located outside the State by delivery via
common carrier.
38. It appears that the petitioners also issued the necessary delivery
orders to the Brokers/Agents of the buyers to facilitate the transportation
of the auctioned tea to buyers outside the State. The delivery orders
directed the warehouses, where the tea was stored, to release the tea to
the person presenting such orders.
39. It further appears that, after the completion of the auctions as
per the respective manual, the auctioned tea was transported to buyers
outside the State using C-Forms to establish that the sale constituted an
inter-state sale, thereby attracting sales tax at a concessional rate under
the provisions of the Central Sales Tax Act, 1956.
40. Thus, the assessments were completed by the Assessing Officer
namely the Commercial Tax Officer accepting the transaction as an Inter-
State Sale attracting Sales tax at concessional rate under the provisions of
the Central Sales Tax Act, 1956 which was revised by the same
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Commercial Tax Officer holding that the petitioners were liable to pay
tax under the provisions of TNGST Act, 1956 , as sale had taken place
within the State of Tamil Nadu.
41. The Appellate Commissioner reversed the decision of the
Commercial Tax Officer for the respective assessment years which
decisions have been subsequently reversed by the Tribunal.
42. Further it was submitted that no additional amount has been
demanded from the respective petitioners in the respective assessments
that were completed for the assessment year 1999-2000 in W.P.No.2322
of 2022.
43. Under Section 4 of the Central Sales Tax Act, 1956 when a sale
or purchase of goods is determined in accordance with sub-section (2) to
take place inside a State, such sale or purchase shall be deemed to have
taken place outside all other States. Section 4 of the Central Sales Tax
Act, 1956 is however subject to Section 3 of the Central Sales Tax Act,
1956. Section 3 and Section 4 of the Central Sales Tax Act, 1956 reads
as under :-
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015Section 3 of the Central Section 4 of the Central Sales
Sales Tax Act, 1956 Tax Act, 1956
A sale or purchase of 1) Subject to the provisions
goods shall be deemed to contained in section 3, when a
take place in the course of sale or purchase of goods is
inter-state trade or determined in accordance with
commerce if the sale or sub-section
purchase – (2) to take place inside a State,
such sale or purchase shall be
(a)occasions the movement deemed to have taken place
of goods from one State to outside all other States.
another; or
(2) A sale or purchase of goods
(b)is effected by a transfer shall be deemed to take place
of documents of title to the inside a State, if the goods are
goods during their within the State—
movement from one State
to another. (a)in the case of specific
or ascertained goods, at
Explanation – 1. Where the time the contract of
goods are delivered to a sale is made; and
carrier or other bailee for (b) in the case of
transmission, the unascertained or future
movement of the goods goods, at the time of
shall, for the purpose of their appropriation to
clause(b), be deemed to the contract of sale by
commence at the time of the seller or by the
such delivery and buyer, whether assent of
terminate at the time when the other party is prior
delivery is taken from such or subsequent to such
carrier or bailee. appropriation.
Explanation – 2. Where
Explanation — Where there
the movement of goods
is a single contract of sale or
commences and terminates
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
in the same State it shall purchase of goods situated at
not be deemed to be a more places than one, the
movement of goods from provisions of this sub-section
one State to another by shall apply as if there were
reason merely of the fact separate contracts in respect
that in the course of such of the goods at each of such
movement the goods pass places.
through the territory of any
other State.
Explanation – 3. Where the
gas sold or purchased and
transported through a
common carrier pipeline or
any other common
transport or distribution
system becomes co-
mingled and fungible with
other gas in the pipeline or
system and such gas is
introduced into the
pipeline or system in one
State and is taken out from
the pipeline in another
State, such sale or
purchase of gas shall be
deemed to be a movement
of goods from one State to
another.
44. Any subsequent transportation of goods outside the State by
the agent on behalf of the principal is to be considered an independent
activity and not part of the sale transaction that was already complete.
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
45. Thus, prima-facie,it has to be held that the sale has taken place
in the State of Tamil Nadu and therefore the petitioners were liable to
local sales tax under the provisions of the Tamil Nadu General Sales Tax
Act, 1959.
46. However, body of case laws cited by the learned counsel for
the petitioner impels us to hold other wise. In Controller of Estate
Duty, Gujarat.I, Ahmedabad vs. M.A.Merchant, 1989 Supp (1) SCC
499 the Hon’ble Supreme Court was held that if an assessment has
already been made and completed, the assessee cannot be subjected to re-
assessment unless the statute permits that to be done. However, this
decision was rendered in the context of subsequent legislation. Thus, the
Commercial tax Officer.
47. In Hope Plantations Ltd. v. Taluk Land Board, Peermade
(1999) 5 SCC 590, the Hon’ble Supreme Court court observed that the
principles of estoppel and res judicata are based on public policy and
justice. It is observed that while res judicata prevents parties from re-
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
litigating the same issue, even if the earlier determination is wrong, it
ensures that once proceedings attain finality, the parties are bound by the
judgment. The Court further observed that doctrines of “cause of action
estoppel” and “issue estoppel” prevent re-litigation of issues necessary
for the earlier decision.
48. It was noted that these principles, of common law origin,
apply in subsequent proceedings or suits between the same parties. The
court referred to Section 11 of the Code of Civil Procedure which
codifies res judicata, but its scope extends beyond just this provision.
The principles of estoppel and res judicata apply equally to proceedings
before administrative authorities. However, assessment under the CST,
1956 will not automatically mean issue estoppel will operate against the
department when it questions assessments under the TNGST Act, 1959.
49. In Commissioner of Sales Tax v. Bakhtawar Lal Kailash
Chand Arhti (1992) 87 STC 196 (SC), the respondent purchased goods
both for his own account and for his principals located outside the State
of Uttar Pradesh. The dispute arose over the payment of purchase tax on
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
goods bought from agriculturists who were exempt from tax under the
Uttar Pradesh Sales Tax Act. The State sought to levy purchase tax, but
the respondent contended that the transaction constituted an inter-State
sale under Section 3 of the Central Sales Tax Act, 1956.
50. The Hon’ble Supreme Court ruled that the purchases were
inter-State transactions, as the goods were purchased for principals
outside the State of Uttar Pradesh and dispatched to those principals
within three days of purchase. The Court held that the movement of
goods was an integral part of the transaction, even if not explicitly stated
in the contract, as it was implied by the conduct of the parties. The Court
referred to the reasoning provided in Balabhagas Hulaschand v. State
of Orissa (1976) 2 SCC 44 and used the illustrations therein to support
its conclusion.
Case No.I-A Case No.II-A Case No.III-B
A is a dealer in goods in A who is a dealer in B a purchaser in
State X and enters into State X agrees to sell State Y comes to
an agreement to sell his goods to B but he State X and purchases
goods to B in State X. books the goods from the goods and pays the
In pursuance of the State X to State Y in his price thereof. After
agreement A sends the own name and his having purchased the
goods from State X to agent in goods he then books
State Y by booking the State Y receives the the goods from
goods in the name of B. goods on behalf of A. State X to State Y in his
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
In such a case it is Thereafter the goods own name. This is also
obvious that the sale is are delivered to B in a case where the sale
preceded by the State Y and if B accepts is purely an internal
movement of goods them a sale takes place. sale having taken
and the movement of It will be seen that in place in State X and
goods being in this case the the movement of
pursuance of a movement of goods is goods is not
contract which neither in pursuance occasioned by the sale
eventually merges into of the agreement to but takes place after
a sale the movement sell nor is the the property is
must be deemed to be movement occasioned purchased by B and
occasioned by the sale. by the sale. The seller becomes his property.
The present case himself takes the
clearly falls within goods to State Y and
this category. sells the goods there.
This is, therefore,
purely an internal sale
which takes place in
State Y and falls
beyond the purview of
Section 3(a) of the
Central Sales Tax Act
not being an inter-
State sale.
51. In Balabhagal vs state of Orissa (1976) 2 SCC 44, the court
in para 15 observed as under:-
“15.(2) That the following conditions must be
satisfied before a sale can be said to take place in the
course of inter-State trade or commerce:
i.that there is an agreement to sell which contains a
stipulation express or implied regarding the movement of
the goods from one State to another;
ii.that in pursuance of the said contract the goods in
fact move from one State to another; and
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015iii.that ultimately a concluded sale takes place in the
State where the goods are sent which must be different from
the State from which the goods move.”If these conditions are satisfied then by virtue of Section 9
of the Central Sales Tax Act it is the State from which the
goods move which will be competent to levy the tax under
the provisions of the Central Sales Tax Act. This
proposition is not, and cannot, be disputed by the learned
Counsel for the parties.”
52. Though the test was laid down by the Hon’ble Supreme Court
in Balabhagal vs state of Orissa (1976) 2 SCC 44, yet in Commissioner
of Sales Tax v. Bakhtawar Lal Kailash Chand Arhti, court held that the
sale through within the state was an inter-state sale.
53. In Co-operative Sugars (Chittur) Ltd. v. State of Tamil
Nadu (1993) 90 STC 1 (SC), the Tamil Nadu Sales Tax Authority
imposed purchase tax under the Tamil Nadu General Sales Tax Act, 1959
on sugarcane purchased by the appellant in Coimbatore and Pollachi
Taluks, contending the transactions were intra-state sales. The appellant
argued the sales qualified as inter-State transactions under Section 3(a) of
the Central Sales Tax Act, 1956 and were thus exempt from Tamil Nadu’s
tax. The High Court upheld the tax, stating the transactions were local
sales as the goods’ property passed in Tamil Nadu, and subsequent
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transport to Kerala was irrelevant.
54. The Hon’ble Supreme Court however overturned this
judgment, ruling the purchases were inter-State in nature. It reasoned that
the movement of sugarcane from Tamil Nadu to Kerala was integral to
the contract, with no break between sales, purchase and transport. The
movement of goods being an incident of the sale classified it as an inter-
State transaction, irrespective of where the sale occurred.
55. In State of Bihar v. TELCO (1970) 3 SCC 697, the Supreme
Court addressed the issue as to whether sales by the respondent, a
manufacturer of trucks, bus chassis, and spare parts, to dealers outside
Bihar were inter-State sales under Article 286(2) of the Constitution,
thereby exempt from taxation under the Bihar Sales Tax Act, 1947.
56. There the respondent had agreements with dealers, assigning
them specific territories where they could sell the purchased goods and
prohibiting sales outside their assigned areas. Under the agreements, the
goods delivered to dealers in Bihar were required to be transported
outside the State. The case focused on the issue as to whether these sales
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
constituted inter-State trade or commerce during the specified period.
57. The Hon’ble Supreme Court held as under :-
“ii.13. If we apply the principles enunciated by this
Court in the decisions referred to above to the facts of this
case, it is obvious that the sales with which we are
concerned in this case are sales in the course of inter-State
trade. The dealers were required to move the trucks, buses
chassis and other spare parts purchased by them from the
State of Bihar to places outside Bihar. They are so
required by the terms of the contracts entered into by them
with the assessee. They would have committed breach of
their contracts and incurred the penalty prescribed in their
dealership agreements, if they had failed to abide by the
term requiring them to move the goods outside the State of
Bihar.
iii.17…………… Herein under the terms of the
contracts of sale, the purchasers were required to remove
the goods from the State of Bihar to other States. Hence
the sales with which we are concerned in this case must be
held to be sates in the course of interstate trade or
commerce.”
58. The Hon’ble Supreme Court examined the role of goods
movement in determining the nature of a sale and whether sales to
dealers outside Bihar were inter-State sales under Article 286(2) of the
Constitution. It was held that the movement of goods as part of a sale
was a key determinant for inter-State transactions, and sales were deemed
inter-State as the contracts required goods to be moved outside Bihar,
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
making the movement integral to the transaction.
59. In Moti and Co. v. State of Tamil Nadu (1999) 113 STC 53
(Mad), the Division Bench of the Madras High Court addressed whether
sales of tea purchased in Coonoor auctions and sold through brokers to
buyers outside Tamil Nadu qualified as inter-State sales. The appellant
claimed the sales were local, asserting that the goods were delivered ex-
godown at Coonoor, the broker issued delivery orders, and transport
charges were reimbursed by the out-of-state buyer. The appellant
contended that arranging transportation was a trade accommodation, and
the sale was completed within Tamil Nadu. The assessing officer,
however, treated the transactions as inter-State sales because the
appellant paid the lorry freight. While the appellate authority held the
sale was complete within the state, the Joint Commissioner restored the
assessing officer’s order.
60. The Division Bench upheld the finding of the Joint
Commissioner, stating:
iv.”15. The question as to whether a particular
sale is an inter-State sale is a question of fact to be
determined in the light of the statutory provisions. That
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015question can also be regarded as a mixed question of
law and fact in so far as the correct application of the
relevant principles of law to these facts are concerned. A
consideration of the factual background in which the
decisions were rendered in other cases is not of much
assistance in determining as to whether a particular sale
is an inter-State sale or not. The essential tests to be
applied are well-settled. Unless the movement and the
sale form an integral whole, the sale cannot be an inter-
State sale. A sale which ostensibly takes place within the
State can be an inter-State sale if the movement is
essential and inevitable, or necessary incidental, part of
the sale transaction as held by the Supreme Court in the
decision reported in [1993] 90 STC 1 [Co-operative
Sugars (Chittur) Ltd. v. State of Tamil Nadu). In that
case, sugar purchased by the agent of the sugar factory
situated in Kerala was normally be required to be
transported to Kerala in terms of the Government Order,
and could not have been diverted within the State. That
sale was held to be an inter-State sale as there was an
obligation on the buyer to whom the goods had been
sold out to take the goods any of the State to its factory
in the neighbouring State.”
61. The Court further clarified that if the buyer arranged the
movement of goods independently, it would not form part of the sale
transaction. Services provided by the seller to facilitate transport would
not convert a local sale into an inter-State sale. The Tribunal, relying on
this decision, held that the amendments made to the Central Sales Tax
Manual for Tea Auctions were non est if they conflicted with existing
legal provisions.
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
62. In DCM Limited v. Commissioner of Sales Tax, Delhi (2009)
21 VST 417 (SC), the Supreme Court examined whether sales of
chemicals by DCM Limited to purchasing dealers were inter-State sales
under the Central Sales Tax Act. The Court applied the determinative
test: whether the purchasing dealers were contractually obligated to
remove the goods from Delhi to their assigned territories outside Delhi
and whether such movement was integral to the contract.
63. Under the contracts, the purchasing dealers were assigned
exclusive territories outside Delhi where they were obligated to sell the
chemicals. Key clauses established that:
i.Movement of goods to assigned territories was an
essential condition of the contract.
ii.Dealers were required to pay freight and sales tax if
the assessee transported the goods.
iii.Prices for sales in different territories were fixed
by DCM Limited.
iv.Dealers submitted monthly sales and market
reports to the assessee.
64. The Court rejected DCM’s argument that it had no control over
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
the goods post-delivery, emphasizing that the contractual obligation to
transport and sell in specific territories outside Delhi indicated inter-State
movement as part of the transaction.
65. In Carritt Moran & Co. (P) Ltd. v. Deputy Commissioner
(CT), Coimbatore (2003) 131 STC 29 (TNTST), the Hon’ble Tamil
Nadu Sales Tax Tribunal dealt with the classification of transactions
under local and central sales tax laws. It was held that transactions
involving goods moved to another state were taxed under the Central
Sales Tax Act.
66. In W.A. Shah Enterprises (P) Ltd. v. District Forest Officer
(2003) 129 STC 299 (Mad), the Hon’ble Madras High Court addressed
whether the auction sale of timber was an inter-State sale or local sale. It
was held that the sale was deemed local, as the transaction concluded
within the state upon the fall of the hammer, and there was no contractual
obligation linking the sale with the movement of goods out of the state.
67. In Karnataka Soaps and Detergents Ltd. v. District Forest
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
Officer, Sathyamangalam & Others (1980) 3 SCC 358, the Hon’ble
Supreme Court focused on the point of sale and the passing of property
in goods sold at auctions. It was held that the property in goods does not
pass at the fall of the hammer but upon fulfillment of conditions such as
full payment, weighment, and setting apart of goods for delivery.
68. In Consolidated Coffee Ltd. v. Coffee Board, Bangalore
(1980) 46 STC 164 (SC), the Hon’ble Supreme Court examined the sale
of agricultural products and the nature of their movement for taxation
purposes. It was held that transactions involving the movement of goods
across states were deemed inter-State. Additionally, the court clarified
that property passes to the purchaser upon acceptance of the bid due to
Section 20 of the Sale of Goods Act, 1930, and not Section 64(2).
69. In Zackria Sons Private Limited v. State of Madras (1964)
16 STC 136 (Mad.), the Hon’ble Madras High Court dealt with the issue
of whether an auctioneer can be deemed a “dealer” under the Madras
General Sales Tax Act, 1959. It was held that movement of goods due to
contractual obligations amounted to inter-State sales. However,
auctioneers are not automatically “dealers”; this determination depends
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
on the contract and circumstances. Auctioneers function as agents for the
principal, and their actions must demonstrate business activity to attract
tax liability.
70. In Agricultural Market Committee v. Shalimar Chemical
Works Ltd. (1997) 5 SCC 516, the Hon’ble Supreme Court dealt with a
dispute over local versus inter-State sales in agricultural goods. It was
held that sales involving movement to another state were treated as inter-
State transactions. The transfer of property in goods depends on the
intention of the parties as per the Sale of Goods Act, 1930. For specific
goods in a deliverable state, the title passes upon the formation of the
contract unless there is evidence of a contrary intention.
71. In K.G. Khosla & Co. v. Deputy Commissioner of
Commercial Taxes (1979) 2 SCC 242, the Hon’ble Supreme Court
examined whether goods supplied under a contract involving movement
across states qualify as inter-State sales. It was held that sales involving
mandatory movement of goods across states as part of contractual terms
are inter-State sales.
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
72. The learned counsel for the petitioner drew attention to the
above decisions in support of the above plea and to buttress the point that
the impugned assessments completed under the provisions of the Tamil
Nadu General Sales Tax Act, 1959 were without jurisdiction.
73. Further, the Respondent herein relied on Similipahar Forest
Development Corporation Ltd. v. State of Orissa (1995) 96 STC 627
(Ori), wherein the Hon’ble Orissa High Court dealt with the question of
whether the auction sale of timber in Orissa constituted inter-State trade
and it was held that the sale was local as the movement of goods out of
the state was not a result of a covenant in the sale contract but occurred
independently.
74. In Ashok Leyland Ltd. v. Union of India (1997) 105 STC
152 (SC), the Hon’ble Supreme Court examined whether the sale of a
vehicle was inter-State or local. It was held that the determination
depends on facts, such as the nature of the goods, the timing of
appropriation, and proof of movement occasioned independently of the
sale. The burden of proof lies on the dealer claiming inter-State status.
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
75. In McEntire v. Crossley Bros. Ltd. [1895-1899 All ER
Reprint 829], the Hon’ble Court of Appeal had an occasion to deal with
the concept of passing of property and reservation of the right of disposal
under English law. It was held that the importance of clear contractual
terms is paramount in determining when property in goods passes,
emphasizing that contractual clarity ensures certainty in such
transactions.
76. In Chowringhee Sales Bureau Ltd. v. State of West Bengal
([1961] 12 S.T.C. 535), the Hon’ble Calcutta High Court examined
whether auctioneers are liable for sales tax. It was held that an auctioneer
acting solely as an agent for a disclosed principal is not liable for sales
tax, as there is no direct sale contract between the auctioneer and the
buyer, making the principal the liable party.
77. In Benton v. Campbell, Parker & Co. Ltd. ([1925] 2 K.B.
410), the Hon’ble King’s Bench Division dealt with the extent of an
auctioneer’s authority and liability. It was held that the determination of
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
an auctioneer’s authority and liability depends on evidence, including the
auctioneer’s conduct, declarations, and surrounding circumstances, as
these factors establish the scope of their role and responsibilities.
78. In Hoe Kim Seing v. Maung Ba Chit (AIR 1935 PC 182), the
Hon’ble Privy Council had an occasion to address the decisive factor in
determining the transfer of property. It was held that the timing of the
transfer of property is determined by the intention of the parties, which is
inferred from the contract, conduct, and circumstances surrounding the
transaction.
79. In the light of the above discussions, we are bound by the
decisions of the Hon’ble Supreme Court as the ratio decendi of the
Hon’ble Supreme Court is the law of the land in terms of Article 141 of
the Constitution of India. Therefore, we are inclined to allow these tax
cases while answering the substantial questions of law in favour of the
petitioner.
80. Consequently, the impugned orders of the Tribunal reversing
the order of the Appellate Assistant Commissioner and the impugned
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
order of the Assessing Officer in W.P.No.2322 of 2012 are reversed.
81. In the result, all the tax cases and the writ petition are allowed.
No costs. Consequently, connected miscellaneous petitions are closed.
(R.S.K.J.,) (C.S.N.J.,)
20.09.2024
Index : Yes/No
Internet : Yes/No
Speaking : Non-Speaking Order
Neutral Citation : Yes/No
kkd
To
1. The Joint Commissioner (CT),
Coonoor.
2. The Sales Tax Appellate Tribunal
(Additional ) Bench, Coimbatore-18
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T.C.Nos.77 to 80 of 2015& W.P.No.2322 of 2015
R.SURESH KUMAR, J.
AND
C.SARAVANAN, J.
kkd
T.C.(Revision) Nos.77 to 79 of 2015
and W.P.No.2322 of 2012
and
C.M.P.Nos.14217 to 14219 of 2016
20.09.2024
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