1. Dispute over whether direct despatch of machinery components from one state to a work-site in another state constitutes an inter-State sale under the Central Sales Tax Act. (Para 20 , 22 , 23 , 28 )
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1996 Supreme(SC) 808
SUPREME COURT OF INDIA
B. P. JEEVAN REDDY, JJ
BHARAT HEAVY ELECTRICALS Limited
Vs.
Union of India
Decided on April 18, 1996
Important Points
Section 3 of the Central Sales Tax Act exclusively determines if a sale is inter-State, while Section 9(1) determines the state of levy based on where movement commences. Direct dispatch of goods to a work-site under a supply contract constitutes an inter-State sale taxable in the state of origin.
Subject
Sales Tax - INTER-STATE SALE
Act Referred
Headnote
Constitution of India – Article 136, 286, 336 – Granted in the special Leave Petitions – Almost in its entirety – Parliament may be law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause – Any law of a State shall, insofar as it imposes, or authorises the imposition – Tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce tax on the sale or purchase of goods, being a tax of the nature referred – BE subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify –Held, THERE can be dispute about the proposition that the question whether a particular sale is an inter-State sale or an intra-State sale is essentially a question of fact – It must be said, at the same time , that it is not a pure question of fact inasmuch as the facts of a given case have to be examined in the light of the provisions contained in Section 3 of the Central Sales Tax Act. The main reason for entertaining the present appeals under Article 136 of the Constitution is the grievance of BHEL that the same transaction of sale is being subjected not only to Central Sales Tax in more than one State but that the Orissa State is treating the very same transaction of sale as an intra-State sale and levying the Orissa State Sales Tax thereon – Grievance cannot be said to be not justified – Dispute is not only between BHEL and the States, it is also in a sense, a dispute between the States inter se – SO far as civil appeals arising from Special Leave Petitions are concerned, it is enough to direct that the proceedings impugned in these appeals shall remain stayed for a period of six months within which period court expect the Orissa State sales Tax Tribunal to render its decision pursuant to our Orders – Authorities will be entitled to proceed with the matter after the expiry of six months in accordance with law – These appeals are disposed of with the above direction – Order accordingly
Legal Category Hierarchy
Table of Contents
2. Whether direct despatch of components to a work-site constitutes an inter-State sale or a branch transfer, and whether such transactions are intra-State or inter-State sales. (Para 20 , 24 , 31 )
3. Section 3 determines if a sale is inter-State, while Section 9(1) determines the state of levy; direct despatch pursuant to a supply contract constitutes an inter-State sale. (Para 17 , 18 , 24 , 31 )
4. A sale occasioning movement of goods from one state to another is an inter-State sale under Section 3(a), taxable in the state where movement commences per Section 9(1). (Para 17 , 24 )
5. Direct despatches held as inter-State sales; directions issued for tax adjustment between states and remittance of certain matters to the Tribunal. (Para 26 , 27 , 33 , 34 )
6. How is an inter-State sale determined under the Central Sales Tax Act?
Under Section 3, a sale is deemed to be in the course of inter-State trade or commerce if it occasions 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. (Para 6 , 17 , 24 )
7. Which State is entitled to levy Central Sales Tax on an inter-State sale?
Pursuant to Section 9(1) of the Act and Article 269(2) of the Constitution, the tax is levied and collected in the State from which the movement of the goods commenced. (Para 4 , 11 , 16 , 17 , 24 )
8. Does the despatch of components to a work-site constitute an inter-State sale if they are part of a larger machinery contract?
Yes. If the movement is occasioned by a supply contract which is a contract of sale, the despatch of parts or components to a work-site in another state constitutes an inter-State sale, even if the contract describes the final assembled machinery. (Para 24 , 31 )
9. What is the legal distinction between a branch transfer and an inter-State sale in the context of machinery manufacture?
A branch transfer occurs when goods are moved between units of the same entity for incorporation into a larger system without a sale to a third party. Conversely, an inter-State sale occurs when the movement of goods is occasioned by a contract of sale to a purchaser. (Para 20 , 24 )
( 1 ) LEAVE granted in the special Leave Petitions.
( 2 ) THE Constitution (Sixth Amendment) Act, 1956 recast Article 286 of the Constitution almost in its entirety. It inserted sub-clause (g) in clause (1) of Article 269 and introduced clause (3) in Article 269. The Constitution (Forty-sixth Amendment) Act, 1982 substituted clause (3) of Article 286. As amended by Sixty and Forty-sixth Amendment Acts,
ARTICLE 286 reads :
"286 (1 ). No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place -
(A) outside the State; or
(B) in the course of the import of the goods into, or export of the goods out of, the territory of India,
(2) Parliament may be law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1 ).
(3) Any law of a State shall, insofar as it imposes, or authorises the imposition of,-
(A) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(B) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29a) of Article 366.
BE subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify".
( 3 ) CLAUSE (1) places a restriction upon the power of the State Legislatures to levy taxes on sale or purchase of goods; a State cannot levy tax on a sale which takes place outside that State nor can it tax a sale or purchase taking place in the course of import into or export out of India. Clause (2) empowers the Parliament to formulate principles for determining when a sale takes place outside a State or in the course of import or export, as the case may be. Clause (3) places certain restrictions on the State Legislatures in the matter of system of levy and rate etc. in respect of certain goods and transactions.
( 4 ) ARTICLE 269 specifies the duties and taxes levied and collected by the Government of India but assigned to the States in the manner provided therein. Among the several duties and taxes specified in clause (1) is the tax mentioned under sub-clause (g) - "taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce". Clause (2) of Article 269 provides that the net proceeds in any financial year of any such duty or tax "shall be assigned to the States within which that duty or tax is leviable in that year and shall be distributed among those States in accordance with such principals of distribution, as may be formulated by Parliament by law". Clause (3) empowers the Parliament to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce. By Constitution (Forty-sixth Amendment) Act, the words "or consignment of" were added in clause (3 ). Clause (3) now reads :
"parliament may by law formulate principles for determining when a sale or purchase of, or consignment of goods, takes place in the course of inter-State trade or commerce. "
( 5 ) SOON after the commencement of the Sixtyeth Amendment Act, the Parliament enacted the Central Sales Tax Act. 1956 (the Act) to effectuate the provisions of Articles 286 and 269. The Preamble to the Act reads :
"an Act to formulate principles for determining when a sale or purchase of goods takes place in the courser of inter-State trade or commerce or outside a State or in the course of import into or export from India,
TO provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in the inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods
