Important Point
For an inter-State sale, the movement of goods and the sale must be inseparably connected.

Headnote:Central Sales Tax Act, 1956 – Section 3(a) – Inter-state sales – In order to decide whether sale is inter-State it is sufficient that movement of goods should have been occasioned by sale or should be incidental thereto – What is important is that the movement of goods and the sale must be inseparably connected – It is not necessary that there should be an existence of contract of sale incorporating the express or implied provision regarding inter-State movement of goods – Respondents clearly mentioning in tender papers that they will take the tendu leaves to West Bengal for manufacture of bidis – Even the Income Tax department issued necessary and relevant certification about use of the tendu leaves for manufacture and not trade – Thus the sale of tendu leaves in Orissa was inseparably connected to movement of the same to West Bengal – High Court was right in declaring the sale as inter-State sale. (Paras 15 and 19)
       (1976) 2 SCC 44; (1992) 3 SCC 750; (1979) 2 SCC 242; (1975) 1 SCC 733 – Relied upon.
       Facts of the case :
       1.The respondents have their registered office outside the State of Orissa. They carry on business in tobacco and kendu leaves. They prepare bidi at factories situated in the State of West Bengal. The Corporation is a Government of Orissa Undertaking. Trade in Kendu leaves in the State of Orissa is a State monopoly and, therefore, is being transacted by the Corporation which sells processed and Phal kendu leaves by way of tender and auction every year. The writ petitioners had registered both under the West Bengal Sales Tax Act, 1994 and the Central Act.
       2.As usual, the Corporation issued tender notice for sale of processed and Phal kendu leaves for the year 2000-2001 and invited sealed tenders from purchasers duly registered with it. All the writ petitioners were registered purchasers with the Corporation and they submitted tenders which were duly accepted. After the sale of kendu leaves and payment of the sale value, lifting orders were issued by the Corporation to its respective Divisional Managers permitting the purchasers to lift the goods. Thereafter, the concerned Divisional Forest Officer issued transport permit in the prescribed form on the basis of which the writ petitioners transported the kendu leaves to their places of business in the State of West Bengal. According to the writ petitioners the sale and purchase of kendu leaves are deemed to have taken place in course of inter-State trade because the sale/purchase had occasioned the movement of kendu leaves from the State of Orissa to the State of West Bengal and as such it is exigible to central sales tax under the Central Act and not local Act i.e. State Act. The plea was resisted by the State. According to it the levy of sales tax under the State Act was justified. To similar effect was the stand of the Corporation.
       Findings of the Court :
       In the facts and circumstances of the case, the sales in question can only be termed as inter-State sales.

JUDGMENT

Dr. ARIJIT PASAYAT, J.—

1.Appellants-State of Orissa and the Orissa Forest Department Corporation Ltd. (in short the ‘Corporation’) in these appeals call in question legality of the judgment rendered by a Division Bench of the Orissa High Court allowing the writ petitions filed under Article 226 of the Constitution of India, 1950 (in short the ‘Constitution’).

2.Writ petitions were filed by the respondents on the plea that the transactions between them and the Corporation were in course of inter-State trade and, therefore, only sales tax under the Central Sales Tax Act, 1956 (in short the ‘Central Act’) and not the Orissa Sales Tax Act, 1947 (in short the ‘State Act’) was leviable. Accordingly, prayer was made for a declaration that levy and collection of tax under the State Act was unauthorized, without jurisdiction and the excess amount collected from them under the guise of State sales tax should be refunded.

3.Background facts as presented by the appellants are as follows:

The respondents have their registered office outside the State of Orissa. They carry on business in tobacco and kendu leaves. They prepare bidi at factories situated in the State of West Bengal. The Corporation is a Government of Orissa Undertaking. Trade in Kendu leaves in the State of Orissa is a State monopoly and, therefore, is being transacted by the Corporation which sells processed and Phal kendu leaves by way of tender and auction every year. The writ petitioners had registered both under the West Bengal Sales Tax Act, 1994 (in short the ‘West Bengal Act’) and the Central Act.

4.As usual, the Corporation issued tender notice for sale of processed and Phal kendu leaves for the year 2000-2001 and invited sealed tenders from purchasers duly registered with it. All the writ petitioners were registered purchasers with the Corporation and they submitted tenders which were duly accepted. They also entered into agreements with the Corporation. After the sale of kendu leaves and payment of the sale value, lifting orders were issued by the Corporation to its respective Divisional Managers permitting the purchasers to lift the goods. Thereafter, the concerned Divisional Forest Officer issued transport permit in the prescribed form on the basis of which the writ petitioners transported the kendu leaves to their places of business in the State of West Bengal. According to the writ petitioners the sale and purchase of kendu leaves are deemed to have taken place in course of inter-State trade because the sale/purchase had occasioned the movement of kendu leaves from the State of Orissa to the State of West Bengal and as such it is exigible to central sales tax under the Central Act and not local Act i.e. State Act. The plea was resisted by the State. According to it the levy of sales tax under the State Act was justified. To similar effect was the stand of the Corporation.

5.The High Court referred to various provisions of the Orissa Kendu Leaves (Control of Trade) Act, 1961 (in short the ‘Kendu Leaves Act’) under which the State of Orissa has assumed monopoly of trading kendu leaves. Rules framed thereunder are known as Orissa Kendu Leaves (Control of Trade) Rules, 1962 (in short ‘Central Rules’). It was noted by the High Court that Section 3(2)(b) of Kendu Leaves Act lays down that notwithstanding anything contained in sub-section (1), leaves purchased from government or any officer or agent specified in the said sub-section by any person for manufacture of bidis within the State or by any person for sale outside the State may be transported by such person outside the unit under a permit to be issued in that behalf by such authority as may be prescribed and the permits so issued shall be subject to such conditions as may be prescribed. The High Court also referred to Rule 5-B which deals with disposal of kendu leaves. Particular reference was made to sub-rule (10) and sub-rule (11) of the said Rule. Under sub-rule (11) the purchaser is required to execute

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2007 Supreme(SC) 601

Important PointFor an inter-State sale, the movement of goods and the sale must be inseparably connected.

Cases Referred (4)

Important Point
For an inter-State sale, the movement of goods and the sale must be inseparably connected.