1973 Supreme(Pat) 100

PATNA HIGH COURT
N.L.Untwalia and S.K.Jha JJ.
Commissioner Of Commercial Taxes
Versus
Bhag Singh Milkha Singh
Tax Case No. 62 of 1967 ;
Decided On : MAY 14, 1973

Sales of goods in the course of inter-State trade or commerce are exempt from sales tax, even in the absence of a written contract on the point laying an obligation on the assessee to transport the goods outside the State.

Headnote:

SALES TAX - Inter-State sale - Exemption - Sale of timber - Obligation to transport goods outside the State - Whether necessary - Whether can be inferred from circumstantial evidence.

Fact of the Case:

The assessee, a partnership firm, claimed a deduction of a sum of Rs.49,418.29 from its taxable turnover on account of sales of timber in the course of inter-State trade or commerce to some dealers in Neyamatpur in the State of West Bengal and Amritsar in the State of Punjab. The Assistant Superintendent of Commercial Taxes rejected the claim, holding that the transactions were intra-State sales since there was no written contract of sale between the assessee and the purchasers in fulfilment of which the movement of goods outside the State of Bihar had been occasioned. The Deputy Commissioner of Commercial Taxes set aside the order of the assessing officer with respect to the aforesaid sum in the light of a decision of the Tribunal passed in the case of the assessee arising out of the assessment for the years 1960-61 and 1961-62. The Commissioner of Commercial Taxes filed a revision application before the Tribunal, which upheld the order of the Deputy Commissioner. The Commissioner filed an application for stating a case under Sec.33 (1) of the Act to the High Court, which directed the Tribunal to refer the following three questions for the decision of the High Court: (1) Whether the revisional power of the Tribunal as conferred by the Bihar Sales Tax Act, 1959, empowers the Tribunal to entertain and examine evidence, not produced before the assessing authority, or other earlier stages? (2) Whether the documents relied upon by the Tribunal were brought on record and considered in accordance with law? (3) Whether the Tribunal has rightly held that sales of timber worth Rs.49,418.29 had taken place in the coarse of inter-State trade and commerce and were not liable to be taxed under the Bihar Sales Tax Act, in the absence of any written contract on the point laying an obligation on the assessee to transport the goods to West Bengal?

Finding of the Court:

The High Court held that the first two questions did not arise out of the order of the Tribunal and, therefore, need not be answered. On the third question, the High Court held that the Tribunal had rightly held that the sales of timber worth Rs.49,418.29 had taken place in the course of inter-State trade or commerce and were not liable to be taxed under the Bihar Sales Tax Act, even in the absence of any written contract on the point laying an obligation on the assessee to transport the goods to West Bengal.

Issues: 1. Whether the revisional power of the Tribunal as conferred by the Bihar Sales Tax Act, 1959, empowers the Tribunal to entertain and examine evidence, not produced before the assessing authority, or other earlier stages? 2. Whether the documents relied upon by the Tribunal were brought on record and considered in accordance with law? 3. Whether the Tribunal has rightly held that sales of timber worth Rs.49,418.29 had taken place in the coarse of inter-State trade and commerce and were not liable to be taxed under the Bihar Sales Tax Act, in the absence of any written contract on the point laying an obligation on the assessee to transport the goods to West Bengal?

Ratio Decidendi: 1. The High Court held that the first two questions did not arise out of the order of the Tribunal and, therefore, need not be answered. 2. On the third question, the High Court held that the Tribunal had rightly held that the sales of timber worth Rs.49,418.29 had taken place in the course of inter-State trade or commerce and were not liable to be taxed under the Bihar Sales Tax Act, even in the absence of any written contract on the point laying an obligation on the assessee to transport the goods to West Bengal. The High Court relied on the following principles: (a) Sales and purchases which themselves occasioned the transportation of goods outside the State came within the exemption. (b) To occasion the transportation of goods there must exist such a bond between the contract of sale and the actual transportation outside the State that each link is inextricably connected with the one immediately preceding it. (c) Where the transportation is the result of sale, the transportation being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the mutual understanding between the buyer and seller arising from the nature of the transaction, the sale must be held to be in the course of inter-State trade or commerce. (d) Such a sale means not only sales taking place during the activities directed to the end of transportation of the goods outside the territory of the State, but also as part of or connected with such activities. (e) What is of importance to make the sale as one in the course of inter-State trade or commerce is that there must be an obligation to transport the goods outside the State--the obligation may be of the seller or the buyer--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 transportation.

Final Decision: The High Court answered the third question in the affirmative and held that the Tribunal had rightly held that the sales of timber worth Rs.49,418.29 had taken place in the course of inter-State trade or commerce and were not liable to be taxed under the Bihar Sales Tax Act, even in the absence of any written contract on the point laying an obligation on the assessee to transport the goods to West Bengal.