JUDGMENT R.L. Gulati, J.
1. Under Section 11(1) read with Section 11(3) of the U.P. Sales Tax Act, the Additional Judge (Revisions) Sales Tax, U.P., Lucknow, has submitted this reference along with the connected reference for the opinion of this court on the following question of law:
Whether on the facts and circumstances of the case as discussed in the assessment, appellate and my orders the transactions regarding the sales of Rs. 9,85,160 and Rs. 73,160 were inter-State sales and not intra-State sales?
2. The facts are short and not in dispute. The assessee carried on business of manufacture and sale of jute goods at Kanpur within the State of Uttar Pradesh. The goods are supplied to the purchasers both inside and outside Uttar Pradesh. During the assessment year 1960-61 the assessee received orders for the supply of goods from parties mostly of Kanpur. One of the terms of the contract was that the assessee will despatch goods to the destination indicated by the purchasers subsequently. In pursuance of the despatching instruction received, the assessee despatched goods outside Uttar Pradesh worth Rs. 9,85,160 and another lot amounting to Rs. 73,160. The assessee claimed that these sales were inter-State sales and their turnover was assessable under the Central Sales Tax Act. The Sales Tax Officer did not accept the contention and treated the turnover to be of intra-State sales and levied tax under the U.P. Sales Tax Act on the two lots of sales referred to above under Rule 41(5) and under Section 21 respectively. The assessor's appeals were allowed. The appellate authority held that the turnover in dispute was of inter-State sales and as such was not liable to tax under the U.P. Sales Tax Act. The Commissioner of Sales Tax applied in revision but failed. At the instance of the Commissioner this reference has now been brought before us.
3. Section 3 of the Central Sales Tax Act defines the inter-State sales:
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 to title to the goods during their movement from one State to another.
4. In the instant case there is no dispute that the goods in question were delivered outside Uttar Pradesh according to the instructions of the purchasers. It is also not in dispute that the purchasers were entitled to give such instructions as per one of the terms in the contract of sale between the parties. The only contention raised on behalf of the department is that the term relating to despatching instruction was not an essential term of the contract but related merely to its execution and as such the contract should be deemed to have been completed in Uttar Pradesh and the subsequent despatch of the goods outside Uttar Pradesh would be irrelevant. Precisely, a similar question arose before the Supreme Court in Amritsar Sugar Mills Co. Ltd. v. Commissioner of Sales Tax, Uttar Pradesh 1966] 17 S.T.C. 405 (S.C). That was a case of an assessee who carried on the business of manufacture and sale of sugar. Some of the parties to whom the sugar was sold carried on the business inside Uttar Pradesh but the sugar was despatched to stations outside Uttar Pradesh in compliance with the instructions issued by the buyers. The assessee-claimed rebate on such sales under Section 5 of the Act which authorises rebate in respect of sale of goods for delivery outside Uttar Pradesh. According to the standard form of agreement executed between the assessee and the buyers it was provided that the delivery of the sugar was to be made F.O.R. Rohana Kalan Station but there was a further clause in the agreement which entitled the buyers to give despatching instructions to the assessee's mill. The goods were despatched outside Uttar Pradesh in pursuance of that clause. A contention similar to the one raised in the instant case was rejected by the Supreme Court which held that the clause relating to the despatching instructions was an integral part of the contract and that when despatching instructions were given, it was not a case of performing the contract but specifying a term of the contract. The Supreme Court further observed that if the place of actual delivery had been specified and it was a question merely of communicating the route by which the goods were to be delivered this would perhaps relate to the mode of performance of the contract. But communication of the place where actual delivery is to be given does not relate to the mode of performance but formation of the contract.
5. Following this dictum of the Supreme Court it has to be held in the instant case that the term in the contract under which the buyers were entitled to give despatch instructions was an integral part of the contract itself and was not merely a mode of execution of the contract. That being so the movement of the goods to places outside Uttar Pradesh was clearly occasioned by the contract of sale and would be covered by Sub-Clause (a) of Section 3 of the Central Sales Tax Act.
6. The other consideration as to where the property passed to the buyers would be wholly immaterial. All that Section 3(a) of the Central Sales Tax Act requires is that in order that a sale should be treated to be an inter-State sale the movement of goods from one State to another should be occasioned by the contract of sale. The case of Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.) is a case on the point which may be cited with advantage. In that case it was observed by the Supreme Court that Section 3 of the Central Sales Tax Act which deals with the inter-State trade and commerce employs the same terminology as is employed in Section 5(2) of the Central Sales Tax Act which deals with sales in the course of export or import. It was laid down by the Supreme Court:
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 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 State.
7. In State Trading Corporation of India v. The State of Mysore [1963] 14 S.T.C. 188 (S.C.), the Supreme Court reiterated, the same view holding:
The question then is, did the sales occasion the movement of cement from another State into Mysore within the meaning of the definition? In Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.), it was held that a sale occasions the movement of goods from one State to another within Section 3(a) of the Central Sales Tax Act, when the movement 'is the result of a covenant or incident of the contract of sale'. That the cement concerned in the disputed sales was actually moved from another State into Mysore is not denied. The respondents only contend that the movement was not the result of a covenant in or an incident of the contract of sale.
8. The Supreme Court then on the facts of that case found that the movement of cement from another State into Mysore was the result of a covenant in the contract of sale or incident of such contract.
9. The same principle has been followed by the Supreme Court in K.G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473 (S.C.), which was a case under Section 5(2) of the Central Sales Tax Act but as observed above the principle underlying the two sections is the same.
10. We have thus no hesitation in holding that the movement of goods in respect of the sales in dispute in the instant case was occasioned by the contract of sale and such sales were, therefore, inter-State sales within the meaning of Section 3(a) of the Central Sales Tax Act.
11. It was then contended on behalf of the department that in fact there were two sales one by the assessee in favour of the Kanpur parties and the second by the Kanpur parties in favour of the parties outside Uttar Pradesh. The Judge (Revisions) has very rightly pointed out that there is no basis or material for such a contention. The facts as found disclosed only one sale by the assessee-company in favour of the purchasers and it is in pursuance of such contract of sale that the goods were moved to places outside Uttar Pradesh. Whether ultimately the goods were received by the Uttar Pradesh purchasers at the destination outside Uttar Pradesh or whether they were received by other persons with whom Uttar Pradesh purchasers might have entered into a further contract of sale, is wholly immaterial. So far as the assessee is concerned, it despatched the goods to places outside Uttar Pradesh in performance of the contract of sale entered into by it with the original purchasers.
12. The learned counsel for the department relied upon a decision of this court in Maheshwari Devi Jute Mills Ltd. v. The Commissioner of Sales Tax, U.P. (Sales Tax Reference No. 435 of 1967 decided on 15th December, 1969)1. That case is clearly distinguishable on facts and the distinction has been pointed out by the Bench in the following words:
Further, it is pertinent to point out that whereas the contract between the parties in those cases contemplated an obligation on the part of the dealer to despatch the goods to any place indicated by the buyer, there is no such obligation under the contract between the assessee and the Kanpur buyers. Paragraph 1 of the contract is couched in entirely different terms.
13. We accordingly answer the question by saying that the two lots of sales in dispute were inter-State sales and not intra-State sales.
14. The assessee is entitled to the costs which we assess at Rs. 100, one set of costs only. The counsel's fee is assessed at the same figure in each case.