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Judgment
N. Kumar, J.—The petitioner is a private limited company registered under the Companies Act and having its registered office at Bangalore. The petitioner has a manufacturing unit at pondicherry. The petitioner is registered under the Karnataka Sales Tax Act (hereinafter for short referred to as the KST Act) and Central Sake Tax Act (hereinafter for short referred to as ''the CST Act''). The petitioner it engaged in the business of manufacture and supply of ATMs and manufacture, supply and trading of their parts and accessories. The petitioner also undertake Annual Maintenance Contracts (AMCs) for maintenance of ATMs. In so far as sale of parts and accessories of ATMs and maintenance of ATMs under the AMCs and construction of ATM rooms by the petitioner''s branch in Bangalore are concerned, the petitioner has admitted its liability and filed returns for the assessment years 2002-03, 2003-04, 2004-05, 2005-06 and also 2006-07 under the KST and CST Acts. The petitioner has been duty assessed to tax on the turnover relating thereto. The petitioner has produced the assessment orders passed u/s 12(2) of the KST Act and u/s 9(2) of the CST Act for the assessment years 2002-03 to 2004-05. For the year 2005-06 the assessment orders have been passed u/s 38 of the Karnataka Value Added Tux Act (hereinafter for short referred to as ''the KVAT Act'') and the orders are also produced.
The Assistant Commissioner of Commercial Taxes (Intelligence), South Zone, Bangalore, inspected the business premises of the petitioner branch in Bangalore and seized certain books of accounts and documents relating to the assessment years 2002-03 to 2004-05 pursuant to in ardor of seizure dated 11.1.2007 u/s 28(3) of the KBT Act. Thereafter, a notice u/s 12A of the KBT Act came to be issued for re-assessment for the period 2009-03 to 2006-07. The petitioner gave a detailed reply. Thereafter, the respondent proceeded to pass the re-assessment orders on 25.3.2003 u/s 12A of the KST Act and u/s 39 of the KVAT Act, correspondingly for the years 2002-03 to 2006-07. The respondent held that the sale of ATMs by the petitioner from pondicherry to Banks who are purchasers in Karnataka are local sales liable to tax under KST Act and KVAT Act. The respondent has also issued a demand notice claiming huge amount for the aforesaid periods. Aggrieved by the same, the petitioner has preferred these petitions.
Sri K.P. Kumar, the learned senior counsel assailing the impugned order contends that admittedly the goods have moved from Pondicherry to Bangalore in pursuance of a purchase order placed by the various banks, with the petitioner at Pondicherty. ''They are delivered at the site of the banks, ''Therefore, the petitioner was liable to pay tax under the CST Act which he has paid. While bringing those ATMs into Karnataka, petitioner has also paid entry tax after 2004. There is no liability to pay tax either under the KBT Act or under the KVAT Act. The respondent by wrongly applying the ratio laid down by the Apex Court in the 20th Century Finance Corporation Limited and Anr. v. State of Maharashtra 2000 (119) STC 182 case has held, as the delivery of goods took place at Bangalore it is a local sale and the petitioner has to pay tax under KST Act and KVAT Act. The said judgment has no application to the facts of the case and he has ignored the series of judgments of the Supreme Court which clearly held, when once there is movement of goods torn one State to another, it constitutes an inter state sale and the State legislature has no jurisdiction or power to levy any sales tax on such sales and, therefore, he seeks for quashing of the said orders.
Per contra, the learned Government Advocate in support of the impugned order contended that, as the impugned order is an appealable order, when the petitioner has an alternate and efficacious remedy it is inappropriate for this Court to entertain these petitions and the petitioner should be relegated to the remedy of appeal. Secondly, he contended that admittedly after the goods were dispatched from Pondicherryry, they reached the banks, the consignee did not open the packages, It is the engineer of the petitioner who opened the packages, verified the machinery, after inspection certified it to be in order. Therefore, it is they who delivered the machines to the banks. Therefore, as the actual delivery took place at Bangalore it constitutes a local sale and, therefore, the petitioners are liable to pay sales tax under the KST Act and KVAT Act. That is what precisely the assessing authority has held after re-assessment and, therefore, he submits no case for interference it made out.
Ho doubt the petitioner has an alternative and efficacious remedy by way of a statutory appeal. the total liability now sought to be recovered from the petitioner for the aforesaid period is around Rs. 7.47 crores and the petitioner has to deposit 50% of the same without which, the appeal would not be entertained. It is this point which has made them to approach this Court. This is a case where the petitioner has paid the tax under CST. He is not avoiding payment of tax. He it expected to pay tax either under CST or KST and not both. The question is, is he liable to pay tax under KST. The facts are not in dispute. Even the law applicable is not in dispute. The dispute is regarding application of the law to the admitted facts of the case. Under these circumstances notwithstanding the availability of an alternate remedy by way of an appeal, having regard to the quantum of tax levied coupled with the fact that the law on the point is well settled and facts are not in dispute, I deem it proper to entertain these petitions, as otherwise it would occasion failure of justice.
A perusal of the impugned order discloses that the respondent has categorically stated the following facts which emerge from the material on record at para 8 of the impugned order:
a. Initially, the agreements an entered into with the respective banks at the bank�s Head quarters. For example, in the case of State Bank of India, agreement is entered into at Bombay Head Office and in the case of Canara Bank the agreement is made at Bangalore.
b. The agreements am entered with the banks for supply and installation of ATM machines at their brunches in Kamataka so indicted by the Head Office of the Bank.
c. the agreements entered into with respective banks arm transmitted either by the company''s Bangalore office or the head office at Bombay, to the pondicherry unit for manufacture of ATMs and/or for procuring such machines as ordered by the client banks.
d. The manufacture/imported machines are dispatched to the respective branches of the bank in Karnataka. The transport documents and invoices are made in the name of respective branches of the banks in Karnataka.
e. The ATM machines from Pondicherry are then dispatched to the banks against the invoices made in the name of respective branches in Karnataka. The ATM machines are transported through the transporter arranged by the company''s Pondicherry manufacturing unit.
f. On the receipt of the ATM machines in Karnataka at respective branches of the bank, the same are received by the bank authorities after acknowledging the same. Thus the bank takes only the notional delivery of the machines at the respective branches.
g. The ATM machines which are received in packed conditions are neither opened nor checked either for the quantity or for the type of machines nor the conditions of machines an checked by the bank authorities at the time of receipts through the transporter.
h. Subsequently, the Consignment of package of the ATM machines so received are handed over to company''s representative engineers/technicians at the bank site. The company''s local representative thereafter takes the delivery of the ATM machines from the bank authorities and after opening the packages and after due verification of the contents as to the quantity and the conation of machines, certify the machines at having been received in good working condition. For the above certification the ATM machines received at the bank premise, a copy of the same given to the bank authorities.
i. The insurance of the ATM machines am taken in the name of the company.
Therefore, he conchoids by laying:
(a) the company is owner of goods until the machines are ultimately delivered to the client bunk after due inspection and certification by the local engineers/technicians of the company;
(b) That goods are put Into the common carrier by the company;
(c) The insurance of the goods stand in the name of the company;
(d) The freight and all the incidental charges upto the delivery are borne by the company;
(e) As the agreement executed by the company with the bank is for the manufacture and supply of machines, the goods were not in existence at the time when the agreements are made and therefore the agreements made are for sale of future goods;
(f) The agreements entered into operated only upon delivery of goods to the client bank at their branches after inspection and certification.
After recording the acts as aforesaid then he proceeds to apply the ratio laid down by the Supreme Court in the 20th Century�s case where it was held, where the goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods : in such cases the taxable event would be an the delivery of goods. According to him the ratio of the decision applies to the facts of the case and the delivery took place at Bangalore it amounted to a local tale e therefore, sales and therefore, sales tax was payable.
The respondent has not properly applied his mine the aforesaid judgment of the Supreme Court. He has taken one paragraph of the final conclusion out of context and has passed the impugned order. The law on the point is well settled.
In the case of Oil India Ltd. Vs. The Superintendent of Taxes and Others, it has been held as under:
That the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale and therefore the sale to the refinery of Barsuni were sales in the course of inter-State trade. The Bihar Government had no Jurisdiction to tax the sales under the sales tax law of that State and the petitioner was entitled to the refund of tax collected from it by the Bihar Government.
No matter in which Stats the property in the goods passes, a sale which occasions "movement of goods from one State to another is a sale in the course of inter-State trade". The interstate movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sate must precede the inter-State movement in order that the sate may be deemed to have occasioned such movement. It is also not necessary for a sate to be deemed to have taken place in the course of interstate trade or commerce, that the covenant regarding interstate movement must be specified in the contract itself. It would be enough if the movement was in pursuance of an incident to the contract of sale.
In the case of English Electric Co. of India Limited v. The Deputy Commercial Tax Officer and Ors. 1976 38 STC 478 sc it is held aS under
When the movement of goods from one State to another is an incident of the contract of sale it is a sate in the course of interstate trade falling u/s 3(a) of the Central Sales Tax Act, 1956. It does not matter in which State the property in the goods passes. What is decisive is whether the sate is one which occasions the movement of goods from one State to another. The interstate movement must be the result of a covenant, express or implied, in the contract of sate or an incident of the contract. It is not necessary that the sate must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary fir a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement trout be specified in the contract itself. It will be enough if the movement is in pursuance of and incidental to the contract of sale.
That the appellant was one entity and it carried on business at diffluent branches. Branches are not independent and separate entities. They are different agencies. The contract of sale was between the appellant and the Bombay buyer. When a branch of a company forwards a buyer''s order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions It would not be a sale between the factory and its branch, The steps taken from the beginning to the end by the Bombay branch in co-ordination with the Madras factory showed that the Bombay branch was merely acting as the intermediary between the Madras factory and the buyer and that it was the Madras factory which pursuant to the covenant in the contract of sale caused the movement of goods from Madras to Bombay. The inter-State movement of the goods from Madras to Bombay was the result of the contract of sale and the fad that the contract emanated from correspondence which passed between the Bombay branch and the company could not make any difference, The sate was therefore noble to be taxed u/s 3(a) of the Central Act.
The Apex Court in the case of Union of India and Anr. v. K.G. Khosla and Co. Limited 1979 43 STC 47 SC has held as under:
(i) that if a contract of a sale contains a stipulation for the movement of the goods from one State to another, the sale would certainly be an inter-State sale. But for the purposes if Section 3(a) of the Act Mia not necessary that the contract of male must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically the terms of the contract of sate. A sale can be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one Stats to another but such movement is the result of a covenant in the contract of sale orison incident of that contract;
(ii) that goods conforming to agreed specifications having been manufactured at Faridabad, the contracts of sale could be performed by the respondent only by the movement of the goods from faridabad with the intention of delivering them to the purchasers. Although the contracts of sale old not require or provide that the goods should be moved from Faridabad to Delhi, the movement of the goods woe occasioned from Faridabad to Delhi as a result or incident of the contracts of sale made in Delhi. The High Court was, therefore, right in holding that the sales were inter-State sales and that the turnover of such sates was assessable to sales tax under the Central Act by the sales tax authorities of Faridabad.
The question as regards the nature of the sale, that is, whether it is an inter-State sale or an intra-State sate, doss not depend upon the circumstance as to in which State the property in the goods passes. It may pass in either State and yet the sale can be an inter-State sale.
In the cue of Sahney Steel and Press Works Limited and Another Vs. Commercial Tax Officer and Others, it is hold as under:
(i) That even if the customer placed an order with the branch office and the branch office communicated the terms and specifications of the order to registered office and the branch office itself was concerned with dispatching, billing and receiving of the sale price, the order placed by the customer was an order placed with the company, and for the purpose of fulfilling that order the manufactured goods commenced their journey from the registered office in the State of Andhra Pradesh to the branch outside the State for delivery of the goods to the customer. Both the registered office and the branch office were offices of the same company: they did not Passes separate judicial personalities. The movement of the goods from the registered office at Hyderabad was occasioned by the order placed by the customer and was an incident of the contract, and therefore, from the very beginning from Hyderabad all the way until delivery to the customer it was an inter-State movement. The sale transactions were inter-State sales u/s 3(a) of the Act.
A Constitution Bench of the Supreme Court in the case of State of A.P. Vs. National Thermal Power Corporation Ltd. and Others, has held as under:
The situs of the sale or purchase is wholly immaterial as regards inter-State trade or commerce. In view Section 3 of the Central Sates Tax Act, 1956, all that has to be seen is whether the sales or purchase (a) occasions the movement of goods from the 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. If the sale or purchase satisfies any one of the two requirements it is deemed to be a sate or purchase of goods in the course of inter-State trade or commerce and, by virtue of articles 269 and 286, the sale or purchase would be beyond the competence of a State Legislature to tax without regard to the fad whether such a prohibition is spelled out by the description of a legislative entry in Seventh Schedule or not.
therefore, in the light of the aforesaid law declared by the Supreme Court, the question for consideration in this Writ Petition is, whether the Sale in question is in the course of into state trade or commerce or is it a local sale end liable to Karnataka Sales tax or Karnataka Value Added tax.
Section 3 of the Central Sales Tax Act, 1956 reads as under:
When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- A sale or purchase of goods shall be take place in the course of inter state trade or commerce if the sale or purchase-
(a) occasions the movement of the 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.
The aforesaid Section states, when a sale takes place in the course of inter state trade or commerce. It contains a deeming provision. A sale or purchase of goods shall be deemed to take place in the course of inter state trade or commerce if the tale or purchase has occasioned the movement of the goods from one State to another or is effected by A transfer of documents of title to the goods during the movement from one State to another. The essence of an inter state sale or purchase is the movement of goods from one State to another. If the movement of goods from one State to another is a result of a covenant or an incident of the contract of sale, than the sale is an inter state sale, no matter in which State the property in the goods passes. A sale which occasions movement of goods from one State to another is a sale in the course of inter state trade. The inter state movement must be the result of a covenant express or implied in the contract of tale or an incident of the contract It is not necessary that the sale must precede the inter state movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter state trade or commerce, that the covenant regarding inter state movement must be specified in the contract itself. It would be enough if the movement was in pursuance of or incidental to the contract of sale. When the movement of goods from one stats to mother is an incident of the contract, it is a sale in the course of inter state sale. What is decisive is whether the sale is one which occasions the movement of goods from one State to another.
A company may carry on business at different branches. Those different branches may be at different places. Branches have no independent and separate entity. Branches are different agendas. When a branch of a company forwards a buyer''s order to the principal factory of the company and instructs them to dispatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch. If there is a conceivable link between the movement of the goods and the buyer�s contract, and if in the course of inter-State movement the goods move only to reach the buyer in satisfaction of his contract of purchase and such a nexus is otherwise in explicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter state trade or commerce as such a sale or purchase occasioned the movement of the goods from one State to another. The presence of an intermediary such as the seller''s own representative or branch office, who initiated the contract may not make too matter different. Such an interception by a known person an behalf of the seller in the delivery state and such personal activities prior to or after the implementation of the contract may not attar the position. The registered office and the branch office are offices of the same company and what in effect takes place is that the company from its registered office takes the goods to its branch office outside the State and arranges to deliver them to the buyer. The registered office and the branch office do not possess separate juridical personality. The question is really whether the movement of the goods form the registered office is an incident of the contract.
Section 2(g) of the Central Sales Tax defines sale as under:
2(g) "Sale" with its grammatical variations and cognates expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes,-
(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or to some other form) involved in the execution of a works contract;
(iii) a delivery of goods on hire-purchase or any system of payment by instalments;
(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) a supply of goods by any unincorporated association or body of persons to member thereof for cash, deferred payment or oilier valuable consideration;
(vi) a supply, by way of or as part of any service or in any ether manner whatsoever of goods, being food or any other article for human consumption or any drink (whether or not intoxicating}, where such supply or service, is for cash deferred payment or other valuable consideration,
but does not include a mortgage or hypothecation of or a charge or pledge on goods;
Article 366(29-A)(d) reads as under:
(29-A) Tax on the sole or purchase of goods includes--
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
In the 20th Century Finance Corporation''s case, the Constitution Bench of the Apex Court was celled upon to decide two question:
(1) What ere the limitations on the power of Stales to levy tax on the transactions of transfer of right to use any goods and
(2) Where is the situs of taxable event on the transfer of right to use goods under Article 366(29A)(d) of the Constitution?
The Apex Court answered the said question in the following manner:
As a result of the aforesaid discussion our conclusions are theme:
(a) The States in exercise of power wider entry 54 of list II read with article 366(299A)(d) are not competent levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export.
(b) The appropriate legislature by emoting legal fiction can fix situs of sale, In the absence of any such legal fiction the situs of sate in case of transaction of transfer of right to use any goods would be the place when the property in goods passes, i.e., where the written agreement transferring the right to use is executed.
(c) Where the goods ate available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sate would be the place when the contract is executed and not when the goods an located for use.
(d) In cases where goods an not in existence or when then is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such casts the taxable event would be on the delivery of goods.
(e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in Clause (29A)(d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.
It is while interpreting the aforesaid provisions it was held that, on a plain construction of Sub-clause (d) of Clouse (29A), the taxable event is the transfer of the right to use the goods regardless of when or when the goods an delivered for use. What is required is that the goods should be in existence so that they may be used And further contract in respect thereof is also required to be executed to be executed, Given that, the locus of the deemed sols is the place where the right to use the goods is transferred, where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods awe delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of on oral implied transfer of the right to use goods, it effected by the delivery of the goods. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. in other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise, Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed As soon as the contract is executed. As soon as contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use
The aforesaid Clause (a) categorically states, the States in exercise of power under entry 54 of List II read with Article 306(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which it a deemed sale, if such sale takes place outside the Stats or is a sale in the course of inter-State trade or commerce or is a sale in the course of import at export. Therefore, when admittedly the sale in question is in the course of an inter State trade or State had no power to levy any sales tax at all. The very judgment on which reliance is placed by the assessing authority makes it clear that, in the instant case the KST Act has no application and no tax could have been levied. Further the said judgment was concerned about the liability to pay tax in respect of a transfer of the right to use any goods and not a transfer of property in goods under a written contract. Unfortunately though several judgments of the Apex Court are cited before him, though he has referred to the same, there is no proper application of mind and erroneously he rejects all those judgments on the ground that they are not applicable to the facts of the case. The assessing authority has misconstrued the aforesaid judgments.
The goods should be in existence, so that it may be used. The levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. Unless there is a transfer of such right, the right to use does not arise. It is the transfer which is sine qua non for the right to use goods. Therefore, in cases where the goods an not in existence, end the right to use such non existent goods is the subject matter of sale, such transactions may be affected by the delivery of the goods. In such cases the taxable event would be on the delivery of the goods. Therefore, situs of sale in such cases would be the place where the delivery of goods takes place. But, in the cue of non-existent goods, the goods after craning into existence, i.e., after the manufacture of such goods, are moved from one State to another for the purpose of delivering the same to the purchaser, it would be an inter-State sale. Because, it is not a transfer of right to use goods, but transfer of goods itself.
In the case on hand it is not a case of transfer of right to use the goods. It is also not a case of oral or implied transfer of the rights to use goods. There is a written contract between the parties far manufacture and supply of goods. The branch office at Bangalore, forwarded an order for transfer of goods upon receipt by them from the buyer to their factory at Pondicherry. The goods were manufactured according to the specifications of the buyer. Thereafter the goods were handed over to a carrier who delivered the goods at buyer''s place. The technicians at the registered, office at Bangalore took delivery of the consignment at the buyer�s place, opened the container, checked and after it is found to be alright in all respects handed over the goods to the buyer. The buyer in turn has made the payment directly to the factory at Pondicherry. Though the goods for which orders were placed were not in existence at the time of placing of the orders, it is not a case of transfer of a right to use the goods. It is a case of sale of the goods. The placing of the orders occasioned the movement of the goods from Pondicherry to Bangalore, the Goods, alter it was manufactured, thus came into existence at Pondicherry were moved to Bangalore. Therefore, it is immaterial where the goods were delivered. What is decisive is whether the sale is one which occasioned the movement of the goods from one State to another and the said movement is the result of covenant or incident of a contract of sale. In this case, there is a movement of goods from one State to another in terms of a contract of sale. It is an inter state sale, the situs of the sale or purchase is immaterial in respect of inter-State trade or commerce. If the sale or purchase occasioned the movement of goods from one State to another then it constitutes an inter State sale and the State legislature has no competence to tax such sale as the sale is taxed under the CST Act. The KST Act or the KVAT Act is not applicable to such sale. The impugned orders passed are therefore contrary to the settled legal position and the statutory provisions and the same cannot be sustained. Accordingly I pass the following order:
ORDER
(i) Writ Petitions are allowed;
(ii) The impugned orders are quashed;
(iii) No costs.