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Judgment
K.K. Sasidharan, J.—This writ petition is directed against the order dated 20.7.1999 in T.A. No. 560 of 1997 on the file of Sales Tax
Appellate Tribunal, Chennai confirming the assessment order dated 8.12.1995 on the file of the second respondent.
The factual details as culled out from the affidavit filed in support of the writ petition are as under:
The petitioner is a dealer in electrical goods, wet grinders, pumpsets, etc., carrying on business at Door No. 40, Sembudoss Street, Madras-1.
During the assessment year 1994-95 the petitioner submitted accounts and reported Nil total and taxable turnover under Central Sales Tax Act.
The accounts were subjected to check by the Assessing Officer and the second respondent assessed a total and taxable turn over of Rs.
68,825.00 as per proceedings dated 8.12.1995 and levied tax and penalty. The Nil return submitted by the petitioner was rejected for the reason
that in the bills issued by the petitioner for sale of articles to different purchasers, it was found that the sale was in the course of interstate trade. The
said order was taken up by the petitioner before the Appellate Assistant Commissioner and the said appeal was dismissed as per order dated
17.2.1997. The Appellate Assistant Commissioner confirmed the assessment on the ground that the goods were sold to the customers, who
resides in other States and as such it was only a case of interstate sale and not a second sale as claimed by the petitioner. The order dated
17.2.1997 of the Appellate Assistant Commissioner was taken up in appeal before the Sales Tax Appellate Tribunal in T.A. No. 560 of 1997.
The Appellate Tribunal was also of the opinion that the bills were raised in the name of the consumers from other states and as such it was only an
interstate sale liable for payment of tax under the Central Sales Tax Act and accordingly confirmed the order of the authorities below and
dismissed the appeal as per order dated 20.7.1998. Aggrieved by the said proceedings, the petitioner has filed the present writ petition.
The learned Counsel for the petitioner contended that though the petitioner raised bills in favour of some of the consumers, who hails from other
States, the fact remains that there was no movement of goods from Tamil Nadu to any of the other States and the supply was made by the
petitioner from the business premises itself and as such it was only a local sale and not an interstate sale attracting the provisions of the Central
Sales Tax Act. It was the further contention of the learned Counsel that unless and until there was movement of goods on the basis of a contract
between the parties, it cannot be said that the sale has taken place in the course of interstate trade warranting payment of tax under the Central
Sales Tax Act.
The learned Government Advocate (Taxes) appearing on behalf of the respondents justified the action taken by the Assessing authority to
assess the petitioner under the Central Sales Tax Act, as according to him the sales were made to the residents of other states and the supply was
effected by the petitioner not locally but in other different States and there were movement of goods from Chennai to the neighbouring states and
therefore the transaction was nothing but interstate trade attracting the provisions of the Central Sales Tax Act.
I have considered the submissions of the learned Counsel on either side and I have also gone through the proceedings of the Assessing Authority
as well as the Appellate Authority besides the order passed by the Tamil Nadu Sales Tax Appellate Tribunal.
The Assessment in question relates to the year 1994-95 and the petitioner reported NIL taxable turnover for the said year claiming exemption
for the entire turn over of Rs. 68,825/- as second sales. The accounts of the petitioner for the said year was called for by the Assessing Officer and
on verification of the accounts, the Assessing Officer found that the assessee had made interstate sale to the tune of Rs. 68,825/- and the sale was
in favour of the purchasers from Kerala, Karnataka and Andhara Pradesh and the same was not shown in the accounts. Accordingly, the
Assessing Authority considered those sales as interstate sales and completed the assessment accordingly. The Assessing Officer also imposed
penalty as evidenced by the assessment order dated 8.12.1995.
The matter was taken up before the Appellate Assistant Commissioner, Chennai and the Appellate Authority was of the opinion that as the bills
were raised in the name of the purchasers from the other States, the burden of proof regarding the alleged delivery at Chennai lies on the assessee
and as he failed to discharge the said burden, the Assessing Authority was perfectly justified in assessing the sale as interstate sale. Therefore the
Appellate Authority negatived the contention of the petitioner that the sale was only a local sale. The levy of penalty was also confirmed by the
Appellate Authority as the said authority was of the opinion that the assessment falls u/s 12(2) of the Act and as such the levy of penalty was
automatic.
The order dated 17.2.1997 was challenged by the assessee before the Sales Tax Appellate Tribunal in T.A. No. 560 of 1997. The Tribunal
was also of the opinion that no attempt was made by the petitioner to prove that there was no movement of goods from Chennai to Kerala,
Karanataka and Andhra Pradsh as shown in the respective bills and as such the only possible conclusion was the one arrived at by the Assessing
Authority and accordingly the appeal was rejected as per order dated 20.7.1998.
In order to come under the category of interstate sale, the concerned sale should be to a purchaser outside the State and there should be
movement of goods from one State to another. In case the movement of goods from one State to another was occasioned on account of the
agreement entered into between the seller and the purchaser, the sale is nothing but a sale in the course of interstate trade attracting the provisions
of Central Sales Tax Act. But however, when the actual movement of goods was at the instance of the purchaser and the part played by the
assessee was only delivery of the articles in the place of business of the assessee, it cannot be said that there was an interstate trade warranting
payment of Central Sales Tax. The assessee should have undertaken the task of supplying the articles in the business place of the purchaser in
different States for the purpose of Central Sales Tax Act.
In case the article was booked at the place of sale by the assessee to be transported to the purchaser of a different State, the said sale arose in
the course of interstate trade as there was movement of goods in pursuance of agreement. But on the other hand, the sale would be concluded in
the place of the assessee, in case, he has supplied the article to the purchaser in his place of business without undertaking the task of delivering the
product in the State where the purchaser was residing. Therefore the paramount consideration in the matter of interstate sale is the contract as well
as the movement of goods.
The assessment order shows that the petitioner has done fourteen sales in favour of the purchasers from Andhra Pradesh, two sales in favour
of the purchasers from Kerala and six sales in favour of the purchasers from Karnataka. These are all found to be stray sales and not bulk sales
effected in favour of outsiders. In case the purchasers from the neighbouring States comes to Chennai and makes purchases from the assessee and
takes articles to their home State on their own, it cannot be said that there was an element of interstate sale in the transaction. There was no
evidence to show that the assessee himself had despatched the goods through lorry service to the State of Karnataka, Kerala and Andhra
Pradesh. While considering the bonafides of the assessee in such matters, volume of sales is also significant. Purchase bills shows that no
substantial part of the sale was effected in the name of the purchasers from outside the State. Even though the Assessing authority has stated in the
assessment order that the despatch of goods through lorry service was made by the assessee himself, no evidence is found in the assessment order
to show such despatch by the assessee.
It was the consistent case of the assessee that the goods were delivered at Chennai only, though the purchasers were from the neighburing
States. In case the assessee was having the idea to evade the Central Sales Tax there was no necessity for them to show the name of the
consumers in the bills and they could have very well made the bills in the name of local purchasers. This shows that the sales were made to the
purchasers from Chennai only and the goods were also delivered to the purchasers at Chennai. The Assessing Authority failed to substantiate its
contention that there was movement of goods from Chennai to Andhra Pradesh, Karnataka and Kerala accompanied by such sale and at the
instance of the petitioner. In such circumstances, it cannot be said that the petitioner was indulged in inter state sale warranting payment of Central
Sales Tax.
The Apex Court in Commissioner of Sales Tax v. Suresh Chand Jain (1988) 70 STC 45 underlined the principles governing the interstate sales
thus:
The principles of inter-State sales were well-settled. In The Bengal Immunity Company Limited Vs. The State of Bihar and Others, Justice
Venkatarama Ayyar had held that sale could be said to be in the course of inter-State trade only if two conditions concur, namely, (1) a sale of
goods and (2) a transport of those goods from one State to another. Unless both these conditions were satisfied, there could be no sale in the
course of inter-State trade. There must be an evidence that the transportation was occasioned by the contract and as a result goods moved out of
the bargain between the parties from one State to another.
The issue regarding interstate sale came up for consideration before the Division Bench of this Court in Karanataka Soaps and Detergents Ltd.
v. Distict Forest Officer (Mad.) (2005) 140 STC 112. In the said case, the Karanataka Soaps and Detergents Limited took part in the auction
conducted by the District Forest Officer, Sathayamangalam for sale of sandalwood and the bid was confirmed in the name of the said Corporation.
The State of Tamil Nadu insisted for payment of Sales Tax under the Tamil Nadu General Sales Tax Act in respect of the auction sale. However
Karnataka Soaps and Detergents contended that the sale was in the course of interstate trade and as such they were liable to pay tax u/s 11 of the
Central Sales Tax Act. In such factual situation, the Division Bench considered the Law on the subject of interstate sales and by making reference
to a catena of decisions on the point held thus:
In our opinion, the sales in question in the present bunch of cases cannot be regarded as inter-state sales. No doubt, it is not necessary that the
contract of sale must expressly provide for the movement of the goods to another State, as held in Cooperative Sugars (Chittur) Ltd. Vs. State of
Tamil Nadu, . However, as held in the Constitution Bench decision of the Supreme Court in State of A.P. Vs. National Thermal Power
Corporation Ltd. and Others, the contract of sale must at least impliedly provide for the movement of the goods from one State to another. In the
aforesaid Constitutional Bench decision the Supreme Court has observed:
It is well-settled by a catena of decisions of this Court that a sale in the course of inter-state trade has three essential ingredients; (i) there must be a
contract of sale, incorporating a stipulation, express or implied, regarding inter-state movement of goods, (ii) the goods must actually move from
one State to another, pursuant to such contract of sale, the sale being the proximate cause of movement; and (iii) such movement of goods must be
from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which
takes place independently of a contract of sale would not fall within the meaning of inter-state sale. In other words, if there is no contract of sale
preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands
completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and
necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element. Precedents are
legion; we may briefly refer to some of them. In English Electric Co. of India Ltd. and Another Vs. The Deputy Commercial Tax Officer and
Others, this Court held that when the movement of the goods from one State to another is an incident of the contract, it is a sale in the course of
inter-State trade and it does not matter which is the State in which the property passes. What is decisive is whether the sale is one which occasions
the movement of goods from one State to another. In Union of India (UOI) and Another Vs. K.G. Khosla and Co. Ltd. and Others, it was
observed that a sale would be an inter-State sale even if the contract of sale does not itself provide for the movement of goods from one State to
another provided, however, that such movement was the result of a covenant in the contract of sale or was an incident of the contract. Similar view
was expressed in Sahney Steel and Press Works Limited and Another Vs. Commercial Tax Officer and Others, . In Manganese Ore (India) Ltd.
Vs. The Regional Assistant Commissioner of Sales Tax, Jabalpur, after referring to Balabhagas Hulaschand Vs. State of Orissa, it was observed
that so far as Section 3(a) of the Central Sales Tax Act is concerned there is no distinction between unascertained or future goods and goods
which are already in existence, if at the time when the sale takes place these goods have come into actual existence.
The sale made by the petitioner in the name of the purchasers from other States were assessed to Central Sales Tax for the sole reason that
they hails from other States. The individual articles though sold by the petitioner to the purchasers from the other States at his premises there was
no obligation on the part of the petitioner to transport those articles to the actual place of the purchasers. There was nothing to indicate that the
petitioner took up the task of transporting the goods to the State of Karnataka, Kerala and Andhra Pradesh. There was no prohibition to the
residents of neighbouring States to come to Chennai for making purchases.
The provisions of Tamil Nadu General Sales Tax Act or the Central Sales Tax Act does not put a Bar on the assessee of this State from selling
articles to the purchasers of other States. Therefore unless and until it was proved that the products were actually delivered by the assessee in the
respective states as shown in the bills, it cannot be said that the transaction was an inter-state trade. However there was nothing to indicate in the
present case to show that there was movement of goods from Chennai to Karnataka, Kerala and Andhra Pradesh and the petitioner was
instrumental in such movement and the transportation was also arranged by the petitioner. In the absence of any such positive materials evidencing
inter-state sale, the stray sales as found in the assessment order cannot be termed to be a sale in the course of inter-state trade warranting payment
of tax under the Central Sales Tax Act. Therefore the Assessing Authority clearly erred in assessing the transaction as an inter-state sale and as
such the said finding is liable to be set aside.
The Assessing Officer has also imposed penalty on the petitioner on the ground that the returns filed by the petitioner was incorrect and
incomplete. It is nodoubt true that the petitioner has claimed exemption from payment of sales tax claiming the transaction as second sales. But
there was no attempt made by him to evade the tax. Whether the transaction was a second sale or an interstate sale was a matter to be decided by
the Assessing Authority and the petitioner has produced the entire documents and on the basis of the said documents only, the Assessing Authority
came to the conclusion that the sale was not a second sale, but a sale in the course of interstate sale and therefore it cannot be said that the
petitioner was liable for penalty. Therefore the levy of penalty is also necessarily to be set aside.
The question regarding levy of penalty u/s 12(3) of the Tamil Nadu General Sales Tax Act in respect of assessment made u/s 12(1) of the Act
was considered by the Apex Court in State of Madras v. Jayaraj Nadar & Sons (1971) 28 STC 700 and it was observed thus:
The question is whether penalty can be levied while making the assessment under Sub-section (2) of the above section merely because an incorrect
return has been filed. The High Court was of the view that it is only if the assessment has to be made to the best of the judgment of the assessing
authority that penalty can be levied. It seems to us that the High Court came to the correct conclusion because Sub-sections (2) and (3) have to be
read together. Sub-section (2) empowers the assessing authority to assess the dealer to the best of its judgment in two events; (i) if no return has
been submitted by the dealer under Sub-sections (1) within the prescribed period, and (ii) if the return submitted by him appears to be incomplete
or incorrect. Sub-section (3) empowers the assessing authority to levy the penalty only when it makes an assessment under Sub-section (2). In
other words, when the assessing authority has made the assessment to the best of its judgment, it can levy a penalty. It is well known that the best
judgment assessment has to be on an estimate which the assessing authority has to make not capriciously but on settled and recognised principles
of justice. An element of guess-work is bound to be present in best judgment assessment but it must have a reasonable nexus to the available
material and the circumstances of each case. [See State of Kerala Vs. C. Velukutty, ]. Where account books are accepted along with other
records there can be no ground for making a best judgment assessment.
In the result, the writ petition is allowed and the assessment order dated 8.12.1995 on the file of the second respondent as confirmed by the
order of the first respondent dated 20.7.1998 in T.A. No. 560 of 1997 treating the transaction as interstate sale is set aside. No costs.