# M/S HYDERABAD ENGINEERING INDUSTRIES v. STATE OF ANDHRA PRADESH

- **Citation:** [2011] 3 S.C.R. 546
- **Court:** Supreme Court of India
- **Decided:** 2011-03-04
- **Case number:** Civil Appeal No. 3781 of 2003
- **Bench:** D.K. Jain, H.L. Dattu
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-hyderabad-engineering-industries-v-state-of-andhra-pradesh-27558
- **Pages:** 35

## Headnote

Central Sales Tax Act, 1956:
c
s.3(a) - Inter-State trade - Sales agreement between
assessee and the purchaser - Movement of goods from one
State to another State - Whether the sale can be regarded
as sales in the course of inter-State trade, and, chargeable
to tax under the Act - Held: For a sale to be in the course of
0 inter-State trade or commerce uls.3(a), there must be sale of
goods and such sale should occasion the movement of the
goods from one State to another - A sale would be deemed
to have occasioned the movement of the goods from one
State to another within the meaning of clause (a) of s.3 when
the movement of those goods is the result of a covenant or
E incidence of the contract of sale, even though the property in
the goods passes in either State - Mere transfer of goods
from a head office to a branch office or an inter-branch transfer
of goods cannot be regarded as sales in the course of interstate trade - In the instant case, there were prior contracts
F between the purchaser and the assessee and in pursuance
of those contracts, the goods moved from the assessee's
factory at Hyderabad to its Branch offices to be delivered to
the purchaser/their nominees - In pursuance to sales
agreement, the purchaser placed monthly indents on the
G assessee with instructions to dispatch the goods of given size
and quantity to the named destination - Pursuant to such
indents, the assessee dispatched the goods to its State
godowns and the person-in-charge of the godowns to the
pu_rchaser division office by raising sales invoice - Therefore,
H
546
HYDERABAD ENGINEERING INDUSTRIES v. STATE 547
. OF ANDHRA PRADESH
the transaction between the assessee with its branch offices
A
was a clear case of inter-State sales within the meaning of
s.3(a) and not branch transfers as claimed by assessee.
s.2(g) - Sale of goods - Held: Includes agreement of
sale of goods.
·
B
Contract: Sale and agreement. of sale - Distinction
between.
The assessee, manufacturer of electrical fans ahd
accessories, has its manufacturing units in different parts C
of the country Including in Hyderabad, Andhra Pradesh.
Outside the State of Andhra Pradesh, the assessee has
its godown in different States. UIL-company has 16
divisional offices at various places in the country
wherever the assessee's godowns are located. The
D
assessee and UIL entered into sales agreement for a
period of five years. Under the said agreement, the main
function of UIL was to organize the sale and distribution
of the products of the assessee and to arrange for sale
promotion measures of the products and to provide after E
sales service. The agreement also envisaged that UIL
would purchase the said products as an independent
principal and maintain adequate stocks and sell the same
as such.
·
For tho assessment year 1981-82, the assessee filed
F
its annual returns under ttie Central Sales Tax Act. The
assessee claimed exemt>tion on a turnover of Rs.
8,87,75,643.00 towards goods transported to out-of-sjate
depots on the ground that these transactions were not
sales in the course of inter-State trade, and, therefore, not G
. chargeable to tax under the Central Act. This contention
of the assessee was n_egatived by the assessing
authority, which view was confirmed by the Tribunaland
the High Court.
·
H
548
SUPREME COURT REPORTS
[2011] 3 S.C.R.
A
The question which arose for consideration in th&
instant appeal was whether in the facts and
circumstances of the case, the sale or purchase of goods
could be said to have taken place in the course of interstate trade or commerce and thereby exigible to tax
B under the Central Sales Tax Act, 1956. It was contended .
for the assessee that the movement of the goods from
the assessee's factory to its godowns situated outside
the State was not in pursuance of the agreement between
the assessee and UIL; that there was no firm commitment
C between the assessee and UIL at the time of movement
of the goods from the factory to the godowns; that the
only commun

## Text

_Characters 0–39,897 of 69,366. This is a partial read: ask again with offset=39897 for what follows._

A
B
[2011] 3 S.C.R. 546
M/S HYDERABAD ENGINEERING INDUSTRIES
v.
STATE OF ANDHRA PRADESH
(Civil Appeal No. 3781 of 2003)
MARCH 04, 2011
[D.K. JAIN AND H.L. DATTU, JJ.]
Central Sales Tax Act, 1956:
c
s.3(a) - Inter-State trade - Sales agreement between
assessee and the purchaser - Movement of goods from one
State to another State - Whether the sale can be regarded
as sales in the course of inter-State trade, and, chargeable
to tax under the Act - Held: For a sale to be in the course of
0 inter-State trade or commerce uls.3(a), there must be sale of
goods and such sale should occasion the movement of the
goods from one State to another - A sale would be deemed
to have occasioned the movement of the goods from one
State to another within the meaning of clause (a) of s.3 when
the movement of those goods is the result of a covenant or
E incidence of the contract of sale, even though the property in
the goods passes in either State - Mere transfer of goods
from a head office to a branch office or an inter-branch transfer
of goods cannot be regarded as sales in the course of interstate trade - In the instant case, there were prior contracts
F between the purchaser and the assessee and in pursuance
of those contracts, the goods moved from the assessee's
factory at Hyderabad to its Branch offices to be delivered to
the purchaser/their nominees - In pursuance to sales
agreement, the purchaser placed monthly indents on the
G assessee with instructions to dispatch the goods of given size
and quantity to the named destination - Pursuant to such
indents, the assessee dispatched the goods to its State
godowns and the person-in-charge of the godowns to the
pu_rchaser division office by raising sales invoice - Therefore,
H
546
HYDERABAD ENGINEERING INDUSTRIES v. STATE 547
. OF ANDHRA PRADESH
the transaction between the assessee with its branch offices
A
was a clear case of inter-State sales within the meaning of
s.3(a) and not branch transfers as claimed by assessee.
s.2(g) - Sale of goods - Held: Includes agreement of
sale of goods.
·
B
Contract: Sale and agreement. of sale - Distinction
between.
The assessee, manufacturer of electrical fans ahd
accessories, has its manufacturing units in different parts C
of the country Including in Hyderabad, Andhra Pradesh.
Outside the State of Andhra Pradesh, the assessee has
its godown in different States. UIL-company has 16
divisional offices at various places in the country
wherever the assessee's godowns are located. The
D
assessee and UIL entered into sales agreement for a
period of five years. Under the said agreement, the main
function of UIL was to organize the sale and distribution
of the products of the assessee and to arrange for sale
promotion measures of the products and to provide after E
sales service. The agreement also envisaged that UIL
would purchase the said products as an independent
principal and maintain adequate stocks and sell the same
as such.
·
For tho assessment year 1981-82, the assessee filed
F
its annual returns under ttie Central Sales Tax Act. The
assessee claimed exemt>tion on a turnover of Rs.
8,87,75,643.00 towards goods transported to out-of-sjate
depots on the ground that these transactions were not
sales in the course of inter-State trade, and, therefore, not G
. chargeable to tax under the Central Act. This contention
of the assessee was n_egatived by the assessing
authority, which view was confirmed by the Tribunaland
the High Court.
·
H
548
SUPREME COURT REPORTS
[2011] 3 S.C.R.
A
The question which arose for consideration in th&
instant appeal was whether in the facts and
circumstances of the case, the sale or purchase of goods
could be said to have taken place in the course of interstate trade or commerce and thereby exigible to tax
B under the Central Sales Tax Act, 1956. It was contended .
for the assessee that the movement of the goods from
the assessee's factory to its godowns situated outside
the State was not in pursuance of the agreement between
the assessee and UIL; that there was no firm commitment
C between the assessee and UIL at the time of movement
of the goods from the factory to the godowns; that the
only communication between the assessee and UIL were ·
in the nature of forecasts; and the completion of the sale
to the UIL did not take place at the factory place and the
D appropriation of the goods were done at the godowns
and it was open to the assessee till then to allot the goods
to any purchasers and, therefore, the findings and
conclusions reached by the statutory authorities under
E
the Central Act were perverse.
Dismissing the appeal, the Court
HELD: 1.1 To make a sale as one in the course of
inter-State trade or commerce, there must be an
F obligation, whether of the seller or the buyer to transport
the goods outside the State 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
G transportation such an obligation may be imposed
expressly under the contract itself or impliedly by a mutual
understanding. It is not necessary that in cases, there
. must be pieces of direct evidence showing such
obligation in a written contract or oral agreement Such
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 549
OF ANDHRA PRADESH
obligations may be inferable from circumstantial evidence.
A
(Para 16] (563-H; 564-A-B]
Tata Engineering and Locomotive Co. Ltd. v. Assistant
Commissioner of Commercial Taxes (1970] 26 STC 354;
Tata Iron and Steel Co. Ltd. Vs. S.R. Sarkar(1960) 11 STC a
655 (SC) - relied on.
· 1.2. For a sale to be in the course of inter-State trade
or commerce under Section 3(a) of the Central Sales Tax
Act, 1956, two conditions must be fulfilled. There must be
C
sale of goods. Such sale should occasion the movement
of the goods from one State to another. A sale would be
deemed to have occasioned the movement of the goods
from one State to another within the meaning of clause
(a) of Section 3 of the Act when the movement of those
goods is the result of a covenant or incidence of the
D
contract of sale, even though tbe property in the goods
passes in either State. With a view to find out whether a.
particular transaction is an inter-State sale or not, It is
essential to see whether there was movement of the
goods from one State to another as a result of prie>r
E
contract of sale or purchase. Section SA of the Central
· Act provides that if any dealer claims that he is not liable
to pay tax under the Central Act in respect of any goods,
on the ground that the movement of such goods from
one State to another was occasioned by reason of' F
transfer of such goods by him to any other place of his
business or to his agent or principal and n.ot by reason
of sale, then the burden of proving that the movement of
goods was so occasioned shall be on the dealer. Where
Gthe department takes advantage of the presumption
under Section 3(a) and/or to show that there has been a
sale or purchase of goods in the course of inter-State
trade or commerce and if the assessee disputes the
same, then the assessee can rebut the presumption by
H
550
SUPREME COURT REPORTS
[2011) 3 S.C.R.
A filing declaration in form 'f' under Section 6A of the
Central Act to prove that the movement of goods was
occasioned not by reason of sale but otherwise than by
way of sale. When the department does not take
advantage of the presumption under Section 3(a) of the
. B Central Act, but shows a positive case of inter-State sale
in the course of inter-State trade or commerce to make it
liable to tax under Section 6, the declaration in Form 'F'
under section 6A would be of no avail. It is an accepted
position In law that a mere transfer of goods from a head
C office to a branch office or an inter-branch transfer of
goods, which are broadly brought under the phrase
'Branch transfers' cannot be regarded as sales in the
course of inter-State trade, for the simple reason that a
head office or branch cannot be treated as having traded
D with itself or sold articles to itself by means of these stock
transfers. [Paras 17, 18 and 19] (565-A-H; 566-A-B]
1.3 In the instant case, the assessing authority and
the Tribunal recorded a finding of fact that there were
E prior contracts between UIL and the assessee and in
pursuance of those contracts, the goods moved from the
assessee's factory at Hyderabad to its Branch offices to
be delivered to UIL or their nominees. Clause (1) of the
sale agreement between the assessee and purchaser/UIL
F mentioned the products that the assessee was required
to supply to the purchaser. Clause (2) spoke of the ..
territory in which UIL was permitted to sell the products
supplied by the assessee. Clause (3) spoke of the
obligations of UIL in organizing the sale and distribution
G of the products supplied by the assessee. It also
provided that UIL would keep the adequate stocks in its
godowns in different regions and also arrange sales
promotions as may be required from time to time. Clause
(4) specifically provided that the UIL would make all
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 551
OF ANDHRA PRADESH
purchases of the agreed products as an independent A
principal and sell the same as such. Clause (5) which is
a clause where price was fixed by the assessee and that
price was the maximum price and UIL was permitted to
sell at prices lower than the maximum price fixed by the
assessee. Clause (6) spoke of sales that may be made by
B
the asses~~e to the third parties. Clause (7) spoke of the
time limit within which payments for the supply of goods
to be made by UIL to the assessee. Clause (8) specifically
stated that the sales/deliveries should be made to UIU
their nominees at any of the assessee's factories, region,
C
godowns atthe option of the company. The said clauses.
would make it clear that the assessee firstly undertook
to sell and supply its manufactured products to UIL and
the UIL would have the entire country, except West
·Bengal and Andaman and Nicobar Islands, as its D
distribution/selling zone. From these clauses in the
agreement, it can be inferred that the assessee had
undertaken to supply their manufactured products to UIL
or to its nominees at the agreed price at any of the
assessee's godowns at the option of UIL. A contract of E
sale of goods would be effective when a seller agrees to
transfer the property in goods to the buyer for a price and .
that such a contract may be either absolute or
_ conditional. If the transfer is in presenti, it is called a
'sale'; but if the transfer is to take place at a future time
F
and subject to some conditions to· be fulfilled
subsequently, the contract is called "an agreement to
sell". When the time in the agreement to sell lapses or the
conditions therein subject to which the property in goods
is to be transferred are fulfilled, the "agreement to sell"
G
becomes a 'sale'. [Paras 21, 22, 23] [566-E~F; 569-B-H;
570-A-C]
Oil India Ltd. v. The Superintendent of Taxes and Others
[1975] 35 STC 445 (SC); English Electric Company of India
H
552
SUPREME COURT REPORTS
[2011) 3 S.C.R.
A Ltd. v. The Deputy Commercial Tax officer and Othef'S [1976]
38 STC 475 (SC); South India Viscose Ltd. vs. State of Tamil
Nadu [1981] 48 STC 232 (SC); Union of India & Anr. v. K.G.
Khosla and Co. Ltd. [1979] 43 STC 457; State of Bihar v Tata
Engineering and Locomotives Ltd. [1971] 27 STC 127(SC);
B Sahney Steel and Press Works Ltd. v. Commercial Tax
Officer [1985] 60 STC 301 (SC) - relied on.
1.4 When the sale or agreement for sale causes or
has the effect of occasioning the movement of goods
c from one State to another, irrespective of whether the
movement of goods is provided for in the contract of sale
or not, or when the order is placed with any bran.ch office
or the head office which resulted in the movement of
goods, irrespective of whether the property in the goods
0 passed in one State or the other, if the effect of such a
sale is to have the movement of goods from one State to
another, an inter-State sale would ensue and would result
E
· in exlgibllity of tax under Section 3(a) of the Central Act
on the turn over of such transaction. [Para 32) [573-D-F]
· 1.5. The inter-State movement must be the result of
a sale 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
at such movement. It Is also not necessary for a sale to
F be deemed to have taken place in the course of interstate 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 and incidental to the contract of sale. The
G words 'Sale of goods' used In Section 2(g) of Central Act
includes 'an agreement of sale' as such an agreement Is
an element of sale and is also an essential lngr,dient
thereof, in terms of Section 4(1) of the Sales of Goods Act,
that is, it is sufficient if the agreement of sale
H
HYDERABAD ENGINEERING INDUSTRIES v. STATE 553
OF ANDHRA PRADESH
contemplates an inter-State movement of the goods A
though the sale itself may take place, at the destination
or In the course of the movement of the goods. Even If
there Is no specific stipulation or direction in the
agreement for an inter-State movement of goods, if such
movement is an incident of that agreement, or if the facts
B
and circumstances of the case denote it, the conditions
of Section 3(a) would be satisfied. In the instant case, in
pursuance to the sales agreement, UIL placed monthly
indents on the assessee with Instructions to dispatch the
goods of given size and quantity to the named c
destination. Pursuant to such indents, the assessee
dispatched the goods to Its godowns to the given
·destination and sent goods dispatch intimation directly to
the concerned UIL divisional office at the destination
furnishing size and quantity dispatched. The assessee, D
on receipt of the request for suppl~ of goods dispatched
the same to its State godowns anCI the person-In-charge
· of the godowns to the UIL divi~lolft office by raising sales
invoice. The contention that there was no firm order
placed by UIL with the assessee and accordingly, It would e
not come within the purport of Section 3(a) of the Central
Act and they are mere branch transfers, cannot be
accepted. It does not matter how much goods were
delivered to the branch office which just acted as a
conduit pipe before it ultimately reached the purchaser's
F
hands. All that matters is that movement of the goods Is
in pursuance of the contract of sale or as necessary
incident to the sale itself. Further, the sales agreement is
for a period of five years. If there is short supply of the
goods than what was indented for, then the same could G
be adjusted in the subsequent dispatch. The assessing
officer, while considering this stand of the assessee, had
made reference to several correspondence for the period
from April, 1981 to March, 1982 and had come to the
conclusion though both the assessee and UIL term those H
554
SUPREME COURT REPORTS
(2011] 3 S.C.R.
A correspondence as mere letter of allocations, they are
infact in the nature of indents placed by UIL with the
assessee for the supply of a particular model of fans,
particular quantity and the destinations of delivery. This
finding of fact was confirmed by the final fact finding
B authority namely, the State Tax Tribunal. This finding of
fact does not appear to be perverse, which would call for
Interference. The Tribunal, after reappreciatlng the entire
documents available on the record and also the modus
operandi adopted by the assessee in its well considered
c order, has concluded that the so called 'forecasts' were
nothing but request made by UIL for supply of goods to
meet the requirements of the consumers in various parts
of the country. Though, the said communication was
termed as 'forecasts', according to the Tribunal, they
o were nothing but firm orders placed by the UIL with the
assessee for supply of particular type of goods and
particular quantity pursuant to their understanding
reflected in the 'sales agrement', which is continuing one
for the continuous supply of goods during the period of
E agreement which stretches over a period of 5 years, it
cannot be said that the 'sales agreement' was only for the
purpose of purchasing of their goods and selling in
different parts of the country by UIL which has its offices
wherever the assessee has its godowns of branch
F offices and that there was no movement of goods •
pursuant to their 'letter of allocations', which the
assessee would contend that it is not a firm commitment
or firm order for the supply of goods. A perusal of the
letters of allocations, showed that an order was placed
G by UIL is a composite form to supply of goods through
their branch offices and the movement of the goods
thereto from the assessee's factory to the assessee's
godown was to fulfill the demand made pursuant to the
'letters of allocation' which the assessee claims that the
H same is in the nature of forecast. The movement of the
HYDERABAD ENGINEERING INDUSTRIES v. STATE 555
OF ANDHRA PRADESH
goods from the asse.ssee's factory to its various A
godowns situated in different parts of the cpuntry was
pursuant. to 'sales agreement' coupled with 'forecasts'
which are nothing but 'indents' or firm orders. Therefore,
the transaction between the as'sessee W,ith its branch
offices was a clear case of inter-State sales and not B
branch transfers, as claimed by the assessee. [Paras 33,
38, 40, 41, 42] [574-B-D; 576-C-F; 575-D-G; 577-D-G; 578D-H; 579-A-C]
Balabahagas Hulsachand v. State of Orissa (1976) 37 c
STC 207; Union of India v. K.G. Khosla and Co. (1979) 43
STC 457 - relied on.
1.6. Merely because the branch office could also
effect supplies directly to some of the bulk consumers,
D
it cannot be said that all supplies that are made to branch
offices are not pursuant to the Sales Agreement and
letter of allocation of UIL. The assessing authority, in the
instant case, after carefully considering the relevant
clauses in the sales agreement and the voluminous
E
correspondence between the assessee and the UIL, gave
its finding that the transaction in question was pure and
simple inter-State sales and fell within the purview of
Section 3(a) of the Central Act [Paras 43 and 44] [579-EF; G-H; 580-A-B]
Case Law Reference:
~
[1970] 26 STC 354
Relied on
Para 12
(1960) 11 STC 655 (SC) Relied on
Para 15
[1975) 35 STC 445(SC)
Relied on
Para 26
[1976] 38 STC 475 (SC) Relied on
Para 27.
[1981) 48 STC 232 (SC) Relied on
Para 28
[1979) 43 STC 457
Relied on
Para 29
F
G
H
A
B
556
SUPREME COURT REPORTS
(1971] 27 STC 127(SC)
Relied on
(1985] 60 STC 301 (SC) Relied on
(1976) 37 STC 207
(1979) 43 STC 457
Relied on
Relied on
. ',,·
[2011) 3 S.C.R.''
Para 30
Para 31
Para 40
Para 40
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3781 of 2003.
From the Judgment & Order dated 21.06.2002 of the High
c Court of Judicature of Andhra Pradesh at Hyderabad in Tax
Revision Case No. 54 of 1991.
S.K. Bagaria, Ramesh Singh, Adarsh Priyadarshi (for O.P.
Khaitan & Co.) for the Appellant.
D
C.K. Sucharita, Nirada Das for the Respondent.
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. This appeal is directed against the
E judgment and order dated 21.06.2002, passed b,y the Division
Bench of the High Court of Judicature of Andhra Pradesh at
Hyderabad in Tax Revision Case No. 54 of 1991. By the
impugned judgment and order, the High Court has dismissed
the Revision Petition filed by the assessee, inter-alia, holding
that the disputed transactions constitute inter-State sales, as
F contemplated under Section 3(a) of the Central Sales Tax Act,
1956.
2. The issue that we are called upon to decide in the case
is, whether inthe facts and circumstances of the case, the sale
G or purchase of goods can be said to have taken place in the
course of inter-State trade or commerce and thereby exigible
to tax under the Central Sales Tax Act, 1956 (hereinafter
referred to as, "the Central Act").
H
3. Mis Jay Engineering Works Ltd. is a Public Limited
HYDERABAD ENGINEERING INDUSTRIES v. STATE 557
OF ANDHRA PRADESH [H.L. DATIU, J.J
Company, registered under the Companies Act, 1956. It has
A
its Head Office-cum-Registered Office at 23, Kasturba Gandhi
Marg, New Delhi. In the State of Andhra Pradesh, the Company
has registered itself in the name and style of Mis Hyderabad
Engineering Industries (Prop. - The Jay Engineering Works
Ltd.). It is· registered as a dealer under the Andhra Pradesh
8
General Sales Tax Act, 1957 as well as Central Sales Tax Act,
1956.
4. The Company is engaged in the manufacture and sale ·
of electrical fans, sewing machines, fuel injection parts and
accessories etc. The Company has its manufacturing units in
C
different parts of the country including Hyderabad, Andhra
Pradesh. In addition to the factory and office in Hyderabad, the
company has its branch office at Vijayawada in the State of
Andhra Pradesh. Outside the State of Andhra Pradesh, the
cqmpany has its godowns in different States including Delhi.
D
In Kolkata, the company has its own office in the name of
Eastern India Usha Corporation.
··. 5. M/s. Usha Sales Ltd. (subsequently known as Usha
International Ltd.) (hereinafter referred to as "UIL") is a company
E
registered under the Indian Companies Act, with its registered
office at 19, Kasturba Gandhi Marg, New Delhi. It has 16
divisional offices at various places in the country with different
names at every place wherever the assessee's godowns are
located. The assessee and UIL had entered into a sales
agreement dated 01.05.1979. It was for a period of five years.
F
Under the said agreement, the main function of UIL was to
organize the sale and distribution of the pro.ducts of the
··· assessee and to arrange for sale promotion measures of the
· p1 .. jucts and to provide after sales service and such other
servic1.'c; as might be required in the interest of sale of the said
G
products. -:-he agreement also envisaged that UIL would
purchase the said products as an independent principal and
maintain adequate stocks and sell the same as such. We will
refer to these clauses in the agreement while discussing the
H
558
SUPREME COURT REPORTS
[2011] 3 S.C.R.
.. A issues raised by the learned counsel for the parties at the time
of hearing of the appeal.
6. The Company has been an assessee on the rolls of the
Commercial Tax Officer, Company Circle-II, Nampalli,
Hyderabad. For the assessment year 1981-82, the assessee
8 company filed its annual returns under the Central Act in the
prescribed form.
7. The assessee company claimed exemption on a
turnover of Rs.8,87,75,643.00 towards goods transported to
C out-of-state depots otherwise than as a result of direct sale
which would attract tax under Section 6 of the Central Act.
8. The assessee's case before the assessing autho1;,,,
Sales Tax Appellate Tribunal and the High Court was that the
D transactions on which exemptions claimed cannot be regarded
as sales in the course of inter-State trade, chargeable to tax
under the Central Act. This contention of the assessee is
negatived by the assessing authority, which view is confirmed
by the Tribunal and the High Court.
E
F
G
H
9. The findings of the assessing authority with respect to
the nature of the transactions with its various branches, except
in the case of Calcutta Depot, may be set out in his own words
"The assessee company in Hyderabad is engaged in the
manufacture of different types of fans and fuel injection
parts. In pursuance of the said sales agreement, M/s Usha
Sales Limited, Delhi (now Usha International Limited,
Delhi) placed monthly indent on HEI Hyderabad for the
supply of the goods to its offices in various stages. This
indent is sent either by telex or Telephone or through written
communication. This indent shows the model wise quantity
required in each of the regions and the destinations to
which the goods are to be sent are clearly mentioned at
Madras, Patna, Agra. At times even based on such indents
HYDERABAD ENGINEERING INDUSTRIES v. STATE 559 ·
OF ANDHRA PRADESH [H.L. DATTU, J.]
received from Mis. Usha Sales Ltd. Delhi the assessee
A
company is effecting the movement of goods from its
factory in Hyderabad to its own depots in the destination
g'iven by the Usha Sales Ltd. Alongwith the goods the
assessee is sending gate pass (GPO) Cum Challan
proforma invoice, way bill and lorry receipt, which are in
B
the name of its own depot or godown. Simultaneously HEI
also sends a direct communication to the "constituent" and
further requesting the "constitutent" of the UIL to take
delivery. At times, the unit of USL also informs the MEI that
it has taken delivery of, goods. ·
c
In pursuance of the monthly allocation made by the
UIL head office New Delhi, the various constituents or units
of USL directly correspond with HEI for the dispatch of the
goods, such constituents issue telegrams and telex
message to HEI for urgent dispatch of the goods.
D
On receipt of the goods in the out of state depot, the
depot incharge prepares invoice in favour of the constituent
of M/s Usha Sales Limited such as Nalanda Sales
Corporation, Western Sales Corporation, United Sales
E
Corporation etc., generally the names of these purchasing
units owned by M/s Usha Sales Ltd. are printed on the
invoices issued by the assesses depots, which shown that
there cannot be any other purchases.
Depot wise stock register is maintained in
Hyderabad Factory showing modelwise quantitative
particulars of the goods sent to the depot goods sold by
the depot and the goods available with the depot as stock
at the end of prescribed period.
;he Hyderabad factory did not receive only orders
F
G
or indents from any of its depots. The indent is always
placed by M/s Usha Sales Ltd. But for the said indent,
neither the Hyderabad factory nor any depot known the
model or quantity of goods to be sent or to be received.
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560
A
B
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SUPREME COURT REPORTS
[2011) 3 S.C.R.
Neither there is any communication sent by the Marketing
Deptt. of the assessee company as they were never
received.
On receipt of goods in the out-state depot, an invoice
is prepared in favour of the respective unit of M/s. Usha
Sales ltd. (such as Nalanda Sales Corporation etc.) and
all the invoices are sent without fail to the Hyderabad
factory. In the books of account of the factory, the account
of USL is debited for the invoice value and the sales tax
collection is credited to the account of the respective State.
The invoice is discounted by the HEI with Canara
Bank, Secunderabad and the full amount is received by
drawing Hundi on M/s Usha Sales Ltd. Delhi for 10 days
on the due date. USL makes payment to Canara Bank,
Delhi and on receipt of such intimation the account of USL
is credited in the factory of Hyderabad.
There were no transfers from one depot to another
depot. The depot has no option to chose its purchase. No
open sales were conducted from the depots. All the sales
were affected to different units of USL whose names are
printed in the respective invoices as buyers.•
The assessing officer has further observed :-
"Thus intimate nexus and conceivable link between the
assessee and the purchaser are manifest. The receipt of
incident from USL HO the follow up and pressure for supply
from the USL divisions, the periodical fixation of price to
hold goods for the specified future months, the confirmation
of receipt of goods by the UFL division proceeded by
direct dispatch intimations to the purchasers supply of
goods at "current prices" and complaints direct from USL
divisions for non delivery or short delivery all in pursuance
of sale agreement make me conclude that the sales from
HEI to USL occasioned the movement of goods. The
HYDERABAD ENGINEERING INDUSTRIES v. STATE 561
OF ANDHRA PRADESH [H.L.. DATIU, J.]
.
.
.
delivery and raising of invoice by the State godown are
A
immaterial.•
10. The assessing officer has concluded that "from a
factual description of the mode of transactions, it is evident
that the inter-State sales effected by the assessee to UIL have
B
been camouflaged as branch transfers with· a view to evade
tax legitimation (sic) due to the State on these transactionsn.
It is not necessary to refer to the tax and the penalties levied
by the assessing officer under the Central Act, for the issue
involved in the case is legal.
11. The sole question that arises for our consideration is
whether the turn-over under dispute for the assessment year
1981-82, is an i.nter-State sale or a branch transfer.
c
12. Shri S.K. Bagaria, learned 1senior counsel for the
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assessee, submitted that while the goods certainly moved from
the factory at Hyderabad· to the branch office of the assessee,
such movement cannot be regarded as having any connection
with any particular order or orders placed by Mis Usha Sales
Ltd. Therefore, it is submitted that the goods moved from
·. E
· , Hyderabad to Delhi on what were described as 'stock transfers'
and such stock transfers cannot be brought within the charging
provisions of the Central Act, since they cannot be regarded
as sales in the course of inter-State trade and commerce. It is
further submitted by referring to clauses in the sales agreement
_,, and relying on the decision of this Court that the transaction in
F
question is merely 'branch transfers' and not 'inter-State sales'.
It is submitted that the findings of the assessing authority that
the movement of goods from the assessee's factory to their
godowns was in pursuance of the agreement of sale between
the assessee and UIL is not based· on any material and,
G
· therefore, on mere presumption and assumptions the assessing
authority could not have treated the branch transfers as interstate sales. It is further submitted that there was no firm
commitment between the assessee and UIL at the time of
movement of goods from assessee's manufacturing unit to their
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562
SUPREME COURT REPORTS
[2011) 3 S.C.R.
A godowns situated at different places in the country. It is further
submitted that the assessing authority was not justified in relying
on the letters of allocation issued by UIL as a contract of firm
commitment for purchase of goods manufactured by the
assessee. According to Shri Bagaria, the letters of allocation
B issued by UIL cannot be construed to be a contract of firm
commitment to purchase the goods manufactured by the
assessee and those letter~ of allocation were mere forecast
of UIL's estimate of their requirements. It is further contended
that there was no firm commitment on the part of UIL to
c purchase specific number of specified varieties of fans and for
that matter the assessee had not allotted any specific number
of specified varieties of fans in favour of UIL at the time the
goods manufactured by the assessee were being transferred
from their factory to their godowns. It is contended that the
assessing authority is bound to examine each individual
D transaction and decide whether it constitutes an inter-State
sale. Reliance is placed on the observations made by this
Court in Tata Engineering and Locomotive Co. Ltd. v.
Assistant Commissioner of Commercial Taxes [1970) 26
STC 354 at page 381 (SC). In conclusion, it is submitted that
E the assessing authority and the High Court were not justified ·
in relying on the decision of this Court in the case of Sahney
Steel and Press Works Ltd. and English Electric Company
of India Ltd.
F
13. We did not have the advantage of hearing the learned
counsel for the Revenue. However, with the permission of the
Court, they have filed their written submissions which, to say
the least, does not touch upon any of the submissions made
by learned senior counsel for the assessee. Their written
G submissions are just the repetition and reiteration of the findings
and conclusions reached by the assessing authority.
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14. To resolve the controversy raised in this appeal,
Section 3(a) of the Central Act requires to be noticed.The
Section reads as under :-
HYDERABAD ENGINEERING INDUSTRIES v. STATE 563
OF ANDHRA PRADESH [H.L DATTU, J.]
"A sale or purchase of goods shall be deemed to take
A
place [n the course of inter-State ~rade or commerce if the
sale Qr purchase--
·
(a) occasions the movement of goods from one State to
another; or
B
(b) is effected by a transfer of documents of title to the
goods during their movement from one State to another.
Explanation 1--Where goods are delivered to a carrier or
other bailee for transmission, the movement of the goods c
shall, for the purposes of clause (b), be deemed to
commence at the· time of such delivery and terminate at
the time when delivery is taken from such carrier or bailee.
,
Explanation 2-Where the movement of goods commences
and terminates in the same State it shall not be deemed
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to be a movement of goods from one State to another by
. reason merely of the fact that in the course of such
' movement the goods pass through the territory of any other '
• State."
15. The purport of Section 3(a) is explained by this Court
in Tata Iron and Steel Co. Ltd. Vs. S.R. Sarkar (1960) 11 STC
655 (SC), wherein it is stated "in our view, therefore, within.
Clause (b) of Section 3 are included sales in which property
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in the goods passes during the movement of the goods from
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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 Staten.
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16. To make a sale as one in the course of inter-State trade
or commerce, there must be an obligation, whether of the seller
or the buyer to transport the goods outside the State and it may
arise by reason of statute, contract between the parties or from
f
I.
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564
SUPREME COURT REPORTS
[2011) 3 S.C.R.
A mutual understanding or agreement between them or even from
the nature of the transaction which linked the sale to such
transportation such an obligation may be imposed expressly
under the contract itself or impliedly by a mutual understanding.
It is not necessary that in cases, there must be pieces of direct
B evidence showing such obligation in a written contract or oral
agreement. Such obligations are inferable from circumstantial
evidence.
17. Section 6 of the Central Act which is the charging
C Section, levies tax under the Central Act on all inter-State sales,
determined as such under Section 3 of the Central Act. Section
9 of the Central Act provides that the tax payable by any dealer
under the Central Act on the sale of goods effected by him in
the course of inter-State trade or commerce, whether such sale
falls within Clause (a) or Clause (b) of Section 3, shall be levied
D by the Govt. of India and shall be collected by that Govt. in
accordance with the provisions of sub-Section (2) of that
Section, in the State·from which the movement of the goods
commenced. The proviso enumerates an exception, but we do
not consider it necessary to refer to it for the purpose of this
E case. Section 3 of the Act deals with inter-State sales and
details the circumstances as to when a sale or purchase of
goods can be said to take place in the course of inter-State
trade or commerce. A ~erusal of Section 3 of the Central Act
shows that it raises a presumption of law and that is, a sale or
F 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 transfer of documents of title to the goods
during their movement from one State to another. For purposes
G of clause (b) of Section 3, Explanation I says that where the
goods are delivered to a carrier or other bailee for
transmission, the movement of the goods shall be deemed to
commence at the time of such delivery and terminate at the time
when delivery is taken from such carrier or bailee. Explanation
H II clarifies that when the movement of goods commences and
HYDERABAD ENGINEERING. iNDUSTRIES v. STATE 565
OF ANDHRA PRADESH [H.L. DATIU, J.]
terminates in the same State, the movement of goods will not A
be deemed to be from one State to another merely because
of the fact that in the course of such movement, the goods pass
through the territory of any other State. For a sale to be in the
course of inter-State trade or commerce under Section 3(a),
the two conditions must be fulfilled. There must be sale of 8
goods. Such sale should occasion the movement of the goods
from one State to another. A sale would be deemed to have .
occasioned .the movement of the goods from one State to
another within the meaning of clause (a) of Section-3 of the Act
when the movement of those goods is the result of a covenant C
or incidence of the contract of sale, even though the property
in the goods passes in either State. With a view to find out
whether a particular transaction is an inter-State sale or not, it
is essential to see whether there was. movement of the goods
from one State to another as a result of prior contract of sale 0
or purchase. Section 6A of the Central Act provides that if any
dealer claims that he is not liable to pay tax under the Central
Act in respect of any goods, on the ground that the movement ·
of such goods from one State to another was occasioned by
reason of transfer of such goods by him to any other place of
his business or to his agent or principal and not by reason of E
sale, then the burden of proving that the movement of goods
was so occasioned shall be on the dealer. It also provides the
mode of discharge of that burden of proof.
18. What follows from a conjoint reading of these provisions
F
is that every dealer is liable to pay tax under the Central Act
on the sale of goods effected by him in the course ofinter-State
trade or commerce during the year of assessment. Where the
department takes advantage of the presumption under Section
3(a} and/or to show that there has been a sale or.purchase of G
goods in the course of inter-State trade or commerce and if
the assessee disputes that there has been a sale or purchase
of goods in the course of inter-State trade or commerce, then
the assessee can rebut the presumption by filing declaration
in form 'F' under Section 6A of the Central Act to prove that H
566
SUPREME COURT REPORTS
[2011) 3 S.C.R.
A the movement of goods was occasioned not by reason of sale
. but otherwise than by way of sale. When the department does
not take advantage of the presumption under Section 3(a) of
the Central Act, but shows a positive case of inter-State sale
in the course of inter-State trade or commerce to make it liable
B to tax under Section 6, the declaration in Form 'F' under
section 6A would be of no avail.
19. It is an accepted position in law that a mere transfer
of goods from a head office to a branch office or an interC branch transfer of goods, which are broadly brought under the
phrase 'Branch transfers' cannot be regarded as sales in the
course of inter-State trade, for the simple reason that a head
office or branch cannot be treated as having traded with itself
or sold articles to itself by means of these stock transfers.
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20. In the instant case, the case of the Revenue is not only
based on the agreement of sale but also on the presumption
under Section 3(a) of the Central Act.
21. In the instant case, the assessing authority and the
E Tribunal have recorded a finding of fact that there were prior
contracts between Usha Sales Ltd. and the assessee and in
pursuance of those contracts, the goods moved from the
assessee's factory at Hyderabad to its Branch offices to be
delivered to Usha Sales Ltd. or their nominees.