1.0 Constitutional Provisions.—

Entry 48 in list II of the Seventh Schedule of the Government of India Act, 1935 provided for "taxes on the sale of goods". Thereafter, the Constitution of India came into force on the Twenty-sixth day of January 1950. Entry 54 of List II of the Seventh Schedule of the Constitution provides for "taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I". Entry 92 A of List I provides for "taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce." In pursuance of these Constitutional entries, State Sales Tax Acts were enacted and "sale" was defined therein. But in the legal evolution of the concept of "sale", the Constitution (Forty-sixth Amendment) Act, 1982 (effective from 2.2.1983) was enacted and a new clause (29A) was inserted in Article 366, as under:—

(29A) "tax on the sale or purchase of goods' includes

a. a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

b. a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

c. a tax on the delivery of goods on hire purchase or any system of payment by installments;

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;

e. a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

f. a tax on the supply, by way of or as part of any service or in any other 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,

and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.

In pursuance of the above Constitutional Amendment, the State Sales Tax Enactments as well as the Central Sales Tax Act, have been amended accordingly.

2.0 Definition of "Sale" in Sale of Goods Act, 1930—

The relevant sections dealing with "sale" in Sale of Goods Act, 1930, are 4 and 5, which are reproduced below:—

4. Sale and agreement to sell

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

5. Contract of sale how made

(1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment, or both shall be postponed.

(2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and party by word of mouth or may be implied from the contract of the parties.

The Hon'ble Supreme Court has, in case of State of Gujarat Vs. Variety Body Builders, reported at AIR 1976 SC 2112, held that to constitute a transaction of sale there should be an agreement, express or implied, relating to goods to be completed by passing of the title in those goods, and furthermore, both the agreement and the sale should relate to the same subject matter.

3.0 Definition of "Sale" in the State Sales tax Acts Before Forty-Sixth Amendment in The Constutution—

3.1 Almost in all the State Sales Tax Acts, the definition of "sale" before the Forty-sixth Amendment in the Constitution was more or less similar. In the Rajasthan Sales Tax Act, 1954, the term "sale" was defined in section 2(o) of the Act, as under:—

Section 2(o) "sale" with all its grammatical variations and cognate expressions, means any transfer of property in goods for cash or deferred payment or for any other valuable consideration, and includes a transfer of property in goods or on hire purchase or other system of payment by installments, but does not include a mortgage or hypothecation of, or a charge or pledge on goods and the word "purchase" or "buy" shall be construed accordingly;

3.2 The Hon'ble Supreme Court had occasions to interpret the definition of "sale" as given in State Sales Tax Acts, and in a number of cases, such as of Enfield India Ltd. (1968: 21 STC 138) and Karam Chand Thapar & Brothers Ltd. (1969:23 STC 210), has held that to constitute a "sale" the following four ingredients or factors are necessary:—

(i) Two competent parties (Buyer & Seller);
(ii) Mutual assent or agreement;
(iii) Money consideration paid or promised; and
(iv) Transfer of property in goods.

4.0 Two Competent Parties—

4.1 To constitute sale, the first ingredient is that there should be two parties, seller and buyer.

4.1A. The Hon'ble Madras High Court, in the case of Mahendra Kumar Ishwarlal & Co. Vs. State of Madras (1960: 21 STC 72) and the Hon'ble Calcutta High Court, in the case of Moni Prasad Singh And Another Vs. State of West Bengal And Others ( 1977: 39 STC 131), have held that a person cannot sell goods to himself.

4.1.B. The Hon'ble Allahabad High Court has, in the case of U.P. State Cement Corporation Ltd., Vs. Commissioner of Sales Tax, reported at (1979) 43 STC 476, held that where two units are owned by the State Government, one can not sell goods to other because other unit is not clothed with a separate juristic personality.

4.1.C. The Hon'ble Kerala High Court has, in the case of Government Wood Works Vs. State of Kerala, reported at (1988) 69 STC 62, held that one Department of a Government can not sell the goods to another department of the same Government in the absence of separate legal entity.

4.1.D. The Hon'ble Supreme Court has, in the case of Union of India Vs. the Central India Machinery Manufacturing Co. Ltd., reported at (1972) 29 STC 246 held that no person could have both the capacities of seller and buyer in a transaction, simultaneously.

4.2. Parties in a contract should be legally competent to effect a transaction of sale. According to section 11 of the Indian Contract Act, 1872, every person is competent to contract who is:—

(i) of the age of majority according to law to which he is subject,
(ii) of sound mind, and
(iii) not disqualified from contracting by any law to which he is subject.

According to section 12 of the said Act, a person is said to be of sound mind for the purpose of making of contract if, at the time when he makes, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

5.0 Mutual Assent or Agreement—

5.1. In the traditional definition of sale, mutual assent or agreement is second necessary ingredient. Mutual assent or agreement implies free consent of both the contracting parties. Two or more persons are said to consent when they agree upon the same thing in the same issue.

5.2 Law requires that consent should be free. According to section 14 of the Indian Contract Act, consent is said to be free when it is not caused by (i) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, and (v) mistake.

5.2.1 According to section 15 of the said Act, "coercion" is the committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatsoever, with the intention of causing any person to enter into an agreement.

5.2.2 According to section 16 of the said Act, a contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain unfair advantage over the other. A person is deemed to be in a position to dominate the will of another —

(i) where he holds a real or apparent authority over the other; or
(ii) where he stands in a fiduciary relation to the other; or
(iii) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

5.2.3 According to section 17 of the said Act, "fraud" means and includes any of the following acts committed by a party to a contract, with intent to deceive another party thereto, or to induce him to enter into the contract —

(i) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
(ii) the active concealment of a fact by one having knowledge or belief of the fact;
(iii) a promise made without any intention of performing it;
(iv) any other act fitted to deceive;
(v) any such act or omission as the law specifically declares to be fraudulent.

5.2.4 According to section 18 of the said Act, "misrepresentation" means and includes—

(i) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

(ii) any breach of duty which without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;

(iii) causing however innocently a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

5.2.5 In case of mistake of fact, where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

A mistake of law in force in India does not make a contract voidable.

A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

5.3 In the context of "free consent", the Larger Bench of the Hon'ble Supreme Court has, in the case of Salar Jung Sugar Mills Ltd., Vs. State of Mysore and Others, reported at (1972) 29 STC 246, held that statutory orders regulating supply and distribution of goods under Central Orders in a State did not absolutely impinge on the freedom to enter into contract. Delimiting areas for transactions or parties or denoting prices for transactions were all within the areas of individual freedom of contract with limited choice.

5.4 In the case of Food Corporation of India Vs. State of Kerala, decided by the Hon'ble Supreme Court and reported at (1997) 105 STC 5, a question posed for adjudication was "whether the Food Corporation of India is liable to pay sales/purchase tax to the States while purchasing food grains or in distributing fertilizers pursuant to orders issued under section 3 of the Essential Commodities Act, 1955?" The Hon'ble Supreme Court has, while overruling its earlier decision given in the case of Chittar Mal Narain Das Vs. Commissioner of Sales Tax, held —"On facts and in the light of observations of Full Bench of the Allahabad High Court in Commissioner of Sales Tax Vs. Ram Bilas Ram Gopal (1969: 24 STC 508), we are satisfied that some area of consensual arrangement and some field for volition is left untouched by the legislation in all disputed transactions. The disputed transactions are sales, may be under the compulsion of statute. Nevertheless, they are sales exigible to tax. Whatever coercive force is used to bring about the transactions, the same must be traced to legislation and not to the State Government as a party to such transactions."

6.0 Money Consideration Paid or Promised—

6.1 The third ingredient of "sale" is the money consideration paid or promised. Transfer of property in goods should be in exchange of money, may it be a cash contract or a credit contract.

6.2 The Hon'ble Supreme Court has, in the case of Khajan Chand Vs. State of J&K, reported at (1984) 56 STC 214, held that only contemplation of money consideration is sufficient, not the actual receipt of money or sale price.

6.3 The Hon'ble Supreme Court has, in the case of Budh Prakash Jai Prakash, reported at (1954), 5 STC 193, held that damages or compensation received against loss, is not money consideration for sale.

6.4 The Hon'ble Supreme Court has, in the case of Devidas Gopal Krishna, reported at (1967) 20 STC 430, has observed that BARTER (goods for goods) does not come within the meaning of money consideration for sale of goods.

6.5 The Hon'ble Supreme Court has, in SLP (Civil) No. 3232 of 1995 in the case of Assistant Commissioner Vs. Madras Fertilizers, decided on 30.1.1995 and reported at (1995)97 STC: FRSC No. 6, has confirmed the decision of the Hon'ble Kerala High Court given in the case of Madras Fertilizers Ltd. (1994: 95 STC 134), in which the Hon'ble High Court has held that subsidy for the benefit of the public and not connected with sale, does not form part of sale price.

6.6 The Hon'ble Supreme Court has, relying on its earlier judgement given in the earlier case of George Oaks (Pvt.) Ltd. Vs. State of Madras (1961: 12 STS 476), in the later case of Neyveli Lignite Corporation Ltd., Vs. CTO, reported at (2001) 124 STC 586, held that any sum received de hors the contract of sale from another entity, whether it be the Government or anyone else, cannot be regarded as being an amount which could form part of the sale price on which tax is payable.

6.7 The Hon'ble Supreme Court has, in the case of TISCO General Office Recreation Club Vs. State of Bihar and Others, reported at (2002) 126 STC 547, while examining the issue of subsidy given to the dealer, held that lump-sum payment which, in the very nature of things, is ex-gratia can not be regarded as being part of the sale price and consequently form part of the gross turnover of the dealer.

6.8 The Hon'ble Supreme Court has, in the case of Central Wines Vs. Special Commercial Tax Officer, reported at (1987) 65 STC 48, held that the amount of money which goes from the pocket of the vendee to the pocket of the vendor as a condition or consideration for passing of the property in the goods is the sale price. It is the amount, but for the payment of which, the vendor would not transmit his title to the goods in favour of the vendee, and not any amount paid by the vendee towards any tax liability incurred by his own making the purchase of the goods.

7.0 Transfer or Property in Goods—

7.1 Transfer of property in goods or in other words, transfer of ownership over goods, is the fourth ingredient of the traditional definition of "sale".

7.2 The Hon'ble Supreme Court has, in the case of Ayuraiya Chamber, reported at (1986) 62 STC 327, held that forward contracts, in the absence of transfer of property in goods, do not constitute sale.

7.3 The Hon'ble Rajasthan High Court has, in the case of Kasam Bhai Hazi Mossaji & Sons Vs. ACTO, Pali, reported at (1989) 73 STC 86, held that the surrender by the Panchayat Samiti and the Forest Department of the right to collect bones and chaal in their respective areas, in favour of the petitioner, for consideration, amounted to sale. It may be pointed that in the said matter it was not a case of transfer of right to use goods, but it was transfer of right to gain ownership over goods.

7.4 The Hon'ble Supreme Court has, in the case of Vikas Sales Corporation and Others Vs. Commissioner of Commercial Taxes, reported at (1996) 102 STC 106, held that import licenses called replenishment licenses or exim scrips are goods and involve transfer of property in goods for the purpose of the Tamil Nadu General Sales Tax Act, 1959, the Karnataka Sale Tax Act, 1957 and the Kerala General Sales Tax Act, 1963.

8.0 Limitations of The Traditional Definition of "Sale"—

8.1 The traditional definition of "sale" fell short of the evolution of trade and commerce and consequent expectations of extended horizon of taxability. In a series of decisions, the Apex Court held various transactions, purported to be sale, not sale and liable to tax.

8.2 The Hon'ble Supreme Court has, in the case of Gannon Drunkerley & Co., reported at (1958) 9 STC 353, held that the provisions of the Madras General Sales Tax Act are bad to the extent that they are repugnant to the definition of "sale" in the Sale of Goods Act, 1930. The short answer to this contention is that the Madras General Sales Tax Act is a law relating not to sale of goods but to tax on sale of goods. The Apex Court, therefore, further held that the widened definition of "sale" in the State Sales Tax Law including in it a transfer of property in goods involved in the execution of a works contract is ultra vires.

8.3 The Hon'ble Supreme Court has, in the case of K.L. Johar and Co., reported at (1965) 16 STC 213, held that it is clear therefore that the State Legislature when it proceeds to legislate either under entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935, or under entry 54 of List II of the Seventh Schedule to the Constitution, can duly tax "sale" within the meaning of that word as defined in the Sale of Goods Act. Therefore, any legislation by the State Legislature making any agreement or transaction in which the property does not pass from the seller to the buyer, a sale would be beyond its legislative competence.

8.4 The Hon'ble Supreme Court has, in the case of Northern Indian Caterers (India) Ltd., reported at (1978) 42 STC 380, held that supply of meals in hotels and restaurant does not constitute sale.

In the review application of the above decision of the Hon'ble Supreme Court, it held that if the customer is entitled to take away the meals from the hotel/restaurant, it could be "sale" otherwise not. The review judgment is reported at (1980) 45 STC 212 (SC).

9.0 Extended Definition of "Sale"—

9.1 In view of the judicial limitations of 'sale' defined in Sales Tax Laws, Constitution was amended by the Constitution (Forty-sixth Amendment) Act, 1982 with effect from 02.02.1983, as referred to in para No. 1.0.

9.2 The expression "sale" has been defined in section 2(38) of the Rajasthan Sales Tax Act, 1994, as under:—

Section 2(38) "sale" with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes —

(i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration;

(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii) any delivery of goods on hire-purchase or other system of payment of installments;

(iv) a transfer of the right to use 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 an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable considerations; and

(vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration;

and such transfer, or delivery or supply shall be deemed to be a sale and the word "purchase" or "buy" shall be construed accordingly;

Explanation I — Notwithstanding anything contained in this Act, where any goods are sold in packing, the packing material in such case shall be deemed to have been sold with the goods, unless otherwise proved by the dealer;

Explanation II.— A sale or purchase shall be deemed to take place inside the State —

a) in a case falling under sub-clause (ii), if the goods are in the State at the time of their use, application or incorporation in the execution of a works contract, not withstanding that the agreement for the works contract has been wholly or in part entered into outside the State or that the goods have been wholly or in part moved from outside the State; and

(b) in a case falling under sub-clause (iv), if the goods are used by the lessee within the State, whether or not for a specified period, notwithstanding that the agreement for the lease has been made outside the State or that the goods have been moved from outside the State or the goods have been delivered to the lessee outside the State;

Explanation III.— Where there is a single contract of sale or purchase in respect of goods stored or ascertained in the State as well at places outside the State, the goods stored or ascertained in the State shall be deemed sold separately in or from the State;

Explanation IV.— Where the word under a works contract is spread over in many States including the State of Rajasthan, the part of the work done within the State shall be deemed to be the sale made in the State, irrespective of the place of agreement for works or the point of movement of goods involved in the execution of that works contract.

9.3 The definition of "sale" under the Central Sales Tax Act, 1956 has also been amended by the (Central) Finance Act, 2002, with effect from 11.05.2002, which is reproduced below::—

Section 2(g) "sale" with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or for any other valuable consideration, and includes —

(i) a transfer, otherwise than in pursance 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 in some other form) involved in the execution of a works contract;

(iii) a delivery of goods on hire-purchase or other system of payment of installments;

(iv) a transfer of the right to use 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 an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable considerations;

(vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply 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.

9.4 Sale of packing material and Explanation I to section 2(38) of the Rajasthan Sales Tax Act, 1994:—

9.4.1 In the context of the provisions of the Rajasthan Sales Tax Act, 1954 (Old Sales Tax Act), the Hon'ble Rajasthan High Court has, in a number of cases, such as (i) Mohan Singh Harbans Singh (2000: 28 RTJS 55), (ii) Udaipur Distillery Co. Ltd. (2000: 28 RTJS 83), (iii) Mahila Grah Udyog (2003:5 Tax Up-Date 95), (iv) Another case of Udaipur Distillery Co. Ltd., (2003: 132 STC 489), (v) Ganapati Trading Co. (2004: 134 STC 53), and (vi) Teletube Electronic Ltd. (2004 : 134 STC 56), held that where revenue wants to levy sales tax on sale of packing material along with the goods, it has to prove the ingredients of sale with regard to it.

9.4.2 But Explanation I to section 2(38) of the Rajasthan Sales Tax Act, 1994 (New Sales Tax Act) provides that notwithstanding anything contained in this Act, where any goods are sold in packing, the packing material in such case shall be deemed to have been sold with the goods, unless otherwise proved by the dealer.

9.4.3 This Explanation lays down a reputable presumption of sale of packing material with the goods, and therefore, the Department has not to prove the ingredients of sale in case of packing material sold with the goods and it is for the dealer, if he contests, to disprove the sale thereof.

9.5 Explanation II (a) to section 2(38) of the Rajasthan Sales Tax Act, 1994 and the works contracts.—

Clause (a) to Explanation II below section 2 (38) of the Rajasthan Sales Tax Act, 1994, provides that if the goods are in the State at the time of their incorporation in the execution of a works contract, sale thereof shall be deemed to take place inside the State, irrespective that the goods have been wholly or in part moved from outside the State.

This part of the Explanation may come into conflict with the movement of goods taking place as part of inter-State sale or purchase under section 3 of the Central Sales Tax Act, 1956, then in that case, it shall give way to the provisions of section 3 of the Central Sales Tax Act, and such goods cannot be taxed under the provisions of the Rajasthan Sales Tax Act, 1994.

The Hon'ble High Court of Andhra Pradesh, in the case of Bharat Heavy Electricals Ltd., reported at (1996) 102 STC 345 (Judgement affirmed by the Hon'ble Supreme Court), the Full Bench of the Hon'ble Punjab and Haryana High Court in the case of Thomson Press (India) Ltd., reported at (1996) 100 STC 471, the Hon'ble Supreme Court, in the case of the Orissa State Electricity Board in SLP (Civil) No. 16335 of 1998, reported at (1998) 11 STC : FRSC 10, and the Hon'ble Supreme Court in the case of Larsen and Tubro Limited, reported at (2003) 132 STC 272, have laid down the law that where in pursuance of a contract of sale, goods move from one State to another for being used in the execution of a works contract no tax under the Sales Tax Act of the State in which such goods are received and works are being carried out, can be levied.

Explanation IV to section 2(38) of the Rajasthan Sales Tax Act, 1994 shall also be interpreted accordingly

9.6 Explanation II (b) to section 2(38) of the Rajasthan Sales Tax Act, 1994 and the transfer of right to use goods:—

9.6.1 Clause (b) to Explanation II below section 2(38) of the Rajasthan Sales Tax Act, 1994, lays down that a sale or purchase shall be deemed to take place inside the State under the contract of transfer of right to use the goods, if the goods are used by the lessee within the State, irrespective that the agreement for the lease has been made outside the State or that the goods have been moved from outside the State.

9.6.2. The above part of the Explanation II has been held to be completely read down by the Apex Court. The Hon'ble Supreme Court has, in the case of 20th Century Finance Corporation Ltd. Vs. State of Maharashtra, reported at (2000) 119 STC 182, laid down:—

(i) where the goods are in existence, the taxable event on transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and the situs of sale of such deemed sales would be the place where the contract in respect thereof is executed;

(ii) in case where 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 and in such cases the taxable event would be on the delivery of the goods.

9.6.3. In the above case, the Hon'ble Supreme Court has further held that Explanation II (b) to section 2(38) of the Rajasthan Sales Tax Act, 1994, and similar provisions in the State Acts of Maharashtra, Karnataka, Tamil Nadu, Haryana, Uttar Pradesh and Andhra Pradesh, have to be read down to the effect that they would not be applicable to any transaction of right to use any goods if such transaction of deemed sale in an inter-State sale, or an outside State sale, or the sale occasions the import of goods into India.

9.7. Extended definition of "sale" under the Central Sales Tax Act, 1956.—

9.7.1 In view of the amended definition of "sale" in the Central Sales Tax Act, 1956, by the (Central) Finance Act, 2002, with effect from 11.05.2002, if the transactions of transfer of right to use goods are in the nature of inter-State sales under section 3 of the CST Act, the taxability under the State Acts shall not arise at the situs of sale, but it shall be determined in accordance with the provisions of the CST Act.

9.7.2. In the case of Inter-State sales, the situs of sale is not relevant or the place of delivery of goods is not a determining factor to decide the nature of transaction.

9.8 Deemed "Sales" inserted in pursuance of Forty-sixth Amendment in the Constitution.—

All deemed "sales" incorporated in the State Sales Tax Acts and the Central Sales Tax Act, in pursuance of the Forty-sixth amendment in the Constitution, are sales by virtue of the legal fiction, which is always conclusive. The Constitution Bench of the Hon'ble Supreme Court has, in the case of Builders Association of India and Others Vs. Union of India and others, reported at (1989) 73 STC 370, held that when the law creates a legal fiction, such fiction should be carried to its logical and the there should not be any hesitation in giving full effect to it. The Hon'ble Supreme Court has reiterated the same view in the cases of (i) Bhavnagar University Vs. Palitana Sugar Mills Pvt. Ltd., (2003: 3 SCC 111) and (ii) Ashok Leyland Ltd. Vs. State of Tamil Nadu and Another (2004: 134 STC 473) and has held that the purpose and object of creating a legal fiction in a statute is well-known, and when a legal fiction is created it must be given its full effect.

10.0 Classification of "Sales"—

The "Sales" may be classified into the following four categories:—

(i) Inter-State sales or sales inside a State;
(ii) Inter-State sales;
(iii) Sales outside a State; and
(iv) Sales in the course of import or export of goods.

11.0 Intea-State Sales(Sales Inside a State)

11.1 Intra-State sales or sales inside a State have been defined in sub-section (2) of section 4 of the Central Sales Tax Act, 1956, which is reproduced below:—

Section 4(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State—

(a) in the case of specific or ascertained goods, at the time of the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether asset of the other party is prior or subsequent to such appropriation.

Explanation: Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contract in respect of the goods at each of such places.

Intra-State sales have not been defined in the Rajasthan Sales Tax Act, 1994 and the provisions of the Central Sales Tax Act, 1956 are binding.

11.2 Firstly, in the case of ascertained goods, if the goods are placed inside the State of Rajasthan when the contract of sale is made, then it shall be sales inside the State of Rajasthan, or intra-State sales in the State of Rajasthan. Secondly, in the case of unascertained goods, when the goods are appropriated to the contract of sale, then it shall be intra-State sales in the State of Rajasthan or sales inside the State of Rajasthan. In the case of intra-State sales, place of the goods in the State is situs of sale and the taxability arises at that point. But in the case of deemed sales by way of transfer of right to use goods, according to the judgement of the Hon'ble Supreme Court given in the case of 20th Century Finance Corporation Ltd. situs of sale is the place where contract of lease is executed, where the goods are ascertained. In the case of unascertained goods sale by way of transfer of right of the goods takes place at the point of the delivery of goods. In the case of sale of goods involved in the execution of a works contract, sale becomes complete when the goods are incorporated in the works. The place of works is the situs of sale. In other cases of deemed sales, the delivery of goods create the taxability. Taxability arises on the combination of three factors - (i) taxable person, (ii) taxable goods, and (iii) taxable event.

11.3 Once the intra-State sale is complete, subsequent movement of the goods to other state does not disturb the nature of sale already completed.

11.3.1 The Hon'ble High Court of Orissa has, in the case of State of Orissa Vs. Vijayalaxmi Timber Depot, reported at (2002) 126 STC 169 (175), held that the seller after selling the goods had in fact nothing to do with their movement from Berhampur to outside the State. The purchasers transported the goods on their own from Berhampur to the respective destinations.

11.3.2 The Hon'ble Madras High Court has, in the case of Razack Trading Company Vs. Deputy Commercial Officer, reported at (2003) 132 STC 378 (383-384), held that it is clear from the statement of facts found in the affidavit accompanying the petition before us, as also from the facts which the assessee had disclosed to the assessing authorities, that the contract between the assessee and its purchaser was for the sale of chillies ex-assessee's godown at Ariyalur within the State. As between the assessee and its buyer the sale was completed at Ariyalur, the subsequent movement of the goods from Ariyalur to the port of Cochin cannot be regarded, in the circumstances, as having been occasioned by this sale. The fact that this local sale was also the penultimate sale under section 5(3) of the CST Act would not, on that score, render the movement of goods from within the State to a port outside the State, a part of the sale as between the assessee and its exporter/buyer. The goods were moved obviously at the instance of and on behalf of the buyer. The sale so far as the assessee was concerned, was in fact a sale within the State, a sale which was also a penultimate sale for the purpose of section 5(3) of the CST Act.

11.3.3 The Hon'ble Rajasthan High Court has, having followed the judgements of the Hon'ble Supreme Court given in the cases of (i) Guduthur Thimmappa and Sons (AIR 1967 SC 1131), and Balabhagas Hulaschand (AIR 1976 SC 1016), in the case of Poddar Spinning Mills, reported at (1987) 67 STC 359, held that the sale in the case was complete at Jaipur, and after delivery of the machinery to the buyer, the seller's entire obligation under the contract came to an end. There was no evidence to show that under the contract the seller was required to do anything or to be associated with anything connected even with the removal of the goods thereafter from Jaipur. The mere knowledge that the goods had to be removed by the buyer from Jaipur to Bombay could not be treated as an incident of the contract with the seller. Therefore, the sale by the seller did not amount to an inter-State sale.

11.3.4 The Hon'ble Supreme Court has, in the case of Balabhgas Hulaschand, reported at (1976) 37 STC 207 (214: Case No. III), Stated that B, a purchaser in State Y, comes to State X, and purchases the goods and pays the price thereof. After having purchased the goods he then books the goods from State X to State Y in his own name. This is also a case where the sale is purely an internal sale having taken place in State X and the movement of goods is not occassioned by the sale but takes place after the property is purchased by B and becomes his property.

12.0 Inter-State Sales—

12.1 Inter-State Sales have been defiend in section 3 of the Central Sales Tax Act, 1956, and the definition is reproduced below:—

3. A sale or purchase of goods shall be deemed to take place in the course of Inter-State trade or commerce if the sale or purchase —

(a) occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.

Explanation I: Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods 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 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.

Clause (a) to section 3 above defines one situation where a transaction of sale would fall in category of inter-State sale, and clause (b) to the said section defines other situation which would take a transaction of sale in the ambit of inter-State sale.

12.2 According to the ratio of the judgment of the Hon'ble Supreme Court, given in the case of Balabhagas Hulaschand, reported at (1976) 37 STC 207, inter-State sales under clause (a) of section 3 of the Central Sales Tax Act, 1956, consists of the following three ingredients:—

(a) Existence of a contract of sale or purchase;
(b) pursuant movement of goods from one State to another; and
(c) Acceptance (Delivery) of the goods by or on behalf of the purchaser.

Except the above three ingredients, other facts and circumstances, such as modes of obtaining orders, place of preparation of bills/invoices, mode or place of delivery and place or mode of receipt of payment are not relevant in determining the nature of a transaction to make it inter-State sale.

12.3 According to the ratio of the judgment of the Hon'ble Supreme Court, given in the case of G.A. Galiakotwala & Co., reported at (1992) 87, 536, inter-State sale under clause (b) of section 3 of the Central Sales Tax Act, 1956, consists of the following three ingredients:—

(a) Movement of goods from one State to another,
(b) Transfer of documents of title to the goods (such as, railway receipt, goods receipt) during such movement; and
(c) Existence of valuable consideration as part of transfer.

Movement of goods starts with the delivery of the goods to a carrier and it terminates with the delivery of goods from such carrier.

Where during such movement, if the first purchaser of the goods further transfers the documents of title to the goods to some other person for consideration, such sale shall be "subsequent inter-State sale" covered by sub-section (2) of section 6 of the Central Sales Tax Act, 1956.

12.4 Some Important Judicial Pronouncements relating to Inter-State sales.—

12.4.1 The Hon'ble Supreme Court has, in the case of Oil India Ltd., reported at (1975) 35 STC 445(449), held that the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of 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 convenant express or implied in the contract of 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 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 and incidental to the contract of sale.

12.4.2 The Hon'ble Supreme Court has, in the case of English Electric Company of India Ltd., reported at (1976) 38 STC 475 (479-480), held that when a branch of a company forwards a buyer's order to the principle 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. 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 inexplicable, 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 the matter different. Such an interception by a known person on behalf of the seller in the delivery State and such person's activities prior to or after the implementation of the contract may not alter the position.
12.4.3 The Hon'ble Supreme Court has, in the case of South India Viscose Ltd., reported at (1981) 48 STC 232 (239), held that in the instant case, the allocation card was first sent in November, 1963, asking the appellant (seller) directly to make an offer of the goods to the allottee (purchaser). The allottee was expected to communicate his desire to purchase the goods within the twenty one days of the date of the allocation card. Such communication brought into existence a contract of sale directly between the appellant (seller) and the buyer. The goods were admittedly sent pursuant to the said contract of sale. The interposition at a later stage of the selling agent who acted on behalf of the appellant (seller) in the preparation of the invoice and the delivery of the goods would not alter the true character of the sale as the selling agent was just a conduit pipe. The goods having been despatched from one State to another State pursuant to a contract of sale which came into existence directly between the appellant (seller) and the buyer within a few days after the date of the allocation card, the sale was an inter-State sale.

12.4.4 The Hon'ble Supreme Court has, in the case of Bhaktawar Lal Kailash Chand Arhti and Others reported at (1992) 87 STC 196, held that the purchases of the goods and their despatch were parts of the same transaction and the movement of the goods from one State to another was occasioned by and was the result or the incident of the purchases. Therefore, the purchases were in the course of inter-State trade.

The Hon'ble Apex Court has observed also in the said case that if the agent had purchased the goods on behalf of the ex-U.P. principals in the first instance and thereafter in pursuance of subsequent instructions despatched the goods, the instructions to depatch the goods would be independent of the instructions to purchase. There would be break between the purchase and the despatch of the goods and the purchase would not be an inter-State purchase.

12.4.5 The Hon'ble Supreme Court has, in the case of Co-operative Sugar (Chittor) Ltd., reported at (1993) 90 STC 1, held that the movement of sugarcane from Tamil Nadu to Kerla was an incident of, and was inextricably connected with the sale/purchase. The purchase and transport were parts of one transaction and could not be dissociated. Therefore, purchase and sale were in the course of inter-State sale.

12.4.6 The Hon'ble Supreme Court has, in the case of Ashok Leyland Ltd., Vs. State of Tamil Nadu And Anothers, reported at (2004) 134 STC 473, held that by reason of section 6A(2) of the Central Sales Tax Act, 1956, a legal fiction has been created to the effect that where the movement of goods takes place otherwise than as a result of sale, the transaction would not be an inter-State sale. The initial burden of proof is on the dealer to show that the movement of the goods was occasioned by reasons of transfer of such goods otherwise then by reason of sale. Prior to the amendment of sub-section (1) of section 6A of the Central Sales Tax Act, 1956, the dealer had an option of filing the declaration in Form F. After the amendment, the dealer does not have such an option. If he fails and/or neglects to file such a declaration, the transaction would be deemed to be an inter-State sale.

12.4.7 The Hon'ble Supreme Court has, in the case of Gaunon Durkerly & Co. Vs. State of Rajasthan, reported at (1993) 88 STC 204, held that so far as sales in the course of inter-State trade or commerce are concerned, the position is well settled that the situs of the sale or purchase is wholly irrelevant as regards its inter-State character.

12.4.8 The Hon'ble Supreme Court has, in the case of (i) Oil India Ltd. (1975: 35 STC 445) and (ii) Bala Bhagas Hulas Chand (1976: 37 STC 207), has taken a view that the place of delivery of goods is not a determining factor as to decide whether or not a transaction is an inter-State sale or purchase.

12.4.9 The Hon'ble Supreme Court, has in the case of Sahney Steel and Press Works Ltd., reported at (1985) 60 STC 301, taken a view that where the customer placed an order with the branch office and the branch office passed on the details of the order to the registered office. The branch office was involved with dispatching, billing and receiving of the sale price. In this case, the order placed by the customer was an order placed with the company and in pursuance of that order, goods were moved 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 and they constituted one juristic personality. 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 the delivery of the goods in other state to the customer was an inter-State movement.

12.410 The Hon'ble Punjab & Haryana High Court has, in the case of Mehta Group of Industries, reported at (1989) 75 STC 428, held that the data on record showed that goods received by the head office were despatched on the very same day and in the same quantities to customers in far off places, indicated that orders of the customers was already there and the movement of goods was in pursuance of those orders in the course of inter-State trade or commerce.

In another case of Haryana Iron & Steel Rolling Mills, reported at (1990) 77 STC 211 the Hon'ble Punjab & Haryana High Court has held that the coincidence of the goods being sold at Delhi on the same dates and in the same lots as received from Hisar might take place once or twice but such coincidences taking place on thirty three occasions, led to the irresistible conclusion that pre-existing contracts of sale occasioned the movement of goods from Hisar to Delhi.

The Hon'ble Kerla High Court has, in the case of Peal Food Products, reported at (1994) 93 STC 1, held that presumption of inter-State sales could be drawn where every stock transfer statement was followed by an invoice for local sale in the State to which the goods were despatched raised with the very same date for the very same value and of the same quantity as in the stock transfer statement.

12.4.11 The Hon'ble Rajasthan High Court has, in the case of Nahata Textile Industries, Pali reported at (2000) 27 RTJS 169, held that where the assessee received orders from K.K. and as per instructions of K.K. goods were despatched to different destinations in other states, but goods receipts were prepared in the name of K.K., the transactions were in the nature of inter-State sales, as goods receipts did not determine the character of the transactions.

12.4.12 The Hon'ble Supreme Court has, in the case of Bharat Heavy Electricals Ltd., reported at (1996) 102 STC 373, held that the State from which the goods have moved by reason of the sale is the State in which the Central Sales Tax is leviable.

12.4.13 The Hon'ble Supreme Court has, in the case of Guljag Industries Ltd., reported at (2003) 129 STC 3, held that once a sale is prima facie formed to be an inter-State sale, the central sales tax shall be collected in the State from which the movement of the goods commenced in view of section 9(1) of the Central Sales Tax Act, 1956.

13.0 Sale out side The State—

Sales outside the state have been defined in section 4(1) of the Central Sales Tax Act, 1956, as under:—

Section 4(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.

Generally, the sales outside the State may be made in the following forms:

(i) Branch transfers of goods by manufacturers to their outside branches for being sold there;
(ii) Consignment or despatch of goods to outside commission agents to be sold outside the State;
(iii) Both purchases and sales of the goods made and effected outside the State.

The basic thing in the case of sales outside the State or consignment sales or branch transfers or stock transfers, is that goods move from one State to another State without any privity of or nexus to contract of sale or purchase.

14.0 Sale or Purchase in The Course of Import or Export—

14.1 Sale or purchase in the course of import or export has been defined in section 5 of the Central Sales Tax Act, 1956, as under:

Sec. 5.(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.

According to the provisions of section 5, sale or purchase in the course of import or export may be in three situations:—

(i) Sale or purchase in the course of import,
(ii) Sale or purchase in the course of export,
(iii) Penultimate sale or purchase deemed to be made in the course of export.

14.2. Sale or purchase in the course of import.—

14.2.1 Sale or purchase of goods in the course of import may be in two ways—

(i) either the sale or purchase occasions such import from other country to India;
(ii) or sale or purchase is effected by transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.

"Crossing of customs frontiers of India" means crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities.

14.2.2 We may refer to some relevant judicial pronouncements. The facts in the case of Kotak & Co. (hereinafter referred to as the firm) were that pursuant to contracts entered into with certain textile mills, the firm imported cotton on the basis of actual user's import licenses issued to the mills and letters of authority issued by the Government. The payment was to be made by mills against the documents. The contract was irrevocable and the sale was subject to import license. Under Import Control Regulations, the importers were the mills and the import licence and the letter of authority were issued to the mills. Under the letter of authority, the firm was authorised to import the goods. The firm was bound to deliver the goods to the mills. After the goods were shipped at the foreign port, the bill of lading and other documents were forwarded through bank to the firm. The firm made the payment and got the documents. The firm thereafter delivered the goods to the mills against the payment. The Hon'ble Supreme Court in this case has, reported at (1973) 32 STC 6, held that the firm was precluded from selling the goods to anybody other than the mills to whom the user's import licence had been issued and therefore the sales by the firm to the mills were sales in the course of import.

14.2.3 In second case, M/s K.G. Khosla & Co. (P) Ltd., had its principals at Belgiuum. DGS&D entered into a contract for purchase of axle boxes, and in pursuance of this contract axle boxes were manufactured in Belgium. The contracted goods moved from Belgium to India, which were cleared by the clearing agents of Khosla & Co. and were despatched for delivery to the Southern Railway (DGS&D). The Hon'ble Supreme Court has, in its judgment given in this case and reported at (1966) 17 STC 473, held that it was sale in the course of import because the movement of the goods from Belgium to India was occasioned by the contract of sale between Khosla & Co. and the DGS&D, and that if the movement of goods was the result of a covenant or incidental to the contract of sale, it was immaterial that the actual sale took place after the import was over.

14.2.4 In a third case, M/s Binani Bros. (P) Ltd., had its head office at Calcutta. The company entered into a contract for sale of non-ferrous metal to DGS&D. The company purchases non-ferrous metal from other countries. After having received the goods from other countries, it supplied the same to DGS&D. In this case, the Hon'ble Supreme Court in its judgement, reported at (1974) 33 STC 254, held that it was not sale in the course of import because the sales by Binani Bros. to the DGS&D did not occasion the import of the goods, but it was the purchases made by Binani Bros. from the foreign sellers which occasioned the import of the Goods. There was no privity of contract between the DGS&D and the foreign sellers. The movement of the goods from the foreign sellers was not occasioned on account of the sales by Binani Bros. to the DGS&D.

14.2.5 The Hon'ble Supreme Court has, in the case of Indian Explosives Ltd., reported at (1985) 60 STC 310, held that in order that the sale should be one in the course of import, it must occasion the import, and the occasion the import there must be an integral connection or inextricable link between the first sale following the import and actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import and which cannot, without committing a breach of statute or contract or mutual understanding, be snapped. When according to the actual user's import licence and the letter of authority it was clear that the import of the goods by the assessee was for and on behalf of the local purchaser and the assessee could not, without committing a breach of the contract, divert the goods so imported for any other purpose, the sales by the assessee were in the course of import.

14.2.6 The Hon'ble Supreme Court has, in the case M/s Minerals & Metals Trading Corporation of India Ltd., reported at (1998) 111 STC 434, held that the bill of lading had been endorsed in favour of Steel Authority of India Ltd., while the consignment was still upon the high seas and the sale was in the course of import into the territory of India, because it was effected by transfer of documents of title to the goods before they had crossed the limits of the Customs Station at Pradeep Port, which was a customs port.

14.3 Sale or purchase in the course of export—

14.3.1 Sale or purchase in the course of export may be under the following two situations:—

(i) First situation
(a) contract of sale or purchase between a dealer of India and a dealer of other country;
(b) such contract occasions the export of goods outside the country; and
(c) end of the movement with the delivery of the goods to the purchaser or his agent.
(ii) Second situation
(a) goods have crossed the customs frontiers of India;
(b) there is transfer of documents of title to the goods; and
(c) transfer of the document's is for consideration.

14.3.2 The Constitution Bench of the Hon'ble Supreme Court has, in the case of Coffee Board, Bangalore, reported at (1970) 25 STC 528, held that the phrase 'sale in the course of export' comprises in itself three ingredients—

(i) that there must be a sale, (ii) that goods must actually be exported, and (iii) the sale must be a part and parcel of the export. Therefore, either the sale must take place when the goods are already in the process of being exported which is established by their having already crossed the customs frontiers, or sale must be occasion the export. The word "occasion" is used as a verb and mean 'to cause' 'or to be the immediate cause of. The export results from the sale and is bound up with it. The 'course' in the expression 'in the course of' means progress or process off, or shortly, 'during'. The phrase expanded with this meaning reads ' in the progress or process of export' or 'during export'. Therefore, the export from India to a foreign destination must be established and the sale must be a link in the same export for which the sale is held. To establish export, a person exporting a person importing are necessary elements and the course of export is between them.

14.3.3 The Constitution Bench of the Hon'ble Supreme Court has, in the case of Ben Corn Nilgiri Plantations Co., reported at (1964) 15 STC 753, held that where a foreign purchaser either by himself or through his agent purchases goods within the territory of India and exports the goods and even if the seller has the knowledge that the goods are intended by the purchaser to be exported, such a transaction is not sale in the course of export for the seller does not export the goods, and it is not his concern as to how the purchaser deals with the goods.

14.3.4 The Hon'ble Supreme Court has, in the case of Madras Marine And Co. & Others, reported at (1986) 18 STL 65, held that where the imported goods were placed in the bounded warehouse under the joint control of the assessee and the customs authorities, and were sold to the foreign going vessels, it was not sale in the course of export, but it was sale within the State.

14.3.5 The Hon'ble Rajasthan High Court has, in the case of Beechem Ores and Minerals, reported at (1986) 18 STL 47, held that the sale by a local dealer to the assessee being a transaction independent of the transaction of the sale by the assessee to the foreign buyer, cannot be regarded as a sale or purchase in the course of export but can only be regarded as sale or purchase for export.

14.3.6 The Hon'ble High Court of Allahabd has, in the case of Ganeshi Lal and Sons, reported at (1982) 49 STC 253, held that the making of a sale in pursuance of the 'export promotion scheme' or in accordance with the terms and conditions mentioned therein, did not make a sale in the course of export. The sale might have been made with the intention that the goods sold shall be taken out of India and the goods might ultimately cross the Indian border. But those by themselves did not result in a sale in the course of export. The prohibition to sell in India or the checking of goods at customs barrier had nothing to do with the sale but were only conditions of sale. Their breach did not effect the sale but might land the purchaser in difficulty and had nothing to do with the seller. There was no link between agreement to sell and export. Therefore, sale made by the assessee to foreign tourists under the export promotion scheme was only a sale for export and not a sale in the course of export.

14.3.7 The Hon'ble Supreme Court has, in the case of Serajuddin, reported at (1975) 36 STC 136, held that where the sale is effected by the seller and the seller is not connected with the export which actually takes place it is a sale for export.

14.4 Penultimate sale or purchase deemed to be made in the course of export.—

14.4.1 Due to legal fiction created by sub-section (3) of section 5 of the Central Sales Tax Act, 1956, a sale or purchase shall be deemed to be in the course of export where—

(i) it is the last sale or purchase of any goods preceding the sale occasioning the export of the goods out of the territory of India,
(ii) such last sale or purchase takes place after the order of export is received; and
(iii) such last sale or purchase is for the purpose of complying with the agreement or order for or in relation to such export.

14.4.2 The Hon'ble Supreme Court has, in the case of (i) Sterling Food And Others (1986: 63 STC 239), and (ii) Canara Export (1987:66 STC 153), held that if the goods purchased and exported are not the same, no benefit of section 5(3) of the Central Sales Tax Act, 1956, shall be available.

14.4.3 Position of raw hides and skins and dressed hides and skins.—

14.4.3.A: The Hon'ble Kernataka High Court has, in the case of Farida Prime Tannery And Others, reported at (1992) 84 STC 133, held that where, for the purpose of complying with agreements entered into the export of dressed hides and skins, raw hides & skins were purchased, such purchase would fall within the ambit of section 5(3) of the Central Sales Tax Act, 1956.

The Hon'ble High Court of Karnataka has, while delivering the above judgement, followed the judgement of the Hon'ble Supreme Court, given in the case of Mahi Traders (1989: 73 STC 228). But the judgment of Mahi Traders has been overruled by the Hon'ble Supreme Court in the case of K.A.K. Anwar & Co. reported at (1998) 108 STC 258.

14.4.3B:The Hon'ble Madras High Court has, in the case of M.S. Mohammed Siddique And Company, reported at (1993) 91 STC 336, held that hides and skins purchased and exported after tanning can not be treated as a different commodity and exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956, is allowable.

But the another Division Bench of the same High Court has, following the judgement of the Hon'ble Supreme Court given in the case of Hajee Abdul Shukoor and Co. (1964: 15 STC 719) held in the case of Tamil Nadu Small Industries Corporation, reported at (1992) 87 STC 430, that it was settled that raw hides and skins and dressed hides and skins are different articles of merchandise.

14.4.3C:The Hon'ble Andhra Pradesh High Court has, following the judgment of the Hon'ble Supreme Court given in the case of K.A.K. Anwar (1998: 108 STC 258), held in the case of Al-Kabeer Exports Ltd., reported at (2000) 120 STC 543, that raw hides and skins and dressed hides and skins cannot be considered as one commodity for the purpose of claiming exemption of sales tax under section 5(3) of the Central Sales Tax Act, 1956.

14.4.3D:The Constitution Bench of the Hon'ble Supreme Court has, in the case of Hajee Abdul Shukoor & Co., reported at (1964) 15 STC 719, held that raw hides and skins and dressed hides and skins constitute different commodities and they could therefore be treated as different goods for the purpose of the Act.

14.4.3E:The Hon'ble Supreme Court has, in the case of K.A.K. Anwar & Co., reported at (1998) 108 STC 258, overruling its earlier judgment given in the case of Mahi Traders (1989: 73 STC 228) and disapproving its other judgment given in the case of Telagana Steel Industries (1994: 93 STC 187), held that raw hides and skins were different items from the dressed hides and skins, because it was after undergoing a manufacturing process involving various stages that raw hides and skins becomes dressed hides and skins.

14.4.3.F:In view of the decision of the Hon'ble Supreme Court given in the case of (i) K.A.K. Anwar & Co., it is settled position of law that raw hides and skins and the dressed hides and skins are not the same goods for the purpose of section 5(3) of the Central Sales Tax Act, 1956.

14.5 Freezing Process.—

The Hon'ble Supreme Court has, in the case of Shiply International, reported at (1998) 69 STC 325, held that the fresh frogs and the frozen frogs were the same goods for the purpose of Section 5(3) of the Central Sales Tax Act, 1956, because the process of freezing was only to prevent decomposition and did not amount to manufacture.

14.6 Change in the character of the goods.—

The Hon'ble Supreme Court has, in the case of Vijaylaxmi Cashew Co. & Others, reported at (1996) 100 STC 571 held that if, in order to fulfil an export obligation, an exporter purchases some goods and as a result of some processing the identification of the goods change, then, it will not be a case of the export of the same goods under section 5(3) of the Central Sales Tax Act, 1956. Applying this principle, the Hon'ble Supreme Court further held that cashew nut kernels were not the same goods after their being processed to raw cashew nuts.

15.0 Some Judicial Pronouncements with Regard to The Nature of "Sale"—

15.1 Determination of Nature of Sale.—

The Hon'ble Supreme Court has, in the cases of Arun Electricals (1966: 17 STC 576), Hyderabad Cement Products Ltd. (1969: 24 STC 487, 490), and (iii) Central India Machinery Co. Ltd. (1977: 40 STC 246, 274-275), held that the nature of sale and taxability thereon depends upon the terms and conditions of a contract, and not on the form of invoice or verbal statements or other procedural formalities.

15.2 Forward Contracts.—

The Hon'ble Supreme Court has, in the case of (i) Budh Prakash Jai Prakash (1954: 5 STC 193, 198), and (ii) Auraiya Chamber (1986: 62 STC 327), held that forward contracts do not constitute sale.

15.3 Barter System of transfer of goods.—

The Hon'ble Supreme Court has, in the case of (i) Gannon Drukerly & Co., (1958: 9 STC 353, 365) and (ii) Devidas Gopaldas (1967: 20 STC 430) held that 'barter system of transfer of goods' does not constitute sale.

15.4 Restrictions imposed on transfer of goods.—

The Hon'ble Supreme Court has, in the cases of (i) Food Corporation of India, reported at (1997) 105 STC 4, 7 and (ii) the Bhopal Sugar Industries, reported at (1977) 40 STC 42,44 held that restriction imposed on transfer of goods, such as licensing for selling, fixing of price, selling in a particular sector, submission of statements and so on, do not disturb or change the nature of sale.

15.5 Replacement of parts of during warranty period.—

The Hon'ble Supreme Court has, in the case of Mohd. Ekram Khan& Sons, reported at (2004) 136 STC 515, held that replacement of parts against price during warranty period is sale and subject to tax.

15.6 Supplies by an awarder to a contractor.—

The Hon'ble Supreme Court has, in the cases of (i) N.M. Goel & Co. (1989: 72 STC 368), (ii) Cooch Bihar Contractors Association (1996: 103 STC 477), (iii) Rashtriya Ispat Nigam (1998: 109 STC 425), (iv) Collector of Customs Vs. State of West Bengal (1999: 113 STC 167) and (v) Karya Palak Engineer, CPWD, Bikaner (2004: 136 STC 641), held that where an awarder supplies some goods against price to a contractor for being incorporated in the execution of a works contract, the supplies are sales.

15.7 Photography.—

The Hon'ble Supreme Court has, in the case of Rainbow Colour Lab and Anothers, reported at (2000) 118 STC 9, held that taking a photograph and supplying of prints by a photographer, is a contract of service and not of sale.

But the Hon'ble Supreme Court has, in a later case of Associated Cement Companies Ltd., reported at (2001) 124 STC 59, following the decision of the Constitution Bench given in the case of Builders' Association of India (1989: 73 STC 370), overruled the conclusion drawn in the case of Rainbow Colour Lab and has taken a view that supply of photographic paper may amount to sale.

15.8 Printing of question papers.—

The Hon'ble Supreme Court has, in the case of Anandan Vishwanathan, reported at (1989) 73 STC 1, held that printing and supplying of question papers do not amount to sale.

15.9 Supply of printed material.—

The Hon'ble Madhya Pradesh High Court in the case of M.P. State Co-operative Press Ltd., reported at (1988) 68 STC 245, and the Hon'ble Kerla High Court in the case of P.D. Cooperative Printing Press Ltd., reported at (2004) 135 STC 207), have held that supply of printed material amounts to sale.

15.10 Supply of Bricks.—

The Hon'ble Supreme Court has, in the cases of (i) Chandrabhan Gosai (1963: 14 STC 766), and (ii) Sabarmatis Reti Udyog Sahkari Mandali Ltd. (1976: 38 STC 203), has held that a contract of manufacture and supply of bricks amounts to sale.

15.11 Supply of railway wagons.—

According to the judgement of the Hon'ble Supreme Court given the case of Central India Machinery Manufacturing Co. Ltd., reported at (1977) 40 STC 267, the supply of wagons by the company against 90 percent value of the materials, was nothing but sale to the Railway Authorities.

15.12 Mounting of bus bodies.—

The Hon'ble Supreme Court has, in the cases of (i) Patnaik And Co. (1965: 16 STC 364), (ii) T.V. Sundram Iyengar & Sons (1975 : 35 STC 24), held that the bus bodies were constructed by the assessee on the chassis provided by the customers and it was only when the complete bus with the body fitted to the chassis delivered to the customer that the property in the bus body passed to the customer. Therefore, the supply of the bus bodies constituted a sale.

15.13 Xerox Copies.—

The Hon'ble High Court of Karnataka has, in the case of B. Girija And Another, reported at (1984) 56 STC 297, held that the supplying of duplicate copies against charges was a contract of service and not a contract of sale.