Quest

Opinion

Vinayak Patkar
Advocate

Query

Please refer to the judgment of the Karnataka High Court dated 14-8-2007 in the case of State of Karnataka vs. A and G Projects and Technologies Limited, Bangalore reported in 13 VST page 177 and give us your opinion on the following queries.

(1) Is the judgment correct? Is it in accordance with the position as normally understood and practices followed in the Trade.

(2) In your opinion, what should the respondent have done to fit his case u/s. 3(b) of the CST Act?

(3) Would the position be different if the Lorry Receipt was issued in the name of the respondent instead of his customer.

(4) Any suggestion or view you would like to give in respect of this judgment.

Opinion

Let us first see the facts of this case reported by the Court in paragraph No.13 (Page No. 186) of the judgment. The goods which were ordered by M/s. A & G Projects & Technologies Ltd. (Respondent) for the purpose of supplying the same to Karnataka Power Transmission Corporation Limited (KPTCL) were manufactured at Chennai as per the specifications of KPTCL. The goods were transported from the State of Tamil Nadu by lorry to Hyderabad and the same were delivered to KPTCL. The lorry receipt issued by the transporter; i.e., Maruti Road Carrier, Hyderabad clearly mentioned the name of the consignor for supply of the goods in favour of KPTCL. On these facts following question was referred to the High Court.

“Whether there could be any subsequent sale effected by the respondent as per Explanation 1 appended to section 3(b) of the CST Act in furtherance to the ultimate buyer – KPTCL before the commencement of the movement of the goods from other State to the State of Karnataka?”

If the facts narrated above are read with the question referred then the natural inference is that the goods were delivered to the carrier (at Chennai) by A & G Projects & Technologies Ltd. and thereafter the movement commenced.

Thus, it was an admitted position that second sale was effected to KPTCL even before the movement of the goods had commenced. Kindly note that movement of the goods had commenced from Chennai; i.e., from the State of Tamil Nadu to the State of Karnataka and it did not break till the goods were delivered to KPTCL in the State of Karnataka.

Section 6(2) of the Central Sales Tax Act, 1956 exempts the subsequent sale from the levy of CST only if such subsequent sale has been effected during the movement of the goods. If such subsequent sale is before the commencement of the movement of the goods from one State to another State then there is no question of applicability of section 6(2) to such transaction.

The proviso to section 9(1) of the Central Sales Tax Act, 1956 no doubt empowers the State from which the dealer has obtained or could have obtained Form ‘C’ in connection with purchase of goods, to levy and collect tax if such subsequent sale fails. But it is also the requirement of that proviso that such subsequent sale should necessarily be during the movement of the goods from one State to another. If such sale has taken place before the commencement of the movement of the goods then in my view proviso to section 9(1) has no application and such transaction is squarely covered by sub section (1) of that section and the State from which the goods have moved gets jurisdiction to levy tax on such sale. Thus the State of Tamil Nadu is competent to levy CST even on the subsequent sale.

It be noted that reliance of the Court on the judgment of the A.P. High Court in the case of Jadhavjee Laljee vs. State of A.P. reported in 74 STC 201 for the purpose of determining the appropriate State competent to tax the second sale was, with due respect, incorrect, since in that case the subsequent sale was effected by transferring the railway receipt during the inter-State movement which had commenced from the State of Maharashtra. Kindly see paragraph No. 2 of that judgment wherein the facts have been brought out in very clear terms.

As per my information the Supreme Court of India has now admitted appeal against this judgment.