NECHUPADAM CONSTRUCTION ENGINEERING CONTRACTORS Vs. EXECUTIVE ENGINEER POTHUNDI

JUDGEMENT

(1.) The petitioner are a Firm. They had undertaken a contract work with Government for forming embankment for the dam from L. S. O. to 2000 in the Pothundi Project. Their case is: Government, the 2nd respondent, had undertaken to supply petrol and high speed diesel oil at Rs.0-71 per litre for petrol and Rs.0-63 per litre for diesel oil: the value of the petrol and diesel oil was agreed to be deducted from out of the part bills paid by the first respondent: along with the amount so deducted as value of the diesel oil and petrol, the first respondent deducted various amounts totalling Rs. 19,502-53 as sales tax on the diesel oil and petrol purchased by the petitioner: the petrol and diesel oil are liable to tax only at the point of 1st sale in the State. The contention of the petitioner is that they are not the first purchasers in the State of the petrol and diesel oil, and that the recovery of sales tax from them was illegal. The petitioner made a demand to refund the sales tax illegally levied, by their letter dated 7-3-1965. The 1st respondent gave a reply to the petitioner refusing to refund the sales tax realised from the petitioner. Ext. P-1 is the copy of the reply. The prayer in the petition is for quashing Ext. P-1 and for issuance of a writ of mandamus directing the respondents to refund the tax collected from the petitioner. On behalf of the 1st respondent, a counter affidavit has been filed and in the counter affidavit it is stated in para 7:

(2.) Mr. Velayudhan Nair for the petitioner did not contend that his clients were not liable to pay sales tax if they were the 1st purchasers of the petrol and diesel oil in the State. His contention was that it was in pursuance of the contract between Government and the petitioner that Government purchased petrol and diesel oil from Pollachi and transported them to Pothundi and therefore the sales to the petitioner were inter State sales not liable to tax under the State law. He submitted that in order that the sales of petrol and diesel to his clients may be taxed, the State must have jurisdiction to tax the same under the State Law and as the sales in question were inter State sales, his clients were not liable. It was argued that the contract of Government with the petitioner involved the movement of petrol and diesel oil from Pollachi to Pothundi and therefore the sales were inter State sales. Whether the sales were inter State sales would depend upon the answer to the question whether the contract of Government with the petitioner involved the movement of goods from one State to another or whether the movement of goods from one sate to another was a necessary incident of the contract. Mr. Velayudhan Nair argued that the contract between Government and the petitioner necessitated the purchase of petrol and diesel oil from Pollachi by Government and the transportation of the same to Pothundi and therefore the sales were inter State sales not liable to be taxed. In support of his contention he relied upon the decision in Khosala &. Co. (P) Ltd. v. Deputy Commissioner of Commercial taxes XVII STC 473 and also upon The Cement Marketing Co. of India (P) Ltd. v. The State of Mysore XIV STC 176. In The Cement Marketing Co. of India (P) Ltd. v. The State of Mysore XIV STC 176 the Supreme Court had to consider this question. The first appellant before the Supreme Court was the sales Manager of the second appellant there, who was manufacturing cement and was having factories in different parts of India outside the State of Mysore. The first appellant with its head office in Bombay and a branch office in Bangalore was a registered dealer under the Mysore Sales Tax Act, 1948. Persons desirous of buying cement had to get an authorisation in a standard form which authorised the first appellant to sell and supply cement in quantities and from the factory mentioned therein. The buyer then placed an order with the first appellant who accepted the order and instructed its Bombay office to despatch the cement in accordance with the instructions of the buyer and the authorisation. A copy of the letter of instruction was sent to the factory from where the goods were to be despatched and the particulars of the authorisation were mentioned therein. Thereafter the first appellant sent an advice to the buyer enclosing therewith the railway receipt of the goods and the particulars of the authorisation. Both the contract of sale and the advice stated that the goods were being despatched at the buyer's risk from the time delivery was made from the factory to the carriers and the railway receipt was obtained for the goods. In respect of the period of assessment from 6th September 1955, to 31st March, 1956 both the Sales Tax Authorities and the High Court held that as the actual delivery of the goods to the buyers was made within the State of Mysore the sales were inter State sales and liable to be taxed under the Mysore Sales Tax Act. 1948. It was held by the Supreme Court that the sales were inter State sales and exempt from sales tax because under the contract of sale there was transport of goods from outside the State of Mysore into the State of Mysore and the transactions themselves involved movement of goods across the border. The Supreme Court accepted the test propounded in The Bengal Immunity Company Ltd. v. The State of Bihar & Others 1955 (2) SCR 603 (VI STC 446), where it was held that a sale can be said to take place in inter State trade only if two conditions are satisfied: the conditions are: (1) A sale of goods, and (2) a transport of those goods from one State to another under the Contract of sale.

(3.) S.3 of the Central Sales Tax Act says: