M/S Gaurav Agro-Chem Industries ... vs Commissioner Of Commercial Taxes ...
2017 Latest Caselaw 5283 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

A.F.R.
 
Court No. - 59
 

 
Case :- SALES/TRADE TAX REVISION No. - 28 of 2011
 

 
Applicant :- M/S Gaurav Agro-Chem Industries Agwanpur Moradabad
 
Opposite Party :- Commissioner Of Commercial Taxes U.P. Lko.
 
Counsel for Applicant :- Nikhil Agrawal,Shri Dhruv Agrawal
 
Counsel for Opposite Party :- C.S.C.
 
And
 
Case :- SALES/TRADE TAX REVISION No. - 29 of 2011
 

 
Applicant :- M/S Gaurav Agro-Chem Industries Agwanpur Moradabad
 
Opposite Party :- Commissioner Of Commercial Taxes U.P. Lko.
 
Counsel for Applicant :- Nikhil Agrawal,Shri Dhruv Agrawal
 
Counsel for Opposite Party :- C.S.C.
 
And
 
Case :- SALES/TRADE TAX REVISION No. - 30 of 2011
 

 
Applicant :- M/S Gaurav Agro-Chem Industries Agwanpur Moradabad
 
Opposite Party :- Commissioner Of Commercial Taxes U.P. Lko.
 
Counsel for Applicant :- Nikhil Agrawal,Shri Dhruv Agrawal
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble Yashwant Varma,J.

Heard Sri Nikhil Agrawal, learned counsel for the revisionist and Sri B.K. Pandey, who appeared for the State-respondent.

These three revisions of which the first two pertain to Assessment Years 2005-06 and 2006-07 and TTR No. 30 of 2011 emanate from proceedings which give rise to common questions of law and can be easily disposed of by means of the present judgment. They were with the consent of parties taken up for disposal together.

It is not disputed that the applicant is a proprietorship concern ["the concern"] which had its Head Office in the State Jammu & Kashmir and maintained a Branch Office at Moradabad. The Branch Office was engaged in the purchase of mentha oil from either registered dealers or directly from farmers situate within this State for and on behalf of the concern. For the relevant assessment years the Assessing Authority took the view that the purchases made by the Branch Office were concluded purchases effected within the State of U.P. and therefore exigible to tax under the U.P. Trade Tax Act, 19481. The Assessing Authority has also rested its decision on the application filed by the revisionist for the purposes of registration under the 1948 Act to hold that the Branch Office and the Head Office of the concern were liable to be viewed as separate entities especially since the revisionist had declared that he would not be effecting purchases for any ex U.P. principal. It has also taken the position that the recital contained in the application made by the revisionist for the purposes of registration that it would not undertake any business of purchase on behalf of ex- U.P. principals to be determinative of the liability of the revisionist to tax under the Act.

The Tribunal while affirming the view taken by the Assessing Authority, has not only reiterated and affirmed the conclusions of the assessing authority with respect to a concluded purchase made by the revisionist within the State of U.P., it has in fact gone a step further and has held that the absence of a contract between the Head Office and the Branch Office of the revisionist is a further circumstance to hold against the revisionist and affirm the view of the Department that it was liable to be taxed under the Act.

As is evident from the record as well as the oral submissions advanced before the Court there is no dispute that the Branch Office of the concern effected purchases within the State of U.P. solely with the aim of transferring mentha oil to its manufactory which was situate outside the State of U.P. and has been described by the authorities below as the Head Office situate in the State of Jammu and Kashmir. There is also no allegation against the revisionist that any part of the mentha oil which was purchased within the State of U.P. was in fact sold within this State.

The primary submission of Sri Agrawal was based upon the fact that the purchases were made with a clear and pre-existing intent of transferring the purchased commodity to its Head Office. He has referred to the disclosures made before the Department at the time of registration in which he submits that the revisionist clearly held out that it was acting only as an agent in one sense of the concern to effect purchases of mentha oil with the avowed intent of transferring the same to the State of Jammu & Kashmir. His submission was that these purchases within the State of U.P. clearly fell within the ambit of Section 3(a) of the Central Sales Tax Act, 19562 and that therefore no tax could have possibly been levied upon these transactions. Sri Agrawal has placed reliance upon the decisions of the Supreme Court in English Electric Company of India Ltd. Vs. The Deputy Commercial Tax Officer And Others3 and Commissioner of Sales Tax, U.P. And Others Vs. M/s Bakhtawar Lal Kailash Chand Arhti And Others4. Sri Agarwal has further submitted that in the registration application moved by the revisionist, it was clearly held out that it would be effecting purchases only for the concern and that the recital in respect of "ex U.P. principals" was only to clarify that it was undertaking business in the State of U.P. only for its own concern and not for any other entity.

Sri Pandey, the learned Standing Counsel has supported the order of the Tribunal and has contended that in absence of any pre-existing contract of sale, the purchases within the State of U.P. were liable to be viewed as a concluded purchase and therefore liable to tax under the provisions of the 1948 Act. In his submission, the movement of goods was not shown to be in pursuance of any contract of sale so as to warrant the transactions being placed within the ambit of Section 3(a) of the 1956 Act. He has further drawn the attention of the Court to the specific observations made by the Supreme Court in Bakhtawar Lal and appearing in paragraph 17 of the report to submit that there was evidently a break between the purchase and dispatch of goods and in the absence of the transactions satisfying the test of an "inextricable link" the transactions were not liable to the protection conferred by Section 3(a) of the 1956 Act. While this submission is noted it becomes relevant to point out that no material was referred to or relied upon to establish that there was a break in the chain represented by the purchase transactions or that there was an inseparable break in the transactions. To amplify the submission so made by Sri Pandey, the Court records that essentially his contention was that in order to qualify as being transactions referable to Section 3(a) of the 1956 Act, it was imperative for the revisionist to establish and bring on the record prior purchase orders. It is these rival submissions which now fall for consideration.

At the very outset let it be noted that the basic premise of the submissions advanced by Sri Pandey appear to rest upon the view that the Branch Office in the State of U.P. for the purposes of testing the liability of the revisionist to tax was liable to be viewed as a separate and distinct entity. It is perhaps with reference to this submission that Sri Pandey placed specific reliance upon the observations appearing in paragraph 17 of Bakhtawar Lal. This submission which also stands reflected in the view taken by the Assessing Authority and the Tribunal however does not commend acceptance.

A Branch Office does not of its own have a separate and distinct legal existence. Be it a Head Office or a Branch Office, they are only arms of the one singular entity which is the concern. This issue need not detain the Court as it has been authoritatively ruled upon in English Electric Company. That there can possibly be no contract of sale between the offices of one entity/concern is a proposition which cannot be open to doubt or debate. It is in this context that the Supreme Court in English Electric Company observed that branches have no independent and separate legal identity and are only different agencies of a common concern. The Court deems it appropriate to extract the following principles enunciated by the Supreme Court in its decision in English Electric Company to drive home the point:-

"There was not and there could not be any contract of sale between the factory of the seller appellant at Madras branch and the Bombay branch of the appellant. It is obvious that the Bombay branch is the agent of the seller-appellant. The appellant could not be the buyer as well as the seller.

The appellant has branches at different places. The appellant-company is one entity and it carries on business at different branches. Branches have no independent and separate entity. Branches are different agencies. The contract of sale is between the appellant-company and the Bombay buyer."

Both the Assessing Authority as well as the Tribunal appear to have lost sight of this foundational principle on which rested the case of the assessee. The consideration of this issue by both the Assessing Authority as well as the Tribunal has proceeded on the premise that the Branch Office was a separate entity which effected a purchase within the State of U.P. and which resulted in the occurrence of a concluded transaction. The acceptance of this line of reasoning would compel us to recognise the purchase made by the Branch Office as one made of its own volition, on its own account and in a sense separate and distinct from a transaction entered into by the concern. This proposition cannot possibly be accepted. The purchases made within the State of U.P. were transactions entered into by the concern through its agency which was the Branch Office. The consignment of the goods by the Branch to the Head Office of the concern in the State of Jammu and Kashmir again was not to a separate or distinct entity. Both offices, as has been held by the Supreme Court, were agencies or arms of a common concern. The Tribunal in this sense appears to have committed an even greater mistake in seeking out a contract between the Branch Office and the Head Office. For reasons noted above, this line of enquiry was clearly and principally misplaced.

Additionally both the authorities below lost sight of the unambiguous and undisputed declaration made by the revisionist that all purchases which were being effected within the State of U.P. were exclusively for being transmitted outside the State where its Head Office was situate. There was thus, an unbroken and inextricable link between the purchases made in the State of U.P. and their consequential dispatch to the State of Jammu & Kashmir. As noticed above, no evidence was relied upon to establish a disconnect between the purchase of goods and their dispatch outside this State. This was therefore clearly a purchase in the course of inter-State trade and commerce referable to Section 3(a) of the 1956 Act.

The acceptance of the findings and conclusions arrived at by both the Assessing Authority as well as the Tribunal would result in this Court accepting those very propositions which were unequivocally negatived by the Supreme Court in M/s Bakhtawar Lal. In the facts of the present case, there is no material to establish that the purchase of goods and their dispatch to the State of Jammu & Kashmir were not part of the same transaction. The movement of the goods from this State to the State of Jammu & Kashmir was occasioned by and directly linked to the purchases effected by the revisionist within the State. The following observations made by the Supreme Court in M/s Bakhtawar Lal Kailash Chand Arhti And Others would be relevant and are extracted herein below:

"9. The decision in Kholsa and Co. explains that to be called an inter-State sale or purchase, it is not necessary that the contract of sale must expressly provide for and/or stipulate the movement of goods from one State to the other; it is enough if such movement of goods is implicit in the contract of sale. If, however, the movement of goods is neither expressly provided for in the contract nor is it implicit in it, the movement of goods from one State to another, - even if one takes place - cannot be related to the sale/purchase. In such a case the movement of goods would be un-connected with an independent of the sale/purchase. It would not fall under Section 3(a). To fall thereunder, the sale and the movement of the goods must be part of the same transaction.

11. If we examine the facts of this case in the light of the above principles, it would be clear that the purchases effected by the respondent-dealer were inter-State purchases. The purchases were made by the respondent as a commission agent on behalf of the ex-U.P. principals and the goods purchased under each of the purchases were duly despatched to such principals. It is found that such despatch took place not later than three days from the date of purchase, as soon as the railway wagon was available. The purchase of goods and their despatch to ex- State principal were parts of the same transaction. The movement of goods from Uttar Pradesh to another State was occasioned by and was the result - or the incident of - the purchase. It was the consequence of the purchase. Such movement of goods, though not proved to have been expressly stated in the contract of sale, was yet held to have been agreed upon between the parties. We must emphasise that the question whether a sale/purchase is an inter-State sale/purchase depends on the facts of each case. The principles are well settled; it is only a question of application of these principles to the facts found in each case.

15. Sri Sehgal relies particularly upon "Case No. III" contained in the first extract and clause (iii) mentioned in the second extract. Relying upon these statements, the learned counsel contends that a concluded sale must necessarily take place in the other State and not in the State from which the goods emanate. According to him, a concluded or a completed sale must follow the movement of goods and should not precede. If a purchase or sale is complete in the State from which the goods emanate, he says, it can never be an inter-State purchase or sale. We cannot accede to this understanding of the learned counsel. The said observations, no doubt rather widely worded, must be understood in the context of the question that arose for consideration in that case viz., whether an agreement of sale is included within the definition of `sale' as defined in the Central Sales Tax Act. Be that as it may, the true position has since been explained in the later decision in Khosla and Co. It is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods, or for that matter, takes place while the goods are in transit. What is important is that the movement of goods and the sale must be inseparably connected. The ratio of Balabhagas is this: if the goods move from one State to another in pursuance of an agreement of sale and the sale is completed in the other State, it is an inter-State sale. The observations relied upon by Sri Sehgal do not constitute the ratio of the decision and cannot come to the rescue of appellant-State. Indeed, if one looks to the language employed in clause (a) of Section 3 it seems to suggest that the movement of goods follows upon and is the necessary consequence of the sale or purchase, as case may be, and not the other way round.

16. Sri Sehgal is equally not right in saying that movement of goods from the State of U.P. to other State(s) is immaterial and that the U.P. Legislature is competent to tax each and every purchase that takes place within that State. Ordinarily, it is so, but where a sale or purchase, though effected within the State of U.P. occasions the movement of goods sold/purchased thereunder from the State of U.P. to other State, it becomes an inter-State sale. Such a sale cannot be taxed by the Legislature of Uttar Pradesh. It is taxable only under the Central Sales Tax Act, 1956." (emphasis supplied)

Accordingly and for the reasons stated above, this Court finds merit in the revisions which shall as a consequence stand allowed. Issues as framed stand answered in favour of the revisionist and against the Department. The orders of the Tribunal shall consequently stand set aside.

Sales/Trade Tax Revision No. - 30 of 2011 apart from raising common issues as those considered in Sales/Trade Tax Revision Nos. - 28 and 29 of 2011 additionally lays challenge to the best judgment assessment undertaken by the respondents and the estimation of income as a consequence thereof. Since this Court has already held on principle that these transactions are not exigible to tax under the 1948 Act, no cause arises for the Court to go into the issue as to whether the respondents were justified in undertaking a best judgment assessment. In view of the conclusions recorded herein above, Sales/Trade Tax Revision No. - 30 of 2011 shall also stand allowed. The order of the Tribunal impugned therein shall stand set aside.

Order Date :- 10.10.2017

Arun K. Singh

(Yashwant Varma, J.)