M/S. Philips India Ltd vs State Of Karnataka
2021 Latest Caselaw 2577 Kant

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 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

         DATED THIS THE 2ND DAY OF JULY 2021

                         PRESENT

        THE HON'BLE MR. JUSTICE ALOK ARADHE

                           AND

THE HON'BLE MR. JUSTICE HEMANT CHANDANGOUDAR

                 S.T.R.P. NO.202 OF 2015
BETWEEN:

M/S. PHILIPS INDIA LTD.,
NO.109-3, PANTRAPALYA
MYSORE ROAD, BENGALURU
REPRESENTED BY ITS MANAGER GROUP TAX (S.R.)
MR. V. KUMAR
AGED ABOUT 51 YEARS
S/O SRI K.V. VENKATCHALAM.
                                              ... PETITIONER
(BY SRI. RABINATHAN G, ADV.,)

AND:

1.     STATE OF KARNATAKA
       REPRESENTED BY ADDL. CHIEF SECRETARY AND
       PRINICIPAL SECRETARY TO GOVERNMENT
       FINANCE DEPARTMENT
       GOVERNMENT OF KARNATAKA
       VIDHANA SOUDHA, BENGALURU-560 001.

2.     COMMISSIONER OF COMMERCIAL TAXES KARNATAKA
       VANIJYA THERIGE KARYALAYA
       GANDHINAGAR, BENGALURU-560 009.

3.     JOINT COMMISSIONER OF COMMERCIAL TAXES
       (APPEALS)-6
       BMTC BUS STATION
                                 2



        SHANTHINAGAR
        BENGALURU-560 027.

4.      DEPUTY COMMISSIONER OF COMMERCIAL TAXES
        (RECOVERY)-1
        BANGALORE DIVISION
        1ST MAIN ROAD, SESHADRIPURAM
        SRINIVASA COMPLEX, 3RD FLOOR
        BENGALURU-560 020.

                                               ... RESPONDENTS
(BY SRI. JEEVAN J. NEERALGI, AGA)

                               ---

     THIS STRP IS FILED UNDER SECTION 23(1) OF KARNATAKA
SALES TAX ACT, 1957, AGAINST THE JUDGMENT AND DECREE
DATED 30.1.2015 PASSED IN STA NO.1397/2014 ON THE FILE OF
THE   KARNATAKA      APPELLATE   TRIBUNAL,    BANGALORE,
DISMISSING THE APPEAL FILED UNDER SECTION 22 OF THE
KARNATAKA SALES TAX ACT.

     THIS STRP COMING ON FOR FINAL HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                             ORDER

This petition under Section 23(1) of the Karnataka

Sales Tax Act, 1957 (hereinafter referred to as 'the Act' for

short), has been filed by the petitioner against the order

dated 30.01.2015 passed by the Karnataka Appellate

Tribunal (hereinafter referred to as 'the tribunal' for short).

The subject matter of the petition pertains to Assessment

Year 2004-05. The petition was admitted on the following

substantial question of law:

"Whether the Tribunal was correct and justified in law in holding that the transactions corresponding to the sale of colour monitors by M/s. BPL Ltd. to the petitioner were purchases by the petitioner within the State of Karnataka, liable to purchase tax under Section 6 of the K.S.T. Act, 1957?"

2. Facts leading to filing of this petition briefly

stated are that petitioner is a company incorporated under

the Companies Act, 1956 and during 2004-05, was registered

as a dealer under the Act and Central Sales Tax Act, 1956

(hereinafter referred to as 'the 1956 Act' for short). The

petitioner was operating from the business premises at

Mysore Road, Bangalore and was carrying out sales of

electronic goods, electrical goods, color television sets,

monitors and picture tubes etc. M/s BPL Ltd. had an idle

assembling / manufacturing unit at its factory at Old Madras

Road, Bangalore and offered to undertake to assemble /

manufacture CPU and monitors for the petitioner. The

petitioner accepted the offer and entered into a purchase

agreement with M/s BPL Ltd on 15.12.2003 for assembling,

manufacturing and supply of color television sets and

monitors. Clause (iv) of the agreement contains a stipulation

that M/s BPL Ltd shall deliver duly assembled monitors to the

various branches of the petitioner situate outside the State of

Karnataka specified in the purchase orders. It is the case of

the petitioner that there was no delivery of goods to the

petitioner in Bangalore and the sales effected by M/s BPL Ltd

to the petitioner having occasioned movement of goods from

Karnataka to places in other states constituted inter state

sales covered under Section 3(a) of the 1956 Act and were

outside the purview of the Act.

3. On the basis of the returns filed for the year

2004-05 by the petitioner, the assessments were completed.

The Deputy Commissioner of Commercial Taxes passed an

order of re-assessment on 17.05.2010 for the year 2004-05

in terms of Section 12-A of the 1956 Act and determined the

liability of the petitioner to pay purchase tax under Section 6

of the Act as well as penalty under Section 12-A(1-A) of the

1956 Act. The petitioner thereupon preferred an appeal

before the Joint Commissioner of Commercial Taxes who by

an order dated 21.11.2013 dismissed the appeal preferred by

the petitioner. The petitioner challenged the aforesaid order

in an appeal before the tribunal, which was dismissed by an

order dated 30.01.2015. In the aforesaid factual background,

this petition has been filed.

4. Learned counsel for the petitioner submitted that

the sales were effected by M/s BPL Ltd in favour of the

petitioner and there was a movement of goods resulting in

goods being delivered to the petitioner outside the State of

Karnataka, the same were inter state sales within the scope

of Section 3(1) of the 1956 Act and therefore, the provisions

of Section 6 of the Act could not have been invoked to levy

purchase tax. However, the aforesaid aspect of the matter

has not been appreciated by the authorities under the Act. It

is also submitted that inter state sales are not covered under

the expression 'taxable turnover' as defined under Section

2(u-i) of the Act and therefore, the provisions of the Act were

not applicable to the transactions in question. In support of

aforesaid submissions, reliance has been placed on decision

of Supreme Court in 'STATE OF ORISSA AND ANOTHER

VS. M/S K.B.SAHA AND SONS INDUSTRIES PVT. LTD

AND OTHERS', (2007) 7 VST 214 (SC) and decisions of

Gujarat High Court in 'COMMISSIONER OF SALES TAX VS.

M/S PURE BEVERAGES LTD', (2005) 142 STC 522

(GUJ.), 'THE STATE OF GUJARAT VS. STATE OF BOMBAY

METAL ALLOYS & MFG. CO. PVT. LTD', (1983) 54 stc 45

(GUJ).

5. On the other hand, learned Additional

Government Advocate submitted that since, the goods were

moved outside the state otherwise than by way of sale,

therefore, the authorities under the Act have rightly held that

petitioner is liable to pay purchase tax under Section 6 of the

Act.

6. We have considered the submissions made by

learned counsel for the parties and have perused the record.

The nature of transaction in question is required to be

ascertained by the authorities under the Act in order to

determine whether Section 6 of the Act could be invoked to

levy purchase tax on the petitioner. The tribunal was also

required to determined whether the transactions were

transactions in the course of inter state sale. The Supreme

Court in 'OIL INDIA LTD. VS. SUPERINTENDENT OF

TAXES', (1975) 35 STC 445 (SC) has laid down the

following parameters to ascertain whether the transaction is

a transaction in the course of inter state sale:

(1) a sale which occasions movement of goods from one State to another is a sale in the course of inter-state trade, no matter in which State the property in the goods passes;

(2) 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; and (3) 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.

7. Thus, it was stated that if the movement of

goods from one state of another is a result of covenant or an

incident of contract of sale, then the sale is inter-state sale.

It was further held that in order decide whether the sale is

inter state sale it is not sufficient that movement of goods

should have been occasioned by the sale or should be

incidental thereto and what is important is movement of

goods and sale must be inseparably connected. The relevant

extract of Section 6 of the Act reads as under:

6 Subject to the provisions of sub-section (5) of section 5, every dealer who in the course of his business purchases any taxable goods in circumstances in which no tax under section 5 is leviable on the sale price of such goods, and

(i) either consumes such goods in the manufacture of other goods for sale or otherwise or consumes otherwise, or disposes of such goods in any manner other than by way of sale in the State, or

(ii) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce.

8. Thus, from the aforesaid extract of Section 6 of

the Act it is evident that Section 6 cannot be invoked to levy

purchase tax in case of goods sold or purchased in course of

an inter-state trade or commerce. Thus, before invoking

Section 6 of the Act, the authorities under the Act were

required to ascertain the nature of transaction . We find from

the order of the tribunal that no finding has been recorded

with regard to the nature of transaction and with reference to

the material available on record and a general observation

has been made that branch transfers are nothing but

dispatches by the petitioner to outside the branches as a

consequence of purchase. Before upholding the levy of tax,

the nature of transaction was required to be looked into,

which has not been done. We therefore, set aside the order

passed by the tribunal and remit the matter to the tribunal

for decision afresh. The tribunal shall make an endeavor to

decide the proceedings within a period of four months from

the date of receipt of certified copy of the order passed

today. Since, we have remanded the matter, it is not

necessary for us to answer the substantial question of law. In

the result, the petition is disposed of in the aforesaid terms.

Sd/-

JUDGE

Sd/-

JUDGE ss