Holding

The purchases were inter‑State transactions, not taxable under the Uttar Pradesh Sales Tax Act, and the dealer could not be prosecuted under Section 3‑B because the evaded tax was under the Central Sales Tax Act.

Summary

The Commissioner of Sales Tax, Uttar Pradesh challenged the tax treatment of purchases made by a dealer acting as a commission agent for out‑of‑state principals. The dealer bought agricultural produce and other goods in Uttar Pradesh and dispatched them to the principals in other states. The State argued that the purchases were intra‑State and liable to purchase tax under Section 3‑D of the U.P. Sales Tax Act, 1948, while the dealer contended they were inter‑State transactions exempt from the State tax under Section 3(a) of the Central Sales Tax Act, 1956. The Supreme Court held that the movement of goods was the necessary consequence of the purchase, making the transactions inter‑State purchases not assessable to tax under the U.P. Act. Consequently, the State could not levy purchase tax nor prosecute the dealer under Section 3‑B, which applies only when State tax is evaded. The appeals filed by the State were dismissed.

Issues considered

Whether purchases made by a commission agent on behalf of out‑of‑state principals and dispatched to them constitute inter‑State purchases under Section 3(a) of the Central Sales Tax Act, 1956.
Whether such purchases are liable to purchase tax under Section 3‑D of the Uttar Pradesh Sales Tax Act, 1948.
Whether the dealer can be proceeded against under Section 3‑B of the Uttar Pradesh Sales Tax Act for issuing a declaration that the purchases were intra‑State when the tax evaded pertains to the Central Sales Tax Act.

Legislation cited

Central Sales Tax Act, 1956s. 3(a), s. 3(c)
Constitution of Indias. Article 286(1)
Uttar Pradesh Sales Tax Act, 1948s. 2(e), s. 3-B, s. 3-D

Subjects

inter‑State purchasecommission agentpurchase taxcentral sales taxUttar Pradesh Sales Tax ActCentral Sales Tax ActSection 3‑Btax evasionrefund of tax

Judgment

A COMMISSIONER OF SALES TAX, U.P. AND ORS. ETC. ETC.
,k
v.
BAKHTAWAR LAL KAILASH CHAND ARETI AND ORS. ETC.
ETC.

AUGUST 5, 1992
B
[S. RANGANATHAN, V. RAMASWAMI AND B.P. JEEVAN
REDDY, JJ.}
).---- '-
U.P. Sales Tax Act, 1948/U.P. Sales Tax Rules, 1948:
c Sections 2(e) and 3-~rchase Tax-Levy of-Commission agent/
Dealer purchasing goods on behalf of ex-State principals and despatching
them to places outs.ide State-4-Vhether an inter-State purchase-4-Vhether
--
liable to pay Purchase Tax under the State Act.

D Section 3-B, Fonn III-C-1:
~-
PUrchase Tax-Recovery of-Dealer wrongly issuing Declaration form
. for inter-State transaction as intra-State purchase-Whether can be proceeded .
against for tax leviable under Central Sales Tax Act-Provision applicable
only to tax leviable under State Act evaded.
E y
Central Sales Tax Act, 1956:

Section 3(c)-Purchase of goods by dealer on behalf of ex-State prin-

F
cipals and despatch to places outside State-4-Vhether an inter-State purchase.

The common question for consideration in the batch of appeals filed
-
by the appellant-State was whether the goods purchased by a commission :::
--,,1..
agent for and on behalf of the principals outside the State of U.P. and
despatched to principals, were inter-State purchases under clause (a) of
Section 3 of the Central Sales Tax Act, 1956 and were, therefore, not
exigible to tax under Section 3-D of the U.P. Sales Tax Act, 1948.
G
The responl\ent-assessee, in one of the appeals, a registered dealer
in Uttar Pradesh, dealing in foodgrains and oils among others, purchased
the commodities from Cartmen and agriculturists, both on his own ac-
count as well as for and on behalf of his ex-U.P. principals, i.e., dealers
y--
-
H located outside the State, and claimed that inasmuch as the goods pur-
734
COMMR. SALES TAX v. BAKHTAWAR 735

chased for and on behalf of the ex-State principals were sent to them A
~ -forthwith, the said purchases squarely fell under clause (a) of secti9n 3 of
the Central Sales Tax Act and were not exigible to tax under the State Act•
. However, the case of the State was that the purchases in question were to
be treated as intra-State purchases, exigible to purchase tax under Section
3-D of the U.P. Sales Tax Act, 1948 and, therefore, tax thereon was payable
B
by the selling dealer.

The High Court held that the purchases made by the commission
·~ agents in the appellant-State on behalf of the principals outside the State,
where the goods so purchased were despatched to such principals, were

-
inter-State purchases not exigible to tax under the U.P. Sales Tax Act,
1948. It found that the purchase orders placed by the ex-State principals
to the assessee were not on the record but, from the conduct of the parties
f
and on the facts, it was clear that the ex-State principals contracted with
the assessee that_ he should purchase goods on their behalf in the State
).__ and despatch them to ex-State destinations on the payment of commission
D
and the goods were sent to the ex-State principals in fulfilment of the
contract.

In the appeals before this Court, on behalf of the State it was
contended that the purchases made by the respondent-dealer in the State
were completed purchases; once a purchase was complete in the State it E
'-y was immaterial whether the goods were later despatched to another State
or sold within the State; for the purpose of the U.P. Sales Tax Act, it was
enough that a sale or purchase took place within the State; the subsequent

---· movement of the goods was irrelevant; a concluded sale must necessarily
take place in the other State and not in the State from which the 'goods
emanated and a concluded or a completed sale must follow the movement
Fi
of goods and should not precede and if a purchase or sale was complete
I .~
in the State from which the goods emanated, it could never be an inter-
State purchase or sale.

In one of the connected appeals the question was whether the G
respondent-dealer who had issued Forms 111-C-I and paid tax on the

... ---< purchases made by ~im under the U.P. Sales Tax Act, but subsequently,
relying on the High Court's decision under appeal, claimed and got,
: refund of the tax paid by him, on the ground that the purchases etfected
by him were not assessable to tax under the U.P. Sales Tax Act, could be H
,~

736 SUPREME COURT REPORTS [1992) 3 S.C.R.

A proceeded against under Section 3-B of the U.P. Sales Tax Act, for making
good the tax amoui;tt for issuing wrong or false certificates or declaration ~
and thus preventing the authorities from taxing the transaction under the
Central Act.

Dismissing the appeals, this Court,
B \

HELD: 1. 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-State principals and the goods )..--
purchases under each ·of the purchases were· duly despatched to such
c principals, and 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 the appellant-Sta!e to
-
another State was occasioned by and was the result- or the incident of-the
D 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. 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 apl>lication of these principles to the facts found in each case.
E If the respondent-dealer had purchased the goods on behalf of the ex~State
principals in the first instance and thereafter in pursuance or subsequent 'y
instructions despatched the goods, then the instructions to despatch the
goods are independent of the instructions to purchase. There is !l break

F
between the purchase and despatch of goods. It would not be an inter-
State purchase. An out-State principal may first instruct his commission
agent within the. appellant-State to purchase the goods on his behalf and
·-
to await his further instructions. Depending upon the market conditions
and other circumstances, the ex-State principal may instruct his agent in
?/-.. >- -
the State either to sell the goods within the State or to despatch the goods
beyond the State. If such were the case, it would be right to say that the
G appellant-State was competent to tax the purchase by the respondent-
dealer. But that is not the case in the instant case. [743B-C, 746F-G]

2.1. Where a sale or purchase, though effected within the State of y
U.P. occasions the movement of goods sold/purchased thereunder from
H the State of U.P. to other State, it becomes an inter-State sale. Such a sale

r
COMMR. SALES TAX v. BAKHTAWAR 737

cannot be taxed by the Legislature of Uttar Pradesh. It is taxable only A
under the Central Sales Tax Act, 1956. [746D]

2.2. According to clause (a) of Section 3 of the Central Sales Tax Act,
1956, an inter-State sale or purchase is one which occasions the movement
of goods from one State to another. In other -words, the movement of
goods from one State to another must be the necessary incident· the B
1

necessary consequence-of sale or purchase. A case of cause and effect ·.the
cause being the sale/purchase and the effect being the movement of the
goods to another State. [740F-G]

2.3. It is immaterial whether a completed sale precedes the move- C _

- ment of goods or follows the .movement of goods, or for that matter, takes 1
place while the goods are in transit. What is important is that the move·
ment of goods and the sale must be inseparably connected. 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. Indeed,
from the language employed in clause (a) of Section 3 of the Central Sales D
Tax Act, 1956 it is clear that the movement of goods foPows upon and is 1

the necessary consequence of thP. sale or purchase, as the case may be, and
not the other way round. [746A-C]

Tata Iron & Steel Co. Ltd., Bombay v. S.R. Sarkar and Ors., (1%1] 1 E
S.C.R. 379; Union ofln4ia & Anr. v. KG. Khosla & Co. (P) Ltd. & Ors.,
[1979] 3 S.C.R. 453; Oil India Cp. Ltd. v. Superintendent of the Taxes and 1

--
Ors., [1975] 3 S.C.R. 797 and Balabhagas Hulaschand v. State of Orissa,
(1976] 2 S.C.R. 939, relied on.
I

A.Hajee Abdul Shakoor& Co. v. State of Madras, (1964] 8 S.C.R. 217 F
and State of Travancore Cochin v. Shanmugha Vilas Cashew Nut Factory,
~ (1954] S.C.R. 53, referred to.

3. Even assuming that the respondent-dealer represented to the
authorities by issusing Form 111-C-1 that the purchases effected by him ir.
were intra-State purchase liable to be taxed under the State enactment \J
and thereby prevented the authorities from taxing the transactions under
~ ----< the Central Sales Tax Act, the respondent-dealer cannot be proceeded
against under Section 3-B of the U.P. Sales Tax Act for the reason that the
said Section applies to a situation where the tax "leviable under this Act"
i.e., State Act, is evaded. It does not apply Where the tax payable under the H
_>:

738 SUPREME COURT REPORTS (1992) 3 S.C.R.

A Central Government is evaded. [747D-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4560-62
of 1990 etc. etc.

From the Judgment and Order dated 8.10.1984 of the Allahabad
B High Court in Sales Tax Revision Nos. 446, 447 and 448 of 1983.

D.V. Sehgal, B.S. Chauhan, R.B. Misra and Vishwajit Singh for the
Appellants.
r
Raja Ram Agrawal, R.D. Upadhyay, P.K. Chakraborty, Vijay Han-
c saria, Suresh Gupta, Puneet Tyagi, Mrs. Sanotsh Singh, P.S. Jha, Dr. Maya
Rao, Ms. Abha Jain, Mrs. Rani Chhabra, M.P. Shorawala, R.C. Verma and
Sarva Mitter for the Respondents.

The Judgment of the Court was delivered by
-
_,...j._
D B.P. JEEVAN REDDY, J. A common question arises in this batch of
Appeals and Special Leave Petitions.

Leave granted in S.L.Ps.

In Commissioner of Sales Tax, U.P. v. Hanuman Trading Co. ((1979)
E Vol. 43 Sales Tax Cases 408) a learned Single Judge of the Allahabad High
Court held that the purchases made by Commission Agents in U.P. on '-..""'"
behalf of the principals outside the State, where the goods so purchased

F
were despatched to such principals, were inter-state purchases not exigible
to tax under the U.P. Sales Tax Act, 1948. This decision was rendered on
October 6, 1978. Civil Appeal No. 1809 of 1982 is preferred against the
same. Following the said decision a large number of cases were disposed
--
of by the Allahabad High Court which have given rise to the other Civil
Appeals and the S.L.Ps. posted before us. Since the facts in all these
appeals are stated to be identical, it is enough to refer to the facts in Civil
Appeal No. 1809 of 1982. The facts as found recorded in the order of the
-a High Court are to the following effect:

The respondent-assessee, Hanuman Trading Company; is a
registered dealer in Uttar Pradesh, dealing in foodgrains and oils among
y- .
others. During the year in question, he purchased the said commodities
H both on his own account as well as for and on behalf of his ex-U.P.
COMMR. SALES TAX v. BAKHTAWAR [REDDY, J.] 739

principals i.e., dealers located outside the State of U.P. We are not con- ,A
cemed with the purchases made by the respondent-dealer on .his own
account, but only with the purchases made by him as the commission agent
of the ex-U.P. principals. These purchases were made by the respondent- '
dealer from three sources, namely: (1) from Registered Dealers (2) from ,
Cartmen, and (3) from Agriculturists. So for as purchases made from B
I
registered dealers are concerned, we are not concerned with them. The
learned counsel for the State of U.P. stated before us that tax thereon is
payable by the selling dealer. The controversy thus -narrows down to
purchases made by the respondent-dealer from cartmen and agriculturists.
The finding of the High Court with respect to the nature of the transactions C
- may be set out in their own words:

"In the present cases, the purchase orders placed by the ex-U.P.
principals to the assessee are not on the record but, from the
conduct of the parties and on the facts found, it is clear that
the ex-U.P. Principals contracted with the assessee that he D
should purchase goods on their behalf in U.P. and despatch
them to ex-U.P. destinations on the payment of commis-
sion..........the goods were sent to the ex-U.P. principals in
fulfilment of the contract.n

Sales of agricultural produce by agriculturists are exempt from tax
under the U.P. Sales Tax Act by virtue of the proviso to the definition of
the expression "dealer" in clause (e) of Section 2. The proviso says that "a
person who sells agricultural or horticultural produce grown by himself or
grown on any land in which he has an interest, whether as an owner, F,
usufructuary mortgagee, tenant or otherwise, or who sells poultry or dairy
products from fowls or animals kept by him shall not, in respect of such
goods be treated as a dealer." In such a case, it is stated, purchase tax is
leviable on the purchaser. If, however, the purchase is an inter-state
purchase as defined by Section 1 of the Central Sales Tax Act, 1956 then G
the State Legislature becomes disabled from taxing it by virtue of Article
286(1) of the Constitution of India. It is this aspect which lies at the root
of the grievance of the State, and it is precisely for this reason that it seeks
to treat the purchases in question as intra-state purchases, exigible to
purchase-tax under Section 3-D of the State Act. H
!·

740 SUPREME COURT REPORTS (1992) 3 S.C.R.

A Section 3 of the Central Sales Tax Act, 1956 defines the inter-State
~-
sale/purchase. Omitting the Explanations which are not.necessary for our
purpose, the Section reads as follows:

"3. When is a sale or purchase of goods said to take place in
the course of inter-State trade or commerce. -A sale or pur-
B chase 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
r
c (b) is effected by a transfer of documents of title to the goods
during their movement from one State to another.

Section 4 specifies when can a sale or purchase of g~ods be said to
-
have taken place inside a State; once a sale or purchase is determined in
D accordance with the said provision to have taken place inside a particular
State, it must be deemed that it has not taken place in any other State.
Section 6 is the charging Section. Coming back to the definition in Section
3, an inter-State sale or purchase is deemed to take place if "the sale or
purchase occasions the movement of the goods from one State to another"
E or where "the sale or purchase is effected by a transfer of documents of
title to the goods during their movement from one State to another." The y
respondent-dealer says that inasmuch as the goods purchased for and on
. behalf of the ex-State principals were sent to them forthwith, the said
purchases squarely fall under clause (a) of Section 3.

F According to clause (a) of Section 3, an inter-State sale or purchase
is one which occasions the movement of goods from one State to another.
In other words, the movement of goods from one State to another must be ~
the necessary incident - the necessary consequence - of sale or purchase.
A case of cause· and effect - the cause being the sale/purchase and the
effect being the movement of the goods to another State. The purport of
G
this clause has been succintly stated by Shah, J. In Tata Iron and Steel Co.
Ltd., Bombay v. S.R. Sarkar and Ors., (1961) 1 S.C.R. 379, a decision of the
Constitution Bench: .
'y
"In our view, therefore, within Cl.(b) of S.3 are included-sales
H in which property in the goods passes during the movement of
COMMR. SALES TAX v. BAKHTAWAR [REDDY, J.] 741

the goods from one State to another by transfer of documents A
of title thereto: cl.(a) of s.3 covers sales, other than those
included in cl.(b) in which the movement of goods from one
State to another is the result of a covenant or incident of the·
contract of sale, and property in tlie goods passes in either
State."

To the same effect is the decision in Union of India and Anr. v. KG.
Khosla & Co. (P) Ltd. & Ors., (1979) 3 S.C.R. 453. Chandrachud, CJ., ,
speaking on behalf of himself, DA. Desai and R.S. Pathak, JJ. ruled:

- "It is not true to say that for the purposes of section 3(a) of the C
Act it is necessary that the contract of sale must itself provide
for and cause the movement of goods or that the movement of
goods must be occasioned specifically in accordance with the
1

1

terms of the contract of sale. The true position in law is as
stated in Tata Iron and Steel Co. Ltd., Bombay v. S.R. Sarkar 1D
and others (1) wherein Shah, J. speaking for the majority
observed that clauses (a) and (b) of section 3 of the Act are
mutually exclusive and that section 3(a) covers sales in which
the movement of goods from one State to another "is the result
of a covenant or incident of the contract of sale, and property : E
in the goods passes in either State". Sarkar, J. speaking for
himself and on behalf of Das Gupta, J. agreed with the majority 1

that clauses (a) and (b) of section 3 are mutually exclusive but

- differed from it and held that "a sale can occasion the move-
ment of the goods sold only when the terms of the sale provide
that the goods would be moved; in other words, a sale occasions F
1

a movement of goods when the contract of sale so provides". 1

The view of the majority was approved by this court in the
Central Marketing Co. o/India v. State of Mysore, (1) State
Trading Corporation of India v. State ofMysore (2) and Singareni ,
Collieries Co. v. Commissioner ,of Commercial Taxes,
Hyderabad. (3) In KG. Khosla & Co. v. Deputy Commission of ' G
Commercial Taxes, (4) counsel for the Revenue invited the ,
court to reconsider the question but the court declined to do ·
so. In a recent decision .of-this court in Oil India Ltd. v. The. '
Superintendent of Taxes and Others (5) it was observed by ,
Mathew, J., who spoke for the court, that: (1) a sale which · H
.~-

742 SUPREME COURT REPORTS (1992) 3 S.C.R.

A occasions movement of goods from one State to another is a '
j......
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
B taken place in the course of inter-State trade or commerce, that
the convenant 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. The learned Judge added that it was held in a number
c of cases by the Supreme Court that if the movement of goods
from one State to another is the result of a convenant or an -,,.--
incident of the contract of sale, then the sale is an inter-State
sale."

~
D The decision in Khosla 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
E 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-con-
~
nnected 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 parts of the same transaction.
F
In the decision in A.Hajee Abdul Shakoor and Company v. State of
Madras, (1964) 8 S.C.R. 217 the following statement occurs: "The mere fact
that the article sold in the State had been brought from outside the State
does not make the sale of that article a sale in the course of inter-State
G trade or commerce. It is only when A, in State X, purchased through a
commission agent in a State Y and receives the articles purchased through
the commercial agency that the sale comes within the expression 'in the
course of inter-State trade': See State of Travancore Cochin v. Shanmugha
Vilas Cashew Nut Factory." This statement is in accord with the ratio of the
',,...,.-
I
•' ......
H decisions aforementioned.

t-
COMMR. SALES TAX v. BAKHTAWAR [REDDY, J.) 743

If we examine the facts of this case in the light of the above prin- A
ciples, it would be clear that the purchases effected by the. respondent-
dealer were inter-State purchases. The p\ll4:hases 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 despatche# took place not later than B
three days from the date of purchase, as soon. ~s the railway wagon was
available. The purcha~e 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 C

- 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 prin-
ciples are well settled; it is only a question of application of these principles
to the facts found in each case.
D
Sri Sehgal, learned counsel for the State of Uttar Pradesh contended ,
that the purchases made by the respondent-dealer in the State ofU.P. were ;,
completed purchases. Once a purchase is complete in the State of Uttar !
Pardesh, he contends, it is immaterial whether the goods are later
despatched to another State or sold within the State. For the purpose of E
the U.P. Sales Tax Act, it is enough that a sale or purchase takes place
within the State; the subsequent movement of the goods is irrelevant, says
the counsel. We find it not possible to agree. As held by Mathew, J. in Oil

- India Co. Ltd. v. Superintendent of the Taxes and Ors., (1975] 3 S.C.R. 797,
quoted approvingly in Khosla and Co., "a sale which occasions the move-
ment of goods from one State to another is a sale in the course of the F
inter-State trade, no matter in which State the property in the goods
passes." Even if the goods move in pursuance of an agreement of sale and
the sale is completed in the State in which the goods are received, it will !,

be an inter-State sale, as explained by .this Court in Balabhagas Hulaschand '
v. State of Orissa, (1976) 2 S.C.R. 939.
G
Sri Sehgal placed strong reliance upon certain observations in Balab-
hagas v. State of Orissa. The question that arose for consideration in that
case was whether the definition of "sale" in Section 2(g) of the Central Sales
Tax Act takes in an agreement of sale. Fazal Ali, J. speaking for the Bench
comprising Mathew, J. and himself, held that it does. Having said so, the H
)

744 SUPREME COURT REPORTS (1992] 3 S.C.R.

A learned Judge made certain further observations which read as follows: --\..._

"Furthermore, we can hardly conceive of any case.where a sale
would take place before the movement of goods. Normally what
happens is that there is a contract between the two parties in
pursuance of which t~e goods move and when they are ac-
B cep~ed and the price is paid the sale takes place. There would,
therefore, hardly be any case where a sale would take place
even before the movement of the goods. We would illustrate
our point of view by giving some concrete instances: 'Jc-

Case No.I - A is a dealer in goods in State X and enters
c into an agreement to sell his goods to B in State X. In pursuance
of the agreement A sends the goods from State X to State Y
by booking the goods in the name of B. In such a case it is
--
obvious that the sale is preceded by the movement of goods
being in pursuance of a contract which eventually merges into
D a sale the movement must be deemed to be occasioned by the
sale. The present case clearly falls within this category.

Case No.II - A who is a dealer in State X agrees to sell
goods to B but he books the goods from State X to State Y in
his own name and his agent in State Y receives the goods on
E behalf of A. Thereafer the goods are delivered to B in State Y 'f
and if B accepts them a sale takes plaee. It will be seen that in

F
this case the movement of goods is neither in pursuance of the
agreement to sell nor in the movement occasioned by the sale.
The seller himself takes the goods to State Y and sells the goods
there. This is, therefore, purely an internal sale which takes
-
place in State Y and falls beyond the purview of Section 3(a)
;A
of the Central Sales Tax Act not being an inter-State sale.

Case No.III - B a purchaser in State Y comes to State X
and ptp"chases the goods and pays the price thereof. After
G having purchases 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 'r'
the movement of goods is not occasioned by the sale but takes
place after the property is purchased by B and becomes his
H property.
t

COMMR. SALES TAX v. BAKHTAWAR [REDDY, J.) 745

~ ·Generally these are the only type of cases that can occur in the A
day to day commercial transactions. It is, therefore, manifest
that there can hardly be a case where once a sale takes place
the movement is subsequent to the sale."

The Learned Judge proceeded further and held th\lS: I

B·
'
"(2)That the following conditions must be satisfied before a sale
can be said to take place in the course of inter- State trade or
~\ commerce:

(i) that there is an agreement to sell which contains a stipulation
c
- express or implied regarding the movement of the goods from
one State to another;

(ii) that in pursuance of the said contract the goods in fact
I

move from one State to another; and
~
(iii) that ultimately a concluded sale takes place in the State D
where the goods are sent which rrust be different from the State
from which the goods move.

If these conditions are satisfied then by virtue of Section 9 of
the Central Sales Tax .Act it is the State from which the goods
E
·t' move which will be competent to levy the tax under the
provisions of the Central Sales Tax Act. This proposition is not,
and cannot, be disputed by the learned counsel for the parties."

- Sri Sehgal relies particularly upon "Case No.III" cnntained in the first
extract and clause (iii) mentioned in the second extract. Relying upon these F
statements, the learned counsel contends that a concluded sale must neces-
~ sarily 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 under- G
standing 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 H
J

746 SUPREME COURT REPORTS ri992] 3 S.C.R.

A 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
i-. 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
B 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
c
-
may be, and not the other way round.

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. Legisla-
ture is competent to tax each and every purchase that takes place within
D 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.

E Situation could have been different if the respondent-dealer 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

F
goods. In such an event the instructions to despatch the goods are inde-
pendent of the instructions to purchase. There is a break between the
purchase and despatch of goods. It would not be an inter-State purchase.
An out-State principal may first instruct his commission agent within the
-
State of U .P. to purchase the goods on his behalf and to await his further
instructions. Depending upon the market conditions and other circumstan-
ces, the ex-State principal may instruct his agent in the State either to sell
the goods within the State or to despatch the goods beyond the State. If
G such were the case, Sri Sehgal would have been right in saying that the
State of U.P was competent to tax the purchase by the respondent- dealer.
But that is not the case here on the facts found by the appropriate
authorities.

For the above reasons, the Civil appeals fail and are dismissed, but
H in the circumstan\:es without costs.
COMMR. SALES TAX v. BAKHTAWAR [REDDY, J.] 747

CIVIL APPEAL NO. 1534 OF 1990. A
A Further question arises in this appeal. The respondent-dealer, who
is situated similarly to the respondent-dealer in Civil Appeal No. 1809 of
1982,_ issued Forms IIl-C-1 and paid tax on the purchases made by him
under the U.P. Sales Tax Act. However, after the decision of the Allahabad
High Court in Hanuman Trading Company, he claimed refund of the tax B
paid by him and probably got it, contending that the purchases effected by ,
him were not assessable to tax under the U.P. Sales Tax Act. He was then
?'\ proceeded against under Section 3-B of the U.P. Sales Tax Act which
provides that if a person issues a false or wrong certificate or declaration
prescribed under the provisions of the said Act and the rules thereunder C

- to another person by reason of which "a tax leviable under this Act" on the
transaction is not collected (or collected at a lesser rate), then the person
issuing such wrong or false certificate/declaration becomes himself liable
to pay such tax. The case of the authorities was that the respondent-dealer
represented to the authorities by issuing Form III-C-1 that the purchases
effected by him are intra-State purchases liable to be taxed under the State D
enactment and thereby prevented the authorities from taxing the transac-
tions under the Central Sales Tax Act; he must, therefore, make good that
tax amount. Assuming that what the authorities say is true, even so the
respondent-dealer cannot be proceeded against under Section 3-B for the
reason that the said Section applies to a situation where the cax "leviable E
under this Act" i.e., State Act, is evaded. It does not apply where the tax
payable under the Central enactment is evaded. This appeal has to be
dismissed on this short ground alone, and is accordingly dismissed.

- No costs.

N.P.V. Appeals dismissed.