Holding

All three contracts are sales under Section 3(a) of the Central Sales Tax Act, 1956; therefore, Section 6(2) exemption does not apply and the proviso to Section 9(1) is inapplicable, making Tamil Nadu the appropriate State for tax liability.

Summary

M/s. A & G Projects & Technologies Ltd., a dealer registered under the Central Sales Tax Act, 1956, entered into three contracts for supplying capacitor banks to Karnataka Power Transmission Corporation Ltd. (KPTCL). The goods were procured from a manufacturer in Tamil Nadu via an EPC contractor outside Karnataka, with title passing through the appellant to KPTCL. The appellant claimed exemption under Section 6(2) of the CST Act, arguing that the second and third contracts were subsequent sales covered by Section 3(b). The Assessing Officer, the FAA, the Karnataka Appellate Tribunal and the Karnataka High Court held that all three sales fell under Section 3(a), denying the exemption and invoking the proviso to Section 9(1) to levy tax in Karnataka. The Supreme Court held that the sales indeed fall under Section 3(a); consequently, Section 6(2) exemption does not apply and the proviso to Section 9(1) is inapplicable, making Tamil Nadu the appropriate State for tax collection. The appeal was allowed, setting aside the High Court judgment.

Issues considered

Whether the three contracts constitute inter‑State sales under Section 3(a) or subsequent sales under Section 3(b) of the Central Sales Tax Act, 1956.
Whether the appellant is entitled to exemption under Section 6(2) of the CST Act for the second and third sales.
Whether the proviso to Section 9(1) of the CST Act applies to sales covered by Section 3(a).
Which State is the appropriate State to levy tax – Tamil Nadu or Karnataka – when the sales are governed by Section 3(a).
Whether Karnataka can levy tax on the appellant under the proviso to Section 9(1) despite the sales being under Section 3(a).

Legislation cited

Central Sales Tax Act, 1956s. 2(g), s. 3(a), s. 3(b), s. 5, s. 6(1), s. 6(2), s. 8, s. 9(1)
Karnataka Sales Tax Act, 1957

Subjects

Central Sales TaxInter‑State saleSection 3Section 6(2)Section 9(1)ExemptionAppropriate StateSubsequent saleTax jurisdictionKarnatakaTamil Nadu

Judgment

[2008] 17 S.C.R. 321
_...

M/S. A & G PROJECTS & TECHNOLOGIES LTD. A·
'r . ......
v.
STATE OF KARNATAKA
(Civil Appeal No. 7233 of 2008)

DECEMBER 11, 2008
B
[S.H. KAPADIA AND AFTAB ALAM, JJ.]

>-~ Central Sales Tax Act, 1956:
s.3(a), s.9(1) and its proviso - Inter-state sales - If sales
are covered under s.3(a) and the assessee is held not entitled c
to exemption under s. 6(2) then the State from which the
movement of the goods commenced is 'Appropriate State'
entitled to collect tax in respect of goods sold - Question of
taxing such sales under the proviso to s.9(1) would not arise
- Kamataka Sales Tax Act, 1957. D
Appellant-Company was engaged in execution of
ct electrical works contracts and was registered dealer
under the Karnataka Sales Tax Act, 1957 and Central
Sales Tax Act, 1956. It was awarded three independent
contracts towards the supply of capacitor banks E
(equipment), execution of civil works and erection ~nd
commissioning of equipments on various such stations
of KPTCL in the State of Karnataka. Pursuant to the
contracts, appellant appointed EPC contractor located
outside the State of Karnataka for procuring the
equipments because these EPC contractors had prior F
~
arrangement with the manufacturers of said equipment.
In that transaction, four parties were involved namely, the
appellant, the EPC contractor, the manufacturers of the
equipment and KPTCL, being the ultimate consumer.
For the assessment year 2000-01, the appellant filed G
its return and turnover under the Central Sales Tax Act.
·~
Before the A.O., appellant contended that the goods
~
originated from the manufacturers and ultimately reached
321 H

...
322 SUPREME COURT REtPORTS [2008) 17 S.C.R.
e
A KPTCL though the title to the goods vested originally
with EPC contractor but in tutn transferred the title to the
goods to the appellant when they were in transit and in
turn the appellant transferred the title by endorsing the
lorry receipt in favour of KPTCL. According to the
B . appellant, the second and the third sales were the
subsequent sales, and hence appellant was entitled to
exemption from tax for such sales under s.6(2) of 1956
Act. The A.O. held that all the three contracts came under
s.3A and therefore appellant was not entitled to claim
C exemption under s.6(2) of 1956 Act.
The Tribunal held· that the dealer was located in the
State of Karnataka and the purchaser was also in the
State of Karnataka. The movement of goods under the
contract was not from State of Karnataka but into the
State of Karnataka and, therefore, there was no inter-State
D sale in the State of Karnataka and, therefore, levy of tax
. on the value of goods supplied was totally unjustified.
. '·
The Department filed revision .petition before High
Court, wherein it was held ithat sale of goods in favour
of KPTCL. was completed when the goods were
E appropriated by KPTCL before the commencement of
movement of goods from the place of manufacturers in
Tamil Nadu to KPTCL in the State of Karnataka and,
therefore, the inter-State sale of goods fell under s.3A and
appellant was not entitled 'to exemption under s.6(2) of
F the Act. Further it held that since sale did not comply with
the conditions in s.6(2), matter came under first proviso
to s.9(1) and consequently the State of Karnataka was the
"Appropriate State" entitled to collect tax in respect of the
goods sold by the appellant to KPTCL under the CST
G Act, 1956~ Aggrieved appellant filed the instant appeal.
I
Allowing the appeal, the Court
HELD: 1.1. The question whether a particular sale is
an inter-State sale or an intra-State sale, though
essentially one of fact, is' not the pure question of fact
H inasmuch as the facts of a given case have to be
M/S. A & G PROJECTS & TECHNOLOGIES LTD. v. 323
.3TATE OF KARNATAKA
and, therefore, it is a mixed question of fact and law. S.3 A·
;.-- ~ of the CST Act 1956 formulates the principles fQr
... determining when a sale or purchase takes place in th~
course of inter-State trade or commerce. Two tests a~e
applied, one of which is that a sale or purchase take$
place in the course of inter-State trade if it occasion$ B
movement of the goods from one State to another, anti
the other test is that a sale or purchase takes place by
transfer of documents of title, during the movement of the
~"t·
goods from one State to another. A sale (transfer of
property) becomes inter-State sale under s.3(a) of the
CST Act 1956 If the movement of goods from one State c
to another is under the contract of sale, and the property
in the goods passes to the purchaser otherwise than by
transfer of documents of title when the goods are in
movement from one State to another. Within s.3(b) are
sales in which property in the goods passes during the D
movement of the goods from one State to another by
,.., J.
transfer of documents of title thereto. [Para 11] [333-C-H;
334-A-D]
Tata Iron & Steel Co. Ltd. v. S.R. Sarkar(1960) 11 STC
655 (SC), relied on . E
1.2. The dividing line between sales or purchases
under s.3(a) and those falling under s.3(b) is that in the
former case, the movement is under the contract whereas
in the latter case the contract comes into existence only
.
,
.... .....
after the commencement and before termination of the
inter-State movement of the goods. Therefore, it follows
F
that an inter-State sale can either be governed under
s.3(a) - if it occasions movement of goods from one State
to another - or under s.3(b) - if it is effected by transfer
of documents of title after such movement has started
G
and before the goods are actually delivered. By s. 3, it was
intended to define the class of sales which shall be

-
.,.. deemed to be sales in the course .of inter-State trade or
commerce. Under the CST Act 1956, tax is leviable on the
sale of goods and not because of the movement of the
goods. The movement of the goods is only material for H
324 SUPREME COURT REPORTS [2008] 17 S.C.R.

A the purpose of deciding whether the sale took place in
the course of inter-State trade or commerce or whether
such sale was purely an intra-State transaction. The name
given to a transaction by the parties concerned, does not
decide the nature of the transactioni In order to make a
I
-
8 transaction taxable under the C ST Act, 1956, the
1

transaction must be a "sale" as defined in s.2(g) taking
place in the course of inter-State tr*de or commerce in
· any of the manner provided for in cl8iuse (a) or clau_se (b)
of s.3. S.6(1) of the CST Act 1956 imposes a liability to
pay tax on sale of goods other than electrical energy
C effected by a dealer in the case of inter-State trade or
commerce during a year. Sub-section (1) of s.6 provide
for multi-point tax but this is subject to the other
provisions of the Act. This qualification which is reflected
in the other provisions of the Act restricts the levy to a
D single point subject to certain conditions, restrictions and
circumstances: Sub-Section (2) of s.6 exempts from levy
a subsequent inter-State sale. to a registered dealer of
goods [described in s.8(3)] and also to Government,
provided conditions of the proviso to sub-section (2) are
E fulfilled. However, a subsequent sale not falling within
s.6(2) will, however, attract tax because of s.9(1 ),
notwithstanding the fact that the first sale has been
subjected to tax under s.6(1) of the CST Act 1956.
Analysing s.6(2), it is clear that sub-section (2) has been
F introduced in s.6 in order to avoid cascading effect of
multiple taxation. A subsequent sale falling under sub-
section (2), which satisfies the conditions mentioned in
the proviso thereto, is exempt from tax as the first sale
has been subjected to tax under sub-section (1) of s.6 of
the CST Act 1956. Thus, in order to attract s. 6(2), it is
G essential that the concerned sale must be a subsequent
inter-State sale effected by transfer of documents of title
to the goods during the movement of the goods from one
State to another and it must be preceded by a prior inter-
state sale. It is only then that s.6(2) ·may be attracted· in
H .. order to make such subsequent sale exempt from levy
M/S. A & G PROJECTS & TECHNOLOGIES LTD. v. 325
STATE OF KARNATAKA

of sales' tax. However, the proviso to $Uh-section (2) of A

- - 'i s.6 prescribes further conditions a'nd it is only on
fulfillment of those conditions that the subsequent sale
stands exempted. If those conditions are not satisfied
then, notwithstanding the fact that the sale is a
subsequent sale, the exemption would not be admissible B
to such subsequent sales. [Para 11] [334-D-H; 335-A-E}
2.1. The object of s. 9(1) is two-fold. Firstly, it provides
.,._-.. that the tax on inter-State sales under s.3(a) shall be
levied by G.0.1. and collected by the State Government
from which the movement of goods commenced. ,C
Secondly, it specifies the Appropriate State competent to
levy tax on second and subsequent sales made during
the movement of goods from one State to another as also
the authority, where such second and subsequent sales
are exigible. to tax. S.6(2) of the CST Act 1956 provides
for subsequent sales to be exempt from tax on the b
.... J
conditions prescribed therein. However, if and where
those conditions are not satisfied, even such subsequent
sales would attract tax and only in such circumstances
the proviso to s.9(1) which specifies the State, which is
competent to levy the tax, would come in .. [Para 13] [336- E I

A-F]
=" Jadhavjee Laljee v. State of Andhra Pradesh (1989) 74
STC 201 (AP), relied on.
2.2. The proviso to s.9(1) contemplates two situations,
:.. F
- ... ./,.
namely, (a) where such subsequent sale is made by a
registered dealer and (b) where such subsequent sale is
made by unregistered dealer. In respect of situation (a),
the proviso to s.9(1) prescribes that the Appropriate State
competent to levy tax on such subsequent sale shall be
the State from which the registered dealer obtains a G
declaration in C-Form whereas in the case falling in
-4 situation (b), it provides that the Appropriate State
competent to levy the tax shall be the State from which
such subsequent sale has been effected. However, the
entire proviso to s.9(1) applies only to "subsequent H
326 SUPREME COURT REPORTS [2008] -47 S.C.R.

A sales" covered by s. 3(b) and not to sales under .s.3(a)
CST Act 1956. [Para 13] [336-D-F]
I

2.3. The proviso to s.9(1) of the CST Act 1956 is not
applicable to the facts of the present case as the AO ha~
categorically held that all the three sales fell under s.3(a)
B of the CST Act 1956. Once the said sales fall under s.3(a)
then under s.9(1) the tax has got to be collected by the
State of Tamil Nadu from which the movement of the
goods commenced. The case of the appellant regarding
subsequent sales effected during the movement of the
C goods stood specifically rejected both by the AO and the
FAA and, therefore, the question of taxing such sales
under the proviso to s.9(1) of CST Act 1956 did not arise.
[Para 14] [336-G-H; 337-A] '
' .
Bharat Heavy Electrical Ltd. and Ors. v. Union of India
and Ors. (1996) 4 sec 230, relied on.
0
·· Case Law R~f~rence:
(1960) 11 STC 655 (SC) relied on Para 11
(1989) 74 _STC 201 (AP) relied on Para 13
(1996) 4 SCC 230 relied on Para 15
E CIVIL APPELLATE. JURISDICTION : G.fvil Appeal No.
7233 of 2008.
From the final Judgment and Order dated 14.8.2007 of
the High Court of Karnataka at Bangalore in S.T.R.P. No. 85
of 2005.
F Joseph Vellapalli, Ragvesh Singh, Devendra Kumar Singh
and Rajesh Mahale for the Appella'nt.
Anitha Shenoy for the Respondent.
The Judgment of.the Court was delivered by
G S.H. KAPADIA, J. 1. Leave ~ranted.
2. This civil appeal filed b9 the
I
appellant
.
(assessee) is
directed against the judgment and order dated August 14,
2007 delivered by the Karnataka High Court in STRP No.85
of 2005.
H
M/S. A & G PROJECTS & TECHNOLOGIES LTD. v. 327
STATE OF KARNATAKA [S.H. KAPADIA, J.]
3. Appellant is a company incorporated under the A
...-- ~ Companies Act, 1956 and engaged in execution of electrical
works contracts. Appellant is a registered dealer both under the
~
Karnataka Sales Tax Act, 1957 and the Central Sales Tax Act,
1956 ("CST ACT 1956", for short). Appellant was awarded
three independent contracts towards - (i) supply of capacitor
B
banks, (ii) execution of civil works and (iii) erection and
commissioning of capacitor banks at various sub-stations of the
Karnataka Power Transmissions Corporation Limited
.,. ~
("KPTCL", for short) in the State of Karnataka. Pursuant to the
contracts, appellant appointed M/s. Bay West Power and
Energy Pvt. Ltd. ("Mis. Bay West", for short) as EPC contractor c
located outside the State of Karnataka for procuring the
capacitor banks ("equipment", for short) because the said EPC
contractor had a prior arrangement with the manufacturers of
the said equipment. In that transaction four parties were
involved, namely, the appellant, M/s. Bay West, manufacturers D,
of the equipment and KPTCL being the ultimate consumer.
,,. -J. Although four parties had intervened, in substance, there were
three independent contracts involved in the transaction. The first
contract was between the appellant and KPTCL for supply of
the equipment. The second was between the appellant and M/ E
s. Bay West. It was a procurement contract. The third contract
was between Mis. Bay West and the manufacturers.
4. For the assessment year 2000-01, the appellant filed
its return of turnover under the CST ACT 1956. Before the AO,
appellant contended that the goods originated from the
F
... manufacturers and ultimately reached KPTCL though the title
. ),.
to the goods vested originally with M/s. Bay West as the EPC
contractor who in turn transferred the title to the goods to the
appellant when they were in transit and in turn the appellant
transferred the title by endorsing the lorry receipt in favour of
KPTCL. According to the appellant, there were three sales. G,
According to the appellant, the second and the third sales were
-.4
subsequent sales, hence, the appellant claimed exemption from
·tax for such sales under Section 6(2) of the CST ACT 1956.
This argument of the appellant stood rejected by the AO holding
that the appellant's turnover fell under Section 3(a) of the CST H
328 SUPREME COURT REPORTS [2008] 17 S.C.R. e
A ACT 1956. According to the AO, the first sale by the
manufacturers to M/s. Bay West was ,a Section 3(a) sale; that,
~~
the second sale by Mis. Bay West to1the appellant was also a
Section 3(a) sale and not a sale under Section 3(b) and that
even the subsequent sale by the appellant to KPTCL (ultimate
purchaser) was also a sale under Section 3(a) and not under
B
Section 3(b) and consequently it was held that the appellant
was not entitled to exemption under Section 6(2) of the C$T
ACT 1956. Consequently, the claim for exemption made by the
appellant stood dismissed. However, relying on the proviso to ...,, ...
Section 9( 1) of the CST ACT 1956, the AO held that the State
c of Karnataka was competent to levy the tax.
5. Aggrieved by the decision 'of the AO, the appellant
herein preferred appeals before tt1e Joint Commissioner of
Commercial Taxes (Appeals), Bangalore (hereinafter referred
to as "FAA"). That Authority took the view that the AO had erred
D in holding that the goods stood appropriated by KPTCL _at the
premises of the manufacturers. However, FAA proceeded to
hold that the subsequent sale stood concluded before the
movement of the goods and, therefore, there was no first inter- ).
...
State sale and thus Section 6(2) df the CST ACT 1956 was
E not applicable. Accordingly for different reasons, the FAA
uph~ld the levy of tax under the C$T ACT 1956.
_6. The matter was carried in appeal to the Karnataka
Appellate Tribunal, Bangalore by th~ appellant. It was held that
mere failure of the appellant to prove its case for exemption
F und~r Section 6(2) of the CST AC"( 1956 did not make the tax
leviable by the State of Karnataka. The Tribunal observed that
1 .;
the dealer in this case was located in the State of Karnataka -,I_

and the purchaser was also in, the State of Karnataka.
According to the Tribunal, the movement of goods under the
G contract was not from the State of Karnataka but into the State
of Karnataka and, therefore, there was no inter-State sale in
the St?1te of Karnataka and, therefore, the levy ·of tax on the
value _of the goods supplied was totally unjustified. ).-

7. Aggrieved by the said decision of the Tribunal, the
Department preferred Sal~s Tax' Revision Petition No.85 of
H
M/S. A & G PROJECTS & TECHNOLOGIES LTb. v. 329
STATE OF KARNATAKA [S.H. KAPADIA, J.]

2005 under Section 23(1) of the Karnataka Sales Tax Act, A
1957. By the impugned judgment the High Court held that the
sate of goods in favour of KPTCL was completed when the
goods were appropriated by KPTCL before commencement
of movement of goods from the place of manufacturers in
Chennai (Tamil Nadu) to KPTCL in the State of Karnataka and, B
therefore, the inter-State sale of goods fell under Section 3(a) 1
of the CST ACT 1956 and, therefore, was not entitled to1
exemption under Section 6(2) of the 1956 Act. According to
the High Court since the sale in question did not comply with
the conditions under Section 6(2), the matter came under first c
proviso to Section 9(1) of the CST ACT 1956. hi this connection
it was observed that the appellant had not obtained C-Form
from the State Department in respect of sale of goods sold on
the basis of contract entered into by the appellant with KPTCL
and, therefore, the proviso to Section 9(1) of the CST ACT 1956 1

stood attracted and consequently the State of Karnataka was D
the "Appropriate State" entitled to collect tax in respect of the
goods sold by the appellant to KPTCL under the CST ACT
... i
1956. Hence this civil appeal is filed by the appellant seeking

-
to challenge the impugned judgment dated August 14, 2007.
8. At the outset, it maybe noted that in this case there is · E
no dispute regarding the nature of the transaction being inter-
S~ate sale. As stated above, before the AO the appellant had i
contended that in all there were three independent contracts in
the entire transaction. The appellant claimed exemption under
Section 6(2) in respect of the second and third contracts. They F
contended that the said contracts were "subsequent sales"
falling under Section 3(b) and consequently they were entitled
to exemption under Section 6(2) of the CST ACT 1956. This
argument was rejected. The AO came to the conclusion that
all the three contracts came under Section 3(a) and, therefore, G 1

the appellant was not entitled to claim exemption under Section
6(2) of the CST ACT 1956..
9. We have to proceed in this case on the above basis
that all the three contracts came under Section 3(a) of the CST
ACT 1956, as held by the AO. What is urged on behalf of the H
330 SUPREME COURT REPORTS [2008] 17 S.C.R.

A appellant is that if all the three contracts stood covered as inter-
state sales under Section 3(a) then ir'I that event proviso to
Section 9(1) would not stand attracted. It' is this argument which
arises for determination in this civil appeal and for that purpose
we are required to quote the relevant provisions of the CST
8 ACT 1956 which have to be analysed in the context of the
controversy.
10. Accordingly, we quote hereinbelow the following
provisions of the CST ACT 1956 which read as under:
"SECTION 3 - When is a sale or purchase of goods said
C to take place in the course of inter-State trade or
commerce. -A sale or purchase 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
D State to another; or
(b) is effected by a transfer bf documents of title to
the goods during their movetnent from one State to
another.
Explanation 1---Where goods are delivered to a
E carrier or other bailee for transmission, the
,.
movement of the goods shall, for the purposes of
clause (b), be deemed to comm,ence at the time of
such delivery and terminate at the time when
delivery is taken from such barrier or bailee.
F Explanation 2--Where the movement of goods
commences and terminates in the same State it
shall not be deemed to be a <movement of goods
from one State to another by reason me(ely 9f the
fact that in the course of such movement the goods
G pass through the territory of any other State."
I

"SECTION 6. Liability to tax on iriter-State sa/es.-
(1) Subject to the other provisions contained_ in this Act,
every dealer shall, with effect from such date as the Central
Government may, by notification in the Official Gazette,
H

l--
1
MIS. A & G PROJECTS & TECHNOLOGIES LTD. v. 331
STATE OF KARNATAKA [S.H. KAPADIA, J.]

appoint, not being earlier than thirty days from the date of A
)' .. such notification, be liable to pay tax under this Act on all
sales of goods other than electrical energy effected by him
in the course of inter-State trade or commerce during any
year on and from the date so notified:
PROVIDED that a dealer shall not be liable to pay B
tax under this Act on any sale of goods which, in
accordance with the provisions of sub-section (3)
,._ 'f of section 5, is a sale in the course of export of
those goods out of the territory of India.
(2) Notwithstanding anything contained in sub-section (1) c
or sub-section (1A), where a sale of any goods in the
r'
course of inter-State trade or commerce has either
occasioned the movement of such goods from one State
to another or has been effected by a transfer of documents
of title to such goods during their movement from one State D

... )
to another, any subsequent sale during such movement
effected by a transfer of documents of title to such goods,-
(a) to the Government, or
(b) to a registered dealer other than the
Government, if the goods are of the description E
referred to in sub-section (3) of section 8, shall be
exempt frpm tax under this Act:
PROVIDED that no such subsequent sale shall be
--(
exempt from tax under this sub-section unless the
dealer effecting the sale furnishes to the prescribed F
-< ;.._ authority in the prescribed manner and within the
prescribed time or within such further time as that
authority may, for sufficient cause, permit, -
(a) a certificate duly filled and signed by the
registered dealer from whom the goods were G
purchased containing the prescribed particulars in
-I
-.i. .a prescribed form obtained from the prescribed
authority; and
......_

(b) if the subsequent sale is made-
H
332 SUPREME COURT REPORTS [2008] 17 S.C.R.
e ". ~
r==

A (i) to a registered dealer, a declaration referred to
in clause (a) of sub-seqtion (4) of section 8, or ,.~
>
,;-=-
(ii) to the Government, not being a registered ''
dealer, a certificate referred to in clause (b) of sub-
section (4) of Section 8:
B PROVIDED FURTHER that it shall not be
necessary to furnish the declaration or the \

certificate referred to in: clause (b) of the preceding
proviso in respect of a: subsequent sale of goods ~-
if, -
c (a) the sale or purchast;! of such goods is, under the
sales tax law of the appropriate State, exempt from .,
tax generally or is subject to tax generally at a rate
which is lower than fo4r per cent (whether called a
tax or fee or by any other name); and
D (b) the dealer effecting such subsequent sale
proves to the satisfaction of the authority referred
to in the preceding prc;>viso that such sale is of the
nature referred to in clause (a) or clause (b) of this
y ...
._

sub-section.".
E "SECTION 9. Levy and collection of tax and penalties - ~

(1) The tax payable by any dealer under this Act on sales
,'-
of goods effected by him in the course of inter-State trade
1
or commerce, whether such sales fall within clause (a) or
clause (b) of section 3, shall be levied by the Government
F of India and the tax so levi~d shall be collected by that
..._
Government in accordance with the provisions of sub-
I
section (2), in the State from which the movement of the
;''
goods commenced:
PROVIDED that, in the ca$e of a sale of goods during
G their movement from one State to another, being a sale
subsequent to the first sale 'in respect of the same goods
and being also a sale which poes not fall within sub-section r-
(2) of section 6, the tax shaU be levied and collected- ~
,;I
(a) where such subsequent sale has been effected by a
H
M/S. A & G PROJECTS & TECHNOLOGIES LTD. v. 333
STATE OF KARNATAKA [S.H. KAPADIA, J.]

registered dealer, in the State from which the registered A
>- dealer obtained or, as the case may be, could have
obtained, the form prescribed for the purposes of clause
(a) of sub-section (4) of section 8 in connection with the
purchase of such goods; and
(b) where such subsequent sale has been effected by an s'
unregistered dealer, in the State from which such
subsequent sale has been effected."
.,,...~
11. Section 3 of the CST ACT 1956 formulates the
principles for determining when a sale or purchase takes place
in the course of inter-State trade or commerce. The question c
-r
I
whether a particular sale is an inter-State sale or an intra-State
sale, though essentially one of fact, is not the pure question of
fact inasmuch as the facts of a given case have to be examined
in the light of Section 3 and, therefore, it is a mixed question
of fact and law. Section 3 defines when a sale or purchase of D

.. J
goods takes .place in the course of inter-State trade or
commerce. Two tests are applied, one of which is that a sale
or purchase takes place in the course of inter-State trade if it
occasions movement of the goods from one State to another,
and the other test is that a sale or purchase takes place by
transfer of documents of title, during the movement of the goods E
from one State to another. A sale (transfer of property) becomes
inter-State sale under Section 3(a) of the CST ACT 1956 if the
movement of goods from one State to another is under the
contract of sale, and the property in the goods passes to the
purchaser otherwise than by transfer of documents of title when F
the goods are in movement from one State to another. In this
case, it hc:s been held that all the three sales fell under Section
3(a) of the CST ACT 1956. In fact, the appellant's case for
exemption under Section 6(2) stood rejected by the AO
specifically on the ground that all the three sales stood covered G
under Section' 3(a). Within Section 3(b) are sales in which
property in the goods passes during the movement of the goods
... from one State to another by transfer of documents of title
thereto whereas Section 3(a) covers sales, other than those
included in clause (b), in which the movement of goods from
H
334 SUPREME COURT REPORTS . [2008] 17 S.C.R.

A one State to another is under the contract of sale and property
in the goods passes in either States [SEE: Tata Iron & Steel
Co. Ltd. v. S.R. Sarkar- (1960) 11 $TC 655 (SC) at page 667].
The dividing line between sales or purchases under Section
3(a) and those falling under Section 3(b) is that in the former
8 case the movement is under the contract whereas in the latter
case the contract comes into existence only after the
commencement and before termination of the inter-State
movement of the goods. Therefore, it follows that an inter-State
sale can either be governed under Section 3(a) - if it occasions
movement of goods from one Stpte to another - or under
C Section 3(b) - if it is effected by transfer of documents of title
after such movement has started, and before the goods are
actually delivered. ln_other words, a sale which takes place
under Section 3(a) shall stand excluded from the purview of
Section 3(b) and vice versa. By Section 3, it was intended to
D define the class of sales which sh~ll be deemed to be sales in
the course of inter-State trade or commerce. Under the CST
ACT 1956, tax is leviable on the sale of goods and not because
of the movement of the goods. The movement of the goods is
only material for the purpose of debidihg whether the sale took
E place in the course of inter-State tr~de or commerce or whether
such sale was purely an intra-State transaction. The name given
to a transaction by the parties concerned, does not decide the
nature of the transaction. In order to make a transaction taxable
under the CST ACT 1956, the transaction must be a "sale" as
F defined in Section 2(g) taking place in the course of inter-State
trade or commerce in any of the manner provided for in clause
(a) or clause (b) of Section 3. S~ction 6(1) of the CST ACT
1956 imposes a liability to pay tax' on sale of goods other than
electrical energy effected by a dealer in the case of inter-State
1

trade or commerce during a yegr'\ Sub-section (1) of Section 6
G appears to provide for multi-point tax but this is subject to the
1

other provisions of the Act. This qualification which is reflected
in the other provisions of the Act rrestricts the levy to a single
point subject to certain conditions, restrictions and
circumstances. Sub-Section (2) ofiSetction 6 exempts from levy
H a subsequent inter-State sale to a registered dealer of goods
M/S. A & G PROJECTS & TECHNOLOGIES LTD. v. 335
STATE OF KARNATAKA [S.H. KAPADIA, J.]

[described in Section 8(3)] and also to Government, provided A
"' ~·
conditions of the proviso to sub-section (2) are fulfilled. However,
a subsequent sale not falling within Section 6(2) will, however,
attract tax because of Section 9(1 ), notwithstanding the fact that
the first sale has been subjected to tax under Section 6(1) of
the CST ACT 1956. Thus Section 6 makes every dealer liable BI
to pay tax under the 1956 Act on all sales of goods other than
electrical energy effected by him in the course of inter:--State
.,..-'> trade. Analysing Section 6(2), it is clear that sub-section (2) has
been introduced in Section 6 in order to avoid cascading effect
of multiple taxation. A subsequent sale falling under sub-section
(2), which satisfies the conditions mentioned in the proviso
c.I
thereto,.is exempt from tax as the first sale has been subjected .
to tax under sub-section ( 1) of Section 6 of the CST ACT 1956.
Thus, in order to attract Section 6(2), it is essential that the
concerned sale must be a subsequent inter-State sale effected
by transfer of documents of title to the goods during the D
movement of the goods from one State to,another and it must
i be preceded by a prior inter-State sate:;· It is only then that
Section 6(2) may be attracted in order to make such
subsequent sale exempt from levy of sales tax. However, the
proviso to sub-section (2) of Section 6 prescribes further E
conditions and it is only on fulfillment of those conditions that
the subsequent sale stands exempted. If those conditions are
not satisfied then, notwithstanding the fact that the sale is a
subsequent sale, the exemption would not be admissible to
such subsequent sales. This is the scheme of Section 6 of the
F I
CST ACT 1956.
...._
12. In the present case, according to the AO, the second
and the third sales were not subsequent sales. According to
the AO, all the three sales are inter~State sales falling under
Section 3(a) and consequently Section 6(2) (which deals with
G
the exem,ptiorl} never stood attracte.d and, therefore, the
appellant was not entitled to ~xemption,
.....
13. The question before us is : if the sales stood covered
unde'r Section 3(a) and if they were not entitle~ to Jemption
under Section 6(2), whether the appellant could have be.en
H
336 SUPREME COURT REPORTS [2008) 17 S.C.R.

A taxed by the Department by invoking the proviso to Section 9(1)
of the CST ACT 1956? The object' of Section 9( 1) is two-fold.
Firstly, it provides that the tax on inter-State sales under Section
3(a) shall be levied by G.0.1. and collected by the State
Government from which the movement of go9ds commenced.
8 Secondly, it specifies the Appropriate State competent to levy
tax on second and subsequent sales made during the
movement of goods from one State to another as also the
authority, where such second and subsequent sales are exigible
to tax. As state above, Section 6(2) of the CST ACT 1956
provides for subsequent sales to be exempt from tax on the
C conditions prescribed therein. However, if and where those
conditions are not satisfied, even such subsequent sales would
attract tax and only in such circumstances the proviso to Section
9(1) which specifies the State, which is competent to levy the
tax, would come in. [SEE: Jadhavjee Laljee v. State of Andhra
D Pradesh- (1989) 74 STC 201 (AP) at page 204]. The proviso
to Section 9(1) contemplates two situations, namely, (a) where
such subsequent sale is made by a registered dealer and (b)
where such subsequent sale is m~de by unregistered dealer.
In respect of situation (a), the proviso to Section 9(1) prescribes
E that the Appropriate State competent to levy tax on such
subsequent sale shall be the State from which the registered
dealer obtains a declaration in C-Form whereas in the case
falling in situation (b), it provides that the Appropriate State
competent to levy the tax shall be the State from which such
subsequent sale has been effected. However, the entire proviso
F to Section 9(1) applies only to "sybsequent sales" covered by .
Section 3(b) and not to sales under Section 3(a) CST Act 1956.
14. Applying the above analyses to the facts of the case,
we are of the view that the provisb to Section 9( 1) of the CST
ACT 1956 is not applicable to the facts of the present case as
G th~ AO has categorically held tha' all the three sales fell under
Section 3(a) of the CST ACT 1956. Once the said sales fall
under Section 3(a) then under Section 9(1) the tax has got to
be collected by the State of T amil Nadu from which the
1

movement of the goods commenced. The case of the appellant
H
MIS. A & G PROJECTS & TECHNOLOGIES LTD. v. 337
STATE OF KARNATAKA [S.H. KAPADIA, J.]

regarding subsequent sales effected during the movement of A
;... ,., the goods stood specifically rejected both by the AO and the
FAA and; therefore, the question of taxing such sales under the
proviso to Section 9(1) of CST ACT 1956 did not arise.
15. Our above view is fortified by the judgment of this Court
in the case of Bharat Heavy Electrical Ltd. and Others v. Union B
of India and Others - (1996) 4 SCC 230. We quote
hereinbelow paras 17 and 18 of the said judgment which read
.._,.. ~
as under:
"17. The aforesaid survey of the relevant provisions of the
Act clearly shows that Sections 3, 4, 5, 9(1), 14 and 15 c
pertain to and deal with distinct topics and different
aspects of Articles 286 and 269. It follows that if a question
arises whether a sale is an inter-State sale or not, it has
to be answered with reference to and on the basis of
Section 3 and Section 3 alone. Section 4, or for that matter D
Section 5, is not relevant on the said question - see the
Constitution Bench decision in TISCO v. S.R. Sarkar-
(1960) 11 STC 655 and the decisions in Manganese Ore
(India) Ltd. v. Regional Asstt. Commr. of Sales Tax -
(1976) 4 SCC 124 and Union oflndia v. K.G. Khosla &
Co. Ltd. -(1979) 2 SCC 242. Similarly, where the question E
arises, in' which State is the tax leviable, one must look to
and apply the test in Section 9(1); no other provision is
relevant on this question."
"18. We may, at this stage refer to the decision of the
Bombay High Court in CST v. Barium Chemicals Ltd. ...: FI
.Jo_
(1981 ) 48 STC 121. A particular transaction of inter-State
sale was subjected to Central sales tax in Andhra Pradesh.
The same sale was again sought to be taxed under Central
--{
Sales Tax Act in Maharashtra, which was questioned. The
High Court adopted the following approach: Central sales G
tax is levied and collected by the Central Government; it
is immaterial in whi.ch State it is collected; it cannot be
... levied or collected twice over; the State Governments are
merely agents of the Central Government in the matter of
levy and collectibn of .Central·sales tax; if so, once tevied H
338 SUPREME COURT REPORTS [2008] 17 S.C.R.

A and collected in one State, rightly or wrongly, it cannot be
levied and collected in ariother State. In our opinion, this
may be an oversimplification of the matter. Maybe, from
the point bf view of the assess~e. this approach is sound
enough but from the point of view of the States (keeping
B Article 269 in mind) and the proyisions of the Central Sales
Tax Act, this may not be correct. Section 9(1) specifies the
State wherein Central sales tax shall be levied and
collected and the Central sales tax has to be levied and
collected in that State and in no other State. The approach
of the Bombay High Court makes Section 9(1) [which is
c enacted pursuant to Section 269(2), as pointed out
hereinabove] otiose ·and superfluous. It would not be
proper to say, in the lighfof the above constitutional and
statutory provisions, that the di.spute as to in which State
a particular inter-State sale is to be taxed is a matter
D between the States and that so far as the assessee is
concerned, it is enough if he pays the tax at one place,
whether it is really leviable in that State as per Section 9(1)
or not. The law requires that it should be levied and
collected in the State from· which the movement of goods
E commences [Section 9(1) read with Section 3(a)]."
I

16. For the aforestated reasons, we set aside the
impugned judgment of the High Court and accordingly allow the
civil appeal filed by the appellant with no order as to costs.
D.G. Appeal allowed.