Holding

The transaction is an inter‑state sale; consequently, only Central Sales Tax is applicable and the State tax is invalid.

Summary

The respondents, K.B. Saha & Sons, purchased processed kendu leaves from the Orissa Forest Development Corporation under a tender, obtained lifting orders and transport permits, and moved the leaves to their factories in West Bengal. The State of Orissa levied sales tax under the Orissa Sales Tax Act, 1947, which the respondents challenged, arguing that the transaction was an inter‑state sale occasioned by the movement of goods and therefore only liable to Central Sales Tax under the Central Sales Tax Act, 1956. The Supreme Court examined the tender clauses, the parties' places of business, the transport permits indicating destination, and the legal principle that movement of goods must be inseparably connected to the sale. It held that the sale and the movement were inter‑state in nature, that an explicit contractual provision was not required, and that the State tax was therefore improper. The Court dismissed the appeals, affirming the High Court’s order that the respondents were entitled to a refund of the State sales tax.

Issues considered

Whether the sale and purchase of kendu leaves, followed by their movement from Orissa to West Bengal, constitute an inter‑state sale under Section 3(a) of the Central Sales Tax Act, 1956.
Whether the levy of tax under the Orissa Sales Tax Act, 1947, is valid in such circumstances.

Legislation cited

Subjects

inter‑state salecentral sales taxstate sales taxkendu leavestransport permitcontract of salemovement of goodsCentral Sales Tax ActOrissa Sales Tax Actmonopolytender

Judgment

A STATE OF ORISSA AND ANR.
...
v.
MIS. K.B. SAHA AND SONS INDUSTRIES PVT. LTD. & ORS. ETC.

APRIL 27, 2007

B [DR.ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.]

Sales Tax: ..
Central Sales Tax, Act, 1956-s. 3(a)-Orissa Sales Tax Act, 1947-
C Sales tax-Levy of-Transaction ofsale and purchase ofkendu leaves between
purchaser and Government of Orissa Undertaking-Purchaser lifting the
kendu leaves from such depots under transport permit and transporting it to
their place of business in State of West Bengal-Exigibility to sales tax-
Held: Sale/purchase occasioned movement of Kendu leaves from State of
D Orissa to State of West Bental and as such transaction taking place in course
of inter-state trade-Thus, exigible to sales tax under Central Act and not
State Act-Orissa Kendu Leaves (Control of Trade Act, 1961-S. 3(2)(b)-
Orissa Kendu Leaves (Control of Trade) Rule, 1962.

Respondents are engaged in the business of tobacco and kendu leaves.
E They prepare bidis at factories in State of West Bengal Their registered office
is outside Orissa. Trade in Kendu leaves in Orissa is a State monopoly and
thus, is being transacted by Corporation-Government of Orissa. Undertaking
which sells processed and Phal kendu leaves by way of tender and auction
every year. Corporation invited sealed tenders for sale of processed and Phal
kendu leaves from purchasers duly registered with it. Writ petitioners being
{
F registered purchasers with the Corporation submitted tenders which were
duly accepted. They entered into agreements with the Corporation. There was
sale of Kendu leaves and payment of the sale value. Corporation issued lifting
orders to its respective Divisional Manager permitting the purchasers to lift
the goods. Forest Officer issued trans po rt permit on the basis of which the
G writ petitioners transported the kendu leaves to their places of busineS's in
the State of West Bengal. Sales tax was levied and collected under the Orissa
Sales Tax Act, 1947 from the respondents. Aggrieved, respondents filed writ
petitions on the ground that the transaction of sale and purchase of kendu
leaves between them and the Corporation were in course of inter-State trade

H 792
.... STATE OF ORISSA v. K.B. SAHA AND SONS INDUSTRIES PVL LTD. 793
• """i
because of sale/purchase had occasioned the movement of kendu leaves from A
the State of Orissa to the State of West Bengal and as such it was exigible to
central sales tax under the Central Sales Tax Act, 1956 and not local Act i.e.
Orissa Sales Tax Act, 1947, and thus the excess amount collected from them
under the guise of State sales tax should be refunded High Court allowed the
writ petition holding that kendu leaves can only be delivered after submission
B
of necessary transport permit and the sale can only be completed after the
goods have been directed to move to the definite place as mentioned in the
t
transport permit, therefore, the pre conditions essential for a sale in course
of inter-State trade were satisfied and the transactions were inter-State sale
within the meaning ofS. 3(a) of the Central Act. Hence the present appeals.
c
Dismissing the appeals, the Court

HELD: 1. The High Court's view that the transactions were inter-State
sale within the meaning of S.3(a) of the Central Sales Tax Act, 1956, is
justifie~. Therefore, on the fact situation established no interference is called
for. [P~ra 28) [806-DJ
D

2.1. The nature of a transaction i.e. whether it is an inter-State or intra-
State would depend upon the factual scenario of the case under examination.
One of the Clauses on which the High Court has placed great reliance is
Clause 3. 7 that the tenderer shall be bound by all Forest Department rules E
and regulations in connection with the purchase and transit of the forest
produce. [Para 12) [798-G, H; 799-AJ

2.2 In the tender document there was clear indication that the principal
)' place of business and additional place of business of the respondents were all
outside State of Orissa. The details of registrations under the West Bengal F
Act and the Central Act were indicated. The way bill of transport and
consignment of goods dispatched from outside the State of West Bengal to
any place in West Bengal was also brought on record. Though mere knowledge
about the ultimate destination cannot be sufficient, yet cumulative effect of
the factual scenario has to be considered. (Paras 13 and 15) [799-B, C, El G

2.3. In order to decide whether sale is inter-State it is sufficient that
movement of goods should have been occasioned by sale or should be incidental
thereto. What is important is that the movement of goods and the same must
be inseparably connected. It is not necessary that there should be an existence
H
794 SUPREME COURT REPORTS (2007] S S.C.R.

A of contract of sale incorporating the express or implied provision regarding
inter-State movement of goods. Even if hypothetically it is stated that such a
requirement is necessary in the facts of the present case such implied
stipulation does exist. This is referable to Clause 3. 7 of the agreement.
(Para 21) (804-B, CJ

B 2.4. Though, the Corporation submitted that this was only the purpose
of financial transactions, yet it is really not so. The clause 3.13 clearly
recognizes the possibility of a tenderer making purchase for he purpose of
export outside India. If sale was completed intra-State, as contended by the
State and the Corporation, the question of affecting the purchase for the
C purpose of export does not arise. [Para 23[ (804-F, G[

2.5. A specific query was made as to which is the specific provision in
the agreement relates to completion of sale, an evasive reply was given that a
complete reading of the clause makes the position clear. It may be noted that
D in the appeal, the State has made a statement to the effect that Clause 3.6 of
the tender notice refers to finalization of sale and according to it the sale is
completed in the State of Orissa. A bare reading of Clause 3.6 that a sale
once finalized in favour of a tenderer cannot be transferred subsequently to
any other person, amply proves that there is no substance in such a plea. It
does not remotely even refer to situs of such sale.
E [Paras 24 and 251 (804-G; 805-A, Bl

2.6. Specific averments have been made in the writ petitions about the
certificate issued by the Income tax authorities, West Bengal under Section
206 C of the Income Tax Act, 1961 to the corporation to the effect that the
respondents would be utilizing the kendu leaves for the purpose of manufacture
-
F and not for trade purpose and, therefore, authorized the Corporation not to
collect tax at source in terms of S.206C of the Act. There is no denial to this
position. (Paras 14 and 27) (799-D; 806-D[

Balabhagas Hulaschand v. State of Orissa, [1976[ 2 SCC 44;
G Commissioner ofSales Tax, U.P. and Ors. v. Mis. Bakhtawar Lal Kai/ash Chand
Arhti and Ors., (1992) 3 SCC 750; Union ofIndia and Anr. v. Mis. K.G. Khosla
& Co. Ltd. and Ors., (1970[ 2 SCC 242 and Oil India Ltd. v. The
Superintendent of Taxes and Ors., (1975) 1 SCC 733, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4 I58-4 I 86 of
H 2001.
STATEOFORISSAv. K.B. SAHA AND SONS INDUSTRIESPVf. LID. [PASAYAT,J.] 795
" ........_,
From the Final Judgment and Order dated 28.03.2001 of the High Court A
ofOrissa, Cuttack in O.J.C. Nos. 9724, 10613, 10617, 10618, 10669, 10686,
10693, 10694, 10695, 10787,10788, 10792, 10801, 10802, 10827, 10828, 10829,
10830, 10831, 10832, 10874, 10875, 10876, 10877 10944, 10945, 11115, 11121 and
11122 of2000.

WITH B

C.A. Nos. 5341-5344 of2001.
!

I.A. NO. 3 in SLP (C) No. 15308 of2002.

Rakesh Dwivedi and B.A. Mohanti, Amit Singh, Mukti Choudhary, Kirti c
Renu Mishra and Ashok Mathur for the Appellants.

Anil Divan, B. Sen, Swetaketu Mishra, S. Singh and Janaranjan Das for
the Respondents.

The Judgment of the Court was delivered by D
,. DR. ARIJIT PASAYAT, J. I. Appellants-State ofOrissa and the Orissa
Forest Department Corporation Ltd. (in short the 'Corporation') in these
appeals call in question legality of the judgment rendered by a Division Bench
of the Orissa High Court allowing the writ petitions filed under Article 226 of E
the Constitution of India, 1950 (in short the 'Constitution').

2. Writ petitions were filed by the respondents on the plea that the
transactions between them and the Corporation were in course of inter-State

.. )
trade and, therefore, only sales tax under the Central Sales Tax Act, 1956 (in
short the 'Central Act') and not the Orissa Sales Tax Act, 1947 (in short the F
'State Act') was leviable. Accordingly, prayer was made for a declaration that
leyy and collection of tax under the State Act was unauthorized, without
jurisdiction and the excess amount collected from them under the guise of
State sales tax should be refunded.
G
J
Background facts as presented by the appellants are as follows:

3. The respondents have their registered office outside the State of
Orissa. They carry on business in tobacco and kendu leaves. They prepare
bidi at factories situated in the State of West Bengal. The Corporation is a
Government of Orissa Undertaking. Trade in Kendu leaves in the State of H
796 SUPREME COURT REPORTS [2007) 5 S.C.R. _,
r
A Orissa is a State monopoly and, therefore, is being transacted by the
Corporation which sells processed and Phal kendu leaves by way of tender
and auction every year. The writ petitioners had registered both under the
West Bengal Sales Tax Act, 1994 (in short the 'West Bengal Act') and the
Central Act.

B 4. As usual, the Corporation issued tender notice for sale of processed .
and Phal kendu leaves for the year 2000-2001 and invited sealed tenders from
purchasers duly registered with it. All the writ petitioners were registered
purchasers with the Corporation and they submitted tenders which were duly ~

accepted. They also entered into agreements with the Corporation. After the
c sale of kendu leaves and payment of the sale value, lifting orders were issued
by the Corporation to its respective Divisional Managers permitting the
purchasers to lift the goods. Thereafter, the concerned Divisional Forest
Officer issued transport permit in the prescribed form on the basis of which
the writ petitioners transported the kendu leaves to their places of business
D in the State of West Bengal. According to the writ petitioners the sale and
purchase of kendu leaves are deemed to have taken place in course of inter-
State trade because the sale/purchase had occasioned the movement of kendu .._
leaves from the State of Orissa to the State of West Bengal and as such it
is exigible to central sales tax under the Central Act and not local Act i.e. State
Act. The plea was resisted by the State. According to it the levy of sales tax
E under the State Act was justified. To similar effect was the stand of the
Corporation.

5. The High Court referred to various provisions of the Orissa Kendu

-
Leaves (Control of Trade) Act, 1961 (in short the 'Kendu Leaves Act') under
F which the State of Orissa has assumed monopoly of trading kendu leaves.
Rules framed thereunder are known as Orissa Kendu Leaves (Control of
Trade) Rules, 1962 (in short 'Central Rules'). It was noted by the High Court
that Section 3(2)(b) of Kendu Leaves Act lays down that notwithstanding
anything contained in sub-section (1), leaves purchased from government or
any officer or agent specified in the said sub-section by any person for
G manufacture of bidis within the State or by any person for sale outside the ~

l
State may be transported by such person outside the unit under a permit to
be issued in that behalf by such authority as may be prescribed and the
permits so issued shall be subject to such conditions as may be prescribed.
The High Court also referred to Rule 5-B which deals with disposal of kendu
H leaves. Particular reference was made to sub-rule (10) and sub-rule (11) of the
STATE OF ORISSA v. K.B. SAHA AND SONS INDUSTRIES PVT. LTD. [PASAYAT, J.] 797
-""" said Rule. Under sub-rule ( 11) the purchaser is required to execute an agreement A
in the prescribed form 'H' within 15 days from the date of receipt of an order
relating to his selection as purchaser failing which the said order of selection
shall be liable to be cancelled. Sub-rule (13) provides that purchaser shall take
delivery of kendu leaves from such depots or stores as indicated by the
Divisional Forest Officer during the agreement. Rule 6 deals with grant of
B
transport permit. The High Court relied upon the said Rule for its conclusion
that the transactions were in the nature of inter-State trade. Reference was
made to sub-rule (I) of Rule 6 which lays down that an application for issue
of permit under Section 3(2)(b) of the State Act in the prescribed form 'C' has
to be made to the Divisional Forest Officer. The High Court found that the
writ petitioners were purchasers duly registered with the Corporation. They c
have submitted their tenders pursuant to the tender of notice. Their bids were
accepted purnuant to which in each case agreement was executed. As an
instance regarding the nature of the transaction, reference was made to the
factual position in OJC 9724/2000 filed by Ashok Bidi and Anr. In that case
it was noted that the Divisional Manager of the Corporation, Balangir Division D
in his letter dated 13.11.2000 wrote to the Sub Divisional Manager, Padampur
Sub Division, requesting him to give delivery of the stock to writ petitioner
No. I on receipt of the transport permit from the Divisional Forest Officer,
Kendu Leaf, Padampur. In the copy which was forwarded to the Divisional
Forest Officer, Kendu Leaf, Padampur Division, the Divisional Manager
E
requested him to issue necessary transport permit in favour of the writ
petitioner. The challan indicates that the goods were to travel from Mithapali
in Orissa to Aurangabad in West Bengal. The transport permit also noted the
destination. It was, therefore, concluded by the High Court that kendu leaves
can only be delivered after submission of necessary transport permit and the
sale can only be completed after delivery of the goods, that is to say, after F
the goods have been directed to move to the definite place as mentioned in
the transport permit. Such permits clearly indicate the destination and also
checking and examination at check gates in between the point of despatch
and destination so as to avoid diversion of the goods. It was, therefore,
concluded that the pre conditions essential for a sale in course of inter-State G
j
trade were satisfied and the transactions have to be held as inter-State sale
within the meaning of Section 3(a) of the Central Act. The writ petitions were
. accordingly allowed.

6. In support of the appeals, learned counsel for the appellants submitted
H
798 SUPREME COURT REPORTS (2007] S S.C.R.
-
A that unnecessary stress has been laid by the High Court on the transport
pennit. They submitted that even in case of intra-State trade, the transport
--
pennits were required. There was in each case an agreement with the
Corporation and nowhere it stipulates that the goods could only be taken
outside the State. After the sale was completed in the State of Orissa, the
B purchaser was free to take it to any destination.

7. The nature of the transaction has to be concluded on the basis of
the common intention of the parties. The seller had no knowledge as to what
is the ultimate destination. Mere knowledge to the seller is not sufficient.
Something more is necessary. There was no material to show that the seller's
C intention was of inter-State trade. The pennit issued for outside the units is
only for the convenience of the purchasers, where the goods pass is immaterial.

8. Learned counsel for the Corporation submitted that the pennit was
issued to facilitate transport and there was no binding obligation and
D compulsion to take them outside the State.

9. Learned counsel for the Corporation further stated that though a
casual readfag of Clause 3.13 gives an impression that there was no definite
point of sale spelt out in the agreement, yet a complete reading of the
agreement in its entirety goes to prove that sale was intended to be intra-State
E sale. So far as the pennit is concerned it was submitted, as noted above, that
it is only to facilitate the movement of goods. Nobody can move the articles
without the pennits, but that does not restrict loading. Know ledge of about
the State of destination is not detenninative. There is no embargo on delivery
and the embargo is only on transportation,

F 10. One of the appeals filed related to certain interim orders passed after
the disposal of the writ petitions. Learned counsel for the Corporation stated
that such a practice is unknown in law. After the writ petition is disposed of,
the Court becomes functus officio and coulrl not have passed any order of
either interim or final nature.
G
I I. Learned counsel for the respondents on the other hand supported
the judgment of the High Court.

I2. The nature of a transaction i.e. whether it is an inter-State or intra-
State would depend upon the factual scenario of the case under examination.
H The Corporation only accepts tenders from purchasers who are duly registered
STATEOF ORISSA v. K.B. SAHA AND SONS INDUSTRIES PVT. LTD. [PASAYAT, J.) 799
•
with it. The registration is renewed from time to time. One of the Clauses on A
which the High Court has placed great reliance is Clause 3.7. The same reads
as follows:

"The tenderer shall be bound by all Forest Department rules and
regulations in connection with the purchase and transit of the forest
produce." B

13. It has been pointed out by learned counsel for the respondents that
in the tender document there was clear indication that the principal place of
business and additional place of business of the respondents were all outside
the State of Orissa. The details of the registrations under the West Bengal C
Act and the Central Act were indicated. The way bill of transport and
consignment of goods despatched from outside the State of West Bengal to
any place in West Bengal was also brought on record.

14. Reference was also made to the certificate issued by the Joint
Commissioner, Income Tax, West Bengal under Section 206C of the Income D
Tax Act, 1961 (in short the 'Income tax Act') to the Corporation to the effect
that the respondents would be utilizing the kendu leaves for the purpose of
manufacture and not for trade purpose and, therefore, authorized the
Corporation not to collect tax at source in terms of Section 206C of the Income
Tax Act.
E
15. Though mere knowledge about the ultimate destination cannot be
sufficient, yet cumulative effect of the factual scenario has to be considered.

16. At this juncture, it is relevant to take note of a few decisions on the
question of inter-State sale. F
17. Strong reliance was placed by learned counsel for the State on a
decision of this Court in Balabhagas Hulaschand v. State of Orissa, [ 1976]
2 sec 44, more particularly, the position highlighted at page 52 which reads
as follows:
G
; "12. Furthermore, we can hardly conceive ofany case where a sale
would take place before the movement of good_s. Normally what
happens is that there is a contract between the two parties in pursuance
of which the goods move and when they are accepted and the price
is paid the sale takes place. There would, therefore, hardly be any H
800 SUPREME COURT REPORTS (2007] 5 S.C.R.

A 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:

Case No. I-A is a dealer in goods in State X and enters into an
agreement to sell his goods to B in State Y. In pursuance of the
B 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 the goods and the movement
of goods being in pursuance of a contract which eventually
merges into a sale the movement must be deemed to be
c 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 her he books the goods from State X to State Y in his own
name and his agent in State Y receives the goods on behalf of
D A. Thereafter the goods are delivered to B in State Y and if B
accepts them a sale takes place. It will be seen that in this case
the movement of goods is neither in pursuance of the agreement
to sell nor is 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
E
and falls beyond the purview of Section 3(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
purchases the goods and pays the price thereof. After having
F purchased 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 the
movement of goods is not occasioned by the sale but takes place
after the property is purchased by B and becomes his property".

G 18. It is to be noted that the position in law as stated in the same
paragraph was specifically dissented from in Commissioner o/Sales Tax, U.P.
and Ors. v. Mis Bakhtawar Lal Kai/ash Chand Arhti and Ors., (1992] 3 SCC
750). In para 15 it was noted as follows:

"15. Shri Sehgal relies particularly upon "Case No. III" contained in
H
- > ....
STATEOFORISSAv. K.B. SAHA AND SONS INDUSTRIES PVT. LTD. [PASAYAT,J.] 801

the first extract and clause (iii) mentioned in the second extract. Relying A
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 B
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. Be that as it C
may, the true position has since been explained in the later decision
in Khosla and Co. It is immaterial whether a completed sale prece<les
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 D
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 . I
observations relied upon by Shri Sehgal do not constitute the ratio
of the decision and cannot come to the rescue of the appellant-State. E
Indeed, if one looks to the langiiage 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 the case inay
be and not the other way round."

19. In the said judgment the view expressed by this Court in Union of F
India and Anr. v. Mis K.G. Khosla & Co. Ltd. and Ors.; [1979] 2 SCC 242 was
adopted. In paragraphs 15 and 17 of .the judgment in Khosla 's case the
position was stated as follows:

"15. It is true that in the instant case the contracts of sales did not
require or provide that goods should be mov~d from Faridabad to G
> Delhi. But it is not true to say that for the purposes of Section 3(a)
of the Act it is necessary that the contract of sale must itself provide
for and cause the movement of goods or that the mov1:ment of goods
must be occasioned specifically in accordance with the terms of the
H
A
802 SUPREME COURT REPORTS (2007] 5 S.C.R.

contract of sale. The true position in law is as stated in Tata Iron and
Steel Co. Ltd., Bombay v. S.R. Sarkar, [1961] 1 SCR 379 wherein Shah,
J. speaking for the majority observed that clauses (a) and (b) of
I- • -
Section 3 of the Act are mutually exclusive and that Section 3(a)
covers sales in which the movement of goods from one Sta:te to
another "is the result of a covenant or incident, of the contract of sale,
B
and property in the goods passes in either State" (page 391 ). Sarkar,
J speaking for himself on behalf of Das Gupta, J agreed with the
majority that clauses (a) and (b) of Section 3 are mutually exclusive
but differed from it and held that "a sale can occasion the movement
of the goods sold only when the terms of the sale provide that the
c goods would be moved; in other words, a sale occasions a movement
of goods when the contract of sale so provides" (page 407). The view
of the majority was approved by this Court in Cement Marketing Co.
of India v. State of Mysore, (1963] 3 SCR 777; State Trading

D
. Corporation of India v. State of Mysore, (1963] 3 SCR 792 and
Singareni Collieries Co. v. State of Andhra Pradesh, (1966] 2 SCR
190. In K.G. Khosla & Co. v. Deputy Commissioner of Commercial
Taxes, 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 a/Taxes, (1975] 3 SCR
797 it was observed by Mathew, J., who spoke for the Court, that: (1)
E
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

F
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. It would be
enough if the movement was in pursuance of and incidental to the
contract of sale (page 801 SCC p.737, para 9). The learned Judge
G added that it was held in a number of cases by the Supreme Court that
if the movement of-goods from one State to another is the result of
a covenant or an incident of the contract of sal~, then the sale is an
inter-State sale.

llK xx xx xx
H
STATE OF ORISSA v. K.B. SAHA AND SONS INDUSTRIES PVf. LID. [PASAYAT,J.] 803

17. This decision may be usefully contrasted with another decision A
between the same parties, which is reported in State of Bihar v. Tata
Engineering & Locomotive Co. Ltd., [1971] 2 SCR 849. In that case
the turnover in dispute related to the sales made by the company to
its dealers of trucks for being sold in the territories assigned to them
under the dealership agreements. Each dealer was assigned an exclusive B
territory and under the agreement between the dealers and the company,
they had to place their indents, pay the price of the goods to be
1
purchased and obtain delivery orders from the Bombay office of the
company. In pursuance of such delivery orders trucks used to be
delivered in the State of Bihar to be taken over to the territories
assigned to the dealers. Since under the terms of the contracts of sale C
the purchasers were required to remove the goods from the State of
Bihar to other States, no question arose in the case whether it was
or was not necessary for a sale to be regarded as an inter-State sale
that the contract must itself provide for the movement of goods from
one State to another. If a contract of sale contains a stipulation for D
such movement, the sale would, of course, be an inter-State sale. But
it can also be an inter-State sale even if, the contract of sale does not
itself provide for the movement of goods from one State to another
but such movement is the result of a covenant in the contract of sale
or is an incident of that contract."
E
20. In Oil India Ltd v. The Superintendent of Taxes and Ors., [1975] 1
sec 733 the position was stated as follows:
"This Court has held in a number of cases that if the movement
of goods from one State to another is the result of a covenant or an p
incident of the contract of sale, then the sale is an inter-State sale.
(See Tata Iron & Steel Co. Ltd v. S.R. Sarkar, [1961] 1 SCR 379 and
State of J & K v. Caltex (India) Ltd, (1966) 17 STC 612. Here, the
crude oil was carried from Assam through the pipelines specially
constructed by the petitioner to the refinery at Barauni in Bihar and
there the oil was pumped and delivered to the Indian Oii Corporation. G
Clause 12 of the agreement dated January 14, 1958 provides that the
petitioner shall arrange for the construction of pipeline or such other
related facilities as the company shall consider necessary for the
transport of crude oil to be produced by it to the refinery at Barauni.
H
804 SUPREME COURT REPORTS (2007] 5 S.C.R.

A This would indicate that the construction of pipeline was undertaken
,.. .
by the petitioner in pursuance of the agreement and that that was for
the_ specific purpose of transporting crude oil to Barauni from Assam.
This can only point to the conclusion that the parties contemplated
that there should be movement of goods from the State of Assam to
B the State of Bihar in pursuance to the contract of sale."

21. In order to decide whether sale is inter-State it is sufficient that
movement of goods should have been occasioned by sale or should be
incidental thereto. What is important is that the movement of goods and the
sale must be inseparably connected. It is not necessary that there should be
C an existence of contract of sale incorporating the express or implied provision
regarding inter-State movement of goods. Even if hypothetically it is stated
that such a requirement is necessary in the facts of the present case such
implied stipulation does exist. This is referable to Clause 3. 7 of the agreement.

D 22. At this juncture it is also relevant to take note of Clause 3.13 which
reads as follows.

"The successful tenderer shall pay security deposit @ 25% of the full ...
purchase price of the lot(s) within 15 days of issue ofratification order
provided that where the tenderer makes purchase for purpose of
E Export outside India, he may, if he so elects and on furnishing the
requisite papers in support thereof, tender the security deposit in the
form of Bank Guarantee (BG) to the extent of20% of the full sale value
of the stock purchased in the prescribed form valid for a period of not
less than one year and the said BG shall be released after finalization
of the export deal."
F
23. Though, learned counsel for the Corporation submitted that this was
only for the purpose of financial transactions, yet it is really not so. The
clause clearly recognizes the possibility of a tenderer making purchase for the
purpose of export outside India. If sale was completed intra-State, as contended
G by the State and the Corporation, the question of affecting the purchase for
the purpose of export does not arise. ~

24. A specific query was made as to which is the specific provision in
the agreement r<:lates to completion of sale, an evasive reply was given that
a complete reading of the clause makes the position clear. It may be noted
H
STATE OF ORISSA v. K.B. SAHA AND SONS INDUSTRIES PVf. LTD. [PASAYAT, J.] 805

that in the appeal the State has made a statement to the effe.:t that Clause A
3.6 of the tender notice refers to finalization of sale and according to it the
sale is completed in the State of Orissa. A bare reading of Clause 3.6 amply
proves that there is no substance in such a plea. Clause 3.6 reads as follows:

"Sale once finalized in favour of a tenderer cannot be transferred
subsequently to any other person". B

25. A sale once finalized in favour of a tenderer cannot be transferred
t
subsequently to any other person. It does not remotely even refer to situs
of such sale.

26. The letter of the Divisional Manager of the Corporation, Balangir C
Division dated 13.11.2000 is also of some relevance. The relevant portion is
as follows:

"OFFICE OF THE DIVISIONAL MANAGER, ORISSA

FOREST DEVELOPMENT CORPORATION LTD.
D

BALANGIR KENDU LEAF DIVISION

No.8827 4202 Date 13.11.00
•
To E
Sub-Divisional Manager
Padampur Sub-Division
Sub:· Delivery of stock of Kendu leaves lot No.2 l4/BPR/9965 Division
lot, B-301/1, B-302/1 and B-303/1 of Unit No. 47(B) to the purchaser
vide delivery receipt No.20710, 20711 & 20712 dt. 10.9.2000 F
Dear Sir,

We ..............Therefore, you are requested to give delivery of the
stock to the concerned purchaser on receipt of the transport permit
from the Divisional Forest Officer (KL) Padampur as per the following G
quality specification...... .

xx xx

Yours faithfully,
H
806 SUPREME COURT REPORTS [2007) 5 S.C.R.

A Sd/-
Divisional Manager
Balangir Kendu Leaf Division
Memo No ............... Date ...... .

B Copy to the Divisional Forest Officer Padampur Kendu Leaf
Division for his infonnation. He is requested to please issue the
necessary transport pennits in favour of the above named purchaser
on receipt of the fonn "C" duly endorsed by the undersigned/our sub-
Divisional Manager concerned.
Divisional Manager
c Balangir Kendu Leaf Division"
27. As noted above, specific avennents have been made in the writ
petitions about the certificate issued by the Income tax authorities
and there is no denial to this position.

D 28. Above being the position, the inevitable conclusion is that the High
Court was justified in its view. On the fact situation established no interference
is, therefore, called for. The appeals are dismissed with no order as to costs.

29. In view of dismissal of the present appeals, no order is required to
E be passed in I.A.No.3 in SLP (C) No.15308/2002.
NJ. Appeals dismissed.

·-...... __'