18 April 1996
Supreme Court


Case number: Writ Petition (Civil) 1608 of 1987






DATE OF JUDGMENT:       18/04/1996


CITATION:  1996 AIR 1854            1996 SCC  (4) 230  JT 1996 (4)   427        1996 SCALE  (3)746



JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY,J.      Leave granted in the Special Leave Petitions.      The Constitution  [Sixth Amendment]  Acts 1956  re-cast Article 286  of the  Constitution almost in its entirety. It inserted sub-clause  (g) in  clause (1)  of Article  269 and introduced clause  in Article  269. The  Constitution [Forty Sixth Amendment] Act, 1982 substituted clause (3) of Article 286. As  amended by  Sixth and  forty Sixth  Amendment Acts, Article 286 reads:      "286(1). No  law of  a State  shall      impose, or authorise the imposition      of, a  tax on  the sale or purchase      of  goods   where  such   sale   or      purchase takes place-      (a) outside the State; or      (b) in  the course of the import of           the goods  into, or  export of           the   goods    out   of,   the           territory of India. (2)  Parliament  may  by  law  formulate      principles for  determining when  a      sale or  purchase  of  goods  takes      place in  any of the ways mentioned      in clause (1). (3) Any  law of a State shall, in so far      as it  imposes, or  authorises  the      imposition of,-  (a) a  tax on  the      sale or  purchase of goods declared      by  Parliament  by  law  to  be  of      special importance  in inter  State      trade or commerce; or           (a)  a  tax  on  the  sale  or                purchase     of     goods                declared by Parliament by



              law  to   be  of  special                importance in inter-State                trade or commerce; or           (b)  a  tax  on  the  sale  or                purchase of  goods, being                a  tax   of  the   nature                referred to in sub clause                (b),  sub-clause  (c)  or                sub-clause (d)  of clause                (29A) of article 366,                be   subject    to   such                restrictions          and                conditions in  regard  to                the system of levy, rates                and  other  incidents  of                the tax as Parliament may                by law specify."      Clause (1)  places a  restriction upon the power of the State Legislatures  to levy  taxes on  sale or  purchase  of goods; a  State cannot  levy tax on a sale which takes place outside that  State nor can it tax a sale or purchase taking place in  the course  of import into or export out of India. Clause (2)  empowers the  Parliament to formulate principles for determining  when a  sale takes place outside a State or in the  course of  import or  export, as  the case  may  be. Clause  (3)   places  certain   restrictions  on  the  State Legislatures in  the matter  of system of levy and rate etc. in respect of certain goods and transactions.      Article 269  specifies the  duties and taxes levied and collected by  the Government  of India  but assigned  to the States in  the manner  provided therein.  Among the  several duties  and  taxes  specified  in  clause  (1)  is  the  tax mentioned under  sub-clause (g)  - "taxes  on  the  sale  or purchase of  goods other  than newspapers where such sale or purchase takes  place in  the course  of interstate trade or commerce". Clause  (2) of  Article 269 provides that the net proceeds in  any financial  year of  any such  duty  or  tax "Shall be  assigned to  the States within which that duty or tax is  leviable in that year and shall be distributed among those  States   in  accordance   with  such   principles  of distribution, as  may be  formulated by  Parliament by law". Clause (3)  empowers the  Parliament to formulate principles for determining when a sale or purchase of goods takes place in  the   course  of   inter-State  trade  or  commerce.  By Constitution [Forty  Sixth Amendment]  Act,  the  words  "or consignment of"  were added  in clause  (3). Clause  (3) now reads:      "Parliament may  by  law  formulate      principles for  determining when  a      sale or purchase of, or consignment      of goods, takes place in the course      of inter-State trade or commerce."      Soon after the Commencement of the Sixth Amendment Act, the Parliament  enacted the Central Sales Tax Act, 1956 [the Act] to  effectuate the  provisions of Articles 286 and 269. The Preamble to the Act reads:      "An Act to formulate principles for      determining when a sale or purchase      of goods  takes place in the course      of inter-State trade or commerce or      outside a State or in the course of      import into or export from India,           to  provide   for  the   levy,      collection  and   distribution   of      taxes on  sales  of  goods  in  the



    course  of   inter-State  trade  or      commerce  and  to  declare  certain      goods to  be of  special importance      in   the   inter-State   trade   or      commerce    and     specify     the      restrictions  and   conditions   to      which State  laws imposing taxes on      the sale  or purchase of such goods      of  special   importance  shall  be      subject."                      (Emphasis supplied)      Section 2  defines certain expressions occurring in the Act. Section  3 defines  inter-State sale  or purchase. This section is enacted pursuant to clause (3) of Article 269. An inter-State sale  or purchase  shall be deemed to take place if (a)  the sale or purchase occasions the movement of goods from one  State another  or (b)  the  sale  or  purchase  is effected by  a transfer  of documents  of title to the goods during  their  movement  from  one  State  to  another.  Two Explanations are  appended to  this section  which it is not necessary to note for the purposes of these appeals. Section 3 reads:      "3. When  is a  sale or purchase of      goods 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 State to another; or      (b) is  effected by  a transfer  of      document  of  title  to  the  goods      during  their   movement  from  one      State to another."      Section 4  specifies when  does a sale or purchase take place outside  a State.  Sub-section (1)  of Section  4 says that where  a sale  or purchase  of goods  is determined  in accordance with  subsection (2) [of Section 4] to have taken place inside  a State, such sale or purchase shall be deemed to have  taken place  outside all  other States. Sub-section (2) sets  out when  shall a  sale or  purchase of  goods  be deemed to  have taken  place inside  a State.  It is obvious that Section  4 has  been enacted  to give effect to Article 286(1)(a) read  with clause (2) of the said Article. Section 4 reads:      "4. When  is sale  or  purchase  of      goods  to   take  Place  outside  a      State.--(1)    Subject    to    the      provisions contained  in Section 3,      when a sale or purchase of goods is      determined in  accordance with sub-      section (2)  to take place inside a      State, such  sale or purchase shall      be  deemed   to  have  taken  place      outside all other States.      (2) A  sale or  purchase  of  goods      shall  be   deemed  to  take  place      inside a  State, if  the goods  are      within the State-      (a) in  the  case  of  specific  or           ascertained goods, at the time           the contract  of sale is made;           and      (b) in the case of unascertained or



         future goods,  at the  time of           their  appropriation   to  the           contract of sale by the seller           or  by   the  buyer,   whether           assent of  the other  party is           prior or  subsequent  to  such           appropriation."      Section 5  specifies when  shall a  sale or purchase of goods be deemed to take place in the course of export of the goods out  of the  territory of  India or  in the  course of import of the goods into the territory of India, as the case may be. Section 5 it is equally evidents has been enacted to give effect to Article 286(1)(b) read with clause (2) of the said Article.  Though we  are not concerned herein with sub- section (3)  of Section  5 we  may yet  set out Section 5 in full:      "5. When  is a  sale or purchase of      goods to  take place  in the course      of import  or export.--  (1) A sale      or  purchase   of  goods  shall  be      deemed to  take place in the course      of the  export of  the goods out of      the territory  of India only if the      sale or  purchase either  occasions      such export  or is  effected  by  a      transfer of  document of  title  to      the  goods  after  the  goods  have      crossed the  customs  frontiers  of      India.      (2) A  sale or  purchase  of  goods      shall be  deemed to  take place  in      the course  of the  import  of  the      goods into  the territory  of India      only if the sale or purchase either      occasions   such   import   or   is      effected by a transfer of documents      of title  to the  goods before  the      goods  have   crossed  the  customs      frontiers of India.      (3)    Notwithstanding     anything      contained in  sub-section  (1)  the      last sale  or purchase of any goods      preceding  the   sale  or  purchase      occasioning  the  export  of  those      goods out of the territory of India      shall also  be deemed  to be in the      course of  such export if such last      sale or  purchase took place after,      and  was   for   the   purpose   of      complying  with  the  agreement  or      order for  or in  relation to  such      export."      Section 14  of the  Act declares  the  goods  mentioned therein to  be goods  of special  importance in  inter-State trade or  commerce. Section 15 sets out the restrictions and conditions in  regard to  levy of tax on sale or purchase of declared goods  within  a  State.  These  two  sections  are relatable to  clause (3) of Article 286. It is not necessary for  the   purpose  of  these  appeals  to  refer  to  these provisions.      Section 6  is the  charging section. Tax is levied only upon inter-State  sales; as  on today,  no tax  is levied on inter-State purchases.      Clause (2) of Article 269 inter alia provides that "the net proceeds  in any  financial year  of any  such  duty  or



tax...shall be  assigned to  the State within which that tax duty or  tax is  laviable in  that year".  It is, therefore, extremely important, from the States point of view, in which State is  the Central Sales Tax leviable - for it is to that State that  the  tax  so  collected  ultimately  goes  back, notwithstanding  the   fact  that  the  tax  is  levied  and collected by  the Central  Government. The Central Sales Tax Act has  not created  a machinery  of its  own to assess and collect the  tax levied  by it.  It has entrusted the job in each State  to the  machinery created by the State Sales Tax enactment [Section  9(2)]. The Central Sales Tax leviable in that State  will be collected by that machinery no doubt for and on  behalf of  the Central  Government, which  will,  of Course, make  it over  to  that  State  as  contemplated  by Article 269.  The provision  in the  Central Sales  Tax  Act giving effect to the said provision in Article 269(2) of the Constitution is  sub-section (1)  of Section 9, as it stands now. The sub-section reads:      "9. Levy  and collection of tax and      penalties,---(1) The tax payable by      any dealer  under this Act on sales      of goods  dealer under  this Act on      sales of  goods effected  by him in      the course  of inter-State trade or      Commerce, whether  such sales  fall      within clause  (a) or clause (b) of      Section 3,  shall be  levied by the      Government of India, and the tax so      levied shall  be collected  by that      Government in  accordance with  the      provisions of  Sub-section (2),  in      the state  from which  the movement      of the goods Commended:           Provided that,  in the Case of      a  sale   of  goods   during  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      does not  fall  within  sub-section      (2) of  Section 6, the tax shall be      levied and collected-      (a) where  such subsequent sale has      been  effected   by  a   registered      dealer ,  in the  State from  which      the registered  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  unregistered      dealer, in  the  State  from  which      such  subsequent   sale  has   been      effected."                         [Emphasis added]      We may  pause here for a while and explain how the said idea was expressed initially and how it has evolved into the present provision  Clause  (a)  in  Section  2  defines  the expression "appropriate State". As it stands now, it reads:      "(a)  ’Appropriate  State’  means--      (i) in relation to a dealer who has      one  or  more  places  of  business



    situate in  the  same  State,  that      State;      (ii) in  relation to a dealer which      has places  of business  situate in      different States,  every such State      with respect to the Place or Places      of business  situate situate within      its territory;"      As  originally   enacted,   however,   the   definition contained an  Explanation defining  the expression "place of business". It read thus: <sLs>      "’Place of  business’ means---  (i)      in the  case of  a sale of goods in      the course  of inter-State trade or      commerce falling  within clause (a)      of section  3, the place from which      the goods  have been  by reason  of      such sale;      (ii) in  the case  of any such sale      falling  within   clause   (b)   of      section 3, the place where the sale      is effected."      Sub-section (i)  of Section  9, as  originally enacted, read:      "9. Levy  and collection  of tax. -      (1) The  tax payable  by any dealer      under this  Act  shall  levied  and      collected in  the appropriate State      by the  Government of  India in the      manner provided in subsection (2)."                         [Emphasis added]      It is  thus clear  that as  originally enacted  it  was clause (a)  in Section  2 and in particular, the Explanation appended thereto which specified the State in which the duty or tax was leviable within the meaning of Article 269(2). By Central  Sales   Tax  (Second   Amendment)  Act,  1958,  the Explanation to  clause (a)  in Section  2 was  omitted  with effect from October 1, 1958 and simultaneously Section 9 was substituted. Subsection  (1) of Section 9, as substituted by the said Amendment Act, read:      "9.Levy and  collection of  tax and      penalties-- (1)  The tax payable by      any dealer  under this  Act on sale      of goods  effected by  him  in  the      course  of   inter-State  trade  or      commerce whether  such  sales  fall      within clause  (a) or clause (b) of      section  3   shall  be  levied  and      collected  by   the  Government  of      India in  the  manner  provided  in      sub-section (3)  in the  State from      which the  movement  of  the  goods      commenced.           Provided that,  in the case of      a  sale   of  goods   during  their      movement from  one State to another      being  a  sale  subsequent  to  the      first sale  in respect  of the same      goods, the  tax shall,  where  such      sale  does  not  fall  within  sub-      section (2) of section 6, be levied      and collected  in  the  State  from      which   the    registered    dealer      effecting   the   subsequent   sale



    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."                         [Emphasis added]      Then again  by Central Sales Tax (Amendment) Act, 1969, Section 9  was substituted  with retrospective effect. It is this substituted  Section 9  which is  in  force  now.  Sub- section (1)  of Section  9 as it stands now has already been set  out   by  us  hereinabove.  Thus,  notwithstanding  the legislative changes,  the idea  has remained the same, viz., that the  State from which the goods have moved by reason of the sale  is the  State in  which the  Central Sales  Tax is leviable, within the meaning of Article 269(2). We must make it clear that what we have said with respect to Section 9 is in the  context of  clause (a) of Section 3 of the Act which alone falls  for consideration  in these  appeals. For  this reason, we  are not  referring to the position under Section 3(b).      The aforesaid  survey of the relevant provisions of the Act clearly  shows  that  Sections  3,4,5,9(1),  14  and  is 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  Section 5, is not relevant on the said question - See the Constitution Bench decision in Tata Iron and Steel Company Limited.  Bombay v.  S.R. Sarkar  & Ors.  [(1960) 11 S.T.C.655]  and  the  decisions  in  Manganese  Ore  [India] Limited v.  The Regional  Assistant Commissioner  (1976  (3) S.C.R.99) and Union of India v. K.S.Khosla & Company Limited [(1979) 43 S.T.C.457]. Similarly, where the question 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.      We may  at this  stage refer  to the  decision  of  the Bombay High  Court in  Commissioner of  sale Tax  v.  Barium Chemicals Limited  [(1981)  48  S.T.C.  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 Tax  is levied and Collected by the Central Government;  it is  immaterial in  which 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 collection of Central Sales Tax;  if so,  once levied  and collected in one State, rightly or  wrongly it  cannot be  levied and  collected  in another  State.  In  our  opinion,  this  may  be  an  over- simplification of  the matter.  May be  an from the point of view of the assesses, this approach is sound enough but from the point  of view  of the  States [keeping  Article 269  in mind] and  the provisions of the Central Sales Tax acts 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  enacted  pursuant  to Section 269(2),  as  pointed  out  hereinabove]  otiose  and superfluous. It  would not be proper to says in the light of above  constitutional  and  statutory  provisions  that  the dispute as  to in  which State  is a  particular inter-State



sale is  to be taxed is a matter between the States and that so far as the assessee is concerned, it is enough if he pays the tax  at one places 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 commences [Section 9(1) read with Section 3(a)]. If  a dispute  arises  in  which  State  is  the  tax lawfully leviable, the authorities under the Act have got to decide it.  If, in  a given  case, an assessee says that the particular transaction  which is sought to be taxed in State ’A’ has  already been  tailed in State ’B’, nothing prevents him from  impleading the  State ’E’  in proceedings in State ’A’ and  have the  matter decided  in the  presence  of  all parties. It  must be  remembered  that  while  acting  under Central Sales  Tax Acts  the State  machinery  acts  as  the machinery of  the State  Government and not as the machinery of the  State Government;  in law, it is as if it belongs to Central Government.  This view  of ours  gets re-inforced if one keeps  the provisions  in Section  8(2A) of  the Central Sales Tax Act in view.      It is  necessary to bear these principles in mind while examining the facts of the appeals before us to which we now turn.                         P A R T = II      Bharat Heavy  Electricals Limited  [BHEL]  is  a  major public sector corporations wholly owned by the Government of India. It  has its  units in  several places viz., Haridwars Jhansi, Bhopal,  Bangalore, Ramachandrapuram [Andhra Pradesh - near  Hyderabad], Ranipet  and Tiruchi [Tamil Nadu] and so off. Each  of these  units  appears  to  specialise  in  the manufacture of  particular type  or class  of machinery - in the  interest   of  avoiding   duplication   and   enhancing efficiency. Generally  speaking,  BHEL  is  engaged  in  the manufacture  of   heavy   electrical   machinery   including equipment  and  material  necessary  for  setting  up  power plants. Its  dead Office  is at  New Delhi.  It appears that whenever it  undertakes to  set up a power-generation plant, it  enters  into  two  contracts,  one  for  the  supply  of machinery and  equipment called "the Supply Contract" and he other for  installation or  erection  of  the  plant  called "Service Contract".  Once the  job is  undertaken, the  Head Office sends  instructions to  relevant units to manufacture the appropriate  machinery. for  illustrating its  method of working, we  may take  a concrete instance,viz., the setting up of  five captive  power plants  [120  MW  each]  for  the aluminium smelter  complex at Angul, Orissa for the National Aluminium Company  Limited, Bhuvaneshwar  [NALCO], which too is a  public sector  undertaking. The facts relating to this contract are the following: on August 1, 1981, NALCO invited tenders the  said work.  BHEL also  submitted its tender. It was accepted.  NALCO issued a Letter of Intent [LOI] on June 3, 1982 specifying the time-schedule for the work. The units were to be made ready for commercial operation between March 1985 and  November 1986. Pursuant to the LOI, BHEL commenced the work. It instructed its several units to manufacture the requisite machinery  and equipment.  Formal contracts, viz., supply contract  and service contract were entered into much later, i.e., on March 15, 1985. The contract price under the supply agreement  is Rs.295.37  crores. The  supply contract specifies  the   price  of   each  of  the  major  items  of machinery/equipment separately.  It also provides the manner in which  the contracted  price was  payable by  NALCO. Now, what happened  is this: Tiruchi unit, it appears, is engaged mainly  in   the  manufacture  of  boiler  systems.  It  was designated as  the executing  agency for  the job  at  Angul



including the  responsibility of manufacturing and supplying the boiler  systems required for setting up the power plants at Angul.  The boiler system comprises innumerable parts and components, some  of which are manufactured at the Hyderabad unit. The Tiruchi unit accordingly called upon the Hyderabad unit to  manufacture those  components/parts. The  Hyderabad unit  manufactured  them  and  sent  some  of  those  parts/ components to Tiruchi for being incorporated into the boiler system and  sent the  remaining directly to Angul Orissa] to be incorporated  into the boiler system in at the work-site. according to  the practice  uniformly followed  by BHELs and accepted  by   the  Andhra  Pradesh  Governments  the  parts components  manufactured   by   the   Hyderabad   unit   for incorporation in  the boiler  systems were treated as branch transfers not  involving an element of sale, irrespective of the fact  whether such parts/components were sent to Tiruchi or to  fingul. Conversely,  if the Tiruchi unit manufactured any parts/components  to be incorporated in the machinery or system, the  manufacture of which was entrusted to Hyderabad units the  despatch of such parts/components from Tiruchi to Hyderabad unit  or the  work-site  were  treated  as  branch transfers arid not as sales. The tax was levied by the State in which  the main machinery system was manufactured. No tax was levied  by the  State wherein  the parts components were manufactured  and  sent  for  incorporation  into  the  main machinery or  system manufactured  in other States. From the year 1984,  however, the  State of  Andhra  Pradesh  started levying and  demanding Central  Sales Tax  upon the value of the  parts   and  components   which  were  manufactured  at Hyderabad unit and sent to Tiruchi or Anguls as the case may be for  incorporat on-into  boiler  system  manufactured  by Tiruchi unit.  BHEL protested  against  the  said  levy.  It submitted that it has been paying the Central Sales Tax upon the  value of  the entire boiler system manufactured by  the Tiruchi unit  in the  Tamil Nadu  State and  that if Central Sales Tax is levied upon the parts and components which were manufactured at  Hyderabad and  sent to Tiruchi or Angul for incorporation into  the boiler  system], it  would amount to double taxation insofar as the said parts and Components are concerned.  According   to  it,   they  were  merely  branch transfers. The  Andhra Pradesh  State did not agree. Similar stand was  taken by  other States  as  well  and  assessment proceedings were  in progress  in various  States. It  is at that stage  that BHEL  approached this  Court by way of Writ Petition (C)  No.1608  of  1987  under  Article  32  of  the Constitution complaining  that more than one State is taxing the same  sale under  the provision  of the  Act,  which  is making its  functioning difficult.  It submitted  that  such simultaneous taxing  is Creating  an uncalled  for financial burden upon  it. It  requested the Court to give appropriate directions to  ensure that  an inter State sale is not taxed by more than one State.      When the  writ petition  came up  for hearing,  it  was brought to  our notice  that the  Andhra Pradesh  Sales  Tax Appellate Tribunal has decided the said dispute [relating to certain  assessment  years]  and  that  Tax  Revision  Cases preferred by  BHEL were  pending in  the Andhra Pradesh High Court. The  judgment of the Andhra Pradesh Tribunal was also placed before  us. The Andhra Pradesh Tribunal had taken the view that  insofar as  the parts and components manufactured in the  Andhra Pradesh  unit and  despatched to work-site at Angul were  concerned, they  must be  treated as inter-State sales taxable  in Andhra  Pradesh State inasmuch as the said goods moved  from Andhra  Pradesh  pursuant  to  the  supply contract which  was indeed a contract of sale. So far as the



parts  and   components  which  were  sent  to  Tiruchi  are concerned, the  Tribunal held that they cannot be treated to have been  sold  in  the  course  of  inter-State  trade  or commerce but  that they  represent merely  branch transfers. While the  State of  Andhra Pradesh  did not  prefer any tax revisions against  the judgment  of the  Tribunal, BHEL did, which meant  that the decision of the Tribunal insofar as it held  that  the  despatch  of  parts/components  to  Tiruchi constituted branch transfers became final. The only question in the  said Tax  Revision Cases  before the  Andhra Pradesh High Court, therefore, was  whether the  Tribunal was  right in  holding that  the  despatch  of  parts/components  from  the  Andhra Pradesh Unit  to Angul  for incorporation  into  the  boiler system at  the work-site  represented inter-State  sales and whether they  were taxable  in the  State of Andhra Pradesh. The High  Court examined  the said  question at  length  and dismissed the Tax Revision Cases filed by BHEL agreeing with the view  taken by  the  Tribunal,  though  on  a  different reasoning. Civil  Appeals Nos. 5369-75 of 1996 are preferred against the judgment of the Andhra Pradesh High Court in the aforesaid Tax Revision Cases.       Civil  Appeals Nos.5362-68  of  1996  arise  from  the judgment of  the Andhra  Pradesh High  Court rendered  in  a batch of  writ petitions  filed by  BHEL. The writ petitions raised the  very same  dispute as  was involved  in the  Tax Revision  Cases   aforesaid  with   this  difference:   BHEL impleaded the States of Tamil Nadu, Uttar Pradesh, Karnataka Madhya Pradesh,  Delhi and Union of India in addition to the State of Andhra Pradesh as respondents to the writ petitions an also claimed for a direction to the respondents to adjust the Central  Sales Tax  collected by  them in  such a manner that the  amount is kept, or remitted to the State, which is lawfully entitled  to levy  it and the States no entitled to levy it  do not  keep the tax amounts collected by them. The batch of  writ petitions  have been  disposed of by the High Court following  its decision in the Tax Revision Cases. The High Court  has, however,  declined to  give a direction for adjustment of  tax as  between the States as asked  by BHEL] mainly on  the ground  that this  Court was  seized  of  the matter. it left the matter to this Court.      Whether a  particular sale is an inter-State sale or an inter-State sale is essentially a question of fact. Perhaps, it may  be more  appropriative to  say that  it is  a  mixed question of  face and  law. it  is, therefore,  necessary to ascertain the  factual  position  first.  In  Civil  Appeals Nos.5369-75 of  1996  and  5362-68  of  1996,  it  is  this: whenever BHEL enters into a supply contract with a party, it designates one  of its  units as the executing unit. That is treated as  the main unit executing the work. sometimes this is not  done and  each unit  is entrusted a particular job.] But  it   may  happen  that  the  executing  unit  does  not manufacture all  the parts and components which are required for completing  the job  entrusted  to  it.  it,  therefore, requests other  units of  BHEL to  manufacture the parts and components required  by it and to despatch the same. Some of the parts  and components so manufactured by other units are sent directly  to the  executing unit for being incorporated into  the   main  machinery/system   while  some  parts  and components are  despatched directly  to  the  work-site.  To revert  to   NALCO  project   aforementioned,  referred   to hereinbefore, this  is exactly  what had  happened.  Tiruchi unit was  supposed to be the executing  unit. But some parts and components  required for  the boiler  system  and  other equipment [which  was the responsibility of the Tiruchi unit



to manufacture]  were being  manufactured at  the  Hyderabad unit. At  the request  of the  Tiruchi  unit  -  or  on  the instructions of  the Head  Office, as  the case may be - the Hyderabad unit  manufactured those  parts and components and despatched some of them to Tiruchi and some of them directly to Angul in Orissa [work-site]. The consideration stipulated in the  supply contract  was payable  in the manner provided therein. The  following factual  position found  recorded in the judgment  of the  High Court is of crucial relevance and may, therefore, be set out in full:      "Copies of  invoices and photo copy      of R.R./L.R.  or  Bill  of  Lading,      Pre-despatch              Clearance      Certificate/Inspection  report  and      test certificate,  if any, shall be      submitted to  the Bank  and various      Departments of NALCO, Angul for the      purpose of claiming payment through      letter of credit vide Clause 8.1.0.      As per  Clause 8.2.0, the materials      shall be consigned to the Materials      Manager, NALCO Captive Power Plant,      Angul and  the  original  R.R./L.R.      shall  be   sent  by  the  supplier      directly to  the  site  office  for      arranging   prompt    delivery   of      materials from the carriers. Clause      3.3.0 enjoins  that the  ’title  of      all the  plant  and  equipment  and      materials  shall  pass  on  to  the      purchaser in  accordance with  INCO      Terms’ and transfer of ownership to      purchaser  shall   be  simultaneous      provided  that   such  passing   of      title, risk  and  property  to  the      purchaser   shall   not   otherwise      absolve     or      dilute      the      responsibility  of   the   supplier      under this  contract. Other clauses      in  the   agreement   provide   for      guarantee      bond,      warranty,      liquidated damages etc., which need      not be adverted to.           Certain debit  notes raised by      the  petitioner   [Hyderabad  unit]      while        despatching        the      materials/equipment  to  Trichy  or      direct to  NALCO have  been  placed      before us.  One of  the debit notes      is raised  soon after  the despatch      of one  Bowl Mill  to the Materials      Manager,  NALCO,  Angul.  The  work      Order No. L.R./R.R. number, Packing      slip number, Despatch advice number      are all mentioned in the debit note      in addition  to the  value  of  the      Bowl Mill.  The excise duty payable      is also  shown in  the debit  note.      Some  copies   of  loading  advice,      packing list, R.Rs./L.Rs. have also      been placed before us. The invoices      raised on  NALCO by the Trichy unit      which   is   the   executing   unit      relating   to   Boiler   components      despatched  by  Hyderabad,  Ranipet



    and  other  units  with  the  price      worked  out   on  pro-rata  tonnage      basis are  on record. Central Sales      Tax  is   also  included  in  those      invoices.  The   certificates   and      details regarding payment of C.S.T.      from time to time by Trichy unit in      regard  to   the  despatches   from      Hyderabad are also filed."      The High  Court has  also referred  to another contract entered into  by BHEL  with NTPC  for setting  up  a  super- thermal power  project at  Farakka, West Bengal. In the case of this  work, it  appears that  no  one  unit  of  BHEL  is designated  as   the  executing  unit.  The  manufacture  of machinery  etc.  appears  to  have  been  distributed  among various units. The factual position in this behalf is stated in the following words by the Court:      "......        allocation        of      responsibility was in the nature of      an internal arrangement made by the      Head Office of the petitioner. But,      the  reasonable   presumption  that      should be  drawn in  the  light  of      correspondence     and     despatch      documents, that  NTPC must  be well      aware   of    the    division    of      responsibility as  regards S.G. and      T.G. packages  between the  various      units. The  documents  relating  to      despatch of  Boiler/Steam Generator      equipment such  as  Bowl  Mills  by      Hyderabad unit  as per  the request      of the  Trichy Unit are filed. They      include  loading   adviced  packing      list,  debit  note  raised  by  the      Hyderabad unit  on Trichy  unit and      the invoice  raised by  Trichy unit      on   NTPC    which    covers    the      components/equipment    sent     by      Hyderabad unit directly to Farakka.      The name  of the  consignee as  per      the  Railway   Receipt   is   Chief      Erection Manager,    NTPC,  Farakka      and the  freight is  pre-paid.  The      certificate  regarding  payment  of      CST confirms  the payment of CST on      the invoice  value  by  the  Trichy      unit in  respect of  the components      despatched by Hyderabad unit."      Coming hack.  to the  findings recorded  by the  Andhra Pradesh  Tribunals   it  held,  so  far  as  the  parts  and components sent  to Tiruchi  that  they  do  not  constitute inter-State sales  inasmuch as  there was an interruption of the  movement   of  the   said  parts/components   and  more particularly because  the said  parts/components lost  their identity by  incorporation into  the main system before they were despatched by the executing unit to the work-site. This part of  the Tribunal’s  Order has  become finals not having been questioned  by the  State of  Andhra Pradesh. So far as the parts/components  sent by the Hyderabad unit directly to the work-site  at Angul  or for  that matter,  to Farakka in West Bengal  are concerned  the Tribunal  has taken the view that they  do not  constitute  inter-State  sales  and  that Central Rules Tax is leviable thereon in the State of Andhra Pradesh. This  conclusion of  the Tribunal has been affirmed



by  the   High  Courts  though  on  a  some  what  different reasoning. The  contention urged  by Sri  V.R.Reddy, learned Additional Solicitor  General appearing  for BHEL,  is  that even the  direct despatches  [i.e. parts/components/material sent by  the Hyderabad  unit directly to work-site at Angul] do not  constitute inter-State  sales and  that they are not taxable in  the State  of Andhra  Pradesh. His submission is that in  principle,  there  is  no  difference  between  the material sent  to Tiruchi  for being  incorporated  and  the material sent  directly to  Angul because  both of  them get ultimately  incorporated   into  the  main  equipment/boiler system which  was being  manufactured by  the Tiruchi  unit, which happened  to be  the  executing  unit  for  the  Angul project. be  find it  difficult to  agree with  the  learned Additional Solicitor  General in  the light  of the  factual position set  out hereinabove.  The parts/components,  i.e., the goods  in question,  did move  from the  State of Andhra Pradesh to the State of Orissa - or West Bengal, as the case may be  - and  the said movement is occasioned by the supply contract entered  into by  BHEL which is in truth a contract of sale.  The manner  in which  and the  documentation under which these goods were sent to Angul - in particular, Clause 3.3.0 of  the Supply  Contract do  clearly establish that it was not  a case  of branch  transfer but  one of sale of the said goods  to  NALCO,  pursuant  to  the  supply  contract. Further,  because   the  movement  of  the  said  goods  has commenced in the State of Andhra Pradesh, it is in the State of Andhra  Pradesh that  the Central  Sales Tax  is leviable according to  Section 9(1)  of the  Act. We therefore, agree with the view taken by the Andhra Pradesh High Court that in the  facts  and  circumstances  concerning  NALCO  and  NTPC [Farakka]  contracts  and  the  terms  thereof,  the  direct despatch of  goods by the Hyderabad unit to Angul or Farakka constitutes an  inter-State sale  with  in  the  leaning  of Section 3(a)  and that  tax thereon is leviable in the State of Andhra Pradesh according to Section 9(1) of the Act.      The Andhra  Pradesh Tribunal and High Court have stated that there  are as  many as forty eight contracts during the relevant assessment  years and that though the contracts and other documents  relating to  these contracts  have not been filed or  have not  been filed  in full,  the parties before them did  not dispute  that "the  salient  features  of  the contracts   and   the   pattern   of   transactions   ...are substantially similar  to the two contracts, i.e., NALCO and NTPC contracts."  The correctness  of this statement has not been challenged by either party before us.      So  far  as  Civil  Appeals  Nos.5362-68  of  1996  are concerned, the  issues raised  therein are  identical to the issues raised  in Civil  Appeals Nos.5369-75  of 1996 except the direction  asked for  by  BHEL  far  adjustment  of  tax amounts between  the concerned  States in such a manner that appropriate tax  is collected  in the  State wherein  it  is lawfully leviable  and the  State which  is not  entitled to collect the tax but has yet collected it unlawfully, refunds the same  to BHEL  or sends  it to  the State  wherein it is lawfully due  and payable.  We see  no  valid  objection  to making such  a direction. In fact, such a direction was made by this  Court in  K.G. Khosla  and Company Limited [supra]. Accordingly, there  will be a direction to the above effect. All refunds  and adjustments consequent upon the judgment of Andhra Pradesh  High Court in Tax Revision Cases Nos.195-201 of 1989  shall be  carried out  and given  effect to  by the parties  within   three  months   from  today.  In  case  of disagreement or  dispute, if any, in this regard, it is open to the parties in approach the Andhra Pradesh High Court for



appropriate orders.  If so  approached, the High Court shall hear the  affected parties and pass appropriate orders which shall be  final and  binding between the parties, subject to any orders to the contrary by this Court.      Accordingly,  Civil   Appeals  Nos.5369   of  1996  are dismissed and Civil Appeals Nos.5362-68 of 1996 are disposed of with  the aforesaid direction regarding adjustment/refund of taxes  between the  concerned States  [who are parties to these appeals].                       P A R T = I I I      In this  part,  we  shall  deal  with  the  controversy between BHEL  and Orissa.  Three batches  of appeals,  viz., civil appeals  arising  from  Special  Leave  Petitions  (C) Nos.5071-74 of  1991, 16840-49  of 1995  and  Civil  Appeals Nos.629-30 of  1994 are  concerned with this controversy. Of these three  batches of  appeals,  the  third  batch,  Civil Appeals Nos.629-30  of 1994  pertaining to  Assessment Years 1983-84 and  1984-85 has  become infructuous  for the reason that the  assessment orders questioned therein have been set aside by  the Orissa  High  Court  which  has  remanded  the matters to the assessing officer. Accordingly, these appeals are dismissed  as infructuous.  Civil appeals  arising  from Special Leave  Petitions 71-74 of 1991 are preferred against the judgment  of the  Orissa Sales  Tax  Tribunal  and  they pertain to  Assessment  Years  1984-85  and  1985-86.  Civil appeals arising  from Special leave Petitions (C) Nos.16840- 49 of  1995 pertain  to Assessment Years 1988-89 to 1993-94. These appeals  are directed against the orders of assessment made by  the Orissa  authorities under  the Orissa Sales Tax Act and  against certain  notices issued under the said Act. The controversy  between the State of Orissa and BHEL arises in the following circumstances: BHEL has undertaken a number of works  in the  State  of  Orissa  for  setting  up  power generation plants.  In each  case, there  are two contracts, viz., a  supply contract and a service contract. The pattern of all  these contracts is practically the same as the NALCO contracts referred to hereinabove. The stand of the State of Orissa is  that the  sale of  the  machinery  and  equipment stipulated under  the supply  contracts is a sale within the State of  Orissa and,  therefore, exigible  to tax under the Orissa Sales  Tax Act.  The learned counsel for the State of Orissa says  that there  is many  a reason in support of the said  stand  -  which  he  indeed  wanted  us  to  consider. According to  the learned  counsel, the terms and conditions of the supply contracts and other attendant circumstances do establish that  the sale  of  the  machinery  and  equipment [specified in  the supply  contracts] has taken place within the State  of Orissa  and not  in the  course of inter-State trade or commerce. We do not, however, think it necessary to refer to  the said  material in  view of  the Order  we  are proposing in these matters. It is enough if we deal with the reasoning of  the Tribunal  contained in the judgment [under appeal on  the first  batch of  these appeals] upholding the stand taken  by the  Orissa  State  in  these  matters.  The reasoning of  the Tribunal,  in short,  is this: initially a Letter of  Intent was  issued by the Orissa State, or by the customer in the State of Orissa [to take a instance, NALCO], on the  basis of  which BHEL  commenced the work. The formal contracts  [supply   contract  and  service  contract]  were entered into  much later. Under the Letter of Intent and the formal contracts:      "The assessee [BHEL] agreed to send      goods from  outside the  State both      in Railway  and through  lorries on      road  to   the  Materials  Manager,



    NALCO who  used to make endorsement      of such  goods  in  favour  of  the      assessee  and   there   after   the      assessee  used  to  bring  it  from      common carrier  and keeps  the same      in their  stock at the work site of      the assessee  at Angul  where  from      such   parts   are   assembled   in      manufacturing   process    of   the      Captive Power  Plants  and  Smelter      Division of  the Plant  of NALCO...      The crux  of the entire case hinges      mainly  on   the  decision  of  the      ground Nos.1,  2 and 3. The settled      law  is   that  contract   cf  sale      U/s.3(a) of  the Central  Act  must      itself cause, the movement of goods      which   must   be   occasioned   in      accordance  with   the   forms   of      contract of  sale. In  the  instant      case, whether  the goods despatched      were the goods contracted has to be      decided first before attracting the      provisions of  Section 3(a)  of the      Central Act.  To determine  on this      point,  the   intentions   of   the      parties as  embodied in  the letter      of  intent   and   the   subsequent      contract are most valuable material      and   as    such   require   minute      verification  of   the   terms   of      contract."      The Tribunal  then referred  to the  Letter  of  Intent issued on  June 3, 1982 in respect of NALCO contract and the correspondence that  passed between  the parties  and to the machinery and  equipment mentioned  in the  annexures to the Letter  of  Intent  and  the  formal  contract  -  and  then proceeded to observe:      "So  it   is  to   be  meticulously      analysed  whether   the  goods   so      despatched  are   embodied  in  the      agreement of  sale  either  in  the      letter of intent dated 2.6.82 or in      the  contract  dated  15..3.85.....      From the facts of the present case,      it is  seen that items agreed to be      purchased have  been enumerated  in      annexures 1  and 2  as stated above      whereas the  goods to  be sold  are      not  the  DUs  as  claimed  by  the      assessee. So their cannot be a sale      of  inter-state,  i.e.,  the  goods      which actually moved in the instant      case, i.e.,  with regard to the DUs      (despatchable      units).      The      contention of  the learned standing      counsel was  verified with  respect      to the  invoice found at page 40 of      the paper  book (Vol.3). It is seen      from  the   said  invoice  that  it      relates  to  the  supply  generator      which does  not find  place in  the      annexure A.  So also  at page 41 of      the paper  book  (Vol.3)  there  is      another  invoice   for  supply   of



    bearing pedestal  (H&P) and at page      45 for  supply of  loose items  and      bearing pedestal  and  at  page  53      Turbine components.  Those D.Us  do      not find  place in  Annexure-I. So,      the  contention   of  the   learned      counsel for  the assessee  in  this      regard cannot be accepted."      Having thus ruled out Section 3, the Tribunal held that the matter  has to he examined in the light of Section 4. It observed that inasmuch as on the date of Letter of Intent or the date  of execution  of formal  contracts,  much  of  the equipment/machinery  agreed   to  be  supplied  was  not  in existences, It  is a  contract relating  to unascertained or future goods. Purporting to apply the principles of the Sale of Goods  Act, the  Tribunal held, the property in the goods passed at  Angul in  the State  of Orissa  and not  anywhere outside the  State of  Orissa. The  Tribunal opined that the property in  the goods  passed to NALCO "inside the State of Orissa after  they are  prepared and got ready for sale", In this connection, the Tribunal took note of the fact that the Railway receipts  and other  documents in  respect of  goods sent by  Rail or by Lorry to Angul were made out in the name of NALCO  and that  after receiving  the said  goods,  NALCO endorsed them to the work-site. On the basis of these facts, the Tribunal  held that  the sale has taken place inside the State of  Orissa and that being intra-State sale is exigible to Orissa Sales Tax.      We find  it difficult  to appreciate  the reasoning and approach of  the Tribunal.  The first  and main  ground upon which it has been held that it is not an inter-State sale is that the  goods sent  [by rail  or road]  do not  answer the description of  the goods  mentioned in  the annexure to the LOI/supply contract.  Obviously, the  annexure mentions only the major  items of  machinery and  equipment.  These  major items cannot  be transported  as such;  transport has  to be effected in  sections and  parts and  assembled at the spot. For  that   reason,  it   cannot  be  said  that  the  goods transported are  not the  goods agreed to be supplied. It is nobody’s case  that BHEL  supplied some other goods than the goods agreed  upon. Having thus erroneously excluded Section 3 of the Central Sales Tax Act, the Tribunal went to Section 4 and held that in the circumstances, the sales must be held to  have  taken  place  inside  the  State  of  Orissa.  The discussion about  endorsement of  goods by  NALCO to BHEL in Orissa and  so on  is rather  ambiguous. Indeed, we need not pursue this  discussion further for the reason that both Sri Mohanty and  Sri  V.A.Mohta,  appearing  for  the  State  of Orissa,  stated   frankly  that   they  cannot  support  the reasoning of  the  Tribunal.  The  learned  counsel,however, submitted that  in view  of the  several facts  and  reasons mentioned  by  them,  the  conclusion  of  the  Tribunal  is correct. The  learned counsel  submitted that NALCO contract was a turn-key contract; that having regard to the terms and conditions of the Letter of Intent, the formal contracts and the correspondence which passed between the parties, it must be held  that the  sale of  the said machinery and equipment has taken  place within the State of Orissa. Learned counsel also submitted  that the factual basis upon which the Andhra Pradesh High Court has rendered its decision is not admitted by or  acceptable to  the State  of Orissa. They pointed out that State  of Orissa  was not made a respondent to the writ petitions filed  by BHEL  in the  Andhra Pradesh  High Court which are the subject-matter of Civil Appeals Nos.5362-68 of 1996 and  that there are a number of facts and features upon



which it  has to  be held  that the conclusion arrived at by the Orissa  Tribunal is  correct though  not its  reasoning. Counsel  further  submitted  that  the  question  whether  a particular sale  is an  inter-State sale  or an  intra-State sale is  a question  of fact  and is  not  a  matter  to  be adjudicated by  this Court  in a writ petition under Article 32 of  the Constitution.  They submitted that on this ground alone these  appeals should  be dismissed and BHEL should be asked to  pursue the  remedies provided  by the  Orissa Act. They pointed  out that  some of  the appeals  are  preferred directly  against  the  assessment  orders  or  against  the notices issued by the assessing authorities under the Orissa Act and  that there  is no  reason  why  this  Court  should entertain those  appeals.  It  is  also  submitted  that  as against the  judgment  of  the  Tribunal,  BHEL  could  have approached the  Orissa High  Court  and  that  there  is  no particular reason why the judgment of the Tribunal is sought to be challenged directly in this Court under Article 136 of the Constitution.      There can  be no dispute about the proposition that the question whether a particular sale is an inter-State sale or an intra-State  sale is  essentially a  question of fact. It must be  said, at  the same  time, that  it is  not  a  pure question of  fact inasmuch  as the fact of a given case have to be  examined in  the light of the provisions contained in Section 3  of the Central Sales Tax Act. The main reason for entertaining the  present appeals  under Article  136 of the Constitution  is   the  grievance  of  BHEL  that  the  same transaction of  sale is  being subjected not only to Central Sales Tax  more than  one State  that the  Orissa  State  is treating the  very same  transaction of  sale as  an intras- State sale  and levying  the Orissa State Sales Tax thereon. The grievance  cannot be  said  to  be  not  justified.  The dispute is not only between BHEL and the States, it is also, in a sense, a dispute between the States inter se.      For the  reasons given  above, Civil  Appeals Nos 7353- 56/96 arising  from S.L.P.  (C)  Nos  5071-74  of  1941  are allowed and  the matter remitted to the Tribunal. It is made clear that  we have  not expressed any opinion on the merits of these  appeals. All  that we  have done is to clarify the legal principles  [Part-I] and  indicate the  errors in  the approach of the Orissa Tribunal. The Tribunal shall now hear the parties and dispose of the appeals according to law. The Tribunal shall  dispose of  the appeals as early as possible preferably within four months from today.      So far  as civil  appeals arising  from  Special  Leave Petitions (C)  Nos.16840-49 of  1995 are  concerned,  it  is enough to  direct that  the proceedings  impugned  in  these appeals shall  remain stayed  for a  period  of  six  months within which  period we  expect the  Orissa State  Sales Tax Tribunal to render its decision pursuant to our. Orders. The authorities will  be entitled  to proceed  with  the  matter after the  expiry the  six months  in accordance  with  law. These appeals  are disposed with the above direction. We may mention that  the learned  Additional Solicitor  General had also challenged  the validity  of Section  5(2)(AA)  of  the Orissa Sales Tax Act. The attack was based upon the ratio of the Constitution,  Bench decision  in  Ganon  Dunkerley  and Company Limited  v. State of Rajasthan (1993 (1) S.C.C.364). In view  of the  directions made  by us  in  these  matters, however, the  said issue becomes academic. That may arise if and when  the Orissa  authorities  include  the  inter-State sales in  the turn-over  of the  assessee [BHEL]  determined under the Orissa Sales Tax Act.      It may  also he  mentioned that  no further  orders are



called for in Writ Petition (C) No.1608 of 1987 in the light of the  directions  and  clarifications  contained  in  this judgment.      There shall  be no  order as  to costs  in any of these matters.