Report No. 2
III. Inter-State Sales or Purchases
11. In considering the principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce, two important aspects have to be borne in mind. First, such a sale or purchase is not to be exempt from tax as in the case of a sale or purchase in the course of import or export. It is to be taxed by the Union. Secondly, the proceeds of such a tax are under the amended Article 269 to be assigned to the States. These sales have to bear the burden of the sales-tax but the burden is to be strictly limited by the Union in the interest of trade and commerce throughout the territory of India which has, according to the policy underlying the Constitution, to be free and unrestricted.
12. No doubt the expression "in the course of inter-State trade or commerce" has a very wide connotation. In India we are, however, not concerned with the regulation of commerce generally among several States as under the commerce clause in the American Constitution. What we have to determine is what is a sale or purchase in the course of inter-State trade or commerce. The problem, therefore, is to ascertain what transactions of sale or purchase can fairly be said to arise in the course of inter-State trade or commerce.
For this purpose we have to fix upon some characteristics of these transactions which can well be said to stamp them with an inter-State character. In the large mass of American decisions under the commerce clause the one element which is stated to be an indispensable incident of commerce between the States is the movement of the goods which are the subject-matter of the sale or purchase from one State into another. We may refer in this connection to the definition of "inter-State commerce" given by Rottschafer in his "Constitutional Law" (1939 Edn., p. 299):'
"The activities of buying and selling constitute inter-State commerce if the contracts therefor contemplate the movement of goods in inter-State commerce".
Later he adds (p. 235):
"The decisive factor that renders making a contract an act of inter-State commerce is that it contemplates or necessarily involves the movement of goods in inter State Commerce and this test applies whether it be a contract to buy or one to sell".
13. It will be noticed that in the American view even a contemplated movement of goods which in fact may not have taken place would invest the transaction of sale or purchase with an inter-State character. Such a wide view based on the intention of the parties to the contract may, we think, well lead to uncertainty and difficulties in administration and conflicting legal views. We would, therefore, recommend a simpler and a more certain test to determine whether a transaction of sale or purchase is an inter-State transaction. Only a transaction which has in fact occasioned the movement of goods from one State into another should be regarded as an inter-State transaction.
Such a test would be easy to apply by the authorities administering the law as what will have to be ascertained will be the physical movement of the goods from one State into another in consequence of the transaction. Such a test has the added advantage of being similar to and parallel with the test which we have proposed for determining when transactions take place in the course of import into or export out of the territory of India. As a sale or purchase which has occasioned import or export is one in the course of import or export so is a sale which has occasioned movement of the goods from one State into another a sale in the course of inter-State trade or commerce.
14. Such a test will avoid the necessity of entering into the difficult question as to when inter-State trade or commerce begins and when it ends, a subject on which there is a mass of decisions of the American courts.
15. A sale or purchase should itself have occasioned the movement of the goods from one State into another in order that it may have an inter-State character. If a purchaser in State A completes a purchase of goods in that State the transaction will be an inter-State transaction even though he may have the intention after the purchase of sending the goods to State B and does in fact do so. The sale made to him or the purchase made by him has not occasioned the movement of the goods from one State into another. Similarly if a purchaser from State A goes to State B and purchases goods in State B the transaction again will be of an inter-State character though the purchaser may have purchased the goods with a view to send them to State A and does in fact do so. The sale to him or purchase by him has again not occasioned the movement of the goods from State B into State A. When, however, in consequence of a sale or purchase goods are delivered to a carrier or other bailee for transmission to another State the transaction would clearly be of an inter-State nature.
16. The question whether on the analogy of the principles adopted in connection with sales or purchases in the course of import or export a sale effected by the transfer of documents during the movement of goods from one State to another should be regarded as an inter-State sale or purchase has received our careful consideration. We are of the view that such sales or purchases should be regarded as inter-State transactions.
It was suggested that if the rate of inter-State tax happened to be lower than the rate of the tax levied by the State on intra-State transactions the adoption of this principle might lead to attempts by dealers to evade the higher tax of the State by giving intra-State transactions the appearance of inter-State transactions by the creation of fictitious records showing the movement of the goods from one State into another.
We are not inclined to attach much importance to this suggestion as in any case the sale or purchase will not escape taxation altogether and it is unlikely that dealers would resort to such attempts in order to save the difference between the inter-State and the intra-State tax. Moreover, if this principle is not applied considerable administrative and other difficulties will arise. We are, therefore, of the view that sales and purchases effected by a transfer of documents during the movement of goods from one State to another should be regarded as inter-State transactions.
17. For the limited purpose of the principle mentioned in the preceding paragraph it will become necessary to provide when the movement of the goods is to be regarded as having commenced and terminated in cases where goods are delivered to a carrier or other bailee for transmission to another State. For this purpose we propose to frame a principle based on the provisions of section 51 of the Sale of Goods Act.
18. The principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce may be framed in the following manner:'
"A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, only if the sale or purchase'
(a) occasions the movement of the goods from one State to another, or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation.'Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of sub-clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee."
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