The Judgment of the Court was delivered by
Chandra Reddy, C.J.
1. In this appeal, the validity of the order of the Commissioner of Commercial Taxes passed in a revision petition against the order of the Deputy Commissioner of Commercial Taxes is challenged. It raises the question of the correctness of the assessment to sales tax of certain transactions amounting to Rs. 64,721-2-8 and relates to the assessment year 1953-54.
2. The facts that are material for the appreciation of the questions arising in this appeal may be briefly stated. The Chittivalasa Mills manufacture jute goods and effect sales of their products through guaranteed brokers. The appellants, a firm of merchants at Rajah-mundry, are approved buyers of these goods from the mills. They bought several bales of jute bags on forward contracts at the rates and conditions contained in the form of contracts and paid some amount by way of advance. In their turn, they entered into agreements with third parties for the sale of these bags at rates higher than those fixed with the mills. The appellants received the advance paid by them to the mills as also the difference in price. They then issued kutcha delivery orders or mill letters requesting the mills to deliver the goods against payment of the price stipulated under the mill contract to the kutcha delivery order holders. These letters are registered in the books of the mills, which sends a communication of this registry both to its buyer, the appellants, and to the mill letter holder. Thereafter, the mill deals with the latter in regard to the delivery. After the goods agreed to be sold are ready they are taken delivery of by the mill letter holder on payment of the price less the advance paid by the original buyers, i.e., the appellants.
3. The appellants did not include these transactions in their turnover. The Commercial Tax Officer assessed the appellants to tax on this turnover also, treating it as a 'sale'. On appeal, the Deputy Commissioner of Commercial Taxes set aside that order accepting the contention of the appellants that the transactions did not involve any sale of goods and were merely sale of contracts. It is this order that was revised by the Commissioner of Commercial Taxes under Section 12(1) of the Madras General Sales Tax Act. The Commissioner reversed the decision of the Deputy Commissioner and restored that of the Commercial Tax Officer.
4. In support of the appeal, it was urged that there was only one sale, and that was by the mills to the holder of kutcha delivery order. The contract entered into between the mills and the appellants had not fructified into a sale as the goods were not in existence at that time and so the appellants could not be said to have effected sale of goods when they delivered kutcha delivery orders which were not documents of title but only letters of authorisation to take delivery of the goods from the mills. What the appellants sold was only a contract and not the goods and by reason of this there was a novation of the original contract. For the first part of the argument reliance is place by the appellants on State of Andhra Pradesh v. Sreeramamurty (1958) 2 A.N. W.R. 298. It is these arguments that ' call for decision in this appeal.
5. The main point for determination is whether the transaction between the appellants and the mills on the one hand and that between them and third parties on the other constitutes two separate sales or whether there was only one sale by the mills to their nominees. This, in its turn, depends upon whether there was merely an assignment of the rights of the appellants under the original contract. The circumstance that is greatly pressed into service by the appellants is that both at the time when they contracted for the purchase of the goods with the mills and when they entered into agreements with third parties, the goods were not in existence and, as such, they had not acquired any title to any goods and consequently they could not transfer the property in any goods to their nominees. As such, their transactions with third parties could only amount to an assignment of the agreements.
6. It is true that the appellants' contract with the mills was only an agreement to buy future goods and they agreed to sell those very goods to third parties before the goods were ready. But when they come into existence and appropriation is made, the property in those goods passes to the original buyers, i.e. the appellants, and they, in their turn, transfer their rights in the goode to their vendees. In regard to this transaction, the appellants occupy two capacities, one as buyers and the other as sellers. When delivery is taken by third parties pursuant to the instructions contained in the mill letters, they do it only as the agent of their vendor and not in their own rights. Delivery to the ultimate buyer involves notionally two transactions. He receives it on behalf of his principal and next he appropriates it towards his contract. This mode of delivery eliminates the unnecessary process of the immediate buyer taking possession and giving actual delivery to his buyer. Delivery to the vendee of the first buyer is in implementation of the original contract with the mills. Simultaneously, it operates to implement the agreement of the immediate buyers, i.e., the appellants, with their buyers.
7. In this context, we may recall with advantage the remarks of the trial Judge extracted with approval by the Supreme Court in Duni Chand Rataria v. Bhuwalka Bros. Ltd (1955) S.C.J. 168.
As seller it is liable to give and as buyer it is entitled to take delivery. As seller it receives and as buyer it gives shipping instructions. Similar shipping instruction is given by each link until it reaches the mills. The mills deliver the goods alongside the steamer. Such delivery is in implement of the contract between the mills and their immediate buyer. But eo instanti it is also in implement of each of the chain contracts including the contract between the defendant and its immediate buyer and the contract between the defendant and its immediate seller. Not only does the mill give and its immediate buyer take actual delivery but eo instanti each middleman gives and takes actual delivery. Simultaneously, the defendant takes actual delivery of possession of the jute goods from its immediate seller and gives actual delivery of possession of jute goods to its immediate buyer. Prima facie at the moment of delivery alongside the steamer, there is appropriation and the passing of the property in the goods and the giving and taking of actual delivery of possession thereof all along the chain at the same moment.
8. This illustrates the true legal position in regard to transactions of the nature involved in this appeal. The controversy there was whether settlement contracts between the appellant and the respondent involved actual delivery of possession of the goods. The appellant entered into contracts with the respondent agreeing to purchase a quantity of twills at a specified rate to be delivered in monthly instalments. Subsequently, the respondent expressed his inability to deliver the goods under the said contract and requested the appellant to settle the same by selling the goods under the said contracts to the respondent at a higher price. Accordingly, settlement contracts which gave rise to the litigation were entered into. When a suit was filed by the appellant for the recovery of the amount due as per those contracts, the respondent objected that the contracts were not enforceable as they fell within the intendment of the West Bengal Jute Goods Future Ordinance, since it did not deal with the sale or purchase of jute goods involving actual delivery of possession thereof etc. A Judge of the Calcutta High Court exercising Ordinary Original Civil Jurisdiction negativing this defence, decreed the suit. On appeal a Bench of that Court dismissed the suit in the view that the purchase was on a forward basis by a person who did not habitually deal in the sale or purchase of goods involving the actual delivery of possession thereof and was therefore void and unenforceable. On further appeal, the Supreme Court, concurring with the trial Judge, reversed the decision of the appellate court. The principle governing the contracts of this kind was stated by their Lordships in the following words :-
The sellers handed over these documents to the buyers against cash payment, and the buyers obtained these documents in token of delivery of possession of the goods. They in turn passed these documents from hand to hand until they rested with the ultimate buyer who took physical or manual delivery of possession of those goods. The constructive delivery of possession which was obtained by the intermediate parties was thus translated into a physical or manual delivery of possession in the ultimate analysis eliminating the unnecessary process of each of the intermediate parties taking and in his turn giving actual delivery of possession of the goods in the narrow sense of physical or manual delivery thereof.
9. This proposition is also established by Bayyanna Bhimayya v. Government of Andhra  8 S.T.C. 167. There, a Bench of this Court said :'It is also clear from the said agreement that the goods were ascertained and the delivery of the goods was postponed to a subsequent date. Even assuming for the sake of argument that the goods were not in existence at. the time of the contract, it does not help the case of the assessees, for it is admitted by them that at a later date the goods were delivered to the third person. If this was so, then that person would acquire a right from the date of the delivery of the goods and the original contract would become complete.
10. Another instance of this principle is contained in T.R.C. No. 69 of 1956. There, the assessee booked orders from the I.L.T.D. Company for the supply of deal wood boxes. He, in his turn, purchased them from dealers in Cochin and instructed the latter to consign them direct to the I.L.T.D. Company. The Cochin dealers, after despatching the goods to the I.L.T.D. Company, sent the railway receipt to the assessee who made out his own bill and sent it along with the railway receipt to the I.L.T.D. Company. The question there was as to where the sale by the assessee to the I.L.T.D. Company occurred ; whether at Cochin where the goods were consigned to the I.L.T.D. Company or in Andhra Pradesh. We decided that the sale did take place only in Andhra Pradesh State as the consignment of the goods to the I.L.T.D. Company was only on behalf of the assessee.
11. We do not think that State of Andhra Pradesh v. Sreeramamurty (1958) 2 An. W.R. 298, decided by Subba Rao, C.J., and Ansari, J., the former being a parly to Bayyanna Bhimayya v. Government of Andhra  8 S.T.C. 167, embodied any rule in conflict with that enunciated above. The question there was whether an assignment of the delivery orders by a purchaser of the goods from the mills in favour of third parties was a 'sale' of goods within the meaning of the Madras General Sales Tax Act. The learned Judges answered it in the negative, being of the opinion that no property in the goods passed from the mills to the buyer till the goods were separated from the joint stock and that the delivery orders in question were not documents of title. The learned Judges added:-
As the buyer himself had no title to the goods, it follows that the endorsement of delivery orders in favour of the plaintiff could not be a sale within the meaning of the Act.
12. Thus the ratio decidendi of that case is that there will be no sale till appropriation towards the contract had taken place. When once the goods are separated and delivery is given to the buyer's buyer, eo instanti it implements both the contracts. We do not think that the learned Judges intended to lay down anything different from Bayyanna Bhimayya v. Government af Andhra  8 S.T.C. 167, and Duni Chand Rataria v. Bhuwalka Bros. Ltd. (1955) S.C.J. 168. In fact, the learned Judges noticed Bayyanna Bhimayya v. Government of Andhra  8 S.T.C. 167, and distinguished it on the ground that, in the former, there was an agreement to sell the goods to a third party. Undoubtedly, in the instant case, there was an agreement between the appellants and third parties for the sale of goods as appears from the statement of facts, the memorandum of grounds of appeal and also from the admissions made before the Commissioner of Commercial Taxes. Therefore the last cited case does not really come to the rescue of the appellant.
13. We will now proceed to consider whether the delivery of the mill letters to third parties could amount to a novation. At the outset, it should be remembered that these letters contained only instructions to the mills regarding the delivery of the goods. In other words, the holders of the mill letters are authorised to take possession of the goods. These instructions are pursuant to a condition in the contract, which permitted the buyers to issue instructions regarding the despatch of the goods. According to these letters, delivery is to be effected only against the original contract and there is no suggestion of any substitution of the original contract. It is always open to a buyer to give instructions to his seller to deliver the goods to his agent or nominee. That could not have the effect of substitution of the original contract for another. To bring into operation the principle underlying Section 62 of the Contract Act, i.e., novation, it should be established that there was a new contract between one of the original contracting parties and a third party, that the latter had assumed liability for the contract and that the former had agreed to accept the new party's liability in substitution of the original liability. It contemplates the extinction of all rights as against the original contractor and the acceptance of the liability of the new contracting party. A mere agreement to deliver the goods to a third party would not have the effect of novation. If we view the transaction in the light of the facts and circumstances pertaining to it, there is no scope to invoke Section 62 of the Indian Contract Act. As we have, already stated, the request to the mills to deliver the goods to the nominee of the appellants in the shape of mill letters is only in exercise of the right conferred on them by condition 12 of the agreement. Those letters do not in any manner indicate that a new contract was to be entered into between the appellants' buyers and the mills to release them from all obligations under the contract and to confer all the rights accruing therefrom on their buyers. These letters only indicate that delivery of possession is to be given to the holders of those letters as the appellants' nominees or their agents and not in their own right. Under the various columns, the quantity originally purchased, the due date, the price paid etc., are entered according to the original contract. The name of the original buyer is entered in the book and underneath it are entered the names of some persons, i.e., the buyers from the appellants. This discloses that the original contract was split into three for the purpose of delivery. Even in the bill sent to the mill letter holders, it is mentioned 'against the contract of Messrs Addepally Sobhanadry, Tammanna Gangadharam and Sons, Rajah-mundry', which denotes that the original contract subsisted and that there was no substitution by any new contract.
14. We may here refer to the evidence of the head clerk of the Chittivalasa Mills, whom we summoned at the request of both sides, to clarify the position. He categorically stated that, in case of default, the mills would proceed only against the original contracting party. He also desposed that the guarantee of the brokers still continued. If really there was a novation, one fails to see how the liability of the original contracting party continued and how the guarantee of the brokers, which could only be with reference to the sale to the appellants, would not cease. The moment the appellants' contract with the mills is substituted the brokers' guarantee will come to an end. The continuance of the guarantee could only be on the basis of the contract of the appellants with the mills subsisting and the transaction between the appellants and their buyers constituting a distinct sale. This witness also described the position of the mill letter holders as only the mills' buyer's buyers, which clinches the case against the appellants.
15. We cannot also ignore the admission made on behalf of the appellants before the Commissioner of Commercial Taxes that if the mills had failed to deliver the goods 'any action could have been taken by kutcha delivery order holder only against the appellants.' It is also worthy of note that all the terms of the original contract are intact and the advance made by the appellants is deducted and it is only the balance of the consideration that is paid when the goods are eventually delivered.
16. We do not think that a copy of the instructions alleged to have been sent by the local agent of the mills to its buyers will be of much help to the appellants. For one thing, it is only a cyclostyled copy of some instructions alleged to have been sent by the local agent of the mills to its buyers. It is dated 1st October, 1946. There is nothing to show that a copy of such a letter was posted to the appellants. Apart from the question of its admissibility, its evidentiary value is not much. That does not, in any way, establish the contentions of the appellants. For these reasons, we cannot acceded to the theory that there was a novation in this case and that there was only one sale between the mills and the appellants' buyers and that the transaction between them could not be regarded as a sale attracting the incidents of Section 2(h) of the Madras General Sales Tax Act. On this discussion, it follows that the order under appeal is correct and cannot be successfully impugned.
17. In the result, the appeal is dismissed with costs. Advocate's fee is fixed at Rs. 150.