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Phipson and Co. Ltd. Vs. Sales Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case Number O.P. No. 1079 of 1965
Judge
Reported in[1967]19STC200(Ker)
AppellantPhipson and Co. Ltd.
RespondentSales Tax Officer
Appellant Advocate P. Subramoniam Potti and; S.A. Nagendran, Advs.
Respondent AdvocateGovernment Pleader
Cases Referred(See State of Orissa v. Tulloch and Co. Ltd.
Excerpt:
- - payment after inspection on proof of despatch and balance of 10 percent, after receipt of stores by the consignee in good condition. the assessee was entirely responsible for the execution of the contract and for the safe arrival of the goods at the destination......to the petitioner, sales by united breweries ltd., bangalore, to m/s. mcdowell & co. were inter-state sales and the sales by mcdowell & co., shertallai, to the petitioner were the first sales in the state by a dealer who was not exempted under the relevant charging section, and therefore the sales by the petitioner to its customers were not first sales in the state, and were not liable to be taxed. petitioner contends that the sales by mcdowell & co., ltd., were the first sales in the state, and therefore those sales alone will attract liability to tax and that mcdowell & co., ltd., shertallai, had paid the tax in respect of the sales in question.2. the respondent held in his orders exhibits p-3 and p-4 that the sales by m/s. united breweries ltd., bangalore, were to the petitioner,.....
Judgment:

K.K. Mathew, J.

1. M/s. Phipson & Co. Ltd., Ernakulam branch, the petitioner, is a registered dealer. For the years 1962-63 and 1963-64, petitioner filed its returns before the respondent and accounts were submitted to support the returns. Petitioner claimed exemption from tax in respect of certain transactions. The facts relating thereto are as follows : Petitioner sells U.B. Light Lager Beer and U.B. Sun Lager Beer. Under the General Sales Tax Act, 1125, wines and liquors other than toddy came within Schedule I to the Act. According to the Schedule the rate of tax on liquor was 40 paise in the rupee. Under Section 5 (vii) of the above Act, the sale of goods included in Schedule I was liable to tax only at such single point in the series of sales by successive dealers as may be specified by Government by notification in the Gazette, and where the taxable point so specified is a point of sale the seller was liable to tax on the turnover for which the goods are sold by him at such point. By the notification dated 28th September, 1957, the taxable point in respect of liquors was specified as the first sale in the State by a dealer who is not exempted from taxation under Section 3(3). It is not claimed that the petitioner was exempted from taxation under Section 3(3). Thus in respect of beer for the purpose of assessment for the year 1962-63, the taxable point was the first sale in the State and such single point tax was at 40 paise in the rupee. The Kerala General Sales Tax Act was passed repealing the General Sales Tax Act, 1125, with effect from 1st April, 1963. For the purpose of assessment for the year 1963-64, the Kerala Act is applicable. Under that Act also, the point of levy of tax on liquors other than toddy is the same. Beer, therefore, is taxable at the point of first sale in the State by a dealer who is not exempt under Section 5, the charging section. For the assessment year 1963-64, the rate was enhanced from 40 per cent. to 50 per cent., i.e., 50 paise in the rupee. The question of exemption from sales tax raised in this writ petition relates only to the sales of the two brands of beer brewed in the United Breweries Ltd., Bangalore. The course of the transaction is stated by the petitioner as follows : The United Breweries Ltd., Bangalore, sells U.B. Light Lager Beer and U.B. Sun Lager Beer to M/s. McDowell & Co., Ltd., Shertallai. McDowell & Co., Ltd., Shertallai, has been appointed as the sole distributor for Kerala in respect of the two brands of beer, and any person who wants to purchase these brands of beer in Kerala can do it only from M/s. McDowell & Co., Ltd., Shertallai. McDowell & Co., Ltd., Shertallai, sells beer to the petitioner, who has been appointed as the sole sub-distributor for Kerala. This is under an agreement, exhibit P-1, dated 2nd July, 1962. It is stipulated in that agreement that all supplies to the petitioner of the two brands of beer will be effected at its Ernakulam branch by the Shertallai branch of M/s. McDowell & Co., Ltd., and the payments for such supplies will be made by the former to the latter by depositing the respective amounts in the latter's account with the bank specified. Instead of taking the goods from Bangalore to Shertallai and then taking them from Shertallai to Ernakulam it was agreed between the parties in exhibit P-1 that the goods will be taken direct to Ernakulam from Bangalore, that for that purpose the excise permits are to be taken by the petitioner in its name after paying the duty, that the petitioner would forward the indents to the distributor along with the duty-paid transport permits, and that the distributor would then place the orders with United Breweries Ltd., Bangalore, with instructions to despatch the consignments to Ernakulam direct on the distributor's account. It is the case of the petitioner that transport permits were taken in its name only to facilitate the quick movement of goods from Bangalore to Ernakulam, as otherwise the consignments will have to go to Shertallai first and re-despatched from there to Ernakulam. Invoices of all supplies of beer made to the petitioner by M/s. McDowell & Co., Ltd., were made by it on the petitioner and it forwarded the invoices from Shertallai to Ernakulam. The goods were despatched by the United Breweries Ltd., Bangalore, to Ernakulam either through their own lorries or through public carriers and were taken delivery of by the petitioner at Ernakulam for and on behalf of the distributor and the goods were held as the stock of the, distributor until the concerned invoices were received from the distributor. Petitioner's case is that for the period in question it was purchasing beer from McDowell & Co., Shertallai, which were being purchased by M/s. McDowell & Co., from the United Breweries Ltd., Bangalore. According to the petitioner, sales by United Breweries Ltd., Bangalore, to M/s. McDowell & Co. were inter-State sales and the sales by McDowell & Co., Shertallai, to the petitioner were the first sales in the State by a dealer who was not exempted under the relevant charging section, and therefore the sales by the petitioner to its customers were not first sales in the State, and were not liable to be taxed. Petitioner contends that the sales by McDowell & Co., Ltd., were the first sales in the State, and therefore those sales alone will attract liability to tax and that McDowell & Co., Ltd., Shertallai, had paid the tax in respect of the sales in question.

2. The respondent held in his orders exhibits P-3 and P-4 that the sales by M/s. United Breweries Ltd., Bangalore, were to the petitioner, and therefore the sales by the petitioner to its customers were the first sales in the State, and therefore the petitioner is liable to be taxed. He found that the goods moved from Bangalore to Ernakulam on the strength of the import permits taken by the petitioner in its name, that the property in the goods passed directly from the United Breweries Ltd., to the petitioner, that McDowell & Co., Ltd., Shertallai, had no possession of the goods at any time during the transactions, that McDowell & Co., Ltd., acted only as agent for placing the orders of the petitioner with the United Breweries Ltd., and for collection of the sale price and that the sales by the United Breweries Ltd., were to the petitioner and they were inter-State sales.

3. The prayer pressed in this writ petition is to quash the orders of assessment to the extent of the tax on the turnover of these transactions. In the counter-affidavit filed by the respondent, it is stated that sales by the United Breweries Ltd., were to the petitioner, that they were inter-State sales, that the sales by the petitioner to its customers were the first sales in the State, that the taking of import permits in the name of the petitioner would show that the petitioner was the purchaser from the United Breweries Ltd., Bangalore, that McDowell & Co., Ltd., Shertallai, was the sole agent for sale of beer in Kerala and was entitled only to commission on the sales in Kerala effected on the basis of the orders placed through it, that the United Breweries Ltd., on receiving the import permits in the name of the petitioner applied for and got the export permits on the basis of such import permits for the quantity required by the petitioner and sent the goods direct to the petitioner in special conveyances, that McDowell & Co., Ltd., acted only as agent for the petitioner and that there were no sales by the United Breweries Ltd., to McDowell & Co., Ltd.

4. The ultimate question for determination is whether the sales by the United Breweries Ltd., Bangalore, were to M/s. McDowell & Co., Ltd., Shertallai, or to the petitioner, and whether such sales were inter-State sales. The relevant provision for determining whether the sales are inter-State sales is Section 3 of the Central Sales Tax Act, 1956. Section 3 reads :

3. When is a sale or purchase of goods said 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 documents of title to the goods during their movement from one State to another.

Section 5 of that Act is also relevant, and it reads:

5. (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 documents 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.

In order that a sale may be an inter-State sale, the movement of the goods from one State to another must have been occasioned on account of the sale. If under a contract of sale, movement of goods from one State to another is contemplated or if such movement is an incident of that contract, then the sale is an inter-State sale. The contention of the petitioner is that McDowell &Co.;, Ltd., Shertallai, is the sole distributor of these two brands of beer, so far as the State of Kerala is concerned, that the petitioner is the sub-distributor for the same, that the petitioner cannot purchase the brands of beer except from McDowell & Co., Ltd., that it is for that reason that it placed the orders to McDowell & Co., Ltd., that there was no privity of contract between the United Breweries Ltd., and the petitioner, and that the United Breweries Ltd., sold only to McDowell & Co., Ltd.

5. I think the movement of the goods from Bangalore to Ernakulam had been occasioned by the sales by the United Breweries Ltd. to McDowell & Co., Shertallai. It might be that the purchases by McDowell & Co., Ltd., from the United Breweries Ltd., were to fulfil the contract entered into by McDowell & Co., with the petitioner. But that would not make the movement of the goods from Bangalore to Ernakulam, a movement under that contract. The movement of goods from Bangalore to Ernakulam took place in pursuance of the sales to McDowell & Co., Ltd., by the United Breweries Ltd. The excise permits were taken in the name of the petitioner only for the purpose of enabling the transport of beer from Bangalore to Ernakulam. Otherwise, the goods would have to go to Shertallai first and then they would have to be transported from there to Ernakulam. It was only to avoid the expenses and the delay resulting from it that excise permits were taken in the name of the petitioner, and were sent along with the order by McDowell & Co., Ltd., to the United Breweries Ltd. It is not possible to infer from this that there was any contract of sale between the United Breweries Ltd., and the petitioner, or that the movement of the goods from Banglaore to Ernakulam was occasioned by that contract or as an incident of it. The property in the goods passed to McDowell & Co., Ltd., Shertallai, when the goods were unconditionally appropriated by the United Breweries Ltd., in Bangalore, and to the petitioner from McDowell & Co., Ltd., Shertallai, after the goods reached. Ernakulam and after the invoices were received from McDowell & Co., Ltd., by the petitioner. It is clear from exhibit P-1 that property in the goods did not pass to the petitioner until the invoices were sent by McDowell & Co., Ltd., to the petitioner. Until that time, the petitioner was only in custody of the goods on behalf of McDowell & Co., Ltd. It was open to McDowell & Co., Ltd., to divert the goods for any other purpose although the goods had been consigned in the name of the petitioner. The property in the goods did not pass to the petitioner until after the invoices were received by it and it cannot also be said that the movement of goods from Bangalore to Ernakulam was under any contract between the petitioner and the United Breweries Ltd., Bangalore. In support of the contention that the sales to the petitioner were inter-State sales, the learned Government Pleader placed reliance on the ruling reported in Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes [1966] 17 S.T.C. 473. In that case the assessee in question there entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according to specifications and the D. G. I. S. D., London, or his representative had to inspect the goods at the works of the manufacturers and issue an inspection certificate. Another inspection was provided for at Madras. The assessee was entitled to be paid 90 per cent. of the price after inspection and delivery of the stores to the consignee and the balance of 10 per cent. was payable on final acceptance by the consignee. In the case of deliveries on f.o.r. basis the assessee was entitled to 90 per cent. payment after inspection on proof of despatch and balance of 10 percent, after receipt of stores by the consignee in good condition. The assessee was entirely responsible for the execution of the contract and for the safe arrival of the goods at the destination. The contract provided that notwithstanding any approval or acceptance given by the Inspector, the consignee was entitled to reject the goods if it was found that the goods were not in conformity with the terms and. conditions of the contract in all respects. The manufacturers consigned the goods to the assessee by ship under bills of lading and the goods were cleared at the Madras Harbour by the assessee's clearing agent and despatched for delivery to the Southern Railway in Madras and Mysore. The question was whether the sales by the assessee to the Government department were in the course of import and exempt from taxation under Section 5(2) of the Central Sales Tax Act, 1956. The Supreme Court said that a sale in the course of import need not. precede the import but may take place subsequently. The Court followed the dictum laid down by Shah, J., in Tata Iron & Steel Co. Ltd., Bombay v. S.R. Sarkar [1960] 11 S.T.C. 655, to the following effect:

In our view, therefore, within Clause (b) of Section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto ; Clause (a) of Section 3 covers sales, other than those included in Clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State.

and held that the sale was in the course of import. I do not think that the facts here would warrant the application of the principle of that ruling. There, it was definitely found that the assessee could not have diverted the goods for any purpose other than for the purpose of fulfilling the contract of the assessee with the Director-General. But in the case at hand McDowell & Co. could have diverted the goods for other purposes. The taking of the import permits in the name of the petitioner and the transportation of the goods from Bangalore to Ernakularn instead of to Shertallai would not make any change in the legal character of the transactions. I think, the present case would come within the ambit of the principle in Gandhi Sons v. Sales Tax Officer [1963] 14 S.T.C. 304. The petitioners there purchased certain goods from the local market after receipt of orders for such goods from buyers in other States or outside India. The Court held that such purchases would not come under the Central Sales Tax Act, 1956, inasmuch as the purchases did not occasion the movement of the goods from the Kerala State. It was also held that the fact that the purchases were after securing the orders and before the despatch of the goods is not by itself sufficient to forge the causal connections between the purchases and the movement which are essential for earning the exemption provided. I hold that sales by the petitioner to its customers were not the first sales in the State and the sales are not liable to taxed.

6. It was submitted by the learned Government Pleader that under Section 3 of the General Sales Tax Act, 1125, it is open to the department to assess the petitioner in respect of the transaction in question. As I have already stated, the first sales in the State were by McDowell & Co. Ltd., Shertallai, to the petitioner and the petitioner's sales to its customers were not the first sales in the State. If that be so, Section 3 can have no application here.

7. It was contended by the learned Government Pleader that under Rule 27(5) of the rules framed under the General Sales Tax Act, 1125, and under Rule 32(13) of the rules framed under the Kerala General Sales Tax Act, 1963, the petitioner was bound to obtain declaration forms from the seller showing that tax has been paid by McDowell & Co., Ltd., so that it may get exemption from payment of tax on the sales effected by it to its customers. I do not think that the provisions of these rules are mandatory. (See State of Orissa v. Tulloch and Co. Ltd. [1964] 15 S.T.C. 641). And it is submitted that from the invoices and the bills issued by McDowell & Co., Ltd., to the petitioner it would be clear that tax has been paid in respect of the transactions by McDowell & Co., Ltd., Shertallai, and that if the point had been taken by the respondent at the time of hearing before him, the petitioner would have adduced unimpeachable evidence to show that the tax has been paid by McDowell & Co., on the basis that sales effected by it to the petitioner are the first sales. I therefore overrule this contention.

I quash exhibits P-3 and P-4 the orders of assessment so far as they relate to the turnover of the sales of beer for the years in question as specified in the writ petition. The petition is allowed to this extent only. In other respects, it is dismissed. The respondent will compute the tax on this basis and issue fresh demands. There will be no order as to costs.


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