No. 17435 D. . Regd. No,
SRI SRINIVASA SALES CIRCULATION (Regd.)
No. 11, Gandhi Street, Villivakkam, Madras-49.
As mentioned in your list of articles No... I request you to kindly send
me... Please send your coupons by V.P.L. for the amount of Rs. 16.00 sent by
Place :. Yours faithfully,
Date: Signature :
5. On payment of a sum of Rs. 5, a coupon is given to the individual, let us say A. He fills up the coupon giving his address and mentioning the number and name of the article in the blank spaces and sends it back to the company. On receipt of this coupon order form, as stated in the coupon itself, three order forms are sent to A by V.P.L. for Rs. 16. When that V.P.L. is cleared by A, he receives a further letter from the company, which reads as follows:
We are glad to note that you have cleared the V.P.L. No. by paying Rs. 16 and thank you very much for the same.
You please sell three order forms to three members and take that money. Fill the three forms addressing correctly of three members (IN BLOCK LETTERS) and send them to us by registered post. We will send to each among three members containing three order forms in each V.P.Ls. for Rs. 16. If all of them clear the V.P.Ls., paying Rs. 16 each, we will send you the required article item No. by registered post.
6. A gives these three coupons to B, C and D, collects Rs. 5 from each of them and appropriate the amount to himself. B, C and D in turn either forward the coupons themselves to the company or through A filling the blanks stating the number of the article and the name and the description of the article, which they require. On receipt of these three coupon forms from B, C and D, the company sends three sets of three coupons each to B, C and D again under V.P.L. for Rs. 16 and informs A also of that fact in the printed form, which is as follows :
We have received your three original order forms and the letter dated...and thank you very much for the same. According to the rules of our firm today we have sent 3 V.P.Ls. containing 3 order forms in each V.P.L. for Rs. 16 to each among three members as addressed in that order forms. As soon as they clear the V.P.Ls., by paying Rs. 16 each, we will send you the required article item No. by registered parcel. So, you please encourage them to clear the V.P.L. by paying Rs. 16 each.
7. If B, C and D honour the V.P. Ls. and pay the money, A becomes entitled to the article which he had chosen in the order form. That article is sent to A with a covering letter, which is as follows :
We are very glad to note that you have circulated our scheme by a time and thank you very much for the same. According to your request, today we have despatched your required article No... by V.P. insured parcel for Rs...towards the expenses of packing and postal charges of the article. You please receive your article by paying Rs...and write a letter to us about your opinion.
8. If any one of B, C or D does not honour the V.P.L., and receive the three coupons sent to them, A becomes disentitled to receive the article. though the other two, who had honoured, will have a series in their name if they are again able to sell, say for B1, B2 and B3, C1, C2 and C3 and so on and complete the circle. Thus, the chain of B and C could go on. If there is no break, the chain goes on endlessly.
9. During the assessment year 1967-68, the value of the articles that was so supplied under this scheme to various persons amounted to Rs. 1,36,665.00. The purchase value of these articles was found to be Rs. 1,03,709.25. The assessing officer considered that there was a sale of the article to everyone of the persons, who had participated in the scheme and that, therefore, the turnover of Rs. 1,36,665.00 was liable to tax under Section 3(1) of the Tamil Nadu General Sales Tax Act, 1959. Since the assessee had not filed any return in form A-l, the assessing officer also levied a penalty of Rs. 6,149 under Section 12(3) of the Act. This order was confirmed both by the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal.
10. In this tax revision case, Mr. Sastri, the learned counsel for the assessee, contended that there was no sale or agreement to sell as defined in Section 4 of the Sale of Goods Act and that it is merely a distribution of articles to every member participating in the scheme on the fulfilment of the terms and conditions. According to the learned counsel, there was no bargain between the parties for transfer of the ownership in the article for a price. The consideration should proceed from the transferee or on his account and it should be a money consideration in order to constitute a sale. In support of this argument, the learned counsel relied on a number of decisions.
11. Section 4 of the Sale of Goods Act defining 'sale' and 'agreement to sell' reads as follows:
4. (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.
12. In State of Madras v. Gannon Dunkerley & Co. : 1SCR379 ., the Supreme Court, on a consideration of the law in England and in India, held :
Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale. So also if the consideration for the transfer was not money but other valuable consideration, it may then be exchange or barter but not a sale. And, if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale.
12. The Supreme Court had also held in this decision that the legislatures were competent to legislate for levy of tax only on transactions which were sales within the meaning of the Indian Sale of Goods Act, 1930. Again, in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar : AIR1963SC1207 ., the Supreme Court observed:
In popular parlance 'sale' means transfer of property from one person to another in consideration of price paid or promised or other valuable consideration. But that is not the meaning of 'sale' in the Sale of Goods Act, 1930. Section 4 of the Sale of Goods Act provides by its first subsection that a contract of sale of goods is a contract where the seller agrees to transfer the property in goods to the buyer for a price. 'Price' by Clause (10) of Section 2 means the money consideration for sale of goods, and 'where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale ; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell' [Sub-section (3) of Section 4]. It is manifest that under the Sale of Goods Act a transaction is called sale only where for money consideration property in goods is transferred under a contract of sale. Section 4 of the Sale of Goods Act was borrowed almost verbatim from Section 1 of the English Sale of Goods Act, 56 & 57 Viet. c. 71. As observed by Benjamin in the 8th Edn., of his work on 'Sale', 'to constitute a valid sale there must be a concurrence of the following elements, viz., (1) parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which is transferred from the seller to the buyer ; and (4) a price in money paid or promised'.
13. It may be seen from these decisions that among other conditions, an agreement between the parties for transfer of title to the goods for a money consideration is essential in order to constitute the transaction a sale. On the facts in this case, the value of the article is admitted to be much more than Rs. 5. The member, who purchased the coupon and agreed to participate in the scheme, pays only Rs. 5 to the company. When three coupons are sent to him by V.P.L. for Rs. 16, though he pays another sum of Rs. 15 for the purchase of three more coupons under that V.P.L., he is enabled to reimburse himself by selling these coupons to three other individuals, who, in turn, by reason of their purchase, become members participating in the scheme. When subsequently the three coupons for each of these three people are sent and the amount is paid by them, the sum total of Rs. 45 paid by these three individuals were not on behalf of the first person from whom they purchased the coupon. The coupon, which we have extracted, shows that the amount of Rs. 5 paid by them for the purchase of a coupon and the payment of Rs. 15 at a later stage towards the value of the three more coupons, which they are entitled to pass on, were not on behalf of the person from whom they purchased the first coupon. In the illustration, which we have given in the earlier part of the judgment, the payment by B, C and D honouring the V.P.L. for Rs. 16 sent to them each, is not on behalf of A, but it is on their own behalf and on their own account though such payment entitles A to receive the article. Thus, so far as the company is concerned, before they could part with the article to A, they should have received Rs. 65 in all, Rs. 20 from A and Rs. 15 each from B, C and D. The payment of Rs. 45 by B, C and D was on their own behalf, which entitles them to canvass three more purchasers and obtain a benefit for themselves. Even in the order form, A, the first man in the series so far as the first circle is concerned, is designated as canvasser. Thus, A gets the article for the sum of Rs. 20 paid by him of which he was able to reimburse Rs. 15 in cash by sale of the three coupons and canvassing three others to honour the V.P.Ls. sent to them. The detriment to A is thus only Rs. 5, but he gets the article not for that Rs. 5, but in addition to his canvassing three other people and making them members by honouring the V.P.Ls. sent to them. Certainly, the consideration, which proceeded from A and which enabled him to get the article, was not merely the money paid or promised, but something more. It could not also be said that the title in the goods passed to A under any contract of sale between him and the company. In the passage extracted from the Supreme Court's judgments, it would be seen that if the consideration was not money, it would not be a sale at all. In distinguishing a sale from barter or exchange, we find the following passage in Benjamin on Sale (1974 edition), page 24 :
To constitute a sale it is necessary that the consideration for the transfer of the property in the goods should be in money. This may be either paid or promised (i. e., the sale may be for cash or on credit) ; but if the consideration is something other than money the contract is not, strictly speaking, one of sale in English law.
Where goods are given or promised in exchange for goods, the transaction is a barter or exchange. Similarly, goods may be given in consideration for work done, or for rent, or for board and lodging, or in return for the extinction of a right or the abandonment of a claim, or any other valuable consideration. None of these bargains is a true sale.
14. In the instant case, certainly the transfer of the article was not for money consideration alone. We are, therefore, of the opinion that the transactions involved in the scheme of the assessee are not liable to be taxed as sales under Section 3(1) of the Tamil Nadu General Sales Tax Act. We, accordingly, allow the tax revision case and set aside the orders of assessment. The assessee will be entitled to its costs. Counsel's fee Rs. 250.