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Parrys Confectionary Ltd. Vs. the State of Tamil Nadu - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 1163 to 1167 of 1977 (Revision Nos. 277 to 281 of 1977)
Judge
Reported in[1983]52STC168(Mad)
ActsTamil Nadu General Sales Tax Act; Central Sales Tax Act - Sections 3, 8(2A) and 9; Madras General Sales Tax Act, 1939 - Sections 3(3) and 5(2); Madras General Sales Tax (Turnover and Assessment) Rules, 1939 - Rule 4-A
AppellantParrys Confectionary Ltd.
RespondentThe State of Tamil Nadu
Appellant AdvocateC. Natarajan, Adv.
Respondent AdvocateK.S. Bakthavatsalam, Additional Government Pleader
Cases ReferredState of Mysore v. G. Thimmappa and Son
Excerpt:
.....assessee for and on behalf of purchaser moved property of purchaser - sales in question not inter-state sales within meaning of section 3 (a). - - george, madras, the military note itself clearly states that the goods consigned to bombay were the property of the ministry of defence at the time of despatch. state of orissa [1976]2scr939 .there, the learned judges laid down the following test to find out whether a sale can be said to take place in the course of inter-state trade or commerce :before a sale can be said to take place in the course of inter-state trade or commerce the following conditions must be satisfied :(i) there is an agreement to sell which contains a stipulation, express or implied, regarding the movement of the goods from one state to another; 8. if these..........(called the assessee) in favour of the canteen stores department (india), bombay, are inter-state sales under section 3(a) of the central sales tax act and whether the assessee is entitled to exemption under section 8(2a) of the central sales tax. 2. the canteen stores department (india), bombay, placed orders with the assessee for the supply of confectionery goods. pursuant to the order the assessee despatched goods from the state of tamil nadu to bombay. for the assessment years in question the assessee claimed exemption from levy of tax under the central sales tax act. while it is the case of the department that the sale of confectionery goods by the assessee to the canteen stores department (india), bombay, occasioned the movement of the goods and were therefore inter-state.....
Judgment:

Padmanabhan, J.

1. M/s. Parrys Confectionary Limited, who are dealers under the Tamil Nadu General Sales Tax Act (called the Act) are the petitioners in these tax revision cases. The assessment years with which we are concerned are 1968-69 to 1973-74. The short question that arises for consideration is whether the sales effected by M/s. Parrys Confectionary Limited (called the assessee) in favour of the Canteen Stores Department (India), Bombay, are inter-State sales under section 3(a) of the Central Sales Tax Act and whether the assessee is entitled to exemption under section 8(2A) of the Central Sales Tax.

2. The Canteen Stores Department (India), Bombay, placed orders with the assessee for the supply of confectionery goods. Pursuant to the order the assessee despatched goods from the State of Tamil Nadu to Bombay. For the assessment years in question the assessee claimed exemption from levy of tax under the Central Sales Tax Act. While it is the case of the department that the sale of confectionery goods by the assessee to the Canteen Stores Department (India), Bombay, occasioned the movement of the goods and were therefore inter-State sales, it is the case of the assessee that the sales are not inter-State sales, that the sales were effected in Madras and goods were delivered to the Madras Installation of the Canteen Stores Department and the despatch of goods was by the Madras Installation of the Canteen Stores Department. In the circumstances, the sales could not be characterised as inter-State sales. The assessee's contentions were not accepted by the Commercial Tax Officer, the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal. Hence these tax revision cases.

3. We shall first take up the question whether the sales of confectionery goods effected by the assessee in favour of the Canteen Stores Department (India), Bombay, were inter-State sales or local sales. To answer this question, it is necessary to state a few facts. A specimen of the order placed by the Canteen Stores Department (India), Bombay, on the assessee is afforded by the order dated 25th November, 1974. By the said order, the Canteen Stores Department (India), Bombay, has called upon the assessee to despatch certain confectionery goods. The said order makes it clear that the goods are to be despatched on behalf of the Canteen Stores Department (India), Madras depot. The consignor and consignee have to be shown as Canteen Stores Department (India), Madras. The order further states that a military credit note No. 475853.55 is enclosed for that purpose. The pro forma invoice is drawn on the Canteen Stores Department (India), CRBID, Fort St. George, Madras. The letter dated 8th April, 1975, which is addressed by the assessee to the Canteen Stores Department (India), CRBID, Fort St. George, Madras, states that the assessee's Nellikuppam factory had despatched 512 cases of confectionery to Manganese Depot, VSD siding, against order No. 10449 dated 25th November, 1974, and that the relevant railway receipt had been posted to Sewri, Bombay. The military credit particulars form has also been enclosed duly filled in. The invoice dated 31st March, 1975, is drawn on the Canteen Stores Department, CRBID, Fort St. George, Madras. A statement of account is furnished to the Madras Office of the Canteen Stores Department on 31st March, 1975. We have been shown the military credit note No. 69680 dated 18th April, 1975. It states 'it is most important that clear receipt must be obtained from the railway. Endorsement of 'S.C.' signifying 'said to contain' must be admitted.' Military credit note for military stores only, consigned under the military traffic rules, submitted to the station master gives the name and address of the consignor as the Canteen Stores Department, C/o. Parrys Confectionary, Dare House, Madras. The description and marks of packages is given as military stores. The credit note contains a certificate at the footnote to the effect 'certified that the above stores are/were bona fide property of the Ministry of Defence at the time of despatch, and that freight is payable by the Ministry of Defence and also that the above stores have not been sold nor are for sale to the public or are being transferred to other (Civil) Departments of Government on sale or loan'. The department does not dispute that the pattern of sales of confectionery goods by the assessee to the Canteen Stores Department (India), Bombay, for the assessment years 1968-69 to 1973-74 was of the same pattern. It is also equally admitted that the confectionery goods are brought by road from the Nellikuppam factory of the assessee to the railway siding at Nellikuppam. It is equally admitted that under the military rules the Canteen Stores Department (India) are entitled to a concession in the matter of freight for the transport of goods from one place to another.

4. Viewed in the backdrop of the above facts it will be clear that the sale of the confectionery goods took place within the State of Tamil Nadu. The sale or the contract of sale did not occasion the movement of the goods. As already pointed out, the very order placed by the Canteen Stores Department (India), Bombay, stipulated that the goods should be despatched by the assessee on behalf of the Canteen Stores Department (India), CRBID, Fort St. George, Madras. From this itself it is clear that the goods were to be delivered to the Canteen Stores Department (India), Madras, and the assessee was merely to act as the agent on behalf of the Canteen Stores Department (India), Madras, in despatching the goods from Madras to Bombay. Apart from the invoice being drawn on the Canteen Stores Department (India), CRBID, Fort St. George, Madras, the military note itself clearly states that the goods consigned to Bombay were the property of the Ministry of Defence at the time of despatch. Therefore, at the time the goods were on rail they had already become the property of the Ministry of Defence and moved as such to Bombay. That itself shows that even prior to the movement of the goods, there was a completed sale within the local limits of the State in favour of the Canteen Stores Department (India), Bombay. Whatever the assessee did subsequent to the sale was only on behalf of the Canteen Stores Department (India), CRBID, For St. George, Madras.

5. Mr. Bakthavatsalam, the learned Additional Government Pleader, however, relied upon clause No. 6 of the terms and conditions of purchase of the Canteen Stores Department (India). The said clause states that receipt of goods into the Canteen Stores Department (India) Depots, as specified therein, would not preclude the Depot Managers of the Canteen Stores Department (India) from rejecting part or whole of the consignment on account of discrepancies or difficulties of defects as the case might be. From this clause alone, the Additional Government Pleader would argue that it would be open to the Canteen Stores Department (India), Bombay, to reject the goods after they reached Bombay and if that be the case, then the property in the goods would pass to the Canteen Stores Department (India), Bombay, only at Bombay and that consequently the contract of sale must be deemed to have occasioned the movement of the goods. We are unable to accept the contention advanced by the learned Additional Government Pleader. We are unable to see how the fact that the Canteen Stores Department (India), Bombay, had reserved a right of rejection of the goods, in the event of the goods being found to be not according to quality prescribed for, would be inconsistent with either the completion of the sale of the goods within the territory of the State of Tamil Nadu or the passing of title to the Canteen Stores Department (India), Bombay, even prior to the goods being put on rail. The fact that the goods are carried from Nellikuppam siding to Bombay at the risk of the purchaser and not at the risk of the assessee, cannot be last sight of. It is significant that clause No. 6 states that the purchaser is found to issue a notice of rejection within one week from the date of delivery into the depot and that after such notice has been served the goods so rejected shall remain in the depot at the supplier's own risk and responsibility. This would show that the supplier's responsibility and risk come into play only after a notice of rejection is served on the supplier and that too within one week from the date of the delivery of the goods into the depot. We therefore hold that clause No. 6 does not in any way prevent the sale being completed within the territory of the State of Tamil Nadu itself as contended for by the assessee.

6. The learned Additional Government Pleader cited the decision of the Supreme Court in Oil India Ltd. v. Superintendent of Taxes : [1975]3SCR797 . There the Supreme Court was concerned with the question whether the sales made by the Oil India Limited pursuant to an agreement entered into with the Government of India through the agency of Indian Oil Corporation were sales in the course of inter-State trade and commerce and were therefore liable to sales tax under the Central Sales Tax Act. On the facts of that case and on an interpretation of the agreement, the learned Judges held that the sales were sales in the course of inter-State trade. The learned Judges no doubt referred to the principle laid down in a number of cases that if the movement of the goods from one State to another is the result of a covenant or incident of the contract of sale then, the sale would be an inter-State sale. We are of the view that the said case does not apply to the facts of this case.

7. The next case relied on by the learned Additional Government Pleader is another decision of the Supreme Court in Balabhagas Hulaschand v. State of Orissa : [1976]2SCR939 . There, the learned Judges laid down the following test to find out whether a sale can be said to take place in the course of inter-State trade or commerce :

'Before a sale can be said to take place in the course of inter-State trade or commerce the following conditions must be satisfied :

(i) There is an agreement to sell which contains a stipulation, express or implied, regarding the movement of the goods from one State to another;

(ii) In pursuance of that agreement the goods in fact moved from one State to another;

(iii) Ultimately a concluded sale took place in the State where the goods were sent and that State is different from the State from which the goods moved.

8. If these conditions are satisfied then by virtue of section 9 of the Central Act, it is the State from which the goods moved which will be competent to levy the tax under the provisions of the Central Act. In such a case, the question whether the agreement to sell is in respect of ascertained or unascertained goods, or existing or future goods, makes no difference whatsoever so far as the interpretation of section 3(a) of the Act is concerned.'

9. On the facts of the case, the appellant before the Supreme Court was a firm dealing in buying and selling jute and had its office in Calcutta. The appellant entered into a contract of sale with certain Calcutta firms by which the appellant agreed to sell raw jute of certain specifications of weight and quality to the buyers. At the time when the contract of sale was entered into, the raw jute was not in existence as it was being grown. After the goods were ready the appellant booked the goods in bags in the names of the buyers from certain railway stations in Orissa to the railway sidings of the buyers at Calcutta. The goods, on arrival in the buyers' railway siding at Calcutta, were inspected by the buyers and as they were found to be accordance with the specifications mentioned in the contract of sale, they were accepted. The Supreme Court held on these facts that even though the sale took place at Calcutta, since the movement of goods preceded the sale in pursuance of the contract of sale, which contained a clear stipulation that the goods were to move from Orissa to Calcutta, the movement of the goods was occasioned by the sale itself and it was therefore taxable under section 3(a) of the Central Act. It will be seen therefore that the facts of that case are entirely different. There, the movement of the goods was occasioned from certain railway siding in Orissa pursuant to the contract of sale. Fazal Ali, J., has given three illustrations at page 214 of the Reports. Case No. III runs : 'B, a purchaser in State Y, comes to State X and purchases the goods and pays the price thereof. After having purchased the goods he then books the goods from State X to State Y in his own name. This is also a case where the sale is purely an internal sale having taken place in State X and the movement of goods is not occasioned by the sale but takes place after the property is purchased by B and becomes his property.' We are of the view that this illustration more or less applies to the facts of the present case, but for a slight difference. In the present case what has happened is the Canteen Stores Department (India), Bombay, instead of actually coming to the State of Tamil Nadu, in substance instructed the assessee to supply the goods to the Canteen Stores Department (India), Madras. This fact is clear, as already stated, from the fact that the invoices and the railway receipt are in the name of the Canteen Stores Department (India), Madras. The consignor itself is the Canteen Stores Department (India), Madras, and the assessee has only been acting on behalf of the Canteen Stores Department (India), Madras. In these circumstances, we are unable to accept the argument of the learned counsel that the movement of confectionery goods from Nellikuppam siding to Bombay was incidental or occasioned by the sale or contract of sale entered into by the assessee with the Canteen Stores Department (India), Bombay. Even prior to the movement of the goods from Nellikuppam to Bombay, there has been a competed internal sale and consequently the sale is not a sale in the course of inter-State trade.

10. There is no substance in the contention of the learned Additional Government Pleader that the price has to be paid only at Bombay. In order that a sale should be complete, it is not necessary that price should be paid.

11. Before we part with this case, it will be useful to refer to another decision of the Supreme Court in State of Mysore v. G. Thimmappa and Son : [1967]1SCR627 . The sellers, who sold cotton in bales to dealers who were resident outside the Madras State, consigned the goods by rail from a railway station in the Madras State in their own names. Though the railway receipts were sent through bankers, the goods were despatched in such a way that the consignees could get the cotton bales at the other end without payment to the bankers. The non-resident buyers obtained the necessary transport permit under the Cotton Control Order, 1950, and insured the cotton bales as owners for the purposes of transmission on the railway. The question was whether the sellers were liable to the single point sales tax under section 5(2) of the Madras General Sales Tax Act, 1939, read with rule 4-A(iv)(b) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, as dealers who bought the cotton in the State and who were the last dealers not attempt from taxation under section 3(3). The Supreme Court held that the property in the cotton bales sold by the sellers did not pass during the movement of goods from one State to another by transfer of documents of title, and the movement of goods from the Madras State to places outside the state was not the result of any covenant or incident of the contract of sale. The movement of the cotton bales outside the State was by the buyers themselves after the property in them had passed to them, and therefore the sales were not in course of inter-State trade. The court further held that under rule 4-A(iv)(b) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, the tax had to be levied from the dealer who bought the goods in the State and who was the last dealer not exempt from taxation. Whether such dealer was a resident in the State or a non-resident was immaterial. The buyers who purchased the cotton bales from the sellers were the last dealers who bought the cotton bales in the State and the single point tax under section 5(2) had to be levied from them and not from the sellers. According to the learned Judges the test under rule 4-A(iv)(b) is as to who buys the goods in the State and not who is in that State for the purpose of buying the goods. The same principle equally applies to the consideration of the question whether a particular sale is an internal sale or the sale is a sale in the course of inter-State trade. The test is not as to the person who buys the goods is in the State or not. The test is whether the goods are bought within the State or not. In this case, we have already come to the conclusion that even before the movement of the goods by rail, there has been a completed sale by the assessee in favour of the Canteen Stores Department (India), Bombay. At the time the goods were despatched the assessee for and on behalf of the Canteen Stores Department (India), Madras, the goods moved is the property of the purchaser. In the circumstances, we set aside the orders of the Tribunal and hold that the sales in question are not inter-State sales within the meaning of section 3(a) of the Central Sales Tax Act.

12. In view of our conclusion on point No. 1, it is unnecessary to consider the other question raised by the learned counsel for the assessee on the basis of section 8(2A) of the Central Sales Tax Act.

13. In the result, the tax revision cases are allowed. There will be no order as to costs.


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