Skip to content


The English Electric Company of India Limited Vs. the Deputy Commercial Tax Officer, Alandur Division and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case Number Writ Petition No. 416 of 1967
Judge
Reported in[1969]23STC32(Mad)
AppellantThe English Electric Company of India Limited
RespondentThe Deputy Commercial Tax Officer, Alandur Division and ors.
Appellant Advocate V.K. Thiruvenkatachari and ; T.N.C. Rangarajan, Advs. ;for King and Partridge
Respondent Advocate The Assistant Government Pleader
DispositionPetition dismissed
Cases ReferredLarsen and Toubro Ltd. v. Joint Commercial Tax Officer
Excerpt:
.....attendant thereon to find out what was the intention of the parties and how it is manifest in the correspondence and whether the well known tests to make a sale an inter-state sale are satisfied in each of those cases......or works so as to implement the said contracts. on this it is stated that the sales are not inter-state sales within the meaning of section 3(a) of the central sales tax act, 1956 (act 74 of 1956). the petitioner reserves certain other matters for appropriate action by it at the required stage, but it is, in this writ petition, canvassing the propriety of the notice dated 21st february, 1967, issued by the first respondent proposing to treat the turnover of rs. 29,68,749.97 as assessable turnover for the assessment year 1965-66. the petitioner has referred to certain documents by way of illustration to sustain its case that the turnover in question is not assessable as if it were so in the course of inter-state sales. the petitioner's case is that if the first respondent proceeds to.....
Judgment:

Ramaprasada Rao, J.

1. The petitioners are seeking for the issue of a writ of prohibition restraining the first respondent from taxing or including in the proposed assessment order of theirs for the year 1965-66, the sum of Rs. 29,68,749.97 on the ground that it ought not to be included in the assessable turnover. The petitioner is a public limited company having its registered office at Calcutta and branches at Bombay, Delhi, Madras and Lucknow. The main factory of the petitioner-company is at Madras. The various branches of the company have been registered both under the local as well as the Central Sales Tax Acts in the various places of its business as a dealer within the meaning of the said Acts. The disputed turnover in this writ petition relates to the proposed levy of Central sales tax by the first respondent in the State of Madras in respect of sales of which the contracts to sell goods were made by and with the branches of the company as above at Bombay, Delhi, Calcutta and Lucknow. We shall refer in detail to the manner and method adopted by the branch at Madras and the other branches of the company outside Madras presently in concluding the impugned transactions. The contention of the petitioner is that orders were booked by customers with the out-of-State branches and the goods were sent by the Madras branch or works so as to implement the said contracts. On this it is stated that the sales are not inter-State sales within the meaning of Section 3(a) of the Central Sales Tax Act, 1956 (Act 74 of 1956). The petitioner reserves certain other matters for appropriate action by it at the required stage, but it is, in this writ petition, canvassing the propriety of the notice dated 21st February, 1967, issued by the first respondent proposing to treat the turnover of Rs. 29,68,749.97 as assessable turnover for the assessment year 1965-66. The petitioner has referred to certain documents by way of illustration to sustain its case that the turnover in question is not assessable as if it were so in the course of inter-State sales. The petitioner's case is that if the first respondent proceeds to include the turnover as above as assessable turnover, it would be put to serious loss and prejudice. Hence the request for a rule in the nature of a writ of prohibition.

2. In the counter-affidavit filed on behalf of the State, the first respondent avers that on an examination of the relative documents concerning the transactions in question it was found that the goods had moved from the State of Madras as a result of the orders placed by the customers with the assessee's branches in places outside the State. The first respondent, therefore, justifies the position that the turnover is assessable under the Central Sales Tax Act as relating to inter-State sales, and therefore the writ of prohibition asked for is premature and cannot be granted. The petitioner though having alleged certain other factors in support of the issue of the rule, has not pressed the same when the case was taken up for hearing, because of the decision in W.Ps. Nos. 84 and 983 of 1967 etc. Since reported as Sitalakshmi Mills Ltd., Tirunagar, and Ors. v. The Deputy Commercial Tax Officer, No. IX, Teppakulam New Colony, Madurai, and Ors. [1968] 22 S.T.C. 436 We shall now notice the relevant facts on which the relative contentions of the parties rest.

3. The modus operandi adopted by the petitioner in co-ordination with its Bombay branch office in relation to the supplies made to the customers in the State of Maharashtra maybe noticed. It is assumed that similar operations govern the petitioner's transactions as regards despatches of goods made by them to the other out-of-State customers through their branch offices elsewhere. This is, however, a matter to be verified by the assessing authority. The petitioner has placed the particulars, correspondence and other details connected with an order received by the Bombay branch from one Asha Metal Works, Village Road, Bhandup, Bombay-78, as an illustration. We shall briefly refer to Messrs Asha Metal Works as the buyers.

4. The buyers ask for quotations for certain named articles of a given specification from the Bombay branch office. The Bombay office in turn obtains the particulars called for by the buyers from the petitioner. The petitioner is notified that the enquiry relates to the requisition of goods from the buyers. Whilst transmitting the query of the buyers to the petitioner, the Bombay office captions its correspondence as '...material for Asha Metal Works, Bombay'. On receipt of the enquiry from the Bombay office, the petitioner adopts the same caption and refers to Asha Metal Works, Bombay, and quotes its price for the goods for which quotations were asked for. Invariably the price is F.O.R. Madras. For one item the petitioner would state that the offer is 'ex Stock subject to prior sale'. On receipt of such particulars from the Madras office, the Bombay office in turn writes to the buyers reproducing the offer of the petitioner and in particular the conditions of sale and mode of despatch and calls upon the buyers to accept the order in terms thereof. It is very significant to note that this offer which was transmitted to the buyers in the name of the Bombay branch is vetted to the petitioner as well. One of the conditions of sale, which appears to be a general condition, adopted by the petitioner-company, wherever situate, runs as follows :

Unless specially arranged to the contrary, all goods will be despatched at the risk of the contractee.... If desired, insurance can be effected on account of the buyer to cover risks in transit...

5. The buyers having been apprised of the correct position and as to the place of manufacture and as to the person who is to execute the order, place an order with the branch office at Bombay accepting the terms which were the subject-matter of the correspondence. Thereafter the Bombay office prepares what is terminologically called an indent order. This is addressed to the petitioner-company. The contents, however, of this indent order are very significant and have to be considered in detail. The customer's name-is mentioned as that of the Asha Metal Works, Bombay-78. The destination is referred to as Bhandup Railway Station. The price is specified as F.O.R. Madras and the conditions of sale are Form EEI.3A, which purport to be the general conditions already referred to by us. As against the item 'despatch instructions', this indent order obliges the petitioner to send the goods to Bhandup, freight to pay duly insured, consigned to English Electric Company, Bombay. Apparently the Bombay office, by using such expressions as consignment and indent and by disclosing the name of the buyers as if they are its customers, intended that the sale in question should be understood as a consignment sale to them for being dealt with by them at their choice. After the indent order is thus transmitted by the Bombay office to the Madras office, the question of how the goods have to be despatched after completion was taken up. The enquiry from the petitioner regarding such despatch of the finished products is contained in its letter dated 26th August, 1964, and this appears to be very purposeful and has to be reproduced:

Your Indent No. BOM/906/ABG - CFS & Distribution Boards for the Asha Metal Works.

We thank you for your memo, dated 19th August, 1964, and in reply we wish to inform you that the C.F.S. Board against item 2 is ready for despatch. The distribution fuse boards controlled by CFS isolators against items 3, 4 and 5 will be despatched by middle of September, 1964.

Kindly note that the estimated delivery date for the above items falls on first week of October, 1964.

Please let us have the despatching instructions soon.

6. The Bombay office takes up the matter with the buyers and even this letter inviting for despatch instructions from the customer-cum-buyer is copied to the petitioner. The buyers leave the matter of despatch of the goods to the Bombay office stating that the normal procedure may be adopted and the goods may be insured against damage or loss in transit. After such correspondence regarding the despatch and delivery of the goods, the Bombay office writes to the Madras office as follows:

Our Indent BOM/906-CFS & Distribution Boards for Asha Metal Works.

With reference to your memo, of 26th August, 1964, please despatch the equipment covered by our above indent by goods train to Bhandup Rly. Station, freight to pay, duly insured, consigned to us. The R/R and other documents to be sent to us for disposal.

7. Herein also a reference is made to the indent and the reference to Asha Metal Works in the caption of this letter is indicative of the fact that the goods are to move from Madras for the benefit of Asha Metal Works. The Bombay office repeat that the goods are to be consigned to them, but the real substance of the above letter is that the railway receipt and the above documents are to be sent to them for disposal. One other significant feature of the above letter is that the petitioner is directed to send the goods to Bhandup Railway Station which is the place of business of the buyers. The petitioner immediately after despatch of the goods from Madras office has advised the Bombay office of such despatch and sent what they termed as contents/advice note to that effect. This note contains the amount that has to be collected by way of freight, the price as agreed upon and the goods train in which the goods have been despatched as also the number of the railway receipt. When the goods reach Bhandup and the railway receipt is sent to the Bombay office, they apparently draw up an invoice for the supply of the goods. The invoice so prepared suggests that the goods have been delivered to the buyers from the stores of the Bombay office. In some other invoices, however, we do not find this recitation. On the other hand, it states that the invoice is on account of the goods which have been delivered to the buyers by the clearing agents of the Bombay office.

8. The above modus operandi has resulted in the buyers securing the specific goods from the State of Madras through the intervention of the Bombay office; but the goods have been admittedly despatched from Madras by the petitioner, to the place of businsss of the buyer.

9. Whilst noticing the pith and substance of the correspondence that passed between the Bombay branch, the petitioner and the buyers, it is not very difficult to find out as to what really the parties intended. The contention of Mr. V.K. Thiruvenkatachariar is that in the absence of the direct forging of a contract between the petitioner and the buyers, the mere movement of the goods from one State to another by itself is not decisive that it moved by virtue of and pursuant to an inter-State sale. His contention is that the seller should send the goods to the buyers in any contract of sale and in the instant case the goods having been consigned to Bombay as a result of the instructions of the branch office of the petitioner, it cannot be deemed to be a sale at all, but would amount to the replenishing of stock by one branch to the other and the bargain cannot be pigeon-holed into the concept of a sale as is ordinarily understood. He therefore proceeds that this being a consignment sale as is popularly understood by one branch to the other, the State of Madras has no jurisdiction to treat these transactions as inter-State sales merely basing their claim on inter-State movement. The goods, according to him, have not reached the buyers as a result of an overt act on the part of the seller and in the absence of such an indicia, the main sine qua non, which would dub a transaction involving inter-State movement of goods as an inter-State sale is absent. The State argues to the contrary.

10. For a sale or purchase to take place, there should be a buyer and a seller. No doubt, if the seller sends the contracted goods direct to the buyer, the concept of a sale as is popularly and even grammatically understood, is complete. Any contract visualises co-operative action by which 'the wills of two or more persons are economically disposed towards certain harmonious courses of action'. In a contract of sale, as grammatically denned in the statutes under consideration, two parties are necessarily involved, one the seller and the other the buyer. Such a contract is not indicative of any subjective state of the mind, but it is an act and in such an act certain inferences from the conduct of parties follow. Such inferences from conduct have to be judged not by what was passing in the minds of parties to a contract, but on what they said or wrote. The intention that is manifest from such conduct, from such consensus and other surrounding circumstances, has to be gathered and this is the settled cardinal rule of interpretation of a contract of sale. It may be necessary that in a given set of circumstances, such an intention or inference from conduct may be ascertained ex antecedentibus et consequentibus. In short, every word, deed and act of the parties to a contract have to be weighed, interpreted and considered, as no clause in a contract between parties can ever be considered to be superfluous. As all contracts of sale are more or less executory in scope, it is necessary to find in each contract as to who are the real parties thereto and how the consensus in such a contract was arrived at and the attendant conditions and obligations undertaken by the respective parties prior to and in the course of implementation of the contract in question. Such a reading and understanding of a contract does not militate against 'the deep-rooted traditions of the commonweal'. In the words of Lord Atkin in Rose and Frank Company v. Crompton [1925] A.C. 445:

To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.

11. Besides the above ingredients necessarily present in a contract, there are in a contract of sale of goods the element of price and other incidents such as instructions regarding despatch, inspection of goods, etc. These elements also may in a given case go a long way to establish as to who is the seller and who is the buyer in a contract of sale. If, therefore, the goods which are the subject-matter of a contract are moved from one State to another pursuant to a contract, it should be by a seller or at his instance to a buyer. Invariably, in commerce, contracts spring from correspondence. If the pith and substance of the deal and the relative correspondence merely disclose the name of the ultimate buyer without there being a covenant that the movement of the goods is not only not relatable to a contract of sale, but also to a known buyer, it could hardly be said that the sale is of an inter-State character within the meaning of Section 3(a) of the Central Sales Tax Act. It may be that in a given case, the buyer's name prominently appears in the correspondence and on a fair circumspect of the merits, it can be predicated with certainty that the movement of the goods occasioned thereby is for the sole purpose of delivering the same to such a buyer. As was pointed out by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 S.T.C. 446:

A sale could be said to be in the course of inter-State trade only if two conditions concur: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade.

12. That does not however mean that sales cannot take place without the volition of a party to a contract. The illustration in the dissenting judgment of Hidayatullah, J., as he then was, in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar [1963] 14 S.T.C. 316, brings out this concept:

A sick man is given medicines under the orders of his doctor and pays for them to the chemist with tax on the price. He does not even know the names of the medicines. Did he make an offer to the chemist from his sick-bed

13. Is there not a sale in this case? Certainly, there is. Equally there may be a case where the attendant circumstances clearly point out that the transmission of the goods by the seller may not necessarily be to the buyer. The fascicle of facts and bundle of events in a given case may pointedly reflect on the causa causans for the occasion of the movement of the goods. The cause for such movement may be intimately connected with the covenants or incidents in a contract of sale. Such a contract of sale need not necessarily be between the seller and the buyer direct. But the incidents intricately woven with the movement of goods may suggest that the seller knew the buyer and the goods moved for satisfying a contract with the buyer and but for the identified and identifiable buyer there would have been no occasion for the ascertained goods to move at all. If then, such are the facts, can it not reasonably be presumed and inferred that the conduct of the parties is such, and their manifest intention is clear, that there should be an inter-State movement of the goods as a result of that contract and therefore it satisfies the sine qua non prescribed in Section 3(a) of the Central Sales Tax Act? The poser itself provides an answer in the affirmative. If there is a conceivable link between the movement and the buyer's contract, and if in the course of inter-State movement the goods move only to reach the buyer in satisfaction of his contract of purchase and such a nexus as above is otherwise inexplicable, then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter-State trade or commerce as such a sale or purchase occasioned the movement of the goods from on State to another. The presence of an intermediary such as the seller's own representative or branch office, who antecedently initiated the contract may not make the matter ambulatory. Such an interception by a known person on behalf of the seller in the delivery State and such person's activities prior to or after the implementation of the contract may not tilt the issue either. Of course, there should be a clear and unfettered link between the movement of the goods and the ultimate delivery of the same to the buyer concerned. Unless such incidents are present, it would be highly technical to impress such a transaction as an inter-State sale.

14. As was pointed out by the Supreme Court in Tata Iron and Steel Co., Limited, Bombay v. S.R. Sarkar [1960] 11 S.T.C. 655:

the passing of the title in one State or the other is not relevant in deciding whether the sale is inter-State or intra-State, but the sole deciding factor is as to whether the movement of goods from one State to another was as a result of a covenant or the incident of a contract of sale....

15. In another form the main requirement of Section 3(a) has been very succinctly stated by a Division Bench of this Court, to which the Honourable the Officiating Chief Justice was a party, in Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 S.T.C. 150. The excerpt can be quoted as it is apposite:

What is of the essence of the inter-State character of a sale or purchase under Section 3(a) is that the inter-State movement of goods springs from the terms of the contract of sale or purchase or is incidental thereto. The movement of goods need not necessarily be preceded by an agreement of sale or purchase but may be part of or incidental to it, or arises out of it.

The dividing line between sales or purchases under Section 3(a) and those under Section 3(b) is that in the former the movement of goods is under the contract of sale or purchase but in the latter the contract comes into existence after commencement and before termination of the inter-State movement of the goods. In both the classes of inter-State sales or purchases under Section 3(a) and (b), what is contemplated is completed sales. But how the sales or purchases under Section 3(a) or 3(b) are completed and where, are irrelevant for purposes of Section 3(a) and (b).

16. It would be, therefore, not necessary to consider the impact of Sections 39 and 51 of the Sale of Goods Act, which contention was also urged by Mr. V.K. Thiruvenkatachariar. This is not a case in which Section 3(b) and Section 4 of the Central Sales Tax Act are in any way attracted. As to what would happen if the sale is governed by Section 3(b) or Section 4 is a matter which need not be considered in the instant case.

17. In the factual summary set out in the course of our judgment, we have referred to the part played by the Bombay branch. The Bombay branch in fact acted as an intermediary. One normally expects and it is commercially expedient that the branches of the same management coordinate with each other and secure orders to be worked out by their out-of-State branches. If, therefore, the antecedent events relating to the contract in question emanated from the branch office at Bombay and if they from time to time corresponded with the ultimate buyer and found from him as to what ought to be the conditions of sale and how the goods have to be despatched and whether they should be insured, etc., that would not transpose the Bombay branch as the seller in respect of the contract. The captions of almost all the letters which emanated from Bombay to Madras and vice versa distinctly contain the name of the buyer. That the Madras branch and the Bombay branch as between themselves understood that the contract is to be executed for the benefit of the buyer is indeed indisputable. In fact, all the important letters which the Bombay office sent to the buyer were vetted to the Madras office. The general conditions of sale applicable to the company as a whole is one of the covenants of the contract of sale. One such condition prescribes that once the goods are despatched, they are despatched at the risk of the buyer. This means that the movement is occasioned by a contract. It would be idle to speculate that when the Madras office despatched the goods, the goods moved at the risk of its Bombay branch. It necessarily moved at the risk of the buyer. In fact, the goods were insured. The insurance charges were ultimately collected from the buyer. The freight charges from Madras to Bombay were also duly accounted for in the invoice. The Bombay office merely played the role of an intermediary or a canvasser. But it took more responsibility because it was a branch office and was answerable to the main office and equally responsible to the Madras office. A mere misdescriptional nomenclature adopted by a party cannot be pressed into service to by-pass the real purpose and purport of a document; we mean the indent order. By the order being characterised as an indent order or a consignment sale, can the Bombay office achieve the purpose, which they wished to do in this case, to sustain that the contract in question should be deemed to be an intra-State sale in Bombay? The answer to the query has to be necessarily in the negative. The goods are sent to the place of business of the buyer. The despatch instructions are equally clear that the goods have to be sent to the place where the buyer carries on business. And even as regards the mode of despatch, there is tripartite correspondence between the Bombay office, Madras office and the buyer. The letter wherein final despatch instructions were given by the Bombay office to the Madras office, extracted above, shows that they wanted that the railway receipt and other documents have to be sent to them for disposal, meaning thereby for collection of the price as agreed to. Judged from the steps taken from the beginning to the end by the Bombay office in co-ordination with the Madras office, it cannot be said that it was the Bombay office that should be considered in this case as the seller and all that the Madras office did was merely to despatch the goods as an automaton. On the other hand the reverse is the position. The Bombay office was merely acting as an in-between, between the Madras branch and the ultimate buyer and it was the Madras branch who pursuant to the covenant in the contract of sale, though forged by the Bombay office, caused the movement of the goods from Madras to Bombay.

18. Whilst, therefore, we agree with the contention of Mr. V.K. Thiruvenkatachariar that in an inter-State sale the goods have to be despatched by the seller to the buyer and such inter-State movement of goods should be as a result of a contract of sale, yet we are unable to be persuaded in the instant case that there was no such despatch or no such movement. We have already expressed our view that the sale occasioned the movement of the goods from one State to another. We are also firmly of the view that though the goods were sent or, to borrow the expression of the Bombay branch of the petitioner, consigned, yet in reality and in substance it was sent to the buyer to his place of business. The goods not having been taken into the stock of the Bombay branch, it would be a negation of things if such a despatch of goods were to be equated to a consignment sale for replenishing the stock of the receiving branch. Though, therefore, the goods were nominally booked in the name of the Bombay branch, yet the manifest intention of the Madras branch, who is the seller in this case, is to deliver the same to the buyer pursuant to the prior contract of sale. Viewed from any perspective, the inter-State movement of the goods is as a result of the contract of sale and the fact that the contract emanated from correspondence which passed between the Bombay branch and the buyer cannot make any difference. As noticed by us, the expectation of the contracting parties was fulfilled in a manner understood by them and such understanding in the instant case was that the Madras branch should despatch the goods to the buyer pursuant to what the parties have already said, wrote and did.

19. The proposal as indicated by the first respondent in his notice dated 21st February, 1967, is therefore well within his jurisdiction and the petitioner is not entitled to the writ of prohibition prayed for.

20. We however make it clear that there may be circumstances in each particular case of sale wherein different aspects or circumstances may arise leading to different results. It is of course necessary for the assessing authority to examine each of the invoices in juxtaposition to the correspondence attendant thereon to find out what was the intention of the parties and how it is manifest in the correspondence and whether the well known tests to make a sale an inter-State sale are satisfied in each of those cases. With these observations this writ petition is dismissed with costs. Counsel's fee Rs. 250.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //