1. The State of Tamil Nadu is the petitioner in this tax revision case. The assessment year is 1968-69.
2. Three points of dispute arise in this tax revision case and they are : (1) Whether the supply of raw materials by the assessees, viz., Thiruvalargal Ashok Leyland Ltd., Madras, to their customers on purchase orders were all towards works contract not exigible to tax or whether they are sales exigible to tax (2) Whether the dismissal of the enhancement petition filed by the State is right in respect of turnover of Rs. 2,89,002 where original invoices had been cancelled in toto and fresh invoices had been raised for the sale of vehicles either locally or outside the State and tax paid thereon under the local Sales Tax Act, and Central Sales Tax Act were paid and (3) Whether the transactions amounting to Rs. 5,13,968.53 are sales in the course of import and are exempt from taxation
3. It is convenient to refer to the facts relevant for every one of the questions stated above and to deal with them individually.
Question No. (1) :
4. At the outset, it is necessary to notice that in respect of five supplies made in the debit note for a total value of Rs. 40,897.40 and also in respect of supplies to M/s. Southern Switchgear Ltd. covered by the debit note 132/68-69 dated 28th December, 1968, in the sum of Rs. 350 and in respect of supply of tools to the ancillary product manufacturers to the extent of Rs. 92,345.93, the Tribunal held that they were outright sales and therefore exigible to tax. Such finding was not challenged by the assessees and it is thus, the revision is restricted to a sum of Rs. 1,22,889.66, though the assessees contested exigibility to tax for a sum of Rs. 2,56,464.39. Therefore, we avoid reference to the particulars of transactions relied on by the Tribunal to hold that they are outright sales.
5. The facts relevant for the disposal of this question are as follows : The assessees are manufacturers of automobile trucks. For the purpose of such manufacture, raw materials like sheets, rods and other iron and steel materials are being allotted to them by the Government. The assessees placed orders with manufacturers of ancillary products for the manufacture of component parts required and used in the automobile trucks. They issued works orders to such manufacturers for the production of ancillary products; while so entrusting with such ancillary industries the manufacture of component parts, the assessees supplied raw materials like sheets, rods and steel materials. The ancillary industries ultimately returned the finished products. In the course of such transactions, debit notes are made against such ancillary industries in respect of the supply of raw materials by the assessees. After delivery of finished products, credit notes are also given with reference to the raw materials supplied by the assessees. It is the case of the assessees that the transactions between them on the one hand and the ancillary industries on the other are purely works contract, while it is the contention of the State that the entrustment by the assessees of raw materials to ancillary industries which were called upon to manufacture component parts required by the assessees are outright sales of such raw materials supplied by the assessees to ancillary industries and therefore exigible to tax. A great stress is made by the State to support its contention on the fact that the assessees issued debit notes and credit notes in respect of supply of raw materials made by the assessees to ancillary industries. On the above facts, it was contended by the State that the pattern of transactions would indicate that they are all only outright sales. Further, when debit notes are drawn by the assessees as against ancillary product manufactures, they are not shown in terms of weight, but in terms of the cost of the materials. This feature is taken advantage of by the State to support the contention that the transactions are only outright sales. 11 debit notes issued to M/s. N. K. Krishna Rao Body Works during the assessment year 1968-69 were produced before the Tribunal. The Tribunal found on its examination of debit notes that one set for the period from 1st October, 1969, to 30th October, 1969, showed that the debits raised against M/s. N. K. Krishna Rao Body Works at the time of issue of raw materials were cancelled on the supply of finished products. The second set from 1st January, 1970, to 31st January, 1970, indicated works orders for manufacture of body. The third set of documents pointed out that wages labour invoices were raised by the said Body Works on the assessees.
6. On the above facts, the Tribunal held that the transactions between the assessees on the one hand and the ancillary product manufacturers on the other are only works contract, but are not sales. The Tribunal fortified its said conclusion on the strength of the decisions reported in P. A. Raju Chettiar and Brothers v. State of Madras  6 STC 131, Sough India Metal Works and Rolling Mills v. State of Madras  11 STC 507, T.P.S.R. Factory P. Ltd. v. Deputy Commercial Tax Officer  20 STC 419 and State of Madras v. Sheik Ismail and Sons  34 STC 464. In our view, the conclusion of the Tribunal is unassailable.
7. What is relevant to ascertain whether there is an element of sale or not in the course of transactions between an assessee and the other party to the contract is the essence in such transactions, but not the form of the contract or the nomenclature given by the parties as sales by the parties themselves. In T.P.S.R. Factory P. Ltd. v. Deputy Commercial Tax Officer  20 STC 419, a Division Bench of this Court has ruled that :
'So far as the first category of transactions was concerned, the assessing officer was merely led by the use of the word 'sale' in the account books without reference to other relevant facts relating to the elements that when to make up a sale of goods and therefore the assessment orders were liable to be quashed. The assessing officer should find out whether apart from the use of the word 'sale' in the account books in the context of debiting the cost of materials supplied, there was transfer of property in the goods under an agreement for a price paid or promised therefor.'
8. From the facts set out above, it is quite clear that it is the assessees who supplied the raw materials to ancillary product manufacturers for the manufacture of their required component parts and what was really paid for by the assessees is for the services rendered by such manufacturers of component parts. The mere fact that the debit note carried entries either in weight or in terms of money with reference to the raw materials is an immaterial factor, when ultimately the finished components manufactured and supplied by ancillary product manufacturers though lost their identity and merged in the finished products came back to the assessees and particularly when the debit notes were cancelled by the credit notes drawn by the assessees on the ancillary product manufacturers at the time of delivery of raw materials. If that is the pattern of transaction between the assessees and the ancillary product manufacturers, we have no hesitation to hold that there is no element of sale in all these works contracts. As regards P. A. Raju Chettiar and Brothers v. State of Madras  6 STC 131 and South India Metal Works and Rolling Mills v. State of Madras  11 STC 507, the first case related to supply of silver from time to time to manufacturers of silverware and silver jewellery and debiting of the accounts of the manufacturers with the weight of such silver in tolas. Besides, when the finished articles were received from the manufacturers they were credited with the weight of the finished articles and the manufacturers were also credited with the wages or making charges when the finished articles were received and were debited when they were paid in cash. While in the other, the facts are that the assessee collected scrap metal from its customers, melted the scrap, manufactured sheets and rings and gave back to the customers the new sheets and rings and that the identity of the new sheets and rings could not be correlated to and established with the scrap supplied by the customer and that the total weight of the scrap tallied with the total weight of the sheets and rings given to the customer. The ratio laid down by the said two precedents is to the effect that there was no element of sale when the finished products were handed over by one contracting party to the other, and is only favourable to the assessee.
Question (2) :
9. The assessing authority disallowed the claim under sales returns for which credit notes had been issued by the assessees as per particulars below :
1. Credit note No. 95 dated 24th July, 1968, for Rs. 46,175.
2. Credit note No. 27 dated 22nd November, 1968, for Rs. 1,47,219.
3. Credit note No. 48 dated 31st December, 1968, for Rs. 65,608.
10. It is found that the original invoices issued by the respondent in favour of T. V. Sundaram Iyengar and Sons, Madurai and T. V. Sundaram Iyengar and Sons, Madras, were cancelled and fresh invoices were raised in favour of T.V.S., Trivandrum, and Sundaram Motors Pvt. Ltd., Bangalore. Further the first appellate authority found that when the buyers had expressed their inability to take delivery of all the vehicles, the assessees passed credit notes to the extent not taken delivery of and that when they have sold the vehicles not taken delivery of subsequently to M/s. T. V. Sundaram Iyengar and Sons, Bangalore and Sundaram Motors Pvt. Ltd., Bangalore, the assessees raised fresh invoices which included the invoice amount in the taxable turnover and paid the tax due thereon under the Central Sales Tax Act, 1956. The Appellate Assistant Commissioner further found that the records do not show that the assessees acted as agents of T. V. Sundaram Iyengar and Sons, Madurai, and Sundaram Motors, Madras, and the credit notes issued for the original invoices were found to be genuine and therefore granted exemption from tax as claimed by the assessee. In respect of these transactions, the State took the stand that the exemption should not have been allowed by the Appellate Assistant Commissioner, because there was no proof of the circumstances under which these re-invoices had been made. The facts relevant of these transactions as could be culled out from the order of the Tribunal are : The assessees had raised invoice No. 162/67-68 dated 29th June, 1968, in favour of M/s. T. V. Sundaram Iyengar and Sons Pvt. Ltd., Madurai, in respect of four vehicles of the value of Rs. 2,15,824. The original invoice numbers 162/67-68 were cancelled and the four vehicles were re-invoiced in the name of T. V. Sundaram Iyengar and Sons Pvt. Ltd., Trivandrum, T. V. Sundaram Iyengar and Sons, Madurai, Sundaram Motors Pvt. Ltd., Madras and T. V. Sundaram Iyengar and Sons, Madurai. In respect of the invoice relating to M/s. Sundaram Iyengar and Sons Pvt. Ltd., Trivandrum, as regards the sum of Rs. 46,175 out of the total extent of Rs. 2,15,824, the sales returns had been disallowed. Similarly, in invoices Nos. 233/67-68 and 268/67-68, five vehicles were sold to M/s. Sundaram Motors Pvt. Ltd., Madras and Bangalore. These invoices are subsequently cancelled and credit notes were issued. In respect of sales to M/s. Sundaram Motors Pvt. Ltd., Bangalore, for Rs. 1,47,219 for which credit note No. 27 dated 22nd November, 1968, was issued, the exemption claimed by the assessees was not accepted by the assessing authority; so too, in the invoice No. 289 dated 30th September, 1968, four vehicles were sold to M/s. Sundaram Motors Pvt. Ltd., Madras, for Rs. 2,14,161.92, only the credit note dated 31st December, 1968, for Rs. 95,608 relating to sales to M/s. Sundaram Motors Pvt. Ltd., Bangalore, was disallowed, though the entire invoice was cancelled and subsequent invoices were raised for the sales of vehicles. The Tribunal had perused the statement filed at the instance of the assessees with reference to the invoices and credit notes and as a matter of fact found that the original invoices had been cancelled in toto and fresh invoices had been raised for the sales of the vehicles either locally or outside the State and that tax was paid thereon under the local Sales Tax Act and the Central Sales Tax Act. On the above facts, we are unable to hold that T. V. Sundaram Iyengar and Sons, Madurai and Madras, in whose favour original invoices were issued by the assessees, have become the owners of the vehicles and in respect of these three transactions which were subsequently sold by the assessees in M/s. T. V. Sundaram Iyengar and Sons Pvt. Ltd., Trivandrum, for Rs. 46,175 and Sundaram Motors Pvt. Ltd., Madras and Bangalore, the assessees acted as agents of the former. If T. V. Sundaram Iyengar and Sons, Madurai and Madras, had not become the owners, any subsequent dealing by the assessees to M/s. T. V. Sundaram Iyengar and Sons Pvt. Ltd., Trivandrum, and M/s. Sundaram Motors Pvt. Ltd., Bangalore, is a sale pure and simple. Also it is not open to the State to contend that with regard to the above sales, the assessees only acted as agents of M/s. T. V. Sundaram Iyengar and Sons, Madurai and Sundaram Motors, Madras. Further, such a contention of the State cannot be entertained when in respect of these sales under consideration, the assessees had paid tax under the Tamil Nadu General Sales Tax Act as also the Central Sales Tax Act respectively. We therefore cannot take any exception to the conclusion reached by the Tribunal.
Question (3) :
11. Though the assessees claimed that the total turnover in the sum of Rs. 6,12,521.06 related to sales in the course of import, it is seen from the order of the Tribunal that the assessees filed a statement claiming such exemption only of 13 items of sales amounting to Rs. 5,13,988.53. The revision is therefore restricted to Rs. 5,13,988.53 in respect of which the Tribunal held that these are sales in the course of import.
12. Several authorities were cited at the Bar, such as Voltas Ltd. v. Commercial Tax Officer  51 STC 151, Dean & Webber Mill Stores Co. v. State of Maharashtra  39 STC 161 of India Ltd. v. State of of Tamil Nadu  52 STC 85, Deputy Commissioner v. Kotak & Co. : 3SCR883 , Krishnados Kikani v. State of Tamil Nadu  38 STC 223, S.R.L.G.S. & W. Mills (P.) Ltd. v. State of Madras  30 STC 387, Larsen and Toubro Ltd. v. Joint Commercial Tax Officer  20 STC 150, State of Bihar v. Tata Engineering & Locomotive Co. Ltd. : 2SCR849 , Binani Bros. (P.) Ltd. v. Union of India : 2SCR619 as also the decision of this Court in Blue Star Ltd. v. State of Tamil Nadu (T.C. Nos. 1397 of 1977 and 196 of 1978)  56 STC 172. As some of the decisions were considered in Krishnados Kikani v. State of Tamil Nadu  38 STC 223 and Blue Star Ltd. v. State of Tamil Nadu (T.C. Nos. 1397 of 1977 and 196 of 1978)  56 STC 172, we propose to refer only in detail the following : Voltas Ltd. v. Commercial Tax Officer  51 STC 151, S.R.L.G.S. & W. Mills (P.) Ltd. v. State of Madras  30 STC 387 and the decision in Blue Star Ltd. v. State of Tamil Nadu (T.C. Nos. 1397 of 1977 and 196 of 1978  56 STC 172.
13. The facts in S.R.L.G.S. & W. Mills (P.) Ltd. v. State of Madras  30 STC 387 are as follows : The assessee in that case is a ginning, spinning and weaving mill. It had an actual user's licence to import cotton from Africa. But, for facilitating the import, the assessee gave a letter of authority of one Patel and Co. The said Patel and Co., on the basis of the letter of authority given by the assessee, entered into a contract with the foreign sellers and actually imported the goods, and thereafter delivered the same to the assessee. A Division Bench of this Court to which one of us was a party, relying upon the decision of the Supreme Court in Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes : 3SCR352 observed thus :
'The Supreme Court in that decision had held that before a sale could be said to have occasioned the import, it was not necessary that the sale should have preceded the import, that if the movement of the goods from the foreign country was incidental to or in pursuance of the conditions of the contract between the assessee and the local seller, who actually imported, that would come within the expression 'occasions the movement of goods' occurring in section 5(2) of the Central Sales Tax Act. One of the circumstances that was considered in that case was that according to the contract entered into between the assessee and the local seller there was no possibility of the goods being diverted by the seller for any other purpose after import. The Supreme Court specifically dealt with the question as to whether there should be privity between the assessee and the foreign seller for the purpose of bringing the sale within the scope of section 5(2) of the Act, and expressed the view that the question of privity is immaterial so long as the sale has occasioned the import.'
14. In Krishnados Kikani v. State of Tamil Nadu  38 STC 223, a Division Bench of this Court held that as the licensed importer was the assessee and the purchaser could not have placed an order with the foreign seller, there was no privity of contract between the foreign seller and the purchaser, and that therefore, there was a sale by the assessee to the purchaser which was liable to be taxed under the Tamil Nadu General Sales Tax Act. The decision was of course against the assessee, but if the facts in that case are noticed, it will be clear that the ratio laid down in that case will have no application to the facts of this case. Let us briefly state the facts in that case : In respect of export of cotton yarn and cotton textiles under the Cotton Textiles Export Promotion Incentive Scheme, the assessees were granted import licence for importation of textile chemicals, dyes and gums. One R agreed to purchase from the assessees the imported dyes and chemicals. But as the licence was not transferable, it was agreed that the assessees would sell to R on monopoly basis the imported goods on forward, afloat or c.i.f. basis at a certain price. On receipt of a part of the sale price, which was the premium, the assessees agreed to hand over the licence to enable the purchaser to take steps for importing the goods in the name of the assessees. The assessees would place an order with the foreign seller suggested by the purchaser for the quantity of goods required by the purchaser. They would also open a letter of credit through a bank or otherwise. All the import documents would have to be in the name of the assessees who agreed to subscribe their signatures to all the papers and documents so as to make the importation possible and enable the purchaser to take delivery of the goods. But the purchaser would have to pay the amount as per the invoice of the foreign sellers and also the customs and excise dues, wharf charges, clearing and forwarding charges and all such other dues including sales tax, if any, payable. If, after receiving the premium or part of the price, the purchaser failed to take necessary steps for importation of the goods in the name of the assessees within the time allowed according to the licence or failed to utilise the licence or caused its validity to expire, the advance amount received by the assessees as part of the sale price was liable for forfeiture. The agreement also provided that the assessees were at liberty after in advance information to the purchaser to make sales of the imported goods to others or delivery the licence at their option to anybody else, if the assessees were not able to get a fair profit from the purchaser. From the above facts, it is easy to perceive the distinguishing features such as that if the purchaser failed to take necessary steps for importation of the goods in the names of the assessees within the time allowed according to the licence or failed to utilise the licence or cause its validity to expire, the advance amount received by the assessees as part of the sale price was liable for forfeiture; that, the agreement also provided that the assessees were at liberty after an advance information to the purchaser to make sale of the imported goods to others or deliver the licence at their option to anybody else, if the assessees were not able to get a fair profit from the purchaser. From the above peculiar facts, there can be no doubt as pointed out by the said Division Bench that there were two sales, one by the foreign seller to the importer and another by the importer to the local purchaser.
15. Voltas Ltd. v. Commercial Tax Officer  51 STC 151, is a decision of a learned single Judge of the Calcutta High Court on a petition filed under articles 31, 226, 265 and 286 of the Constitution of India. There, the learned Judge held that
'The necessary and relevant evidence was available to show that the sales of the petitioner occasioned import of the goods and were in the course of import and even though the petitioner was authorised to import the goods the consumers/customers really remained the importers and were liable as such and the import of the goods were inextricably linked up with the contract (of the petitioner with its customer).'
16. This Bench in Blue Star Ltd. v. State of Tamil Nadu (T.C. Nos. 1397 of 1977 and 196 of 1978)  56 STC 172 had held that two principles are well-settled : (1) where two sales are involved in the integrated transactions resulting in the import, section 5(2) of the Central Sales Tax Act will never be attracted and (2) unless the intermediary who actually imports, is held to be the agent of either the actual user's or the foreign seller, there can be no privity of contract between the actual user's and the foreign seller and that, in either case, it is not possible to hold that the sale or purchase occasioned the import. It is true that the ultimate decision therein went against the assessee. But some of the important factors relied on by the Bench to hold against the assessee are relevant to be noticed : The goods had been imported not against the actual user's licence held by the customers but only on the basis of the recommendatory certificates issued by the Project and Equipment Corporation of India which is a wing of the State Trading Corporation of India. The goods had been imported after the actual users' orders but not by actual users' licences. There was no privity of contract between the local buyers and the foreign seller and the movement of the goods from the foreign country, was not occasioned on account of the actual user's licence, but only against the orders placed by the assessee with the foreign seller. The Project and Equipment Corporation had the unfettered right to nominate actual users to whom the assessee shall give priority in selling the goods. The contract in general related not only to import, but also to stocking and selling of metal testing machines from GDR to actual users only. Thus, it is on those facts, this Division Bench held that the transaction envisaged two sales, (i) between the assessee and the foreign seller and (ii) between the assessee and the actual users. If the assessee had acted as an agent either of the foreign seller or the actual user, there would be privity of contract between the foreign seller and the actual consumer and that, consequently, the transaction would amount to a purchase in the course of import within the meaning of section 5(2) of the Central Sales Tax Act. Section 5(2) provides that a purchase of goods shall be deemed to take place in the course of import of goods into the territory of India only if the purchase occasioned such import. We must point out here that that part of section 5(2) as is relevant in this case alone is just now referred to.
17. Here the assessees are M/s. Ashok Leyland Limited, Madras-1. They entered into a contract with Ashok Leyland, U.K., as early as 10th August, 1965, for the purchase of the vehicles. Purchase orders were placed by the Madras State Transport Authority with the assessees only in the year 1968. It is, thereafter, the assessees placed actual indent on Ashok Leyland, U.K., after the actual user's licence was obtained in the year 1968. The goods were imported against the actual user's licence held by the Tamil Nadu State Transport Department and Southern Railway, Perambur. The goods had been imported on behalf of the Madras State Transport Authority against the licence issued to them and the bill of entry bears the licence number for which the import is effected. The foreigner's invoice, viz., Leyland Motors, U.K., also mentions the import licence in their invoice. Also, the sales invoice of M/s. Ashok Leyland (Madras) in favour of Madras State Transport Authority also mentions the fact that the raw materials are imported from U.K. against their import licence. A sample of import trading control form was furnished to us. Some of the conditions of the licence are that the goods for the import of which this licence has been granted, shall be the property of the licensee at the time of clearance through the customs and that all the items of goods imported under it shall be used only in the licence-holder's factory and no portion thereof will be sold or permitted to be utilised by any other party. From the above facts, we have no hesitation to hold that the assessees acted only as agents of the actual users and that the sales were in the course of import within the meaning of section 5(2) of the Central Sales Tax Act.
18. However, the learned Additional Government Pleader laid stress on the fact that the assessees had entered into a contract with Ashok Leyland, U.K., long before the actual indents were placed by the former to the latter and therefore contended that there were two sales : (i) a sale by Ashok Leyland, U.K., to the assessees and (ii) a sale by the assessees to actual users. We find, such an argument cannot be entertained in view of the plain language employed in section 5(2) of the Central Sales Tax Act. Assuming that there is already a sale between the assessees and Ashok Leyland, U.K., it is not possible to hold in the above established facts that the sale between the assessees and Ashok Leyland, U.K., occasioned the import of the goods; on the other hand, it is patent from the established facts referred to supra that it is by the sale brought about at the assessees' initiative between Ashok Leyland, U.K., and the actual users, the import was occasioned. To put it differently, it is the sale which had occasioned the import which is relevant and decisive. It might be that while the assessees brought about these transactions between Ashok Leyland, U.K., and the actual consumers, they are incidentally honouring their contract entered into long before, but as long as it is the subsequent transaction between Ashok Leyland, U.K., and the actual users which has occasioned the import, the earlier contract between the assessee and the U.K., the foreign seller will have no impact on the subsequent transactions. We reiterate that in all these thirteen transactions, the assessees were only acting as agents of the actual users. Thus, we have no doubt that on the facts in this case, the sales are deemed to be in the course of import, and therefore, not exigible to tax, as contended by the revenue.
19. In the end, we hold all the points against the revenue and dismiss the tax revision case. However, we make no order as to costs.