1. The question raised in this revision petition is whether the petitioners, who are dealers in telephone insulators and parts and accessories, are liable to pay sales tax on a turnover of Rs. 30,537. They contended that the turnover did not arise out of any independent sale effected by them apart from the sale of the goods to the Madras State Electricity Board through the medium of a concern called the Eastern Electric Company, that that transaction had already been subject to tax, that the amount of tax so levied had been collected and that therefore another levy cannot be made against them. The department did not accept this contention and assessed the turnover to tax. The petitioners' appeal to the Sales Tax Appellate Tribunal also failed and hence this revision petition.
2. The way in which the petitioners sought to save themselves from the levy of tax before the Department and the Tribunal was to contend that Messrs Eastern Electric Company was their selling agents, that they actually sold the goods to the Madras State Electricity Board and that the turnover relating to that sale has been subject to tax which has been paid by the petitioners through Messrs Eastern Electric Com pany. It has however been held by the Tribunal that the facts of the case would not warrant the Eastern Electric Company being treated as the selling agents of the petitioners. This conclusion is very largely based upon the correspondence between the petitioners and the Eastern Electric Company. It is not in dispute that the Eastern Electric Com pany entered into a contract with the Madras State Electricity Board to supply 2,000 dozens L.T. Shackle insulators. The Electric Company, however, had not the necessary stock to supply the goods to the Electri city Board. That necessitated a contract between the petitioners and the Eastern Electric Company. By their letter dated 1st August, 1959, the petitioners offered to give to the Eastern Electric Company from ready stock 2,000 dozens of L.T. Shackle insulators on 'consignment account'. It is clear from this letter that the consignment of the goods to the custody of the Eastern Electric Company was only until such time as the company was able to dispose of them to the Madras State Electricity Board. On 4th May, 1959, the petitioners again wrote to the Eastern Electric Company stating that they would be delivering 2,000 dozens insulators, that an advance cheque for Rs. 14,500 should be sent (which represented approximately 70 per cent, of the value of the goods) and that as soon as the cheque was received they would arrange for delivery at the stores. The provision for the payment of sales tax was made in the following manner:-
With regard to the sales tax, since this has to be paid at only one point, we consider that it may not be necessary for us to charge this to you since the goods will be on consignment with you and that it would be sufficient for you to collect the sales tax from the department and pay it to the Sales Tax Authorities. On this presumption we will refrain from charging any sales tax to you.
3. There is enough indication in this letter to show that the trans action between the petitioners and the Eastern Electric Company was not one intended to be by way of sale. The Eastern Electric Company wrote back to the petitioners as follows on 16th May, 1959:-
We agree to purchase the 2,000 dozens L. T. Shackle insulators along with the relative metal parts....It is agreed between us that you should deliver the materials to the Central Stores at 56, Basin Bridge Road, Madras, free of charge. We agree to give you an advance of Rs. 10,000 against the above supply. The balance will be paid on your completing the supply and payment received by us from Electri city Department. The rejection made by the department will be to your account. It is understood that the materials are to the satisfac tion of the department....Regarding sales tax, we shall arrange to collect it from the Government and pay it to the Sales Tax Authorities on your behalf. In case we are also asked to pay the sales tax the responsibility for meeting the same will be to your account since you are certain that the sales tax is only at one point.
4. In pursuance of this arrangement goods were actually delivered to the State Electricity Board. The delivery challan, the duplicate of which has been filed, shows that the dealing was on 'consignment' account.
5. The true position that emerges from the correspondence between the Eastern Electric Company and the petitioners is that in order to fulfil a contract which the company had entered into with the Madras State Electricity Board, goods were obtained from the petitioners and the contract fulfilled. In substance there was really one sale and that occurred when the property in the goods passed to the State Electricity Board. It is common ground that sale of electric materials is subject to a single point levy as prescribed under the First Schedule of the Madras General Sales Tax Act, 1959. Entry 41 provides that the point of levy shall be the point of first sale in the State at the rate of six per cent. If there was really one sale, and, that was the first sale, that has already been taxed and the tax amount has been collected.
6. Now the contention of the department is that the petitioners should be deemed to have sold the goods to the Eastern Electric Com pany and that company in turn actually sold the goods to the State Electricity Board. In other words, in the view of the department there are two sales, the first by the petitioners in favour of the Eastern Electric Company and the second by the company in favour of the Board. If this position were to be accepted it would mean that the collection of the tax in regard to the alleged sale by the Eastern Elec tric Company to the State Electricity Board was illegal. There can be a tax only on the first sale and if the sale in favour of the Board by the Eastern Electric Company was a second sale, the department had certainly no jurisdiction to levy the tax on that latter sale.
7. But it is however urged by the Government that that would not afford a defence to the present assessees to escape from tax liability if really their sale was the first sale.
8. We do not agree with the contention of the State that the trans action should be notionally split up into two sales. As we said, the proper view to take would be to treat the transaction as one and in divisible. The learned Government Pleader contends that though the property in the goods passed to the State Electricity Board at the time when the goods were actually delivered to their stores it must be assumed that before that point of time the Eastern Electric Company had become the owner of the goods, as otherwise the company could not have title to transfer the goods. The argument is developed further, and it is stated that the Eastern Electric Company could not have become the owner of the goods except it be on the footing that there was a prior sale in its favour by the petitioners. In our opinion, this argument is ingenious, but is lacking in substance. It is not neces sary that the Electrip Company should have become the owners of the goods before title passes to the State Electricity Board. The company was under a contractual obligation to supply goods to the Board and they would perform the contract in any way they liked either by supplying the goods belonging to them from their stock or by directing a third party who had the stock to supply them directly to the Board. It is true that the Board did become the owner of the goods the moment they were delivered. But, it would be nothing incongruous or strange to hold that the property passed directly from the petitioners to the State Electricity Board. It is unnecessary for us to express any opinion on the question whether the case of selling agency as put forward by the petitioners is well-founded or not. The onus is upon the depart ment to show that there was a sale by the petitioners in favour of the Electric Company and that that was the first sale in the State of Madras. This they have failed to discharge and the assessment cannot therefore be supported.
9. In the result, the petition is allowed and the order of the Tribunal is set aside. From what we have observed above it would follow that this turnover of Rs. 30,537 would not be taxable turnover and should not therefore be taxed. The petitioners will be entitled to their costs from the department. Counsel's fee Rs. 100