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The State of Tamil Nadu Vs. Bombay Metal Depot - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 292 of 1974 (Revision No. 146 of 1974)
Judge
Reported in[1978]41STC140(Mad)
AppellantThe State of Tamil Nadu
RespondentBombay Metal Depot
Appellant AdvocateAdditional Government Pleader
Respondent AdvocateC. Natarajan, Adv.
DispositionPetition allowed
Cases ReferredBalabhagas Hulaschand v. State of Orissa
Excerpt:
.....placed orders with certain parties in bombay for the purchase of cotton and as directed by the assessee, the bombay dealers despatched the goods to the purchasing mills in this state as consignee and sent the railway receipts to the assessee which endorsed the same in favour of the mill after collecting a substantial portion of the sale price. the first part of the contract clearly mentions that the goods have been sold by the seller to the buyer. , the contract dated 24th november, 1973, which clearly shows that the transfer of property preceded the actual delivery of the goods. for the reasons discussed above, we are satisfied that the present case falls within section 3(b) read with section 9(1), proviso and that this state was justified in taxing the said transaction to sales tax..........sale fell within section 3(a) and the state of tamil nadu had no jurisdiction to assess the inter-state sale since the goods were not within the state of tamil nadu at the time of appropriation ;2. section 3(b) would ordinarily apply to what is commonly known as 'bilti' sales in mercantile practice. these sales not being such sales did not fall within the meaning of section 3(b) of the act ; and3. even if it was held that the sale fell within the meaning of section 3(b) of the act, section 3(a) would prevail in this particular case and this state should not tax them, because the goods were not within this state at the time of appropriation.2. it is in this view that the tribunal cancelled the assessment with reference to the said amount of turnover. the state now contests the grant of.....
Judgment:

Sethuraman, J.

1. This tax revision case has been filed under Section 38 of the Tamil Nadu General Sales Tax Act by the State of Madras against the order of the Sales Tax Appellate Tribunal dated 4th December, 1973, holding the assessee to be not liable to tax under the Central Sales Tax Act on a turnover of Rs. 7,39,353.14. The assessee is a dealer in non-ferrous metals. In the course of the assessment proceedings the assessing officer noticed that the assessee had effected sales to the Executive Engineer (Public Health), Central Stores, Ernakulam, Cochin-16, on several dates. The assessee sought exemption from tax on the sales on the ground that these sales were effected by transfer of documents within the meaning of Section 3(b) of the Central Sales Tax Act and that he had filed E-I and D forms in respect of the same. The assessing officer found that the filing of D forms from the Government departments did not satisfy the requirements of the Act as the State Government departments were not registered dealers. Since all the sales were to the Government departments, he issued notices to the assessee asking for its objection to the proposed assessment of the said turnover. The assessee pointed out that there was some pending legislation before the Parliament and wanted the assessment to be deferred till the passing of the said amendment. It questioned also the jurisdiction of the State to assess the said amount to tax. The assessing officer rejected these contentions. He found that the assessee entered into a contract with another entity in Bombay and that the Bombay entity despatched the goods to the respective executive engineers. He considered the sales to be taxable in this State under Section 3(b). The assessee appealed and the appellate authority was of the view that the assessee had sold goods purchased from Maharashtra while on movement from Maharashtra to Kerala attracting liability to tax under Section 3(b). The assessee, thereafter, filed a second appeal before the Sales Tax Appellate Tribunal. The Tribunal came to the following conclusions:

1. The sale fell within Section 3(a) and the State of Tamil Nadu had no jurisdiction to assess the inter-State sale since the goods were not within the State of Tamil Nadu at the time of appropriation ;

2. Section 3(b) would ordinarily apply to what is commonly known as 'bilti' sales in mercantile practice. These sales not being such sales did not fall within the meaning of Section 3(b) of the Act ; and

3. Even if it was held that the sale fell within the meaning of Section 3(b) of the Act, Section 3(a) would prevail in this particular case and this State should not tax them, because the goods were not within this State at the time of appropriation.

2. It is in this view that the Tribunal cancelled the assessment with reference to the said amount of turnover. The State now contests the grant of exemption from liability to tax with reference to the said sum of Rs. 7,39,353.14.

3. The only question that is raised in the present tax revision case is whether the Sales Tax Appellate Tribunal was justified in holding that Section 3(b) of the Central Sales Tax Act did not apply to the turnover in question. Section 3(b) to the extent relevant runs as follows :

3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase-

(a)...

(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.

Explanation 1.-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of Clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

4. So the short point for consideration is whether there was a sale effected by transfer of documents of title to the goods during their movement from one State to another. This transfer of documents in order to come within Section 3(b), should have taken place subsequent to the goods being delivered to the common carrier and before delivery to the purchaser as shown by the explanation. In the present case, the goods were delivered to the railways for transmission to Kerala and, therefore, there was delivery of the goods to the common carrier. The point is to see whether the transfer of documents took place after the goods were placed on the train.

5. At this stage, we may set out a few more facts, regarding the manner in which the transactions were put through. The assessee was one of the bidders for supply of caulking lead by a tender called for by the Government of Kerala. The assessee had bid for the tender in its own name giving its Madras address. The Chief Engineer, Public Health Department, Ernakulam, accepted the tender for supply of 500 tons of caulking lead at the rate of Rs. 5,290 per tonne. The supplies were to be made from time to time at agreed instalments. As regards price, it was stated that:

The price noted above is for delivery of the materials f.o.r. Ernakulam and inclusive of sales tax. Necessary declaration in form D will be issued by the Ex. Engineer, P.H., Central Stores Division, Ernakulam, Cochin-16, on receipt of the invoice.

6. It was further provided that the goods must be insured to the destination, viz., f.o.r. Ernakulam and that the goods should be despatched freight paid to the Ex. Engineer, P.H., Central Division, Cochin-16. Clause 4 provided as under :

The materials shall be despatched by goods train. If this is not found possible, the prior approval of the officer mentioned in Clause 6 below to be obtained before despatch by passenger train.

7. The consignment was to be paid for after the receipt of and survey of the articles by the department. The delivery time of one month was allowed. The letter of acceptance of tender also provided for execution of an agreement and such agreement was executed prior to the despatch of the goods in the present case. There was a provision in the letter of acceptance as well as in the tender to the effect that 90 per cent of the value of the goods was payable through bank and that the balance was payable within 15 days after receipt of the materials in full and after checking. The contract provided that the goods must conform to the sample and that they were liable to be rejected if they did not so conform. The assessee was liable for damages in case the goods were not of the description and quality agreed upon. The relevant contract was executed on 24th November, 1970, by the Chief Engineer. The six supplies now under consideration were made from Bombay by the Bombay party with whom the assessee had placed an order for an identical quality and quantity of goods. It is with reference to these supplies that the assessee claimed that the goods were directly despatched from Bombay to Kerala and they were not taxable in Tamil Nadu.

From Section 3(b) it would be clear that for the sale to fall within 'the scope of this provision, it is necessary to be established that the same was effected by transfer of documents of title to the goods during their movement from one State to another. In a statement filed by the assessee before the Sales Tax Appellate Tribunal, the dates on which the goods were supplied, the dates, of railway receipts and the invoices against the purchaser in Cochin are set out. For instance, on 10th December, 1970, there was a despatch from Bombay of the goods. The invoice made by the assessee bore the date 11th December, 1970. For 90 per cent of the value a bill was drawn and as far as the balance was concerned, it was paid long afterwards. From the statement it appears that in all these cases, the endorsements or transfer of documents took place only subsequent to the Bombay party putting the goods on board the train. It would, therefore, follow that the present case would come within the scope of explanation 1 to 3. In other words, the transfer of documents took place after the goods were delivered to the common carrier and before they were delivered to the purchaser. In view of the above facts, it would follow that the assessee's sales squarely came within the scope of Section 3(b) of the Central Sales Tax Act.

8. If the assessee falls within the said provision, then Section 9(1) specifies the State which is entitled to tax the said transaction. Section 9(1) provides that:

The tax payable by any dealer under this Act (viz., Central Sales Tax Act) on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within Clause (a) or Clause (b) of Section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of Sub-section (2) in the State from which the movement of the goods commenced.

There is a proviso to it which runs as follows :

Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods, the tax shall, where such sale does not fall within Sub-section (2) of Section 6, be levied and collected in the State from which the registered dealer effecting the subsequent sale obtained or, as the case may be, could have obtained the form prescribed for the purposes of Clause (a) of Sub-section (4) of Section 8 in connection with the purchase of such goods.

9. In the present case, there is no dispute about the fact that there were two sales, viz., a sale by the Bombay party in favour of the assessee and the other subsequent sale by the assessee in favour of the Government of Kerala. Therefore, this case would fall within the proviso as contrasted with the main portion of Section 9(1). In the present case, it is also not in dispute that the form prescribed by Section 8(4)(a) in connection with purchase of such goods from the Bombay party had been obtained by the assessee from this State. Therefore, this would be the State from which the assessee had effected the subsequent sale after the sale was effected by the Bombay party to the assessee. Therefore, this State would, on the language of the proviso, be the State which can levy and collect the tax from the assessee.

10. The learned counsel for the assessee, however, argued that this State could not have taxed the assessee on the said sale because of certain decisions to which reference will be made now.

11. Our attention was drawn to the decision in G. A. Galiakotwala and Co. (P.) Ltd., Madras v. State of Madras [1976] 37 S.T.C. 536. In that case, the assessee having its place of business at Coimbatore entered into an agreement with a mill situate within the State for the sale of cotton. The assessee placed orders with certain parties in Bombay for the purchase of cotton and as directed by the assessee, the Bombay dealers despatched the goods to the purchasing mills in this State as consignee and sent the railway receipts to the assessee which endorsed the same in favour of the mill after collecting a substantial portion of the sale price. The question as to whether these transactions were liable to be taxed or not, came up for consideration ultimately by the Supreme Court. The Supreme Court held that the sale by the Bombay seller to purchasers in this State was an inter-State sale but that the sale by the assessee to the mill in this State was not an inter-State sale. The sales tax authorities of this State were thus held to have jurisdiction to assess the transaction of sale by the assessee to the mill under Section 3(b) of the Central Sales Tax Act, 1956. This decision is of no assistance to the case before us because that was a case where an assessee in this State was effecting sales of goods to another assessee within the same State. But, here the seller is a party from Bombay who sold the goods to the assessee in this State, in the first instance,- and the subsequent purchaser from the assessee was in Kerala and the goods were despatched from Bombay to Kerala. In these circumstances, that decision would have no application. There was no scope for any discussion or laying down of any principle in that case regarding the application of the proviso to Section 9(1).

12. The learned counsel for the assessee next contended that, in the present case, the goods had not been appropriated until they reached the destination in Kerala and that, therefore, the transfer of property in the goods took place only in Kerala. According to the learned counsel, the endorsements made on the railway receipts and the transfer of documents during the movement of the goods were only for the purpose of enabling the collection of the goods at Cochin and actually the transfer of property took place only in the State of Kerala. If this contention were to be accepted, then it would follow that there was a local sale in Kerala and that, therefore, there could not be an inter-State sale liable to be taxed in this State. As far as this aspect is concerned, the further contention of the learned counsel for the assessee was that the goods themselves were unascertained at the time when they were despatched from Bombay. If they were unascertained goods then it would follow that there would not be a transfer of property in the goods simultaneously with the transfer of documents but only on actual delivery. It is, therefore, necessary to find out whether there is any appropriation of ascertained or ascertainable goods in the present case when the goods started their movement from Bombay. If there was appropriation, then property would pass on the endorsement being made in the railway receipts. It would be seen from the facts here that the goods were of specified description and such goods were despatched from Bombay to Cochin at the instance of the assessee, who sold them to the Kerala Government in identical form and condition. With reference to the point regarding appropriation in this context, there is a decision of the Supreme Court in Balabhagas Hulaschand v. State of Orissa [1976] 37 S.T.C. 207. In that case, the assessee was a firm dealing in buying and selling of jute and it had its head office at Calcutta. It entered into a contract of sale with certain Calcutta firms by which it 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, raw jute was not in existence as it was being grown. After the goods were ready they were booked in bags in the names of 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 in accordance with the specifications mentioned in the contract of sale they were accepted by them. The High Court held that the sales were inter-State sales and were, therefore, liable to be taxed under Section 3(a) of the Central Sales Tax Act. On appeal, the Supreme Court held that even though the sale took place in 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 goods was occasioned by the sale itself and it was, therefore, taxable under Section 3(a) of the Central Act. Though that decision was rendered with reference to the applicability of Section 3(a) there is a passage which throws light regarding the ascertainment and appropriation of the goods. This aspect had to be gone into in view of the contentions based on certain terms found in the contract between the parties. The contract opened with the words :

We have, subject to the terms and conditions hereinafter referred to, this day sold to M/s. Fort Gloster Industries Ltd., New Mill,...by your order and on your account, the following goods, which are jute.

13. Then, as regards payment, the stipulation was :

90 per cent cash against documents and the rest on approval.

Basing himself on these terms the contention of the assessee there was that the transfer of property took place only in Calcutta and not in Orissa when they were put on board. The Supreme Court observed at page 217 thus:

It is conceded by counsel for the appellants that this letter or other letters in identical terms form the basis of the contracts of sale. The first part of the contract clearly mentions that the goods have been sold by the seller to the buyer. But, of course, that does not make the letter a concluded sale because the letter read as a whole would show that it is in respect of some future goods which have yet to be grown. We are, however, unable to agree with the learned counsel for the appellants that this contract is in respect of unascertained goods because the quality and the colour of the jute, the weight, the price, the markings, etc., are all mentioned in the contract. Therefore, the goods are no doubt ascertainable and must be according to the specifications mentioned in the agreement....The agreement also provides that there has been a transfer of property from the seller to the buyer which is the effect of the first para referred to above. It is also not disputed that after the goods reached Calcutta, they were finally accepted by the buyers and a concluded sale took place in Calcutta in the State of West Bengal. In view of these circumstances, there can be no manner of doubt that the sale falls squarely within Section 3(a) of the Central Sales Tax Act.

14. It would be clear from the above passage that where the description of the goods is clear and where such goods have been sent in conformity with such description and where such goods have also been accepted on the basis that they conformed to the said description it would follow that there was ascertainment and appropriation of the goods to the contract. Where the goods are ascertainable and the goods of that description are despatched then the goods so despatched could be taken as appropriated to the contract unconditionally. The circumstance that the purchaser had a right of rejection did not postpone the transfer of property in the goods. In the present case, there is also a letter marked as exhibit E-I in the case, i. e., the contract dated 24th November, 1973, which clearly shows that the transfer of property preceded the actual delivery of the goods. In the said letter, it is stated as follows :

Your offer to supply the materials as detailed in the list appended is subjected to the conditions mentioned therein. Please effect supply according to the instructions in the notes below and the conditions mentioned in the list of acceptance. The special conditions, if any, printed on your quotation sheets or attached with your tender will not be applicable to this order unless they have been expressly accepted in the list appended.

15. In the conditions or notes appended to the said letter, the conditions regarding the despatch of goods, insurance and the payments, which we have already referred to, are to be found. From a construction of the terms of this letter, it is clear that the intention was the property in the goods passed to the purchaser as soon as the endorsement was made. There is nothing to show that the intention was to effect a transfer of property in the goods only on actual delivery. Though it is true that it is possible to make an endorsement on the railway receipt without an intention to pass the property in the goods, for which certain decisions were cited before us, we consider that those decisions are not of any assistance in the present case because the contract between the parties is so clear that the goods were ascertained or ascertainable goods and that the property in them got transferred as soon as the endorsement was made. We do not, therefore, think it necessary to go into those decisions. For the reasons discussed above, we are satisfied that the present case falls within Section 3(b) read with Section 9(1), proviso and that this State was justified in taxing the said transaction to sales tax under the Central Sales Tax Act. In the present case, there is no dispute that the provisions of Section 6(2) do not apply. Hence, this tax revision case is allowed and the petitioner will be entitled to its costs. Counsel's fee Rs. 250.


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