M/S. Carona Sahu Co. Ltd. Vs. State of
Maharashtra  INSC 272 (2 December 1965)
02/12/1965 RAMASWAMI, V.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
CITATION: 1966 AIR 1153 1966 SCR (2) 845
Bombay Sales-tax Act (3 of 1953), ss,. 10(a),
10-C-Goods shipped from Cochin under bill of lading at risk of buyer in Bombay
but deliverable to buyer only on payment of price to bankers-Property in goods
whether passes to buyer in Cochin or in Bombay-Goods whether liable to purchase
tax under s. 10(a)-Section 10-C whether applies.
Sale of Goods Act (3 of 1930), s.
25(2)-Passing of property when goods shipped under bill of lading.
The appellant-company, a manufacturer of
footwear in Bombay, purchased rubber from certain dealers residing in the State
of Cochin. The goods were shipped by the Cochin sellers from Cochin to Bombay
under bills of lading in which the sellers themselves were named as consignees.
The invoices however showed that the goods were shipped at the risk of the
appellant which was to pay insurance as well as freight and other charges. For
the period April 1, 1954 to March 31, 1955, the appellant was assessed to
purchase tax under s. 10(a) of the Bombay Sales-tax Act (3 of 1953). The
appellant's appeal under s. 30 of the Act failed. In a reference under s. 34(1)
of the Act the High Court held that the property was intended by the parties to
pass in Bombay and the appellant was liable to purchase tax. The appellant then
came to this Court by special leave.
It was contended on behalf of the appellant
that (1) the property in the rubber consignments had passed to the appellant in
Cochin, (2) the term 'person' in s. 10(a) should be read as meaning a 'dealer
who carries on business in Bombay but who is not registered under the Act and
(3) s. 10-C and not s. 10(a) applied to the transactions in question.
HELD : (i) The ordinary rule that
unascertained goods are unconditionally appropriated to the contract and
property passes to the buyer on the delivery of the said goods to the common
carrier, does not apply to cases where goods are shipped under a bill of
lading. In the latter case delivery by the seller is not delivery to the buyer
but to the Captain of the ship as bailor for delivery to the person indicated
in the bill of lading. The seller may take the bill of lading to his own order.
The effect of such a transaction would be to control the possession of the
Captain as bailee and make him accountable for delivery of the goods to the seller.
The seller thus keeps to himself the right of demanding possession from the
Captain and this is consistent even with a special term that the, goods are
shipped on account of and at the risk of the buyer. Section 25 of the Indian
Sale of Goods Act itself states that where goods shipped are and by the bill of
lading they are deliverable to the order of the seller or his agent, the seller
is prima facie deemed to reserve the right of disposal. [848 E-G] Gabarron v.
Kreeft. (1875) L.R. 10 Ex. 274, referred to.
The fact that the goods were shipped at the
risk of the buyer would not necessarily imply that property in the goods had
passed to the 846 buyer, The endorsement to that effect in the invoice only
indicated that the insurance charges were to be paid by the appellant. The
clause had no bearing on the question of passing of title. [849 G-H] Shephered
v. Harrison, 1871 L.R. (V) H.L. 116, relied on.
(ii) There is nothing in the context or
language of s. 10(a) for importing any qualification on the plain meaning of
the word 'person' in that section. The section plainly states that purchases
made by a dealer from a person who is not a registered dealer will be subject
to purchase tax. The appellant was a dealer and it had made the purchases in
question from sellers who were not registered dealers. The provisions of s.
10(a) of the Act were thus clearly attracted and the purchases were liable to
tax. [852 F] (iii) The contention that s. 10-C governed the transactions in
question could not be sustained. Section 10-C reproduces the Explanation to
Art. 286(1)(a) of the Constitution and would apply only where under general law
the sale takes place outside the State but the goods are delivered as a direct
result of the sale for consumption within the State of Bombay. [853 B]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 275 of 1964.
Appeal by special leave from the judgment and
order dated April 23, 1962 of the Bombay High Court in Sales Tax Reference No.
18 of 1961.
S. B. Donde, K. Rajendra Chaudhuri and K. R.
Chaudhuri, for the appellant.
C. B. Agarwala, R. Ganapathy lyer, B. R. G.
K. Achar, and R. H. Dhebar, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, L This appeal is brought by Special Leave against the judgment of
the High Court of Judicature at Bombay dated April 23, 1962 on a reference by
the Bombay Sales Tax Tribunal under S. 34(1) of the Bombay Sales Tax Act, 1953.
The appellant is a manufacturer of footwear
During the assessment year April 1, 1954 to
March 31, 1955, the appellant purchased rubber from certain dealers residing in
the State of Cochin. These purchases were assessed to purchase tax by the Sales
Tax Officer under S. 1 0 (a) of the Bombay Sales Tax Act (Bombay Act III of
1953-hereinafter referred to as the Act) as they were made "from a person
who is not a registered dealer". The Cochin sellers had their agents in
Bombay who received orders on behalf of the appellant. The orders of the
appellant were accepted by the agents in Bombay and the goods were shipped by
the sellers from Cochin to Bombay. After the goods were shipped, the demand
drafts were forwarded along with the 847 Bills of Lading by the vendors to
their bankers in Bombay.
The bankers endorsed the bill of lading in
Bombay and handed it over to purchasers in Bombay in exchange for the price.
The price was also paid in Bombay. In the
Bills of Lading the sellers in, Cochin were described as both consignors and
consignees. After the goods were shipped, an invoice was drawn on the appellant
in which were printed the following words :
"Shipped per S.S............... from
Cochin to Bombay on account and risk of Messrs Carona Sahu Co. Ltd., 15-A,
Elphinstone Circle, Fort, Bombay." For the period April 1, 1954 to March
31, 1955, the appellant was assessed to purchase tax by the Sales Tax Officer,
Licence Circle, Bombay by his assessment order dated March 31, 1956, under cl.
(a) of s. 10 of the Act; The appellant preferred an appeal under s. 30 of the
Act to the Assistant Collector of Sales Tax, Appeals 11, Bombay Circle, Bombay
but it was dismissed. A revision application to the Additional Collector of
Sales Tax was dismissed. The appellant thereafter moved the Sales Tax Appellate
Tribunal at Bombay for revision of the order passed by the Additional Collector
of Sales Tax. By its judgment dated September 4, 1959 the Bombay Sales Tax
Tribunal dismissed the revision application and confirmed the order made by the
Sales Tax authorities. At the instance of the appellant, the Sales Tax Tribunal
referred the following questions of law for decision of' the Bombay High Court
under s. 34(1) of the Act
1. Whether on the facts and circumstances of
the case, the property in the rubber consignments passed to the applicant in
Cochin i.e. outside the State of Bombay ?
2. Whether the purchase tax under s. 10(a) is
leviable in respect of the purchases in dispute ? By its judgment dated
April-23, 1962 the Bombay High Court answered both the questions of law in
favour of the State and' against the appellant.
The first question that arises for
determination in this case is, whether, on the facts and circumstances of the
case, the property in the rubber consignments passed to the appellant in Cochin
i.e. outside the territorial limits of the State of Bombay. In this connection
the facts found by the Sales Tax Tribunal are that the Cochin sellers had their
agents in Bombay who received the orders of the appellant and arranged for the
shipping of the- 848 goods. In accordance with these orders the goods were,
shipped by the Cochin sellers from Cochin to Bombay. The Bills of Lading were
in the name of the sellers as consignors and consignees. The invoices however
showed that the goods were shipped at the "risk and on account of M/s. Carona
Sahu and Company (P) Ltd." The insurance charges were borne by the
appellant who also paid freight and other charges. The bills of lading were
sent by the sellers through the bank to be delivered to the buyers in Bombay on
payment of the price of the goods. In view of these facts, the High Court held
that the property was intended by the parties to pass in Bombay and the
endorsement in the invoice that the goods were being shipped "on account
of and at the risk of the buyers" did not mean anything more than that the
insurance charges were to be paid by the buyers. On behalf of the appellant,
Mr. Donde submitted that the property in the rubber consignments had passed to
the appellant in Cochin. In our opinion, there is no warrant for this
submission and the view taken by the High Court is correct.
The law is well established that in the case
of a contract for ,sale of unascertained goods the property does not pass to
the purchaser unless there is unconditional appropriation, of the goods in a
deliverable state to the contract. In the case of such a contract, delivery of
the goods by the vendor to the common carrier is an appropriation sufficient to
pass the property. But there is a difference in the legal effect of delivering
goods to a common carrier on the one hand and shipment on board a ship under a
bill of lading on the other hand. Where goods are delivered on board a vessel
to be carried, and a bill of lading is taken, the delivery by the seller is not
delivery to the buyer, but to the captain as bailee for delivery to the person
indicated by the bill of lading. 'The seller may therefore take the bill of
lading to his own order. The effect of this transaction is to control the
possession of the captain and make the captain accountable to deliver the goods
to the seller as the holder of the bill of lading.
The bill of lading is the symbol of property,
and by so taking the bill of lading the seller keeps to himself the right of
dealing with property shipped and also the right of demanding possession from
the captain, and this is consistent even with a special term that the goods are
shipped on account of and at the risk of the buyer. In Gabarron v. Kreeft(1)
Lord Parker laid down the principle as follows "The English cases,
however, on which the Sale of Goods Act was founded seem to show that the
appro- (1) (1875) L.R. 10 Ex. 274.
849 priation would not be such as to pass the
property if it appears or can be inferred that there was no actual intention to
pass it. If the seller takes the bill of lading to his own order and parts with
it to a third person, not the buyer, and that third person, by possession of
the bill of lading, gets the goods, the buyer is held not to have the property
so as to enable him to recover from the third party, notwithstanding that the
act of the seller was a clear breach of the contract." Ss. 23 and 25 of
the Indian Sale of Goods Act are identical in language to the corresponding
provisions of the English Sale of Goods Act.
S. 25 states as follows :
"(1) Where there is a contract-for the
sale of specific goods or where goods are subsequently appropriated to the
contract, the seller may, by the terms of the contract or appropriation,
reserve the right of disposal of the goods until certain conditions are
fulfilled. In such case, notwithstanding the delivery of the goods to a buyer,
or to a carrier or other bailee for the purpose of transmission to the buyer,
the property in the goods does not pass to the buyer until the conditions
imposed by the seller are fulfilled.
(2) Where goods are shipped and by the bill
of lading the goods are deliverable to the order of the seller or his agent,
the seller is prima facie deemed to reserve the right of disposal.
. . . . ." On behalf of the appellant it
was contended that the goods were shipped "on account and at the risk of
Messrs. Carona Sahu and Company (P) Ltd." and therefore the property in
the goods must be held to have passed to the appellant on shipment in Cochin.
We do not think there is any substance in this argument. The endorsement in the
invoice merely indicated that the insurance charges were to be paid by the
appellant and the clause has no bearing on the question of the passing of
title. In Shepherd v. Harrison(1) the plaintiff in England sent an order to P
and Co. at Pernambuco to buy cotton for the plaintiff. P and Co. bought cotton
on account of the plaintiff and made out an invoice "on account and risk
of M/s. John Shepherd & Co." (1) 1871 L.R. (V) H.L. 11 6.
850 but the bills of lading were taken
deliverable to P and Co.'s order or assigns paying freight. The invoice was
sent directly to the plaintiff but the bills of lading were endorsed in blank
by P and Co. and sent with the bill of exchange to their own agents in England.
The English agents forwarded the bills of lading with the bills of exchange to
the plaintiff requesting him to accept the bill of exchange.
The plaintiff retained the bill of lading but
returned the bill of exchange unaccepted on the ground that P and Co. had not
complied with the plaintiff's order. The plaintiff then presented the documents
to the defendants who refused to deliver the cotton in view of the instructions
from the agents of the consignor. On these facts, it was held by the House of
Lords that the property in the goods did not pass to the plaintiffs although
they had retained the bill of lading because no property was intended to pass
until the plaintiff had accepted the bills of exchange. It was strongly argued
for the plaintiff that the goods were shipped on account and at the risk of the
consignees, but the House of Lords unanimously dismissed the appeal holding
that the property in the goods did not pass to the purchaser either in
Pernambuco or in Liverpool. Dealing with the argument that the transfer of risk
was an indication of the transfer of property, Lord Cairns held as follows
"In the invoice, the goods are described as being shipped on account and
at the risk of the plaintiff. But along with the invoice, a bill of lading was
taken from the Captain, making the cotton deliverable, not to the plaintiff,
but to the shipper on board. It is perfectly well settled that, in that state
of things, the entry upon the invoice, stating that the goods are to be shipped
on account and at the risk of the consignee, is not conclusive but may be
overruled by the circumstance of the jus disponendi being reserved by the
shipper through the medium of the bill of lading." Applying this principle
to the present case, we are of the opinion that the High Court rightly held,
upon the facts found, that the property in the rubber consignment passed to the
appellant in the State of Bombay.
We pass on to consider the second question of
law arising in this case-whether the purchase tax under S. 10(a) was leviable
in respect of the purchases in dispute. It is necessary at this stage to
reproduce the relevant provisions of the Bombay Sales Tax Act, 1953 as it stood
at the material time. Section 2(6) of the Act defines a "dealer" as
meaning any person who carries on the 851 business of selling or buying goods
in the pre- Reorgansiation State of Bombay excluding the transferred
territories, whether for commission, remuneration or otherwise and includes a
State Government which carries on such business and any society, club or
association which sells goods to or buys goods from its members. Section 2(11)
defines a "registered dealer" to mean a dealer registered under s. 11
or deemed to be a registered dealer under s. 12-B. According to s. 2(13)
"sale" means a sale of goods. made within the pre-Reorganisation
State of Bombay, excluding the transferred territorie's for cash or deferred
payment or other valuable consideration and includes any supply by a society or
club or an association to its members on payment of price or fees or
subscription, but does not include a mortgage, hypothecation, charge or pledge.
Section 6 of the Act is to the following
effect "(1) Subject to any rules made under S. 18-B there shall be paid by
every dealer who is liable to pay tax under this Act- (ia) sales tax or
purchase tax on his sales or purchases in accordance with the provisions of
section 7-A (a) a sales tax on his sales levied in accordance with the
provisions of section 8, (b) a general sales tax on his sales levied in
accordance with the provisions of section 9, and (c) a purchase tax on his
purchases levied in accordance with the provisions of section 10, (d) a tax on
his purchases levied in accordance with the provisions of section 10- AA.
(2) The tax payable by a dealer under any
clause of sub-section (1) shall be paid in addition to the tax or taxes, if
any, payable by such dealer under any other clause or clauses of the said
sub-section." Section 10(a) states as follows :
"10. Subject to the provisions of
section 7, there shall be levied a purchase tax on the turnover of purchases of
goods specified in column 1 of Schedule B at the rates, if any, specified
against such goods in column 4 of the said schedule,- (a) where such goods are
purchased from a person who is not a registered dealer;" 852 Section 10-C
"In the case of such goods as may be
specified by the State Government by notification in the Official Gazette from
time to time, which have been despatched or brought from any place in India
outside the State of Bombay and are actually delivered as a direct result of a
purchase to a buyer in the State of Bombay for consumption therein, there shall
be paid by such buyer on such purchase an outside goods purchase tax levied at
such rate not exceeding twenty-one pies in the rupee as may be specified in
such notification, unless the buyer produces a declaration made by the seller
of such goods in the prescribed form certifying that the seller is a registered
dealer and shall pay the tax on such sale in due course :
Provided that no such tax shall be levied on
the purchase of any goods by a registered dealer if after the purchase the
goods are sold by him or used by him in the prescribed manner in the
manufacture or processing of any goods for sale." It is argued by Mr.
Donde that the term "person" in s. 10(a) should be read as meaning a
dealer who carries on business in Bombay but who is not registered under the
Act. In other words, it is contended that the person referred to in s. 10(a)
must be a dealer within the definition of s. 2 (6) of the Act but who is not
registered either because he failed to get himself registered or because his
turnover is less than the specified limit. We are unable to accept the argument
put forward by Mr. Donde as correct. We see no reason for placing any
limitation or qualification on the term "person" which occurs in s.
10 (a). There is nothing in the context or language of the section for
importing any qualification on the plain meaning of that expression. That
section plainly states that purchases made by a dealer from a person who is not
a registered dealer will be subject to purchase tax. The appellant is a dealer
and it has made the purchases in question from the sellers who are not
registered dealers. The provisions of s. 10(a) of the Act are satisfied in the
present case and the purchases in question accordingly are liable to tax.
The next contention of Mr. Donde is that the
provisions of S. 10(a) cannot apply to transactions of purchase where the
purchased goods have been brought from outside the State of Bombay for
consumption in that State because s. 10-C of the Act would apply to such
transactions. We do not think there is any warrant 853 in this argument. S.
10-C reproduces the Explanation to Art. 286(1)(a) of the Constitution and it
would apply where under general law the sale takes place outside the State but
the goods are delivered as a direct result of the sales for consumption within
the State of Bombay. The buyer referred to in s. 10-C need not necessarily be a
dealer under the Act, because so far as the dealers are concerned they are only
liable to three types of taxes, viz., sales tax, general tax and purchase tax,
enumerated in s. 6 which is the charging section. On the other hand. s. 10-C
applies to a "buyer" who brings into the State of Bombay goods which
are notified in the Official Gazette. It should also be noticed that s. 10-C
deals only with certain specific goods to be notified by the State Government,
whereas s. 10(a) includes all purchases made from persons other than registered
dealers. It is manifest that the scope and ambit of these two sections are different.
We are of opinion that Mr. Donde is unable to make good his submission on this
aspect of the case and the High Court has rightly answered this question of law
also in favour of the State and against the assessee.
For the reasons expressed, we hold that this
appeal fails and must be dismissed with costs.