State of Mysore Vs. Guduthur Thimmappa
& Son, & ANR  INSC 193 (30 September 1966)
30/09/1966 BHARGAVA, VISHISHTHA BHARGAVA,
VISHISHTHA SHAH, J.C.
CITATION: 1967 AIR 1131 1967 SCR (1) 627
D 1974 SC 175 (11)
Madras General Sales-tax (Turnover &
Assessment) Rules, 1939, r. 4-A (iv)(b)-Sale to non-resident-Delivery to common
carrier within State and insurance by buyer-Property if passes within
State-Last dealer, who is-Location of dealer if material.
Rule 4A(iv)(b) of the Madras General
Sales-tax (Turnover and Assessment) Rules, 1939 lays down that tax has to be
levied from the dealer who buy-, cotton in the State and is the last dealer not
exempt from taxation. Sale-&-tax was sought to be recovered from the
respondents on cotton purchased by them within the State and sold to persons
who were non- resident within the area to which the Madras Sales-tax Act, 1939
applied. The non-resident buyers never entered the State either for entering
into contracts for the sale or for taking delivery. The delivery was given
within the State to the common carrier, and the non-resident buyers insured the
goods as owners thereof and transmitted them to destination.
The respondents' plea that since the goods
were sold by them within the State to non-residents, they were not the last
dealers not exempt from taxation, was accepted by the Sales-tax Appellate
Tribunal and the High Court. In appeal to this Court the appellant-State
contended that (i) on the facts the respondents were the last dealers not
exempt from taxation and (ii) a buyer who was not resident within the area to
which the Act applied could not be held to be the last dealer for the purpose
of the Rule.
HELD : (i) The contention had no force. The
common carrier took delivery as agent of the buyer and the delivery was within
the State. There was the further circumstance that, during transit, the goods
were insured by the buyers at their own cost, and not by the respondents. The
buyers thus recognised that they were already the owners of the goods as soon
as they were given for transmission to the common carrier. [630 E] The movement
of the goods outside the State was by the buyers themselves after property in
them bad passed to them;
so, the sales in question were not sales in
the course of inter-State trade. [631 C] Tata Iron and Steel Co. Ltd., Bombay
v. S. R. Sarkar & Ors.
 1 S.C.R, 379, referred to.
(ii) Under the Rule the location of the
dealer buying it was immaterial. Therefore the non-resident buyers were the
last-dealers who bought it in the State and tax had to be levied from them.
[631 G-H] State of Andhra Pradesh v. M/s. Abdul Bakhi & Bros. A.I.R.
1965 S.C. 531, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 714-724 of 1965.
Appeals by special leave from the judgment
and order dated January 29, 1962 of the Mysore High Court in-Civil Revision 628
Petitions Nos. 1169 to 1176 of 1958 and 841, 842 and 865 of 1959 respectively.
R. Ganapathy Iyer and R. N. Sachthey, for the
appellant (in .all the appeals).
R. Gopalakrishan, for the respondents (in all
The Judgment of the Court was delivered by
Bhargava, J. These appeals arise out of proceedings for assessment of sales-tax
under the Madras General Sales Tax Act No. IX of 1939 (hereinafter referred to
as "the Act") in respect of certain sales of cotton. The respondents
were registered dealers in cotton, including kappas, groundnuts and cotton
seeds with their Head Office at Bellary and Branch Offices at a number of
places. They were also licensees under s. 8 of the Act in respect of cotton.
They made various purchases of cotton at their places of business and
subsequently sold them to different parties. Amongst these were a number of
persons who were not resident within the area to which the Act applied. The
question arose as to who was liable to pay the sales-tax in respect of those
transactions of sale of cotton in which the cotton had been sold by the
respondents to non-residents. When the case came up before the Mysore Sales
'Tax Appellate Tribunal, the Tribunal determined the course of transactions and
held as follows :
"The examination of the contracts, the
invoices, the railway receipts, insurance policies and other documents relating
to the disputed turnovers shows that the nonresident foreigners place orders
for the required number of bales of cotton specifying the quality and the rate
some times on phone which would be confirmed subsequently by Telegrams or
letters and finally by written agreements. Thereupon, the appellants consign
the cotton bales in their own name, the consignee being the nonresident foreign
buyers (except in respect of a total turnover of Rs. 2,93,567-2-0 which would
cover the items 1, 3, 5, 7, 31, 32, 33 and 44 of the typed statement of the account
for the year 1954-55 and a total turnover of Rs. 3,71,880-13-0 which would
cover the items 6, 10, 11, 12, 13, 14, 15, 16, 24, 25, 26, 29, 30, 31, 35, 36
and 37 of the typed statement of account for the year 1955- 56) and send the
railway receipts to their bankers at the other end for the collection of the
amount. It is seen that notwithstanding the fact that there are specific
provisions in the contract that 90 per cent of the invoice amounts should be
paid to the bankers when the railway receipts would be delivered to the
purchasers, surprisingly the said provision is rendered nugatory by reason of
the fact that the 629 appellants despatch the cotton in such a way that the
consignee could get cotton bales at the other end even though without any payment
to the banker. The moment the appellants consigned the goods, they will have
lost complete control and dominion over the cotton thus despatched.
Further, non-resident foreign buyers who
obtained the necessary transport permit under the Cotton Control Order, 1950,
actually insure the cotton bales as the owners thereof and transmit the same
from Bellary to the destination. This is so even in cases where the appellants
themselves have consigned the goods in their own name, the consignees being
themselves. All these facts clearly go to show that the sales are completed at
Bellary and the non-resident foreign buyers in whose favour the property in the
goods had been transferred actually transported the cotton thus purchased.
The State Representative does not seriously
dispute about the correctness of the modus operandi of the appellants in their
dealings with their purchasers during five years of assessments. Bearing these
facts in mind, we shall now proceed to examine each of the contentions raised
by the learned counsel." On these facts, the question that fell for
determination was whether for purposes of s. 5(2) of the Act read with Rule 4-
A(iv) (b) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939
(hereinafter referred to as "the Rules"), the respondents were the
dealers who bought the cotton in the State and were the last dealers not exempt
from taxation under s. 3(3) of the Act on the amount for which the cotton was
bought by them. The contention on behalf of the respondents was that the cotton
was sold by them within the State of Madras to parties who were residing
outside the State of Madras ; but the sales having been made by them within the
State of Madras, they could not be held to be dealers who bought the cotton in
the State and were the last dealers for that purpose not exempt from taxation.
According to their contention, the parties,
to whom they sold the cotton within the State, were the persons liable to be
taxed in accordance with s. 5(2) of the Act and Rule 4- A(iv)(b) of the Rules.
The Tribunal accepted this plea of the respondents, allowed the appeals, and
set aside the orders of the subordinate authorities directing payment of
sales-tax by the respondents. That order was upheld by the High Court of Mysore
when the revisions against the orders of the Tribunal came up for decision
before it. These appeals before us coming up by special leave are directed
against the above order of the High Court. We may mention that the revisions
came up before the High Court of Mysore, because the area, in respect of which
the dispute arose, was originally within the State of Madras, but, on
Reorganisation of States, came within the State of Mysore.
The law applicable to sales in the year 630
in question, however, continued to be the Madras Sales Tax Act IX of 1939, and
that area came to be designated as Madras Area of the State of Mysore.
In these appeals, two points were canvassed
before us by learned counsel for the State of Mysore. At the initial stage,
learned counsel for the State indicated that he did not intend to challenge the
finding that the situs of the sales in question were all within the Madras area
; but at a later stage, he challenged this finding as the second alternative
point in support of these appeals. We may deal with this point first.
The course of transactions found by the
Tribunal, reproduced above, led the Tribunal and the High Court to the finding
that the situs of the sales by the respondents to the non- resident parties was
in Bellary where the sales were completed and delivery also took place. The
submission by learned counsel for the appellant was that none of those parties
themselves came within the State to Bellary either for the purpose of entering
into contracts for sale, or for purposes of taking delivery. Delivery was given
to common carrier, and consequently, it should be held that the sales were
completed not within the State, but outside at the places to which the goods
were consigned for delivery to the various parties. We are unable to accept
It has been rightly held by the High Court
that the common carrier took delivery as agent of the buyer and that delivery
was within the State. There is the further circumstance that, during transit,
the goods were insured by the buyers at their own cost, and not by the
The buyers thus recognised that they were
already the owners of the cotton bales as soon as they were given for
transmission to the common carrier.
In this connection, a question also arose
whether the sales by the respondents to those non-resident parties were sales
in the course of inter-State trade. What are the sales in the course of
inter-State trade was explained by this Court in Tata Iron and Steel Co.
Limited, Bombay v. S. R. Sarkar and Others (1), where clauses (a) & (b) of
s. 3 of the Central Sales Tax Act, 1956 were interpreted as follows :
"In our view, therefore, within cl. (b)
of s. 3 are included sales in which property in the goods passes during the
movement of the goods from one State to another by transfer of documents of
title thereto ; cl. (a) of s. 3 covers sales, other than those included in cl.
(b), in which the movement of goods from one State to another is the result of
a covenant or incident of the contract of sale, and property in the goods
passes in either State." (1)  1 S.C.R. 379.
631 The nature of transactions found by the
Tribunal in the cases before us shows that property in the cotton bales sold by
the respondents did not pass during the movement of goods from one State to
another by transfer of documents of title, and, further, that the movement of
goods from the Madras area to places outside the State was not the result of
any covenant or incident of the contract of sale. The contract of sale was
completely carried through within the Madras area itself, in which area the
price was received by the respondents and the cotton bales were delivered to
the buyers. The movement of the cotton bales outside the State was by the
buyers themselves after property in them had passed to them, so that these
sales were not sales in the course of inter-State trade.
We now come to the second and the main point
which was urged before us by learned counsel for the appellant. The sub-
mission of learned counsel was that a buyer, who was not resident within the
area to which the Act applied, could not be held to be the last dealer for
purposes of Rule - 4- A(iv)(b) of the Rules. According to him, it is the situs
of the seller and the buyer which determines the applicability of this Rule,
and not the situs of the sale of cotton itself. We are unable to accept this
submission. The language of the Rule is clear that the tax is to be levied from
the dealer who buys it in the State and is the last dealer not exempt from
taxation. The test laid down thus is as to who buys it in the State and not who
is in the State for purposes of buying the cotton. The Mills outside the State
were no doubt carrying on their main business of manufacture of yarn or cloth
outside the State; but so far as the act of purchase of these cotton bales was
concerned, it was carried out by them within the State. It is to be noticed
that in the Rule the expression used is "the dealer who buys it in the
State and is the last dealer not exempt from taxation". If the intention
had been that the location of the buyer himself should be the criterion for
imposing tax on him, the language used in the Rule would have been quite
different. It could easily have been laid down that the tax will be levied from
the dealer in the State who buys it as the last dealer not exempt from
taxation. The expression as used in the Rule makes it perfectly clear that the
location of the dealer himself is immaterial. The liability to be taxed attaches
if the purchase itself by the dealer is within the State. In the case of the
sales in question, therefore, the buyers who purchased the cotton bales from
the respondents were the last dealers who bought those cotton bales in the
State and the single point tax under S. 5(2) of the Act had to be levied from
them and not from the respondents.
In this connection, an alternative argument
was also raised for the first time by learned counsel for the appellant that
those 6Sup.C.I./66-12 632 outside buyers could not be held to be dealers
carrying on the business of purchase in the State, and if they were not
dealers, the purchases by them had to be ignored, so that the last buyers in
the State would be the respondents, because their purchases would be the last purchases
by dealers made when they acquired these cotton bales subsequently sold by
them. This contention was not raised at any earlier stage before the Tribunal
or the High Court, and it is, therefore, not open to the appellant to urge it
before this Court for the first time. In any case, it is clear that the outside
buyers were all mills which were purchasing cotton bales for use in their
manufacturing process and such purchases by them would amount to purchases of
raw materials for their business. Purchases of this nature have already been
held by this Court to constitute the business of purchase by the buyers in The
State of Andhra Pradesh v. M/s. H. Abdul Bakshi and Bros.(').
Consequently, this ground raised has also no
force. The appeals fail and are dismissed with costs. 'One hearing fee only.
Y. P. Appeals dismissed.
(1)  7 S.C.R. 664: A.I.R. 1965 S.C.