State of Tamil Nadu Vs. Sri Srinivasa Sales
Circulation  INSC 1252 (4 October 1996)
Bharucha, Faizan Uddin Faizan Uddin, J.
4TH DAY OF OCTOBER, 1996 Presents;
Mr.Justice S.P.Bharucha Hon'ble Mr. Justice Faizan Uddin V. Krishnamurthy and
A. Mariarputham, Advs. for the appellant. R. Mohan, Sr.Adv., R.Nedumaran, V.G. Pragasam,
R.A. Perumal, K.R. Choudhary and R.K. Sharma, Advs. with him for the
following Judgment of the Court was delivered:
State of Tamil Nadu V. Sri
Srinivasa Sales Circulation (With Civil Appeal Nos.12778-84/96, 12785-87/96) Arising out (WITH C.A.No.
8605/83, 2322-23/80, 4101/84 and/SLP (C) Nos.300-306/81, 6932-34/80, C.A. No. 3328/80)
common questions of law and facts arise for our consideration in these appeals
and special leave petitions, the same are being disposed of by a common
appeals and special leave petitions arise out of an order passed by the High
Court Of Madras in revision preferred by the respondent herein, under Section
38 of the Tamil Nadu General Sales Tax Act, 1959 thereinafter referred to as
the "Act") relating to certain transactions involved therein which
are sought to be taxed as sale.
we have to decide the nature of transaction in order to determines the
liability which is the question common to all these appeals and the special
leave petitions, we shall state the facts as they emerge out of the Civil
respondent assessee floated a scheme as detailed in the printed pamphlet, which
reads as follows:- "Please get a coupon of our company from your friend or
from the company by paying rupees five.
mark your address and any one article you require it back to the company.
receiving your coupon we will register it and send three coupons by V.P.L. for
Rs.15/- plus V.P.L. charges. Now you have to give the coupons to three persons
for Rs.5/- each and take the money for yourself and ask them to fill up the
coupons with their names and full address and send it to us. We will send to
each of your three parties three coupons each for Rs.15/- pluss postal charges
soon as the parties concerned clear the V.P.L s, you will receive from us the
article that you have mentioned in your coupon." Further, clauses 5 and 6
of the terms and conditions of the said scheme, which are also relevant for our
purposes, are reproduced hereunder:- "5. Any person sending M.O. or bank
draft for Rs.45/- along with coupon duly filled up will receive the article
that is mentioned in the coupon together with three sets of (9) coupons.
Coupons should be returned duly filled within three months of their receipt.
Coupons received after three months will not be attended to." The said
pamphlet containing the scheme further mentions 20 articles, one of which may
be marked in the coupon by the person or party who purchases the coupon by
paying Rs.5/-. The coupon referred to in the scheme is a printed order form
which is as follows:- "ORDER FORM" No. 17435 D. Regd.No.
SALES CIRCULATION (Regd.) No.11, Gandhi Street, Villivakkam, Madras- 49.
Sirs, As mentioned in your list of article No....... I request you to kindly
send me ......................your coupone by V.P.L., for the amount of
Rs.16-00 sent by me.
Yours faithfully, Date:- Signature Canvasser's signature " Thus, on
payment of a sum of Rs.5/- to the company and coupon is sent to the individual
concerned, and we assume that individual as A for the sake of convenience. Then
'A' sends back the same to the company duty up mentioning the number and name
of article in the blank spaces. On receipt of the said coupon / order form,
three order forms are sent to A, by V.P.L.for Rs.16/- and when the said V.P.L.
is cleared by A. he receives a further letter from the company acknowledging
the receipt of Rs.16/-. The said letter reads as follows:- "We are glad to
note that you have cleared the V.P.L. No. by paying Rs.16/- and thank you very
much for the same.
please sell three order forms to three members and take that money. Fill the
three forms (IN BLOCK LETTERS) and send them to us by Regd. Post. We will send
to each among three members containing three order forms in each V.P.L.s.,
paying Rs.16/-. If all of them clear the V.P.L.s.,paying Rs.16/- each, we will
send you the required article item No. by Registered Post." After receipt
of the three order forms / coupons. A delivers them to B,C and D after
collecting Rs.5/- from each of them which amount is appropriated by A himself.
Then, B, C and D in turn will either forward the coupons themselves to the
company or send the same through A after filling the blanks and mentioning the
name and description of article which is required by them. On receipt of these
three coupons / order forms, as aforesaid, from B,C and D, the company sends
three sets of three coupons each to B, C and D under V.P.L. for Rs.16/- and
inform A also of that facts in the printed form which reads as under :-
"We have received your three original order forms and the letter dated........and
thank you very much for the same. According to the rules of our firm today we
have sent 3 V.P.Ls. containing 3 order forms in each V.P.L., for Rs.16/- to
each among three members as addressed in that order forms. As soon as they
clear the V.P.Ls. by paying Rs.16/-each, we will send you the required articles
item no......... by registered parcel.
you please encourage them to clear the V.P.Ls.. by paying Rs.16/- each."
If B, C and D honour the V.P.Ls. and pay money, A then becomes entitled to the
article which he had chosen in his order form. That article is sent by the
company to A with a covering letter. The said letter reads thus :- "We are
very glad to note you have circulated our scheme by a time and thank you very
much for the same.
to your request today we have despatched your required article No.........by
V.P., insured parcel for Rs. towards the expenses of packing and postal charges
of the article. You please receive your article by paying Rs.........
write a letter to us about you opinion." According to the scheme floated
by the company, if any one of B,C and D does not honour the V.P.L. and decline
to receive the three coupons sent to them. A looses his right to receive the
article, though the other two who had honoured the V.P.L. will have a series in
their name if they are again able to sell, say to B1, B2 and B3, C1, C2 and C3
and so on and complete the circle. This way the claim of B and C would go on
and if there is no break, the claim goes on endlessly as a chain.
the Assessment Year 1967-68, the value of articles that were supplied by the
respondent company under the aforesaid scheme to various persons and customers
was to the tune of Rs. 1,36,655.00 while the purchase value of these articles
has been found to be Rs.1,03,709.25. The Assessing Officer took the view that
there was a sale of article to every person who had participated in the scheme
and as such turnover for the year 1967-68 from the value of articles supplied
to various person came tp Rs.1,36,665.00 which was liable to be taxed under
Section 3(1) of the Act.
Assessing Officer also imposed a penalty of Rs.6,149/- under Section 12(3) of
the Act for failure of not filling the return in form A-1. This order of the
Assessing Officer found favour with the Appellate Assistant Commissioner as
well as the Sales Tax Appellate Tribunal. The respondent assessee then went up
in revision before the High Court of Judicature at Madras. The HIGH Court of Madras took the
view that the transfer of article by the company was not for money
consideration alone and, therefore, it would be a sale at all. Consequently,
the High Court held that since the transactions involved in the scheme of the assessee
are not sale, the assessee are not liable to be taxed as sales under Section
3(1) of the Act and, therefore, allowed the revision, set aside the order of
the Assessing Officer, Appellate Assistant Commissioner and the Tribunal
against which these appeals and special leave petitions have been directed as
the orders in the connected appeals and the special leave petitions are based
on the orders and findings recorded by the High Court in T.C. No. 154 of 1971
(Revision No.85) - Sri Srinivasa Sales Circulation v. State of Tamil Nadu,
which is also reported in (1976) 38 S.T.C. 359.
learned counsel appearing for the appellant State, vehemently urged that in the
light of the facts found on record the disputed transactions were sales as
defined under Section 4 of the Sale of Goods Act and, therefore, the Assessing
Officer had rightly brought the same under the net of taxation under the
provisions of the Act. It was submitted that the High Court was not right in
holding that the title in the goods that passed to the customers was not right
in holding that the little in the goods that passed to the customers was not
under any contract or sale between the respondent and their customers and
strenuously urged that the tenor of the scheme clearly indicated that the title
in the goods passed to the customers pursuant to a contract of sale between the
respondent and their customers and the transaction was squarely covered by
Section 4 of the Sale of Goods Act. Contrary to this, the learned counsel
appearing for the respondent sought to support the impugned order for the
reasons assigned by the High Court and submitted that the transactions involved
in the scheme of the assessee are not liable to tax as Sales Tax under Section
3(1) of the Act.
be stated that in order to constitute a sale under the Sale of Goods Act, it is
essential to establish that there is an agreement between the parties for
transfer of title to the goods and that such agreement should be supported by
money consideration and as a result of the transactions the goods. article or
the property must actually pass to the purchaser. It is settled law that the
expression "sale" under the Sales Tax Act has to be understood with
reference to the definition of "sale of goods" under the Sale of
Goods Act. But if the title of the goods passes without any contract between
the parties, express or implied, there is no sale. Similarly if the
consideration of the transfer is not money, but some other valuable
consideration, it may amount to exchange or barter but not a sale in the strict
sense of the law for the purposes of taxation, we shall, therefore, examine
whether under the facts and circumstances of the present case the transfer of
article by the respondent assessee to its customers under the scheme floated by
it constitute a sale against payment of price of that article.
earlier in the foregoing paras of this Judgment, the coupon of the company is
sold to the customer A on payment of Rs.5/-. Whereafter, the customer A
receives three coupons for Rs. 16/- which he sells to three persons for Rs.5/-
each and appropriates the amount so received by himself. When each of the three
parties to whom the coupons to others namely B, C and D, one cycle is completed
and the customer A in turn receives the article of his choice as mentioned by
him in the coupon from the company. In this process, as stated earlier, the
company despatches a letter to its customer A advising him sell the three order
forms to three members and take that money himself. Not only this, the assessee
company further addresses a letter to the customer A in the printed form
conveying their thanks to him and that they have received three original order
forms and the letter, stating further that as soon as the V.P.Ls. are cleared
by paying Rs.16/- each, they will send him the required article by Registered
parcel. Thereafter, the company ultimately despatches the article of his choice
to the Customer A with a covering letter advising him to receive the article by
paying the stated amount. From these facts, it is clear that there may not be a
formal contract for sale and purchase of the article in any specific form, but
such a contract may be spelt out from the correspondence and interaction
between the parties, in the present case an implied contract between the
parties is spelt out when the company offers the coupon (s) against payment and
the article of the choice is ultimately sent to the customer for payment or
price which is accepted by the customer. There is thus offer and acceptance. If
the contents of the entire scheme, as reproduced above, are minutely looked in
to it substantially amounts to sale. We find that all the attributes,
characteristics and requirements of a sale are present in the transaction, in
fact the transaction is so designed and framed by the company by adopting a
circuitous method for sale of their goods which amounts to nothing out a sale,
and the same is liable to assessment under the Act. This view is further
strengthened from the fact that during the relevant assessment year the
respondent company sent articles to its various customers under the scheme of
the value of Rs.1,36,665.00, which were purchased by the respondent company for
a sum of Rs.1,03,709.25 and, thus, earned a profit to the tune of Rs.32,955,75.
The business so run by the respondent is with a view to earn profit out of the sale
by adopting a circuitous device with a view to evade the payment of tax. In our
considered opinion, the High Court, therefore: was not justified in taking the
view that it was not a sale transaction assessable to tax.
we allow the appeals by setting aside the impugned orders passed by the High
Court and restore the order of the Assessment Officers and the Sales Tax
Appellate Tribunal. But in the facts and circumstances of the case, we make no
order as to costs.