M/S Dcm Limited Vs.
Commr.of Sales Tax, Delhi  INSC 439 (27 February 2009)
Judgment ) SUPREME
COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No.1323 of 2009 @ SLP(C) No.
20624/2007 M/s DCM Limited .. Appellant(s) Versus Commissioner of Sales Tax,
Delhi .. Respondent(s) WITH Civil Appeal No.1324 of 2009 @ SLP(C) No. 20654/2007
Civil Appeal No.1325 of 2009 @ SLP(C) No. 20655/2007 Civil Appeal No.1326 of
2009 @ SLP(C) No. 20693/2007 Civil Appeal No.1327 of 2009 @ SLP(C) No.
20750/2007 DATE : 27/02/2009 These matters were called on for pronouncement of
For Appellant(s) Mr.
Praveen Kumar, Adv.
For Respondent(s) Ms.
Ms. Sadhana Sandhu,
Mr. D.S. Mahra, Adv.
--- Hon'ble Mr.
Justice S.H. Kapadia pronounced the judgment of the Bench comprising his
Lordship and Hon'ble Mr. Justice H.L. Dattu.
The appeals are
dismissed with no order as to costs in terms of the signed judgment which is
placed on the file.
[ S. Thapar ] [ Madhu
Saxena ] PS to Registrar Court Master [ Signed reportable judgment is placed on
the file ] REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE
JURISDICTION CIVIL APPEAL NO. 1323 OF 2009 (Arising out of S.L.P.(C) No.20624
of 2007) M/s. DCM Limited ... Appellant (s) Versus Commissioner of Sales Tax,
Delhi ... Respondent(s) WITH
Civil Appeal No. 1324 of 2009 - Arising out of S.L.P. (C) No.20654 of 2007
Civil Appeal No. 1325 of 2009 - Arising out of S.L.P. (C) No.20655 of 2007
Civil Appeal No. 1326 of 2009 - Arising out of S.L.P. (C) No.20693 of 2007
Civil Appeal No. 1327 of 2009 - Arising out of S.L.P. (C) No.20750 of 2007
S. H. KAPADIA, J.
short question which arises in this batch of civil appeals is : whether the
taking of the delivery of chemicals in Delhi by the purchasing dealers, in the
context of they being the distributors/stockists of the assessee (appellant),
for the assigned territories outside Delhi would take away the transaction in
question from the category of sale inter-State sale(s)? Facts in Civil Appeal
No. of 2009 - arising out of S.L.P. (C) No.20624 of 2007 REPORTABLE
the assessment year 1974-75 the dealer, M/s. DCM Ltd., claimed exemptions on
account of the following sales made to the registered dealers:
Assessing Authority vide Order dated 28.3.1979 did not grant exemption in
respect of the above-mentioned sales on the ground that the three
above-mentioned purchasing dealers had been assigned specific territories,
under the Contract(s), outside Delhi and that they were under contractual
obligations with M/s. DCM Ltd. to supply goods to the specified dealers who
were also named by M/s. DCM Ltd. on a price fixed and determined by M/s. DCM
Ltd. According to the said order, even the quantity of chemicals stood
determined by M/s. DCM Ltd.
According to the
Assessing Authority, under the above circumstances, the said chemicals meant
for inter-State sales, however, to avoid liability under the Central Sales Tax
Act, 1956, the transaction was shown by the assessee (appellant - M/s. DCM
Ltd.) as a "local sale". Accordingly by the said order dated 28.3.79,
the said sales were taxed at 10% under the said 1956 Act.
by the assessment order dated 28.3.1979, appeals were preferred by M/s. DCM
Ltd. before Addl. Commissioner who dismissed the appeals vide his order dated
14.12.79 on the ground that the transaction(s) in question were inter-State
sales. According to M/s. DCM Ltd., the sales were "local sales" as
the said chemicals stood sold in Delhi itself. However, the Appellate Authority
observed that the assessee should be given an opportunity to produce `C' Forms
in respect of the sales in question and accordingly it remanded the case on the
limited point to the Assessing Authority to give an opportunity to M/s. DCM
Ltd. to produce the `C' REPORTABLE Forms.
by the decision of the Appellate Authority, the assessee filed appeal(s) before
the Appellate Tribunal which held that each of the three registered/purchasing
dealers were distributors who had executed Agency Agreement(s) with the
assessee. According to the Tribunal, some of the clauses of the said
Agreement(s) indicated that all supplies were to be made ex-works of the
assessee. Under the said Agreement(s), the purchasing dealers were required to
take local delivery at the factory gate. Under the said Agreement(s), the
purchasing dealer(s) were required to store the said chemicals in their own
godowns in Delhi.
Under the said
Agreement(s), however, the assessee had to fix the price(s) at which the
chemicals were to be sold in the different assigned territories outside Delhi.
Accordingly it was
held by the Appellate Tribunal, under the facts and circumstances of this case,
that under the said Covenant of Agency, since the chemicals were to be sold in
the assigned territories outside Delhi, the transaction(s) was inter-State
sale(s). In this connection, the Appellate Tribunal placed heavy reliance on
clauses 3 & 7 of the said Agreement(s). The Appellate Tribunal once again
directed the Assessing Authority to give one more opportunity to the assessee
to produce the requisite `C' Forms in respect of the sales made to the said
three registered/purchasing dealers.
by the decision of the Appellate Tribunal, however, the assessee approached the
High Court of Delhi by filing an application for reference under Section 45(1)
of Delhi Sales Tax Act, 1975. The question referred to the High Court
REPORTABLE was : whether the Sales Tax Tribunal was right in holding that the
said sale(s) was an inter-State sale(s)? Vide impugned judgment dated 3.7.07,
the High Court held that the sales were inter-State sales falling under Section
3(a) of the said 1956 Act.
Accordingly, the High
Court directed the assessee to adduce evidence before the Assessing Authority
to show that the chemicals were locally sold by the purchasing dealer and that
they were not transferred to branches outside Delhi or sold in the territories
outside Delhi. Against the said Order, however, the assessee has approached
this Court by way of special leave petition(s).
this case great emphasis is placed by the assessee on the fact that all
supplies were made ex-works of the of the assessee and that the above three
registered purchasing dealers (distributors/stockists) had taken local
deliveries at the factory gate and had arranged to store the chemicals in their
own godown(s) in Delhi, both in terms of the contract and in fact.
the main question which arises for determination in these civil appeals is :
whether the taking of the delivery in Delhi by the purchasing dealers for their
assigned territories outside Delhi would take away the transactions in question
from the category of inter-State sale? Relevant clauses of the Agreement
"1. Territory (a) Whole of U.P. excepting towns/districts of Kanpur,
Lucknow, REPORTABLE Azamgarh, Ghaziabad, Hapur, Gorakpur, Faizabad, Pilakuwa.
(b) Ganesh Flour
Mills and Birla Mills, Delhi excepting supplies to:
(a) Our sister
Semi-Govt. Department (c) Other bulk consumers and Parties to whom we may
decide to give effect supplies.
2. Period This
agreement shall be effective from 1.11.73 to 31.12.73. In the event of a breach
of any of the terms of the agreement on either side, this agreement shall be
liable to cancellation by either party on tendering one month's notice.
3. Delivery All supplies
will be made on ex-works and you shall take local delivery of the goods at
factory gate and shall arrange to store the same in your godown in Delhi.
In the event of you
desiring us to transport the goods to your territory outside Delhi, you would give
us freight charges and also be liable for Central Sales Tax.
4. Shortage Losses
Damages in Transit The basis of billing and payment for each supply shall be
the weight shown in the relative challan and we shall not be responsible for
any shortage/losses/damages in transit after the goods have been loaded to the
satisfaction of the Railway authorities/Carriers.
5. Selling Rates
REPORTABLE These will be fixed by us from time to time taking into
consideration cartage and other incidental charges and you will not be entitled
to charge higher rates.
6. Sales of Products
of other Manufacturers During the period of this agreement, you shall not deal
directly or indirectly in the sale of any identical products of other
7. Agency Security
Deposit You shall give us a security deposit of Rs.2,000/- to ensure the due
fulfillment of the agreement. This deposit shall carry interest at the rate
prevailing from time to time, which will be 1% less than the Bank rate. This
deposit shall be liable to forfeit in part or in full at our discretion in the
event of breach of the terms of agreement."
S.K. Bagaria, learned senior counsel appearing on behalf of the assessee
(appellant), submitted that the sales effected by the assessee to its
purchasing dealers (distributors) were "local sales" and the said
sales did not occasion movement of goods from Delhi to other States. He further
submitted that the purchasing dealers were registered dealers under the Local
Act. They were also registered dealers under the said 1956 Act. According to
learned counsel, the dealers had purchased the goods locally from the assessee
in Delhi on the strength of their registration certificates by issuing
prescribed declarations under the Local Act and, therefore, the said purchases
were local purchases in the hands of said dealers.
According to learned
counsel, after purchasing the goods in Delhi and getting delivery ex-works at
the factory of the appellant, the purchasing dealers had stored REPORTABLE the
goods in their godowns in Delhi. According to learned counsel, the purchasing
dealers were selling the goods purchased from the appellant either by making
local sales in Delhi or by making inter-State sales to their own buyers outside
Delhi or by making branch transfers to their own branches outside Delhi.
counsel next contended that a local sale cannot be deemed to take place in the
course of inter-State trade or commerce simply because the buyer (purchasing
dealer) has been assigned a territory. According to learned counsel, Section
3(a) of the 1956 Act creates a deeming fiction. It provides that a sale or
purchase shall be deemed to take place in the course of inter-State trade or
commerce if the sale or purchase occasions movement of goods from one State to
another. Thus, according to learned counsel, in order to be covered by Section
3(a), the sale in question itself must occasion movement of goods from one
State to another. According to learned counsel, Section 3(a) is not attracted
merely because the purchasing dealer(s) has been assigned a territory outside
the local area.
According to learned
counsel, assignment of territory is different from a sale occasioning movement
of goods. Mere assignment of territory by itself, according to learned counsel,
does not mean that the sale by the assessee to the dealer(s) occasioned the
movement of goods to the assigned territories. According to learned counsel,
the goods in question were sold locally in Delhi by the appellant. According to
learned counsel, appellant was not concerned with subsequent sale(s). According
to learned counsel, in the present case, the purchasing dealer(s) had no
obligation to occasion the movement of goods to the assigned territories
pursuant to or as an incident of the appellant's sale to them. According to
learned counsel, the appellant REPORTABLE has sold the goods locally to the
purchasing dealers who were free to sale the goods to their own buyers in the
assigned territories in either of the three ways, mentioned above. There was no
bar or restriction on the purchasing dealers on selling the goods in any of the
three modes, mentioned above. Learned counsel further submitted that under
clause 3 of the said Agreement it was made clear that in the event of the
purchasing dealer(s) desiring the assessee to transport the goods to their
assigned territories outside Delhi they would pay the freight charges and also
be liable to for Central Sales Tax and in such cases the appellant's sale(s) to
the purchasing dealer(s) would be sale(s) in the course of inter-State trade or
According to learned
counsel, the Agreement in question did not cast any obligation upon the
purchasing dealer(s) to sell the goods only in the assigned territories.
According to learned
counsel, the various clauses in the Agreement relating to the selling rates
were normal commercial clauses which clauses had nothing to do with the issue
as to whether the sale(s) made by the appellant to its purchasing dealers
locally against the declaration forms submitted by them and such clauses did
not purport to make such local sale(s) into inter-State sale(s). In support of
his contention learned counsel placed reliance on number of judgments of this
the other hand, Mr. Ashok Panda, learned senior counsel appearing on behalf of
the Department, submitted that in view of the judgment of the Constitution
Bench of this Court in the case of State of Bihar v. Tata Engineering & Locomotive
Co. Ltd. - (1970) 3 SCC 697, the sales in question in the present case were
inter-State sales. Learned counsel submitted that the judgment of this Court in
Tata Engineering (supra) is squarely applicable to the present case. In this
REPORTABLE connection, learned counsel invited our attention to various clauses
in the said Contract (Agreement) by which specific territory stood assigned to
the purchasing dealer(s) coupled with an obligation by the purchasing dealer(s)
to move the goods to the assigned territory. Under the Contract, according to
the learned counsel, the appellant had complete control over the purchasing
dealer(s) coupled with the fact that the territories were specifically assigned
to protect the continuing commercial interest of the appellant. According to
learned counsel, assignment of territory under the Contract was to avoid
competition between the distributors. According to learned counsel, on reading
the entire Contract, the position was clear that the assignment of territory
stood coupled with an obligation of moving the goods by the purchasing dealer(s)
to the assigned territories for sale therein. Learned counsel submitted that
each of the assigned territories were located outside Delhi. Learned counsel
also placed reliance on the judgment of this Court in the case of Union of
India and Another v. K.G. Khosla & Co. Pvt. Ltd. & Others - (1979) 2
SCC 242, in which it has been held that if a contract contains a stipulation
for movement of goods then the sale would be an inter-State sale. It has been
further held that such a transaction could also be an inter-State sale even if
the contract did not expressly provide for the movement of goods but in fact
such movement took place consequent upon a covenant in the contract or as an
incident of that contract.
According to learned
counsel, both the aforestated judgments in the cases of Tata Engineering &
K.G. Khosla (supra) were applicable to the facts of the present case and,
therefore, no interference was warranted in the impugned judgment.
main contention advanced on behalf of the assessee before us was that sales
having been made in Delhi, ex-works of the assessee and thereafter the
chemicals having been stored in the godowns of the purchasing dealers in Delhi,
the transactions were local sales and not inter-State sales.
short point which we have to decide in this batch of civil appeals is: whether
the movement of chemicals was under the obligations, indicated in the contract,
or whether such movement was due to reasons extraneous to such obligations?
our view taking of delivery in Delhi by the purchasing dealers for their
assigned territories outside Delhi per se would not take away the transactions
in question from the category of inter-State sales. The determinative test to
be applied in this case is: whether the purchasing dealers were obliged
contractually to remove the goods from Delhi, in which they were bought, to the
assigned territories and whether in fact the goods stood actually removed. It
is this test that would decide the question as to whether the sales in question
were "inter-State sales" or "local sales". To answer the
above question we need to examine the entire Contract(s).
Contract(s), each purchasing dealer(s) was assigned an exclusive territory.
Each dealer(s) was obliged to take the chemicals to his respective territory
outside Delhi where they were to be sold. Despite the fact that the delivery of
the goods was taken in Delhi, the purchasing dealer(s) had to move the goods to
the respective assigned territories outside Delhi and it was the essential
condition of the contract itself that the chemicals would move out of Delhi and
would be sold in the REPORTABLE assigned territories allotted to each of the
respective purchasing dealers. The covenant in the Contract obliged each of the
purchasing dealers to move the goods to the territories outside Delhi. In fact
in clause 3 there was a proviso that if on instructions from the purchasing
dealer, the assessee was required to transport the goods, the freight charges
would have to be paid by the distributor as a purchasing dealer and that the
purchasing dealer would also be liable for sales tax. No evidence has been led
by the assessee as to the exact quantity of chemicals which stood removed under
this clause and the reimbursement, if any, of tax and freight being made to the
assessee. Clause 7 of the Contract also indicates that the chemicals were to be
sold in the territories outside Delhi. The assignment of specific territories
is indicated in clause 1. Under the Contract, the purchasing dealer(s) was
required to submit monthly stock of sales to the assessee. Every month, the
purchasing dealer was required to submit a market report to the assessee. Under
the Contract, the price at which the chemicals were to be sold in different
territories was also fixed by the assessee. Each purchasing dealer had executed
separate contract(s) with the assessee. On reading the Contract we find that
movement of the goods was the covenant of the Contract. In the circumstances,
we agree with the concurring findings of fact recorded by all the Authorities
below that the sale of chemicals effected by the assessee to its purchasing
dealers who in turn were obliged to effect their sales in their respective
territories outside Delhi involved inter-State movement of goods and,
therefore, the sales in question were inter-State sales. Accordingly, we find
no infirmity in the concurring findings of fact recorded by the Authorities
below. In our view the judgments of this Court in the cases of Tata Engineering
(supra) and K.G. Khosla (supra) are squarely applicable to the facts of the
present REPORTABLE case.
concluding, we may note that the basic contention advanced on behalf of the
assessee was that the purchasing dealer(s) had to take the delivery of the
goods ex-works; that they were required to store the chemicals in their godowns
in Delhi and the said chemicals were to be disposed of by the said purchasing
dealers in the following manners:
(a) stock transfer;
(b) inter-State sales
(c) local sales
was urged on behalf of the assessee that it had no idea as to what would happen
to the chemicals after the same were given to the purchasing dealers. It was
urged that M/s. DCM Ltd. ceased to be the owner of the goods after they were
given to the purchasing dealer(s) at the factory gate and that the assessee had
no idea as to whether the goods would be sold in Delhi or transfer to the
branches or sent in the course of inter-State trade. In this connection,
reliance was also placed on the affidavits filed by the three purchasing
dealers. We do not find merit in these arguments. Once it is found that the
purchasing dealers were obliged under the Contract(s) to take the chemicals to
their respective territories outside Delhi, once it is found that the
purchasing dealers were obliged to sell the chemicals in their respective
assigned territories, once it is found that the said purchasing dealers were
obliged to enter into separate contract(s) with the assessee, once it is found
that each of the purchasing dealers were required to sell the chemicals in
their assigned REPORTABLE territories at the price fixed by the assessee and
once it is found that each of the purchasing dealers was obliged to submit
monthly reports to the assessee then in that event the mode in which each of
the purchasing dealers could sell their goods either by way of stock transfer
or inter-State sale or local sale becomes irrelevant.
The obligation of the
purchasing dealer(s) under the Contract indicates the control of the assessee
over the movement of the goods.
the aforestated reasons, we find no infirmity in the impugned judgment of the
High Court and accordingly the civil appeals filed by the assessee are dismissed
with no order as to costs.
(H. L. Dattu)