State of Andhra Pradesh Vs. Kolla
Sreerama Murthy [1962] INSC 118 (2 April 1962)
02/04/1962 AYYANGAR, N. RAJAGOPALA AYYANGAR,
N. RAJAGOPALA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ)
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
CITATION: 1962 AIR 1585 1963 SCR (1) 184
CITATOR INFO:
R 1973 SC2061 (12) D 1975 SC1996 (5) D 1978
SC 389 (22,46)
ACT:
Sales Tax-Delivery order-Endorsement-Property
in goods passes on taking delivery by the last endorsee-Effect Original holder
of delivery order, if liable to pay sales tax-Madras General Sales tax Act,
1939 (Mad. IX of 1939). s. 3.
HEADNOTE:
The respondent was a dealer in gunny bags. He
purchased gunnies from the Mills on terms of a written contract which was on a
printed form. The Mills after receiving a part of purchase price, issued
"delivery orders" directing the delivery of goods as per the
contract. Instead of taking delivery himself the respondent endorsed the
delivery orders and these passed through several hands before the ultimate
holder of the delivery order presented it the Mills and obtain delivery of the
gunnies from them, 185 At the date of the contract for purchase, the goods
which were the subject matter of the purchase were not appropriated to the
contract so that there was no completed sale since no property passed but only
an agreement of sale.
The Sales Tax Officer assessed the respondent
and collected sales tax on the said transactions. The question was whether the
transactions were or were not "Sales of goods" within s. 3 the Madras
Sales Tax Act, 1939, so as to enable the turnover represented by these sales to
be brought to tax under the Act, or were mere sales or transfers of delivery
orders: and further what was the effect of the property in the goods passing to
the ultimate endorsee of the delivery order.
Held, that the principle laiddown in
Butterworth v. Kingway Motors Ltd., which is the basis of the decision in the
case of Bayyana Bhimayya v. State of Andhra Pradesh, would equally apply to the
facts of the present case.
Bayyana Bhimayya v. Government of Andhra
Pradesh, (1961' 3 S. C. R. 267 and Buttei worth v. Kingway Motors Ltd. (1954) 2
All E. R. 694, applied.
CIVIL APPELLATE, JURISDICTION Civil Appeal
No. 368 and 369 of 1961..
Appeals from the judgment and decree dated
June 27, 1957, of the Andhra Pradesh High Court in S. A. Nos. 194 and 195 of
1954.
K. N. Rajgopal Sastri and P. D. Menon, for
the appellants. A.V. Viswanatha Satstri and T. Satyanarayana, for the
respondents.
1962. April 2. The Judgment of the Court was
delivered by AYYANGAR, J.-These two appeals are before us by virtue of
certificates of fitness granted by the High Court of Andhra Pradesh under Art.
13 3 (1) (c) of the Constitution. The State of Andhra Pradesh is the appellant
in both the appeals and one Kolla Sreerama Murthy a dealer in gunnies-is the
respondent in each of them and the point involved relates to the liability of
the respondent to Sales 186 Tax in respect of the transactions to which we
shall later refer.
Civil Appeal No. 368 of 1961 arises out of
original suit No. 268 of 1951 in the file of the District Munsif's Court,
Rajahmundry by the respondent for setting aside an assessment and obtain refund
of a sum of Its. 2,941/7/which was partly the sum assessed and collected as
sales-tax for the assessment year 1947-48, while Civil Appeal No. 369 of 1961
is from a similar suit praying for dentical reliefs in respect of the year
1946-47, the amount of which refund was sought however being Rs. 1,631/12/-.
The basis of the suits briefly was that the transactions whose turnover was
included in his assessment, were not " sales of goods" within the
Madras General Sales Tax Act 1939 (Mad. IX of 1939) and that consequently the
assessment to tax and recovery of the same were illegal and without jurisdiction.
Both the suits were decreed by the District
Munsif-a decision which was affirmed by the Subordinate Judge of Rajahmundry on
appeal by the State and by the High Court of Andhra Pradesh on further appeal
also by the State. It is from these two judgments and decrees in the two second
appeals that the' present appeals have been brought.
It was common ground that the respondent was
a "dealer" within the Madras Sales Tax Act (which for convenience we
shall call the Act) being " a person who carries on the business of buying
or selling goods", and that the transactions whose legal character is now
in dispute were put through by him by way of business. Section 3 of the Act
which is the charging section-enacts that "every dealer shall pay for each
year a tax on his total turnover for such year". ',Turnover" is
defined in the Act as:
" 'Turnover' means the aggregate amount
187 for which goods are bought or sold, or supplied or distributed, by a dealer
either directly or through another, on his own account or on account of others
whether for cash or for deferred payment or other valuable consideration
provided that the proceeds of the sales by a person of agricultural or
horticultural produce grown 'by himself or grown on any land in which he has an
interest whether as owner, usufructuary mortgagee, tenant or otherwise shall be
excluded from his turnover".
and clauses (c) and (h) of s. .2 of the Act
define ,,'goods" and ',sale" respectively thus :
" `goods' means all kinds of movable
property other than actionable claims, stocks and shares and securities and
includes all materials, commodities and articles including those to be used in
the construction, fitting out improvement or repair of immovable property or in
the fitting out, improvement or repair of movable property and also include s
all growing crops, grass and things attached to or forming part of the land
which are' agreed to be severed before sale or under the contract of
sale".
"Sale with all its grammatical
variations and cognate expressions means every transfer of the property in
goods by one person to another in the course of trade or business for cash or
for deferred payment or other valuable consideration and includes also a
transfer of property in goods involved in the execution of a works contract,
but does not include a mortgage, hypothecation, charge or pledge".
The only matter therefore which is in
controversy between the parties is as to whether the transactions to whose
details we shall presently refer, ,Which the respondent admittedly entered
into, wore, 188 or were not "sales of goods" within the Madras
General Sales Tax Act (Act IX of 1939) so as to enable the turnover represented
by these sales to be brought to tax under the Act.
We shall now set out the nature of the
transactions which the learned Judges of the High Court have held have not
resulted in "'a sale of goods" by the respondent so as to attract the
tax under the .charging section in respect of the "turnover"
represented by such sales. The respondent is, as .stated earlier, a dealer in
gunny bags. The gunny bags dealt with by him were those manufactured, in two
mills known as Chittivalsa and Nellimerla Mills. both situated 'in Chittivalsa
in Visakhapatnam District. The purchase, by the respondent from the mills was
on terms of a written contract which was on printed form. We shall set out the
relevant terms of one of the sample contracts for understanding the point
involved, as it is common ground that every contract entered into by the
respondent with the mills was in this form. These contracts were entered into
by brokers acting for the respondent and who sent him "bought-notes"
setting out the terms upon which the purchases had been affected from the
mills, and one of these Ex. Al, filed in O.S. 268 of 1951, has been treated as
typical. It recites the purchase on behalf of the respondent of 30,000 bags
from the Chittivalsa mills, specifies the. Description of the goods, the manner
of their packing and the fact that delivery was to be affected within a period
of three months. The buyer was required to make a deposit of Rs. 15,/per bale
within 24 hours after the contract was handed over to him and the respondent
fulfilled this requirement. The Mills having thus received a part of the
purchase price, they issued 'delivery orders" directing the delivery of
goods as per the contract and these were handed over to the buyer on his
honoring a hundi for the value of the goods, the buyer in this case being the
respondent. It was common ground that 189 by the date when the delivery orders
were issued, there were goods answering the contract description and of
quantity sufficient to comply with the relativeterm in the contract, in the
godown of the mills wherefrom on the terms of the contract, delivery was to be
effected. It was.open to the buyer himself to have gone to the mills and taken
delivery of the goods, but this was not done and it is the departure in this
respect that has given rise, to the legal controversy involved in these
appeals. Instead of taking delivery himself, the respondent (and this appears
to have been the practice of others as well) endorsed the delivers orders and
these passed through several hands before the ultimate holder of the delivery
order presented it to the mills and obtained delivery of the gunnies from them.
It need hardly be stated that at each endorsement of the delivery order the
price of the bales represented by the quantity specified in the delivery order
would be collected by the successive endorsers which would, in most cases,
include the profit, if it was a rising market. The case in the Courts below as
well as before us was argued on the basis of this pattern of dealing. The
learned trial Judge and the appellate Courts including the learned Judges of
the High Court came to the conclusion that on these facts there was no
"sale of goods" by the respondent, because the transaction so far as
he was concerned consisted merely of the endorsement of the delivery order
issued by the mills and that the fact that the ultimate endorses of the delivery
order got delivery of the goods from the mills was treated as irrelevant for
considering whether by the transfer of the delivery order coupled with the
delivery of the goods to such endorsee, there was in fact a completed sale
effected by the 'respondent. Put in another form the argument which was upheld
by the Courts below was that the transactions entered into by the respondent
were mere sales or transfers of delivery orders and not any "sale of
goods" so 190 as to bring them to charge under s. 3 of the Act. It is the
correctness of this conclusion that is in controvery in these appeals.
It is unnecessary for us to canvass in detail
the argument which found favour with the Courts below by reason of the judgment
of this Court in Bayyana Bhimayya versus Government of Andhra Pradesh (1),
where the points urged in favour of the respondent were considered and
repelled. The correctness of this decision was not disputed before US.
Dealing with the transaction involved in the
successive endorsements of the delivery orders issued to the purchaser from the
Mills, this Court said :
"In so far as the third parties were
concerned they had purchased the goods by payment of an extra price, and the
transaction must, in law and in fact, be considered a fresh transaction of sale
between the appellants and the third parties. A delivery order is a document of
title to goods (vide S. 2(4) of the sale of Goods Act). and the possessor of
such a document has the right not only to receive the goods but also to
transfer it to another by endorsement or delivery. At the moment of delivery by
the Mills to the third parties, there were, in effect, two deliveries, one by
the Mills to the Appellants, represented in so far as the Mills were concerned
by the appellants' agents, the third parties and the other, by the appellants
to the third parties as buyers from the appellants. These two deliveries might
synchronise in point of time, but were separate in point of fact and in the eye
of law. If a dispute arose as to the goods delivered under the kutcha delivery
(1) [1961] 3 S C. R 26 191 order to the third parties against the Mills, action
could lie at the instance of the appellants. be third parties could proceed on
breach of contract only against the appellants and not against the Mills. In
our opinion, there being to separate transactions of sale, tax was payable at
both the points, as has been correctly pointed out by the tax authorities and
the High Court".
The position would appear to be this. At the
date of the contract for purchase by the respondent the goods which were the
subject of the purchase were not appropriated to the contract, so that there
was no completed sale since no property passed, but only an agreement for sale.
Whether or not the goads which were the subject of the agreement for sale were
in existence on the date of the agreement, they were existing goods on the date
the delivery order was issued., and they would have been appropriated to the
contract and property in the appropriated goods would have passed to the
respondent if he had cared to present the delivery order at the Mills godown.
The respondent however without taking delivery himself, endorsed the delivery
order and enabled his endorsee to take delivery and that endorsee (and it makes
no difference to the principle if a further endorsee from him did so) took
delivery of the goods and the goods became appropriated to the contract and
property in goods passed to him. One view to take, and it was this that found
favour with the Courts below, was that since no goods had been appropriated to
the respondents contract before the delivery orders were endorsed, the
successive endorsements of the delivery orders were not "sales of
goods" but were merely transfers of the delivery order as some paper,
though this was of some value in that it enable the endorsee to approach the
mills and obtain delivery of the goods. The result of the acceptance of this
192 view would be to eliminate the respondent altogether from the chain and so
to speak, treat the ultimate endorsee as the purchaser from the mills.
Naturally if that was correct the respondent would have effected no purchase of
the goods nor, of course, any sale of goods, there being only one transaction
of sale by the mills to the ultimate endorsee of the delivery order. In Davvana's
case this Court held that this was not a correct understanding of the legal
effect of the endorsment of the delivery orders No doubt, without an
appropriation of goods to an agreement for sale there cannot be a completed
contract in which the property in the goods passes to the purchaser and unless
property in the goods passes, there is no sale. But the question is what is the
effect of the property in the goods passing to the ultimate endorsee of the
delivery order.
In this connection reference could usefully
be made to the decision in Butterworty v. Kingsway Motors Ltd. (1). It was a
case where a hirer of a motor-car under a hire-purchase agreement under which
the necessary payments of installment etc. bad not been made and so his title
had not matured(i.e. where the title remained in the owner) transferred the
vehicle or such rights as he possessed in it, to others and the ultimate
transfers paid the balance of the purchase price to the owner and thus acquired
title to the motor-car.
The question before the Court related to the
effect of this completion in the title of the ultimate transferee on the legal
position of the intermediate parties. Pearson J.
dealing with this matter expressed himself in
these terms "The various purported sales all took place at times when
Bowmaker, Ltd. were still the owners of the car, so that all the purported
sellers in this rather long chain had no title to it at the times when the
purported sales were made. But on or about (1) [1954] 2 AU E. R. 694 193 July
25, 1952 Miss Rudolph acquired a good title from Bowmaker, Ltd., or, at any
rate, made payment to Bowmaker, Ltd. which extinguished their title and induced
them to relinquish any claim which they had to the car. I think that the right
view is that Miss Rudolph acquired the title as between her and Bowmaker, Ltd.
but I further hold on authority that the title so acquired went to feed the
previously defective titles of the subsequent buyers and ensured to their
benefit..............
We consider that it is this principle that
forms the basis of the decision of this Court in Bayyana's case and that it
would equally apply to the facts of the present case.
Learned Counsel for the respondent placed
some reliance on the penultimate paragraph of the judgment in Bayyana's case
where this Court referring to the judgments now under appeal stated:
"The facts were different, and the
Division Bench itself in dealing with the case, distinguished the judgment
under appeal, observing that there was no scope for the application of the
principles laid down in the judgment under appeal, because in the cited case,
the property in the goods did not pass from the Mills to the assessee and there
was no agreement of sale of goods to be obtained in future between the assessee
and the third party'.
We are unable to read this observation as a
decision by this Court that the High Court was right in distinguishing the
earlier decision. The circumstance that in Bayyana's case besides the contract
of purchase of the gunny bags there was a further agreement that the mills
would give delivery of the goods to the nominees of the purchaser does not
really affect the principle, in view of the admitted 194 fact that on the un-contradicted
evidence 'in this case, it was the common understanding of the parties that the
mills would honour the endorsement of the delivery order and deliver the goods
contracted for to the endorsee who produced it.
Learned Counsel for the respondent made a
suggestion that in the present case there was no proof that the goods
represented by the contract had been delivered to the ultimate endorsee, with
the result that the appellant had not established a "sale of goods"
at any stage. No doubt if on the facts there was no delivery of the goods to
the last holder of the delivery' order, the entire fabric on which the case for
the appellant rests would disappear. There is however no factual basis for this
submission. This fact was not alleged by the respondent at any stage of the
proceedings starting from the plaint in the Court of the District Munsif right
up to the statement of the case in this Court and besides, all the Courts have
proceeded on the basis that such delivery was effected to the last endorsee of
the delivery order but they held that such delivery did not become a sale by
the respondent so as to attract the liability to tax under s. 3 of the Act. We
have therefore no hesitation in rejecting this argument.
Before concluding, however, it is necessary
to refer to one matter. 0. S. 268 of 1951 was filed on July 25, 1951 and the
plaint in O.S. 309 of 1951 on September 6, 1951. Even, however, before that
date, on May 15, 1951 the Madras General Sales Tax Act, 1939 was amended by
Madras Act VI of 1951 by which, inter alia, s. 18A was added to the parent Act.
This section nuns:
",No suit or other proceeding shall,
except as expressly provided in this Act, be instituted in any Court to set
aside or modify any assessment made under this Act." 195 No plea based
upon the bar contained in this section was raised before 'any Court right up to
the High Court and not even in the grounds of appeal to this Court or even in
the appellant's statement of the case as originally filed. At the beginning of
1962 however the appellant applied to this Court for leave to urge additional
grounds and in pursuance of the leave so granted it has raised a point that the
suit should have been dismissed by the Courts below as not maintainable, being
barred by the section just now set out.
In answer to this new plea the respondent put
forward two objections: (1) that on a proper construction of s. 18A
particularly taken in conjunction with the other amendment effected by Act VI
of 1951 by which is. 18A was inserted in the parent Act, the section had no
retrospective effect and could be invoked only in the case of those assessments
which were completed after the new section came into force. (2) In the
alternative, he raised the contention that if s. 18A barred even suits in
respect of illegal assessments which had been completed and had become final,
the provision was unconstitutional as violative of rights guaranteed by Art.
19(1)(f) & (g). Though we heard arguments
of learned Counsel in relation to these points, we consider it unnecessary to
make any pronouncement on them in view of the conclusion that we have reached
on the merits of the appeals.
The result is that these appeals succeed and
are allowed with costs. Hearing fee one Set.
Appeals allowed.
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