The Cement Marketing Co., of India Ltd.
& ANR Vs. The State of Mysore & ANR  INSC 242 (28 August 1962)
28/08/1962 KAPUR, J.L.
CITATION: 1963 AIR 980 1963 SCR Supl. (3) 777
CITATOR INFO :
R 1966 SC 563 (21) R 1966 SC1216 (9,10) R
1967 SC 585 (7) R 1971 SC 477 (9) R 1979 SC1160 (15) RF 1992 SC1952 (8)
Sales Tax-Sale of goods-Transactions
involving movement of goods across the border from one, State to another
Liability to tax-Mysore Sales Tax Act, 1948 (Mysore 46 of 1948)Constitution of
The second appellant was a manufacturer of
cement and at the material time it had over a dozen factories in different
parts of India none of which was in the State of Mysore.
The first appellant was its sales manager and
had its head office in Bombay with a branch office at Bangalore in the State of
Mysore' Cement was a controlled article and everyone wishing to buy cement. had
to get an authorisation from the appropriate Government authorities in a
standard form which authorised the first appellant to sell cement in quantities
mentioned therein and the cement had to be supplied from the factory therein
mentioned. The purchaser had to place an order with the first appellant.
stating the requirement, where the goods were to be sent and how they were to
be sent. In the present case, all the goods were sent against the
authorisations from the various factories belonging to the second appellant
which were all outside the State of Mysore and were received in the State of
Mysore by the various 778 purchasers. The Sales Tax Officer by his order dated
March 31, 1958, took the view that though the property in the goods passed to
the dealers and consumers outside the State, of Mysore, since the goods had
actually been delivered in the State of Mysore as a direct result of such sales
for purposes of consumption in the State, the sales must be deemed to have
taken place in that State and, therefore, the sales effected by the first
appellant as the sales manager of the second appellant, to customers in Mysore
State amounted to intrastate sales and liable to tax under provisions of the
Mysore Sales Tax Act, 1948. The High Court held that as the actual delivery to
the purchasers was within the State of Mysore, the cement loaded outside the
State and dispatched to the purchaser did not convert the sales into
inter-State sales but were intrastate Wes.
Held, that the sales which took place in the
present case in which the movement of goods was from one State to another as a
result of a convenant or incident of the contract of sale, were in the course
of inter-State trade or commerce and fell within Art' 286(2) of the
Constitution of India, Consequently, the imposition of sales tax on such sales
M/S. Mohan Lai Hargobind v. The State of
Madhya Pradesh,  2 S.C.R. 509, followed.
Endapuri Narasimhan & son v. The State of
Orissa,  1 S.C.R. 314, Bengal Immunity Co. Ltd. v. The State of Bihar,
 2 S.C. R. 603 M/s. Ram Narain & Sons v. Assistant Commissioner of
Sales Tax,  2 S.C.R. 483 and Tata Iron and Steel Co. Ltd. Bombay v. S. R
Sarkar,  1 S.C.R.
379, relied on.
Rohtas Industries Ltd. v. The State of Bihar,
 12 S.T.C. 615, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 255 of 1961.
Appeal from the judgment and order dated
March 21, 1960, of the Mysore High Court in Writ Petition No. 147 of 1958.
B. J. Kolah, J. B. DadachanJi, O. C. Mathur
and Ravinder Narain, for the appellants.
779 C. K. Daphtary, Solicitor-General of
India, B. R. L.
Iyengar and P. D. Menon, for respondents.
1962. August. 28. The Judgment of the Court
was delivered by.
KAPUR, J This is an appeal against the
judgment and order of the High Court of Mysore in Writ Petition No. 147 of 1958
dismissing the appellant's petition under Arts. 226 and 227 of the Constitution
for quashing the order of assessment for the period of assessment 1955-56 i.e,
from April 1, 1955, to March 31, 1956. In this appeal because of the Validating
Act (VII of 1956) the appellants did not challenge their liability for the
period April 1, 1955, to September 6, 1955.
The facts necessary for the decision of this
appeal are these : Appellant No. 1-The Cement Marketing Co. Ltd-are the Sales
Managers of the second appellant-The Associated Cement Co. Ltd. appointed under
an agreement dated April 21, 1954.
The High Court has described the first
appellant to be the Distributors of the second appellant. The second appellant
is a manufacturer of cement and at the material time it had over a dozen
factories in different parts of India, none of which was in the State of
Mysore. The head office of first appellant is at Bombay and it had then a
branch office at Bangalore in the State of Mysore. The first appellant was
registered as a dealer under the Mysore Sales Tax Act 1948, hereinafter called
the "Mysore Act". At all material times cement was and still is a
controlled article. Whether the sale was to a Government Department i.e. to the
Director General of Supplies & Disposal, Government of India, New Delhi, or
to a person authorised by the said Officer or to the' public it was effected on
authorisations given to the buyers by appropriate Government authorities and
780 produced by them in the office of the first appellant. Both in regard to
purchases by the public and the Government the Modus operandi was more or less
identical. It was this every one wishing to buy cement had to get an
authorisation in a standard form which authorised the first appellant to sell
cement in quantities mentioned, therein and the cement had to be supplied from
the factory therein mentioned. That document was in the following form which
actually ralates to a sale to a Government contractor.
"Government of India-Ministrary of
Commerce & Industry.
Office of the Regional Honorary Cement
Adviser 4/12 Race Course Road, Coimbatore.
Central Quota. Dated 8-10-1955.
Authorisation No. RA/CT/28/CMI/1 7 2 CQ.
(CENTELEC) Period IV/55 The Cement Marketing,
Name of Suppliers Co. of India P. Box No.613, Sugar Company BuldingBangalore-2.
You are authorised to sell cement in quantity
mentioned below under this authorization. The sale will be a direct deal
between yourself and 781 the purchaser. The Government undertakes no
responsibility of any nature whatsoever:Name and Name of the QuanName of Rly.
Readdress of the person factory or cement is to in whose companybe booked.
favour required to authorisation supply is
1 2 3 4 5 M/s. G. S. Mudhukkarai300 Bangalore
Duggal & Co Shababadtons Ltd Engineers & Contractors, Jalhalli P.O.
Ref. No. J/1 17/115 date 29-9-55 from the
above indentorsFor manufacture of the tiles for the Bharat Electronics Ltd.
Supply recommended by the Commander Works
Full details of the purpose for which and the
place at which cement will actually be consumed; Priority, Defence work.
Sd. C.C. Ramanath, Reg, Hon. Cement Advisor
(Coimbatore) Copy to 1. The indentor.
2. The Dy. Development Officer, Govt. of
India, Ministry of Commerce & Industry, Development Wing,(Chemicals 1,
Mineral Industries) Shahjehan Road, Now Delhi.
3. The Controller of Civil Supplies in My
sore Bangalore for information".
782 This authorisation was subject to the
It was to be utilised within 15 days; the
cement released could be used only for the purpose for which it was given;
the authorisation was not transferable; the
issuing authority could, if necessary, revoke the authorisation at any time and
even the orders booked under the authorisation could be cancelled. The
purchaser or the indentor had then to place an order with the first appellant
as Sales Managers of the second appellant stating the requirement, where the
goods were to be sent and how they were to be sent. The seller entered into a
contract with the first appellant.
This contract is in a standard form and gives
conditions of sale. Thereupon the first appellant instructed its Bombay office
to despatch the cement in accordance with the instructions of the buyer and the
authorisation. In this letter they had to mention the number of the
authorisation and the person who had issued it and also to whom the goods were
to be sent and how and certain other details which are not necessary for the
purposes of this appeal were also to be given.
Each instruction indicates that it was issued
for and on behalf of appellant No. 2 by appellant No. 1 as its Sales Managers.
A copy of the letter of instruction was sent to the factory from where the
goods were to be despatched and the particulars of the authorisation had to be
mentioned therein. Thereafter the first appellant sent an advice to 783 the
purchaser enclosing therewith the Railway Receipt for the goods and this advice
also mentioned the goods were being sent. Both the contract of sale and the
advice above mentioned stated that the goods were being dispatched at the
buyer's risk from the time the delivery was made by the factory to the carriers
and the railway receipt was obtained for the goods. In the present case all the
goods were sent, as indeed they had to be sent, against the authorisations from
the various factories belonging to the second appellant which at the relevant
time were all situate outside the State of Mysore and were received in the
State of Mysore by the various purchasers.
The position of the first appellant is as was
accepted by the Sales tax Officer in his order dated March 31, 1958, that of
Sales Managers of the second appellant but in regard to the nature of the
transactions the Sales tax Officer found:" Though the property in the
goods pass to the dealers and consumers outside the State immediately the goods
are handed over to the carriers outside the state and railway receipt is taken
out since the goods have actually been delivered In Mysore State as a direct
result of such sale for purposes of consumption in the State, sale is deemed to
have taken place in Mysore State".
and again he said:"Thus the sales of
cement manufactured by A.C.C. Factories situated outside Mysore .State effected
by the dealers M/s. Cement Marketing Company of India Ltd.
Bangalore, to dealers and customers in Mysore
State amounts to intrastate sales and therefore liable to Mysore Sales Tax Act
784 In its judgment the High Court took into
consideration the fact that the first appellant had a branch office at
Bangalore within the State of Mysore and that the public placed their orders
with the first appellant for supplies of cement against permits granted to
them; that the first appellant, who after accepting the offer for the supplies
of cement, collected the price from the intending purchasers and then directed
one of the factories of the second appellant to supply cement to the purchasers
and actual delivery to the purchaser was within the State) of Mysore and
therefore the contention that cement was loaded outside the State of Mysore and
dispatched to the purchaser did not convert sales into inter-State sales but
were intrastate sales. It appears that the true nature of the transaction was
not correctly considered by the High Court, The modus operandi above mentioned
shows that before an intending purchaser could obtain cement he had to get what
is called an authorisation from a Government authority which nominated the factory
from which the intending purchaser had to get his supplies of cement. That
authorisation with an order had to be given to the first appellant; and after a
contract in the standard form was entered into the first appellant sent the
order to the factory named in the authorisation and that factory then supplied
the requisite goods to the purchaser. The factory from where the cement was to
be supplied was not in the hands or at the option of the first appellant, but
was entirely a matter for the Government authority to decide, so that the
cement which was supplied from a particular factory was supplied not at the
choice of the first appellant but pursuant to the authorisation.
It was contended that the sales which took
place in the present case in which the movement of 785 goods was from one State
to another as a result of a covenant or incident of the contract of sale fell
within Art. 286(2) of the Constitution and therefore the imposition 'of Sales
tax on such sales was unconstitutional. The Article applicable at the relevant
time i.e., before its amendment was as follows: 286 (1) "No law of a State
shall impose or authorise the imposition of a tax on the sale or purchase of
goods where such sale or purchase takes place.
(a) outside the State; or (b) in the course
of the import of the goods into or export of the goods out of, the territory of
Explanation ........................... .
(2) Except in so far as Parliament may by law
otherwise provide, no law of a State shall impose, or authorise the imposition
of, a tax on the sale or purchase of any goods where such sale or purchase
takes place in the course of inter-State or commerce:
The Article had since been repealed and another substituted in its place by the
Constitution (Sixth Amendment) Act but the sales in question were prior to the
In the present case the contract itself
involved the movement of goods from the factory to the purchaser i. e. across
the border from one State to another because the factories were outside the
State of Mysore and therefore transactions were 786 clearly transactions of
sale of goods in the course of inter-State trade or commerce. Taking the nature
of the transaction and preliminaries which are necessary for the sale or
purchase of cement it cannot be said that the sale itself did not occasion the
movement of goods fromone State to another. The essential features of the
contracts proved in the present case are analogous to those in M/s.
Mohan Lai Hargovind v. The State of Madhya
Pradesh.(1) In that case the assessees were a firm carrying on business of
making and selling birds in Madhya Pradesh. In the course of their business
they imported finished tobacco from dealers in Bombay State, rolled it into biris
and exported the biris to various other States. Both the exporters of tobacco
from Bombay State who supplied the assessees and the assessees were registered
dealers under the C. P. & Berar Sales Tax Act., 1947. It was held that the
asessees imported the finished tobacco into Madhya Pradesh from persons who
were carrying on in the State of Bombay business of processing tobacco and
selling the goods and there was, as a result of these transactions movement of
goods from the State of Bombay to the State of Madhya Pradesh and therefore the
transactions involved movement of goods across the State border and they were
not liable to be taxed by virtue of Art. 286 (2) of the Constitution. In The
State of Pravancore Cochin & Others v. The Bombay Co Ltd. (1) which was a
case under art. 286 (1) (b) i. e. sale and purchase in the course of export
trade, Patanjali Sastri, C. J., observed:"A sale by export thus involves a
series of integrated activities commencing from the agreement of sale with a
foreign buyer and ending with the delivery of the goods to a common carrier for
transport out of the (1) (1935) 2 S. C. R. 509. (2) (1952) S. C.
787 country by land or sea. Such a sale
cannot be dissociated from the export without which it cannot be effectuated,
and the sale and resultant export from parts of a single transactions.
At p. 1120 the learned Chief Justice again
"We accordingly hold that whatever else
may or may not fall within article 286 (1) sales and purchases which themselves
occasion the export or the import of the goods, as the case may be, out of or
into the territory of India come within the exemption and that is enough to
dispose of these appeals".
Thus a sale to fall within Art. 286 (1) (b)
has to be a sale which occasions the export. Again in the, State of Travancore
Cochin & Other8 v. Shammugha Vilas Cashew Nut Factory & Other8 (1) the
words "in the course of" were interpreted to mean a sale taking place
not only during the activities directed to the end of exportation of the goods
out of the country but also as a part of or connected with such activities. At
p. 63 the learned Chief Justice explained the words "integrated
activities" as follows:"The phrase "integrated activities"
was used in the previous decision to denote that "such a sale" (i. e.
a sale which occasions the export) "cannot be dissociated from the export
without which it cannot be affectuated, and the sale and the resultant export
form parts of a single transaction'. It is in that sense that the two activities-the
sale and the export-were said to be integrated".
In Endu puri Narasiham & Son v. The State
of Orissa, it was held in the case of sales covered (1) (1954) S. C. R. 53.
(2) (1962) 1 S. C. R. 314.
788 by Art. 286 (1) (b) that only Bale or
purchase 'of goods which occasions the export or import of the goods out of or
into the territory of India were exempt from the imposition of tax on the sale
or purchase of goods and in regard to prohibition against imposition of tax on
inter-State sales the test, it was said, was that in order that a sale or
purchase might be inter-State it is essential that there must be transport of
goods from one State to another under the contract of sale or purchase. The
following observations from the Bengal Immunity Co. Ltd. v. The State of Bihar
(1) were quoted with approval in support of the position:"A sale could be
said to be in the course of inter-State trade only if two conditions concur:
(1) A sale of goods, and (2) a transport of those goods from one State to
another under the contract of sale. Unless both these conditions are satisfied,
there can be no sale in the course of inter-State trade".
Thus the tests which have been laid down to
bring a sale within inter-State sales are that the transaction must involve
movement of goods across the border (Mohanlal Hargovind's case (2) );
transactions are inter-State in which as a direct result of such sales the
goods are actually delivered for consumption in another State; M/s Ram Narain
It Ssns V. Assistant Commissioner of Sales tax (3) a contract of sale must
involve transport of goods from one State to another under the contract of
sale; Bengal Immunity Co' case (1). in the case of sales in the course of
export or import the test laid down was a series of integrated activities commencing
from an agreement of sale and ending with the delivery of goods to a common (1)
(1955) 2 S. C. R. 603, 784-5 (2) (1965) 2 S.G R. 509.
(3) (1955) 2 S, C. R. 483, 504.
789 carrier for export by land or by sea ;
The Bombay Co. Ltd, case (1). "In the course of" was explained to
mean a sale taking place not only during the activities directed to the end of
the exportation of the goods out of the country but also as part of or
connected with such activities and "integrated activities" was
explained in similar langauage.
This Court again accepted these tests in
Endupuri Narasimham's case (2). In a. 3 of the Central Sales Tax Act, 1956 (Act
74 of 1956), the legislature has accepted the principal governing inter-State
sales as laid down in mohan Hargovind's case (3). The principles for
determining when a sale or purchase of goods takes place in the course of
inter-state sale or commerce outside the state are :
"S.3 A sale or purchase of goods shall
be deemed to take place in the course of interState trade or commerce if the
sale or purchase (a) occasions the movement of goods from one State to another
; or (b) is effected by a transfer of documents of title to the goods during
their movement from one State to another".
In Tata Iron & Steel Co. Ltd, Bombay v.
S.R. Sarkar & Another (4) Shah, J., in explaining what sales are covered by
el. (a) of s.3 above said :
"Cl. (a) of a. 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 convenant or incident of the contract of sale.
and property in the goods passes in either State ." As stated above under
the contracts of sale in the present case there was transport of goods from (1)
 S C.R. 112.
(3) (1955) 2 S.G.R. 509.
(2) (1962) 1 S.C.R. 314.
(4) (1961) 1 S.C.R. 379,391, 790 outside the
State of Mysore into the State of Mysore and the transactions themselves
involved movement of goods across the border. Thus if the goods moved under the
contract of sale, it cannot be said that they were intrastate sales. It was not
the volition of the first appellant to supply to the purchaser the goods from
any of the factories of the second appellant. The factories were nominated by
the Government by authorisations which formed the basis of the contract between
the buyer and the seller. Applying these tests to the facts of the present case
we are of the opinion that the sales were in the nature of inter-State sales
and were exempt from Sales tax. In these circumstances the contracts of sale in
the present case have been erroneously considered to be intrastate sales.
The decision in Rohtas Industries Ltd. v. The
State of Bihar (1) to which reference was made by the respondent does not apply
to the facts of the present case because the agreement between the first
appellant and the second appellant is different from that which existed between
Rohtas Industries Ltd. and the Cement Marketing Co of India in the case above
cited. (in an examination of the agreement between those two companies this court
held that the rotation. ship which existed between the two was of seller and
buyer and not of principal agent. In the present case the agreement is quite
different. In the first clause of the agreement between the two appellants and
the Patimia Cement Co. dated April 21, 1954, the first appellant was appointed
the sole and exclusive Sales Manager of the second appellant and as such the
first appellant was entitled to enter into contracts of sale, receive payment
of the same and do all seta and things necessary for the effective management
in connection with the contracts of sale entered into on behalf of the
principals. The sale price and the terms and conditions of sale were to be (1)
(1961) 12 S.T.C. 615.
791 determined by the principals. The Sales Manager
was to keep its administrative and technical staff at such places in India as was determined by the principals. All the establishment charges and other expenses
of the Sales Managers were for and on behalf of the principals and were to be
defrayed by the principals in proportion to their annual sales. At the end of
every mouth the Sales Managers were to submit to the principals accounts
showing sales contracts by it on behalf of each one of the principals. At the
end of each financial year ending July 31 the Sales Managers had to make a.
proper account of all their operations during the year and after submitting
them for confirmation to the principals had to pay the price of annual sales
realizations to each of the principals to whom they happened to relate.
Clause to provided that subject to
instructions of the principals the Sales Managers were to make all necessary
arrangements to secure speedy and economical transport of cement. These terms
are quite different from those in the case of Rohtas Industries Ltd. and
therefore that decision has no application to the facts of the present case.
In the result, the imposition of the Sales
tax on the appellant for the year of assessment except for the period April 1, 1955, to September 6, 1955, was illegal and was not leviable for that period. The
appeal is therefore allowed to that extent and the petition of the appellants
succeeds but it will not effect the tax paid for the period abovementioned. In
view of the partial success of appellants they will be entitled to half costs
of the appeal.
Appeal allowed in part.
(1) (1961) 12 S.T.C. 615.