Bengal Timber Trading Co. Ltd. Vs.
Commissioner of Sales Tax, Madhya Pradesh  INSC 25 (1 February 1967)
01/02/1967 MITTER, G.K.
RAO, K. SUBBA (CJ) SHAH, J.C.
CITATION: 1967 AIR 1348 1967 SCR (2) 547
Constitution of India, 1950, Art. 286(1) (a)
Explanation, prior to amendment by the Constitution (Sixth Amendment Act)
1956-Sale of railway sleepers-"Actually delivered" meaning
of--Question to be considered for decision whether delivery within the
State--"F.O.R. used in connection with price and not place-Effect
of--Liability to sales-tax under C.P. and Berar Sales Tax Act (21 of 1947).
The appellant entered into a contract with
the President of India for the supply of railway sleepers. The consignees, to
whom the sleepers were to be despatched 'according to the instructions given to
the appellant under cl. 11(a) of the conditions of contract, were outside the
State of Madhya Pradesh. The sleepers were booked by rail to the consignees from
Dhamtari railway station in Madhya Pradesh. In the third column in the Schedule
to the contract, Dhamtari was shown as the place of delivery. On the question
whether the sales came under the Explanation to Art. 286(1) (a) of the
Constitution prior to its amendment by the Constitution (Sixth Amendment) Act,
1956 and were therefore exempt from sales-tax under the C.P. and Berar Sales
Tax Act, 1947, the High Court held : (1) that 'the property in the goods passed
to the purchaser at Dhamtari, (2) that the sleepers were actually delivered to
the purchasers at that place, and (3)that the sales were completed at Dhamtari
and were therefore liable to tax.
In appeal to this Court,
HELD : The sales were covered by the
Explanation and as such were not taxable by the State of Madhya Pradesh. [557
A-B] (1) The question is not when and where, under the general law, the title
to the goods passed under the contract, but whether actual delivery of the
goods took place, for consumption outside the State of Madhya Pradesh so as to
be within the deeming provision of the Explanation. [556 B-C] (2) In the fifth
column in the Schedule to the contract, relating to rate, the expression
"F.O.R was used only in connection with the price of the goods. Therefore,
it only meant that the rate was to be inclusive of all charges of putting the
goods on rail and had nothing to do With the place of delivery. Further, the
expression "actually delivered" in the Explanation means physical
delivery of the goods or such other action as puts the goods 1 in the
possession of the purchaser but does not include symbolical or notional
delivery such as entrustment to the railway as a common carrier, [550 C; 553
F-G; 555 D] Singareni Collieries Co. Ltd. v. State of Andhra Pradesh &
Ors., 2 S.C.R. 190 followed.
Sup. Cl/67-6 548 (3) All the clauses of the
contract have to be read as a whole to find out the intention of the parties as
to where the actual delivery was to take place. So read, cis. 3, 11.
12 and 14 of the contract are not merely
conditions superimposed after the actual delivery of the goods. They show that,
while the major part of the operations of the appellant with regard to delivery
were to be performed at Dhamtari, he was not relieved of all liability as to
delivery until the goods were finally accepted at the destination the
consignee, and that actual physical delivery was not to be taken as complete
before the goods were accepted by the consignee at the destination. Clause 3(a)
links delivery with final acceptance, which, according to cl. 11(g), could only
"be after the goods had reached the destination and were acknowledged as
accepted by the consignee. Clause 11(g) also shows that notwithstanding the
fact that the goods had been passed by the Sleeper Passing Officer at Dhamtari,
they had been put on rail within the period, of contract at the said station,
the Sleeper Passing Officer had given the appellant a passing certificate in
terms of cl. 10 and the Station Master at Dhamtari had issued a tally receipt
for the number of sleepers loaded the consignee still had the right to inspect
the goods at the destination and reject any which were not in terms of the
contract; and such rejected goods were to be treated as nondelivered. The place
of actual delivery, in the light of all the circumstances., could only be the
destination and the goods could only be said to be fully delivered and finally
accepted after they were acknowledged at the destination, and since consumption
took place only in the State to which the goods were despatched, the gales came
within the purview of the explanation, [554 H; 55-5 A-D; 556 B-D] Birendranath
Guha & Co. v. Stwe of Bihar, 5 S.T.C. 273 and D.,N. Dutta v. Commissioner
of Sales Tax, Orissa, I.L.R.
 Cuttack 622 overruled.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 398 to 400 of 1966.
Appeals by special leave from the judgments
and orders dated March 6,1964 of the Madhya Pradesh High Court in M.C.C. Nos.
90, 91 and II 0 of 1963 respectively.
... M. C. Setalvad, Shankar Ghosh and P. N. Gupta,
for the appellant (in all the appeals).
B. Sen and I. N. Shroff, for the respondent
(in all the appeals).
The Judgment of the Court was delivered by
Mitter, J. These are three appeals by leave granted by this Court from orders
of reference under section 44(1) of the Madhya -Pradesh General Sales Tax Act,
1958 at the instance of the Commissioner of Sales Tax, Madhya Pradesh to the
High Court in that State. The question in each of the references was, whether,
in the facts and circumstances of the case, the sales of sleepers (for
railways) made by the nonapplicant (Bengal Timber Trading Co. I-Ad.) under the
agreement with the President of India came under Art. 286 (1) (a) of the
Constitution read with the Explanation thereto and therefore were exempt from
the imposition of tax under 'the C.P. and Berar Sales Tax Act, 1947 ? 549
Except for the amounts which varied from year to year involved in the sales,
the facts and circumstances were common in all the three cases. The periods for
which tax was sought to be imposed were from 1st July 1950 to 30th June 1951,
:from 1st July 1951 to 30th June 1952 and from 1st July 1952 to 30th June 1953.
It will be noted that all the three periods are prior to the amendment of Art.
286 of the Constitution by the Constitution' (Sixth Amendment) Act, 1956. The
relevant portion of Art. 286 as it stood during the years in question read 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 India.
Explanation For the purposes of sub-clause
(a), a sale or purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State, notwithstanding the fact
that under the general law relating to sale of goods the property in the goods
has by reason of such sale or purchase passed in another State.
The true meaning of the said Article and
Explanation came up for consideration in a number of decisions of this Court.
Its real purpose was to prevent
"imposition of an unduly heavy burden upon the consumers by multiple
taxation upon a single transaction of sale" Bajarang Jute Mills Ltd. v. State
of Andhra Pradesh(1). In effect the Explanation to the Article created a
fiction and fixed the State "in which the actual delivery of the goods
took place for the purpose of consumption there" as the only place where
sales tax could be levied as was pointed out in Bengal Immunity Company Ltd. v.
The State of Bihar and Ors.(2). There it was said that "the shifting of
the situs of a sale or purchase from its actual situs under the general law to
a fictional situs under the Explanation takes the sale or purchase out of the
taxing power of all States other than the State where the situs is fictionally
fixed". The earlier decisions of this Court were noted in Bajarang Jute
Mills' case(1) and it was there observed :
"It is now well-settled that by Art.
286(1) [as it stood before it was amended by the Constitution (Sixth Amendment)
Act, 1956] sales as a direct result of which goods (1) 15 S.T.C. 430 at 433.
(2)  2 S.C.R. 603, 651, 550 were
delivered in a State for consumption in such State i.e., the sales falling
within the Explanation to Art. 286(1) were fictionally to be regarded as inside
that State for the purpose of cl. (1) (a) and so within the taxing power of the
State in which such delivery took place and being out-, side all other States
exempt from sales tax by those other States." The last mentioned case was
considered by this Court in Singareni Collieries Co. Ltd. v. State of Andhra
Pradesh and others(1) and it was held :
".......... the expression actually
delivered' in the context in which it occurs can only mean physical delivery of
the goods, or such other action as puts the goods in the possession of the
purchaser. The expression "actually delivered' does not include mere
symbolical or -notional delivery e.g. by entrusting the goods to a common
-carrier, or even by delivery of documents of title like railway receipts. It
was said that the rule contained in s. 39 (1) of the Indian Sale of Goods
Act, 1930 has no application in dealing with a constitutional provision which
'while imposing a restriction upon the legislative power of the States entrusts
exclusive power to levy sales tax to the State in which the goods have been
actually delivered for the purpose of consumption".
The fiction of the sale or purchase being
deemed to have taken place in the State in which the goods had been actually
delivered as a direct result of sale or purchase for the purpose of consumption
in that State, was resorted to in order to put the matter beyond all
controversy on the question as to where the property in the goods passed or as
to any inquiry about the place where the goods may be said to have been
The contract in this case was entered into
between the President of India and the appellant before us and contained terms
and conditions to be noted immediately. The recital to the agreement shows that
"the contractor has agreed to supply and deliver to the State wooden
sleepers to the number and of the description and quality at the price or
prices and at the times and places and in the manner detailed in the Schedule,
specification and conditions of contract hereinafter appearing all of which
form part and parcel of. this agreement". The relevant conditions of
contract are as follows :
Cl. (1). Time of delivery of the sleepers
shall be of the essence of the contract and the contractor shall deliver the
sleepers on or before the date or dates mentioned in the (1)  2 S.C.R.
551 Schedule or within such extended time or
times as may be allowed under cl. (2)............
Clause 2 provides that if the contractor
shall be delayed in the Supply of the materials so as to necessitate an
extension of the time .provided in the Schedule, he shall apply in writing to
the Sleeper Control Officer, Eastern Group, who, if reasonable grounds are shown
to his satisfaction, shall grant such extension in writing as in his absolute
discretion he may think fit.
Cl. 3 (a). "The prices named in the
Schedule shall cover everything required to be done by the contractor in terms
of the specification and conditions of contract including all loading and
handling charges connected with the inspection and delivering of the sleepers
on rail and taxes and impositions in respect of the sleepers till they are
delivered and finally accepted under the terms of this contract." Cl. 3(b)
provides that in the event of wagons not being available within a month after
passing, the contractor shall stack and earth the passed sleepers. Pending
despatch, the sleepers were to remain in the contractor's custody.
Cl. 4. "The person or persons authorised
to inspect, pass and brand sleepers for the State under these conditions of
contract . .. will be appointed or nominated by the President, Eastern Group
Sleeper Control and/or the Sleeper Control Officer, Eastern Group Cl. 5(a). "The
sleepers shall be offered for examination and passing within the boundaries of
the railway stations mentioned in the Schedule unless permission -is given in
writing by the Sleeper Control Officer, Eastern Group, to the contractor to
offer them for inspection at other stations or sites." Cl. 5 (g).
"The contractor shall make all arrangements with the railway concerned for
the lease of an adequate plot or plots of land at stations where he desires to
offer sleepers for inspection and bear the charges thereof." Cl. 9
provides for testing of the sleepers by the Sleeper Passing officer and any
sleepers which were rejected by him were to be removed from the railway
premises at the charge and cost of the contractor. Under cl. 10 the Sleeper
Control Officer was to give the contractor a passing certificate of the number
passed and rejected at such station. Under cl 11(a) "After passing, the
contractor shall apply to and obtain from the Sleeper Control Officer, 552
Eastern Group, his orders as to the despatch of the passed sleepers which would
then be disposed of by the contractor either by handing them over to the
consignee or by loading into railway wagons and booking them under the risk
note 'B' by rail to the consignee to whom the sleepers were allotted". Cl.
11(f) provides that oil arrival at destination, the consignee shall check the
number of sleepers and report on any shortage or the receipt of defective
sleepers. In all cases, the Sleeper Control Officer was to be the final
authority as to whether such sleepers were in good order and conformed to the
specification or not. Cls. 11(g), 11(i) and 12 ran as follows:
Cl. 11(g). "In the case of passed
sleepers booked by rail the contractor shall immediately after loading apply
for and obtain from the despatching station master a tally receipt for the
number loaded. Such sleepers as are acknowledged by the consignee as possessing
the passing mark of the Sleeper Passing Officer and the private mark of the,
contractor will be deemed fully delivered, sub, however, to the right of the
consignee to have such sleepers reinspected by the Sleeper Control Officer, or
his representative, and all sleepers rejected by the Sleeper Control Officer
shall be deemed to be non delivered and all sleepers are to be at the risk of
the contractor until fully delivered and finally accepted at the
destination." Cl. 11 (i). "If there is any shortage in the number of
sleepers received by the consignee in any particular consignment i.e. covered
by a single railway receipt, the contractor shall be paid for all sleepers
shown on the tally receipt provided all sleepers received by the consignee are
passed sleepers and have not been rejected by the Sleeper Control Officer but
if any part of such consignment consists of unpassed sleepers they shall be rejected
and included in the shortage and the contractor shall be -held responsible for
the total shortage in that consignment and shall not receive any payment for
such shortage." Cl. 12. "The sleepers shall be of the best
description and in strict accordance with the specification and the contractor
shall receive payment for such sleepers only as are approved, branded and
passed by the Sleeper Passing Officer and duly delivered to the consignee in
terms of the contract.
Cf. 13 provides for payment of 90% on bills
submitted in triplicate supported by the passing certificate, tally receipt and
by an acknowledgment from the consignee to the Sleeper Control 553 Officer
certifying that the sleepers have been received by him and have been checked
and found in order. The payment of the remaining 10% shall be made on bills
submitted in triplicate as soon as the sleepers have been delivered as provided
in cl. II (g).
Clause 14 reads :
"It must be expressly understood that
all on account or advance payments are in no way to be considered as relieving
the contractor in any way from the liabilities he may incur under the terms of
the contract. This has express reference to cl. II (g) above." The
schedule to the contract was in tabular form containing six columns. The 3rd
column was headed "places at which to be delivered" and below it was
mentioned "Dhamtari, Eastern Railway." The 5th column was headed
"rate at which the sleepers to be supplied at each place inclusive of all
demands, F.O.R." In this column were given the rates for different kinds
of sleepers i.e. of different dimensions.
The 6th column was headed "month of
completion" and in this column (to quote from the document at page 112 of
the paper book) was given the date 15-10-1952. The third note at the foot of
the schedule provided that "the date of completion of the contract shall
be the last date of inspection at the supplier's stations during the month in
which the contract is due to be completed." The High Court of Madhya
Pradesh took the view that the sales were completed in Dhamtari, that the
property in the goods passed to the purchaser at that place and the sleepers
were actually delivered to the purchaser at that place. It was further stated
in the judgment of the High Court that the place of delivery was specifically
stated to be F.O.R.
Dhamtari. The last observation does not seem
to be correct because, as noted already, the place of delivery as given in the
Schedule was Dhamtari, Eastern Railway and it was only in connection with the
price of the goods that the expression `F.O.R.' occurred. It is well known that
the expression 'F.O.R.' when used in connection with the place of delivery
means that the delivery prima facie takes place when the goods are put on rail
and when the expression is used in connection with the price, it means that the
rate is to be inclusive of all charges of putting the goods on rail.
In order to find out whether the Explanation
to Art. 286(1) (a) was applicable, we need not consider where the property in
the goods passed nor are we to guide ourselves by s.
39(1) of the Indian Sale of Goods Act which
only raises a prima facie inference as to delivery. In this case the consignee
of the goods was always to be outside Madhya Pradesh according to the
instructions given to the contractor with regard to the despatch of the goods.
Counsel 554 on behalf of the State of Madhya
Pradesh contended that actual delivery of the goods took place at Dhamtari in
that State. In aid of his contention, he relied on the following factors : (a)
The Schedule which was a part of the contract showed that the place of delivery
was Dhamtari, Eastern Railway; and (b) Cis. 1 and 2 of the conditions of
contract referred both to the time and place of delivery as mentioned in the
schedule' The net result of these two clauses, according to counsel, was that
the time and place of delivery both pointed to Dhamtari. According to counsel,
cl. 3(b) went to show that after the goods were brought to the railway yard at
Dhamtari and were passed by the Sleeper Passing Officer, the contractor became
the bailee in custody of the goods and the charges which he incurred in
earthing up the goods during the months of April to June were to be borne by the
buyer.. This was sought to -be reinforced by cl. 3(a) which provided that all
loading and handling charges and expenses in connection with the putting of
sleepers on rail and taxes and impositions were to be on the sellers's account
Counsel argued that cl. 5(g) went to show
that it was to suit the convenience of the purchaser that the contractor had to
take on lease a plot of land belonging to the railway for storing the sleepers.
Cis. 9 and 10, according to him, went to show that the rejected sleepers had to
be taken out of the railway yard leading to the inference that only such goods
as had been passed by the Sleeper Passing Officer were to be considered as the
property of the railway. Great reliance was placed on cl.11(a) which according to
counsel, clinched the matter. It was urged that if the goods were actually
handed over to the consignee at Dhamtari railway station, there could be no
manner of doubt that actual delivery took place there. According to counsel the
position was the same if the goods were loaded into railway wagons and booked
to the consignee under risk note 'B' in terms of the contract. This was sought
to be fortified by reference to cl. 11(i) according to which the contractor was
to be paid for all sleepers shown on the tally receipt.
Counsel urged that all the above provisions
in the contract went to show that as soon as the goods were put on rail at
Dhamtari after they had been brought into the railway yard and passed by the
Sleeper Passing Officer, and marks had been put on them, delivery of the goods
was complete and nothing remained to be done by the contractor.
In our opinion, we have got to take the whole
of the contract into account and then find out the intention of the parties as
to where actual delivery was to take place thereunder. while there can be no
doubt that the major part of the operations of the contractor with regard to
delivery were to be performed at Dhamtari he was not relieved of all liability
as to delivery until the goods 555 were finally accepted at the destination by
In this respect, we cannot overlook cls.
3(a), 11 (g), 12 and 14 of the conditions of contract when the consignee was
outside Madhya Pradesh. Cl. 3 (a) speaks of delivery and final acceptance under
the terms of the contract. Delivery here is linked with final acceptance which
according to cl.
II (g) can only be after the goods had
destination and were acknowledged as accepted
by the consignee. Cl. 11 (g) makes it clear that notwithstanding the fact that
the goods had been passed by the Sleeper Passing Officer at Dhamtari -and that
they had been put on rail within the period of the contract at the said station
and the Sleeper Passing Officer had given the contractor a passing certificate
in terms of cl. 10 and the station master at Dhamtari had issued a tally
receipt for the number of sleepers loaded, the consignee still had the right to
inspect the goods at the destination and reject any which were not in terms of
the contract and such rejected goods were to be treated as non-delivered. -All
this, in our opinion, puts the matter beyond doubt that the actual physical
delivery was not taken as complete before the goods were accepted by the
consignee at the destination. In all such cases, the consumption took place in
the State to which the goods were despatched with the result that the sales
came within the purview of the Explanation to Art. 286 (1) (a) as it stood
before the Sixth Amendment of the Constitution.
Our attention was drawn to a judgment of the Patna
Court in Birendranath Guha and Co. v. State
Of Bihar(1) where ,the assessee had taken lease of a timber forest in Nepal and
had built godowns and offices in Nepal territory close to Jogbani railway
station in the State of Bihar. The assessee supplied to the railways And
despatched to different destinations various quantities of sleepers from
Jogbani railway station after obtaining instructions from the Sleeper Control
Office. The assessee contended that no sale took place in Bihar since the sleepers
had been manufactured in .Nepal and despatched from Jogbani railway station to
places outside Bihar. The full terms of the contract in that case are not to be
found in the report but it appears that it was worded very similarly to the
contract before us. The Patna High Court held that on a consideration of all
the provisions of the contract, it was manifest that the goods in question had
been unconditionally appropriated 'to be contract at Jogbani railway station.
Alternatively, the High Court held that there
was appropriation of the goods within the meaning of s. 23(2) of the Sale of
Goods Act at Jogbani railway station and accordingly it was held that there was
delivery to the carrier at Jogbani railway station coupled with an unconditional
appropriation of the goods within the meaning of s. 23 (2) of' the Sale of
Goods Act. With regard to cls.
11(g), 11 (j) and 13(a) the High Court said
that these were merely additional stipulations.
(1) 5 S. T. C. 273.
556 Superimposed on the contractor who agreed
to act as insurer of the goods till the stage of final destination and also
agreed to the other ,conditions, but these additional conditions had no bearing
on the ,question as to where and when the title to the sleepers passed ,to the
We find ourselves unable to agree with the
above expression of Opinion as we have already pointed out that the question is
not when the title to the goods passed under the contract, but to ascertain
whether actual delivery of the goods took place outside the State ,of Madhya
Pradesh for the purpose of consumption there so as ,to be within the deeming
provision of the Explanation to Art. -286.(1). The contract has to be
considered in the setting of the facts and circumstances of the case as a whole
and cls. 11(g), 11(i), 12, 13 and 14 cannot be read as conditions superimposed
after the -actual delivery of the goods. The place of actual delivery in the
-light of all the circumstances of the case can only be the destination of .the
goods and the goods can only be said to be fully delivered and finally accepted
after they are acknowledged at the destination by the Sleeper Control Officer.
A similar contract came up for consideration
before the Assam High Court in Birendranath Guha v. Commissioner of Taxes(1)
and the.High court took a view different from that of the Patna High Court
In D..N. Dutta v. Commissioner of Sales Tax,
Orissa(2) two ,,questions were referred to the High Court, one of them being,
whether there was a completed sale in Orissa so as to confer jurisdiction on
the State of Orissa to tax the impugned transactions and secondly, whether even
if there was a completed sale in Orissa, the State Government was prohibited
from taxing those transactions in view of the ban imposed by cl. (1) and cl.
(2) of Art. 286 of the -Constitution. 'The contract, according to the judgment
of the High Court, was identical With the one which came for consideration in
the Patna case in Birendranath Guha and Co. v. State of Bihar(3) -The Orissa
High Court held that in respect of the impugned transaction, none of the
sleepers had been subject to re inspection by the :,Sleeper Control Officer or
rejected by him at the destination; all the sleepers were fully delivered when
the passing mark was given by the Sleeper Passing Officer at the place of
despatch and the seller had loaded them in the wagon at the despatching station
and obtained the tally receipt from the station master concerned. It is not
,necessary to examine the case in detail but it is sufficient to say that ,even
if there was no rejection at the place of destination, actual delivery would
not be completed until they were finally accepted (1) 10. T.C. .327 (2) 1. L.
R.  Cuttack 622.
(3) 5 S.T.C. 273.
557 at destination and to that extent we find
ourselves unable to agree with the decision of the Orissa High Court.
In the result, it must be held that the sales
in these cases were covered by the Explanation to Art. 286 (1) and as such not
taxable by the State of Madhya Pradesh. The appeals are therefore allowed with
costs. One set of hearing fee.
V.P.S. Appeal allowed.