State of
Tamil Nadu Vs. Dharangadhara Trading Co. Ltd. [1988] INSC 133 (3 May 1988)
Kania,
M.H. Kania, M.H. Pathak, R.S. (Cj)
CITATION:
1988 SCR (3) 805 1988 SCC (3) 462 JT 1988 (2) 270 1988 SCALE (1)852
ACT:
Central
Sales Tax Act, 1956: Section 3-Assessee- Manufacturer-Booked goods to
destinations as required by out of State buyers-Only documents of title handed
over to Trading Company-Nature of sales by Manufacturer to Trading
Company-Whether interstate or intra-state.
HEAD NOTE:
An
agreement was entered into by Dharangadhara Chemical Works Ltd. (Chemical
Company) for the sale of all its products to the respondent (Trading Company).
The agreement contained general terms; and the actual quantity sold, the sale
price, the booking station and the destination stations were to be determined
in the actual contracts for sale in respect of definite or specified
quantities. The mode in which sales were effected was that the respondent
Trading Company used to obtain orders from out of State buyers, and enter into
agreements of purchase with the Chemical Company for these specified
quantities. All the goods sold under these contracts of sale were booked at a
particular railway station in the State to the various places outside the
State, where buyers from the respondent Trading Company required the goods and
then the railway receipts and invoices concerned were endorsed and handed over
to the respondent Trading Company.
In the
assessment order for the assessment year 1980-81 the assessing authority
treated the sales effected by the Chemical Company to the respondent Trading
Company as intra- State sales and those by the respondent Trading Company to
the out of State buyers as inter-State sales falling under s. 3 of the Central
Sales Tax Act, 1956. The assessees, namely, the Chemical Company and the
respondent Trading Company filed appeals before the Appellate Assistant
Commissioner contending that sales by the Chemical Company to the respondent
Trading Company were also inter-State sales as these sales were completed by
the delivery of railway receipts and invoices only after the inter-State
journey of the goods had commenced. The Appellate Assistant Commissioner
dismissed the appeals.
Both
the assessees filed appeals to the Tribunal. After considering 806 the manner
in which the sales were effected and despatches made by the Chemical Company
and examining some specimen orders placed by respondent Trading Company with
the Chemical Company, the Tribunal came to the conclusion that delivery was
effected by the Chemical Company to the respondent Trading Company by delivery
of documents of title, namely, the receipts of invoices and the railway
receipts and allowed the appeals.
The
High Court upheld the views of the Tribunal and dismissed the revision
petitions filed by the State.
In the
appeals by the State it was contended that the first set of sales by the
Chemical Company to the respondent Company were local or intra-State sales,
because under the agreement the delivery was to be effected at the booking
stations.
Dismissing
the appeal, ^
HELD:
The orders were placed for booking specified goods to out of State buyers and
the Chemical Company never gave physical delivery of the goods to the
respondent Trading Company but booked the goods to the destinations as required
by the out of State buyers and merely handed over documents of title to the
respondent Trading Company. The movement of the goods from the State to the
outside State was occasioned by the terms of the contract themselves and the
sales were inter-State sales falling under-sub-s. (a) of s. 3 of the Central
Sales Tax Act, 1956. Alternatively, since the deliveries of goods sold were effected
by the transfer of documents after the movement of the goods from the State to
the other States had commenced, the sales could be regarded as covered under
sub-s. (b) of s. 3 of the Act.
[809GH;
810A-B] The agreement entered into by the Chemical Company with the respondent
Trading Company is merely a general agreement. The actual terms of the
contracts of sales as well as the instructions of the out of State buyers have
to be taken into account in determining the nature of the sales in question.
[810E-F] The conclusion arrived at by the Tribunal as well as the High Court
that the sales by the Chemical Company to the respondent Trading Company were
inter-State sales cannot therefore be faulted. [810F] Union of India & Anr. v. K.G. Khosla & Co. (P)
Ltd. & Ors., [1979] 3 S.C.R. 453 at p. 460, relied on.
807
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 619 (NT) of 1975.
From
the Judgment and Order dated 11.7.1973 of the High Court of Madras in Tax Case
No. 2 of 1970.
R.
Mohan for the Appellant.
K. Rajendra
Choudhary for the Respondent.
The
Judgment of the Court was delivered by KANIA, J. This is an appeal against the
common judgment of a Division Bench of the High Court of Judicature at Madras in Tax Cases Nos. 2 & 3 of
1970. The appeal has been preferred pursuant to special leave granted by this
Court under Article 136 of the Constitution of India.
The
facts giving rise to the appeal are as follows:
The Dharangadhara
Chemical Works Ltd. is a manufacturer of Caustic Soda and certain other
chemicals. Dharangadhara Chemicals Works Ltd. (referred to hereinafter as
"the Chemical Company") entered into an agreement dated 9th August, 1957 under which it agreed to sell all
its products to Dharangadhara Trading Co. Pvt. Ltd. (referred hereinafter as
"the Trading Company"). Under clause 1 of the said agreement, the
Chemical Company agreed to confine the sale of all the products manufactured by
it at all its works to the Trading Co. for a period of 5 years from the 1st day
of March, 1958. Clause 2 of the agreement provided, the Chemical Co. would make
the sales directly to the Trading Co. on a principal to principal basis against
offers or indents. Clause 3 provided that the selling price would be determined
by the Board of Directors of the Chemical Co. on the basis of ex-factory or
F.O.R. at booking or F.O.R.
destination
stations as decided upon by the Directors. The delivery of the goods would,
however, be given F.O.R. at booking stations. The Trading Co. would make
payments to the Chemical Co. within one month from the date of supply or sale
of goods by the Chemical Co. Pursuant to this agreement, sales were effected by
the Chemical Co. to the Trading Co. Although the aforesaid agreement contained
the general terms as set out earlier, neither the booking stations, nor the
destination stations nor the sale price were given in the said agree- 808 ment.
The Trading Co. used to given directions to the Chemical Co. for despatching
specified quantities of goods to the stations named by the Trading Co. and as
per these directions, the Chemical Co. booked the goods at the booking station
which was invariably Arunuganeri Railway Station in the State of Tamil Nadu,
showing themselves as the consignors and the Trading Co. as the consignees of
the goods specified in that contract of sale. After booking the goods, the
invoices were handed over to the Trading Co. by the Chemical Co. It may be mentioned
that the actual quantities sold, the sale price, the booking station and the
destination stations were not determined under the aforesaid agreement of 9th August, 1957, but in the actual contracts of
sale in respect of definite or specified quantities. The mode in which sales
were made was that the Trading Co.
obtained
orders from out of State buyers and entered into agreement of purchase with the
Chemical Co. for these specified quanities. All the goods sold under these
contracts of sale were booked at the aforesaid railway station in Tamil Nadu to
the various places outside the State of Tamil Nadu where buyers from the Trading Co. required the goods and after the
goods were booked as aforesaid on the railway, the railway receipts and the
invoices concerned were endorsed and handed over to the Trading Co.
Admittedly,
as pointed out by the Tribunal, there were two sets of sales, one by the
Chemical Co. to the Trading Co. and the second by the Trading Co. to the
various out of State buyers. In the original assessment order for the
assessment year 1961-62 made by the Sales Tax Officer, both the sales by the
Chemical Co. to the Trading Co. and the sales by the Trading Co. to the out
State buyers were treated as inter-State sales. Consequently, Central Sales- tax was levied on the first sale,
but not on the second sale. This assessment order was revised and under the
revised assessment order the assessing authority treated the sales effected by
the Chemical Co. to the Trading Co. as intra-State sales and the sales effected
by the Trading Co.
to the
out of State buyers as inter-state sales falling under Section 3 of the Central
Sales Tax Act, 1956. The assessees, namely, the Chemical Co. as well as the
Trading Co. filed appeals before the Appellate Assistant Commissioner
contending that both the said sales were inter- state sales. It was contended
by the assessee that the sales by the Trading Co. to the out of State
purchasers were admittedly inter-state sales and as far as sales by the
Chemical Co. to the Trading Co. were concerned, these were also inter-state
sales as the sales were completed by the delivery 809 of railway receipts and
invoices only after the inter-state journey of the goods had commenced. These
contentions were rejected by the Appellate Assistant Commissioner, who
dismissed the appeals. Both the assessees filed appeals against the decisions
of the Appellate Assistant Commissioner to the Tribunal. The Tribunal allowed
both the appeals.
The
Tribunal pointed out that there were two sets of sales, the second set of sales
by the Trading Co. to out of State buyers was admittedly inter-state in
character. The Trading Co. had filed necessary `E-1' forms and 'C' forms in
these cases and the transactions, therefore, fell within the scope of Section 6(2)(B)
of the Central Sales Tax Act and were exempt from tax under local Sales Tax Act
as well as the Central Sales Tax Act. As far as first set of sales, namely, by
the Chemical Co. to Trading Co. were concerned, it was pointed out that
although under the agreement dated 9th August, 1957 the sales were agreed to be
'F.O.R. Booking Stations' and the booking station was in Tamil Nadu, the
delivery of goods could be either by physical delivery or by handing over
documents of title. The delivery contemplated in the agreement was not actual
physical delivery, as the place of delivery was neither seller's place of
business, nor the buyers' place of business. Considering the manner in which
the sales were effected and despatches made by the Chemical Co., and after
examining some specimen orders placed by the Trading Co. with the Chemical Co.,
the Tribunal came to conclusion that the delivery was effected by the Chemical
Co. to the Trading Co. by delivery of documents of title, namely, the
respective invoices and the railway receipts. The nature of sales by the
Chemical Co. to the Trading Co. and the question whether they were inter- state
sales had to be decided after further taking into account the further
instructions given by the buyers. The actual terms of the sales have to be
determined not merely under the agreement dated 9th August, 1957 as that
agreement was a general agreement which did not specify the quantities to be
sold, the sale price, booking stations, the destination stations, and so on,
but these actual terms could be determined only by taking into account the
terms on which and the manner in which the actual sales were made by the
Chemical Co. to the Trading Co. For ascertaining these terms, the Tribunal
examined some of the subsequent orders placed by that Trading Co. on the
Chemical Co. Taking into account all these, the Tribunal found that as the
orders were placed for booking, specified goods to out of station buyers, and
the Chemical Co. never give physical delivery of the goods to the Trading Co.,
but booked the goods to the destinations as required by the out of state buyers
and merely handed over documents of title to the Trading Co. It was clear that
the movement of the goods 810 from the State of Tamil Nadu to the outside States was occasioned by the terms of the
contract themselves and the sales were inter-state sales falling within Section
3, Sub- section (a) of the Central Sales Tax Act, 1956.
Alternatively,
if a view were taken that the sales did not fall under Sub-section (a) of
Section 3, the deliveries of goods sold were effected by the transfer of
documents after the movement of the goods from Tamil Nadu to the other States
had commenced and the sales could be regarded as covered under Sub-section (b)
of Section 3 of the Central Sales Tax Act. From this decision of the Tribunal,
Revision Petitions under Section 38 of the Tamil Nadu General Sales Tax Act
were preferred by the State of Tamil Nadu to
the Madras High Court. The High Court upheld the views of the Tribunal and
dismissed both the Revision Petitions which were numbered as Tax Cases Nos. 2
and 3 respectively. An appeal was preferred by the State in the case of the
Trading Co., namely, the case pertaining to the assessment of the sales from
Chemical Co. to the Trading Co.
The
only submission advanced by Mr. Mohan, learned, counsel for the appellant, was
that there were two sets of sales, namely, by the Chemical Co. to the Trading
Co. and by the Trading Co. to the out of State buyers. It was submitted by him
that the first set of sales, namely, by the Chemical Co. to the Trading Co.
were local or intrastate sales because under the agreement dated 9th August,
1957 the delivery was to be effected at the booking station. In our view, as
the Tribunal has rightly pointed out, the agreement dated 9th August, 1957 is
merely a general agreement and the actual terms of the contracts of sales as
well as the instructions of the out of state buyers have to be taken into
account in determining the nature of the sales in question. In view of this,
the conclusions arrived at by the Tribunal as well as the High Court that the
sales by the Chemical Co. to the Trading Co. were inter-state sales cannot be
faulted and the learned counsel for the appellant has not advanced a single
reason showing how that conclusion is incorrect. In fact, this conclusion finds
some support from the observations of this Court in Union of India & Anr. v.
K. G. Khosla & Co. (P) Ltd. & Ors., [1979] 3 S.C.R. 453 at p. 460.
In the
result, we find that there is no merit in the appeal and it must fail. The
appeal is dismissed with costs.
N.P.V.
Appeal dismissed.
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