Associated
Cement Companies Limited, Kymore Vs. Commissioner of Sales-Tax [1991] INSC 97 (9 April 1991)
Misra,
Rangnath (Cj) Misra, Rangnath (Cj) Kania, M.H. Kuldip Singh (J)
CITATION:
1991 AIR 1122 1991 SCR (2) 250 1991 SCC Supl. (1) 251 JT 1991 (2) 144 1991
SCALE (1)661
ACT:
Constitution
of India, 1950: Article 286(1)(a)
Explanation-Sale of cement under a contract by manufacturer to marketing
company within Madhya Pradesh--Non existence of Central Sales Tax
Act--explanation not applicable.
HEAD NOTE:
The
appellant, a manufacturer of cement, entered into an agreement with the Cement
Manufacturing Company of India Limited, for sale of cement. Under the
agreement, the appellant was to sell its cement only through the marketing
company, and certain sums would be paid for the cement supplied by the
marketing company, which had the discretion to fix the sale price.
For
the 1950-51, 1951-52 and 1952-53 periods when the appellant was assessed to
sales tax for the supply of cement, it maintained at the assessment stage that
the transactions were not exigible to sales tax as they were covered under the
Explanation to Article 286(1)(a).
The
first Appellate Authority and the Board of Revenue did not accept the stand of
the appellant.
The
Board of Revenue held that cement being a controlled commodity, distribution of
cement continued to be controlled during the period, notwithstanding the expiry
of the Defence of India Rules. Relying on the decision of this Court in the
case of Rohtas Industries Limited v. State of Bihar, 12 STC 621 the Board of
Revenue held that the Cement Marketing Company was an independent organisation
and was carrying on business as an independent entity and that what had
actually been taxed were the sales effected by the appellant to the Cement
marketing Company and not the sales made to the parties which obtained
authorization from the Cement Controller.
After
analyzing the terms of the contract between the manufacturer and the Marketing
Company, this Court held in Rohtas Industries case that there was sale between
the manufacturer and the Marketing Company.
251
Following its view taken in Rohtas Industries case as the present case had the
same terms, which had been considered in the earlier case, and examining the
question whether the sale that took place between the manufacturer and the
Marketing Company could be taken to be covered by the Explanation to Article
286(1)(a), this Court, dismissing the appeals,
HELD:
1. There was preceding local sales complete in every respect within Madhya Pradesh
by which title to the cement had passed from the appellant to the Marketing
Company. The concept of inter-State sale as brought in by the Sixth Amendment
or in the subsequent statute known as the Central Sales Tax Act was not in
existence for the relevant period now under consideration. The finding recorded
by the authorities was that the delivery of the cement was not the direct
result of such sale or purchase of the cement outside the State. In the absence
of such privity the Explanation is not attracted to the transactions.[254E- G].
2. In
view of the finding recorded by the authorities that the cement in this case
actually had not been delivered as a direct result of such sale or purchase for
the purpose of consumption outside the State, the only conclusion that can
follow is that the Explanation does not apply and the assessments are justified.[254H-255A].
Rohtas
Industries Limited v. State of Bihar, 12 STC
621, followed.
Mohmd.
Serajuddin v. State of Orissa, [1975] Suppl. SCR 169, distinguished.
CIVIL
APPELLATE JURISDICTION: CIVIL Appeal No.768 (NT) of 1977 etc. etc.
From
the judgment Order dated 9.10.1975 of the Madhya Pradesh High Court in M.C.C.
No.144 of 1966.
V.A. Bobde,
B.R.Aggarwala and U.A.Rana for the Appellant.
S.V.Deshpande
and S.K.Agnihotri for the Respondents.
The
Judgment of the Court was delivered by RANGANATH MISHRA, CJ. These are appeals
by special leave 252 and are directed against the separate decisions of the
Madhya Pradesh High Court in references under the Madhya Pradesh Sales Tax Act.
Civil Appeal No.768/77 relates to the assessment period 1951-52, Civil Appeal
539/78 relates to 1950-51 and Civil Appeal 1038/78 to 1952-53.
The
appellant is a manufacturer of cement in the factory located at Kymore in
Madhya Pradesh. Several cement manufacturing companies as also the appellant
had entered into arrangement with the Cement Manufacturing Company of India
Limited where under the Marketing Company was appointed as the sole and
exclusive sales manager for the sale of cement manufactured by the
manufacturing companies and the manufacturing companies had agreed not to sell
directly or indirectly any of their cement to any person save and except
through the Marketing Company. The manufacturing companies were entitled to be
paid a certain sum for every ton of cement supplied by them or at such other
rate as might be decided upon by the Directors of the Marketing Company. The
Marketing Company had the authority to sell cement at such price or prices and
upon such terms as it might in its sole discretion consider appropriate.
For
the three periods referred to above the appellant had supplied cement
manufactured by it to the Marketing Company and maintained at the assessment
stage for the respective periods that these were covered by the Explanation to
Article 286(1)(1) as it then stood and, therefore, the transactions were not exigible
to sales tax in Madhya Pradesh. This stand was negatived by the Assessing
Officer, the First Appellate Authority and the Board of Revenue. The Board in
the statement of the case drawn up by it held that cement became a controlled
commodity from 8th of August, 1942, and notwithstanding the expiry of the Defence
of India Rules with effect from 30th of September, 1946, distribution of cement
continued to be controlled even during the period. The Marketing Company had
its establishment at Nagpur then within Madhya Pradesh which
received the orders of authorisations and managed the supply from the factory
at Kymore. The Board in its statement further stated:
"The
entire question in dispute hinges round the fact as to whether the sales in
question are inter-State in nature or should be regarded as intra-State. It is
seen that the Cement Marketing Company is an independent organisation and is
carrying on business as an independent entity. It is also seen that what has
actually been taxed are the sales effected by the appellant to the Cement
Marketing Company 253 of India and not the sales made to the parties which
obtained an authorisation from the Cement Controller. This seems to be the crux
of the matter." On this basis reliance was placed on the decision of this
Court in the case of Rohtas Industries Limited v. State of Bihar, 12 STC 621
where, after analysing the terms of the contract between the manufacturer (appellant
before the Supreme Court) and the Marketing Company, this Court held:
"On
a review of these terms of the agreement, it is manifest that the manufacturing
companies had no control over the terms of the contract of sales by the
Marketing Company and that the price at which cement was sold by the Marketing
Company could not be controlled by the manufacturing companies; that the
manufacturing companies were entitled, for ordinary cement, to be paid at the
rate of Rs.24 per ton at works, or at such other rate as might be decided upon
by the Directors of the Marketing Company, and in respect of special cement, at
such additional rates as the Directors of the Marketing Company might
determine; that sale by the Marketing Company was not for and on behalf of the
manufacturing companies but for itself and the manufacturing companies had no
control over the sales nor had they any concern with the persons to whom cement
was sold. In fine, the goods were supplied to the orders of the Marketing
Company, which had the right, under the terms of the agreement, to sell on such
terms as it thought fit and that the manufacturing companies had the right to
receive only the price fixed by the Marketing Company. The relationship in such
cases can be regarded only as that of a seller and buyer and not of principal
and agent." This Court in Rohtas Industries case on a detailed analysis of
the terms of the contract came to hold that there was a sale between the
manufacturer and the Marketing Company. It is not in dispute that the agreement
between the appellant and the Marketing Company in this case has the same terms
as this Court considered in Rohtas Industries case. It follows, therefore, that
it must be held that there was a sale between the appellant and the Marketing
Company.
The
Marketing Company had its establishment at Nagpur within the State of Madhya Pradesh
at that time. There was, therefore, a 254 preceding local sale prior to the
sales between the Marketing Company and the allottee of cement by the
regulating authority. This Court in Rohtas Industries further found that the
transaction between the manufacturer and the Marketing Company had nothing to
do with the Marketing Company's sales to third parties. There was no privity
between the manufacturer and the ultimate consumer who was said to have been
located outside the State of Madhya Pradesh.
The
question for consideration is whether the sale that look place between the
manufacturer and the Marketing Company can be taken to be covered by the
Explanation. The Explanation which was repealed by the Sixth Amendment of the
Constitution in 1956 read thus:
"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." Rohtas Industries case was dealing with a period prior
to the Constitution; therefore, without the Explanation. The question for
consideration thus is: does the presence of the Explanation make any
difference? What has been found as a fact in the statement of the case is that
there was preceding local sales complete in every respect within Madhya Pradesh
by which title to the cement had passed from the appellant to the Marketing
Company. The concept of inter-State sale as brought in by the Sixth Amendment
or in the subsequent statute known as the Central Sales Tax Act was not in
existence for the relevant period now under consideration. The finding recorded
by the authorities is that the delivery of the cement was not the direct result
of such sale or purchase of the cement outside the State. In the absence of
such privity the Explanation is not attracted to the transactions.
An
attempt was made by counsel to rely upon some of the later decisions of this
Court where with reference to the provisions contained in the Central Sales Tax
Act the law had been laid down. It is unnecessary to refer to them in view of
the finding recorded by the authorities that the cement in this case actually
had not been delivered 255 as a direct result of such sale or purchase for the
purpose of consumption outside the State. That is a finding clinching enough
and once that is taken as binding on this Court, the only conclusion that can
follow is that the Explanation does not apply and the assessments are
justified. The ratio of Mohd. Serajuddin v. State of Orissa, [1975] Suppl. SCR 169 is also
against the appellant's stand.
We
accordingly dismiss the appeals and uphold the decisions of the High Court.
There would be no order for costs.
V.P.R.
Appeals dismissed.
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