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Report No. 61

Case Law

2.8. Telco case decided by the Supreme Court.-

A few cases dealing with the transfer of goods to a branch or the like transactions will elucidate what is stated above. In the Tata Engineering Co. case,1 the assessee, a manufacturer of trucks, was assessed in respect of transactions in which the vehicles were moved from the site of works in Jamshedpur to various stockyards in different States. The terms of contract between the assessee and the dealers showed that when vehicles were moved from the works to the stockyards, it did not necessarily happen that the number of vehicles allocated to the dealer was delivered to him.

1. Tata Engineering & Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes, AIR 1970 SC 1281 (1285, 1286) (Grover, J.).

The Supreme Court observed:

"The points which would require determination would be whether the transactions which have been subjected to tax were of sale within the definition of that expression contained in section 2(g) and whether the movement of goods from Jamshedpur to the stockyards of the appellant in the different States was occasioned by any convenant or incident of the contract of sale."

After examining the procedure followed by the appellants in their negotiations with dealers and despatch of vehicles to stockyards, the Supreme Court held:-

"the allocation of letters and the statements furnished by the dealers did not by themselves bring about transactions of sale within the meaning of section 2(g) of the Act. The Assistant Commissioner himself found that sometimes the vehicles were sent from the works at Jamshedpur even before an allocation letter had been issued. It would appear from the materials placed before us that generally the completion of the sales to the dealers did not take place at Jamshedpur and the final steps in the matter of such completion were taken at the stockyards. Even if the appellant took into account the requirement of the dealers which it naturally was expected to do when the vehicles were moved from the works to the stockyards, it was not necessary that the number of vehicles allocated to the dealer should necessarily be delivered to him.

The appropriation of the vehicles was done at the stockyards through specification of the engine and the chasis number, and it was open to the appellant till then to allot any vehicle to any purchaser and to transfer the vehicles from one stockyard to another. It is not possible to comprehend how in the above situation it could be held that the movement of the vehicles from the works to the stockyards was occasioned by any convenant or incident of the contract of sale Consequently the appeals are allowed and the order of the High Court and the Assistant Commissioner is set aside

2.9. In a Madras case, Mahendra Kumar Ishwarlal & Co. v. State of Madras, (1968) 21 STC 72 (Mad), the petitioners' firm were jaggery and foodgrains merchants, in Tirupathur, Madras State. Another firm Chunilal Bhagwandas & Co., Bombay, comprised the same partners as the petitioners. The petitioner firm (in Madras State) transferred, to the Bombay firm, jaggery of a certain value. The Sales Tax Department of the (erstwhile) Madras State took the view that the transfer of jaggery represented a "sale" by the Madras firm to the Bombay firm, and should, therefore, be assessed for Central Sales Tax.

On the other hand, the petitioner contended that since the partners in both the firms were identical, therefore, in spite of the fact that their share capital ratio was different, there could be no sale at all, because one person cannot sell to himself. The Sales Tax Appellate Tribunal, to which the petitioners appealed against the decision of the assessing authority, held that even though the two firms had the same partners, the fact that the profit-sharing ratio of the partners in the two firms was different, made a difference, and that this difference would enable the two firms being viewed as two different persons, with the result that one firm could effectively sell goods to another, thereby attracting the, levy of sales tax on the transactions.

2.10. The petitioners filed a revision before the Madras High Court.

It was hold that there was no sale. The High Court relied on the Supreme Court decision in Harayanappa v. Bhaskara Krishnappa, AIR 1066 SC 1300., which said "since a firm has no legal existence, the partnership property will vest in all the partners and in that sense, even partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share in the assets of the firm."Relying on these observations, the Madras High Court held,

"What emerges, therefore, from the above reasoning is that in regard to the present transaction, it is the case of the same group of firm partners transferring a particular item of property, to which they were entitled, to themselves. In other words, the broad principle that a person cannot sell to himself will be attracted in regard to the present transaction also...."

2.11. The High Court also referred, with approval, to three more cases1, and said, "The decisions we have cited above in support of our conclusion rely upon the definition of 'sale', and that to constitute a sale there must be two different persons, in the ordinary sense of the term 'person'. When two partnerships have transferred goods from one to the other and the partners of the two firms are identical, it will really be a case of one person transferring goods to himself. There is, therefore, no 'sale' so far as the definition of 'sale' is concerned, whether it be under the Madras General Sales Tax Act or the Central Sales Tax Act. We therefore, allow the revision case and set aside the assessment on the disputed turnover."

1. (a) State of Madras represented by the Deputy Commercial Tax Officer, Madras Division, Madras v. Mupgan Electricals, (T.U. No. 40 of 1900; unreported case);,

(b) Raju Chettiar v. State of Madras, 1955 STC 132 (Mad).

(c) State of Punjab v. Jullundur Vegetables Syndicate, (1966) 17 STC 326.

Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back

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