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PETITIONER: AMRITSAR SUGAR MILLS CO.  LTD.

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX, U.P.

DATE OF JUDGMENT: 13/12/1965

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR 1242            1966 SCR  (3)  45

ACT: Uttar  Pradesh  Sales  Tax Act,  1948--  S.  5--Contract  to communicate  later, by buyer, place of delivery-Delivery  to another  Person  outside State-if  rebate,  admissible-Uttar Pradesh Sales Tax (Temporary) Rules, 1948.

HEADNOTE: The assessee-sugar mill sold sugar to parties who carried on business  inside the State of Uttar Pradesh, but  the  sugar was  despatched  to  stations outside  the  State  of  Uttar Pradesh  and delivered to another party in  compliance  with the  instructions issued by the buyers.  Under the  contract entered between the assessee and the buyer, the assessee was to  deliver  the sugar at places to be communicated  by  the buyer.   The  assessee-mill claimed rebate  on  these  sales under  s. 5 of the Uttar Pradesh Sales Tax Act,  1948.   The Sales  Tax authorities rejected the claim.  ’Me  High  Court held  that the rebate was not admissible under s. 5  because the  contract  did not contain any condition  requiring  the assessee to deliver goods outside Uttar Pradesh and  because the  despatch instructions.were not a part of  the  contract when  it was formed and did not get incorporated into it  or become a part of it when given.  In appeal to this Court. HELD  :  (i)  In. the context of s. 5 of the  Act  the  word ’delivery’  occurring therein means ’actual delivery’.   The object  underlying  s.  5 is to encourage  export  of  goods manufactured  in Uttar Pradesh and notified under s. 5.  The course of trade adopted by the buyers and the assessee shows that   if  the  word  ’delivery’  is  interpreted  to   mean ’constructive delivery’ very few ’export sales’ would  enjoy rebate  under  s.  5. As long as  the  contract  evinces  an intention  to  export  and  actual  delivery  is  given   to effectuate  that intention the object of the legislature  to ensure that only real ’export sales’ enjoy the rebate  would be fulfilled. [53 B-D] Lord Krishna Sugar Mills v. Commissioner of Sales Tax,  U.P. S.T. reference No. 263/54 dated March 19, 1963, disapproved. India  Coffee and Tea distributing Co. Ltd. v. The State  of Madras 10 S.T.C. 359, approved. (ii)The  sales  by  the assessee were  for  actual  delivery outside   Uttar   Pradesh.    The   despatch    instructions

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contemplated  by the contract entered into by the  assessee, were  part  of the contract.  The  contract  contemplated  a destination  in spite of constructive delivery  having  been contracted to be made at the station where the assessee-mill was-situated.   Further  the contract was  not  to  actually deliver  at  some place to be chosen or assented to  by  the assessee-mill  but at any place without  restrictions.   The contract required nothing more for completion than a mention of the place. when the despatch instructions were given,  it was  not a case of performing the contract but specifying  a term of contract. [53 EG] 4 6

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 86 to 89  of 1965. Appeals by special leave from the judgment and order,  dated October  17, 1963 of the Allahabad High Court in S. T.  Ref. No. 109 of 1956. A.   V.  Viswanatha  Sastri  and  B.  N.  Kripal,  for   the appellant. N.   D. Karkhanis and O. P. Rana, for the respondent, K.   K. Jain, for intervener. The Judgment of the Court was delivered by Sikri, J.These  four appeals by special leave are  directed against the judgment of the Allahabad High Court in a  Sales Tax  Reference  made by the Judge  (Revisions),  Sales  Tax, Uttar  Pradesh, Lucknow, on being directed to do so  by  the High  Court under s. 11 of the Uttar Pradesh Sales Tax  Act, 1948,  hereinafter  referred to as the  Act.   The  question referred was as follows :               "Whether  in  law the revising  authority  was               right  in  holding that the sales  in  dispute               were  not for delivery outside  Uttar  Pradesh               and  that the applicant Was not entitled to  a               rebate under sec. 5 of the Act." The  question was referred in the  following  circumstances. The  appellant,  hereinafter  referred to  as  the  assessee mills, carries on the business of manufacturing and  selling sugar and is registered as a dealer under the provisions  of the   Act.   During  the  previous  year  relevant  to   the Assessment Year 1948-49, the assessee company had sold sugar to parties who carried on business outside Uttar Pradesh and also delivered the same outside Uttar Pradesh.  It also sold sugar  to  parties  who carried  on  business  inside  Uttar Pradesh  but  the sugar was despatched to  stations  outside Uttar Pradesh in compliance with the instructions issued  by the    buyers.     The   assessee   mills    submitted    an application.under  s. 5 of the Act in form  VII,  prescribed by,  the  Uttar Pradesh Sales Tax (Temporary)  Rules,  1948, claiming 50% rebate on the sales of sugar delivered  outside Uttar  Pradesh.   The Sales Tax Officer  allowed  rebate  in respect  of  the sales of sugar to parties  who  carried  on business  outside Uttar Pradesh but rejected the  claim  for the  sales which were made to parties carrying  on  business inside  Uttar  Pradesh.  In respect of the  assessment  year 1948-49  there  were four assessment  orders  covering  each quarter of the year,, the,                              47 first  quarter being April 1948 to July 1948.  Section 5  of the Act reads as follows               "Sales  of certain goods for delivery  outside               the  State-In  respect  of  such  manufactured

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             goods   as  may  be  notified  by  the   State               Government  and subject to  such  restrictions               and conditions as may be prescribed, a  rebate               of one-half of the tax levied on sales of such               goods  for delivery outside the Uttar  Pradesh               shall be allowed if such goods are actually so               delivered." In exercise of the powers conferred by S. 5 of the Act,  the Governor was pleased to order that rebate of one half of the tax  levied  on  sales  of  certain  goods  including  sugar manufactured  in  Uttar Pradesh for delivery  outside  Uttar Pradesh  shall  be allowed if such goods  were  actually  so delivered.   It appears that this notification was  modified on  March  30,  1949, but we are  not  concerned  with  this modification. The  Sales Tax Officer dealt with the question at  issue  in his  order in respect of the quarter ending March 31,  1949, in  detail  and he was of the view that if  property  passed from the seller to the purchaser in Uttar Pradesh, s. 5  and the  notification  issued  under  it  could  not   apply.The assessee mills then filed four revision applications  before the  Judge  (Revisions) Sales Tax.   The  Judge  (Revisions) disposed of the four applications by two orders, first dated February 1, 1950, and the second dated December 5, 1950.  He held  that  "the  words ’sales of such  goods  for  delivery outside U.P. clearly show that the intention of the  framers of the act was to allow a rebate only in cases in which  the goods  are sold subject to the condition that they would  be delivered  outside  U.P.  It is also clear  that  section  5 contemplates only one buyer who purchase the goods and  also take  their delivery outside U.P. In other words  the  party who buys the goods and the party who takes the delivery must be  one and the same.  It is not disputed that the sales  of sugar in respect of which the claim has been disallowed were in  favour of one party and delivery was taken  by  another party outside U.P. The party after buying the sugar under  a contract  of sale had the goods despatched outside  U.P.  by the Mills to another party outside U.P." He added later that "on  a  true  construction  of  section  5  rebate  will  be permissible  only if delivery is taken outside U.P.  by  the same party which purchased the sugar from the mills." Then 48 on the facts he held that the selling agents, Tandon  Bros., who entered into a contract with the assessee mills for sale of  the goods were really the buyers and although the  goods were despatched outside Uttar Pradesh in accordance with the despatch  instructions of some contract arrived  at  between Tandon  Bros.,  and  the  party  to  which  the  goods  were ultimately delivered, the assessee mill had not entered into the  contract  with  the parties to  which  the  goods  were despatched  outside Uttar Pradesh.  He further repelled  the argument  that  despatch  instructions formed  part  of  the contract. The  assesses mills then filed four applications under s.  1 of the Act, but the Judge (Revisions) Sales Tax rejected the applications  on the ground that no question of  law  arose. The  High Court, however, directed the Judge (Revisions)  to state  a  case  under  s. 11 of  the  Act.   A  consolidated statement  of the case was referred.  The Judge  (Revisions) drawing  up  the  statement of the case was  not  the  Judge (Revisions)  who had disposed of the revision  applications. In  the  statement of the case certain  further  facts  were given and those are as under               "The applicants (assessee mills) were  members               of  the Indian Sugar Syndicate Ltd., and  they

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             were  entitled to send sugar under the  orders               of  the Syndicate through some selling  agents               of  their own.  M/s.  Tandon Bros.,  were  the               selling  agents of the Mills.  It was  through               them  that the sales had been made  to  buyers               outside U.P. The goods were despatched outside               U.P. under the instructions received from  the               buyers   through  the  selling  agents.    The               delivery of the goods was made outside U.P. It               is  on  the  basis of  these  facts  that  the               applicants  (assessee mills) claimed that  the               sales had been made for delivery outside U.P."               The  standard contract form prescribed by  the               Indian Sugar Syndicate has been annexed to the               case and the following terms are relevant :               "AN  AGREEMENT  made  this  Sixteenth  day  of               October 1948 between the AMRITSAR SUGAR  MILLS               CO.   LTD.  ROHANA KALAN  (hereinafter  called               "the  Seller") and Tandon Brothers  New  Mandi               Muzaffarpur  (hereinafter called "the  Buyee")               for  the  sale of the following goods  by  the               Seller  to the Buyer upon the following  terms               and conditions 49 A         B           C               D        E         F Factory   Description Price per Md. ofQuantity Period(s) Re- (short)   of quality  40 Srs. 82 2/7 lb.       of      marks Name                  F.O.R. Factory         delivery                       Station Ex-                       Factory. Rohana  Average colour  Rs. Thirty Six  Bags 4,000 Ready Mills.  not lower than  annas two &         I.S.S. No. 127  pies three only.        Average grain not               Each of pack-        finer than I.S.S.                ing 2/30.        No. D. or I.        36/2/3                2.   Delivery  is  to be made  F.O.R.  Rohana               Kalan station, all terms and conditions of the               Railway (torn) to be binding on the Buyer.               The  goods  shall  be  deemed  to  have   been               delivered (a) when tendered Ex-Factory godown,               (b)  when put on F.O.R. at Factory Station  or               (c) when tendered for carriage by rail at  the               said  station, and in case of delay in  accept               (torn)  by the Railway after such  tender  the               said  goods shall be deemed to be held by  the               Seller on account of the Buyer until they  are               put  on rail.  When the goods are received  by               Railway,  all the terms and conditions of  the               Railway shall be deemed to be accepted by  the               buyer..  Tender  to the Railway  for  carriage               shall  be  deemed  to have been  made  when  a               (torn) carriage or a Forwarding Note has  been               given  to the Station Master of  the  Station.               The  seller  shall not,  (torn)  circumstances               whatsoever,  be responsible for  non-despatch,               or refusal to despatch or delay in despatch or               any (torn) mistake in despatch by the Railway.               Where (after tender as aforesaid) any delay in               despatch   occurs,  the  Buyer  shall   (torn)               delivery  of  the  goods  without  any   claim               against the Seller on account of such delay or               the   consequence  thereof  (torn)  delay   in               despatch is due to non-supply of wagons or due               to booking restrictions, the Seller, shall, if

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             required by the (torn) obtain from the factory               a letter stating the cause of the delay.               Where  owing  to  restriction  of   whatsoever               nature  imposed  by  Carriers  on  despatches,               Seller is unable to despatch according to  the               route  requested  by the  Buyer,  then  Seller               shall  have  the right, after  giving  to  the               Buyer               50               three  days time to despatch by  the  cheapest               available route at Seller’s sole discretion to               the  destination  required  by  the   original               despatch  instructions.  Within the period  of               three  days above mentioned, Buyer may  change               the    destination   provided    the    (torn)               despatching   instructions  are   capable   of               immediate execution.  In the case of  despatch               by   road,  river  or  other   transport   any               combination   thereof,  all  the   terms   and               conditions of the Carriers are be a binding on               the  Buyer, and tender to Carrier shall  be  a               good  delivery  within  the  meaning  of   the               clause.               3.    The   buyer  is  to  give   the   Seller               despatching  instructions in  accordance  with               the  above schedule, in the case (torn)  ready               sales  within  ten days from the  date  hereof               when the quantity is less than 1500 bags,  and               within fifteen days when quantity is 1500 bags               or more; and in the case of forward sales, not               less than fourteen days prior to the expiry of               the  (torn)  for  delivery  of  the  goods  as               provided  in the above Schedule.   When  goods               are  for  delivery in  instalments  the  times               (torn)  clause  provided shall  apply  to  the               despatching instructions for each  instalment.               The  sugar will be despatched at  (torn)  Risk               unless  the  buyer shall give  to  the  Seller               instructions   to   the   contrary   in    the               Despatching Instructions.               The  despatching instructions to be  given  as               aforesaid  shall  be such as the  Seller  will               then  be in a position to carry (torn)  having               regard    to    restrictions    on    booking,               availability    of    wagons,    transshipment               difficulties and other matters.  The  despatch               (torn)  instructions  once  given  shall   not               ordinarily be amended or altered and they  can               be altered or amended only with the consent of               the seller and before the goods have left  the               factory,   the  Seller  is  not  in  any   way               responsible  for  any delays  that  may  arise               through  error or mistake in  the  despatching               instructions sent by the buyer.  If the  Buyer               fails to give despatching instructions  within               the  time and in the manner aforesaid he  will               be  deemed not to have given  any  despatching               instructions at all.                No  complaint as regards description,  quality               or  condition  of  any  consignment  will   be               admitted  unless the Buyer has  complied  with               Clause  3 thereof and has paid to  the  Seller               the full price and all overdue or other                                     51               charges  and unless the complaint is  made  in

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             writing  to the Seller within three days  from               the    arrival   of   such   consignment    at               destination,  the date of such  arrival  being               deemed  to be the date of arrival  entered  in               the  Books  of the Railway Co.,  Steamer  Co.,               Carrier  or Port Authorities.  The  completion               of Risk Note form A as required by the Railway               authorities  at  certain seasons of  the  year               shall  not be construed as adverse remarks  as               to the condition of the goods or its  packing.               If  any  complaint, as  to  quality  condition               quantity or weight is referred to  arbitration               and  an allowance is awarded in  thereof,  the               Buyer   shall  retain  the  goods   and   such               allowance shall be deducted from the price and               be refunded by the Seller." The  High  Court, in view of its finding that  the  delivery was  contracted  to be made ex-factory,  the  factory  being within  the  State  of Uttar Pradesh and  the  contract  not containing  any condition requiring the assessee to  deliver the  goods outside Uttar Pradesh, held that rebate  was  not admissible under s. 5. The High Court said that its detailed reasons  were  contained in its, judgment  in  Lord  Krishna Sugar Mills v. Commissioner Sales Tax, II.P.(1) In that case Desai,  C.J.,  held  that the obligation  to  deliver  goods outside  Uttar  Pradesh must arise only from a term  in  the contract, and in the absence of such a term it could, not be said  that  the  goods were to be  delivered  outside  Uttar Pradesh.   The  learned Chief Justice  further  observed  as follows               A   term   in   a   contract   that   despatch               instructions   would   be   furnished    later               necessarily  means that the seller  undertakes               to  comply  with them.  If  under  a  contract               itself something is to be settled later,  what               is settled later becomes as much binding under               the  contract  itself  as  the  terms  already               settled  under the contract.  Still, I do  not               think  that the sales in those cases in  which               the    contracts   provided    for    despatch               instructions  to be given later  became  sales               for  delivery  outside  Uttar  Pradesh  merely               because  the despatch instructions  were  that               they   should  be  despatched  outside   Uttar               Pradesh.   All  that can be said is  that  the               sales  were for "delivery in  accordance  with               despatch   instructions"   and  a   sale   for               "delivery   in   accordance   with    despatch               instructions"  is not necessarily a  sale  for               "delivery outside Uttar Pradesh." (1)  Sales Tax Reference No. 263 of 1954 judgment  delivered on, March 19, 1963.. 52  He  seemed to be of the view that in order to  come  within the  expression "delivery outside Uttar Pradesh’ it must  be one of the terms settled at the time of the formation of the contract  itself  that the goods will be  delivered  outside Uttar Pradesh, and if this is not so settled and all that is settled  is that they will be delivered in  accordance  with despatch instructions, the sale would neither be a sale  for delivery  outside  Uttar  Pradesh nor a  sale  for  delivery inside  Uttar  Pradesh.   He was clearly of  the  view  that despatch  instructions were not a part of the contract  when it was formed and did not get incorporated into it or become a  part  of  it when given.  Pathak,  J.,  in  a  concurring

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judgment,   was  of  the  view  that  it  must  be  in   the contemplation  of the parties at the time of  entering  into the  contract that the goods which were the subject of  sale must  be delivered outside Uttar Pradesh.  He observed  that "there is a distinction between settling and determining the terms  of a contract and complying with the terms  ’of  that contract.   The  former  relates to  the  formation  of  the contract, the latter to its execution." The first question which arises in these appeals is  whether the  word "delivery" in the expression "sales of such  goods for delivery outside Uttar Pradesh" occurring in s. 5 of the Act  means actual delivery or constructive delivery.  If  it means  constructive delivery then there is no doubt that  on the  facts as stated by the Judge (Revisions)  the  contract provided for constructive delivery inside Uttar Pradesh  and the assessee mills would not be entitled to rebate under  S. 5. The  Madras  High Court had occasion to consider  a  similar question  in India Coffee and Tea Distributing Co. Ltd.,  v. The State of Madras.(1) It held that the word "delivery"  in s.  5  of  the Madras General Sales  Tax  Act,  1939,  which exempts  from  taxation  sales of tea "if the  sale  is  for delivery  outside the State and delivery actually was  made" did not include anything which the law deemed "delivery" but was  restricted to physical delivery of the thing sold.   In coming to this conclusion, Subrahmanyam, J., observed :               "In  deciding whether the word  "delivery"  in               section  5  (v) includes delivery in  law,  we               have  to  have regard to the  objects  of  the               Legislature  in enacting section 5  (v).   The               object  obviously  was the  promotion  of  the               export of tea.  The Legislature intended  that               where tea was               (1)   10 S.T.C. 359.               53               exported  from the State for  being  delivered               outside the State, the sale which resulted  in               such  export should be exempt  from  taxation.               ’Mat object would not be wholly achieved if we               hold  that delivery of documents of  title  in               the State of Madras would make the sale liable               to taxation." We  agree with the view expressed by the Madras High  Court. It  seems  to  us  that the object underlying  S.  5  is  to encourage export of goods manufactured in Uttar Pradesh  and notified  under  s. 5. The course of trade  adopted  by  the Indian  Sugar Syndicate Ltd.. and the assessee  mills  shows that   if  the  word  "delivery"  is  interpreted  to   mean ’constructive  delivery’ very few ’export sales’, if we  may use  the expression, would enjoy rebate under s. 5. As  long as  the contract evinces an intention to export  and  actual delivery is given to effectuate that intention the object of the  Legislature  to ensure that only  real  ’export  sales’ enjoy the rebate would be fulfilled.  It seems to us that in the  context of S. 5 the word ’delivery’ occurring in  s.  5 means ’actual delivery’. The  next question that arises is whether the sales  by  the assessee  mills  were  for  actual  delivery  outside  Uttar Pradesh.   The answer to this problem depends on the  answer to  the question whether despatch instructions  contemplated by  clause 2 and clause 3 of the contract were part  of  the contract entered into by the assessee mills.  It seems to us that  they were.  The contract by the assessee mills was  to actually  deliver at a place to be communicated.  This  view is  reinforced  by  what is contained in clause  11  of  the

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contract.   This clause contemplated a destination in  spite of  constructive delivery having been contracted to be  made at  Rohana Kalan Station.  Further, the contract was not  to actually  deliver at some place to be chosen or assented  to by the assessee mills but at any place without restrictions. The  contract  required nothing more for completion  than  a mention  of the place.  When the despatch instructions  were given,  it  was not a case of performing  the  contract  but specifying  a term of the contract.  If the place of  actual delivery had been specified and it was a question merely  of communicating  the  route  by which the  goods  were  to  be delivered this would perhaps related the mode of performance of the contract.  But communication of the   place     where actual  delivery is to be given does not relate to the  mode of  performance but formation-of the contract.  It seems  to us,  with  respect, that the High Court reared  in  relating despatch  instructions  to the mode of  performance  of  the contract. 54 In the result we hold that the assessee mills is entitled to rebate under s. 5. We set aside the judgment of  the  High Court and answer the question as follows :               "The  revising  authority  was  not  right  in               holding that the sales in dispute were not for               delivery outside Uttar Pradesh.  Further,  the               applicant was entitled to rebate under S. 5 of               the Act."               The appellant will have his costs incurred  in               the High Court and here.  One hearing fee. Appeal allowed. 55