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PETITIONER: ASSOCIATED CEMENT COMPANIES LIMITED, KYMORE

       Vs.

RESPONDENT: COMMISSIONER OF SALES-TAX, INDORE, ETC. ETC.

DATE OF JUDGMENT09/04/1991

BENCH: MISRA, RANGNATH (CJ) BENCH: 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.

HEADNOTE:      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

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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.

JUDGMENT:      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 whereunder 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

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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

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         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

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costs. V.P.R.                                Appeals dismissed.                                                          256