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PETITIONER: STATE OF ANDHRA PRADESH

       Vs.

RESPONDENT: KOLLA SREERAMA MURTHY

DATE OF JUDGMENT: 02/04/1962

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N.

CITATION:  1962 AIR 1585            1963 SCR  (1) 184  CITATOR INFO :  R          1973 SC2061  (12)  D          1975 SC1996  (5)  D          1978 SC 389  (22,46)

ACT: Sales   Tax-Delivery  order-Endorsement-Property  in   goods passes  on  taking  delivery by  the  last  endorsee-Effect- Original  holder of delivery order, if liable to  pay  sales tax-Madras General Sales tax Act, 1939 (Mad. IX of 1939). s. 3.

HEADNOTE: The  respondent  was a dealer in gunny bags.   He  purchased gunnies from the Mills on terms of a written contract  which was on a printed form.  The Mills after receiving a part  of purchase  price,  issued  "delivery  orders"  directing  the delivery  of goods as per the contract.  Instead  of  taking delivery himself the respondent endorsed the delivery orders and  these passed through several hands before the  ultimate holder  of  the delivery order presented it  the  Mills  and obtain delivery of the gunnies from them,  185 At  the date of the contract for purchase, the  goods  which were  the  subject matter of the purchase  were  not  appro- priated to the contract so that there was no completed  sale since no property passed but only an agreement of sale. The Sales Tax Officer assessed the respondent and  collected sales  tax  on  the said  transactions.   The  question  was whether  the transactions were or were not "Sales of  goods" within s. 3 the Madras Sales Tax Act, 1939, so as to  enable the turnover represented by these sales to be brought to tax under  the Act, or were mere sales or transfers of  delivery orders:  and further what was the effect of the property  in the  goods passing to the ultimate endorsee of the  delivery order. Held,  that  the  principle laid-  down  in  Butterworth  v. Kingway  Motors Ltd., which is the basis of the decision  in the  case  of Bayyana Bhimayya v. State of  Andhra  Pradesh, would equally apply to the facts of the present case.

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Bayyana  Bhimayya v. Government of Andhra Pradesh, (1961’  3 S. C. R. 267 and Butteiworth v. Kingway Motors Ltd. (1954) 2 All E. R. 694, applied.

JUDGMENT: CIVIL APPELLATE, JURISDICTION       Civil Appeal No. 368 and 369 of 1961.. Appeals from the judgment and decree dated June 27, 1957, of the  Andhra Pradesh High Court in S. A. Nos. 194 and 195  of 1954. K.   N. Rajgopal Sastri and P. D. Menon, for the appellants. A.V.  Viswanatha  Satstri  and  T.  Satyanarayana,  for  the respondents. 1962.  April 2. The Judgment of the Court was delivered by AYYANGAR,  J.-These two appeals are before us by  virtue  of certificates of fitness granted by the High Court of  Andhra Pradesh  under Art. 13 3 (1) (c) of the  Constitution.   The State of Andhra Pradesh is the appellant in both the appeals and  one  Kolla Sreerama Murthy a dealer in  gunnies-is  the respondent in each of them and the point involved relates to the liability of the respondent to Sales 186 Tax  in respect of the transactions to which we shall  later refer. Civil Appeal No. 368 of 1961 arises out of original suit No. 268  of  1951 in the file of the  District  Munsif’s  Court, Rajahmundry   by  the  respondent  for  setting   aside   an assessment  and  obtain refund of a sum  of  Its.  2,941/7/- which was partly the sum assessed and collected as sales-tax for the assessment year 1947-48, while Civil Appeal No.  369 of 1961 is from a similar suit praying for dentical  reliefs in  respect of the year 1946-47, the amount of which  refund was  sought however being Rs. 1,631/12/-.  The basis of  the suits  briefly was that the transactions whose turnover  was included  in  his  assessment, were not "  sales  of  goods" within  the Madras General Sales Tax Act 1939 (Mad.   IX  of 1939)  and  that  consequently the  assessment  to  tax  and recovery of the same were illegal and without  jurisdiction. Both  the  suits  were  decreed  by  the  District  Munsif-a decision  which  was affirmed by the  Subordinate  Judge  of Rajahmundry on appeal by the State and by the High Court  of Andhra  Pradesh on further appeal also by the State.  It  is from  these  two  judgments and decrees in  the  two  second appeals that the’ present appeals have been brought. It  was  common ground that the respondent  was  a  "dealer" within  the Madras Sales Tax Act (which for  convenience  we shall  call  the Act) being " a person who  carries  on  the business   of  buying  or  selling  goods",  and  that   the transactions  whose legal character is now in  dispute  were put through by him by way of business.  Section 3 of the Act which  is  the charging section-enacts  that  "every  dealer shall pay for each year a tax on his total turnover for such year".  ’,Turnover" is defined in the Act as:               " ’Turnover’ means the aggregate amount               187               for which goods are bought or sold, or suppli-               ed or distributed, by a dealer either directly               or  through another, on his own account or  on               account  of  others whether for  cash  or  for               deferred payment or other valuable  considera-               tion  provided that the proceeds of the  sales               by  a person of agricultural or  horticultural               produce grown ’by himself or grown on any land

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             in which he has an interest whether as  owner,               usufructuary  mortgagee, tenant  or  otherwise               shall be excluded from his turnover". and clauses (c) and (h) of s. .2 of the Act define ,,’goods" and ’,sale" respectively thus :               " ‘goods’ means all kinds of movable  property               other  than  actionable  claims,  stocks   and               shares   and  securities  and   includes   all               materials, commodities and articles  including               those to be used in the construction,  fitting               out   improvement  or  repair   of   immovable               property or in the fitting out, improvement or                             repair  of movable property and  also  include s               all  growing crops, grass and things  attached               to  or  forming part of the  land  which  are’               agreed to be severed before sale or under  the               contract of sale".               "Sale with all its grammatical variations  and               cognate  expressions means every  transfer  of               the property in goods by one person to another               in the course of trade or business for cash or               for   deferred  payment  or   other   valuable               consideration and includes also a transfer  of               property in goods involved in the execution of               a  works  contract,  but does  not  include  a               mortgage, hypothecation, charge or pledge". The  only matter therefore which is in  controversy  between the  parties  is  as to whether the  transactions  to  whose details  we  shall presently refer,  ,Which  the  respondent admittedly entered into, wore, 188 or were not "sales of goods" within the Madras General Sales Tax  Act  (Act  IX of 1939) so as  to  enable  the  turnover represented  by these sales to be brought to tax  under  the Act. We  shall now set out the nature of the  transactions  which the  learned  Judges of the High Court have  held  have  not resulted  in "’a sale of goods" by the respondent so  as  to attract  the tax under the .charging section in  respect  of the  "turnover" represented by such sales.   The  respondent is,  as .stated earlier, a dealer in gunny bags.  The  gunny bags dealt with by him were those manufactured, in two mills known as Chittivalsa and Nellimerla Mills. both situated ’in Chittivalsa in Visakhapatnam District.  The purchase, by the respondent from the mills was on terms of a written contract which  was on printed form.  We shall set out  the  relevant terms  of one of the sample contracts for understanding  the point  involved, as it is common ground that every  contract entered  into by the respondent with the mills was  in  this form.   These contracts were entered into by brokers  acting for  the respondent and who sent him "bought-notes"  setting out  the  terms upon which the purchases had  been  effected from the mills, and one of these Ex.  Al, filed in O.S.  268 of  1951,  has  been treated as  typical.   It  recites  the purchase on behalf of the respondent of 30,000 bags from the Chittivalsa mills, specifies the. description of the  goods, the  manner of their packing and the fact that delivery  was to  be affected within a period of three months.  The  buyer was required to make a deposit of Rs. 15,/- per bale  within 24  hours after the contract was handed over to him and  the respondent  fulfilled  this requirement.  The  Mills  having thus  received  a part of the purchase  price,  they  issued ’delivery orders" directing the delivery of goods as per the contract  and  these were handed over to the  buyer  on  his

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honoring  a hundi for the value of the goods, the  buyer  in this case being the respondent.  It was common ground that 189 by the date when the delivery orders were issued, there were goods  answering  the contract description and  of  quantity sufficient to comply with the relativeterm in the  contract, in  the  godown of the mills wherefrom on the terms  of  the contract,  delivery was to be effected.  It was.open to  the buyer  himself to have gone to the mills and taken  delivery of the goods, but this was not done and it is the  departure in   this  respect  that  has  given  rise,  to  the   legal controversy  involved in these appeals.  Instead  of  taking delivery  himself, the respondent (and this appears to  have been  the practice of others as well) endorsed the  delivers orders  and  these passed through several hands  before  the ultimate  holder of the delivery order presented it  to  the mills  and obtained delivery of the gunnies from  them.   It need  hardly  be  stated that at  each  endorsement  of  the delivery  order  the price of the bales represented  by  the quantity specified in the delivery order would be  collected by  the  successive endorsers which would,  in  most  cases, include the profit, if it was a rising market.  The case  in the  Courts  below as well as before us was  argued  on  the basis  of this pattern of dealing.  The learned trial  Judge and the appellate Courts including the learned Judges of the High Court came to the conclusion that on these facts  there was  no  "sale  of goods" by  the  respondent,  because  the transaction  so far as he was concerned consisted merely  of the  endorsement of the delivery order issued by  the  mills and that the fact that the ultimate endorses of the delivery order  got delivery of the goods from the mills was  treated as irrelevant for considering whether by the transfer of the delivery  order  coupled with the delivery of the  goods  to such  endorsee, there was in fact a completed sale  effected by the ’respondent.  Put in another form the argument  which was  upheld  by the Courts below was that  the  transactions entered into by the respondent were mere sales or  transfers of delivery orders and not any "sale of goods" so 190 as to bring them to charge under s. 3 of the Act.  It is the correctness  of  this conclusion that is  in  controvery  in these appeals. It  is unnecessary for us to canvass in detail the  argument which  found favour with the Courts below by reason  of  the judgment of this Court in Bayyana Bhimayya versus Government of  Andhra Pradesh (1), where the points urged in favour  of the   respondent   were  considered   and   repelled.    The correctness of this decision was not disputed before US. Dealing  with  the transaction involved  in  the  successive endorsements of the delivery orders issued to the  purchaser from the Mills, this Court said :               "In so far as the third parties were concerned               they had purchased the goods by payment of  an               extra price, and the transaction must, in  law               and in fact, be considered a fresh transaction               of  sale between the appellants and the  third               parties.   A delivery order is a  document  of               title  to goods (vide S. 2(4) of the  sale  of               Goods  Act).  and  the  possessor  of  such  a               document has the right not only to receive the               goods  but also to transfer it to  another  by               endorsement  or  delivery.  At the  moment  of               delivery  by the Mills to the  third  parties,               there were, in effect, two deliveries, one  by               the Mills to the Appellants, represented in so

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             far  as  the  Mills  were  concerned  by   the               appellants’ agents, the third parties and  the               other, by the appellants to the third  parties               as  buyers  from the  appellants.   These  two               deliveries might synchronise in point of time,               but were separate in point of fact and in  the               eye  of  law.  If a dispute arose  as  to  the               goods delivered under the kutcha delivery               (1)   [1961] 3 S C. R 26                191               order to the third parties against the  Mills,               action could lie at the instance of the appel-               lants.  be  third  parties  could  proceed  on               breach of contract only against the appellants               and  not against the Mills.  In  our  opinion,               there being to separate transactions of  sale,               tax  was  payable at both the points,  as  has               been correctly pointed out by the tax authori-               ties and the High Court". The  position would appear to be this.  At the date  of  the contract for purchase by the respondent the goods which were the  subject  of the purchase were not appropriated  to  the contract,  so  that  there was no completed  sale  since  no property passed, but only an agreement for sale.  Whether or not  the goads which were the subject of the  agreement  for sale  were in existence on the date of the  agreement,  they were  existing  goods  on the date the  delivery  order  was issued.,  and  they  would have  been  appropriated  to  the contract  and property in the appropriated goods would  have passed  to  the respondent if he had cared  to  present  the delivery order at the Mills godown.  The respondent  however without taking delivery himself, endorsed the delivery order and enabled his endorsee to take delivery and that  endorsee (and  it makes no difference to the principle if  a  further endorsee from him did so) took delivery of the goods and the goods  became appropriated to the contract and  property  in goods passed to him.  One view to take, and it was this that found favour with the Courts below, was that since no  goods had been appropriated to the respondents contract before the delivery  orders were endorsed, the successive  endorsements of  the delivery orders were not "sales of goods"  but  were merely  transfers  of the delivery order as  some   paper, though this was of some value in that it enable the endorsee to approach the mills and obtain delivery of the goods.  The result of the acceptance of this 192 view  would be to eliminate the respondent  altogether  from the  chain and so to speak, treat the ultimate  endorsee  as the purchaser from the mills.  Naturally if that was correct the respondent would have effected no purchase of the  goods nor,  of  course, any sale of goods, there  being  only  one transaction of sale by the mills to the ultimate endorsee of the delivery order.  In Davvana’s case this Court held  that this was not a correct understanding of the legal effect  of the  endorsment of the delivery orders No doubt, without  an appropriation of goods to an agreement for sale there cannot be  a completed contract in which the property in the  goods passes  to  the purchaser and unless property in  the  goods passes,  there is no sale.  But the question is what is  the effect of the property in the goods passing to the  ultimate endorsee of the delivery order. In  this connection reference could usefully be made to  the decision in Butterworty v. Kingsway Motors Ltd. (1).  It was a  case where a hirer of a motor-car under  a  hire-purchase agreement under which the necessary payments of  installment

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etc. bad not been made and so his title had not matured(i.e. where  the  title  remained in the  owner)  transferred  the vehicle or such rights as he possessed in it, to others  and the  ultimate  transfers paid the balance  of  the  purchase price to the owner and thus acquired title to the motor-car. The question before the Court related to the effect of  this completion  in the title of the ultimate transferee  on  the legal  position  of the intermediate  parties.   Pearson  J. dealing with this matter expressed himself in these terms               "The various purported sales all took place at               times  when  Bowmaker,  Ltd.  were  still  the               owners  of the car, so that all the  purported               sellers in this rather long chain had no title               to  it at the times when the  purported  sales               were made.  But on or about               (1)   [1954] 2 AU E. R. 694                                    193               July  25,  1952 Miss Rudolph acquired  a  good               title  from Bowmaker, Ltd., or, at  any  rate,               made  payment  to Bowmaker,  Ltd.  which  ext-               inguished  their  title and  induced  them  to               relinquish  any  claim which they had  to  the               car.  I think that the right view is that Miss               Rudolph acquired the title as between her  and               Bowmaker, Ltd. but I further hold on authority               that  the title so acquired went to  feed  the               previously defective titles of the  subsequent               buyers      and     ensured      to      their               benefit.............. We  consider that it is this principle that forms the  basis of the decision of this Court in Bayyana’s case and that  it would equally apply to the facts of the present case. Learned  Counsel for the respondent placed some reliance  on the penultimate paragraph of the judgment in Bayyana’s  case where this Court referring to the judgments now under appeal stated:               "The  facts were different, and  the  Division               Bench   itself  in  dealing  with  the   case,               distinguished-  the  judgment  under   appeal,               observing  that  there was no  scope  for  the               application of the principles laid down in the               judgment  under appeal, because in  the  cited               case,  the property in the goods did not  pass               from  the Mills to the assessee and there  was               no  agreement of sale of goods to be  obtained               in  future between the assessee and the  third               party’. We are unable to read this observation as a decision by this Court  that the High Court was right in  distinguishing  the earlier  decision.  The circumstance that in Bayyana’s  case besides the contract of purchase of the gunny bags there was a  further agreement that the mills would give  delivery  of the  goods to the nominees of the purchaser does not  really affect the principle, in view of the admitted 194 fact  that on the uncontradicted evidence ’in this case,  it was  the common understanding of the parties that the  mills would  honour  the  endorsement of the  delivery  order  and deliver  the  goods  contracted  for  to  the  endorsee  who produced it. Learned Counsel for the respondent made a suggestion that in the  present  case  there  was  no  proof  that  the   goods represented  by  the  contract had  been  delivered  to  the ultimate  endorsee, with the result that the  appellant  had not established a "sale of goods" at any stage.  No doubt if

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on the facts there was no delivery of the goods to the  last holder  of the delivery’ order, the entire fabric  on  which the case for the appellant rests would disappear.  There  is however no factual basis for this submission.  This fact was not   alleged  by  the  respondent  at  any  stage  of   the proceedings  starting  from the plaint in the Court  of  the District  Munsif  right up to the statement of the  case  in this Court and besides, all the Courts have proceeded on the basis  that such delivery was effected to the last  endorsee of  the delivery order but they held that such delivery  did not  become  a sale by the respondent so as to  attract  the liability  to tax under s. 3 of the Act.  We have  therefore no hesitation in rejecting this argument. Before concluding, however, it is necessary to refer to  one matter. 0. S. 268 of 1951 was filed on July 25, 1951 and the plaint  in  O.S. 309 of 1951 on September  6,  1951.   Even, however,  before  that  date, on May  15,  1951  the  Madras General Sales Tax Act, 1939 was amended by Madras Act VI  of 1951  by which, inter alia, s. 18A was added to  the  parent Act.  This section nuns:               ",No suit or other proceeding shall, except as               expressly provided in this Act, be  instituted               in  any Court to set aside or modify any  ass-               essment made under this Act."                                    195 No  plea  based upon the bar contained in this  section  was raised before ’any Court right up to the High Court and  not even  in the grounds of appeal to this Court or even in  the appellant’s  statement of the case as originally filed.   At the beginning of 1962 however the appellant applied to  this Court for leave to urge additional grounds and in  pursuance of the leave so granted it has raised a point that the  suit should  have  been  dismissed by the  Courts  below  as  not maintainable, being barred by the section just now set  out. In  answer to this new plea the respondent put  forward  two objections:  (1)  that on a proper construction  of  s.  18A particularly  taken in conjunction with the other  amendment effected by Act VI of 1951 by which is. 18A was inserted  in the parent Act, the section had no retrospective effect  and could be invoked only in the case of those assessments which were completed after the new section came into force. (2) In the  alternative,  he raised the contention that if  s.  18A barred  even suits in respect of illegal  assessments  which had  been completed and had become final, the provision  was unconstitutional  as violative of rights guaranteed by  Art. 19(1)(f)  &  (g).   Though we  heard  arguments  of  learned Counsel  in  relation  to  these  points,  we  consider   it unnecessary to make any pronouncement on them in view of the conclusion  that  we  have  reached on  the  merits  of  the appeals. The  result  is that these appeals succeed and  are  allowed with costs.  Hearing fee one Set.                                 Appeals allowed. 196