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PETITIONER: STATE OF TAMIL NADU

       Vs.

RESPONDENT: DHARANGADHARA TRADING CO. LTD.

DATE OF JUDGMENT03/05/1988

BENCH: KANIA, M.H. BENCH: KANIA, M.H. PATHAK, R.S. (CJ)

CITATION:  1988 SCR  (3) 805        1988 SCC  (3) 462  JT 1988 (2)   270        1988 SCALE  (1)852

ACT:      Central  Sales   Tax  Act,  1956:  Section  3-Assessee- Manufacturer-Booked goods to destinations as required by out of State  buyers-Only documents  of  title  handed  over  to Trading Company-Nature  of sales  by Manufacturer to Trading Company-Whether interstate or intra-state.

HEADNOTE:      An agreement was entered into by Dharangadhara Chemical Works Ltd.  (Chemical Company)  for  the  sale  of  all  its products to  the respondent (Trading Company). The agreement contained general  terms; and  the actual quantity sold, the sale price, the booking station and the destination stations were to  be determined  in the  actual contracts for sale in respect of  definite or  specified quantities.  The mode  in which sales  were effected  was that  the respondent Trading Company used  to obtain orders from out of State buyers, and enter into  agreements of purchase with the Chemical Company for these  specified quantities.  All the  goods sold  under these contracts  of sale were booked at a particular railway station in  the State  to the  various  places  outside  the State, where  buyers from  the  respondent  Trading  Company required  the  goods  and  then  the  railway  receipts  and invoices concerned  were endorsed  and handed  over  to  the respondent Trading Company.      In the assessment order for the assessment year 1980-81 the assessing  authority treated  the sales  effected by the Chemical Company to the respondent Trading Company as intra- State sales  and those  by the respondent Trading Company to the out  of State  buyers as inter-State sales falling under s. 3  of the  Central Sales  Tax Act,  1956. The  assessees, namely, the  Chemical Company  and  the  respondent  Trading Company  filed   appeals  before   the  Appellate  Assistant Commissioner contending  that sales  by the Chemical Company to the  respondent Trading  Company  were  also  inter-State sales as  these sales  were completed  by  the  delivery  of railway receipts  and invoices  only after  the  inter-State journey of  the goods had commenced. The Appellate Assistant Commissioner dismissed the appeals.      Both the assessees filed appeals to the Tribunal. After considering 806

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the manner  in which  the sales were effected and despatches made by  the Chemical  Company and  examining some  specimen orders  placed   by  respondent  Trading  Company  with  the Chemical Company,  the Tribunal  came to the conclusion that delivery  was  effected  by  the  Chemical  Company  to  the respondent Trading  Company  by  delivery  of  documents  of title, namely,  the receipts  of invoices  and  the  railway receipts and allowed the appeals.      The High  Court upheld  the views  of the  Tribunal and dismissed the revision petitions filed by the State.      In the  appeals by  the State it was contended that the first set of sales by the Chemical Company to the respondent Company were  local or  intra-State sales, because under the agreement the  delivery was  to be  effected at  the booking stations.      Dismissing the appeal, ^      HELD: The  orders were  placed  for  booking  specified goods to  out of State buyers and the Chemical Company never gave physical  delivery  of  the  goods  to  the  respondent Trading Company  but booked the goods to the destinations as required by  the out  of State buyers and merely handed over documents of  title to  the respondent  Trading Company. The movement of  the goods  from the  State to the outside State was occasioned  by the  terms of the contract themselves and the sales were inter-State sales falling under-sub-s. (a) of s. 3  of the  Central Sales  Tax Act,  1956.  Alternatively, since the  deliveries of  goods sold  were effected  by  the transfer of  documents after  the movement of the goods from the State to the other States had commenced, the sales could be regarded  as covered under sub-s. (b) of s. 3 of the Act. [809GH; 810A-B]      The agreement entered into by the Chemical Company with the  respondent   Trading  Company   is  merely   a  general agreement. The  actual terms  of the  contracts of  sales as well as  the instructions of the out of State buyers have to be taken into account in determining the nature of the sales in question. [810E-F]      The conclusion  arrived at  by the  Tribunal as well as the High Court that the sales by the Chemical Company to the respondent Trading  Company were  inter-State  sales  cannot therefore be faulted. [810F]      Union of  India &  Anr. v. K.G. Khosla & Co. (P) Ltd. & Ors., [1979] 3 S.C.R. 453 at p. 460, relied on. 807

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 619 (NT) of 1975.      From the Judgment and Order dated 11.7.1973 of the High Court of Madras in Tax Case No. 2 of 1970.      R. Mohan for the Appellant.      K. Rajendra Choudhary for the Respondent.      The Judgment of the Court was delivered by      KANIA, J. This is an appeal against the common judgment of a  Division Bench  of the  High Court  of  Judicature  at Madras in  Tax Cases Nos. 2 & 3 of 1970. The appeal has been preferred pursuant  to special  leave granted  by this Court under Article 136 of the Constitution of India.      The facts giving rise to the appeal are as follows:      The Dharangadhara Chemical Works Ltd. is a manufacturer of Caustic  Soda and  certain other chemicals. Dharangadhara Chemicals  Works  Ltd.  (referred  to  hereinafter  as  "the

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Chemical Company")  entered  into  an  agreement  dated  9th August, 1957  under which it agreed to sell all its products to Dharangadhara Trading Co. Pvt. Ltd. (referred hereinafter as "the  Trading Company").  Under  clause  1  of  the  said agreement, the  Chemical Company  agreed to confine the sale of all  the products  manufactured by it at all its works to the Trading  Co. for a period of 5 years from the 1st day of March,  1958.  Clause  2  of  the  agreement  provided,  the Chemical Co.  would make  the sales  directly to the Trading Co. on  a principal  to principal  basis against  offers  or indents. Clause  3 provided  that the selling price would be determined by  the Board of Directors of the Chemical Co. on the basis  of ex-factory  or F.O.R.  at  booking  or  F.O.R. destination stations  as decided  upon by the Directors. The delivery of  the goods  would, however,  be given  F.O.R. at booking stations. The Trading Co. would make payments to the Chemical Co.  within one  month from  the date  of supply or sale  of   goods  by  the  Chemical  Co.  Pursuant  to  this agreement, sales  were effected  by the  Chemical Co. to the Trading Co.  Although the  aforesaid agreement contained the general terms  as  set  out  earlier,  neither  the  booking stations, nor  the destination  stations nor  the sale price were given in the said agree- 808 ment. The  Trading Co.  used  to  given  directions  to  the Chemical Co.  for despatching  specified quantities of goods to the  stations named  by the  Trading Co. and as per these directions, the Chemical Co. booked the goods at the booking station which  was invariably Arunuganeri Railway Station in the  State   of  Tamil   Nadu,  showing  themselves  as  the consignors and  the Trading  Co. as  the consignees  of  the goods specified  in that contract of sale. After booking the goods, the  invoices were  handed over to the Trading Co. by the Chemical  Co.  It  may  be  mentioned  that  the  actual quantities sold, the sale price, the booking station and the destination stations were not determined under the aforesaid agreement of  9th August,  1957, but in the actual contracts of sale  in respect of definite or specified quantities. The mode in  which sales  were made  was that  the  Trading  Co. obtained orders  from out  of State  buyers and entered into agreement of  purchase  with  the  Chemical  Co.  for  these specified  quanities.   All  the   goods  sold  under  these contracts of  sale were  booked  at  the  aforesaid  railway station in  Tamil Nadu  to the  various places  outside  the State of  Tamil Nadu  where  buyers  from  the  Trading  Co. required the  goods and  after  the  goods  were  booked  as aforesaid on  the railway,  the  railway  receipts  and  the invoices concerned  were endorsed  and handed  over  to  the Trading Co.      Admittedly, as  pointed out by the Tribunal, there were two sets  of sales,  one by  the Chemical Co. to the Trading Co. and  the second by the Trading Co. to the various out of State buyers.  In the  original  assessment  order  for  the assessment year  1961-62 made by the Sales Tax Officer, both the sales  by the  Chemical Co.  to the  Trading Co. and the sales by  the Trading  Co. to  the  out  State  buyers  were treated as  inter-State sales.  Consequently, Central Sales- tax was  levied on  the first  sale, but  not on  the second sale. This  assessment  order  was  revised  and  under  the revised assessment order the assessing authority treated the sales effected  by the  Chemical Co.  to the  Trading Co. as intra-State sales  and the sales effected by the Trading Co. to the  out of  State buyers  as inter-state  sales  falling under Section  3 of  the Central  Sales Tax  Act, 1956.  The assessees, namely,  the Chemical  Co. as well as the Trading

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Co.   filed   appeals   before   the   Appellate   Assistant Commissioner contending that both the said sales were inter- state sales. It was contended by the assessee that the sales by the  Trading Co.  to the  out of  State  purchasers  were admittedly inter-state  sales and  as far  as sales  by  the Chemical Co.  to the  Trading Co. were concerned, these were also inter-state  sales as  the sales  were completed by the delivery 809 of railway  receipts and invoices only after the inter-state journey of  the goods  had commenced. These contentions were rejected  by   the  Appellate  Assistant  Commissioner,  who dismissed the  appeals. Both  the  assessees  filed  appeals against   the   decisions   of   the   Appellate   Assistant Commissioner to  the Tribunal. The Tribunal allowed both the appeals.      The Tribunal  pointed out  that there  were two sets of sales, the  second set of sales by the Trading Co. to out of State buyers  was admittedly  inter-state in  character. The Trading Co. had filed necessary ‘E-1’ forms and ’C’ forms in these cases and the transactions, therefore, fell within the scope of  Section 6(2)(B)  of the  Central Sales Tax Act and were exempt  from tax  under local  Sales Tax Act as well as the Central  Sales Tax  Act. As  far as  first set of sales, namely, by  the Chemical  Co. to Trading Co. were concerned, it was  pointed out  that although under the agreement dated 9th August, 1957 the sales were agreed to be ’F.O.R. Booking Stations’ and  the booking  station was  in Tamil  Nadu, the delivery of goods could be either by physical delivery or by handing over  documents of  title. The delivery contemplated in the  agreement was  not actual  physical delivery, as the place of  delivery was  neither seller’s  place of business, nor the buyers’ place of business. Considering the manner in which the  sales were  effected and  despatches made  by the Chemical Co.,  and  after  examining  some  specimen  orders placed by  the  Trading  Co.  with  the  Chemical  Co.,  the Tribunal came  to conclusion  that the delivery was effected by the  Chemical Co.  to the  Trading  Co.  by  delivery  of documents of  title, namely, the respective invoices and the railway receipts. The nature of sales by the Chemical Co. to the Trading  Co. and  the question  whether they were inter- state sales  had to  be decided  after further  taking  into account the  further instructions  given by  the buyers. The actual terms  of the  sales have to be determined not merely under the agreement dated 9th August, 1957 as that agreement was a general agreement which did not specify the quantities to  be   sold,  the   sale  price,   booking  stations,  the destination stations,  and so  on, but  these  actual  terms could be determined only by taking into account the terms on which and  the manner in which the actual sales were made by the Chemical  Co. to  the Trading Co. For ascertaining these terms, the  Tribunal examined  some of the subsequent orders placed by  that Trading  Co. on the Chemical Co. Taking into account all  these, the  Tribunal found  that as  the orders were placed  for booking,  specified goods to out of station buyers, and the Chemical Co. never give physical delivery of the goods  to the  Trading Co.,  but booked the goods to the destinations as  required by  the out  of state  buyers  and merely handed  over documents of title to the Trading Co. It was clear that the movement of the goods 810 from the  State of  Tamil Nadu  to the  outside  States  was occasioned by  the terms  of the contract themselves and the sales were  inter-state sales falling within Section 3, Sub- section  (a)   of  the   Central  Sales   Tax   Act,   1956.

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Alternatively, if  a view  were taken that the sales did not fall under  Sub-section (a)  of Section 3, the deliveries of goods sold  were effected by the transfer of documents after the movement  of the  goods from  Tamil Nadu  to  the  other States had  commenced and  the sales  could be  regarded  as covered under  Sub-section (b)  of Section  3 of the Central Sales Tax  Act. From this decision of the Tribunal, Revision Petitions under  Section 38  of the Tamil Nadu General Sales Tax Act  were preferred  by the  State of  Tamil Nadu to the Madras High  Court. The  High Court  upheld the views of the Tribunal and  dismissed both  the Revision  Petitions  which were numbered  as Tax  Cases Nos.  2 and  3 respectively. An appeal was preferred by the State in the case of the Trading Co., namely,  the case  pertaining to  the assessment of the sales from Chemical Co. to the Trading Co.      The only  submission advanced  by Mr.  Mohan,  learned, counsel for  the appellant,  was that there were two sets of sales, namely, by the Chemical Co. to the Trading Co. and by the Trading Co. to the out of State buyers. It was submitted by him  that the first set of sales, namely, by the Chemical Co. to  the Trading  Co.  were  local  or  intrastate  sales because under  the agreement  dated  9th  August,  1957  the delivery was  to be  effected at the booking station. In our view, as the Tribunal has rightly pointed out, the agreement dated 9th August, 1957 is merely a general agreement and the actual terms  of the  contracts of  sales  as  well  as  the instructions of  the out  of state  buyers have  to be taken into account  in determining  the nature  of  the  sales  in question. In view of this, the conclusions arrived at by the Tribunal as  well as  the High  Court that  the sales by the Chemical Co.  to the  Trading  Co.  were  inter-state  sales cannot be  faulted and the learned counsel for the appellant has not advanced a single reason showing how that conclusion is incorrect.  In fact,  this conclusion  finds some support from the observations of this Court in Union of India & Anr. v. K.  G. Khosla  & Co. (P) Ltd. & Ors., [1979] 3 S.C.R. 453 at p. 460.      In the  result, we  find that  there is no merit in the appeal and it must fail. The appeal is dismissed with costs. N.P.V.                                Appeal dismissed. 811