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PETITIONER: G. A. GALIAKOTWALA & CO. (P) LTD., MADRAS

       Vs.

RESPONDENT: THE STATE OF MADRAS

DATE OF JUDGMENT22/03/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) BEG, M. HAMEEDULLAH SINGH, JASWANT

CITATION:  1976 AIR 2084            1976 SCR  (3) 717  1976 SCC  (3)  14

ACT:      Central Sales  Tax Act Ss. 3, 6(2), 8(3) and 8(5)-Scope of-Goods despatched  by "S"  in Bombay  to "B" in Madras who has an  agreement to  purchase  with  "A"  to  whom  Railway Receipts were  sent by  "S’ as  per directions  and separate agreement-Transaction is  an ’Inter  state’ sales  within S. 3(b) of  the C.S.T.  between "S"  and "A"-Exemption u/s 8(5) applies only  to cases  where the  claimant paid tax himself under the  State Act-Exemption  u/s 6(2)  is  applicable  on proof that the buyer is a "registered dealer".

HEADNOTE:      As per  the directions  of the appellant and on receipt of the  requisite licence  under the  cotton  Transport  Act 1923, for  transport of cotton, the Bombay seller despatched cotton to  the ultimate  buyer mills at Madurai and sent the Railway Receipts  to the  appellant who endorsed the same in favour of  the Mills  after collection  of  the  substantial portion of the sale price. The sales Tax authorities treated the transaction as intra sales and assessed the Mills as the last purchaser  under  the  Madras  General  Sales  Tax  and assessed the appellant u/s 3(b) of the Central Sales Tax Act 1956. The  question is  whether  in  the  circumstances  the transaction is  one of inter state sales falling u/s 3(a) or second sales under state sales u/s 3(b) of the Central Sales Tax Act.      The contentions  of the  appellant in  this court were: (1) The  sale of  cotton by  the appellant  assessee to  the buyer mill  fell within  the scope of S. 3(a) of the Central Act as  there was movement of goods from Bombay to Madras as a result  of covenant  in or  incidental to  the contract of sale and  therefore u/s  9(1) of  the Central  Sales Tax the jurisdiction lay  with Bombay  state from  where  the  goods moved from  and (ii)  Since the  sale being  in  respect  of declared goods,  is exempt  by the  terms of notification of Order No.  3602 dated 28-12-63 issued u/s 8(5) of the C.S.T. and (ii) the turnover was exempt u/s 6(2) of C.S.T.      Dismissing the appeal the court, ^      HELD: (1)  The significant  feature of  the transaction viz. sending of the Railway Receipts by the Bombay seller to

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the appellant who thereafter endorsed the same to the mills, shows  that   (a)  there  could  not  be  any  unconditional appropriation of  the goods  at Bombay  towards the contract entered into  between the  appellant; (b)  It was  an  inter state sales  to the  appellant and the sale by the appellant to the mills is an intra-state sales in as much as, the mere fact that  the goods  were consigned by the Bombay seller to the mills in accordance with the direction will not make the transaction inter state sales. [718G-H, 719A-B]      (ii) The  State sales Tax authorities, (respondent) had jurisdiction to  assess the  transaction  for  sale  by  the appellant to the mills u/s 3(b) of the Central Act. [719C]      (iii) The  exemption u/s  8(5) applies  only  to  cases where the  claimant had paid tax himself u/s 4 of the Madras Act in  respect of  local sales  preceding the  inter  state transactions. In  the instant case, as the appellant did not pay tax  u/s 4  of the  Madras Act,  he was  not entitled to claim exemption under the Government order. [719 E-F]      (iv) A  dealer claiming  exemption for  subsequent sale during the  movement of  goods from  one state to another is required by  s. 6(2)  of the  Central Act  to furnish to the prescribed authority in the prescribed manner a certificate 718 duly filled  and signed by the registered dealer by whom the goods were  purchased containing  the  particulars.  In  the instant case,  the appellant  produced  the  form  from  the Bombay seller  but did  not  prove  that  his  buyer  was  a registered  dealer   in  cotton  which  disentitled  him  to exemption u/s 6(2) of the Act. [720 B-C]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1191 of 1973.      Appeal by  special leave  from the  Judgment and  Order dated 7-11-72 of the High Court of Madras in T.C. No. 197 of 1968.      C. K.  Viswanatha Iyer,  Mrs. S. Gopalakrishnan for the Appellant.      S. T.  Desai, A.  V. Rangam  and Miss A. Subhashini for the respondent.      The Judgment of the Court was delivered by      RAY, C.  J.-This appeal  by special  leave is  from the judgment dated 7 November, 1972 of the High Court of Madras.      The principal  question in  this appeal  is whether the sales of cotton by the appellant to the mills at Tirunelveli and Karur  were inter-State  sales under section 3(a) of the Central Sales  Tax Act  called the Central Act or are second sales under  State Sales  under section  3(b) of the Central Act.      The appellant  has its place of business at Coimbatore. The Mills are situated within the State of Madras. The Mills entered into an agreement with the appellant for purchase of cotton. The appellant in turn placed orders with its sellers at Bombay for purchase of cotton. The appellant directed its Bombay sellers  to  despatch  the  goods  to  the  mills  as consignees. The  Bombay seller  sent the  consignment to the mills but  the railway  receipts were  sent  by  the  Bombay seller to  the appellant.  The appellant  then endorsed  the same  in  favour  of  the  mills  after  collection  of  the substantial portion of the sale price.      The appellant contended that the consignments were sent directly by  the Bombay seller to the mills, and, therefore, these were  direct inter-State sales by the Bombay seller to

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the mills  and that  the property in the goods passed to the mills when  the goods  were loaded  at Bombay. The Sales Tax Authorities found that the Mills were the last purchaser and therefore these were inter-State sales between the Appellant and the Mills.      A most significant feature is that the railway receipts were sent  by the  Bombay seller  to the  appellant, and the appellant thereafter  endorsed the same to the mills. It is, therefore,   apparent   that   there   could   not   be   an unconditional, appropriation  of the goods at Bombay towards the contract  entered into  between the  appellant  and  the mills. The  property in the goods passed only when the mills took delivery  of the  railway receipts  from the appellant. The Bombay  seller dealt with the railway receipts in such a way that it is proved that the intention of the appellant to part with  the goods  in any  event is not until substantial payment is  made by  the mills.  The Bombay  seller  had  no privity of contract with the Mills. The 719 Bombay seller  sold the  goods to the appellant. The sale by the Bombay  seller to the appellant was an inter-State sale. The sale  by the  appellant to  the mills  cannot be said to have caused  the interState movement of goods. The mere fact that the  goods were  consigned by  the Bombay seller to the mills in accordance with the direction of the appellant will not make the transactions inter-State sales. The sale by the Bombay seller  to the  appellant occasioned  the movement of goods. The  High Court  was correct in holding that the sale by the Bombay seller to the appellant is an inter-State sale and the  sale by the appellant to the mills is not an inter- State sale.  Therefore, the  State Sales Tax Authorities had jurisdiction to  assess the  transaction  for  sale  by  the appellant to  the mills  under section  3(b) of  the Central Act.      The appellant  raised  a  second  contention  that  the appellant is entitled to the benefit of Government Order No. 3602 which exempts from sales tax declared goods sold in the course of  inter-State trade  or commerce where tax has been levied or  collected in respect of sales or purchase of such declared goods  under section  4 of the Madras General Sales Tax Act,  1959 called  the Madras  Act. The Government Order No. 3602  was issued  in exercise  of  powers  conferred  by section 8(5)  of the  Central Act.  The appellant  contended that the mills paid the tax on their purchases of cotton and the same  transaction could  not be brought to charge in the hands  of   the  appellant   as  inter-State  sale.  If  the transaction attracts levy of tax under the Central Act it is not taxable  under the Madras Act. If the mills had paid tax under the  impression that their purchases are taxable under the Madras  Act that  will not enable the appellant to claim the benefit  of the exemption. The exemption applies only to cases where  the claimant has paid tax himself under section 4 of  the Madras Act in respect of local sales preceding the inter-State transactions.  The appellant in the present case did not  pay tax under section 4 of the Madras Act. The High Court, therefore,  correctly held that the appellant was not entitled to claim exemption under the Government Order.      The third  contention of  the appellant  was  that  the appellant was  entitled to  exemption in respect of turnover under section  6(2) of  the Central Act. Section 6(2) of the Central Act  lays down  that where  a sale  in the course of inter-State trade  or commerce  of goods  of the description referred  to   in  section  8(3)  of  the  Central  Act  has occasioned the  movement of  goods from one State to another or has  been effected by a transfer of documents of title to

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such goods  during their movement from one State to another, any subsequent 720 sale to a registered dealer during such movement effected by a transfer  of documents of title to such goods shall not be subject to  tax under  the Act.  A dealer claiming exemption for subsequent  sale during  the movement  of goods from one State to  another is required by section 6(2) of the Central Act to furnish to the prescribed authority in the prescribed manner  a   certificate  duly   filled  and  signed  by  the registered  dealer   by  whom   the  goods   were  purchased containing  the   particulars.  In  the  present  case,  the appellant would  be entitled  to exemption  in production of appropriate form  by the  Bombay seller  and by showing that the buyer is a registered dealer. The appellant produced the form from Bombay seller but did not prove that his buyer was a registered  dealer  in  cotton.  Therefore,  the  Tribunal rightly  held   that  the  appellant  was  not  entitled  to exemption under section 6(2) of the Act.      The appeal is, therefore, dismissed with costs. S.R.                                       Appeal dismissed. 721