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CASE NO.: Appeal (civil)  5272 of 2007

PETITIONER: M/s.I.D.L.Chemical Ltd

RESPONDENT: State of Orissa

DATE OF JUDGMENT: 16/11/2007

BENCH: A.K.MATHUR & MARKANDEY KATJU

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 5272 OF 2007 {Arising out of S.L.P.(c) No.8377 of 2006]

A.K.MATHUR,J.

1.        Leave granted.

2.              This appeal is directed against the order passed by the  Division Bench of the Orissa  High Court dated 11.4.2006 whereby the  High Court has reversed the finding of the Orissa Sales Tax  Tribunal.

3.              Brief facts which are necessary for disposal of this  appeal are that the assessment under the Central Sales Tax Act, 1956  for the years 1976-77, 1977-78 to 1983-84, 1989-90 and 1990-91 was  made in respect of assessee, M/s. IDL Industries ( formerly IDL  Chemicals Ltd.),  a  company under the Indian Companies Act having  its registered office at Kukatpalli, Andhra Pradesh engaged in  manufacturing explosive, detonators and accessories and holding  licence under the Explosive Act, 1984. It has a manufacturing unit  at Sonaparbet near Rourkela in Orissa which is also registered under  both Orissa Sales Tax Act, 1947 and the Central Sales Tax Act, 1956  with the Sales Tax Officer, Rourkela I Circle, Rourkela.  M/s. IDL  Chemicals Ltd is a regular supplier of its products to different  Government undertakings such as the Coal India Limited (hereinafter  to be referred to as ’CIL’), National Mineral Development  Corporation, Hindustan Zinc Limited etc. and supplies to these  undertakings constituted almost 90 per cent of its total production.  CIL  placed orders on  the appellant for supply of explosive,  detonators, accessories etc. for its collieries inside and outside  the State of Orissa with a stipulation that delivery should be made  against the indent placed by the collieries. The appellant  has its  consignment agent at different places outside the State. During the  assessment years in question the appellant effected supplies through  its consignment agents against indents placed by the collieries and  for this purpose it claimed to have dispatched the goods to  its  consignment agents on stock transfer basis otherwise than by way of  sale.  The contention of the appellant was that dispatches from its  factory at Rourkela  were stock transfers and were not liable to be  assessed to tax under the Central Sales Tax Act as the sales took  place when the supplies were made  to the collieries against the  indents placed by them with their consignment agents. It may be  relevant to mention here that the appellant has its consignment  agents in various States like Madhya Pradesh, Bihar, West Bengal and  Maharashtra. All the goods were sent to their consignment agents and

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from there those goods were dispatched to various collieries of CIL.  Therefore, it was not inter-State sale. As against this, it was  contended on behalf of the State before the High Court that the  supplies were made on account of the order placed by  CIL and the  movement of the goods from the State of Orissa to outside States was  incident of the CIL’s order for supply.  The transactions were  purely inter-State sale from the State of Orissa, as the appellant  would not have dispatched the goods outside the State for delivery  to the collieries, had there been no order of CIL. It was also  contended on behalf of the State that the indents were not contract  of sale and that the indents placed by the collieries were simple  follow up action of the purchase order of  CIL dated 24.9.1976.  

4.              We need not refer to various orders that were placed from  time to time by the CIL or otherwise. This matter was taken up by  way of reference by the High Court and the following questions of  law were referred.

               " (1)   That in view of the quotation  offered by the assessee company  and supply order  issued by M/s.CIL indicating the firm order of rate of  payment, quality to be purchased, period of contract  etc. on acceptance of the offer, whether the Sales Tax  Tribunal was correct in law to hold that it was not  the contract of sale but the actual purchase and sale  was triggered only when a colliery placed indent with  M/s.IDL Chemicals?

(2) That in view of the fact that M/s.IDL Chemicals  moved goods in pursuance to the supply order placed by  M/s. CIL, whether the Sales Tax Tribunal was correct  in law to hold that the transactions do not constitute  sale falling U/s. 3(a) of the C.S.T. Act ?

(3)That in view of the fact that the indents  placed  by the constituents of M/s.IDL was mere indents to  take delivery of the goods, whether the Sales Tax  Tribunal as correct to hold that the actual sales were  triggered by such indents and taken place inside the  respective State and were intra-State sale subject to  levy of tax under the of that State ?"

5.              The basic question which calls for determination is  whether the order placed by CIL amounted to sale triggered by CIL  order or was an agreement to sell.  On 24.9.1976 CIL placed order  for supply of explosives and detonators  to its collieries. This is  a crucial document from which it would be clear whether  it was an  agreement to sell or it was a purchase order on behalf of CIL. The  supply of these goods was triggered by the appellant to its  consignment agents at various places and from there the explosives  and detonators were supplied to the collieries of CIL. Therefore,  whether the sale was within the State or  the sale was inter-State.  This is the only question which has to be answered by us.

6.              Mr.Ganesh, learned senior counsel for the appellant  strenuously urged before us that the order placed by the CIL  dated  24.9.1976 for various purchases was not a purchase order but it was  only an agreement to supply certain quantity of explosives and  detonators to various collieries of CIL. There was no firm quantity  and it was only approximate and it was subject to change. Therefore,  this order was only an agreement to sell and not a sale order.  It  cannot be said that the goods triggered from Rourkela to various  consignment agents in pursuance of the order dated 24.9.1976, this   cannot be treated as inter-State sale. It was therefore, contended  that the finding arrived at by the Sales Tax Tribunal and the Sales

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Tax authorities was finding of fact and the High Court should not  have interfered with the matter. In support of that learned senior  counsel invited our attention to various decisions of this Court to  which we will advert at appropriate stage. As against this,  Mr.Rakesh Dwivedi, learned senior counsel appearing for the  respondent- State of Orissa submitted that the supply of explosives  and detonators triggered in view of the order placed by the CIL on  24.9.1976 and it was only the modus operandi  of supply of all these  explosives and detonators  to various collieries through the  consignment agents of M/s. IDL Chemicals Ltd..  In fact the whole  purchase emanated by virtue of the sale order passed on 24.9.1976.  Therefore, the order dated 24.9.1976 should be construed as a sale  order, as  firm order was passed by the CIL and the goods moved in  pursuance of that order only. Mr.Dwivedi  also contended that fright  were charged on the goods supplied to the collieries and  insurance  was paid by CIL. Therefore, it was inter-State sale. Before we  proceed to examine various contentions referred to by both the  sides, let us first examine the nature of the order dated 24.9.1976  placed by CIL. The order passed by CIL on 24.9.1976 reads as under:

       "               COAL INDIA LIMITED                         MATERIAL MANAGEMENT WING                         15, PARK STREET,                         CALCUTTA-700016.

Order No.CIL/C-2(D)/EXPL/IDL/517                Dated:24th Sept.’76

M/s.IDL Chemicals Limited                       High Explosive Division Kukatpalli                                              Rourkela-7 Post Bag No.1 Hyderabad (A.P.)

Dear Sirs,

               Sub:    Supply of Explosives, Detonators and Detonting/                         Safety fuses to Coal India Ltd’s collieries for                         The period 1-6-76 ti 31.05.1997.

               Ref: Your letter dated SD/APM/ dated 6-4-1976 and                         Your subsequent letter and discussions.

Please supply the quantities of Explosives, Detonators and  Detonating/ safety fuses to the collieries of different areas as per  their indents. The total quantities have been given in the enclosed  schedule-I, II, III & IV. These are to be dispatched by Goods/  Passenger train ’Freight Paid’ and/ or by road.

The Unit prices of the Explosives, Detonators and Detonating/ Safety  fuses shall be as shown in Schedule-V attached herewith. Prices for  non-permitted explosives, detonators and detonating/ safety fuses  have not yet been finalized by DGS & D. Till finalization, the  prices given in Schedule V for these items will prevail. If there is  any deliveries/ dispatches should be made according to requisitions  made from time to time by the different colliery authorities and  adjusted against the respective colliery’s account.

In case of Road delivery by your Van for supplies of Explosives the  Van delivery charge shall be paid extra as shown in Schedule V  enclosed herewith and mileage, covered by such Van shall be recorded  on the relevant invoices. For supplies of all types of Detonators to  CIL’s collieries situated in Bihar and District of Burdwan, West  Bengal, you shall not charge any transport charge.

Security Deposit : You are exempted from furnishing any deposit.

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Insurance : Transit Insurance will be effected on us.

Dispatches :

a)      Railway freight charges will be paid extra at actual  Subject to clause given in Schedule V.

b)      Actual Wagon deposit charges should be refunded if  Cancellation of such Wagon arises due to our instructions.

c)      Excess supply made, if any, shall be acceptable to the  extent of 15% over the quantities against each item in  respect of each item in respect of each area as indicated  in Schedules I to IV. d)      Quantities of Explosives, Detonators and Detonating/  safety fuses supplied on and from 1.06.76 should be  adjusted against this order and all supplies so made on  and from 1-6-76 should be governed by the terms and  conditions of this supply order.

Price Variation:

Prices of explosives, detonators and accessories are firm for the  contract period. In case of any reduction in prices for non- permitted, explosives and accessories in the new DGS & D contract,  these will however, be applicable to this order. The new prices of  explosives given in this order take into account the increase in  prices of ammonia which took place from the 23rd June, 1976. In the  event of any further substantial increase or decrease in the price  of Ammonia the explosive prices may be subject to upward or downward  revision at actuals on the basis of justification to be provided by  the manufacturer and accepted by CIL.

Notice of one month be given where revision in prices and delivery  as well as packing and forwarding charges in terms of the above para  is contemplated. Any supply made during the notice period will be  paid for at the current prices and rates.

Discount:

You will give 1 (one) percent rebate on the current prices for and  off-take exceeding 9000 tonnes on the full quantities of explosives  ordered. The rebate will be given on each invoice of supply as and  when supplies are made against this order. The rebate will be  applicable from 1-6-1976 for all supplies made from that date.  Please arrange to give credit notes for the past supplies made from  1-6-76. Respective General Managers are requested to be contacted  for Monthwise allocation of Explosives and Accessories. IDL  Chemicals Limited, and/ or their consignment agents namely  M/s.B.P.Agarwalla & Sons (P) Ltd., P.O.Dhansar, Dist- Dhanbad, (ii)  M/s. William Jacks & Co (India) Pvt. Ltd. Asansol/ Calcutta and  (iii) Abdul Hussain Mulla Allabuxji, Nagpur, will supply explosives  and accessories to mines on the basis of convenience and locations.  Mines will follow the existing system of drawing their requirements  from IDL and/ or their consignment agents who will raise the bills  accordingly and payments will be made by cheques drawn in favour of  IDL Chemicals Ltd.

Instructions contained in the attached Schedule VI should be  strictly and invariably followed.

Please acknowledge receipt of this order.

                                                                       Yours faithfully

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                                                                       Sd/-                                                                         (S.V.Gurumoorthy)                                         Chief Controller of Stores & Purchase."

The important feature of thisorder is that all the Managers of the  Collieries in the three States will have to place order with the  consignment agents of IDL Chemicals from their depots. This is a  modality adopted by the appellant with a view to dispatch their  goods from Rourkela to various consignment agents and  from there  all the collieries of CIL are bound to purchase through their agents  mentioned in the order above. Though each colliery has to give its  indents for purchase of explosives, detonators etc. as per the  requirement but the fixed  quantity has been given in the schedule  appended to this order.  The transit insurance was to be borne by  the collieries. The mode of dispatches was also mentioned. It  further says that excess supply made, if any, shall be acceptable to  the extent of 15%  over the quantities against each item in respect  of each area as indicated in Schedules I to IV. The price is firm  for contract period. Then there is a clause of price variation also.   The respective General Managers are  to be contacted for month-wise  allocation of explosives. IDL Chemicals Limited, and/ or their  consignment agents namely M/s.B.P.Agarwalla & Sons (P) Ltd.,  P.O.Dhansar, Dist- Dhanbad, (ii) M/s. William Jacks & Co (India)  Pvt. Ltd. Asansol/ Calcutta and (iii) Abdul Hussain Mulla Allabuxji,  Nagpur (Maharashtra), will supply explosives and accessories to  mines on the basis of convenience and locations against this order.  Mines will follow the existing system of drawing their requirements  from IDL and/ or their consignment agents who will raise the bills  accordingly and payments will be made by cheques drawn in favour of  IDL Chemicals Ltd. Instructions contained in the attached Schedule  VI should be strictly and invariably followed. Copy of this letter  was sent to all over respective collieries.  Therefore, what it  transpires is that all collieries of CIL were under an obligation to  purchase the explosives, detonators etc. from the appellant only  through their agents situated in the States of West Bengal, Bihar  and Maharashtra and each colliery has been given the quantities of  explosives, detonators  and detonating/ safety fuses to be purchased  from the appellant only at the price fixed. This purchase order was  issued from the apex body i.e. the CIL to its subsidiaries  i.e. the  collieries spreading over these three States. They cannot purchase  the goods from any other company other than the appellant.  Therefore, this firm order issued by the CIL is in the nature of  purchase order specifying the quantities and the price thereof.  It  was only the convenient mode of supply, instead of sending the goods  directly from Rourkela to various States. This convenient device was  worked out by the appellant  and CIL so that the goods  need not  directly be sent from the company at Rourkela but would be sent  through their agents in various States. This order is definitely a  purchase order, the nature of indent and the modalities were agreed,   the quantity of the goods to be supplied to various collieries at  fixed price was firm, the insurance and freight was to be borne by  CIL and 98% of the payment was to be made by the collieries of CIL.  From these facts it appears that this was a purchase order issued by  the apex body, CIL by fixing the price and the quantities to be  purchased by their collieries. Various other evidence was produced  to show that in fact there was independent transaction with the  subsidiaries and the consignment agents of the appellant and the  order dated 24.9.1976 does not constitute a firm purchase order.   But we regret that cannot be of any avail for the simple reason that  all supplies were made in pursuance of the order of the CIL.  Therefore, that was fountain head from where all supplies followed.  If the terms of the order is to be construed as purchase order, then  other evidence is secondary and irrelevant. In fact both the parties

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understood that way only and paid CST for sometime but subsequently  discontinued. Therefore, from this it follows that the whole  movement of the goods from the factory at Rourkela was triggered in  pursuance of the order dated 24.9.1976. There was no independent  contract by the subsidiaries of CIL with the appellant. The  subsidiaries were issuing indents on the agents of the appellant in  pursuance of the order dated 24.9.1976.  In fact the appellant  instructed its consignment agents to supply the goods to the  collieries as per the indents placed by them. The collieries were  also asked by the very same order that they would place their  indents to the consignment agents of the appellant on the price  fixed in this order and the quantity mentioned therein. Therefore,  it is not a case in which there was any independent contract between  the subsidiaries of CIL with that of the appellant.  It is in  pursuance of this order dated 24.9.1976 the collieries were placing  their indents for supply of the goods and the payment was made on  the basis of the terms and conditions  fixed in the order dated  24.9.1976. Therefore, the goods were moved from the appellant’s  factory for supply to CIL in pursuance of this order. We need not go  into various evidence produced as we are of opinion that the order  dated 24.9.1976 is a purchase order and in pursuance of this order  all the indents were issued by the collieries of CIL and the payment  was made as per this order and approximate quantity was fixed by  this order. Therefore, it is a purchase order issued by the apex  body, CIL  and in pursuance of this, indents were  placed by the  collieries, It was a convenient mode of supply by the appellant  instead of directly supplying the goods from the factory. This was  not transfer of stock in trade to various branches. Hence, this was  a firm order  of purchase and the goods were dispatched from  Rourkela to various consignment agents and from their it was  supplied to various collieries.

7.              Mr. Ganesh, learned senior counsel for the appellant  submitted that all the 100% of the goods were not supplied to CIL  but to various other public sector undertakings. That may be so, but  the fact of the matter is that  substantial quantities have been  supplied to the subsidiaries of CIL to the extent of 75%. However,  it was contended that 95% of the supply  was made to the  subsidiaries of CIL.  That is a matter of evidence  but it is beyond  the  dispute that major  quantity of the goods were supplied to the  subsidiaries of CIL. Mr.Ganesh, learned senior counsel alternatively  submitted that 30 to 35 % of goods were supplied to other public  undertakings. This is a matter of evidence and we need not to go  into that question. But the substance of the matter is that major  portion of the goods were supplied to the subsidiaries of CIL and  only a small quantity was supplied to other public sector  undertakings.  8.     Both learned senior counsel for the parties have  invited our  attention to various decisions  of this Court. In some cases after  review of facts it was found to be inter-State sale and in some  other cases it was found that it was a case of inter-State sale. No  useful purpose will be served to refer to those judgments because  each case had its  peculiar facts. But the case which is nearer home  is a case  in South India Viscose Ltd. v. State of Tamil Nadu  [(1981) 3 SCC 457]. In this case, sale of goods from seller’s  factory in Tamil Nadu to buyers residing in Gujarat and Maharashtra  was effected in pursuance of a direct contract between the seller  and the buyers  and it was found to be inter-State sale. It was  observed that mere fact  of inter-position of the seller’s agent at  Bombay who prepared invoices and delivery orders for and on behalf  of the seller, would not change the nature of the sale.  It was  further  observed that  if movement of goods delivered to the buyer  was occasioned by the contract of sale, the mere fact that the  actual sales pursuant to the contract were effected subsequently is

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immaterial. Their Lordships observed as follows :                 " If there is a conceivable link between a  contract of sale and the movement of goods from  one State to the other in order to discharge the  obligation under the contract of sale, the inter- position of an agent of the seller who may  temporarily intercept the movement ought not to  alter the inter-State character of the sale."

9.      In Sahney Steel and Press Works Limited & Anr.  v. Commercial  Tax Officer & Ors. [(1985) 4 SCC 173] it was observed that movement  of the goods from Hyderabad to the branch office was only for the  purpose of enabling  the sale by the branch office and was not in  the course of fulfillment of the contract of sale. But this was  negatived by this Court.  This Court observed that it appears that   the movement from the very beginning from Hyderabad all the way  until delivery is received by the buyer is an inter-State movement.  Relying on an earlier decision in English Electric Company of India  Ltd. v. Deputy Commercial Tax Officer [(1976) 4 SCC 460, their  Lordships  held that it amounts to inter-State sale. Their Lordships  observed as follows :                 " What is decisive is whether the sale is  one which occasions the movement of goods from one  State to another. It was also pointed out that the  branches had no independent and separate entity,  that they were merely different agencies, and even  where a branch office sold the goods to the buyer  it was a sale between the Company and the buyer.  It is true that in that case the goods, on  manufacture at the Madras branch factory, were  directly dispatched to the Bombay buyer at his  risk and all prices were shown F.O.R. Madras, and  the goods were delivered to the Bombay buyer at  Bhandup through clearing agents. In the instant  case, the goods were dispatched by the branch  office situated outside the State of Andhra  Pradesh to the buyer and not by the registered  office at Hydrabad. In our opinion, that makes no  difference at all. The manufacture of the goods at  the Hydrabad factory and their movement thereafter  from Hydrabad to the branch office outside the  State was an incident of the contract entered into  with the buyer, for it was intended that the same  goods should be delivered by the branch office to  the buyer. There was no break in the movement of  the goods. The branch office merely acted as a  conduit through which the goods passed on their  way to the buyer. It would have been a different  matter if the particular goods had been dispatched  by the registered office at Hyderabad to the  branch office outside the State for sale in the  open market and without reference to any order  placed by the buyer. In such a case if the goods  are purchased from the branch office, it is not a  sale under which the goods commenced their  movement from Hyderabad. It is a sale where the  goods moved merely from the branch office to the  buyer. The movement of the goods from the  registered office at Hyderabad to the branch  office outside the State cannot be regarded as an  incident of the sale made to the buyer."

This case clinches the issue and we need not  multiply other cases  as the facts of this case are nearer home.

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10.             Mr.Ganesh, learned senior counsel for the appellant has  also referred to various decisions which have peculiar facts but the  case of Sahney Steel & Press Works  Ltd.(supra)  is nearer home and  therefore it will not be necessary to multiply each case and  unnecessarily overburden the judgment. Suffice it to say that one  case which supports the view which we have taken and which has been  relied on by the High Court also.  Another case which is on the same  line is Indian Oil Corporation Ltd. & Anr. V. Union of India & Ors.  [ 1980 (Supp) SCC 426]. Similar is the case in Union of India & Anr.  V. M/s.K.G.Khosla & Co.Ltd. & Ors. [(1979) 2 SCC 242]. Mr.Ganesh,  learned senior counsel for the appellant has also submitted that the  Court should also look at as to how the parties have understood the  agreement and in support thereof placed reliance on a decision of  this Court in The Godhra Electricity Co.Ltd. & Anr. V. The State of  Gujarat & Anr. [ (1975) 1 SCC 199] and also submitted that the  finding of fact recorded by the Tribunal should not have been  interfered with by the High Court  and also invited our attention to  a decision of this Court in Ashok Leyland Ltd. v. State of T.N. &  Anr. [(2004) 3 SCC 1] in support of his contention that the goods  were not subjected to inter-State sale.  It is not necessary to go  into all these facts as we have already held above on factual aspect  that the goods which were triggered from Rourkela  and sold to the  subsidiaries of the CIL through the appellant’s consignment agents  were essentially meant to be sold to the subsidiaries of the CIL and  the goods primarily triggered from Rourkela and were sent to the  subsidiaries of the CIL amounted to inter-State sale and the view  taken by the  Division Bench of the Orissa High Court is correct.

11.             Before we part with this case we may observe that the  authorities will go into the factual aspects  and find out  how much  of the quantity of the goods were sent to other undertakings other  than the subsidiaries of CIL and assess tax on the supplies which  were made to the subsidiaries of CIL as inter-State sale.  

12.      As a result of our above discussion, we do not find any  merit in this appeal and the same is dismissed. No order as to  costs.