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PETITIONER: SOUTH INDIA VISCOSE LTD.

       Vs.

RESPONDENT: STATE OF TAMIL NADU

DATE OF JUDGMENT22/07/1981

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) PATHAK, R.S.

CITATION:  1981 AIR 1604            1982 SCR  (1)  44  1981 SCC  (3) 457        1981 SCALE  (3)1049

ACT:      Central Sales  Tax Act,  1956-Section 3  (a)-Scope  of- Goods manufactured  in Tamil  Nadu sold  to buyers  in other neighbouring  States   through  an   agent  in   Bombay-Firm contract, under  the system of distribution. completed after the supply of goods to buyers-Situs of sale-Sale if attracts Central Sales Tax under section 3 (a).

HEADNOTE:      To regulate  the allotment of indigenous art silk yarn, the Government  of  India  constituted  the  Art  Silk  Yarn Distribution  Committee  which  issued  allotment  cards  to individual weavers.  Under the  terms of  the  card  without waiting for  the allottee  to approach  the manufacturer the manufacturer had  to offer the allottee art silk yarn within seven days  of the date of allocation of the card and within a period of 21 days from the date of allocation of the card, a firm contract for the supply of yarn was to be completed.      The appellant, a manufacturer of art silk yarn with its factory in  the  State  of  Tamil  Nadu,  supplied  yarn  to cardholders in  the States  of  Maharshtra  and  Gujarat  by delivering the  goods at Bombay through its selling agent at that place.      On the  question of exigibility of the goods to Central Sales tax  the appellant  claimed that  since the goods were despatched to  Bombay at the request of the agent and not as a result of any sale in favour of the purchaser the sale had taken place  at Bombay,  and secondly  since the movement of goods from  the State  of  Tamil  Nadu  to  Bombay  was  not connected with  the sales  the sales  were  not  inter-State sales within  the meaning  of section  3 (a)  of the Central Sales Tax Act.      This claim  was rejected  by the  Joint Commercial  Tax Officer and  his order was upheld at the different stages of appeal. The  High Court  dismissed the  appellant’s revision petitions.      On the  question whether  the  sales  were  inter-State sales, the Court ^      HELD: The  goods having  been despatched from one State to another  pursuant to  a contract  of sale  that came into existence directly between the buyer and seller within a few

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days after  the date of the allocation card, the sale was an inter-State sale.      To constitute an inter-State sale within the meaning of section 3(a)  of the  Central Sales  Tax Act  there must co- exist a sale of the goods and movement of 45 goods from  one State to another under the contract of sale. Where there  is a  link  between  a  contract  of  sale  and movement of  goods from one State to another pursuant to the contract of  sale, interposition  of an  agent ought  not to alter the inter-State character of the sale. [49-F]      In the instant case the card contemplated a contract of sale to  be completed  within 21  days of  the date  of  its issue. The agent requested the appellant to despatch certain number of  cases to  a purchaser  and that  was done.  These facts  cumulatively   suggest  that   the  goods   had  been ’transported from  the factory  in Tamil  Nadu to Bombay for being delivered  to the purchaser as a result of contract of sale  established  in  accordance  with  the  terms  of  the allocation card.                [49-G-50-B;E]      The fact that actual sale pursuant to the said contract had taken  place subsequently  does not militate against the transaction being  treated  as  an  inter-State  sale  under section 3(a)  because the movement of goods delivered to the buyer was  occasioned by  the contract  of sale brought into existence under the terms of the allocation card. [51-E]      The authorities  below have  found, on the basis of the terms of  the allocation  card and other material on record, that there was a contract of sale within the stipulated time between the parties. [51-G]      English Electric  Company of  India Ltd.  v. The Deputy Commercial  Tax  Officer  &  Ors.,  (1976)  38  S.T.C.  475, followed.      Tata Engineering  and Locomotive  Co. Ltd. v. Assistant Commissioner of  Commercial Taxes.  Jamshedpur & Anr. (1970) 26 S.T.C.  354 and  Kelvinator of  India Ltd.  v.  State  of Haryana (1973) 32 S.T.C. 629, held inapplicable.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1192-94 of 1971.      From the  judgment and  order dated  the 20th  October, 1976 of  the High  Court of  Madras in Tax Cases Nos. 205 to 207 of 1971.      S.T. Desai,  A.K. Verma  and J.B.  Dadachanji  for  the Appellant.      A.K.  Sen and A.V. Rangam for the Respondent.      The Judgment of the Court was delivered by      VENKATARAMIAH J.  The appellant  in these three appeals by special  leave is  a company  engaged in  the business of manufacture and sale of art silk yarn. It has its factory at Sirumughai in  the District  of Coimbatore  in the  State of Tamil Nadu. The appellant is registered as a dealer carrying on business at Coimbatore. In the course of its business, it sold during the relevant period large quanti- 46 ties of  art silk  yarn to  various purchasers  some of whom were weavers  residing in  the  States  of  Maharashtra  and Gujarat who  had been  issued cards  under a  scheme  called ’Export Promotion  Scheme’ entitling  them to  buy specified quantities of  art silk  yarn from  specified manufacturers. The question  involved  in  these  appeals  relates  to  the

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exigibility of  the  sales  effected  in  favour  of  Export Promotion Scheme  card holders  belonging to  the States  of Maharashtra and  Gujarat to  tax under the Central Sales Tax Act, 1956 (hereinafter referred to as ’the Act’).      The assessment years are 1962-63, 1963-64 and 1964-65.      The  details   of  the   Export  Promotion  Scheme  for distribution of  art silk yarn referred to above were these: There were  certain weavers in India who were entitled to an incentive in  the form of import licences to import art silk yarn from  abroad. The  said import entitlement was cut to a certain extent  and indigenous art silk yarn at concessional price was  allotted to  them.  To  regulate  the  scheme  of allotment,  a   committee  called   the   ’Art   Silk   Yarn Distribution Committee’ was constituted by the Government of India. The Committee made allotments to different weavers by issuing allotment  cards. These  allotment  cards  contained details of  the quantity  of allotment  and the  rayon  yarn manufacturer from  whom the  allotted quantity of yarn could be  drawn.   As  per   the  terms  of  the  card,  the  yarn manufacturer should  offer to the allottee rayon yarn within seven days  of the  date of the card without waiting for the allottee to  approach him. A firm contract for the supply of yarn should  be completed within a period of twenty-one days from  the  date  of  allocation  of  the  card.  If  a  firm commitment was  not entered  into by  the allottee  with the yarn manufacturer  within twenty-one  days from  the date of allocation of  the card, the yarn manufacturer should return the allocation  card  to  the  Distribution  Committee  with suitable  remarks   on  the   card  and  a  covering  letter explaining the  reasons for  the return of the card. Even in the case  of actual  fulfilment of  the quota covered by the allocation card,  the said  card should  be returned  to the Distribution Committee  after the  delivery of  the yarn was completed. This in brief was the Scheme.      In the  instant case,  the appellant  had supplied  art silk yarn  to certain  card holders  who were  residing,  as stated earlier,  outside the  State of  Tamil  Nadu.  It  is stated  that   the  appellant   had  a   selling  agent  and distributor by  the name M/s. Rayonyarns Import Company Ltd. at Bombay and the case of the appellant was that it had 47 supplied art  silk yarn to the card holders in the States of Maharashtra and  Gujarat through  the  said  agent  and  the delivery of  the  goods  was  effected  at  Bombay.  In  the assessment  proceedings  before  the  Joint  Commercial  Tax Officer, Coimbatore  for the  year  1964-65,  the  appellant claimed that the sales of art silk yarn through its agent at Bombay were not inter-State sales as defined by section 3(a) of the Act as the movement of the goods in question from the State of Tamil Nadu to the State of Maharashtra or the State of Gujarat  was not  occasioned by the sales in question and that they  were in  fact sales which had taken place outside the State  of Tamil  Nadu. The  Joint Commercial Tax Officer rejected the  contention of  the appellant  and treated  the sales effected in favour of the Export Promotion Scheme card holders through  the appellant’s  agent at  Bombay as inter- State sales  and levied  tax under  the Act  accordingly. He also revised  the orders of assessment for the years 1962-63 and  1963-64  bringing  to  tax  the  turnover  relating  to transactions of  similar nature  during those  years. In the appeals  filed   by  the  appellant  against  the  order  of assessment for  the year  1964-65 and  of revised assessment for the  years 1962-63  and  1963-64  before  the  Appellate Assistant Commissioner,  (Commercial Taxes), Coimbatore, the orders passed  by the  Joint  Commercial  Tax  Officer  were

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affirmed. The  appellant then filed three appeals before the Tamil Nadu  Sales Tax Appellate Tribunal (Additional Bench), Coimbatore against  the  orders  passed  in  appeal  by  the Appellate Assistant  Commissioner. The  Tribunal  also  held that the sales in favour of the Export Promotion Scheme card holders outside  the State  of Tamil  Nadu were  inter-State sales and  were liable  to be taxed under the Act. Aggrieved by the orders of the Tribunal, the appellant preferred three revision petitions  before the  High Court  of Madras. These petitions were  dismissed. Thereafter the appellant has come up in appeal to this Court by special leave.      Section 3(a)  of  the  Act  provides  that  a  sale  or purchase of  goods shall  be deemed  to take  place  in  the course of  inter-State trade  or commerce  if  the  sale  or purchase occasions  the movement  of goods from one State to the other.  In order to substantiate its case, the appellant has  placed   before  us   the  documents  relating  to  one transaction stating  that the decision on the true nature of the said  transaction would govern all other transactions of sale in  dispute as  they were  all of a similar kind. Those documents relate  to the  supply of  art silk yarn to a firm known as  M/s. Ramesh  Silk Fabrics at Surat in the State of Gujarat made  in June,  1964. The  purchaser was  issued  an allocation card on November 7, 1963 bearing No. 48 3124. Under  the card, M/s. Ramesh Silk Fabrics was entitled to purchase  273 Kgs.  of indigenous  art silk yarn from the appellant. The  following were  the relevant  terms  of  the card:      "1.  The  rayon   manufacturers  and/or   our  approved           dealers shall ensure that the quantity sold is not           more than  the quantity  allocated as indicated in           column No. 4(b) on the reverse of the card.      2.   The rayon  manufacturer shall  offer yarn  to  the           allottee  within  seven  days  from  the  date  of           allocation card  without waiting  for the allottee           to approach  him. Contract  for the supply of yarn           shall be concluded within 21 days from the date of           the allocation card.      3.   Particulars of  the quantity  of yarn  sold by the           rayon yarn  manufacturer his  approved dealer with           the date of or sale shall be entered and signed by           the seller in column (5) on the card.      4.   No supply shall be made on allotment card on which           corrections  have   not  been   attested  by   the           Secretary or the Manager.      5.   If firm  commitment is  not entered  into  by  the           allottee with  the  yarn  manufacturer,  the  yarn           manufacturer shall  return the  allocation card to           the Distribution  Committee, with suitable remarks           on the  card and  a covering letter explaining the           reasons for returning the card.      6.   Allocation  cards   shall  be   returned  to   the           Distribution Committee  after the delivery of yarn           has been completed."      At the  back of his allocation card, in column 4(a) the appellant is  shown as  the manufacturer  and in column 4(b) the quantity allotted is shown as 273 Kgs. Column (5) of the allocation card  shows that  quantity of  268 Kgs.  had been supplied as per Invoice No. BC/132. Then we have the Invoice No. BC/132  prepared in  the name  of the  appellant by  its agent, Rayon-yarn  Import Co.  Pvt. Ltd.  and signed  by the agent  for  and  on  behalf  of  the  appellant.  The  cases containing goods  sold had  been marked  as 5829,  8479  and 8505. The Invoice contains a note which reads as follows:

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49           "We have  charged you  2% Central  Sales  Tax  for      which purpose  you are  required to send us immediately      your regular  ’C’  form  correct  in  all  respects  as      required by  the law in force for the time being in the      absence of  which you  are required to remit us balance      sum of  Rs ..  being the  difference between  the  rate      charged and  the revised rate at 10% applicable in such      case."      But actually  2% tax  was added and it was shown in the invoice as  local sales  tax of  Maharashtra at  2%  of  the price. A  delivery order  dated June 3, 1964 prepared by the agent at  Bombay on  behalf of  the appellant also refers to the numbers  of the cases containing goods as 5829, 8479 and 8505. What is of significance is a letter dated May 23, 1964 written by  the agent  at Bombay  to the  appellant. By that letter, the  agent requested  the appellant to send from the factory 69  cases of yarn bearing specific numbers including case No. 5829, 8479 and 8505. The said letter further stated that the invoices of sale would be sent after the goods were sold by  the agent.  What is attempted to be made out by the appellant is  that the  appellant was informing its agent at Bombay from time to time as and when goods were manufactured the number  of the  cases in which the goods had been packed and at  the request of its agent it had despatched the goods to Bombay  but not as a result of any sale of the said goods in favour  of a  purchaser. According  to the appellant, the sale had  taken place at Bombay and the movement of goods to Bombay from  the State  of Tamil Nadu was not connected with the sale in question.      In order  to constitute  an inter-State sale as defined in section  3(a) of the Act, two factors should co-exist (i) a sale of goods and (ii) movement of goods from one State to another  under   the  contract   of  sale.  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.  The facts which are glaring in this case are:      (1)  the allotment  of a  certain quantity  of art silk           yarn produced  by the  appellant in  favour of the           allocation card holder;      (2)  the requirement that the appellant should offer to           sell the  quantity of  goods allotted  to the card           holder within seven days; 50      (3)  the requirement  that contract  of sale  should be           completed within  twenty-one days  of the  date of           the allocation card;      (4)  the requirement  that the  card should be returned           to the  Committee  if  no  contract  of  sale  was           concluded as stated above; and      (5)  the  fact   that  the  goods  have  been  supplied           expressly against  the quota  allotted  under  the           allocation card.      Admittedly the  allocation card  bearing No.  3124  was issued on  November 7, 1963 and it required the appellant to offer to  sell the quantity of art silk yarn mentioned in it to the  purchaser within seven days without even waiting for the purchaser  approaching the  appellant with  a request to supply the  goods  in  question.  The  card  contemplated  a contract of  sale to  be completed within twenty-one days of the date of its issue. The invoice in question contained the

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number of  the allocation  card. In the letter dated May 23, 1964 the  agent requested  the appellant  to send  the cases bearing Nos.  5829, 8479  and 8505  by lorry from Sirumughai and the said boxes were later on admittedly delivered to the purchaser on  June 3, 1964. These facts cumulatively suggest that the  goods in  question had  been transported  from the factory site  of the appellant to Bombay for delivery to the purchaser as a result of the contract of sale established in accordance with the terms of the allocation card.      It is,  however, argued  on  behalf  of  the  appellant relying upon  the decision of this Court in Tata Engineering and Locomotive Co. Ltd. v. Commissioner of Commercial Taxes, Jamshedpur  and   Anr.  that   the  sale   effected  by  the appellant’s agent  at Bombay  could not  be treated  as  the immediate case  of movement of goods from the State of Tamil Nadu to the State of Maharashtra or the State of Gujarat, as the case  be may.  The  facts  in  the  aforesaid  case  are distinguishable from  the facts in the present case since it was held  in that  case that  the procedure  followed by the manufacturer, the  appellant in  that case together with the absence  of   any  firm  orders  placed  by  the  purchasers indicated that there were no transactions of sale within the meaning of  section 2(g)  of the  Act and  assuming that any firm orders had been received by the appellant therein, they could not  be regarded  as anything  but mere  offers.  This Court further  held in  that case  that the appropriation of goods was done 51 at the appellant’s stockyard situated in the State where the vehicles were delivered to purchasers and it was open to the appellant till then to allot any vehicle to any purchaser or to transfer  a vehicle  from one  stockyard to  another. One strong circumstance  which existed  in  that  case  was  the absence of  the firm orders which occasioned the movement of goods from the State of Bihar to other States as can be seen from the following passage in that decision:           "As regards  the so  called  firm  orders  it  has      already been  pointed out  that none have been shown to      have existed  in respect  of the  relevant  periods  of      assessment. Even on the assumption that any such orders      had been  received by  the appellant  they could not be      regarded as  anything but  mere offers  in view  of the      specific terms  in Exhibit 1 (the dealership agreement)      according to  which it  was open  to the  appellant  to      supply or  not to supply the dealer with any vehicle in      response to such order."      In the  instant case  there is  clear evidence  of  the existence of  a prior  contract of  sale as per terms of the allocation card.  The fact  that actual sale pursuant to the said contract  of sale had taken place subsequently does not militate against  the transaction  being treated  an  inter- State sale  under Section  3  (a)  of  the  Act,  since  the movement of  the goods delivered to the buyer was occasioned by the  contract of  sale brought  into existence  under the terms of  the allocation  card.  It  was,  however,  faintly suggested that  the evidence  of what took place between the appellant and  the allottee  within twenty-one  days of  the issue of  the allocation  card was  lacking  in  this  case. Evidence about  these facts  was within the knowledge of the appellant and  the appellant  had not  placed it  before the assessing authority.  It is likely that if such evidence had been produced it would have gone against the appellant. Even apart from  that  the  finding  recorded  by  the  assessing authority the appellate authority, the Tribunal and the High Court on  the basis  of the terms of the allocation card and

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other material  on record  that there was a contract of sale within the  stipulated time  between the  appellant and  the allottee  of   art  silk   yarn  is   unassailable.  In  the circumstances no  assistance can be derived by the appellant from the  case of  Tata Engineering  and Locomotive Co. Ltd. (supra).      The decision  of this Court in Kelvinator of India Ltd. v. The 52 State of  Haryana relied  on by  the appellant  has also  no bearing on  this case.  The assessee  in that  case had  its factory where  it manufactured refrigerators at Faridabad in the State  of Haryana and it moved the goods manufactured by it to its godown at Delhi. The excise pass utilised for such movement was  always in favour of self. During the transport of goods,  the assessee  paid octroi  payable  for  bringing goods into  Delhi. At  Delhi, the assessee sold the goods to its distributors.  The  Court  on  a  consideration  of  the material before  it held  that even  though there were prior distribution agreements  entered into  between the  assessee and its  distributors, the  goods in  question had  not been moved pursuant  to the  said agreements  from  Faridabad  to Delhi, and hence there was no inter-state sale.      The facts of this case are, however, close to the facts in English  Electric Company  of India  Ltd. v.  The  Deputy Commercial Tax officer & Ors. Here also the assessee had its factory in  the State  of Tamil  Nadu. Its registered office was at  Calcutta but it had branch offices at Madras, Bombay and other  places. A Bombay buyer wrote to the Bombay branch of the appellant in that case asking for lowest quotation in respect of  the goods  which were  being manufactured in the factory in Tamil Nadu. After some correspondence between the Bombay branch  and the  Madras branch,  the  Bombay  branch, wrote  to   the  Bombay   buyer  giving   all  the  required particulars. The  Bombay buyer  thereafter placed  an  order with the  Bombay branch for certain goods. The Bombay branch informed the  Madras branch  about the  order placed  by the Bombay buyer.  On receipt  of the  invoice from  the  Madras branch the Bombay branch wrote to the Bombay buyer that some of the  goods indented  by him  were ready  for despatch and asked  for   despatch  instructions.   On  receipt  of  such instructions, the  Bombay branch  asked the Madras Branch to send goods to Bombay. The railway receipts were sent through the Bombay  branch. The  goods were  delivered to the Bombay buyer through clearing agents and the insurance charges were collected from the Bombay buyer. The assessee claimed in the assessment proceedings  that the sale was not an inter-State sale but  one which  had taken  place at  Bombay between the Bombay branch  and the Bombay buyer, The said contention was rejected by this Court with the following observations:-           "The appellant  in the present case sent the goods      direct from  the Madras  branch factory  to the  Bombay      buyer 53      at Bhandup, Bombay. The railway receipt was in the name      of  the   Bombay  branch   to  secure  payment  against      delivery. There  was no question of diverting the goods      which were  sent to the Bombay buyer. When the movement      of goods  from one  State to  another is an incident of      the contract  it is a sale in the course of inter-State      sale. It does not matter in which State the property in      the goods  passes. What is decisive is whether the sale      is one  which occasions  the movement of goods from one      State to  another. The inter-State movement must be the      result of  a  covenant,  express  or  implied,  in  the

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    contract of  sale or an incident of the contract. It is      not necessary  that the  sale must  precede the  inter-      State movement  in order that the sale may be deemed to      have occasioned such movement. It is also not necessary      for a  sale to  be deemed  to have  taken place  in the      course of  inter-State  trade  or  commerce,  that  the      covenant  regarding   inter-State  movement   must   be      specified in  the contract itself. It will be enough if      the movement  is in  pursuance of and incidental to the      contract of sale.           When a  branch of  a company  forwards  a  buyer’s      order to  the principal  factory  of  the  company  and      instructs them  to despatch  the goods  direct  to  the      buyer and  the goods  are sent to the buyer under those      instructions it would not be a sale between the factory      and its  branch. If there is a conceivable link between      the movement of the goods and the buyer’s contract, and      if in the course of inter-state movement the goods move      only to reach the buyer in satisfaction of his contract      of purchase and such a nexus is otherwise inexplicable,      then  the   sale  or   purchase  of   the  specific  or      ascertained goods  ought to  be deemed  to  have  taken      place in  the course of inter-State or commerce as such      a sale or purchase occasioned the movement of the goods      from  one   State  to  another,  The  presence  of  all      intermediary such as the seller’s own representative or      branch office,  who initiated the contract may not make      the matter  different. Such  an interception by a known      person on  behalf of  the seller  in the delivery State      and such  person’s activities  prior to  or  after  the      implementation  of  the  contract  may  not  alter  the      position." In the  instant case,  the allocation card was first sent in November, 1963  asking the  appellant directly  to  make  an offer of the 54 goods  to   the  allottee.  The  allottee  was  expected  to communicate his  desire to purchase the goods within twenty- one  days   of  the   date  of  the  allocation  card.  Such communication  brought   into  existence   a  contract  sale directly between the appellant and the buyer. The goods were admittedly sent  pursuant to  the said contract of sale. The interposition at  a later  stage of  the selling  agent  who acted on  behalf of  the appellant in the preparation of the invoice and  the delivery  of the  goods would not alter the true character  of the  sale as the selling agent was just a conduit pipe.  The goods  having been  despatched  from  one State to  another State pursuant to a contract of sale which came into  existence directly  between the appellant and the buyer within  a few  days after  the date  of the allocation card, the sale was an inter-State sale. The Tribunal and the High Court were, therefore, right in upholding the orders of the assessing  authority levying  tax under  the Act  on all sales  which  had  taken  place  in  favour  of  the  Export Promotion Scheme  card holders  in Gujarat  and  Maharashtra even though the selling agent of the appellant at Bombay had on behalf of the appellant also dealt with such card holders at Bombay,  as the  transactions in  question satisfied  the tests laid  down in  the case of English Electric Company of India Ltd. (supra).      In the  result the  appeals fail and are dismissed with costs. P.B.R.                                    Appeals dismissed. 55

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