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PETITIONER: STATE OF MYSORE

       Vs.

RESPONDENT: GUDUTHUR  THIMMAPPA & SON, & ANR.

DATE OF JUDGMENT: 30/09/1966

BENCH: BHARGAVA, VISHISHTHA BENCH: BHARGAVA, VISHISHTHA SHAH, J.C. RAMASWAMI, V.

CITATION:  1967 AIR 1131            1967 SCR  (1) 627  CITATOR INFO :  D          1974 SC 175  (11)

ACT: Madras  General  Sales-tax (Turnover  &  Assessment)  Rules, 1939, r. 4-A (iv)(b)-Sale to non-resident-Delivery to common carrier  within  State and insurance  by  buyer-Property  if passes  within State-Last dealer, who is-Location of  dealer if material.

HEADNOTE: Rule 4A(iv)(b) of the Madras General Sales-tax (Turnover and Assessment) Rules, 1939 lays down that tax has to be  levied from  the  dealer who buy-, cotton in the State and  is  the last dealer not exempt from taxation.  Sale-&-tax was sought to be recovered from the respondents on cotton purchased  by them  within  the State and sold to persons  who  were  non- resident within the area to which the Madras Sales-tax  Act, 1939  applied.   The non-resident buyers never  entered  the State either for entering into contracts for the sale or for taking delivery.  The delivery was given within the State to the common carrier, and the non-resident buyers insured  the goods as owners thereof and transmitted them to destination. The respondents’ plea that since the goods were sold by them within  the State to non-residents, they were not  the  last dealers not exempt from  taxation,   was  accepted  by   the Sales-tax Appellate Tribunal and the High    Court.       In appeal to this Court the appellant-State contended that  (i) on  the  facts  the respondents were the  last  dealers  not exempt from    taxation  and  (ii)  a  buyer  who  was   not resident within the area to which the Act applied could  not be held to be the last dealer for the purpose of the Rule. HELD : (i) The contention had no force.  The common  carrier took  delivery  as agent of the buyer and the  delivery  was within the State.  There was the further circumstance  that, during  transit,  the goods were insured by  the  buyers  at their own cost, and not by the respondents.  The buyers thus recognised that they were already the owners of the goods as soon  as  they  were given for transmission  to  the  common carrier. [630 E] The  movement  of  the goods outside the State  was  by  the buyers themselves after property in them bad passed to them;

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so, the sales in question were not sales  in the  course  of inter-State trade. [631 C] Tata Iron and Steel Co. Ltd., Bombay v. S. R. Sarkar &  Ors. [1961] 1 S.C.R,     379, referred to. (ii) Under the Rule the location of the dealer buying it was immaterial.   Therefore  the non-resident  buyers  were  the last-dealers  who bought it in the State and tax had  to  be levied from them. [631 G-H] State of Andhra Pradesh v. M/s.  Abdul Bakhi & Bros.  A.I.R. 1965 S.C. 531, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 714-724 of 1965. Appeals  by special leave from the judgment and order  dated January 29, 1962 of the Mysore High Court in-Civil Revision 628 Petitions Nos. 1169 to 1176 of 1958 and 841, 842 and 865  of 1959 respectively. R.   Ganapathy  Iyer and R. N. Sachthey, for  the  appellant (in .all the appeals). R. Gopalakrishan, for the respondents (in all the appeals). The Judgment of the Court was delivered by Bhargava,  J.  These appeals arise out  of  proceedings  for assessment  of sales-tax under the Madras General Sales  Tax Act No. IX of 1939 (hereinafter referred to as "the Act") in respect  of certain sales of cotton.  The  respondents  were registered  dealers in cotton, including kappas,  groundnuts and  cotton  seeds  with their Head Office  at  Bellary  and Branch  Offices  at  a number of  places.   They  were  also licensees under s. 8 of the Act in respect of cotton.   They made various purchases of cotton at their places of business and  subsequently sold them to different  parties.   Amongst these were a number of persons who were not resident  within the area to which the Act applied.  The question arose as to who  was  liable to pay the sales-tax in  respect  of  those transactions of sale of cotton in which the cotton had  been sold  by  the respondents to non-residents.  When  the  case came up before the Mysore Sales ’Tax Appellate Tribunal, the Tribunal  determined the course of transactions and held  as follows : "The examination of the contracts, the invoices, the railway receipts, insurance policies and other documents relating to the disputed turnovers shows that the nonresident foreigners place  orders  for the required number of  bales  of  cotton specifying  the  quality and the rate some  times  on  phone which  would  be  confirmed  subsequently  by  Telegrams  or letters  and finally by written agreements.  Thereupon,  the appellants  consign the cotton bales in their own name,  the consignee  being the nonresident foreign buyers  (except  in respect of a total turnover of Rs. 2,93,567-2-0 which  would cover  the items 1, 3, 5, 7, 31, 32, 33 and 44 of the  typed statement  of the account for the year 1954-55 and  a  total turnover of Rs. 3,71,880-13-0 which would cover the items 6, 10,  11, 12, 13, 14, 15, 16, 24, 25, 26, 29, 30, 31, 35,  36 and 37 of the typed statement of account for the year  1955- 56)  and send the railway receipts to their bankers  at  the other end for the collection of the amount.  It is seen that notwithstanding the fact that there are specific  provisions in  the  contract that 90 per cent of  the  invoice  amounts should  be  paid to the bankers when  the  railway  receipts would be delivered to the purchasers, surprisingly the  said provision  is rendered nugatory by reason of the  fact  that

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the 629 appellants  despatch  the  cotton in such  a  way  that  the consignee  could  get  cotton bales at the  other  end  even though  without any payment to the banker.  The  moment  the appellants consigned the goods, they will have lost complete control  and  dominion  over  the  cotton  thus  despatched. Further,  non-resident  foreign  buyers  who  obtained   the necessary  transport permit under the Cotton Control  Order, 1950, actually insure the cotton bales as the owners thereof and transmit the same from Bellary to the destination.  This is  so  even in cases where the appellants  themselves  have consigned the goods in their own name, the consignees  being themselves.   All  these facts clearly go to show  that  the sales are completed at Bellary and the non-resident  foreign buyers  in whose favour the property in the goods  had  been transferred actually transported the cotton thus  purchased. The  State Representative does not seriously  dispute  about the  correctness of the modus operandi of the appellants  in their  dealings with their purchasers during five  years  of assessments.   Bearing  these facts in mind,  we  shall  now proceed  to  examine each of the contentions raised  by  the learned counsel." On these facts, the question that fell for determination was whether for purposes of s. 5(2) of the Act read with Rule 4- A(iv)  (b)  of the Madras General Sales  Tax  (Turnover  and Assessment)  Rules,  1939 (hereinafter referred to  as  "the Rules"),  the  respondents were the dealers who  bought  the cotton  in  the State and were the last dealers  not  exempt from  taxation  under s. 3(3) of the Act on the  amount  for which  the  cotton was bought by them.   The  contention  on behalf  of the respondents was that the cotton was  sold  by them within the State of Madras to parties who were residing outside the State of Madras ; but the sales having been made by  them within the State of Madras, they could not be  held to  be dealers who bought the cotton in the State  and  were the last dealers for that purpose not exempt from  taxation. According  to  their contention, the parties, to  whom  they sold the cotton within the State, were the persons liable to be  taxed in accordance with s. 5(2) of the Act and Rule  4- A(iv)(b)  of the Rules.  The Tribunal accepted this plea  of the  respondents,  allowed the appeals, and  set  aside  the orders  of the subordinate authorities directing payment  of sales-tax by the respondents.  That order was upheld by  the High  Court of Mysore when the revisions against the  orders of  the  Tribunal  came up for decision  before  it.   These appeals  before us coming up by special leave  are  directed against  the above order of the High Court.  We may  mention that the revisions came up before the High Court of  Mysore, because the area, in respect of which the dispute arose, was originally   within   the   State   of   Madras,   but,   on Reorganisation  of States, came within the State of  Mysore. The law applicable to sales in the year 630 in  question, however, continued to be the Madras Sales  Tax Act  IX  of  1939, and that area came to  be  designated  as Madras Area of the State of Mysore. In  these  appeals, two points were canvassed before  us  by learned  counsel  for the State of Mysore.  At  the  initial stage,  learned counsel for the State indicated that he  did not  intend to challenge the finding that the situs  of  the sales in question were all within the Madras area ; but at a later  stage,  he  challenged this  finding  as  the  second alternative point in support of these appeals.  We may  deal with this point first.

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The course of transactions found by the Tribunal, reproduced above,  led the Tribunal and the High Court to  the  finding that  the situs of the sales by the respondents to the  non- resident  parties  was  in  Bellary  where  the  sales  were completed  and delivery also took place.  The submission  by learned  counsel  for the appellant was that none  of  those parties  themselves came within the State to Bellary  either for the purpose of entering into contracts for sale, or  for purposes  of taking delivery.  Delivery was given to  common carrier, and consequently, it should be held that the  sales were  completed  not within the State, but  outside  at  the places to which the goods were consigned for delivery to the various  parties.  We are unable to accept this  submission. It  has been rightly held by the High Court that the  common carrier  took  delivery  as  agent of  the  buyer  and  that delivery  was  within  the  State.   There  is  the  further circumstance that, during transit, the goods were insured by the  buyers at their own cost, and not by  the  respondents. The buyers thus recognised that they were already the owners of  the  cotton  bales  as  soon  as  they  were  given  for transmission to the common carrier. In this connection, a question also arose whether the  sales by the respondents to those non-resident parties were  sales in  the course of inter-State trade.  What are the sales  in the course of inter-State trade was explained by this  Court in Tata Iron and Steel Co.  Limited, Bombay v. S. R.  Sarkar and  Others  (1),  where clauses (a) & (b) of s.  3  of  the Central Sales Tax Act, 1956 were interpreted as follows : "In our view, therefore, within cl. (b) of s. 3 are included sales  in  which  property in the goods  passes  during  the movement of the goods from one State to another by  transfer of  documents  of  title thereto ; cl. (a) of  s.  3  covers sales,  other than those included in cl. (b), in  which  the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State." (1)  [1961] 1 S.C.R. 379. 631 The  nature  of transactions found by the  Tribunal  in  the cases before us shows that property in the cotton bales sold by the respondents did not pass during the movement of goods from one State to another by transfer of documents of title, and,  further,  that the movement of goods from  the  Madras area  to places outside the State was not the result of  any covenant or incident of  the contract of sale.  The contract of  sale  was completely carried through within  the  Madras area  itself,  in which area the price was received  by  the respondents  and  the  cotton bales were  delivered  to  the buyers.  The movement of the cotton bales outside the  State was  by  the buyers themselves after property  in  them  had passed  to them, so that these sales were not sales  in  the course of inter-State trade. We now come to the second and the main point which was urged before  us by learned counsel for the appellant.   The  sub- mission  of  learned counsel was that a buyer, who  was  not resident within the area to which the Act applied, could not be  held  to be the last dealer for purposes of  Rule  -  4- A(iv)(b) of the Rules.  According to him, it is the situs of the seller and the buyer which determines the  applicability of  this  Rule,  and not the situs of  the  sale  of  cotton itself.   We  are  unable to accept  this  submission.   The language  of the Rule is clear that the tax is to be  levied from  the  dealer who buys it in the State and is  the  last dealer not exempt from taxation.  The test laid down thus is as  to who buys it in the State and not who is in the  State

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for  purposes of buying the cotton.  The Mills  outside  the State  were  no  doubt carrying on their  main  business  of manufacture  of yarn or cloth outside the State; but so  far as the act of purchase of these cotton bales was  concerned, it  was carried out by them within the State.  It is  to  be noticed that in the Rule the expression used is "the  dealer who  buys it in the State and is the last dealer not  exempt from taxation".  If the intention had been that the location of  the buyer himself should be the criterion  for  imposing tax  on him, the language used in the Rule would  have  been quite  different.  It could easily have been laid down  that the tax will be levied from the dealer in the State who buys it  as  the  last  dealer not  exempt  from  taxation.   The expression as used in the Rule makes it perfectly clear that the  location  of  the dealer himself  is  immaterial.   The liability to be taxed attaches if the purchase itself by the dealer  is  within the State.  In the case of the  sales  in question,  therefore,  the buyers who purchased  the  cotton bales from the respondents were the last dealers who  bought those  cotton  bales in the State and the single  point  tax under S. 5(2) of the Act had to be levied from them and  not from the respondents. In this connection, an alternative argument was also  raised for the first time by learned counsel for the appellant that those 6Sup.C.I./66-12 632 outside  buyers could not be held to be dealers carrying  on the business of purchase in the State, and if they were  not dealers,  the purchases by them had to be ignored,  so  that the  last  buyers  in the State would  be  the  respondents, because  their  purchases  would be the  last  purchases  by dealers   made  when  they  acquired  these   cotton   bales subsequently  sold by them.  This contention was not  raised at any earlier stage before the Tribunal or the High  Court, and  it is, therefore, not open to the appellant to urge  it before  this Court for the first time.  In any case,  it  is clear  that  the outside buyers were all  mills  which  were purchasing  cotton  bales  for use  in  their  manufacturing process and such purchases by them would amount to purchases of  raw  materials for their business.   Purchases  of  this nature  have already been held by this Court  to  constitute the  business  of  purchase by the buyers in  The  State  of Andhra  Pradesh  v.  M/s.  H.  Abdul  Bakshi  and  Bros.(’). Consequently,  this  ground raised has also no  force.   The appeals fail and are dismissed with costs.  ’One hearing fee only. Y. P.                                     Appeals dismissed. (1) [1964] 7 S.C.R. 664: A.I.R. 1965 S.C. 531.