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PETITIONER: TATA ENGINEERING & LOCOMOTIVE CO.  LIMITED

       Vs.

RESPONDENT: THE ASSISTANT COMMISSIONER OF COMMERCIALTAXES & ANOTHER

DATE OF JUDGMENT: 02/03/1970

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. HEGDE, K.S. RAY, A.N. DUA, I.D.

CITATION:  1970 AIR 1281            1970 SCR  (3) 862  1970 SCC  (1) 622  CITATOR INFO :  R          1971 SC 477  (12)  R          1973 SC2556  (9,20)  R          1976 SC1016  (22)  D          1979 SC1160  (16)  D          1981 SC1604  (10,11)  F          1985 SC1754  (9)

ACT: Central Sales Tax Act, 1956-Trucks-manufactured in Bihar sold from producer’s stockyards in other States- Though  agreement with  dealers envisaged firm advance orders, actual sales  by allocation  from  stockyards--If  inter-state   sales-Whether S.T.O. bound to examine each transaction or decide on general basis of similar transactions.

HEADNOTE: The appellant carried on the business of manufacturing trucks in  Jamshedpur  in the State of Bihar.  It did not  have  any stockyard  in  the State but maintained  such  stockyards  in different States for the purpose of effective distribution of vehicles among its dealers.  A form of agreement between  the appellant and its dealers provided that the company agreed to sell  and  supply from its Works at Jamshedpur  or  from  its stockyards  outside  the State vehicles to the  dealer  which would  be  allotted  to  the dealer by  the  Company  at  its discretion.   In another provision it was laid down  that  by the  15th of each month the dealer shall mail to the  company his  statements  containing firm orders for purchases  to  be effected during the next succeeding month. In the course of its assessment to sales tax ’for the  years’ 1964-65 and 1965-66, the appellant claimed that as the demand for the vehicles far exceeded the production, no firm  orders as  envisaged  in the dealership agreement had in  fact  been ’received.   The actual procedure followed by  the  appellant was  that the sales office of the appellant in Bombay,  after taking into account the production schedule and  requirements in  different  States,  instructed the  factory  to  transfer stocks of vehicles to the stockyards in the various States by

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Stock  Transfer  Authorisations  in which the  model  of  the chassis  and the number of units were mentioned.  The  stocks available  in  the stockyards were distributed from  time  to time  to  dealers  taking care to ensure  that  the  over-all supply  to the dealers in any State was in proportion to  the number of orders pending with the dealer on May 1, 1963 or on the  basis  of  the off-take by the dealer  during  the  year ending  September  30,  1962 as required  by  the  Commercial Vehicles  (Distribution and Sale) Control Order,  1963.   For this  purpose  allotments were made to the  dealer  for  each month  by  an allocation letter by the sales office.  it  was claimed that the transfer of the vehicles from the factory to the  various stockyards was a continuous process and was  not related  to the requirement of any particular customer;  that there   was   no  connection  between  the   Stock   Transfer Authorisation  and the allocation letter.  It was the  stock- yard  incharge  who  appropriated  the  required  number   of vehicles to the contract of sale out of the stocks  available with  him.   This was done after a delivery  order  had  been addressed  by  the sales office at Bombay  to  the  stockyard incharge  for  delivery  of  stated  number  of  vehicles  of specified   model   to  a  particular  dealer.    Till   such appropriation of vehicles, it was always open to the  company to  allot  any vehicle to any purchaser or  to  transfer  the vehicles  from the stockyard in one State to a  stockyard  in another State.                     8 63 However, the respondent Assistant Commissioner of  Commercial Taxes. levied tax under the Central Sales Tax Act on all  the vehicles  which moved to the stockyards in the  States  other than  Bihar  from Jamshedpur.  The appellant  challenged  the assessment  orders in petitions filed under Article  226  but these  were dismissed by the High Court.  On appeal  to  this Court,. HELD : The order of the High Court and that of the  Assistant Commissioner must be set aside. (i)The   explanation  of  the  procedure  followed  by   the appellant  which prima facie seemed to be business-like  and plausible,  together  with the proved absence  of  any  firm orders,  indicated  that  the  allocation  letters  and  the statements  tarnished by the dealers did not  by  themselves bring  about  transactions  of sale within  the  meaning  of Section  2(g)  of the Central Sales Tax Act.   It  appeared’ ’from  the material on record that generally the  completion of the sales to the dealers did not take place at Jamshedpur and  the final steps in the matter of such  completion  were taken  at the stockyards.  Even on the assumption  that  any orders had been received by the appellant they could not  be regarded as anything but mere offers in view of the specific terms in 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  orders.   There,were, therefore,  no firm contracts which occasioned the  movement of vehicles out of the State of Bihar. [870 D-871 B] (ii) Another serious infirmity in the order of the Assistant Commissioner   was  that  instead  of  looking   into   each transaction  in  order  to  find  out  whether  a  completed contract  of sale had taken place which could be brought  to tax  only  if the movement of vehicles from  Jamshedpur  had been  occasioned  under  a convenant  or  incident  of  that contract,  the Assistant Commissioner made his order on  the general  basis  that  all transactions  were  of  a  similar nature.   The  Assistant Commissioner was bound  to  examine each individual transaction and then decide whether it cons- tituted  an  Inter-State  sale exigible  to  tax  under  the

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provisions of the Act. [8781 C] Tata  Iron & Steel Co. Ltd.  Bombay v. S. C. Sarkar  &  Ors. [1961]  1  S.C.R.  379, Ben  Gorm  Nilgiri  Plantations  Co, Cooncor  &  Others, v. Sales Tax  Officer,  Special  Circle, Ernakulam & Ors. [1964] 7 S.C.R. 706; referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 2105  and 2106 of 1969. Appeals  from the judgment and order dated July 1,  1969  of the  Patna High Court in Civil Writ Jurisdiction Cases  Nos. 993 of 1968 and 72 of 1969. N.   A.  Palkhivala, Sant P. Mehta, P. C. Bhartari, and  B.. Datta, for the appellant (in both the appeals). Lal  Narain  Sinha,  Advocate-General, State  of  Bihar,  S. Sarwar Ali and U. P. Singh, for the respondents (in both the appeals). The Judgment of the Court was delivered by Grover,  J.  The  only  point  for  determination  in  these appeals,  by certificate is whether certain sales  of  motor vehicles manufac- 8 64 tured  by  the  appellant were inter-state  sales  and  were liable to tax under the provisions of the Central Sales  Tax Act 1956, herein-, after called "the Act". The appellant carries on the business of manufacturing inter alia  Tata  Mercedes Benz trucks and buses,  chassis,  spare parts and accessories thereof at Jamshedpur in the State  of Bihar.  These are sold to the Government of India, the State Transport    Corporations,   commercial    and    industrial undertakings and other persons.  These appeals relate to the assessments made by the Assistant Commissioner of Commercial Taxes, hereinafter called the "Assistant Commissioner", with regard to the assessment periods April 1, 1964 to March  31, 1965 and April 1, 1965 to March 31, 1966.  As the points are common  to  both the appeals we shall deal  with  the  facts relating  to  the second period, namely, April  1,  1965  to March 31, 1966. The appellant did not maintain any stockyard in the State of Bihar   but  in  different  States  stockyards  were   being maintained  since  December 1964.  This, it is  stated,  was done  for the purpose of more effective distribution of  the vehicles particularly ,among the network of dealers.   These stockyards  were operated by the appellant’s  own  personnel and the sales of the vehicles, it is claimed, were  effected to  the  dealers  as  well as to  the  other  users  in  the different  States from the stockyards.  The dispute  relates only to the assessment made in respect of the vehicles which moved  from  the manufacturing plant in  Jamshedpur  to  the stockyards  in different States in the country.   The  sales tax  was duly paid in accordance with the  respective  State laws on the sales effected from the stockyards there. The  Assistant Commissioner has levied tax under the Act  on all  the  vehicles which moved to the stockyards  in  States other than Bihar from Jamshedpur.  Tax amounting to Rs.  173 lakhs  was levied on April 1, 1966 for the period  April  1, 1965  to September 30, 1965.  The appellant moved the  Patna High Court under Art. 226 of the Constitution in April  1966 challenging  the  order  of  assessment  but  petition   was dismissed   in  limini  in  April  1966.   This  Court   was thereafter  approached against the order of the  High  Court and  special  leave to appeal was granted.  The  appeal  was finally  allowed  in February 1967 and the  High  Court  was

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directed to entertain and decide the petition on merits’  in November 1967 an agreed order was made by which the previous order  of assessment was set aside and fresh assessment  was to be made in accordance with law.  On January 24, 1968  the appellant  addressed  a detailed  communication  giving  the entire  procedure which was being followed in the matter  of sales  of motor vehicles sent to different States  from  the works at Jamshedpur.                             865 It  appears that the Assistant Commissioner paid a  personal visit  to  the head office of the appellant  at  Bombay  and relevant  records  were  shown  to him  there  or  later  on according  to his requisitions.  On March’13, 1968  he  made the  assessment order in which he created a demand  for  Rs. 2,79,13,599.32  by way of sales tax under the provisions  of the  Act on the vehicles which had moved from Jamshedpur  to the  stockyards in the various States and had been  disposed of from there.  The appellant filed petitions under Art. 226 of the Constitution challenging the above order as also  the assessment on similar lines for the period April 1, 1964  to March 31, 1965.  The petitions were dismissed by a  division bench of the High Court. The  controversy  throughout has centered  on  the  question whether the sales subjected to tax were of the nature  which were  covered by the provisions of the Act or whether  those sales   took  place  in  the  different  States  where   the stockyards were situate and from where they were disposed of Sections 3 and 4 of the Act may be read in this connection.               "3.  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-               (a)   occasions the movement of goods from one               State to another; or               (b)   is  effected by a transfer of  documents               of  title to the goods during  their  movement               from one State to another.               Explanation I........................               Explanation II.........................               "4. (1) Subject to the provisions contained in               section 3, when a sale or purchase of goods is               determined in accordance with sub-section  (2)               to  take  place inside a State  such  sale  or               purchase  shall be deemed to have taken  place               outside all other States.               (2)   A  sale  or purchase of goods  shall  be               deemed  to  take place inside a State  if  the               goods are within the State-               (a)   in  the case of specific or  ascertained               goods,  at  the time the contract of  sale  is               made; and,               (b)   in  the case of unascertained or  future               goods  at the time of their  appropriation  to               the  contract of sale by the seller or by  the               buyer whether assent               8 66               of  the other party is prior or subsequent  to               such appropriation.               Explanation......................... It is also necessary to refer to the definition of "sale" as given in s. 2(g).  The substance of that definition is  that sale  means any transfer of property in goods by one  person to another for cash or for deferred payment or for any other valuable  consideration.  As observed in Tata Iron  &  Steel Co. Ltd.  Bombay v. S. C. Sarkar & Ors.(1) a transaction  of

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sale  is subject to tax under the Act on the  completion  of the sale.  A mere contract of sale is not a sale within  the definition ’of "sale" in s. 2(g).  A sale being transfer  of property  becomes taxable under S. 3(a) "if the movement  of goods  from  one  State to another is under  a  covenant  or incident  of  the contract of sale".  In  Ben  Gorm  Nilgiri Plantations  Co.  Cooncor  & Others v.  Sales  Tax  Officer, Special Circle, Ernakulam & Others(1), the provisions of  S. 5  of  the Act came up for consideration and  the  principle settled by that decision would indisputably be applicable to S. 3 (a) of the Act.? It has been laid down that the sale in the course of export predicated connection between the  sale and export, the two activities being so integrated that  the connection between the two cannot be voluntarily interrupted without  a breach of the contract or the compulsion  arising from  the  nature of the transaction.   To  occasion  export there  must exist such a bond between the contract  of  sale and  the actual exportation that each link  is  inextricably connected  with  the  one  immediately  preceding  it.   The principle  thus  admits  of  no  doubt,  according  to   the decisions  of this Court, that the sales to be  exigible  to tax  under  the  Act must be shown to  have  occasioned  the movement of the goods or articles from one State to another. The movement must be the result of a covenant or incident of the contract of sale. The  points  which  would  require  determination  would  be whether  the transactions which have been subjected  to  tax were  of  sale  within the  definition  of  that  expression contained in S. 2(g) and whether the movement of goods  from Jamshedpur  to  the  stockyards  of  the  appellant  in  the different States was occasioned by any covenant or  incident of the contract of sale. The  procedure  according to which dealings took  place  and supply of vehicles was made was outlined in a  communication which  was  addressed  by the  appellant  to  the  Assistant Commissioner  in February 1969.  Prior to 1958  each  dealer had to place every month what were called "firm orders"  for the vehicles which the dealers wanted to purchase.  By  1958 Tata Mercedes Benz (1) [1961] 1 S.C. R. 379. [2  [1964] 7 S.C.R. 706. 8 6 7 vehicles are stated to have gained remarkable reputation for quality.  The demand far exceeded the production.  It was no longer  necessary to restrict the production to any  limited demand  or  to  depend  on the number  of  firm  orders  for planning  of production schedule.  Therefore about the  year 1958 the appellant stopped insisting on the firm orders from the dealers.  It was asserted that the company’s records did not  contain any firm orders after 1958.  It is  unnecessary to mention certain circulars issued by the company prior  to the  promulgation in May 1963 by the Government of India  of the  Commercial  Vehicles (Distribution  and  Sale)  Control Order 1963 which was valid upto September 1967.  The Control Order  provided for the general principles of  distribution. Pursuant  to  the  Control Order  the,  appellant  issued  a circular  dated June-14, 1963 asking the dealers  to  submit the  following statements at the -end of each month  instead of  the weekly statements as submitted by them prior to  the Control  Order : (1) list of applications registered  during the  month; (2) list of retail sales during the  month;  (3) list  of  applications cancelled during the  month  and  (4) stocks and sales report.  The appellant explained that  this was done to keep itself informed of the market movement  and the  sale  prospects  of  the  vehicles  and  to  avoid  any

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possibility of irregular allotment by the dealer.  According to  the appellant the extracts of the register kept  by  the dealer,  could not, under any circumstances, be  equated  to firm  orders  nor  was there any  relationship  between  the actual  number  of  vehicles supplied  and  the  information contained in the extracts. A  new form of dealership agreement (Ext. 1) was  introduced by  the  appellant  after the promulgation  of  the  Control Order.   Clause 1 (a) of this agreement provided  that  "the company  agrees  to  sell  and  supply  from  its  works  at Jamshedpur  in  the State of Bihar or from  its  depots  and stockyards  outside the State of Bihar to the  dealer"  the. vehicles  which shall allotted to the dealer by the  company at  its discretion for resale in accordance with the  provi- sions of the agreement.  Clause 11 (b) is reproduced below :               "The  dealer shall mail to the Company on  the               15th of each month, or so so that the  Company               will be in receipt thereof by the 20th of each               month,  his  firm order for  purchases  to  be               effected during the next succeeding month  and               his  estimated requirements of the said  vehi-               cles  for  the two months following  the  next               succeeding month, for the said vehicles. In the communication which has been referred to before  sent to  the Assistant Commissioner it had been  emphasised  that although  the  above  clause regarding the  firm  order  was included in the dealership agreement, in fact no firm orders were  called  for  in view of the  Control  Order.   It  was maintained that during the 8 6 8 relevant  period  sales were effected  from  the  stockyards alone,  the procedure adopted being as follows :  The  sales office of the appellant in Bombay, after taking into account the  production schedule requirements of individual  States, the  Government  directives  and  other  relevant   factors. instructed  the factory at Jamshedpur to transfer stocks  of vehicles  to  the  stockyards in the  various  States.   The instructions for transfer were given by the sales office  by Stock  Transfer  Authorisation  in which the  model  of  the chassis  and the number of units were mentioned  along  with the  name  of  stockyard  to  which  the  same  were  to  be transferred.   Pursuant to the Stock Transfer  Authorisation the works prepared a Stock Transfer Memo which indicated the quantity of the vehicles to be transferred to the  stockyard specified  in  the,  Memo.   This memo  was  signed  by  the transport   contractor  appointed  by  the   appellant   for transportation  of  the  vehicles  to  the  stockyards.   On receipt  of the vehicles at the stockyard any deficiency  in or  damage  to  the  vehicles was  noted  by  the  stockyard incharge.   Unless the damage to the vehicles was set  right they were not appropriated to any contract of sale. The stocks available in the stockyards were distributed from time  to  time  to dealers taking care to  ensure  that  the overall  supply  to  the dealers in any State  would  be  in proportion  to the number of orders pending with the  dealer on May 1, 1963 or on the basis of the off-take by the dealer during  the  year ending September 30, 1962 as  required  by the Control Order.  For this purpose allotments were made to the  dealer  for each month by an allocation letter  by  the sales  office.   It  is claimed that  the  transfer  of  the vehicles  from  works to the various stockyards was  a  con- tinuous  process and was not related to the  requirement  of any particular customer whether a dealer or a corporation or a  private individual.  These vehicles were  transferred  by way  of  stock to the stockyards or depots  from  where  the

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transactions of sale were effected.  It was pointed out that there   was  no  connection  between  the   Stock   Transfer Authorisation and the allocation letter.  The vehicles  were delivered to the dealers as and when they were available  in the stockyards irrespective of whether or not allocation for the  dealers had been made or notified to them.   There  bad been  many  instances where the vehicles had  been  actually delivered  from  the stockyards prior to the  issue  of  the allocation  letter.   The vehicles delivered to  the  dealer from the stockyard were accounted for against the allocation over  the  period.   It  was  the  stockyard  incharge   who appropriated  the  required  number  of  -vehicles  to   the contract  of sale out of the stocks available with  him  and put  down  the  vehicle engine and  chassis  number  in  the delivery challan.  This was done after a delivery order  had been  ,addressed  by  the  sales office  at  Bombay  to  the stockyard in-charge 869 for delivery of stated number of vehicles of specified model to a particular dealer.  Till such appropriation of vehicles through specification of the engine and chassis numbers,  it was  always open to the company to allot any vehicle to  any purchaser or to transfer the vehicles from the stockyard  in one State to a stockyard in another State. Now  the  Assistant  Commissioner  has  not  examined   each transaction as indeed he ought to have done and has  arrived at  certain conclusions which appear to be wholly  erroneous and  are  based on a complete misapprehension  of  the  true position.    He  has  firstly  treated  the  allocation   or alloltment  letters  together  with  their  confirmation  as transactions   of   sale.   According  to   him   once   the availability  of vehicles for allocation was determined  for any  particular  month allocations were made  to  individual dealers  and  Stock Authorisation Memos were issued  by  the sales  office  at Bombay to the works  at  Jamshedpur.   The movement  of vehicles from the works to the  stockyards  was the   direct  result  of  the  allocations  so  made.    The conclusion on this point was in these words               "It  was  therefore clear that  generally  the               movement   of  vehicles  from  works  to   the               stockyards  was not  completely  disassociated               from  the  allocation  made  to  the  dealers.               Consequently it would (7) not be said that the               movement   of  vehicles  from  the  works   at               Jamshedpur   ’was  completely   unrelated   to               contract of sale". It  was  recognised  that in some cases  vehicles  had  been delivered to some dealers in advance against the  allocation made for the following months.  The appellant further showed and  this  was  accepted that 15  vehicles  from  the  Delhi stockyard  were  transferred  to  Karnal  stockyard.   After finding  that  the allocation letters  together  with  their confirmation constituted transactions of sale the  Assistant Commissioner referred to the dealership agreement and stated that  on  placing  of the demand by the  dealer  a  complete contract  came into existence.  He proceeded to  regard  the statements  which  were  required to  be  furnished  to  the dealers  in accordance with the letter dated June  14,  1963 addressed by the appellant to them as firm orders within the meaning of the relevant clause in the dealership  agreement. The final conclusion of the Assistant Commissioner was  that as contemplated by clause 11 (b) of the dealership agreement every  one  of the dealers placed his demand or  orders  for supply  which  amounted to a contract for the  sale  of  the vehicles demanded and clause 12 of the dealership  agreement

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under  which allocations were made by the appellant  to  the dealers amounted to fulfilment of orders.  The appellant had throughout maintained that firm orders were no longer placed with it by the dealers after 1958.  It has not been found or shown that 8 7 0 any   such  orders  were  in  existence  relating   to   the transactions   in  dispute.   Thus  on  the  question   that transactions  of  sale  took  place  the  decision  of   the Assistant  Commissioner  rested  mainly  on  the  Allocation letters  and  the  statements furnished by  the  dealers  as required by the circular of June 14, 1963. It is somewhat unfortunate that the High Court fell into the same error as the Assistant Commissioner as it accepted  his findings  on the ground that they were on questions of  fact and could not be re-examined by the High Court.  It was said that the terms ;and covenants of the contract made it  clear that  since  the vehicles were despatched  in  pursuance  of orders  irrespective of appropriation or  specific  vehicles being  sent to specific dealers the despatch and  supply  to the dealers must of necessity be regarded ,is integral  part of  a  single  transaction.  It is  difficult  to  see  what -contracts the High Court had in mind because none have been shown  to  us even by the learned Advocate General  for  the State.  He  also  relied  largely on  the  findings  of  the Assistant Commissioner and urged that they were not open  to re-examination. The  explanation of the procedure followed by the  appellant -which  prima facie seems to be business-like and  plausible together  with the proved absence of any firm  orders  lends support  to  the  argument pressed on its  behalf  that  the allocation  letters  and  the statements  furnished  by  the dealers  did not by themselves bring about  transactions  of sale  within  the  meaning  of S.  2(g)  of  the  Act.   The Assistant  Commissioner  himself found  that  sometimes  the vehicles were sent from the works at Jamshedpur even  before an allocation letter had been issued.  It would appear  from the materials placed before us that generally the completion of the sales to the dealers did not take place at Jamshedpur and  the final steps in the matter of such  completion  were taken  at the, stockyards.  Even if the appellant took  into account  the requirements of the dealers which it  naturally was  expected  to do when the vehicles were moved  from  the works  to  the  stockyards it was not  -necessary  that  the number   of  vehicles  -allocated  to  the   dealer   should necessarily  be delivered to him.  The appropriation of  the -vehicles  was done at the stockyards through  specification of the engine and the chassis number and it was open to  the appellant  -till then to allot any vehicle to any  purchaser and to transfer the vehicles from one stockyard to  another. Even the Assistant Commissioner found that on some  occasion vehicles  had  been moved from stockyard in one State  to  a stockyard  in  another  -State.  It  is  not  possible,   to comprehend how in the above situation it could be held  that the  movement  of  the  vehicles  from  the  works  to   the stockyards was occasioned by any covenant or incident of the contract of sale.  As regards the so called firm orders  ’it has already been pointed out that none have been shown to 871 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 Exh.  1 (the dealership agreement) according to which it was open to the appellant to supply or not to supply the  dealer

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with  any  vehicle  in response to such  order.   What  was, therefore,  relevant  was  the  acceptance  of  firm  orders occasioning  the  movement of vehicles out of the  State  of Bihar. Another serious infirmity in the order of the Assistant Com- missioner  was  (a matter which even  the  Advocate  General quite  fairly had to concede) that instead of  looking  into each  transaction in order to find out whether  a  completed contract  of sale had taken place which could be brought  to tax  only  if the movement of vehicles from  Jamshedpur  had been  occasioned  under  a convenant  or  incident  of  that contract the Assistant Commissioner based his order on  mere generalities.    It   has  been  suggested  that   all   the transactions  were  of similar nature  and  the  appellant’s representative   had  himself  submitted  that  a   specimen transaction  alone need be examined.  In our  judgment  this was  a  wholly wrong procedure to follow and  the  Assistant Commissioner,  on whom the duty lay of assessing the tax  in accordance  with law, was bound to examine  each  individual transaction and then decide whether it constituted an inter- State sale exigible to tax under the provisions of the Act. Consequently  the appeals are allowed and the order  of  the High  Court  and that of the Assistant Commissionor  is  set aside in so far as it relates to the assessments in  dispute in  the present appeals.  It will be open to  the  Assistant Commissioner  to make a fresh assesment in  accordance  with law.   The appellant shall be entitled to costs incurred  in this Court.  One hearing fee. R.K.P.S.                                             Appeals allowed. 8 72