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PETITIONER: THE STATE OF TAMIL NADU

       Vs.

RESPONDENT: SRI SRINIVASA SALES CIRCULATION ETC.

DATE OF JUDGMENT:       04/10/1996

BENCH: S.P. BHARUCHA, FAIZAN UDDIN

ACT:

HEADNOTE:

JUDGMENT:                 THE 4TH DAY OF OCTOBER, 1996 Presents;           Hon’ble Mr.Justice S.P.Bharucha           Hon’ble Mr.Justice Faizan Uddin V.Krishnamurthy and A.Mariarputham, Advs. for the appellant. R.Mohan, Sr.Adv.,  R.Nedumaran,  V.G.Pragasam,  R.A.Perumal, K.R.Choudhary  and   R.K.Sharma,  Advs.  with  him  for  the Respondents.                       J U D G M E N T The following Judgment of the Court was delivered: The State of Tamil Nadu V. Sri Srinivasa Sales Circulation (With Civil Appeal Nos.12778-84/96, 12785-87/96) Arising out (WITH C.A.No.  8605/83, 2322-23/80, 4101/84 and/SLP (C) Nos. 300-306/81, 6932-34/80, C.A. No. 3328/80)                       J U D G M E N T Faizan Uddin, J.      Leave granted.      Since common  questions of  law and facts arise for our consideration in  these appeals and special leave petitions, the same are being disposed of by a common judgment.      The appeals and special leave petitions arise out of an order passed  by  the  High  Court  Of  Madras  in  revision preferred by  the respondent herein, under Section 38 of the Tamil Nadu General Sales Tax Act, 1959 thereinafter referred to as  the "Act")  relating to certain transactions involved therein which are sought to be taxed as sale.      Since we  have to  decide the  nature of transaction in order to  determines the  liability which  is  the  question common to all these appeals and the special leave petitions, we shall  state the  facts as  they emerge  out of the Civil Appeal No.2348/78.      The respondent assessee floated a scheme as detailed in the printed pamphlet, which reads as follows:-      "Please get a coupon of our company      from  your   friend  or   from  the      company  by   paying  rupees  five.      Please mark  your address  and  any      one article  you require it back to

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    the company.      After receiving your coupon we will      register it  and send three coupons      by V.P.L.  for Rs.15/-  plus V.P.L.      charges. Now  you have  to give the      coupons to three persons for Rs.5/-      each  and   take  the   money   for      yourself and  ask them  to fill  up      the coupons   with  their names and      full address and send it to us.      We will  send to each of your three      parties  three   coupons  each  for      Rs.15/- pluss postal charges V.P.L.      As soon  as the  parties  concerned      clear the V.P.L s, you will receive      from us  the article  that you have      mentioned in your coupon."      Further, clauses 5 and 6 of the terms and conditions of the said  scheme, which  are also relevant for our purposes, are reproduced hereunder:-      "5.  Any  person  sending  M.O.  or      bank draft  for Rs.45/-  along with      coupon duly  filled up will receive      the article  that is  mentioned  in      the coupon together with three sets      of (9) coupons.      6.   Coupons  should   be  returned      duly filled  within three months of      their  receipt.   Coupons  received      after  three  months  will  not  be      attended to."      The  said   pamphlet  containing   the  scheme  further mentions 20  articles, one  of which  may be  marked in  the coupon by  the person  or party  who purchases the coupon by paying Rs.5/-.  The coupon  referred to  in the  scheme is a printed order form which is as follows:-               "ORDER FORM"      No. 17435 D.            Regd.No.        SRI SRINIVASA SALES CIRCULATION                    (Regd.)             No.11, Gandhi Street,                 Villivakkam,                  Madras- 49.      From            ................      Dear Sirs,           As mentioned  in your  list of      article No.......  I request you to      kindly           send            me      ......................your  coupone      by V.P.L.,  for the  amount of  Rs.      16-00 sent by me.      Place:-           Yours faithfully,      Date:-                 Signature                  Canvasser’s signature "      Thus, on  payment of a sum of Rs.5/- to the company and coupon is  sent to  the individual  concerned, and we assume that individual  as A  for the sake of convenience. Then ’A’ sends back  the same  to the  company duty up mentioning the number and  name of  article in the blank spaces. On receipt of the  said coupon / order form, three order forms are sent to A,  by V.P.L.for  Rs.16/- and  when the  said  V.P.L.  is cleared by  A. he receives a further letter from the company acknowledging the  receipt of Rs.16/-. The said letter reads as follows:-

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    "We are  glad to note that you have      cleared the  V.P.L. No.  by  paying      Rs.16/- and thank you very much for      the same.           You please  sell  three  order      forms to  three  members  and  take      that money.  Fill the  three  forms      (IN BLOCK LETTERS) and send them to      us by  Regd. Post.  We will send to      each among three members containing      three order forms in each V.P.L.s.,      paying  Rs.16/-.  If  all  of  them      clear the  V.P.L.s.,paying  Rs.16/-      each, we will send you the required      article  item   No.  by  Registered      Post."      After receipt  of the  three order  forms /  coupons. A delivers them to B,C and D after collecting Rs.5/- from each of them  which amount is appropriated by A himself. Then, B, C and  D in  turn will either forward the coupons themselves to the company or send the same through  A after filling the blanks and  mentioning the  name and  description of article which is required by them. On receipt of these three coupons / order  forms, as  aforesaid, from  B,C and  D, the company sends three  sets of  three coupons each to B, C and D under V.P.L. for  Rs.16/- and  inform A  also of that facts in the printed form which reads as under :-      "We  have   received   your   three      original order forms and the letter      dated........and  thank   you  very      much for the same. According to the      rules of  our firm  today  we  have      sent 3  V.P.Ls. containing  3 order      forms in  each V.P.L.,  for Rs.16/-      to  each  among  three  members  as      addressed in  that order  forms. As      soon as  they clear  the V.P.Ls. by      paying Rs.16/-each,  we  will  send      you  the   required  articles  item      no......... by  registered  parcel.      So, you  please encourage  them  to      clear  the   V.P.Ls..   by   paying      Rs.16/- each."      If B,  C and D honour the V.P.Ls. and pay money, A then becomes entitled  to the  article which he had chosen in his order form.  That article is sent by the company to A with a covering letter. The said letter reads thus :-      "We are  very glad to note you have      circulated our scheme by a time and      thank you  very much  for the same.      According to  your request today we      have   despatched   your   required      article No.........by V.P., insured      parcel for Rs. towards the expenses      of packing  and postal  charges  of      the  article.  You  please  receive      your article  by paying Rs.........      and write  a letter to us about you      opinion."      According to  the scheme floated by the company, if any one of  B,C and  D does not honour the V.P.L. and decline to receive the  three coupons  sent to them. A looses his right to receive  the  article,  though  the  other  two  who  had honoured the V.P.L. will have a series in their name if they are again  able to sell, say to B1, B2 and B3, C1, C2 and C3

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and so  on and complete the circle.  This way the claim of B and C  would go  on and if there is no break, the claim goes on endlessly as a chain.      During  the  Assessment  Year  1967-68,  the  value  of articles that  were supplied by the respondent company under the aforesaid scheme to various persons and customers was to the tune  of Rs.  1,36,655.00 while  the purchase  value  of these articles  has been  found to  be Rs.1,03,709.25.   The Assessing Officer  took the  view that  there was  a sale of article to  every person  who had participated in the scheme and as  such turnover for the year 1967-68 from the value of articles supplied  to various  person came tp Rs.1,36,665.00 which was liable to be taxed under  Section 3(1) of the Act. The Assessing  Officer also  imposed a penalty of Rs.6,149/- under Section  12(3) of  the Act  for failure of not filling the return in form A-1.  This order of the Assessing Officer found favour  with the  Appellate Assistant  Commissioner as well as  the Sales  Tax Appellate  Tribunal.  The respondent assessee then  went up  in revision before the High Court of Judicature at  Madras.   The HIGH  Court of  Madras took the view that the transfer of article by the company was not for money consideration alone and, therefore, it would be a sale at all.  Consequently, the  High Court  held that  since the transactions involved  in the scheme of the assessee are not sale, the assessee are not liable to be taxed as sales under Section  3(1)   of  the  Act  and,  therefore,  allowed  the revision, set  aside the  order of  the  Assessing  Officer, Appellate Assistant  Commissioner and  the Tribunal  against which these  appeals and  special leave  petitions have been directed as  the orders  in the  connected appeals  and  the special leave petitions are based on the orders and findings recorded by the High Court in T.C. No. 154 of 1971 (Revision No.85) -  Sri Srinivasa  Sales Circulation v. State of Tamil Nadu, which is also reported in (1976) 38 S.T.C. 359.      The learned  counsel appearing for the appellant State, vehemently urged  that in  the light  of the  facts found on record the disputed transactions were sales as defined under Section 4  of the  Sale of  Goods Act  and,  therefore,  the Assessing Officer had rightly brought the same under the net of taxation  under the  provisions  of  the  Act.    It  was submitted that  the High Court was not right in holding that the title  in the goods that passed to the customers was not right in holding that the little in the goods that passed to the customers was not under any contract or sale between the respondent and  their customers  and strenuously  urged that the tenor  of the scheme clearly indicated that the title in the goods  passed to the customers pursuant to a contract of sale between  the respondent  and their  customers  and  the transaction was squarely covered by Section 4 of the Sale of Goods Act.   Contrary to this, the learned counsel appearing for the  respondent sought to support the impugned order for the reasons  assigned by  the High  Court and submitted that the transactions  involved in the scheme of the assessee are not liable  to tax  as Sales  Tax under  Section 3(1) of the Act.      If may  be stated  that in  order to  constitute a sale under the  Sale of  Goods Act,  it is essential to establish that there  is an agreement between the parties for transfer of title  to the  goods and  that such  agreement should  be supported by  money consideration  and as  a result  of  the transactions the  goods.    article  or  the  property  must actually pass to the purchaser.  It  is settled law that the expression  "sale"  under  the  Sales  Tax  Act  has  to  be understood with  reference to  the definition  of  "sale  of goods" under the Sale of Goods Act.  But if the title of the

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goods passes  without  any  contract  between  the  parties, express or  implied, there  is no  sale.   Similarly if  the consideration of  the transfer  is not money, but some other valuable consideration,  it may amount to exchange or barter but not  a sale  in the  strict sense  of the  law  for  the purposes of  taxation, we  shall, therefore, examine whether under the  facts and  circumstances of  the present case the transfer of  article  by  the  respondent  assessee  to  its customers under  the scheme  floated by it constitute a sale against payment of price of that article.      As stated  earlier  in  the  foregoing  paras  of  this Judgment, the  coupon of the company is sold to the customer A on  payment of  Rs.5/-.    Whereafter,  the  customer    A receives three  coupons for Rs. 16/- which he sells to three persons for  Rs.5/- each  and  appropriates  the  amount  so received by himself.  When each of the three parties to whom the coupons  to others  namely B,  C and  D,  one  cycle  is completed and the customer A in turn receives the article of his choice  as mentioned  by him  in  the  coupon  from  the company.   In this  process, as  stated earlier, the company despatches a letter to its customer  A advising him sell the three order  forms to  three members  and  take  that  money himself.   Not  only  this,  the  assessee  company  further addresses a  letter to  the customer   A in the printed form conveying their  thanks to  him and  that they have received three original  order forms  and the letter, stating further that as  soon as  the V.P.Ls.  are cleared by paying Rs.16/- each, they  will send him the required article by Registered parcel.   Thereafter, the  company ultimately despatches the article of  his choice  to the  Customer   A with a covering letter advising  him to  receive the  article by  paying the stated amount.  From these facts, it is clear that there may not be  a formal  contract for  sale  and  purchase  of  the article in  any specific  form, but  such a  contract may be spelt out  from the  correspondence and  interaction between the parties, in the present case an implied contract between the parties  is spelt out when the company offers the coupon (s) against  payment  and  the  article  of  the  choice  is ultimately sent  to the  customer for payment or price which is accepted  by the  customer.   There  is  thus  offer  and acceptance.  If  the  contents  of  the  entire  scheme,  as reproduced above, are minutely looked in to it substantially amounts  to   sale.  We   find  that   all  the  attributes, characteristics and  requirements of  a sale  are present in the transaction, in fact the transaction  is so designed and framed by  the company  by adopting  a circuitous method for sale of their goods which amounts to nothing out a sale, and the same  is liable  to assessment under the Act.  This view is further  strengthened  from  the  fact  that  during  the relevant  assessment   year  the   respondent  company  sent articles to  its various  customers under  the scheme of the value  of   Rs.1,36,665.00,  which  were  purchased  by  the respondent company  for a  sum of  Rs.1,03,709.25 and, thus, earned a  profit to  the tune of Rs.32,955,75.  The business so run  by the  respondent is with a view to earn profit out of the  sale by  adopting a circuitous device with a view to evade the  payment of  tax.   In our considered opinion, the High Court,  therefore: was not justified in taking the view that it was not a sale transaction assessable to tax.      Consequently, we allow the appeals by setting aside the impugned orders  passed by  the High  Court and  restore the order of the Assessment Officers and the Sales Tax Appellate Tribunal.   But in  the facts and circumstances of the case, we make no order as to costs.

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