Asbestos Cement Ltd., Podanur v. Government Of Tamil Nadu

1. As the points involved in both the above cases are the same, they are dealt with together.

2. The petitioners in both the cases are the same and they challenge the assessments made on them for the years 1965-66 and 1966-67 so far as they related to a turnover of Rs. 1,85,324.83 for the year 1965-66 and Rs. 1,46,512.96 for the year 1966-67. They contend that the transactions covered by the turnovers disputed in these cases are not inter-State sales and that they are not liable to be taxed under the Central Sales Tax Act. The transactions in question in both the years have been treated as inter-State sales by the assessing authority as well as by the appellate authority. On appeals by the assessees to the Sales Tax Appellate Tribunal, the Tribunal has remanded the matter to the appellate authority, with a direction to exclude such of those transactions in respect of which actual deliveries had been completed by the assessees' factory in Madras State to the nominees of the outside State buyers from the levy of Central sales tax. Aggrieved against the observations made by the Tribunal as to the nature and character of an inter-State sale, and the restricted scope of its remand order the assessees have come to this court.

3. The nature of the transactions covered by the disputed turnovers is substantially the same in both the years and they are set out below. The assessees are manufacturers and dealers in asbestos sheets at Podanur in Madras State. According to the assessees the turnovers in dispute represented transactions wherein the out-of-State buyers or their authorised agents or nominees collected and took actual delivery of the goods sold to them at the assessees' factory at Podanur and moved the goods at their own risk and cost. To substantiate that contention the assessees had produced some authorisation letters showing that the out-of-State buyers had authorised their agents or nominees to take delivery of the goods and arrange for their transport from the assessees' factory at Podanur. One of such letters is as follows :

4. The assessees contended that in most of the transactions covered by the disputed turnovers, the authorised agents or nominees of the out-of-State buyers took delivery of the goods at the factory, that there was no despatch of the goods by them to the out-of-State buyers involving in the inter-State movement of the goods as a result of the contract and that, therefore, these transactions cannot be treated as inter-State sales. They have not however produced the authorisation letters such as the one set out above in all cases and their explanation is that all such letters have not been preserved. It is because of this reason the Tribunal has remanded the matter to the appellate authority to find out such of those transactions in respect of which the goods had been actually delivered at the assessees' factory at Podanur to the out-of-State buyer or his nominees in pursuance of authorisations given by the buyers.

5. The assessees, however, contend that the prices charged by them in the various bills clearly indicated that the sales have been completed by actual delivery at their factory, and that they were not concerned with the subsequent movement of the goods from the factory to the out-of-State destinations. To establish this contention, they have produced the stockist agreement form and the stockist price list. The stockist agreement form shows that the assessees appoint stockists for particular areas and sell to the said stockists on firm account for resale in the areas allotted to them at the current general gross list price fixed by the company from time to time. The stockist price list shows that separate prices have been fixed for goods delivered ex works and for goods delivered in wagon loads in any railway station within a particular area. It is stated by the assessees that in all the transactions covered by the disputed turnovers they had charged only ex works price and not the price quoted for delivery in wagon loads in the region or area allotted to the stockist.

6. The assessing authority considered the above contention of the assessees and held that the transactions in, question are inter-State sales as the movement of the goods outside the State is closely linked with the sale of the goods. In its view the invoices, gate passes and declarations in form XX prepared and issued by the assessees themselves indicated that they as sellers entrusted the goods to public carriers such as lorries for transport to out-of-State destinations and even if the sales are treated as intra-State sales, as the transactions of sale by the assessees to their stockists outside the State had clearly occasioned the movement of goods from this State they would be inter-State sales. The appellate authority also took the same view mostly relying on (i) the despatch chalan issued by the assessees to the out-of-State buyer which was in the following form :

"Please receive from Asbestos Cement Limited the following materials and return duplicate duly signed "

and indicated (1) the name and address of the out-of-State buyer, (2) vehicle number to which the goods were entrusted, (3) the starting station and the out-of-State destination, (4) the description of the goods, (5) order number and date, (6) date and time of despatch, and (7) symbol of the goods and quantity; (ii) the invoices issued in respect of each of the transactions giving the names and addresses of the out-of-State buyers; and (iii) the delivery note issued in form XX in which it has been shown that the assessees as sellers had entrusted the goods to the driver of the lorry who has been shown as the person to whom the goods had been delivered. According to the appellate authority the invoices, despatch chalans and the delivery notes in form XX amply justified the finding of the assessing authority that the sale occasioned the movement of the goods from this State to other States as goods have been despatched by the seller direct to the out-of-State buyer through lorries, a public conveyance, and that such despatches should have been in pursuance of a covenant in or incident of the contract of sale. The appellate authority made much of the fact that the assessees have failed to produce the orders placed by the customers, after rejecting the assessees' pleas that there is no separate contract for sale or purchase apart from the despatch instructions issued by the stockists outside the State in pursuance of the standing stockist agreements.

7. On appeal, the Tribunal dealing with the plea of the assessees that the prices charged were oh ex works basis, that they have not incurred the freight charges for transport of the goods from their factory to the places outside the State, t-hat the sales were actually completed within Madras State and the movement of the goods was by the buyers' agents or nominees, expressed the view that the assessees have not shown that in all cases covered by the turnovers in question the actual delivery of the goods was ex works at Podanur to the buyers' agents or nominees as per the authorisations received from the out-of-State buyers, and that the following note

"delivered price includes freight up to destination station but excludes octroi or any other charges at any station"

in the printed list showed that the prices charged by the assessees included the freight charges up to the destination stations. In that view the Tribunal felt that except in cases where the assessees establish that the goods were delivered to the buyers' agents or nominees as per their instructions, the other transactions will have to be treated as inter-State sales. The matter was, therefore, remanded to the Appellate Assistant Commissioner to find out and exclude the turnover relating to such of those cases where authorisation letters have been produced from the out-of-State buyers to deliver the goods to their agents or nominees.

8. Mr. V. K. Thiruvenkatachari, learned counsel for the petitioners, contends that the Tribunal is in error in construing the foot-note in the printed price list as indicating that in all cases the prices charged by the assessees included the freight charges up to destination stations. It is stated that the Tribunal has overlooked the fact that the price list gives two prices, one for delivery "ex works" and the other for "delivery in price field" in wagon load, and that the foot-note in the price list indicated that it is only alternative price that is quoted in the price list which includes freight charges to the destination stations and not the prices quoted for ex works delivery. It is stated that, as the delivered prices are uniform for particular areas or fields, different prices are fixed for different areas or fields. We are inclined to agree with the contention put forward, on behalf of the petitioners that the price list has been erroneously construed by the Tribunal as indicating that the prices charged by the assessees in the transactions in question included the freight charges up to destination stations. It is stated that the prices charged in all the transactions in question are only on ex works basis and not at the alternative rate of "delivered prices". According to the learned counsel, in all the transactions ex works prices alone had been charged and the assessees have not incurred any charges for transporting the goods to the ultimate destination. It is stated that if the assessees have really arranged for the transport of the goods to the ultimate destinations outside the State, they would not have charged the lesser ex works price, but would have charged the higher price, that is, "delivered price" which naturally included the freight charges up to the destination. We are of the view that the learned counsel is right in his submission that the invoices indicate clearly the nature of the transactions, and the charging of ex works price by the assessees would probabilise the fact that the goods were taken delivery of at their factory by the buyer or his nominee. The assessing authority as well as the appellate authority have proceeded on the basis that the sales are inter-State sales by reason of the fact that the buyers were outside the State, that the goods have moved from this State to other States, that the goods had been despatched through normal commercial channels such as lorries, and that the delivery note issued in form XX by the assessees showed them as the sellers and the out-of-State - dealers as buyers. The question is whether those facts are sufficient to establish that the sales in question are inter-State sales.

9. The question as to what is an inter-State sale had been considered by the various High Courts and the Supreme Court on more than one occasion before the enactment of the Central Sales Tax Act of 1956. Before the said Act, Article 286(2) of the Constitution in imposing restrictions on the power of the States to levy taxes on the sale and purchase of goods provided that

"except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce"

. In ascertaining the scope of the said provision the courts had naturally to find out as to what is a sale in the course of inter-State trade or commerce.

10. In Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 S.T.C. 150, Veeraswami, J. (as he then was) speaking for the Bench has, if we may say so with respect, succinctly traced the development and history of the law relating to inter-State sales, both prior to and after the enactment of the Central Sales Tax Act. We are in entire agreement with the exposition of law contained in that decision, and in our view, it is unnecessary to restate the same once again. That decision takes note of the following decisions of the Supreme Court in The State of Bombay v. United Motors (India) Ltd. [1953] 4 S.T.C. 133 (S.C.), Bengal Immunity Co. Ltd. v. The State of Bihar [1955] 6 S.T.C. 446 (S.C.), Sundararamier and Co. and Ors. v. State of Andhra Pradesh [1958] 9 S.T.C. 298 (S.C.) and Ashok Leyland Ltd. v. State of Madras [1961] 12 S.T.C. 379 (S.C.), which are considered to be the landmarks in the development of the law relating to the sales in the course of inter-State trade and commerce. It also referred to the circumstances under which the Central Sales Tax Act of 1956 was enacted. Construing the scope of the provisions of Sections 3, 4 and 5 of the said Act, the Bench has observed that :

The conventional tests of locus of contracts for purposes of jurisdiction regarding the causes of action or proper law of contract to be applied in cases of conflict of laws are at one stroke done away with and tangible or physical tests are specified for fixing the situs of a sale of goods for purposes of taxation of inter-State sale or purchase which necessarily being integrated with an inside sale eliminates the applicability of the nexus doctrine under the State laws relating to general sales tax.

11. According to the learned Judges, the essential tests of a sale or purchase in the course of inter-State trade, commerce and intercourse, or import into or export out of the territory of India are to find out (1) whether there is movement of goods from one State to another or into or out of the territory of India, (2) whether such movement is occasioned by the contract of sale or purchase and (3) alternatively whether, during such movement, the sale or purchase is effected by transfer of documents of title to the goods, the commencement and terminus of such movement being delimited with reference to the two explanations to Section 3 in respect of a sale of the type under Section 3(b) or the indicia mentioned in Section 5 in relation to import or export of goods. As regards the relative scope of Section 3(a) and 3(b) of the Act, the Bench adopted the view taken by the Supreme Court in Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.), State Trading Corporation v. State of Mysore [1963] 14 S.T.C. 188 (S.C.), and The Cement Marketing Co. of India (P.) Ltd. v. State of Mysore [1963] 14 S.T.C. 175 (S.C.), all rendered after the enactment of the Central Sales Tax Act, and held that a sale being by the definition, transfer of property, becomes taxable under Section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another, that 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 come within the purview of Section 3(b) and that the two kinds of sales are distinct and different and are mutually exclusive. As per the above decision while the essence of the inter-State sale or purchase under Section 3(a) is that the inter-State movement of goods springs from the terms of the contract of sale or purchase or is incidental thereto or arises out of it, the movement of goods not necessarily being preceded by an agreement of sale or purchase, the. inter-State sale or purchase under Section 3(b) takes place during the movement of the goods from one State to another by transfer of doctiments of title to the goods, and the dividing line between sales or purchases under Section 3(a) and those under Section 3(b) is that in the former the movement of goods is under the contract of sale or purchase but in the latter the contract comes into existence after commencement but before termination of the inter-State movement of the goods. In both the classes of inter-State sales or purchases under Section 3(a) and 3(b) what is contemplated is completed sales though how the sales or purchases under Section 3(a) and 3(b) are completed and where, are quite irrelevant for the purpose of Section 3(a) and 3(b). These are the principles which have been formulated in that case. With respect, we are in entire agreement with the statement of the law contained in that decision and as to the proper tests to be applied for determining the inter-State character of a transaction of sale or purchase.

12. Let us apply the above tests to the transactions covered by the disputed turnovers in these cases. Unless the movement of the goods from this State to other States is shown to be in pursuance of the contract of sale or incidental thereto, the transactions cannot be brought to tax under Section 3(a) of the Central Sales Tax Act. As already stated, if the assessees have charged only ex works prices and are not concerned with the subsequent transport of the goods across the borders of this State, the transactions cannot be brought within the net of Section 3(a), as the subsequent movement of the goods across the border is not in pursuance of the contract but independent of it. The assessees as the sellers have not been shown to have undertaken the obligation of transporting the goods to the ultimate out-of-State destinations and effecting actual delivery there as a term of the contract of sale. If the assessees have undertaken to transport the goods to the out-of-State destinations, they would have charged the delivered price and not the price ex works. Even from the invoices produced before the authorities below and which form part of the record, it is clear that the assessees have charged the "delivered prices" inclusive of freight charges wherever the goods have been sent by rail by the assessees to the ultimate out-of-State destinations. Therefore, all the transactions in respect of which ex works price is charged by the assessees should be taken to be transactions in respect of which the sellers have not undertaken the obligation of transporting the goods to the out-of-State destinations and of effecting actual delivery to the buyer there as part of the contract of sale, and it is only the buyer or his nominee that should have arranged for the transport of the goods after taking actual delivery at the factory. In such cases the sales should be deemed to have been completed by actual delivery within the State by the sellers to the buyer or buyer's nominee, and the subsequent movement of the goods cannot be taken to be in pursuance of or incidental to the contract of sale which has already been completed by actual delivery to the buyer or the buyer's nominee within the State.

13. The authorities below have placed strong reliance on the fact that in the delivery note, issued by the assessees in form XX for check post purposes they are shown as the sellers and the out-of-State dealers as buyers, and that it is not stated therein that the driver of the lorry to whom the goods are delivered was the buyers' agent. But, in our view, the entries in form XX will not be conclusive on the question as to whether the movement of the goods was directly from the seller to the buyer. It is strongly urged on behalf of the revenue that the assessees have in fact produced C. forms in most of the cases and that after production of such C forms, they are estopped from contending that the transactions in question are not inter-State sales. As against this, the learned counsel for the assessees points out that the assessees got the C forms from the out-of-State buyers and produced the same before the assessing authority only by way of abundant caution after receiving the pre-assessment notice issued by him proposing to bring to tax the transactions in question treating them as inter-State sales. We agree with the contention of the learned counsel for the assessees that if the transactions really partake the character of local sales, and not inter-State sales, the conduct of the assessees treating the transactions one way or the other cannot be decisive or conclusive in the matter, and their liability to tax has to depend only on the statutory provisions. The authorities have also relied on the statement of one of the drivers of the lorries to the effect that he had no instructions from the out-of-State buyer, whose goods he carried to take delivery of the goods on his behalf and that he carried the goods entrusted to him by the assessees to the buyer concerned and get the lorry charges from the buyer after delivering the goods. This statement, according to the revenue, destroys the plea of the assessees that they delivered the goods to the buyer or buyer's nominee at their factory and that the subsequent movement of the goods outside the State was by the buyer or by the buyer's nominee. Even assuming that the goods have been entrusted to the lorry driver by the assessees, that will not make the assessees the consignors of the goods. Besides, the statement of the lorry driver has not been taken in the presence of the assessees and he has not been subjected to cross-examination. From some authorisation letters issued by the buyers it is seen that the buyer has addressed the assessees to entrust the goods to a particular person operating the lorry service. Therefore, the statement of one of the many lorry drivers that the goods were entrusted to him by the assessees and that the buyer or the buyer's agent was not there at the factory premises at the time of such entrustment will not be conclusive.

14. The Tribunal has already directed a remand of the matter to the appellate authority to consider whether in all the cases the goods had in fact been delivered to the buyer's nominee on the basis of the authorisation letters issued by the out-of-State buyer. The assessees have pleaded before the authorities below as well as before this court that they have not chosen to preserve all the letters of authorisation from the out-of-State buyers for effecting deliveries to their nominees, that it is not, therefore, possible for them to substantiate the fact of actual delivery within the State to the buyer or buyer's nominee by production of the buyer's authorisation letters but that the factum of actual delivery to the buyer or his nominee at their factory inside the State could be verified with reference to the prices charged. We have already held that out of the two prices (1) ex works price and (2) delivered price, if the assessees have charged only the ex works price, it should be taken that they had effected actual delivery to the buyer or his nominee at their factory. We, therefore, hold that the assessees are entitled to relief in respect of all the transactions in relation to which they have either produced authorisation letters from the out-of-State buyers to effect deliveries at the factory to their nominees or shown that they have charged only ex works price. In this view, while upholding the order of remand made by the Tribunal, we direct the appellate authority to exclude those transactions from the assessment under the Central Sales Tax Act where the assessees have charged ex works price in their invoices treating them as local sales not occasioning the movement of the goods from the State of Tamil Nadu.

15. The result is, the tax cases are allowed to the extent indicated above. There will, however, be no order as to costs.