Citation Codes

Equivalent Citations

citation codes

Case Number

Tax Case No. 22 of 1978 (Revision No. 14 of 1978)

Judges

Ramanujam
Ratnam, JJ.

Acts

SECTION 3 CENTRAL SALES TAX ACT
section 6(2) of the Central Sales Tax Act, (2)
section 6(2) of the Central Sales Tax Act.
section 3(b) of the Central Sales Tax Act
section 2(4) of the Sale of Goods Act
Nadu General Sales Tax Act, 1959,
Nadu General Sales Tax Act.
sub-section (3) of section 8
section 6(2).

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Smart Summary

Structured Summary of the Opinion (Ramanujam, J.)

Factual and Procedural Background

The opinion concerns an appeal in a tax case brought by the assessee challenging the taxability under the Tamil Nadu General Sales Tax Act, 1959, of three items of turnover:

Turnover of Rs. 1,34,027 (claimed exempt under Section 6(2) of the Central Sales Tax Act);
A sum of Rs. 27,722 for goods imported by post parcel from England; and
A sum of Rs. 87,096 representing sales in the course of import of goods by ship.

The matter was considered by the assessing authority and the Appellate Assistant Commissioner, both of whom rejected the assessee's claims. The Tribunal also gave findings of fact and law. The High Court (Ramanujam, J.) delivered the judgment under review.

The opinion records factual findings relevant to each item (dates of invoices, dispatch and delivery, endorsement or transfer of documents such as sale bills, postal intimations, import licences and bills of lading) and then applies statutory provisions and authorities to those facts.

Legal Issues Presented

Whether the turnover of (approximately) Rs. 1.34 lakh (sale of batteries acquired from Lucas Indian Service Ltd., Calcutta) was an inter‑State sale effected by transfer of documents of title during inter‑State movement and therefore exempt under Section 6(2) of the Central Sales Tax Act.
Whether sales of goods received by post parcel from England (where the buyer took delivery on the basis of an endorsement on a postal intimation) amounted to sales in the course of import (inter‑State) or were intra‑State sales because the postal intimation is not a document of title and the import had been completed before any transfer of title.
Whether transfer of the bill of lading while goods were at sea (high seas) conferred title on the buyer and thereby amounted to a sale in the course of import, in circumstances where the import licence held by the assessee had expired at the time of that transfer (and was extended only subsequently).

Arguments of the Parties

Assessee's Arguments

For the first item: The assessee argued that the batteries were despatched from Calcutta to Madras by public carrier and that the assessee effected a sale by transferring documents of title to the goods while they were in movement from Calcutta to Madras; consequently the sale fell under section 3(b) of the Central Sales Tax Act and qualified for exemption under section 6(2).
For the second item (post parcels): The assessee contended that it had endorsed the postal intimation in favour of Lucas Indian Service Ltd., and that this endorsement should be treated as an endorsement on a document of title; the buyer took delivery on that basis. The assessee also contended that the import licence was transferred to the buyer (though no evidence of that transfer was produced to the Tribunal).
For the third item (ship/bill of lading): The assessee claimed there was a sale effected by transfer of title while the goods were on the high seas (transfer of the bill of lading on 18 October 1974), and therefore that the sale was in the course of import.

Revenue / Assessing Authority / Tribunal's Arguments and Findings

For the first item: The assessing authority held that the Calcutta seller and the Madras buyer were sister concerns in adjacent premises and that the formalities of purchase and sale were a sham; because the carrier agreed to effect door delivery and documents (lorry way bill) were not endorsed, the sale should be treated as intra‑State. The Appellate Assistant Commissioner agreed. The Tribunal examined documents and found no valid document of title in favour of the buyer during inter‑State movement and therefore treated the delivery as subsequent to inter‑State movement (a local sale).
For the second item: The assessing officer and Appellate Assistant Commissioner held that any endorsement on the postal intimation occurred after the goods had arrived at Madras General Post Office and that title (if any) passed only after import formalities were complete; the Tribunal held the postal intimation was not a document of title and that the buyer took delivery only as agent of the assessee until customs clearance.
For the third item: The Tribunal found that the import licence expired on 31 August 1974, that the bill of lading was transferred on 18 October 1974 when the licence was not subsisting, and therefore that the transfer did not confer title; even though the period was later extended, that extension did not retrospectively validate the earlier transfer for conferment of title while the goods were in transit. The Tribunal treated this item as representing an intra‑State sale.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tata Iron and Steel Co. Ltd. v. S.R. Sarkar, [1960] 11 STC 655 (SC)	Interpretation of section 3(b) of the Central Sales Tax Act — a sale effected by transfer of documents of title during movement from one State to another amounts to an inter‑State sale when that transfer occurs after movement commences and before movement terminates (as defined by Explanation 1).	The court relied on this Supreme Court authority to support its conclusion that, on the facts found (sale bill dated 7 Jan 1975 and delivery by carrier to buyer on 9 Jan 1975), the assessee's sale was effected by transfer of documents of title during inter‑State movement and accordingly qualified as an inter‑State sale under section 3(b), making it exempt under section 6(2).

Court's Reasoning and Analysis

The court examined each of the three disputed items in turn and applied statutory definitions, the Tribunal's factual findings and relevant authority to determine whether the sales were in the course of inter‑State trade or commerce (and thus whether exemption under section 6(2) of the Central Sales Tax Act applied):

Item 1 (Turnover ~ Rs. 1.34 lakh — sale of batteries)

The court reviewed the documents relied upon by the Tribunal: the supplier's invoice (sale under invoice dated 31 Dec 1974), dispatch by lorry on 4 Jan 1975, the assessee's sale bill to the Madras buyer dated 7 Jan 1975, covering letter instructing carrier to deliver to the buyer, delivery chalan dated 8 Jan 1975 in favour of the assessee, and the carrier's freight invoice dated 9 Jan 1975 which noted delivery to the buyer.
The Tribunal had concluded there was no valid document of title in favour of the buyer while the goods were in inter‑State movement. The High Court disagreed: it held that these facts supported the inference that documents of title were transferred to the buyer during the inter‑State movement.
The court applied section 3(b) of the Central Sales Tax Act and Explanation 1 (defining commencement and termination of movement when goods are delivered to and from a carrier). It concluded the sale was effected by transfer of documents of title during movement (sale bill dated 7 Jan; delivery taken by buyer on 9 Jan) and therefore fell within the scope of inter‑State sale.
Because the batteries were of a description not disputed to fall under sub‑section (3) of section 8, the court held that section 6(2) applied and the turnover was exempt from local sales tax.
The court cited Tata Iron and Steel Co. to reinforce that a sale by transfer of documents of title during movement constitutes an inter‑State sale.

Item 2 (Import by post parcel — Rs. 27,722)

The court recorded the factual findings: consignments received by post parcel; postal intimation and customs (assistant collector) requesting production of invoices and import licence; the assessee's endorsement of the postal intimation in favour of the Madras buyer; buyer took delivery on the basis of that endorsement; no evidence of transfer of the import licence.
The Tribunal and lower authorities held that the postal intimation is not a document of title within the meaning of the Sale of Goods Act definition (section 2(4)) and that any endorsement occurred after the goods had physically arrived at Madras and after importation had been completed; accordingly title remained with the assessee until customs clearance.
The court analyzed the definition of "document of title to goods" in section 2(4) of the Sale of Goods Act (inclusive list such as bill of lading, railway receipt, warrant, and “any other document used in the ordinary course of business as proof of possession or control…”). It held that a mere postal intimation does not independently enable transfer or receipt of the goods and therefore would not constitute a document of title.
The court also noted the absence of evidence that the import licence itself was transferred to the buyer. Even if an agreement of sale existed, that alone would not permit the buyer to take delivery from the post office prior to customs clearance.
Because any endorsement occurred after arrival (i.e., after the import movement had terminated), the sale could not be treated as a sale in the course of import; the court agreed with the Tribunal that the transaction was an intra‑State sale.

Item 3 (Import by ship — bill of lading transfer; Rs. 87,096)

Factual findings: goods shipped on 22 Aug 1974; ship arrived in Madras port on 2 Nov 1974 and berthed on 9 Nov 1974; bill of lading was transferred to the buyer on 18 Oct 1974; the import licence had expired on 31 Aug 1974; the assessee had applied for extension and a subsequent order extended the licence until 31 Dec 1974, but that extension was made after 2 Nov 1974 (after the goods had crossed the customs frontier).
The court emphasized that the relevant question is whether, on the date the bill of lading was transferred (18 Oct 1974), the transferor (the assessee) had authority (a valid import licence) to pass title by such transfer. The court accepted the Tribunal's factual finding that the licence was not subsisting on 18 Oct 1974.
The court rejected the assessee's argument that a later extension of the licence should relate back and validate the earlier transfer retrospectively. The court held that while subsequent extension permits clearance on the later order, it does not confer title retroactively on the buyer as of the earlier transfer date when the transferor lacked power to transfer.
Consequently the transfer of the bill of lading on 18 Oct 1974 did not confer title to the buyer during the import movement; title passed only after the licence was extended which occurred after the goods had already crossed the customs frontier (i.e., import movement had terminated). The court therefore agreed with the Tribunal that this turnover represented an intra‑State sale.

Holding and Implications

Holding: The High Court partly allowed the tax appeal. Specifically:

Item No. (1) (sale of batteries involving a transfer of documents of title during inter‑State movement): allowed — turnover found liable to be exempted under Section 6(2) of the Central Sales Tax Act.
Items Nos. (2) and (3) (post‑parcel imports and the shipment where bill of lading was transferred while import licence had expired): dismissed — the Tribunal's view that these transactions were not sales in the course of import was upheld (treated as intra‑State sales).
There was no order as to costs.

Implications:

Direct effect on the parties: the assessee obtains exemption for the first item of turnover under section 6(2) but fails on the second and third items and remains liable to local tax for those turnovers as held by the Tribunal.
The court applied existing statutory provisions (sections 3(b) and 6(2) of the Central Sales Tax Act, Explanation 1, and the Sale of Goods Act definition of document of title) and relied on established authority (Tata Iron and Steel Co. Ltd. v. S.R. Sarkar) for interpreting inter‑State sale by transfer of documents in movement. The decision enforces the principle that only a bona fide transfer of documents of title during movement qualifies as an inter‑State sale and that a transfer made without requisite statutory authority (for example, while an import licence has expired) will not have retrospective operation to confer title.
The opinion does not purport to lay down a new precedent beyond applying and aligning the facts with existing statutory tests and case law; the judgment implements those legal principles to the facts before the court.

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Lucas Electrical Tractor Service Limited v. The State Of Tamil Nadu

The Judgment of the Court was delivered by

Ramanujam, J.:— In this tax case filed by the assessee, the taxability of the following three items of turnover under the Tamil Nadu General Sales Tax Act, 1959, is challenged:

(1) The turnover of Rs. 1,34,027 which has been claimed by the assessee as exempted under Section 6(2) of the Central Sales Tax Act, (2) a sum of Rs. 27,722 in respect of which the assessee claimed exemption from tax on the ground that the goods have been imported through post parcel from England to the assessee, and (3) a sum of Rs. 87,096 which represented sale in the course of import of the goods by ship.

2. As regards the first item, it is seen that the assessee purchased batteries from Lucas Indian Service Ltd., Calcutta, which it later sold the same in entirety to Lucas Indian Service Limited, Madras, before the goods were delivered by the carrier after transporting the goods from Calcutta to Madras.

3. In respect of this turnover, the assessee claimed exemption from tax under Section 6(2) of the Central Sales Tax Act. As regards this claim the assessing authority held that the assessee and Lucas ‘Indian Service Limited, Calcutta, are sister concerns situate in adjacent premises, and therefore, there in no reason as to why the assessee went through the formality of purchasing the goods from Calcutta and selling the same to Lucas Indian Service Limited, Madras. He also took the view that since the carrier had agreed to effect door delivery, there was no practical significance in endorsing the lorry way bill, and therefore, it should not be treated as an inter-State sale but an intra-State sale liable to be taxed under the Tamil Nadu General Sales Tax Act. On appeal, the Appellate Assistant Commissioner agreed with the view of the assessing authority. When the matter reached the Tribunal, it was contended on behalf of the assessee that as the goods had been despatched from Calcutta to the assessee through public carrier and the assessee had effected sale by transferring the documents of title to the goods during their movement from Calcutta to Madras, and therefore it is a sale coming under section 3(b) of the Central Sales Tax Act. It was also contended by the assessee that the assessee and Lucas Indian Service Limited, Madras, were two legal entities and the fact that the two concerns were sister concerns located in the same premises will not have any significance in the matter of levy of sales tax and that so long as there is a transfer of documents of title while the goods were in the inter-State movement from Calcutta to Madras, the transaction clearly comes within the exemption provided in section 6(2). After considering the rival contentions the Tribunal found that no contract or purchase order in respect of either purchase or sale by the assessee is available, that the purchase bill indicates that the Calcutta supplier sold the goods under invoice dated 31st December, 1974, and despatched them by lorries on 4th January, 1975, that the assessee's sale bill to Lucas Indian Service Ltd., Madras, the buyer, and the covering letter are shown as having been issued on 7th January, 1975, that no purchase order was available, that the delivery chalan issued by the carriers on. 8th January, 1975, is only in favour of the assessee and that the invoice for freight charges issued by the carriers on 9th January, 1975, is also addressed to the assessee and that the invoice for freight charges also contains a note that the goods were delivered to the buyer Lucas Indian Service Limited, Madras. From the facts so found, the Tribunal has proceeded to state that there was no valid document of title in favour of the buyer when the goods were in inter-State movement, and therefore, it is to be treated, as a delivery to the buyer subsequent to the inter-State movement, and therefore, it should be treated as a local sale. We are at a loss to see how the above facts as found by the Tribunal will indicate that there was no valid transfer of documents of title to the buyer while the goods were in the inter-State movement. In fact, the facts as found by the Tribunal clearly lead to the inference that there was a transfer of documents of title to the buyer while the goods were in the inter-State movement. As a matter of fact, the goods were actually delivered to the buyer on 9th January, 1975, as seen from the invoice issued by the carrier for freight charges, which contains an endorsement of the delivery of the goods to the buyer. This delivery was in pursuance of the sale bill admittedly issued by the assessee on 7th January, 1975, with a covering letter to the carrier that the goods are to be delivered to the buyer. In this case the revenue has not challenged the genuineness of the assessee's sale bill issued to the purchaser on 7th January, 1975. It is also not disputed that on the basis of the said bill dated 7th January, 1975, the buyer has taken delivery of the goods from the public carrier on 9th January, 1975. Inter-State movement from Calcutta to Madras stood terminated only on the delivery of the goods and long before the termination of the inter-State movement, the goods had been sold by the assessee to the buyer on 7th January, 1975. Section 3 of the Central Sales Tax Act says 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 another or is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1, of the said section says that where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Tnus it is clear that in this case the sale by the assessee to his buyer has been effected by transfer of documents of title to the goods during their inter-State movement. Section 6(2) of the Central Sales Tax Act provides that where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer other than the Government, if the goods are of the description referred to in sub-section (3) of section 8 shall be exempt from tax under this Act. It is not the case of the revenue that the batteries purchased in Calcutta and sold by the assessee in Madras are not of the description referred to in sub-section (3) of section 8. Therefore, if the sale is found to be an inter-State sale, the assessee will be entitled to exemption under the local Act in view of Section 6(2) of the Central Sales Tax Act. We have already expressed the view that on the facts found by the Tribunal there is no other conclusion possible except the conclusion which we have reached that there was a sale by the assessee to the buyer by transfer of documents of title while the goods were in the inter-State movement. On practically similar facts the Supreme Court in Tata Iron and Steel Co. Ltd. v. S.R Sarkar, [1960] 11 STC 655 (SC) has held that the transaction will amount to an inter-State sale. Dealing with the scope of section 3(b) of the Central Sales Tax Act the Supreme Court has observed:

“The sale contemplated by clause (b) is one which is effected by transfer of documents of title to the goods during their movement from one State to another. Where the property in the goods has passed before the movement has commenced, the sale will evidently not fall within clause (b); nor will the sale in which the property in the goods passes after the movement from one State to another has ceased to be covered by the clause. Accordingly a sale effected by transfer of documents of title after the commencement of movement and before its conclusion as defined by the two termini set out in explanation (1) and no other sale will be regarded as an inter-State sale under section 3(b).”

4. We cannot, therefore, agree with the view taken by the Tribunal in this case. We are of the view that the turnover of Rs. 1,34,029.98 is liable to be exempted under Section 6(2) of the Central Sales Tax Act, as claimed by the assessee.

5. Coming to the second item of turnover which represents the import transactions of goods by post parcel from England, the facts as found by the Tribunal are these: The assessee purchased certain goods from Lucas Service Overseas Ltd., England, in several consignments and all these consignments were received by post parcel. After the case arrived in Madras General Post Office, the Assistant Collector of Customs, Postal Appraising Department, has sent an intimation for production of the foreign seller's invoice, import licence, etc. Simultaneously an intimation has been sent by the post office also, about the receipt of the consignment. The assessee claims that the said intimation has been endorsed by the assessee in favour of Lucas Indian Service Ltd., who took delivery of the goods on the basis of the said endorsement made by the assessee. Though the assessee claimed that the import licence itself was transferred to the buyer, no evidence was produced. On these facts the assessing officer held [that even if there was an endorsement on the postal intimation such an endorsement took place after the goods have physically arrived at Madras General, Post Office, and therefore, the transfer of title to the goods, even if any, should have taken place after the import is completed. On appeal, ‘the Appellate Assistant Commissioner agreed with the view of the assessing authority. When the matter came before the Tribunal, it took the view that the intimation from the postal department is not a document of title and that any endorsement made on the intimation will not amount to a transfer of documents of title amounting to transfer of goods. According to the Tribunal the assessee remained to be the owner of the goods till they cleared the goods by paying the requisite customs duty, and there fore, the appropriation of the goods to the sales in favour of the buyer should have been made only after the goods are cleared from the customs authorities. In this view the Tribunal held that the sale by the assessee in favour of Lucas Indian Service, Madras, is an intra-State sale. Before us the learned counsel for the assessee contends that the endorsement of the assessee in the intimation received from the post office on the basis of which the buyer took delivery of the goods from the post office should be taken to be an endorsement on the documents of title and that the Tribunal is in error in proceeding on the basis that the intimation received from the post office about the arrival of the post parcel will not amount to document of title. “Document of title to goods” has been defined in section 2(4) of the Sale of Goods Act as meaning a bill of lading, dock-warrant, warehouse-keeper's certificate, wharfinger's certificate, railway receipt, warrant or order for the delivery of goods, and any other document Used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented. Though the said definition is an inclusive one and cannot, therefore, be said to be exhaustive, we are not in a position to agree with the learned counsel for the assessee that an intimation of receipt of post parcel by the post office will come within the definition of “document of title to goods”. Such an intimation received from the post office by itself cannot enable the assessee to transfer or receive the goods referred to therein. The intimation will not amount to a document of title. It is no doubt true, in this case the buyer took delivery of the goods on the basis of the endorsement made in the intimation sent by the post office. But that is only as an agent of the assessee and not as owner of the goods. Even assuming that there was an agreement of sale of the goods received in the post parcel to the buyer, Lucas Indian Service Ltd., that will not by itself pass title to the goods, nor can it enable the buyer to take delivery of the goods from the post office on their arrival. Though the assessee contended that the import licence itself was transferred to the buyer, no evidence has been produced, and therefore, we have to proceed on the basis that there was no transfer of the import licence to the buyer as contended by the assessee. Further, even if the endorsement in the postal intimation is taken to amount to a transfer of document of title to the goods, such an endorsement in the nature of things, is subsequent to the arrival of the goods in Madras. Therefore the transfer of documents of title should be taken to be after the import is ended. In this view of the matter we are inclined to agree with the view taken by the Tribunal that the sale by the assessee in favour of the buyer cannot be taken to be a sale in the course of import.

6. So far as the third item of turnover is concerned, it is seen that it represents one consignment of goods received from Lucas Service Overseas Limited, England, by ship. The goods were shipped on 22nd August, 1974, and the ship arrived in the Madras port on 2nd November, 1974, and berthed on 9th November, 1974. The bill of lading is found to have been transferred to the buyer on 18th October, 1974. The assessee's claim was that as there was a sale by transfer of title when the goods were in the high seas, it should be treated as a sale in the course of import. The Tribunal, after perusing the import licence, the bill of lading and the clearing agent's bill on the buyer, has factually found that the import licence expired by efflux of time on 31st August, 1974, and that though the assessee had applied for extension of time fixed in the import licence, but extension was ordered until 31st December, 1974, by an order made subsequent to 2nd November, 1974, when the goods can be taken to have crossed the customs frontiers. It must be noted that at the relevant time the customs barrier was taken to be the limits of the territorial waters (that is 12 nautical miles from the shore). Though later on the customs barrier was equated to the place of clearance, having regard to the fact that the ship has crossed the customs frontier on 2nd November, 1974, the import movement should be taken to have been terminated on that day. It is no doubt true that the assessee has transferred the bill of lading to the buyer on 18th October, 1974. But the said transfer was at a time when he had no valid licence to import, the period of validity of the import licence held by the assessee having expired by then. Though the assessee has in fact transferred the bill of lading in favour of the buyer, that transfer is of no avail and it will not confer any title to the goods on the buyer as the assessee who transferred the bill of lading had no subsisting authority to import and to pass title to the buyer by transferring the bill of lading. Though the assessee got extension of the period of licence subsequently, admittedly he had no; valid licence to import on 18th October, 1974, when the bill of lading is said to have been transferred by the assessee to the buyer. The learned counsel for the assessee submits that the subsequent extension of the period of the import licence should relate back to the date of expiry of the period of licence, and therefore, the assessee should be presumed to have the power to transfer the bill of fading on 18th October, 1974. We are not impressed by this argument. Though the subsequent extension of the period of the licence will enable the assessee to clear the goods on the basis of the subsequent order extending the period of licence, the subsequent order extending the period of the licence cannot be taken to confer title to the goods on the buyer retrospectively. The question is whether on the date when the bill of lading was transferred by the assessee to the buyer he had the requisite power to transfer. If he had no valid licence, he has no power to transfer the bill of lading so as to confer title to the goods on the buyer. Such power he had during the currency of the licence and ‘that power came to an end on the expiry of the period mentioned in the licence. He again acquired such a power after the import authorities extended the time mentioned in the import licence. Though the transfer of documents had taken place from the assessee to the buyer on 18th October, 1974, there was a legal transfer of title to the goods only after the period mentioned in the licence has been extended. Admittedly such an extension took place only after 2nd November, 1974, when the goods had crossed the customs frontier and reached ‘the Madras harbour. In this view, we are inclined to agree with the view taken by the Tribunal that the said item of turnover should be taken to represent intra-State sales effected by the assessee.

7. The tax case is, therefore, partly allowed as regards item No. (1) set out above and is dismissed as regards items Nos. (2) and (3). There will, however, be no order as to costs.

Lucas Electrical Tractor Service Limited v. The State Of Tamil Nadu

Structured Summary of the Opinion (Ramanujam, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue / Assessing Authority / Tribunal's Arguments and Findings

Table of Precedents Cited

Court's Reasoning and Analysis

Item 1 (Turnover ~ Rs. 1.34 lakh — sale of batteries)

Item 2 (Import by post parcel — Rs. 27,722)

Item 3 (Import by ship — bill of lading transfer; Rs. 87,096)

Holding and Implications

Lucas Electrical Tractor Service Limited v. The State Of Tamil Nadu

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