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Bayyana Bhimayya And Sukhdevi Rathi v. Government Of Andhra Pradesh .
Factual and Procedural Background
The appellants, Bayyana Bhimayya, were dealers in gunnies during the assessment year 1952-53. They first contracted with two mills in Visakhapatnam District to purchase gunnies for future delivery. Under separate agreements, the mills undertook to honour “kutcha delivery orders” issued by the appellants in favour of third parties, but only treated those third parties as agents of the appellants, not as direct purchasers.
Before the date of delivery, the appellants entered into separate arrangements with the third parties, charged them a higher price, and handed over the kutcha delivery orders. The mills delivered the goods against those documents and collected sales-tax from the third parties.
The Commercial Tax Department treated the transaction between the appellants and the third parties as an independent sale and sought to levy sales-tax a second time. The appellants lost before the Deputy Commercial Tax Officer, the Deputy Commissioner, and the Andhra Sales-Tax Appellate Tribunal. Their revisions to the High Court of Andhra Pradesh were also dismissed, but the High Court certified the matter for appeal. The present judgment of the Supreme Court decides Civil Appeals Nos. 223-224 of 1960 arising from that certificate.
Legal Issues Presented
- Whether the transfer of a kutcha delivery order constitutes a second “sale of goods” distinct from the original sale between the mills and the appellants.
- If it is a distinct sale, whether the State is entitled to levy sales-tax at both points under the Madras General Sales Tax Act, 1939.
Arguments of the Parties
Appellants’ Arguments
- The hand-over of a kutcha delivery order was merely an assignment of the right to obtain delivery, not a sale of existing or ascertained goods.
- The gunnies covered by the forward contracts were neither in existence nor appropriated to the contract when the kutcha delivery orders were issued; hence property could not pass and no second sale occurred.
- In the alternative, the transactions amounted only to assignments of forward contracts, which are not taxable sales.
Respondent’s Arguments
The opinion does not contain a detailed account of the respondent’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| The Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash, [1955] 1 S.C.R. 243 | Distinction between assignment of contract and sale of goods | Relied on by appellants; Court held it was inapplicable because, unlike the present case, the earlier decision dealt with an assignment where property had not passed. |
| Poppatlal Shah v. The State of Madras, [1953] S.C.R. 677 | Whether delivery of certain documents amounts to sale | Also cited by appellants; Supreme Court agreed with High Court that the facts differed materially and the principle did not prevent tax on a second sale here. |
| The State of Andhra v. Kolla Sreeramamurthy (decision dated 27 June 1957) | Passing of property where mills did not sell to the intermediary | Appellants invoked it; Court distinguished it because, in that case, property never passed to the intermediary, whereas it clearly did to the appellants in the present matter. |
Court's Reasoning and Analysis
Justice M. Hidayatullah, delivering the judgment of the Court, rejected the contention that the appellants merely assigned contractual rights. The mills explicitly refused to recognise the third parties as buyers; they recognised only the appellants. Consequently, a first sale occurred between the mills and the appellants.
Under section 2(4) of the Sale of Goods Act, a delivery order is a document of title. Possession of such a document confers not only the right to obtain the goods but also the ability to transfer that right. When the appellants endorsed or delivered the kutcha delivery orders to third parties for consideration, a separate contract of sale was perfected between the appellants and those third parties.
The Court highlighted that at the moment of physical delivery by the mills, two distinct deliveries—and thus two sales—took place: (i) from the mills to the appellants (the third parties acting as the appellants’ agents) and (ii) from the appellants to the third parties. Though simultaneous in time, they were separate in law. Any dispute over the goods would lie between the third parties and the appellants, not against the mills, underscoring the independence of the second sale.
Accordingly, the tax authorities were correct in levying sales-tax at both stages.
Holding and Implications
APPEALS DISMISSED WITH COSTS.
Direct Effect: The appellants remain liable for sales-tax on the second transaction, and the orders of the tax authorities and the High Court are affirmed.
Broader Implications: The decision clarifies that transfer of a kutcha delivery order for consideration constitutes a separate taxable sale when the seller retains privity with the original vendor. No new legal principle was created, but the ruling reinforces existing doctrine on documents of title and multi-point taxation under the Madras General Sales Tax Act.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4
PETITIONER:
BAYYANA BHIMAYYA
Vs.
RESPONDENT:
THE GOVERNMENT OF ANDHRA PRADESH
DATE OF JUDGMENT:
14/12/1960
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
KAPUR, J.L.
SHAH, J.C.
CITATION:
1961 AIR 1065 1961 SCR (3) 267
CITATOR INFO :
F 1962 SC1585 (5,7,8,9)
R 1973 SC1061 (11,12)
D 1975 SC1996 (2)
D 1978 SC 389 (22,44)
ACT:
Sales Tax-Delivery order-Meaning of-Two separate transactions-Sales-tax, if leviable at both Points-Sale of Goods Act, 1930 (111 of 1930), s. 2(4)-Madras General Sales Tax Act, 1939 (Mad. IX of 1939).
HEADNOTE:
The respondents dealt in gunnies. They first entered into contracts with two Mills agreeing to purchase gunnies at a certain rate for future delivery, and also entered into agreement with third parties, by which they charged something extra from those third parties and handed over the delivery order known as kutcha delivery order. The Mills however did not accept the third parties as contracting parties, but only as the agents of the appellants and delivered the goods against the kutcha delivery orders, and collected the Sales Tax from the third parties. The tax authorities treated these transactions between the appellant and the third parties as fresh sales and sought to levy sales-tax again, which the appellants contended, was not demandable as there were no second sales; the delivery of a kutcha delivery order did not amount to a sale of goods, but was only an assignment of a right to obtain delivery of gunnies which were not in existence and not appropriated to the contract; this was only an assignment of a forward contract.
Held, that the agreements between the parties showed that third parties were not recognised by the sellers. A delivery order being a document of title to goods, the possession of such a document not only gave the right to recover the goods but also to transfer them to another by endorsement or delivery. There being two separate transactions of sale, one between the Mills and the original purchasers and the other between the original purchasers and third parties, tax was payable at both the points. The Sales Tax officer, Pilibhit v. M/s. Budh Prakash jai
1
Prakash, [1955] 1 S.C.R. 243, Poppatlal Shah v. The State of Madras, [1953] S.C.R. 677, and The State of Andhra v. Kolla Sreeramamurthy, decided on June 27, 1957, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 223 and 224 of 1960.
Appeals from the order dated November 23, 1956, of the Andhra Pradesh High Court, Hyderabad, in Tax Revision Cases Nos. 17 and 18 of 1956.
268
C. K. Daphtary, Solicitor-General of India and T. V. B. Tatachari, for the appellants.
K. N. Rajagopal Sastri and D. Gupta, for the respondent. 1960. December 14. The Judgment of the Court was delivered by
HIDAYATULLAH, J.-These are two appeals on certificates granted by the High Court of Andhra Pradesh against a common judgment in a sales tax revision filed by the appellants in the High Court.
The facts are as follows: In the year 1952-53, for which the assessment of sales tax was in question, the appellants dealt in gunnies, and purchased them from two Mills in Vishakapatnam District and in respect of which they issued delivery orders to third parties, with whom they had entered into separate transactions. The procedure followed by the appellants was this: They first entered into contracts with the Mills agreeing to purchase gunnies at a certain rate for future delivery. Exhibit A-1 is a specimen of such contracts. The appellants also entered into agreements with the Mills, by which the Mills agreed to deliver the goods to third parties if requested by the appellants. The Mills, however, did not accept the third parties as contracting parties but only as agents of the appellants. Exhibits A-2 and A-2(a) are specimen agreements of this kind. Before the date of delivery, the appellants entered into agreements with third parties, by which they charged something extra from the third parties and handed over to them the delivery orders, which were known as kutcha delivery orders. Exhibits A-3 and A-4 are specimens of the agreement and the delivery orders respectively. The Mills used to deliver the goods against the kutcha delivery orders along with an invoice and a bill, of which Exs. A-6 and A-7 are specimens respectively, and collected the sales tax from the third parties. The tax authorities, however, treated the transaction between the appellants and third parties as a fresh sale, and sought to levy sales tax on it
269
again, which, the appellants, contended, was not demandable, as there was no second sale.
The appellants failed in their contentions before the Deputy Commercial Tax Officer, Guntur, and their appeals to the Deputy Commissioner of Commercial Taxes, Guntur and the Andhra Sales Tax Appellate Tribunal, Guntur, were unsuccessful. The appellants then went up in revision to the High Court under the Madras General Sales Tax Act, 1939 (as amended by Madras Act No. 6 of 1951), but were again unsuccessful. The High Court, however, granted certificates, on which these appeals have been filed. The contentions of the appellants are that the agreement and the delivery of the kutcha delivery order did not amount to a sale of goods, but was only an assignment of a right to obtain delivery of the gunnies, which were not in existence
2
at the time of the transaction with third parties, and were not appropriated to the contract, or, in the alternative, that this was only an assignment of a forward contract. They seem to have relied in the High Court upon the deci- sions of this Court reported in The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash(1) and Poppatlal Shah v. The State of Madras (2) to show that these transactions were not sales. These cases were not relied upon by the appellants before us, presumably because the High Court has adequately shown their inapplicability to the facts here.
The learned Solicitor-General appearing for the appellants rested his case entirely upon the first contention, namely, that there was only an assignment of a right to obtain delivery of the gunnies and not a sale. He contended that there was only one transaction of sale between the Mills and the third parties, who, on the strength of the assignment of the right to take delivery, had received the goods from the Mills. in our opinion, this does not represent the true nature of the transactions, either in fact, or in law. To begin with, the Mills had made clear in their agreements that they were not recognising the third parties as contracting parties having privity with
(1) [1955] 1 S.C.R. 243.
(2) [1953] S.C.R. 677.
270
them, and that delivery would be given against the kutcha delivery orders to the third parties as agents of the appellants. The Mills, therefore, recognised only the appellants as contracting parties, and there was thus a sale to the appellants from the Mills, on which ,;sales tax was correctly demanded and was paid. In so far as the third parties were concerned, they had purchased the goods by payment of an extra price, and the transaction must, in law and in fact, be considered a fresh transaction of sale between the appellants and the third parties. A delivery order is a document of title to goods (vide s. 2(4) of the Sale of Goods Act), and the possessor of such a document has the right not only to receive the goods but also to transfer it to another by endorsement or delivery. At the moment of delivery by the Mills to the third parties, there were, in effect, two deliveries, one by the Mills to the Appellants, represented, in so far as the Mills were concerned, by the appellants' agents, the third parties, and the other, by the appellants to the third parties as buyers from the appellants. These two deliveries might synchronise in point of time, but were separate, in point of fact and in the eye of law. If a dispute arose as to the goods delivered under the kutcha delivery order to the third parties against the Mills, action could lie at the instance of the appellants. The third parties could proceed on breach of contract only against the appellants and not against the Mills. In our opinion, there being two separate transactions of sale, tax was payable at both the points, as has been correctly pointed out by the tax authorities and the High Court. The appellants relied upon a decision of the Andhra Pradesh High Court in The State of Andhra v. Kolla Sreeramamurty (3), but there, the facts were different, and the Division Bench itself in dealing with the case, distinguished the judgment under appeal, observing that there was no scope for the application of the principles laid down in the judgment under appeal, because in the cited case, "the property in the goods did not pass from the mills to the assessee and
(3) Second Appeals Nos. 194 & 195 of 1954 decided on June
27, 1957.
3
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there was no agreement of sale of goods to be obtained in future between the assessee and the third party".
In the result, the appeals tail, and are dismissed with costs. One hearing fee.
Appeals dismissed.
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