Associated Cement Co... v. State Of Andhra Prad...

P. Satyanarayana Raju, J.

1. This Revision Case arises out of an order of the Sales Tax Appellate Tribunal, Hyderabad, and raises the question whether certain sales effected by the Associated Cement Companies Limited (hereinafter referred to as 'the assessee' Company) are outside sales within the Explanation to Article 286 (1) (a) of the Constitution, and in any case, whether they are sales in the course of inter-state trade or commerce within the meaning of Article 286(2).

2. The assessee-company, who have their registered office at Bombay, are the biggest among the companies in India, which manufacture cement. They own a number of cement factories at different places in India and Pakistan. They have a cement factory at Tadepalli in Guntur District, within the limits of the State of Andhra Pradesh. The factory is known as the Krishna Cement Works. The Cement Marketing Company of India are the Sales Managers of the assessee company. That company though separately registered under the Companies Act, as a joint stock company, is a subsidiary of the assessee company.

3. The period covered by the assessment now in dispute is 1st April, 1956 to 30th June, 1956. The transactions of sale involved in the case comprise an aggregate turnover of Rs. 1,72,085-12-7 representing sales effected by the assessee-company from the Krishna Cement Works to buyers outside the State. Out of the total turnover, a sum of Rs. 38,587-13-0 represents sales of cement arrayed by the Cement Marketing Company of India through their offices at Banglore and Secunderabad to private consumers, and Rs. 1,33,497-15-7 represents the value of cement supplied to Government Departments outside the State under a rate contract made with the Director-General of Supplies and Disposals, Government of India.

4. Before dealing with the contentions raised before us, it will be convenient to consider rite nature of the transactions between the assesses company and their purchasers. It is common ground that the assessee-company had supplied cement to the purchasers pursuant to the directions received from the Marketing Company. The terms of the contract as embodied in the specimen contract form are as follows:

5. Delivery: cement will be delivered F. O. R. works siding in full wagonloads. All conditions of the R. R. shall be binding on the buyers. The period and details of delivery mentioned in the buyer's order are to be treated as a general indication of the buyer's requirements, but the Company does not guarantee delivery in terms thereof. Actual supplies or despatches against the order may be made in whole or in parts at our (sic) after the time/period indicated in the order at the sole discretion of the Company.

6. Destination (Stations outside Andhra).

7. Price:

a. Packed in jute bags Rs......net per ton in full wagonloads F. O. R. destination.

b. The above price is subject to change without notice. The F. O. R. destination price ruling on the date of despatch will be payable by the buyer.

c. Freight Rise: In the event of there being an increase in railway freight or any surcharge thereon after the date of the contract and during the period of delivery, the buyer shall pay the additional freight or surcharge as may be introduced by the sellers to meet such increase from time to time on such portion of the supply as may be effected.

8. Transit Risk: Even though the price is F. O. R. destination (and not Ex-works or F. O. R. works) the goods shall be nevertheless at the buyer's risk from the time delivery is made by the Works to carriers and a Railway Receipt obtained for the goods as per clause No. 5 above.

9. Taxes/Duties and C: All sales tax / taxes, cesses, levies, imposts, octroi, town duty, excise duty and/or other duties etc., of any kind or nature whatsoever levied by the Central and/or any other State Government or by any local authorities and whether existing at date of order and/or levied thereafter will be payable by the buyers.

10(a): Freight: All consignments whether sold F. O. R. destination or otherwise will be booked 'freight to pay' and the railway freight shall be paid by the buyers to the railway on behalf of the company, and the amount thus advanced shall be credited to the buyer, subject to the conditions laid down in 7 d. above. But siding or other charges at destination will be on account of and payable by the buyer.

5. There is a note which is in the following terms:

Although the prices are on F. O. R. destination basis, our responsibility for any loss, shortage, damage or delay in transit or at destination ceases, once the goods are delivered to the Carriers (Railway etc.) and a receipt is obtained. All claims on these accounts should be preferred against the Carrier concerned.

6. From a consideration of the above terms and conditions of the contract of sale, it is manifest that the liability of the sellers ceases the moment the cement is delivered F. O. R. Works siding in full wagonloads.

7. In his letter to the Commercial Tax Officer, dated 5th May, 1957, the Manager, Krishna Cement Works has explained the course of dealings as follows:

The terms of sale in these cases were:

a. Delivery of Cement was made free on rails at the siding of Krishna Factory.

b. Railway receipt was made out in the name of the purchasers residing outside Andhra State / Pradesh.

C. The goods were at the purchaser's risk from the time delivery was made by the Krishna Factory to the carrier and the railway receipt obtained for the goods.

d. Price was quoted as F. O. R. destination for public and Ex-works for indentors taking supplies under Rate contract of Government of India.

8. Before us the learned counsel for the assessee Company has contended that the sales in question are covered by the Explanation to Article 286(1)(a). The Article and the Explanation are in these terms:

286(1):- No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place :

a. outside the State, or

b. ........................

Explanation:- For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.

9. It is no doubt, true that the purchase of cement by the private consumers and the public authorities covered by the disputed turnover were for the purpose of consumption outside the State. But it may be observed that it is not sufficient to attract the exemption contemplated by the Explanation. The further requirement is that the goods should have actually been delivered outside the State. It is argued by the learned Counsel for the assessee Company that all the sales were F. O. R. the places of destination outside the State, that the seller undertook to book the goods and obtain the railway receipt, and having regard to these factors, the delivery must be treated as having taken place outside the State, which would, therefore, attract the Explanation. It is further contended that the cement despatched from Tadepalli by railway wagons did eventually reach places outside the State at the end of the journey where the goods were delivered as a direct result of the sale, and therefore the exemption embodied in the explanation is attracted.

10. As was pointed out by a Division Bench of the Madras High Court in Mohammad Ishok v. State of Madras, ((S) 1955-6 STC 230 at p. 234: AIR 1955 Mad 502 at p. 503) the crucial fact which has to be established before the exemption could be claimed is that there should be an 'actual delivery' of the goods outside the State. If under the terms of the contract, the goods are actually delivered to the buyers within the limits of this State, there could not possibly be a further delivery of the same goods again at the places of destination outside the State.

11. It is argued that the delivery of the goods to the common carrier does not amount to physical or actual delivery of the goods to the buyer.

12. Under Section 39(1) of the Sales of Goods Act, it is provided:

Where, in pursuance of a contract of sale the seller is authorised or required to send the goods to the buyer, delivery of goods to carrier, whether named by the buyer or not for the purpose of transmission to the buyer or delivery of the goods to a wharfinger for safe custody is prima facie deemed to be a delivery of the goods to the buyer.

The following passages from Benjamin on Sale of Goods (8th Edition) at page 211 and at page 737, are apposite:

It is well settled that the delivery of the goods to a common carrier, a fortiori to one specially designated by the buyer, for conveyance to him or to a place designated by him, constitutes an actual receipt by the buyer. In such cases, the carrier is, in contemplation of law, the bailee of the person 'to whom' not of the persons 'by whom', the goods are sent the seller employing the carrier, being considered as an agent of the buyer for the purpose.

13. The carrier was thus constituted an agent of the buyer for accepting delivery of the goods on his behalf with the result that the goods have 'actually been delivered within the State.'

14. Having regard to the course of business followed by the assessee-company with their purchasers and the specific terms of the contract of sale mentioned above, it is difficult to hold that the sales took place outside the State or that the goods were actually delivered by the assessee-company outside the State. It is clear that not only the sales were intended to be inside sales but as a matter of fact all the essential ingredients of sale were completed within the State. The property in the goods passed within the State and possession was delivered unreservedly inside the State.

15. The liability of the seller ceased the moment the cement is consigned to the carrier at the works siding of the factory of the assessee-company. The terms of sale provide that delivery of the cement is free on rail at the siding of the Krishna Cement Works. The railway receipts are made out in the name of the purchasers. The foot-note to the dispatch advice sent By the assessee-company also makes it clear that the responsibility of the seller ceases from the time delivery is made by the Works to the carriers and a railway receipt obtained for the goods, and any claim for loss, shortage or damage must be made against the railway company concerned, and not against the sellers.

16. Under the circumstances, on the terms of this contract, we are of opinion that the delivery of these goods at Tadepalli was delivery to the purchasers and the transport of the goods from Tadepalli to destinations outside the State was really by or on behalf of the buyers who had taken delivery of the goods at the factory site. If the delivery has taken place within the State - as we hold it to be - then there is no question of the assessee-company invoking the benefit of the exemption embodied in the Explanation.

17. It is then contended that the purchases of cement were made in the course of inter-state trade and that the imposition of sales tax thereon is in consequence ultra vires. The provision applicable is Article 286(2), as it stood prior to the sixth amendment, and it ran as follows:

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.

18. It is contended on behalf of the assessee-company that the goods were purchased in the course of inter-State trade and that the levy of sales tax on the turnover in question was prohibited by Article 286(2). In order that a sale or purchase might be inter-State, it is essential that there must be transport of goods from one State to another under the contract of sale or purchase. In the Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661 at p. 734 their Lordships of the Supreme Court made the following observations:

A sale could be said to be in the course of inter-state trade only if two conditions concur: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied there can be no sale in the course of Inter-state Trade.

19. The question then is: Whether there was a contract between the parties that the assessee-company, should deliver the goods at a place other than the factory site? On a consideration of the material terms of the contract and the course of dealings between the parties, there is little difficulty in holding that there was no contract between the parties that the assessee-company had to deliver the goods at a place other than the factory site. The terms already extracted leave no room for doubt that the moment the goods were consigned to railway wagons, the assessee had no further responsibility either for loss or damage during the course of transit. There is a specific condition which provides that the buyer should make all claims for damage or loss against the common carrier. Under the circumstances, the common carrier was constituted the bailee of the buyers and cot of the seller.

20. Having regard to the finding reached by us that there was no contract between the parties that the cement purchased by the several consumers, both private and public, should be delivered at a place other than factory site, we hold that after the goods were consigned to the railway wagons, the sale was complete within the State. On this conclusion, it follows that the transactions in question do not constitute inter-state trade or commerce, which would come within the prohibition contained in Article 286(2) of the Constitution.

21. As a result of the foregoing conclusions, this Revision case must fail and is accordingly dismissed with costs. Advocate's fee Rs. 100/-.