1973 (8) TMI 127 - SC - VAT and Sales Tax

Whether the agreement between M/s. Kelvinator of India (assessee), M/s. Spencer & Co. Ltd., M/s. Blue Star Engineering Co., and M/s. General Equipment Ltd., in pursuance of which the refrigerators manufactured by M/s. Kelvinator of India at Faridabad moved to Delhi were merely for distribution of goods between the principal and his agents or were agreements of sale between two parties? Held that - Appeal allowed. Accept the appeal and set aside the judgment of the High Court. The answer given by the High Court to the question referred to it is discharged. The three agreements between the appellant and the distributors were merely agreements for the distribution of goods and were not agreements of sale between the parties. It cannot, in our opinion, be said that there was any movement of refrigerators form Faridabad to Delhi under a contract of sale. The question in the circumstances is answered against the department. The transactions between the appellant and the distributors did not, in our opinion, constitute sale in the course of inter-State trade or commerce. As such, there was no liability to pay tax under the Act. The appellant shall be entitled to the costs from the respondent of this court as well as in the High Court.

Issues Involved:
1. Whether the distribution agreements constituted contracts of sale.
2. Whether the movement of goods from Faridabad to Delhi was occasioned by the distribution agreements.
3. Whether the transactions constituted inter-State sales liable to tax under the Central Sales Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the distribution agreements constituted contracts of sale:

The appellant entered into distribution agreements with Spencer & Co. Ltd., Blue Star Engineering Co. (Bombay) Pvt. Ltd., and General Equipment Merchants Ltd. These agreements outlined terms for the distribution of refrigerators and other products. The High Court found these agreements to be contracts of sale, but the Supreme Court disagreed, noting that the agreements did not specify the exact number of refrigerators to be purchased or the prices, which were to be mutually agreed upon from time to time. The agreements provided a framework for future sales rather than constituting immediate contracts of sale. The Supreme Court emphasized that the actual contracts of sale were formed when specific orders were placed by the distributors after the goods had reached the appellant's sales office and godown in Delhi.

2. Whether the movement of goods from Faridabad to Delhi was occasioned by the distribution agreements:

The appellant argued that the movement of goods from Faridabad to Delhi was not in pursuance of any contract of sale but was for storage and convenience. The Supreme Court agreed, noting that the goods were moved independently of any specific sale contract. The transportation was done at the appellant's risk and cost, and the goods were stored in the appellant's godown in Delhi before any specific orders were placed by the distributors. The Court found that the movement of goods was not occasioned by the distribution agreements but was a routine transfer for storage.

3. Whether the transactions constituted inter-State sales liable to tax under the Central Sales Tax Act:

The Supreme Court examined the statutory provisions of the Central Sales Tax Act, particularly Section 3(a), which states that a sale is deemed to take place in the course of inter-State trade if it occasions the movement of goods from one state to another. The Court found that the sales to the distributors did not occasion the movement of goods from Faridabad to Delhi. The movement was for storage purposes, and the actual sales occurred in Delhi when specific orders were placed by the distributors. Therefore, the transactions did not constitute inter-State sales, and there was no liability to pay tax under the Act.

Conclusion:

The Supreme Court concluded that the distribution agreements were not contracts of sale and that the movement of goods from Faridabad to Delhi was not occasioned by any contract of sale. The transactions between the appellant and the distributors did not constitute sales in the course of inter-State trade or commerce, and thus, there was no liability to pay tax under the Central Sales Tax Act. The appeal was allowed, and the judgment of the High Court was set aside. The appellant was entitled to costs from the respondent both in the Supreme Court and the High Court.

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