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TMI Blog1966 (1) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment on 16th August, 1963: The judgment of the High Court was delivered by SRINIVASAN, J.-The State is the petitioner in T.C. Nos. 100 of 1962 and 255 of 1962 and it disputes the correctness of the order of the Sales Tax Appellate Tribunal made in Tribunal Appeals Nos. 325 and 326 of 1961. The facts are these: The assessee, Messrs. Khosla and Co. entered into a contract, with the Director-General of Supplies and Disposals, New Delhi, for the supply of "axle-box bodies". In order to fulfil the contract, the assessee had to enter into contract with the manufacturers in Belgium. The goods were so got manufactured and imported into India and cleared at the Madras Harbour and supplied to certain parties on the instructions of the buyer, the Director-General of Supplies and Disposals, as contained in the contract itself. There was no privity of contract between the Belgium manufacturers and the Government departments who ultimately received the supplies. The manufacturers consigned the goods to the assessee under bills of lading, which, after clearance at the Madras Harbour by the assessee, were despatched for delivery to the ultimate consumers indicated by the Director-General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved working drawings, that is, delivery in India by 31st July, 1957, or earlier". Clause 10 of the contract specified the place of delivery and the terms thereof. The despatch instructions provided for delivery free to the local consignee, to be despatched by goods train. Clause 12 indicated the consignee as (1) Southern Railway at Perambur Works, (2) Southern Railway, Golden Rock Works, and (3) Southern Railway, Mysore South, together with details of the particular items to be despatched to each of the consignees. The particulars governing the supply required the manufacture by a specified manufacturer of Belgium. Clause 15 is important, for it provided for the inspection of the goods at the works at Belgium. It designated the inspecting officer as the D. G. I. S. D., London, or his representative. It stated that the goods were to be tendered for inspection at the assessee's principal's works in Belgium. Inspection notes were to be issued by the Deputy Director of Inspection, Ministry of W. H. & S., Madras, on receipt of a copy of the inspection certificate from the D.G.I.S.D., London, and "after verification and visual inspection". The other terms with regard to the payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is so, it is claimed the sales took place outside India and cannot be subjected to any sales tax law. It was argued that the moment the London representative of the Director-General of Supplies and Disposals approved the goods in Belgium, the property in the goods passed. Thus, it was claimed that the Tribunal's view that the major part of the goods supplied were sold by the assessee to the Railway after they had been taken delivery of at Madras Harbour was incorrect, based on a misunderstanding of the terms of the contract read as a whole. It was also said that the right of rejection could apply only in so far as the goods were not according to specification. That would not amount, so Mr. Kesava Ayyangar argued, to negativing the circum- stance that the property had already passed to the purchaser. For the department, while the view of the Tribunal with regard to the major part of the turnovers is supported, the deletion of any part of the turnover as amounting to sales in the course of import on the basis of appropriation of the goods to the contract while the goods were on the high seas is attacked as incorrect and as failing to take note of the special features o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracting parties and in order to reach the conclusion that the property should have passed even in Belgium, there should be a clear indication in the terms of the contract. The preliminary inspection by the London representative was even according to clause 17(1) of the contract not intended to bind the purchaser, the purchaser being the ultimate consignee. This sub-clause clearly specifies that "notwithstanding any approval or acceptance given by the inspector, it shall be lawful for the consignee of the stores on behalf of the purchaser to reject the stores on arrival at the destination". This provision is wholly inconsistent with the plea that the property had passed to the purchaser, the Director- General of Supplies and Disposals, by the mere fact that there was a preliminary inspection and apparent approval by the London representative. This contention seems to us to be wholly untenable and was rightly rejected. As part and parcel of the above contention, it was urged by the assessee that this was a case where the sale by the assessee to the Government department had occasioned the import and that as a consequence the sale was not taxable. Before a sale can be said to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. In paragraph 8 of the Tribunal's order, it is stated thus: "The evidence of such appropriation relied on by the appellants is the letters addressed by them to their bankers instructing them to send the shipping documents to their clearing agents, get the goods cleared and delivered to the buyers. The instructions to the banks containing details of the appropriation are at pages ...... of the paper book filed by the appellants before us. The instructions at page 13 of the paper book are with regard to the disposal of 11 cases containing 283 axle-box bodies shipped per S. S. Belfri; the instructions are to the effect that case numbers 1 to 3, 4, 5 and 11, totalling to 6 cases, should be despatched to Golden Rock Works, Southern Railway, and the remaining 5 cases, viz., 6 to 10, to the Railways at Mysore South. The despatch instructions at page 17 of the paper book are with regard to another consignment of 6 cases containing 150 axle-box bodies shipped per S. S. Belfri; the entire consignment of 6 cases was directed to be despatched to Mysore South. The instructions at page 23 are in respect of a consignment of 4 cases shipped per S.S. Jalakala; the entire consignment was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x v. Husenali Adamji & Company [1959] 10 S.T.C. 297., dealt with a similar question where an inter-State sale was involved. But in so far as the principle is concerned, it would apply to the facts of the present case as well. In that case, the assessee, a dealer in matchwood, entered into a contract with the Western India Match Company. The material terms of the contract contained stipulations on the following matters. The assessee agreed that the logs of wood supplied by him which did not conform to the specification could be rejected by the company and he undertook to remove them from the company's premises. The goods were to be delivered at Ambernath in the quantities and at the times mentioned in the contract. The goods had to be despatched by the assessee from certain stations on the B. N. R. and G. I. P. R. Sections of the railway. The prices were to be f. o. r. Ambernath. There was one important clause which stipulated that notwithstanding that the logs might have been accepted by the company's representatives before being railed to Ambernath, the place of delivery, it was open to the company to reject the logs if the logs were found in the opinion of the company's factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its factory manager at Ambernath being binding on the respondent ......... further reinforce the conclusion that the intention of the parties was that property in the goods shall not pass until the logs arrive at Ambernath and are there inspected, measured and accepted by Wimco. In our judgment the prima facie case of what might have been the appropriation of the logs by the respondent by loading on the wagons logs of the contract quality and description with the assent of Wimco given in advance by the terms of clause 4 is effectively displaced by the provisions of clauses 2, 6 and 7 of the later contract which clearly indicate a contrary intention ............ In other words, the respondent sent the logs and left it to Wimco to appropriate to the contract such of them as they accepted as of con- tract quality and description ......................." This decision is undoubted authority for the position that the principle of unconditional appropriation of the goods set out in section 23 of the Sale of Goods Act is not an absolute one but really depends upon the other terms of the contract as well. Where notwithstanding the appropriation of goods apparently conforming to the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the Inspection Certificate from the D. G. I. S. D., London, and after verification and visual inspection. The goods were to be manufactured according to specifications by M/s. La Brugeoies, ET, Nivelles, Belgium. The assessee was entitled to be paid 90 per cent. after inspection and delivery of the stores to the consignee and the balance of 10 per cent. was payable on final acceptance by the consignee. In the case of deliveries on f. o. r. basis, the assessee was entitled to 90 per cent. payment after inspection on proof of despatch and balance of 10 per cent. after receipt of stores by the consignees in good condition. The date of delivery was "in 8 months ex your principal's works from the date of receipt of order and the approved working drawings, i. e., delivery in India by 31st July, 1957, or earlier". The assessee was entirely responsible for the execution of the contract. Clause 17(1) of the contract provides: "The contractor is entirely responsible for the execution of the contract in all respects in accordance with the terms and conditions as specified in the A/T and the schedule annexed thereto. Any approval which the Inspector may have given in respect of the store ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval where the Inspector may have given in respect of stores materials or other particulars and the work or workmanship involved in the contract shall not bind the purchaser and notwithstanding any approval or acceptance given by the Inspector it shall be lawful for the consignee of the stores on behalf of the purchaser to reject the stores on arrival at the destination. It will be seen from the words underlined by me that the purchaser has reserved the right to reject the goods even though an inspection of the goods might have been made. So there is no force in the argument of the dealer that the goods were appropriated to the contract of sale". The assessee filed two appeals but the Appellate Assistant Com- missioner, agreeing with the joint Commercial Tax Officer, rejected the appeals. The Appellate Tribunal on appeal held that the property in the goods had not passed on to the buyers even while the goods were with the Belgium manufacturers and that the sale by the appellants had not occasioned the imports. The Tribunal, however, accepted the contention of the assessee that sales to the extent of Rs. 22,983-75 and Rs. 10,987.50 had taken place in the course of import as the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. The learned counsel for the assessee, Mr. Veda Vyasa, raised two points before us: First that the sales were in the course of import within the meaning of section 5(2) of the Act; and secondly that the property in the goods passed in Belgium and consequently the sales were outside the State within the meaning of Article 286(1)(a) of the Constitution. As we are of the opinion that the assessee must succeed on the first point it will not be necessary to deal with the second point. Section 5(2) of the Central Sales Tax Act provides: "5. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India." Section 3 of the Act, which deals with inter-State trade and commerce, may also be set out as it employs the same terminology and has been interpreted by this Court. Section 3 reads: "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- (a) occasions the mov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h contract. This Court did not go into the question as to whether the property had passed before the movement of the goods or not, and this was because according to the decision in Tata Iron and Steel Co. v. S. R. Sarkarl, it did not matter whether the property passed in one State or the other. Tata Iron and Steel Co. case' was again followed by this Court in Singareni Collieries Co. v. Commissioner of Commercial Taxes, Hyderabad Civil Appeals Nos. 950-952 of 1963; judgment delivered on October 12, 1965 since reported at page 197 supra.. The learned counsel for the respondent, Mr. A. Ranganadham Chetty, invited us to hold that the observations of Shah, J., in Tata Iron and Steel Co. case' were obiter, and to consider the question afresh. We are unable to reopen the question at this stage. Shah, J., was interpreting section 3 of the Act, and although the Court was principally concerned with the interpretation of section 3(b), it was necessary to consider the interpretation of section 3(a) in order to arrive at the correct interpretation of section 3(b). Further these observations were approved in Cement Marketing Co. of India v. The State of Mysores, State Trading Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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