9911796707
TMI Blog1970 (3) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia, State Transport Corporations, commercial and industrial undertakings and also private individuals. The machinery adopted for the supply of the vehicles is to appoint dealers in various parts of India who resell the vehicles to the consumers within the limits of the territories allotted to the dealers. The dealers, no doubt, are supposed to supply the vehicles to the various customers within their area as a rule, but they have not got any exclusive selling rights so that the petitioner also has reserved the right according to the terms of the agreement to supply direct to the consumers the vehicles according to convenience. The dealers maintain an efficient sales and service establishment in the region assigned to them. The agreements entered into with the dealers contain the rights and liabilities of both the parties. The sales to the dealers are on a principal to principal basis. Annexure 10 to the petition, modifying annexure 1, is a copy of the specimen of the dealers's agreement. 2.. The initial practice followed by the petitioner in view of the uncertainty of the demand for the vehicles was that the actual demand in the market was generally ascertained and firm orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each week full particulars of the entries in the order register during the week. The policy instituting this procedure was to enable the petitioner to verify whether the dealers adhered to the specified procedure for the distribution of the vehicles as also to enable the petitioner to submit to the Development Officer of Automobiles a monthly statement containing particulars of the orders booked by the dealers in the preceding month. Such a statement was necessary to be filed in view of paragraph (VI) in the Government directive. The statement furnished by the petitioner is annexure 4 to the petition. 5.. The directive of the Government of India was modified by its letter No. A.E.IND.I (15)/59 dated the 4th April, 1959. Under this modified direction the intending customers were required to register their applications for the vehicles with the dealer and those who placed orders were required to furnish bank guarantee of Rs. 2,000 per vehicle. This revised procedure was communicated to the dealers by the circular order of the petitioner dated the 4th of May, 1959. According to this procedure the dealers were required to register only the applications and no orders. Such applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med of the market movement and the sale prospects for their vehicles and to avoid any possibility of irregular allotment by the dealers. It was in these circumstances that by the end of 1964 the petitioner established a number of stock-yards, being at the least one in almost every State. The stock- yards were run by the personnel appointed by the petitioner and the vehicles were disposed of to several dealers as well as to other users from the stock-yards. Dealership agreement was also suitably modified but more particularly clause (1)(a) which stipulated that the petitioner would sell or supply from its stock-yards outside the State of Bihar. The new agreement is annexure 10 to the petition, the first one having been executed in 1955. 8.. The petitioner filed its return for the assessment period 1st April, 1965, to 30th June, 1965, showing its turnover both under the Central Sales Tax Act and also under the Bihar Sales Tax Act in due course. In the returns filed by the petitioner, it included sales made in the course of inter-State trade or commerce under the Central Sales Tax Act and those made in the State of Bihar and sales made in Bihar under the Bihar Sales Tax Act. The taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Commercial Taxes [1967] 19 S.T.C. 520 (S.C.), the Supreme Court set aside the order of this court and allowed the appeal. The Supreme Court, however, allowed the appeal on the preliminary question as to whether the High Court could enter into the merit of the writ petition at that stage and having held that it was a fit case for entering into the merit of the matter if no disputed questions of fact arose, directed this court to decide the subject- matter of the writ petition to determine the character of the transactions as to whether they were inter-State sales or sales outside the State of Bihar. This court heard the writ petition and by order dated the 6th of November, 1967, the order of assessment was set aside by consent of parties with a direction to opposite party No. 1 to make a fresh assessment in accordance with law. 11.. A fresh notice was accordingly issued by the Assistant Commissioner, Commercial Taxes, who by order dated the 13th of March, 1968, held that the sales from the stock-yards were also sales in the course of inter-State trade or commerce and accordingly the sales amounting to Rs. 27,81,77,446.74 were also liable to Central sales tax and thus a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another." It is not necessary to set out the other parts of the section as they are not relevant for determination of the question raised in the instant case. Section 6 lays down the liability of tax on inter-State sales. It runs thus: "6. (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. (2) Notwithstanding anything contained in sub-section (1), where a sale in the course of inter-State trade or commerce of goods of the description referred to in sub-section (3) of section 8- (a) has occasioned the movement of such goods from one State to another; or (b) has been effected by a transfer of document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commerce. There is no intention in the mind of the management of the company to send out specific vehicles in execution of the orders placed for them by the dealers, but they are sent out in a general way to be kept in the stock-yard of the company outside Bihar and actual movement begins in pursuance of the demand for supply of these vehicles from the stock-yard into the dealer's garage or show-room. The initial movement from the stock-yard at Jamshedpur, therefore, must be kept apart from the concept of movement of the vehicles in pursuance of orders for supply of the vehicles to the dealers. Learned Advocate-General who appears for the State of Bihar, however, has contended that this question cannot be solved on a theoretical foundation but only with a reference to the agreement executed between the petitioner and the dealer. Before reference is made to any case law, it is pertinent to refer to the agreement. The first agreement is of the year 1955 (annexure 1 to the petition) between the petitioner (Tata Locomotive and Engineering Co. Ltd.) and the dealer. The second agreement which really governs the present transaction during the assessment period in question, althoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15(a) The dealer shall buy and sell the said vehicles in his own name and on his own account..... (d) Payments of the full price, all taxes and duties if any, transportation charges, insurance premium and incidental expenses if any, in respect of the sale shall unless otherwise specified by the company, be made by the dealer to the company at Bombay prior to delivery or despatch of the said vehicles in each or in such other manner as may be acceptable to the company......... 26(b)......The company shall be the sole judge as to how many, if at all, of the said vehicles previously sold to the dealer and to what extent, if any, spare parts, tools and accessories previously supplied to the dealer shall be taken over from the dealer in terms of this clause. Such of the said vehicles as are taken over by the company under this clause shall be paid for by the company at the actual net dealer price paid by the dealer to the company for such vehicles........" Learned Advocate-General has urged that the cumulative effect of all these clauses must be taken to be that the vehicles were moved outside the State of Bihar only when firm orders were placed by the dealers with the company and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that notwithstanding any approval or acceptance given by an inspector, the consignee had a right to refuse or accept the goods if it was found that the goods were not in conformity with the terms of the contract entered into in all respects. The manufacturer sent the goods in the name of the assessee by a ship. The goods were delivered at the Madras Harbour by the assessee's clearing agents. In these circumstances, a question was raised whether the sales by the assessee to the Government departments were in the course of import and exempt from taxation under section 5(2) of the Central Sales Tax Act, 1956. It was held (i) that the expression "occasions the movement of goods" occurring in section 3(a) and section 5(2) had the same meaning; (ii) that before a sale could be said to have occasioned the import it was not necessary that the sale should have preceded the import; (iii) that the movement of goods from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India for the consignee, and was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , having the same meaning as in the case of inter State trade [sections 5(2) and 3(a)] was, as their Lordships put it,- "There was no possibility of these goods being diverted by the assessee for any other purpose." If there had been any possibility of those goods being supplied to another customer, the Supreme Court would not have come to the conclusion that the movement of goods was occasioned by inter-State trade or commerce. Learned Advocate-General has, however, contended that this particular sentence occurring in the judgment cannot be regarded as a conclusive determinant of the character of the transaction. In the facts of that case no doubt, it was held that there was no possibility of diverting the goods for any other purpose but what really the ratio of the case was is that in the context of that case it was so because the contract between the parties was such that the movement of goods was occasioned by the order placed by the Director-General of Supplies and Disposals without which the goods concerned "axle-box bodies" would not have been manufactured or moved from Belgium. It was construed that the transaction must be regarded as falling within the ambit of sale in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tax Act, 1947, or for the matter of that under the Madhya Pradesh General Sales Tax Act, 1958. Their Lordships considered in that connection the history of the amendment of article 286 of the Constitution on the 11th September, 1956, by the Constitution (Sixth Amendment) Act, 1956, and how the first clause was omitted and for clauses (2) and (3) the following clauses were inserted: "(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." By the Constitution (Sixth Amendment) Act, 1956, a new clause in article 286 was added giving to Parliament the power to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. In order to carry into effect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction as to whether it is in inter- State trade or commerce or not, is to see whether the movement of goods has been occasioned by any contract between the manufacturer and the purchaser. In that case although the goods were to be despatched from Madhya Pradesh, there was an important stipulation in the contract that the first weighment at the Gondia weigh-bridge would be the weight for the purpose of the contract. Price was fixed as a result of the first weighment at Gondia weigh-bridge; hence, it was held that the parties did contemplate the movement of goods from Madhya Pradesh to Maharashtra for weighment at Gondia by virtue of the contract between them. Hence, it was held that all the eight contracts involved in that case between the assessee and the purchaser must be taken to be inter-State within the language of section 3(a) of the Central Sales Tax Act and as such they were exempt from the liability for payment of sales tax under the Madhya Pradesh General Sales Tax Act. Their Lordships also referred to a decision of the Supreme Court in The Commissioner of Sales Tax, M.P., Indore v. Shri Allwyn Cooper Civil Appeal No. 1208 of 1966 decided on 21st August, 1968; since rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, the old one (annexure 1) and the new one (annexure 10), both indicate that the vehicles were sent only after the actual requirement of the dealer was received. It was, no doubt, stated that the supply could be made either from Jamshedpur or from the manufacturer's stock-yards in the various States, such as Amravati in Maharashtra, Aslali in Gujarat and other places, but the movement was occasioned only when firm orders or, at any rate, orders were received by the petitioner from the dealers. 13.. Mr. Palkhivala has contended that the Assistant Commissioner of Commercial Taxes was in error in holding that the vehicles were moved from Bihar into the other States of India only after firm orders were received. Learned Advocate-General has contended that this is a question of fact and this court would not be in a position to reopen it as to whether the vehicles were moved outside the State of Bihar in pursuance of the firm orders or not. If the petitioner has at all got a remedy to reopen the finding of the learned Assistant Commissioner of Commercial Taxes, his remedy would be before the Deputy Commissioner of Commercial Taxes where the petitioner's appeal is pending. So f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The goods were subsequently transported from West Bengal to a place outside that State by or on behalf of the Government, the assessee having no concern with it. In those circumstances, it was held that the transactions were not in the course of inter- State trade or commerce and were subject to payment of sales tax under the Bengal Finance (Sales Tax) Act, 1941. The schedule to the acceptance of tender contained the necessary particulars. In that case the following points were raised by the learned counsel for the assessee: (1) In order to be an inter-State sale the place where the property has passed is inconsequential. (2) In an inter-State sale the decisive factor is the movement of the goods sold either as a covenant of the contract of sale or as an incident of the contract. (3) In an inter-State sale, the sale need not precede the movement of the goods. (4) In an inter-State sale there need not be any obligation at all on the selling dealer to despatch the goods. The first three points formulated were, however, not contested by the learned counsel for the respondents in that case. Argument was, however, centered on the fourth proposition. Learned Judges referred in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the parties and on a consideration of the terms, their Lordships held that the principal point in that case was the determination of the place where the goods were delivered and the property in the goods had passed. It was held that the property in the goods had passed in the State of West Bengal and transportation of the goods outside the territory of West Bengal was carried out by the purchaser with which the dealer had no concern. In the present case, however, the position is clearly different. In this case the seller being the manufacturing company sent out goods to other States in pursuance of the orders placed for such goods by the dealers and as such, as was held by the Supreme Court in Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes [1966] 17 S.T.C. 197 (S.C.)., where during the assessment periods coal was transported from the colliery of the company to the consumers outside the taxing State pursuant to the directions of the Coal Commissioner as an incident of the contract of sale, it was construed as movement of goods as an incident of the contract of sale. Reference has been made to a Full Bench decision of this court in Shankerjee Raut Gopalji Raut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate trade or commerce inasmuch as to bring the matter within the purview of such transaction it is necessary that, in the case of unspecified goods, the goods must be appropriated to the particular order. When the dealers place orders for supply of a number of vehicles, their agents do not come to the spot at which vehicles would await sale to them. As a matter of fact such orders are received from the dealers only for the purposes of assessing the general demand for these vehicles in the market and in every case such orders are not even executed according to the demand of the dealers and as such the principle of movement of goods in the course of inter-State trade or commerce cannot arise in the facts and circumstances of the present case. In my opinion, however, if it is once accepted that the Supreme Court has laid down that passing of title or property in goods in the despatching State is not necessary in order to bring such a movement within section 3 of the Act, the question of appropriation in the case of unspecified goods does not arise because that is a matter which relates to passing of title to the goods and is not concerned with the movement of goods from one State to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which alone the vehicles would be moved from Bihar to a State outside Bihar, even to the stock-yards of the company, such a case would also come within the ambit of inter-State trade or commerce. Mr. Palkhivala has urged that in order to bring the transaction within the meaning of the expression "inter-State trade or commerce" three factors must necessarily be there: (1) the despatch and supply to the purchaser must be integral parts of a single transaction; (2) there must be a legal obligation on the part of the manufacturer to supply the goods ordered for and not mere commercial expediency; and (3) it must not be possible for the manufacturer to divert the goods despatched to any other purpose. In my opinion, so far as the first point is concerned, as I have already indicated, on the facts and circumstances of this case, the terms and covenants of the contract make it clear that since the goods are vehicles despatched in pursuance of orders irrespective of appropriation or specific vehicles being sent for specific dealers, the despatch and supply to the dealers must of necessity be regarded as integral parts of a single transaction. This test, therefore, is fulfilled in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the 16th April, 1969; letter addressed by the office of the Commissioner of Commercial Taxes, West Bengal, to the Managing Director, French Motor Car Co., Ltd., dated the 24th April, 1969; letter from the Hindustan Motors Ltd., Uttarpara, Hooghly, West Bengal, to the French Motor Car Co., Ltd., 234/3, Lower Circular Road, Calcutta-30, dated the 29th April, 1969, to show that transport of goods from the factory of the manufacturer in West Bengal to the branch office of the company in any State outside West Bengal is not treated as inter-State trade. In my opinion, however, these letters are of no avail because, as I have already pointed out, all the decisions in regard to the character of inter-State trade turn upon the terms of the contract between the purchaser and the seller, as in this case between the dealers and the petitioner. Since the agreement referred to above in the clearest possible language contemplates movement of goods from the State of Bihar to a place outside the State of Bihar for the purpose of sale, this case is clearly covered by the expression that vehicles and the spare parts manufactured by the petitioner were being sent outside the State of Bihar in pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of the vehicles particularly among the network of dealers. These stock-yards were operated by the appellant's own personnel and the sales of the vehicles, it is claimed, were effected to the dealers as well as to the other users in the different States from the stock-yards. The dispute relates only to the assessment made in respect of the vehicles which moved from the manufacturing plant in Jamshedpur to the stock- yards in different States in the country. The sales tax was duly paid in accordance with the respective State laws on the sales effected from the stock-yards there. The Assistant Commissioner has levied tax under the Act on all the vehicles which moved to the stock-yards in States other than Bihar from Jamshedpur. Tax amounting to Rs. 173 lakhs was levied on April 1, 1966, for the period April 1, 1965, to September 30, 1965. The appellant moved the Patna High Court under article 226 of the Constitution in April, 1966, challenging the order of assessment but the petition was dismissed in limine in April, 1966. This court was thereafter approached against the order of the High Court and special leave to appeal was granted. The appeal was finally allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation..." It is also necessary to refer to the definition of "sale" as given in section 2(g). The substance of that definition is that sale means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration. As observed in Tata Iron & Steel Co. Ltd. v. S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.); [1960] 1 S.C.R. 379., a transaction of sale is subject to tax under the Act on the completion of the sale. A mere contract of sale is not a sale within the definition of "sale" in section 2(g). A sale being transfer of property becomes taxable under section 3(a) "if the movement of goods from one State to another is under a covenant or incident of the contract of sale." In Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, Special Circle, Ernakulam [1964] 15 S.T.C. 753 (S.C.); [1964] 7 S.C.R. 706., the provisions of sections 5 of the Act came up for consideration and the principle settled by that decision would indisputably be applicable to section 3(a) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 14, 1963, asking the dealers to submit the following statements at the end of each month instead of the weekly statements as submitted by them prior to the Control Order; (1) list of applications registered during the month; (2) list of retail sales during the month: (3) list of applications cancelled during the month and (4) stocks and sales report. The appellant explained that this was done to keep itself informed of the market movement and the sale prospects of the vehicles and to avoid any possibility of irregular allotment by the dealer. According to the appellant the extracts of the register kept by the dealer could not, under any circumstances, be equated to firm orders nor was there any relationship between the actual number of vehicles supplied and the information contained in the extracts. A new form of dealership agreement (exhibit I) was introduced by the appellant after the promulgation of the Control Order. Clause 1(a) of this agreement provided that "the company agrees to sell and supply from its works at Jamshedpur in the State of Bihar or from its depots and stock-yards outside the State of Bihar to the dealer" the vehicles which shall be allotted to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made to the dealer for each month by an allocation letter by the sales office. It is claimed that the transfer of the vehicles from works to the various stock-yards was a continous process and was not related to the requirement of any particular customer whether a dealer or a corporation or a private individual. These vehicles were transferred by way of stock to the stock-yards or depots from where the transactions of sale were effected. It was pointed out that there was no connection between the Stock Transfer Authorisation and the allocation letter. The vehicles were delivered to the dealers as and when they were available in the stock-yards irrespective of whether or not allocation for the dealers had been made or notified to them. There had been many instances where the vehicles had been actually delivered from the stock-yards prior to the issue of the allocation letter. The vehicles delivered to the dealer from the stock-yard were accounted for against the allocation over the period. It was the stock-yard in-charge who appropriated the required number of vehicles to the contract of sale out of the stocks available with him and put down the vehicle engine and chassis nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assistant Commissioner was that as contemplated by clause 11(b) of the dealership agreement every one of the dealers placed his demand or orders for supply which amounted to a contract for the sale of the vehicles demanded and clause 12 of the dealership agreement under which allocations were made by the appellant to the dealers amounted to fulfilment of orders. The appellant had throughout maintained that firm orders were no longer placed with it by the dealers after 1958. It has not been found or shown that any such orders were in existence relating to the transactions in dispute. Thus on the question that transactions of sale took place the decision of the Assistant Commissioner rested mainly on the allocation letters and the statements furnished by the dealers as required by the circular of June 14, 1963. It is somewhat unfortunate that the High Court fell into the same error as the Assistant Commissioner as it accepted his findings on the ground that they were on questions of fact and could not be re-examined by the High Court. It was said that the terms and covenants of the contract made it clear that since the vehicles were despatched in pursuance of orders irrespect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be regarded as anything but mere offers in view of the specific terms in exhibit I (the dealership agreement) according to which it was open to the appellant to supply or not to supply the dealer with any vehicle in response to such order. What was, therefore, relevant was the acceptance of firm orders occasioning the movement of vehicles out of the State of Bihar. Another serious infirmity in the order of the Assistant Commissioner was (a matter which even the Advocate-General quite fairly had to concede) that instead of looking into each transaction in order to find out whether a completed contract of sale had taken place which could be brought to tax only if the movement of vehicles from Jamsedpur had been occasioned under a covenant or incident of that contract the Assistant Commissioner based his order on mere generalities. It has been suggested that all the transactions were of similar nature and the appellant's representative had himself submitted that a specimen transaction alone need be examined. In our judgment this was a wholly wrong procedure to follow and the Assistant Commissioner, on whom the duty lay of assessing the tax in accordance with law, was bound to ..... 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