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TMI Blog2000 (9) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into agreement with Cotton Corporation of India, Bombay, on behalf of the revision petitioner-which is the subsidiary company within its powers conferred under the Sick Textile Undertakings (Nationalisation) Act, 1974 and as the cotton goods moved from Bombay to Tamil Nadu in pursuance of that agreement, it is inter-State sale not liable to tax under Tamil Nadu General Sales Tax Act, 1959 and therefore, the assessing authority under the TNGST Act had no powers to levy tax. But the assessing authority and the appellate authority have taken the concurrent view that National Textile Corporation, New Delhi, is a separate company whereas the revision-petitioner, M/s. National Textile Corporation (Tamil Nadu and Pondicherry) is a separate legal entity and the agreement between the Cotton Corporation of India, Bombay and National Textile Corporation, New Delhi, will not be binding on the revision-petitioner which is a subsidiary company and therefore, the agreement between them is only a proposal to supply cotton to the revision petitioner-assessee and as the goods have been received in Tamil Nadu where the revision petitioner assessee fixed the price and appropriated the goods, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration also is a registered company, it is a separate entity, but under section 11 of the said Act, the National Textile Corporation, New Delhi, which is the holding Corporation, is entitled to exercise the powers of general superintendence and management of the affairs and business of the sick textile undertaking as the owner of the sick textile mills. We shall deal with section 11 later in the appropriate place and it is suffice at this stage to narrate that, though the holding Corporation, namely, National Textile Corporation, New Delhi, and National Textile corporation (Tamil Nadu and Pondicherry) which is a subsidiary Corporation are different legal entities, the holding Corporation at New Delhi has the management of the affairs of the business of the sick mills. 3.. Though certain other claims were made by the petitioner before the authorities below and some of them were allowed by the Appellate Tribunal and some were rejected, we are concerned in this revision only in respect of the imported cotton, purchased by the revision petitioner in pursuance of the allotment made by National Textile Corporation, New Delhi in February, 1977. According to the details furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbatore was sold in Coimbatore to the revision petitioner and therefore, it was local sale attracting tax under the TNGST Act. The Appellate Assistant Commissioner in his order would observe: "Thus, it was evident that even if the holding company directs the purchases by the appellant, it is only a proposal and not a contract, the parties to the contract are: (1) The Cotton Corporation of India, Bombay and (2) National Textile Corporation (TN P) Ltd., Coimbatore, and their agreement for price, quantity, etc., conditions can alone constitute a contract and the goods did not move pursuant to their agreement or contract from one State to another. Hence the third party, i.e., the National Textile Corporation, New Delhi, proposals are not legally binding upon the appellant company. In order to get a final shape for contract, there must be preceding proposals, acceptance, promise and agreement. Thus, it is clear that the activities of the holding company were that of a proposer and the real party to contract was the assessee who has given his assent thereto. Under these circumstances, the National Textile Corporation, New Delhi, does not come in the picture since it is not a party to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision petitioner is only a proposal but not a contract and therefore, the goods had not moved in pursuance of any binding contract. He also has observed that the sale can be completed only if the price is fixed and paid or payable and as the price has been paid only by the revision petitioner at Coimbatore, there was local sale. He would further observe that for the supply of 11,912 bales of 170 kgs. each, the price was agreed, but the revision petitioner has informed the seller that for the balance of the bales which were lying with the seller, they will be purchased at the ruling market rate at the time of transport without carrying charges and there was variance from the agreed price, proving that the revision petitioner-assessee did not abide by the agreement between the sellerCotton Corporation of India and National Textile Corporation, New Delhi. He also would further observe that though the revision petitioner provided rent free godowns for storing the cotton despatched by the seller, the revision petitioner has no domain over the goods as there was no sale of cotton by the seller to the revision petitioner and the revision petitioner was keeping the goods in deposit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement of the affairs and the business of the sick textile undertakings and it is entitled to do all such things as the owner of the sick textile undertakings. As a matter of fact, under section 11-A of the Sick Textile Undertakings (Nationalisation) Act, the holding company is even entitled to sell, dispose or mortgage the property of the sick textile undertaking with the permission of the Central Government. Therefore, at any rate, the National Textile Corporation, New Delhi, a holding company cannot be considered to be third party to the subsidiary company to divest and isolate it from the transactions effected by the holding company on behalf of the subsidiary company. 6.. It is the contention of the revision petitioner that the National Textile Corporation, New Delhi, the holding company was entitled to arrange for the supply of 13,000 bales of cotton from Bombay on behalf of the revision petitioner, the holding company had acted as agent of the subsidiary company. When 13,000 bales were allotted to the revision petitioner subsidiary company by the holding company at New Delhi by entering into an agreement with the seller at Bombay, the subsidiary company had not disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State." The courts have interpreted that the sale of goods referred to in the above section includes an agreement of sale as such an agreement is an element of sale and has also essential ingredients thereof in terms of section 4(1) of the Sale of the Goods Act. Therefore, it is sufficient if the agreement of sale contemplates an inter-State movement of the goods, as the sale may take place at the destination or in the course of movement of the goods. It is an undeniable fact in this case that it is only in pursuance of the agreement between the seller-Cotton Corporation of India, Bombay, and the National Textile Corporation, New Delhi, dated February 11, 1977, the movement of the cotton bales from Mumbai to Coimbatore had occasioned. It is also pertinent to remember that the goods had moved to Coimbatore to the named purchaser mentioned in the invoices though the transfer of documents mention the name of the seller as the consignee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the seller-Cotton Corporation of India to move the goods from Maharashtra and the petitioner-assessee did not independently contract with the seller for the supply of goods. 8.. Then coming to case laws, in Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457, the Supreme Court has held that the sale can be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one State to another but such movement is the result of a covenant in the contract of sale or is an incident of that contract. As mentioned above, the movement of goods from the seller in Maharashtra to Tamil Nadu is a result of the covenant between Cotton Corporation of India and the National Textile Corporation, New Delhi, which is the administrator of the petitioner-assessee. Acting as an agent of the petitionerassessee, the arrangement was made for movement of goods from Maharashtra. In Commissioner of Sales Tax v. Bakhtawar Lal Kailash Chand Arhti [1992] 87 STC 196, the Supreme Court has held that the respondent therein acting as commission agent on behalf of the ex-U.P. principals, purchased the goods which was duly despatched to such principals to places o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of Rs. 24,59,715 and in respect of the last purchase of cotton made for which no transport documents was produced before the assessing officer to prove that the cotton was moved from the other State into this State on a turnover of Rs. 19,99,486, etc. In respect of the turnover of Rs. 3,84,55,448 and Rs. 24,59,715, it has been claimed by the petitioner that it is the holding company, namely, National Textile Corporation Limited, Delhi, entered into an agreement with the Cotton Corporation of India, Bombay for purchase of 70,000 bales of foreign cotton, out of which 13,000 bales were allotted to the petitioner and accordingly those 13,000 bales of foreign cotton had been sold by Cotton Corporation of India, Bombay, to the petitioner as inter-State purchase and hence there is no question of local sale within the State by the Cotton Corporation of India, to the petitioner. Such a claim that it is an inter-State purchase had been rejected by the assessing authority as well as the two appellate authorities on the ground that the agreement entered into in between the National Textile Corporation, Delhi, and the Cotton Corporation of India, Bombay, would be only treated as third par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of India, as per the invoices and hence the property in the goods itself had passed under the contract and there was only deferment of delivery of cotton which took place in Tamil Nadu and not the transaction. So, it is argued that it was not at all any local purchase of cotton and it was only inter-State purchases of imported or foreign cotton and thereby the turnover of Rs. 3,85,55,448 and Rs. 24,59,715 are not exigible to tax. 4.. On the other hand, the learned Government Advocate Mr. K. Soundararajan contended that the holding company, namely, the National Textile Corporation, New Delhi, and the petitioner herein, the subsidiary company are separate and distinct entities and thereby as per section 6 of the Sick Textile Undertakings (Nationalisation) Act, 1974, holding company and the subsidiary company are different entities and hence the holding company cannot enter into any agreement on behalf of the subsidiary company and such an agreement even assuming without accepting that the said contract was binding upon the subsidiary company, namely, the petitioner herein, the said agreement was only a distribution agreement and the goods had been brought by Cotton Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Undertakings (Nationalisation) Act, 1974, the holding company by order in writing would exercise the powers of general superintendence, direction, control and management of the affairs and business of a sick textile undertaking. So, it is argued that the agreement entered in between the National Textile Corporation and the Cotton Corporation of India, Bombay, to purchase 70,000 bales of imported cotton out of which 13,000 bales of imported cotton allotted to the petitioner as subsidiary company, would be binding upon the petitioner-subsidiary company also. It is no doubt, there is no specific communication by the holding company to the subsidiary company, the petitioner herein, that the holding company entered into an agreement and purchased cotton yarn from Cotton Corporation of India, Bombay, on behalf of the subsidiary company also namely the petitioner herein. However, by virtue of sections 11 and 11-A of the Sick Textile Undertakings (Nationalisation) Act, 1974, assuming without accepting that the holding company could as well enter into an agreement on behalf of the subsidiary company, the said agreement could only be to the extent of distribution agreement and could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were paid at the time of paying the price of the cotton at Coimbatore. So, the Cotton Corporation of India, Bombay, had moved the goods as consignor and consignee (self), i.e., by way of stock transfer and nothing else are; thereby it could not be inter-State purchase by the petitioner. The property in the goods was with Cotton Corporation of India, Bombay, till it was delivered to the concerned mills of the petitioners. Further, it is pertinent to note that there is no evidence on record nor any contention by the assessee/petitioner at any stage that the documents of title over the goods were endorsed to the petitioner during the inter-State transit so as to attract the 2nd limb of section 3(b) of the CST Act. It is also neither the facts of the case nor anybody's case to invoke section 5(2) of the CST Act. Further, it is pertinent to point out that if really the petitioner herein had purchased the cotton as inter-State purchase, it could have produced 'C' form, which is not at all pleaded by the petitioner at any point of time. Except the bare plea of inter-State purchase, it is not the case of the petitioner that the inter-State purchase was under 'C' form and paid tax (concess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation of India, Bombay, effected stock transfer from one State to another as consignor and consignee, in respect of the cotton bales/and thereby it retained the right of disposal of the goods till they reached Coimbatore and kept in the godowns of the mills of the petitioners. Even as per the memorandum of grounds filed before the Appellate Tribunal at page 31 of the typed set, it is not the claim of the petitioner that the petitioner had produced any 'C' form for the inter-State purchase of cotton. So, no material or documentary evidence had been produced by the assessee to dispel the findings of the first appellate authority as well as the second appellate authority that it was only local purchase and not inter-State purchase. So, the conclusion would be that there was no inter-State purchase effected by the petitioner and on the other hand the cotton bales moved from Bombay to Tamil Nadu by way of stock transfer by the Cotton Corporation of India, Bombay, perhaps by utilising form F and kept the goods in the godowns of the mills of the petitioners by having domain over the goods, till it was delivered by Cotton Corporation of India, Bombay, to the concerned mills after rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assessed to a total and taxable turnover of Rs. 38,81,15,224.06 and Rs. 21,03,15,656.77 respectively. Against the order of the assessing authority, an appeal was filed before the Deputy Commissioner (Commercial Taxes), Coimbatore, and he granted relief in respect of insurance charges, forwarding and handling charges, but dismissed the rest of the claim. A second appeal was filed before the Sales Tax Appellate Tribunal, Additional Bench in C.T.A. 459 of 1995 and by judgment dated February 15, 1989 the appeal was partly allowed and partly dismissed. The petitioner has filed this revision petition in respect of the turnover of Rs. 4,31,15,439. The said turnover relates to the alleged inter-State purchases effected from the Cotton Corporation of India, but treated by the lower authorities as last purchase of cotton within the State of Tamil Nadu and taxed at 3 per cent. 3.. The petitioner being the National Textile Corporation (Tamil Nadu and Pondicherry) Private Limited hereinafter called "the subsidiary company" runs a number of spinning and textile mills in Tamil Nadu which were taken over by the Government under the Sick Textile Undertakings (Nationalisation) Act, 1974. Under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stacking charges, transport charges and C F charges from the mills in their invoices. According to the assessee cotton was moved from Bombay to Tamil Nadu by virtue of the purchases already made by their holding company and that therefore it was an inter-State purchase by the assessee. One aspect of the case may be noticed here namely, that the assessee claimed such inter-State purchases on a total turnover of Rs. 4,29,34,600.14. In their additional grounds, before the first appellate authority, they included a further sum of Rs. 24,79,715 as representing inter-State purchases from Cotton Corporation of India by Sri Ranga Vilas Mills. 4.. The argument of the assessee can be dealt with under two heads. The first is that there was only an agreement to sell between the holding company and Cotton Corporation of India which was not enforceable and that the actual terms of contract were only concluded with the subsidiary company after the goods reached Tamil Nadu. The second is that, even if the goods moved on account of the agreement with the holding company, it cannot be treated as an inter-State sale because the subsidiary company is an independent company in the eye of law and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Tribunal in Jambai K.N.M. Textiles (P) Ltd. v. State of Tamil Nadu reported in [2000] 118 STC 77. In that case, cotton was purchased from the Maharashtra State Co-operative Marketing Federation, Bombay, and various mills in Tamil Nadu offered to purchase cotton. There was a condition that selection could be made by the mills in Tamil Nadu and payment was also agreed to be done in Tamil Nadu. There was a similar arrangement for storing the goods in the mills in Tamil Nadu but at the risk of the Bombay seller all other incidental charges were on buyers account. On the above facts, the Full Bench held that the movement of the goods from one State to another on the basis of a covenant or incident of a contract of sale or purchase, it will be sufficient to hold that there was an inter State sale. Technicalities relating to the passing of property in the goods and the conclusion of the sale on payment of price, etc., were also not to detract from the nature of an inter-State sale. Following the said judgment I am constrained to hold that the facts relating to the movement of the goods from Bombay to Tamil Nadu and the manner of appropriation the instant case cannot detract from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry company are two different legal entities. He refers to section 4 of the Companies Act, 1956 for understanding the meaning of a holding company and a subsidiary company. Sub-clause (a) of section 4 says that if a company controls the composition of the board of directors of another company, then it will be called a holding company. Secondly, sub-clause (b) says that if the holders of preference shares in a company having the same right in all respects as the holders of equity shares and they exercise or control more than half of the total voting power of another company, then also the first company will be a holding company. Sub-clause (ii) to clause (b) says that if the first company holds more than half in nominal value of the equity shares of another company then also it will be a holding company. The learned Government Advocate also refers to ILR (1972) 1 Calcutta 286 (Hungerford Investment Trust Ltd. v. Turners Morrison Co.). In that case it was observed that holding company and the subsidiary company maintain a distinction between the two as separate legal entities. In that case an application to join the subsidiary company as parties in a petition under section 397 was d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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