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TMI Blog1999 (11) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of all the assessees by Mr. C. Natarajan, the doyen of the tax Bar. 2.. We will first set out the minimum facts of all the cases to justify a common judgment at our hands. T.C. (A) Nos. 2803 to 2805 of 1997 (T.C. Nos. 81, 82 and 83 of 1994 on the files of the High Court, Madras): These appeals are directed against a common order of the Joint Commissioner in his proceedings dated June 30, 1992 in relation to the assessment years 1983-84, 1985-86 and 1987-88, the assessee being Jambai K.N.M. Textiles (P.) Limited. The assessee filed appeals against 3 years of assessment, namely, for the years 1983-84, 1985-86 and 1987-88, there being two appeals for the year 1985-86, one relating to tax and other relating to additional sales tax. The common issue in the appeals related to the exigibility to tax on certain purchases of cotton from Maharashtra State Co-operative Marketing Federation, Maharashtra (hereinafter referred to as the Federation ). We are not concerned with the other question involved in the appeals. The first appellate authority agreed with the assessee and held that the purchases are not exigible to tax as local sales under the Tamil Nadu General Sales Tax Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 on the files of the High Court, Madras): This writ petition directly challenges an order of assessment made against Anna Co-operative Spinning Mills on March 31, 1975 for the assessment year 1993-94. The issue involved is the exigibility to tax on purchases of cotton from Bombay to the tune of Rs. 3,90,99,457. There are several other items involved in the assessment. T.P. Nos. 95 and 96 of 1999 (W.P. Nos. 1003 and 1004 of 1994 on the files of the High Court, Madras): These two petitions directly challenge orders of assessment made against Viswa Bharathi Textiles Limited, for the years 1991-92 and 1992-93 in respect of purchases of cotton from the Federation at Bombay. In the year 1991-92, the cotton purchased amounts to Rs. 4,72,63,657. In the year 1992-93, the cotton purchased amounts to Rs. 3,56,56,816. T.P. Nos. 89, 90, 91, 92, 93 and 94 of 1999 (W.P. Nos. 9474 to 9479 of 1992 on the files of the High Court, Madras): These writ petitions also challenge the correctness of the assessment order made against Anna Co-operative Spinning Mills for the year 1988-89 to 1993-94 in respect of their cotton purchases from Maharashtra State Co-operative Cotton Growers Marketing F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein he states that the Federation shows the samples to the mills in Tamil Nadu or their brokers. On being satisfied, the mills express their intention to purchase specific cotton samples and this is conveyed to the sales office of the Federation who in turn inform the head office at Bombay. On getting such confirmation from the sales office at Coimbatore a contract is entered into between Federation and other mills in Tamil Nadu. 5.. The assessee have filed a typed set of papers in T.C. (A) No. 81 of 1994 purporting to be the modus operandi of any such transaction. This is more or less verifiable from the Government records. 6.. On February 11, 1983 there is an offer letter from Pulicar Mills Limited (one of the assessees in this batch of cases), addressed to the sales office of the Federation at Coimbatore. It shows an interest of different mills in Tamil Nadu to purchase certain varieties of cotton to the extent of 11,500 bales as per certain conditions. It is worthwhile to extract the conditions: 1. Selection and weighment at spot. 2.. Delivery against payment at Coimbatore by draft. 3.. All the bales will be stored at respective mills godown under lock and key o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efault. The above sales are finalised on the basis of mill godown storage facility as per our standard terms. 9. Copies of this letter are sent to all the brokers of the mills and the sales office at Coimbatore. The details of delivery schedule are as follows: HEADING Bulk deal of 36,000 bales through M/s. Pujara Venkatadri and others. SI. No. Name of the mills Zone Variety Bales Contrat Feb. March April May June Total 1. M/s. Laxmi Mills, Coimbatore A'Bad Jalgaon Y-1 Sup 3,000 JAL/35 600 600 600 600 600 3,000 2. (a) M/s. Coimbatore Pioneer Gruou of Mills A' Bad Jalgaon VL Sup/FAQ 10,000 AMD/19 (b) M/s. Gananambica Mils Coimbatore Dhulia, Khamgaon (Buyer's option) (c) M/s. Gopal Krishan Mills (d) M/s. Prashant Textiles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation from the zonal office, a standard contract form is entered into by the buyers/ mills and sent to the Federation at Bombay for signature. Condition No. 7 of the contract is as follows: Condition No. 7: In the event of such a cancellation, the seller shall be entitled to resell the entire or balance quantity thereof at any time and any manner it deems fit and at the same time reserving its right to recover any damage/loss sustained by way of resale. Condition No. 10 is as follows: Condition No. 10: If payment is not made and delivery taken within such extended period also, the Federation may forfeit the advance, payment inclusive of carrying charges and resell the cotton at any time and in a way it deems fit and recover the loss if any sustained by way of such resale including carrying charges and other allied expenses incurred for conducting resale of cotton from the buyer. 11.. The next aspect of the case is the agreement regarding storage of cotton in the State of Tamil Nadu. There are two schemes: (1) Mill godown storage scheme. (2) In the godown of Central Warehousing Corporation. 12.. In most cases the mill godown storage scheme is adopted. That s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atore office in any circumstances. The directors of the mills will be personally liable if the cotton bales stored in the godown are unauthorisedly consumed by the mills. Condition No. 21: The mill also agree that the Maharashtra State Cooperative Cotton Growers Marketing Federation Ltd. (place) only is the exclusive owner and custodian of the bales stored in the mills godown. 13.. The regular agreement for the purchase of cotton bales referring to earlier provisional contracts is then entered into between the particular mills in Tamil Nadu and the Federation in Bombay. The terms and conditions of such an agreement is not disputed and it is as follows: 1. The selection and weighment of the bales will be done at the spot by our authorised representative. 2.. The transit insurance of the bales will be covered by the M.S.C.M.F. Ltd., from the warehouse at spot to mill s godown and the premium of the transit insurance will be on mill s account. The Federation will issue a debit note for insurance premium to the mills. 3.. After selection is over despatch of the bales will be arranged by the mills or our authorised representative. 4.. The mills will provide a rent free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mills before giving delivery of the lots, for other bales (which are lying on spot and have not been lifted within the stipulated time) carrying charges will be levied at 2.5 per cent per month. 13.. The mills will take delivery of the entire lot which may be of 50 or 100 bales after making full payment. If the lot is of 100 bales it will not be split up. 14.. The mills will take delivery of the bales only after making payment and with the written permission (delivery order) from the sales office at Coimbatore. 15.. Any other expenses incurred from spot to the mills godown will be borne by the mills. 16.. Any dispute will be subject to Bombay jurisdiction. 17.. Since the despatches of the bales will be effected after completion of weighment at spot no claims regarding the damages will be entertained by the Federation. 18.. The buyer mill shall be required to pay administrative charges at Rs. 5 per bale for availing this facility. 14.. There are some similar printed contracts available in files for the year 1985-86. For instance contract No. PH-55/1985-86 dated June 5, 1986 relates to sale of 200 bales addressed to Pulicar Mills. This contract contains overleaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance being in favour of seller, storage being in godown of mills with ownership and dominion remaining with Federation and delivery being made only on payment in Tamil Nadu. The assessing officer has more or less adopted the above reasons. The first appellate authority in the case of Jambai K.N.M. Textiles, for the years 1983-84, 1985-86 and 1987-88, by a common order dated July 2, 1990 agreed with the assessee and observed: On the other hand, the movement is the criterion which has been proved in this case with the records of transport and ATL licence. As the goods were moved, having been earmarked and with no possibility of being diverted to any other buyers, the assessing officers version that the movement from Bombay was only by way of transfer of stock is also found to be benefit of supporting materials. 17.. On suo motu revision, a common order was passed by the Joint Commissioner on June 30, 1992 for the three years mainly on the following grounds: (ii) The general agreement was found to contain only flexible terms and not a firm contract which would only testify the true nature of the contract, the rights and duties that flow from it. (iii) The agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase might have been made, if the goods are within the State- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. Section 4 of the Central Sales Tax Act, 1956, is as follows, but it is subject to section 3 of the CST Act: 4. When is a sale or purchase of goods said to take place outside a State.- (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2.-Where the 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. We have already seen section 4 of the Central Sales Tax Act. 24.. The first step in determining the character of the sale is to enquire: Is there a movement of goods from one State to another? If the answer is in the affirmative, then a further enquiry arises: Whether such a movement was as a result of covenant or incident of the contract of sale or purchase? 25.. We will now look into the decisions cited at the Bar both on behalf of the assessee and the Revenue. Taking up chronologically the decisions cited on behalf of the assessee, we start from [1963] 14 STC 899 (Mad.) (Lakshmi Mills Company Ltd. v. State of Madras). The assessees in that case are also dealers in yarn. They purchased cotton during the year 1957-58 from Bombay and claimed exemption as inter-State sales. The goods moved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Calcutta, and the same had been assessed under the West Bengal Sales Tax Act. With particular reference to section 4 of the CST Act, 1956 the Madras High Court observed: To a great extent, the sale of unascertained goods, in the case of interState sales involving inter-State movement, has been placed in pari materia for certain purposes with a sale of such unspecified goods under the appropriate provision of the Sale of Goods Act. Whereas section 3 of the Central Sales Tax Act makes a sale of ascertained goods exigible to tax by the despatching State by reason of the movement of the goods having been occasioned under the contract, in the case of unascertained goods the despatching State has no jurisdiction to treat it and tax it as an inter-State sale merely because a movement is involved. In the latter case the situs of sale is determined on the basis of the appropriation of the goods by an overt act on the part of the seller, with or without the assent of the buyer. Thus if the goods are unascertained, then until it is appropriated to the contract by a known process, sale is not complete. Central sales tax is not leviable by the despatching State in such cases, notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Madhya Pradesh and Maharashtra. In that case it was contended that the buyers of ore in other States were only exporting the manganese ore to foreign countries. Therefore, they claimed exemption under section 5(1) of the Central Sales Tax Act. What is important for us is that the Supreme Court held that in so far as section 3(a) of the CST Act, there is no distinction between unascertained and future goods and goods which are already in existence, if at the time when the sale takes place these goods have come into actual physical existence. It was further noticed manganese ore was loaded into the wagons after being extracted from the mines and the sales of these manganese ores despatched from Madhya Pradesh to various States actually took place and the goods were ultimately accepted by the buyers in other States. It was therefore held that all the incidents of an inter-State sales were present and therefore they were indeed sales in the course of inter-State trade and commerce. 30.. [1976] 38 STC 475 (English Electric Company of India Ltd. v. Deputy Commercial Tax Officer) is again a judgment of the Supreme Court. In that case the appellant/assessee had its registered office a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be moved from Faridabad to Delhi, the movement was occasioned as a result of the incident of the contract of sale. 32.. The decision of the Madhya Pradesh High Court in [1979] 44 STC 347 (State of Madhya Pradesh v. Bengal Paper Mills Company Ltd.) reiterates the very same proposition. 33.. [1981] 47 STC 1 (SC) (Indian Oil Corporation Ltd. v. Union of India) is again relating to supply of oil from the refinery at Barauni in the State of Bihar. The Indian Oil Corporation, the petitioner in the case, has a refinery at Barauni in the State of Bihar. It has a depot at Panki in Uttar Pradesh State. The petitioner constructed pipe lines from its refinery at Barauni to the fertiliser factory at Kanpur in Uttar Pradesh. Naphtha was to be supplied through the pipe lines at the fence of the fertilizer factory. The petitioner was to provide at his cost storage facility at its Kanpur installation. Supplies of naphtha to be made against the respondent factory s indents in writing to the petitioners at the Kanpur installation. On the question whether the sales were exigible to tax under the Uttar Pradesh Sales Tax Act or under the CST Act it was held that the sales were clearly inter-State an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax (Law), Board of Revenue (Taxes), Ernakulam v. Madras Rubber Factory Limited]. In this case the dealer had a head office in Madras and a local unit in Kerala. The dealer purchased rubber from agriculturists and suppliers in Kerala. It was held to be an inter-State transactions between the Madras head office and the suppliers of rubber in Kerala. 38.. We will now turn to the decisions which support the case of the Revenue. In [1973] 32 STC 629 (SC) (Kelvinator of India Ltd. v. State of Haryana) it was held that the movement of goods should be an incident of and be necessitated by the contract of sale and thus be interlinked with the sale of goods. A movement of goods which takes place independently of contract of sale would not fall within the ambit of clause (a) of section 3 of the CST Act. 39.. In [1975] 36 STC 389 (SC) [State of Tamil Nadu v. Cement Distributors (P.) Ltd.], the dealers being a cement distributor, were the agents of the State Trading Corporation. The dealer was authorised to sell a quantity of cement mentioned in the authorisation to certain persons in Calcutta, as per the directions of the State Trading Corporation, Calcutta. The factory was at Dalmia an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g orders from Bombay. It was held that the movement of goods was only by way of stock transfer and not liable to tax under the CST Act. 42.. One other decision of the Supreme Court of India reported in [1980] 46 STC 164 (Consolidated Coffee Ltd. v. Coffee Board, Bangalore) may be noticed for the sake of completion. This is only for the purpose of finding out whether in an auction sale, when the hammer falls does a contract of sale come into existence? The Supreme Court clarified as follows: If the auction sale of chattels is unconditional and is in respect of specific ascertained goods and nothing remains to be done to the goods for putting them in a condition ready for delivery, the property in the goods would pass to the purchaser upon the acceptance of the bid but that would not be because of section 64(2) of the Sale of Goods Act, 1930, but because of section 20 and such would not be the case if the goods sold thereat are non-specific or unascertained goods or the auction sale is conditional. Section 64(2) has nothing to do with the aspect of the passing of the property at an auction sale and it is by virtue of goods being specific and in a deliverable state that under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioner is that a contract for the sale of oriental mixture or any other mixture is a contract for sale of future goods, that the goods sold come into existence at the place of destination after the wagons coming from different mines are unloaded at one place, and that the goods sold are neither appropriated to the contract in Madhya Pradesh nor do they move from Madhya Pradesh to another State for the reason that the goods sold are never in existence in Madhya Pradesh and they come into existence for the first time at the place of destination. 45.. The agreements specified the quality and goods required by buyers. The Supreme Court culled out the essence of the agreement as follows: It will be seen from the terms and conditions of the agreements of sale that samples taken from deliveries from each mine were to form the basis of settlement, the price was f.o.r. mine sidings with scale pro rata depending on manganese content of the ore, deliveries were taken by the buyers who were consignees at the mines sidings and the risk passed to the buyers after the loading of the goods into the wagons at the mines sidings. May be that the buyers, as argued by the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 86 (Mad.) [Cement Distributors (P.) Ltd. v. Deputy Commercial Tax Officer] with the above judgment of the Supreme Court. Be that as it may, once we steer clear of the problem of appropriation of goods to the contract, we are on safe grounds in this case. If we now look at the facts through the above legal principles, things are more clear and understandable. 48. We must start with a criticism of the typed set of papers, because they do not relate to one set of goods or contract and how the movement took place, where the weighment was made, when the goods were delivered and appropriated and price paid. All these documents are available, but with reference to different goods and contracts. However, since most of the documents are verifiable from Government records, we proceed on the basis of the available documents. 49.. In every case there is first an offer by the Tamil Nadu mills addressed to the sales office of the Federation at Coimbatore. One such offer is the letter dated February 11, 1983 wherein all the essentials of the deal are disclosed. By a letter dated February 19, 1983, the Federation confirms the deal and writes to its various zonal Managers, enclosing provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more than sufficient to arrive at a conclusion that the goods moved on account of a firm contract. Further, the despatch instructions sent by the Tamil Nadu mills addressed to the sales office of the Federation shows the goods required by each of the mills, indicating the zone, the stations, the lot number, the guarantee and the variety and grade required by each of the mills. It is too much to ignore these documents and hold that it was only a provisional arrangements which may or may not be concluded as a contract. This is not a case which can be brought under [1994] 92 STC 325 (Mad.) (Rallis India Limited v. State of Tamil Nadu), as relating to stock transfers irrespective of purchase orders or under [1995] 98 STC 82 (AP) (State of Andhra Pradesh v. Coromandel Paints Chemicals Ltd.) as relating to a standing offer to keep paints of varieties ready at the sub-office or branches and supply the same on requisition by the Shipping Corporation of India or [1975] 36 STC 389 (SC) [State of Tamil Nadu v. Cement Distributors (P.) Ltd.] as relating to moving of stocks from Madras to Calcutta and keeping the stocks of cements ready for distribution in the nonavailable areas or [1973] 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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