TMI Blog1966 (1) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 143 and 144 of 1965. T.C. Nos. 100, 219, 220 and 255 of 1962 praying the Madras High Court to revise the order of the Sales Tax Appellate Tribunal dated 30th November, 1961, and made in T. A. Nos. 325 and 326 of 1961 came on for hearing before a Division Bench of the High Court consisting of SRINIVASAN and VENKATADRI, JJ., and the Court delivered the following 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance of the tender submitted by the assessee was briefly of this description. It specified the name of the indentor as the Controller of Stores, Southern Railway, Perambur, that is to say, the person to whom the goods had to be supplied. It stipulated that the delivery shall be made "in eight months ex your principal's works from the date of receipt of the order and the approved 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 representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the items to be consigned to the three different consignees. The short contention advanced by Mr. Kesava Ayyangar, for the assessee, has been that in these cases the inspection and approval of the goods in Belgium at the manufacturer's works amounted to an appropriation of the goods to the contract so that the property in the goods passed to the ultimate consignee even in Belgium, and if 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier, the assessee, responsible for the safe arrival of the goods at the destination, fixing the time and date of delivery and for the power of final rejection by the ultimate consignee. If the property in the goods had already passed to the consignee, it is impossible that there could survive a power of rejection. Where and when the property passed always rests upon the intention of the contracting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, that the transfer of property by endorsement of the bills of lading is not the only method by which it can be effected. It could also be effected by the method contemplated by section 23 of the Sale of Goods Act. But upon the question whether there was such appropriation which would have the result contemplated by that provision of law, we are unable to see eye to eye with the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriation has to be unconditional. There should therefore be no possibility of the goods being rejected by the buyer for any reason whatsoever, for an appropriation of this kind can be made even without the consent of the buyer. Can there be an unconditional appropriation which the law requires in the circumstances of the case. The decision of the Supreme Court in Commissioner of Sales Tax 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al but was entirely tentative and subject to approval of the logs by Wimco's factory manager at Ambernath after their arrival. This circumstance certainly militates against the property in them having already passed to Wimco at the railway stations in the Central Provinces. The provisions of clause 6 that the goods shall be measured under the supervision of Wimco's representative, the decision of 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract the goods were to be manufactured in Belgium, and the D. G. I. S. D., London, or his representative, was to inspect the goods at the works of the manufacturers. He was to issue an inspection certificate. Another inspection by the Deputy Director of Inspections, Ministry of W. H. S., Madras, was provided for in the contract. It was his duty to issue inspection notes on Form No. WSB. 65 on receipt of a copy 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., delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended for them. They were cleared as their own and delivered after clearance. The transaction is therefore one of intra-State sales and not one in the course of import. The sale is completed only when the goods are delivered in this State and so it is not occasioning the import. It is also seen from the contract of sale that the terms of delivery are f. o. r. Madras. Again clause 17(1) of the contract says that any approval 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 Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. We see no force in this objection also. Two revisions were filed by the assessee and two by the State in respect of two assessment orders and they were disposed of by one common judgment. The subject-matter of the four revisions were two assessments, one under the Madras General Sales Tax Act and the other under the Central Sales Tax Act. In our opinion, the assessee was quite right in filing two appeals before this Court. 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 doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract of sale'. That the cement concerned in the disputed sales was actually moved from another State into Mysore is not denied. The respondents only con- tend that the movement was not the result of a covenant in or an incident of the contract of sale." This Court then, on the facts of the case, found that the movement of cement from another State into Mysore was the result of a covenant in the contract of sale or incident of such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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