TMI Blog1970 (3) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been moved from a stock-yard in one State to a stock-yard in another State. It is not possible to comprehend how in the above situation it could be held that the movement of the vehicles from the works to the stock-yards was occasioned by any covenant or incident of the contract of sale. As regards the so-called firm orders it has already been pointed out that none have been shown to have existed in respect of the relevant periods of assessment. Even on the assumption that any such orders had been received by the appellant they could 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. - Civil Appeal No. 2105, & 2106 of 1969, - - - Dated:- 2-3-1970 - SHAH J.C., HEGDE K.S., GROVER A.N., RAY A.N. AND DUA I.D. JJ. Lal Narain Sinha, Advocate-General for the State of Bihar (S. Sarwar Ail and U.P. Sing, Advocate, with him), for the respondents. N.A. Palkhivala, Senior Advocate (Sanat P. Metha and P.C. Bhartari, J.B. Dadachanji and Co. and B. Datta, Advocates, with him), for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a consequence, the petitioner did not restrict the manufacture to the initial necessity of producing only as many vehicles as were covered by firm orders placed with it by the dealers but that the process of production went on unimpeded in the expectation of a ready market for the vehicles. It may be stated that from the year 1958 onwards the demand for trucks and buses went up a good deal in the country which made it necessary to introduce certain measures to eliminate the possible objectionable tendencies on the part of the dealers to take undue advantage of the anxiety of the consumers to purchase the vehicles. Accordingly, a circular was issued by the petitioner, being circular No. ADT/8890, dated the 30th, June, 1958. The circular contained the procedure to be followed by the dealers in the resale of the vehicles. Annexure 2 is a copy of the said circular. 4.. Being apprised of the position of the shortage in respect of the trucks and buses, the Government of India adopted some measures for proper and equitable distribution of the vehicles and issued a directive to the petitioner along with other manufacturers, being directive No. DA/6 (59)/58 of 1st August, 1958, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted as firm orders during the week, (c) applications rejected during the week and (d) the deliveries made during the week. Accordingly, such specimen forms as are required for submission of weekly returns were also supplied by the petitioner to the dealers along with the circular letter dated the 11th of May, 1959. 6.. In May, 1963, the Government of India promulgated the Commercial Vehicles (Distribution and Sales) Control Order, 1963. This Order was valid till September, 1967, and covered the period of assessment from 1st April, 1965, to 31st March, 1966. The petitioner, vide circular No. ADT/4473 of 2nd May, 1963 brought this Order to the notice of all the dealers. In clause (3) of this Order, the Controller of Commercial Vehicles had the power to fix quota for distribution of commercial vehicles by the manufacturers. The quotas fixed were as follows: (a) Statewise distribution should follow the pattern as it existed during the year ended September 30, 1962; and (b) the distribution of vehicles among dealers or sub-dealers should be in proportion to orders pending with them as on 1st May, 1963. In case, where no orders were pending with the dealers or sub-deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded in them. The petitioner by letter dated the 23rd December, 1965, amended the returns as directed by the Assistant Commissioner without prejudice to its contention that the sales effected from its stock-yards outside Bihar were not liable to be taxed by the Bihar sales tax authorities. This was followed by a series of correspondence between the sales tax authorities and the petitioner, but the Assistant Commissioner of Commercial Taxes (opposite party No. 1) passed an order on the 1st March, 1966, holding that all the sales from the stock-yards were also liable to be taxed under the Central Sales Tax Act. Notice of demand was also issued in pursuance of the aforesaid assessment order. 10.. The petitioner moved this court against this order in C.W.J.C. No. 252 of 1966 under articles 226 and 227 of the Constitution of India for a writ of certiorari calling for the records of the case so that after satisfying itself regarding the validity of the order of assessment, the court might be pleased to quash the order of assessment. Any other order of appropriate nature also might be passed, if necessary. A Bench of this court consisting of the then Chief Justice and Anwar Ahmad, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ranchi. The petitioner claimed in that that the realisation of sales tax was stayed pending hearing of the appeal but the petitioner was directed to deposit a sum of ₹ 89,85,752 which is one-third of the total amount taxed and which was still outstanding. The principal question, therefore, for consideration before the Assistant Commissioner of Commercial Taxes, Jamshedpur, as also raised in this court by Mr. Palkhivala, learned counsel for the petitioner, is whether sales made by the petitioner of its vehicles from its stock-yards in various States of India can be held liable to be taxed as inter-State trade or commerce as defined in section 3 of the Central Sales Tax Act. Apart from this main question, a number of ancillary points have also been raised which have been set out in great detail under paragraph 29 of the petition at page 28 extending up to page 42, under twenty-six heads. 12.. Before taking up the consideration of the character of the sales of the vehicles manufactured by the petitioner, admittedly at its workshop in Jamshedpur, it is convenient to point out the leading principles which have emerged out of several decisions of the Supreme Court as also of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles began from Bihar at Jamshedpur where the petitioner's factory is situate and where several types of trucks and buses etc. are manufactured and sent out for sale to various parts of this country. The crucial question for consideration is whether the vehicles which are not actually sold to any customer at Jamshedpur but are sent out from Jamshedpur to the stock-yards of the company in different States of India and from there they are supplied to dealers for sale to consumers can be taken to be inter-State trade in the sense that the movement of the vehicles from Bihar into another State is occasioned by the order placed by the dealers in respect of particular vehicles which are supplied to them from Jamshedpur. Mr. Palkhivala has conceded that if it can be shown that any specific vehicles are ordered for by the customer or a dealer and then such vehicles are sent out even if the supply is made from the stock-yard of the company in any State outside Bihar, such a transaction will fall within the ambit of inter-State trade as defined in section 3 of the Central Sales Tax Act. His only contention is that the company does not send out vehicles manufactured by it to its stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as 'the vehicles')............... (b) This agreement shall not preclude the company from entering into or continuing any dealership agreement or agreements with any other person or persons within the said territory for the purchase from the company of the said vehicles and resale thereof in the said territory on the terms herein contained or on such other terms as the company deems fit.................. 11 (a) The dealer shall furnish the company on a form prescribed by the company, and prior to the 15th of December each year, with an estimate, by months, of the numbers of different classes of the said vehicles to be sold and supplied to him in each of the various months of the following calendar year. (b) The dealer shall mail to the company on the 15th of each month or so, so that the company will be in receipt thereof by the 20th of each month, his firm order for purchases to be effected during the next succeeding month and his estimated requirements of the said vehicles for the two months following the next succeeding month for the said vehicles... (d) Firm orders shall be deemed to be purchases not subject to postponement, revocatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards outside Bihar and movement prior to the sale, therefore, unless goods are definitely appropriated to the order so that it would be beyond the control of the company to divert the goods to any other purpose, is not relevant for determining the character of the sale. Only when movement takes place specifically in execution of the order can it be contended that the movement of the vehicles was occasioned by and in the course of inter-State trade or commerce. Sending out of unspecified vehicles with prospect, at the highest, of sale outside Bihar cannot lead to the conclusion that movement of vehicles is occasioned by inter-State trade or commerce. In support of this contention he has placed reliance on K.G. Khosla Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473 (S.C.). This relates to import of goods into India from Belgium. In that case the assessee-appellant to the Supreme Court entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according to specifications and the D.G.I.S.D., London, or his representative h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rossed the customs frontiers of India. Learned Advocate-General has contended that the facts of this case and the principles laid down by their Lordships of the Supreme Court in this decision lend support to the contention put forward on behalf of the department that even where actual sale of commodity has not taken place, in certain situations, the movement of goods from one State to another may well be regarded as having been occasioned by or in the course of inter-State trade or commerce, even where actual transfer of title takes place only in the State into which the goods are imported for sale. In the present case also irrespective of whether the stock-yards of the petitioner are located in any State in India outside Bihar, and even where actual transfer of property in goods has not taken place in Bihar, but vehicles or parts thereof manufactured by the petitioner are despatched from Bihar to another State where in pursuance of the order for sale issued by the petitioner's head office in Bombay deliveries are made, it may nevertheless be regarded as a transaction covered under section 3 of the Central Act. Mr. Palkhivala has conceded that he does not contest the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah, V. Ramaswami and A.N. Grover, JJ., the leading judgment having been delivered by Ramaswami, J. In that case the appellant, a company incorporated under the Indian Companies Act and carrying on business of mining manganese ore and selling it to various buyers in India, was assessed to sales tax under the C. P. and Berar Sales Tax Act, 1947, for the period 1st January, 1958, to 31st December, 1958. Manganese ore had been sold by the company to different parties outside the State of Madhya Pradesh under a written contract. The company contended in that case that the transactions were exempt from taxation under the Madhya Pradesh Sales Tax Act as the sale had been made from the State of Madhya Pradesh to the State of Maharashtra. It was exempted from sales tax under the C.P. and Berar Sales Tax Act, 1947, and also under the Madhya Pradesh General Sales Tax Act, 1958 (Act 2 of 1959). The contention was rejected by the Sales Tax Officer, Chhindwara. An appeal preferred to the Appellate Assistant Commissioner of Sales Tax was dismissed. The Board of Revenue, Madhya Pradesh, however, allowed the appellant's appeal. The Commissioner of Sales Tax, Madhya Pradesh, moved the Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.)., in which Shah, J., made the following observation: In our view, therefore, within clause (b) of section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto; clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State. Their Lordships also referred in this connection to the observations of the Supreme Court in Cement Marketing Co. v. State of Mysore [1963] 14 S.T.C. 175 (S.C.)., and again in State Trading Corporation v. State of Mysore [1963] 14 S.T.C. 188 (S.C.). Sarkar, J., observed as follows in the latter case: The question then is, did the sales occasion the movement of cement from another State into Mysore within the meaning of the definition? In Tata Iron Steel Co., Ltd. v. S.R. Sarkar [1960] 11 S.T.C. 655 (S.C.)., it was held that a sale occasions the movement of goods from one State to another within section 3(a) of the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. All that is required to be noticed is the cumulative effect of the circumstances in which movement of goods begins from one State to another-whether it is for the purpose of being sold in another State. It is true, no doubt, that the movement of goods from one State to another at the instance of the manufacturer may, in a particular case, begin in a general manner without reference to any kind of real contract preceding the movement. It may be that such movement from the manufacturer's factory into the stock- yard in another State may not be regarded as movement occasioned by inter-State trade or commerce even if there may be a possibility or a prospect of sale of the goods in the State where the goods are stocked for the purpose. But where from the terms of the contract, as in this case between the petitioner and the dealers who purchase the goods and supply them to the actual consumers in accordance with the direction issued by the Government of India, it must be taken that the goods could not have been moved into another State without actual orders being received by the manufacturers from the dealers concerned in States outside Bihar. It has been urged by the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by-pass the appellate authority apart from the difficulty in the way of this court in going to the question of facts raised before it. In my opinion, the contention of the learned Advocate-General is well-founded. This court can only determine the character of the transaction as a point of law by virtue of the remand order passed by the Supreme Court and cannot enter into the merit of any specific question to be raised by the petitioner as against any particular item of movement of goods. So far, however, as movement of goods was occasioned in pursuance of the dealer's agreement, which is the basis of the finding of the learned Assistant Commissioner of Commercial Taxes, it must be held that whenever goods were moved in pursuance of the orders placed by the dealers and whatever vehicles or spare parts were sent or are to be sent in pursuance of such orders must fall within the ambit of sections 3(a) and 6 of the Act as inter-State trade or as. movement occasioned by the contract for sale and as such inter-State in character. 14.. I may refer in this connection also to a decision of the High Court of Calcutta in Jeewanlal Ltd. v. Commercial Tax Officer, Lyons Range Charge [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Explanation .-Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places. After quoting this, their Lordships considered the scope of section 3(a) and (b) of the Act and referring to section 3(a) their Lordships observed that it covered sale other than those included in clause (b) in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State. In Jeewanlal's case [1967] 20 S.T.C. 345., therefore, the learned Judges had occasion to consider the meaning of the expression incident of the contract of sale . Their Lordships in that connection had to deal with the argument as to the character of the inter-State trade or commerce under the following heads: (1) there must be, of necessity as a result of the transactions, the movement of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped into a State without a previous sale, any sale within the State is intra-State commerce. Quotations from Willoughby and Rottschaefer have also been made in that judgment. Rottschaefer in his Constitutional Law (1939 edition) stated as follows: The decisive factor that renders making a contract an act of inter- State commerce is that it contemplates or necessarily involves the movement of goods in inter-State commerce, and this test applies whether it be a contract to buy or one to sell. Venkatarama Ayyar, J., also in the above case has put it in slightly different words that a sale can be said to be an inter-State trade only if two conditions concur: (1) a sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. It is not necessary to pile up more decisions on this question which have been collected in the aforesaid judgment of the Calcutta High Court [1967] 20 S.T.C. 345 at p. 357. The history of the law of inter-State trade or commerce has also been referred to in Shree Bajarang Jute Mills Ltd., Guntur v. The State of Andhra Pradesh [1964] 15 S.T.C. 430 (S.C.). It is thus clear that if the sale be completed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are manufactured, this too, generally speaking, will not be regarded as inter-State trade because it may be a case of intra-State sale, provided the purchaser takes delivery of the goods in the State where they are manufactured and takes them out of the State of his own without any legal obligation on the manufacturer to do so. This too may well be regarded as a case of intra- State trade and not inter-State trade. But where between these two positions a situation is contemplated when goods are despatched from one State to another under the terms and covenants of an agreement, whether title has passed or not, this must be regarded as a case of inter-State trade or commerce, as in the present case the dealer's agreement (annexure 10) makes it clear that the vehicles were despatched outside Bihar to the various States in pursuance of the orders placed by the dealers to whom title passed and in the event of failure to sell them, the manufacturer had to repurchase the vehicles at the same price at which the vehicles were supplied to the dealers. It is clear beyond doubt that even if title did not pass to the dealers unless supplies were actually made from the stock-yard, nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there must be legal obligation to move and not merely commercial expediency. I am unable to accede to this contention because the question is not whether the goods are moved from one State to another as a matter of legal obligation. It is sufficient to state that the manufacturer has despatched the goods in pursuance of any concrete order and contemplating the supply of goods in pursuance of a concrete order by a dealer, even assuming that in certain circumstances a dealer's agreement itself exempts the manufacturer from executing the orders of the dealers in every case. As for the third contention that there should be no possibility of diverting the goods for any other purpose, I have already disposed of this matter and it need not be adverted to again. Mr. Palkhivala has also referred to the following decisions in support of his proposition: Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax [1955] 6 S.T.C. 627 (S.C.).; The State Trading Corporation of India Ltd. v. The State of Mysore [1963] 14 S.T.C. 416 (S.C.).; The State of Kerala v. The Cochin Coal Co. Ltd. [1961] 12 S.T.C. 1 (S.C.).; The State of Jammu and Kashmir v. Caltex (India) Ltd. [1966] 17 S.T.C. 612 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined by the Deputy Commissioner of Commercial Taxes before whom the appeal is pending and it will not be proper for this court to enter into a detailed consideration thereof to come to any specific conclusion. There will be no order for costs. WASIUDDIN, J.- I agree. The petitioner appealed to the Supreme Court. N.A. Palkhivala, Senior Advocate (Sanat P. Metha and P.C. Bhartari, J.B. Dadachanji and Co. and B. Datta, Advocates, with him), for the appeallant. Lal Narain Sinha, Advocate-General for the State of Bihar (S. Sarwar Ali and U.P. Singh, Advocates, with him), for the respondents. JUDGMENT The judgment of the court was delivered by GROVER, J.- The only point for determination in these appeals by certificate is whether certain sales of motor vehicles manufactured by the appellant were inter-State sales and were liable to tax under the provisions of the Central Sales Tax Act, 1956, hereinafter called the Act. The appellant carries on the business of manufacturing inter alia Tata Mercedes-Benz trucks and buses, chassis, spare parts and accessories thereof at Jamshedpur in the State of Bihar. These are sold to the Government of India, the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assistant Commissioner paid a personal visit to the head office of the appellant at Bombay and relevant records were shown to him there or later on according to his requisitions. On March 13, 1968, he made the assessment order in which he created a demand for ₹ 2,79,13,599.32 by way of sales tax under the provisions of the Act on the vehicles which had moved from Jamshedpur to the stock- yards in the various States and had been disposed of from there. The appellant filed petitions under article 226 of the Constitution challenging the above order as also the assessment on similar lines for the period April 1, 1964, to March 31, 1965. The petitions were dismissed by a Division Bench of the High Court. The controversy throughout has centered on the question whether the sales subjected to tax were of the nature which were covered by the provisions of the Act or whether those sales took place in the different States where the stock-yards were situate and from where they were disposed of. Sections 3 and 4 of the Act may be read in this connection. 3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the one immediately preceding it. The principle thus admits of no doubt, according to the decisions of this court, that the sales to be exigible to tax under the Act must be shown to have occasioned the movement of the goods or articles from one State to another. The movement must be the result of a covenant or incident of the contract of sale. The points which would require determination would be whether the transactions which have been subjected to tax were sales within the definition of that expression contained in section 2(g) and whether the movement of goods from Jamshedpur to the stock-yards of the appellant in the different States was occasioned by any covenant or incident of the contract of sale. The procedure according to which dealings took place and supply of vehicles was made, was outlined in a communication which was addressed by the appellant to the Assistant Commissioner in February, 1968. Prior to 1958 each dealer had to place every month what were called firm orders for the vehicles which the dealers wanted to purchase. By 1958 Tata Mercedes-Benz vehicles are stated to have gained remarkable reputation for quality. The demand far exceeded the production. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t succeeding month, for the said vehicles. In the communication which has been referred to before sent to the Assistant Commissioner it had been emphasised that although the above clause regarding the firm order was included in the dealership agreement, in fact no firm orders were called for in view of the Control Order. It was maintained that during the relevant period sales were effected from the stock-yards alone, the procedure adopted being as follows: The sales office of the appellant in Bombay, after taking into account the production schedule requirements of individual States, the Government directives and other relevant factors instructed the factory at Jamshedpur to transfer stocks of vehicles to the stock-yards in the various States. The instructions for transfer were given by the sales office by Stock Transfer Authorisation in which the model of the chassis and the number of units were mentioned along with the name of the stock-yard to which the same were to be transferred. Pursuant to the Stock Transfer Authorisation the works prepared a Stock Transfer Memo. which indicated the quantity of the vehicles to be transferred to the stock-yard specified in the memo. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yard in one State to a stock-yard in another State. Now the Assistant Commissioner has not examined each transaction as indeed he ought to have done and has arrived at certain conclusions which appear to be wholly erroneous and are based on a complete misapprehension of the true position. He has firstly treated the allocation or allotment letters together with their confirmation as transactions of sale. According to him once the availability of vehicles for allocation was determined for any particular month allocations were made to individual dealers and Stock Authorisation Memos. were issued by the sales office at Bombay to the works at Jamshedpur. The movement of vehicles from the works to the stock-yards was the direct result of the allocations so made. The conclusion on this point was in these words: It was therefore clear that generally the movement of vehicles from works to the stock-yards was not completely disassociated from the allocation made to the dealers. Consequently it would(?) not be said that the movement of the vehicles from the works at Jamshedpur was completely unrelated to contract of sale. It was recognised that in some cases vehicles had been deliv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not open to re-examination. The explanation of the procedure followed by the appellant which prima facie seems to be business-like and plausible together with the proved absence of any firm orders lends support to the argument pressed on its behalf that the allocation letters and the statements furnished by the dealers did not by themselves bring about transactions of sale within the meaning of section 2(g) of the Act. The Assistant Commissioner himself found that sometimes the vehicles were sent from the works at Jamshedpur even before an allocation letter had been issued. It would appear from the materials placed before us that generally the completion of the sales to the dealers did not take place at Jamshedpur and the final steps in the matter of such completion were taken at the stock-yards. Even if the appellant took into account the requirements of the dealers which it naturally was expected to do when the vehicles were moved from the works to the stock-yards it was not necessary that the number of vehicles allocated to the dealer should necessarily be delivered to him. The appropriation of the vehicles was done at the stock-yards through specification of the engine an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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