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TMI Blog1973 (8) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the agreement between M/s. Kelvinator of India (assessee), M/s. Spencer & Co. Ltd., M/s. Blue Star Engineering Co., and M/s. General Equipment Ltd., in pursuance of which the refrigerators manufactured by M/s. Kelvinator of India at Faridabad moved to Delhi were merely for distribution of goods between the principal and his agents or were agreements of sale between two parties." The matter relates to the assessment year 1965-66, i. e., the period from April 1, 1965, to March 31, 1966. The appellant-company has a factory at Faridabad in Haryana. It manufactures refrigerators deep-freezers, compressors and other similar articles. The factory went into production in 1964. Its registered office and sales office are at 19A, Alipore Road, Delhi. The appellant has godowns in Delhi having full staff of godown-keepers and clerks. The appellant is a registered dealer under the Punjab General Sales Tax Act, 1948, and the Central Sales Tax Act, 1956. The registration has been done at Faridabad. Refrigerators and other articles are manufactured by the appellant under a collaboration agreement with an American company known as Kelvinator International Corporation. The refrigerators a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the territory. Due consideration to the recommendation of the distributors in regard to change/alteration in existing products or additions of new products will all the time be given by the company. 2.. All purchases by the distributors from the company shall be on principal to principal basis at mutually agreed prices. 4.. The goods shall be delivered to the distributors from the company's registered office in Delhi and the property in the same shall pass to the distributors in Delhi on delivery, where the sale shall always take place. 5. For the purpose of determining the liability of distributors for payment to the company, the price quoted will be ex company's works at Faridabad. The distributors shall also pay to the company all the charges on the transport of the goods from the company's' works at Faridabad to the company's registered office in Delhi. 6.. The distributors shall at all times warrant the goods to their customers only on the warranty terms issued by the company. All goods leaving the company's factory will pass through rigorous inspection procedures laid down by the company. No responsibility for shortage or damage occurring in transit wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 150 refrigerators per month. Likewise, for the 2nd year Gem agrees to buy 3,000 refrigerators and for the 3rd year 4000 refrigerators of both sizes. The company will, however, incur no liabilities if, for any reasons, it is unable to make the supply according to the minimum quantities stipulated above. If, for some reasons, Gem is unable to accept or purchase the respective minimum yearly stipulated quantities, Gem will incur no liability save the cancellation of the agreement at the company's choice." Procedure for transfer of goods from the factory at Faridabad to the appellant-company's sales office and godowns at 19A, Alipore Road, Delhi, was described in the objections filed on behalf of the appellant before the sales tax authority as under: "The company gets the goods cleared from the excise for destination to its Delhi office godown in piecemeal, pay the octroi themselves at the Delhi barrier along with the freight charges and the goods are taken delivery of by its registered office. The buyer places its specific order according to its requirement and to the extent goods are available at Delhi, delivery is given by the Delhi office after the goods are approved in goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehouse to warehouse. In the reference order dated April, 1971, the Sales Tax Tribunal while dealing with the transport of goods from Faridabad to Delhi observed: "The refrigerators manufactured by the company were transferred to its sales office and godowns at 19A, Alipore Road, Delhi-6, under despatch notes. Necessary entries in the stock register showing receipt were made in the stock register maintained by the company in the godowns and sales office at Delhi. The issue entries were also made in such registers. The payments such as freight, octroi, transit insurance and other expenses, i. e., up to the stage of sale and delivery of goods to the respective distributors at the sales office at Delhi were borne by the company. The purchasers, namely, the distributors placed their specific orders at various times at Delhi upon examining and finding the suitability of the machines in pursuance of which the refrigerators were delivered against receipt on delivery challans. Bills were raised by the sales office at Delhi and consideration was also received by it." The assessing authority vide its order dated March 2, 1968, held that the transactions between the parties were inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of rights." The Tribunal, however, thought that the question reproduced earlier would combine all the three questions suggested by the appellant. Accordingly, the question set out at the beginning of this judgment was referred to the High Court. The High Court in answering the question in favour of the department found that the machines moved from Faridabad to Delhi in pursuance of agreements of sale which had been termed distribution agreements. In appeal before us, Mr. Palkhiwala on behalf of the appellant- company has argued that the three distribution agreements do not constitute contracts of sale. In the alternative, he submits that even if the distribution agreements were construed to be contracts of sale, the movement of goods in question from Faridabad to Delhi cannot be said to have been occasioned by the distribution agreements. It is also urged that there was no appropriation of the goods at Faridabad to the contract with any particular distributor. As against that, Mr. Tarkunde on behalf of the respondent contends that the three distribution agreements did constitute contracts of sale and that it were the aforesaid agreements which occasioned the movement of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or incident of the contract of sale". In Ben Gorm Nilgiri Plantations Co., Coonoor v. Sales Tax Officer, Special Circle., Ernakulam(2), this court dealt with the provisions of section 5 of the Act which relates to sale or purchase of goods in the course of import or export. It was held that a sale in the course of export predicated connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction. The export, it was further observed, should be inextricably linked up with the sale so that the bond cannot be dissociated. The observations in the case of Tata Iron and Steel Co. [1960] 11 S.T.C. 655 (S.C.); [1961] 1 S.C.R. 379. as well as Ben Gorm Nilgiri Plantations Co. [1964] 15 S.T.C. 753 (S.C.); [1964] 7 S.C.R. 706., were relied upon by a Constitution Bench of this Court in the case of Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes [1970] 26 S.T.C. 354 (S.C.); [1970] 3 S.C.R. 862.), and it was held that the sales to be exigible to tax under the Act must be shown to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled for individual machine but periodically. 10.. The purchase orders are placed by the three distributors after the goods reach the head office at Delhi." It has further been found by the High Court that the appellant had asserted the following facts and the assertion of the appellant was neither rejected by the departmental authorities nor was it dealt with in the respective orders: " 1. That after the goods are manufactured in the factory an excise clearance pass is obtained after payment of excise duty for the transport of goods from the factory to the company's godown in Delhi. The excise pass is always for movement of goods in favour of self. 2.. That during the transport of the goods from Faridabad to Delhi, the octroi at the barrier is paid by the company. 3.. That at destination the goods are received by company's staff and taken in their godown. 4.. That in pursuance of the said orders Delhi staff give delivery of the goods at Delhi to the customer under a challan prepared at Delhi. 5.. That thereafter the bill is raised from Delhi and the price of the goods is received by the company at Delhi and deposited in company's account in its Delhi bank. 6.. That all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale were entered into by the distributor with the appellant. This circumstance should not make us lose sight of the fact that the distribution agreements and the subsequent contracts of sale were distinct transactions. We are not impressed by Mr. Tarkunde's argument that under the agreement dated April 26, 1965, Spencer & Co. was bound to purchase all the products of the appellant-company. Spencer & Co. undertook to buy -the products manufactured by the appellant-company subject to the stipulation contained in the words "as mutually agreed upon from time to time". Had it been the intention of the parties that Spencer & Co. was bound to purchase all products manufactured by the appellant-company irrespective of any future agreement between the parties, the words "as mutually agreed upon from time to time" in clause 1 of agreement dated April 26, 1965, would lose all significance. It would not have also in that event been possible for the appellant to enter into the other two distribution agreements of September 15, 1965, and December 11, 1965, regarding Leonard and Gem refrigerators which were manufactured by the appellant. The fact that the appellant was in a position to export it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract of sale with the distributors. The stand taken on behalf of the department that the appropriation of the refrigerators took place at Faridabad towards the contracts of sale with the distributors is inconsistent with the entire course of dealings between the parties. It may also be observed that in deciding the question whether the transactions between the parties constituted sales in the course of inter-State trade or commerce, the court should look not merely at the distribution agreements, regard should be had of the entire course of dealings between the parties. Assuming that the distribution agreements constituted contracts of sale, it would still have to be shown that the sale by the appellant to the distributors occasioned the movement of refrigerators from Faridabad to Delhi. In this respect we find that according to the facts found by the Tribunal, the appellant has a godown and sales office in Delhi. There is nothing to show that the appellant has also a godown in Faridabad. The movement of refrigerators from Faridabad to the appellant's godown in Delhi in the circumstances can well be ascribed to the fact that the appellant has a godown facility in Delhi. There we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oad, Delhi, so that no liability to pay tax under the Act would arise. It cannot, in the circumstances, be said that the transport of the refrigerators from Faridabad to Delhi was in pursuance of contracts of sale between the appellant and the distributors. Reference has been made by Mr. Tarkunde to the fact that the distributors were to bear the freight charges for the transportation of refrigerators from Faridabad to Delhi. In this respect we find that the distribution agreements show that reference was made to transportation charges for determining the amount or price to be paid by the distributors to the appellant-company. The price payable by the distributors was the aggregate of the ex factory price of refrigerators and the transportation charges. As the ex factory price of refrigerators was fixed from time to time and as the agreements with the distributors provided that the sale of the refrigerators as well as the delivery thereof to the distributors would take place in Delhi, there was nothing surprising in the clause of the distribution agreements that the transportation charges would be added to the ex factory prices of the refrigerators in calculating the amount payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have been referred to section 23 of the Sale of Goods Act. According to that section, where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. The said section, in our opinion, cannot be of much avail to the respondent. Apart from the fact that the distribution agreements cannot, in our opinion, be construed as contracts of sale, there is no material to show that there was any assent expressed or implied by the distributors to the appropriation of the refrigerators by the appellant at Faridabad. Reference has been made by Mr. Tarkunde to the following observations on pages 62-63 in Volume 34 of Halsbury's Laws of England, Third Edition: "An authority given by one party to the other to appropriate the goods is an implied assent by the party giving the authority to a subsequent appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the promulgation of the Commercial Vehicles (Distribution and Sales) Control Order, 1963, the appellant issued a circular dated June 14, 1963, to the dealers asking them to submit monthly statements regarding fresh applications registered, retail sales, applications cancelled and stock and sales. A new form of dealership agreement was also introduced under which the appellant agreed to sell from its works in Jamshedpur or its depots and stock-yards outside the State of Bihar to the dealer the vehicles which shall be allotted at its discretion. Clause 11 (b) of the agreement provided that "the dealer shall mail to the company on the 15th of each month his firm order for purchases to be effected during the next succeeding month and his estimated requirements .............................. for the two months following the next succeeding month . . . . . . . . . . . . . . . . " In fact however no firm order was called for by the company. Pursuant to authorisation issued by the sales office of the appellant in Bombay, vehicles were transferred from its works at Jamshedpur to the various stock-yards in the States. The stocks available in the stock-yards were then distributed from time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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