TMI Blog1973 (8) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... not, in our opinion, constitute sale in the course of inter-State trade or commerce. As such, there was no liability to pay tax under the Act. The appellant shall be entitled to the costs from the respondent of this court as well as in the High Court. - C.A. No. 2005 of 1972, - - - Dated:- 23-8-1973 - KHANNA H.R. AND ALAGIRISWAMI A. JJ. N.A. Palkhiwala and H.L. Sibal, Senior Advocates (J.B. Dadachanji, Mrs. Anjali K. Verma, Kapil Sibal and S.C. Agnihotri, Advocates, with them), for the appellant. V.M. Tarkunde, Senior Advocate (Narendra Goswami and M.N. Shroff, Advocates, for R.N. Sachthey, Advocate, with him), for the respondent. S.T. Desai, Senior Advocate (I.N. Shroff, Advocate, with him), for the intervener. -------------------------------------------------- The judgment of the court was delivered by KHANNA, J.- This appeal by special leave by M/s. Kelvinator of India Ltd. is directed against the judgment of the Punjab and Haryana High Court whereby that court answered the following question referred to it by the Sales Tax Tribunal, Haryana, in favour of the department and against the appellant: "Whether, on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot concerned or to which reference would be made hereinafter. The relevant clauses of the agreement dated April 26, 1965, are as under: "Whereas in terms of the manufacturing and sales agreement entered into by the company (the appellant-company) with Kelvinator International Corporation, Detroit (Michigan, U.S.A.), the company is granted exclusive right and licence to manufacture, assemble and sell the products designed and/or manufactured by the company under trade mark 'Kelvinator' or any other trade mark in India (hereinafter called the territory) and whereas the company in its factory at Faridabad (Punjab) has commenced the manufacture of Kelvinator refrigerators, parts and spare parts, etc., and whereas the distributors (Spencer Co. Ltd.) have agreed to be and to act as distributors of the company, now it is hereby mutually agreed and declared between the parties hereto as follows: 1.. The company hereby undertakes to sell and the distributors hereby undertake to buy all products manufactured by the company as mutually agreed upon from time to time. The distributors shall have the right to sell the company's Kelvinator and such other trade mark products, spare parts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods from the company's works at Faridabad to the company's godowns in Delhi. 7.. All the goods shall remain the property of the company till they reach Delhi and are delivered to the distributors in Delhi, where alone the property therein shall pass to the distributors. The sale shall always take place in Delhi. 8.. All goods leaving the company's factory will pass through rigorous inspection procedure laid down by the company, and will be packed in crates and will be delivered to the distributors packed as such. The company in no case shall be responsible for any shortage or damage that may occur in further transit, once the goods have been delivered and inspected by the distributors in Delhi." Clauses 6, 7 and 8 of the agreement dated December 11, 1965, in respect of Gem refrigerators were substantially similar to clauses 6, 7 and 8 of the agreement dated September 15, 1965. Clause 3 of the agreement dated December 11, 1965, was as under: "3. In order to facilitate the company's arrangement of its production schedule, Gem undertakes to buy from the company a minimum quantity of 2,000 refrigerators of both 10.1 cu. ft. and 6.2 cu. ft. capacity in the first year at a rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the customer for the supply of goods. 7.. 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. 8.. That thereafter the bill is raised from Delhi and price of the goods is received by the company at Delhi and deposited in the company's account in its Delhi bank." The other three affidavits were those of V. A. Rao of Spencer Co., Rajinder Nath Seth of Blue Star Engineering Co. Ltd. and Mrs. Usha Batra of General Equipment Merchants Ltd. In the affidavit of V. A. Rao it was stated: "2. That we select the pieces of refrigerators lying in the godowns of Kelvinator of India Ltd., Delhi, and, if on inspection, we find that pieces of refrigerators suiting to our requirements, we place specific orders on Kelvinator of India Ltd., Delhi, to supply us the goods." The affidavits of Rajinder Nath Seth and Mrs. Usha Batra contained similar paragraphs. The appellant-company took a policy of insurance to cover lorry risk as per motor lorry risk clauses, including theft, pilferage and non-delivery, denting, scratching and breakage or any other damage due to any external means, including certain ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Tribunal. The Tribunal as per order dated August 14, 1969, took the view that the agreements with the distributors were agreements of sale and that the sales in question were inter-State sales. The appellant thereafter filed review application, but the same was dismissed by the Tribunal on November 24, 1969. Application was thereafter filed before the Tribunal praying, inter alia, that the following questions of law be referred to the High Court: "1. Whether on the facts and circumstances of the case the sales were local sales of Delhi or were in the course of inter-State trade and commerce giving rise to the commencement of movements in the State of Haryana. 2.. Whether on the facts and circumstances of the case the distributorship agreements could validly be construed to be contracts of sale even when they lack all the essential ingredients for the formation of the same. 3.. Whether on the facts and circumstances of the case the movement of the goods from Faridabad to company's godowns at Delhi at its own risk and cost could be termed to be commercial movements warranting the imposition of the tax under the Central Sales Tax Act or inter-departmental movement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. We are concerned in the present case with clause (a) and not with clause (b). A sale of goods can be held to have taken place in the course of inter-State trade under clause (a) of section 3 of the Act if it can be shown that the sale has occasioned the movement of goods from one State to another. A sale in the course of inter-State trade has three essentials: (i) there must be a sale, (ii) the goods must actually be moved from one State to another, and (iii) the sale and movement of the goods must be part of the same transaction. The word "occasions" is used as a verb and means to cause or to be the immediate cause of. In the case of Tata Iron and Steel Co. Ltd. v. S.R. Sarkar(1), Shah, J. (as he then was) speaking for the majority observed that a transaction of sale is subject to tax under the Act on the completion of the sale. A mere contract of sale is not a sale within the definition of "sale" in section 2(g). A sale being, by the definition, transfer of property becomes taxable under section 3(a), "if the movement of goods from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preceding the movement of goods, the movement can obviously be not ascribed to a contract of sale nor can it be said that the sale has occasioned the movement of goods from one State to the other. In the light of the principles enunciated above, it cannot, in our opinion, be said that the transactions in question amount to sale in the course of inter-State trade. The High Court in the course of its judgment has noted that the following facts were accepted by the departmental authorities: "1. The dealer manufactured and sold refrigerators. 2.. These refrigerators we're sold with the trade marks of 'Kelvinator', 'Leonard' and 'Gem'. 3.. The sale of each brand was made through a separate distributor appointed for this purpose. 4.. The manner of movement is laid down in clause 6 of Spencer's agreement and clause 8 of Blue Star and General Equipment Merchants agreements. 5.. The dealer is bound to sell a 'Kelvinator' to Spencers, a 'Leonard' to Blue Star and a 'Gem' to General Equipment Merchants. 6.. The refrigerators were exported outside India. 7.. The price of the refrigerators is fixed as mutually agreed upon from time to time. 8.. The property in goods passes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and December 11, 1965, no doubt, mentioned the minimum number of Leonard and Gem refrigerators which had been agreed to be purchased by the distributors; the exact number of refrigerators to be sold by the appellant to these two distributors was still left to volition of the appellant. The appellant- company, it was also mentioned, would incur no liability if it was unable to supply the guaranteed minimum number of refrigerators. The mode of dealings between the parties was that subsequent to the distribution agreements, orders were placed by the distributors with the appellant after the refrigerators had reached the appellant's sales office and godown in Delhi. The price of the refrigerators was also to be mutually agreed upon from time to time. It is plain that it is the orders which were placed in Delhi by the distributors and the acceptance thereof by the appellant that resulted in mutual agreement of sale. It was, in our opinion, the mutual agreement between the parties at the time of the placing of the order by the distributor with the appellant which constituted the contract of sale and not the distribution agreement. The distribution agreement with each distributor provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of refrigerators were in all respects identical except in respect of the name plate. The said name plates, it has been demonstrated to us, are easily interchangeable. In the circumstances, the alleged affixation of trade mark plates to the refrigerators at Faridabad would not necessarily show that the appropriation of the refrigerators towards the agreement with a particular distributor took place at Faridabad. A very significant circumstance which should not be lost sight of in this context is that the orders in respect of the various refrigerators were placed by the distributors in Delhi after the refrigerators had been transported to the Delhi sales office and godown of the appellant. If the sale of the refrigerators in favour of the distributor had already taken place at Faridabad and the refrigerators had been appropriated there towards the sale contract, there would have arisen no occasion for the placing of the subsequent order in Delhi by a distributor with regard to the said refrigerators. The fact that subsequent orders had to be placed by the distributors in Delhi with regard to the different refrigerators after their arrival in Delhi shows that there was no earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utors. The liability to pay tax under the Act would, however, arise if the sale of the refrigerators to distributors were to take place at Faridabad and the movement of refrigerators from Faridabad to Delhi were to take place under the contract of sale. The question with which we are concerned is whether the appellant entered into such an arrangement with the distributors that the liability to pay tax would be attracted and not the other arrangement under which no such liability could be fastened on the appellant. So far as this question is concerned, we find that the parties expressly stated in each of the three distribution agreements that it would be in Delhi that the sale of refrigerators would take place to the distributors and the property therein would pass to them. It was again in Delhi that the refrigerators were delivered to the distributors. The orders for the refrigerators were placed by the distributors in Delhi and it was also here that the price of refrigerators was paid. Looking to all the facts of the case, we have no doubt that the arrangement between the parties was that refrigerators would be sold by the appellant to the distributors after they had been transpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only after the goods had been delivered and inspected by the distributors at Delhi. The appellant no doubt stipulated in its agreement with Spencer Co. that it (the appellant) would accept no responsibility for shortage or damage occurring in transit after the goods had passed through rigorous inspection at the time they left the appellant's factory. This must, however, be regarded in the nature of things to be a matter of mutual agreement between the parties. Spencer Co. might well have agreed to bear that loss on the assumption that the advantage of becoming the distributor for sale of Kelvinator refrigerators would far outweigh the loss borne by the said company in this respect. Indeed, the possibility of any loss being borne by Spencer Co. because of any shortage or damage occurring in transit of refrigerators from Faridabad to Delhi was only theoretical, as according to the order of reference the expenses of transit insurance were borne by the appellant-company. It would thus be the insurer who would have to bear the loss caused by shortage or damage occurring during transit. It may also be mentioned in this context that the octroi charges in connection with the movement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of contract is to do with reference to the goods some act or thing which cannot be done until the goods are appropriated. In respect of this paragraph also, as already indicated above, we find that there is no material to show that the appellant was under the terms of contract authorised to do some act or thing with reference to the refrigerators which could not be done until the refrigerators were appropriated. Apart from that we find that the observation that "until that time any act or thing done with reference to the goods towards appropriation by the party authorised is revocable" would show that there was no legal bar to the changing of name plates by the appellant-company till such time as orders with regard to the refrigerators were placed by the distributors after inspection of those refrigerators. A case which has considerable bearing on the facts of the present case is that 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. In that case the appellant company, which manufactured trucks and buses in Jamshedpur in the State of Bihar, transferred the vehicles to stock-yards operated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed: "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 and the chassis number and it was open to the appellant till then to allot any vehicle to any purchaser and to transfer the vehicles from one stock-yard to another. Even the Assistant Commissioner found that on some occasion vehicles had 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." The facts of the present case have a certain a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
