TMI Blog1959 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... nt by way of advance. In their turn, they entered into agreements with third parties for the sale of these bags at rates higher than those fixed with the mills. The appellants received the advance paid by them to the mills as also the difference in price. They then issued kutcha delivery orders or mill letters requesting the mills to deliver the goods against payment of the price stipulated under the mill contract to the kutcha delivery order holders. These letters are registered in the books of the mills, which sends a communication of this registry both to its buyer, the appellants, and to the mill letter holder. Thereafter, the mill deals with the latter in regard to the delivery. After the goods agreed to be sold are ready they are taken delivery of by the mill letter holder on payment of the price less the advance paid by the original buyers, i.e., the appellants. The appellants did not include these transactions in their turnover. The Commercial Tax Officer assessed the appellants to tax on this turnover also, treating it as a "sale". On appeal, the Deputy Commissioner of Commercial Taxes set aside that order accepting the contention of the appellants that the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their turn, transfer their rights in the goode to their vendees. In regard to this transaction, the appellants occupy two capacities, one as buyers and the other as sellers. When delivery is taken by third parties pursuant to the instructions contained in the mill letters, they do it only as the agent of their vendor and not in their own rights. Delivery to the ultimate buyer involves notionally two transactions. He receives it on behalf of his principal and next he appropriates it towards his contract. This mode of delivery eliminates the unnecessary process of the immediate buyer taking possession and giving actual delivery to his buyer. Delivery to the vendee of the first buyer is in implementation of the original contract with the mills. Simultaneously, it operates to implement the agreement of the immediate buyers, i.e., the appellants, with their buyers. In this context, we may recall with advantage the remarks of the trial judge extracted with approval by the Supreme Court in Duni Chand Rataria v. Bhuwalka Bros. Ltd.(1955) S.C.J. 168. "As seller it is liable to give and as buyer it is entitled to take delivery. As seller it receives and as buyer it gives shipping instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual delivery of possession thereof and was therefore void and unenforceable. On further appeal, the Supreme Court, concurring. with the trial judge, reversed the decision of the appellate court. The principle governing the contracts of this kind was stated by their Lordships in the following words: "The sellers handed over these documents to the buyers against cash Payment, and the buyers obtained these documents in token of delivery of possession of the goods. They in turn passed these documents from hand to hand until they rested with the ultimate buyer who took physical or manual delivery of possession of those goods. The constructive delivery of possession which was obtained by the intermediate parties was thus translated into a physical or manual delivery of possession in the ultimate analysis eliminating the unnecessary process of each of the intermediate parties taking and in his turn giving actual delivery of possession of the goods in the narrow sense of physical or manual delivery thereof." This proposition is also established by Bayyanna Bhimayya v. Government of Andhra [1957] 8 S.T.C. 167. There, a Bench of this Court said: "It is also clear from the said agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion towards the contract had taken place. When once the goods are separated and delivery is given to the buyer's buyer, eo instanti it implements both the contracts. We do not think that the learned judges intended to lay down anything different from Bayyanna Bhimayya v. Government af Andhra(2), and Duni Chand Rataria v. Bhuwalka Bros. Ltd. (1955) S.C.J. 168.In fact, the learned Judges noticed Bayyanna Bhimayya v. Government of Andhra(2), and distinguished it on the ground that, in the former, there was an agreement to sell the goods to a third party. Undoubtedly, in the instant case, there was an agreement between the appellants and third parties for the sale of goods as appears from the statement of facts, the memorandum of grounds of appeal and also from the admissions made before the Commissioner of Commercial Taxes. Therefore the last cited case does not really come to the rescue of the appellant. We will now proceed to consider whether the delivery of the mill letters to third parties could amount to a novation. At the outset, it should be remembered that these letters contained only instructions to the mills regarding the delivery of the goods. In other words, the holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bill sent to the mill letter holders, it is mentioned "against the contract of Messrs Addepally Sobhanadry, Tammanna Gangadharam and Sons, Rajahmundry", which denotes that the original contract subsisted and that there was no substitution by any new contract. We may here refer to the evidence of the head clerk of the Chittivalasa Mills, whom we summoned at the request of both sides, to clarify the position. He categorically stated that, in case of default, the mills would proceed only against the original contracting party. He also desposed that the guarantee of the brokers still continued. If really there was a novation, one fails to see how the liability of the original contracting party continued and how the guarantee of the brokers, which could only be with reference to the sale to the appellants, would not cease. The moment the appellants' contract with the mills is substituted the brokers' guarantee will come to an end. The continuance of the guarantee could only be on the basis of the contract of the appellants with the mills subsisting and the transaction between the appellants and their buyers constituting a distinct sale. This witness also described the position of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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