Appeal No 255 of 1961
Appeal from the judgment and order dated March 21 1960 of the Mysore High Court in Writ Petition No 147 of 1958
B J Kolah J B DadachanJi O C Mathur and Ravinder Narain for the appellants
779 C K Daphtary Solicitor General of India B R L Iyengar and P D Menon for respondents
August
KAPUR J This is an appeal against the judgment and order of the High Court of Mysore in Writ Petition No 147 of 1958 dismissing the appellant s petition under articles 226 and 227 of the Constitution for quashing the order of assessment for the period of assessment 1955 56 ie from April 1 1955 to March 31 1956
In this appeal because of the Validating Act VII of 1956 the appellants did not challenge their liability for the period April 1 1955 to September 6 1955
The facts necessary for the decision of this appeal are these  Appellant No 1 The Cement Marketing Co Ltd are the Sales Managers of the second appellant The Associated Cement Co Ltd appointed under an agreement dated April 21 1954
The High Court has described the first appellant to be the Distributors of the second apppellant
The second appellant is a manufacturer of cement and at the material time it had over a dozen factories in different parts of India none of which was in the State of Mysore
The head office of first appellant is at Bombay and it had then a branch office at Bangalore in the State of Mysore
The first appellant was registered as a dealer under the Mysore Sales Tax Act 1948 hereinafter called the Mysore Act
At all material times cement was and still is a controlled article
Whether the sale was to a Government Department ie to the Director General of Supplies  Disposal Government of India New Delhi or to a person authorised by the said Officer or to the  public it was effected on authorisations given to the buyers by appropriate Government authorities and 780 produced by them in the office of the first appellant
Both in regard to purchases by the public and the Government the Modus operandi was more or less identical
It was this Every one wishing to buy cement had to get an authorisation in a standard form which authorised the first appellant to sell cement in quantities mentioned therein and the cement had to be supplied from the factory therein mentioned
That document was in the following form which actually ralates to a sale to a Government contractor
Government of India Ministrary of Commerce  Industry
Office of the Regional Honorary Cement Adviser 412 Race Course Road Coimbatore
Central Quota
Dated 8 10 1955
Authorisation No RACT28CMI1 7 2 CQ
CENTELEC Period IV55 The Cement Marketing Name of Suppliers Co of India P Box No613 Sugar Company Bulding Bangalore 2
You are authorised to sell cement in quantity mentioned below under this authorisation
The sale will be a direct deal between yourself and 781 the purchaser
The Government undertakes no responsibility of any nature whatsoever Name and Name of the Quan Name of Rly
Re address of the person factory or cement is to in whose companybe booked
favour required to authorisation supply is issued
cement
1 2 3 4 5 Ms G section Mudhukkarai300 Bangalore Duggal  Co Shababadtons Ltd Engineers  Contractors Jalhalli PO Bangalore
No J1 17115 date 29 9 55 from the above indentors For manufacture of the tiles for the Bharat Electronics Ltd Supply recommended by the Commander Works EngineersBEIP Jalahalli
Full details of the purpose for which and the place at which cement will actually be consumed Priority Defence work
CC Ramanath Reg Hon
Cement Advisor Coimbatore Copy to 1
The indentor
The Dy
Development Officer Govt
of India Ministry of Commerce  Industry Development WingChemicals 1 Mineral Industries Shahjehan Road Now Delhi
The Controller of Civil Supplies in My sore Bangalore for information
782 This authorisation was subject to the following conditions It was to be utilised within 15 days the cement released could be used only for the purpose for which it was given the authorisation was not transferable the issuing authority could if necessary revoke the authorisation at any time and even the orders booked under the authorisation could be cancelled
The purchaser or the indentor had then to place an order with the first appellant as Sales Managers of the second appellant stating the requirement where the goods were to be sent and how they were to be sent
The seller entered into a contract with the first appellant
This contract is in a standard form and gives conditions of sale
Thereupon the first appellant instructed its Bombay office to despatch the cement in accordance with the instructions of the buyer and the authorisation
In this letter they had to mention the number of the authorisation and the person who had issued it and also to whom the goods were to be sent and how and certain other details which are not necessary for the purposes of this appeal were also to be given
Each instruction indicates that it was issued for and on behalf of appellant No 2 by appellant No 1 as its Sales Managers
A copy of the letter of instruction was sent to the factory from where the goods were to be despatched and the particulars of the authorisation had to be mentioned therein
Thereafter the first appellant sent an advice to 783 the purchaser enclosing therewith the Railway Receipt for the goods and this advice also mentioned the goods were being sent
Both the contract of sale and the advice above mentioned stated that the goods were being despatched at the buyer s risk from the time the delivery was made by the factory to the carriers and the railway receipt was obtained for the goods
In the present case all the goods were sent as indeed they had to be sent against the authorisations from the various factories belonging to the second appellant which at the relevant time were all situate outside the State of Mysore and were received in the State of Mysore by the various purchasers
The position of the first appellant is as was accepted by the Sales tax Officer in his order dated March 31 1958 that of Sales Managers of the second appellant but in regard to the nature of the transactions the Sales tax Officer found  Though the property in the goods pass to the dealers and consumers outside the State immediately the goods are handed over to the carriers outside the state and railway receipt is taken out since the goods have actually been delivered In Mysore State as a direct result of such sale for purposes of consumption in the State sale is deemed to have taken place in Mysore State
and again he said Thus the sales of cement manufactured by ACC Factories situated outside Mysore State effected by the dealers Ms Cement Marketing Company of India Ltd Bangalore to dealers and customers in Mysore State amounts to intrastate sales and therefore liable to Mysore Sales Tax Act 48
784 In its judgment the High Court took into consideration the fact that the first appellant had a branch office at Bangalore within the State of Mysore and that the public placed their orders with the first appellant for supplies of cement against permits granted to them that the first appellant who after accepting the offer for the supplies of cement collected the price from the intending purchasers and then directed one of the factories of the second appellant to supply cement to the purchasers and actual delivery to the purchaser was within the State of Mysore and therefore the contention that cement was loaded outside the State of Mysore and despatched to the purchaser did not not convert sales into inter State sales but were intra state sales
It appears that the true nature of the transaction was not correctly considered by the High Court The modus operandi above mentioned shows that before an intending purchaser could obtain cement he had to get what is called an authorisation from a Government authority which nominated the factory from which the intending purchaser had to get his supplies of cement
That authorisation with an order had to be given to the first appellant and after a contract in the standard form was entered into the first appellant sent the order to the factory named in the authorisation and that factory then supplied the requisite goods to the purchaser
The factory from where the cement was to be supplied was not in the hands or at the option of the first appellant but was entirely a matter for the Government authority to decide so that the cement which was supplied from a particular factory was supplied not at the choice of the first appellant but pursuant to the authorisation
It was contended that the sales which took place in the present case in which the movement of 785 goods was from one State to another as a result of a covenant or incident of the contract of sale fell within article 2862 of the Constitution and therefore the imposition of Sales tax on such sales was unconstitutional
The Article applicable at the relevant time ie before its amendment was as follows 286 1 No law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place
a outside the State or b in the course of the import of the goods into or export of the goods out of the territory of India
Explanation     
2 Except in so far as Parliament may by law otherwise provide no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State or commerce Provided       The Article had since been repealed and another substituted in its place by the Constitution Sixth Amendment Act but the sales in question were prior to the amendment
In the present case the contract itself involved the movement of goods from the factory to the purchaser i e across the broder from one State to another because the factories were outside the State of Mysore and therefore transactions were 786 clearly transactions of sale of goods in the course of inter State trade or commerce
Taking the nature of the transaction and preliminaries which are necessary for the sale or purchase of cement it cannot be said that the sale itself did not occasion the movement of goods from one State to another
The essential features of the contracts proved in the present case are analogous to those in Ms Mohan Lai Hargovind vs The State of Madhya Pradesh1 In that case the assessees were a firm carrying on business of making and selling birds in Madhya Pradesh
In the course of their business they imported finished tobacco from dealers in Bombay State rolled it into biris and exported the biris to various other States
Both the exporters of tobacco from Bombay State who supplied the assessees and the assessees were registered dealers under the C P  Berar Sales Tax Act 1947
It was held that the asessees imported the finished tobacco into Madhya Pradesh from persons who were carrying on in the State of Bombay business of processing tobacco and selling the goods and there was as a result of these transactions movement of goods from the State of Bombay to the State of Madhya Pradesh and therefore the transactions involved movement of goods across the State border and they were not liable to be taxed by virtue of article 286 2 of the Constitution
In The State of Pravancore Cochin  Others vs The Bombay Co Ltd 1 which was a case under article 286 1 b i e sale and purchase in the course of export trade Patanjali Sastri C J observed A sale by export thus involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the 1 2 1952 section C R III2
787 country by land or sea
Such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale and resultant export from parts of a single transactions
At p 1120 the learned Chief Justice again observed We accordingly hold that whatever else may or may not fall within article 286 1 sales and purchases which themselves occasion the export or the import of the goods as the case may be out of or into the territory of India come within the exemption and that is enough to dispose of these appeals
Thus a sale to fall within article 286 1 b has to be a sale which occasions the export
Again in the State of Travancore Cochin  Other8 vs Shammugha Vilas Cashew Nut Factory  Other8 1 the words in the course of were interpreted to mean a sale taking place not only during the activities directed to the end of exportation of the goods out of the contury but also as a part of or connected with such activities
At p 63 the learned Chief Justice explained the words integrated activities as follows The phrase integrated activities was used in the previous decision to denote that such a sale i e a sale which occasions the export cannot be dissociated from the export without which it cannot be affectuated and the sale and the resultant export form parts of a single transaction 
It is in that sense that the two activities the sale and the export were said to be integrated
In Endu puri Narasiham  Son vs The State of Orissa it was held in the case of sales covered 1  2  788 by article 286 1 b that only Bale or purchase of goods which occasions the export or import of the goods out of or into the territory of India were exempt from the imposition of tax on the sale or purchase of goods and in regard to prohibition against imposition of tax on inter State sales the test it was said was that in order that a sale or purchase might be inter State it is essential that there must be transport of goods from one State to another under the contract of sale or purchase
The following observatins from the Bengal Immunity Co Ltd vs The State of Bihar 1 were quoted with approval in support of the position A sale could be said to be in the course of 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
Unless both these conditions are satisfied there can be no sale in the course of inter State trade
Thus the tests which have been laid down to bring a sale within inter State sales are that the transaction must involve movement of goods across the border Mohanlal Hargovind s case 2  transactions are inter State in which as a direct result of such sales the goods are actually delivered for consumption in another State Ms Ram Narain It Ssns V Assistant Commissioner of Sales tax 3 a contract of sale must involve transport of goods from one State to another under the contract of sale Bengal Immunity Co  case 1
in the case of sales in the course of export or import the test laid down was a series of integrated activitiesm commencing from an agreement of sale and ending with the delivery of goods to a common 1  784 5 2 1965 2 SG R 509
3   504
789 carrier for export by land or by sea  The Bombay Co Ltd case 1
In the course of was explained to mean a sale taking place not only during the activities directed to the end of the exportation of the goods out of the country but also as part of or connected with such activities and integrated activities was explained in similar langauage
This Court again accepted these tests in Endupuri Narasim ham s case 2
In a 3 of the Act 74 of 1956 the legislature has accepted the principal governing inter State sales as laid down in mohan Hargovind s case 3
The principles for determining when a sale or purchase of goods takes place in the course of inter state sale or commerce outside the state are  S3 A sale or purchase of goods shall be deemed to take place in the course of inter State trade or commerce if the sale or pur chase a occasions the movement of goods from one 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
In Tata Iron  Steel Co Ltd Bombay vs SR Sarkar  Another 4 Shah J in explaining what sales are covered by el
a of s3 above said  Cl
a of a 3 covers sales other than those included in Cl
b in which the movement of goods from one state to another is the result of a convenant or incident of the contract of sale
and property in the goods passes in either State 
 As stated above under the contracts of sale in the present case there was transport of goods from 1 3 1955 2 SGR 509
2  4  391 790 outside the State of Mysore into the State of Mysore and the transactions themselves involved movement of goods across the border
Thus if the goods moved under the contract of sale it cannot be said that they were intrastate sales
It was not the volition of the first appellant to supply to the purchaser the goods from any of the factories of the second appellant
The factories were nominated by the Government by authorisations which formed the basis of the contract between the buyer and the seller
Applying these tests to the facts of the present case we are of the opinion that the sales were in the nature of inter State sales and were exempt from Sales tax
In these circumstances the contracts of sale in the present case have been erroneously considered to be intrastate sales
The decision in Rohtas Industrieg Ltd vs The State of Bihar 1 to which reference was made by the respondent does not apply to the facts of the present case because the agreement between the first appellant and the second appellant is different from that which existed between Rohtas Industries Ltd and the Cement Marketing Co of India in the case above cited
in an examination of the agreement between those two companies this court held that the rotation
ship which existed between the two was of seller and buyer and not of principal agent
In the present case the agreement is quite different
In the first clause of the agreement between the two appellants and the Patimia Cement Co dated April 21 1954 the first appellant was appointed the sole and exclusive Sales Manager of the second appellant and as such the first appellant was entitled to enter into contracts of sale receive payment of the same and do all seta and things necessary for the effective management in connection with the contracts of sale entered into on behalf of the principals
The sale price and the terms and conditions of sale were to be 1 1961 12 STC 615
791 determined by the principals
The Sales Manager was to keep its administrative and technical staff at such places in India as was determined by the principals
All the establishment charges and other expenses of the Sales Managers were for and on behalf of the principals and were to be defrayed by the principals in proportion to their annual sales
At the end of every mouth the Sales Managers were to submit to the principals accounts showing sales con tracts by it on behalf of each one of the principals
At the end of each financial year ending July 31 the Sales Managers had to make a proper account of all their operations during the year and after submitting them for confirmation to the principals had to pay the price of annual sales realizations to each of the principals to whom they happened to relate
Clause to provided that subject to instructions of the principals the Sales Managers were to make all necessary arrangements to secure speedy and economicial transport of cement
These terms are quite different from those in the case of Rohtas Industries Ltd and therefore that decision has no application to the facts of the present case
In the result the imposition of the Sales tax on the appellant for the year of assessment except for the period April 1 1955 to September 6 1955 was illegal and was not leviable for that period
The appeal is therefore allowed to that extent and the petition of the appellants succeeds but it will not effect the tax paid for the period abovementioned
In view of the partial success of appellants they will be entitled to half costs of the appeal
Appeal allowed in part
1 1961 12 STC 615


Summary:
The second appellant was a manufacturer of cement and at the material time it had over a dozen factories in different parts of India none of which was in the State of Mysore
The first appellant was its sales manager and had its head office in Bombay with a branch office at Bangalore in the State of Mysore  Cement was a controlled article and every one wishing to buy cement
had to get an authorisation from the appropriate Government authorities in a standard form which authorised the first appellant to sell cement in quantities mentioned therein and the cement had to be supplied from the factory therein mentioned
The purchaser had to place an order with the first appellant
stating the requirement where the goods were to be sent and how they were to be sent
In the present case all the goods were sent against the authorisations from the various factories belonging to the second appellant which were all outside the State of Mysore and were received in the State of Mysore by the various 778 purchasers
The Sales Tax Officer by his order dated March 31 1958 took the view that though the property in the goods passed to the dealers and consumers outside the State of Mysore since the goods had actually been delivered in the State of Mysore as a direct result of such sales for purposes of consumption in the State the sales must be deemed to have taken place in that State and therefore the sales effected by the first appellant as the sales manager of the second appellant to customers in Mysore State amounted to intrastate sales and liable to tax under provisions of the Mysore Sales Tax Act 1948
The High Court held that as the actual delivery to the purchasers was within the State of Mysore the cement loaded outside the State and despatched to the purchaser did not convert the sales into inter State sales but were intrastate Wes
Held that the sales which took place in the present case in which the movement of goods was from one State to another as a result of a convenant or incident of the contract of sale were in the course of inter State trade or commerce and fell within Art  2862 of the Constitution of India Consequently the imposition of sales tax on such sales was unconstitutional
MS Mohan Lai Hargobind vs The State of Madhya Pradesh   followed
Endapuri Narasimhan  son vs The State of Orissa   Bengal Immunity Co Ltd vs The State of Bihar Ms Ram Narain  Sons vs Assistant Commissioner of Sales Tax  and Tata Iron and Steel Co Ltd Bombay vs section R Sarkar 1961 1 SCR 379 relied on
Rohtas Industries Ltd vs The State of Bihar 1961 12 STC 615 distinguished