Appeal Nos
86 to 89 of 1965
Appeals by special leave from the judgment and order dated October 17 1963 of the Allahabad High Court in section T Ref
No 109 of 1956
A V Viswanatha Sastri and B N Kripal for the appellant
N D Karkhanis and O P Rana for the respondent K K Jain for intervener
The Judgment of the Court was delivered by Sikri J
These four appeals by special leave are directed against the judgment of the Allahabad High Court in a Sales Tax Reference made by the Judge Revisions Sales Tax Uttar Pradesh Lucknow on being directed to do so by the High Court under section 11 of the Uttar Pradesh Sales Tax Act 1948 hereinafter referred to as the Act
The question referred was as follows  Whether in law the revising authority was right in holding that the sales in dispute were not for delivery outside Uttar Pradesh and that the applicant Was not entitled to a rebate under sec
5 of the Act
 The question was referred in the following circumstances
The appellant hereinafter referred to as the assessee mills carries on the business of manufacturing and selling sugar and is registered as a dealer under the provisions of the Act
During the previous year relevant to the Assessment Year 1948 49 the assessee company had sold sugar to parties who carried on business outside Uttar Pradesh and also delivered the same outside Uttar Pradesh
It also sold sugar to parties who carried on business inside Uttar Pradesh but the sugar was despatched to stations outside Uttar Pradesh in compliance with the instructions issued by the buyers
The assessee mills submitted an applicationunder section 5 of the Act in form VII prescribed by the Uttar Pradesh Sales Tax Temporary Rules 1948 claiming 50 rebate on the sales of sugar delivered outside Uttar Pradesh
The Sales Tax Officer allowed rebate in respect of the sales of sugar to parties who carried on business outside Uttar Pradesh but rejected the claim for the sales which were made to parties carrying on business inside Uttar Pradesh
In respect of the assessment year 1948 49 there were four assessment orders covering each quarter of the year the 47 first quarter being April 1948 to July 1948
Section 5 of the Act reads as follows Sales of certain goods for delivery outside the State In respect of such manufactured goods as may be notified by the State Government and subject to such restrictions and conditions as may be prescribed a rebate of one half of the tax levied on sales of such goods for delivery outside the Uttar Pradesh shall be allowed if such goods are actually so delivered
 In exercise of the powers conferred by section 5 of the Act the Governor was pleased to order that rebate of one half of the tax levied on sales of certain goods including sugar manufactured in Uttar Pradesh for delivery outside Uttar Pradesh shall be allowed if such goods were actually so delivered
It appears that this notification was modified on March 30 1949 but we are not concerned with this modification
The Sales Tax Officer dealt with the question at issue in his order in respect of the quarter ending March 31 1949 in detail and he was of the view that if property passed from the seller to the purchaser in Uttar Pradesh section 5 and the notification issued under it could not apply
The assessee mills then filed four revision applications before the Judge Revisions Sales Tax
The Judge Revisions disposed of the four applications by two orders first dated February 1 1950 and the second dated December 5 1950
He held that the words sales of such goods for delivery outside UP clearly show that the intention of the framers of the act was to allow a rebate only in cases in which the goods are sold subject to the condition that they would be delivered outside UP
It is also clear that section 5 contemplates only one buyer who purchase the goods and also take their delivery outside UP
In other words the party who buys the goods and the party who takes the delivery must be one and the same
It is not disputed that the sales of sugar in respect of which the claim has been disallowed were in favour of one party and delivery was taken by another party outside UP
The party after buying the sugar under a contract of sale had the goods despatched outside UP by the Mills to another party outside UP He added later that on a true construction of section 5 rebate will be permissible only if delivery is taken outside UP by the same party which purchased the sugar from the mills Then 48 on the facts he held that the selling agents Tandon Bros who entered into a contract with the assessee mills for sale of the goods were really the buyers and although the goods were despatched outside Uttar Pradesh in accordance with the despatch instructions of some contract arrived at between Tandon Bros and the party to which the goods were ultimately delivered the assessee mill had not entered into the contract with the parties to which the goods were despatched outside Uttar Pradesh
He further repelled the argument that despatch instructions formed part of the contract
The assesses mills then filed four applications under section 1 of the Act but the Judge Revisions Sales Tax rejected the applications on the ground that no question of law arose
The High Court however directed the Judge Revisions to state a case under section 11 of the Act
A consolidated statement of the case was referred
The Judge Revisions drawing up the statement of the case was not the Judge Revisions who had disposed of the revision applications
In the statement of the case certain further facts were given and those are as under The applicants assessee mills were members of the Indian Sugar Syndicate Ltd and they were entitled to send sugar under the orders of the Syndicate through some selling agents of their own
Ms Tandon Bros were the selling agents of the Mills
It was through them that the sales had been made to buyers outside UP
The goods were despatched outside UP under the instructions received from the buyers through the selling agents
The delivery of the goods was made outside UP
It is on the basis of these facts that the applicants assessee mills claimed that the sales had been made for delivery outside UP The standard contract form prescribed by the Indian Sugar Syndicate has been annexed to the case and the following terms are relevant  AN AGREEMENT made this Sixteenth day of October 1948 between the AMRITSAR SUGAR MILLS CO LTD
ROHANA KALAN hereinafter called the Seller and Tandon Brothers New Mandi Muzaffarpur hereinafter called the Buyee for the sale of the following goods by the Seller to the Buyer upon the following terms and conditions 49 A B C D E F Factory Description Price per Md ofQuantity Periods Re short of quality 40 Srs
82 27 lb of marks Name FOR Factory delivery Station Ex Factory
Rohana Average colour Rs Thirty Six Bags 4000 Ready Mills
not lower than annas two  ISS No 127 pies three only
Average grain not Each of pack finer than ISS ing 230
No D or I 3623 2
Delivery is to be made FOR Rohana Kalan station all terms and conditions of the Railway torn to be binding on the Buyer
The goods shall be deemed to have been delivered a when tendered Ex Factory godown b when put on FOR at Factory Station or c when tendered for carriage by rail at the said station and in case of delay in accept torn by the Railway after such tender the said goods shall be deemed to be held by the Seller on account of the Buyer until they are put on rail
When the goods are received by Railway all the terms and conditions of the Railway shall be deemed to be accepted by the buyer
Tender to the Railway for carriage shall be deemed to have been made when a torn carriage or a Forwarding Note has been given to the Station Master of the Station
The seller shall not torn circumstances whatsoever be responsible for non despatch or refusal to despatch or delay in despatch or any torn mistake in despatch by the Railway
Where after tender as aforesaid any delay in despatch occurs the Buyer shall torn delivery of the goods without any claim against the Seller on account of such delay or the consequence thereof torn delay in despatch is due to non supply of wagons or due to booking restrictions the Seller shall if required by the torn obtain from the factory a letter stating the cause of the delay
Where owing to restriction of whatsoever nature imposed by Carriers on despatches Seller is unable to despatch according to the route requested by the Buyer then Seller shall have the right after giving to the Buyer 50 three days time to despatch by the cheapest available route at Seller s sole discretion to the destination required by the original despatch instructions
Within the period of three days above mentioned Buyer may change the destination provided the torn despatching instructions are capable of immediate execution
In the case of despatch by road river or other transport any combination thereof all the terms and conditions of the Carriers are be a binding on the Buyer and tender to Carrier shall be a good delivery within the meaning of the clause
The buyer is to give the Seller despatching instructions in accordance with the above schedule in the case torn ready sales within ten days from the date hereof when the quantity is less than 1500 bags and within fifteen days when quantity is 1500 bags or more and in the case of forward sales not less than fourteen days prior to the expiry of the torn for delivery of the goods as provided in the above Schedule
When goods are for delivery in instalments the times torn clause provided shall apply to the despatching instructions for each instalment
The sugar will be despatched at torn Risk unless the buyer shall give to the Seller instructions to the contrary in the Despatching Instructions
The despatching instructions to be given as aforesaid shall be such as the Seller will then be in a position to carry torn having regard to restrictions on booking availability of wagons transshipment difficulties and other matters
The despatch torn instructions once given shall not ordinarily be amended or altered and they can be altered or amended only with the consent of the seller and before the goods have left the factory the Seller is not in any way responsible for any delays that may arise through error or mistake in the despatching instructions sent by the buyer
If the Buyer fails to give despatching instructions within the time and in the manner aforesaid he will be deemed not to have given any despatching instructions at all
No complaint as regards description quality or condition of any consignment will be admitted unless the Buyer has complied with Clause 3 thereof and has paid to the Seller the full price and all overdue or other 51 charges and unless the complaint is made in writing to the Seller within three days from the arrival of such consignment at destination the date of such arrival being deemed to be the date of arrival entered in the Books of the Railway Co Steamer Co Carrier or Port Authorities
The completion of Risk Note form A as required by the Railway authorities at certain seasons of the year shall not be construed as adverse remarks as to the condition of the goods or its packing
If any complaint as to quality condition quantity or weight is referred to arbitration and an allowance is awarded in thereof the Buyer shall retain the goods and such allowance shall be deducted from the price and be refunded by the Seller
 The High Court in view of its finding that the delivery was contracted to be made ex factory the factory being within the State of Uttar Pradesh and the contract not containing any condition requiring the assessee to deliver the goods outside Uttar Pradesh held that rebate was not admissible under section 5
The High Court said that its detailed reasons were contained in its judgment in Lord Krishna Sugar Mills vs Commissioner Sales Tax IIP1 In that case Desai CJ held that the obligation to deliver goods outside Uttar Pradesh must arise only from a term in the contract and in the absence of such a term it could not be said that the goods were to be delivered outside Uttar Pradesh
The learned Chief Justice further observed as follows A term in a contract that despatch instructions would be furnished later necessarily means that the seller undertakes to comply with them
If under a contract itself something is to be settled later what is settled later becomes as much binding under the contract itself as the terms already settled under the contract
Still I do not think that the sales in those cases in which the contracts provided for despatch instructions to be given later became sales for delivery outside Uttar Pradesh merely because the despatch instructions were that they should be despatched outside Uttar Pradesh
All that can be said is that the sales were for delivery in accordance with despatch instructions and a sale for delivery in accordance with despatch instructions is not necessarily a sale for delivery outside Uttar Pradesh 1 Sales Tax Reference No 263 of 1954 judgment delivered on March 19 1963 52 He seemed to be of the view that in order to come within the expression delivery outside Uttar Pradesh  it must be one of the terms settled at the time of the formation of the contract itself that the goods will be delivered outside Uttar Pradesh and if this is not so settled and all that is settled is that they will be delivered in accordance with despatch instructions the sale would neither be a sale for delivery outside Uttar Pradesh nor a sale for delivery inside Uttar Pradesh
He was clearly of the view that despatch instructions were not a part of the contract when it was formed and did not get incorporated into it or become a part of it when given
Pathak J in a concurring judgment was of the view that it must be in the contemplation of the parties at the time of entering into the contract that the goods which were the subject of sale must be delivered outside Uttar Pradesh
He observed that there is a distinction between settling and determining the terms of a contract and complying with the terms of that contract
The former relates to the formation of the contract the latter to its execution
 The first question which arises in these appeals is whether the word delivery in the expression sales of such goods for delivery outside Uttar Pradesh occurring in section 5 of the Act means actual delivery or constructive delivery
If it means constructive delivery then there is no doubt that on the facts as stated by the Judge Revisions the contract provided for constructive delivery inside Uttar Pradesh and the assessee mills would not be entitled to rebate under section 5
The Madras High Court had occasion to consider a similar question in India Coffee and Tea Distributing Co Ltd vs The State of Madras1 It held that the word delivery in section 5 of the Madras General Sales Tax Act 1939 which exempts from taxation sales of tea if the sale is for delivery outside the State and delivery actually was made did not include anything which the law deemed delivery but was restricted to physical delivery of the thing sold
In coming to this conclusion Subrahmanyam J observed  In deciding whether the word delivery in section 5 v includes delivery in law we have to have regard to the objects of the Legislature in enacting section 5 v
The object obviously was the promotion of the export of tea
The Legislature intended that where tea was 1 10 STC 359
53 exported from the State for being delivered outside the State the sale which resulted in such export should be exempt from taxation Mat object would not be wholly achieved if we hold that delivery of documents of title in the State of Madras would make the sale liable to taxation
 We agree with the view expressed by the Madras High Court
It seems to us that the object underlying section 5 is to encourage export of goods manufactured in Uttar Pradesh and notified under section 5
The course of trade adopted by the Indian Sugar Syndicate Ltd and the assessee mills shows that if the word delivery is interpreted to mean constructive delivery  very few export sales  if we may use the expression would enjoy rebate under section 5
As long as the contract evinces an intention to export and actual delivery is given to effectuate that intention the object of the Legislature to ensure that only real export sales  enjoy the rebate would be fulfilled
It seems to us that in the context of section 5 the word delivery  occurring in section 5 means actual delivery 
The next question that arises is whether the sales by the assessee mills were for actual delivery outside Uttar Pradesh
The answer to this problem depends on the answer to the question whether despatch instructions contemplated by clause 2 and clause 3 of the contract were part of the contract entered into by the assessee mills
It seems to us that they were
The contract by the assessee mills was to actually deliver at a place to be communicated
This view is reinforced by what is contained in clause 11 of the contract
This clause contemplated a destination in spite of constructive delivery having been contracted to be made at Rohana Kalan Station
Further the contract was not to actually deliver at some place to be chosen or assented to by the assessee mills but at any place without restrictions
The contract required nothing more for completion than a mention of the place
When the despatch instructions were given it was not a case of performing the contract but specifying a term of the contract
If the place of actual delivery had been specified and it was a question merely of communicating the route by which the goods were to be delivered this would perhaps related the mode of performance of the contract
But communication of the place where actual delivery is to be given does not relate to the mode of performance but formation of the contract
It seems to us with respect that the High Court reared in relating despatch instructions to the mode of performance of the contract
54 In the result we hold that the assessee mills is entitled to rebate under section 5
We set aside the judgment of the High Court and answer the question as follows  The revising authority was not right in holding that the sales in dispute were not for delivery outside Uttar Pradesh
Further the applicant was entitled to rebate under section 5 of the Act
 The appellant will have his costs incurred in the High Court and here
One hearing fee
Appeal allowed


Summary:
The assessee sugar mill sold sugar to parties who carried on business inside the State of Uttar Pradesh but the sugar was despatched to stations outside the State of Uttar Pradesh and delivered to another party in compliance with the instructions issued by the buyers
Under the contract entered between the assessee and the buyer the assessee was to deliver the sugar at places to be communicated by the buyer
The assessee mill claimed rebate on these sales under section 5 of the Uttar Pradesh Sales Tax Act 1948
The Sales Tax authorities rejected the claim Me High Court held that the rebate was not admissible under section 5 because the contract did not contain any condition requiring the assessee to deliver goods outside Uttar Pradesh and because the despatch instructionswere not a part of the contract when it was formed and did not get incorporated into it or become a part of it when given
In appeal to this Court
HELD  i In
the context of section 5 of the Act the word delivery  occurring therein means actual delivery 
The object underlying section 5 is to encourage export of goods manufactured in Uttar Pradesh and notified under section 5
The course of trade adopted by the buyers and the assessee shows that if the word delivery  is interpreted to mean constructive delivery  very few export sales  would enjoy rebate under section 5
As long as the contract evinces an intention to export and actual delivery is given to effectuate that intention the object of the legislature to ensure that only real export sales  enjoy the rebate would be fulfilled
53 B D Lord Krishna Sugar Mills vs Commissioner of Sales Tax UP ST reference No 26354 dated March 19 1963 disapproved
India Coffee and Tea distributing Co Ltd vs The State of Madras 10 STC 359 approved
iiThe sales by the assessee were for actual delivery outside Uttar Pradesh
The despatch instructions contemplated by the contract entered into by the assessee were part of the contract
The contract contemplated a destination in spite of constructive delivery having been contracted to be made at the station where the assessee mill was situated
Further the contract was not to actually deliver at some place to be chosen or assented to by the assessee mill but at any place without restrictions
The contract required nothing more for completion than a mention of the place
when the despatch instructions were given it was not a case of performing the contract but specifying a term of contract
53 EG 4 6