ivil Appeal Nos
1192 94 of 1971
From the judgment and order dated the 20th October 1976 of the High Court of Madras in Tax Cases Nos
205 to 207 of 1971
ST Desai AK Verma and JB Dadachanji for the Appellant
AK Sen and AV Rangam for the Respondent
The Judgment of the Court was delivered by VENKATARAMIAH J
The appellant in these three appeals by special leave is a company engaged in the business of manufacture and sale of art silk yarn
It has its factory at Sirumughai in the District of Coimbatore in the State of Tamil Nadu
The appellant is registered as a dealer carrying on business at Coimbatore
In the course of its business it sold during the relevant period large quanti 46 ties of art silk yarn to various purchasers some of whom were weavers residing in the States of Maharashtra and Gujarat who had been issued cards under a scheme called Export Promotion Scheme  entitling them to buy specified quantities of art silk yarn from specified manufacturers
The question involved in these appeals relates to the exigibility of the sales effected in favour of Export Promotion Scheme card holders belonging to the States of Maharashtra and Gujarat to tax under the hereinafter referred to as the Act 
The assessment years are 1962 63 1963 64 and 1964 65
The details of the Export Promotion Scheme for distribution of art silk yarn referred to above were these There were certain weavers in India who were entitled to an incentive in the form of import licences to import art silk yarn from abroad
The said import entitlement was cut to a certain extent and indigenous art silk yarn at concessional price was allotted to them
To regulate the scheme of allotment a committee called the Art Silk Yarn Distribution Committee  was constituted by the Government of India
The Committee made allotments to different weavers by issuing allotment cards
These allotment cards contained details of the quantity of allotment and the rayon yarn manufacturer from whom the allotted quantity of yarn could be drawn
As per the terms of the card the yarn manufacturer should offer to the allottee rayon yarn within seven days of the date of the card without waiting for the allottee to approach him
A firm contract for the supply of yarn should be completed within a period of twenty one days from the date of allocation of the card
If a firm commitment was not entered into by the allottee with the yarn manufacturer within twenty one days from the date of allocation of the card the yarn manufacturer should return the allocation card to the Distribution Committee with suitable remarks on the card and a covering letter explaining the reasons for the return of the card
Even in the case of actual fulfilment of the quota covered by the allocation card the said card should be returned to the Distribution Committee after the delivery of the yarn was completed
This in brief was the Scheme
In the instant case the appellant had supplied art silk yarn to certain card holders who were residing as stated earlier outside the State of Tamil Nadu
It is stated that the appellant had a selling agent and distributor by the name Ms Rayonyarns Import Company Ltd at Bombay and the case of the appellant was that it had 47 supplied art silk yarn to the card holders in the States of Maharashtra and Gujarat through the said agent and the delivery of the goods was effected at Bombay
In the assessment proceedings before the Joint Commercial Tax Officer Coimbatore for the year 1964 65 the appellant claimed that the sales of art silk yarn through its agent at Bombay were not inter State sales as defined by section 3a of the Act as the movement of the goods in question from the State of Tamil Nadu to the State of Maharashtra or the State of Gujarat was not occasioned by the sales in question and that they were in fact sales which had taken place outside the State of Tamil Nadu
The Joint Commercial Tax Officer rejected the contention of the appellant and treated the sales effected in favour of the Export Promotion Scheme card holders through the appellant s agent at Bombay as inter State sales and levied tax under the Act accordingly
He also revised the orders of assessment for the years 1962 63 and 1963 64 bringing to tax the turnover relating to transactions of similar nature during those years
In the appeals filed by the appellant against the order of assessment for the year 1964 65 and of revised assessment for the years 1962 63 and 1963 64 before the Appellate Assistant Commissioner Commercial Taxes Coimbatore the orders passed by the Joint Commercial Tax Officer were affirmed
The appellant then filed three appeals before the Tamil Nadu Sales Tax Appellate Tribunal Additional Bench Coimbatore against the orders passed in appeal by the Appellate Assistant Commissioner
The Tribunal also held that the sales in favour of the Export Promotion Scheme card holders outside the State of Tamil Nadu were inter State sales and were liable to be taxed under the Act
Aggrieved by the orders of the Tribunal the appellant preferred three revision petitions before the High Court of Madras
These petitions were dismissed
Thereafter the appellant has come up in appeal to this Court by special leave
Section 3a of the Act provides that 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 purchase occasions the movement of goods from one State to the other
In order to substantiate its case the appellant has placed before us the documents relating to one transaction stating that the decision on the true nature of the said transaction would govern all other transactions of sale in dispute as they were all of a similar kind
Those documents relate to the supply of art silk yarn to a firm known as Ms Ramesh Silk Fabrics at Surat in the State of Gujarat made in June 1964
The purchaser was issued an allocation card on November 7 1963 bearing No 48 3124
Under the card Ms Ramesh Silk Fabrics was entitled to purchase 273 Kgs
of indigenous art silk yarn from the appellant
The following were the relevant terms of the card 1
The rayon manufacturers andor our approved dealers shall ensure that the quantity sold is not more than the quantity allocated as indicated in column No 4b on the reverse of the card
The rayon manufacturer shall offer yarn to the allottee within seven days from the date of allocation card without waiting for the allottee to approach him
Contract for the supply of yarn shall be concluded within 21 days from the date of the allocation card
Particulars of the quantity of yarn sold by the rayon yarn manufacturer his approved dealer with the date of or sale shall be entered and signed by the seller in column 5 on the card
No supply shall be made on allotment card on which corrections have not been attested by the Secretary or the Manager
If firm commitment is not entered into by the allottee with the yarn manufacturer the yarn manufacturer shall return the allocation card to the Distribution Committee with suitable remarks on the card and a covering letter explaining the reasons for returning the card
Allocation cards shall be returned to the Distribution Committee after the delivery of yarn has been completed
 At the back of his allocation card in column 4a the appellant is shown as the manufacturer and in column 4b the quantity allotted is shown as 273 Kgs
Column 5 of the allocation card shows that quantity of 268 Kgs had been supplied as per Invoice No BC132
Then we have the Invoice No BC132 prepared in the name of the appellant by its agent Rayon yarn Import Co Pvt Ltd and signed by the agent for and on behalf of the appellant
The cases containing goods sold had been marked as 5829 8479 and 8505
The Invoice contains a note which reads as follows 49 We have charged you 2 Central Sales Tax for which purpose you are required to send us immediately your regular C  form correct in all respects as required by the law in force for the time being in the absence of which you are required to remit us balance sum of Rs  being the difference between the rate charged and the revised rate at 10 applicable in such case
 But actually 2 tax was added and it was shown in the invoice as local sales tax of Maharashtra at 2 of the price
A delivery order dated June 3 1964 prepared by the agent at Bombay on behalf of the appellant also refers to the numbers of the cases containing goods as 5829 8479 and 8505
What is of significance is a letter dated May 23 1964 written by the agent at Bombay to the appellant
By that letter the agent requested the appellant to send from the factory 69 cases of yarn bearing specific numbers including case No 5829 8479 and 8505
The said letter further stated that the invoices of sale would be sent after the goods were sold by the agent
What is attempted to be made out by the appellant is that the appellant was informing its agent at Bombay from time to time as and when goods were manufactured the number of the cases in which the goods had been packed and at the request of its agent it had despatched the goods to Bombay but not as a result of any sale of the said goods in favour of a purchaser
According to the appellant the sale had taken place at Bombay and the movement of goods to Bombay from the State of Tamil Nadu was not connected with the sale in question
In order to constitute an inter State sale as defined in section 3a of the Act two factors should co exist i a sale of goods and ii movement of goods from one State to another under the contract of sale
If there is a conceivable link between a contract of sale and the movement of goods from one State to the other in order to discharge the obligation under the contract of sale the inter position of an agent of the seller who may temporarily intercept the movement ought not to alter the inter State character of the sale
The facts which are glaring in this case are 1 the allotment of a certain quantity of art silk yarn produced by the appellant in favour of the allocation card holder 2 the requirement that the appellant should offer to sell the quantity of goods allotted to the card holder within seven days 50 3 the requirement that contract of sale should be completed within twenty one days of the date of the allocation card 4 the requirement that the card should be returned to the Committee if no contract of sale was concluded as stated above and 5 the fact that the goods have been supplied expressly against the quota allotted under the allocation card
Admittedly the allocation card bearing No 3124 was issued on November 7 1963 and it required the appellant to offer to sell the quantity of art silk yarn mentioned in it to the purchaser within seven days without even waiting for the purchaser approaching the appellant with a request to supply the goods in question
The card contemplated a contract of sale to be completed within twenty one days of the date of its issue
The invoice in question contained the number of the allocation card
In the letter dated May 23 1964 the agent requested the appellant to send the cases bearing Nos
5829 8479 and 8505 by lorry from Sirumughai and the said boxes were later on admittedly delivered to the purchaser on June 3 1964
These facts cumulatively suggest that the goods in question had been transported from the factory site of the appellant to Bombay for delivery to the purchaser as a result of the contract of sale established in accordance with the terms of the allocation card
It is however argued on behalf of the appellant relying upon the decision of this Court in Tata Engineering and Locomotive Co Ltd vs Commissioner of Commercial Taxes Jamshedpur and Anr
that the sale effected by the appellant s agent at Bombay could not be treated as the immediate case of movement of goods from the State of Tamil Nadu to the State of Maharashtra or the State of Gujarat as the case be may
The facts in the aforesaid case are distinguishable from the facts in the present case since it was held in that case that the procedure followed by the manufacturer the appellant in that case together with the absence of any firm orders placed by the purchasers indicated that there were no transactions of sale within the meaning of section 2g of the Act and assuming that any firm orders had been received by the appellant therein they could not be regarded as anything but mere offers
This Court further held in that case that the appropriation of goods was done 51 at the appellant s stockyard situated in the State where the vehicles were delivered to purchasers and it was open to the appellant till then to allot any vehicle to any purchaser or to transfer a vehicle from one stockyard to another
One strong circumstance which existed in that case was the absence of the firm orders which occasioned the movement of goods from the State of Bihar to other States as can be seen from the following passage in that decision As regards the so called firm orders it has already been pointed out that none have been shown to have existed in respect of the relevant periods of assessment
Even on the assumption that any such orders had been received by the appellant they could not be regarded as anything but mere offers in view of the specific terms in Exhibit 1 the dealership agreement according to which it was open to the appellant to supply or not to supply the dealer with any vehicle in response to such order
 In the instant case there is clear evidence of the existence of a prior contract of sale as per terms of the allocation card
The fact that actual sale pursuant to the said contract of sale had taken place subsequently does not militate against the transaction being treated an inter State sale under Section 3 a of the Act since the movement of the goods delivered to the buyer was occasioned by the contract of sale brought into existence under the terms of the allocation card
It was however faintly suggested that the evidence of what took place between the appellant and the allottee within twenty one days of the issue of the allocation card was lacking in this case
Evidence about these facts was within the knowledge of the appellant and the appellant had not placed it before the assessing authority
It is likely that if such evidence had been produced it would have gone against the appellant
Even apart from that the finding recorded by the assessing authority the appellate authority the Tribunal and the High Court on the basis of the terms of the allocation card and other material on record that there was a contract of sale within the stipulated time between the appellant and the allottee of art silk yarn is unassailable
In the circumstances no assistance can be derived by the appellant from the case of Tata Engineering and Locomotive Co Ltd supra
The decision of this Court in Kelvinator of India Ltd vs The 52 State of Haryana relied on by the appellant has also no bearing on this case
The assessee in that case had its factory where it manufactured refrigerators at Faridabad in the State of Haryana and it moved the goods manufactured by it to its godown at Delhi
The excise pass utilised for such movement was always in favour of self
During the transport of goods the assessee paid octroi payable for bringing goods into Delhi
At Delhi the assessee sold the goods to its distributors
The Court on a consideration of the material before it held that even though there were prior distribution agreements entered into between the assessee and its distributors the goods in question had not been moved pursuant to the said agreements from Faridabad to Delhi and hence there was no inter state sale
The facts of this case are however close to the facts in English Electric Company of India Ltd vs The Deputy Commercial Tax officer  Ors
Here also the assessee had its factory in the State of Tamil Nadu
Its registered office was at Calcutta but it had branch offices at Madras Bombay and other places
A Bombay buyer wrote to the Bombay branch of the appellant in that case asking for lowest quotation in respect of the goods which were being manufactured in the factory in Tamil Nadu
After some correspondence between the Bombay branch and the Madras branch the Bombay branch wrote to the Bombay buyer giving all the required particulars
The Bombay buyer thereafter placed an order with the Bombay branch for certain goods
The Bombay branch informed the Madras branch about the order placed by the Bombay buyer
On receipt of the invoice from the Madras branch the Bombay branch wrote to the Bombay buyer that some of the goods indented by him were ready for despatch and asked for despatch instructions
On receipt of such instructions the Bombay branch asked the Madras Branch to send goods to Bombay
The railway receipts were sent through the Bombay branch
The goods were delivered to the Bombay buyer through clearing agents and the insurance charges were collected from the Bombay buyer
The assessee claimed in the assessment proceedings that the sale was not an inter State sale but one which had taken place at Bombay between the Bombay branch and the Bombay buyer The said contention was rejected by this Court with the following observations The appellant in the present case sent the goods direct from the Madras branch factory to the Bombay buyer 53 at Bhandup Bombay
The railway receipt was in the name of the Bombay branch to secure payment against delivery
There was no question of diverting the goods which were sent to the Bombay buyer
When the movement of goods from one State to another is an incident of the contract it is a sale in the course of inter State sale
It does not matter in which State the property in the goods passes
What is decisive is whether the sale is one which occasions the movement of goods from one State to another
The inter State movement must be the result of a covenant express or implied in the contract of sale or an incident of the contract
It is not necessary that the sale must precede the inter State movement in order that the sale may be deemed to have occasioned such movement
It is also not necessary for a sale to be deemed to have taken place in the course of inter State trade or commerce that the covenant regarding inter State movement must be specified in the contract itself
It will be enough if the movement is in pursuance of and incidental to the contract of sale
When a branch of a company forwards a buyer s order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch
If there is a conceivable link between the movement of the goods and the buyer s contract and if in the course of inter state movement the goods move only to reach the buyer in satisfaction of his contract of purchase and such a nexus is otherwise inexplicable then the sale or purchase of the specific or ascertained goods ought to be deemed to have taken place in the course of inter State or commerce as such a sale or purchase occasioned the movement of the goods from one State to another The presence of all intermediary such as the seller s own representative or branch office who initiated the contract may not make the matter different
Such an interception by a known person on behalf of the seller in the delivery State and such person s activities prior to or after the implementation of the contract may not alter the position
 In the instant case the allocation card was first sent in November 1963 asking the appellant directly to make an offer of the 54 goods to the allottee
The allottee was expected to communicate his desire to purchase the goods within twenty one days of the date of the allocation card
Such communication brought into existence a contract sale directly between the appellant and the buyer
The goods were admittedly sent pursuant to the said contract of sale
The interposition at a later stage of the selling agent who acted on behalf of the appellant in the preparation of the invoice and the delivery of the goods would not alter the true character of the sale as the selling agent was just a conduit pipe
The goods having been despatched from one State to another State pursuant to a contract of sale which came into existence directly between the appellant and the buyer within a few days after the date of the allocation card the sale was an inter State sale
The Tribunal and the High Court were therefore right in upholding the orders of the assessing authority levying tax under the Act on all sales which had taken place in favour of the Export Promotion Scheme card holders in Gujarat and Maharashtra even though the selling agent of the appellant at Bombay had on behalf of the appellant also dealt with such card holders at Bombay as the transactions in question satisfied the tests laid down in the case of English Electric Company of India Ltd supra
In the result the appeals fail and are dismissed with costs
PBR Appeals dismissed


Summary:
To regulate the allotment of indigenous art silk yarn the Government of India constituted the Art Silk Yarn Distribution Committee which issued allotment cards to individual weavers
Under the terms of the card without waiting for the allottee to approach the manufacturer the manufacturer had to offer the allottee art silk yarn within seven days of the date of allocation of the card and within a period of 21 days from the date of allocation of the card a firm contract for the supply of yarn was to be completed
The appellant a manufacturer of art silk yarn with its factory in the State of Tamil Nadu supplied yarn to cardholders in the States of Maharshtra and Gujarat by delivering the goods at Bombay through its selling agent at that place
On the question of exigibility of the goods to Central Sales tax the appellant claimed that since the goods were despatched to Bombay at the request of the agent and not as a result of any sale in favour of the purchaser the sale had taken place at Bombay and secondly since the movement of goods from the State of Tamil Nadu to Bombay was not connected with the sales the sales were not inter State sales within the meaning of section 3 a of the Central Sales Tax Act
This claim was rejected by the Joint Commercial Tax Officer and his order was upheld at the different stages of appeal
The High Court dismissed the appellant s revision petitions
On the question whether the sales were inter State sales the Court  HELD The goods having been despatched from one State to another pursuant to a contract of sale that came into existence directly between the buyer and seller within a few days after the date of the allocation card the sale was an inter State sale
To constitute an inter State sale within the meaning of section 3a of the Central Sales Tax Act there must co exist a sale of the goods and movement of 45 goods from one State to another under the contract of sale
Where there is a link between a contract of sale and movement of goods from one State to another pursuant to the contract of sale interposition of an agent ought not to alter the inter State character of the sale
49 F In the instant case the card contemplated a contract of sale to be completed within 21 days of the date of its issue
The agent requested the appellant to despatch certain number of cases to a purchaser and that was done
These facts cumulatively suggest that the goods had been transported from the factory in Tamil Nadu to Bombay for being delivered to the purchaser as a result of contract of sale established in accordance with the terms of the allocation card
49 G 50 BE The fact that actual sale pursuant to the said contract had taken place subsequently does not militate against the transaction being treated as an inter State sale under section 3a because the movement of goods delivered to the buyer was occasioned by the contract of sale brought into existence under the terms of the allocation card
51 E The authorities below have found on the basis of the terms of the allocation card and other material on record that there was a contract of sale within the stipulated time between the parties
51 G English Electric Company of India Ltd vs The Deputy Commercial Tax Officer  Ors 1976 38 STC 475 followed
Tata Engineering and Locomotive Co Ltd vs Assistant Commissioner of Commercial Taxes
Jamshedpur  Anr
1970 26 STC 354 and Kelvinator of India Ltd vs State of Haryana 1973 32 STC 629 held inapplicable