Case: Balabhagas Hulaschand Vs. State Of Orissa

Fazal Ali, J.1. These two groups of appeals one consisting of six appeals by the firm Balabhagas Hulaschand dealing in jute. Civil Appeal No. 449 of 1971 arises from the judgment of the High Court in S.J.C. No. 41 of 1968 decided on April 22, 1970 in respect of the assessment for the quarter ending June, 1960. The other five appeals are by the same firm in respect of the sales tax levied by the State of Orissa for the quarters ending December, 1959, March, 1960 and December, 1960 to June, 1961, decided by the judgment of the High Court in S.J.C. Nos. 73-77 of 1968 dated April 27, 1970. As all the appeals involve a common point they were consolidated and have been heard together.2. Appeals Nos. 888-890 of 1974 have been filed by the firm M/s. Keluram Ramkaran in respect of the assessment of tax made by the State of Orissa for the quarters ending September 30, 1961, June 30, 1962 and September 30, 1962. These appeals arise out of the judgment of the High Court given in S.J.C. Nos. 70-72 of 1971 dated April 11, 1973. The High Court in these cases followed its previous judgment, which is the subject-matter of the six appeals mentioned above and held that the levy was valid. The points of law arising in these appeals also are identical to the points arising in the other six appeals referred to above, and in view of the common points of law involved in all these appeals we propose to dispose them of by one common judgment.3. The appellant Balabhagas Hulaschand is a firm dealing in buying and selling jute and has its Head Office in Calcutta. The firm used to purchase raw jute grown in Orissa and send the same to its buyers in the State of West Bengal. The modus operandi was that after the goods were received by the appellant firm, they were despatched in bags from Cuttack and Dhanmandal railway stations to the Railway Mills Siding in Calcutta. The bags were booked in the name of the buyer mills through their broker. The goods on arrival in the Mills Railway Siding at Calcutta were inspected by the buyer-firm and if they were found to be in accordance with the specifications mentioned in the agreement of the sale they were accepted. The appellants in appeals Nos. 888-890 of 1974 are a firm dealing in similar business with the difference that it has got its purchasing centre at Kendupatana in the District of Cuttack, and it was from Cuttack that the goods were despatched to the buyers in West Bengal.4. The transaction of sale was entered into through a licensed broker "East India Jute and Hessian Exchange Ltd., and the buyers were the Managing Agents of the firm Kittlewell-Bullen & Co. Ltd. Calcutta. A letter has been produced by the parties which appears at p. 24 of the Paper Book which forms the contract or agreement of sale entered into between the parties in pursuance of which the goods were despatched to the buyer firm at Calcutta. Under the contract the responsibility in respect of the quality, moisture, shortage in weight and risk in transit lay on the seller. It is also not disputed that in all these appeals a concluded sale takes place when the goods despatched in the name of the Calcutta firm were ultimately accepted by the said firm and the price of the said goods was paid to the appellants. On the basis of these concluded transactions of sale the Government of Orissa levied sales-tax under section 3(a) of the Central Sales Tax Act, 1956, on the basis that the sales were inter-State sales and, therefore, fell within the ambit of that section. The assessing authorities upto the stage of the Tribunal negatived the contention of the appellants that the sale was merely an internal sale which took place in the State of West Bengal and not an inter-State sale. Thereafter the appellants moved the Tribunal for making a reference to the High Court of Orissa but failed to persuade the Tribunal to make a reference. The appellants then moved the High Court of Orissa under section 24(3) of the Orissa Sales Tax Act to direct the tribunal to make a statement of the case to the High Court. Accordingly the Tribunal referred the following points for consideration :-"(1) Did title to the goods pass in Orissa or in West Bengal ?(2) Even if title in the goods passed in West Bengal whether in the facts and circumstances of this case, the transaction constituted sale in the course of inter-State trade ?"5. After considering the entire evidence and the circumstances and the law on the subject the High Court by its judgment dated April 22, 1970 negatived the plea taken by the appellants and held that all though the title in the goods passed in West Bengal and the sale took place there, since the sale occasioned the movement of the goods from Orissa to West Bengal it was an inter-State sale, and, therefore, it was clearly governed by the Section 3(a) of the Central Sales Tax Act. Thereafter the appellants moved the High Court for granting leave to appeal to this Court, which having been rejected, the appellants filed an application to this Court for grant of special leave to appeal and the same having been granted, these appeals have been set down for hearing before us.6. Mr. Hardy learned counsel for the appellants in appeals Nos. 449- 454 of 1971 has submitted only one point for our consideration. He has contended that on the facts found it would appear that the movement of goods from Orissa to West Bengal took place in pursuance of an agreement of sale and not in pursuance of the sale itself which actually took place in West Bengal, and, therefore, the sale is not covered by Section 3(a) of the Central Sales Tax Act and the levy made by the State of Orissa was illegal. Mr. Ghosh who followed Mr. Hardy and was appearing in appeals Nos. 888-890 of 1974 further added that the agreements in the instant cases were merely forward contracts in respect of unascertained and future goods, and, therefore, fell beyond the ambit of the provisions of the Central Sales Tax Act.7. Mr. Gobind Das appearing for the State of Orissa repelled the contentions of the appellants and submitted that the circumstance clearly point out to the conclusion that although the sales took place in West Bengal, it undoubtedly occasioned the movement of goods from one State to another, namely, from Orissa to West Bengal, and, therefore, were clearly covered by Section 3(a) of the Central Sales Tax Act, and the High Court was right in rejection the contention of the appellants.8. Learned counsel for both the parties have cited a number of authorities of this Court and other High Courts before us. But before going to the authorities we would like to deal with the scope and ambit of the Central Sales Tax Act and try to determine the incidents of a sale which would attract the provisions of section 3(a) of the Central Sales Tax Act. Before, however, taking up this point it may be necessary to mention the admitted circumstances in the case on which both the parties are agreed. They are :-(1) that there was an agreement or contract of sale between the appellant firms and the Calcutta firms by which the appellants agreed to sell raw jute of certain specifications of weight and quality to the Calcutta firms;(2) that at the time when the contract of sale was entered into, the raw jute was not in existence as it was being grown;(3) that after the goods were ready the same were booked in bags by the appellants not in their names but in the names of the buyer firms in Calcutta;(4) that the goods were booked from Cuttack and Dhanmandal railway stations in Orissa to the Railway Sidings of the buyer-Mills at Calcutta; and(5) that all the goods which are the subject-matter of the sales tax levy in all these appeals were ultimately accepted by the buyers at Calcutta and a concluded sale took place at Calcutta in West Bengal.9. In view of these admitted circumstances, we have to determine the legal position. To begin with, it would appear that the Central Sales Tax Act was passed in the year 1956 and before that there was some amount of controversy regarding the authority which was to levy tax in case of inter-State trade. In The Bengal Immunity Company Ltd. vs. The State of Bihar and others, (1955) 2 SCR 603 , Venkatarama Ayyar, J., speaking for the Court, quoted Rottschaefer on Constitutional Law (1939 Edition) where sale in the course of inter-State commerce was defined thus : (p. 785)."The activities of buying and selling constitute inter-State commerce if the contracts therefore contemplate or necessarily involve the movement of goods in inter-State commerce."The learned Judge also observed in that case :-"A sale could be said to be in the course of inter-State trade only if two conditions concur : A sale of goods and a transport of these 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."This court, therefore, accepted the ingredients of an inter-State sale.10. It appears that soon after the decision in The Bengal Immunity Company Ltd.s case (supra) was handed down it received statutory recognition in the shape of section 3(a) of the Central Sales Tax Act, which was enacted by the Parliament to remove any doubts or misgivings regarding the competence of a State Legislature to levy tax on inter- State sales. Section 2(g) of the Central Sales Tax Act defines "sale" thus :-"Sale", with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer or goods on the hire-purchase or other system of payment by installments, but does not include a mortgage or hypothecation or a charge or pledge on goods;"Analysing this definition it would appear that it postulates the following conditions :-(i) there must be a transfer of property in goods by one person to another;(ii) the transfer must be for cash or for deferred payment or for any other valuable consideration; and(iii) that such a transfer includes transfer of goods on the hire purchase or other system of payment by installments, etc.It would thus be seen that the word sale has been given a very wide connotation by the Parliament so as to include within its fold not only sales of goods which are usually known in common parlance but also transactions which legally cannot be called sales, for instance, a transfer of goods on the hire-purchase system. It seems to us that the Parliament wanted to give the widest amplitude to the word sale and that is why, while in section 3 the words sale of goods have been used, in section 4(2), clauses (a) and (b), which deal with the situs of the sale, the words contract of sale have been used in the same sense. In other words, the word sale defined in clause (g) of section 2 and used in section 3 and other sections is wide enough to include not only a concluded contract of sale but also a contract or agreement of sale provided the agreement of sale stipulates that there was a transfer of property or movement of goods. In The Sale Tax Officer, Pilibhit vs. Budh Prakash Jai Prakash, (1954) 5 STC 193 at 196, quoting Benjamin on Sale, (8th Edition), Venkatarama Ayyar, J., who spoke for the court observed as follows :-"The distinction between a sale and an agreement to sell under section 1 of the English Act is thus stated by Benjamin on Sale, Eighth Edition, 1950 :-In order to constitute a sale there must be -(1) An agreement to sell, by which alone the property does not pass; and(2) an actual sale, by which the property passes.It will be observed that the definition of a contract of sale above cited includes a mere agreement to sell as well as an actual sale.This distinction between sale and agreements to sell based upon the passing of the property in the goods is of great importance in determining the rights of parties under a contract."12. It would thus appear that this Court clearly held that an agreement to sell by which the property did not actually pass was also an element of sale. Of course in that case the court had to decide a different point, namely, whether it was within the competence of a State Legislature to tax not a sale but even an agreement to sell where an actual sale had not taken place. This Court held that the State Legislature was not competent to make such a levy under any statute passed by it.13. Section 3 of the Central Sales Tax Act, 1956 runs thus :-"3. 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 -(a) occasions the movement of goods from one State to another; or(b) is effected by a transfer of documents of title of the goods during their movement from one State to another".14. Section 3 consists of two clauses. But in the instant case we are not concerned with clause (b) but only with clause (a). Analysing clause (a) of Section 3 of the Central Sales Tax Act it would appear that before Section 3 can apply, the following facts must be established :-(i) that there is a sale or purchase of goods; and(ii) that the sale occasions the movement of goods from one State to another.If these two conditions are satisfied the sale becomes an inter-State sale on which tax could be levied under the Central Sales Tax Act.15. The serious question that arises for consideration in this case is whether or not the term "sale of goods" as used in Section 3 includes an agreement to sell. It has already been pointed out that an agreement to sell is undoubtedly an element of sale. In fact a sale consists of three logical steps :-(i) that there is an offer;(ii) that there is an agreement to sell when the offer is accepted; and(iii) that in pursuance of the said agreement a concluded sale takes place."Thus if the goods are unascertained, then until it is appropriated to the contract by a known process, sale is not complete. Central sales tax is not leviable by the despatching State in such cases, notwithstanding inter-State movement of the goods, as they are considered in section 4 as "out-of-State" sales."To begin with, this case has no application to the facts of the present case, because the decision in the Cement Distributors (P) Ltds case (supra) was governed by the provisions of Section 4 of the Central Sales Tax Act and the High Court of Madras came to a finding that sale was not at all complete, in view of the fact that the goods were unascertained. Furthermore, the decision was given on the peculiar facts in that case by which the branch at Calcutta had merely been authorised by the State Trading Corporation of India Ltd. to receive the goods despatched and it is doubtful whether there was a complete transaction of sale in that case. If, however, that case is taken to be an authority for the proposition that where the goods are unascertained and even if there is an inter-State movement of goods the sale is not an inter-State sale, we find ourselves difficult to agree with that view which is not in consonance with our interpretation of the provisions of the Central Sales Tax Act.26. The appellant then relied on another decision of the Madras High Court in Larsen and Toubro Ltd., Madras-2 & Ors. vs. Joint Commercial Tax Officer, (1967) 20b S.T.C. 150, 186-187. To begin with, this case appears to have been overruled by this Court in The State of Madras vs. N. K. Nataraja Mudaliar on another point. Even so, we are unable to see how this case is of any assistance to the appellant. Veeraswami, J., as he then was, speaking for the Court, observed as follows :-"The essential tests of a sale or purchase in the course of inter- State trade, commerce and intercourse or import into, export out of the territory of India are, (1) whether there is movement of goods from one State to another or into or out of the territory of India, (2) whether such movement is occasioned by the contract of sale or purchase and (3) alternatively whether, during such movement, the sale or purchase is effected by transfer of documents of title to the goods."The learned Judge also observed :-"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 ratio laid down by the Court is entirely in consonance with the view taken by us regarding the conditions of an inter-State sale.27. Reliance was also placed on Tata Iron and Steel Co. Ltd. vs. S. R. Sarkar and other, (1961) 1 S.C.R. 379 at 391, where Shah, J., while delivering the majority judgment of the Court, observed as follows :-"In our view, therefore, within clause (b) of Section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto : clause (a) of Section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State".Sarkar, J., who gave a dissenting judgment observed as follows : (pp. 407 and 408)."The question then arises, when does a sale occasion the movement of goods sold ? It seems clear to us that a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved; in other words, a sale occasions the movement of goods when the contract of sale so provides."We have then come to this that clause (a) of section 3 contemplates a sale where the contract of sale occasions the movement of the goods sold and clause(b), a sale there transfer of property in the goods sold is effected by a transfer of documents of title to them. Of course, in the first case, the movement of the goods must be from one State to another and in the second, the documents of title must be transferred during such movement".28. In State Trading Corporation of India Ltd. vs. State of Mysore, (1963) 3 S.C.R. 792 at 797-798 this Court observed as follows :-"Since the permits with which we are concerned provided that the supply had to be made from one or other factory situate outside Mysore, the contracts must be deemed to have contained a covenant that the goods would be supplied in Mysore from a place situate outside its borders. A sale under such a contract would clearly be an inter-State sale as defined in section 3(a) of the Central Sales Tax Act."29. Similarly in Tata Engineering & Locomotive Co. Ltd. vs. The Assistant Commissioner of Commercial Taxes & Anr. (1970) 3 S.C.R. 862 at 866, while describing the incidents of an inter-State sale, this Court observed as follows :-"A sale being transfer of property becomes taxable under Section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale".30. The same view was taken in a later decision of this Court in M/s. Kelvinator of India Ltd. vs. The State of Haryana (1973) 3 S.C.C. 551 at 560 where Khanna, J., speaking for the Court observed as follows :-"It is also plain from the language of section 3(a) of the Act that the movement of goods from one State to another must be under the contract of sale. A movement of goods which takes place independently of a contract of sale would not fall within the ambit of the above clause. Perusal of section 3(a) further makes it manifest that there must be a contract of sale preceding the movement of the goods from one State to another, and the movement of goods should have been caused by and be the result of that contract of sale. If there was no contract of sale 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 that case, however, on the facts found by the High Court, this Court held that the sale was not an inter-State sale but an internal sale which took place in Delhi. In that case there was no movement of the goods from one State to another in pursuance of the contract of sale. In other words, the facts of this case clearly fell within Case No. 11 which has been described by us, above.31. To the same effect is the recent decision of this Court in The State of Tamil Nadu vs. The Cement Distributors (P) Ltd. and others, (1975) 4 S.C.C. 30 in which reliance was placed on the earlier decision of this Court in Tata Iron and Steel Co. Ltd. vs. S. R. Sarkar & others (supra).32. In Oil India Ltd. vs. The Superintendent of Taxes and others, (1975) 1 S.C.C. 733 at 736-737 while lucidly describing the incidents of an inter-State sale, Mathew, J., observed as follows :"This Court has held in a number of cases that if the movement of goods from one State to another is the result of a covenant or an incident of the contract of sale, then the sale is an inter-State sale ......."Even though Clause 7 of the supplemental agreement does not expressly provide for movement of the goods, it is clear that the parties envisaged the movement of crude oil in pursuance to the contract from the State of Assam to the State of Bihar. In other words, the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale. No matter in which State the property in the goods passes, a sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade. 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 would be enough if the movement was in pursuance of and incidental to the contract of sale."33. We might mention here that the case cited above appears to be on all fours with the facts of the present case. In that case also the goods were supplied from Assam to Bihar through the pipelines in Assam to Barauni in Bihar. This Court observed that no matter in which State the property in goods passes the sale undoubtedly occasioned movement of the goods which was sufficient to bring the case within the ambit of Section 3(a) of the Central Sales Tax Act.34. Thus the authorities discussed above by us fully support the principles and the ratio laid down by us. We have already pointed out that even though the sale took place at Calcutta, as rightly founded by the High Court, since the movement of goods preceded the sale in pursuance of the contract of sale which contained a clear stipulation that the goods were to move from Orissa to Calcutta in West Bengal, the movement of goods was occasioned by the sale itself which took place in Calcutta. In these circumstances, therefore, the High Court was legally justified in holding that in all these appeals the cases were clearly covered by the provisions of section 3(a) of the Central Sales Tax Act.

Decision reasoning: 0[ds]30. The same view was taken in a later decision of this Court in M/s. Kelvinator of India Ltd. vs. The State of Haryana (1973) 3 S.C.C. 551 at 560 where Khanna, J., speaking for the Court observed as followsis also plain from the language of section 3(a) of the Act that the movement of goods from one State to another must be under the contract of sale. A movement of goods which takes place independently of a contract of sale would not fall within the ambit of the above clause. Perusal of section 3(a) further makes it manifest that there must be a contract of sale preceding the movement of the goods from one State to another, and the movement of goods should have been caused by and be the result of that contract of sale. If there was no contract of sale 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 that case, however, on the facts found by the High Court, this Court held that the sale was not ansale but an internal sale which took place in Delhi. In that case there was no movement of the goods from one State to another in pursuance of the contract of sale. In other words, the facts of this case clearly fell within Case No. 11 which has been described by us, above.31. To the same effect is the recent decision of this Court in The State of Tamil Nadu vs. The Cement Distributors (P) Ltd. and others, (1975) 4 S.C.C. 30 in which reliance was placed on the earlier decision of this Court in Tata Iron and Steel Co. Ltd. vs. S. R. Sarkar & others (supra).32. In Oil India Ltd. vs. The Superintendent of Taxes and others, (1975) 1 S.C.C. 733 atwhile lucidly describing the incidents of ansale, Mathew, J., observed as follows :"This Court has held in a number of cases that if the movement of goods from one State to another is the result of a covenant or an incident of the contract of sale, then the sale is ansale ......."Even though Clause 7 of the supplemental agreement does not expressly provide for movement of the goods, it is clear that the parties envisaged the movement of crude oil in pursuance to the contract from the State of Assam to the State of Bihar. In other words, the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale. No matter in which State the property in the goods passes, a sale which occasions movement of goods from one State to another is a sale in the course ofate 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 interState 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 oftrade or commerce, that the covenant regardingmovement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale."33. We might mention here that the case cited above appears to be on all fours with the facts of the present case. In that case also the goods were supplied from Assam to Bihar through the pipelines in Assam to Barauni in Bihar. This Court observed that no matter in which State the property in goods passes the sale undoubtedly occasioned movement of the goods which was sufficient to bring the case within the ambit of Section 3(a) of the Central Sales Tax Act.34. Thus the authorities discussed above by us fully support the principles and the ratio laid down by us. We have already pointed out that even though the sale took place at Calcutta, as rightly founded by the High Court, since the movement of goods preceded the sale in pursuance of the contract of sale which contained a clear stipulation that the goods were to move from Orissa to Calcutta in West Bengal, the movement of goods was occasioned by the sale itself which took place in Calcutta. In these circumstances, therefore, the High Court was legally justified in holding that in all these appeals the cases were clearly covered by the provisions of section 3(a) of the Central Sales Tax Act.