Case: Bayyana Bhimayya Vs. The Government Of Andhra Pradesh

Hidayatullah, J.1. These are two appeals on certificates granted by the High Court of Andhra Pradesh against a common judgment in a sales tax revision filed by the appellants in the High Court.2. The facts are as follows : In the year 1952-53, for which the assessment of sales tax was in question, the appellants dealt in gunnies, and purchased them from two mills in Vishakapatnam District and in respect of which they issued delivery orders to third parties, with whom they had entered into separate transactions. The procedure followed by the appellants was this : They first entered into contracts with the Mills agreeing to purchase gunnies at a certain rate for future delivery. Exhibit A-1 is a specimen of such contracts. The appellants also entered into agreements with the Mills, by which the Mills agreed to deliver the goods to third parties if requested by the appellants. The Mills, however, did not accept the third parties as contracting parties but only as agents of the appellants. Exhibits A-2 and A-2(a) are specimen agreements of this kind. Before the date of delivery, the appellants entered into agreements with third parties, by which they charged something extra from the third parties and handed over to them the delivery orders, which were known as kutcha delivery orders. Exhibits A-3 and A-4 are specimens of the agreement and the delivery orders respectively. The Mills used to deliver the goods against the kutcha delivery orders along with an invoice and a bill, of which Exs. A-6 and A-7 are specimens respectively, and collected the sales tax from the third parties. The tax authorities, however, treated the transaction between the appellants and third parties as a fresh sale, and sought to levy sales tax on it again, which, the appellants, contended, was not demandable, as there was no second sale.3. The appellants failed in their contentions before the Deputy Commercial Tax Officer, Guntur, and their appeals to the Deputy Commissioner of Commercial Taxes, Guntur and the Andhra Sales Tax Appellate Tribunal, Guntur, were unsuccessful. The appellants then went up in revision to the High Court under the Madras General Sales Tax Act, 1939 (as amended by Madras Act No. 6 of 1951), but were again unsuccessful. The High Court, however, granted certificates, on which these appeals have been filed.4. The contentions of the appellants are that the agreement and the delivery of the kutcha delivery order did not amount to a sale of goods, but was only an assignment of a right to obtain delivery of the gunnies, which were not in existence at the time of the transaction with third parties, and were not appropriated to the contract, or, in the alternative, that this was only an assignment of a forward contract. They seem to have relied in the High Court upon the decisions of this Court reported in Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash, 1955-1 SCR 243 : (AIR 1954 SC 459 ) and Poppatlal Shah v. State of Madras, 1953 SCR 677 : (AIR 1953 SC 274 ) to show that these transactions were not sales. These cases were not relied upon by the appellants before us, presumably because the High Court has adequately shown their inapplicability to the facts here.5. The learned Solicitor-General appearing for the appellants rested his case entirely upon the first contention, namely, that there was only as assignment of a right to obtain delivery of the gunnies and not a sale. He contended that there was only one transaction of sale between the Mills and the third parties, who, on the strength of the assignment of the right to take delivery, had received the goods from the Mills. In our opinion, this does not represent the true nature of the transactions, either in fact, or in law.6. To begin with, the Mills had made clear in their agreements that they were not recognising the third parties as contracting parties having privity with them, and that delivery would be given against the kutcha delivery orders to the third parties as agents of the appellants. The Mills, therefore, recognised only the appellants as contracting parties, and there was thus a sale to the appellants from the Mills, on which sales tax was correctly demanded and was paid. In so far as the third parties were concerned, they had purchased the goods by payment of an extra price, and the transaction must, in law and in fact, be considered a fresh transaction of sale between the appellants and the third parties. A delivery order is a document of title to goods (vide S. 2(4) of the Sale of Goods Act), and the possessor of such a document has the right not only to receive the goods but also to transfer it to another by endorsement or delivery. At the moment of delivery by the Mills to the third parties, there were, in effect, two deliveries, one by the Mills to the Appellants, represented, in so far as the Mills were concerned, by the appellants agents, the third parties, and the other, by the appellants to the third parties as buyers from the appellants. These two deliveries might synchronise in point of time, but were separate, in point of fact and in the eye of law. If a dispute arose as to the goods delivered under the kutcha delivery order to the third parties against the Mills, action could lie at the instance of the appellants. The third parties could proceed on breach of contract only against the appellants and not against the Mills. In our opinion, there being two separate transactions of sale, tax was payable at both the points, as has been correctly pointed out by the tax authorities and the High Court.7. The appellants relied upon a decision of the Andhra Pradesh High Court in State of Andhra v. Sreeramamurty, Second Appeals Nos.. 194 and 195 of 1954, D/- 27-6-1957 :(AIR 1959 Andh Pra 21) but there, the facts were different, and the Division Bench itself in dealing with the case, distinguished the judgment under appeal, observing that there was no scope for the application of the principles laid down in the judgment under appeal, because in the cited case, "the property in the goods did not pass from the Mills to the assessee and there was no agreement of sale of goods to be obtained in future between the assessee and the third party".

Decision reasoning: 0[ds]6. To begin with, the Mills had made clear in their agreements that they were not recognising the third parties as contracting parties having privity with them, and that delivery would be given against the kutcha delivery orders to the third parties as agents of the appellants. The Mills, therefore, recognised only the appellants as contracting parties, and there was thus a sale to the appellants from the Mills, on which sales tax was correctly demanded and was paid. In so far as the third parties were concerned, they had purchased the goods by payment of an extra price, and the transaction must, in law and in fact, be considered a fresh transaction of sale between the appellants and the third parties. A delivery order is a document of title to goods (vide S. 2(4) of the Sale of Goods Act), and the possessor of such a document has the right not only to receive the goods but also to transfer it to another by endorsement or delivery. At the moment of delivery by the Mills to the third parties, there were, in effect, two deliveries, one by the Mills to the Appellants, represented, in so far as the Mills were concerned, by the appellants agents, the third parties, and the other, by the appellants to the third parties as buyers from the appellants. These two deliveries might synchronise in point of time, but were separate, in point of fact and in the eye of law. If a dispute arose as to the goods delivered under the kutcha delivery order to the third parties against the Mills, action could lie at the instance of the appellants. The third parties could proceed on breach of contract only against the appellants and not against the Mills. In our opinion, there being two separate transactions of sale, tax was payable at both the points, as has been correctly pointed out by the tax authorities and the High Court.