Case: Kelvinator Of India Ltd Vs. The State Of Haryana

an authority confers an election on the party authorised. An authority to appropriate is presumed where, by the terms of the con tract, one party is to do with reference to the goods some act or thing which cannot be done until the goods are appropriated. When the party authorised has determined his election by doing such act or thing, the appropriation is finally made. Until that time any act or thing done with reference to the goods towards appropriation by the party authorised is revocable, unless it has previous to its revocation, been assented to by the other party."So far as the observations made in the first paragraph reproduced above are concerned, we find that there is no material on the record to show that an authority was given by the distributors to the appellant to appropriate the goods at Faridabad. As such, the aforesaid paragraph cannot be of any material help to the respondent. The second paragraph reproduced above relates to an authority which may be presumed from the fact that one party by the terms of contract is to do with reference to the goods some act or thing which cannot be done until the goods are appropriated. In respect of this paragraph also, as already indicated above, we find that there is no material to show that the appellant was under the terms of contract authorised to do some act or thing with reference to the refrigerators which could not be done until the refrigerators were appropriated. A part from that we find that the observation that "until that time any act or thing done with reference to the goods towards appropriation by the party authorised is revocable would show that there was no legal bar to the changing of name plates by the appellant company till such time as orders with regard to the refrigerators were placed by the distributors after inspection of those, refrigerators.16. A case which was considerable bearing on the facts of the present case is that of Tata Engineering and Locomotive Co. Ltd. V. Assistant Commissioner of Commercial Taxes, Jamshedpur and Anr. (supra). In that case the appellant company, which manufactured trucks and buses in Jamshedpur in the State of Bihar, transferred the vehicles to stock-yards operated by its own personnel in other States and supplied them to the dealers. After the promulgation of the Commercial Vehicles (Distribution and Sale) Control Order, 1963 the appellant issued a circular dated June 14, 1963, to the dealers asking them to submit monthly statements regarding fresh applications registered, retail sales, applications cancelled and stock and sales. , A new form of dealership agreement was also introduced under which the appellant a greed to sell from its works in Jamshedpur or its depots and stockvirds outside the State of Bihar to the dealer the vehicles which shall be allotted at its discretion. Clause 11(b) of:the agreement provided that "the dealer shall mail to the company on the 15th of each month ...... his firm order for purchases to be effected during the next succeeding month and his estimated requirements., for the two months following the next succeeding month In fact however no firm order was called for by the company. Pursuant to authorisation issued by the sales office of the appellant in Bombay, vehicles were transferred from its works at Jamshedpur to the various stockyards in the States. The stocks available in the stock-yards were then distributed from time to time to dealers for which purpose an allocation letter was issued each month by the sales office. There were many instances where vehicles had been actually delivered from the stock- yard prior to the issue of the allocation letter. It was also found that on some occasions vehicles bad been moved from a stock-yard in on-, State to a stock-yard in another. Treating the allocation letters together with their confirmation as transactions of sale, and the movement of vehicles from the works to the stock-yards as the direct result of the allocation so made, the Assistant Commissioner imposed tax under the Central Sales Tax Act, 1956, in relation to the sales during the period April 1, 1964 to March 31, 1966, of vehicles which had moved from Jamshedpur to the stock-yards in the various States. it was held by this Court that the procedure followed by the appellant together with the proved absence of any firm orders, indicated that the allocation letters and the statements furnished by the dealers did not themselves bring about transactions of sale within the meaning of section 2(g) of the Act. This Court further observed:"It would appear from the materials placed before us that generally the completion of the sales to the dealers did not take place at Jamshedpur and the final steps in the matter of such completion were taken at the stock- yards. Even if the appellant took into account the requirements of the dealers which it naturally was expected to do when the vehicles were moved from the works to the stock-yards it was not necessary that the number of vehicles allocated to the dealer should necessarily be delivered to him. The appropriation of the vehicles was done at the stockyards through specification of the engine and the chassis number and it was open to the appellant till then to allot any vehicle to any purchaser and to transfer the vehicles from one stockyard to another. Even the Assistant Commissioner found that on some occasion vehicles had been moved from stockyards in one State to a stockyard in another State. it is not possible to comprehend how, in the above situation it could be held that the movement of the vehicles from the works to the stockyards was occasioned by any covenant or incident of the contract of sale."17. The facts of the present case have a certain amount of similarity to the facts of the above case and, in our opinion, the dictum laid down therein fortifies us in the conclusion at which we have arrived.18.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In the face of the facts of the present case, we find it difficult to hold that the sale of refrigerators by the. appellant to the three distributors took place at Faridabad. We are also unable to agree with the High Court that the distribution agreements constituted agreements of sale. It is noteworthy in this context to observe that the number of refrigerators which were to be purchased by each of the distributors was not specified in the distribution agreements, nor did the agreements contain the price which was to be charged for each refrigerator. According to the agreement dated April 26, 1965 the appellant undertook to sell and the distributors undertook to purchase the products of the appellant "as mutually agreed upon from time to time". It is, therefore, plain that sales by the appellant company--to the distributor referred to in the distribution agreement dated April 26, 1965 depended upon the future agreement between the parties from time to time. Distribution agreements dated September 15, 1965 and December 11, 1965 no doubt mentioned the minimum number of Leonard and Gem refrigerators which had been agreed to be purchased by the distributors; the exact number of refrigerators to be sold by the appellant to these two distributors was still left to volition of the appellant. The appellant company, it was also mentioned, would incur no liability if it was unable to supply the guaranteed minimum number of refrigerators. The mode of dealings between the parties was that subsequent to the distribution agreements, orders were placed by the distributors with the appellant after the refrigerators had reached the appellants sale office and godown in Delhi. The price of the refrigerators was also to be mutually agreed upon from time to time. It is Plain that it is the orders which were placed in Delhi by the distributors and the acceptance thereof by the appellant that resulted in mutual agreement of sale. It was, in our opinion, the mutual agreement between the parties at the time of the placing of the order by the distributor with the appellant which constituted the contract of sale and not the distribution agreement. The distribution agreement with each distributor provided the framework within which the different contracts of sale-were entered into by the distributor with the appellant. This circumstance should not make us lose sight of the fact that the distribution agreements and the subsequent contracts of sale were distinct transactions.We are not impressed by Mr. Tarkundes argument that under agreement dated April 26, 1965 Spencer &Co. was bound to purchase all the products of the appellant company. Spencer &Co. undertook to buy the products manufactured by the appellant company subject to the stipulation contained in the words "as mutually agreed upon from time to time". Had it been the intention of the parties that, Spencer &Co. was bound to purchase all products manufactured by the appellant company irrespective of any future agreement between the parties, the words "as mutually agreed upon from time to time" in clause 1 of agreement dated April 26, 1965 would lose all significance. It would not have also in that event been possible for the appellant to enter into the other two distribution agreements of September 15, 1965 and December 11, 1965 regarding Leonard and Gem refrigerators which were manufactured by the appellant. The fact that the appellant was in a position to export its products to foreign countries during the assessment year in question also shows that the re was no agreement between the parties that the appellant was bound to sell and Spencer &Co. was bound to purchase all products manufactured by theargument that the sale of refrigerators to each of the distributors took place at Faridabad and that it was at Faridabad that the refrigerators were appropriated towards the agreement with each of the three distributors appears to us to be not well-founded. The argument proceeds upon the assumption that trade-mark name plates on , the refrigerators were affixed at Faridabad by the appellant company. There is, however, no direct material to show that the name plates on, the refrigerators were actually affixed at Faridabad and not in Delhi. Assuming that the name plates were, in fact, affixed to the refrigerators by the appellant at Faridabad, there was nothing to prevent the appellant from changing the name plate of a refrigerator and affixing the name plate of a different brand of refrigerator on the refrigerator from which the name plate was removed. The three different brands of refrigerators were in all respects identical except in respect of the name plate. The said name plates, it has been demonstrated to us, . are easily interchangeable. In the circumstances, the alleged affixation of trade-mark plates to the refrigerators at Faridabad would not necessarily show that the appropriation of the refrigerators towards the agreement with a particular distributor took place at Faridabad. A very significant circumstance which should not be lost sight of, in this context is that orders in respect of the various refrigerators were placed by the distributors in Delhi after the refrigerators had been transported to the Delhi sale office and godown of the appellant. If the sale of the refrigerators in favour of the distributor hid already taken place at Faridabad and the refrigerators had been appropriated there towards the sale contract, there would have arisen no occasion for the placing of the subsequent order in Delhi by a distributor with regard to the said refrigerators. The fact that subsequent orders had to be placed by the distributors in Delhi with regard to the different refrigerators after their arrival in Delhi shows that there was no earlier sale or appropriation of those refrigerators towards any contract of sale with the distributors. The stand taken on behalf of the department that the appropriation of the refrigerators took place at Faridabad towards the contracts of sale with the distributors is inconsistent with the entire course of dealings between the parties. It may also be observed that in deciding the question whether the transactions between the parties constituted sales in the course of inter-State trade or commerce, the court should look not merely at the distribution agreements, regard should be had of the en-tire course of dealings between the parties.Assuming that the distribution agreements constituted contracts of sale, it would still have to be shown that the sale by the appellant to the distributors occasioned the movement of refrigerators from Faridabad to Delhi in this respect we find that according to the facts found by the Tribunal the appellant had a godown and sale office in Delhi. There is nothing to show that the appellant has also a godown in Faridabad. The movement of refrigerators from Faridabad to the appellants godown in Delhi in the circumstances can well be ascribed to the fact that the appellant has a godown facility in Delhi. There were two places at which in the nature of things the appellant could have sold the refrigerators to the distributors. It could be either at Faridabad where the appellant has its factory wherein the refrigerators are manufactured or in Delhi where the appellant has its sale office and godown and where- also the, three distributors have their offices. The selection of place of sale. depended upon mutual agreement between the parties it is also obvious that if there is a choice before the parties of so arranging their matters that in. one case they would have to incur liability to pay tax and in the other case the liability to p ay tax would not be attracted, they would prefer the latter course. There is nothing illegal or impermissible to a party so arranging its affairs that the liability to pay tax would not be attracted or that the brunt of taxation would be reduced to the minimum. The appellant company in the present case would incur no liability to pay tax under the Act if it were to transport the refrigerators from its factory in Faridabad to its own office and godown in Delhi and thereafter to sell them to the distributors. The liability to pay tax under the Act would, however, arise if the sale of the refrigerators to distributors were to take place at Faridabad and the movement of refrigerators from Faridabad to Delhi were to take place under the contract of sale. The question with which we are concerned is whether the appellant entered into such an arrangement with the distributors that the liability to pay tax would be attracted and not the other arrangement under which no such liability could be fastened on the appellant. So far as this question is concerned, we find that the parties expressly stated in each of the three distribution agreements that it would be in Delhi that the sale of refrigerators would take place to the distributors and the property therein would pass to them. It was again in Delhi that the refrigerators were delivered to the distributors. The orders for the refrigerators were placed by the distributors in Delhi and it was also here that, the price of refrigerators was paid. Looking to all the facts of the case, we have no doubt that the arrangement between the parties was that refrigerators would be sold by the appellant to the distributors after they had been transported to the sale office and godown of the appellant on Alipore Road, Delhi so that no liability to pay tax under the Act would arise. It cannot in-the circumstances be said that the transport of the refrigerators from Faridabad to Delhi was in pursuance of contracts of sale between the appellant and the distributors.Reference has been made by Mr. Tarkunde to the fact that the distributors were to bear the freight charges for the transportation of refrigerators from Faridabad to Delhi. In this respect we find that the distribution agreements show that reference was made to transportation charges for determining the amount or price to be paid by the distributors to the appellant company. The price payable by the distributors was the aggregate of the ex-factory price of refrigerators and the transportation charges. As the ex-factory., price of refrigerators was fixed from time to time and as the agreements with the distributors provided that the sale of the refrigerators as well as the delivery thereof to the distributors would take place in Delhi, there was nothing surprising in the clause of the distribution agreements that the transportation charges would be added to the ex-factory prices of the refrigerators in calculating the amount payable by the distributors to the appellant. The inclusion of the charges for the transport of the refrigerators from Faridabad to Delhi in the. price payable by the distributors would not show that the movement of refrigerators from Faridabad to Delhi was occasioned by the contract ofHigh Court in the course of its judgment hasfreight from Faridabad to Delhi is borne by the Distributors that is the Blue Star and the General Equipment Merchants. Any shortage or damage in transit is also the responsibility of Blue Star and the General Equipment Merchants; the responsibility for this does not fall on theobservations in the above paragraph that any shortage or damage in transit was the responsibility of the Blue Star and the General Equipment Merchants and the responsibility for that did not fall on the manufacturer is not correct because clause 8 of each of the two agreements dated September 15, 1965 and December 11, 1965 relating to Leonard and Gem refrigerators shows that the liability of the appellant company for any shortage or damage that might occur would cease only after the goods had been delivered and inspected by the distributors at Delhi. The appellant no doubt stipulated in its agreement with Spencer &Co. that it (the appellant) would accept no responsibility for shortage or damage occurring in transit after the goods had passed through rigorous inspection at the time they left the appellants factory. This must, however, be regarded in the- nature of things to be a matter of mutual agreement between the parties. Spencer &Co. might well have agreed to bear that loss on the assumption that the advantage of becoming the distributor for sale of Kelvinator refrigerators would far outweigh the loss borne by the said company in this respect. Indeed, the possibility of any loss being borne by Spencer &Co. because of any shortage or damage occurring in transit of refrigerators from Faridabad to Delhi was only theoretical, is according to the order of reference the expenses of transit insurance were borne by the appellant company. It would thus be the insurer who would have to bear the loss caused by shortage or damage occurring during transit. It may also be mention ed in this context that the octroi charges in connection with the movement of refrigerators from Faridabad to Delhi were paid by the appellant.We have been referred to section 23 of the Sale of Goods Act. According to that section, where the re is a contract for the sale of unascertained or future goods by description. and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assessment o f the buyer or by the buyer with the assent of the, seller, the property in the goods thereupon posses to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. , The said section, in our opinion, cannot be of much avail to the respondent. Apart, from the fact that the distribution agreements cannot, in our opinion, be construed as contracts of We. there- is no material to show that there was any assent expressed or implied by the distributors to the appropriation of. the refrigerators by the appellant atcase which was considerable bearing on the facts of the present case is that of Tata Engineering and Locomotive Co. Ltd. V. Assistant Commissioner of Commercial Taxes, Jamshedpur and Anr. (supra). In that case the appellant company, which manufactured trucks and buses in Jamshedpur in the State of Bihar, transferred the vehicles to stock-yards operated by its own personnel in other States and supplied them to the dealers. After the promulgation of the Commercial Vehicles (Distribution and Sale) Control Order, 1963 the appellant issued a circular dated June 14, 1963, to the dealers asking them to submit monthly statements regarding fresh applications registered, retail sales, applications cancelled and stock and sales. , A new form of dealership agreement was also introduced under which the appellant a greed to sell from its works in Jamshedpur or its depots and stockvirds outside the State of Bihar to the dealer the vehicles which shall be allotted at its discretion. Clause 11(b) of:the agreement provided that "the dealer shall mail to the company on the 15th of each month ...... his firm order for purchases to be effected during the next succeeding month and his estimated requirements., for the two months following the next succeeding month In fact however no firm order was called for by the company. Pursuant to authorisation issued by the sales office of the appellant in Bombay, vehicles were transferred from its works at Jamshedpur to the various stockyards in the States. The stocks available in the stock-yards were then distributed from time to time to dealers for which purpose an allocation letter was issued each month by the sales office. There were many instances where vehicles had been actually delivered from the stock- yard prior to the issue of the allocation letter. It was also found that on some occasions vehicles bad been moved from a stock-yard in on-, State to a stock-yard in another. Treating the allocation letters together with their confirmation as transactions of sale, and the movement of vehicles from the works to the stock-yards as the direct result of the allocation so made, the Assistant Commissioner imposed tax underthe Central Sales Tax Act, 1956, in relation to the sales during the period April 1, 1964 to March 31, 1966, of vehicles which had moved from Jamshedpur to the stock-yards in the various States. it was held by this Court that the procedure followed by the appellant together with the proved absence of any firm orders, indicated that the allocation letters and the statements furnished by the dealers did not themselves bring about transactions of sale within the meaning of section 2(g) of the Act. This Court furtherwould appear from the materials placed before us that generally the completion of the sales to the dealers did not take place at Jamshedpur and the final steps in the matter of such completion were taken at the stock- yards. Even if the appellant took into account the requirements of the dealers which it naturally was expected to do when the vehicles were moved from the works to the stock-yards it was not necessary that the number of vehicles allocated to the dealer should necessarily be delivered to him. The appropriation of the vehicles was done at the stockyards through specification of the engine and the chassis number and it was open to the appellant till then to allot any vehicle to any purchaser and to transfer the vehicles from one stockyard to another. Even the Assistant Commissioner found that on some occasion vehicles had been moved from stockyards in one State to a stockyard in another State. it is not possible to comprehend how, in the above situation it could be held that the movement of the vehicles from the works to the stockyards was occasioned by any covenant or incident of the contract offacts of the present case have a certain amount of similarity to the facts of the above case and, in our opinion, the dictum laid down therein fortifies us in the conclusion at which we have arrived.