Case: Hanuman Mining Corporation Limited Vs. Commissioner of Sales Tax, Madhya Pradesh, Indore

is effected by a transfer of documents of title to the goods during their movement from one State to another."The interpretation of section 3(a) of the Central Sales Tax Act was the subject-matter of consideration by this court in Tata Iron & Steel Co. Ltd. v. S. R. Sarkar ([1960] 11 S.T.C. 655), and Shah, J., speaking for the majority of the Bench, 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."This observation of Shah, J., was cited with approval by this court in Cement Marketing Co. v. State of Mysore ([1963] 14 S.T.C. 175) and again in State Trading Corporation v. State of Mysore ([1963] 14 S.T.C. 188). In the latter case Sarkar, J., observed thus :"The question then is, did the sales occasion the movement of cement from another State into Mysore within the meaning of the definition ? In Tata Iron & Steel Co. Ltd. v. S. R. Sarkar ([1960] 11 S.T.C. 655), it was held that a sale occasions the movement of goods from one State to another within section 3(a) of the Central Sales Tax Act, when the movement is the result of a covenant or incident of the contract of sale. That the cement concerned in the disputed sales was actually moved from another State into Mysore is not denied. The respondents only contend that the movement was not the result of a covenant in or an incident of the contract of sale."In that case the court held that the movement of goods was a result of the covenant of the contract of sale or an incident of such contract and so the sale must be treated as inter-State sale as defined in section 3(a) of the Central Sales Tax Act, 1956. The court did not go into the question as to whether the property had passed before the movement of the goods or not and this was because according to the decision in Tata Iron & Steel Co. Ltd. v. S. R. Sarkar ([1960] 11 S.T.C. 655), it did not matter whether the property passed in one State or another. The same principle was reiterated by this court in K. G. Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division ([1966] 17 S.T.C. 473).5. In the present case the entire turnover of the appellant consisted of sale of manganese ore to eight firms outside the State, some of Bombay and some of Nagpur. There was a written contract of sale between the appellant and each of these firms, on more or less identical terms, the only material difference being that under two of the contracts the rate was fixed f.o.r. Bombay and under the rest f.o.r. Katanjhari, which is in the State of Madhya Pradesh. There is no disputed that the ore was loaded by the appellant into wagons at Katanjhari indented by the buying firm. There is also no dispute that the wagons went out of the State of Nagpur and Bombay respectively, the buyer acting as consignor and consignee. The only question to be examined is whether the movement of goods from the State of Madhya Pradesh into the State of Maharashtra was occasioned by the terms of the respective contracts. There was an important stipulation in each of the contracts that the first weight at Gondia weigh-bridge shall be the weight for the purpose of the contract. This stipulation in the contract necessitated the movement of the wagons from the State of Madhya Pradesh to the Gondia weigh-bridge for the fulfilment of the terms of the contract as to the payment of the price. Gondia weigh-bridge is outside the State of Madhya Pradesh. On a scrutiny of the terms of the contract, it is clear that the first weighment at the Gondia weigh-bridge was the basis of the fixation of price of the manganese ore and therefore the parties necessarily contemplated the movement of the goods to the Gondia weigh-bridge and the weighment of the goods at Gondia in performance of the terms of the contract. In our opinion, the movement of goods across the frontier was a direct and necessary consequence of the important covenant with regard to the fixation of price. It follows that the sales under the eight contracts were inter-State sales within the language of section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act. In our opinion, the present case falls within the ratio of the decision of this court in Commissioner of Sales Tax, M.P. v. Allwyn Cooper (Civil Appeal No. 1208 of 1966 decided on 21-8-1968, since reported at [1970] 25 S.T.C. 26), in which the relevant clauses of the contract of sale were almost identical with the terms of the contract of sale in the present case. The High Court has followed its previous decision in Commissioner of Sales Tax, Madhya Pradesh v. Nathani Brothers ([1968] 21 S.T.C. 465). But for the reasons already given we consider that the decision in Commissioner of Sales Tax, Madhya Pradesh v. Nathani Brothers ([1968] 21 S.T.C. 465) was not correct.For these reasons we hold that in the facts and circumstances of this case the sales of manganese ore by the appellant were in the course of inter-State trade and therefore exempted from tax under the C.P. and Berar Sales Tax Act, 1947, and the question of law referred to the High Court must be answered in favour of the appellant and against the Commissioner of Sales Tax, Madhya Pradesh.

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

Explanation:
1[ds]In the present case the entire turnover of the appellant consisted of sale of manganese ore to eight firms outside the State, some of Bombay and some of Nagpur. There was a written contract of sale between the appellant and each of these firms, on more or less identical terms, the only material difference being that under two of the contracts the rate was fixed f.o.r. Bombay and under the rest f.o.r. Katanjhari, which is in the State of Madhya Pradesh. There is no disputed that the ore was loaded by the appellant into wagons at Katanjhari indented by the buying firm. There is also no dispute that the wagons went out of the State of Nagpur and Bombay respectively, the buyer acting as consignor andwas an important stipulation in each of the contracts that the first weight at Gondia weigh-bridge shall be the weight for the purpose of the contract. This stipulation in the contract necessitated the movement of the wagons from the State of Madhya Pradesh to the Gondia weigh-bridge for the fulfilment of the terms of the contract as to the payment of the price. Gondia weigh-bridge is outside the State of Madhya Pradesh. On a scrutiny of the terms of the contract, it is clear that the first weighment at the Gondia weigh-bridge was the basis of the fixation of price of the manganese ore and therefore the parties necessarily contemplated the movement of the goods to the Gondia weigh-bridge and the weighment of the goods at Gondia in performance of the terms of the contract. In our opinion, the movement of goods across the frontier was a direct and necessary consequence of the important covenant with regard to the fixation of price. It follows that the sales under the eight contracts were inter-State sales within the language of section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act. In our opinion, the present case falls within the ratio of the decision of this court in Commissioner of Sales Tax, M.P. v. Allwyn Cooper (Civil Appeal No. 1208 of 1966 decided on 21-8-1968, since reported at [1970] 25 S.T.C. 26), in which the relevant clauses of the contract of sale were almost identical with the terms of the contract of sale in the present case. The High Court has followed its previous decision in Commissioner of Sales Tax, Madhya Pradesh v. Nathani Brothers ([1968] 21 S.T.C. 465). But for the reasons already given we consider that the decision in Commissioner of Sales Tax, Madhya Pradesh v. Nathani Brothers ([1968] 21 S.T.C. 465) was not correct.For these reasons we hold that in the facts and circumstances of this case the sales of manganese ore by the appellant were in the course of inter-State trade and therefore exempted from tax under the C.P. and Berar Sales Tax Act, 1947, and the question of law referred to the High Court must be answered in favour of the appellant and against the Commissioner of Sales Tax, Madhya Pradesh.