Case: State Of Tamil Nadu Vs. Dharangadhara Trading Co. Ltd

2. The facts giving rise to the appeal are as followsThe Dharangadhara Chemical Works Ltd. is a manufacturer of caustic soda and certain other chemicals. Dharangadhara Chemical Works Ltd. (referred to hereinafter as "the Chemical Company") entered into an agreement dated August 9, 1957 under which it agreed to sell all its products to Dharangadhara Trading Co. Pvt. Ltd. (referred hereinafter as "the Trading Company"). Under Clause 1 of the said agreement, the Chemical Company agreed to confine the sale of all the products manufactured by it at all its works to the Trading Company for a period of 5 years from March 1, 1958. Clause 2 of the agreement provided, the Chemical Company would make the sales directly to the Trading Company on a principal to principal basis against offers or indents. Clause 3 provided that the selling price would be determined by the Board of Directors of the Chemical Company on the basis of ex-factory of FOR booking or FOR destination stations as decided upon by the Directors. The delivery of the goods would, however, be given FOR at booking stations. The Trading Company would make payments to the Chemical Company within one month from the date of supply or sale of goods by the Chemical Company. Pursuant to this agreement, sales were effected by the Chemical Company to the Trading Company. Although the aforesaid agreement contained the general terms as set out earlier, neither the booking stations, nor the destination stations nor the sale price were given in the said agreement. The Trading Company used to give directions to the Chemical Company for dispatching specified quantities of goods to the stations named by the Trading Company and as per these directions, the Chemical Company booked the goods at the booking station which was invariably Arunuganeri Railway Station in the State of Tamil Nadu, showing themselves as the consignors and the Trading Company as the consignees of the goods specified in that contract of sale. After booking the goods, the invoices were handed over to the Trading Company by the Chemical Company. It may be mentioned that the actual quantities sold, the sale price, the booking station and the destination stations were not determined under the aforesaid agreement of August 9, 1957, but in the actual contracts of sale in respect of definite or specified quantities. The mode in which sales were made was that the Trading Company obtained orders from out of State buyers and entered into agreement of purchase with the Chemical Company for these specified quantities. All the goods sold under these contracts of sale were booked at the aforesaid railway station in Tamil Nadu to the various places outside the State of Tamil Nadu where buyers from the Trading Company required the goods and after the goods were booked as aforesaid on the railway, the railway receipts and the invoices concerned were endorsed and handed over to the Trading Company3. Admittedly, as pointed out by the Tribunal, there were two sets of sales, one by the Chemical Company to the Trading Company and the second by Trading Company to the various out of State buyers. In the original assessment order for the assessment year 1961-62 made by the Sales Tax Officer, both the sales by the Chemical Company to the Trading Company and the sales by the Trading Company to the out State buyers were treated as inter-State sales. Consequently, central sales tax was levied on the first sale, but not on the second sale. This assessment order was revised and under the revised assessment order the assessing authority treated the sales effected by the Chemical Company to the Trading Company as intra-State sales and the sales effected by the Trading Company to the out of State buyers as inter-State sales falling under Section 3 ofthe Central Sales Tax Act, 1956. The assesses, namely, the Chemical Company as well as the Trading Company filed appeals before the Appellate Assistant Commissioner contending that both the said sales were inter-State sales. It was contended by the assessee that the sales by the Trading Company to the out of State purchasers were admittedly inter-State sales and as far as sales by the Chemical Company to the Trading Company were concerned, these were also inter-State sales as the sales were completed by the delivery of railway receipts and invoices only after the inter-State journey of the goods had commenced. These contentions were rejected by the Appellant Commissioner, who dismissed the appeals. Both the assesses filed appeals against the decisions of the Appellate Assistant Commissioner to the Tribunal. The Tribunal allowed both the appeals

Reasoning: 5. The only submission advanced by Mr Mahajan, learned counsel for the appellant, was that there were two sets of sales, namely, by the Chemical Company to the Trading Company and by the Trading Company to the out of State buyers. It was submitted by him that the first set of sales, namely, by the Chemical Company to the Trading Company were local or intra-State sales because under the agreement dated August 9, 1957 the delivery was to be effected at the booking station. In our view, as the Tribunal has rightly pointed out, the agreement dated August 9, 1957, is merely a general agreement and the actual terms of the contracts of sales as well as the instructions of the out of State buyers have to be taken into account in determining the nature of the sales in question. In view of this, the conclusions arrived at by the Tribunal as well as the High Court that the sales by the Chemical Company to the Trading Company were inter-State sales cannot be faulted and the learned counsel for the appellant has not advanced a single reason showing how that conclusion is incorrect. In fact, this conclusion finds some support from the observations of this Court in Union of India v. K. G. Khosla & Co. (P) Ltd. [(1979) 2 SCC 242, 248 : (1979) 3 SCR 453 , 460 : 1979 SCC (Tax) 101 : (1979) 43 STC 457 ]