Case: South India Viscose Limited Vs. State of Tamil Nadu

The appellant in these three appeals by special leave is a company engaged in the business of manufacture and sale of art silk yarn. It has its factory at Sirumughai in the District of Coimbatore in the State of Tamil Nadu. The appellant is registered as a dealer carrying on business at Coimbatore. In the course of its business, it sold during the relevant period large quantities of art silk yarn to various purchasers some of whom were weavers residing in the States of Maharashtra and Gujarat who had been issued cards under a scheme called Export Promotion Scheme entitling them to buy specified quantities of art silk yarn from specifiedassessment years are 1962-63, 1963-64 anddetails of the Export Promotion Scheme for distribution of art silk yarn referred to above were these: There were certain weavers in India who were entitled to an incentive in the form of import licences to import art silk yarn from abroad. The said import entitlement was cut to a certain extent an d indigenous art silk yarn at concessional price was allotted to them. To regulate the scheme of allotment, a committee called the Art Silk Yarn Distribution Committee was constituted by the Government of India. The Committee made allotments to different weavers by issuing allotment cards. These allotment cards contained details of the quantity of allotment and the rayon yarn manufacturer from whom the allotted quantity of yarn could be drawn. As per the terms of the card, the yarn manufacturer should offer to the allottee rayon yarn within seven days of the date of the card without waiting for the allottee to approach him. A firm contract for the supply of yarn should be completed within a period of twenty-on e days from the date of allocation of the card. If a firm commitment was not entered into by the allottee with the yarn manufacturer within twenty-one days from the date of allocation of the card, the yarn manufacturer should return the allocation card to the Distribution Committee with suitable remarks on the card and a covering letter explaining the reasons for the return of the card. Even in the case of actual fulfilment of the quota covered by the allocation card, the said card should be returned to the Distribution Committee after the delivery of the yarn was completed. This in brief was the Scheme.In the instant case, the appellant had supplied art silk yarn to certain card holders who were re siding, as stated earlier, outside the State of Tamil Nadu. It is stated that the appellant had a selling agent and distributor by the name M/s. Rayonyarns Import Company Ltd. at Bombay and the case of the appellant was that it had supplied art silk yarn to the card holders in the States of Maharashtra and Gujarat through the said agent and the delivery of the goods was effected at Bombay. In the assessment proceedings before the Joint Commercial Tax Officer, Coimbatore for the year 1964-65, the appellant claimed that the sales of art silk yarn through its agent at Bombay were not inter-State sales as defined by section 3(a) of the Act as the movement of the goods in question from the State of Tamil Nadu to the State of Maharashtra or the State of Gujarat was not occasioned by the sales in question and that they were in fact sales which had taken place outside the State of Tamil Nadu. The Joint Commercial Tax Officer rejected the contention of the appel lant and treated the sales effected in favour of the Export Promotion Scheme card holders through the appellants agent at Bombay as inter- State sales and levied tax under the Act accordingly. He also revised the orders of assessment for the yea rs 1962-63 and 1963-64 bringing to tax the turnover relating to transactions of similar nature during those years. In the appeals filed by the appellant against the order of assessment for the year 1964-65 and of revised assessment f or the years 1962-63 and 1963-64 before the Appellate Assistant Commissioner, (Commercial Taxes), Coimbatore, the orders passed by the Joint Commercial Tax Officer were affirmed. The appellant then filed three appeals before the Tamil Nadu S ales Tax Appellate Tribunal (Additional Bench), Coimbatore against the orders passed in appeal by the Appellate Assistant Commissioner. The Tribunal also held that the sales in favour of the Export Promotion Scheme card holders outside the Stat e of Tamil Nadu were inter-State sales and were liable to be taxed under the Act. Aggrieved by the orders of the Tribunal, the appellant preferred three revision petitions before the High Court of Madras. These petitions were dismissed. Thereafter the appellant has come up in appeal to this Court by special leave.

Reasoning: In the instant case, the allocation card was first sent in November, 1963 asking the appellant directly to make an offer of the goods to the allottee. The allottee was expected to communicate his desire to purchase the goods within twenty- one days of the date of the allocation card. Such communication brought into existence a contract sale directly between the appellant and the buyer. The goods were admittedly sent pursuant to the said contract of sale. The interposition at a later stage of the selling agent who acted on behalf of the appellant in the p reparation of the invoice and the delivery of the goods would not alter the true character of the sale as the selling agent was just a conduit pipe. The goods having been despatched from one State to another State pursuant to a contract of sale which came into existence directly between the appellant and the buyer within a few days after the date of the allocation card, the sale was an inter-State sale. The Tribunal and the High Court were, therefore, right in upholding the orders of the assessing authority levying tax under the Act on all sales which had taken place in favour of the Export Promotion Scheme card holders in Gujarat and Maharashtra even though the selling agent of the appellant at Bombay had on behalf of the appellant also dealt with such card holders at Bombay, as the transactions in question satisfied the tests laid down in the case of English Electric Company of India Ltd. (supra)