Case: Bengal Timber Trading Co. Ltd Vs. Commissioner Of Sales Tax, Madhyapradesh

1. These are three appeals by leave granted by this Court from orders of reference under S. 44(1) ofthe Madhya Pradesh General Sales Tax Act, 1958 at the in" stance of the Commissioner of Sales Tax, Madhya Pradesh to the High Court in that State. The question in each of the references was, whether, in the facts and circumstances of the case, the, sales of sleepers (for railways) made by the non-applicant (Bengal Timber Trading Co. Ltd.) under the agreement with the President of India came under Art. 286(1)(a) of the Constitution read with the Explanation thereto and therefore were exempt from the imposition of tax under the C. P. and Berar Sales Tax Act, 1947?2. Except for the amounts which varied from year to year involved in the sales, the facts and circumstances were common in all the three cases. The periods for which tax was sought to be imposed were from 1st July 1950 to 30th June 1951, from 1st Ju1y 1951 to 30th June 1959 and from 1st July 1952 to 30th June 1953. It will be noted that ah the three periods are prior to the amendment of Art. 286 of the Constitution by the Constitution (Sixth Amendment) Act, 1956.The contract in this case was entered into between the President of India and the appellant before us and contained terms and conditions to be noted immediately. The recital to the agreement shows that the contractor has agreed to supply and deliver to the State Wooden sleepers to the number and of the description and quality at the price or prices and at the times and places and in the manner detailed in the Schedule, specification and conditions of contract hereinafter appearing all of which form part and parcel of this agreement. The relevant conditions of contract are as(1). "Time of delivery of the sleepers shall be of the essence of the contract and the contractor shall deliver the sleepers on or before the date or dates mentioned in the Schedule or within such extended time or times as may be allowed under cl. (2)...." Clause 2 provides that if the contractor shall be delayed in the supply of the materials so as to necessitate an extension of the time provided in the Schedule, he shall apply in writing to the Sleeper Control Officer, Eastern Group who, if reasonable grounds are shown to his satisfaction, shall grant such extension in writing as in his absolute discretion he may think fit.Cl. 3(a). "The prices named in the Schedule shall cover everything required to be done by the contractor in terms of the specification and conditions of contract including all loading and handling charges connected with the inspection and delivering of the sleepers on rail and taxes and impositions in respect of the sleepers till they are delivered and finally accepted under the terms of this contract."Cl. 3(b) provides that in the event of wagons not being available within a month after passing, the contractor shall stack and earth the passed sleepers. Pending despatch, the sleepers were to remain in the contractors custody.Cl. 4. "The person or persons authorised to inspect, pass to and brand sleepers for the State under these conditions of contract....will be appointed or nominated by the President, Eastern Group Sleeper Contract and/or the Sleeper Control Officer, Eastern Group. ."Cl. 5(a) "The sleepers shall be offered for examination and passing within the boundaries of the railway stations mentioned in the Schedule unless permission is given in writing by the Sleeper Control Officer, Eastern Group, to the contractor to offer them for inspection at other stations or sites"Cl. 5(g) "The contractor shall make all arrangements with the railway concerned for the lease of an adequate plot or plots of land at stations where he desires to offer sleepers for inspection and bear the charges thereof."Cl. 9 provides for testing of the sleepers by the Sleeper Passing Officer and any sleepers which were rejected by him were to be removed from the railway premises at the charge and cost of the contractor. Under cl. 10 the Sleeper Control Officer was to give the contractor a passing certificate of the number passed and rejected at such station Under cl. 11(a)passing contractor shall apply to and obtain from the Sleeper Control Officer. Eastern Group, his orders as to the despatch of the passed sleepers which would then be disposed of by the contractor either by handing them over to the consignee or by loading into railway wagons and booking them under the risk note B by rail to the consignee to whom the sleepers were allotted". Cl. 11 (f) provides that on arrival at destination, the consignee shall check the number of sleepers and report on any shortage or the receipt of defective sleepers. In all cases, the Sleeper Control Officer was to be the final authority as to whether such sleepers were in good order and conformed to the specification or not. Cls. 11(g), 11(i) and 12 ran as11(g) "In the case of passed sleepers booked by rail the contractor shall immediately after loading apply for and obtain from the despatching station master a tally receipt for the number loaded. Such sleepers as are acknowledged by the consignee as possessing the passing mark of the Sleeper Passing Officer and the private mark of the contractor will be deemed fully delivered, subject, however, to the right of the consignee to have such sleepers re-inspected by the Sleeper Control Officer or his representative and all sleepers rejected by the Sleeper Control Officer shall be deemed to be non-delivered and all sleepers are to be at the risk of the contractor until fully delivered and finally accepted at the destination."Cl. 11(i). "If there is any shortage in the number of sleepers received by the consignee in any particular consignment i. e., covered by a single railway receipt, the contractor shall be paid for all sleepers shown on the tally receipt provided all sleepers received by the consignee are passed sleepers and have not been rejected by the Sleeper Control Officer but if any part of such consignment consists of un-passed sleepers they shall be rejected and included in the shortage and the contractor shall be held responsible for the total shortage in that consignment and shall not receive any payment for such shortage."Cl. 12. "The sleepers shall be of the best description and in strict accordance with the specification and the contractor shall receive payment for such sleepers only as are approved, branded and passed by the Sleeper Passing Officer and duly delivered to the consignee in terms of the contract.13 provides for payment of 90 per cent on bills submitted in triplicate supported by the passing certificate, tally receipt and by an acknowledgment from the consignee to the Sleeper Control Officer certifying that the sleepers have been received by him and have been checked and found in order. The payment of the remaining 10 per cent shall be made on bills submitted in triplicate as soon as the sleepers have been delivered as provided in cl. 11 (g).5. Clause 14must be expressly understood that all on account or advance payments are in no way to be considered as relieving the contractor in any way from the liabilities he may incur under the terms of the contract. This has express reference to cl. 11(g) above.The schedule to the contract was in tabular form containing six columns. The 3rd column was headed places at which to be delivered and below it was mentioned "Dhamtari, Eastern Railway." The 5th column was headed rate at which the sleepers to be supplied at each place inclusive of all demands, F. O. R. In this column were given the rates for different dimensions. The 6th column was headed month of completion and in this column (to quote from the document at page 112 of the paper book) was given the date 15th October, 1952. The third note at the foot of the schedule provided that the date of completion of the contract shall be the last date of inspection at the suppliers stations during the month in which the contract is due to be completed."7. The High Court of Madhya Pradesh took the view that the sales were completed in Dhamtari, that the property in the goods passed to the purchaser at the place and the sleepers were actually delivered to the purchaser at the place. It was further stated in the judgment of the High Court that the place of delivery was specifically stated to be F. O. R. Dhamtari. The last observation does not seem to be correct because, as noted already, the place of delivery as given in the Schedule was Dhamtari, Eastern Railway and it was only in connection with the price of the goods that the expression F. O. R. when used in connection with the place of delivery means that the delivery prima facie takes place when the goods are put on rail and when the expression is used in connection with the price, it means that the rate is to be inclusive of all charges of putting the goods on rail.

Reasoning: 11. In our opinion, we have got to take the whole of the contract into account and then find out the intention of the parties as to where actual delivery was to take place thereunder. While there can be no doubt that the major part of the operations of the contractor with regard to delivery were to be performed at Dhamtari he was not relieved of all liability as to delivery until the goods were finally accepted at the destination by the consignee. In this respect, we cannot overlook Cls. 3 (a), 11(g), 12 and 14 of the conditions of contract when the consignee was outside Madhya Pradesh. Cl. 3 (a) speaks of delivery and final acceptance under the terms of the contract. Delivery here is linked with final acceptance which according to Cl. 11 (g) can only be after the goods had reached the destination and were acknowledged as accepted by the consignee. Cl. 11 (g) makes it clear that notwithstanding the fact that the goods had been passed by the Sleeper Passing Officer at Dhamtari and that they had been put on rail within the period of the contract at the said station and the Sleeper Passing Officer had given the contractor a passing certificate in terms of C1. 10 and the station master at Dhamtari had issued a tally receipt for the number of sleepers loaded, the consignee still had the right to inspect the goods at the destination and reject any which were not in terms of the contract and such rejected goods were to be treated as non-delivered. All this, in our opinion, puts the matter beyond doubt that the actual physical delivery was not taken as complete before the goods were accepted by the consignee at the destination. In all such cases, the consumption took place in the State to which the goods were despatched with the result that the sales came within the purview of the Explanation to Art. 286 (1) (a) as it stood before the Sixth Amendment of the Constitution.We find ourselves unable to agree with the above expression of opinion as we have already pointed out that the question is not when the title to the goods passed under the contract, but to ascertain whether actual delivery of the goods took place outside the State of Madhya Pradesh for the purpose of consumption there so as to be within the deeming provision of the Explanation to Art. 286 (1). The contract has to be considered in the setting of the facts and circumstances of the case as a whole and Cl. 11(g), 11 (i), 12, 13 and 14 cannot be read as conditions superimposed after the actual delivery of the goods. The place of actual delivery in the light of all the circumstances of the case can only be the destination of the goods and the goods can only be said to be fully delivered and finally accepted after they are acknowledged at the destination by the Sleeper Controlis not necessary to examine the case in detail but it is sufficient to say that even if there was no rejection at the place of destination, actual delivery would not be completed until they were finally accepted at destination and to that extent we find ourselves unable to agree with the decision of the Orissa High Court.16. In the result, it must be held that the sales in these cases were covered by the Explanation to Art. 286 (1) and as such not taxable by the State of Madhya Pradesh.