Case: State Of Andhra Pradesh Vs. Kolla Sreerama Murthy

2. Civil Appeal No. 368 of 1961 arises out of original suit No. 268 of 1951 in the file of the District Munsifs Court, Rajahmundry by the respondent for setting aside an assessment and obtain refund of a sum of Rs 2,941-7-0 which was partly the sum assessed and collected as sales-tax for the assessment year 1947-48, while Civil Appeal No. 369 of 1961 is from a similar suit praying for identical reliefs in respect of the year 1946-47, the amount of which refund was sought, however, being Rs. 1,631-12-0. The basis of the suits briefly was that the transactions whose turnover was included in his assessment, were not "sales of goods" within the Madras General Sales Tax Act (Act IX of 1939) and that consequently the assessment to tax and recovery of the same were illegal and without jurisdiction. Both the suits were decreed by the District Munsif-a decision which was affirmed by the Subordinate Judge of Rajahmundry on appeal by the State and by the High Court of Andhra Pradesh on further appeal also by the State. It is from these two judgments and decrees in the two second appeals that the present appeals have been brought.We shall now set out the nature of the transactions which the learned Judges of the High Court have held have not resulted in "a sale of goods" by the respondents so as to attract the tax under the charging section in respect of the "turnover" represented by such sales. The respondent is, as stated earlier, a dealer in gunny bags. The gunny bags dealt with by him were those manufactured in two mills known as Chittvalsa and Nellimerla Mills both situated in Chittivalsa in Visakhapatnam District. The purchase by the respondent from the mills was on terms of a written contract which was on printed form. We shall set out the relevant terms of one of the sample contracts for understanding the point involved, as it is common ground that every contract entered into by the respondent with the mills was in this form. These contracts were entered into by brokers acting for the respondent and who sent him "bought notes" setting out the terms upon which the purchases had been effected from the mills, and one of these Ex. A-1 filed in O. S. 268 of 1951 has been treated as typical. It recites the purchase on behalf of the respondent of 30,000 bags from the Chittivalsa mills, specified the description of the goods, the manner of their packing and the fact that delivery was to be effected within a period of three months. The buyer was required to make a deposit of Rs. 15 per bale within 24 hours after the contract was handed over to him and the respondent fulfilled this requirement. The Mills having thus received a part of the purchase price, they issued "delivey orders" directing the delivery of goods as per the contract and these were handed over to the buyer on his honouring a hundi for the value of the goods, the buyer in this case being the respondent. It was common ground that by the date when the delivery orders were issued, there were goods answering the contract description and of quantity sufficient to comply with the relative term in the contract, in the godowans of the mills wherefrom on the terms of the contract, delivery was to be effected. It was open to the buyer himself to have gone to the mills and taken delivery of the goods, but this was not done and it is the departure in this respect that has given rise to the legal controversy involved in these appeals. Instead of taking delivery himself, the respondent (and this appears to have been the practice of others as well) endorsed the delivery orders and these passed through several hands before the ultimate holder of the delivery order presented it to the mills and obtained delivery of the gunnies from them. It need hardly be stated that at each endorsement of the delivery order the price of the bales represented by the quantity specified in the delivery order would be collected by the successive endorsers which would, in most cases, include the profit, if it was a rising market. The case in the Courts below as well as before us was argued on the basis of this pattern of dealing. The learned trial judge and the appellate Courts including the learned Judges of the High Court came to the conclusion that on these facts there was no "sale of goods" by the respondent, because the transaction so far as he was concerned consisted merely of the endorsement of the delivery order issued by the mills and that the fact that the ultimate endorsee of the delivery order got delivery of the goods from the mills was treated as irrelevant for considering whether by the transfer of the delivery order coupled with the delivery of the goods to such endorsee there was in fact a completed sale effected by the respondent. Put in another form the argument which was upheld by the Courts below was that the transactions entered into by the respondent were mere sales or transfers of delivery orders and not any "sale of goods" so as to bring them to charge under S. 3 of the Act. It is the correctness of this conclusion that is in controversy in these appeals.

Reasoning: 7. The position would appear to be this. At the date of the contract for purchase by the respondent the goods which were the subject of the purchase were not appropriated to the contract, so that there was no completed sale since no property passed, but only an agreement for sale. Whether or not the goods which were the subject of the agreement for sale were in existence on the date of the agreement they were existing goods on the date the delivery order was issued, and they would have been appropriated to the contract and property in the appropriated goods would have passed to the respondent if he had cared to present the delivery order at the mills godown. The respondent, however without taking delivery himself, endorsed the delivery order and enabled his endorsee to lake delivery, and that endorsee (and it makes no difference to the principal if a further endorsee from him did so) took delivery of the goods and the goods became appropriated to the contract and property in goods passed to him. One view to take, and it was this that found favour with the Courts below, was that since no goods had been appropriated to the respondents contract before the delivery orders were endorsed, the successive endorsements of the delivery orders were not "sales of goods" but were merely transfers of the delivery order as some paper, though this was of some value in that it enabled the endorsee to approach the mills and obtain delivery of the goods. The result of the acceptance of this view would be to eliminate the respondent altogether from the chain and, so to speak, treat the ultimate endorsee as the purchaser from the mills. Naturally if that was correct the respondent would have effected no purchase of the goods nor, of course, any sale of goods, there being only one transaction of sale by the mills to the ultimate endorsee of the delivery order.In Bayyanas case, AIR 1961 SC 1065   this Court held that this was not a correct understanding of the legal effect of the endorsement of the delivery orders. No doubt, without an appropriation of goods to an agreement for sale there cannot be a completed contract in which the property in the goods passes to the purchaser and unless property in the goods passes, there is noare unable to read this observation as a decision by this Court that the High Court was right in distinguishing the earlier decision. The circumstance that in Bayyanas case, AIR 1961 SC 1065   besides the contract of purchase of the gunny bags there was a further agreement that the mills would give delivery of the goods to the nominees of the purchaser does not really affect the principle, in view of the admitted fact that on the uncontradicted evidence in this case, it was the common understanding of the parties that the mills would honour the endorsement of the delivery order and deliver the goods contracted for to the endorsee who produceddoubt, if on the facts there was no delivery of the goods to the last holder of the delivery order, the entire fabric on which the case for the appellant rests would disappear. There is, however, no factual basis for this submission. This fact was not alleged by the respondent at any stage of the proceedings starting from the plaint in the Court of the District Munsif right up to the statement of the case in this Court and besides, all the Courts have proceeded on the basis that such delivery was effected to the last endorsee of the delivery order but they held that such delivery did not become a sale by the respondent so as to attract the liability to tax under S. 3 of the Act. We have, therefore, no hesitation in rejecting thisplea based upon the bar contained in this section was raised before any Court right up to the High Court and not even in the grounds of appeal to this Court or even in the appellants statement of the case as originally filed. At the beginning of 1962, however, the appellant applied to this Court for leave to urge additional grounds and in pursuance of the leave so granted it has raised a point that the suit should have been dismissed by the Courts below as not maintainable, being barred by the section just now set out, in answer to this new plea the respondent put forward two objections: (1) that on a proper construction of S. 18A particularly taken in conjunction with the other amendments effected by Act VI of 1951 by which S. 18A was inserted in the parent Act, the section had no retrospective effect and could be invoked only in the case of those assessments which were completed after the new section came into force. (2) In the alternative, he raised the contention that if S. 18A barred even suits in respect of illegal assessments which had been completed and had become final, the provision was unconstitutional as violative of rights guaranteed by Art 19(1)(f) and (g). Though we heard arguments of learned Counsel in relation to these points, we consider it unnecessary to make any pronouncement on them in view of the conclusion that we have reached on the merits of the appeals