Case: The Cement Marketing Co., Of Indialtd. And Another Vs. The State Of Mysore And Another

2. The facts necessary for the decision of this appeal are these: Appellant No. 1The Cement Marketing Co. Ltd.are the Sales Managers of the second appellantThe Associated Cement Co.under an agreement dated April 21, 1954. The High Court has described the first appellant to be the Distributors of the second appellant. The second appellant is a manufacturer of cement and at the material time it had over a dozen factories in different parts of India, none of which was in the State of Mysore. The head office of the first appellant is at Bombay and it had then a branch office at Bangalore in the State of Mysore. The first appellant was registered as a dealer under the Mysore Sales Tax Act, 1948, hereinafter called the "Mysore Act." At all material times cement was and still is a controlled article. Whether the sale was to a Government Department i.e. to the Director General of Supplies and Disposal, Government of India, New Delhi or to a person authorised by the said officer or to the public it was effected on authorizations given to the buyers by appropriate Government authorities and produced by them in the office of the first appellant. Both in regard to purchases by the public and the Government the modus operandi was more or less identical. It was this: Every one wishing to buy cement had to get an authorization in a standard form which authorized the first appellant to sell cement in quantities mentioned therein and the cement had to be supplied from the factory therein mentioned. That document was in the following form which actually relates to a sale to a Government contractor.The Dy. Development officer, Govt. of India, Ministry of Commerce and Industry Development Wing, (Chemicals 1, Mineral Industries) Shahjehan Road, New Delhi.3. The Controller of Civil supplies in Mysore Bangalore forThis authorisation was subject to the following conditions: It was to be utilised within 15 days; the cement released could be used only for the purpose for which it was given; the authorisation was not transferable; the authority could, if necessary, revoke the authorisation at any time and even the orders booked under the authorisation could be cancelled. The purchaser or the indentor had then to place an order with the first appellant as Sales Managers of the second appellant stating the requirement, where the goods were to be sent and how they were to be sent. The seller entered into a contract with the first appellant. This contract is in a standard form and gives conditions of sale. Thereupon the first appellant instructed its Bombay office to despatch the cement in accordance with the instructions of the buyer and the authorisation. In this letter they had to mention the number of the authorisation and the person who had issued it and also to whom the goods were to be sent and how and certain other details which are not necessary for the purposes of this appeal were also to be given.4. Each instruction indicates that it was issued for and on behalf of appellant No..2 by appellant No. 1 as its Sales Managers. A copy of the letter of instruction was sent to the factory from where the goods were to be despatched and the particulars of the authorisation had to be mentioned therein. Thereafter the first appellant sent an advice to the purchaser enclosing therewith the Railway Receipt for the goods and this advice also mentioned the particulars of the authorisation against which the goods were being sent. Both the contract of sale and the advice above mentioned stated that the goods were being despatched at the buyers risk from the time the delivery was mace by the factory to the carriers and the railway receipt was obtained for the goods. In the present case all the goods were sent, as indeed they had to be sent against the authorisations from the venous factories belonging to the second appellant which at the relevant time were all situate outside the State of Mysore and were received in the State of Mysore by the various sellers. (sic)5. The position of the first appellant is as was accepted by the Sales Tax officer in his order dated March 31, 1958, that of Sales Managers of the second appellant but in regard to the nature of the transactions the Sales Tax officer found.In its judgment the High Court took into consideration the fact that the first appellant had a branch office at Bangalore within the State of Mysore and that the public placed their orders with the first appellant for supplies of cement against permits granted to them; that the first appellant, who after accepting the offer for the supplies of cement, collected the price from the intending purchasers and then directed one of the factories of the second appellant to supply cement to the purchasers and actual delivery to the purchaser was within the State of Mysore and therefore the contention that cement was loaded outside the State of Mysore and despatched to the purchaser did not convert sales intosales but weresales. It appears that the true nature of the transaction was not correctly considered by the High Court.

Court's reasoning:
7. The modus operandi above mentioned shows that before an intending purchaser could obtain cement he had to get what is called an authorisation from a Government authority which nominated the factory from which the intending purchaser had to get his supplies of cement. That authorisation with an order has to be given to the first appellant; and after a contract in the standard form was entered into the first appellant sent the order to the factory named in the authorisation and that factory then supplied the requisite goods to the purchaser. The factory from where the cement was to be supplied was not in the hands or at the option of the first appellant, but was entirely a matter for the Government authority to decide, so that the cement which was supplied from a particular factory was supplied not at the choice of the first appellant but pursuant to the authorisation.In the present case the contract itself involved the movement of goods from the factory to the purchaser i.e. across the border from one State to another because the factories were outside the State of Mysore and therefore transactions were clearly transactions of sale of goods in the course oftrade or commerce. Taking the nature of the transaction and preliminaries which are necessary for the sale or purchase of cement it cannot be said that the sale itself did not occasion the movement of goods from one State to another. The essential features of the contracts proved in the present case are analogous to those in Mohan Lal Hargovind v. State of Madhya Pradesh,SCR 509: ((S) AIR 1955 SC 786  ). In that case the assesses were a firm carrying on business of making and selling birds in Madhya Pradesh. In the course of their business they imported finished tobacco from dealers in Bombay State, rolled it into birds and exported the biris to various other States. Both the exporters of tobacco from Bombay State who supplied the assessees and the assessees were registered dealers under the C.P. and Berar Sales Tax Act 1947. It was held that the assessees imported finished tobacco into Madhya Pradesh from persons who were carrying on in the State of Bombay business of processing tobacco and selling the goods and there was, as a result of these transactions movement of goods from the State of Bombay to the State of Madhya Pradesh and therefore the transactions involved movement of goods across the State border and they were not liable to be taxed by virtue of Art. 286 (2) of the Constitution. In State of Travancore Cochin v. Bombay Co. Ltd., 1952 SCR 1112: (AIR 1952 SC 366  ) which was a case under Art. 286 (1) (b) i.e. sale and purchase in the course of exportThus a sale to fall within Art. 286 (1) (b) has to be a sale which occasions the export. Again in State of Travancore Cochin v. Shanmugha Vilas Cashew Nut Factory, 1954 SCR 53  : (AIR 1953 SC 333  ) the words "in the course of" were interpreted to mean a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as a part of or connected with such activities. At page 63 (of SCR) : (at p. 336 of AIR) the learned Chief Justice explained the words "integratedIn E. Narasimham and Sons v. State of Orissa.SCR 314: (AIR 1961 SC 1344  ), it was held in the case of sales covered by Art. 286 (1) (b) that only sale or purchase of goods which occasions the export or import of the goods out of or into the territory of India were exempt from the imposition of tax on the sale or purchase of goods and in regard to prohibition against imposition of tax on inter State sales the test, it was said, was that in order that a sale or purchase might be inter State it is essential that there must be transport of goods from one State to another under the contract of sale or purchase. The following observations from the Bengal Immunity Co. Ltd. v. State of Bihar,SCR 603 at pp.(S) AIR 1955 SC 661   at p. 734) were quoted with approval in support of thesale could be said to be in the course oftrade only if two conditions conjure: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course ofs the tests which have been laid down to bring a sale withinsales are that the transaction must involve movement of goods across the border, (Mohanlal Hargovinds case,SCR 509: ((S) AIR 1955 SC 786  ); transactions arein which as a direct result of such sales the goods are actually delivered for consumption in another State; Ram Narain and Sons v. Assistant Commissioner of Sales Tax,SCR 483 at p. 504: (S) AIR 1955 SC 765   at p. 773) a contract of sale must involve transport of goods from one State to another under the contract of sale; Bengal Immunity Co.s case,SCR 603: ((S) AIR 1955 SC 661  ). In the case of sales in the course of export or import the test laid down was a series of integrated activities commencing from an agreement of sale and ending with the delivery of goods to a common carrier for export by land or by sea; Bombay Co. Ltd. case, 1952 SCR 1112: (AIR 1952 SC 366  ). "In the course of" was explained to mean a sale taking place not only during the activities directed to the end of the exportation of the goods out of the country but also as part of or connected with such activities and "integrated activities" was explained in similar language. This court again accepted these tests in E. Narasimhams case,SCR 314 :(AIR 1961 SC 1344  ). In S. 3 of the Central Sales Tax Act, ( Act 74 of 1956) the legislature has accepted the principle governingsales as laid down in Mohanlal Hargovinds case,SCR 509: ((s) AIR 1955 SC 786  ). The principles for determining when a sale or purchase of goods takes place in the course ofsale or commerce outside theAs stated above under the contracts of sale in the present case there was transport of Roods from outside the State of Mysore into the State of Mysore and the transactions themselves involved movement of goods across the border. Thus if the goods moved under the contract of sale, it cannot be said that they weresales. It was not the volition of the first appellant to supply to the purchaser the goods from any of the factories of the second appellant. The factories were nominated by the Government by authorisations which formed the buds of the contract between the buyer and the seller. Applying these tests to the facts of the present case we are of the opinion that the sales were in the nature ofsales and were exempt from Sales tax. In these circumstances the contracts of sale in the present case have been erroneously considered to be. The decision in Rohtas Industries Ltd. v. State of Bihar, (1961) 12 STC 615: (AIR 1963 SC 347  ) to which reference was made by the respondent does not apply to the facts of the present case because the agreement between the first appellant and the second appellant is different from that which existed between Rohtas Industries Ltd. and the Cement Marketing Co. of India in the case above cited. On an examination of the agreement between those two companies this court held that the relationship which existed between the two was of seller and buyer and not of principal and agent. In the present case the agreement is quite different. In the first clause of the agreement between the two appellants and the Patiala Cement Co. dated April 21, 1954 the first appellant was appointed the sole and exclusive Sales Manager of the second appellant and as such the first appellant was entitled to enter into contracts of sale, receive payments of the same and do all acts and things necessary for the effective management in connection with the contracts of sale entered into on behalf of the principals. The sale price and the terms and conditions of sale were to be determined by the principals. The Sales Manager was to keep its administrative and technical staff at such places in India as was determined by thethe establishment charges and other expenses of the Sales Managers were for and on behalf of the principals and were to be defrayed by the principals in proportion to their annual sales. At the end of every month the Sales Managers were to submit to the principals accounts showing sales contracts by it on behalf of each one of the principals. At the end of each financial year ending July 31, the Sales Managers had to make a proper account of all their operations during the year and after submitting them for confirmation to the principals had to pay the price of annual sales realizations to each of the principals to whom they happened to relate. Clause 10 provided that subject to instructions of the principals the Sales Managers were to make all necessary arrangements to secure speedy and economical transport of cement. These terms are quite different from those in the case of Rohtas Industries LtdSTC 615: (AIR 1963 SC 347  ) and therefore that decision has no application to the facts of the present case.In the result the imposition of the Sales tax on the appellant for the year of assessment except for the period April 1,1955 to September 6, 1955 was illegal and was not leviable for that period. The appeal is therefore allowed to that extent and the writ petition of the appellants succeeds but it will not affect the tax paid for the period above mentioned.