Case: Commissioner of Sales Tax, M.P., Indore Vs. Allwyn Cooper

2. The respondent, who carries on business of selling manganese ore, was assessed to sales tax under section 18(3) of the Madhya Pradesh General Sales Tax Act, 1958 (2 of 1959) for the period 1st October, 1957, to 30th September, 1958, by the Sales Tax Officer, Balaghat, in respect of sales of manganese ore by the respondent of the value of Rs. 2, 77, 976.45. The respondent took the matter in appeal to the Appellate Assistant Commissioner of Sales Tax. It was contended on behalf of the respondent that the entire turnover was of sales in the course of export of manganese ore out of India and alternatively, the sales weresales, and, therefore, not liable to be taxed under the Madhya Pradesh General Sales Tax Act, 1958 (hereinafter called "the Act"). The objection was rejected by the Appellate Assistant Commissioner who dismissed the appeal. In second appeal the Board of Revenue accepted the contention of the respondent that the sales were in the course oftrade or commerce, and, therefore, could not be assessed to sales tax under the Act. Taking this view the Board of Revenue remanded the matter to the Sales Tax Officer for assessment under the Central Sales Tax Act, 1956. At the instance of the respondent, the Board of Revenue made a reference to the Madhya Pradesh High Court under section 44 of the Act on the following question of lawin the facts and circumstances of the case, the disputed sales of manganese amounting to Rs. 2, 77, 976.45 were sales in the course oftrade and commerce or weresales ?"By its judgment dated 26th November, 1965, the High Court answered the question holding that the disputed sales were in the course oftrade of manganese ore.The sales of manganese ore were effected during the period 1st October, 1957, to 30th September, 1958. Before the commencement of this period, article 286 of the Constitution was amended on 11th September, 1956, by the Constitution (Sixth Amendment) Act, 1956. By the amendment, the explanation to the first clause of article 286 was omitted and for clauses (2) and (3) the following clauses were inserted :"(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance intrade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify."3. By the Constitution (Sixth Amendment) Act, 1956, a new clause in article 269 was added giving to Parliament the power to formulate principles for determining when a sale or purchase of goods takes place in the course oftrade or commerce. In order to carry into effect the conferment of this power, the Constitution (Sixth Amendment) Act inserted a new entry, entry 92A of the First List of Seventh Schedule and amended entry 54 of the State List. In exercise of this power under entry 92A, Parliament enacted the Central Sales Tax Act, 1956, which came into force on the 5th January, 1957. Section 3 of the Central Sales Tax Act provides as follows :"3. A sale or purchase of goods shall be deemed to take place in the course oftrade or commerce if the sale oroccasions the movement of goods from one State to another; or(b) is effected by a transfer of documents of title to the goods during their movement from one State to another."The interpretation of section 3(a) of the Central Sales Tax Act was theof consideration by this court in Tata Iron & Steel Co. Ltd., Bombay v. S. R. Sarkar ([1960] 11 S.T.C. 655) and Shah, J., speaking for the majority of the Bench, observed as follows :"In our view, therefore, within clause (b) of section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto : clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of covenant or incident of the contract of sale, and property in the goods passes in either State."This observation of Shah, J., was cited with approval by this court in Cement Marketing Co. v. State of Mysore ([1963] 14 S.T.C. 175) and again in State Trading Corporation v. State of Mysore ([1963] 14 S.T.C. 188). In the later case Sarkar, J., observed thus :"The question then is, did the sales occasion the movement of cement from another State into Mysore within the meaning of the definition ? In Tata Iron & Steel Co., Ltd. v. S. R. Sarkar ([1960] 11 S.T.C. 655), it was held that a sale occasions the movement of goods from one State to another within section 3(a) of the Central Sales Tax Act, when the movement is the result of a covenant or incident of the contract of sale. That the cement concerned in the disputed sales was actually moved from another State into Mysore is not denied. The respondents only contend that the movement was not the result of a covenant in or an incident of the contract of sale."In that case the court held that the movement of goods was a result of the covenant of the contract of sale or an incident of such contract and so the sale must be treated assale as defined in section 3(a) of the Central Sales Tax Act, 1956. The court did not go into the question as to whether the property had passed before the movement of the goods or not and this was because according to the decision in Tata Iron & Steel Co. Ltd., Bombay v. S. R. Sarkar & Others ([1960] 11 S.T.C. 655), it did not matter whether the property passed in one State or another. The same principle was reiterated by this court in K. G. Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division ([1966] 17 S.T.C. 473).4. In the present case the sales of manganese ore took place under four written agreementsone with M/s. Ram Bahadur Thakur & Co., Nagpur, dated 22nd July, 1957, another with M/s. Jyoti Brothers, Calcutta, dated 7th March, 1958, and the remaining two with M/s. B. P. Khemka & Co. Private Ltd., Calcutta, dated 10th November, 1956, and 29th May, 1958. In the first two contracts, there was a clause to the effect that the price was f.o.r. Katangjhiri railway siding and that the first weighment at the Gondiashall be the basis for final accounts. It was held by the High Court that the clause relating to the weighment at Gondiawhich fell en route between the place of despatch and the destination clearly showed that the performance of the contract necessarily involved the movement of the goods across the State frontier. As regards the other two contracts there is a specific clause that the price per ton will include railway freight from the loading station to the port of Vishakhapatnam and that the last 10 per cent. of the price will be paid on receipt of the goods at that port. The High Court took the view that these two contracts also involved despatch of goods outside the State of Madhya Pradesh and delivery thereof at a place outside the State, and so, the sales fell under section 3(a) of the Central Sales Tax Act.

Court's reasoning:
We are unable to accept the arguments put forward by theas correct. Having examined the terms of the four contracts in the present case, we are satisfied that the performance of each one of the contracts necessarily involved the movement of goods from the State of Madhya Pradesh to the State of Maharashtra or to the State of Andhra Pradesh.So far as these two contracts of sales are concerned, it is manifest that the first weighment at the Gondiawas the basis of fixation of price and the parties therefore necessarily contemplated the movement of the goods to the Gondiaand the weighment of the goods at Gondia in fulfilment of the terms of the contract. In our pinion, this is a very important feature of the two contracts and in order to fulfil the requirement of the clause, the seller had necessarily to move the goods by rail across the frontier of Madhya Pradesh. In regard to these two contracts therefore the movement of goods was a direct and necessary consequence of the important covenant with regard to the fixation of price. It follows that the sales under these two contracts weresales within the language of section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act.The legal position with regard to other two contracts, viz., the contracts dated 10th November, 1956, and 29th May, 1958, with M/s. B. P. Khemka & Co. is the same.It is evident that in these two contracts there is an express covenant for the despatch of manganese ore to Vishakhapatnam Port and for payment of a certain price for the ore, which included railway freight from Katangjhiri railway siding to Vishakhapatnam Port. Under one agreement, the last balance of the price of the goods was to be paid after loading, weighing and despatch of the ore to the port. The other agreement provided that the last balance of the price was payable after the acceptance of the goods "in the plots of the buyers at the port". It is manifest from these stipulations that the movement of manganese ore from the State of Madhya Pradesh to Vishakhapatnam outside the State was a direct result of the covenant of these contracts. It follows that these two sales also weresales under section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act.