Case: M/s. Hind Tobacco &amp; Cigarette Company Limited Vs. Union of India &amp; Others

1. This is plaintiffs appeal by certificate from the judgment and decree of the Andhra Pradesh High Court reversing on appeal the judgment and decree dated February 23, 1963 of the First Additional Chief Judge, City Civil Court, Hyderabad, which had decreed the present appellants suit for Rs. 1,14,960.86 ps. against the Union of India. The High Court allowed the appeal of the Union of India and dismissed the plaintiffs suit.2. The defendant called for tenders for the supply of cigarettes on various occasions. Thecarrying on the business of manufacturing cigarettes submitted its tenders which were accepted by the Chief Director of Purchases, Government of India, Ministry of Food and Agricultural Department of Food, Army Purchase Organisation, New Delhi. After acceptance of the tenders several contracts were entered into between the parties beginning with December 23, 1954 and ending July 11, 1957. They were all subject to the terms and the special instructions and conditions of contract in Schedules A and B to the contracts. Clause 7 of Schedule B relating to Price (with the Note) reads as underSchedule B... ... ... ...7. Price : The price quoted will be subject to clause 3 (b) of the General Conditions of Conduct (Supply Department Form W.S.B. 133).The price quoted will be deemed to be inclusive of the cost of packing, cigarettes excise duty, tobacco excise duty, Customs duty and all other charges (incidental to supply and incurred upto loading) but exclusive of sales tax which if payable should be shown as a separate item. Sales tax would be paid at the rates prescribed by the State Government concerned. But in the event of any rebate or refund or sales tax allowed by the State Government (on purchases for the Defence Services) subsequent to supplies, a corresponding credit will be afforded by the supplier to the Government, Sales tax where leviable and intended to be claimed from the purchaser should be distinctly shown along with the price quoted, where this is not done, no claim for sales tax will be admitted at any later stage or on any ground whatsoever.All claims for reimbursement of sales tax will be accompanied by the following certificate duly signed by the contractor :Certified that no rebate or exemption has, so far been allowed by the Sales Tax authorities retrospectively in respect of the reimbursement of sales tax so for claimed by us from the Central Government and if it is subsequently allowed the same will be refunded to the Chief Director of Purchase, Ministry of Food and Agriculture at once.Certified that the goods on which sales tax has been charge have not been exempted under the State Sales Tax Act or the rules made thereunder and the charges on the account of sales tax on these goods are correct under the provisions of that Act or the rules made thereunder."Note : Under Article 286 (1) of the Constitution of India no sales tax is payable on supplies procured on Central Government account and despatched outside the State of origin.4 (Tender No. A/3636 dated December 11, 1954) theinserted in the column pertaining to "Price Per Unit" that it was "subject toat the rate of 1 anna per rupee", but noted in the "Remarks" column, "No sales tax is leviable as per Schedule B". The quotations in this tender were also stated to be subject to the terms and conditions given in the F and A Ministrys letter dated July 6, 1954. That was the letterinviting tenders with which were enclosed Schedules A and B. Supplies were duly made by the plaintiff in accordance with the terms of the tender. Both the parties were apparently under the belief that these sales were not subject to sales tax. The Commercial Tax Officer, however, taxed all the sales and levied a total tax of Rs. 1,14,960.36 Ps. for the four assessment years8. The plaintiff took the matter on appeals but they were all rejected upto the Appellate Tribunal. Writ Petitions to the Andhra Pradesh High Court were also unsuccessful. The plaintiff demanded reimbursement by the Central Government to the extent of the amount ofactually paid. On rejection of this demand, after giving the statutory notice under S. 80 C. P. C., the plaintiff instituted the suit for the recovery of Rupees 1,14,960.36 which has given rise to the present appeal. The suit was resisted by the Union of India on various grounds, including even the bar of limitation. Defence on the merits was principally based on cl. 7 of the Special Instructions in Schedule B of the tender invitation. It was also pleaded in para 5 of the written statement that the mention of nobeing leviable (made in the contract of December, 1954 and some others) was discontinued because it was considered redundant.4. The pleadings of the parties gave rise to as many as 7 issues, those relevant for our present purpose being Nos. 2, 3, 5 and 6. They are as follows... ... ... ...2. What is the effect of note to clause 7 of the contract ?3. Whether the plaintiff company is entitled to claim the amount of sales tax from the defendant when it has not mentioned the same in the tenders ?... ... ...5. Whether the plaintiff is entitled to the reimbursement offrom the defendant.6. Whether the central Government and the plaintiff were under the bona fide belief that no sales tax would be leviable by the State of Hyderabad and then the State of Andhratrial court dealt with these four issues together. It did not agree with the contention of the Government counsel that if thewas payable the plaintiff should have claimed the same in their tenders as a separate item and having not done so they could not claim reimbursement of thepaid by them and that the plaintiffs could have found out with reasonable diligence whether or notwas leviable on the sales in question. In the trial courts opinion the Note to cl. 7 in Schedule B could by no stretch of imagination be deemed to be a mere expression of opinion. In the presence of that Note the plaintiff was held entitled to assume that nowas leviable on the goods despatched outside the State. The goods, according to the trial court, were eventually despatched and consumed outside the State and the supplies were procured on the Central Government account. In the presence of cl. 7 in Schedule B the plaintiff could not have claimed thein the tenders and the trial court also observed that the Note to this clause was very misleading and it indeed did mislead the plaintiff into the belief that no sales tax was leviable on the cigarettes procured for the Central Government and despatched outside the State, otherwise the plaintiff would have felt no difficulty in claimingin the tenders. Even in Ex.the letter from the Government of India accepting the plaintiffs tender dated December 11, 1954, it was expressly noted that the sales tax was not payable as despatches would be made outside the State of origin. This Note was prominently added against the "N.B.". In the opinion of the trial court even Art. 286 of the Constitution was also wrongly quoted in the Note to Clause 7. After taking into account all the relevant circumstances the trial Court felt that it could not be suggested with fairness that the plaintiff company was not free to assume that sales tax was not payable on the despatches of cigarettes made outside the State. The plaintiff company was assessed on the sales for the first time in December, 1957 and payment for the last contract had been made on October 31, 1957 with the result that the plaintiff could not have claimedin the tenders, being unaware till assessed, thatwas payable on these sales. The trial Court also took into account the fact that the plaintiff had resisted the levy ofright upto the High Court but without success. The ultimate conclusion was expressed by that Court in these wordscircumstances of the case clearly reveal that not only the plaintiff but also the central Government were under the bona fide belief that nowould be levied by the State of Andhra Pradesh as it appears from the averments of the defendant that as the cigarettes were delivered outside the State or Andhra Pradesh for the purpose of consumption outside the State the despatching State could not tax the sales as they weresales. The plaintiff company in my opinion is therefore entitled to the reimbursement of thefrom the defendant as they were misled by the representation of the defendant that no sales tax is leviable on the goods despatched outside the State and, therefore, they did not claim the sales tax in the tenders. I therefore decided issues 2, 3, 5 and 6 in favour of the plaintiffplaintiffs suit was decreed, as already noticed.5. The High Court on appeal did not regard Clause 7 as constituting any misrepresentation on the part of the Government and treated that clause "at the most as an opinion on a point of law". Reimbursement under Clause 7 according to the High Court, could only be claimed if the plaintiff "includedas chargeable against the buyer in the first instance". On this reasoning the defendants appeal was allowed and the plaintiffs suit dismissed.

Court's reasoning:
9. Dealing with the last argument first, Article 133 (1) confers a right of appeal on an aggrieved party when the case satisfies the requirement of Clause (a) and the judgment of the High Court is one of reversal. In such a case it is not necessary that, a substantial or important question of law should also be involved.This Court, therefore, cannot justifiably decline to go into the merits of the appeal on the ground that no substantial question of law is involved. But this apart, it cannot be said that this appeal does not involve any substantial question of law.10. Turning to the merits it is clear and indeed it is not disputed that Clause 7 in Schedule B governs the various contracts of sale between the parties. This clause expressly provides that the price quoted is exclusive ofx was expressly agreed to be paid at the rates prescribed by the State Government concerned. This liability appears to us to be the real core of one of the fundamental terms of the obligation undertaken by the purchaser. The term that theif payable, should be shown as a separate item is merely a matter of procedure and the condition that if theintended to be claimed is not distinctly shown then no such claim would be admitted at a later stage is more akin to exemption from this liability. In the case in hand in the very first tender, as already noticed, the plaintiff had actually separately shown in distinct terms that the price per unit stated in column No. 4 was subject toat the rate of 1 anna per rupee. In the Remarks Column it was again expressly mentioned that nowas leviable as per Schedule B. This tender fully complies with Clause 7 both in letter and in spirit even though in our opinion in view of the Note to Clause 7 this mention was scarcely necessary, thenot being leviable according to the defendants representation. In subsequent tenders, if there is no mention ofor of the fact that it was not leviable as per Schedule this was due to the fact that it was considered redundant. This, as already noticed, was also admitted by the defendant in the written statement. The separate mention ofwhich, in our opinion, does not relate to the fundamental term or core of the contract, cannot be considered to deprive the plaintiff of its right to realise theactually held by thedepartment to be leviable and which the defendant had in express terms undertaken to pay. The express and unqualified representation by the defendant in the Note to Clause 7 in Schedule B thatwas not leviable on these sales was, in our opinion, sufficient to justify the omission on the part of the plaintiff to distinctly show it with the price quoted to be intended to be claimed. This omission could by no means deprive the plaintiff company of the right under the contract to claim from the defendant sales tax at the prescribed rate actually paid.11.A faint contention was raised on behalf of thet there was no agreement by the defendant to paye the cigarettes supplied by the plaintiff were of an inferior quality and therefore, the company must be deemed to have agreed not to chargefrom the purchaser as is the normal practice in the market. In support of this submission reference was made to Ex.a letter dated July 6, 1954, written by the Deputy Director of Purchase, Government of India, Ministry of Food and Agriculture to the plaintiff company.All that this letter suggests is that since none of the plaintiffs "Brands" had been approved, the plaintiff was requested to get its Brands approved from the Director of Supplies and Transport so as to enable the company to quote against the Ministrys future tender enquiries. This letter does not support the counsels submission. Apparently after July, 1954 the plaintiff must have got their Brands approved which enabled them to quote against the Ministrys future tender enquiries. It is not and was never the defendants case that the Brand of cigarettes for which the tenders were actually accepted were of an inferior quality. This contention is an afterthought and is unacceptable. It is somewhat surprising that the State Government should have advanced this plea. Indeed even the main plea which was plainly contrary to the clear and explicit representation of the State Government does not reflect the expected fairness on the part of the defendant in their dealings with the citizens.