Holding

The Explanation to Article 286(1)(a) does not apply to the sale, which is a local intra‑state transaction, and the sales‑tax assessments are justified.

Summary

Associated Cement Companies Ltd, a cement manufacturer, supplied cement to the Cement Manufacturing Company of India Ltd, which acted as its exclusive marketing agent. The appellant claimed that the sales to the marketing company were exempt from Madhya Pradesh sales tax under the Explanation to Article 286(1)(a) of the Constitution, arguing that the transactions were not inter‑state sales. The assessing authorities, the First Appellate Authority and the Board of Revenue rejected this claim, holding that the sales were taxable. The Supreme Court examined whether the Explanation applied, noting that the sale from the manufacturer to the marketing company was a complete local sale within Madhya Pradesh and that the concept of inter‑state sale under the Sixth Amendment or the Central Sales Tax Act did not exist for the periods in question. Since the cement was not delivered as a direct result of an out‑of‑state sale, the Explanation was not attracted and the assessments were upheld. The Court dismissed the appeals.

Issues considered

Whether the sale of cement from the manufacturer to the marketing company is covered by the Explanation to Article 286(1)(a) of the Constitution for the assessment periods 1950‑51, 1951‑52 and 1952‑53.
Whether the transaction constitutes an inter‑state sale within the meaning of the Explanation and the Central Sales Tax Act.

Legislation cited

Central Sales Tax Act
Constitution of Indias. Article 286(1)(a) Explanation

Subjects

sales taxinter‑state saleExplanation to Article 286cementintra‑state saleCentral Sales Tax Actconstitutional exemptionassessment

Judgment

ASSOCIATED CEMENT COMPANIES LIMITED, KYMORE
A v.
COMMISSIONER OF SALES-TAX, INDORE, ETC. ETC.

APRIL 9, 1991
>-"
B [RANGANATH MISRA, CJI, M.H. KANIA AND
KULDIP SINGH, JJ.)

Constitution of lndia, 1950: Article 286( J)(a) Explanation-Sale
of cement under a contract by manufacturer to marketing company
within Madhya Pradesh-Non existence of Central Sales Tax Act-
Explanation not applicable. ~

c ""'
The appellant, a manufacturer of cement, entered into an agree-
ment with the Cement Manufacturing Company of India Limited, for
sale of cement. Under the agreement, the appellant was to sell its
cement only through the marketing company, and certain sums would
D be paid for the cement supplied by the marketing company, which bad
the discretion to fJX the sale price.

For the 1950.51, 1951-52 and 1952-53 periods when the appellant r-
was assessed to sales tax for the supply of cement, it maintained at the r

assessment stage that the transactions were not exigible to sales tax as
E they were covered under the Explanation to Article 286(l)(a).

The First Appellate Authority and the Board of Revenue did not
accept the stand of the appellant.

The Board of Revenue held that cement being a controlled com- ).

F modity, distribution of cement continued to be controlled during the
period, notwithstanding the expiry of the Defence of India Rules. Rely-
ing on the decision of this Court in the case of Rohtas Industries Limited
v. State of Bihar, 12 STC 621 the Board of Revenue held that the
Cement Marketing Company was an independent organisation and was
carrying on business as an independent entity and that what bad actu-
G ally been taxed were the sales effected by the appellant to the Cement
Marketing Company and not the sales made to the parties which
obtained authorisation from the Cement Controller.
_,,
"l

After analysing the terms of the contract between the manufac-
turer and the Marketing Company, this Court held in Rohtas Industries
H case that there was sale between the manufacturer and the Marketing
Company.
250
ASSOCIATED CEMENT v. C.S.T. [RANGANATH MISRA, O.J. 251

Following its view taken in Rohias Industries' case as the present
A
case bad the same terms, which bad been considered in the earlier case,
and examining the question whether the· sale that took place between
the manufacturer and the Marketing Company could be taken to be
covered by the Explanation to Article 286(1)(a), this Court, dismissing
the appeais,
B
HELD: 1. There was preceding local sales complete in every
respect within Madhya Pradesh by which title to the cement bad passed
from the appellant to the Marketing Company. The concept of inter-
State sale as brought in by the Sixth Amendment or in the subsequent
statute known as the Central Sales Tax Act was not in existence for
the relevant period now under consideration. The finding recorded
by the authorities was that the delivery of the cement was not the-direct C
result of such sale or purchase of the cement outside the State. In the
absence of such privily the Explanation is not attracted to the transac-
tions. [254E-G)

_2. In view of the finding recorded by the authorities that the cement D
in this case actually bad not been delivered as a direct result of such sale
or purchase for the purpose of consumption outside the State, the only
conclusion that can follow is that the Explanation does not apply and
the assessments are justified. [254H-255A]

Rohtas Industries Limited v. State of Bihar, 12 STC 621,. E
followed •

.i.... Mohd. Serajuddin v. State of Orissa, [1975) Suppl. SCR 169,
distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 768 F
(NT) of 1977 etc. etc. '

From the Judgment Order dated 9.10.1975 of the Madhya
Pradesh High Court in M.C.C. No. 144 of 1966.

V.A. Bobde, B.R. Aggarwala and U .A. Rana for the Appellant. G

S. V. Deshpande and S.K. Agnihotri for the Respondents.

The Judgment of the Court was delivered by
I
-I-
RANGANATH MISRA, CJ. These are appeals by special leave H
252 SUPREME COURT REPORTS [1991] 2 S.C.R.

A and are directed against the separate decisions of the Madhya Pradesh
High Court in references under the Madhya Pradesh Sales Tax Act.
Civil Appeal No. 768/77 relates to the assessment period 1951-52, Civil
Appeal 539/78 relates to 1950-51 and Civil Appeal 1038/78 to 1952-53.

The appellant is a manufacturer of cement in the factory located
B at Kymore in Madhya Pradesh. Several cement manufacturing com-
panies as also the appellant had entered into arrangement with the
Cement Manufacturing Company of India Limited whereunder the
Marketing Company was appointed as the sole and exclusive sales
manager for the sale of cement manufactured by the manufacturing
companies and the manufacturing companies had agreed not to sell
C directly or indirectly any of their cement to any person save and except
through the Marketing Company. The manufacturing companies were
entitled to be paid a certain sum for every ton of cement supplied by
them or at such other rate as might be decided upon !by the Directors
of the Marketing Company. The Marketing Company had the autho-
rity to sell cement at such price or prices and upon such terms as it
D might in its sole discretion consider appropriate.

For the three periods referred to above the appellant had sup-
plied cement manufactured by it to the Marketing Company and
maintained at the assessment stage for the respective periods that
these were covered by the Explanation to Article 286(1)(a) as it then
E stood and, therefore, the transactions were not exigible to sales tax in
Madhya Pradesh. This stand was negatived by the Assessing Officer,
the First Appellate Authority and the Board of Revenue. The Board
in the statement of the case drawn up by it held that cement became a
controlled commodity from 8th of August, 1942, and notwithstanding
the expiry of the Defence of India Rules with effect from 30th of
F September, 1946, distribution of cement continued to be controlled
even during the period. The Marketing Company had its establishment
at Nagpur then within Madhya Pradesh which received the orders of
authorisations and managed the supply from the factory at Kymore.
The Board in its statement further stated:

G "The entire question in dispute hinges round the fact as to
whether the sales in question are inter-State in nature or
should be regarded as intra-State. It is seen that the
Cement Marketing Company is an independent organisa-
tion and is carrying on business as an independent entity. It
is also seen that what has actually been taxed are the sales
H effected by the appellant to the Cement Marketing Com-
ASSOCIATED CEMENT v. C.S.T. [RANGANATH MISRA, CJ.] 253

pany of India and not the sales made to the parties which A
obtained an authorisation from the Cement Controller.
This seems to be the crux of the matter."

On this basis reliance was placed on the decision of this Court in the
case of Rohtas Industries Limited v. State of Bihar, 12 STC 621 where,
after analysing the terms of the contract between the manufacturer B
(appellant before the Supreme Court) and the Marketing Company,
this Court held:

"On a review of these terms of the agreement, it is manifest
that the manufacturing companies had no control over the
terms of the contract of sales by the Marketing Company
and that the price at which cement was sold by the Market-
c
:::r ing Company could not be controlled by the manufacturing
companies; that the manufacturing companies were entit-
. led, for ordinary cement, to be paid at the rate of Rs.24 per
ton at works, or at such other rate as might be decided
upon by the Directors of the Marketing Company, and in D
respect of special cement, at such additional rates as the
Directors of the Marketing Company might determine;
that sale by the Marketing Company was not for and on
behalf of the manufacturing companies but for itself and
the manufacturing companies had no control over the sales
nor had they any concern with the persons to whom cement E
was sold. In fine, the goods were supplied to the orders of
the Marketing Company, which had the right, under the
terms of the agreement, to sell on such terms as it thought
fit and that the manufacturing companies had the right to
receive only the price fixed by the Marketing Company.
The relationship in such cases can be regarded only as that
of a seller and buyer and not of principal and agent."

This Court in Rohtas Industries case on a detailed analysis of the
terms of the contract came to hold that there was a sale between the
manufacturer and the Marketing Company. It is not in dispute that the
agreement between the appellant and the Marketing Company in this G
case has the same terms as this Court considered in Rohtas Industries
case. It follows, therefore, that it must be held that there was a sale
between the appellant and the Marketing Company.

The Marketing Company had its establis!iment at Nagpur within
the State of Madhya Pradesh at that time. There was, therefore, a H
254 SUPREME COURT REPORTS (1991] 2 S.C.R.

A preceding local sale prior to the sales between the Marketing Company
and the allottee of cement by the regulating authority. This Court in
Rohtas Industries further found that the transaction between the man-
ufacturer and the Marketing Company had nothing to do with the ,._.
Marketing Company's sales to third parties. There was no privily bet-
ween the manufacturer and the ultimate consumer who was said to
B have been located outside the State of Madhya Pradesh.

The question for consideration is whether the sale that took
place between the manufacturer and the Marketing Company can be
taken to be covered by the Explanation. The Explanation which was
repealed by the Sixth Amendment of the Constitution in 1956 read
-·
thus:
c
"For the purposes of sub-clause (a), a sale or purchase shall
be deemed to have taken place in the State in which the
goods have actually been delivered as a direct result of such
sale or purchase for the purpose of consumption in that
D State notwithstanding the fact that under the general law
relating to sale of goods the property in the goods has by
reason of such sale or purchase passed in another State."

Rohtas Industries case was dealing with a period prior to the
Constitution; therefore, without the Explanation. The question for
E consideration thus is: does the presence of the Explanation make any
difference?

What has been found as a fact in the statement of the case is that
there was preceding local sales complete in every respect within
Madhya Pradesh by which title to the cement had passed from the
F appellant to the Marketing Company. The concept of inter-State sale
as brought in by the Sixth Amendment or in the subsequent statute
known as the Central Sales Tax Act was not in existence for the rele-
vant period now under consideration. The finding recorded by the
authorities is that the delivery of the cement was not the direct result
of such sale or purchase of the cement outside the State. In the absence
G of such privity the Explanation is not attracted to the transactions. ,.,. )

An attempt was made by counsel to rely upon some of the later
decisions of this Court where with reference to the provisions con-
tained in the Central Sales Tax Act the law had been laid down. It is
unnecessary to refer to them in view of the find~ recorded by the
H authorities that the cement in this case actually had not been delivered
ASSOCIATED CEMENT v. C.S.T. [RANGANATH MISRA, CJ.[ 255

as a direct result of such sale or purchase for the purpose of consump- A
tion outside the State. That is a finding clinching enough and once that
is taken as binding on this Court, the only conclusion that can follow is
that the Explanation does not apply and the assessments are justified.
The ratio of Mohd. Serajuddin v. State of Orissa, (1975] Suppl. SCR
169 is also against the appellant's stand.
B
We accordingly dismiss the appeals and uphold the decisions of
the High Court. Tuer¢ would be no order for costs.

_, V.P.R. Appeals dismissed.

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