Holding

Sales effected by the manufacturer to the trading company through the transfer of documents of title after the goods had begun inter‑state movement are inter‑state sales under Section 3 of the Central Sales Tax Act, 1956.

Summary

The State of Tamil Nadu challenged the tax treatment of sales made by Dharangadhara Chemical Works Ltd. (the manufacturer) to Dharangadhara Trading Co. Ltd. (the trading company). The parties had a general agreement under which the trading company obtained orders from out‑of‑state buyers and the manufacturer booked the goods at a railway station in Tamil Nadu, handing over only the railway receipts and invoices after the goods had begun their inter‑state journey. The assessing authority initially treated these sales as intra‑state, but the Tribunal and the Madras High Court held them to be inter‑state sales under Section 3 of the Central Sales Tax Act, 1956, either on the basis of sub‑section (a) or, alternatively, sub‑section (b). The State appealed to the Supreme Court, arguing that delivery was at the booking station and therefore intra‑state. The Court affirmed the lower courts' view that the nature of the transaction—delivery of documents of title after the goods had moved out of the state—constituted an inter‑state sale, and dismissed the State’s appeal with costs.

Issues considered

Whether the sale of goods by the manufacturer to the trading company, effected by booking the goods at a railway station in Tamil Nadu and handing over documents of title after the goods commenced inter‑state movement, qualifies as an inter‑state sale under Section 3 of the Central Sales Tax Act, 1956.
Whether the general agreement between the parties, which did not specify booking or destination stations, can be used to determine the character of the sale.

Legislation cited

Central Sales Tax Act, 1956s. 3(a), s. 3(b), s. 6(2)(B)
Tamil Nadu General Sales Tax Acts. 38

Subjects

Central Sales Taxinter‑state saledocuments of titlebooking stationSection 3tax assessmentTamil Nadu

Judgment

STATE OF TAMIL NADU
A
v.
DHARANGADHARA TRADING CO. LTD.

MAY 3, 1988

-)( [R.S. PATHAK, en AND M.H. KANIA, J.] B

Central Sales Tax Act, 1956: Section 3-Assessee-Manufac-
turer-Booked goods to destinations as required by out of State
buyers-Only documents of title handed over to Trading Company-

~
Nature of sales by Manufacturer to Trading Company-Whether inter-
state or intra-state.
c
An agreement was entered into by Dharangadbara Chemical
Works Ltd. (Chemical Company) for the sale of all its products to the
respondent (Trading Company). The agreement contained general
terms; and the actual quantity sold, the sale price, the booking station
and the destination stations were to be determined in the actual con- .D
tracts for sale in respect of definite or specified quantities. The mode in
which sales were effected was that the respondent Trading Company
used to obtain orders from out of State buyers, and enter into agree-
ments of purchase with the Chemical Company for these specified
~· quantities. All the goods sold under these contracts of sale were booked
at a particular railway station in the State to the various places outside E
the State, where buyers from the respondent Trading Company
required the goods and then the railway receipts and invoices concerned
were endorsed and handed over to the respondent Trading Company .
..
-:-.c In the assessment order for the assessment year 1980-81 the asses-
sing authority treated the sales effected by the Chemical Company to F
the respondent Trading Company .as intra-State sales and those by the
respondent Trading Company to the out of State buyers as inter-State
.sales falling under s. 3 of the Central Sales Tax Act, 1956. The asses-
sees, namely, the Chemical Company and the respondent Trading
Company filed appeals before the Appellate AsSistant Commissioner
contending that sales by the Chemical Company to the respondent G
Trading Company were also inter-State sales as these sales were comp-

"'
\ leted by the delivery of railway receipts ana invoices only after the
inter-State journey of the goods had commenced. The . Appellate
Assistant Commissioner dismissed the appeals.

Both the assessees filed appeals to the Tribunal. After considering H
8Q5
806 SUPREME COURT REPORTS [1988] 3 S.C.R.
A the manner in which the sales were effected and despatches made by the
Chemical Company and examining some specimen orders placed by
respondent Trading Company with the Chemical Company, the .Tri·
bunal came to the conclusion that delivery was effected by the Chemical
Company to the respondent Trading Company by delivery of docu·
men ts of title, namely, the receipts of invoices and the railway receipts
B and allowed the appeals. ""-

The High Court upheld the views of the Tribunal and dismissed
the revision petitiom; filed by the State.

In the appeals by the State it was contended that the first set of ~
C sales by the Chemical Company to the respondent Company were local
or intra-State sales, because under the agreement the delivery was to be
effected at the booking stations.

Dismissing the appeal,

D HELD: The orders were placed for booking specified goods to out
of State buyers and the Chemical Company never gave physical delivery
of the goods to the respondent Trading Company but booked the goods
to the destinations as required by the out of State buyers and merely
handed over documents of title to the respondent Trading Company.
The movement of the goods from the State to the outside State was
E occasioned by the terms of the contract themselves and the sales were
inter-State sales falling under-sub-s. (a) of s. 3 of the Central Sales Tax
Act, 1956. Alternatively, since the deliveries of goods sold were effected
by the transfer of documents after the movement of the goods from the
State to the other States had commenced, the sales could be regarded as
.covered under sub·s. (b) of s. 3 of the Act. [809GH; 810A-B] f'
F
The agreement entered into by the Chemical Company with the
respondent Trading Company is merely a general agreement. The
actual terms of the contracls of sales as well as the instructions of the out
of State buyers have to be taken·into account in determining the nature
of the sales in question. [8IOE-F]
G
The conclusion arrived at by the Tribunal as well as the High
Court that the sales by the Chemical Company to the respondent Trad·
ing Company were inter-State sales cannot therefore be faulted. [8IOF]

Union of India & Ant. v. K.G. Khosla & Co. (P) Ltd. & Ors.,
H [1979] 3 S.C.R. 453at p, 460, relied on.
STATE OF TAMIL NADU v. D.T. CO. LTD. [KANIA, J.] 807
CIVIL AI'PELLATE JURISDICTION: Civil Appeal No. 619 A
(NT) of 1975.

From the Judgment and Order dated 11.7.1973 of the High
Court of Madras in Tax Case No. 2 of 1970.

R. Mohan for the Appellant. B

K. Ra jendra Choudhary for the Respondent.
• The Judgment of the Court was delivered by

J
I
KANIA, J. This is an appeal against the common judgment of a
Division Bench of the High Court of Judicature at Madras in Tax
Cases Nos. 2 & 3 of 1970. The appeal has been preferred pursuant to
special leave granted by this Court under Article 136 of the Constitu-
tion of India.
C

The facts giving rise to the appeal are as follows: D

The Dharangadhara Chemical Works Ltd. is a manufacturer of
Caustic Soda and certain other chemicals. Dharangadhara Chemicals
Works Ltd. (referred to hereinafter as "the Chemical Company")
entered into an agreement dated 9th August, 1957 under which it E
agreed to sell all its products to Dharangadhara Trading Co. Pvt.
Ltd. (referred hereinafter as "the Trading Company"). Under clause
1 of the said agreement, the Chemical Company agreed to confine
the sale of all the products manufactured by it at all its works to the
Trading Co. for a period of 5 'years from the 1st day of March, 1958.
Clause 2 of the agreement provided, the Chemical Co. would make
the sales directly to the Trading Co. on a principal io principal b'asis F
against offers or indents. Clause 3 provided that the selling price
would be determined by the Board of Directors of the Chemical Co.
on the basis of ex-factory or F.0.R. booking or F.O.R. destination
stations as decided upon by the Directors. The delivery of the goods
would, however, be given F.0.R. at booking stations. The Trading G
Co. would make payments to the Chemical Co. within one month
.~ from the date of supply or sale of goods by the Chemical Co .
\ Pursuant to this agreement, sales were effected by the Chemical Co.
to the Trading Co. Although the aforesaid agreement contained the
general terms as set out earlier, neither the booking stations, nor the
destination stations nor the sale price were given in the said agree- H
808 SUPREME COURT REPORTS 11988) 3 S.C.R.
A
ment. The Trading Co. used to given directions to the Chemical, Co.
for despatching specified quantities of goods to the stations named by
the Trading Co. and as per these directions, the Cbemical Co.
booked the goods at the booking st_ation which was invariably
Arunuganeri Railway Station in the State of Tamil Nadu, showing
B themselves as the consignors and the Trading Co. as the consignees
of the goods specified in that contract of sale. After booking the
goods, the invoices were handed over to the Trading Co. by the
Chemical Co. It may be mentioned that the actual quantities sold,
the sale price, the booking station and the destination stations were
not determined under the aforesaid agreement of 9th August, 1957,
c but in the actual contracts of sale in respect of definite or specified
quantities. The mode in which sales were made was that the Trading
Co. obtained 01Jers from out of State buyers and entered into agree-
ment of purchase with the Cbemical Co. for these specified quanities.
All the goods sold under these contracts of sale were booked at the
aforesaid railway station in Tamil Nadu to the various places outside
D the State of Tamil Nadu where buyers from the Trading Co. required
the goods and after the goods were booked as aforesaid on the rail-
way, the railway receipts and the invoices concerned were endorsed
and handed over to the Trading Co.

E Admittedly, as pointed out by the Tribunal, there were two sets
of sales, one by the Chemical Co. to the Trading Co. and the second by
the Trading Co. to the various out of State buyers. In the original
assessment order for the assessment year 1961-62 made by the Sales
Tax Officer, both the sales by the Chemical Co. to the Trading Co. and •
the sales by the Trading Co. to tlie- out State buyers were treated as
F inter-State sales. Consequently, Central Sales-tax was levied on the
first sale, but not on the second sale. This assessment order was re-
vised and under the revised assessment order the assessing authority
treated the sales effected by the Chemical Co. to the Trading Co. as
intra-State sales and the sales effected by the Trading Co. to the out of
State buyers as inter-state sales falling under Section 3 of the Central
G Sales Tax Act, 1956. The assessees, namely, the Chemical Co. as well
as the Trading Co. filed appeals before the Appellate Assistant Com-
missioner contending that both the said sales were inter-state sales. It
was contended by-the assessee that the sales by the Trading Co. to the
out of State purchasers were admittedly inter-state sales and as far as
sales by the Chemical Co. to the Trading Co. were concerned, these
H were also inter-state sales as the sales were completed by the delivery
STATE OF TAMIL NADU v. D.T. CO. LTD. [KANIA, J.] 809
• .->·
of railway receipts and invoices only after the inter-state journey of the
goods had commenced. These contentions were rejected by the Appe- A
late Assistant Commissioner, who dismissed the appeals. Both the
assessees filed appeals against the decisions of the Appellate Assistant
Commissioner to the Tribunal. The Tribunal allowed both the appeals.

The Tribunal pointed out that there were two sets of sales, the B
-)(
second s_et of sales by the Trading Co. to out of State buyers was
admittedly inter-state in character. The Trading Co. had filed neces-
, sary '.E-1' forms and 'C' forms in these cases and the transactions,
therefore, fell within the scope of Section 6(2)(B) of the Central Sales

~
Tax Act and were exempt from tax under local Sales Tax Act as well as
the Central Sales Tax Act. As far as first set of sales, namely, by the
Chemical Co. to Trading Co. were concerned, it was pointed out that c
although under the agreement dated 9th August, 1957 the sales were
agreed to be 'F.O.R. Booking Stations' and the booking station was in
Tamil Nadu, the delivery of goods could be either by physical delivery
or by handing over documents of title. The delivery contemplated in
the agreement was not actual physical delivery, as the place of delivery D
was neither seller'.s place of business, nor the buyers' place of business.
Considering the manner in which the sales were effected and despa-
tches made by the Chemical Co., and after examining some specjxnen
orders placed by the Trading Co. with the Chemical Co., the Tribunal
>· came to conclusion that the delivery was effected by the Chemical Co.
to the Trading Co. by delivery of documents of title, namely, the E
respective invoices and the railway receipts. The nature of sales by the
Chemical Co. to the Trading Co. and the question whether they were
inter-state sales bad to b~ decided after further taking into account the
further instructions given by the buyers. The aciual terms of the sales
have to be determined not merely under the agreement dated 9th
--~-· August, 1957 as that agreement was a general agreement which did not F
' specify the quantities to be sold, the sale price, booking stations, the
destination stations, and so on, but these actual terms could be
determined only by taking into account the terms on which and the
manner in which the actual sales were made by the Chemical Co. to
the Trading Co. For ascertaining these terms, the Tribunal examined
some of the subsequent orders placed by that Trading Co. on the G
Chemical Co. Taking into account all these, the Tribunal found that as
~ the orders were placed for booking, specified goods to out of station
buyers, and the Chemical Co. never give physical delivery of the goods
to the Trading Co., but booked the goods to the destinations as
required by tl).e out of state buyers and merely handed over documents
of title to the Trading Co. It was dear that the movement of the·goods H
810 SUPREME COURT REPORTS [!988] 3 S.C.R.

A from the State of Tamil Nadu to the outside States was occasioned by
the terms of the contract themselves and the sales were inter-state
sales falling within Section 3, Sub-section (a) of the Central Sales Tax
Act, 1956. Alternatively, if a view were taken that the sales did not fall
under Sub-section (a) of Section 3, the deliveries of goods sold were
effected by the transfer of documents after the movement of the goods
B from Tamil Nadu to the other States had commenced and the sales
could be regarded as covered under Sub-section (b) of Section 3 of the
Central Sales Tax Act. From this decision of the Tribunal, Revision
Petitions under Section 38 of the Tamil Nadu General Sales Tax Act
were preferred by the State of Tamil Nadu to the Madras High Court.
The High Court upheld the views of the Tribunal and dismissed both
c the Revision Petitions which were numbered as Tax Cases Nos. 2 and 3
respectively. An appeal was preferred by the State in the case of the
Trading Co., namely, the case pertaining to the assessment of the sales
from Chemical Co. to the Trading Co.

The only submission advanced by Mr. Mohan, learned, counsel
0 for the appellant, was that there were two sets of sales, namely, by the
Chemical Co. to the Trading Co. and by the Trading Co. to the out of
State buyers. It was submitted by him that the first set of sales,
namely, by the Chemical Co. to the Trading Co. were local or intra-
state sales because under the agreement dated 9th August, 1957 the
E delivery was to be effected at the booking station. In our view, as the
Tribunal has rightly pointed out, the agreement dated 9th August,
1957, is merely a general agreement and the actual terms of the con-
tracts of sales as well as the instructions of the out of state buyers have
to be taken into account in determining the nature of the sales in
question. In view of this, the conclusions arrived at by the Tribunal as
well as the High Court that the sales by the Chemical Co. to the
F Trading Co. were inter-state sales cannot be faulted and the learned
counsel for the appellant has not advanced a single reason showing
how that conclusion is incorrect. In fact, this conclusion finds some
support from the observations of this Court in Union of India & Anr.
v. K.G. Khosla & Co. (P) Ltd. & Ors., 11979] 3 S.C.R. 453 atp. 460.
G In the result, we find that there is no merit in the appeal and it
must fail. The appeal is dismissed with costs.

N.P.V. Appeal dismissed.