STATE OF TAMIL NADUversusSRI SRINIVASA SALES CIRCULATION

                           STATE OF TAMIL NADU                                       A
                                     v.
                     SRI SRINIVASA SALES CIRCULATION

                                 OCTOBER 4, 1996

                  [S.P. BHARUCHA AND FAIZAN UDDIN, JJ.]                              B

            Tamil Nadu General Sales Tax Act, 1959: Section 3(1).

            Sales Tax-AY 1967-68-Sale-{]nder an implied contract-Liability to
      tax-Assessee floated a scheme under which a purchaser of a coupon for Rs.5     C
      got 3 more coupons for Rs.J~urchaser in tum sold these coupons to three
      persons and retained the amount-Thereafter, assessee gave 3 coupons to the
      said three persons for Rs.JS for further sale--On payment by the said three
      persons, the original purchaser became entitled to receive an a1ticle of his
      choice mentioned by him in the order fomi-Held: Such a transaction is a
      sale under an implied contract and liable to sales tax-Sale of Goods Act,      D
      1930.

             The respondent-assessee floated a scheme under which the coupon
      of the respondent was sold to a customer, say A, on payment of Rs. 5.
      Thereafter, A received three coupons for Rs. 16, which he sold to three E
      persons for Rs.5 each and appropriated the amount so received by himself.
      When each of the three persons to whom the coupons were sold by A,
      further sold their coupons to others, namely, B, C and D, one cycle was
      completed and the customer A in turn received the article of his choice as
      mentioned by him in the coupon from the respondent. In this process the
      ~spondent dispatched a letter to the customer A advising him to sell the F
      three order forms to three members and take that money himself. Not only
      this, the assessee further addressed a letter to the customer A in a printed
      form conveying their thanks to him and that they had received three
      original order forms and the letter stated further that as soon as the
      V.P.Ls. were cleared by paying Rs.16 (Rs.15 as price of 3 coupons and Re.1 G
      as postal charges) each, it would send him the required article by
...   registered parcel. Thereafter, the respondent ultimately dispatched the
      article of his choice to the customer A with a covering letter advising him
      to receive the article by paying the stated amount.

            The Assessing Officer took the view that there was a sale of article H
                                         185
    186                   SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.
A to every person who had participated irr the scheme and that such turnover
    for the assessment year 1967-68 was liable to be taxed under Section 3(1)
    of the Tamil Nadu General Sales Tax Act, 1951). The order of the Assessing
    Officer was upheld by the Appellate Assistant Commissioner as well as by
    the Sales Tax Appellate Tribunal. The respondentfiled a revision before
    the High Court. The High Court held that the transactions involved in the
B
    scheme were not sale and, therefore, the respondent assessee was not liable
    to sales tax. Hence this appeal.

           On behalf of the appellant-State it was contended that the transac-
    tions involved in the scheme were sales as defined in Section ·4· of the Sale
C   of Goods Act, 1930 and hence liable to sales tax under the Act.

          Allowing the appeal, this Court

           HELD : 1. Under the Sale of Goods Act, 1930, it is essential to
    establish that there is an agreement between the parties for transfer of title
D   to the goods and that such agreement should be supported by money
    consideration and as a result of the transaction the goods, article or the
    property must actually pass to the purchaser. It is settled law that the
    expression "sale" under the Sales Tax Act has to be understood with
    reference to the definition of "sale of goods" under the Sale of Goods Act,
E   1930. But if the title of the goods passes without any contract between the
    parties, express or implied, there is no sale. Similarly, if the consideration
    of the transfrr is not money, but some other valuable consideration, it may
    amount to exchange or barter but not a sale in the strict sense of the law
    for the purposes of taxation. [191-H; 192-A-B]

p       2. From the facts of this case it is clear that there may not be a formal
  contract for sale and purchase of the article in any specific form, but such
  a contract may be spelt out from the correspondence and interaction
  between the parties. In the present case an implied contract between the
  parties is spelt out when the company offers the coupon(s) against pay-
                                                                                     l
  ment and the article of the choice is ultimately sent to the customer. There
G is thus offer and acceptance. If the contents of the entire scheme are
  minutely looked into, it substantially amounts to sale. All the attributes,
  characteristics and requirements of a sale are present in the transaction.
  In fact the transaction is so designed and framed by the company by
  adopting a circuitous method for sale of their goods which amounts to
H nothing but a sale and the same is liable to assessment under the Tamil
     STATEv.SRINNASASALESCIRCUIATION[FAIZANUDDIN,J.]                     187

Nadu General Sales Tax Act, 1959. This view is further strengthened from       A
the fact that during the relevant assessment year the respondent company
sent articles to its various customers under the scheme of the value of Rs.
1,36,665.00 which were purchased by the respondent company for a sum of
Rs.1,03,709.25 and, thus, earned a profit to the tune of Rs.32,955.75.
                                                        [192-F-H; 193-A-8]
                                                                               B
      Sri Srinivasa Sales Circulation v. State of Tamil Nadu, (1976) 38 STC
359 (Mad), reversed.

     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2348 of
1978 Etc.
                                                                               c
     From the Judgment and Order dated 3.3.86 of the Madras High
Court in T.C. No. 151 of 1993.

      V. Krishnamurthy and A. Mariarputham for the Appellant.

    R. Mohan, R. Nedumaran, V.G. Pragasam, R.A. Perumal, K.R.                  D
Chowdhary and R.K. Sharma for the Respondents.

      The Judgment of the Court was delivered by

      FAIZAN UDDIN, J. Leave granted.
                                                                               E
      Since common questions of law and facts arise for our consideration
in these appeals and special leave petitions, the same are being disposed
of by a common judgment.

      The appeals and special leave petitions arise out of an order passed
by the High Court of Madras in revision preferred by the respondent            F
herein, under Section 38 of the Tamil Nadu General Sales Tax Act, 1959
(hereinafter referred to as the "Act") relating to c:ertain transactions in-
volved therein which are sought to be taxed as sale.

      Since we have to decide the nature of transaction in order to deter- G
mine the tax liability which is the question common to all these appeals
and the special leave petitions, we shall state the facts as they emerge out
of the Civil Appeal No. 2348/78.

    The respondent assessee floated a scheme as detailed in the printed
pamphlet, which reads as follows :-                                     H
    188                 SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.

A          "Please get a coupon of our company from your friend or from the
           company by paying rupees five. Please mark your address and any
           one article you require and send it back to the company.

               After receiving your coupon we will register it and send three
           coupons by V.P.L. for Rs. 15 plus V.P.L. charges. Now you have
B          to give the coupons to three persons for Rs. 5 each ~nd take the
           money for yourself and ask them to fill up the coupons with their
           names and full address and send it to us.

               We will send to each of your three parties three coupons each
           for Rs. 15 plus postal charges by V.P.L. As soon as the the parties
c          concerned clear the V.P.L.'s, you will receive from us the article
           that you have mentioned in your coupon."

         Further, clauses 5 & 6 of the terms and conditions of the said
    scheme, which are also relevant for our purposes, are reproduced
D   hereunder :-

            "5. Any person sending M.O. or bank draft for Rs. 45 along with
            coupon duly filled up will receive the article that is mentioned in
            the coupon together with three sets of (9) coupons.

E           6. Coupons should be returned duly filled within three months of
            their receipt. Coupons received after three months will not be
            attended to."

           The said pamphlet containing the scheme further mentions 20 ar-
    ticles, one of which may be marked in the coupon by the person or party
F   who purchases the coupon by paying Rs. 5. The coupon referred to in the
    scheme is a printed order form which is as follows :-

                               "ORDER FORM"

            No. 17435 D.                               Regd. No.
G
                  SRI SRINIVASA SALES CIRCULATION
                                  (Regd.)
                           No. 11, Gandhi Street,
                                Villivakkam,
H                               Madras-49.
     STATEv. SRINNASASALESCIRCUlATION[FAIZANUDDIN,J.]                         189

        From                                                                         A



        Dear Sirs,

            As mentioned in your list of articles No ................... I request   B
        you to kindly send me ........... Please send your coupons by V.P.L.,
        for the amount of Rs. 16-00 sent by me.

         Place:                                                Yours faithfully,
                                                                     Signature
         Date:                                                                       c
                                                         Canvasser's signature"

       Thus on payment of a sum of Rs. 5 to the company a coupon is sent
to the individual concerned, and we assume that individual as A for the              D
sake of convenience. Then 'A' sends back the same to the company duly
filled up mentioning the number and name of article in the blank spaces.
On receipt of the said coupon/order form, three order forms are sent to
A, by V.P.L. for Rs. 16 and when the said V.P.L. is cleared by A, he
receives a further letter from the company acknowledging the receipt of
Rs. 16. The said, letter reads as follows : -                                        E
        "We are glad to note that you have cleared the V.P.L. No. by paying
        Rs. 16 and thank you very much for the same.

            You please sell three order forms to three members and take
        that money. Fill the three forms (IN BLOCK LETTERS) and send                 F
        them to us by Regd. Post. We will send to each among three
        members containing three order forms in each V.P.L.s. for Rs. 16.
        If all of them clear the V.P.Ls., paying Rs. 16 each, we will send
        you the required article item No. by Registered Post."

       After receipt of the three order forms/coupons, A delivers them to G
B, C & D after collecting Rs. 5 from each of them which amount is
appropriated by A himself. Then, B, C & D in turn will either forward the
coupons themselves to the ·company or send the same through A after
filling the blanks and mentioning the name and description of article which ·
is required by them. On receipt of these three coupons/order forms, as H
    190                  SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A aforesaid, from B, C & D, the company sends three sets of three coupons
    each to B, C & D under V.P.L. for Rs. 16 and inform A also of that fact
    in the printed form which reads as under :-

            "We have received your three original order forms and the letter
            dated ........ and thank you very much for the same. According to
B           the rules of our firm today we have sent 3 V.P.Ls. containing 3
            order forms in each V.P.L., for Rs. 16 to each among three
            members as addressed in that order forms. As soon as they clear
            the V.P.Ls. by paying Rs. 16 each, we will send you the required
            article item no ...... by registered parcel. So, you please encourage
c           them to clear the V.P.Ls., by paying Rs. 16 each."

           If B, C & D honour the V.P.Ls. and pay money, A then becomes
    entitled to the article which he had chosen in his order form. That article
    is sent by the company to A with a covering letter. The said letter reads
    thus :"
D
            "We are very glad to note that you have circulated our scheme by
            a time and thank you very much for the same. According to your
            request today we h.avc despatched your required article No ....... by
            V.P., insured parcel for Rs ........ towards the expenses of packing
            and postal charges of the article. You please receive your article
E
            by paying Rs ......... and write a letter to us about your opinion."

          According to the sch1!me floated by the company, if any one of B, C
    or D _does not honour the V.P.L. and decline to receive the three coupons
    sent to them, A looses his right to receive the article, though the other two
F   who had honoured the V.P.L. will have a series in their name if they are
    again able to sell, say to Bl, B2 and B3, Cl, C2 and C3 and so on and
    complete the circle. This way the claim of B & C would go on and if there
    is no break, the claim goes on endlessly as a chain.

        During the Assessment Year 1967-68, the value of articles that were
G supplied by the respondent company under the aforesaid scheme to various
  persons and customers was to the tune of Rs. 1,36,655.00 while the pur-
  chase value of these articles has been found to be Rs. 1,03,709.25. The
  Assessing Officer took the view that there was a sale of article to every
  person who had participated in the scheme and as such turnover for the
H year 1967-68 from the value of articles supplied to various persons came
      STATEv.SRINNASASALESCIRCULATION[FAIZANUDDIN,J.)                     191

to Rs.1,36,665.00 which was liable to be taxed under Section 3(1) of the A
Act. The Assessing Officer also imposed a penalty of Rs. 6,149 under
Section 12(3) of the Act for failure of not filing the return in Form A-1.
This order of the Assessing Officer found favour with the Appellate
Assistant Commissioner as well as the Sales Tax Appellate Tribunal. The
respondent assessee then went up in revision before the High Court of B
Judicature at Madras. The High Court of Madras took the view that the
transfer of article by the company was not for money consideration alone
and, therefore, it would not be a sale at all. Consequently, the High Court
held that since the transactions involved in the scheme of the assessee are
not sale, the assessee are not liabie to be taxed as sales under Section 3(i)
of the Act and, therefore, allowed the revision, set aside the order of the C
Assessing Officer, Appellate Assistant Commissioner and the Tribunal
against which these appeals and special leave petitions have been directed
as the orders in the connected appeals and the special leave petitions are
based on the orders and findings recorded by the High Court in T.C. No.
154 of 1971 (Revision No. 85) Sri Srinivasa Sales Circulation v. State of D
Tamil Nadu, which is also reported in (1976) 38 S.T.C. 359.

        The learned counsel appearing for the appellant State, vehemently
 urged that in the light of the facts found on record the disputed transac-
 tions were sales as defined under Section 4 of the Sale of Goods Act and,
 therefore, the Assessing Officer had rightly brought the same under the net     E
 of taxation under the provisions of the Act. It was submitted that the High
 Court was not right in holding that the title in the goods that passed to the
 customers was not under any contract or sale between the respondent and
·their customers and strenuously urged that the tenor of the scheme clearly
 indicated that the title in the goods passed to the customers pursuant to a     F
 contract of sale between the respondent and their customers and the
 transaction was squarely covered by Section 4 of the Sale of Goods Act.
 Contrary to this, the learned counsel appearing for the respondent sought
 to support the impugned order for the reasons assigned by the High Court
 and submitted that the transactions involved in the scheme of the assessee
 are not liable to tax as Sales Tax under Section 3(i) of the Act.               G

      It may be stated that in order to constitute a sale under the Sale of
Goods Act, it is essential to establish that there is an agreement between
the parties for transfer of title to the goods and that such agreement should
be supported by money consideration and as a result of the transaction the H
    192                   SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A   goods, article or the property must actually pass to the purchaser. It is
    settled law that the expression "sale" under the Sales Tax Act has to be
    understood with reference to the definition of "sale of goods" under the
    Sale of Goods Act. But if the title of the goods passes without any contract
    between the parties, express or implied, there is no sale. Similarly, if the
    consideration of the transfer is not money, but some other valuable con-
B   sideration, it may amount to exchange or barter but not a sale in the strict
    sense of the law for the purposes of taxation. We shall, therefore, examine
    whether under the facts and circumstances of the present case, the transfer
    of article by the respondent assessee to its customers under the scheme
    floated by it constitute a sale against payment of price of that article.
c
          As stated earlier, in the foregoing paras of this Judgment, the coupon
  of the company is sold to the customer A on payment of Rs. 5. Whereafter,
  the customer A receives three coupons for Rs. 16 which he sells to three
  persons for Rs. 5 each and appropriates the amount so received by himself.
D When each of the three parties to whom the coupons are sold by A, further
  sell their coupons to others namely B, C & D, one cycle is completed and
  the customer A in turn receives the article of his choice as mentioned by
  hiin in the coupon from the company. In this process, as stated earlier, the
  company despatches a letter to its customer A advising him to sell the three
  order forms to three members and take that money himself. Not only this,
E the Assessee company further addresses a letter to the customer A in the
  printed form conveying their thanks to him and that they have received
  three original order forms and the letter, stating further that as soon as the
  V.P.Ls. are cleared by paying Rs. 16 each, they will send him the required
  article by registered parcel. Thereafter, the company ultimately despatches
p the article of his choice to the customer A with a covering letter advising
  him to receive the article by paying the stated amount. From these facts, it
  is clear that there may not be a formal contract for sale and purchase of
  the article in any specific form, but such a contract may be spelt out from
  the correspondence and interaction between the parties. In the present
  case an implied contract between the parties is spelt out when the company
G offers the coupon(s) against payment and the article of the choice is
  ultimately sent to the customer for payment of price which is accepted by
  the customer. There is thus offer and acceptance. If the contents of the
   entire scheme, as reproduced above, are minutely looked into, it substan-
   tially amounts to sale. We find that all the attributes, characteristics and
H requirements of a sale are present in the transaction. In fact the transaction
     STATEv.SRINIVASASALESCIRCULATION[FAIZANUDDIN,J.]                193

is so designed and framed by the company by adopting a circuitous method A
for sale of their goods which amounts to nothing but a sale, and the same
is liable to assessment ,under the Act. This view is further strengthened
from the fact that during the relevant assessment year the respondent
company sent articles to its various customers under the scheme of the
value of Rs. 1,36,665.00, which were purchased by the respondent company B
for a sum of Rs. 1,03, 709.25 and, thus, earned a profit to the tune of Rs.
32,955.75. The business so run by the respondent is with a view to earn
profit out of the sale by adopting a circuitous device with a view to evade
the payment of tax. In our considered opinion, the High Court, therefore,
was not justified in taking the view that it was not a sale transaction
assessable to tax.                                                          C
      Consequently, we allow the appeals by setting aside the impugned
orders passed by the High Court and restore the order of the Assessment
Officers and the Sales Tax Appellate Tribunal. But in the facts and
circumstances of the case, we make no order as to costs.
                                                                           D
v.s.s.                                                 Appeals allowed.