Metal Box India Limited v. State of Tamil Nadu — 1991 DIGILAW 827 (MAD)

Judgment :- KANAKARAJ, J. The appellant/assessee reported a total and taxable turnover relating to their Madras branch for the assessment year 1976-77 at Rs. 8, 21, 39, 250.69 and Rs. 3, 98, 81, 750.38, respectively. A turnover of Rs. 16, 38, 204.93 relating to sale of crown corks (referred as "metal cap" by the assessing authority) was claimed as inter-State sales from the Calcutta head office. The assessing authority, in his order dated March 28, 1980, considered the objections of the assessee and came to the conclusion that the movement of the goods was not as a result of stipulations in the order of the customer but as per the order of the Madras branch of the assessee. The assessing authority proceeded to say that the Madras branch had obtained orders in their own capacity, got it manufactured by their units elsewhere got the manufactured stocks, brought to Madras and sold it to the customers as and when required. The assessing authority therefore rendered a finding that it was a local sale warranting levy under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act"). On appeal, however, the Appellate Assistant Commissioner found that there was a link between the movement of the goods and the contract of the two customers who had placed the order. He held that the goods were appropriated at the assessee's factory at Calcutta and the goods moved to Madras in the course of inter-State trade to fulfil a contract of the buyers. The appellate authority went into the nature of the transaction and rendered the following factual findings : "On the acceptance of the contract of sale with the above two customers, the sales office at Madras (the appellants) informs the head office at Calcutta to arrange to despatch the goods as per packing details in the contract. The head office at Calcutta despatches these goods in separate packagings superscribing on the packages the customer's name and the details of quantities available in the packages with other goods intended to the appellant or other customers, and on arrival of these goods, the appellants immediately prepare a delivery challan quoting the contract number and despatch the packages to the customers and mark a copy of the delivery challan to the Calcutta head office who in turn issues an invoice charging Central sales tax and debit the customer. A copy of the invoice is marked to the appellants (Madras sales office) and it is the responsibility of the Madras office to watch the collections. It must therefore be said that the Madras office was merely acting as a go-between between the Calcutta office and the ultimate buyer and that it was the Calcutta office which pursuant to the covenant in the contract of sale, though forged by the Madras office caused the movement of the goods from Calcutta to Madras." * 2. The Joint Commissioner initiated suo motu proceedings under section34 of the Act. After giving an opportunity to the assessee and considering their objections set aside the appellate order and restored that of the assessing authority. In coming to this conclusion the Joint Commissioner observed that the assessees were not able to prove that the goods as mentioned in the gate pass were moved with the intention to deliver them entirely in pursuance of a firm contract. Hence the present appeal. 3. Before dealing with the arguments of the learned counsel for the appellant it would be proper to record here the correct modus operandi of the transaction. The disputed turnover consists of supplies made to two customers only. The invoices were made by the Calcutta office, wherein sales tax was levied and collected by the Calcutta office. The two customers had standardised the crown corks required by them and they have separate code numbers registered with the Calcutta office for their respective requirements. The Calcutta office had standard conditions of sales and the Madras office was authorised to accept orders subject to the said standard conditions. The specimen contract entered into by the two customers shows that the contract specified the nature of the goods to be supplied, the price per case of 100 gross in each, terms of the payment and also the terms of despatch. The contract also gave code numbers indicating that it was meant for the two customers. This aspect of the case was also noticed by the Joint Commissioner but he prefers to call it as a formal order and not a firm order. As rightly pointed out by the appellate authority the said contract of sale could be performed only by the movement of the goods from Calcutta. This aspect of the case was also noticed by the Joint Commissioner but he prefers to call it as a formal order and not a firm order. As rightly pointed out by the appellate authority the said contract of sale could be performed only by the movement of the goods from Calcutta. The movement of the goods was therefore occasioned by contract of sale and the movement was a necessary incident of the contract of sale. After the acceptance of the contract of sale, the procedure followed by the parties has already been indicated by us by extracting the observations of the first appellate authority. 4. In the light of these facts let us now examine the decisions cited by the learned counsel for the appellant. In State of Madras v. South Indian Export Company Limited 1973 (32) STC 199 (Mad.) the assessee was a sole selling representative within the State of Madras, for the Titaghur Paper Mills Co. Ltd., Calcutta. They canvassed orders and collected the indents placed by customers on the paper mills at Calcutta and forwarded them to Calcutta. The paper mills manufactured the goods, packed them in different packages with distinct marks of the customers and sent the entire packages to the assessee. The paper mill debited various customers with the value of the paper sent. The assessee cleared the goods and delivered the packages to the concerned customers, collected amounts due from them as per invoices sent by the paper mills. It is needless to point out that the facts of this case are more or less identical to the facts of the present case argued before us. The ratio of the Division Bench judgment was as follows : "From the facts stated above, it is clear that there is direct privity between the paper mills and the purchasers within the State and the goods have been consigned by the paper mills to the purchasers in pursuance of the earlier orders placed. The ratio of the Division Bench judgment was as follows : "From the facts stated above, it is clear that there is direct privity between the paper mills and the purchasers within the State and the goods have been consigned by the paper mills to the purchasers in pursuance of the earlier orders placed. Therefore, it should be taken that the movement of the goods from the mills situate in West Bengal and in Orissa to this State is in pursuance of the earlier orders placed by the various dealers directly with the paper mills." * In Oil India Ltd. v. Superintendent of Taxes 1975 AIR(SC) 887, 1975 (35) STC 445, 1975 (1) SCC 733 , 1975 (3) SCR 797 , 1975 UJ 289 , 1975 TaxLR 1513, 1975 SCC(Tax) 167, 1975 (4879) CTR 62 it was laid down by the Supreme Court of India that no matter in which State the property in the goods passes, a sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade. It was not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is not necessary that the covenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale. In Sahney Steel and Press Works Ltd. v. Commercial Tax Officer1985 AIR(SC) 1754, 1985 (S2) SCR 780, 1985 (4) SCC 173 , 1985 (2) SCALE 789 , 1985 (3) CompLJ 239, 1986 (1) CCC 782, 1985 (60) STC 301, 1985 (2) Scale 789 , 1986 UPTC 105, the Supreme Court had to deal with a similar situation as the one that we are dealing in the present appeal. In that case the assessee had its factory at Hyderabad. Its branches were engaged in effecting sales and looking after sales promotion. The branches received orders from customers for supply of goods, conforming to definite specifications and drawings and advised the factory at Hyderabad. The factory manufactured the goods according to the designs and specifications and despatched them to the respective branches by way of stock transfer. It was at the branches that the customers inspected the goods and accepted them. It was the branches which raised the bill and received the sale price. The factory manufactured the goods according to the designs and specifications and despatched them to the respective branches by way of stock transfer. It was at the branches that the customers inspected the goods and accepted them. It was the branches which raised the bill and received the sale price. Even in such circumstances the Supreme Court of India held that notwithstanding the fact that the branch office itself was concerned with despatching, billing and receiving of the sale price, the order placed by the customer was an order placed with the assessee and for the purpose of the fulfilling the said order, the goods commenced their journey from the factory at Hyderabad to the branches for eventual delivery to the customers. Such transactions were held to be inter-State sales under section 3(a) of the Central Tax Act. 5. Though it may not be necessary to refer to other decisions, learned counsel for the appellant relies on Commissioner of Sales Tax v. Lakhamshi Lodha & Co. 1990 (77) STC 366 (Bom) for the purpose of emphasising that there being no possibility of the goods being diverted by the branch to any other buyers the inference is irresistible that the movement of the goods was in pursuance of the order of the particular customer. 6. The facts of the present case are stronger than the circumstances referred to by the Apex Court in Sahney Steel and Press Works Ltd. v. Commercial Tax Officer 1985 AIR(SC) 1754, 1985 (S2) SCR 780, 1985 (4) SCC 173 , 1985 (2) SCALE 789 , 1985 (3) CompLJ 239, 1986 (1) CCC 782, 1985 (60) STC 301, 1985 (2) Scale 789 , 1986 UPTC 105 to conclude that the transactions in question are inter-State sales. This is because the first appellate authority has clearly found that the goods were appropriated at the assessee's factory at Calcutta as evidenced by the excise gate passes issued for clearing the goods from the factory. Further the invoices were raised by the factory at Calcutta. The Calcutta office despatched the goods in separate packages superscribing on the packages the customers' name, details of the quantity available in the packages. Having regard to such characteristics of the sale transaction we have no hesitation in holding that the sales were inter-State sales and not amenable to the Tamil Nadu General Sales Tax Act, 1959. The Calcutta office despatched the goods in separate packages superscribing on the packages the customers' name, details of the quantity available in the packages. Having regard to such characteristics of the sale transaction we have no hesitation in holding that the sales were inter-State sales and not amenable to the Tamil Nadu General Sales Tax Act, 1959. The only contention of the learned counsel for the Revenue is that the link between the contract and the movement of the goods was lost when the goods came into the possession of the Madras office. It was also contended that the goods were sold at the discretion of the Madras branch and the price collected. This argument of the counsel for the Revenue is contrary to the facts as found by us earlier. We therefore reject the arguments of the counsel for the State. We are also of the opinion that the Joint Commissioner fell into an error by characterising the contract as a formal order and not a firm order. We do not also agree with the observation of the Joint Commissioner that there was no proof to show that the goods as mentioned in the gate pass issued at Calcutta were intended to be delivered to the customers in pursuance of the said contract. The order of the Joint Commissioner is therefore set aside. 7. The tax case is allowed holding that the turnover of Rs. 16, 38, 204.93 being the sales of crown corks during the assessment year 1976-77 are not exigible to tax under the Tamil Nadu General Sales Tax Act. There will be no order as to costs.