Chain of contracts and novation: intermediate buyers were treated as sellers, sustaining sales tax liability.

Transactions under a chain of contracts were treated as separate sales because the goods, once appropriated, passed to the intermediate buyers, who dealt with their own purchasers as sellers. Delivery through mill letters to ultimate buyers was only execution of the contractual chain and operated as delivery on behalf of the appellants, not as a mere assignment of contractual rights. Novation under section 62 of the Indian Contract Act was absent because the original contract with the mills was not extinguished or replaced by a new contract. The sales tax assessment was therefore valid.

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Issues: Whether the transactions between the appellants, the mills and third-party buyers amounted to two separate sales liable to sales tax, or merely an assignment of contractual rights or novation so as to avoid tax.

Analysis: The contract with the mills was initially for future goods, but on the goods coming into existence and being appropriated, property passed to the appellants, who then dealt with their own buyers as sellers. Delivery through mill letters to the ultimate buyers was only in execution of the chain of contracts and operated as delivery on behalf of the appellants, not as a mere transfer of a contract. The original contract with the mills remained intact, the mill letters were only instructions for delivery to nominees, and the ingredients of novation under section 62 of the Indian Contract Act were absent because there was no substitution of a new contract or extinction of the original liabilities.

Conclusion: The transactions constituted separate sales and not a novation or mere assignment of contracts; the sales tax assessment was therefore valid against the assessees.

Ratio Decidendi: Where goods are appropriated under a chain of contracts and delivery is made through nominees or delivery instructions without substituting the original contract, the intermediate buyer is treated as having effected a sale, and novation is not established unless the original contractual liabilities are extinguished and replaced by a new contract.

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