TaxTMI 
TaxTMI 
1972 (4) TMI 84
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....e case properly. In order to guide the Tribunal, we suggest that a copy of an income-tax reference pending in this court be sent to the Tribunal so that it is known how a case is to be stated. The attention of the Tribunal is invited to the relevant part of section 22(4) of the Sales Tax Act". Keeping this direction in view, Mr. M.L. Batra, the then Sales Tax Tribunal, in the present case drew up the statement of the case and referred the question of law set out above for the opinion of this court. Thereafter, the present reference was placed before me and Gopal Singh, J., on 24th March, 1971. Mr. Sibal, the learned counsel for the assessee at the hearing, pointed out that the agreements between the assessee and the distributors, that is, the distribution agreements dated 26th April, 1965, 15th September, 1965, and 11th December, 1965, had not been made part of the statement of the case, as also the Tribunal's order dated 24th November, 1969, on the review application made on 14th August, 1969. There were certain other documents which the counsel stated should have been made part of the statement of the case. For instance, the modified original assessment order dated 2nd May, 1968,....
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....wn as Kelvinator International Corporation. The assessee-company enjoys exclusive rights not only to manufacture refrigerators and deep-freezers but also to market them in brands known as "Kelvinator", "Leonard" and "Gem". They have also the right under the collaboration agreement to use further brands for its products. As soon as the company started its production, it passed on its entire production to Spencer & Co., Delhi, for sale in the market. The procedure adopted by the company was that the goods manufactured at Faridabad were sent to its godowns in Delhi and from the godowns in Delhi they were sold to Spencer & Co. So far as these sales are concerned the department has not taken the plea that they are inter-State sales or that the movement of the goods was occasioned by reason of the sales made to Spencer & Co. On 20th April, 1965, the company entered into a distribution agreement with Spencer & Co., and similar agreements were entered into with the Blue Star Ltd. on 15th September, 1965, and the General Equipment Merchants on 11th December, 1965. The agreement with Spencer & Co. was to take effect from 1st January, 1965, whereas the other agreements were to take effe....
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....ny. 7.. This agreement shall be deemed to have commenced on the 1st day of January, 1965, and shall remain in force up to the 31st day of December, 1969, or till terminated by giving at least 6 months clear notice on either side delivered through registered post. On the termination of this agreement, the distributors will have the right to return at the company's expenses all unsold units and spare parts thereof purchased from the company under these premises, but shall have no other claims whatsoever on the company on any other account except for outstanding warranty claims, if any. Blue Star Agreement: 1. The company hereby undertakes to sell only to the distributors and the distributors hereby undertake to buy from the company all Leonard refrigerators manufactured by the company. 3.. For the purpose of clause 1 and in order to enable the company to arrange its production schedule the distributors guarantee and undertake to purchase from the company a minimum quantity of 1,500 refrigerators per year at a rate not less than 80 refrigerators per month. It is agreed that the distributors will be relieved of their obligation under the agreement to the extent that the compan....
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.... accepted as a case of valid transfer by the highest Tribunal under the Sales Tax Act; the authorities below cannot agitate the question which has once been settled in between the parties." The procedure for the transfer of the goods from Faridabad to the company's registered office at 19-A, Alipur Road, Delhi, stated in the objections, is as follows: "The company gets the goods cleared from the excise for destination to its Delhi office godown in piecemeal, pay the octroi themselves at the Delhi barrier along with the freight charges and the goods are taken delivery of by its registered office. The buyer places its specific order according to its requirement and to the extent goods are available at Delhi, delivery is given by the Delhi office after the goods are approved in good condition by the purchaser. That the goods never move from factory in pursuance of any contract, but are moved as per routine for storage at Delhi in accordance with the company's own convenience. Specific orders are placed by the buyers when the goods are already lying in stock. The movement of the goods as such is not in furtherance of any contract of sale but move to Delhi independently of any stipul....
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....of the Assessing Authority are quoted below: "During the year under assessment the dealer manufactured and sold refrigerators with trade marks of 'Kelvinator', 'Leonard' and 'Gem'. The sale of each brand was made through a separate distributor appointed for this purpose. I have studied the agreements in respect of each of them. The names of distributors, trade marks of refrigerators and dates of agreements are given below: Distributor Trade marks of Date of refrigerator execution Spencer & Co. Ltd. Kelvinator 26-4-1965 (operative w.e.f. 1-1-1965) Blue Star Engineering Co. Bombay Pvt. Ltd. Leonard 15-9-1965 General Equipment Merchants Ltd. Gem 11-12-1965 * * * A peep into the actual performance of the contract has revealed that the refrigerators moving from the factory at Faridabad on a particular day were delivered to the distributors concerned the same day. Examples typifying the mode are given below: * * * The manner of movement which is plain enough to understand has been explained by the dealer in a rather circuitous way. According to them, the refrigerators move from the factory to the head office at Delhi where these are stored. Then buyers place orders acco....
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....amined each item and find that the sales of coolers to the extent of Rs. 80,000 were made within the State and as such they could not be assessed under the Central Sales Tax Act. Action has separately been initiated to tackle this amount under the Punjab General Sales Tax Act. Documentary evidence produced by the dealer established beyond doubt that goods worth Rs. 48,304.39 were exported outside India, hence beyond the purview of taxation. As regards the third item of Rs. 28,318.58 it relates to the aggregate of scrap sales made in the course of inter-State trade. As already held in Part A of the order dated 2nd March, 1968, the sale of scrap does not fall within the business activities of the dealer." Against the final order of the Assessing Authority, the assessee preferred an appeal to the Deputy Excise and Taxation Commissioner, Ambala Division. The Appellate Authority allowed the appeal and it will be appropriate to set out the reasons of that authority in its own words: "The true effect of this agreement to my mind is to constitute Spencer and Co. as the sole channel for distribution of Kelvinator refrigerators. It is not a contract for sale of a specified numbe....
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....neering Co. and General Equipment Merchants Ltd. and, therefore, such movements did not constitute any inter-State sales." The Excise and Taxation Commissioner suo motu acted under section 9(3) of the Central Act read with section 21(1) of the Act and revised the order of the Appellate Authority. The relevant part of the order of the Commissioner is as follows. After setting out the relevant clauses of the agreements, it is stated: "In the face of these provisions of the agreement, I really wonder how the Appellate Authority came to a conclusion that the agreement was not an agreement of sale but of distribution only. This agreement fulfils all the requirements of sub-section (1) of section 4 of the Sale of Goods Act, 1930. The respondent agreed to transfer the property in 'Kelvinator' refrigerators to the distributors for a price as soon as the goods were manufactured at Faridabad. The sale was complete as soon as the price was settled and the goods were delivered under the agreement. I, therefore, hold that the agreement is an agreement to sell. ............ it is obvious that as soon as the 'Kelvinator' refrigerators were manufactured, they were appropriated to the contrac....
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....he number and quantity available for sale. Such disagreement, if any, will not saddle any of the parties with any responsibility. (e) That the learned Commissioner has erred in thinking that the appellant undertook to sell and the distributor undertook to buy all products manufactured by the appellant. In fact, it is admitted that some of the products manufactured by the appellant-company are being sold to Blue Star Engineering Co. (Bombay) Pvt. Ltd. and some others to General Equipment Merchants Limited. How much to the one and how much to the other is not disclosed in the distributorship agreement, and is left to be decided by mutual agreement from time to time. (f) That the appellant has even reserved the right to be consulted by the distributor while fixing his (distributor's) price to his consumers. (g) That the appellant's transport of goods to Delhi godown in anticipation, makes no difference, especially there is no contract of sale of specific goods to which the movement of item can be attributed. The distributor may lift the goods immediately on arrival or may not do so. The goods may lie in godown for months or even may be sold to another. Even the name plates ma....
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....great shortage of refrigerators in the market, the refrigerators were handed over to the distributors against pending orders but the distributors took delivery only after proper inspection. Deliveries were made against requisitions received from the distributors in which mutually agreed prices were mentioned and charged. It is argued that these agreements did no more than give an option to the distributors on the goods manufactured by the appellant and merely gave them the first right of refusal to purchase. The appellant had a say in the matter of fixing sale prices and it was stipulated that the refrigerators were to be delivered and the title passed to the distributors only in Delhi on delivery. There is happily no great controversy in this case regarding definition of sale and what constitutes an inter-State sale under the Central Sales Tax Act. It is settled law now that in order that the sales may be deemed to be sales made in the course of inter-State trade, the movement of goods must be occasioned by a contract of sale and there should be in the contract some incidental provision to which the movement from one State to another can be definitely attributed. The learned co....
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....ts but took place later after the goods had reached Delhi and the prices were settled between the parties. This contention is sought to be supported by means no other than the agency agreements themselves in which it was stipulated that the prices would be such 'as mutually agreed upon from time to time' and the property in the goods shall pass to the distributors only in Delhi after delivery. The prices were admittedly not to be settled for individual machines but periodically for all machines of the same make and specifications. The settlement of prices was incidental to the agreement which moved the machines to Delhi and were not separate agreements. In fact both went hand-inhand and any disagreement regarding prices meant virtual disappearance of the agency agreements. These agreements can, therefore, only be deemed to be agreements of sale and not as agreements of distribution or agency. In this connection, I might refer to the following observations of their Lordships of the Supreme Court in the case of Sri Tirmuala Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry[1968] 21 S.T.C. 312 (S.C.).: 'As a matter of law there is a distinction between a co....
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....ant-company. Only at that stage, purchase orders for a definite quantity of a particular size and capacity of refrigerators were placed by the purchasers on the applicant-company for the specific quantity and sizes inspected and approved by them keeping in view their own market demand. 6. Question of facts now raised: 1. The size of the refrigerators, i.e., 10. 1 cu. ft. and 6.2 cu. ft., were not agreed to be sold in the alleged agreements. 2. The difference in prices was not stipulated in the agreement. 3. The supplies were never made by the applicantcompany against the pending orders as has been held in the impugned order. The sales were effected as stated in para. 5 above." The review application was disposed of by the Tribunal by its order dated 24th November, 1969, in the following terms: "In that case, the appeal of the applicant, M/s. Kelvinator of India Limited, Faridabad, was dismissed by the impugned order on the main ground that the agency contracts entered into by this firm with certain other dealers, namely, M/s. Spencer & Co. Ltd., M/s. Blue Star Engineering Co. (Bombay) Pvt. Ltd. and M/s. General Equipment Merchants Ltd., were in fact as well as ....
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....se, did the Commissioner have any jurisdiction and/or right to suo motu revise the order of the Deputy Commissioner?" By its order dated 24th November, 1969, the Tribunal referred the following question of law: "Whether on the facts and circumstances of the case, the agreement between M/s. Kelvinator of India (the assessee) and M/s. Spencer & Co. Ltd., M/s. Blue Star Engineering Co. (Bombay) Private Ltd. and M/s. General Equipment Merchants Ltd., in pursuance of which the refrigerators manufactured by M/s. Kelvinator of India at Faridabad moved to Delhi were merely for distribution of goods between a principal and his agents or were agreements of sale between the parties." The contentions on behalf of the assessee are: (1) That the distribution agreements do not amount to a contract of sale in the eyes of law and, therefore, even if the movement of goods has taken place in pursuance of these agreements, it will not fall within the mischief of section 3(a) of the Central Act. (2) That the movement of goods from the factory of the company at Faridabad to its godowns in Delhi was in routine and had no connection whatever with the ultimate sales made to the distributors. (3....
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....sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase(a) occasions the movement of goods from one State to another ...... Section 2 (g) defines "sale" in the following terms: "2. In this Act, unless the context otherwise requires ...... (g) 'sale', with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods." Sections 18 to 26 of the Indian Sale of Goods Act, 1930, lay down the rules indicating when there is transfer of property in the goods sold between the seller and the buyer. Section 18 lays down that the goods must be ascertained. Section 19 may be reproduced in extenso: "19. (1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the ....
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....operty in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange and if he wrongfully retains the bill of lading the property in the goods does not pass to him." Section 26 merely enunciates the principle that risk prima facie passes with property. The only other provisions of law to which a reference has to be made are the definitions of "agreement" and "contract" in the Contract Act. Section 2(e) defines "agreement" and section 2(h) a "contract". They are in the following terms: "2. In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context......... (e) Every promise and ever....
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....(Madras) Ltd.[1958] 9 S.T.C. 353 (S.C.)., Venkatarama Aiyar, J., laid down the criteria to determine what constitutes sale. The relevant observations are quoted below: "In order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale. So also if the consideration for the transfer is not money but other valuable consideration, it may then be exchange or barter but not a sale. And if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale. Moreover under the law there cannot be an agreement relating to one kind of property and a sale as regards another. There must be an agreement between the parties for the sale of the very goods in which eventually property passes." I....
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....er a contract of sale with a foreign buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. But in between lie a variety of transactions in which the question whether the sale is one for export or is one in the course of export, i.e., it is a transaction which has occasioned the export, may have to be determined on a correct appraisal of all the facts. No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But that is not to say that the distinction between transactions which may be called sales for export and sales in the course of export is not real. In general where the sale is effected by the seller, and he is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual under....
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....ng to which it was open to the appellant to supply or not to supply the dealer with any vehicle in response to such order. What was, therefore, relevant was the acceptance of firm orders occasioning the movement of vehicles out of the State of Bihar." It is not necessary to refer to any more cases cited at the Bar, because the Supreme Court decisions have clearly enunciated the principles to find out whether a particular sale is or is not an inter-State sale. The difficulty only arises in the application of these principles to the facts of a given case, particularly of a border-line case. It will be, therefore, necessary to set down the facts that are not disputed. The sum total of these facts will ultimately determine whether on the rule laid down by the Supreme Court the sales in question are inter-State sales or not. The facts fall in two categories: those which have been dealt with by the departmental authorities and have been accepted by them though they have put a different interpretation on them. The other category of facts is where nothing is said by the departmental authorities one way or the other. Those facts were asserted by the assessee but they have not been eit....
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....from the factory and all the 18 were given to Blue Star. Thereafter, the machines received were either given to Blue Star or to Spencers. On 12th February, 1966, 9 machines received on 9th February, 1966, were given to General Equipment Merchants. Thereafter, the machines were being given to Spencers, Blue Star and General Equipment Merchants. For the first time from 7th April, 1966, onwards, machines are being exported out of India. So far, more or less, a set of machines received was given to Spencers, another set received was given to Blue Star and another set received was given to General Equipment Merchants, and after 7th April, 1966, a set received was exported. But from the month of May, 1966, this procedure seems to have undergone a change. Machines received necessarily were not passed on to one or the other. Some machines were left over, and it cannot be said that the machines received were specifically received for delivery to any particular distributor or for export. This is all the material which has to be kept in view in order to correctly and properly construe the agreements. After giving our thoughtful consideration to the entire material as well as to the various....
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....nsibility for shortage or damage occurring in transit will be accepted by the company exists in clause 6, but this fact alone would not make much difference especially when there is no evidence that the machines, when they left the factory, were not labelled "Kelvinator", the trade mark which has been assigned to Spencers. If there was evidence that the machines had left without any label, possibly the contention that the machines were not appropriated to the Spencer's agreement would have had some material bearing, but in the absence of such evidence, we must assume that the machines, when they left for Spencers, were labelled at the factory and that would be in compliance with clause 6, which definitely lays down that all machines leaving the company's factory will pass through rigorous inspection procedure laid down by the company. In the presence of these clauses, the contention of Mr. Sibal, learned counsel for the assessee, that the movement of goods from the factory of the company at Faridabad to its godown in Delhi was in routine, becomes meaningless. If the movement of the goods is in routine for the purpose of storage in the godowns at Delhi, then the effect of clause 8 w....