JUDGMENT
V. Rengasamy, J.
1. This revision is against the order of the Appellate Tribunal, Additional Bench, Coimbatore, in C.T.A. No. 459 of 1985 dated December 15, 1989. The short point that arises for consideration is whether the transaction of purchase of cotton by the petitioner-assessee is inter-State sale or local sale. The revision petitioner–National Textile Corporation (Tamil Nadu and Pondicherry) Limited had purchased cotton from Cotton Corporation of India, Bombay, which is also a Government of India undertaking in pursuance of an agreement between National Textile Corporation, New Delhi, and Cotton Corporation of India, Bombay. The cotton received from Bombay was for the use of 14 units of sick mills under the control of the petitioner-assessee. The assessee contended that as National Textile Corporation, New Delhi, is the holding company and it entered into agreement with Cotton Corporation of India, Bombay, on behalf of the revision petitioner–which is the subsidiary company within its powers conferred under the Sick Textile Undertakings (Nationalisation) Act, 1974 and as the cotton goods moved from Bombay to Tamil Nadu in pursuance of that agreement, it is inter-State sale not liable to tax under Tamil Nadu General Sales Tax Act, 1959 and therefore, the assessing authority under the TNGST Act had no powers to levy tax. But the assessing authority and the appellate authority have taken the concurrent view that National Textile Corporation, New Delhi, is a separate company whereas the revision-petitioner, National Textile Corporation (Tamil Nadu and Pondicherry) is a separate legal entity and the agreement between the Cotton Corporation of India, Bombay and National Textile Corporation, New Delhi, will not be binding on the revision-petitioner which is a subsidiary company and therefore, the agreement between them is only a proposal to supply cotton to the revision petitioner-assessee and as the goods have been received in Tamil Nadu where the revision petitioner-assessee fixed the price and appropriated the goods, it is only a local sale and therefore, the tax is leviable for the transaction. The cotton supplied to the revision petitioner is imported cotton and the value as per the accounts is Rs. 3,84,55,448.33. Additional claim also has been made for Rs. 24,59,785 which also relates to inter-State purchase of cotton, but, according to the revision petitioner, the points raised were not considered by the appellate authorities. The revision petitioner and the seller are both Government of India undertakings and therefore, there is no dispute with regard to the turnover relating to the purchase of cotton.
2. Prior to 1979 when several textile mills in the country could not be run on account of heavy loss, the Government of India, for the purpose of rehabilitation of those sick mills, had taken over the management of 46 textile undertakings under the Sick Textile Undertakings (Taking over of Management) Act, 1972 whereas other mills were already taken over under the Industries (Development and Regulation) Act, 1951. As the mere taking over of the management and the rehabilitation of it would not serve the public interest the Government of India wanted to reorganise the whole industry by modernising the mills for which heavy investment of public funds was needed and therefore, the National Textile Corporation of India was formed and the sick mills taken over, were nationalised under the Sick Textile Undertakings (Nationalisation) Act, 1974. Under Section 3 of this Act, sick textile undertakings, had vested absolutely with the Central Government and then transferred and vested in National Textile Corporation which is a body of Government of India. The National Textile Corporation of India, Delhi, formed the subsidiary Corporation in different regions under Section 6 of the said Act and the revision petitioner–National Textile Corporation (Tamil Nadu and Pondicherry) Ltd. is one such subsidiary Corporation created for the running of 14 sick textile mills in Tamil Nadu and Pondicherry. Under Section 6 of the Sick Textile Undertaking (Nationalisation) Act, the National Textile Corporation, New Delhi, which is the holding company should transfer the sick textile undertakings to the subsidiary Textile Corporation and the subsidiary textile corporation should get registered under the Companies Act, and run the sick mills transferred to its administration. As the subsidiary Corporation also is a registered company, it is a separate entity, but under Section 11 of the said Act, the National Textile Corporation, New Delhi, which is the holding Corporation, is entitled to exercise the powers of general superintendence and management of the affairs and business of the sick textile undertaking as the owner of the sick textile mills. We shall deal with Section 11 later in the appropriate place and it is suffice at this stage to narrate that, though the holding Corporation, namely, National Textile Corporation, New Delhi, and National Textile corporation (Tamil Nadu and Pondicherry) which is a subsidiary Corporation are different legal entities, the holding Corporation at New Delhi has the management of the affairs of the business of the sick mills.
3. Though certain other claims were made by the petitioner before the authorities below and some of them were allowed by the Appellate Tribunal and some were rejected, we are concerned in this revision only in respect of the imported cotton, purchased by the revision petitioner in pursuance of the allotment made by National Textile Corporation, New Delhi in February, 1977. According to the details furnished by the petitioner, the Secretary of National Textile Corporation convened a meeting of the subsidiary Corporation on February 11, 1977 to ascertain the total requirements of cotton for supply during the crop season of 1977-78 and it was concluded that 70,000 bales of foreign cotton of various varieties were to be purchased from Cotton Corporation of India at Bombay and the petitioner-assessee’s requirement was 13,000 bales for the needs of 14 sick mills under its control in Tamil Nadu and Pondicherry. The allotment of 13,000 bales of foreign cotton to the revision petitioner was conveyed by telex message dated February 26, 1977 and this was in pursuance of the agreement reached between National Textile Corporation, New Delhi, and Cotton Corporation of India, Bombay, on February 11, 1977. It seems that the terms and conditions of agreement between the National Textile Corporation, New Delhi, and the seller–Cotton Corporation of India, Bombay, was also communicated to the subsidiary Corporations by the letter dated February 26, 1977.
4. The goods were despatched from Bombay and it appears that the Director of the revision petitioner by his letter dated September 29, 1977 informed the Deputy Manager of the Cotton Corporation of India, the seller that 9,318 bales lifted out of 13,000 bales till September 24, 1977 was sufficient enough to fulfil their obligation, as 9,318 bales were equivalent to lifting of 11,912 bales of standard weight of 170 kgs. each and they were willing to lift the surplus holding stock of imported cotton lying with Cotton Corporation of India at the then prevailing price whenever needed. For this transaction, the assessing authority as well as the Appellate Tribunal have held that the National Textile Corporation, New Delhi, is a third party in so far as the subsidiary Corporation, namely, the revision petitioner and therefore, the agreement between Cotton Corporation of India, Bombay, and the National Textile Corporation, New Delhi, will not be binding on the revision petitioner though it is a subsidiary Corporation and as the goods were booked from Bombay to Coimbatore as the goods of the sellers that as the transport invoices mentioned the consignor–Cotton Corporation of India and “self” as consignee, to Coimbatore and the insurance for transit risk was on Cotton Corporation of India, the goods transported by the seller from Bombay to Coimbatore was sold in Coimbatore to the revision petitioner and therefore, it was local sale attracting tax under the TNGST Act. The Appellate Assistant Commissioner in his order would observe :
“Thus, it was evident that even if the holding company directs the purchases by the appellant, it is only a proposal and not a contract, the parties to the contract are : (1) The Cotton Corporation of India, Bombay and (2) National Textile Corporation (TN & P) Ltd., Coimbatore, and their agreement for price, quantity, etc., conditions can alone constitute a contract and the goods did not move pursuant to their agreement or contract from one State to another. Hence the third party, i.e., the National Textile Corporation, New Delhi, proposals are not legally binding upon the appellant company. In order to get a final shape for contract, there must be preceding proposals, acceptance, promise and agreement. Thus, it is clear that the activities of the holding company were that of a proposer and the real party to contract was the assessee who has given his assent thereto. Under these circumstances, the National Textile Corporation, New Delhi, does not come in the picture since it is not a party to the contract.
Further probe into the correspondence entered into between the parties, this fact has also been cleared. There was a meeting held at Bombay on February 11, 1977 and attended to by the Textile Commissioner and the officials of Cotton Corporation of India and National Textile Corporation, New Delhi, wherein it was decided to allot 70,000 bales of foreign cotton to National Textile Corporation group mills of which on February 26, 1977 National Textile Corporation, New Delhi, allotted 13,000 bales to National Textile Corporation (TN & P) Ltd., Coimbatore. It is also seen that the Cotton Corporation of India in their affidavit dated Decem-ber 2, 1984 confirmed having stored the following stocks.
Turkish cotton ... 2,862 bales
American cotton ... 3,000 bales
Sudan cotton ... 2,334 bales
Tanzanian cotton ... 2,669 bales
________
10,865 bales
________
The goods were stored in the 7 mills as already quoted elsewhere in this order as the property of Cotton Corporation of India, Bombay. At the time of hearing the learned authorised representative has produced goods consignment notes, initially for 2,138 bales and subsequently another set for 4,255 bales. Accordingly, the transport documents were produced only for 6,383 bales as against 13,000 bales moved. There is no proof produced for transport of the remaining 6,617 bales. It is also to be noted that all these 6,383 bales were moved figuring Cotton Corporation of India, Bombay, as consignor and self as consignee, Coimbatore. The insurance for transit risks were on Cotton Corporation of India, and certainly not on National Textile Corporation (TN & P) Ltd. The insurance risk was continued up to the time the goods were delivered even when the property was stored in the godown of the buyer mills. There were clear agreements to the fact that if the stored goods were cleared before March 31, 1977, there will be no carrying charges. In its letter dated February 28, 1977, it further notified the appellant that the delivery of cotton will be permitted without making any advance and that there will be no selection of cotton by the buyers.”
5. The Appellate Assistant Commissioner has taken the view that as there could be contract only between the seller and the buyer for the sale of goods, the direction of the National Textile Corporation, New Delhi, to supply the goods to the revision petitioner is only a proposal but not a contract and therefore, the goods had not moved in pursuance of any binding contract. He also has observed that the sale can be completed only if the price is fixed and paid or payable and as the price has been paid only by the revision petitioner at Coimbatore, there was local sale. He would further observe that for the supply of 11,912 bales of 170 kgs. each, the price was agreed, but the revision petitioner has informed the seller that for the balance of the bales which were lying with the seller, they will be purchased at the ruling market rate at the time of transport without carrying charges and there was variance from the agreed price, proving that the revision petitioner-assessee did not abide by the agreement between the seller– Cotton Corporation of India and National Textile Corporation, New Delhi. He also would further observe that though the revision petitioner provided rent free godowns for storing the cotton despatched by the seller, the revision petitioner has no domain over the goods as there was no sale of cotton by the seller to the revision petitioner and the revision petitioner was keeping the goods in deposit in their godown, merely as bailee or godown-keeper. He also has given one more reason that the transit insurance risk was only in the name of the seller–Cotton Corporation of India and therefore, the title to the goods was transferred only in Tamil Nadu. The Appellate Tribunal concurred with this view of the first appellate authority and the Tribunal also would observe that the National Textile Corporation, New Delhi, is a distinct body other than the revision petitioner and only when the movement of the goods was occasioned in pursuance of the sale or the agreement to sell between the party, it will fall within Section 3 of the Central Sales Tax Act, 1956 for inter-State sale, but the agreement was not between the seller and the buyer in this case to bring it under Section 3 of the Central Sales Tax Act. But I feel that the approach by the authorities below that the holding company, namely, National Textile Corporation of India, New Delhi, is a third party whose transaction with the seller will not be binding on the purchaser is unacceptable in this case for the reason that the statute has conferred the power of control and the administration of the business of the subsidiary company with the holding company. As mentioned above, the holding company and the subsidiary company are separate and distinct legal entities. But, under Section 4 of the Companies Act, the hold-ing company has right of control over the composition of its directors. In addition to that, Section 11 of the Sick Textile Undertakings (Nationalisation) Act under which the revision petitioner was formed, reads as follows :
“11. Management, etc., of sick textile undertakings.–The National Textile Corporation or any person which that Corporation may, by order in writing, specify, shall be entitled to exercise the powers of general superintendence, direction, control and management of the affairs and business of a sick textile undertaking, the right, title and interest of an owner in relation to which have vested in that Corporation under Sub-section (2) of Section 3, and do all such things as the owner of the sick textile undertaking is authorised to exercise and do.”
Therefore, under this provision, even though the subsidiary company is a distinct entity from National Textile Corporation, New Delhi, the holding company has the powers of general superintendence, direction, control and management of the affairs and the business of the sick textile undertakings and it is entitled to do all such things as the owner of the sick textile undertakings. As a matter of fact, under Section 11-A of the Sick Textile Undertakings (Nationalisation) Act, the holding company is even entitled to sell, dispose or mortgage the property of the sick textile undertaking with the permission of the Central Government. Therefore, at any rate, the National Textile Corporation, New Delhi, a holding company cannot be considered to be third party to the subsidiary company to divest and isolate it from the transactions effected by the holding company on behalf of the subsidiary company.
6. It is the contention of the revision petitioner that the National Textile Corporation, New Delhi, the holding company was entitled to arrange for the supply of 13,000 bales of cotton from Bombay on behalf of the revision petitioner, the holding company had acted as agent of the subsidiary company. When 13,000 bales were allotted to the revision petitioner subsidiary company by the holding company at New Delhi by entering into an agreement with the seller at Bombay, the subsidiary company had not disputed the transaction of the holding company on its behalf and it cannot also, because the holding company has full control in the affairs and business of the sick textile undertaking and it is entitled to act as owner of the undertaking. The subsidiary company, namely the revision petitioner did not have any separate contract with the seller at Bombay, namely, Cotton Corporation of India for supply of cotton, needed for its requirement, by moving the goods from Bombay. Therefore, when the cotton bales were arranged by the holding company, for the needs of the sick textile mills, the subsidiary company which is formed subject to the control of the holding company is bound to accept the order placed by the holding company. It appears from the grounds of appeal before the Tribunal that in the letter of the holding company dated February 28, 1977, the holding company had mentioned the terms and conditions agreed between them and the seller–Cotton Corporation of India and the price of cotton was ex-Bombay godown prices. Therefore, the supply of 11,912 bales of standard weight of 170 kgs. was accepted by the revision petitioner and it was mentioned that this was sufficient to fulfil the obligations at that time. However, the revision petitioner agreed to purchase the remaining bales also later, by paying the current price as they could not take delivery immediately as it would be excess stock, not required, at that time. This was done only for the benefit of the sick textile undertakings and therefore, at no stretch of imagination, it can be said it is in variance of the agreement between the seller–Cotton Corporation of India and the National Textile Corporation, New Delhi.
7. Section 3 of the Central Sales Tax Act reads as follows :
“Section 3 : When is a sale or purchase of goods said 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 ; or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation 1.–Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2.–Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.”
The courts have interpreted that the sale of goods referred to in the above section includes an agreement of sale as such an agreement is an element of sale and has also essential ingredients thereof in terms of Section 4(1) of the Sale of the Goods Act. Therefore, it is sufficient if the agreement of sale contemplates an inter-State movement of the goods, as the sale may take place at the destination or in the course of movement of the goods. It is an undeniable fact in this case that it is only in pursuance of the agreement between the seller–Cotton Corporation of India, Bombay, and the National Textile Corporation, New Delhi, dated February 11, 1977, the movement of the cotton bales from Mumbai to Coimbatore had occasioned. It is also pertinent to remember that the goods had moved to Coimbatore to the named purchaser mentioned in the invoices though the transfer of documents mention the name of the seller as the consignee (self) because of the fact that the insurance premium was paid by the seller. It has been explained before the lower authorities that as the sick textile mills were unable to bear the burden of insurance premium and to avoid further delay, the seller–Cotton Corporation of India itself had paid the insurance premium and therefore, the consignee was mentioned as a “self. In a recent decision in Jambai K.N.M. Textiles (P.) Limited v. State of Tamil Nadu [2000] 118 STC 77, this Tribunal has held that even though the transit insurance was in favour of the seller and the storage was in the godown of the mills with ownership and domain remaining with the seller when the movement of the goods from one State to another was as a result of the covenant, it will fall under the category of inter-State sale. There was no condition enabling the seller to divert the goods to any other customer and dispose of the same after transmission, because the seller did not retain that right of diversion as the goods were intended to the revision petitioner purchaser. Therefore the appropriation has taken place only in Bombay. Law has permitted the inter-position of an agent either of a seller or purchaser in the contract of sale and agent may temporarily intercept the movement on behalf of the principal and it will not alter the inter-State character of the sale unless there was any condition for passing of the title in the goods, to the agent at any stage during the movement of the goods. But, in this case, the sale is of a specific quantity of goods for the supply by the seller to the revision petitioner and the revision petitioner has accepted it, though he wanted a small quantity in the total quantity to be delivered at a later date, because of the sufficiency of the raw materials received in pursuance of the agreement between the seller and the National Textile Corporation, New Delhi. When the seller had no powers to divert the goods intended to the named customer and the supplies were made according to the agreement by which the goods had moved from one State to another, it is certainly an inter-State sale for which the authorities under the Tamil Nadu General Sales Tax Act have no powers to levy tax. In this case, the movement of the goods from Maharashtra State to Tamil Nadu is the necessary consequence or incident of sale agreement. Otherwise, there was no occasion for the seller–Cotton Corporation of India to move the goods from Maharashtra and the petitioner-assessee did not independently contract with the seller for the supply of goods.
8. Then coming to case laws, in Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457, the Supreme Court has held that the sale can be an inter-State sale, even if the contract of sale does not itself provide for the movement of goods from one State to another but such movement is the result of a covenant in the contract of sale or is an incident of that contract. As mentioned above, the movement of goods from the seller in Maharashtra to Tamil Nadu is a result of the covenant between Cotton Corporation of India and the National Textile Corporation, New Delhi, which is the administrator of the petitioner-assessee. Acting as an agent of the petitioner-assessee, the arrangement was made for movement of goods from Maharashtra. In Commissioner of Sales Tax v. Bakhtawar Lai Kailash Chand Arhti [1992] 87 STC 196, the Supreme Court has held that the respondent therein acting as commission agent on behalf of the ex-U.P. principals, purchased the goods which was duly despatched to such principals to places outside the U.P. State. As the movement of the goods from one State to another State though not proved, have been expressly stated in the contract of sale, it was agreed upon between the parties, falling within the ambit of Section 3 of the Act, resulting in inter-State sale. When it is established that the movement of the goods was the consequence of the sale agreement, the seller, taking the insurance premium and mentioning the seller as the consignee in the transit documents and keeping the goods in the godown of the petitioner may not alter the character of inter-State sale. Therefore, I find that the authorities below were not right in holding that the sale in favour of the revision petitioner was local sale attracting tax under the Tamil Nadu General Sales Tax Act. The authorities below have failed to consider properly the agreement between the seller–Cotton Corporation of India and National Textile Corporation of India, New Delhi, in which the National Textile Corporation, New Delhi, had acted as the administrator of the petitioner-assessee, the subsidiary unit. The authorities below were carried away by the extraneous materials to arrive at the wrong conclusion without considering the scope of Section 3 which requires only the movement of the goods inter-State, as a necessary consequence of sale or purchase. Therefore, the order of the Appellate Tribunal is not sustainable and the same is set aside.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 28th day of July, 2000.
P. Muthuswamy, J. Judicial Member
1. This revision has been preferred against the order in C.T.A. No. 459 of 1985 of the Sales Tax Appellate Tribunal (Additional Bench), Coimbatore, disputing the levy of tax on a turnover of Rs. 4,31,15,439 by rejecting the claim of exemption on the ground of inter-State sale, etc., for the assessment year 1977-78 under the Tamil Nadu General Sales Tax Act, 1959.
2. In this revision we are concerned with regard to the levy of tax at 3 per cent in respect of last purchase of cotton by the petitioner or from Cotton Corporation of India on a turnover of Rs. 3,84,55,448 and in respect of additional claim filed by the appellant praying the purchases once on inter-State and consequential relief on a turnover of Rs. 24,59,715 and in respect of the last purchase of cotton made for which no transport documents was produced before the assessing officer to prove that the cotton was moved from the other State into this State on a turnover of Rs. 19,99,486, etc. In respect of the turnover of Rs. 3,84,55,448 and Rs. 24,59,715, it has been claimed by the petitioner that it is the holding company, namely, National Textile Corporation Limited, Delhi, entered into an agreement with the Cotton Corporation of India, Bombay for purchase of 70,000 bales of foreign cotton, out of which 13,000 bales were allotted to the petitioner and accordingly those 13,000 bales of foreign cotton had been sold by Cotton Corporation of India, Bombay, to the petitioner as inter-State purchase and hence there is no question of local sale within the State by the Cotton Corporation of India, to the petitioner. Such a claim that it is an inter-State purchase had been rejected by the assessing authority as well as the two appellate authorities on the ground that the agreement entered into in between the National Textile Corporation, Delhi, and the Cotton Corporation of India, Bombay, would be only treated as third party contract and hence the movement of goods from Bombay to Tamil Nadu was not occasioned due to the agreement in between the petitioner and Cotton Corporation of India, Bombay, and further held that the goods had been transported by Cotton Corporation of India under “self, i.e., by way of stock transfer and was kept in the respective godown of the mills of the petitioners and only after payment, the goods were earmarked and delivered to the respective mills and thereby the sales were only local sale, exigible to tax. In respect of the assessment made on the basis of last purchase in the absence of transport document, the turnover of Rs. 19,99,436 was assessed to tax. So, it was concurrently held by all the three lower authorities that this turnover was exigible to tax at 3 per cent. In addition, the turnover of about Rs, 2.00 lakhs was also assessed to tax (rate in dispute) as detailed in the order of the Appellate Tribunal by confirming the order of the lower authorities. Aggrieved by the said order of the Appellate Tribunal, this revision has been filed by the petitioner/assessee.
3. In the grounds of appeal as well as during arguments, the learned counsel Mr. Inbarajan argued that the agreement in between the National Textile Corporation, New Delhi, with Cotton Corporation of India, Bombay was only on behalf of the subsidiary company, namely, the petitioner herein and in such a situation, the movement of goods was occasioned only due to the said agreement from Bombay to Tamil Nadu and it was nothing but inter-State sale. It was further contended that as per sections 11 and 11-A of the Sick Textile Undertakings (Nationalisation) Act, 1974, the National Textile Corporation, New Delhi, being the holding company and the petitioner being the subsidiary company, the management, etc., of the sick textile undertakings are under the holding company and thereby the agreement entered in between the holding company and Cotton Corporation of India, Bombay, is binding upon the petitioner also and hence the movement of goods from Bombay to Tamil Nadu was only an inter-State purchase and hence there is no question of last purchase occurred within this State and thereby it could not be taxed as last purchase of cotton within the State. It is also further urged by the learned counsel, the carrying charges, insurance charges, etc., had been realised by the Cotton Corporation of India, as per the invoices and hence the property in the goods itself had passed under the contract and there was only deferment of delivery of cotton which took place in Tamil Nadu and not the transaction. So, it is argued that it was not at all any local purchase of cotton and it was only inter-State purchases of imported or foreign cotton and thereby the turnover of Rs. 3,85,55,448 and Rs. 24,59,715 are not exigible to tax.
4. On the other hand, the learned Government Advocate Mr. K. Soun-dararajan contended that the holding company, namely, the National Textile Corporation, New Delhi, and the petitioner herein, the subsidiary company are separate and distinct entities and thereby as per Section 6 of the Sick Textile Undertakings (Nationalisation) Act, 1974, holding company and the subsidiary company are different entities and hence the holding company cannot enter into any agreement on behalf of the subsidiary company and such an agreement even assuming without accepting that the said contract was binding upon the subsidiary company, namely, the petitioner herein, the said agreement was only a distribution agreement and the goods had been brought by Cotton Corporation of India, Bombay, only for the purpose of sale and not on inter-State sale, especially, the Cotton Corporation of India, Bombay, had brought the goods to this State by stock transfer as “self and thereafter by keeping the goods in the respective mills run by the petitioners as the goods of Cotton Corporation of India, Bombay, only and thereafter on receipt of the payment, the goods were delivered to the concerned mills of the petitioners. So, the case of the Revenue is that it was not at all inter-State purchases but the transactions were only last purchase within the State, exigible to tax.
5. Now the point for consideration is whether (1) the order of the Appellate Tribunal by levying tax on the disputed turnover as a last purchase of cotton within the State is sustainable in law, (2) whether the assessment made on the last purchase of cotton as the appellant failed to produce transport documents on a turnover of Rs. 19,99,486 is sustainable in law.
6. It is undisputed fact that the petitioner, National Textile Corporation (TN & P) Limited is the subsidiary company and the National Textile Corporation, New Delhi, is the holding company in view of the Sick Textile Undertakings (Nationalisation) Act, 1974 with effect from April 1, 1974. The assessment year is 1977-78. The petitioner is running the mills when were taken over by virtue of the said Act. It is no doubt, the National Textile Corporation, New Delhi, agreed for the purchase of 70,000 bales of cotton requiring for subsidiary companies out of which the present petitioner National Textile Corporation (TN & P) Limited, was allotted 13,000 bales of foreign cotton and such allotment was also communicated to the Managing Director of the petitioner under telex message dated February 26, 1977. So, in such a situation, whether the agreement in between the holding company and the Cotton Corporation of India, Bombay, is binding upon the subsidiary company, namely the petitioner herein or not. As per Section 6 of Sick Textile Undertakings (Nationalisation) Act, 1974, the National Textile Corporation, New Delhi, would form subsidiary Corporation such as the present petitioner under the Companies Act, 1956. So, it is obvious that the holding company is a different entity to that of the subsidiary company. But, it is contended by the learned counsel Mr. Inbarajan, that as per Section 11 of the Sick Textile Undertakings (Nationalisation) Act, 1974, the holding company by order in writing would exercise the powers of general superintendence, direction, control and management of the affairs and business of a sick textile undertaking. So, it is argued that the agreement entered in between the National Textile Corporation and the Cotton Corporation of India, Bombay, to purchase 70,000 bales of imported cotton out of which 13,000 bales of imported cotton allotted to the petitioner as subsidiary company, would be binding upon the petitioner-subsidiary company also. It is no doubt, there is no specific communication by the hold-ing company to the subsidiary company, the petitioner herein, that the holding company entered into an agreement and purchased cotton yarn from Cotton Corporation of India, Bombay, on behalf of the subsidiary company also namely the petitioner herein. However, by virtue of sections 11 and 11-A of the Sick Textile Undertakings (Nationalisation) Act, 1974, assuming without accepting that the holding company could as well enter into an agreement on behalf of the subsidiary company, the said agreement could only be to the extent of distribution agreement and could not be treated as an agreement of sale. In this case, no invoices (inter-State purchase) had been produced to show that the petitioner herein was a consignee and the Cotton Corporation of India, Bombay, was the consignor, and on the other hand it is the specific and definite finding of the first appellate authority, namely, the Deputy Commissioner, Coimbatore, that the Cotton Corporation of India, Bombay, had moved goods from Bombay as a consignor and “self” as consignee, Coimbatore. The relevant portion of the finding of the first appellate authority, Deputy Commissioner, Coimbatore, is as follows : (page 21 of the typed set)
“The goods were stored in the 7 mills as already quoted elsewhere in this order as the property of the Cotton Corporation of India, Bombay. At the time of hearing the learned authorised representative has produced goods consignment notes, initially for 2,138 bales and subsequently another set for 4,255 bales. Accordingly, the transport documents were produced only for 6,383 bales as against 13,000 bales moved. There is no proof produced for transport of the remaining 6,617 bales. It is also to be noted that all these 6,583 bales were moved figuring Cotton Corporation of India, Bombay, as consignor and self as consignee, Coimbatore. The insurance for transit risks were on Cotton Corporation of India and certainly not on National Textile Corporation (TN & P) Ltd. The insurance risk was continued up to the time the goods were delivered even when the property was stored in the godown of the buyer mills. There were clear agreement to the fact that if the stored goods were cleared before March 31, 1977 there will be no carrying charges. In its letter dated February 28, 1977, it further notified the appellant that the delivery of cotton will be permitted without making any advance and that there will be no selection of cotton by the buyers.”
7. So, it is obvious the Cotton Corporation of India, moved the goods from Bombay to Tamil Nadu and kept the goods in Tamil Nadu as a consignor and “self as consignee at Coimbatore and after moving the cotton bales, stored the goods in the 7 mills of the petitioners and the insurance was also continued in the name of the Cotton Corporation of India, Bombay, till the goods were delivered inclusive of the period when the goods were kept in the godowns of the mills of the petitioners and the transport charges were paid at the time of paying the price of the cotton at Coimbatore. So, the Cotton Corporation of India, Bombay, had moved the goods as consignor and consignee (self), i.e., by way of stock transfer and nothing else are ; thereby it could not be inter-State purchase by the petitioner. The property in the goods was with Cotton Corporation of India, Bombay, till it was delivered to the concerned mills of the petitioners. Further, it is pertinent to note that there is no evidence on record nor any contention by the assessee/petitioner at any stage that the documents of title over the goods were endorsed to the petitioner during the inter-State transit so as to attract the 2nd limb of Section 3(b) of the CST Act. It is also neither the facts of the case nor anybody’s case to invoke Section 5(2) of the CST Act. Further, it is pertinent to point out that if really the petitioner herein had purchased the cotton as inter-State purchase, it could have produced ‘C’ form, which is not at all pleaded by the petitioner at any point of time. Except the bare plea of inter-State purchase, it is not the case of the petitioner that the inter-State purchase was under ‘C’ form and paid tax (concessional rate) as inter-State purchase of cotton. In spite of the said findings of the first appellate authority, the petitioner had not produced any invoice to establish that it was inter-State purchase of cotton. As per the certificate issued by the Cotton Corporation of India Limited, it is obvious that there was no inter-State sale by the Cotton Corporation of India Limited to the petitioner for the goods transported to Coimbatore for the consumption of NTC unit mills. The relevant certificate is found a place at page 451 of the assessment file. In the assessment file, it is found as follows :
“TO WHOMSOEVER CONCERN
This is to certify that the below mentioned cotton bales had been cleared by CCI-Bombay and had been transported to Coimbatore for the consumption of NTC unit mills.
1. Turkish cotton bales ... 2,862 nos.
2. American cotton bales ... 3,000 nos.
3. Sudan cotton bales ... 2,331 nos.
4. Tanzanian cotton ... 2,669 nos.
10,862 nos.
The connected GC notes are being traced. The above bales had been stored in the following godowns of NTC unit mills :
1. Coimbatore Murugan Mills
2. Somasundaram Spg. Mills
3. Krishnaveni Textile Mills
4. Sarada Mills
5. Pankaja Mills
6. Rengavilas Mills and
7. Cambodia Mills for the Cotton Corporation of India Ltd.
(Sd.)...........
Branch Manager.
This certificate has been issued by the Branch Manager of the Cotton Corporation of India by the branch office at Madras dated December 2, 1984. So, this certificate itself proves that the goods, namely, the imported cotton had been transported to Coimbatore from Bombay for the consumption of NTC unit, not under inter-State purchase/sale to the subsidiary company, but only as stock transfer from Bombay to Tamil Nadu by Cotton Corporation of India, Bombay, especially in the light of the findings rendered by the first appellate authority as stated above. So, at the most as held by the lower authorities the movement of goods was not on sale but it was only for the purpose of sale by way of stock transfer by Cotton Corporation of India, Bombay. In the absence of any invoice to prove that it was an inter-State sale and the non-production of ‘C’ form and also due to the abovementioned certificate of Cotton Corporation of India and also due to the findings of the Deputy Commissioner, it is clear that the Cotton Corporation of India, Bombay, effected stock transfer from one State to another as consignor and consignee, in respect of the cotton bales/and thereby it retained the right of disposal of the goods till they reached Coimbatore and kept in the godowns of the mills of the petitioners. Even as per the memorandum of grounds filed before the Appellate Tribunal at page 31 of the typed set, it is not the claim of the petitioner that the petitioner had produced any ‘C’ form for the inter-State purchase of cotton. So, no material or documentary evidence had been produced by the assessee to dispel the findings of the first appellate authority as well as the second appellate authority that it was only local purchase and not inter-State purchase. So, the conclusion would be that there was no inter-State purchase effected by the petitioner and on the other hand the cotton bales moved from Bombay to Tamil Nadu by way of stock transfer by the Cotton Corporation of India, Bombay, perhaps by utilising form ‘F’ and kept the goods in the godowns of the mills of the petitioners by having domain over the goods, till it was delivered by Cotton Corporation of India, Bombay, to the concerned mills after receipt of the price. Hence, the Cotton Corporation of India retained the right of disposal till it was kept in the godown of the petitioner’s mills (as bailee) and delivered to the mills. So, this was nothing but last purchase within the State and not inter-State sale and the findings of the lower authorities are perfectly valid in law and need no interference. Hence, for the reasons stated above, the turnover of Rs, 3,84,448 and Rs. 24,59,715 was only in respect of last purchase of cotton from Cotton Corporation of India and the cotton imported from other countries and it was not at all inter-State purchase as claimed by the petitioner and thereby the same is exigible to tax at 3 per cent.
Point 2 : The disallowance of the inter-State purchase was due to the non-production of transport details on a turnover of Rs. 19,99,486 to six mills of the petitioners as detailed at page 64 of the typed-set. So, the finding of the Appellate Tribunal that the same is liable to tax as last purchase within the State is quite in order. In respect of the transaction to the extent of Rs. 2.00 lakhs, we have to hold the rate of tax at 9 per cent and 15 per cent, etc., are quite in order, as detailed by the Appellate Tribunal in its order, at page 68 of the typed set (internal pages 10-11). So, this concurrent finding of the lower authorities by levying tax in respect of the disputed turnover in this revision needs no interference. Hence for the reasons stated above, the order of the Appellate Tribunal has to be necessarily confirmed.
In the result, the revision is dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 28th day of July, 2000.
J. Kanakaraj, J. (Chairman).
1. This tax revision case has been placed before me, on a difference of opinion between the Vice-Chairman and the Judicial Member when the case was posted before them in the Second Bench. I have again heard the matter and the arguments of both the counsel. I propose to deal with the matter afresh without considering the respective judgments of the. Vice-Chairman and Judicial Member. In my opinion this will pave the way for a proper conclusion which can be arrived at on the basis of the majority opinion.
2. For the assessment year 1977-78 the petitioner was assessed to a total and taxable turnover of Rs. 38,81,15,224.06 and Rs. 21,03,15,656.77 respectively. Against the order of the assessing authority, an appeal was filed before the Deputy Commissioner (Commercial Taxes), Coimbatore, and he granted relief in respect of insurance charges, forwarding and handling charges, but dismissed the rest of the claim. A second appeal was filed before the Sales Tax Appellate Tribunal, Additional Bench in C.T.A. 459 of 1995 and by judgment dated February 15, 1989 the appeal was partly allowed and partly dismissed. The petitioner has filed this revision petition in respect of the turnover of Rs. 4,31,15,439. The said turnover relates to the alleged inter-State purchases effected from the Cotton Corporation of India, but treated by the lower authorities as last purchase of cotton within the State of Tamil Nadu and taxed at 3 per cent.
3. The petitioner being the National Textile Corporation (Tamil Nadu and Pondicherry) Private Limited hereinafter called “the subsidiary company” runs a number of spinning and textile mills in Tamil Nadu which were taken over by the Government under the Sick Textile Undertakings (Nationalisation) Act, 1974. Under the said Act the sick textile undertakings which stand transferred to the Central Government are directed to vest in the National Textile Corporation (hereinafter called “the holding company”). In pursuance of certain discussions held in Bombay on February 11, 1977 between the Chairman and the Directors of the holding company with the Managing Director and Financial Advisor of the Cotton Corporation of India, out of a total of 70,000 bales of cotton to be imported, 13,000 bales were intended for the subsidiary Corporation. There was an agreement between the holding company and the Cotton Corporation of India and whether it is an “agreement of sale” or it is an “agreement to sell” is one of the issues involved in this case. The second main issue is, whether with reference to the subsidiary company (assessee), is the contract between the holding company and Cotton Corporation of India, really a third party contract. The above issues arise because it is not disputed that the cotton was moved into Tamil Nadu by virtue of the agreement between the holding company and Cotton Corporation of India. With reference to the subsidiary company is it a third party agreement or is it an agreement between the assessee’s principal and Cotton Corporation of India so as to bring it within the meaning of an inter-State sale. There is a letter dated February 22, 1977 from the holding company to the subsidiary company, informing them about the terms and conditions of purchase of 13,000 bales of foreign cotton allotted to the assessee. In the letter of the assessee dated May 12, 1977 addressed to the various mills taken over by the Central Government, instructions are given to pay freight charges from Bombay to Coimbatore. The Cotton Corporation of India, with a view to save time in the transport of goods, transported all the cotton to Coimbatore and stored them in the respective mills numbering 7. They are the Coimbatore Murugan Mills, Somasundaram Mills, Krishnaveni Textiles, Sarada Mills, Pankaja Mills, Sri Rangavilas Mills and Cambodia Mills. This fact is clear from the letter of the Cotton Corporation of India, Bombay, dated December 2, 1984. The respective mills had taken delivery of all cotton from the Cotton Corporation of India, Coimbatore, of the required quantity of bales, for which the mills paid the price. The Cotton Corporation of India collected insurance charges, stacking charges, transport charges and C & F charges from the mills in their invoices. According to the assessee cotton was moved from Bombay to Tamil Nadu by virtue of the purchases already made by their holding company and that therefore it was an inter-State purchase by the assessee. One aspect of the case may be noticed here namely, that the assessee claimed such inter-State purchases on a total turnover of Rs. 4,29,34,600.14. In their additional grounds, before the first appellate authority, they included a further sum of Rs. 24,79,715 as representing inter-State purchases from Cotton Corporation of India by Sri Ranga Vilas Mills.
4. The argument of the assessee can be dealt with under two heads. The first is that there was only an agreement to sell between the holding company and Cotton Corporation of India which was not enforceable and that the actual terms of contract were only concluded with the subsidiary company after the goods reached Tamil Nadu. The second is that, even if the goods moved on account of the agreement with the holding company, it cannot be treated as an inter-State sale because the subsidiary company is an independent company in the eye of law and there is no proof to show that the goods moved on account of any agreement with the subsidiary company. I will take up the first issue relating to the “agreement to sell” and “agreement of sale”. The case of the revenue is that cotton was stored in seven mills as the property of the Cotton Corporation of India, Bombay. Consignment notes for a total of 6,383 bales were produced. In these consignment notes, consignor is shown as Cotton Corporation of India, Bombay, and the consignee is shown as “self” at Coimbatore. The insurance for transit risk was on the Cotton Corporation Company of India and not on the subsidiary company (assessee). The insurance risk was continued up to the time the goods were delivered and appropriated by the respective mills. It has to be remembered that the goods were in the godown of the respective mills and only appropriation took place later when price was paid. One other agreement was that if the goods were cleared before July 31, 1977 there would be no clearing charges. In the letter dated February 28, 1977, it was made clear that there will be no selection of cotton by the buyer units. According to the revenue the allocation of the bales and the terms of contract were entered into only after the landing of the goods in Coimbatore area within Tamil Nadu. Therefore, with reference to Section 4(2} of the Central Sales Tax Act, it was a sale within Tamil Nadu. The freight charges from Bombay to Coimbatore was to be borne by the Cotton Corporation of India if the goods were lifted before March 31, 1977 and the same would be borne by the buyer units, if the goods were lifted after March 31, 1977. The first appellate authority refers to a subsequent arrangement by which the bales lying in the unit mill to the extent of 3,682 bales were agreed to be bought at a different price. These aspects of the case were relied on by the first appellate authority to confirm the view of the assessing authority, that it was a local purchase. It was again pointed out that the unit mills which stored the cotton had no dominion over the goods, but they provided rent free godowns. Before me the very same facts are stressed by the Revenue for upholding the decision of the lower authorities that there was only a local purchase within Tamil Nadu and the turnover is taxable at 3 per cent. On this aspect, however, I am bound by a Full Bench judgment of the Special Tribunal in Jambai K.N.M. Textiles (P) Ltd. v. State of Tamil Nadu reported in [2000] 118 STC 77. In that case, cotton was purchased from the Maharashtra State Co-operative Marketing Federation, Bombay, and various mills in Tamil Nadu offered to purchase cotton. There was a condition that selection could be made by the mills in Tamil Nadu and payment was also agreed to be done in Tamil Nadu. There was a similar arrangement for storing the goods in the mills in Tamil Nadu but at the risk of the Bombay seller all other incidental charges were on buyers account. On the above facts, the Full Bench held that the movement of the goods from one State to another on the basis of a covenant or incident of a contract of sale or purchase, it will be sufficient to hold that there was an inter State sale. Technicalities relating to the passing of property in the goods and the conclusion of the sale on payment of price, etc., were also not to detract from the nature of an inter-State sale. Following the said judgment I am constrained to hold that the facts relating to the movement of the goods from Bombay to Tamil Nadu and the manner of appropriation the instant case cannot detract from the primary conclusion that the goods moved from Maharashtra to Tamil Nadu, on the basis of an “agreement of sale” between the holding company and the Cotton Corporation of India. Therefore, I hold the facts of this case do lead to the conclusion that the purchase was only an inter-State purchase.
5. But the question still remains as to whether the goods moved from Maharashtra to Tamil Nadu on account of an agreement between the assessee and the Cotton Corporation of India and whether the agreement made by the holding company can at all influence a decision. In other words, is the holding company a third party so far as the subsidiary company is concerned. On this issue Mr. N. Inbarajan, learned counsel for the petitioner has taken me through the important provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974, Section 2(1) of the Act says “subsidiary textile Corporation” means a textile Corporation formed by the National Textile Corporation as its subsidiary. Section 3 provides for acquisition of sick textiles undertaking by the Central Government and the vesting of such undertaking in the National Textile Corporation. Section 4 talks of the effect of such vesting. Section 5 refers to the liability of the erstwhile owner. Section 6 enables the holding company to form a subsidiary Corporation under the Companies Act, 1956. Sub-section (2) of Section 6 says that the holding company can transfer all the textiles undertakings to the subsidiary company and the transfer shall be subjected to the terms and conditions as may be specified. The subsidiary company shall stand substituted in any licence required to be taken in respect of the sick undertaking. Sub-section (4) says that the liability required to be discharged by the holding company in relation to the sick undertaking shall stand transferred to the subsidiary company. The only other section which requires consideration is Section 16 enabling the transfer of employees to the subsidiary company. Argues Mr. N. Inbarajan, the learned counsel for the petitioner, on the basis of the above provision it is clear that the holding company does control the subsidiary company in all respects and the subsidiary company is bound by agreement entered into by the holding company.
6. On the other hand Mr. M. Venkateswaran, the learned Senior Standing Counsel, argues that a holding company and a subsidiary company are two different legal entities. He refers to Section 4 of the Companies Act, 1956 for understanding the meaning of a holding company and a subsidiary company. Sub-clause (a) of Section 4 says that if a company controls the composition of the board of directors of another company, then it will be called a holding company. Secondly, sub-clause (b) says that if the holders of preference shares in a company having the same right in all respects as the holders of equity shares and they exercise or control more than half of the total voting power of another company, then also the first company will be a holding company. Sub-clause (ii) to clause (b) says that if the first company holds more than half in nominal value of the equity shares of another company then also it will be a holding company. The learned Government Advocate also refers to ILR (1972) 1 Calcutta 286 (Hungerford Investment Trust Ltd. v. Turners Morrison & Co.). In that case it was observed that holding company and the subsidiary company maintain a distinction between the two as separate legal entities. In that case an application to join the subsidiary company as parties in a petition under Section 397 was dismissed on the ground that the affairs of the holding company do not necessarily include the affairs of the subsidiary company. No doubt the argument of the learned Government Pleader is attractive and there is scope for the proposition that a holding company and a subsidiary company are different entities. But what the Revenue ignores in this case is the impact of the Sick Textiles Undertakings (Nationalisation) Act, 1974. As rightly observed in the above decision of the Calcutta High Court there can always be an agreement on the part of the holding company to control the affairs of the subsidiary company. In this case, the statute imposes certain relationship between the holding company and the subsidiary company. This statutory imposition is contained in Section 6 of the Act. When the liabilities of a sick unit are required to be discharged by the holding company and such liability is in turn transferred to the subsidiary company it necessarily means that the subsidiary company is bound to act in accordance with the agreement entered into between the holding company and the Cotton Corporation of India in this case. In other words, I am clearly of the opinion that the agreement entered into between the holding company and the Cotton Corporation of India is binding on the subsidiary company (assessee). In fact, on facts this is a case where the subsidiary company implicitly obeyed the direction and instruction of the holding company in purchasing cotton bales imported into India and moved from Maharashtra to Tamil Nadu. Consequently, I am of the opinion, that the movement of the goods from Maharashtra to Tamil Nadu was on the basis of the agreement entered into between the holding company and the Cotton Corporation of India which in turn means a contract was between subsidiary company and Cotton Corporation of India. Once the above finding is reached there is no escape from the conclusion that it is an inter-State sale and the turnover cannot be treated as last purchase of cotton within Tamil Nadu. My conclusion as above is in conformity with the view expressed by honourable Justice V. Rengasamy, the Vice-Chairman of this Tribunal. Consequently, by majority opinion, the transactions are held as inter-State sales and the turnover in question, namely Rs. 4,31,15,431 is not taxable under the TNGST Act. The tax revision case is therefore allowed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 8th day of September, 2000.