ITEM NO. 1-A ( For COURT No.5 SECTION III
Judgment )
SUPREME COURT OF INDIA
RECORD OF PROCEEDINGS
Civil Appeal No.1323 of 2009 @ SLP(C) No. 20624/2007
M/s DCM Limited .. Appellant(s)
Versus
Commissioner of Sales Tax, Delhi .. Respondent(s)
WITH
Civil Appeal No.1324 of 2009 @ SLP(C) No. 20654/2007
Civil Appeal No.1325 of 2009 @ SLP(C) No. 20655/2007
Civil Appeal No.1326 of 2009 @ SLP(C) No. 20693/2007
Civil Appeal No.1327 of 2009 @ SLP(C) No. 20750/2007
DATE : 27/02/2009 These matters were called on for pronouncement of
judgment today.
For Appellant(s) Mr. Praveen Kumar, Adv.
For Respondent(s) Ms. Sudha, Adv.
Ms. Sadhana Sandhu, Adv.
Mr. D.S. Mahra, Adv.
---
Hon'ble Mr. Justice S.H. Kapadia pronounced the judgment of the Bench
comprising his Lordship and Hon'ble Mr. Justice H.L. Dattu.
Leave granted.
The appeals are dismissed with no order as to costs in terms of the signed
judgment which is placed on the file.
[ S. Thapar ] [ Madhu Saxena ]
PS to Registrar Court Master
[ Signed reportable judgment is placed on the file ]
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1323 OF 2009
(Arising out of S.L.P.(C) No.20624 of 2007)
M/s. DCM Limited ... Appellant (s)
Versus
Commissioner of Sales Tax, Delhi ... Respondent(s)
WITH
Civil Appeal No. 1324 of 2009 - Arising out of S.L.P. (C) No.20654 of 2007
Civil Appeal No. 1325 of 2009 - Arising out of S.L.P. (C) No.20655 of 2007
Civil Appeal No. 1326 of 2009 - Arising out of S.L.P. (C) No.20693 of 2007
Civil Appeal No. 1327 of 2009 - Arising out of S.L.P. (C) No.20750 of 2007
JUDGMENT
S. H. KAPADIA, J.
1. Leave granted.
2. A short question which arises in this batch of civil appeals is : whether the
taking of the delivery of chemicals in Delhi by the purchasing dealers, in the context
of they being the distributors/stockists of the assessee (appellant), for the assigned
territories outside Delhi would take away the transaction in question from the
category of sale inter-State sale(s)?
Facts in Civil Appeal No. of 2009 -
arising out of S.L.P. (C) No.20624 of 2007
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3. During the assessment year 1974-75 the dealer, M/s. DCM Ltd., claimed
exemptions on account of the following sales made to the registered dealers:
4. The Assessing Authority vide Order dated 28.3.1979 did not grant
exemption in respect of the above-mentioned sales on the ground that the three
above-mentioned purchasing dealers had been assigned specific territories, under
the Contract(s), outside Delhi and that they were under contractual obligations with
M/s. DCM Ltd. to supply goods to the specified dealers who were also named by
M/s. DCM Ltd. on a price fixed and determined by M/s. DCM Ltd. According to
the said order, even the quantity of chemicals stood determined by M/s. DCM Ltd.
According to the Assessing Authority, under the above circumstances, the said
chemicals meant for inter-State sales, however, to avoid liability under the Central
Sales Tax Act, 1956, the transaction was shown by the assessee (appellant – M/s.
DCM Ltd.) as a “local sale”. Accordingly by the said order dated 28.3.79, the said
sales were taxed at 10% under the said 1956 Act.
5. Aggrieved by the assessment order dated 28.3.1979, appeals were
preferred by M/s. DCM Ltd. before Addl. Commissioner who dismissed the appeals
vide his order dated 14.12.79 on the ground that the transaction(s) in question were
inter-State sales. According to M/s. DCM Ltd., the sales were “local sales” as the
said chemicals stood sold in Delhi itself. However, the Appellate Authority observed
that the assessee should be given an opportunity to produce `C’ Forms in respect of
the sales in question and accordingly it remanded the case on the limited point to
the Assessing Authority to give an opportunity to M/s. DCM Ltd. to produce the `C’
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Forms.
6. Aggrieved by the decision of the Appellate Authority, the assessee filed
appeal(s) before the Appellate Tribunal which held that each of the three
registered/purchasing dealers were distributors who had executed Agency
Agreement(s) with the assessee. According to the Tribunal, some of the clauses of
the said Agreement(s) indicated that all supplies were to be made ex-works of the
assessee. Under the said Agreement(s), the purchasing dealers were required to take
local delivery at the factory gate. Under the said Agreement(s), the purchasing
dealer(s) were required to store the said chemicals in their own godowns in Delhi.
Under the said Agreement(s), however, the assessee had to fix the price(s) at which
the chemicals were to be sold in the different assigned territories outside Delhi.
Accordingly it was held by the Appellate Tribunal, under the facts and
circumstances of this case, that under the said Covenant of Agency, since the
chemicals were to be sold in the assigned territories outside Delhi, the transaction(s)
was inter-State sale(s). In this connection, the Appellate Tribunal placed heavy
reliance on clauses 3 & 7 of the said Agreement(s). The Appellate Tribunal once
again directed the Assessing Authority to give one more opportunity to the assessee
to produce the requisite `C’ Forms in respect of the sales made to the said three
registered/purchasing dealers.
7. Aggrieved by the decision of the Appellate Tribunal, however, the assessee
approached the High Court of Delhi by filing an application for reference under
Section 45(1) of Delhi Sales Tax Act, 1975. The question referred to the High Court
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was : whether the Sales Tax Tribunal was right in holding that the said sale(s) was
an inter-State sale(s)? Vide impugned judgment dated 3.7.07, the High Court held
that the sales were inter-State sales falling under Section 3(a) of the said 1956 Act.
Accordingly, the High Court directed the assessee to adduce evidence before the
Assessing Authority to show that the chemicals were locally sold by the purchasing
dealer and that they were not transferred to branches outside Delhi or sold in the
territories outside Delhi. Against the said Order, however, the assessee has
approached this Court by way of special leave petition(s).
ISSUE
8. In this case great emphasis is placed by the assessee on the fact that all
supplies were made ex-works of the of the assessee and that the above three
registered purchasing dealers (distributors/stockists) had taken local deliveries at
the factory gate and had arranged to store the chemicals in their own godown(s) in
Delhi, both in terms of the contract and in fact.
9. Therefore, the main question which arises for determination in these civil
appeals is : whether the taking of the delivery in Delhi by the purchasing dealers for
their assigned territories outside Delhi would take away the transactions in question
from the category of inter-State sale?
Relevant clauses of the Agreement
“1. Territory
(a) Whole of U.P. excepting towns/districts of Kanpur, Lucknow,
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Azamgarh, Ghaziabad, Hapur, Gorakpur, Faizabad, Pilakuwa.
(b) Ganesh Flour Mills and Birla Mills, Delhi excepting supplies to:
(a) Our sister concerns; (b) Government, Semi-Govt. Department (c) Other bulk consumers and Parties to whom we may decide to give effect supplies. 2. Period
This agreement shall be effective from 1.11.73 to 31.12.73. In the
event of a breach of any of the terms of the agreement on either side, this
agreement shall be liable to cancellation by either party on tendering one
month’s notice.
3. Delivery
All supplies will be made on ex-works and you shall take local
delivery of the goods at factory gate and shall arrange to store the same in
your godown in Delhi.
In the event of you desiring us to transport the goods to your
territory outside Delhi, you would give us freight charges and also be liable for
Central Sales Tax.
4. Shortage Losses Damages in Transit
The basis of billing and payment for each supply shall be the weight
shown in the relative challan and we shall not be responsible for any
shortage/losses/damages in transit after the goods have been loaded to the
satisfaction of the Railway authorities/Carriers.
5. Selling Rates
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These will be fixed by us from time to time taking into consideration
cartage and other incidental charges and you will not be entitled to charge
higher rates.
6. Sales of Products of other Manufacturers
During the period of this agreement, you shall not deal directly or
indirectly in the sale of any identical products of other manufacturers.
7. Agency Security Deposit
You shall give us a security deposit of Rs.2,000/- to ensure the due
fulfillment of the agreement. This deposit shall carry interest at the rate
prevailing from time to time, which will be 1% less than the Bank rate. This
deposit shall be liable to forfeit in part or in full at our discretion in the event
of breach of the terms of agreement.”
CONTENTIONS
10. Mr. S.K. Bagaria, learned senior counsel appearing on behalf of the
assessee (appellant), submitted that the sales effected by the assessee to its
purchasing dealers (distributors) were “local sales” and the said sales did not
occasion movement of goods from Delhi to other States. He further submitted that
the purchasing dealers were registered dealers under the Local Act. They were also
registered dealers under the said 1956 Act. According to learned counsel, the
dealers had purchased the goods locally from the assessee in Delhi on the strength of
their registration certificates by issuing prescribed declarations under the Local Act
and, therefore, the said purchases were local purchases in the hands of said dealers.
According to learned counsel, after purchasing the goods in Delhi and getting
delivery ex-works at the factory of the appellant, the purchasing dealers had stored
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the goods in their godowns in Delhi. According to learned counsel, the purchasing
dealers were selling the goods purchased from the appellant either by making local
sales in Delhi or by making inter-State sales to their own buyers outside Delhi or by
making branch transfers to their own branches outside Delhi.
11. Learned counsel next contended that a local sale cannot be deemed to
take place in the course of inter-State trade or commerce simply because the buyer
(purchasing dealer) has been assigned a territory. According to learned counsel,
Section 3(a) of the 1956 Act creates a deeming fiction. It provides that a sale or
purchase shall be deemed to take place in the course of inter-State trade or
commerce if the sale or purchase occasions movement of goods from one State to
another. Thus, according to learned counsel, in order to be covered by Section 3(a),
the sale in question itself must occasion movement of goods from one State to
another. According to learned counsel, Section 3(a) is not attracted merely because
the purchasing dealer(s) has been assigned a territory outside the local area.
According to learned counsel, assignment of territory is different from a sale
occasioning movement of goods. Mere assignment of territory by itself, according to
learned counsel, does not mean that the sale by the assessee to the dealer(s)
occasioned the movement of goods to the assigned territories. According to learned
counsel, the goods in question were sold locally in Delhi by the appellant. According
to learned counsel, appellant was not concerned with subsequent sale(s). According
to learned counsel, in the present case, the purchasing dealer(s) had no obligation to
occasion the movement of goods to the assigned territories pursuant to or as an
incident of the appellant’s sale to them. According to learned counsel, the appellant
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has sold the goods locally to the purchasing dealers who were free to sale the goods
to their own buyers in the assigned territories in either of the three ways, mentioned
above. There was no bar or restriction on the purchasing dealers on selling the
goods in any of the three modes, mentioned above. Learned counsel further
submitted that under clause 3 of the said Agreement it was made clear that in the
event of the purchasing dealer(s) desiring the assessee to transport the goods to their
assigned territories outside Delhi they would pay the freight charges and also be
liable to for Central Sales Tax and in such cases the appellant’s sale(s) to the
purchasing dealer(s) would be sale(s) in the course of inter-State trade or commerce.
According to learned counsel, the Agreement in question did not cast any obligation
upon the purchasing dealer(s) to sell the goods only in the assigned territories.
According to learned counsel, the various clauses in the Agreement relating to the
selling rates were normal commercial clauses which clauses had nothing to do with
the issue as to whether the sale(s) made by the appellant to its purchasing dealers
locally against the declaration forms submitted by them and such clauses did not
purport to make such local sale(s) into inter-State sale(s). In support of his
contention learned counsel placed reliance on number of judgments of this Court.
12. On the other hand, Mr. Ashok Panda, learned senior counsel appearing
on behalf of the Department, submitted that in view of the judgment of the
Constitution Bench of this Court in the case of State of Bihar v. Tata Engineering &
Locomotive Co. Ltd. – (1970) 3 SCC 697, the sales in question in the present case
were inter-State sales. Learned counsel submitted that the judgment of this Court
in Tata Engineering (supra) is squarely applicable to the present case. In this
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connection, learned counsel invited our attention to various clauses in the said
Contract (Agreement) by which specific territory stood assigned to the purchasing
dealer(s) coupled with an obligation by the purchasing dealer(s) to move the goods
to the assigned territory. Under the Contract, according to the learned counsel, the
appellant had complete control over the purchasing dealer(s) coupled with the fact
that the territories were specifically assigned to protect the continuing commercial
interest of the appellant. According to learned counsel, assignment of territory
under the Contract was to avoid competition between the distributors. According
to learned counsel, on reading the entire Contract, the position was clear that the
assignment of territory stood coupled with an obligation of moving the goods by the
purchasing dealer(s) to the assigned territories for sale therein. Learned counsel
submitted that each of the assigned territories were located outside Delhi. Learned
counsel also placed reliance on the judgment of this Court in the case of Union of
India and Another v. K.G. Khosla & Co. Pvt. Ltd. & Others – (1979) 2 SCC 242, in
which it has been held that if a contract contains a stipulation for movement of
goods then the sale would be an inter-State sale. It has been further held that such a
transaction could also be an inter-State sale even if the contract did not expressly
provide for the movement of goods but in fact such movement took place
consequent upon a covenant in the contract or as an incident of that contract.
According to learned counsel, both the aforestated judgments in the cases of Tata
Engineering & K.G. Khosla (supra) were applicable to the facts of the present case
and, therefore, no interference was warranted in the impugned judgment.
Findings
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13. The main contention advanced on behalf of the assessee before us was
that sales having been made in Delhi, ex-works of the assessee and thereafter the
chemicals having been stored in the godowns of the purchasing dealers in Delhi, the
transactions were local sales and not inter-State sales.
14. The short point which we have to decide in this batch of civil appeals is:
whether the movement of chemicals was under the obligations, indicated in the
contract, or whether such movement was due to reasons extraneous to such
obligations?
15. In our view taking of delivery in Delhi by the purchasing dealers for their
assigned territories outside Delhi per se would not take away the transactions in
question from the category of inter-State sales. The determinative test to be applied
in this case is: whether the purchasing dealers were obliged contractually to remove
the goods from Delhi, in which they were bought, to the assigned territories and
whether in fact the goods stood actually removed. It is this test that would decide
the question as to whether the sales in question were “inter-State sales” or “local
sales”. To answer the above question we need to examine the entire Contract(s).
Under the Contract(s), each purchasing dealer(s) was assigned an exclusive
territory. Each dealer(s) was obliged to take the chemicals to his respective territory
outside Delhi where they were to be sold. Despite the fact that the delivery of the
goods was taken in Delhi, the purchasing dealer(s) had to move the goods to the
respective assigned territories outside Delhi and it was the essential condition of the
contract itself that the chemicals would move out of Delhi and would be sold in the
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assigned territories allotted to each of the respective purchasing dealers. The
covenant in the Contract obliged each of the purchasing dealers to move the goods
to the territories outside Delhi. In fact in clause 3 there was a proviso that if on
instructions from the purchasing dealer, the assessee was required to transport the
goods, the freight charges would have to be paid by the distributor as a purchasing
dealer and that the purchasing dealer would also be liable for sales tax. No evidence
has been led by the assessee as to the exact quantity of chemicals which stood
removed under this clause and the reimbursement, if any, of tax and freight being
made to the assessee. Clause 7 of the Contract also indicates that the chemicals were
to be sold in the territories outside Delhi. The assignment of specific territories is
indicated in clause 1. Under the Contract, the purchasing dealer(s) was required to
submit monthly stock of sales to the assessee. Every month, the purchasing dealer
was required to submit a market report to the assessee. Under the Contract, the
price at which the chemicals were to be sold in different territories was also fixed by
the assessee. Each purchasing dealer had executed separate contract(s) with the
assessee. On reading the Contract we find that movement of the goods was the
covenant of the Contract. In the circumstances, we agree with the concurring
findings of fact recorded by all the Authorities below that the sale of chemicals
effected by the assessee to its purchasing dealers who in turn were obliged to effect
their sales in their respective territories outside Delhi involved inter-State movement
of goods and, therefore, the sales in question were inter-State sales. Accordingly, we
find no infirmity in the concurring findings of fact recorded by the Authorities
below. In our view the judgments of this Court in the cases of Tata Engineering
(supra) and K.G. Khosla (supra) are squarely applicable to the facts of the present
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case.
16. Before concluding, we may note that the basic contention advanced on
behalf of the assessee was that the purchasing dealer(s) had to take the delivery of
the goods ex-works; that they were required to store the chemicals in their godowns
in Delhi and the said chemicals were to be disposed of by the said purchasing
dealers in the following manners:
(a) stock transfer; (b) inter-State sales (c) local sales
17. It was urged on behalf of the assessee that it had no idea as to what would
happen to the chemicals after the same were given to the purchasing dealers. It was
urged that M/s. DCM Ltd. ceased to be the owner of the goods after they were given
to the purchasing dealer(s) at the factory gate and that the assessee had no idea as to
whether the goods would be sold in Delhi or transfer to the branches or sent in the
course of inter-State trade. In this connection, reliance was also placed on the
affidavits filed by the three purchasing dealers. We do not find merit in these
arguments. Once it is found that the purchasing dealers were obliged under the
Contract(s) to take the chemicals to their respective territories outside Delhi, once it
is found that the purchasing dealers were obliged to sell the chemicals in their
respective assigned territories, once it is found that the said purchasing dealers were
obliged to enter into separate contract(s) with the assessee, once it is found that each
of the purchasing dealers were required to sell the chemicals in their assigned
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territories at the price fixed by the assessee and once it is found that each of the
purchasing dealers was obliged to submit monthly reports to the assessee then in
that event the mode in which each of the purchasing dealers could sell their goods
either by way of stock transfer or inter-State sale or local sale becomes irrelevant.
The obligation of the purchasing dealer(s) under the Contract indicates the control
of the assessee over the movement of the goods.
18. For the aforestated reasons, we find no infirmity in the impugned
judgment of the High Court and accordingly the civil appeals filed by the assessee
are dismissed with no order as to costs.
……………………………J.
(S.H. Kapadia)
…………………………..J.
(H. L. Dattu)
New Delhi;
February 27, 2009.