PETITIONER: THE CEMENT MARKETING CO., OF INDIALTD. AND ANOTHER Vs. RESPONDENT: THE STATE OF MYSORE AND ANOTHER DATE OF JUDGMENT: 28/08/1962 BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. DAS, S.K. SARKAR, A.K. HIDAYATULLAH, M. DAYAL, RAGHUBAR CITATION: 1963 AIR 980 1963 SCR Supl. (3) 777 CITATOR INFO : R 1966 SC 563 (21) R 1966 SC1216 (9,10) R 1967 SC 585 (7) R 1971 SC 477 (9) R 1979 SC1160 (15) RF 1992 SC1952 (8) ACT: Sales Tax-Sale of goods-Transactions involving movement of goods across the border from one, State to another Liability to tax-Mysore Sales Tax Act, 1948 (Mysore 46 of 1948)- Constitution of India, Art.286(2). HEADNOTE: The second appellant was a manufacturer of cement and at the material time it had over a dozen factories in different parts of India none of which was in the State of Mysore. The first appellant was its sales manager and had its head office in Bombay with a branch office at Bangalore in the State of Mysore' Cement was a controlled article and every- one wishing to buy cement. had to get an authorisation from the appropriate Government authorities in a standard form which authorised the first appellant to sell cement in quantities mentioned therein and the cement had to be supplied from the factory therein mentioned. The purchaser had to place an order with the first appellant. stating the requirement, where the goods were to be sent and how they were to be sent. In the present case, all the goods were sent against the authorisations from the various factories belonging to the second appellant which were all outside the State of Mysore and were received in the State of Mysore by the various 778 purchasers. The Sales Tax Officer by his order dated March 31, 1958, took the view that though the property in the goods passed to the dealers and consumers outside the State, of Mysore, since the goods had actually been delivered in the State of Mysore as a direct result of such sales for purposes of consumption in the State, the sales must be deemed to have taken place in that State and, therefore, the sales effected by the first appellant as the sales manager of the second appellant, to customers in Mysore State amounted to intrastate sales and liable to tax under provisions of the Mysore Sales Tax Act, 1948. The High Court held that as the actual delivery to the purchasers was within the State of Mysore, the cement loaded outside the State and despatched to the purchaser did not convert the sales into inter-State sales but were intrastate Wes. Held, that the sales which took place in the present case in which the movement of goods was from one State to another as a result of a convenant or incident of the contract of sale, were in the course of inter-State trade or commerce and fell within Art' 286(2) of the Constitution of India, Consequently, the imposition of sales tax on such sales was unconstitutional. M/S. Mohan Lai Hargobind v. The State of Madhya Pradesh, [1955] 2 S.C.R. 509, followed. Endapuri Narasimhan & son v. The State of Orissa, [1962] 1 S.C.R. 314, Bengal Immunity Co. Ltd. v. The State of Bihar, [1955] 2 S.C. R. 603 M/s. Ram Narain & Sons v. Assistant Commissioner of Sales Tax, [1955] 2 S.C.R. 483 and Tata Iron and Steel Co. Ltd. Bombay v. S. R Sarkar, [1961] 1 S.C.R. 379, relied on. Rohtas Industries Ltd. v. The State of Bihar, [1961] 12 S.T.C. 615, distinguished. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 255 of 1961.
Appeal from the judgment and order dated March 21, 1960, of
the Mysore High Court in Writ Petition No. 147 of 1958.
B. J. Kolah, J. B. DadachanJi, O. C. Mathur and Ravinder
Narain, for the appellants.
779
C. K. Daphtary, Solicitor-General of India, B. R. L.
Iyengar and P. D. Menon, for respondents.
1962. August. 28. The Judgment of the Court was delivered
by.
KAPUR, J This is an appeal against the judgment and order of
the High Court of Mysore in Writ Petition No. 147 of 1958
dismissing the appellant’s petition under Arts. 226 and 227
of the Constitution for quashing the order of assessment for
the period of assessment 1955-56 i.e, from April 1, 1955, to
March 31, 1956. In this appeal because of the Validating
Act (VII of 1956) the appellants did not challenge their
liability for the period April 1, 1955, to September 6,
1955.
The facts necessary for the decision of this appeal are
these : Appellant No. 1-The Cement Marketing Co. Ltd-are the
Sales Managers of the second appellant-The Associated Cement
Co. Ltd. appointed under an agreement dated April 21, 1954.
The High Court has described the first appellant to be the
Distributors of the second apppellant. The second appellant
is a manufacturer of cement and at the material time it had
over a dozen factories in different parts of India, none of
which was in the State of Mysore. The head office of first
appellant is at Bombay and it had then a branch office at
Bangalore in the State of Mysore. The first appellant was
registered as a dealer under the Mysore Sales Tax Act 1948,
hereinafter called the “Mysore Act”. At all material times
cement was and still is a controlled article. Whether the
sale was to a Government Department i.e. to the Director
General of Supplies & Disposal, Government of India, New
Delhi, or to a person authorised by the said Officer or to
the’ public it was effected on authorisations given to the
buyers by appropriate Government authorities and
780
produced by them in the office of the first appellant. Both
in regard to purchases by the public and the Government the
Modus operandi was more or less identical. It was this
Every one wishing to buy cement had to get an authorisation
in a standard form which authorised the first appellant to
sell cement in quantities mentioned, therein and the cement
had to be supplied from the factory therein mentioned. That
document was in the following form which actually ralates to
a sale to a Government contractor.
“Government of India-Ministrary of Commerce & Industry.
Office of the Regional Honorary Cement Adviser 4/12 Race
Course Road, Coimbatore.
Central Quota. Dated 8-10-1955.
Authorisation No. RA/CT/28/CMI/1 7 2 CQ.
(CENTELEC) Period IV/55 The Cement Marketing, Name of Suppliers Co. of India P. Box No.613, Sugar Company Bulding- Bangalore-2.
You are authorised to sell cement in quantity mentioned
below under this authorisation. The sale will be a direct
deal between yourself and
781
the purchaser. The Government undertakes no responsibility
of any nature whatsoever:-
Name and Name of the Quan- Name of Rly. Re-
address
of the person factory or cement is to
in whose companybe booked.
favour required to
authorisation supply
is issued. cement.
1 2 3 4 5
M/s. G. S. Mudhukkarai300 Bangalore
Duggal & Co Shababadtons
Ltd Engineers & Contractors,
Jalhalli P.O.
Bangalore.
Ref. No. J/1 17/115 date 29-9-55 from the above indentors-
For manufacture of the tiles for the Bharat Electronics Ltd.
Supply recommended by the Commander Works
Engineers(B.E.I.P.), Jalahalli.
Full details of the purpose for which and the place at which
cement will actually be consumed; Priority, Defence work.
Sd. C.C. Ramanath,
Reg, Hon. Cement Advisor
(Coimbatore)
Copy to 1. The indentor.
2. The Dy. Development Officer, Govt. of
India, Ministry of Commerce & Industry,
Development Wing,(Chemicals 1, Mineral
Industries) Shahjehan Road, Now Delhi.
3. The Controller of Civil Supplies in My
sore Bangalore for information”.
782
This authorisation was subject to the following conditions:
It was to be utilised within 15 days; the cement released
could be used only for the purpose for which it was given;
the authorisation was not transferable; the issuing
authority could, if necessary, revoke the authorisation at
any time and even the orders booked under the authorisation
could be cancelled. The purchaser or the indentor had then
to place an order with the first appellant as Sales Managers
of the second appellant stating the requirement, where the
goods were to be sent and how they were to be sent. The
seller entered into a contract with the first appellant.
This contract is in a standard form and gives conditions of
sale. Thereupon the first appellant instructed its Bombay
office to despatch the cement in accordance with the
instructions of the buyer and the authorisation. In this
letter they had to mention the number of the authorisation
and the person who had issued it and also to whom the goods
were to be sent and how and certain other details which are
not necessary for the purposes of this appeal were also to
be given.
Each instruction indicates that it was issued for and on
behalf of appellant No. 2 by appellant No. 1 as its Sales
Managers. A copy of the letter of instruction was sent to
the factory from where the goods were to be despatched and
the particulars of the authorisation had to be mentioned
therein. Thereafter the first appellant sent an advice to
783
the purchaser enclosing therewith the Railway Receipt for
the goods and this advice also mentioned the goods were
being sent. Both the contract of sale and the advice above
mentioned stated that the goods were being despatched at the
buyer’s risk from the time the delivery was made by the
factory to the carriers and the railway receipt was obtained
for the goods. In the present case all the goods were sent,
as indeed they had to be sent, against the authorisations
from the various factories belonging to the second appellant
which at the relevant time were all situate outside the
State of Mysore and were received in the State of Mysore by
the various purchasers.
The position of the first appellant is as was accepted by
the Sales tax Officer in his order dated March 31, 1958,
that of Sales Managers of the second appellant but in regard
to the nature of the transactions the Sales tax Officer
found:-
” Though the property in the goods pass to the
dealers and consumers outside the State
immediately the goods are handed over to the
carriers outside the state and railway receipt
is taken out since the goods have actually
been delivered In Mysore State as a direct
result of such sale for purposes of
consumption in the State, sale is deemed to
have taken place in Mysore State”.
and again he said:-
“Thus the sales of cement manufactured by
A.C.C. Factories situated outside
Mysore .State effected by the dealers M/s.
Cement Marketing Company of India Ltd.
Bangalore, to dealers and customers in Mysore
State amounts to intrastate sales and
therefore liable to Mysore Sales Tax Act 48”.
784
In its judgment the High Court took into consideration the
fact that the first appellant had a branch office at
Bangalore within the State of Mysore and that the public
placed their orders with the first appellant for supplies of
cement against permits granted to them; that the first
appellant, who after accepting the offer for the supplies of
cement, collected the price from the intending purchasers
and then directed one of the factories of the second
appellant to supply cement to the purchasers and actual
delivery to the purchaser was within the State) of Mysore
and therefore the contention that cement was loaded outside
the State of Mysore and despatched to the purchaser did not
not convert sales into inter-State sales but were intra-
state sales. It appears that the true nature of the
transaction was not correctly considered by the High Court,
The modus operandi above mentioned shows that before an
intending purchaser could obtain cement he had to get what
is called an authorisation from a Government authority which
nominated the factory from which the intending purchaser had
to get his supplies of cement. That authorisation with an
order had to be given to the first appellant; and after a
contract in the standard form was entered into the first
appellant sent the order to the factory named in the
authorisation and that factory then supplied the requisite
goods to the purchaser. The factory from where the cement
was to be supplied was not in the hands or at the option of
the first appellant, but was entirely a matter for the
Government authority to decide, so that the cement which was
supplied from a particular factory was supplied not at the
choice of the first appellant but pursuant to the
authorisation.
It was contended that the sales which took place in the
present case in which the movement of
785
goods was from one State to another as a result of a
covenant or incident of the contract of sale fell within
Art. 286(2) of the Constitution and therefore the imposition
‘of Sales tax on such sales was unconstitutional. The
Article applicable at the relevant time i.e., before its
amendment was as follows: –
286 (1) “No law of a State shall impose or
authorise the imposition of a tax on the sale
or purchase of goods where such sale or
purchase takes place.
(a) outside the State; or
(b) in the course of the import of the goods
into or export of the goods out of, the
territory of India.
Explanation ……………………… .
(2) Except in so far as Parliament may by
law otherwise provide, no law of a State shall
impose, or authorise the imposition of, a tax
on the sale or purchase of any goods where
such sale or purchase takes place in the
course of inter-State or commerce:
Provided……………………………”
The Article had since been repealed and another substituted
in its place by the Constitution (Sixth Amendment) Act but
the sales in question were prior to the amendment.
In the present case the contract itself involved the
movement of goods from the factory to the purchaser i. e.
across the broder from one State to another because the
factories were outside the State of Mysore and therefore
transactions were
786
clearly transactions of sale of goods in the course of
inter-State trade or commerce. Taking the nature of the
transaction and preliminaries which are necessary for the
sale or purchase of cement it cannot be said that the sale
itself did not occasion the movement of goods from- one
State to another. The essential features of the contracts
proved in the present case are analogous to those in M/s.
Mohan Lai Hargovind v. The State of Madhya Pradesh.(1) In
that case the assessees were a firm carrying on business of
making and selling birds in Madhya Pradesh. In the course
of their business they imported finished tobacco from
dealers in Bombay State, rolled it into biris and exported
the biris to various other States. Both the exporters of
tobacco from Bombay State who supplied the assessees and the
assessees were registered dealers under the C. P. & Berar
Sales Tax Act., 1947. It was held that the asessees
imported the finished tobacco into Madhya Pradesh from
persons who were carrying on in the State of Bombay business
of processing tobacco and selling the goods and there was,
as a result of these transactions movement of goods from the
State of Bombay to the State of Madhya Pradesh and therefore
the transactions involved movement of goods across the State
border and they were not liable to be taxed by virtue of
Art. 286 (2) of the Constitution. In The State of
Pravancore Cochin & Others v. The Bombay Co Ltd. (1) which
was a case under art. 286 (1) (b) i. e. sale and purchase in
the course of export trade, Patanjali Sastri, C. J.,
observed:-
“A sale by export thus involves a series of
integrated activities commencing from the
agreement of sale with a foreign buyer and
ending with the delivery of the goods to a
common carrier for transport out of the
(1) (1935) 2 S. C. R. 509. (2) (1952) S. C.
R. III2.
787
country by land or sea. Such a sale cannot
be dissociated from the export without which
it cannot be effectuated, and the sale and
resultant export from parts of a single
transactions.
At p. 1120 the learned Chief Justice again
observed:
“We accordingly hold that whatever else may or
may not fall within article 286 (1) sales and
purchases which themselves occasion the export
or the import of the goods, as the case may
be, out of or into the territory of India come
within the exemption and that is enough to
dispose of these appeals”.
Thus a sale to fall within Art. 286 (1) (b) has to be a sale
which occasions the export. Again in the, State of
Travancore Cochin & Other8 v. Shammugha Vilas Cashew Nut
Factory & Other8 (1) the words “in the course of” were
interpreted to mean a sale taking place not only during the
activities directed to the end of exportation of the goods
out of the contury but also as a part of or connected with
such activities. At p. 63 the learned Chief Justice
explained the words “integrated activities” as follows:-
“The phrase “integrated activities” was used
in the previous decision to denote that “such
a sale” (i. e. a sale which occasions the
export) “cannot be dissociated from the export
without which it cannot be affectuated, and
the sale and the resultant export form parts
of a single transaction’. It is in that sense
that the two activities-the sale and the
export-were said to be integrated”.
In Endu puri Narasiham & Son v. The State of Orissa, it was
held in the case of sales covered
(1) (1954) S. C. R. 53.
(2) (1962) 1 S. C. R. 314.
788
by Art. 286 (1) (b) that only Bale or purchase ‘of goods
which occasions the export or import of the goods out of or
into the territory of India were exempt from the imposition
of tax on the sale or purchase of goods and in regard to
prohibition against imposition of tax on inter-State sales
the test, it was said, was that in order that a sale or
purchase might be inter-State it is essential that there
must be transport of goods from one State to another under
the contract of sale or purchase. The following observatins
from the Bengal Immunity Co. Ltd. v. The State of Bihar (1)
were quoted with approval in support of the position:-
“A sale could be said to be in the course of
inter-State trade only if two conditions
concur: (1) A sale of goods, and (2) a
transport of those goods from one State to
another under the contract of sale. Unless
both these conditions are satisfied, there can
be no sale in the course of inter-State
trade”.
Thus the tests which have been laid down to bring a sale
within inter-State sales are that the transaction must
involve movement of goods across the border (Mohanlal
Hargovind’s case (2) ); transactions are inter-State in
which as a direct result of such sales the goods are
actually delivered for consumption in another State; M/s Ram
Narain It Ssns V. Assistant Commissioner of Sales tax (3) a
contract of sale must involve transport of goods from one
State to another under the contract of sale; Bengal Immunity
Co’ case (1). in the case of sales in the course of export
or import the test laid down was a series of integrated
activitiesm commencing from an agreement of sale and ending
with the delivery of goods to a common
(1) (1955) 2 S. C. R. 603, 784-5 (2) (1965) 2 S.G R. 509.
(3) (1955) 2 S, C. R. 483, 504.
789
carrier for export by land or by sea ; The Bombay Co. Ltd,
case (1). “In the course of” was explained to mean a sale
taking place not only during the activities directed to the
end of the exportation of the goods out of the country but
also as part of or connected with such activities and
“integrated activities” was explained in similar langauage.
This Court again accepted these tests in Endupuri Narasim-
ham’s case (2). In a. 3 of the Central Sales Tax Act, 1956
(Act 74 of 1956), the legislature has accepted the principal
governing inter-State sales as laid down in mohan
Hargovind’s case (3). The principles for determining when a
sale or purchase of goods takes place in the course of
inter-state sale or commerce outside the state are :
“S.3 A sale or purchase of goods shall be
deemed to take place in the course of inter-
State trade or commerce if the sale or pur-
chase –
(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”.
In Tata Iron & Steel Co. Ltd, Bombay v. S.R. Sarkar &
Another (4) Shah, J., in explaining what sales are covered
by el. (a) of s.3 above said :
“Cl. (a) of a. 3 covers sales, other than
those included in Cl. (b), in which the
movement of goods from one state to another is
the result of a convenant or incident of the
contract of sale. and property in the goods
passes in either State .”
As stated above under the contracts of sale in the present
case there was transport of goods from
(1) [1952] S C.R. 112.
(3) (1955) 2 S.G.R. 509.
(2) (1962) 1 S.C.R. 314.
(4) (1961) 1 S.C.R. 379,391,
790
outside the State of Mysore into the State of Mysore and the
transactions themselves involved movement of goods across
the border. Thus if the goods moved under the contract of
sale, it cannot be said that they were intrastate sales. It
was not the volition of the first appellant to supply to the
purchaser the goods from any of the factories of the second
appellant. The factories were nominated by the Government
by authorisations which formed the basis of the contract
between the buyer and the seller. Applying these tests to
the facts of the present case we are of the opinion that the
sales were in the nature of inter-State sales and were
exempt from Sales tax. In these circumstances the contracts
of sale in the present case have been erroneously considered
to be intrastate sales.
The decision in Rohtas Industrieg Ltd. v. The State of Bihar
(1) to which reference was made by the respondent does not
apply to the facts of the present case because the agreement
between the first appellant and the second appellant is
different from that which existed between Rohtas Industries
Ltd. and the Cement Marketing Co of India in the case above
cited. (in an examination of the agreement between those two
companies this court held that the rotation. ship which
existed between the two was of seller and buyer and not of
principal agent. In the present case the agreement is quite
different. In the first clause of the agreement between the
two appellants and the Patimia Cement Co. dated April 21,
1954, the first appellant was appointed the sole and
exclusive Sales Manager of the second appellant and as such
the first appellant was entitled to enter into contracts of
sale, receive payment of the same and do all seta and things
necessary for the effective management in connection with
the contracts of sale entered into on behalf of the
principals. The sale price and the terms and conditions of
sale were to be
(1) (1961) 12 S.T.C. 615.
791
determined by the principals. The Sales Manager was to keep
its administrative and technical staff at such places in
India as was determined by the principals. All the
establishment charges and other expenses of the Sales
Managers were for and on behalf of the principals and were
to be defrayed by the principals in proportion to their
annual sales. At the end of every mouth the Sales Managers
were to submit to the principals accounts showing sales con-
tracts by it on behalf of each one of the principals. At the
end of each financial year ending July 31 the Sales Managers
had to make a. proper account of all their operations during
the year and after submitting them for confirmation to the
principals had to pay the price of annual sales realizations
to each of the principals to whom they happened to relate.
Clause to provided that subject to instructions of the
principals the Sales Managers were to make all necessary
arrangements to secure speedy and economicial transport of
cement. These terms are quite different from those in the
case of Rohtas Industries Ltd. and therefore that decision
has no application to the facts of the present case.
In the result, the imposition of the Sales tax on the
appellant for the year of assessment except for the period
April 1, 1955, to September 6, 1955, was illegal and was not
leviable for that period. The appeal is therefore allowed
to that extent and the petition of the appellants succeeds
but it will not effect the tax paid for the period
abovementioned. In view of the partial success of
appellants they will be entitled to half costs of the
appeal.
Appeal allowed in part.
(1) (1961) 12 S.T.C. 615.
792