Full Judgment Text
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PETITIONER:
THE STATE OF TAMIL NADU
Vs.
RESPONDENT:
SRI SRINIVASA SALES CIRCULATION ETC.
DATE OF JUDGMENT: 04/10/1996
BENCH:
S.P. BHARUCHA, FAIZAN UDDIN
ACT:
HEADNOTE:
JUDGMENT:
THE 4TH DAY OF OCTOBER, 1996
Presents;
Hon’ble Mr.Justice S.P.Bharucha
Hon’ble Mr.Justice Faizan Uddin
V.Krishnamurthy and A.Mariarputham, Advs. for the appellant.
R.Mohan, Sr.Adv., R.Nedumaran, V.G.Pragasam, R.A.Perumal,
K.R.Choudhary and R.K.Sharma, Advs. with him for the
Respondents.
J U D G M E N T
The following Judgment of the Court was delivered:
The State of Tamil Nadu
V.
Sri Srinivasa Sales Circulation
(With Civil Appeal Nos.12778-84/96, 12785-87/96) Arising out
(WITH C.A.No. 8605/83, 2322-23/80, 4101/84 and/SLP (C) Nos.
300-306/81, 6932-34/80, C.A. No. 3328/80)
J U D G M E N T
Faizan Uddin, J.
Leave granted.
Since common questions of law and facts arise for our
consideration in these appeals and special leave petitions,
the same are being disposed of by a common judgment.
The appeals and special leave petitions arise out of an
order passed by the High Court Of Madras in revision
preferred by the respondent herein, under Section 38 of the
Tamil Nadu General Sales Tax Act, 1959 thereinafter referred
to as the "Act") relating to certain transactions involved
therein which are sought to be taxed as sale.
Since we have to decide the nature of transaction in
order to determines the liability which is the question
common to all these appeals and the special leave petitions,
we shall state the facts as they emerge out of the Civil
Appeal No.2348/78.
The respondent assessee floated a scheme as detailed in
the printed pamphlet, which reads as follows:-
"Please get a coupon of our company
from your friend or from the
company by paying rupees five.
Please mark your address and any
one article you require it back to
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the company.
After receiving your coupon we will
register it and send three coupons
by V.P.L. for Rs.15/- plus V.P.L.
charges. Now you have to give the
coupons to three persons for Rs.5/-
each and take the money for
yourself and ask them to fill up
the coupons with their names and
full address and send it to us.
We will send to each of your three
parties three coupons each for
Rs.15/- pluss postal charges V.P.L.
As soon as the parties concerned
clear the V.P.L s, you will receive
from us the article that you have
mentioned in your coupon."
Further, clauses 5 and 6 of the terms and conditions of
the said scheme, which are also relevant for our purposes,
are reproduced hereunder:-
"5. Any person sending M.O. or
bank draft for Rs.45/- along with
coupon duly filled up will receive
the article that is mentioned in
the coupon together with three sets
of (9) coupons.
6. Coupons should be returned
duly filled within three months of
their receipt. Coupons received
after three months will not be
attended to."
The said pamphlet containing the scheme further
mentions 20 articles, one of which may be marked in the
coupon by the person or party who purchases the coupon by
paying Rs.5/-. The coupon referred to in the scheme is a
printed order form which is as follows:-
"ORDER FORM"
No. 17435 D. Regd.No.
SRI SRINIVASA SALES CIRCULATION
(Regd.)
No.11, Gandhi Street,
Villivakkam,
Madras- 49.
From
................
Dear Sirs,
As mentioned in your list of
article No....... I request you to
kindly send me
......................your coupone
by V.P.L., for the amount of Rs.
16-00 sent by me.
Place:- Yours faithfully,
Date:- Signature
Canvasser’s signature "
Thus, on payment of a sum of Rs.5/- to the company and
coupon is sent to the individual concerned, and we assume
that individual as A for the sake of convenience. Then ’A’
sends back the same to the company duty up mentioning the
number and name of article in the blank spaces. On receipt
of the said coupon / order form, three order forms are sent
to A, by V.P.L.for Rs.16/- and when the said V.P.L. is
cleared by A. he receives a further letter from the company
acknowledging the receipt of Rs.16/-. The said letter reads
as follows:-
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"We are glad to note that you have
cleared the V.P.L. No. by paying
Rs.16/- and thank you very much for
the same.
You please sell three order
forms to three members and take
that money. Fill the three forms
(IN BLOCK LETTERS) and send them to
us by Regd. Post. We will send to
each among three members containing
three order forms in each V.P.L.s.,
paying Rs.16/-. If all of them
clear the V.P.L.s.,paying Rs.16/-
each, we will send you the required
article item No. by Registered
Post."
After receipt of the three order forms / coupons. A
delivers them to B,C and D after collecting Rs.5/- from each
of them which amount is appropriated by A himself. Then, B,
C and D in turn will either forward the coupons themselves
to the company or send the same through A after filling the
blanks and mentioning the name and description of article
which is required by them. On receipt of these three coupons
/ order forms, as aforesaid, from B,C and D, the company
sends three sets of three coupons each to B, C and D under
V.P.L. for Rs.16/- and inform A also of that facts in the
printed form which reads as under :-
"We have received your three
original order forms and the letter
dated........and thank you very
much for the same. According to the
rules of our firm today we have
sent 3 V.P.Ls. containing 3 order
forms in each V.P.L., for Rs.16/-
to each among three members as
addressed in that order forms. As
soon as they clear the V.P.Ls. by
paying Rs.16/-each, we will send
you the required articles item
no......... by registered parcel.
So, you please encourage them to
clear the V.P.Ls.. by paying
Rs.16/- each."
If B, C and D honour the V.P.Ls. and pay money, A then
becomes entitled to the article which he had chosen in his
order form. That article is sent by the company to A with a
covering letter. The said letter reads thus :-
"We are very glad to note you have
circulated our scheme by a time and
thank you very much for the same.
According to your request today we
have despatched your required
article No.........by V.P., insured
parcel for Rs. towards the expenses
of packing and postal charges of
the article. You please receive
your article by paying Rs.........
and write a letter to us about you
opinion."
According to the scheme floated by the company, if any
one of B,C and D does not honour the V.P.L. and decline to
receive the three coupons sent to them. A looses his right
to receive the article, though the other two who had
honoured the V.P.L. will have a series in their name if they
are again able to sell, say to B1, B2 and B3, C1, C2 and C3
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and so on and complete the circle. This way the claim of B
and C would go on and if there is no break, the claim goes
on endlessly as a chain.
During the Assessment Year 1967-68, the value of
articles that were supplied by the respondent company under
the aforesaid scheme to various persons and customers was to
the tune of Rs. 1,36,655.00 while the purchase value of
these articles has been found to be Rs.1,03,709.25. The
Assessing Officer took the view that there was a sale of
article to every person who had participated in the scheme
and as such turnover for the year 1967-68 from the value of
articles supplied to various person came tp Rs.1,36,665.00
which was liable to be taxed under Section 3(1) of the Act.
The Assessing Officer also imposed a penalty of Rs.6,149/-
under Section 12(3) of the Act for failure of not filling
the return in form A-1. This order of the Assessing Officer
found favour with the Appellate Assistant Commissioner as
well as the Sales Tax Appellate Tribunal. The respondent
assessee then went up in revision before the High Court of
Judicature at Madras. The HIGH Court of Madras took the
view that the transfer of article by the company was not for
money consideration alone and, therefore, it would be a sale
at all. Consequently, the High Court held that since the
transactions involved in the scheme of the assessee are not
sale, the assessee are not liable to be taxed as sales under
Section 3(1) of the Act and, therefore, allowed the
revision, set aside the order of the Assessing Officer,
Appellate Assistant Commissioner and the Tribunal against
which these appeals and special leave petitions have been
directed as the orders in the connected appeals and the
special leave petitions are based on the orders and findings
recorded by the High Court in T.C. No. 154 of 1971 (Revision
No.85) - Sri Srinivasa Sales Circulation v. State of Tamil
Nadu, which is also reported in (1976) 38 S.T.C. 359.
The learned counsel appearing for the appellant State,
vehemently urged that in the light of the facts found on
record the disputed transactions were sales as defined under
Section 4 of the Sale of Goods Act and, therefore, the
Assessing Officer had rightly brought the same under the net
of taxation under the provisions of the Act. It was
submitted that the High Court was not right in holding that
the title in the goods that passed to the customers was not
right in holding that the little in the goods that passed to
the customers was not under any contract or sale between the
respondent and their customers and strenuously urged that
the tenor of the scheme clearly indicated that the title in
the goods passed to the customers pursuant to a contract of
sale between the respondent and their customers and the
transaction was squarely covered by Section 4 of the Sale of
Goods Act. Contrary to this, the learned counsel appearing
for the respondent sought to support the impugned order for
the reasons assigned by the High Court and submitted that
the transactions involved in the scheme of the assessee are
not liable to tax as Sales Tax under Section 3(1) of the
Act.
If may be stated that in order to constitute a sale
under the Sale of Goods Act, it is essential to establish
that there is an agreement between the parties for transfer
of title to the goods and that such agreement should be
supported by money consideration and as a result of the
transactions the goods. article or the property must
actually pass to the purchaser. It is settled law that the
expression "sale" under the Sales Tax Act has to be
understood with reference to the definition of "sale of
goods" under the Sale of Goods Act. But if the title of the
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goods passes without any contract between the parties,
express or implied, there is no sale. Similarly if the
consideration of the transfer is not money, but some other
valuable consideration, it may amount to exchange or barter
but not a sale in the strict sense of the law for the
purposes of taxation, we shall, therefore, examine whether
under the facts and circumstances of the present case the
transfer of article by the respondent assessee to its
customers under the scheme floated by it constitute a sale
against payment of price of that article.
As stated earlier in the foregoing paras of this
Judgment, the coupon of the company is sold to the customer
A on payment of Rs.5/-. Whereafter, the customer A
receives three coupons for Rs. 16/- which he sells to three
persons for Rs.5/- each and appropriates the amount so
received by himself. When each of the three parties to whom
the coupons to others namely B, C and D, one cycle is
completed and the customer A in turn receives the article of
his choice as mentioned by him in the coupon from the
company. In this process, as stated earlier, the company
despatches a letter to its customer A advising him sell the
three order forms to three members and take that money
himself. Not only this, the assessee company further
addresses a letter to the customer A in the printed form
conveying their thanks to him and that they have received
three original order forms and the letter, stating further
that as soon as the V.P.Ls. are cleared by paying Rs.16/-
each, they will send him the required article by Registered
parcel. Thereafter, the company ultimately despatches the
article of his choice to the Customer A with a covering
letter advising him to receive the article by paying the
stated amount. From these facts, it is clear that there may
not be a formal contract for sale and purchase of the
article in any specific form, but such a contract may be
spelt out from the correspondence and interaction between
the parties, in the present case an implied contract between
the parties is spelt out when the company offers the coupon
(s) against payment and the article of the choice is
ultimately sent to the customer for payment or price which
is accepted by the customer. There is thus offer and
acceptance. If the contents of the entire scheme, as
reproduced above, are minutely looked in to it substantially
amounts to sale. We find that all the attributes,
characteristics and requirements of a sale are present in
the transaction, in fact the transaction is so designed and
framed by the company by adopting a circuitous method for
sale of their goods which amounts to nothing out a sale, and
the same is liable to assessment under the Act. This view
is further strengthened from the fact that during the
relevant assessment year the respondent company sent
articles to its various customers under the scheme of the
value of Rs.1,36,665.00, which were purchased by the
respondent company for a sum of Rs.1,03,709.25 and, thus,
earned a profit to the tune of Rs.32,955,75. The business
so run by the respondent is with a view to earn profit out
of the sale by adopting a circuitous device with a view to
evade the payment of tax. In our considered opinion, the
High Court, therefore: was not justified in taking the view
that it was not a sale transaction assessable to tax.
Consequently, we allow the appeals by setting aside the
impugned orders passed by the High Court and restore the
order of the Assessment Officers and the Sales Tax Appellate
Tribunal. But in the facts and circumstances of the case,
we make no order as to costs.
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