Full Judgment Text
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PETITIONER:
BENGAL TIMBER TRADING CO. LTD.
Vs.
RESPONDENT:
COMMISSIONER OF SALES TAX, MADHYAPRADESH
DATE OF JUDGMENT:
01/02/1967
BENCH:
MITTER, G.K.
BENCH:
MITTER, G.K.
RAO, K. SUBBA (CJ)
SHAH, J.C.
SHELAT, J.M.
BHARGAVA, VISHISHTHA
CITATION:
1967 AIR 1348 1967 SCR (2) 547
ACT:
Constitution of India, 1950, Art. 286(1) (a) Explanation,
prior to amendment by the Constitution (Sixth Amendment Act)
1956-Sale of railway sleepers-"Actually delivered" meaning
of--Question to be considered for decision whether delivery
within the State--"F.O.R. used in connection with price and
not place-Effect of--Liability to sales-tax under C.P. and
Berar Sales Tax Act (21 of 1947).
HEADNOTE:
The appellant entered into a contract with the President of
India for the supply of railway sleepers. The consignees,
to whom the sleepers were to be despatched ’according to the
instructions given to the appellant under cl. 11(a) of the
conditions of contract, were outside the State of Madhya
Pradesh. The sleepers were booked by rail to the consignees
from Dhamtari railway station in Madhya Pradesh. In the
third column in the Schedule to the contract, Dhamtari was
shown as the place of delivery. On the question whether the
sales came under the Explanation to Art. 286(1) (a) of the
Constitution prior to its amendment by the Constitution
(Sixth Amendment) Act, 1956 and were therefore exempt from
sales-tax under the C.P. and Berar Sales Tax Act, 1947, the
High Court held : (1) that ’the property in the goods passed
to the purchaser at Dhamtari, (2) that the sleepers were
actually delivered to the purchasers at that place, and
(3)that the sales were completed at Dhamtari and were
therefore liable to tax.
In appeal to this Court,
HELD : The sales were covered by the Explanation and as such
were not taxable by the State of Madhya Pradesh. [557 A-B]
(1) The question is not when and where, under the general
law, the title to the goods passed under the contract, but
whether actual delivery of the goods took place, for
consumption outside the State of Madhya Pradesh so as to be
within the deeming provision of the Explanation. [556 B-C]
(2) In the fifth column in the Schedule to the contract,
relating to rate, the expression "F.O.R was used only in
connection with the price of the goods. Therefore, it only
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meant that the rate was to be inclusive of all charges of
putting the goods on rail and had nothing to do With the
place of delivery. Further, the expression "actually
delivered" in the Explanation means physical delivery of the
goods or such other action as puts the goods 1 in the
possession of the purchaser but does not include symbolical
or notional delivery such as entrustment to the railway as a
common carrier, [550 C; 553 F-G; 555 D]
Singareni Collieries Co. Ltd. v. State of Andhra Pradesh &
Ors.,[1966] 2 S.C.R. 190 followed.
Sup. Cl/67-6
548
(3) All the clauses of the contract have to be read as a
whole to find out the intention of the parties as to where
the actual delivery was to take place. So read, cis. 3, 11.
12 and 14 of the contract are not merely conditions super-
imposed after the actual delivery of the goods. They show
that, while the major part of the operations of the
appellant with regard to delivery were to be performed at
Dhamtari, he was not relieved of all liability as to
delivery until the goods were finally accepted at the
destination the consignee, and that actual physical delivery
was not to be taken as complete before the goods were
accepted by the consignee at the destination. Clause 3(a)
links delivery with final acceptance, which, according to
cl. 11(g), could only "be after the goods had reached the
destination and were acknowledged as accepted by the
consignee. Clause 11(g) also shows that notwithstanding the
fact that the goods had been passed by the Sleeper Passing
Officer at Dhamtari, they had been put on rail within the
period, of contract at the said station, the Sleeper Passing
Officer had given the appellant a passing certificate in
terms of cl. 10 and the Station Master at Dhamtari had
issued a tally receipt for the number of sleepers loaded the
consignee still had the right to inspect the goods at the
destination and reject any which were not in terms of the
contract; and such rejected goods were to be treated as non-
delivered. The place of actual delivery, in the light of
all the circumstances., could only be the destination and
the goods could only be said to be fully delivered and
finally accepted after they were acknowledged at the
destination, and since consumption took place only in the
State to which the goods were despatched, the gales came
within the purview of the explanation, [554 H; 55-5 A-D; 556
B-D]
Birendranath Guha & Co. v. Stwe of Bihar, 5 S.T.C. 273 and
D.,N. Dutta v. Commissioner of Sales Tax, Orissa, I.L.R.
[1961] Cuttack 622 overruled.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 398 to
400 of 1966.
Appeals by special leave from the judgments and orders dated
March 6,1964 of the Madhya Pradesh High Court in M.C.C. Nos.
90, 91 and II 0 of 1963 respectively.
... M. C. Setalvad, Shankar Ghosh and P. N. Gupta, for the
appellant (in all the appeals).
B. Sen and I. N. Shroff, for the respondent (in all the
appeals).
The Judgment of the Court was delivered by
Mitter, J. These are three appeals by leave granted by this
Court from orders of reference under section 44(1) of the
Madhya -Pradesh General Sales Tax Act, 1958 at the instance
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of the Commissioner of Sales Tax, Madhya Pradesh to the High
Court in that State. The question in each of the references
was, whether, in the facts and circumstances of the case,
the sales of sleepers (for railways) made by the non-
applicant (Bengal Timber Trading Co. I-Ad.) under the
agreement with the President of India came under Art. 286
(1) (a) of the Constitution read with the Explanation there-
to and therefore were exempt from the imposition of tax
under ’the C.P. and Berar Sales Tax Act, 1947 ?
549
Except for the amounts which varied from year to year in-
volved in the sales, the facts and circumstances were common
in all the three cases. The periods for which tax was
sought to be imposed were from 1st July - 1950 to 30th June
1951, :from 1st July 1951 to 30th June 1952 and from 1st
July 1952 to 30th June 1953. It will be noted that all the
three periods are prior to the amendment of Art. 286 of the
Constitution by the Constitution’ (Sixth Amendment) Act,
1956. The relevant portion of Art. 286 as it stood during
the years in question read 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 For the purposes of sub-clause
(a), a sale or purchase shall be deemed to
have taken place in the State in which the
goods have actually been delivered as a direct
result of such sale or purchase for the pur-
pose of consumption in that State,
notwithstanding the fact that under the
general law relating to sale of goods the
property in the goods has by reason of such
sale or purchase passed in another State.
The true meaning of the said Article and Explanation came up
for consideration in a number of decisions of this Court.
Its real purpose was to prevent "imposition of an unduly
heavy burden upon the consumers by multiple taxation upon a
single transaction of sale" Bajarang Jute Mills Ltd. v.
State of Andhra Pradesh(1). In effect the Explanation to
the Article created a fiction and fixed the State "in which
the actual delivery of the goods took place for the purpose
of consumption there" as the only place where sales tax
could be levied as was pointed out in Bengal Immunity
Company Ltd. v. The State of Bihar and Ors.(2). There it was
said that "the shifting of the situs of a sale or purchase
from its actual situs under the general law to a fictional
situs under the Explanation takes the sale or purchase out
of the taxing power of all States other than the State where
the situs is fictionally fixed". The earlier decisions of
this Court were noted in Bajarang Jute Mills’ case(1) and it
was there observed :
"It is now well-settled that by Art. 286(1)
[as it stood before it was amended by the
Constitution (Sixth Amendment) Act, 1956]
sales as a direct result of which goods
(1) 15 S.T.C. 430 at 433.
(2) [1955] 2 S.C.R. 603, 651,
550
were delivered in a State for consumption in
such State i.e., the sales falling within the
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Explanation to Art. 286(1) were fictionally to
be regarded as inside that State for the
purpose of cl. (1) (a) and so within the
taxing power of the State in which such
delivery took place and being out-, side all
other States exempt from sales tax by those
other States."
The last mentioned case was considered by this Court in
Singareni Collieries Co. Ltd. v. State of Andhra Pradesh and
others(1) and it was held :
".......... the expression actually delivered’
in the context in which it occurs can only
mean physical delivery of the goods, or such
other action as puts the goods in the
possession of the purchaser. The expression
"actually delivered’ does not include mere
symbolical or -notional delivery e.g. by
entrusting the goods to a common -carrier, or
even by delivery of documents of title like
railway receipts. It was said that the rule
contained in s. 39 (1) of the Indian Sale of
Goods Act, 1930 has no application in dealing
with a constitutional provision which ’while
imposing a restriction upon the legislative
power of the States entrusts exclusive power
to levy sales tax to the State in which the
goods have been actually delivered for the
purpose of consumption".
The fiction of the sale or purchase being deemed to have
taken place in the State in which the goods had been
actually delivered as a direct result of sale or purchase
for the purpose of consumption in that State, was resorted
to in order to put the matter beyond all controversy on the
question as to where the property in the goods passed or as
to any inquiry about the place where the goods may be said
to have been delivered.
The contract in this case was entered into between the
President of India and the appellant before us and contained
terms and conditions to be noted immediately. The recital
to the agreement shows that "the contractor has agreed to
supply and deliver to the State wooden sleepers to the
number and of the description and quality at the price or
prices and at the times and places and in the manner
detailed in the Schedule, specification and conditions of
contract hereinafter appearing all of which form part and
parcel of. this agreement". The relevant conditions of
contract are as follows :
Cl. (1). Time of delivery of the sleepers
shall be of the essence of the contract and
the contractor shall deliver the sleepers on
or before the date or dates mentioned in the
(1) [1966] 2 S.C.R. 190, 200.
551
Schedule or within such extended time or times
as may be allowed under cl. (2)............
Clause 2 provides that if the contractor shall be delayed in
the Supply of the materials so as to necessitate an
extension of the time .provided in the Schedule, he shall
apply in writing to the Sleeper Control Officer, Eastern
Group, who, if reasonable,grounds are shown to his
satisfaction, shall grant such extension in writing as in
his absolute discretion he may think fit.
Cl. 3 (a). "The prices named in the Schedule
shall cover everything required to be done by
the contractor in terms of the specification
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and conditions of contract including all
loading and handling charges connected with
the inspection and delivering of the sleepers
on rail and taxes and impositions in respect
of the sleepers till they are delivered and
finally accepted under the terms of this
contract."
Cl. 3(b) provides that in the event of wagons not being
available within a month after passing, the contractor shall
stack and earth the passed sleepers. Pending despatch, the
sleepers were to remain in the contractor’s custody.
Cl. 4. "The person or persons authorised to
inspect, pass and brand sleepers for the State
under these conditions of contract . .. will
be appointed or nominated by the President,
Eastern Group Sleeper Control and/or the
Sleeper Control Officer, Eastern Group
Cl. 5(a). "The sleepers shall be offered for
examination and passing within the boundaries
of the railway stations mentioned in the
Schedule unless permission -is given in
writing by the Sleeper Control Officer, Eas-
tern Group, to the contractor to offer them
for inspection at other stations or sites."
Cl. 5 (g). "The contractor shall make all
arrangements with the railway concerned for
the lease of an adequate plot or plots of land
at stations where he desires to offer sleepers
for inspection and bear the charges thereof."
Cl. 9 provides for testing of the sleepers by the Sleeper
Passing officer and any sleepers which were rejected by him
were to be removed from the railway premises at the charge
and cost of the contractor. Under cl. 10 the Sleeper
Control Officer was to give the contractor a passing
certificate of the number passed and rejected at such
station. Under cl 11(a) "After passing, the contractor
shall apply to and obtain from the Sleeper Control Officer,
552
Eastern Group, his orders as to the despatch of the passed
sleepers which would then be disposed of by the contractor
either by handing them over to the consignee or by loading
into railway wagons and booking them under the risk note ’B’
by rail to the consignee to whom the sleepers were
allotted". Cl. 11(f) provides that oil arrival at
destination, the consignee shall check the number of
sleepers and report on any shortage or the receipt of
defective sleepers. In all cases, the Sleeper Control
Officer was to be the final authority as to whether such
sleepers were in good order and conformed to the
specification or not. Cls. 11(g), 11(i) and 12 ran as
follows:
Cl. 11(g). "In the case of passed sleepers
booked by rail the contractor shall
immediately after loading apply for and obtain
from the despatching station master a tally
receipt for the number loaded. Such sleepers
as are acknowledged by the consignee as
possessing the passing mark of the Sleeper
Passing Officer and the private mark of the,
contractor will be deemed fully delivered,
sub, however, to the right of the consignee to
have such sleepers reinspected by the Sleeper
Control Officer, or his representative, and
all sleepers rejected by the Sleeper Control
Officer shall be deemed to be non delivered
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and all sleepers are to be at the risk of the
contractor until fully delivered and finally
accepted at the destination."
Cl. 11 (i). "If there is any shortage in the
number of sleepers received by the consignee
in any particular consignment i.e. covered by
a single railway receipt, the contractor shall
be paid for all sleepers shown on the tally
receipt provided all sleepers received by the
consignee are passed sleepers and have not
been rejected by the Sleeper Control Officer
but if any part of such consignment consists
of unpassed sleepers they shall be rejected
and included in the shortage and the
contractor shall be -held responsible for the
total shortage in that consignment and shall
not receive any payment for such shortage."
Cl. 12. "The sleepers shall be of the best
description and in strict accordance with the
specification and the contractor shall receive
payment for such sleepers only as are
approved, branded and passed by the Sleeper
Passing Officer and duly delivered to the
consignee in terms of the contract.
Cf. 13 provides for payment of 90% on bills submitted in
triplicate supported by the passing certificate, tally
receipt and by an acknowledgment from the consignee to the
Sleeper Control
553
Officer certifying that the sleepers have been received by
him and have been checked and found in order. The payment
of the remaining 10% shall be made on bills submitted in
triplicate as soon as the sleepers have been delivered as
provided in cl. II (g).
Clause 14 reads :
"It must be expressly understood that all on
account or advance payments are in no way to
be considered as relieving the contractor in
any way from the liabilities he may incur
under the terms of the contract. This has
express reference to cl. II (g) above."
The schedule to the contract was in tabular form containing
six columns. The 3rd column was headed "places at which to
be delivered" and below it was mentioned "Dhamtari, Eastern
Railway." The 5th column was headed "rate at which the
sleepers to be supplied at each place inclusive of all
demands, F.O.R." In this column were given the rates for
different kinds of sleepers i.e. of different dimensions.
The 6th column was headed "month of completion" and in this
column (to quote from the document at page 112 of the paper
book) was given the date 15-10-1952. The third note at the
foot of the schedule provided that "the date of completion
of the contract shall be the last date of inspection at the
supplier’s stations during the month in which the contract
is due to be completed."
The High Court of Madhya Pradesh took the view that the
sales were completed in Dhamtari, that the property in the
goods passed to the purchaser at that place and the sleepers
were actually delivered to the purchaser at that place. It
was further stated in the judgment of the High Court that
the place of delivery was specifically stated to be F.O.R.
Dhamtari. The last observation does not seem to be correct
because, as noted already, the place of delivery as given in
the Schedule was Dhamtari, Eastern Railway and it was only
in connection with the price of the goods that the exp-
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ression ‘F.O.R.’ occurred. It is well known that the
expression ’F.O.R.’ when used in connection with the place
of delivery means that the delivery prima facie takes place
when the goods are put on rail and when the expression is
used in connection with the price, it means that the rate is
to be inclusive of all charges of putting the goods on rail.
In order to find out whether the Explanation to Art. 286(1)
(a) was applicable, we need not consider where the property
in the goods passed nor are we to guide ourselves by s.
39(1) of the Indian Sale of Goods Act which only raises a
prima facie inference as to delivery. In this case the
consignee of the goods was always to be outside Madhya
Pradesh according to the instructions given to. the
contractor with regard to the despatch of the goods.
Counsel
554
on behalf of the State of Madhya Pradesh contended that
actual delivery of the goods took place at Dhamtari in that
State. In aid of his contention, he relied on the following
factors : (a) The Schedule which was a part of the contract
showed that the place of delivery was Dhamtari, Eastern
Railway; and (b) Cis. 1 and 2 of the conditions of contract
referred both to the time and place of delivery as mentioned
in the schedule’ The net result of these two clauses,
according to counsel, was that the time and place of
delivery both pointed to Dhamtari. According to counsel,
cl. 3(b) went to show that after the goods were brought to
the railway yard at Dhamtari and were passed by the Sleeper
Passing Officer, the contractor became the bailee in custody
of the goods and the charges which he incurred in earthing
up the goods during the months of April to June were to be
borne by the buyer.. This was sought to -be reinforced by
cl. 3(a) which provided that all loading and handling
charges and expenses in connection with the putting of
sleepers on rail and taxes and impositions were to be on the
sellers’s account at Dhamtari.
Counsel argued that cl. 5(g) went to show that it was to
suit the convenience of the purchaser that the contractor
had to take on lease a plot of land belonging to the railway
for storing the sleepers. Cis. 9 and 10, according to him,
went to show that the rejected sleepers had to be taken out
of the railway yard leading to the inference that only such
goods as had been passed by the Sleeper Passing Officer were
to be considered as the property of the railway. Great
reliance was placed on cl.11(a) which according to counsel,
clinched the matter. It was urged that if the goods were
actually handed over to the consignee at Dhamtari railway
station, there could be no manner of doubt that actual
delivery took place there. According to counsel the
position was the same if the goods were loaded into railway
wagons and booked to the consignee under risk note ’B’ in
terms of the contract. This was sought to be fortified by
reference to cl. 11(i) according to which the contractor was
to be paid for all sleepers shown on the tally receipt.
Counsel urged that all the above provisions in the contract
went to show that as soon as the goods were put on rail at
Dhamtari after they had been brought into the railway yard
and passed by the Sleeper Passing Officer, and marks had
been put on them, delivery of the goods was complete and
nothing remained to be done by the contractor.
In our opinion, we have got to take the whole of the
contract into account and then find out the intention of the
parties as to where actual delivery was to take place
thereunder. while there can be no doubt that the major part
of the operations of the contractor with regard to delivery
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were to be performed at Dhamtari he was not relieved of all
liability as to delivery until the goods
555
were finally accepted at the destination by the consignee.
In this respect, we cannot overlook cls. 3(a), 11 (g), 12
and 14 of the conditions of contract when the consignee was
outside Madhya Pradesh. Cl. 3 (a) speaks of delivery and
final acceptance under the terms of the contract. Delivery
here is linked with final acceptance which according to cl.
II (g) can only be after the goods had reached the.
destination and were acknowledged as accepted by the
consignee. Cl. 11 (g) makes it clear that notwithstanding
the fact that the goods had been passed by the Sleeper
Passing Officer at Dhamtari -and that they had been put on
rail within the period of the contract at the said station
and the Sleeper Passing Officer had given the contractor a
passing certificate in terms of cl. 10 and the station
master at Dhamtari had issued a tally receipt for the number
of sleepers loaded, the consignee still had the right to
inspect the goods at the destination and reject any which
were not in terms of the contract and such rejected goods
were to be treated as non-delivered. -All this, in our
opinion, puts the matter beyond doubt that the actual
physical delivery was not taken as complete before the goods
were accepted by the consignee at the destination. In all
such cases, the consumption took place in the State to which
the goods were despatched with the result that the sales
came within the purview of the Explanation to Art. 286 (1)
(a) as it stood before the Sixth Amendment of the
Constitution.
Our attention was drawn to a judgment of the Patna High.
Court in Birendranath Guha and Co. v. State Of Bihar(1)
where ,the assessee had taken lease of a timber forest in
Nepal and had built godowns and offices in Nepal territory
close to Jogbani railway station in the State of Bihar. The
assessee supplied to the railways And despatched to
different destinations various quantities of sleepers from
Jogbani railway station after obtaining instructions from
the Sleeper Control Office. The assessee contended that no
sale took place in Bihar since the sleepers had been
manufactured in .Nepal and despatched from Jogbani railway
station to places outside Bihar. The full terms of the
contract in that case are not to be found in the report but
it appears that it was worded very similarly to the contract
before us. The Patna High Court held that on a
consideration of all the provisions of the contract, it was
manifest that the goods in question had been unconditionally
appropriated ’to be contract at Jogbani railway station.
Alternatively, the High Court held that there was
appropriation of the goods within the meaning of s. 23(2) of
the Sale of Goods Act at Jogbani railway station and
accordingly it was held that there was delivery to the
carrier at Jogbani railway station coupled with an uncondi-
tional appropriation of the goods within the meaning of s.
23 (2) of’ the Sale of Goods Act. With regard to cls.
11(g), 11 (j) and 13(a) the High Court said that these were
merely additional stipulations.
(1) 5 S. T. C. 273.
556
Superimposed on the contractor who agreed to act as insurer
of the goods till the stage of final destination and also
agreed to the other ,conditions, but these additional
conditions had no bearing on the ,question as to where and
when the title to the sleepers passed ,to the buyer.
We find ourselves unable to agree with the above expression
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of Opinion as we have already pointed out that the question
is not when the title to the goods passed under the
contract, but to ascertain whether actual delivery of the
goods took place outside the State ,of Madhya Pradesh for
the purpose of consumption there so as ,to be within the
deeming provision of the Explanation to Art. -286.(1). The
contract has to be considered in the setting of the facts
and circumstances of the case as a whole and cls. 11(g),
11(i), 12, 13 and 14 cannot be read as conditions
superimposed after the -actual delivery of the goods. The
place of actual delivery in the -light of all the
circumstances of the case can only be the destination
of .the goods and the goods can only be said to be fully
delivered and finally accepted after they are acknowledged
at the destination by the Sleeper Control Officer.
A similar contract came up for consideration before the
Assam High Court in Birendranath Guha v. Commissioner of
Taxes(1) and the.High court took a view different from that
of the Patna High Court mentioned above.
In D..N. Dutta v. Commissioner of Sales Tax, Orissa(2) two
,,questions were referred to the High Court, one of them
being, whether there was a completed sale in Orissa so as to
confer jurisdiction on the State of Orissa to tax the
impugned transactions and secondly, whether even if there
was a completed sale in Orissa, the State Government was
prohibited from taxing those transactions in view of the ban
imposed by cl. (1) and cl. (2) of Art. 286 of the
-Constitution. ’The contract, according to the judgment of
the High Court, was identical With the one which came for
consideration in the Patna case in Birendranath Guha and Co.
v. State of Bihar(3) -The Orissa High Court held that in
respect of the impugned transaction, none of the sleepers
had been subject to reinspection by the :,Sleeper Control
Officer or rejected by him at the destination; all the
sleepers were fully delivered when the passing mark was
given by the Sleeper Passing Officer at the place of
despatch and the seller had loaded them in the wagon at the
despatching station and obtained the tally receipt from the
station master concerned. It is not ,necessary to examine
the case in detail but it is sufficient to say that ,even if
there was no rejection at the place of destination, actual
delivery would not be completed until they were finally
accepted
(1) 10. T.C. .327 (2) 1. L. R. [1961] Cuttack 622.
(3) 5 S.T.C. 273.
557
at destination and to that extent we find ourselves unable
to agree with the decision of the Orissa High Court.
In the result, it must be held that the sales in these cases
were covered by the Explanation to Art. 286 (1) and as such
not taxable by the State of Madhya Pradesh. The appeals are
therefore allowed with costs. One set of hearing fee.
V.P.S. Appeal
allowed.
558