Full Judgment Text
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CASE NO.:
Appeal (civil) 5272 of 2007
PETITIONER:
M/s.I.D.L.Chemical Ltd
RESPONDENT:
State of Orissa
DATE OF JUDGMENT: 16/11/2007
BENCH:
A.K.MATHUR & MARKANDEY KATJU
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 5272 OF 2007
{Arising out of S.L.P.(c) No.8377 of 2006]
A.K.MATHUR,J.
1. Leave granted.
2. This appeal is directed against the order passed by the
Division Bench of the Orissa High Court dated 11.4.2006 whereby the
High Court has reversed the finding of the Orissa Sales Tax
Tribunal.
3. Brief facts which are necessary for disposal of this
appeal are that the assessment under the Central Sales Tax Act, 1956
for the years 1976-77, 1977-78 to 1983-84, 1989-90 and 1990-91 was
made in respect of assessee, M/s. IDL Industries ( formerly IDL
Chemicals Ltd.), a company under the Indian Companies Act having
its registered office at Kukatpalli, Andhra Pradesh engaged in
manufacturing explosive, detonators and accessories and holding
licence under the Explosive Act, 1984. It has a manufacturing unit
at Sonaparbet near Rourkela in Orissa which is also registered under
both Orissa Sales Tax Act, 1947 and the Central Sales Tax Act, 1956
with the Sales Tax Officer, Rourkela I Circle, Rourkela. M/s. IDL
Chemicals Ltd is a regular supplier of its products to different
Government undertakings such as the Coal India Limited (hereinafter
to be referred to as ’CIL’), National Mineral Development
Corporation, Hindustan Zinc Limited etc. and supplies to these
undertakings constituted almost 90 per cent of its total production.
CIL placed orders on the appellant for supply of explosive,
detonators, accessories etc. for its collieries inside and outside
the State of Orissa with a stipulation that delivery should be made
against the indent placed by the collieries. The appellant has its
consignment agent at different places outside the State. During the
assessment years in question the appellant effected supplies through
its consignment agents against indents placed by the collieries and
for this purpose it claimed to have dispatched the goods to its
consignment agents on stock transfer basis otherwise than by way of
sale. The contention of the appellant was that dispatches from its
factory at Rourkela were stock transfers and were not liable to be
assessed to tax under the Central Sales Tax Act as the sales took
place when the supplies were made to the collieries against the
indents placed by them with their consignment agents. It may be
relevant to mention here that the appellant has its consignment
agents in various States like Madhya Pradesh, Bihar, West Bengal and
Maharashtra. All the goods were sent to their consignment agents and
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from there those goods were dispatched to various collieries of CIL.
Therefore, it was not inter-State sale. As against this, it was
contended on behalf of the State before the High Court that the
supplies were made on account of the order placed by CIL and the
movement of the goods from the State of Orissa to outside States was
incident of the CIL’s order for supply. The transactions were
purely inter-State sale from the State of Orissa, as the appellant
would not have dispatched the goods outside the State for delivery
to the collieries, had there been no order of CIL. It was also
contended on behalf of the State that the indents were not contract
of sale and that the indents placed by the collieries were simple
follow up action of the purchase order of CIL dated 24.9.1976.
4. We need not refer to various orders that were placed from
time to time by the CIL or otherwise. This matter was taken up by
way of reference by the High Court and the following questions of
law were referred.
" (1) That in view of the quotation
offered by the assessee company and supply order
issued by M/s.CIL indicating the firm order of rate of
payment, quality to be purchased, period of contract
etc. on acceptance of the offer, whether the Sales Tax
Tribunal was correct in law to hold that it was not
the contract of sale but the actual purchase and sale
was triggered only when a colliery placed indent with
M/s.IDL Chemicals?
(2) That in view of the fact that M/s.IDL Chemicals
moved goods in pursuance to the supply order placed by
M/s. CIL, whether the Sales Tax Tribunal was correct
in law to hold that the transactions do not constitute
sale falling U/s. 3(a) of the C.S.T. Act ?
(3)That in view of the fact that the indents placed
by the constituents of M/s.IDL was mere indents to
take delivery of the goods, whether the Sales Tax
Tribunal as correct to hold that the actual sales were
triggered by such indents and taken place inside the
respective State and were intra-State sale subject to
levy of tax under the of that State ?"
5. The basic question which calls for determination is
whether the order placed by CIL amounted to sale triggered by CIL
order or was an agreement to sell. On 24.9.1976 CIL placed order
for supply of explosives and detonators to its collieries. This is
a crucial document from which it would be clear whether it was an
agreement to sell or it was a purchase order on behalf of CIL. The
supply of these goods was triggered by the appellant to its
consignment agents at various places and from there the explosives
and detonators were supplied to the collieries of CIL. Therefore,
whether the sale was within the State or the sale was inter-State.
This is the only question which has to be answered by us.
6. Mr.Ganesh, learned senior counsel for the appellant
strenuously urged before us that the order placed by the CIL dated
24.9.1976 for various purchases was not a purchase order but it was
only an agreement to supply certain quantity of explosives and
detonators to various collieries of CIL. There was no firm quantity
and it was only approximate and it was subject to change. Therefore,
this order was only an agreement to sell and not a sale order. It
cannot be said that the goods triggered from Rourkela to various
consignment agents in pursuance of the order dated 24.9.1976, this
cannot be treated as inter-State sale. It was therefore, contended
that the finding arrived at by the Sales Tax Tribunal and the Sales
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Tax authorities was finding of fact and the High Court should not
have interfered with the matter. In support of that learned senior
counsel invited our attention to various decisions of this Court to
which we will advert at appropriate stage. As against this,
Mr.Rakesh Dwivedi, learned senior counsel appearing for the
respondent- State of Orissa submitted that the supply of explosives
and detonators triggered in view of the order placed by the CIL on
24.9.1976 and it was only the modus operandi of supply of all these
explosives and detonators to various collieries through the
consignment agents of M/s. IDL Chemicals Ltd.. In fact the whole
purchase emanated by virtue of the sale order passed on 24.9.1976.
Therefore, the order dated 24.9.1976 should be construed as a sale
order, as firm order was passed by the CIL and the goods moved in
pursuance of that order only. Mr.Dwivedi also contended that fright
were charged on the goods supplied to the collieries and insurance
was paid by CIL. Therefore, it was inter-State sale. Before we
proceed to examine various contentions referred to by both the
sides, let us first examine the nature of the order dated 24.9.1976
placed by CIL. The order passed by CIL on 24.9.1976 reads as under:
" COAL INDIA LIMITED
MATERIAL MANAGEMENT WING
15, PARK STREET,
CALCUTTA-700016.
Order No.CIL/C-2(D)/EXPL/IDL/517 Dated:24th Sept.’76
M/s.IDL Chemicals Limited High Explosive Division
Kukatpalli Rourkela-7
Post Bag No.1
Hyderabad (A.P.)
Dear Sirs,
Sub: Supply of Explosives, Detonators and Detonting/
Safety fuses to Coal India Ltd’s collieries for
The period 1-6-76 ti 31.05.1997.
Ref: Your letter dated SD/APM/ dated 6-4-1976 and
Your subsequent letter and discussions.
Please supply the quantities of Explosives, Detonators and
Detonating/ safety fuses to the collieries of different areas as per
their indents. The total quantities have been given in the enclosed
schedule-I, II, III & IV. These are to be dispatched by Goods/
Passenger train ’Freight Paid’ and/ or by road.
The Unit prices of the Explosives, Detonators and Detonating/ Safety
fuses shall be as shown in Schedule-V attached herewith. Prices for
non-permitted explosives, detonators and detonating/ safety fuses
have not yet been finalized by DGS & D. Till finalization, the
prices given in Schedule V for these items will prevail. If there is
any deliveries/ dispatches should be made according to requisitions
made from time to time by the different colliery authorities and
adjusted against the respective colliery’s account.
In case of Road delivery by your Van for supplies of Explosives the
Van delivery charge shall be paid extra as shown in Schedule V
enclosed herewith and mileage, covered by such Van shall be recorded
on the relevant invoices. For supplies of all types of Detonators to
CIL’s collieries situated in Bihar and District of Burdwan, West
Bengal, you shall not charge any transport charge.
Security Deposit : You are exempted from furnishing any deposit.
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Insurance : Transit Insurance will be effected on us.
Dispatches :
a) Railway freight charges will be paid extra at actual
Subject to clause given in Schedule V.
b) Actual Wagon deposit charges should be refunded if
Cancellation of such Wagon arises due to our instructions.
c) Excess supply made, if any, shall be acceptable to the
extent of 15% over the quantities against each item in
respect of each item in respect of each area as indicated
in Schedules I to IV.
d) Quantities of Explosives, Detonators and Detonating/
safety fuses supplied on and from 1.06.76 should be
adjusted against this order and all supplies so made on
and from 1-6-76 should be governed by the terms and
conditions of this supply order.
Price Variation:
Prices of explosives, detonators and accessories are firm for the
contract period. In case of any reduction in prices for non-
permitted, explosives and accessories in the new DGS & D contract,
these will however, be applicable to this order. The new prices of
explosives given in this order take into account the increase in
prices of ammonia which took place from the 23rd June, 1976. In the
event of any further substantial increase or decrease in the price
of Ammonia the explosive prices may be subject to upward or downward
revision at actuals on the basis of justification to be provided by
the manufacturer and accepted by CIL.
Notice of one month be given where revision in prices and delivery
as well as packing and forwarding charges in terms of the above para
is contemplated. Any supply made during the notice period will be
paid for at the current prices and rates.
Discount:
You will give 1 (one) percent rebate on the current prices for and
off-take exceeding 9000 tonnes on the full quantities of explosives
ordered. The rebate will be given on each invoice of supply as and
when supplies are made against this order. The rebate will be
applicable from 1-6-1976 for all supplies made from that date.
Please arrange to give credit notes for the past supplies made from
1-6-76. Respective General Managers are requested to be contacted
for Monthwise allocation of Explosives and Accessories. IDL
Chemicals Limited, and/ or their consignment agents namely
M/s.B.P.Agarwalla & Sons (P) Ltd., P.O.Dhansar, Dist- Dhanbad, (ii)
M/s. William Jacks & Co (India) Pvt. Ltd. Asansol/ Calcutta and
(iii) Abdul Hussain Mulla Allabuxji, Nagpur, will supply explosives
and accessories to mines on the basis of convenience and locations.
Mines will follow the existing system of drawing their requirements
from IDL and/ or their consignment agents who will raise the bills
accordingly and payments will be made by cheques drawn in favour of
IDL Chemicals Ltd.
Instructions contained in the attached Schedule VI should be
strictly and invariably followed.
Please acknowledge receipt of this order.
Yours faithfully
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Sd/-
(S.V.Gurumoorthy)
Chief Controller of Stores & Purchase."
The important feature of thisorder is that all the Managers of the
Collieries in the three States will have to place order with the
consignment agents of IDL Chemicals from their depots. This is a
modality adopted by the appellant with a view to dispatch their
goods from Rourkela to various consignment agents and from there
all the collieries of CIL are bound to purchase through their agents
mentioned in the order above. Though each colliery has to give its
indents for purchase of explosives, detonators etc. as per the
requirement but the fixed quantity has been given in the schedule
appended to this order. The transit insurance was to be borne by
the collieries. The mode of dispatches was also mentioned. It
further says that excess supply made, if any, shall be acceptable to
the extent of 15% over the quantities against each item in respect
of each area as indicated in Schedules I to IV. The price is firm
for contract period. Then there is a clause of price variation also.
The respective General Managers are to be contacted for month-wise
allocation of explosives. IDL Chemicals Limited, and/ or their
consignment agents namely M/s.B.P.Agarwalla & Sons (P) Ltd.,
P.O.Dhansar, Dist- Dhanbad, (ii) M/s. William Jacks & Co (India)
Pvt. Ltd. Asansol/ Calcutta and (iii) Abdul Hussain Mulla Allabuxji,
Nagpur (Maharashtra), will supply explosives and accessories to
mines on the basis of convenience and locations against this order.
Mines will follow the existing system of drawing their requirements
from IDL and/ or their consignment agents who will raise the bills
accordingly and payments will be made by cheques drawn in favour of
IDL Chemicals Ltd. Instructions contained in the attached Schedule
VI should be strictly and invariably followed. Copy of this letter
was sent to all over respective collieries. Therefore, what it
transpires is that all collieries of CIL were under an obligation to
purchase the explosives, detonators etc. from the appellant only
through their agents situated in the States of West Bengal, Bihar
and Maharashtra and each colliery has been given the quantities of
explosives, detonators and detonating/ safety fuses to be purchased
from the appellant only at the price fixed. This purchase order was
issued from the apex body i.e. the CIL to its subsidiaries i.e. the
collieries spreading over these three States. They cannot purchase
the goods from any other company other than the appellant.
Therefore, this firm order issued by the CIL is in the nature of
purchase order specifying the quantities and the price thereof. It
was only the convenient mode of supply, instead of sending the goods
directly from Rourkela to various States. This convenient device was
worked out by the appellant and CIL so that the goods need not
directly be sent from the company at Rourkela but would be sent
through their agents in various States. This order is definitely a
purchase order, the nature of indent and the modalities were agreed,
the quantity of the goods to be supplied to various collieries at
fixed price was firm, the insurance and freight was to be borne by
CIL and 98% of the payment was to be made by the collieries of CIL.
From these facts it appears that this was a purchase order issued by
the apex body, CIL by fixing the price and the quantities to be
purchased by their collieries. Various other evidence was produced
to show that in fact there was independent transaction with the
subsidiaries and the consignment agents of the appellant and the
order dated 24.9.1976 does not constitute a firm purchase order.
But we regret that cannot be of any avail for the simple reason that
all supplies were made in pursuance of the order of the CIL.
Therefore, that was fountain head from where all supplies followed.
If the terms of the order is to be construed as purchase order, then
other evidence is secondary and irrelevant. In fact both the parties
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understood that way only and paid CST for sometime but subsequently
discontinued. Therefore, from this it follows that the whole
movement of the goods from the factory at Rourkela was triggered in
pursuance of the order dated 24.9.1976. There was no independent
contract by the subsidiaries of CIL with the appellant. The
subsidiaries were issuing indents on the agents of the appellant in
pursuance of the order dated 24.9.1976. In fact the appellant
instructed its consignment agents to supply the goods to the
collieries as per the indents placed by them. The collieries were
also asked by the very same order that they would place their
indents to the consignment agents of the appellant on the price
fixed in this order and the quantity mentioned therein. Therefore,
it is not a case in which there was any independent contract between
the subsidiaries of CIL with that of the appellant. It is in
pursuance of this order dated 24.9.1976 the collieries were placing
their indents for supply of the goods and the payment was made on
the basis of the terms and conditions fixed in the order dated
24.9.1976. Therefore, the goods were moved from the appellant’s
factory for supply to CIL in pursuance of this order. We need not go
into various evidence produced as we are of opinion that the order
dated 24.9.1976 is a purchase order and in pursuance of this order
all the indents were issued by the collieries of CIL and the payment
was made as per this order and approximate quantity was fixed by
this order. Therefore, it is a purchase order issued by the apex
body, CIL and in pursuance of this, indents were placed by the
collieries, It was a convenient mode of supply by the appellant
instead of directly supplying the goods from the factory. This was
not transfer of stock in trade to various branches. Hence, this was
a firm order of purchase and the goods were dispatched from
Rourkela to various consignment agents and from their it was
supplied to various collieries.
7. Mr. Ganesh, learned senior counsel for the appellant
submitted that all the 100% of the goods were not supplied to CIL
but to various other public sector undertakings. That may be so, but
the fact of the matter is that substantial quantities have been
supplied to the subsidiaries of CIL to the extent of 75%. However,
it was contended that 95% of the supply was made to the
subsidiaries of CIL. That is a matter of evidence but it is beyond
the dispute that major quantity of the goods were supplied to the
subsidiaries of CIL. Mr.Ganesh, learned senior counsel alternatively
submitted that 30 to 35 % of goods were supplied to other public
undertakings. This is a matter of evidence and we need not to go
into that question. But the substance of the matter is that major
portion of the goods were supplied to the subsidiaries of CIL and
only a small quantity was supplied to other public sector
undertakings.
8. Both learned senior counsel for the parties have invited our
attention to various decisions of this Court. In some cases after
review of facts it was found to be inter-State sale and in some
other cases it was found that it was a case of inter-State sale. No
useful purpose will be served to refer to those judgments because
each case had its peculiar facts. But the case which is nearer home
is a case in South India Viscose Ltd. v. State of Tamil Nadu
[(1981) 3 SCC 457]. In this case, sale of goods from seller’s
factory in Tamil Nadu to buyers residing in Gujarat and Maharashtra
was effected in pursuance of a direct contract between the seller
and the buyers and it was found to be inter-State sale. It was
observed that mere fact of inter-position of the seller’s agent at
Bombay who prepared invoices and delivery orders for and on behalf
of the seller, would not change the nature of the sale. It was
further observed that if movement of goods delivered to the buyer
was occasioned by the contract of sale, the mere fact that the
actual sales pursuant to the contract were effected subsequently is
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immaterial. Their Lordships observed as follows :
" If there is a conceivable link between a
contract of sale and the movement of goods from
one State to the other in order to discharge the
obligation under the contract of sale, the inter-
position of an agent of the seller who may
temporarily intercept the movement ought not to
alter the inter-State character of the sale."
9. In Sahney Steel and Press Works Limited & Anr. v. Commercial
Tax Officer & Ors. [(1985) 4 SCC 173] it was observed that movement
of the goods from Hyderabad to the branch office was only for the
purpose of enabling the sale by the branch office and was not in
the course of fulfillment of the contract of sale. But this was
negatived by this Court. This Court observed that it appears that
the movement from the very beginning from Hyderabad all the way
until delivery is received by the buyer is an inter-State movement.
Relying on an earlier decision in English Electric Company of India
Ltd. v. Deputy Commercial Tax Officer [(1976) 4 SCC 460, their
Lordships held that it amounts to inter-State sale. Their Lordships
observed as follows :
" What is decisive is whether the sale is
one which occasions the movement of goods from one
State to another. It was also pointed out that the
branches had no independent and separate entity,
that they were merely different agencies, and even
where a branch office sold the goods to the buyer
it was a sale between the Company and the buyer.
It is true that in that case the goods, on
manufacture at the Madras branch factory, were
directly dispatched to the Bombay buyer at his
risk and all prices were shown F.O.R. Madras, and
the goods were delivered to the Bombay buyer at
Bhandup through clearing agents. In the instant
case, the goods were dispatched by the branch
office situated outside the State of Andhra
Pradesh to the buyer and not by the registered
office at Hydrabad. In our opinion, that makes no
difference at all. The manufacture of the goods at
the Hydrabad factory and their movement thereafter
from Hydrabad to the branch office outside the
State was an incident of the contract entered into
with the buyer, for it was intended that the same
goods should be delivered by the branch office to
the buyer. There was no break in the movement of
the goods. The branch office merely acted as a
conduit through which the goods passed on their
way to the buyer. It would have been a different
matter if the particular goods had been dispatched
by the registered office at Hyderabad to the
branch office outside the State for sale in the
open market and without reference to any order
placed by the buyer. In such a case if the goods
are purchased from the branch office, it is not a
sale under which the goods commenced their
movement from Hyderabad. It is a sale where the
goods moved merely from the branch office to the
buyer. The movement of the goods from the
registered office at Hyderabad to the branch
office outside the State cannot be regarded as an
incident of the sale made to the buyer."
This case clinches the issue and we need not multiply other cases
as the facts of this case are nearer home.
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10. Mr.Ganesh, learned senior counsel for the appellant has
also referred to various decisions which have peculiar facts but the
case of Sahney Steel & Press Works Ltd.(supra) is nearer home and
therefore it will not be necessary to multiply each case and
unnecessarily overburden the judgment. Suffice it to say that one
case which supports the view which we have taken and which has been
relied on by the High Court also. Another case which is on the same
line is Indian Oil Corporation Ltd. & Anr. V. Union of India & Ors.
[ 1980 (Supp) SCC 426]. Similar is the case in Union of India & Anr.
V. M/s.K.G.Khosla & Co.Ltd. & Ors. [(1979) 2 SCC 242]. Mr.Ganesh,
learned senior counsel for the appellant has also submitted that the
Court should also look at as to how the parties have understood the
agreement and in support thereof placed reliance on a decision of
this Court in The Godhra Electricity Co.Ltd. & Anr. V. The State of
Gujarat & Anr. [ (1975) 1 SCC 199] and also submitted that the
finding of fact recorded by the Tribunal should not have been
interfered with by the High Court and also invited our attention to
a decision of this Court in Ashok Leyland Ltd. v. State of T.N. &
Anr. [(2004) 3 SCC 1] in support of his contention that the goods
were not subjected to inter-State sale. It is not necessary to go
into all these facts as we have already held above on factual aspect
that the goods which were triggered from Rourkela and sold to the
subsidiaries of the CIL through the appellant’s consignment agents
were essentially meant to be sold to the subsidiaries of the CIL and
the goods primarily triggered from Rourkela and were sent to the
subsidiaries of the CIL amounted to inter-State sale and the view
taken by the Division Bench of the Orissa High Court is correct.
11. Before we part with this case we may observe that the
authorities will go into the factual aspects and find out how much
of the quantity of the goods were sent to other undertakings other
than the subsidiaries of CIL and assess tax on the supplies which
were made to the subsidiaries of CIL as inter-State sale.
12. As a result of our above discussion, we do not find any
merit in this appeal and the same is dismissed. No order as to
costs.