Holding

The sale of chemicals to the purchasing dealers is an inter‑State sale despite delivery in Delhi, as the dealers were contractually obliged to move the goods to territories outside Delhi.

Summary

M/s DCM Ltd sold chemicals to three purchasing dealers in Delhi under contracts that assigned each dealer an exclusive territory outside Delhi and obliged them to move the goods to those territories for sale. The Assessing Authority treated the transactions as local sales, but the Sales Tax Tribunal and the Delhi High Court held them to be inter‑State sales under Section 3(a) of the Central Sales Tax Act, 1956. DCM appealed, arguing that the goods were delivered ex‑works in Delhi and stored in the dealers' godowns, making the sales local. The Supreme Court examined the contractual terms, noting that the dealers were contractually required to transport the goods out of Delhi and actually did so, which is the determinative test for inter‑State character. Relying on the precedents of State of Bihar v. Tata Engineering & Locomotive Co. Ltd. and Union of India v. K.G. Khosla, the Court held that the sales were inter‑State. Consequently, the appeals were dismissed.

Issues considered

Whether the taking of delivery in Delhi by purchasing dealers for territories assigned outside Delhi removes the transaction from the category of inter‑State sale under Section 3(a) of the Central Sales Tax Act, 1956.

Legislation cited

Central Sales Tax Act, 1956s. 3(a)
Delhi Sales Tax Act, 1975s. 45(1)

Subjects

Central Sales Taxinter‑State salecontractual obligationex‑works deliveryterritory assignmentsales tax exemptionagency agreementinter‑State trade

Judgment

[2009] 3 S.C.R. 512

~ '
A M/S. DCM LIMITED
v.
COMMISSIONER OF SALES TAX, DELHI
(Civil Appeal No. 1323 of 2009)
FEBRUARY 27, 2009
B •
[S.H. KAPADIA AND H.L. DATIU, JJ.]

>- :I
Central Sales Tax Act, 1956: s.3(a) - Inter-State sales -
Delivery of goods taken in Delhi by the purchasing dealers
c for their assigned territories outside Delhi amount to inter-State
sales.

The question which arose for determination in these
appeals was whether the taking of the delivery in Delhi
by the purchasing dealers for their assigned territories
D
outside Delhi would take away the transactions in •
question from the category of inter-State sale.

Dismissing the appeals, the Court

E HELD: 1. Taking of delivery in Delhi by the
purchasing dealers for their assigned territories outside
Delhi would not take away the transactions in question
from the category of inter-State sales. The determinative ..
test to be applied in such case is whether the purchasing
•
F dealers were obliged contractually to remove the goods
from Delhi, in which they were bought, to the assigned
territories and whether in fact the goods stood actually
....
removed. This test would decide the question as to
whether the sales in question were "inter-State sales" or
"local sales". [Para 15] [522-H; 523-A, B]
G
;.,-
1.2. The perusal of the contract shows that each
purchasing dealer was assigned an exclusive territory.
Each dealer was obliged to take the chemicals to his
respective territory outside Delhi where they were to be
H 512
DCM LIMITED v. COMMISSIONER OF SALES TAX, 513
DELHI
__,
• sold. Despite the fact that the delivery of the goods was A
taken in Delhi, the purchasing dealer had to move the
goods to the respective assigned territories outside Delhi
and it was the essential condition of the contract itself
that the chemicals would move out of Delhi and would
be sold in the assigned territories allotted to each of the B
respective purchasing dealers. The covenant in the
.... Contract obliged each of the purchasing dealers to move
the goods to the territories outside Delhi. In fact in clause
3 there was a proviso that if on instructions from the
purchasing dealer, the assessee was required to c
transport the goods, the freight charges would have to
be paid by the distributor as a purchasing dealer and that
the purchasing dealer would also be liable for sales tax.
No evidence was led by the assessee as to the exact
quantity of chemicals which stood removed under this D
-+
clause and the reimbursement, if any, of tax and freight
being made to the assessee. Clause 7 of the Contract
also indicates that the chemicals were to be sold in the
territories outside Delhi. The assignment of specific
territories is indicated in clause 1. Under the Contract, the
E
purchasing dealer was required to submit monthly stock
of sales to the assessee. Every month, the purchasing
... dealer was required to submit a market report to the
-l,
assessee. Under the contract, the price at which the
chemicals were to be sold in different territories was also
fixed by the assessee. Each purchasing dealer had F
executed separate contract(s) with the assessee. Thus,
movement of the goods was the covenant of the Contract.
The sale of chemicals effected by the assessee. to its
purchasing dealers who in turn were obliged to effect
their sales in their respective territories outside Delhi G
....,.. involved inter-State movement of goods and, therefore,
the sales in question were inter-State sales. Accordingly,
there is no infirmity in the concurring findings of fact
recorded by the Authorities below. [Para 15] [523-CH; 524-
A-C] H
514 SUPREME COURT REPORTS [2009) 3 S.C.R.

A 1.3. It is found that the purchasing dealers were
obliged under the Contract(s) to take the chemicals to
their respective territories outside Delhi. The purchasing
dealers were obliged to sell the chemicals in their
respective assigned territories, and the said purchasing
B dealers were obliged to enter into separate contracts with
the assessee. Each of the purchasing dealers were
required to sell the chemicals in their assigned territories
at the price fixed by the assessee and submit monthly
reports to the assessee. In such an event the mode in
c which each of the purchasing dealers could sell their
goods either by way of stock transfer or inter-State sale
or rocal sale becomes irrelevant. The obligation of the
purchasing dealers under the Contract indicates the
control of the assessee over the movement of the goods.
D [Para 17] [525-A-D]

State of Bihar v. Tata Engineering & Locomotive Co. Ltd.
(1970) 3 SCC 697 and Union of India and Another v. K.G.
Khosla & Co. Pvt. Ltd. & Others, (1979) 2 SCC 242, relied
on.
E
Case Law Reference:
(1970) 3 sec 697 relied on Para 12
(1979) 2 sec 242 relied on Para 12
F CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1323 of 2009.

From the Judgment and Order dated 3.7.2007 of the High
Court of Delhi at New Delhi in STR No. 4of1983, STR No.8
G of 1980, STR No. 9 of 1980, STR No. 13 of 1987 and STR
No. 14of1987.

S.K. Bagaria and Praveen Kumar for the Petitioner.

L. Nageshwar Rao, C.R. Sridharan, Rajan Narain and Raj
H Rajeshwari Shukla for the Respondent.
DCM LIMITED v. COMMISSIONER OF SALES TAX, 515
DELHI
_,
~
The Judgment of the Court was delivered by A

S. H. KAPADIA, J. 1. Leave granted.

2. A short question which arises in this batch of civil
appeals is : whether the taking of the delivery of chemicals in
Delhi by the purchasing dealers, in the context of they being B
the distributors/stockists of the assessee (appellant), for the
assigned territories outside Delhi would take away the
·~
transaction in question from the category of sal~ inter-State
sale(s)?
c
Facts in Civil Appeal No. of 2009 -

arising out of S.L.P. (C) No.20624 of 2007

,. 3. During the assessment year 1974-75 the dealer, M/s.
~ D
DCM Ltd., claimed exemptions on account of the following
sales made to the registered dealers:

Name of the Amount of Sale claimed
(purchasing/registered) to be made by DCM to
Dealer the Registered Dealer E
1. M/s. Dayal Sons _ Rs.32,33,704.74
~
2. M/s. Dayal Brothers Rs.5,93,628.62
~

3. M/s. Vaish Brothers Rs.35,69,571.77 F
Total: Rs.73,96,905.13

4. The Assessing Authority vide Order dated 28.3.1979
did not grant exemption in respect of the above-mentioned

..... sales on the ground that the three above-mentioned purchasing
dealers had been assigned specific territories, under the
G

Contract(s), outside Delhi and that they were under contractual
obligations with M/s. DCM Ltd. to supply goods to the specified
dealers who were also named by M/s. DCM Ltd. on a price
fixed and determined by M/s. DCM Ltd. According to the said H
516 SUPREME COURT REPORTS (2009] 3 S.C.R.

A order, even the quantity of chemicals stood determined by M/
s. DCM Ltd. According to the Assessing Authority, under the
above circumstances, the said chemicals meant for inter-State
sales, however, to avoid liability under the Central Sales Tax
Act, 1956, the transaction was shown by the assessee
B (appellant - M/s. DCM Ltd.) as a "local sale". Accordingly by
the said order dated 28.3.79, the said sales were taxed at 10%
under the said 1956 Act.

5. Aggrieved by the assessment order dated 28.3.1979,
appeals were preferred by M/s. DCM Ltd. before Addi.
C Commissioner who dismissed the appeals vide his order dated
14.12.79 on the ground that the transaction(s) in question were
inter-State sales. According to M/s. DCM Ltd., the sales were
"local sales" as the said chemicals stood sold in Delhi itself.
However, the Appellate Authority observed that the assessee
D should be given an opportunity to produce 'C' Forms in respect
of the sales in question and accordingly it remanded the case
on the limited point to the Assessing Authority to give an
opportunity to M/s. DCM Ltd. to produce the 'C' Forms.

E 6. Aggrieved by the decision of the Appellate Authority, the
assessee filed appeal(s) before the Appellate Tribunal which
held that each of the three registered/purchasing dealers were
distributors who had executed Agency Agreement(s) with the
assessee. According to the Tribunal, some of the clauses of
F the said Agreement(s) indicated that all supplies were to be
made ex-works of the assessee. Under the said Agreement(s),
the purchasing dealers were required to take local delivery at
the factory gate. Under the said Agreement(s), the purchasing
dealer(s) were required to store the said chemicals in their own
G godowns in Delhi. Under the said Agreement(s), however, the
assessee had to fix the price(s) at which the chemicals were
to be sold in the different assigned territories outside Delhi.
Accordingly it was held by the Appellate Tribunal, under the facts
and circumstances of this case, that under the said Covenant
of Agency, since the chemicals were to be sold in the assigned
H
____. DCM LIMITED v. COMMISSIONER OF SALES TAX, 517
DELHI [S.H. KAPADIA, J.]
_,,
territories outside Delhi, the transaction(s) was inter-State A
sale(s). In this connection, the Appellate Tribunal placed heavy
reliance on clauses 3 & 7 of the said Agreement(s). The
Appellate Tribunal once again directed the Assessing Authority
to give one more opportunity to the assessee to produce the
requisite 'C' Forms in respect of the sales made to the said B
three registered/purchasing dealers.

--~ 7. Aggrieved by the decision of the Appellate Tribunal,
however, the assessee approached the High Court of Delhi by
filing an application for reference under Section 45(1) of Delhi
Sales Tax Act, 1975. The question referred to the High Court
c
was: whether the Sales Tax Tribunal was right in holding that
the said sale(s) was an inter-State sale(s)? Vide impugned
judgment dated 3.7.07, the High Court held that the sales were
inter-State sales falling under Section 3(a) of the said 1956 Act.
~ D
Accordingly, the High Court directed the assessee to adduce
evidence before the Assessing Authority to show that the
chemicals were locally sold by the purchasing dealer and that
they were not transferred to branches outside Delhi or sold in
the territories outside Delhi. Against the said Order, however,
the assessee has approached this Court by way of special E
leave retition(s).
<· ISSUE
..
8. In this case great emphasis is placed by the assessee

- on the fact that all supplies were made ex-works of the of the
assessee and that the above three registered purchasing
F

dealers (distributors/stockists) had taken local deliveries at the
factory gate and had arranged to store the chemicals in their
own godown(s) in Delhi, both in terms of the contract and in
.... fact. G

9. Therefore, the main question which arises for
determination in these civil appeals is : whether the taking of
the delivery in Delhi by the purchasing dealers for their
assigned territories outside Delhi would take away the H
518 SUPREME COURT REPORTS [2009] 3 S.C.R. .__

~ '
A transactions in question from the category of inter-State sale?

Relevant clauses of the Agreement

"1. Territory

8 (a) Whole of U.P. excepting towns/districts of
Kanpur, Lucknow, Azamgarh, Ghaziabad,
Hapur, Gorakpur, Faizabad, Pilakuwa. )- ....
(b) Ganesh Flour Mills and Birla Mills, Delhi
excepting supplies to:
c
(a) Our sister concerns;

(b) Government, Semi-Govt. Department

(c) Other bulk consumers and Parties to +
D
whom we may decide to give effect supplies.

2. Period

This agreement shall be effective from 1.11.73 to 31.12.73.
E In the event of a breach of any of the terms of the agreement
on either side, this agreement shall be liable to cancellation by
either party on tendering one month's notice.
..
3. Delivery ..
F All supplies will be made on ex-works and you shall take
local delivery of the goods at factory gate and shall arrange to
store the same in your godown in Delhi.
-
.
In the event of you desiring us to transport the goods to
G your territory outside Delhi, you would give us freight charges
and also be liable for Central Sales Tax. ...
4. Shortage Losses Damages in Transit

The basis of billing and payment for each supply shall be
H the weight shown in the relative challan and we shall not be
DCM LIMITED v. COMMISSIONER OF SALES TAX, 519
DELHI [S.H. KAPADIA, J.]

responsible for any shortage/losses/damages in transit after the A
goods have been loaded to the satisfaction of the Railway
authorities/Carriers.

5. Selling Rates

These will be fixed by us from time to time taking into B
consideration cartage and other incidental charges and you will
t "'· not be entitled to charge higher rates.

6. Sales of Products of other Manufacturers

During the period of this agreement, you shall not deal
c
directly or indirectly in the sale of any identical products of other
manufacturers.

7. Agency Security Deposit
D
You shall give us a security deposit of Rs.2,000/- to ensure
the due fulfillment of the agreement. This deposit shall carry
interest at the rate prevailing from time to time, which will be
1% less than the Bank rate. This deposit shall be liable to
forfeit in part or in full at our discretion in the event of breach of E
the terms of agreement."

> CONTENTIONS

10. Mr. S.K. Bagaria, learned senior counsel appearing
on behalf of the assessee (appellant), submitted that the sales F
effected by the assessee to its purchasing dealers (distributors)
were "local sales" and the said sales did not occasion
movement of goods from Delhi to other States. He further
submitted that the purchasing dealers were registered dealers
under the Local Act. They were also registered dealers under G
the said 1956 Act. According to learned counsel, the dealers
had purchased the goods locally from the assessee in Delhi
on the strength of their registration certificates by issuing
prescribed declarations under the Local Act and, therefore, the
said purchases were local purchases in the hands of said H
520 SUPREME COURT REPORTS [2009] 3 S.C.R.

A dealers. According to learned counsel, after purchasing the
. '

goods in Delhi and getting delivery ex-works at the factory of
the appellant, the purchasing dealers had stored the goods in
their godowns in Delhi. According to learned counsel, the
purchasing dealers were selling the goods purchased from the
B appellant either by making local sales in Delhi or by making
inter-State sales to their own buyers outside Delhi or by making
branch transfers to their own branches outside Delhi.

11. Learned counsel next contended that a local sale
cannot be deemed to take place in the course of inter-State
C trade or commerce simply because the buyer (purchasing
dealer) has been assigned a territory. According to learned
counsel, Section 3(a) of the 1956 Act creates a deeming fiction.
It provides that a sale or purchase shall be deemed to take
place in the course of inter-State trade or commerce if the sale .;
D or purchase occasions movement of goods from one State to
another. Thus, according to learned counsel, in order to be
covered by Section 3(a), the sale in question itself must
occasion movement of goods from one State to another.
According to learned counsel, Section 3(a) is not attracted
E merely because the purchasing dealer(s) has been assigned
a territory outside the local area. According to learned counsel,
assignment of territory is different from a sale occasioning
movement of goods. Mere assignment of territory by itself, ;
according to learned counsel, does not mean that the sale by
F the assessee to the dealer(s) occasioned the movement of
goods to the assigned territories. According to learned counsel,
the goods in question were sold locally in Delhi by the appellant.
According to learned counsel, appellant was not concerned
with subsequent sale(s). According to learned counsel, in the
G present case, the purchasing dealer(s) had no obligation to
occasion the movement of goods to the assigned territories
pursuant to or as an incident of the appellant's sale to them.
According to learned counsel, the appellant has sold the goods
locally to the purchasing dealers who were free to sale the
H goods to their own bt.iyers in the assigned territories in either
DCM LIMITED v. COMMISSIONER OF SALES TAX, 521
DELHI [S.H. KAPADIA, J.]

of the three ways, mentioned above. There was no bar or A
restriction on the purchasing dealers on selling the goods in any
of the three modes, mentioned above. Learned counsel further
submitted that under clause 3 of the said Agreement it was
made clear that in the event of the purchasing dealer(s) desiring
the assessee to transport the goods to th_eir assigned territories B
outside Delhi they would pay the freight charges and also be
liable to for Central Sales Tax and in such cases the appellant's
sale(s) to the purchasing dealer(s) would be sale(s) in the
course of inter-State trade or commerce. According to learned
counsel, the Agreement in question did not cast any obligation c
upon the purchasing dealer(s) to sell the goods only in the
assigned territories. According to learned counsel, the various
clauses in the Agreement relating to the selling rates were
normal commercial clauses which clauses had nothing to do
with the issue as to whether the sale(s) made by the appellant D
to its purchasing dealers locally against the declaration forms
submitted by them and such clauses did not purport to make
such local sale(s) into inter-State sale(s). In support of his
contention learned counsel placed reliance on number of
judgments of this Court.
E
12. On the other hand, Mr. Ashok Panda, learned senior
counsel appearing on behalf of the Department, submitted that
in view of the judgment of the Constitution Bench of this Court

-
in the case of State of Bihar v. Tata Engineering & Locomotive
Co. Ltd. - (1970) 3 SCC 697, the sales in question in the F
present case were inter-State sales. Learned counsel
submitted that the judgment of this Court in Tata Engineering
(supra) is squarely applicable to the present case. In this
connection, learned counsel invited our attention to various
clauses in the said Contract (Agreement) by which specific G
territory stood assigned to the purchasing dealer(s) coupled
with an obligation by the purchasing dealer(s) to move the
goods to the assigned territory. Under the Contract, according
to the learned counsel, the appellant had complete control over
the purchasing dealer(s) coupled with the fact that the territories H

-
.
522 SUPREME COURT REPORTS [2009] 3 S.C.R.

'--

A were specifically assigned to protect the continuing commercial
interest of the appellant. According to learned counsel,
assignment of territory under the Contract was to avoid
competition between the distributors. According to learned
counsel, on reading the entire Contract, the position was clear
B that the assignment of territory stood coupled with an obligation
of moving the goods by the purchasing dealer(s) to the
assigned territories for sale therein. Learned counsel submitted
that each of the assigned territories were located outside Delhi.
Learned counsel also placed reliance on the judgment of this
c Court in the case of Union of India and Another v. K.G. Khos/a
& Co. Pvt. Ltd. & Others- (1979) 2 SCC 242, in which it has
been held that if a contract contains a stipulation for movement
of goods then the sale would be an inter-State sale. It has been
further held that such a transaction could also be an inter-State
sale even if the contract did not expressly provide for the
0
movement of goods but in fact such movement took place
consequent upon a covenant in the contract or as an incident
of that contract. According to learned counsel, both the
aforestated judgments in the cases of Tata Engineering & K.G.
Khos/a (supra) were applicable to the facts of the present case
E and, therefore, no interference was warranted in the impugned
judgment.
Findings

F 13. The main contention advanced on behalf of the
assessee before us was that sales having been made in Delhi,
ex-works of the assessee and thereafter the chemicals having
been stored in the godowns of the purchasing dealers in Delhi,
the transactions were local sales and not inter-State sales.

G 14. The short point which we have to decide in this batch
of civil appeals is: whether the movement of chemicals was
under the obligations, indicated in the contract, or whether such
movement was due to reasons extraneous to such obligations?

H 15. In our view taking of delivery in Delhi by the purchasing
DCM LIMITED v. COMMISSIONER OF SALES TAX, 523
DELHI [S.H. KAPADIA, J.)
·--"' ..
dealers for their assigned territories outside Delhi per se would A
not take away the transactions in question from the category
of inter-State sales. The determinative test to be applied in this
case is: whether the purchasing dealers were obliged
c'Ontractually to remove the goods from Delhi, in which they were
bought, to the assigned territories and whether in fact the goods B
stood actually removed. It is this test that would decide the
t )f
question as to whether the sales in question were "inter-State
sales" or "local sales". To answer the above question we need
to examine t~e entire Contract(s). Under the Contract(s), each
purchasing dealer(s) was assigned an exclusive territory. Each c
dealer(s) was obliged to take the chemicals to his respective
territory outside Delhi where they were to be sold. Despite the
fact that the delivery of the goods was taken in Delhi, the
purchasing dealer(s) had to move the goods to the respective
" ~ assigned territories outside Delhi and it was the essential
D
condition of the contract itself that the chemicals would move
out of Delhi and would be sold in the assigned territories
allotted to each of the respective purchasing dealers. The
covenant in the Contract obliged each of the purchasing dealers
to move the goods to the territories outside Delhi. In fact in
clause 3 there was a proviso that if on instructions from the E
purchasing dealer, the assessee was required to transport the
... goods, the freight charges would have to be paid by the
_. distributor as a purchasing dealer and that the purchasing
dealer would also be liable for sales tax. No evidence has been

- led by the assessee as to the exact quantity of chemicals which
stood removed under this clause and the reimbursement, if any,
of tax and freight being made to the assessee. Clause 7 of the
F

Contract also indicates that the chemicals were to be sold in
the territories outsi•:Je Delhi. The assignment of specific
territories is indicated in clause 1. Under the Contract, the G
~·~
purchasing dealer(s) was required to submit monthly stock of
sales to the assessee. Every month, the purchasing dealer was
required to submit a market report to the assessee. Under the
Contract, the price at which the chemicals were to be sold in
different territories was also fixed by the assessee. Each H
524 SUPREME COURT REPORTS [2009] 3 S.C.R.
•
• ' - I

A purchasing dealer had executed separate contract(s) with the
assessee. On reading the Contract we find that movement of
the goods was the covenant of the Contract. In the
circumstances, we agree with the concurring findings of fact
recorded by all the Authorities below that the sale of chemicals
B effected by the assessee to its purchasing dealers who in turn
were obliged to effect their sales in their respective territories
outside Delhi involved inter-State movement of goods and,
• f
therefore, the sales in question were inter-State sales.
Accordingly, we find no infirmity in the concurring findings of fact
c recorded by the Authorities below. In our view the judgments
of this Court in the cases of Tata Engineering (supra) and K.G.
Khosla (supra) are squarely applicable to the facts of the
present case.

16. Before concluding, we may note that the basic .._
D contention advanced on behalf of the assessee was that the •
purchasing dealer(s) had to take the delivery of the goods ex-
works; that they were required to store the chemicals in their
godowns in Delhi and the said chemicals were to be disposed
of by the said purchasing dealers in the following manners:
E
(a) stock transfer;

(b) inter-State sales .
~
(c) local sales
F
17. It was urged on behalf of the assessee that it had no
idea as to what would happen to the chemicals after the same
were given to the purchasing dealers. It was urged that M/s.
DCM Ltd. ceased to be the owner of the goods after they were
-
given to the purchasing dealer(s) at the factory gate and that
G
the assessee had no idea as to whether the goods would be ,.. ... ·,
sold in Delhi or transfer to the branches or sent in the course
of inter-State trade. In this connection, reliance was also placed
on the affidavits filed by the three purchasing dealers. We do
not find merit in these arguments. Once it is found that the
H
DCM LIMITED v. COMMISSIONER OF SALES TAX, 525
DELHI [S.H. KAPADIA, J.]
./ ..
purchasing dealers were obliged under the Contract(s) to take A
the chemicals to their respective territories outside Delhi, once
it is found that the purchasing dealers were obliged to sell the
chemicals in their respective assigned territories, once it is
found that the said purchasing dealers were obliged to enter
into separate contract(s) with the assessee, once it is found that B
each of the purchasing dealers were required to sell the

-· chemicals in their assigned territories at the price fixed by the
assessee and once it is found that each of the purchasing
dealers was obliged to submit monthly reports to the assessee
then in that event the mode in which each of the purchasing c
dealers could sell their goods either by way of stock transfer
or inter-State sale or local sale becomes irrelevant. The
obligation of the purchasing dealer(s) under the Contract
indicates the control of the assessee over the movement of the
~
goods. D
18. For the aforestated reasons, we find no infirmity in the
impugned judgment of the High Court and accordingly the civil
appeals filed by the assessee are dismissed with no order as
to costs.
E
j
D.G. Appeals dismissed.
-< ...
~

•