Holding

The sale is deemed to have taken place in the course of inter‑State trade because the movement of goods from Tamil Nadu to Bombay was occasioned by the contract of sale, despite the interposition of an agent.

Summary

South India Viscose Ltd., a Tamil Nadu manufacturer of art silk yarn, supplied yarn to weavers in Maharashtra and Gujarat under an Export Promotion Scheme. The yarn was dispatched from its factory to Bombay through a selling agent and then delivered to the purchasers. The company contended that the sale occurred in Bombay and that the movement of goods from Tamil Nadu was not occasioned by the sale, thus exempt from Central Sales Tax under Section 3(a). The tax authorities treated the transactions as inter‑State sales and levied tax, a view upheld by the Tribunal and the High Court. The Supreme Court held that a contract of sale was created by the allocation card, the movement of goods was directly linked to that contract, and the presence of an agent does not alter the inter‑State character of the sale. Consequently, the sales were inter‑State sales liable to tax and the appeals were dismissed.

Issues considered

Whether the sale of art silk yarn to card‑holders in other states, dispatched via an agent, constitutes an inter‑State sale under Section 3(a) of the Central Sales Tax Act, 1956.
Whether the involvement of a selling agent and the place of delivery affect the inter‑State character of the sale.
Whether precedents such as Tata Engineering & Locomotive Co. Ltd. and Kelvinator of India Ltd. are applicable to the present facts.

Legislation cited

Central Sales Tax Act, 1956s. 3(a)

Subjects

central sales taxinter‑state salecontract of saleselling agentallocation cardart silk yarntaxabilitySection 3(a)Export Promotion Scheme

Judgment

A 44

SOUTH INDIA VISCOSE LTD.
,.,
STATE OF TAMIL NADU
B July 22, 1981

[R.S. PATHAK AND E.S. VENKATARAMIAH, JJ.]

Central Sales Tax Act, 1956-Section 3 ( a)-Scope of-Goods manufactured
in Tamil -Nadu sold to huyurs in other neighbouring States through an agent in

c Bombay-Firm contract, under the systern of distribution. completed after the
supply of goods to buyers-Situs of sale-Sale if attracts Central Sales Tax under
section 3 (a). -
To regulate the allotment of indigenous art silk yarn, the Government of
India constituted the Art Silk Yarn Distribution Committee which issued allot-
ment cards to individual weavers. Under the terms of the card without waiting
for the allottee to approach the manufacturer the manufacturer had to offer the I
D allottee art silk yarn within seven days of the date of allocation of the card and
within a period of 2 l days from the date of allocation of the card, a firm contract
for the supply of yarn was to be completed.

The appellant, a nianufacturer or art silk yarn with its factory in the State
of Tamil Nadu, supplied yarn to cardholders in the States of Maharshtra and
Gujarat by delivering the goods at Bombay through its selling agent at that
E place.

On the question of exigibility of the goods to Central Sales tax the appellant
clai1ned that since the goods were despatched to Bombay at the request of the
agent and not as a result of any sale in favour of the purchaser the sale had
taken place at Bon1bay, and secondly since the movement of goods from the
State of Tamil Nadu to Bombay \Vas not connected with the sales the sales were
F not inter.State sales within the meaning of section 3 (a) of the Central Sales Tax
Act.

This claim was rejected by the Joint Com1nercial Tax Officer and his order
was upheld at the different stages of app~al. The High Court dismissed the
appellant·s revision petitions.

G On the question whether the sales were inter-State sales, the Cour,i

HELD : The goods having been despatched from one State to another
pursuant to a contract of sale that came into existence directly between the buyer
and seller within a few days after the date of the allocation card, the sale was an
inter-State sale.
H
To constitute an inter-State sale within the meaning of section 3(a) :or the
Central Sales Tax Act there must co-exist a sale of the goods and movement of
S.l. VISCOSE LTD. V. TAMIL NADU 45

goods from one State to another under the contract of sale. Where there is a A
link between a contract of sale and movement of goods fro.m one State to another
pursuant to the contract of sale, interposition of an agent ought not to alter the
inter.State character of the sale. [49·F]

In the instant case the card contemplated a contract of sale to be completed
within 21 days of the dat~ of its issue. The agent requested the appellant to
despatch certain number of cases to a purchaser and that was done. The!.e facts B
cumulatively suggest that the goods had been 'transported from the factory in
Tamil Nadu to Bombay for being delivered to the purchaser as a result of contract
of sale established in accordance with the terms of the allocation card.
[49-G-50-B; E]

The fact that actual sale pursuant to the said contract had taken place subse-

- quently does not militate against the transaction being treated as an inter-State
sale under section 3(a) because the movement of goods delivered to the buyer was
occasioned by the contract of sale brought into existence under the terms of the
c
allocation card. [51-E]

The authorities below have found, on the basis of the terms of the allocation
card and other material on record, that there was a contract of sale within the
stipulated time between the parties. [51-GJ
D
English Electric Company of India Ltd. v. The Deputy Commercial Tax Officer
& Ors., (1976) 38 S.T.C. 475, followed.

Tata Engineering and Locomotive Co. Ltd. v. Assistant Comn1issioner of
Co1nmercial Taxes. Jamshedpur & Anr. (1970) 26 S.T.C. 354 and Kelvinator of
India Ltd. v. State of Haryana (1973) 32 S.T.C. 629, held inapplicable. E

• CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1192-94 of
1971.

From the judgment and order dated the 20th October, 1976
of the High Court of Madras in Tax Cases Nos. 205 to 207 of
1971. F
S. T. Desai, A.K. Verma and J.B. D.1dacha11ji for the Appellant.

A.K. Sen and A.V. Rangam for the Respondent.

The Judgment of the Court was delivered by G
VENKATARAMIAH J. The appellant in these three appeals by
special leave is a company engaged in the business of manufacture
and saJe·of art silk yarn. It has its factory at Sirunmghai in the
District of Coimbatore in the State of Tamil Nadu. The appellant H
is registered as a dealer carrying on business at Coimbatore. In the
course of its business, it sold during the relevant period large quanti·
46 SUPREME COURT REPORTS (1982] I S.C.R.

A ties of art silk yarn to various purchasers some of whom were
weavers residing in the States of Maharashtra and Gujarat who had
been issued cards under a scheme called 'Export Promotion Scheme'
entitling them to buy specified quantities of art silk yarn from
specified manufacturers. The queition involved in these appeals
relates to the exigibility of the sales effected in favour of Export
B Promotion Scheme card holders belonging to the States of Maha-
rashtra and Gujarat to tax under the Central Sales Tax Act, l 956
(hereinafter referred to as 'the Act').

The assessment years are 1962-63, 1963-64 and 1964-65.

c The details of the Export Promotion Scheme for distribution
of art silk yarn referred to above were these : There were certain
weavers in India who were entitled to an incentive in the form of
import licences to import art silk yarn from abroad. The said
import entitlement was cut to a certain extent and indigenous art
silk yarn at concessional price was allotted to them. To regulate
/
the scheme of allotment, a committee called the 'Art Silk Yarn
Distribution Committee' was constituted by the Government of
India. The Committee made allotments to different weavers by
issuing allotment cards. These allotment cards contained details of
the quantity of allotment and the rayon yarn manufacturer from
whom the allotted quantity of yarn could be drawn. As per the
E terms of the card, the yarn manufacturer should offer to the
allottee rayon yarn· within seven days of the date of the card
without waiting for the allottee to approach him. A firm
,..•
contract for the supply of yarn should be completed within a ·period
of twenty-one days from the date of allocation of the card.
If a firm commitment was not entered into by the allottee
F with the yarn manufacturer within twenty-one days from the date
of allocation of the card, the yarn manufacturer should return the
allocation card to the Distribution Committee with suitable remarks
on the card and a covering letter explaining the reasons for the
return of the card. Even in the case of actual fulfilment of the
quota covered by the allocation card, the said card should be
G returned to the Distribution Committee after the delivery of the
yarn was completed. This in brief was the Scheme.

Jn the instant case, the appellant had supplied art silk yarn to
certain card holders who were residing, as stated earlier, outside the
1-1 State of Tamil Nadu. It is stated that the appellant had a selling
agent and distributor by the name M/s. Rayonyarns Import Com-
pany Ltd. at Bombay and the case of the appellant was that it had
S.I. VISCOSE LTD. v. TAMIL NADU (Vrnkataramiah, J.) 47

supplied art silk yarn to the card holders in the States of Maha- A
rashtra and Gujarat through the said agent and the delivery of the
goods was effected at Bombay. In the assessment proceedings
before the Joint Commercial Tax Officer, Coimbatore for the year
1964-65, the appellant claimed that the sales of art silk yarn through
its agent at Bombay were not inter-State sales as defined by section
3(a) of the Act as the movement of the goods in question from the 8
State of Tamil Nadu to the State of Maharashtra or the State of
Gujarat was not occasioned by the sales in question and that they
were in fact sales which had taken place outside the State of Tamil
Nadu. The Joint Commercial Tax Officer rejected the contention
of the appellant and treated the sales effected in favour of the Export
Promotion Scheme card holders through the appellant's agent at c
Bombay as inter-State sales and levied tax under the Act accordingly.
He also revised the orders of assessment for the years 1962-63 and
J963-64 bringing to tax the turnover relating to transactions of
similar nature during those years. In the appeals filed by the
appellant against the order of assessment for the year J964-65 and
of revised assessment for the years 1962-63 and 1963-64 before D
the Appellate Assistant Commissioner, (Commercial Taxes), Coim-
batore, the orders passed by the Joint Commercial Tax Officer were
affirmed. The appellant then filed three appeals before the Tamil
Nadu Sales Tax Appellate Tribunal (Additional Bench), Coimbatore
against the orders passed in appeal by the Appellate Assistant
E
Commissioner. The Tribunal also held that the sales in favour of the
Export Promotion' Scheme card holders outside the State of Tamil
Nadu were inter-State sales and were liable to be taxed under the
Act. Aggrieved by the orders of the Tribunal, the appellant preferred
three revision petitions before the High Court of Madras. These
petitions were dismissed. Thereafter the appellant has come up in
appeal to this Court by special leave.
F

Section 3(a) of the Act provides that a sale or purchase of
goods shall be deemed to take place in the course of inter-State
trade or commerce if the sale or purchase occasions the movement
of goods from one State to the other. In order to substantiate its G
case, the appellant has placed before us the documents relating to
one transaction stating that the decision on the true nature of the
said transaction would govern all other transactions of sale in dispute
as they were all of a similar kind. Those documents relate to the
supply of art silk yarn to a firm known as M/s. Ramesh Silk Fabrics H
at Surat in the State of Gujarat made in June, 1964. The purchaser
was issued an allocation card on November 7, 1963 bearin~ No.
48 SUPREME COURT REPORTS [1982] I S.C.R.

A 3124. Under the card, M/s. Ramesh Silk Fabrics was entitled to
pt'rchase 273 Kgs. of indigenous art silk yarn from the appellant.
The following were the relevant terms of the card :

"1. The rayon manufacturers and/or our approved dealers
shall ensure that the quantity sold is not more than
B the quantity allocated as indicated in column No. 4(b)
on the reverse of the card.

2. The rayon manufacturer shall offer yarn to the allottee
within seven days from the date of allocation card
without waiting for the allottee to approach him.
c Contract for the supply of yarn shall be concluded
within 21 days from the date of the allocation card.

3. Particulars of the quantity of yarn sold by the rayon
yarn manufacturer his approved dealer with the date of
or sale shall be entered and signed by the seller in
D column (5) on the card.

4. No supply shall be made on allotment card on which
corrections have not been attested by the Secretary or
the Manager.

E 5. If firm commitment is not entered into by the allottee
with the yarn manufacturer, the yarn manufacturer •
;..
shall return the allocation card to the Distribution
Committee, with suitable remarks on the card and a
covering letter explaining the reasons for returning the
card.

F 6. Allocation cards shall be returned to the Distribution
Committee after the delivery of yarn has been
completed.''

At the back of his allocation card, in column 4(a) the appellant
G is shown as the manufacturer and in column 4(b) the quantity
allotted is shown as 273 Kgs. Column (5) of the allocation card
shows that quantity of 268 Kgs. had been supplied as per Invoice
No. BC/132. Then we have the !voice No. BC/132 prepared in
the name of the appellant by its agent, Rayon-yarn Import Co.
H Pvt. Ltd. and signed by the agent for and on behalf of the appellant.
The cases containing goods sold had been marked as 5829, 84751
and 8505. The Invoice contains a note which reads as follows :
S.I. VISCOSE LTD. v. TAMIL NADU (Venkataramiah, J.) 49

T "We have charged .you 2'/'o Central Sales Tax for A
which purpose you are required to send us immediately
your regular 'C' form correct in all respects as required by
the law in force for the time being in the absence of which
you are required to remit us balance sum of Rs .. being the
difference between the rate charged and the revised rate at
10% applicable in such case." B
But actually 2% tax was added and it was shown in the invoice
as local sales tax of Maharashtra at 2% of the price. A delivery
order dated June 3, 1964 prepared by the agent at Bombay on behalf

- of the appellant also refers to the numbers of the cases containing
goods as 5829, 8479 and 8505. What is of significance is a letter
c
dated May 23, 1964 written by the agent at Bombay to the appellant.
By that Jetter, the agent requested the appellant to send from the
factory 69 cases of yarn bearing specific numbers including case
No. 5829, 8479 and 8505. The said letter further stated that the
invoices of sale would be sent after the goods were sold by the
agent. What is attempted to be made out by the appellant is that D
the appellant was informing its agent at Bombay from time to time
as and when goods were manufactured the number of the cases in
which the goods had been packed and at the request of its agent it
had despatched the goods to Bombay but not as a result of any sale
of the said goods in favour of a purchaser. According to the
appellant, the sale had taken place at Bombay and the movement of E
goods to Bombay from the State of Tamil Nadu was not connected
with the sale in question.

In order to constitute an inter-State sale as defined in section
3(a) of the Act, two factors should co-exist (i} a sale of goods and
(ii) movement of goods from one State to another under the contract
of sale. If there is a conceivable link between a contract of sale
F
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.
The facts which are glaring in this case are : G
(I) the allotment of a certain quantity of art silk yarn
produced by the appellant in favour of the allocation
card. holder ;

(2) the requirement that the appellant should offer to sell H
the quantity of goods alloted to the card holder within
seven days;
50 SUPREME COURT REPORTS [1982] 1 S.C.R.

A (3) the requirement that contract of sale should be com-
. pleted within twenty-one days of the date of the
allocation card;

(4) the requirement that the card should be returned to
the Committee if no contract of sale was concluded as
B stated above ; and

(5) the fact that the goods have been supplied expressly
against the quota allotted under the allocation card.

Admittedly the allocation card bearing No. 3124 was issued
c on November 7, 1963 and it required the appellant to offer to seU
the quantity of art silk yarn mentioned in it to the purchaser within
seven days without even waiting for the purchaser approaching the
appellant with a request to supply the goods in question. The card
contemplated a contract of sale to be· completed within twenty-one
days of the date of its issue. The invoice in question contained
D the number of the allocation card. In the letter dated May 23, 1964
the agent requested the appeUant to send the cases bearing Nos.
5829, 8479 and 8505 by lorry from Sirumughai and the said boxes
were later on admittedly delivered to the purchaser on June 3, 1964.
These facts cumulatively suggest that the goods in question had
been transported from the factory site of the appellant to Bombay
E for delivery to the purchaser as a result of the contract of sale
established in accordance with the terms of the allocation card.

It is, however, argued on behalf of the appellant relying upon
the decision of this Court in Tata Engineering and Locomotive Co.
Lid. v. Commissioner of Comm?rcial Taxes, Jamshedpur and Anr.(1)
F that the sale effected by the appellant's agent at Bombay could not
be treated as the immediate case of movement of goods from the
State of Tamil Nadu to the State of Maharashtra or the State of
Gujarat, as the case be may. The facts in the aforesaid case are dis-
tinguishable from the facts in the present case since it was held in
that case that the procedure foUowed by tbe manufacturer, the
G appellant in that case together with the absence : of any firm orders
placed by the purchasers indicated that there were no transactions
of sale within the meaning of section 2(g) of the Act and assuming
that any firm orders had been received by the appellant therein,
they could not be regarded as anything but mere offers. This Court
H further held in that case that the appropriation of goods was done

(I) [1970]26 STC 354.
S.I. VISCOSE LTD. v. TAMIL NADU (Venkataramiah, J) 51

at the appellant's stockyard situated in the State where the vehicles A
were delivered to purchasers and it was open to the appellant till
then to allot any vehicle to any purchaser or to transfer a vehicle
from one stockyard to another. One strong circumstance which
existed in that case was the absence of the firm orders which
occasioned the movement of goods from the State of Bihar to
other States as can be seen from the following passage in that B
decision :

"As regards the so called firm orders it has already been
pointed out that none have been shown to have existed in
respect of the relevant periods of assessment. Even on the
assumption that any such orders had been received by the c
appellant they could not be regarded as an) thing but mere
offers in view of the specific terms in Exhibit 1 (the dealer-
ship agreement) according to which it was open to the
appellant to supply or not to supply the dealer with any
vehicle in response to such order."
D
In the instant case there is clear evidence of the existence of a
prior contract of sale as per terms of the allocation card. The fact
that actual sale pursuant to the said contract of sale had taken place
subsequently does not militate against the transaction being treated
an inter-State sale under Section 3 (a) of the Act, since the movement
of the goods delivered to the buyer was occasioned by the contract of E
sale brought into existence under the terms of the allocation card.
It was, however, faintly suggested that the evidence of what took
place between the appellant and the allottee within twenty-one days
of the issue of the allocation card was lacking in this case. Evidence
about these facts was within the knowledge of the appellant and the
appellant had not placed it before the assessing authority. It is F
likely that if such evidence had been produced it would have gone
against the appellant. Even apart from that the finding recorded by
the assessing authority the appellate authority, the Tribunal and the
High Court on the basis of the terms of the allocation card and other
material on record that there was a contract of sale within the
stipulated time between the appellant and the allottee of art silk yarn G
is unassailable. In the circumstances no assistance can be derived
by the appellant from the case of Tata Engineering and Locomotive
Co. Ltd. (supra).

The decision of this Court in Kelvinator of India Ltd. v. The
H
52 SUPREME COURT REPORTS [1982] 1 s.c.R.

A State of Haryana( 1 ) relied on by the appellant has also no bearing
on this case. The assessee in that case had its factory where it
manufactured refrigerators at Faridabad in the State of Haryana and
it moved the goods manufactured by it to its godown at Delhi. The
excise pass utilised for such movement was always in favour of self.
During the transport of goods, the assessee paid octroi payable for
B bringing goods into Delhi. At Delhi, the assessee sold the goods
to its distributors. The Court on a consideration of the material
before 1it held that even though there were prior distribution
agreements entered into between the assessee and its dist~ibutors,
the goods in question had not been moved pursuant to the said
agreements from Faridabad to Delhi, and hence there was no inter-
c State sale.
The facts of this case are, however, close to the facts in English
Electric Company of India Ltd. v. The Deputy Commercial Tax
-
'

Ojfiter & Ors('). Here also the assessee had its factory in the
State of Tamil Nadu. Its registered office was at Calcutta but it had
D branch offices at Madras, Bombay and other places. A Bombay '
buyer wrote to the Bombay branch of the appellant in that case asking
for lowest quotation in respect of the goods which were being manu-
factured in the factory in Tamil Nadu. After some correspondence
between the Bombay branch and the Madras branch, the Bombay
branch, wrote to the Bombay buyer giving all the required particulars.
E The Bombay buyer thereafter placed an order with the Bombay
branch for certain goods. The Bombay branch informed the Madras '
branch about the order placed by the Bombay buyer. On receipt
of the invoice from the Madras branch the Bombay branch wrote to ~
•.
the Bombay buyer that some of the goods indented by him were ready
for despatch and asked for despatch instructions. On receipt of such
F instructions, the Bombay branch asked the Madras Branch to send
goods to Bombay. The railway receipts were sent through the Bombay
branch. The goods were delivered to the Bombay buyer through
clearing agents and the insurance charges were collected from the
Bombay buyer. The assessee claimed in the assessment proceedings
that the sale was not an inter-State sale but one which had taken
G place at Bombay between the Bombay branch and the Bombay buyer,
The said contention was rejected by this Court with the following
observations:-
"The appellant in the present case sent the goods direct
from the Madras branch factory to the Bombay buyer
H
(1) (1973) 32 S.T.C. 629.
(3) (1976) 38 S.T.C. 475.
SJ. VISCOSE LTD. v. TAMIL NADU (Venkataramiah, J.) 53

at Bhandup, Bombay. The railway receipt was in the A
name of the Bombay branch to secure payment against
delivery. There was no question of diverting the goods
which were sent to the Bombay buyer. When the movement
of goods from one State to another is an incident of the
contract it is a sale in the course of inter-State sale. It does
not matter in which State the property in the goods passes. B
What is decisive is whether the sale is one which occasions
the movement of goods from one State to another. The
inter-State movement must be the result of a covenant,
express or implied, in the contract of sale or an incident of
the contract. It is not necessary that the the sale must
precede the inter-State movement in order that the sale may c
be deemed to have occasioned such movement. It is also
not necessary for a sale to be deemed to have taken place in
the course of inter-State trade or commerce, that the
covenant regarding inter-State movement must be specified
in the contract itself. It will be enough if the movement
' ,. is in pursuance of and incidental to the contract of sale. D

When a branch of a company forwards a buyer's order
to the principal factory of the company and instructs
them to despatch the goods direct to the buyer and the
goods are sent to the buyer under those instructions it
would not be a sale between the factory and its branch. E
If there is a conceivable link between the movement of the
goods and the buyer's contract, and if in the course of inter-
State movement the goods move only to reach the buyer in
satisfaction of bis contract of purchase and such a nexus is
otherwise inexplicable, then the sale or purchase of
the specific or ascertained goods ought to be deemed F
to have taken place in the course of inter-State or
commerce as such a sale or purchase occasioned the move-
ment of the goods from one State to another, The presence
of all intermediary such as the seller's own representative
or branch office, who initiated the contract may not make
the matter different. Such an interception by a. known
G
person on behalf of the seller in the delivery State and
such person's activities prior to or after the implementation
of the contract may not alter the position."

H
In the instant case, the allocation card was first sent in
November, 1963 asking the appellant directly to make an offer of the
54 SUPREME COURT REPORTS [1982) l S.C.R.

A goods to the allottee. The allottee was expected to communicate
his desire to purchase the goods within twenty-one days of
the date of the allocation card. Such communication brought into '
existence a contract sale directly between the appellant and the buyer.
The goods were admittedly sent pursuant to the said contract of sale.
The interposition at a later stage of the selling agent who acted on
B behalf of the appellant in the preparation of the invoice and the
delivery of the goods would not alter the true character of the sale
as the selling agent was just a conduit pipe. The goods having been
despatched from one State to another State pursuant to a contract of
sale which came into existence directly between the appellant and the
buyer within a few days after the date of the allocation card, the
c sale was an inter-State sale. The Tribunal and the High Court were,
therefore, right in upholding the orders of the assessing authority
levying tax under the Act on all sales which had taken place in
favour of the Export Promotion Scheme card holders in Gujarat and
Maharashtra even though the selling agent of the appellant at
Bombay had on behalf of the appellant also dealt with such card
I
D holders at Bombay, as the transactions in question satisfied the tests
laid down in the case of English Electric Company of India Ltd.
(supra).

In the result the appeals fail and are dismissed with costs.

P.B.R. Appeals dismissed.

-•