PETITIONER:
ENGLISH ELECTRIC COMPANY OF INDIA LTD.
Vs.
RESPONDENT:
THE DEPUTY COMMERCIAL TAX OFFICER & ORS.
DATE OF JUDGMENT21/09/1976
BENCH:
RAY, A.N. (CJ)
BEG, M. HAMEEDULLAH
SHINGAL, P.N.
CITATION:
1977 AIR 19 1977 SCR (1) 631
1976 SCC (4) 460
ACT
Sale--Contract for sale of goods, whether inter-State
sale or intra-State sale .... Ingredients--Central Sales
Tax Act--Section 3(a).
Privity of contract--When a company has several branches
and there is a contract between the buyer and one of the
branches, the contract of sale is between the company and
the buyer.
HEADNOTE
The appellant company having its registered office at
Calcutta, with branches at Bombay, Delhi, Lucknow, has a
principal factory-Cum-branch at Madras. The registered
office and the various branches are registered as dealers
both under the Central Sales Tax Act and the local Sales Tax
Acts. The appellant company in respect of the assessment
year 1965-66, did not include a sum of Rs. 21.88,540.41 in
its turnover in the return filed under the Central Sales Tax
Act on the ground that the turnover represented sales out-
side the State of Madras. The said sale related to a Bombay
buyer who placed the order with the Bombay branch of the
appellant company after it was informed by the said branch
in consultation with the Madras branch factory that the
price was f.o.r. Madras at the buyer’s risk and that the
delivery would be ex-works, Madras. The Bombay buyer was
also informed by the Bombay branch of all the particulars,
condition of sale, the fact that the goods would be manufac-
tured at the Madras branch factory and would be supplied by
the Madras Branch etc. as advised by the Madras branch to
the Bombay branch. The respondent treated it as inter-State
sale under s. 3(a) of the Central Sales Tax Act and issued a
notice of demand whereupon the appellant filed an applica-
tion under Art. 226 of the Constitution in the Madras High
Court praying for a writ of Prohibition restraining the
respondents from taxing and/or including in the turnover for
the purposes of assessment for the year 1965-66. The said
petition was dismissed.
Dismissing the appeals by certificate, the Court.
HELD: (1) When the movement of the 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. What is decisive is
whether the sale is one which occasioned 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 sate or an incident of the contract. It is not
necessary that the sale must precede the inter-State move-
ment in order that the sale may 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 2nd incidental
to the contract of sale. [634D-E]
(2) Branches have no independent and separate entity.
Branches are different agencies. In the instant case, the
contract of sale is between the appellant company and the
Bombay buyer. [634C]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1838
of 1969.
Writ Petition Nos. 483-487 of 1974
(From the Judgment and Order dated 2nd August 1968 of
the Madras High Court in Writ Petition No. 416/67).
632
Civil Appeal No. 608 of 1973
(From the Judgment and Order dated 11th April 1972 of
the Madras High Court in Tax Case No. 44/72).
K.S. Ramamurthi, V. Nataraj, C. Natarajan and D.N.
Gupta for the appellant/petitioners.
S.T. Desai for RR. 1 & 2 in CA 1838/69 and Writ petitions.
A. V. Rangam and Miss A. Subhashini, for respondents in CA
608/73.
S.N. Prasad, R.N. Sachthey and Girish Chandra, for R. 3
in CA 1838 of 1969 and Writ petitions.
D.N. Mukherjee, G.S. Chatterjee and D.P. Mukherjee, for
respondent No. 4 in writ petitions.
S.C. Manchanda and O.P. Rana, for respondent No. 5 in
Writ petitions.
M.C. Bhandare and M.N. Shroff, for respondent No. 6 in
Writ petitions.
The Judgment of, the Court was delivered by
RAY, C.J. These two appeals by certificate and the writ
petitions turn on the question whether the contract for sale
of goods was an inter-State sale or an intra-State sale.
The appellant is a company having its registered office
at Calcutta. ’There are branches at Bombay, Delhi, Madras
and Lucknow. The main factory is at Madras.
In order to appreciate the real controversy it is neces-
sary to refer to the facts of one of the Civil Appeals as a
pattern of transaction.
In Civil Appeal No. 1838 of 1969 Asha Metal Works of
Bombay referred to as the Bombay buyer wrote to the Bombay
branch of the appellant asking for lowest quotation of
certain goods. The Madras branch which has the principal
factctory there for manufacture of goods was written to by
the Bombay branch. The Madras branch wrote to the Bombay
branch quoting the prices F.O.R. Madras. The Bombay branch
then wrote to the Bombay buyer that the’ price was F.O.R.
Madras and delivery would be ex-works Madras. The Bombay
buyer thereupon placed the order with the Bombay branch.
On these facts counsel for the appellant contended that
the sale was at Bombay inasmuch as the Bombay buyer placed
the firm order at Bombay, payment was to be made at Bombay,
railway receipt was in the name of the Bombay branch and the
goods were to be delivered at Bombay. It was emphasised
that there was no contract or privity between the Madras
branch and the Bombay buyerbut the privity was only with
the Bombay branch.
633
The only question is whether the sale was an inter-State
sale or a sale at Bombay. If the movement of the goods from
Madras to Bombay was an incident of or occasioned by the
sale itself it would be taxable under section 3(a) of the
Central Sales Tax Act.
There was not and there could not be any contract of
sale between the factory of the seller appellant at Madras
branch and the Bombay branch of the appellant. It is obvi-
ous that the Bombay branch is the agent of the seller appel-
lant. The appellant could not be the buyer as well as the
seller.
The contention of the appellant is that the goods were
sent by the factory at Madras branch to the Bombay branch
and thereafter the goods were sold by the Bombay branch to
the Bombay buyer.
The sale as well as the movement of the goods from
Madras to Bhandup at Bombay was a part of the same transac-
tion. The movement of the goods from Madras to Bhandup was
integrated with the contract of sale for the following
reasons. The Bombay branch received the Bombay buyer’s
order and sent the same to the Madras branch factory. When
the Bombay buyer asked for quotation of prices the Bombay
branch wrote to the Madras branch and gave all the specifi-
cations and stated that the ’goods were for the Bombay
buyer. The Madras branch in reply referred to the order of
the Bombay buyer and gave particulars mentioning that the
price was F.O.R. Madras. The Bombay branch thereafter wrote
to the Bombay buyer reproducing all the particulars, condi-
tions of sale and mode of despatch as stated by the,Madras
branch and further stated that the goods -would be manufac-
tured at the Madras branch factory.
It is important to note that all prices were shown F.O.R.
Madras and it was further stated that all goods would be
despatched at the risk of the Bombay buyer. It is in this
context that the Bombay buyer on 27 May, 1964 placed an
order with the Bombay branch accepting all the terms and
conditions. The Bombay branch placed an indent order ad-
dressed to the Madras branch giving all the particulars and
stated the buyer’s name as Asha Metal Works, Bombay and gave
the customer’s order number and the date viz., 27 May, 1964.
The goods were to be invoiced to the Bombay branch and the
goods were to be despatched F.O.R. Madras.
The Bombay branch wrote to the Bombay buyer on 28 August
1964 that they had received an invoice from the factory at
the Madras ’branch that some of the goods against the order
of the Bombay buyer were ready for despatch. The Bombay
branch asked the Bombay buyer to give the details of des-
patch and insurance instructions per return of post. The
Bombay branch thereafter wrote to the Madras branch factory
stating "Please despatch the equipment covered by our above’
indent by goods train to Bhandup Railway Stastion freight to
pay. The Railway Receipt and other documents to be sent to
us for disposal". The Madras branch factory despatched the
goods from Madras to Bombay by goods train and gave intima-
tion to the Bombay ’branch. The goods were delivered to the
Bombay buyer at Bhandup through clearing agents.
634
The goods were despatched from Madras at the risk of the
buyer to Bombay. The goods were insured and insurance
charges were collected from the buyer at Bombay. The
freight charged from Madras to Bombay was borne by the
buyer. The movement of the goods from Madras was an inci-
dent of the contract of sale.
Counsel for the appellant contended that there was no
privity between the Madras branch and the Bombay buyer but
that the privity was only between the Madras branch and the
Bombay branch. It was also said that the Bombay branch was
an independent and separate entity and the direct contract
was between the Bombay branch and the Bombay buyer and
the Madras factory were not parties to the contract.
The appellant has branches at different places. The
appellant company is one entity and it carries on business
at different branches. Branches have no independent and
separate entity. Branches are different agencies. The
contract of sale is between the appellant company and the
Bombay buyer.
The appellant in the present case sent the goods direct
from the Madras branch factory to the Bombay buyer at Bhand-
up, Bombay. The railway receipt was in the 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 mater in which
State the property in the goods passes. What is decisive is
whether the sale is one which occasions the movement of
goods from one State 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 tract. It is not
necessary that the sale must precede the inter-State move-
ment in order that the sale may be deemed to have occasioned
,such movement. It is also not necesary for a sale to be
deemed have taken place in the course of inter-State trade
or commerce, that the covenant regarding inter-State move-
ment must be specified in the contract itself. It will be
enough if the movement is in pursuance and incidental to the
contract of sale.
When a branch of a company forward 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 factory and its branch.’ 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 move-
ment the goods move. only to reach the buyer in satisfaction
of his 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 to have been taken
place in the course of inter-State trade or commerce as such
a sale or purchase occasioned the movement of the goods from
one State to another. The presence of an 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
635
known person on behalf of the seller in the delivery State
and such person’s activities prior to or after the implemen-
tation of the contract may not alter the position.
The steps taken from the beginning to the end by the
Bombay branch in co-ordination with the Madras factory show
that the Bombay branch was merely acting as the intermediary
between the Madras factory and the buyer and that it was
the Madras factory which pursuant to the covenant in the
contract of sale caused the movement of the goods from
Madras to Bombay. The inter-State movement of the goods
was a result of the contract of sale and the fact that the
contract emanated from correspondence which passed between
the Bombay branch and the company could not make any differ-
ence.
For the foregoing reasons the appeals are dismissed.
The writ petitions are also dismissed. There. will be no
order as to costs. It will be open to the appellant to
apply for refund, if any, if permissible at law.
S.R. Appeals
dismissed.
9--1234SCI/76
636