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Sri Easwari Extractions v/s Joint Commissioner-Iii (Smr) of Comml. Taxes, Madras


Company & Directors' Information:- SMR INDIA PRIVATE LIMITED [Active] CIN = U17290DL2012PTC237165

Company & Directors' Information:- L G EXTRACTIONS PRIVATE LIMITED [Active] CIN = U15140MH2004PTC149720

Company & Directors' Information:- R V R EXTRACTIONS PRIVATE LIMITED [Strike Off] CIN = U15141RJ2002PTC017910

    Tax Case (Appeal) Nos. 13 to 15 of 1995 (Appeal Nos. 8 to 10 of 1995)

    Decided On, 28 February 1995

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE ABDUL HADI AND THE HONOURABLE MR. JUSTICE AR. LAKSHMANAN

    R. Venkataraman, Mrs. Chitra Venkataraman, Advocates.



Judgment Text

ABDUL HADI, J.


Since a short point is involved in these appeals by the assessee, while admitting these appeals on February 6, 1995, we directed learned Additional Government Pleader (Taxes) to take notice on behalf of the respondent and at the request of the learned Additional Government Pleader, final hearing of the appeals was taken upon on February 20, 1995 and arguments of both sides were heard.


2. In these three appeals (relating to assessment years 1986-87, 1987-88 and 1985-86 respectively) under section37 of the Tamil Nadu General Sales Tax Act, 1959, the common question involved is, whether the assessee is liable to pay surcharge, under the Tamil Nadu Sales Tax (Surcharge) Act, 1971 (hereinafter referred to as "the Act").


3. The respondent-Joint Commissioner has, by his common order dated June 27, 1994, in respect of the abovesaid assessment years, set aside the order of the Appellate Assistant Commissioner (which deleted the levy of said surcharge), and determined the quantum of abovesaid surcharge slightly less than that arrived at in the original assessment made by the assessing authority. The Joint Commissioner determined the said quantum at the following figures :


1986-87 ... Rs. 10, 731


1987-88 ... Rs. 22, 767.18


1985-86 ... Rs. 3, 798


Aggrieved by the said levy, these appeals have been preferred by the assessee.


4. Admittedly the relevant sales made by the assessee, on whose turnovers, the abovesaid surcharges were levied, were made to Lipton India Limited, whose factory is at Trichy. The goods that were sold were rice bran oil produced by the assessee at Oorakkarai, Musiri taluk, which is the place of business of the assessee and pursuant to the sales, they were sent by lorry to the abovesaid Trichy factory of the abovesaid buyer. Admittedly, under the Act, surcharge is leviable if the sale has taken place at Trichy and not, if it is at Oorakkarai. As per the agreement between the seller and buyer, the sales were no doubt f.o.r. Trichy. The original assessing authority, viz., the Deputy Commercial Tax Officer, Musiri, while making the revised assessment under section16 of the TNGST Act, for the abovesaid three years, levied surcharge on the footing that the property in the goods passed on to the buyer only at Trichy where the goods were delivered at the factory premises of the buyer. But the Appellate Assistant Commissioner set aside the said levy. He took into consideration section5(1) of the Act and, relying on the decision Larsen and Toubro Ltd. v. Joint Commercial Tax Officer 1967 (20) STC 150 (Mad.), held that the situs of the abovesaid sales was only Oorakkarai village, Musiri taluk and not Trichy.


5. However, in the impugned order, the Joint Commissioner sought to reason out as follows :


"Though, according to assessee, the goods were at times ascertained and some times unascertained, namely, rice bran oil it has to be deemed only as unascertained or future goods. It is also a fact that the assessee had shown the freight amount inbuilt in the bills. The learned authorised representative fairly conceded that in all such cases of supply, there is no specific agreement between the parties either express or implied or written, though according to the assessee, such contract was oral. But the fact that, on delivery of the consignment to the buyer at their premises and only upon inspection, the goods are taken delivery of, would show that in all these cases of such f.o.r. delivery at the buyer's premises, the appropriation to the goods and the contract of sale gets completed only at the buyer's premises. In so far as the unascertained and future goods are concerned, having regard to the language used in section 5(1) of the TNGST (Surcharge) Act, 1971, the levy of surcharge is attracted with reference to sub-section(ii) of section5(1) of the said Act whereby the surcharge is leviable in the case of unascertained or future goods at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser whether the assent of the other party is prior or subsequent to such appropriation. Applying the abovesaid provisions to the facts and circumstances on hand, it would be evident that the appropriation of such goods did not take place at Musiri which is a non-surcharge area, but only at places like Trichy or Madras, which were surcharge areas. Therefore, the assessing authority was quite justified in holding that the appropriation to the contract having been completed only at the buyers' premises, the levy of surcharge was squarely warranted." *


The Joint Commissioner also relied on the order dated December 2, 1981, of the Additional Bench of the Madras Tribunal in T.A. No. 457 of 1981.5-A. It appears that in the said case in T.A. No. 457 of 1981 the sellers at Arcot made out bills at Arcot (a non-surcharge area), sold their products to the buyers at Madras (a surcharge area) and that the goods had been delivered at Madras at the sellers' own risk. Further, it appears that in that case, the goods were future goods since they were not in existence at the time of the contract and it had to be manufactured thereunder. It appears that in such a context, the Tribunal held that the contract got concluded at the time of delivery of goods at Madras and that hence surcharge was attracted. In other words, it appears that according to the Tribunal since the property passed on, the contract becomes concluded at the time of the delivery of goods at Madras and hence surcharge was attracted.


6. But this reasoning is not correct. The passing of property has no relevance to fix the situs of sale in view of what is contained in section5(1) of the Act. This is also clear from the decision reported in 1967 (20) STC 150 (Mad.) (Larsen and Toubro Ltd. v. Joint Commercial Tax Officer). No doubt that decision dealt with section 4(2)(b) of the Central Sales Tax Act. But the said section 4(2)(b) is similar to the abovesaid section 5(1)(ii) of the Act. It is pursuant to section4 of the Central Sales Tax Act, explanation (3) to section2(n) of the Tamil Nadu General Sales Tax Act has been enacted. The abovesaid section4 of the Central Sales Tax Act explains when a sale or purchase of goods takes place inside and outside a State in India and the abovesaid explanation (3)(a) to section2(n) of the Tamil Nadu General Sales Tax Act correspondingly says when a sale takes place in the State of Tamil Nadu. This is necessary because under the Tamil Nadu General Sales Tax Act, if a sale takes place outside Tamil Nadu State, it cannot be taxed under the said enactment.


7. Now, coming to the Tamil Nadu Sales Tax (Surcharge) Act, 1971, prior to April 1, 1989, the said Act, though applicable to Trichy town, it was not applicable to Oorakkarai village, Musiri taluk. In other words, prior to April 1, 1989, the abovesaid surcharge Act was applicable in certain areas of Tamil nadu State only. Only in that context, for the levy of surcharge, situs of sale within Tamil Nadu State has to be fixed up. If the said situs falls within the area in which the said surcharge Act is applicable, then only, surcharge could be levied under the said Act. If not, it cannot be levied. In order to fix the above situs, the abovesaid section 5 has been enacted. The said section 5 is similar to section4(2) of the Central Sales Tax Act and Explanation (3)(a) to section2(n) of the Tamil Nadu General Sales Tax Act.


8. Section 4(2) of the Central Sales Tax Act runs as follows


"(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State -


(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and


(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation." *


The abovesaid Explanation (3)(a) to section 2(n) runs as follows :


"Explanation (3). - (a) The sale or purchase shall be deemed for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State -


(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and(ii) in the case of unascertained or future goods, at the time to their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation."


The abovesaid section 5 runs as follows :


" Section 5. Place of sale or purchase. - (1) For the purpose of this Act, the sale or purchase of goods (including motor spirit) shall be deemed to have taken place in the area in which this Act is in force, wherever the contract of sale or purchase might have been made, if the goods are within such area -


(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and


(ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation." *


9. Now, we are only concerned with section 5(1)(ii) of the Act since as already mentioned in the Joint Commissioner's order, the goods are to be taken as unascertained goods even though the original assessee sought to contend that some of the goods are ascertained goods some others are unascertained goods. We may also add here that the goods which are not identified and agreed upon at the time when the contract is made, are called "generic" of "unascertained" goods. If they are identified or agreed upon at the time of contract of sale is made, it is "specified goods" as defined under section2(14) of the Sale of Goods Act.


10. Then, in the case of unascertained goods, the sale shall be deemed to have taken place in the area in which the abovesaid Act is in force if the goods area within such area at the time of their appropriation to the contract of sale. In other words, if the goods are not, at the time of their abovesaid appropriation, within such area, no surcharge is leviable under the abovesaid Act.


11. So, in order to determine whether surcharge could be levied or not, on the abovesaid impugned sales turnovers what has to be seen is, where were the goods, at the time of their appropriation to the contract of sale. No doubt as per the abovesaid section 5(1)(ii) of the Act, the assent of the other party to the sale for the abovesaid appropriation may be prior or subsequent to such appropriation. The abovesaid "appropriation" means earmarking the goods with reference to the contract of sale in question by some tangible means by which the intention of such an appropriation may appear. The said appropriation may also be by delivery to a carrier without the possibility of diversion of the goods for application to some other sale of goods. (Vide 1967 (20) STC 150 (Mad.) at page 191 - Larsen and Toubro Ltd. v. Joint Commercial Tax Officer). So, if the goods are within the area, in which the abovesaid Act is applicable at the time of their abovesaid appropriation to the contract of sale in question, the surcharge is leviable, otherwise not. In other words, to fix the situs of sale, it has only to be seen where the abovesaid goods were at the time of the abovesaid appropriation and there is no necessity to see where the goods at the time of passing of title in those goods from the seller to the buyer. Passing of title has no relevance in fixing the situs of sale under section5(1) of the Act or under section4(2) of the Central Sales Tax Act or under the abovesaid Explanation (3)(a) to section2(n) of the Tamil Nadu General Sales Tax Act.


11-A. In dealing with section4(2) of the Central Sales Tax Act this Court also observed in 1967 (20) STC 150 (Larsen and Toubro Ltd. v. Joint Commercial Tax Officer) at page 191 thus :


"........... Any other test like right of inspection or rejection, the terms like, f.o.r. or f.o.b. or c.i.f., passing of property in the goods will be irrelevant for purposes of section 4(2)(b)." *


In relation to section4(2) of the Central Sales Tax Act, the same view has also been expressed in Fairmacs Trading Company v. State of Tamil Nadu 1977 (6) CTR 498, 1978 (41) STC 157 (Mad.), South India Automotive Corporation Private Limited v. State of Tamil Nadu (Mad.) and Arcot Mills Limited v. State of Tamil Nadu 1984 (55) STC 356 (Mad.). In 1980 (46) STC 1 (Mad.) (South India Automotive Corporation Private Limited v. State of Tamil Nadu) it was also emphasized that the assent spoken to in section 4(2)(b) is not sine qua non to fix up the location for the sale. The relevant observation in 1984 (55) STC 356 (Mad.) (Arcot Mills Limited v. State of Tamil Nadu) at pages 361 and 362 is worth quoting :


".......... We have earlier mentioned that the rules laid down by sections 20 to 24 Sale of Goods Act for ascertaining when the property in goods passes in a given transaction are to be applied only in cases where the intention of the parties cannot be clearly spelt out from the terms of their bargain. Under the Sale of Goods Act, therefore, the parties' intention, if clearly expressed, will always prevail over the statute, for the very purpose of that Act is to regulate the inter se relationship between the sellers and the purchasers of goods. Not so the rules laid down in explanation (3) to section2(n) of the Tamil Nadu General Sales Tax Act or section4(2) of the Central Sales Tax Act. For, these rules are special and overriding rules for fixing the taxable event, as between the public exchequer, on the one hand, and the taxpayers, on the other. While the sales tax law takes up sales or purchases as taxable events, and to that extent, goes along with the general law governing such transactions, the Legislature has not thereby lost the prerogative of bending the rules of common law to the service of the Revenue. The Legislature has laid down in the sales tax statutes clear-cut principles of determining the situs of sales and purchase in order to bring about uniformity, certainty, economy in collection, and efficiency in tax management, all of which are desiderata in all fiscal measures. These provisions, if they should serve their purpose at all, must, in reason, override any special terms in private contracts to the contrary." *


12. While so, the reasoning of the Joint Commissioner in his following observation, is not correct :


"But the fact that, on delivery of the consignment to the buyer at their premises and only upon inspection, the goods are taken delivery of, would show that in all these cases of such f.o.r. delivery at the buyer's premises, the appropriation to the goods and the contract of sale gets completed only at the buyer's premises." *


In other words, when actually the abovesaid appropriation takes place does not depend on the fact that the sale contract is f.o.r. delivery at the buyer's place or upon the fact that buyer takes delivery upon inspection.


12-A. In Pollock & Mulla's Sale of Goods Act, Fifth Edition also, while dealing with section23 of the Sale of Goods Act, which speaks of sale of unascertained goods and appropriation at page 163, it is also stated, the appropriation may be and often is quite distinct from delivery." Section 23(2) of the Sale of Goods Act also says that where the seller delivers the goods to a carrier for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. Thus, the said section 23(2) gives statutory recognition to the rule that where the goods are delivered to a carrier for the transmission to a buyer, the carrier is presumed to be the buyer's agent, not only to take delivery, but to assent to the appropriation to the contract of the goods so delivered. In the present case, admittedly, the goods were sent through the lorry from the seller's place to the buyer's place. So, when the goods are thus delivered t

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o the carrier, then itself the appropriation takes, place. If so, at the time of appropriation, the goods in the present case were only at Oorakkarai village in Musiri taluk. Therefore, it is clear that surcharge is not leviable in the present case. That is why even in the appeal grounds before the Appellate Assistant Commissioner, the assessee - appellant specifically also stated that the appropriation of the goods takes place when the goods are loaded in the common carrier at the place of the business of the appellants. 13. Reliance placed by the Joint Commissioner on Deputy Commissioner (CT) v. A. N. Angamuthu Mudaliar and Sons 1986 (63) STC 135 (Mad.) is also not correct. That decision was rendered in relation to rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959 and it was held therein that freight charges were deductible in determining the taxable turnover under the Tamil Nadu General Sales Tax Act. There, no doubt this Court held that the contract of sale provided for inspection and rejection of unapproved goods, which would mean that the property in goods did not pass unless they were delivered at the mills site for inspection or approval and in such circumstances, the expression "freight charges paid on our account" occurring in the documents could not have any significance and that therefore the Tribunal was not justified in directing exclusion of the transport charges in the determination of the taxable turnover. It is clear that the said decision has no application to the present cases since, as already stated, passing of property has no criterion in deciding the situs of sale under section5(1) of the Act. 14. The net result is all the appeals are allowed and the common impugned order dated July 1, 1994 of the Joint Commissioner in all these three matters is set aside. No costs.
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