1. Dispute over sales tax liability concerning the endorsement of delivery orders for goods under the Madras General Sales Tax Act. (Para 1 , 2 , 3 , 4 )
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1962 Supreme(SC) 129
SUPREME COURT OF INDIA
2nd April 1962
B.P. SINHA, C.J.I., P.B. GAJENDRAGADKAR, K.N. WANCHOO, N. RAJAGOPALA AYYANGAR AND T.L. VENKATARAMA AYYAR, JJ.
State of A.P. (In both Appeals), Appellant
Versus
Kolla Sree Ramamurthy (In both the Appeals), Respondent.
Civil Appeals Nos. 368 and 369 of 1961.
Advocates appeared
Mr. K. N. Rajagopal Sastri, Senior Advocate, (Mr. P. D. Menon, Advocate, with him) for Appellant (In both the Appeals); Mr. A. V. Viswanatha Sastri, Senior Advocate (Mr. T. Satyanarayana, Advocate, with him), for Respondent. (In both the Appeals)
Advocates:
A.V.VISHWANATHA SASTRI, K.N.RAJAGOPAL SASTRI, P.D.MENON, T.SATYANARAYANA
A.V.VISHWANATHA SASTRI, K.N.RAJAGOPAL SASTRI, P.D.MENON, T.SATYANARAYANA
The endorsement of a delivery order, which is a document of title, constitutes a sale of goods by the intermediate dealer if the ultimate endorsee takes delivery, as the final title feeds the intermediate defective titles.
Headnote:(A) Sales Tax Act - Sections 2(c), 2(h), 3 and 13 - Sale of goods - Delivery orders - Endorsement of delivery orders for goods where the ultimate endorsee takes delivery from the manufacturer constitutes a sale of goods by the intermediate dealer - A delivery order is a document of title to goods; the acquisition of title by the ultimate transferee feeds the previously defective titles of intermediate buyers, resulting in separate transactions of sale at each stage. (Paras 4, 6, 8)
(B) Sales Tax Act - Section 18A - Bar on suits - The court declined to pronounce on the maintainability of the suit under the statutory bar against setting aside assessments as the appeals were decided on merits. (Para 11)
Facts of the case:
A dealer in gunny bags purchased goods from mills under written contracts. Upon payment, delivery orders were issued. Instead of taking physical delivery, the dealer endorsed these delivery orders to successive parties. The ultimate holder of the delivery order obtained the goods from the mills. The lower courts held that these transactions were transfers of delivery orders as documents rather than sales of goods, and thus not subject to sales tax.
Findings of Court:
The endorsement of delivery orders, followed by the ultimate endorsee taking delivery of the goods, constitutes a completed sale of goods by the intermediate dealer. The delivery to the third party represents two separate deliveries: one from the manufacturer to the dealer and another from the dealer to the third party.
Issues: Whether the transfer of delivery orders for goods, where the goods are subsequently delivered by the manufacturer to the ultimate endorsee, constitutes a "sale of goods" attracting sales tax.
Ratio Decidendi: A delivery order is a document of title to goods. While property may not pass to the intermediate buyer before endorsement, the title acquired by the ultimate transferee feeds the previously defective titles of the intermediate buyers. Consequently, there are two separate transactions of sale, and tax is payable at both points. (Paras 6, 8)
Result: Appeals allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the endorsement of delivery orders constitutes a sale of goods or merely a transfer of documents of title. (Para 4 )
3. Endorsement of delivery orders followed by delivery to the ultimate endorsee constitutes a sale of goods, with title feeding back to intermediate parties. (Para 6 , 7 , 8 , 9 )
4. Transfer of a document of title to goods, where the ultimate holder takes delivery, constitutes a sale of goods by the intermediate transferors. (Para 6 , 7 , 8 )
5. Appeals allowed. (Para 12 )
6. Does the endorsement of a delivery order for goods constitute a sale of goods?
Yes. A delivery order is a document of title. When the ultimate endorsee takes delivery, it effectively completes two deliveries: one from the manufacturer to the intermediate dealer and another from the dealer to the buyer. (Para 6 , 7 )
7. How is the passing of property handled when an intermediate party transfers a document of title without taking physical delivery?
The title acquired by the ultimate transferee from the original owner feeds the previously defective titles of the intermediate buyers, validating the chain of sales. (Para 8 )
8. Does a specific agreement to deliver goods to nominees affect the classification of delivery order endorsements as sales?
No. The principle that endorsement of delivery orders constitutes a sale of goods applies as long as the parties understand that the manufacturer will honor the endorsement and deliver to the endorsee. (Para 9 )
Judgment
AYYANGAR, J : These two appeals are before us by virtue of certificates of fitness granted by the High Court of Andhra Pradesh under Art. 133(1)(c) of the Constitution. The State of Andhra Pradesh is the appellant in both the appeals and one Kolla Sreerama Murthy -a dealer in gunnies-is the respondent in each of them and the point involved relates to the liability of the respondent to Sales Tax in respect of the transactions to which we shall later refer.
2. Civil Appeal No. 368 of 1961 arises out of original suit No. 268 of 1951 in the file of the District Munsif s Court, Rajahmundry by the respondent for setting aside an assessment & obtain refund of a sum of Rs 2,941-7-0 which was partly the sum assessed and collected as sales-tax for the assessment year 1947-48, while Civil Appeal No. 369 of 1961 is from a similar suit praying for identical reliefs in respect of the year 1946-47, the amount of which refund was sought, however, being Rs. 1,631-12-0. The basis of the suits briefly was that the transactions whose turnover was included in his assessment, were not "sales of goods" within the Madras General Sales Tax Act (Act IX of 1939) and that consequently the assessment to tax and recovery of the same were illegal and without jurisdiction. Both the suits were decreed by the District Munsif-a decision which was affirmed by the Subordinate Judge of Rajahmundry on appeal by the State and by the High Court of Andhra Pradesh on further appeal also by the State. It is from these two judgments and decrees in the two second appeals that the present appeals have been brought.
3. It was common ground that the respondent was a "dealer" within the Madras Sales Tax Act (which for convenience we shall call the Act) being "a person who carries on the business of buying or selling goods," and that the transactions whose legal character is now in dispute were put through by him by way of business, Section 13 of the Act which is the charging section -enacts that "every dealer shall pay for each year a tax on his total turnover for such year." "Turnover" is defined in the Act as:
"Turnover means the aggregate amount for which goods are bought or sold or supplied or distributed, by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise shall be excluded from his turnover"
and clauses (c) and (h) of S. 2 of the Act define "goods" and "sale" respectively thus:
" Goods means all kinds of movable property other than actionable claims, stocks and shares and securities and includes all materials, commodities and articles including those to be used in the construction, fitting out improvement or repair of immovable property or in the fitting out improvement or repair of movable property and also includes all growing crops grass & things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."
"Sale with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, charge or pledge."
The only matter, therefore, which is in controversy between the parties is as to whether the transactions to whose details we shall presently refer, which the respondent admittedly entered into, were or were not "sales of goods" within the Madras General Sales Tax Act (Act IX of 1939) so as to enable the turnover represented by these sales to be brought to tax under the Act.
4. We shall now
