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SUPREME COURT OF INDIA
H.R. KHANNA AND A. ALAGIRISWAMI, JJ.
M/s. Kelvinator of India Ltd., Appellant
Versus
State of Haryana, Respondent
Civil Appeal No. 2005 (NT) of, 1972, D/- 23-8-1973.
Punjab General Sales Tax Act, 1948 – Central Sales Tax Act, 1956 - Section 2 (g), 3 (a) and 5 - Sale of Goods Act, 1930 - Section 23 - Refrigerators Manufactures - Assessment Year - Inter-State Sales - Whether on facts and circumstances of case, agreement between Assessee, M/s. Spencer & Co. Ltd., Messrs Blue Star Engineering Co., ant M/s. General Equipment Ltd., in pursuance of which refrigerators manufactured by M/s. Kelvinator of India at Faridabad moved to Delhi were merely for distribution of goods between principal and his agents or were agreements of sale between two parties - Whether on facts and circumstances of case sales were local sales of Delhi or were in course of inter-State trade and commerce giving rise to commencement of movements in State of Haryana - Whether on facts and circumstances of case distributor" ship agreements could validly be construed to be contracts of sales even when they lack all essential ingredients for formation of same - Whether on facts and circumstances of case movement of goods from Faridabad to Company s godowns at Delhi at its own risk and cost could be termed to be commercial movements warranting Imposition of tax under Central Sales Tax Act or inter-departmental movement for facility of better enjoyment of rights - Whether transactions between parties constituted sales in course of inter-State trade or commerce - Whether appellant entered into such an arrangement with distributors that liability to pay tax would be attracted – Held, Court find that parties expressly in each of three distribution agrees meets that it would be in Delhi that sale of refrigerators would take place to distributors and property therein would pass to them - It was again in Delhi that refrigerators were delivered to distributors - Orders for refrigerators were placed by distributors in Delhi and it was also here that price of refrigerators was paid - Looking to all facts of case, Court have no doubt that arrangement between parties was that refrigerators would be sold by appellant to distributors after they had been transported to sale office and godown of appellant on Alipore Road, Delhi so that no liability to pay tax under Act would arise - There were many instances where vehicles had been actually delivered from stock-yard prior to issue of allocation letter - It was also found that on some occasions vehicles had been moved from a stock-yard in one State to a stock-yard in another - Treating allocation letters together with their confirmation as transactions of sale, and movement of vehicles from works to stock-yards as direct result to allocation so made, Assistant Commissioner imposed tax under Central Sales Tax Act, 1956, in relation to sales during period of vehicles which had moved from Jamshedpur to stockyards in various States - Answer given by High Court to question referred to it is discharged - In Court opinion, three agreements between appellant and distributors were merely agreements for distribution of goods and were not agreements of sale between parties - It cannot, in Court opinion, be said that there was any movement of refrigerators from Faridabad to Delhi under a contract of sale - Question in circumstances is answered against department - Transactions between appellant and distributors did not, in Court opinion, constitute sale in course of inter-State trade or commerce - As such, there was no liability to pay tax under Act - Appellant shall be entitled to costs from respondent of this Court as well as in High Court - Appeal allowed.
Judgment
KHANNA, J.:- This appeal by Special Leave by M/a Kelvinator of India Ltd. is directed against the judgment of Punjab & Haryana High Court whereby that court answered the following question referred to it by the Sales Tax Tribunal Haryana in favour of the department and against the appellant:
"whether on the facts and circumstances of the case, the agreement between M/s. Kelvinator of India (Assessee), M/s. Spencer & Co. Ltd., Messrs Blue Star Engineering Co., ant M/s. General Equipment Ltd., in pursuance of which the refrigerators manufactured by M/s. Kelvinator of India at Faridabad moved to Delhi were merely for distribution of goods between the principal and his agents or were agreements of sale between two parties?"
2. The matter relates to the assessment year l965-66, i. e. the period from April 1, 1965 to March 31, 1966. The appellant campany has a factory at Faridabad in Haryana. It manufactures refrigerators, deep freezers, compressors and other similar articles. The factory went into production in 1964. Its registered office and sales office are at 19A, Alipore Road, Delhi. The appellant has godowns in Delhi having full staff of godown keepers and clerks. The appellant is a registered dealer under the Punjab General Sales Tax Act, 1948 and the Central; Sales Tax Act, 1956. The registration has been done at Faridabad. Refrigerators and other articles are manufactured by the appellant under a collaboration agreement with an American company known as Kelvinator International Corporation. The refrigerators and other articles manufactured by the appellant are marketed under trade marks "Kelvinator, , "Leonard" and "Gem ,., The entire sale of refrigerators, compressors and spare parts in l964 was made to Spencer & Co. Ltd. at Delhi. Such transfers were accepted as genuine by the sales tax authorities. In respect of these sales the department did not take the stand that they were inter-State sales or that the movement of goods from Faridabad to Delhi was occasioned by reason of sales made to Spencer Co. Ltd.
3. On April 26, l965 the appellant entered into a distribution agreement with Spencer & Co. Ltd. in respect of refrigerators and other products having Kelvinator trade mark. Similar distribution Agreements were entered into with Blue Star Engineering Co. (Bombay) Pvt. Ltd. on September 15, 1965 in respect of Leonard refrigerators and on December 11, l965 with General Equipment Merchants Ltd. in respect of Gem refrigerators. The agreement with Spencer & Co. was to take effect from April 1, 1965 and the other two agreements from the dates on which they were entered into. The terms of the agreements were substantially similar, except in certain matters with which we are either not concerned or to which reference would be made hereinafter. The relevant clauses of agreement dated April 26, 1965 are as under:
"Whereas in terms of the Manufacturing and Sales Agreement entered into by the Company (the appellant company) with Kelvinator International Corporation, Detroit (Michigan U. S. A.), the Company is granted exclusive right and licence to manufacture, assemble and sell the products designed and/or manufactured by the Company under Trade mark "Kelvinator" or any other Trade mark in India (hereinafter called the Territory) and whereas the (Company in its Factory at Faridabad (Punjab) has commenced the manufacture of Kelvinator Refrigerators, parts and spare parts etc., and whereas the Distributors (Spencer & Co. Ltd.) have agreed to be and to- act as Distributors of the Company, now it is hereby mutually agreed and declared between the parties hereto as follows:
1. The Company hereby undertakes to sell and the Distributors hereby undertake to buy all products manufactured by the Company as mutually agreed upon from time to time. The Distributors shall have the right to sell the Company s Kelvinator and such other trade mark products, spare parts and parts within the Territory. Due consideration to the recommendation of Dis
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