JUDGMENT

M.H.KANIA, J.

(1) THIS is an appeal against the common judgment of a division bench of the High court of Judicature at Madras in Tax Cases Nos. 2 and 3 of 1970. The appeal has been preferred pursuant to special leave granted by this courtt under Article 136 of the Constitution of India.

(2) THE facts giving rise to the appeal are as follows:

THE Dharangadhara Chemical Works Ltd, is a manufacturer of caustic soda and certain other chemicals. Dharangadhara Chemical Works Ltd, (referred to hereinafter as "the Chemical Company"), entered into an agreement dated 9/08/1957 under which it agreed to sell all its products to Dharangadhara Trading Co. Pvt. Ltd. (referred hereinafter as "the Trading Company"). Under Clause 1 of the said agreement, the Chemical Company agreed to confine the sale of all the products manufactured by it at all its works to the Trading Company for a period of 5 years from 1/03/1958. Clause 2 of the agreement provided, the Chemical Company would make the sales directly to the Trading Company on a principal to principal basis against offers or indents. Clause 3 provided that the selling price would be determined by the Board of Directors of the Chemical Company on the basis of ex-factory or FOR booking or FOR destination stations as decided upon by the Directors. The delivery of the goods would, however, be given FOR at booking stations. The Trading Company would make payments to the Chemical Company within one month from the date of supply or sale of goods by the Chemical Company. Pursuant to this agreement, sales were effected by the Chemical Company to the Trading Company. Although the aforesaid agreement contained the general terms as set out earlier, neither the booking stations, nor the destination stations nor the sale price were given in the said agreement. The Trading Company used to give directions to the Chemical Company for despatching specified quantities of goods to the stations named by the Trading Company and as per these directions, the Chemical Company booked the goods at the booking station which was invariably Arunuganeri Railway Station in the State of Tamil Nadu, showing themselves as the consignors and the Trading Company as the consignees of the goods specified in that contract of sale. After booking the goods, the invoices were handed over to the Trading Company by the Chemical Company. It may be mentioned that the actual quantities sold, the sale price, the booking station and the destination stations were not determined under the aforesaid agreement of 9/08/1957. but in the actual contracts of sale in respect of definite or specified quantities. The mode in which sales were made was that the Trading Company obtained orders from out of State buyers and entered into agreement of purchase with the Chemical Company for these specified quantities. All the goods sold under these contracts of sale were booked at the aforesaid railway station. in Tamil Nadu to the various places outside the State of Tamil Nadu where buyers from the Trading Company required the goods and after the goods were booked as aforesaid on the railway, the railway receipts and the invoices concerned were endorsed and handed over to the Trading Company.

(3) ADMITTEDLY, as pointed out by the Tribunal, there were two sets of sales, one by the Chemical Company to the Trading Company and the second by Trading Company to the various out of State buyers.

IN the original assessment order for the assessment year 1961-62 made by the Sales Tax Officer, both the sales by the Chemical Company to the Trading Company and the sales by the Trading Company to the out State buyers were treated as inter-State sales. Consequently, central sales tax was levied on the first sale, but not on the second sale. This assessment order was revised and under the revised assessment order the assessing authority treated the sales effected by the Chemical Company to the Trading Company as intra-State sales and the