ORDER
1. These are Tax Revision Petition preferred by the assessee under S. 23(1) of the Mysore Sales Tax Act, 1957. In S.T.R.P. No. 42/63, which relates to the assessment year 1959-60, the disputed turnover is Rs. 96,642-50 and in S.T.R.P. No. 40 of 1963 which relates to the year 1960-61, the disputed turnover is Rs. 3,11,306.91. The contention of the assessee in regard to the transactions relating to the disputed turnovers in both the years is, that they relate to purchases made in the course of inter-State trade and as such, not chargeable to tax under S. 5(3)(b) of the Mysore Sales Tax Act,1957. The contention of the assessee has been rejected by the Appellate Tribunal holding that from the agreements of sale produced, it cannot be held that movement of goods from one State to another has been occasioned under the terms of the contract and consequently, the transactions pertaining to the disputed turnover do not fall within the category of sales or purchases in the course of inter-State trade. The correctness of that finding has been challenged by the assessee in these revision petitions.
(2) The assessee is a Limited Company having its registered office in Bangalore. During the relevant years, the assessee made several purchases of Manganese Ore from dealers in the State of Mysore. The transactions are evidenced by agreements entered into between the dealers and the assessee. Copies of five agreements relating to the disputed turnover for the year 1959-60, and 16 agreements relating to the assessment year 1960-61 were produced before the assessing authority. The particulars of the said agreements have been set out in the order of the Sales Tax Appellate Tribunal. With the exception of three agreements with which we shall deal separately, the material terms being the same. It is sufficient if an set out the terms of one of such agreements for the purpose of decision of these cases. The agreement dated 23-10-1959 is a typical agreement. It reads thus:--
'This agreement made this date between Messrs. The General Produce Co., Ltd., 48, Nehru Nagar, Bangalore-20, doing Manganese Ore business hereinafter called the sellers and Messrs. Poddar Martin Mining and Minerals (P.) Ltd., 6 Church Street, Bangalore-1, hereinafter called the Buyers, witnesses as follows:--
The seller agrees to sell and the buyers agree to buy a quantity of about 500 tons (five hundred tons only) Indian Manganese Ore, Mysore origin, practically free from dust and fines and not more than 10% passing through a 20 mesh Tyler screen of the following settlurgical specifications on terms and conditions hereafter noted. This business has been finalised through Shri. S.P. Suda.
1. Specification :-- Manganese... 40/42% rejection below 40%Iron...... 16% maximum.Silica Alumina... 13% maximum.Phos. 15% --do-- 2. Quantity :--500 (Five hundred ton only) Dry long ton of 2240 lbs. each 10% more or less at the Sellers's option.
3. Price :--The price of the goods sanctioned above shall be Rs. 60/- (Rupees Sixty only) per dry long ton based on 42% Mn. with unitage scale pro rata). F.O.R at Banasandra Railway Station. These rates are inclusive of sales tax and purchase tax.
4. Delivery:--Upto November 30, 1959 (30-11-1959)
5. Sampling & Analysis :--Sampling and Analysis will be done by M/s. Essen and Co., Bangalore and the moisture sample will be taken by them either at loading station or at Bangalore at the time of transhipment and weighment. The Essayor will draw three samples out of which one will be sent to their Laboratory for analysis and one goes each to the buyers and sellers.
The expenses of sampling, analysis and moisture sampling will be borne by both the parties equally, except in case of rejection of the ore due to non-conformity to the guaranteed specification above.
6. Payments:--90% (Ninety percent) payment against the stacks duly sampled and analysed by M/S. Essen and Co., Bangalore, and the balance 10% against railway receipt weights.
7. Weighment:--The weighment report of Bangalore City Railway weigh-bridge shall be final and binding on both the parties.
8.Other Terms :--The sellers agree to load the wagons under the supervision of the buyers' representative and that sellers agree that they are responsible for all consequences arising out of underloading of wagons. If the Railway claim any amount towards demurrage for not loading the wagons in time the sellers agree to bear the costs themselves.
9. Force Majeure :--This will be applicable to both the parties.
10. Arbitrations :--Any dispute arising out of this contract shall be decided by arbitration.
In witness whereof the parties hereto have put their hands and seals on this the 23rd October 1959.'
(3) The three agreements above referred to relate to the assessment year 1959-60, and they read thus:
(1) 'This agreement made this the seventh day of March, 1959, between Shri. P.C. Raju, 80 G, Street, Ulsoor, Bangalore 8, hereinafter called the Seller, and Messrs, Poddar Martin Mining and Minerals (Pvt.) Ltd., 6, Church Street, Bangalore 1, hereinafter called the Buyer, witnesseth as under:
1. Specifications & Quantity.--About 50 tons of Manganese Ore 36/38% of F.O.R. Hosadurga sampled by M/S Ellen & Co.
2.Price :--Rupees 40/- (Rupees Forty only) per dry long ton flat rate. F.O.R Hosadurga loaded into wagons for Madras Harbour inclusive of all kinds of sales tax.
3.Delivery :--Within a period of four months.
4. Sampling and Analysis and Moisture.--M/S Essen & Co., the charges of which will be borne equally--between the Buyers and Sellers. Moisture sample will be drawn at the time of sampling. In case it rains, after sampling, another moisture sample may be drawn at the time of loading wagons.
5. Weight :--Weight recorded at Hosadurga or Yeshwantpur weigh-bridge wherever wagons are weighed will be final and for accounting purposes and settlement otherwise, RR weight will be taken as final. Any dead freight demurrage or excess freight will be on account of the Seller. Quota Slips will be provided for by the Buyers wherein the Seller would register the wagons and obtain wagons for booking the material to Madras.
6. Payment :--90% against Essen & Co.,'s analysis certificate, Geological permit and delivery order signed by Buyers representative and balance 10% if any, on weighment as in clause 5.
7. Arbitration :--Any dispute arising out of this contract shall be decided by arbitration.
In witness whereof this contract has been drawn in duplicate and both the Buyers and Sellers have affixed their signature thereto and retained the signed copy in their possession.
Signed and delivered Signed and Delivered:For P.C. Raju, For Poddar Martin MiningSellers. and Minerals (P) Ltd.,Sd/- Buyers. Note:--1% inter-state sales tax leviable on this transaction will be on account of the Seller.'
(2) 'This agreement made this 8th day of August 1959, between Messrs. Poddar Martin Mining and Minerals (P.) Ltd., 6 Church Street, Bangalore-1, (hereinafter called the Buyers) and Mr. C. Bheemasena Rao, 14 Girls School Road, Mavalli, Bangalore-2, (hereinafter called the Seller) which term shall include their representatives and heirs witnesseth that:--
The Buyers agree to buy and the Seller agrees to sell 400 tons of Manganese Ore of the following specified manganese content:
1. Quantity :--300 tons of dry long tons of 46/48% manganese ore, and 100 tons of dry long tons of 44/46% manganese ore.
2. Specification:--The mechanical condition of the ore will be at least 50% half-inch and over and not more than 10% below 20 mesh standard-Tyler screen.
3. Price:--Rupees 82/50 per dry long tons basis 48% Mn. unitage pro rata, rejection below 46% F.O.R. Amritapura and Rs. 65/- per dry long ton for 44/46% Mn. unitage pro rata, rejection below 44% Mn., basis 46%. This price inclusive of all state and central taxes inclusive of sales tax wherever applicable.
4. Payment:--The Seller shall declare the weekly production at mines head accompanied by his analytical report showing the grade and quantity of material tendered. An advance payment of Rs.45/- per ton based on 22 Cft. will be made by the Buyers against such declaration. The Seller shall declare that the ore falls in the grades specified above. The buyers will also advance for transport from mines to the railway station on presentation of his transport bills for quantity transported to railway station. No advance payment will be made for more than 100 tons accumulated at the mine head. Advance for royalties at the time of obtaining permits would also be paid.
5. Weighment:--Actual weighment as ascertained by the Railway at either Arsikere or in case the material is not weighed at Arsikere, the weighment at any other first station between Arsikere and Madras Harbour will be final.
6. Sampling and Analysis:-Sampling of the stack will be done at Amritapura siding by M/S. Essen & Co., and their analytic certificate will be drawn at the transshipment at Bangalore, and the moisture content of the first waggon (maximum three) will be taken as the moisture of the lot. The analysis and moisture determination charges shall be borne equally by the buyers and sellers.
7. Delivery :-Delivery is to be completed before the 31st January 1960.
8. All ore on which money has been advanced by the buyers shall be the property of the buyers subject to payment of full value after sampling analysis and railment.
9.The sellers will be responsible for the correct delivery of the material at the railway station according to the declaration made against each advance payment made by the buyers.
10.Any difference or differences that may arise out of this agreement shall be referred to the arbitration of two arbitrators under the supervision of the Indian Arbitration Act.
In witness whereof, the above parties set their hands this eighth day of August 1959.'
* * * * * *
(3) This agreement made this Fifteenth day of January 1960, between Messrs. Poddar Martin Mining and Minerals (P.) Ltd., of 6 Church Street, Bangalore 1, hereinafter known as the buyers which term shall include their assigns and representatives and C. Bheemasena Rao of 15 Girls School Road, Mavalli, Bangalore, hereinafter known as seller which term shall include assigns and representative of his witnesseth that--
Whereas the Buyers agree to buy and Seller agrees to sell 750 tons of Manganese ore as per conditions below it is mutually agreed as follows:
(1) The quantity of ore to be delivered is 750 tons within the 30th June 1960, and will be of the following grades, F.O.R. Amritapura, booked for Madras.
Over 46% Mn. 350 tons44 to 46% Mn. 100 tons42 to 44% Mn. 100 tons40 to 42% Mn. 200 tonsTotal : 750 tons (2) Specifications :--The mechanical condition of the Ore will be at least 50% half inch and over and not more than 10% below 20 mesh standard Tyler screen.
(3) Price :--The following will be prices delivered f.o.r. Amritapura railway station, the sale being on f.o.r basis, the prices are per dry long ton:
40/42% Mn. Rs. 45/- (forty five) basis 42%.42/44% Mn. Rs. 55/- (Fifty five) basis 44%44 to 46% Mn. Rs. 65/- (Sixty five) basis 46%46 to 48% Mn. Rs. 90/- (Ninety) basis 48%48 / 50% Mn. Rs. 102.50/- (One hundred and two and naye paise fifty only) basis 50% Mn.For ores 50% and over--Rs. 102/50 (One hundred and two and naye paise fifty only) plus a premium of Rs. 7/50 per Unit pro rata for every unit of Mn. Over 50%. 4. Delivery :--Ore to be stacked on mats : Ores to be weighed after sampling, weighing to be done at the cost of the seller in the presence of Buyers' agents who should certify the weights, an allowance of 1 1/2 (one and half per cent) to be allowed off the ascertained weight to set off against handling losses.
5. Sampling and Analysis :--Sampling of stacks to be done by M/s. Essen and Co., and the samples analysed by them; if the analytical results of M/s. Essen and Co., are questioned by either party sealed duplicate to be sent to Messers Briggs & Co., of Calcutta for check and their results would be binding on both parties; the disputant to bear the cost of the analysis.
Moisture samples should be drawn before weighing the stacks and one duplicate of the moisture sample should be sent to Messers. Briggs and Co., for determination of moisture. The charge for determination of moisture by Messers. Briggs and Co., to be at the expense of Seller.
Messers. Essen and Co.,'s sampling and analytical charges to be divided equally between buyer and seller.
In the event of Messers. Briggs and Co.,'s moisture determination varies more than half per cent of the result obtained from Messers. Essen &Co.;, the result of Messers. Briggs & Co., prevails on both parties.
(6) Reservation by sellers :--Seller has the right to supply up to 500 tons of ore to his other customers against finance separately obtained by him for that purpose.
(7) Delivery to be completed before 30th June 1960 whereafter the prices are subject to alteration at the discretion of Buyers.
(8) All Ores on which money has been advanced as per clause 9 below by the buyers shall be the property of the buyers subject to payment of full value after sampling and analysis and railment.
(9) Finance :--The seller shall declare weekly the production at mines accompanied by his own analytical reports showing grades and quantities won; this will be based at 22 cft. to the ton and shall be subject to check and inspection by Buyer's agents. Based on this declaration an advance of Rs. 45/- per ton will be made to seller on ores won from Garaga Mines and Rs. 35/- per ton for ores won at Budipura Mines. The buyers will advance also for transport of ore from the respective mines and to load the material into wagons Rs. 6/- per ton for ores from Garaga and Rs. 12/- for ores from Budipura. No advance payment will be made for more than 150 tons accumulated at the mines head (approximating to about three week's production). Royalty amounts will be advanced against stacks sampled and analysed.
(10) The seller shall be responsible for the correct delivery of the material at railway station according to the declaration made against each advance payment made to seller.
In witness whereof the above parties set their hands and seals this fifteenth day of January 1960.'
[4] The character of the sales, whether Intra-State or Interstate, under the circumstances evidenced by the above agreements falls to be determined in these cases. Before the Constitution Amendment 1956 (6th Amendment) and inclusion of entry 92-A in List 1 of the 7th Schedule and amendments to Art. 286, the concept of sale or purchase in the course of interstate trade or commerce was felt for judicial interpretation. The Constitution (6th Amendment) Act gave power to Parliament :
(1) to impose tax on sale or purchase of goods in the course of inter-state commerce (Entry 92-A. List 1 of Sch. 7);
(2) to formulate principles for determining when a sale or purchase takes place outside the state or in the course of import of goods into, or export of the goods out of the territory of India (Art. 286(2);
(3) to put 'such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify' on state tax laws with regard to goods declared by Parliament to be of special importance in inter-state trade or commerce (Art. 286(3).)
[5] In exertion of the legislative power conferred in entry 92-A List 1 of Schedule 7, Parliament enacted the Central Sales Tax Act, 1956. One of the objects of the Act as stated in its preamble is to formulate principles for determining when sale or purchase takes place in the course of interstate trade or commerce or outside the State or in the course of import into or export from India. This object is implemented by Sections 3 and 4. Section 3 defines as interstate sale. It reads thus :
'A sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce if the sale or purchase--
(a) Occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of the title to the goods during their movement from one State to another.
Explanation 1 : Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purpose of Clause (b) be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation : 2.--Where the movement of goods commenced and terminates in the same state it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.'
Parliament by enacting section 3 accepted the tests laid down by the supreme Court to determine whether a transaction constitutes a sale in the course of Inter state trade. In Bengal Immunity Co., v. State of Bihar : [1955]2SCR603 the Supreme Court stated the proposition thus:--
'A sale could be said to be in the course of inter-state trade only if two conditions concur; (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-state trade.'
[6] This proposition was accepted as laying down the correct principle in E. Narasimham & Son v. State of Orissa : [1962]1SCR314 . In Mohanlal Hargovind Das v. State of Madhya Pradesh, : [1955]2SCR509 it was laid down that in order to bring a sale within the concept of inter-state sale, the transaction must involve movement of goods across the State border. The same principle was reiterated in Cement Marketing Co. v. State of Mysore. : [1963]3SCR777 . Section 3 of Central Sales Tax Act, 1956 came up for interpretation in Tata Iron & Steel Co. Ltd., Bombay v. S.R. Sarkar, : [1961]1SCR379 , wherein it was held that clauses (a) and (b) of Section 3 are mutually exclusive and that the sale becomes taxable under clause (a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when goods are in movement from one State to another.
(7) It is not the case of the assessee that the transactions relating to the disputed turnover fall under clause (b) of section 3. Sri. E.S. Venketramiah, learned Counsel for the assessee urged that the sales fall within clause (a) of section 3. His argument was that the goods in question were transported by rail to Madras Harbour from one of the stations in Mysore State where deliveries were given by the sellers. He relied on the invoices of sale issued by sellers to the assessee showing that the goods are booked from the stations named in the agreement to some station in Madras State. In order to succeed in his contention, learned counsel has to establish that the movement of the goods from Mysore to Madras State is under a covenant or incident to the contract of sale. It is not sufficient if the assessee proves that, in fact, the goods purchased were transported from Mysore State to ultra State destinations. As stated by Rottschaefer in his Treatise on Constitutional law at page 235:
'The decisive factor that renders making a contract an act of interstate commerce is that it contemplates or necessarily involves the movement of goods in interstate commerce, and this test applies whether it be a contract to buy or one to sell......... If however, the contract neither contemplates nor necessarily involves the interstate movement of goods or persons making it is not a part of interstate commerce.'
Willoughby in his treatise on the Constitutional Law of the United States, second edition, Vol. 2, page 753 stated, that 'the test whether agreements to purchase or to sell are to be deemed constituent parts of inter state transportation of goods is necessarily involved in their execution.' It is not sufficient that parties to a contract resided in different States. Conversely the mere fact that parties to a contract are residents of the same State, does not prevent their act of making it from being interstate sale. The true test, in our opinion, is to determine whether the contract of sale could have been effectuated without movement of the goods across the state border. With the exception of the three agreements dated 7-3-1959, 8-8-1959 and 15-1-60, there is nothing in the rest of the agreements to show that the transactions of sale could not have been effectuated without movement of the goods from Mysore State across the state border. The delivery of the goods was F. O. R. a named railway station in Mysore State. A sale for transport outside the State does not alter the fact that the sale itself, was intra state sale, a sale within the State of Mysore. The subsequent transport by the purchaser is not part of the transaction of sale. The sale was completed within the State of Mysore before the goods were transported and in the transport of the goods themselves, which was subsequent to sale there was no element of sale. Therefore, we are unable to accept the contention of the assessee that the disputed turnover relates to purchases made in the course of Inter-State trade except with regard to the three agreements mentioned above.
(8) The transaction relating to the three agreement however, stand on a different footing. The agreement dated 7-3-59 provides that quota slips will be provided by the assessee to the seller for registration of railway wagons for booking the goods to Madras; the price is fixed F.O.R. Hosadurga Railway station, and the goods were required to be loaded into wagons booked for Madras Harbour. Similarly the agreement dated 15-1-60 provides that the goods should be delivered F.O.R. Amritapura booked for Madras. For invoicing the sale, the weight recorded at the railway station where delivery was agreed to be given, or the railway receipt weight was to be taken as final. In the agreement dated 8-8-1959, though there is no express provision that the wagons had to be booked to Madras Harbour, under the clause relating to weighment there is an implied provision that the wagons were required to be booked to Madras Harbour.
That clause states :
'The actual weighment as ascertained by railway at either Arsikere or in case the material is not weighed at Arsikere, the weighment at any other first station between Arsikere and Madras Harbour will be final.'
Clause 8 of the agreement states that :--
'All ore on which money has been advanced by the buyers shall be the property of the buyers subject to payment of full value after sampling analysis and railment.'
The question is whether transport of the goods from Mysore State across the State border is an integral part of the contract of sale under the said three agreements. In other words, whether transport of the goods from one of the named railway stations to Madras Harbour cannot be dissociated from the contract of sale. The property in the goods did not pass from the sellers to the assessee before the goods were loaded into wagons booked for Madras. Invoices were issued after the railway receipts were obtained after booking the goods to Madras. Explanation (1) to section 3 of the Central Sales Tax Act,1956, shows that, for the purpose of clause (b) of Section 3, movement of goods shall be deemed to commence where goods are delivered to a carrier or bailee for transmission, at the time of such delivery, and terminate at the time when delivery is taken from carrier or bailee. In our opinion, the title to the goods under the agreements passed not before the commencement of the movement of the goods in inter-state transport. The Sales Tax Appellate Tribunal and the authorities below have not made any distinction between the transactions evidenced by the three agreements and the rest of the transactions. Delivery to a public carrier for inter-state transport under the terms of the contract coupled with the fact that the transfer of title to the goods passed to the assessee after the goods were loaded in wagons booked for Madras Harbour, satisfied the essential test that the movement of the goods across the state border is involved under the transactions, evidenced by the three agreements.
(9) While we agree with the conclusion reached by the Sales Tax Appellate Tribunal with regard to all the agreements other than the three agreements mentioned above, we are unable to agree that the transactions under the three agreements do not constitute purchases in the course of inter state trade.
(10) In the result, S.T.R.P. 43 of 63 is dismissed with costs. Advocate's fee Rs. 100.
(11) In S.T.R. P. 42 of 63, the assessment in regard to all the transactions except those relating to the three agreements referred to in our judgment will stand and the assessment will be modified accordingly. The assessing authority is directed to modify the assessment order by excluding the turnover relating to the three agreements which are not taxable under the Mysore Act. Since S.T.R.P. 42 of 1963, is allowed in part, there will be no order as to costs in that case.
DI/BNP/DVC
(12) Order accordingly