Case Note & Summary
The Supreme Court addressed two civil appeals arising from sales tax assessments for the year 1952-53 under the Madras General Sales Tax Act, 1939, as amended. The assessee dealt in gunnies and purchased them from two mills in Visakhapatnam District under forward contracts for future delivery. The assessee also entered into agreements with the mills under which the mills agreed to deliver goods to third parties if requested, but the mills did not accept the third parties as contracting parties; rather, they treated them only as agents of the assessee. Before delivery, the assessee entered into agreements with third parties, charging an extra amount and handing over delivery orders known as kutcha delivery orders. The mills delivered goods against these kutcha delivery orders, with invoices and bills, and collected sales tax from the third parties. The tax authorities treated the transaction between assessee and third parties as a fresh sale and sought to levy sales tax a second time. The assessee contended that no second sale occurred because the delivery of a kutcha delivery order was merely an assignment of a right to obtain delivery of goods that were not in existence or appropriated, or in the alternative an assignment of a forward contract. The assessee had relied before the High Court on decisions in The Sales Tax Officer, Pilibhit v. M/s. Budh Prakash Jai Prakash and Poppatlal Shah v. The State of Madras, but before the Supreme Court the Solicitor-General argued only that there was a single sale between the mills and the third parties. The respondent state argued that there were two separate sales and tax was payable at both points. The Court examined the nature of the documents and transactions. It noted that the mills had made clear in their agreements that they did not recognise the third parties as contracting parties having privity with them, and that delivery would be given against kutcha delivery orders to the third parties as agents of the assessee. Thus the mills recognised only the assessee as the contracting party, and there was a sale from the mills to the assessee on which sales tax was correctly demanded and paid. As regards the third parties, they purchased the goods by paying an extra price, and that transaction must in law and fact be considered a fresh sale between the assessee and the third parties. The Court relied on Section 2(4) of the Sale of Goods Act, 1930, which defines a delivery order as a document of title to goods; the possessor of such a document has the right not only to receive the goods but also to transfer it to another by endorsement or delivery. At the moment of delivery by the mills to the third parties, there were in effect two deliveries: one by the mills to the assessee, represented by the assessee's agents, the third parties, and the other by the assessee to the third parties as buyers from the assessee. These two deliveries might synchronise in point of time but were separate in point of fact and in law. If a dispute arose as to goods delivered under the kutcha delivery order, action could lie at the instance of the assessee against the mills; the third parties could proceed on breach of contract only against the assessee, not the mills. The Court distinguished The State of Andhra v. Kolla Sreeramamurthy, where the property in goods did not pass from the mills to the assessee and there was no agreement for sale of future goods between assessee and third party. The Supreme Court held that there were two separate transactions of sale and tax was payable at both points, as correctly held by the tax authorities and the High Court. The appeals were dismissed with costs, including one hearing fee.
Headnote
A) Sales Tax - Taxable Event - Two Separate Sales Constituted by Transfer of Kutcha Delivery Order - Madras General Sales Tax Act, 1939; Sale of Goods Act, 1930, Section 2(4) - The assessee purchased gunnies from mills under forward contracts and then, before delivery, entered into separate agreements with third parties at an extra price, issuing kutcha delivery orders. The mills did not recognize the third parties as contracting parties but only as agents of the assessee and delivered goods against the orders. The Court reasoned that a delivery order is a document of title to goods under Section 2(4) of the Sale of Goods Act, 1930, capable of transfer by endorsement or delivery, and that at the moment of delivery there were two distinct deliveries: one from mills to assessee, and one from assessee to third parties. Held that the transaction between the assessee and third parties was a fresh sale, taxable in addition to the sale by mills to assessee, and the appeals were dismissed with costs (Paras 1-4). B) Contract Law - Privity of Contract - Third Party Not Recognised as Contracting Party - Sale of Goods Act, 1930, Section 2(4) - The mills' agreements stated that third parties were only agents of the assessee; therefore, no privity existed between mills and third parties, and if a dispute arose as to goods delivered under the kutcha delivery order, action could lie only at the instance of the assessee. This supported the existence of two separate contracts of sale. Held that third parties could proceed only against the assessee, not the mills (Paras 3-4).
Issue of Consideration
Whether the transaction between the appellants and third parties effected through kutcha delivery orders constituted a 'sale of goods' under the Madras General Sales Tax Act, 1939, distinct from the sale by the mills to the appellants, and whether the delivery of a kutcha delivery order was merely an assignment of a right to obtain delivery or a forward contract, hence not taxable as a second sale.
Final Decision
Appeals dismissed with costs; one hearing fee. The Supreme Court upheld the levy of sales tax on the second transaction between the appellants and third parties, holding that there were two separate transactions of sale and tax was payable at both points.
Law Points
- A delivery order is a document of title to goods under Section 2(4) of the Sale of Goods Act
- 1930
- its transfer by endorsement or delivery can effect a sale
- Where an original purchaser enters a separate agreement with a third party at an extra price and issues a kutcha delivery order
- and the original seller does not recognise the third party as contracting party
- there are two separate sales
- Tax is payable at both points under Madras General Sales Tax Act
- 1939
- Privity of contract exists only between the original seller and original purchaser
- not with third parties
