Case Note & Summary
The litigation arose from a sales tax assessment under the Central Provinces and Berar Sales Tax Act, 1947, against the assessee, a dealer in matchwood called sawar, whose place of business was at Chanda in the erstwhile Central Provinces. The assessee entered into an agreement with Western India Match Co. Ltd. (WIMCO) for the supply of a minimum quantity of 2,500 tons of sawar logs during the season 1947-48. The agreement, evidenced by WIMCO's letter dated January 7, 1948, incorporated terms of a formal contract dated March 2, 1945, which was renewed year after year. The contract required despatch of logs from railway stations in Central Provinces to Ambernath, then in Bombay Province. Clause 2 of the 1945 contract reserved to WIMCO the right to inspect logs upon arrival at Ambernath and reject them if the factory manager found them not conforming to specifications. Clause 6 provided for measurement under WIMCO's representative, with the factory manager's decision final. Clause 7 specified the price as 'F.O.R. Ambernath' and stated that money became payable after measurements were completed at destination. The assessee loaded sawar logs on railway wagons, despatched them to Ambernath, and railway receipts were taken in WIMCO's name. WIMCO paid freight and after inspection and measurement at Ambernath paid the price through the assessee's Bombay agent. The disputed turnover for June 1, 1947 to November 12, 1947 was Rs. 30,067-9-0. The legal issues were whether the property in the logs passed from the assessee to WIMCO at the railway stations in Central Provinces or at Ambernath in Bombay, and whether the assessee was liable to sales tax under the Central Provinces and Berar Sales Tax Act, 1947. The Revenue contended that property passed under Section 23 of the Indian Sale of Goods Act, 1930, when logs were loaded and railway receipts forwarded to WIMCO, and alternatively that Explanation II to Section 2(g) of the Sales Tax Act deemed the transfer to have occurred in the Central Provinces because the goods were in that province at contract date. The assessee contended that property passed only at Ambernath upon inspection and appropriation. The Supreme Court, after examining the contract clauses and course of dealings, held that the goods were unascertained and the parties' intention was that the seller would send logs to Ambernath where the buyer's factory manager would inspect, measure, and accept them if they conformed. The Court reasoned that mere delivery to the railway and taking railway receipts in the buyer's name did not pass property, because the buyer retained the right of rejection and appropriation occurred at destination. Therefore property passed at Ambernath under Section 23 of the Sale of Goods Act, outside the Central Provinces. On the second issue, the Court held that Explanation II to Section 2(g) was inapplicable because the Explanation required goods to be in existence in the Central Provinces at the date of contract in the form agreed to be sold, and there was no evidence that the logs existed as logs in that province at the contract date. The Court accordingly dismissed the Revenue's appeal and affirmed the High Court's answer in favour of the assessee, holding no sales tax liability under the Central Provinces and Berar Sales Tax Act, 1947 for the disputed transactions.
Headnote
A) Sale of Goods - Passing of Property in Unascertained Goods - Section 23, Indian Sale of Goods Act, 1930 - In a contract for supply of unascertained sawar logs with price F.O.R. Ambernath and a reserved right of the buyer's factory manager to inspect, measure, and reject logs on arrival at Ambernath, the seller's act of loading logs on railway wagons and taking railway receipts in the consignee's name did not pass property; property passed only when the buyer appropriated the logs with the assent of the seller at Ambernath. Held that the property in the goods passed at Ambernath, outside Central Provinces, and not at the railway stations in Central Provinces. B) Sales Tax - Territorial Nexus and Deemed Transfer - Section 2(g), Explanation II, Central Provinces and Berar Sales Tax Act, 1947 - Explanation II deems a transfer of property in goods to have taken place within the province only if, at the date of the contract, the goods in respect of which the contract of sale is made are in existence in that province in the form in which they are agreed to be sold. In the present case there was no evidence that the unascertained logs existed as logs in the Central Provinces at the date of the contract; therefore the Explanation was inapplicable. Held that the respondent/assessee was not liable to sales tax under the Act for the disputed turnover.
Issue of Consideration
Whether property in sawar logs passed from the respondent/assessee to WIMCO at railway stations in Central Provinces or at Ambernath in Bombay; whether the respondent was liable to pay sales tax under the Central Provinces and Berar Sales Tax Act, 1947
Final Decision
The Supreme Court dismissed the appeal and affirmed the High Court's order. It held that property in the goods passed at Ambernath in Bombay Province, not in Central Provinces, because the buyer's factory manager had reserved the right to inspect and reject the unascertained logs at destination; mere delivery to the railway and taking of railway receipts in the buyer's name did not pass property under Section 23 of the Indian Sale of Goods Act, 1930. It further held that Explanation II to Section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947 was inapplicable as there was no evidence that the goods existed in the Central Provinces at the date of the contract in the form agreed to be sold. Consequently, the assessee was not liable to sales tax under the Act for the disputed turnover.
Law Points
- Legal points not extracted
- Property in unascertained goods passes upon unconditional appropriation by one party with assent of other
- mere delivery to railway for carriage and taking of railway receipts in buyer's name does not transfer property when buyer retains right of inspection and rejection at destination
- Explanation II to Section 2(g) of Central Provinces and Berar Sales Tax Act
- 1947 requires goods to be in existence in the province at the date of contract in the form agreed to be sold
- F.O.R. contract by itself not decisive of place of passing of property
- territorial nexus for sales tax depends on place where property passes
