The State of Madras vs The Indian Coffee Board

The turnover of which the liability to tax under the Madras General Sales Tax Act was in dispute, was Rs. 53,341-14-0. The findings of the

Tribunal were : Messrs. Poisons Ltd., Bombay, was the buyer. The transaction was put through a commission agent who was authorised by

Messrs. Poisons Ltd., as one of the registered wholesalers possessing a permit to bid at the coffee pool auction. Messrs. Poisons appointed the

firm of Messrs. Ullal Deva Rau and Sons, commission agents of Mangalore, to function as the purchasing agents for coffee for Messrs. Poisons

Ltd. The authorisation by Poisons Ltd., enabling Messrs. Ullal Deva Rau and Sons to bid at the auction was accepted by the Indian Coffee Board.

In pursuance of this, Messrs. Ullal Deva Rau and Sons, as commission agents bid at the coffee pool auction on behalf of Messrs. Poisons Ltd.

They took delivery of the goods. It is not denied that the goods were subsequently sent by the commission agents to Messrs. Poisons Ltd.,

Bombay.

The Tribunal was of the view that the sales had been effected in the course of inter-State trade, and that the assessee, the Indian Coffee Board,

was entitled to the immunity from taxation guaranteed by Article 286(2) of the Constitution. It was the correctness of that decision that the

Government challenged by their application for revision u/s 12-B of the Act.

It was on the observations of the Supreme Court in The State of Travancore-Cochin v. S.V.C. Factory [1953] 4 S.T.C. 205 , that the Tribunal

relied to hold that the sales in question were not liable to taxation under the Act. The learned Judges of the Supreme Court observed:

The contention on behalf of the State was that though the purchases were made outside the State in the neighbouring districts of Madras, deliveries

were effected through the ordinary commercial channels by employing commission agents who made the purchases and arranged for the deliveries

at the respondents'' depots at Trichur or Quilon...If, as claimed by the Advocate-General, the purchases were effected by the employment of firms

doing business as commission agents outside the State, and the deliveries were made through normal commercial channels, the transactions would

partake of an inter-State character and fall under Clause (2).

These observations were on hypothetical considerations, because the learned Judges pointed out that the findings of fact in that case submitted

by the High Court of Travancore-Cochin were not clear. Even so, those observations are entitled to the highest respect. In our opinion, however,

the facts as found by the Tribunal in this case do not permit the application of the principles laid down by the Supreme Court. No doubt the buyer,

Poisons, were not residents of Madras. But then the residence of the buyer is not a relevant factor, as the Supreme Court has pointed out in

Vakkan''s case [1955] 6 S.T.C. 647. It is equally true that Deva Rau and Sons carried on business within the State of Madras as commission

agents. That by itself does not conclude the question at issue. It was as the authorised agents of the buyer, Poisons, that the agents bid at the sale

held by the respondent, the Indian Coffee Board. The bid was accepted and the sale was concluded by the delivery of the coffee that was sold to

the agent, at the place of sale within the State of Madras. With the subsequent transport of the coffee outside the State, and the subsequent

delivery of the goods by the agent to his principal at Bombay, Polsons, the seller, the Indian Coffee Board had nothing to do. As between the

Indian Coffee Board as the seller and Poisons as the buyer, represented by his agent, Deva Rau and Sons, the sale was concluded and delivery

was effected within the State of Madras. What the position would have been had the agent, Deva Rau and Sons, placed an order with the seller

and had arranged with the seller that he should despatch the goods to the buyer in Bombay, we are not called upon to consider in this case. In the

Second Travancore case [1953] 4 S.T.C. 205, the Supreme Court referred to the cases, where purchases were made outside the State and

deliveries were effected through ordinary commercial '' channels by employing commission agents, who made the purchases and arranged for the

deliveries to the buyer. The ""arranging for delivery"" cannot, in our opinion, include a subsequent delivery by the agent to his principal, if there had

already been a delivery to the agent by the seller. The delivery of the goods sold under the contract of sale between the buyer and the seller is what

is relevant. There cannot be two such deliveries. In the present case the delivery under the contract of sale was by the seller to the buyer''s agent at

the premises of the seller within the State of Madras. That the buyer employed a commission agent in the normal course of business, and that the

commission agent, again in the normal course of business, despatched the goods to his principal do not alter the fact that as between the seller and

the buyer the sale was completed by the delivery of the goods sold at the seller''s premises within the State of Madras. That made it an intra-State

sale, a sale wholly concluded within the State of Madras. The liability to tax under the Act arose at that stage and fell upon the seller. That the

goods were purchased avowedly for transport outside the State of Madras would not make it a sale in the course of inter-State commerce. In the

despatch of the goods by the agent to his principal, there was no element of sale. In the sale to the agent by the seller there was no element of

transport. Despite Deva Rau and Sons being a firm doing commission agency business, the real position was that they acted as the agent of the

buyer. The position vis-a-vis the seller was not different from that of an agent of the buyer commissioned to effect the purchases and take delivery

of the same. Whether such an agent was a salaried employee of the buyer or an agent paid a commission on the transactions could make no real

difference, in answering the question, was it an intra-State sale or an inter-State sale. As between the seller and buyer acting through his agent the

sale was concluded by delivery within the State; and that was all that had to be established to sustain the claim of the department, that the sale was

within the State, and that the seller was liable to pay the sales tax.

Learned counsel for the respondent referred to the decision in Grainger and Son v. Gough (1896) 3 Tax Cas. 462. The facts of that case were

as follows. A French wine merchant appointed an English firm as his sole representative in England for the sale of champagne. That English agent

canvassed orders. The English firm obtained orders, which they transmitted to their principals in France. The French wine merchant exercised his

discretion as to the execution of the orders sent to him. The wine ordered was forwarded from France direct to the purchasers in England, at the

expense and risk of the latter. Payments were for the most part direct to the French wine merchant, though sometimes they were made through the

agents. All receipts were sent by the French merchant to the customers direct. The English agents were paid commissions. On these facts, the

House of Lords held that the French wine merchant did not exercise a trade within the United Kingdom. Their Lordships pointed out a distinction

between trade within a State and trade with another State. We fail to see how the principles laid down in that case can have any real application to

the question we have got to consider in the present case.

The learned counsel for the respondent also referred us to the observations of Venkatarama Ayyar, J., in Bengal Immunity Co., Ltd. v. The

State of Bihar [1955] 6 S.T.C. 446, where the learned Judge considered the scope of Section 39(1) of the Sale of Goods Act of 1930. We are

not really concerned with any fictional sale here. There was nothing fictional when delivery was made to the agent of the buyer at the seller''s

premises within the State of Madras.

The claim of the Government that the turnover in question, Rs. 53,341-14-0, is liable to tax, and that the seller has to pay it, has to be allowed.

The petition is allowed with costs. The order of the Tribunal in so far as it held that the turnover in question was exempted from taxation is set

aside. The petitioner will be entitled to the costs of this application. Counsel''s fee Rs. 100.