The Sales of Goods Act - 1 | Civil Law for Judiciary Exams PDF Download

The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., 1959 SCR 379

Case Overview

• This case examines whether construction work and the materials used in building contracts fall under the Sale of Goods Act and if taxes can be imposed on them.

Facts

• The Madras General Sales Tax Act (MGSTA) included work contracts for taxation.
• An amendment in 1947 made transfer of property also subject to tax.
• The tax assessment was challenged, arguing that materials used for construction were not considered a sale of goods, and thus the tax was illegal (ultra vires).

Issue Involved

• The key question was whether construction contracts are considered sales and if they are taxable under the law.

Supreme Court Observations

The court highlighted two essential elements for a sale:

• There must be an agreement to sell between the seller and the buyer.
• There must be an actual sale of goods.

The court stated that the legislature cannot extend its power to impose taxes beyond what is defined under the Sale of Goods Act.
Materials used in construction, like cement, are provided for building purposes, not for sale, and thus do not constitute a sale.

Conclusion:

• The Supreme Court ruled that the tax amendment was ultra vires, meaning it exceeded legal authority, and taxes can only be imposed where actual sales of goods occur. The appeal was dismissed.

State of Karnataka and Ors. v. Pro Lab and Ors. AIR 2015 SC 1098

Case Overview

• This case involves the constitutional validity of Entry 25 of Schedule VI of the Karnataka Sales Tax Act, 1957.
• Entry 25 levies sales tax on processing and supplying photographs, photo prints, and photonegatives at varying rates from 1987 to 1998.
• This was the third challenge to Entry 25, which had already been declared unconstitutional twice by the courts.
• The Karnataka High Court had previously ruled the provision unconstitutional, prompting the State of Karnataka to appeal to the Supreme Court.

Key Issue

• The main question was whether Entry 25 of Schedule VI of the Karnataka Sales Act, 1957 is constitutionally valid.

Supreme Court's Observations

• The Supreme Court upheld the constitutional validity of Entry 25, allowing the state to impose sales tax on the processing and supplying of photographs, photo prints, and photonegatives.
• The Court stated that the 46th Constitutional Amendment (which added clause 29-A to Article 366) gives states the power to tax goods involved in works contracts, making previous tests of dominant intention irrelevant.
• The Court also approved the retrospective imposition of the tax from 1989, arguing it corrected earlier judicial misinterpretations and did not infringe upon Article 19(1)(g) of the Constitution, which guarantees the freedom to practice any profession or business.

Conclusion:

• The Supreme Court overturned the Karnataka High Court's decision and dismissed the petitions challenging Entry 25, confirming the state's right to enact the law with retrospective effect.
• No costs were ordered in this case.

Dhampur Sugar Mills Ltd. V. Commissioner of Trade Tax, U.P (2006)

Case Summary

• The Supreme Court ruled that once a sale of goods occurs, the State can impose taxes on that sale or purchase.
• The term "sale of goods" does not need to be defined strictly by the Sale of Goods Act, 1930, but rather by a broader definition in the Constitution of India.

Facts of the Case

• M/s. Swaroop Vegetables Products Industries Ltd. owned a sugar mill and entered into a license agreement with the appellant.
• The appellant provided a performance guarantee and agreed to pay most of the license fee in the form of molasses.
• The appellant was assessed for trade tax for the year 1987-88, but the Deputy Commissioner ruled that the molasses provided was not considered a sale but rather a barter.
• The Trade Tax Tribunal dismissed the appeals, citing it was barred by limitation.
• A writ petition was filed by the company, and the Revenue also filed a revision petition, which the High Court allowed.
• The appellant argued that the payment of a "price" is essential for a transaction to be classified as a "sale" under the Uttar Pradesh Trade Tax Act, 1948.

Issues Involved

• Does adjusting the price of molasses against the license fee qualify as a "sale" under the Uttar Pradesh Trade Tax Act, 1948?

Supreme Court's Observations

• The Court confirmed that molasses are goods and can be sold for a price.
• According to the Uttar Pradesh Trade Tax Act, a "sale" is defined as a transfer of goods for cash or other valuable consideration.
• The agreement to adjust the price of molasses against the license fee does not change its nature as a sale.
• Essentially, the transactions involved monetary consideration, which qualifies as valuable consideration for tax purposes.
• Once a key component of a "sale" occurs, sales tax is applicable.
• The definition of "sale" in this context differs from that in the Sale of Goods Act, 1930.

Conclusion:

• A transfer of the right to use goods, whether for cash or other valuable consideration, is considered a "sale" under the Uttar Pradesh Trade Tax Act, 1948.

CIT v. Mysore Chromite Ltd. (1955) 1 SCR 849

Case Summary

• This case is about the Sale of Goods Act, 1930, specifically Section 25, which states that the seller keeps the right to control goods until certain conditions are met.

Facts of the Case

• The company involved, Mysore Chromite Ltd., is based in Mysore State and operates chromite mines.
• They sell chromite ore primarily to buyers in Europe and America, with a small amount sold in India.
• Sales are facilitated through their agent, Bowden Oakley & Co. Ltd., based in London.
• When they sell, they issue a provisional invoice based on a bank exchange and notify the buyer's bank with the bill of lading.
• After weighing and analyzing the goods, payments are made based on the sale price.
• The company was assessed for income tax on profits from these sales, which they contested.

Issues in Question

• Did the profits from sales to European and American buyers arise outside of British India?
• Were these profits received outside British India?

Key Observations by the Court

• The court stated that once the goods were placed on the ship at Madras Port, ownership passed immediately to the buyer.
• Section 25 allows a seller to maintain control of goods until certain conditions are met, which was the case here.
• Although the sale terms specified delivery FOB Madras, buyers had to open a confirmed bank credit for payment before receiving shipping documents.
• The bill of lading, which is a document of title, indicated that the company reserved rights over the goods until payment was made.
• Even though there was a clause for weighing and assessing goods, the court ruled that ownership had passed once the goods were shipped.
• The appellate tribunal and the High Court correctly determined that the sales occurred outside British India, meaning profits also arose outside British India.
• The court clarified that the arrangement with the Eastern Bank did not imply that it was an agent for the buyers; it simply facilitated payments.
• Any adjustments made in the Eastern Bank's accounts in London did not count as receiving profits in British India.

Conclusion:

• The court ultimately dismissed the appeal, siding with the assessee company.

Larsen & Toubro Ltd. v. State of Karnataka (2014) 1 SCC 708

Case Overview

• This case involves Larsen & Toubro Ltd. (L&T) and the State of Karnataka regarding the sale of flats and taxation.
• The State Government has the right to impose Value-Added Tax (VAT) on flat sales within its jurisdiction.

Facts of the Case

• L&T entered into a development agreement with Dinesh Ranka to build a multi-storeyed apartment complex on Ranka's land in Bangalore.
• Ranka provided the land, while L&T handled the construction. Ownership was to be split, with Ranka receiving 25% and L&T 75%.
• L&T had power of attorney to sell the apartments to buyers.
• L&T sold both the apartments and undivided land interests to purchasers.
• The Deputy Commissioner of Commercial Taxes investigated L&T, proposing taxes on the construction materials used.
• L&T initially challenged these tax demands through a writ petition and later approached the Karnataka High Court.
• The main legal issue was how to classify L&T's agreements under the Karnataka Sales Tax Act, 1957.

Legal Questions

• Was the judgment in the Raheja Development Corporation case correct?
• Was the State Government justified in imposing VAT on the sale of flats?

Supreme Court Observations

• The Supreme Court considered L&T's arguments regarding the type of contract and the difference between works contracts and contracts for sale of goods.
• It ruled that L&T's activities were indeed a works contract, as they involved construction and the transfer of property rights.
• The Court pointed out that the State's taxing power is limited by Article 366(29-A) concerning works contracts.
• Consequently, the Court upheld L&T's tax liability for the deemed sale of goods used in construction.

Conclusion:

• The Court confirmed that L&T's actions constituted a works contract and affirmed its tax liability.
• The matters were sent back for a final resolution.

Sentinel Rolling Shutters & Engg. Co. (P) Ltd. v. CST, AIR 1978 SC 545

Case Overview

• This case involves a dispute about whether a contract is classified as a sale or a contract for work and labor.

Facts of the Case

• A company, Sentinel Rolling Shutters & Engg. Co. (P) Ltd., contracted with another firm, M/s. C.M. Shah & Co. (P) Ltd., to fabricate, supply, and install rolling shutters.
• The contract included specific terms, such as a payment schedule of 25% in advance, 65% upon delivery, and the remaining 10% after installation.
• The company completed the contract as agreed and then sought clarification from the tax authorities about whether the payments were taxable.
• The Deputy Commissioner of Sales Tax classified the contract as a sale subject to sales tax.
• This decision was upheld by the Sales Tax Tribunal and the High Court, leading to an appeal to the Supreme Court.

Key Issue

• The main question was whether the contract should be considered a contract for sale or a contract for work and labor.

Court Observations

The Court identified three types of contracts:

• Composite contracts that include both work and material supply.
• Contracts for work without selling goods.
• Contracts for goods that include some incidental work.

The Court noted that contracts involving both fabrication and installation are often inseparable.
It emphasized that a rolling shutter is not complete until it is fully assembled and installed on-site.
The payment structure further highlighted the interconnection of fabrication, supply, erection, and installation.

Conclusion

• The Supreme Court ruled that the contract was primarily for work and labor rather than for a sale of goods, siding with the company rather than the tax authorities.

Commissioner of Commercial Taxes v. Hindustan Aeronautics Ltd., AIR 1972 SC 744

Case Summary

This case revolves around whether the supply of railway coaches by Hindustan Aeronautics Ltd. should be treated as a sale subject to sales tax or as a works contract.

Facts

• The respondent, Hindustan Aeronautics Ltd., is a company that constructs railway coaches.
• The Railway Board placed an order for the manufacture and supply of certain coaches.
• The Commercial Tax Officer assessed the turnover for sales tax in March 1964 for the year 1958-59, including the income from the coaches.
• The Sales Tax Officer rejected the company's claim that their work did not involve a sale but was part of a works contract.
• The Deputy Commissioner of Commercial Taxes upheld the assessment.
• The company then appealed to the High Court of Mysore, which ruled in favor of the company, stating that the turnover should not include the supply of coaches.
• The Supreme Court was then approached for a final decision.

Key Issue

• Is the transaction a sale of railway coaches subject to sales tax or merely a works contract?

Observations

The Court examined the contract's terms and the surrounding circumstances to determine the nature of the transaction.

Key findings include:

• The Railway owns the materials used in constructing the coaches.
• The company receives advances based on the value of the materials, which belong to the Railway.
• For certain models, specific components are supplied by the Railway at no charge.
• The phrase "manufacture and supply" in the contract was analyzed.

The Court concluded that the transaction is a pure works contract.
Since all materials used were owned by the Railway, there could be no sale of the completed coaches.
Any difference in price reflects the cost of services provided, not a sale of goods.

Conclusion: The Supreme Court dismissed the appeal, affirming the lower court's decision and stating that the transaction was a works contract, not a sale. The company was liable for its costs.