http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6

PETITIONER:

THE STATE OF TAMIL NADU

Vs.

RESPONDENT:

SRI SRINIVASA SALES CIRCULATION ETC.

DATE OF JUDGMENT: 04/10/1996

BENCH:

S.P. BHARUCHA, FAIZAN UDDIN

ACT:

HEADNOTE:

JUDGMENT:

THE 4TH DAY OF OCTOBER, 1996

Presents;

Hon'ble Mr.Justice S.P.Bharucha

Hon'ble Mr.Justice Faizan Uddin

V.Krishnamurthy and A.Mariarputham, Advs. for the appellant.

R.Mohan, Sr.Adv., R.Nedumaran, V.G.Pragasam, R.A.Perumal,

K.R.Choudhary and R.K.Sharma, Advs. with him for the

Respondents.

J U D G M E N T

The following Judgment of the Court was delivered:

The State of Tamil Nadu

V.

Sri Srinivasa Sales Circulation

(With Civil Appeal Nos.12778-84/96, 12785-87/96) Arising out

(WITH C.A.No. 8605/83, 2322-23/80, 4101/84 and/SLP (C) Nos.

300-306/81, 6932-34/80, C.A. No. 3328/80)

J U D G M E N T

Faizan Uddin, J.

Leave granted.

Since common questions of law and facts arise for our

consideration in these appeals and special leave petitions,

the same are being disposed of by a common judgment.

The appeals and special leave petitions arise out of an

order passed by the High Court Of Madras in revision

preferred by the respondent herein, under Section 38 of the

Tamil Nadu General Sales Tax Act, 1959 thereinafter referred

to as the "Act") relating to certain transactions involved

therein which are sought to be taxed as sale.

Since we have to decide the nature of transaction in

order to determines the liability which is the question

common to all these appeals and the special leave petitions,

we shall state the facts as they emerge out of the Civil

Appeal No.2348/78.

The respondent assessee floated a scheme as detailed in

the printed pamphlet, which reads as follows:-

"Please get a coupon of our company

from your friend or from the

company by paying rupees five.

Please mark your address and any

one article you require it back to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6

the company.

After receiving your coupon we will

register it and send three coupons

by V.P.L. for Rs.15/- plus V.P.L.

charges. Now you have to give the

coupons to three persons for Rs.5/-

each and take the money for

yourself and ask them to fill up

the coupons with their names and

full address and send it to us.

We will send to each of your three

parties three coupons each for

Rs.15/- pluss postal charges V.P.L.

As soon as the parties concerned

clear the V.P.L s, you will receive

from us the article that you have

mentioned in your coupon."

Further, clauses 5 and 6 of the terms and conditions of

the said scheme, which are also relevant for our purposes,

are reproduced hereunder:-

"5. Any person sending M.O. or

bank draft for Rs.45/- along with

coupon duly filled up will receive

the article that is mentioned in

the coupon together with three sets

of (9) coupons.

6. Coupons should be returned

duly filled within three months of

their receipt. Coupons received

after three months will not be

attended to."

The said pamphlet containing the scheme further

mentions 20 articles, one of which may be marked in the

coupon by the person or party who purchases the coupon by

paying Rs.5/-. The coupon referred to in the scheme is a

printed order form which is as follows:-

"ORDER FORM"

No. 17435 D. Regd.No.

SRI SRINIVASA SALES CIRCULATION

(Regd.)

No.11, Gandhi Street,

Villivakkam,

Madras- 49.

From

................

Dear Sirs,

As mentioned in your list of

article No....... I request you to

kindly send me

......................your coupone

by V.P.L., for the amount of Rs.

16-00 sent by me.

Place:- Yours faithfully,

Date:- Signature

Canvasser's signature "

Thus, on payment of a sum of Rs.5/- to the company and

coupon is sent to the individual concerned, and we assume

that individual as A for the sake of convenience. Then 'A'

sends back the same to the company duty up mentioning the

number and name of article in the blank spaces. On receipt

of the said coupon / order form, three order forms are sent

to A, by V.P.L.for Rs.16/- and when the said V.P.L. is

cleared by A. he receives a further letter from the company

acknowledging the receipt of Rs.16/-. The said letter reads

as follows:-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6

"We are glad to note that you have

cleared the V.P.L. No. by paying

Rs.16/- and thank you very much for

the same.

You please sell three order

forms to three members and take

that money. Fill the three forms

(IN BLOCK LETTERS) and send them to

us by Regd. Post. We will send to

each among three members containing

three order forms in each V.P.L.s.,

paying Rs.16/-. If all of them

clear the V.P.L.s.,paying Rs.16/-

each, we will send you the required

article item No. by Registered

Post."

After receipt of the three order forms / coupons. A

delivers them to B,C and D after collecting Rs.5/- from each

of them which amount is appropriated by A himself. Then, B,

C and D in turn will either forward the coupons themselves

to the company or send the same through A after filling the

blanks and mentioning the name and description of article

which is required by them. On receipt of these three coupons

/ order forms, as aforesaid, from B,C and D, the company

sends three sets of three coupons each to B, C and D under

V.P.L. for Rs.16/- and inform A also of that facts in the

printed form which reads as under :-

"We have received your three

original order forms and the letter

dated........and thank you very

much for the same. According to the

rules of our firm today we have

sent 3 V.P.Ls. containing 3 order

forms in each V.P.L., for Rs.16/-

to each among three members as

addressed in that order forms. As

soon as they clear the V.P.Ls. by

paying Rs.16/-each, we will send

you the required articles item

no......... by registered parcel.

So, you please encourage them to

clear the V.P.Ls.. by paying

Rs.16/- each."

If B, C and D honour the V.P.Ls. and pay money, A then

becomes entitled to the article which he had chosen in his

order form. That article is sent by the company to A with a

covering letter. The said letter reads thus :-

"We are very glad to note you have

circulated our scheme by a time and

thank you very much for the same.

According to your request today we

have despatched your required

article No.........by V.P., insured

parcel for Rs. towards the expenses

of packing and postal charges of

the article. You please receive

your article by paying Rs.........

and write a letter to us about you

opinion."

According to the scheme floated by the company, if any

one of B,C and D does not honour the V.P.L. and decline to

receive the three coupons sent to them. A looses his right

to receive the article, though the other two who had

honoured the V.P.L. will have a series in their name if they

are again able to sell, say to B1, B2 and B3, C1, C2 and C3

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6

and so on and complete the circle. This way the claim of B

and C would go on and if there is no break, the claim goes

on endlessly as a chain.

During the Assessment Year 1967-68, the value of

articles that were supplied by the respondent company under

the aforesaid scheme to various persons and customers was to

the tune of Rs. 1,36,655.00 while the purchase value of

these articles has been found to be Rs.1,03,709.25. The

Assessing Officer took the view that there was a sale of

article to every person who had participated in the scheme

and as such turnover for the year 1967-68 from the value of

articles supplied to various person came tp Rs.1,36,665.00

which was liable to be taxed under Section 3(1) of the Act.

The Assessing Officer also imposed a penalty of Rs.6,149/-

under Section 12(3) of the Act for failure of not filling

the return in form A-1. This order of the Assessing Officer

found favour with the Appellate Assistant Commissioner as

well as the Sales Tax Appellate Tribunal. The respondent

assessee then went up in revision before the High Court of

Judicature at Madras. The HIGH Court of Madras took the

view that the transfer of article by the company was not for

money consideration alone and, therefore, it would be a sale

at all. Consequently, the High Court held that since the

transactions involved in the scheme of the assessee are not

sale, the assessee are not liable to be taxed as sales under

Section 3(1) of the Act and, therefore, allowed the

revision, set aside the order of the Assessing Officer,

Appellate Assistant Commissioner and the Tribunal against

which these appeals and special leave petitions have been

directed as the orders in the connected appeals and the

special leave petitions are based on the orders and findings

recorded by the High Court in T.C. No. 154 of 1971 (Revision

No.85) - Sri Srinivasa Sales Circulation v. State of Tamil

Nadu, which is also reported in (1976) 38 S.T.C. 359.

The learned counsel appearing for the appellant State,

vehemently urged that in the light of the facts found on

record the disputed transactions were sales as defined under

Section 4 of the Sale of Goods Act and, therefore, the

Assessing Officer had rightly brought the same under the net

of taxation under the provisions of the Act. It was

submitted that the High Court was not right in holding that

the title in the goods that passed to the customers was not

right in holding that the little in the goods that passed to

the customers was not under any contract or sale between the

respondent and their customers and strenuously urged that

the tenor of the scheme clearly indicated that the title in

the goods passed to the customers pursuant to a contract of

sale between the respondent and their customers and the

transaction was squarely covered by Section 4 of the Sale of

Goods Act. Contrary to this, the learned counsel appearing

for the respondent sought to support the impugned order for

the reasons assigned by the High Court and submitted that

the transactions involved in the scheme of the assessee are

not liable to tax as Sales Tax under Section 3(1) of the

Act.

If may be stated that in order to constitute a sale

under the Sale of Goods Act, it is essential to establish

that there is an agreement between the parties for transfer

of title to the goods and that such agreement should be

supported by money consideration and as a result of the

transactions the goods. article or the property must

actually pass to the purchaser. It is settled law that the

expression "sale" under the Sales Tax Act has to be

understood with reference to the definition of "sale of

goods" under the Sale of Goods Act. But if the title of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6

goods passes without any contract between the parties,

express or implied, there is no sale. Similarly if the

consideration of the transfer is not money, but some other

valuable consideration, it may amount to exchange or barter

but not a sale in the strict sense of the law for the

purposes of taxation, we shall, therefore, examine whether

under the facts and circumstances of the present case the

transfer of article by the respondent assessee to its

customers under the scheme floated by it constitute a sale

against payment of price of that article.

As stated earlier in the foregoing paras of this

Judgment, the coupon of the company is sold to the customer

A on payment of Rs.5/-. Whereafter, the customer A

receives three coupons for Rs. 16/- which he sells to three

persons for Rs.5/- each and appropriates the amount so

received by himself. When each of the three parties to whom

the coupons to others namely B, C and D, one cycle is

completed and the customer A in turn receives the article of

his choice as mentioned by him in the coupon from the

company. In this process, as stated earlier, the company

despatches a letter to its customer A advising him sell the

three order forms to three members and take that money

himself. Not only this, the assessee company further

addresses a letter to the customer A in the printed form

conveying their thanks to him and that they have received

three original order forms and the letter, stating further

that as soon as the V.P.Ls. are cleared by paying Rs.16/-

each, they will send him the required article by Registered

parcel. Thereafter, the company ultimately despatches the

article of his choice to the Customer A with a covering

letter advising him to receive the article by paying the

stated amount. From these facts, it is clear that there may

not be a formal contract for sale and purchase of the

article in any specific form, but such a contract may be

spelt out from the correspondence and interaction between

the parties, in the present case an implied contract between

the parties is spelt out when the company offers the coupon

(s) against payment and the article of the choice is

ultimately sent to the customer for payment or price which

is accepted by the customer. There is thus offer and

acceptance. If the contents of the entire scheme, as

reproduced above, are minutely looked in to it substantially

amounts to sale. We find that all the attributes,

characteristics and requirements of a sale are present in

the transaction, in fact the transaction is so designed and

framed by the company by adopting a circuitous method for

sale of their goods which amounts to nothing out a sale, and

the same is liable to assessment under the Act. This view

is further strengthened from the fact that during the

relevant assessment year the respondent company sent

articles to its various customers under the scheme of the

value of Rs.1,36,665.00, which were purchased by the

respondent company for a sum of Rs.1,03,709.25 and, thus,

earned a profit to the tune of Rs.32,955,75. The business

so run by the respondent is with a view to earn profit out

of the sale by adopting a circuitous device with a view to

evade the payment of tax. In our considered opinion, the

High Court, therefore: was not justified in taking the view

that it was not a sale transaction assessable to tax.

Consequently, we allow the appeals by setting aside the

impugned orders passed by the High Court and restore the

order of the Assessment Officers and the Sales Tax Appellate

Tribunal. But in the facts and circumstances of the case,

we make no order as to costs.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6