# Court in Deputy Commissioner of Agricultural income-tax & Sales Tax v. A. V. Thomas & Co. Ltd. which was on similar facts. According to the

- **Citation:** [1965] 1 S.C.R. 803
- **Court:** Supreme Court of India
- **Decided:** 1964-10-23
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, M. Hidayatullah, Raghubar Dayal, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/court-in-deputy-commissioner-of-agricultural-income-tax-sales-tax-v-a-v-thomas-3258
- **Pages:** 12

## Headnote

Sales Tax-Sales by auction at Fort Cochin in Mddras State-Delivery
after approval in Travancore-Cochin-Sale whether completed on fall of
hammer at auctio.-i in Madras State-Taxability of sales under TravancoreCochin General Sales Tax Act (Act 11 of 1125).
Teas produced by the appellants were classified and stocked in lots in
godowns at Willingdon Island which at the relevant time was in the State
of Travancore-Cochin.
The sale of the said teas was however effected
by public auction at Fort Cochin in Madras State under the Rules of the
Tea Trade Association of Cochin.
Sales-tax was imposed on the appellants
by the State of Kerala under the Travancore-Cochin General Sales Tax
Act (Act 11 of 1125) on the authority of the judgment of the Kerala High
Court in Deputy Commissioner of Agricultural income-tax & Sales Tax v.
A. V. Thomas & Co. Ltd. which was on similar facts. According to the
said decision the sales were completed at the fall of the hammer in Fort
Cochin but, nevertheless by virtue of explanation 2 to s. 2(j) of the
Travancore Act they remained 'inside' sates for the purpose of taxation in
Kerala State.
Because of this judgment being against them, the appellants also could not succeed before the Sales Tax Appellate Tribunal or
before the High Court. They were however, granted special leave to
appeal by the Supreme Court.
Before the connected appeals came up for hearing the Supreme Court
.had reversed the judgment of the Kerala High Court in the case of A. V.
Thomas & Co. Ltd. on the authority of which the appellants had been
taxed. Counsel for the State of Kerala therefore sought and was given
permission to defend the imposition of tax on alternative reasoning.
Relying upon ss. 17 and 18 of the Sale of Goods Act he contended that
the sale at the auction in Fort Cochin being a sale by sample was not
completed at the fall of the hammer but remained at that stage only a ..
conditional sale. It became a completed sale whon the buyer after comparing tho bulk with the sample accepted the goods in Willingdon Island.
The property in the goods thus passed in Kerala State making the sale
liable to tax in that State. Rules of the Tea Trade Association of Cochin
were called for and examined by the Court.
HELD: The title to the goods passed to the buyer under s. ·64(2) of
the Sale of Goods Act as soon as the sale was completed by the auctioner
announcing its completion by the fall of the hammer. The initial auction
cannot be treated as an executory contract which had become a conditionaf
contract on the fall of the hammer.
The sale at the auction was in
respect of ascertained goods and it was concluded in every case on the
fall of the hammer. The High Court was therefore in error in upholding
the imposition of sales tax on the appellant by the State of Kerala.
[814
E-GJ
CML APPELLATE JURISDICTION : Civil Appeals Nos. 1084-·
1088 of 1963.
L2 Sup./65-8
-804
SUPJll!MB COUi.T llEPORTS
[1965) I S.C.IL
Appeals by special leave from the judgment and order dated
A
November 1961, of the Kerala High Court in T.R.C. Nos. 39-42,
31 to 34, 45 and 46, 35 to 38 and 47 respectively.
M. C. Setalvad, Rameshwar Nath, S. N. A.ndley and
P. L. Vohra, for the appellants (in all the appeals).
P. Govinda Merion and V. A. Seyid Muhammad, for the resB
pondent (in all the appeals).

## Text

A
M/S. OUCHTERLONEY VALLEY ESTATES LID.
B
c
D
E
G
H
STATE OF KERALA
(With Connected Appeals)
October 23, 1964
(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO,
M. HIDAYATULLAH, RAGHUBAR DAYAL AND
J. R. MUDHOLKAR JJ.)
Sales Tax-Sales by auction at Fort Cochin in Mddras State-Delivery
after approval in Travancore-Cochin-Sale whether completed on fall of
hammer at auctio.-i in Madras State-Taxability of sales under TravancoreCochin General Sales Tax Act (Act 11 of 1125).
Teas produced by the appellants were classified and stocked in lots in
godowns at Willingdon Island which at the relevant time was in the State
of Travancore-Cochin.
The sale of the said teas was however effected
by public auction at Fort Cochin in Madras State under the Rules of the
Tea Trade Association of Cochin.
Sales-tax was imposed on the appellants
by the State of Kerala under the Travancore-Cochin General Sales Tax
Act (Act 11 of 1125) on the authority of the judgment of the Kerala High
Court in Deputy Commissioner of Agricultural income-tax & Sales Tax v.
A. V. Thomas & Co. Ltd. which was on similar facts. According to the
said decision the sales were completed at the fall of the hammer in Fort
Cochin but, nevertheless by virtue of explanation 2 to s. 2(j) of the
Travancore Act they remained 'inside' sates for the purpose of taxation in
Kerala State.
Because of this judgment being against them, the appellants also could not succeed before the Sales Tax Appellate Tribunal or
before the High Court. They were however, granted special leave to
appeal by the Supreme Court.
Before the connected appeals came up for hearing the Supreme Court
.had reversed the judgment of the Kerala High Court in the case of A. V.
Thomas & Co. Ltd. on the authority of which the appellants had been
taxed. Counsel for the State of Kerala therefore sought and was given
permission to defend the imposition of tax on alternative reasoning.
Relying upon ss. 17 and 18 of the Sale of Goods Act he contended that
the sale at the auction in Fort Cochin being a sale by sample was not
completed at the fall of the hammer but remained at that stage only a ..
conditional sale. It became a completed sale whon the buyer after comparing tho bulk with the sample accepted the goods in Willingdon Island.
The property in the goods thus passed in Kerala State making the sale
liable to tax in that State. Rules of the Tea Trade Association of Cochin
were called for and examined by the Court.
HELD: The title to the goods passed to the buyer under s. ·64(2) of
the Sale of Goods Act as soon as the sale was completed by the auctioner
announcing its completion by the fall of the hammer. The initial auction
cannot be treated as an executory contract which had become a conditionaf
contract on the fall of the hammer.
The sale at the auction was in
respect of ascertained goods and it was concluded in every case on the
fall of the hammer. The High Court was therefore in error in upholding
the imposition of sales tax on the appellant by the State of Kerala.
[814
E-GJ
CML APPELLATE JURISDICTION : Civil Appeals Nos. 1084-·
1088 of 1963.
L2 Sup./65-8
-804
SUPJll!MB COUi.T llEPORTS
[1965) I S.C.IL
Appeals by special leave from the judgment and order dated
A
November 1961, of the Kerala High Court in T.R.C. Nos. 39-42,
31 to 34, 45 and 46, 35 to 38 and 47 respectively.
M. C. Setalvad, Rameshwar Nath, S. N. A.ndley and
P. L. Vohra, for the appellants (in all the appeals).
P. Govinda Merion and V. A. Seyid Muhammad, for the resB
pondent (in all the appeals).
The Judgment of the Court was delivered by
Gajendragadkar C.J. This is a grouo of fifteen appeals by
special leave which raise a common question of Jaw.
The appellants in these respective appeals are Plantation Companies which c
grow their own tea in Tea Estates and sell ;heir products.
Under
the relevant provisions of the Travancore-Cochin General Sales
Tax Act 11 of 1125 (hereinafter called 'the Travancore Act'),
Sales-tax Officers had assessed the appellants to several amounts
of tax in respect of their turn-over for different years.
The
appellants had urged before the Safos-tax Officers that the transB
actions in question were not liable to pay sales-tax, but their
pleas were rejected and sales-tax was ordered to be imposed in
respect of the said transactions.
The appellants then challenged
the correctness of the.<e orders by preferring appeals before the
Sales-Tax Appellate Tribunal.
The Tribunal concurred with
the view taken by the Sales-tax Officers and confirmed the respecE
tive orders of assessment. .The appellants then moved the High
Court of Kerala in its revisional jurisdiction under s. I 5B of the
Travancore Act These revision applications also failed: and
t.hat has brought the appellants to this Court by special leave.
Though the periods and the amounts of turn-over for which
F
sales-tax has been levied against the different appellants are not
the same, the principal point which these appeals raise for our
decision rests on facts which are common to all the cases, and so,
it would be enough if we refer to the facts in respect of one of
these appeals.
We will accordingly mention the relevant facts
in regard to appeals Nos. 1084-1088/ 1963 in which the appelG
lant is M/ s Ouchterloney Valley Estates Ltd. We may add that the
three other appellants in the present group are : The Kil Kotagiri
Tea & Coffee Estate Co. Ltd., M/s. Peria Karamali Tea & Produce Co. Ltd.; and M/s. Chembra Peak Esta.es Ltd. The appellant M/ s Ouchterloney Valley Estates Ltd. produces tea in its
own Tea Estates and sells its products. It doe.< not itself carry H
on the business of buying and selling its procLf•,'.;. The Managing Agents of the appellant are M/ s. Peirce Leslie & Co. Ltd.,
A
B
c
D
E
F
G
H
OUCHTERLONEY ESTATES v. STATE (Gajendragadkar C.J.) 805
Coimbatore.
The quantities of tea produced by the appellant
were sold by public auction at Fort Cochin; the purchasers paid
the consideration at Fort Cochin and obtained from the auctioneers delivery notes requesting the godown keepers at Wellingdon Island to de! iver the goods. After the goods are produced,
they are sent to the godowns at Wellingdon Island and the sale
by public auction is held at Fort Cochin.
Fort Cochin was in
the State of Madras, whereas Wellingdon Island was in the State
of Travancore at the relevant time.
The periods for which
assessment has been levied against the appellant are 1952-53,
l 953-54, 1954-55, 1955-56 and 1956-57.
The procedure followed for the ru.blic auctions in question
must now be i_ndicatcd.
This is how the procedure has been
summarised in the present proceedings :-
'Teas produced in the concerned Estates are graded,
wcig:1ed and packed in chests in the estat~s and are
subsec,uently forwarded with garden invoices to the
go<lowns of their Clearing and Forwarding Agents,
Messrs. Peirce Leslie & Co. Ltd., Cochin, at Wellingdon Island to be stored there awaiting further instructions.
·n1ercafter, the brokers in Fort Cochin check
the weight of the chests, draw samples of their contents
and group the chests in lots. They then publish printed
catalogues giving the names of the Estate and the godowns, the numbers of the lots, the serial numbers and
total number of chests in each lot, the weight of each
chest and the total weight of each lot and advertise the
sale of such chests with export rights, by public auction.
at Fort Cochin on particular date and hour. The sale
is conducted, by samples, at Fort Cochin, at the proclaimed date and hour and is confirmed fu the name of
the 'highest bidder. The bid may be for an entire lot or
for a portion thereof, technically known as 'brake'.
The buyer shall be entitled to open the ches!S bid by
him and examine the contents thereof to ascertain the
actual state and condition of the tea. Difference or
inferiority in quality, description, deterioration, damage
and defect in p. ~king will entitle the buyer to submit
claims or rejection, or allowance or damage. ·Such
claims must be submitted, after inspection, no doubt,
not later thp·' 5 P .M. on the 3rd day before the prompt
day (ninth day after date of sale) or in the \~ase of
removal before the prompt day, at least 24 hours'before
806
SUPR~ME COURT REPORTS
[1965] I S.C.R.
such removal. Payment shall be made in Cochin on or
before prompt day, in cash or by cheque or draft on a
Cochin Bank. If the buyer shall fail to pay for the tea
or any part thereof on the due date for payment, the
goods may he re-sold. Any loss arising on such re-sale
~hall be borne by the buyer.
Delivery shall be taken
before 5 P.M. on the 5th day after prompt day. The
goods will be at sellers risk to the extent of the sale
price only, until 5 P.M. on the 5th day after prompt
day or until removal by the buyer, if removed earlier."
A
B
When the assessment proceedings in question were pending
before the Sales-tax Officer, it was urged by the appellant that
C
the impugned transactions which were included in the tum-over
of tl1e appellant were not liable to tax on several grounds. The
substantial contention against the appellant was that the tramfers of tea which were sought to be assessed could be assessed
by the respondent State of Kcrala because of a previous decision
of the Kerala High Court in Dep11ry Commissioner of Agricult11ral
D
Income-tax and Sales-tax v. A. V. Thomas & Co. Ltd.(')
}fl
that case, the Kerala High. Court had proceeded to deal with the
matter on the basis that the property in the goods sold passed at
Fon Cochin on the fall of the hammer at the auction and that
they could not be said to be "outside" sale within the meaning of
Art. 286(1)(a) of the Constitution.
The Hi!!h Court was inE
dined to take the view that the said constitl!tional provision had
no reference exclusively to the transfer of the property in the
goods according to the provisions of the Indian Sale of Goods
Act, 1930 (No. 3 of I 930) (hereinafter called "the Act"); and
so, explanation 2 to s. 2 (j) of the Travancore Act was not violaF
tivc of Art. 286( I )(a), and that if at the moment when the property passed, it being 'not relevant where the property passed, the
goods were in the State of Travancore-Coehin, then it was not
un "outside" sale quoad Travaneore-Coch!n and could be subje<:ted to sales tax by that State.
Since this judgment of the
Kerala High Court was binding on the sales-tax authorities at
G
the time when they considered the dispute between the appeHants
and the respondent State of Kerala in the present proceedings,
they have held that the transactions with.which the appellant was
concerned could be validly assessed by the respondent State. The
same view, in substance, has been accepted by the High Court
when it rejected the revision application filed by the appellant
H
before it.
·
(l) l.L.R. (1960] Kerala 1395.
I
.OUCHTERLONEY ESTATES v. STATE (Gajendragadkar C.J.) 807
A
Meanwhile, the decision of the Kerala High Court in the
case of A. V. Thomas & Co.(') was reversed by this Court
when the matter came before it in appeal in A. V. Thoma,,
& Co. Ltd. v. Deputy Commissioner of Agricultural Income Tax
and Sales Tax, Trivendrum.(2)
In that case, this Court has
held that the explanation to Art. 286( 1) creates a fiction as
B between two States, ·one where the goods are ·delivered for consumption in that State, and the other where the title in the goods
passed and the former is treated as the situs of the taxable event
to the exclusion of the latter.
In regard to sales of teas in lots
by public auction, this Court held that the property in teas passed
to the buyer under s. 54 of the Act as soon as the offer was
C
accepted on fall of the hammer at Fort Cochin in the State of
Madras and, therefore, the only State which could have power to
levy a tax on such sale would be the State of Madras and so far
as the Travancore-Cochin was concerned, the sale would be an
outside sale.
The same view has been expressed by this Court
D
in a subsequent decision coming from Kerala in Malayalam
Plantations Ltd., Qui/on· v. The Deputy Commissioner of Agricultural bzcome-tax and Sales-tax, South Zone, Qui/on. (1 )
The
result is that the decision of the Kerala High Court in the case of
A. V. Thomas & Co. ( 1 )
on which the sales-tax authorities
and the High Court of Kerala have decided the dispute between
E the appellants and the respondent State in the present proceedings
i5 no longer good law, and that .. would inevitably mean that the
appellants must succeed on the ground that the sales of tea having
taken place in the same manner as the sales of tea which had come
before this Court in the two decisions to which we have just
referred, they are "outside sales" so far as the respondent State
F is concerned and cannot be legitimately assessed 'to tax under
the relevant provisions of the Sales Tax Act.
Mr. Menon for the respondent State has,. however, strenuously contended that the question as to whether the present sales
are outside sales. so far as the respondent is concerned, has never
G bi:en properly tried, and he urges that if the essential incidents
in regard to the present sales are taken into account, it would be
found that the said sales are 'inside' sales so far as the respondent
State is concerned. It is common ground that if the sales are
held to be inside sales so far as the respondent State is concerned,
the view taken by the High Court would have to be confirmed and
H
the appellants would have to pay the sales-tax as ordered by the
(I) l.L.R. [1960) Kerala. 1395,
(2) [1963) Supp. 2 S.C.R. 608.
(3) A.l.R. 1965 S.C. 161.
808
SUPREME COURT REPORTS
(1965] l S.C.R.
sales-tax authorities.
On the other hand, if the sales in question
A
are not inside sales as urged by Mr. Setalvad for the appellant!!,
the view taken by the High Court must be reversed and the appeat.
allowed.
It appears that in the two decisions of this Court to which
we have just referred, this point has not been considered.
In
B
fact in the case of A. V. Thomas & Co. ( 1 )
the conclusion of the Sales-tax Appellate Tribunal that the property in tho
goods sold passed at Fort Cochin in full lots with the fall of the
hammer was not disputed, and that raised the question about tho
construction of Art. 286.
In the latter case of Malayalam
Plantations Ltd.(') this question was attempted to be raised
C
before this Court, but this Court did not allow the appelbnt
to argue that point, because the finding of the salcs-ta:x authorities that the title in the goods had pa,sed at Fort Cochin on the
fall of the hammer at the auction had not been disputed before
the High Court.
Mr. Menon contends that in the present proceedings, the respondent State has been urging at all material
stages that the sales in question are inside ~ales, and so, he should
be pennitted to argue that point.
We have accordingly he;,;d
Mr. Menon on this point and we propose to decide it on the
merits.
When those appeals were heard by us first on the 10th September, 1964, the procedure followed in conducting the sales in
question was placed before us in the form of a summary which
D
E
we have quoted at the beginning of this judgment. We, however,
thought that since we were deciding the question as to where the
title in the goods passed, it would be more satisfactory to have
F
before us all the Rules of the Tea Trade Association of Cochin
which prescribed the procedure for these sales.
Accordingly,
the matter was adjourned to enable the parties to produce the
said Rules. · The said Rules have since then been produced
before us and we have heard both Mr. Setalvad and Mr. Menon
fully on the points raised by Mr. Menon that the sales in question
G
are inside sales so far as the respondent State is concerned.
Mr. Menon contends that in deciding this question we ought
to bear in mind the fact that the sales are sales by sample to which
s. 17 of the Act applies.
In the case of a contract of sale by
sample, s. 17(2) provides three implied conditions; they are:
(a) that the bulk shall correspond with the sample in quality;
(1) (1963) Supp. 3 S.C.R. d08.
(2) A.l.R.1 96' S.C. di.
OUCHTERLONEY ESTATES v. STATE (Ga;endragadkar C.J.) 809
A
(b) that the buyer shall have a ·reasonable opportunity of comparing the bulk with the sample; and {c) that the goods shall
be free from any defect, rendering them unmerchantable,. which
would not be apparent on reasonable examination of the sample.
The argument is that a sale by sample is, in substance, a sale of
unascertained goods, with the result that no property in the goods
B is transferred to the buyer unless and until the goods are ascertained.
That is the effect of s. 18 of the Act.
Sale by sample,
according to Mr. Menon, is a conditional sale and can be described even as an executory contract.
It becomes a cone I uded contract as a result of which title in the goods would pass to the
buyer only when the goods have been inspected by the buyer
C
and accepted by him.
Section 64(2) of the Act provides that
in the case of a sale by auction, the sale is complete when the
auctioneer announces ifs completion by the fall of the hammer
or in other customary manner; and it adds that until such
announcement is made, any bidder may retract his bid. Mr. Menon
D
accepts this principle, but contends that what is completed under
1. 64(2) is conditional sale, and that does not make the contract
a concluded contract.
The executory contract under s. 1 7 becomes a completed conditional contract under s. 64 ( 2), but title
under such a contract would pass only after the condition of inspection and approval has been satisfied.
Thus presented, the
E
argument is no doubt attractive.
The sale by public auction
took place at Fort Cochin which was in the State of Madras at
the relevant time, but the goods had been stored in the godowns
at the Wellingdon Island within the territorial limits of Travancore,
and the inspection of the goods took place at these godowns. It
is after the goods are inspected by the buyer and accepted by him
F
that the contract is completed and title passes from the seller to
the buyer.
This event takes place in the Wellingdon Island, and
so, the transaction of sale is an inside sale for the purpose of
sales-tax levied by the respondent State.
In support of this argument, Mr. Menon has referred us to
G
the statement of Benjamin that "where the subject-matter ·of the
sale is not in existence, or not a&certained at the time of the contract, an engagement that it shall, when existing or ascertained,
possess certain qualities, is not a mere warranty, but a condition,
the perforrn.ance of which is precedent to any obligation upon the
vendec under the contract, because the existence of _those qualiH
ties, being part of the description of the thing sold, becomes
essential to its identity; and the venj:lee cannot be obliged to
receive and pay for a thing different from that for which he con-
810
SUPREME COURT REPORTS
[1965] l S.CR.
tracted''. ( 1 )
Another passage from the same book on which
Mr. Menon relies speaks of acceptance a~ a taking of the goods
by the buyer with the intention of becoming owner <p. 750).
The argument is that the goods are required to be inspected in the
case of a sale by sample and it is only when inspection discloses
no material defects in the goods that acceptance follows, and that
makes the contract a concluded contract by which title. passes to
the buyer.
Similarly, Mr. Menon relies on one more statement
of Benjamin which says, "The specific goods may, for instance,
be sold by description. If the specific existing chattel is sold by
description. and does not correspond with that description, the
seller fails to comply, not with a warranty or collateral agreement, but with the contract itself by breach of a condition precedent" (p. 304).
In support of his case, Mr. Menon has also relied on a decision of the King's Bench Division in McManus v. Fortescue &
A111'. (')
In that case, the Court of Appeal has held that at a
sale by auction subject to a reserve price on the article sold, where
the fact that there is a reserve is known, the offer of the auctioneer
to sell, the bidding, and the knocking down of the article to the
highest bidder arc all subject to the condition that the reserve price
should be reached, and the fact that the auctioneer knocks down
A
B
c
D
the article to a bidder who has bid a less price than the reserve
gives the latter no right of action against the auctioneer, either E
for breach of duty in refusing to sign a memorandum of or otherwise complete the contract, or for breach of warranty of authority to accept the bid.
In dealing with the point raised before
the Court, Collins, M. R. observed that no authority had been
cited to show that the fall of the hammer could do away with a
condition expressly stipulated for by the conditions of sale. The
same view has been expressed. by Fletcher Moulton L.J. by observing that the limitation of an auctioneer's authority, by his principal fixin:; a reserve price. is a perfectly valid and effectual limitation.
That is why the fall of the hammer would not affect the
binding character of the condition as to reserve price subject to
which alone the contract of sale could be concluded.
It would
be noticed that the whole of the argument thus presented by Mr.
Menon proceeds on the ~ssumption that the contract of sale by
sample in the present proceedings was a contract of goods which
were in a sense unascertained and it would be concluded only
when the buyer inspected the goods· and accepted them.
(l) Judah Philip BPnjami11's "'A TrNJtl.rt on tht Law of Salt of PtrsoMl Property
8th Edn. by Finnomore and James, p. 907.
(2) (19071 2 K.B. I.
F
G
H·
OUCHTERLONEY ESTATES v. STATE (Gajendragadkar C.J.) 811
A
The position in regard to the relevant provisions of the Act
bearing on the question as to when title in the goods ·sold passes,
is not in doubt. If the contract of sale is for ascertained goods
which are actually described in the list prepared before the sales
are held and it appears that all material particulars about the goods
are shown in the list, then the question as to when title passes
B would depend essentially upon the intention of the parties expressed in the terms of the contract. :Section 19 ( 1 ) of the Act provides
that where there is a contract for the sale of ,specific or ascertained
goods, the property in them is transferred to the buyer at such
time as the parties to the contract intend it to be transferred.
c Section 19(2) adds that for the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract.
the conduct of the parties and the circumstances of the case. Under
s. 19(3) it is provided that unless a different intention appears,
the rules contained in sections 20 to 24 would be relevant to
decide this question. One thing is clear in the present case viz .•
D that the goods in question were not unascertained goods, nor were
they not in existence; goods were clearly in existence, they had
been graded, weighed and packed in numbered chests and a list
was prepared in respect of the contents of these chests separately.
It is true that what the buyers are shown at the time of sale by
E public auction are samples and the rules authorise the buyers to
inspect the goods; but that is not to say that the sale is a sale of
unascertained or non-existing goods.
Let us, therefore, consider the relevant and material terms and
conditions of the rules under which the sales take place, for it is
F these terms which will decide as to when title passes to the buyer.
Condition No. 7 of the Rules provides that subject to the reserved
or upset price, the highest bidder shall be the buyer, and it lays
down that until the fall of the hammer or until the registration of
the sale as provided in clause 5, any bidder may retract his bid.
Under condition No. 8, the auctioneer has to declare the name of
G the highest bidder before the lot is knocked down.
Under condition 11, the buyer is entitled to open the chests purchased by
him and examine the contents thereof to ascertain the actual state
and condition of the tea.
Such examination has to take place
before the expiration of the time allowed for submission of claims
as provided in condition 12 or in the event of earlier removal of
H the tea; before the date of actual removal. This condition refeB
to the chests purchased by the buyer and contemplates that as a
result of the examination of the goods, the buyer can make claims
...
81 :l
SUPIU!KB C:OUKT REPORTS
(1965] I S.C.IL
within the time specified by condition 12. Condition 12 is
A
material, arid so, it is necessary to read it. It reads thils :-
"All claims on the ground of difference or inferiority
in quality, description, deterioration, damage, defect in
packing or any other ground whatsoever must be submitted to the selling broker in writing not later than 5 P.M.
B
on the third day before Prompt Day. Prompt Day shall
be the tenth day after date of sale. In the case of ~a
removed before Prompt Day, such claims must be submitted at least 24 hours before removal of tea. In the absence
of any claim submitted in strict accordance with this condition, the tea shall be deemed to have complied with the
C
contract in all respects and to have been accepted by the
buyer, who shall not be entitled to reject the tea or to
claim any allowance or damages in respect thereof'.
Mr. Menon has placed considerable emphasis on the fact that this
condition provides that the goods shall be deemed to have been
D
accepted by the buyer when he failed to make inspection within
the time allowed. In other words, his argument is that this condition shows that acceptance can be deemed to have taken place
only after the procedure prescribed by condition 12 has not been
followed and therefore, it envisages acceptance only after inspecE
tion in all cases. We do not think that much importance can be
attached to the expression "to have been accepted by the buyer"
on which Mr. Menon rests his argument.
We have already seen
that condition 11 has referred to the chests as having been purchased by the buyer; and that would be clearly against Mr. Menon·~
ca~. So, it would be reasonable not to base our decision prinF
cipally on the words used by the conditions, such 'purchased' or
'accepted', but to take into account the substance of these conditions.
It may be stated at this stage that after the public auction takes
place, claims have to be made by the buyer not later than the third
G
day before the Prompt Day, or 24 hours before removal of goods,
whichever event happens earlier.
The Prompt Day is the 10th
day on or before which payment has to be uiide by the buyer, and
possession has to be taken by him before 5 P.M. on the fifth day
after the Prompt Day (condition No. 22). The goods continue
to be at the sellers' risk to the extent of the sale price only until
H
5 P.M. on the fifth day after' the Prompt Day or until removal by
the buyer if removed earlier (condition No. 23).
OUCHTERLONEY ESTATES Y. STATE (Gajendragadkar C.l.) 8'13
A
Condition 12 clearly shows that the buyer has a right to make
claims either on the ground of difference or inferiority in quality
disclosed on inspection, or as a result of a defect in packing or
any other ground whatsoever.
After the time specified by this
condition has expired, the buyer cannot make a claim to reject
the goods, nor can he ask for any allowance or damages in respect
B thereof.
c
D
Condition 13 is also important.' It reads thus :-
"Each chest comprised in a Jot shall be treated as the
subject of a separate contract of sale; but this condition
shall not entitle the buyer to require the seller to give part
delivery of Jess than the full number of chests sold; and
in the event of the buyer claiming to reject the Iot purchased by him, the Arbitrators or Umpire, if satisfied that
the Jot was not a good tender, shall be entitled to award
rejection of the entire Jot, and not only the particular chests
found on examination to be. defective".
It would be noticed that the first part of condition 13 corresponds
to s. 64 ( 1) of the Act. It, however, adds that though each chest
shall be treated a• the subject-matter of a separate contract of sale,
the buyer cannot claim delivery of less than the full number of
E chests sold. If the buyer mak1;5 a claim for rejecting the contract,
the Arbitrators or Umpire may, if satisfied that the lot was not a
good tender, hold that the buyer is entitled to reject either the
entire Jot or in a proper case even particular specified chests constituting the lot. Like the word "accepted" in condition 12, the
word "tender" in condition 13 cannot, however, materially affect
F the nature of the transaction. Condition 13 makes it clear that in
case the buyer finds a substantial defect in the quality of the goods
sold to him, he cannot reject the contract of his own; all he can
do is to make a claim in that behalf before the Arbitrator; and this
condition is consistent only with the view that the goods have
G already been purchased by the buyer and the claim which he is
allowed to make is as a result of the breach of the contract of sale.
Mr. Menon attempted to argue that condition 13 merely enable the buyer to move the Arbitrator.
According to him, the
buyer can reject the contract of his own, or file a claim
for
damages in a civil court without having recourse to arbitration.
H In our opinion, condition 13 is not merely an enabling condition;
it is an obligatory condition and it gives the buyer only one
remedy, and that is to move the arbitrator for appropriate relief.
814
SUPREME COURT IU!PORTS
[1965] I S.C.R.
Condition 15 is also relevant. It reads thus :-
"If the Buyer shall fail to pay for the tea or any part
thereof on the due dat~ for payment, the goods may be
resold, either by auction or private sale, at the option of
~e seller. Any loss arising on such resale, together with
interest at 6 per cent per annum from the due date and
all charges incurred, shall be paid by the buyer to the
sell.er, and the buyer shall not be entitled to any profit,
which may accrue from such resale".
A
B
This condition is consistent with the provisions of s. 64(2) of
the Act, and it cannot be said to support Mr. Menon's contention
~at the title in the goods does not pass to the buyer until ho hll.!
C
inspected them and indicated his acceptance.
Condition 16 is a general condition as to arbitration and it
provides that any disputes or differences which may arise between
the parties shall be referred to arbitration as therein indicated.
Reading conditions 13 and 16 together, there can be no doubt that
D
all claims which the buyer is entitled to make must be made to
the arbitrators and it is the decision of the arbitrators that wiU
determine the dispute between the buyer and the seUer.
We have carefully considered aU the rules under which sale£
in question have been held by public auction, and we are satisfied
J:
that title to Hie good~ passed to the buyer under s. 64(2) of the
Act as soon as the sale was completed oy the auctioneer announcing its completion by the fall of the hammer. The initial auction
cannot. in our opinion, be treated as an executory contract which
became a conditional contract on the fall of the hammer.
The auctron was an auction sale in respect of ascertained goods
and it was concluded in every case on the fall of the hammer. On
that view of the matter, we must hold that the High Court was in ·
error in coming to the conclusion that the Sales-tax authorities were
justified in imposing sales-tax against the appellants in regard to
the transactions which have given rise to the present appeals.
Tho result is, the 2ppeals are allowed, the orders passed by
the High Court in revision are set aside, and the levy of sales-tax
impos!d by the Sales-tax acthorities against the appellants is held
lo be invalid. There would be no order as to costs.
Appeals allowed.
F
G
H