KELVINATOR OF INDIA LTD versus THE STATE OF HARYANA

Citation: [1974] 1 S.C.R. 463 · Decided: 23-08-1973 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
B 
c 
• 
E 
' 
H 
KELVINATOR OF INDIA LTD. 
THE STATE OF HARYANA 
August 23, 1973 
[H, R. KHANNA AND A. ALAGIR!SWAMI, JJ.j 
463 
C,111ra/ Sales Tax Act, (74 of 1956), S. 3(a)--Scope of-Movemmt of 
goods 11·/re11 occasiorred by sale-Ma11ufacture of goods in one State and sold 
in another to distributors-Distribution agreen1e11t if co,,stitutcs 
c:ontract of 
sal<-Sa/e of Goods Act (3 of 1930), S. 23--Scope of. 
Section 6 of the Central Sales Tax Ac!, 1956, ·makes every dealer liable for 
payment of tax under the Act on all sales effected by him in the course of 
interstate trade or commerce. A sal_e of goods can 
be held to have 
taken 
place in the course of interstate trade under s. 3(a) if it can be shown that . 
the sale has occasioned the movement of goods from one State to another, that 
. is, if, ( i) there is a sale,\ <ii) there is actual movement of goods from one 
State to another, and (iii) the sale and movement of the goods formed integral 
parts of the same transaction. A sale bein~. bv the definition in the Act, trans-
fer of property, to be exigible to tax under the Act it must be shown that the 
movement was the result of a covenant or incident 
of the· contract of sale. 
The movement of goods whiCh takes place independently of a contract of sale 
would not fall within the ambit of s. 3(a). There must b: a contract of sale 
precedin& the movement of goods from one State to another and the move-
ment of goods should have been caused by and be the result of that contract 
of sale. 
If there was no contract of sale preceding the movement of goods 
the movement can obviously be not ascribed to a contract of sale nor can it be 
said· that the sale hiis occasioned movement of goods from one State to the 
other. [471F--473BJ 
In the present case) the· appellant was a manufacturer of refrigerators 
in 
Faridabad. The refrigerators·. were sold with three different trade marks. The 
sale of each brand was made through a separate distributor in Delhi appointed 
for 1h:;tt purf)Ose.and the appellant. entered into an agreement with e~ch of the· 
three distributors. The· 'appellant .dealer wa.s bound to sell each of the brands 
of the refrigerator to one of the distributors. The price of the 
refrigerators 
was. to. be fixed mutually as . agreed upon betweeu. the appellant and his distri-
butors from time to time. ·The pric_es were not settled for each individual 
ID;achine but periodically. 
The goods were 
manufactured in the 
factory 
at 
Faridabad and excise clearance pass was obtained after the payment of ·excise 
duty· for the transport of goods from the .factory, to the a(lpe1lant's godown in 
Delhi. ·The excise pass was in favour of self. 
DU.ring the transport of the 
goods from Faridabad to Delhi the octroi at the barrier was 
paid by 
the 
appellant. At the destination the floods were received bv the staff of the appel-
lant and taken to their godown. 
TJ1e purchase orders were placed by the three 
distributors 3.fter \he goods reached the Head-office of the appellant at Delhi. 
In pursuance ·of the orders given by the distributors the 
Delhi staff gave 
delivery of the goods at Delhi under a challan prep&red at Delhi. 
The pro-
perty in the _goods passed at Delhi to the distributors af_ter delivery. The price 
of 1he goods was received by the aopellant at Delhi and deposited 
in the 
appellant's account in its Delhi bank, The refrigerators were 
also exported 
outside India. 
The High Court, in a reference by the Tribunal, hel~ that the distribution 
agreements constituted agreements of sale, that the refngerators moved from_ 
Faridabad to Delhi in' pursuance of the agreements of sale, and hat the appcf-
lant was therefore liable to pay sales-tax under s. 3(a) of lhe A.;t. 
Allowing the appeal t'J thb Cc:lr!, 
464 
SUPREME COURT REPORTS 
( 1974] 1 S.C.R. 
HELD : 
( 1) The three agreements between the appellant and the 
distri~ 
butots were merely agreements for distribution and did not ;onStitute contracts 
of sale. 
[4808-C] 
· 
(a) The number of refrigerators which were to be purchased by each of the 
distributors was not specified in the distribution agreements nor did the 
agree~ 
ments contain the price which was to be charged for ea.ch refrigerator. In two 
of the ·distribution agreements the minimum nul_llber of refrigerators which 
had beep agr~ed upon to be purchased by the distributors was mentioned but 
the exact number of refrigerators to be sold by the appellant to those two 
distributors

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