STATE OF TAMIL NADU versus SRI SRINIVASA SALES CIRCULATION

Citation: [1996] SUPP. 7 S.C.R. 185 · Decided: 04-10-1996 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

... 
STATE OF TAMIL NADU 
A 
v. 
SRI SRINIVASA SALES CIRCULATION 
OCTOBER 4, 1996 
[S.P. BHARUCHA AND FAIZAN UDDIN, JJ.] 
B 
Tamil Nadu General Sales Tax Act, 1959: Section 3(1). 
Sales Tax-AY 1967-68-Sale-{]nder an implied contract-Liability to 
tax-Assessee floated a scheme under which a purchaser of a coupon for Rs.5 C 
got 3 more coupons for Rs.J~urchaser in tum sold these coupons to three 
persons and retained the amount-Thereafter, assessee gave 3 coupons to the 
said three persons for Rs.JS for further sale--On payment by the said three 
persons, the original purchaser became entitled to receive an a1ticle of his 
choice mentioned by him in the order fomi-Held: Such a transaction is a 
sale under an implied contract and liable to sales tax-Sale of Goods Act, D 
1930. 
The respondent-assessee floated a scheme under which the coupon 
of the respondent was sold to a customer, say A, on payment of Rs. 5. 
Thereafter, A received three coupons for Rs. 16, which he sold to three E 
persons for Rs.5 each and appropriated the amount so received by himself. 
When each of the three persons to whom the coupons were sold by A, 
further sold their coupons to others, namely, B, C and D, one cycle was 
completed and the customer A in turn received the article of his choice as 
mentioned by him in the coupon from the respondent. In this process the 
~spondent dispatched a letter to the customer A advising him to sell the F 
three order forms to three members and take that money himself. Not only 
this, the assessee further addressed a letter to the customer A in a printed 
form conveying their thanks to him and that they had received three 
original order forms and the letter stated further that as soon as the 
V.P.Ls. were cleared by paying Rs.16 (Rs.15 as price of 3 coupons and Re.1 G 
as postal charges) each, it would send him the required article by 
registered parcel. Thereafter, the respondent ultimately dispatched the 
article of his choice to the customer A with a covering letter advising him 
to receive the article by paying the stated amount. 
The Assessing Officer took the view that there was a sale of article H 
185 
186 
SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R. 
A to every person who had participated irr the scheme and that such turnover 
for the assessment year 1967-68 was liable to be taxed under Section 3(1) 
of the Tamil Nadu General Sales Tax Act, 1951). The order of the Assessing 
Officer was upheld by the Appellate Assistant Commissioner as well as by 
the Sales Tax Appellate Tribunal. The respondentfiled a revision before 
the High Court. The High Court held that the transactions involved in the 
B scheme were not sale and, therefore, the respondent assessee was not liable 
to sales tax. Hence this appeal. 
On behalf of the appellant-State it was contended that the transac-
tions involved in the scheme were sales as defined in Section ·4· of the Sale 
C of Goods Act, 1930 and hence liable to sales tax under the Act. 
Allowing the appeal, this Court 
HELD : 1. Under the Sale of Goods Act, 1930, it is essential to 
establish that there is an agreement between the parties for transfer of title 
D to the goods and that such agreement should be supported by money 
consideration and as a result of the transaction 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, 
E 1930. But if the title of the goods passes without any contract between the 
parties, express or implied, there is no sale. Similarly, if the consideration 
of the transfrr 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. [191-H; 192-A-B] 
p 
2. From the facts of this case 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 pay-
ment and the article of the choice is ultimately sent to the customer. There 
G is thus offer and acceptance. If the contents of the entire scheme are 
minutely looked into, it substantially amounts to sale. All the attributes, 
characterist

Excerpt shown. Read the full judgment & AI analysis in Lexace.