A) ABSTRACT / HEADNOTE

This landmark Supreme Court case The Commissioner of Sales-Tax, Eastern Division, Nagpur v. Husen Ali Adamji and Co., [1959] Supp. (2) SCR 702, addresses a vital question under sales tax jurisprudence—determining the location and time of transfer of property in unascertained goods within the meaning of the Indian Sale of Goods Act, 1930 and Central Provinces and Berar Sales Tax Act, 1947. The case arose from a contractual dispute wherein Husen Ali Adamji and Co., a matchwood supplier based in Chanda (then in Central Provinces), supplied unascertained goods (Sawar logs) to WIMCO in Ambernath, outside the taxing territory. The primary legal conflict was whether sales tax could be levied in the Central Provinces on goods that passed property and were accepted at a different location. The Supreme Court ruled that the property in goods passed only upon acceptance at Ambernath, thus outside the taxing state, and further held that Explanation II to Section 2(g) of the 1947 Act was inapplicable, as the goods were neither ascertained nor shown to be located in the taxing territory at the time of contract. This case offers seminal guidance on sale transactions involving unascertained goods, contractual appropriation, and legislative tax limits.

Keywords: Transfer of Property, Unascertained Goods, Sales Tax, Place of Sale, Contractual Appropriation, Sale of Goods Act.

B) CASE DETAILS

i) Judgement Cause Title:
The Commissioner of Sales-Tax, Eastern Division, Nagpur v. Husen Ali Adamji and Co.

ii) Case Number:
Civil Appeal No. 13 of 1958

iii) Judgement Date:
21st April 1959

iv) Court:
Supreme Court of India

v) Quorum:
S.R. Das, C.J., N.H. Bhagwati and M. Hidayatullah, JJ.

vi) Author:
Das, C.J.

vii) Citation:
[1959] Supp. (2) SCR 702

viii) Legal Provisions Involved:

• Section 4, 18, 23, 33, 39 of the Indian Sale of Goods Act, 1930

• Section 2(g), Explanation II of the Central Provinces and Berar Sales Tax Act, 1947

ix) Judgments Overruled by the Case:
None explicitly overruled.

x) Law Subjects:
Taxation Law, Contract Law, Commercial Law, Constitutional Law (insofar as taxing jurisdiction), Sale of Goods Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This appeal, arising from an order of the High Court at Nagpur dated June 29, 1954, challenges the imposition of sales tax under the Central Provinces and Berar Sales Tax Act, 1947. The issue emanated from a contract of supply between Husen Ali Adamji and Co., based in Chanda (Central Provinces), and WIMCO, a match factory situated in Ambernath (then in Bombay Province). Pursuant to the contract, matchwood logs were dispatched from Chanda and other stations in the Central Provinces by rail to Ambernath. The logs were subject to quality inspection at Ambernath, and prices were “F.O.R. Ambernath” with payments made post inspection. The taxing authority claimed tax liability accrued at the point of dispatch in Chanda, asserting that property passed there. However, the assessee contended that no such transfer occurred until inspection and acceptance in Ambernath, outside the taxing territory.

D) FACTS OF THE CASE

The respondent-company dealt in matchwood logs and supplied them to WIMCO. Their agreement stipulated that logs would be transported by rail from designated stations within the Central Provinces to Ambernath. Importantly, Clause 2 of the contract reserved WIMCO’s right to reject the goods on arrival if they did not conform to specifications. Clause 6 required measurement and inspection under the factory manager’s supervision at Ambernath. Payments were to be made post-inspection, and prices were marked “F.O.R. Ambernath.” The logs in question were unascertained at the time of the contract. The State Sales Tax department levied tax on the premise that ownership passed in Chanda when logs were loaded, relying on Section 23 of the Sale of Goods Act, 1930, and Explanation II to Section 2(g) of the 1947 Act. The Board of Revenue upheld this assessment. However, the High Court reversed, holding that the property passed in Ambernath upon acceptance, not at dispatch.

E) LEGAL ISSUES RAISED

i) Whether property in unascertained goods passed in the Central Provinces upon dispatch or only upon acceptance at the destination.

ii) Whether Explanation II to Section 2(g) of the 1947 Act applied where goods were not shown to exist in the Central Provinces at the time of contract.

F) PETITIONER/APPELLANT’S ARGUMENTS

i) The counsel for the Sales Tax Commissioner argued that property passed when the seller loaded the goods on the railway wagons and consigned them to WIMCO. They relied on Section 23(2) of the Sale of Goods Act, 1930, which provides that if a seller delivers goods to a carrier without reserving the right of disposal, it is deemed to be unconditional appropriation. According to them, the railway receipts, taken in WIMCO’s name and sent directly, implied transfer of ownership at the point of dispatch. They asserted this sufficed for a completed sale within the Central Provinces, thereby justifying tax liability under the 1947 Act.

They further argued that, under Explanation II to Section 2(g) of the Sales Tax Act, any goods located in the Central Provinces at the time of a sale contract would be deemed to have been sold there, irrespective of actual delivery location. They contended the logs were either in log form or as standing timber within the province at the contract’s inception. Therefore, the jurisdictional basis for taxation was allegedly satisfied.

G) RESPONDENT’S ARGUMENTS

i) The respondents, represented by the then Attorney-General M.C. Setalvad, argued that no sale was complete at the point of dispatch. They emphasized that the contract was for unascertained goods, and under Section 18 of the Sale of Goods Act, 1930, no property can pass unless the goods are ascertained. They asserted that only upon inspection, measurement, and acceptance at Ambernath did appropriation to the contract occur, thereby completing the sale.

They relied on Clause 2, which expressly permitted WIMCO to reject goods upon arrival if not conforming to specifications, despite any preliminary acceptance at dispatch. Thus, the sale was conditional and only crystallized upon approval at Ambernath, which lay outside the taxable territory.

On Explanation II, they argued it had no application unless the goods existed in the province at the time of the contract in the very form in which they were to be sold. There was no evidence that specific logs existed in the Central Provinces at that time.

H) RELATED LEGAL PROVISIONS

i) Section 18 of the Sale of Goods Act, 1930 – No property in unascertained goods passes unless and until the goods are ascertained.

ii) Section 23 – Property in goods passes upon unconditional appropriation to the contract with mutual assent.

iii) Section 2(g), Explanation II of the Central Provinces and Berar Sales Tax Act, 1947 – Provides legal fiction that if goods exist in the province at contract time, the sale is deemed to occur there.

iv) Section 4 of the Sale of Goods Act – Distinction between a sale and an agreement to sell.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that the sale was of unascertained goods, and property could not pass until ascertainment and appropriation under Section 23. Since the contract reserved WIMCO’s right to inspect and reject at Ambernath, the logs were only appropriated to the contract upon their acceptance at that location. Thus, the sale occurred in Ambernath, outside the jurisdiction of the Central Provinces and Berar Sales Tax Act.

The Court also emphasized that railway consignment did not conclusively indicate unconditional appropriation under Section 23. Instead, the right of final approval and the contract’s conditional language rebutted such a presumption. Thus, the assessee had no liability under the provincial Sales Tax law.

b. OBITER DICTA 

i) The Court noted that even if Explanation II were constitutionally valid, it would not apply unless it was proved that the goods were present in the Central Provinces in the same form as agreed to be sold. Standing timber could not qualify unless there was evidence of severance. The failure to prove this factual element invalidated reliance on Explanation II.

c. GUIDELINES 

• Unascertained goods must be appropriated before the property can pass.

• Conditional approval clauses in contracts delay the passing of property until actual acceptance.

• F.O.R. delivery terms do not automatically establish transfer of ownership at the dispatch point.

• The intention of the parties governs the time and place of transfer.

• Legal fictions under tax statutes must align with factual evidence of goods’ location and condition.

J) CONCLUSION & COMMENTS

This case reasserts that taxation of sales requires clear proof of where ownership passes. Courts must examine the contract holistically to discern parties’ intent. The Court applied fundamental contract law principles while also scrutinizing statutory tax fiction. The judgment affirms taxpayer protection from overreaching fiscal jurisdiction and underscores that conditional contracts involving unascertained goods necessitate final appropriation and acceptance before transfer. Thus, it sets a precedent limiting the reach of state sales tax over inter-state commercial transactions.

K) REFERENCES

a. Important Cases Referred

[1] Poppatlal Shah v. State of Madras, [1953] SCR 677
[2] The Badische Anilin und Soda Fabrik v. The Basle Chemical Works, Bindschedler, [1898] AC 200

b. Important Statutes Referred

[3] Indian Sale of Goods Act, 1930
[4] Central Provinces and Berar Sales Tax Act, 1947