Commissioner of Sales Tax, Eastern Division, Nagpur vs Husenali Adamji and Co.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 13 of 1958

Decision Date: 21 April 1959

Coram: DAS, C.J., SUDHI RANJAN, Natwarlal H. Bhagwati, M. Hidayatullah

In this matter, the Supreme Court of India delivered its judgment on 21 April 1959. The case was titled Commissioner of Sales-Tax, Eastern Division, Nagpur versus Husenali Adamji and Co. The bench that heard the appeal comprised Chief Justice Das, Justice Sudhi Ranjan, Justice Natwarlal H. Bhagwati and Justice M. Hidayatullah. The official citation of the decision is 1959 AIR 887 and 1959 SCR Supl. (2) 702, with additional references in later reports.

The respondent company was engaged in the trade of matchwood, commonly referred to as “sawar,” and its place of business was located in Chanda, which at the time lay within the former Central Provinces. Under a contractual arrangement with a match factory, the respondent undertook to load varying quantities of sawar logs onto railway wagons and to dispatch those wagons by rail from Chanda and other railway stations situated in the Central Provinces to the town of Ambernath in the former Province of Bombay.

The contract contained several specific clauses that governed the transaction. Clause 4 stipulated that the goods required for supply under the agreement had to be dispatched by the contractor from designated railway stations located within the Central Provinces. Clause 2 reserved to the consignee the right to examine the goods upon their arrival at Ambernath and to reject them if, in the opinion of the factory manager, they failed to meet the agreed specifications. Clause 6 required that the goods be measured under the supervision of a representative of the factory, and it made the decision of the factory manager at Ambernath binding upon the contractor. Finally, Clause 7 provided that the price of the goods would be calculated on a free-on-road basis to Ambernath (F.O.R. Ambernath).

In practice, the parties conducted their business according to the terms of the contract. When the logs reached Ambernath, the factory manager inspected and measured them. The price, determined at the rates stipulated in the agreement, was then paid to the respondent’s agent who was based in Bombay. The central issue that arose for adjudication was the point in time and the place at which ownership of the logs transferred from the respondent to the consignee, and consequently whether the respondent was liable to pay sales tax under the Central Provinces and Berar Sales Tax Act, 1947.

At the moment the agreement was executed, the logs in question were unascertained goods; that is, they were not identified as specific, individual pieces. Moreover, there was no evidence to show that the particular logs that were eventually delivered had existed in the Central Provinces in the form of logs at the date of the contract. Despite this, the sales-tax department imposed a tax liability on the respondent on two primary grounds. First, it argued that ownership of the logs passed under Section 23 of the Indian Sale of Goods Act, 1930 at the time the logs were loaded into the railway wagons at stations within the Central Provinces, a fact it supported by noting that railway receipts were issued in the name of the factory and forwarded to it. Second, the department contended that, even if the first ground were not accepted, the transfer should be deemed to have occurred in the Central Provinces because the logs were situated there when the contract of sale was concluded, relying on Explanation II to Section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947.

The tax department claimed that ownership of the logs passed from the respondent to the factory consignee under section 23 of the Indian Sale of Goods Act, 1930 at the moment the logs were loaded onto railway wagons at stations located in the Central Provinces, because railway receipts numbered 703 were drawn in the factory’s name and then sent to the factory. It also argued that, irrespective of the point of loading, the logs were already situated in the Central Provinces on the date the contract of sale was executed and therefore the transfer of ownership must be deemed to have occurred there under Explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947. The Court examined the contract as a whole and concluded that the parties intended the respondent to ship the logs by rail from various stations in the Central Provinces to Ambernath, where the factory manager would inspect, measure and accept them only if, in his opinion, they matched the agreed description and quality. Consequently, the Court held that the respondent’s act of sending the logs did not transfer ownership to the buyer merely by delivering them to the railway; ownership passed only at Ambernath when the factory, with the seller’s assent, appropriated those logs that satisfied the contractual specifications, which is the moment recognized by section 23 of the Indian Sale of Goods Act, 1930. Furthermore, the Court noted that Explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act requires that, at the date of the contract, the goods must exist in the Central Provinces in the form in which they are agreed to be sold, and found that no evidence was produced to show that the logs were present in that province in the requisite form on the contract date.

The appeal, recorded as Civil Appeal No. 13 of 1958, was taken by special leave from the judgment and order dated 29 June 1954 of the former Nagpur High Court in Miscellaneous Civil Case No. 219 of 1952. Counsel for the appellant were R. Ganapathy Iyer and D. Gupta. Counsel for the respondents comprised M. C. Setalvad, Attorney-General for India, K. G. Chondke, J. B. Dadachanji and K. K. Raizada. The State of Madhya Pradesh intervened through counsel I. N. Shroff. The judgment was delivered on 21 April 1959 by Chief Justice Das. The matter before the Court arose from a reference made by the Board of Revenue under section 23(1) of the Central Provinces and Berar Sales Tax Act, 1947, which stemmed from an assessment order requiring the respondent to pay sales tax for the period from 1 June 1947 to 12 November 1947.

In this case the Court noted that the respondent had a taxable turnover of Rs 30,067-9-0 and was engaged in the trade of matchwood known as “sawar” (Bombay-Malabaricum). The respondent’s place of business was situated at Chanda in the former Central Provinces. In January 1948 the respondent concluded an agreement with Western India Match Co. Ltd., hereinafter referred to as “WIMCO”, for the supply of at least 2,500 tons of sawar logs during the 1947-48 season. The existence of that agreement was confirmed by a letter from WIMCO dated 7 January 1948, which accepted and affirmed the terms of the arrangement; although the letter formed part of the record, it was not reproduced in the Paper Book. It was agreed by both parties that the sale agreement would be governed by the conditions laid down in a formal written contract dated 2 March 1945, and that this contract was to be renewed annually. Before the execution of the 1945 contract, the respondent and WIMCO had entered into an earlier contract dated 18 October 1940. The later 1945 contract superseded the 1940 agreement, and its terms were subsequently renewed each year. Both the 1940 and 1945 contracts were filed before the Sales Tax authorities and were explicitly mentioned in the first question referred to the High Court. Both contracts were printed in the Paper Book, and reference was made to selected provisions of each contract during the arguments presented before the Court. The reason for invoking the terms of the earlier contract, the Court observed, was apparently to highlight the differences in wording between the corresponding clauses of the later contract, thereby suggesting a clear change in the parties’ intentions. Consequently, the Court found it necessary to set out the relevant clauses of both contracts in order to follow the arguments advanced by each side. The earlier contract dated 18 October 1940 began with Clause I, which specified the dimensions and quality of the logs to be supplied; the detailed specifications were not reproduced in the judgment. The material clauses that followed, abridged to omit non-essential language, were quoted as follows: “2. The Contractor agrees that any logs supplied by him which do not conform with the specification herein shall not be accepted or paid for by the company and he, the contractor, undertakes to remove all logs so rejected at his own expense from the Company's premises within fifteen days after date of notice to him or his representative from the Company so to remove such logs. Should the Contractor fail to move such logs from the Company's premises within the period stipulated it is hereby mutually agreed that such failure shall be construed as being the Contractor's consent to”.

The first contract, dated 18 October 1940, contained a clause stating that the contractor must relinquish all claims whatsoever to any logs that the company rejected. The clause further provided that such rejected logs would become the property of the company, and that the contractor would have no right to demand any payment from the company either for the supply of those logs or for any costs incurred by the company in disposing of them. The contract then specified that the goods were to be delivered at Ambernath in the quantities and at the times thereafter mentioned. It required that the goods be dispatched by the contractor from railway stations situated on the Bengal Nagpur Railway (B.N.R.) and the Great Indian Peninsula Railway (G.I.P.R.) sections, listing the relevant stations. A measurement clause required that the goods under this contract be measured under the supervision of the company’s Factory Manager at Ambernath when the goods arrived at the factory, and it expressly stipulated that the contractor must accept the decision of the Factory Manager as final and binding. The price provision, set out in clause 6, declared the price of the logs to be “F.O.R. Ambernath”. The later contract, dated 2 March 1945, repeated the specifications of the logs in clause 1 using exactly the same language as in clause I of the earlier agreement. The material provisions of this later contract, with unnecessary portions omitted, included a clause stating that any logs supplied by the contractor which, upon arrival at Ambernath, were found by the company’s Factory Manager to be non-conforming with the specifications, would not be accepted or paid for by the company, even if the logs had previously been accepted by the company’s representatives before being railed to Ambernath. The text also noted that Ambernath lay in the former province of Bombay and was therefore outside the Central Provinces. Another clause required that the goods be dispatched by the contractor from railway stations on the B.N. Railway, N.S. Railway and G.I.P. Railway sections, naming the stations in the former Central Provinces without reproducing the entire list. Clause 6 again dealt with measurements, providing that the goods would be measured under the supervision of the company’s representative according to specified stipulations, and that the contractor would accept the decision of the Factory Manager at Ambernath as final and binding. The price clause, set out in clause 7, again specified the price as “F.O.R. Ambernath” and concluded with the provision that the company would pay the contractor the amount due when the measurements of the goods had been completed under the supervision of the company’s representative. Pursuant to the agreement between the respondent and WIMCO, the respondent loaded varied quantities of Sawar logs.

On railway wagons the logs were loaded and dispatched by rail from Chanda or other stations situated in the Central Provinces to Ambernath, which lay in the former Bombay Province and also outside the Central Provinces. It was undisputed that on numerous occasions a representative of WIMCO was present at the railway station at the time the logs were sorted and placed into the wagons. The statement of the case filed with the reference under section 23(1) of the Act did not indicate whether the railway receipts were issued in the name of WIMCO as consignee; however, the order of the Assistant Commissioner, Sales Tax, which formed part of the record and had not been contested, clearly stated that “the railway receipt which is a document of title according to section 2(4) of the Indian Sale of Goods Act is taken in the name of the consignee.” The subsequent course of dealing showed that when the logs arrived at Ambernath, the buyer-consignee WIMCO paid the railway freight, the logs were inspected and measured by WIMCO’s Factory Manager, and the price calculated at the agreed rates was then remitted to the respondent’s agent in Bombay. There was no doubt that the price of the logs supplied by the respondent to WIMCO under the agreement and accepted by WIMCO during the relevant period amounted to Rs 30,067-9-0. The issue before the Court was whether the respondent was liable to pay any sales tax under the Act.

For the purpose of deciding that issue, the Court referred to the provisions of law applicable to the facts. Section 4 of that Act was identified as the charging provision, stating that sales tax was payable “on all sales effected after the commencement of the Act.” The term “sale” was defined by section 2(g) of the Act, which, at the relevant time and ignoring Explanation 1 as immaterial, read: ‘“Sale” with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods made in course of the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge….’ Explanation II added: “Notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930, the sale of any goods which are actually in the Central Provinces and Berar at the time when the contract of sale as defined in that Act in respect thereof is made, shall, wherever the-said contract of sale is made, be deemed for the purpose of this Act to have taken place in the Central Provinces and Berar.” Because the Act was enacted by the legislature of the erstwhile Province of Central Provinces and Berar, its operation was confined to the territory of that province. Consequently, the Court needed to determine whether the amount of Rs 30,067-9-0 represented the price of logs sold by the respondent within the Central Provinces, and whether the transfer of property in those goods occurred in the Central Provinces as required by the definition of “sale” or whether the goods were physically present in the Central Provinces at the time the contract of sale defined under the Sale of Goods Act was concluded, as mandated by Explanation II.

In this case, the Court examined whether the amount of Rs 30,067-9-0 represented the price of logs that had been sold by the respondent within the Central Provinces. The essential question was whether the transfer of ownership in those logs, which gave rise to the sale proceeds on which the sales tax was being imposed, occurred in the Central Provinces as contemplated by the definition of “sale” in the provincial legislation, or whether the goods were physically present in the Central Provinces at the time the contract of sale, as defined in the Indian Sale of Goods Act, 1930, was concluded, as required by Explanation II of the provincial statute.

The Court turned to the Sale of Goods Act, 1930, and began with Section 4, which explains the concepts of sale and agreement to sell. Sub-section (1) declares that a contract of sale is one in which the seller transfers or agrees to transfer the property in goods to the buyer for a price. Sub-section (2) distinguishes between absolute and conditional contracts of sale. Sub-section (3) states that where the property in the goods passes from seller to buyer, the contract is called a sale; if the transfer is to take place at a later time or subject to a condition, the contract is termed an agreement to sell. Sub-section (4) adds that an agreement to sell becomes a sale when the time expires or the condition is fulfilled, thereby effecting the transfer of property.

Applying this provision, the Court found that the arrangement under which the respondent supplied logs to WIMCO was an agreement to sell within the meaning of Section 4. There was no dispute that, at the date the agreement was executed, the logs were unascertained goods. Consequently, the Court had to determine when that agreement to sell unascertained goods transformed into a sale and where that transformation took place. In other words, it was necessary to ascertain the exact moment and location at which the property in the logs passed from the respondent to WIMCO.

The transfer of property in goods is dealt with in Chapter III of the Sale of Goods Act. Section 18 provides that where a contract involves unascertained goods, no property passes to the buyer until the goods are ascertained. The Court noted that sections 19 to 22 mainly concern contracts for specific or ascertained goods and, except for sub-section (3) of Section 19, are not directly applicable to the present situation. The analysis therefore proceeded to Section 23, which addresses the sale of unascertained goods and the concept of appropriation. Sub-section (1) of Section 23 states that where a contract exists for the sale of unascertained or future goods described in a particular way, and such goods in a deliverable state are unconditionally appropriated to the contract—either by the seller with the buyer’s assent or by the buyer with the seller’s assent—the property in the goods passes to the buyer. The assent may be expressed or implied and may be given either before or after the appropriation. Sub-section (2) adds that if, in performance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee without reserving the right of disposal, the seller is deemed to have unconditionally appropriated the goods to the contract, thereby effecting the transfer of property.

Section 23 of the Sale of Goods Act provides that when a contract involves goods that are described but not yet identified, the property in those goods passes to the buyer as soon as the goods are unconditionally appropriated to the contract. Such appropriation may be carried out either by the seller with the buyer’s assent or by the buyer with the seller’s assent, and the assent may be expressed or implied, whether given before or after the appropriation. Sub-paragraph (2) of the same section adds that if, in performance of the contract, the seller delivers the goods to the buyer or to a carrier or any other bailee—whether or not the carrier is named by the buyer—and the seller does not retain any right of disposal, this delivery is treated as an unconditional appropriation of the goods to the contract. The legislature further clarifies the concept of delivery in Section 33, which states that delivery of sold goods may be effected by any act that the parties have agreed shall constitute delivery or by any act that results in the goods being placed in the possession of the buyer or of a person authorized to hold them on the buyer’s behalf. Section 39(1) expands this principle by providing that, when the seller is authorized or required to send the goods to the buyer, the act of delivering the goods to a carrier—whether named by the buyer or not—or to a wharfinger for safe custody is, on its face, deemed to be delivery of the goods to the buyer.

Applying these statutory provisions to the present dispute, the tribunal needed to determine the precise moment and location at which ownership of the timber logs transferred from the respondent to WIMCO. The Assistant Commissioner of Sales Tax assessed the respondent to a tax liability of Rs 939-10-0 and imposed a penalty of Rs 100 under Section 25 of the Sales Tax Act for failing to file a return, thereby contravening Rule 19 of the Central Provinces and Berar Sales Tax Rules. The Assistant Commissioner reasoned that the loading of the logs onto railway wagons at stations situated within the Central Provinces, together with the issuance of railway receipts indicating WIMCO as the consignee and the subsequent delivery of those logs to WIMCO, amounted to placing WIMCO in possession of the goods in accordance with Section 39(1) of the Indian Sale of Goods Act. Consequently, the Assistant Commissioner concluded that the sale was effected at Chanda and other railway stations in the Central Provinces, rendering the respondent liable to pay sales tax under the Act. The respondent appealed this assessment to the Sales Tax Commissioner, who affirmed both the assessment and the imposed penalty, placing particular emphasis on Explanation II to Section 2(g) of the Sales Tax Act in support of the decision.

In the proceedings before the Board of Revenue, the memorandum of appeal filed by the respondent was treated as an application for revision under sub-section 5 of section 22 of the Act read with rule 57, because a second appeal was not permitted under section 22(4) of the Act. Both members of the Board reached the same ultimate conclusion that the sales were liable to assessment under the Act, although each arrived at that conclusion through a different line of reasoning. One member of the Board, identified previously as Shri Shrivastava, argued that when logs that corresponded to the agreed description were brought to the railhead at Chanda, sorted, and loaded onto wagons in the presence of representatives of WIMCO, an implied contract for the sale of specific and ascertained goods was created. This implication, he said, was demonstrated by the conduct of the parties, and consequently the title to the property in each consignment passed immediately from the respondent to WIMCO at that railway station situated within the Central Provinces, where such implied contracts were deemed to have been made. The Chairman of the Board, on the other hand, held that the contract of sale was actually concluded outside the Central Provinces, namely in Bombay, and that under the Sale of Goods Act the property in the logs passed to WIMCO at Ambernath, which lay outside the province. Nevertheless, because the logs were physically present in the Central Provinces—either as logs or in the preceding form of trees standing on land that had been implicitly agreed to be severed before the actual sale—Explanation II to section 2(g) of the Sales Tax Act applied. Accordingly, the sale was to be deemed to have taken place within the Central Provinces and therefore attracted sales tax liability. While the Board rejected the respondent’s application for revision, it chose to remit the penalty that had been imposed. Subsequently, relying on section 23(1) of the Act, the Board filed a statement of case before the High Court, raising four specific questions: (1) whether the agreements dated 18-10-40 and 2-3-45 constituted contracts of sale—express or implied—relating to saw-wood supplied by the assessee to WIMCO; (2) if so, whether those contracts pertained to specific and ascertained goods or to unascertained or future goods; (3) whether the title to the goods passed to WIMCO by simple consignment at various railway stations within the province, or passed at Ambernath when the goods were approved as stipulated in the contract; and (4) whether reliance on the definition of “goods” in section 2(7) of the Sale of Goods Act was appropriate for applying Explanation II to section 2(g) of the Sales Tax Act in cases where the goods sold existed as trees standing on land in the province at the time of the contract of sale.

The Court considered a series of questions that had been framed by the Board of Revenue. The first question asked whether the contracts dated 18-10-1940 and 2-3-1945 were contracts of sale, either express or implied, for the sawar wood that the assessee had supplied to WIMCO. The second question inquired whether, if the contracts were indeed sales, they dealt with specific, ascertained goods or with unascertained or future goods. The third question examined where the property in the goods passed to WIMCO – whether it passed by simple consignment at various railway stations within the province or whether it passed at Ambernath when the goods were approved as stipulated in the contract. The fourth question asked whether it was appropriate to rely on the definition of “goods” contained in section 2(7) of the Sale of Goods Act when applying Explanation II to section 2(g) of the Sales Tax Act in cases where the goods sold consisted of trees standing on the land in the province at the time of the contract of sale.

In its judgment dated 29 June 1954, the High Court held that the sales in dispute did not occur in the Central Provinces and Berar and therefore were not “sales” within the meaning of the Sales Tax Act. Consequently, the High Court concluded that the transactions were not liable to tax. The High Court then answered the four questions as follows. First, it said that the agreement in question was an express agreement to sell sawar logs to WIMCO and that there was neither an express nor an implied contract each time the goods were placed on a railway. Second, it observed that the contract was not for the delivery of specific goods but for unascertained or future goods described only in general terms. Third, the High Court held that the property in the goods did not pass to the buyer at the railway for carriage; instead, the property passed at Ambernath when the goods were appropriated by the buyer to the contract with the seller’s assent. Fourth, the Court stated that the word “goods” in the definition of sale in the Sales Tax Act must be interpreted according to its definition in section 2(d) of that Act and not according to the definition in section 2(7) of the Sale of Goods Act, because the standing sawar trees were not “goods” within the meaning of the Sales Tax Act.

The effect of those answers was to nullify the assessment order. Accordingly, the Commissioner of Sales Tax appealed to this Court after obtaining special leave. The Court noted that the answers to the first two questions had not been challenged before it. The principal controversy centred on the answers to questions 3 and 4. The answer to question 3 depended on the construction that the High Court gave to section 23 of the Sale of Goods Act. After reproducing section 23, the High Court remarked: “After sorting the logs with the assent of the buyer’s representative, the applicant appropriated the logs to the contract by railing them to the buyer’s destination at Ambernath. The statement of the case is silent on the point whether the railway receipts were made out with the Company as the consignee. The assent of the representative was provisional and was not binding on the Company. Under the agreement it did not agree to unconditionally appropriate the logs to the contract as soon as they were delivered to the railway with …”

The Court observed that the buyer’s representative had given assent only for the carriage of the logs to Ambernath, and that the buyer had expressly retained the right to reject the goods after examination at Ambernath. Consequently, the agreement required that the buyer, with the seller’s assent, should appropriate the goods to the contract when they arrived at Ambernath. Under section 23 of the Sale of Goods Act, the appropriation was not complete until the logs actually reached Ambernath and were appropriated by the buyer’s company to the contract. The appropriation performed by the applicant at the railheads was therefore conditional upon the buyer’s acceptance of the logs at Ambernath. The case record did not contain any evidence showing that the logs had not been appropriated in this manner, and the Court held that, on that basis, ownership of the logs passed to the buyer at Ambernath.

Counsel for the department, who appeared in support of the appeal, argued that ownership of the logs passed from the respondents to WIMCO under section 23 when the saw-log logs were brought to the railway station, loaded onto wagons, and railway receipts were issued in the name of WIMCO. The department counsel asserted that the respondent had unconditionally appropriated the goods to the contract and that WIMCO had given assent to that appropriation in two distinct ways. First, assent was allegedly expressed by a WIMCO representative who was present at the railway station. Second, assent was implied by WIMCO’s prior agreement that the goods should be dispatched by rail from the stations specified in clause 4 of the contract, all of which were located in the Central Provinces. The department counsel conceded that the contract involved the sale of unascertained goods, and therefore, under section 18, ownership could not pass until the goods were ascertained. The counsel’s position was that the logs, being of the contract-specified quality and description, had been unconditionally appropriated by the respondent without reserving any right of disposal, and that WIMCO had either expressly, through its representative, or implicitly, by the terms of the contract, assented to such appropriation. Accordingly, ownership, according to the counsel, passed under section 23 from the respondent to WIMCO at the railway stations in the Central Provinces as soon as the logs were loaded onto the wagons and the railway receipts were issued in WIMCO’s name. The counsel further noted that the respondent had unconditionally appropriated the logs to the contract and, because WIMCO actually accepted the logs upon their arrival at Ambernath, the logs were clearly of the contract-specified quality and description. The remaining issue, as framed by the department counsel, was whether WIMCO had indeed consented to the appropriation. It was established as a fact that a WIMCO representative was not present on every occasion when the saw-log logs were loaded onto railway wagons, and there was no evidence that the representative had authority to bind WIMCO by any assent.

It was recorded that there was no evidence that the representative of WIMCO was present when the particular sawar logs, whose sale proceeds were the subject of the dispute, were loaded onto the railway wagons. Moreover, there was not a single piece of proof that the representative possessed any authority to bind WIMCO by giving an assent. Because of these evidentiary gaps, the counsel for the department chose not to rely on a claim of express assent by the WIMCO representative and instead concentrated on the possibility of implied assent. The language of section 23 made it clear that appropriation of property could occur either by the seller with the buyer’s assent or by the buyer with the seller’s assent, and that such assent could be expressed or implied, and could be given either before or after the appropriation. The counsel placed strong emphasis on clause 4 of the contract, which required that the sawar logs be dispatched by rail from specified stations within the Central Provinces. He argued that delivering the logs of the agreed quality and description to the railways without reserving any right of disposal resulted, under section 23, in the passage of ownership to WIMCO at the railway stations, and that this delivery also satisfied sections 33 and 39(1). This line of reasoning appeared sound at first glance, unless another contractual provision contradicted it, such as a term requiring delivery at Ambernath, as discussed in the cited authorities.

The counsel did not contend that, if the dispute were decided on the basis of the earlier contract dated 18 October 1940, there was any clause denying the transfer of property within the Central Provinces. He noted that the combined effect of clause 2 (which provided that property in rejected logs would pass to WIMCO after the respondent’s failure to remove them), clause 3 (which stipulated delivery at Ambernath in the presence of WIMCO’s Factory Manager), and clause 6 (which fixed the price on an F.O.R. Ambernath basis) clearly opposed the theory that ownership passed at the moment the logs were loaded onto the wagons. While he did not dispute this implication, he maintained that the later contract of 2 March 1945, which actually governed the matter, contained no provision negating the earlier conclusion. The court found this distinction unconvincing. Although the later contract expressed clause 2 in different wording and omitted an express provision for delivery at Ambernath, several other clauses in the later agreement indicated that ownership of the logs loaded onto the wagons would not vest in WIMCO until after arrival at Ambernath, inspection, measurement, and acceptance by the Factory Manager. These provisions showed that any earlier acceptance by a representative was tentative and subject to final approval, thereby undermining the notion that title passed at the railway stations in the Central Provinces.

The contract provides that ownership of the logs will not transfer to WIMCO until the goods have arrived at Ambernath and have been inspected, measured, and accepted by the Factory Manager of WIMCO. Clause two of the later agreement expressly preserves for WIMCO the authority to examine the goods upon their arrival and to refuse them if, in the judgment of its Factory Manager, they do not conform with the required specifications. This reservation is made even though the logs might have been preliminarily accepted by a WIMCO representative before they were loaded onto the train bound for Ambernath. The preliminary acceptance therefore was not final but merely provisional and dependent upon later approval by the Factory Manager at Ambernath. Consequently, the circumstance argues against any view that ownership of the logs had already passed to WIMCO at the railway stations located in the Central Provinces. Clause six commands that the goods shall be measured under the supervision of a WIMCO representative, and that the decision of the Factory Manager at Ambernath shall be binding on the respondent. Clause seven further stipulates that the price shall be quoted as F O R Ambernath and shall become payable only after the measurement undertaken by the WIMCO representative. These provisions reinforce the parties’ intention that ownership of the logs would not vest in WIMCO until the logs reached Ambernath, were inspected, measured, and accepted by WIMCO. The combined effect of these provisions is to make the final transfer of ownership conditional upon successful completion of the inspection and measurement process at Ambernath. Only after the measurement, as supervised by the WIMCO representative, could the price become due, further tying the payment to the acceptance of the goods.

In our view, the initial argument that the respondent might have appropriated the logs by loading onto wagons logs of the contracted quality with the respondent’s prior consent, as suggested by element four of the earlier terms, is displaced by clauses two, six, and seven of the later contract. These later clauses clearly demonstrate a contrary intention. A proper construction of the entire agreement reveals that the parties intended the respondent to ship the logs by rail from various stations in the Central Provinces to Ambernath. At Ambernath, the Factory Manager of WIMCO would examine, measure, and accept the logs only if, in his opinion, they matched the agreed description and quality. In other words, the respondent dispatched the logs and left it to WIMCO to select, from the shipment, those logs that met the contract specifications and to thereby appropriate them under the contract. Accordingly, the respondent gave its prior consent to WIMCO’s right to appropriate the goods at Ambernath upon satisfactory inspection. For these reasons, the decision of the High Court cannot be challenged and must be upheld as well-founded both on facts and on law. The High Court had examined the same contractual terms and concluded that ownership passed only after the stipulated inspection, a view that aligns with our interpretation. Counsel for the department then relied on Explanation II to section 2 g and argued, albeit without great vigor, that despite the provisions of the Sale of Goods Act concerning the transfer of ownership, the sale in question should be deemed to have taken place within the Central Provinces. This argument was based on the view that the Explanation governed the location of the transaction. The court therefore found no merit in applying the Explanation to alter the location of the sale. The question of the constitutional validity of

The Court observed that the Explanation had not been raised before the High Court and, in view of the decision in Poppatlal Shah v. State of Madras (1) and other authorities, it could not now be introduced; consequently the Court proceeded on the premise that Explanation II did not exceed the legislative competence of the body that enacted it. The Court noted that Explanation II could apply only when the goods “in respect of” which a contract of sale is concluded are actually situated in the Central Provinces on the date the contract is made. The counsel for the department argued that the logs delivered must have existed in the Central Provinces either as finished logs or as standing timber. However, the Court found no evidence that, on the date the sale agreement was executed, the specific logs supplied under that agreement were present in the Central Provinces in the form of logs. The counsel further maintained that, at the very least, the timber must have existed there as standing timber. Apart from any other considerations, the Court pointed out that the agreement was in respect of standing timber and that there was no clause in the contract between the respondent and WIMCO allowing the standing timber to be severed before its sale under that agreement. To trigger Explanation II, the goods concerned by the sale must, on the contract date, be physically present in the Central Provinces in the exact form in which they are agreed to be sold. The Court found not a single piece of evidence supporting that condition. Accordingly, the Court held that the alternative argument advanced by the department had no merit. As a result, the appeal was dismissed with costs, and the order of dismissal was affirmed. (1) [1953] S.C.R. 677.