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AFR Reserved on 07.09.2016 Delivered on 10.11.2016 Court No. 34 1. Case : WRIT TAX No. 657 of 2015 Petitioner : M/S Dominos Pizza Overseas Franchising B.V. Respondent : State of U.P. and others Counsel for Petitioner : Nishant Mishra, Tarun Gulati Counsel for Respondent : C.S.C.,C.B. Tripathi 2. Case : WRIT TAX No. 465 of 2016 Petitioner : M/S Dominos Pizza International Franchising Inc. Respondent : State of U.P. and others Counsel for Petitioner : Nishant Mishra, Tarun Gulati Counsel for Respondent : C.S.C.
Hon'ble Sudhir Agarwal,J. Hon'ble Dr. Kaushal Jayendra Thaker,J. (Delivered by Hon'ble Sudhir Agarwal, J.) 1. In both these writ petitions, assessments made by Deputy Commissioner, Commercial Tax, Sector13, Noida (hereinafter referred to as the “Assessing Officer) are under challenge on the ground that the same are wholly without jurisdiction and, therefore, a nullity. 2.
In Writ Petition No. 657 of 2014, assessment relates to year
201112 while in connected Writ Petition No. 465 of 2016 it relates to Assessment Year 201213. 3.
Facts are common, hence for the purpose of reference to
pleadings, with the consent of learned counsel for the parties, Writ Petition No. 657 of 2015 is taken as leading case. 4.
The facts as pleaded by petitioner are that, it is a Corporation
registered in Netherland, being P.O. Box No. 717444, 1008, DE Amsterdam, the Netherlands. It is engaged in the business of franchising Domino Pizza Stores. Such stores specialize in business of sale of pizza, feature carry out, delivery services and operate a uniform business format, specially designed equipment, recipes,
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methods procedures and designs. It entered into a licence agreement dated 17.04.2007 with Dominos IP Holder LLC, a limited liability company, organized under the State of Delaware, United States of America. Under the said agreement, Dominos IP Holder LLC provided to petitioner, right to grant franchises for Dominos Pizza Stores including right to licence, use of trademark “DOMINOS PIZZA”, in certain areas, outside United States of America. Accordingly, petitioner entered into a Master Franchise agreement dated 23.09.2009 (hereinafter referred to as the “Franchise Agreement”) with M/s Jubilant Foodworks Ltd. (hereinafter referred to as the “JFL”) to develop and operate Dominos Pizza Stores and to grant subfranchise of Dominos Pizza Stores in India, Nepal, Bangladesh and Srilanka. The franchise agreement dated 23.09.2009 was executed in Netherland. In lieu of grant of such franchise, JFL was paying consideration, equivalent to 3% of total sales, made in stores, as “Royalty” to petitioner. JFL is also paying applicable “Service Tax” on Royalty amount, paid to petitioner, under category of “franchise service” under Section 65(105(zze) of Finance Act, 1994, under reverse charge mechanism. 5.
Respondent3, however, issued a show cause notice dated
25.03.2015, directing petitioner to produce books of accounts alongwith other relevant material for Assessment Year 201112. Notice was issued on premises that JFL is using trademark of petitioner, therefore, Royalty paid by it on sale of manufactured goods is taxable under U.P. Value Added Tax Act, 2008 (hereinafter referred to as the “VAT Act, 2008”). 6.
Petitioner replied notice on 22.04.2015 stating that notice is
without jurisdiction since agreement between petitioner and JFL was executed outside India, therefore, Respondent3 has no jurisdiction to levy tax on transaction executed outside India. Respondent3, however, passed Assessment Order dated 30.04.2015 holding
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petitioner liable to pay VAT and assessed tax liability for Assessment Year 201112 to Rs. 30,67,057/. Consequently demand notice dated 01.07.2015 was issued by Respondent4 directing petitioner to deposit Rs. 30,67,057/. 7.
For Assessment Year 201213, which is subject matter of
connected Writ Petition No. 465 of 2016, show cause notices were issued on 14.03.2016 and 21.03.2016 and thereafter assessment order was passed on 31.03.2016 assessing tax liability to Rs. 4,63,289/. 8.
These assessment orders have been challenged on the ground
that entire proceedings are wholly without jurisdiction. 9.
The principal contention is that incidence of tax is on 'dealer'
and levy of tax is, “sale and purchase of goods”. Term ‘dealer’ is defined under Section 2(h) of VAT Act, 2008 which includes any person who carries on business of transfer of right to use any goods for any purpose (whether or not for a specified period) for cash or for deferred payment or other valuable consideration in State of U.P. It is said that only when transfer of right to use any goods is subjected in State of U.P., the same is taxable and not otherwise. In the present case since “Franchise agreement” was executed outside India, therefore, neither petitioner is 'dealer' in State of U.P. within the definition of 'dealer' under Section 2(h) of VAT Act, 2008 nor petitioner’s “franchise agreement” and service rendered thereunder is chargeable to VAT for the reason that it is a franchise service and petitioner is already subject to Service Tax which it is paying to concerned department. Reliance is placed on decisions in 20th Century Finance Corpn. Ltd. and another Vs. State of Maharashtra, 2000(6) SCC 12; Imagic Creative Pvt. Ltd. Vs. CCT, 2008(9) STR 337; Goa Carbon Ltd. Vs. Commissioner of Trade Tax, 2008(11) SCC 176; Idea Mobile Communication Ltd. Vs.
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C.C.E. & C., Cochin, 2011 TIOL 71 SCST; and, Bharat Sanchar Nigam Limited Vs. Union of India, 2006(3) SCC 1. 10.
Learned Standing Counsel, per contra, submitted firstly, that
writ petitions having been filed against orders of assessment, petitioner has a statutory alternative remedy of appeal and, therefore, must avail same. Secondly, it is contended that right to use goods is being exercised in State of U.P., therefore, it is taxable under VAT Act, 2008. It is said that “place of business” is defined as a place where a 'dealer' carries business and includes any place where a dealer execute works contract or where the right to use goods is exercised and in that view of the matter since right to use goods is exercised in State of U.P., it is taxable under VAT Act, 2008. Reliance is placed on this Court’s decision in M/s Vysya Bank Ltd. Vs. The Commissioner of Trade Tax, U.P., Lucknow, 2009 NTN (Vol. 41) 327. It is also argued that, a transaction, if is a deemed 'sale' under VAT Act, 2008, such transfer of right to use goods are outside the purview of Service Tax. It is submitted that Assessing Officer has rightly held that transaction is taxable under VAT Act, 2008 and arguments otherwise have no force. 11.
Before coming to discussion of statutory provisions and judicial
precedents to find out whether transaction in question is subject to VAT under VAT Act, 2008, it would be appropriate to have a glance over the nature of agreement and transfer of right to use goods between parties. 12.
The principal body which owns, uses, promotes and license
certain trade and business names, trade and service marks and commercial symbols in connection with operation of “Domino’s Pizza Stores”, including the mark “DOMINO’S PIZZA”, is Domino’s IP Holder LLC, organized under the laws of State of Delaware, United States of America (hereinafter referred to as “IP Holder”).
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13.
Another Company was constituted at Netherland, namely,
“Domino’s Pizza Overseas Franchising B.V.” (hereinafter referred to as the “Franchiser/DPOF”). 14.
IP Holder entered into an agreement dated 27.03.1995 with
M/s Domino’s Pizza India Limited, after obtaining approval of collaboration from Reserve Bank of India vide Bank’s letter dated January, 1995. Subsequently, arrangement was changed and Franchiser/DPOF entered into a licence agreement dated 17.04.2007 with IP Holder, obtaining right to grant franchise for “Domino’s Pizza Stores” including right to licenced use of marks in certain areas, outside the United States of America. 15.
M/s “Domino’s Pizza India Limited” then requested
Franchiser/DPOF to grant Master Franchise to develop and operate and to grant subfranchises of Domino’s Pizza Stores in the area of India, Nepal, Bangladesh and Sri Lanka. Referring to aforesaid request made by M/s “Domino’s Pizza India Limited” and in reference to original agreement dated 27.03.1995, and all subsequent amendments, a new agreement was executed on 23.09.2009/ 01.10.2009/ 02.10.2009 with a clear stipulation that it will supersede provisions of original Master Franchise Agreement and subsequent amendments and terms and conditions of such agreement (copy of agreement dated 23.09.2009/ 01.10.2009/ 2.10.2009 is Annexure4 to the writ petition). 16.
Now we propose to look into the relevant statutory provisions
and judicial precedents relied by both sides. 17.
The relevant terms for the purpose of present dispute are
definitions of “business”, “dealer”, “lease”, lessee”, “lessor”, “place of business” and “sale” as defined under Section 2(e), (h), (q), (r), (s), (x) and (ac) of VAT Act, 2008. Since basic contentions raised in this writ petition is that the agreement has been executed outside India,
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therefore, we reproduce hereat the “place of business” defined in Section 2(x) as under: “(x) "place of business" means any place where a dealer carries on business and includes (i) any shop, warehouse, godown or other place where a dealer stores his goods; (ii) any place where a dealer produces or manufactures goods; (iii) any place where a dealer keeps his books of accounts and documents; (iv) any place where a dealer executes the works contract or where the right to use goods is exercised; (v) in a case of a dealer who carries on business through an agent (by whatever name called), the place of business of such agent.” (emphasis added) 18.
Sri Tarun Gulati, learned counsel for the petitioner contended
that Assessing Officer has not disputed that agreement for transfer of right to use any goods was executed in Netherland, therefore, it is an admitted fact. 19.
In this regard we find that Assessing Officer has not gone into
this question, whether agreement to transfer of right to use goods was executed in India or outside India but he has proceeded to decide matter on the premise that place of agreement is not relevant and instead it is “place of business”, as defined under VAT Act, 2008, which is crucial to decide taxability upon petitioner. 20.
Since entire edifice of contention of learned counsel for the
petitioner is founded on Constitution Bench decision in 20th Century Finance Corpn. Ltd. (supra), we may refer the same to find out, whether Assessing Officer has correctly appreciated the dictum laid down therein or not.
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21.
Majority judgment has been rendered by Hon’ble V.N. Khare, J.
on behalf of himself, Justice Bharucha and Justice Mohapatra. The dispute referred for resolution was, “where is the taxable event on the transfer of right to use any goods”. Court also considered power of State Legislature to levy sale tax on transfer of right to use any goods envisaged under Clause (29A)(d) of Article 366 of Constitution on the premise that goods put to use are located within their State. Several State legislations provided liability of tax on transaction of transfer of right to use goods on location of goods at the time of their use within their States, irrespective of place where agreement for such transfer of right to use such goods is made. Court thus formulated question as under: “Whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that (a) the contract of transfer of right to use has been executed outside the State; (b) sale has taken place in the course of an interState trade; and (c) sales are in the course of export or import into the territory of India.” 22.
Contention on behalf of assessee before Supreme Court was
that State Legislature cannot so frame its law so as to convert an outside sale or a sale in course of an interState trade or commerce into a 'sale' inside the State. Interpreting Article 366 (29A) (a) to (f) of Constitution, Court by majority held: (a) Sub clause (a) to (f) of clause (29A) of Article 366 are not actual sales within the meaning of sale but are “deemed sales” by legal fiction created therein. (b) Where situs of sale has not been fixed or covered by any legal fiction created by appropriate legislature, location of sale would be the place where property in goods passes.
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(c) Where a party has entered into formal contract and goods are available for delivery irrespective of place where they are located, the situs of such sale would be where the property in goods passes, namely, where the contract is entered into. (d) Transfer of goods will be a deemed sale in the cases of sub clauses (a) and (b), the delivery of goods will be a “deemed sale” in case of subclause (c), supply of goods and services respectively will be “deemed sales” in the cases of sub clauses (e) and (f) and transfer of right to use any goods will be a “deemed sale” in the case of subclause (d). Clause (29A) cannot be read as implying that tax under subclause (d) is to be imposed not on transfer of right to use goods but on delivery of goods for use. (e) On a plain construction of subclause (d) of Clause (29A), taxable event is transfer of right to use the goods regardless of when or whether the goods are delivered for use. (f) Article 266(29A (d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. (g) Where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the
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contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed. (h) When goods are entrusted to a common carrier for delivery, it amounts to delivery to consignee. If it takes place outside the State, the fact that subsequently goods have reached the State where they are put to use, cannot be ground for determining tax liability on the ground that the goods are located in that State for use. 23.
Conclusions of Constitution Bench's majority judgment, are in
para 35, which reads as under: “(35) As a result of the aforesaid discussion our conclusions are these: (a) The States in exercise of power under Entry 54 of List II read with Article 366 (29A) (d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of interState trade or commerce or is a sale in the course of import or export. (b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is
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on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A) (d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.” (emphasis added) 24.
Court then referred to Section 2(h)(iv), Explanation I, clause
(ii) of U.P. Trade Tax Act, 1948, which reads as under: “2.(h) 'Sale' with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consideration and includes (i) … (ii) … (iii) …. (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Clause (ii) of Explanation I to Section 2(h): “(ii) in a case falling under subclause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State.” (emphasis added) 25.
Court then held in para 45 of the judgment, as under:
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“By virtue of clause (ii) of Explanation I to Section 2 (h), the ambit of sale has been widen by including outside sale as inside sale on mere location of goods for use within the State irrespective of the fact that the agreement for transfer of right to use has been executed outside the State or whether the sale is outside the State, the tax is chargeable within the State. And, further, on account of a special provision for rates of tax, the other provision such as single point tax as well as exemption etc. is not applicable to the transaction of transfer of right to use any goods. We find that clause (ii) of Explanation I of Section 2(h) is in excess of legislative power under Entry 54, List II of Seventh Schedule and, therefore, we direct that clause (ii) of Explanation I of Section 2(h) of the Act shall be read down to this effect that it would not be applicable to the transaction of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an interState sale.” (emphasis added) 26.
In VAT Act, 2008, provisions as was read down in 20th Century
Finance Corpn. Ltd. (supra), has not been inserted and instead in Section 2(x), definition of “place of business” has been mentioned and for our purpose it is clause (iv) of Section 2(x) which says that place of business would be where right to use goods is exercised. Validity of aforesaid provision is not under challenge in this writ petition. The real issue is which is the place in present cases where it can be said that right to use goods has been exercised. 27.
The view taken by Assessing Authority that place of execution
of agreement so as to transfer right to use goods is not relevant and reliance placed on this Court's Single Judge judgment in Vysya Bank
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Ltd. Vs. The Commissioner of Trade Tax (supra) is not correct for the reason that therein the learned Single Judge found as a matter of fact that agreement was not executed at Delhi and, therefore, a finding of fact was recorded which was not found to be incorrect. There was nothing to show that agreement was executed outside the State of U.P. and it is in these facts and circumstances, Court decided the matter. 28.
It does not appear from record, where agreement dated
23.09.2009/ 01.10.2009/ 02.10.2009 was actually signed. Copy of agreement shows that it is dated 23.09.2009 (Page 85 of the paper book) but page 119, which contains signatures of various parties but shows no date under signature of Chief Executive OfficercumWhole Time Director of “Domino’s Pizza India Limited”. Signature on behalf of Franchiser/DPOF was made on 01.10.2009. There is signature of Equity Trust Co. N.V., Managing Director B on 02.10.2009. It appears that document has been signed on different dates by parties but no place of signature has been mentioned at all. It does not appear that the document was prepared as executed when all the parties were present at one place. 29.
The address of registered office of Franchiser/DPOF is that of
Amsterdam, Netherland while that of “Domino’s Pizza India Limited” is Nehru Place, New Delhi and head office at NOIDA, State of Uttar Pradesh. 30.
The name of Company, M/s “Domino’s Pizza India Limited”
changed to “Jubilant Foodworks Limited”, i.e., J.F.L. This change was authorized by shareholders in general meeting dated 16.09.2009 but when this change actually took place after approval by concerned High Court is not stated anywhere in writ petition or in its enclosures.
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31.
Learned counsel for petitioner claims that this agreement is
treated to have been executed on 23.09.2009. If that is so, there is no reason but to believe that it was signed and executed on 23.09.2009 at the Head Office of M/s “Domino’s Pizza India Limited” since signatures of others are of subsequent dates, i.e., 01.10.2009 and 02.10.2009 and at difference places. It is also evident from record that initial letter dated 23.09.2009, referred to in para 4 of writ petition, is not by JFL since by that time change of name of Company has not attained finality. Letter dated 23.09.2009 was sent by M/s “Domino’s Pizza India Limited” and from reading of entire document page 83 and 84 of paper book, it appears to have been signed on 23.09.2009 by authorized signatory for “Domino’s Pizza India Limited” at its Registered Office and sent to Franchiser/DPOF as well as IP Holder, both. This letter was accepted by Franshier/DPOF on 01.10.2009 and by IP Holder on 02.10.2009 at Amsterdam (Netherland) and Michigan (United States of America). 32.
Therefore, offer was made by M/s Domino’s Pizza India
Limited on 23.09.2009 at India. It was accepted by two signatories at Netherland and United States of America on 01.10.2009 and 02.10.2009, respectively. Thus, Contract got completed when this acceptance was communicated to M/s Domino’s Pizza India Limited at its Registered Office or Head Office at NOIDA. 33.
Basic facts pleaded by learned counsel for petitioner that
agreement dated 23.09.2009 was entered at Netherland is contrary to record. 34.
In the present case, right to use goods constitute a brand name
“DOMINO'S PIZZA”. This right was transferred by agreement dated 23.09.2009/ 01.10.2009/ 02.10.2009. As we have already said, record does not show that agreement was executed at Netherland. On the contrary, it appears that an offer/proposal was made by M/s Domino's Pizza India Limited at NOIDA which was accepted by
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Franchiser/DPOF and IP Holder on 01.10.2009 and 02.09.2009 respectively at Amsterdam (Netherland) and Michigan (United States of America) and such acceptance was communicated to Proposer at NOIDA. Therefore, apparently agreement between parties concluded at NOIDA. Head office of petitioner is admittedly at NOIDA. It is neither its case nor material is placed on record to show that correspondence or whatever action it had taken, was at any other place than NOIDA. 35.
In the entire writ petition the only pleading with regard to
place of execution of contract is that it was entered at Netherland, i.e., outside India vide Master Franchise Agreement dated 23.09.2009 between petitioner and JFL. This is what has been said in para 4 of the writ petition. Nothing further has been pleaded in entire writ petition. Master Franchise Agreement, as we have already noticed, though mentioned date of agreement as 23.09.2009 between Franchiser/DPOF and Domino's Pizza India Limited, but the fact as evident from record is that it was signed on behalf of Domino's Pizza India Limited by one Ajay Kaul, CEOcumWhole Time Director without mentioning any date or place of his signature while on behalf of Franchiser/DPOF it was signed by Managing Director on 01.10.2009. There is another signature on behalf of Equity Trust Co. N.V. through its Managing Director dated 02.10.2009. This is evident from page 119 of paper book. 36.
Clause 32 of this agreement says that agreement shall take
effect upon its execution between parties. There is a covering letter appended to said agreement on page 83 of paper book, sent by Authorized Signatory for Domino's Pizza India Limited on 23.09.2009 to Franchiser/DPOF c/o Equity Trust Co. N.V., Amsterdam (Netherlands) and IP Holder, Michigan (USA). The said covering letter requests aforesaid two Companies to convey their consent in relation to proposals at Item No. (I) to (IV) of aforesaid
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letter and requested them to forward consent for record. Mode of communication is neither pleaded nor shown by placing relevant material on record. 37.
It is in these facts and circumstances it becomes utmost
important question, as to the place where it can be said that agreement was executed or concluded contract came into existence. 38.
Section 2(h) of Indian Contract Act, 1872 (hereinafter referred
to as the “Act, 1872”) defines contract as, “an agreement enforceable by law”. An agreement becomes a concluded contract when proposal is accepted and communicated to proposer. When communication is completed, provided in Section 4 of Act, 1872. It reads as under: “4. Communication when complete.—The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete— as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a revocation is complete— as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge. 39.
(emphasis added)
There is an illustration (b) under Section 4 of Act, 1872 to
show, when communication of acceptance would complete and reads as under:
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“(b) B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete, as against A. When the letter is posted; as against B, when the letter is received by A.” (emphasis added) 40.
When a concluded contract will come into existence and
where, in our view can be adjudicated by taking recourse to a three Judge's judgment in Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and others, AIR 1966 SC 543 wherein matter was decided by a majority judgment. The majority judgment was rendered by Hon'ble J.C. Shah, J. for himself and Justice K.N. Wanchoo. Therein, Court after referring to Sections 3 and 4 of Act, 1872, said, that it is acceptance of offer and intimation of that acceptance which results in a contract. By intimating an offer when parties are not in presence of each other, the offeror is deemed to be making offer continuously till the offer reaches offeree. The offeror thereby merely intimates his intention to enter into a contract on the terms of offer. Offeror cannot impose upon the offeree, an obligation to accept, nor proclaim that silence of offeree shall be deemed consent. A contract being the result of an offer made by one party and acceptance of that very offer by other, acceptance of offer and intimation of acceptance by some external manifestation which the law regards as sufficient, is necessary. Court said: “There should therefore be an offer by one party, express or implied, and acceptance of that offer by the other in the same sense in which it was made by the other. But an agreement does not result from a mere state of mind: intent to accept an offer or even a mental resolve to accept an offer does not give rise to a contract. There must be intent to accept and some external manifestation of that intent by speech, writing or other act,
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and acceptance must be communicated to the offeror, unless he has waived such intimation, or the course of negotiations implies an agreement to the contrary.” 41.
(emphasis added)
It was also observed that Act, 1872 does not deal expressly as
to how it will be adjudicated where the contract is made. Sections 3 and 4 relate only with respect to communication, acceptance and revocation of proposals. Section 4 does not deal with place where a contract takes place, but with completion of communication of a proposal acceptance and revocation. Having said so, Court said that in determining the place where a contract takes place, interpretation clauses in Section 2, which largely incorporate substantive law of contract, must be taken into account. A person signifying to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence is said to make a proposal : clause (a). When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise: clause (b). and every promise and every set of promises, forming the consideration for each other is an agreement: clause (e). An agreement enforceable at law is a contract: clause (k). By the second clause of Section 4, communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor. This implies that where communication of an acceptance is made and it is put in a course of transmission to the proposer, acceptance is complete as against the proposer. As against the acceptor, it becomes complete when it comes to the knowledge of proposer. In the matter of communication of revocation it is provided that as against the person who makes revocation, it becomes complete when it is put into a course of transmission to the person to whom it is made, so as to be
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out of the power of the person who makes it, and as against the person to whom it is made when it comes to his knowledge. 41A. Section 4 does not imply that the contract if is made qua proposer at one place and qua the acceptor at another place, it becomes complete as soon as acceptance is made by acceptor. Unless otherwise agreed expressly or by necessary implication by the adoption of a special method of intimation, when the acceptance of offer is intimated to the offeror. 42.
Court in Bhagwandas Goverdhandas Kedia (supra)
proceeded further and held that acceptance and intimation of acceptance of offer are, therefore, both necessary to result in a binding contract. In case of a contract which consists of mutual promises, the offeror must receive intimation that offeree has accepted his offer and has signified his willingness to perform his promise. 43.
Court also held that method of communication will depend
upon nature of offer and circumstances in which it is made. 44.
If offer and acceptance is not being made in presence of both
parties at the same place and parties are at different places, there is an exception where negotiation is by post. It has been held that contract is complete when acceptance of offer is put into a course of transmission to the offeror. Court summarized exceptions to general rule requiring intimation of acceptance, as under: “When by agreement, course of conduct, or usage of trade, acceptance by post or telegram is authorised, the bargain is struck and the contract is completewhen the acceptance is put into a course of transmission by the offeree by posting a letter or dispatching a telegram.” 45.
The said exception was not allowed by Court when contract
was made by conversation on telephone. Court said that it is a case
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as if parties are present since each party is able to hear the voice of other. There is instantaneous communication of speech intimating offer and acceptance, rejection or counteroffer. Court said that intervention of an electrical impulse which results in the instantaneous communication of messages from a distance, does not alter the nature of conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph. 46.
Again a similar issue came up in Life Insurance Corporation
of India Vs. Raja Vasireddy Komalavalli Kamba and others, 1984(2) SCC 719. It was held therein that acceptance must be signified by some act or acts agreed on by parties or from which the law raises a presumption of acceptance. That was a case relating to insurance and Court said that contract of insurance will be concluded only when party to whom an offer is made, accepts it unconditionally and communicates his acceptance to the person making offer. 47.
A Division Bench of this Court has also an occasion to consider
this question in P.R. Transport Agency Vs. Union of India and others, AIR 2006 All 23. There the issue was considered in the context of communication by email. Court, after referring to Section 13(3) of Information Technology Act, 2000, observed that acceptance communicated by respondents to petitioner by email will be deemed to be received by petitioner at Varanasi/ Chandauli which are the only two place where petitioner has his place of business. 48.
In the present case there is no averment regarding mode of
communication adopted by petitioner communicating its acceptance. There is not even a whisper as to how and in what manner communication of acceptance was made. In absence of any specific pleading so as to attract exceptions with regard to communication, we have no option but to hold that acceptance will be completed only when it is communicated to offeror and that communication obviously would be at a place wherefrom offer was made. That be so,
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the agreement can be said to become a concluded contract and executed when it is communicated to Proposer/ Offeror at NOIDA wherefrom offer was made. The ultimate result would be that the very foundation of argument that taxing authorities in Uttar Pradesh had no jurisdiction, disappears and vanishes. It cannot thus be said that impugned orders are patently without jurisdiction. 49.
Quantum of assessment made by Assessing Officer is not under
challenge. Assessment was challenged before us only on the ground of jurisdiction, i.e., transfer of right to use goods came into effect outside India and, therefore, taxing authorities in State of U.P. have no jurisdiction to demand any tax, which question we have already answered against petitioner. We, therefore, leave it open to petitioner that if there is any dispute with regard to quantum of assessment made by Assessing Officer, same being a question of fact, it will be open to petitioner to raise such dispute by filing appeal under the statute. 50.
In view of above discussion we find no merit in both these writ
petition. 51.
Dismissed. Interim order, if any, stands vacated.
52.
No costs.
Order Date :10.11.2016 AK
