PETITIONER: B. K. WADEYAR Vs. RESPONDENT: M/S. DAULATRAM RAMESHWARLAL DATE OF JUDGMENT: 27/09/1961 BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS DAS, S.K. HIDAYATULLAH, M. SHAH, J.C. AYYANGAR, N. RAJAGOPALA CITATION: 1961 AIR 311 1961 SCR (1) 924 CITATOR INFO : R 1964 SC1752 (15) RF 1971 SC 870 (23,24) R 1971 SC2277 (3) E 1975 SC1564 (29,30,67,68) RF 1975 SC1652 (14) RF 1977 SC 247 (14) ACT: Sales Tax--Export--Meaning of--Property in exported goods in F. O. B. contracts--If Passes on shipment or before it--Export licence--obtainable by buyer or seller--"Person", meaning of--Bombay Sales Tax Act, 1953 (Bom. III of 1953) s. 10(b)--The Import and Export (Control) Act, 1947 (XVIII of 1947) s. 5(2)--Constitution of India, Art. 286(1)(b). HEADNOTE: The respondents firm claimed exemption from Sales Tax under Art. 286(i)(b) of the Constitution in respect of sales 925 made by them of cotton and castor oil on the ground that the sales were on F.O.B. contracts under which they continued to be the owners of the goods till those crossed the custom barrier and entered the export stream. They also contested the purchase tax to which they were assessed under s. 10(b) of the Bombay Sales Tax Act. The High Court upheld the contention of the respondents regarding the Sales Tax but held that they were liable to pay purchase tax. On appeal by both the parties Held, that the goods remained the seller's property till those had been brought and loaded on board the ship and so the sales were exempted from tax under Art. 286(i) of the Constitution. The word " a person " in s. 10(b) of the Bombay Sales Tax Act had been correctly interpreted as " a registered dealer " and the purchasing dealers had been rightly assessed to purchase tax. The normal rule in F. 0. B. contracts was that the property was intended to pass and did pass on the shipment of the goods. The presumption in F. 0. B. contracts was that it was the duty of the buyer to obtain the necessary export licence, though in the circumstances of a particular case that duty might fall on the seller. H.O. Brandt & Co. v. H. N. Morris & Co. Ltd., [1917] 2 K.B. 784 and M. W. Hardy & Co. v. A. V. Pound & Co., Ltd., (1953) 1.Q.B. 499, considered. "Export " under the Import and Export Control Act having been defined as " taking out of India by land, sea or air " it could not, under the Export Control Order, be held to have commenced till the ship carrying the goods left the port or in some cases passed the territorial waters. The State of Bombay v. The United Motors (India) Ltd., (1953) 4 S.T.C. 133, held inapplicable. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 45 and 46
of 1959.
Appeal by special leave from the judgment and order dated
March 25, 1957, of the former Bombay High Court in Appeal
No. 16 of 1957.
Q. K. Daphtary, Solicitor-General of India, H. J. Umrigar
and D. Gupta, for the Apellant (In C. A. No. 45 of 59) and
Respondent (In C. Appeal No. 46 of 59).
H. N. Sanyal, Additional Solicitor-General of India, S. N.
Andley and J. B. Dadachanji, for the respondents (in C. A.
No. 45 of 59) and Appellants (In C. A. No. 46/59).
926
1960. September 27. The Judgment of the Court was
delivered by
DAS GUPTA J.-M/s. Daulatram Rameshwarlal, a firm registered
under the Indian Partnership Act (referred to later in this
judgment as “sellers “) are registered dealers under s. 11
of the Bombay Sales Tax Act. In their return of turnover
for the period from April 1, 1954 to March 31, 1955, they
claimed exemption from Sales Tax in respect of sales of
cotton of the total value of Rs. 68,493-2-6 and sales of
castor oil of the total value of Rs. 6,47,509-1-6 on the
ground that these sales were oil FOB contracts, under which
they continued to be the owners of the goods till the goods
had crossed the customs barrier and thus entered the export
stream, and so no tax was realisable on these sales in view
of the provisions of Art. 286 (1)(b).
The Sales Tax Officer rejected this claim for exemption and
assessed them to sales tax on a taxable turnover including
these sales. He also assessed them to purchase tax under s.
10(b) of the Bombay Sales Tax Act on their purchase of
castor oil which they later sold for the sum of Rs.
6,47,509-1-6 as mentioned above. The notice of demand for
the total sales tax and the purchase tax assessed was served
on the sellers on September 30, 1956. The sellers thereupon
moved the Bombay High Court under Art. 226 of the Constitu-
tion for the issue of appropriate writs for quashing the
order of assessment and the notice of demand and for
prohibiting the Sales Tax Officer from taking any steps
pursuant to the order or the notice. The learned Judge who
heard the petition rejected the sellers’ contention that the
goods remained their property till these crossed the customs
frontier and therefore held that the sellers were not
entitled to the benefit of Art. 286(1)(b) of the
Constitution. As regards the assessment to purchase tax
also he rejected the sellers’ contention that the assessment
in question was illegal. In this view the learned Judge
dismissed the application under Art. 226.
Against this decision the sellers appealed. The
927
learned Judges who heard the appeal held, disagreeing with
the Trial Judge, that the goods remained the sellers’
property till the goods had been brought on board the ship
and so the sales were exempted from tax under Art. 286(1)(b)
of the Constitution. They however agreed with the Trial
Judger that the sellers were liable to pay purchase tax
under s. 10(b) of the Bombay Sales Tax Act. Accordingly
they directed the Sales Tax Officer not to enforce the
demand for payment of sales tax with regard to the sales of
cotton for Rs. 68,493-2-6 and sale of castor oil of the
total value of Rs. 6,47,509-1-6.
The Sales Tax Officer has, on the strength of special leave
granted by this Court, preferred the appeal which has been
numbered as Civil Appeal No. 45 of 1959 against the
appellate court’s order directing him not to realise the
sales tax in respect of sales of cotton and castor oil.
Civil Appeal No. 46 of 1959 has been preferred by the
sellers against the appellate court’s judgment in so far as
it upheld the assessment of purchase tax under s. 10(b).
The only “question for our decision in the appeal by the
Sales Tax Officer is whether property in the goods passed on
shipment or at some point of time before shipment. The law
is now well-settled that if the property in the goods passes
to the buyer after they have for the purpose of export to a
foreign country crossed the customs frontier the sale has
taken place “in course of the export” out of the territory
of India. If therefore in the present sales the property in
the goods passed to the buyers on shipment, that is, after
they had crossed the customs frontier the sales must be held
to have taken place “in the course of export” and the
exemption under Art. 286(1)(b) will come into operation.
The sellers’ case is that these were sales on FOB contracts.
Though the learned Solicitor-General appearing on behalf of
the Sales Tax Officer tried to convince us that these were
not really FOB contract sales, it appears that the averment
in Paras. 11 and 13 of the writ petition that these sales
were made on FOB basis were not denied in the counter
affidavit sworn by the Sales Tax Officer. It is also
928
worth noticing that in the assessment order itself the Sale
Tax Officer referred to these sales as sales on FOB basis.
The specimen contract produced also used the words ” FOB
delivered “. There can be no doubt therefore that these were
sales under FOB contracts.’ The normal rule in FOB contracts
is that the property is intended to pass and does pass on
the shipment of the goods. In certain circumstances, e.g.,
if the seller takes the bill of , lading to his own order
and parts with it to a third person the property in the
goods, it has been held, does not pass to the buyer even on
shipment. We are not concerned here with the question
whether the passing of property in the goods was postponed
even after shipment. The correctness of the proposition
that in the absence of special agreement the property in the
goods does not pass in the case of a FOB contract until the
goods are actually put on board is not disputed before us.
As has however been rightly stressed by the learned
Solicitor General it is always open to the parties to come
to a different agreement as to when the Dropert in the goods
shall pass. The question whether there was such a different
agreement has to be decided on a consideration of all the
surrounding circumstances. He relies on three circumstances
to convince us that the sellers and their buyers agreed in
these sales that the property will pass to the buyer even
before shipment. The first circumstance on which he relies
is that the bill of lading was taken in the name of the
buyer. Along with this fact we have to consider however the
fact that the bill of lading was retained by the sellers,
the contract being that payment will be made on the
presentation of the bill of lading. It is not disputed that
the term in the contract for “payment at Bombay against
presentation of documents ” means this. It was the sellers
who received the bills of lading and it was on the
presentation of these bills of lading along with the
invoices that the buyer paid the price. When the bills of
lading though made out as if the goods were shipped by the
buyer, were actually obtained and retained by the sellers,
that fact itself would ordinarily indicate an intention of
929
the parties that the property in the goods would not pass
till after payment.
The second circumstance to which our attention has been
drawn is that the export was under the contract to be under
the buyer’s export licence. This, in our opinion, shows
nothing. The ordinary rule in FOB contracts is that it is
the duty of the buyer to obtain the necessary export
licence. That was laid down in Brandt’s case (1) and though
in a later case in Hardy v. Pound (2) the Court of Appeal in
England held that the judgment in Brandt’s case (1) does not
cover every FOB contract and that in the special facts of
the particular case before them it was for the sellers to
obtain the licence and this view was approved by the House
of Lords (1956 A. C. 588), it is in our opinion correct to
state that the presumption in FOB contracts is that it is
the duty of the buyers to obtain export licence, though in
the circumstances of a particular case this duty may fall on
the sellers.
The third circumstance on which reliance is placed on behalf
of the Sales Tax Officer is that the Export Control Order,
1954, which was passed in the exercise of powers conferred
by Import & Export Control Act, 1947, contained a provision
in its clause 5(2) in these words:-” It shall be deemed to
be a condition of that licence……………… that the
goods for the export of which licence is granted shall be
the property of the licensee at the time of the export “. It
has been strenuously contended by the learned Solicitor
General that it will be reasonable to think that the parties
to the contract intended to comply with this condition and
to agree as between themselves that the goods shall be the
property of the licensee, that is, the buyer, at the time of
the export. It is argued that the time of the export should
be interpreted as the time when the customs frontier is
crossed and that we must proceed on the basis that the buyer
and the sellers intended that the goods shall be the buyer’s
property at the point of time when they crossed this
frontier. We see however no justification for thinking that
in this clause “the time of the export ” means the time
(1) [1917] 2 K.B. 784.
(2) [1955] 1 Q.B. 499.
930
when the goods cross the customs frontier. Export has been
defined in the Import & Export (Control) Act, 1947, as ”
taking out of India by sea, land or air “. In the Exports
(Control) Order, 1954, the word must be taken to have the
same meaning as in the Act. On that definition the time of
the export is the time when the goods go out of the
territorial limits of India. These territorial limits would
include the territorial waters of India. Consequently the
time of the export is when the ship with the goods goes be-
yond the territorial limits. At any rate, the export of the
goods cannot be considered to have commenced before the ship
carrying goods leaves the port. The intention of the
parties that in compliance with the requirements of cl. 5(2)
of the Exports (Control) Order the goods shall be the
property of the licensee at the time of the export would
therefore mean nothing more than that the property in the
goods shall pass immediately before the ship goes beyond the
territorial waters of the country, or at the earliest when
the ship leaves the port. Whichever view is taken there is
nothing to indicate that the intention to comply with the
requirements of el. 5(2) of the Exports (Control) Order
carries with it an intention that the property should pass
to the buyer at the time the goods cross the customs
frontier. It is true that in the United Motor’8 Case (1)
and in other cases it has been held by this Court that the
course of export commences to run when the goods cross the
customs barrier. What the court had to consider in these
cases was not however when export commences within the
meaning of the Exports (Control) Order but when the course
of export commences for the purpose of Art. 286(1)(b) of the
Constitution. For the reasons which need not be detailed
here it was decided that the course of export commences at
the time when the goods cross the customs barrier. These
decisions as regards the commencement of the course of
export are of no assistance in deciding about the point of
time when the export proper commences. As we have already
pointed out when export has been defined in the Import &
Export
(1) (1953) 4 S.T.C. 133.
931
(Control) Act, 1947, as “taking out of India by land, sea,
or air “, export in the Export Control Order, cannot be held
to have commenced till at least the ship carrying the goods
has left the port, though it may in some contexts be more
correct to say that it does not commence till the ship has
passed beyond the territorial waters.
We have therefore come to the conclusion that there is no
circumstance which would justify a conclusion that the
parties came to a special agreement that though the sales
were on FOB contracts property in the goods would pass to
the buyer at some point of time before shipment. We think
that the learned judges who heard the appeal in the Bombay
High Court were right in their conclusion that the goods
remained the sellers’ property till the goods had been
brought and loaded on board the ship and so the sales were
exempted from tax under Art. 286(1)(b) of the Constitution.
In Civil Appeal No. 46 of 1959 the appellants’ contention is
that on a correct interpretation of the provisions of s.
10(b) of the Bombay Sales Tax Act no purchase tax was
leviable from them. Section 10(b) provides for the levy of
a purchase tax on the turnover of purchase of goods
specified in column I of Schedule B, at the rates, if any,
specified against such goods in column 4 of the said
schedule, “where a certificate under cl. (b) of s. 8 has
been furnished in respect of such goods and the purchasing
dealer does not show to the satisfaction of the Collector
that the goods have been despatched by him or by a person to
whom he has sold the goods to an address outside the State
of Bombay within a period of six months from the date of
purchase by the dealer furnishing such certificate “.
Section 8(b) provides for the deduction from the turnover,
of sale of goods to a dealer who holds an authorisation and
furnishes to the selling dealer a certificate in the
prescribed form declaring inter alia that the goods so sold
to him are intended for being despatched by him or by
registered dealers to whom he sells the goods to an address
outside the State of Bombay. Admittedly such a certificate
was furnished by
932
M/s. Daulatram Rameshwarlal in respect of the castor oil
which they sold to others and that in respect of these sales
to them their sellers were allowed deductions. It is
equally undisputed that the persons to whom M/s. Daulatram
Rameshwarlal sold the goods were sent to an address outside
the State of Bombay within a period of six months from the
date of purchase by M/s. Daulatram Rameshwarlal. These
persons are however not registered dealers. The Sales Tax
Officer as also the High Court of Bombay has held that the ”
person to whom he has sold the goods ” in s. 10(b) means ” a
registered dealer to whom he has sold the goods “. It is
contended before us on behalf of the appellant-dealers that
the word ” a person ” is wide enough to include a registered
dealer and an unregistered dealer. It is urged that the use
of the word it a person ” instead of the words ” a
registered dealer ” is deliberate and that it was the
intention of the Legislature to levy purchase tax on a
person who has given such certificate under s. 8(b) only if
the goods were not ‘despatched outside the State of Bombay
within the prescribed period by anybody. It is therefore
contended that ” a person ” in s. 8(b) should be interpreted
to include a registered dealer or anybody else. We are
unable to agree. A close examination of ss. 8 and 10
justifies the conclusion that the Legislature was anxious to
secure that the declaration as regards intention of the
goods being despatched outside the State of Bombay should be
carried out by despatch by ” a registered dealer ” to whom
he sells the goods. If such despatch outside the State of
Bombay is by a person to whom the certifying dealer has sold
the goods but who is not a registered dealer the certificate
has not been complied with. It will be in our opinion
unreasonable to think that though the Legislature insisted
that the certificate should declare the goods purchased were
intended 11 for being despatched by him or by a registered
dealer to whom he sells the goods outside the State of
Bombay “, the Legislature would be content to accept actual
despatch outside the State of Bombay by one who is not a
registered dealer as sufficient. Mr. Sanyal contended that
the certificate
933
has to declare only an intention and that if ultimately the
actual despatch is made by some person who is not a
registered dealer, it cannot strictly be said that the
declaration has not been carried out. It might very well be
that if at the time a declaration of intention is made in
the certificate the purchasing dealer had the intention as
stated and ultimately he sells to a person who is not a
registered dealer for despatch of the goods outside the
State of Bombay, the purchasing dealer may not be liable for
having made a false declaration “. Even though he has not
made a false declaration of his intention, the fact remains
that the intention declared has not been carried out. The
scheme of the Legislature clearly is that where the
intention as declared has not been carried out purchase tax
should be levied. To hold otherwise would be to make the
declaration of the intention useless.
Our conclusion therefore is that the courts below have
rightly interpreted the words ” a person ” in s. 10(b) of
the Bombay Sales Tax Act as a ” registered dealer ” and that
the purchasing dealers have rightly been assessed to
purchase tax under s. 10(b).
In the result, both the appeals are dismissed with costs.
Appeals dismissed.
