PETITIONER: MOHD. SERAJUDDIN ETC. Vs. RESPONDENT: STATE OF ORISSA DATE OF JUDGMENT16/04/1975 BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) KHANNA, HANS RAJ MATHEW, KUTTYIL KURIEN BEG, M. HAMEEDULLAH CHANDRACHUD, Y.V. CITATION: 1975 AIR 1564 1975 SCR 169 1975 SCC (2) 47 CITATOR INFO : F 1975 SC1652 (17,23,24) R 1976 SC 410 (6) F 1977 SC 247 (4,5,6,8,9,13,16) F 1977 SC2008 (4) RF 1980 SC1468 (4,13,15) RF 1991 SC1122 (9) ACT: Constitution-Article 286(1)-Section 5 of Central Sales Tax Act-Meaning of in the course of export-Agency of necessity F.O.B. Contract. HEADNOTE: The appellants entered into two contracts with the State Trading Corporation. The S.T.C. entered into identical contracts with the foreign buyers for sale of the identical goods purchased by the S.T.C. from the appellant. the clauses as to shipment, sampling, analysis, weighment, payment are identical in both the contracts. There is a special clause in each one of the contractor providing that if the corresponding contract of S.T.C. with the foreign buyer shall stand cancelled for any reason, the contract of the S.T.C. with the appellant will also stand cancelled. Likewise, there is a special clause in the con tract between the S.T.C. and the foreign buyer that if for any reason the contract between S.T.C. and the appellant stands cancelled the contract- between S.T.C. and the foreign buyer will stand cancelled. The letter of credit opened by the foreign buyer was to be endorsed in favour of the appellant. the prices mentioned in both the contracts are the same with a difference of on( dollar per ton. The appellants contended that the contracts were in the course of export, and, therefore, not taxable. The High Court came to the conclusion that the sale by the appellants to the S.T.C. was not in the course of ,export and was therefore, exigible to tax under the Central Sales Tax Act. In appeal the appellants contended before this Court: 1. The contract between the appellant and the S.T.C. is inextricably bound up with the export. The sale between the appellant and the S.T.C. and the export by Corporation to foreign buyer constitutes one integrated transaction. 2. The S.T.C. has been interposed by the Statute between the appellant and the foreign buyer for a limited purpose. The inextricable link is not broken by the S.T.C. The S.T.C. could not have diverted the goods to a buyer in India without violating Export and Import Control Order. 3. The contract between the appellant and the S.T.C. being on f.o.b. basis the property in the goods passed only on shipment when the goods are in the stream of export. There is no sale in the taxable territory. 4. Even if it is held that the appellant did not have any contract with the foreign buyer and that the privity is essential the rigid rule of privity of contract should be relaxed in consideration of equity and justice and a realistic approach should be adopted. The respondent contended that the sale by the appellant to the S. T. C. was a sale for export but not a sale in the course of export. There can be only one sale in the course of export. HELD by C. J. (for himself and Mathew, Beg, Chandrachud, II). 1. In the first Travancore Cochin case, the contracts were directly between the respondents and their foreign buyers. There was no intermediary between the Indian seller and the foreign buyer. [175H] 170 2. In the Coffee Board case this Court held that the introduction of an intermediary between the seller and the importing buyer breaks the link. This Court has held that there must be a single sale which itself causes the export and there is no room for two or more sales in the course of export. [173FG&H] 3. The contention that the contract between the appellant and the S.T.C. and the contract between the S.T.C. and the foreign buyer formed integrated activities in the course of export is unsound. The crucial words in section 5 of the Central Sales Tax Act are that a sale or purchase of goods shall be deemed to take place in the coursed of the export of the goods only if the sale or purchase occasions such export There are two separate and independent contracts of sale one between the appellant and the S.T.C. and the other between the S.T.C. and the foreign buyers within the meaning of ruling in the Coffee Board case and the Benani Brother's case. [180FGH] 4. The word "occasion" in section 5 means the immediate and direct cause. [181B] 5. The appellant was under no contractual obligation to the foreign buyer either directly or indirectly. The rights of the appellant were against the S.T.C. Similarly, obligations of the appellant were to the S.T.C. The price was different in the two contracts. This difference also dissociates the two contracts from each other. [181EFH] 6. The S.T.C.is not an agent of necessity. The agency of necessity arises where the person authorised to act as an agent for another without any regard to the consent of the principal, act in certain circumstances and the law creates an agency of necessity, e.g. a wife becomes an agent of necessity. In the present case, there is no principal and agent relationship between the appellant and the S.T.C. The relationship is between the two principals. [182CDE] 7. In the present case mention of f.o.b. price in contracts between the appellant and the S.T.C. does not render the contracts with the foreign buyers f.o.b. The S.T.C. entered into independent contracts with the foreign buyers on f.o.b. basis. The appellants were required under the contracts between the appellant and the S.T.C. to bring the goods to the ship named by the S.T.C. The shipment of the goods by the S.T.C. to the foreign buyer is the f.o.b. contract to which the appellants are not the parties. [184DE] 8. The fact that the export can be made only through the S.T.C. does not have the effect of making the appellants the exporters where there is direct contract between the Corporation and the foreign buyer. [185A] Dismissing the appeals held, that sale was not in the course of export and was exigible to the Central Sales Tax. [185C] (Per Khanna, J. dissenting) Allowing the Appeals, Held (a) It was laid down in the Travancore Cochin case that a sale in the course of export predicates action between the sale and the export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction. There must be in intention on the part of both the buyer and seller to export, there must be an obligation to export and there must be an actual export. [190BC] (b) The sale of mineral ores for export was canalised through S.T.C. in pursuance of an order made under the Imports and Exports Control Act, 1947. Section 3 of that Act empowered the Central Government to prohibit, restrict 171 or otherwise control imports or exports. Under the powers conferred by that section the Central Government issued the Exports Control Order, 1958. Clause 3 of that Order provided that no person shall export any goods of the description specified in Schedule I except under and in accordance with a licence granted by the Central Government. Chrome Ore and Concentrates were specified in the first Schedule. [193ABC] (c) The agreement between the appellant and S.T.C. incorporated die terms and conditions which were settled between the appellant and the foreign buyer. IL was agreed that the contract between the appellant and the S.T.C. would be deemed cancelled if for any reason the foreign buyer cancelled the corresponding purchase contract of the S.T.C. The agreement between the appellant and S.T.C. clearly contemplated the export of Chrome Concentrates. The name of the ship on which the Chrome Concentrates were to be loaded for the purpose of export was also given in the agreement. The price to be paid by S.T.C. to the appellant was fixed in terms of dollars mainly because the price to be `charged from the foreign buyer was fixed in terms of dollars. The amount that the S.T.C. was to get in the course of this transaction was I Dollar per ton. The appellant was to get 90 per cent against shipping documents and the remaining 10 per cent after destinational weight and analysis. [193EH] (d) The export of the Chrome Concentrates was occasioned by one transaction. The parties to that transaction were the appellant, the S.T.C. and the foreign buyer. The S.T.C. was brought into the picture as an intermediary because of the legal requirement according to which the export of Chrome Concentrates was to be cancelled through S.T.C. The agreements were part of one integrated transaction which resulted in the export of the goods. The interconnection between the agreement was so intimate that one agreement could not stand without the other. It was accordingly provided that the cancellation of one agreement automatically resulted in the cancellation of the other agreement. [194A to C] (e) The observations of the Coffee Board's case that there was no, room for 2 or more sales in the course of export were made in the context of 2 independent sales. Those observations could not be invoked in the sale like the present where two sales are so interconnected as to be part of one integrated transaction. In the Coffee Board's case, itself, the discussion about the absence of connection between the two sales would have been unnecessary if there was intention to lay down an absolute rule that once there are two contracts the court need not look to other circumstances. The Coffee Board's case which was decided by a Constitution Bench could not set at naught the rule laid down in a series of earlier decisions by Constitution Benches and in fact it did not do so. [194F. 195BC] (f) The S.T.C. could not have diverted the goods supplied by the appellant for a purpose other than the export to the foreign buyer. [196F] (g) The position of S.T.C. was not of a purchaser in the ordinary sense. S.T.C. was not entitled to get profits and was not liable to bear losses resulting from fluctuations in the market rate. The S.T.C. came into the picture as a statutory intermediary and all that the S.T.C. was entitled in the bargain was a commission of I Dollar. [196G & 197 A & C] (h) In Khosla's case there were two contracts. Despite the existence of two contracts this Court held that the contract in question was exempt from payment of tax, as being in the course of import. [198A. D&E] (i) The contract of sale between the appellant and S.T.C. was on F.O.B. terms. [198H] ORDER
In accordance with the judgment of the majority the appeals
were dismissed.
172
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 697 to 706
of 1973 and 2063 to 2082 of 1974.
Appeals by Special Leave from the Judgment & Order dated the
17th September, 1973 of the Orissa High Court in S. J. C.
Nos. 25 to 44 of 1971.
Govind Das, P. H. Parekh, and Mrs. S. Bhandare, for the
appellants (in C.As. Nos. 697-706/73)
B. Sen, O. C. Mathur and D. N. Mishra, for the appellants
(In C.As. 2063-2082/74)
G. L. Sanghi and Bishamber Lal, for intervener, (Misri Lal
Jain)
F. S. Nariman, Additional Solicitor General of India, F.
S. Desai,
P. H. Parekh, Mrs. S. Bhandare and Manju Jatley, for the
applicant/ Intervener (M. M. T. C.)
S. T. Desai, M. C. Bhandare and B. Parthasarthy for the
respondents (In all the appeals)
The Judgment of the Court was delivered by Ray, C. J. H. R.
Khanna, J. gave a dissenting Opinion.
RAY, C. J.-These Appeals by special leave raise the question
whether the agreements between the appellants and the State
Trading Corporation (hereinafter referred to as the
Corporation) were in course of export, and therefore, immune
from liability to the Central Sales Tax Act.
The appellant entered into four contracts for sale of
mineral ore. Two of these contracts were with the foreign
buyer M/s Associated Metal and Minerals Corporation, New
York. The other two contracts were with the State Trading
Corporation. It is common ground that the Corporation
entered into contracts with foreign buyers for sale of the
identical goods purchased by the Corporation from the appel-
lant.
The present appeal relates to the two contracts between the
appellant and the Corporation. The High Court came to the
conclusion that the appellant’s two contracts with the
Corporation are exigible to tax under the Central Sales Tax
Act, 1956.
Section 5(1) of the Central Sales Tax Act, 1956 hereinafter
referred to as the Act contains the following relevant
provision :-
“A sale or purchase of goods shall be deemed
to take place in the course of the export of
the goods out of the territory of India only
if the sale or purchase either occasions such
export or is effected by a transfer of
documents of title to the goods after the
goods have crossed the customs frontiers of
India”.
173
Counsel for the appellant contended as follows. The
contract in each case between the appellant and the
Corporation is inextricably bound up with the export. The
sale between the appellant and the Corporation and the
export by the Corporation to foreign buyer constituted one
integrated transaction. Second, the Corporation has been
interposed by the statute for a limited purpose between the
appellant and the foreign buyer. Export cannot be made
except by the Corporation. The inextricable link is not
broken by the Corporation. The Corporation could not have
diverted the goods to a buyer in India without violating
export and import control order. Therefore, the sale is in
the course of export. Third, the contract between the
appellant and the Corporation being on F.O.B. basis, the
property in the goods passed only on shipment when the goods
are in the stream of export. There is thus no sale in the
taxable territory. Fourth, even if it is held that the
appellant did not have any contract with the foreign buyer
and that privity is essential the rigid rule of privity of
contract should be relaxed in consideration of equity and
justice and a realistic approach should be adopted. The
nature of entering into contracts through the channel of the
Corporation raises in reality a presumption of the
Corporation being an agent of the appellant in the
integrated transaction.
Counsel on behalf of the appellant relied on some terms of
contract in support of the contention that the contract
between the appellant and the Corporation and the contract
between the Corporation with the foreign buyer formed one
integrated transaction. The clauses in the contract between
the appellant and the Corporation relied upon by the
appellant are terms as to price, shipment, sampling,
analysis weighing, payment and a special clause. The price
is expressed in U. S. dollars per long ton, F.O.B. Ocean
liner vessel, Calcutta. The term for shipment is that the
material will be ready in Calcutta harbour for shipment per
steamer as Leneverett or Substitute schedule to load during
December, 1960. The clause as to sampling and analysis is
final sampling and moisture determination will be made at
the time of unloading at the port of discharge by Far East
Superintendence Company or U. S. Consultants and their
certificate will be final and binding on both buyer and
seller. The clause as to weighing says that the final
weights as ascertained by Far East Superintendence Co. Ltd.
or U. S. Consultants at the port of discharge is final and
binding on both parties.
The terms as to payment are these. 90 per cent against
shipping documents as described in buyer corresponding sale
contract. Buyer will assign the relevant foreign letter of
credit which is to be opened in their name by their foreign
buyer, Messrs. Associated Metals and Minerals Corporation,
on receipt from the sellers of a Bank draft for difference
between buyers F.O.B. purchase value and F.O.B sale value,
i.e. $ 1.00 (Rs. 4.75) per try long ton for a Bank guarantee
from a Scheduled Bank guaranteeing that sellers will pay
buyers F.O.B. purchase value as shown in the contract and
buyers F.O.B. sale value as shown in the foreign letter of
credit and the buyers will endorse the bills of lading and
deliver the same to sellers to negotiate against the above
174
mentioned letter of credit. Balance after destinational
weight and analysis on the basis of documents mentioned in
the Corporation’s corresponding sale contract with buyer.
If the balance 10 per cent is insufficient to cover short
fall in weight and analysis at destination or any penalty
imposed by the Corporation’s foreign buyer the additional
amount shall be payable by sellers to buyers on demand.
The special clause relied on by the appellant is as follows
(i) Unless otherwise agreed upon, the
sellers agree that the contract shall be
deemed as cancelled if for any reasons
whatsoever M/s Associated Metals and Minerals
Corporation, cancel their corresponding
purchase contract with the buyers for supply
of chrome ore.
(ii) The terms and conditions of the buyers
corresponding sale contract with M/s
Associated Metals & Minerals Corporation will
apply to this contract also except to the ex-
tent specified in this purchase contract.
(iii) A true copy of buyers sale contract with
M/s Associated Metals & Minerals Corporation
is attached.”
On behalf of the appellant it is said that the commodity
could not be exported directly by the appellant in view of
the restrictions imposed by law. The appellant entered into
negotiations with foreign purchasers and settled all the
conditions of the contract. The Corporation, thereafter
entered into an FOB contract with the appellant and with the
foreign buyer on identical terms. The Corporation is
interested only in the commission of one dollar per long ton
from the appellant. All necessary steps including payment
of customs duty for the shipment and export have been done
by the appellant. The contract between the appellant and
the Corporation is on FOB basis and the property in goods
passes only on shipment when the goods are in the course of
export.
The appellant relied on the decisions in State of
Travancore-Cochin & Ors. v. The Bombay Co. Ltd. (1952)
S.C.R. 1112 and State of Travancore-Cochin & Ors., v.
Shanmugha Cashew Nut Factory & Ors. (1954) S.C.R. 53 in
support of two propositions extracted from those decisions.
First, a sale by export involves a series of integrated
activities commencing from the agreement of sale with a
foreign buyer and ending with the delivery of the goods to a
common carrier for transport out of the country by land or
sea. Such a sale cannot be dissociated from the export
without which it cannot be effectuated, and the sale and
resultant export from parts of a single transaction. Of
these two integrated activities which together constitute an
export sale whichever first occurs can well be regarded as
taking place in the course of the other. Even in cases
where the property in the goods passed to the foreign buyers
and the sales were thus completed within the State before
the goods commenced their journey from the State, the sales
must be regarded as having taken place in the course of the
export, and, therefore, exempt under Article 286(1) (b).
Second, the word “course” denotes movement from one point to
another, and the expression “in
175
the course of” not only implies a period of time during
which the movement is in progress but also postulates a
connected relation. A sale in the course of export out of
the country should be understood as meaning a sale taking
place not only during the activities directed to the end of
exportation of the goods out of the country but also as part
of or connected with such activities.
The two Travancore-Cochin decisions relied on by the
appellant are on interpretation of the word “in the course
of the export of the goods out of the territory of India”
occurring in Article 286(1) (b) of the Constitution, Article
286 (1) states that no law of a State shall impose or
authorise the imposition of a tax on the sale or purchase of
goods where such sale or purchase takes place (a) outside
the State or (b) in the course of the import of the goods
out of territory of India. Prior to the Constitution Sixth
Amendment Act, 1956 there was an explanation for the purpose
of sub-clause (a) of Article 286 (1). There was no
definition of the expression “in the course of import” or
“in the course of export” before the Constitution Sixth
Amendment Act, 1956. By the Constitution Sixth Amendment
Act, 1956 Parliament was given power to formulate principles
for determining when a sale or purchase of goods takes place
in any of the ways mentioned in clause (1) of Article 286.
Section 5 of the Central Sales Tax Act has given a
legislative meaning to the expression “in the course of
export” and “in the course of import”.
In the first Travancore-Cochin case (supra) the respondents
claimed exemption from assessment in respect of sales
affected by them to foreign buyers on CIF or FOB terms on
the ground that such sales took place in the course of the
export of the goods out of the territory of India within the
meaning of Article 286(1) (b) of the Constitution. This
Court held that the sales which occasioned the export in
each case fell within the scope of the exemption under
Article 286(1) (b). These sales were found to be a series
of integrated activities commencing from the agreement of
sale with the foreign buyer and ending with the delivery of
,he goods to a common carrier for transport out of the
country by land or sea. These sales could not be
dissociated from the export without which these could not be
effectuated. The sale and the resultant export from parts
of the single transaction. Any such integrated activities
which together constitute an. export sale, whichever occurs
first, can well be regarded as taking in the course of the
other. On these reasoning this Court held in the first
Travancore-Cochin case (supra) that assuming that the sales
to the foreign buyers were complete within the State before
the goods commenced their journey, the sales must
nevertheless be regarded as having taken place in the course
of the export.
It is noticeable in the first Travancore-Cochin case,
(supra) that the contracts were directly between the
respondents and their foreign buyers. There was no
intermediary between the Indian seller and the foreign
buyer. The sale and the export become integrated in one
transaction.
176
In the second Travancore-Cochin case (supra) the respondents
imported raw cashew nuts from aboard, and neighbouring
districts in the State of Madras. The respondents converted
the same by certain process into edible kernels and exported
the kernels to foreign countries. The respondents claimed
exemption Article 286(1) (b) in respect of purchase of
cashew nuts. The three propositions laid down in the second
Travancore Cochin case (supra) are these. First, sales by
export and purchases by import fall within the exemption
under Article 286(1) (b). Second, purchases in the State by
the exporter for the purpose of export as well as sales in
the State by the importer after the goods have crossed the
customs barrier are not within the exemption. Third, sales
in the State by the exporter or importer by transfer of
shipping documents while the goods are beyond the customs
barrier are within the exemption, assuming that the State
power of taxation extends to such transactions.
The second Travancore-Cochin case (supra) was on the
question whether two categories of sale or purchase would
fall within the scope of exemption under Article 286(1) (b).
The first category was the last purchase of goods made by
the exporter for the purpose of exporting them to implement
orders already received from a foreign buyer or expected to
be received subsequently in the course of business and the
first sale by the importer to fulfil orders pursuant to
which the goods were imported or orders expected to be
received after the import. The second category comprised of
sales or purchases of goods effected within the State by
transfer of shipping documents while the goods are in the
course of transit. As to the first mentioned category this
Court in the second Travancore-Cochin case (supra) said that
the exemption under Article 286(1) (b) was for sale or
purchase of goods taking place in the course of the import
of the goods “into” or export of the goods “out of” the
territory of India. The reference to the “goods” and to the
“territory” of India make it clear that the words “export
out of” and, “,import into” mean the exportation out of the
country and importation into the country respectively. The
word “course” denotes movement from one point to another and
the expression “in the course” not only implies a period of
time during which the movement is in progress,, but
postulates also a connected relation. On this, reasoning
this Court held that a sale in the course of export means a
sale taking place not only during the activities directed to
the end of exportation of the goods. out of the country but
also as part of or connected with such activities. The
purchase for the purpose of export was held in that decision
not too be connected or integrated activities-.
In the second Travancore-Cochin case (supra) the import from
Africa fell into two categories. The first consisted of
purchases made through intermediaries called the Bombay
Party, who acted as agents for the respondents charging
commission. The Bombay Party arranged for purchases on
behalf of the respondents and obtained delivery or the
Shipping documents on payment at Bombay. In the second
category
177
the Bombay Party indented the goods on their own account and
sold the goods as principals to the respondents and other
customers. The shipping documents were made out in the name
of the Bombay Party as consignees. This Court held that in
respect of the purchases under the first category the Bombay
Party acted marely as agents of the respondents, and,
therefore, there was privity between the respondent and the
African sellers. With regard to the second category the
Bombay Party were the purchasers and they sold the goods as
principals to the respondents and there was no privity
between the respondents and the African sellers.
The principal decisions of this Court on the interpretation
of section 5 (1) of the Act are Bengorm Nilgiri Plantations
Company Coonoor & Ors. v. Sales Tax Officer Special Circle,
Ernakulam & Ors. [1964] 7 S. C. R. 706, Coffee Board,
Bangalore v. Joint Commercial Tax Officer Madras (1970), 3
S. C. R. 147 and the recent decision in M/s. Binani Bros.
(P) Ltd., v. Union of India & Ors. (1974) 1 S.C.C. 459.
In the Nilgiri Plantations Case (supra) the appellants were
sellers of tea and their purchasers were local agents of
foreign buyers. The sale,,; were by public auction. This
Court held that a transaction of sale which is a preliminary
to export of the commodity sold may be regarded as a sale
for export, but is not necessarily to be regarded as one in
the course of export unless the sale occasions export. It
was said that to occasion export there must exists such a
bond between the contract of sale and the actual exportation
that each link is inextricably connected with the one
immediately preceding it. Without such a bond a transaction
of sale cannot be called a sale in the course of export of
goods out of the territory of India. There may be a variety
of transactions if the sale of commodity is followed by
export. Foreign purchasers may purchase through their
agents within the territory of India. Such a transaction is
not in the course of export because the seller does not
export the goods and it is not his concern as to how the
purchaser deals with the goods. There may be also a
transaction under a contract of sale With a foreign buyer
under which the goods may under the contract be delivered by
the seller to a common carrier for transporting them to the
purchaser. Such a sale may be dissociated from the export.
A sale in the course of export predicates a connection
between the sale and export. No single test can be laid as
decisive for determining that question. Each case must
depend upon its facts. But it does not mean that
distinction between transactions which may be called sales
for export and sales in the course of export is not real.
Where the sale is effected by the seller and the seller is
not connected with the export which actually takes place, it
is a sale for export. Where the export is the result of
sale, the export being inextricably linked up with sale so
that the bond cannot be dissociated without a breach of the
obligations arising by statute, contract, or mutual
understanding between the parties arising from the nature of
the transaction the sale is in the course of export. In the
Nilgiri Plantations case (supra) this
178
Court found that the sales by the appellants were intended
to be complete without the export and as such it could not
be said that the sales occasioned export. The sales were
for export and not in the course of export.
In the Coffee Board case (supra) the Coffee Board framed
rules for sale of coffee to registered exporters. Only
dealers who registered themselves as exporters of coffee
with the Coffee Board and who held permits from the Chief
Coffee Marketing Officer in that behalf were permitted to
participate at the auction. After the bid the price would
be paid in accordance with the conditions. One of the
conditions called ,export guarantee’ provided that it was an
essential condition of the auction that the coffee sold
thereat “shall be exported to the destination stipulated in
the catelogue of lots, or to any other foreign country
outside India as may be approved by the Chief Coffee
Marketing Officer and that it shall not under any
circumstances be diverted to another destination, sold, or
be disposed or otherwise released in India”. Another
condition provided that “if the buyer fails or neglect to
export the coffee within the prescribed time, he would be
liable to pay a penally”. Another condition provided that
if the buyer made any default to export the coffee, it would
be lawful for the Chief Coffee Marketing Officer without
reference to the buyer to seize the unexported coffee and
deal with the same as if it was part and parcel of the
coffee held by the board in their Pool Stock.
The Coffee Board contended that the auctions were in the
course of export, because the sales themselves occasioned
the export of coffee. The Revenue contended that the sales
were not bound up with the export. This Court held that the
phrase “sale in the course of export” authorised not only a
sale and an actual export but that the sale must be a part
and parcel of the export. The word “occasion” in the
context of sale or purchase was held to mean to cause export
or to be the immediate cause of export. The introduction of
an intermediary between the seller and the importing buyer
was held to break the link. There was one sale to the
intermediary and another to the importer. The first sale
was not in the course of export because the export began
from the intermediary and ended with the importer.
The ruling of this Court in the Coffee Board case (supra) is
that there must be a single sale which itself causes the
export and that there is no room for two or more sales in
the course of export. Though the sales by the Coffee Board
were sales for export, they were not sales in the course of
export. They were two independent sales in the export
programme. The first sale was a sale between the Coffee
Board as seller to the export promoter. Then there was the
sale by the export promoter to a foreign buyer. It was the
second sale which was in the course of export since the
second sale caused the movement of goods between an exporter
and an importer. In the, Coffee Board case (supra) the
rules compelling export meant compelling persons who bought
on their own to export in their own
179
turn by entering into another agreement for sale. An
essential condition as to export of coffee purchased at the
auction was held not to amount to turn the transaction into
a sale in the course of export. The reason given was that
if the registered exporter who was the bidder at the auction
did not export he would commit a default of conditions No.
30 and 31 and be liable to penalty and seizure of the
coffee.
In the Coffee Board case (supra) the phrase “sale in the
course of export” was held, to comprise of three essentials.
First, there must be a sale. Second, goods must actually be
exported. Third, the sale must be a part and parcel of the
export. The propositions laid down in the Coffee Board case
(supra) are these : The sale which is to be regarded as
exempt is a sale which causes the export to take place or is
the immediate cause of the export. To establish export a
person exporting and a person importing are necessary
elements and the course of export is between them.
Introduction of a third party dealing independently with the
seller on the one hand and with the importer on the other
breaks the link between the two for then there are two sales
one to the intermediary and the other to the importer. The
first sale is not in the course of export because the export
commences with the intermediary. The tests are that there
must be a single sale which itself causes the export or is
in the progress or process or export. There is no room for
two or more sales in the course of export. The only sale
which can be said to cause the export is the sale which
itself results in the movement of the goods from the
exporter to the importer.
The Coffee Board case (supra) discussed all the earlier
decisions some of which were on the meaning of the phrase
“in the course of export” occurring in Article 286(1)(b).
In the Coffee Board case (supra) at page 161 of the Report
it is said that the same meaning must obviously be given to
the phrase “in the course of export” or to the phrase
“occasions the export”. One of the decisions discussed was
K. G. Khosla & Co. v. Deputy Commissioner of Commercial
Taxes (1966) 3 S.C.R. 352. In K. G. Khosla & Co. case
(supra) Khosla and Company entered into contract of sale
with the Director General of Supplies and Disposals for
supply of axle bodies manufactured by the principal of the
Khosla & Co. in Belgium. The goods were to be inspected by
the Director General of Supplies and Disposals in Belgium.
Under the contract of sale the goods were liable to be
rejected after a further inspection by the buyer Director
General of Supplies and Disposals in India. The goods were
imported into our country and supplied to the buyer at
Peramber and Mysore. The contract between Khosla and
Company and Director General of Supplies and Disposals was
held by this Court to be in the course of import. The term
as to rejection of goods as a result of inspection in India
indicated that there was no completed sale in Belgium under
the contract.
In the recent decision in Binani Brothers case (supra) the
petitioner was a supplier to the Director General of
Supplies and
180
Disposals. The petitioner obtained import licences to
supply nonferrous metals. The Government agreed to pay to
the petitioner sales tax under the Central Sales Tax Act or
West Bengal Sales Tax Act, whichever was applicable in terms
of the contract. After the decision of this Court in K. G.
Khosla & Co. case (supra) the Revenue Authorities issued an
order directing that sales tax should not be allowed in
respect of supply of stores which have been imported against
import licences for supplies under contracts Placed by the
Director General of Supplies and Disposals. On the basis of
that direction the Government deducted in respect of sales
tax certain sums of money which were pending payment and
also threatened to recover a large sum of money which had
been paid as sales tax in respect of supplies already made.
This Court discussed the Travancore & Cochin cases (supra)
and the Nilgiri Plantations Company case (supra) and the
Coffee Board case (supra). Mathew, J. speaking for the
Court said that there was no obligation under the contract
on the part of the Director General of Supplies and
Disposals to procure import licences for the petitioner. It
war, the obligation of the petitioner to obtain import
licence. Even if the contracts envisaged the import of
goods and their supply to the Director General of Supplies
and Disposals from out of the goods imported it did not
follow that the movement of the goods in the course of
import was occasioned by the contracts of sales between the
petitioner and the Director General of Supplies and
Disposals. Khosla & Co. case (supra) was discussed and this
Court said that there was no completed sale in Belgium
because under the contract the Director General of Supplies
and Disposals reserved the final right of inspection and
rejection of goods on their arrival in India. The crucial
test which was laid down in the Nilgiri Plantations case
(supra) as well as Coffee Board case (supra) is whether
there were independent transactions or only one transaction
which occasioned the movement of the goods in the
course of export.
The contention on behalf of the appellant that the contract
between the appellant and the Corporation and the contract
between the Corporation and the foreign buyer formed
integrated activities in the coarse of export is unsound.
The crucial words in the section are that a sale or purchase
of goods shall be deemed to take place in the course of the
export of the goods only if the sale or purchase occasions
such export. The various decisions to which reference has
been made illustrate the ascertainment of the preeminent
question as to which is the sale or purchase which occasions
the export. The Coffee Board case as well as the case of
Binani Bros. (supra) clearly indicates that the distinction
between sales for export and sales in the course of export
is never to be lost sight of. The features which point with
unerring accuracy to the contract between the appellant and
the Corporation on the one hand and the contract between
Corporation and the foreign buyer on the other as two
separate and independent contracts or sale within the ruling
in the Coffee Board case (supra) and the Binani Brothers
case, are these. The Corporation entered on the scene and
entered into a direct contract with the foreign buyer to
export the goods. The Corporation alone agreed to sell the
goods
181
-to the foreign buyer. The Corporation was the exporter of
the goods There was no privity of contract between the
appellant and the foreign buyer. The privity of contract is
between the Corporation and the foreign buyer. The
immediate cause of the movement of goods and ,export was
the contract between the foreign buyer who was the importer
and the Corporation who was the exporter and shipper of the
goods. All relevant documents were in the name of the
Corporation whose contract of sale was the occasion of the
export. The expression “occasions” in section 5 of the Act
means the immediate and direct cause. But for the contract
between the Corporation and the foreign buyer, there was no
occasion for export. Therefore, the export was occasioned
by the contract of sale between the Corporation and the
foreign buyer and not by the contract of sale between the
Corporation and the appellant.
The appellant sold the goods directly to the Corporation.
The ,circumstance that the appellant did so to facilitate
the performance of the contract between the Corporation and
the foreign buyer on terms which were similar did not make
the contract between the ,appellant and the Corporation the
immediate cause of the export. The Corporation in regard to
its contract with the foreign buyer entered into a contract
with the appellant to procure the goods. Such contracts
for procurement of goods for export are described in com-
mercial parlance as back to back contracts. In export trade
it is not ,unnatural to find a string of contracts for
export of goods. It is only the contract which occasions
the export of goods which will be entitled to exemption.
The appellant was under no contractual obligation to the
foreign buyer either directly or indirectly. The rights of
the appellants were against the Corporation. Similarly the
obligations of the appellant were to the Corporation. The
foreign buyer could not ,claim any right against the
appellant nor did the appellant have any obligation to the
foreign buyer. All acts done by the appellant were in
performance of the appellants obligation under the contract
with the Corporation and not in performance of the
obligations of the Corporation to the foreign buyer.
The expression “sale” in section 5 of the Act has the same
meaning as in Sale of Goods Act. String contracts or chain
contracts are separate transactions even when there is
similarity relating to quantity, quality of goods, shipment,
sampling and analysis. weighment and force majeure etc. or
other similar terms. A contract of sale is a contract
whereby the seller transfers or agrees to transfer the pro-
perty in goods to the buyer for the money consideration
called the price. There were two separate contracts. The
price was different in the two contracts. This difference
also dissociates the two contracts from each other. The
High Court was right in holding that the sales of the
appellant to the Corporation were exigible to tax because
the appellant’s sales to the Corporation were not sales in
the course of export. It has now been held by this Court in
Glass Chatons & Users’ Association v. Union of India (1962)
1 S.C.R. 862 ; Dave Son of Bhimji Gohil v. Joint Chief
Controller of Imports & Exports
182
(1963) 2 S.C.R. 73; and M/s. Daruka & Co. v. The Union of
India & Ors. (1973) 2 S.C.C. 617 that the system of
canalisation of exports or imports to the State Trading
Corporation is constitutionally valid. The broad reasons
for the system of canalisation are control” of foreign
exchange and prevention of abuse of foreign exchange.
Counsel for Minerals and Metals Trading Co. which became the
successor to the Corporation did not contend that the
Corporation is an agency. Agency is created by actual
authority given by principal to the agent or principal’s
ratification of contract entered into by the agent on his
behalf but without his authority. Agency arises by an
ostensible authority conferred by the principal on the agent
or by an implication of law in cases of necessity. On
behalf of the appellant it was said that the Corporation is
an agent of necessity because the Corporation is a special
agency to carry out certain public policies. The appellant
contends that it is the exporter and the foreign buyer is
the importer and the contract is said to be processed
through the agency of the Corporation. Agency of necessity
arises where the persons authorised to act as an agent for
another without any regard to the consent of the principal
act in certain circumstances and the law creates an agency
of necessity. A wife becomes an agent of necessity. In
other cases agency of necessity is often applied where after
the parties have created a contractual relationship, the
law, in view of some emergency, confers upon one party
authority to act for another, or allows an agent to exceed
the authority which has been conferred upon him. In the
present case, there is no principal and agent relationship
between the appellant and the Corporation and in the absence
of such relationship the agency of necessity does not arise.
Other instances of agency of necessity are where the master
of a ship is entitled in the case of accident to enter into
a contract which binds the owner of the cargo,
notwithstanding that it transcends his express authority if
it is bonafide made in the best interests of the owners con-
cerned. The same power is possessed by a land carrier in
respect of perishable goods. In the present case, the
relationship between the appellant and the Corporation is
between two principals and there is no aspect whatever of
principal and agency. Further, this question of agency was
never raised before the Sales Tax authorities.
Counsel for the appellant contended that the contracts
between the appellant and the Corporation were F. O. B.
contracts and the property passed only on shipment when the
goods were in the course of export. It was also said that
the goods sold by the appellant to the Corporation could not
be diverted by the Corporation, and, therefore, the
transaction was in the course of export. Reliance was
placed on the decisions of this Court in B. K. Wadeyar v.
M/s Daulatram Rameshwarlal (1961) 1 S.C.R. 924 ; State of
Bihar v. Tata Engineering & Locomotive Co. Ltd. (1971) 2
S.C.R. 849; National Tractors, Hubli v. Commissioner of
Commercial Taxes, Bangalore (1971) 3 S. C. C. 143.
In Wadeyar’s case (supra) sales were direct between Daulat-
ram Rameshwarlal and the foreign buyer. Under the contracts
Daulatram Rameshwerlal continued to be owners of the goods
till the goods
183
crossed the customs barriers. The Revenue contended that
property passed to the foreign buyer before shipment for
three reasons. First, the bill of lading was taken in the
name of the foreign buyer. Second, the export was under the
contract to be under the buyer’s export licence. behind, the
export clause contained a provision that it shall be deemed
to be a condition on 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. This Court said that
the term in the contract for payment against presentation of
documents meant that the bills of lading were retained by
the sellers and the buyer would pay on presentation of the
bills of lading. The retention of the bill of lading by the
seller would indicate an intention of the parties that the
property in the goods would not pass till after payment.
With regard to the, export licence, it was said that the
presumption in F.O.B. contract is that it is the duty of the
buyer to obtain export licence though in the circumstances
of a particular case this duty may fall on the seller. The
clause in the, Export Control Order was construed to mean
that the words “at the time of the export do not mean the
time when the goods crossed the customs barrier. Finally it
was said that export as defined in the Import and Export
Control Act, 1947 means taking out of India by land, sea or
air ; and, therefore, export cannot be held to have
commenced till at least the ship carrying the goods has left
the port. Further Wadeyar’s case is before the Act.
In the National Tractors case (supra) the assessee purchased
iron ore from mine owners and sold them to the State Trading
Corporation for export to foreign countries. Ore was
transported by rail from the mines-from Hospet to Hubli and
from there by road to Karwar port where it was loaded into
ships for transportation to foreign countries.
Under the relevant provision of the Mysore Sales Tax Act,
tax was payable on iron ore at the point of last purchase
within the State. The sales tax authorities held that the
last purchaser was the State Trading Corporation, and,
therefore, the assessee was not liable to pay tax. The High
Court held that the assessee is liable to tax because, the
transactions with the State Trading Corporation were in the
course of export. This Court held that in the light of
presumption which arises in the case of F.O.B. contracts,
the property did not pass to the State Trading Corporation
until the goods were actually put on board the ship, and,
therefore, the assessee was the last purchaser within the
State and was liable to tax. The decision in the National
Tractors case (supra) was on the question as to who was the
last purchaser in the State. It was not the contention of
the assessee that the sale to the Corporation was in the
course of export.
In the Tata Engineering & Locomotive Co. Ltd. case (supra)
the assessee was carrying on the business of manufacturing
and selling trucks, bus chassis and spare parts to their
appointed dealers. Agreement,,, entered into between the
assessee and dealers showed that each dealer was assigned a
territory in which alone the dealer could sell. The dealers
had to place indents, pay the price of goods to be pur-
10 SC/75–13
184
chased and obtained delivery orders from the Bombay Office
of the assessee. In pursuance of the delivery orders the
trucks etcetera were delivered in Bihar to be taken to the
territories assigned to them for sale there. If the dealers
failed to abide by the term requiring them to move the goods
outside the State of Bihar they would have committed breach
of their contracts. The question was whether the turnover
relating to the sales made by the assessee to its dealers
for sale by them in their respective territories outside the
State of Bihar was exempt from liability to pay sales tax
under the, Bihar Sales Tax Act, on the ground that the sales
took place in the course of inter-State trade or commerce.
It was held that where under the terms of a contract of
sale, the buyer is required, as a necessary incident of the
contract, to remove the goods from the State in which he
purchased the goods to another State and when the goods are
so removed, the sale must be considered as a sale in the
course of inter-State trade or commerce. In the Tata
Engineering & Locomotive Co. (11) case (supra) the ratio was
that under the contracts of sale the purchasers were
required to remove the goods from the State of Bihar to
other States. In the present case, the movement of goods in
the course of export began when the Corporation shipped the
goods under the export contract between the Corporation and
the foreign buyer.
In the present case, the mention of F.O.B. price in the
contracts between the appellant and the Corporation does not
render the contracts F.O.B. contracts with the foreign
buyer. The Corporation entered into independent contracts
with the foreign buyers on F.O.B. basis. The appellants
were required under the contracts between the appellant and
the Corporation to bring the goods to the shop named by the
Corporation. The shipment of the goods by the Corporation
to the foreign buyer is the F.O.B. contract to which the
appellants are not the parties. The course of export in the
export stream is possible in direct contracts between the
Indian seller and the foreign buyer. The Corporation
purchased goods from the appellants in order to fulfil the
contract with the, foreign buyer. The only scope of the
deeming provision in the Act is to find out the contract of
sale which is the direct cause or which occasions the
export.
The expression “in the course” implies not only a period of
time during which the movement is in progress but postulates
a connected relation. Sale in the course of export out of
the territory of India means sale taking place not only
during the activities, directed to the end of exportation of
the goods out of the country but also as part of or
connected with such activities. In Burmah Shell Oil Storage
& Distributing Co. v. Commercial Tax Officer (1961) 1 S.C.R.
902 it was said that the word “export” did not mean a mere
taking out of the country but that the goods may be sent to
a destination at which they could be said to be imported.
The directions given by the Corporation to the appellant to
place the goods on board the ship are pursuant to the
contract of sale between the appellant and the Corporation.
These directions are not in the course of export, because
the export sale is an independent one between the
Corporation and the foreign buyer. The taking of the goods
from the appellant’s place
185
to the ship is completely separate from the transit pursuant
to the ,export sale.
The fact that the, exports can be made only through the
State Trading Corporation does-not have the effect of making
the appellants the exporters where there is direct contract
between the Corporation and the foreign buyer. Restriction
on export that export can be made ,only through the State
Trading Corporation is a reasonable restriction and has been
upheld by this Court in several decisions to which
reference’ has been made earlier.
For these reasons, we are of opinion that the High Court was
correct in its conclusion that the contracts between the
appellant and the Corporation were not entitled to claim
exemption within the meaning of section 5(1) of the Act.
Civil Appeals No. 697-706 of 1973 are dismissed. Parties
will pay and bear their own costs.
In Civil Appeals, No. 2063-2082 of 1974 the appellants
entered into similar contracts with the Corporation. The
Corporation entered into similar contracts with the foreign
buyers. The appellants were assessed to tax under the Act.
The appellants made an application to the Tribunal to refer
the question to the High Court as to whether the sales by
the appellants to the Corporation were in the course of
export. The Tribunal dismissed the application of the
appellants. The appellants applied to the High Court for
orders that the Tribunal be called upon to file statement of
case. The High Court dismissed the applications. The High
Court relied on the decision which is the subject matter of
Civil Appeals No. 697-706 of 1973. In view of our
conclusion in Civil Appeals No. 697-706 of 1973 that the
appellants are not entitled to claim exemption Civil Appeals
No. 2063-2082 of 1974 are dismissed.
In view of the fact that the High Court directed the parties
to pay and bear their own costs, similar order is made in
all these appeals.
KHANNA, J.-This judgment would dispose of civil appeals Nos.
697 to 706 of 1973 which have been filed by special leave by
Md. Serajuddin against the judgment of the Orissa High
Court whereby the High Court answered the following question
in respect of the two of the sales in favour of the revenue
and against the assessee-appellant :
“Whether on the facts and in the circumstances
of the case, the Sales Tax Tribunal is right
in holding that the sales effected under the
following four contracts. were sales in the
course of export not exigible to tax under the
Central Sales Tax Act, 1956 ?”
Apart from the two sales with which we are concerned in the
present appeals, the question also covered two other sales
but in expect
186
of them, the answer of the High Court was in favour of the
assessee appellant. So far as that part of the judgment of
the High Court is concerned, its correctness has not been
assailed by the revenue.
The assessee-appellant is a registered dealer of Cuttack III
Circle under the Central Sales Tax Act. The appellant
carries on the business of mining and exporting mineral ores
to foreign countries. The appellant entered into four
contracts for sale of chrome concentrates. Two of those
contracts were No. 19615 dated May 29, 1959 and No. 20579
dated December 7, 1959 with Messrs Associated Metals &
Minerals, New York and Messrs Jan De Footer, Rotterdam
(Holland) respectively. In 1960 the sale of mineral ores
for export was canalised through the State Trading
Corporation (hereinafter described as STC). The appellants
entered into two contracts No. 6/60 dated October 26, 1960
and No. 2161 dated April 14, 1961 for sale of those chrome
concentrates with STC. STC in its turn entered into
contract with foreign buyers. The appellant was assessed to
tax for the quarters ending September 30, 1959 to December
31, 1961 by the Sales Tax Officer, who made these
assessments to the best of his judgment as the appellant
failed to produce his account books or other, documents in
support of-. the returns. On appeal the Assistant
Commissioner reduced the assessments for nine out of the 10
quarters and enhanced the assessment for the quarter ending
March 31, 1961. On second appeal the Sales Tax Tribunal
remanded the case for fresh assessment, after holding that
tile sales, effected by the appellant under the above
mentioned four contracts were sales in the course of export
and were thus exempt from payment of, sales tax under
article 286(1) of the Constitution. The State of Orissa
filed applications before the Tribunal for referring the
above question of law to the High Court. Those applications
were rejected by the Tribunal. Thereupon, the State
approached the High Court. The High Court then called upon
the Tribunal to state a case and refer the question
reproduced above to it.
The High Court in the judgment under appeal has held that
the two contracts dated May 29, 1959 and December 7, 1959
with the foreign buyers occasioned export of the minerals
out of the territory of India and, as such, those sales were
not exigible to tax under the Central Sales Tax Act. As
mentioned earlier, we are no longer concerned with those two
sales. As regards the other two sales effected under the
contracts dated October 26, 1960 and April 14, 1961 with
STC, the High Court answered the question against the
assessee-appellant and held that those two sales were not
exempt from sales tax under article 286(1)(b) of the
Constitution read with section 5(2) of the Central Sales Tax
Act.
In appeal before us Mr. Gobind Das on behalf of the
appellant has assailed the judgment of the High Court and
has contended that the sales in question were effected in
the course of export and as such were exempt from the
payment of sales tax. As against that, Mr. Desai has
canvassed for the correctness of the view taken by the High
court.
187
In order to appreciate the contentions which have been
advanced on behalf of the parties, it may be relevant to set
out the material terms of agreement dated October 26, 1960
which was entered into between the appellant and STC.
According to the agreement the appellant had agreed to sell
and STC had agreed to buy Indian chrome ore on the terms and
conditions mentioned therein. After setting out the
quantity of the material and the analysis specification, the
agreement mentioned the price to be
“U.S. $ 36.00 (U.S. Dollars thirty six) per
long ton dry weight, basis 54% Cr O3 and 3.5/1
Cr/Fe ratio with a premium of $ 1.00 for
increase of 1 % Cr2O3 content but no premium
above 553 CR2O3, fractions prorata ; and with
a penalty of $ 1.00 for each 0.1 below 3.5/1
Cr/Fe ratio, fractions prorata, FOB ocean
liner vessel, Calcutta,.”
According to clause 5, the appellant represented that the
material would be ready in Calcutta harbour for shipment per
steamer as Leneverett or Substitute scheduled to load
‘,during December 1960. Clause 6 dealt with sampling and
analysis and according to it, the material will be sampled
at the time of loading into ocean going vessel by R. V.
Briggs & Co. or Mitra S. K. Pt. Ltd. and the final sampling
would be made at the time of unloading at the port of
discharge of Far East Superintendence Company or U.S.
Consultants. The seller was to supply a weight certificate
issued by the Calcutta Port Trust Authorities which was to
form the basis for provisional payment. The final weights
were to be ascertained by the U.S. Consultants at the port
of discharge and they were to be final and binding on the
parties. Clauses 8 and II of the agreement read as follows
“8. Payment : 90% payment against shipping
documents as described in Buyers corresponding
sale contract. Buyers will assign the
relevant foreign letter of credit which is to
be opened in their name by their foreign
buyer, Messrs. Associated Metals and Minerals
Corporation, on receipt from the sellers of a
Bank draft for difference between buyers FOB
purchase value and FOB Sale value,, that is $
1.00 (Rs. 4.75 nP) per dry long ton for a Bank
guarantee from a scheduled Bank guaranteeing
that sellers will pay buyers immediately upon
shipment/shipments the difference between
buyers FOB purchase value as shown in this
contract and buyers FOB sale value as shown in
foreign letter credit that is Dollar ‘One (Rs.
4.75 nP) per dry long ton by Bank Draft for
each shipment and the buyers will endorse the
bills of lading and deliver the same to
sellers to negotiate against the above
mentioned letter of credit. Balance after
destinational weight and analysis on the basis
of documents mentioned in STC’s corresponding
sale contract with buyers. If the balance 10%
is insufficient to cover shortfall in weight
and analysis at destination or any penalty
imposed by STC’s foreign buyers, the
additional amount shall be payable by sellers
to buyers on demand.
188
11. Special Clause : (i) Unless otherwise
agreed upon, the sellers agree that the
contract shall be deemed as cancelled if for
any reason whatsoever M/s. Associated Metals
& Minerals Corporation, cancel their corres-
ponding purchase contract with the buyers for
supply of chrome ore.
(ii) The terms and conditions of the buyers
corresponding sale contract with M/s
Associated Metals & Minerals Corporation will
apply to this contract also except to the
extent specified in this purchase contract.
(iii) A true copy of buyers sale contract with
M/s Associated Metals & Minerals Corporation
is attached.”
On November 4, 1960 M/s. P. Friedlaender & Co. of Calcutta
addressed communication to the appellant stating that the
above mentioned company bad been asked by the Joint
Divisional Manager of STC to let them have details of the
above sale mentioning specifications. delivery, payment,
weight and analysis to be duly approved by the appellant to
enable STC to draw up the necessary contract. M/s. P.
Friedlaender & Co. also reproduced the particulars
concerning- the transaction. The appellant was asked to
sign a copy of the letter to enable M/s P. Friedlaender &
Co. to forward the same to STC as the appellant’s approval
of the transaction. The letter gave the same particulars of
the quantity, specifications, price, sampling and assaying,
weighting and shipment which had been mentioned in the
agreement between the appellant and STC. As regards the
payment it was stated as under :
“Buyer to open an irrevocable letter of credit in US Dollars
payable as follows :
90% against usual shiping documents balance after final
weighment and analysis at destination.”
The letter was signed on behalf of the appellant by M. K.
Rahman in token of its acceptance.
In the meantime on October 26, 1960 the Chase Manhattan Bank
New York sent a letter of credit to STC for thirty seven
thousand U.S. dollars in the account of Associated Metals
and Minerals Corporation. It was stated that it was in
connection with the provisional commercial invoice for one
thousand long ton Indian chrome concentrates originating
from the appellant. In the letter of credit it was stated
that it might be assigned by STC in favour of the appellant.
On December 30, 1960 the appellant sent the different
documents to the shipment of the goods along with the
original letter of credit assigned in his favour to the
United Commercial Bank. Accompanying the letter was also
the invoice sent by the appellant, in respect of the above
material.
I need not set out the terms of the other agreement dated
April 14, 1961 between the appellant and STC as it is the
common case of the
189
parties that the relevant terms of that agreement are not
materially different from the above mentioned agreement.
Article 286(1) (b) provides :
“286. (1) No law of a State shall impose, or
authorise the imposition of, a tax on the sale
or purchase of goods where sale or purchase
takes place-
(b) in the course of import of the goods
into, or export of the goods out of, the
territory of India.”
There was no definition of the expression “in the course of
the import of the goods into, or export of the goods out of,
the territory of India” before the Sixth Amendment of the
Constitution. By that Amendment. Parliament was given
power to formulate the principles for construing the
expression. The Parliament accordingly provided in section
5 of the Central Sales Tax Act, 1956 as under :
“5. (1) A sale or purchase of goods shall be
deemed to take place in the course of the
export of the goods out of the territory of
India only if the sale or purchase either
occasions such export or is effected by a
transfer of documents of title to the goods
after the goods have crossed the customs
frontiers of India.
(2) A sale or purchase of goods shall be
deemed to take place in the course of the
import of the goods into the territory of
India only if the sale or purchase either
occasions such import or is effected by a
transfer of documents of title to the goods
before the goods have crossed the customs
frontiers of India.”
In Sale of Travancore-Cochin & Ors. v. The Bombay Co.
Ltd.(1) Patanjali Sastri CJ. speaking for the Court observed
“A sale by export thus involves a series of
integrated activities commencing from the
agreement of sale with a foreign buyer and
ending with the delivery of the goods to a
common carrier for transport out of the
country by land or sea. Such a sale cannot be
dissociated from the export without which it
cannot be effectuated, and the sale and re-
sultant export form parts of a single
transaction.”
In the case of State of Travancore-Cochin & Ors. v.
Shanmugha Vilas Cashew Nut Factory & Ors.(2) it was held by
this Court that purchases in the State made by the exporters
for the purpose of export ,arc not within the exemption
granted by article 286(1) (b) of the Constitution.
Patanjali Sastri CJ. speaking for the majority observed
“The word ‘course’ etymologically denotes
movement from one point to another, and the
expression ‘in the course
(1) [1952] SCR 1112.
(2) [1954] SCR 53.
190
of not only implies a period of time during
which the movement is in progress but
postulates also a connected
relation……………….. A sale in the
course of export out of the country should
similarly be understood in the context of
clause 1(b) as meaning a sale taking place not
only during the activities directed to the end
of exportation of the goods out of the country
but also as part of or connected with such
activities.”
The learned Chief Justice further observed that the phrase
“integrated activities” which had been used in an earlier
decision to denote a sale which occasions the export cannot
be dissociated from the export without which it cannot be
effectuated, and the sale and the resultant export form
parts of a single transaction. It was in that sense that
the two activities-the sale and the export-were said to be
integrated. But a purchase for the purpose of export like
production or manufacture for export, being only an act
preparatory to export could not be regarded as an act done
“in the course of the export of the goods out of the
territory of India.”
A sale in the course of export predicates a connection
between the sale and export, the two activities being so
integrated that the connection between the two cannot be
voluntarily interrupted, without a breach of the contract or
the compulsion arising from the nature of the transaction.
In this sense to constitute a sale in the course of export
it may be said that there must be an intention on the part
of both the buyer and the seller to export, there must be
obligation to export, and there must be an actual export.
The obligation may arise by reason of statute, contract
between the parties, or from mutual understanding or
agreement between them, or even from the nature of the
transaction which links the sale to export. A transaction
of sale which is a preliminary to export of the commodity
sold may be regarded as a sale for export, but is not
necessarily to be regarded as one in the course of export,
unless the sale occasions export. And to occasion export
there must exist such a bond between the contract of sale
and the actual exportation, that each link is inextricably
connected with the one immediately preceding it. Without
such a bond, a transaction of sale cannot be called a sale
in the course of export of goods out of the territory of
India (see Ben Gorm Nilgiri Plantations Co. v. Sales Tax
Officer, Special Circle Ernakulam &, Ors. (1) The appellants
in that case were carrying on the business of growing and
manufacturing tea in their estates. They sold tea to the
local agents of the foreign buyers. The sales were by
public auction at Fort Cochin, through brokers in accordance
with the provisions of the Tea Act, 1953. The purchases by
the local agents of the foreign buyers were with a view to
export the goods to their principals abroad and the goods
were in fact exported out of India. it was held that the
sales by the appellants to the agents of the foreign buyers
did not conic within the purview of article 286(1) (b) of
the Constitution. Dealing with the contention that the
sellers had knowledge that the
(1) [1964] 7 SCR 706.
191
goods purchased from them were with the intention of
exporting, Shall J. speaking for the majority observed :
“But there is nothing in the transaction from
which springs a bond between the sale and the
intended export linking them up as part of the
same transaction. Knowledge that the goods
purchased are intended to be exported does not
make the sale and export parts of the same
transaction, nor does the sale of the quota
with the sale of the goods lead to that
result. There is no statutory obligation upon
the purchaser to export the chests of tea
purchased by him with the export rights. The
export quota merely enables the purchaser to
obtain export licence, which he may or may not
obtain. There is nothing in law or in the
contract between the parties, or even in the
nature of the transaction which prohibits
diversion of the goods for internal
consumption. The sellers have no concern with
the actual export of the goods, once the goods
are sold. They have no control over the
goods. There is therefore no direct
connection between the sale and export of the
goods which would make them parts of an
integrated transaction of sale in the course
of export.”
In K. G. Khosla & Co. v. Deputy Commissioner of Commercial
Taxes(1), the appellant entered into a contract with the
Director-General of Civil Supplies for the supply of axle-
bodies manufactured by its principals in Belgium. The goods
were inspected on behalf of the buyers in Belgium but under
the contract they were liable to rejection after further
inspection in India. In pursuance of the contract the
appellant supplies axle-bodies to the Southern Railway at
Perambur and Mysore. It was held that the movement of the
goods from Belgium to India was in pursuance of the contract
between the appellant and the Director-General of Supplies
and Disposals and that there was no possibility of those
goods being diverted by the appellant for any other purpose.
The sale was accordingly held to be in the course of import,
and as such, exempt from taxation.
In Coffee Board, Bangalore v. Joint Commercial Tax Officer,
Madras & Anr.(2) this Court dealt with a case relating to
the export of coffee. Export of coffee outside India was
controlled under the Coffee Act, 1942, by the Coffee Board.
Coffee especially screened and selected was sold to
registered exporters at ‘export auctions’. Permits were
given to such registered exporters to participate at the
auction. The Coffee Board prepared a set of rules which
incorporated the terms and conditions of sale of coffee in
the course of export. Under condition 26 of the Rules a
registered dealer was to give an ,export guarantee’ under
which export would be made only to stipulated or approved
destinations. The buyer at an export auction was free to
export the coffee either by himself or through a forwarding
agent, without selling the goods to the forwarding agent.
Immediately after the export evidence of the shipping bad to
be produced before the
(1) [1966] 3 SCR 352.
(2) [1970] 3 SCR 147.
192
Chief Marketing Officer. In case of default, according to
conditions 30 and 31, the permit holder was liable to fine
and the unexported coffee wits liable to be seized. The
Coffee Board claimed that sales of coffee to registered
exporters had been made in the course of export. It was
held by the majority that the sales by the Coffee Board were
sales for export and not in the course of export.
Hidayatullah C.I. speaking for the majority in that case
observed :
“The phrase ‘sale it the course of export’
comprises in itself three essentials: (i) that
there must be a sale (ii) that goods must
actually be exported and (iii) the sale must
be a part and parcel of the export. Therefore
either the sale must take place when the goods
are already in the process of being exported
which is established by their having already
crossed the customs frontiers, or the sale
must occasion the export. The word ‘occasion’
is used as a verb and means ‘to cause’ or ‘to
be the immediate cause of’. Read in this way
the sale which is to be regarded as exempt is
a sale which causes the export to take place
or is the immediate cause of the export. The
export results from the sale and is bound up
with it. The word ‘course’ in the expression
‘in the course of’ means progress or process
of’, or shortly ‘during’. The phrase expanded
with this meaning reads ‘in the progress or
process of export’ or ‘during export’.
Therefore the export from India to a foreign
destination must be established and the sale
must be a link in the same export for which
the sale is held. To establish export a
person exporting and a person importing are
necessary elements and the course of export is
between them. Introduction of a third party
dealing independently with the seller on the
one hand and with the importer on the other
breaks the link between the two for them there
are two sales one to intermediary and the
other to the importer. The first sale is not
in the course of export for the export begins
from the intermediary and ends with the
importer.
Therefore the tests are that there must be a
single sale which itself causes the export or
is in the progress or process of export.
There is no room for two or more sales in the
course of export. The only sale which can be
said to cause the export is the sale which
itself results in the movement of the goods
from the exporter to the importer.”
The decision in the case of Coffee Board (supra) was relied
upon by this Court in the case of M/s. Binani Bros. v,
Union of India(1). The petitioner in that case purchased
goods from foreign sellers and supplied the same to the
Directorate General of Supplies & Disposals (DGS&D).
Question arose whether the sale by the petitioner to DGS&D
took place in the course of export. The question was
answered in the negative and it was observed that there was
no reason in principle to distinguish this case from the
decision in the Coffee Board’s case.
(1) [1974] 1 S.C.C. 459.
193
Before dealing with the question as to whether the sales in
question took place in the course of export, I may mention
that the, sale of mineral ores for export was canalised
through STC in pursuance of an order made under the Imports
and Exports (Control) Act, 1947 (Act 18 of 1947). Section 3
of that Act empowered the Central Government to prohibit,
restrict or otherwise control imports or exports. Under the
powers conferred by that section, the Central Government
issued the Exports Control Order, 1958. Clause 3 of that
order provided that no person shall export any goods of the
description specified in Schedule I except under and in
accordance with a licence granted by the Central Government
or by any officer specified in Schedule It. Chrome ore and
concentrates were specified in the first schedule. Clause 6
of that order inter alia provided that the Central
Government or the Chief Controller of Imports and Exports
may refuse to grant a licence or direct any other licensing
authority to grant a licence if the licensing authority
decides to canalise exports through special or specialised
agencies or channels. It Was If pursuance of the above
power that the export of chrome concentrates was canalised
through STC. Subsequently this function has been taken over
by the Minerals and Metals Trading Corporation of India Ltd.
(MMTC).
I may now advert to the question as to whether the sales in
question took place in the course of export. I have given
above the broad facts and it would appear therefrom that the
agreement between the appellant and STC incorporated the
terms and conditions which had been settled between the
appellant and the foreign buyer. The terms and conditions
of the contract between STC and the foreign buyer were also
to apply to the contract between the appellant and STC,
except to the extent specified in the latter agreement. It
was agreed that the contract between the appellant and STC
would be deemed cancelled if for any reason the foreign
buyer cancelled the corresponding purchase contract with
STC. The agreement between the appellant and STC clearly
contemplated the export of chrome concentrates. The name of
the ship on which the chrome concentrates were to be loaded
for the purpose of export was also given in the agreement.
The price to be paid by STC to the appellant was fixed in
terms of dollars plainly because the price to be charged
from the foreign buyer was fixed in terms of dollars.
Indeed, the amount that STC was to get in the course of this
transaction was one dollar per ton of the concentrates. The
name of the foreign buyer to whom the chrome concentrates
supplied by the appellant were to be sold was expressly
mentioned in the agreement between the appellant and STC.
The final sampling of the chrome concentrates as well as the
final weights were to be ascertained at the port of
discharge in America and the certificates in that respect
were to be binding on the parties. Although the letter of
credit was to be opened by the foreign buyer in favour of
STC, STC was to assign the same in favour of the appellant.
The appellant was to get 90 per cent against shipping docu-
ments and the remaining 10 per cent after destinational
weight and analysis. Before doing that the appellant had to
give a bank draft or a bank guarantee to STC at the rate of
one dollar per ton of the concentrates to be supplied by the
appellant.
194
The facts of the case, in my opinion, go to show that the
export of the chrome concentrates was occasioned by one
transaction. The parties to that transaction were the
appellant, STC and the foreign buyer. S.T.C. was brought
into the picture as an intermediary because of the legal
requirement, according to which the export of chrome
concentrates was to be canalised through STC. Although the
above requirement necessitated the execution of two
agreements, one between the appellant and STC and the other
between STC and the foreign buyer, there can, in my opinion,
be no doubt that the agreements were part of one integrated
transaction which resulted in the export of the goods. The
interconnection between the two agreements was so intimate
that one agreement could not stand without the other. It
was accordingly provided that the cancellation of one
agreement would automatically result in the cancellation of
the other agreement.
Mr. S. T. Desai on behalf of the respondents has laid great
stress on the observations in the case of Coffee Board
(supra), according to which there must be a single sale
which causes the export and there is no room for two or more
sales in the course of export. It is urged that it was the
agreement of sale between STC and the foreign buyer which
can be said to cause the export. The sale by theappellant
to STC of the chrome concentrates was only for the
purpose of export and as such was not exempt from payment of
tax.Learned counsel further submits that once there are two
contracts, one between the dealer and the intermediary and
the other between the intermediary and the foreign buyer,
the court ‘need not took any further, for it would be only
the contract between the intermediary and the foreign buyer
which would occasion the export and not the other contract.
I find it difficult to accede to the above submission of Mr.
Desai. The observations in the case of Coffee Board (supra)
that there was no room for two or more sales in the course
of export were made in the context of two independent sales.
Those observations cannot be invoked in a case like the
present where the two sales are so interconnected as to be
part of one integrated transaction. Hidayatullah CJ.
speaking for the majority took full note of that aspect of
the matter and it was in that context that lie observed
“Here there are two independent sales involved
in the export programme. The first is a sale
between the Coffee Board as seller to the
export promoter. Then there is the sale by
the export promoter to a foreign buyer. Of
the latter sale the Coffee Board does not have
any inkling when the first sale takes place.
The Coffee Board’s sale is not in any way
related to the second sale. Therefore, the
first sale has no connection with the second
sale which is in the course of export, that is
to say, movement of goods between an exporter
and an importer.”
The above observations would have been wholly unnecessary
and superfluous if it had been the intention of this Court
to lay down an absolute rule that once there arc, two
contracts, one between the dealer
195
and the intermediary and the other between the intermediary
and the foreign buyer, the court need not look to other
circumstances showing their inter-relationship and that only
the latter contract would qualify for exemption from payment
of tax. This Court in a series of cases, all decided by the
Constitution Bench, namely, State of Travancore-Cochin & Ors
v. The Bombay Co. Ltd., State of Travancore Cochin & Ors. v.
Shanmugha Vilas Cashew Nut Factory & Ors. and Ben Gorm
Nilgiri Plantations Co. v. Sales Tax Officer, Special’
Circle, Ernakulam & Ors (supra), had laid stress on the
integrated nature of the activities and the close nexus
between the contract of sale and the export of goods. The
Coffee Board case, which too was decided by the Constitution
Bench, could not set at naught the rule laid down in a
‘series of earlier decisions and, in fact it did not do so
as is apparent from the passage reproduced above wherein
Hidaytullah CJ. dealt with the question as to whether the
two contracts were independent or not. The correct legal
position, in my opinion, is that if there is one integrated
transaction which results in export the fact that the
transaction takes the shape of two interlinked contracts
would not make much material difference.
Argument similar to that advanced by Mr. S. T. Desai before
us was put forth on behalf of the State in the case of State
of Bihar & Anr. v. Tata Engineering & Locomotive Co. Ltd.(1)
and was repelled in the following words
“We have earlier noticed that this Court in a
series of decisions has pronounced in
unambiguous terms that where-under the terms
of a contract of sale, the buyer is required
to remove the goods from the State in which he
purchased those goods to another State and
when the goods are so moved, the sale in
question must be considered as a ,ale in the
course of inter-State trade or commerce. This
is a well established position in law. In the
Coffee Board case this Court did not deviate
from this position nor could it deviate as the
earlier decisions were binding on it. Further
in the course of his judgment. the learned
Chief Justice who spoke for the Court referred
with approval to the earlier decisions of this
Court where distinction between the sales in
the course of inter-State trade or commerce
and sales for the purpose of inter-State trade
and commerce were explained. On the basis of
the facts of that case, his Lordship came to
the conclusion that the export of the coffee
in question was not integrated with the sales
with which the Court was concerned and that
there was no direct bond between the export
and the sales.”
The passage I have already reproduced earlier was thereafter
set out.
One important criterion in order to determine as to whether
the contract of sale between the appellant and STC
occasioned the export
(1) [1971] 2 SCR 849.
196
is to find whether STC could divert the goods supplied by
the appellant for a purpose other than the export to the
foreign buyer. If the answer be in the negative, it would
necessarily follow that the contract between the appellant
and STC resulted in the export of chrome concentrates. The
above criterion was applied in a number of cases. In the
case of Ben Gorm Nilgiri Plantations Co. (supra) Shah
speaking for the majority observed :
“There is no statutory obligation upon the
purchaser to export the chests of tea
purchased by him with the export rights. The
export quota merely enables the purchaser to
obtain export licence, which he may or may not
obtain. There is nothing in law or in the
contract between the parties, or even in the
nature of the transaction which prohibits
diversion of the goods for internal
consumption.”
In the case of K. G. Khosla & Co. (supra) Sikri J. speaking.
for this Court observed :
“Movement of goods from Belgium to India was
in pursuance of the conditions of the contract
between the assessee and the Director-General
of Supplies. There was no possibility of
these goods being diverted by the assessee for
any other purpose. Consequently we hold that
the sales took place in the course of import
of goods within s. 5(2) of the Act, and are,
therefore, exempt from taxation.”
In the case of Coffee Board (supra)
Hidayatullah CJ observed
“The compulsion to export here is of a
different character. It only compels persons
who buy on their own to export in their own
turn by entering into another sale. It is a
sale for export. Even with the compulsion the
sale may not result for clauses 26, 30 and 31
visualize such happenings.”
Coming to the facts of the present case, I find that it was
an f.o.b. sale and there was absolutely no chance of
diversion of the goods by STC for a purpose other than the
export to the foreign buyer.
It may also be mentioned that the position of STC under the
contract between the appellant and STC was not of a
purchaser in the ordinary sense of the term. Unlike such a
purchaser, STC was not entitled to get profits and was not
liable to bear losses resulting from fluctuations in the
market rate of the goods specified in the contract. It was
not open to STC to charge any price for the goods exported
to the foreign buyer. The price to be charged from the
foreign buyer was already fixed in the contract between the
appellant and STC. An ordinary purchaser of goods is
entitled to resell the goods or retain them with himself for
any length of time. There is no obligation upon him to
export the goods, much less to export them to a specified
foreign buyer. As against that, in the present case is a
result of the agreement between the appellant and STC, the
latter was not entitled to retain the goods but was bound to
export them immediately to the specified foreign buyer at a
price which was at-
197
ready mentioned in the agreement between the appellant and
STC. In fact, the arrangement for export of the goods was
also made by the appellant because the contract of sale
between the appellant and STC was f.o.b. contract. STC came
into the picture as a statutory intermediary because of the
legal requirements under the Exports Control Order. All
that STC was entitled in the bargain was a commission of one
‘dollar per ton. Indeed, STC in one of its letters
described its remuneration as commission. In the case of
M/s Daruka & Co. V. The Union of India & Ors.(1) this Court
observed in para 23 of the judgment that the Corporation
like STC is in the nature of a commercial undertaking to
which a licence has been granted for the export of certain
commodities and the service charges are nothing but quid pro
quo for the services rendered by the Corporation. The
introduction of a statutory intermediary Eke STC with only
entitlement of commission of one dollar per ton would not,
in my opinion, affect the real nature of the transaction
that it was the appellant who was to export the chrome
concentrates to the foreign buyer.
The matter can be looked at from’ another angle. According
to Article 286, no law of a State shall impose or authorise
the imposition of tax on the purchase or sale of goods where
such purchase or sale takes place in the course of import of
the goods into or the export of the goods out of the
territory of India. There is nothing in this article which
restricts the exemption from payment of tax to only one sale
or purchase. Likewise, there is nothing in Section 5 of the
Central Sales Tax Act which restricts the sale or purchase
occasioning export or import to only one sale or purchase.
The fact that section 5 refers to sale or purchase in
singular and not in plural would not make much material
difference because according to section 13 of the General
Clauses Act, unless there is anything repugnant in the
subject or context, words in the singular shall include the
plural, and vice versa. Although in a vast majority of
cases it would be only one sale or purchase which would
qualify for exemption from payment of tax, this is not an
absolute rule. There is nothing in law to rule out two
sales qualifying for the exemption, if the facts of the case
show that each of the sales is so interlinked with the
export of the goods, that the export can be said to be
direct result of the two sales which are part of one
integrated transaction.
It may be stated that a simple sale for export, i.e. a sale
to a person who enters into a contract with a foreign buyer
and exports the goods purchased by him to the foreign buyer
would not by itself and in the absence of anything more
qualify for exemption from payment of tax on the ground of
being made in the course of export. The question with which
we are, however, concerned is as to what would be the
position in law if the two sales are so interlinked as to be
part of the same transaction and whether the first sale in
such an event would not be exempt from taxation even though
the export is occasioned by the two contracts of sale taken
together. The respondents cannot, therefore, derive much
assistance from the observations relied
(1) [1973] 2 S.C.C. 617.
198
upon by Mr. S. T. Desai in the case of East India Tobacco
Co. V. The State of Andra Pradesh & Anr.(1) that a sale for
the purpose of export is not protected by article 286(1) (b)
of the Constitution.
I may mention that in the case of Khosla & Co. (supra) there
were two contracts. This is clear from the statement of
facts given in the judgment of the High Court which was
under appeal in this Court. The judgment of the High Court
is reproduced in the report of that case in 17 STC 473. The
relevant passage in this respect reads as under :
“The assessee, Messrs Khosla and Co. entered
into a contract with the Director-General of
Supplies and Disposals, New Delhi, for the
supply of ‘axle-box bodies’. In order to
fulfil the contract, the assessee had to enter
into contract with the manufacturers in
Belgium. The goods were so got manufactured
and imported into India and cleared at the
Madras Harbour and supplied to certain parties
on the instructions of the buyer, the
Director-General of Supplies and Disposals, as
contained in the contract itself.”
Despite the existence of two contracts, this Court held that
the contract of sale by Khosla & Co. to the Director-General
of Supplies and Disposals was exempt from payment of tax as
being in the course of import. It was observed :
” The next question that arises is whether the
movement of axle-box bodies from Belgium into
Madras was the result of a covenant in the
contract of sale or an incident of such
contract. it seems to us that it is quite
clear from the contract that it was incidental
to the contract that the axle-box bodies would
be manufactured in Belgium, inspected there
and imported into India for the consignee.
Movement of goods from Belgium to India was in
pursuance of the conditions of the contract
between the assessee and the Director-General
of Supplies. There was no possibility of
these goods being diverted by the assessee for
any other purpose. Consequently we hold that
the sales took place in the course of import
of goods within section 5 (2) of the Act, and
are, therefore, exempt from taxation.”
Although the facts of the present case are converse to those
of Khosla & Co. the principle laid down therein fully
applies to the present case.
I have already mentioned above that the contract of sale
between the appellant and STC was an f.o.b. contract. The
question as to whether such a contract would be immune
against liability to sales tax under article 286 arose for
determination in the case of B. K. Wadeyar v. M/s Daulatram
Rameshwarlal(2). The respondents firm
(1) 13 S.T.C. 529.
(2) [1976] 1 S.C.R. 924.
199
in that case claimed exemption from sales tax under article
286(1) (b) of the Constitution in respect of sales 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 goods crossed the customs
barrier and entered the export stream. The respondents also
contested the purchase tax to which they were assessed under
section 10(b) of the Bombay Sales Tax Act. It was held that
the goods remained the seller’s property till they had been
brought and loaded on board the ship and so the sales were
exempt from tax under article 286(1) of the Constitution.
Dealing with the f.o.b. contracts, this Court observed that
the normal rule in such contracts was that the property in
the goods was intended to pass and did pass on the shipment
of the goods. It is no doubt true that there was no
reference in the above mentioned case to section 5 of the
Central Sales Tax Act which formulates the principles as to
when sale or purchase of goods shall be deemed to take place
in the course of export or import, this fact would not
affect the binding force of the rule laid down in the above
case. I may also observe in the above context that an
f.o.b. sale though contemplating the export of the goods may
be made between parties carrying on business in the same
country (,see “Sale of Goods” by P. S. Atiyah, p. 215). The
learned author has given the following instance. “A
company, which has contracted to sell goods to a foreign
buyer, may itself buy goods, in order to fulfil the
contract, f.o.b., English ports from English sellers.”
Referring to the case of Wadeyar (supra) Shah J. speaking
for the majority in the case of Ben Gorm Nilgiri Plantations
Co. (supra) observed
“This was undoubtedly a case of two sales
resulting in export, and the first sale was
held immune from State taxation: but that was
so because the property in the goods had
passed to the Indian purchaser when the goods
were in the export stream. The first sale
itself was so inextricably connected with the
export that it was regarded as a sale in the
course of export.”
The above observations clearly lend support to the view that
even in the case of two sales. the first sale would be
immune against taxation if the property in the goods passed
to the Indian purchaser when the goods were in the export
stream. The reason for that was that the first sale was so
inextricably connected with the export that it was regarded
as a sale in the course of export.
Another test which was laid down in the case of Ben Gorm
Nilgiri Plantations Co. was as under
“Where the export is the result of sale, the
export being inextricably linked up with the
sale so that the bond cannot be dissociated
without a breach of the obligation arising by
statute, contract or mutual understanding
between the parties arising from the nature of
the transaction, the sale is in the course of
export.”
10 SC/75-14
200
Applying the above test also, the sale by the appellant to
STC would qualify for exemption from taxation. It is plain
that a breach of the appellant’s obligation arising under
the above contract of sale would result in a situation that
STC would not be able to export the chrome concentrates to
the foreign buyer.
I would, therefore, accept the appeals with costs, set aside
the judgment of the High Court and answer the question
referred to it in favour of the assessee and against the
revenue. One hearing fee.
In civil appeals Nos. 2063 to 2082 of 1974 which has been
filed by Nandaram Huntaram, the appellants were lessees of
mines. They entered into a contract with STC for the sales
of iron ore. STC in its turn entered into export contracts
with foreign buyers. The appellants were assessed to tax
under the Central Sales Tax and as their declaration was not
produced within the requisite time, the full rate was
applied. The Sales Tax Tribunal negatived the appellant’s
contention that the sales were exempt from payment of tax
for being D in the course of export. The declaration filed
by the appellants was accepted and it was directed that the
assessments be made at the concessional rate. The Tribunal
in holding the appellants to be liable to pay Central Sales
Tax found that the appellants had no direct connection with
the export and that the sale by the appellants to STC was
independent of the export. It was further observed that the
contracts with STC had occasioned inter-State movement of
the goods and E as such the turnover was liable to be
assessed under the, Central Sales Tax Act. An application
was thereafter made by the appellants to refer the following
questions for decision to the High Court :
1. Whether in the facts and circumstances
of the case the Tribunal was right in holding
that sale of iron ore was not in course of
export ?
2. Whether in the facts and circumstances
of the case the contracts between the
petitioner and State Trading Corporation of
India and State Trading Corporation of India
and foreign buyers are all inter-connected ?
3. Whether in the facts and circumstances
of the case the sale of iron ore is liable to
be taxed under Central Sales Tax Act at all ?
4. Whether in the facts and circumstances
of the case there was material available on
record for assessing the petitioner under the
provisions of Central Sales Tax Act ?
5. Whether the sale by the petitioner had
occasioned movement of goods in course of
export and is protected by article 286 of the
Constitution of India ?”
The Tribunal dismissed the above application. The
appellants then filed applications before the High Court
that the Tribunal be called upon to file a statement of the
case in respect of the above mentioned
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questions. The High Court dismissed those applications and
in doing so relied upon the judgment in the case of Md.
Serajuddin v. State of Orissa which is the subject-matter of
the other 10 appeals, namely, civil appeals Nos. 697 to 706
of 1973. The above mentioned 20 appeals have been filed
against the order of the High Court dismissing those
applications.
Mr. Bhandare on behalf of the State has urged in these 20
appeals that the facts of these cases are materially
different from those in the cases of Md. Serajuddin and as
such even if we accept the appeals in the cases of Md.
Serajuddin, we should not interfere with the order of the
High Court in these 20 appeals. So far as the above
submission is concerned, I may observe that I do not
express any opinion on the point as to whether the facts of
these cases are similar to those in cases of Md.
Serajuddin. This is a matter which would have to be gone
into after a reference and statement of case is submitted to
the High Court. For our purpose it is sufficient to note
that the High Court in dismissing the applications filed by
the appellants placed reliance upon its decision in the
cases of Md. Serajuddin. As the judgment in the cases of
Md. Serajuddin is being set aside, the ground for refusing
to call for a reference no longer holds good. I therefore,
accept the 20 appeals filed by Nandaram Huntaram, set aside
the judgment of the High Court and direct the Tribunal to
file a statement of the case and refer the questions
reproduced above to the High Court. The appellants shall be
entitled to the costs in this Court in these appeals also.
One hearing fee.
P.H.P. Appeals dismissed.
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