{"id":168714,"date":"1975-04-16T00:00:00","date_gmt":"1975-04-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/mohd-serajuddin-etc-vs-state-of-orissa-on-16-april-1975"},"modified":"2019-04-06T22:22:22","modified_gmt":"2019-04-06T16:52:22","slug":"mohd-serajuddin-etc-vs-state-of-orissa-on-16-april-1975","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/mohd-serajuddin-etc-vs-state-of-orissa-on-16-april-1975","title":{"rendered":"Mohd. Serajuddin Etc vs State Of Orissa on 16 April, 1975"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Mohd. Serajuddin Etc vs State Of Orissa on 16 April, 1975<\/div>\n
Equivalent citations: 1975 AIR 1564, \t\t 1975 SCR 169<\/div>\n
Author: A Ray<\/div>\n
Bench: Ray, A.N. (Cj), Khanna, Hans Raj, Mathew, Kuttyil Kurien, Beg, M. Hameedullah, Chandrachud, Y.V.<\/div>\n
           PETITIONER:\nMOHD.  SERAJUDDIN ETC.\n\n\tVs.\n\nRESPONDENT:\nSTATE OF ORISSA\n\nDATE OF JUDGMENT16\/04\/1975\n\nBENCH:\nRAY, A.N. (CJ)\nBENCH:\nRAY, A.N. (CJ)\nKHANNA, HANS RAJ\nMATHEW, KUTTYIL KURIEN\nBEG, M. HAMEEDULLAH\nCHANDRACHUD, Y.V.\n\nCITATION:\n 1975 AIR 1564\t\t  1975 SCR  169\n 1975 SCC  (2)\t47\n CITATOR INFO :\n F\t    1975 SC1652\t (17,23,24)\n R\t    1976 SC 410\t (6)\n F\t    1977 SC 247\t (4,5,6,8,9,13,16)\n F\t    1977 SC2008\t (4)\n RF\t    1980 SC1468\t (4,13,15)\n RF\t    1991 SC1122\t (9)\n\n\nACT:\nConstitution-Article  286(1)-Section 5 of Central Sales\t Tax\nAct-Meaning  of in the course of export-Agency of  necessity\nF.O.B. Contract.\n\n\n\nHEADNOTE:\nThe  appellants\t entered into two contracts with  the  State\nTrading\t Corporation.\tThe S.T.C.  entered  into  identical\ncontracts with the foreign buyers for sale of the  identical\ngoods  purchased  by  the S.T.C.  from\tthe  appellant.\t the\nclauses\t as  to\t shipment,  sampling,  analysis,  weighment,\npayment\t are  identical in both the contracts.\tThere  is  a\nspecial clause in each one of the contractor providing\tthat\nif  the\t corresponding contract of S.T.C. with\tthe  foreign\nbuyer shall stand cancelled for any reason, the contract  of\nthe  S.T.C.  with the appellant will also  stand  cancelled.\nLikewise, there is a special clause in the con tract between\nthe S.T.C. and the foreign buyer that if for any reason\t the\ncontract  between S.T.C. and the appellant stands  cancelled\nthe  contract-\tbetween S.T.C. and the\tforeign\t buyer\twill\nstand cancelled.  The letter of credit opened by the foreign\nbuyer  was  to be endorsed in favour of the  appellant.\t the\nprices\tmentioned in both the contracts are the same with  a\ndifference of on( dollar per ton.\nThe  appellants\t contended that the contracts  were  in\t the\ncourse\tof  export, and, therefore, not taxable.   The\tHigh\nCourt came to the conclusion that the sale by the appellants\nto  the\t S.T.C.\t was not in the course of  ,export  and\t was\ntherefore, exigible to tax under the Central Sales Tax Act.\nIn appeal the appellants contended before this Court:\n\t      1.    The contract between the appellant\tand\n\t      the  S.T.C. is inextricably bound up with\t the\n\t      export.\tThe sale between the  appellant\t and\n\t      the  S.T.C. and the export by  Corporation  to\n\t      foreign\tbuyer  constitutes  one\t  integrated\n\t      transaction.\n\t      2.    The\t S.T.C. has been interposed  by\t the\n\t      Statute between the appellant and the  foreign\n\t      buyer for a limited purpose.  The inextricable\n\t      link  is not broken by the S.T.C.\t The  S.T.C.\n\t      could  not have diverted the goods to a  buyer\n\t      in  India without violating Export and  Import\n\t      Control Order.\n\t      3.    The\t contract between the appellant\t and\n\t      the S.T.C. being on f.o.b. basis the  property\n\t      in the goods passed only on shipment when\t the\n\t      goods  are in the stream of export.  There  is\n\t      no sale in the taxable territory.\n\t      4.    Even  if it is held that  the  appellant\n\t      did  not\thave any contract with\tthe  foreign\n\t      buyer  and that the privity is  essential\t the\n\t      rigid  rule of privity of contract  should  be\n\t      relaxed in consideration of equity and justice\n\t      and a realistic approach should be adopted.\nThe  respondent contended that the sale by the appellant  to\nthe  S. T. C. was a sale for export but not a sale  in\tthe\ncourse of export.\nThere can be only one sale in the course of export.\nHELD  by  C. J. (for himself and Mathew,  Beg,\tChandrachud,\nII).\n1.   In the first Travancore Cochin case, the contracts were\ndirectly  between the respondents and their foreign  buyers.\nThere was no intermediary between the Indian seller and\t the\nforeign buyer. [175H]\n170\n2.   In\t the  Coffee  Board case this Court  held  that\t the\nintroduction  of an intermediary between the seller and\t the\nimporting  buyer breaks the link.  This Court has held\tthat\nthere  must be a single sale which itself causes the  export\nand there is no room for two or more sales in the course  of\nexport. [173FG&H]\n3.   The contention that the contract between the  appellant\nand  the S.T.C. and the contract between the S.T.C. and\t the\nforeign buyer formed integrated activities in the course  of\nexport\tis unsound.  The crucial words in section 5  of\t the\nCentral\t Sales Tax Act are that a sale or purchase of  goods\nshall  be deemed to take place in the coursed of the  export\nof  the\t goods only if the sale or purchase  occasions\tsuch\nexport\tThere are two separate and independent contracts  of\nsale one between the appellant and the S.T.C. and the  other\nbetween the S.T.C. and the foreign buyers within the meaning\nof ruling in the Coffee Board case and the Benani  Brother's\ncase. [180FGH]\n4.   The  word \"occasion\" in section 5 means  the  immediate\nand direct cause.\t      [181B]\n5.   The  appellant was under no contractual  obligation  to\nthe foreign buyer either directly or indirectly.  The rights\nof   the  appellant  were  against  the\t S.T.C.\t  Similarly,\nobligations  of the appellant were to the S.T.C.  The  price\nwas  different in the two contracts.  This  difference\talso\ndissociates the two contracts from each other. [181EFH]\n6.  The S.T.C.is not an agent of necessity.  The  agency  of\nnecessity  arises where the person authorised to act  as  an\nagent  for another without any regard to the consent of\t the\nprincipal, act in certain circumstances and the law creates\nan  agency  of necessity, e.g. a wife becomes  an  agent  of\nnecessity.   In the present case, there is no principal\t and\nagent relationship between the appellant and the S.T.C.\t The\nrelationship is between the two principals. [182CDE]\n7.   In\t the  present  case  mention  of  f.o.b.  price\t  in\ncontracts  between  the appellant and the  S.T.C.  does\t not\nrender\tthe  contracts with the foreign\t buyers\t f.o.b.\t The\nS.T.C.\tentered into independent contracts with the  foreign\nbuyers on f.o.b. basis.\t The appellants were required  under\nthe contracts between the appellant and the S.T.C. to  bring\nthe  goods to the ship named by the S.T.C. The\tshipment  of\nthe  goods by the S.T.C. to the foreign buyer is the  f.o.b.\ncontract  to  which  the appellants  are  not  the  parties.\n[184DE]\n8.   The  fact that the export can be made only through\t the\nS.T.C. does not have the effect of making the appellants the\nexporters  where  there\t is  direct  contract  between\t the\nCorporation and the foreign buyer. [185A]\nDismissing the appeals held, that sale was not in the course\nof export and was exigible to the Central Sales Tax. [185C]\n(Per Khanna, J. dissenting)\nAllowing the Appeals, Held\n(a)  It\t was laid down in the Travancore Cochin case that  a\nsale  in the course of export predicates action between\t the\nsale and the export, the two activities being so  integrated\nthat  the connection between the two cannot  be\t voluntarily\ninterrupted  without  a\t breach\t of  the  contract  or\t the\ncompulsion  arising  from  the nature  of  the\ttransaction.\nThere must be in intention on the part of both the buyer and\nseller to export, there must be an obligation to export\t and\nthere must be an actual export. [190BC]\n(b)  The  sale\tof  mineral ores for  export  was  canalised\nthrough\t S.T.C.\t in  pursuance of an order  made  under\t the\nImports\t and Exports Control Act, 1947.\t Section 3  of\tthat\nAct empowered the Central Government to prohibit, restrict\n171\nor  otherwise control imports or exports.  Under the  powers\nconferred by that section the Central Government issued\t the\nExports\t Control  Order,  1958.\t  Clause  3  of\t that  Order\nprovided  that\tno  person shall export\t any  goods  of\t the\ndescription  specified\tin Schedule I except  under  and  in\naccordance with a licence granted by the Central Government.\nChrome\tOre  and Concentrates were specified  in  the  first\nSchedule. [193ABC]\n(c)  The   agreement  between  the  appellant\tand   S.T.C.\nincorporated  die  terms and conditions which  were  settled\nbetween the appellant and the foreign buyer.  IL was  agreed\nthat the contract between the appellant and the S.T.C. would\nbe  deemed  cancelled if for any reason\t the  foreign  buyer\ncancelled the corresponding purchase contract of the  S.T.C.\nThe  agreement\tbetween\t the appellant\tand  S.T.C.  clearly\ncontemplated the export of Chrome Concentrates.\t The name of\nthe ship on which the Chrome Concentrates were to be  loaded\nfor  the purpose of export was also given in the  agreement.\nThe price to be paid by S.T.C. to the appellant was fixed in\nterms  of  dollars mainly because the price to\tbe  `charged\nfrom  the foreign buyer was fixed in terms of dollars.\t The\namount\tthat  the S.T.C. was to get in the  course  of\tthis\ntransaction was I Dollar per ton.  The appellant was to\t get\n90 per cent against shipping documents and the remaining  10\nper cent after destinational weight and analysis. [193EH]\n(d) The export of the Chrome Concentrates was occasioned  by\none  transaction.  The parties to that transaction were\t the\nappellant, the S.T.C. and the foreign buyer.  The S.T.C. was\nbrought\t into the picture as an intermediary because of\t the\nlegal  requirement according to which the export  of  Chrome\nConcentrates   was  to\tbe  cancelled  through\tS.T.C.\t The\nagreements  were  part of one integrated  transaction  which\nresulted  in the export of the goods.\tThe  interconnection\nbetween\t the  agreement was so intimate that  one  agreement\ncould  not  stand  without the other.\tIt  was\t accordingly\nprovided   that\t  the\tcancellation   of   one\t   agreement\nautomatically  resulted\t in the cancellation  of  the  other\nagreement. [194A to C]\n(e)  The observations of the Coffee Board's case that  there\nwas  no,  room for 2 or more sales in the course  of  export\nwere  made  in the context of 2\t independent  sales.   Those\nobservations  could  not  be invoked in the  sale  like\t the\npresent where two sales are so interconnected as to be\tpart\nof one integrated transaction.\tIn the Coffee Board's  case,\nitself,\t the  discussion  about the  absence  of  connection\nbetween\t the two sales would have been unnecessary if  there\nwas  intention to lay down an absolute rule that once  there\nare  two  contracts  the  court\t need  not  look  to   other\ncircumstances.\tThe Coffee Board's case which was decided by\na  Constitution Bench could not set at naught the rule\tlaid\ndown  in  a  series of\tearlier\t decisions  by\tConstitution\nBenches\t   and\t  in\tfact   it    did    not\t   do\t so.\n[194F. 195BC]\n(f)  The  S.T.C. could not have diverted the goods  supplied\nby the appellant for a purpose other than the export to\t the\nforeign buyer. [196F]\n(g)  The  position of S.T.C. was not of a purchaser  in\t the\nordinary sense.\t S.T.C. was not entitled to get profits\t and\nwas not liable to bear losses resulting from fluctuations in\nthe  market  rate.  The S.T.C. came into the  picture  as  a\nstatutory intermediary and all that the S.T.C. was  entitled\nin the bargain was a commission of I Dollar. [196G & 197 A &\nC]\n(h)  In Khosla's case there were two contracts.\t Despite the\nexistence of two contracts this Court held that the contract\nin question was exempt from payment of\ttax, as being in the\ncourse of import. [198A.  D&E]\n(i)  The  contract of sale between the appellant and  S.T.C.\nwas on F.O.B. terms.\t [198H]\n\t\t\t   ORDER\n<\/pre>\n
In accordance with the judgment of the majority the  appeals
\nwere dismissed.\n<\/p>\n
172<\/span><\/p>\n
JUDGMENT:\n<\/p>\n
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 697 to 706
\nof 1973 and 2063 to 2082 of 1974.\n<\/p>\n
Appeals by Special Leave from the Judgment & Order dated the
\n17th  September, 1973 of the Orissa High Court in S.  J.  C.
\nNos. 25 to 44 of 1971.\n<\/p>\n
Govind\tDas,  P. H. Parekh, and Mrs. S.\t Bhandare,  for\t the
\nappellants (in C.As. Nos. 697-706\/73)
\nB.   Sen, O. C. Mathur and D. N. Mishra, for the  appellants
\n(In C.As. 2063-2082\/74)
\nG.   L. Sanghi and Bishamber Lal, for intervener, (Misri Lal
\nJain)
\nF.   S.\t Nariman, Additional Solicitor General of India,  F.
\nS. Desai,
\nP.   H.\t Parekh, Mrs. S. Bhandare and Manju Jatley, for\t the
\napplicant\/ Intervener (M.  M. T. C.)
\nS.   T.\t Desai, M. C. Bhandare and B. Parthasarthy  for\t the
\nrespondents (In all the appeals)
\nThe Judgment of the Court was delivered by Ray, C. J. H.  R.
\nKhanna, J. gave a dissenting Opinion.\n<\/p>\n
RAY, C. J.-These Appeals by special leave raise the question
\nwhether the agreements between the appellants and the  State
\nTrading\t  Corporation  (hereinafter  referred  to   as\t the
\nCorporation) were in course of export, and therefore, immune
\nfrom liability to the Central Sales Tax Act.
\nThe  appellant\tentered\t into four  contracts  for  sale  of
\nmineral\t ore.  Two of these contracts were with the  foreign
\nbuyer  M\/s  Associated Metal and Minerals  Corporation,\t New
\nYork.\tThe other two contracts were with the State  Trading
\nCorporation.   It  is  common ground  that  the\t Corporation
\nentered\t into contracts with foreign buyers for sale of\t the
\nidentical goods purchased by the Corporation from the appel-
\nlant.\n<\/p>\n
The present appeal relates to the two contracts between\t the
\nappellant  and the Corporation.\t The High Court came to\t the
\nconclusion  that  the  appellant’s two\tcontracts  with\t the
\nCorporation are exigible to tax under the Central Sales\t Tax
\nAct, 1956.\n<\/p>\n
Section 5(1) of the Central Sales Tax Act, 1956\t hereinafter
\nreferred  to  as  the Act contains  the\t following  relevant
\nprovision :-\n<\/p>\n
\t      “A  sale or purchase of goods shall be  deemed
\n\t      to  take place in the course of the export  of
\n\t      the  goods out of the territory of India\tonly
\n\t      if the sale or purchase either occasions\tsuch
\n\t      export  or  is  effected\tby  a  transfer\t  of
\n\t      documents\t of  title to the  goods  after\t the
\n\t      goods  have crossed the customs  frontiers  of
\n\t      India”.\n<\/p><\/blockquote>\n
173<\/span><\/p>\n
Counsel\t for  the  appellant  contended\t as  follows.\t The
\ncontract  in  each  case  between  the\tappellant  and\t the
\nCorporation  is inextricably bound up with the export.\t The
\nsale  between  the  appellant and the  Corporation  and\t the
\nexport\tby the Corporation to foreign buyer constituted\t one
\nintegrated  transaction.  Second, the Corporation  has\tbeen
\ninterposed by the statute for a limited purpose between\t the
\nappellant  and\tthe foreign buyer.  Export  cannot  be\tmade
\nexcept\tby  the Corporation.  The inextricable link  is\t not
\nbroken\tby the Corporation.  The Corporation could not\thave
\ndiverted  the  goods to a buyer in India  without  violating
\nexport and import control order.  Therefore, the sale is  in
\nthe  course  of\t export.  Third, the  contract\tbetween\t the
\nappellant  and\tthe Corporation being on F.O.B.\t basis,\t the
\nproperty in the goods passed only on shipment when the goods
\nare  in the stream of export.  There is thus no sale in\t the
\ntaxable\t territory.   Fourth, even if it is  held  that\t the
\nappellant  did not have any contract with the foreign  buyer
\nand  that privity is essential the rigid rule of privity  of
\ncontract  should be relaxed in consideration of\t equity\t and
\njustice\t and  a realistic approach should be  adopted.\t The
\nnature of entering into contracts through the channel of the
\nCorporation   raises  in  reality  a  presumption   of\t the
\nCorporation   being  an\t agent\tof  the\t appellant  in\t the
\nintegrated transaction.\n<\/p>\n
Counsel\t on behalf of the appellant relied on some terms  of
\ncontract  in  support of the contention\t that  the  contract
\nbetween\t the appellant and the Corporation and the  contract
\nbetween\t the Corporation with the foreign buyer\t formed\t one
\nintegrated transaction.\t The clauses in the contract between
\nthe  appellant\tand  the  Corporation  relied  upon  by\t the
\nappellant  are\tterms  as  to  price,  shipment,   sampling,
\nanalysis weighing, payment and a special clause.  The  price
\nis  expressed  in U. S. dollars per long ton,  F.O.B.  Ocean
\nliner  vessel, Calcutta.  The term for shipment is that\t the
\nmaterial will be ready in Calcutta harbour for shipment\t per
\nsteamer as Leneverett or Substitute schedule to load  during
\nDecember,  1960.  The clause as to sampling and analysis  is
\nfinal  sampling and moisture determination will be  made  at
\nthe  time of unloading at the port of discharge by Far\tEast
\nSuperintendence\t Company  or  U. S.  Consultants  and  their
\ncertificate  will  be final and binding on  both  buyer\t and
\nseller.\t  The  clause  as to weighing says  that  the  final
\nweights as ascertained by Far East Superintendence Co.\tLtd.
\nor  U. S. Consultants at the port of discharge is final\t and
\nbinding on both parties.\n<\/p>\n
The  terms  as\tto payment are these. 90  per  cent  against
\nshipping documents as described in buyer corresponding\tsale
\ncontract.  Buyer will assign the relevant foreign letter  of
\ncredit which is to be opened in their name by their  foreign
\nbuyer, Messrs.\tAssociated Metals and Minerals\tCorporation,
\non  receipt from the sellers of a Bank draft for  difference
\nbetween\t buyers F.O.B. purchase value and F.O.B sale  value,
\ni.e. $ 1.00 (Rs. 4.75) per try long ton for a Bank guarantee
\nfrom  a\t Scheduled Bank guaranteeing that sellers  will\t pay
\nbuyers\tF.O.B. purchase value as shown in the  contract\t and
\nbuyers\tF.O.B. sale value as shown in the foreign letter  of
\ncredit\tand the buyers will endorse the bills of lading\t and
\ndeliver the same to sellers to negotiate against the above
\n174<\/span>
\nmentioned  letter  of credit.  Balance\tafter  destinational
\nweight and analysis on\t the basis of documents mentioned in
\nthe Corporation’s corresponding\t   sale contract with buyer.
\nIf  the balance 10 per cent is insufficient to cover   short
\nfall  in weight and analysis at destination or\tany  penalty
\nimposed\t by the Corporation’s foreign buyer  the  additional
\namount shall be payable by sellers to buyers on demand.
\nThe special clause relied on by the appellant is as follows\n<\/p>\n
\t      (i)   Unless   otherwise\tagreed\t upon,\t the
\n\t      sellers  agree  that  the\t contract  shall  be
\n\t      deemed   as  cancelled  if  for  any   reasons
\n\t      whatsoever M\/s Associated Metals and  Minerals
\n\t      Corporation,   cancel   their    corresponding
\n\t      purchase\tcontract with the buyers for  supply
\n\t      of chrome ore.\n<\/p>\n
\t      (ii)  The\t terms and conditions of the  buyers
\n\t      corresponding    sale   contract\t with\t M\/s
\n\t      Associated Metals & Minerals Corporation\twill
\n\t      apply to this contract also except to the\t ex-
\n\t      tent specified in this purchase contract.\n<\/p>\n
\t      (iii) A true copy of buyers sale contract with
\n\t      M\/s  Associated Metals & Minerals\t Corporation
\n\t      is attached.”\n<\/p>\n
On  behalf  of the appellant it is said that  the  commodity
\ncould  not be exported directly by the appellant in view  of
\nthe restrictions imposed by law.  The appellant entered into
\nnegotiations  with  foreign purchasers and settled  all\t the
\nconditions  of\tthe contract.  The  Corporation,  thereafter
\nentered into an FOB contract with the appellant and with the
\nforeign\t buyer\ton  identical  terms.\tThe  Corporation  is
\ninterested only in the commission of one dollar per long ton
\nfrom  the appellant.  All necessary steps including  payment
\nof  customs duty for the shipment and export have been\tdone
\nby  the appellant.  The contract between the  appellant\t and
\nthe  Corporation is on FOB basis and the property  in  goods
\npasses only on shipment when the goods are in the course  of
\nexport.\n<\/p>\n
The   appellant\t relied\t on  the  decisions  in\t  State\t  of
\nTravancore-Cochin  &  Ors.  v. The Bombay  Co.\tLtd.  (1952)
\nS.C.R.\t1112  and  State of  Travancore-Cochin\t&  Ors.,  v.
\nShanmugha  Cashew  Nut Factory & Ors.<\/a> (1954)  S.C.R.  53  in
\nsupport of two propositions extracted from those  decisions.
\nFirst,\ta  sale by export involves a  series  of  integrated
\nactivities  commencing\tfrom the agreement of  sale  with  a
\nforeign buyer and ending with the delivery of the goods to a
\ncommon\tcarrier for transport out of the country by land  or
\nsea.   Such  a sale cannot be dissociated  from\t the  export
\nwithout\t which\tit cannot be effectuated, and the  sale\t and
\nresultant  export  from parts of a single  transaction.\t  Of
\nthese two integrated activities which together constitute an
\nexport\tsale whichever first occurs can well be regarded  as
\ntaking\tplace  in the course of the other.   Even  in  cases
\nwhere the property in the goods passed to the foreign buyers
\nand  the sales were thus completed within the  State  before
\nthe goods commenced their journey from the State, the  sales
\nmust be regarded as having taken place in the course of\t the
\nexport,\t and,  therefore, exempt under Article\t286(1)\t(b).
\nSecond, the word “course” denotes movement from one point to
\nanother, and the expression “in
\n\t\t\t    175<\/span>
\nthe  course  of” not only implies a period  of\ttime  during
\nwhich  the  movement is in progress but\t also  postulates  a
\nconnected  relation.  A sale in the course of export out  of
\nthe  country should be understood as meaning a\tsale  taking
\nplace not only during the activities directed to the end  of
\nexportation of the goods out of the country but also as part
\nof or connected with such activities.\n<\/p>\n
The  two  Travancore-Cochin  decisions\trelied\ton  by\t the
\nappellant  are on interpretation of the word “in the  course
\nof  the export of the goods out of the territory  of  India”
\noccurring in Article 286(1) (b) of the Constitution, Article
\n286  (1)  states  that no law of a  State  shall  impose  or
\nauthorise the imposition of a tax on the sale or purchase of
\ngoods  where such sale or purchase takes place\t(a)  outside
\nthe  State or (b) in the course of the import of  the  goods
\nout of territory of India.  Prior to the Constitution  Sixth
\nAmendment Act, 1956 there was an explanation for the purpose
\nof  sub-clause\t(a)  of\t Article  286  (1).   There  was  no
\ndefinition  of the expression “in the course of\t import”  or
\n“in  the  course of export” before  the\t Constitution  Sixth
\nAmendment  Act, 1956.  By the Constitution  Sixth  Amendment
\nAct, 1956 Parliament was given power to formulate principles
\nfor determining when a sale or purchase of goods takes place
\nin  any of the ways mentioned in clause (1) of Article\t286.
\nSection\t 5  of\tthe  Central  Sales  Tax  Act  has  given  a
\nlegislative  meaning  to the expression “in  the  course  of
\nexport” and “in the course of import”.\n<\/p>\n
In the first Travancore-Cochin case (supra) the\t respondents
\nclaimed\t exemption  from  assessment  in  respect  of  sales
\naffected  by them to foreign buyers on CIF or FOB  terms  on
\nthe  ground that such sales took place in the course of\t the
\nexport of the goods out of the territory of India within the
\nmeaning\t of  Article 286(1) (b) of the\tConstitution.\tThis
\nCourt  held  that the sales which occasioned the  export  in
\neach  case  fell  within the scope of  the  exemption  under
\nArticle\t 286(1) (b).  These sales were found to be a  series
\nof  integrated activities commencing from the  agreement  of
\nsale with the foreign buyer and ending with the delivery  of
\n,he  goods  to\ta common carrier for transport\tout  of\t the
\ncountry\t  by  land  or\tsea.   These  sales  could  not\t  be
\ndissociated from the export without which these could not be
\neffectuated.   The sale and the resultant export from  parts
\nof  the single transaction.  Any such integrated  activities
\nwhich together constitute an. export sale, whichever  occurs
\nfirst,\tcan well be regarded as taking in the course of\t the
\nother.\t On  these reasoning this Court held  in  the  first
\nTravancore-Cochin case (supra) that assuming that the  sales
\nto the foreign buyers were complete within the State  before
\nthe   goods   commenced\t their\tjourney,  the\tsales\tmust
\nnevertheless be regarded as having taken place in the course
\nof the export.\n<\/p>\n
It  is\tnoticeable  in\tthe  first  Travancore-Cochin  case,
\n(supra)\t that  the  contracts  were  directly  between\t the
\nrespondents   and  their  foreign  buyers.   There  was\t  no
\nintermediary  between  the  Indian seller  and\tthe  foreign
\nbuyer.\t The  sale and the export become integrated  in\t one
\ntransaction.\n<\/p>\n
176<\/span><\/p>\n
In the second Travancore-Cochin case (supra) the respondents
\nimported  raw  cashew  nuts from  aboard,  and\tneighbouring
\ndistricts in the State of Madras.  The respondents converted
\nthe same by certain process into edible kernels and exported
\nthe  kernels to foreign countries.  The respondents  claimed
\nexemption  Article  286(1)  (b) in respect  of\tpurchase  of
\ncashew nuts.  The three propositions laid down in the second
\nTravancore  Cochin case (supra) are these.  First, sales  by
\nexport\tand  purchases by import fall within  the  exemption
\nunder Article 286(1) (b).  Second, purchases in the State by
\nthe  exporter for the purpose of export as well as sales  in
\nthe  State by the importer after the goods have crossed\t the
\ncustoms barrier are not within the exemption.  Third,  sales
\nin  the\t State by the exporter or importer  by\ttransfer  of
\nshipping  documents while the goods are beyond\tthe  customs
\nbarrier\t are within the exemption, assuming that  the  State
\npower of taxation extends to such transactions.
\nThe  second  Travancore-Cochin\tcase  (supra)  was  on\t the
\nquestion  whether two categories of sale or  purchase  would
\nfall within the scope of exemption under Article 286(1) (b).
\nThe  first category was the last purchase of goods  made  by
\nthe exporter for the purpose of exporting them to  implement
\norders already received from a foreign buyer or expected  to
\nbe  received subsequently in the course of business and\t the
\nfirst  sale  by the importer to fulfil\torders\tpursuant  to
\nwhich  the  goods  were imported or orders  expected  to  be
\nreceived after the import.  The second category comprised of
\nsales  or  purchases of goods effected within the  State  by
\ntransfer  of shipping documents while the goods are  in\t the
\ncourse of transit.  As to the first mentioned category\tthis
\nCourt in the second Travancore-Cochin case (supra) said that
\nthe  exemption\tunder  Article 286(1) (b) was  for  sale  or
\npurchase  of goods taking place in the course of the  import
\nof  the\t goods “into” or export of the goods  “out  of”\t the
\nterritory of India.  The reference to the “goods” and to the
\n“territory”  of India make it clear that the  words  “export
\nout of” and, “,import into” mean the exportation out of\t the
\ncountry and importation into the country respectively.\t The
\nword “course” denotes movement from one point to another and
\nthe expression “in the course” not only implies a period  of
\ntime  during  which  the  movement  is\tin  progress,,\t but
\npostulates  also a connected relation.\tOn  this,  reasoning
\nthis Court held that a sale in the course of export means  a
\nsale taking place not only during the activities directed to
\nthe end of exportation of the goods. out of the country\t but
\nalso  as  part of or connected with  such  activities.\t The
\npurchase for the purpose of export was held in that decision
\nnot too be connected or integrated activities-.
\nIn the second Travancore-Cochin case (supra) the import from
\nAfrica\tfell  into two categories.  The first  consisted  of
\npurchases  made\t through intermediaries\t called\t the  Bombay
\nParty,\twho  acted as agents for  the  respondents  charging
\ncommission.   The  Bombay Party arranged  for  purchases  on
\nbehalf\tof  the\t respondents and obtained  delivery  or\t the
\nShipping  documents  on payment at Bombay.   In\t the  second
\ncategory
\n      177<\/span>
\nthe Bombay Party indented the goods on their own account and
\nsold  the goods as principals to the respondents  and  other
\ncustomers.  The shipping documents were made out in the name
\nof the Bombay Party as consignees.  This Court held that  in
\nrespect of the purchases under the first category the Bombay
\nParty  acted  marely  as agents\t of  the  respondents,\tand,
\ntherefore, there was privity between the respondent and\t the
\nAfrican\t sellers.   With regard to the second  category\t the
\nBombay Party were the purchasers and they sold the goods  as
\nprincipals  to\tthe  respondents and there  was\t no  privity
\nbetween the respondents and the African sellers.
\nThe principal decisions of this Court on the  interpretation
\nof section 5 (1) of the Act are Bengorm Nilgiri\t Plantations
\nCompany Coonoor & Ors. v. Sales Tax Officer Special  Circle,
\nErnakulam  &  Ors.<\/a>  [1964] 7 S. C.  R.\t706,  Coffee  Board,
\nBangalore  v. Joint Commercial Tax Officer Madras<\/a> (1970),  3
\nS.  C. R. 147 and the recent decision in M\/s.  Binani  Bros.
\n(P) Ltd., v. Union of India & Ors.<\/a> (1974) 1 S.C.C. 459.
\nIn the Nilgiri Plantations Case (supra) the appellants\twere
\nsellers\t of  tea and their purchasers were local  agents  of
\nforeign\t buyers.  The sale,,; were by public auction.\tThis
\nCourt held that a transaction of sale which is a preliminary
\nto  export of the commodity sold may be regarded as  a\tsale
\nfor export, but is not necessarily to be regarded as one  in
\nthe  course of export unless the sale occasions export.\t  It
\nwas  said that to occasion export there must exists  such  a
\nbond between the contract of sale and the actual exportation
\nthat  each  link  is inextricably  connected  with  the\t one
\nimmediately preceding it.  Without such a bond a transaction
\nof  sale cannot be called a sale in the course of export  of
\ngoods out of the territory of India.  There may be a variety
\nof  transactions  if the sale of commodity  is\tfollowed  by
\nexport.\t  Foreign  purchasers  may  purchase  through  their
\nagents within the territory of India.  Such a transaction is
\nnot  in\t the course of export because the  seller  does\t not
\nexport\tthe  goods and it is not his concern as to  how\t the
\npurchaser  deals  with\tthe  goods.  There  may\t be  also  a
\ntransaction  under a contract of sale With a  foreign  buyer
\nunder which the goods may under the contract be delivered by
\nthe seller to a common carrier for transporting them to\t the
\npurchaser.  Such a sale may be dissociated from the  export.
\nA  sale\t in  the course of export  predicates  a  connection
\nbetween the sale and export.  No single test can be laid  as
\ndecisive for determining that  question.   Each\t case\tmust
\ndepend upon its facts.\tBut it does not mean\t\tthat
\ndistinction  between transactions which may be called  sales
\nfor  export and sales in the course of export is  not  real.
\nWhere  the sale is effected by the seller and the seller  is
\nnot connected with the export which actually takes place, it
\nis  a  sale for export.\t Where the export is the  result  of
\nsale,  the export being inextricably linked up with sale  so
\nthat the bond cannot be dissociated without a breach of\t the
\nobligations   arising  by  statute,  contract,\t or   mutual
\nunderstanding between the parties arising from the nature of
\nthe transaction the sale is in the course of export.  In the
\nNilgiri Plantations case (supra) this
\n178<\/span>
\nCourt  found that the sales by the appellants were  intended
\nto  be complete without the export and as such it could\t not
\nbe  said that the sales occasioned export.  The\t sales\twere
\nfor export and not in the course of export.\n<\/p>\n
In  the\t Coffee Board case (supra) the Coffee  Board  framed
\nrules  for  sale of coffee to  registered  exporters.\tOnly
\ndealers\t who  registered themselves as exporters  of  coffee
\nwith  the Coffee Board and who held permits from  the  Chief
\nCoffee\tMarketing Officer in that behalf were  permitted  to
\nparticipate  at the auction.  After the bid the price  would
\nbe  paid  in  accordance with the conditions.\tOne  of\t the
\nconditions called ,export guarantee’ provided that it was an
\nessential  condition  of the auction that  the\tcoffee\tsold
\nthereat “shall be exported to the destination stipulated  in
\nthe  catelogue\tof  lots, or to any  other  foreign  country
\noutside\t India\tas  may\t be approved  by  the  Chief  Coffee
\nMarketing   Officer  and  that\tit  shall  not\t under\t any
\ncircumstances  be diverted to another destination, sold,  or
\nbe  disposed  or  otherwise  released  in  India”.   Another
\ncondition  provided that “if the buyer fails or\t neglect  to
\nexport\tthe coffee within the prescribed time, he  would  be
\nliable\tto pay a penally”.  Another condition provided\tthat
\nif the buyer made any default to export the coffee, it would
\nbe  lawful  for the Chief Coffee Marketing  Officer  without
\nreference  to the buyer to seize the unexported\t coffee\t and
\ndeal  with  the\t same as if it was part and  parcel  of\t the
\ncoffee held by the board in their Pool Stock.
\nThe  Coffee  Board contended that the auctions were  in\t the
\ncourse\tof export, because the sales  themselves  occasioned
\nthe export of coffee.  The Revenue contended that the  sales
\nwere not bound up with the export.  This Court held that the
\nphrase “sale in the course of export” authorised not only  a
\nsale  and an actual export but that the sale must be a\tpart
\nand  parcel  of\t the export.  The  word\t “occasion”  in\t the
\ncontext of sale or purchase was held to mean to cause export
\nor to be the immediate cause of export.\t The introduction of
\nan  intermediary between the seller and the importing  buyer
\nwas  held  to  break the link.\tThere was one  sale  to\t the
\nintermediary  and another to the importer.  The\t first\tsale
\nwas  not  in the course of export because the  export  began
\nfrom the intermediary and ended with the importer.
\nThe ruling of this Court in the Coffee Board case (supra) is
\nthat  there  must be a single sale which itself\t causes\t the
\nexport\tand that there is no room for two or more  sales  in
\nthe  course of export. Though the sales by the Coffee  Board
\nwere sales for export, they were not sales in the course  of
\nexport.\t  They\twere  two independent sales  in\t the  export
\nprogramme.   The  first sale was a sale between\t the  Coffee
\nBoard as seller to the export promoter.\t Then there was\t the
\nsale by the export promoter to a foreign buyer.\t It was\t the
\nsecond\tsale  which was in the course of  export  since\t the
\nsecond sale caused the movement of goods between an exporter
\nand  an\t importer.  In the, Coffee Board  case\t(supra)\t the
\nrules compelling export meant compelling persons who  bought
\non their own to export in their own
\n\t\t\t    179<\/span>
\nturn  by  entering  into another  agreement  for  sale.\t  An
\nessential condition as to export of coffee purchased at\t the
\nauction was held not to amount to turn the transaction\tinto
\na  sale in the course of export.  The reason given was\tthat
\nif the registered exporter who was the bidder at the auction
\ndid  not export he would commit a default of conditions\t No.
\n30  and\t 31  and be liable to penalty  and  seizure  of\t the
\ncoffee.\n<\/p>\n
In  the\t Coffee Board case (supra) the phrase “sale  in\t the
\ncourse of export” was held, to comprise of three essentials.
\nFirst, there must be a sale.  Second, goods must actually be
\nexported.  Third, the sale must be a part and parcel of\t the
\nexport.\t The propositions laid down in the Coffee Board case
\n(supra)\t are  these : The sale which is to  be\tregarded  as
\nexempt is a sale which causes the export to take place or is
\nthe  immediate cause of the export.  To establish  export  a
\nperson\texporting  and\ta  person  importing  are  necessary
\nelements   and\tthe  course  of\t export\t is  between   them.
\nIntroduction of a third party dealing independently with the
\nseller\ton the one hand and with the importer on  the  other
\nbreaks the link between the two for then there are two sales
\none to the intermediary and the other to the importer.\t The
\nfirst sale is not in the course of export because the export
\ncommences  with the intermediary.  The tests are that  there
\nmust  be a single sale which itself causes the export or  is
\nin the progress or process or export.  There is no room\t for
\ntwo  or more sales in the course of export.  The  only\tsale
\nwhich  can  be said to cause the export is  the\t sale  which
\nitself\tresults\t in  the  movement of  the  goods  from\t the
\nexporter to the importer.\n<\/p>\n
The  Coffee  Board case (supra) discussed  all\tthe  earlier
\ndecisions  some of which were on the meaning of\t the  phrase
\n“in  the course of export” occurring in\t Article  286(1)(b).
\nIn  the Coffee Board case (supra) at page 161 of the  Report
\nit is said that the same meaning must obviously be given  to
\nthe  phrase  “in  the course of export”\t or  to\t the  phrase
\n“occasions the export”.\t One of the decisions discussed\t was
\nK.  G.\tKhosla & Co. v. Deputy\tCommissioner  of  Commercial
\nTaxes<\/a>  (1966)  3  S.C.R. 352.  In K. G. Khosla\t&  Co.\tcase
\n(supra)\t Khosla\t and Company entered into contract  of\tsale
\nwith  the  Director General of Supplies\t and  Disposals\t for
\nsupply\tof axle bodies manufactured by the principal of\t the
\nKhosla & Co. in Belgium.  The goods were to be inspected  by
\nthe  Director General of Supplies and Disposals in  Belgium.
\nUnder  the  contract  of sale the goods were  liable  to  be
\nrejected  after a further inspection by the  buyer  Director
\nGeneral of Supplies and Disposals in India.  The goods\twere
\nimported  into\tour  country and supplied to  the  buyer  at
\nPeramber  and  Mysore.\t The  contract\tbetween\t Khosla\t and
\nCompany\t and Director General of Supplies and Disposals\t was
\nheld by this Court to be in the course of import.  The\tterm
\nas to rejection of goods as a result of inspection in  India
\nindicated that there was no completed sale in Belgium  under
\nthe contract.\n<\/p>\n
In  the recent decision in Binani Brothers case (supra)\t the
\npetitioner  was\t a  supplier  to  the  Director\t General  of
\nSupplies and
\n180<\/span>
\nDisposals.   The  petitioner  obtained\timport\tlicences  to
\nsupply\tnonferrous metals.  The Government agreed to pay  to
\nthe petitioner sales tax under the Central Sales Tax Act  or
\nWest Bengal Sales Tax Act, whichever was applicable in terms
\nof the contract.  After the decision of this Court in K.  G.
\nKhosla & Co. case (supra) the Revenue Authorities issued  an
\norder directing that sales tax should not be\t  allowed in
\nrespect of supply of stores which have been imported against
\nimport\tlicences for supplies under contracts Placed by\t the
\nDirector General of Supplies and Disposals.  On the basis of
\nthat  direction the Government deducted in respect of  sales
\ntax  certain  sums of money which were pending\tpayment\t and
\nalso  threatened to recover a large sum of money  which\t had
\nbeen paid as sales tax in respect of supplies already  made.
\nThis  Court discussed the Travancore & Cochin cases  (supra)
\nand  the  Nilgiri Plantations Company case (supra)  and\t the
\nCoffee\tBoard case   (supra).  Mathew, J. speaking  for\t the
\nCourt  said that there was no obligation under the  contract
\non  the\t part  of  the\tDirector  General  of  Supplies\t and
\nDisposals to procure import licences for the petitioner.  It
\nwar,  the  obligation  of the petitioner  to  obtain  import
\nlicence.  Even if the\t contracts  envisaged the import  of
\ngoods  and their supply to the Director General of  Supplies
\nand  Disposals\tfrom out of the goods imported\tit  did\t not
\nfollow\tthat  the  movement of the goods in  the  course  of
\nimport was occasioned by the contracts of sales between\t the
\npetitioner   and  the  Director\t General  of  Supplies\t and
\nDisposals.  Khosla & Co. case (supra) was discussed and this
\nCourt  said  that  there was no completed  sale\t in  Belgium
\nbecause under the contract the Director General of  Supplies
\nand  Disposals\treserved the final right of  inspection\t and
\nrejection  of goods on their arrival in India.\tThe  crucial
\ntest  which  was laid down in the Nilgiri  Plantations\tcase
\n(supra)\t as  well as Coffee Board case\t(supra)\t is  whether
\nthere were independent transactions or only one\t transaction
\nwhich occasioned the movement\t   of\tthe  goods  in\t the
\ncourse of export.\n<\/p>\n
The contention on behalf of the appellant that the  contract
\nbetween\t the appellant and the Corporation and the  contract
\nbetween\t the  Corporation  and\tthe  foreign  buyer   formed
\nintegrated  activities in the coarse of export\tis  unsound.
\nThe crucial words in the section are that a sale or purchase
\nof goods shall be deemed to take place in the course of\t the
\nexport\tof the goods only if the sale or purchase  occasions
\nsuch  export.  The various decisions to which reference\t has
\nbeen  made  illustrate the ascertainment of  the  preeminent
\nquestion as to which is the sale or purchase which occasions
\nthe  export.  The Coffee Board case as well as the  case  of
\nBinani Bros. (supra) clearly indicates that the\t distinction
\nbetween\t sales for export and sales in the course of  export
\nis never to be lost sight of.  The features which point with
\nunerring accuracy to the contract between the appellant\t and
\nthe  Corporation  on the one hand and the  contract  between
\nCorporation  and  the  foreign buyer on\t the  other  as\t two
\nseparate and independent contracts or sale within the ruling
\nin  the\t Coffee Board case (supra) and the  Binani  Brothers
\ncase,  are these.  The Corporation entered on the scene\t and
\nentered\t into  a direct contract with the foreign  buyer  to
\nexport the goods.  The Corporation alone agreed to sell\t the
\ngoods
\n\t\t\t    181<\/span>\n<\/p>\n
-to the foreign buyer.\tThe Corporation was the exporter  of
\nthe  goods  There  was no privity of  contract\tbetween\t the
\nappellant and the foreign buyer.  The privity of contract is
\nbetween\t  the  Corporation  and\t the  foreign  buyer.\t The
\nimmediate cause of the movement of goods and ,export   was
\nthe contract between the foreign buyer who was the  importer
\nand the Corporation who was the exporter and shipper of\t the
\ngoods.\t  All  relevant\t documents were in the name  of\t the
\nCorporation  whose contract of sale was the occasion of\t the
\nexport.\t The expression “occasions” in section 5 of the\t Act
\nmeans the immediate and direct cause.  But for the  contract
\nbetween the Corporation and the foreign buyer, there was  no
\noccasion  for export.  Therefore, the export was  occasioned
\nby  the\t contract of sale between the  Corporation  and\t the
\nforeign\t buyer and not by the contract of sale\tbetween\t the
\nCorporation and the appellant.\n<\/p>\n
The  appellant sold the goods directly to  the\tCorporation.
\nThe  ,circumstance that the appellant did so to\t facilitate
\nthe performance of the contract between the Corporation\t and
\nthe foreign buyer on terms which were similar did not  make
\nthe contract between the ,appellant and the Corporation\t the
\nimmediate cause of the export.\tThe Corporation in regard to
\nits contract with the foreign buyer entered into a  contract
\nwith  the appellant to procure the goods.   Such contracts
\nfor  procurement of goods for export are described  in\tcom-
\nmercial parlance as back to back contracts.  In export trade
\nit  is\tnot  ,unnatural to find a string  of  contracts\t for
\nexport\tof goods.  It is only the contract  which  occasions
\nthe  export  of goods which will be entitled  to  exemption.
\nThe  appellant\twas under no contractual obligation  to\t the
\nforeign buyer either directly or indirectly.  The rights  of
\nthe appellants were against the Corporation.  Similarly\t the
\nobligations  of the appellant were to the Corporation.\t The
\nforeign\t buyer\tcould  not  ,claim  any\t right\tagainst\t the
\nappellant  nor did the appellant have any obligation to\t the
\nforeign\t buyer.\t  All  acts done by the\t appellant  were  in
\nperformance of the appellants obligation under the  contract
\nwith   the  Corporation\t and  not  in  performance  of\t the
\nobligations of the Corporation to the foreign buyer.
\nThe  expression “sale” in section 5 of the Act has the\tsame
\nmeaning as in Sale of Goods Act.  String contracts or  chain
\ncontracts  are\tseparate  transactions even  when  there  is
\nsimilarity relating to quantity, quality of goods, shipment,
\nsampling  and analysis. weighment and force majeure etc.  or
\nother  similar\tterms.\t A contract of sale  is\t a  contract
\nwhereby the seller transfers or agrees to transfer the\tpro-
\nperty  in  goods to the buyer for  the\tmoney  consideration
\ncalled\tthe price.  There were two separate contracts.\t The
\nprice  was different in the two contracts.  This  difference
\nalso  dissociates  the two contracts from each\tother.\t The
\nHigh  Court  was  right in holding that\t the  sales  of\t the
\nappellant  to the Corporation were exigible to\ttax  because
\nthe  appellant’s sales to the Corporation were not sales  in
\nthe course of export.  It has now been held by this Court in
\nGlass Chatons & Users’ Association v. Union of India<\/a>  (1962)
\n1  S.C.R.  862\t; Dave Son of Bhimji Gohil  v.\tJoint  Chief
\nController of Imports & Exports<\/a>
\n182<\/span>
\n(1963)\t2 S.C.R. 73; and M\/s.  Daruka & Co. v. The Union  of
\nIndia & Ors.<\/a>   (1973)  2  S.C.C.  617  that  the  system  of
\ncanalisation of exports\t or  imports  to the  State  Trading
\nCorporation is constitutionally valid.\tThe  broad   reasons
\nfor  the  system  of canalisation are  control”\t of  foreign
\nexchange  and  prevention  of  abuse  of  foreign  exchange.
\nCounsel for Minerals and Metals Trading Co. which became the
\nsuccessor  to  the  Corporation did  not  contend  that\t the
\nCorporation  is\t an  agency.  Agency is\t created  by  actual
\nauthority  given  by principal to the agent  or\t principal’s
\nratification  of contract entered into by the agent  on\t his
\nbehalf\tbut  without  his authority.  Agency  arises  by  an
\nostensible authority conferred by the principal on the agent
\nor  by\tan  implication of law in cases\t of  necessity.\t  On
\nbehalf of the appellant it was said that the Corporation  is
\nan  agent of necessity because the Corporation is a  special
\nagency to carry out certain public policies.  The  appellant
\ncontends  that it is the exporter and the foreign  buyer  is
\nthe  importer  and  the contract is  said  to  be  processed
\nthrough the agency of the Corporation.\tAgency of  necessity
\narises\twhere the persons authorised to act as an agent\t for
\nanother\t without any regard to the consent of the  principal
\nact  in certain circumstances and the law creates an  agency
\nof  necessity.\t A wife becomes an agent of  necessity.\t  In
\nother cases agency of necessity is often applied where after
\nthe  parties  have created a contractual  relationship,\t the
\nlaw,  in  view\tof some emergency, confers  upon  one  party
\nauthority  to act for another, or allows an agent to  exceed
\nthe  authority\twhich has been conferred upon him.   In\t the
\npresent\t case, there is no principal and agent\trelationship
\nbetween the appellant and the Corporation and in the absence
\nof such relationship the agency of necessity does not arise.
\nOther instances of agency of necessity are where the  master
\nof a ship is entitled in the case of accident to enter\tinto
\na   contract   which   binds  the  owner   of\tthe   cargo,
\nnotwithstanding that it transcends his express authority  if
\nit is bonafide made in the best interests of the owners con-
\ncerned.\t  The same power is possessed by a land\t carrier  in
\nrespect\t of  perishable\t goods.\t In the\t present  case,\t the
\nrelationship  between the appellant and the  Corporation  is
\nbetween\t two principals and there is no aspect\twhatever  of
\nprincipal and agency.  Further, this question of agency\t was
\nnever raised before the Sales Tax authorities.
\nCounsel\t for  the  appellant contended\tthat  the  contracts
\nbetween\t the  appellant and the Corporation were  F.  O.  B.
\ncontracts and the property passed only on shipment when\t the
\ngoods  were in the course of export.  It was also said\tthat
\nthe goods sold by the appellant to the Corporation could not
\nbe   diverted  by  the\tCorporation,  and,  therefore,\t the
\ntransaction  was  in  the course of  export.   Reliance\t was
\nplaced\ton the decisions of this Court in B. K.\t Wadeyar  v.
\nM\/s  Daulatram Rameshwarlal<\/a> (1961) 1 S.C.R. 924 ;  State  of
\nBihar  v.  Tata Engineering & Locomotive Co. Ltd.<\/a>  (1971)  2
\nS.C.R.\t849;  National Tractors, Hubli\tv.  Commissioner  of
\nCommercial Taxes, Bangalore<\/a> (1971) 3 S. C. C. 143.
\nIn Wadeyar’s case (supra) sales were direct between  Daulat-
\nram Rameshwarlal and the foreign buyer.\t Under the contracts
\nDaulatram  Rameshwerlal continued to be owners of the  goods
\ntill the goods
\n\t\t\t    183<\/span>
\ncrossed\t the customs barriers.\tThe Revenue  contended\tthat
\nproperty  passed  to the foreign buyer before  shipment\t for
\nthree  reasons.\t First, the bill of lading was taken in\t the
\nname of the foreign buyer.  Second, the export was under the
\ncontract to be under the buyer’s export licence. behind, the
\nexport clause contained a provision that it shall be  deemed
\nto be a condition on licence that the goods, for the  export
\nof  which licence is granted, shall be the property  of\t the
\nlicensee  at the time of the export.  This Court  said\tthat
\nthe term in the contract for payment against presentation of
\ndocuments  meant that the bills of lading were\tretained  by
\nthe  sellers and the buyer would pay on presentation of\t the
\nbills of lading.  The retention of the bill of lading by the
\nseller\twould indicate an intention of the parties that\t the
\nproperty  in  the goods would not pass till  after  payment.
\nWith  regard  to the, export licence, it was said  that\t the
\npresumption in F.O.B. contract is that it is the duty of the
\nbuyer  to obtain export licence though in the  circumstances
\nof a particular case this duty may fall on the seller.\t The
\nclause\tin the, Export Control Order was construed  to\tmean
\nthat  the words “at the time of the export do not  mean\t the
\ntime when the goods crossed the customs barrier.  Finally it
\nwas  said  that export as defined in the Import\t and  Export
\nControl Act, 1947 means taking out of India by land, sea  or
\nair  ;\tand,  therefore,  export  cannot  be  held  to\thave
\ncommenced till at least the ship carrying the goods has left
\nthe port.  Further Wadeyar’s case is before the Act.
\nIn the National Tractors case (supra) the assessee purchased
\niron ore from mine owners and sold them to the State Trading
\nCorporation  for  export  to  foreign  countries.   Ore\t was
\ntransported by rail from the mines-from Hospet to Hubli\t and
\nfrom  there by road to Karwar port where it was loaded\tinto
\nships for transportation to foreign countries.
\nUnder  the relevant provision of the Mysore Sales  Tax\tAct,
\ntax  was payable on iron ore at the point of  last  purchase
\nwithin\tthe State.  The sales tax authorities held that\t the
\nlast  purchaser\t was  the State\t Trading  Corporation,\tand,
\ntherefore, the assessee was not liable to pay tax.  The High
\nCourt  held that the assessee is liable to tax because,\t the
\ntransactions with the State Trading Corporation were in\t the
\ncourse\tof  export.  This Court held that in  the  light  of
\npresumption  which arises in the case of  F.O.B.  contracts,
\nthe  property did not pass to the State Trading\t Corporation
\nuntil  the goods were actually put on board the\t ship,\tand,
\ntherefore,  the assessee was the last purchaser\t within\t the
\nState  and was liable to tax.  The decision in the  National
\nTractors case (supra) was on the question as to who was\t the
\nlast  purchaser in the State.  It was not the contention  of
\nthe  assessee  that the sale to the Corporation was  in\t the
\ncourse of export.\n<\/p>\n
In  the Tata Engineering & Locomotive Co. Ltd. case  (supra)
\nthe  assessee was carrying on the business of  manufacturing
\nand  selling  trucks, bus chassis and spare parts  to  their
\nappointed  dealers.  Agreement,,, entered into\tbetween\t the
\nassessee and dealers showed that each dealer was assigned  a
\nterritory in which alone the dealer could sell.\t The dealers
\nhad to place indents, pay the price of goods to be pur-
\n10 SC\/75–13
\n184<\/span>
\nchased\tand obtained delivery orders from the Bombay  Office
\nof  the assessee.  In pursuance of the delivery\t orders\t the
\ntrucks\tetcetera were delivered in Bihar to be taken to\t the
\nterritories assigned to them for sale there.  If the dealers
\nfailed to abide by the term requiring them to move the goods
\noutside the State of Bihar they would have committed  breach
\nof  their contracts.  The question was whether the  turnover
\nrelating  to the sales made by the assessee to\tits  dealers
\nfor sale by them in their respective territories outside the
\nState  of Bihar was exempt from liability to pay  sales\t tax
\nunder the, Bihar Sales Tax Act, on the ground that the sales
\ntook  place in the course of inter-State trade or  commerce.
\nIt  was\t held that where under the terms of  a\tcontract  of
\nsale, the buyer is required, as a necessary incident of\t the
\ncontract,  to  remove the goods from the State in  which  he
\npurchased the goods to another State and when the goods\t are
\nso  removed,  the sale must be considered as a sale  in\t the
\ncourse\tof  inter-State\t trade or  commerce.   In  the\tTata
\nEngineering & Locomotive Co. (11) case (supra) the ratio was
\nthat  under  the  contracts  of\t sale  the  purchasers\twere
\nrequired  to  remove the goods from the State  of  Bihar  to
\nother States.  In the present case, the movement of goods in
\nthe course of export began when the Corporation shipped\t the
\ngoods under the export contract between the Corporation\t and
\nthe foreign buyer.\n<\/p>\n
In  the\t present case, the mention of F.O.B.  price  in\t the
\ncontracts between the appellant and the Corporation does not
\nrender\tthe  contracts\tF.O.B. contracts  with\tthe  foreign
\nbuyer.\t The Corporation entered into independent  contracts
\nwith  the  foreign buyers on F.O.B. basis.   The  appellants
\nwere required under the contracts between the appellant\t and
\nthe Corporation to bring the goods to the shop named by\t the
\nCorporation.   The shipment of the goods by the\t Corporation
\nto  the\t foreign buyer is the F.O.B. contract to  which\t the
\nappellants are not the parties.\t The course of export in the
\nexport\tstream is possible in direct contracts\tbetween\t the
\nIndian\tseller\tand  the  foreign  buyer.   The\t Corporation
\npurchased  goods from the appellants in order to fulfil\t the
\ncontract  with\tthe, foreign buyer.  The only scope  of\t the
\ndeeming provision in the Act is to find out the contract  of
\nsale  which  is\t the direct cause  or  which  occasions\t the
\nexport.\n<\/p>\n
The expression “in the course” implies not only a period  of
\ntime during which the movement is in progress but postulates
\na  connected relation.\tSale in the course of export out  of
\nthe  territory\tof India means sale taking  place  not\tonly
\nduring the activities, directed to the end of exportation of
\nthe  goods  out\t of  the country but  also  as\tpart  of  or
\nconnected with such activities.\t In Burmah Shell Oil Storage
\n& Distributing Co. v. Commercial Tax Officer<\/a> (1961) 1 S.C.R.
\n902  it was said that the word “export” did not mean a\tmere
\ntaking out of the country but that the goods may be sent  to
\na  destination at which they could be said to  be  imported.
\nThe directions given by the Corporation to the appellant  to
\nplace  the  goods  on board the ship  are  pursuant  to\t the
\ncontract of sale between the appellant and the\tCorporation.
\nThese  directions are not in the course of  export,  because
\nthe   export  sale  is\tan  independent\t one   between\t the
\nCorporation and the foreign buyer.  The taking of the  goods
\nfrom the appellant’s place
\n\t\t\t    185<\/span>
\nto the ship is completely separate from the transit pursuant
\nto the ,export sale.\n<\/p>\n
The  fact  that the, exports can be made  only\tthrough\t the
\nState Trading Corporation does-not have the effect of making
\nthe appellants the exporters where there is direct  contract
\nbetween the Corporation and the foreign buyer.\t Restriction
\non  export that export can be made ,only through  the  State
\nTrading Corporation is a reasonable restriction and has been
\nupheld\t by  this  Court  in  several  decisions  to   which
\nreference’ has been made earlier.\n<\/p>\n
For these reasons, we are of opinion that the High Court was
\ncorrect\t in  its conclusion that the contracts\tbetween\t the
\nappellant  and\tthe Corporation were not entitled  to  claim
\nexemption  within  the meaning of section 5(1) of  the\tAct.
\nCivil  Appeals No. 697-706 of 1973 are\tdismissed.   Parties
\nwill pay and bear their own costs.\n<\/p>\n
 In  Civil  Appeals, No. 2063-2082 of  1974  the  appellants
\nentered\t into similar contracts with the  Corporation.\t The
\nCorporation entered into similar contracts with the  foreign
\nbuyers.\t The appellants were assessed to tax under the\tAct.
\nThe appellants made an application to the Tribunal to  refer
\nthe  question to the High Court as to whether the  sales  by
\nthe  appellants\t to the Corporation were in  the  course  of
\nexport.\t  The  Tribunal\t dismissed the\tapplication  of\t the
\nappellants.   The appellants applied to the High  Court\t for
\norders that the Tribunal be called upon to file statement of
\ncase.  The High Court dismissed the applications.  The\tHigh
\nCourt relied on the decision which is the subject matter  of
\nCivil  Appeals\tNo.  697-706  of  1973.\t  In  view  of\t our
\nconclusion  in\tCivil Appeals No. 697-706 of 1973  that\t the
\nappellants are not entitled to claim exemption Civil Appeals
\nNo. 2063-2082 of 1974 are dismissed.\n<\/p>\n
In view of the fact that the High Court directed the parties
\nto  pay and bear their own costs, similar order is  made  in
\nall these appeals.\n<\/p>\n
KHANNA, J.-This judgment would dispose of civil appeals Nos.
\n697 to 706 of 1973 which have been filed by special leave by
\nMd.   Serajuddin  against the judgment of  the\tOrissa\tHigh
\nCourt whereby the High Court answered the following question
\nin respect of the two of the sales in favour of the  revenue
\nand against the assessee-appellant :\n<\/p>\n
\t      “Whether on the facts and in the circumstances
\n\t      of  the case, the Sales Tax Tribunal is  right
\n\t      in  holding that the sales effected under\t the
\n\t      following\t four contracts. were sales  in\t the
\n\t      course of export not exigible to tax under the
\n\t      Central Sales Tax Act, 1956 ?”\n<\/p><\/blockquote>\n
Apart from the two sales with which we are concerned in\t the
\npresent\t appeals, the question also covered two other  sales
\nbut in expect
\n186<\/span>
\nof  them, the answer of the High Court was in favour of\t the
\nassessee appellant.  So far as that part of the judgment  of
\nthe  High Court is concerned, its correctness has  not\tbeen
\nassailed by the revenue.\n<\/p>\n
The assessee-appellant is a registered dealer of Cuttack III
\nCircle\tunder  the  Central Sales Tax  Act.   The  appellant
\ncarries on the business of mining and exporting mineral ores
\nto  foreign  countries.\t  The appellant\t entered  into\tfour
\ncontracts  for\tsale of chrome concentrates.  Two  of  those
\ncontracts  were No. 19615 dated May 29, 1959 and  No.  20579
\ndated  December\t 7,  1959 with Messrs  Associated  Metals  &
\nMinerals,  New\tYork  and Messrs Jan  De  Footer,  Rotterdam
\n(Holland)  respectively.  In 1960 the sale of  mineral\tores
\nfor   export  was  canalised  through  the   State   Trading
\nCorporation (hereinafter described as STC).  The  appellants
\nentered\t into two contracts No. 6\/60 dated October 26,\t1960
\nand  No. 2161 dated April 14, 1961 for sale of those  chrome
\nconcentrates  with  STC.   STC\tin  its\t turn  entered\tinto
\ncontract with foreign buyers.  The appellant was assessed to
\ntax  for the quarters ending September 30, 1959 to  December
\n31,   1961  by\tthe  Sales  Tax\t Officer,  who\tmade   these
\nassessments  to\t the best of his judgment as  the  appellant
\nfailed\tto produce his account books or other, documents  in
\nsupport\t  of-.\tthe  returns.\tOn  appeal   the   Assistant
\nCommissioner reduced the assessments for nine out of the  10
\nquarters and enhanced the assessment for the quarter  ending
\nMarch  31,  1961.  On second appeal the Sales  Tax  Tribunal
\nremanded  the case for fresh assessment, after holding\tthat
\ntile  sales,  effected\tby the\tappellant  under  the  above
\nmentioned four contracts were sales in the course of  export
\nand  were  thus\t exempt from payment  of,  sales  tax  under
\narticle\t 286(1)\t of the Constitution.  The State  of  Orissa
\nfiled  applications  before the Tribunal for  referring\t the
\nabove question of law to the High Court.  Those applications
\nwere  rejected\tby  the\t Tribunal.   Thereupon,\t the   State
\napproached the High Court.  The High Court then called\tupon
\nthe  Tribunal  to  state  a  case  and\trefer  the  question
\nreproduced above to it.\n<\/p>\n
The  High Court in the judgment under appeal has  held\tthat
\nthe  two contracts dated May 29, 1959 and December  7,\t1959
\nwith  the foreign buyers occasioned export of  the  minerals
\nout of the territory of India and, as such, those sales were
\nnot  exigible  to tax under the Central Sales Tax  Act.\t  As
\nmentioned earlier, we are no longer concerned with those two
\nsales.\t As regards the other two sales effected  under\t the
\ncontracts  dated  October 26, 1960 and April 14,  1961\twith
\nSTC,  the  High\t Court answered\t the  question\tagainst\t the
\nassessee-appellant  and held that those two sales  were\t not
\nexempt\tfrom  sales  tax  under\t article  286(1)(b)  of\t the
\nConstitution read with section 5(2) of the Central Sales Tax
\nAct.\n<\/p>\n
In  appeal  before  us\tMr. Gobind  Das\t on  behalf  of\t the
\nappellant  has assailed the judgment of the High  Court\t and
\nhas  contended that the sales in question were\teffected  in
\nthe  course  of\t export and as such  were  exempt  from\t the
\npayment\t of sales tax.\tAs against that, Mr. Desai\t has
\ncanvassed for the correctness of the view taken by the\tHigh
\ncourt.\n<\/p>\n
\t\t\t    187<\/span><\/p>\n
In  order  to  appreciate the contentions  which  have\tbeen
\nadvanced on behalf of the parties, it may be relevant to set
\nout  the material terms of agreement dated October 26,\t1960
\nwhich  was  entered  into between  the\tappellant  and\tSTC.
\nAccording to the agreement the appellant had agreed to\tsell
\nand STC had agreed to buy Indian chrome ore on the terms and
\nconditions   mentioned\ttherein.   After  setting  out\t the
\nquantity of the material and the analysis specification, the
\nagreement mentioned the price to be
\n\t      “U.S.  $ 36.00 (U.S. Dollars thirty  six)\t per
\n\t      long ton dry weight, basis 54% Cr O3 and 3.5\/1
\n\t      Cr\/Fe  ratio  with  a premium of\t$  1.00\t for
\n\t      increase\tof 1 % Cr2O3 content but no  premium
\n\t      above 553 CR2O3, fractions prorata ; and\twith
\n\t      a\t penalty of $ 1.00 for each 0.1 below  3.5\/1
\n\t      Cr\/Fe  ratio,  fractions\tprorata,  FOB  ocean
\n\t      liner vessel, Calcutta,.”\n<\/p>\n
According  to clause 5, the appellant represented  that\t the
\nmaterial would be ready in Calcutta harbour for shipment per
\nsteamer\t as  Leneverett\t or  Substitute\t scheduled  to\tload
\n‘,during  December 1960.  Clause 6 dealt with  sampling\t and
\nanalysis  and according to it, the material will be  sampled
\nat  the\t time of loading into ocean going vessel  by  R.  V.
\nBriggs & Co. or Mitra S. K. Pt.\t Ltd. and the final sampling
\nwould  be  made\t at the time of unloading  at  the  port  of
\ndischarge  of  Far  East  Superintendence  Company  or\tU.S.
\nConsultants.  The seller was to supply a weight\t certificate
\nissued\tby the Calcutta Port Trust Authorities which was  to
\nform  the basis for provisional payment.  The final  weights
\nwere  to be ascertained by the U.S. Consultants at the\tport
\nof  discharge and they were to be final and binding  on\t the
\nparties.  Clauses 8 and II of the agreement read as follows
\n\t      “8.  Payment  : 90% payment  against  shipping
\n\t      documents as described in Buyers corresponding
\n\t      sale   contract.\t Buyers\t will\tassign\t the
\n\t      relevant foreign letter of credit which is  to
\n\t      be  opened  in  their name  by  their  foreign
\n\t      buyer, Messrs.  Associated Metals and Minerals
\n\t      Corporation, on receipt from the sellers of  a
\n\t      Bank  draft for difference between buyers\t FOB
\n\t      purchase value and FOB Sale value,, that is  $
\n\t      1.00 (Rs. 4.75 nP) per dry long ton for a Bank
\n\t      guarantee\t from a scheduled Bank\tguaranteeing
\n\t      that sellers will pay buyers immediately\tupon
\n\t      shipment\/shipments   the\tdifference   between
\n\t      buyers  FOB  purchase value as shown  in\tthis
\n\t      contract and buyers FOB sale value as shown in
\n\t      foreign letter credit that is Dollar ‘One (Rs.
\n\t      4.75  nP) per dry long ton by Bank  Draft\t for
\n\t      each shipment and the buyers will endorse\t the
\n\t      bills  of\t lading\t and  deliver  the  same  to
\n\t      sellers\tto  negotiate  against\t the   above
\n\t      mentioned\t letter\t of credit.   Balance  after
\n\t      destinational weight and analysis on the basis
\n\t      of documents mentioned in STC’s  corresponding
\n\t      sale contract with buyers.  If the balance 10%
\n\t      is  insufficient to cover shortfall in  weight
\n\t      and  analysis  at destination or\tany  penalty
\n\t      imposed\tby   STC’s   foreign   buyers,\t the
\n\t      additional amount shall be payable by  sellers
\n\t      to buyers on demand.\n<\/p>\n
\t\t\t\t   188<\/span><\/p>\n
\t      11.   Special  Clause : (i)  Unless  otherwise
\n\t      agreed  upon,  the  sellers  agree  that\t the
\n\t      contract\tshall be deemed as cancelled if\t for
\n\t      any reason whatsoever M\/s.  Associated  Metals
\n\t      &\t Minerals Corporation, cancel their  corres-
\n\t      ponding purchase contract with the buyers\t for
\n\t      supply of chrome ore.\n<\/p>\n
\t      (ii)  The\t terms and conditions of the  buyers
\n\t      corresponding    sale   contract\t with\t M\/s
\n\t      Associated Metals & Minerals Corporation\twill
\n\t      apply  to\t this contract also  except  to\t the
\n\t      extent specified in this purchase contract.\n<\/p>\n
\t      (iii) A true copy of buyers sale contract with
\n\t      M\/s  Associated Metals & Minerals\t Corporation
\n\t      is attached.”\n<\/p>\n
On November 4, 1960 M\/s.  P. Friedlaender & Co. of  Calcutta
\naddressed  communication to the appellant stating  that\t the
\nabove  mentioned  company  bad\tbeen  asked  by\t the   Joint
\nDivisional  Manager of STC to let them have details  of\t the
\nabove  sale  mentioning specifications.\t delivery,  payment,
\nweight and analysis to be duly approved by the appellant  to
\nenable\tSTC  to draw up the necessary  contract.   M\/s.\t  P.
\nFriedlaender   &   Co.\talso  reproduced   the\t particulars
\nconcerning-  the  transaction.\tThe appellant was  asked  to
\nsign  a copy of the letter to enable M\/s P.  Friedlaender  &
\nCo.  to forward the same to STC as the appellant’s  approval
\nof the transaction.  The letter gave the same particulars of
\nthe quantity, specifications, price, sampling and  assaying,
\nweighting  and\tshipment  which had been  mentioned  in\t the
\nagreement  between  the appellant and STC.  As\tregards\t the
\npayment it was stated as under :\n<\/p>\n
“Buyer to open an irrevocable letter of credit in US Dollars
\npayable as follows :\n<\/p>\n
90%  against  usual shiping documents  balance\tafter  final
\nweighment and analysis at destination.”\n<\/p>\n
The  letter was signed on behalf of the appellant by  M.  K.
\nRahman in token of its acceptance.\n<\/p>\n
In the meantime on October 26, 1960 the Chase Manhattan Bank
\nNew  York  sent a letter of credit to STC for  thirty  seven
\nthousand  U.S. dollars in the account of  Associated  Metals
\nand  Minerals  Corporation.  It was stated that\t it  was  in
\nconnection  with the provisional commercial invoice for\t one
\nthousand  long\tton Indian chrome  concentrates\t originating
\nfrom  the appellant.  In the letter of credit it was  stated
\nthat it might be assigned by STC in favour of the appellant.
\nOn  December  30,  1960 the  appellant\tsent  the  different
\ndocuments  to  the  shipment of the  goods  along  with\t the
\noriginal  letter  of credit assigned in his  favour  to\t the
\nUnited\tCommercial Bank.  Accompanying the letter  was\talso
\nthe  invoice sent by the appellant, in respect of the  above
\nmaterial.\n<\/p>\n
I  need not set out the terms of the other  agreement  dated
\nApril  14, 1961 between the appellant and STC as it  is\t the
\ncommon case of the
\n\t\t\t    189<\/span>
\nparties\t that the relevant terms of that agreement  are\t not
\nmaterially different from the above mentioned agreement.
\nArticle 286(1) (b) provides :\n<\/p>\n
\t      “286.  (1) No law of a State shall impose,  or
\n\t      authorise the imposition of, a tax on the sale
\n\t      or  purchase of goods where sale\tor  purchase
\n\t      takes place-\n<\/p><\/blockquote>\n
\t      (b)   in\tthe  course of import of  the  goods
\n\t      into,  or\t export\t of the goods  out  of,\t the
\n\t      territory of India.”\n<\/p><\/blockquote>\n
There was no definition of the expression “in the course  of
\nthe import of the goods into, or export of the goods out of,
\nthe  territory of India” before the Sixth Amendment  of\t the
\nConstitution.\tBy  that Amendment.   Parliament  was  given
\npower  to  formulate  the  principles  for  construing\t the
\nexpression.  The Parliament accordingly provided in  section
\n5 of the Central Sales Tax Act, 1956 as under :\n<\/p>\n
\t      “5.  (1) A sale or purchase of goods shall  be
\n\t      deemed  to  take place in the  course  of\t the
\n\t      export  of the goods out of the  territory  of
\n\t      India  only  if the sale\tor  purchase  either
\n\t      occasions\t such  export or is  effected  by  a
\n\t      transfer\tof documents of title to  the  goods
\n\t      after  the  goods\t have  crossed\tthe  customs
\n\t      frontiers of India.\n<\/p><\/blockquote>\n
\t      (2)   A  sale  or purchase of goods  shall  be
\n\t      deemed  to  take place in the  course  of\t the
\n\t      import  of  the goods into  the  territory  of
\n\t      India  only  if the sale\tor  purchase  either
\n\t      occasions\t such  import or is  effected  by  a
\n\t      transfer\tof documents of title to  the  goods
\n\t      before  the  goods have  crossed\tthe  customs
\n\t      frontiers of India.”\n<\/p><\/blockquote>\n
In  Sale  of  Travancore-Cochin & Ors.\tv.  The\t Bombay\t Co.
\nLtd.(1) Patanjali Sastri CJ. speaking for the Court observed
\n\t      “A  sale by export thus involves a  series  of
\n\t      integrated  activities  commencing  from\t the
\n\t      agreement\t of  sale with a foreign  buyer\t and
\n\t      ending  with  the delivery of the goods  to  a
\n\t      common  carrier  for  transport  out  of\t the
\n\t      country by land or sea.  Such a sale cannot be
\n\t      dissociated  from the export without which  it
\n\t      cannot  be effectuated, and the sale  and\t re-
\n\t      sultant\texport\tform  parts  of\t  a   single
\n\t      transaction.”\n<\/p>\n
In  the\t case  of  State  of  Travancore-Cochin\t &  Ors.  v.
\nShanmugha Vilas Cashew Nut Factory & Ors.<\/a>(2) it was held  by
\nthis Court that purchases in the State made by the exporters
\nfor  the  purpose of export ,arc not  within  the  exemption
\ngranted\t  by  article  286(1)  (b)  of\t the   Constitution.
\nPatanjali Sastri CJ. speaking for the majority observed
\n\t      “The  word  ‘course’  etymologically   denotes
\n\t      movement\tfrom one point to another,  and\t the
\n\t      expression ‘in the course
\n(1)  [1952] SCR 1112.\n<\/p>\n
(2)  [1954] SCR 53.\n<\/p>\n
\t\t\t    190<\/span><\/p>\n
\t      of  not only implies a period of\ttime  during
\n\t      which   the  movement  is\t in   progress\t but
\n\t      postulates       also\t  a\t   connected
\n\t      relation………………..  A  sale  in\t the
\n\t      course  of  export out of the  country  should
\n\t      similarly\t be  understood in  the\t context  of
\n\t      clause 1(b) as meaning a sale taking place not
\n\t      only during the activities directed to the end
\n\t      of exportation of the goods out of the country
\n\t      but  also\t as part of or connected  with\tsuch
\n\t      activities.”\n<\/p>\n
The  learned Chief Justice further observed that the  phrase
\n“integrated  activities” which had been used in\t an  earlier
\ndecision to denote a sale which occasions the export  cannot
\nbe  dissociated from the export without which it  cannot  be
\neffectuated,  and  the sale and the  resultant\texport\tform
\nparts  of a single transaction.\t It was in that\t sense\tthat
\nthe  two activities-the sale and the export-were said to  be
\nintegrated.  But a purchase for the purpose of\texport\tlike
\nproduction  or\tmanufacture for export, being  only  an\t act
\npreparatory  to export could not be regarded as an act\tdone
\n“in  the  course  of  the export of the\t goods\tout  of\t the
\nterritory of India.”\n<\/p>\n
A  sale\t in  the course of export  predicates  a  connection
\nbetween\t the  sale and export, the two activities  being  so
\nintegrated  that  the connection between the two  cannot  be
\nvoluntarily interrupted, without a breach of the contract or
\nthe  compulsion arising from the nature of the\ttransaction.
\nIn  this sense to constitute a sale in the course of  export
\nit  may be said that there must be an intention on the\tpart
\nof  both the buyer and the seller to export, there  must  be
\nobligation  to export, and there must be an  actual  export.
\nThe  obligation\t may arise by reason  of  statute,  contract
\nbetween\t the  parties,\tor  from  mutual  understanding\t  or
\nagreement  between  them,  or even from the  nature  of\t the
\ntransaction  which links the sale to export.  A\t transaction
\nof  sale which is a preliminary to export of  the  commodity
\nsold  may  be  regarded as a sale for  export,\tbut  is\t not
\nnecessarily  to be regarded as one in the course of  export,
\nunless\tthe sale occasions export.  And to  occasion  export
\nthere  must exist such a bond between the contract  of\tsale
\nand  the actual exportation, that each link is\tinextricably
\nconnected  with the one immediately preceding  it.   Without
\nsuch  a bond, a transaction of sale cannot be called a\tsale
\nin  the\t course of export of goods out of the  territory  of
\nIndia  (see  Ben Gorm Nilgiri Plantations Co. v.  Sales\t Tax
\nOfficer, Special Circle Ernakulam &<\/a>, Ors. (1) The appellants
\nin  that case were carrying on the business of\tgrowing\t and
\nmanufacturing  tea in their estates.  They sold tea  to\t the
\nlocal  agents  of  the foreign buyers.\tThe  sales  were  by
\npublic auction at Fort Cochin, through brokers in accordance
\nwith the provisions of the Tea Act, 1953.  The purchases  by
\nthe  local agents of the foreign buyers were with a view  to
\nexport\tthe goods to their principals abroad and  the  goods
\nwere  in  fact exported out of India. it was held  that\t the
\nsales by the appellants to the agents of the foreign  buyers
\ndid  not conic within the purview of article 286(1)  (b)  of
\nthe  Constitution.  Dealing  with the  contention  that\t the
\nsellers had knowledge that the
\n(1)  [1964] 7 SCR 706.\n<\/p>\n
\t\t\t    191<\/span><\/p>\n
goods  purchased  from\tthem  were  with  the  intention  of
\nexporting, Shall J. speaking for the majority observed :\n<\/p>\n
\t      “But there is nothing in the transaction\tfrom
\n\t      which springs a bond between the sale and\t the
\n\t      intended export linking them up as part of the
\n\t      same  transaction.  Knowledge that  the  goods
\n\t      purchased are intended to be exported does not
\n\t      make  the\t sale and export parts of  the\tsame
\n\t      transaction,  nor does the sale of  the  quota
\n\t      with  the\t sale  of the  goods  lead  to\tthat
\n\t      result.  There is no statutory obligation upon
\n\t      the  purchaser  to export the  chests  of\t tea
\n\t      purchased by him with the export rights.\t The
\n\t      export  quota merely enables the purchaser  to
\n\t      obtain export licence, which he may or may not
\n\t      obtain.\tThere  is nothing in law or  in\t the
\n\t      contract\tbetween the parties, or even in\t the
\n\t      nature  of  the  transaction  which  prohibits
\n\t      diversion\t  of   the   goods   for    internal
\n\t      consumption.  The sellers have no concern with
\n\t      the actual export of the goods, once the goods
\n\t      are  sold.   They\t have no  control  over\t the
\n\t      goods.\tThere\tis   therefore\t no   direct
\n\t      connection between the sale and export of\t the
\n\t      goods  which  would  make\t them  parts  of  an
\n\t      integrated  transaction of sale in the  course
\n\t      of export.”\n<\/p><\/blockquote>\n
In  K. G. Khosla & Co. v. Deputy Commissioner of  Commercial
\nTaxes<\/a>(1),  the\tappellant entered into a contract  with\t the
\nDirector-General  of Civil Supplies for the supply of  axle-
\nbodies manufactured by its principals in Belgium.  The goods
\nwere inspected on behalf of the buyers in Belgium but  under
\nthe  contract  they were liable to rejection  after  further
\ninspection  in\tIndia.\t In pursuance of  the  contract\t the
\nappellant  supplies axle-bodies to the Southern\t Railway  at
\nPerambur  and Mysore.  It was held that the movement of\t the
\ngoods from Belgium to India was in pursuance of the contract
\nbetween\t the appellant and the Director-General of  Supplies
\nand  Disposals\tand that there was no possibility  of  those
\ngoods being diverted by the appellant for any other purpose.
\nThe sale was accordingly held to be in the course of import,
\nand as such, exempt from taxation.\n<\/p>\n
In Coffee Board, Bangalore v. Joint Commercial Tax  Officer,
\nMadras\t& Anr.<\/a>(2) this Court dealt with a case\trelating  to
\nthe  export of coffee.\tExport of coffee outside  India\t was
\ncontrolled under the Coffee Act, 1942, by the Coffee  Board.
\nCoffee\t especially  screened  and  selected  was  sold\t  to
\nregistered  exporters  at ‘export auctions’.   Permits\twere
\ngiven  to  such registered exporters to participate  at\t the
\nauction.   The\tCoffee Board prepared a set of\trules  which
\nincorporated  the terms and conditions of sale of coffee  in
\nthe  course  of export.\t Under condition 26 of the  Rules  a
\nregistered  dealer was to give an ,export  guarantee’  under
\nwhich  export would be made only to stipulated\tor  approved
\ndestinations.\tThe buyer at an export auction was  free  to
\nexport the coffee either by himself or through a  forwarding
\nagent,\twithout selling the goods to the  forwarding  agent.
\nImmediately after the export evidence of the shipping bad to
\nbe produced before the
\n(1)  [1966] 3 SCR 352.\n<\/p>\n
(2)  [1970] 3 SCR 147.\n<\/p>\n
\t\t\t    192<\/span><\/p>\n
Chief  Marketing Officer.  In case of default, according  to
\nconditions  30 and 31, the permit holder was liable to\tfine
\nand  the  unexported coffee wits liable to be  seized.\t The
\nCoffee\tBoard  claimed that sales of  coffee  to  registered
\nexporters  had\tbeen made in the course of export.   It\t was
\nheld by the majority that the sales by the Coffee Board were
\nsales\tfor  export  and  not  in  the\tcourse\tof   export.
\nHidayatullah  C.I.  speaking for the majority in  that\tcase
\nobserved :\n<\/p>\n
\t      “The  phrase  ‘sale it the course\t of  export’
\n\t      comprises in itself three essentials: (i) that
\n\t      there  must  be a sale (ii)  that\t goods\tmust
\n\t      actually\tbe exported and (iii) the sale\tmust
\n\t      be a part and parcel of the export.  Therefore
\n\t      either the sale must take place when the goods
\n\t      are  already in the process of being  exported
\n\t      which  is established by their having  already
\n\t      crossed  the  customs frontiers, or  the\tsale
\n\t      must occasion the export.\t The word ‘occasion’
\n\t      is used as a verb and means ‘to cause’ or\t ‘to
\n\t      be the immediate cause of’.  Read in this\t way
\n\t      the sale which is to be regarded as exempt  is
\n\t      a\t sale which causes the export to take  place
\n\t      or is the immediate cause of the export.\t The
\n\t      export  results from the sale and is bound  up
\n\t      with it.\tThe word ‘course’ in the  expression
\n\t      ‘in  the course of’ means progress or  process
\n\t      of’, or shortly ‘during’.\t The phrase expanded
\n\t      with  this meaning reads ‘in the\tprogress  or
\n\t      process\tof  export’  or\t  ‘during   export’.
\n\t      Therefore\t the export from India to a  foreign
\n\t      destination  must be established and the\tsale
\n\t      must  be a link in the same export  for  which
\n\t      the  sale\t is  held.  To\testablish  export  a
\n\t      person  exporting and a person  importing\t are
\n\t      necessary elements and the course of export is
\n\t      between  them.  Introduction of a third  party
\n\t      dealing  independently with the seller on\t the
\n\t      one  hand and with the importer on  the  other
\n\t      breaks the link between the two for them there
\n\t      are  two\tsales one to  intermediary  and\t the
\n\t      other to the importer.  The first sale is\t not
\n\t      in the course of export for the export  begins
\n\t      from  the\t intermediary  and  ends  with\t the
\n\t      importer.\n<\/p><\/blockquote>\n
\t      Therefore\t the tests are that there must be  a
\n\t      single sale which itself causes the export  or
\n\t      is  in  the  progress or\tprocess\t of  export.
\n\t      There is no room for two or more sales in\t the
\n\t      course of export.\t The only sale which can  be
\n\t      said  to\tcause the export is the\t sale  which
\n\t      itself  results in the movement of  the  goods
\n\t      from the exporter to the importer.”\n<\/p><\/blockquote>\n
The decision in the case of Coffee Board (supra) was  relied
\nupon  by  this Court in the case of M\/s.   Binani  Bros.  v,
\nUnion  of India(1).  The petitioner in that  case  purchased
\ngoods  from  foreign sellers and supplied the  same  to\t the
\nDirectorate   General  of  Supplies  &\tDisposals   (DGS&D).
\nQuestion  arose whether the sale by the petitioner to  DGS&D
\ntook  place  in\t the course of\texport.\t  The  question\t was
\nanswered in the negative and it was observed that there\t was
\nno  reason  in principle to distinguish this case  from\t the
\ndecision in the Coffee Board’s case.\n<\/p>\n
(1)  [1974] 1 S.C.C. 459.\n<\/p>\n
\t\t\t    193<\/span><\/p>\n
Before dealing with the question as to whether the sales  in
\nquestion  took place in the course of export, I may  mention
\nthat  the,  sale of mineral ores for  export  was  canalised
\nthrough STC in pursuance of an order made under the  Imports
\nand Exports (Control) Act, 1947 (Act 18 of 1947).  Section 3
\nof  that Act empowered the Central Government  to  prohibit,
\nrestrict or otherwise control imports or exports.  Under the
\npowers\tconferred  by that section, the\t Central  Government
\nissued\tthe Exports Control Order, 1958.  Clause 3  of\tthat
\norder provided that no person shall export any goods of\t the
\ndescription  specified\tin Schedule I except  under  and  in
\naccordance with a licence granted by the Central  Government
\nor by any officer specified in Schedule It.  Chrome ore\t and
\nconcentrates were specified in the first schedule.  Clause 6
\nof   that  order  inter\t alia  provided\t that  the   Central
\nGovernment  or the Chief Controller of Imports\tand  Exports
\nmay refuse to grant a licence or direct any other  licensing
\nauthority  to  grant a licence if  the\tlicensing  authority
\ndecides\t to canalise exports through special or\t specialised
\nagencies  or  channels.\t It Was If pursuance  of  the  above
\npower  that the export of chrome concentrates was  canalised
\nthrough STC.  Subsequently this function has been taken over
\nby the Minerals and Metals Trading Corporation of India Ltd.
\n(MMTC).\n<\/p>\n
I may now advert to the question as to whether the sales  in
\nquestion  took place in the course of export.  I have  given
\nabove the broad facts and it would appear therefrom that the
\nagreement  between  the appellant and STC  incorporated\t the
\nterms  and  conditions which had been  settled\tbetween\t the
\nappellant  and the foreign buyer.  The terms and  conditions
\nof the contract between STC and the foreign buyer were\talso
\nto  apply  to the contract between the\tappellant  and\tSTC,
\nexcept to the extent specified in the latter agreement.\t  It
\nwas  agreed that the contract between the appellant and\t STC
\nwould  be  deemed cancelled if for any\treason\tthe  foreign
\nbuyer  cancelled  the corresponding purchase  contract\twith
\nSTC.   The agreement between the appellant and\tSTC  clearly
\ncontemplated the export of chrome concentrates.\t The name of
\nthe ship on which the chrome concentrates were to be  loaded
\nfor  the purpose of export was also given in the  agreement.
\nThe  price to be paid by STC to the appellant was  fixed  in
\nterms  of  dollars plainly because the price to\t be  charged
\nfrom  the  foreign  buyer was fixed  in\t terms\tof  dollars.
\nIndeed, the amount that STC was to get in the course of this
\ntransaction was one dollar per ton of the concentrates.\t The
\nname  of the foreign buyer to whom the\tchrome\tconcentrates
\nsupplied  by  the appellant were to be\tsold  was  expressly
\nmentioned  in the agreement between the appellant  and\tSTC.
\nThe final sampling of the chrome concentrates as well as the
\nfinal  weights\twere  to  be  ascertained  at  the  port  of
\ndischarge  in America and the certificates in  that  respect
\nwere  to be binding on the parties.  Although the letter  of
\ncredit\twas to be opened by the foreign buyer in  favour  of
\nSTC, STC was to assign the same in favour of the  appellant.
\nThe appellant was to get 90 per cent against shipping  docu-
\nments  and  the remaining 10 per  cent\tafter  destinational
\nweight and analysis.  Before doing that the appellant had to
\ngive a bank draft or a bank guarantee to STC at the rate  of
\none dollar per ton of the concentrates to be supplied by the
\nappellant.\n<\/p>\n
194<\/span><\/p>\n
The  facts of the case, in my opinion, go to show  that\t the
\nexport\tof  the chrome concentrates was\t occasioned  by\t one
\ntransaction.   The  parties  to that  transaction  were\t the
\nappellant,  STC and the foreign buyer.\tS.T.C.\twas  brought
\ninto  the  picture as an intermediary because of  the  legal
\nrequirement,  according\t to  which  the\t export\t of   chrome
\nconcentrates was to be canalised through STC.  Although\t the
\nabove\trequirement  necessitated  the\texecution   of\t two
\nagreements, one between the appellant and STC and the  other
\nbetween STC and the foreign buyer, there can, in my opinion,
\nbe no doubt that the agreements were part of one  integrated
\ntransaction which resulted in the export of the goods.\t The
\ninterconnection\t between the two agreements was so  intimate
\nthat  one agreement could not stand without the\t other.\t  It
\nwas  accordingly  provided  that  the  cancellation  of\t one
\nagreement would automatically result in the cancellation  of
\nthe other agreement.\n<\/p>\n
Mr. S. T. Desai on behalf of the respondents has laid  great
\nstress\ton  the\t observations in the case  of  Coffee  Board
\n(supra),  according  to which there must be  a\tsingle\tsale
\nwhich causes the export and there is no room for two or more
\nsales in the course of export.\tIt is urged that it was\t the
\nagreement  of sale between STC and the foreign\tbuyer  which
\ncan be said to cause the export.  The sale by theappellant
\nto  STC\t of the chrome concentrates\t was  only  for\t the
\npurpose of export and as such was not exempt from payment of
\ntax.Learned counsel further submits that once there are two
\ncontracts,  one between the dealer and the intermediary\t and
\nthe  other between the intermediary and the  foreign  buyer,
\nthe  court ‘need not took any further, for it would be\tonly
\nthe contract between the intermediary and the foreign  buyer
\nwhich would occasion the export and not the other contract.
\nI find it difficult to accede to the above submission of Mr.
\nDesai.\tThe observations in the case of Coffee Board (supra)
\nthat  there was no room for two or more sales in the  course
\nof export were made in the context of two independent sales.
\nThose  observations  cannot be invoked in a  case  like\t the
\npresent\t where the two sales are so interconnected as to  be
\npart  of  one  integrated  transaction.\t  Hidayatullah\t CJ.
\nspeaking  for the majority took full note of that aspect  of
\nthe matter and it was in that context that lie observed
\n\t      “Here there are two independent sales involved
\n\t      in the export programme.\tThe first is a\tsale
\n\t      between  the  Coffee Board as  seller  to\t the
\n\t      export  promoter.\t Then there is the  sale  by
\n\t      the  export promoter to a foreign\t buyer.\t  Of
\n\t      the latter sale the Coffee Board does not have
\n\t      any  inkling when the first sale takes  place.
\n\t      The  Coffee  Board’s sale is not\tin  any\t way
\n\t      related  to the second sale.   Therefore,\t the
\n\t      first  sale has no connection with the  second
\n\t      sale which is in the course of export, that is
\n\t      to say, movement of goods between an  exporter
\n\t      and an importer.”\n<\/p>\n
The  above observations would have been\t wholly\t unnecessary
\nand  superfluous if it had been the intention of this  Court
\nto  lay\t down  an absolute rule that  once  there  arc,\t two
\ncontracts, one between the dealer
\n\t\t\t    195<\/span>
\nand the intermediary and the other between the\tintermediary
\nand  the  foreign buyer, the court need not  look  to  other
\ncircumstances showing their inter-relationship and that only
\nthe latter contract would qualify for exemption from payment
\nof tax.\t This Court in a series of cases, all decided by the
\nConstitution Bench, namely, State of Travancore-Cochin & Ors
\nv. The Bombay Co. Ltd., State of Travancore Cochin & Ors.<\/a> v.
\nShanmugha  Vilas  Cashew  Nut Factory & Ors.  and  Ben\tGorm
\nNilgiri\t Plantations  Co.  v. Sales  Tax  Officer,  Special’
\nCircle,\t Ernakulam  & Ors<\/a> (supra), had laid  stress  on\t the
\nintegrated  nature  of the activities and  the\tclose  nexus
\nbetween\t the contract of sale and the export of goods.\t The
\nCoffee Board case, which too was decided by the Constitution
\nBench,\tcould  not  set at naught the rule laid\t down  in  a
\n‘series\t of earlier decisions and, in fact it did not do  so
\nas  is\tapparent from the passage reproduced  above  wherein
\nHidaytullah  CJ. dealt with the question as to\twhether\t the
\ntwo  contracts were independent or not.\t The  correct  legal
\nposition, in my opinion, is that if there is one  integrated
\ntransaction  which  results  in export\tthe  fact  that\t the
\ntransaction  takes  the shape of two  interlinked  contracts
\nwould not make much material difference.\n<\/p>\n
Argument similar to that advanced by Mr. S. T. Desai  before
\nus was put forth on behalf of the State in the case of State
\nof Bihar & Anr. v. Tata Engineering & Locomotive Co. Ltd.<\/a>(1)
\nand was repelled in the following words
\n\t      “We have earlier noticed that this Court in  a
\n\t      series   of   decisions  has   pronounced\t  in
\n\t      unambiguous  terms that where-under the  terms
\n\t      of  a contract of sale, the buyer is  required
\n\t      to remove the goods from the State in which he
\n\t      purchased\t those\tgoods to another  State\t and
\n\t      when  the\t goods\tare so moved,  the  sale  in
\n\t      question must be considered as a ,ale in\tthe
\n\t      course of inter-State trade or commerce.\tThis
\n\t      is a well established position in law.  In the
\n\t      Coffee  Board case this Court did not  deviate
\n\t      from this position nor could it deviate as the
\n\t      earlier decisions were binding on it.  Further
\n\t      in  the  course of his judgment.\tthe  learned
\n\t      Chief Justice who spoke for the Court referred
\n\t      with approval to the earlier decisions of this
\n\t      Court  where distinction between the sales  in
\n\t      the  course of inter-State trade\tor  commerce
\n\t      and sales for the purpose of inter-State trade
\n\t      and commerce were explained.  On the basis  of
\n\t      the  facts of that case, his Lordship came  to
\n\t      the  conclusion that the export of the  coffee
\n\t      in question was not integrated with the  sales
\n\t      with  which the Court was concerned  and\tthat
\n\t      there  was no direct bond between\t the  export
\n\t      and the sales.”\n<\/p>\n
The passage I have already reproduced earlier was thereafter
\nset out.\n<\/p>\n
One important criterion in order to determine as to  whether
\nthe   contract\tof  sale  between  the\tappellant  and\t STC
\noccasioned the export
\n(1)  [1971] 2 SCR 849.\n<\/p>\n
\t\t\t    196<\/span><\/p>\n
is  to find whether STC could divert the goods\tsupplied  by
\nthe  appellant\tfor a purpose other than the export  to\t the
\nforeign\t buyer.\t If the answer be in the negative, it  would
\nnecessarily  follow that the contract between the  appellant
\nand STC resulted in the export of chrome concentrates.\t The
\nabove  criterion was applied in a number of cases.   In\t the
\ncase  of  Ben  Gorm Nilgiri  Plantations  Co.  (supra)\tShah
\nspeaking for the majority observed :\n<\/p>\n
\t      “There  is  no statutory obligation  upon\t the
\n\t      purchaser\t  to  export  the  chests   of\t tea
\n\t      purchased by him with the export rights.\t The
\n\t      export  quota merely enables the purchaser  to
\n\t      obtain export licence, which he may or may not
\n\t      obtain.\tThere  is nothing in law or  in\t the
\n\t      contract\tbetween the parties, or even in\t the
\n\t      nature  of  the  transaction  which  prohibits
\n\t      diversion\t  of   the   goods   for    internal
\n\t      consumption.”\n<\/p><\/blockquote>\n
In the case of K. G. Khosla & Co. (supra) Sikri J. speaking.
\nfor this Court observed :\n<\/p>\n
\t      “Movement\t of goods from Belgium to India\t was
\n\t      in pursuance of the conditions of the contract
\n\t      between the assessee and the  Director-General
\n\t      of  Supplies.   There was\t no  possibility  of
\n\t      these goods being diverted by the assessee for
\n\t      any other purpose.  Consequently we hold\tthat
\n\t      the  sales took place in the course of  import
\n\t      of  goods within s. 5(2) of the Act, and\tare,
\n\t      therefore, exempt from taxation.”
\n\t      In   the\t case  of   Coffee   Board   (supra)
\n\t      Hidayatullah CJ observed
\n\t      “The  compulsion\tto  export  here  is  of   a
\n\t      different character.  It only compels  persons
\n\t      who  buy on their own to export in  their\t own
\n\t      turn  by entering into another sale.  It is  a
\n\t      sale for export.\tEven with the compulsion the
\n\t      sale may not result for clauses 26, 30 and  31
\n\t      visualize such happenings.”\n<\/p><\/blockquote>\n
Coming to the facts of the present case, I find that it\t was
\nan  f.o.b.  sale  and  there was  absolutely  no  chance  of
\ndiversion  of the goods by STC for a purpose other than\t the
\nexport to the foreign buyer.\n<\/p>\n
It may also be mentioned that the position of STC under\t the
\ncontract  between  the\tappellant  and\tSTC  was  not  of  a
\npurchaser in the ordinary sense of the term.  Unlike such  a
\npurchaser,  STC was not entitled to get profits and was\t not
\nliable\tto  bear losses resulting from fluctuations  in\t the
\nmarket rate of the goods specified in the contract.  It\t was
\nnot  open to STC to charge any price for the goods  exported
\nto  the\t foreign buyer.\t The price to be  charged  from\t the
\nforeign buyer was already fixed in the contract between\t the
\nappellant  and\tSTC.   An ordinary  purchaser  of  goods  is
\nentitled to resell the goods or retain them with himself for
\nany  length  of time.  There is no obligation  upon  him  to
\nexport\tthe goods, much less to export them to\ta  specified
\nforeign\t buyer.\t As against that, in the present case  is  a
\nresult\tof the agreement between the appellant and STC,\t the
\nlatter was not entitled to retain the goods but was bound to
\nexport them immediately to the specified foreign buyer at  a
\nprice which was at-\n<\/p>\n
\t\t\t    197<\/span><\/p>\n
ready  mentioned in the agreement between the appellant\t and
\nSTC.   In fact, the arrangement for export of the goods\t was
\nalso  made  by the appellant because the  contract  of\tsale
\nbetween the appellant and STC was f.o.b. contract.  STC came
\ninto the picture as a statutory intermediary because of\t the
\nlegal  requirements  under the Exports Control\tOrder.\t All
\nthat STC was entitled in the bargain was a commission of one
\n‘dollar\t per  ton.   Indeed,  STC  in  one  of\tits  letters
\ndescribed  its remuneration as commission.  In the  case  of
\nM\/s Daruka & Co. V. The Union of India & Ors.<\/a>(1) this  Court
\nobserved  in  para 23 of the judgment that  the\t Corporation
\nlike  STC  is in the nature of a commercial  undertaking  to
\nwhich  a licence has been granted for the export of  certain
\ncommodities and the service charges are nothing but quid pro
\nquo  for  the  services rendered by  the  Corporation.\t The
\nintroduction  of a statutory intermediary Eke STC with\tonly
\nentitlement  of commission of one dollar per ton would\tnot,
\nin  my\topinion, affect the real nature of  the\t transaction
\nthat  it  was  the appellant who was to\t export\t the  chrome
\nconcentrates to the foreign buyer.\n<\/p>\n
The matter can be looked at from’ another angle.   According
\nto Article 286, no law of a State shall impose or  authorise
\nthe imposition of tax on the purchase or sale of goods where
\nsuch purchase or sale takes place in the course of import of
\nthe  goods  into  or  the export of the\t goods\tout  of\t the
\nterritory of India.  There is nothing in this article  which
\nrestricts the exemption from payment of tax to only one sale
\nor purchase.  Likewise, there is nothing in Section 5 of the
\nCentral\t Sales Tax Act which restricts the sale or  purchase
\noccasioning  export or import to only one sale or  purchase.
\nThe  fact  that\t section 5 refers to  sale  or\tpurchase  in
\nsingular  and  not in plural would not\tmake  much  material
\ndifference  because according to section 13 of\tthe  General
\nClauses\t Act,  unless  there is anything  repugnant  in\t the
\nsubject or context, words in the singular shall include\t the
\nplural,\t and  vice versa.  Although in a  vast\tmajority  of
\ncases  it  would be only one sale or  purchase\twhich  would
\nqualify\t for exemption from payment of tax, this is  not  an
\nabsolute  rule.\t  There is nothing in law to  rule  out\t two
\nsales qualifying for the exemption, if the facts of the case
\nshow  that  each  of the sales is so  interlinked  with\t the
\nexport\tof  the\t goods, that the export can be\tsaid  to  be
\ndirect\tresult\tof  the\t two sales which  are  part  of\t one
\nintegrated transaction.\n<\/p>\n
It may be stated that a simple sale for export, i.e. a sale
\nto a person who enters into a contract with a foreign  buyer
\nand exports the goods purchased by him to the foreign  buyer
\nwould  not  by itself and in the absence  of  anything\tmore
\nqualify\t for exemption from payment of tax on the ground  of
\nbeing made in the course of export.  The question with which
\nwe  are,  however,  concerned is as to\twhat  would  be\t the
\nposition in law if the two sales are so interlinked as to be
\npart  of the same transaction and whether the first sale  in
\nsuch an event would not be exempt from taxation even  though
\nthe export is occasioned by the two contracts of sale  taken
\ntogether.   The respondents cannot, therefore,\tderive\tmuch
\nassistance from the observations relied
\n(1)  [1973] 2 S.C.C. 617.\n<\/p>\n
\t\t\t    198<\/span><\/p>\n
upon  by Mr. S. T. Desai in the case of East  India  Tobacco
\nCo. V. The State of Andra Pradesh & Anr.<\/a>(1) that a sale\t for
\nthe purpose of export is not protected by article 286(1) (b)
\nof the Constitution.\n<\/p>\n
I may mention that in the case of Khosla & Co. (supra) there
\nwere  two  contracts.  This is clear from the  statement  of
\nfacts  given  in the judgment of the High  Court  which\t was
\nunder appeal in this Court.  The judgment of the High  Court
\nis reproduced in the report of that case in 17 STC 473.\t The
\nrelevant passage in this respect reads as under :\n<\/p>\n
\t      “The  assessee, Messrs Khosla and Co.  entered
\n\t      into  a contract with the Director-General  of
\n\t      Supplies\tand  Disposals, New Delhi,  for\t the
\n\t      supply  of  ‘axle-box bodies’.   In  order  to
\n\t      fulfil the contract, the assessee had to enter
\n\t      into   contract  with  the  manufacturers\t  in
\n\t      Belgium.\t The goods were so got\tmanufactured
\n\t      and  imported  into India and cleared  at\t the
\n\t      Madras Harbour and supplied to certain parties
\n\t      on   the\tinstructions  of  the\tbuyer,\t the
\n\t      Director-General of Supplies and Disposals, as
\n\t      contained in the contract itself.”\n<\/p><\/blockquote>\n
Despite the existence of two contracts, this Court held that
\nthe contract of sale by Khosla & Co. to the Director-General
\nof Supplies and Disposals was exempt from payment of tax  as
\nbeing in the course of import.\tIt was observed :\n<\/p>\n
\t      ” The next question that arises is whether the
\n\t      movement of axle-box bodies from Belgium\tinto
\n\t      Madras  was  the result of a covenant  in\t the
\n\t      contract\tof  sale  or  an  incident  of\tsuch
\n\t      contract.\t it  seems to us that  it  is  quite
\n\t      clear from the contract that it was incidental
\n\t      to the contract that the axle-box bodies would
\n\t      be  manufactured in Belgium,  inspected  there
\n\t      and  imported  into India for  the  consignee.
\n\t      Movement of goods from Belgium to India was in
\n\t      pursuance\t of the conditions of  the  contract
\n\t      between the assessee and the  Director-General
\n\t      of  Supplies.   There was\t no  possibility  of
\n\t      these goods being diverted by the assessee for
\n\t      any other purpose.  Consequently we hold\tthat
\n\t      the  sales took place in the course of  import
\n\t      of goods within section 5 (2) of the Act,\t and
\n\t      are, therefore, exempt from taxation.”\n<\/p><\/blockquote>\n
Although the facts of the present case are converse to those
\nof  Khosla  &  Co. the principle  laid\tdown  therein  fully
\napplies to the present case.\n<\/p>\n
I  have\t already mentioned above that the contract  of\tsale
\nbetween\t the appellant and STC was an f.o.b. contract.\t The
\nquestion  as  to  whether such a contract  would  be  immune
\nagainst\t liability to sales tax under article 286 arose\t for
\ndetermination in the case of B. K. Wadeyar v. M\/s  Daulatram
\nRameshwarlal<\/a>(2).  The respondents firm
\n(1)  13 S.T.C. 529.\n<\/p>\n
(2)  [1976] 1 S.C.R. 924.\n<\/p>\n
199<\/span><\/p>\n
in that case claimed exemption from sales tax under  article
\n286(1)\t(b) of the Constitution in respect of sales made  by
\nthem  of cotton and castor oil on the ground that the  sales
\nwere  on f.o.b. contracts under which they continued  to  be
\nthe owners of the goods till those goods crossed the customs
\nbarrier and entered the export stream.\tThe respondents also
\ncontested the purchase tax to which they were assessed under
\nsection 10(b) of the Bombay Sales Tax Act.  It was held that
\nthe goods remained the seller’s property till they had\tbeen
\nbrought\t and loaded on board the ship and so the sales\twere
\nexempt\tfrom tax under article 286(1) of  the  Constitution.
\nDealing with the f.o.b. contracts, this Court observed\tthat
\nthe  normal rule in such contracts was that the property  in
\nthe goods was intended to pass and did pass on the  shipment
\nof  the\t goods.\t  It  is no doubt true\tthat  there  was  no
\nreference  in the above mentioned case to section 5  of\t the
\nCentral Sales Tax Act which formulates the principles as  to
\nwhen sale or purchase of goods shall be deemed to take place
\nin  the\t course\t of export or import, this  fact  would\t not
\naffect the binding force of the rule laid down in the  above
\ncase.\tI  may\talso observe in the above  context  that  an
\nf.o.b. sale though contemplating the export of the goods may
\nbe  made  between parties carrying on business in  the\tsame
\ncountry (,see “Sale of Goods” by P. S. Atiyah, p. 215).\t The
\nlearned\t author\t has  given  the  following  instance.\t  “A
\ncompany,  which\t has contracted to sell goods to  a  foreign
\nbuyer,\tmay  itself  buy  goods,  in  order  to\t fulfil\t the
\ncontract, f.o.b., English ports from English sellers.”
\nReferring  to the case of Wadeyar (supra) Shah\tJ.  speaking
\nfor the majority in the case of Ben Gorm Nilgiri Plantations
\nCo. (supra) observed
\n\t      “This  was  undoubtedly a case  of  two  sales
\n\t      resulting\t in export, and the first  sale\t was
\n\t      held immune from State taxation: but that\t was
\n\t      so  because  the\tproperty in  the  goods\t had
\n\t      passed to the Indian purchaser when the  goods
\n\t      were  in\tthe export stream.  The\t first\tsale
\n\t      itself was so inextricably connected with\t the
\n\t      export  that it was regarded as a sale in\t the
\n\t      course of export.”\n<\/p>\n
The above observations clearly lend support to the view that
\neven  in  the  case of two sales. the first  sale  would  be
\nimmune against taxation if the property in the goods  passed
\nto  the Indian purchaser when the goods were in\t the  export
\nstream.\t The reason for that was that the first sale was  so
\ninextricably connected with the export that it was  regarded
\nas a sale in the course of export.\n<\/p>\n
Another\t test  which was laid down in the case of  Ben\tGorm
\nNilgiri Plantations Co. was as under
\n\t      “Where  the export is the result of sale,\t the
\n\t      export  being inextricably linked up with\t the
\n\t      sale  so that the bond cannot  be\t dissociated
\n\t      without a breach of the obligation arising  by
\n\t      statute,\tcontract  or  mutual   understanding
\n\t      between the parties arising from the nature of
\n\t      the transaction, the sale is in the course  of
\n\t      export.”\n<\/p>\n
10 SC\/75-14
\n200<\/span>
\nApplying  the above test also, the sale by the appellant  to
\nSTC would qualify for exemption from taxation.\tIt is  plain
\nthat  a breach of the appellant’s obligation  arising  under
\nthe above contract of sale would result in a situation\tthat
\nSTC  would not be able to export the chrome concentrates  to
\nthe foreign buyer.\n<\/p>\n
I would, therefore, accept the appeals with costs, set aside
\nthe  judgment  of  the High Court and  answer  the  question
\nreferred  to  it in favour of the assessee and\tagainst\t the
\nrevenue.  One hearing fee.\n<\/p>\n
In  civil appeals Nos. 2063 to 2082 of 1974 which  has\tbeen
\nfiled  by Nandaram Huntaram, the appellants were lessees  of
\nmines.\tThey entered into a contract with STC for the  sales
\nof iron ore.  STC in its turn entered into export  contracts
\nwith  foreign buyers.  The appellants were assessed  to\t tax
\nunder the Central Sales Tax and as their declaration was not
\nproduced  within  the  requisite time,\tthe  full  rate\t was
\napplied.   The Sales Tax Tribunal negatived the\t appellant’s
\ncontention  that the sales were exempt from payment  of\t tax
\nfor being D in the course of export.  The declaration  filed
\nby the appellants was accepted and it was directed that\t the
\nassessments be made at the concessional rate.  The  Tribunal
\nin holding the appellants to be liable to pay Central  Sales
\nTax found that the appellants had no direct connection\twith
\nthe  export and that the sale by the appellants to  STC\t was
\nindependent of the export.  It was further observed that the
\ncontracts  with STC had occasioned inter-State\tmovement  of
\nthe  goods  and\t E as such the turnover\t was  liable  to  be
\nassessed  under the, Central Sales Tax Act.  An\t application
\nwas thereafter made by the appellants to refer the following
\nquestions for decision to the High Court :\n<\/p>\n
\t      1.    Whether  in the facts and  circumstances
\n\t      of the case the Tribunal was right in  holding
\n\t      that  sale of iron   ore was not in course  of
\n\t      export ?\n<\/p><\/blockquote>\n
\t      2.    Whether  in the facts and  circumstances
\n\t      of   the\tcase  the  contracts   between\t the
\n\t      petitioner  and State Trading  Corporation  of
\n\t      India  and State Trading Corporation of  India
\n\t      and foreign buyers are all inter-connected ?\n<\/p><\/blockquote>\n
\t      3.    Whether  in the facts and  circumstances
\n\t      of the case the sale of iron ore is liable  to
\n\t      be taxed under Central Sales Tax Act at all ?\n<\/p><\/blockquote>\n
\t      4.    Whether  in the facts and  circumstances
\n\t      of  the case there was material  available  on
\n\t      record for assessing the petitioner under\t the
\n\t      provisions of Central Sales Tax Act ?\n<\/p><\/blockquote>\n
\t      5.    Whether  the sale by the petitioner\t had
\n\t      occasioned  movement  of goods  in  course  of
\n\t      export and is protected by article 286 of\t the
\n\t      Constitution of India ?”\n<\/p><\/blockquote>\n
The   Tribunal\t dismissed  the\t above\t application.\t The
\nappellants  then  filed applications before the\t High  Court
\nthat the Tribunal be called upon to file a statement of\t the
\ncase in respect of the above mentioned
\n\t\t\t    201<\/span>
\nquestions.  The High Court dismissed those applications\t and
\nin  doing  so relied upon the judgment in the  case  of\t Md.
\nSerajuddin v. State of Orissa which is the subject-matter of
\nthe other 10 appeals, namely, civil appeals Nos. 697 to\t 706
\nof  1973.   The above mentioned 20 appeals have\t been  filed
\nagainst\t the  order  of\t the  High  Court  dismissing  those
\napplications.\n<\/p>\n
Mr.  Bhandare on behalf of the State has urged in  these  20
\nappeals\t that  the  facts  of  these  cases  are  materially
\ndifferent from those in the cases of Md.  Serajuddin and  as
\nsuch  even  if\twe accept the appeals in the  cases  of\t Md.
\nSerajuddin,  we should not interfere with the order  of\t the
\nHigh  Court  in\t these\t20 appeals.  So\t far  as  the  above
\nsubmission  is\tconcerned,  I  may observe  that  I  do\t not
\nexpress any opinion on the point as to whether the facts  of
\nthese\tcases  are  similar  to\t those\tin  cases   of\t Md.
\nSerajuddin.   This is a matter which would have to  be\tgone
\ninto after a reference and statement of case is submitted to
\nthe  High Court.  For our purpose it is sufficient  to\tnote
\nthat the High Court in dismissing the applications filed  by
\nthe  appellants\t placed reliance upon its  decision  in\t the
\ncases  of Md.  Serajuddin.  As the judgment in the cases  of
\nMd.  Serajuddin is being set aside, the ground for  refusing
\nto  call for a reference no longer holds good. I  therefore,
\naccept the 20 appeals filed by Nandaram Huntaram, set  aside
\nthe  judgment of the High Court and direct the\tTribunal  to
\nfile  a\t statement  of\tthe case  and  refer  the  questions
\nreproduced above to the High Court.  The appellants shall be
\nentitled  to the costs in this Court in these appeals  also.
\nOne hearing fee.\n<\/p>\n
P.H.P.\t\t\t      Appeals dismissed.\n202<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Mohd. Serajuddin Etc vs State Of Orissa on 16 April, 1975 Equivalent citations: 1975 AIR 1564, 1975 SCR 169 Author: A Ray Bench: Ray, A.N. (Cj), Khanna, Hans Raj, Mathew, Kuttyil Kurien, Beg, M. Hameedullah, Chandrachud, Y.V. PETITIONER: MOHD. SERAJUDDIN ETC. Vs. RESPONDENT: STATE OF ORISSA DATE OF JUDGMENT16\/04\/1975 BENCH: RAY, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-168714","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nMohd. 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