JUDGMENT
Gopal Rao Ekbote, J.
1. This tax revision case is directed against the order of the Sales Tax Appellate Tribunal given on 31st July, 1965.
2. The relevant facts are that the assessee is Messrs Yeleti Narayana Murty & Co., Kakinada, dealer in paddy, rice, green gram etc. The assessment year is 1955-56. The assessee at the end of the year filed a return on 30th April, 1956, declaring its gross and net turnovers at Rs. 20,21,899-8-1 and Rs. 2,22,490-3-4 claiming exemption on a turnover of Rs. 17,99,409-4-4. We are, however, concerned in this revision in regard to only two items of exemption : (1) Rs. 40,393-6-0 exemption in regard to which is claimed on the ground that they are inter-State sales ; and (2) Rs. 2,30,880-11-1 which is said to relate to sales of rice in the course of export to outside the Indian territory.
3. The first of these items consists of the following two items: (1) A turnover of Rs. 16,672-2-0 which related to transactions effected on 7th July, 1955, prior to 6th June, 1955, when the Sales Tax Laws Validation Act of 1956 was in force; and (2) a turnover of Rs. 23,631-4-0 which relates to transactions held on 22nd February, 1956.
4. The contention of the assessee in regard to the first item of Rs. 16,672-2-0 was that although the transactions covering that return fall within the period regarding which the validating law can be said to operate, even then as the explanation to Article 286(1)(a) applies to those transactions the sales tax authorities were wrong in refusing exemption of the tax on those transactions.
5. It is not in doubt that the collection of tax on inter-State sales was validated by the Sales Tax Laws Validation Act, 1956, with respect to the period from 1st April, 1951, to 6th September, 1955. The only effect of the Validation Ordinance or Act was to save from the ban imposed by Clause (2) of Article 286 those sales which came within the purview of explanation to Clause (1)(a) and not any sales outside the explanation. It is obvious therefore that the Validation Act, 1956, merely lifted the ban imposed by Clause (2) and not by Clause (1)(a) read with the explanation. See State of Madras v. Habibur Rehtnan & Sons [1968] 21 S.T.C. 51.
6. What has therefore to be seen is whether those transactions fall within the purview of explanation to Article 286(l)(a).
7. Before we consider the legal aspect, it is necessary to state the undisputed facts. It is common ground that the rice covered by these transactions was sent outside the State of Andhra Pradesh. But the sales were f.o.r. Kakinada town. The amounts were realised in full from the local dealers. The railway receipts were endorsed and were handed over to the local dealers by the seller. It is in this context that we have to see whether these transactions fall within the ambit of the explanation.
8. Article 286 in so far as it is relevant reads as under :
(1) No law of a State shall impose or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-
(a) outside the State ; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
Explanation.-For the purposes of Sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
9. It is common ground that the transactions in question relate to a period when the explanation was in force. The object of Clause (1)(a) of the said article is to relieve the consumers from the burden of multiple taxation by several States of the same transaction. This is sought to be done by taking away the power of a State to tax a sale or purchase which takes place outside the State territory.
10. The words “outside the State” are explained in the explanation of Sub-clause (a). According to the said explanation, a State shall have the power to tax a sale or purchase only if two conditions mentioned therein are satisfied, viz., (1) the goods have actually been delivered as a direct result of such transaction of sale or purchase ; and (2) such delivery takes place for the purpose of consumption of the goods within that State. If these two conditions are not satisfied, that is to say, if the delivery and consumption do not take place within a State, it cannot tax a sale or purchase on the ground that the property in the goods by such sale or purchase has passed within its territory.
11. It will thus be seen that the explanation is an explanation of what is meant by the expression “outside the State” in Clause (1)(a). But this is done not directly but in an indirect manner. The scope of what is “outside the State” is indicated by stating what is deemed to be inside the State. Whatever is not deemed to be inside the State according to this explanation would be “outside the State” for the purpose of Clause (1)(a).
12. If after the application of the foregoing tests, a sale is found to be inside one State, no other State could tax such sale and in such a case, it is immaterial whether the property in the goods has, under the general law, passed in another State. The explanation in short introduced a fictional situs of the sale in place of its actual situs.
13. In the Bengal Immunity case [1995] 2 S.C.R. 603, it was laid down that the only purpose of the explanation was to explain what an outside sale is and once a transaction becomes an outside sale within the meaning of the explanation, a State outside which such sale takes place according to the explanation is debarred from taxing the sale by reason of Clause (1)(a).
14. Thus according to the explanation, in order to constitute an “outside sale”, the goods must be actually delivered within the State as a direct result of such transaction of sale or purchase. The words “actually delivered” are significant. Actual delivery means physical delivery which must be distinguished from constructive or notional delivery such as by transfer of documents of title or delivery to a common carrier. It must be noted that because of this express language the explanation overrides the conception of the venue of a transaction of sale according to the Sale of Goods Act and substitutes a legal fiction, viz., delivery for consumption within a State, for the purpose of applying Clause (1)(a). The net result is that even though a contract of sale and transfer of property to the buyer in pursuance thereof takes place within State A, State A would, nevertheless, not be entitled to tax that sale if the delivery of the goods takes place in State B for the purpose of consumption in that State. For, by reason of the explanation, the sale is deemed to have taken place outside State A, even though the sale has taken place within State A, according to the provisions of the Sale of Goods Act.
15. In this connection, reference was made to Section 39 of the Sale of Goods Act. According to that section, where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer.
16. While trying to understand the implication of the term “actual delivery”, sometimes reference is made to Section 39 and it is contended that that provision raises a prima facie presumption that delivery has taken place at the place where railway receipts are endorsed and handed over to the local dealer and it is for the person who alleges contra to prove that the actual delivery took place at some other place. The correct position, however, seems to be that it is necessary in order to attract the explanation to prove both the abovesaid requirements. Not only actual delivery has got to be proved, but it has also to be proved that delivery is made at a place where consumption of the goods is intended. The words “for the purpose of consumption” cannot be dissociated from the word “delivery”. In that context, much significance to the prima facie presumption raised under Section 39 cannot be attached; and even if it constitutes a notional delivery, the explanation is not concerned with any such notional delivery but is only concerned with the actual delivery.
17. Now, it is true that the mode of actual delivery may vary from case to case and no hard and fast rule can be laid down to suggest as to in what circumstances actual delivery would be deemed to have taken place. What has, however, to be found out in each case is whether the property has been placed in the, actual custody or possession of the purchaser. Mere handing over of documents such as railway receipts would not, unless something more is done, constitute actual delivery.
18. In Bajarang Jute Mills Ltd. v. State of Andhra Pradesh [1964] 15 S.T.C. 430, the Supreme Court said :
To attract the explanation, the goods had to be actually delivered as a direct result of the sale, for the purpose of consumption in the State in which they were delivered. It is not disputed that the goods were supplied for the purpose of consumption outside the State of Andhra and in the States in which they were supplied. It is submitted that the goods were actually delivered within the State, when the railway receipts were handed over to the agent of the buyer. But the expression ‘actually delivered’ in the context in which it occurs can only mean physical delivery of the goods or such action as puts the goods in the possession of the purchaser: it does not contemplate mere symbolical or notional delivery, e.g., by entrusting the goods to a common carrier, or even delivery of documents of title like railway receipts.
19. Their Lordships rejected the contention advanced in regard to Section 39(1) of the Sale of Goods Act in the following words:
The rule contained in Section 39(1) of the Indian Sale of Goods Act raises a prima facie inference that the goods have been delivered if the conditions prescribed thereby are satisfied; it has no application in dealing with a constitutional provision which while imposing a restriction upon the legislative power of the States entrusts exclusive power to levy sales tax to the State in which the goods have been actually delivered for the purpose of consumption.
20. In Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes [1966] 17 S.T.C. 197 at page 208 approving the above-said case the contention raised before the Supreme Court that the coal which was despatched from the territory of the taxing State to purchasers in other States, was actually delivered within the taxing State was rejected. It was observed:
That contention has however no force. The explanation defines the State in which the goods have actually been delivered for consumption, as the State in which for the purpose of Clause (1)(a) of Article 286 the sale shall be deemed to have taken place. That State alone in which the sale is deemed to take place has the power to tax the sale and for this purpose it is immaterial that property in the goods has under the general law relating to sale of goods passed in another State in which the allottee resided or carried on business. Delivery of coal to the railway administration may amount to delivery to the allottee for the purpose of the general law relating to sale of goods, but thereby coal cannot be said to be ‘actually delivered’ within the meaning of the explanation to Article 286(1)(a).
21. Bengal Timber Trading Co. Ltd. v. Commissioner of Sales Tax [1967] 19 S.T.C. 366 has to be understood keeping in view the facts of that case. Their Lordships dealt extensively with the clauses of the contract. It is only on an appreciation of the en tire, nature of the transactions and the contract that it was held that while the major part of the operations of the contract with regard to delivery were to be performed at Dhamtari, the seller was not relieved of all liability as to delivery until the goods were finally accepted at the destination by the consignee. The place of actual delivery in the light of the circumstances of the case was held to be the place of destination of the goods and it was found that the goods can only be said to be fully delivered and finally accepted after they were acknowledged at the destination by the Sleeper Control Officer. That case therefore does not decide anything contrary to the above-said two cases.
22. C. P. Timber Works v. Commissioner of Sales Tax ([1967] 20 S.T.C. 335) has again to be understood in the light of the facts of that case. It is not necessary to detail the facts. They clearly appear from the judgment. It is, however, sufficient to note that the Inspecting Authority in that case after inspecting the timber issued an inspection note and also put a hammer mark on the timber approved. When the timber reached the place of destination, the consignee was entitled to reinspect the goods, check the shortage, if any and reject the timber not conforming to the specification. The assessee was paid 90 per cent, of the price of each consignment on proof of despatch of timber to the consignee from Mandla Fort railway station. The balance of 10 per cent, was to be paid to the assessee on receipt of the consignment in good condition.
23. It was on these facts observed : “From the petition itself and the annexure thereto, it appears that the place of delivery was Mandla Fort where the goods were to be put on rail, the contractor having the further obligation to send the railway receipt to the consignee. The place of inspection of the goods synchronised with the place of delivery, viz., Mandla Fort and there was nothing before the High Court to show that the actual delivery of the goods took place outside the State of Madhya Pradesh although the goods might have eventually found their way outside that State. There is no evidence in this case to show that actual delivery of the goods took place at the destination, i.e., to the consignee who happened to be outside the State. The mere fact that the consignee had the right of a further inspection of the goods and to reject those which were not in terms of the contract does not of itself purport to alter the place of delivery from Mandla Fort to the place where the consignee was.
24. It is pertinent to note that in this case the Supreme Court observed:
There is nothing here to displace the prima facie inference as to delivery at Mandla Fort under Section 39(1) of the Sale of Goods Act.
25. This observation seems to be in conflict with the two earlier decisions noted above. The presumption under Section 39 is only a prima facie presumption in regard to delivery and not a presumption in regard to actual delivery. We have already noticed from the decisions of the Supreme Court that symbolical or notional delivery is not contemplated by the explanation. It requires clear proof of actual delivery, a term which carries entirely a different meaning than the word “delivery” used in Section 39(1).
26. It is, however, clear from the above-said case that although the consignee had the right of further inspection or even a right to reject the goods if not approved, even then it was held that the actual delivery in the context of the facts and circumstances of the case took place at Mandla Fort and not at the other end. It is clear that inspection and approval of the goods may not be decisive of the fact as to where actual delivery has taken place because in Bengal Timber Trading Co. Ltd. v. Commissioner of Sales Tax [1967] 19 S.T.C. 366, Clause 11 (f) had provided that on arrival at destination, the consignee shall check the number of sleepers and report on any shortage or the receipt of defective sleepers. But Clause 3 (a) had stated that the prices named in the schedule shall cover till the sleepers are delivered and finally accepted under the terms of the contract. In that case, relying also upon the terms of inspection it was held that the place of actual delivery in the light of the circumstances of the case can only be the destination of the goods.
27. From the above-said decisions, it would be clear that for the purposes of constituting actual delivery mere handing over of endorsed railway receipts or merely because the railway receipts are made f.o.r. Kakinada, by themselves cannot constitute actual delivery. It may for the purposes of general law create a presumption of delivery but that is not enough for the purpose of explanation for something more is necessary to clearly indicate that actual delivery and that too for the purpose of consumption, took place at that particular place.
28. In this case, apart from the fact that railway receipts were endorsed and were issued f.o.r. Kakinada and that the price was received from the local dealer by the seller, there is no other material to show that the goods were actually delivered to the purchaser at Kakinada. In any case, it is a common ground that the goods were not intended to be consumed in the State of Andhra Pradesh. They were intended to be consumed in the destination State. If that is so, then the actual delivery must be deemed to have taken place only at the destination State and not in Andhra Pradesh.
29. It is well to remember in this connection that the words “actual delivery” are qualified by the words “for the purpose of consumption” and therefore unless the actual delivery is made in the State for the purpose of consumption, the explanation would not be attracted. It is not doubted that the consumption State is the destination State and not the Andhra Pradesh State and, therefore, it will be quite proper to infer that actual delivery had not taken place or could not have taken place in the Andhra Pradesh State but took place only at the destination State where they were intended to be consumed.
30. The explanation, it must be remembered, does not mean immediate consumption only, but also includes ultimate consumption provided that such consumption takes place within the destination State. It would be incorrect to construe those words to mean that the consumption must be by the purchaser himself. It must be understood as having reference not merely to the individual purchaser but as contemplating a distribution eventually to consumers in general within the destination State. That is why in Bajarang Jute Mills Ltd. v. State of Andhra Pradesh [1964] 15 S.T.C. 430 at 436 their Lordships categorically observed :
To attract the explanation, the goods had to be actually delivered as a direct result of the sale, for the purpose of consumption in the State in which they were delivered.
31. It is for this reason that instead of drawing upon Section 39(1) of the Sale of Goods Act more emphasis was laid on the words “for the purpose of consumption” while trying to find out as to where actual delivery of the goods had taken place. That is quite proper because the words “actual delivery” as stated earlier are qualified by the words “for the purpose of consumption”.
32. For the aforesaid reasons, we are satisfied that in the transactions relating to this disputed turnover, actual delivery had not taken place within the territory of Andhra Pradesh but it took place only at the destination State where the goods were intended to be consumed. The case thus squarely falls within the ambit of the explanation and this State has no jurisdiction to tax those transactions.
33. In regard to the other item of Rs. 23,631-4-0 the principle underlying Section 3(b) of the Central Sales Tax Act is applicable. That provision says:
A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase….
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
34. In this case, in so far as the transactions covered by this turnover are concerned, they were effected by endorsement of documents of title while the goods were in movement from this State to another State. These sales were effected on 22nd February, 1956, a period not covered by the Sales Tax Laws Validation Act. They must, therefore, be exempted from tax. It is not doubted that although Section 3(b) of the Central Sales Tax Act is not actually applicable to the facts of the case, but the law on this question was the same even prior to the Central Sales Tax Act. In view of this, it would be clear that the said disputed turnover is exempt from tax. It must in fairness be stated that the learned Government Pleader conceded that these transactions are not taxable.
35. Then we come to the second item covering the transactions amounting to Rs. 2,30,880-11-1. This item consists of transactions of sale entered into with Reply & Co., Kakinada, the head office of which is at Bombay. All the sale bills show that they were issued in the name of Reply & Co., purchasers. The dealer’s contract was with Reply & Co. It was, however, contended that Reply & Co. exported these goods to England and as the accounts of the assessee show that final appropriation was made only in England after the tests regarding quality and quantity were made, it was consequently urged that the transactions are in the course of export and therefore exempted from taxation because of Article 286(l)(b). In order to claim exemption, in other words to attract the provisions of Article 286(1)(b) it is necessary to show that the sale took place in the course of export of the goods out of the territory of India.
36. It is now fairly settled that there is a clear distinction between a sale for export and a sale in the course of export. The sale in the course of export predicates connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without breach of the contract or the compulsion arising from the nature of the transaction. The term “integrated activities” has been explained in the following way :
The phrase ‘integrated activities’ was used in the previous decision to denote that ‘such a sale’ (i.e., a sale which occasions the export) ‘cannot be dissociated from the export without which it cannot be effectuated and the sale and the resultant export form parts of a single transaction.’ It is in that sense that the two activities-the sale and the exportwere said to be integrated.
37. Thus to constitute a sale in the course of export, there must be an intention on the part of both the buyer and the seller to export. There must be an obligation to export and there must be actual export. The obligation, however, may arise by reason of statute or contract between the parties. Every transaction of sale, the goods involved in which ultimately find their way to foreign country, is not necessarily a sale in the course of export. A transaction of sale which is preliminary to export may be regarded as a sale for export. To occasion export there must exist a bond between the contract of sale and the actual exportation and that each link should be inextricably connected with the one immediately preceding it. Without such a bond, a transaction of sale cannot be called a sale in the course of export of goods out of the territory of India. Merely because the goods have ultimately been exported by the purchasers or at the time of the sale the seller had the knowledge that the purchaser is purchasing it for the purpose of export or, the seller even helps him in some way or the other in exporting the goods, that does not necessarily mean that it was a case of sale in the course of export. Any such transaction without something more cannot be regarded as one in the course of export.
38. This is so is fully supported by the decision of the Supreme Court in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 S.T.C. 753. The same view was earlier held in Abdul Salam and Co. v. The Government of Madras [1962] 13 S.T.C. 629.
39. What has therefore to be seen in this case is whether there is anymaterial to show such an integrated contract existed between the dealer and Reply & Co. Admittedly no contract has been filed in this case on the basis of which the dealer sent the goods to Reply & Co. What are the relations of Reply & Co. with the foreign purchaser is also not known. In this case, the only evidence on which reliance is placed is some adjustments made by the dealer in its account books. It is from these adjustments that the dealer wants us to infer that there was some contract between Reply & Co. and the foreigner on the one hand and on the other, Reply & Co. representing the foreign dealer or as their agent entered into a contract with the seller for the purpose of export. It is in pursuance of such a contract that the dealer entered into an agreement with Reply & Co. We do not think there is any justification for drawing such inference merely because some entry regarding adjustment is found. Those adjustments may represent many things and may not actually relate to any such integrated contract of export.
40. It was argued before us that the dealer was paid only when the goods were approved and the quantity weighed at the end in the other country. There is, however, no material to support any such contention. The learned Advocate for the dealer could not lay his hands upon any such material. On the basis of the socalled adjustments without any further proof, we are not inclined to hold that the transactions covered by the disputed turnover were sales made in the course of export. The requirements of integrated contract to make the sale in the course of export are not at all satisfied in the present case. We do not therefore experience any difficulty in agreeing with the conclusion of the Tribunal that these transactions do not fall within the purview of Article 286(1)(b) and they cannot therefore be exempted from sales tax.
41. The learned Advocate appearing for the dealer requested us to remand the case by giving it an opportunity to produce evidence in that behalf. We do not think that there is any reason for remanding the case. At no stage of the case, such a request was made. No reason is shown as to why at the first instance or even subsequently attempt was not made to produce the relevant material. Even now, it is not stated that there is any contract between the dealer and Reply & Co. If it was there, it could have been produced even in this court. But nothing was forthcoming. In the absence of any satisfactory explanation, we are not inclined to remit the case for that purpose.
42. For the reasons aforesaid, we partly allow the revision and hold that the first item covering the transaction of Rs. 40,393-6-0 is exempt from the sales tax while the second item covering the transactions amounting to Rs. 2,30,880-11-0 is not exempt from the sales tax. In the circumstances of the case, we leave the parties to bear their costs of this court. Advocate’s fee Rs. 100.
