PETITIONER:
MURARILAL SARAWAGI ETC.
Vs.
RESPONDENT:
THE STATE OF ANDHRA PRADESH
DATE OF JUDGMENT15/12/1976
BENCH:
RAY, A.N. (CJ)
BEG, M. HAMEEDULLAH
SINGH, JASWANT
CITATION:
1977 AIR 247 1977 SCR (2) 441
1977 SCC (1) 639
ACT
Andhra Pradesh General Sales Tax Act, 1957--Item 1,
Second Schedule-State Corporation entering into contract
with local dealers on f.o.b. basis and exporting to foreign
countries -- If sale in the course of export--Last purchas-
er-Who is.
HEADNOTE
Under item 1 in the Second Schedule to the Andhra
Pradesh General Sales Tax Act 1957, manganese ore was liable
to be taxed at the point of purchase by the last dealer who
bought in the State.
The appellants sell manganese ore to the Mines and
Minerals Trading Corporation which exports the ore to buyers
in foreign countries. Their contention before the Sales Tax
authorities that the sales of the ore to the MMTC were
complete within the State of Andhra Pradesh and that it was
the MMTC which was the last purchaser liable to pay sales
tax was rejected. On appeal the High Court held that the
appellants’ contracts with the MMTC were integrally connect-
ed with the contract entered into by the MMTC with the
foreign buyer and, as such, the appellants were the last
purchasers liable to pay the tax.
The respondent State contended before this Court that
since the property in the goods passed from the appellants
to the MMTC on board the ship in view of the f.o.b. charac-
ter of the contract, it was the appellants who, as the last
purchasers, were liable to pay the tax and not the MMTC,
Allowing the appeals,
HELD: The law is that it has to be found out whether the
contracts between the merchants and the Corporation are
integrated contracts in the course of export or different
contracts. If they are different, the last purchaser within
the State is liable to pay the sales tax. [446G]
(i) The tests for finding out the sale in the course of
export are that there must be a single sale which itself
causes the export or is in the progress or process of ex-
port. There is no room for two or more sales in the course
of export. The only sale which can be said to cause the
export is the sale which itself results in the movement of
the goods from the exporter to the importer.
[443E-F]
(ii) State Corporations are often the only authori-
ties allowed to export goods out of the country. These
corporations enter into contracts with foreign buyers for
export and the Corporations in turn give directions to the
merchants to place the goods on board a ship. These direc-
tions are not in the course of export because the export
sale is an independent one between the Corporations and
their foreign buyers. [444D-E]
(iii) In f.o.b. contracts the sellers’ duty is to place
the goods free on board a ship named by the buyer but the
mere mention of f.o.b. price or f.o.b. delivery in a
contract between the merchants and the trading corporations
which export the goods under a separate contract with the
foreign buyers to the latter will not make the two contracts
either integrated or the contract between the merchants and
the Corporation an f o.b. contract. There cannot be two
last purchasers in the sale of the same goods within the
same State. There cannot be two exporters in respect of the
same goods. [444G & 445C]
442
(iv) In string contracts the contracts between the
Corporation and the foreign buyers are different and it is
the Corporation which enters into independent contracts with
foreign buyers on f.o.b. basis. Under the terms of the
contract, the merchants are required to bring the goods
f.o.b. to the ship named by the Corporation. [444C]
Mohd. Serajuddin etc. v. State of Orissa [1975] Supp.
S.C.R. 169, Coffee Board, Bangalore v. Joint Commercial
Tax Officer, Madras [1970] 3 S.C.R. 147 and M/s. Binani
Bros. (P) Ltd. v. Union of India & Ors. [1974] 1 S.C.C.
459, followed.
National Tractors Hubli v. Commissioner of Commercial
Taxes Bangalore [1971] 3 S.C.C. 143, no longer good law.
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1221-
1226 of 1974.
(Appeals by. Special Leave from the Judgment and Order
dated 26-2-1974 of the Andhra Pradesh High Court in Tax
Revision Cases Nos. 5--10 of 1973). "
4. K. Sen, S.T. Desai, B.M. Bagaria and D.P. Mukherjee,
for the appellants.
P.P. Rao and T.V.S.N. Chari for the respondent.
The Judgment of the Court was delivered by
RAY, C.J. These six appeals are by special leave from
the judgment dated 26 February, 1974 of the Andhra Pradesh
High Court.
The principal question in these appeals is whether the
appellants are the last purchasers of manganese ore within
the State of Andhra Pradesh. The appellants contended
before the Sales Tax authorities that their sales of manga-
nese ore to the Mines and Minerals Trading Corporation in
short called the M.M.T.C. were complete within the State of
Andhra Pradesh. The appellants therefore contended that
they were not the last purchasers but the M.M.T.C. was the
last purchaser within the State, and therefore, the M.M.T.C.
was liable to pay the tax.
The High Court came to the conclusion that the appel-
lants were the last purchasers in the State. The High Court
held that the contract between the appellants and the
M.M.T.C. indicated that the appellants’ contract of sale
occasioned the export and that the contract of the appel-
lants with the M.M.T.C. was integrally connected with the
contract entered into by the M.M.T.C. with their foreign
buyer. In short, the High Court held that there existed a
bond between the contracts of sale entered into by the
appellants with the M.M.T.C. and the actual exportation of
the goods. The High Court held that these contracts were
intrinsically linked and connected and the sales effected
were held to be sales in the course of export of manga-
nese ore out of the territory of India.
443
The Constitution Bench of this Court in the recent
decision in Mohd. Serajuddin etc. v. State of Orissa(1)
held that manganese merchants who bought manganese from
mines and thereafter sold the goods to the State Trading
Corporation for short the S.T.C. could not be said on the
terms and conditions of the contracts in that case to be
exporters of the goods. The S.T.C. contracts with the
manganese merchants and the S.T.C. contracts with the For-
eign Buyers were held not to be integrated activities in
the course of export. The crucial words in section 5 of
the Central Sales Tax Act 1956 are that a sale or purchase
of goods shall be deemed to take place out of the territory
of India only if the sale or purchase either occasions
such export or is effected by a transfer of documents of
title to the goods after the goods have crossed the customs
frontiers of India. This Court found that the contracts
between the manganese merchants and the S.T.C. on the one
hand and the contracts between the S.T.C. and their foreign
buyers on the other were two separate and independent con-
tracts of sale. The S.T.C. entered into direct contract
with their foreign buyers. The S.T.C. alone agreed to sell
the goods to their foreign buyers. The S.T.C. was the
exporter of goods. There was no privity of contract between
the manganese merchants and the foreign buyers from the
S.T.C. The privity of contract was between the S.T.C. and
the foreign buyers. The immediate cause of the movement
of goods and export was the contract between the foreign
buyers who were the importers and the S.T.C. who was the
exporter and shipper of the goods.
In Serajuddin’s case (supra) this Court referred to the
rulings in Coffee Board Bangalore v. Joint Commercial Tax
Officer Madras (a) and M/s Binani Bros. (P) Ltd. v. Union of
India & Ors.(3) as laying down the correct tests to find out
the sale in the course of export. The tests are that there
must be a single sale which itself causes the export or is
in the progress or process of export. There is no room for
two or more sales in the course of export. The only sale
which can be said to cause the export is the sale which
itself results in the movement of the goods from the export-
er to the importer.
Counsel for the State submitted that there were six
contracts and it has been the case of the appellants that
the contracts were different, and, therefore, there should
be examination of five other contracts. It may be stated
here that counsel for the State did not dispute that the
decision in Serajuddin’s case (supra) applied to one of the
six contracts but he disputed the application of the ruling
in Serajuddin’s case to the other five contracts. The
reasons given by counsel for the State are these. Only one
contract was referred to in the High Court. The case of
the appellants has all along been that the Sales Tax Appel-
late authorities considered only one contract. The High
Court also considered only one contract. In the special
leave petition the appellants assailed the assumption made
by the High Court to the effect that all contracts between
the appellants and the M.M.T.C. were similar.
(1) [1975] Supp. S.C.R. 169. (2) [1970] 3 S.C.R. 147.
(3) [1974] 1 S.C.C. 459.
444
Counsel for the State put in the forefront the conten-
tion that the M.M.T.C. could not be the last purchaser of
goods within the State of Andhra Pradesh because property in
the goods passed from the appellants to the M.M.T.C. on
board the ship. In aid of that contention reliance was
placed on F.O.B. character of the contract between the
appellant and the M.M.T.C. The position is identical in all
the six contracts.
This Court in Serajuddin’s case (supra) pointed out that
mention of F.O.B. price in the contracts between the manga-
nese merchants and the S.T.C. did not render these contracts
F.O.B. contracts with the foreign buyers from the S.T.C.
The reason is simple. The contracts between the S.T.C. and
the foreign buyers are different contracts and it is the
S.T.C. which entered into independent contracts with their
foreign buyers on F.O.B. basis. Under the contracts between
the manganese merchants and the S.T.C. the merchants were
required to bring the goods F.O.B. to the ship named by the
S.T.C.
It has to be appreciated that quite often merchants
dealing in goods which are exported out of our country enter
into what is called string contracts for purchase of the
goods from the factory or the mines for sale to exporters
for sale to foreign buyers. The Trading Corporations are
often the only authorities allowed to export out of our
country. These Corporations enter into direct contracts
with their foreign buyers for export. The directions given
by the Corporations to the merchants to place the goods on
board the ship are pursuant to the contracts of sale between
the merchants and the Corporation. These directions are not
in the course of export, because the export sale is an
independent one between the Corporation and their foreign
buyers. The taking of the goods from the merchants’ place
to the ship is completely separate from the transit pursuant
to the export sale (See Serajuddin’s case at pp. 184-185).
In string contracts or chain contracts delivery is made
by the original seller and eo instanti it is delivered in
implement under each separate contract in the chain. In
chain or string contracts starting between the mills or
mines or factories and their immediate buyer and ending
with the ultimate buyer through several intermediaries not
only does the mill give and its immediate buyer take actual
delivery but eo instanti each middleman gives and takes
actual delivery This process of delivery of possession goes
all along the chain at the same moment when delivery is made
to the steamer. See Duni Chand Rataria v. Bhuwalka
Brothers Ltd.(1).
In F.O.B. contracts the seller’s duty is to place the
goods "free on board" a ship to be named by the buyer. When
the seller delivers the goods for loading on board he
normally obtains a mate’s receipt which he transmits to the
buyer and the buyer exchanges this for the proper bill of
lading. In this sort of F.O.B. contract the almost univer-
sal rule is that property and risk both pass on shipment as
soon as the goods are over the ship’s rail and if it should
be material, the property and risk in each part of the cargo
will pass as it crosses the
(1) [1955] 1 S.C.R. 1071.
445
ship’s rail. The loading of the goods is an unconditional
appropriation which passes the property. This is not
because of any peculiarity of F.O.B. contracts but because
in this type of contract the seller’s duty is to deliver
the goods F.O.B. Once they are on board the seller has
delivered them to the buyer and it is natural that they
should thereafter be at the buyer’s risk.
Now a days a party which has contracted to sell
goods to a foreign buyer may itself buy the goods
F.O.B. Indian port from Indian seller in order to fulfill
F.O.B. contract with a foreign buyer.
This Court in Serajuddin’s Case ’(supra) has laid down
that the mere mention of F.O.B. price or F.O.B. delivery in
contract between a merchant and the S.T.C. which .exports
the goods under a separate contract with the foreign buyer
to the latter will not make the two contracts either inte-
grated or the contract between the merchant and the S.T.C.
an F.O.B. contract. There cannot be two last purchasers in
the sale of same goods within the same State. Similarly,
there cannot be two exporters in respect of the same goods.
After the decision of the Constitution Bench in Serajuddin’s
case (supra) the decision in National Tractors Hubli v.
Commissioner of Commercial Taxes Bangalore(1) is no longer
good law.
In the National Tractors case (supra) which was a three
Judge Bench decision reliance was placed on the decision in
B.K. Wadeyar v. M/s. Daulatram Rameshwarlal(2). In Wade-
yar’s case (supra) this Court said that the normal presump-
tion attaching to F.O.B. contracts is that property in the
goods passes only when they are put on board the ship.
Wadeyar’s case (supra) was before the Central Safes Tax Act
1956. Further the Bill of Lading, the export licence and the
export clause all showed that the export did not commence
till the slip left the port.
In the National Tractors case (supra) it was said
that the purchase by the State Trading Corporation from the
merchant was in the course of export by the S.T.C. to the
foreign buyer and, therefore, the purchase by the merchant
from the mine-owner was the last purchase in the State. The
basis of the decision is that these were integrated F.O.B.
contracts in the course of export.
The decision in National Tractors case (supra) made no
reference to the decision of this Court in Coffee Board case
(supra). The correct law is laid down by this Court in the
Coffee Board case and Serajuddin’s case (supra). The law is
this. It has to be found out whether the contracts between
the merchants and the Corporation are integrated contracts
in the course of export or they are different. If they are
different contracts, as they are in the present case, the
last purchaser within the State is the M.M.T.C.
For the foregoing reasons the appeals are accepted. The
judgment of the High Court is set aside. The parties will
pa their costs.
P.B.R.
Appeals allowed.
(1) [1971] 3 S.C.R. 143.
(2) [1961] 1 S.C.R. 924,
446