PETITIONER:
STATE OF BIHAR & ANR.
Vs.
RESPONDENT:
TATA ENGINEERING & LOCOMOTIVE CO. LTD.
DATE OF JUDGMENT:
27/11/1970
BENCH:
HEGDE, K.S.
SHAH, J.C.
MITTER, G.K.
GROVER, A.N.
RAY, A.N.
CITATION:
1971 AIR 477 1971 SCR (2) 849
1970 SCC (3) 697
ACT
Constitution of India, 1950, Art. 286(2) as it originally stood-In the course of inter-State trade or commerce, meaning of.
HEADNOTE
The assessee, having its registered office in Bombay and its factory in Bihar, was carrying on the business of manufacturing and selling trucks, bus chassis and spare parts to their appointed dealers and others. Agreements were entered into between the assessee and the appointed dealers, under which, each dealer was assigned a territory in which alone the dealer could shell. The dealers had to place the indents, pay the price of goods to be purchased and obtain delivery orders from the Bombay office. In pursuance of the delivery orders the trucks etc. were delivered in Bihar to be taken to the territories assigned to them for sale there. If the dealers failed to abide by the term requiring them to move the goods outside the State of Bihar they would have committed breach of their contracts, On the question whether the turnover relating to the sales made by the assessee to its dealers for sale by them in their respective territories outside the State of Bihar, during the period 7th September 1955 to 31st March 1956, was exempt from liability to pay sales-tax under the Bihar Sales Tax Act, on the ground that the sales took place in the course of inter-State trade or commerce, under Art. 286(2) as it, then stood, HELD : Where under the terms of a contract of sale, the buyer is required, as a necessary incident of the contracts to remove the goods from the State in which he purchased the goods to another State and when the goods are so removed, the sale must be considered as a sale in the course of inter-State trade or commerce. [854 G-H; 858 A-13] State of Travancore Cochin v. The Bombay Co. Ltd. [1952] S.C.R. 1112, State of Travancore Cochin v. Shanmugha Visal Cashew Nut Factory, [1954] S.C.R. 53, Bengal Immunity Co. Ltd. v. State of Bihar, [1955] 2 S.C.R. 603, Endupuri Narasimham & Son v. State of Orissa, [1962] 1 S.C.R. 314, Tata Iron & Steel Co. Ltd. v. S. R. Sarkar, [1961] ] S.C.R. 379, The Cement Marketing Co. of India (P) Ltd. v. State of Mysore, 14 S.T.C. 175, Ben Gorm Nilgiri Plantations Co. v. Sales Tax, Officer, Special Circle, Ernakulam, [1964] 7 S.C.R. 706, K. G. Khosla & Co. (P) Ltd. v. Dy. Commissioner of Commercial Taxes, Madras, 17 S.T.C. 473 and Tata Engineering & Locomotive Co. Ltd. v. Asstt. Commissioner of Commercial Taxes & Anr. [1970] 1 S.C.C. 622, applied. Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras, 25 S.T.C. 528, explained.
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No.2402 of 1966. 1-2-L694SupCI/71 850 Appeal by special leave from the judgment and order dated May 4, 1966 of the Patna High Court in Misc. Judicial Case No. 284 of 1962. A. K. Sen and U. P. Singh, for the appellants. N. A. Palkhivala, S. B. Mehta, B. Datta, for the respondent. The Judgment of the Court was delivered by. Hegde, J. This is an appeal by special leave. It arises from the judgment of the High Court of Patna in a Reference under s. 25(3) of the Bihar Sales Tax Act, 1947. That reference was called for by the High Court at the instance of the assessee company (the respondent herein. The questions referred for the opinion of the High Court by the Board of Revenue were :
"(1) With regard to the sales which took place
in the period from 1st of April, 1955 to the
6th September 1955, whether the assessee is
entitled, upon the facts found by the Board of
Revenue with regard to these categories of
sales, to exemption from liability under the
Bihar Sales-Tax Act because of the provision
of Article 286(1) (a) of the Constitution as
it stood at the relevant date read with the
explanation to that article.
(2) With regard to the sales which took
place in the period from 7th September, 1955,
to 31st March, 1956 whether the assessee is
entitled, upon the facts found by the Board of
Revenue with regard to these categories of
sales, to exemption from liability under the
Bihar Sales-tax Act on the ground that the
sales took place in the course of inter-State
trade or commerce under Art. 286(2) of the
Constitution as it stood at the relevant
period." The High Court answered the first question in the negative and against the assessee. It answered the second question in the affirmative and in favour of the assessee. The assessee has not come up in appeal. This appeal has been brought by the State of Bihar contesting the correctness of the opinion given by the High Court on the second of the two questions referred to earlier. The assessee is, a Public Limited Co., incorporated under the Indian Companies Act, 1913. It carries on business of manufacturing and selling inter-alia trucks and bus chassis and spare parts thereof to their appointed dealers, State Transport Organizations and individual buyers throughout India. The registered office of
851 the assessee is at Bombay but its factory where manufacturing proCess. is being carried on is at Jamshedpur in Bihar. The assessee has appointed several dealers all over India for the sale of its trucks, bus-chassis and spare parts. Those dealers are appointed under agreements entered into between the in and the assessee. The turnover in dispute relates to the sales made by the assessee to its dealers of trucks, bus-chassis and spare parts for being sold in the territories assigned to them under the dealership agreements. The agreements between the assessee and its dealers appear to be similar. Under the agreements, each dealer is assigned a territory .in, which alone he can sell the trucks, bus-chassis and other spare parts purchased by him from the assessee company. He is forbidden from selling anyone of those articles to any purchaser outside his territory. As per the agreements, dealers will have to place their indents, pay the price of the goods to be purchased and obtain delivery orders from the Bombay office of the assessee. In pursuance of those delivery orders, trucks, bus chassis and other spare parts were delivered in Bihar to be taken over to the territories assigned to them. Under the contracts of sale, the dealers, were required to remove the trucks, bus chassis and the spare parts, delivered to them. in the State of Bihar to place outside Bihar. These are facts found by the Board of Revenue and affirmed by the High Court. On the basis of these facts, we have whether the sales with which we are concerned in this appeal are sales that took place in the course of inter- State trade and commerce as contemplated by Art. 286(2) of the Constitution as it stood at, the relevant time. In other words the question for decision is, whether the sales in question were sales for the purpose of inter-State trade or commerce or whether they were sales in the course of inter-State trade or commerce. As seen earlier, the High Court has held that, those sales took place in the course of interState trade or commerce. The expression "in the course of" appearing in Art. 286(1)(b) came up for consideration in State of Travancore Cochin and Ors. v. The Bombay Co. Ltd. (1) Therein in this Court held that whether else may or may not fall within Art. 1286(1)(b) of the Constitution,. sales and purchases which themselves occasion the export or import of the goods as the case may be out of or into, the territory of India come within the exemption. In that case this Court further observed that a sale by export involves, a series of integrated activities commencing from the agreement ofsale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from,the export without which it cannot be effectuated and the sale and the resultant export form parts of a single transaction. Of these two integrated activities which to- (1) [1952] S.C.R. 1112. 852 gather constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Even in cases where the property in the goods passed to the foreign buyers and the sales were thus completed, within the State before the goods commenced their journey from the State, the sales must be regarded as having taken place in the course of the export and therefore exempt under Art. 286(1)(b). The same exposition of the law is true of cl. (2) of Art. 286 as it stood prior to its amendment on September 11, 1956. The next decision in which Art. 286(1)(a), 1(b) and (2) came to be considered by this Court is State of Travancore Cochin and Ors. v. Shanmugha Vilas Cashew Nut Factory and Ors. (1) Therein this Court observed that the word "course’ etymologically denoties movement from one point to another and the expression "in the course of" in Art. 286(1)(b) not only implies a period of time during which the movement is in progress but postulates also a connected relation. Consequently, a sale in the course of export out of the country should be understood in the context of Art. 286(1)- (b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country, but also as part of or connected with such activities. But a purchase of goods for the purpose of export is only an act preparatory :to their export and. not an act done in the course of the export of ,the goods. In The Bangal Immunity Company Ltd. v. The State of Bihar and Ors. (2) Venkatarama Ayyar, J. observed that a sale could be a sale in the course of inter-State trade only if two conditions concur : (1) a sale of goods and (2) a transport of those goods from one State to another under the contract of sale. In Endupuri Narasimham and son v. The State of Orissa and Ors. (3), this Court held that in order that a sale or purchase might be inter-State, it is essential that there must be a transport of goods from one State to another under the contract of sale or purchase. IA purchase made inside a State for sale outside the State cannot itself be, held to be in the course of inter-State and the imposition of tax thereon is not repugnant to Art. 286(2) of the Constitution. In Tata Iron and Steel Co. Ltd. v. S. R. Sarkar and ors. (4) this Court held that within cl. (b) of S. 3 of the Central Sales Tax Act, 1956, are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto and also covers sales in which movement of goods from one State to another is the result of a covenant or incident of the contract of sale and property in (1) [1954] S.C.R. 53. (2) [1955] 2 S.C.R.603. (3) [1962] 1, S.C.R. 314. (4) [1961] 1 S.C.R. 379. 853 the goods passes in either State. Clause (b) of s. 3 of the Central Sales Tax Act, 1956 says :
"That no law of a State shall impose or
authorise the imposition of,. a tax on the
sale or purchase of goods where such sale or
purchase takes place in the course of the
import of goods into, or export of the goods
out of,. the territory of India."
In The Cement Marketing Co. of India (private
Ltd. and anr. v. The State of Mysore and
anr.(1), this Court held that where the goods
were transported outside the State as required
by the contract of sale, they are inter-State
sales and hence exempt from sales-tax. On the
facts of that case it was held that the sales
transactions themselves involved movement of
goods across the border.
In Ben Gorm Nilgiri Plantations Co. Coonoor
and ors. v. Sales Tax Officer, Special Circle,
Ernakulam and ors.(2) this Court had to
consider what sales are sales in the course of
export and what sales are for the purpose of
export. In the course of the judgment Shah,
J. (one of us) observed :
"A sale in the course of export predicates a
connection between the sale and export, the
two activities being so integrated that the
connection between the two cannot be
voluntarily interrupted, without a breach of
the contract or the compulsion arising from
the nature of the transaction. In this sense
to constitute a sale in the course of export
it may be said that there must be an intention
on the part of both the buyer and the seller
to export, there must be obligation to
export,. and there must be an actual export.
The obligation may arise by reason of statute,
contract between the parties, or from mutual
understanding or agreement between them., or
even from the nature of the transaction which
links the sale to export. A transaction of
sale which is a preliminary to export of the
commodity sold may be regarded as a sale for
export, but is not necessarily to be regarded
as one in the course of export, unless the
sale occasions export." In K. G. Khosla and Co. (P) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras(3 ) this Court held that before a sale could be said to have occasioned the import, the movement of goods must have incidental to the contract or in pursuance of the conditions of the contract and there should be no possibility (1) 14, S.T.C. 175 (S.C.) (2) 117 S.T.C. 473. (S.C.) (3) [1964] S.C.R. 706. 854 the goods being diverted by the assessee for any other purpose. meaning thereby that there should be no possibility of diversion according to law or contract and not in breach of them.’ In Tata Engineering and Locomotive Co. Ltd. v. The Asstt. Commissioner of Commercial Taxes and anr.(1), this Court after referring to the earlier decisions observed :
"It has been laid down that the sale in the
course of export, predicated connection
between the sale and export, the two
activities being so integrated that the
connection between the two cannot be
voluntarily interrupted without a breach of
the contract or the compulsion arising from
the nature of the transaction. To occasion
export there must exist such a bond between
the contract of sale and the actual
exportation that each link is inextricably
connected with the one immediately preceding
it. The principle thus admits of no doubt.
according to the decisions of this Court, that
the sales to be exigible to tax under the Act
(Central Sales Tax Act, 1956) must be shown to
have occasioned the movement of the goods or
articles from one State to another. The
movement must be the result of a covenant or
incident of the contract of sale."
If we apply the principles enunciated by this
Court in the decisions referred to above to
the facts of this case, it is obvious that the
sales with which we are concerned in this case
are sales in the course of inter-State trade.
The dealers were required to move the trucks,
buses, chassis and other spare parts purchased
by them from the State of Bihar to places
outside Bihar. They are so required by the
terms of the contracts entered into by them
with the assessee. They would have committed
breach of their contracts and incurred the
penalty prescribed in their dealership
agreements, if they had failed to abide by the
term requiring them to move the goods outside
the State of Bihar.
The decided cases establish that sales will be
considered as sales in the course of export or
import or sales in the course of inter-State
trade and commerce under the following
circumstances:
(1) When goods which are in export or import
stream are sold;
(2) When the contract of sale or law under
which goods are sold require those goods to be
exported or imported to a foreign country or
from a foreign country as the case may be or
are required to be transported to a State
other
(1) [1970] 1 S.C.C.622.
855
than the State in which the delivery of goods
takes place and
(3) Where as a necessary incident of the
contract of sale goods sold are required to be
exported or imported. or transported out of
the State in which the delivery of goods takes
place. But Mr. A. K. Sen, learned Counsel for the State of Bihar contended that this Court has taken a different view of the law in Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras and anr.(1). According to him the ratio of that decision is that whenever goods are delivered in a State in pursuance of a contract of sale, the sale in question becomes exigible to tax in the State in which the goods are delivered unless they are taken out of the State for purposes of consumption and not resale, or the same is taken out of the State in pursuance of an already existing agreement to resell in the State to which it is taken. The decision in Coffee Board case (supra) does not, in our opinion, afford any basis for these contentions. We have earlier noticed that this Court in a series of decisions has pronounced in unambiguous terms that where under the terms of a contract of sale, the buyer is required to remove the goods from the State in which he purchased those goods to another State and when the goods are so moved, the sale in question must be considered as a sale in the course of inter-State trade or commerce. This is a well established position in law. In the Coffee Board case this Court did not deviate from this position nor could it deviate as the earlier decisions were binding on it. Further in the course of his judgment, the learned Chief Justice who spoke for the Court referred with approval to the earlier decisions of this Court where distinction between the sales in the course of inter-State trade or commerce and sales for the purpose of interState trade and commerce were explained. On the basis of the facts in that case, his Lordship came to the conclusion that the export of the coffee in question was, not integrated with the sales with which the Court was concerned and that there was no direct bond between the export and the sales. In the course of his judgment his Lordship observed :
"Here there are two independent sales involved
in the export programme. The first is a sale
between the Coffee Board as seller to the
export promoter. Men there is the sale by
the export promoter to a foreign buyer. Of
the latter sale, the Coffee Board does not
have any inkling when the first sale takes
place. The Coffee Board’s sale is not in any
way related to the second sale. Therefore,
the first sale has no connec-
(1) 25 S.T.C. 528 (S.C.)
856
tion with the second sale which is in the
course of export, that is to say, movement of
goods between an exporter and an importer." This finding clearly brings out the distinction between the facts of the Coffee Board’s case (supra) and the facts of the cases wherein this Court held that the sales in question were sales in the course of export or import. In the Coffee Board’s case this Court found that what was insisted on by the Coffee Board was that the coffee set apart for the purpose of the export must be exported; it was not incumbent for the purchasers at the auction to export that coffee themselves; they may do it themselves or they may sell it to somebody who may export it outside India. On that basis, this Court came to the conclusion that the sales effected by the Coffee Board are not sales in the course of export; they are only sales for, the purpose of export. The ratio of that decision does not bear on the facts before us. Herein, under the terms of the contracts of sale, the purchasers were required to remove the goods from the State of Bihar to other States. Hence the sales with which we are concerned in this case must be held to be sales in the course of inter-State trade or commerce. For the reasons mentioned above, we agree with the findings of the High Court. In the result this appeal fails and the same is dismissed with costs. V.P.S. Appeal dismissed 857