The State of Kerala & Ors Vs. The
Cochin Coal Company Ltd.  INSC 185 (31 October 1960)
AYYANGAR, N. RAJAGOPALA DAS, S.K.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1961 AIR 408 1961 SCR (2) 219
CITATOR INFO :
RF 1966 SC 376 (6) E 1968 SC 389 (3,8,9) RF
1986 SC1760 (22)
Sales Tax--Explanation Sales--Sale and
delivery of coal to Steamship--Whether in the course of export--Constitution of
India, Art. 286--United States of Travancore and Cochin General Sales Tax Act,
1125, s. 6--Notification dated February 5, 1954.
The respondent stocked 'bunker coal' at
Candle Island in the State of Madras. They sold the coal to steamers calling at
the port of Cochin in the State of Travancore-Cochin and delivered it there.
The respondent was assessed to sales tax on such sales for the year 1951-52 and
1952-53. , The respondent contended that no sales tax could be levied on these
sales since they were either sales' in the course of export' or in the course
of inter-State trade exempt from sales tax under sub-cl. (1) (b) or cl. (2) of
Art. 286 of the Constitution and in the alternative that they were exempt from
tax under a notification dated February 5, 1954, issued by the appellant State
under which sales failing within the Explanation to Art. 286(1)(a) made during
the period 4-1-1951 to 31-3-1953 were exempted from liability to pay tax.
Held that the sales were exempt from tax
under the Government Notification. The coal was delivered to the actual consumer,
i. e., the steamships in Travancore-Cochin and they were at liberty to consume
it :wherever they desired, either within the State or outside the choice
depending on its convenience and necessity. The delivery was for consumption
within the State and the sales fell within the Explanation to Aft. 286(1)(a).
Though the sales were in the course of
inter-State trade which were covered by the ban on taxation imposed by Art.
286(2) the levy was validated by the Sales
Tax Validation Act, 1956.
M. P. V. Sundararamier & Co. v. The State
of Andhra Pradesh,  S.C.R. 1422, relied on.
The sales were not made 'in the course of
export and were not covered by the ban imposed by Art. 286(1)(b). For Art.
286(1)(b) to apply it was not sufficient that
the goods merely moved out of the territory of India, but it was further
necessary that the goods should be intended to be transported to a destination
beyond India. The concept of 'export' in Art. 286 postulated the existence of
two termini between which the goods were intended to be transported.
220 Burmah Shell Oil Storage &
Distributing Co. of India Ltd. v. The Commercial Tax Officer, C.A. 751 of 957
& C.A. 10 of 1958 (Unreported) followed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 287 of 1958.
Appeal from the Judgment and Order dated the
10th September, 1956, of the former Travancore-Cochin in Original Petition No.
191 of 1955.
Sardar Bahadur, for the Appellants.
K. P. Abraham, P. George, and M.R. Krishna
Pillai, for the Respondent.
1960. October 31. The Judgment of the Court
was delivered by AYYANGAR J.-This is an appeal from the judgment of the High
Court of Travancore-Cochin on a certificate of fitness granted by it under Art.
133(1) of the Constitution and raises for consideration the liability of the
respondent-The Cochin Coal Company Ltd. to sales-,tax under the United State of
Travancore and Cochin General Sales Tax Act, 1125 (1950).
The following are briefly the facts which it
is necessary to state in order to appreciate the points in controversy in the
appeal. The Cochin Coal Company Ltd. which will be referred to as the
respondent-Company are, as their name indicates, dealers in coal. The
commodity, the sales of which have given rise to the dispute in this appeal is
what is known as ' Bunker coal'. The company have their offices at a place
called Fort Cochin which was formerly within the State of Madras. They import
and keep stocks of " bunker coal " stacked at a place called Candle
Island which at the date relevant to these proceedings was also within the
State of Madras. Part of the activities of the respondent-company consist in
the supply of " bunker coal " from their depots in Candle Island to
steamers arriving in or calling at, the port of Cochin (in the State of
Travancore-Cochin) for the outward voyage of the steamers from the said port.
The usual procedure by which bunker coal was thus supplied by the respondent
company was briefly 221 this: Before the arrival of the steamers, the steamer
agents would enter into contracts with the respondent company for trimming coal
into the bunker of the steamer.
As soon as a steamer arrived in Cochin port,
the steamer agents would inform the respondent-company and these agents after
securing the necessary papers from the customs and the port authorities for the
loading of the coal into the steamer, would take these papers to the
respondent-company's office in Fort Cochin for enabling the latter to perform
their part of the contract. The respondent-company would thereupon send the
goods ordered to the steamer through their transport contractor. Delivery
orders would be issued to the transport contractor on the strength of which
goods would be released from their stock in Candle Island. Coal would then be
taken to the steamer berthed in the port in Travancore-Cochin State waters. The
Chief Engineer of the steamer would inspect the coal and when the same was to
his satisfaction as regards quality, the coal would be permitted to be trimmed
into the bunkers of the ships. The price of the coal would thereafter be paid
to the respondent-company on bills drawn on the steamer-agent. The above being
the nature of the transactions conducted by the respondent-company, sales-tax
was claimed on the sales of bunker coal by the Travancore-Cochin State. The
assessment years with which this appeal is concerned are 1951-52 and 1952-53,
and the assessment therefore was completed on February 2, 1954, by the
sales-tax officer, Circle, Mattancherry. The respondent-company's contention
that no sales-tax could be levied on the value of the " bunker coal "
supplied, since the sale was either " in the course of export ", or
" in the course of inter-State trade " and therefore exempted from
taxation by the State under sub-cl.
(1)(b) or (2) of Art. 286 was rejected by the
assessing officer for the reason that the sales in question fell within the
Explanation to Art. 286 (1)(a) and were therefore " inside " the
State of Travancore-Cochin, since the delivery in pursuance of the sale took
place within the State and the goods were delivered for the purpose of
consumption within 222 the State and that notwithstanding that there was an
inter State element involved in the sale, by the goods being moved from Candle
Island, the same did not affect the power of the delivery State to levy the tax.
The point urged by the company, that the same sales had been assessed to tax in
Madras State as sales actually taking place there, was also rejected as
irrelevant The respondent-company thereafter filed an appeal to the Appellate
Assistant Commissioner who allowed the appeal of the company holding that the
sales were " in the course of export " within Art. 286(1)(b), and
that even if they were not such but were ',inside" sales falling within
the Explanation to Art. 286(1)(a) of the Constitution, still a notification by
the State Government dated February 5, 1954, exempting such sales from tax,
operated for the benefit of the assessee. Thereafter the Deputy Commissioner of
sales-tax who was the Revisional authority took up the matter suo motu, called
upon the assessee to show cause why the appellate order should not be set aside
and the entire turnover assessed to sales-tax as the sales had taken place
inside the State only. After hearing the assessee-company the order of the
appellate Assistant Commissioner was set aside and that of the Sales Tax
Officer restored. The respondent-company then moved the High Court of
Travancore-Cochin under Arts. 226 and 227 of the Constitution to set aside the
order in revision and the learned Judges of the High Court ordered accordingly.
They, however, granted a certificate under Art. 133(1) of the Constitution to
enable the State Government to file an appeal to this Court and that is how the
matter is now before us.
Though the respondent-company appear to have
presented before the High Court several lines of argument in support of their
contention that they were entitled to exemption from sales-tax in respect of
bunker coal " trimmed by them into steamers in the waters of
Travancore-Cochin, the learned Judges rested their decision in favour of the
respondent-company on practically a single ground. Their reasoning was briefly
as follows: Following the Bengal Immunity case (1), the learned Judges held
that, the bans (1)  2 S.C.R. 603.
223 imposed by cls. 1(a) and 2 of Art. 286
were independent and that the sale of the coal by the respondent-company which
was in the course of inter-State trade was covered by the ban contained in Art.
286(2) of the, Constitution notwithstanding that the sale might satisfy the
terms of the Explanation to sub-cl. 1(a). The learned Government Pleader,
however, had submitted that if the exemption was derived, from Art. 286(2),
the, same would not assist the assessee, since the validity of the tax was
saved by the Sales-tax Law Validation Act, 1956. The learned Judges however
held that the validation Act could not avail the State because on their
construction of s. 26 of the Travancore Cochin General Sales Tax Act, 1125
(corresponding to s. 22 of the Madras Sales Tax Act, 1939) no tax had been
levied or was leviable on sales in the course of inter-State trade or commerce
and that the Validation Act having validated only taxes already levied could
not enable the State to levy a tax which had not been imposed by the State's
There is no doubt that the transaction of
sale in the present case was in the course of inter-State trade and would be
covered by the ban on taxation imposed by Art.
286(2). But the view of the learned Judges of
the High Court regarding the construction of s. 26 of the Travancore Cochin
General Sales Tax Act must now be held to be incorrect in view of the decision
of this Court in M. P. V. Sundararamier & Co. v. The State of Andhra
Pradesh (1). If therefore the assessee-company could rely only on Art.
286(2) for claiming relief, it must be held
to be not available to them since the Sales Tax Validation Act, 1956, would
have validated the levy.
Before us, however, learned Counsel for the
respondent company urged two grounds to sustain the decree of the High Court in
its favour., The first was that as the coal trimmed into the steam-ships were.
meant to be carried outside the territory of India, the sale was " in the
course of export " within Art. 286 (1)(b) of the Constitution and was
therefore exempt from the levy of sales-tax by the State. This contention
however has to be rejected in view of the decision (1) (1958) S.C.R. 1422.
224 of this Court in Burmah Shell Oil Storage
& Distributing Co., of India, Ltd. v. The Commercial Tax Officer (1) in
which it was held that in the context and setting in which the expression
" export out of the territory of India " occurs in Part XIII of the
Constitution, it was not sufficient that goods were merely moved out of the
territory' of India but that it was further necessary that the goods should be
intended to be transported to a destination beyond India, so that they were in
the course of " import " into some other locality outside India and
accordingly that aviation spirit sold to an aircraft for enabling it to fly out
of the country was not " exported " out of the country. The reason
was that there was no destination at which it could be said that the spirit was
imported and that a mere movement of the goods out of the country following a
sale would not render the sale one " in the course of export " within
Art. 286 (1)(b) of the Constitution. In other words, the concept of export in
286 postulates just as the word import, the
existence of two termini as those between which the goods are intended to move
or between which they are intended to be transported, and not a mere movement
of goods out of the country without any intention of their being landed in
specie in some foreign port.
The other point urged by learned Counsel was
that, in any event, the sale fell within the Explanation to Art.
286(1)(a) inasmuch as the delivery of the
coal was effected in the State of Travancore-Cochin for the purpose of
consumption in that State. There is no doubt that the goods having originally
been located in Candle Island in Madras State were moved out of that State by
reason of the contract of sale into the territory of Travancore-Cochin. It had
therefore an inter State element which rendered the Explanation applicable. The
delivery was admittedly effected in the State of Travancore-Cochin as a direct
result of that sale and was trimmed into the steam-ships in the Cochin waters.
If the purpose of the delivery was (1) C.A. 751 of 1957 & C.A. 10 of 1958
225 not export as we have held earlier, it
must follow that in the circumstances of this case it was for the purpose of
consumption in the State since the delivery was to the ultimate consumer who
was to use the goods for his own purposes and not for the purpose of re-export
or with a view to other transactions of a commercial character in the goods. It
would be noticed that the ultimate buyer-the steam-ship company could, if it
desired, consume the goods in the sense of exhaust the goods by consumption
within the State or it could take it outside the State and consume it there,
but that was a matter of its choice, dependent on its will and pleasure. This
would not therefore detract from the delivery to it being for consumption
within the State.
Goods might be consumed either by destruction
or by way of use depending on the nature of the goods. Thus edible articles are
generally consumed in a literal sense while other articles like clothing or
furniture etc. are consumed by being used, though they are not destroyed by
If edible articles are sold and delivered to
an ultimate consumer within a State, it is delivered for the purpose of
consumption within the State, notwithstanding, that the buyer may not choose to
consume the whole of his purchase within the State but takes part of it outside
the State and consumes it there. If, for instance, a vehicle is sold to the
actual user and the sale is not in the course of export or with a view to
further commercial transactions in it by the purchaser by way of resale etc.,
the delivery to the user is for the purpose of his consumption within the
The fact that such a purchaser might in the
exercise of the enjoyment of his property-by way of use or " consumption
"drive the vehicle to other States does not detract from the original
delivery to him falling within the Explanation to Art. 286(1)(a). In the
present case, the coal having been delivered into the ship for being consumed
by it, it was open to the master of the vessel to use the coal while the ship
was in the waters of Travancore-Cochin, or if he so chose take it outside those
limits. The position might be 29 226 different if the buyer were obliged by
contract or by law not to use or consume the goods sold within the State of
delivery, i.e., where he has no choice to consume it there.
In the case on hand, part of the coal
delivered could and would certainly have been used by the ship during the
period of her stay in the harbour for loading and if such stay were prolonged
owing to unforeseen causes even the entire coal might have been exhausted and
of course it would have to be used till the ship left the limits of the port
and the limits of State territory. The crucial fact therefore was that the coal
was delivered to the actual consumer who was at liberty to consume it wherever
he desired-the choice depending on his convenience and necessity.
In the circumstances, therefore, learned
Counsel for the respondent was right in his submission that the sale of the
"bunker coal" by the assessee-company fell within the Explanation to
Art. 286(1)(a). If there were nothing more and the liability of the assessee
had to be judged with reference to the charge imposed by the Sales-tax Act of
the State, read in the light of the Constitution, the tax liability of the
respondent-company would not have been open to doubt or dispute. But the
submission of learned Counsel was that the State Government had power to exempt
sales of any particular designated type from tax liability under s. 6 of the
Sales-Tax Act, and that the Government had by a notification dated February 5,
1954, and published in the official Gazette, exempted sales such as by the
respondent company in the present case from the levy of sales-tax during the
assessment years now in question. The exemption under this notification was no
doubt not referred to by the learned Judges of the High Court but had been one
of the grounds on which the sales-tax appellate authority had set aside the tax
imposition by the Sales-tax Officer and the point had been specifically urged
in the petition filed in the High Court under Art. 226, and the respondent
cannot, therefore, be denied the benefit of the notification if it applied.
Section 6 of the Travancore-Cochin Sales-tax
227 "The Government may, by notification
in the Gazette, make an exemption.................. in respect of any tax
payable under this Act :(i) on the sale of any specified class of goods at all
points or at any specified point or points in the series of sales by successive
dealers ; or (ii) of any specified class of persons " in regard to the
whole or any part of their turnover".
It is not necessary to set out the rest of
the section. In the Travancore-Cochin Gazette dated February 16, 1954, the
following notification dated February 5, 1954, appeared:
" According to the interpretation given
by the Supreme Court to Art. 286(1) of the Constitution in their judgment in
the State of Bombay v. United Motors India Ltd. certain categories of
inter-State transactions come within the taxing powers of the State Government.
While the judgment enables the Government of Travancore-Cochin to levy sales tax
on certain categories of non-resident dealers selling goods for delivery and
consumption in Travancore. Cochin State from the 1st April 1951, the Government
have, after due consideration, decided to levy sales-tax on such transactions
only from the 1st April 1953-the date immediately following that on which the
Supreme Court delivered its judgment and to forego the levy prior to that date
Then followed provisions detailing the
interim arrangements for submission of returns, of declarations to be filed and
the manner in which the tax should be assessed and paid.
Though the learned counsel for the
appellant-State urged that the notification could not have the statutory effect
of granting exemption, we are clearly of the opinion that this was and must be
deemed to be one issued in exercise of the power conferred on the State
Government by s. 6(1) whose relevant terms we have already extracted. Besides,
this is rather a curious submission to make in view of what had transpired
earlier. The appellate Assistant Commissioner who set aside the assessment of
the respondent-company stated in his order " Even if it is considered that
the sale is for 228 consumption in this State, the company need not pay tax on
the turnover since Government have exempted from payment of tax on the sales
which took place before April 1, 1953 ".
When this appellate order was set aside by
the Deputy Commissioner acting suo motu in revision, there is no reference made
to the notification in the order and it was not stated that it had no statutory
effect. In its petition to the High Court under Art. 226, the
respondent-company claimed the benefit of the exemption granted by the
notification dated February 5, 1954, and published in the Gazette of February
16, 1954, relating to the assessment for the period April 1, 1951 to April 1,
1953 and it added that the assessment in question came within the exemption
contained in the Gazette notification. In answer to this a counter-affidavit
was filed by the sales-tax officer who said : " The notification referred
to in the petitioner's affidavit has no application to the case as the sales in
question did not come within their orbit ". In other words, the objection
was not that the notification was not a statutory exercise of the power under
s. 6(1) and effective to grant an exemption to the cases covered by it, but
that the transactions of the respondent-company were not covered by the
notification. The extract we have quoted from the notification shows that it is
specially designed to afford relief to cases of non-resident dealers engaged in
inter State transactions which were held to be intra-State transactions by
reason of the application of the Explanation to Art. 286(1)(a) to such sales by
the decision of this Court in the United Motors Case. As the respondent
company's transactions in question clearly fall within the notification by
reason of their nature as well as the assessment years concerned, the
respondent-company would be entitled to the benefit of the tax exemption
conferred by the notification.
The result is that the appeal fails and is
dismissed with costs.