State of Bihar & ANR Vs. Tata
Engineering & Locomotive Co. Ltd.  INSC 243 (27 November 1970)
27/11/1970 HEGDE, K.S.
CITATION: 1971 AIR 477 1971 SCR (2) 849 1970
SCC (3) 697
R 1975 SC1564 (29,33,60) RF 1979 SC1160 (17)
R 1985 SC1689 (5) F 1985 SC1754 (9)
Constitution of India, 1950, Art. 286(2) as
it originally stood-In the course of inter-State trade or commerce, meaning of.
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.  S.C.R. 1112, State of
Travancore Cochin v. Shanmugha Visal Cashew Nut Factory,  S.C.R. 53,
Bengal Immunity Co. Ltd. v. State of Bihar,  2 S.C.R. 603, Endupuri
Narasimham & Son v. State of Orissa,  1 S.C.R. 314, Tata Iron &
Steel Co. Ltd. v. S. R. Sarkar,  ] 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,  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.  1 S.C.C. 622, applied.
Coffee Board, Bangalore v. Joint Commercial
Tax Officer, Madras, 25 S.T.C. 528, explained.
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
N. A. Palkhivala, S. B. Mehta, B. Datta, for
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
"(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
(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 interState 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 inter State
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)
 S.C.R. 1112.
852 gather constitute an export sale,
whichever first occurs can well be regarded as taking place in the course of
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)  S.C.R. 53. (2)  2
(3)  1, S.C.R. 314. (4)  1 S.C.R.
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)
"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)
 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 eligible 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)  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
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 connection (1)
25 S.T.C. 528 (S.C.) 856 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
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.