B. K. Wadeyar Vs. M/S. Daulatram
Rameshwarlal  INSC 287 (27 September 1961)
GUPTA, K.C. DAS DAS, S.K.
AYYANGAR, N. RAJAGOPALA
CITATION: 1961 AIR 311 1961 SCR (1) 924
CITATOR INFO :
R 1964 SC1752 (15) RF 1971 SC 870 (23,24) R
1971 SC2277 (3) E 1975 SC1564 (29,30,67,68) RF 1975 SC1652 (14) RF 1977 SC 247
Sales Tax--Export--Meaning of--Property in
exported goods in F. O. B. contracts--If Passes on shipment or before
it--Export licence--obtainable by buyer or seller--"Person", meaning
of--Bombay Sales Tax Act, 1953 (Bom. III of 1953) s. 10(b)--The Import and
Export (Control) Act, 1947 (XVIII of 1947) s. 5(2)--Constitution of India, Art. 286(1)(b).
The respondents firm claimed exemption from
Sales Tax under Art. 286(i)(b) of the Constitution in respect of sales 925 made
by them of cotton and castor oil on the ground that the sales were on F.O.B.
contracts under which they continued to be the owners of the goods till those crossed
the custom barrier and entered the export stream. They also contested the
purchase tax to which they were assessed under s. 10(b) of the Bombay Sales Tax
Act. The High Court upheld the contention of the respondents regarding the
Sales Tax but held that they were liable to pay purchase tax. On appeal by both
the parties Held, that the goods remained the seller's property till those had
been brought and loaded on board the ship and so the sales were exempted from
tax under Art. 286(i) of the Constitution.
The word " a person " in s. 10(b)
of the Bombay Sales Tax Act had been correctly interpreted as " a
registered dealer " and the purchasing dealers had been rightly assessed
to purchase tax.
The normal rule in F. 0. B. contracts was
that the property was intended to pass and did pass on the shipment of the
The presumption in F. 0. B. contracts was
that it was the duty of the buyer to obtain the necessary export licence,
though in the circumstances of a particular case that duty might fall on the
H.O. Brandt & Co. v. H. N. Morris &
Co. Ltd.,  2 K.B. 784 and M. W. Hardy & Co. v. A. V. Pound & Co.,
Ltd., (1953) 1.Q.B. 499, considered.
"Export " under the Import and
Export Control Act having been defined as " taking out of India by land,
sea or air " it could not, under the Export Control Order, be held to have
commenced till the ship carrying the goods left the port or in some cases
passed the territorial waters.
The State of Bombay v. The United Motors
(India) Ltd., (1953) 4 S.T.C. 133, held inapplicable.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 45 and 46 of 1959.
Appeal by special leave from the judgment and
order dated March 25, 1957, of the former Bombay High Court in Appeal No. 16 of
Q. K. Daphtary, Solicitor-General of India,
H. J. Umrigar and D. Gupta, for the Apellant (In C. A. No. 45 of 59) and
Respondent (In C. Appeal No. 46 of 59).
H. N. Sanyal, Additional Solicitor-General of
India, S. N. Andley and J. B. Dadachanji, for the respondents (in C. A. No. 45
of 59) and Appellants (In C. A. No. 46/59).
926 1960. September 27. The Judgment of the
Court was delivered by DAS GUPTA J.-M/s. Daulatram Rameshwarlal, a firm
registered under the Indian Partnership Act (referred to later in this judgment
as "sellers ") are registered dealers under s. 11 of the Bombay Sales
Tax Act. In their return of turnover for the period from April 1, 1954 to March
31, 1955, they claimed exemption from Sales Tax in respect of sales of cotton
of the total value of Rs. 68,493-2-6 and sales of castor oil of the total value
of Rs. 6,47,509-1-6 on the ground that these sales were oil FOB contracts,
under which they continued to be the owners of the goods till the goods had
crossed the customs barrier and thus entered the export stream, and so no tax
was realisable on these sales in view of the provisions of Art. 286 (1)(b).
The Sales Tax Officer rejected this claim for
exemption and assessed them to sales tax on a taxable turnover including these
sales. He also assessed them to purchase tax under s.
10(b) of the Bombay Sales Tax Act on their
purchase of castor oil which they later sold for the sum of Rs.
6,47,509-1-6 as mentioned above. The notice
of demand for the total sales tax and the purchase tax assessed was served on
the sellers on September 30, 1956. The sellers thereupon moved the Bombay High
Court under Art. 226 of the Constitution for the issue of appropriate writs for
quashing the order of assessment and the notice of demand and for prohibiting
the Sales Tax Officer from taking any steps pursuant to the order or the
notice. The learned Judge who heard the petition rejected the sellers'
contention that the goods remained their property till these crossed the
customs frontier and therefore held that the sellers were not entitled to the
benefit of Art. 286(1)(b) of the Constitution. As regards the assessment to
purchase tax also he rejected the sellers' contention that the assessment in
question was illegal. In this view the learned Judge dismissed the application
under Art. 226.
Against this decision the sellers appealed.
The 927 learned Judges who heard the appeal held, disagreeing with the Trial
Judge, that the goods remained the sellers' property till the goods had been
brought on board the ship and so the sales were exempted from tax under Art.
286(1)(b) of the Constitution. They however agreed with the Trial Judger that
the sellers were liable to pay purchase tax under s. 10(b) of the Bombay Sales
Tax Act. Accordingly they directed the Sales Tax Officer not to enforce the demand
for payment of sales tax with regard to the sales of cotton for Rs. 68,493-2-6
and sale of castor oil of the total value of Rs. 6,47,509-1-6.
The Sales Tax Officer has, on the strength of
special leave granted by this Court, preferred the appeal which has been
numbered as Civil Appeal No. 45 of 1959 against the appellate court's order
directing him not to realise the sales tax in respect of sales of cotton and
Civil Appeal No. 46 of 1959 has been
preferred by the sellers against the appellate court's judgment in so far as it
upheld the assessment of purchase tax under s. 10(b).
The only "question for our decision in
the appeal by the Sales Tax Officer is whether property in the goods passed on
shipment or at some point of time before shipment. The law is now well-settled
that if the property in the goods passes to the buyer after they have for the
purpose of export to a foreign country crossed the customs frontier the sale
has taken place "in course of the export" out of the territory of India.
If therefore in the present sales the property in the goods passed to the
buyers on shipment, that is, after they had crossed the customs frontier the
sales must be held to have taken place "in the course of export" and
the exemption under Art. 286(1)(b) will come into operation.
The sellers' case is that these were sales on
Though the learned Solicitor-General
appearing on behalf of the Sales Tax Officer tried to convince us that these
were not really FOB contract sales, it appears that the averment in Paras. 11
and 13 of the writ petition that these sales were made on FOB basis were not
denied in the counter affidavit sworn by the Sales Tax Officer. It is also 928
worth noticing that in the assessment order itself the Sale Tax Officer
referred to these sales as sales on FOB basis.
The specimen contract produced also used the
words " FOB delivered ". There can be no doubt therefore that these
were sales under FOB contracts.' The normal rule in FOB contracts is that the
property is intended to pass and does pass on the shipment of the goods. In
certain circumstances, e.g., if the seller takes the bill of , lading to his
own order and parts with it to a third person the property in the goods, it has
been held, does not pass to the buyer even on shipment. We are not concerned
here with the question whether the passing of property in the goods was
postponed even after shipment. The correctness of the proposition that in the
absence of special agreement the property in the goods does not pass in the
case of a FOB contract until the goods are actually put on board is not
disputed before us.
As has however been rightly stressed by the
learned Solicitor General it is always open to the parties to come to a
different agreement as to when the Dropert in the goods shall pass. The
question whether there was such a different agreement has to be decided on a
consideration of all the surrounding circumstances. He relies on three
circumstances to convince us that the sellers and their buyers agreed in these
sales that the property will pass to the buyer even before shipment. The first
circumstance on which he relies is that the bill of lading was taken in the
name of the buyer. Along with this fact we have to consider however the fact
that the bill of lading was retained by the sellers, the contract being that
payment will be made on the presentation of the bill of lading. It is not
disputed that the term in the contract for "payment at Bombay against
presentation of documents " means this. It was the sellers who received
the bills of lading and it was on the presentation of these bills of lading
along with the invoices that the buyer paid the price. When the bills of lading
though made out as if the goods were shipped by the buyer, were actually
obtained and retained by the sellers, that fact itself would ordinarily
indicate an intention of 929 the parties that the property in the goods would
not pass till after payment.
The second circumstance to which our
attention has been drawn is that the export was under the contract to be under
the buyer's export licence. This, in our opinion, shows nothing. The ordinary
rule in FOB contracts is that it is the duty of the buyer to obtain the
necessary export licence. That was laid down in Brandt's case (1) and though in
a later case in Hardy v. Pound (2) the Court of Appeal in England held that the
judgment in Brandt's case (1) does not cover every FOB contract and that in the
special facts of the particular case before them it was for the sellers to
obtain the licence and this view was approved by the House of Lords (1956 A. C.
588), it is in our opinion correct to state that the presumption in FOB
contracts is that it is the duty of the buyers to obtain export licence, though
in the circumstances of a particular case this duty may fall on the sellers.
The third circumstance on which reliance is
placed on behalf of the Sales Tax Officer is that the Export Control Order,
1954, which was passed in the exercise of powers conferred by Import &
Export Control Act, 1947, contained a provision in its clause 5(2) in these
words:-" It shall be deemed to be a condition of that
licence.................. that the goods for the export of which licence is
granted shall be the property of the licensee at the time of the export ".
It has been strenuously contended by the learned Solicitor General that it will
be reasonable to think that the parties to the contract intended to comply with
this condition and to agree as between themselves that the goods shall be the
property of the licensee, that is, the buyer, at the time of the export. It is
argued that the time of the export should be interpreted as the time when the
customs frontier is crossed and that we must proceed on the basis that the
buyer and the sellers intended that the goods shall be the buyer's property at
the point of time when they crossed this frontier. We see however no
justification for thinking that in this clause "the time of the export
" means the time (1)  2 K.B. 784.
(2)  1 Q.B. 499.
930 when the goods cross the customs
frontier. Export has been defined in the Import & Export (Control) Act,
1947, as " taking out of India by sea, land or air ". In the Exports
(Control) Order, 1954, the word must be taken to have the same meaning as in the
Act. On that definition the time of the export is the time when the goods go
out of the territorial limits of India. These territorial limits would include
the territorial waters of India. Consequently the time of the export is when
the ship with the goods goes beyond the territorial limits. At any rate, the
export of the goods cannot be considered to have commenced before the ship
carrying goods leaves the port. The intention of the parties that in compliance
with the requirements of cl. 5(2) of the Exports (Control) Order the goods
shall be the property of the licensee at the time of the export would therefore
mean nothing more than that the property in the goods shall pass immediately
before the ship goes beyond the territorial waters of the country, or at the
earliest when the ship leaves the port. Whichever view is taken there is
nothing to indicate that the intention to comply with the requirements of el.
5(2) of the Exports (Control) Order carries with it an intention that the
property should pass to the buyer at the time the goods cross the customs
frontier. It is true that in the United Motor'8 Case (1) and in other cases it
has been held by this Court that the course of export commences to run when the
goods cross the customs barrier. What the court had to consider in these cases
was not however when export commences within the meaning of the Exports
(Control) Order but when the course of export commences for the purpose of Art.
286(1)(b) of the Constitution. For the reasons which need not be detailed here
it was decided that the course of export commences at the time when the goods
cross the customs barrier. These decisions as regards the commencement of the
course of export are of no assistance in deciding about the point of time when
the export proper commences. As we have already pointed out when export has
been defined in the Import & Export (1) (1953) 4 S.T.C. 133.
931 (Control) Act, 1947, as "taking out
of India by land, sea, or air ", export in the Export Control Order,
cannot be held to have commenced till at least the ship carrying the goods has
left the port, though it may in some contexts be more correct to say that it
does not commence till the ship has passed beyond the territorial waters.
We have therefore come to the conclusion that
there is no circumstance which would justify a conclusion that the parties came
to a special agreement that though the sales were on FOB contracts property in
the goods would pass to the buyer at some point of time before shipment. We
think that the learned judges who heard the appeal in the Bombay High Court
were right in their conclusion that the goods remained the sellers' property
till the goods had been brought and loaded on board the ship and so the sales
were exempted from tax under Art. 286(1)(b) of the Constitution.
In Civil Appeal No. 46 of 1959 the
appellants' contention is that on a correct interpretation of the provisions of
10(b) of the Bombay Sales Tax Act no purchase
tax was leviable from them. Section 10(b) provides for the levy of a purchase
tax on the turnover of purchase of goods specified in column I of Schedule B,
at the rates, if any, specified against such goods in column 4 of the said
schedule, "where a certificate under cl. (b) of s. 8 has been furnished in
respect of such goods and the purchasing dealer does not show to the
satisfaction of the Collector that the goods have been despatched by him or by
a person to whom he has sold the goods to an address outside the State of
Bombay within a period of six months from the date of purchase by the dealer
furnishing such certificate ".
Section 8(b) provides for the deduction from
the turnover, of sale of goods to a dealer who holds an authorisation and
furnishes to the selling dealer a certificate in the prescribed form declaring
inter alia that the goods so sold to him are intended for being despatched by
him or by registered dealers to whom he sells the goods to an address outside
the State of Bombay. Admittedly such a certificate was furnished by 932 M/s.
Daulatram Rameshwarlal in respect of the castor oil which they sold to others
and that in respect of these sales to them their sellers were allowed
deductions. It is equally undisputed that the persons to whom M/s. Daulatram
Rameshwarlal sold the goods were sent to an address outside the State of Bombay
within a period of six months from the date of purchase by M/s. Daulatram
Rameshwarlal. These persons are however not registered dealers. The Sales Tax
Officer as also the High Court of Bombay has held that the " person to
whom he has sold the goods " in s. 10(b) means " a registered dealer
to whom he has sold the goods ". It is contended before us on behalf of
the appellant-dealers that the word " a person " is wide enough to
include a registered dealer and an unregistered dealer. It is urged that the
use of the word it a person " instead of the words " a registered
dealer " is deliberate and that it was the intention of the Legislature to
levy purchase tax on a person who has given such certificate under s. 8(b) only
if the goods were not 'despatched outside the State of Bombay within the
prescribed period by anybody. It is therefore contended that " a person
" in s. 8(b) should be interpreted to include a registered dealer or
anybody else. We are unable to agree. A close examination of ss. 8 and 10 justifies
the conclusion that the Legislature was anxious to secure that the declaration
as regards intention of the goods being despatched outside the State of Bombay
should be carried out by despatch by " a registered dealer " to whom
he sells the goods. If such despatch outside the State of Bombay is by a person
to whom the certifying dealer has sold the goods but who is not a registered
dealer the certificate has not been complied with. It will be in our opinion
unreasonable to think that though the Legislature insisted that the certificate
should declare the goods purchased were intended 11 for being despatched by him
or by a registered dealer to whom he sells the goods outside the State of
Bombay ", the Legislature would be content to accept actual despatch
outside the State of Bombay by one who is not a registered dealer as
sufficient. Mr. Sanyal contended that the certificate 933 has to declare only
an intention and that if ultimately the actual despatch is made by some person
who is not a registered dealer, it cannot strictly be said that the declaration
has not been carried out. It might very well be that if at the time a
declaration of intention is made in the certificate the purchasing dealer had
the intention as stated and ultimately he sells to a person who is not a
registered dealer for despatch of the goods outside the State of Bombay, the
purchasing dealer may not be liable for having made a false declaration ".
Even though he has not made a false declaration of his intention, the fact remains
that the intention declared has not been carried out. The scheme of the
Legislature clearly is that where the intention as declared has not been
carried out purchase tax should be levied. To hold otherwise would be to make
the declaration of the intention useless.
Our conclusion therefore is that the courts
below have rightly interpreted the words " a person " in s. 10(b) of
the Bombay Sales Tax Act as a " registered dealer " and that the
purchasing dealers have rightly been assessed to purchase tax under s. 10(b).
In the result, both the appeals are dismissed