Burmah Shell Oil Storage and
Distributing Co., of India Vs. The Commercial Tax Officer & Ors  INSC
288 (27 September 1961)
SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L.
CITATION: 1962 AIR 1320 1962 SCR Supl. (1)
CITATOR INFO :
RF 1965 SC1740 (8) RF 1973 SC1461 (218) RF
1976 SC2243 (89)
Sales Tax--Sale of motor spirit for aviation
purposes to aircraft at Airport--Exemption from taxation--Sale outside customs
barrier--Whether sale within State--Aviation spirit loaded on board aircraft
taken out of country--If exported--" Export", meaning of--Bengal
Motor Spirit Sales Taxation Act, 1941 (Ben. 5 of 1941), S. 22, as
amended--Constitution of India, Art. 286(1)(a)(b), Explanation.
The appellant companies which were carrying
on business in Calcutta in petroleum and petroleum products maintained supply
depots at Dum Dum Airport from which motor spirit for B the purposes of
aviation was sold and delivered to aircraft which either proceeded to foreign
countries directly from that Airport or did so ultimately, though landing en
route at some place or places in the Indian territory. Dum Dum Airport was a customs aerodrome and all aircraft coming into it or leaving it had to comply
with ordinary customs formalities. The sales tax authorities of West Bengal sought to levy tax on the sales of motor spirit as aforesaid under the
provisions of the Bengal Motor Spirit Sales Taxation Act, 1941, as amended. The
appellant companies claimed that the sales were exempted from taxation under
both the clauses (a) and (b) of Art. 286(i) of the Constitution of India on the
grounds (i) that the sales in question had taken place outside the State of
West Bengal, as they did not .come within the Explanation to Art.
286(1)(a), (2) that aviation spirit was
delivered outside the customs barrier and therefore the sales were outside the
State, and (3) that the sales had taken place in the course of export, as
aviation spirit was taken out of the territory of India.
Held: (i) that by sale in Art. 286(i)(a) is
meant a completed transaction by which property in the goods passes.
Before property in the goods passes the
contract of sale is only executor and the buyer has only a chose in action.
The taxable event is not to be found at an
earlier stage because the critical taxable event is the passing of property.
The Explanation to cl. (1) of Art. 286 was
added to avoid, among other things, multiple taxation of the same transaction.
It indicates the State where the tax can be levied and also the State where it
cannot. It achieves it by excluding from consideration the place where the
property in the goods passed according to the law relating to sale of goods.
The non obstante clause establishes this. By the fiction created by the
Explanation a sale is deemed to have taken place in the State where the goods
are delivered as a direct result of the sale for purposes of consumption in
Where there are more States than one
involved, any State claiming to tax a sale by reason of something anterior to
the passing of property would not be able to claim that the sale took place
there unless it was also the State of delivery.
The Explanation is meant to explain the
Article and must be interpreted according to its tenor and the Explanation is
not to be explained with the aid of the Article because that would reverse
their roles. The Explanation is not applicable unless there are more States
than one involved.
The State of Bombay v. The United Motors (India)
Ltd.,  S.C.R. 1969, State of Travancore Cochin v. Shanmugha Vilas
Cashewnut Factory,  S.C.R. 53, Ramnayain Sons Ltd. v. Asst.
904 Commissioner of Sales Tax,  2
S.C.R. 483 and The Bengal Immunity Company Ltd. v. The State of Bihar,  2
S.C.P. 603, considered.
(2) that to exclude the power of taxation of
the State of West Bengal under Art. 286(i)(a), read with the Explanation, the
appellant companies must be able to point out some other State where the goods
could be said to have been delivered as a result of the sale for the purpose of
consumption in that other State, and that where, as in the present case,
aviation spirit was delivered to the aircraft, there was no such rival State,
and therefore, the ban contained in Art.
286(i)(a) and the Explanation, did not apply.
(3) that in the phrase " in the course
of export out of the territory of India " in Art. 286(i)(b) the word
" export " does not merely mean 'taking out of the country'. Export
here means that the goods are being sent to a foreign destination at which the
goods can be said to be imported.
In the Article the notions of import and
export go in pairs.
State of Travancore-Cockin v. The Bombay Co.
Ltd.,  S.C.R. 1112 and State of Travancore-Cochin v. Shanmugha Vilas
Cashew Nut Factory,  S.C.R. 53, relied on.
(4) that aviation spirit loaded on board the
aircraft for consumption, though taken out of the country, was not exported
since it had no destination where it could be said to be imported. The sales in
question could not, therefore, be said to have occasioned the export, nor were
they in the course of export. Accordingly, Art. 286(i)(b) was not applicable.
(5) that the sales must be treated as made
within the State of West Bengal. The customs barrier did not set a terminal
limit to the territory of West Bengal for the purposes of sales tax, and the
sales, though beyond the customs barrier, were still within the territory of
the taxing State.
CIVIL APPELLATE, JURISDICTION: Civil Appeals
Nos. 751 of 1957 and 10 of 1958.
Appeal from the judgment and order dated
December 7, 1956, of the Calcutta High Court in Matters Nos. 29 and 58 of 1956.
M. C. Setalvad, Attorney-General of India, C.
K. Daphtary, Solicitor-General of India, Sukumar Mitra, Sankar Ghosh and B. N.
Ghosh, for the appellants in C. A. No 751 of 57.
M. C. Setalvad, Attorney General of India,
Sankar Ghosh and D. N. Mukherjee, for the appellants in C. A. No. 10 of 1958.
S. M. Bose, Advocate-Generalfor the State of
West 905 Bengal, B. Sen and P. K. Bose, for the respondents (in both the
1960. September 27. The Judgment of the Court
was delivered by HIDAYATULLAH J.-These two appeals on a certificate under Art.
132(1) of the Constitution have been filed respectively by the Burmah Shell Oil
Storage land Distributing Co., of India, Ltd., and the Standard Vacuum Oil
Company (in this judgment referred to as the appellant-Companies) against a
common judgment of the High Court of Calcutta dated December 7, 1956. The High
Court was moved for writs of mandamus, prohibition and certiorari under Art.
226, but the petition was dismissed by D. N. Sinha, J. The matter arises out of
assessment to sales tax on sale of motor spirit for aviation purposes (shortly,
aviation spirit) supplied by the appellant-Companies to aircraft bound for
countries abroad, under the Bengal Motor Spirit Sales Taxation Act, 1941, as
amended by s. 2(a)(i) of the Bengal Motor Spirit Sales Taxation (Second
Amendment) Act, 1954. The Commercial Tax Officer, the Commissioner of Commercial
Taxes and the State of West Bengal have been joined as respondents in this
Court, as they had previously been joined in the High Court.
The appellant-Companies deal in Petroleum and
Petroleum products, and carry on business at Calcutta. They maintain supply
depots at Dum Dum Airport from which aviation spirit is sold and delivered to
aircraft proceeding abroad and belonging to several Companies. It appears that
such sales were treated by the sales tax authorities in the State of Bombay as
not falling within the taxing Acts in force in the Bombay State by reason of
the provisions of Art. 286 of the Constitution. The sales tax authorities in
West Bengal, however, took a different view of the matter, and after sundry
procedure resulting in assessment of tax, presented a demand notice for the tax
assessed which was paid under protest by the appellant Companies. The appellant
Companies filed petitions under Art. 226 of the Constitution in the High 906
Court of Calcutta questioning the legality of the imposition but without
success. They have now filed these appeals after obtaining a certificate, as
The contentions in this Court, as they were
also before the High Court, 'are that such sales are made in the course of
export of such aviation spirit out of the territory of India, that they take
place outside the State of West Bengal, that inasmuch as aviation spirit is
delivered for consumption outside West Bengal, the sales cannot fall within the
Explanation to sub-cl. (a) of the first clause of Art. 286, and that unless
they can be said to become "Explanation Sales", the power to tax does
not exist. It is argued in support of the last contention that there is not
even an averment in the reply of the respondents before the High Court that
aviation spirit is delivered for consumption within West Bengal.
The case in the High Court was restricted to
consideration of supplies to aircraft which either proceed to foreign countries
directly from Dum Dum Airport, or do so ultimately, though landing en route at
some place or places in the Indian territory. The case has been similarly
confined in this Court also, and we are not required to express any opinion
about sales of aviation spirit to aircraft flying from one place in West Bengal
to another place also within that State, or even to some place in another State
in the territory of India.
The facts are fortunately not' in dispute.
Both parties admitted the procedure for the supply of aviation spirit to
aircraft. Briefly described, it is as follows: Before the arrival of such an
aircraft, a representative of the appellant-Companies applies to the Airport
Customs Officer to depute an Officer to supervise the refuelling of the
aircraft. After the aircraft lands, the captain or the Ground Engineer gives
instruction about the quantity of aviation spirit required, and on permission
being given by the Customs authorities, the stated quantity is delivered in the
presence of the Customs Officer deputed. Details of the delivery are entered in
a delivery receipt, which 907 is signed by the representative of the appellant
Companies and the Customs Officer deputed. Duty drawback shipping bills are
also drawn up to show the' quantity of aviation spirit and are countersigned by
them and also by a representative of the aircraft. Later, claims for refund of
customs duty are made, and refund is granted.
In the petition filed in the High Court, it
was averred that such aviation spirit is required for consumption during flight
and/or outside the territory of India, and is thus delivered for purposes of
consumption outside West Bengal and in some cases outside the territorial
limits of India as well. It was also stated that it was sold in the course of
export outside the territory of India, and drawback of customs duty was obtained.
In the reply of the respondents, it was stated that the refund of customs duty
was an irrele- vant fact for the purpose of assessment. It was further stated
in the affidavit of the Commercial Tax Officer as follows :
" I further state that a foreign bound
aircraft on leaving Dum Dum Airport consumes a portion of the aviation spirit
taken in by it at the Airport within the territory of West Bengal before it
moves out of the said territory or the territory of India. I do not admit that
the entire quantity is used outside the territorial limits of India as
alleged...... I deny that the sale of such aviation spirit takes place outside
the State of West Bengal and state that the sale takes place within the State
of West Bengal and the purchaser pays its price within the State of West
The sale of such aviation spirit is completed
by delivery at the Dum Dum Airport in West Bengal." We have mentioned this
fact, because it was argued that the respondents had not averred clearly that
aviation spirit was sold for consumption within West Bengal even though the
appellant Companies had denied it. The respondents pointed out that at least
some of the aviation spirit must be consumed in the State, and that this was so
stated in the affidavit filed in reply to the petition and quoted by us.
This is 908 hardly a case for a fight on
pleadings, especially as the entire procedure of the supply of aviation spirit
and the use to which it is put are beyond controversy. The question that we
have to consider is one of principle, and the answer-depends upon broad facts
and not on technicalities.
Either the whole of the sale is within the
taxing power of the State or it is not, and the fact that aviation spirit is
consumed in taking off or in flying over the territory of West Bengal before it
leaves that territory would make no difference either way to the principles
applicable. Though parties entered into a debate on this part of the case, we
do not propose to consider it, because, in our opinion, the question must be
considered in substance and not in abstractions. The liability to sales tax, if
any, is attracted when aviation spirit is sold, and immunity can only be
claimed, if, as stated in Art. 286(1)(a) and the Explanation, the sale can be
said to take place outside the State or can be regarded under Art. 286(1)(b) as
having taken place " in the course of...... export of the goods out of,
the territory of India".
Before we take up these two questions, we
desire to refer to some provisions of certain Acts, which bear upon the matter.
The Indian Aircraft Act, 1934, is an Act for
the control of the manufacture, possession, use, operation, sale, import and
export of aircraft. Section 16 of this Act provides that the Central Government
may, by notification in the Official Gazette, declare that any or all of the
provisions of the Sea Customs Act shall, with such modifications and
adaptations as may be specified in the notification, apply to the import and export
of goods by air Sections 2(3) and (4) define " import" and "
export' respectively as " bringing into India " and " taking out
of India ". A notification issued under the Indian Aircraft Act, the rules
framed thereunder and the Indian Aircraft Rules, 1920, appointed the Civil
Aerodrome, Dum Dum, a Customs Aerodrome, and to that Customs Aerodrome, the
provisions of the Sea Customs Act mutatis mutandis were made applicable by r.
63 (Part IX) of the Indian Aircraft Rules, 1920. As 909 a result, Dum Dum
Airport became a Customs Aerodrome, and any aircraft coming into India from
foreign countries or leaving for any such country has to comply with ordinary
Customs formalities. Section 42 of the Sea Customs Act, which allows drawback
on re-export and is applicable mutatis mutandis, provides:
" When any goods, capable of being
easily identified, which have been imported by sea into any customs-port from
any foreign port, and upon which duties of customs have been paid on
importation, are re-exported by sea from such customs-port to any foreign port,
or as provisions or stores for use on board a ship proceeding to a foreign port
seven- eighths...... of such duties shall, except as otherwise hereinafter
provided, be repaid as drawback: ". (Provisos omitted).
Under s. 51, no drawback is allowed unless
the claim to receive such drawback is made and established at the time of
re-export, and under s. 52, the person claiming drawback has to make and subscribe
to a declaration. The procedure which is described in an earlier portion of
this judgment bears upon these matters.
Coming now to the taxing Acts with which we
are concerned, it may be pointed out that the Bengal Motor Spirit Sales
Taxation Act, 1941, originally did not contemplate levy of a tax on the sale of
aviation spirit. Motor spirit was defined to mean, " any liquid or
admixture of liquids which is ordinarily used directly or indirectly as fuel
for any form of motor vehicle or stationary internal combustion engine, and
which has a flashing point below 76 degrees Fahrenheit ".
Sub-section (4) of s. 3, which is the
charging section, provided that no tax shall be levied on the sale of any motor
spirit for the purpose of aviation. The Act was amended by the Second Amendment
Act, 1954, and sub-s. (4) of s. 3 was omitted, and the proviso to the first
sub-section was re-enacted, adding one more clause to the following effect 910
the tax on all retail sales of motor spirit for the purpose of aviation, which
are effected on or after the date of the commencement of the Bengal Motor
Spirit Sales Taxation (Second Amendment) Act, 1954, shall be charged at the
rate of three annas per gallon ".
By the Bengal Motor Spirit Sales Taxation
(Amendment) Act, 1955, the original Act was further amended. To the definition
of" motor spirit' quoted by us earlier, an Explanation was retrospectively
added, which reads as follows:
" Explanation-For the avoidance of
doubt, it is hereby declared that in this Act, the expression ' vehicle' means
any means of carriage, conveyance or transport, by land, air or water ".
The original Act was again amended by the
Bengal Motor Spirit Sales Taxation (Amendment) Act, 1957. This time, among
other amendments involving rates of tax, the words " and which has a
flashing point below 76 degrees Fahrenheit " were omitted from the
definition of 'motor spirit '. The result of all these amendments was to make
retail sales of aviation spirit liable to sales tax, and 'retail sale' was defined,
at all material times, as a sale " by a retail dealer for the purpose of
consumption by the purchaser ".
After the coming into force of the
Constitution, s. 22, in terms of Art. 286, was added to the original Act by
paragraph 3 of, and the Eleventh Schedule to, the Adaptation of Laws Order,
1950. It read:
" 22(1). Nothing in this Act shall be
construed to impose or authorise the imposition of a tax on the sale or
purchase of motor spirit:- (a) where the sale or purchase takes place outside
the State of West Bengal;
(b) where the sale or purchase takes place in
the course of the import of such motor spirit into, or export of such motor
spirit out of the territory of India; or (c) (omitted).
(2) The Explanation to clause (1) of article
286 of the Constitution shall apply for the interpretation of clause (a) of
sub-section (1) 911 Clauses (a) and (b) of the first sub-section do no more
than re-enact the prohibition contained in Art. 286 of the Constitution with
modifications to Suit motor spirit, and the Explanation to sub-cl. (a) of cl.
(1) of the said Article in the Constitution has been applied without an attempt
to modify or adopt it. The Explanation to sub-cl.
(a) of the first clause of Art. 286, the
meaning of which was much in dispute in this case, may conveniently be quoted
here. It reads:- " Explanation-For the purposes of sub-clause (a), a sale
or purchase shall be deemed to have taken place in the State in which the goods
have actually been delivered as a direct result of such sale or purchase for
the purpose of consumption in that State, notwithstanding the fact that under
the general laws relating to sale of goods the property in the goods has by
reason of such sale or purchase passed in another State ".
The High Court of Calcutta in its judgment dealt
with the points urged, and rejected them. The reasons of the High Court briefly
were as follows: The learned Judge declined to draw any inference from the fact
that customs duties were refunded as drawbacks on aviation spirit delivered to
the aircraft. He held that he was not required to decide whether the appellant
Companies were entitled to claim and receive drawbacks of customs duty. He then
gave a finding that the sale was physically within the State, because both the
buyer and the purchaser were, at the time of sale, within the State of West
Bengal even though delivery of aviation spirit was beyond the customs barrier.
He then considered the legal position in the light of Art. 286 from three
points of view. He first held that it was not an inter-State transaction,
because both the parties were in the State of West Bengal, and aviation spirit
was not delivered outside the State. Thus, he held that el. (2) of Art. 286 did
not apply. In this connection, he relied upon the decision of this Court in the
Bengal Immunity Co., Ltd.
v. State of Bihar and others (1). He next
considered (1)  2 S.C.R. 603.
912 the matter under the first sub-clause,
and held that unless the fiction created by the Explanation applied, the sale
must be treated as within the State under the law relating to sale of goods. In
his opinion, the sale being completed within the State of West Bengal both as
regards contract and delivery, the fiction could not be held applicable,
because no " outside " State was involved, even though the aircraft-
might have to consume some aviation spirit while flying over the " outside
" State. He, therefore, held that the Explanation and Art. 286(1)(a) which
it seeks to explain, were both not applicable. He then considered the matter
from the point of view of Art. 286(1)(b). He explained on the authority of the
decision of this Court in State Of Travancore-Cochin and others v. Shanmugha
Vilas Cashewnut Factory and others (2) that the expression " in the course
of export out of the territory of India" referred to sales which, by
themselves, occasioned the export of goods out of the territory of India and
not to sales for the purpose of export, even though the goods ultimately passed
the customs barrier. He pointed out that there was no foreign purchaser to whom
the aviation spirit could be said to have been exported, and that aviation
spirit, in fact, was consumed en route and never taken to any foreign
territory. He also pointed out that no bills of lading or shipping documents
were drawn up, and therefore there was neither an export nor a sale in the
course of export out of the territory of India.
The appellant Companies claim that these
sales come within the exemption granted the sub-cls. (a) and (b) of the first
clause of Art. 286. To claim the exemption granted by the first sub-clause,
they rely upon certain decisions of this Court, and contend that unless the
sale can be said to fall within the Explanation, it must be treated as a sale
outside the State of West Bengal, and is thus exempt. With regard to the second
sub-clause, they contend that there was an export out of the territory of India
inasmuch as aviation spirit was taken abroad and any sale by which it is taken
abroad is also exempt These (2)  S.C.R. 53.
913 arguments, as has been shown above, were
urged before the High Court, but were not accepted.
These two arguments need to be considered
separately, as they have little in common. Article 286 places restrictions upon
the power of the States to tax sales and purchase of goods, and cuts down the
amplitude of Entry No. 54 in the Second List of the Seventh Schedule. Other
restrictions are also to be found in Part XIII of the Constitution. With those
we are not concerned in these appeals. We are also not concerned with the
subsequent amendment of Art. 286, nor with the ban imposed by the second clause
of the Article on taxes on sales in the course of inter-State trade and
commerce. We are concerned with the first clause only, as it stood before the
amendment. That clause is divided into two sub-clauses. The first sub-clause
prohibits the imposition of tax on the sale or purchase of goods where the sale
or purchase takes place outside the State. AD Explanation is added to this sub-
clause, which has been quoted by us earlier. This Explanation has led to a long
controversy in this Court during which somewhat conflicting views have been
expressed about its meaning. This conflict has further been accentuated when
the interplay between the two clauses has been considered. The view now
accepted is that the bans imposed by the two clauses are independent and
separate and each must separately be got over. In view of this, we are not
required to travel beyond the first clause in this case.
We have heard widely divergent arguments in
The learned Attorney-General who appeared on
behalf of the appellant Companies read to us copious extracts from the earlier
decisions of this Court, and contended that unless the sales could be said to
fall within the Explanation so as to become 'Explanation sales', they must be
regarded as having taken place outside the State of West Bengal and for that
reason, not taxable. According to him, they could only become 'Explanation
sales' if aviation spirit was delivered for the purpose of consumption within the
State of West Bengal. The learned Advocate-General of West Bengal, on the other
band, 914 contended that the Explanation did not apply to the facts here, and
that the observations in the rulings were not relevant.
The first sub-clause in its opening portion
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
outside the State. It is thus plainly meant that a State is not to tax sales
which take place outside that State. But, where does a sale take place ?
Numerous elements go to make a sale, and they may take place in more than one
State. Under the law relating to the sale of goods, property passes on the
happening of certain events.
When they happen, the sale is complete. Now,
a contract for the sale of goods may be entirely within one State when all
parties are within the State, the offer and acceptance also take place there,
and the goods are also within that State, and there, the property in the goods passes
and delivery also takes place. But it may also happen that the constituent
elements may be spread over two or more States, some of the elements described
above falling within one State and some others falling within one or more other
States. Prior to the Constitution, multiple taxation of a single transaction of
sale was possible, and Provincial legislation then existing clearly
demonstrates that States having Some connection with the sale because one or
more elements took place within those States, treated this as sufficient nexus
between the taxing power and the States, authorising them to tax sales even
where property passed in another State. The Constituent Assembly desired to
achieve certain objects in the matter of taxation, particularly in relation to
sales tax. Article 286 achieves, among other objects, the avoidance of this
The first sub-clause of the Article is clear
in its terms, when it says that a State cannot tax sales which take place
outside the State. The converse is also true, that is to say, that a State can
tax a sale of goods which takes place within the State. By sale here is meant a
completed transaction by which property in the goods passes. Before the
property in the 915 goods passes, the contract of sale is only executory, and
the buyer has only a chose in action." Property in the goods passes either
by the fulfilment of the conditions of the contract, if any, or by the
operation of the law relating to the sale of goods.
Starting from the basic fact that what is to
be taxed under the Constitution is a sale completed by the transference of
property in the goods, we have to see at what stage and where this happens. The
taxable event thus cannot be found at any earlier stage when the sale is not
completed by the passing of property. The critical taxable event is the passing
of property in the goods as a result of a contract for their sale. The parties
to the contract can agree when that event is to take place, but where it
happens may be a matter of some doubt and even of difficulty. Where the parties
have not agreed as to the time of the passing of property, the law relating to
the sale of goods furnishes the answer. There too, there may be the same
difficulty as to the place of the passing of property. The place of physical
delivery of the goods does not help to solve this difficulty, because delivery
may, precede or follow the passing of property in the goods. Delivery of goods
is, thus, not always an element which determines the completion of a sale,
because the sale may be completed both before and after delivery. The
Constitution, however, thinks in.' terms of a completed sale by the passing of
property and not in terms of an executory contract for the sale of goods.
The essence of the matter being thus the passing
of property in goods,, there was always a likelihood of more than one State
claiming the right to tax the same transaction. One State might claim that
goods in which property passed were in that State, and hence property in the
goods passed there.
Another State might claim that the conditions
precedent to the passing of property were fulfilled in that State and hence the
sale was completed by the passing of property there. Yet another State might
claim that property passed in that State according as one or more events
connected with the passing of property took place within that State.
916 It was to avoid this welter of confusion
as far as possible that the Explanation was added, and it also avoided multiple
taxation. The Explanation serves two purposes. It indicates the State where the
tax can be levied, and also indicates the State or States where it cannot. It
achieves these two purposes excluding all considerations as to where property
the goods can be said to have passed under the law relating to the sale of
goods. The purpose is achieved by the Explanation and particularly by the non
obstante clause in the Explanation. Any State claiming to tax a sale of goods
on the ground that it was completed by the passing of property in the goods in
that State could not do so, if the goods as a direct result of the sale were
delivered for the purpose of consumption in another State. The Explanation
creates a fiction that the sale must be deemed to have taken place in the
latter State and not in the State where the sale was completed by reason of
passing of property. It thus discards the test of passing of property and
adopts the test of delivery 'as a direct result of such sale for the purpose of
consumption in that State'. Where more than one State is involved, any State
claiming to tax the sale by reason of something anterior to the passing of
property would not be able to claim that the sale took place there unless it
was also the State of delivery, because the sale is complete only on the
passing Of property, and till the sale is complete, liability to tax does not
arise. Once the sale is complete, the delivery State gets the right to tax the
sale by the fiction introduced.
Now, the Explanation must be' interpreted
according to its own tenor, and it is meant to explain el. (1)(a) of the
Article and not vice versa. It is an error to explain the Explanation with the
aid of the Article, because this reverses their roles. The Explanation discards
the test of passing of property, and adopts the test of delivery as a direct
result of the sale for purposes of consumption. This delivery may be in the
State where the passing of property also took place, but then, there is no
difficulty. The sale is then entirely within the State. The sale is outside 917
the State only when the passing of property takes place in the State, but that
is not the State where the goods have been actually delivered as a direct
result of the sale for purposes of consumption in that State. The Constitution
has, thus, for certain cases shifted and confined the situs of the taxable
event to the State of the delivery of goods;
but it must be remembered that this delivery may
precede as well as follow the passing of property. It is, therefore, plain that
no single element of the contract of sale is by itself a decisive factor in
determining which State is to tax the sale where there are more States than one
involved, except the test of actual delivery of the goods in a State as a
direct result of the sale for purposes of consumption in that State, and it is
that State and that State only which has the right to tax the sale and none
other. The Explanation is not applicable, unless there are more States than one
involved. It is only a key to find out which of the States is competent to tax
and which are not, and is by no means a definition of an 'outside sale'. It is
an Explanation, which determines which State out of those connected with the
transaction of sale can tax it.
The interpretation which we have placed upon
the first sub- clause of Art. 286(1) is substantially the same, as was placed
in the earlier rulings of this Court. In The State of Bombay and another v. The
United Motors (India) Ltd. and others (1), it was pointed out that the
Explanation formulated an easily applicable test to find out an 'outside sale'
and this, it was said, was done " by defining an inside sale ". It
was observed further:
" Are the goods actually delivered in
the taxing State, as a direct result of a sale or purchase, for the purpose of
consumption therein ? Then, such sale or purchase shall be deemed to have taken
place in that State and outside all other States ".
Certain reasons were given why this test was
adopted, and it is these reasons and their effect on the second clause, which
led to a re-examination of the sub clause in The Bengal Immunity Company
Limited v. (1) (1953) S.C.R. 1069.
117 918 The State of Bihar and others (1).
The majority in that case touched upon the various grounds which were advanced
before this Court, but declined to express "any final opinion upon the
matter ". The case went on to decide that the bans imposed by the two
clauses of Art. 286 were independent, and needed to be separately enforced.
But, on the meaning of the Explanation, no different view was expressed. Again,
in M/8. Ramnarain Sons Ltd. v. Asst.
Commissioner of Sales Tax and others(2), it
was observed as follows:
"So far as article 286(1)(a) is
concerned, the Explanation determines by the legal fiction created therein the
situs of the sale in the case of transactions coming within that category and
when a transaction is thus determined to be inside a particular State it
necessarily becomes a transaction outside all other States. The only relevant
enquiry for the purposes of article 286(1)(a), therefore, is whether a transaction
is outside the State and once it is determined by the application of the
Explanation that it is outside the State it follows as a matter of course that
the State with reference to which the transaction can thus be predicated to be
outside it can never tax the transaction (Italics supplied).
Now, in so far as this case is concerned, the
words the Explanation determines by the legal fiction created therein the situs
of the sale in the case of transactions coming within that category " in
the extract last quoted, become important. The first question to consider is
whether these cases can be governed by the Explanation at all. The learned
Attorney-General contends that the power to tax these transactions can only be
found if the sales were 'Explanation sales', in the sense that the goods were
delivered as a direct result of the sale for consumption in West Bengal. In our
opinion, the explanation can apply only if more than one State is involved in
the same transaction.
When there is no other State in which the
goods can be said to be delivered for consumption, apart from the State where
the property in the goods passed, the Explanation is not needed as a key. The
(1)  2 S.C.R. 603.
(2)  2 S.C R. 483 492.
919 power to tax in those circumstances which
is exercisable by virtue of transfer of title to the property, can only be
taken away if there be some other State in' which the goods as a direct result
of the sale were delivered for consumption. But if there is no such other
State, the question does not arise.
In the present cases, there is no such rival
State. Where the purchaser buys goods in West Bengal for his own consumption,
the test of an 'inside sale' is satisfied when the property in the goods passes
in the same State and all the elements of the contract of sale also take place
inside it. Where the property in the goods passes to a buyer who is also the
'ultimate ,consumer, the terms of the Explanation are themselves satisfied. To
exclude, thus, the powers of taxation of the State of West Bengal, the
appellant Companies must be able to point out some other State where the goods
can be said to have been delivered as a direct result of the sale for the
purpose of consumption in that other State. Unless they can do so-and they have
not so done before us-they cannot invoke the Explanation, and the cases, to
borrow the language of the last quotation, cannot be said to be "within
that category ". In our opinion, the learned Advocate-General of West
Bengal was right in his argument (which was accepted by the High Court) that
the ban contained in Art. 286(1)(a) and the Explanation does not apply.
The appellant Companies next rely upon Art.
286 (1)(b), which provides 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......... export of goods out
of, the territory of India ".
The contention is that the sales in question
must be regarded as having taken place in circumstances which exempt sales
under the sub-clause. This the appellant Companies argue from the following
facts that aviation spirit is delivered outside the customs barrier, that
aviation spirit is taken out of the territories of India, and that the sales
occasion this 920 export. They rely upon the definition of 'export' in other
Acts to show that the word means no more than 'taking out of the country'.
This clause of the Article has been construed
on previous occasions by this Court, and what is meant by the expression "
in the course of " has been well. established. Indeed, in State of Mysore
v. Mysore Spinning and Manufacturing Co.
Ltd. (1), this Court observed that the point
could no longer be said to be at large. Fortunately, there is less disagreement
on this point than on the interpretation of the Explanation, and it is
sufficient to refer to the leading decisions of this Court. The earliest case
on the subject is State of Travancore-Cochin and others v. The Bombay Co.
Ltd. (2), where four possible meanings of the
expression " in the course of " were considered. It is not necessary
to refer to all of them here, and it is sufficient to point out that of the
view that the clause is not restricted to the point of time at which goods are
exported from India and that the series of transactions which necessarily
precede export of goods also come within the purview of the clause, it was said
that it was too wide. It was observed by this Court that:
"A sale by export thus involves a series
of integrated activities commencing from the agreement of sale 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
resultant export form parts of a single transaction. Of these two integrated
activities, which together constitute an export sale, whichever first occurs
can well be regarded as taking place in the course of the other." The
meaning of these observations was further explained in State of
Travancore-Cochin and others v. Shanmugha Vilas Cashew Nut Factory and Others
(3). It was observed (p. 62) that the words "export out of " in this
context did not refer to the article or commodity exported, and that the
reference to "the (1) A.I.R. 1958 S. C. 1002. (2)  S.C.R. 1112.
(3)  S.C.R. 53.
921 goods " and to the "territory
of India " made it clear that the words " export out of " meant
the exportation out of the country. It was then added that, "The word
'course' etymologically denotes movement from one point to another, and the
expression 'in the course of' not only implies a period of time during which
the movement is in progress but postulates also a connected relation."
This inter-connection of the sale sought to be taxed with the course of export
was emphasised again in clear terms thus :
" The phrase 'integrated activities' was
used in the previous decision to denote that 'such sale' (i.e., a sale which
occasions the export) I 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'. It is in that sense that the two activities- the sale and
export-were said to be integrated. A purchase for the purpose of export like
production or manufacture for export, is only an act preparatory to export and
cannot, in our opinion, be regarded as an act done I in the course of the
export of the goods out of the territory of India' any more than the other two activities
can be so regarded." From the views here expressed, it follows that every
sale or purchase preceding the export is not necessarily to be regarded as
within the course of export. It must be inextricably bound up with the export,
and a sale or purchase unconnected with the ultimate export as an integral part
thereof is not within the exemption. It may thus be taken as settled that sales
or purchases for the purpose of export are not protected, unless the sales or
purchases themselves occasion the export and are an integral part of it. The
views expressed in these two cases were accepted and applied in State of Madras
v. Gurviah Naidu and Co. Ltd.
(1), Kailash Nath v. State of U.P. (2), State
of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. (3) and Gordhandas
Lalji v. B. Banerjee (1) A.I.R. 1956 S.C. 158. (2) A.I.R. 1057 S.C. 790.
(3) A.I.R. 1958 S.C. 1002.
922 and others (1). These cases do not
advance the matter further, and it is, therefore, not necessary to refer to
them in detail.
In the earlier cases, it was not necessary to
explain the meaning of the word 'export', because there was always a foreign
buyer to whom the goods were ultimately sent. In none of the cases the facts
found here were present. Here, the buyer does not export the goods to a foreign
country, but purchases them for his own use on the journey of the aircraft to
foreign countries.This difference is vital, and makes the position of the
appellant Companies, if anything, weaker. It is for this reason that the
appellant Companies depend on a wide meaning of the word 'export', which they
illustrate from other Acts where the word is tantamount to "taking out of
the country'. We are of opinion that this meaning cannot be given to the word
'export' in the clause. The word 'export' may conceivably be used in more
senses than one. In one sense, 'export' may mean sending or taking out of the
country, but in another sense, it may mean sending goods from one country to
another. Often,, the latter involves a commercial transaction but not
necessarily. The country to which the goods are thus sent is said to import
them, and the words 'export' and import' in this sense are complementary. An
illustration will express this difference vividly. Goods cannot be said to be
exported if they are ordered by the health authorities to be destroyed by
dumping them in the sea, and for that purpose are taken out of the territories
of India and beyond the territorial waters and dumped in the open sea.
Conversely, goods put on board a steamer bound for a foreign country but
jettisoned can still be said to have been exported', even though they do not
reach their destination. In the one case, there is no export, and in the other,
there is, though in either case the goods go to the bottom of the sea. The first
would not be within the exemption even if a sale was involved, while any sale
in the course of the second taking out would be. In both, the goods were taken
out of the country. The difference lies in (1) A.I.R. 1958 S.C. 1006.
923 the fact that whereas the goods, in the
first example, had no foreign destination, the goods, in the second example,
had. It means, therefore, that while all exports involve a taking out of the
country, all goods taken out of the country cannot be said to be exported. The test
is that the goods must have a foreign destination where they can be said to be
imported. It matters not that there is no valuable consideration from the
receiver at the destination end. If the goods are ex. ported and there is sale
or purchase in the course of that export and the sale or purchase occasions the
export to a foreign destination, the exemption is earn.
ed. Purchases made by philanthropists of
goods in the course of export to foreign countries to alleviate distress there,
may still be exempted, even though the sending of the goods was a not a
commercial venture but a charitable one. The crucial fact is the sending of the
goods to a foreign destination where they would be received as imports. The two
notions of export and import, thus, go in pairs.
Applying these several tests to the cases on
hand, it is quite plain that aviation spirit loaded on board an aircraft for
consumption, though taken out of the country, is not exported since it has no
destination where it can be said to be imported, and so long as it does not
satisfy this test, it cannot be said that the sale was in the course of export.
Further, as has already been pointed out, the
sales can hardly be said to 'occasion' the export. The seller sells aviation
spirit for the use of the aircraft, and the sale is not integrally connected
with the taking out of aviation spirit. The sale is not even for the purpose of
export, as explained above. It does not come within the course of export, which
requires an even deeper relation. The sales, thus, do not come within Art. 286
These sales must, therefore, be treated as
made within the State of West Bengal. The customs barrier is a barrier for
customs purposes, and duty drawback may be admissible if the goods once
imported are taken out of the country. The customs duty drawbacks have nothing
to do with the sale of aviation 924 spirit, which takes place in West Bengal. The customs barrier does not set a terminal limit to the territory of West Bengal for sales tax purposes. The sale beyond the customs barrier is still a sale, in
fact, in the State of West Bengal. Both the buyer and the seller are in that
State. The goods are also there. All the elements of sale including delivery,
payment of price, take place within the State. The sale is thus completely
within the territory of the taxing State. No outside State is involved where
the goods can be said to have been delivered for consumption as a direct result
of the sale that takes place. Article 286(1)(a) and the Explanation are wholly
inapplicable, and the sale cannot, even by a fiction, be said to be outside the
State of West Bengal. No doubt, aviation spirit is taken out of the State and
also the territory of India, but it cannot be said to have been exported or
delivered for consumption in some other State. The so-called export is not
occasioned by the sale, and the sale, on the authorities cited, is not in the
course of export', so as to attract Art. 286(1)(b).
The decision of the High Court was