A. V. Thomas & Co. Ltd. Vs. Deputy
Commissioner of Agricultural Income Tax  INSC 343 (30 November 1962)
CITATION: 1964 AIR 569 1963 SCR Supl. (2) 608
Sales Tax-Goods stored in Travancore-Sale by
auction in Madras by samples-Delivery in Travancore-Consumption neither in
Madras nor in Travancore-Whether sales taxable in Travancore-Constitution of
India, Art. 286 (1).
The sales of teas were by auction which was
conducted in Fort Cochin in Madras State. The price was paid in Fort Cochin and
delivery orders were also given there for goods which were at Willington Island
in Travancore Cochin State.
From Willington Islands the goods were sent for
consumption to other States and to foreign countries. The State of Travancore
Cochin sought to tax these transactions for sales tax.
Held that the property in the goods passed
when the contract was accepted on the fall of the hammer in Fort Cochin.
Under Art. 286(1) it was the "passing of
the property within the State" that was intended to be fastened on for the
purpose of determining whether the sale was "inside" or
"outside" the State. Subject to the operation of the "explanation"
that State in which property passed would be the only State which would have
the power levy the tax on the sale. But the explanation did not apply in the
present case as there was no delivery as a direct result of the sale for
consumption in any particular State.
Indian Copper Corporation Ltd. v. State of
Bihar,  2 S.C.R. 276, followed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 628 of 1961.
Appeal from the judgment and order dated
February 24, 1960, of the Kerala High Court in Tax Revision Case No. 22 of
G. B. Pai, J. B. Dadachanji, O. C. Mathur and
Ravinder Narain, for the appellant.
609 V. P. Gopalan Nambiar, Advocate General,
State of Kerala and Sardar Bahadur, for the respondent.
A. V. Viswanatha Sastri, S. N. Andley,
Rameshwar Nath and P. L. Vohra, for the interveners.
1962. November30. The Judgment of the, Court
was delivered by KAPUR, J. This appeal by certificate of the High Court of
Keralaraises the question of the taxability of sales of tea under the
Travancore-Cochin General Sales Tax Act, hereinafter termed the Act, and the
Rules made there under.
The assessment period is 1952-53 and the
turnover was of a sum of Rs.3,77,644/- on which a tax of Rs. 5900/11/- was
levied. The appellant before us is the assessee company and the respondent is
the Deputy Commissioner of' Agricultural Income-tax and Sales tax.
Mr. A. V. Viswanatha Sastri on behalf of Outcherloney
Valley Estates (1938) Ltd. has applied for intervention on the ground that in
case of that company also the State or Kerala has, on similar fact;, levied
sales tax on certain transaction that the High Court of Kerala has upheld the
taxability of the transactions relying on the judgment which is under appeal in
the present case, and that the intervener has obtained Special leave to appeal
against that judgment and the records are under print. In view of these
circumstances we have allowed that company to intervene in the present appeal.
The assessment was made on March 30, 1955,
under r. 33(1) of the Act on the ground that the sales of tea had escaped
assessment. The appeal against 610 that order was unsuccessful and thereafter a
further appeal was taken to the Sales tax Appellate Tribunal which by its order
dated August 12, 1957, held that the ban under Art.
286(1)(a) of the Constitution on sales which
are outside the State applied, in regard to the sales of 'full lots' and
therefore remanded the case to the Sales tax Officer.
Against that order a revision was taken to
the High Court which held that the decision of the Appellate Tribunal in regard
to the applicability of Art. 286(1)(a) was erroneous and therefore the sales
were subject to sales tax under the Act. It is against that judgment and order
that the assessee company has come to this court on a certificate of the High
Put shortly, the nature and procedure of
sales of teas was this; that the teas were stored in the godowns at Willingdon
Island which was in the State of Travancore Cochin., samples of those teas
etc., were taken to Fort Cochin which at the relevant time was in the State of
Madras. There by the samples the teas were sold by public auction in lots, some
were purchased in their entirety and others in parts and after the
consideration money was paid at Fort Cochin delivery orders. were given to the
buyers addressed to the godown keepers at Willingdon Island and actual delivery
of tea was taken there. These teas were then sent out from Willingdon Island in
Travancore Cochin for consumption either in other parts of India or were
exported out of India.
The taxability of the sales of teas in the
manner above- mentioned will depend upon whether the sales can be held to have
taken place at Willingdon Island i.e. within the territory of Travancore Cochin
State and were liable to the imposition of sales tax under the Act or they were
what for convenience are called Ire outside sales" and therefore not
subject to sales tax in the State of Travancore-Cochin. The argument raised on
behalf of the assessee company was that 611 these sales were effected at Fort
Cochin which was outside the territory of Travancore Cochin and therefore were
not liable to tax because of the ban imposed by Art. 286(1)(a) of the
Constitution. That Aricle with the Explanation at the relevant time was as
follows "Art. 286(1) 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 (a) outside the State; or
Explanation :-For the purpose 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, not with- standing
the fact that under the general law relating to sale of goods the property in
the goods has, by reason of such sale or purchase, passed in another
Under the Sale of Goods Act in an auction
sale the title in goods passes and the sale is complete as soon as the hammer
falls. The relevant portion of s. 64 of the Sale of Goods Act dealing with sale
by auction reads as follows In the case of a sale by auction......
(1) where goods are put up for sale in lots,
each lot is prima 612 facie deemed to be the subject of the separate contract
(2) the sale is complete when the auctioneer
announces its completion by the fall of the hammer or in the customary manner;
and until such announcement is made any bidder may retract his bid."
Specific goods in s. 2 (14) of the Sale of Goods Act means goods identified and
agreed upon at the time contract is made. Therefore on the fall of the hammer the
offer is accepted and if the goods are specified goods the title passes to the
In the present case as soon as the hammer
fell the title in the goods passed to the buyer as the goods were specific
goods i.e. goods which were auctioned in full lots and this event took place at
Fort Cochin which was in the State of Madras. But in the case of unascertained
goods the title in the goods does not pass to the buyer unless and until the
goods are ascertained. It was for this reason that a distinction was drawn by
the Sales tax Appellate Tribunal between goods which were sold in full lots and
those which were sold in portions. In regard to the former it was held that the
title passed as soon as the hammer fell but not so in regard to the latter and
therefore the sale of "full lots' was held to have taken place outside the
State of Travancore Cochin and of portions of lots inside that State.
The case was consequently remanded to the
Sales tax Officer for determining the amount of the tax.
The High Court in revision held that the
words in Art. 286 (1) (a) "'outside the State" do not mean transfer
of ownership, according to the Sale of Goods 613 Act but it was lex situs which
determines the taxability of the transaction and the correct position is that
the ownership in the goods is transferred according to the law of the place
where the goods are situate. Therefore the sale in the present case was in the
State of Travancore Cochin and there is nothing in the Explanation to Art. 286
(1) (a) which provides to the contrary.
It has been found and it has not been
disputed that the title to the goods in the present case passed at Fort Cochin.
The purchase money was paid there and the purchaser obtained from the
auctioneer delivery notes directing the godown keepers at Willingdon Island to
deliver the goods and only the actual physical delivery of the goods took place
at Willingdon Island. In these circumstances the question is whether the sale
was "outside" or "inside sale" as the expressions have been
compendiously used in various judgments to indicate sales taking place within a
State or without it. The Explanation to Art. 286 (1) (a) which has been set out
above explains what a sale outside the State is. According to that Explanation
a fiction is created as between two States, one where the goods are delivered
for consumption in that State and the other where the title in the goods passes
and the former is treated as the situs of the taxable event to the exclusion of
the latter. Therefore where the Explanation applies the difficulty about the
situs is resolved but in a case like the present one the difficulty still
remains because the explanation does not operate in the sense that the rival
States claiming to tax the same taxable event are not the States of delivery
for consumption in that State and those where the title in the goods passes. In
somewhat similar circumstances this court in Indian Copper Corporation Ltd. v.
State of Bihar (1) held by a majority decision that the opening words of Art:
286 (1) which speak of a sale or purchase taking place and the non-obstante
clause in (1)  2 S.C.R. 276,286, 614 the Explanation which refers to the
general law relating to the sale of goods, indicated that it was the
"passing of property within the State" that was intended to be
fastened on, for the purpose of determining, whether the sale in question was
"inside" or "outside" the State and therefore subject to
the operation of the "'Explanation", that State in which property
passed would be the only State which would have the power to levy a tax on the
sale. At page 286 it was observed:
"The conclusion reached therefore is
that where the property in the goods passed within a State as a direct result
of the sale, the sale transaction is not outside the State for the purpose of
Art. 286 (1) (a) unless the Explanation operates".
The majority decision in Indian Copper
Corporation Ltd. v. State of Bihar (1) concludes the point in favour of the
appellant. On the facts of this case it was found by the Sales Tax Appellate
Tribunal that in regard to the sales of tea in 'full lots' the property passed
at Fort Cochin and this view has not been challenged in this court. Therefore,
on the majority decision in Indian Copper Corporation Ltd. v. State of Bihar
(1) the only State which would have the power to levy a tax on such sales would
be the State of Madras and so far as Travancore Cochin was concerned, the sale
would be an outside sale.
In the present case therefore the sale was an
"outside sale" and cannot be said to be an "inside sale"
qua Travancore Cochin because the title passed at Fort Cochin which is in the
State of Madras. Apart. from that the money was paid there and the delivery
order was also received there even though the actual physical delivery of goods
was made at a Willingdon Island in the State of Tranvancore Cochin. The fiction
created by the Explanation to, Art. 286 (1)(a) is inapplicable (1) 2
S.C.R. 276, 615 because there was no delivery as a direct result of sale for
the purpose of consumption in any particular State.
There then remains the question of goods
which were exported out of India from Willingdon Island. In the case of those
goods 'also it cannot be said that there was a sale inside the 'State of
Travancore Cochin because the same considerations will apply to those sales as
to the sales already discussed i.e. goods the title to which passed at Fort
Cochin were delivered at Willingdon Island and were delivered for 'consumption
in parts of India other than Travancore Cochin.
In our view therefore the High Court was in
error and the appeal should therefore be allowed and the judgment and order of
the High Court of Kerala set aside. The appellant will have its costs in this
court and in the High Court.