Ben Gorm Nilgiri Plantations Company, Connor
& Ors Vs. Sales Tax Officer, Special Circle, Ernakulam & Ors  INSC
117 (10 April 1964)
10/04/1964 SHAH, J.C.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
AYYANGAR, N. RAJAGOPALA SIKRI, S.M.
CITATION: 1964 AIR 1752 1964 SCR (7) 706
R 1970 SC1281 (5) R 1971 SC 477 (10) D 1971
SC 870 (25,34,47) R 1973 SC2526 (9) RF 1974 SC1510 (10) RF 1975 SC1564
(17,18,24,51,59,61,68,69) RF 1975 SC1652 (14) E 1980 SC1468 (12,17) D 1985
Sales Tax-Sale of tea to local agents of
Foreign buyers Sales whether exempt under Art. 286(1)(b) of the Constitution--Constitution
of India, Art. 286(1)(b)-Central Sales Tax Act, 1956, s. 5.
The appellants were carrying on the business
of growing and manufacturing tea in their estates. The sellers of tea were the
appellants; the purchasers were local agents of foreign buyers. The sales were
by public auction at Fort Cochin.
They were conducted by brokers of tea. The
sales were in conformity with the provisions of Tea Act of 1953. The Sales-tax
Officer assessed the appellants to pay sales tax on transactions of sale of tea
chests at the auctions held at Fort Cochin in the -years 1956-57 to 1958-59.
Against the orders of assessment the appellants filed petitions before the High
Court for writs of certiorari and for writs of prohibition re-straining the
Sales-tax Officer from proceeding with the collection of sales tax. The
petitions were dismissed by the High Court. With special leave the appellants
appealed to this Court.
It was the common case of all the appellants
that the purchases by the local agent of foreign buyers were with a view to
export the goods to their principals abroad and that the goods were in fact
exported out of India.
It was contended on behalf of the appellants
that the sales of tea were "in the course of export out of the territory
of India", and thus exempt from taxation under Art. 286(1)(b) ,of the
Held: (per Gajendragadkar, C. J., Shah and
Sikri, JJ.) (i) A transaction of sale which occasions export, or which is
effected by a transfer of documents of title after the goods have crossed the
customs frontiers, is exempt under Art. 286(1)(b) of the Constitution from
sales tax levied under any State legislation. 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. Etymological the expression "in the
course of export", contemplates an integral relation or bond between the
sale and the export.
In general where a sale is effected by the
seller, and the seller is not connected with the export which actually takes
place, it is a sale for export. Where the export is the result of sale, the
export being inextricably linked up with sale so that the bond cannot be
dissociated without a breach of the obligations arising by statute. Contract of
mutual understanding between the parties arising from the nature of the
transaction the sale is in the course of export.
707 (ii) 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 the present case there was between the
sale and the export no such bond as would justify the inference that the sale
and the export formed parts of a single transaction or that the sale and export
were integrally connected. The appellants were not concerned with the actual
exportation of the goods, and the sales were intended to be complete without
the export, and as such it cannot be said that the said sales occasioned
export. The sales were therefore for export and not in the course of export.
Therefore the sales by the appellant to the agents of foreign buyers do not
come with the purview of Art. 286(1)(b) of the Constitution.
State of Travancore-Cochin v. Bombay Company
Ltd..  S.C.R. 1112, distinguished.
State of Travancore-Cochin V.Shanmugha Vilas
Cashew Nut Factory,  S.C.R. 53, State of Madras v. Gurviah Naidu and
Company Ltd. A.I.R. 1956 S.C. 158, State of Mysore v.
Mysore Shipping and Manufacturing Co. Ltd. 13
S.T.C. 529 and B.K. Wadear v. M/s. Daulatram Rameshwarlal  1 S.C.R. 924,
M. R. K. Abdul Salem and Company v.
Government of Madras, 13 S.T.C. 629, explained.
Per Ayyangar, J. In the present case the sale
and the export being related to each other in the sense of one lead into the
other are therefore within Art. 286(1)(b) of the Constitution. There could be
no difference in legal effect between a sale to a Foreign buyer present in
India to take delivery of the goods for transport to his country and a sale to
his resident agent for that purpose. The buyer was an agent, who was not free
to deal with the tea purchased by effecting a local sale, but was under an
obligation to his Foreign principal to export the goods purchased to a Foreign
destination. The goods purchased were in fact -exported from this country. It
was with such a buyer that the appellants entered into the transaction of sale.
In other words it was a part of understanding between the seller and the buyer,
inferrable from all the circumstances attendant on these transactions that the
buyer was bound to export.
State of Travancore-Cochin v. Shanmugha Vilas
Cashew  S.C.R. 53, State of Madras v. Gurviah Naidu and Co. Ltd.
A.I.R. 1956 S.C. 158, State of Mysore v.
Mysore Spinning and Manufacturing Co. Ltd. A.I.R. 1958 S.C. 1002 and East India
Tobacco Co. v. The State of Andhra Pradesh, 1 S.C.R.
404, referred to.
(ii) Even though the Tea Act does not in
terms prohibit internal sale of tea 'Purchased alongwith export quota rights,
this could be explained by the circumstance that the rights to export tea is
considered a privilege which secures an economic advantage to the exporter and
hence there was no need for any statutory compulsion to do so.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 396-413 of 1963. Appeals by special leave from the judgment and order
dated October 26, 1961 of the Kerala High Court in Writ Appeals Nos. 104-106,
107, 109, 112, 108, 113, 114, 111, 115, 116, 119, 120, 123, 124 and 122 of
M. C. Setalvad, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for the appellants (in all the appeals).
V. P. Gopalan Nambiar, Advocate-General,
Kerala and V. A. Seyid Muhammed, for the respondent (in all the appeals).
April 10, 1964. The judgment Of
GAJENDRAGADKAR, C.J., SHAH AND SIKRI JJ. was delivered by SHAH J. The
dissenting Opinion Of WANCHOO and AYYANGAR JJ. was delivered by AYYANGAR J.
SHAH, J.-The Sales-tax Officer, Special
Circle Ernakulam assessed the appellants under the Travancore-Cochin General
Sales Tax Act XI of 1125 M.E., to pay sales-tax on transactions of sale of tea
chests at the auctions held at Fort Cochin in the years 1956-57 to 1958-59,
rejecting their contention that the sales were exempted from tax by virtue of
Art. 286(1)(b) of the Constitution. The appellants then petitioned the High
Court of Kerala for writs of certiorari quashing the orders of assessment and
for writs of prohibition restraining the Sales-tax Officer from proceeding with
the collection of tax in pursuance of the orders of assessment. Vaidialingam
J., rejected the petitions and his order was confirmed in appeal by a Division
Bench of the High Court of Kerala. With special leave, the appellants have
appealed to this Court.
The transactions of sale sought to be taxed
by the Revenue authorities are in tea, which is a controlled commodity.
The Parliament enacted the Tea Act (19 of
1953) to provide for the control by the Union of the tea industry, including
the control of cultivation of tea in, and of export of tea from, India and for
that purpose to establish a Tea Board and to levy customs duty on tea exported
from India. By s. 3(f) "export" is defined as taking out of India by
land, sea or air to any place outside India other than a country Or territory
notified in that behalf by the Central Government by notification in the
Official Gazette. "Export allotment" is defined by s. 3(g) as the
total quantity of tea which may be exported during any one financial year.
Section 17(1) places an embargo upon exportation of tea unless covered by a
licence issued by or on behalf of the Board. Section 18 provides that no
consignment of tea shall be shipped or water-borne to be shipped for export or
shall be exported until the owner has delivered to the Customs-Collector a
valid export licence or special export licence or a 709 valid permit issued by
or on behalf of the Board or the Central Government as the case may be,
coverning the quantity to be shipped. Section 19 authorises the Central
Government to declare export allotments of tea for each financial year, and by
s. 20 it is provided that any tea estate shall, subject to conditions as may be
prescribed, have the right to receive under the Act an export quota for each
financial year. Section 21 provides that the owner of a tea estate to which an
export quota has been allotted for any financial year shall have the right to
obtain at any time ,export licences during that year to cover the export of tea
upto the amount of the unexhausted balance of the quota. The export quota right
is, by cl. (2) of s. 21, transferable, subject to such conditions as may be
prescribed and the transferee of such right may again transfer the whole or any
part of his right provided that nothing in the sub-section shall operate to
restrict the issue of licences for the export of tea expressed to be sold with
export rights. The other provisions are not material in deciding this group of
Trade in tea in the State of Kerala-internal
as well as export-is carried on through certain defined channels. A
manufacturer of tea applies for and obtains from the Tea Board allotment of
export quota rights on payment of the necessary licence fee. The manufactured
tea in chests is then sent to M/s. T. Stanes & Company Ltd. who warehouses
the chests at Willingdon Island. Chests of tea are then sold by public auction
through brokers at Fort Cochin. With the chests of tea for which export quota
rights are obtained, export quota rights are sold by the auctioneer.
At the auction sale, bids for tea chests with
export quota rights are given by the agents or intermediaries in Cochin of
foreign buyers. Tea chests are delivered at the warehouses by M/s. T. Stanes
& Company Ltd. to the purchasers whose bids are accepted. The agents or
intermediaries of the foreign buyers then obtain licences from the Central
Government for export of tea chests under the export quota rights vested in
them under the purchases made at the auction sales.
Tea cannot therefore be exported otherwise
than under a licence: such a licence may be issued to a manufacturer or to the
purchaser of the quota granted by the Central Government to the manufacturer
when tea is sold with export rights. When auctions of tea with the export
rights are held at Fort Cochin, it is in this group of appeals common ground,
sellers on whose behalf the auctioneer acts as the agent know that bids are
offered by the buyers of tea for the purpose of export. It is also known that
the bidder is an agent or an intermediary of a foreign buyer.
710 Is the sale by auction to the agent of
intermediary of the foreign buyer, in the course of export within the meaning
of Art. 286(1) of the Constitution'? If the sale is in the course of export out
of the territory of India. any State law which imposes or authorises the
imposition of a tax on such sale is, because of Art. 286(1)(b), invalid. Before
the Constitution was amended by the Constitution (Sixth Amendment) Act, 1956,
there was no legislative guidance as to what were transactions of sale in the
course of export out of the territory of India. But by the Constitution (Sixth
Amendment) Act, cl. (2) of Art. 286 was substituted for the original clauses,
and thereby the Parliament was authorised to formulate principles for
determining when a sale or purchase of goods takes place in any of the ways
mentioned in cl (1). The Parliament has under the Central Sales Tax Act (74 of
1956) enacted by s. 5 that "a sale or purchase of goods. shall be deemed
to take place in the course of the export of the goods out of the territory of
India only if the sale or purchase either occasions such export or is effected
by a transfer of documents of title to the goods after the goods have crossed
the customs frontiers of India." This was legislative recognition of what
was said by this Court in the State of Travancore-Cochin and others v. The
Bombay Company Ltd(1) and State of Travancore-Cochin and others v. Shanmugha
Vilas Cashew Nut Factory and others(2) about the port of the goods out of the
territory of India" in Art. 286(1) (b).A transaction of sale which
occasions export, or which is effected by a transfer of documents of title
after the goods have crossed the customs frontiers, is therefore exempt from
sales-tax levied under any State legislation.
The appellants set out in their respective
petitions the manner in which sales tax of tea chests were conducted at Fort
Cochin and in certain petitions affidavits in reply even were not filed by the
State of Kerala. In the remaining petitions in which affidavits in reply were
filed it was contended that the export of goods was made by the purchasers who
had taken delivery of the goods from the manufacturers in Travancore-Cochin and
in pursuance of the export licences obtained by the purchasers goods were
exported, but such subsequent export by the purchasers did not affect the
character of the sales by the manufacturers to the purchasers. It is true that
there is no finding by the Sales-tax authorities that the respective purchasers
at the auction were agents of foreign buyers, but the Advocate appearing. on
behalf of the State argued the case before the High Court on the footing that
the bids were offered at the auctions by (1)  S.C.R. 1112.
(2 )  S.C.R. 53.
711 the agents or intermediaries or foreign
buyers, and the Court proceeded to dispose of the case before it on that
Vaidialingam J., held that transactions of
sale were complete when bids for purchase of tea together with the export quota
rights were accepted, and the sellers had no concern with the actual export
which was effected by the auction purchasers to their foreign principals. It
could not, therefore, in the view of the learned Judge, be held that the sales
in question had as an integral part thereof occasioned export, that is, the
sales preceded the export and were not in the course of export. The High Court
in appeal held that the ban imposed by Art. 286(1)(b) predicated a casual
connection between the sale and the export-a connection which is intimate and
real. The sale, it was said, must inextricably be bound up with the export and
form an 'integral part thereof, so that without export the sale is not
,effectuated; but as the sale imposed or involved no obligation to export,
there was no movement under the contract of sale and exemption claimed was not
Correctness of this view is challenged in
To constitute a sale in the course of export
of goods out of the territory of India, common intention of the parties to the
transaction to export the goods followed by actual export of the goods, to a
foreign destination is necessary.
But intention to export and actual
exportation are not sufficient to Constitute a sale in the course of export,
for a sale by export "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 or 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": State of Travancore Cochin and
others v. The Bombay Company Ltd.(1).
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
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 (1)  S.C.R. 1112.
712 export, but is not necessarily to be
regarded as one in the course of export, unless the sale occasions export. And
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. Without such a bond, a transaction of sale cannot
be called a sale in the course of export of goods out of the territory of
India. There are a variety of transactions in which the sale of a commodity is
followed by export thereof.
At one end are transactions in which there is
a sale of goods in India and the purchaser immediate or remote exports the
goods out of India for foreign consumption. For instance, the foreign purchaser
either by himself or through his agent purchases goods within the territory of
India and exports the goods and even if the seller has the knowledge that the
good,-, are intended by the purchasers to be exported, such a transaction is
not in the course of export, for the seller does not export the goods, and it
is not his concern as to how the purchaser deals with the goods. Such a
transaction without more cannot be regarded as one in the course of export
because etymologically, "in the course of export", contemplates an
integral relation or bond between the sale and the export. At the other end is
a transaction under a contract of sale with a foreign buyer under which the
goods may under the contract be delivered by the seller to a common carrier for
transporting them to the purchaser.
Such a sale would indisputably be one for
export, whether the contract and delivery to the common carrier are effected
directly or through agents. But in between lie a variety of transactions in
which the question whether the sale is one for export or is one in the course
of export i.e., it is a transaction which has occasioned the export, may have
to be determined on a correct appraisal of all the facts. No single test can be
laid as decisive for determining that question. Each case must depend upon its
facts. But that is not to say that the distinction between transactions which
may be called sales for export and sales in the course of export is not real.
In general where the sale is effected by the seller, and he is not connected
with the export which actually takes place, it is a sale for export.
Where the export is the result of sale, the
export being inextricably linked up with the sale so that the bond cannot be
dissociated without a breach of the obligation arising by statute, contract or
mutual understanding between the parties arising from the nature of the
transaction, the sale is in the course of export.
It may be conceded that when chests of tea
out of the export quota are sold together with the export rights, the goods are
earmarked for export, and knowledge that the goods were purchased by the
bidders for exporting them to.
713 the foreign principals of the bidders
must clearly be attributable to them. Does the co-existence of these
circumstances, impress upon the transactions of sale with the character of a
transaction in the course of export out of the territory of India'? We are
unable to hold that it does. That the tea chests are sold together with export
rights imputes knowledge to the seller that the goods are purchased with the
intention of exporting. But there is nothing in the transaction from which
springs a bond between the sale and the intended export linking them up as part
of the same transaction. Knowledge that the goods purchased are intended to be
exported does not make the sale and export parts of the same transaction, nor
does the sale of the quota with the sale of the goods lead to that result.
There is no statutory obligation upon the
purchaser to export the chests of tea purchased by him with the export rights.
The export quota merely enables the purchaser to obtain export licence, which
-he may or may not obtain.
There is nothing in law or in the contract
between the parties, or even in the nature of the transaction which prohibits
diversion of the goods for internal consumption.
The sellers have no concern with the actual
export of the goods, once the goods are sold. They -have no control over the
goods. There is therefore no direct connection between the sale and export of
the goods which would make them parts of an integrated transaction of sale -in
the course of export.
Decided cases on which reliance was placed at
the Bar have mainly been of cases in which the benefit of the exemption of Art.
286(1)(b) was claimed in respect of sales preceding the export sale. Such a
sale preceding the export could -not, it was held, without doing violence to
the language of Art. 286(1)(b), be given the benefit of the exemption from -tax
imposed by State legislation merely because of its historical connection with the
export sale. In a majority of the cases to be presently referred there were at
least two sales sale under which goods were procured followed by a sale under
which the goods so procured were exported, and the claim of the Revenue to tax
the first transaction was upheld. It may be regarded as therefore settled law
that where there are two sales leading to export-the first under which goods
are procured for sale and the property in the goods passes within the territory
of India, and the second by the buyer to a foreign party resulting in
export-the first cannot be regarded as a sale in the course of export, for a
sale in the course of export must be directly and integrally connected with the
export. It cannot also be predicted that every sale which results in export is
to be regarded as sale in the course of ex. port. We may briefly refer to the
cases which have come before this Court.
Justification for citation of the cases is
714 not to evolve a principal from the actual decisions, but to highlight the
grounds on which the decisions were rendered.
The first case which came before this Court
in which Art.
286(1)(b) fell to be construed was the State
of Travancore Cochin and others v. The Bombay Company Ltd.(1). The assessee who
had exported coir products to foreign purchasers claimed exemption from
sales-tax relying upon Art.
286(1)(b). The Revenue authorities held that
property in the goods having passed within the State, the transactions, were
liable to tax. The High Court disagreed with that view, holding that a sale in
the course of export was not merely a sale when the goods had crossed the
customs frontiers, but included a transaction which precede export.
This Court agreed with the High Court. In
appeal Patanjali Sastri C.J., speaking for the Court observed that sales which
occasioned export were within the scope of the exemption under Art. 286(1)(b).
But that was a case in which on the facts found there could be no dispute that
the sale by the assessee occasioned export, for in pursuance of the contract
the assessee had exported the goods sold.
The next case which came before this Court
was the State of Travancore-Cochin and others v. Shanmugha Vilas Cashew Nut
Factory and others(2). It was held by this Court that purchases in the State
made by the exporters for the purpose of export are not within the exemption
granted by Art.
286(1)(b) of the Constitution. Patanjali
Sastri C.J., speaking for the majority of the Court observed:
"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. * * * * A sale in the course of
export out of the country should similarly be understood in the context of
clause (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." He further observed that the
phrase "integrated activities' 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 the export-were said to be integrated. But a purchase
for the purpose of export like production or manufacture for export, being only
an act (1)  S.C.R. 1112.
(2)  S.C.R. 53.
715 preparatory to export could not be
regarded as an act done "in the course of the export of the goods out of
the territory of India".
In the State of Madras v.Gurviah Naidu and
Company Ltd.(1), S. R. Das, Actg. C.J., observed that an assessee who goes
about purchasing goods after securing orders from foreign purchasers is not
exempt from liability to pay tax by virtue of Art. 286(1)(b) of the
Constitution in respect of the purchases made by him because, those purchases
do not themselves occasion the export. Goods were undoubtedly bought for the
purpose of export, but the purchase did not occasion the export within the
meaning of Art. 286(1)(b) of the Constitution.
In State of Mysore and another v. Mysore
Shipping and Manufacturing Co. Ltd. and others(2), it was held that where goods
were sold to a licenced exporter by the assessee and the licenced exporter sold
the goods to a foreign purchaser it could not be said that the first was in the
course of export. The licenced exporter was not an agent of the assessee and
the two sales could not have both occasioned the export: it was only the second
sale which did that, and the assessee not being a party to it either directly
or through the exporter or through his agents, the first sale with which alone
the assessee was associated did not occasion the export. If it did not, then it
hardly matters whether the goods were exported through the instrumentality of
the exporter or not, because all sales that precede the one that occasioned the
export were taxable. In this case the Court expressed the opinion that for the
sale to be one which occasions the export it must directly concern the assessee
as an exporter.
In East India Tobacco Company v. The State of
Andhra Pradesh and another (3) this Court held that only the sale under which
the export is made that is protected by Art. 286(1)(b) of the Constitution and
a purchase made locally by a firm doing business of exporting tobacco, which
preceded the export sale did not fall within its purview though it is made for
the purpose of or with a view to export.
One more judgment of this Court may be
noticed: B. K. Wadeyar v. M/s. Daulatram Rameshwarlal(4). The assessees in that
case sold goods to an Indian purchaser, who had agreed to sell them to a
foreign buyer. The sales by the assessees "were on F.O.B. contracts under
which they (1) A.I.R. (1956) S.C. 158.
(2) A.I.R. (1958) S.C. 1002.
(3)  1 S.C.R. 404.
(4)  1 S.C.R. 924.
716 continued to be the owners" till the
goods crossed the customs barrier, and entered the export stream. It was held
by this Court that since the goods remained the property of the assessees till
they reached the export stream, the sales were exempt from tax imposed by a
State under Art.
286(1)(a). This was undoubtedly a case of two
sales resulting in export, and the first sale was held immune from State
taxation: but that was so because the property in the goods had passed to the
Indian purchaser when the goods were in the export stream. The first sale
itself was so inextricably connected with the export that it was regarded as a
sale in the course of export.
Mr. Setalvad on behalf of the appellants
placed strong reliance upon the judgment of the Madras High Court in of
Madras(1). That was a case in which a dealer in the Stater of Madras in hides
and skins after purchasing raw hides tanned them and sent them to Kovai Tanned Leather
Co. Madras who acted as the dealer's agent for sale. Kovai Tanned Leather
Company sold the goods to Dharamsee Parpia who acted as an agent of Srivan
Brothers (Eastern) Ltd., London.
There was another transaction between Kovai
Tanned Leather Co. and Gordon Woodroffe and Company Ltd. who acted as agents
for a foreign principal. The Salestax Tribunal refused to accept the
transaction to Dharamsi Parpia as an export sale on the ground that Kovai
Tanned Leather Company delivered the goods to the exporter Dharamsi Parpia-and
thereafter the exporter obtained the bills of lading, and that the sale became
complete in the Madras State before shipment, and it was on that account not a
sale in the course of export. The High Court disagreed with that view.
Jagadisan J., speaking for the Court
Where there is privity of contract between
the foreign buyer and the seller in the taxing territory and the concluded sale
between them occasions the export even if the property in the goods sold passes
within the territory the transaction is nevertheless one in respect of which
Article 286 imposes a ban on the State to levy tax." We are not concerned
to decide whether there was evidence in that case on which the High Court could
come to the conclusion that the sale occasioned the export. But Mr. Setalvad
relied upon the observation in support of the proposition that in all cases
where there is a contract for purchase of goods in the taxing territory,
between a local merchant and a foreign buyer acting through his agent, and the
(7)13 S.T.C. 629.
717 goods are after purchasing the same
exported by the agent, the transaction must be deemed to be one in the course
of export. We are unable to accept that contention. We do not read the judgment
as laying down any such proposition, and none such is legitimately deducible.
The second transaction in favour of Gordon Woodroffe & Co. was found to be
one in which property in the goods passed beyond the customs frontier. Such a
transaction would indisputably be a sale in the course of export.
In our view the transactions of sale in the
present case did not occasion the export of the goods, even though the
appellants knew that the buyers in offering the bids for chests of tea and the
export quotas were acting on behalf of foreign principals, and that the buyers
intended to export the goods. There was between the sale and the export no such
bond as would justify the inference that the sale and the export formed parts
of a single transaction or that the sale and export were integrally connected.
The appellants were not concerned with the actual exportation of the goods, and
the sales were intended to be complete without the export, and as such it
cannot be said that the said sales occasioned export. The sales were therefore
for export, and not in the course of export.
The appeals therefore fail and are dismissed
One hearing fee.
AYYANGAR, J.-We regret our inability to
concur in the order that these appeals should be dismissed. We are clearly of
the opinion that the appeals should be allowed.
This batch of 18 appeals which have been
heard together are directed against a common judgment of the High Court of
Kerala and are before this Court by virtue of special leave granted to the
appellants. The appellants filed writ petitions in the High Court which were
dismissed by the learned Single Judge whose judgment was affirmed on appeal by
a Bench of the High Court. It is from this judgment that these appeals have
The appellants are 18 tea estates which tire carrying
on the business of growing and manufacturing tea in their estates.
Their claim is that the teas grown by them
have been sold by them "in the course of the export of goods out of the
territory of India" within Art. 286(1)(b) of the Constitution and they,
therefore, claim that the State of Travancore-Cochin in which these sales took
place was not entitled to impose sales tax upon these sales.
The question for consideration is whether
these sales effected by the appellants are, as they claim, sales "in the
course of export". It is common ground that the tea sold 718 under the
transactions involved in these appeals was actually exported out of the
territory of India. Doubtless, this circumstance would not per se render the
sales which preceded the export "sales in the course of export" but
the argument submitted to us is that these exports are so directly and
immediately linked up with the sales effected by the appellants and so
integrated with them that the two form part of the same transaction as to
render the sales "sales in the course of export".
It was presented in this form, relying on the
decision of this Court in State of Travancore-Cochin v. Shanmugha Vilas Nut
Factory(1) where the learned Chief Justice observed:
"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............ 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
emphasised the integral relation between the
two where the contract of sale itself occasioned the export as the ground for
holding that such a sale was one taking place in the course of export." It
is this integrality that is involved in the concept which is expressed by the
words that "the sale that occasions the export" is "a sale in
the course of export".
The details of the sales on which tax is
sought to be levied by the respondent, together with the facts relating
thereto, as well as the several contentions urged before us and the decisions
on which reliance is placed on either side have all been narrated in the
judgment just now pronounced and we do not think it necessary to restate them.
Similarly, the provisions of the Tea Act, 1953 and the rules framed there under
so far they are relevant for the decision of the question involved in these
appeals have also been set out and so we are not repeating them either. We
shall confine ourselves to the very restricted area of our disagreement with
our learned brethren which has occasioned this separate judgment.
(1)  S.C.R.53 719 As preliminary to the
discussion of the question involved, we shall put aside certain types of
transactions as regards which there is no dispute that they clearly fall on one
side of the line of the other. On the one side of the line would be the case
where a seller in pursuance of a contract of sale with a foreign buyer puts the
goods sold on board a ship bound for a foreign destination. Such a sale would
be an "export sale" which would undoubtedly be within the constitutional
protection of Art. 286(1)(b). In regard to this type, however, we would make
this observation. In such a case we consider that it would be immaterial
whether or not with reference to the provisions of the Sale of Goods Act, read
in conjunction with the terms and stipulations of any particular contract, the
property in the goods passes to the buyer on the Indian side of the customs
frontier or beyond it. In either event the sale would have occasioned the
export, for the sale and the export form one continuous series of transactions,
the one leading to the other-not merely in point of time but integrated by
reason of a common intention which is given effect to. In such a case it would
be seen that there is but one sale-to the foreign buyer "which occasions
the export", and which is implemented in accordance with the terms of the
contract by an actual export which is the sine qua non of "a sale in the
course of export".
A case on the other side of the line would be
one where the sale is effected to a resident purchaser who effects the export
by sale of the goods purchased to a foreign buyer.
Here the first sale to the buyer who enters
into the export sale would not be a "sale in the course of export"
for it would not be the particular sale which occasions the export,
notwithstanding that the purchase might have been made with a view to effect
the export sale, or to implement a contract of sale already entered into with a
foreign buyer. That such a sale is not one "in the course of export"
has been repeatedly held by this Court (See State of Travancore Cochin v.
Shanmugha Vilas Cashew Nut Factory(1), State of Madras v. Gurviah Naidu and Co.
Ltd.(2), State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd.(3) and
East India Tobacco Co. v. The State of Andhra Pradesh(4).
This second type of case involves two
sales-one to a resident purchaser who purchases it with a view to effect an
export and the second, the export sale or sale in the course of export by the
purchaser to a foreign buyer. The existence of the two sales and the consequent
dissociation between the (1)  S.C.R. 53.
(2) A.I.R. 1956 S.C. 158 = 6 S.T.C. 717.
(3)A.I.R. 1958 S.C. 1002.
(4)  1 S.C.R. 404.
720 first sale and the export causes a hiatus
between that sale and the export and destroys the integrality of the two events
or transactions viz., the sale and the factual export.
The sales involved in the present appeals are
not of the 2nd type for here there is a single sale direct to a foreign buyer,
the contract being concluded with and the goods sold delivered to his agent. It
is hardly necessary to add that for purposes relevant to the decision of the
question before us there could be no difference in legal effect between a sale
to a foreign buyer present in India to take delivery of the goods for transport
to his country and a sale to his resident agent for that purpose. Pausing here
we should mention that there is no dispute (1) that the persons who bid at the
auction at Fort Cochin and purchased the teas of the assessees were agents of
foreign buyers or (2) regarding their having made these purchases under the
directions of their foreign principals in order to despatch the goods to the
latter-a contractual obligation that they admittedly fulfilled.
Under the sales here involved, though to
foreign buyers and intended for export, the goods were not under the terms of
the contract of sale placed by the seller on board the ship in the course of
its outward voyage and that is the only reason why they do not conform strictly
to the first type of an export sale which we have described earlier.
But the question is, do not these sales also
"occasion the export" and in that sense sales "in the course of
export" The test which has been laid down by this Court for determining
the proximity of the connection between the sale and the export so as to bring
the sale within the constitutional exemption in Art. 286(1)(b) is the integrality
of the two events-the sale and the export. The question to be answered is
therefore whether the sales now under consideration do not form part and parcel
of a single integrated transaction with the export or are they distinct,
distant and mediate, the sale and the export being related to each other only
in sense of one leading to the other or the one succeeding the other merely in
point of time. If the former, the sales are within Art. 286(1)(b), but if the
connection between the two is as described later, they are outside the
What then are the facts of the present case.
Before restating them for their being examined in the light of the criteria we
have just specified, it is necessary to emphasise certain matters. When the
assessees sought an opportunity to adduce evidence as to the facts which they
offered to prove to establish their claim to the constitutional protection, the
assessing authorities accepted their statements as correct and did not desire
them to adduce evidence and so 721 no detailed evidence was led. If therefore
on an examination of the legal position it is now found that there is any
lacunae in the statement of facts or in the evidence whose existence would have
brought the sales within the exemption, it appears to us that the
appellant-assessees should in fairness be afforded an opportunity to adduce
evidence to establish their case. We say so particularly because it could by
no, means be said that the law was clear as to the facts necessary to be proved
to claim exemption in the case of sales of the type now before us.
To proceed with the facts, the assessees had
applied for and obtained export quotas with a view to effect exports of a
quantity of tea grown and processed by them. The sales at Fort Cochin were
effected along with the export rights ,ranted to the Appellant estates. the
contract being that the purchaser at the auction would obtain a transfer of the
export quota right of that estate whose tea he purchased to the extent needed
to effect export of the tea purchased.
The purchases were thus made only on the
basis that the export rights of the seller would be transferred to the buyer
and on the basis of these transfers the purchasers obtained export licences
from Government for exporting the tea and affected the exports. The purchases
were made by agents of foreign principals and it was part of the contractual
duty of these agents vis-a-vis the principals to consign the goods purchased to
them without avoidable delay.
There was proof by the certificates produced
that these agents had fulfilled their obligations to their principals and had
shipped the goods bought as early as practicable to foreign destinations.
The principal contention urged by the learned
Advocate General of Kerala to persuade us to hold that the sales did not
"occasion the export" was based on two circumstances:
(1) that it was not part of the contract
between the assessees and their buyers that the goods shall only be exported
and not sold in the local market. In other words, it was urged that in the
absence of such a specific term of contract it would have been open to the
buyers to have diverted the goods from being exported and to have sold them
locally. This was so far as the contractual relationship between the
assessee-sellers and the buyers from them under the sale was concerned, (2)
dealing next with the effect of the provisions of the Tea Act, 1953 and the
rules framed thereunder on the sales effected by the assessees, the submission
was that s. 21 and other provisions of the Tea Act, 1953 merely enabled an
export to be effected and did not require the goods in regard to which they
were issued to be exported. In other words, it was stressed that the Tea Act
did not impose any obligation on the quota holder or his transferee 722 to
export the goods covered by the quota and that consequently the buyer-even
after taking a transfer of the export quota rights alongwith his purchase was
not compelled by law to export and was not precluded from failing to export and
selling the goods locally. On this reasoning the argument was that here was a
purchase under which the purchaser was free to export or not to export and the
mere fact that he chose to export would not render the sale to him one which
occasioned the export or one "in the course of export".
We consider that these arguments do not
sufficiently take into account the actualities of the situation, but proceed on
investing on formal requirements a significance which is not warranted.
When learned counsel says that there was no
term in the contract between the seller and the buyer that the goods purchased
were not to be sold locally but have to be exported, he is right only in the
sense that it is not any express term of the contract. But could it be said
that that was not the implicit common understanding on which the entire
transaction was concluded. The buyer was not interested in the purchase except
on terms of the export quota rights being transferred to him and that was why
the transfer of the export right was effected or contracted to be effected as
part and parcel of the sale of the goods. Again, the buyer was an agent, who as
we have stated earlier was not free to deal with the tea purchased by affecting
a local sale, but was under an obligation to his foreign principal to export
the goods purchased to a foreign destination. It was with such a buyer that the
assessee entered into the transaction of sale. On these facts we are satisfied
that it was part of the understanding between the seller and the buyer,
inferable from all the circumstances attendant on the transaction that the
buyer was bound to export. Pausing here, we would add that, we understand that
importance is attached in this context to the need of a term in the state
contract laying an obligation on the part of the buyer to export only for the
purpose of demonstrating the intimate connection between the sale and the
export for establishing that it was the sale that occasioned the export. If we
are right, then what is of significance is the real and common intention of the
two parties to the transaction-whether they contemplated the goods purchased
being sold locally, or whether they intended the goods sold being only exported
and not whether there is such a term in the contract between the parties.
Coming next to the contention that the Tea
Act does not compel export of goods covered by the quotas granted, we might mention
that no evidence was led as to the prices prevailing in the local market as
compared to that in the foreign countries where the principals of the resident
buyers rested, which would have disclosed whether a local sale of the tea
bought ostensibly for export was in a commercial sense within the bounds of
possibility, though if one went by the rationale underlying the provisions of
the Tea Act and in particular ss. 17, 21 and 22, one gets the impression that
export quota rights were considered to have a considerable value in the market
which would be some indication -that a buyer with an export quota would never
sell in the local market. Thus it might be that even though the statute does
not in terms prohibit internal sale of tea purchased along with export quota
rights, this could be explained by the circumstance that the right to export
tea is considered a privilege which secures economic advantages to the exporter
and hence there was no need for any statutory compulsion to do so. We are
making this observation because Parliament and the Central Government are keen
on promoting exports and in the case of some commodities like sugar where the
external price is lower than the local price, the regulations framed in that
behalf require exports to be effected under compulsion. We consider therefore
that the absence of a compulsive provision in the Tea Act requiring export of
the quantity allotted to the estates, is not very material and that Parliament
might well have left it optional with the estate owners to export seeing that
economic factors provided the requisite compulsion.
If there was a contract or understanding
between the buyer and seller by which the latter was to export the goods
bought, it is conceded the sale of the assessee did occasion the export and in
our view on the facts established, we consider this condition satisfied.
We would therefore allow the appeals and set
aside the assessment in so far as they included the sales involved in these
ORDER In accordance with the opinion of the
majority, the appeals are dismissed with costs. One hearing fee.