Coffee Board, Bangalore Vs. Joint
Commercial Tax Officer, Madras & ANR  INSC 318 (29 October 1969)
29/10/1969 HIDAYATULLAH, M. (CJ)
HIDAYATULLAH, M. (CJ) SIKRI, S.M.
REDDY, P. JAGANMOHAN
CITATION: 1971 AIR 870 1970 SCR (3) 147
D 1973 SC2491 (8) R 1974 SC1510 (12) RF 1975
SC1564 (17,19,21,22,23,24,25,53,54,58 RF 1975 SC1652 (15,21) F 1977 SC 247
(5,16) RF 1980 SC1468 (4,13,15) R 1985 SC1689 (5) RF 1990 SC 820 (19)
Constitution of India, Arts. 31(1), 32-Corporation
not being a citizen whether can enforce rights under Art. 32Circumstances under
which taxing statute can be challenged on ground of breach of fundamental
rights by petition under Art. 32.
Sales Tax-Sales 'in course of export' what
are-Sale by coffee Board constituted under the Coffee Act 7 of 1942, to
registered exporters whether within protection of Constitution of India Art.
286(1) (b) and Central Sales Tax Act 74 of 195 6 s. 5 (1).
Under Art. 286(1)(b) of the Constitution exemption
from imposition of sales tax is granted in respect of a sale or purchase of
goods in the course of the import of the goods into, or export of the goods out
of the territory of India.
After the 6th Amendment to the Constitution,
Parliament passed the Central Sales Tax Act, 1956 and in s. 5(1) thereof laid
down that a sale of goods, is 'in the course of export' out of the territory of
India only if the sale or purchase eitheroccasions 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. Export of coffee outside India is controlled
under the Coffee Act, 1942, by the Coffee Board. Coffee especially screened and
selected is sold to registered exporters at 'export auctions'. Permits are
given to such registered exporters to participate, at the auction. The Coffee
Board has prepared a set of rules which incorporate the terms and conditions of
sale of Coffee in the course of export. Under Condition 26 of the Rules a
registered dealer has to give an 'export guarantee' under which export can he
made only tostipulated or approved destinations. The buyer at an export auction
is free to export the coffee either by himself or through a forwarding agent,
without selling the goods to the forwarding agent. Immediately after the export
evidence of the shipping has to be produced before the Chief Marketing Officer,
otherwise under Condition 30 the permit holder is liable to fine and under
Condition 31 the un exported coffee is liable to be seized.
In respect of certain sales of coffee to
registered exporters in March and April 1963 the Coffee Board aforesaid claimed
that as the sales in question had been made 'in the course of export' outside
the territory of India they could not be taxed under the Madras General Sales
Tax Act,, 1959.
The taxing authorities however held that the
sales took place within Tamil Nadu State and were liable to be taxed under the
Tamil Nadu Act. Provisional assessments were made and the tax not already paid
was demanded. The Board thereupon filed petitions under Art. 32 of the
Constitution challenging the levy. The State however, relying upon this Court's
decision in the State Trading Corporation v. The Commercial Tax Officer, Visakhapatnam
& Ors. contended that the Board was a Corporation and not a citizen and its
petition under Art. 32 could not be entertained. On behalf of the State it was
also urged that the petitioners did not show any breach of fundamental right
justifying a petition under Art. 32; the Board had only claimed exemptions
incorporated in the Constitution and 148 thestatute dealing with the levy and
collection of sales tax and their grievance could he investigated and righted
by taking recourse to the remedies provided in the relevant statute.
HELD:(Per Hidayatullah, C. J., G. K. Mitter,
A. N. Ray and P. Jaganmohan Reddy, JJ.) (i) The case of the State Trading
Corporation considered the application of Art. 19(1)(f)& (g) inrelation to
Corporation is and it was held therein that they could not be regarded as
citizens for the purpose of that Article. The question was not considered in
relation to Art. 31(i) which is not limited in its operation to citizens. It
mention person,s who may be corporations or group of persons. [155 F; 158 G-H]
State Trading Corporation of India Ltd. v. Commercial Tax Officer,
Visakhapatnam and Ors.,  4 S.C.R. 99, distinguished.
(ii)The majority in Sint. Ujjam Bai's case
considered that a breachof fundamental right guaranteed by Art, 32(1) is
involved in a demand for tax which is not leviable under a valid law. Therefore
a demand of tax, not backed by a valid law is a threat to property and gives
rise to a right to move this Court under Art. 32. The petitioner in such
circumstances is not compelled to wait or go through the lengthy procedure ofappeals,
references etc. He may move the Supreme Court for the enforcement of the
fundamental rights so threatened. This however, is' not an absolute right. This
Court will limit the petitioner to establishing a breach of fundamental right.
It will not allow a petitioner to use the provisions of Art. 32 to do duty as
an appeal. A clear enough caseas laid down in Ujjam Bai's case must be made
out. [158 D-E; 159 C-D] The. propositions settled by the Court in Ujjam Bai's
case may besimply stated thus. The-,ruling recognises the existence of a right
to move this Court under Art. 32 when the action is taken under an ultra vires
statute, or where, although the statute is intra vires the action is without
jurisdiction, or the principles of natural justice are violated. Errors of law
or 'fact committed in the exercise of jurisdiction founded ,on a valid law do
not entitle a person to have them corrected by way of petitions under Art.
324 It is also pointed out that the proper
way tocorrect them is to proceed under the provisions of appeal etc. or by
'Awayof proceedings under Art. 226 before the High Court.
[156G-157A] Accordingly in the present case
the petitioner could be allowed to raise the question of jurisdiction. [159D-E]
Sint. Ujjam Bai v. State of Uttar Pradesh,  S.C.R.
778, applied ;and explained.
Ramjilal v. I.T.C. Mohindragarh, 
S.C.R. 127, Laxmanappa Hanumantappa v. Union of India,  S.C.R.
769, State TradingCorporation of India v.
Commercial Tax Officer,  4 S.C.R. 99, State Trading Corporation of India
v. State of Mysore, 14 S.T.C. 416 and Firm A.T. B. Mehtab Majid & Co. v.
State of Madras, 14 S.T.C. 355, referredto.
(iii) The petitioner Board was not entitled
to the exemption claimed.
The phrases sale in the course of export' comprises
in itself three essentials : (i) that there must be a sale (ii) that goods must
actually be exported and (iii) the sale must be a part and parcel of the
export. Therefore either thesale must take place when the goods are already in
the process of being exported which is established by their having already
crossed the Customs frontiers, or the sale must occasion the export. The 149
word 'occasion' is used as a verb and means 'to cause' or 'to be the immediate
cause of'. Read in this way the sale which is to be regarded as exempt is a
sale which causes the export to take place or is the immediate cause of the
export. The word 'cause' in the expression 'in the course of' means 'progress
or process of', or shortly, 'during'.
The phrase expanded with this meaning reads
'in the progress or process of export' or 'during export'. Therefore the export
from India to a foreign destination must be established and the sale must be a
link in the same export for which the sale is held. The introduction of an intermediary
between the seller and the importing buyer breaks the link for then there are
two. sales one to the intermediary and the other to the importer. The first
sale is not in the course of export for the, export begins from the
intermediary and ends with the importer. [163F-164B] Therefore the tests are
that there, must be a single sale which itself causes the export or is in the
process or progress of export. There is no, room for two or more sales in the
course of export. [164 B-C] Whether the export is by agreement between the
parties or by force of law, in either case there is. a seller and a buyer who,
by reason of the sale also, become exporter and importer respectively. Any
other buyer who is not himself the importer buys 'for export even if export
ultimately results. It is to bring out these results that Parliament has
recognised only two cases of sale in the cause of export : (a) where the sale
is effected by a transfer of documents of title to goods after the goods have
crossed the customs frontiers that is to say the goods are already on the way
to the importer and (b) when the sale itself causes the export to take place
that is to say the exporter and importer negotiate and complete a sale which
without more would result in a sale of goods. 'No other sale can qualify for
the exemption under s. 5(1) read with Art. 286(1)(b). [164 C-F] The sales by
the Coffee Board were sales for export and not in the course of export. There
are two independent sales involved in the export programme. The first sale is a
sale between the Coffee Board a,% seller to the export promoter.
Then there is the sale by the export promoter
to a foreign buyer. of the latter sale the Coffee Board does not have any
inkling when the first sale takes place. The Coffee Board's sale is not in any
way related to the second sale which is in the course of export since it causes
the movement of goods between an exporter and an importer. [164 H-165 B] The
rules compelling export by the registered exports make no difference. The
compulsion only compels persons who buy on their own to export in their own
turn by entering into another agreement far sale. Even with 'the compulsion the
sale may not result 'for clauses 26, 30 and 31 visualise such happenings. [165
E-F] Travancore Cochin & Ors. v. The Bombay Co. Ltd.  S.C.R. 1112 and
Stale of Travancore Cochin, & Ors. v. Shanmugha Cashew Nut Factory &
Ors.  S.C.R. 53, applied.
State of Mysore v. Mysore Spinning and
A.I.R. 1958 S.C. 1002, Burmah Shell Oil
Stortage and Distributing Company U.C.,  1 S.C.R. 902 and East India
Tobacco Co. v. State of Andhra Pradesh, (1962) 13 S.T.C. 529, B. K. Wadar v.
Daulatram Rameshwarlall,  1 S.C.R. 924 and K. G. Khosla & Co. v. Dy.
Commissioner of Commercial Taxes, (1966) 17 S.T.C. 473, referred to.
150 Ben Gorm Nilgiri Plantations Company,
Coonoor v. Sales Tax Officer,  7 S.C.R. 706, distinguished.
Indian Coffee Board v. State of Madras,
(1956) 7 S.T.C. 135, approved.
Per Sikri,J. (dissenting). When a word bears
two meaning thecontext must determine which is the appropriate meaning to be
adopted. The word 'occasion' is an ordinary dictionary word and not a technical
word. The dictionary meaning is wider than the meaning sought to be :given in
the majority judgment which was 'to cause or to be the immediate cause'. In the
context of (a) the need to develop export trade and (b) the idea underlying
Art. 286 namely, to restrict the power of the ,States to levy taxes on sales
which might hamper export trade, it is more appropriate to give the wider
meaning to the word 'occasion' in the construction of s. 5(1). It would be
wrong to say that in the case of the Bombay Co. Ltd. and in Shanmugha Vilas
Cashew Nut Factory's case this Court accepted the narrower meaning of the
world. [166B-G; 167D] Similar expression occurring in ss. 3 and 5(2) of the Act
has been interpreted by this Court on a number of occasions and it is difficult
to appreciate why the same expression bears a different meaning in s. 5(1).
tl68B-C] The heart of the matter lies in answering the question whether two
sales can occasion an export. The question must be answered in the affirmative.
Two sales can take place in the course of export if they are affected by the
transfer of documents of title to the goods after the goods have crossed the
customs frontiers of India and they both will be protected under s. 5(1) of the
Act. Therefore it cannot be assumed that it is the intention of s. 5(1) that
only one salelcan enjoy the protection of s. 5(1). The word occasion does not
necessarily mean immediately cause; it also means "to bring about
especially in an incidental or subsidiary manner". If the sale brings
about the export in an incidental or subsidiary manner it can be said to
occasion the export. [169B-D] On the facts of the present case the Coffee
Board, the sellers have concern with the actual export of goods. They have made
various provisions to see that the purchasers must export. Condition 26 clearly
provides that the coffee shall be exported to stipulated or approved
destinations and it shall not under any circumstances be diverted to another
destination sold or be disposed of or otherwise released in India. If the
purchaser commits a default, apart from penalty, it is provided that un-exported
coffee may be seized. Thus the Coffee Board retains control over the goods.
The3e conditions create a bond between the sale and eventual export. The
possibility that in a, particular case a purchaser might commit a breach of
contract or law and not export does not change the nature of the transaction
[17OG171A] Case law referred to.
ORIGINAL JURISDICTION : Writ Petitions Nos.
216 and 217 of 1969.
Petition under Art. 32 of the Constitution of
India for enforcement of fundamental rights.
M.C. Setalvad, K. J. Chandran, B. Datta, J.
B. Dadachanji, and Ravinder Narain, the petitioner.
S. V. Gupte and A. V. Rangam, for the
151 C.K. Daphtary, B. Datta, J. B. Dadachanji
and Ravinder Narain, for the intervener.
The Judgment of M. HIDAYATULLAH, C.J., G. K.
MITTER, A. N. RAY and P. JAGANMOHAN REDDY JJ. was delivered by HIDAYATULLAH,
C.J. SIKRI, J. gave a dissenting Opinion.
Hidayatullah, C.J.-These are petitions under
Art. 32 of the Constitution by the Coffee Board, Bangalore directed against the
Joint Commercial Tax Officer, Madras and the State of Tamil Nadu questioning
the demand of Sales Tax on certain transactions of sales which the Board claims
are sales in the course of export of Coffee out of India and thus not liable to
Sales Tax. A preliminary objection was taken at the hearing that the petitions
do not lie since no question of a fundamental right is involved. We shall deal
with the preliminary objection later as the main, petition and the preliminary
objection are interlinked. But before we mention the points in controversy it
is necessary to state the facts more fully.
The petitioner is a statutorily constituted
body and functions under the Coffee Act, 1942 (VII of 1942). This Act was
passed to provide for the development under the control of the Union of the
Coffee Industry. Its main function is to constitute a Coffee Board. Previously
there was an Ordinance instituted the Indian Coffee Market Expansion Ordinance,
1940 (13 of 1940). A Board called the Indian Coffee Market Expansion Board was
constituted under the Ordinance. The same Board now continues under the name
'Coffee Board'. On this Board, all interests are represented and some Members
of Parliament and Officers of Government have also places. Sections 4 to 10 of the
act are concerned with the setting up of the Board. As nothing turns upon the
constitution of the Board, it is not necessary to give the gist of those
sections here. The Act imposes duties of Customs and Excise-the former on all
Coffee produced in India and exported from India and the latter on coffee
released by the Board for sale in India from its surplus pool. The Act compels
the registration of all owners of Coffee Estates and licensing of curers and
dealers. The Act next imposes a control on the sale, export and re-import of
coffee into India. In respect of sale, it fixes prices for sale of coffee
either wholesale or retail by registered owners and licensed curers for the
purpose of sale in the Indian Market. The Board fixes internal sale quota for
each Estate owner and the owner has to observe this quota and also the price
fixed. The registered owner may not sell coffee unless it has been cured by a
licensed establishment or it is sold uncured under a speciallicence.
The Act next prohibits the export of coffee
from India otherwise than by the Board or under the authorization granted by
the Board. To this restriction, there are a few minor 152 exceptions such as
coffee in specified quantities may be exported by taking on board ships or
aircrafts intended for Consumption of the crew and the passengers or carried by
a passenger for his own use or exported for special purposes specified by the
Central Government. The Government is authorised to specify the total quantity
of coffee to he exerted during any year. Coffee once exorted cannot be re imported
into India except under a permit. The registered owners are required to furnish
periodical returns and to furnish such information as may be prescribed. Every
registered owner after dealing with the coffee for sale in Indian markets up to
the internal quota fixed for him must hand over to the Board all surplus coffee
to be included in the Board's Surplus Pool. Similarly, curing establishments
are required to surrender to the Board all surplus coffee.
Small producers may, however, be exempted
from the operation of this condition. After the coffee is delivered to the
Board, the control of the Board begins. The Board classifies the coffee and
assesses its value based on its quantity, kind and quality. Once the coffee is
delivered to the Board, the registered owner or the licensed curer has no
rights over the coffee except to receive its price in accordance with s. 34 of
We are not concerned in this petition with
any internal sales. The Board has elected to make monthly returns and in these
petitions taxes on sales made in March and April, 1969 are challenged.
Provisional assessments have been made and demand for taxes held due after
allowing credit for taxes already paid, has been made by the respondents under
the Madras General Sales Tax Act, 1959. of these, certain sales are claimed to
be exempted from Sales Tax under the Madras Act by reason of those being in the
course of export of coffee out of India. The, Taxing authorities held that
those sales took place within Tamil Nadu State and were thus liable to sales
tax under the Tamil Nadu Act. The point of difference arises thus The Coffee
Board follows a procedure for selling coffee which is to be exported out of
India. Coffee for export is specially screened and selected. It is then exposed
in auctions specially held for the purpose. These auctions are known as 'Export
Auctions'. To be able to bid on these occasions, exporters have to get
themselves registered. The Board maintains a list of registered exporters and
gives to each of them a permit which authorises him to take part in the export
auction. A specimen of the permit granted with the conditions attaching to it
is exhibited as Annexure 'I'.
The conditions which are imposed by the
permit require a security deposit and a standing deposit from the registered
exporter. The security may be in cash or by a guarantee from a bank or Life
Insurance Corporation of India. It is provided that the permit is liable to be
withdrawn and cancelled by the 153 Chief Coffee Marketing officer if it is
found that the permit holder has sold or attempted to sell coffee, bought by
him at the export auctions, within the internal market without the written
permission of the Chief Coffee Marketing Officer. Similar cancellation is
liable to take place if some of the other conditions of the permit are not
The Coffee Board has also prepared a set of
rules which incorporate the terms and conditions of sale of Coffee in the
course of export. These rules have been exhibited as Annexure 11 and they deal
with the conduct of auctions and the procedure to be followed therein. They
also provide for additional conditions. Rule 4 provides that only dealers who
have registered themselves as exporters of coffee with the Coffee Board and who
hold permits from the Chief Coffee Marketing Officer in that behalf will be
permitted to participate in the auctions. Agents may, however, participate on
behalf of exporters but only for one principal at a time. Before the auction,
the registered dealer or the agent must show the permit issued to him or have
it in his custody for production, if so desired.
Before the auction is held, a catalogue of
lots of coffee to be put up for auction is issued with the reserve ,price fixed
by the Chief Coffee Marketing Officer in his discretion. Samples of Coffee are
available for prospective buyers. An auction in the usual way takes place but
no one is allowed to retract a bid once made. The highest bid is ordinarily
accepted but if there are reasons to believe that the highest or any particular
bid is not bona fide or genuine or is the outcome of concerted action for the
purpose of controlling or manipulating prices or for other improper purposes or
that the bidder is not likely to fulfill his contract or is otherwise
undesirable, the bid may be rejected. After the bidding comes to an end and the
bids have been accepted, the payment of price takes place in a particular way.
We are not concerned with other provisions dealing with failure to fulfill the
obligation as to payment of price etc., objections to quality and so on. We are
concerned with condition no. 26 which is headed 'Export Guarantee'. This
condition is vital in the consideration of the questions involved in this case
and may be quoted :
"26. It is an essential condition of
this Auction that the coffee sold thereat shall be exported to the destination
stipulated in the Catalogue of lots, or to any other foreign country outside
India as may be approved by the Chief Coffee Marketing Officer, within three
months from the date of Notice of Tender issued by the Agent and that it shall
not under any circumstances be diverted to another destination, sold, or be
disposed of, or otherwise released in India.
6Sup. C. 1. 70-11 154 The aforesaid period
may, on application by the Buyer, be extended by the Chief Coffee Marketing
Officer in his discretion if he is satisfied that there is good ground to do
so, subject nevertheless to the condition that as consideration for such
extension, the Buyer shall pay the following additional amounts to the Board
The buyer is free to export the coffee either by himself or through any
Forwarding Agent but the coffee must not be sold to the Forwarding Agents. In
other words, the buyer himself arranges for the export of the coffee he has
purchased at the auction and condition 29 imposes an obligation on the buyer to
produce immediately after shipping evidence of the export of the coffee to the
Chief Marketing Officer. If such evidence is not produced within a period of 60
days, after the time allowed to make the export, the registered exporter is
deemed to have committed a default and the provisions of conditions 30 and 31
then apply to him. These conditions are as follows :"30. If the Buyer
fails or neglects to export the coffee as aforesaid within the prescribed time
or within the period of extension, if any, granted to him, he shall be liable
to pay a penalty calculated at Rs. 50/per 50 kilos which shall be deductible
from out of the amount payable to him as per Clause 31." "31. On
default by the Buyer to export the coffee aforesaid within the Described time
or such extension thereof as may be granted, it shall be lawful for the Chief
Coffee Marketing Officer, without reference to the buyer, to seize the un-exported
coffee and for that purpose to make entry into any building, godown or
warehouse where the said coffee may be stored, and take possession of the same
and deal with it as if it were part and parcel of Board's coffee held by them
in their Pool Stock.
Conditions 33 and 34 provide for inspection
of coffee stocks and accounts and the buyer is required to send weekly returns.
Other conditions need not be noticed here because they have no bearing upon the
The case of the petitioners is that the
purchases at the export auctions are really sales by the coffee Board in the
course of export of coffee out of the territory of India since the sales
themselves occasion the export of coffee and coffee so sold is not 155 intended
for use in India or for sale in the Indian markets.
The case of the Sales Tax Authorities is that
these sales are not inextricably bound up with the export of coffee and that
the sales must be treated as sales taking place within the State of Tamil Nadu
which are liable to sales tax under the Madras General Sales Tax Act. The
dispute is confined to this aspect of the matter on inherits. The preliminary
objection to which wereferred earlier is only this that the petitions do not
show a breach of a fundamental right.
The petitioners only claim the benefit of the
exemptions incorporated in the Constitution or the statute dealing with the
levy and collection of sales tax, and their grievance can be investigated and
righted by taking recourse to the appellate revisional and other remedies under
the relevant statute. We shall begin by considering the preliminary objection.
The preliminary objection consists of two
parts. The first part questions the standing of the petitioner to move this
Court for the enforcement of its so-called fundamental rights. It is argued that
the petitioner being a Corporation, has no right to move this Court for the
enforcement of fundamental right to hold, acquire and dispose of property since
this right is available only to individuals who are citizens and a Corporation
is not a citizen. Reliance is placed upon The State Trading Corporation of
India Ltd. and others v. The Commercial Tax Officer, Visakhapatnam and
others(1). The second part is that there is ample provision for remedies under
the Sales Tax Act to question the assessment and a petition under Art.
32 ignoring those provisions should not be
entertained. The case of the State Trading Corporation considered the
application of Art. 19(1)(f) and (g) in relation to Corporations. It was held
that Corporations could not be regarded as citizens for the purpose of Art. 19
since that article is concerned with citizens and corporations have not been
declared citing zens by the Constitution. The question was not considered in
relation to Art. 3 1 (1). Some other petitions by corporations complaining of
breach of Art.
31(1) were entertained by this Court and the
petitioner before us relies on those cases as precedents. The true position may
therefore be stated.
Property as a fundamental right is mentioned
in the Constitution in Arts. 19(1) (f), 31, 31 (A) and 31 (B). In Art. 1911.
(f) it is provided :
"19. Protection of certain rights
regarding freedom of speech, etc.
(1) All citizens shall have the right(1)
 4 S.C.R. 99.
156 (f) to acquire, hold and dispose of
property; and To this sub-clause there is a proviso in cl. (5) which states
that nothing in clause (f) shall affect the operation of any existing law in so
far as it imposes, or prevent the State from making any law imposing,
reasonable restrictions on the exercise of the right conferred, either in the
interests of the general public or for the protection of the interests of any
Scheduled Tribe. The main clause of the article recognises the institution of
private property with all the concomitants of that institution, namely, the
acquisition, holding and disposal of property. The proviso recognises, in the
public interest, restrictions on the right in existing law or hereafter to be
imposed by law.
The institution of property thus recognised
leaves freedom to acquire,, any kind of property except the one in relation to
which there is a restrictive law. Thus it is that certain kinds of properties
such as Narcotic drugs, explosives, property in excess of ceiling placed by law
cannot be acquired or held. This restriction
curtails the general right and the curtailment must justify itself as a law in
the public interest. Next we have Arts. 31, 31 (A) and 31 (B). They occur in a
section of Part III entitled "Rights to Property". The first of these
three articles deals with compulsory acquisition of property. The second and
third deal with saving of laws providing for acquisition of Estates etc. and
validation of certain Acts and Regulations declared void by Courts. Two
fundamental concepts in Art. 31 are (a) that no person shall be deprived of his
property save by authority of law, and (b) no property shall be compulsorily
acquired or requisitioned save for a public purpose and save by authority of
law which itself fixes the amount of compensation or specifies the principles
on which compensation is to be determined and given and the manner thereof.
Other provisions either restrict or amplify the operation of these two
fundamental concepts. In Smt. Ujjam Bai's (1) case the question was, whether
assessment of Sales Tax under a valid Act was open to challenge under Art. 32
on the ground of misconstruction of the Act or a notification under it., It was
held that the answer was in the negative. That case has given some trouble in
view of the different opinion ex pressed in it.
It is therefore necessary to state simply the
propositions which are settled by this Court. The ruling recognizes the
existence of a right to move this Court under Art. 32 where the action is taken
under an ultra vires statute, or where, although the statute is intra vires,
the action is without jurisdiction or the principles of natural justice are
violated. Errors of law or fact committed, in the exercise of jurisdiction
founded on a valid law do not entitle a person to have them corrected by way of
petitions (1)  S.C.R. 778.
157 under Art. 32. It is also pointed out
that the proper way to correct them is to proceed under the provisions for
appeal etc. or by way of proceedings under Art. 226 before the High Court.
In Ramjilal v. I.T.O., Mohindragarh(1) and in
Laxmanappa Hanumantappa v. Union of India, (2), taxation laws were unsuccessfully
challenged with the aid of Art. 31 (1) read with Art. 265 in petitions
purporting to be under, Art. 32.
In the former case, it was observed as
follows "In our opinion, the protection against the imposition and
collection of taxes save by authority of the law directly comes from articles
265 and is not secured by Clause (1) of article 31. Article 265 not being in
Chapter III of the Constitution, its protection is not a fundamental right
which can be imposed by an application to this Court under Article 32. It is
not our purpose to say that the right secured by article 265 may not be
enforced. It may certainly be enforced by adopting proper proceedings. All that
we wish to state is that this application in so far as it purports to be
founded on article 32 read with 31(1) to this Court is misconceived and must
These propositions were not accepted by the
majority Ujjam Bai's(3 ) case. It was observed at p. 941 as follows :"If
by these observations it is meant to convey that the protection under Art. 265
cannot be sought by a petition under Art. 32, I entirely agree. But if it is
meant to convey that a taxing law which is opposed to fundamental rights must
be tested only under Art. 265, I find it difficult to agree.
Articles 31 (1 ) and 265 speak of the same
condition. A comparison of these two articles shows this Art. 3 1 (1)"No
person shall be deprived of his property save by authority of law".
Art. 265-No tax shall be levied or collected
except by authority of law, "This Chapter on Fundamental Rights hardly
stands in need of support from Art. 265. If the law is void under that Chapter,
and property is seized to recover a tax which is void, I do not see why Art. 32
cannot be (1)  S.C.R 127.
(2)  S.C.R.
(3)  S.C.R. 778.
158 invoked........ It is not possible to
circumscribe Art. 32 by making the remedy depend only upon Art.265." The
position was summed up thus "From this, it is clear that laws which do not
offend Part III and are not otherwise ultra vires are protected from any
challenge whether under Art. 265 or under the Chapter on Fundamental Rights.
Where the, laws are ultra vires but do not per se offend fundamental rights (to
distinguish the two kinds of defects), they are capable of a challenge under
Art. 32. Where they are intra vires otherwise but void being opposed to fundamental
rights, they can be challenged under Art. 265 and also Art. 32." Das, J.
(Sarkar, J. concurring) put the same thing differently.
He observed that "if a quasi-judicial
authority acts without jurisdiction or wrongly assumes jurisdiction by
committing an error as to a collateral fact and the resultant action threatens
or violates a fundamental right, the question of enforcement of that right
arises and a petition under Art.
32 will lie". He added that "where
a statute is intra vires but the action taken is without jurisdiction, then a
petition under Art. 32 would be competent". Similar observations are to be
found in the opinion of Kapur J.
Therefore, the majority view considered that
a breach of fundamental right guaranteed by Art. 32(1) is involved in a demand
for tax which is not leviable under a valid law. The application of these
principles finds ample recognition in the following cases of the Supreme Court
: (1) State Trading Corporation of India v. The Commercial Tax Officer(1) (2)
State Trading Corporation of India v. The State of Mysore(1) (3) Firm A. T. B.
Mehtab Majid & Co. v.
State of Madras (3).
It will be noticed that they are all cases of
Corporations and have been considered under Art. 32. The ruling in the State
Trading Corporation case referred 'to earlier did not render these petitions
incompetent because Art. 31(1) is not limited in its operation to citizens. It
mentions "persons" who may be Corporations and group of persons.
In Indo China Steam Navigaticn Co. v. Jasjit
Singh 4 ) there are some observations that in petitions under Art. 32, no claim
of a fundamental right can be made under Art. 3 1 (1) if the statute under
which action is taken is valid for then Art. 19 (1) (f ) does (1)  4
(3) 14 S.T.C. 355.
(2) 14 S.T.C. 416.
(4)  6 S.C.R. 594.
159 not apply. These observations run counter
to Ujjam Bai's(2) case which is binding on us. The first part of the
preliminary objection fails.
The second part need not detail us. We have
already held that demand of a tax, not backed by a valid law, is a threat to
property and thus gives rise to a right to move this Court under Art. 32. The
petitioner in such circumstances is not compelled to wait or go through the
lengthy procedure of appeals, references etc. He may move the Supreme Court for
the enforcement of the fundamental rights so threatened.
This, however, is not an absolute right. This
Court will limit the petitioner to establishing a breach of fundamental right.
It will not allow a petitioner to use the provisions of Art. 32 to do duty as
an appeal. A clear enough case as laid down in Ujjam Bai's(1) case, analysed by
us must be made out. A threat to property unbacked by a valid law or a want of
jurisdiction or a breach of the principles of natural justice must be clearly
made out, to entitle one to the assistance of this Court. If that is
successfully done then the provisions for other remedies do not stand in the
way. We accordingly allowed the petitioner to raise the point of jurisdiction
-We are concerned in these petitions with the
exemption granted by Art. 286(1) (b) of the Constitution which reads :
"286. Restrictions as to imposition of
tax on the sale or purchase of goods.
(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) (b) in the course of the import of the goods
into, or export of the goods out of, the territory of India." Before the
6th Amendment, the Constitution did not contain any definition of the phrase
'in the course of export'. By that Amendment Parliament has been given the
power to indicate the principles on which that phrase is to be construed. In s.
5 (1) of the Central Sales Tax Act, 1956 Parliament has given a legislative
meaning of the phrase 'in the course of export' of goods out of the territory
of India. It runs thus :
"5(1) A sale or purchase of goods shall
be deemed to take place in the course of the export of the goods out (1) 
160 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." The word 'only' in the sub-,section shows that there
are only two transactions which can come within the exception.
In the case of sales to registered exporters,
the second part does not apply and the matter must, therefore, be judged under
the first part. Before the enactment of the Central Sales Tax Act, two rulings
of this Court had construed the expression and as the legislative definition
gives effect to what was laid down in those two cases a reference to them
In the State of Travancore-Cochin and ors. v.
The Bombay Co.
Ltd.(1) four meanings were considered and
sales in the course of export were equated to sales which occasioned the
export. This Court said :
"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 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".
Again, "We are not much impressed with
the contention that no sale or purchase can be said to take place "in the
course of" export or import unless the property in the goods is
transferred to the buyer during their actual movement, as for instance, where
the shipping documents are cleared on payment, or on acceptance, by seller to a
local agent of the foreign buyer after the goods have been actually shipped, or
where such documents are cleared on payment, or on acceptance, by the Indian
buyer before the arrival of the goods within the State. This view, which lays
undue stress on the etymology of the word "course" and formulates a
mechanical test for the application of clause (b), places, (1)  S.C.R.
161 in our opinion, too narrow a construction
upon that clause, in so far as it seeks to limit its operation only to sales
and purchases effected during the transit of the goods, and would, if accepted,
rob the exemption of much of its usefulness".
In the State of Travancore-Cochin & Ors.
v. Shanmugha Vilas Cashew Nut Factory & Ors.(1) it was again emphasised
that sales and purchases which themselves occasion the export of the goods came
within the exemption of Art. 286(1) (b).
Purchases in the/ State by the exporter for
purposes of export were not within the exemption but sales in the State by the
exporter by transfer of shipping documents while the goods were beyond the
customs barrier were held exempted.
It was pointed out that the word 'course'
denoted movement from one point to another and the expression 'in the course
of' implied not only a period of time during which the movement was in progress
but postulated also a connected relation. An act preparatory to export could
not be regarded as done in the course of the export of the goods.
it was like a purchase for production or
Therefore a sale in the course of export out
of the territory of India should be understood 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. I
Das, J. (as he then was) wished to add one more meaning which apparently was
not accepted. It was that the expression indicated, the last purchase by the
exporter with a view to export. The meaning given in these two cases is well established.
Indeed in the State of Mysore v. Mysore
Spinning and Manufacturing Co. (2). this Court said that the point could not be
said at large.
Parliament having accepted the construction
placed by this Court on the expression, we are now required to find out what is
meant by the phrase sale which occasions the export.
In Burmah-Shell Oil Storage and Distributing
Company U.C.T.O.(3) it was pointed out that word 'export' did not mean a mere
'taking out of the country' but that the goods must be sent to a destination
,at which they could be, said to be imported. The same meaning must obviously
be given to the phrase 'in the course of export' or in the phrase 'occasions
We have thus to see whether sale is one which
is connected with the export of the goods from this country to an importer in
another country. The course of export can only begin if there is movement from
an exporter to an importer as the result of the sale, and then only the sale
can be said to occasion the export.
(1)  S.C.R. 53.
(2) A.I.R. 1958 S.C. 100'.
(3)  1 S.C.R. 902.
162 In East India Tobacco Co. v. State of
Andhra Pradesh(1) purchases made for executing specific orders received from
foreign customers were held not to fall within the exemption. It is not enough
that the sale is followed by an export or is made for the purpose or with a
view to export, the sale must be integrally connected with the export. On the
other hand in B. K. Wadar v. Daulatram Rameshwarlal(2) it was held that if
property in the goods passed to the buyer after the crossing of the Customs
frontier for export out of India the sale was in the course of export. This is
because the course of export had already begun and therefore the sale followed
the commencement of the export, operation.
Transactions of the type of the one in
Wadeyar's case do not cause difficulty. There the course of export is quite
clear and it is easy to see that the sale is integrally connected with export.
Difficulty is likely to be felt when the sale is not so apparently connected.
In K. G. Khosla & Co. v.
Dy. Commissioner of Commercial Taxes(1) the
phrase 'in the course of import' was considered. It was held that in Section 3
of the Central Sales Tax Act the phrases 'Occasions the movement of goods from
one State to another' and 'Occasions the import' mean the same thing. The
movement, it was pointed out, must be the result of an agreement or an incident
of the contract of sale, although it was not necessary that the sale should
precede the import.
A more direct authority is in Ben Gorn
Nilgiri Plantations Company, Coonoor v. Sales Tax Officer(1). In that case
sales of the tea-chests at auctions held at Fort Cochin were claimed to be
exempt from the levy of Sales-tax by virtue of Art. 2 8 6 (1) (b).
The Tea Act, like the Coffee Act, was passed
to control tea industry. Under it also an export allotment for each year is
declared and each tea Estate receives an export quota allotment. The tea Estate
owner can obtain an export licence. The export quota licence is transferable. A
manufacturer obtains from the Tea Board allotment of export quota. The
manufacturer then puts the tea in chests which are sold in public auctions.
Bids are made by agents or intermediaries of foreign buyers. Agents and
intermediaries then obtain licences from the Central Government for export.
The question was whether the sale to the
agent or the intermediary was a sale in the course of export out of India.
This Court found nothing in the transaction
from which a bond could be said to spring between the sale and the intended
export linking them as part of the same transaction. The sellers had no,
concern with the export, the sale imposed or involved no (1)  13 S.T.C.
(3)  17 S.T.C. 473.
(2)  1 S.C.R. 924.
(4)  7 S.C.R. 706.
163 obligation to export and there was
possibility that the goods might be diverted for internal consumption.
The Court considered the sales as sales for
export and not in the course of export. In laying this down the Court observed
" . . . 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".
"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".
The case however did not attempt to lay down
any tests, observing that each case will depend on its own facts. We agree that
the facts must always play their due part. We think it is possible to state
some tests which can be applied in all cases.
The phrase 'sale in the course of export'
comprises in itself three essentials : (i) that there must be a sale (ii) that
goods must actually be exported and (iii) the sale must be a part and parcel of
the export. Therefore either the sale must take place when the goods are already
in the process of being exported which is establishedby their having already crossed
the Customs, frontiers,. or the sale must occasion the export. The word
'occasion' is used as a verb and means 'to cause' or 'to be the immediate cause
Read in this way the sale which is to be
regarded as exempt is a sale which causes the export to take place or is the
immediate cause of the export. The export results from the sale and is bound up
with it. The word 'course' in the expression 'in the course of' means 'progress
or process of', or shortly 'during'. The phrase expanded with this meaning
reads 'in the progress or process of export' or 'during export'. Therefore the
export front India to a foreign destination must be established and the sale
must be a link in the same export for which the sale is held. To establish
export a person exporting and a person importing are 164 necessary elements and
the course of export is between them.
Introduction of a third party dealing
independently with the seller on the one hand and with the importer on the
other breaks the link between the two for them there are two sales one to
intermediary and the other to the importer. The first sale is not in the course
of export for the export begins from the intermediary and ends with the
Therefore the tests are that there must be a
single sale which itself causes the ;export oris in the progress or process of
export. There is no room for two or more sales in the course of export. The
only sale which can be said to cause the export is the sale which itself
results in the movement of the goods from the exporter to the importer.
The course of export may be established by
agreement or by force of law. To be the former the agreement between the seller
and the 'buyer must envisage an export out of India who then become exporter
and importer respectively. By force of law a person selling the goods may be
compelled to sell them only in anexport sale but that too is not essentially
different from the first. In either case there is a seller and a buyer who by
reason of the sale also become exporter and importer respectively. Any other
buyer who is not himself the importer buys for export even if ,export
ultimately results. It is to bring out these results that Parliament has
recognised only two cases of sale in the course of import : (a) where the sale
is effected by a transfer of documents of title to goods after the goods have
crossed the Customs frontiers that is to say the goods are already on the way
to the importer and (b) when the sale itself causes the export to take place
that is to say the exporter and importer negotiate and complete a sale which
without more would result in the export of the goods. No other sale can qualify
for the exemption under Section 5 (1 ) read with Article 2 8 6 (1 ) (b).
The question is whether the sale to the
registered exporters can be said to be exempted. In the Indian Coffee Board v. The
State of Madras(1) Rajagopalan and Rajagopala Ayyanger, JJ. held that the sale
to the registered exporter was a sale for export and only the contract of sale
entered into by the registered exporter with the buyer abroad that could be
brought within the scope of the exemption. The test applied by the High Court
is the test we have indicated and which has found approval in the two earlier
cases of this Court which have received legislative recognition. The question
to ask is : does the sale to the registered exporter occasion the export which
ultimately takes place ? The answer is that on the rulings it must be an
integral part of the precise (1)  7 S.T.C. 135.
165 export before it can be said to have
occasioned that particular export. Here there are two independent sales
involved in the export programme. The first is a sale between the Coffee Board
as seller to the export promoter.
Then there is the sale by the export promoter
to a foreign buyer. of the latter sale, the Coffee Board does not have any
inkling when the first sale takes place. The Coffee Board's sale is not in any
way related to the second sale.
Therefore, the first sale has no connection
with the second sale which is in the course of export, that is to say, movement
of goods between an exporter and an importer.
Mr. Setalvad tried to argue that the first
sale by the Coffee Board included in it a compulsion to export and he relied
upon the observations of Shah, J. in Ben Gorm Nilgiri Plantations case. These
observations were not intended to give exemption to sales for export but to
sales in the course of export. One of the indicate of a sale in the course of
export is the compulsion to export because the sale which is protected must be
itself inextricably bound up with the export. If this were not so a claim of
sales each making a mere condition for terminal export, will be exempted and
the distinction between a sale for "port and a sale in the course of
export will completely disappear. In the Ben Gorm Nilgiri Plantations case even
the purchases by agents of foreign importers were described as sales for
export. No doubt it was said that the sale to the agents did not contain a
compulsion to export to the principal but that was said so that the casual connection
'between the sale and the export could be established. The compulsion to export
here is of a different character. If only compels persons who buy on their own
to export in their own turn by entering into another agreement for sale. The
first sale is, therefore, an independent sale. It is a sale for export. Even
with the compulsion the sale may not result for clauses 26, 30 and 31 visualize
such happenings. It follows, therefore, that unless the sale is inextricably
bound up with a particular export it cannot be said to be in its course. If no
particular export is in sight the sale by the Coffee Board cannot go beyond the
description of sale for export.
For these reasons we are of opinion that the
decision of the Madras High Court in the case cited above is correct. For the
same reasons we are of opinion that this case does not fall within the ruling
in Ben Gorm Nilgiri Plantations' case. The petitioner cannot claim exemption
from the tax and the department was right in demanding the tax.
The petitions fail and will be dismissed with
Sikri, J. I have had the advantage of reading
the draft of the judgment prepared by the learned Chief Justice. I agree with
166 him that the preliminary objection raised by the respondents is devoid of
force, but I regret that I cannot concur with the conclusion that the sales in
question were not made in the course of export. With utmost respect, in my
opinion he has given an unduly limited meaning to the expression 'if the sale
or purchase occasions such export'. My reasons in coming to this conclusion
are, in brief, as follows :
In Shorter Oxford Dictionary (Illustrated)
the word occasion" when used as a verb means :
"To give occasion to (a person); to
induce; ... To be the occasion or cause of (something); to cause, bring about,
especially in an incidental or subsidiary manner." It is said that in the
context the word "occasion" means "to cause or to be the
immediate cause." When a word bears two meanings the context must determine
which is the appropriate meaning to be adopted. What then is the context with
which we, are dealing ? The context is the export trade and its undoubted
economic importance to this country. Further, each country is more and more
organising the export trade and directing its flow in particular directions.
The course of export is not the same what it was before the intervention of
Governments or their agencies. Moreover the idea underlying art. 286(1)(a) was
to restrict the powers of the State to levy taxes on sales or purchases in the
course of export so that the export trade may not be ham-' pered.
As observed by Patanjali Sastri, C.J. in
State of Travancore-Cochin v. The Bombay Co. Ltd. (1), "lest similar
reasoning should lead to the imposition of such cumulative burden on the
export-import trade of this countrywhich is of great importance to the nation's
economy, the Constituent Assembly may well have thought it necessary to exempt
in terms sales by export and purchases by import from sales tax by inserting
article 286(1)(b) in the Constitution." In my view, keeping in view the
aforementioned considerations the wider meaning of the word "
occasion" is the more appropriate to apply in the constructionof s. 5 ( 1)
It is said that Parliament had accepted the narrower meaning of the word
"occasion" because this was the meaning ascribed to it by this Court
in State of Travancore-Cochin v. The Bombay Co. Ltd.(1) and State of
Shanmugha Vilas Cashew Nut Factory(2). 1,
with respect, am unable to appreciate this argument. In the former case this
Court was concerned with (1)  S.C.R. 1112, 1119.
(2)  S.C.R. 53.
167 export sales of certain commodities to
foreign buyers on C.I.F. or f.o.b. terms. After setting out the four views
presented before it, Patanjali Shastri, C.J., speaking on behalf of the Court,
"We are clearly of opinion that the
sales here in question, which occasioned the export in each case, fall within
the scope of the exemption under article 286(1) (b)." Later he said
"We accordingly hold that whatever else mayor, may not fall within article
286(1)(b), sales and purchases which themselves occasion the export or the
import of the goods, as the case may be, out of or into the territory of India
come within the exemption and that is enough to dispose of these appeals."
It seems to me that it is wrong to interpret
that decision to mean that the Court held that in no other case can sales
"occasion" an export. In fact the learned Chief Justice says to the
contrary by saying "whatever else may or may not fall." In State of
Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory(1) this Court, inter
alia, held that the last purchase of goods made by the exporter for the purpose
of exporting them to implement orders already received from a foreign buyer or
expected to be received subsequently in the course of business was not within
the protection of clause (1) (b).
In the course of discussion, apart from
referring to a passage from the earlier judgment in which the word
"occasion" is used, the word 'occasion' is not mentioned again. No
mention is made in this judgment of facts similar to which are present in the
present case. What happens when there is legal certainty that the goods are headed
for a foreign destination and will not be diverted to the domestic market was
not considered as the question did not arise.
In State of Mysore v. Mysore Spinning and
Manufacturing Co.(1) facts are somewhat closer to the present case, but it does
not appear that there was legal compulsion to export and that the Mills, who
sold the cloth for sale, could compel the purchasers to export. The general
observations therein must be read in the light of facts.
With respect, I think it is erroneous to
assume that Parliament by using the word "occasion" must be deemed to
have used it in (1)  S.C.R. 53.
(2) A.I.R. 1958 S.C. 1002.
168 the same sense as Patanjali Sastri, C.J.,
did. It is an ordinary dictionary word andnot a technical word. He was using it
to describe the transactions in those cases, and the narrower meaning was
apposite. Even there he guarded himself by saying " whatever else may or
may not fall within art. 286 ( 1 ) (b)." It should also be noted that
Patanjali Sastri, C.J.,had also qualified the word "occasion" by
adding the words "by themselves". These words do not exist in the
Similar expression occurring in ss. 3 and
5(2) of the Act has been interpreted by this Court on a number of occasions and
I cannot appreciate why the same expression bears a different meaning in s.
5(1). The earlier cases are referred to in K. G. Khosla v. Deputy Commissioner
of Commercial Taxes(1). Shah, J., in Tata Iron and Steel Co.
v. S. R. Sarkar(2) had interpreted s. 3 of
the Act as follows :
"In our view, therefore, within clause
(b) of section 3 are included sales in which property in the goods passes
during the movement of the goods from one State to another by transfer of
documents of title thereto : clause (a) of section 3 covers sales, other than
those included in clause (b), in which the movement of goods from one State to
another is the result of a covenant or incident of the contract of sale, and
property in the goods passes in either State." In other words it was held
that a sale occasion,,, the movement of goods when the movement "is the
result of a covenant or incident of contract of sale." Applying this test
this Court observed in Khosla & Co. v. Deputy Commissioner of Commercial
Taxes(1) at pp 488-489 :
"The next question that arises is whether
the movement of axle-box bodies from Belgium into Madras was the result of a
covenant in the contract of sale or an incident of such contract. It seems to
us that it is quite clear from the contract that it was incidental to the
contract that the axle-box bodies would be manufactured in Belgium, inspected
there and imported into India for the consignee.
Movement of goods from Belgium to India was
in pursuance of the conditions of the contract between the assessee and the
Director-General of Supplies. There was no possibility of these goods being
diverted by the assessee, for any other purpose. Consequently we hold that the
sales took place in the course of import of goods within section 5(2) of the
Act, and are, therefore, exempt from taxation.
(1) 17 S.T.C. 473. (2) It S.T.C. 655,667.
169 It will be noticed that the sale which
was sought to be taxed but was exempted was the sale to Southern Railway and
the contract under which the movement resulted was with the Director General of
The heart of the matter lies in answering one
question. Can two sales occasion an export ? I find no difficulty in answering
this question in the affirmative. Two sales can take place in the course of
export if they are effected by a transfer of documents of title to the goods
after the goods have crossed the customs frontier of India, and they both will
be protected under s. 5(1) of the Act. Therefore, it cannot be assumed that it
is the intention of s. 5 (1) that only one sale can enjoy the protection of s.
5 (1) Accordingly, apart fromany assumption, can two sales occasion an export ?
As I have said, "occasion" does not necessarily mean immediately
cause; it also means to "bring about especially in an incidental or
subsidiary manner". It the sale by the appellant brings about the export
in an incidental or subsidiary manner it can be said to occasion the export. It
was in view of those considerations that Shah J. , speaking for the Court, had
observed in Ben Gorm Nilgiri Plantations Co. v. The Sales Tax Officers(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 transaction. In this sense to constitute a sale in the course
of export it may be said that there must be an intention on the part of both
the buyer and the seller to export, there must be an obligation to export, and
there must be an actual export.
The obligation may arise by reason of
statute, contract between the parties, or from mutual understanding or
agreement between them, or even from the nature of the transaction which links
the sale to export. A transaction of sale which is a preliminary to export of
the commodity sold may be regarded as a sale for export, but is riot
necessarily to be regarded as one in the course of export, unless the sale
occasions export." In this passage Shah, J., clearly visualised that a
transaction of sale which is preliminary to export may be regarded as in the
course of export if the sale occasions the export. The test postulated may be
that there must be an integral relation or bond between the sale and export.
Why Shah, J., held that the sales were not in
the course of export was, to use his words (1) 15 S.T.C. 753, 759.
6 Sup CI/70-12 170 "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 .... 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 expert ,of the, goods which would make them
parts of an integrated transaction of sale in the course of export." The
case, with, respect, points out clearly what was lacking in the transaction. It
is one way of laying down tests. If these incidents had not been missing the
Court would have surely held the sale to be in course of export.
It seems to me that this judgment is in
effect overruling earlier decisions of this Court without saying so. The
Calcutta High Court (Ray and Basu JJ.) reviewed the Supreme Court cases
exhaustively in S. K. Roy v. Additional Member, Board of Revenue(1) and came to
the conclusion that the mere fact that there is not contract between the seller
foreign buyer ,does not conclusively
establish that a transaction cannot be one in tile course of export'. It may
still be held to be such a transaction provided it is established that the
contract between the seller and the third party 'occasions' the export. Basu,
J., followed this decision in Serajuddin & Company v. Commercial Tax
On the facts of this case, the Coffee Board,
the sellers, have concern with the actual export of goods. They have made
various provisions to see that the purchasers must export. Condition 26, quoted
by the learned Chief Justice, clearly provides that the coffee shall be
exported to stipulated or approved destinations and it shall not under any
circumstances be diverted to another destination, sold or be disposed of or
otherwise released in India. If the purchaser commits a default, apart from
penalty, it is provided that unexpected coffee may be seized. Thus the Coffee.
(1) 18 S.T.C. 379.
(1) 23 S.T.C. 259.
171 Board retains control over the goods.
These conditions create a bond between the sale and eventual export. The
possibility that in a particular case a purchaser might commit a breach of
contract or law and not export does not change the nature of the transaction, I
would accordingly allow the petition and declare that the sales held by the
Coffee Board at the export auctions were in the course of export and exempt
under art. 286(1)(b) of the Constitution, read with s. 5 of the Central Sales
Tax Act, 1965, and quash the impugned assessments in so far as they assess such
ORDER In accordance with the majority
judgment, the petitions fail and are dismissed with costs.