Madras Marine & Co. Vs. State of
Madras [1986] INSC 137 (16 July 1986)
MUKHARJI, SABYASACHI (J) MUKHARJI, SABYASACHI
(J) PATHAK, R.S.
CITATION: 1986 AIR 1760 1986 SCR (3) 236 1986
SCC (3) 552 1986 SCALE (2)126
ACT:
Tamil Nadu General Sales Tax Act, 1959-Goods-Segregated
in bonded ware houses-Sale of goods for consumption on board foreign going
ships-Liability for sales tax.
Central Sales Tax Act 1956, s. 4(2) (a) and
(b)-Goods- Segregated in bonded ware houses for delivery to foreign going
vessels-Sale of such goods for consumption on board the ships-Whether case of
export of goods-Whether liable to levy of State Sales Tax.
Constitution of India, Art. 286(1)(b)-Concept
of export-Definition of.
HEADNOTE:
The appellant-company in Civil Appeal No.642
of 1974 was doing the business as ship chandler. It imported the goods from
foreign countries and after receipt of the goods, kept them in a bonded
warehouse under the relevant provisions of the Customs Act, 1962. The
ware-house was under dual control of the Customs Department and the importers
like the appellant so that it could not be opened by one without the presence of
the other. On receipt of order from the Captain of the Ship requiring ship
stores, the appellant supplied the goods on board after observing certain
formalities imposed by the Customs Act, the rules and regulations made
thereunder.
For the Assessment year 1964-65 a question
arose whether Rs.3,51,438.08 which was the taxable turnover, determined by the
assessing authority, was subject to the tax under the Tamil Nadu General Sales
Tax Act, 1959. The appellant objected to the assessment on such turnover on the
ground that the goods relating to such turnover were imported from abroad,
stored in the customs ware house and were not brought to the country across the
customs frontiers. The Sales Tax Officer assessed the turnover and the
Appellate Assistant Commissioner confirmed the assessment on the basis that
sales were effected 237 within the State of Tamil Nadu. However, the Tribunal,
in appeal by the appellant, held that the sales did not take place within the
State of Tamil Nadu since the import of goods in question had not become
complete and as the goods were sold to the foreign going vessels, the sales in
question could not be deemed to be within the State of Madras. On revision, the
High Court relying on the decision of the Supreme Court in the State of Madras
v. Davar and Co., 24 STC 481, held that the sales took place in the State of
Madras and assessment to tax was valid. The facts in all the other connected
appeals, writ petitions and the special leave petitions being identical, a
similar question of law also arose in them.
In appeal to the Supreme Court by the
appellant/petitioners, it was contended on their behalf: (i) that the property
in the goods, did not pass in the territory of Tamil Nadu and the sales were
therefore, in the course of export because goods were to be on board the ship
and were exported outside the country and could not be consumed before they
reached the high seas; (ii) that the sale of goods took place in the territorial
water of India and not within the State of Tamil Nadu; (iii) that the
legislative competence of the State of Tamil Nadu as regards levying of the
sales-tax was confined to the territories of the State as specified in item No.
7 of the First Schedule to the Constitution. That legislative competence did
not extend to any territorial waters simply because these were abutting the
land mass of the State of Tamil Nadu; (iv) that the Sovereignty over the limits
of territorial waters extended and always extended to the entire territorial
waters of India. The limits and extent of the said territorial waters had not
been altered by any notification of the Central Government. The territorial
waters extended to a distance of 12 nautical miles from the sea shore adjacent
to the land mass of the State; and (v) that there was no definition at all of
"Customs Frontiers" in the Central Sales Tax Act, 1956. The
definition inserted in the Act in s. 2(ab) by the Amending Act 103 of 1976 must
be read as declaratory or explanatory and no questions of prospective
operations would arise. On the other hand, it was argued on behalf of the
respondent-State that the appellant's godowns and bonded ware-houses were
within the State of Tamil Nadu. When orders were received, the
appellants/petitioners supplied the required quantity from the stock either in
the godown or in the bonded ware-houses and delivered these or set these apart
in fulfilment of the orders placed by the concerned officer of the foreign bond
ship and that at that time only appropriation was made towards the contract of
sale and such appropriation took place within the State of Tamil Nadu. It was,
therefore, on such ap- 238 propriation that the sale took place; and (ii) that
it was not correct to say that the transactions of sale were completed only
when the masters of the vessels acknowledged delivery of the goods on board the
vessels.
Dismissing the Appeals and the Petitions, ^
Held: 1.1 The concept of export in Article 286(1)(b) of the Constitution
postulates the existence of two termini as those between which the goods were
intended to move or between which they were intended to be transported and not
a mere movement of goods out of the country without any intention of their
being landed in specie in some foreign port. Goods might be consumed within the
meaning of the Explanation to Article 286(1) (a) either by destruction or by
way of use depending on the nature of the goods.
Therefore, the sales were not sales "in
the course of export" within the meaning of Article 286(1) (b) and were
not exempt under that Article but they fell within the Explanation to Article
286(1) (a). [247C-D; G]
1.2 Mere movement of goods out of the country
following a sale would not render the sale, one in the course of export within
Article 286(1) (b) of the Constitution of India. Before a sale can be said to
be a sale in the course of export, the existence of two termini between which
the goods are intended to move or to be transported is necessary. [249F-G] In
the instant case the appropriation of goods took place in the State of Tamil
Nadu when the goods were segregated in the bonded ware-house to be delivered to
the foreign going vessels. Therefore, under sub-s. (2), sub-cl.
(a) and (b) of s. 4 of the Central Sales Tax
Act, 1956, the sale of goods in question shall be deemed to have taken place
inside the State because the contract of sale of ascertained goods was made
within the territory of Tamil Nadu and furthermore in case of unascertained
goods approrpriation had taken palce in that State in terms of cl.
(b) of sub-s. (2) of s. 4 of the Central
Sales Tax Act, 1956. There is no question of sale taking place in course of
export or import under s. 5. From that point of view, the amendment introduced
by Act 103 of 1976 by incorporating in cl. (ab) of s. 2 of the Central Sales
Tax Act, 1956 does not affect the position. It was not a case of export as
there was no destination for the goods to a foreign country. The sale was for
the purpose of consumption on board the ship.
It was not as if only on delivery on board,
the vessel that the sale took place. The mere fact that shipping bill was
prepared for sending it for custom formalities which were designed to
effectively control smuggling activities could not 239 determine the nature of
the transaction for the purpose of sales tax nor does the circumstances that
delivery was to the captain on board the ship within the territorial waters make
it a sale outside the State of Tamil Nadu.[252E-H;
247A-B] Burmah Shell Oil Storage and
Distributing Co. of India Ltd., and Anr. v. Commercial Tax Officer & Ors.,
11 STC 764;
Deputy Commissioner of Commercial Taxes v.
Caltex India Ltd., Madras, 13 STC 163; The State of Madras v. Davar & Co.,
24 STC 481; Fairmacs Trading Co. v. The State of Tamil Nadu, 41 STC 157; Tata
Iron and Steel Co. Ltd. Bombay v.
S.R. Sarkar & Ors., 11 STC 655; and The
State of Kerala & Ors. v. The Cochin Coal Co., Ltd., 12 STC 1 relied upon.
Fairmacs Trading Co. v. The State of Tamil
Nadu, 41 STC 157 and Fairmacs Trading Co. v. The State of Andhra Pradesh, 36
STC 260 approved.
3. Customs barrier does not set a terminal
limit to the territory of the State for sales tax purposes. Sale, therefore,
beyond the customs barrier is still a sale within the State. The amendment
introduced in s.2 by the Act 103 of 1976 does not affect the position because
the custom station is within the State of Tamil Nadu. [253A-B]
4. In the facts and circumstances of the
case, it is not necessary to express any opinion on the arguments whether
introduction of cl.(ab) of s.2 of the Central Sales Tax Act by Act 103 of 1976
is prospective or not. [253C-D] Deputy Commissioner of Commercial Taxes v.
Caltx India Ltd., Madras, 13 STC 163; Tata Iron and Steel Co. Ltd.
Bombay v. S.R. Sarkar & Ors., 11 STC 655;
Furby v. Hoey [1947] 1 All England Report 236; The Central Bank of India v.
Their Workmen [1960] 1 SCR 200; and Chanan Singh & Anr.
v. Jai Kaur, [1970] 1 SCR 803 at 804-807
referred to.
R.v. Kent Justices Ex Parte LYE & Ors.,
[1967] 1 All England Report 560 at 564-65 held inapplicable.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 642 (NT) of 1974. etc.
From the Judgment and Order dated 25.4.1973
of the Madras High Court in T.C. No. 243 of 1969.
240 S.T. Desai, Inbarajan and A.T.M. Sampath
for the Appellant.
M.M. Abdul Khader, V.C. Nagarajan and A.V.
Rangam for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. We are concerned with Civil Appeal No.642(NT) of 1974,
Civil Appeal Nos. 1798-1800 of 1981 and the Writ Petition No. 196 of 1974 along
with Special Leave Petitions Nos. 12943-44 of 1985. All these will have to be
disposed of on the main question stated hereinafter and these raise a common
question, facts in all these matters are more or less identical except that
certain assumptions of facts have been made in Special Leave Petitions Nos.
12943-44 of 1985 because in these there were no investigation of facts by the
revenue authorities.
The question involved in all these, is,
whether the sales in question were within the State of Tamil Nadu and as such
subject to tax under the Tamil Nadu General Sales Tax Act, 1959, hereinafter
called the 'Act'.
The dealers who are the petitioners in the
writ petitions and are the appellants in the appeals and the petitioners in
Special Leave Petitions are dealers in stores and were doing business as ship
chandlers in the relevant years. The appellants/petitioners used to supply the
goods imported as stores to foreign going vessels and other diplomatic
personnel. The appellants/petitioners imported these goods from foreign
countries. At the time of import they complied with the statutory provisions of
the Customs Act and other enactments relating to import of goods. They had
given an undertaking to the concerned authorities to supply the imported goods
to foreign going vessels and/or to diplomatic personnel and to receive the
goods in custom bonded ware-house. Under section 59 of the Customs Act, 1962
the importer of any dutiable goods which had been entered for warehousing and
assessed to duty under section 17 or section 18 should execute a bond binding
himself for a sum equal to twice the amount of the duty assessed on such goods
(a) to observe all the provisions of the Act and the rules (b) to pay on or
before a date specified in a notice of demand all duties, rent and charges
claimable on account of such goods under the Act, and (c) to discharge all
penalties incurred for violation of the provisions of the Customs Act and
relevant statutes. For the above 241 purpose, the Assistant Collector of
Customs might permit an importer to enter into a general bond for such amount
as the Assistant Collector of Customs might approve in respect of the
warehousing of goods to be imported by him within a specified period.
Sections 60, 61 and 62 of the Customs Act,
1962 provide for ancillary purposes. In substance these provide for control by
the proper officer of the goods warehoused. It is not necessary for the
determination of the issue involved to deal with other relevant provision of
the Customs Act, 1962.
The appellants/petitioners after receipt of
the goods kept these in a bonded ware-house under the relevant provisions. The
ware-house was under dual control of the Customs Department and the importers
like the appellants/petitioners so that it could not be opened by one without
the presence of the other. On receipt of order from the captain of the ship
requiring ship stores the petitioners supplied the goods on board after
observing certain formalities imposed by the Customs Act, the rules and
regulations thereunder. These were the broad features of the way the
appellants/petitioners operated. We will, however, deal with the facts as found
in Civil Appeal No.
642 of 1974.
The case of the appellants/petitioners was
that all these goods were intended for re-export only and were at all relevant
time in a bonded warehouse. The delivery was on board the ship to foreign going
ship. The goods were consumed only on the high seas. The property in the goods
had passed only after the goods had crossed the custom frontiers. The
contention was that the property in the goods did not pass in the territory of
Tamil Nadu. The sales were therefore (i) in the course of export because goods
were to be on board the ship and were exported outside the country and could
not be consumed before they reached the high seas;
(ii) the sale of the goods took place in the
territorial waters of India and not within the State of Tamil Nadu,
"Indian Customs Water" is defined in the Customs Act under section
2(28) as follows:
"Indian customs waters" means the
waters extending into the sea up to the limit of continguous zone of India
under section 5 of the Territorial Waters, Continental Shelf, Exclusive
Economic Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal
river." 242 Under article 297 of the Constitution, all lands, minerals and
other things of value underlying the ocean within the territorial waters or the
continental shelf of India shall vest in the Union and are held for the purposes
of the Union.
It is the contention of the
appellants/petitioners that sales there-fore took place outside the State as
territorial waters vested in the Union Government and not in the State of Tamil
Nadu. The turnover in question was not exigible according to the
appellant/petitioners, to sales tax under the provisions of the Act. It is this
plea which the petitioners/appellants sought to raise as an additional ground
before the High Court in the appeal out of which Civil Appeal No. 642 of 1974
arose. But it was not permitted by the High Court.
The Taxing Authorities' plea on the other
hand was that the various goods sold to foreign bound vessels were within the
State of Tamil Nadu when the concerned officer of the foreign bond vessels
placed indents for the supply of goods.
Further, the appellants' godowns and bonded
warehouses were within the State of Tamil Nadu. When orders were received the
appellants/petitioners supplied the required quantity from the stock either in
the godown or in the bonded warehouses and delivered these or set these apart
in fulfilment of the orders placed by the concerned officer of the foreign bond
ship. It is the case of the respondents that at that time only appropriation
was made towards the contract of sale and such appropriation took place within
the State of Tamil Nadu. It is the further case of the respondents that it was
on such appropriation that the sale took place. In the premises it was
submitted on behalf of the respondents that the contention of the appellants/petitioners,
that the transactions of sale were completed only when the masters of the
vessels acknowledged delivery of the goods on board the vessels was not
correct.
It was further urged that it was not correct
to contend that the appellants/petitioners should be treated as actual
exporters. The place of delivery would not alter appropriation which had
already taken place.
In support of this contention, reliance was
placed on the decision of this Court in the case of Burmah Shell Oil Storage
and Distributing Co. of India Ltd., and Another v.
Commerical Tax Officer and Others., 11 S.T.C.
764.
It is necessary in this background, to
examine the facts involved in Civil Appeal No. 642 of 1974. There, the main
question involved 243 was whether Rs.3,51,438.08 which was the taxable turnover
determined by the assessing authority was subject to the tax under the said
Act. The appellant objected to the assessment on such turnover on the ground
that the goods relating to such turnover were imported from abroad, stored in
the customs warehouse and were not brought to the country across the customs
frontiers. The lower appellate authority allowed some deduction in the
determination of the taxable turnover in respect of sales to local diplomatic
corps and determined the figure at Rs.3,51,045.68. The Appellate Assistant
Commissioner confirmed the assessment on the basis that sales were effected
within the State of Tamil Nadu and as such dismissed the appeal. There was an
appeal before the Tribunal. The Appellate Assistant Commissioner relied on the
decision of the Madras High Court in the case of Deputy Commissioner of
Commerical Taxes v. Caltex India Ltd Madras, 13 S.T.C. 163. The Tribunal
accepted the contentions of the dealer and held that the sales did not take place
within the State of Tamil Nadu. It was pointed out that there was significant
change in the Customs Act, 1962 from Sea Customs Act, 1978, and the Tribunal
held that import of goods in question had not become complete and as the goods
were sold to the ocean going vessels, the sales in question could not be deemed
to be within the State of Madras. On revision the High Court relying on the
decision of this Court in The State of Madras v. Davar and Co., 24 S.T.C. 481
held that the sales took place in the State of Madras and assessment to tax was
valid. Civil Appeal No. 642 of 1974 arises from the said decision.
Civil Appeals Nos. 1798-1800 of 1981 followed
the said decision and are based on the said reasons. These appeals are for the
assessment years 1968-69 and 1970-71. It may be mentioned that Civil Appeal No.
642 of 1974 was concerned with the assessment to tax for the year 1964-65.
The writ petition challenges the assessment
made for the assessment year 1972-73 where the taxing authorities and the
appellate authorities under the Act followed the said decision which is under
appeal in Civil Appeal No. 642 of 1974. Special Leave Petition Nos. 12943-44 of
1985 challenge the assessments for 1978-79 and 1979-80 where the High Court
took the view upholding the revenue's contention that sales were taxable
relying on the decision in the case of Madras High Court of Fairmacs Trading
Company v. The State of Tamil Nadu, 141 S.T.C. 157.
244 As mentioned hereinbefore, before the
High Court in Civil Appeal No. 642 of 1974, the grounds urged in the writ
petition were sought to be urged as additional grounds but were not permitted
as these had not been taken before the taxing authorities.
On behalf of the appellants/petitioners, Mr.
S.T. Desai, learned counsel, submitted that the legislative competence of the
State of Tamil Nadu as regards levying of the sales-tax was confined to the
territories of the State as specified in item No. 7 of the First Schedule to
the Constitution. That legislative competence did not extend to any territorial
waters simply because these were abutting the land mass of the State of Tamil
Nadu. It was further urged that the Sovereignty over the limits of territorial
waters extended and always extended to the entire territorial waters of India.
The limits and extent of the said territorial waters had not been altered by
any notification of the Central Government. The territorial waters extended to
a distance of 12 nautical miles from the sea shore adjacent to the land mass of
the State. See in this connection The Territorial Waters, Continental Shelf,
Exclusive Economic Zone and other Maritime Zones Act, 1976.
It was further urged that there was no
definition at all of 'Customs Frontiers' in the Central Sales Tax Act, 1956.
The definition inserted in the Act in section 2(ab) by the Amending Act 103 of
1976 must be read as declaratory or explanatory and no questions of prospective
operations would arise according to counsel for the appellants/petitioners.
He submitted that that definition would also
be applicable to sales prior to 1976.
This Court dealt with the history of the
definition now appearing in the relevant sections of the Central Sales Tax Act in
the case of Tata Iron and Steel Co. Limited, Bombay v. S.R. Sarkar and Others,
11 S.T.C. 655. In that case this Court was dealing with the relevant provisions
in a petition under Artical 32 of the Constitution challenging the demand of
the Sales Tax Officer of State of West Bengal under the Central Sales Tax Act,
1956 in respect of certain sales of steel goods. The petitioner company in that
case had its registered office in Bombay and its head sales office in Calcutta
in the State of West Bengal and factories in Jamshedpur in the State of Bihar.
The company was registered as a 'dealer' under the Bihar Sales Tax Act and was
also registered as 'dealer' in the State of West Bengal under the Central Sales
Tax Act, 1956. For the period of asessment 1st July, 1957 to 31st March, 1958,
the company submitted its return of taxable sales 245 to the Commercial Tax
Officer, Lyons Range, Calcutta. The assessment order was passed. It is not
necessary to deal exhaustively with the history of the present sections 4 and 5
of the Central Sales Tax Act which has been dealt with by this Court.
Interpreting the relevant provisions of the Central Sales Tax Act, 1956, it was
observed that the Act by section 3 indicates as to when a sale or purchase of
goods is said to take place in the course of inter-State sale or trade or
commerce. Section 4 also indicates as to when a sale or purchase takes place
outside the State. The majority of the judges of this Court held on the facts
found 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." Sarkar and Das Gupta JJ. in
a separate judgment held that the documents of title of goods sold could pass
the property in them only if the parties had agreed that that would be the
result. In interpreting whether in the course of import or export, sales took
place, the same principle would be applicable.
The correct position, so far as the facts of
the present case are concerned, in our opinion, has been laid in the decision
of Burmah Shell Oil Storage and Distributing Co. Of India Ltd. and Another v.
Commercial Tax Officer and Others (supra). This Court observed at page 765 as
follows:
"While all exports involved a taking out
of the country, all goods taken out of the country cannot be said to be
exported. The test is that the goods must have a foreign destination where they
can be said to be imported. It matters not that there is no valuable
consideration from the receiver at the destination end. If the goods are
exported and there is sale or purchase in the course of that export and the
sale or purchase occasions the export to a 246 foreign destination, the
exemption is earned.
Purchases made by philanthropists of goods in
the course of export to foreign countries to alleviate distress there, may
still be exempted, even though the sending of the goods was not a commerical
venture but a charitable one. The crucial fact is the sending of the goods to a
foreign destination where they would be received as imports." The
appellant in that case dealt in petroleum and petroleum products and carried on
business at Calcutta. They had maintained supply depots at Dum Dum Airport from
which aviation spirit was sold and delivered to aircraft proceeding abroad for
their consumption. The question was whether these supplies to the aircraft
which proceeded to foreign countries were liable to sales tax under the Bengal
Motor Spirit Sales Taxation Act, 1941. The contention of the appellants in that
case was that such sales were made in the course of export of such aviation
spirit out of the territory of India that they took place outside the State of
West Bengal, that inasmuch as aviation spirit was delivered for consumption
outside West Bengal, the sales could not fall within the Explanation to clause
(1) (a) of article 286 as it then stood. It was held by this Court that in
order to exclude the taxation by the State of West Bengal, the appellants had
to prove that there was some other State where the goods could be said to have
been delivered as a direct result of the sale for the purpose of consumption in
that other State and that as they failed to do so, the aviation spirit loaded
on board an aircraft for consumption though taken out of India, was not
exported since it had no destination, where it could be said to be imported and
so long as it did not satisfy that test, it could not be said that the sale was
in the course of export. It was further held that aviation spirit was sold for
the use of aircraft and the sale was not even for the purpose of export and all
the elements of sale including delivery and payment of price took place within
the State of West Bengal and the sales were complete within the territory of
that State. The customs barrier did not set a terminal limit to the territory
of West Bengal for sales tax purpose. The sale beyond the customs barrier was
still a sale in fact in the State of West Bengal.
The ratio of this decision would be
applicable to the facts and circumstances of this case. It was rightly urged
that the appropriation of goods took place in the State of Tamil Nadu when the
goods were segregated in the bonded warehouse to be delivered to the foreign
going vessels. It was not a case of export as there was no destination 247 for
the goods to a foreign country. The sale was for the purpose of consumption on
board the ship. It was not as if only on delivery on board the vessel that the
sale took place. The mere fact that shipping bill was prepared for sending it
for custom formalities which were designed to effectively control smuggling
activities could not determine the nature of the transaction for the purpose of
sales tax nor does the circumstances that delivery was to the captain on board
the ship within the territorial waters make it a sale outside the State of
Tamil Nadu.
In the case of The State of Kerala and Others
v. The Cochin Coal Company Ltd., 12 S.T.C. 1, it was held that concept of export
in article 286(1)(b) of the Constitution postulated the existence of two
termini as those between which the goods were intended to move or between which
they were intended to be transported and not a mere movement of goods out of
the country without any intention of their being landed in specie in some
foreign port. Goods might be consumed within the meaning of the Explanation to
article 286(1)(a) either by destruction or by way of use depending on the
nature of the goods. In that case the respondent- company dealers in coal had
their office at Fort Cochin which was formerly within the State of Madras. The
company had imported and kept stocks of 'bunker coal' at certain places which
at the relevant period was also within the State of Madras. Part of the activities
of the said company consisted in the supply of 'bunker coal' from their depots
in Candle Island for steamers arriving at the port of Cochin in the State of
Travancore-Cochin for the outward voyage of the steamers from the Cochin port.
In respect of these sales of coal, tax was claimed by the Travancore-Cochin
State for the years 1951-52 and 1952-53 but the respondent claimed exemption
under article 286(1)(b) or (2) of the Constitution and also under a
Notification dated 5th February, 1954 and published in the official Gazette of
16th February, 1954. It was held that the sales of coal by the respondent were
sales in the course of inter-State trade and fell within the ban of article
286(2), but the levy of tax on such sales had been validated by the Sales Tax
Laws Validation Act, 1956.
It was further held that the sales were not
sales 'in the course of export' within the meaning of article 286(1)(b) and
were therefore not exempt under that article but they fell within the
Explanation to article 286(1)(a) inasmuch as the coal was delivered in the
State of Travancore Cochin and the steamers were the actual consumers who were
at liberty to consume the coal whenever they desired; that the Notification
dated 5th February, 1954 was and must be deemed to be one issued in exercise of
the power 248 conferred on the State Government by section 6(1) of the
Travancore-Cochin General Sales Tax Act, 1125 and as the transactions clearly
fell within the Notification, the respondent would be entitled to the benefit
of the tax exemption conferred by the Notification.
The High Court in Civil Appeal No. 642 of
1971 has based its decision on the decision of this Court in State of Madras v
Davar and Co. (supra). In that case the assessee, a dealer in timber, had
imported two consignments of timber from Burma and sold it to buyers in India.
The ship carrying the first consignment arrived at the Madras Harbour on 17th
October, 1957. The assessee obtained moneys from the buyers on 24th October,
1957, retired the documents of title from the bank and handed over the
documents on the same day to the buyers to enable them to clear the goods. All
charges and expenses by way of import duty, clearance charges etc., were paid
to the buyers on behalf of the assessee. The second consignment reached Madras
by ship on 17th December, 1957 and the assessee obtained on 23rd December,
1957, from the buyers the value of the consignment after handing over to the
buyers the necessary shipping documents. The assessee claimed that these sales
were in the course of import and these were not liable to tax under the Madras
General Sales Tax Act, 1959, as these were covered by article 286(1)(b) of the
Constitution. It was held that the expression 'customs frontiers' in section
5(2) of the Central Sales Tax Act, 1956, did not mean 'customs barrier'. It had
to be construed in accordance with Notification No. S.R.O. 1683 dated 6th
August, 1955, issued by the Central Government under section 3-A of the Sea
Customs Act, 1878 read with the Proclamation of the President of India dated
22nd March, 1956. 'Customs frontiers' meant the boundaries of the territory,
including territorial waters, of India. The sales in this case were effected by
transfer of documents of title long after the goods had crossed the customs
frontiers of India; the ships carrying the goods in question were all in the
respective harbours within the State of Madras when the sales were effected by
the assessee by transfer of documents of title to the buyers. The sales were
therefore not effected in the course of import. This Court, in construing the
customs frontiers, referred to the extent of territorial waters, declaration of
the President dated 22nd March, 1956, the contents of which were set out in
that decision which need not be repeated here.
We have noted the further contentions which
were only raised in the writ applications and not raised in Davar's case. In
our opinion these further contentions have been elaborately discussed in the
two 249 decisions, one of the Andhra Pradesh High Court and another of the
Madras High Court, which we shall presently notice but it may be pointed out
that there is a difference between the two High Courts on the interpretation
whether section 4(2)(a) or 4(2)(b) of the Central Sales Tax Act would apply or
not. It may be noted that it was observed by Sarkar and Das Gupta JJ. in Tata
Iron and Steel Co. Limited, Bombay v.
S.R. Sarkar and others, (supra) that clauses
(a) & (b) of section 3 were mutually exclusive and sale could not fall under
both the clauses. We are not here directly concerned with the question whether
clauses 4(2)(a) and 4(2)(b) of the Central Sales Tax Act, 1956 are mutually
exclusive or not.
We are concerned with the question whether
either of these was applicable.
In the case before the Andhra Pradesh High
Court in Fairmacs Trading Company v. The State of Andhra Pradesh, 36 S.T.C.
260, the petitioner imported ship-stores from foreign countries, kept these in
bonded warehouses of the customs department without the levy of customs duty
and later on sold and delivered to ships' masters for consumption abroad the
ship after crossing the port boundaries. On the question whether the sales were
outside the State or in the course of export and therefore not liable to tax
under the Andhra Pradesh General Sales Tax Act, 1957, it was observed by the
Andhra Pradesh High Court that the goods were specific and ascertained and were
within the State when the contract of sale took place and therefore the
requirements of section 4(2)(a) of the Central Sales Tax Act, 1956 were fully
satisfied and the sales must be said to have taken place inside the State; but
as the goods sold were meant for consumption during voyage and they had no
destination in any foreign country where they could be received as imports, the
sales were not sales in the course of exports. It was further held that mere
movement of goods out of the country following a sale would not render the
sale, one in the course of export within article 286(1)(b) of the Constitution
of India. Before a sale can be said to be a sale in the course of export, the
existence of two termini between which the goods are intended to move or to be
transported is necessary.
The Madras High Court in the case of Fairmacs
Trading Company v. The State of Tamil Nadu (supra) was dealing with an
assessee, who was a dealer in ship's stores and was also doing business as ship
chandlers and who imported goods from abroad for the purpose of supplying them
either to foreign going vessels or to diplomatic personnel. These goods were
received and kept in the customs bonded 250 ware-house and were cleared under
the supervision of the customs authorities whenever these were sold by the
assessee. In respect of supplies of specific goods made to certain ships
located in the Madras Harbour, pursuant to orders placed by the Master of the
ship or other officers working in the ship, the transportation of the goods to
the ship was effected in such a manner as to ensure that the bonded goods,
which had not paid any duty, did not enter the local market. The delivery
receipt sent along with the goods by the assessee was signed by an officer of
the ship in token of having received the goods in good condition. The question
that arose for consideration was whether the sale took place within the State
of Tamil Nadu and liable to be taxed under the Tamil Nadu General Sales Tax
Act, 1959. It was held (i) that there was nothing to show in the communications
from the ship that the goods had necessarily to be supplied only in the ship.
It was open to the officers working in the ship to come and take delivery of
the goods in which event the sale would be a local sale. Therefore, assuming
that the territorial waters did not form part of the State of Tamil Nadu, as
there was nothing in the contemplation of the contracting parties that the
goods were to be moved from one State to another, it was held that it was not
possible to take the view that the sales were inter- State sales; and (ii) that
the assessee was not selling specific or ascertained goods, because the goods
formed part of a larger stock within the bonded warehouse and had, therefore to
be separated and appropriated to the contract as and when orders were placed by
the officers of the ship by description. Therefore, the sales were local sales
in view of the specific provision of section 4(2)(b) of the Central Sales Tax
Act, 1956, read with section 2(n), explanation (3) of the Act (Tamil Nadu
General Sales Tax Act, 1959), and were accordingly taxable under the Act. The
Court did not find it necessary to consider the question whether the territory
covered by the territorial waters formed part of the State of Tamil Nadu or
not.
Attention of the Madras High Court was drawn
to the decision of Andhra Pradesh High Court in Fairmacs Trading Company v. The
State of Andhra Pradesh (supra). The Madras High Court did not examine the
question in detail in the view it took.
In so far as the High Courts of Andhra
Pradesh and Madras in the said two decisions held that sales took place within
the State, we are in agreement.
On the aspect of territorial waters, we have
set out hereinbefore 251 the contention of the respondents. But inasmuch as we
hold that sales took place within State of Tamil Nadu where appropriation took
place it is not necessary to rest our decision in these matters on this
question.
Mr. Desai drew our attention to the
observations of Chief Justice Lord Parker in the case of R. v. Kent Justices Ex
Parte LYE and others, [1967] 1 All England Report 560 at 564-65. But in this
case it is not necessary to consider that aspect in the view we have taken.
In any event, the sale took place when
appropriation was made and appropriation was made within the State of Tamil
Nadu even if the goods were not delivered. See in this connection the
observations of Lord, Goddard, G.J. in Furby v. Hoey. [1947] 1 All England
Report 236. There the respondent, an excise officer, filled in and sent to the
appellant at his licensed premises a form of order purporting to order a
variety of liquor, stating that delivery instructions would follow. Subsequently,
after licensing hours and at an unlicensed club, the respondent filled up a
form of delivery for one bottle of gin, which was taken by a messenger to the
appellant's premises, and the gin was brought back to and paid for by the
respondent at the club. The appellant was convicted at quarter sessions of
selling by retail a bottle of gin at the club without having taken out a
licence, contrary to section 50(c) of the Finance (1909-10) Act, 1910 of U.K.
It was held that appropriation, which completed the contract, took place at the
licensed premises of the appellant and not at the club, and, accordingly,
though guilty of the offence of selling liquor out of permitted hours, the
appellant was not guilty of selling liquor on unlicensed premises as charged.
In our opinion that is the correct position and appropriation was made within
the State of Tamil Nadu.
In our opinion as the goods were within the
State of Tamil Nadu in case of ascertained goods at the time when the contract
of sale was made and in case of unascertained goods at the time of their
appropriation to the contract by the seller,-sale must be deemed to be within
the State of Tamil Nadu.
In our opinion, therefore, Shri M.M. Abdul
Khader, learned counsel for the respondents was right that under section 2(n)
of the Act read with explanation 3, these sales were within the State.
It may be mentioned that there was an
amendment in 1976 of the Central Sales Tax Act, 1956 by Act 3 of 1976. By that
provision, the 252 following was inserted in section 2 of the Central Sales Tax
Act, 1956:
"(ab) "crossing the customs
frontiers of India" meant crossing the limits of the area of a customs
station in which imported goods or export goods are ordinarily kept before
clearance by customs authorities.
Explanation-For the purposes of this clause, "customs
station" and "customs authorities", shall have the same meanings
as in the Customs Act, 1962." Mr. Desai sought to urge that this was
declaratory and was valid for all the relevant years. Whether a law is a
declaratory or not, depends upon the Act and the language used. There was
nothing in the Act or object of the Act which stated that it was further to
amend the Central Sales Tax Act, 1956 that it was declaratory and not
prospective in nature. Our attention was drawn to certain decisions, whether an
Act is retrospective and declaratory in operation or prospective would depend
upon the purpose of the Act, the object of the Act and the language used. See
in this connection the observation in The Central Bank of India v.
Their Workmen, [1960] 1 SCR 200; Keshavlal
Jethalal Shah v. Mohanlal Bhagwandas & Anr., [1968] 3 SCR 623 and Chanan
Singh & Another v. Jai Kaur., [19701 1 SCR 803 at 804-807.
But that amendent is not relevant in the view
we have taken.
The short question, therefore, that arises in
all these matters is whether sale of the goods in question took place within
the territory of Tamil Nadu. In these cases sale took place by appropriation of
goods. Such appropriation took place in bonded warehouse. Such bonded warehouses
were within the territory of State of Tamil Nadu. Therefore, under sub-section
(2), sub-clauses (a) and (b) of section 4 of the Central Sales-Tax Act, 1956,
the sale of goods in question shall be deemed to have taken place inside the
State because the contract of sale of ascertained goods was made within the
territory of Tamil Nadu and furthermore in case of unascertained goods
appropriation had taken place in that State in terms of clause (b) of
sub-section (2) of section 4 of the Central Sales Tax Act, 1956. There is no
question of sale taking place in course of export or import under section 5 in
this case. From that point of view the amendment introduced by Act 103 of 1976
by incorporating in clause (ab) of section 2 of the Central Sales Tax Act, 1956
does not affect the position. In this connection reference may be made from the
observations of this Court in Burmah 253 Shell oil Storage Ltd., (supra) where
it has been held that customs A barrier does not set a terminal limit to the
territory of the State for sales-tax purposes. Sale, therefore, beyond the
customs barrier is still a sale within the State. The amendment introduced in
section 2 by the Act 103 of 1976 does not affect the position because the
custom station is within the State of Tamil Nadu. That question might have been
relevant if we were considering the case of sale by the transfer of documents of
title to the goods as contemplated by section 5 of the Central Sales-Tax Act.
In the premises we are unable to accept the contentions urged on behalf of the
appellants in the Civil Appeals and also the contentions urged in the Writ
Petition.
In the view we have taken, it is not
necessary to express our opinion on the arguments whether introduction of
clause (ab) of section Z of Central Sales Tax Act by Act 103 of 1976 is
prospective or not. We have, however, noted the submissions. That question, in
the light of our aforesaid views, is not material for the present controversy.
In the premises Civil Appeal No. 642 of 1974,
Civil Appeal Nos. 1798-1800 of 1981 and Writ Petition No. 196 of 1974 are all
dismissed with costs.
So far as Special Leave Petitions Nos.
19243-44 of 1985 are concerned, the same are also dismissed. In these cases,
however, the parties will pay and bear their own costs.
M.L.A. Appeals and Petitions dismissed.
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