Report No. 30
43. First Travancore case.-In State of Travancore-Cochin v. Bombay Co. Ltd. [AIR SC 366: (1952) SCR 1112, the dealings of the Respondents consisted of export sales of certain commodities to foreign buyers. The Respondents claimed exemption from assessment of sales tax on the ground that such sales took place in the course of the export of goods out of the territory of India within the meaning of Article 286(1)(b).
It is necessary to emphasise that the Indian exporters were themselves the sellers of their commodities to the buyer overseas. As this case (which is called the I Travancore case) forms the bed rock of the entire superstructure of the law as developed in later cases and as, as we have noted above, it became the precursor of the Central Sales Tax Act, it would be necessary to quote here some of the relevant passages in the judgment of the Supreme Court.
In para. (10) on p. 367, the learned Chief Justice observed:-
"We are clearly of the 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). Such sales must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say, by employing the machinery of export.
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 the resultant export form parts of the same transaction.".
The final conclusion arrived at by the Supreme Court is stated in para. (14) on p. 368:-
"We accordingly hold that whatever else may or 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.".
44. It is necessary to remember (my repetition may be pardoned) that the transaction in this case was between the Indian exporter who was himself the seller on the one hand, and the buyer in a foreign country on the other. It is only this kind of transaction which the Supreme Court described as a sale by export.
The nature of such transaction and its activities and the utter impossibility of its being put through without the machinery of export were described by the Supreme Court in the passage extracted above, for explaining what the Court meant by a sale by export and when such transaction of sale by export took place. These observations were made only in regard to the particular kind of transaction involved in that case.
It is necessary to emphasise this aspect of the case as these observations could be expressed almost in the same language1 and made applicable to other kinds of transactions which may not be themselves sales by export as explained in this case but which may eventually and even necessarily lead to the export of the goods from this country to a foreign port. It may be noted that in this case, as also in the Second Travancore case which will be presently referred to, the Supreme Court was construing and explaining the words of Article 286(1)(b), which may, for convenience of reference, be set out here:-
"286(1) No law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place-
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.".
1. See the dissenting judgment of Mr. Justice S.R Das in the II Travancore Case (AIR 1953 SC 333) where he has used the same language in expressing his view that the last purchase before export and the first sale after import also earn the exemption under Art. 286(1)(b), pp. 348, 350. See also AIR 1962 SC 1733 (1736) where in paras. 9 and 10, the same observations were relied upon for containing that the last purchase before export was protected.
45. Which are the transactions of sale and purchase that take place in the course of import or export? It is submitted that the Supreme Court carefully considered this question and laid down that it was only the sales which occasioned the export and only the purchases which occasioned the import that came within the exemption of Article 286(1)(b), as being respectively in the course of export and import. Be it noted that the Supreme Court considered only the transactions of sales (and not of purchases) as occasioning the export, and only the transactions of purchases (and not of sales) as occasioning the import.
46. Further, an agreement of sale by an Indian exporter with a foreign buyer was regarded as an integrated activity commencing the process of a sale by export. It need hardly be stated that it is a necessary incident of such an agreement of sale (being what it is-with a foreign buyer) that the goods agreed to be sold must be transported by rail or ship or by both out of the territory of India, only by employing the machinery of export.
47. It is also necessary to bear in mind the scope and ambit in which the principle of integrated activities adopted in this case for explaining "in the course of", will have its legitimate operation. Within its scope and ambit an agreement of sale to, and purchase from, a person in a foreign land are by this decision, held to be included, and they are therefore regarded as taking place in the course of export or import, as the case may be, although such agreement of sale or purchase is obviously in point of time anterior to the actual and physical handing over of the goods out of the country or bringing them into the country.
But it is only such agreements of sale or purchase which though apparently not "in the course of export or import" are perforce dragged into the export or import stream, as the case may be. For, the Supreme Court says that if only the etymological meaning of the word "course" is stressed, it would merely be formulating a mechanical test which would place too a narrow construction upon clause (1)(b) in that it would limit its operation only to sales and purchases effected during the transit of goods and would, if accepted, rob the exemption much of its usefulness.