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Report No. 30

71. The question before the Supreme Court was: "Is the sale by auction to the agent or intermediary of the foreign buyer in the course of export within the meaning of Article 286(1)(b)?" The Supreme Court held that the Appellants were not concerned with the actual exportation of the goods and the sales were intended to be complete without the export and that accordingly the sales were not in the course of export.

In the course of its judgment, the Supreme Court, first, stated what constitutes a sale in the course of export and in expounding the law on this subject it referred to the first Travancore case and proceeded (p. 1755, para. 8):

"A sale in the course of export predicates a connection between the sale and the 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 transactions. 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. And to occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it."

72. Ben Gorm case (Link or Bond).-It may be noted that the same principles as had been laid down in the two Travancore cases have been restated and explained in this case. What is, however, emphasised by the Supreme Court even in this case is a contract of sale between the seller and the buyer which must "link the sale to export". What kind of link or bond should there be between the contract of sale and the export?

When do these two activities-contract of sale and the export-become integrated with one another and become parts of a single transaction?-The bond between the contract of sale and the export is an indissoluble bond, and the two activities must be merged in one another before a completed transaction of sale can arise. Such a result has been described in the first Travancore case as a sale which cannot be dissociated from the export, or as one which cannot be effectuated without the machinery of export.

The sale, in order to be complete must, if I may use the expression, float on the export stream so that it may finally reach its foreign destination. Mr. Justice Shah has illustrated the principles which he stated earlier, by reference to certain instances (see p. 1756, para. 8) with a view to explaining further to what cases they do not apply. First, he considers the facts of the case which was before him and puts them in the form of an instance.

"For instance", says the learned Judge "the foreign purchaser either by himself or through his agent purchases goods within the territory of India and exports the goods and even if the seller has the knowledge that the goods are intended by the purchaser to be exported, such a transaction is not in the course of export, for, the seller does not export the goods (underlined by me) , and it is not his concern as to how the purchaser deals with the goods. Such a transaction without more cannot be regarded as one in the course of export because etymologically "in the course of export" contemplates an integral relation or bond between the sale and the export.

73. When the learned Judge observed "such a transaction without more" in the foregoing passage, he had obviously in his mind the contract or agreement of sale before him which contained no obligation whatever on the seller to export the goods. If there had been any such obligation or covenant requiring the seller to export the goods, it would have established an integral relation between the sale and the export. Then the learned Judge takes another instance presumably afforded by the facts of the I Travancore case.

It is "a transaction under a contract of sale with a foreign buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export whether the contract and delivery to the common carrier are effected directly or through agents." Further on it is observed:-

"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."

74. Direct Connection.-I may also quote the following observations from the next para. (9):-

"But there is nothing in the transaction from which springs a bond between the sale and the intended export linking them up as parts of the same transaction. There is nothing in law or in the contract between the parties, or even in the nature of the transaction which prohibits diversion (by the purchaser) of the goods for internal consumption. The sellers have no concern with the actual export of the goods, once the goods are sold. They have no control over the goods. There is therefore no direct connection between the sale and export of goods which would make them parts of an integrated transaction of sale in the course of export."

Thus, it would be seen that if there were a direct connection between the sale and the export of goods, it would make the sale and export .of goods parts of an integrated transaction of sale in the course of export. Now, such a direct connection is possible only when the contract of sale contains a covenant, or when it is an incident of such contract, whereunder the seller is obliged to export the goods. This is clear from the observations of the Supreme Court which I have quoted earlier.

In this case, it is hue that there was both a sale and an export of the goods sold. But one was not connected with the other, in that the seller himself did not export the goods. The sale was intended to be complete without export and the seller was not concerned with the actual exportation of the goods. What is to be noted in this case is that it was the purchaser who after purchasing the goods and taking delivery thereof within the territory of India himself exported them. But such export is not under a contract of sale.



Section 5 of the Central Sales Tax Act, 1956 - Taxation by the States of Sales in the Course of Import Back




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