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Report No. 30

57. Travancore cases-First Travancore case.-

The two cases are the State of Travancore-Cochin v. Bombay Co. Ltd.,1952 SCR 1112. and State of Travancore-Cochin v. Shamugha Vilas Cashew Nut Factory,1954 SCR 53.

In the former1, the dealings consisted of export sales of various commodities to foreign buyers on c.i.f or f.o.b. terms. The sales-tax authorities levied tax on those sale, but, on a petition to the High Court under Article 226, the assessment was quashed, and the High Court gave a very wide meaning to the expression "in the course of".

On appeal to the Supreme Court, it was held, that whatever else may or may not fall within Article 286(1)(b) of the Constitution, sales and purchases which themselves occasion the export or the import of the goods, as the case may be, come within the exemption of Article 286(1)(b). In his judgment, Patanjali C.J. thus defined the ban:

"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 the 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.

Assuming without deciding that the property in the goods in the present cases passed to the foreign buyer and the sales were thus completed within the State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must nevertheless be regarded as .having taken place in the course of the export and are, therefore, exempt under Article 286(1)(b). That clause, indeed, assumes that the sale had taken place within the limits of the, State and exempts it if it took place in the course of the export of the goods concerned.".

1. 1952 SCR 1112.

58. Dealing with the argument that on the above construction sale " in the course of export" will become anonymous with "export" and would make clause (b) redundant because of Article 246(1) read with Entry 3 of List I which relates to duties of customs including export duties, the Chief Justice observed, that in the absence of a provision like clause (b) prohibiting in terms a levy of tax on the sale or purchase of goods effected through the machinery of export and import, both the powers of taxation, though exclusively vested in the Union and the States, could be exercised in respect of the same sale by export or purchase by import, the sales tax and the export duty being regarded as essentially of a different character.

"A similar argument induced the Federal Court to hold in Province of Madras v. Boddu Paidanna and Sons, (1942) 4 FCR 90: AIR 1942 FC 33.,' that both central excise duty and provincial sales tax could be validly imposed on the first sale of groundnut oil and cake by the manufacturer or producer as "the two taxes are economically two separate and distinct imposts". Lest similar reasoning should lead to the imposition of such cumulative burden on the export-import trade of this country which is of great importance to the nation's economy, the Constituent Assembly may well have thought it necessary to exempt in terms of sales by export and purchases by import from sales tax by inserting Article 286(1)(b) in the Constitution.".

59. The Court1, dealt with the argument that no sale or purchase can be "in the course of" unless the property in the goods is transferred to the buyer during the actual movement, e.g., when the shipping documents are endorsed and delivered within the State by the seller to a local agent of the foreign buyer after the goods have been shipped or where such documents are cleared by the Indian buyer before the arrival of the goods.

This view, it was said, laid undue stress on the etymology of the word "course", and formulated a mechanical test, and would thereby rob the exemption of much of its usefulness. The sales and purchases which themselves occasion the export or import of the goods, as the case may be, out of or into the territory of India, come within the exemption.

1. 1952 SCR 1112 (1129).

60. To summarise, the first Travancore case decided tha.-

(a) Sales or purchases which themselves occasion the export or the import are within the clause "in the course of", and are, therefore, exempt under Article 286(1)(b).

(b) (i) Sale by export involves a series of integrated activities commencing from the contract of sale with a foreign buyer and ending with the delivery of goods to a common carrier.

(ii) Sale and resultant export form part of a single transaction.

(iii) Of these two activities, whichever happens first can be regarded as happening in the course of the other.

(c) Even if the sale is in the State before the commencement of the journey, the sale is, nevertheless, in the course of export.

(d) It is erroneous to say that sales "in the course of" mean sales in which property passes during the actual movement, because, to put it that way would rob the exemption of its usefulness, i.e., exemption from a State levy.



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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