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Report No. 30

92. Ben Gorm Nilgiri Plantation Co.'s case.-

A case in which the Supreme Court again demarcated the boundaries of the phrase "in the course of export" in the light of the principles formulated in section 5 of the Central Sales Tax Act is Ben Gorm Nilgiri Plantations Co., Coonoor v. Sales Tax Officer, (1964) 7 SCR 706: AIR 1964 (2) SC 1752 (1755-1756): 15 STC 753. In that case, the facts were these: The assessees were carrying on the business of growing and manufacturing tea. They were the sellers, and the purchasers were the local agents of foreign buyers.

The sales, which were by public auction at Fort Cochin, and conducted through tea brokers, were effected in accordance with the provisions of the Tea Act, 1953. The Sales Tax Officer assessed those sales for purposes of the sales tax, and a petition under Article 226 filed against assessment in the High Court, was dismissed. An appeal against was taken to the Supreme Court. By a majority, the Supreme Court held these sales to be liable to sales tax. The difference between the majority and the minority was as regards the interpretation of facts vis-a-vis the law applicable to it.

93. Mr. Justice Shah, who delivered the majority judgment, laid down the principles applicable in such cases as follows1.-

(1) Before the Constitutional Amendment of the 1956, there was no legislative guidance, but such cases were governed by the interpretation put on the constitutional provisions in the two Travancore cases.2-3

(2) After the amendment, guidance was provided in section 5 of the Central Sales Tax Act, which was "legislative recognition" of what was said by the Supreme Court in the two Travancore cases.

(3) There is a distinction between a sale "for export" and a sale "in the course of export".

(a) "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". As an example, where a foreign purchaser or his agent purchases goods within India and they or one of them export or exports the goods from out of India, the sale would be a sale "for export", but such a transaction is not "in the course of export" even though the Indian seller had the knowledge of intended export.

(b) Where the export is the result of a sale and the export is 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".

(c) Etymologically, "in the course of export" contemplates an integral relation or bond between the sale and the export."4.

(4) Two types of transactions were given as instances :

(a) Where the goods are purchased by a foreign buyer himself or his agent purchases goods in India and exports the goods. Such a sale by the Indian seller is not within the phrase "in the course of", even though the seller has knowledge of the goods being intended for export ;

(b) a transaction under a contract of sale with a foreign buyer, under which the goods are to be delivered by the seller to the common carrier for transporting them to the purchaser. Such a sale would indisputably be one in the course of export5, whether the contract and delivery to the common carrier are effected directly or through agents.

(5) No single test can be laid down as decisive for determining the question whether a sale is in the course of export. Each case must depend on its own facts.

1. Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, (1964) 7 SCR 706 (711-712).

2. 1952 SCR 1112 (First Travancore Case).

3. 1954 SCR 53 (Second Travancore case).

4. Ben Gorm Nilgiri Plantation Co. v. Sales Tax Officer, (1964) 7 SCR 706 (712): AIR 1964 (2) SC 1752 (1755-1756): 15 STC 753.

5. The judgment describes the sales as one "for export", but this is apparently a slip for "in the course of export".

94. In the majority judgment 1, it was held that the knowledge that the goods purchased are intended to be exported, does not make the sale and export parts of the same transaction, nor does the sale of the quota with the sale of the goods lead to that result. There is no statutory obligation upon the purchase to export the chests of tea purchased by him with the export rights. The export quota merely enables the purchaser to obtain an export licence, which the purchaser 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 export of the goods which would make them parts of an integrated transaction of sale in the course of export.

1.(1964) 7 SCR 706 (713).

95. After referring to various decided cases1, it was held, that the sales in that case did not occasion the export of the goods, even though the assessees knew (i) that the buyers, in offering the bids for chests of tea and the export quotas, were acting on behalf of their foreign principals, and (ii) that the buyers intended to export the goods.

There was between the sale and the export, no such bond as would justify the inference that the sale and the export formed parts of a single transaction or that the sale and export were integrally connected. The assessees were not concerned with the actual exportation of the goods, and the sales were intended to be complete without the export, and as such it cannot be said that the said sales occasioned export. The sales were, therefore, for export, and not in the course of export.

1. (1964) 7 SCR 706 (717).

96. The minority judgment did not lay down any different principles. As we have said above1, the difference between the two was in the application of the law to the facts of that case. In the opinion of the minority, there was but one sale to the foreign buyers which occasioned the export and which was implemented in accordance with the terms of the contract by an actual export which is the sine qua non of "a sale in the course of export".

1. Para. 92, supra.

97. In the minority judgment 1, Mr. Justice Ayyanger observed as follows.-

"As preliminary to the discussion of the question involved, we shall put aside certain types of transactions as regards which there is no dispute that they clearly fall on one side of the line or the other. On the one side of the line would be the case where a seller in pursuance of a contract of sale with a foreign buyer puts the goods sold on board a ship bound for a foreign destination.

Such a sale would be an "export sale" which would undoubtedly be within the constitutional protection of Article 286(1)(b). In regard to this type, however, we would make this observation. In such a case we consider that it would be immaterial whether or not with reference to the provisions of the Sale of Goods Act, read in conjunction with the terms and stipulations of any particular contract, the property in the goods passes to the buyer on the Indian side of the customs frontier or beyond it.

In either event the sale would have occasioned the export, for the sale and the export form one continuous series of transactions, the one leading to the other-not merely in point of time but integrated by reason of a common intention which is given effect to. In such a case it would be seen that there is but one sale-to the foreign buyer "which occasions the export", and which is implemented in accordance with the terms of the contract by an actual export which is the sine qua non of "a sale in the course of export".

"A case on the other side of the line would be one where the sale is effected to a resident purchaser who effects the export by sale of the goods purchased to a foreign buyer. Here the first sale to the buyer who enters into the export sale would not be a "sale in the course of export", for it would not be the particular sale which occasions the export, notwithstanding that the purchase might have been made with a view to effect the export sale, or to implement a contract of sale already entered into with a foreign buyer. That such a sale is not one "in the course of export" has been repeatedly held by this Court.2-3-4-5.

"This second type of case involves two sales-one to a resident purchaser who purchases it with a view to effect an export and the second, the export sale or sale in the course of export by the purchaser to a foreign buyer. The existence of the two sales and the consequent dissociation between the first sale and the export causes a hiatus between that sale and the export and destroys the integrality of the two events or transactions viz., the sale and the factual export.

"The sales involved in the present appeals are not of the second type for here there is a single sale direct to a foreign buyer, the contract being concluded with and the goods sold delivered to his agent. It is hardly necessary to add that for purposes relevant to the decision of the question before us there could be no difference in legal effect between a sale to a foreign buyer present in India to take delivery of the goods for transport to his country and a sale to his resident agent for that purpose.

Pausing here, we should mention that there is no dispute (1) that the persons who bid at the auction at Fort Cochin and purchased the teas of the assessees were agents of foreign buyers or (2) regarding their having made these purchases under the directions of their foreign principals in order to despatch the goods to the latter-a contractual obligation that they admittedly fulfilled.

"Under the sales here involved, though to foreign buyers and intended for export, the goods were not under the terms of the contract of sale placed by the seller on board the ship in the course of its outward voyage and that is the only reason why they do not conform strictly to the first type of an export sale which we have described earlier.

"But the question is, do not these sales also "occasion the export" and in that sense sales "in the course of export". The test which has been laid down by this. Court for determining the proximity of the connection, between the sale and the export so as to bring the sale within the constitutional exemption in Article 286(1)(b) is the integrality of the two events-the sale and the export.

"The question to be answered is therefore 'whether the sales now under consideration do not form part and parcel of a single integrated transaction with the export or are they distinct, distant and mediate, the sale and the export being related to each other only in the sense of one leading to the other or the one succeeding the other merely in point of time. If the former, the sales are within Article 286(1)(b), but if the connection between the two is as described later, they are outside the exemption."

1. Ben Gorm etc. v. Sales Tax Officer, (1964) 7 SCR 706 (719-720): AIR 1964 (2) SC 1752 (1755-1756): 15 STC 753.

2. State of Tranvancore-Cochin v. Shanmugha Vilas Cashew Nut Factory, (1954) SCR 53: AIR 1953 SC 333

3. State of Madras v. Gurviah Naidu and Co. Ltd., AIR 1956 SC 158: 6 STC 717.

4. State of Mysore v. Mysore Spinning etc. Co. Ltd., AIR 1958 SC 1002: (1958) 9 STC 188.

5. East India Tobacco Co. v. State of Andhra Pradesh, (1963) 1 SCR 404: AIR 1962 SC 1733: 13 STC 529.

98. The minority was of the opinion, that even where there is no express term of the contract to export the goods, if the necessary intention is inferable, the sale would be in the course of export.

Mr. Justice Ayyangar said 1.-

"If we are right, then what is of significance is the real and common intention of the two parties to the transaction-whether they contemplated the goods purchased being sold locally, or whether they intended the goods sold being only exported and not whether there is such a term in the contract between the parties."

1. Ben Gorm Nilgiri Plantations v. Sales Tax Officer, (1964) 7 SCR 706 (722): AIR 1964 (2) SC 1752 (1755-1756): 15 SCT 753.

99. The conclusion which the minority came to, wa.-

"If there was a contract or understanding between the buyer and seller by which the latter was to export the goods bought, it is conceded the sale of the assessee did occasion the export and in our view on the facts established, we consider this condition satisfied."

100. This decision of the Supreme Court shows, that if the integrated activity is such that the export is a necessary condition of the contract and there is no likelihood of diversion, the sale would be in the course of export. The minority view differed only in this, that it was prepared to extend that principle to a contract in which export could be taken to be intended and not necessarily where there was an express provision for the export of the goods purchased.

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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