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Report No. 30

118. Bengal Corporation's case (Madras).-

In this connection, we may also refer to a Madras case. We quote the facts from the judgment of Ramakrishnan J.1 :

1. Bengal Corporation Private Ltd. v. State of Madras, (1965) 16 STC 62 (90, 101). (Madras) (Ramakrishnan J.) (Decided 29 September, 1964. (The Madras High Court's judgment in Khosla's case , dated August 1963 was not cited.)

"The terms of the contract indicate that the seller, Messrs. Bengal Corporation Pvt. Ltd., Netaji Subhas Road, Calcutta, had undertaken that the goods would be manufactured outside India, would conform to the specifications in the Schedule, that goods, after such manufacture, would be shipped between June 1957 and December 1957 to the Madras Port and that before shipment the nominee of the buyer namely, D.G.I.S.D., London, should inspect the goods to satisfy himself that the materials were in conformity with the specifications.

He had also the right to be present during the stages of manufacture of the goods outside India, and the expenses for his inspection would be paid by the seller and later on reimbursed by the buyer. It is, therefore, clear, that the contract had to be executed, by the Bengal firm, by securing a manufacturer in the U.K. to manufacture the goods according to the specifications and then get them shipped to the Madras Port before a specified date.

The buyer-the department of the Government of India-had nothing to do with the contract between the Bengal firm and the manufacturer in U.K. At the same time, the manufacture in U.K. and the shipping from U.K. after the manufacture, formed essential parts of the contract between the buyer and the seller".

After noting the Supreme Court decisions relating to the word "occasions" in the Central Sales Tax Act (Tata Iron Case etc.), the High Court observe.-

"This meaning of the word "occasions" as used in section 3(a) will apply also to the same word in section 5(2) of the Act. In the present case, it is an essential part of the contract of sale that the goods should be manufactured according to the specifications by a manufacturer outside India and that the goods had to be inspected by the nominee of the buyer at all stages of the manufacture to satisfy himself that even the manufacture was in accordance with the specifications.

It will not suffice if the seller, to satisfy the contract, buys from the market in India goods of the specifications in the Schedule. The goods had necessarily to be manufactured in U.K. Nor would it satisfy the condition in the contract if the seller arranged for the manufacture of such goods in India. If that were to satisfy the requirements of the contract, there would not be any clause about inspection during the sage of manufacture by D.G.I.S.D., London, or for shipment after manufacture.

It is, therefore, clear that the buyer proposed, and the seller accepted that for the execution of the contract the goods should be manufactured in the United Kingdom, and shipped from the United Kingdom to the Madras Port. Such shipment was also an essential feature of the contract, because, in the event of non-shipment between June, 1957 and December, 1957, the buyer was free to place orders for similar goods elsewhere and claim from the seller damages for non-fulfilment of the contract.

Therefore, this is a very clear case where the movement of the goods from the U.K. to the Madras Port was the result of a convenant as well as an incident of the contract of sale; therefore the sale was in the course of import , into the territory of India, and is not taxable by the Madras State.".....

The materials sold in that case were, as soon as they were received in the jetty, to be delivered Ex. jetty to the Deputy Controller of Stores, Integral Coach Factory, Madras, and no demurrage incurred at the port upto the point of landing was to be reimbursed by the consignee. If the consignee so wished, the steel received was to be booked by rail, "freight to pay".

119. The judgment of Mr. Justice Ramamurti, on this point, was even more specific1:-

"The learned Government Pleader contended that this transaction should be split up into two component parts; import of the goods by the assessee from London on his own initiative and then a subsequent sale in the State of Madras. This contention, in our opinion, is not correct on facts. There is no evidence in this case regarding the arrangement entered into between the assessee and the London manufacturer and there is no evidence as to when title to the goods passed from the manufacturer to the assessee.

The assessee may enjoy some credit with the foreign manufacturer and title to the goods might have passed in London itself before or at the time of the shipment. But these are all matters not germane to the issue as the question is whether the sales tax is leviable on the transaction of sale entered into between the assessee and the Government. Even if the property in the goods passed inside the State after the steamer arrived, that would not make any difference as the passing of property inside the State is no longer of any relevance in determining the true character of a sale or purchase.

1. Bengal Corporation Pvt. Ltd. v. State of Madras, (1965) 16 STC 62 (63) (Mad) (per Ramamurthi J.).

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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