Report No. 30

Appendix 1

Certain Decisions of High Courts Illustrating the Application of the law

(Only a few illustrative cases have been selected. The collection is not intended to be exhaustive) Introductory.-A few decisions of High Courts which deal with the subject of inter-State sales and Import and export sales are summarised below, in order to show how the law has been understood and applied at various times.

Passing of property.-The test of the time when the property has passed was adopted in some cases1.

1. Abdul Wahab v. Government of Madras, AIR 1962 Mad 250 (251), para. 45.

In a Madras case1, the assessee obtained from Government a licence to import foreign cotton G to whom a letter of authority was also issued by the appropriate authority imported that cotton, cleared the goods from the customs, railed the goods and sent the Railway Receipt to the Bank. The assessee took delivery of the Railway receipt from the bank, on payment of 90 per cent. of the value, and cleared the goods from railway.

The cotton bales were weighed in the presence of a representative of G, and the final bill adopting the contracted rate was then drawn up. The sales-tax authorities treated the transaction as purchase of cotton by the assessee from G, and included its purchase value in the taxable turnover of the assessee under the Madras General Sales Tax Act, 1959.

1. Rajewari Mills Ltd. v. State of Madras, (1964) 15 STC 1 (8): (1964) 2 MIJ 84 (Mad).

The question arose whether the sale was in the course of import. The High Court answered the question in the negative, on the ground that the import became completed after G took delivery of the consignment and cleared the goods from the harbour, and the sale was subsequent to the taking of the delivery and was effected after the goods were taken out of the customs barrier. The question whether there was a contractual obligation to import does not, however, seem to have been considered, and, in fact, the Supreme Court decisions in Tata Iron & Co., etc., do not seem to have been cited.

In a Patna case,1 these were the facts. The assessee having its head office in Calcutta, supplied machineries to the Damodar Valley Corporation. The assessee contended that the sales were exempt under Article 286(1)(b) of the Constitution, inasmuch as the machineries were earmarked by the manufacturers outside India for sale to the Corporation. On these facts, the court held as follows:-

1. Blackwood Hodge (India) Ltd. v. State of Bihar, (1960) 11 STC 41 (Ramaswami C.J. and Chouwdhry J.) (Patna).

'It was submitted by learned counsel for the assessee that there was privity of contract between the Damodar Valley Corporation and the manufacturers, and the assessee was merely an agent for the manufacturers with regard to the sale of machineries. It is not possible for us to accept this argument as correct. The contract of agency between the assessee and the manufacturers has not been produced before the taxing authorities, and in the absence of the documents of the contract it is not possible for us to say whether there was privity of contract between the Damodar Valley Corporation and the manufacturers or not.

It was also submitted on behalf of the assessee that the machineries were earmarked by the manufacturers for the sale to the Damodar Valley Corporation. There is no finding of the Sales Tax Authorities on this question of fact; but even assuming that the submission of learned counsel for the assessee is factually correct, it does not necessarily follow that the sale of machineries to the Damodar Valley Corporation was made "in the course of import" within the meaning of Article 286(1)(b) of the Constitution.

It has been pointed out by the Supreme Court in State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd., (1958) 9 STC 188: AIR 1958 SC 1002, that even if the goods were manufactured and marked "for export", nevertheless the ban on Article 286(1)(b) was not attracted and sales made "for the purpose of export" are not protected unless they themselves "occasion the export". In other words, all sales that precede the one that occasions the export are taxable, even if the goods are manufactured with the main intention for export.

We reject, therefore, the argument of learned counsel for the assessee on this point. In our opinion, the present case is governed by the principle laid down by the High Court in Madrahadeo Ram Bali Ram v. State of Bihar, (1958) 9 STC 173 (Patna), and in view of the principle laid down in that case we hold that the provisions of Article 286(1)(b) do not apply to this case and the first question of law referred by the Board of Revenue to this Court must be answered against the assessee and in favour of the State of Bihar.'.

The place of passing of property has been emphasised in certain other decisions. Thus, in one case1, on the ground that the sale was completed within the State which sought to tax it before the goods were moved from that State, the sale was held to be taxable by the State. It was observed that in the transport of the goods themselves, which was subsequent to the sale, there was no element of sale, and such subsequent transport did not entitle the purchaser to the benefit of Article 286(2) of the Constitution (as it stood before the amendment).

1. India Coffee Board v. State of Madras, AIR 1956 Mad 449 (452), para. 19.

In a Madras1 case, the assessee, who was carrying on the business of importing milk-powder, took delivery of the documents of title on payment of the value to the Bank, and handed them over to the clearing agent. In the meantime, the assessee entered into contracts of sale with buyers, and issued delivery orders to them. On behalf of the assessee, the clearing agents cleared the goods, received the full value from the buyers (in whose favour the delivery orders had been issued), and delivered the goods to the buyer.

The question arose whether the sales were exempt from sales-tax as sales "in the course of import" under Article 286(1)(b) of the Constitution. The High Court emphasised the facts, namely-that out of a fairly large mass of imported milk-powder, a portion was sold to given buyers, and that portion had to be appropriated before the sale could be effected in favour of the given buyer. What was sold was "an unascertained and unappropriated portion of a mass of goods yet to arrive in this country", and, therefore, mere issue of delivery orders did not suffice to transfer title.

The appropriation was only at the point of delivery, and that delivery was effected only after the goods had been cleared by the assessee's clearing agents i.e., after the goods had crossed the customs frontiers. The transaction fell under section 23(1) of the Sale of Goods Act, whereunder in the case unascertained goods, it was only at the point of delivery that the property passed and the goods were ascertained. This was, therefore, a sale after the import had been completed, and a sale which was within the State. Hence, it was not exempt under Article 286(1)(b).

1. Arun (1953) Pvt. Ltd. v. State of Madras, (1960) 11 STC 723 (726) (Rajagopalan and Ramchandra Iyer (J.J.) (Mad HC).