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Report No. 30

Decision contrary to test of contractual obligation.-There are very few decisions which take a position-directly contradictory with the contractual obligation. The under­mentioned case seems to be one such1. In that case, import of cotton was made by certain dealers of Bombay (for selling to the assessee), and the shipping documents were in the names of the Bombay dealers. The assessee intimated the Bombay dealers about his requirements, and then the Bombay dealers placed orders with suppliers in Africa.

The shipments were directed from African ports to Cochin. In the meantime, the assessee obtained the necessary transport licence, and the Bombay dealers sent the shipping documents to their clearing agents at Cochin, who, after getting the goods cleared through the customs, despatched the goods to the assessee, and sent the railway receipts to the Bank of Baroda or other Bank.

The assessee paid the price into the Bank, against delivery of railway receipts. On these facts, the High Court held, that the purchases were not purchases "in the course of import", but were purchases effected after the import had been completed. The following observations in the judgment seems to go against the contractual obligation theory:-

1. Dhanalakshmi Mills Ltd. v. State of Madras, AIR 1961 Mad 87 (88), para. 4: 11 STC 306.

"It is no doubt true the dealer in Bombay ordered' the cotton from his vendor abroad only to carry out the importer's contractual obligations to sell the cotton so imported to the assessee. The assessee provided the facilities by arranging for the grant of the import licence to the dealer in Bombay, even as the assessee provided further facilities for the transport of the cotton by rail in this country after the cotton had been imported and after it had been cleared through the customs.

The relationship between the assessee and the importer at Bombay was that of buyer and seller, both being principals, and the sale was only after the import of the goods, even where the contract to sell preceded the order to the exporter abroad to ship the goods in India.".

The facts in an earlier Calcutta cases 1 were peculiar. In that case, an order for the manufacture of wagons was placed by the Railway Board from New Delhi, and was accepted by a letter posted in Calcutta by the manufacturing company. Payments were to be made in Calcutta, and the wagons were to be delivered f.o.r. at the company's work siding situated in West Bengal. The wagons were meant for the Western Railway situated outside the State of West Bengal, having its headquarters at Ajmer.

The company only delivered the wagons at its work siding (in West Bengal), and claimed deductions in respect of the price of these wagons. It was held, that as the contract contemplated that the rolling stock would be moved beyond the boundaries of the State, the transaction constituted an inter-State trade. It was also pointed out, that delivery was made to the common carriers who themselves were the purchasers2. (As, however, the sale was within the period covered by the Sales Tax Laws Validation Act, 1956, it was held to be taxable).

1. Indian Standard Wagon Co. v. Commercial Tax Officer, AIR 1960 Cal 25: 11 STC 47.

2. Paras. 25 and 26 in the AIR.

In the appeal from the decision, this point was not challenged1.

1. Indian Standard Wagon Co. V. commercial Tax officer, 11 STC 47 : AIR 1960 Cal 424 (427)

In a later case,1 it was stated, that the facts of the earlier case were peculiar, because the sale was in respect of railway wagons which were admittedly required for purposes elsewhere. In the later case, it was held, that the mere fact that the words "for onward despatch to consignee" were used did not throw any burden on the seller, and did not convert the sale into an inter-State transaction. The later decision, however, recognises the principle of contractual obligation to transport the goods as a test to be employed under section 27(1)(b), West Bengal Finance Sales Tax Act, 1941, which exempts from tax a sale or purchase which "takes place in the course of inter-State trade or commerce".

1. Jeewan Lal (1929) Ltd. v. Commercial Tax Officer, 16 STC 478: 69 CWN 260 (265), (Dated 8th February, 1965) (D.N. Sinha 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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