Report No. 2
II. Sales or Purchases in The Course of Import or Export
5. It is convenient to take first the question of the appropriate principles to determine when a sale or purchase takes place in the course of import or export. The formulation of these principles presents the least difficulty.
6. In the Tranvancore-Cochin case, 1952 SCR 1112 and 1954 SCR 53, the Supreme Court considered Article 286(1)(b) and held that the clause covered two of case: (i) sales and purchases which themselves occasioned the import or export, (ii) sales or purchases effected by a transfer of shipping documents when the goods are beyond the customs frontiers of India.
7. The interpretation put by the Supreme Court on the clause was considered by the Taxation Enquiry Commission who stated that the position arising from the interpretation put by the Supreme Court was "perfectly satisfactory so far as foreign trade is concerned." (T.E.C. Report, p. 48, para 7). The Law Commission had also before it the views of the Ministry of Finance on this question. The Ministry was of the view that the decision given by the Supreme Court had been accepted by almost all the States and no difficulties were reported to have arisen as a result of the Supreme Court Judgment.
8. Reference may here be made to the view expressed by DAS J. in his dissenting judgment in the second Travancore-Cochin Case (1954 SCR 53) that a sale or purchase in the course of import or export includes the first sale after import except by a retailer and the last purchase preceding the export. This view was based partly on an interpretation which laid stress on the word "course" in the expression "in the course of import or export" used in the Constitution. It also arose from a desire not to impede the import or export trade of the country by subjecting sales or purchases linked with the importing sale or exporting purchase to the burden of the sales-tax.
In so far as the latter consideration is concerned the views of the Taxation Enquiry Commission and the Finance Ministry would seem to show that the apprehension that the import or export trade of the country would be impeded if the majority interpretation of the clause were accepted is not well founded. In so far as the view is based on the interpretation of the word "course", in our opinion that approach, if logically pursued, will not stop with the sale following the import or the purchase preceding the export.
The stream of export may legitimately be said to commence even at the stage of the production of raw materials or of the manufacture of finished goods intended for export. In this connection the following observations of MCKENNA J. in Heisler v. Thomas Collery Co. made in dealing with the question of inter-State commerce are pertinent: [(1922) 260 US 245].'
"If the possibility or, indeed certainty, of exportation of a product or article from a State, determines it to be in inter-State commerce before the commencement of its movement from the State, it would seem to follow that it is in such commerce from the instant of its growth or production; and in the case of coals, as they lie on the ground."
We do not, therefore, see any justification for recommending the adoption of this view.
9. The Ministry of Commerce and Industry has mentioned the desirability of including the last purchase preceding the export as a transaction in the course of export on the ground that the exemption of such transactions from tax will stimulate exports. It was not, however, suggested that a similar exemption should be granted to the first sale following the import. It appears to us to be somewhat illogical that the last purchase preceding the export should be exempt whereas the first sale following the import should not be exempted. We are, therefore, unable to accept this suggestion.
10. Under this head, we, therefore, recommend the acceptance of the principles laid down by the Supreme Court. We would express them in the following manner:'
A sale or purchase of goods shall be deemed to take place in the course of export of the goods out of the territory of India, only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
A sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India, only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
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