Full Judgment Text
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PETITIONER:
MADRAS MARINE & CO.
Vs.
RESPONDENT:
STATE OF MADRAS
DATE OF JUDGMENT16/07/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1986 AIR 1760 1986 SCR (3) 236
1986 SCC (3) 552 1986 SCALE (2)126
ACT:
Tamil Nadu General Sales Tax Act, 1959-Goods-Segregated
in bonded ware houses-Sale of goods for consumption on board
foreign going ships-Liability for sales tax.
Central Sales Tax Act 1956, s. 4(2) (a) and (b)-Goods-
Segregated in bonded ware houses for delivery to foreign
going vessels-Sale of such goods for consumption on board
the ships-Whether case of export of goods-Whether liable to
levy of State Sales Tax.
Constitution of India, Art. 286(1)(b)-Concept of
export-Definition of.
HEADNOTE:
The appellant-company in Civil Appeal No.642 of 1974
was doing the business as ship chandler. It imported the
goods from foreign countries and after receipt of the goods,
kept them in a bonded warehouse under the relevant
provisions of the Customs Act, 1962. The ware-house was
under dual control of the Customs Department and the
importers like the appellant so that it could not be opened
by one without the presence of the other. On receipt of
order from the Captain of the Ship requiring ship stores,
the appellant supplied the goods on board after observing
certain formalities imposed by the Customs Act, the rules
and regulations made thereunder.
For the Assessment year 1964-65 a question arose
whether Rs.3,51,438.08 which was the taxable turnover,
determined by the assessing authority, was subject to the
tax under the Tamil Nadu General Sales Tax Act, 1959. The
appellant objected to the assessment on such turnover on the
ground that the goods relating to such turnover were
imported from abroad, stored in the customs ware house and
were not brought to the country across the customs
frontiers. The Sales Tax Officer assessed the turnover and
the Appellate Assistant Commissioner confirmed the
assessment on the basis that sales were effected
237
within the State of Tamil Nadu. However, the Tribunal, in
appeal by the appellant, held that the sales did not take
place within the State of Tamil Nadu since the import of
goods in question had not become complete and as the goods
were sold to the foreign going vessels, the sales in
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question could not be deemed to be within the State of
Madras. On revision, the High Court relying on the decision
of the Supreme Court in the State of Madras v. Davar and
Co., 24 STC 481, held that the sales took place in the State
of Madras and assessment to tax was valid. The facts in all
the other connected appeals, writ petitions and the special
leave petitions being identical, a similar question of law
also arose in them.
In appeal to the Supreme Court by the
appellant/petitioners, it was contended on their behalf: (i)
that the property in the goods, did not pass in the
territory of Tamil Nadu and the sales were therefore, in the
course of export because goods were to be on board the ship
and were exported outside the country and could not be
consumed before they reached the high seas; (ii) that the
sale of goods took place in the territorial water of India
and not within the State of Tamil Nadu; (iii) that the
legislative competence of the State of Tamil Nadu as regards
levying of the sales-tax was confined to the territories of
the State as specified in item No. 7 of the First Schedule
to the Constitution. That legislative competence did not
extend to any territorial waters simply because these were
abutting the land mass of the State of Tamil Nadu; (iv) that
the Sovereignty over the limits of territorial waters
extended and always extended to the entire territorial
waters of India. The limits and extent of the said
territorial waters had not been altered by any notification
of the Central Government. The territorial waters extended
to a distance of 12 nautical miles from the sea shore
adjacent to the land mass of the State; and (v) that there
was no definition at all of "Customs Frontiers" in the
Central Sales Tax Act, 1956. The definition inserted in the
Act in s. 2(ab) by the Amending Act 103 of 1976 must be read
as declaratory or explanatory and no questions of
prospective operations would arise. On the other hand, it
was argued on behalf of the respondent-State that the
appellant’s godowns and bonded ware-houses were within the
State of Tamil Nadu. When orders were received, the
appellants/petitioners supplied the required quantity from
the stock either in the godown or in the bonded ware-houses
and delivered these or set these apart in fulfilment of the
orders placed by the concerned officer of the foreign bond
ship and that at that time only appropriation was made
towards the contract of sale and such appropriation took
place within the State of Tamil Nadu. It was, therefore, on
such ap-
238
propriation that the sale took place; and (ii) that it was
not correct to say that the transactions of sale were
completed only when the masters of the vessels acknowledged
delivery of the goods on board the vessels.
Dismissing the Appeals and the Petitions,
^
Held: 1.1 The concept of export in Article 286(1)(b) of
the Constitution postulates the existence of two termini as
those between which the goods were intended to move or
between which they were intended to be transported and not a
mere movement of goods out of the country without any
intention of their being landed in specie in some foreign
port. Goods might be consumed within the meaning of the
Explanation to Article 286(1) (a) either by destruction or
by way of use depending on the nature of the goods.
Therefore, the sales were not sales "in the course of
export" within the meaning of Article 286(1) (b) and were
not exempt under that Article but they fell within the
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Explanation to Article 286(1) (a). [247C-D; G]
1.2 Mere movement of goods out of the country following
a sale would not render the sale, one in the course of
export within Article 286(1) (b) of the Constitution of
India. Before a sale can be said to be a sale in the course
of export, the existence of two termini between which the
goods are intended to move or to be transported is
necessary. [249F-G]
In the instant case the appropriation of goods took
place in the State of Tamil Nadu when the goods were
segregated in the bonded ware-house to be delivered to the
foreign going vessels. Therefore, under sub-s. (2), sub-cl.
(a) and (b) of s. 4 of the Central Sales Tax Act, 1956, the
sale of goods in question shall be deemed to have taken
place inside the State because the contract of sale of
ascertained goods was made within the territory of Tamil
Nadu and furthermore in case of unascertained goods
approrpriation had taken palce in that State in terms of cl.
(b) of sub-s. (2) of s. 4 of the Central Sales Tax Act,
1956. There is no question of sale taking place in course of
export or import under s. 5. From that point of view, the
amendment introduced by Act 103 of 1976 by incorporating in
cl. (ab) of s. 2 of the Central Sales Tax Act, 1956 does not
affect the position. It was not a case of export as there
was no destination for the goods to a foreign country. The
sale was for the purpose of consumption on board the ship.
It was not as if only on delivery on board, the vessel that
the sale took place. The mere fact that shipping bill was
prepared for sending it for custom formalities which were
designed to effectively control smuggling activities could
not
239
determine the nature of the transaction for the purpose of
sales tax nor does the circumstances that delivery was to
the captain on board the ship within the territorial waters
make it a sale outside the State of Tamil Nadu.[252E-H;
247A-B]
Burmah Shell Oil Storage and Distributing Co. of India
Ltd., and Anr. v. Commercial Tax Officer & Ors., 11 STC 764;
Deputy Commissioner of Commercial Taxes v. Caltex India
Ltd., Madras, 13 STC 163; The State of Madras v. Davar &
Co., 24 STC 481; Fairmacs Trading Co. v. The State of Tamil
Nadu, 41 STC 157; Tata Iron and Steel Co. Ltd. Bombay v.
S.R. Sarkar & Ors., 11 STC 655; and The State of Kerala &
Ors. v. The Cochin Coal Co., Ltd., 12 STC 1 relied upon.
Fairmacs Trading Co. v. The State of Tamil Nadu, 41 STC
157 and Fairmacs Trading Co. v. The State of Andhra Pradesh,
36 STC 260 approved.
3. Customs barrier does not set a terminal limit to the
territory of the State for sales tax purposes. Sale,
therefore, beyond the customs barrier is still a sale within
the State. The amendment introduced in s.2 by the Act 103 of
1976 does not affect the position because the custom station
is within the State of Tamil Nadu. [253A-B]
4. In the facts and circumstances of the case, it is
not necessary to express any opinion on the arguments
whether introduction of cl.(ab) of s.2 of the Central Sales
Tax Act by Act 103 of 1976 is prospective or not. [253C-D]
Deputy Commissioner of Commercial Taxes v. Caltx India
Ltd., Madras, 13 STC 163; Tata Iron and Steel Co. Ltd.
Bombay v. S.R. Sarkar & Ors., 11 STC 655; Furby v. Hoey
[1947] 1 All England Report 236; The Central Bank of India
v. Their Workmen [1960] 1 SCR 200; and Chanan Singh & Anr.
v. Jai Kaur, [1970] 1 SCR 803 at 804-807 referred to.
R.v. Kent Justices Ex Parte LYE & Ors., [1967] 1 All
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England Report 560 at 564-65 held inapplicable.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 642 (NT)
of 1974. etc.
From the Judgment and Order dated 25.4.1973 of the
Madras High Court in T.C. No. 243 of 1969.
240
S.T. Desai, Inbarajan and A.T.M. Sampath for the
Appellant.
M.M. Abdul Khader, V.C. Nagarajan and A.V. Rangam for
the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. We are concerned with Civil
Appeal No.642(NT) of 1974, Civil Appeal Nos. 1798-1800 of
1981 and the Writ Petition No. 196 of 1974 along with
Special Leave Petitions Nos. 12943-44 of 1985. All these
will have to be disposed of on the main question stated
hereinafter and these raise a common question, facts in all
these matters are more or less identical except that certain
assumptions of facts have been made in Special Leave
Petitions Nos. 12943-44 of 1985 because in these there were
no investigation of facts by the revenue authorities.
The question involved in all these, is, whether the
sales in question were within the State of Tamil Nadu and as
such subject to tax under the Tamil Nadu General Sales Tax
Act, 1959, hereinafter called the ’Act’.
The dealers who are the petitioners in the writ
petitions and are the appellants in the appeals and the
petitioners in Special Leave Petitions are dealers in stores
and were doing business as ship chandlers in the relevant
years. The appellants/petitioners used to supply the goods
imported as stores to foreign going vessels and other
diplomatic personnel. The appellants/petitioners imported
these goods from foreign countries. At the time of import
they complied with the statutory provisions of the Customs
Act and other enactments relating to import of goods. They
had given an undertaking to the concerned authorities to
supply the imported goods to foreign going vessels and/or to
diplomatic personnel and to receive the goods in custom
bonded ware-house. Under section 59 of the Customs Act, 1962
the importer of any dutiable goods which had been entered
for warehousing and assessed to duty under section 17 or
section 18 should execute a bond binding himself for a sum
equal to twice the amount of the duty assessed on such goods
(a) to observe all the provisions of the Act and the rules
(b) to pay on or before a date specified in a notice of
demand all duties, rent and charges claimable on account of
such goods under the Act, and (c) to discharge all penalties
incurred for violation of the provisions of the Customs Act
and relevant statutes. For the above
241
purpose, the Assistant Collector of Customs might permit an
importer to enter into a general bond for such amount as the
Assistant Collector of Customs might approve in respect of
the warehousing of goods to be imported by him within a
specified period.
Sections 60, 61 and 62 of the Customs Act, 1962 provide
for ancillary purposes. In substance these provide for
control by the proper officer of the goods warehoused. It is
not necessary for the determination of the issue involved to
deal with other relevant provision of the Customs Act, 1962.
The appellants/petitioners after receipt of the goods
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kept these in a bonded ware-house under the relevant
provisions. The ware-house was under dual control of the
Customs Department and the importers like the
appellants/petitioners so that it could not be opened by one
without the presence of the other. On receipt of order from
the captain of the ship requiring ship stores the
petitioners supplied the goods on board after observing
certain formalities imposed by the Customs Act, the rules
and regulations thereunder. These were the broad features of
the way the appellants/petitioners operated. We will,
however, deal with the facts as found in Civil Appeal No.
642 of 1974.
The case of the appellants/petitioners was that all
these goods were intended for re-export only and were at all
relevant time in a bonded warehouse. The delivery was on
board the ship to foreign going ship. The goods were
consumed only on the high seas. The property in the goods
had passed only after the goods had crossed the custom
frontiers. The contention was that the property in the goods
did not pass in the territory of Tamil Nadu. The sales were
therefore (i) in the course of export because goods were to
be on board the ship and were exported outside the country
and could not be consumed before they reached the high seas;
(ii) the sale of the goods took place in the territorial
waters of India and not within the State of Tamil Nadu,
"Indian Customs Water" is defined in the Customs Act under
section 2(28) as follows:
"Indian customs waters" means the waters extending
into the sea up to the limit of continguous zone
of India under section 5 of the Territorial
Waters, Continental Shelf, Exclusive Economic
Zones Act, 1976 and includes any bay, gulf,
harbour, creek or tidal river."
242
Under article 297 of the Constitution, all lands,
minerals and other things of value underlying the ocean
within the territorial waters or the continental shelf of
India shall vest in the Union and are held for the purposes
of the Union.
It is the contention of the appellants/petitioners that
sales there-fore took place outside the State as territorial
waters vested in the Union Government and not in the State
of Tamil Nadu. The turnover in question was not exigible
according to the appellant/petitioners, to sales tax under
the provisions of the Act. It is this plea which the
petitioners/appellants sought to raise as an additional
ground before the High Court in the appeal out of which
Civil Appeal No. 642 of 1974 arose. But it was not permitted
by the High Court.
The Taxing Authorities’ plea on the other hand was that
the various goods sold to foreign bound vessels were within
the State of Tamil Nadu when the concerned officer of the
foreign bond vessels placed indents for the supply of goods.
Further, the appellants’ godowns and bonded warehouses were
within the State of Tamil Nadu. When orders were received
the appellants/petitioners supplied the required quantity
from the stock either in the godown or in the bonded
warehouses and delivered these or set these apart in
fulfilment of the orders placed by the concerned officer of
the foreign bond ship. It is the case of the respondents
that at that time only appropriation was made towards the
contract of sale and such appropriation took place within
the State of Tamil Nadu. It is the further case of the
respondents that it was on such appropriation that the sale
took place. In the premises it was submitted on behalf of
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the respondents that the contention of the
appellants/petitioners, that the transactions of sale were
completed only when the masters of the vessels acknowledged
delivery of the goods on board the vessels was not correct.
It was further urged that it was not correct to contend that
the appellants/petitioners should be treated as actual
exporters. The place of delivery would not alter
appropriation which had already taken place.
In support of this contention, reliance was placed on
the decision of this Court in the case of Burmah Shell Oil
Storage and Distributing Co. of India Ltd., and Another v.
Commerical Tax Officer and Others., 11 S.T.C. 764.
It is necessary in this background, to examine the
facts involved in Civil Appeal No. 642 of 1974. There, the
main question involved
243
was whether Rs.3,51,438.08 which was the taxable turnover
determined by the assessing authority was subject to the tax
under the said Act. The appellant objected to the assessment
on such turnover on the ground that the goods relating to
such turnover were imported from abroad, stored in the
customs warehouse and were not brought to the country across
the customs frontiers. The lower appellate authority allowed
some deduction in the determination of the taxable turnover
in respect of sales to local diplomatic corps and determined
the figure at Rs.3,51,045.68. The Appellate Assistant
Commissioner confirmed the assessment on the basis that
sales were effected within the State of Tamil Nadu and as
such dismissed the appeal. There was an appeal before the
Tribunal. The Appellate Assistant Commissioner relied on the
decision of the Madras High Court in the case of Deputy
Commissioner of Commerical Taxes v. Caltex India Ltd Madras,
13 S.T.C. 163. The Tribunal accepted the contentions of the
dealer and held that the sales did not take place within the
State of Tamil Nadu. It was pointed out that there was
significant change in the Customs Act, 1962 from Sea Customs
Act, 1978, and the Tribunal held that import of goods in
question had not become complete and as the goods were sold
to the ocean going vessels, the sales in question could not
be deemed to be within the State of Madras. On revision the
High Court relying on the decision of this Court in The
State of Madras v. Davar and Co., 24 S.T.C. 481 held that
the sales took place in the State of Madras and assessment
to tax was valid. Civil Appeal No. 642 of 1974 arises from
the said decision.
Civil Appeals Nos. 1798-1800 of 1981 followed the said
decision and are based on the said reasons. These appeals
are for the assessment years 1968-69 and 1970-71. It may be
mentioned that Civil Appeal No. 642 of 1974 was concerned
with the assessment to tax for the year 1964-65.
The writ petition challenges the assessment made for
the assessment year 1972-73 where the taxing authorities and
the appellate authorities under the Act followed the said
decision which is under appeal in Civil Appeal No. 642 of
1974. Special Leave Petition Nos. 12943-44 of 1985 challenge
the assessments for 1978-79 and 1979-80 where the High Court
took the view upholding the revenue’s contention that sales
were taxable relying on the decision in the case of Madras
High Court of Fairmacs Trading Company v. The State of Tamil
Nadu, 141 S.T.C. 157.
244
As mentioned hereinbefore, before the High Court in
Civil Appeal No. 642 of 1974, the grounds urged in the writ
petition were sought to be urged as additional grounds but
were not permitted as these had not been taken before the
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taxing authorities.
On behalf of the appellants/petitioners, Mr. S.T.
Desai, learned counsel, submitted that the legislative
competence of the State of Tamil Nadu as regards levying of
the sales-tax was confined to the territories of the State
as specified in item No. 7 of the First Schedule to the
Constitution. That legislative competence did not extend to
any territorial waters simply because these were abutting
the land mass of the State of Tamil Nadu. It was further
urged that the Sovereignty over the limits of territorial
waters extended and always extended to the entire
territorial waters of India. The limits and extent of the
said territorial waters had not been altered by any
notification of the Central Government. The territorial
waters extended to a distance of 12 nautical miles from the
sea shore adjacent to the land mass of the State. See in
this connection The Territorial Waters, Continental Shelf,
Exclusive Economic Zone and other Maritime Zones Act, 1976.
It was further urged that there was no definition at
all of ’Customs Frontiers’ in the Central Sales Tax Act,
1956. The definition inserted in the Act in section 2(ab) by
the Amending Act 103 of 1976 must be read as declaratory or
explanatory and no questions of prospective operations would
arise according to counsel for the appellants/petitioners.
He submitted that that definition would also be applicable
to sales prior to 1976.
This Court dealt with the history of the definition now
appearing in the relevant sections of the Central Sales Tax
Act in the case of Tata Iron and Steel Co. Limited, Bombay
v. S.R. Sarkar and Others, 11 S.T.C. 655. In that case this
Court was dealing with the relevant provisions in a petition
under Artical 32 of the Constitution challenging the demand
of the Sales Tax Officer of State of West Bengal under the
Central Sales Tax Act, 1956 in respect of certain sales of
steel goods. The petitioner company in that case had its
registered office in Bombay and its head sales office in
Calcutta in the State of West Bengal and factories in
Jamshedpur in the State of Bihar. The company was registered
as a ’dealer’ under the Bihar Sales Tax Act and was also
registered as ’dealer’ in the State of West Bengal under the
Central Sales Tax Act, 1956. For the period of asessment 1st
July, 1957 to 31st March, 1958, the company submitted its
return of taxable sales
245
to the Commercial Tax Officer, Lyons Range, Calcutta. The
assessment order was passed. It is not necessary to deal
exhaustively with the history of the present sections 4 and
5 of the Central Sales Tax Act which has been dealt with by
this Court. Interpreting the relevant provisions of the
Central Sales Tax Act, 1956, it was observed that the Act by
section 3 indicates as to when a sale or purchase of goods
is said to take place in the course of inter-State sale or
trade or commerce. Section 4 also indicates as to when a
sale or purchase takes place outside the State. The majority
of the judges of this Court held on the facts found as
follows:
"In our view, therefore, within clause (b) of
section 3 are included sales in which property in
the goods passes during the movement of the goods
from one State to another by transfer of documents
of title thereto: clause (a) of section 3 covers
sales, other than those included in clause (b), in
which the movement of goods from one State to
another is the result of a covenant or incident of
the contract of sale, and property in the goods
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passes in either State."
Sarkar and Das Gupta JJ. in a separate judgment held
that the documents of title of goods sold could pass the
property in them only if the parties had agreed that that
would be the result. In interpreting whether in the course
of import or export, sales took place, the same principle
would be applicable.
The correct position, so far as the facts of the
present case are concerned, in our opinion, has been laid in
the decision of Burmah Shell Oil Storage and Distributing
Co. Of India Ltd. and Another v. Commercial Tax Officer and
Others (supra). This Court observed at page 765 as follows:
"While all exports involved a taking out of the
country, all goods taken out of the country cannot
be said to be exported. The test is that the goods
must have a foreign destination where they can be
said to be imported. It matters not that there is
no valuable consideration from the receiver at the
destination end. If the goods are exported and
there is sale or purchase in the course of that
export and the sale or purchase occasions the
export to a
246
foreign destination, the exemption is earned.
Purchases made by philanthropists of goods in the
course of export to foreign countries to alleviate
distress there, may still be exempted, even though
the sending of the goods was not a commerical
venture but a charitable one. The crucial fact is
the sending of the goods to a foreign destination
where they would be received as imports."
The appellant in that case dealt in petroleum and
petroleum products and carried on business at Calcutta. They
had maintained supply depots at Dum Dum Airport from which
aviation spirit was sold and delivered to aircraft
proceeding abroad for their consumption. The question was
whether these supplies to the aircraft which proceeded to
foreign countries were liable to sales tax under the Bengal
Motor Spirit Sales Taxation Act, 1941. The contention of the
appellants in that case was that such sales were made in the
course of export of such aviation spirit out of the
territory of India that they took place outside the State of
West Bengal, that inasmuch as aviation spirit was delivered
for consumption outside West Bengal, the sales could not
fall within the Explanation to clause (1) (a) of article 286
as it then stood. It was held by this Court that in order to
exclude the taxation by the State of West Bengal, the
appellants had to prove that there was some other State
where the goods could be said to have been delivered as a
direct result of the sale for the purpose of consumption in
that other State and that as they failed to do so, the
aviation spirit loaded on board an aircraft for consumption
though taken out of India, was not exported since it had no
destination, where it could be said to be imported and so
long as it did not satisfy that test, it could not be said
that the sale was in the course of export. It was further
held that aviation spirit was sold for the use of aircraft
and the sale was not even for the purpose of export and all
the elements of sale including delivery and payment of price
took place within the State of West Bengal and the sales
were complete within the territory of that State. The
customs barrier did not set a terminal limit to the
territory of West Bengal for sales tax purpose. The sale
beyond the customs barrier was still a sale in fact in the
State of West Bengal.
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The ratio of this decision would be applicable to the
facts and circumstances of this case. It was rightly urged
that the appropriation of goods took place in the State of
Tamil Nadu when the goods were segregated in the bonded
warehouse to be delivered to the foreign going vessels. It
was not a case of export as there was no destination
247
for the goods to a foreign country. The sale was for the
purpose of consumption on board the ship. It was not as if
only on delivery on board the vessel that the sale took
place. The mere fact that shipping bill was prepared for
sending it for custom formalities which were designed to
effectively control smuggling activities could not determine
the nature of the transaction for the purpose of sales tax
nor does the circumstances that delivery was to the captain
on board the ship within the territorial waters make it a
sale outside the State of Tamil Nadu.
In the case of The State of Kerala and Others v. The
Cochin Coal Company Ltd., 12 S.T.C. 1, it was held that
concept of export in article 286(1)(b) of the Constitution
postulated the existence of two termini as those between
which the goods were intended to move or between which they
were intended to be transported and not a mere movement of
goods out of the country without any intention of their
being landed in specie in some foreign port. Goods might be
consumed within the meaning of the Explanation to article
286(1)(a) either by destruction or by way of use depending
on the nature of the goods. In that case the respondent-
company dealers in coal had their office at Fort Cochin
which was formerly within the State of Madras. The company
had imported and kept stocks of ’bunker coal’ at certain
places which at the relevant period was also within the
State of Madras. Part of the activities of the said company
consisted in the supply of ’bunker coal’ from their depots
in Candle Island for steamers arriving at the port of Cochin
in the State of Travancore-Cochin for the outward voyage of
the steamers from the Cochin port. In respect of these sales
of coal, tax was claimed by the Travancore-Cochin State for
the years 1951-52 and 1952-53 but the respondent claimed
exemption under article 286(1)(b) or (2) of the Constitution
and also under a Notification dated 5th February, 1954 and
published in the official Gazette of 16th February, 1954. It
was held that the sales of coal by the respondent were sales
in the course of inter-State trade and fell within the ban
of article 286(2), but the levy of tax on such sales had
been validated by the Sales Tax Laws Validation Act, 1956.
It was further held that the sales were not sales ’in the
course of export’ within the meaning of article 286(1)(b)
and were therefore not exempt under that article but they
fell within the Explanation to article 286(1)(a) inasmuch as
the coal was delivered in the State of Travancore Cochin and
the steamers were the actual consumers who were at liberty
to consume the coal whenever they desired; that the
Notification dated 5th February, 1954 was and must be deemed
to be one issued in exercise of the power
248
conferred on the State Government by section 6(1) of the
Travancore-Cochin General Sales Tax Act, 1125 and as the
transactions clearly fell within the Notification, the
respondent would be entitled to the benefit of the tax
exemption conferred by the Notification.
The High Court in Civil Appeal No. 642 of 1971 has
based its decision on the decision of this Court in State of
Madras v Davar and Co. (supra). In that case the assessee, a
dealer in timber, had imported two consignments of timber
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from Burma and sold it to buyers in India. The ship carrying
the first consignment arrived at the Madras Harbour on 17th
October, 1957. The assessee obtained moneys from the buyers
on 24th October, 1957, retired the documents of title from
the bank and handed over the documents on the same day to
the buyers to enable them to clear the goods. All charges
and expenses by way of import duty, clearance charges etc.,
were paid to the buyers on behalf of the assessee. The
second consignment reached Madras by ship on 17th December,
1957 and the assessee obtained on 23rd December, 1957, from
the buyers the value of the consignment after handing over
to the buyers the necessary shipping documents. The assessee
claimed that these sales were in the course of import and
these were not liable to tax under the Madras General Sales
Tax Act, 1959, as these were covered by article 286(1)(b) of
the Constitution. It was held that the expression ’customs
frontiers’ in section 5(2) of the Central Sales Tax Act,
1956, did not mean ’customs barrier’. It had to be construed
in accordance with Notification No. S.R.O. 1683 dated 6th
August, 1955, issued by the Central Government under section
3-A of the Sea Customs Act, 1878 read with the Proclamation
of the President of India dated 22nd March, 1956. ’Customs
frontiers’ meant the boundaries of the territory, including
territorial waters, of India. The sales in this case were
effected by transfer of documents of title long after the
goods had crossed the customs frontiers of India; the ships
carrying the goods in question were all in the respective
harbours within the State of Madras when the sales were
effected by the assessee by transfer of documents of title
to the buyers. The sales were therefore not effected in the
course of import. This Court, in construing the customs
frontiers, referred to the extent of territorial waters,
declaration of the President dated 22nd March, 1956, the
contents of which were set out in that decision which need
not be repeated here.
We have noted the further contentions which were only
raised in the writ applications and not raised in Davar’s
case. In our opinion these further contentions have been
elaborately discussed in the two
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decisions, one of the Andhra Pradesh High Court and another
of the Madras High Court, which we shall presently notice
but it may be pointed out that there is a difference between
the two High Courts on the interpretation whether section
4(2)(a) or 4(2)(b) of the Central Sales Tax Act would apply
or not. It may be noted that it was observed by Sarkar and
Das Gupta JJ. in Tata Iron and Steel Co. Limited, Bombay v.
S.R. Sarkar and others, (supra) that clauses (a) & (b) of
section 3 were mutually exclusive and sale could not fall
under both the clauses. We are not here directly concerned
with the question whether clauses 4(2)(a) and 4(2)(b) of the
Central Sales Tax Act, 1956 are mutually exclusive or not.
We are concerned with the question whether either of these
was applicable.
In the case before the Andhra Pradesh High Court in
Fairmacs Trading Company v. The State of Andhra Pradesh, 36
S.T.C. 260, the petitioner imported ship-stores from foreign
countries, kept these in bonded warehouses of the customs
department without the levy of customs duty and later on
sold and delivered to ships’ masters for consumption abroad
the ship after crossing the port boundaries. On the question
whether the sales were outside the State or in the course of
export and therefore not liable to tax under the Andhra
Pradesh General Sales Tax Act, 1957, it was observed by the
Andhra Pradesh High Court that the goods were specific and
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ascertained and were within the State when the contract of
sale took place and therefore the requirements of section
4(2)(a) of the Central Sales Tax Act, 1956 were fully
satisfied and the sales must be said to have taken place
inside the State; but as the goods sold were meant for
consumption during voyage and they had no destination in any
foreign country where they could be received as imports, the
sales were not sales in the course of exports. It was
further held that mere movement of goods out of the country
following a sale would not render the sale, one in the
course of export within article 286(1)(b) of the
Constitution of India. Before a sale can be said to be a
sale in the course of export, the existence of two termini
between which the goods are intended to move or to be
transported is necessary.
The Madras High Court in the case of Fairmacs Trading
Company v. The State of Tamil Nadu (supra) was dealing with
an assessee, who was a dealer in ship’s stores and was also
doing business as ship chandlers and who imported goods from
abroad for the purpose of supplying them either to foreign
going vessels or to diplomatic personnel. These goods were
received and kept in the customs bonded
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ware-house and were cleared under the supervision of the
customs authorities whenever these were sold by the
assessee. In respect of supplies of specific goods made to
certain ships located in the Madras Harbour, pursuant to
orders placed by the Master of the ship or other officers
working in the ship, the transportation of the goods to the
ship was effected in such a manner as to ensure that the
bonded goods, which had not paid any duty, did not enter the
local market. The delivery receipt sent along with the goods
by the assessee was signed by an officer of the ship in
token of having received the goods in good condition. The
question that arose for consideration was whether the sale
took place within the State of Tamil Nadu and liable to be
taxed under the Tamil Nadu General Sales Tax Act, 1959. It
was held (i) that there was nothing to show in the
communications from the ship that the goods had necessarily
to be supplied only in the ship. It was open to the officers
working in the ship to come and take delivery of the goods
in which event the sale would be a local sale. Therefore,
assuming that the territorial waters did not form part of
the State of Tamil Nadu, as there was nothing in the
contemplation of the contracting parties that the goods were
to be moved from one State to another, it was held that it
was not possible to take the view that the sales were inter-
State sales; and (ii) that the assessee was not selling
specific or ascertained goods, because the goods formed part
of a larger stock within the bonded warehouse and had,
therefore to be separated and appropriated to the contract
as and when orders were placed by the officers of the ship
by description. Therefore, the sales were local sales in
view of the specific provision of section 4(2)(b) of the
Central Sales Tax Act, 1956, read with section 2(n),
explanation (3) of the Act (Tamil Nadu General Sales Tax
Act, 1959), and were accordingly taxable under the Act. The
Court did not find it necessary to consider the question
whether the territory covered by the territorial waters
formed part of the State of Tamil Nadu or not.
Attention of the Madras High Court was drawn to the
decision of Andhra Pradesh High Court in Fairmacs Trading
Company v. The State of Andhra Pradesh (supra). The Madras
High Court did not examine the question in detail in the
view it took.
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In so far as the High Courts of Andhra Pradesh and
Madras in the said two decisions held that sales took place
within the State, we are in agreement.
On the aspect of territorial waters, we have set out
hereinbefore
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the contention of the respondents. But inasmuch as we hold
that sales took place within State of Tamil Nadu where
appropriation took place it is not necessary to rest our
decision in these matters on this question.
Mr. Desai drew our attention to the observations of
Chief Justice Lord Parker in the case of R. v. Kent Justices
Ex Parte LYE and others, [1967] 1 All England Report 560 at
564-65. But in this case it is not necessary to consider
that aspect in the view we have taken.
In any event, the sale took place when appropriation
was made and appropriation was made within the State of
Tamil Nadu even if the goods were not delivered. See in this
connection the observations of Lord, Goddard, G.J. in Furby
v. Hoey. [1947] 1 All England Report 236. There the
respondent, an excise officer, filled in and sent to the
appellant at his licensed premises a form of order
purporting to order a variety of liquor, stating that
delivery instructions would follow. Subsequently, after
licensing hours and at an unlicensed club, the respondent
filled up a form of delivery for one bottle of gin, which
was taken by a messenger to the appellant’s premises, and
the gin was brought back to and paid for by the respondent
at the club. The appellant was convicted at quarter sessions
of selling by retail a bottle of gin at the club without
having taken out a licence, contrary to section 50(c) of the
Finance (1909-10) Act, 1910 of U.K. It was held that
appropriation, which completed the contract, took place at
the licensed premises of the appellant and not at the club,
and, accordingly, though guilty of the offence of selling
liquor out of permitted hours, the appellant was not guilty
of selling liquor on unlicensed premises as charged. In our
opinion that is the correct position and appropriation was
made within the State of Tamil Nadu.
In our opinion as the goods were within the State of
Tamil Nadu in case of ascertained goods at the time when the
contract of sale was made and in case of unascertained goods
at the time of their appropriation to the contract by the
seller,-sale must be deemed to be within the State of Tamil
Nadu.
In our opinion, therefore, Shri M.M. Abdul Khader,
learned counsel for the respondents was right that under
section 2(n) of the Act read with explanation 3, these sales
were within the State.
It may be mentioned that there was an amendment in 1976
of the Central Sales Tax Act, 1956 by Act 3 of 1976. By that
provision, the
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following was inserted in section 2 of the Central Sales Tax
Act, 1956:
"(ab) "crossing the customs frontiers of India"
meant crossing the limits of the area of a customs
station in which imported goods or export goods
are ordinarily kept before clearance by customs
authorities.
Explanation-For the purposes of this clause,
"customs station" and "customs authorities", shall
have the same meanings as in the Customs Act,
1962."
Mr. Desai sought to urge that this was declaratory and
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was valid for all the relevant years. Whether a law is a
declaratory or not, depends upon the Act and the language
used. There was nothing in the Act or object of the Act
which stated that it was further to amend the Central Sales
Tax Act, 1956 that it was declaratory and not prospective in
nature. Our attention was drawn to certain decisions,
whether an Act is retrospective and declaratory in operation
or prospective would depend upon the purpose of the Act, the
object of the Act and the language used. See in this
connection the observation in The Central Bank of India v.
Their Workmen, [1960] 1 SCR 200; Keshavlal Jethalal Shah v.
Mohanlal Bhagwandas & Anr., [1968] 3 SCR 623 and Chanan
Singh & Another v. Jai Kaur., [19701 1 SCR 803 at 804-807.
But that amendent is not relevant in the view we have taken.
The short question, therefore, that arises in all these
matters is whether sale of the goods in question took place
within the territory of Tamil Nadu. In these cases sale took
place by appropriation of goods. Such appropriation took
place in bonded warehouse. Such bonded warehouses were
within the territory of State of Tamil Nadu. Therefore,
under sub-section (2), sub-clauses (a) and (b) of section 4
of the Central Sales-Tax Act, 1956, the sale of goods in
question shall be deemed to have taken place inside the
State because the contract of sale of ascertained goods was
made within the territory of Tamil Nadu and furthermore in
case of unascertained goods appropriation had taken place in
that State in terms of clause (b) of sub-section (2) of
section 4 of the Central Sales Tax Act, 1956. There is no
question of sale taking place in course of export or import
under section 5 in this case. From that point of view the
amendment introduced by Act 103 of 1976 by incorporating in
clause (ab) of section 2 of the Central Sales Tax Act, 1956
does not affect the position. In this connection reference
may be made from the observations of this Court in Burmah
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Shell oil Storage Ltd., (supra) where it has been held that
customs A barrier does not set a terminal limit to the
territory of the State for sales-tax purposes. Sale,
therefore, beyond the customs barrier is still a sale within
the State. The amendment introduced in section 2 by the Act
103 of 1976 does not affect the position because the custom
station is within the State of Tamil Nadu. That question
might have been relevant if we were considering the case of
sale by the transfer of documents of title to the goods as
contemplated by section 5 of the Central Sales-Tax Act. In
the premises we are unable to accept the contentions urged
on behalf of the appellants in the Civil Appeals and also
the contentions urged in the Writ Petition.
In the view we have taken, it is not necessary to
express our opinion on the arguments whether introduction of
clause (ab) of section Z of Central Sales Tax Act by Act 103
of 1976 is prospective or not. We have, however, noted the
submissions. That question, in the light of our aforesaid
views, is not material for the present controversy.
In the premises Civil Appeal No. 642 of 1974, Civil
Appeal Nos. 1798-1800 of 1981 and Writ Petition No. 196 of
1974 are all dismissed with costs.
So far as Special Leave Petitions Nos. 19243-44 of 1985
are concerned, the same are also dismissed. In these cases,
however, the parties will pay and bear their own costs.
M.L.A. Appeals and Petitions dismissed.
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