Full Judgment Text
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PETITIONER:
K. G. KHOSLA & CO.
Vs.
RESPONDENT:
DEPUTY COMMISSIONER OF COMMERCIAL TAXIES
DATE OF JUDGMENT:
18/01/1966
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
GAJENDRAGADKAR, P.B. (CJ)
SHAH, J.C.
RAMASWAMI, V.
SATYANARAYANARAJU, P.
CITATION:
1966 AIR 1216 1966 SCR (3) 352
CITATOR INFO :
R 1971 SC 477 (11)
RF 1971 SC 870 (24,45)
R 1973 SC2491 (6,7,8)
RF 1974 SC1510 (5,3,11,13)
RF 1975 SC1564 (23,24,52,61,66)
R 1979 SC1160 (15)
F 1985 SC1689 (2,6)
RF 1992 SC1952 (8)
ACT:
Central Sales Tar Act, 1956 (64 of 1956), s. 5(2)-Scales in
the course of import Meaning of.
HEADNOTE:
The appellant entered into a contract with the Director-
General of Civil Supplies, New Delhi for the supply of axle
bodies manufactured by its principals in Belgium. The goods
were inspected on behalf of the buyers in Belgium but under
the contract they were liable to rejection after further
inspection in India. In pursuance of the contract the
appellant supplied axle-bodies to the Southern Railway at
Perambur and Mysore. The Joint Commercial Tax Officer
Madras rejected the contention of the appellant that the
sales were in the course of import. He held that the said
sales were intra-State sales because the seller was the
consignee of the goods and the buyer had reserved the right
to reject the goods even after their arrival in India. He
made an assessment under the Madras General Sales Tax Act in
respect of the supplies at Perambur and another assessment
under the Central Sales Tax Act in respect of the supplies
at Mysore. The appellant filed appeals against the
assessments but the Appellant Assistant Commissioner
rejected them. The Tribunal held that part of the goods
were sold in the course of import. Against the Tribunal’s
orders both parties filed two revisions each in the High
Court. The High Court allowed the petitions filed by the
State and rejected those filed by the assessee. It held
that "before a sale can be said to have occasioned the
impart it is necessary that the sale should have preceded
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the import" and as the sale had not taken place at Belgium
there was no question of sale occasioning the impart of the
goods. The appellant then came to this Court by special
leave. On behalf of the respondents two preliminary
objections were raised : (1) The appellant had not complied
with O.Xlll r. 2 of the Supreme Court Rules, 1950 before
coming to this Court; (2) The appellant had filed only two
appeals in this Court while the High Court’s judgment
covered four revision petitions.
HELD : (i) The appellant had not filed a petition for
certificate before the Madras High Court as required by
O.XIII r. 2 because of the view of that High Court that no
such petition lay in Revenue matters. Therefore non-
compliance with O.XIII r. 2 could be condoned.
(ii)Two revisions were filed in the High Court by the
appellant and two by the State in respect of two assessment
orders and they were disposed of by a common judgment. The
subject matter of the four revisions were two assessments,
one under the Madras General Sales Tax Act and the other
under the Central Sales Tax Act. The appellant was quite
right in filing two appeals before this Court. [356 B-D]
(iii)Section 5(2) of the Central Sales Tax Act does not
lay down any condition that before a sale could be said to
have occasioned import it is
353
necessary that the sale should have preceded the import.
The High Court wrongly held so. [358 D-E]
Tata Iron & Steel Co. Ltd. v. S. R. Sarkar, [1961] 1 S. C.
R. 379, relied on.
The Cement Marketing Co. of India v. State of Mysore, [1963]
3 S.C.R. 777 State Trading Corporation of India v. State of
Mysore, [1963] 3 S.C.R. 792 and Singareni Collieries Co. v.
Commissioner of Commercial Taxes, Hyderabad, [1966] 2 S.C.R.
190, referred to.
(iv)In the present case it was quite clear from the
contract that it was incidental to the contract that the
axle-box bodies would be manufactured in Belgium, inspected
there, and imported into India for the consignee. Movement
of goods from Belgium to India was in pursuance of the
conditions of the contract between the assessee and the
Director-General of Supplies. There was no possibility of
those goods being diverted by the assessee for any other
purpose. Consequently the sales took place in the course of
import of goods within s. 5(2) of the Act and were therefore
exempt from taxation. [358 F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143 and 144
of 1965.
Appeal by special leave from the judgment and order date
August 16, 1963 of the Madras High Court in Tax Cases Nos.
100, 219, 220 and 225 of 1962.
Veda Vyasa and K. K. Jain, for the appellant.
A.Ranganadham Chetty and A. V. Rangam, for the respon--
dent.
The Judgment of the Court was delivered by
Sikri, J. These two appeals by special leave are directed
against the judgment of the Madras High Court in Tax Cases
Nos. 100, 219, 220 and 225 of 1962, and involve the
interpretation of s. 5(2) of the Central Sales Tax Act (64
of 1956)-hereinafter referred to as the Act. The relevant
facts are these. The appellant K. G. Khosla & Co.,
hereinafter referred to as the assessee entered into a
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contract with the Director-General of Supplies and Disposal,
New Delhi, for the supply of axle-box bodies. According to
the contract the goods were to be manufactured in Belgium,
and the D.G.I.S.D., London, or his representative, was to
inspect the goods at the works of the manufacturers. He was
to issue an inspection certificate. Another inspection by
the Deputy Director of Inspections, Ministry of W.H. & S.,
Madras, was provided for in the contract. It was his duty
to issue inspection notes on Form No. WSB.65 on receipt of a
copy of the Inspection Certificate from the D.G.I.S.D.
London and after verification and visual inspection. The
goods were to be manufactured according to specifications by
M/s La Brugeoies. ET. Nivelles, Belgium. The
354
assessee was entitled to be paid 90% after inspection- and
delivery of the stores to the consignee and the balance of
IO % was payable on final acceptance by the consignee. In
the case of deliveries on F.O.R. basis, the assessee was
entitled to 90% payment after inspection on proof of
despatch and balance 10% after receipt of stores by the
consignees in good condition. The date of delivery was "in
8 months ex-your principal’s works from the date of receipt
of order and the approved working drawings, i.e. delivery in
India by 31-7-1957, or earlier." The assessee was entirely
responsible for the execution of the contract. Clause 17(1)
of the Contract provides:
"The Contractor is entirely responsible for
the execution of the contract in all respects
in accordance with the terms and conditions as
specified in the A/T and the schedule annexed
thereto. Any approval which the Inspector may
have given in respect of the stores, materials
or other particulars and the work or
workmanship involved in the contract (whether
with or without test carried out by the
contractor’s Inspector) shall not bind the
purchaser .and notwithstanding any approval or
acceptance given by the Inspector, it shall be
lawful for the consignee of the stores on
behalf of the Purchaser to reject the stores
,,on arrival at the destination, if it is
found that the stores supplied by the
contractor are not in conformity with the
terms and conditions of the Contract in all
respects,"
Further, the assessee was responsible for the safe arrival
of the goods at the destination. By an endorsement the
D.G.I.S.D., London, was requested to issue pre-inspection
delay reports regularly to all concerned, including the
Railway Liaison Officer, C/o D.G.S. & D. Shahjahan Road, New
Delhi. He was also requested to endorse copies of the
Inspection Certificates to the Director of Inspection,
Ministry of W.H. & S. Bombay. It is further found by the
Sales Tax Appellate Tribunal that "the Belgian manufac-
turers, after manufacture, consigned the goods to the
appellants by ship under bills of lading in which the
consignee was the appellants themselves. The goods were
consigned to Madras Harbour, cleared by the appellant’s own
clearing agents and despatched for delivery to the buyers
thereafter."
In pursuance of this contract, the assessee supplied axle-
box bodies of the value of Rs. 1,74,029.50 to the Southern
Railway at Perambur Works and of the value of Rs.
1,32,987.75 to Southern Railway, Mysore. The Joint
Commercial Tax Officer held that the former sales were
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liable to tax under the Madras General Sales Tax Act and the
latter under the Central Sales Tax Act. He rejected the
contention of the assessee that the sales were in the
,,,course of import. He held that "there was no privity of
contract
355
between the foreign seller and the Government for the
goods., The goods were shipped only as the goods of the
seller and intended for them. They were cleared as their
own and delivered after clearance. The transaction is
therefore one of intrastate sales and not one in the course
of import. The sale is completed only when the goods are
delivered in this state and so it is not occasioning the im-
port. It is also seen from the contract of sale that the
terms of delivery are F.O.R. Madras. Again Cl. (1) of the
contract says that any approval where the Inspector may have
given in respect of stores materials or other particulars
and the work or workmanship involved in the contract shall
not bind the purchaser and notwithstanding any approval or
acceptance given by the Inspector it shall be lawful for the
consignee of the stores on behalf of the purchaser to reject
the stores on arrival at the destination. It will be seen
from the words underlined by me that the purchaser has
reserved the right to reject the goods even though an
inspection of the goods might have been made. So there is
no force in the argument of the dealer that the goods were
appropriated to the contract of sale."
The assessee filed two appeals but the Appellate Assistant
Commissioner, agreeing with the Joint Commercial Tax
Officer, rejected the appeals. The Appellate Tribunal on
appeal held that the property in the goods had not passed on
to the buyers even while the goods were with the Belgian
manufacturers and that the sale by the appellants had not
occasioned the imports. The Tribunal, however, accepted the
contention of the assessee that sales to the extent of Rs.
22,983.75 and Rs. 10,987.50 had taken place in the course of
import as the goods had been appropriated to the contract
while the goods were on the high seas.
The assessee then filed two revisions before the High Court
and the Deputy Commissioner of Commercial Taxes, Madras,
filed two revisions challenging the deductions of the two
sums of Rs. 22,983.75 and Rs. 10,987.50. The High Court
allowed the petitions filed by the State and dismissed the
petitions filed by the assessee. It rejected the contention
of the assessee that the property in the goods must be
deemed to have passed at the stage when the goods were
approved by the representative in the factory of the
manufacturers at Balgium. The High Court further rejected
the contention of the assessee that the sale by the assessee
to the Government Department had occasioned the import on
the ground that "before a sale can be said to have
occasioned the import, it is. necessary that the sale should
have preceded the import", and as the sale had not taken
place at Belgium there was no question of the sale
occasioning the import of the goods.
Before we deal with the merits of the appeals, we must
dispose of two preliminary objections raised by Mr.
Ranganadham Chetty,
356
on behalf of the respondents. Basing himself on Management
of Hindusthan Commercial Bank Ltd. v. Bhagwan Dass (1) he
urged that ,the assessee should have filed an application
for leave to appeal before the High Court before applying
for special leave. We see no force in this objection. It
is common ground that the Madras High Court had at the
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relevant time consistently taken the view that no
application for leave to appeal to Supreme Court Jay before
the High Court in matters involving revenue. In these
circumstances we dispense with the requirement of Order
XIII, r. 2 of the Supreme Court Rules, and overrule the
objection. The second preliminary objection raised by him
was that the assessee should have filed four appeals and not
two appeals because there were four revision petitions
before the High Court. We see no force in this objection
also. Two revisions were filed by the assessee and two by
the State in respect of two assessment orders and they were
disposed of by one common judgment. The subject matter of
the four revisions were two assessments, one under the
Madras General Sales Tax Act and the other under the Central
Sales Tax Act. In our opinion, the assessee was quite right
in filing two appeals before this Court.
The learned counsel for the assessee Mr. Ved Vyasa, raised
two points before us : First that the sales were in the
course of import within the meaning of s. 5(2) of the Act;
and secondly that the property in the goods passed in
Belgium and consequently the sales were outside the State
within the meaning of art. 286(1) (a) ,of the Constitution.
As we are of the opinion that the assessee must succeed on
the first point it will not be necessary to deal with ,,the
second point.
Section 5(2) of the Central Sales Tax Act provides
"5(2) A sale or purchase of goods shall be
deemed to take place in the course of the
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."
Section 3 of the Act, which deals with inter-
state trade and commerce may also be set out
as it employs the same terminology and has
been interpreted by this Court. S. 3 reads :
"A sale or purchase of goods shall be deemed
to take place in the course of inter-State
trade or commerce if the sale or purchase--
(a)occasions the movement of goods from one
State to another; or
(1) [1965] 2 S.C.R. 265.
357
(b)is effected by a transfer of documents
of title to the goods during their movement
from one State to another."
It is not necessary to set out the two
Explanations to s. 3.
It seems to us that the expression "occasions the movement
of goods" occurring in s. 3(a) and s. 5(2) must have the
same meaning. In Tata Iron and Steel Co. Ltd. Bombay v. S.
R. Sarkar,(1) Shah, J. speaking for the majority,
interpreted s. 3 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."
These observations of Shah, J., were cited with approval by
this Court in The Cement Marketing Co. of India v. The State
of Mysore(2). This case, it is true, was not dealing with
the Central Sales Tax Act, but the Court was dealing with a
similar question arising under art. 286 of the Constitution,
before its amendment. But the same Bench, in dealing with a
case arising under the Act (The State Trading Corporation of
India v. The State of Mysore(3) again approved of the
observations in Tata Iron and Steel Co. case(1). Sarkar,
J., observed thus:
"The question then is, did the sales occasion
the movement of cement from another State into
Mysore within the meaning of the definition?
In Tata Iron and Steel Co., Ltd. v. S. R.
Sarkar(1) it was held that a sale occasions
the movement of goods from one State to
another within section 3(a) of the Central
Sales Tax Act, when the movement "is the
result of a covenant or incident of the
contract of sale." That the cement concerned
in the disputed sales was actually moved from
another State into Mysore is not denied. The
respondents only contend that the movement was
not the result of a covenant in or an incident
of the contract of sale."
This Court then, on the facts of the case, found that the
movement of cement from another State into Mysore was the
result of a covenant in the contract of sale or incident of
such contract. This Court did not go into the question as
to whether the property had
(1) [1961] 1 S.C.R. 379: 11 S.T.C. 655. (2) [1963] 3 S.C.R.
777:14 S.T.C. 175.
(3) [1963]3 S.C.R. 792: 14 S.T.C. 188.
358
passed before the movement of the goods or not, and this was
because according to the decision in Tata Iron and Steel Co.
v. S. R. Sarkar(1) it did not matter whether the property
passed in one State or the other. Tata Iron & Steel Co.(1)
case was again followed by this Court in Singareni
Collieries Co. v. Commissioner of Commercial Taxes,
Hyderabad(2).
The learned counsel for the respondent, Mr. A. Ranganadham
Chetty, invited us to hold that the observations of Shah,
J., in Tata Iron and Steel Co. (1) case were obiter, and to
consider the question afresh. We are unable to reopen the
question at this stage. Shah, J., was interpreting s. 3 of
the Act, and although the Court was principally concerned
with the interpretation of s. 3(b), it was necessary to
consider the interpretation of s. 3(a) in order to arrive at
the correct interpretation of s. 3(b). Further these
observations were approved in The Cement Marketing Co. of
India v. The State of Mysore(3), The State Trading
Corporation of India, v. The State of Mysore(4) and
Singareni Collieries Co. v. Commissioner of Commercial Tax,
Hyderabad(2). In the State Trading Corporation(4) case, in
so far as the assessment for the assessment year 1957-58 was
concerned, this Court applied the principles laid down in
Tata Iron and Steel Co.(1) case. Accordingly we hold that
the High Court was wrong in holding that before a sale could
be said to have occasioned import it is necessary that the
sale should have preceded the import.
The next question that arises is whether the movement of
axle-box bodies from Belgium into Madras was the result of a
covenant in the contract of sale or an incident of such
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contract. It seems to us that it is quite clear from the
contract that it was incidental to the contract that the
axle-box bodies would be manufactured in Belgium, inspected
there and imported into India for the consignee. A Movement
of goods from Belgium to India was in pursuance of the
conditions of the contract between the assessee and the
Director-General of Supplies. There was no possibility of
these goods being diverted by the assessee for any other
purpose. Consequently we hold that the sales took place in
the course of import of goods within s. 5(2) of the Act, and
are, therefore, exempt from taxation. A
In the result the appeals are allowed, the judgment of the
High Court reversed and the assessment orders quashed. The
appellant will have his costs here and in the High Court.
One set of hearing fee.
Appeals allowed.
(1) [1961] 1 S.C.R. 379: 11 S.T.C. 655. (2) [1966] 2
S.C.R. 190.
(3) [1963] 3 S.C.R. 777: 14 S.T.C. 175. (4) [1963] 3 S.C.R.
792: 14 S.T.C. 188.
359