Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 15
PETITIONER:
BURMAH SHELL OIL STORAGE AND DISTRIBUTING CO., OF INDIA,
Vs.
RESPONDENT:
THE COMMERCIAL TAX OFFICER AND OTHERS (AND CONECTED APPEAL)
DATE OF JUDGMENT:
27/09/1961
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SINHA, BHUVNESHWAR P.(CJ)
KAPUR, J.L.
HIDAYATULLAH, M.
MUDHOLKAR, J.R.
CITATION:
1962 AIR 1320 1962 SCR Supl. (1) 242
CITATOR INFO :
RF 1965 SC1740 (8)
RF 1973 SC1461 (218)
RF 1976 SC2243 (89)
ACT:
Sales Tax--Sale of motor spirit for aviation purposes to
aircraft at Airport--Exemption from taxation--Sale outside
customs barrier--Whether sale within State--Aviation spirit
loaded on board aircraft taken out of country--If
exported--" Export", meaning of--Bengal Motor Spirit Sales
Taxation Act, 1941 (Ben. 5 of 1941), S. 22, as
amended--Constitution of India, Art. 286(1)(a)(b), Expla-
nation.
903
HEADNOTE:
The appellant companies which were carrying on business in
Calcutta in petroleum and petroleum products maintained
supply depots at Dum Dum Airport from which motor spirit for
B the purposes of aviation was sold and delivered to
aircraft which either proceeded to foreign countries
directly from that Airport or did so ultimately, though
landing en route at some place or places in the Indian
territory. Dum Dum Airport was a customs aerodrome and all
aircraft coming into it or leaving it had to comply with
ordinary customs formalities. The sales tax authorities of
West Bengal sought to levy tax on the sales of motor spirit
as aforesaid under the provisions of the Bengal Motor Spirit
Sales Taxation Act, 1941, as amended. The appellant
companies claimed that the sales were exempted from taxation
under both the clauses (a) and (b) of Art. 286(i) of the
Constitution of India on the grounds (i) that the sales in
question had taken place outside the State of West Bengal,
as they did not .come within the Explanation to Art.
286(1)(a), (2) that aviation spirit was delivered outside
the customs barrier and therefore the sales were outside the
State, and (3) that the sales had taken place in the course
of export, as aviation spirit was taken out of the territory
of India.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 15
Held: (i) that by sale in Art. 286(i)(a) is meant a
completed transaction by which property in the goods passes.
Before property in the goods passes the contract of sale is
only executory and the buyer has only a chose in action.
The taxable event is not to be found at an earlier stage
because the critical taxable event is the passing of
property.
The Explanation to cl. (1) of Art. 286 was added to avoid,
among other things, multiple taxation of the same
transaction. It indicates the State where the tax can be
levied and also the State where it cannot. It achieves it
by excluding from consideration the place where the property
in the goods passed according to the law relating to sale of
goods. The non obstante clause establishes this. By the
fiction created by the Explanation a sale is deemed to have
taken place in the State where the goods are delivered as a
direct result of the sale for purposes of consumption in
that State.
Where there are more States than one involved, any State
claiming to tax a sale by reason of something anterior to
the passing of property would not be able to claim that the
sale took place there unless it was also the State of
delivery.
The Explanation is meant to explain the Article and must be
interpreted according to its tenor and the Explanation is
not to be explained with the aid of the Article because that
would reverse their roles. The Explanation is not
applicable unless there are more States than one involved.
The State of Bombay v. The United Motors (India) Ltd.,
[1953] S.C.R. 1969, State of Travancore Cochin v. Shanmugha
Vilas Cashewnut Factory, [1954] S.C.R. 53, Ramnayain Sons
Ltd. v. Asst.
904
Commissioner of Sales Tax, [1955] 2 S.C.R. 483 and The
Bengal Immunity Company Ltd. v. The State of Bihar, [1955] 2
S.C.P. 603, considered.
(2) that to exclude the power of taxation of the State of
West Bengal under Art. 286(i)(a), read with the Explanation,
the appellant companies must be able to point out some other
State where the goods could be said to have been delivered
as a result of the sale for the purpose of consumption in
that other State, and that where, as in the present case,
aviation spirit was delivered to the aircraft, there was no
such rival State, and therefore, the ban contained in Art.
286(i)(a) and the Explanation, did not apply.
(3) that in the phrase " in the course of export out of the
territory of India " in Art. 286(i)(b) the word " export "
does not merely mean ’taking out of the country’. Export
here means that the goods are being sent to a foreign
destination at which the goods can be said to be imported.
In the Article the notions of import and export go in pairs.
State of Travancore-Cockin v. The Bombay Co. Ltd., [1952]
S.C.R. 1112 and State of Travancore-Cochin v. Shanmugha
Vilas Cashew Nut Factory, [1954] S.C.R. 53, relied on.
(4) that aviation spirit loaded on board the aircraft for
consumption, though taken out of the country, was not
exported since it had no destination where it could be said
to be imported. The sales in question could not, therefore,
be said to have occasioned the export, nor were they in the
course of export. Accordingly, Art. 286(i)(b) was not
applicable.
(5) that the sales must be treated as made within the State
of West Bengal. The customs barrier did not set a
terminal limit to the territory of West Bengal for the
purposes of sales tax, and the sales, though beyond the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 15
customs barrier, were still within the territory of the
taxing State.
JUDGMENT:
CIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 751 of
1957 and 10 of 1958.
Appeal from the judgment and order dated December 7, 1956,
of the Calcutta High Court in Matters Nos. 29 and 58 of
1956.
M. C. Setalvad, Attorney-General of India, C. K. Daphtary,
Solicitor-General of India, Sukumar Mitra, Sankar Ghosh and
B. N. Ghosh, for the appellants in C. A. No 751 of 57.
M. C. Setalvad, Attorney General of India, Sankar Ghosh and
D. N. Mukherjee, for the appellants in C. A. No. 10 of 1958.
S. M. Bose, Advocate-Generalfor the State of West
905
Bengal, B. Sen and P. K. Bose, for the respondents (in both
the appeals).
1960. September 27. The Judgment of the Court was
delivered by
HIDAYATULLAH J.-These two appeals on a certificate under
Art. 132(1) of the Constitution have been filed respectively
by the Burmah Shell Oil Storage land Distributing Co., of
India, Ltd., and the Standard Vacuum Oil Company (in this
judgment referred to as the appellant-Companies) against a
common judgment of the High Court of Calcutta dated December
7, 1956. The High Court was moved for writs of mandamus,
prohibition and certiorari under Art. 226, but the petition
was dismissed by D. N. Sinha, J. The matter arises out of
assessment to sales tax on sale of motor spirit for aviation
purposes (shortly, aviation spirit) supplied by the
appellant-Companies to aircraft bound for countries abroad,
under the Bengal Motor Spirit Sales Taxation Act, 1941, as
amended by s. 2(a)(i) of the Bengal Motor Spirit Sales
Taxation (Second Amendment) Act, 1954. The Commercial Tax
Officer, the Commissioner of Commercial Taxes and the State
of West Bengal have been joined as respondents in this
Court, as they had previously been joined in the High Court.
The appellant-Companies deal in Petroleum and Petroleum
products, and carry on business at Calcutta. They maintain
supply depots at Dum Dum Airport from which aviation spirit
is sold and delivered to aircraft proceeding abroad and
belonging to several Companies. It appears that such sales
were treated by the sales tax authorities in the State of
Bombay as not falling within the taxing Acts in force in the
Bombay State by reason of the provisions of Art. 286 of the
Constitution. The sales tax authorities in West Bengal,
however, took a different view of the matter, and after
sundry procedure resulting in assessment of tax, presented a
demand notice for the tax assessed which was paid under
protest by the appellant Companies. The appellant Companies
filed petitions under Art. 226 of the Constitution in the
High
906
Court of Calcutta questioning the legality of the imposition
but without success. They have now filed these appeals
after obtaining a certificate, as already stated.
The contentions in this Court, as they were also before the
High Court, ’are that such sales are made in the course of
export of such aviation spirit out of the territory of
India, that they take place outside the State of West
Bengal, that inasmuch as aviation spirit is delivered for
consumption outside West Bengal, the sales cannot fall
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 15
within the Explanation to sub-cl. (a) of the first clause of
Art. 286, and that unless they can be said to become
"Explanation Sales", the power to tax does not exist. It is
argued in support of the last contention that there is not
even an averment in the reply of the respondents before the
High Court that aviation spirit is delivered for consumption
within West Bengal.
The case in the High Court was restricted to consideration
of supplies to aircraft which either proceed to foreign
countries directly from Dum Dum Airport, or do so
ultimately, though landing en route at some place or places
in the Indian territory. The case has been similarly
confined in this Court also, and we are not required to
express any opinion about sales of aviation spirit to
aircraft flying from one place in West Bengal to another
place also within that State, or even to some place in
another State in the territory of India.
The facts are fortunately not’ in dispute. Both parties
admitted the procedure for the supply of aviation spirit to
aircraft. Briefly described, it is as follows: Before the
arrival of such an aircraft, a representative of the
appellant-Companies applies to the Airport Customs Officer
to depute an Officer to supervise the refuelling of the
aircraft. After the aircraft lands, the captain or the
Ground Engineer gives instruction about the quantity of
aviation spirit required, and on permission being given by
the Customs authorities, the stated quantity is delivered in
the presence of the Customs Officer deputed. Details of the
delivery are entered in a delivery receipt, which
907
is signed by the representative of the appellant Companies
and the Customs Officer deputed. Duty drawback shipping
bills are also drawn up to show the’ quantity of aviation
spirit and are countersigned by them and also by a
representative of the aircraft. Later, claims for refund of
customs duty are made, and refund is granted.
In the petition filed in the High Court, it was averred that
such aviation spirit is required for consumption during
flight and/or outside the territory of India, and is thus
delivered for purposes of consumption outside West Bengal
and in some cases outside the territorial limits of India as
well. It was also stated that it was sold in the course of
export outside the territory of India, and drawback of
customs duty was obtained. In the reply of the respondents,
it was stated that the refund of customs duty was an irrele-
vant fact for the purpose of assessment. It was further
stated in the affidavit of the Commercial Tax Officer as
follows :
" I further state that a foreign bound aircraft on leaving
Dum Dum Airport consumes a portion of the aviation spirit
taken in by it at the Airport within the territory of West
Bengal before it moves out of the said territory or the
territory of India. I do not admit that the entire quantity
is used outside the territorial limits of India as
alleged...... I deny that the sale of such aviation spirit
takes place outside the State of West Bengal and state that
the sale takes place within the State of West Bengal and the
purchaser pays its price within the State of West Bengal.
The sale of such aviation spirit is completed by delivery at
the Dum Dum Airport in West Bengal."
We have mentioned this fact, because it was argued that the
respondents had not averred clearly that aviation spirit was
sold for consumption within West Bengal even though the
appellant Companies had denied it. The respondents pointed
out that at least some of the aviation spirit must be
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 15
consumed in the State, and that this was so stated in the
affidavit filed in reply to the petition and quoted by us.
This is
908
hardly a case for a fight on pleadings, especially as the
entire procedure of the supply of aviation spirit and the
use to which it is put are beyond controversy. The question
that we have to consider is one of principle, and the
answer-depends upon broad facts and not on technicalities.
Either the whole of the sale is within the taxing power of
the State or it is not, and the fact that aviation spirit is
consumed in taking off or in flying over the territory of
West Bengal before it leaves that territory would make no
difference either way to the principles applicable. Though
parties entered into a debate on this part of the case, we
do not propose to consider it, because, in our opinion, the
question must be considered in substance and not in
abstractions. The liability to sales tax, if any, is
attracted when aviation spirit is sold, and immunity can
only be claimed, if, as stated in Art. 286(1)(a) and the
Explanation, the sale can be said to take place outside the
State or can be regarded under Art. 286(1)(b) as having
taken place " in the course of...... export of the goods out
of, the territory of India".
Before we take up these two questions, we desire to refer to
some provisions of certain Acts, which bear upon the matter.
The Indian Aircraft Act, 1934, is an Act for the control of
the manufacture, possession, use, operation, sale, import
and export of aircraft. Section 16 of this Act provides
that the Central Government may, by notification in the
Official Gazette, declare that any or all of the provisions
of the Sea Customs Act shall, with such modifications and
adaptations as may be specified in the notification, apply
to the import and export of goods by air Sections 2(3) and
(4) define " import" and " export’ respectively as "
bringing into India " and " taking out of India ". A
notification issued under the Indian Aircraft Act, the rules
framed thereunder and the Indian Aircraft Rules, 1920,
appointed the Civil Aerodrome, Dum Dum, a Customs Aerodrome,
and to that Customs Aerodrome, the provisions of the Sea
Customs Act mutatis mutandis were made applicable by r. 63
(Part IX) of the Indian Aircraft Rules, 1920. As
909
a result, Dum Dum Airport became a Customs Aerodrome, and
any aircraft coming into India from foreign countries or
leaving for any such country has to comply with ordinary
Customs formalities. Section 42 of the Sea Customs Act,
which allows drawback on re-export and is applicable mutatis
mutandis, provides:
" When any goods, capable of being easily identified,
which have been imported by sea into any customs-port from
any foreign port, and upon which duties of customs have been
paid on importation, are re-exported by sea from such
customs-port to any foreign port, or as provisions or stores
for use on board a ship proceeding to a foreign port seven-
eighths...... of such duties shall, except as otherwise
hereinafter provided, be repaid as drawback: ". (Provisos
omitted).
Under s. 51, no drawback is allowed unless the claim to
receive such drawback is made and established at the time of
re-export, and under s. 52, the person claiming drawback has
to make and subscribe to a declaration. The procedure which
is described in an earlier portion of this judgment bears
upon these matters.
Coming now to the taxing Acts with which we are concerned,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 15
it may be pointed out that the Bengal Motor Spirit Sales
Taxation Act, 1941, originally did not contemplate levy of a
tax on the sale of aviation spirit. Motor spirit was
defined to mean,
" any liquid or admixture of liquids which is ordinarily
used directly or indirectly as fuel for any form of motor
vehicle or stationary internal combustion engine, and which
has a flashing point below 76 degrees Fahrenheit ".
Sub-section (4) of s. 3, which is the charging section,
provided that no tax shall be levied on the sale of any
motor spirit for the purpose of aviation. The Act was
amended by the Second Amendment Act, 1954, and sub-s. (4) of
s. 3 was omitted, and the proviso to the first sub-section
was re-enacted, adding one more clause to the following
effect
910
the tax on all retail sales of motor spirit for the purpose
of aviation, which are effected on or after the date of the
commencement of the Bengal Motor Spirit Sales Taxation
(Second Amendment) Act, 1954, shall be charged at the rate
of three annas per gallon ".
By the Bengal Motor Spirit Sales Taxation (Amendment) Act,
1955, the original Act was further amended. To the
definition of" motor spirit’ quoted by us earlier, an
Explanation was retrospectively added, which reads as
follows:
" Explanation-For the avoidance of doubt, it
is hereby declared that in this Act, the
expression ’ vehicle’ means any means of
carriage, conveyance or transport, by land,
air or water ".
The original Act was again amended by the Bengal Motor
Spirit Sales Taxation (Amendment) Act, 1957. This time,
among other amendments involving rates of tax, the words "
and which has a flashing point below 76 degrees Fahrenheit "
were omitted from the definition of ’motor spirit ’. The
result of all these amendments was to make retail sales of
aviation spirit liable to sales tax, and ’retail sale’ was
defined, at all material times, as a sale " by a retail
dealer for the purpose of consumption by the purchaser ".
After the coming into force of the Constitution, s. 22, in
terms of Art. 286, was added to the original Act by
paragraph 3 of, and the Eleventh Schedule to, the Adaptation
of Laws Order, 1950. It read:
" 22(1). Nothing in this Act shall be construed to impose
or authorise the imposition of a tax on the sale or purchase
of motor spirit:-
(a) where the sale or purchase takes place outside the State
of West Bengal;
(b) where the sale or purchase takes place in the course of
the import of such motor spirit into, or export of such
motor spirit out of the territory of India; or
(c) (omitted).
(2) The Explanation to clause (1) of article 286 of the
Constitution shall apply for the interpretation of clause
(a) of sub-section (1)
911
Clauses (a) and (b) of the first sub-section do no more than
re-enact the prohibition contained in Art. 286 of the
Constitution with modifications to Suit motor spirit, and
the Explanation to sub-cl. (a) of cl. (1) of the said
Article in the Constitution has been applied without an
attempt to modify or adopt it. The Explanation to sub-cl.
(a) of the first clause of Art. 286, the meaning of which
was much in dispute in this case, may conveniently be quoted
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 15
here. It reads:-
" Explanation-For the purposes of sub-clause (a), a sale or
purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct
result of such sale or purchase for the purpose of
consumption in that State, notwithstanding the fact that
under the general laws relating to sale of goods the
property in the goods has by reason of such sale or purchase
passed in another State ".
The High Court of Calcutta in its judgment dealt with the
points urged, and rejected them. The reasons of the High
Court briefly were as follows: The learned Judge declined to
draw any inference from the fact that customs duties were
refunded as drawbacks on aviation spirit delivered to the
aircraft. He held that he was not required to decide
whether the appellant Companies were entitled to claim and
receive drawbacks of customs duty. He then gave a finding
that the sale was physically within the State, because both
the buyer and the purchaser were, at the time of sale,
within the State of West Bengal even though delivery of
aviation spirit was beyond the customs barrier. He then
considered the legal position in the light of Art. 286 from
three points of view. He first held that it was not an
inter-State transaction, because both the parties were in
the State of West Bengal, and aviation spirit was not
delivered outside the State. Thus, he held that el. (2) of
Art. 286 did not apply. In this connection, he relied upon
the decision of this Court in the Bengal Immunity Co., Ltd.
v. State of Bihar and others (1). He next considered
(1) [1955] 2 S.C.R. 603.
912
the matter under the first sub-clause, and held that unless
the fiction created by the Explanation applied, the sale
must be treated as within the State under the law relating
to sale of goods. In his opinion, the sale being completed
within the State of West Bengal both as regards contract and
delivery, the fiction could not be held applicable, because
no " outside " State was involved, even though the aircraft-
might have to consume some aviation spirit while flying over
the " outside " State. He, therefore, held that the
Explanation and Art. 286(1)(a) which it seeks to explain,
were both not applicable. He then considered the matter
from the point of view of Art. 286(1)(b). He explained on
the authority of the decision of this Court in State Of
Travancore-Cochin and others v. Shanmugha Vilas Cashewnut
Factory and others (2) that the expression " in the course
of export out of the territory of India" referred to sales
which, by themselves, occasioned the export of goods out of
the territory of India and not to sales for the purpose of
export, even though the goods ultimately passed the customs
barrier. He pointed out that there was no foreign purchaser
to whom the aviation spirit could be said to have been
exported, and that aviation spirit, in fact, was consumed en
route and never taken to any foreign territory. He also
pointed out that no bills of lading or shipping documents
were drawn up, and therefore there was neither an export nor
a sale in the course of export out of the territory of
India.
The appellant Companies claim that these sales come within
the exemption granted the sub-cls. (a) and (b) of the first
clause of Art. 286. To claim the exemption granted by the
first sub-clause, they rely upon certain decisions of this
Court, and contend that unless the sale can be said to fall
within the Explanation, it must be treated as a sale outside
the State of West Bengal, and is thus exempt. With regard
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 15
to the second sub-clause, they contend that there was an
export out of the territory of India inasmuch as aviation
spirit was taken abroad and any sale by which it is taken
abroad is also exempt These
(2) [1954] S.C.R. 53.
913
arguments, as has been shown above, were urged before the
High Court, but were not accepted.
These two arguments need to be considered separately, as
they have little in common. Article 286 places restrictions
upon the power of the States to tax sales and purchase of
goods, and cuts down the amplitude of Entry No. 54 in the
Second List of the Seventh Schedule. Other restrictions are
also to be found in Part XIII of the Constitution. With
those we are not concerned in these appeals. We are also
not concerned with the subsequent amendment of Art. 286, nor
with the ban imposed by the second clause of the Article on
taxes on sales in the course of inter-State trade and
commerce. We are concerned with the first clause only, as
it stood before the amendment. That clause is divided into
two sub-clauses. The first sub-clause prohibits the
imposition of tax on the sale or purchase of goods where the
sale or purchase takes place outside the State. AD
Explanation is added to this sub- clause, which has been
quoted by us earlier. This Explanation has led to a long
controversy in this Court during which somewhat conflicting
views have been expressed about its meaning. This conflict
has further been accentuated when the interplay between the
two clauses has been considered. The view now accepted is
that the bans imposed by the two clauses are independent and
separate and each must separately be got over. In view of
this, we are not required to travel beyond the first clause
in this case.
We have heard widely divergent arguments in these appeals.
The learned Attorney-General who appeared on behalf of the
appellant Companies read to us copious extracts from the
earlier decisions of this Court, and contended that unless
the sales could be said to fall within the Explanation so as
to become ’Explanation sales’, they must be regarded as
having taken place outside the State of West Bengal and for
that reason, not taxable. According to him, they could only
become ’Explanation sales’ if aviation spirit was delivered
for the purpose of consumption within the State of West
Bengal. The learned Advocate-General of West Bengal, on the
other band,
914
contended that the Explanation did not apply to the facts
here, and that the observations in the rulings were not
relevant.
The first sub-clause in its opening portion says that no law
of a State shall impose or authorise the imposition of a tax
on the sale or purchase of goods where such sale or purchase
takes place outside the State. It is thus plainly meant
that a State is not to tax sales which take place outside
that State. But, where does a sale take place ? Numerous
elements go to make a sale, and they may take place in more
than one State. Under the law relating to the sale of
goods, property passes on the happening of certain events.
When they happen, the sale is complete. Now, a contract for
the sale of goods may be entirely within one State when all
parties are within the State, the offer and acceptance also
take place there, and the goods are also within that State,
and there, the property in the goods passes and delivery
also takes place. But it may also happen that the
constituent elements may be spread over two or more States,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 15
some of the elements described above falling within one
State and some others falling within one or more other
States. Prior to the Constitution, multiple taxation of a
single transaction of sale was possible, and Provincial
legislation then existing clearly demonstrates that States
having Some connection with the sale because one or more
elements took place within those States, treated this as
sufficient nexus between the taxing power and the States,
authorising them to tax sales even where property passed in
another State. The Constituent Assembly desired to achieve
certain objects in the matter of taxation, particularly in
relation to sales tax. Article 286 achieves, among other
objects, the avoidance of this multiple taxation.
The first sub-clause of the Article is clear in its terms,
when it says that a State cannot tax sales which take place
outside the State. The converse is also true, that is to
say, that a State can tax a sale of goods which takes place
within the State. By sale here is meant a completed
transaction by which property in the goods passes. Before
the property in the
915
goods passes, the contract of sale is only executory, and
the buyer has only a chose in action." Property in the goods
passes either by the fulfilment of the conditions of the
contract, if any, or by the operation of the law relating
to the sale of goods.
Starting from the basic fact that what is to be taxed under
the Constitution is a sale completed by the transference of
property in the goods, we have to see at what stage and
where this happens. The taxable event thus cannot be found
at any earlier stage when the sale is not completed by the
passing of property. The critical taxable event is the
passing of property in the goods as a result of a contract
for their sale. The parties to the contract can agree when
that event is to take place, but where it happens may be a
matter of some doubt and even of difficulty. Where the
parties have not agreed as to the time of the passing of
property, the law relating to the sale of goods furnishes
the answer. There too, there may be the same difficulty as
to the place of the passing of property. The place of
physical delivery of the goods does not help to solve this
difficulty, because delivery may, precede or follow the
passing of property in the goods. Delivery of goods is,
thus, not always an element which determines the completion
of a sale, because the sale may be completed both before and
after delivery. The Constitution, however, thinks in.’
terms of a completed sale by the passing of property and not
in terms of an executory contract for the sale of goods.
The essence of the matter being thus the passing of property
in goods,, there was always a likelihood of more than one
State claiming the right to tax the same transaction. One
State might claim that goods in which property passed were
in that State, and hence property in the goods passed there.
Another State might claim that the conditions precedent to
the passing of property were fulfilled in that State and
hence the sale was completed by the passing of property
there. Yet another State might claim that property passed
in that State according as one or more events connected with
the passing of property took place within that State.
916
It was to avoid this welter of confusion as far as possible
that the Explanation was added, and it also avoided multiple
taxation. The Explanation serves two purposes. It
indicates the State where the tax can be levied, and also
indicates the State or States where it cannot. It achieves
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 15
these two purposes excluding all considerations as to where
property the goods can be said to have passed under the law
relating to the sale of goods. The purpose is achieved by
the Explanation and particularly by the non obstante clause
in the Explanation. Any State claiming to tax a sale of
goods on the ground that it was completed by the passing of
property in the goods in that State could not do so, if the
goods as a direct result of the sale were delivered for the
purpose of consumption in another State. The Explanation
creates a fiction that the sale must be deemed to have taken
place in the latter State and not in the State where the
sale was completed by reason of passing of property. It
thus discards the test of passing of property and adopts the
test of delivery ’as a direct result of such sale for the
purpose of consumption in that State’. Where more than one
State is involved, any State claiming to tax the sale by
reason of something anterior to the passing of property
would not be able to claim that the sale took place there
unless it was also the State of delivery, because the sale
is complete only on the passing Of property, and till the
sale is complete, liability to tax does not arise. Once the
sale is complete, the delivery State gets the right to tax
the sale by the fiction introduced.
Now, the Explanation must be’ interpreted according to its
own tenor, and it is meant to explain el. (1)(a) of the
Article and not vice versa. It is an error to explain the
Explanation with the aid of the Article, because this
reverses their roles. The Explanation discards the test of
passing of property, and adopts the test of delivery as a
direct result of the sale for purposes of consumption. This
delivery may be in the State where the passing of property
also took place, but then, there is no difficulty. The sale
is then entirely within the State. The sale is outside
917
the State only when the passing of property takes place in
the State, but that is not the State where the goods have
been actually delivered as a direct result of the sale for
purposes of consumption in that State. The Constitution
has, thus, for certain cases shifted and confined the situs
of the taxable event to the State of the delivery of goods;
but it must be remembered that this delivery,may precede as
well as follow the passing of property. It is, therefore,
plain that no single element of the contract of sale is by
itself a decisive factor in determining which State is to
tax the sale where there are more States than one involved,
except the test of actual delivery of the goods in a State
as a direct result of the sale for purposes of consumption
in that State, and it is that State and that State only
which has the right to tax the sale and none other. The
Explanation is not applicable, unless there are more States
than one involved. It is only a key to find out which of
the States is competent to tax and which are not, and is by
no means a definition of an ’outside sale’. It is an
Explanation, which determines which State out of those
connected with the transaction of sale can tax it.
The interpretation which we have placed upon the first sub-
clause of Art. 286(1) is substantially the same, as was
placed in the earlier rulings of this Court. In The State
of Bombay and another v. The United Motors (India) Ltd. and
others (1), it was pointed out that the Explanation
formulated an easily applicable test to find out an ’outside
sale’ and this, it was said, was done " by defining an
inside sale ". It was observed further:
" Are the goods actually delivered in the taxing State, as a
direct result of a sale or purchase, for the purpose of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 15
consumption therein ? Then, such sale or purchase shall be
deemed to have taken place in that State and outside all
other States ".
Certain reasons were given why this test was adopted, and it
is these reasons and their effect on the second clause,
which led to a re-examination of the subclause in The Bengal
Immunity Company Limited v.
(1) (1953) S.C.R. 1069.
117
918
The State of Bihar and others (1). The majority in that
case touched upon the various grounds which were advanced
before this Court, but declined to express "any final
opinion upon the matter ". The case went on to decide that
the bans imposed by the two clauses of Art. 286 were
independent, and needed to be separately enforced. But, on
the meaning of the Explanation, no different view was
expressed. Again, in M/8. Ramnarain Sons Ltd. v. Asst.
Commissioner of Sales Tax and others(2), it was observed as
follows:
"So far as article 286(1)(a) is concerned, the Explanation
determines by the legal fiction created therein the situs of
the sale in the case of transactions coming within that
category and when a transaction is thus determined to be
inside a particular State it necessarily becomes a
transaction outside all other States. The only relevant
enquiry for the purposes of article 286(1)(a), therefore, is
whether a transaction is outside the State and once it is
determined by the application of the Explanation that it is
outside the State it follows as a matter of course that the
State with reference to which the transaction can thus be
predicated to be outside it can never tax the transaction
(Italics supplied).
Now, in so far as this case is concerned, the words the
Explanation determines by the legal fiction created therein
the situs of the sale in the case of transactions coming
within that category " in the extract last quoted, become
important. The first question to consider is whether these
cases can be governed by the Explanation at all. The
learned Attorney-General contends that the power to tax
these transactions can only be found if the sales were
’Explanation sales’, in the sense that the goods were
delivered as a direct result of the sale for consumption in
West Bengal. In our opinion, the explanation can apply only
if more than one State is involved in the same transaction.
When there is no other State in which the goods can be said
to be delivered for consumption, apart from the State where
the property in the goods passed, the Explanation is not
needed as a key. The
(1) [1955] 2 S.C.R. 603.
(2) [1955] 2 S.C R. 483 492.
919
power to tax in those circumstances which is exercisable by
virtue of transfer of title to the property, can only be
taken away if there be some other State in’ which the goods
as a direct result of the sale were delivered for
consumption. But if there is no such other State, the
question does not arise.
In the present cases, there is no such rival State. Where
the purchaser buys goods in West Bengal for his own
consumption, the test of an ’inside sale’ is satisfied when
the property in the goods passes in the same State and all
the elements of the contract of sale also take place inside
it. Where the property in the goods passes to a buyer who
is also the ’ultimate ,consumer, the terms of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 15
Explanation are themselves satisfied. To exclude, thus, the
powers of taxation of the State of West Bengal, the
appellant Companies must be able to point out some other
State where the goods can be said to have been delivered as
a direct result of the sale for the purpose of consumption
in that other State. Unless they can do so-and they have
not so done before us-they cannot invoke the Explanation,
and the cases, to borrow the language of the last quotation,
cannot be said to be "within that category ". In our
opinion, the learned Advocate-General of West Bengal was
right in his argument (which was accepted by the High Court)
that the ban contained in Art. 286(1)(a) and the Explanation
does not apply.
The appellant Companies next rely upon Art. 286 (1)(b),
which provides that:-
" No law of a State shall impose or authorise
the imposition of, a tax on the sale or
purchase of goods where such sale or purchase
takes place
in the course of the......... export of goods
out of, the territory of India ".
The contention is that the sales in question must be
regarded as having taken place in circumstances which exempt
sales under the sub-clause. This the appellant Companies
argue from the following facts that aviation spirit is
delivered outside the customs barrier, that aviation spirit
is taken out of the territories of India, and that the sales
occasion this
920
export. They rely upon the definition of ’export’ in other
Acts to show that the word means no more than ’taking out of
the country’.
This clause of the Article has been construed on previous
occasions by this Court, and what is meant by the expression
" in the course of " has been well. established. Indeed, in
State of Mysore v. Mysore Spinning and Manufacturing Co.
Ltd. (1), this Court observed that the point could no longer
be said to be at large. Fortunately, there is less
disagreement on this point than on the interpretation of the
Explanation, and it is sufficient to refer to the leading
decisions of this Court. The earliest case on the subject
is State of Travancore-Cochin and others v. The Bombay Co.
Ltd. (2), where four possible meanings of the expression "
in the course of " were considered. It is not necessary to
refer to all of them here, and it is sufficient to point out
that of the view that the clause is not restricted to the
point of time at which goods are exported from India and
that the series of transactions which necesssarily precede
export of goods also come within the purview of the clause,
it was said that it was too wide. It was observed by this
Court that:
"A sale by export thus involves a series of integrated
activities commencing from the agreement of sale with a
foreign buyer and ending with the delivery of the goods to a
common carrier for transport out of the country by land or
sea. Such a sale cannot be dissociated from the export
without which’ it cannot be effectuated, and the sale and
resultant export form parts of a single transaction. Of
these two integrated activities, which together constitute
an export sale, whichever first occurs can well be regarded
as taking place in the course of the other."
The meaning of these observations was further explained in
State of Travancore-Cochin and others v. Shanmugha Vilas
Cashew Nut Factory and Others (3). It was observed (p. 62)
that the words "export out of " in this context did not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 15
refer to the article or commodity exported, and that the
reference to "the
(1) A.I.R. 1958 S. C. 1002. (2) [1952] S.C.R. 1112.
(3) [1954] S.C.R. 53.
921
goods " and to the "territory of India " made it clear that
the words " export out of " meant the exportation out of the
country. It was then added that,
"The word ’course’ etymologically denotes movement from one
point to another, and the expression ’in the course of’ not
only implies a period of time during which the movement is
in progress but postulates also a connected relation."
This inter-connection of the sale sought to be taxed with
the course of export was emphasised again in clear terms
thus :
" The phrase ’integrated activities’ was used in the
previous decision to denote that ’such sale’ (i.e., a sale
which occasions the export) I cannot be dissociated from the
export without which it cannot be effectuated, and the sale
and the resultant export form parts of a single
transaction’. It is in that sense that the two activities-
the sale and export-were said to be integrated. A purchase
for the purpose of export like production or manufacture for
export, is only an act preparatory to export and cannot, in
our opinion, be regarded as an act done I in the course of
the export of the goods out of the territory of India’ any
more than the other two activities can be so regarded."
From the views here expressed, it follows that every sale or
purchase preceding the export is not necessarily to be
regarded as within the course of export. It must be
inextricably bound up with the export, and a sale or
purchase unconnected with the ultimate export as an integral
part thereof is not within the exemption. It may thus be
taken as settled that sales or purchases for the purpose of
export are not protected, unless the sales or purchases
themselves occasion the export and are an integral part of
it. The views expressed in these two cases were accepted and
applied in State of Madras v. Gurviah Naidu and Co. Ltd.
(1), Kailash Nath v. State of U.P. (2), State of Mysore v.
Mysore Spinning and Manufacturing Co. Ltd. (3) and
Gordhandas Lalji v. B. Banerjee
(1) A.I.R. 1956 S.C. 158. (2) A.I.R. 1057 S.C. 790.
(3) A.I.R. 1958 S.C. 1002.
922
and others (1). These cases do not advance the matter
further, and it is, therefore, not necessary to refer to
them in detail.
In the earlier cases, it was not necessary to explain the
meaning of the word ’export’, because there was always a
foreign buyer to whom the goods were ultimately sent. In
none of the cases the facts found here were present. Here,
the buyer does not export the goods to a foreign country,
but purchases them for his own use on the journey of the
aircraft to foreign countries.This difference is vital, and
makes the position of the appellant Companies, if
anything, weaker. It is for this reason that the appellant
Companies depend on a wide meaning of the word ’export’,
which they illustrate from other Acts where the word is
tantamount to "taking out of the country’. We are of
opinion that this meaning cannot be given to the word
’export’ in the clause. The word ’export’ may conceivably
be used in more senses than one. In one sense, ’export’ may
mean sending or taking out of the country, but in another
sense, it may mean sending goods from one country to
another. Often,, the latter involves a commercial
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 15
transaction but not necessarily. The country to which the
goods are thus sent is said to import them, and the words
’export’ and import’ in this sense are complementary. An
illustration will express this difference vividly. Goods
cannot be said to be exported if they are ordered by the
health authorities to be destroyed by dumping them in the
sea, and for that purpose are taken out of the territories
of India and beyond the territorial waters and dumped in the
open sea. Conversely, goods put on board a steamer bound
for a foreign country but jettisoned can still be said to
have been exported’, even though they do not reach their
destination. In the one case, there is no export, and in
the other, there is, though in either case the goods go to
the bottom of the sea. The first would not be within the
exemption even if a sale was involved, while any sale in the
course of the second taking out would be. In both, the
goods were taken out of the country. The difference lies in
(1) A.I.R. 1958 S.C. 1006.
923
the fact that whereas the goods, in the first example, had
no foreign destination, the goods, in the second example,
had. It means, therefore, that while all exports involve 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 ex. ported and there is sale or purchase in
the course of that export and the sale or purchase occasions
the export to a foreign destination, the exemption is earn.
ed. 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 a not a commercial 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
two notions of export and import, thus, go in pairs.
Applying these several tests to the cases on hand, it is
quite plain that aviation spirit loaded on board an aircraft
for consumption, though taken out of the country, is not
exported since it has no destination where it can be said to
be imported, and so long as it does not satisfy this test,
it cannot be said that the sale was in the course of export.
Further, as has already been pointed out, the sales can
hardly be said to ’occasion’ the export. The seller sells
aviation spirit for the use of the aircraft, and the sale is
not integrally connected with the taking out of aviation
spirit. The sale is not even for the purpose of export, as
explained above. It does not come within the course of
export, which requires an even deeper relation. The sales,
thus, do not come within Art. 286 (1)(b).
These sales must, therefore, be treated as made within the
State of West Bengal. The customs barrier is a barrier for
customs purposes, and duty drawback may be admissible if the
goods once imported are taken out of the country. The
customs duty drawbacks have nothing to do with the sale of
aviation
924
spirit, which takes place in West Bengal. The cus toms
barrier does not set a terminal limit to the territory of
West Bengal for sales tax purposes. The sale beyond the
customs barrier is still a sale, in fact, in the State of
West Bengal. Both the buyer and the seller are in that
State. The goods are also there. All the elements of sale
including delivery, payment of price, take place within the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 15
State. The sale is thus completely within the territory of
the taxing State. No outside State is involved where the
goods can be said to have been delivered for consumption as
a direct result of the sale that takes place. Article
286(1)(a) and the Explanation are wholly inapplicable, and
the sale cannot, even by a fiction, be said to be outside
the State of West Bengal. No doubt, aviation spirit is
taken out of the State and also the territory of India, but
it cannot be said to have been exported or delivered for
consumption in some other State. The so-called export is
not occasioned by the sale, and the sale, on the authorities
cited, is not in the course of export’, so as to attract
Art. 286(1)(b).
The decision of the High Court was correct. The appeals
fail, and are dismissed with costs. One hearing fee.
Appeal dismissed.