State of Bihar & Anr. v. Tata Engineerlng & Locomotive Co. Ltd.

Hegde, J. This is an appeal by special leave: It arises from the judgment of the High Court of Patna in a Reference under s. 25(3) of the Bihar Sales Tax Act, 194 7. That reference was called for by the High Court at the instance of the assessee company (the respondent herein). The questions referred for the opinion of the High Court by the Board of Revenue were :

"(!) With regard to the sales which t9ok place in the

period from !st of April, 1955 to the 6th September 1955, whether the assessee is entitled, upon the facts found by the Board of.Revemie wiih regard to these categories of sales, to ex-emption from liability. under the Bihar Sales-Tax: Act because of the provision of Article 286(1) (a) of the C9nstitution ,as it stood at the relevant date read with the explanation to that article.

(2) Witih regard to the sales which t.ook place in the

period from 7th September, 1955, to 31st March, 1956 whether the assessee is entitled, µp-on the facts found by the Board of Revenue with regard to these categories of sales, to exemption from liability under the Bihar Sales-tix Act on the gr9\Jnd that the Sjiles took place in the course of inter-State trade or commerce under Art. 286(2) of the Cons~tUtion as it stood at the rl}- levant period.'~ The High Court answered the first question in the negative and against the assessee. It answered the second question in the affir, mative. and in favour of the asses see. The asses see has not come up in· appeal. This appeal has been brought by the Stile of Bihal:' contesting the correctness of the opjnion given by the High Court on the second of the two questions referred to earlier.

The assessee is a Public Limited Co., incorporated under the Indian Companies Act, 1913: It carries on business of manufac-turing lj.lld selling infer-ali'a trucks and bus chassis and spare parts thereof to their appointed dealers, State Transport Organizations and. ir.dividual buyers throughout India. The registered office of the assessee is at Bombay but its factory where manufacturing pro-cess is being carried on is at .Jamshedpur in Bihar. The assessee has appointed several dealers all over India for the sale of its trucks, bus-chassis and spare parts. Those dealers are appointed under agreements entered into between them and the assessee. The turn-over in dispute relates to the sales made by the assessee to its dealers of trucks, bus-chassis and spare parts for being solJ in the territories assigned to them under the dealership agreements. The agreements between the assessee and its dealers appear to be similar. Under the agreements, each dealer is assigned a territory in which alone he can sell the trucks, bus-chassis and other spare parts purchased by him from the assessee company. He is for-bidden from selling any one of those articles to any purchaser out-side his territory. As per the agreements, dealers will have to place their indents, pay the price of the goods to be purchased and obtahi delivery orders from the Bombay office of the assessee. In pursuance of those delivery orders, trucks, bus chassis and other spare parts were delivered in Bihar to be taken over to the terri-tories assigned to them. Under the contracts of sale, the dealers were required to remove the trucks, bus chassis and the spare parts delivered to them in the State. of Bihar to. place outside Bihar. These are facts found by the Board of Revenue and affirmed by the High Court. On the basis of these facts, we have to decide whether the sales wi1ih which we are concerned in this ·appeal are sales that took place in the course of inter-State trade and com-merce as contemplated by Art. 286(2) of the Constitution as it stood a~ the relevant time. In other words the question for deci-sion is whether the sales in question were sales for the purpose of inter-State trade or commerce or whether they 'were sales in the course of inter-State trade or commerce. As seen earlier, the High Court has held that; those sales took place in the course of inter-state trade or commerce.

The expression "in the course of' appearing in Art. 286(l)(b) came up for consideration in State of TraVt111Core Cochin and Ors. v. The Bombay Co. Ltd. (1) Therein in this Court held that whether else may or may not fall within Art. 286(l)(b) of the Constitution, sales and purcha~ which themselves occasion the export or im-port of the goods as the case may be out of or into, the territory of India come within the exemption. In that case this Court further observed that a sale by export involves a series. of integrated acti-vities 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 ~ffectuated a~d the sale and the i:esultant export form parts of a smgle transaction. Of these two mtegrated activities which to-gether constitute an export sale, whichever first occurs can well be regarded as taking place in the eourse of the other. Even in cases where the property in the goods passed to the foreign buyers and the sales were thus completed, wiibin the State before the goods commenced their journey from the State, the sales must be regarded as having taken place in the course of the export ,and therefore exempt under Art. 286(l)(b). The same exposition of the law is true of cL (2) of Art. 286 as it stood prior to its amend-ment on September 11, 1956.

The next decision in which Art. 286(l)(a), l(b) and (2) came to be considered by this Court is State of Travart(:ore Cochin and Ors. v. Shanmugha Vilas Cashew Nut Factory and Ors. ( 1) Therein thiF Court observed that the word "course" etymologically denotJes movement from one point to another and the expression "in the course of" in Art. 286(1)(b) not only implies a period of time dur-ing which the movement is in progress bu~ postulates also a con-nected relation. Consequently, a sale in the course of export out of the country should be understood in the context of Art. 286(1)- (b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country, but also as part of or connxted with such activities. Buq a pur- ,chase of goods for the purpose of export is only an act preparatory to their export and not an act done in the course of the export of the goods.

In The Bangal Immunity Company Ltd. v. The State of Bihar ,and Ors.( 2 ) Venkatarama Ayyar, J. observed that a sale could be a sale in the course of inter-State trade only if two conditions con-cur : (l) a sale of goods and (2) a transport of those goods from Dne State to another under the contract of sale.

In Endupuri Narasimham and son v. The State of Orissa and Ors.( 8 ), this Court held that in order that a sale-0r purchase might be inter-State, it is essential that there muse be a transport of goods from one State to another under the contract of sale or purchase. A purchase made inside a State for sale outside the State camt0t itself be held to be in the course of inter-State and the imposition of tax thereon is not repugnant ro Art. 286(2) of the Constiitution.

In Tata Jron and Steel Co. Ltd. v. S. R. Sarkar and ors.(') this Court held that within cl. (b) of s. 3 of the Central Sales Tax Act, 1956, are included sales in which propeniy in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto and also covers sales in which movement of goods from one State to anolih.er is the result of a covenant or incident of the contract of sale and property. in the goods passes in either State. Clause (b) of s. 3 of the Centra( Sales Tax Act, 1956 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 in the course of the import of goods into, or export of the goods out of, the territory of India."

In The Cement Marketing Co. of India (fJrivate) Ltd. and anr. v. The State a/Mysore and anr.(;'), this Court held that where the goods were transported outside the State as required by the contract of sale, they are inter-State sales and hence exempt from sales-tax. On the facts of that case it was held that the sales transactions themselves involved movement of goods across the border.

In Ben Gorm Nilgiri Plantations Co. Coonoor and ors. v. Sales. Tax Officer, Special Circle,· Ernakulam and ors.(") this Court had to consider what sales are sales in the course of export and what sales are for the purpose of export. In the course of the judgment Shah, J. (one of us) observed :

"A sale in the course of export predicates a connec-tion between the sale and export, the .two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction. In this sense to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be obligation to export, and there must be an actual export. The obligation may arise by reason of statute, contract between the perties, or from mutual understanding or agreement between them, or even from the nature of the transac-tion which links the sale to export. A transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export, but is not necessarily to be regarded as one in the course of export, unless the sale occasi<ms export."

In K. G. Khosla and Co. (P) Lrd. v. Deputy Commissioner of Commercial Taxes, Madras( 3), this Court held that before a sale could be said to have occasioned the import. the movement of goods must have incidental to the contract or in pursuance of the conditions of the contract and there should be no possibility

(I) t4, S.T.C. 175. (S.C.) (2) 17 S.T.C. 473. (S.C.)

the goods being diverted by the assessee for any other purpose. meaning thereby that there should be no possibility of diversion according to law or contract and not in breach of them.

In Tata Engineering and Locomotive Co. Ltd. v. The Asstt. Commissioner of Commercial Taxes and anr. ('1), this Court after referring to the earlier decisions observed :

"It has been laid down that the sale in the course of export, predicated connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily inter-rupted without a breach of the contract or the compul-sion arising from the nature of the transaction. To occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it. The principle thus admits of no doubt, according to the decisions of this Court, that the sales to be exigible to tax under the Act (Central Sales Tax Act, 1956) must be sh.own to have occasioned the movement of the goods or articles from one State to another. The movement must be the result of a covenant or incident of the contract of sale."

If we apply the principles enunciated by this Court in the decisions referred to above to the facts of this case, it is obvious that the sales with which we are concerned in this case are sales in the course of inter-State trade. The dealers were required to move the trucks, buses, chass;s ilil1d other spare parts purchased by them from the State of Bihar to places outside Bihar. They are so req~1ired by the terms of the contract> entered into by them with the assessee. They would have committed breach of their contracts and incurred the penalty prescribed in their dealership agreements, if they had failed to abide by the term requiring them to move the goods outside the Sta'.e of Bihar.

The decided cases establish that sales will be considered as ~ales in the course of export or import or sales in the course of inter-State trade and commerce under the following circumstances:

(1 ) When goods which are in export or import

stream are sold;

( 2) When the co11tract of sale or law under which

goods are sold require those goods to be ex-ported or iniported to a foreign country or from. a foreign country as the case may be or are required to be transported to a State other (I) [1970] I, s.r.r 622.

than the State in which the delivery of goods takes place and ( 3) Where as a necessary incident of the contract of

sale goods sold are required to be exported or imported br transported out of the State in which the delivery of goods takes place.

But Mr. A. K. Sen, learned Counsel for the State of Bihar contended that· this Court has taken a different view of the law in Cuffee Board, Bangalore v. Joint Commercial Tax Officer, Madras and anr. (1). According to him the ratio of that deci-sion is that whenever goods are delivered in a State in pursuance of a contract of sale, the sale in question becomes exigible to tax in the State in which the goods are delivered unless they are taken out of the State for purposes .>f consumption and not resale, or the same is taken out of the State in pursuance of an already cxi&ting agreement to resell in the State to which it is taken. The decision in Coffee Board case (supra) does not, in our opinion, afford any basis for these contentions.

We have earlier noticed that this Court in a series of decisions has pronounced in unambiguous tenns that where under the terms of a contract of sale, the buyer is required to remove the goods from the State in which he purchased those goods to another State and when the goods are so moved, the sale. in question must be considered as a sale in the course of inter-State trade or com-merce. This is a well established position in Jaw. In the Co.ffee Board case this Court did not deviate from this position nor could it deviate as the earlier decisions were binding on it. Fur-ther in the course of his judgment, the learned Chief Justice who spoke for the Court referred with approval to the earlier decisions of this Court where distinction between the sales in the course of inter-State trade or commerce and ~ales for the purpose of inter-State trade and commerce were explained. On the basis of the facts in that case, his Lordship came to the conclusion that the export of the coffee in question was not integrated with the sales with which the Court was concerned and that there was no direct bond between the export and the sales. In the course of his judgment his Lordship observed :

"Here there are two independent sales involved in the export programme. The first is a sale between the Coffee Board as seller to the export promoter. Then there is the sale by the export promoter to a foreign buyer. Of the latter sale, the Coffee Board does not have any inkling when the first sale takes place. The Coffee Board's sale is not in any way related to the second sale. Therefore, the first sale has no connec-

tion with the second sale which is in the course of export, that is to say, movement of goods between an exporter and an importer."

This finding clearly brings out the distinctien between the fact> of the Coffee Board's case (supra) and the facts of •he case> wherein this Court held that the sales in question were sales in the course of export or import. In the Coffee Board's cas~ this Court found that what was insisted on by the Coffee Board was that the coffee set apart for the purpose of the export must be exported; it was not incumbent for the purchasers at the i1uction to export that coffee themselves; they may do it themselves or they ma)I sell it to somebody who may export it outside India. On that basis, this Court came to the conclusion that the sales effected by the Coffee Board are not sales in the course of export; they are only sales for the purpose of export. The ratio Of that dern.ion does not bear on the facts before us. Herein, under the terms of the contracts of sale, the purchasers were required to remove the goods from the State of Bihar to other States. Hence the sales with which we are concerned in this case must be held to I) be >ales in the course of inter-State trade or commerce.

For the reasons mentioned above, we agree with the findings of the High Court. In the result this appeal fails and the same is di;missed with costs.

CML APPELLATE JURISDICTION: Civil Appeal No. 2402 of 1966.

12-l694SupCl/71

Appeal by special leave from the judgment and order dated May 4, 1966 of the Patna High Court in Misc. Judicial Case No. 284 of 1962.

A. K. Sen and U. P. Singh, for the appellants.

N. A. Palkhivala, S. B. Mehta, B. Datta,. for the respondent.