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TMI Blog1953 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... for India and C.K. Daphtary, Solicitor-General for India (Porus A. Metha, Advocate, with them), instructed by G.H. Rajadhyaksha, Agent, for the interveners. State of Mysore : A.R. Somanatha Iyer, Advocate-General of Mysore (R. Ganapathi Iyer, Advocate, with him), instructed by G.H. Rajadhyaksha, Agent, for the interveners. T.N. Subramania Iyer, Advocate-General of Travancore-Cochin (T.R. Balakrishna Iyer, Advocate, with him), instructed by G.H. Rajadhyaksha, Agent, for the appellants in all the appeals. State of Madras : V.K.T. Chari, Advocate-General of Madras (V.V. Raghavan, Advocate, with him), instructed by G.H. Rajadhyaksha, Agent, for the interveners. State of Hyderabad : V. Rajaram Iyer, Advocate-General of Hyderabad. (B.N. Sastri, Advocate, with him), instructed by G.H. Rajadhyaksha, Agent, for the interveners. State of Punjab : S.M. Sikri, Advocate-General of Punjab (M.L. Sethi, Advocate, with him), instructed by G.H. Rajadhyaksha, Agent, for the interveners. PATANJALI SASTRI, C. J., MUKHERJEA, VIVIAN BOSE and GHULAM HASAN, JJ.-(1) Sales by export and purchases by import fall within the exemption under Article 286(1)(b) of the Constitution of India, (2) Purchases in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers at Bombay. The Bombay party cleared the goods through their own representatives at the port of destination and issued separate delivery orders to the respondents and other customers for the respective quantities ordered: Held, that the respondents' purchases could only be described as purchases from the Bombay party of the goods within the State and therefore they did not come within the exemption of Article 286(1)(b). Per DAS, J.-The Explanation to clause (1)(a) of Article 286 only explains what is an outside sale or purchase, for by saying that a particular sale or purchase is to be deemed to take place in a particular State it wrongly indicates that it is to be deemed to take place outside all other States so as to attract the ban of clause (1)(a) and thereby take away the taxing power of those other States with respect to such sale or purchase. The Explanation does not operate as an exception or a proviso but only explains sub-clause (a). Its purpose is not to confer any taxing power on any State, and it cannot be restored to for any such extraneous or collateral purpose. It does not convert an inter-State sale or purchase into intra-State sale for any purpose other than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or business for cash or for deferred payment or other valuable consideration [Section 2(h)]. The sale or purchase is to be deemed to have taken place in the State, wherever the contract might have been made, if the goods were actually in the State when the contract was made or, if the goods are actually produced in the State, at any time after the contract in respect thereof was made. By Section 3(4) the turnover is to be determined in accordance with such rules as may be prescribed, and Rule 4 of the rules framed tinder the Act prescribes that, in the case of certain goods including "cashew and its kernel", the gross turnover of a dealer is the amount for which the goods were bought by him, and in all other cases the amount for which the goods were sold by him. The respondents are dealers in cashew-nuts in the State, and their business consists in importing raw cashew-nuts from abroad and the neighbouring districts in the State of Madras in addition to purchases made in the local market, and, after converting them by means of certain processes into edible kernels, exporting the kernels to other countries, mainly America. The oil pressed from the shells removed from the cashew- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exporter and the first sale by the importer, if any, so directly and proximately connected with the export sale or import purchase as to form part of the same transaction. (3) The exemption covers only those sales and purchases under which the property in the goods concerned is transferred from the seller to the buyer during the transit, that is, after the goods begin to move and before they reach their foreign destination. (4) The view which found favour with the learned judges of the High Court, namely, the clause is not restricted to the point of time at which goods are imported into or exported from India; the series of transactions which necessarily precede export or import of goods will come within the purview of this clause' ". This Court, however, found it unnecessary for the purpose of the cases then before it to go any further than to hold that "whatever else may or may not fall within Article 286(1)(b), sales and purchases which themselves occasion the export or import of the goods, as the case may be, out of or into the territory of India come within the exemption" and that the third view set out above, which was put forward on behalf of the State of Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty transported for the purpose of resale by the consignee as a merchant or as a manufacturer. Provided, further: that no county, city, or town, or other sub-division of any State shall levy a tax upon or measure any tax by sales of property in inter-State commerce. It is interesting to note that the bill sought to bring about substantially the same result as the combined operation of Article 286 clause (1)(a) explanation, clause (2) and Article 304 as they were interpreted by the majority in that decision would produce. It is possible that these provisions of our Constitution were inspired by the proposed bill. The only question debated before us was whether in addition to the export-sale and import-purchase, which were held in the previous decision to be covered by the exemption under clause (1)(b), the following two categories of sale or purchase would also fall within the scope of that exemption: (1) The last purchase of goods made by the exporter for the purpose of exporting them to implement orders already received from a foreign buyer or expected to be received subsequently in the course of business, and the first sale by the importer to fulfil orders pursuant to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used in the previous decision to denote that "such a sale" (i.e., a sale which occasions the export) "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 the 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 "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. As pointed out by a (1) 4 Ch. Dn. 685 and Williams on Bankruptcy, 16th Edn., p. 307. recent writer, "From the legal point of view it is essential to distinguish the contract of sale which has as its object the exportation of goods from this country from other contracts of sale relating to the same goods, but not being the direct and immediate cause for the shipment of the goods .....When a merchant shipper in the United Kingdom buys for the purpose of export goods from a manufacturer in the same country the contract of sale is a home tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of the seller who is allowed under certain conditions to (1) Schmitthoff-Export Trade, 2nd Edn., p. 3. pass it on to the buyer by adding it to the price charged for the goods at each individual sale. Supposing A is the seller from whom B the export merchant purchases the goods for export. If the sale is to be exempt, how is A to be satisfied that the goods would actually be exported subsequently. And even if they were, it must be difficult for A to prove to the Sales Tax Officer that they were so exported by B if proof was required. On the other hand, B might be keeping the goods, waiting for orders to come, or might change his mind the not export the goods at all but sell them locally. In that case, what would be the position of A vis-a-vis the Sales Tax Officer demanding the tax. Could A escape liability, if he failed to collect the tax from B at the time of the sale? Or is A to collect the tax, ignoring B's declaration of his intention to export and leaving him to apply for refund by producing evidence of actual export, whenever that takes place. Even if a sales tax enactment provides for adjustment on those lines, would not such legislation, in so far as it compels B to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the commercial background and reference was made to the manner in which a large proportion of the export trade of the country was carried on by merchant houses who purchased goods from the producers and manufacturers to resell them to buyers abroad by means of contracts concluded with them. Similarly with regard to import trade, large import houses imported machinery and consumer goods wholesale and sold them to retail dealers or, in some cases, to the customers direct. This practice, it was argued, must have been well-known to the makers of our Constitution, and it was reasonable to assume that they realised the importance of the foreign trade to the well-being of the country and would not have desired to cripple the same by allowing the States to tax such purchases and sales by the export and import merchants in this country. Such general considerations based largely on speculation are not of much assistance in construing the scope and effect of a specific constitutional provision seeking to restrict the power of State-taxation. It is true, as pointed out in the previous decision, that the export-import trade is important to our national economy, but it is no less true that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the goods exported or imported, the duties chargeable, if any, are computed and levied, and it is not until this process is completed that the goods can be shipped for transportation or cleared by the consignee or his representatives as the case may be. It would seem, therefore, logical to hold that the course of the export out of, or of the import into, the territory of India does not commence or terminate until the goods cross the customs frontier. It is, however, to be noted that the question of imposing sales tax on transfer of goods in the course of export would not often arise in practice for, where the goods are transported pursuant to a contract of sale already concluded with a foreign buyer and the shipping documents having been forwarded to him, any further sale of such goods by the Indian seller is impossible, and where the export trade is conducted through representatives or branch offices, the sale by the latter of the exported goods usually takes place abroad and would not then be subjected to tax by the State in India. It is in relation to import of goods from abroad that the question of exemption assumes practical importance. It is well-known that sales or purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew-nuts and the kernels manufactured out of them by various processes, partly mechanical and partly manual, are not commercially the same commodity. This finding, which is not seriously disputed before us, would be an additional ground for rejecting the claim to exemption in respect of these purchases, as the language of clause (1)(b) clearly requires as a condition of the exemption that the export must be of the goods whose sale or purchase took place in the course of export. As regards. Group II, the High Court has found that such purchases were made only by the respondents in Civil Appeals 33 and 36 of 1952. The High Court's finding as to how these purchases and the deliveries under them were effected is by no means clear. The respondents' contention was that the purchases were effected and the deliveries taken by their own paid servants outside the State of Travancore-Cochin, and it was thus a case of a person buying goods and taking delivery thereof outside the State and bringing them across the border after the transaction was completed in all respects outside the State. On the other hand, the contention on behalf of the State was that though the purchases were made outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay party as consignees and were delivered to them against payment through bankers at Bombay. The Bombay party cleared the goods through their own representatives at the port of destination and issued separate delivery orders to the respondents and other customers for the respective quantities ordered. It will be seen that in respect of the purchases failing under (a), the Bombay party acted merely as the agents of the respondents, privity being established between the latter and the African sellers. The purchases are thus purchases which occasioned the import, and therefore, come within the exemption. As regards (b), the Bombay party are the purchasers, and they sell the goods as principals to the respondents at the port of destination by issuing separate delivery orders against payment. No privity being established between the respondents and the African sellers, the respondents' purchases can only be described as purchases from the Bombay party of the goods within the State; in other words, they were local purchases and stand on the same footing as purchases falling under Group I above, and for the same reasons they do not come within the exemption. It would appear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in the Bombay appeal had been delivered I consider it right to keep my views on record for whatever they may be worth. It is, however, needless for me to say that the majority decision in that Bombay appeal, so long as it stands, is binding on me. The respondents in each of these appeals carry on business in what is now the United State of Travancore-Cochin. They buy raw cashew-nuts locally and in neighbouring States and also import them from Africa and after putting them through a certain process they obtain cashew-nut oil and edible cashew-nut kernels. They export the edible kernels to foreign countries in large quantities. In compliance with the requirements of the relevant Sales Tax Act then in force the respondents filed returns in the prescribed forms of their respective turnovers for the period between the 17th August, 1949, and the 29th May, 1950. Each of the respondents claimed exemption from sales tax on their respective purchases made between the 26th January, 1950, when the Constitution came into force, and the 29th May, 1950. The claim, however, was rejected by the Sales Tax Officer. On appeal the Assistant Commissioner upheld the assessment orders. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased by him and, therefore, sales tax was payable on the purchase and not on the sale of cashew and its kernels. The respondents do not contend that it was not within the power of H. H. the Maharaja of Travancore to enact that law at the time he did so but they maintain that, as after the commencement of the Constitution Travancore-Cochin became a Part B State and as such amenable to and bound by Constitution, that law, in view of Article 286, could no longer impose or authorise the imposition of any tax on their purchases of raw cashew-nuts. This contention, therefore, raises important questions as to the extent of the power of the States under the Constitution to impose a tax on the sale or purchase of goods. In order, however, to correctly appreciate the meaning and import of the relevant provisions of the Constitution it will be helpful to bear in mind what the position was prior to the commencement of the Constitution. Under the Government of India Act, 1935, the Federal Legislature alone could make laws, under entry 19 in List I, with respect to import and export across customs frontiers as defined by the Federal Government and, under entry 44 of the same List, with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. took place within a particular Province or the goods were produced or manufactured or otherwise found there that Province felt free to impose a tax on that transaction of sale or purchase although all the other ingredients thereof took place outside that Province: The Indian States were not governed by the distribution of legislative powers contained in the Government of India Act, 1935, and were, therefore, generally free to make whatever laws they thought fit to make. They, however, enacted Sales Tax Acts on the model of the Sales Tax Acts of neighbouring Provinces in British India. Thus the Travancore Act XVIII. of 1124 was substantially a reproduction of the Madras Sales Tax Act. The result of the imposition of tax on the sale or purchase of goods on the basis of a very slight connection or nexus between the sale or purchase and the taxing Provinces or States was that in some cases one single transaction of sale or purchase became liable to be taxed in different Provinces or States. This imposition of multiple taxes was certainly calculated to hamper and discourage free trade within India, which Section 297 of the Government of India Act, 1935, was designed to achieve. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace 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 law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce: Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose 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 law relating to sale of goods the property in the goods has, by reason of such sale or purchase, passed in another State. The non obstante clause in the Explanation also clearly implies that the framers of the Constitution adopted the view that a sale or purchase has a situs and further that it ordinarily takes place at the place where the property in the goods passes. The Explanation, however, provides that, in spite of such general law, 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. In effect, therefore, the Constitution, by this Explanation to clause (1)(a), acknowledges that under the general law the sale or purchase of the kind therein mentioned may not really take place in the delivery State, but nevertheless requires it to be treated as if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of the Act and no further;......................" In the case now before us, we have fortunately not to speculate as to the purpose for which the Explanation has introduced the fiction. It will be noticed that the Explanation does not say simpliciter that the sale or purchase is to be deemed to take place in the delivery State. By its opening words it expressly says that the sale or purchase is to be deemed to take place in the delivery State for the purposes of clause (1)(a). Therefore, the only effect of this assignment of a fictional location to a particular kind of sale or purchase in a particular State is to attract the ban of clause (1) (a) and to take away the taxing power of all other States in relation to such a sale or purchase even though the other ingredients which go towards the making up of a sale or purchase are to be found within these States or even if under the general law the property in the goods passes in any of those States. The purpose of the Explanation ends there and cannot be stretched or extended beyond that purpose. It is said by some of the Advocates-General that a sale or purchase which falls within the Explanation is subject to the taxing pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, by the fiction, deemed to take place. There its purpose ends and it cannot be used for the purpose of giving any taxing power on the delivery State, for that is quite outside its avowed purpose. Whether the delivery State can tax the sale or purchase of the kind mentioned in the Explanation will depend on other provisions of the Constitution. Neither clause (1)(a) nor the Explanation has any bearing on that question. It is urged that even if by virtue of clause (1)(a) all States in relation to which a sale or purchase is, by the Explanation, to be deemed to take place outside their limits are precluded from taxing such sale or purchase and assuming that the Explanation does not, by implication or otherwise, permit even the delivery State to tax such sale or purchase, nevertheless the delivery State has the power under entry 54 in the State List read with Article 100(3) of the Constitution to make a law imposing a tax on such sale or purchase. This certainly would be the position if there was nothing else in the Constitution. It should be borne in mind that the State Legislatures may make laws with respect to taxes on sale or purchase of goods (entry 54). If in purported exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a ban on the taxing power of a State with respect to a sale or purchase, which takes place outside its limits, it purports to remedy the particular evil of multiple taxation founded on the nexus theory to which reference has been made. That is the limited purpose of clause (1) (a) and that purpose is fulfilled by placing a ban on those States in relation to which a sale or purchase is, by reason of the Explanation, deemed to take place outside their territories. Whether the delivery State where the sale or purchase is deemed to take place can tax such a sale or purchase is not, as I have said, the concern of clause (1)(a) or the Explanation. It is only when the question of the competency of a State Legislature under entry 54 of the State List to make a law imposing a tax on a sale or purchase which by the fiction is deemed to take place within its territory is raised that clause (2) comes into play. That clause looks at a a sale or purchase in its inter-State character and imposes another ban in the interest of the freedom of internal trade. The immediate purpose of the two bans are, therefore, essentially different and I see no reason to hold that although clause (1)(a) read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no warrant for the argument that the fiction embodied in the Explanation for this definitely expressed purpose can be legitimately used for the entirely foreign purpose of destroying the inter-State character of the transaction and converting it into an intra-State sale or purchase for all purposes. Such metamorphosis appears to me to be completely beyond the purpose and purview of clause (1)(a) and the Explanation thereto. To accede to this argument will mean that the Sales Tax Officer of the delivery State will have jurisdiction to call upon dealers outside that State to submit returns of their turnover in respect of goods delivered by them to dealers in that State under transactions of sale made by them with dealers within that State. Thus a dealer in say Pepsu who delivers goods to a dealer in say Travancore-Cochin will become subject to the jurisdiction of the last mentioned State and will have to file returns of their turnover and support the same by producing their books of account there. I cannot imagine that our Constitution-makers intended to produce this anomalous result. On the contrary, it appears to me that they enacted clauses (1)(a) and (2) for the very purpose of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nything in Article 301 or Article 303, the Legislature of a State may by law- (a) impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President". The argument is that the ban imposed by clause (2) of Article 286 should, like Article 301, be subordinated to Article 304. I am unable to accept the correctness of this argument. Article 301 is expressly made subject to the other provisions of Chapter XIII which includes Article 304 but no part of Article 286 is so subjected. Article 304 (a) gives power to the State Legislatures to put a tax on goods imported from other States whereas Article 286 restricts their taxing power on sale or purchase, i.e. the transaction itself as distinct from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir State. Further, the cost of carriage, handling charges and the risk of loss and damage in transit will effectively deter actual consumers from procuring goods direct from outside, for in all probability the cost of such enterprise will exceed the sales tax which the consumer will save by not buying the local goods. Besides, if India is to be regarded as one economic unit there can be no objection to a consumer in one State getting goods cheaply from a neighbouring State. I now pass on to another important object of Article 286 which is to encourage our foreign trade. Power is given exclusively to Parliament to make laws under entry 41 with respect to trade and commerce with foreign countries and under entry 83 with respect to duties of custom including export duties. If in addition to the import or export duty, which Parliament alone can impose, the State Legislatures were left free to make a law under entry 54 in the State List levying another tax on a sale or purchase which takes place in the course of the import of the goods into or the export of the goods out of the territory of India such double taxation will necessarily increase the price of the goods. Such imposition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales and purchases which themselves occasion the exports or imports of the goods, as the case may be, out of or into the territory of India come within the exemption ........ In other words, this Court has held that sales or purchases which themselves occasion the imports or exports are sales or purchases which take place "in the course of" import or export. This was sufficient to dispose of that case and it was not then necessary to decide what else might fall within that phrase. This Court is now called upon to decide that point. Article 286(1)(b) exempts from taxation by a State law all sales or purchases which take place "in the course of the import of the goods into or the export of the goods out of the territory of India". The word "course" conveys to my mind the idea of a gradual and continuous flow, an advance, a journey, a passage or progress from one place to another. Etymologically it means and implies motion, a forward movement. The phrase "in the course of" clearly has reference to a period of time during which the movement is in progress. Therefore, the words "in the course of the import of the goods into and the export of the goods out of the territory of India" ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Vol. 29, p. 210: "280. The commercial reason for the evolution of the 'c. i. f.' contract lies in the length of the time taken in the carriage of goods by sea. It is to the advantage of neither seller nor buyer that the goods, the subject matter of the contract should remain en dehors commerce while they are in course of shipment. It is to the seller's interest to receive the money equivalent to the goods as soon as possible after the date of the contract of sale, and until he has received actual payment of the price he normally desires to be able, if he wishes, to obtain credit upon the security of the transaction. The buyer, on the other hand, normally desires to be able to deal with the goods, for resale or finance, as soon as possible. To meet these business necessities on the part of both buyer and seller the 'c.i.f.' contract was evolved." Such sales or purchases, by delivery of shipping documents while the goods are on the high seas on their import journey were and are well recognised species of transactions done every day on a large scale in big commercial towns like Bombay and Calcutta and are indeed the necessary and concomitant incidents of foreign trade. To hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd? The learned Advocate-General of Travancore-Cochin contends-and in this he is supported by all the Advocates-General other than those of Uttar Pradesh and Mysore-that this period is confined within two terminii, namely, when the journey of the goods begins and when it ends. They maintain that the process of import or export ordinarily begins and ends at water's edge, although the period of journey of the goods from the port to the place of the importer or his representative in case of import or to the port from the place of the exporter or his representative in case of export may be added to the period of the actual voyage on the high seas. This contention cannot be accepted in view of our decision in the case of The State of Travancore-Cochin v. The Bombay Co. Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434., referred to above. According to that decision the phrase "in the course of" is not limited within these two terminii, i.e. from the point of time the goods are handed over to the carrier up to the time they are delivered by the carrier. By adopting the principle of integrated activities we have included the agreement for sale to, or purchase from, the foreign merchant as taking plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. It has been held by us that these orders themselves occasion the export and, therefore, they take place "in the course of" export. But these orders can occasion the export only if the exporters have the goods to export. The exporters are not necessarily the producers or manufacturers and in great many cases they have to procure the goods to implement the foreign orders. The overseas orders in such cases immediately necessitate the purchase of the goods and eventually occasion the export. The three activities are so intimately and closely connected, like cause and effect, with the actual export that they may well be regarded as integral parts of the process of export itself. As according to our previous decision the contract for sale with the foreign buyer starts the export stream and occasions the export, the 'Purchases by the exporter to implement such contract necessarily take place, chronologically speaking, after the export stream has started and, therefore, must be an activity undertaken in the course of the export. Logically there can be no getting away from this conclusion. Therefore, these purchases to implement the sale which occasions the export must be immune from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New South Wales at Dorrigo in New South Wales agreed to sell 48 bags of potatoes to Garlick Coy & Co., who were buying agents for J.E. Long &.Co., general produce merchants, whose head office was at Jennings on the New South Wales side of the border of that State and Queensland and who carried on business of purchasing and selling potatoes in both States. It was a term of the sale that the potatoes should be delivered from Brazell's lorry on trucks at Dorrigo in New South Wales. The potatoes were loaded at Dorrigo railway station into a truck and consigned by Garlick Coy & Co. to J.E. Long & Co. at Wallangarra on the Queensland side of the border adjoining Jennings The potatoes arrived at Wallangarra and were sold by J. E. Long & Co. to a purchaser in Queensland. Brazell was charged with the offence of disposing of and Garlick and Coy, the two partners of Garlick Coy & Co., were charged with the offence of receiving the potatoes in contravention of Section 11(3) of the Act. The question was whether the sale by Brazell to Garlick Coy & Co. in New South Wales was in the course of trade and commerce between the States. It was found that it was no part of the contract of sale between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the principals in that State. It may be that there was no binding stipulation that the potatoes would be sold in another State, and that they could have been resold in New South Wales without breach of agreement. But a legal nexus with inter-State trade, by a contract with the grower, is not required to secure the immunity given by Section 92." "Reference was made in this case to the earlier case of Clements and Marshall Pty Ltd. v. Field Peas Marketing Board (1947) 76 C.L.R. 401., where there were two sets of contracts, the first being contracts of sale by the producers to the dealers and the second contracts of resale by the dealers to buyers in other States. After pointing out that it was only the second set of contracts which in themselves were inter-State transactions Dixon, J., said at p. 429: "We should consider the commercial significance of transactions and whether they form an integral part of a continuous flow or course of trade, which, apart from the theoretical legal possibilities, must commercially involve transfer from one State to another." The reasonings adopted by the learned judges in the above cases apply with full force not only to clause (2) but also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also "in the course of" import and as such immune from taxation by State law. The question then arises as to where the course of import ends. Does it end at the water's edge. If the sale by the importers while the goods are on the high seas be "in the course of" import and not liable to sales tax, there can be no logical reason why the first sale by the importers to dealers should not also be exempted. If such sale is to be regarded as purely a local sale and as such liable to taxation by the States, then, in effect, the tax will be a burden on the import itself. The importers have to pay the customs duty imposed by Parliament and if again the States impose additional taxes on the same goods such multiple taxation will raise the price of the goods to the detriment of the actual consumers and will eventually have an adverse effect on our import trade which it is the purpose of the Constitution to prevent. After all the business of the importers who bring the goods into our country is only to make the goods available to the internal trade, for they are not usually retail dealers who sell to the consumers direct. That business is completed only by the first sale by the importers to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first sales by the importers are home transactions and cannot be classified as export or import transactions at all. This distinction between a home transaction and an export transaction made by the learned lecturer for the purposes of his book takes us nowhere. Nor do the American decisions which distinguish between intra-State trade and inter-State trade throw any light on the problem of construction of Article 286(1)(b) which is couched in language quite different from that used in the American Constitution. In America the question is clear cut, namely, is it an inter-State transaction or an intra-State transaction. Our problem, on the other hand, is to find out whether a given sale or purchase has taken place "in the course of" import or export. Simply to say that the particular sale or purchase is a home transaction does not solve our problem, for to say so is not to say that it cannot have taken place "in the course of" import or export. Indeed, Article 286(1)(b) postulates a home transaction, that is, a transaction Which takes place within the State and then places it beyond the taxing power of that State on the ground that the transaction has taken place "in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot beneficial to our country then Parliament, which is in a much better position than this Court to know and judge of such matters, will, I am sure, make laws restricting or even prohibiting such imports or exports. If our imports or exports may bear the additional burden of taxation without any detriment to the consumers and our foreign trade and without any risk to the Union revenue, Parliament, I have no doubt again, will increase the customs or export duty and augment the revenue of the Union. If on its correct interpretation clause (1)(b) of Article 286 causes loss to the States' revenue by depriving them of the taxes on such sales or purchases then such loss will clearly and solely be attributable to the intention of the Constitution as expressed in that clause. If that clause results in any danger to the economy of the States, I have no manner of doubt that Parliament will make good the loss to the States on the recommendation of the Finance Commission under some appropriate Article out of Articles 268 to 281 grouped under the heading "Distribution of Revenues between the Union and the States" in the very chapter in which occurs Article 286 which is engaging our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e importers to the dealers. If the Income-tax Officer can without difficulty ascertain the income, profits and gains of a business and work out the provisions of Section 10 of the Indian Income-tax Act and also can ascertain under Section 42 of that Act the income deemed to accrue or arise within the taxable territory, there cannot be any insuperable difficulty in the way of the Sales Tax Officer determining the turnover of a particular dealer and working out the exemptions he is entitled to under Article 286(1)(b). In any case the assumed difficulty of the Sales Tax Officer cannot alter or affect the correct construction of the Constitutional provisions in question. To summarise: The State Legislatures, under entry 54 of the State List, have power to make laws with respect to tax on the sale or purchase of goods. On this general power Article 286 places four restrictions, namely, that no law of a State shall impose or authorise the imposition of tax on the sale or purchase of goods when such sale or purchase takes place (1) outside the State, (2) in the course of import or export, (3) in the course of inter-State trade and commerce and (4) in respect of essential commodities. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Explanation, then, if it takes place in the course of import or export as explained above, no State, not even the State within which such sale or purchase takes place can tax it by reason of clause (1)(b). This, in short, is the true meaning and import of Article 286 as I read and understand it. I have already stated, however, that the majority decision of this Court in C.A. No. 204 of 1952 [The State of Bombay v. The United Motors (India) Ltd. [1953] 4 S.T.C. 133.] has taken a different view of the meaning of clause (1)(a), the Explanation and clause (2) of Article 286. In disposing of the present appeals, in so far as such disposal depends on those provisions, I am bound to follow the majority decision rather than my own view of them. Bearing in mind the principles laid down by this Court in The State of Travancore-Cochin v. The Bombay Company Ltd. [1952] S.C.R. 1112; 3 and in C. A. No. 204 of 1952 (The State of Bombay v. The United Motors (India) Ltd. and Others [1953] 4 S.T.C. 133.) and those explained above, I now proceed to consider the rival claims on their respective merits. There is really no substantial controversy as to the nature of the business carried on by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefit of the ban imposed by clause (1)(b). The High Court has, on remand, enquired into the process of manufacture through which the raw cashew-nuts are passed before the edible kernels are obtained. The High Court, in its judgment on remand, goes minutely into the different processes of baking or roasting, shelling, pressing, pealing, and so forth. Although most of the process is done by hand, part of it is also done mechanically by drums. Oil is extracted out of the outer shells as a result of roasting. After roasting the outer shells are broken and the nuts are obtained. The poison is eliminated by pealing off the inner skin. By this process of manufacture the respondents really consume the raw cashew and produce new commodities. The resultant products, oil and edible kernels, are well recognised commercial commodities. They are separate articles of commerce quite distinct from the raw cashew-nuts. Indeed, it is significant that the respondents place orders for "cashew-nuts" but orders are placed with them for "cashew-nut kernels". In the circumstances, "the goods" exported are not the same as the goods purchased. The goods purchased locally are not exported. What are expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hew-nuts purchased in neighbouring States were for the purpose of exporting them out of the territories of India and were actually so exported, then these purchases would be "in the course of" export and as such exempt from tax under Article 286 (1) (b). As a matter of fact, however, the cashew-nuts purchased in the neighbouring States were not actually exported but were put through a process of manufacture and the goods that were exported were not the same as those that were purchased as explained above and, therefore, clause (1)(b) gives no protection to these purchases. On the facts of these cases these purchases, however, took place outside Travancore-Cochin and as such are, therefore, immune from taxation by Travancore-Cochin only under clause (1) (a) which is not affected by the President's Order made under the proviso to clause (2). The learned Advocate-General of Travancore-Cochin says that there is another type of purchase from neighbouring States where the seller in the neighbouring State directly delivers the goods under the contract for sale or purchase to the respondents in Travancore. Learned counsel for the respondents maintains that there is actually no case of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... African sellers or their agents in Bombay. The African sellers then send the goods by steamer and send the bills of lading, invoice etc. to their Bank in Bombay. The Bank presents the documents to the Bombay agents of the respondents and the Bombay agents pay the price and take delivery of the shipping documents in Bombay. The Bombay agents then prepare their own invoice showing the amounts paid by them on account of the respondents and their own commission and send their invoice together with the shipping documents to their Travancore Bank. The Travancore Bank presents all these documents to the respondents who pay the Bombay agents' invoice amount and take delivery of the shipping documents. All these generally happen while the goods are on the high seas. On arrival of the goods at Travancore port, the respondents clear the goods on presenting the bill of lading etc. This is the main type of purchase of African raw cashew-nuts. The appellant State concedes that these are not liable to tax. In the first place the purchases were outside the State and, therefore, clause (1)(a) applies. In the next place these purchases took place "in the course of" import and as such are exempt fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods from the warehouse of sellers of the Bombay agents against their respective delivery orders. A purchase of this type cannot properly be said to occasion the import of the goods. What really occasions the import of the goods is the order placed by the Bombay agents. The Bombay agents not having passed the orders placed by the respondents separately to the African sellers and the African sellers not having shipped the respective quantities of goods under separate bills of lading none of the orders can be said to have occasioned the import, for in such a case there is no privity between the African sellers and the individual respondents and the import is referable only to the order placed by the Bombay agents which in the eye of the law is not the order of any of the respondents but a consolidated order placed by the Bombay agents on their own responsibility and account with the object of eventually distributing the goods amongst the different respondents in fulfilment of their respective orders. In the next place the delivery of the bill of lading covering the entire goods to the Bombay agents cannot be said to be a delivery to the respondents of the goods separately ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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