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TMI Blog1960 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 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 Article 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 section 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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 irrelevant fact for the purpose of assessment. It was further stated in the affidavit of the Commercial Tax Officer as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft Act, 1934 (22 of 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 rule 63 (Part IX) of the Indian Aircraft Rules, 1920. As 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 mutan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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, section 22, in terms of Article 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale 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 Article 286(1)(a) which it seeks to explain, were both not applicable. He then considered the matter from the point of view of Article 286(1)(b). He explained on the authority of the decision of this Court in State of Travancore-Cochin and Others v. Shanmugha Vilas Cashew-nut Factory and Others [1953] 4 S.T.C. 205; A.I.R. 1953 S.C. 333., that the expression "in the course of export out of the territory of India" referred to sales which, by them- selves, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 hand, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficulty. 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 ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 power to tax in those circum- stances 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 "i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. The Bombay Co. Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434., 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 necessarily 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 end- ing 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 inte- grated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.I.R. 1958 S.C. 1006. 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 transaction but not necessarily. The countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Article 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 spirit, which takes place in West Bengal. The customs 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 State. The sale is thus completely within the territory of the taxing State. No outs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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