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TMI Blog1964 (4) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... t (XI of 1125 M.E.) to pay sales tax on transactions of sale of tea chests at the auctions held at Fort Cochin in the years 1956-57 to 1958-59, rejecting their contention that the sales were exempt from tax by virtue of Article 286(1)(b) of the Constitution. The appellants then petitioned the High Court of Kerala for writs of certiorari quashing the orders of assessment and for writs of prohibition restraining the Sales Tax Officer from proceeding with the collection of tax in pursuance of the orders of assessment. Vaidialingam, J., rejected the petitions and his order was confirmed in appeal by a Division Bench of the High Court of Kerala. With special leave, the appellants have appealed to this Court. The transactions of sale sought to be taxed by the revenue authorities are in tea, which is a controlled commodity. The Parliament enacted the Tea Act 19 of 1953 to provide for the control by the Union of the Tea Industry, including the control of cultivation of tea in, and of export of tea from, India and for that purpose to establish a Tea Board and to levy customs duty on tea exported from India. By section 3(f) "export" is defined as taking out of India by land, sea or air to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the agents or intermediaries in Cochin of foreign buyers. Tea chests are delivered at the warehouses by M/s. T. Stanes and Company Ltd., to the purchasers whose bids are accepted. The agents or intermediaries of the foreign buyers then obtain licences from the Central Government for export of the tea chest under the export quota rights vested in them under the purchases made at the auction sales. Tea cannot therefore be exported otherwise than under a licence; such a licence may be issued to a manufacturer or to the purchaser of the quota granted by the Central Government to the manufacturer when tea is sold with export rights. When auctions of tea with the export rights are held at Fort Cochin, it is in this group of appeals common ground, sellers on whose behalf the auctioneer acts as the agent know that bids are offered by the buyers of tea for the purpose of export. It is also known that the bidder is an agent or an intermediary of a foreign buyer. Is the sale by auction to the agent or intermediary of the foreign buyer, in the course of export within the meaning of Article 286(1) of the Constitution? If the sale is in the course of export out of the territory of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective purchasers at the auctions were agents of foreign buyers, but the Advocate appearing on behalf of the State argued the case before the High Court on the footing that the bids were offered at the auctions by the agents or intermediaries of foreign buyers, and the Court proceeded to dispose of the case before it on that footing. Vaidialingam, J., held that transactions of sale were complete when bids for purchase of tea together with the export quota rights were accepted, and the sellers had no concern with the actual export which was effected by the auction purchasers to their foreign principals. It could not, therefore, in the view of the learned Judge, be held that the sales in question had as an integral part thereof occasioned export; that is, the sales preceded the export and were not in the course of export. The High Court in appeal held that the ban imposed by Article 286(1)(b) predicated a causal connection between the sale and the export-a connection which is intimate and real. The sale, it was said, must inextricably be bound up with the export and form an integral part thereof, so that without export the sale is not effectuated; but as the sale imposed or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof. At one end are transactions in which there is a sale of goods in India and the purchaser immediate or remote exports the goods out of India for foreign consumption. For instance, the foreign purchaser either by himself or through his agent purchases goods within the territory of India and exports the goods and even if the seller has the knowledge that the goods are intended by the purchaser to be exported, such a transaction is not in the course of export for the seller does not export the goods, and it is not his concern as to how the purchaser deals with the goods. Such a transaction without more can- not be regarded as one in the course of export because etymologically "in the course of export" contemplates an integral relation or bond between the sale and the export. At the other end is a transaction under a contract of sale with a foreign buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. But in between lie a variety of transactions in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual export of the goods, once the goods are sold. They have no control over the goods. There is therefore no direct connection between the sale and export of the goods which would make them parts of an integrated transaction of sale in the course of export. Decided cases on which reliance was placed at the Bar have mainly been of cases in which the benefit of the exemption of Article 286(1)(b) was claimed in respect of sale preceding the export sale. Such a sale preceding the export could not, it was held, without doing violence to the language of Article 286(1)(b), be given the benefit of the exemption from tax imposed by State legislation merely because of its historical connection with the export sale. In a majority of the cases to be presently referred there were at least two sales-sale under which goods were procured followed by a sale under which the goods so procured were exported-and the claim of the Revenue to tax the first transaction was upheld. It may be regarded as therefore settled law that where there are two sales leading to export-the first under which goods are procured for sale and the property in the goods passes within the territory of India, and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (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 connected with such activities." He further observed that the phrase "integrated activities" 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. But a purchase for the purpose of export like production or manufacture for export, being only an act preparatory to export could not be regarded as an act done "in the course of the export of the goods out of the territory of India". In The State of Madras v. Gurviah Naidu and Company Ltd. A.I.R. 1956 S.C. 158; 6 S.T.C. 717., S.R. Das, Acting C.J., observed that an assessee who goes about purchasing goods after securing orders from foreign purchasers is not exempt from liability to pay tax by virtue of Article 286(1)(b) of the Constitution in respect of the purchases made by him because those purchases do not themselves occasion the export. Goods were undoubtedly bought for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods were in the export stream. The first sale itself was so inextricably connected with the export that it was regarded as a sale in the course of export. Mr. Setalvad on behalf of the appellants placed strong reliance upon the judgment of the Madras High Court in M.R.K. Abdul Salam and Company v. The Government of Madras [1962] 13 S.T.C. 629. That was a case in which a dealer in the State of Madras in hides and skins after purchasing raw hides tanned them and sent them to Kovai Tanned Leather Co., Madras, who acted as the dealer's agent for sale. Kovai Tanned Leather Company sold the goods to Dharamsee Parpia who acted as an agent of Sriven Brothers (Eastern) Ltd., London. There was another transaction between Kovai Tanned Leather Co., and Gordon Woodroffe and Company Ltd., who acted as agents for a foreign principal. The Sales Tax Tribunal refused to accept the transaction to Dharamsee Parpia as an export sale on the ground that Kovai Tanned Leather Company delivered the goods to the exporter-Dharamsee Parpia and thereafter the exporter obtained the bills of lading, and that the sale became complete in the Madras State before shipment, and it was on that account not a sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals which have been heard together are directed against a common judgment of the High Court of Kerala and are before this Court by virtue of special leave granted to the appellants. The appellants filed writ petitions in the High Court which were dismissed by the learned single Judge whose judgment was affirmed on appeal by a Bench of the High Court. It is from this judgment that these appeals have been brought. The appellants are 18 tea estates which are carrying on the business of growing and manufacturing tea in their estates. Their claim is that the teas grown by them have been sold by them "in the course of the export of goods out of the territory of India" within Article 286(1)(b) of the Constitution and they, therefore, claim that the State of Travancore-Cochin in which these sales took place was not entitled to impose sales tax upon these sales. The question for consideration is whether these sales effected by the appellants are, as they claim, sales "in the course of export". It is common ground that the tea sold under the transactions involved in these appeals was actually exported out of the territory of India. Doubtless, this circumstances would not per se render th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the other. On the one side of the line would be the case where a seller in pursuance of a contract of sale with a foreign buyer puts the goods sold on board a ship bound for a foreign destination. Such a sale would be an "export sale" which would undoubtedly be within the constitutional protection of Article 286(1)(b). In regard to this type, however, we would make this observation. In such a case we consider that it would be immaterial whether or not with reference to the provisions of the Sale of Goods Act, read in conjunction with the terms and stipulations of any particular contract, the property in the goods passes to the buyer on the Indian side of the customs frontier or beyond it. In either event the sale would have occasioned the export, for the sale and the export form one continuous series of transactions, the one leading to the other, not merely in point of time but integrated by reason of a common intention which is given effect to. In such a case it would be seen that there is but one sale to the foreign buyer "which occasions the export", and which is implemented in accordance with the terms of the contract by an actual export which is the sine qua non of a "sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es here involved, though to foreign buyers and intended for export, the goods were not under the terms of the contract of sale placed by the seller on board the ship in the course of its outward voyage and that is the only reason why they do not conform strictly to the first type of an export sale which we have described earlier. But the question is, do not these sales also "occasion the export" and in that sense sales "in the course of export". The test which has been laid down by this Court for determining the proximity of the connection between the sale and the export so as to bring the sale within the constitutional exemption in Article 286(1)(b) is the integrality of the two events-the sale and the export. The question to be answered is therefore whether the sales now under consideration do not form part and parcel of a single integrated transaction with the export or are they distinct, distant and mediate, the sale and the export being related to each other only in the sense of one leading to the other or the one succeeding the other merely in point of time. If the former, the sales are within Article 286(1)(b), but if the connection between the two is as described later, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the assessees and their buyers that the goods shall only be exported and not sold in the local market. In other words, it was urged that in the absence of such a specific term of contract it would have been open to the buyers to have diverted the goods from being exported and to have sold them locally. This was so far as the contractual relationship between the assessee-sellers and the buyers from them under the sale was concerned. (2) Dealing next with the effect of the provisions of the Tea Act, 1953, and the rules framed thereunder on the sales effected by the assessees, the submission was that section 21 and other provisions of the Tea Act, 1953, merely enabled an export to be effected and did not require the goods in regard to which they were issued to be exported. In other words, it was stressed that the Tea Act did not impose any obligation on the quota holder or his transferee to export the goods covered by the quota and that consequently the buyer, even after taking a transfer of the export quota rights along with his purchase was not compelled by law to export and was not precluded from failing to export and selling the goods locally. On this reasoning the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to the prices prevailing in the local market as compared to that in the foreign countries where the principals of the resident buyers resided, which would have disclosed whether a local sale of the tea bought ostensibly for export was in a commercial sense within the bounds of possibility, though if one went by the rationale underlying the provisions of the Tea Act and in particular sections 17, 21 and 22, one gets the impression that export quota rights were considered to have a considerable value in the market which would be some indication that a buyer with an export quota would never sell in the local market. Thus it might be that even though the statute does not in terms prohibit internal sale of tea purchased along with export quota rights, this could be explained by the circumstance that the right to export tea is considered a privilege which secures economic advantages to the exporter and hence there was no need for any statutory compulsion to do so. We are making this observation because Parliament and the Central Government are keen on promoting exports and in the case of some commodities like sugar, where the external price is lower than the local price, the regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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