TMI Blog1970 (11) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned in this case must be held to be sales in the course of inter-State trade or commerce. - Civil Appeal No. 2402 of 1966, No. 284 of 1962 - - - Dated:- 27-11-1970 - SHAH J.C., MITTER G.K., HEGDE K.S., GROVER A.N. AND RAY A.N. JJ. -------------------------------------------------- MAHAPATRA, J.- These two references are under section 25(3) of the Bihar Sales Tax Act, 1947, at the instance of the assessee-company in regard to two periods, from the 23rd October, 1954, to the 31st March, 1955 (M.J.C. 285 of 1962) and from the 1st April, 1955, to the 31st March, 1956 (M.J.C. 284 of 1962). The assessee-company being aggrieved by the inclusion of certain transactions as sales in the turnover went in appeal and in revision without any success. They asked for a reference, but that was refused by the Board of Revenue. Thereupon, they came with an application under section 25(2) of the Bihar Sales Tax Act, 1947 (to be referred hereafter as the Act) and obtained a rule, on the 6th May, 1963, calling upon the Board of Revenue to state a case and refer the same to the High Court on the following questions: In M.J.C. 285 of 1962 the question is as follows: "With regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured is at Jamshedpur in Bihar. The company appointed several dealers all over India and entered into an agreement with them in regard to the manner of supply of truck chassis and spare parts (to be referred hereafter for the sake of convenience as the vehicles) and the arrangement the dealers have to make for resale of those vehicles in their specified territories. No written agreement was there as far as the State transport corporations and organisations or the individual buyers were concerned. During the relevant period, some vehicles were despatched either by rail or by road by the assessee to the purchasers' destination and some vehicles were taken delivery of by the purchasers themselves from the factory and moved on road from Jamshedpur to their respective places. It is in regard to the latter transactions that the controversy arose between the assessee and the sales tax authorities. About the other kind of transactions, the Board of Revenue was rightly of the opinion that they were sales outside the State, but with a view to eliciting further necessary information in that regard, it directed a remand of the case. The assessee's whole case is based upon the restriction pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all sales outside the State of Bihar and also in the course of inter-State trade or commerce. Under clause (2) of article 286, the Parliament enacted the Sales Tax Laws Validation Act in January, 1956, by which the State laws imposing sales tax on sale or purchase of any goods where such sale or purchase took place in the course of inter- State trade or commerce were validated till the 6th September, 1955. It may be recalled that the Supreme Court decision in the case of The Bengal Immunity Co. Ltd. v. The State of Bihar [1955] 6 S.T.C. 446 (S.C.)., was pronounced on the 6th September, 1955, where it was held that the explanation given to sub- clause (a) of article 286(1) was limited to that sub-clause and could not be extended to clause (2) either as an exception or as proviso thereto or read as curtailing or limiting the ambit of clause-(2); in other words, it was held that even if a particular sale came with the legal fiction of intra- State sale within the meaning of the explanation, yet, if it was in the course of inter-State trade or commerce, it would not be covered by any sales tax laws made by any State. In that view, the assessee's contention that their sales of the vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in each case at Jamshedpur within the State of Bihar; where delivery and consumption were in any one State outside Bihar, the Bihar Act will not levy a tax on those sales; where delivery of the vehicles was made in an outside State either by rail or by road by the assessee as an incident of the contract of sale, it was in the course of inter-State trade and not assessable under the Bihar Act. The assessee does not dispute these findings and accept the remand order for examination of further details in connection with the aforesaid two kinds of sales. They, however, very strenuously challenged the other finding, viz., that in case of other sales the delivery of the vehicles was at Jamshedpur and their movement from Jamshedpur to the places of purchasers outside the State was not in the course of inter-State trade. Learned counsel appearing for the assessee particularly pointed to three things to contend that the vehicles were delivered to the purchasers out- side the State; (1) when the vehicle was so delivered a receipt was taken from the purchaser at a place outside the State; (2) an escort fee of twenty- five rupees was charged from the purchaser for escorting the vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the responsibility and the risk, after the vehicle was made over to the purchaser at Jamshedpur, were no longer with the seller, although one of their employees escorted the vehicle to a place outside the State. Temporary registration under the Motor Vehicles Act to enable the movement of the vehicle from Jamshedpur onwards was obtained in the name of the purchaser. Transit insurance charges were also met by him. In such circumstances, if the purchaser assumed all the responsibility as the owner of the vehicle from the moment he took it at Jamshedpur, mere accompaniment by an employee of the seller or payment of twenty-five rupees towards his remuneration will not undo what was done by and under the first receipt given at Jamshedpur. Appearing for the State, learned Advocate-General drew our attention to a clause in the printed dealership agreement (dealer not in the sense as it is defined in the Act but dealers appointed by the assessee-company for resale of the vehicles in different specified territories), where it is stated that all deliveries will be effected to the dealer at Tatanagar, Jamshedpur. It was, however, argued for the assessee that there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be set aside. Construction of a document, which was a part of the primary evidence leading to the concluding inference can be raised in a case of reference also (see Venkataswami Naidu Co. v. Commissioner of Income-tax [1959] 35 I.T.R. 594 (S.C.). The preliminary objection raised on behalf of the State cannot prevail. Yet, however, on examining the two receipts, and even assuming that there was a variation in the agreement about the place of delivery with the dealers, it is not possible to attach any importance whatsoever to the second receipt, which was only a step taken with a view to avoiding the levy of a tax under the Bihar Sales Tax Act. Any understanding given to that effect by any of the sales tax authorities of Bihar will not amount to an estoppel against them, to qualify the second receipt with any sanctity. The Board of Revenue was justified in its view that the delivery of the vehicles took place at Jamshedpur. The assessee cannot draw any support from the explanation to clause (1) of article 286 of the Constitution, though the consumption of the vehicles in the sense that they were resold for use, was in States other than Bihar. Both delivery and consumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vement is necessitated by such contract, that will be a determining factor in support of the inter-State character. Inter-State movement of such goods is the result of the sale. Such movement is occasioned by the sale itself. It cannot be said that the activity in the movement of the vehicles is not integrated with the sale; but for such movement the sale will be ineffective and purposeless. When a buyer enters into a contract of sale of such vehicles, both parties have not only mere knowledge but the intention of inter-State movement of the vehicles. The assessee-company's interests do not cease with the sale and their active participation in the activities of the purchaser (particularly those to whom dealership has been granted) subsequent to the sale continues. In such circumstances and in the peculiar nature of this particular trade, inter-State movement must be taken to be a normal feature and integral part of the transaction. We find that both the buyer and the seller had intention from the beginning of inter-State movement. The buyer had the obligation to effect such movement; and, in fact, there was such actual movement from this State to other States, which was out of ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gested that the decision in the above referred case was not correct. We are unable to agree with him; nor do we think it necessary to make a reference to a larger Bench for reconsideration of that decision. I should also refer to the case of Cement Marketing Co. of India (Private) Ltd. v. State of Mysore [1963] 14 S.T.C. 175 (S.C.). The two appellants before the Supreme Court were respectively the sales manager and the manufacturer of cement, who had factories in different parts of India outside the State of Mysore. The sales manager had the head office in Bombay and a branch office in Bangalore and was registered as a dealer under the Mysore Sales Tax Act, 1948. The intending buyers of cement used to get an authorisation in a standard form on the sales manager to sell and supply cement in specified quantities and from named factories. The buyer then placed an order with the sales manager, whereupon the latter instructed his Bombay office to despatch the cement to the buyer according to the authorisation. A copy of that instruction was sent to the factory from where the goods were to be despatched. The sales manager then sent an advice to the buyer along with the railway receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that State and a sale under such contract would clearly be an inter-State sale as defined in section 3 of the Central Sales Tax Act. Movement of goods from one State to another is occasioned by a sale when such movement is the result of a covenant or incident of the contract of sale. The taxing officer in that case found that the contract of sale did not provide for any supply of cement to be made from outside Mysore. The supply from factories situated outside was a matter of convenience to the supplier. In the present case it was argued for the State that the contract of sale of vehicles did not stipulate inter-State movement. Mere absence of such terms in the text of the contract itself is of no importance if that thing appears from other parts of the agreement between the two parties. Also from the nature of the trade it becomes a necessary incident or a covenant of the sale. In The Cement Marketing Co.'s case [1963] 14 S.T.C. 175 (S.C.)., the Supreme Court held such a circumstance to be an incident or covenant of the contract of sale, though it was absent from the contract itself, as the other circumstances connected with the sale including the permit issued by the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m ............ Merely because he (the Bombay supplier of finished tobacco) got himself registered as such (as dealer). to avoid the penalty which would otherwise be visited upon him by the State (Madhya Pradesh) it cannot be stated that whatever transactions he entered into with other dealers in the State of Madhya Pradesh were all intra-State transactions or internal sales or purchases irrespective of the fact that the transactions involved movement of the goods across the border and were clearly transactions of sale of goods in the course of inter-State trade or commerce." In Tata Iron and Steel Co. Ltd., Bombay v. S. R. Sarkar [1960] 11 S.T.C. 655 (S.C.)., the Supreme Court, while explaining the provisions under the two clauses of section 3 of the Central Sales Tax Act of 1956, observed: "The question then arises, when does a sale occasion the movement of goods sold? It seems clear to us that a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved; in other words, a sale occasions a movement of goods when the contract of sale so provides." In the instant case the printed dealership agreement read as a whole c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that before a sale could be said to have occasioned the import, it was not necessary that the sale should have preceded the import; the movement of axle-box bodies from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India and was in pursuance of the conditions of the contract between the seller and the buyer. In that view, the sales to the Southern Railway took place in the course of import of goods. It is significant to note here that whether the movement by way of import was prior or subsequent to the sale was immaterial. In the instant case before us, though the sale was complete at Jamshedpur and the movement out of the State of Bihar was subsequent to that, both the things can constitute integrated activities and the inter-State movement can be incidental to the contract of sale. It all depends upon the circumstances of a particular transaction and the nature of the goods and the trade involved therein. Learned counsel for the State relied mainly on two decisions of the Madras High Court in support of his contention that the movement of the vehicles out of the State of Bihar was unconnected w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods sold were intended by the buyer to be carried out of the State was not enough; it had to be an integral intention on his part in that respect. Knowledge and intention are not always the same. In the case of a motor vehicle its inter-State movement is certainly of a different incidence than in the case of coffee. Their Lordships of the Madras High Court, however, equated both of them and ruled the sale of motor cars in the same way as the sale of coffee. With great respect we are not able to take a similar view, particularly in the face of the trend of and the principles laid down in several decisions of the Supreme Court in regard to the inter-State trade or sale in the course of export or import. The other decision of the Madras High Court in Addison and Co., Ltd., Madras v. State of Madras [1960] 11 S.T.C. 345., was on the same line. There, the assessee was a dealer in automobiles and sold motor cars to their sub-dealers who resided outside the State of Madras and who had entered into an agreement with the assessee to resell those cars within their respective areas, all outside the State. The cars were delivered to the sub-dealers or their agents at Madras and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in which the names of the seller and exporter and description of the commodities were mentioned. Then, the mills used to pack the goods marking "for export only" and despatch the goods. The exporters then took the delivery and shipped them overseas. The Supreme Court did not accept the High Court decision in favour of the assessees' contention that their sales were in the course of export, as the view taken by the High Court was that the exporters-buyers should be deemed to be the agents of foreign buyers and the assessees' sales to them must be presumed to be sales in favour of the overseas principals. Their Lordships of the Supreme Court did not accept the fiction of agency and held that there were actually two sales, one by the assessees to the exporters and the other by the exporters to the overseas buyers, the latter being one which occasioned the export and, therefore, in the course of export. Since, the assessees were not parties to that second sale, their transactions with the exporters were not in the course of export. For that their Lordships followed their previous decision in The State of Travancore- Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 S.T.C. 205 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of Travancore-Cochin case [1953] 4 S.T.C. 205 (S.C.)., and held that the sale by the exporter to the overseas buyers, which really occasioned the export, was in the course of export and the sale before that by which the exporters purchased those goods was independent of export. With reference to the other case, State of Mysore v. Mysore Spinning and Manufacturing Co., Ltd. [1958] 9 S.T.C. 188 (S.C.)., I have already shown how the facts of the instant case are different. The same is the position in this reported case. Learned counsel further pointed that in the case of Ben Gorm Nilgiri Petitions Co., Coonoor v. The Sales Tax Officer, Special Circle, Ernakulam [1964] 15 S.T.C. 753 (S.C.)., the Supreme Court referred to and followed its earlier decisions in State of Mysore v. Mysore Spinning and Manufacturing Co., Ltd. [1958] 9 S.T.C. 188 (S.C.)., and East India Tobacco Company v. State of Andhra Pradesh [1962] 13 S.T.C. 529 (S.C.)., and held that sale of tea- chests along with export quota licence to persons who, later, on the strength of that export quota licence actually exported those goods overseas were not sales in the course of export. The sale of export quota licence, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it." The ingredients spoken about to constitute a sale in the course of export are equally applicable to a sale in the course of inter-State trade- or commerce. All those three ingredients, viz., the intention about inter- State movement with the two parties, the obligation to make such a movement on the buyer and the actual such movement out of the State are present in the transaction under examination in this case. The dealership agreement also proves the first two ingredients and the third one, actual movement out of the State, is not in dispute. I am clearly of the view that the sales of vehicles involved in these two references were in the course of inter-State trade but the sales that took place between the 23rd October, 1954, and the 6th September, 1955, were subject to sales tax under the Bihar Sales Tax Act on account of the Sales Tax Laws Validation Act and, therefore, the assessee could not get any exemption. But in regard to the period from the 7th September, 1955, to the 31st March, 1956, the sales were not subject to levy u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmative and in favour of the assessee. The assessee has not come up in appeal. This appeal has been brought by the State of Bihar contesting the correctness of the opinion given by the High Court on the second of the two questions referred to earlier. The assessee is a public limited company, incorporated under the Indian Companies Act, 1913. It carries on business of manufacturing and selling, inter alia, trucks and bus chassis and spare parts thereof to their appointed dealers, State transport organisations and individual buyers throughout India. The registered office of the assessee is at Bombay but its factory where manufacturing process 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 turnover in dispute relates to the sales made by the assessee to its dealers of trucks, bus chassis and spare parts for being sold in the territories assigned to them under the dealership agreements. The agreements between the assessee and its dealers appear to be similar. Under the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport sale, whichever first occurs can well be regarded as taking place in the course of the other. Even in cases where the property in the goods passed to the foreign buyers and the sales were thus completed within 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 article 286(1)(b). The same exposition of the law is true of clause (2) of article 286 as it stood prior to its amendment on September 11, 1956. The next decision in which article 286(1)(a), (1)(b) and (2) came to be considered by this court is State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1954] S.C.R. 53; 4 S.T.C. 205 (S.C.). Therein this court observed that the word "course" etymologically denotes movement from one point to another and the expression "in the course of" in article 286(1)(b) not only implies a period of time during which the movement is in progress but postulates also a connected relation. Consequently, a sale in the course of export out of the country should be understood in the context of article 286(1)(b) as meaning a sale taking place not only during the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, Special Circle, Ernakulam [1964] 7 S.C.R. 706; 15 S.T.C. 753 (S.C.)., 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 connection 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 an obligation to export, and there must be an actual export. The obligation may arise by reason of statute, contract between the, parties, or from mutual understanding or agreement between them, or even from the nature of the transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse 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 contracts of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of goods takes place, and (3) Where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or 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 Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 25 S.T.C. 528 (S.C.). According to him the ratio of that decision 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 of consumption and not resale, or the same is taken out of the State in pursuance of an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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