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TMI Blog1970 (11) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the sales which took place between the period 23rd October, 1954, to 31st March, 1955, whether the assessee is entitled, upon the facts found by the Board of Revenue with regard to these categories of sales, to exemption from liability under the Bihar Sales Tax Act because of the provision of article 286(1)(a) of the Constitution as it stood at the relevant date read with the explanation to that article." In M.J.C. 284 of 1962 the following two questions were framed: "(1) With regard to the sales which took place in the period from 1st April, 1955, to the 6th September, 1955, whether the assessee is entitled, upon the facts found by the Board of Revenue with regard to these categories of sales, to exemption from liability under the Bihar Sales Tax Act because of the provision of article 286(1)(a) of the Constitution as it stood at the relevant date read with the explanation to that article. (2) With regard to the sales which took place in the period from 7th September, 1955, to 31st March, 1956, whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provided under article 286 of the Constitution as to the imposition of tax under any law of any State on certain sales or purchases of goods. That article has now undergone a change by the sixth amendment in 1956; but we are concerned with as it was before the amendment, for the period involved in these two references was prior to the amendment. The article read as follows: "286. (1) 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- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation.-For the purposes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate 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 vehicles were in the course of inter-State trade or commerce will only be relevant for the sales that took place within the period from the 7th September, 1955, to the 31st March, 1956 (a part of the period covered by M. J. C. 284 of 1962). For the whole period involved in the two references the assessee claimed exemption on the ground that the sales were outside the State of Bihar. We shall first take up the examination as to whether the sales can be said to be outside the "State". Sale has been defined in the Act in section 2 as follows: "'Sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration including such transfer of property in goods made by a society, club or association to its members but does not include a mortgage or hypothecation of or a charge or pledge on goods; and all grammatical variations and cognate expressions shall be construed accordingly;.........." This definition is on the same line as what is given in the Indian Sale of Goods Act. We thus see that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 or vehicles by an employee of the assessee from Jamshedpur to a place out- side the State; and (3) the agreement between the seller and the buyer was for delivering the vehicle outside Bihar. No doubt, materials on record show that the purchaser gave a receipt showing delivery of the vehicles at Benares, Asansol or Champua, all those places being outside the State; but before such receipts were taken, another previous receipt was taken in all cases from the purchaser or his agent at Jamshedpur before the vehicle was put on road at that place for movement outside the State. In that receipt, delivery instructions were given to the factory (supply department) asking them to despatch the vehicle according to sales department's release order to the named purchaser whose destination was also indicated. The details of the vehicle were given in that document. The purchaser signed it as a token of receipt of the vehicle. In the face of such receipts, there is little room for doubt that the purchaser or his agent took delivery of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 variation in regard to that; and it was agreed between two parties, seller and buyer, that delivery would be given at a place outside the State of Bihar. In support of that, affidavits were filed by the dealers but the Board did not place much importance on them as they were from persons who were interested in the result of the decision. It was also urged for the department that there could be no variation other than, in writing, to the provisions in the printed dealership agreement as provided under clause 33 of that agreement. Any part of the agreement can be varied by consent of the parties concern- ed. Any alleged variation can only be challenged by any of the two parties to the original agreement. Their conduct will be evidence of any variation if any. Besides appointed dealers, there were other purchasers such as the State transport corporations or organisations and private buyers. With them there was no written document. In their case, if actually it would be found, that the delivery of the vechicles was given to them ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution, though the consumption of the vehicles in the sense that they were resold for use, was in States other than Bihar. Both delivery and consumption must co-exist in one outside State to avoid the levy in Bihar. Thus, the first contention of the assessee fails. All the sales (except those that have been remanded for further examination by the Board of Revenue) during the period from the 23rd October, 1954, to the 31st March, 1955 (M.J.C. 285 of 1962), and from the 1st April, 1955, to the 6th September, 1955 (partly covered by M.J.C. 284 of 1962) were liable to sales tax under the Bihar Act. Great stress was laid on the nature of the trade; and it was urged that the movement of the vehicles from Jamshedpur to the destinations of the different dealers, State transport organisations and private buyers, was in the course of inter-State trade. The sale, it was argued, if not held to be outside the State, yet will be exempted from the levy under clause (2) of article 286. The provision under that clause is independent of clause (1). Whether a sale has an inter-State character has to be seen irrespective of the place of sale or purchase. It was laid down in the case of The Bengal Immu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer 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 necessity of this trade itself. The buyers having their assigned areas of sale outside Bihar, could not have kept the vehicles purchased by them, in this State. A decision of a Division Bench of this court in Dulichand Hardwari Mull v. State of Bihar A.I.R. 1963 Pat. 359; [1968] 22 S.T.C. 255., is very apt in support of the view taken above. The petitioner in that writ application was the assessee-firm, which carried on business in the district of Saharsa in Bihar. They were registered under the Bihar Sales Tax Act. They claimed that the sale of goods by them to customers in Nepal to the extent of Rs. 50,015.55 np. was not assessable, as that was in the course of export. Nepal, though a foreign State, adjoins Bihar. On the facts, it was found that the delivery of the goods to the purchaser or his representative was finalised in Bihar and that the seller did not continue to be the owner of the goods up to and beyond the time when the goods entered into the export or until after the goods crossed the customs barrier. Further, it was found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 receipt for the goods which were at buyer's risk from the time the cement was put to the common carrier. As the actual delivery of the goods to the buyer was at a destination in the State of Mysore, the sales were taxed as intra-State sales. Their Lordships of the Supreme Court, however, held that those sales were in the course of inter- State trade and exempted from sales tax under the Mysore Sales Tax Act. The transactions themselves involved movement of the goods from outside Mysore across the border. In that case, of course, the factories, from which the supply was to be made, were nominated by the Government by authorisation. Since all the factories were outside the State of Mysore, that did not make any difference on the nature of sale of cement. Referring to the decision in The Bengal Immunity Co. Ltd. case [1955] 6 S.T.C. 446 (S.C.)., their Lordships quoted that a sale could be in the course of inter-State trade only if two conditions concur: (1) A sale of goods, and (2) a transport of these goods from one State to another under the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though it was absent from the contract itself, as the other circumstances connected with the sale including the permit issued by the Government involved that. This case lends support to the assessee's contention that the nature of goods and the peculiar features of a particular trade are to be taken into account to find if inter-State movement is an incident of the sale of the goods. Another case decided by the Supreme Court in Mohanlal Hargovind Das v. State of Madhya Pradesh [1955] 6 S.T.C. 687 (S.C.)., is also helpful to the assessee. There, the assessees were a firm in Madhya Pradesh carrying on the business of making and selling bidis. In the course of their business they bought and brought finished tobacco from dealers in Bombay State and rolled them into bidis and supplied them to various other States, where they were consumed. The Bombay suppliers of finished tobacco were also registered dealers under the Central Provinces and Berar Sales Tax Act, 1947. The assessees also made a declaration in the prescribed form at the time of purchase of finished tobacco from Bombay dealers that they purchased the goods for use as raw material in the manufacture of bidis for sale by actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccasions a movement of goods when the contract of sale so provides." In the instant case the printed dealership agreement read as a whole cannot but mean that the movement of the vehicles to the destination of the dealers in the different States was one of the terms of the sale; and, in that view, the inter-State movement was occasioned by the sale. It was contended for the State that the dealership agreement consisted of the agreement of sale and other agreements in regard to after-sale affairs such as demonstration, show-room and area of resale. Learned counsel wanted to compare those agreements with an agreement for renewal of lease in a deed of lease and argued that they were not part of the agreement of sale. I do not think the analogy is correct. The entire dealership agreement is about one transaction. No doubt, the vehicles bought by the dealers are to be resold by them; but the fact that both parties agreed that even in that respect the assessee-company would retain some significant control, connects that with the transaction of original sale of the vehicles to the dealers. The only necessary link between the two is the inter-State movement of the vehicles. It may be us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Madras High Court in support of his contention that the movement of the vehicles out of the State of Bihar was unconnected with the sale thereof. In the case of Ashok Leyland Ltd., Ennore, Madras v. The State of Madras [1957] 8 S.T.C. 210., the assessee-company assembled motor cars in Madras State and sold them to dealers outside that State. The outside State dealers sent their drivers to the assessee's factory and took delivery of the cars and transported them outside Madras. The assessee's contention that though the delivery of the cars was effected within the State of Madras, as such delivery was for immediate transport of the cars sold outside the State, the sales were in the course of inter-State trade within the meaning of article 286(2) of the Constitution, was repelled by the High Court of Madras and it was held that as the sales were completed and delivery was effected within the State of Madras, the sales were liable to sales tax under the Madras Act. They observed that the stream of inter-State trade or commerce commenced only after the dealer as buyer took delivery of the goods, and the antecedent sale to him by the assessee was a distinct and closed transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within their respective areas, all outside the State. The cars were delivered to the sub-dealers or their agents at Madras and were subsequently taken by them outside the State to their destinations. There also the sales were held to be intra-State within the State of Madras and not in the course of inter-State trade or commerce. The learned judges followed the previous decisions. Our respectful comments on this decision are the same as already stated. It has to be mentioned that the case of Ashok Leyland Ltd. [1957] 8 S.T.C. 210., as decided in the Madras High Court was taken in appeal to the Supreme Court, Ashok Leyland Ltd. v. State of Madras [1961] 12 S.T.C. 379 (S.C.). The present assessee of the instant case joined there as an intervener and pressed for a decision about the nature of the sale as involved in the Madras case; but as the Supreme Court found it sufficient to dispose of the case on a reference to the Sales Tax Laws Validation Act, the other question about the assessee's claim about the inter-State trade was not gone into. It cannot, therefore, be said that the view taken by the Madras High Court on the nature of sale was upheld by the Supreme Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordships followed their previous decision in The State of Travancore- Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 S.T.C. 205 (S.C.)., where the difference between the last sale to the overseas buyer and the previous sale was made in connection with the actual export. Learned counsel for the State very much pressed that although the assessees-sellers knew that the goods they sold were for export and they had put such label on the packing of the goods, yet that transaction was held not to be in the course of export. Applying that to the present case, he argued that though the assessee-company knew that the vehicles were to be transported to other States, that would not constitute an inter-State trade. In my view, the point of difference is elsewhere. In the former case of sale of textile goods to the exporter, the seller knew that the goods would be exported; but the goods were such that even after they sold them to the exporter, they may not have exported them and might have sold them in inland markets. Secondly, the seller had nothing to do with the export and had no semblance of any control over or participation in the after-sale activities of the exporter-buyer. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export quota licence actually exported those goods overseas were not sales in the course of export. The sale of export quota licence, which was permissible under the law, did not alter the nature of the sale of the tea- chests to the exporters of tea who later sold them to overseas buyers and that occasioned the export. In the same way, as the earlier two decisions, this case has also to be distinguished from the present case. But, all the same, there are certain principles clearly laid down in this case which go to the support of the assessee's contention. At page 759 of the report their Lordships explained what should constitute a sale in the course of export of goods out of India and observed: "To constitute a sale in the course of export of goods out of the territory of India, common intention of the parties to the transaction to export the goods followed by actual export of the goods to a foreign destination is necessary. But intention to export and actual exportation are not sufficient to constitute a sale in the course of export, for a sale by export 'involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny exemption. But in regard to the period from the 7th September, 1955, to the 31st March, 1956, the sales were not subject to levy under the Act and to this extent the assessee succeeds in M.J.C. 284 of 1962. The view taken by the Board of Revenue in respect of the other sales cannot be assailed. In M.J.C. 284 of 1962 the answer to the first question is in the negative and against the assessee. The answer to the second question is in the affirmative and in favour of the assessee. In M.J.C. 285 of 1962 the only question is to be answered in the negative and against the assessee. In view of partial success of both sides, there shall be no order for costs in either of the two references which are disposed of as stated above. S.N.P. SINGH, J.-I agree. The State of Bihar appealed to the Supreme Court after obtaining special leave. A.K. Sen, Senior Advocate (U.P. Singh, Advocate, with him), for the appellant. N.A. Palkhivala, Senior Advocate (S.P. Mehta and B. Datta, Advocates, and J.B. Dadachanji and Co., Advocates, with him), for the respondent. JUDGMENT The judgment of the court was delivered by HEGDE, J.-This is an appeal by special leave. It arises from the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership agreements. The agreements between the assessee and its dealers appear to be similar. Under the agreements, each dealer is assigned a territory in which alone he can sell the trucks, bus chassis and other spare parts purchased by him from the assessee-company. He is forbidden from selling any one of those articles to any purchaser outside his territory. As per the agreements, dealers will have to place their indents, pay the price of the goods to be purchased and obtain delivery orders from the Bombay office of the assessee, In pursuance of those delivery orders, trucks, bus chassis and other spare parts were delivered in Bihar to be taken over to the territories assigned to them. Under the contracts of sale, the dealers were required to remove the trucks, bus chassis and the spare parts delivered to them in the State of Bihar to places outside Bihar. These are facts found by the Board of Revenue and affirmed by the High Court. On the basis of these facts, we have to decide whether the sales with which we are concerned in this appeal are sales that took place in the course of inter-State trade and commerce as contemplated by article 286(2) of the Constitution as it stood at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood in the context of article 286(1)(b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country, but also as part of or connected with such activities. But a purchase of goods for the purpose of export is only an act preparatory to their export and not an act done in the course of the export of the goods. In Bengal Immunity Co. Ltd. v. State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446 (S.C.). Venkatarama Ayyar, J., observed that a sale could be a sale in the course of inter-State trade only if two conditions concur: (1) a sale of goods and (2) a transport of those goods from one State to another under the contract of sale. In Endupuri Narasimham and Son v. State of Orissa [1962] 1 S.C.R. 314; 12 S.T.C. 282 (S.C.)., this court held that in order that a sale or purchase might be inter-State, it is essential that there must be a transport of goods from one State to another under the contract of sale or purchase. A purchase made inside a State, for sale outside the State cannot itself be held to be in the course of inter-State and the imposition of tax thereon is not repugnant to article 286(2) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export, but is not necessarily to be regarded as one in the course of export, unless the sale occasions export." In K. G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras [1966] 17 S.T.C. 473 (S.C.)., this court held that before a sale could be said to have occasioned the import, the movement of goods must have been incidental to the contract or in pursuance of the conditions of the contract and there should be no possibility of the goods being diverted by the assessee for any other purpose, meaning thereby that there should be no possibility of diversion according to law or contract and not in breach of them. In Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes (1970) 1 S.C.C. 622; 26 S.T.C. 354 (S.C.)., this court after referring to the earlier decisions observed: "It has been laid down that the sale in the course of export predicated connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction. To occasion export there must exist such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of consumption and not resale, or the same is taken out of the State in pursuance of an already existing agreement to resell in the State to which it is taken. The decision in Coffee Board's case [1970] 25 S.T.C. 528 (S.C.)., does not, in our opinion, afford any basis for these contentions. We have earlier noticed that this court in a series of decisions has pronounced in unambiguous terms that where under the terms of a contract of sale, the buyer is required to remove the goods from the State in which he purchased those goods to another State and when the goods are so moved, the sale in question must be considered as a sale in the course of inter-State trade or commerce. This is a well established position in law. In the Coffee Board's case [1970] 25 S.T.C. 528 (S.C.)., this court did not deviate from this position nor could it deviate as the earlier decisions were binding on it. Further in the course of his judgment, the learned Chief justice, who spoke for the court, referred with approval to the earlier decisions of this court where distinctions between the sales in the course of inter-State trade or commerce and sales for the purpose of inter-State trade and com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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