TMI Blog1962 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ysore Sales Tax Act which is but a faithful reproduction of Article 286. The plea advanced on behalf of the petitioner both before the authorities below and in this Court is that the disputed transactions are sales effected outside the Mysore State and therefore the turnover relating to them is exempt from any sales tax in view of Article 286(1)(a); in the alternative they should be considered as inter-State sales protected by Article 286(2). The admitted facts of the case are: (1) the disputed turnover relates to sales of manganese ore; (2) when the contract of sale was entered into, the ore in question was in the State of Mysore; (3) the ore sold had to be analysed by Messrs Essen Co., Bangalore, and their report was binding on both the parties; (4) the approved ore was stocked at the railway sidings situate in Mysore State; (5) as per the terms of the contract the railway weighment was final; (6) the price fixed was F.O.R. Vizagapatnam Port or some other port; (7) the buyer was to arrange for railing the contracted ore; (8) the payments were to be made monthly on the submission of bills together with railway receipts and assay reports; and (9) the ore was in fact carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 sales or purchases falling within the scope of this Explanation have now attracted themselves to the appellations, "Explanation sales or purchases" or "inside sales or purchases". I shall refer to them hereinafter as "inside sales" or "inside purchases". The Explanation provided by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, notwithstanding the property in such goods passed in another State. The test of sufficient territorial nexus is thus replaced by a simpler and more easily workable test. Are the goods actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption therein? Then, such sale or purchase shall be deemed to have taken place in that State and outside all other States. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition in the Explanation is used for the purpose of clause (2) but because such sale or purchase becomes in the eye of the law a purely local transaction. This view was overruled by the majo- rity of the Judges composing the Bench in Bengal Immunity Co., Ltd. v. State of Bihar and Others[1955] 6 S.T.C. 446; A.I.R. 1955 S.C. 661. Therein it was held by a majority that there are four separate and independent restrictions placed upon the legislative competency of the State to make a law with respect to matters enumerated in Entry 54 of List II of the 7th Schedule; in order to make the ban effective and to leave no loophole the Constitution-makers have considered the different aspects of sales or purchases of goods and placed checks on the legislative power of the States at different angles; thus in clause (1)(a) of Article 286 the question of the situs of a sale or purchase engaged their attention and they forged a fetter on the basis of such situs to cure the mischief of multiple taxation by the States on the basis of the nexus theory. In clause (1)(b) they considered sales or purchases from the point of view of our foreign trade and placed a ban on the States' taxing po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0), the common carrier is deemed to be the agent of the purchaser, and that therefore delivery of the goods to the railway authorities amounts to delivery to the buyer. But that is only a fictional delivery and not an "actual delivery" and consequently such a delivery is not "actual delivery" contemplated by the Explanation to Article 286(1)(a). A similar view was taken by a Bench of the Allahabad High Court in Capco Ltd. v. Sales Tax Officer and Another[1960] 11 S.T.C. 34; A.I.R. 1960 All. 62. It was held therein that the delivery to the common carrier is only a constructive delivery and not an "actual delivery". A Bench of the old Mysore High Court also took the same view in In the matter of Deputy Commissioner of Sales Tax, Bangalore[1957] 8 S.T.C. 248; A.I.R. 1957 Mys. 14. The word "actual" before the word "delivery" used in the Explanation cannot be considered as a superfluous word. If the Constitution-makers intended to include delivery to a common carrier within the ambit of the Explanation to Article 286(1)(a) then they would not have used the expression "actual delivery" therein. Therefore, I respectfully adopt the view taken by Venkatarama Aiyar, J., in that regard. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of property within the State that is intended to be fastened upon, for the purpose of determin- ing, whether the sale in question is "inside" or "outside" the State and, therefore, subject to the operation of the Explanation, that State in which property passes would be the only State which would have the power to levy a tax on the sale. From what has been said above, it follows that a State has a right to tax not only "inside" sales but also sales by means of which the property in the goods sold passes within the State to the buyer so long those sales are not covered by the Explanation [to Article 286(1)(a)]. Therefore, in the instant case. the Mysore Sales Tax Appellate Tribunal ought to have considered whether the disputed sales were "inside" sales; if not, whether as a result of these sales, the property in the goods sold passed inside the State to the buyer if those sales do not fall within the scope of the Explanation to Article 286(1)(a). The expression "consumption" found in the Explanation to Article 286(1)(a) is not used to denote distruction or even user as understood in the ordinary parlance. It is used as a term in economics, compre- hending the diverse use of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Assuming without deciding that the property in the goods in the present cases passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under Article 286(1)(b). That clause, indeed, assumes that the sale has taken place within the limits of the State and exempts it if it takes place in the course of the export of the goods concerned." From this decision, it follows that in finding out whether a particu- lar "sale or purchase" had taken place in the course of export or import, the test of passing of the property in the goods is not relevant. Now coming to the positive side of the rule laid down, an export sale must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say by employing the machinery of export. What exactly is the connotation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cotton seeds and the assessee was entitled to commission on a percentage basis; the assessee worked as such agents for the period 1st October, 1949, to 30th September, 1950. The ques- tion for the Court's consideration was whether the assessee was liable to pay sales tax. The Court held that those transactions were effected in the course of inter-State trade or commerce and were hit by the ban of Article 286(2). The scope of Article 286(1)(b) again came up for consideration before the Supreme Court in State of Madras v. Gurviah Naidu Co., Ltd., and Others[1955] 6 S.T.C. 717; A.I.R. 1956 S.C. 158. Therein the assessees were merchants dealing in hides and skins in Salem; their business consisted mainly in the pur- chase of hides and skins and exporting the same to foreign countries; they were assessed to sales tax in different amounts on their respective turnovers of purchases of skins made by them in pursuance of orders placed with them by foreign buyers for the supply of the same. The question for consideration was whether they were liable to pay tax. The Court held: "Such purchases were, it is true, for the purpose of export, but such purchases did not themselves occasio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or shipping agents and the goods were bound for export overseas; thus the goods were shipped from Calcutta to destinations outside the terri- tories of India in the course of foreign or international trade. On those facts, the Court held that the dealer would not be entitled to claim the protection of Article 286(1)(b), once it was held that the title to the goods had passed in favour of the Bombay parties long before the goods were entrusted to the carrier and that in fact there was no privity between the dealer and the foreign merchants to whom the goods were ultimately exported. The last decision of the Supreme Court bearing on this point and brought to our notice is the Burmah Shell Oil Storage and Distributing Co's case[1960] 11 S.T.C. 764; A.I.R. 1961 S.C. 315., wherein their Lordships held that every sale or purchase pre- ceding the export is not necessarily to be regarded as within the course of export; it must be inextricably bound up with the export, and a sale or purchase unconnected with the ultimate export as an integral part thereof is not within the exemption; sales or purchases for the purpose of export are not protected unless the sales or purchases themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the goods as in the case of resale is also consumption coming within the meaning of that expres- sion; (6) sale or purchase for the purpose of export or for the purpose of inter-State trade is not a sale or purchase in the course of export or import or in the course of inter-State trade; (7) sales in the course of export or in the course of inter-State trade must of necessity be put through by transporting the goods by rail or ship or other means of communication. In other words, sale or purchase must occasion the export or inter-State trade or commerce. To put it differently, the sale or purchase must inextricably be bound up with the export or import or with inter-State trade or commerce and must form an integral part thereof. Before concluding we must notice one other point urged by the learned Government Pleader. He contended that the ban on the States' power to tax inter-State sales stood lifted in view of the validating Act (Act VII of 1956) enacted by Parliament, on all sales that took place before 6th September, 1955. This position is not contested by the opposite side. The decision of the Supreme Court in Sundararamier Co. v. The State of Andhra Pradesh[1958] 9 S. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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