TMI Blog1967 (4) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner filed monthly returns in Form I showing a total taxable turnover of Rs. 26,300 under the Central Sales Tax Act, 1956. The Deputy Commercial Tax Officer, Sankarankoil, on his scrutiny of the assessee's accounts, fixed the total taxable turnover at Rs. 1,16,749.62. Pursuant to an order dated 25th March, 1966, a demand was made of the assessee to pay a tax of Rs. 1,808.99 after giving credit to Rs. 526 already paid. The petitioner had also filed in Form 'A2' monthly returns to the Deputy Commercial Tax Officer, Ongole, showing gross and net turnovers of Rs. 84,250.93 and Rs. 68,686.68 respectively for the year. 1963-64. A turnover of Rs. 74,873.57 was brought to tax and it included a turnover of Rs. 6,049.33 representing first sales of matches from Ist April, 1963 to 31st July, 1963, subject to tax at 5 per cent. The rest of the turnover was said to consist of second sales of matches from 1st August, 1963 to 31st March, 1964, which was taxed at 2 per cent. The assessment order at Ongole resulted in a tax demand of Rs. 1,678.93. Both the assessment orders followed notices to the assessee to show cause against proposed assessments and a consideration of the objections. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue a rule forbidding the Deputy Commercial Tax Officer, Sankarankoil, from making any assessment in pursuance of his notice dated 28th February, 1966, but since later it was found that assessment was actually made by him on 25th March, 1966, the prayer for prohibition Is sought by the assessee to be modified into one for certiorari, quashing the order of assessment. The view of the Deputy Commercial Tax Officer, Sankarankoil, as to the character of the transactions as inter-State sales chargeable to tax in the Madras State has not been canvassed before us. The argument of Mr. Abdul Karim for the assessee attacking the validity of some of the provisions of the Central Sales Tax Act and that of the learned Advocate-General have proceeded on the assumption that the transactions are inter-State sales. We have not, therefore, examined the transactions in question and do not express any opinion as to their character. We may, however, conveniently at this stage dispose of an objection to the maintainability of the writ petitions. This is on the ground that the assessee has a right of appeal and, in fact, the right has been availed of in some of his cases. It is undoubtedly true that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1966; since reported at [1967] 19 S.T.C. 520. of demand was within its capacity, it was not by itself an onerous circumstance to merit interference under Article 226. The appeal by special leave against that judgment was allowed by the Supreme Court further observing: "There is nothing to show that any further evidence beyond documents produced to illustrate sample sales was necessary. Nor did the learned Additional Solicitor-General suggest that this was going to be an issue of fact rather than of law. It would certainly have avoided circuity of action and proved altogether more satisfactory if the High Court had considered whether the sample transaction as illustrated by the documents, disclosed a transaction of sale outside the State of Bihar and not in the course of inter-State trade or commerce." In the present instance too, no complicated or disputed facts have first to be found on evidence in order to appreciate and decide the contention as to the validity of some of the statutory provisions. The contention proceeds on the basis that the provisions of sections 8(2), (2A), (5) and 9(3) of the Central Sales Tax Act, 1956, in effect impose or authorise imposition of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. This qualification which is reflected in the other provisions of the Act restricts the levy to a single point but subject to certain conditions, restrictions and circumstances. Sub-section (2) of section 6 exempts from levy a subsequent inter-State sale of goods of the description referred to in sub-section (3) of section 8 of the category under section 3(a) and 3(b), provided a certificate as mentioned in the proviso to sub-section (2) is produced. But a subsequent sale of that category not falling within section 6(2) will, however, attract tax because of the proviso to section 9(1). Section 8 deals with rates of tax on sales in the course of inter-State trade or commerce. For the purpose of rates, the section makes a classification between inter-State sales by a registered dealer to a registered dealer and those not falling in that category but not including inter-State sales by a registered dealer to the Government. A further classification is made between inter-State sales of declared goods and non-declared goods and also of goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manner provided in sub-section (3) in the State from which the movement of the goods commenced. The proviso to this sub-section is to the effect that where "subsequent" inter-State sale does not fall within the ambit of section 6(2), tax thereon shall be levied and collected in the State from which the registered dealer effecting such sale obtained the form prescribed for the purpose of clause (a) of sub-section (4) of section 8 In connection with the purchase of such goods. Sub-section (2) provides for the manner of collection of penalty imposed under section 10A. As the Central Act itself does not contain specific provisions for procedure for assessment, collection and enforcement of payment of tax, It assimilates by section 9(3) and applies for that purpose the provisions, as to similar matters including authorities under each of the appropriate State laws. This applies also to filing of returns, appeals, reviews, revisions, references, penalties and compounding of offences. Where there is no general sales tax law in force in any State, the Central Government may, however, make rules covering these matters. Sub-section (4) of section 9 says that though the Central Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sity for free flow of inter-State trade, commerce and intercourse throughout the country have been borne in mind by the founding Fathers of the Constitution and these considerations should naturally have a bearing on the interpretation of Part XIII of the Constitution. Article 301 regards the territory of India as ore unit for the purpose of the freedom which shall not be affected like any artificial borders or barriers, political, economic, social or any other. The word "throughout" in the article implies that there should be free flow of trade, commerce and intercourse right through and across the entire country as if there were no territorial divisions like States and Union territories, for the freedom under the article knows but only the borders of India as a whole. As trade, commerce and intercourse mean and include various acts, activities, men and things, as well as rights and liabilities, the freedom must necessarily cover all of them within its range. The limit or limits of the freedom are only those contained in the provisions following Article 301 in Part XIII. Article 302 is one of such provisions which permits Parliament to impose restrictions on the freedom of trade, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining force for the stability and progress of the political and cultural unity of the country. It was also held that the freedom of trade guaranteed by Article 301 was freedom from all restrictions except those which were provided by the other articles of Part XIII. Further it was stated that the freedom provided for by Article 301 was larger than the freedom contemplated by section 297 of the Government of India Act, 1935, and that restrictions freedom from which was guaranteed by Article 301 would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. The Supreme Court definitely ruled in that case that taxes might and did amount to restrictions but that it was only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The Supreme Court there was concerned with the validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954. On the view that transport or movement of goods was taxed under the Act solely on the basis that the goods were carried or transported in a particular manner under the Act, the Act was held directly to offend the freedom of trade co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and they yield to a very liberal interpretation. The phraseology used supports this interpretation. The reason for the exception also sustains it. There cannot be any distinction on principle, from the standpoint of the mischief sought to be averted, between a law made by virtue of an entry ex facie referring to trade and commerce and that made by virtue of any entry affecting trade and commerce......I would, therefore, hold that any law made by Parliament by virtue of any entry imposing the said discriminatory restrictions would be bad under the said article." This opinion of the majority in Automobile Transport Ltd. v. State of Rajasthan A.I.R. 1962 S.C. 1406. on this aspect of the scope of Article 303(1) should be taken to be conclusive. In view of this, we cannot accept the contention of the learned Advocate-General that this aspect requires reconsideration. It must be taken to have been well-settled by the two majority opinions of the Supreme Court referred to: (1) that the freedom guaranteed by Article 301 is not to be interpreted as to its scope and ambit in the light of the other provisions of Part XIII but the freedom is wide and absolute except for such restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures." That case concerned with the Madras General Sales Tax Act, 1939, and the rules made thereunder. The Act was considered not to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities and it was pointed out that the sales tax, which had the effect of discriminating between goods of one State and goods of another might affect the free flow of trade and would offend Article 301. Rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules framed under the 1939 Act subjected sales of hides and skins, whether tanned or untanned, at a prescribed single point in the series of sales by successive dealers. Subrule 12)(i) related to levy of tax on sales of hides and skins tanned outside the State. The tax in cases of such sales is levied and collected from the dealer who in the State is the first dealer in such hides or skins. The tax is computed on the turnover of first sales in the State. Clause (ii) of sub-rule (2) provided for an identical levy on firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.B. Mehtab Majid Co. v. State of Madras(1): The invalidity of sub-section (1) of section 2 was declared on the following ground: "The effect of sub-section (1) of section 2 of the Act is the same as was the effect of sub-rule (2) of rule 16 of the Turnover and Assessment Rules, 1939, and which was held to be invalid by this Court in Mehtab's case'. The Impugned sub-section provides for the assessment of tax on the sale of dressed hides and skins which are not subject to tax under the 1939 Act as raw hides and skins and thus exempts from taxation In accordance with the provisions of subsection (1) of section 2 of the Act, the sale of tanned hides and skins with respect to which tax had been paid on their sale in the raw condition. Such tanned hides and skins had been exempted from taxation under sub-clause (ii) of rule 2 of the Turnover and Assessment Rules. The same is the position in the present case. The present rule therefore is discriminatory and invalid for the same reasons which led this Court to hold sub-rule (2) of rule 16 invalid in Mehtab's case(1). There is no escape from this conclusion." The difference between the two cases is that In Firm A.T.B. Mehtab Majid C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n different States. In Madras, it was two per cent. up to 31st March, 1966. Until then tax was leviable on turnover of local sales of matches excluding of course excise duty. This was a multipoint tax. After that date by virtue of an amendment no tax is leviable on hand-made matches but on machine-made matches one per cent. is levied on the turnover without excluding excise duty. Punjab and Delhi levied no tax on sales of matches. In West Bengal there was no sales tax on sales of matches up to May, 1963, and thereafter a tax at five per cent at a single point is exacted. In Maharashtra tax is at two per cent and is at a single point. The tax in Gujarat is three per cent., in Madhya Pradesh at seven per cent., Mysore and Kerala at two per cent., Uttar Pradesh at seven per cent., Bihar at four per cent. and in Andhra Pradesh for the last three years at three per cent. The point at which tax is levied in some of the States is either multipoint or single point. There is thus no uniformity in the local rates of tax in the various States. Some of the writ petitions cover transactions between this State and certain others. Though on inter-State sales of declared goods falling within secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, the rate of tax or exemption as the case may be must be uniform. The unequal burden because of different rates of tax or exemption in the States brings about inequality in the conditions and circumstances necessary for free flow of trade or commerce from one State to another. Differential rates or exemptions obtaining In the several States being automatically applied by virtue of section 8(2) to Central taxation, they will certainly have the effect of discriminating between the goods of one State and the goods of another and may affect the free flow of trade in such goods as between the States. Sub-sections (2A) and (5) of section 8, in our opinion, will only aggravate the discrimination. It has been contended for the State that the object of section 8(2) of the Central Sales Tax Act is clearly to see that In so far as the essential goods are concerned, there should be no difference in the taxation under the State Act and under the Central Sales Tax Act and that necessarily because the rates of taxation may differ in the various States, the rates under the Central Sales Tax Act differ from State to State with the limitation present in section 15(1) but that this is not discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee flow is rendered possible by a lower rate of tax or exemption of goods from tax in the exporting State, as compared to another State where similar goods have to suffer a higher burden. This is another kind of discrimination which is also forbidden by Article 303(1). Such preference or discrimination will be permissible only in the circumstances mentioned in Article 303(2). It is not the stuation in the cases before us. It is said that the State Legislature can never put higher rate of tax on inter-State trade in relation to the essential commodities than it puts on the intra-State trade as is clear from sections 8(2)(a) and 15(1) and that if the State has got a surplus of such essential commodities and wishes to see them enter the stream of inter-State trade more easily than intra-State trade, it is open to the State to exempt that commodity from the incidence of the general sales tax and thus make it easier for it to get into the stream of inter-State trade or commerce. In our opinion it is no answer to the charge of discrimination between one State and another by adopting and applying to the Central taxation different rates of taxes and exemptions under the respective State la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on manufactured sugar collected from them between 8th October, 1901, and 26th July, 1902, on the ground, among others, that the duties were imposed in a manner which discriminated between States. This ground was based upon section 5 of the Excise Tariff which allowed exemption in the case of goods on which customs or excise duties had been paid before 8th October, 1901. But it was contended for the appellants that inasmuch as the scale of duties differed in the several States, and in Queensland, for example, no excise duty was imposed on sugar, the exemption operated unequally on the traders and manufacturers of the several States and therefore the grant of such an exemption was discrimination between the States within the meaning of section 51 of the Constitution Act. The Board rejected the contention and in doing so, it said before the observation already extracted: "Their Lordships cannot accede to this argument. The substance of the enactment in question is that goods which have already paid customs or excise duties shall not pay, over again, and some such provision is obviously necessary in the transition from the old order to the new." It may be seen that in that case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry as between the States and inasmuch as such discrimination immediately and directly affects the free flow of inter-State trade, commerce and intercourse, it offends Article 301 of the Constitution and is not within the other saving provisions of Part XIII. The second limb of the argument as to the State applying sub-section (5) of section 8, as we have already indicated, does not impress us. That sub-section no doubt can be utilised by the States to equalise rates and exemptions but that circumstance does not in any way make any difference to the unconstitutional discrimination between the States in section 8(2). To reiterate subsection (5) like sub-section (2A) may as well enable the retention and perpetuation of inequality in rates or exemptions as a particular State may find it beneficial or not as the case may be. Though section 92 of the Australian Constitution is worded differently from Article 301 of our Constitution nevertheless, it is useful to note that the Privy Council in James v. Commonwealth of Australia[1936] A.C. 678 at 583 and 584. said that the freedom envisaged by section 92 was that trade and commerce were to be conducted as if the borders were not there and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a different matter governed by the provisions of Part XII of the Constitution. The different financial needs of several States will not, in our opinion, be justification of discrimination or preference under Article 303(1). After a careful consideration, we have reached the conclusion and hold that sub-sections (2), (2A) and (5) of section 8 offend Articles 301 and 303(1) of the Constitution and are unconstitutional and void. As to section 9(3), the argument for the assessees is that in cases of conflicting orders of assessment in different States on the same inter-State sales of goods, there Is no common authority set up to resolve the conflict which leads to harassment and multi-taxation by different States on the same transactions. Prima facie there appears to be some force in the argument. In respect of the same interState transaction one State may take the view that it is an Inside sale or the goods were there when the sale occasioned the movement. But another State on the same transaction may take the view that the sale was inside its borders or an inter-State sale on which it could levy tax. It is complained that when such a situation arises, the authorities in neither o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Mysore v. Lakshminarasimhiah Setty Sons[1965] 16 S.T.C. 231., by "levied" in section 9(1) of the Central Act, what was meant was "levied as under the State Act", that would include also the State Rules enabling deductions in the computation of the turnover. This Court rejected the argument on the ground that though the Central Government framed the Central Sales Tax (Registration and Turnover) Rules, 1957, which provided for certain deductions, they did not include excise duty. It is, therefore, said that to the extent the excise duty is not deductible from taxable turnover under the Central Act unlike under the Madras General Sales Tax Act, there is discrimination under section 9(1) between one State and another. We do not think so. In the matter of non-deductibility of excise duty from the turnover of inter-State sales, the Central Act has equal application and makes no discrimination. The Central Act does not say that excise duty will be deductible in one State and not in another. It is not deductible from the turnover of the inter-State sales and this rule is uniformly applied to all interState sales. There is, therefore, no question of inequality or discrimination f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealers in cotton, imported cotton against such licences and delivered the same to the assessee. The Tribunal took the view that it was only the purchase by the assessee's sellers that had occasioned the import, that there was no privity of contract between the assessee and the foreign sellers of cotton and that the fact that the import licences stood in the name of the assessee did not materially alter the position. In the other cases, the sellers endorsed the bills of lading to the assessee even when the goods were on the high seas. Nevertheless, the sellers eventually cleared the goods from the customs and effected ex-mill delivery to the assessee. The assessee's case was that the sellers in so doing acted merely as its agents in clearing the goods from the customs. The Tribunal held that these classes of transactions represented purchases in the course of import. T.C. No. 99 of 1964 is by the appellant-assessee against the order of the Tribunal In so far as it held against it in the first class of transactions and T.C. No. 145 of 1964 is by the department in so far as the Tribunal found against it In respect of the second class of transactions. T.C. Nos. 248 and 284 of 1964 as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of inter-State trade. The question really turns on the construction and effect of the terms of the contracts. On the terms of the contracts between the Buckingham Carnatic Company Ltd., Madras, and Patel Volkart Private Ltd., it will be noticed that there will be no difficulty, in our opinion, in holding that the contracts themselves occasioned the movement of cotton to the State of Madras from other States. Not only because it was in the contemplation of both the parties that under the contract the goods which were not in Madras, had to be despatched from other States to and delivered in the State of Madras but the term relating to the price was F.O.R. Madras Mill siding inclusive of Central sales tax. The contracts themselves authorised the sellers to sell goods by a carrier and when the goods were put on the carrier there was appropriation by the sellers. This batch of cases we may refer to as the second batch. There is a third batch relating to depot sales, T.C. Nos. 300 to 302 of 1965 and W.P. No. 2377 of 1966 and connected cases. In T.C. No. 300 of 1965 the assessee was a dealer in safety matches and colour matches bearing a certain name. It had set up depots in De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three batches of cases, general arguments have been addressed to us on the proper interpretation and scope of sections 3 to 6, 8 and 9(1) including the proviso to it. Before we deal with the sections, we ought to make certain general observations as to the position of taxation on sales of goods prior to the Central Sales Tax Act, 1956. Before the Constitution, as is well-known, each State tried to subject under its law the same transactions to tax on the nexus doctrine. A sale of goods consists of various elements: goods, agreement to sell, transfer of property in the goods, the consideration for the sale and delivery of goods. It is possible that the elements in a concluded sale may be distributed over more than one State. Each State relied on one or more such elements as having a territorial nexus and brought the sale to tax, with the result that the same transaction had to suffer tax in different States with the concomitant hardship to trade and consumers in the same or different States. The makers of the Constitution being fully alive to the problem sought to check this phenomenon. Accordingly Article 286 of the Constitution forged out the checks and said that no law of a Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. v. The State of Bihar(2). According to the majority opinion: "Until Parliament by law made in exercise of the powers vested in it by clause (2) provides otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-State trade or commerce." It was held that the ban imposed against taxation under each of the clauses in Article 286 was a separate and independent limitation and each of them had to be got over before the State law could impose tax on inter-State sale or purchase of goods. The Supreme Court considered that each of the bans was imposed from a different view point, as for instance the explanation looked at the matter from the view point of what was an outside sale, clause (2) of the article had in mind the character of the transaction as an inter-State one and clause (3) dealt with the essentiality of certain goods to the country. If it was an outside sale to the State, it could not tax it. If a sale resulted in delivery of goods for consumption in the taxing State, the tax thereon would be attracted by the explanation. If that transaction were of an inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(a) was omitted and clause (2) was amended so as to read "Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1)", namely, outside sales, or sales which took place in the course of import into or export out of the territory of India. Clause (3) as amended is to the effect that any law of a State shall, in so far as it Imposes or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. In exercise of the powers conferred on Parliament by the Sixth Amendment to the Constitution, it enacted the Central Sales Tax Act, 1956, which received the assent of the President on 21st December, 1956. It is in this historical background that we must approach and interpret the provisions of the Central Act. To reiterate, the two main problems posed by the events before and after the Constitution were: (1) the States relying on nexus doctrine selected one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such goods of special importance shall be subject. Of the definitions in section 2, "appropriate State" means In relation to a dealer who has one or more places of business situate in the same State that State or in relation to a dealer who has places of business situate In different States, every such State with reference to the place or places situate within its territory. "Place of business" is to Include In the case of a dealer carrying on business through an agent, the place of business of such agent; a warehouse, godown or other place where a dealer stores his goods; and a place where a dealer keeps his books of account. These provisions as amended by the Amending Act 31 of 1958 came into force on 1st October, 1958. "Sale", "sale price", "sales tax law" and "turnover" are the other expressions defined by section 2. A sale or purchase of goods which occasions the movement of goods from one State to another or is effected by a transfer of documents of title to the goods during their movement from one State to another is deemed to take place in the course of inter-State trade or commerce. The movement commences when the goods are delivered to a carrier or other bailee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved out and separated, a sale or purchase which occasions the movement of goods from one State to another or is effected by transfer of documents of title to the goods during their movement from one State to another and by this process such an inter-State sale or purchase is distinguished and excluded from an outside sale or purchase. At the same time, an inter-State sale or purchase while separated from an inside sale is also Integrated with it for purposes of its situs and fiscal and territorial jurisdiction to tax it. Tests similar to these applicable to inter-State sale or purchase are applied by section 5 to sale or purchase taking place in the course of import into or export out of the territory of India, only with this difference that the movement of goods in the case of import into or export out of the territory of India terminates or commences at the customs frontiers of India. It may immediately be seen that by the foregoing provisions, the conventional tests of locus of contracts for purposes of jurisdiction regarding the causes of action or proper law of contract to be applied in cases of conflict of laws are at one stroke done away with and tangible or physical test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there can be no sale in the course of inter-State trade." This view seems to have been adopted in section 3(a). Tata Iron and Steel Co., Ltd. v. S.R. Sarkar[1960] 11 S.T.C. 655 at pp. 666, 667. interpreted this very provision and said: "A sale being by the definition, transfer of property, becomes taxable under section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another..." We may also extract another observation from this decision: "In our view, therefore, within clause (b) of section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto: clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State." The two kinds of sales are, therefore, distinct and different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax because under the contract of sale there was transport of the goods from outside the State of Mysore into the State of Mysore and the transactions themselves involved movement of goods across the border. State Trading Corporation v. State of Mysore[1963] 14 S.T.C. 188. also related to a sale of cement but during the periods between 1st April, 1957 and 30th September, 1957, and also between 1st October, 1957 and 31st March, 1958. The contract of sale did not itself provide for inter-State movement of cement. There was no term in the contract that cement should be supplied to the buyer from any particular factory in any particular State. But the contract was subject to the terms of permit issued under the Cement Control Regulations. The Supreme Court applied the decision in Tata Iron and Steel Co. Ltd., Bombay v. S.R. Sarkar[1960] 11 S.T.C. 655. and held that the sale occasioned the movement of goods from one State to another within section 3(a) of the Central Sales Tax Act, 1956, and the movement was the result of a covenant or incident of the contract of sale. It further observed that although a contract of sale of cement did not itself contain any covenant that the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartments were effected in the course of import into the territories of India and were exempt from taxation under section 5(2). Apart from the fact that the expression "occasions the movement of goods" in section 3(a) and section 5(2) had the same meaning, it was further pointed out (head-note): "That before a sale could be said to have occasioned the import it was not necessary that the sale should have preceded the import; that the movement of goods from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India for the consignee, and was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of the goods being diverted by the assessee for any other purpose and, therefore, the sales took place in the course of import of goods within section 5(2) of the Act, and exempt from taxation." The contention of the assessee that in this case the inspection and approval of the goods at Belgium at the manufacturers' works amounted to an appropriation of the goods to the contract so that the property in the goods passed to the ultimate con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 3(b). What is relevant in the case of clause (a) is whether the sale or purchase occasions the movement of the goods from one State to another and in the case of clause (b) whether the sale or purchase is effected by transfer of documents of title to the goods when they are in movement from one State to another. No other test will appear to be necessary or appropriate. Once the character of the transaction is determined by the proper tests we mentioned, to be inter-State, the next question will be where is its situs or which is the appropriate State to bring it to tax. That will take us to section 4(2). Where a sale or purchase occasions inter-State movement of goods, it may be comparatively easy to fix its situs. The situs of goods at the time when the contract of sale, which occasions the inter-State movement thereof, is made or at the time of appropriation of the goods, if they are unascertained or future goods, is made to the contract of sale by the seller or buyer, will be the situs of the sale or purchase and. therefore, the State in which such situs is situate will be the appropriate State entitled to bring the transaction to tax. The assent to appropriation may be prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) has the effect of being a proviso to section 4(2) and treating such sale or purchase as sale or purchase inside the State from which the goods moved. As to second and subsequent sales or purchases of goods by transfer of documents of title to the goods during their inter-State movement, there appears to be no material in section 4(2) to fix their situs. But it is suggested that the ultimate place of destination of the goods should be deemed to be the situs. Cheshire in his Private International Law (Seventh Edition) says that the transfer of movables while they are in the course of transit raises a difficult question of choice of law and proceeds at page 418: "Suppose for instance, that a parcel of goods has been dispatched overland from London to Bucharest, and that before reaching its destination it has been the subject of a sale or some other commercial transaction. The problems that such circumstances raise become more complex if the parties have different domiciles, or if the transaction is effected in some country other than Rumania or England." Then the author examines: "What law should be applied In such a case..." After stating that the other theories may not be apt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66, T.C. Nos. 99, 145, 248, 284 of 1964, W.P. Nos. 2441 to 2444 of 1965 are cases of imports Into India of either foreign cotton or machinery fabricated abroad for a specific purpose on the strength of actual users' Import licences. The petitioner in W.P. No. 739 of 1966 is the Buckingham Carnatic Company Ltd., Madras, where a large variety of cotton textile goods are manufactured. For the purpose of its manufacturing activities of the mills, the petitioner purchases large quantities of cotton produced In States other than the State of Madras in the course of inter-State trade and also in countries outside India in the course of import. Cotton is one of the items of goods declared under section 14 of the Central Sales Tax Act to be of special importance in inter-State trade and commerce. Under the provisions of the Madras General Sales Tax Act, the last purchase of cotton within the State attracts tax. For the year 1964-65 the petitioner claimed that a turnover of Rs. 2,32,67,093.64 related to purchases made in the course of interState trade from dealers in the States outside the State of Madras, that the turnover of Rs. 89,77,224.23 represented purchases in the course of import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the contracts between the petitioner and the Bombay parties. The actual users' import licence was part of the contract and import was not merely in the contemplation of the parties but was provided for as a term of the contract. The fact that the documents of title were transferred while the goods were still on the high seas in favour of the petitioner and the latter cleared the goods at the Madras port would make no difference to the fact that the contract between the petitioner and the Bombay parties occasioned the import. The second category of transactions is, therefore, exempt from tax both under the Central Sales Tax Act and under the Madras General Sales Tax Act. The purchases included in the second category of turnover were not purchases made inside the State of Madras to attract local sales tax. The assessment order in relation to the second category of turnover is hereby quashed. It is said that an appeal against the assessment order is pending. The assessment order in respect of the first category of turnover is also quashed but with a direction to the appellate authority before whom the appeal is pending to examine the transactions in the light of our judgment and see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cotton in their own names, cleared the goods in Madras ports and gave delivery at the assessee's mills do not in any way detract from the character of the purchases as in the course of import. The ratio of Khosla Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes[1966] 17 S.T.C. 473. governs these cases too and accordingly T.C. No. 99 of 1964 is allowed and T.C. No. 145 of 1964 is dismissed with costs in each. Counsel's fees Rs. 100 in each of them. T.C. No. 248 and T.C. No. 284 of 1964 also involve transactions of the same type in which foreign cotton was imported against actual users' import licences obtained by the assessees. The contracts provided for the import of cotton and occasioned the import. That there was no privity of contract between the assessees and the foreign exporter, that the terms of delivery were f.o.r. at the premises of the mills and that the payment of balance of price was to be made after weighment of cotton can make no difference to the character of the transactions. Tax Cases Nos. 248 and 284 of 1964 are allowed with costs in each, counsel's fees Rs. 100. In W.P. Nos. 2443 and 2444 of 1965 the assessees Larsen Toubro Ltd., Madras, were asked b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, Calcutta, marked for DGMT, N.L.C. Ltd. After the payment, the documents were transferred by endorsement in favour of Neyveli Lignite Corporation by Johnston Pumps India Ltd. when the goods were on the high seas and the Neyveli Lignite Corporation endorsed these documents in favour of the assessees for the limited purpose of clearing the goods as is claimed by the assessees. According to the assessees, no title to the goods was to pass to them under the endorsement. An examination of the relative contracts makes it manifest that they had clearly provided for the import of foreign machinery which, as we said, was to be supplied to the Neyveli Lignite Corporation and the goods were imported under the actual users' import licences obtained by the Neyveli Lignite Corporation. The terms of the licence were reflected in the contracts. These contracts have clearly occasioned the import of the foreign fabricated machinery into India. These goods also will be governed by Khosla Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes[1966] 17 S.T.C. 473. W.P. Nos. 2443 and 2444 of 1965 are allowed with costs one set, counsel's fees Rs. 100. W.P. Nos. 2441 and 2442 of 1965 relate to levy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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