# A. K. Sen and A v. Rangam, for the

- **Citation:** [1970] 1 S.C.R. 572
- **Court:** Supreme Court of India
- **Decided:** 1970
- **Case number:** CIVIL APPELLATE JURJSDICTION ; Civil Appeals Nos. 1462 to 1465 of 1967
- **Bench:** M. Hidayatullah, J. M. Shf.Lat, C. A. VAIDIALil>'GAM, B K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-k-sen-and-a-v-rangam-for-the-4664
- **Pages:** 7

## Headnote

Central Sales Tax Act
(74 of 1956) s. 5(2)-Customs Frontiers,
nieaning of.
The assesscc entered into contr~cts for ~ale of timber to be imported
from Burma, to buyers, in the State of Madras.
After the ships carrying
the goods arrived in the Madras harbour in the State of Madras, the sales
were effected by the asscssee hy tfansfcrring the documents of title to the
buyers.
On the question, \\'hether the sales took place before the goods
crossed the customs frontiers of India and therefore were in the course
of import of the goods into the tcrritof) of India and were thus not liable
to sales-tax under Art. 286( I) of the Constitution,
HELD: Under s. 5(2) of the Central Sales Tax Act, 1956, a sale
or purchase shall be deemed to take place in the course of the import of
the goods into the territory of India, if the sale or purchase occasions such
import or is effected by a transfer of documents of title before the goods
crossed the cu.stonis frontiers of India.
By a notification issued under
s. JA of the Sr.:a Customs Act, 1878, the Central Government defined
'customs fron1icrs of India' as the boundadcs of the territory, including
lcrritonal ,., .. atcrs. of India; and the extent of territorial waters of India,
at the relevant time, v.·as declared by a Proclamation of the President of
India, dated :'vlarch 22, 1956, to be, a distance of six. nautical miles into
the sea measured from the appropriate base line. Therefore, in the present
case, the
s~1les by transfer of documents of title after the ships carrying
the goods arrived in the Madras ha'rbour, were effected after the goods
had crossed the customs frontiers of India, and hence, the claim of the
asses.sees that the sales v.·ere in the course of import and not liable to salestax should be rejected. [577 A-B, D-E, H; 578 A-CJ
CIVIL APPELLATE JURJSDICTION ; Civil Appeals Nos. 1462 to
1465 of 1967.
Appeals by special leave from the judgment and order dated
July 17. I 963 of the Madras High Court in Tax Cases Nos: 19,
47. 132 and 160 of 1961 (Revision Nos. 16. 28, 81 and 98 of
1961).
A. K. Sen and A. V. Rangam, for the appellant.
R. Thiagarajan, for th~ respondents (in C.A. No. 1464/1967).
K. Jayaram, for the respondmts (in C.A. No. 1465.11967).

## Text

STATE OF MADRAS
A
V,
DAVAR AND COMPANY ETC.
Ma,v 20, 1969
[M. HIDAYATULLAH, C.J., J. M. SHF.LAT, C. A. VAIDIALil>'GAM,
B
K. S. HEGDE AND A. N. GROVER, JJ.J
Central Sales Tax Act
(74 of 1956) s. 5(2)-Customs Frontiers,
nieaning of.
The assesscc entered into contr~cts for ~ale of timber to be imported
from Burma, to buyers, in the State of Madras.
After the ships carrying
the goods arrived in the Madras harbour in the State of Madras, the sales
were effected by the asscssee hy tfansfcrring the documents of title to the
buyers.
On the question, \\'hether the sales took place before the goods
crossed the customs frontiers of India and therefore were in the course
of import of the goods into the tcrritof) of India and were thus not liable
to sales-tax under Art. 286( I) of the Constitution,
HELD: Under s. 5(2) of the Central Sales Tax Act, 1956, a sale
or purchase shall be deemed to take place in the course of the import of
the goods into the territory of India, if the sale or purchase occasions such
import or is effected by a transfer of documents of title before the goods
crossed the cu.stonis frontiers of India.
By a notification issued under
s. JA of the Sr.:a Customs Act, 1878, the Central Government defined
'customs fron1icrs of India' as the boundadcs of the territory, including
lcrritonal ,., .. atcrs. of India; and the extent of territorial waters of India,
at the relevant time, v.·as declared by a Proclamation of the President of
India, dated :'vlarch 22, 1956, to be, a distance of six. nautical miles into
the sea measured from the appropriate base line. Therefore, in the present
case, the
s~1les by transfer of documents of title after the ships carrying
the goods arrived in the Madras ha'rbour, were effected after the goods
had crossed the customs frontiers of India, and hence, the claim of the
asses.sees that the sales v.·ere in the course of import and not liable to salestax should be rejected. [577 A-B, D-E, H; 578 A-CJ
CIVIL APPELLATE JURJSDICTION ; Civil Appeals Nos. 1462 to
1465 of 1967.
Appeals by special leave from the judgment and order dated
July 17. I 963 of the Madras High Court in Tax Cases Nos: 19,
47. 132 and 160 of 1961 (Revision Nos. 16. 28, 81 and 98 of
1961).
A. K. Sen and A. V. Rangam, for the appellant.
R. Thiagarajan, for th~ respondents (in C.A. No. 1464/1967).
K. Jayaram, for the respondmts (in C.A. No. 1465.11967).
The Judgment of the Court was delivered by
\'aidialingam, J.
Th~sc appeal>, by special leave,
hy
the
Stale of Madras, are directed against the c.Jmm0n j:.:Jgmcnt dated
J~:y 17, 1963 of Ihc ~!~dras Hi~h Coun.
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MADRAS v. DAVAR & CO, (Va1dialingam, J.)
573
A
The short question, that arises for consideration in these
appeals, is as to whether the turnover, which was the subject of
consideration by the High Court, was liable for sales-tax, under
the Madras General Sales Tax Act, 1959 (I of 1959) (hereinafter called the Madras Act).
The assessees claimed that the
turnover in question represented sales in the course of import and,
B as such, not liable to tax under the Madras Act. The State of
Madras claimed that in all these cases the sale had been effected
by a transfer of documents of title to the respective buyers after
the ships had crossed the. territorial waters and hence they were
liable to tax under the Madras Act. The contention of the
assessees was negatived by the Assistant Commercial Tax Officer,
C as also by the Appellate Assistant Commissioner of Commercial
Taxes.
But, on further appeal by the assessees, the Sales Tax
Appellate Tribunal accepted their contention and held that _the
dispnted turnovers were not liable to tax under the Madras Act.
The revisions filed by the State against the orders of the Sales
Tax Appellate Tribunal were dismissed by the High Court. Hence
D these appeals.
Thongh each of the respondents in these appeals is an importer of a different CO!pmOdity, the pattern adopted by each
of them in the matter of importing the goods concerned from
foreign countries and in t)le matter of transferring title to the resE pective buyers, is more or Jess the same.
We shall, therefore,
re.fer only to the facts relating to the dealings adopted by Davar
and Company (hereinafter called the assessee), the respondent
in Civil Appeal No. 1462 of 1967.
The assessee was ass~ssed by the Assistant Commercial Tax
Officer, South Madras and Chingleput, under the Madras Act on
F
a turnover of Rs. 6,60,200.07 for the year 1957-58.
It was
carrying on business in timber at Madras and in the course of its
'.Jusiness the assessee imported timber from Burma and sold it to
its customers in India. Out of the turnover above-mentioned. the
assessee disputed its liability to the extent of a tur,1ovcr of
Rs. 1,95,490.67 on the ground that the said amount represented
G
sales in the course of import and that such sales were not liable
to tax as they were cove~ed by Art. 286( 1) (b) of the Constitution. This claim was based on the following circumstances. ·The
respondent-assessee entered into contracts for sale of timber with
a firm of merchants called Velu and Brothers (hereinafter called
the buyers). The timberjwas to be imported from Burma. Under
H the contract the buyers were to pay the assessee 8% profit on the
C.LF. value of timber sold and also the sales tax and· oiher charges
and expenses. The buyers were to retire the shipping documents
at least 10 days before the expected arrival of the steamer
574
SUPREME COURT REPORTS
[ 1970] 1 S.C.R.
carrying the timber.
The assessce imported two consignments of
timber from Rangoon.
The value of the first consignment was
Rs. 99,098.05.
The ship carrying the consignment arrived at
the Madras Harbour on October 17, 1957. The asscssee got
Rs. 1,00,000 from the buyers on October 24, 1957 and retired
the documents of title from the bank and handed over the said
documents on the same date to the buyers to enable them to clear
the goods.
All charges and expenses by way of import duty,
clearance charges etc., were paid by the buyers on behalf of the
assessee.
A second consignment reached Madras by ship on
December 17, 1957. The assessee obtained from the buyers, on
December 23, 1957 the value of this consignment after handing
over to the buyers the necessary shipping documents.
On these facts both the Commercial Tax Officer as well as
the Appellate Assistant Commissioner came to the conclusion
that the sales effected by the assessee to the buyers were not sales
in the course of import, but were local sales liable to tax under
the Madras Act.
The Sales Tax Appellate Tribunal, on the
other hand, held to the contrary.
The High Court has
concurred with the view of the Appellate Tribunal.
According to the Assistant Commercial Tax Officer and
the
Appellate Assistant Commissioner the sale was effected by
the
assessee to the buyer after the consignment of timber had come
into the Madras Port and in consequence there was no intention to
transfer the property in the goods to the buyers before they were
cleared from the customs frontier and hence the sales could not be
considered to be sales in the course of import. The Appelli;tr 'fribunal took the view that the sale by the assessee to the buyers had
been effected by transferring the documents of title relating to the
goods, before the goods crossed the customs barrier and before the
import became complete.
Therefore, according to the Tribunal,
the sales should be treated as being in the course of import and,
in consequence, not liable for tax under the Madras Act.
On the facts stated above, the parties were not in dispute; but,
before the High Court, the State raised the contention that the
sales in question were not sales in the course of import as
the
documents of title were handed over by the assessee to the buyers
after the ship had crossed the 'territorial waters'.
According to
the State, the expression 'customs frontier', occurring in s. 5 (2) of
the Central Sales Tax Act, 1956 (LXXIV of 1956) (hereinafter
called the Central Act) is cotenninous with the extent of the territorial waters of India, as fixed by the Proclamation, dated March
22, 1956 issued by the President of India.
That is, according to
the State, the import is complete when the ship carrying the goods
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MADRAS v. DAVAR & co. (Vaidialingam, J.)
575
from a foreign port enters the territorial waters and any sale by
the importer, by transfer of documents of title to the goods subsequent to such entry will not amount to a sale in the course of
import.
According to the assessee, 'customs frontier' in s. 5(2)
of the Central Act, must be treated as analogous to 'customs
barrier' and, so read, the position would be that a sale effected
by transfer of documents of title before the
goods
cross
the
'customs barrier' would not be liable to tax under the Madras Act.
The High Court has, after a reference to various decisions of
this Court as to when a sale can be considered to be in the course
of import or export, held that the 'customs frontier' as laid down
by this Court does not mean any geographical features like land
or coast or limits of territorial waters, but only the operation of
the machinery of the Customs Department consisting of lery and
collection of duty and clearance of the goods.
The High Court
further held that it would be proper to construe the words 'customs
frontiers' as 'cnstoms barriers' in the Central Act.
In this view
the High Court held that as the sale h«d been effected by transfer
of title to the goods before they entered the customs barrier, the
sale was not liable to .tax under the Madras Act.
On behalf of the appellant-State, Mr. A. K. Sen,
learned
counsel, urged that the view of the Madras High Court construing
the woras 'customs frontiers' as 'customs barriers' in the Central
Act was erroneous.· According to the learned counsel, on the
admitted facts the sales in all these cases had been effected by
transfer of the documents of title Jong after the sales had ceased
to be in the course of import.
This contention, on behalf of the
State, was resisted by Mr. Thiagarajan and Mr. K. Jaya Ram,
appearing for the respondent in Civil Appeals Nos.
1464 and
1465 of 1967, respectively.
We are of the view that the judgment of the Madras High
Court cannot be sustained and the expression 'customs frontfers'
in s. 5 of the Central Act cannot be construed to mean 'customs
barriers'. Article 286(1) places a ban on the State imposini; or
authorising the imposition of a tax on the sale or purchase of goods
where such sale or purchase takes place outside the State or in
the course of import of goods into or export of goods out of the
territory of ~ndia. Clause (2) of Art. 286 gives power to the
Parliament, by law, to formulate principles for determining when
a sale or purchase of goods takes place in any of the ways mentioned in clause ( 1). Accordingly Parliament has enacted the
Central Act.
Section 5 of that Act lays down the conditions under
which a sale or purchase of goods can be said to take place in
the course of import or export.
Sub-sections (1) and (2) deal
576
SUPREME COURT REPORTS
(1970] 1 s.c.R.
with sale or purchase of goods in the course of export and sale
or purchase of goods in the course of import, respectively.
As we
are concerned with a sale i:: the course of import, the relevant
provision is sub-s. (2) of s. 5, '\\'hich is as follows :
"5 (2) A sale or purchase of goods shall be deemed
to take place in the course of the import of the goods
into the territory of India only if the sale or purchase
either occasions such import or is effected by a transfer
of documents of title to the goods before the goods have
crossed the customs frontiers of India."
In this case, the claim made by the assessee for exemption
from tax liability is on the ground that the sale was effected by
transfer to the buyer of documents of title to the goods.
Under
s. 5(2) of the Central Act, in order to treat the sale as one in·
the course of import, the documents of title
must have been
trnnsferred before the goods have crossed the customs frontiers
of India.
The question is what does the
expression 'customs
frontiers' of India, in s. 5 of the Central Act, mean? To answer
this question, it is necessary to refer to
certain
Proclamations
made by the President of India and Notifications issued by the
Central Government under s. 3-A of the Sea Custom:; Act, ! 878
(VIII of 1878) (hereinafter cail~d the Act).
The President of India has issued
a
Proclamation, dated
March 22, 1956 and that contains a declaration as to the extent
of the territorial waters of India.
That Proclamation has bCca
published with the notification of the Government of India in lile
Ministry of External Affairs, No. S.R.O. 669, dated March '.22,
1956 and is :.s follows :
"S.R.O. 669.-The following proclamation by the
President is published for general information :
PROCLAMATION
"WHEREAS international law has always recogc
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nised that sovereignty of a state extends to a belt of sea
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adjacent to its coast;
AND WHEREAS international practice is not uniform as regards the extent of this sea·belt commonly
known as the territorial waters of the State, and consequently it is necessary to make a declaration as to the
extent of the territorial waters of India:
B
I, Rajendra Prasad, President
of Jndia, .in
the
Seventh Year of the Republic. do hereby proclaim that,
MADRAS v. DAVAR & -ct>. --(Vaidialingam, J.)
577
A
notwithstanding any rule of law or practice to the contrary which may have been observed in the past _in
relation to India or any part thereof, the terntonal
waters of India extend into the sea to a distance of six
nautical miles measured from the appropriate base line."
B
RAJENDRA PRASAD,
President."
c
On September 30, 1967 another Proclamation was issued by the·
President of India and published with the notification of the Government of India in the Ministry of External Affairs, No. F.L/
111(1)/67, dated September 30, 1967.
By this Proclamation
the earlier Proclamation of March 22, 1956 has been superseded
and the territorial waters of India have been declared to extend
into the sea to a distance of twelve nautical miles measured from
the appropriate base line.
But in the present appeals, we are
concerned only with the earlier Proclamation dated March 22,
1956.
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Section 3-A of the Act gives power to the Central Government, to define, by notification in the Official Gazette, the 'customs
frontiers' of India.
By virtue of the powers conferred by this.
section, the Central Government (Ministry of Finance, Revenue
Division) had issued a notification, No. 25-Customs, dated April 1,
1950, defining the 'customs frontiers' of India; but it is not necessary to consider the definition contained in this notification, as it
has been superseded by the issue of a fresh Notification, No. S.R.O.
1683 dated August 6, 1955.
The latter notification, issued by the·
Ministry of Finance (Revenue Division), Customs, which is relevant for the present purpose, is as follows :
"
New Delhi, the 6th Aug. 1955
S.R.O. 1633.-ln exercise of the powers conferred
by section 3-A of the Sea Customs Act, 1878 (VIII of
1878), and in supersession of the notification of the
Government of India in the Ministry of Finance
(Revenue Division) No. 25-Customs, dated
the
1st
April 1950, the Central Gcnernment hereby defines the
customs frontiers of India as the boundaries of the territory, including territorial waters, of India.
Sd/-
Jt. Secretary."
The expression 'customs frontiers of India' in s. 5 of the °Cen •.
tra1 Act, in our opinion, must be construed in accordance with the·
notification issued by the Central Government under s. 3-A of:·
578
St:PREME COURT REPORTS
[1970] 1 s.c.R.
the Act, on August 6, 1955 read with the Pr0clamation of the
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Prc:sidcnt of India dated March 22, 1956. So applying the definition of 'customs frontiers' it is clear that, in the instant case, the
s:ib were affected by transfer of documents of title long after the
goods had crossed the customs frontiers of India. We have already
str.tcd that the ship> carrying the goods in question were all in the
respective harbours within the State of Madras when the sales
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were aliected by the assessees by transfer of documents of title to
i'.1c buyers.
If so, it follows that the claim made by the 2ssessces
that the sales in question were s~les in the course of import, has
be~n rightly rcj~cted by the assessing authority.
Unfc•tunately.
thou~h various aspects seem to h:l\"e heen pres>ed befor~ the High
Court by the State of Madras. this notification of August 6. 1955
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is;ucd b·v the Government of India. defininc the 'cu£tom; fro:11iers
of India·. was not brought to the notice of" the High Cour:.
In the result, the common order, dated July 17, 1961 of the
Madras High Court is set aside and rhe appeals aiiowc;l.
In :he
circumstances of the case, there will be no order as to c~~,,_
V.P.S.
Appeals allowed.