# ANDY v. ClIANDRACHUD, JJ.J

- **Citation:** [1975] Supp. 1 S.C.R. 169
- **Court:** Supreme Court of India
- **Decided:** 1975-04-16
- **Case number:** Civil Appeals Nos. 697 to 706 B c of 1973
- **Bench:** A. N. Ray, C. J. Ff. R. KHANNA, K. K. Mathew, M. H. Be, ANDY. V. ClIANDRACHUD
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/andy-v-cliandrachud-jj-j-6457
- **Pages:** 33

## Headnote

Constitution-Article 286(1)-Section S of Central Sales Tax Act-Meaning
of in the course of export-Agency of necessity-F.O.B. Contract.
B
J
The appellants entered into two contracts with the State Trading CorporaC
tion. The S.T.C. entered into identical contracts with the foreign buyers for
sale of the identical goods purchased by the S.T.C. from the appellant.
The
clauses as to shipment, sampling, analysis, weigbment, payment are identical in
both the contracts.
There is a special clause in each one of the contracts
#
providing that if the corresponding contract of S.T.C. with the foreign buyer
shall stand cancelled for any reason, the contract of the S.T.C. with the appelh1nt will also stand cancelled.
Likewise, there is a special clause in the contract between the S.T.C. and the foreign buyer that if for any reason the
D
contract between S.T.C. and. the appellant stands cancelled the contract between
S.T.C. and the foreign buyer will stand cancelled. The letter of credit opened
by the foreign buyer was to be endorsed in favour of the appellant.
The
prices mentioned in both the contracts are the same with a difference of one
dollar per ton.
The appellants contended that the contracts were in the course of export
and, thr.refore, not taxable. The High Court came to the conclusion that the
E
saJe by the appellants to the S.T.C. was not in the course of 1export' and
was
theTefore, exigible to tax under the Central Sales Tax Act.
In appeal the appellants contended before this Court:
1. The contract between the appellant
and the S.T.C. is inextricably
bound up with the export. The sale between the appellant and the
S.T.C. and the export by Corporation to foreign buyer constituted
F
one integrated transaction.
2. The S.T.C. has been interposed by the Statute between the appellant
and the foreign buyer for a limited purpose. The inextricable link
is not broken by the S.T.C.
The S.T.C. could not have diverted
the goods to a buyer in India without violating Export and Imuort
Control Order.
3. The ~ontract betwee~ the appellant and the S.T.C. being on f.o.b.
basis the P.roperty in the goods passed only on shipment when the
G
goo~s are in the stream of export. There is no sale in the taxable
terntory.
4. Eve:r;i if it. is held that, the appellant did not have any contract with
th~ .foreurn buyer and that the privity is essential the rigid rule of
prn:1ty of contrast .should be relaxed in consideration of equity and
J usttce and a reahshc approach should be adopted.
The respondent contended that the sale by the appellant to the S T C
H
a sale for export but not a sale in the course of export.
·
·
· was
There can be only one sa1e in .the course of exp-0rt.
HELD by C. J. (for himself and Mathew, Beg, Chandrachud, JJ).
the
1
iesi
0
o~~~ngrs!nJr~h~~cf ~~e~ci~Y:r~e, f~~r~0!~:c~o~i~f: dhd_ctly ~:een
the Indian seller and the foreign buyer.
[17SH]
rme iary .
een
,-
170
A
B
c
D
E
F
G
SUPREME COURT REPORTS
[1975] SUPP. S.C.R.
2. In the Coffee Board case this Court held that the introduction of an int~r
mediary between the seller and the importing buyer breaks the link. This Court
has held that there must be a single sale which itself causes the exoort and
there is no room for two or more sales in the course of export.
[173FG&H]
3. The contention that the contract between the appellunt and the s:r.c.
anci the contract between the S.T.C. and the foreign' buyer formed integrated
activities in the course of export is unsound. The crucial words in section 5 of the
Central Sales Tax Act are that a sale or purchase of ·goods shall be deemed to
take place in the course of the export of the goods only if the sale or purchase
occasions such export. There are two separate and independent contract"S of sale
one between the appellant and the S.T.C. and th~ other between the S.T.C. and
the foreign buyers within the meaning of ruling in the Coffee Board case and the
Benam Brother's case. (!80FGH]
4. The word ''occasion" in section S means the immediate and dir

## Text

_Characters 0–39,920 of 102,159. This is a partial read: ask again with offset=39920 for what follows._

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169
MOHD. SERAJUDDIN ETC.
A
1'.
STATE OF ORISSA
April 16, 1975
[A. N. RAY, C. J. Ff. R. KHANNA, K. K. MATHEW, M. H. BE&
ANDY. V. ClIANDRACHUD, JJ.J
Constitution-Article 286(1)-Section S of Central Sales Tax Act-Meaning
of in the course of export-Agency of necessity-F.O.B. Contract.
B
J
The appellants entered into two contracts with the State Trading CorporaC
tion. The S.T.C. entered into identical contracts with the foreign buyers for
sale of the identical goods purchased by the S.T.C. from the appellant.
The
clauses as to shipment, sampling, analysis, weigbment, payment are identical in
both the contracts.
There is a special clause in each one of the contracts
#
providing that if the corresponding contract of S.T.C. with the foreign buyer
shall stand cancelled for any reason, the contract of the S.T.C. with the appelh1nt will also stand cancelled.
Likewise, there is a special clause in the contract between the S.T.C. and the foreign buyer that if for any reason the
D
contract between S.T.C. and. the appellant stands cancelled the contract between
S.T.C. and the foreign buyer will stand cancelled. The letter of credit opened
by the foreign buyer was to be endorsed in favour of the appellant.
The
prices mentioned in both the contracts are the same with a difference of one
dollar per ton.
The appellants contended that the contracts were in the course of export
and, thr.refore, not taxable. The High Court came to the conclusion that the
E
saJe by the appellants to the S.T.C. was not in the course of 1export' and
was
theTefore, exigible to tax under the Central Sales Tax Act.
In appeal the appellants contended before this Court:
1. The contract between the appellant
and the S.T.C. is inextricably
bound up with the export. The sale between the appellant and the
S.T.C. and the export by Corporation to foreign buyer constituted
F
one integrated transaction.
2. The S.T.C. has been interposed by the Statute between the appellant
and the foreign buyer for a limited purpose. The inextricable link
is not broken by the S.T.C.
The S.T.C. could not have diverted
the goods to a buyer in India without violating Export and Imuort
Control Order.
3. The ~ontract betwee~ the appellant and the S.T.C. being on f.o.b.
basis the P.roperty in the goods passed only on shipment when the
G
goo~s are in the stream of export. There is no sale in the taxable
terntory.
4. Eve:r;i if it. is held that, the appellant did not have any contract with
th~ .foreurn buyer and that the privity is essential the rigid rule of
prn:1ty of contrast .should be relaxed in consideration of equity and
J usttce and a reahshc approach should be adopted.
The respondent contended that the sale by the appellant to the S T C
H
a sale for export but not a sale in the course of export.
·
·
· was
There can be only one sa1e in .the course of exp-0rt.
HELD by C. J. (for himself and Mathew, Beg, Chandrachud, JJ).
the
1
iesi
0
o~~~ngrs!nJr~h~~cf ~~e~ci~Y:r~e, f~~r~0!~:c~o~i~f: dhd_ctly ~:een
the Indian seller and the foreign buyer.
[17SH]
rme iary .
een
,-
170
A
B
c
D
E
F
G
SUPREME COURT REPORTS
[1975] SUPP. S.C.R.
2. In the Coffee Board case this Court held that the introduction of an int~r
mediary between the seller and the importing buyer breaks the link. This Court
has held that there must be a single sale which itself causes the exoort and
there is no room for two or more sales in the course of export.
[173FG&H]
3. The contention that the contract between the appellunt and the s:r.c.
anci the contract between the S.T.C. and the foreign' buyer formed integrated
activities in the course of export is unsound. The crucial words in section 5 of the
Central Sales Tax Act are that a sale or purchase of ·goods shall be deemed to
take place in the course of the export of the goods only if the sale or purchase
occasions such export. There are two separate and independent contract"S of sale
one between the appellant and the S.T.C. and th~ other between the S.T.C. and
the foreign buyers within the meaning of ruling in the Coffee Board case and the
Benam Brother's case. (!80FGH]
4. The word ''occasion" in section S means the immediate and direct cause.
(181BJ
S. The appellant was under no contractual obligation to the foreign buyer
either directly or indirectly. The rights of the appellant were against the S.T.C.
Similarly, obligations of the appellant were to the S.T.C.
The price was dif~
ferent in the two contracts.
This difference also dissociates the two contracts
from each other. [181EFH]
,6. The S.T.C. is not an agent of necessity. The agency of necessity arises
where the person authorised to act as an agent for another without any regard
to the consent of the principal, act in cerfs,,in circumstances and the law creates
an agency of necessity, e.g., a wife becomes· an agent of necessity.
In the
present case, there is no principal and agent relationship between the appellant
and the S.T.C. The relationship is between the two principals. [182CDE1
7. In the present case mention of f.o.b. price in contracts between the .appel~
Iant ancl the S.T.C. does not render the contracts with
the foreign buyers
f.o.b. The S.T.C. entered into independent contracts with the foreign buyers on
f.o.b. basis.
The appellants were required under the contracts between the
appellant and the S.T.C. to bring the goods to the ship named by the S.T.C.
The shipment of the goods by the S.T.C. to the foreign buyer is the f.o.b.
contract to which the appellants are not the parties. [184DE1
8. The fact that the export can be made only through the S.T.C. does not
have the effect of making the appellants the exporters where there is direct
contract between the Corporation and the foreign buyer.
[185A]
Dismissing the appeals held. that sale was not in the course of exoort
and was exigible to the Central Sales Tax. [185Cl
(Per Khanna, J. dissenting)
Allowing the Appeals, Held :
(a) It was laid down in the Travancore Cochin case that a sale in the c_o1:1~e
of export predicates action between . the sale and the export, the two achvtt!es
being so integrated that the connection between the two cann9t be ~~luntanly
H interrupted witholJt a breach of the Cf)ntract or .the ~ompuls1on aTis1ng from
the nature of the transaction. Th"'re must be an 1ntent1on on the part of both
the buyer and seller to export, there must be an obligation to export and there
must be an actual expert.
[190BC1
(b) The sale of mineral ores for export was canalised through S.T.C. in
ursuancc of an order made under the Imports and Exports Control. ~ct, 19~7.
~ection 3 of that Act empowered the Central Government to proh1b1t, restnct
..
MD. SERAJUDOIN v. ORISSA (Ray, C.J.)
171
or otherwise control imports or expo1ts. Under the powers conferred by tha:
A
section the Central Government issued the Exports Control Order, 1958. Clause
3 of that Order provided that no person shall export any goods o~ the description specified in Schedule I except under and
in accO'rdance with a hcence
granted by- the Central Gov~rnment. Chrome Ore and Concentrates were specified in the first Schedule.
[193ABC]
(c) The agreement between the appellanr and S.T.C. incorporated .the terms
and conditions which were settled between the appellant .and the foreign buyer.
B
It was agreed that the contract between the appellant and the S.T.C. would
be deemed cancelled if for any reason the foreign buyer cancelled the corresponding purchase contracf of the S.T.C. The agreement between the •Pl>'Ilant
and S.T.C. clearly contemplated the export of Chrome Concentrates. The name
of the 'ship on which the Chrome Concentrates were to be loaded for the purpose of QX.port was also given in the agreement.
The
price to be paid by
S.T .c. to the appellant was fixed in terms of do1lars mainly because the price
to be charged from the foreign buyer was fixed in terms of
dollars.
The
C
amount that the S.T.C. was to get in the course of this transaction was 1 Dollar
per ton. The appellant was to get 90 per cent against shipping documents and
the remaining 10 per cent after destinational weight and analysis.
[193EH]
(d) The export of the Chrome Concentrates \Vas occasioned by one transac-
• .
tion.
The parties· to that transaction \Vere the appelJant, the S.T.C. and the
foreign buyer.
The S.T.C. was brought into the picture as an intermediary
D
because of the legal requirement according to which the export of Chrome
Concentrates was to be cancelled through S.T.C. The agreements were part
of one integrated transaction which resulted in the export of the g00ds.
The
interconnection between the agreement was so intimate
that one agreement
could not stand without the other.
It was accordingly provided that the cance11ation of one agreement automatically resulted in the cancelJation of the
other agreement.
[194A to CJ
E
(e) The observations of the Coffee Board's case that there was no room for 2
or more sales in the course of export were made in the context of 2 indepen-
<1ent sales. Those observations could not be invoked in the sale like the present
where two sales are so interconnected as to be part of one integrated transaction.
In the Coffee Board's case, itself, the discussion about the abserlce of connection between the two sales would have been unnecessary if there was intention
to lay down an absolute rule that once there are tWo contracts the court need
not look to other circumstances.
The Coffee Board's case which was decided
F
by a C!Jnstitut.i~n Bench cou'~ n~Jt set at naught the rule laid down in a series
of earher -dec1s1ons by Constitution Benches and in fact it did not do so.
[194F, !95BC1
(f) The S.T.C. could not have diverted the gooqs supplied by the appellant
for a purpose other than the export to the foreign buyer.
[196F]
(g) The positioi:i of S.T.C. was not of a purchaser in the ordinary sense.
S.T.C. was nc:i-t en~1tled to get profits and was not liable to bear losses resulting
G
from fluct.uat1ons ~n the market rate.
The S.T.C. came into the picture ns a
statutor~ 1ptennechary and all that the S.T.C. was entitled in the bargain w
a corμm15s1on of 1 DoJJar.
[196G & 197 A&Cl
as
~h) In hl-[hosla's case there were h~·o contracts. Despite the existence of two
con acts t ts Court held that the contract in question was exem t fro
ment of tax, as being in the course of import.
[198A. D&EJ
P
m payte~~. Tr19smtract of sale between the appellant and S.T.C. was on F.O.B.
H
ORDER
In accordance with the judgment of the
·
missed~
maJority the appeaJs were di.88
r
172
SUPREME COURT REPORTS
[1975) SUPP. s.c.R.
A
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 697 to 706
B
c
of 1973 and 2063 to 2082 of 1974.
Appeals by Special Leave from the Judgment & Order dated. the
17th September, 1973 of the Orissa High Court in S. J.C. Nos. 25 to
44 of 1971.
Govind Das, P. H. Parekh, and Mrs. S. Bhandare, for the appellants
(in C.As. Nos. 697-706/73)
B. Sen, 0. C. Mathur and D. N. Mishra, for the appellants (In
C.As. 2063-2082/74)
G. L. Sanghi and Bishamber Lal, for intervener, (Misri Lal Jam)
F. S. Nariman, Additional Solicitor General of India, V. S. Desai,
P. H. Parekh, Mrs. S. Bhandare and Manju J~tley, for the applicant/
Intervener (M. M. T. C.)
D
S. T. Desai, M. C. Bhandare and B. Parthasarthy for the respondents (In all the app~ls) ,
The Judgment of the Court was delivered by Ray, C. J. H. R.
Khanna, J. gave a dissenting Opinion.
E
RAY, C. J.-These ;i,ppeals by special leave raise the question whether the agreements between the appellants and the State Trading Corporation (hereinafter referred to as the Corporation) were in course
of export, and therefore, immune from liability to the Central Sales
Tax Act.
F
G
H
The appellant entered into fonr contracts for sale of mineral
ore. Two of these contracts were with the foreign buyer M/s Associated Metal and Minerals Corporation, New York. The. other two contracts were with the State Trading Corporation. It is common ground
that the Corporation entered into contracts with foreign buyers for sale
of the identical goods purchased by the Corporation from the appellant.
The present appeal relates to the two contracts between the appellant and the Corporation. The High Court came to the conclusion that
the appellant's two contracts with the Corporation are exigible to tax
under the Central Sales Tax Act, 1956.
Section 5(1) 0£ the Central Sales Tax Act, 1956 hereinafter referred to as the Act contains the following relevant provision :-
"A sale or purchase of goods shall be deemed to take place
in the course of the export of the goods out of the territory
of India only if the sale or purchase either occasions such
export or is effected by a transfer of documents of title
to the goods after the goods have crossed the customs
frontiers of India".
-
•
..
MD. SERAJUDDIN v. ORISSA (Ray, C.J.)
173
Counsel for the appellant contended as follows. The contract in
each case between the appe!lant and the Corporation is inextricably
bound up with the export. The sale between the appellant and the
Corporation and the export by the Corporation to foreign buyer constituted one integrated transaction. Second, the Corporation has been
interposed by the statute for a limited purpose between the appellant
and the foreign buyer. Export cannot be made except by the Corporation. The inextricable link is not broken by the .Corporation. The
Coporation could not have diverted the goods to a buyer in India
without violating export and import control order. Therefore, the sale
is in the course of export. Third, the contract between the appellant
and the Corporation being on F.O.B. basis, the property in the goods
passed only on shipment when the goods are in the stream of export.
There is thus no sale in the taxable territory. Fourth, even if it is held
that the appellant did not have any contract with the foreign buyer
and that privily is essential the rigid rule of privily of contract should
be relaxed in consideration of equity and justice and a realistic approach should be adopted. The nature of entering into contracts through
the channel of the Corporation raises in reality a presumption' of the
Corporation being an agent of the appellant in the integrated tran~
action.
Counsel on behalf of the appellant relied on some terms of contract
in support of the contention that the contract between the appellant
and the Corporation and the contract between the Corporation with
the foreign buyer formed one integrated transaction. The clauses in
the contract between the appellant and the Corporation relied upon by
the appellant are terms as to price, shipment, sampling, analysis, weighing, payment and a special clause. The price is expressed in U. S.
dollars per long ton, F.O.B. Ocean liner vessel, Calcutta: The term for
shipment is that the material will be ready in Calcutta har~ur for
shipment per steamer as Leneverett or Substitute schedule to load during December, 1960. The clause as to sampling and analysis is final
sampling and moisture determination will be made at the time of unloading at the port of discharge by Far East Superintendence Company
or U. S. Consultants and their certificate will be final and binding on
both buyer and seller. The clause as to weighing says that the final
weight~ as ascertained by Far East Superintendence Co. Ltd. or U. S.
Consultants at the port of discharge is final and binding on both
parties.
The terms as to payment are these. 90 per cent against shipping
d?Cume.nts as described in buyer corresponding sale contract. Buyer
w1~ assign the rele".ant foreign letter of credit whic;h is to be opened in
their name by theJr foreign buyer, Messrs.
Associated Metals and
?.!inerals Corporation, on receipt from the sellers of a Bank draft for
~ifference between buyers F.0.B. purchase value and F.O.B sale value,
I.e. $ 1.00 (Rs. 4.75) per try long ton for a Bank guarantee from a
Scheduled Bank guara:iteeing that sellers will pay buyers F.O.B. purchase v_alue as sh?wn m the cont:act and buyers F.O.B. sale value as
shown. m the forei,gn letter of credit and the buyers will endorse the bills
of ladmg and dehver the same to sellers to negotiate against the· above
B
c
E
F
G
H
174
SUPREME COURT REPORTS
[1975] SUPP. S.C.R.
A mentioned letter of credit. Balance after destinational weight and analysis on the basis of documents mentioned in the Corporation's corresponding sa,le contract with buyer. If the balance 10 per cent is insufficient to cover short fall in weight and analysis at destination or any
penalty imposed by the Corporation's foreign buyer the additional
B
c
D
E
F
amount shall be payable by sellers to buyers on demand.
The special clause relied on by the appellant is as follows :-
(i) Unless otherwise agreed upon, the sellers agree that the
contract shall be deemed as cancelled if for any reasons
whatsoever M/s Associated Metals and Minerals Corporation, cancel their corresponding purchase contract with
the buyers for supply of chrome ore.
(ii) The terms and conditions of the buyers corresponding sale
contract with M/s Associated Metals & Minerals Corporation will apply to this contract also except to the extent specified in this purchase contract.
(iii) A true copy of buyers sale contract with M/s Associated
Metals & Minerals Corporation is attached."
On behalf of the appellant it is said that the commodily could not
be exported directly by the appellant
in
view of the restrictions
imposed by law. The appellant entered into negotiations with foreign
purchasers and settled all the conditions of the contract. The Corporation, thereafter entered into an FOB contract with the appellant and
with the foreign buyer on identical terms. The Corporation is interested
only in the commission of one dollar per long ton from the appellant.
All necessary steps including payment of customs duty for the shipment and export have been done by the appellant. The contract betwen the appellant and the Corporation is on FOB basis and the property in goods passes only on shipment when the goods
are in the
course of export.
The appellant relied on the decisions in State of Travancore-Cochin
..
& Ors. v. The Bombay Co. Ltd. (1952) S.C.R. 1112 and State of
~
Travancore-Cochin & Ors., v. Shanmugha Cashew Nut Factory &
Ors. (1954) S.C.R. 53 in support of two propositions extracted from
G those decisions. First, a sale by export involves a series of integrated
activities commencing from the agreement of sale with a foreign buyer
and ending with the delivery of tbe goods to a common carrier for
transport out of the country by land or sea. Such a sale cannot be disoociated from the export without which it cannot be effectuated, and
the sale and resultant export from parts of a single transaction. Of these
two integrated activities which together constitute an export sale wbichH
ever first occurs can well be regarded as taking place in the course of
the other. Even in cases where the property in the goods passed to the
foreign buyers and the sales were thus completed within the State be- ·
fore the goods commenced their journey from the State, the sales must
be regarded as having taken place in the course of the export, and,
therefore, exempt under Article 286 (I) (b). Second, the word "course"
denotes movement from one point to another, and the expression "in
r-
I
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•
MD. SERAJUDDIN V. ORISSA (Ray, C.J.)
175
the course of" not only implies a period of time during wbich the moveA
ment is in progress but also postulates a connected relation. A sale
in the course of export out of the country should be understood .is
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.
The two Travancore-Cochin decisions relied on by the appellant
are on interpretation of the word "in the course of the export of the
goods out of the territory of India" occurring in Article 286(1) (b) of
the Constitution, Article 286 (1) states that no 111w of a State shall
impose or authorise the imposition of a tax on the sale or purchase
B
of goods where such sale or purchase takes place (a) outside the State
C
or (b) in the course of the import of the goods out of territory of
India. Prior to the Constitution Sixth Amendment Act, 1956 there
was an explanation for the purpose of sub-clause (a) of Article 286
( 1). There was no definition of the expression
"in the course of
import" or "in the course of export" before the Constitution Sixth
Amendment Act, 1956. By the Constitution Sixth Amendment Act,
0
1956 Parliament was given power to formulate principles for determining when a sale or purchase of goods takes place in any of the ways
mentioned in clause ( 1) of Article 286. Section 5 of the Central Sales
Tax Act has given a legislative meaning to the expression "m
the
course of export" and "in the course of import".
·
In the first Travancore-Cochin case (supra)
the respondents
claimed exemption from assessment in respect of sales affected by them
to foreign buyers on CIF or FOB terms on the ground that such sales
took place in the course of the export of the goods out of the territory
of India within the meaning of Article 286 ( 1) (b) of the Constitution.
This Court held that the sales which occasioned the export in each
case fell within the scope of the exemption under Article 286(1)(b).
These sales were found to be a series of integrated activities commencing
from the agreement of sale with the foreign buyer and ending with
the delivery of the goods to a common carrier for transport out of the
country by land or sea. The.se sales could not be dissociated from the
export without which these could not be effectuated. The sale and the
resultant export from parts of the single transaction. Any such integrated activities which together constitute an. export safo, whichever
occurs first, can well be regarded as taking in the course of the other.
On these reasoning this Court held in the first Travdncore-Cochin
case (supra) that assuming tha.t the sales to the foreign buyers were
complete within the State before the goods conmmenced their journey, .
the sales must nevertheless be regarded as having taken place in the
course of the export.
It is noticeable in the first Travarycore-Cochin case (supra) that the
contracts were directly between the respondents and their foreign
buyers. There was no intermediary between .the Indian seller and the
foreign buyer. The sale and the export become integrated in one
transaction.
E
F
G
H
,
176
SUPR!!ME COURT REPORTS
(1975] SUPP, S.C.R.
A
In the second Travancore-Cochin Ga,se (supra) the respondents
imported raw cashew nuts from aboard, and neighbouring districts in
the State of Madras. The respondents converted the same by certain
process into edible kernels and exported the kernels to foreign COUll·
tries.
The respondents claimed exemption Article 286(1)(b) in respect of purchase of cashew nuts. The three propositions laid down in
B the second Travancore Cochin case (supra) are these. First, sales by
export and purchases by import fall within the exemption under Article
286(1)(b). Second, purcases in the State by the exporter for
the
purpose of export as well as sales in the State by the. importer after
the goods have crossed the customs barrier are not within the exemp-
. lion. Third, sales in the State by the exporter or importer by transfer of
shipping documents while the goods are beyond the customs barrier
C are within the exemption, assuming that the State power of taxation
extends to such transactions.
The second Travancore-Cochin case (supra) was on the question
D whether two categories of sale or purchase would fall within the scope
of exemption under Article 286(1)(b). Th.e first category was the last
purchase of goods made by the exporter for the purpose of exporting
them tu implement orders already received from a foreign buyer or
expected to be received subsequently in the course of business and the
first sale by the importer to fulfil orders pursuant to which the goods
E were imported or orders expected to be received after the import. The
second category comprised of s11)es or purchases of goods effected within
the State by transfer of shipping documents while the goods are in the
course of transit. As to the first mentioned category this Court in the
second Travancore-Cochin case (supra) said that the exemption under
Article 286 ( 1) (b) was for sale or purchase of goods taking place in
the course of the import of the goods "into" or export of the goods
F "out of" the territory of India. The reference to the "goods" and to
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the "territory" of India make it clear that the words "export out of" and
~
'"import into" mean the exportation out of the country and importation
into the country respectively. The word "course" denotes movement
~
from one point to another and the expression "in the course" not only
,.
implies a period of time during which the movement is in progress,
G but postulates also a connected relation. On this, reasoning this Court
held that r, sale in the course of export means 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.
The purchase for the purpose of export was held in that decision not to
be connected or integrated activities.
H
In the second Travancore-Cochin case (supra) the import from
.Africa fell into two categories. The first consisted of purchases made
through intermediaries called the Bombay Party, who acted as agents
for the respondents charging commission. The Bombay Party arranged
for purchases on behalf of the respondents and obtained delivery of
the shipping documents on payment at Bombay. In the second category
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MD. SERAJUDDIN V. ORISSA (Ray C. ]. )
177
the Bombay Party indented the goods on their own account and sold
A
the goods as principals to the respondents and other customers. The
shipping documents were made out in the name of the Bombay Party
as consignees. This Court held that in respect of the purchases under
the first category the Bombay Party acted marely as agents of the respondents, and, therefore, there was privity between the respondent
and the African sellers. With regard to the second category the Bombay
B
Party were the purchasers and they sold the goods as principab to the
respondents and there was no privity between the respondents and the
African sellers.
The principal decisions of this Court
on the
interpretation of
section 5(1) of the Act are Bengorm Nilgiri Plantations Company CooC
noor & Ors. v. Sales Tax Officer Special Circle, Ernakulam & Ors.
fl 964] 7 S. C. R. 706, Coffee Board, Bangalore v. Joint Commercial
Tax Officer Madras (1970), 3 S. C. R.
147 and the recent decision in M/s. Binani Bros. (P) Ltd., v. Union of India & Ors. (1974)
1 S.C.C. 459.
In the Nilgiri Plantations Case (supra) the appellants were sellers
of tea and their purchasers were local agents of foreign buyers .. The
sales were by public auction. This Court held that a transaction of sale
which js a preliminary to export of the commodity sold may be regarD
ded as a sale for export, but is not necessarily to be regarded as one in
E
the course of export unless the sale occasions export. It was- said that
, to occasion export there must exists such a bona between the contract
of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it. Without such a bond a
transaction of sale cannot be called a sale in the course of export of
goods out of the territory of India. There may be a veriety of transF
actions if the sale of commodity is followed by export. Foreign purchasers may purchase through their agents within the territory of India.
Such a transaction is not in the course of export because the seller
deres not export the gooes and it is not his concern as to how the
purchaser deals with the goods. There may be also a transaction under
a contract of sale with a foreign buyer under which the goods may
under the contract be delivered by the seller to a common carrier for
G
transporting them to the purchaser. Such a sale may be dissociated
from the export. A sale in the course of export predicates a connection
between the sale and export. No single test can be laid as decisive for
determining that question. Each case must depend upon its facts. But
it does not mean that distinction between transactions which may be
called sales for export and sales in the course of export is not real.
Where the sale is effected by the seller and the seller is not connected
H
with the export which actually takes place, it is a sale for export. Where
the export is the result of sale, the export being inextricably linked up
with sale so that the bond cannot be dissociated without a breach of
the obligations arising by statute, COQtract, or mutual understanding
between the parties arising from the nature of the transaction the sale
is in the course of export. In the Nilgiri Plantations case (supra) this
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178
SUPREME COURT REPORTS (1975] SUPP, S.C.R.
A Court found that the sales by the appellants were intended to be complete. without the export and as such it could not be said that the sales
occasioned export. The sales were for export and not in the course of
export.
In the Coffee Board case (supra) the Coffee Board framed rules
B for sale of coffee to registered exporters. Only dealers who registered
them'.;elves as exporters of coffee with the Coffee Board and who held
permits from the Chief Coffee Marketing Officer in that behalf were
permitted to participate at the auction. After the bid the price would be
paid in accordance with the conditions. One of the conditions called
'export guarantee' provided that it was an essential condition of the
C auction that the coffee sold thereat "shall be exported to the destination
stipulated in the catelogue of lots, or to any other foreign country
outside India as may be approved by the Chief Coffee
Marketing
Officer and that it shall not under any circumstances be diverted to
another destination, sold, or be disposed or otherwise released in India".
Another condition provided that "if the buyer fails or neglect to export
D the coffee within the prescribed time, he would be liable to pay a penally". Another condition provided that if the buyer made any default to
export the coffee, it would b_e lawful for the Chief Coffee Marketing
Officer without reference to the buyer to seize the unexported coffee
and deal with the same as if it was part and parcel of the coffee held
by the board in their Pool Stock.
E
The Coffee Board contended that the auctions were in the course
of export, because the sales themselves occasioned the export of coffee.
The Revenue contended that the sales were not bound up with the
export. This Court held that the phrase "sale in the course of export"
authorised not only a sale and an actual export but that the sale must
F be a part and parcel of the export. The word '·occasion" in the context
of sale or purchase was held to mean to cause export or to be the
immediate c;a,use of export. The introduction of an intermediary between the seller and the importing buyer was held to break the link.
There was one sale to the intermediary and another to the importer. The
first sale was not in the course of export because the export began
G from the intermediary and ended with the importer.
The ruling of this Court in the Coffee Board case
(supra)
is
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•
that there must be a single sale which itself causes the export and that
•
there is no room for two or more sales in th~ course of export.
Though the sales by the Coffee Board were sales for export, they
were not sales in the course of export. They were two independent
H sales in the export programrne. The first sale was a sale between the
Coffee Board as seller to the export promoter. Then there was the
sale by the export promoter to a foreign buyer. It was the second
sale which was in the course of export since the second sale caused
the movement of goods between an exporter and an importer.
ln
the Coffee Board case (supra) the rules compelling export meant
compelling persons who bought on their own to export in their own
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MD. SERAJUDDIN V. ORISSA (Ray, C.J.)
turn by entering into another agreement for sale. An essential condi·
tion as to export of coffee purchased at the auction was held not
to amount to turn the transaction into a sale in the course of export.
The reason gi\Cn was that if the registered exporter who was the
bidder at the auction did not export he would commit a default of
conditions No. 30 and 31 and be liable to penalty and seizure of
the coffee.
In the Coffee Board case (supra) the phrase "sale in the
course
of export"
was
held
to
comprise
of three
essentials.
First, there must be a sale.· Second, goods must actually be exported.
Third, the sale must be .a part and parcel of the export. The propositions laid down in the Coffee Board case (supra) are these :
The
sale which is to be regarded as exempt is a sale which causes the
export to take place or is the immediate cause of the export. To
establish export a person exporting and a person importing are necessary elements and the course of export is between them. Introduction
of a third party dealing independently with the seller on the one hand
and with the importer on the other breaks the link between the two
for then there are two sales one to the intermediary and the other
to the importer. The first sale is not in the course of export because
the export commences ,with the intermediary. The tests are that there
must be a single sale which itself causes the export or is in the progress or process or export. There is no room for two or more sales
in the course of export. The, only sale which can be said to cause
the export is the sale which itself results in the movement of the
goods from the exporter to the importer,
The Coffee Board case (supra) discussecl all the earlier deci-
~ions some of which were on the meaning of the phrase "in the course
of export" occurring in Article 286( 1) (b).
In the Coffee Board
case (supra) at page 161 of the
Report it is said that the same
meaning must obviously be given to the phrase "in the course of export" or to the phrase "occa.sions the export". One of the decisions
discussed was K. G. Khos/a & Co. v. Deputy Commissioner of Commercial Taxes (1966) 3 S.C.R. 352. In
K. G. Khosla & Co. case
(supra) Khosla and Company entered into contract of sale with the
Director General of Supplies and Disposals for supply of axle bodies
manufactured by the principal of the Khosla & Co. in Belgium. The
goods were to be inspected by the Director General of Supplies. and
Disposals in Belgium.
Und~r the c.ontraet of sale the .goods were liable
to be rejected after a further mspect10n by the buyer D!fector General of
Supplies and Disposals in India. The goods were imported into our country and supplied to the buyer .~t Peramber and Mysore. The contract
between Khosla and Company and Director General of Supplies and
Disposals was held by this Court t\l be in th~ cour'.e o~ import. .Th~
term as to rejection of goods as a result of mspection m India md1cated that there was no completed sale in Belgium under the contract.
In the recent decision in Binani Brothers case (supra)
the
petitioner was a supplier to the Director General of Supplies and
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180
SUPREME COURT REPORTS
[1975] SUPP, $.C.R.
A Disposals. The petitioner obtained import licences to
supply nonferrous metals. The Government agreed to pay to the petitioner sales
tax under the Central Sales Tax Act or West Bengal Sales Tax Act,
whichever was applicable in terms of the contract. After the decision
of this Court in K. G. Khosla & Co. case (supra) the Revenue
Authorities issued an order directing that &a,les tax should not be
B allowed in respect of supply of stores which
have been imported
against import licences for supplies under contracts placed by the
Director General of Supplies and Disposals.
On the basis of that
direction the Government deducted in
respect of sales tax certain
sums of money which were pending payment and also threatened to
recover a large sum of money which had been paid as sales tax in
C respect of supplies already made. This Court discussed the Travancore
&
Cochin
cases
(supra)
and
the
Nilgiri
Plantations
Company case (supra)
and the
Coffee
Board case
(supra).
Mathew, J. speaking for the Court said that there was no obligation
under the contract on the part of the Director General of Supplies
and Disposals to procure import licences for the petitioner. It wMs
the obligation of the petitioner to obtain import licence. Even if the
D contracts envi.saged the import of goods and their supply to th~ Director· General of Supplies and Disposals from out of the goocjs imported
it did not follow that the movement of the goods in the cour~,~ of
import was occasioned by the contracts of sales. between the petitioner
and the Director General of Supplies and Disposals.
Khosla & Co.
case (supra) was discussed and this
Court said that there was no
E completed sale in Belgium because under the contract the Director
General of Supplies and Disposals reserved the final right of inspection and rejection of goods on their arrival in India. The crucial test
which was laid down in the Nil11iri Plantations case (supra) as well
as Cofjee Board case (supra) is whether there were independent
transactions or only one transaction which occasioned the movement
F of the goods in the course of export.
The contention on behalf of the appellant that the contract between
the appellant and the Corporation and the contract betw•en the Corporation and the foreign buyer formed
integrated activities in the
course of export is unsound.
The crucial words in the section are
thnt a sale or purchase of goods shall be deemed to take place in the
G course of the export of the goods only if the sale or purchase occasions
such export. The various decisions to which reference has been made
illustrate the ascertainment of the pre-eminent question as to which
is the sale or purchase which
occasions
the export.
The Cofjee
Board case as well as the case of Binani Bros. (supra) clea,rly
indicaies that the distinction between sales for export and sales in
the course of export is never to be lost sight of. The features which
H point with tmerring accuracy to the contract between the appellant and
the Corporation on the one hand and the contract between Corporat10n
and the foreign buyer on the other as two separate and independent
contracts or sale within the ruling in the Coffee Board case (supra)
and the Binani Brothers ca~e, are these.
The Corporation
entered
on the scene and entered into a direct contract with the foreign buyer ·
to export the goods. The Corporation alone agreed to sell the g0ods
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MD. SERAJUDDIN V. ORISSA (Ray C. J.)
181
to the foreign buyer. The Corporation was the exporter of the goods.
A
There was no privity of contract between the ·appellant· and the foreign
buyer. The privity of contract is between the Corporation and the
foreign buyer. The immediate cause of the movement of goods and
export was the contract between the foreign buyer who was the 1m-
. porter and the Corporation who was the exporter and shipper of the
goods.
All relevant documents were in the name of the Corporation
B
whose contract of sale was the occasion of the export. The expression "occasions" in section 5 of the Act means the immediate and
direct cause. But for the contract between the Corporation and the
f;ireign buyer, there was no occasion for export. Therefore, the export was occasioned by the contract of sale between the Corporation
and the foreign buyer and not by the contract of sale between the· C
Corporation and the appellant.
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The appellant sold the goods directly to the Corporation.