# ANOTHER v. THE COMMERCIAL TAX OFJ.<'JCER AND

- **Citation:** [1961] 1 S.C.R. 902
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeals Nos. 751of1957
- **Bench:** S. K. Das, M. HmAYATUI.LAn, K. C. Ihs GUPTA, J.C. Shah, X. Hajagopala Ayya:Soar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/another-v-the-commercial-tax-ofj-jcer-and-2184
- **Pages:** 23

## Headnote

Sales Tax-Sale of motor spirit for aviation purposes lo aircraft
"' Ai"rport-Exemption from taxation-_Sale outside custu1ns barrier
---'J.t'hether salt u·itl1in State--A.viatio1i sp;rit loaded 011
board
aircraft taken out of cotrnlry-lf exported-" J::xport ", meamng of
-Bengal Motor Spint Sal<S Taxation Act, 1y41 (Beu. 5 of 1941),
"22, as amcnded-Co11slitutio11 of hidia, Art 286(1)(a)(b). J::xplanation.
.-
,
'
1 S.C.R. SUPREME COURT REPORTS
903
l'he apptllant companies which \Vere, carrying on, husiness
J9tl•J
in Calcutta in petroleum and petroleum products maintained
--
.
supply depots at Dum Dum Airport from which motor spirit for Bunnah .shell Oil
the purposes of aviation was sold and delivered to aircraft which
Storage and
either proceeded to foreign countries directly from that Airport Distributing Co .•
or did so ultimately. though landing en route at some place or
of India Ltd.
places in the Indian territory. Dum Dum Airport was a customs
v.
aerodrome and all aircraft coming into it or leaving it had to
Connnercial
•
comply with ordinary customs formalities. The sales tax autho-
.Tax Officer
rities of West Bengal sought to levy tax on the sales of motor
spirit as aforesaid under the provisions of the Bengal Motor
Spirit Sales Taxation Act. 1941. as amended.
The appellant
companies claimed that the sales were exempted from taxation
under both the clauses (a) and (b) of Art. 286(1) of the Constitution of India on the grounds (1) that the sales in question had
taken place outside the State of West Bengal. as they did not
come within the Explanation to Art. 286(1)(a). (2) that aviation
spirit was delivered outside the customs barrier and therefore
the sales were outside the State. and (3) that the sales had taken
place in the course of export, as aviation spirit was taken out of
the territory.of India.
Held: (r) that by sale in Art. 28li(1)(a) is meant a completed transaction by which property in the goods passes. Before
property in the goods passes the contract of sale is only execu-
. tory aμd the buyer has only a chose in action. The taxable
event is not to be found at an earlier stage because the critical
taxable event is the passing of property.
The Explanation to cl. (1) of Art. 286 was added to avoid,
among .other things. multiple taxation of the same transaction.
It indicates the State where the tax can be levied and also the
State where it cannot.· It achieves it by excluding from consideration the place where the property in the goods passed
according to the law relating to sale of goods. The non obstanle
. clause establishes this. By the fiction created hy the Explanation a sale is deemed lo have taken place in the State where the
goods are delivered as a direct result of the sale for purposes of
consumption in that State ..
Where there are more States than one involved; any State
claiming to tax a sale by reason of something anterior to the
passing of property would not be able to claim that the sale took
place there unless it was also the State of delivery.
The Explanaiion is meant to explain the Article and must
be interpreted according to its tenor and the Explanation is not
to be explained with the aid of the Article because that would
reverse their roles. The Explanation is not applicable unless
there are more States than one involved.
The Stale of Boml1a;• v. The United Motors (India) Ltd .• (1953]
S.C.R. 1069. State of Travancore Cochin v. Shan1n11gha Vilas
Cashewnut Factory, (1954] S.C.R. 53, Ram11arainSons Ltd. v. Asst.
'
904
SUPRE;\IE COURT REPORTS
(1961]
1960
Commissio•er of Sa/rs Tax, [1955) 2 S.C.R. 483 aJ1d Thr Bettgal
Immunity Company Ltd. v. The Stale nf Bihar, · [1955] 2 S.C.R.
Bu,,nah Shell
603, considered.
Oils.to.age and
(2) that to exclude the pawer of taxation of the State of
Dul.,buung Co., West Bengal under Art. 286(1)(a), read with the Explanation,
of India Lid.
the appellant companies must he able to point out some other
v.
State where the goods could he said to have been delivered as

## Text

_Characters 0–39,968 of 52,933. This is a partial read: ask again with offset=39968 for what follows._

L. llu:an ,\Jal
Kath1ulu
, ..
J'Ju ftlC01Jlf·ltlX
UfJictY, sp~ctaJ
Circlt, AmlnJ/ll
Can!t.
902
SUPREME COURT REPOHTS
[ I9&I]
sub-s. (5) that "Income-tax Offic<•rs shall perform
their functiorrn in respect of such persons ...... as the
Commi~Hioner ...... may ...... direct" <inly show that the
CommiAsioner mn.y direct that one Income-tax Officer
Ahall not and !!notlwr lncomr-t-Rx Cfficer sl1all, perform the functions in respect of such and such pnson
or per80lls.
The plural i11cluding the singular, the
order of thu Commissio11cr waH valid, becausu he
arra11ged aud distrilrnted work, and <lid not- se"k to
transfer any ca~e. It is, however, contemlcd that
this renders suL-s. (7 A) otioso. In 01u· opi11iu11, it does
nut.
Special 1irovisiu11 for transfer of pe11ding <'ases
is ·~JI that i". provided there, aud if ouch a transfer
takes pla<'e, the proviBions of sub-s. (7A) will be
invoked.
Tho8P provisions are to be rllad as 11ut prejudicing the g<'11eral powers granted b) sub-s. (5) and
vice versa.
For these reasons, tlie appeal fails, r.nd will ho dismissed with eusts.
Appeal dismi.ssed.
BURMAH SHELL OIL STORAGE AN'D
DISTRIBUTING CO., OF INDIA, LTD, AND
ANOTHER
v.
THE COMMERCIAL TAX OFJ.<'JCER AND
OTHERS
(A~D CONNECTgD APPEAL)
(S. K. DAS, M. HmAYATUI.LAn, K. C. Ihs GUPTA,
J.C. SHAH and X. HAJAGOPALA AYYA:SOAR, ,JJ.)
Sales Tax-Sale of motor spirit for aviation purposes lo aircraft
"' Ai"rport-Exemption from taxation-_Sale outside custu1ns barrier
---'J.t'hether salt u·itl1in State--A.viatio1i sp;rit loaded 011
board
aircraft taken out of cotrnlry-lf exported-" J::xport ", meamng of
-Bengal Motor Spint Sal<S Taxation Act, 1y41 (Beu. 5 of 1941),
"22, as amcnded-Co11slitutio11 of hidia, Art 286(1)(a)(b). J::xplanation.
.-
,
'
1 S.C.R. SUPREME COURT REPORTS
903
l'he apptllant companies which \Vere, carrying on, husiness
J9tl•J
in Calcutta in petroleum and petroleum products maintained
--
.
supply depots at Dum Dum Airport from which motor spirit for Bunnah .shell Oil
the purposes of aviation was sold and delivered to aircraft which
Storage and
either proceeded to foreign countries directly from that Airport Distributing Co .•
or did so ultimately. though landing en route at some place or
of India Ltd.
places in the Indian territory. Dum Dum Airport was a customs
v.
aerodrome and all aircraft coming into it or leaving it had to
Connnercial
•
comply with ordinary customs formalities. The sales tax autho-
.Tax Officer
rities of West Bengal sought to levy tax on the sales of motor
spirit as aforesaid under the provisions of the Bengal Motor
Spirit Sales Taxation Act. 1941. as amended.
The appellant
companies claimed that the sales were exempted from taxation
under both the clauses (a) and (b) of Art. 286(1) of the Constitution of India on the grounds (1) that the sales in question had
taken place outside the State of West Bengal. as they did not
come within the Explanation to Art. 286(1)(a). (2) that aviation
spirit was delivered outside the customs barrier and therefore
the sales were outside the State. and (3) that the sales had taken
place in the course of export, as aviation spirit was taken out of
the territory.of India.
Held: (r) that by sale in Art. 28li(1)(a) is meant a completed transaction by which property in the goods passes. Before
property in the goods passes the contract of sale is only execu-
. tory aμd the buyer has only a chose in action. The taxable
event is not to be found at an earlier stage because the critical
taxable event is the passing of property.
The Explanation to cl. (1) of Art. 286 was added to avoid,
among .other things. multiple taxation of the same transaction.
It indicates the State where the tax can be levied and also the
State where it cannot.· It achieves it by excluding from consideration the place where the property in the goods passed
according to the law relating to sale of goods. The non obstanle
. clause establishes this. By the fiction created hy the Explanation a sale is deemed lo have taken place in the State where the
goods are delivered as a direct result of the sale for purposes of
consumption in that State ..
Where there are more States than one involved; any State
claiming to tax a sale by reason of something anterior to the
passing of property would not be able to claim that the sale took
place there unless it was also the State of delivery.
The Explanaiion is meant to explain the Article and must
be interpreted according to its tenor and the Explanation is not
to be explained with the aid of the Article because that would
reverse their roles. The Explanation is not applicable unless
there are more States than one involved.
The Stale of Boml1a;• v. The United Motors (India) Ltd .• (1953]
S.C.R. 1069. State of Travancore Cochin v. Shan1n11gha Vilas
Cashewnut Factory, (1954] S.C.R. 53, Ram11arainSons Ltd. v. Asst.
'
904
SUPRE;\IE COURT REPORTS
(1961]
1960
Commissio•er of Sa/rs Tax, [1955) 2 S.C.R. 483 aJ1d Thr Bettgal
Immunity Company Ltd. v. The Stale nf Bihar, · [1955] 2 S.C.R.
Bu,,nah Shell
603, considered.
Oils.to.age and
(2) that to exclude the pawer of taxation of the State of
Dul.,buung Co., West Bengal under Art. 286(1)(a), read with the Explanation,
of India Lid.
the appellant companies must he able to point out some other
v.
State where the goods could he said to have been delivered as a
Com•nmial
result of the sale for the purpose of consumption in that other
Ta:z Offerer
State, and that where, as in the present case, aviation spirit \\'as
delivererl to the aircraft, there "-'as no such rival State, and
therefore, the han contained in Art. 286(1)(a) and the Explanation, did not apply.
(3) that in the phrase" in the course of expo1t out of the
territory of India" in Art. 286(1)(b) the word" export" does not
merely mean 'taking out of the country'. Export here means
that the goods arc being sent to a foreign destination at which
the goods can be said to be imported. In the Article the notions
of import and export go in pairs.
Stale of Travancore-Cochin v. The Bombay Co. Ltd., [1952]
S.C.R. 1112 and Stale of Trarancore-Corhin '" Sha11m11gh" Vilas
Cashew Nut Factory, [1954] S.C.R. 53, relied on.
(4) that aviation spirit loaded on board the aircraft for consumption; though taken out of the country, was not exporte<l
since ,it had no destination where it could be said to be importeci.
The sales in question could not, therefore, be said to have
oc.casioned the export, nor were they in the Course of export.
Accordingly, Art. 286(1)(b) was not applicable.
(5) that the sales must be treated as made within the State
of West Bengal. 'fhe customs barrier did not set a terminal
limit to the territory of West Bengal for the purposes of sales
tax, and the sales, though beyond the customs barrier, were still
within the territory of the taxing State.
CIVIL
APPELLATE JURISDICTION : Civil Appeals
Nos. 751of1957 and 10 of 1958.
Appeal from the judgment.and orde~ dated December 7, 1956, of the Calcutta High Court rn Matters Nos.
29 and 58 of 1956.
M. C. Setalvad, Attorney.General of India, C. K.
Daphtary, Solicitor-General of India, Sukumar Mitra,
Sankar Ghosh and B. N. Ghosh, for the appellants in
C. A. No 751 of 57.
M. C. Setalvad, Attorney General of India, Sankar
Ghosh and D. N. Mukherjee, for the appellants in
C. A. No. 10 of 1958.
S. M. Bose, AdvO<:Ate.General for the State of W ut
'
•
1. S.C.R. SUPREME COURT REPORTS
905
Bengal, B. Sen and P. K. Bose, for the respondents (in
both the appeals).
Bumiah sh<ll
1960. September·27. The Judgment of the Court Oil Storage and
was delivered by
Distdbuting Co.,
1
of India Ltd.
HIDAYATULLAH J.-These two appeals on a certifiv.
cate under Art. 132(1) of the Constitution have been
Commmial
filed respectively by the Burmah Shell Oil Storage
Tax Officer
and Distributing Co., of India, Ltd., and the Standard
Vacuum .Oil Company (in this judgment referred to Hidayatullah J.
as the appellant-Companies) against a common judgment of the High Court of Calcutta dated December
7, 1956. The High Court was moved for writs of
mandamus, prohibition and certiorari under Art. 226,
but the petition was dismissed by D. N. Sinha, J.
The matter arises out of assessment to sales tax on
sale of motor spirit for aviation purposes (shortly,
aviation spirit) supplied by the appellant-Companies
to aircraft bound for countries abroad, under the
Bengal Motor Spirit Sales Taxation Act, 1941, as
amended by s. 2(a)(i) of the Bengal Motor Spirit Sales
Taxation (Second Amendment) Act, 1954. The Commercial Tax Officer, the Commissioner of Commercial
Taxes and the State of West Bengal have been joined
as respondents in this Court, as they had previously
been joined in the High Court.
The app_ellant-Companies deal in Petroleum and
Petroleum products, and carry on business at Calcutta. They maintain supply depots at Dum Dum
Airport from which aviation spirit is sold and delivered to aircraft proceeding abroad and belonging to
several Companies. It appears that such sales were
treated by the sales tax authorities in the State of
Bombay as not falling within the taxing Acts in force
in the Bombay State by reason of the provisions of
Art. 286 of the Constitution. The sales tax authorities in West Bengal, however, took a different view of·
the matter, and after sundry .procedure resulting in
assessment of tax, presented a demand notice for the
tax assessed which was paid under protest by the appellant Companies. The a-ppcllant Companies filed p~ti
tions under Art. 226 of the Constitution in the High
906
SUPREME COURT REPORTS
[1961)
'9'°
Court of Calcutta questioning the lt1gality of tbe
B
h S'
11
0 . imposit.iou but without success.
The>y have now filed
"'"'a - "'
'1 l
]
ft
bt ,. ·
.fi t
l
d
stornge ""d
t 1ese appea s a er o ammg a cert1 ca e, as A, rea y
, 1
Distributing Co., stated.
-..:,•! b•dia Ltd.
The contentions in this Court, as they were also
v.
before tbe High Court, a-r~ that such sales are made
Commmial Ta, in the cotfrse of export of such aviation spirit out of
Officer
h
f
b
t e territory o India, that t ey take place outside
Hidayaluilah .f. the State of West Bengal, that inasmuch as aviation
spirit is delivered for cqnsumption outsicle West Bengal, the sales cannot fall within the Explanation to
sub.cl. (a) of the first cla.use of Art. 286, and t.hat unless they can be s:iid t:o'become "Explanation Sales",
the power to tax does not exist. It is argued in support of the last contention that there is not even an
averment in the reply '1f the respondents before the·
High Court that aviation spirit is delivered for consumption within 'Vest B.engal.
The case in the High . Court was restricted to consideration of supplies to aircraft which eit.her proceed
to foreign countries directly from Dum Dum Airport,
or do so ultimately, though landing en route at some
place or places in the Indian territory.
The case has
been similarly confined in this Court al"o, and we are
not requirf.'d to <>xprcss any opinion about. sales of
avit>tion spirit t.o aircraft flying from on<> place in
West Bengal t.o another placo also wit.bin that State,
or .even to some place in another State in the territory
of India.
The facts are fortunately not in dispute. Both
parties admitted the procedure for the supply of
.aviation spirit to aircraft.
Briefly described, it js as
follows : Before the arrival of such an aircraft, a
representative of the appellant-Companies applies to
the Airport Cu~toms Officer to depute an Officer to
supervise the refuelling of the aircraft, After the
aircraft lands, the captain or the Ground Engineer
gives instruction about the quantity of aviation spirit
required, and on permission being given by the Customs authorities, the stated quantity. is delivored in
the presence of the Customs Officer deputed.
D.etails
of the delivery are entered in a delivery receipt, which
1 s.c.R. SUPREME COURT REPORTS
907
•
is signed by the representative of the appellant ComI96o
panies and the Customs Officer deputed. Duty draw- 8
h-Sh 11 0 .1
back shipping bills are also drawn up to show the
"~;·:,age :nd
1
quantity of aviation spirit and are countersigned by Distributi11ff co.,
them and also by a representative of the aircraft.
of India Ud.
Later, claims for refund of customs duty are made,
v.
and refund is granted.
, Commmial Tax
In the petition filed in the High Court., it was averOfficer
red that such aviation spirit is required for consumpHidayatullah J.
tion during flight and/or outside the territory of
India, and is thus delivered for purposes of consumption outside West Bengal and in some cases outside the
territorial limits of India as well. It was also stated
that it was sold in the course of export outside the
territory of India, and drawback of customs duty
was obtained. In the reply of the respondents, it was
stated that the refund of customs duty was an irrelevant fact for the purpose of assessment. It was further stated in the affidavit of the Commercial Tax
Officer as follows :
" I further state that a foreign bound aircrnft on
leaving Dum Dum Airport consumes a portion of the
aviation spirit taken in by it at the Airport within
the. territory of West Bengal· before it moves out of
the said territory or the territory of India. I do not
admit that the entire quantity is used outside the
territorial limits of India as alleged ...... I deny that
the sale of such aviation· spirit takes place outside the State of West Bengal and state that the sale
takes place within the State of West Bengal and the
purchaser pays its price within the State of West
Bengal. The sale of such aviation spirit is completed
by delivery at the Dum Dum Airport in West
Bengal."
We have mentioned this fact, because it was argued
that the respondents had not averred clearly that
aviation spirit was sold for consumption within West
Bengal even though the appellant Companies had
denied it. The respondents pointed out that at least
some of the aviation spirit must be consumed in the
i::ltate, and that this was so stated in the affidavit filed
in reply to the petition. and quoted by us.
This is
908
SUPREME COURT REPORTS
[1961]
'
9~
hardly a case for a ught on pleadings, especially as
liu'm•h-Shell 0 ,1 the entire procedure of the supply of aviation spirit
Sto••c• and
and the use to which it is put are beyond controversy.
Di•tdb"""c Cn., The question that wo have to consider is one of
01 India Ltd.
principle, and the answer depenJs upon broad facts
v.
and not on technicalities. Either the whole of the
C01nmercial Tux sale is within the taxing pow1'r of the State or it is
not, and the fact that aviation spirit is cPnRumed i11
Officer
llidayatullah ;. taking off or in flying over the territory of West Bengal before it leaves that territory would make no
differnnee either way to t.he p1·iaciples applicable.
Though parties entered into a debate on this part of
the case, we do uot propose to consider it, because, in
our opinion, the que~tion must be considered in substance and not in abstractions. The liability to sales
tax, if any, is attracted when aviation spirit is sold,
and immunity can only be claimed, if, as stated in
Art. 286(l)(a) and the Explanation, the sale can be
said to take place outside the State or can be regarded
under Art. 286(l)(b) as having taken place "in the
course of ...... export of the goods out of, the territory
of India".
Before we take up these two questions, we desire to
refer to some provisions of certain Acts, which bear
upon the matter. The Indian Aircraft Act, 1934, is
an Act for the control of the manufacture, possession,
use, operation, sale, import and export of aircraft.
Section 16 of this Act provides that the Central
Government may, by notification in the Official
Gazette, declare that any or all of the provisions of
thl'l Sea Customs Acl shall, with such modifications
and adaptations as may be specified in the notification, apply to the import and export of goods by air.
Sections 2(3) and (4) define "import" and "export"
reHpectively as "uriaging into India" and "taking
out of India ". A notification issued under the Indian
Aircraft Act, the rnles framed t hereuuder and the
Indian Aircraft Rules, 1920, appointed the Civil Aerodrome, Dum Dum, a Customs Aerodrome, and to that
Customs Aerodrome, the provisions of the Sea Customs Act mutatis mu.tandis were made applicable by
r. 63 (Part IX) of the Indian Aircraft Rules, 1920. As
1 S.C.R. SUPREME COURT REPORTS
909
a result, Dum Dum Airport became a Customs Aeror96o
drome, and any aircra'.t coming into India from Burmoh-Shell Oil
foreign countries or leavmg for any such country has
storage ond
to comply with ordinary Customs formalities. Section Distributing co.,
42 of the Sea Customs Act, which allows drawback on
of Indio Ltd.
re-export and is applicable mutatis mutandis, prov.
vides·:
Commercial Ta,;
"When any goods, capable of being easily identiOfficer
fied, which have been imported by sea into any Hidoyotulloh J.
customs-port from any foreign port, and upon which
duties of customs have been paid on importation,. are
re-exported by sea from such customs-port to any
foreign port, or as provisions or stores for use on
board a ship proceeding to a foreign port sevei1eighths ...... of such duties shall, except as otherwise
hereinafter provided, be repaid as drawback:". (Provisos omitted).
Under s. 51, no draw back is allowed unless the claim
to receive such draw back is made and established at
the time of re-export, and under s. 52, the person
claiming drawback bas to make and subscribe to a
declaration. The proceaure which is described in an
earlier portion of this judgment bears upon these
matters.
. Coming now to the taxing Acts with which we are
concerned, it may be pointed out that the Bengal
Motor Spirit Sales Taxation Act, 1941, originally did
not contemplate levy of a tax on the sale of aviation
spirit. Motor spirit was defined to mean,
"any liquid or admixture of liquids which is
ordinarily used directly or indirectly as fuel for any
form of motor vehicle or stationary internal combustion engine, and which has a flashing point below 76
degrees Fahrenheit".
Sub-section (4) of s. 3, which is the charging section,
provided that no tax shal_l be levied on the sale of any
motor spirit for the purpose of aviation. The Act
was amended by the Second Amendment Act, 1954,
and sub-s. (4) of s. 3 was omitted, and the proviso to
the first sub-section was re-enacted, adding one more
clause to the following effect :
II6
!HO
SVPREME COURT REPOJ~TS
(1961]
1960
"the tax on all retail sales of motor spirit for the
--
purpose of aviation, which are effected on or after the
Bu,.nah Shell 0,/
f h
f h B
J f
·
, 1
d
date o t e commencement o t e
enga :\ @tor Sp1J t,,agc a"
S
v.,1111.uling co, rit Sales Taxation ( ccond Amendment) Act, 1954,
of Ind'" Ltd
shall br charged at the rate "f three 1rnnas per
,..
gallon ".
c
0 '""""1"1
By the Bengal l\jotor Spirit Sales Taxation (AmendTax qfricet
ment) Act, 1955, the original Act was further amend-
//id•."""'"•h J. ed.
To the definition of' motor spirit· quoted by us
earlier, an Explanation was retrofipectivdy odded,
which reads as follows :
"Explanation-For the avoidance of doubt, it is
hereby declared that in this Act, the expression
• vehicle' means any means of carriage, com·eyance
or transport, by land, air or water".
The original Act was again amended by the Bengal
Motor Spirit Sales Taxation (Amendment) Act, 1957.
This time; among other amendments involving rates
of tax, the words "and which has a flashing point
below 76 degrees Fahrenheit" were omitted from the
definition of' motor spirit '. The result of all these
amendments was to make retail sales of aviation
spirit liable to sales tax, and 'retail sale' was defined,
at all material times, as a sale " by a retail dealer for
the purpose of consumption by .the purchaser".
After the coming into force of the Constitution,
s. 22, in terms of Art. 286, was added to the original
Act by paragraph 3 of, and the Eleventh Schedule to,
the Adaptation of Laws Order, 1950. lt read :
"22(1).
Nothing in this Act shall be construed
to impose or authorise the imposition of a tax on the
sale or purchase of motor spirit :-
(a) whore the sale or purchase takes place outside
the State of West Bengal;
(b) where the sale or purchase takes place in the
course of the import of such motor spirit into, or
export of such motor spirit out of the territory of
India; or
(c) (omitted).
(2) The Explanation to clause ( l) of article 286 of
the Constitution shall apply for the interpretation of
clause (a) of sub-section (1) ".
•
..
1 S.C.R. SUPREME COURT REPORTS
911
Clauses (a) and (b) of the first sub-section do no more
1960
than re.enact the tirohibition contained in A~t. 286 of Burmah-Shell Oil
the Constitution with modifications to smt motor
Storage aud
spirit, and the Explanation to sub-cl. (a) of cl. (1) of Distributing Co.,
the said Article in the Constitution has been applied
of India Ltd,
without an attempt to modify or adopt. it. The
v.
1
.
b l ( ) f h fi
l
f A t Commercial Tax
Exp anat1011 to su -c . a o t e rst c ause o
r .
Offi
286, the meaning of which was much in dispute in
"'
·this case, may conveniently be quoted here. It Hidayatullah J.
reads:-
" Explanation--,-For the purposes of sub-clause
(a), a sale or purchase shall be deemed 'to have taken
''
place in the State in which the goods have actually
been delivered as a direct result of such sale or purchase for the purpose of consumption in that State,
notwithstanding the fact that under the general laws
relating to sale of goods the property in the goods has
by reason of such sale or purchase passed in another
State".
The High Court of Calcutta in its judgmept dealt
with the points urged, and rejected them.
The
reasons of the High Court briefly were as follows : The
learned Judge declined to draw. any inference from
the fact that customs duties were refunded as drawbacks on aviation spirit delivered to the aircraft. He
held that he was not required to decide whether the
appellant Companies were ·entitled t() claim and
receive drawbacks of customs duty. He then gave a
finding that the sale was physically within the State,
because both the buyer and the purchaser were, at
the time of sale, within the State of West Bengal,
even though delivery of aviation spirit was beyond
the customs barrier. He then considered the legal
position in the light of Art. 286 fr.om three points of
view. He first held that it was not an inter-State
transaction, because both the parties were in the State
of West Bengal, and aviation spirit was not delivered
outside the State. Thus, he held that cl. (2) of Art.
286 did not apply. In this connection, he relied upon
the decision of this Court in the Bengal Immunity Co.,
Ltd. v. State of Bihar and others (1 ). He next considered
(I) [1955] 2 S.C.R. 6o3.
912
SUPREi'IIE COURT REPORTS
[ 1961]
1960
tho matter under the first sub.cla.use, and held that
liom,,ah Shell 0 ,1 unless the fiction cre,ted by ~ho. Ex pie.nation applied,
Sto•age at1d
the sale ~ust he treated as w1thm t.he S~a.~e under the
Do.<trihutrng Co., la.w rela.tmg to so.le of goods. In hrs opm10n, the so.le
of 1>1dra Ltd.
being completed within the State of\\'esf, Benge.I both
v.
a.s rt'ga.rds contract a.nd delivery, the fiction could not
c
0"'"'"''"1
be held applica.hle, because no "outside" State was
Tax O.ffice'Y
involved, even though tho aircraft might have to conllidayatullah J. sume some aviation spirit while flying over the" outside" State. He, therefore, held that. the Expla.na.tion
a.nd Art. 286(1)(0.) which it seeks to explain, were both
not a.pplica.ble.
He then considered the matter from
the point of view of Art. 286(l)(b).
He explained on
the authority of the decision of this Court in State of
Travancore-Cochin. and others v. Shanmugha
Vilas
Cashewnut Factory and others(') that the expression
"in the course of export out of the territory of India."
referred to sales which, by themselves, occasioned tho
export of goods out of the territory of India and not
t-0 sales for the purpose of export, even though the
goods ultimately passed the customs .barrier.
Ho
pointed out that there was no foreign purchaser to
-whom the aviation spirit could be said to have been
exported, and that aviation spirit, in fact, was consumed en route a.·nd never taken to any foreign
territ-0ry.
He also pointed out that no bills of la.ding
or shipping documents were drawn up, and therefore
there was neither a.n export nor a. sale in the course of
export out of the territory of India..
The a.ppella.nt Companies claim that· these sales
come within the exemption of both the sub-els. (a) and
(b) of the first clause of Art. 286.
To claim the
<1xemption granted by the first sub-clause, they rely
upon certain decisions of this Court, and contend that
unless the so.le can be said t-0 fa.II within the Expla.natiori, it must be treated a.s a. sale outside the State of
West Benge.I, a.nd is thus exempt. With regard to
the second sub-clause, they contend that there was a.n
export out of the territory of India. inasmuch a.s
aviation spirit wa.s ta.ken a.broad a.nd a.ny sale by
which it is takl'n a.broad is also exempt.
These
t•l [1954J s.c.R: 53.
'
11'
1 S.C.R. SUPREME COURT REPORTS
913
arguments, as has been shown above, were urged be1?00
fore the High Court, but were not accep'.ed.
Burmah-Shell Oil
These two arguments need to be considered separastoi·•K' and
tely, as they have little iu common. Article 286 places Distributing Co,.
restrictions upon the power of the States to tax sales
of India Ltd.
and purchase of goods, and cuts down the amplitude
v._
.
f
N
.
h
S
d L"
f h S
th Commemal Ta•
o Entry
o. 54 m t e
econ
1st o t e even.
Offie;,
Schedule. . Other restrictions are also to be found m
Part XIII of the Constitution. With those we are not -Hidayatullah ].
concerned in these appeals. We are also not concerned
with the subsequent amendment of Art. 286, nor with
the ban imposed by the second clause of the Article
on taxes on sales in the course of inter-State trade and
commerce. We are concerned with the first clause
only, as it stood before the amendme'nt. That clause
is divided into two sub-clauses. The first sub-clause
prohibits the imposition of tax on the sale or purchase
of goods where the sale or purchase takes place outside
the State. An Explanation is added to this sub- clause,
which has been quoted by us earlier. This Explana.
tion has led to a long controversy in this Court during
which somewhat conflicting views have been expressed about its meaning. This conflict has further been
accentuated when the interplay between the two
clauses has been considered.
The view now accep,ted
is that the bans imposed by the two clauses are
independent and separate and each must separately
be got over. In view of this, we are not required to
travel beyond the first clause in this case.
We have heard widely divergent arguments in these
appeals. The learned Attorney-General who appeared
on behalf of the appellant Companies read to us
copious extracts from the earlier decisions of this
Court, and contended that unless the sales could be
said to fall within the Explanation so as to become
'Explanation sales', they must be regarded as having
taken place outside the State of West Bengal and for
that reason, not taxable.
According to him, they
could only . become ' Explanation sales ' if aviation
spirit.was delivered for the purpose of consumption
within the State of West Bengal. The learned
Advocate-General of West Bengal, on the other hand,
914
SVPRE:lfE COl!RT REPORT8
[1961]
''"''
cont.ender! that the Explanation did not apply to the
8 ,.,.,,,,, -"" 11 n.t fact.8 here, and th:Lt tho ohsen-at1 1ms in the rulings
Stt>ta:..·e a,1,,
\Vere net relevant.
D111n1,,;,,.,,. c,.,
The first sub-clause in its opeuin!( port.ion says that
of Ind•a I.Id.
no law of a Sta.te shall impose or authorise the imposiv.
t.ion of a tax 011 the sale or purchase of goods where
C(Jm111e;c:al
I
1
l
I
1
sur. l sa e or pure 1asc ta 'es pace outside t.hc State.
Tax Off.ce1
h
]
ft is t us p 11inly meant that a StatP i• not to tax sales
I11daya10<11~1o ;. which take place out-side thaJ. State.
But, where docs.
a salr take place? >: umrro1rn elcmc11ts go to make a
sa]fl, and they may take place in more than rme State.
Under the law relating to the sale of goods, property
passes on the happening of certain events. Wh~n they
happen, the sale is compll•te. Kow, a contract for f.he
sale of goods may he entirely within one State when
all parties arc within the State, the offer and acceptance also take place them, and the goods are also
within that Stale, an<l there, the property in the good:>
pasHes and delinry also takes place, But it may also
happen that tho constituent Plements may be spri-ad
ov~r t.wo or more States, some of the elements described above falling withi11 one State and iorne others
falling within one or morn other Sta~cs. Pri(>r to tht'
Constitution, multiple taxation of a siugle tran:>aetion
of sale was possible, and Provincial legislation then
existing clearly rlcmunstrates that Stat.es having some
co111wction with the sale because one or more element.a
took place within those States, treated this as sufficient
nexus bet ween the taxing power and the States, authorising them to tax sales even where property passed in
another State. The Constituent Assembly desired to
i~chieve certain objects in the matter of taxation, particularly in relation to sales tax. Artide 286 achieves,
among other object.H, the avoidance of this multiple
taxation.
The first sub-clause of tho Article is clear in its
terms, when it says that a State cannot tax Ra]es
which take place outside the State. The converse is
al.so true, that is to s:iy, tha.t a ::it:itP can tax a "ale of
goods which takes place within tile State. By sale
here is
m~a.nt a completed transaction by whwh property in the goods passes. Before the property in tho
•
r
,
I •
I S.C.R. SUPREME COURT REPORTS
915
goods passes," the contract of sale is only exectitory,
r96o
and the buyer has only a chose in action." Property B
h Sh 11
in the goods pass13s either by the fulfilment of the cono;~';,:rage :nd
ditions of the contract, if any, or by the operation qf Di,1ributing co.,
the law relating to the sale of goods.
of India Ltd.
Starting from the basic fact that what is to be
v.
taxed under the Constitution is a sale completed by
Commercial
d
Tax Officer
the transference of property in the goo s, we have to
see at what stage and where this happens.
The Hidayatullah J.
taxable event thus cannot be found at any earlier
stage when the sale is not completed by the passing of
property. The critical taxable event is the passing of
property in the goods as a result of a contract for t.heir
sale. The parties to the contract can agree when that
event is to take place, but where it happens may be a
matter of some doubt and even of difficulty. Where
the parties have not agreed as to the time of the
passing of property, the law relating to the sale of
goods furnishes the answer. Ther.e too, there may be
the same difficulty as to the place of the passing of
prope{ty. The place of physical delivery of the goods
does not help to solve this d,ifficulty, because delivery
may precede or follow the passing of property in the
goods. Delivery of goods is, thus, not always rn
element which determines the completion of a sale,
because the sale may be completed both before an<
after delivery. The Constitution, however, t!!inks in
terms of a completed sale by the pass' .• g of property
and not in terms of an executory conlfact for the sale
of goods.
The essence of the matter being thus the passing of
property in goods,. there was al ways a likelihood of
more than one State claiming the right to tax the same
transaction. One State might claim that goods in
which property 'passed were in that State, and hence
property in the goods passed there. Another State
might claim that the con<liLicns precedent to the
passing of property were fub !1, d in that State and
hence the sale was complet1.>d hy the passing of property there.
Yet another bta.L" might claim that
property passed in that State according as one or
. more events corniected with the passing of property
took place within that State.
.
Durmali Shell
Oil Storage and
Dislribuling Co.
of India
!~Id.
v.
Commercial
Tax Offictr
}l'id1Jya111ffah j.
916
Sl!PREME COURT REPORTS
[1961]
It wa.s t.o avoid this welter of confusion as fa.r as
possible that the Explanation was added, and it also
avoided multiple taxation. The ExpJauation f:erves
two purpoHes. It indicates the State whero the tax
can he levied, and also iudicates the St.ate or States where it cannot. ]t achie\'es these two purpo~es
by excluding all considerations as to where property
in the goods can be said to have pas~ed under the la.w
relating to the sale of goods.
The purpose is a.<.:hiev1".d by tho Explanation and particularly by the non
obstante clau~e in the Explanation.
Any State claiming to tax a sale of goods on the ground that it was
completed by the passing of property ir1 the goods in
that State could not do so, if the goods as a direct
result of the sale were delivered for tho purpose of
consumption in auother State. The Explanation
creates a fiction that the saJe must be deemed to have
t.aken place in the latter State and nut ip the State
where the sale was completed by reason of passing of
property. It thus discard; the test of passing of property and adopts the test of delivery 'as a direct
result of such sale for the purpose of consumption in
that State'. Whero more than one State is involved,
.·~y State claiming to tax tho sale by reason of something a.ntnrior to the passing of property would not
• ~ able to claim that the sale took place them unless
it was ;,lBo thu State of delivery, because the sale is
complete on!.> on th!! passing of property, and till
the sale is com plote, liabHity to tax <loeH not a.rise.
Once the sale i• complete, the delivery State gets
the right to tax the sale by the fiction introduced.
Now, tho Explanation must be interpreted according to its own tenor, and it is meant to explain
cl. (l)(a) of the Article and not vice versa.
Il id an
error to explain the Explanatiou with the a.id of tlte
Article, because this reverses their roles.
The Ex planation discards the test of passing Of property, and
adopts the test of delivery as a direct result of the
sale for purposes of <.:onsumption.
This delivery may
be in the State where the passing of property also
took place, but then, there is no dilliculty. The sale
is then entirely 'Yithin the State. The sale is outside
•
,.
1 S.C.R. SUPREME COURT RE: vRTS
917
the Sta.ta only when the passing of property takes
1960
place in the State, but that is. not the Stat.a where the Burmah-Shell Oil
goods have been actually delivered as a direct result of
storage and
the sale for purposes of consumption in that State. Distributing Co ..
The Constitution has, thu~, for certain cases shifted
of India Ltd.
and confined the sil.us of the taxable event to the State
.
v"
f h d 1.
f
d
b · .
b
b
d Commercial Tax
o t e e 1ver.y o goo s; ut 1t must
e remem ere
Officer
that this delivery may precede as well as follow the
passing of. property. It is, therefore, plain that no Hidayatullah f:
single element of th_e contract of sale is by itself a
decisive factor in determining which State· is to tax
the sale where there are more States than one involved, except the test-of actual delivery of the goods in a
State as a direct result of the sale for purposes of consumption in that State, and it is that State and tha.t
State only which has the right to tax the sale and
none other.· The Explanation is not applicable, unless
there are more States than one involved. It is only a
key to find out which of the States is competent to tax
and which are not, and is by no means a definition of
a.n 'outside sale'. It is an Explanation, which determines which State out of those connected with the
transaction of sale can tax it.
The interpretation which we have pla.ced upon the
first sub-clause of Art. 286(1) is substantially the same,
as wa.s placed in the earlier rulings of this Court. In
The State of Bomf!ay and another v. The United Motors
(India) Ltd. and others('), it was pointed out tha.t the
Explanation formulated an easily applicable test to
find out an 'outside sale ' and this, it wa.s said,
wa.s done "by defining a.n inside sale". It wa.s observed further :
·
"Are the goods actually delivered in the taxing
Sta.te, as a direct result of -a sale or p\Jrcha.se, for the
purpose of consumption therein ? Then, such sale or
purchase shall be deemed to have taken place in that
State a.nd outside all other States".
Certain reasons were given why this test wa.s adopted,
and it is these reasons and their effect on the second
clause, which led to a re-exa.mination of the subolause in The Bengal Immunity Oompany Limited v.
(1) (1953] S.C.R. •"69·
117
918
St:PREME COCRT REPORTS
[ 1961]
1 06o
The Stat.e of B·ihar and others('). The majurity in tha.t
8
h-Sh 11 C· I ca.se touched upon the various grounds which were
u>ttta
'
'
d
d '- f
l . C
b
d l ·
510,age 0.,d
fi vanee ue ore t us
ourt,
ut
ec med to express
DL,,ibuling en," a.ny final opinion upon the matt"r ". The case went
of 1 .. dra Lrd.
on to dcC'ide that the ba.ns impost·•! by the two clauses
v.
of Art. 286 were independent, and needt•d to \Jo sepaCommtrcial
t J
c
d
]>
J
·
f h
L'
1
ra. e y cn1orce .
,ut, on t ie meanmg o
t. e r.xp aTax 0/fict t
nation, no different view was expressed.
Again, in
1I1da;u1ullah J. M js. Ramnarain Sons Ltd. v. Asst. Commissioner of
Sale8 Tax and others('), it was ohs.,rved as follows:
"So fe.r as article 286(1Xa) is roncerned, the Explanation determines by the legal fiction created thuein
the situs of the sale in the case of transactions coming
.within that category and when a transaction j, thus
dewrmined to be inside a particular State it neces-
·aarily becomos a. tran8>Lction outside a.II other States.
The only relevant enquiry for the purposes of article 286(l)(a.), therefore, is whether a transaction is outside the Sta.te and once it is determined by the application of the Explanation tha.t it is outside the State
it follows as a matter of course that the State with
reference to which the transaction can thus be prcdi·
ca.ted to be outside it can never t.ax the transaction ".
(Ha.lies supplied).
:1';°ow, in so far as this case is concerned, the words
"the Explanation determines by the legal fiction created therein Lhe situs of the sale in the case of transactions coming within that category" in the exiract last
quoted, become important. Tho first c1uestion to consider is whether these cases ca.n be governed by the
Explanation a.t all.
The learned Att.orney-Genera.l
contends that the power to tax these transactions
can only be found if the sales were 'Explanation
sales', in the sense tha.t the goods were delivered as a.
direct result of the sale for consumption in \Vest Benga.1.
In our opinion, the explanation can a.pply only
if morti than one State is involved in the same transaction.
Whon there is no other State in which the
go,,ds can be sa.id to be delivered for consumption,
a.pa.rt from the Sta.te where the property in the goods
passed, the Expla.na.tion is not needed a.s a key. The
(I) [1y53J 's.c.n. 6o3.
<•l [19;iJ' s c 1<. 183. 1Y•·
I
..
l S.C.R. SUPREME COURT REPORTS
!ll9
power to tax in those circumstances which is exercis1?60
able by virtue of transfer of title to the property, c~n Bu,ma;-;;,,11 Oil
only be taken away if there be some other State m
stornge and
which the goo<ls as a direct result of the sale were Dist.ibuting co.,
delivered for consumption. But if there is no such
of India Lid.
other State, the question does .not arise.
v.
h
h
·
h · 1 St t
Cotnniercial
· In t e present cases, t ere 1s, no sue
nva
a e.
,
Tax Officer
Where the purchaser buys goods in West Bengal for
his own consumption, the test of.