# B. · K. W ADEY AR v. M/S. DAULATRAM RAMESHWARLAL

- **Citation:** [1961] 1 S.C.R. 924
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeals Nos. 45 and 46 of 1959
- **Bench:** S. K. Das, M. HIDAYA'l'ULLAH, K. c. DAS GUP'l'A, J.C. Shah, N. Rajagopala Ayyanoar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/b-k-w-adey-ar-v-m-s-daulatram-rameshwarlal-2186
- **Pages:** 10

## Headnote

Sales Tax-Export-Meani11g of--Properly i11 exported goods
in F. O. B. contracts-If passes on shipment or before it-Export
licence-If obtai11able by b1<yer or seller-" Person", meaning of -
Bombay Sales Tax Act, 1953 (Rom. Il I of 1953), s. lo(b)-'Fhe
ImpOf't and Export (Control) Act, 1947 (XV I II of 1947), s. 5(2)-
Conslitution of India, Art. 286(1)(b).
The respondents firm claimed _exempti?n from Sales Tax
under Art. 286(1)(b) of the Constitut1on m respect of sales
l S:C.R. SUPREME COURT REPORTS
925
made by them of cotton and castor oil on the ground that the ·
sales were on F.O.B. contracts under which they continued to be
the owners of the goods till those crossed the custom barrier
and entered the export stream. They also contested the purchase tax to which they were assessed under s. 10(b) of the Born<
bay Sales Tax Act.
The High Court upheld the contention of
the respondents regarding the Sales Tax but held that they
were liable to pay purchase tax. On appeal by both the parties
Held, that the i(OOd• remained the seller's property till
those had been brought and 'loaded on board the ship and so
the soles were exempted from tax under Art. 286(1) of the Constitution.
The word "a person" in s. ro(b) of the Bombay Sales Tax
Act had been correctly interpreted as "a registered dealer"
and the purchasing dealers had been rightly assessed to purchase tax.
-
The normal rule in F. 0. B. contracts was that the property
. was intended to pass and did pass on the shipment of the goods.
The presumption in F. 0. B. contracts was that it was the
duty of the buyer to obtain the necessary export licence, though
in the circumstances of a particular case that duty might fall on
the seller.
H. 0. Brandt & Co. v. H. N. Morris & Co. Ltd., [1917] 2 K.B.
784 and ill. W. Hardy & Co. v. A. V. Pound & Co., Ltd., (1953)
l Q.B. 499, considered.
"Export" under the Import and Export Control Act having
been defined as "taking out of India by land, sea or air" it
could not, under the Export Control Order, be held to have
commenced till the ship carrying the goods left the port or in
some cases passed the territorial waters.
The State of Bombay v. The United Motors (India) Ltd., (1953)
4 S.T.C. 133, held inapplicable.
.

## Text

924
SUPREME COURT REPORTS
[1961]
1!>60
spirit, which takes place in West Bengal. The cusBumwh Sh•ll 0 ,1 tom~ barrier ?oes not set a terminal limit to the
StNoge 0 ,,J
territory of\\ oat Bengal for sales tax purposes. The
Dis1>1&ut1ng Co,. sale beyond the customs barrier is still a sale, in fact,
of Indio Ltd.
in the State of West Bengal.
Both the buyer and
v.
the seller are in that State. The goods are also thllre.
Co11u11ercia/
All h
1
f
I · 1 d'
d 1
t e e cments o sa e me u mg
e ivery, payment
Tax Offictr
of price, take place within the State. The sale is th us
HodoyatullaJ, J. completely within the territory of tho taxing State. No
outside Sta.ti; is involved where the goods can.be said
to have been delivered for consumption as a direct
1960
Sep1ember 27.
result of the sale that takes place. Article 28ti(l)(a)
. ,.
and the Explanation a.re wholly inapplicable, and the
sale cannot, oven by a fiction, be said to be outside
the State of West Bengal. Xo doubt, aviation spirit
is taken out of the· State and also the territory of
India, but it cannot be said to have been exportOO or
delivered for consumption in some other State. The
so-called export is not occasioned by the sale, and the
sale, on the authorities cited, is not in the course of
•export', so as to attract Art. 286(l)(b).
The decision of the High Court was correct. The
appeals fail, and are dismissed with costs. One hearing fee.
Appeals dismissed.
B. · K. W ADEY AR
v.
M/S. DAULATRAM RAMESHWARLAL
(S. K. DAS, M. HIDAYA'l'ULLAH, K. c. DAS GUP'l'A,.
J.C. SHAH and N. RAJAGOPALA AYYANOAR, JJ.)
Sales Tax-Export-Meani11g of--Properly i11 exported goods
in F. O. B. contracts-If passes on shipment or before it-Export
licence-If obtai11able by b1<yer or seller-" Person", meaning of -
Bombay Sales Tax Act, 1953 (Rom. Il I of 1953), s. lo(b)-'Fhe
ImpOf't and Export (Control) Act, 1947 (XV I II of 1947), s. 5(2)-
Conslitution of India, Art. 286(1)(b).
The respondents firm claimed _exempti?n from Sales Tax
under Art. 286(1)(b) of the Constitut1on m respect of sales
l S:C.R. SUPREME COURT REPORTS
925
made by them of cotton and castor oil on the ground that the ·
sales were on F.O.B. contracts under which they continued to be
the owners of the goods till those crossed the custom barrier
and entered the export stream. They also contested the purchase tax to which they were assessed under s. 10(b) of the Born<
bay Sales Tax Act.
The High Court upheld the contention of
the respondents regarding the Sales Tax but held that they
were liable to pay purchase tax. On appeal by both the parties
Held, that the i(OOd• remained the seller's property till
those had been brought and 'loaded on board the ship and so
the soles were exempted from tax under Art. 286(1) of the Constitution.
The word "a person" in s. ro(b) of the Bombay Sales Tax
Act had been correctly interpreted as "a registered dealer"
and the purchasing dealers had been rightly assessed to purchase tax.
-
The normal rule in F. 0. B. contracts was that the property
. was intended to pass and did pass on the shipment of the goods.
The presumption in F. 0. B. contracts was that it was the
duty of the buyer to obtain the necessary export licence, though
in the circumstances of a particular case that duty might fall on
the seller.
H. 0. Brandt & Co. v. H. N. Morris & Co. Ltd., [1917] 2 K.B.
784 and ill. W. Hardy & Co. v. A. V. Pound & Co., Ltd., (1953)
l Q.B. 499, considered.
"Export" under the Import and Export Control Act having
been defined as "taking out of India by land, sea or air" it
could not, under the Export Control Order, be held to have
commenced till the ship carrying the goods left the port or in
some cases passed the territorial waters.
The State of Bombay v. The United Motors (India) Ltd., (1953)
4 S.T.C. 133, held inapplicable.
.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 45 and 46 of 1959.
Appeal by special leave from the jndgment and
order dated March 25, 1957, of the former Bombay
High Court in Appeal No. 16 of 1957.
C, K. Daphtary, Solicitor.General of India, H.J.
Umrigar and D. Gupta, for the Appellant (In C. A. No.
45 of 59) and Respondent (In C. A. No. 46 of59).
11. N. Sanyal, Additional Solicitor-General of India,
S. N. A:idley and J. B. Dadachanji, for t.he respon.
dents ([n C. A. No. 45 of 59) and Appellants (In C. A.
No. 46/59).
-
u8
B. /{. TVadcyar
v.
1\-ffs. Daulatram
Ran1cshwarlal
r960
B. K. lVadeyar
v.
M /s. Daulatram
Raineshwarlal
Das Gupta J.
926
SUPREME COURT REPORTS
[1961]
1960. September 27. The Judgment of the Court
was deyvered by
DAS GUPTA J.-M/s. Daulatram Rameshwarlal, a
firm registered under the Indian Partnership Act
(referred to later in this judgment as "sellers") are
registered dealers under s. 11 of the Bombay Sales
Tax Act. In their return of turnover for the period
from April 1, 1954 to March 31, 1955, they claimed
exemption from Sales Tax in respect of sales of cotton
of the total value of Rs. 68,493-2-6 and sales of castor
oil of the total value of Rs. 6,4 7 ,509-1-6 on the ground
that these sales were on FOB contracts, under which
they continued to be the owners of the goods till the
goods had crossed the customs barrier [l,nd thus
entered the export stream, and so no tax was realisable
on these sales in view of the provisions of Art. 286
(l)(b).
The Sales Tax Officer rejected this claim for exemption and assessed them to sales tax on a taxable
turnover including these sales. He also assessed them
to purchase tax under s. IO(b) of the Bombay Sales
Tax Act on their purchase of castor oil which they
later sold for the sum of Rs. 6,4 7 ,509-1-6 as mentioned above. The notice of demand for the total sales tax
and the purchase tax assessed was served on the sellers
on September 30, 1956.
The sellers thereupon moved
the Bombay High Court under Art. 226 of the Constitution for the issue of appropriate writs for quashing the
order of assessment and the notice of demand and for
prohibiting the Sales Tax Officer from taking any
steps pursuant to the order or the notice. The learned
Judge who heard the petition rejected the sellers' contention that the goods remained their property till
these crossed the customs frontier and therefore held
that the sellers were not entitled to the benefit of Art.
286(l)(b) of the Constitution. As regards the assessment to purchase tax also he rejected the sellers' contention that the assessment in question was illegal. In
this view the learned Judge dismissed the application
under Art. 226.
Against this decision the sellers appealed. The
'
.
'I
·'
1 S.C.R. SUPREME COUl'tT REPogTs
927
learned Judges who heard the :tppmd held, disagreeing
with the Trial Judge, that the good8 remained the
sellers' property tiU the goods had been brought on
board the ship and so the sales were exempted from
tax under Art. 286(l)(b) of the Constitution. They
however agreed with the Trial Judge that the sellers
were liable 'to pay purchase tax under s. lO(b) of the
Bombay Sales Tax Act.
Accordingly they directed
the Sales Tax Officer not to enforce the demand for
payment of sales tax with regard to the sales of cotton
for Rs. 68,493-2-6. and sale of castor oil of the total
value of Rs. 6,47,509-1-6.
The Sales Tax Officer has, on the strength of special
leave granted by this Court, preferred the appeal
which has been nnmbe.red as Civil Appeal No. 45 of
1959 o,gainst the appellate court's order directing him
not to realise the sales tax in respect of sales of cotton
and castor oil.
Civil Appeal No. 46 of 1959 has been
preferred by the sellers against the appellate court's
judgment in so far as it upheld the as.sessment of
purchase tax under s. lO(b).
The only question for our decision in the a.ppeal by
the Sales Tax Officer is whether property in the goods
passed on shipment or· at some point of time before
shipmAnt. The law is now
well-s~ttled that if the
property in the goods passes to the huyer after they
have for the purpose of export to a foreign country
crossed the customs frontier the sale has taken place
"in course of the export" out of the territory of India.
If therefore· in the present sales the property in the
goods passed to the buyers on shipment, that is, after
they had crossed the customs frontier the sales must
be held to have taken place "in the course of export"
and the exemption under Art. '286(l)(b) will come into
operation. The sellers' case is that these were sales
on .FOB contracts. Though the learned SolicitorGeneral appearing on bei1alf of the Sales Tax Officer
tried to convince us that these were not really FOB
contract sales, it appears that the avermeut in Paras.
11 and 13 of the writ petition that these sales were
made on FOB basis were not denied in the counter
affidavit sworn by the Sales Tax Officer. It is also
IJ. f.:. !l'adeyar
v.
,11 /s. D(lt1lalra111
Ra1nc·s1iwarlal
Das GHpla ].
v.
J\fjs. J)a11lat1·a111
Ua111e.\hu.-e1rlal
Das Gffjila ].
!l28
Sl:PRE'.111': COURT HEPORTS
[l!l61]
worlh 11olicini:r that. iu tho a"~c~sn1<~nt 1mler it~elf the
i:;al·~ Tax Officn ref1,rred to t ht'se saleH as sales on
FOB basis. Tlw spccim<:n contract produced also used
the words" FOfl delivered''. There can be no doubt
therefore that the~e wne sales 1111drr FOB contracts.
The normal rule in FOB contracts is that. the property
is intended to pass and does pass on the shipment of
the goods.
In certain circumstances, e.g., if the seller
takes the hill of lading t.o his own order and parts
with it to a third person the property in the good.~, it
has been held, does not pass to the buyer even on
shipment.
We are not concerned here with the question w hethcr the passing of property in the goods was
postponed even afkr ship01ent. The correctness of
the proposition that in the n.bsence of special agree.
ment the property in the goods doPs not pass in the
case of a FOB contract until the go<•ds are act nally
put on hoard is not disputed before us.
As bas howeYer been rightly stressed by tht> learned Solicitor General it is always open to the parties t-0
come to a different agreement as to when thll prop<'rty
in the goocls shall pass. The quest.ion whether there
was such a different agreement has to be decided on
a consideration of all the surruundiug circumstances.
He relics on t.hree circumstances to convince us that
tho Hellcrn and their buyers agreed in thPse sales that
the property will pass to the buyer even before shipruent..
The first circumstanco on which he relies is
that the bill of lading was taken in the name of tlrn
buyer.
Along wit.h this fact we have to consider
however the fact that t.ht> bill of lading was retained
by the sellers, the contract being that payment will be
made on the presentation of the hill of lading .. It is
not disputed that the term in the contract for "payment at Bombay against presentation of documents"
means this. It was the sellers who received the bills
of la.ding and it was on the presentation of these bills
of lading along with the invoices that the buyer paicl
the price.
When the hills of lading though made out
as if. the goods were shipped by tho buyer, were
actually obtained and retained bv the sellers, that
fa.ct itself would ordinarily indicate >J.n intention of
!
;
•
...
'
(
I S.C.R. SUPHEME COURT REPOHTS
929
the parties that the propert.y in the goods would not
pass till after payment.
The second circumstance to which our attention
has been drawn is that the export was under the contract to be under the buyer's export licence. This, in
our opinion, shows nothing. The ordinary rule in FOB
contracts is that it is the duty of the buyer to obtain
the necessary export licence. That was laid down in
Brandt's case (1) and though in a later case in Hardy v.
Pound(') the Court of Appeal in England. held that
the judgment in Brandt's case (1) does not cover every
FOB contract and that in the special facts of the particular case before them it was for the sellers to obtain
the licence and this view was approved by the House
of Lords (1956 A. C. 588), it is in our opinion correct
to state that the presumption in FOB contracts is
that it is the duty of the buyers to obtain export
licence, though in the circumstances of a particular
case this duty may fall on the sellers.
The third circumstance on which reliance is placed
on behi,tlf of the Sales Tax Officer is that the Export
Control Order, 1954, which was passed in the exercise
of powers conferred by Import & Export Control Act,
1947, conta.ined a provision in its clause 5(2) in these
words:-" It shall be deemed to be a condition of that
licence .... .' ........... :.that the goods for the export of
which licence is granted shall be the property of the
licensee at the time of the export". It has been strenuously contended by the learned Solicitor· General
that it will be rea.sona.ble to think t,hat the parties to
the co:itract intended to comply with this condition
and to agree as between themselves that the goods
shall be the property of the licensee, that is, the buyer, at the time of the export. It is argued that the
time of the export should be interpreted as the time
when the customs frontier is crossed and that we must
proceed on the basis that the buyer and the sellers
intended that the goods shall be the buyer's property
at the point of time when they crossed this frontier.
We see however no justification ·for. thinking that it!
this clause " the time of the export " means the time
(1) [1917] 2 KB. 784.
(2) [1955] 1 Q.B. 499.
B. l\-. Wacteyar
v,
M /s. Daulatram
Ra1neshwarlal
Das Gupta l,·
v.
M/s. Da11latra111
Ranieshu..arlal
Das Gllpta j.
930
SUPRE:\IE COl:RT REPORTS
[J 961]
when the goods cross the customs frontier.
Export
has been defined in the Import & Export (Control)
Act, 1947, as" taking our of lmlia by sea, land or
air". Iu the Exports (Control) Order, 1954, the word
must bo taken to have the snme meaning as in the
Act.
On that definition the time of the export is the
time when the goods go out of the territorial limits of
India. These territorial limits would include the territorial watcrR of India. Consequently the time of
the export is when tho ship with the goods goes beyond the territorial limits.
At any rate, thP t>xport
of the goods cannot ho considered to have commenced
before the ship carrying goods leaves the port. The
intention of the parties that in compliance with the
requirements of cl. 5(2) of the Exports (Control) Order
the goods shall be the property of the licensee at the
time of the export would therefore meirn nothing more
than that the property in the goods shall pass immediately before tho •hip goes beyond the territorial
waters of the country, or at the earliest when the ship
lea,·es the port.
Whichever view is taken there is
nothing to indicate that the intent ion to comply with
the requirements of cl. 5(2) of the Exports (Control)
Order carries with it an intention that the proμerty
should p~ss to the buyer at the time the goods cross
the customs frontier.
It is true that in the United
Motor's Case(') and in other cas('s it. has been held
by this Court that the course of export commerwcs to
run when the goods cross the customs barrier.
What
the court had to consider in these cases was not how.
ever whC'n export commences within the meaning of
the Exports (Control) Order but when thC' cour"e of
export commences for the purpose of Art. 286(l)(b) of
the Constitution. For the reaHons which need not be
detailed here it was decided that the course of export
commences at the time when the goodH cross the customs barrier. These decisions as regards the commencement of the course of export arc of no assistance
in deciding about the point of time when the export
proper commences.
As we havo already pointed out
when ex port has been deli ncd in the Im port & Ex port
(1) (1953) 4 S.T.C. 133.
::
1 S.C.R. SUPREME COURT REPORTS
931
(Control) Act, 1947, as "taking out of India by land,
sea, or air'', export in the Export Control Order,
cannot be held to have commenced till at least the
ship carrying the goods has lef_t the port, though 1 it
may in some contexts be more correct to say that it
does not commence till the ship has passed beyond
the territorial waters.
·
. We have therefore come to the conclusion that there
is no circumstance '\\
1hich would justify a, conclusion
that the parties came to a special agreement that
though the sales were on FOB contracts property in
the goods would pass to the buyer at some point of
time before shipment.
We think that the learned
judges who heard the appeal in· the Bombay High
Court were right in their conclusion that the goods
remained the sellers' property till the goods had been
brought and loaded on board the ship and so the sales,
were exempted from ta:x: under Art. 286(l)(b) of the
Constitution.
In Civil Appeal No. 46 of 1959 the appellant(s' contention is that on a correct 'interpretation of the, provision,s of s. lO(b) of the Bombay . Sales_ Tax Act no
purchase tax was leviable from them. Section lO(b)
provides for the levy of a purchase tax on the turnover of purchase of- goods specified in column l of
Schedule B, at the rates, if any, specified against such
goods in column 4 of the said schedule, "where a certificate under cl. (b) of s. 8 has been furnished in respect of such goods and the purchasing dealer does not
show to the satisfaction of the Collector that the goods
have been despatched by him or by a person to whom
he has sold the goods to an address outside the State
of Bombay within a period of six months from the
date of purchase by the dea_ler furnishing such certifi- -
cate ". Section 8(b) provides for the deduction from
the turnover, of sale of goods to a dealer who holds an
.authorisation and furnishes to the selling dealer a certificate in the prescribed form declaring inter alia that
the goods so sold to him are -intended for being despatched by him or by registered dealers to whom he
sells the goods to an address outside the State\ of Bombay. Admittedly such a certificate was furmshed by
B. K. Wadeya1
v.
M/s. Daulatram
Rlimeshwarlal
Das Gupta ].
B. K, IFadt;ar
v.
/\.f ,',.:.. /Ja1flatra;:1
Runu~/,;('o-/al
!J32
SCPRK\JE COCRT REPOllTS
[1961]
111,'s. Daulat.ram R11mcshwarlal i11 respr,ct. of the castor·
oil which they sold to others a11d that iu respect of
these sales lo them their sell<'rs wen' allowed clt·ductions. It is equally trndisput.c·d that. the persons to
whom M;s. Daulatrnm R1unrsh1rarlal sold the t'."ods
were sont to an addrfsS out,;ide the State of Btanbav
within a period of six mont bs from the date of pur:_
chase by :II/s. Daulatram Ham<·sh ll'arlal. Th<'so 1x·1so1;s
an1 however 11ot registered d,.alers.
The Sides Tax
Officer as also the High Court of Born bar has held
that the" persou tu l\'.i10m he h1ts sold the -goods" in
s. IO(bj means" a regisl<•red d<»iil'r to whom he has
Hold the goods". It is r,011tc·w.Jed before us on bt·half
of tbe appellant-d1•alers that the word " a person" is
wide enough to include a wgistered dealer a11d au unregistered dealer.
lt is urged tlmt the use of the word
"a person" i11stead of the words "a registered dealer" is delibemt.e and that it was .the intention of the
Lf'gislature to levy purchase t.:n on a person who has
given such certificate u11der s. 8(b) ouly if the goods
were not despatched outsid" the i:itate of Bombay
within the prescribed period by i.11ybody. Lt is therefore contended that" a person" in s. 8(b) should be
interpreted to include a registered dealer or anybody
eh;e.
We are 1111abh• to agree.
A clm;e exltmination
of ss. 8 and IO justifies the condusiou tb<>t the LcgisIat.ure was anxiou~ to s<•curn that. the declaration as
regard~ inteution of the goods Leiug despatched outside tho State of Hom bay should be carried out by clt.•Hpatch by "a registered dealer" tu whom he sells tbo
goods. If such despatch outside the State of Bombay
is by a pen;on to whom the ccrtifyi11g dealer has sold
the goods but who is not a registered dealer the cerliticaw has not been complied with. lt will be in ou1·
opinion uureasouable to thiuk tbat. though the Legislature insisted that the certificate shonld deelarn t.ho
goods purchased were intended .. fur ueiug despatclwc.I
by him or by a registered dealer to whom he sell." t.he
goods outsic.le the State ,,f I.lorn bay ", the LegiHlat urn
would be content to accept actual despatch outsidP the
St1Lte of Bombay by one who is not a registered dealer
as suilicient. Mr. Sanyal contended that the certificate
( .•
J
•ij
;
"
1 S.C.R. SUPREME COURT REPORTS
933
has to declare only an intention and th&t if ultim&te-
'960
ly the actual despatch is made by some person who is B. K. Wadeyar
not a registered dealer, it cannot strictly be said that
v.
the declaration has not been carried out.
It,. might M/s. Daulatra'ln
very well be that if at the time a decl11.ration of intenRameshwarl~l
tion is made in the certificate the purchasing dealer
had the intention as stated and ultimately he sells to
Das Gupta f.
a person who is not a registered dealer for despatch of
the goods ou1'side the State of Bombay, the purchasing dealer may not be liable for having made a "false
declaration". Even though he has not made a false
declaration of his intention, the fact remains that the
intention declared has not been carried out.
The
scheme of the Legislature clearly is that where the
intention as declared has not been carried out purchase tax should be levied. To hold otherwise
would be to make the declaration of the intention
useless.
Our conclusion therefore is that the courts below
have rightly interpreted the words "a person" in
s. lO(b) of the Bombay Sales Tax Act as a" registered
dealer" and that the purchasing dealers have rightly
been as8essed to purchase tax under s. lO(b).
In the result, both the appeals are dismissed with
costs.
Appeals dismissed.
AMBA LAL
v.
THE UNION OF INDIA AND OTHERS.
(B. P. SINHA, c. J., J. L. KAPUR,
P. B. GAJENDRAGADKAR, K. SuBBA RAo and
K. N. WANCHOO, JJ.)
Evidence-Customs authorities recovering articles suspected to
have been smuggled-Accused pleading articles brought from Pakistan
at time of partition-Burden of proof-Imports Exports Control
Act, I947 (IO of z947), s. 3-Sea Customs Act, z878 (8 of z878),
ss. z9, z67(8) and z78-A-Land Customs Act, z924 (Ig of z924),
ss. 5 and 7-Indian Evidence Act, z872 (r of r872), s. ro6.
II9
October 3.