# BEN GORM NILGIRI PLANTATIONS COMPANY, COONOOR AND ORS v. SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM AND ORS

- **Citation:** [1964] 7 S.C.R. 706
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, J. c. SHAH, N. Rajagopala Ayyangar, S. M. S!Kri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ben-gorm-nilgiri-plantations-company-coonoor-and-ors-v-sales-tax-officer-3107
- **Pages:** 18

## Headnote

Sales Tax-Sale of tea to local agents of Foreign buyersSales whether exempt under Art. 286(l)(b) of the Constitution-Constitution of India, Art. 286(1) (b)-Central Sales Tax
Act, 1956, s. 5.
The appellants were carrying on the business o'f growing
and manufacturing tea in their estates. The sellers of tea
were the appellants; the purchasers were local agents of
Foreign buyers. The sales were by public auction at Fort
Cochin. They were conducted by brokers of tea. The sales
were in conformity with the provisions of Tea Act of 1953.
The Sales-tax Officer assessed the appellants to pay sales tax
on transactions of sale of tea chests at the auctions held at
Fort Cochin in the years 1956-57 to 1958-59. Against the orders
of assessment the appellants filed petitions before the High
Court for writs of certiorari and for writs of prohibition restraining the Sales-tax Officer from proceeding with the collection of sales tax. The petitions were dismissed by the High
Court. With special leave the appellants appealed to this
c.,urt.
It was the common case of all the appellants that the purchases by the local agent of foreign buyers were with a view
to export the goods to their principals abroad and that the
goods were in fact exported out of India.
It was contended on behalf of the appellants that the sales
of tea were "in the course of export 0ut of the territory of
India", and thus exempt from taxation under Art. 286(l)(b)
of the Constitution.'
Held: (per Gajendragadkar, C. J., Shah and Sikri, JJ.)
(i) A transaction of sale which occasions export, or which is
effected by a transfer of documents of title after the goods
have crossed the customs frontiers, is exempt under Art.
286(l)(b) of the Constitution from sales tax levied under any
State· legislation. A transaction of sale which is a preliminary
to expert of the commodity sold may be regarded as a sale
for export, but is not necessarily to be regarded as one i'l the
course of export, unless the sale occasions export. Etymologieally the expression "in the course of expert'', contemplates
an integral relation or bond between the sale and th~ export.
In general where 4 sale is effected by the seller, and the
seller is not connected 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 •ale so that
the bond cannot be dissociated without a breach of the obligations arising by statute. contract of mutual understanding between the parties arising from the nature of the transaction the
sale is in the course of export.
-
-
7 S.C.R.
SUPREME COURT REPORTS
707
(ii) A sale in the course of export predicates a connection
1964
between the sale and export, the two activities being so integrated that the connection between the two cannot be volun-
. ~· q.,,,. .
tarily interrupted, without a breach of the contract or the gz.P"'t"..::::
co"lpulsion arising from the nature of the transaction. In the
alld1lithra
present casr there was between the sale and the export no
v.
such bond as would justify the inference that the sale and the Baka Ta:c OJ!i<a
export formed parts of a single transaction or that the sale
Bp<eiol Oirck, '
and export were integrally connected. The appellants were Ernolwlam aw4
not concerned with the actual exportation of the goods, and
OU..ra
the sales were intended to be complete without the export,
and as such it cannot be said that the said sales occasioned
export. The sales were rtherefore for export .and not in the
course of export. Therefore the sales by the appellant to the
agents of foreign buyers do not come with the purview of
Art. 286(i)(b) of the Constitution.
State of Travancore.Cochin v. Bombay Company Ltd.
[1952] S.C.R. 1112, distinguished.
State of Trav:incore-Cochin v. Shanmugha Vilas Cashew
N "t Factory. [1954] S.C.R. 53, State
of Madras v. Gurviah
N'aidu and Company Ltd. A.LR. 1956 S.C. 158, State of Mysore
v. Mysore Shipping and Manufacturing Co. Ltd. 13 S.T.C. 5

## Text

_Characters 0–39,971 of 51,075. This is a partial read: ask again with offset=39971 for what follows._

1964
.April 10
706
SUPREME COURT REPORTS
[1964]
BEN GORM NILGIRI PLANTATIONS COMPANY,
COONOOR AND ORS .
v.
SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM AND ORS.
[P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c. SHAH,
N. RAJAGOPALA AYYANGAR AND S. M. S!KRI, JJ.)
Sales Tax-Sale of tea to local agents of Foreign buyersSales whether exempt under Art. 286(l)(b) of the Constitution-Constitution of India, Art. 286(1) (b)-Central Sales Tax
Act, 1956, s. 5.
The appellants were carrying on the business o'f growing
and manufacturing tea in their estates. The sellers of tea
were the appellants; the purchasers were local agents of
Foreign buyers. The sales were by public auction at Fort
Cochin. They were conducted by brokers of tea. The sales
were in conformity with the provisions of Tea Act of 1953.
The Sales-tax Officer assessed the appellants to pay sales tax
on transactions of sale of tea chests at the auctions held at
Fort Cochin in the years 1956-57 to 1958-59. Against the orders
of assessment the appellants filed petitions before the High
Court for writs of certiorari and for writs of prohibition restraining the Sales-tax Officer from proceeding with the collection of sales tax. The petitions were dismissed by the High
Court. With special leave the appellants appealed to this
c.,urt.
It was the common case of all the appellants that the purchases by the local agent of foreign buyers were with a view
to export the goods to their principals abroad and that the
goods were in fact exported out of India.
It was contended on behalf of the appellants that the sales
of tea were "in the course of export 0ut of the territory of
India", and thus exempt from taxation under Art. 286(l)(b)
of the Constitution.'
Held: (per Gajendragadkar, C. J., Shah and Sikri, JJ.)
(i) A transaction of sale which occasions export, or which is
effected by a transfer of documents of title after the goods
have crossed the customs frontiers, is exempt under Art.
286(l)(b) of the Constitution from sales tax levied under any
State· legislation. A transaction of sale which is a preliminary
to expert of the commodity sold may be regarded as a sale
for export, but is not necessarily to be regarded as one i'l the
course of export, unless the sale occasions export. Etymologieally the expression "in the course of expert'', contemplates
an integral relation or bond between the sale and th~ export.
In general where 4 sale is effected by the seller, and the
seller is not connected 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 •ale so that
the bond cannot be dissociated without a breach of the obligations arising by statute. contract of mutual understanding between the parties arising from the nature of the transaction the
sale is in the course of export.
-
-
7 S.C.R.
SUPREME COURT REPORTS
707
(ii) A sale in the course of export predicates a connection
1964
between the sale and export, the two activities being so integrated that the connection between the two cannot be volun-
. ~· q.,,,. .
tarily interrupted, without a breach of the contract or the gz.P"'t"..::::
co"lpulsion arising from the nature of the transaction. In the
alld1lithra
present casr there was between the sale and the export no
v.
such bond as would justify the inference that the sale and the Baka Ta:c OJ!i<a
export formed parts of a single transaction or that the sale
Bp<eiol Oirck, '
and export were integrally connected. The appellants were Ernolwlam aw4
not concerned with the actual exportation of the goods, and
OU..ra
the sales were intended to be complete without the export,
and as such it cannot be said that the said sales occasioned
export. The sales were rtherefore for export .and not in the
course of export. Therefore the sales by the appellant to the
agents of foreign buyers do not come with the purview of
Art. 286(i)(b) of the Constitution.
State of Travancore.Cochin v. Bombay Company Ltd.
[1952] S.C.R. 1112, distinguished.
State of Trav:incore-Cochin v. Shanmugha Vilas Cashew
N "t Factory. [1954] S.C.R. 53, State
of Madras v. Gurviah
N'aidu and Company Ltd. A.LR. 1956 S.C. 158, State of Mysore
v. Mysore Shipping and Manufacturing Co. Ltd. 13 S.T.C. 529
and B.K. Wadear v. M/s. Daulatram Rameshwarlal fl951] 1
S.C.R. · 924, relied on.
M. R. K. Abdul Salem and Company v. Government of
Madras, 13 S.T.C. 629, explained.
Per Ayyangar, J. In the present case the sale and the
export being related to each other in the sense of one leading to the other are therefore within Art. 286(l)(b) of the
Constitution. There could be no difference in legal ·effect betw-een a salo to a Foreign buyer present in India to take delivery of the goods for transport to his country and a sale to
his resident agent for that purpose. The buyer was an agent,
who was not free to deal with th~ tea purchased by effecting
a local sale, but was under an obligation to his Foreign principal to export the goods purchased to a Foreign destination.
The goods purchased were in fact exported from this country.
It was with such a buyer that the appellants entered into the
transaction of sale. In other words it was a part of understanding between the seller and the buyer, inferrable from
all the circumstances attendant on these transactions that the
buyer was bound to export.
State o.f Travancore-Cochin v. Shanmugha Vilas Cashew
[1954] S.C.R. 53, State of Madras v. Gurviah Naidu and Co.
Ltd. A.LR. 1956 S.C. 158, State of Mysore v. Mysore Spinning
and Manufacturing Co. Ltd. A.I.R. 191!6 S.C. 1002 and East
India Tobacco Co. v. The State of Andhra Pradesh, f1963] 1
S.C.R. 404, referrP<l to.
(ii) Even though the Tea Act does not in terms prohibit internal sale of tea purchased alongwith export quota rights this
could be explained by the circumstance that the rights t~ export tea is considered a privilege which secures an economic ad~
vantage to the exporter and hence there was no need for any
statutorv compulsion to do so.
L'P(D)ISCI-2~(o)
708
SUPREME COURT REPORTS
[1964]
1964
CIVIL APPELLATE JuRJSDICTION:
Civil Appeals Nos.
Ben IJon•
396-413 of 1963. Appeals by special leave from the judgx;1g;,; Plantation• ment and order dated October 26, 1961 of the Kerala High
Com!.',i"!'i,f::-'' Court in Writ Appeals Nos. 104--106, 107, 109, 112, 108,
v.
113, 114, 111, 115, 116, 119, 120, 123, 124 and 122 of 1964.
Salea Tax Officer,
Special Circle,
ErMhlam
aad Otkera
BAall, J.
M. C. Setalvad, I. B. Dadachanji, 0. C. Mathur and
Ravinder Narain, for the appellants (in all the appeals).
V. P. Gopa/an Nambiar, Advocate-Genera/, Kera/a and
V. A. Seyid Muhammed, for the respondent (in all the
appeals).
April 10, 1964. The judgment of GAJENDRAGADKAR, C.J .•
SHAH AND SIKRJ JJ. was delivered by SHAH J. The dissenting Opinion of WANCHOO and AYYANGAR JJ. was delivered
by AYYANGAR J.
SHAH. J .-The Sales-tax Officer, Special Circle Ernakulam
assessed
the
appellants
under
the
TravancoreCochin General Sales Tax Act XI of 1125 M.E., to pay
sales-tax on transactions of sale of tea chests at the auctions
held at Fort Cochin in the years 1956-57 to 1958-59, rejeeting their contention that 'the sales were exempted from tax
by virtue of Art. 286(l)(b) of the Constitution. The appellants then petitioned the High Court of Kerala for writs of
certiorari quashing the orders of assessment and for writs
of prohibition restraining the Sales-tax Officer from proceeding with ·the collection of tax in pursuance of the orders of
assessment. Vaidialingam J., rejected the petitions and his
order was confirmed in appeal by a Division Bench of the
High Court of Kerala. With special leave, the appellants
have appealed to this Court.
The transactions of sale sought to be taxed by the Revenue authorities are in tea, wpich is a controlled commodity.
The Parliament enacted the tea Act (19 of 1953) to provide
for the control by the Union of the tea industry, including
the control of cultivation of tea in. and of export of tea
from, lndia and for that purpose to establish a Tea Board
and to levy customs duty cin tea exported from India. By
s. 3(f) "export" is defined as taking out of India by land.
sea or air to any place outside India other than a country
or territory notified in that behalf by the Central Government by notification in the Official Gazette. "Exp01t allotment" is defined by s. 3(g) as the total quantity of tea
which may be exported during any one financial year. Section 17(1) places an embargo upon exportation of tea unless
covered by a licence issued by or on behalf of the Board.
Section 18 provides that no consignment of tea shall be shipped or water-borne to be shipped for export or shall be exported until the owner has delivered to the Customs.Collector a valid export licence or special export licence or a
-
..
-
78.C.R.
SUPREME COURT REPORTS
709
valid permit issued by or on behalf of the Board or the
1964
Ccntial Goverih"ne:1t a:s the case may
be~ covernig the
Ben. Gom
quantity to be shipped. Section 19 authorises the Central Nilgiri Pla1'lalioM
Government to declare export allotments of tea for ead1 Oom~n~:"""'
financial year, and by s. 20 it is provided that any tea estate
a
v.
shall, subject to conditions as may be prescribed, have the 8't' Ti0
'?~··
fight to receive under the Act an export quota for each
~~m
financial year. Section 21 provides that the owner of a tea
and O!Au1
estate to which an export quota has been allotted for any
financial year shall have the right to obtain at any time
export licences during that year to· cover the export of tea
upto the amount of the unexhausted balance of the quota.
The export quota right is, by cl. (2) of s. 21. transferable,
subject to such conditions as may be prescribed and the
transferee of such right may again transfer the whole or
any part of his right provided that nothing in the sub-section shall operate to restrict the issue of licences for the export of tea expressed to be sold with export rights. The
other provisions are not material in deciding this group of
appeals.
Trade in tea in the State of Kerala-intemal as well
as export-is carried on through certain defined channels.
A manufacturer of tea applies for and obtains from the Tea
Board allotment of export quota rights on payment of the
necessary licence fee. The manufactured tea in chests is
then sent to Mis. T. Stanes & Company Ltd. who warehouse
the chests at Willingdon Island. Chests of tea are then sold
by public auction through brokers at Fort Cochin. With the
chests of tea for which export quota rights are obtained, export quota rights are sold by the auctioneer. At the auction
sale, bids for tea chests with export quota rights are given
by the agents or intermediaries in Cochin of foreign buyers.
Tea chests are delivered at the warehouses by MI s. T.
Stanes & Company Ltd. to the purchasers whose bids are
accepted. The agents or intermediaries of the foreign buyers
then obtain licences from the Central Government for export of tea chests under the export quota rights vested in
them under the purchases made at the auction sales.
Tea cannot therefore be exported otherwise than under
a licence: such a licence may be issued to a manufacturer
or to the purchaser of the quota granted by the Central Government to the manufacturer when tea is sold with export
rights. When auctions of tea with the export rights are held
at Fort Cochin, it is in this group of appeals common ground,
sellers on whose behalf the auctioneer acts as the agent
know that bids are offered by the buyers of tea for the purpose of export. It is also known that the bidder is an agent
. or an intermediary of a foreign buyer.
81wA, J.
710
SUPREME COURT REPORTS
[1964}
11161
!~ t!:e ~!!!e. hy !!!!C!!~!! to the agent or intermediary of
Be.• 11onr&
the foreign· buyer, in 'the course of export wiihin foe mean-
~~~~
ing of Art. 286(1) of the Constitution? If the sale is in the
..,.. 0t1o<r°":""' course of export out of the territory of India, any State law
v.
which imposes or authorises the imposition of a tax on such
~.i'c~' sale is, because of Art. 286(1)(b), invalid. Before the Consti-
~
'
tution was amended by the Constitution (Sixth Amendment>
a..i ou.u.
Act, 1956, there was no legislative guidance as to what were
J
transactions of sale in the course of export out of the terriBW. •
tory of India. But by the Constitution (Sixth Amendment>
Act, cl. (2) of Art. 286 was substituted for the original
clauses, and thereby the Parliament was authorised to formulate principles for determining when a sale or purchase
of goods takes place in any of the ways mentioned in cl ()).
The Parliament has under the Central Sales Tax Act (74 of
1956) enacted by s. 5 that "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 p_urchase 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.'.' This was legislative recognition of what was said by this Court in the .State
of Travancore-Cochin and others v. The Bombay Company
Ltd(') and State of Travancore-Cochin and others v. Shanmugha Vilas Cashew Nut Factory and others(') about the
true connotation of the expression "in the course of the export of tlie goods out of the territory of India" in Art. 286(1)
(b)., A transaction of sale which occasions export, or which
is effected by a transfer of documents of title after the goods
have crossed the customs frontiers, is therefore exempt from
sales-tax levied under any State legislation.
The appellants set out in their respective petitions the
manner in which sales tax of tea chests were conducted at
Fort Cochin and in certain petitions affidavits in rep)y even
were not filed by the State of Kerala. In the remaining petitions in which affidavits in reply were filed it was contend-· .
ed that the export of goods was made. by the purchasers
who had taken delivery of the goods from the manufacturers in Travancore-Cochin and in pursuance of the export
licences obtained by the purchasers goods were exported_
but such subsequent export by the purchasers did not affect
the character of the sales by the manufacturers to the purchasers. It is true that there is no finding by the Sales-tax
authorities that the respective purchasers at the auction
were agents of foreign buyers, but the Advocate appearing
on behalf of the State argued the case before the High Court
on the footing that the bids were offered at the auctions by
(') [1952] S.C.R. 1112.
(') [1954] S.C.R. 53.
-
•
7 S.C.R.
SUPREME COURT REPORTS
711
the agcnt5 or intermediaries or foreign buyers, and the Court
1964
proceeded to dispose of the case before it on that footing.
Ben Garno
Vaidialingam J., held that transactions of sale were g;~;,:,:;
1•;/:!;:;
complete when bids for purchase of tea together with the
and bu,.,,
export quota rights were accepted, and the sellers had no B<Uu T;;;. Oifi-,
concern with the actual export which was effected by the
Special Oirck,
auction purchasers to their foreign principals. It could not,
ErnakulaM
therefore, in the view of the learned Judge, be held that
and OtMra
the sales in question had as an integral part thereof occas1u.i., J.
sioned export; that is, ,the sales preceded the export and
were not in the course of export. The High Court in appeal
held that the ban imposd by Art. 286(l)(b) predicated a
casual connection between the sale and the export-a connection which is intimate and real. The sale, it was said,
must inextricably be bound up with the export and form an
integral part thereof, so that without export the sale is not
effectuated; but as the sale imposed or involved no obligation to export, there was no movement under 'the contract
of sale and exemption claimed was not admissible. Correctness of this view is chaJlenged in this appeal.
To constitute a sale in the course of export of goods
out of the territory of India, common intention of the parties
to the transaction to export the goods followed by actual
export of the goods, to a foreign destination is necessary.
But intention to export and actual exportation are not sufficient to POnstitute a sale in the course of export, for 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 the goods to a common
carrier or transport out of the country by land or sea. Such
a sale cannot be dissociated from the export without which
it cannot be effectuated, and the sale and resultant export
form parts of a single transaction": State of TravancoreCochin and others v. The Bombay Company Ltd.('). A sale
in the course of export predicates a connection between the
sale and export. the two activities being so integrated that
the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion
arising from the nature of the transaction. In this sense to
constitute a sale in the course of export it may be said that
there must be an intention on the part of both the buyer and
the seller to export, there must be obligation to export, and
there must be an actual export. The obligation may arise by
reason of statute, contract between the parties, or from
mutual understanding or agreement between them, or even
. from the nature of the transaction which links the sale to
export. A transaction of sale which is a preliminary to exp:lrt of the commodity sold may be regarded as a sale for
(') (1952] S.C.R. 1112,
712
SUPREME COURT REPORTS
[1964]
1964
export, but is not necessarily to be regarded as one in the
Ben GoNn
course of export, unless the sale occasions export. And to
Nilgiri Plantation• occasion export there must exist such a bond between the
O°"'!.d"lft~oonoor contract of sale and the actual exportation, that each link
a v. "
is inextricably connected with the one immediately precedsai.. Tax Olflcer, ing it. Without such a bond, a transaction of sale cannot be
~~·· called a sale in the course of export of goods out of the
and Dlh<r•
territory of India. There are a variety of transactions in which
Shah, J.
the sale of a commodity is followed by export thereof. At
one end are transactions in which there is a sale of goods in
India and the purchaser immediate or remote exports the
goods out of India for foreign consumption. For instance,
the foreign purchaser either by himself or through his agent
purchases goods within the territory of India and exports the
goods and even if the seller has the knowledge that the goods
are intended by the purchasers to be exported, such a
transaction is not in the course of export, for the seller does
not export the goods, and it is not his concern as to l;!ow
the purchaser deals with the goods. Such a transaction 'Vithout more cannot be regarded as one in the course of export because etymologically, "in the course of export", contemplates an integral relation or bond between the sale and
the export. At the other end is 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 transporting them to the purchaser. Such a sale'
would indisputably be one for export, whether the contract
and delivery to the common carrier are effected directly or
through agents. But in between lie a variety of transactions
in which the question whether the sale is one for export or
is one in the course of export i.e., it is a transaction which
has occasioned the export, may have to be determined on
a correct appraisal of all the facts. No single test can be
laid as decisive for -determining that question. Each case
must depend upon its facts. But that is not to say that the
distinction between transactions which may be called sales
for export and sales in the course of export is not real. In
general where the sale is effected by the seller, and he is not
connected 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 the sale so that the
bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding
between the parties arising from the nature of the transaction, the sale is in the course of export.
. It may be conceded that when chests of tea out of the
export quota are sold together with the export rights, the
goods are earmarked for export, and knowledge that the
goods were purchased by the bidders for exporting them to
7 S.C.R.
SUPREl\'IE COURT REPORTS
713
the foreign principals of the bidders must clearly be attriJ.9G4
butable to them. Does the co-existence of these circumstances,
Ben Gorm
impress upon the transactions of sale with the character of N(~ilgiri Plan0tatio ..
f h
.
f .ompan11. oonoor
a transaction in the course of export out o t e terntory o
and 'other•
India? We are unable to hold that it does. That the tea ,
v.
h
Id
h
· h
· ht ·
t
k
~ales 'l'e"O"ii:ir,
c ests are so
toget er wit
export ng s 1mpu_.es
no~-
Special cfrc1e.
ledge to the seller that the goods are purchased with the mErnal-ulam
tention of exporting. But there is nothing in the transaction
and Othm
from which springs a bond between the sale and the inShah, J,
tended export linking them up as part of the same transaction. Knowledge that the goods purchased are intend~d to
be exported does not make the sale and export parts of the
·same transaction, nor does the sale of the quota with 'the
sale of the goods lead to that result. There is no statutory
obligation upon the purchaser to export the chests of tea
purchased by him with tile export rights. The export quota
merely enables the purchaser to obtain export licence, which
he may or may not obtain. There is nothing in Jaw or in
the contract between the parties, or even in the nature of
the transaction which prohibits diversion of the goods for
internal consumption. The sellers have no concern with the
actual export of the goods, once the goods are sold. They
have no control over the goods. There is therefore no direct
connection between the sale and export of the goods which
would make them parts of an integrated transaction of sale
in the c011rse of export.
Decided cases on which reliance was placed at the Bar
have mainly been of cases in which the benefit of the exemption of Art. 286~1 )(b) was claimed in respect of sales preceding the export sale. Such a sale preceding the export could
not, it was held, without doing violence to the language of
Art. 286(1)(b), be given the benefit of the exemption from
tax imposed by State legislation merely because of its historical connection with the export sale. In ·a majority of the
cases to be presently referred there were at least two salessale under which goods were procured followed by a sale
un~er which the goods so procured were exported, and the
claim of the Revenue to tax the first transaction was upheld.
It may be regarded as therefore settled law that where there
are two sales leading to export-the first under which goods
are procured for sale and the property in the goods passes
with_in the territory ?f I1:1dia, and the second by the buyer to a
foreign party_ resultmg m export-the first cannot be regarded as a sale m the course of export, for a sale in the course
of export must be directly and integrally connected with the
expor~. It cann~t also be predkted that every sale which results m export 1s !o be regarded as sale in the course of export. We may bnefly refer td the cases whidh have come
before this Court. Justification for 'citation of the cases is
714
SUPREME COURT REPORTS
[1964}
1964
not to evolve a pinciple from the actual decisions, but t<>
Btm Gorm
highlight the grounds on which the decisions were rendered.
Nilgiri PZanta1iona The first case which came before this Court in which Art.
0""'!;d"og,,"°:""' 286(l)(b) fell to be construed was the State of Tmvancorev.
Cochin and others v. The Bombay Company Ltd.('). The
Sa1u Ta:. Ofoo,-,
;;;;;~;;;;~ who had exported coir products to foreign purchaBp«ial Circle,
Brnaktl/a"'
sers claimed exemption from sales-tax relying upon Art.
an4 OU....1
286(l)(b). The Revenue authorities held that property in
8haA
the goods having passed within the State, the transactions
' J.
were liable to tax. The High Court disagreed with that view,
holding that a sale in the course of export was not merely
a sale when the goods had crossed the customs frontiers, but
included a transaction which precede export. This Cou.rt
agreed with the High Court. In appeal Patanjali Sastri C.J.,
speaking for the Court observed that sales which occasioned
export were within the scope of the exemption under Art.
286(1)(b). But that was a case in which on the facts found
there could be no dispute that the sale by the assessee occa-
.. sioned export, for in pursuance of the contract the assessee
had exported the goods sold.
The next case which came before this Court was the
State of Travancore-Cochin and others v. Shanmugha Vilas
Cashew Nut Factory and others('). It was held by this Court
that purchases in the State made by the exporters for the
purpose of export are not v1ithin the exemption ,granted by
Art. 286(1)(b) of the Constitution. Patanjali Sastri C.J.,
speaking for the majority of the Court observed:
.
"The word 'course' etymologically denotes movement
from one point to another, and the expression
'in the couhe of' not only implies a period of
time during which the movement is in progress
but postulates also a connected relation.
•
•
•
• A siile in the course of export out
of the country should similarly be understood in
the context of clause (!)(b) as 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."
He further observed that the phrase "integrated activities'
cannot be dissociated from the export without which it
cannot be effectuated, and the sale ·and the resultant export
form parts of a single transaction. It is in that sense that
the two activities-the sale and the export-were said to be
integrated. But a· purchase for the purpose of . export like
production or manufacture for export, being only an act
(') [1952] S.C.R. 1112.
(') h954] S.C.R. 53.
7 S.C.R.
SUPREME COURT REPORTS
715
preparatory to export could not be regarded as an act done
1964
"in tJ...- -·-.... _,.. ... ._ ____ ..,._.. ... , .. 1.~ n .... ~
..
-~,t r.& .. i. ... terr't
--- .. u"' ~Ulo>C UL i.UC eApu11. \.11. Lil" C'-'VU~ Vw. .. ...,1. LlJV
1 ory
Ben Gorm
of India".
Nilgiri Planta1io ..
Company, OOMtOOr
In the State of Madras v. Gurviah Naidu and Company
an<i 01/Nr•
Ltd.('), S. R Das, Actg. C.J., observed that an assessee who sa1u'1'",;,,0lfar,
goes about purchasing goods after securing orders from
Sl"<ial Oircla.
foreign purchasers is not exempt from liability to pay tax by !::=
virtue of Art. 286(1)(b) of the Constitution in respect of the
purchases made by him because those purchases do not themShaA, J.
selves occasion the export. Goods were undoubtedly bought
for the purpose of export, but the purchase did not occasion
the export within the meaning of Art. 286(1)(b) of the Constitution.
Jn State of Mysore and another v. Mysore Shipping and
Manufacturing Co. Ltd. and others('), it was held that where
goods were sold to a Jicenced exporter by the assessee and
the licenced exporter sold the goods to a foreign purchaser
it could not be said that the first was in the course of export. The licenced exporter was not an agent of the lissessee
and the two sales could not have both occasioned the export :
it was only the second sale which did that, and the assessec
not being a party to it either directly or through the exporter
or through his agents, the first sale with which alone the
assessee was associated did not "Occasion the export. .If it
did not, then it hardly matters whether the goods were exported through the instrumentality of the exporter or not,
because all sales that precede the one that occasioned the
export were taxable. In this case the Court expressed the
opinion that for the sale to be one which occasions the export it must directly concern the assessee as an exporter.
In East India Tobacco Company v. The State of
Andhra Pradesh and another(') this Court held that only
the sale under which the export is made that is protectea by
Art. 286(!)(b) of the Constitution and a purchase made
locally by a firm doing business of exporting tobacco, which
preceded the export sale did not fall within its purview
though it is made for the purpose of or with a view to export.
One more judgment of this Court may be .noticed:
B. K. Wadeyar v. Mis. Daulatram Rameshwarlal('). The
assessees in that case sold goods to an Indian purchaser, who
had .ag£ee<!, to sell them to a foreign buyer. The sales by the
as~ssees
were on F.O.B. conttacts under which they
(') A.LR. (1956) S.C. 158.
(') A.I.R. (1958) S.C. 1002.
(') [1963] 1 S.C.R. 404.
(') [1961] 1 S.C.R. 924.
716
SUPREME COURT REPORTS
[1964}
'
1961
continued to be the owners" till the goods crossed the cusBen Gorm
toms barrier, and entered the export stream. It was heid by
Nilgiri Plantations this Court that since the goods remained the property of the
Co~f.'itflth~'::,"
00
' assessees till they reached the export stream, the sales were
v.
exempt from tax imposed by a State under Art. 286{1)(a).
&! .. T"" Officer, This was undoubtedly a case of two sales resulting in exSpecial Circle,
Ernakulam
port, and the first sale was 'held immune from State taxaand OU.era
tion: but that was so because the property in the goods had
passed to the Indian purchaser when the goods were in the
BW, J.
.
export stream. The first sale itself was so inextricably connected with the export that it was regarded as a sale in the
course of export.
Mr. Setalvad on behalf of the appellants placed strong
reliance upon the judgment of the Madras High Court in
M. R. K. Abdul Salam and Company v. 'The Government
of Madras('). That was a case in which a dealer in the State
of Madras in hides and skins after purchasing raw hides
tanned them and sent them to Kovai Tanned Leather Co.
Madras who acted as the dealer's agent for sale. Kovai Tanned Leather Company sold the goods to Dharamsee Parpia
. who acted as an agent of Srivan Brothers <Eastern) Ltd .•
London. There was another transaction between Kovai
Tanned Leather Co. and Gordon Woodrolle and Company
Ltd. who acted as agents for a foreign principal. The Salestax Tribunal refused to accept the transaction to Dharamsi
Parpia as an export sale on the ground that Kovai Tanned
Leather Company delivered the goods to the exporterDharamsi Parpia-and thereafter the ~xporter obtained the
bills of lading, and that the sale became complete in the
Madras State before shipment, and it was on that account
not a sale in the course of export. The High Court disagreed
with that view. Jagadisan J .. speaking for the Court observed.:
"Where there is. privity of contract between the
foreign buyer and the seller in the taxing territory and the concluded sale between them occasions the export even if the property in the goods
sold passes within the territory the transaction
is nevertheless one in respect of which Article
286 imposes a ban on the State to levy tax."
We are not concerned to decide whether there was evidence
in that case on which the High Court could come to the
conclusion that the sale occasioned the export. But Mr.
Setalvad relied upon the observation in support of the proposition that in all cases where there is a contract for purchase of goods in the taxing territory, between a local merchant and a foreign buyer acting through his agent, and the
(')13 S.T.C. 629.
7 S.C.R.
SUPREME COURT REPORTS
717
goods are after purchasing the same exported by the agent,
I961
the transaction must be deemed to be one in the course of
Ben· Gorm
export. We are unable to accept that contention. We do notNi!giri Plantations
read the judgment as laying down any such proposition, and
00
":!,.'d"bih~;:noor
none such is legitimately deducible. The second transaction
v.
in'favour of Gordon Woodrolfe & Co. was found to be one Sal8
"T.ax 0
0~r.
·
h" h
· th
ods
ed be
d th
to
pecia! '"1'•
m w 1c property m
e go
pass
yon
e cus ms
Erna1:o,1a,.
frontier. Such a transaction would indisputably be a sale
and Otliera
in the course of export.
In our view the transactions of sale in the present case
did not occasion the export of the goods, even though the
appellants knew that the buyers in offering the bids for
chests of tea and the export quotas were acting on behalf of
foreign principals, and that the buyers intended to export
the goods. There was between the sale and the export no
such bond as would justify the inference that the sale and
the export "formed parts of a single transaction or that the
sale and export were integrally connected. The appellants
were not concerned with the actual exportation of the goods.
and the sales were intended to be complete without the export, and as such it cannot be said that the said sales occasioned export. The sales were therefore for export, and not
in the course of export.
The appeals therefore fail and are dismissed with costs.
One hearing fee.
Slla/1,J.
AYYANGAR, J.-We regret our inability to concur in
Ayyangar, J.
the order that these appeals should be dismissed. We are
clearly of the opinion that the appeals should be allowed.
This batch of 18 appeals which have been heard together
are directed against a common judgment of the High Court
of Kerala and are before this Court by virtue of special leave
granted to the appellants. The appellants filed writ petitions
in the High Court which were dismissed by the learned
Single Judge whose judgment was affirmed on appeal by a
Bench of the High Court. It is from this judgment that these
appeals have been brought.
The appeHants. are 18 tea estates wn1cn llft: carrywg
on the busi;iess ~f jlfOwing and manuracmnng rea m 1nm
estates. Thelf clallll IS that the teas grown by them have i:>een
sold by them "in the course of the export of goods out of
the territory of IRdia" within Art. 286(1)(b) of the Constitution and they, therefore, claim that the State of Travancor~hin in which these sales took place was not entitled
to impose sales tax upon these sales.
The question for consideration is whether these sales
effected by the ~fpella.nts are, as they claim, sales "in the
course of export . It is common ground that the tea sold
T
718
SUPREME COURT REPORTS
[1964]
1964
under the transactions involved in these appeals was actualB•~ Gorm
ly exported out of the territory of India. Doubtless, this cirN;/giri PlamaJio•• cumstance would not per se render the sales which preceded
Company Coonoor the export "sales in the course of export" but the argument
and Ut11e'8
b . d
.
d"
ti
d ·
v.
su 1111tte
to us 1s that these exports are so rrec y an 1mSales Tax O.tfiur, mediately linked up with the sales effected by the appellants
8
PE,~!f,,'{.';;;·
and so integrated with them that the two form part of the
and Others
same transaction as to render the sales "sales in the course
of export".
Ayyarigar, J.
It was presented in this form, relying on the decision
of this Court in State of Travancore-Cochin v. Shanmugha
Vilas Nut Factory(') where the learned Chief Justice observed:
"The word 'course' etymologically denotes movement from one point to another and the expression 'in the course of' not only implies a period
of time during which the movement is in progress but postulates also a connected relation ...
. . .. . .. . . A sale in the course of export out of the
country should be understood in the context of
Art. 2860 )(b) as 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 previous decision
............ emphasised the integral relation between the two where the contract of sale itself
occasioned the export as the ground for holding
that such a sale was one taking place in the
course of export."
It is this integrality that is involved in the concept which
is expressed by the words that "the sale that occasions the
export" is "a sale in the course of export".
The details of the sales on which tax is sought to be
levied by the respondent, together with the facts relating
thereto, as well as the several contentions urged before us
and the decisions on which reliance is placed on either side
have all been narrated in the judgment just now pronounced
and we do not think it necessary to restate them. Similarly,
the provisions of the Tea Act, 1953 and the rules framed
thereunder so far they are relevant for the decision of the
question involved in these appeals have also been set out
and so we are not repeating them either. We shall confine
ourselves to the very restricted area of our disagreement with
our learned brethren which has occasioned this separate
judgment.
( ') [1954] S.C.R. 53.
7 S.C.R.
SUPREME COURT REPORTS
719
As preliminary to the discussion of the question involved, we shall put aside certain types of transactions as reg!l!ds
. ~ft Gorm •
which there is no dispute that they clearly fall on one side ~ilgiri P~
of the line of the other. On the one side of the line would
°"!'d"~':"
be the case where a seller in pursuance of a contract of sale
v.
with a foreign buyer puts the goods sold on board a ship 8'J/;:.:f.f0'/!!:: •
bound for a foreign destination. Such a sale would be an
Emahlam
"export sale" which would undoubtedly be within the conand Other•
stitutional protection of Art. 286(l)(b). In regard to this type,
AW""''"· J.
however, we would make this observation. In such a case
we consider that it would be immaterial whether or not with
reference to the provisions of the Sale of Goods Act, read
in conjunction with the terms and stipulations of any particular contract, the property in the goods passes to the buyer
on the Indian side of the customs frontier or beyond it. In
either event the sale would have occasioned the export, for
the sale and the export form one continuous series of trans-
. actions, the one leading to the other-not merely in point
of time but integrated by reason of a common intention
which is given effect to. In such a case it would be seen that
there is but one sale-to the foreign buyer "which occasions the export", and which is implemented in accordance
with the terms of the contract by an actual export which is
the sine qua non of "a sale in the course of export".
A case on the other side of the line would be one where
the sale is e.ffected to a resident purchaser who effects the
export by sale of the goods purchased to a foreign buyer.
Here the first sale to the buyer who enters into the export
sale would not be a "sale in the coutse of export" for it
would not be the particular sale which occasions the export, notwithstanding that the purchase might have been
made with a view to effect the export sale, or to implement
a contract of sale already entered into with a foreign buyer.
That such a sale is not one "in the course of export" has been
repeatedly held by this Court (See State of TravancoreCochin v. Shanmugha Vilas Cashew Nut Factory('), State
of Madras v. Gurviah Naidu and Co. Ltd.('), State of Mysore
v. Mysore Spinning and Manufacturing Co. Ltd.(') and East
India Tobacco Co. v. The State of Andhra Pradesh(').
This second type of case involves two sales-one to a
resident purchaser who purchases it with a view to effect
an export and the second, the export sale or sale in the course
of export. by the purchaser to a foreign buyer. The existence
of the two sales and the consequent dissociation between the
(') [1954] S.C.R. 5a.
(')A.LR. 1956 S.C. 158 = 6 S.T.C. 717.
(')A.LR. 1958 S.C. 1002.
(') [1963] 1 S.C.R.