# MURARILAL SARAWAGI ETC v. THE STATE OF ANDHRA PRADESH

- **Citation:** [1977] 2 S.C.R. 441
- **Court:** Supreme Court of India
- **Decided:** 1976-12-15
- **Case number:** Civil Appeals Nos. 1221-122<' of 1974
- **Bench:** A. N. R.Ay, C.J. M. H. Beg, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/murarilal-sarawagi-etc-v-the-state-of-andhra-pradesh-7055
- **Pages:** 5

## Headnote

Andhra Pradesh General Sales ·Tax Act, 1957-ltem I, Second ScheduleState Corporation entering into contract with local dealers on f.o.b. basis and
exporting to foreign countries-If sale in the course of export-Last purchaserA
B
W~ ~
C
Under item 1 in the Second Schedule to the Andhra Pradesh General Sales
Tax Act 1957, manganese ore was liable to be taxed at the point of purchase by
the last dealer who bought in the State.
·
The appellants sell manganese ore to the Mines and Minerals Trading Corporation which exports the ore to buyers in foreign countries.
Their contention
before the Sales Tax authorities that the sales of the ore to the .MMTC were
complete within the State of Andhra Pradesh and that it was the MMTC which
was the last purchaser liable to pay sales tax was rejected.
On appeal the
High Court held that the appellants' contracts with the MMTC were integrally
connected with the contract entered into by the . MMTC with the foreign buyer
and, as such, the appellants. were the last purchasers liable to pay the tax.
The respondent State contended before this Court that since the
property
in the goods passed from the appellants to the MMTC on board the ship in
view of the f.o.b. character of the contract, it was the appellants who, as the
last purchasers, were liable to pay the tax and not the MMIC.
Allowing the appeals,
HELD ; The law is that it has to be found out whether the contracts between the merchants and the Corporation are integrated contracts in the c0urse·
of export or different contracts. If thev ore different, the last purchaser witliin
the State is liable to pay the sales tax. [446G]
(i) The tests for finding out the sale in the course of export are that there
must be a single sale which itself causes the export or is in llhe progress or process of export. There is no roo~ for two or more sales in the course of export.
· The only sal-e which can be said to cause the export is the sale which itself
results in the movement of the gooas from the exporter to the importer.
[443E-F]
D
F
(ii) State Corporations are often the only authorities allowed to
export
goods out of the country.
These C?rpo~ations en.ter i1?to ~ontracts with foreign
buyers for export and the Corporallons m turn give directions to the merchants
G
to place the goods on board a ship.
These directions are not in the course of
export because the export sale is an independent one between the Corporations
and their foreign buyers. [444])-E]
<iii) In f.o.b. contracts the sellers' duty is to place the ~oods free on board
a ship named by the buyer but the mere mention of f.o.b.
price
or
f.o.b ..
delivery in a contract between the merchants and the trading corporations which
export the goods under a separate contract with the foreign buyers to the ·
latter will not make the two contracts either integrated or the contract between · H
the merchants and the Corporation an f o.b. contract.
There cannot be two
last ourchasers in the sale of the same goods within the same State.
There
cannot be two exporters in respect of the same goods.
[ 444G & 445C]
A
B
c
D
E
F
G
H
442
SUPIU!MI! COURT REPORTS
[1977] 2 S.C.R.
(iv) In st~ng contracts. th~ contracts between the Corporation and the foreign
buyers are . dtfferen_t and tt 1s the Corporation which enters into independent
contracts with foreign ~uyers on _f.o.b. basis.
Under the terms of the contract,
the merc~ants are reqmred to bnng the goods f.o. b. to the ship nam~d by the
Corporation.
[444C]
Mohd. Serajuddin .etc. v. State of Orissa [1975] Supp. S.C R.
169,
Coffee
Board, Bang_aior.e v. Joint Commercial Tax Officer, Madras [1970] 3 S.C.R. 147
afnldl Mids. Binam Bros. (P) Ltd. v. Union of India & Ors. (1974]
; S.C.C. 459,
o owe.
National Tractors Hubli v. Commissioner of Commercial Taxes Bangalore
[1971] 3 S.C.C. 143, no longer good law.

## Text

441
MURARILAL SARAWAGI ETC.
v.
THE STATE OF ANDHRA PRADESH
December 15, 1976
[A. N. R.AY, C.J. M. H. BEG AND JASWANT SINGH, JJ.]
Andhra Pradesh General Sales ·Tax Act, 1957-ltem I, Second ScheduleState Corporation entering into contract with local dealers on f.o.b. basis and
exporting to foreign countries-If sale in the course of export-Last purchaserA
B
W~ ~
C
Under item 1 in the Second Schedule to the Andhra Pradesh General Sales
Tax Act 1957, manganese ore was liable to be taxed at the point of purchase by
the last dealer who bought in the State.
·
The appellants sell manganese ore to the Mines and Minerals Trading Corporation which exports the ore to buyers in foreign countries.
Their contention
before the Sales Tax authorities that the sales of the ore to the .MMTC were
complete within the State of Andhra Pradesh and that it was the MMTC which
was the last purchaser liable to pay sales tax was rejected.
On appeal the
High Court held that the appellants' contracts with the MMTC were integrally
connected with the contract entered into by the . MMTC with the foreign buyer
and, as such, the appellants. were the last purchasers liable to pay the tax.
The respondent State contended before this Court that since the
property
in the goods passed from the appellants to the MMTC on board the ship in
view of the f.o.b. character of the contract, it was the appellants who, as the
last purchasers, were liable to pay the tax and not the MMIC.
Allowing the appeals,
HELD ; The law is that it has to be found out whether the contracts between the merchants and the Corporation are integrated contracts in the c0urse·
of export or different contracts. If thev ore different, the last purchaser witliin
the State is liable to pay the sales tax. [446G]
(i) The tests for finding out the sale in the course of export are that there
must be a single sale which itself causes the export or is in llhe progress or process of export. There is no roo~ for two or more sales in the course of export.
· The only sal-e which can be said to cause the export is the sale which itself
results in the movement of the gooas from the exporter to the importer.
[443E-F]
D
F
(ii) State Corporations are often the only authorities allowed to
export
goods out of the country.
These C?rpo~ations en.ter i1?to ~ontracts with foreign
buyers for export and the Corporallons m turn give directions to the merchants
G
to place the goods on board a ship.
These directions are not in the course of
export because the export sale is an independent one between the Corporations
and their foreign buyers. [444])-E]
<iii) In f.o.b. contracts the sellers' duty is to place the ~oods free on board
a ship named by the buyer but the mere mention of f.o.b.
price
or
f.o.b ..
delivery in a contract between the merchants and the trading corporations which
export the goods under a separate contract with the foreign buyers to the ·
latter will not make the two contracts either integrated or the contract between · H
the merchants and the Corporation an f o.b. contract.
There cannot be two
last ourchasers in the sale of the same goods within the same State.
There
cannot be two exporters in respect of the same goods.
[ 444G & 445C]
A
B
c
D
E
F
G
H
442
SUPIU!MI! COURT REPORTS
[1977] 2 S.C.R.
(iv) In st~ng contracts. th~ contracts between the Corporation and the foreign
buyers are . dtfferen_t and tt 1s the Corporation which enters into independent
contracts with foreign ~uyers on _f.o.b. basis.
Under the terms of the contract,
the merc~ants are reqmred to bnng the goods f.o. b. to the ship nam~d by the
Corporation.
[444C]
Mohd. Serajuddin .etc. v. State of Orissa [1975] Supp. S.C R.
169,
Coffee
Board, Bang_aior.e v. Joint Commercial Tax Officer, Madras [1970] 3 S.C.R. 147
afnldl Mids. Binam Bros. (P) Ltd. v. Union of India & Ors. (1974]
; S.C.C. 459,
o owe.
National Tractors Hubli v. Commissioner of Commercial Taxes Bangalore
[1971] 3 S.C.C. 143, no longer good law.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1221-122<'
of 1974.
(Appeals by Special Leave from the Judgment and Order dated
26-2-1974 of the Andhra Pradesh High Court in Tax Revision Ca!es
Nos. 5-10 of 1973).
A. K. Sen, S. T. Desai, B. M. Bagaria and D. P. Mukherjee, for
the appellants.
P. P. Rao and T. V. S. N. Chari for the respondent.
The Judgment of the Court was delivered by
RAY, C.J.
These six appeals are by special leave from the judgment dated 26 February, 1974 of the Andhra Pradesh High Court.
The principal question in these appeals is whether the appellants
are the last purchasers of manganese ore within the State of Andhra
Pradesh.
The appellants contended before the Sales Tax authorities
that their sales of manganese ore to the Mines and Minerals Trading
C-0rporation in short called the M.M.T.C. were complete within the
State of Andhra Pradesh.
The appellants therefore contended that
they were not the last purchasers but the M.M.T.C. was the last purchaser within the State, and therefore, the M.M.T.C. was liable to pay
the tax.
The High Court came to the conclusion that the· appellants were
the last purchasers in the State.
The High Court held that the contract between the appellants and the M.M.T.C. indicated
that
~e
appellants' contract of sale occasioned the export and that the contract of the appellants with the M.M.T.C. was integrally connected
with the contract entered into by the M.M.T.C. with their foreign
buyer.
In short, the High Court held that there existed
a bond
between the contracts of sale entered into by the appellants with the
M.M.T.C. and the actual exportation of the goods.
The High Court
held that these contracts were intrinsically linked and connected and
the sales effected were held to be sales in the course of export of
marurnnese ore out of the territory of India.
Y.
......
MURARILAL SAR.AWAGI V. ANDHR.A PUDESH (Ray, C.J.)
443
The Constitution Bench of this Court in the recent decision in
A
Mohd. Serajuddin etc. v. State of Orissa(') held that manganese merchants who bought manganese from mines and thereafter sold the
goods to the State Trading Corporation for short the S.T.C. could not
be said on the terms and conditions of the contracts in that case to be
exporters of the goods.
The S.T.C. contracts with the
manganese
merchants and the S.T.C. contracts with the Foreign Buyers
were.
held not to be integrated activities in the course of export.
The
B
crucial words in section 5 of the Central Sales Ta:ic Act 1956 are that
a sa:e or purchase of goods shall be deemed to take place out of the
territory of India only if the sale or purchase either occasions such
expo~t or is effected by a transfer of documents of title to the goods
after the goods have crossed the customs frontiers of India.
This
Court found that the contracts between the manganese merchants and
the S.T.C. on the one hand and the contracts between the S.T.C. and
C
their foreign buyers OIJ. the other were two separate and independent
contracts of sale.
The S.T.C. entered into direct contract with their
foreign buyers.
The S.T.C. alone agreed to sell the goods to their
foreign buyers.
The S.T.C. was the exporter of goods.
There was
no privity of contract between the manganese merchants
and the
foreign buyers from the S.T.C.
The privity of contract was between
lhe S.T.C. and the foreign buyers.
The immediate cause
of the
D
movement of goods and export was the contract between the foreign
llvyem who were the importers and tho S.T.C. who was the exporter
ad ihipper of the goods.
In Serajuddin's case (supra) this Court referred to the rulings in
Coffee Board Bangalore v. Joint Commercial Tax Officer Madras (')
and M/s Binarli Bros. (P) Ltd. V'. Union of India & Ors.( 8 ) as layini
E
down the correct tests to find out the sale in the course of export.
The tests are that there must be a single sale which itself causes the
export or is in the progress or process of export.
There is no room
for two or more sales in the course of export.
The only sale which
can. be said to cause the export is the sale which itse:f resultJS in the
movement of the goods from the exporter to the importer.
~
Counsel for the State submitted that there were six contracts and
it ha11 been the ciu;e of the appellants that the contractil were different,
and, therefore, there should be examination of five other contracts.
It may be 1>tated here that counsel for the State did not dispute that
ID.e decision in Serajuddin' s case (supra) applied to one of the six
contracts but he disputed the application of the ruling in Serajuddin's
F
case to the other five contr!lcts.
The reasons given by counsel for
G
the State are these.
Only one contract was referred to in the High
Court.
The case of the appellants has all along been that the Sales
Tax Appellate authorities considered on;y one contract.
The High
Court also considered only one contract.
In the special leave petition the appellants assailed the assumption made by the High Court
to the effect that all contracts between
the
appellants ·and tlie
M.M.T.C. were similar.
"'
H
(1) [1975] Supp. S.C.R. 169.
(2) [1970] 3 S.C.R. 147 ..
(3) [1974] l s.c.c. 459 ..
A
B
c
D
E
444
SUPREME COURT REPORTS
(1977] 2 S.C.R.
Counsel for the State put in the forefront the contention that the
M.M.T.C. could not be the last purchaser of goods within the S'.ate
of Andhra Pradesh because property in. the goods passed from
the
appellants to the M.M.T.C. on board the ship.
In aid of that contention reliance was placed on F.O.B. character of the contract between the appellant and the M.M.T.C.
The position is identical in all
the six contracts.
This Court in Serajuddin's case (supra) pointed out that mention
of F.O.B. price in the contracts between the manganese merchants
and the S.T.C. did not render these contracts F.O.B. contracts with
the foreign buyers from the S.T.C.
The reason is simple. The contracts between the S.T.C. and the foreign buyers are different contracts and it is the S.T.C. which entered into independent contracts·
with their foreign· buyers on F.O.B. basis.
Under the contracts between the manganese merchants and the S.T.C. the merchants were
required to bring the goods F.0.B. to the ship named by the S.T.C.
It has to be appreciatt:d that quite often merchants dealing
in
goods which are exported out of our country entgr into what is called
string contracts for purchase of the goods from the factory
or the
mines for sale to exporters for sale to foreign buyers.
The Trading
Corporations are often the only" authorities allowed to export out of
our country.
These Corporations enter into direct contracts
with
their foreign buyers for export.
The directions given by the Corporations to the merchants to place the goods on board the ship are pursuant to the contracts of sale between the merchants and the Corporation.
These directions are not in the course of export, because the
export sale is an independent one between the Corporation and their
foreign buyers.
The taking of the goods from the merchants' place
to the ship is completely separate from the transit pursuant to the
export sale (See Scrajuddin's case at pp. 184-185). ·
In string contracts or chain contracts delivery is made by the
original seller and eo instanti it is delivered in implement under each
F
separate contract in the chain.
In chain or string contracts starting
between the mills or mines or factories and their immediate buyer
and ending with the ultimate buyer through several intermediaries
+ ·
not only does the mill give and its immediate buyer take actual delivery but eo instanti each middleman gives and takes actual delivery
This process of delivery of possession goes all along the chain at the
same moment when delivery is made to
the steamer.
See
Duni
G
Chand Ra.taria v. Bhuwalka. Brothers Ltd. (1).
H
. In F.O.B. contracts the seller's duty is to place the goods "free on
board" a ship to be named by the buyer.
When the seller delivers
the goods for loading on board he normally obtains a mate's receipt
which he transmits to the buyer and the buyer exchanges this for the
proper bill of lading.
In this sort of F.O.B. contract the almost universal rule is that property and risk both pass on shipment as soon as
the goods are over the ship's rail and if it should be material, the
property and risk in each part of the cargo will pass as it crosses the
(1) (1955] l S.C.R. 1071.
MURARILAL SARAWAGI V. ANDHRA PRADESH (Ray, C.J.)
445
ship's rail.
The loading of the ·goods is an unconditional appropria-
.tiou- which passes the property.
This is not because of any peculiarity of F.O.B. contracts but because in this type of contract the seller's
duty is to deliver the goods F.O.B. Once they are on board the
seller has delivered them to the buyer and it is naturar that they should
thereafter be at the buyer's risk.
Now a days a party which has contracted to sell goods
to a
foreign buyer may itself buy the .goods F.O.B.
Indian port from
Indian seller in ord_er to fulfill F.0.B. contract with a foreign buyer.
This Court in Serajuddin's case (supra) has laid down that the
mere mention of F.O.B. price or F.0.B. delivery in contract between
a merchant and the S.T.C. which exports the goods under a separate
contract with the foreign buyer to the latter will not make the two contracts either integrated or the contract· between the merchant and the
. S.T.C. an F.0.B. contract.
There cannot be two· last purchasers in
the sale of same goods within the same State. Similarly, there cannot
be two exporters in respect of the same goods. After the decision of
the Constitution Bench in Serajuddin's case (supra) the decision in
National Tractors Hubli v. Commissioner of Commercial Taxes Bangalore(1) is no longer good law.
In the National Tractors case (supra) which was a three Judge
Bench decision reliance was placed on the decision in B. K. Wadeyar v.
M/s. Daulatram Rameshwarla/(2). In Wadeyar's case (supra) this
. Court said that the normal presumption attaching. to F.O.B. contracts ·
is that prope;rty in the goods passes only when they are put on board
the ship.
Wadeyar's case (supra) was before the Central Saies Tax
Act 1956. Further the Bill of Lading, the export licence and the export
clause all showed that the export did not commence till the ship left the
port.
A
B
c
D
E
In the National Tractors case (supra) it was said that the purchase
by the State Trading Corporation from the merchant was in the course
of export by the S.T.C. to the foreign buyer and, therefore, the purchase
by the merchant from the mine-owner W[\S the last purchase in the State.
The basis of the decision is that these were integrated F.O.B. contracts
F
in the course of export.
·
The decision in National Tractors case (supra) made no reference
to the decision of this Court in Coffee Board case (supra). The correct
law is laid down by this Court in the Coffee Board case and Serajuddin's
.case (supra). The law is this. It has to be found out whether the
contracts between the merchants and the Corporation are integrated
.contracts in the course of export or they are different. If they are
G
different contracts, . as they are in the present case, the last purchaser
within the State is the M.M.T.C.
·
For the foregoing reasons the appeals are accepted. The judgment
·of the High Court is set aside.
The parties will pay and bear their
-costs.
P.B.R.
.(1) [1971] 3 S.C.R. 143.
,(2) [1961] l S.C.R. 924.
Appeals allowed.
H