# Octobn 3r r960 The State of J( er ala G Others v. The Cochin Coal Co1npany Ltd

- **Citation:** [1961] 2 S.C.R. 219
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal No. 287 of 1958
- **Bench:** S. K. DAs, M. HIDAYA'l'ULLAH, K. C. DA.s GuPTA J.C. SHAH, N. Ra.Ja.Gopala Ayyanga.R
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/octobn-3r-r960-the-state-of-j-er-ala-g-others-v-the-cochin-coal-co1npany-ltd-2218
- **Pages:** 10

## Headnote

Sales Tax-Explanation Sales-Sale and delivery of coal to
Steamship-Whether in the course of export-Constitution of India,
Art. 286-United States of Travancore and Cochin General Sales
Tax Act, n25, s. 6-Notiftcation dated February 5, I954·
The respondent stocked 'bunker coal ' at Candle Island in
the State of Madras. They sold the coal to steamers calling at
the port of Cochin in the State of Travancore-Cochin and
delivered it there. The respondent was assessed to sales tax on
such sales for the year 1951-52 and 1952-53. The respondent
contended that no sales tax could be levied on these sales since
they were either sales' in the course of export' or in 'the course
of inter-State trade' exempt from sales tax under sub-cl. (1) (b)
or cl. (2) of Art. 286 of the Constitution and in the alternative
that they were exempt from tax under a notification dated
February 5, 1954, issued by the appellant State under which
sales falling within the Explanation to Art. 286(1)(a) made
during the period 4-1-1951 to 31-3-1953 were exempted from
liability to pay tax.
Held that the sales were exempt from . tax under the
Government Notification. The coal was delivered to the actual
consumer, i.e., the steamships in Travancore-Cochin and they
were at liberty to consume it :wherever they desired, either
within the State or outside the choice depending on its convenience and necessity. The delivery wa·s for consumption
within the State and the sales fell within the txplanation to
Art. 286(1)(a).
Though the sales were in the course of inter-State trade
which were covered by the ban on taxation imposed by Art.
286(2) the levy was validated by the Sales Tax Validation Act,
1956.
M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh, [1958] S.C.R. 1422, relied on.
The sales were not made ' in the course of export ' and
were not covered by the ban imposed by Art. 286(1)(b).
For
Art. 286(1)(b) to apply it was not sufficient that the goods merely
moved out of the territory of India, but it was further necessary
that the goods should be intended to be transported to a destination beyond India. The concept of 'export' in Art. 286 postulated the existence of two termini between which the goods were
in tended to be transported.
1960
Octobn 3r
r960
The State of
J( er ala G Others
v.
The Cochin Coal
Co1npany Ltd.
220
SUPREME COURT REPORTS
[1961]
Burmah Shell Oil Storage & Distributing Co. of India Ltd. v.
The Commercial Tax Officer, C.A. 75I of I957 & C.A. IO of 1958
(Unreported} followed.

## Text

2 S.C.R. SUPREME COURT REPORTS
219
THE ST ATE OF KERALA AND OTHERS
·v.
THE COCHIN COAL COMPANY LTD.
(S. K. DAs, M. HIDAYA'l'ULLAH, K. C. DA.s GuPTA
J.C. SHAH and N. RA.JA.GOPALA AYYANGA.R, JJ.)
Sales Tax-Explanation Sales-Sale and delivery of coal to
Steamship-Whether in the course of export-Constitution of India,
Art. 286-United States of Travancore and Cochin General Sales
Tax Act, n25, s. 6-Notiftcation dated February 5, I954·
The respondent stocked 'bunker coal ' at Candle Island in
the State of Madras. They sold the coal to steamers calling at
the port of Cochin in the State of Travancore-Cochin and
delivered it there. The respondent was assessed to sales tax on
such sales for the year 1951-52 and 1952-53. The respondent
contended that no sales tax could be levied on these sales since
they were either sales' in the course of export' or in 'the course
of inter-State trade' exempt from sales tax under sub-cl. (1) (b)
or cl. (2) of Art. 286 of the Constitution and in the alternative
that they were exempt from tax under a notification dated
February 5, 1954, issued by the appellant State under which
sales falling within the Explanation to Art. 286(1)(a) made
during the period 4-1-1951 to 31-3-1953 were exempted from
liability to pay tax.
Held that the sales were exempt from . tax under the
Government Notification. The coal was delivered to the actual
consumer, i.e., the steamships in Travancore-Cochin and they
were at liberty to consume it :wherever they desired, either
within the State or outside the choice depending on its convenience and necessity. The delivery wa·s for consumption
within the State and the sales fell within the txplanation to
Art. 286(1)(a).
Though the sales were in the course of inter-State trade
which were covered by the ban on taxation imposed by Art.
286(2) the levy was validated by the Sales Tax Validation Act,
1956.
M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh, [1958] S.C.R. 1422, relied on.
The sales were not made ' in the course of export ' and
were not covered by the ban imposed by Art. 286(1)(b).
For
Art. 286(1)(b) to apply it was not sufficient that the goods merely
moved out of the territory of India, but it was further necessary
that the goods should be intended to be transported to a destination beyond India. The concept of 'export' in Art. 286 postulated the existence of two termini between which the goods were
in tended to be transported.
1960
Octobn 3r
r960
The State of
J( er ala G Others
v.
The Cochin Coal
Co1npany Ltd.
220
SUPREME COURT REPORTS
[1961]
Burmah Shell Oil Storage & Distributing Co. of India Ltd. v.
The Commercial Tax Officer, C.A. 75I of I957 & C.A. IO of 1958
(Unreported} followed.
CIVIL APPELLATE JURISDICTION:
Civil Appeal
No. 287 of 1958.
Appeal from the Judgment and Order dated tho
10th September, 1956, of the formerTravancore-Cochin
in Original Petition No. 191 of 1955.
Sardar Bahadur, for the Appellants.
K. P. Abraham, P. George and M.R. Krishna Pillai,
for the Respondent.
1960. October 31. The Judgment of the Court
was delivered by
Ayyaugar J.
AYYANflAR J.-This is an appeal from the judgment
of the High Court of Travancore.Cochin on a certificate of fitness granted by it under Art. 133(1) of the
Constitution and raises for consideration the liability
of the respondent-The Cochin Coal Company Ltd.-
to sales-tax under the United State of Travancore and
Cochin General Sales Tax Act, 1125 (1950).
The following are briefly the facts which it is necessary to state in order to appreciate the points in controversy in the appeal. The Cochin Coal Company
Ltd. which will be referred to as the respondentCompany are, as their name indicates, dealers in coal.
The commodity, the sales of which have given rise
to the dispute in this appeal is what is known as
'Bunker coal'. The company have their offices at a
place called Fort Cochin which was formerly within
the State of Madras. They import and keep stocks
of " bunker coal " stacked at a place called Candle
Island which at the date relevant to these proceedings
was also within the State of Madras. Part of the
activities of the respondent-company consist in the
supply of" bunker coal " from their depots in Candle
Island to steamers arriving in or calling at, the port
of Cochin (in the State of Travancore-Cochin) for the
outward voyage of the steamers from the said port.
The usual procedure by which "bunker coal" was
. thus supplied by the respondent-company was briefly
--
2 S.C.R. SUPREME COURT REPORTS
221
this : Before the arrival of the steamers, the steamer
agents would enter into contracts with the respondentcompany for trimming coal into the bunker of the
steamer. As soon as a steamer arrived in Cochin
port, the steamer-agents would inform the respondentcompany and these agents after securing the necessary papers from the customs and the port authorities for the loading of the colj.l into the steamer, would
take these papers to the respondent-company's office
in Fort Cochin for enabling the latter to perform their
part of the con.tract .. The respondent-company would
thereupon send the goods ordered to the steamer
through their transport contractor. Delivery orders
would be issued to the transport contractor on the
strength of which goods would be released from their
stock in Candle Island. Coal would then be taken to
the steamer berthed in the port in Travancore-Cochin
State waters.
The Chief Engineer ·of the steamer
would inspect the coal and when the same was to his
satisfaction as regards quality, the coal would be permitted to be trimmed into the bunkers of the ships.
The price of the coal would thereafter be paid to the
respondent-company on bills drawn on the steameragent. The a.hove being the nature of the transactions conducted by the respondent-company, sales-tax
was claimed on the sales of bunker coal by the Travancore-Cochin State.
The assessment years with
which this appeal is concerned are 1951-52. and 195253, and the assessment therefor was completed on
February 2, 1954, by the sales-tax officer, I Circle,
Mattancherry. The respondent-company's contention
that no sales-tax could be levied on the value of the
"bunker coal" supplied, since the sale was either "in
the course of export '', or "in the course of inter-State
trade" and therefore exempted from taxation by the
State under sub-cl. (l)(b) or (2) of Art. 286 was rejected by the assessing officer for the reason that the sales
in question fell withiil the Explanation to Art. 286
(l)(a) and were therefore "inside" the State of Travancore-Cochin, since the delivery in pursuance of
the sale took place within the State and the goods
were delivered for the purpose of consumption within
Th• State of
J{erala & Others
v.
The Cochin Coal
Company Lid.
Ayya11gar } .
The Stale of
J(erala b Other!'.
v.
The Cochin Coal
Co1npany Ltd.
Ayyangar ]·
222
SUPREME COURT REPORTS
[1961]
the State and that notwithstanding that there was an
inter-State element involved in the sale, by the goods
being moved from Candle Island, the same did not
affect the power of the delivery State to levy the tax.
The point urged by the company, that the same sales
had been assessed to tax in Madras State as sales actually taking place there, was also rejected as irrelevant.
The respondent-company tihereafter filed an appeal to
the Appellate Assistant Commissioner who allowed
the appeal of the company holding that the sales were
"in tho course of export" within Art .. 286(l)(b), and
that even if they were not such but were "inside"
sales falling within the Explanation to Art. 286(l)(a)
of the Constitution, still a notification by the State
Government dated February 5, 1954, exempting such
sales fn>m tax, operated for the benefit of the assessee. Thereafter the Deputy Commissioner of sales-tax
who was the Revisional authority took up the matter
8UO motu, called upon the assessee to show cause why
the appellate order should not be set aside and the
entire turnover assessed to. sales-tax as the sales had
taken place inside the State only.
After hearing the
assessee-company the order of the appellate Assistant
Commissioner was set aside and that of the Sales Tax
Officer restored. The respondent-company then moved the High Court of Travancore-Cochin under Arts.
226 and 227 of the Constitution to set aside the order
in revision and the learned Judges of the High Court
ordered accordingly. They, however, granted a certificate under Art. 133(1) of the Constitution to enable
the State Government to file an appeal to this Court
and that is how the matter is now befere us.
Though the respondent-company appear to have
presented before the High Court several lines of argument in support of their contention that they were
entitled to exemption from sales-tax in respect of
"bunker coal" trimmed by them into steamers in the
waters of Travancore-Cochin, the learned Judges
rested their decision in favour of the respondent-company on pra<?tically a single ground. Their reasoning
was briefly as follows:
Following the Bengal Immunity case ('), the learned Judges held that, the bans
(ii [1955] 2 S.C.R. 6o3-
'
t ..
I
'
·'
2 s.c.R. SUPREME COURT REPORTS
223
imposed by els. l(a.) and 2 of Art. 286 were independent and tha.t the sale of the coal by the respondent-
.
The State of
company which was in the course of inter-State trade Kera/a & Others
was covered by the ban contained in Art.
286(2) of
\'.
the Constitution notwithstanding that the sale might The Cochin Coal
satisfy the terms of the Explanation to sub-cl. l(a). c0111Pany Ltd.
The learned Government Pleader, however, had submitted that if the exemption was derived from Art.
286(2), the same would not assist -the assessee, since
the validity of the tax was saved by the Sales!tax
Law Validation Act, 1956. The learned Judges however held that the validation Act could not avail the
State becaur:ie on their construction of s. 26 of the
Travancore-Cochin Genera.I Sales Tax Act, 1125 (corresponding to s. 22 of .the Madras Sales Tax Act, 1939)
no tax had been levied or was leviable on sales in the
course of inter-State trade or commerce and that the
Validation Act having validated only taxes already
levied could not enable the State to levy a tax which
had not been imposed by the State's Sales-tax Act.
There is no doubt that the transaction of sale in
the present case was in the course of inter-State trade
and would be covered by the ban on taxation imposed
by Art. 286(2).
But the view of the learned Judges
of the High Court regarding the construction of s. 26
of the Travancore-Cochin General Sales Tax Act must
now be held to be incorrect in view of the decision of
this Court in M. P. V. Sundararamier &1 Go. v. The
State of Andhra Pradesh (1). If therefore the assesseecompany could rely only on Art. 286(2) for claiming
relief, it must be held to be not available to them
since the Sales Tax Validation Act, 1956, would have
validated the levy.
Before us, however, learned Counsel ior the respondent-company urged two grounds to sustain the decree of the High Court in its favour.
The first was
that as the coal trimmed into the steam-ships were
meant to be carried outside the territory of India, the
sale was " in the course of export " within Art. 286
(l)(b) of the Constitution and was therefore exempt
from the levy of sales-tax by the State. This contention however has to be rejected in view of the decision
(1) [1958] S.C.R. 1422.
Ayyangar ].
224
SUPREME COURT REPORTS
[1961]
i96o
of this Court in Burmah Shell Oil Storage & DistributTh 5
1
ing Go., of India, Ltd. v. The Commercial Tax
Kera;a :;'.'~:hers Officer(') iu which it was held that in the context and
v.
setting in which the expression " export out of the
The Cochin Coal territory of India " occurs in Part XIII of the ConstiCompany Ltd. tution, it was not sufficient that goods were merely
moved out of the territory of India but that it was
Ayyanga' f.
further necessary that the goods should be intended
to be transported to a destination beyond India, so
that they were in the course of " import " into some
other locality outside India and accordingly that aviation spirit sold to an airc)'aft for enabling it to fly
out of the country was not "exported " out of the
country. The reason was that there was no destination at which it could be said that the spirit was imported and that a mere movement of the goods out of
the country following a sale would not render the
sale one " in the course of export " within Art. 286
(l)(b) of the Constitution. In other words, the concept
of export in Art. 286 postulates just as the word import, the existence of two termini as those between
which the goods are intended to move or between which
they are intended to be transported, and not a mere
movement of goods out of the country without any
intention of their being landed in specie in some foreign port.
The other point urged by learned Counsel was that,
in any event, the sale fell within the Explanation to
Art. 286(l)(a) inasmuch as the delivery of the coal was
effected in the State of Travancore-Cochin for the
purpose of consumption in that State. There is no
doubt that the goods having originally been located in
Candle Island in Madras State were moved out of that
State by reason of the contract of sale into the territory of Travancore-Cochin. It had therefore an interState element which rendered the Explanation applicable. The delivery was admittedly effected in the
State of Travancore-Cochin as a direct result of that
sale and was trimmed into the steam-ships in the
Cochin waters. If the purpose of the delivery was
(r) C.A. 7 _·,1 of 1957 & c.A. IO of 1958 (Unreported).
2 S.C.R. SUPREME COUR'l' REPORTS
225
not export as we have held earlier; it nrnst follow that
i96o
in the circumstances of this case it was for the purs
d 1
The State uf
pose of consumption in the
tate since the
e ivery Kerala & Others
was to the ultimate consumer who was to use the
v.
goods for his own purposes and not for the purpose of The Cochin Coal
re-export or with a view to other transactions of a
Company Ltd.
commercial character in the goods.
It would be
noticed that the ultimate buyer-the steam-ship comAyyangar f.
pany could, if it desired, consume the goods in the
sense of exhaust the goods by consumption within the
State or it could take it outside the State and consume it there, but that was a matter of its choice,
dependent on its will and pleasure. This would not
therefore detract from the delivery to it being for
consumption within the State. Goods might be con.
sumed either by destruction or by way of use depending on the nature of the goods. Thus edible articles
are generally consumed in a literal sense · w bile other
articles like clothing or furniture etc. are consumerl
by being used, though they are not destroyed by such
use. If edible articles are sold and delivered to an
ultimate consumer within a State, it is delivered for
the purpose of consumption within the State, notwithstanding, that the buyer may not choose to consume
the whole of his purchase within the State but takes
part of it outside the State and consumes it there. If,
for instance, a vehicle is sold to the actual user and
the sale is not in the course of export o~· with a view
to further commercial transactions in it by the purchaser by way of resale etc., the delivery to the user is
for the purpose of his consumption within the State.
The fact that such a purchaser might in the exercise
of the enjoyment of his property-by way of use or
" consumption "-drive the vehicle to other States
does not detract from the original delivery to him falling within the Explanation to Art. 286(1)(a). In the
present case, the coal having been delivered into the
ship for being consumed by it, it was open to the
master of the vessel to use the coal while the ship was
in the waters of Travancore-Cochin, or if he so chose
take it outside those limits. The position might be
29
Ig6o
The Slate of
Kerala & Others
v.
The Cochin Coal
Company T.td,
Ayyangar ].
226
SUPREME COURT REPORTS
[1961]
different if the buyer were obliged by contract or by
law not to use or consume the goods sold within the
State of delivery, i.e., where he has no choice to consume it there. )n the case on hand, part of the coal
delivered could and would certainly have been used
by the ship during the period of her stay in the harbour for loading and if such stay were prolonged
owing to unforeseen causes even the entire coal might
have been exhausted and of course it would have to
be used till the ship left the limits of the port and the
limits of State territory. The crucial fact therefore
was that the coal was delivered to the actual consumer who was at liberty to consume it wherever he
desired-the choice depending on his convenience and
necessity.
In the circumstances, therefore, learned Counsel for
the respondent was right in his submission that the
sale of the "bunker coal" by the assessee-company
fell within the Explanation to Art. 286(l)(a). If there
were nothing more and the liability of the assessee
had to be judged with reference to the charge imposed
by the Sales-tax Act of the State, read in the light of
the Constitution, the tax liability of the respondentcompany would not have been open to doubt or dispute. Hut the submission of learned Counsel was that
the State Government had power to exempt sales of
any pa~ticular designated type from tax liabilit.y
under s. 6 of the Sales-Tax Act, and that the Government had by a notification dated February 5, 1954,
and published in the official Gazette, exempted sales
such as by the respondent-company in the present
case from the levy of sales-tax during the assessment
years now in question. The exemption under this
notification was no doubt not referred to by the learned Judges of the High Court but had been one of the
grounds on which the sales-tax appellate authority
had set aside the tax imposition by the Sales-tax
Officer and the point had been specifically urged in
the petition filed in the High Court under Art. 226,
and the respondent cannot, therefore, be denied the
benefit of the notification if it applied.
Section 6 of the Travancore-Uochin Sales-tax Act
enacts:
I
2 S.C.R. SUPREME COURT REPORTS
227
"The Government may, by notification in the
Gazette, make an exemption .................. in respect of
any tax payable under this Act :-
(i) on the sale of any specified class of goods at
all points or at any specified point or points in the
series of sales by successive dealers ; or
(ii) of any specified class of persons in regard
to the whole or any pa.rt of their turnover".
It is not necessary to set out the rest of the section.
In the Tra.va.ncore-Cochin Gazette dated February 16,
1954, the following notification dated February 5,
1954, appeared:
" According to the interpretation given by the
Supreme Court to Art. 286(1) of the Constitution in
their judgment in the State of Bombay v. United
Motors India. Ltd. certain categories of inter-State
transactions come within the taxing powers of the
State Government. While the judgment enables the
Government of Travancore-Cochin to levy sales-tax
on certain categories of non-resident dealers selling
goods for delivery and consumption in TravancoreCochin State from the 1st April 1951, the Govern~
ment have, after due consideration, decided to levy
sales-tax on such transactions only from the 1st
April 1953-the date immediately following that on
which the Supreme Court delivered its judgment and
to forego the levy prior to that date".
Then followed provisions detailing the interim
arrangements for submission of returns, of declarations to be filed and the manner in which the tax
should be assessed and paid. Though the learned
counsel for the appellant-State urged that the notification could not have the statutory effect of granting
exemption, we a.re clearly of the opinion that this was
and must be deemed to be one issued in exercise of
the power conferred on the State Government by
s. 6(1) whose relevant terms we have already extracted.
Besides, this is rather a curious submission to
make in view of what had transpired earlier. The
appellate Assistant Commissioner who set aside the
assessment of the respondent.company stated in his
order" Even if it is considered that the sale is for
The State of
Kera/a C:~· Others
v.
The Cochin Coal
Company Ltd.
Ayyangar } .
r960
The State of
Kerala & Others
v.
The Cochin Coal
Company Ltd.
Ayyangar J.
228
SUPREME COURT REPORTS
[1961]
consumption in this State, the company need not pay
tax on the turnover since Government have exempted
from payment of tax on the sales which took place
before April 1, 1953 ". When this appellate order was
set aside by the Deputy Commissioner acting suo motu
in revision, there is no reference made to the notification in the order and it was not stated that it had no
statutory effect. In its petition to the High Court
under Art. 226, the respondent-company claimed the
benefit of the exemption granted by the notification
dated February 5, 1954, and published in the Gazette
of February 16, 1954, relating to the assessment
for the period April 1, 1951 to April 1, 1953 and it
added that the assessment in question came within
the exemption contained in the Gazette notification.
In answer to this a counter-affidavit was filed by the
sales-tax officer who said : " The notification referred
to in the petitioner's affidavit has no application to
the case as the sales in question did not come within
their orbit". In other words, the objection was not
that the notification was not a statutory exercise of
the power under s. 6(1) and effective to grant an
exemption to the cases covered by it, but that the
transactions of the respondent-company were not
covered by the notification. The extract we have
quoted from the notification shows that it is specially
designed to afford relief to cases of non-resident dealers engaged in inter-State transactions which were
held to be intra-State transactions by reason of the
application of the Explanation to Art. 286(l)(a) to
such sales by the decision of this Court in the United
Motors case.
As the respondent company's transactions in question clearly fall within the notification
by reason of their nature as well as the assessment
years concerned, the respondent-company would be
entitled to the benefit of the tax exemption conferred
by the notification.
The result is that the appeal fails and is dismissed
with costs.
Appeal dismissed.
;-