# STATE OF BmAR & ANR v. TATA ENGINEERlNG & LOCOMOTIVE CO. LTD

- **Citation:** [1971] 2 S.C.R. 849
- **Court:** Supreme Court of India
- **Decided:** 1970-11-27
- **Case number:** Civil Appeal No. 2402 of 1966
- **Bench:** J. c. SHAH, G. K. Mitter, K. s. HEGDE, A. N. Grover, A. N. Ray
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-bmar-anr-v-tata-engineerlng-locomotive-co-ltd-5130
- **Pages:** 8

## Headnote

Constitution of India, 1950, Art. 286(2) as it originally· stood-En
1he course of inter-State f.rade or co1nn1erce, nieaning of,
The assessee, having its registered office in Bombay and its factory
in Bihar, was ca!Tying on the business of manufacturing and selling trucks,
bus chassis and spare parts to their appointed dealers and others. Agreements were entered into between the assessee and the appointed dealers,
under which, each dealer was assigned a territory in which alone the dealer
could sell. 1be dealers had to place the indents, pay the price of g<>ods
to be purchased and o&tain delivery orders from the Bombay office.
In
pursuance of the delivery orders the trucks etc. were delivered in Bihar
to be taken to the territories assigned to them for sale there. If the
dealers failed to abide by the term requiring them to move the goods
outside the State of Bihar they would have committed breach of their
contracts.
On the question whether the turnover relating to the sales made by
the a'ssessee to its dealers for sale by them in their respective territories
outside the State of Bihar, during the period 7th September 1955 to 31st
March 1956, was exempt from liability to pay sales-tax under the Bihar
Sales Tax Act, on the ground that the sales took place in the coutse
of inter-State trade or commerce, under Art. 286(2) as it then stood.
HELD : Where under the . terms of a contract of sale, the buyer is
required, as a nec~ssary lmcident of the con!Tact, to remove the goods
frum the State in which he purchased the goods to ano)her State and
when the goods are so removed, th.e sale must be considered as a sale in
tire course of inte!r-State trade or commerce. [854 G-H; 858 A·lll
State of Travancore Cochin v. The Bombay Co. ·Ltd. [1952] S.C.R.
1112, Str.te of Travancore Cochin v. Shanmugha Vi.al Cashew Nut Factory, [1954] S.C.R. 53, Bengal Immunity Co. Ltd. v. State of Bihtll',
[1955] 2 S.C.R. 603, Endupuri Narasimham & Son v. State of Orlua,
[1962] 1 S.C.R. 314, 'Tala Iron & Steel Co. Ltd. v. S. R. Stll'kar, (1961]
I S.C.R. 379, The Cement Marketing Co. of India (P) Ltd. v. Stale of
MyJort, 14 S.T.C. 17~, ~Ben Gorm Nilgiri Plantations Co. v. Sales .Tax
Officer, Special Circle, Ernakulam, (1964] 7 S.C.R. 706, K. G. Khosla &
Co. (P) Ltd. v. Dy. Commissioner of Commercial
Taxes,
Madras,
17 S.T.C. 473 and Tata Engineeri~g & Locomotive Co. Ltd. v. Asstt. Commi.«itmer of Commercial Taxes & Anr. [1970] 1 S.C.C. 622, applied.
Coffee Board, Bcnga/ore v. Joint Commercial Tax Officer, Madras. 15
S.T.C. 528, explained.
CML APPELLATE JURISDICTION: Civil Appeal No. 2402 of
1966.
12-l694SupCl/71
850
SUPREME COURT REPORTS
[1971] 2 S.C.R.
Appeal by special leave from the judgment and order dated
A
May 4, 1966 of the Patna High Court in Misc. Judicial Case No.
284 of 1962.
A. K. Sen and U. P. Singh, for the appellants.
N. A. Palkhivala, S. B. Mehta, B. Datta,. for the respondent.
B

## Text

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849
STATE OF BmAR & ANR.
v.
TATA ENGINEERlNG & LOCOMOTIVE CO. LTD.
November 27, 1970
[J. c. SHAH, G. K. MITTER, K. s. HEGDE, A. N. GROVER
AND A. N. RAY, JJ.]
Constitution of India, 1950, Art. 286(2) as it originally· stood-En
1he course of inter-State f.rade or co1nn1erce, nieaning of,
The assessee, having its registered office in Bombay and its factory
in Bihar, was ca!Tying on the business of manufacturing and selling trucks,
bus chassis and spare parts to their appointed dealers and others. Agreements were entered into between the assessee and the appointed dealers,
under which, each dealer was assigned a territory in which alone the dealer
could sell. 1be dealers had to place the indents, pay the price of g<>ods
to be purchased and o&tain delivery orders from the Bombay office.
In
pursuance of the delivery orders the trucks etc. were delivered in Bihar
to be taken to the territories assigned to them for sale there. If the
dealers failed to abide by the term requiring them to move the goods
outside the State of Bihar they would have committed breach of their
contracts.
On the question whether the turnover relating to the sales made by
the a'ssessee to its dealers for sale by them in their respective territories
outside the State of Bihar, during the period 7th September 1955 to 31st
March 1956, was exempt from liability to pay sales-tax under the Bihar
Sales Tax Act, on the ground that the sales took place in the coutse
of inter-State trade or commerce, under Art. 286(2) as it then stood.
HELD : Where under the . terms of a contract of sale, the buyer is
required, as a nec~ssary lmcident of the con!Tact, to remove the goods
frum the State in which he purchased the goods to ano)her State and
when the goods are so removed, th.e sale must be considered as a sale in
tire course of inte!r-State trade or commerce. [854 G-H; 858 A·lll
State of Travancore Cochin v. The Bombay Co. ·Ltd. [1952] S.C.R.
1112, Str.te of Travancore Cochin v. Shanmugha Vi.al Cashew Nut Factory, [1954] S.C.R. 53, Bengal Immunity Co. Ltd. v. State of Bihtll',
[1955] 2 S.C.R. 603, Endupuri Narasimham & Son v. State of Orlua,
[1962] 1 S.C.R. 314, 'Tala Iron & Steel Co. Ltd. v. S. R. Stll'kar, (1961]
I S.C.R. 379, The Cement Marketing Co. of India (P) Ltd. v. Stale of
MyJort, 14 S.T.C. 17~, ~Ben Gorm Nilgiri Plantations Co. v. Sales .Tax
Officer, Special Circle, Ernakulam, (1964] 7 S.C.R. 706, K. G. Khosla &
Co. (P) Ltd. v. Dy. Commissioner of Commercial
Taxes,
Madras,
17 S.T.C. 473 and Tata Engineeri~g & Locomotive Co. Ltd. v. Asstt. Commi.«itmer of Commercial Taxes & Anr. [1970] 1 S.C.C. 622, applied.
Coffee Board, Bcnga/ore v. Joint Commercial Tax Officer, Madras. 15
S.T.C. 528, explained.
CML APPELLATE JURISDICTION: Civil Appeal No. 2402 of
1966.
12-l694SupCl/71
850
SUPREME COURT REPORTS
[1971] 2 S.C.R.
Appeal by special leave from the judgment and order dated
A
May 4, 1966 of the Patna High Court in Misc. Judicial Case No.
284 of 1962.
A. K. Sen and U. P. Singh, for the appellants.
N. A. Palkhivala, S. B. Mehta, B. Datta,. for the respondent.
B
The Judgment of the Court was delivered by.
Hegde, J.
This is an appeal by special leave: It arises from
the judgment of the High Court of Patna in a Reference under s.
25(3) of the Bihar Sales Tax Act, 194 7. That reference was called
for by the High Court at the instance of the assessee company (the c
respondent herein). The questions referred for the opinion of the
High Court by the Board of Revenue were :
"(!) With regard to the sales which t9ok place in the
period from !st of April, 1955 to the 6th
September 1955, whether the assessee is entitled,
upon the facts found by the Board of.Revemie
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wiih regard to these categories of sales, to exemption from liability. under the Bihar Sales-Tax:
Act because of the provision of Article 286(1)
(a) of the C9nstitution ,as it stood at the relevant
date read with the explanation to that article.
(2) Witih regard to the sales which t.ook place in the
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period from 7th September, 1955, to 31st
March, 1956 whether the assessee is entitled, μpon the facts found by the Board of Revenue with
regard to these categories of sales, to exemption
from liability under the Bihar Sales-tix Act on
the gr9\Jnd that the Sjiles took place in the course
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of inter-State trade or commerce under Art.
286(2) of the Cons~tUtion as it stood at the rl}-
levant period.'~
The High Court answered the first question in the negative and
against the assessee. It answered the second question in the affir,
mative. and in favour of the asses see. The asses see has not come
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up in· appeal. This appeal has been brought by the Stile of Bihal:'
contesting the correctness of the opjnion given by the High Court
on the second of the two questions referred to earlier.
The assessee is a Public Limited Co., incorporated under the
Indian Companies Act, 1913: It carries on business of manufacH
turing lj.lld selling infer-ali'a trucks and bus chassis and spare parts
thereof to their appointed dealers, State Transport Organizations
and. ir.dividual buyers throughout India. The registered office of
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BIHAR v. TATA ENGG. CO, (Hegdt, /,)
85 l
the assessee is at Bombay but its factory where manufacturing process is being carried on is at .Jamshedpur in Bihar. The assessee
has appointed several dealers all over India for the sale of its trucks,
bus-chassis and spare parts. Those dealers are appointed under
agreements entered into between them and the assessee. The turnover in dispute relates to the sales made by the assessee to its dealers
of trucks, bus-chassis and spare parts for being solJ in the
territories assigned to them under the dealership agreements. The
agreements between the assessee and its dealers appear to be
similar. Under the agreements, each dealer is assigned a territory
in which alone he can sell the trucks, bus-chassis and other spare
parts purchased by him from the assessee company.
He is forbidden from selling any one of those articles to any purchaser outside his territory. As per the agreements, dealers will have to place
their indents, pay the price of the goods to be purchased and
obtahi delivery orders from the Bombay office of the assessee.
In
pursuance of those delivery orders, trucks, bus chassis and other
spare parts were delivered in Bihar to be taken over to the territories assigned to them. Under the contracts of sale, the dealers
were required to remove the trucks, bus chassis and the spare parts
delivered to them in the State. of Bihar to. place outside Bihar.
These are facts found by the Board of Revenue and affirmed by
the High Court. On the basis of these facts, we have to decide
whether the sales wi1ih which we are concerned in this ·appeal are
sales that took place in the course of inter-State trade and commerce as contemplated by Art. 286(2) of the Constitution as it
stood a~ the relevant time. In other words the question for decision is whether the sales in question were sales for the purpose of
inter-State trade or commerce or whether they 'were sales in the
course of inter-State trade or commerce. As seen earlier, the High
Court has held that; those sales took place in the course of interstate trade or commerce.
The expression "in the course of' appearing in Art. 286(l)(b)
came up for consideration in State of TraVt111Core Cochin and Ors.
v. The Bombay Co. Ltd. (1) Therein in this Court held that whether
else may or may not fall within Art. 286(l)(b) of the Constitution,
sales and purcha~ which themselves occasion the export or import of the goods as the case may be out of or into, the territory of
India come within the exemption. In that case this Court further
observed that 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 for transport out of the country by land or sea. Such a
sale cannot be dissociated from the export without which it cannot
be ~ffectuated a~d the sale and the i:esultant export form parts of
a smgle transaction. Of these two mtegrated activities which to-
( ll [1952] S.C.R .. 1112.
852
SUPREME COURT REPORTS
[1971] 2 S.C.R.
gether constitute an export sale, whichever first occurs can well
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be regarded as taking place in the eourse of the other. Even in
cases where the property in the goods passed to the foreign buyers
and the sales were thus completed, wiibin the State before the
goods commenced their journey from the State, the sales must be
regarded as having taken place in the course of the export ,and
therefore exempt under Art. 286(l)(b). The same exposition of
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the law is true of cL (2) of Art. 286 as it stood prior to its amendment on September 11, 1956.
The next decision in which Art. 286(l)(a), l(b) and (2) came
to be considered by this Court is State of Travart(:ore Cochin and
Ors. v. Shanmugha Vilas Cashew Nut Factory and Ors. ( 1) Therein
thiF Court observed that the word "course" etymologically denotJes
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movement from one point to another and the expression "in the
course of" in Art. 286(1)(b) not only implies a period of time during which the movement is in progress bu~ postulates also a connected relation. Consequently, a sale in the course of export out
of the country should be understood in the context of Art. 286(1)-
(b) as meaning a sale taking place not only during the activities
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directed to the end of exportation of the goods out of the country,
but also as part of or connxted with such activities. Buq a pur-
,chase of goods for the purpose of export is only an act preparatory
to their export and not an act done in the course of the export of
the goods.
In The Bangal Immunity Company Ltd. v. The State of Bihar
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,and Ors.( 2 ) Venkatarama Ayyar, J. observed that a sale could be a
sale in the course of inter-State trade only if two conditions concur : (l) a sale of goods and (2) a transport of those goods from
Dne State to another under the contract of sale.
In Endupuri Narasimham and son v. The State of Orissa and
Ors.( 8 ), this Court held that in order that a sale-0r purchase might
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be inter-State, it is essential that there muse be a transport of goods
from one State to another under the contract of sale or purchase.
A purchase made inside a State for sale outside the State camt0t
itself be held to be in the course of inter-State and the imposition
of tax thereon is not repugnant ro Art. 286(2) of the Constiitution.
In Tata Jron and Steel Co. Ltd. v. S. R. Sarkar and ors.(')
this Court held that within cl. (b) of s. 3 of the Central Sales Tax
Act, 1956, are included sales in which propeniy in the goods
passes during the movement of the goods from one State to another
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by transfer of documents of title thereto and also covers sales in
which movement of goods from one State to anolih.er is the result ·
of a covenant or incident of the contract of sale and property. in
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(I) [1954] S.C.R. 53.
(2) . [1955] 2 S.C.R. 603.
(3) [1962] I, S.C.R. 314.
(4) [1961] I S.C.R. 379.
BIHAR v. TATA ENGG. co. (HeJ?de, J.)
853
A the goods passes in either State. Clause (b) of s. 3 of the Centra(
Sales Tax Act, 1956 says :
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"That no law of a State shall impose or authorise the
imposition of, a tax on the sale or purchase of goods
where such sale or purchase takes place in the course of
the import of goods into, or export of the goods out of,
the territory of India."
In The Cement Marketing Co. of India (fJrivate) Ltd. and
anr. v. The State a/Mysore and anr.(;'), this Court held that
where the goods were transported outside the State as required
by the contract of sale, they are inter-State sales
and hence
exempt from sales-tax.
On the facts of that case it was held that
the sales transactions themselves involved movement of goods
across the border.
In Ben Gorm Nilgiri Plantations Co. Coonoor and ors.
v.
Sales. Tax Officer,
Special Circle,· Ernakulam and ors.(")
this
Court had to consider what sales are sales in the course of export
and what sales are for the purpose of export.
In the course of
the judgment Shah, J. (one of us) observed :
"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
perties, 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 export of the commodity
sold may be regarded as a sale for export, but is not
necessarily to be regarded as one in the course of
export, unless the sale occasi<ms export."
In K. G. Khosla and Co. (P) Lrd. v. Deputy Commissioner
of Commercial Taxes, Madras( 3), this Court held that before a
sale could be said to have occasioned the import. the movement
of goods must have incidental to the contract or in pursuance of
the conditions of the contract and there should be no possibility
(I) t4, S.T.C. 175. (S.C.)
(2)
17 S.T.C. 473. (S.C.)
(3) [1964] S.C.R. 706.
854
SUPREME COURT REPORTS
[1971] 2 S.C.R.
the goods being diverted by the assessee for any other purpose.
meaning thereby that there should be no possibility of diversion
according to law or contract and not in breach of them.
In Tata Engineering and Locomotive Co. Ltd. v. The Asstt.
Commissioner of Commercial Taxes and anr. ('1), this Court after
referring to the earlier decisions observed :
"It has been laid down that the sale in the course
of export, predicated 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. To
occasion export there must exist such a bond between
the contract of sale and the actual exportation that each
link is inextricably connected with the one immediately
preceding it.
The principle thus admits of no doubt,
according to the decisions of this Court, that the sales
to be exigible to tax under the Act (Central Sales Tax
Act, 1956) must be sh.own to have occasioned the
movement of the goods or articles from one State to
another.
The movement must be the result
of a
covenant or incident of the contract of sale."
If we apply the principles enunciated by this Court in the
decisions referred to above to the facts of this case, it is obvious
that the sales with which we are concerned in this case are sales
in the course of inter-State trade.
The dealers were required to
move the trucks, buses, chass;s ilil1d other spare parts purchased
by them from the State of Bihar to places outside Bihar.
They
are so req~1ired by the terms of the contract> entered into by them
with the assessee.
They would have committed breach of their
contracts and incurred the penalty prescribed in their dealership
agreements, if they had failed to abide by the term requiring them
to move the goods outside the Sta'.e of Bihar.
The decided cases establish that sales will be considered as
~ales in the course of export or import or sales in the course of
inter-State trade and commerce under the following circumstances:
(1 ) When goods which are in export or import
stream are sold;
( 2) When the co11tract of sale or law under which
goods are sold require those goods to be exported or iniported to a foreign country or
from. a foreign country as the case may be or
are required to be transported to a State other
(I) [1970] I, s.r.r 622.
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BIHAR v. TATA ENGG. co. (Hegde, J.)
855
than the State in which the delivery of goods
takes place and
( 3) Where as a necessary incident of the contract of
sale goods sold are required to be exported or
imported br transported out of the
State
in
which the delivery of goods takes place.
But Mr. A. K. Sen, learned Counsel for the State of Bihar
contended that· this Court has taken a different view of the law
in Cuffee Board, Bangalore v. Joint Commercial Tax Officer,
Madras and anr. (1). According to him the ratio of that decision is that whenever goods are delivered in a State in pursuance
of a contract of sale, the sale in question becomes exigible to tax
in the State in which the goods are delivered unless
they are
taken out of the State for purposes .>f consumption and not resale,
or the same is taken out of the State in pursuance of an already
cxi&ting agreement to resell in the State to which it is taken. The
decision in Coffee Board case (supra) does not, in our opinion,
afford any basis for these contentions.
We have earlier noticed that this Court in a series of decisions
has pronounced in unambiguous tenns that where under the terms
of a contract of sale, the buyer is required to remove the goods
from the State in which he purchased those goods
to another
State and when the goods are so moved, the sale. in question must
be considered as a sale in the course of inter-State trade or commerce. This is a well established position in Jaw.
In the Co.ffee
Board case this Court did not deviate from this position nor
could it deviate as the earlier decisions were binding on it. Further in the course of his judgment, the learned Chief Justice who
spoke for the Court referred with approval to the earlier decisions
of this Court where distinction between the sales in the course of
inter-State trade or commerce and ~ales for the purpose of interState trade and commerce were explained.
On the basis of the
facts in that case, his Lordship came to the conclusion that the
export of the coffee in question was not integrated with the sales
with which the Court was concerned and that there was no direct
bond between the export and the sales.
In the course of his
judgment his Lordship observed :
"Here there are two independent sales involved in the
export programme.
The first is a sale between the
Coffee Board as seller to the export promoter.
Then
there is the sale by the export promoter to a foreign
buyer.
Of the latter sale, the Coffee Board does not
have any inkling when the first sale takes place. The
Coffee Board's sale is not in any way related to the
second sale.
Therefore, the first sale has no connec0) 25 S.T.C. 528 (S.C.)
856
SUPREME COURT REPORTS
[1971]2 S.C.lt.
tion with the second sale which is in the course of
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export, that is to say, movement of goods between an
exporter and an importer."
This finding clearly brings out the distinctien between
the
fact> of the Coffee Board's case (supra) and the facts
of •he
case> wherein this Court held that the sales in question were sales
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in the course of export or import. In the Coffee Board's cas~
this Court found that what was insisted on by the Coffee Board
was that the coffee set apart for the purpose of the export must
be exported; it was not incumbent for the purchasers at the
i1uction to export that coffee themselves; they may do it themselves
or they ma)I sell it to somebody who may export it outside India.
On that basis, this Court came to the conclusion that the sales
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effected by the Coffee Board are not sales in the course of export;
they are only sales for the purpose of export.
The ratio Of that
dern.ion does not bear on the facts before us. Herein, under the
terms of the contracts of sale, the purchasers were required to
remove the goods from the State of Bihar to other States.
Hence
the sales with which we are concerned in this case must be held to
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be >ales in the course of inter-State trade or commerce.
For the reasons mentioned above, we agree with the findings
of the High Court.
In the result this appeal fails and the same is
di;missed with costs.
V.P.S.
Appeal dismissed