# State of Travancore· ' Oochin and Others v. Shanmuuha Vilas Cashew Nut Factory, and Others

- **Citation:** [1954] 1 S.C.R. 53
- **Court:** Supreme Court of India
- **Decided:** 1954
- **Case number:** Civil Appeals Nos. 26, 27 and 30 to 36 of 1952
- **Bench:** PATANJALI SASTRI c. J, Mukherjea, s. R. DAS, VIVIAN BosE, Ghulam Hasan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-travancore-oochin-and-others-v-shanmuuha-vilas-cashew-nut-factory-and-311
- **Pages:** 64

## Headnote

Constitiition of India, 1950, cirt. 286 (1) (a), (1) (b) and (2)-
Tax on scile or p11rchase of goods-Sales "oittside the State "-Sales
"·in the cmirse of" import or export-Sales "in the coiirse of interState trade orco1mnerce "-Nat-nre and incidents of-State's power
to fox-Scope of constitutional limitations.
Held, by (PATANJALI SASTRI 0.J., lVIUKHERJEA,
VIVIAN
BOSE and GHULAM HASAN JJ.)-(i) Sales and purchases 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
art. 286 (1) (b) and are exempt from State taxation. (ii) Purchases
in the State by the exporter for the purpose of export as well as
sales in the State by the importer after the goods have crossed the
customs barrier are not within the exemption.
(iii) Sales in the
State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs barrier are within '"
the exemption, assuming that the State power of taxation extends
to such transactions.
The word "course" etymologically denotes 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 prngress but postulates also a connected 'relation.
Consequently, a sale in the course of export out of the country
May8.
•
1963
State of
Travancore·
'
Oochin
and Others
v.
Shanmuuha
Vilas
Cashew
Nut Factory,
and Others.
54
SUPREME COURT REPORTS
(1954)
should be understood in the context of art. 286 (1) (b) as meaning
a sale taking place not only d~tring the activities directed to the
end of exportation of the goods out of the country, but also as 1Ja1·t
of or connected with such activities. But a purchase 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.
The respondents purchased ra'v cashew nuts within the State
of Travancore-Cochin, from the neighbouring States and also imported such nuts from Africa, for the purpose of refining them and
exporting them to America.
Imports from Africa were made in
the following ways:
(a) puxchases were made through intermediaries doing business as comm.ission agents at Bombay who
acted as agents for the respondents charging commission ; (b) the
commission agents at BombaY indented the goods on their O\Vn account and they sold the goods as principals to the respondents. In
either case the goods were shipped direct from Africa to a port in
the Travancore·Cochin State. It was found as a fact that the process of the factory was such that the goods were not the same
goods commercially after refinement:
Held 1 (i) as regards purchases made in the local inarkets of the
State they were not exempted under art. 286 (1) (b); (ii) as regards
purchases made in the neighbouring States, if the purchases \Vere
effected and delivery was taken by the respondents' servants outside the Travancore-Oochin State, they \vould be exempt under
art. 286, cl. (i) (a), and if the purchases were effected by employ·
ing firms doing commission business outside the State and deliveries were made through normal commercial channels the tran·
sactions \vould be of an inter-State character and would fall under
cl. (2) but they would be taxable under the Sales Tax Continuance
Order (No. 7 of 1950) issued hy the President under cl. (2) as such
tax \Vas being levied before the Oonstitut~on. (iii) A.s regards imports froin Africa, where the Bombay merchants merely acted as
a.gents1 the t1:ansactions would be purchases which occasioned the
import and would he exempt under art. 286 (1) (b), but where the
Bombay merchants did not act as agents for the respondents, purchases from them \vould be on the same footing as local purchases
and would not be exempt.
Pe1· S.R. DAS J.-The Explan"tion to art. 286 (1) (a) is not an
exception or a proviso but only explains cl. (1) (a). It does not
confer taxing power on any State but only takes a\vay t

## Text

_Characters 0–39,729 of 147,337. This is a partial read: ask again with offset=39729 for what follows._

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s.C.R.
53
this extent and with the deepest regret I express my
respectful dissent.
1953
Ktdar Nath
Bajoria
v.
In my view, the convictions cannot be upheld and
there should be a retrial in the normal way.
Appeals dismissed.
'l'he State of West
Bengal.
Agent for the appellant in C.A. No. 84: Sukwmar
Ghose.
Agent for the appellant in C.A. :No. 85: R.R.
Biswas.
Agent for the respondent: G. H. Rajadhyaksha.
STATE OF TRAVANCORE-COCHIN AND OTHERS
1963
v.
SHANMUGHA VILAS CASHEW NUT FACTORY
AND OTHERS.
[PATANJALI SASTRI c. J., MUKHERJEA, s. R. DAS,
VIVIAN BosE AND GHULAM HASAN JJ.]
Constitiition of India, 1950, cirt. 286 (1) (a), (1) (b) and (2)-
Tax on scile or p11rchase of goods-Sales "oittside the State "-Sales
"·in the cmirse of" import or export-Sales "in the coiirse of interState trade orco1mnerce "-Nat-nre and incidents of-State's power
to fox-Scope of constitutional limitations.
Held, by (PATANJALI SASTRI 0.J., lVIUKHERJEA,
VIVIAN
BOSE and GHULAM HASAN JJ.)-(i) Sales and purchases 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
art. 286 (1) (b) and are exempt from State taxation. (ii) Purchases
in the State by the exporter for the purpose of export as well as
sales in the State by the importer after the goods have crossed the
customs barrier are not within the exemption.
(iii) Sales in the
State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs barrier are within '"
the exemption, assuming that the State power of taxation extends
to such transactions.
The word "course" etymologically denotes 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 prngress but postulates also a connected 'relation.
Consequently, a sale in the course of export out of the country
May8.
•
1963
State of
Travancore·
'
Oochin
and Others
v.
Shanmuuha
Vilas
Cashew
Nut Factory,
and Others.
54
SUPREME COURT REPORTS
(1954)
should be understood in the context of art. 286 (1) (b) as meaning
a sale taking place not only d~tring the activities directed to the
end of exportation of the goods out of the country, but also as 1Ja1·t
of or connected with such activities. But a purchase 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.
The respondents purchased ra'v cashew nuts within the State
of Travancore-Cochin, from the neighbouring States and also imported such nuts from Africa, for the purpose of refining them and
exporting them to America.
Imports from Africa were made in
the following ways:
(a) puxchases were made through intermediaries doing business as comm.ission agents at Bombay who
acted as agents for the respondents charging commission ; (b) the
commission agents at BombaY indented the goods on their O\Vn account and they sold the goods as principals to the respondents. In
either case the goods were shipped direct from Africa to a port in
the Travancore·Cochin State. It was found as a fact that the process of the factory was such that the goods were not the same
goods commercially after refinement:
Held 1 (i) as regards purchases made in the local inarkets of the
State they were not exempted under art. 286 (1) (b); (ii) as regards
purchases made in the neighbouring States, if the purchases \Vere
effected and delivery was taken by the respondents' servants outside the Travancore-Oochin State, they \vould be exempt under
art. 286, cl. (i) (a), and if the purchases were effected by employ·
ing firms doing commission business outside the State and deliveries were made through normal commercial channels the tran·
sactions \vould be of an inter-State character and would fall under
cl. (2) but they would be taxable under the Sales Tax Continuance
Order (No. 7 of 1950) issued hy the President under cl. (2) as such
tax \Vas being levied before the Oonstitut~on. (iii) A.s regards imports froin Africa, where the Bombay merchants merely acted as
a.gents1 the t1:ansactions would be purchases which occasioned the
import and would he exempt under art. 286 (1) (b), but where the
Bombay merchants did not act as agents for the respondents, purchases from them \vould be on the same footing as local purchases
and would not be exempt.
Pe1· S.R. DAS J.-The Explan"tion to art. 286 (1) (a) is not an
exception or a proviso but only explains cl. (1) (a). It does not
confer taxing power on any State but only takes a\vay the po\ver
of taxation of a State in respect of sales and purchases in \V hi ch
delivery does not take Place within the State by enacting that
such sales shall be deemed to have taken place outside that State
within cl. (1) (a).
Consequently, il a sale or purchase takes place
outside a State, either under the general law or by virtue of the
fiction created by the Explanation, then th.at State cannot, under
(1) (a), tax such sale or purchase. If a sale or purchase
l
-,
-·
takes ptace within a State, either under the general law or by rea.
j....
son of the Explanation 1 then, if such a sale or purchase takes place
f'
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S.O.R.
SUPREME COURT REPORTS
55
"in the course of" inter-State trade and commerce, no State, n-0t
1953
even the State where the sale or purchase takes place as aforesaid
can tax it bv reason -of (2), unless and until Parliament bv
State of
law provides otherwise.
A sale or purchase " in the course of;,
Travancoreimport or export within the meaning of (1) (b) includes (i) a
Cochin
sale or pmchase which itself occasions the import or export as
and Others
already held by this court, (ii) a sale or purchase which takes
v.
pla-0e while the goods are on the high seas on their import or ex- Shanmugha Vila•
port journey. and (iii) the last purch11se by the exporter with a
Cashew
view to export and the first sale by the importer to a dealer after
Nut Factory,
the arrival of the imported goods. If a sale or purchase takes
and Others.
pl11ce within a St11te, either under the general 111w or by reason of
the Explanation, then, if it takes place in the course of import
or export as explained above, no State, not even the State within
which such sale or purchase takes place can tax it by reason of
(1) (b).
As regards local purchases, as those purchases took place within the State they were not entitled to the protection of art. 286
(1) (a), since on the findings of the High Court, the goods purchased were so altered that they cannot be deemed to be the same
as the goods which were exported, and the purchases cannot be said
to have been made "in the course" of export so as to be entitled to
immunity from taxation under art. 286 (1) (b).
As regards pm·-
chases from the neighbouring States, if the goods were taken delivery of by the agents of the respondents outside the State, such
purchases must, under tlie Explanation, be regarded as having
taken place outside the State and accordingly would be exempt
from taxation under art. 286 (1) (a). If however, the goods· were
directly delivered to the respondents in the . Travancore-Cochin
State the Explanation to art. 286 (1) (a) will apply in view of the
finding of the High Court which implies that the goods are also
consumed in the State, and the neighbouring States will not be
entitled to tax these sales or purchases, but the purchases are " in
the course of " inter-State trade and as such will be protected by
(2); but as the majority of the Court have taken a different
view and as such view must prevail, such purchases will become,
as a result of the Explanation to (1) (a),
an intra-State
purchase and will lose the protection of (2).
Even if such
purchases fall within (2), they would be liable· to be taxed
under the President's Order of 1950.
They are not protected by
(1) (b) as the goods exported are different goods.
A8 regards pnrchases from Africa (i) where the Bombay
merchants act as agents of the respondents and pay the price and
take delivery of the shipping documents in Bombay the purchases
fall within (1) (a) and also (1) (b) and are not liable to tax
as they take place outside the State within (1) (a) and also
"in the course of import" within
(1) (b); (ii) where the
African sellers ship the goods on their own initiation or on that of
their a~ents and while the !ioods are on the hi(lh seas they a~·~
1963
State of
TravancoreOochin
and Others
v.
Shanmugha
Vilas
Cashew,
JJlut Factory.
and Others.
156
SUPREME COURT REPORTS
(1954)
purchased by
the respondents' Bombay agents, tbe sale or
purchase would he exempt under (1) (a) and under (1) (b);
(iii) where the respondents place separate orders with the same
commission agent at Bombay and the latter places a consolidated
order with the Africrtn seller on his own responsibility and the
Bombay agent after paying for the entire lot, prepares a separate
invoice for ertch of their constituents and the latter receive the
delivery orders from a Travancore bank against payment a.nd
take delivery from a Travancore warehouse the sale takes place
in the Travancore-Cochin State and the goods cannot claim
exemption under (l) (a), (1) (b) or (2) of art. 286.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 26, 27 and 30 to 36 of 1952.
.
These were appeals under article 132 (1) of the
Constitution from the Judgment and Order dated
10th January, 1952, ofthe Travancore, Cochin High
Court in Original Petitions Nos. 5, 19, 34, 35, 71, 83,
88, 89 and 90 of 1951, quashing the assessments
.severally made on the respondents in each appeal
under the Travancore-Cochin General Sales Tax Act,
1124 M. E. The respondents who were assessed under
the Travancore Ceueral Sales Tax Act which came
into force in March, 1949, claimed exemption from
sales tax in respect of the purchases made by them
after the Constitution of 1950 came into force till the
end of the accounting year 1950 on the ground that·
under article 286 (1) (b) the State had no power .to .
levy tax on such purchases. The sales tax authorities
having rejected the claim the respondents applied to
the High Court under article 226 and the High Court
quashed the assessments so far as they related to the
said period. The State preferred the present appeals.
These appeals were heard in part with certain other
appeals in September and October, 1952, but as it was
found that the material facts had not been clearly
ascertained by the High Court the cases were remitted
to the High Court for further enquiry and findings.
The connected appeals were disposed of on the 16th
of October, 1952, and the judgment is reported as the
State of Travancore-Gochin v. The Bombay Go. Ltd.
([1952] S.C.R. 1112). The hearing of these appeals was
continued after the High Court had returned the record
with its findings.
' '
I ..
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•
S.C.R.
SUPREME COURT REPORTS
57
T. N. Subrahmanya Iyer, Advocate-General of
Travancore-Oochin State (T. R. Balakrishna Iyer, with
him) for the appellants.
M. K. Nambiyar (N. Palpu, with him) for the
respondents in Civil Appeals Nos. 26, 27 and 30 to 36.
1953
State of
TravancoreOochin
and Others
v.
M. 0. Setalvad, Attorney-General for India and Shanmugha Vilas
0. K. Daphtary, Solicitor-General for India (Porus
Cashew
A. Mehta, with them) for the Union of India.
. Nut Factory,
V. K. T. Chari, Advocate-General of Madras (V. V.
Raghavan, with him) for the State of Madras.
V. Rajaram Iyer, Advocate-General of Hyderabad
(B. N. Sastri, with him) for the State of Hyderabad.
S. M. Bikri, Advocate-General of Punjab (M. L.
Sethi, with him) for the State of Punjab.
A. R. Somanatha
Iyer,
Advocate-General
of
Mysore (R. Ganapathy Iyer, with him) for the State
of Mysore.
K. B. Asthana for the State of Uttar Pradesh.
(States of Bombay and Orissa were not represented.)
1953. May 8. The judgment of the Chief Justice
and Mukherjea, Vivian Bose and Ghulam Hasan JJ.
was delivered by the Chief Justice. S. R. Das J.
delivered a separate judgment.
PATAN.JALI SASTRI C. J.-These are appeals from an
order of theHigh Court ofTravancore-Cochin quashing
the assessments severally made on the respondents in
each appeal under the Travancore-Cochin General
Sales Tax Act, 1124 M. E. (Act No. XVIII of 1124
M. E.) (hereinafter referred to as the Act).
The Act provided by section 3 for the levy of a t11x
on the total turnover of every dealer for each year.
" Turnover " is the aggregate amount for which goods
are either bought or sold by a "dealer" [section 2(j)],
who is a person carrying on the business of buying and
selling goods [section 2 ( d)]. "Sale", with all its
grammatical variations and cognate expressions, is
defined as meaning, among other things, every transfer
~
and Others.
58
SUPREME COURT REPORTS
(1954]
1953
of the property in goods by one person to another in
the course of trade or business for cash or for deferred
State of
h
Travancorepayment or ot er valuable consideration [section 2(h) ].
aochin
The sale or purchase is to be deemed to have taken
and Others
place in the State, wherever the contract might have
v.
.
been made, if the goods were actually in the State
Shanmugha Vilas when the contract was made or, if the goods are
Nu~a;,:::,Y actually produced in 'the State, at any time after
and Others.' the contract in respect thereof was made.
By sec~
tion 3 (4) the turnover is to be determined in accordPaianjali
ance with such rules as may be
prescribed, and
Sastri a. J,
rule 4 of the rules framed under the Act prescribes that, in the case of certain goods including
" cashew and its kernel", the gross turnover of a
dealer is the amount for which the goods were bought
by him, and in all other cases the amount for which
the goods were sold by him.
The fespondents are dealers in cashew-nuts in the
State, and their business consists in importing raw
~ cashew-nuts from abroad and the neighbouring districts
in the State of Madras in addition to purchases made
in the local market, and, after converting them by
means of certain processes into edible kernels, exporting
the kernels to other countries, mainly America. The
oil pressed from the shells removed from the cashewnut~ was also exported. The Constitution having come
into force on January 26, 1950, the respondent in each
appeal claimed exemption under article 286 ( 1) (b) in
respect of the purchases made from that date till May
29, 1950, the end of the account year.
The sales tax
authorities having rejected the claim, the respondents
applied to the High Court under article 226, and that
court upheld the claim and quashed the assessments in
so far as they related to the said period. The State
has preferred the appeals.
The. appeals were heard in part along with certain
other appeals from the same order, and as it was
found that the material facts relating to the course of
business of the respondents in the present appeals had
not been clearly ascertained, these appeals were
remitted to the High Court for further enquiry and
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SUPREME COURT REPORTS
59
findings in regard to those matters. The connected
lfl.SIJ
appeals, however, in which the materials on record
State of
were found sufficient for their disposal were finally
Travancoredecided, and the decision is reported in The State of
Cochin
Travancore-Gochin v. The Bombay Go. Ltd. (') (hereinand Other•
after referred to as the previous decision).
v.
£
.
.
f:
h
h
h
Skanmugha Vilas
Be ore cons1dermg how art e cas ew-nut pure ases
cashew
made by the respondents are, on the findings returned Nut Factory,
by the High Court, entitled to the protection of article
and Others.
286( 1 )(b ), it is necessary first to ascertain the scope of
such protection. That clause, so far as it is material
Patanjali
here, reads thus :
Sa.tri c. J.
286.
(1) 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-
( a)
*
*
*
*
(b) in the course of the import of the goods into,
or export of the goods out of, the territory of India.
In the previous decision this Court referred to four
different views then adumbrated in the course of the
argument as to the meaning and scope of the said
sub-clause as follows:
(1) The exemption is limited to sales by export and
purchases by import, that is to say, those sales and
purchases which occasion the export or import, as the
case may be, and extends to no other transactions
however directly or immediately connected, in intention or purpose, with such sales or purchases, and
wheresoever the property in the goods may pass to
the buyer.
(2) In addition to the sales and purchases of the kind
described above, the exemption covers the last purchase by the exporter and the first sale by the importer,
if any, so directly and proximately connected with the
export sale or import purchase as to form part of the
same transaction.
(3) The exemption covers only those sales and purchases under which the property in the goods concerned is transferred from the seller to the buyer during
(r) (1952] $.C.R. irr2;
60
SUPREME COURT REPORTS
[1954]
19S&
the transit, that is, after the goods begin to move and
before they reach their foreign destination.
State of
Travancare·
( 4) The view which found favour with the learned
Cochin
Judges of the High Court, namely, "the clause is not
and Others
restricted to the point of time. at which goods are
v. v·l· imported into or exported from India; the series of
Shanmugha 'as
t"
h' h
'l
d
.
cashew
transac 10rrn w 10
n~ce~sari y prece. e export. or impo~~
Nut Factory. of goods will come w1thm the purview of this clause.
and Oth:ers.
This Court, however, found it unnecessary for the
Purpose of the cases then before it to go any further
Pata.njali
Sastri c. J. than to hold that" whatever else may or may not fall
within article 286 ( 1) (b }, sales and purchases 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" and that the third
view set out above, which was put forward on behalf
of the State of Bombay and which seeks to limit the
operation of the clause exclusively, to sales and pur-
. chases effected during the transit of the goods, was
too narrow and could not be accepted.
It may be mentioned
at
once, to clear the
ground, that if the Bombay view was considered to be
too narrow, the view expressed by the Court below
cannot but be regarded as too wide.
This, indeed,
was recognised by learned counsel who appeared
in the cases, none of whom made any serious attempt
to support it. Nor was any question raised or argument advanced as to the scope and effect of clause (2)
of article 286, for, although the respondents in two of
these appeals(') purchased cashew-nuts in the adjoining
districts of the ::ltate of Madras during the period in
question, it was not disputed that such purchases
unless they were exempt under article286(l)(a), would
fall within the explanation to clause (l)(a) as interpreted in the majority decision .of this court in the recent
case of The State of Bombay v. United Motors (India)
Ltd.('), or under the Sales Tax Continuance Order,
1950 (C. O. No. 7 of 1950), issued by the President on
January 26, 1950, in exercise of the powers conferred
by the proviso to clause (2) of article 286, and would,
in either case, be taxable.
(1) Civil Appeals Nos. 33 and 36 of r952.
(2) [1953] S.C.R. 1069.
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SUPREME COURT REPORrs
61
With reference to the aforesaid decision, it may be
1953
mentioned in passing that in order to remedy what was
State of
felt to be the unsatisfactory position in regard to the
Travancorelevy of tax by the States in America on sales in interCochin
state commerce, the North Carolina Department of
and Others
Revenue proposed that Congress should pass legislations
vh V'l
authorising the States to tax certain sales in interhan~~;h:w i as
state commerce. The proposed bill ran thus:
Nut Factory,
" That all taxes levied by any State upon sales of proand Others.
perty or measured by sales of property may be levied
Patanjali
upon or measured by sales of property in inter-state
sastri a. J.
commerce by the state into which the property is
moved for use or ·consumption therein, in the same
manner and to the same extent that said taxes are
levied upon or measured by sales of property not in
inter-state commerce. Provided: that no State shall
discriminate against sales of property in inter-state
commerce ; nor shall any .state discriminate against
the sale of the products of any other state. Provided,
further: that no state shall tax the sale in inter-state
commerce of property transported for the purpose of
resale by the consignee as a merchant or as a manufacturer. Provided, further: that no county, city, or
town, or other subdivision of any State shall levy a tax
upon or measure any tax by sales of property in interstate commerce "(2).
It is interesting to note that the bill sought to bring
about substantially the same result as the combined
operation of article 286 clause (1) (a) explanation,
clause (2) and article 304 as they were interpreted by
the majority in that decision would produce. It is
possible that these provisions of our Constitution were
inspired by the proposed bill.
The only question debated before us was whether in
addition to the export-sale and import-purchase, which •
were held in the previous decision to be covered by the
exemption under clause(l)(b), the following two categories of sale or purchase would also fall within the
scope of that exemption :
(2) See Selected Essays on Constitutional Law, Vol. I, Book V, p. 367
published by the Association of American Law Schools, 1938 .
62
SUPREME COURT REPORTS
[1954)
1863
( 1) The last purchase of goods made by the exporter
for the purpose of exporting them to implement orders
State of
l
d
d f
Travancorea rea y receive
rom a foreign buyer or expected to
Cochin
be received subsequently in the course of business, and
and Others
the first sale by the importer to fulfil orders pμrsuant
v.
. ' to which the goods were imported or orders expected
Shanmuuha Vilas to be received after the import.
Cashew
Nut Factory,•
(2) Sales or purchases of goods effected within the
and Others. \ State by transfer of shipping documents while the goods
are in the course of transit.
Patanjali
Sastri 0. J.
As regards the first mentioned category, we are
of opinion that the transactions are not within
the protection of clause (1) (b). What is exempted under the clause is the sale or purchase of
goods taking place in the course of the import
·of the goods into or export of the goods out of the
territory of India.
It is obvious that the words
"import into" and "export out of" in this context do
not refer to the article or commodity imported or
exported.
The reference to "the goods" and to
"the territory of India" make it clear that the
words "export out of" and "import into" mean the
exportation out of the country and importation into
{
the country respectively. The word "course" etymo-
. logically 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. For
instance, it has been held that the words "debts due
to the bankrupt in the course of his trade" in section 15(5) of the English Bankruptcy Act, 1869, do not
extend to all debts due to the bankrupt during the
period of his trading but include only debts connected
with the trade [see In re Pryce, ex parte Rensburg(').]
A sale in the course of export out of the country
should similarly be understood in the context of
clause (l)(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 time
(1) 4 Ch. D. 685 and Williams on Bankruptcy, 16th Edn., p. 307,
...
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SUPREME COURT REPORTS
63
factor alone is not determinative.
The previous
decision proceeded on this view and emphasised
1953
State of
the integral relation between the two where the
Travancore·
contract of sale itself occasioned the export as the
Cochin
ground for holding that such a sale was one taking
andOthers
place in the course of export. It is, however, contended
v.
th
th.
.
. l
f
t d
. t
t d
t' · ShanmughaVilas
at on
is prmc1p e o connec e or m egra e · ac iv1Cashew
ties a purchase for the purpose of export must be Nut Factory,
regarded as covered by the exemption under clause (1)
a..d Others.
(b). We are unable to agree.
Patanjali
The phrase "integrated activities" was used in the
Sastri c. J.
previous decision to denote that "such a sale" (i.e., a
sale which occasions the export) "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.
A purchase for the purpose of export like
production or manufacture for export, is only an act
preparatory to export and cannot, in our opinion, be
regarded as an act done "in the course of the export of
the goods out of the territory of India", anymore than
the other two activities can be so regarded. As pointed out by a recent writer "From the legal point of
view it is essential to distinguish the contract of sale
which has as its object the exportation of goods from
this country from other contracts of sale relating to the
same goods, but not being the direct and immediate
cause for the shipment of the goods ...... When a
merchant shipper in the United Kingdom buys for the
purpose of export goods from a manufacturer in the
same country the contract of sale is a home transaction; but when he resells these goods to a buyer abroad
that contract of sale has to be classified as an export
transaction"('). This passage shows that, in view of
the distinct character and quality of the two transactions, it is not correct to speak of a purchase for export
as an activity so integrated with the exportation that
the former could be regarded as done "in the course
of" the latter. The same reasoning applies to the first
(r) Schmittof!-Export Trade, 2nd Edn., !'· 3 .
64
SUPREME COURT REPORTS
[1954]
sale after import which is a distinct local transaction
effected after the importation of the goods into the
State of
Travancorecountry has been completed, and having no integral
1953
Cochin
relation with it. Any attempt therefore to invoke the
and Others
authority of the previous decision in support of the
v.
.
suggested extension of the protection of clause (l)(b)
ShanmughaVila•to the last purchase for the purpose of export and the
Cashew
first sale after import on the ground of integrated actiN.ut Factory,
and Others.
vities.must fail.
Patanjali
Sastri 0. J.
Nor is it correct to say that it is necessary to extend
the exemption to these transactions to avoid double
taxation. It is true.that in the previous decision it
was indicated that the object underlying the exemption
, was the avoidance of double taxation on the foreign
trade of this country which is of great importance to
the nation's economy. But the double taxation sought
)
to be avoided consisted in the imposition of export
duty by the Central Government and the imposition of
I sales tax by the State Government on the same transaction in its different aspects as an export and a sale.
Such double taxation is already avoided by our
holding that the export-sale and the import-purchase
are exempt under clause (b) from the levy of sales tax
by the State. The foreign trade of this country thus
already enjoys immunity from double tax burden and
suffers only one tax, namely, the export or import duty
as the case may be.
The claim now made for extension of the exemption under clause (l)(b) in the name
of avoiding double taxation cannot be supported.
Not the least among the reasons for rejecting the
view that the last purchase for the purpose of export
and the first sale after import are also within clause ( 1)
(b) is the practical difficulty in giving effect to the
exemption in regard to these transactions, having
regard to the general pattern of sale-tax legislation in
this country of which our constitution-makers must
have been well aware. The tax is usually levied on
the annual turnover of the seller who is allowed under
certain conditions to pass it on to the buyer by adding
it to the price charged for the goods at each individual sale.
Supposing A is the seller from whom
•
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•
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•
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S.C.R.
SUPREME COURT REPORTS
65
B the export merchant
purchases the goods for
1953
export. If the sale is to be exempt, how is A to be
satisfied that the goods would actually be exported
Tr~~~~:!.,_
subsequently? And even if they were, it must be
Cochin
difficult for A to prove to the Sales Tax Officer that
and Others
they were so exported by B if proof was required. On
v.
the other hand, B might be keeping the goods, Shanmugha Vilas
waiting for orders to come, or might change his
Naashaw
.
h
ll
ut Ji' actory
mmd and not export t e goods at a but sell them
and Others.
locally. In that case, what would be the position
of A vis· a vis the Sales Tax Officer demanding
Patanjali
the tax ? Could A escape liability, if he failed to
Sastri a. J .
collect the tax from B at the time of the sale? Or is A
to collect the tax, ignoring B's declaration of his intention to export and leaving him to apply for refund by
producing evidence of actual export, whenever that
takes place? Even if a sales tax enactment provides
for adjustment on those lines, would not such legislation, in so far a;s it, compels B to suffer the tax until he
actually exports the goods, contravene clause (l)(b)
which ex hypothesi exempts the transaction from sales
tax ? And what would be the position if the goods
were burnt or otherwise lost in the meanwhile, and the
export never took place ? Athough, as pointed out in
the previous decision, American cases are not of much
assistance in interpreting article 286 because of the
different wording of the import-export clause of the
Federal Constitution, it is interesting to see that such
uncertainties led the American courts to lay down the
rule that-
"lt is the entrance of the articles ,into the export
stream that marks the start of the process of exportation. Then there is certainty that the goods are headed for their foreign destination and will not be diverted
to domestic use. Nothing "less will suffice." : Empresa
Siderurgica, S. A. v. Merced(').
Similar difficulties and uncertainties are encountered
in bringing within the exemption the first sale after
import. How is the exemption to be applied to the
(1) 337 U.S. 154·
.,.,._
9
"'>
66
SUPREME COURT REPORTS
ll954]
goods imported from abroad after they are mingled
with other goods and lose their distinctive character as
State of
Travancoreimports? Here again, the American courts, with their
1953
Cochin
practical approach to such problems, have evolved the
and Others
doctrine of "original or unopened package", that is to
v.
.
say, the rule that the first sale of imported goods will
Shanmugha Vilas be exempt from State taxation provided only such sale
Cashew
is made in the original packao:es in which the goods
Nut Factory
.....,
and Others.
have arrived. Any sale of such goods made after the
Patanjali
Saatri O. J,
package is opened does not enjoy such exemption. Are we to import the same doctrine here
to make the exemption workable ? Even in America,
as pointed out in
Balsara' s case('),
difficulties
arose from time to time in applying the doctrine
as "sometimes very intricate questions arose before the
courts such as whether the doctrine applied to the
larger cases only or to the smaller packages contained
therein or whether it applied to smaller paper packages
of cigarettes taken from loose files of packages at the
factory and transported in baskets." Hence this
court has unanimously decided that "the doctrine has
no place in this country" following the lead of
Gwyer C. J. in the earlier case of Boddu Paidanna(').
It was said that clause (1) (b) should be construed in the light of the constitutional purpose
and
the commercial background and
reference
was made to the manner in which a large proportion of the export trade of the country was carried
on by merchant houses who purchased goods from the
producers and manufacturers to resell them to buyers
abroad by ·means of contracts concluded with them .
. Similarly with regard to import trade, large import
houses imported machinery and consumer goods. wholesale and sold them to retail dealers or, in some cases,
to the customers direct.
This practice, it was argued,
must have been well known to the makers of our
Constitution, and it was reasonable to assume that
they realised the importance of the foreign trade to
the well-being of the country and would not have
desired to cripple the same by allowing the States to
(1) [1951] S.C.R. 682, 699.
(2) [194'] F.C.R. 90.
..
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SUPREME COURT REPORTS
67
tax such purchases and sales by the export and import
1953
merchants in this country. Such general considerf
h
State of
ations based largely on speculation are not o muc
Travancore.
assistance in construing the scope and effect of a
Cochin
specific constitutional provision seeking to restrict the
and Others
power of State taxation. It is true, as pointed out in
v.
.
the previous decision, that the export-import trade is Shanmugha Vilas
.
t
t t
t'
1
b t 't •
1
Cashew
nnpor an
o our na 10na economy,
u I is no ess Nut Facwry
true that the State power of taxation is essential for
and Others.
carrying on its administration, and it must be as much
the constitutional purpose to protect the one as not
Patanjali
unduly to curtail the other.
The question really is,
Sastri c. J.
how far did the constitution-makers want to go in
protecting the foreign trade by restricting the power
of taxing sales or purchases of goods,which they conferred on the States under entry 54 of List II. The
problem before them was one of balancing and reconciling the rival claims of foreign trade in the interests
of our national economy and of the State's power of
taxation in the interests of the expanding social welfare
needs of the people committed to its charge, and we
have their solution as expressed in the terms of clause
(I) (b ). It is for the court to interpret the true
meaning and scope of those terms without assuming
that the one constitutional purpose was regarded as
more important than the other. This court has already
held in the previous decision that clause (1) (b) protects
the export-import trade of this country from double
taxation by prohibiting the imposition of sales tax by
the State on export-sales and import-purchases, and
we find no warrant in the language employed to extend
the protection to cover the last purchase before export
or the first sale after import.
As regards sales or purchases effected in the State
by transfer of shipping (c.i.f.) documents while the +
goods are still in_ transit, we have already observed .
that the words "in the course of" imply a movement
or progress and, therefore, a beginning and an end of
such movement or progress.
As clause (1) (b) is concerned only with exempting certain sales or purchases
from taxation by the States in this country, it is
68
SUPREME COURT REPORTS
[1954]
1953
sufficient to determine where the course of export
State of
begins and where the course of import ends. In this
Travancore·
connection, it is useful to remember that the power to
Oochin
make laws with respect to duties of customs including
and Others
export duties (entry 83 of List I) and also with respect
v.
.
to ·import and export across customs frontiers and the
Shan~ug; Vilas definition of customs frontiers (entry 41 of List I) is
Nut";:C%ry vested exclusively in the Central Legislature, and
and Others.
detailed provisions have been made in the Indian Sea
Customs Act, 1878, for the levy of customs duties by
Patanjali • the officers of the Central Government who are stationed
Sa.tri a. J.
along customs frontiers as defined by the Central
Government where, after appraising the goods exported
or imported, the duties chargeable, if any, are computed and levied, and it is not until this process is
completed that the goods can be shipped for
• transportation or cleared by the consignee or his
, representatives as the case may be. It would seem,
therefore, logical to hold that the course of the export
out of, or of the import into, the territory of India
J does not commence or terminate until the goods cross
the customs barrier. It is, however, to be noted that the
question of imposing sales tax on transfer of goods
in the course of export would not often arise in practice
for, where the goods are transported pursuant to a
contract of sale already concluded with a foreign buyer
and the shipping documents )lave been forwarded to
him, any further sale of such goods by the Indian
seller is impossible, and where the export trade is
conducted through representatives or branch offices,
the sale by the latter of the exported goods usually
takes place abroad and would not then be subjected
to tax by the State in India. It is in relation to import
' of goods from abroad that the question of exemption
assumes practical importance. It is well known that
\ sales or purchases by transfer of shipping documents
while the goods are in transit are a characteristic
feature of foreign trade and as they take place in the
course of import as defined above, and are regarded
commercially as incident to the import transaction,
they fall within the terms of clause (1) (b) and would
' be eni;J.tled, in our view, to the protection of that
• •·
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SUPREME COURT REPORTS
69
clause, if the State is constitutionally competent to tax
1953
such sales, as to which we express no opinion·
State of
Our conclusions may be summed up as follows:-
Travancore·
(1) Sales by export and purchases by import fall
a:!a
0~~~rs
within the exemption under article 286 (1) (b).
This
v.
was held in the previous decision. ·
·
Shanmugha Vilas
(2) Purchases in the State by the exporter for the
N caFshew
1
1
.
hS
b
h
utactory
purpose of export as wel as sa es m t e tate y t e
and Others.
importer after the goods have crossed the customs
_
barrier are not within the exemption.
'
Patanjali
(3) Sales in the State by the exporter or importer
Sastri a. J .
by transfer of shipping documents while the goods are l
beyond the customs barrier are within the exemption,
assuming that the State power of taxation extends
to such transactions.
It remains to consider in the light of the foregoing discussion how far the cashew-nut purchases made
by the respondents are within the exemption under
article 286. It will be recalled that these purchases
fell into three groups:
I.
Purchases made in the local market,
II. Purchases from the neighbouring districts of
the State of Madras, and
III.Imports from Africa.
As- regards Group I, the High Court finds that
"the purchases of raw nuts whether African or Indian
are all made with the object of exporting their kernels"
though there were some negligible sales in the local
market of what are called "factory rejects". The
High Court further finds that the bulk of the kernels
were in fact exported by the respondents themselves,
a small quantity being sold by the respondents to
other exporters who also subsequently exported the
same. Thus, on the whole, respondents could be said
to have purchased the raw nuts for the purpose of
exporting the kernels and to have actually exported
them.