1. Sale of tea chests with export quota rights at auction — dispute over sales-tax liability — claim of exemption under Article 286(1)(b) of the Constitution. (Para 1 , 2 , 3 , 4 )
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1964 Supreme(SC) 132
SUPREME COURT OF INDIA
10th April, 1964
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO, J.C. SHAH, N. RAJAGOPALA AYYANGAR AND S.M. SIKRI, JJ.
Ben Gorm Nilgiri Plantations Co-Conoor (Nilgiris) etc. etc., Appellants
Versus
Sales Tax Officer, Special Circle, Ernakulam, etc. etc., Respondents.
Civil Appeals Nos. 396 to 413 of 1963.
Advocates Appeared
Mr. M. C. Setalvad, Senior Advocate, (M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates, of M/s. J. B. Dadachanji and Co., with him), for Appellants (In all the Appeals); Mr. V. P. Gopalan Nambiar, Advocate General for the state of Kerala (Dr. V. A. Seyid Muhammed, Advocate, with him), for Respondents (In all the Appeals). 1754
Advocates:
J.B.DADACHAN, M.C.SETALVAD, O.C.MATHUR, Ravindra Narayan, V.A.SEYID MUHAMMAD, V.P.GOPALAN NAMBIAR
J.B.DADACHAN, M.C.SETALVAD, O.C.MATHUR, Ravindra Narayan, V.A.SEYID MUHAMMAD, V.P.GOPALAN NAMBIAR
A sale is "in the course of export" only if an inextricable bond exists between the sale and actual export, making them a single integrated transaction. Mere knowledge of the buyer's intent to export or the sale of export quotas does not exempt the sale from state tax.
Headnote:(A) Constitution of India - Article 286(1)(b) - Central Sales Tax Act, 1956 - Section 5 - Tea Act, 1953 - Section 21 - Sale in the course of export - Distinction between "sale for export" and "sale in the course of export" - To constitute a sale in the course of export, there must be an integral relation or bond between the sale and the export such that the sale occasions the export (Para 8) - Mere knowledge that the purchaser intends to export the goods, or the sale of export quota rights along with the goods, does not necessarily make the transaction a sale in the course of export if there is no statutory or contractual obligation to export and the seller has no control over the goods after the sale (Paras 8, 9).
(B) Integrated activities - A sale in the course of export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of goods to a common carrier for transport out of the country (Para 8).
(C) Two sales leading to export - Where there are two sales leading to export, the first sale under which goods are procured for sale and property passes within the territory of India cannot be regarded as a sale in the course of export, as it must be directly and integrally connected with the export (Para 10).
Facts of the case:
Tea estates sold tea chests at public auctions along with export quota rights. The bidders were agents of foreign buyers. After the purchase, the agents obtained export licenses using the transferred quota rights and exported the tea. The revenue authorities assessed sales tax on these transactions, rejecting the claim that the sales were exempt as being "in the course of export" under the Constitution.
Findings of Court:
The court found that the sale of tea chests together with export rights only imputed knowledge to the seller of the buyer's intention to export. There was no statutory obligation or contractual bond that prohibited the diversion of goods for internal consumption or inextricably linked the sale to the actual export. The sellers had no concern with the actual exportation once the goods were sold.
Issues: Whether the sale of tea chests at auction to agents of foreign buyers, including the transfer of export quota rights, constitutes a sale "in the course of export" within the meaning of Article 286(1)(b) of the Constitution.
Ratio Decidendi: A transaction is a sale in the course of export only if the sale and the export are so integrated that they form part of a single transaction. A sale that is merely a preliminary to export is not "in the course of export" unless it occasions the export through an inextricable bond arising from statute, contract, or mutual understanding. In the present case, the sale was complete upon the acceptance of bids, and the subsequent export was the independent act of the purchaser.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether sales of goods with export quota rights to agents of foreign buyers constitute sales in the course of export occasioning export under Article 286(1)(b). (Para 5 , 6 , 7 , 33 )
3. Distinction between sales for export and sales in the course of export — requirement of an inextricable bond and integrated activities between sale and actual exportation. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 23 , 25 , 26 , 27 , 30 , 34 , 35 , 36 )
4. A sale in the course of export requires an integral connection where the sale occasions export; mere intention or knowledge of export does not suffice. (Para 8 , 17 )
6. What is the legal distinction between a sale for export and a sale in the course of export?
A sale for export occurs when the seller is not connected with the actual export. A sale in the course of export is one where the export is the result of the sale and is inextricably linked, such that the sale occasions the export. (Para 8 )
7. Does the sale of goods along with export quota rights make a transaction a sale in the course of export?
No. Selling goods with export rights implies knowledge of the intention to export, but does not create a legal or contractual bond making the sale and export part of a single integrated transaction. (Para 9 , 17 )
8. What is the test for determining if a sale occasions export under Article 286(1)(b)?
The test is the integrality of the sale and export. There must be a bond—via statute, contract, or mutual understanding—such that the connection cannot be voluntarily interrupted without breach of obligation or compulsion arising from the nature of the transaction. (Para 8 , 30 )
9. Does a sale to a resident agent of a foreign buyer automatically constitute a sale in the course of export?
Not automatically. It depends on whether the sale and export are integrally connected. Mere agency or the seller's knowledge that the agent will export the goods does not necessarily make the sale one that occasions export. (Para 8 , 16 , 17 )
Judgment
SHAH, J. : The Sales-tax Officer, Special Circle Ernakulam assessed the appellants under the Travancore-Cochin General Sales tax Act XI of 1125 M. E. , to pay sales-tax of transaction of sale of tea chests at the auctions held at Fort Cochin in the years 1956-57 to 1958-59, rejecting their contention that the sales were exempt from tax by virtue of Art. 286(1) (b) of the Constitution. The appellants then petitioned the High Court of Kerala for writs of certiorari quashing the orders of assessment and for writs of prohibition restraining the Sale Tax Officer from proceeding with the collection of tax in pursuance of the orders of assessment. Vaidialingam, J., rejected the petitions and his order was confirmed in appeal by Division Bench of the High Court of Kerala. With special leave, the appellants have appealed to this Court.
2. The transaction of sale sought to be taxed by the revenue authorities are in tea, which is a controlled commodity. The Parliament enacted the Tea Act 19 of 1953 to provide for the control by the Union of the Tea Industry, including the control of cultivation of tea in, and of export of tea from, India and for that purpose to establish a Tea Board and to levy customs duty on tea exported from India. By S. 3 (f) "export" is defined as taking out of India by land, sea or air to any place outside India other than a country or territory notified in that behalf by the Central Government by notification in the Official Gazette. "Export allotment" is defined by S. 3 (g) as the total quantity of tea which may be exported during any one financial year. Section 17 (1) places an embargo upon exportation of tea unless covered by a licence issued by or on behalf of the board. Section 18 provides that no consignment of tea shall be shipped or waterborne to be shipped for export or shall be exported until the owner has delivered to the Customs-Collector a valid export licence or special export licence or a valid permit issued by or on behalf of the Board or the Central Government as the case may be, covering the quantity to be shipped. Section 19 authorises the Central Government to declare export allotments of tea for each financial year, and by S. 20 it is provided that any tea estate shall, subject to conditions as may be prescribed, have the right to receive under the Act an export quota for each financial year. Section 21 provides that the owner of a tea estate to which an export quota has been allotted for any financial year shall have the right to obtain any time export licences during that year to cover the export of tea upto the amount of the unexhausted balance of the quota. The export quota right is by cl. (2) of S. 21, transferable subject to such conditions as may be prescribed and the transferee of such right may again transfer the whole or any part of his right provided that noting in the sub-section shall operate to restrict the issue of licences for the export of tea expressed to be sold with export rights. The other provisions are not material in deciding this group of appeals.
3. Trade in tea in the State of Kerala - internal as well as export-is carried on through certain defined channels. A manufacturer of tea applies for and obtains from the Tea Board allotment of export quota rights on payment of the necessary licence fee. The manufactured tea in chests is then sent to M/s. T. Stanes and Company Ltd., who warehouse the chests at Willingdon Island. Chests of tea are then sold by public auction through brokers at Fort Cochin. With the chests of tea for which export quota rights are obtained, export quota rights are sold by the auctioneer. At the auction sale, bids for tea chests with export quota rights are given by the agents or intermediaries in Cochin of foreign buyers. Tea chests are delivered at the warehouses by M/s. T. Stanes and Company Ltd., to the purchasers whose bids are accepted. The agent or intermediaries of the foreign buyers then obtain licences from the Central Governmen
