A sale is exempt from taxation under Article 286 of the Constitution if it is effected after the goods have entered the export stream.

Headnote:
SALES TAX - EXEMPTION - SALE IN COURSE OF EXPORT - PROPERTY PASSING AFTER GOODS CROSSED CUSTOMS BARRIER - SALES TAX ACT, 1959 (BOM.) - ARTS. 286, 8(B), 10(B).
Fact of the Case:

The appellants, dealers in cotton and castor oil, were served with a notice of demand for payment of sales tax and purchase tax on certain quantities of goods sold to a firm of exporters. The issue was whether the sale was exempt from taxation under Article 286 of the Constitution, as it was effected in the course of export of the goods outside India.
Finding of the Court:

The court held that the sale was exempt from taxation under Article 286 of the Constitution. The court found that the property in the goods passed after the goods had crossed the customs barrier, as the sellers had reserved the right of disposal of the goods till the price was paid. The court also held that the appellants were not liable to pay purchase tax under Section 10(b) of the Sales Tax Act, 1959 (Bom.), as the goods were despatched outside the State of Bombay by the exporters, who were not registered dealers.
Issues: 1. Whether the sale was exempt from taxation under Article 286 of the Constitution. 2. Whether the appellants were liable to pay purchase tax under Section 10(b) of the Sales Tax Act, 1959 (Bom.).
Ratio Decidendi: 1. The court held that the sale was exempt from taxation under Article 286 of the Constitution, as the property in the goods passed after the goods had crossed the customs barrier. The court relied on the Supreme Court decision in State of Trav Co v. Shanmugha Vilas Cashewnut Factory, (1954) SCR 53, which held that a sale is exempt from taxation under Article 286 if it is effected after the goods have entered the export stream. 2. The court held that the appellants were not liable to pay purchase tax under Section 10(b) of the Sales Tax Act, 1959 (Bom.), as the goods were despatched outside the State of Bombay by the exporters, who were not registered dealers. The court interpreted the expression "a person" in Section 10(b) in the light of the certificate which the appellants were bound to furnish, which required that the goods be despatched by them or by a registered dealer.
Final Decision: The court directed the Sales Tax Officer not to enforce the demand notice for payment of general sales tax with regard to the sale of cotton and castor oil, and directed the respondent to pay to the appellants half the costs of the appeal and Rs. 250 as costs below.

Judgment -

1. The appellants deal in cotton and castor oil. They are registered dealers under Section 11 of the Sales Tax Act, and they have also received the necessary authorisation under Section 12-A. On the 29th of September 1956, a notice of demand was served upon them calling upon them to pay a sum of Rs. 25,448-9-9, the notice dealt with the period from 1-4-1954 to 31-3-1955. As the notice indicated, the assessees were liable to pay sales tax and purchase tax in respect of certain quantities of castor oil and cotton sold by the appellants to the firm of Godimetla China Appalaruju. The matter came up before Mr. Justice K. T. Desai, and he took the view that the demand made was justified and dismissed the petition of the appellants, which had been filed to challenge this notice of demand.

2. The question briefly is this. The sale with which we are concerned and which is sought to be taxed under the Sales Tax Act is a sale effected by the appellants with the firm of Godimetla China Appalaraju (hereinafter referred to as the exporters) under certain contracts, a specimen of which has been annexed to the petition. The contention of the appellants is that the sale is exempted by the provisions of Article 286 of the Constitution, inasmuch as the sale was effected in the course of export of these goods outside India. Everyone of the contracts shows that the goods were sold by the appellants to the exporters F.O.B. It also shows that the exporters were to make-payment against presentation of the documents, and also shows that the goods were covered by the buyers export licence. On these provisions of the contract, the material question that we have to determine is: when did the property in these goods pass? because, as we shall presently point out, it has been laid down by the Supreme Court that if a sale is effected after the goods have entered the export stream or have passed the customs barrier, then such a sale attracts the provisions of Article 286 and is exempt from taxation.

3. Before we look at the authorities, it will perhaps be better if we look at the principle of the matter. A sale by A to B of certain goods, which goods could be diverted by B for domestic use or which goods could be sold by B in the State itself could not be covered by the exemption under Article 286 because such goods would not be in the export stream. They would still be outside the stream because they could be diverted and never reach the stream so as ultimately to be exported outside India. It is. therefore, that the Supreme Court has emphasised the fact that it is only that sale which takes place after the goods are incapable of being diverted that attracts the application of Article 286 of the Constitution.

4. Now, what is the position here? The contract is an F.O.B. contract, and the price is to be paid by the exporter to the purchaser only on presentation of bills of lading. Therefore, two important and salient facts emerge from this; one that the delivery of the goods is not obtained by the exporter till after the goods have crossed the customs barrier and the price is not received by the sellers, the appellants, till they gave the delivery of goods across the customs barrier, because it is not disputed that the bills of lading could only be prepared after the customs duty on the goods had been paid and they had passed the customs barrier. Now, the question of passing of property is normally a question of intention, and the intention of the parties must be gathered from the terms of the contract. It is true that if the goods are appropriated to a contract, the property will pass. But the appropriation must be unconditional, and if the appropriation is not unconditional, then the property will only pass when the condition is satisfied. In the contract before us it seems to us that it is clear that there was no unconditional appropriation of the goods by the appellants towards the contract. The appropriation was conditional upon the payment being

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