Bombay Co. Ltd. v. State — 1952 DIGILAW 3 (KER)

Judgment :- The prayers in all these petitions are for the issue of writs of certiorari and prohibition under Art.226 (1) of the Constitution of India for the purpose of quashing the orders passed by the Sales Tax authorities of the State. The State is impleaded as the common respondent with the authority concerned as additional respondent. The contention of the petitioner in each of these petitions is that the levy of the sales tax is illegal being in contravention of the provisions of Art.286 of the Constitution of India. This contention seems to us to be superfluous in view of the fact that the article is bodily incorporated in the local Sales Act as S.26, and, therefore, the question resolves itself into whether the levy of the sales tax is opposed to the provisions of this section. The main point arising from the arguments in each of these applications relates, therefore, to the construction of this article which is incorporated as S.26 of the Sales Tax Act. The case of the petitioners is that the transactions in respect of which the sales tax has been imposed by the second respondent are exempted under these provisions from the imposition of such a tax. 2. It would be convenient in the circumstances to consider the scope of the provisions of Art.286 with the object of deciding whether its provisions would be attracted to save the transactions from the imposition of sales tax, Art.286 is worded as follows "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) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation:- For the purpose of sub-cl. (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation:- For the purpose of sub-cl. (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State" (2) x x x x x x x (3) x x x x x x x It is not necessary to read Cls. (2) and (3) of the Article which do not apply to the facts of these cases. 3. It will be seen from the wording of Cl. (1) of the Article that two classes of sales are exempted from the imposition of sales tax. The first is a sale which has taken place outside the State, subject to the limitation imposed by the explanation. The second is a sale that has taken place in the course of the import of the goods into or the export of the goods out of the territory of India. The important words to remember in this clause are the words 'in the course of'. While the goods are in the course of import into the territory of India or while the goods are in the course of export out of the territory of India, if a sale takes place, sales tax cannot be levied. The words "in the course of" make the scope of this clause very wide. It is not restricted to the point of time at which goods are imported into or exported from India. The series of transactions which necessarily precede export or import of goods will come within the purview of this clause. Therefore, while in the course of that series of transactions the sale has taken place, such a sale is exempted from the levy of sales tax. The sale may have taken place within the boundaries of the State. Even then sales tax cannot be levied if the sale had take place while the goods were in the course of import into India or in the course of export out of India. The sale may have taken place within the boundaries of the State. Even then sales tax cannot be levied if the sale had take place while the goods were in the course of import into India or in the course of export out of India. We are stressing this point because both parties in what we may describe as the cashew-nut cases entered into a lengthy discussion as to the exact point of time when the sale became completed and as to the exact place where the goods were when the sale became a completed transaction. 4. For the purposes of these cases we are satisfied from the facts that have been brought to our notice both by the affidavits that have been filed and by the able arguments addressed by learned counsel who appeared on behalf of the parties and of the State, that it is not necessary to investigate whether the sale took place outside the boundaries of the State. It is the other contention urged on behalf of the petitioners in these original petitions that is material, namely, that the sale and purchase took place while the goods were in the course of import into India or export from India. 5. From the official report of the debates in the Constituent Assembly when Art.286 was passed, it is clear that the expression "in the course of" occurring in Cl. (i) (b) of Art.286 was chosen by the framers of the Constitution advisedly. After the discussion the Hon'ble Member who was responsible for piloting the Constitution gave an assurance that if better phraseology was found to be necessary, he would see that the wording was altered. But there was no alteration and therefore, it may be assumed that in the opinion of the framers even after the discussion in the Constituent Assembly, the words that are to be found in the Article would convey the meaning they wished to convey as clearly as possible. Some of the members of the Assembly stressed the fact that the expression "in the course of" occurring in Cl.(b) would furnish "a loophole to businessmen to escape taxation" and that it would lead to loss of income to various States. Some of the members of the Assembly stressed the fact that the expression "in the course of" occurring in Cl.(b) would furnish "a loophole to businessmen to escape taxation" and that it would lead to loss of income to various States. There was an attempt made to substitute the words "at the initial stage of import into India" and "at the ultimate stage of export out of India" but it did not find favour with the majority of the members who attended the session of the Assembly. 6. The following extract from the speech of one of the Hon'ble members who suggested an amendment to this Article may be read with advantage. After reading Cl.(b) of the Article the member said: "Now, this gives a great loophole to the business-men to escape taxation. In all cases of export, there are various transactions before the commodity is actually exported from the country. But under this clause, all these transactions - the intermediate transactions which take place - are exempted from sales-tax. I could have understood the position if it was that at the point of export, that is to say, the last transaction, wherefrom it is actually exported, the sales-tax will not be realisable at that point. But this clause as it stands means that all the transactions that take place in the course of sending the goods outside the territory of India will be exempted from sales-tax. Now, how can you check the nature of these transactions? A buys a commodity saying that he will export it. But he does not export it, but sells it to B, and B purchases it saying that he will export it, and in this manner the commodity passes on from one hand to other and from one province to another without payment of any tax, and it may be that in the end it is not exported at all. How can you check up this process? There will be a lot of difficulty and confusion, if this clause is passed as it stands. How can you check up this process? There will be a lot of difficulty and confusion, if this clause is passed as it stands. So my humble submission is that here, export and import should be clearly defined, and we must say that export means the last transaction and import means the first transaction and only at the point of these two transactions commodities will be exempted from sales tax and at no other point." This suggestion was not accepted by the Assembly which passed the Article as it now stands. It may be mentioned here that at the time of the discussion the number of the Article was 264A. 7. The object of the Legislature in introducing this restriction on the levy of a sales-tax by the different States is evidently to see that trade and commerce of the whole country are not in any way adversely affected by the imposition of a sales tax. In discussing the meaning of the term "exports" there is a cogent observation to be found in the Encyclopaedia Britannica, Vol. VIII, which may well be quoted at this stage. The term "Exports" is explained as "a term used to describe goods sent out of a country by its trader to the individual trader who sells it abroad, an export represents individual profit which he receives by the process of exchange. The individual act of exportation made for personal gain is however, of the greatest national and public importance". The machinery for carrying out exports and imports is then described in the following words: "A very extensively organised machinery and methods employed in export trade have been evolved in the course of centuries to enable a trader in one country to sell to or buy from, a trader in another country. The enabling process has consisted mainly in overcoming difficulties created by space and time in regard to selling, buying, distribution and methods of payment and credit. There are two principles to an export transaction, though neither need have definite knowledge of the other. One in the manufacturer, producer or factor with goods to export; the other is the wholesale distributor in the importing country. There are two principles to an export transaction, though neither need have definite knowledge of the other. One in the manufacturer, producer or factor with goods to export; the other is the wholesale distributor in the importing country. Between them exists the export machine consisting of various intermediaries and services, by means of which buyers can maintain effective touch with all sources of supply, while manufacturers are enabled to supply in many scattered markets the needs of customers whom they could never otherwise reach, whose requirements they could never discover, and whose credentials they could not test. The machine performs this comprehensive task by co-ordinating three distinct lines of effort, the first of which is selling, buying and distribution, the second transport by by rail and steam ship, and the third finance and insurance." 8. Reference may now be made to the lists which refer to articles in respect of which the power of imposing tax can be exercised. It will be seen from entry 54 in List II that the power of imposing taxes on sale or purchase of goods other than newspapers belongs to the State. But according to entry No. 83 in List I, taxes on imports and exports and in statal trade and commerce (entry 42 in list I) are exclusively subjects vested in the Union of India. The object of Art.286 of the Constitution is to ensure that sales taxes which may be imposed by the various States in this country do not interfere with imports and exports and interstatal trade and commerce which are ultimately matters of national concern affecting the whole country and are beyond the purview of the powers vested in individual States. That is the reason why restriction is imposed by Art.286 upon the power of individual States to legislate in respect of sales tax and to levy such tax in particular instances. 9. In view of the provisions of O.27(a) of the Code of Civil Procedure we ordered notice to the Attorney-General of India before arguments were heard in these petitions. The notice was served but the learned Attorney-General had no representation to make in these cases. 10. 9. In view of the provisions of O.27(a) of the Code of Civil Procedure we ordered notice to the Attorney-General of India before arguments were heard in these petitions. The notice was served but the learned Attorney-General had no representation to make in these cases. 10. Having considered the general aspects of the question and the circumstances in which the provisions of Art. 286(1)(b) will apply, we shall now proceed to deal with the facts of a typical case in this batch of original petitions, to consider whether the transactions which were taxed by the imposition of a sales tax were in the course of import or export within the meaning of this article. 11. The facts of the case in O.P. 5/1951 furnish a good illustration. The transactions in this case may be divided into two main classes. Cashewnuts are imported in large quantities from East Africa to this State. There is a decorticating factory in Quilon where the shells are removed and the kernels collected. Out of the shells cashewnut oil is squeezed out by machinery. The kernel is processed and converted into wholesome edible nuts and both the nuts processed in this manner and the oil are exported to foreign countries. The goods arrive by steamer in this State. The purchase is made by assignments of bills of lading while the goods are on the high seas. The merchant in the State pays money into the hands of his bankers who pass on the necessary amount for satisfying the claim on the endorsement of bills of lading. There is a contention raised on behalf of the petitioner that the fact that the money is paid into the branch of a bank in this State does not necessarily mean that the purchase is made inside the State. It is contended that the purchases are effected when the goods are on the high seas. But, as already pointed out, it is not necessary to go into this question since we are satisfied that the transactions took place while the goods were in the course of import. 12. It is contended that the purchases are effected when the goods are on the high seas. But, as already pointed out, it is not necessary to go into this question since we are satisfied that the transactions took place while the goods were in the course of import. 12. The intention of merchants like the petitioner is not to import goods into this country for local consumption but to treat the goods by a special process which seems to be available only in this State or available at a moderate cost in this State and after putting the goods through that process to export the goods to foreign countries. 13. In addition to the nuts imported in this manner from East Africa local purchases of cashewnuts are also made and the nuts treated in the same manner. After the nuts have undergone the special treatment in the factories or mills they are exported. In the case of these nuts which are exported out of the State to foreign countries, we have no doubt whatsoever that the transactions which are made the subject of the levy of sales-tax are exempted from such a levy by the provisions of Art. 286(2) which is the same as S.26 of the Act. The local purchases are all made for the purpose of export. As contended on behalf of the petitioner, the purchase is only an integral part of the process of exporting. 14. The account books relied upon by the taxing authorities indicate the prices realised on importing or exporting such goods. On such prices sales tax cannot be levied. It was urged before the sales tax Officers that the term "in the course of" should be construed as including the succession of activities beginning with the contract of sale and ending with the completion of the export. It was argued that all C. & F., C.I.F. and F.O.B. contracts fall within this category and are exempt from tax since such sales are essentially made with the intention of exporting. The officers however held that since the sales in question had been completed before the export commences the petitioner could not claim exemption under Art.286(1)(b) of the Constitution. In our judgment the sales fall within the purview of Art.286(1)(b) of the Constitution of India and the petitioner is entitled to claim exemption from sales tax. The officers however held that since the sales in question had been completed before the export commences the petitioner could not claim exemption under Art.286(1)(b) of the Constitution. In our judgment the sales fall within the purview of Art.286(1)(b) of the Constitution of India and the petitioner is entitled to claim exemption from sales tax. From the date, the Article came into force, he is entitled to claim this privilege. Therefore the prayer in the petition for the issue of a writ of certiorari is granted in respect of transactions subsequent to the date on which the Article came into force. 15. It is urged in the affidavits that the petitioner has a remedy by way of revision to the Board of Revenue. But even if he has such a remedy, as has been recognised by the Supreme Court of India, the jurisdiction of this Court to issue a writ of certiorari is not excluded or lost. 16. We are, therefore, satisfied that a case has been made out for the issue of a writ of certiorari for quashing the proceedings of the original and appellate tribunals which have sanctioned the levy of the sales tax on sales which are exempted from the levy of such a tax. The petitioner shall get refund of any amounts which have been paid to or collected by the State. The petitioner shall also be entitled to the costs of this original petition and Advocate's fee which we fix at Rs. 250/-. 17. In respect of the other petitions, it is enough to set forth the following statement to show what the goods are that were imported and exported: O.P. No. 4 of 1951 ... Coir O.P. No. 71 of 1951 .... Cashewnuts O.P. No. 19 of 1951 ... Cashewnuts O.P. No. 83 of 1951 .... Do O.P. No. 23 of 1951 ... Lemon Gras O.P. No. 88 of 1951 .... Do Oil O.P. No. 89 of 1951 .... Do O.P. No. 34 of 1951 ... Cashewnuts O.P. No. 90 of 1951 .... Do O.P. No. 34 of 1951 ... Do O.P. No. 24 of 1951 .... Tea There were two other original petitions of a similar nature O.P. Nos. 79 of 1951 and 94 of 1951. Do Oil O.P. No. 89 of 1951 .... Do O.P. No. 34 of 1951 ... Cashewnuts O.P. No. 90 of 1951 .... Do O.P. No. 34 of 1951 ... Do O.P. No. 24 of 1951 .... Tea There were two other original petitions of a similar nature O.P. Nos. 79 of 1951 and 94 of 1951. Since the learned counsel appearing in those cases had taken time for arguing the petitions, we deferred delivering the judgments in these original petitions in the hope that a common judgment may be delivered in all applications which are of a similar nature. It now transpires that the learned counsel appearing in these two cases is unwell and at his request two more weeks have been granted to him. In the circumstances, we do not propose to wait for hearing the arguments in these two petitions also to be over before pronouncing this judgment. Applying the principle which we have recognised, the transactions in these cases which we are now dealing with are exempted from the levy of sales tax and there will, therefore be orders granting the writs prayed for to the petitioners therein with costs and advocate's fee which we fix at Rs. 250/- in each case. We may add that we have not referred in this judgment to the details which were mentioned in the course of argument which are not material in dealing with the question of law which has arisen in these petitions. We have also not mentioned the points that were conceded on behalf of the State by the learned Advocate General. Allowed. Leave to appeal to the Supreme Court is Granted under Art.132(1) of the Constitution as prayed by the learned Advocate General.